Econ final

Other things the same, in which case is the quantity produced the highest? a. There is one firm. b. There are two firms that successfully collude. c. There are two firms in Nash equilibrium. d. There are a very large number of firms.

There are a very large number of firms.

A leftward shift of a demand curve is called a(n) a. increase in demand b. decrease in demand. c. decrease in quantity demanded. d. increase in quantity demanded.

b. decrease in demand.

Kelly is willing to pay $68 for a pair of shoes for a wedding. She finds a pair at her favorite outlet shoe store for $58. Kelly's consumer surplus is a. $10. b. $28. c. $58. d. $68.

a. $10

If a consumer is willing and able to pay $20 for a particular good and if he pays $16 for the good, then for that consumer, consumer surplus amounts to a. $4 b. $16 c. $20 d. $36

a. $4

Brock is willing to pay $400 for a new suit, but he is able to buy the suit for $350. His consumer surplus is a. $50. b. $150. c. $350. d. $400.

a. $50

Which of the following statements is characteristic of utilitarianism? a. An extra dollar of income provides higher marginal utility to a poor person than to a rich person. b. Social policies should be created behind a "veil of ignorance." c. Society should strive to maximize the utility of its wealthiest member. d. Equality of opportunity is more important than equality of incomes.

a. An extra dollar of income provides higher marginal utility to a poor person than to a rich person.

Belarus has a comparative advantage in the production of linen, but Russia has an absolute advantage in the production of linen. If these two countries decide to trade, a. Belarus should export linen to Russia. b. Russia should export linen to Belarus. c. Trading linen would provide no net advantage to either country. d. Without additional information about opportunity costs, this question cannot be answered.

a. Belarus should export linen to Russia.

Suppose the incomes of buyers in a market for a particular normal good decrease and there is also a reduction in input prices. What would we expect to occur in this market? a. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. b. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous. c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. d. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

a. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.

Suppose the government has imposed a price floor on the market for soybeans. Which of the following events could transform the price floor from one that is not binding into one that is binding? a. Farmers use improved, draught-resistant seeds, which lowers the cost of growing soybeans. b. The number of farmers selling soybeans decreases. c. Consumers' income increases, and soybeans are a normal good. d. The number of consumers buying soybeans increases.

a. Farmers use improved, draught-resistant seeds, which lowers the cost of growing soybeans.

Which of the following explains the "beauty premium" differences in wages? a. People who spend time on their personal appearance may send a signal that they are more productive workers. b. Personal appearance and intelligence are inversely related. c. The "superstar phenomenon" explains the "beauty premium." d. Better-looking people are more efficient; thus, they are paid an efficiency wage.

a. People who spend time on their personal appearance may send a signal that they are more productive workers.

If Shawn can produce donuts at a lower opportunity cost than Sue, then a. Shawn has a comparative advantage in the production of donuts. b. Sue has a comparative advantage in the production of donuts. c. Shawn should not produce donuts. d. Shawn is capable of producing more donuts than Sue in a given amount of time.

a. Shawn has a comparative advantage in the production of donuts.

As a monopolist increases the quantity of output it sells, the price consumers are willing to pay for the good a. is unaffected. b. decreases. c. increases. d. There is not enough information given in answer the question.

b. decreases

Kevin is the CEO of a large firm and a homeowner who pays a landscaper to maintain his lawn rather than do it himself. Kevin has determined that he can earn more in the hour it would take him to work on his lawn than he must pay his landscaper. This scenario is an example of which principle of economics? a. Trade can make everyone better off. b. Markets are usually a good way to organize economic activity. c. Governments can sometimes improve market outcomes. d. Prices rise when the government prinst too much money.

a. Trade can make everyone better off.

A difference in wages that reflects differences in the nonpay features of two jobs is called a. a compensating differential. b. a wage adjustment. c. an efficiency wage. d. a minimum wage.

a. a compensating differential.

The opportunity cost of obtaining more of one good is shown on the production possibilities frontier as the a. amount of the other good that must be given up. b. market price of the additional amount produced. c. amount of resources that must be devoted to its production. d. number of dollars that must be spent to produce it.

a. amount of the other good that must be given up.

When a tax is placed on the buyers of cell phones, the size of the cell phone market a. and the effective price received by sellers both decrease. b. decreases, but the effective price received by sellers increases. c. increases, but the effective price received by sellers decreases. d. and the effective price received by sellers both increase.

a. and the effective price received by sellers both decrease.

The goal of utilitarians is to a. apply the logic of individual decision making to questions concerning morality and public policy. b. measure happiness and satisfaction. c. redistribute income based on the assumption of increasing marginal utility. d. All of the above are correct.

a. apply the logic of individual decision making to questions concerning morality and public policy.

The price elasticity of demand measures a. buyers' responsiveness to a change in the price of a good. b. the extent to which demand increases as additional buyers enter the market. c. how much more of a good consumers will demand when incomes rise. d. the movement along a supply curve when there is a change in demand.

a. buyers' responsiveness to a change in the price of a good.

Which of the following does not represent a tradeoff facing a consumer? a. choosing to purchase more of all goods b. choosing to spend more time on leisure and less time on work c. choosing to spend more now and consume less in the future d. choosing to purchase less of one good in order to purchase more of another good

a. choosing to purchase more of all goods

Three business people meet for lunch at an Indian restaurant. They decide that each person will order an item off the menu, and they will share all dishes. They will split the cost of the final bill evenly among each of the people at the table. When the food is delivered to the table, each person faces incentives similar to the a. consumption of a common resource good. b. production of a public good. c. consumption of a club good. d. production of a private good.

a. consumption of a common resource good.

A decrease in input costs to firms in a market will result in a(n) a. decrease in equilibrium price and an increase in equilibrium quantity. b. decrease in equilibrium price and a decrease in equilibrium quantity. c. increase in equilibrium price and a decrease in equilibrium quantity. d. increase in equilibrium price and an increase in equilibrium quantity.

a. decrease in equilibrium price and an increase in equilibrium quantity.

A tax on the buyers of cereal will increase the price of cereal paid by buyers, a. decrease the effective price of cereal received by sellers, and decrease the equilibrium quantity of cereal. b. decrease the effective price of cereal received by sellers, and increase the equilibrium quantity of cereal. c. increase the effective price of cereal received by sellers, and decrease the equilibrium quantity of cereal. d. increase the effective price of cereal received by sellers, and increase the equilibrium quantity of cereal.

a. decrease the effective price of cereal received by sellers, and decrease the equilibrium quantity of cereal.

Normative statements are not a. descriptive. b. prescriptive. c.claims about how the world should be. d. made by economists speaking as policy advisers.

a. descriptive.

When the price of used cds is $4, Daphne buys five per month. When the price is $3, she buys nine per month. Daphne's demand for used cds is a. elastic, and her demand curve would be relatively flat. b. elastic, and her demand curve would be relatively steep. c. inelastic, and her demand curve would be relatively flat. d. inelastic, and her demand curve would be relatively steep.

a. elastic, and her demand curve would be relatively flat.

Competitive firms that maximize profits will hire workers until the value of the marginal product of labor a. equals the wage. b. equals the price of the final good. c. begins to fall. d. begins to rise.

a. equals the wage.

A utilitarian government will pursue policies that redistribute income from the rich to the poor. One problem with these policies is that a. everyone has less incentive to work hard. b. the rich will work harder while the poor will not c. the poor will work harder while the rich will not. d. everyone in the middle class ends up worse off

a. everyone has less incentive to work hard.

Total cost can be divided into two types of costs: a. fixed costs and variable costs. b. fixed costs and marginal costs. c. variable costs and marginal costs. d. average costs and marginal costs.

a. fixed costs and variable costs.

Negative externalities lead markets to produce a. greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels. b. smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels. c. greater than efficient output levels and positive externalities lead markets to produce efficient output levels. d. efficient output levels and positive externalities lead markets to produce greater than efficient output levels.

a. greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.

A good will have a more elastic demand, the a. greater the availability of close substitutes. b. more broad the definition of the market. c. shorter the period of time. d. more it is regarded as a necessity.

a. greater the availability of close substitutes.

Deadweight loss measures the loss a. in a market to buyers and sellers that is not offset by an increase in government revenue. b. in revenue to the government when buyers choose to buy less of the product because of the tax. c. of equality in a market due to government intervention. d. of total revenue to business firms due to the price wedge caused by the tax.

a. in a market to buyers and sellers that is not offset by an increase in government revenue.

In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because a. it is hard to estimate the market demand curve and thus charge the "right" corrective tax. b. selling pollution permits create a net increase in pollution. c. Corrective taxes distort incentives. d. Corrective taxes provide greater flexibility to firms that can reduce pollution at a low cost.

a. it is hard to estimate the market demand curve and thus charge the "right" corrective tax.

Economists make assumptions to a. make a complex world easier to understand. b. make it easier to teach economic concepts and analysis. c. create policy alternatives that are incomplete or subject to criticism. d. provide issues for political discussion.

a. make a complex world easier to understand

Profit-maximizing firms in a competitive market produce an output level where a. marginal cost equals marginal revenue. b. marginal cost equals average total cost. c. marginal revenue is increasing. d. price is less than marginal revenue.

a. marginal cost equals marginal revenue.

One difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firm produces where a. marginal cost equals price, while a monopolist produces where price exceeds marginal cost. b. marginal cost equals price, while a monopolist produces where marginal cost exceeds price. c. price exceeds marginal cost, while a monopolist produces where marginal cost equals price. d. marginal cost exceeds price, while a monopolist produces where marginal cost equals price.

a. marginal cost equals price, while a monopolist produces where price exceeds marginal cost.

Production is efficient if the economy is producing at a point a. on the production possibilities frontier. b. outside the production possibilities frontier. c. on or inside the production possibilities frontier. d. inside the production possibilities frontier.

a. on the production possibilities frontier.

What you give up to obtain an item is called your a. opportunity cost. b. explicit cost. c. true cost. d. direct cost.

a. opportunity cost.

In monopolistic competition as well as in monopoly, a. price exceeds marginal revenue for each firm. b. profit is zero in a long-run equilibrium for each firm. c. entry and exit by firms are unrestricted. d. there are at most a few firms in each market.

a. price exceeds marginal revenue for each firm.

In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is to shut down if a. price is less than average total cost. b. price is greater than average total cost. c. average revenue is greater than average fixed cost. d. average revenue is greater than marginal cost.

a. price is less than average total cost.

Because of the free-rider problem, a. private markets tend to undersupply public goods. b. the federal government spends too many resources on national defense and not enough resources on medical research. c. fireworks displays have become increasingly dangerous. d. poverty has increased.

a. private markets tend to undersupply public goods.

The slope of the budget constraint is determined by the a. relative price of the goods measured on the axes. b. relative price of the goods measured on the axes and the consumer's income. c. endowment of productive resources. d. preferences of the consumer.

a. relative price of the goods measured on the axes.

The Tragedy of the Commons results when a good is a. rival in consumption and not excludable. b. excludable and not rival in consumption. c. both rival in consumption and excludable. d. neither rival in consumption nor excludable.

a. rival in consumption and not excludable.

Suppose that a company hires recent college graduates for two types of jobs, sales people and credit analysts. The hours worked and skill levels are the same for both positions. The sales people get to travel to several desirable locations, whereas the credit analysts do not leave the home office. When comparing the salaries of the two positions, it is likely that the company pays the a. sales people less as a compensating differential. b. credit analysts less as a compensating differential. c. same salary for both positions because they require the same skill level. d. same salary for both positions because it would be illegal to do otherwise.

a. sales people less as a compensating differential.

When price is below average variable cost, a firm in a competitive market will a. shut down and incur fixed costs. b. shut down and incur both variable and fixed costs. c. continue to operate as long as average revenue exceeds marginal cost. d. continue to operate as long as average revenue exceeds average fixed cost.

a. shut down and incur fixed costs.

When a free-rider problem exists, a. the market will devote too few resources to the production of the good. b. the cost of the good will always be more than the benefit of the good. c. the good will not be produced. d. entrepreneurs will eventually find a way to make free-riders pay their share.

a. the market will devote too few resources to the production of the good.

The Gaffer curve relates a. the tax rate to tax revenue raised by the tax. b. the tax rate to the deadweight loss of the tax. c. the price elasticity of supply to the deadweight loss of the tax. d. government welfare payments to the birth rate.

a. the tax rate to tax revenue raised by the tax.

A $2.00 tax levied on the sellers of birdhouses will shift the supply curve a. upward by upward by downward downward exactly $2.00. b. less than $2.00. c. by exactly $2.00. d. by less than $2.00.

a. upward by upward by downward downward exactly $2.00.

Raising total utility is the prime objective of which political philosophy? a. utilitarianism b. liberalism c. libertarianism d. None of the above are correct

a. utilitarianism

The basic tools of supply and demand apply to a.both markets for goods and services and markets for labor services. b. markets for goods and services but not to markets for labor services. c. markets for goods and services but not to markets for factors of production. d. all markets except those in which demand is derived demand.

a.both markets for goods and services and markets for labor services.

A competitive firm sells its output for $30 a unit.n The marginal product of the 10th worker is 20 units of output per day; the marginal product of the 11th worker is 16 units of output per day. The firm pays its workers a wage of $150 per day. For the 11th worker, the value of the marginal product of labor is a. $120. b. $480. c. $600. d. $2,400.

b. $480.

Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded. Price elasticity of demand for X is a. 0. b. 1. c. 6. d. 36.

b. 1.

If happen to the equilibrium price and quantity of lattés if the price of muffins rises? a. Both the equilibrium price and quantity would increase. b. Both the equilibrium price and quantity would decrease. c. The equilibrium price would increase, and the equilibrium quantity would decrease. d. The equilibrium price would decrease, and the equilibrium quantity would increase. consumers often purchase muffins to eat while they drink their lattés at local coffee shops, what would

b. Both the equilibrium price and quantity would decrease.

If macaroni and cheese is an inferior good, what would happen to the equilibrium price and quantity of macaroni and cheese if consumers' incomes rise? a. Both the equilibrium price and quantity would increase. b. Both the equilibrium price and quantity would decrease. c. The equilibrium price would increase, and the equilibrium quantity would decrease. d. The equilibrium price would decrease, and the equilibrium quantity would increase.

b. Both the equilibrium price and quantity would decrease.

Rosie's Flower Shop sells floral arrangements for $20 each. If Rosie hires 10 workers, she can sell 600 arrangements per week. If she hires 11 workers, she can sell 650 arrangements per week. Rosie pays each of her workers $400 per week. Which of the following is correct? a. For the 11th worker, the marginal profit is $1,000. b. For the 11th worker, the marginal revenue product is $1,000. c. The firm is maximizing its profit. d. If the firm is employing 11 workers, then its profit would increase if it cut back to 10 workers.

b. For the 11th worker, the marginal revenue product is $1,000.

Which of the following is not correct? a. Indifference curves are downward sloping. b. Indifference curves that are closer to the origin are preferred to indifference curves that are further from the origin. c. Indifference curves are bowed in toward the origin. d. Indifference curves do not cross.

b. Indifference curves that are closer to the origin are preferred to indifference curves that are further from the origin.

Founders of utilitarianism include a. A. C. Pigou and John Maynard Keynes. b. Jeremy Bentham and John Stuart Mill. c. Augustin Cournot and Jean B. Say. d. A. Kondratieff and Thomas Malthus.

b. Jeremy Bentham and John Stuart Mill

Katie is planning to sell her house, and she is considering making two upgrades to the house before listing it for sale. Replacing the carpeting will cost her $2,500 and replacing the roof will cost her $9,000. Katie expects the new carpeting to increase the value of her house by $3,000 and the new roof to increase the value of her house by $7,000. a. She should make both improvements to her house b. She should replace the carpeting but not the roof c. She should replace the roof but not replace the carpet d. She should not make either improvement to her house

b. She should replace the carpeting but not the roof

Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding? a. Improvements in production technology reduce the costs of producing laptop computers. b. The number of firms selling laptop computers decreases. c. Consumers' income decreases, and laptop computers are a normal good. d. The number of consumers buying laptop computers decreases.

b. The number of firms selling laptop computers decreases.

If the price elasticity of demand for a good is 6, then a 3 percent decrease in price results in a. a 20 percent increase in the quantity demanded. b. an 18 percent increase in the quantity demanded. c. a 2 percent increase in the quantity demanded. d. a 1.8 percent increase in the quantity demanded.

b. an 18 percent increase in the quantity demanded.

Human capital is a. an important determinant of wages, but it does not affect the production of goods and services. b. an important determinant of wages, and it affects the production of goods and services. c. a specific type of physical capital made by humans rather than machines. d. very different from physical capital in that physical capital represents an investment, while human capital does not represent an investment.

b. an important determinant of wages, and it affects the production of goods and services.

Which of the following would shift the demand curve for gasoline to the right? a. a decrease in the price of gasoline b. an increase in consumer income, assuming gasoline is a normal good c. an increase in the price of cars, a complement for gasoline d. a decrease in the expected future price of gasoline

b. an increase in consumer income, assuming gasoline is a normal good

The "superstar" phenomenon can apply to which of these jobs? a. high-school teacher b. anchorperson for a national news program c. heart surgeon d. carpenter.

b. anchorperson for a national news program

On a graph, consumer surplus is represented by the area a. between the demand and supply curves. b. below the demand curve and above price. c. below the price and above the supply curve. d. below the demand curve and to the right of equilibrium price

b. below the demand curve and above price.

Normative statements are a. descriptive b. claims about how the world should be. c. claims about how the world is. d. made by economists speaking as scientists

b. claims about how the world should be.

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

b. consumer does not purchase the good.

If a consumer places a value of $20 on a particular good and if the price of the good is $25, then the a. consumer has consumer surplus of $5 if he buys the good. b. consumer does not purchase the good. c. price of the good will rise due to market forces. d. market is out of equilibrium.

b. consumer does not purchase the good.

When new firms have an incentive to enter a competitive market, their entry will a. increase the price of the product. b. drive down profits of existing firms in the market. c. shift the market supply curve to the left. d. increase demand for the product.

b. drive down profits of existing firms in the market.

If employers are profit-maximizers, then a. competition will always eventually eliminate employment discrimination. b. employment discrimination may persist if consumers discriminate. c. employment discrimination will persist because it is always profitable. d. compensating differentials cannot exist.

b. employment discrimination may persist if consumers discriminate.

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the a. steeper the demand curve will be. b. flatter the demand curve will be. c. further to the right the demand curve will sit. d. closer to the vertical axis the demand curve will sit.

b. flatter the demand curve will be

The government provides public goods such as anti-poverty programs because a. private markets are incapable of producing these types of goods. b. free-riders make it difficult for private markets to supply the socially optimal quantity. c. markets are always better off with some government oversight. d. external benefits will accrue to private producers.

b. free-riders make it difficult for private markets to supply the socially optimal quantity.

A tax on a good a. gives buyers an incentive to buy more of the good than they otherwise would buy. b. gives sellers an incentive to produce less of the good than they otherwise would produce. c. creates a benefit to the government, the size of which exceeds the loss in surplus to buyers and sellers. d. All of the above are correct.

b. gives sellers an incentive to produce less of the good than they otherwise would produce.

According to a utilitarian, total social utility will be maximized when marginal dollars are distributed to the people with the a. lowest marginal utility of income. b. highest marginal utility of income. c. highest total utility from their income. d. most productive labor resources.

b. highest marginal utility of income.

In the circular flow diagram a. firms are buyers in the markets for goods and services. b. households are sellers in the markets for the factors of production. c. firms are sellers in the markets for factors of production and in the markets for goods and services. d. dollars that are spent on goods and services flow directly from firms to households.

b. households are sellers in the markets for the factors of production.

Utilitarians believe a. that the government should choose just policies as evaluated by an impartial observer behind a "veil ignorance" b. in the assumption of diminishing marginal utility. c. that everyone in society should have equal utility. d. that the government should not redistribute income.

b. in the assumption of diminishing marginal utility.

Economists are particularly adept at understanding that people respond to a. laws b. incentives c. punishments more than rewards. d. rewards more than punishments.

b. incentives

The entry of new firms into a competitive market will a. increase market supply and increase market price. b. increase market supply and decrease market price. c. decrease market supply and increase market price. d. decrease market supply and decrease market price.

b. increase market supply and decrease market price.

In the long run, a. inputs that were fixed in the short run remain fixed. b. inputs that were fixed in the short run become variable. c. inputs that were variable in the short run become fixed. d. variable inputs are rarely used.

b. inputs that were fixed in the short run become variable.

Which of the following is not an example of a factor of production? a.labor b. interest c. land d.capital

b. interest

Winona's Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winona's fixed costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of output a. is less than 1,000 pounds. b. is still 1,000 pounds. c. is more than 1,000 pounds. d. becomes zero.

b. is still 1,000 pounds.

In the parable of the leaky bucket, a fundamental problem with government redistribution programs is identified. As long as the government only has "leaky buckets" at its disposal, a. the costs of welfare programs will exceed the benefits. b. it should not try to reach complete equality in income. c. income equality will be the best policy option. d. equality of economic opportunity will reduce society's utility.

b. it should not try to reach complete equality in income.

A monopolist produces a. more than the socially efficient quantity of output but at a higher price than in a competitive market. b. less than the socially efficient quantity of output but at a higher price than in a competitive market. c. the socially efficient quantity of output but at a higher price than in a competitive market. d. possibly more or possibly less than the socially efficient quantity of output, but definitely at a higher price than in a competitive market.

b. less than the socially efficient quantity of output but at a higher price than in a competitive market.

The concept of utility is fundamental to utilitarianism and describes the a. optimal distribution of wealth in society. b. level of satisfaction derived from a person's circumstances c. method by which society chooses to allocate resources. d. method whereby wealth is stored

b. level of satisfaction derived from a person's circumstances

If there is systematic discrimination against a group of workers, then the wage paid to those workers likely will be a. lower due to a higher supply of workers in that group. b. lower due to a lower demand for workers in that group. c. higher due to a lower supply of workers in that group. d. higher due to a higher demand for workers in that group.

b. lower due to a lower demand for workers in that group.

When property rights are not well established, a. private goods become public goods. b. markets fail to allocate resources efficiently. c. the distribution of private goods is unfair. d. government resources are used inefficiently.

b. markets fail to allocate resources efficiently.

Economists normally assume that the goal of a firm is to a. maximize its total revenue. b. maximize its profit. c. minimize its explicit costs. d. minimize total cost

b. maximize its profit.

When a tax is placed on the buyers of a product, buyers pay a. more and sellers receive more than they did before the tax. b. more and sellers receive less than they did before the tax. c. less and sellers receive more than they did before the tax. d. less and sellers receive less than they did before the tax.

b. more and sellers receive less than they did before the tax.

The marginal product of labor is defined as the change in a. output per additional unit of revenue. b. output per additional unit of labor. c. revenue per additional unit of labor. d. revenue per additional unit of output.

b. output per additional unit of labor.

When a good is excludable, a. one person's use of the good diminishes another person's ability to use it. b. people can be prevented from using the good. c. no more than one person can use the good at the same time. d. everyone will be excluded from using the good.

b. people can be prevented from using the good.

Mitch has $100 to spend and wants to buy either a new amplifier for his guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $100, so he can only buy one. This illustrates the basic concept that a. trade can make everyone better off. b. people face trade-offs c. rational people think at the margin. d. people respond to incentives.

b. people face trade-offs

Whether or not policymakers should try to make our society more egalitarian is largely a matter of a. economic efficiency. b. political philosophy. c. egalitarian principles. d. enhanced opportunity

b. political philosophy.

When a market is monopolistically competitive, the typical firm in the market is likely to experience a a. positive profit in the short run and in the long run. b. positive or negative profit in the short run and a zero profit in the long run. c. zero profit in the short run and a positive or negative profit in the long run. d. zero profit in the short run and in the long run.

b. positive or negative profit in the short run and a zero profit in the long run.

Positive statements are not a. descriptive. b. prescriptive. c. claims about how the world is. d. made by economists speaking as scientists.

b. prescriptive.

A tax on a good a. raises the price that buyers effectively pay and raises the price that sellers effectively receive. b. raises the price that buyers effectively pay and lowers the price that sellers effectively receive. c. lowers the price that buyers effectively pay and raises the price that sellers effectively receive. d. lowers the price that buyers effectively pay and lowers the price that sellers effectively receive.

b. raises the price that buyers effectively pay and lowers the price that sellers effectively receive.

Suppose the American Medical Association announces that men who shave their heads are less likely to die of heart failure. We could expect the current demand for a. hair gel to increase. b. razors to increase. c. combs to increase. d. shampoo to increase.

b. razors to increase.

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then a. the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked. b. the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked. c. the equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked. d. There is not enough information to answer the question.

b. the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked.

Diminishing marginal product occurs when a. the marginal product of an input increases as the quantity of the input increases. b. the marginal product of an input decreases as the quantity of the input increases. c. total output increases as the quantity of an input increases. d. total output decreases as the quantity of an input increases.

b. the marginal product of an input decreases as the quantity of the input increases.

"The government should choose policies to maximize the total utility of society." This statement is most closely associated with which political philosophy? a. liberalism b. utilitarianism c. libertarianism d. welfarism

b. utilitarianism

For a competitive, profit-maximizing firm, the labor demand curve is the same as the a. marginal cost curve. b. value of marginal product curve. c. production function. d. profit function

b. value of marginal product curve

To maximize profit, a competitive firm hires workers up to the point of intersection of the a. marginal product curve and the wage line. b. value of marginal product curve and the wage line. c. value of marginal product curve and the marginal revenue curve. d. total revenue curve and the wage line.

b. value of marginal product curve and the wage line.

Diane's Auto World installs tires on automobiles, light trucks, and sport utility vehicles. She is a profit- maximizing business owner whose firm operates in a competitive market. The marginal cost of installing a tire is $10. The marginal productivity of the last worker that Diane hired was 2 tires per hour. What is the maximum hourly wage that Diane was willing to pay the last worker hired? a. $5 b. $10 c. $20 d. There is insufficient information to answer this question.

c. $20

Chuck would be willing to pay $20 to attend a dog show, but he buys a ticket for $15. Chuck values the dog show at a. $5. b. $15. c. $20. d. $35.

c. $20.

If Gina sells a shirt for $40, and her producer surplus from the sale is $32, her cost must have been a. $72. b $32. c. $8. d. We would have to know the consumer surplus in order to make this determination.

c. $8

The decisions of firms and households are guided by prices and self-interest in a a. command economy. b. centrally-planned economy. c. market economy. d. All of the above are correct.

c. . market economy.

If a 15% increase in price for a good results in a 20% decrease in quantity demanded, the price elasticity of demand is a. 0.75. b. 1.25. c. 1.33. d. 1.60.

c. 1.33

Which of the following events could decrease the demand for labor? a. An increase in the number of migrant workers b. An increase in the marginal productivity of workers c. A decrease in demand for the final product produced by labor d. A decrease in the supply of labor

c. A decrease in demand for the final product produced by labor

Average total cost (ATC) is calculated as follows: a. ATC = (change in total cost)/(change in quantity of output). b. ATC = (change in total cost)/(change in quantity of input). c. ATC = (total cost)/(quantity of output). d. ATC = (total cost)/(quantity of input).

c. ATC = (total cost)/(quantity of output).

Which of the following events could increase the demand for labor? a. A decrease in output price b. A decrease in the amount of capital available for workers to use c. An increase in the marginal productivity of workers d. a decrease in the wage paid to workers

c. An increase in the marginal productivity of workers

Many species of animals are common resources, and many must be protected by law to keep them from extinction. Why is the cow not one of these endangered species even though there is such a high demand for beef? a. Cows reproduce at a high rate and have adapted well to their environment. b. Public policies protect cows from predators and diseases. c. Cows are privately owned, whereas many endangered species are owned by no one. d. There is a natural ecological balance between the birth rate of cows and human consumption.

c. Cows are privately owned, whereas many endangered species are owned by no one.

Suppose that cookie producers create a positive externality equal to $2 per dozen. What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced? a. They are equal. b. The equilibrium quantity is greater than the socially optimal quantity. c. The equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to answer the question.

c. The equilibrium quantity is less than the socially optimal quantity.

How are the following three questions related: 1) Do all demand curves slope downward? 2) How do wages affect labor supply? 3) How do interest rates affect household saving? a. They all relate to macroeconomics. b. They all relate to monetary economics. c. They all relate to the theory of consumer choice. d. They are not related to each other in any way.

c. They all relate to the theory of consumer choice.

What happens to the total surplus in a market when the government imposes a tax? a. Total surplus increases by the amount of the tax. b. Total surplus increases but by less than the amount of the tax. c. Total surplus decreases. d. Total surplus is unaffected by the tax.

c. Total surplus decreases.

Which of the following will not occur when government policies are enacted to make the distribution of income more equitable? a. People will alter their behaviors. b. Incentives will be distorted. c. Total utility will likely remain constant. d. The allocation of resources will be less efficient

c. Total utility will likely remain constant.

Which of these statements best represents the law of demand? a. When buyers' tastes for a good increase, they purchase more of the good. b. When income levels increase, buyers purchase more of most goods. c. When the price of a good decreases, buyers purchase more of the good. d. When buyers' demands for a good increase, the price of the good increases.

c. When the price of a good decreases, buyers purchase more of the good.

When oligopolistic firms interacting with one another each choose their best strategy given the strategies chosen by other firms in the market, we have a. a cartel. b. a group of oligopolists behaving as a monopoly. c. a Nash equilibrium. d. the perfectly competitive outcome.

c. a Nash equilibrium.

An indifference curve illustrates a. a firm's profits. b. a consumer's budget. c. a consumer's preferences. d. the prices of two goods.

c. a consumer's preferences.

Suppose a market is initially perfectly competitive with many firms selling an identical product. Over time, however, suppose the merging of firms results in the market being served by only three or four firms selling this same product. As a result, we would expect a. an increase in market output and an increase in the price of the product. b. an increase in market output and an decrease in the price of the product. c. a decrease in market output and an increase in the price of the product. d. a decrease in market output and a decrease in the price of the product.

c. a decrease in market output and an increase in the price of the product.

If a binding price floor is imposed on the video game market, then a. the demand for video games will decrease. b. the supply of video games will increase. c. a surplus of video games will develop. d. All of the above are correct.

c. a surplus of video games will develop.

Marginal cost tells us the a. value of all resources used in a production process. b. marginal increment to profitability when price is constant. c. amount by which total cost rises when output is increased by one unit. d. amount by which output rises when labor is increased by one unit.

c. amount by which total cost rises when output is increased by one unit.

Indifference curves graphically represent a. an income level sufficient to allow an individual to achieve a given level of satisfaction. b. the constraints faced by individuals. c. an individual's preferences. d. the relative price of commodities.

c. an individual's preferences.

A utilitarian government must a. calculate the utility of each individual in society. b. avoid enacting any policies that redistribute income from the rich to the poor. c. balance the gains from greater equality against the losses from distorted incentives. d. pursue policies that do not affect the middle class.

c. balance the gains from greater equality against the losses from distorted incentives.

A price ceiling will be binding only if it is set a. equal to the equilibrium price. b. above the equilibrium price. c. below the equilibrium price. d. either above or below the equilibrium price.

c. below the equilibrium price.

A surplus results when a a. nonbinding price floor is imposed on a market. b. nonbinding price floor is removed from a market. c. binding price floor is imposed on a market. d. binding price floor is removed from a market.

c. binding price floor is imposed on a market.

Brenda is an excellent baker and Floyd has a plentiful farm. If Floyd trades eggs and butter to Brenda for some of Brenda's bread and pastries, a. only Floyd is made better off by trade. b. only Brenda is made better off by trade. c. both Floyd and Brenda are made better off by trade. d. neither Floyd nor Brenda are made better off by trade.

c. both Floyd and Brenda are made better off by trade.

If a tax is levied on the sellers of flour, then a. buyers will bear the entire burden of the tax. b. sellers will bear the entire burden of the tax. c. buyers and sellers will share the burden of the tax. d. the government will bear the entire burden of the tax.

c. buyers and sellers will share the burden of the tax.

Price controls a. always produce a fair outcome. b. always produce an efficient outcome. c. can generate inequities of their own. d. All of the above are correct.

c. can generate inequities of their own.

Positive statements are a. prescriptive b. claims about the world should be c. claims about how the world is d. made by economists speaking as policy advisors

c. claims about how the world is

The Mansfield Public Library has a large number of books that anyone with a library card may borrow. Anyone can obtain a card for free. Because the number of copies of each book is limited, not everyone can have the same book at the same time. What type of good would the library books be classified as in this case? a. private goods b. club goods c. common resources d. public goods

c. common resources

Goods that are rival in consumption include both a. club goods and public goods. b. public goods and common resources. c. common resources and private goods. d. private goods and club goods.

c. common resources and private goods.

Mrs. Smith operates a business in a competitive market. The current market price is $8.50. At her profit- maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should a. shut down her business in the short run but continue to operate in the long run. b. continue to operate in the short run but shut down in the long run. c. continue to operate in both the short run and long run. d. shut down in both the short run and long run.

c. continue to operate in both the short run and long run.

Lead is an important input in the production of crystal. If the price of lead decreases, then we would expect the supply of a. crystal to be unaffected. b. crystal to decrease. c. crystal to increase. d. lead to increase.

c. crystal to increase.

The decrease in total surplus that results from a market distortion, such as a tax, is called a a. wedge loss b. revenue loss. c. deadweight loss. d. consumer surplus loss.

c. deadweight loss.

If the government removes a binding price floor from a market, then the price paid by buyers will a. increase, and the quantity sold in the market will increase. b. increase, and the quantity sold in the market will decrease. c. decrease, and the quantity sold in the market will increase. d. decrease, and the quantity sold in the market will decrease.

c. decrease, and the quantity sold in the market will increase.

Equilibrium price must decrease when demand a. increases and supply does not change, when demand does not change and supply decreases, and when demand decreases and supply increases simultaneously. b. increases and supply does not change, when demand does not change and supply decreases, and when demand increases and supply decreases simultaneously. c. decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously. d. decreases and supply does not change, when demand does not change and supply increases, and when demand increases and supply decreases simultaneously.

c. decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously.

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then a. average revenue exceeds marginal cost. b. the firm is earning a positive profit. c. decreasing output would increase the firm's profit. d. All of the above are correct.

c. decreasing output would increase the firm's profit.

A tax levied on the buyers of a good shifts the a. supply curve upward (or to the left). b. supply curve downward (or to the right). c. demand curve downward (or to the left). d. demand curve upward (or to the right).

c. demand curve downward (or to the left).

Which of the following events must cause equilibrium price to fall? a. demand increases and supply decreases b. demand and supply both decrease c. demand decreases and supply increases d. demand and supply both increase

c. demand decreases and supply increases

Because a firm's demand for a factor of production is derived from its decision to supply a good in the market, it is called a a. differentiated demand b. secondary demand c. derived demand d. hybrid demand-supply

c. derived demand

The negative slope of the value of marginal product curve is most easily explained by a. tight labor markets. b. a surplus of workers. c. diminishing marginal product. d. diminishing marginal cost.

c. diminishing marginal product.

When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing a. diminishing labor. b. diminishing output. c. diminishing marginal product. d. negative marginal product.

c. diminishing marginal product.

The utilitarian case for redistributing income is based on the assumption of a. collective consensus. b. a notion of fairness engendered by equality. c. diminishing marginal utility d. rising marginal utility.

c. diminishing marginal utility

In a perfectly competitive market, the process of entry and exit will end when a. price equals minimum marginal cost. b. marginal revenue equals marginal cost. c. economic profits are zero. d. accounting profits are zero.

c. economic profits are zero.

According to the human-capital view, education a. has no effect on lifetime earnings. b. alters work ethic. c. enhances productivity. d. is an indicator of natural ability.

c. enhances productivity.

For an economist, the idea of making assumptions is regarded generally as a a. bad idea, since doing so leads to the omission of important ideas and variables from economic models. b. bad idea, since doing so invariably leads to data-collection problems. c. good idea, since doing so helps to simplify the complex world and make it easier to understand. d. good idea, since economic analysis without assumptions leads to complicated results that the general public finds hard to understand.

c. good idea, since doing so helps to simplify the complex world and make it easier to understand.

The producer that requires a smaller quantity of inputs to produce a certain amount of a good, relative to the quantities of inputs required by other producers to produce the same amount of that good, a. has a low opportunity cost of producing that good, relative to the opportunity costs of other producers. b. has a comparative advantage in the production of that good. c. has an absolute advantage in the production of that good. d. has an artificial advantage in the production of that good.

c. has an absolute advantage in the production of that good.

Which of the following is an example of a factor of production? a. rent b. interest c. land d. Social Security Payments

c. land

Max sells maps. The map industry is competitive. Max hires a business consultant to analyze his company's financial records. The consultant recommends that Max increase his production. The consultant must have concluded that Max's a. total revenues exceed his total accounting costs. b. marginal revenue exceeds his total cost. c. marginal revenue exceeds his marginal cost. d. marginal cost exceeds his marginal revenue.

c. marginal revenue exceeds his marginal cost.

According to utilitarians, the ultimate objective of public actions should be to a. enhance the income of the rich. b. ensure an egalitarian distribution of income. c. maximize the sum of individual utility. d. provide for the betterment of the poor.

c. maximize the sum of individual utility.

If a tax is levied on the sellers of a product, then there will be a(n) a. downward shift of the demand curve. b. upward shift of the demand curve. c. movement up and to the left along the demand curve. d. movement down and to the right along the demand curve.

c. movement up and to the left along the demand curve.

The production possibilities frontier provides an illustration of the principle that a. trade can make everyone better off. b. governments can sometimes improve market outcomes. c. people face trade-offs. d. people respond to incentives

c. people face trade-offs.

While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, the regulations come at the cost of reducing the incomes of the regulated firms' owners, workers, and customers. This statement illustrates the principle that a. trade can make everyone better off. b. rational people think at the margin. c. people face tradeoffs. d. people respond to incentives.

c. people face tradeoffs.

The invisible hand works to promote general well-being in the economy primarily through a. government intervention. b. the political process. c. people's pursuit of self-interest. d. altruism.

c. people's pursuit of self-interest.

Research into new technologies provides a a. negative externality, and too few resources are devoted to research as a result. b. negative externality, and too many resources are devoted to research as a result. c. positive externality, and too few resources are devoted to research as a result. d. positive externality, and too many resources are devoted to research as a result.

c. positive externality, and too few resources are devoted to research as a result.

A consumer a. is equally satisfied with any indifference curve. b. prefers indifference curves with positive slopes. c. prefers higher indifference curves to lower indifference curves. d. prefers indifference curves that are straight lines to indifference curves that are right angles.

c. prefers higher indifference curves to lower indifference curves.

In competitive market free of government regulation, a. price adjusts until quantity demanded is greater than quantity supplied. b. price adjusts until quantity demanded is less than quantity supplied. c. price adjusts until quantity demanded equals quantity supplied. d. supply adjusts to meet demand at every price.

c. price adjusts until quantity demanded equals quantity supplied.

Suppose that when the price of wheat is $2 per bushel, farmers can sell 10 million bushels. When the price of wheat is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true? The demand for wheat is a. income inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. b. income elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. c. price inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. d. price elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers.

c. price inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers.

For markets to work well, there must be a. market power. b. a central planner. c. property rights. d. abundant, not scarce, resources.

c. property rights.

For a firm, the production function represents the relationship between a. implicit costs and explicit costs. b. quantity of inputs and total cost. c. quantity of inputs and quantity of output. d. quantity of output and total cost.

c. quantity of inputs and quantity of output.

When firms have an incentive to exit a competitive market, their exit will a. lower the market price. b. necessarily raise the costs for the firms that remain in the market. c. raise the profits of the firms that remain in the market. d. shift the demand for the product to the left.

c. raise the profits of the firms that remain in the market.

The concept of diminishing marginal utility is embedded in the utilitarian rationale for a. trickle-down effects. b. enhancing market efficiency. c. redistributing income. d. maintaining the status quo income distribution.

c. redistributing income.

Ed spends an hour studying instead of watching tv with his friends. The opportunity cost to him of studying is a. the improvement in his grades from studying for the hour. b. the improvement in his grades from studying minus the enjoyment of watching tv. c. the enjoyment he would have received if he had watched tv with his friends.

c. the enjoyment he would have received if he had watched tv with his friends.

Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality, a. the supply curve would adequately reflect the marginal social cost of production. b. consumers will be required to pay a higher price for steel than they would have if the externality were internalized. c. the market equilibrium quantity will not be the socially optimal quantity. d. producers will produce less steel than they otherwise would if the externality were internalized.

c. the market equilibrium quantity will not be the socially optimal quantity.

Cartels are difficult to maintain because a. antitrust laws are difficult to enforce. b. cartel agreements are conducive to monopoly outcomes. c. there is always tension between cooperation and self-interest in a cartel. d. firms pay little attention to the decisions made by other firms.

c. there is always tension between cooperation and self-interest in a cartel.

We can say that the allocation of resources is efficient if a. producer surplus is maximized. b. consumer surplus is maximized. c. total surplus is maximized. d. sellers' costs are minimized.

c. total surplus is maximized.

In economics, the cost of something is a. the dollar amount of obtaining it. b. always measured in units of time given up to get it. c. what you give up to get it. d. often impossible to quantify, even in principle.

c. what you give up to get it.

Cindy's Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units of output (car washes). The firm's total cost is a. $100 b. $200 c. $300 d. $500

d. $500

Approximately what percentage of the world's economies experience scarcity? a. 10% b. 40% c. 85% d. 100%

d. 100%

If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a a. 0.4 percent decrease in the quantity demanded. b. 2.5 percent decrease in the quantity demanded. c. 4 percent decrease in the quantity demanded. d. 40 percent decrease in the quantity demanded.

d. 40 percent decrease in the quantity demanded.

Why is a plumber never likely to be as rich as a movie star? a. Compensating differentials create a higher wage in the movie business. b. There haven't been any significant technological advances in the plumbing industry. c. Productivity levels are low in the plumbing industry due to low worker morale. d. A plumber can provide his services to only a limited number of customers.

d. A plumber can provide his services to only a limited number of customers.

Which of the following statements is not correct? a. Trade allows for specialization. b. Trade has the potential to benefit all nations. c. Trade allows nations to consume outside of their production possibilities curves. d. Absolute advantage is the driving force of specialization.

d. Absolute advantage is the driving force of specialization.

The principle that trade can make everyone better off applies to a. individuals b. families c. countries d. All of the above

d. All of the above

A seller in a competitive market a. can sell all he wants at the going price, so he has little reason to charge less. b. will lose all his customers to other sellers if he raises his price. c. considers the market price to be a "take it or leave it" price. d. All of the above are correct.

d. All of the above are correct.

Assume that Greece has a comparative advantage in fish and Germany has a comparative advantage in cars. Also assume that Germany has an absolute advantage in both fish and cars. If these two countries specialize and trade so as to maximize the benefits of specialization and trade, then a. the two countries' combined output of both goods will be higher than it would be in the absence of trade. b. Greece will produce more fish than it would produce in the absence of trade. c. Germany will produce more cars than it would produce in the absence of trade. d. All of the above are correct.

d. All of the above are correct.

Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often a. not in the best interest of society. b. one that fails to maximize total economic well-being. c. inefficient. d. All of the above are correct.

d. All of the above are correct.

If the value of the marginal product of labor exceeds the wage, then hiring another worker increases the firm's a. profit. b. total cost. c. total revenue. d. All of the above are correct.

d. All of the above are correct.

Taxes cause deadweight losses because taxes a. reduce the sum of producer and consumer surpluses by more than the amount of tax revenue. b. prevent buyers and sellers from realizing some of the gains from trade. c. cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall. d. All of the above are correct.

d. All of the above are correct.

The circular flow diagram a. is an economic model. b. incorporates two types of decision makers: households and firms. c. represents the flows of inputs, outputs, and dollars. d. All of the above are correct.

d. All of the above are correct.

The incidence of a tax falls more heavily on a. consumers than producers if demand is more inelastic than supply. b. producers than consumers if supply is more inelastic than demand. c. consumers than producers if supply is more elastic than demand. d. All of the above are correct.

d. All of the above are correct.

The price elasticity of demand for bread a. is computed as the percentage change in quantity demanded of bread divided by the percentage change in price of bread. b. depends, in part, on the availability of close substitutes for bread. c. reflects the many economic, social, and psychological forces that influence consumers' tastes for bread. d. All of the above are correct.

d. All of the above are correct.

The principle that "people face tradeoffs" applies to individuals. a. families. b. societies. c. Scarcity, tradeoffs, and opportunity cost d. All of the above are correct.

d. All of the above are correct.

When a binding price floor is imposed on a market, a. price no longer serves as a rationing device. b. the quantity supplied at the price floor exceeds the quantity that would have been supplied without the price floor. c. only some sellers benefit. d. All of the above are correct.

d. All of the above are correct.

Which of the following helps to explain the differences in earnings in the United States? a. ability, effort, and chance b. compensating differentials c. physical attractiveness d. All of the above are correct.

d. All of the above are correct.

Which of the following can be used to help explain wage differences among different groups of workers? a. human capital acquired through education b. human capital acquired through job experience c. compensating differentials d. All of the above can explain wage differences.

d. All of the above can explain wage differences.

Which of the following can be used to help explain wage differences among different groups of workers? a. human capital b. discrimination c. unions d. All of the above could explain wage differences among groups

d. All of the above could explain wage differences among groups

When incentives to earn income are distorted by income redistribution programs, a. losses can exceed potential gains from greater equality of income. b. total income in an economy can fall. c. total utility in society can fall. d. All the above are correct

d. All the above are correct

Which of the following is not an example of a barrier to entry? a. Mighty Mitch's Mining Company owns a unique plot of land in Tanzania, under which lies the only large deposit of Tanzanite in the world. b. A pharmaceutical company obtains a patent for a specific high blood pressure medication. c. A musician obtains a copyright for her original song. d. An entrepreneur opens a popular new restaurant.

d. An entrepreneur opens a popular new restaurant.

A circular- flow diagram is a model that a. helps to explain how participants in the economy interact with one another. b. helps to explain how the economy is organized. c. incorporates all aspects of the real economy. d. Both (a) and (b) are correct.

d. Both (a) and (b) are correct.

A signaling theory of education suggests that educational attainment a. is a signal of high marginal productivity. b. is correlated with natural ability. c. increases the productivity of low-ability workers. d. Both a and b are correct.

d. Both a and b are correct.

Which of the following is an example of human capital? a. Machines built by people. b. Formal education acquired in schools. c. On-the-job training. d. Both b and c are correct.

d. Both b and c are correct.

Which of the following statements regarding a competitive firm is correct? a. Because demand is downward sloping, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output. b. If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units. c. By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sold by charging the market price. d. For all firms, average revenue equals the price of the good.

d. For all firms, average revenue equals the price of the good.

The production possibilities frontier illustrates a. the trade-off between efficiency and equality. b. the combination of output that an economy should produce. c. the combination of output that each member of society should consume. d. None of the above is correct.

d. None of the above is correct.

Which political philosophy believes that the government should equalize the incomes of all members of society? a. Utilitarianism. b. Liberalism. c. Libertarianism. d. None of the above is correct.

d. None of the above is correct.

Suppose that when the price of ginger ale is $2 per bottle, firms can sell 4 million bottles. When the price of ginger ale is $3 per bottle, firms can sell 2 million bottles. Which of the following statements is true? a. The demand for ginger ale is income inelastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers. b. The demand for ginger ale is income elastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers. c. The demand for ginger ale is price inelastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers. d. The demand for ginger ale is price elastic, so an increase in the price of ginger ale will decrease the total revenue of ginger ale producers.

d. The demand for ginger ale is price elastic, so an increase in the price of ginger ale will decrease the total revenue of ginger ale producers.

A firm in a competitive market currently produces and sells 500 doorknobs for a price of $10 per doorknob. Which of the following events would decrease the firm's average revenue? a. The firm increases its output above 500 doorknobs. b. The firm decreases its output below 500 doorknobs. c. The market price of doorknobs rises above $10. d. The market price of doorknobs falls below $10.

d. The market price of doorknobs falls below $10.

Sally runs a hair styling salon. Sally is a profit-maximizing owner whose firm operates in a competitive market. The marginal cost of a haircut is $11. What is the maximum wage that Sally will pay her stylists? a. less than $11 per haircut b. $11 per haircut c. more than $11 haircut d. There is insufficient information to answer this question.

d. There is insufficient information to answer this question.

Which of the following demonstrates the law of supply? a. When leather became more expensive, belt producers decreased their supply of belts. b. When car production technology improved, car producers increased their supply of cars. c. When sweater producers expected sweater prices to rise in the near future, they decreased their current supply of sweaters. d. When ketchup prices rose, ketchup sellers increased their quantity supplied of ketchup.

d. When ketchup prices rose, ketchup sellers increased their quantity supplied of ketchup.

Who among the following is a free rider? a. Mickey buys groceries from the store where he works. b. Donald rides to work with Betsey, but he pays Betsey for gasoline and other travel-related expenses. c. Fred drives 20,000 miles a year on public streets, but he pays no more in property taxes than Barney, who only drives 1,000 miles. d. Wilma watches many public television programs, but she has never sent in a contribution to the station.

d. Wilma watches many public television programs, but she has never sent in a contribution to the station.

In the prisoners' dilemma game with Bonnie and Clyde as the players, the likely outcome is a. a very good outcome for both players. b. a very good outcome for Bonnie, but a bad outcome for Clyde. c. a very good outcome for Clyde, but a bad outcome for Bonnie. d. a bad outcome for both players.

d. a bad outcome for both players.

An increase in the price of oranges would lead to a. an increased supply of oranges. b. a reduction in the prices of inputs used in orange production. c. an increased demand for oranges. d. a movement up and to the right along the supply curve for oranges.

d. a movement up and to the right along the supply curve for oranges.

Utilitarianism is a. a liberal religion that focuses on individual rights. b. a political philosophy that believes the government should choose policies deemed to be just by an impartial observer. c. a political philosophy that believes the government should not redistribute income. d. a political philosophy that believes the government should choose policies to maximize the total utility of society.

d. a political philosophy that believes the government should choose policies to maximize the total utility of society.

Each of the following is likely to be a successful way for the government to solve the problem of overuse of a common resource except a. regulating the use or consumption of the common resource. b. taxing the use or consumption of the common resource. c. selling the common resource to a private entity. d. asking individuals to voluntarily reduce their use of the resource.

d. asking individuals to voluntarily reduce their use of the resource.

For a competitive firm, a. total revenue equals average revenue. b. total revenue equals marginal revenue. c. total cost equals marginal revenue. d. average revenue equals marginal revenue.

d. average revenue equals marginal revenue.

Which of the following would not be considered a private good? a. a sweater b. a slice of pizza c. a Toyota Prius d. cable TV service

d. cable TV service

The economic inefficiency of a monopolist can be measured by the a. number of consumers who are unable to purchase the product because of its high price. b. excess profit generated by monopoly firms. c. poor quality of service offered by monopoly firms. d. deadweight loss.

d. deadweight loss

A drought in California destroys many red grapes. As a result of the drought, the consumer surplus in the market for red grapes a. increases, and the consumer surplus in the market for red wine increases. b. increases, and the consumer surplus in the market for red wine decreases. c. decreases, and the consumer surplus in the market for red wine increases. d. decreases, and the consumer surplus in the market for red wine decreases

d. decreases, and the consumer surplus in the market for red wine decreases

Which of the following events must cause equilibrium quantity to rise? a. demand increases and supply decreases b. demand and supply both decrease c. demand decreases and supply increases d. demand and supply both increase

d. demand and supply both increase

Which of the following is not a reason for the existence of a monopoly? a. sole ownership of a key resource b. patents c. copyrights d. diseconomies of scale

d. diseconomies of scale

If an externality is present in a market, economic efficiency may be enhanced by a. increased competition. b. weakening property rights. c. better informed market participants. d. government intervention.

d. government intervention

Demand is elastic if the price elasticity of demand is a. less than 1. b. equal to 1. c. equal to 0. d. greater than 1.

d. greater than 1.

The greater the price elasticity of demand, the a. more likely the product is a necessity. b. smaller the responsiveness of quantity demanded to a change in price. c. greater the percentage change in price over the percentage change in quantity demanded. d. greater the responsiveness of quantity demanded to a change in price.

d. greater the responsiveness of quantity demanded to a change in price.

In both perfect competition and monopolistic competition, each firm a. has some monopoly power. b. sells a product that is at least slightly different from those of other firms. c. faces a downward-sloping demand curve. d. has many competitors.

d. has many competitors.

People are likely to respond to a policy change a. only if they think the policy is a good one. b. only if the policy change changes the costs of their behavior. c. only if the policy change changes the benefits of their behavior. d. if the policy changes either the costs or benefits of their behavior.

d. if the policy changes either the costs or benefits of their behavior.

When the government taxes income as part of a redistribution program, a. the poor pay higher taxes. b. the rich always benefit more than the poor. c. the poor are encouraged to work. d. incentives to earn income are diminished

d. incentives to earn income are diminished

The marginal product of labor is equal to the a. incremental cost associated with a one unit increase in labor. b. incremental profit associated with a one unit increase in labor. c. increase in labor necessary to generate a one unit increase in output. d. increase in output obtained from a one unit increase in labor.

d. increase in output obtained from a one unit increase in labor.

Diminishing marginal product is closely related to a. diminishing total cost. b. diminishing marginal cost. c. increasing price. d. increasing marginal cost.

d. increasing marginal cost.

When an externality is present, the market equilibrium is a. efficient, and the equilibrium maximizes the total benefit to society as a whole. b. efficient, but the equilibrium does not maximize the total benefit to society as a whole. c. inefficient, but the equilibrium maximizes the total benefit to society as a whole. d. inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

d. inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

If the use of a common resource is not regulated, a. no one can enjoy it. b. it will tend to be underused. c. property rights will be clearly defined. d. it will be overused.

d. it will be overused.

Games that are played more than once generally a. lead to outcomes dominated purely by self-interest. b. lead to outcomes that do not reflect joint rationality. c. encourage cheating on cartel production quotas. d. make collusive arrangements easier to enforce

d. make collusive arrangements easier to enforce

When we focus on the firm as a supplier of a good or a service, we assume that the firm is a profit maximizer. When we focus on the firm as a demander of labor, we assume that the firm's objective is to a. minimize wages. b. minimize variable costs. c. maximize the number of workers hired. d. maximize profit.

d. maximize profit.

Suppose a society consists of only two people, John and Jane. A utilitarian would say that the proper role of government in this society is to a. equalize the incomes of John and Jane. b. equalize John's utility and Jane's utility. c. equalize John's marginal utility and Jane's marginal utility. d. maximize the sum of John's utility and Jane's utility.

d. maximize the sum of John's utility and Jane's utility.

If the housing market, supply and demand are a. more elastic in the short run than in the long run, and so rent control apartments in the short run than in the long run. b. more elastic in the short run than in the long run, and so rent control apartments in the long run than in the short run. c. more elastic in the long run than in the short run, and so rent control apartments in the short run than in the long run. d. more elastic in the long run than in the short run, and so rent control apartments in the long run than in the short run.

d. more elastic in the long run than in the short run, and so rent control apartments in the long run than in the short run.

When a single firm can supply a product to an entire market at a lower cost than could two or more firms, the industry is called a a. resource industry. b. exclusive industry. c. government monopoly. d. natural monopoly.

d. natural monopoly.

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest? a. immediately after the price increase b. one month after the price increase c. three months after the price increase d. one year after the price increase

d. one year after the price increase

In a free, competitive market, what is the rationing mechanism? a. seller bias b. buyer bias c. government law d. price

d. price

Goods that are excludable include both a. club goods and public goods. b. public goods and common resources. c. common resources and private goods. d. private goods and club goods.

d. private goods and club goods.

Which of the following conditions distinguishes monopolistic competition from perfect competition? a. the number of sellers in the market b. the freedom of entry and exit by firms in the market c. the size of firms in the market d. product differentiation

d. product differentiation

The goal of utilitarians is to a. punish crimes and enforce voluntary agreements but not to redistribute income. b. redistribute income until each person has equal earnings. c. redistribute income until the marginal utility of the wealthiest person equals the total utility of the poorest person. d. redistribute income based on the assumption of diminishing marginal utility.

d. redistribute income based on the assumption of diminishing marginal utility.

When a tax is levied on a good, the buyers and sellers of the good share the burden, a. provided the tax is levied on the sellers. b. provided the tax is levied on the buyers. c. provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers. d. regardless of how the tax is levied.

d. regardless of how the tax is levied.

A marginal change is one that a. change that involves little, if anything, that is important. b. large, significant adjustment. c. change for the worse, and so it is usually a short-term change. d. small, incremental adjustment.

d. small, incremental adjustment.

A utilitarian government has to balance the gains from greater income equality against the losses from distorted work incentives. To maximize total utility, therefore, the government a. would never tax labor income. b. must always achieve a fully egalitarian society. c. enacts policies that only benefit the middle class. d. stops short of a fully egalitarian society.

d. stops short of a fully egalitarian society.

Suppose that a decrease in the price of good X results in fewer units of good Y being demanded. This implies that a. X and Y are complementary goods. b. normal goods. c. inferior goods. d. substitute goods.

d. substitute goods.

If a price ceiling is not binding, then a. there will be a surplus in the market. b. there will be a shortage in the market. c. the market will be less efficient than it would be without the price ceiling. d. there will be no effect on the market price or quantity sold.

d. there will be no effect on the market price or quantity sold.

The English philosophers Jeremy Bentham and John Stuart Mill founded the school of thought called a. liberalism. b. libertarianism. c. mobilism. d. utilitarianism.

d. utilitarianism.