Eco 001 Final (pervious questions)
Suppose that the price of a money clip increases from $0.75 to $0.90 and quantity supplied rises from 8,000 units to 10,000 units. Use the midpoint formula to calculate the price elasticity of supply. A) 1.22 B) 1.0 C) 0.82 D) 0.07
A) 1.22
Which of the following is not a characteristic of monopolistic competition? A) Firms are price takers. B) There are many buyers and sellers. C) Barriers to entry are low. D) Firms sell similar, but not identical, products.
A) Firms are price takers.
What is a market failure? A) It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost. B) It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost. C) It refers to a situation where an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event. D) It refers to a breakdown in a market economy because of widespread corruption in government.
A) It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost.
If Ewan is consuming his utility maximizing bundle and the price of one good falls, what happens to the marginal utility per dollar spent on this good (MU/P), and what should Ewan do? A) MU/P has increased and Ewan should buy more of this good. B) MU/P has increased and Ewan should buy less of this good. C) MU/P has decreased and Ewan should buy more of this good. D) MU/P has decreased and Ewan should buy less of this good.
A) MU/P has increased and Ewan should buy more of this good.
Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC) and average total cost (ATC). Which of the following equations is equal to a firm's profit per unit? A) P - ATC B) (P × Q) - TC C) (P - ATC) × Q D) P - AVC
A) P - ATC
Which of the following statements about scarcity is true? A) Scarcity refers to the situation in which unlimited wants exceed limited resources. B) Scarcity is not a problem for the wealthy. C) Scarcity is only a problem when a country has too large a population. D) Scarcity only arises when there is a wide disparity in income distribution.
A) Scarcity refers to the situation in which unlimited wants exceed limited resources.
For a downward-sloping demand curve, marginal revenue decreases as quantity sold increases. A) True B) False
A) True
If at a price of $10, a vendor sells 5 units of a product and at a price of $8, 6 units are sold, then, using the midpoint formula, the demand for this good is inelastic. A) True B) False
A) True
If the number of firms producing electric cars increases and consumer preference for electric cars increases, the equilibrium quantity of electric cars will definitely increase. A) True B) False
A) True
When negative externalities exist, the competitive market supply curve does not include all of the costs borne by members of society. A) True B) False
A) True
Which of the following is the closest example of a perfectly competitive firm? A) a corn farmer in Illinois B) a Taco Bell restaurant C) the Ford Motor Company D) United Parcel Service (UPS)
A) a corn farmer in Illinois
The phrase "demand has decreased" means that A) a demand curve has shifted to the left. B) there has been an upward movement along a demand curve. C) there has been a downward movement along a demand curve. D) a demand curve has shifted to the right.
A) a demand curve has shifted to the left.
Refer to the table above. Assume Tomaso's Trattoria only produces pizzas and calzones. A combination of 24 pizzas and 30 calzones would appear A) along Tomaso's production possibilities frontier. B) inside Tomaso's production possibilities frontier. C) outside Tomaso's production possibilities frontier. D) at the horizontal intercept of Tomaso's production possibilities frontier.
A) along Tomaso's production possibilities frontier.
If a decrease in income leads to an increase in the demand for sardines, then sardines are A) an inferior good. B) a neutral good. C) a necessity. D) a normal good.
A) an inferior good.
Adverse selection will occur in a market as a result of A) asymmetric information. B) moral hazard. C) the sale of "lemons." D) rational ignorance.
A) asymmetric information.
Macroeconomics, as opposed to microeconomics, includes the study of what determines the A) average price levels of goods and services in the economy. B) price charged for laptop computers by Dell. C) wages paid to employees by Dell. D) quantity of Dell employees.
A) average price levels of goods and services in the economy.
A perfectly competitive firm faces a demand curve that is A) horizontal. B) vertical. C) perpendicular to the quantity axis. D) perfectly inelastic.
A) horizontal.
Price elasticity of supply is used to gauge A) how responsive suppliers are to price changes. B) how responsive suppliers are to changes in future prices. C) how responsive suppliers are to a change in demand. D) how responsive sales are to a change in input prices.
A) how responsive suppliers are to price changes.
If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should A) increase its output. B) reduce its output. C) keep output constant and enjoy the above normal profit. D) lower the price.
A) increase its output.
Inflation tends to ________ during the expansion phase of the business cycle and ________ during the recession phase of the business cycle. A) increase; decrease B) decrease; increase C) decrease; decrease further D) increase; increase further
A) increase; decrease
When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent. This indicates that the demand for tortilla chips is A) inelastic. B) elastic. C) unit elastic. D) perfectly inelastic.
A) inelastic.
A dominant strategy A) is one that is the best for a firm, no matter what strategies other firms use. B) is one that a firm is forced into following by government policy. C) involves colluding with rivals to maximize joint profits. D) involves deciding what to do after all rivals have chosen their own strategies.
A) is one that is the best for a firm, no matter what strategies other firms use.
Arbitrage A) is the act of buying an item at a low price and reselling the item at a higher price. B) is the act of selling an item on consignment and collecting a huge portion of the proceeds to compensate for the seller's time. C) is the act of buying an item at a low price, bundling it with another and selling the new package at a much higher price. D) is any act of buying and selling that results in the seller earning an above normal profit.
A) is the act of buying an item at a low price and reselling the item at a higher price.
Refer to the figure above. If the market price is $30 and the firm is producing output, what is the amount of the firm's total profit or loss? A) loss of $1,080 B) profit of $1,440 C) loss of $2,520 D) profit of $1,300
A) loss of $1,080
When aggregate expenditure = GDP A) macroeconomic equilibrium occurs. B) the federal budget is balanced. C) net exports equal zero. D) saving equals zero.
A) macroeconomic equilibrium occurs.
When people who buy insurance change their behavior after the purchase because they are protected from loss by the insurance, the insurance market is said to face the problem of A) moral hazard. B) adverse selection. C) asymmetric information. D) economic irrationality.
A) moral hazard.
Which of the following is a fixed cost? A) payment to hire a security worker to guard the gate to the factory around the clock B) wages to hire assembly line workers C) payments to an electric utility D) costs of raw materials
A) payment to hire a security worker to guard the gate to the factory around the clock
At the profit-maximizing level of output for a perfectly competitive firm A) price equals marginal cost. B) average revenue equals average variable cost and price equals marginal cost. C) marginal revenue equals marginal cost and average total cost equals average fixed cost. D) price equals average revenue and marginal cost equals average variable cost.
A) price equals marginal cost.
The difference between the lowest price a firm would have been willing to accept and the price it actually receives from the sale of a product is called A) producer surplus. B) profit. C) marginal revenue. D) price differential.
A) producer surplus.
The basic economic problem of ________ has always existed and will continue to exist. A) scarcity B) efficiency C) inflation D) recession
A) scarcity
The basic aggregate demand and aggregate supply curve model helps explain A) short-term fluctuations in real GDP and the price level. B) long-term growth. C) price fluctuations in an individual market. D) output fluctuations in an individual market.
A) short-term fluctuations in real GDP and the price level
Scarcity A) stems from the incompatibility between limited resources and unlimited wants. B) can be overcome by discovering new resources. C) can be eliminated by rationing products. D) is a bigger problem in market economies than in socialist economies. E) All of the Above
A) stems from the incompatibility between limited resources and unlimited wants.
The income effect of a wage increase is observed when A) the higher wage income causes workers to take more leisure and work less. B) leisure's higher opportunity cost causes workers to take less leisure and work more. C) the higher wage income causes workers to take less leisure and work more. D) leisure's higher opportunity cost causes workers to take more leisure and work less.
A) the higher wage income causes workers to take more leisure and work less.
Joe Santos owns the only pizza parlor in a small town that is also home to a McDonald's, a Taco Bell, and a Kentucky Fried Chicken. Using the definition of a monopoly, Joe has a monopoly. A)True B) False
A)True
In December 2014, the average price of gasoline in the United States was $2.50 per gallon and consumers bought 7 percent more gasoline than they had during April 2014, when the average price was $3.60 per gallon. Based on these numbers, what was the price elasticity of demand for gasoline from April 2014 to December 2014? A) 0.02 B) 0.19 C) 1.01 D) 2.26
B) 0.19
The Farm Factory, a booth at the local Farmer's Market, sells fresh eggs for $1.50 per dozen and fresh milk for $2.50 per gallon. What is the opportunity cost of buying a dozen eggs? A) 1 2/3 gallons of milk B) 3/5 of a gallon of milk C) $2.50 D) $1.50
B) 3/5 of a gallon of milk
The present value of $300 received 5 years in the future would be calculated as which of the following when the interest rate is 5%? A) 300/(1.5)5 B) 300/(1.05)5 C) 300 × 1.5 × 5 D) 5.05/300
B) 300/(1.05)5
Suppose the value of the price elasticity of demand is -3. What does this mean? A) A 1 percent increase in the price of the good causes quantity demanded to increase by 3 percent. B) A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent. C) A 3 percent increase in the price of the good causes quantity demanded to decrease by 1 percent. D) A $1 increase in price causes quantity demanded to fall by 3 units.
B) A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.
For each surfboard that Australia produces, it gives up the opportunity to make 25 boomerangs. New Zealand can produce 1 surfboard for every 15 boomerangs it produces. Which of the following is true about the comparative advantage between the two countries? A) Australia has the comparative advantage in producing surfboards. B) Australia has the comparative advantage in producing boomerangs. C) New Zealand has the comparative advantage in producing surfboards and boomerangs. D) New Zealand has the comparative advantage in producing boomerangs.
B) Australia has the comparative advantage in producing boomerangs.
Which of the following characteristics is common to monopolistic competition and perfect competition? A) Firms produce identical products. B) Entry barriers into the industry are low. C) Each firm faces a downward-sloping demand curve. D) Firms take market prices as given.
B) Entry barriers into the industry are low.
"An increase in the price of oranges will increase the demand for grapefruits." This statement is an example of a normative economic statement. A)True B) False
B) False
In monopolistic competition, if a firm produces a highly desirable product relative to its competitors, the firm will be able to raise its price without losing any customers. A) True B) False
B) False
What is the difference between a firm's marginal revenue and its marginal revenue product? A) Marginal revenue is the change in sales revenue from selling one more unit of output while marginal revenue product is the profit earned from hiring one more worker. B) Marginal revenue is the change in sales revenue from selling one more unit of output while marginal revenue product is the change in total revenue from hiring one more worker. C) Marginal revenue is the increase in revenue when a firm raises its output price while marginal revenue product is the increase in marginal product when a firm hires an additional worker. D) There is no difference between the two terms.
B) Marginal revenue is the change in sales revenue from selling one more unit of output while marginal revenue product is the change in total revenue from hiring one more worker.
Refer to the figure above. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity. Identify the area that represents the loss. A) P2 deP1 B) P3cbP1 C) P3caP0 D) 0P1 bQ1
B) P3cbP1
Refer to the figure above. To maximize profit, the firm will produce at output level A) Q1. B) Q2. C) Q3. D) Q4.
B) Q2.
Refer to the figure above. The efficient output level is; A) Qm. B) Qn. C) Qo. D) Qo - Qm.
B) Qn.
Which of the following is an example of adverse selection? A) The odds of a fire rise after a building is insured because the person with fire insurance is likely to pay less attention to fire hazards. B) Someone who did not install fire alarms and a sprinkler system in a building he owns buys insurance for the building. C) Someone with automobile insurance drives more recklessly than someone without insurance. D) People prefer to buy new cars rather than used cars.
B) Someone who did not install fire alarms and a sprinkler system in a building he owns buys insurance for the building.
Between 1980 and 2014, income inequality in the United States has increased in part due to rapid technological change. How does technological change contribute to income inequality? A) Advancements in technology displace skilled and unskilled workers in certain fields, leading to higher unemployment rates. B) Technology complements the skills of the well-educated while rendering redundant the labor services of unskilled and low-skilled workers. This causes a decline in the wages of low and unskilled workers relative to other workers. C) The opportunity cost of investing in technology is investments in human capital. The resulting decrease in labor's marginal productivity has led to lower wages. D) Technological change favors the owners of capital and since high-income individuals tend to own capital, income inequality is further exacerbated.
B) Technology complements the skills of the well-educated while rendering redundant the labor services of unskilled and low-skilled workers. This causes a decline in the wages of low and unskilled workers relative to other workers.
Between 1980 and 2014, income inequality in the United States has increased in part due to rapid technological change. How does technological change contribute to income inequality? A) Advancements in technology displace skilled and unskilled workers in certain fields, leading to higher unemployment rates. B) Technology complements the skills of the well-educated while rendering redundant the labor services of unskilled and low-skilled workers. This causes a decline in the wages of low and unskilled workers relative to other workers. C) The opportunity cost of investing in technology is investments in human capital. The resulting decrease in labor's marginal productivity has led to lower wages. D) Technological change favors the owners of capital and since high-income individuals tend to own capital, income inequality is further exacerbated.
B) Technology complements the skills of the well-educated while rendering redundant the labor services of unskilled and low-skilled workers. This causes a decline in the wages of low and unskilled workers relative to other workers.
Refer to the table above. Is there a dominant strategy for Godrickporter and if so, what is it? A) No, its outcome depends on what Star Connections does. B) Yes, Godrickporter should increase its advertising budget. C) Yes, Godrickporter should not change its advertising budget. D) Yes, Godrickporter's dominant strategy is to collude with Star Connections.
B) Yes, Godrickporter should increase its advertising budget.
If, in response to an increase in the price of chocolate the quantity of chocolate demanded decreases, economists would describe this as A) a decrease in demand. B) a decrease in quantity demanded. C) a change in consumer income. D) a decrease in consumers' taste for chocolate.
B) a decrease in quantity demanded.
A patent is an example of A) how ownership of a key input creates a barrier to entry. B) a government-imposed barrier to entry. C) occupational licensing. D) how market failure can lead to oligopoly
B) a government-imposed barrier to entry.
A monopolistically competitive market is described as one in which there are A) a few firms producing an identical product. B) a large number of firms selling similar, but not identical, products. C) a few firms producing differentiated products. D) one large firm and many small firms producing identical products.
B) a large number of firms selling similar, but not identical, products.
If inventories decline by more than analysts predict they will decline, this implies that A) actual investment spending was greater than planned investment spending. B) actual investment spending was less than planned investment spending. C) actual investment spending was equal to than planned investment spending. D) there is no relationship between actual investment spending and planned investment spending.
B) actual investment spending was less than planned investment spending.
Which of the following is an example of a way in which an oligopolistic firm can escape the prisoner's dilemma? A) producing more of its product B) advertising that it will match its rival's price C) reneging on a previous tacit agreement with rival firms to charge identical high prices D) ignoring the pricing decisions of the other firms
B) advertising that it will match its rival's price
A member of a cartel like OPEC has an incentive to A) argue for larger production quotas for each member of the cartel. B) agree to a low cartel production level and then produce more than its quota. C) abide by its individual production quota. D) support equal production quotas for each member.
B) agree to a low cartel production level and then produce more than its quota
An increase in a firm's demand for labor could be caused by A) a decrease in the market wage rate. B) an increase in the amount of human capital among the labor force. C) an increase in the supply of labor. D) a decrease in the market price of the product the firm produces.
B) an increase in the amount of human capital among the labor force.
Economists assume that individuals A) behave in unpredictable ways. B) are rational and respond to incentives. C) are very self-interested and never take actions to help others. D) prefer to live in a society that values fairness above all else. E) None of the above.
B) are rational and respond to incentives.
Economists estimated that the cross-price elasticity of demand for beer and wine is -0.83 and the income elasticity of wine is 5.03. This means that A) beer and wine are substitutes and wine is an inferior good. B) beer and wine are complements and wine is a luxury good. C) beer and wine are substitutes and wine is a luxury good. D) beer and wine are complements and wine is an inferior good.
B) beer and wine are complements and wine is a luxury good.
The principal-agent problem is a problem A) caused by a person (principal) who hires an agent to act on his behalf but is unwilling to delegate authority to the agent to carry out the task in the best possible way. B) caused by agents pursuing their own interests rather than the interests of the principals who hired them. C) of the power system of boss and subordinate where the boss (principal) exerts influence over his subordinates (agents) using punishment or threat. D) that exists when a person (principal) has more information about the task than the agent he hires to perform the task.
B) caused by agents pursuing their own interests rather than the interests of the principals who hired them.
If production displays economies of scale, the long-run average cost curve is A) above the short-run average total cost curve. B) downward sloping. C) upward sloping. D) below the long-run marginal cost curve.
B) downward sloping.
A market comprised of only two firms is called a A) competitive market. B) duopoly. C) monopoly. D) monopolistically competitive market.
B) duopoly.
Firms use information on labor's marginal revenue product to determine A) how much to produce at each output price. B) how many workers to hire at each wage rate. C) how much marginal product to produce at each wage rate. D) how much labor services to supply at each wage rate.
B) how many workers to hire at each wage rate.
Because of the positive externality of vaccinations, economic efficiency would be improved A) if fewer people were vaccinated. B) if more people were vaccinated. C) only if all people were vaccinated. D) only if no people were vaccinated.
B) if more people were vaccinated.
If the Apple Watch and the Samsung Gear S2 are considered substitutes, then, other things equal, an increase in the price of the Apple Watch will; A) decrease the demand for the Apple Watch. B) increase the demand for the Gear S2. C) increase the quantity demanded for the Gear S2. D) increase the quantity demanded for the Apple Watch.
B) increase the demand for the Gear S2.
In a production possibilities frontier model, a point ________ the frontier is productively inefficient. A) along B) inside C) outside D) at either intercept of
B) inside
The substitution effect of a wage increase is observed when A) the higher wage income causes workers to take more leisure and work less. B) leisure's higher opportunity cost causes workers to take less leisure and work more. C) the higher wage income causes workers to take more leisure and work more. D) leisure's higher opportunity cost causes workers to take more leisure and work less.
B) leisure's higher opportunity cost causes workers to take less leisure and work more.
The production possibilities frontier shows the ________ combinations of two products that can be produced in a particular time period with available resources. A) minimum attainable B) maximum attainable C) only D) equitable
B) maximum attainable
In order to be binding, a price ceiling A) must lie above the free market equilibrium price. B) must lie below the free market equilibrium price. C) must coincide with the free market equilibrium price. D) must be high enough for firms to earn a profit.
B) must lie below the free market equilibrium price.
Which of the following is an example of a positive externality? A) raising the speed limit to 60 mph in school zones B) planting trees along a sidewalk which add beauty and create shade C) permitting smoking on commercial airplanes D) a police department stops enforcing DUI laws
B) planting trees along a sidewalk which add beauty and create shade
A change in which variable will change the market demand for a product? A) the price of the product B) population C) technology D) the prices of substitutes in production E) None of the Above
B) population
Economic models do all of the following except A) answer economic questions. B) portray reality in all its minute details. C) make economic ideas explicit and concrete for use by decision makers. D) simplify some aspect of economic life. E) None of the Above
B) portray reality in all its minute details.
A perfectly competitive apple farm produces 1,000 bushels of apples at a total cost of $36,000. The price of each bushel is $50. Calculate the firm's short-run profit or loss. A) loss of $14,000 B) profit of $14,000 C) profit of $50,000 D) There is insufficient information to answer the question
B) profit of $14,000
Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs is called A) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) seasonal unemployment. E) unnatural unemployment.
B) structural unemployment.
Utility is A) easily measured in units called utils. B) subjective and difficult to measure. C) the consumption of a quasi-public good like electricity or natural gas. D) the production of a quasi-public good like electricity or natural gas.
B) subjective and difficult to measure.
When the price of audio books, a normal good, falls, causing your purchasing power to rise, you buy more of them due to A) the substitution effect. B) the income effect. C) the deadweight loss effect. D) the elasticity effect.
B) the income effect.
A minimum wage law dictates A) the minimum quantity of labor that a firm must employ. B) the lowest wage that firms may pay for labor. C) the highest wage that firms must pay for labor. D) the minimum qualifications for labor.
B) the lowest wage that firms may pay for labor.
For a perfectly competitive firm, average revenue is equal to A) marginal cost. B) the market price. C) total revenue. D) average fixed cost
B) the market price.
Implicit costs can be defined as A) accounting profit minus explicit cost. B) the non-monetary opportunity cost of using the firm's own resources. C) the deferred cost of production. D) total cost minus fixed costs.
B) the non-monetary opportunity cost of using the firm's own resources.
If the demand for a steak is unit price elastic, then A) the percentage change in quantity demanded is 1 percent greater than the percentage change in price. B) the percentage change in quantity demanded is equal to the percentage change in price. C) the percentage change in quantity demanded is 100 percent greater than the percentage change in price (in absolute value). D) quantity demanded does not respond to changes in price.
B) the percentage change in quantity demanded is equal to the percentage change in price.
What is the poverty rate? A) the rate at which the number of people relative to the size of the population fall below the poverty line B) the percentage of the population earning an annual income below the poverty line, according to the federal government's definition C) the percentage of working adults whose annual income is sufficiently low as to be are exempt from paying income taxes D) the percentage of households who qualify for government assistance to meet the minimal requirement for adequate nutrition
B) the percentage of the population earning an annual income below the poverty line, according to the federal government's definition
Which of the following is the best example of an oligopolistic industry? A) the beef market B) the pharmaceutical industry C) public education D) the beauty products industry
B) the pharmaceutical industry
Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities? A) the private cost of production B) the social cost of production C) the external cost of production D) the explicit cost of production
B) the social cost of production
In 2004, hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit in 2004 A) the supply curve shifted to the right resulting in an increase in the equilibrium price. B) the supply curve shifted to the left resulting in an increase in the equilibrium price. C) the demand curve shifted to the right resulting in an increase in the equilibrium price. D) the demand curve shifted to the left resulting in a decrease in the equilibrium price.
B) the supply curve shifted to the left resulting in an increase in the equilibrium price.
If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm, your legal fees would be considered A) external costs. B) transactions costs. C) marginal benefits. D) social costs of the pollution.
B) transactions costs.
Economists assume that rational people do all of the following except A) use all available information as they act to achieve their goals. B) undertake activities that benefit others and hurt themselves. C) weigh the benefits and costs of all possible alternative actions. D) respond to economic incentives.
B) undertake activities that benefit others and hurt themselves.
When the economy enters into a recession, your employer is ________ to reduce your wages because ________. A) unlikely; output and input prices generally fall during recession B) unlikely; lower wages reduce productivity and morale C) likely; output prices always fall during recession D) likely; aggregate demand is vertical in the long run
B) unlikely; lower wages reduce productivity and morale
Consumption spending is $5 million, planned investment spending is $8 million, unplanned investment spending is $2 million, government purchases are $10 million, and net export spending is $2 million. What is aggregate expenditure? A) $15 million B) $23 million C) $25 million D) $27 million
C) $25 million
Refer to Figure Above. Calculate the area of the triangle A. A) $8.4 million B) $6.3 million C) $3.15 million D) $2.1 million
C) $3.15 million
If a monopolist's price is $50 at 63 units of output and marginal revenue equals marginal cost, and average total cost equals $43, then the firm's total profit is; A) $3,150. B) $2,709. C) $441. D) $7.
C) $441.
Refer to the figure on the previous page. What is the opportunity cost of one pound of vegetables? A) 1.3 pounds of meat B) 1.2 pounds of meat C) 0.75 pounds of meat D) 12 pounds of meat
C) 0.75 pounds of meat
11. Refer to figure above. If the market price is $30, the firm's profit-maximizing output level is A) 0. B) 130. C) 180 D) 240.
C) 180
Assume the market price for lemon grass is $4.00 per pound, but most buyers are willing to pay more than the market price. At the market price of $4.00, the quantity of lemon grass demanded is 1,500 pounds per month, and quantity demanded does not reach zero until the price reaches $30.00 per pound. What is the total consumer surplus in the market for lemon grass. A) 20,000 B) 23,250 C) 19,500 D) 19,250
C) 19,500
If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is A) 25 utility units. B) 20 utility units. C) 5 utility units. D) unknown as more information is needed to determine the answer.
C) 5 utility units.
What area represents producer surplus at a price of P2? A) A + B B) B + D C) A + B + C D) A + B + C + D + E
C) A + B + C
In long-run perfectly competitive equilibrium, which of the following is false? A) There is efficient, low-cost production at the minimum efficient scale. B) Economic surplus is maximized. C) Firms earn economic profit. D) Economies of scale are exhausted.
C) Firms earn economic profit.
The economy has gone into a recession. You have majored in computer science and, because of the recession, have difficulty in finding a job. Should you go back to school and get a second major? A) Yes, the recession will ensure that you will never find a job as a programmer. B) Yes, the recession will lower income in my field permanently. C) No, the recession will most likely be short-lived and I can get a job after it is over. D) No, the recession will have no impact on my ability to get a job or my future income.
C) No, the recession will most likely be short-lived and I can get a job after it is over.
Let MP = marginal product, P = output price, and W = wage, then the equation that represents the condition where a competitive firm would hire another worker is A) P × MP = W. B) P × MP < W. C) P × MP > W. D) P × W > MP.
C) P × MP > W.
Refer to the figure above. If the firm represented in the diagram is currently producing and selling Qa units, what is the price charged? A) P0 B) P1 C) P2 D) P3
C) P2
Refer to the same figure above. The firm's profit-maximizing price is A) P1. B) P2. C) P3. D) P4.
C) P3.
Which of the following headlines would be more closely related to what macroeconomists study than what microeconomists study? A) Avocado prices rise due to a late frost in California. B) The United Auto Workers sign a contract raising wages and benefits 7% over the next 3 years. C) Real GDP grows by 2.3% in the second quarter. D) Airlines raise ticket prices in response to rising fuel costs.
C) Real GDP grows by 2.3% in the second quarter.
According to ________, in a market with an externality, private parties would voluntarily negotiate an efficient outcome without government intervention. A) A. C. Pigou B) Adam Smith C) Ronald Coase D) John Maynard Keynes
C) Ronald Coase
Which of the following is a transfer payment? A) a food voucher B) a tax deduction C) Social Security payments D) an income tax credit
C) Social Security payments
Assume the market for cage-free eggs is perfectly competitive. All else equal, as more farmers choose to produce and sell cage-free eggs, what is likely to happen to the equilibrium price of the eggs and profits of these farmers in the long run? A) The equilibrium price is likely to increase and profits are likely to remain unchanged. B) The equilibrium price is likely to remain unchanged and profits are likely to increase. C) The equilibrium price is likely to decrease and profits are likely to decrease. D) The equilibrium price is likely to increase and profits are likely to increase.
C) The equilibrium price is likely to decrease and profits are likely to decrease.
Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21. Which of the following will happen? A) The firm's profits will increase. B) The firm's revenue will increase. C) The firm will not sell any output. D) The firm will sell more output than its competitors.
C) The firm will not sell any output.
What does limited liability mean? A) The owners of the business are personally responsible for paying expenses incurred by the business. B) Only employees can have a claim on the assets of the business. C) The personal assets of the owners cannot be claimed if the business is bankrupt. D) Anybody with a liability against a firm can claim only what their liability refers to.
C) The personal assets of the owners cannot be claimed if the business is bankrupt.
An externality is A) a benefit realized by the purchaser of a good or service. B) a cost paid for by the producer of a good or service. C) a benefit or cost experienced by someone who is not a producer or consumer of a good or service. D) anything that is external or not relevant to the production of a good or service.
C) a benefit or cost experienced by someone who is not a producer or consumer of a good or service.
What is a prisoner's dilemma? A) a game that involves no dominant strategies B) a game in which prisoners are stumped because they cannot communicate with each other C) a game in which players act in rational, self-interested ways that leave everyone worse off D) a game in which players collude to outfox authorities
C) a game in which players act in rational, self-interested ways that leave everyone worse off
Rent control is an example of A) a subsidy for low-skilled workers. B) a price floor. C) a price ceiling. D) a black market.
C) a price ceiling.
Economists refer to the conflict between the interests of shareholders and the interests of top management as A) a stock-equity problem. B) a liability problem. C) a principal-agent problem. D) a financial intermediary problem.
C) a principal-agent problem.
Which of the following tax systems would help reduce income inequality the most? A) a regressive tax system B) a proportional tax system C) a progressive tax system D) a consumption tax system
C) a progressive tax system
All of the following are components of aggregate expenditure except A) consumption spending. B) net export spending. C) actual investment spending. D) government spending.
C) actual investment spending.
Marginal benefit is equal to the ________ benefit a consumer receives from consuming one more unit of a good or service. A) total B) unintended C) additional D) surplus
C) additional
As a result of slow economic growth following the recession of 2007-2009, companies including Intel and Worthington Industries cut production and employment in 2015 as a result of the sluggish growth in the total amount of spending in the economy. The total amount of spending in the economy is known as A) deficit spending. B) planned investment spending. C) aggregate expenditure. D) equilibrium spending.
C) aggregate expenditure.
Most of the unemployment that occurred during the Great Depression was A) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) core unemployment.
C) cyclical unemployment.
If, when a firm doubles all its inputs, its average cost of production increases, then production displays A) diminishing returns. B) economies of scale. C) diseconomies of scale. D) declining fixed costs.
C) diseconomies of scale.
The labor force equals the number of people A) employed. B) unemployed. C) employed plus unemployed. D) in the working-age population.
C) employed plus unemployed.
The average total cost of production A) is the extra cost required to produce one more unit. B) equals the explicit cost of production. C) equals total cost of production divided by the level of output. D) equals total cost of production multiplied by the level of output.
C) equals total cost of production divided by the level of output.
Marginal utility is the A) total satisfaction received from consuming a given number of units of a product. B) average satisfaction received from consuming a product. C) extra satisfaction received from consuming one more unit of a product. D) satisfaction achieved when a consumer has had enough of a product.
C) extra satisfaction received from consuming one more unit of a product.
Economists use game theory to analyze oligopolies because A) real markets are too complicated to analyze without using games. B) it is more enjoyable for economists and students to learn by playing games. C) game theory helps us to understand why interactions among firms are crucial in determining profitable business strategies. D) game theory is useful in understanding the actions of firms that are price takers.
C) game theory helps us to understand why interactions among firms are crucial in determining profitable business strategies.
Both individual buyers and sellers in perfect competition A) can influence the market price by their own individual actions. B) can influence the market price by joining with a few of their competitors. C) have to take the market price as a given. D) have the market price dictated to them by government.
C) have to take the market price as a given.
The difference between the ________ for a good and the ________ is called consumer surplus. A) highest price a consumer is willing to pay; lowest price a consumer is willing to pay B) lowest price a consumer is willing to pay; price the consumer actually pays C) highest price a consumer is willing to pay; price the consumer actually pays D) price the consumer actually pays; actual cost to the producer
C) highest price a consumer is willing to pay; price the consumer actually pays
The combined effect (both income and substitution) of a wage increase is that A) the substitution effect always dominates, leading to more work at a higher wage. B) the income effect always dominates, leading to less work at a higher wage. C) if the substitution effect outweighs the income effect, the labor supply curve slopes upward, but if the income effect outweighs the substitution effect, the labor supply curve is backward bending. D) if the substitution effect outweighs the income effect, the labor supply curve is backward bending, but if the income effect outweighs the substitution effect, the labor supply curve slopes upward.
C) if the substitution effect outweighs the income effect, the labor supply curve slopes upward, but if the income effect outweighs the substitution effect, the labor supply curve is backward bending.
A perfectly competitive firm has to charge the same price as every other firm in the market. Therefore, the firm A) faces a perfectly inelastic demand curve. B) is not able to make a profit in the short run. C) is a price taker. D) faces a perfectly elastic supply curve.
C) is a price taker.
If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm A) is earning a profit. B) should shut down. C) is incurring a loss. D) is breaking even.
C) is incurring a loss.
Price discrimination A) is the practice of charging different prices to different customers based on a seller's personal preferences and prejudices. B) is the practice of charging different prices to different customers based on the different costs of supplying the product to different customers. C) is the practice of charging different prices to different customers when the price differences cannot be attributed to variations in cost. D) is the practice of giving preferential treatment to certain groups of customers based on their long-standing relationship to the producer.
C) is the practice of charging different prices to different customers when the price differences cannot be attributed to variations in cost.
For a perfectly competitive firm, at profit maximization A) market price exceeds marginal cost. B) total revenue is maximized. C) marginal revenue equals marginal cost. D) production must occur where average cost is minimized.
C) marginal revenue equals marginal cost.
A monopolistically competitive firm faces a downward-sloping demand curve because A) it is able to control price and quantity demanded. B) there are few substitutes for its product. C) of product differentiation. D) its market decisions are affected by the decisions of its rivals.
C) of product differentiation.
The music streaming industry, where a firm's profitability depends on its interactions with other firms, is an example of A) perfect competition. B) monopolistic competition. C) oligopoly. D) monopoly.
C) oligopoly.
If you pay $2,000 in taxes on an income of $20,000, and a tax of $3,500 on an income of $30,000, then over this range of income the tax is A) regressive. B) proportional. C) progressive. D) There is insufficient information to answer the question.
C) progressive.
If, as your taxable income decreases, you pay a smaller percentage of your taxable income in taxes, then the tax is A) regressive. B) proportional. C) progressive. D) unfair.
C) progressive.
A Nash equilibrium is A) reached when an oligopoly's market demand and supply intersect. B) reached when each player chooses the best strategy for himself and for the group. C) reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group. D) an equilibrium comprising non-dominant strategies only.
C) reached when each player chooses the best strategy for himself, given the other strategies chosen by the other players in the group.
If we use a narrow definition of monopoly, then a monopoly is defined as a firm A) that has been granted special production rights by the government. B) that can ignore the actions of all other firms because it produces a superior product compared to its rivals' products. C) that can ignore the actions of all other firms because it produces a product for which there are no close substitutes. D) that has the largest market share in an industry.
C) that can ignore the actions of all other firms because it produces a product for which there are no close substitutes.
The law of one price states A) federal and state statutes that prohibit price discrimination. B) that all customers should pay the same price. C) that identical products should sell for the same price everywhere. D) government regulation of prices for all firms.
C) that identical products should sell for the same price everywhere.
Assume that a monopolist practices perfect price discrimination. The firm will produce an output rate A) that is less than the efficient level of output. B) that is greater than the efficient level of output. C) that is equal to the efficient level of output. D) that converts consumers surplus into a deadweight loss.
C) that is equal to the efficient level of output.
By definition, economics is the study of; A) how to make money in the stock market. B) how to make money in a market economy. C) the choices people make to attain their goals, given their scarce resources. D) supply and demand.
C) the choices people make to attain their goals, given their scarce resources.
An individual seller in perfect competition will not sell at a price lower than the market price because A) demand for the product will exceed supply. B) the seller would start a price war. C) the seller can sell any quantity she wants at the prevailing market price. D) demand is perfectly inelastic.
C) the seller can sell any quantity she wants at the prevailing market price.
Refer to Figure above. The linear production possibilities frontier in the figure indicates that A) Mendonca has a comparative advantage in the production of vegetables. B) Mendonca has a comparative disadvantage in the production of meat. C) the tradeoff between meat and vegetables is constant. D) it is progressively more expensive to produce meat.
C) the tradeoff between meat and vegetables is constant.
What is the profit-maximizing rule for a monopolistically competitive firm? A) to produce a quantity that maximizes market share B) to produce a quantity that maximizes total revenue C) to produce a quantity such that marginal revenue equals marginal cost D) to produce a quantity such that price equals marginal cost
C) to produce a quantity such that marginal revenue equals marginal cost
A monopolist's profit-maximizing price and output correspond to the point on a graph A) where average total cost is minimized. B) where total costs are the smallest relative to price. C) where marginal revenue equals marginal cost and charging the price on the market demand curve for that output. D) where price is as high as possible.
C) where marginal revenue equals marginal cost and charging the price on the market demand curve for that output.
Refer to the table above. Consider the data above (in billions of dollars) for an economy: Gross domestic product (in billions of dollars) for this economy equals A) $2,200. B) $1,600. C) $1,400. D) $1,200.
D) $1,200.
If the number of unemployed workers is 200 million, the number of employed workers is 300 million, and the working-age population is 800 million, what is the labor force participation rate? A) 12.5% B) 37.5% C) 40% D) 62.5%
D) 62.5%
If the price of milk was $1.25 a gallon and it is now $2.25 a gallon, what is the percentage change in price? A) 4.4 percent B) 8 percent C) 44 percent D) 80 percent
D) 80 percent
Which of the following is one explanation as to why the aggregate demand curve slopes downward? A) Decreases in the price level raise the interest rate and increase consumption spending. B) Decreases in the price level raise the interest rate and increase investment spending. C) Decreases in the U.S. price level relative to the price level in other countries lower net exports. D) Decreases in the price level raise real wealth and increase consumption spending.
D) Decreases in the price level raise real wealth and increase consumption spending.
Which of the following is not a characteristic of a perfectly competitive market structure? A) There are a very large number of firms that are small compared to the market. B) All firms sell identical products. C) There are no restrictions to entry by new firms. D) There are restrictions on exit of firms.
D) There are restrictions on exit of firms.
If the U.S. dollar decreases in value relative to other currencies, how does this affect the aggregate demand curve? A) This will move the economy up along a stationary aggregate demand curve. B) This will move the economy down along a stationary aggregate demand curve. C) This will shift the aggregate demand curve to the left. D) This will shift the aggregate demand curve to the right.
D) This will shift the aggregate demand curve to the right.
Which of the following best describes the "wealth effect"? A) When the price level falls, the real value of household wealth falls. B) When the price level falls, the nominal value of household wealth falls. C) When the price level falls, the nominal value of household wealth rises. D) When the price level falls, the real value of household wealth rises.
D) When the price level falls, the real value of household wealth rises.
On the long-run aggregate supply curve A) a decrease in the price level decreases the level of potential GDP. B) a decrease in the price level increases the aggregate quantity of GDP supplied. C) a decrease in the price level decreases the aggregate quantity of GDP supplied. D) a decrease in the price level has no effect on the aggregate quantity of GDP supplied.
D) a decrease in the price level has no effect on the aggregate quantity of GDP supplied.
A key difficulty facing insurance companies is that people know more about their health than do insurance companies, and that those people who are seriously ill are the most likely to want to obtain health insurance. What is this phenomenon called? A) moral hazard B) economic irrationality C) asymmetric information D) adverse selection
D) adverse selection
During the expansion phase of the business cycle, which of the following eventually increases? A) production B) employment C) income D) all of the above
D) all of the above
Price discrimination is possible in which of the following market structures? a. perfect competition b. monopoly c. oligopoly d. monopolistic competition A) a, b, c, and d B) c and d only C) b and c only D) b, c, and d only
D) b, c, and d only
The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called A) producer surplus. B) the substitution effect. C) the income effect. D) consumer surplus.
D) consumer surplus.
Which of the following activities create a negative externality? A) cleaning up the sidewalk on your block B) graduating from college C) repainting the house you live in to improve its appearance D) keeping a junked car parked on your front lawn
D) keeping a junked car parked on your front lawn
If the production possibilities frontier is ________, then opportunity costs are constant as more of one good is produced. A) bowed out B) bowed in C) non-linear D) linear
D) linear
An economic ________ is a simplified version of some aspect of economic life used to analyze an economic issue. A) market B) trade-off C) variable D) model
D) model
In 2014, which component of GDP is mostly to have had a negative value? A) consumption B) investment C) government spending D) net exports
D) net exports
The key idea of the aggregate expenditure model is that in any particular year, the level of GDP is determined mainly by A) investment spending. B) export spending. C) government spending. D) the level of aggregate expenditure.
D) the level of aggregate expenditure.
The attainable production points on a production possibilities curve are A) the horizontal and vertical intercepts. B) the points along the production possibilities frontier. C) the points outside the area enclosed by the production possibilities frontier. D) the points along and inside the production possibility frontier.
D) the points along and inside the production possibility frontier.
