ECO STUDY REAL ONE

Question 14 Refer to Figure 7-8. At the equilibrium price, consumer surplus is Answers: a. $2,450. b. $1,575. c. $1,050. d. $1,225.

$1,225.

Question 21 A improvement in production technology will shift the Answers: a. demand curve to the left. b. supply curve to the right. c. demand curve to the right. d. supply curve to the left.

b. supply curve to the right.

Question 16 Figure 4-1 Refer to Figure 4-1. The movement from point A to point B on the graph is caused by a(n) Answers: a. decrease in the price of a substitute good. b. increase in price. c. decrease in price. d. increase in income.

c. decrease in price.

Question 18 Figure 4-1 Refer to Figure 4-1. It is apparent from the figure that the Answers: a. good is inferior. b. demand for the good decreases as income increases. c. demand for the good conforms to the law of demand. d. All of the above are correct.

c. demand for the good conforms to the law of demand.

Question 6 If the number of buyers in a market decreases, then Answers: a. demand will increase. b. demand will decrease. c. supply will increase. d. supply will decrease.

demand will decrease.

Which of the following does not affect an individual's demand curve?

number of buyers

Question 19 Refer to Figure 7-12. If the equilibrium price is $350, what is the producer surplus? Answers: a. $70,000 b. $30,000 c. $60,000 d. $15,000

$30,000

Question 7 The following table contains a monthly demand schedule for large, single-topping, carry-out pizzas. Price Quantity Demanded $15 A $20 25 If the law of demand applies to these pizzas, then A could be Answers: a. 15. b. 0. c. 25. d. 30.

30

Profit-maximizing firms enter a competitive market when existing firms in that market have

average total costs less than market price

When a good is excludable,

people can be prevented from using the good

The provision of public goods gives rise to

positive externalities, whereas the use of common resources gives rise to negative externalities

Because of the free-rider problem,

private markets tend to undersupply public goods

The minimum points of the average variable cost and average total cost curves occur where the

the marginal cost curve intersects those curves.

Question 3 For a monopoly, the level of output at which marginal revenue equals zero is also the level of output at which

total revenue is maximized

Question 20 Refer to Figure 7-12. If the equilibrium price is $200, what is the producer surplus? Answers: a. $3,750 b. $15,000 c. $7,500 d. $10,000

$7,500

Question 15 Bob purchases a book for $6, and his consumer surplus is $2. How much is Bob willing to pay for the book? Answers: a. $4. b. $8. c. $2. d. $6.

$8

Question 21 When the price of a bracelet was $28 each, the jewelry shop sold 128 per month. When it raised the price to $32 each, it sold 112 per month. Using the midpoint method, the price elasticity of demand for bracelets is Answers: a. 1. b. 0.25. c. 0.13. d. 1.14.

1

Question 26 A bakery would be willing to supply 500 bagels per day at a price of $0.50 each. At a price of $0.80, the bakery would be willing to supply 1,100 bagels. Using the midpoint method, the price elasticity of supply for bagels is about Answers: a. 1.63. b. 1.24. c. 0.62. d. 0.77.

1.63.

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase revenue?

21

Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and, as a result, the quantity of tortilla chips demanded increases from 200 bags to 300 bags. Using the midpoint method, the price elasticity of demand for tortilla chips in the given price range is

220

Question 2 Refer to Figure 2-1. Raymond buys a refrigerator for his new home. To which of the arrows does this transaction directly contribute? Answers: a. C only b. A only c. C and D d. A and B

A and B

Which of the following illustrates the concept of a negative externality?

A college student plays loud music on his new stereo system at 2:00 a.m.

Question 18 Refer to Figure 7-10. Which area represents the increase in producer surplus when the price rises from P1 to P2? Answers: a. ABGD b. AHGB c. BCG d. ACH

AHGB

If consumers view cappuccinos and lattés as substitutes, what would happen to the equilibrium price and quantity of lattés if the price of cappuccinos rises?

Both the equilibrium price and quantity would increase.

What would happen to the equilibrium price and quantity of lattés if coffee shops began using a machine that reduced the amount of labor necessary to produce them

The equilibrium price would decrease, and the equilibrium quantity would increase.

Question 25 A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact? Answers: a. Supply curves are steeper over long periods of time than over short periods of time. b. The number of firms in a market tends to be more variable over long periods of time than over short periods of time. c. Firms prefer to change their prices in the short run rather than in the long run. d. Buyers of goods tend to be more responsive to price changes over long periods of time than over short periods of time.

The number of firms in a market tends to be more variable over long periods of time than over short periods of time.

Question 4 When constructing a production possibilities frontier, which of the following assumptions is not made? Answers: a. The technology available to firms is given. b. Firms produce goods using factors of production. c. The quantities of the factors of production that are available are increasing over the relevant time period. d. The economy produces only two goods or two types of goods.

The quantities of the factors of production that are available are increasing over the relevant time period.

For a particular good, an 8 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The relevant time horizon is long.

Suppose a tax is imposed on baseball bats. In which of the following cases will the tax cause the equilibrium quantity of baseball bats to shrink by the smallest amount?

The response of buyers and sellers to a change in the price of baseball bats is weak.

Question 22 Which of these statements best represents the law of supply? Answers: a. When the price of a good decreases, sellers produce less of the good. b. When sellers' supplies of a good increase, the price of the good increases. c. When input prices increase, sellers produce less of the good. d. When production technology improves, sellers produce less of the good.

a. When the price of a good decreases, sellers produce less of the good.

Question 10 By comparing marginal revenue and marginal cost, a firm in a competitive market is able to adjust production to the level that achieves its objective, which we assume to be Answers: a. maximizing profit. b. minimizing variable cost. c. maximizing total revenue. d. minimizing average total cost.

a. maximizing profit.

Question 2 For a monopoly, the level of output at which marginal revenue equals zero is also the level of output at which Answers: a. total revenue is maximized. b. profit is maximized. c. marginal cost is zero. d. average revenue is zero.

a. total revenue is maximized.

Which of the following would not shift the supply curve for mp3 players?

an increase in the price of mp3 players

Question 22 Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU feels that raising tuition would enhance revenue, it is Answers: a. assuming that the demand for university education is inelastic. b. assuming that the supply of university education is elastic. c. assuming that the demand for university education is elastic. d. ignoring the law of demand.

assuming that the demand for university education is inelastic.

Average total cost equals

average fixed cost plus average variable cost

If marginal cost is greater than average total cost, then

average total cost is increasing.

Question 3 Figure 15-7 Refer to Figure 15-7. In order to maximize profits, the monopolist should produce Answers: a. 9 units. b. 12 units. c. 15 units. d. more than 15 units.

b. 12 units.

Question 17 The law of demand states that, other things equal, when the price of a good Answers: a. falls, the demand for the good rises. b. falls, the quantity demanded of the good rises. c. rises, the quantity demanded of the good rises. d. rises, the demand for the good falls.

b. falls, the quantity demanded of the good rises.

Question 1 Competitive firms have Selected Answer: Answers: a. downward-sloping demand curves, and they can sell only a limited quantity of output at each price. b. horizontal demand curves, and they can sell as much output as they desire at the market price. c. downward-sloping demand curves, and they can sell as much output as they desire at the market price. d. horizontal demand curves, and they can sell only a limited quantity of output at each price.

b. horizontal demand curves, and they can sell as much output as they desire at the market price.

Question 6 Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $300. In order to maximize profits, Laura should Answers: a. make more than 20 wedding cakes per month. b. make fewer than 20 wedding cakes per month. c. continue to make 20 wedding cakes per month. d. We do not have enough information to answer the question.

b. make fewer than 20 wedding cakes per month.

Question 19 Private markets usually fail to provide lighthouses because Answers: a. lighthouses are valued very little by ship captains these days. b. ship captains have incentives to use lighthouses without paying. c. lighthouses cost too much to build relative to their benefits. d. government intervention makes it hard for private lighthouse owners to compete in the market.

b. ship captains have incentives to use lighthouses without paying.

Market failure associated with the free-rider problem is a result of

benefits that accrue to those who don't pay.

The idea that "externalities arise because something of value has no price attached to it" is associated with

both public goods and common resources

Question 7 Which of the following could be used to calculate the profit for a firm? Answers: a. Profit = MR - TC b. Profit = (P - MC) × Q c. Profit = (P - ATC) × Q d. Profit = MR - MC

c. Profit = (P - ATC) × Q

Question 11 Profit-maximizing firms enter a competitive market when existing firms in that market have Answers: a. average total costs that exceed average revenue. b. total revenues that exceed total variable costs. c. average total costs less than market price. d. total revenues that exceed fixed costs.

c. average total costs less than market price.

Question 20 A free rider problem arises when Answers: a. there are many beneficiaries and exclusion of any one of them is possible. b. there are very few beneficiaries and exclusion of any one of them is possible. c. there are many beneficiaries and exclusion of any one of them is impossible. d. there are very few beneficiaries and they all try to use the good simultaneously.

c. there are many beneficiaries and exclusion of any one of them is impossible.

Ashley eats two bananas during a particular day. The marginal benefit she enjoys from eating the second banana

can be thought of as the total benefit Ashley enjoys by eating two bananas minus the total benefit she would have enjoyed by eating just the first banana

For a firm, marginal revenue minus marginal cost is equal to

change in profit

If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the

consumer does not purchase the good

Question 17 If a consumer places a value of $15 on a particular good and if the price of the good is $17, then the Answers: a. consumer does not purchase the good. b. consumer has consumer surplus of $2 if he or she buys the good. c. market is not a competitive market. d. price of the good will fall due to market forces.

consumer does not purchase the good.

Question 8 Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is Answers: a. $1,600. b. $8,000. c. $3,200. d. $1,600.

d. $1,600.

Question 4 Figure 15-7 Refer to Figure 15-7. A profit-maximizing monopolist would earn profits of Answers: a. $117. b. $96. c. $126. d. $120.

d. $120.

Question 12 Figure 2-5 Refer to Figure 2-5. The opportunity cost of this economy moving from point A to point B is Answers: a. 20 washers. b. 60 dryers. c. 20 dryers and 20 washers. d. 20 dryers.

d. 20 dryers.

Question 14 Economic models are built with Answers: a. facts about the legal system. b. recommendations concerning public policies. c. statistical forecasts. d. assumptions.

d. assumptions.

Question 15 Each of the following is a determinant of demand except Answers: a. expectations. b. the prices of related goods. c. tastes. d. production technology.

d. production technology.

Question 13 A model can be accurately described as a Answers: a. realistic and carefully constructed theory. b. theoretical abstraction with very little value. c. device that is useful only to the people who created it. d. simplification of reality.

d. simplification of reality.

Question 9 When price exceeds average variable cost in the short run, a competitive firm's marginal cost curve is regarded as its supply curve because Answers: a. among the various cost curves, the marginal cost curve is the only one that slopes upward. b. the position of the marginal cost curve determines the price for which the firm should sell its product. c. the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized. d. the marginal cost curve determines the quantity of output the firm is willing to supply at any price.

d. the marginal cost curve determines the quantity of output the firm is willing to supply at any price.

Question 5 The short-run supply curve for a firm in a perfectly competitive market is Answers: a. likely to slope downward. b. determined by forces external to the firm. c. horizontal. d. the portion of its marginal cost curve that lies above its average variable cost.

d. the portion of its marginal cost curve that lies above its average variable cost.

Question 10 Suppose you like to make, from scratch, pies filled with banana cream and vanilla pudding. You notice that the price of bananas has increased. As a result, your demand for vanilla pudding would Answers: a. Decrease. b. Increase. c. be unaffected. d. There is insufficient information given to answer the question.

decrease

Holding all other things constant, a higher price for ski lift tickets would

decrease the number of skis sold.

Question 9 Holding all other things constant, a higher price for ski lift tickets would Answers: a. decrease the number of skis sold. b. increase the number of skiers. c. decrease the demand for other winter recreational activities. d. increase the price of skis.

decrease the number of skis sold.

Question 16 Oil is used to produce gasoline. If the price of oil increases, consumer surplus in the gasoline market Answers: a. may increase, decrease, or remain unchanged. b. Decreases. c. is unchanged. d. increases.

decreases

Question 1 When a monopolist increases the amount of output that it produces and sells, average revenue

decreases, and marginal revenue decreases

Question 24 Other things equal, the demand for a good tends to be more inelastic, the Answers: a. more narrowly defined is the market for the good. b. fewer the available substitutes. c. more the good is considered a luxury good. d. longer the time period considered.

fewer the available substitutes

The difference between a supply schedule and a supply curve is that a supply schedule

is a table, and a supply curve is drawn on a graph

Question 2 Suppose a firm has a monopoly on the sale of a computer game and faces a downward-sloping demand curve. When selling the 50th game, the firm will always receive

less marginal revenue on the 50th game than it received on the 49th game

At the profit-maximizing level of output,

marginal revenue equals marginal cost

The sum of all individual demand curves for a product is called

market demand

When marginal revenue equals marginal cost, the firm

may be minimizing its losses rather than maximizing its profit

Question 8 A demand schedule is a table that shows the relationship between Answers: a. income and quantity demanded. b. price and quantity demanded. c. price and income. d. quantity demanded and quantity supplied.

price and quantity demanded

The amount of deadweight loss from a tax depends upon the

price elasticity of demand, price elasticity of supply, and the amount of tax per unit.

A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as

price is above or below marginal cost

Question 11 Other things equal, when the price of a good falls, the Answers: a. quantity supplied of the good decreases. b. quantity supplied of the good increases. c. supply decreases. d. demand increases.

quantity supplied of the good decreases.

Question 12 A decrease in quantity supplied a. shifts the supply curve to the right. b. results in a movement upward and to the right along a fixed supply curve. c. results in a movement downward and to the left along a fixed supply curve. d. shifts the supply curve to the left.

results in a movement downward and to the left along a fixed supply curve.

When a society cannot produce all the goods and services people wish to have, it is said that the economy is experiencing

scarcity

Question 13 When quantity supplied increases at every possible price, we know that the supply curve has Answers: a. not shifted; rather, we have moved along the supply curve to a new point on the same curve. b. not shifted; rather, the supply curve has become flatter. c. shifted to the right. d. shifted to the left.

shifted to the right.

Question 23 The smaller the price elasticity of demand, the Answers: a. more likely the product is a luxury. b. greater the responsiveness of quantity demanded to a change in price. c. more substitutes the product has. d. smaller the responsiveness of quantity demanded to a change in price.

smaller the responsiveness of quantity demanded to a change in price.

Question 1 Efficiency means that Answers: a. society is conserving resources in order to save them for the future. b. society's goods and services are distributed fairly, though not necessarily equally, among society's members. c. society is getting the maximum benefits from its scarce resources. d. society's goods and services are distributed equally among society's members.

society is getting the maximum benefits from its scarce resources.

Question 5 Refer to Figure 2-8. Point K represents an outcome in which Answers: a. some of the economy's resources are unemployed. b. the economy is using all of its resources to produce hammers. c. production is inefficient. d. the economy is using all of its nails to produce hammers.

the economy is using all of its resources to produce hammers.

A rational decision maker takes an action if and only if

the marginal benefit of the action exceeds the marginal cost of the action

Question 3 The bowed shape of the production possibilities frontier can be explained by the fact that Answers: a. the opportunity cost of one good in terms of the other depends on how much of each good the economy is producing. b. all resources are scarce. c. economic growth is always occurring. d. the only way to get more of one good is to get less of the other.

the opportunity cost of one good in terms of the other depends on how much of each good the economy is producing.

Which of the following is not a determinant of demand?

the price of a resource that is used to produce the good