Econ Exams and Quizzes
A college student is faced with a difficult decision of how to spend one hour tonight. She could babysit her professor's child at an hourly wage of $7, she could work at the college library at a wage of $6, or she could finish her economics homework assignment. If she chooses to complete her homework assignment, she has incurred an opportunity cost equal to:
$7
In the absence of government action and if it is costless to pollute for the polluter, polluters will pollute up to the point at which the marginal social benefit of pollution is:
0
When a good is nonrival in consumption, the most efficient price for the consumption of the good is:
0
If a dcrease in price from $2 to $1 causes an increase in quantity demanded from 100 to 120, using the midpoint method, price elasticity of demand equals
0.27
If Farmer Sam MacDonald can produce 200 pounds of cabbages and 0 pounds of potatoes or 0 pounds of cabbages and 100 pounds of potatoes and he faces a linear production possibility frontier for his farm, the opportunity cost of producing an additional pound of potatoes is _____ pound(s) of cabbage.
2
A Giffen good is NOT correctly described by which statement?
A Giffen good must be such that the substitution effect outweighs the income effect for an inferior good.
In the short run, a perfectly competitive firm produces output and incurs an economic loss if:
AVC < P < ATC.
In the short run, a firm will produce as long as the price is greater than its:
AVC.
Kookie's friends give her gift cards that she forgets to use before they expire. Howerever, she is very careful about how she spends her cash. Kookie has made which of the following mistakes in economic decision making?
Counting dollars unequally
Despite the fact that some people are irrational, why do economists continue to assume that people behave rationally?
Because people will behave rationally in most markets
Which of the following types of goods are always nonviral in consumption?
Public Goods
Which of the following types of goods are always nonviral in consumption?
Public goods
"Many economists agree that income taxes should be increased for rich people" is a positive statement.
False
All advertising is clearly a waste of resources.
False
An increase in demand for good X could be caused by a decrease in the price of X.
False
Price discrimination can never occur in oligopoly.
False
Tacit collusion is less likely to occur in an industry with 3 firms than in an industry with 10 firms.
False
Demand for Wendy's hamburgers is more inelastic than the demand for all fast food.
False.
Gehrig is willing to pay $90 for a cap made of raccoon skin. Suppose he finds such a cap for $71 on eBay. If Gehrig buys the cap for $71, he will have an individual consumer surplus of $71.
False.
An excise tax imposed on sellers in a market will result in which of the following? I. an upward shift of the supply curve II. a downward shift of the demand curve III. deadweight loss
I and III only
The person who is usually credited with developing national income accounts is:
Simon Kuznets.
When a monopolist practices price discrimination, compared to a single-price monopolist, monopoly profits will:
Increase.
Suppose Jon pays $8 to see Tom Cruise in his next movie. Suppose Mr. Cruise receives $21 million to work in this movie. This means that:
Jon and Tom Cruise benefited from this transaction.
Juan spends all of his income on baseball cards and candy. At his current consumption bundle, the marginal utility of baseball cards is 20 and the marginal utility of candy is 10. Assuming that diminishing marginal utility applies to both goods, the price of baseball cards is $10, and the price of candy is $2:
Juan should increase his consumption of candy and decrease his consumption of baseball cards.
If at a given quantity _____, the decision maker should do _____ of the activity.
MB < MC; less
Using standard economic theory, Scientific Superconductors should continue hiring workers until:
MPL × P = wage.
The slope of the total cost curve equals
Marginal cost.
Which statement is FALSE concerning the circular-flow diagram?
Money flows from households to firms in exchange for the factors of production that households offer for sale.
Suppose Indiana produces only steel and corn, with fixed amounts of land, labor, and capital resources. Which situation best creates potential economic growth?
The percentage of Indiana residents with a college degree rises from 25% to 30%.
If peanut butter is an inferior good, what would happen to the price and quantity sold of peanut butter as incomes fall during an economic recession?
The price and quantity would both increase.
Which of the following is true at equillibrium?
The quantity demanded is the same as the quantity supplied.
Status quo bias is the tendency to avoid making a decision and sticking with the status quo.
True.
Wage differences across jobs that reflect the fact that some jobs are less pleasant than others are called compensating differentials.
True.
An agreement among several producers to restrict output and increase profit is necessary for
a cartel.
Given that the definition of poverty has not been adjusted to reflect the long-term rise in average incomes, one would expect _____ in the percentage of the population living below the poverty line.
a decrease
Which statement will NOT cause an increase in demand for good X?
a decrease in the price of good X
Which does NOT distort incentives and is best at promoting economic efficiency?
a lump-sum tax
A price discriminating monopolist will charge a higher price to consumers with
a more inelastic demand
Which example illustrates a common resource?
a public beach with free access
A decrease in supply means:
a shift to the left of the entire supply curve.
When a perfectly competitive industry is in long-run equilibrium, its firms:
allocate all of their resources efficiently.
If the price of hamburger decreased, it would probably result in _____ in the demand for hamburger buns.
an increase
Given a supply curve that is positively sloped and a demand curve for a normal good that is negatively sloped, an increase in income will most likely result in:
an increase in equilibrium price and quantity.
If macroeconomic policy has been successful over time, it is likely that the economy has not seen:
any severe recessions
Allocating kidneys to those with the highest net benefit (where net benefit is measured as the expected increase in life span from transplant) is an attempt to maximize
consumer surplus.
Which of the following would decrease the effect of a quota on a market? A(n)
decrease in demand
If goods A and B are substitutes, a decrease in the price of good B will:
decrease the demand for good A.
Consider the supply curve for cotton shirts. An increase in the price of cotton will:
decrease the supply of cotton shirts.
Suppose a competitive market has a downward-sloping demand curve and a horizontal supply curve. If the supply curve shifts downward, what will happen to equilibrium price, equilibrium quantity, consumer surplus, and producer surplus?
decrease, increase, increase, no change
If New York City had no medallion system for taxicabs, assuming that the supply curve of taxicab rides is upward sloping and the demand curve of taxicab rides is downward sloping, the price of a taxicab ride would:
decrease.
A decrease in demand, with no change in supply, will lead to a(n) _____ in equilibrium quantity and a(n) _____ in equilibrium price.
decrease; decrease
The price elasticity of demand along a demand curve with a constant slope:
decreases in absolute value as quantity demanded rises.
The marginal benefit from pollution _____ as the quantity of pollution emissions _____.
decreases; increases
Learning effects often result in _____ marginal costs.
decreasing
The equilibrium price will rise, but equilibrium quantity may increase, descrease, or stay the same if
demand increases and supply decreases.
An increase in the number of buyers and a technological advance will cause
demand to increase and supply to increase.
A negative relationship between the quantity demanded of a good and its price is called the law of:
demand.
In the short run, the average total cost curve slopes upward because of:
diminishing returns.
The total income households have after paying taxes and receiving government transfers is called:
disposable income.
The problem of determining what goods and services society should produce:
exists because there are not enough resources to provide all of the goods and services that people want to purchase.
If a monopoly market structure was transformed into a perfectly competitive one, one would find that price would _____ and output would _____.
fall; increase
When marginal cost is below average variable cost, average variable cost must be:
falling.
A perfectly competitive firm will incur an economic loss but will continue to produce a positive quantity of output in the short run if the price is:
greater than average variable cost and less than average total cost.
A firm is at the minimum of its short run average cost curve, but also experiencing diseconomies of scale. A permanent increase in output will:
increase average total cost in the long run.
A shift of a demand curve to the right, all other things unchanged, will:
increase equilibrium price and quantity.
Jane is a utility-maximizing consumer who is consuming the optimal quantity of wallets and eyeglasses and spending her entire budget. The price of wallets falls. Jane will:
increase her consumption of wallets if wallets are a normal good, as the income effect reinforces the substitution effect.
In a causal relationship, the value taken by the _____ directly influences or determines the value of the dependent variable.
independent variable
(Figure: Guns and Butter) Examine the figure Guns and Butter. On this figure, points A, B, E, and F:
indicate combinations of guns and butter that society can produce using all of its factors efficiently.
For this economy, an increase in the quantity of capital goods produced without a corresponding decrease in the quantity of consumer goods produced:
is represented by a movment from point E to point B.
Marginal benefit:
is the addition to total benefit due to undertaking one more unit of an activity.
The marginal social benefit of pollution:
is the benefit to society of one more unit of pollution.
The equilibrium value of the marginal product of a factor is the additional value produced by the _____ unit of that factor employed in the factor market as a whole.
last.
The process of assigning different values to dollars in different accounts is known as:
mental accounting.
On a linear demand curve, demand at lower prices will be:
price-inelastic.
The Coase theorem asserts that, in the right circumstances, inefficiencies created by externalities can be dealt with through
private bargaining
In a perfectly competitive industry, each firm:
produces a standardized product.
In order to encourage consumption of a good that generates positive externalities, the best option for policymakers would be to: Answer
provide a subsidy per unit of the good consumed in order to achieve the socially optimal level.
Many customers will walk right past a diner that serves shade-grown coffee and go to Starbucks, where they pay more for a cup of shade grown java. For these customers, cups of coffee are differentiated by:
quality.
A monopolist's marginal cost curve shifts up, but the firm's demand curve remains the same and the firm does not shut down. Compared to the condition before the increase in marginal costs, the monopolist will _____ its price and _____ its level of production.
raise; decrease
The Coase theorem states that in the presence of externalities, a market economy will:
reach an efficient solution if transaction costs are sufficiently low and property rights are well defined.
(Table: Production Possibilities Schedule II) Examine the figure Production Possibilities Schedule II. The production of 14 units of consumer goods and 1 unit of capital goods per period would:
result in some unused or inefficiently used resources.
For consumers, pizza and hamburgers are substitutes. A rise in the price of a pizza causes a _____ in the equilibrium price of a hamburger and a _____ in the equilibrium quantity of hamburgers.
rise; rise
The circular-flow diagram illustrates how firms _____ goods and services and _____ factors of production.
sell; buy
The Herfindahl-Hirschman Index is a measure of concentration found by:
squaring the percentage market share of each firm in the industry and then summing the squared market shares.
The tendency to avoid making a decision is:
status quo bias.
The demand for meals at a local Applebee's will shift to the left if:
the Olive Garden offers a 10% discount coupon in the local newspaper.
A factor that has been associated with the increase in income inequality in the United States is:
the growth in technology.
Keynesian economics stressed:
the importance of total spending.
The economy's factors of production are not equally suitable for producing different types of goods. This notion generates:
the law of increasing opportunity cost.
An increase in the demand for steak will lead to an increase in which of the following?
the supply of leather (a complement in production)
A characteristic of public goods is that:
their benefits cannot be withheld from anyone, regardless of whether a person pays for them.
A monopolistically competitive industry, such as corn snack chips, and a perfectly competitive industry, such as wheat farming, are alike in that:
there are many firms in each industry.
If someone did not regard health care as very important, often using home remedies and other substitutes, compared to other people and holding all other things equal, his or her demand curve for health care would most likely be _____ over the relevant range of prices for health care.
more price-elastic
Assume an economy is operating on its production possibility frontier, which shows the production of military and civilian goods. If the output of military goods is increased, the output of civilian goods:
must decrease.
Suppose the equilibrium price of good X is $25 and the equilibrium quantity is 124 units. If the price of good X is $2:
there will be excess demand for good X.
People may be uninsured for all of these reasons EXCEPT:
they are too old to qualify for health insurance.
An individual is MORE likely to be a free-rider when a good is:
nonexcludable.
Which strategy is a form of strategic behavior defined as behavior intended to influence the future actions of other players?
tit-for-tat strategy
The marginal product of labor is the change in:
total output divided by the change in the quantity of labor.
Total revenue is maximized when demand is
unit-elastic
Economic models often:
vary greatly in assumptions and simplifications.
Suppose that you prefer reading a book you already own to watching TV and that you prefer watching TV to listening to music. If these are your only three choices, what is the opportunity cost of reading?
watching TV
Scarcity in economics means:
we do not have sufficient resources to produce all of the goods and services we want.
Which of the following is an example of physical capital?
welding equipment
Margo spends $10,000 on one year's college tuition. The opportunity cost of spending one year in college for Margo is:
whatever she would have purchased with the $10,000 and whatever she would have earned had she not been in college.
Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, that the price of each candy cane is $0.10, and that the market demand curve is downward sloping. Now suppose that the price of sugar rises, increasing the marginal and average total cost of producing candy canes by $0.05; there are no other changes in production costs. Based on the information given, once all of the adjustments to long-run equilibrium have been made, the price of candy canes will equal:
$0.15
Scenario: A Small-Town Monopolist A monopolist sells cable subscriptions in a small town and finds that it can sell 100 subscriptions when the price is $15 a week and an additional 75 subscriptions when the price is $10 a week. The MC for the provision of the cable is $5 a week. There are no fixed costs. (Scenario: A Small-Town Monopolist) Use the information from the scenario A Small-Town Monopolist. If the company is allowed to offer different prices for its good, what is the maximum amount of profit this company can earn?
$1,375
If a firm has a total cost of $200, its profic-maximizing level of output is 10 units, and it is breaking even (that is, earning a normal profit), what is the market price?
$20
(Table: Production of Good Z and Good X in Urbanville) Examine the table Production of Good Z and Good X in Urbanville. If this represents the production possibility frontier and Urbanville is producing at combination C and moves to combination D, what is its opportunity cost of this move?
15 of X
(Table: The Demand for Chocolate-Covered Peanuts) Examine the table The Demand for Chocolate-Covered Peanuts. If George, Barbara, and Dan are the only three buyers in the market and the price of a bag of chocolate-covered peanuts is $0.50, the total market quantity demanded is _____ bags per month.
210
Suppose the price of e-Books is initially $20 but then decreases to $15. The absolute value of the percentage change in price (using the midpoint method) is approximately:
28%
The price of popcorn is $0.50 per box and the price of peanuts is $0.25 per bag, and Eddie has $10 to spend on both goods. The maximum number of bags of peanuts that he can purchase is:
40
(Table: Supply of Lemonade) Examine the table Supply of Lemonade. If the price of lemonade is $1 per cup, the total quantity of lemonade supplied will be:
90 cups.
Assuming that pretzels are a substitute for popcorn, which statement would cause a decrease in the demand for pretzels?
A higher price of popcorn
A firm is profitable if
ATC<P.
Which of the following is correct?
AVC= ATC-AFC
Assuming that ice cream is a normal good, which statement could cause an increase in the demand for ice cream?
An increase in the price of substitutes for ice cream, such as frozen yogurt
Which statement is correct about celebrity spokespersons advertising products?
Celebrity advertising signals consumers that the product is reliable, because the firm is willing to pay the high fees associated with hiring a celebrity.
Which characteristic makes an industry more conducive to collusive behavior?
Firms in the industry are operating at a maximum productive capacity that cannot be easily altered in the short run.
In the circular-flow diagram, an organization that produces goods or services for sale is a:
Firm
Which of the following is likely to have the highest price elasticity of demand?
Foreign travel
What makes it more difficult for oligopolistic firms to enforce tacit collusion?
Having large enterprises as buyers of the products supplied by the oligopoly
Which of the following would be an expample of irrational behavior?
Ignoring opportunity cost in your calculation of economic cost
If they spend all night writing computer programs, Laurence can write 10 programs whereas Carrie Anne can write 5. If they spend all night making sunglasses, Laurence can make 6 whereas Carrie Anne can make 4. Therefore:
Laurence's opportunity cost of writing programs is less than that of Carrie Anne.
The price elasticity of demand for gasoline in the short run has been estimated to be 0.4. If a war in the Middle East causes the price of oil (from which gasoline is made) to increase, how will that affect total revenue from gasoline in the short run, all other things unchanged?
Quantity demanded will decrease; total revenue will rise.
Which of the follwing is true regarding equity and efficiency in competitive markets?
There is often a trade-off between equity and efficiency.
Which statement would cause total surplus to fall with certainty?
There was a decrease in demand or a decrease in supply.
The value of a negative number without the minus sign is called the _____.
absolute value
In perfectly competitive long-run equilibrium:
all firms produce at the minimum point of their average total cost curves.
A new wonder diet that results in a dramatic weight loss sweeps through America. The key to the diet is to eat unlimited amounts of red meat (beef) but no poultry or carbohydrate-rich foods. As millions of Americans switch to the new diet, one would expect to see:
an increase in the demand for beef, leading to a shift to the right in the demand curve for beef and higher beef prices.
Tara notices that studying for one hour after class increases her economics grade by 11 points. The second hour yields a 7-point gain, the third hour yields a 4-point gain, and the fourth hour yields only a 1-point gain. This means that the marginal _____ of studying decreases with study hours.
benefit.
The long-run industry supply curve will:
be more elastic than the short-run industry supply curve.
Firms in monopolistic competition can acquire some market power:
by using price competition.
If a monopolist is producing a quantity that generates MC = P, then profit:
can be increased by decreasing production.
If a monopolist is producing a quantity that generates MC < MR, then profit:
can be increased by increasing production.
Price discrimination is the practice of:
charging different prices to buyers of the same good.
In the United States in the early twenty-first century, 70% of total income, by far the largest share, took the form of:
compensation of employees.
Because monopoly firms are price-setters, they:
deadweight; reduced
Zoe's Bakery operates in a perfectly competitive industry and has standard shaped cost curves. The variable costs at Zoe's Bakery increase, so all of the cost curves (with the exception of fixed cost) shift upward. The demand for Zoe's pastries does not change, nor does the firm shut down. To maximize profits after the variable cost increase, Zoe's Bakery will _____ its price and _____ its level of production.
do nothing to; decrease
Which of the following best describes a monopolistic competitor's demand curve?
downward sloping
Diminishing marginal returns means that:
each additional unit of an input used will increase output, but by smaller and smaller amounts.
The marginal productivity theory of income distribution says that:
each factor is paid the equilibrium value of the output generated by the last unit of that factor employed in the factor market as a whole.
In perfect competition, a change in fixed cost will:
encourage entry or exit in the long run so that price will change enough to leave firms earning zero profits.
The motivation for a monopolist to engage in price discrimination is to:
enhance its profitability.
The importance of an economic model is that it allows us to:
focus on the effects of only one change at a time.
The other things equal assumption allows economists to
focus on the effects of only one change at a time.
A person with loss aversion:
has a hard time recognizing "losing" investments and moving on.
A perfectly elastic demand curve is
horizontal.
Costs that are included in the economic concept of cost but that are not explicit costs are:
implicit costs.
Households derive income from all EXCEPT:
imports.
Food stamps, Medicaid, and housing subsidies are all examples of:
in-kind transfers.
A technological advance in the production of automobiles will:
increase the supply of automobiles.
If the value of homes in University City increases, and as a result, the people of University City spend more, incomes in University City will:
increase.
Christine has a linear demand curve for candy. If she wants to see her consumer surplus _____, she would like to see a _____ in the market price of candy.
increase; decrease
The price elasticity of demand along a demand curve with a constant slope:
increases in absolute value as the price rises.
In an industry characterized by extensive economies of scale:
large companies are more profitable than small companies.
Whenever marginal benefit is less than marginal cost, the decision maker should do _____ of the activity.
less.
Marginal analysis is relevant for:
only "how much" decisions.
(Figure: Production Possibilities and Circular-Flow Diagram) Examine the figure Production Possibilities and Circular-Flow Diagram. Assume the two figures represent the same economy. Suppose that in the circular-flow diagram a significant increase in productivity occurs inside most of the firms. This results in a significant increase in the output of both coconuts and fish. If all other variables remain unchanged, then the adjustment in this economy would be best represented in the production possibilities figure by a movement from point A toward:
point D (an outward shift of the entire curve).
The most likely reason the government implements a _____ is because it feels the price is too high for _____.
price ceiling; consumers
Increases in resources or improvements in technology will tend to cause a society's production possibility frontier to:
shift outward to the right.
Technological improvements will:
shift the production possibility frontier outward.
The horizontal sum of individual firms' MC curves is the:
short-run industry supply curve.
If the price is less than the average variable cost at the quantity of output where MR = MC, then in the short run, a perfectly competitive firm will:
shut down production.
Economists use models to explain real-life situations because:
simplifications and assumptions often yield results that can help to explain the more difficult real-life situations.
When building a model, economists:
simplify reality in order to highlight what really matters.
The _____ effect of a _____ wage causes individuals to substitute _____.
substitution, higher; labor for leisure
Equilibrium quantity will always increase if:
supply and demand both increase.
Derived demand for a factor means:
the demand for factors depends on what the factor can produce.
A firm's demand curve for labor is:
the downward-sloping portion of its value of the marginal product curve.
One reason that wage discrimination based on gender or ethnicity could continue is:
the existence of higher than equilibrium wages due to market interference or market failure.
When each factor is paid an amount equal to the value of the marginal product of the last unit of that factor employed in the factor market as a whole, this is referred to as:
the marginal productivity theory of income distribution.
Maximum total surplus in the market for chocolate occurs when:
the market is in equilibrium.
A local grocery store benefits when a new furniture factory moves to town and hires workers because:
the new jobs at the new factory will increase local incomes, some of which will be spent at the local grocery store.
Market structures are categorized by which two criteria?
the number of firms and whether or not products are differentiated
In economics, the short run is defined as:
the period in which some inputs are considered to be fixed in quantity.
Private saving by households is:
the portion of disposable income not spent on goods and services.
Which is NOT included in investment spending in the national income accounts?
the purchase of stocks and bonds by a business
The total product curve:
will become flatter as output increases if there are diminishing returns to the variable input.
If the technology of producing peanuts improves and the demand for peanuts is downward sloping, total surplus in the peanut butter market:
will increase.
In the circular-flow diagram:
the flow of money going into each sector or market is equal to the flow of money coming out of that market or sector.
In 2011, most health care costs were paid for by:
the government
Based on your reading about oligopoly in this section, firms in which the following firms have been prosectued for creating illegal cartel?
all of the above
Based on your reading about oligopoly in this section, firms in which the following firms have been prosecuted for creating illegal cartel?
all of the above
The demand curve for running shoes has shifted to the right. What could have caused it?
an increase in the income of buyers of running shoes
If the price of corn rises, one would expect:
the quantity of corn supplied to rise.
The tendency for people to be overconfident explains why:
they tend to procrastinate.
If countries engage in international trade:
they will be consuming outside their production possibility frontiers.
A copper-mining operation discharges waste products into a river and causes higher costs and discomfort to downstream users of the water for which they are not compensated. In this case:
too much of society's resources is being used to produce copper.
Which of the following government actions is the most common for a natural monopoly in the United States?
use price regulation
If a person engages in mental accounting, he or she:
values some dollars more than others.
A factor of production whose quantity can be changed during the short run is a(n):
variable factor of production.
The opportunity cost of something is:
what is given up to acquire it.
A normative statement deals with:
what ought to be.
Which of the following defines the short run?
when at least one input is fixed
If two firms are identical in all respects except that one has more fixed input capital than another, the marginal product curve for the firm with more capital:
will lie above the marginal product curve for the firm with less capital.
In the long run, a perfectly competitive firm will earn?
zero econmomic profit.
In the short run, if a perfectly competitive firm chooses to produce, then its profits are maximized by producing the quantity of output where marginal cost equals marginal revenue.
True.
Which statement is true?
Utility maximization requires seeking the most utility from a given budget.
A decrease in inventories is:
a fall in investment spending that will lead to a drop in future sales.
In perfect competition:
a firm's total revenue is found by multiplying the market price by the firm's quantity of output.
A stock in a company is:
a share of ownership of a company held by a shareholder.
An ambiguous change in price and a decrease in quantity are most likely caused by:
a shift to the left in supply and a shift to the left in demand.
Consider two competing motorcycle manufacturers: Harley-Davidson and Honda. If Harley-Davidson raises the price of its motorcycles, one would expect to see:
a shift to the right in the demand curve for Hondas and higher prices for Hondas.
Actual wage differentials can be partially explained by which example?
differences in talent, different amounts of human capital, and compensating differentials
A firm finds that its long-run average total costs increase as it produces more output. This firm is experiencing:
diseconomies of scale.
A firm that has diminishing returns in the management's ability to use and disseminate information as it increases production in the long run best represents:
diseconomies of scale.
The price elasticity of demand is measured by:
dividing the percentage change in quantity demanded by the percentage change in price.
Which of the following policy tools is inefficient even when correctly administered?
enviromental standards
General Snacks is a typical firm in a market characterized by the model of monopolistic competition. If the market is in long-run equilibrium, then the price General Snacks charges for its snack goods would:
equal average total cost.
If a tax system is poorly designed, it may be possible to increase:
equity without causing inefficiency or increase efficiency without sacrificing equity
Resources are being used efficiently when:
every opportunity to make people better off without making others worse off has been utilized.
Monopolistically competitive firms produce less than the output at which average total cost is minimized in the long run. As a result, there is:
excess capacity.
An important assumption underlying the marginal productivity theory of income distribution is that:
factor markets are perfectly competitive.
A rancher in Oklahoma decides to raise the price of her beef by 19% over the prevailing market price. If the demand for beef is perfectly elastic, this rancher's quantity demanded will:
fall to 0.
If firms are experiencing economic losses in the short run, firms will leave the industry, industry output will _____, and economic losses will _____ in the long run.
fall; fall
A labor market in which there is only one firm hiring labor is called an oligopoly.
false.
Within the circular-flow diagram, the factor market is the place where:
firms buy the resources they need for the production of goods and services.
The demand for strawberry ice cream tends to be relatively price-elastic because:
for most people there are many close substitutes for strawberry ice cream.
Market power in the United States was often gained in the latter part of the nineteenth century by:
forming trusts.
A lower wage:
has an income effect that is always negative with respect to the quantity of labor supplied.
An economy is said to have a comparative advantage in the production of one good if it:
has the lowest opportunity cost for producing a particular good.
One example of a situation in which employers can sometimes organize to pay lower wages is when:
health maintenance organizations organize to get groups of doctors to work together at lower wages than they would earn on their own.
Children raised in poverty have a greater likelihood of living in poverty as adults than do those raised in nonpoor families, because low income is highly correlated with higher:
high school dropout rates, risk of mental problems and behavioral disorders, and with higher rates of illness and hospitalization.
Because of monopoly, consumers experience _____ than with perfect competition.
higher prices
The line along which values of the x-variable are measured is called the _____.
horizontal axis or x-axis
Disposable income refers to:
household income and government transfers less taxes paid to the government.
Jim being paid $7.25 an hour to work at a restaurant is an example in the circular flow of a:
household selling a resource in the factor market.
Within the circular-flow diagram, the market for goods and services is the place where
households buy the products they want.
Lisa works 46 hours a week at a wage of $10 an hour. If her wage increases to $16.50, then:
if leisure is a normal good, the income effect implies that she will work less.
A monopolistically competitive industry is characterized by a:
large number of firms producing similar products, with relatively easy entry for firms.
Assume that Stan just received a promotion and raise. In terms of labor supply, the substitution effect of a higher wage will:
lead him to supply more hours of labor.
The long run is a planning period:
over which a firm can consider all inputs as variable.
Mary goes ahead and buys a new car because she expects to receive a 10% increase in her salary next year. What type of irrational behavior does this best represent?
overconfidence
Which good is most likely to display increasing marginal utility over some range?
paint, because you need it in an amount sufficient to paint at least one entire room
Suppose the price of gasoline increases 10% and quantity of gasoline demanded in Orlando drops 5% per day. Demand for gasoline in Orlando is:
price inelastic.
As a New York businessperson who does a lot of flying, Jared is keenly aware of even small changes in airfare from New York to Chicago. He has flown this route long enough to know that each airline is essentially a perfect substitute for the others. He notices that every time the largest airline changes the price, smaller airlines follow, but the smaller airlines are always priced slightly below the fare of the largest airline. This industry could best be described as one with:
price leadership.
If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:
produce at a profit.
In the long run, all of the firms in a perfectly competitive industry will:
produce at an output level at which average total cost equals marginal cost.
In the short run, if P > ATC, a perfectly competitive firm:
produces output and earns an economic profit.
If tortilla chips are a normal good, what happens to equilibrium price and quantity when there is an increase in income?
Equilibrium price increases and equilibrium quantity increases.
An example of a government transfer is a(n):
Social Security payment.
Suppose at a price of $10 the quantity demanded is 100. When the price falls to $8, the quantity demanded increases to 130. The price elasticity of demand (using the midpoint formula) between the prices of $10 and $8 is approximately:
1.17
Suppose at a price of $10 the quantity demanded is 100. When the price falls to $8, the quantity demanded increases to 130. The price elasticity of demand between the prices of $10 and $8, using the midpoint method, is approximately:
1.17
If Kylie buys 200 units of good X when her income is $200,000 and 300 units of good X when her income increases up to $25,000, her income elasticity of demand, using the midpoint method is
1.8
If Farmer Sam MacDonald can produce 200 pounds of cabbages and 0 pounds of potatoes or 0 pounds of cabbages and 100 pounds of potatoes and he faces a linear production possibility frontier for his farm, the opportunity cost of producing an additional pound of cabbage is _____ pound(s) of potatoes.
1/2
Alison has a linear production possibility frontier in the production of bracelets and necklaces. In one hour, she can produce 5 bracelets or 10 necklaces. What is the opportunity cost for her to make one necklace?
1/2 bracelet
Mark and Julie are going to sell brownies and cookies for their third annual fundraiser bake sale. In one day, Mark can make 40 brownies or 20 cookies, and Julie can make 15 brownies or 15 cookies. What is Mark's opportunity cost to produce one brownie?
1/2 of a cookie
Two countries, A and B, produce two goods, wheat (W) and steel (S). Each has a linear production possibility frontier in both goods. If country A spends all of its available resources to produce wheat, it can produce 500 tons of wheat and 0 tons of steel. If it uses all of its resources to produce steel, it can produce 250 tons of steel and 0 tons of wheat. If country B spends all of its available resources producing wheat, it can produce 400 tons of wheat, and if it spends all of its resources on the production of steel, it can produce 400 tons of steel. (Scenario: Countries A and B) Examine the scenario Countries A and B. If country B produces 300 tons of steel, how many tons of wheat can it produce?
100
Scenario: Countries A and B Two countries, A and B, produce two goods, wheat (W) and steel (S). Each has a linear production possibility frontier in both goods. If country A spends all of its available resources to produce wheat, it can produce 500 tons of wheat and 0 tons of steel. If it uses all of its resources to produce steel, it can produce 250 tons of steel and 0 tons of wheat. If country B spends all of its available resources producing wheat, it can produce 400 tons of wheat, and if it spends all of its resources on the production of steel, it can produce 400 tons of steel. (Scenario: Countries A and B) Examine the scenario Countries A and B. If each country devotes half of its resources to the production of wheat and half to the production of steel, then their combined production of wheat would be _____ and their combined production of steel would be _____.
450; 325
If the price of burritos increases from $4 to $6 and customers decrease their consumption from 20 to 10 burritos, what is the price elasticity of demand (using the midpoint method)?
5/3
Scenario: Tom's Budget Constraint Tom is trying to decide how to allocate his $50 budget for music downloads and online movie streaming when the price of a music download is $1 and the price of a movie is $5. (Scenario: Tom's Budget Constraint) Examine the scenario Tom's Budget Constraint. Which combination of music downloads and movies lies OUTSIDE Tom's budget line?
50 music downloads and 10 movies
(Table: Production Possibilities Schedule II) Examine the table Production Possibilities Schedule II. If the economy is producing at alternative X, the opportunity cost of producing at Y instead of X is _____ units of consumer goods per period.
6
(Table: Production Possibilities Schedule I) Examine the table Production Possibilities Schedule I. The opportunity cost of producing the fourth unit of consumer goods is _____ units of capital goods.
8
Which statement best describes demand?
A change in quantity demanded is a movement along the demand curve, and a change in demand is a shift in the demand curve.
Assuming that hardcover books are a normal good, which statement could cause a decrease in demand for hardcover books?
A decrease in incomes
Assuming that yarn and knitting needles are complements, which statement would cause an increase in the demand for yarn?
A lower price of knitting needles
Why would decision makers choose an option that doesn't give them the best possible economic payoff?
All of the above
Which example illustrates the law of demand?
Consumers buy more personal computers because prices have fallen.
If the two countries specialize and trade, which of the choices below describes the countries' imports?
Country B imports wheat. AND Country A imports textiles.
An increase in the price of wheat, an important ingredient in the production of bread, combined with an increase in the number of people consuming bread, will result in which change in the bread market?
Equilibrium price will increase, but equilibrium quantity may decrease, increase, or stay the same.
An increase in the price of contact lenses will increase the supply of contact lenses.
False
If a firm has to increase output suddenly to meet an increase in demand, its average total cost will decrease in the short run until it has time to add physical capital.
False
In some complex production processes (such as nuclear power plants), some inputs have to be treated as being fixed even in the long run.
False
The efficient way to reduce pollution is to impose strict environmental standards on all polluters.
False
Total surplus is the excess of consumer surplus over producer surplus.
False
When a monopolist practices price discrimination, the monopolist's profits will decrease compared to the monopolist's profits in a single-price monopoly.
False
(Table: Fish and Coconut Production Possibilities) Examine the table Fish and Coconut Production Possibilities. The table shows the maximum amount of fish and coconuts that Tom and Hank can produce if they produce only one good. Tom produces and consumes 9 fish and 2 coconuts, and Hank produces and consumes 3 fish and 2 coconuts. Now they decide to engage in trade. Which statement is incorrect?
For both to become better off, each should specialize in the production of some good. However, because Hank is equally productive in both goods, it doesn't matter which good each specializes in.
Which of the following is true for an oligopoly? I. There are a few firms, each with a large market share. II. The firms in the industry are interdependent. III. The industry experiences diseconomies of scale.
I and II only
Which of the following will cause you to work more as your wage decreases? I. the income effect II. the substitution effect III. a desire for leisure
I only
Which of the following sources of wage differences is/are consistent with the marginal productivity theory of income distribution? I. talent II. discrimination III. efficiency wages
I only.
Which of the following is correct for a perfectly competitive firm? I. The marginal revenue curve is the demand curve. II. The firm maximizes profit when price equals marginal cost. III. The demand curve is horizontal.
I, II, and III
In which of the following market structures will individual firms advertise? I. perfect competition II. oilgopoly III. monopolistic competition
II and III only
Which of the following is true for a perfectly competitive industry? I. There are many firms, each with a large market share. II. The firms in the industry produce a standardized product. III. There are barriers to entry and exit.
II only
Which of the following is true? The simple circular-flow diagram I. includes only the factor markets. II. is a simplified representation of the macroeconomy. III. inclues only the product markets.
II only
At market equilibrium in a competitive market, which of the follow is necessarily true? I. Consumer surplus is maximized. II. Producer surplus is maximized. III. Total surplus is maximized.
III Only
Which of the folowing is an example of the failure of a system of property rights to assign ownership to the appropriate party? I. The ability of one student to sell a used textbook to another student. II. The ability of some fishermen to fish as much as they wish in open waters. III. The ability of a car salesman to make a sale to an interestd buyer.
III Only
Brad spends all of his income on two goods: cameras and coffee. He is purchasing the optimal consumption bundle that maximizes his utility given his budget constraint. At the optimal consumption bundle, which statement is correct?
If the price of cameras is equal to the price of coffee, then the marginal utility of cameras is equal to the marginal utility of coffee.
Which of the following is true of the U.S. poverty rate?
It fell in the 1960's
Budweiser is a brand name that many people recognize. During the Super Bowl each year, this beer company has many of the most successful ads. Which statement is true about advertising for Budweiser?
It is designed to increase the demand for Budweiser.
Suppose small business owners decide to spend less. How will this affect an economy?
It will decrease the level of income of other people, because one person's spending becomes someone else's income.
Scenario: Alexander and Vanessa Two individuals, Alexander and Vanessa, benefit from scientific research. Alexander's marginal private benefit from such research is given by the equation P = 200 - Q, where Q refers to the amount of research undertaken and P is the price Alexander is willing to pay for such research. Vanessa's marginal private benefit from such research is given by the equation P = 100 - Q. Suppose the marginal social cost of engaging in such research is constant at $100. (Scenario: Alexander and Vanessa) Examine the scenario Alexander and Vanessa. If Alexander and Vanessa are the only two individuals in a society, which equation correctly represents the marginal social benefit (MSB) of scientific research?
MSB = 300 - 2Q
Suzy knows she has maximized her utility, because she is on her budget constraint and:
MUCameras/PCameras = MUCoffee/PCoffee.
If the production possibility frontier is a straight line, which statement is true?
Opportunity costs are constant.
For a perfectly competitive firm in the short run, if the firm produces the quantity at which:
P > ATC, then the firm is profitable.
In the short run, a perfectly competitive firm produces output and earns an economic profit if:
P > ATC.
(Figure: Shifts in Demand and Supply II) Examine the figure Shifts in Demand and Supply II. The graph shows how supply and demand might shift in response to specific events. Suppose a drought destroys one-third of the nation's peanut crop. Which panel best describes how this will affect the market for peanuts?
Panel C
The law enacted in 1890 which was intended to prevent the creation of more monopolies and to break up existing ones in the United States was the:
Sherman Antitrust Act.
If the price of DVD players falls and the quantity of DVD players sold increases, which statement may have caused this change?
Supply of DVD players shifts to the right.
Marginal cost can be calculated as:
TC/Q, where TC is total cost and Q is output; VC/Q, where VC is variable cost and Q is output; and as the slope of the total cost curve.
Which of the following is certainly true if demand and supply increase at the same time?
The equilibrium quantity will increase.
Which is an example of a positive statement?
The federal government pays for 46% of U.S. health care costs.
Which statement is an example of bounded rationality?
Tim studies only an hour on the morning of his economics exam because he is satisfied just to make a passing grade.
The price elasticity of demand for cabbage has been estimated to be 0.25. If an insect infestation destroys 20% of the nation's cabbage crop (and thus reduces supply), how will that affect total expenditures on cabbage, all other things equal?
Total expenditures will rise.
A monopolistically competitive firm is limited in the price it can set by the competition it faces from other existing and potential firms that produce close substitutes.
True
A strategy of tit-for-tat involves playing cooperatively at first, then doing whatever the other player did the previous period.
True
Across most industries, oligopoly is far more common than either perfect competition or monopoly.
True
Externalities are side effects on the welfare of others not involved in the production or consumption of a good or service that markets don't take into account.
True
If Coke is able to use price discrimination successfully, some customers may be willing to pay more for a Coke than another very similar soda.
True
In long-run equilibrium in a perfectly competitive market, all firms will be operating at the same level of marginal cost.
True
In the long run, when a firm adds physical capital, its variable cost will decrease.
True
In the short run, when a firm adds physical capital, labor will become more productive.
True
The efficient level of provision of a public good is the level at which its marginal social benefit is equal to the marginal social cost of its production.
True
When long-run average total cost is constant as output increases, the firm is experiencing constant returns to scale.
True
As long as individuals know that they can find the goods and services that they want in the market, they are willing to forgo being self-sufficient and are willing to specialize.
True.
Which group of U.S. workers had the highest median earnings in 2011?
White Males
Consider gas stations where customers pay inside before they pump gasoline. If they introduce a new technology where customers pay at the pump, thus decreasing production costs, there will be:
a shift to the right in the supply curve and lower gas prices.
Bluefin tuna travel in schools throughout the world's oceans. Fishing boats from many nations harvest bluefin tuna as the schools migrate through their national waters. The schools of bluefin tuna are best described as a(n):
a common resource.
A decrease in supply can result from:
an increase in the price of goods that are used in production.
There are diminishing returns to an input when:
an increase in the quantity of the input used, holding other factors constant, leads to a decline in its marginal product.
If the price of mozzarella cheese (an ingredient in pizza) declines, there would be:
an increase in the supply of pizza.
The effect of a tremendous natural disaster can be shown by:
an inward shift of the production possibility frontier.
The market for soft drinks, which is dominated by Coca Cola and Pepsi, is best considered to be:
an oligopoly.
The short run is the period of time in which:
at least one input is fixed.
If ATC is equal to MC, then the firm is operating:
at the minimum point of ATC.
If a good is a luxury item that looms large in the household budget, then, all else equal, demand will tend to:
be more price-elastic.
Economists' and psychologists' attempts to understand and explain why people make decisions that appear to be irrational is the field of study called:
behavioral economics.
The _____ illustrates the trade-offs facing an economy that produces only two goods.
production possibility frontier
Price discrimination
can lead to increased efficiency in the market.
Keynesians argue that low levels of spending:
can lead to prolonged recessions.
An extreme case of oligopoly in which firms collude to raise joint profits is known as a:
cartel
An increase in the wage rate will
cause an upward movement along the labor supply curve.
(Table: Comparative Advantage I) Examine the table Comparative Advantage I. Finland has a comparative advantage in producing:
cell phones only.
The assumption that all factors remain constant except for the variables being studied is called:
ceteris paribus.
Sam and Bob are both policemen with the same educational background. Both have been policemen in Memphis for 10 years. Sam works from 11 at night until 7 in the morning, and Bob works from 7 in the morning until 3 in the afternoon. Sam's salary as a policeman is $800 per month higher than Bob's salary. This is an example of a wage disparity due to:
compensating differentials.
A farmer finds that when he produces more corn, he also has more corn stalks that he can sell as decorations. To the farmer, corn and corn stalks are:
complements in production.
Good X and good Y are related goods. If the price of good X increases and the demand curve for good Y shifts left, these goods are:
complements.
Leisure is considered a normal good, because people:
consume more of it when their incomes rise.
Because of trade, a country may:
consume outside its production possibility frontier.
Generally, each successive unit of a good consumed will cause marginal utility to
decrease.
A higher tax rate is more likely to increase tax revenue collected if the price elasticity of:
demand and supply are both low.
Assuming that American and French wines are substitutes in consumption, if the U.S. government imposes a quota on the amount of French wine allowed into the United States and the quota is set at a quantity below equilibrium, the price of French wine in the United States will ____ while the U.S.-produced wine will _____.
increase; increase
If a perfectly competitive firm is producing a quantity where P > MC, then the firm can increase profit by:
increasing production.
An oligopoly may result from:
increasing returns to scale in the industry.
A monopolist responds to an increase in marginal cost by _____ price and _____ output.
increasing; decreasing
A monopolist responds to an increase in demand by _____ price and _____ output.
increasing; increasing
Historically, the limits imposed by diminishing returns have been alleviated by
investment in capital.
An economic model:
is a simplified version of reality used to understand real-world economic conditions.
If the quantity of housing supplied in a community is greater than the quantity of houses demanded, the existing price:
is above the market equilibrium price.
Factor market demand is called derived demand because it
is derived from the product market
The marginal revenue received by a firm in a perfectly competitive market:
is equal to its average revenue.
If a perfectly competitive firm is producing a quantity where P = MC, then profit:
is maximized.
Which of the following markets is an example of a regulated natural monopoly?
local cable TV
Lucy bought some stock 10 years ago that has been priced at half of her purchase price for the past 5 years. However, Lucy refuses to sell the stock, thinking that if she waits long enough, she will recover her investment. What type of irrational behavior does this represent?
loss aversion
The demand for agricultural output is price inelastic. This means that if farmers, taken collectively, have a bumper crop, they will experience:
lower prices, greater quantities sold, and lower incomes.
The broccoli market is perfectly competitive. This means that the price of broccoli is _____ than the price would be if the market were monopolistically competitive, and broccoli output is _____ than if it were monopolistically competitive.
lower; greater
When firms price-discriminate, people with _____ price elasticity of demand will pay _____ prices relative to those purchasing the same product who have a _____ price elasticity of demand.
lower; higher; higher
A decrease in the price of butter would most likely decrease the demand for
margarine.
The amount by which an additional unit of an activity increases total benefit is:
marginal benefit.
The curve that shows the additional cost of each additional unit of output is called the:
marginal cost curve.
The slope of the total product curve is also known as
marginal product.
As Jake consumes more turkey relative to mashed potatoes, the _____ of turkey eventually decreases.
marginal utility
The amount by which total utility rises when an additional slice of pie is consumed is called:
marginal utility.
When an activity such as education generates a positive externality, the:
market demand curve is below the marginal social benefit curve.
The lack of property rights and inaccuracy of prices as economic signals often lead to:
market failure.
Equilibrium in the market for peanut butter is disturbed by an increase in the price of peanuts. Producer surplus in the peanut butter market:
may change, but it is impossible to tell if it will increase or decrease.
Among the drawbacks of brand names is the fact that they:
may encourage the consumption of expensive substitutes for generic items.
Programs designed to only help those with low incomes are called
means-tested programs
A _____ program is one for which the recipient qualifies on the basis of _____.
means-tested; income
Joshua is tired of school and his part-time job and decides on the spur of the moment to take a weekend trip to Cabo San Lucas. He pays for it with his credit card rather than with money from his checking account. Which type of irrational behavior does this best represent?
mental accounting
A firm should continue to produce in the short run as long as price is at least equal to
minimum ATC.
A simplified version of reality that is used to understand economic situations is called a(n):
model
Unemployment insurance is a(n):
monetary transfer that is not means-tested.
The city bus system charges lower fares to senior citizens than to other passengers. Assuming that this pricing strategy increases the profits of the bus system, one can conclude that senior citizens must have a _____ for bus service than other passengers.
more elastic demand
Trade can be beneficial to an economy because:
more goods and services can be obtained at a lower opportunity cost.
If the slope is not the same between every pair of points, it is a _____.
nonlinear curve
A statement that says that the minimum wage should be increased is a(n):
normative statement.
(Table: The Market for Chocolate-Covered Peanuts) Examine the table The Market for Chocolate-Covered Peanuts. If the price of chocolate-covered peanuts is $0.60, the price will:
not change.
The market structure that is characterized by only a small number of producers is referred to as a(n):
oligopoly.
The optimal consumption bundle is always represented by a point
on the consumer's budget line.
Alison is offered two jobs: one pays a salary of $45,000 per year and offers three weeks of vacation, while the other offer provides two weeks of vacation and a salary of $54,000. What is the opportunity cost for Alison if she chooses the job offer of $54,000?
one week of vacation
The Bountiful Bakery is considering hiring another pastry chef. The bakery knows the average product of its chefs is 15 dozen croissants per day. It also believes that the next chef hired will produce an extra 12 dozen croissants per day. A dozen croissants sell for $30. The bakery should hire another worker:
only if the new chef's daily wage is $360 or less.
The substitution effect always involves a change in consumption in the _____ the _____ change.
opposite direction to; price
Although most citizens have access to police protection, they also take measures, such as putting locks on their doors, to protect themselves. For most citizens police protection is a(n) _____ good, whereas self-protection is a(n) _____ good.
public; private
Which of the following is most likely to be higher for a regulated natural monopoly than for an unregulated natural monopoly?
quantity
The market demand for singing dolls is initially made up of 50 buyers. Suppose the number of buyers decreases by 10. Holding everything else constant, one would expect the:
quantity supplied to decrease.
People who have higher levels of human capital will tend to:
receive higher salaries than those who have lower levels of human capital.
We have to make choices because:
resources are scarce.
In the circular-flow diagram, firms spend money to buy:
resources in the factor market.
When a firm is a perfect competitor in the product market, its demand curve for labor will _____ as the _____ declines as additional workers are hired.
slope downward; marginal product
A share in the ownership of a company held by a shareholder is considered a(n):
stock
To calculate the Herfindahl-Hirschman Index, one must:
sum the squared market shares of all firms in the industry.
The _____ tomatoes will decrease if fertilizer prices rise.
supply of
Taxes are a more effective method of controlling pollution than environmental standards because:
taxes encourage reducing pollution at the lowest possible cost.
Although horses were once a very important factor of production, the development of automobiles and other machinery reduced the demand for their use. This is an example of:
technological progress shifting the demand for horses to the left.
One example of a source of external benefits is
technology spillover
The total producer surplus for a good can be calculated by all of these calculations EXCEPT:
the area below the supply curve for the good up to the quantity of the good sold
Quota limits cause:
the demand price to be greater than the supply price.
In the long run:
the firm has time to change the level of all inputs.
If the regulation of a monopoly results in a price equal to marginal cost but the price is below average total cost:
the firm will require subsidization or it will go out of business.
