ECON 2010

At various points along the production possibilities frontier, a. the maximum output from available resources is obtained. b. resources are not fully employed. c. more of one good can be obtained without giving up more of the other. d. more efficient output levels are possible. e. society is equally well off.

At various points along the production possibilities frontier, a. the maximum output from available resources is obtained. b. resources are not fully employed. c. more of one good can be obtained without giving up more of the other. d. more efficient output levels are possible. e. society is equally well off.

Assume the market for bubble gum (a normal good) is competitive and current conditions yield an equilibrium at a price of 25 cents and a quantity of 100,000 units. Which of the following events would imply a new equilibrium price of 50 cents and a new equilibrium quantity of 125,000? a. An increase in the price of other kinds of gum and candy. b. An increase in the price of the ingredients used to make bubble gum. c. An agreement by workers in the bubble gum industry to work for lower wages. d. A decrease in the number of young people in the population. e. A decrease in income.

a. An increase in the price of other kinds of gum and candy.

The more ____________ a good has, the more ________________ its demand. a. substitutes; elastic b. substitutes; inelastic c. complements; upward sloping d. substitutes; upward sloping e. None of the above makes economic sense.

a. substitutes; elastic

Price in a competitive market is $6. At a firm's current output, its marginal cost is $4 and the marginal cost curve has the normal shape. What would you advise the firm do? a. Raise its price. b. Increase its output. c. Decrease its output. d. Lower its price. e. Move the shut-down point.

b. Increase its output.

Which of the following is true of marginal revenue for a monopolist that charges a single price? a. P = MR, because there are no close substitutes for the monopolist's product. b. P > MR, because the monopolist must decrease price on all units sold in order to sell an additional unit. c. P < MR, because the monopolist must decrease price on all units sold in order to sell an additional unit. d. AR = MR, because there are no close substitutes for the monopolist's product. e. P = MR only at the profit-maximizing quantity.

b. P > MR, because the monopolist must decrease price on all units sold in order to sell an additional unit.

The government raises the tax on cigarettes from $1 to $2 per pack. Which of the following is true? a. Total revenue earned by cigarette companies will increase. b. The tax burden faced by cigarette companies will be relatively higher the more elastic is the demand for cigarettes. c. Cigarette companies will continue to bear the entire tax burden rather than consumers because the tax is on the companies. d. Tax revenue collected by the government will increase. e. Producer surplus increases.

b. The tax burden faced by cigarette companies will be relatively higher the more elastic is the demand for cigarettes.

A tannery discovers a technology that makes it cheaper to reduce the air pollution it generates in making paper. On a graph of the optimum level of pollution abatement, the use of the new technology would be represented as a. a leftward shift in the marginal social cost curve. b. a rightward shift in the marginal social cost curve. c. movement to the right along the marginal social cost curve. d. movement to the left along the marginal social cost curve. e. a downward shift in the marginal net benefit curve.

b. a rightward shift in the marginal social cost curve.

If the price of air conditioners falls, in the short-run there will be a. an increase in the demand for air conditioners. b. an increase in the quantity of air conditioners demanded. c. an increase in the quantity of air conditioners supplied. d. a decrease in the supply of air conditioners. e. None of the above will happen.

b. an increase in the quantity of air conditioners demanded.

Suppose a single firm supplies all the ceramic windlasses in the U.S. The demand curve that firm faces is a. elastic everywhere. b. inelastic everywhere. c. perfectly inelastic everywhere. d. elastic at the profit-maximizing quantity. e. none of the above.

b. inelastic everywhere.

Which of the following is true, according to the law of diminishing marginal utility? a. The marginal utility of Diane's second Coke is greater than the marginal utility of her third pretzel, other things constant. b. The marginal utility of Diane's second Coke is greater than the marginal utility of Ken's third pretzel, other things constant. c. The marginal utility of Diane's second Coke is greater than the marginal utility of her third Coke, other things constant. d. The total utility of two Cokes is greater than the total utility of three Cokes, other things constant. e. The marginal utility of Diane's second Coke is greater than the marginal utility of Ken's third Coke, other things constant.

c. The marginal utility of Diane's second Coke is greater than the marginal utility of

If the value of the price elasticity of demand is 0.2, this means that a. a 20% decrease in price causes a 1% increase in quantity demanded. b. a 0.2% decrease in price causes a 1% increase in quantity demanded. c. a 5% decrease in price causes a 1% increase in quantity demanded. d. a 0.2% decrease in price causes a 0.2% increase in quantity demanded. e. a 100% decrease in price causes a 200% increase in quantity demanded.

c. a 5% decrease in price causes a 1% increase in quantity demanded.

MaryAnn and Don provide catering services in a perfectly competitive market. When they started in business, the going rate was $50 per person per meal. After the price increased to $60, they became willing to supply more meals. Their response to the price change is shown by a. a rightward shift of the market supply curve. b. a leftward shift of the market supply curve. c. movement up their firm's marginal cost curve. d. movement down their firm's marginal cost curve. e. a rightward shift in their demand for jobs.

c. movement up their firm's marginal cost curve.

In Connecticut in the fall, the apple market is perfectly competitive. Suppose that this fall (the short-run) consumer tastes change so that people like apples more than they used to. The market demand for apples will increase, and the demand curves faced by individual firms will a. not change. b. become less elastic. c. shift upward. d. shift leftward. e. shift downward.

c. shift upward.

Suppose that the demand for Meredith's new book, Spatulas from Around the World, is such that the demand curve lies everywhere below the average variable cost of producing it. To maximize profits or minimize losses, Meredith should a. raise price. b. lower price to increase demand. c. shut down the presses printing her book. d. lower price until demand is inelastic. e. charge the highest price she can.

c. shut down the presses printing her book.

Suppose Ferd truthfully tells the car dealer the maximum amount he's willing to pay for a Ford Escort: $12,000. The dealer says, "You're in luck; we have one on the lot for $12,000." Which of the following statements is true? a. Ferd will not buy the car. b. The car is not worth $12,000. c. Ferd gets $12,000 in consumer surplus. d. Ferd gets no consumer surplus. e. The dealer earns $12,000 in consumer surplus.

d. Ferd gets no consumer surplus.

Ron Martin advertises stereos on late-night television with the following line: "We don't have to worry about high overhead because our volume is so great." Ron Martin can make this statement because of his declining a. marginal cost. b. total cost. c. fixed cost. d. average fixed cost. e. average variable cost.

d. average fixed cost.

If fixed cost at Q = 100 is $130, then a. fixed cost at Q = 0 is $0. b. fixed cost at Q = 0 is less than $130. c. fixed cost at Q = 200 is $260. d. fixed cost at Q = 200 is $130. e. it is impossible to calculate fixed costs at any other quantity.

d. fixed cost at Q = 200 is $130.

Perfectly elastic demand curves are a. downward sloping. b. upward sloping. c. vertical. d. horizontal. e. unit elastic.

d. horizontal.

Suppose, at its present rate of output, Barrel O'Biscuits, a perfectly competitive firm, finds that its marginal cost exceeds its marginal revenue and price exceeds average variable cost. To maximize profits, the firm should a. lower price. b. raise price. c. increase output. d. reduce output. e. maintain its current rate of output.

d. reduce output.

The more broadly a good is defined, a. the more substitutes it has, so the more elastic is its demand. b. the fewer substitutes it has, so the more elastic is its demand. c. the more substitutes it has, so the less elastic is its demand. d. the fewer substitutes it has, so the less elastic is its demand. e. the more complements it has, so the more elastic is its demand.

d. the fewer substitutes it has, so the less elastic is its demand.

A test is scheduled for Monday morning, but you went to a party on Saturday night. If you hadn't attended the party, you could have studied for the test or gone to a movie. Which of the following sentences is true? a. The opportunity cost of going to the movie is studying for the test. b. The opportunity cost of going to the party is the movie. c. The opportunity cost of going to the party is both the movie and the study time. d. Because you could go to the party only that night but could go to a movie any time, the opportunity cost of the party is the study time. e. From the above information it's not possible to determine the opportunity cost of attending the party.

e. From the above information it's not possible to determine the opportunity cost of attending the party.

If the sellers in the cigarette industry formed a cartel and decided to set price along a straight-line downward-sloping demand curve, which point would they choose if they wanted to gain the highest total revenue? a. The point nearest the vertical axis, where the price is highest b. The point nearest the horizontal axis, where quantity demanded is greatest c. One of the points higher up on the demand curve, where demand is elastic d. One of the points lower down on the demand curve, where demand is inelastic e. In the area of unitary elasticity

e. In the area of unitary elasticity

Supply curves generally slope upward because of all the following except one. Which one? a. Producers are willing to offer more of a good at higher prices. b. A higher price attracts resources from less-valued uses. c. Producers must be compensated for the rising opportunity cost of additional output. d. Producers must be compensated for the rising marginal cost of additional output. e. The price of a good usually must fall to induce an increase in quantity supplied.

e. The price of a good usually must fall to induce an increase in quantity supplied.

In a perfectly competitive market, the market demand curve has ______ slope, the demand curve faced by an individual firm has ______ slope, and the long run economic profit is ________. a. negative; negative; zero b. negative; negative; positive c. positive; negative; zero d. positive; negative; positive e. negative; zero; zero

e. negative; zero; zero

Suppose Farmer Jones sells his crops in a perfectly competitive market. If he produces 500 bushels for total revenue of $3,000 and harvesting the 501st bushel would raise his total cost from $2,500 to $2,510, his a. revenues will increase by $4 if he harvests the 501st bushel. b. revenues will fall by $4 if he harvests the 501st bushel. c. average fixed costs will rise if he harvests the 501st bushel. d. profit will fall by $10 if he harvests the 501st bushel. e. profit will fall by $4 if he harvests the 501st bushel.

e. profit will fall by $4 if he harvests the 501st bushel.

The production possibilities frontier can be used to show all of the following except a. scarcity. b. opportunity cost. c. the law of increasing opportunity cost. d. efficiency. e. the best combination of goods and services for an economy.

e. the best combination of goods and services for an economy.

A residual claimant is someone who receives a. money from the government through welfare or social security programs. b. bonds issued by a company. c. bonds issued by the government. d. income from the rental of land. e. whatever profit is generated by producing and selling goods.

e. whatever profit is generated by producing and selling goods.