Econ Final exam
Lorna's Lumberyard is a monopsony. Lorna estimates that at a wage of $10, 100 workers would be willing to work for her. Similarly, at a wage of $12, 200 workers would be willing to work. Her marginal factor cost is
$14
As shown in Exhibit 1, the firm will produce in the short run if the price is at least equal to
$15 per unit (point B)
As shown in Exhibit 1, the price at which the firm earns zero economic profit in the short-run is
$20 per unit
As shown in Exhibit 1, the total cost of producing 3 units is
$208
As shown in Exhibit 1, the marginal cost of producing the fifth unit is
$23
In Exhibit 2, the equilibrium price per bushel of wheat is
$2
To maximize long-run profits, the monopolistically competitive firm shown in Exhibit 1 will charge a price per unit of
$40
At a price of $5, 24 units of the good would be sold; at a price of $7, 25 units of output would be sold. The marginal revenue of the 25th unit of output is
$55
If a Japanese television priced at 1,000,000 yen can be purchased for $1,000, the exchange rate is
1,000 yen per dollar
Suppose that when price is $10, quantity supplied is 20. When price is $6, quantity supplied is 12. The price elasticity of supply is
1.0
As shown in Exhibit 1, 20 percent of families earned a cumulative share of about _____ percent of income
10
The number of countries of the world classified as IACs in the text is
27
As shown in Exhibit 1, what is the socially efficient number of cigarettes
3
As presented in Exhibit 1, the long-run profit-maximizing output for the monopolistic competitive firm is
400 units per week
The law of diminishing marginal utility exists for the first four units of a good if they have marginal utilities of
8, 4, 2, 1
Which of the following can be a barrier to an LDC's economic growth and development?
A low level of human capital
What type of economic system is commonly described as being controlled by an "invisible hand'?
A market economy
Which of the following statements is true?
A monopsony is the only employer of a factor of production
Other things being equal, the effects of an increase in the price of computers would best be represented by which of the following?
A movement up along the demand curve for computers
Assume that Coca-Cola and Pepsi-Cola are substitutes. A rise in the price of Coca-Cola will have which of the following effects on the market for Pepsi?
A rightward shift in the Pepsi demand curve
Which of the following mergers would result from the purchase of a paper mill by a textbook publishing company?
A vertical merger
Which of the following statements is true?
According to Karl Marx, under capitalism, workers would be exploited and would revolt against the owners of capital
If a textbook price rises and then students reduce the quantity demanded of textbooks, an economic model can show a cause-and-effect relationship only if which of the following occurs?
All other factors are held constant
Which of the following will increase the demand for large automobiles?
An increase in buyers' incomes (assuming large automobiles to be a normal good)
In Exhibit 1, which of the following would not cause a shift from S1 to S2?
An increase in consumer income
Which of the following would be most likely to cause the production possibility curve for tanks and cars to shift outward?
An increase in the quantity of natural resources
Which of the following would be most likely to cause the production possibility curve for computers and education to shift outward?
An increase in the quantity of resources.
is the act of buying a commodity in one market at a lower price and selling it in another market at a higher price
Arbitrage
If water is essential for life, while diamonds are not, then why is water cheaper than diamonds?
Because water is abundant, the marginal utility of water is low, and price reflects marginal utility, not total utility
A firm that acquires the stock of a competing firm and there is a substantial lessening of competition, would be in violation of the
Clayton Act
Price discrimination that tends to lessen competition is outlawed by the
Clayton Act
Which antitrust act prohibits exclusive dealing, tying contracts, stock acquisitions, and interlocking directorates?
Clayton Act of 1914
Which of the following statements is true?
Command-and-control regulations set an environmental goal and dictate how the goal will be achieved
Which of the following statements is true?
Discrimination against women and blacks reduces the demand for these workers resulting in lower wages paid these workers.
Which of the following is not a factor of production?
Dollars
In Exhibit 1, an increase in demand would cause a move from which equilibrium point to another, other things being equal?
E1 to E4
Which of the following statements is true?
Marginal factor cost is the extra cost to a firm of employing one more unit of a factor of production
Which of the following is true at the point where diminishing returns set in?
Marginal product is at a maximum and marginal cost at a minimum
Which of the following is a characteristic of capitalism?
Market determination of prices and quantity
Which of the following is the environmental approach found in the Clean Air Act of 1990?
Marketable pollution permits
In long-run equilibrium for a perfectly competitive firm, price equals which of the following?
Minimum point on the long-run average cost curve
Which of the following statements is true?
Most real-world economies are mixed economic systems
Which of the following is a characteristic of an oligopoly?
Mutual interdependence in pricing decisions
Which of the following is true about an oligopoly equilibrium in comparison with equilibrium under similar circumstances but with perfect competition?
Output is smaller and price is higher than under perfect competition
Which of the following is true in a market economy?
Resources are used efficiently
Which of the following statements is true
Specialization and trade along the lines of comparative advantage allows nations to consume more than if they were to produce just for themselves
Which of the following describes a tying contract
The seller of one product requires the buyer to purchase some other product (s)
If there are external benefits for good X then which of the following is true?
The socially efficient amount of good X can be achieved if society subsidizes consumers of good X
When the price of a good rises, one effect of this change in price is that some consumers switch to more affordable substitutes, which helps us understand the law of demand
The substitution effect
Which of the following best describes social benefits?
The sum of external benefits and private benefits
Which of the following best describes social costs?
The sum of external costs and private costs
As shown in Exhibit 1, the perfect equality line is drawn between points
W and Y along the straight line
Which of the following is a public good?
a. Air traffic control. b. National defense. c. Clean air. d. All of the answers above are correct. D
A country that can produce a good using fewer resources than another country has a (an)
absolute advantage
Supporters of advertising claim that it
allows new competitors a chance to gain market share
The subject of economics is primarily the study of
decision-making because of the problem of scarcity
The income effect refers to a change in
diminishing marginal utility
If the percentage change in the quantity demanded of a good is greater than the percentage change in price, price elasticity of demand is
elastic
Three of the four events described below might reasonably be expected to shift the demand curve for beef to a new position. One would not shift the demand curve. The single exception is a (an):
fall in the price of beef
. In Exhibit 2, if the price moves from $2.00 to $1.00, inventories will
fall.
Assume the price of good X increases. As a result, your real income decreases and you decrease the quantity of good X purchased each month. This is an example of the
income effect
The Smith family buys much more macaroni when someone in the family is laid off. This means that the Smiths' ___________ is negative
income elasticity for macaroni
If there is bilateral currency trade between Japan and the U.S., then as the supply of U.S. dollars on the world foreign exchange market __________, the price of a dollar in terms of Japanese yen will ____________
increases, fall
A third party is
the party to which a contractual agreement is meant to benefit.
Firms that place their assets in the custody of a board of trustees is called a
trust
In Exhibit 1, the United States has a comparative advantage in producing
wheat
As shown in Exhibit 1, the total cost of producing 5 units is
$250
Assume Ajax Company employs 100 workers and total revenue is $400,000. When Ajax Company employs 101 workers, total revenue is $405,000. The marginal revenue product of the 101st workers is
$5,000
In Exhibit 1, the monopolist would charge which of the following prices to maximize profit or minimize its loss?
$70
A farm is able to produce 5,000 bushels of peaches per season on 100 acres. Assume it adds one more acre and is able to produce 6,000 bushels per season. The marginal product of the additional acre of land for this farm is
1,000 bushels per acre per year.
Which of the following would not be classified as a capital resource?
100 shares of stock in General Motors
The opportunity cost of receiving a 90 rather than an 80 on the accounting exam is represented by how many points on the economics exam?
15 points
Karl Marx was a (an)
19th century German philosopher
Assume the total utility corresponding to the first four units of a product consumed are 8, 12, 14, and 15, respectively. The marginal utility of the third unit consumed is
2
If the units of variable input in a production process are 1, 2, 3, 4, and 5, and the corresponding total outputs are 30, 34, 37, 39, and 40, respectively. The marginal product of the fourth unit is
2
As shown in Exhibit 1, 40 percent of families earned a cumulative share of about _____ percent of income
20
The highest fifth of all families receive approximately percent of the distribution of annual money income among families
20
If 1 U.S. dollar can be exchanged for 5 euros, then 1 euro can be exchanged for
20 cents
As shown in Exhibit 1, if non-smokers have a right to a smoke-free environment, and smokers have the right to negotiate, how many days of life will Lacy lose?
3
As shown in Exhibit 1, if smokers have the right to smoke as many cigarettes as they wish, and non-smokers have the right to negotiate, how many cigarettes will Zachary smoke?
3
In Exhibit 1, Ireland's opportunity cost of producing one unit of wheat is
3 units of potatoes
As shown in Exhibit 1, the price elasticity of demand for good X between points E and Z is
3/13 = 0.23.
In Exhibit 1, the profit‑maximizing or loss‑minimizing output for the monopolist is
300 units per day
Which of the following most closely represents the share of total U.S. income for the poorest 20 percent of all U.S. families?
4 percent
As shown in Exhibit 1, the price elasticity of supply for good X between points E and X is
5/7 = 0.71
In Exhibit 1, if the price of the firm's product is $20 per unit, the firm will produce
60 units per day
As shown in Exhibit 1, if the price is either $10, $15, $20, or $40, the firm's economic profit is maximum at which of the following outputs?
80 units per day
Which of the following best represents the effects of a decrease in the price of tomato juice, other things being equal
A downward movement along the demand curve for tomato juice
Which of the following cause(s) economic growth?
A. Answers c and d are correct. b. Answers d and e are correct. c. The production of more scarce goods d. A technological improvement e. The production of more capital goods B
What famous economist said that the market economy seemed to be controlled by an invisible hand?
Adam Smith
Who was one of the first proponents of employing market economies instead of command economies?
Adam Smith
As shown in Exhibit 1, the short-run supply curve for the firm corresponds to which segment of its marginal cost curve?
B and all points above
Why don't competitive markets do a good job providing public goods?
Because it is difficult to exclude people from gaining benefits from public goods without paying for them, and so market demand does not reflect the benefits to society from the public good.
Which of the following would occur if the government imposed a price floor (support price) of $4 per bushel in the wheat market shown in Exhibit 2?
Buyers would not purchase all of the wheat grown
In Exhibit 1, the price elasticity of supply for good X between points E and X is
C
Which of the following statements is true?
Consumer equilibrium is a combination of goods and services consumed which maximizes total utility from a given budget
International comparisons of per-capita GDP may not reflect standard of living because ____________.
Currency exchange rates may not fully account for differences in purchasing power, and thus people in a country with high per-capita GDP may have a lower standard of living because of high local prices for food, housing, or other necessities.
In Exhibit 1, an increase in quantity supplied would cause a move from which equilibrium point to another, other things being equal?
E1 to E4
Beginning from an equilibrium at point E2 in Exhibit 1, an increase in demand for good X, other things being equal, would move the equilibrium point to
E3
The market shown in Exhibit 1 is initially in equilibrium at point E4. Union negotiations result in a wage increase. Other things being equal, which of the following is the new equilibrium after this wage increase is in effect?
E3
Which of the following statements is true?
Emissions-trading is trading that allows firms to buy and sell the right to pollute
Assume costs are identical for the two firms in Exhibit 2. If both firms were allowed to form a cartel and agree on their prices, equilibrium would be established by
Exxon charging the high price and Texaco charging the high price
Suppose costs are identical for the two firms in Exhibit 2. Each firm assumes without formal agreement that if it sets the high price its rival will not charge a lower price. Under these "tit-for-tat" conditions, equilibrium will be established by
Exxon charging the high price and Texaco charging the high price
An increase in inflation in the United States relative to the rate in France would make
French goods relatively less expensive in the United States and U.S. goods relatively more expensive in France
Socialism is correctly described by which of the following statements?
Government ownership of many resources and centralized decision-making answers the basic economic questions.
Which of the following is a characteristic of socialism?
Government ownership of most of the factors of production
Which of the following statements is true?
Government regulation of a natural monopoly is economically justifiable
Which of the following is not an idea advocated by Adam Smith?
Government should the control the economy with an "invisible hand"
Which of the following would cause the U.S. dollar to depreciate against the Japanese yen?
Higher incomes in the United States
According to the classification in the text, which of the following is not a LDC?
Hong Kong
Which of the following is a positive statement?
If taxes are raised, unemployment will drop.
Which of the following are not counted when we compare a family's income to the poverty line?
In-kind transfers such as food stamps, Medicaid, and public housing
Which of the following is one common criticism of capitalism?
Inadequate environmental protection
If each nation in Exhibit 1 specializes in producing the good for which it has a comparative advantage, then
Ireland would produce potatoes
Who predicted that the exploitation of workers would cause capitalism to self-destruct?
Karl Marx
Which of the following is true about renewable resources?
Land resources include forests, range lands, and marine fisheries that naturally regenerate
Which of the following is an outcome of advertising for a monopolistically competitive firm?
Long-run average costs shift upward
Which of the following is not a common characteristic of industrially advanced countries (IACs)?
Low per capita energy consumption
Which of the following statements is false?
MC equals the change in ATC divided by the change in Q
In Japan, the government agency that combines government and businesses in joint ventures is called
MITI
Which of the following is a characteristic of the monopolistic competition market structure?
Many firms and differentiated products
Which of the following is a property of a public good?
Many individuals benefit simultaneously
Which of the following is true for a lower price elasticity of demand coefficient?
Many substitutes exist
Which of the following does not illustrate opportunity cost?
More consumer spending now means more spending in the future
An example of the command-and-control approach to environmental policy is
None of the answers above are correct
Assume consumer demand for CD-ROMs increases. The result is a (an)
None of the answers above are correct
Compared to incentive-based regulation, command-and-control legislation
None of the answers above are correct
Incentive-based regulatory approaches
None of the answers above are correct
One reason the supply of carpenters is greater than the supply of physicians is because
None of the answers above are correct
Suppose a change in technology increases the marginal product of labor. The result is a (an)
None of the answers above are correct
The official poverty line is defined as
None of the answers above are correct
Which of the following is evidence that OPEC is an effective cartel?
None of the answers above are correct
Which of the following might increase the supply curve of labor?
None of the answers above are correct
Which of the following statements concerning the supply of labor is true?
None of the answers above are correct
Which of the following is not generally considered to be an ingredient for economic growth?
Political instability
Which of the following best describes the cycle of poverty?
Poor countries stay poor because they cannot afford to invest in education, infrastructure, and capital accumulation.
If the firm represented in Exhibit 2 is operating with a plant whose size corresponds to short-run average total cost curve A, the level of output that would minimize its short-run average total cost is:
Q1 units per week
Given the short-run average total cost curves in Exhibit 2, what level of output per week minimizes average total cost
Q2 units
In Exhibit 2, short-run average total cost, short-run marginal cost, and long-run average cost are all equal at which level of output per week?
Q2 units
In Exhibit 2, economies of scale exist up to
Q2 units of output per week
Suppose a firm offers quantity discounts or special promotional allowances only to favored distributors, and the effect is to substantially lessen competition. This firm would be in violation of the
Robinson-Patman Act
Which antitrust act prohibits price fixing and other conspiracies and combinations that restrain trade and attempts to monopolize?
Sherman Act of 1890
The antitrust law that prohibits firms from combining or conspiring to restrain trade in interstate commerce is the
Sherman Antitrust Act
The "Four Tigers" of East Asia are the newly industrialized countries of Taiwan, South Korea, Hong Kong, and
Singapore
Which of the following is a market structure of monopoly?
Single firm that is a price maker
The poorest regions in the world, as measured by GDP per capita, are
Sub-Saharan Africa and South Asia
Which of the following statements is true?
Temporary Assistance to Needy Families (TANF) is an example of a cash payment made by government to the impoverished
The per se rule applied in which of the following cases?
The Alcoa case
Which of the following makes short-term, conditional loans to developing countries?
The Internation Monetary Fund (IMF)
Which of the following statements is true?
The Lorenz curve indicates the degree of income inequality in an economy
Which of the following correctly describes the Lorenz curve?
The Lorenz curve shows the cumulative distribution of family income, ranked from the poorest to the richest families, and compares that curve with the straight line indicating perfectly equal income distribution
Which of the following deals most centrally with price discrimination?
The Robinson-Patman Act
Which of the following is an example of a multilateral lending agency that makes loans, rather than gifts of foreign aid, to less-developed countries?
The World Bank
Which of the following is the marginal factor cost of a monopsony?
The additions to total cost resulting from a one-unit increase in the quantity of a variable factor employed (ex: labor)
In a perfectly competitive industry, which of the following is true?
The competitive price is lower and quantity higher than the socially efficient point
Which of the following is true of a perfectly competitive firm?
The firm will not earn an economic profit in the long run
Which of the following government programs provides recipients with in-kind benefits?
The food stamp program
When the price of a good increases, one effect of this price increases is that consumers of that good experience a decline in their purchasing power that is like a decline in income. For normal goods, this contributes to the law of demand. What is this effect called?
The income effect
Which of the following is a difference between a monopolist and a firm in perfect competition?
The marginal revenue curve is downward‑sloping
Suppose a price ceiling is set by the government below the market equilibrium price. Which of the following will result?
The quantity demanded will exceed the quantity supplied
Suppose a new pollution tax of $0.01 per kilowatt-hour of electricity is imposed on coal-fired power producers by the federal government. Which of the following correctly describes how this tax will affect the market for electricity served by these power plants?
The supply of electricity will decrease.
Suppose the value of the U.S. dollar in terms of Japanese yen declined substantially. Which of the following would be consistent with this situation?
The supply of yen generated by Japanese buying U.S. goods is low, while the demand for yen generated by U.S. consumers buying Japanese goods is high
Which of the following is true for the law of demand?
There is an inverse relationship between the price of a good and the quantity of the good demanded.
Which of the following is not an argument used in favor of protectionism?
To reduce prices paid by domestic consumers
Adam Smith's book The Wealth of Nations was published at the time of the
U.S. Declaration of Independence
Which of the following is included in the study of macroeconomics
Unemployment in the nation.
According to the classification in the text, which of the following is not an IAC?
United Arab Emirates
Which of the following offers the best economic justification for subsidizing vaccinations for infectious disease on the basis of efficiency?
Vaccinations create a positive externality for society because they reduce the chances and the scope of epidemics
If the labor market shown in Exhibit 1 is a monopsony, the wage rate and number of workers employed will be determined at point
W
Which of the following is not one of the three fundamental economic questions?
What to produce?
Which of the following statements is true?
When a nation exports more than it imports it is running a balance of trade surplus
Which of the following statements is true?
When marginal productivity of a variable input is falling then marginal costs of production must be rising
A profit-maximizing monopsonist will set the quantity of labor it will employ based on which of the following conditions?
Where marginal revenue product equals marginal factor cost
As shown in Exhibit 1, an unregulated monopolist would operate at point
X
As shown in Exhibit 1, assuming good X is an inferior good, a decrease in consumer income, other factors held constant, will move the equilibrium from point E to point
X
As shown in Exhibit 1, assuming goods X and Y are substitutes, a decrease in the price of Y, other factors held constant, will move the equilibrium from point E to point
X
As shown in Exhibit 1, if the monopolist is allowed to maximize profits, it will operate at point
X
If the labor market shown in Exhibit 1 is competitive, the wage rate and number of workers employed will be determined at point
X
Which of the following moves from one point to another in Exhibit 2 would represent an increase in economic efficiency?
X to Y
As shown in Exhibit 1, assuming good X is a normal good, a decrease in consumer income, other factors held constant, will move the equilibrium from point E to point
Y
Which of the following statements is true?
a. A less developed country (LDC) is a country with a low GDP per capita, low levels of capital, and uneducated workers. b. The vicious circle of poverty exists because GDP must rise before people can save and invest. c. LDCs are characterized by rapid population growth and low levels of investment in human capital. d. All of the answers above are correct. D
The rule of reason was applied in which of the following cases?
a. American Tobacco Trust case. b. U.S. Steel case. c. Standard Oil case. d. All of the answers above are correct D
Suppose the government imposes rent control (a price ceiling) below the equilibrium price for rental housing. Which of the following will result?
a. Black markets b. The quality of existing rental housing deteriorates c. Shortages d. All of the answers above are correct D
Which of the following will not cause a movement along the supply curve?
a. Changes in the sellers' expectations. b. Increases in taxes per unit of output. c. Advances in technology. d. All of the answers above are correct. D
Which of the following statements is true?
a. Derived demand for labor depends on the demand for the product labor produces. b. Unions may increase demand or decrease the supply of labor. c. Investment in human capital is expected to increase the demand for those workers. d. All of the answers above are correct D
Which of the following statements is true?
a. Economic profit equals accounting profit minus implicit costs. b. The short run is any period of time in which there is at least one fixed input. c. A fixed input is any resource for which the quantity cannot change during the period under consideration. d. In the long run there are no fixed costs. e. All of the answers above are correct. E
Which of the following is a problem when comparing GDPs per capita between nations?
a. GDP per capita is subject to greater measurements errors for LDCs compared to IACs. b. Fluctuations in exchange rates effect differences in GDP per capita. c. GDP per capita fails to measure income distribution. d. All of the answers above are correct. D
Which of the following is true of a perfectly competitive market?
a. If economic profits are earned then the price will fall over time. b. In long-run equilibrium P = MR = SRMC = SRATC = LRAC. c. A constant-cost industry exists when the entry of new firms has no effect on their cost curves. d. All of the answers above are correct D
Which of the following statements is true?
a. If the income elasticity of demand is less than zero, the good is an inferior good. b. Only if the demand curve is vertical will sellers raise the price by the full amount of a tax. c. Two goods are substitutes if the cross-elasticity of demand coefficient is positive. d. A price elasticity of supply coefficient equal to 1.5 means the product exhibits an elastic supply and a 10 percent increase in the price will increase the quantity supplied by 15 percent. e. All of the answers above are correct E
Which of the following is true about advertising by a firm?
a. It is not always successful in increasing demand for a firm's product. b. It can increase demand and make demand more inelastic. c. It may reduce per unit costs of production when economies of scale exist. d. All of the answers above are correct D
Which of the following is true for the monopolist
a. Marginal revenue is less than the price charged. b. Economic profit is possible in the long run. c. Profit maximizing or loss minimizing occurs when marginal revenue equals marginal cost. d. All of the answers above are correct. D
Which of the following would eliminate scarcity as an economic problem?
a. Moderation of people's competitive instincts. b. Discovery of sufficiently large new energy reserves. c. Resumption of steady productivity growth. d. None of the answers above are correct. D
Which of the following involved deregulation?
a. Motor Carrier Act of 1982. b. Staggers Rail Act of 1980. c. Airline Deregulation Act of 1978. d. All of the answers above are correct. D
Which of the following is included in the current account?
a. Net unilateral transfers. b. Merchandise imports. c. Merchandise exports. d. All of the answers above are included in the current account D
Which of the following is an example of market failure?
a. Public goods. b. Externalities. c. Lack of competition. d. All of the answers above are correct. D
Which of the following is true concerning GDP per capita comparisons?
a. The accuracy of LDC GDP per capita data is questionable. b. GDP per capita ignores the degree of income distribution. c. GDP per capita is affected by exchange rate changes. d. GDP per capita does not account for the difference in cost of living among nations. e. All of the answers above are correct E
Market structure describes which of the following characteristics?
a. The ease of entry into and exit from the market. b. The similarity of the product sold. c. The number of firms in each industry. d. All of the answers above are correct. D
Which of the following statements is true?
a. There is no single correct strategy for economic growth and development. b. In general, GDP per capita is highly correlated with alternative quality of life measures. c. The "New International Economic Order" is a set of proposals by LDCs that would give them greater control over the policies of international financial institutions. d. All of the answers above are correct. D
An oligopoly
a. and monopolistically competitive market produce less and charge higher prices than if their markets were perfectly competitive. b. is characterized by mutual interdependence of pricing decisions. c. may be characterized by a kinked demand curve. d. all of the above answers are correct D
When the price of a normal good falls, then
a. both the income and substitution effects combine to cause the quantity demanded to increase. b. the substitution effect will cause people to buy more because the good is relatively less expensive. c. the income effect will cause people to buy more because of the increased purchasing power associated with the lower price. d. All of the answers above are correct. D
The Lorenz curve measures the
a. distribution of wealth. b. effectiveness of government transfer payments. c. extent to which family incomes are affected by welfare. d. All of the answers above are correct. D
A monopoly
a. faces the market demand curve which is downward sloping. b. has a marginal revenue curve which slopes downward and lies below its demand curve. c. will maximize profits by producing an output level where MR = MC. d. All of the answers above are correct. D
Which of the following is a basic question by an economic system?
a. for whom goods and services are produced. b. how goods and services are produced. c. what goods and services are produced. d. All of the answers above are correct D
A cartel
a. is a group of firms formally agreeing to control the price and the output of a product. b. has as its primary goal to reap monopoly profits by replacing competition with cooperation. c. is illegal in the United States, but not in other nations. d. All of the answers above are correct. D
Trade between nations A and B
a. leaves the production possibilities curve of nation A unchanged. b. leaves the production possibilities curve of nation B unchanged. c. increases the consumption possibilities curves of both nations. d. None of the answers above are correct. e. All of the answers above are correct E
Suppose a state discovered chemical compounds in their water. The source of these chemicals is the waste discharges of industrial plants in another state. This is an example of a (an)
a. market failure where the market price of the output of these industrial plants does not fully reflect the social cost of producing these goods. b. external cost imposed by the industrial plants of another state. c. externality where the marginal social costs of producing these industrial goods differ from the marginal private costs. d. All of the answers above are correct. D
A monopolistically competitive firm will
a. maximize profits by producing where MR = MC. b. not likely earn an economic profit in the long run. c. shut down if price is less than average variable cost. d. All of the answers above are correct. D
A monopolized market is characterized by
a. sole seller of a product for which there are few suitable substitutes. b. very strong barriers to entry. c. a single firm facing the market demand curve. d. All of the answers above are correct. D
In a perfectly competitive industry, assume there is a permanent increase in demand for a product. The process of transition to a new long-run equilibrium will include
a. the exit of firms. b. temporarily lower production costs. c. Both answers a and b are correct. d. Neither answers a nor b is correct. D
If the dollar appreciates (becomes stronger) this causes
a. the relative price of U.S. goods to increase for foreigners. b. the relative price of foreign goods to decrease for Americans. c. U.S. exports to fall and U.S. imports to rise. d. a balance of trade deficit for the U.S. e. All of the answers above are correct. E
All of the following are examples of capital except
an uncut diamond that you discover in your backyard
Assume a monopolist charges a price corresponding to the intersection of the marginal cost and marginal revenue curves. If this price is between its average variable cost and average total cost curves, the firm will
assume demand will increase in the future
Which of the following statements best describes the price, output, and profit conditions of monopoly?
assume demand will increase in the future
A monopoly will price its product
at that point on the market demand curve corresponding to an output level in which marginal revenue equals marginal cost
Assume that an oligopolist has a kinked demand curve. Suppose that the marginal cost curve passes through the gap in the marginal revenue curve. This means price and output will be shown by a point
at the kink
A monopolist earns an economic profit only when
average total cost is less than price
A public good will
be provided in less than efficient quantities by the free market
In Exhibit 1, the United States has an absolute advantage in producing
both
If demand price elasticity measures 2, this implies that consumers would
buy 2 percent more of the product in response to a 1 percent drop in price
If a consumer wishes to maximize satisfaction given limited income and MUx/Px<MUy/Py then the consumer should
buy more of Y and less of X
One of the necessary conditions for price discrimination to occur is that
buyers in different markets have different elasticities of demand
A textbook is an example of
capital
The software programs that make computer hardware useful in production and management tasks are
capital
In economics, investment refers to the process of accumulating
capital goods
In the U.S. balance of payments, purchases of foreign assets by U.S. residents are tabulated as a (an)
capital outflow
An economic system characterized by private ownership of the factor of production and economic activity coordinated through a system of markets and prices is called
capitalism
The number of computers bought increased by 20 percent when the price of on-line services declined by 10 percent. Assuming other factors are held constant, computers and on-line services are classified as
complements
Between 1929 and 2014, as measured by the Lorenz curve, income inequality
declined
Assume Congress passes a new tax of $2.00 per pack on cigarettes. The effect on the supply curve is a (an)
decrease in supply
A monopsonist's marginal factor cost (MFC) curve lies above its supply curve because the firm must
decrease the factor price to hire more
If government taxes a firm which pollutes this will
decrease the supply of the good produced
A firm's demand for labor depends on, in part, the demand for the firm's product. To summarize this idea, economists say that the demand for labor is
derived demand
For a monopolist to practice effective price discrimination, one necessary condition is
differences in the price elasticity of demand among groups of buyers
The demand curve is downward-sloping because of the law of .
diminishing marginal utility
As shown in Exhibit 1, the price and quantity supplied by sellers of Tucker's Cola have a (an) relationship.
direct
Suppose a monopolist's demand curve lies below its average variable cost curve. The firm will
earn an economic profit
In long-run equilibrium, the typical perfectly competitive firm will
earn zero economic profit
An economist left his $100,000-a-year teaching position to work full-time in his own consulting business. In the first year, he had total revenue of $200,000 and business expenses of $150,000. He made a (an):
economic loss
Comparable worth is the principle that
employees who perform comparable jobs should be paid the same wage
Assume both the marginal cost and the average variable cost curves are U-shaped. At the minimum point on the average variable cost curve, marginal cost must be
equal to average variable cost
The poverty line
equals three times an economy food budget
According to the Coase Theorem, the private sector can achieve social efficiency if the government
establishes and enforces property rights
Assume that a firm's marginal revenue just barely exceeds marginal cost. Under these conditions the firm should
expand output
In order for the economy shown in Exhibit 2 to reach point Z, it must
experience an increase in its resources and/or an improvement in its technology
Payments to nonowners of a firm are called
explicit costs
If all firms in a monopolistic competitive industry have demand and cost curves like those shown in Exhibit 1, we would expect that in the long run
firms in the industry earn zero economic profits
Perfectly competitive markets are characterized by
firms selling a homgeneous product
If the government wants to raise tax revenue and shift most of the tax burden to the sellers, it would impose a tax on a good with a
flat (elastic) demand curve and a steep (inelastic) supply curve
Under a negative income tax program
government bureaucracy could be decreased
Socialism is an economic system characterized by
government ownership of resources and centralized decision-making
As shown in Exhibit 1, the concept of increasing opportunity costs is reflected in the fact that
greater amounts of capital goods must be sacrificed to produce an additional 2 units of consumer goods.
A source of economic growth is
greater entrepreneurship
For a monopsonist, the marginal factor cost is always
greater than the wage rate
A country that has a lower opportunity cost of producing a good
has a comparative advantage
Consider a consumer who spends all income on only two goods: bread and wine. An extra loaf of bread would give the consumer 10 extra utils, while an extra bottle of wine would give the consumer 60 extra utils. Bread costs 50 cents per loaf, and wine costs $6 per bottle. In this situation, the consumer
has maximized utility and attained the consumer equilibrium
According to the statistics, the distribution of money income
has not fluctuated greatly since 1947
A price-discriminating monopoly charges the lowest price to the group that
has the most elastic demand
In a perfectly competitive industry, assume the short-run average total cost increases as the output of the industry expands. In the long run, the industry supply curve will
have a positive slope
Which of the following is infrastructure?
highways
Under the Clayton Act, horizontal mergers by stock acquisition were
illegal if they could be shown to lessen competition
In reference to Exhibit 1, assume the price of Tucker's Cola is $1.00 per gallon. If the price were to rise to $3.00 per gallon, and all other factors, such as taxes, etc. remained constant, the result would be a (an)
increase in quantity supplied
Microeconomics approaches the study of economics from the viewpoint of
individual or specific markets
Capital goods provided by the government such as roads, airports, and water systems make up the country's
infrastructure
Under the Clayton Act, which of the following was illegal, even if it was shown not to lessen competition substantially
interlocking directorates
If a firm enlarges its factory size and realizes higher average (per unit) costs of production then
it has experienced diseconomies of scale
Consider a law that limits women's access to certain "dangerous" occupations like coal mining and military combat service. Such a law would likely reduce women's wages because
labor supply in female-intensive occupations would increase
The is the situation in which the marginal product of labor is greater than zero and declining as more labor is hired
law of diminishing returns
Assume that brand X is an inferior good and name brand Y is a normal good. An increase in consumer income, other things being equal, will cause a (an)
leftward shift in the demand curve for brand X
Consumer equilibrium is a condition in which total utility cannot increase by spending more of a given budget on one good and spending on another good
less
A monoposony owner believes that hiring an additional worker would increase the company's revenue by $150 per day. We can conclude that the monopsony pays its workers
less than $150 per day
As shown in Exhibit 1, a total output of 14 units of capital goods and 0 units of consumer goods is
less than the maximum rate of output for this economy.
A monopolistically competitive market is characterized by
many small sellers selling a differentiated product
In the short run, a perfectly competitive firm's most profitable level of output is where
marginal cost equals marginal revenue
A monopsonist hires the amount of labor where the marginal revenue product of labor equals the
marginal factor cost of labor
The profit maximizing, or loss minimizing, quantity of output for any firm to produce exists at that output level in which
marginal revenue equals marginal cost
An economic system that answers the What, How, and For Whom questions using prices determined by the interaction of the forces of supply and demand is a
market economy
At the point at which the marginal revenue equals zero for a monopolist facing a straight-line demand curve, the total revenue is
maximum
Any point on the production possibilities curve illustrates
maximum production combinations
Assume a consumer purchases a combination of goods X and Y such that MUxPx = 40 units of utility per dollar and MUyPy = 20 units of utility per dollar, to maximize utility, the consumers should buy
more of X and less of Y
A production possibilities curve has "good X" on the horizontal axis and "good Y" on the vertical axis. On this diagram, the opportunity cost of good X, in terms of good Y, is represented by the
movement along the curve
On a production possibilities curve, a change from economic inefficiency to economic efficiency is obtained by
movement from a point inside the frontier to a point on the curve
In Exhibit 1, at the profit‑maximizing or loss‑minimizing output, the monopolist's total economic profit is
negative
The number of CDs purchased increased by 50 percent when consumer income increased by 10 percent. Assuming other factors are held constant, CDs would be classified as
normal goods
"The government should provide health care for all citizens." This statement is an illustration of
normative economic analysis.
A demand curve for The Steel Porcupines concert tickets would show the
number of concert tickets that will be purchased at each price
Game theory is useful for analysis in _________________ and for describing pricing among firms that are __________
oligopoly; interdependent
Negative externalities impose most of their costs
on individuals other than consumers of the polluting product
An economic theory claims that a rise in gasoline prices will cause gasoline purchases to fall, ceteris paribus. The phrase "ceteris paribus" means that
other relevant factors like consumer incomes must be held constant.
A main lesson from the environmental experience in the former Soviet Union is that
pollution can be worse in a communist system than in a capitalist system
If a decrease in the price of football tickets increases the total revenue of the athletic department, this is evidence that demand is
price elastic
If the quantity of tickets to the fair sold decreases by 10 percent when the price increases by 5 percent, the price elasticity of demand over this range of the demand curve is
price elastic
The costs of an economic activity borne by the producers are
private costs
The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will
produce the output level at which price equals long-run average cost
A monopolistic competitive firm is inefficient because the firm
produces an output where average total cost is not minimum
The Interstate Commerce Commission (ICC) was established in 1887 to regulate
railroads
Consumer equilibrium exists when
ratio of marginal utility to price for all goods and services is equal
The consumer equilibrium condition for two goods is achieved by equating the
ratios of marginal utility to the price of both goods for the last dollar spent on each good
When a firm hires an additional unit of labor, the increase in a firm's total revenues is known as the marginal
revenue product
Assuming that wheat and corn can both be grown on the same type of land, a decrease in the price of corn, other factors held constant, will cause a (an)
rightward shift in the supply curve for wheat
Assume that both oranges and peaches can be grown on the same type of land. A decrease in the price of peaches, other things being equal, will cause a (an)
rightward shift of the supply curve for oranges
Supply curves slope upward because
rising prices provide producers with higher profit incentives needed to increase the quantity supplied
Critics of advertising argue that it
serves as a barrier to entry for new firms
The importance of the Federal Trade Commission Act of 1914 is that it
set up an independent agency with the power to investigate and bring antitrust court cases
Under both perfect competition and monopoly, a firm
sets marginal cost equal to marginal revenue
Under perfect competition, a firm is a price taker because
setting a price higher than the going price results in zero sales.
In long‑run equilibrium, a competitive firm produces the level of output at which
short‑run average total cost and long-run average cost are at a minimum
If a competitive firm is incurring economic losses, then it should
shut down if losses are greater than total fixed costs
If the economy represented in Exhibit 2 is operating at Point W
some tractor production must be forgone to produce more food in the current period.
An increase in the federal minimum wage will provide a living wage for the working poor" is a
statement of normative economics.
"The federal minimum wage causes higher unemployment among teenagers" is a
statement of positive economics.
If the price of the firm's product in Exhibit 1 is $15 per unit, the firm should
stay in operation for the time being even though it is making a pure economic loss
The cross elasticity of demand between two goods is 2.5. These goods are
substitutes
Assume the price of Levi jeans increases. As a result, you decrease the quantity of Levi jeans purchased each month and purchase more Lee jeans. This is an example of the
substitution effect
Movement along the production possibilities curve shown in Exhibit 2 indicates
that labor is not equally productive or homogeneous
In Adam Smith's competitive market economy, the question of what goods to produce is determined by
the "invisible hand" of the price system
A kink in the demand curve facing an oligopolist is caused by
the assumption that competitors will follow price reductions but not price increases
The former Soviet Union was known for black markets. An explanation for the existence of the black market is that
the government imposed a price ceiling below the equilibrium price
The best number of workers for any employer to hire is that quantity in which
the marginal revenue product equals the marginal factor cost
The price of diamonds is higher than the price of water because
the marginal utility for diamonds is greater than the marginal utility for water
Price ceilings are imposed if the government believes
the market equilibrium price is too high
Normal profit is defined as
the minimum profit necessary to keep a firm in business
According to the income effect, when the price of automobiles rises, people buy fewer automobiles because
the nominal amount of their paychecks is smaller
In Exhibit 2, if the market price of good X is initially $1.50, a movement toward equilibrium requires
the price to fall below $1.50, the quantity supplied to fall, and the quantity demanded to rise
From an economic perspective, the socially best amount of pollution control is that amount in which
the private plus external marginal costs are equal to the private plus external marginal benefits
As shown in Exhibit 1, a total output of 0 units of capital goods and 10 units of consumer goods is
the result of efficient use of the economy's resources
GDP per capita is a relatively good measurement of
the standard of living
An oligopoly is a market structure in which
there are few firms selling either a homogeneous or differentiated product
The theory of supply states that
there is a positive relationship between the price of a good and the quantity of it offered for sale by suppliers
One of the assumptions underlying the production possibilities curve for any given economy is that
there is full employment and no underemployment of resources when the economy is operating on the curve
If the price elasticity of demand for a product measures .45,
this good is demand price inelastic
A game theory strategy for oligopolists to avoid a low-price outcome is ___________.
tit-for-tat
A good that provides external benefits to society has
too few resources devoted to its production
There is no change in total revenue when the demand curve for a good is
unitary elastic
Total utility is measured by a mythical unit called the
util
Countries are poor because they cannot afford to save and invest is called the
vicious circle of poverty
The lowest point on the average total cost curve is
where it intersects the marginal cost curve
As production of a good increases, opportunity costs rise because
workers are not equally suited to all tasks.
Select the normative statement that completes the following sentence: If the minimum wage is raised
workers will gain their rightful share of total income.
As represented in Exhibit 1, the maximum long-run economic profit earned by this monopolistic competitive firm is
zero
If U.S. buyers purchased $500 billion of foreign goods and foreign buyers purchased $400 billion of U.S. goods, the U.S. balance of trade would be
‑$100 billion
The market shown in Exhibit 1 is initially in equilibrium at E4. Changes in market conditions result in a new equilibrium at E3. This change is stated as a (an)
decrease in supply and a decrease in quantity demanded
Assume that crackers and soup are complementary goods. The effect on the soup market of an increase in the price of crackers (other things being equal) would best be described as a (an)
decrease in the demand for soup
Suppose the president of a textbook publisher argues that a 10 percent increase in the price of textbooks will raise total revenue for the publisher. It can be concluded that the company president thinks that demand for textbooks is
inelastic
In the market shown in Exhibit 2, the equilibrium price and quantity of good X are
$1.00, 200
Suppose a price floor is set by the government above the market equilibrium price. Which of the following will result?
There will be a surplus
The "ceteris paribus" clause in the law of demand does not allow which of the following factors to change?
a. Consumer tastes and preferences. b. The prices of other goods. c. Expectations. d. All of the answers above are correct D
The condition of scarcity
a. cannot be eliminated. b. prevails in poor economies. c. prevails in rich economies. d. All of the answers above are correct. D
The condition of scarcity can be eliminated if
a. people satisfy needs rather than false wants. b. sufficient new resources were discovered. c. output of goods and services were increased. d. None of the answers above are correct. D
Which of the following best explains the determination of the equilibrium price of a product?
a. production costs b. the supply of a good c. the interaction of supply and demand d. the decisions of government
An advance in technology results in
a. suppliers offering a larger quantity than before at each given price. b. suppliers offering the same quantity as before at a lower price. c. a rightward shift of the supply curve. d. an increase in supply. e. All of the answers above are correct. E
Market equilibrium is defined as
a. the condition in which there is neither a shortage or surplus. b. the condition under which the separately formulated plans of buyers and sellers exactly mesh when tested in the market. c. represented graphically by the intersection of the supply and demand curves. d. All of the answers above are correct. D
Initially the market shown in Exhibit 1 is in equilibrium at P3, Q3 (E3). Changes in market conditions result in a new equilibrium at P2, Q2 (E2). This change is stated as a (an)
decrease in demand and a decrease in quantity supplied
Yesterday Seller A supplied 400 units of a good X at $10 per unit. Today Seller A supplies the same quantity of units at $5 per unit. Based on this evidence, Seller A has experienced a (an)
increase in supply
Initially the market shown in Exhibit 1 is in equilibrium at P2, Q2 (E2). Changes in market conditions result in a new equilibrium at P2, Q4 (E4). This change is stated as a (an):
increase in supply and an increase in demand
Assume that a computer is a normal good. An increase in consumer income, other things being equal, would
shift the demand curve for computers to the right
In Exhibit 2, at a price of $.50 the market for good X will experience a
shortage of 100 units
If the equilibrium price of good X is $5 and a price ceiling is imposed at $4, the eventual result will be a (an)
shortage.
The definition of a model is a
simplified description of reality to understand and predict an economic event.
In Exhibit 2, if the market price of good X is initially $.50, a movement toward equilibrium requires
the price to rise above $.50, the quantity supplied to rise, and the quantity demanded to fall.
When the price of a good in a market is above equilibrium
the price will fall in the near future.
