ECON EXAM QUESTIONS
A Pigouvian tax: A) is levied on a good that creates a negative externality and should be set equal to the external cost to eliminate the deadweight loss. B) subsidizes a good that creates a negative externality and should be set equal to the external cost to eliminate the deadweight loss. C) is levied on a good that creates a positive externality and should be set equal to the external benefit to eliminate the deadweight loss. D) is levied on a good that creates a positive externality and should be set equal to the social benefit to eliminate the deadweight loss.
A
A grocery store is running a "buy-one-get-another-at-one-half-off" promotion on a dozen doughnuts. So the first dozen is $6 and the second would be $3. A person would buy the second dozen if their marginal benefit from the second dozen doughnuts is: A) greater than $3 B) greater than $6 C) greater than $9 D) less than $3
A
A public good is: A) nonrival and nonexcludable. B) rival and nonexcludable. C) rival and excludable. D) nonrival and excludable.
A
An elasticity of supply equal to 2 for widgets would be interpreted as A) a 1% increase in the price of widgets will lead to a 2% increase in the quantity supplied of widgets. B) a 1% increase in the price of widgets will lead to a 2% decrease in the quantity supplied of widgets. C) a 1% increase in the price of widgets will lead to a 0.5% decrease in the quantity supplied of widgets. D) a 1% increase in the price of widgets will lead to a 0.5% increase in the quantity supplied of widgets.
A
Because of aging requirements it takes many years to make good Scotch. If a technology were invented that made it possible to create good Scotch literally overnight, how would the short-run supply of good Scotch change? A) It would become more elastic. B) It would become less elastic. C) Its elasticity would remain the same. D) It is impossible to say anything about the change.
A
David sells his car, which he considers worthless, to Cameron for $200. Which of the following statements is true? A) David and Cameron must have different preferences for the car. B) This trade did not create value because Cameron is buying a car that David considers worthless. C) Cameron is the only one made better off by the trade. D) David is made better off by the trade, but Cameron is made worse off.
A
Do price ceilings misallocate resources? A) Yes, because people who value the good the most are unable to bid it away from low-valued uses. B) Yes, because people who value the good the least are unable to afford the good. C) No, because the good is still allocated based on willingness to pay. D) No, because the rich and poor alike stand an equal chance of getting the good.
A
Flexible (non-controlled) prices ensure that: A) resources are allocated to their highest-valued uses. B) suppliers will always profit from necessity goods. C) self-interested individuals will not interfere with the efficiency of the market. D) prices will always be minimized.
A
For a monopolist, MR is always less than P because: A) when a monopolist lowers the price to sell more units, it must lower the prices of all units sold. B) MR is always less than P regardless of what type of firm we are discussing. C) marginal cost is always lower for the next unit sold. D) when a monopolist needs to sell more units, it must increase marginal revenue in order to do so.
A
Hamburgers are an example of a: A) private good. B) public good. C) common resource. D) nonrival private good.
A
If the government eliminated tariffs: A) the gains in consumer surplus would outweigh the losses in producer surplus. B) the gains in producer surplus would outweigh the losses in consumer surplus. C) the gains in consumer surplus would equal the losses in producer surplus. D) the gains in producer surplus would equal the gains in consumer surplus.
A
If the price of shotguns ______, the demand for shotgun shells will _______. A) increases; decrease B) increases; increase C) decreases; decrease D) decreases; stay the same
A
In a market, the equilibrium condition is given by the following: A) quantity demanded = quantity supplied B) quantity demanded × quantity supplied C) quantity demanded / quantity supplied D) price × quantity demanded = quantity supplied
A
In the case of a binding price floor, economists expect the quality level of a good to: (think of the airline example from class) A) rise. B) remain the same. C) fall. D) change in an indeterminate direction.
A
In this class, the objective of firms is assumed to be A) the maximization of profits. B) the maximization of revenue. C) the minimization of costs. D) as happy as possible given limited resources.
A
Markets coordinate in a way that links buyers and sellers who rely primarily on: A) voluntary cooperation and undirected actions. B) employer unions directing economic actions. C) governmental policies to direct the economic actions. D) the benevolence and good will of the market participants.
A
Most basically, a tax A) drives a wedge between what buyers pay and what sellers receive, resulting in buyers paying more than sellers receive. B) drives a wedge between what buyers pay and what sellers receive, resulting in buyers paying less than sellers receive. C) drives a wedge between quantity supplied and quantity demanded, resulting in unstable markets. D) has no affect on market outcomes.
A
Most people do not buy the safest car they can find. Why not? A) Other factors matter besides safety, such as comfort, cost, and fuel economy. B) People do not take the time to understand the safety features of cars. C) Consumers are unaware of the risks of different cars. D) The statement is false. People do buy the safest car they can find.
A
Stan buys a 1966 Mustang for $2,000, planning to restore and sell the car. He goes on to spend $8,000 restoring the car. At this point he can sell the car for $9,000. As an alternative, he can spend an additional $3,000 replacing the engine. With a new engine the car would sell for $13,000. Stan should A) complete the repairs and sell the car for $13,000. B) sell the car now for $9,000. C) never try such an expensive project again. D) be indierent between (i) selling the car now and (ii) replacing the engine and then selling it.
A
Strong economic analysis contains A) a theoretical and empirical component. B) a theoretical and opinion component. C) an empirical and opinion component.
A
Suppose all students received the average grade on exams, regardless of how well each person did. What is the most likely grade each student will get (assume a very large class)? A) zero or near zero points B) about what they would get under conventional grading C) a higher grade than what they would get under conventional grading D) a slightly lower grade than what they would get under conventional grading
A
The demand curve for physician office visits is quite inelastic; therefore: A) a large increase in price causes quantity demanded to decrease by very little. B) a large decrease in price causes quantity demanded to decrease by a lot. C) a small increase in price causes quantity demanded to decrease by a lot. D) a small decrease in price causes quantity demanded to decrease by very little.
A
A binding price floor leads to a(n): A) shortage. B) surplus. C) maximization of total surplus in the economy. D) quantity of zero units.
B
A cell phone plan costs $50 per month for 1,000 minutes, and $0.30 per minute for each additional minute after 1,000. What is the marginal fee for the 1,001st minute used? A) $0.25 B) $0.30 C) $0.35 D) $0.40
B
A perfectly inelastic supply curve is a: A) vertical line indicating that a very large increase in price will increase the quantity supplied. B) vertical line indicating that even a very large increase in price won't increase the quantity supplied. C) horizontal line indicating that a very small increase in price will increase the quantity supplied. D) horizontal line indicating that even a very small increase in price won't increase the quantity supplied.
B
A person ________ be cheaply prevented from using national defense, a(n) ________ good. A) can; excludable B) cannot; nonexcludable C) cannot; excludable D) can; nonexcludable
B
A price floor is: A) a maximum price allowed by law. B) a minimum price allowed by law. C) able to produce an efficient outcome. D) a tool used to increase government revenues.
B
A profit-maximizing monopolist's total profit can be found by calculating: A) marginal revenue - marginal cost. B) total revenue - total cost. C) average revenue - average total cost. D) marginal cost - marginal revenue.
B
A) A rational economic actor takes an action only if the B) marginal benefit is less than the marginal cost. C) marginal benefit is greater than the marginal cost. D) average benefit is greater than the average cost. E) marginal benefit is greater than both the average cost and the marginal cost.
B
Assuming the same cost structure, a competitive market produces ________ output at ________ prices than a monopoly market. A) less; lower B) more; lower C) less; higher D) more; higher
B
Because producing more oil requires a significant increase in exploration and drilling costs, the supply curve for oil is: A) relatively elastic. B) relatively inelastic. C) perfectly elastic. D) unit elastic.
B
Buyers bear a greater share of a tax burden when a tax is imposed in a market where: A) demand is more elastic than supply. B) supply is more elastic than demand. C) the tax is imposed on sellers. D) the tax is imposed on buyers.
B
Firms will enter an industry when the: A) price rises above the minimum of the marginal cost curve. B) price rises above the minimum of the average total cost curve. C) marginal cost rises above the minimum of the average total cost curve. D) average cost rises above the minimum of the marginal cost curve.
B
If a steel manufacturer does NOT bear the entire cost of the sulfur dioxide it emits, it will: A) emit a lower level of sulfur dioxide than is socially efficient. B) emit a higher level of sulfur dioxide than is socially efficient. C) emit an acceptable level of sulfur dioxide D) not emit any sulfur dioxide in an attempt to avoid paying the entire cost.
B
If a tin of sardines creates a noxious odor for non-sardine-eaters equivalent to $1 per tin, it follows that the market produces: A) too few tins of sardines relative to the social optimum. B) too many tins of sardines relative to the social optimum. C) socially optimal level of sardines. D) Too many or too few tins of sardines, but it is impossible to say which.
B
If economies of scale are high and government regulators set prices equal to a monopolist's marginal cost,: A) the monopolist will still earn a profit, just smaller than with no regulation. B) the monopolist will be taking a loss. C) there will be more incentive to innovate. D) the market will be more efficient than if the government regulators set prices equal to average cost.
B
If price is less than average cost,: A) the firm may still make profits as long as marginal cost is low. B) the firm's maximum profit is a loss. C) there is no profit-maximizing rate of output. D) marginal cost must be high.
B
If the demand curve for a firm is a straight line with negative slope, which of the following is the shortcut to finding the MR? A) The demand curve starts below the marginal revenue curve on the vertical axis and cuts the marginal revenue curve halfway down its length. B) The marginal revenue curve starts at the same point on the vertical axis as the demand curve and has twice the slope of the demand curve. C) The marginal revenue curve is parallel to the demand curve with the same slope. D) The marginal revenue curve starts at the same point on the vertical axis as the demand curve and has a slope of 0.
B
In the case of a binding price ceiling, the price paid in the market will be: A) more than the free market equilibrium price. B) less than the free market equilibrium price. C) equal to the free market equilibrium price. D) unable to be compared with the free market equilibrium price.
B
Most basically, a subsidy A) drives a wedge between what buyers pay and what sellers receive, resulting in buyers paying more than sellers receive. B) drives a wedge between what buyers pay and what sellers receive, resulting in buyers paying less than sellers receive. C) drives a wedge between quantity supplied and quantity demanded, resulting in unstable markets. D) has no affect on market outcomes.
B
Most people, when asked, cannot name the price of a canister of table salt at the grocery store within a factor of 25 percent. Which elasticity argument explains why? A) Table salt has many substitutes; demand is highly elastic. B) Expenditures on table salt make up a tiny fraction of the average person's budget; demand is highly inelastic. C) Most people make their salt consumption decisions in the short run. D) People are loyal to their specific brands of salt.
B
One reason that the demand curve slopes downward is because A) everyone has the same preferences in an economy. B) one individual's willingness to pay is assumed to decrease as they consume more of a good or service. C) technological innovations reduce the cost of producing goods or services over time. D) the prices of inputs to production increases as more of a good or service is produced.
B
Other things being equal, the markup above marginal cost that a monopolist charges will be: A) higher when there are more substitutes for the monopolist's product. B) lower when there are more substitutes for the monopolist's product. C) the same, no matter the number of substitutes for the monopolist's product. D) zero if there are any substitutes for the monopolist's product.
B
Public roads sometimes get congested, suggesting that public roads are: A) public goods. B) rival. C) private goods. D) experiencing a free rider problem.
B
Supply curves slope upward because A) opportunity costs of resources used in production fall as more and more of a good are produced. B) opportunity costs of resources used in production increase as more and more of a good are produced. C) consumers prefer diversification in their consumption. D) consumers are willing to pay more for essential goods and services.
B
The city government taxes its residents to pay for mosquito control. Betty is not happy about paying the tax, for mosquitoes never bite her. Betty is a: A) free rider. B) forced rider. C) taxed rider. D) lonesome rider.
B
The market for bread is currently in equilibrium. There is subsequently a decrease in the price of wheat, which is an input in the production of bread. In the market for bread we would expect A) equilibrium price to increase and equilibrium quantity to decrease. B) equilibrium price to decrease and equilibrium quantity to increase. C) equilibrium price and quantity to decrease. D) equilibrium price and quantity to increase.
B
The market for bread is currently in equilibrium. There is subsequently an increase in the price of labor used in the production of bread. Simultaneously there is also a decrease in the price of pita, a substitute for bread. In the market for bread we would expect A) a decrease in the equilibrium price and an ambiguous change in the equilibrium quantity. B) an increase in the equilibrium price and an ambiguous change in the equilibrium quantity. C) an ambiguous change in equilibrium price and an increase in equilibrium quantity. D) an ambiguous change in equilibrium price and a decrease in equilibrium quantity.
B
The slope of the supply curve for doodads is equal to 3. At a price of \$30, the quantity supplied of doodads is equal to 10. Elasticity of supply for doodads at a price of \$30 is equal to A) 0.5 B) 1 C) 2 D) 3
B
The text states: "The great economic problem is to arrange our limited resources to satisfy as many of our wants as possible." How does a market achieve this goal? A) It chooses central planners who are experts at identifying the best uses of resources. B) The forces of demand and supply use prices as a signaling device that directs resources to their highest-value uses. C) It ensures that prices provide an even signal by making sure prices across all markets are equal. D) It offers resource-based futures contracts.
B
The tragedy of commons is more likely to apply to: A) oil, natural gas, and coal. B) forests, fish, and elephants. C) chickens and other farm animals. D) microchips, semiconductors, and relay switches.
B
There are barriers that prevent new firms from entering such an industry. A) allow some firms to earn above-normal profits in the long run. B) ensure that labor and capital move across industries to optimally balance production. C) rely on demand signals, not price signals. D) move capital and labor away from profitable industries in order to maximize the total value of production.
B
What is the profit maximization condition for a monopolist? A) MR > MC B) MR = MC C) AR = MC D) AR = D
B
When there is a shortage present in a market, it will be the case that A) some high value potential buyers will have an incentive to decrease their offering price. B) some high value potential buyers will have an incentive to increase their offering price. C) some low value potential buyers will have an incentive to increase their offering price. D) some low cost potential suppliers will have an incentive to lower their asking price.
B
Which equation is TRUE? A) private cost + average cost = social cost B) social cost = private cost + external cost C) external cost = private cost D) private cost + social cost = external cost
B
Which of the following statements is correct for a specific good or service? A) Whoever pays for a subsidy also pays the entire commodity tax on an item. B) Whoever bears the burden of a tax also receives the benefit of the subsidy. C) Whoever bears the burden of a tax also bears the cost of the subsidy. D) Governments bear the burdens of both taxes and subsidies.
B
Which statement correctly describes what a Pigouvian subsidy is? A) Subsidies received by the producers are called Pigouvian subsidies. B) Pigouvian subsidies are awarded to producers whose goods have external benefits. C) Taxes on producers creating negative externalities are called Pigouvian subsidies. D) Lower corporate tax rates are also known as Pigouvian subsidies.
B
Which, if any, of the following conditions for efficient market functioning do tariffs and quotas violate? I. demanders with the highest willingness to pay purchase the supply of goods II. producers with the lowest costs produce and sell the supply of goods III. the sum of consumer and producer surplus is maximized A) I only B) II and III only C) I, II, and III D) III only
B
Without competition, there is a tendency for a government-run or regulated monopoly to: A) keep prices constant. B) become inefficient because of lack of incentives to control costs. C) find ways to decrease costs so as to increase profits. D) become a natural monopoly.
B
World supply of a good ______ domestic supply. A) is less elastic than B) is more elastic than C) is equally elastic to D) has indeterminate elasticity compared with
B
A decrease in income causes demand for a normal good to ________, and an increase in income causes demand for an inferior good to ________. A) decrease; decrease B) increase; increase C) decrease; increase D) increase; decrease
C
A firm earning zero economic profits: A) will shut down immediately. B) may continue to operate in the short run but will always shut down in the long run if zero economic profits continue. C) is just covering their opportunity cost for remaining in the industry. D) will not be earning enough to cover all payments to capital and labor.
C
A firm with no competitors: A) faces a perfectly inelastic demand curve. B) faces a perfectly elastic demand curve. C) faces a downward-sloping demand curve. D) has a perfectly elastic supply curve.
C
A free rider is a person who: A) avoids paying taxes by using tax code loopholes. B) produces goods at no cost. C) receives the benefits of a good but avoids paying for it. D) will purchase products only when on sale.
C
A good is excludable if: A) people who do not pay cannot be easily prevented from using the good. B) one person's use of the good does not reduce the ability of another person to use the same good. C) people who do not pay can be easily prevented from using the good. D) it is Wi-Fi or a similar service.
C
A market is defined as A) The actual buyers and sellers of a particular good or service over a particular time and in a particular place. B) The actual buyers and sellers of all goods and services over a particular time and in a particular place. C) The potential buyers and sellers of a particular good or service over a particular time and in a particular place. D) The potential buyers and sellers of all goods and services over a particular time and in a particular place.
C
A price ceiling is a(n): A) legally established minimum price that can be charged for a good. B) illegally established minimum price that can be charged for a good. C) legally established maximum price that can be charged for a good. D) illegally established maximum price that can be charged for a good.
C
A tax on the seller of a product: A) causes the seller's take-home price to rise above that paid by the buyer. B) causes the demand curve for the product to shift to the right. C) causes the minimum willingness to accept by suppliers to increase. D) always causes the tax equilibrium quantity traded in the market to be greater than the market equilibrium quantity.
C
A tax on widgets will result in deadweight loss. This is due to the fact that A) too many widgets will be produced after the imposition of the tax. B) sellers are receiving too high an amount to supply widgets. C) too few widgets will be produced after the imposition of the tax. D) buyers are paying too low an amount to purchase widgets.
C
An external cost: A) causes markets to allocate resources efficiently. B) affects producers but not consumers. C) is a cost paid by people other than the producer or consumer trading in the market. D) leads to economic efficiency only when private costs are greater than external costs.
C
Apple's iPod provides an example that market power may arise from: A) laws preventing entry of competitors. B) hard to duplicate inputs. C) innovation. D) economies of scale.
C
As the price of lead falls (a key input in the production of automobile batteries), the costs of producing batteries decreases, shifting the supply curve of batteries: A) down and to the left. B) up and to the right. C) down and to the right. D) up and to the left.
C
Assume that coffee and tea are substitutes for many consumers in an economy. A decrease in the price of tea will A) increase the opportunity cost of coffee for these consumers, leading to an increase in demand for coffee in the economy. B) decrease the opportunity cost of coffee for these consumers, leading to an increase in demand for coffee in the economy. C) increase the opportunity cost of coffee for these consumers, leading to a decrease in demand for coffee in the economy. D) decrease the opportunity cost of coffee for these consumers, leading to a decrease in demand for coffee in the economy.
C
Common resources are: A) excludable and rival. B) excludable and nonrival. C) nonexcludable and rival. D) nonexcludable and nonrival.
C
Compared to private goods, the free market would ________ public goods. A) overproduce B) efficiently produce C) underproduce D) sometimes overproduce but most often underproduce
C
Demand for a good is inelastic if the absolute value of the elasticity is: A) greater than 1. B) greater than 0. C) less than 1. D) equal to 1.
C
If Major League Baseball ticket prices rise by 15 percent, the number of tickets sold falls by 5 percent. The elasticity of demand is: A) -3. B) -7.5. C) -1/3. D) -0.75
C
If gasoline prices remain high long enough, people will arrange to do more telecommuting. This would be an example of why the elasticity of: A) supply for gasoline is higher in the long run. B) supply for gasoline is lower in the long run. C) demand for gasoline is higher in the long run. D) demand for gasoline is lower in the long run.
C
If markets underproduce public goods because of the free rider problem,: A) the price of the public good will increase. B) total value in society will be minimized. C) it may be more efficient for the government to tax individuals to pay for the production of the public good. D) entrepreneurs will not be able to find a way to profit from the production of these goods.
C
If the demand for good A increases when the price of good B increases, then good A and good B are: A) not related. B) both inferior goods. C) substitutes for each other. D) complements to each other.
C
If the world price of cotton is less than the price that would occur domestically without trade, then a country will: A) decrease its demand for cotton, and increase its demand for cotton substitutes. B) increase its demand for cotton, and decrease its demand for cotton substitutes. C) import cotton. D) export cotton.
C
In a competitive equilibrium for a constant cost industry, firms earn ______ economic profits. A) positive B) negative C) zero D) abnormal
C
In several cities around the country, schools are paying cash awards to students who do well on English and Math tests. This practice highlights the idea of: A) pedagogical economics-the continuous assessment of student performance in an effort to maximize student efficiency. B) hidden costs-the costs borne by taxpayers in the form of wasteful school spending. C) incentives-the rewards and penalties that motivate behavior. D) screening theory-the identification of individuals or groups based on various performance measures.
C
It is well known that young children trade their lunches among each other in order to obtain items that they value more than the ones given to them in their lunches. This is an example of the benefits from trade due to A) comparative advantage. B) specialization and division of knowledge. C) different preferences. D) there are no benefits here.
C
Let's say that news is released by the American Medical Association linking the consumption of red wine with a decreased risk of heart disease. We would model this as A) an inward shift of the demand curve. B) an inward shift of the supply curve. C) an outward shift of the demand curve. D) an outward shift of the supply curve.
C
Many individuals refer to education as a public good. How is education NOT a public good? A) Its acquisition is rival. B) Its acquisition is excludable. C) Its acquisition is both rival and excludable. D) Its acquisition is usually rival and rarely excludable.
C
Ocean tuna is an example of a: A) private good. B) public good. C) common resource. D) nonrival private good.
C
Positive economic analysis is concerned with the A) way the world ought to be. B) the way the world would be if scarcity didn't exist. C) way the world is. D) way people would behave if they were self-less.
C
Price floors would create all of the following effects EXCEPT: A) surpluses. B) deadweight loss. C) wasteful decreases in product quality. D) misallocation of resources.
C
Suppose that a monopolist can sell five units of output at a price of $5 or six units of output at a price of $4. What is the marginal revenue of the sixth unit? A) $24 B) $49 C) -$1 D) $4
C
The economist Henry George argued that the best tax that a government can impose is a tax on land. What was the basis of his argument? A) The supply of land is highly elastic, so taxes on land will raise lots of revenue with little deadweight loss. B) The demand for land is highly elastic, so taxes on land won't raise much revenue and will have lots of deadweight loss. C) The supply of land is highly inelastic, so taxes on land will raise lots of revenue with little deadweight loss. D) The demand for land is highly inelastic, to taxes on land will raise lots of revenue with little deadweight loss.
C
The market for bread is currently in equilibrium. There is subsequently a decrease in the price of pita, which is a substitute for bread. In the market for bread we would expect a) equilibrium price to increase and equilibrium quantity to decrease. B) equilibrium price to decrease and equilibrium quantity to Increase C) equilibrium price and quantity to decrease. D) equilibrium price and quantity to increase.
C
The opportunity cost of winning a free ticket to the Super Bowl worth $950 and choosing to attend the game is: A) zero, since the ticket was free. B) priceless, if the person really loves football. C) at least $950, the lost market value of selling the ticket, and the time to go. D) zero, if the person would rather go to the game than do anything else.
C
The question of who takes on the greater amount of a tax incidence is determined by: A) Congress. B) the President of the United States. C) the relative elasticities of demand and supply. D) the individual who writes the check for the tax.
C
Total cost equals fixed cost ______ variable cost. A) times B) minus C) plus D) divided by
C
Transaction costs: A) are incurred in the production process due to externalities. B) are eliminated when the government intervenes in a market with externalities. C) can keep private parties from solving externality problems. D) increase when taxes are imposed to correct negative externalities.
C
When there is excess supply present in a market, it will be the case that A) some high value potential buyers will have an incentive to increase their offering price. B) some low cost potential suppliers will have an incentive to increase their asking price. C) some low cost potential suppliers will have an incentive to decrease their asking price. D) no one has an incentive to change their behavior as we are producing more of some good or service than we need, and more of something is always a good thing.
C
Which of the following statements is TRUE at a market's equilibrium price and quantity? I. Consumer surplus plus producer surplus is maximized. II. Goods are purchased by buyers who value them the most. III. The lowest-cost producers manufacture the goods. IV. The gains from trade are minimized. A) I and IV only B) II and III only C) I, II, and III only D) I, II, III, and IV
C
Which variable is NOT a demand shifter? A) price of complements B) price of substitutes C) price of raw materials D) tastes and preferences
C
With a subsidy to consumers, supply: A) increases. B) decreases. C) remains the same. D) shifts unpredictably.
C
A given tax will impose a greater deadweight loss when: A) both supply and demand are inelastic. B) supply is inelastic and demand is elastic. C) supply is elastic and demand is inelastic. D) both supply and demand are elastic.
D
Allocating products with long lines, using a first-come, first-served system, is: A) the only way scarce goods can be allocated. B) necessary when waiting is a costless exercise. C) efficient, since people who are willing to wait the longest get the products. D) inefficient, because waiting wastes time.
D
As we saw in class, there have been many technological improvements in the agricultural industry throughout the 20th century. We would model this, all else equal, as A) an inward shift of the demand curve for agricultural products. B) an inward shift of the supply curve for agricultural products. C) an outward shift of the demand curve for agricultural products. D) an outward shift of the supply curve for agricultural products.
D
Economic profit differs from accounting profits because of its inclusion of: A) explicit costs. B) incidental costs. C) potential costs. D) implicit costs.
D
Economists blame the long lines at gasoline stations in the United States during the 1970s as well as the long delays in construction projects on: A) consumers who bought gas too frequently. B) the Organization of Petroleum Exporting Countries (OPEC). C) major oil companies operating in the United States. D) U.S. government regulation of gasoline prices.
D
Firms in competitive industries: I. can only charge a price equal to the market price. II. cannot charge any more than the market price. III. will earn less profit if they charge less than the market price. A) I only B) I and III only C) II only D) I, II, and III
D
For most of human history, salt was a rare and valuable commodity that had to be either mined or extracted from the ocean through evaporation. This changed when modern chemistry allowed humans to produce it in factories. How did this development affect the market for salt? A) Demand increased, causing the price to rise. B) Demand increased, causing the price to fall. C) Supply increased, causing the price to rise. D) Supply increased, causing the price to fall.
D
If Tyler and Alex are trading partners, do their gains from trade depend on whether Tyler and Alex live in the same country? A) It is better if Tyler and Alex are both Americans. B) It is better if one of them is American and one is not. C) It is better if neither of them is American. D) It doesn't matter in which country Tyler and Alex live.
D
If an external cost is present in a market, economic efficiency may be enhanced by: A) increased competition. B) weakening property rights. C) better informed market participants. D) government intervention.
D
If instead of specialized doctors (neurologists, cardiologists, gastroenterologists, etc.) we had doctors who each knew the same things about all aspects of medicine, it would be: A) better because then we could just go to one doctor with no loss of quality in medical care. B) better because total medical knowledge in society would increase. C) worse because the human brain is limited. D) worse because total medical knowledge in society would decrease.
D
If the quantity of oranges being produced exceeds the market equilibrium quantity, then A) the willingness to pay for oranges on the part of potential buyers is too high. B) the willingness to accept on the part of potential suppliers is too low. C) we are better off as a society due to the fact that we are producing more oranges than we would at the market equilibrium. D) we are worse off as a society because resources are being used to produce oranges that should be re-allocated towards the production of some other more highly valued good or service.
D
One fundamental determinant of the elasticity of demand is: A) how quickly per-unit costs increase with an increase in production. B) tastes and preferences. C) population. D) the number and closeness of substitutes.
D
Recall Chapter 1's opening story about the British sea captains and the convicted felons. In what way were incentives used to solve the problem of the high mortality rate on board the ships? A) Payment (to ship captains) was to be offered for each prisoner that was taken aboard the ships. B) Payment (to ship captains) was made independent of the regulations passed for prisoner welfare. C) Regulations were passed so that prisoners could get better food, water, and medical care. D) Payment (to ship captains) was made dependent on the survival rate of prisoners.
D
The central planning approach proved ________ because ________. A) successful; central planners use state-of the-art military computers to efficiently allocate resources B) a failure; it was never given enough time to be successfully implemented in most countries C) successful; central planners, unlike CEOs, are not solely interested in maximizing profits and raising prices D) a failure; central planners lack information and incentives to allocate resources efficiently
D
The difference between the maximum price a consumer is willing to pay for a given quantity of a good and its market price is: A) producer shortage. B) consumer shortage. C) producer surplus. D) consumer surplus.
D
The market equilibrium price and quantity is stable because A) it is one of many price and quantity combinations in which some economic actors have an incentive to change their behavior. B) Incorrect Response it is one of many price and quantity combinations in which no economic actor has an incentive to change their behavior. C) it is the only price and quantity combination in which some economic actors have an incentive to change their behavior. D) it is the only price and quantity combination in which no economic actor has an incentive to change their behavior.
D
The market for bread is currently in equilibrium. There is subsequently news that a popular low-carbohydrate diet used for losing weight is significantly harmful to an individual's health. In the market for bread we would expect a) equilibrium price to increase and equilibrium quantity to decrease. B) equilibrium price to decrease and equilibrium quantity to increase. C) Equilibrium price and quantity to decrease. D) equilibrium price and quantity to increase.
D
The short run is defined as: A) the period before any changes in a firm's output can be made. B) less than six months. C) less than one year. D) the period before entry or exit can occur.
D
The tragedy of the commons refers to the: A) underproduction of public goods in economic markets. B) underproduction of a common good. C) overuse of a nonrival and nonexcludable good. D) overuse of a rival but nonexcludable good.
D
Which of the following explains why supply in an open market tends to be more elastic than supply in a closed market? A) As price increases in a certain locale, it is often costly to transport more goods to that particular area, and hence supply is more elastic. B) Local suppliers are small in relation to the global market. C) The statement is false; supply in open markets tends to be less elastic than supply in closed markets. D) As price increases in a certain locale, goods can be brought in from other areas, which is not possible on a global scale.
D
Which of the following probably has the most elastic demand? A) gasoline B) prescription medications C) toilet paper D) McDonald's hamburgers
D
The market for bread is currently in equilibrium. There is subsequently a decrease in the price of wheat, which is an input in the production of bread. Simultaneously, there is a decrease in the price of pita, a substitute for bread. In the market for bread we would expect A) a decrease in the equilibrium price, and an ambiguous change in the equilibrium quantity. B) an increase in the equilibrium price and an ambiguous change in the equilibrium quantity. C) an ambiguous change in the equilibrium price and an increase in the equilibrium quantity. D) an ambiguous change in the equilibrium price and a decrease in equilibrium quantity.
A
The market for bread is currently in equilibrium. There is subsequently an increase in the price of labor used in the production of bread. In the market for bread we would expect A) equilibrium price to increase and equilibrium quantity to decrease. B) equilibrium price to decrease and equilibrium quantity to increase. C) equilibrium price and quantity to decrease. D) equilibrium price and quantity to increase.
A
The market solves the information problem when allocating resources by: A) collapsing all the relevant information about uses of the good into its price. B) collapsing all the relevant information about inputs of the good into the level of output. C) aggregating all the relevant information about the output of the good into the supply curve. D) aggregating all the relevant information about the output of the good into the demand curve.
A
The paradox of trade restrictions on countries with child labor is that: A) these restrictions aim to reduce child labor, but because they make the countries poorer, they actually cause more child labor. B) children from those countries are actually more efficient than the adults. C) children can be hired at lower wages than adults. D) restrictions on trade cause losses in consumer surplus.
A
The quantity demanded of a good or service is the amount that: A) consumers are willing and able to buy at a given price. B) firms are willing to sell during a given time period at a given price. C) a consumer would like to buy but might not be able to afford. D) a consumer needs to consume during a given time period.
A
To maximize profit, firms should keep producing as long as marginal revenue is: A) greater than marginal cost. B) equal to marginal cost. C) less than marginal cost. D) greater than total cost.
A
What condition is necessary in a constant cost industry? A) Prices of the industry's inputs do not change as the industry expands. B) Prices of the industry's inputs decline as the industry expands. C) Prices of the industry's inputs rise as the industry expands. D) There are barriers that prevent new firms from entering such an industry.
A
When external benefits are significant: A) market output is too low. B) market output is too high. C) market output is at the efficient level. D) social surplus is maximized.
A
When there are many buyers and sellers of a good, many potential sellers of a good, and the product sold is identical across firms,: A) the demand curve for each firm's output is perfectly elastic. B) the industry demand curve is perfectly elastic. C) the demand curve for each firm's output is perfectly inelastic. D) the industry demand curve is perfectly inelastic.
A
Which of the following situations would lead to more starvation? A) a world where everyone grows his or her own food and there is no trade b) a world with trade and lots of specialization c) a world with immense division of knowledge D) a world where only some people specialize in food and everyone else produces something else
A
Which statement is TRUE in a market with a price ceiling? A) Buyers and sellers experience unexploited gains from trade. B) Resources are allocated to their most efficient uses. C) The supply of goods is sold by the sellers with the lowest costs. D) The supply of goods is bought by the buyers with the highest willingness to pay.
A
You are selling an indie video game that you created. You want to maximize your total revenue in selling this game. You are thinking about decreasing the price of your game from \$30 to \$20. You estimate that the elasticity of demand for your game in this region is -2. Should you reduce the price of your game? A) Yes. B) No. C) Not enough information to answer the question
A
