Micro Practice Questions
If a perfectly competitive gardening shop sells 30 evergreen bushes at $10 per bush, its marginal revenue is: a. $10 b. more than $10 c. less than $10 d. $300
a. $10
The rent for Oscar's sporting goods store is $2,500 per month. Oscar pays his staff $9 per hour, and his monthly electricity bill averages $700, depending on his total hours of operation. Oscar's fixed costs of production equal: a. $2,500 per month b. $3,200 per month c. $9 per hour multiplied by total hours of work plus $700 d. $9 per hour multiplied by total hours of work plus $3,200
a. $2,500 per month
Zoe's Bakery operates in a perfectly competitive industry. When the market price of iced cupcakes is $5, the profit-maximizing output level is 150 cupcakes. Her average total cost is $4, and her average variable cost is $3. Zoe's marginal cost is _____, and her short-run profits are _____. a. $5; $150 b. $5; $300 c. $1; $150 d. $1; $300
a. $5; $150
John's accountant tells him that he made a profit of $43,002 running a pottery studio in Orlando. John's wife, an economist, claims John lost $43,002 running his pottery studio. This means his wife is claiming that he incurred _____ in _____ costs. a. $86,004; implicit b. $43,002; implicit c. $43,002; explicit d. $86,004; explicit
a. $86,004; implicit
Britain must give up the production of 75 hats to produce 25 additional sweaters. The opportunity cost of producing 3 hats is _____ sweater(s). a. 1 b. 3 c. 22 d. 28
a. 1
Which Herfindahl-Hirschman index is MOST likely to indicate a perfectly competitive market? a. 100 b. 1,800 c. 10,000 d. 100,000
a. 100
Adam has a monthly income of $20 that can be spent on books (B) and pencils (P). The price of a book is $5 and the price of a pencil is $0.50. The equation for Adam's daily budget constraint can be written as: a. 5(B) + 0.50(P) ≤ 20 b.0.50(B) + 5(P) ≤ 20 c. 20(B) + 0.50(P) ≤ 5 d. 0.50(B) + 20(P) ≤ 5
a. 5(B) + 0.50(P) ≤ 20
Which statement is CORRECT? a. An emissions tax is a more efficient way to reduce pollution than is an environmental standard because an emissions tax equalizes the marginal benefit of pollution from all sources b. An environmental standard is a more efficient way to reduce pollution than is an emissions tax because an environmental standard can be structured to equalize the reduction in pollution from all sources c. If an emissions tax and environmental standards lead to the same total reduction in pollution, then they will also lead to the same reduction in pollution by individual polluters d. It is easy to set emissions taxes at the "correct" level since the relationship between emissions taxes and the reduction in emissions that they induce has been extensively studied and is well known
a. An emissions tax is a more efficient way to reduce pollution than is an environmental standard because an emissions tax equalizes the marginal benefit of pollution from all sources
In economics, maximization of the total profit of an activity occurs when: a. MB=MC b. MB>MC c. MB<MC d. MB approaches MC
a. MB=MC
Natural monopolies are NOT likely to include: a. a diamond- mining company b. a gas company c. an electricity company d. railways
a. a diamond- mining company
A principle suggesting that people with more income or wealth should pay more taxes is the _____ principle. a. ability-to-pay b. proportional tax c. lump-sum tax d. benefits received
a. ability-to-pay
Sunk Costs: a. are not considered in marginal analysis b. help to determine the optimal quantity of an activity c. can dramatically increase marginal costs d. are the same as variable costs
a. are not considered in marginal analysis
Conditions that keep new firms out of a monopoly market are: a. barriers to entry b. terms of sale c. labor market stipulations d. production controls
a. barriers to entry
Suppose that each of two prisoners has the independent choice of confessing to a crime or not confessing to a crime they were both alleged to commit. If neither confesses, both spend two years in prison; if both confess, both spend three years in prison. If one confesses and the other does not, the confessor gets off with one year but the other gets six years. According to game theory, the MOST likely strategy of the prisoners is that: a. both will confess b. neither will confess c. one will confess and the other will not d. both may or may not confess
a. both will confess
Suppose a monopoly is producing output so that marginal revenue equals marginal cost. If the monopolist reduces output, it: a. can charge a higher price b. will increase profits c. will decrease marginal revenue d. can't change the price because its is a price taker
a. can charge a higher price
Melika spends all of her income on magazines and carry-out lunches. The price of a magazine is $5, and the price of a carry-out lunch is $7. At the current consumption bundle, the marginal utility of magazines is 10, and the marginal utility of carry-out lunches is 21. Assuming that diminishing marginal utility applies to both goods, to maximize utility given her income, Melika should: a. consume more carry-out lunches and fewer magazines b. consume more magazines and fewer carry-out lunches c. continue to consume the current bundle d. consume equal amounts of magazines and carry-out lunches
a. consume more carry-out lunches and fewer magazines
Monopolistic competition is characterized by: a. free entry and exit in the long run b. each firm producing a standardized product c. few producers d. barriers to entry
a. free entry and exit in the long run
Once diminishing returns have set in, as output increases, the total cost curve: a. gets steeper b. gets flatter c. becomes horizontal d. increases at first, and then decreases
a. gets steeper
If a product's usefulness increases with the number of users, it: a. has network externalities b. is a monopoly c. is a conglomerate d. has an exclusive franchise
a. has network externalities
Price discrimination leads to a _____ price for consumers with a _____ demand. a. higher; less elastic b. higher; more elastic c. higher; perfectly elastic d. lower; less elastic
a. higher; less elastic
The United States places a tariff on imported Brazilian ethanol. The impact of this tariff on the domestic ethanol market is a _____ domestic price, _____ consumer surplus, and _____ producer surplus. a. higher; less; more b. lower; less; more c. higher; more; less d. higher; less; less
a. higher; less; more
When an increase in the firm's output reduces its long-run average total cost, it has _____ returns to scale. a. increasing b. decreasing c. constant d. variable
a. increasing
Whenever marginal benefit is less than marginal cost, the decision maker should do _____ of the activity. a. less b. the exact amount c. more d. none
a. less
For MOST firms, economic profit is: a. less than accounting profit b. equal to accounting profit c. greater than accounting profit d. negative
a. less than accounting profit
An example of an import quota is a: a. limit on the total number of Honda automobiles imported from Japan b. regulation specifying that each imported Honda automobile must meet certain emission exhaust guidelines c. tax of %10 of the value of each Honda automobile imported from Japan d. subsidy from the Japanese government of $500 for each Honda automobile imported into the United States
a. limit on the total number of Honda automobiles imported from Japan
Lower wages in China reflect _____ labor productivity in China than in the United States. This means that if the United States moved high-tech industries to China, the overall cost of production would be _____ in China than in the United States. a. lower; higher b. lower; lower c. higher; higher d. higher; lower
a. lower; higher
The broccoli market is perfectly competitive. This means that the price of broccoli is _____ than if the market were monopolistically competitive, and total broccoli output in the market is _____ than if it were monopolistically competitive. a. lower; higher b. lower; lower c. higher; lower d. higher; higher
a. lower; higher
The long run is a planning period: a. over which a firm can consider all inputs as variable b. of at least five years c. of more than six months d. of six months of five years
a. over which a firm can consider all inputs as variable
Stephanie stops at a gas station to fill up the tank of her car. The unleaded gasoline in her tank is BEST described as a(n): a. private good b. public good c. artificially scarce good d. common resource
a. private good
A monopoly a. produces a product with no close substitutes b. is composed of a single buyer and several sellers c. is composed of a large number of small firms d. is composed of a small number of large firms
a. produces a product with no close substitutes
A tax of $10 on an income of $100, $25 on an income of $200, and $60 on an income of $300 is: a. progressive b. proportional c. regressive d. flat
a. progressive
Suppose an income tax is levied on none of the first $1,000, 10% of the next $10,000, and 20% of the remainder of earnings. This type of tax can be defined as: a. progressive b. proportional c. regressive d. equitable
a. progressive
In the importing country, the MOST likely effect of a tariff is to: a. raise the price and decrease the quantity demanded b. raise the price and increase the quantity demanded c. raise the price without affecting the quantity demanded d. decrease the quantity supplied
a. raise the price and decrease the quantity demanded
Suppose that a profit-maximizing monopoly firm undergoes a substantial technological change that reduces its marginal and average total costs by $40. If in response to its reduction in cost the firm changes its price in a profit-maximizing way, then we can predict that its total output will: a. rise b. falls c. remain unchanged d. it is not possible to make a determination from the information given
a. rise
People are willing to buy insurance because of: a. risk aversion b. the status quo c. the miscalculation of opportunity costs d. bounded rationality
a. risk aversion
Wolfgang really likes both rutabagas and broccoli. The price of each good is $0.60 per pound and Wolfgang is maximizing utility. At the point of maximal utility, the marginal utility of: a. rutabagas and broccoli is the same b. rutabagas is greater than the marginal utility of broccoli c. broccoli is greater than the marginal utility of rutabagas d. both goods is zero
a. rutabagas and broccoli is the same
The tendency to avoid making a decision is: a. status quo bias b. bounded rationally c. loss aversion d. mental accounting
a. status quo bias
An input whose quantity CANNOT be changed in the short run is: a. marginal b. fixed c. incremental d. variable
b. fixed
Suppose economic profits exist in perfect competition in the short run. Firms will enter in the long run because of easy entry, the short-run market _____ curve will shift to the right, and _____ will _____. a. supply; output; increase b. demand; supply; fall c. supply; demand; also shift to the right d. demand; price; increase
a. supply; output; increase
The free-rider problem is a direct result of: a. the inability to exclude nonpayers b. marginal-cost pricing c. full-cost pricing d. horizontally summed supply curves
a. the inability to exclude nonpayers
Tacit collusion is difficult to achieve in practice: a. the larger the number of firms in the industry b. the fewer the number of products being sold c. the more similar the marginal costs of each firm d. if customers have little or no bargaining power
a. the larger the number of firms in the industry
The marginal utility of coffee consumption for Steve is the change in _____ generated by consuming an additional cup of coffee. a. total utility b. total consumption c. total demand d. price
a. total utility
For Heidi, the marginal cost of producing one additional photograph equals the change in _____ cost divided by the change in the _____ of photographs. a. total; number b. marginal; number c. total; marginal product d. average; number
a. total; number
Suppose the absolute value of the price elasticity of demand for yachts equals 4.04, while the price elasticity of supply for yachts equals 0.22. If Congress reinstates a luxury tax on yachts, who will pay more of the tax? a. yacht builder will pay more b. yacht buyers will pay more c. yacht builder and buyers will pay equally d. it's impossible to tell without additional information
a. yacht builder will pay more
The price elasticity of demand for a particular cancer drug is zero and the price elasticity of supply is 0.50. If a $1 excise tax is levied on producers, how much of this tax will eventually be paid by consumers? a. $0 b. $1 c. $0.50 d. $1.50
b. $1
Assume that Maia spends all of her income on halvah (H) and pomegranates (P) and is purchasing the optimal consumption bundle. If MUH/MUP = 3 and the price of halvah is $12, then the price of pomegranates must be: a. $36 b. $4 c. $12 d. $3
b. $4
Joan loves sushi. Her first piece of sushi normally gives her a marginal benefit of $5. Each additional piece yields a marginal benefit that declines by $0.25 per piece. If her favorite sushi bar charges $2.75 per piece of sushi, how many pieces should she eat? a. 8 b. 10 c. 5 d. 11
b. 10
The United States must give up the production of 300 motorcycles to produce 15 additional SUVs with the same resources. The opportunity cost of producing 100 motorcycles is _____ SUV(s). a. 1 b. 5 c. 7 d. 15
b. 5
Brianna and Jess must pay an income tax. Both Brianna and Jess pay $1,000 in taxes each year, but Brianna earns $20,000 and Jess earns $10,000. From this information, you can infer that this tax is: a. progressive b. regressive c. proportional d. equitable
b. regressive
If the United States can produce 30 computers for every car it produces and Japan can produce 15 computers for every car it produces, _____ has the _____ advantage in car production. a. the United States; comparative b. Japan; comparative c. the United States absolute d. Japan; absolute
b. Japan; comparative
In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits. Which expression must be TRUE for this firm? a. MR = MC and P = ATC b. MR = MC and P > ATC c. MR > MC and P = ATC d. P = MR = MC > ATC
b. MR = MC and P > ATC
A well-known example of an international cartel is: a. Japan b. OPEC c. Exxon d. General Motors
b. OPEC
An "either-or" decision entails: a. deciding how much of an activity to do b. a choice between two activities c. calculating marginal costs for each activity d. calculating the marginal benefits for each activity
b. a choice between two activities
Which good is MOST likely a common resource? a. the Super Bowl b. a public park c. a pair of pants d. the fire department
b. a public park
Gary's Gas and Frank's Fuel are the only two providers of gasoline in their small town. Gary summarizes his pricing strategy as, "I'll do to Frank (price-wise) what Frank did to me last time." This is an example of: a. a dominant strategy b. a tit-for-tat strategy c. an irrational strategy d. product differentiation
b. a tit-for-tat strategy
Many economists believe that there are more efficient ways to deal with pollution than with environmental standards because these standards do NOT: a. reduce pollution enough b. allow reductions in pollution to be achieved at minimum cost c. specify the behavior that needs to be changed d. target behaviors in a way that can be enforced
b. allow reductions in pollution to be achieved at minimum cost
Which example BEST fits the characteristics of a private good? a. a professor giving a lecture in a large classroom b. an ice-cream cone c. fire protection d. disease prevention
b. an ice-cream cone
Cindy operates Birds-R-Us, a small store manufacturing and selling 100 bird feeders per month. Cindy's monthly total fixed costs are $500, and her monthly total variable costs are $2,500. If for some reason Cindy's fixed cost fell to $400, then her _____ costs would _____. a. average fixed; increase b. average total; decrease c. marginal; decrease d. average variable; decrease
b. average total; decrease
A monopolist generally _____ than does a perfectly competitive industry with the same market demand. a. produces a larger quantity b. charges a higher price c. charges a lower price d. earns less profit in the long run
b. charges a higher price
If Japan levies tariffs on U.S. goods entering Japan, this will tend to: a. benefit both Japanese and U.S producers b. damage U.S producers and benefit Japanese producers c. benefit U.S producers and damage Japanese producers d. damage both Japanese and U.S producers
b. damage U.S producers and benefit Japanese producers
A Pigouvian subsidy is: a. designed to discourage activities generating externalities b. designed to encourage activities generating external benefits c. appropriate when the marginal social cost curve is above the marginal cost of production curve d. appropriate when the marginal social cost curve and the marginal social benefit curve intersect at an inefficient level
b. designed to encourage activities generating external benefits
The MAIN reason a monopoly engages in price discrimination is that: a. it wants to discriminate against a particular ethnic group b. doing so increases its profits c. it wants to discourage potential competitors d. by charging a lower price to some people, it may succeed in discouraging efforts to regulate it
b. doing so increases its profits
Diminishing marginal returns occur when: a. each additional unit of a variable factor adds more to total output than the previous unit b. each additional unit of a variable factor adds less to total output than the previous unit c. the marginal product of a variable factor is increasing at a decreasing rate d. total product decreases
b. each additional unit of a variable factor adds less to total output than the previous unit
Assuming a downward-sloping demand curve, a decrease in production costs for firms in a perfectly competitive market initially in long-run equilibrium will cause a(n): a. permanent increase in the price b. economic profit for firms in the short run c. increase in demand d. increase in firm's marginal revenue
b. economic profit for firms in the short run
If the accounting profit for a firm is negative, the: a. economic profit must be positive b. economic profit must be negative c. firm should produce more d. firm will not owe any taxes
b. economic profit must be negative
Buffalo Aircraft doubles the amount of all of the inputs it uses—the factory doubles in size and twice as many workers are hired. After this expansion, the number of aircraft produced triples. If the price of inputs is unchanged, this means that Buffalo Aircraft is operating with: a. increasing marginal cost b. economies of scale c. increasing average total cost d. decreasing average variable cost
b. economies of scale
Because tourist demand for airline flights is relatively _____, small _____ in ticket price will result in relatively _____ in additional tourists. a. inelastic; reductions; small increases b. elastic; reductions; large increases c. inelastic; increased; small decreases d. elastic; increases; small increases
b. elastic; reductions; large increases
France and England both produce wine and cloth with constant opportunity costs. France can produce 150 barrels of wine if it produces no cloth or 100 bolts of cloth if it produces no wine. England can produce 50 barrels of wine if it produces no cloth or 100 bolts of cloth if it produces no wine. Using this information, we can conclude that: a. france has a comparative advantage in cloth production b. england has a comparative advantage in cloth production c. france has a comparative advantage in both goods d. mutually beneficial international trade is not possible
b. england has a comparative advantage in cloth production
Computer software that you can download from the Internet for a price is an artificially scarce good because it is _____ but _____ in consumption. a. nonexcludable; rival b. excludable; nonrival c. nonexcludable; nonrival d. excludable; rival
b. excludable; nonrival
Mexico is relatively labor-abundant when compared with the United States. Therefore, Mexico has a comparative advantage in _____ compared with the United States. a. all goods b. goods that are labor- intensive in production c. goods that are capital- intensive in production d. goods that are land- intensive in production
b. goods that are labor- intensive in production
If the state government gave you the exclusive right to sell cement to municipalities, your monopoly would result from: a. sunk costs b. government restrictions to entry c. economies of scale d. location
b. government restrictions to entry
If quota rents do not accrue to the government, then the net loss to the government from an import quota is _____ the deadweight loss from an equivalent tariff. a. less than b. greater than c. equal to d. in the case of demand and supply both being elastic, less than
b. greater than
The price for a firm under monopolistic competition is _____ revenue. a. equal to marginal b. greater than marginal c. less than marginal d. greater than total
b. greater than marginal
One government policy for dealing with natural monopoly is to: a. impose a price floor to eliminate the deadweight loss b. impose a price ceiling to reduce economic profit c. break it up into smaller firms d. impose fines on the monopolist
b. impose a price ceiling to reduce economic profit
Taxation according to the ability-to-pay principle is best illustrated in the United States by: a. sales taxes b. income taxes c. excise taxes d. user fees
b. income taxes
A tariff is MOST likely to _____ prices and _____ domestic consumption of the good or service being protected. a. decrease; increase b. increase; decrease c. have no effect on; not change d. decrease; decrease
b. increase; decrease
If you want to reduce the inefficiency costs of taxation, you should devise taxes to fall on goods for which the supply is _____ and the demand is _____. a. elastic; elastic b. inelastic; inelastic c. elastic; inelastic d. inelastic; elastic
b. inelastic; inelastic
Oligopoly is a market structure characterized by: a. independence in decision making b. interdependence: each firm's decision affects the profit of the other firms c. substantial diseconomies of scale d. a large number of small firms
b. interdependence: each firm's decision affects the profit of the other firms
When Aishe's Bar-B-Que produces 10 pork sandwiches, the total cost is $5. When 11 pork sandwiches are produced, the total cost rises to $6. From this we know that the marginal cost of the eleventh pork sandwich: a. is equal to the average cost of 11 pork sandwiches b. is greater than the average cost of 11 pork sandwiches c. is less than the average cost of 11 pork sandwiches d. can't be calculated without more information
b. is greater than the average cost of 11 pork sandwiches
Saudi Arabia has a tremendous comparative advantage in petroleum. Which factor is a source of this comparative advantage? a. mild temperatures b. large reserves c. no opportunity cost associated with oil production d. high tariffs on oil from other nations
b. large reserves
An individual gets 5 units of utility from one slice of pizza and 9 units of utility from two slices of pizza. The principle of diminishing marginal utility implies that the total utility from three slices of pizza will be _____ units of utility. a. exactly 12 b. less than 13 c. less than 9 d. more than 14
b. less than 13
According to the profit-maximizing principle of marginal analysis, if the marginal benefit is _____ the marginal cost, _____. a. more than; an activity should be reduced b. less than; an activity should be reduced c. equal to; an activity should be reduced d. more than; net benefit is maximized
b. less than; an activity should be reduced
The short-run shut-down price is the: a. price at which economic profit is zero b. minimum of the AVC curve c. intersection of the MC and ATC curves d. minimum of the AFC curve
b. minimum of the AVC curve
Assume that diminishing marginal utility applies to both coffee and football tickets and that the consumer is spending all of her income. If a consumer purchases a combination of coffee and football tickets such that MUCoffee/PCoffee = 20 and MUFootball tickets/PFootball tickets = 10, to maximize utility, the consumer should buy _____ coffee and _____ football tickets. a. less; more b. more; fewer c. more; more d. less; fewer
b. more; fewer
The BEST example of a public good is: a. legal services b. national defense c. a municipal library d. cable television programming
b. national defense
Which example is considered a nonexcludable good? a. health care b. national defense c. education d. ice cream
b. national defense
Which good is MOST likely an artificially scarce good? a. a ticket to a boxing match b. pay-per-view of a boxing match c. health care d. the police department
b. pay-per-view of a boxing match
If the government wants to minimize the deadweight loss from taxes, it should tax goods for which the: a. price elasticity of demand is high b. price elasticity of demand is low c. price elasticity of supply is high d. demand is high
b. price elasticity of demand is low
The burden of a tax on a good is said to fall completely on the consumers if the: a. price paid by consumers for the good declines by the amount of the tax b. price paid by consumers for the good increases by the amount of the tax c. price paid by consumers does not change d. wages received by workers who produce the good increase by the amount of the tax
b. price paid by consumers for the good increases by the amount of the tax
If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will: a. produce at a loss b. produce at a profit c. shut down production d. produce more than the profit-maximizing quantity
b. produce at a profit
The evidence suggests that federal taxes in the U.S. economy are: a. regressive b. progressive c. higher than they've ever been before d. proportional
b. progressive
The BEST example of a common resource(s) is/are: a. public education b. a football match c. fish to catch in a local public lake d. cable television programming
c. fish to catch in a local public lake
For a perfectly competitive firm, the short-run supply curve is the: a. entire MC curve b. rising part of the MC curve beginning at the shut-down point c. rising part of the MC curve beginning where the firm starts earning economic profit d. MC curve below the shut-down point
b. rising part of the MC curve beginning at the shut-down point
If a Florida strawberry wholesaler operates in a perfectly competitive market, that wholesaler will have a _____ share of the market, and consumers will consider her strawberries and her competitors' strawberries to be _____. Therefore, _____ advertising will take place in this market. a. large; standardized; no b. small; standardized; little or no c. small; differentiated; no d. large; differentiated; extensive
b. small; standardized; little or no
The average total cost curve has a shape because the _____ effect is dominant at low levels of output, and the _____ effect is dominant at high levels of output. a. diminishing returns; spreading b. spreading; diminishing returns c. comparative advantage; absolute advantage d. absolute advantage; comparative advantage
b. spreading; diminishing returns
Lenoia runs a natural monopoly producing electricity for a small mountain village. The barrier preventing other firms from competing with her is: a. her control of scarce natural resources b. the existence of economies of scale c. her technological superiority d. a government- set barrier
b. the existence of economies of scale
The restaurant industry is characterized by excess capacity. This means that: a. restaurants are producing more than their profit-maximizing level b. the profit-maximizing level is less than the level that minimizes average total costs c. restaurants are producing less than their profit-maximizing level d. the quantity of restaurant meals supplied exceeds the quantity of restaurant meals demanded
b. the profit-maximizing level is less than the level that minimizes average total costs
A familiar example of a negative externality is traffic congestion. In principle, it should be possible to internalize this externality by permitting drivers to negotiate rights to drive during particular times. The most likely reason that these negotiations do NOT happen is that: a. most individuals are unfamiliar with the Coase theorem b. the transaction costs associated with identifying and establishing communication among the many interested parties would be prohibitive c. agreements arising from such negotiations could not be enforced since the Constitution guarantees all individuals freedom of access to all public roads. d. lawyers would find a way to prohibit such negotiations unless they were actively involved, thus making transaction costs prohibitive.
b. the transaction costs associated with identifying and establishing communication among the many interested parties would be prohibitive
A copper mining operation discharges waste products into a river and causes higher costs and discomfort to downstream users of the water for which they are not compensated. In this case: a. too little of society's resources is being used to produce copper b. too much of society's resources is being used to produce copper c. the optimal amount of society's resources is being used to produce copper d. there is an external benefit to society from copper production
b. too much of society's resources is being used to produce copper
Average variable cost is: a. variable cost per unit multiplied by output b. total variable cost divided by output c. the difference between average total cost and total variable cost d. the difference between total cost and total variable cost
b. total variable cost divided by output
If a person engages in mental accounting, he or she: a. is unwilling to recognize a loss and move on b. values some dollars more than others c. tends to avoid making decisions d. tries to balance his or her bank account mentally, without writing anything down
b. values some dollars more than others
Tax incidence refers to: a. who writes the check to the government b. who really pays the tax c. the deadweight loss from the tax d. the total revenue that the government collects from the tax
b. who really pays the tax
Which activity generates a negative externality? a. you buy a new car, then discover it needs a new transmission b. your next-door neighbor mows the lawn at 6 A.M c. the only two coffee shops in town conspire to raise prices d. after Jane buys health insurance, she begins racing motorcycles on the weekends
b. your next-door neighbor mows the lawn at 6 A.M
In a long-run equilibrium, economic profits in a perfectly competitive industry are: a. positive b. zero c. negative d. indeterminate
b. zero
In the long run, monopolistically competitive firms tend to have: a. high economic profits b. zero economic profits c. negative economic profits d. substantial economic losses
b. zero economic profits
It is common in large breweries for the long-run average total cost to decline as output increases. This indicates that many breweries operate with: a. diseconomies of scale b. diminishing marginal returns c. economies of scale d. constant returns to scale
c. economies of scale
Pauli's Pizza offers one slice for $2, two slices for $3.50, three slices for $4.50, and four slices for $5.00. The marginal cost of the third slice is: a. $4.50 b. $10 c. $1 d. $2
c. $1
Suppose a local floral shop has explicit costs of $200,000 per year and implicit costs of $50,000 per year. If the store earned an economic profit of $50,000 last year, the store's accounting profit equaled: a. $10,000 b. $50,000 c. $100,000 d. $200,00
c. $100,000
Suppose that a monopoly computer chip maker increases production from 10 microchips to 11 microchips. If the market price declines from $30 per unit to $29 per unit, marginal revenue for the eleventh unit is: a. $1 b. $9 c. $19 d. $29
c. $19
Suppose that hiring one, two, three, or four workers at a diaper factory generates total outputs of 200, 350, 450, or 500 diapers, respectively. The marginal product of the second worker is: a. 50 b. 100 c. 150 d. 200
c. 150
The Herfindahl-Hirschman index equals _____ when _____ have/has _____% of the market. a. 10,000; four firms each; 25 b. 5,000; three firms each; 33 c. 5,000; two firms each; 50 d. 100,00; one firm; 100
c. 5,000; two firms each; 50
Suzy knows she has maximized her utility, because she is on her budget constraint and: a. her consumption of cameras equals her consumption of coffee. b. what she spends on cameras equals what she spends on coffee c. MUCameras/PCameras = MUCoffee/PCoffee d. MUCameras = MUCoffee
c. MUCameras/PCameras = MUCoffee/PCoffee
Which statement describes a positive externality? a. Sam dug a pond, so he could go fishing, but the pond has contributed to an explosion of mosquitoes in your neighborhood b. Sam has dozens of cats, and they come into your yard to hunt the birds that come to your birdbath c. Sam buys a dilapidated house, renovates it, and increases the property values of all the houses in the neighborhood d. Liquid waste from Sam's chicken farm flows into a neighbor's well water
c. Sam buys a dilapidated house, renovates it, and increases the property values of all the houses in the neighborhood
Which statement is NOT characteristic of perfect competition? a. all firms produce the same standardized product b. there are many producers, and each has only a small market share c. There are many producers; one firm has a 25% market share, and all of the remaining firms have a market share of less than 2% each d. There are no obstacles to entry into or exit from the industry
c. There are many producers; one firm has a 25% market share, and all of the remaining firms have a market share of less than 2% each
The main difference between a tariff and an import quota is that: a. an import quota reduces imports more sharply than a tariff b. a tariff will cause higher prices than an import quota c. a tariff generates tax revenue, while an import quota generates rents to the license holders d. a tariff will cause lower prices than an import quote
c. a tariff generates tax revenue, while an import quota generates rents to the license holders
Tankao makes earbuds for mobile devices. When Tankao produces 20 sets of earbuds, its average variable cost is $5 per set and its average total cost is $8 per set. Tankao's: a. marginal cost is less than $3 per set b. marginal cost is $3 per set c. average fixed cost is $3 per set d. marginal cost is equal to its average fixed cost
c. average fixed cost is $3 per set
If a perfectly competitive firm is producing a quantity where MC > MR, then profit: a. is maximized b. can be increased by increasing production c. can be increased by decreasing production d. can be increased by decreasing the price
c. can be increased by decreasing production
A Japanese steel firm sells steel in the United States buys steel from a number of sources, the U.S demand for Japanese steel is more price-elastic than is the Japanese demand for Japanese steel. If the Japanese steel firm wishes to maximize its profits, it should: a. charge the same price in both countries (after adjusting for transportation costs) b. charge a higher price in the United States and a lower price in Japan; otherwise, it would be accused of unfair trade practices c. charge a lower price in the United States and a higher price in Japan d. figure out which market is more profitable and sell only in that market
c. charge a lower price in the United States and a higher price in Japan
When a monopolist practices price discrimination, compared with a single-price monopolist, consumer surplus will: a. remain the same b. increase c. decrease d. increase initially and then return to its original level
c. decrease
In game theory, when a player has an action that is always best for that player, regardless of the action taken by the other player(s) in a game, we say this player has a _____ strategy. a. competitive b. trigger c. dominant d. tit-for-tat
c. dominant
Kawamura, a careful utility maximizer, consumes peanut butter and ice cream. Assume that both peanut butter and ice cream are normal goods and that diminishing marginal utility applies to both goods. Right after he achieves the utility-maximizing level of consumption of the two goods, the price of peanut butter falls. After he adjusts to this event, the marginal utility of peanut butter goes _____ and that of ice cream goes _____. a. up; up b. down; down c. down; up d. up; down
c. down; up
Activities that generate external costs will likely be carried out at levels that _____ those that would be efficient. a. are equal to b. are less than c. exceed d. compete with
c. exceed
A natural monopoly is one that: a. monopolizes a natural resource such as a mineral spring b. is based on control of something occurring in nature (diamonds) c. has increasing returns to scale over the entire relevant range of output d. typically has low fixed costs, making it easy and "natural" for it to shut out competitors
c. has increasing returns to scale over the entire relevant range of output
Suppose the government levies a $4 per month excise tax on cable TV. If the demand for cable TV is relatively (but not perfectly) inelastic and the supply curve is relatively (but not perfectly) elastic, then the price of cable TV will: a. increase by more than $4 b. increase by exactly $4 c. increase by less than $4 d. remain constant
c. increase by less than $4
Game theory is commonly used to explain behavior in oligopolies because oligopolies are characterized by: a. large profits b. either homogeneous or heterogeneous products c. interdependence d. imperfect competition
c. interdependence
An industry with production that generates external costs produces a quantity of output that is: a. socially optimal b. smaller than the socially optimal quantity c. larger than the socially optimal quantity d. socially optimal if a specific subsidy is given to buyers
c. larger than the socially optimal quantity
Amtrak is a publicly owned company that provides rail service. This means that Amtrak's prices tend to be _____ than if it were a private company, and the quality of service tends to be _____ than if it were a private company. a. higher; worse b. higher; better c. lower; worse d. lower; better
c. lower; worse
Long-run equilibrium in perfect competition and in monopolistic competition are similar because in both models, firms _____ in the long run. a. produce at the minimum point of the average total cost curve b. set price equal to marginal cost c. make zero economic profits d. have excess capacity
c. make zero economic profits
The optimal consumption rule for all goods requires the: a. marginal utility of all goods consumed divided by their respective prices to be equal to the budget constraint b. marginal utility of all goods consumed to exceed the total utility of all goods c. marginal utility of all goods consumed divided by their respective prices to be equal d. prices of all goods to be equal
c. marginal utility of all goods consumed divided by their respective prices to be equal
Because most communities have a large number of similar but not identical substitutes, the market for chiropractors is BEST considered to be: a. an oligopoly b. perfect competition c. monopolistically competitive d. a monopoly
c. monopolistically competitive
In general, when marginal benefit is greater than marginal cost, the decision maker should do _____ of the activity. a. less b. that exact amount c. more d. none
c. more
Microsoft and its operating system are often cited as an example of a company that grew into a monopolist through: a. ownership of a resource b. patents c. network externalities d. large economies of scale
c. network externalities
Public goods differ from common resources in that, while both are _____, public goods are _____, while common resources are _____. a. nonrival in consumption; excludable; nonexcludable b. excludable; nonrival in consumption; rival in consumption c. nonexcludable; nonrival in consumption; rival in consumption d. rival in consumption; nonexcludable; excludable
c. nonexcludable; nonrival in consumption; rival in consumption
The market for soft drinks, which is dominated by Coca Cola and Pepsi, is BEST considered to be an example of: a. perfect competition b. monopolistic competition c. oligopoly d. monopoly
c. oligopoly
The substitution effect always entails a change in consumption in the _____ direction as (of) the change in _____. a. same; marginal utility b. same; price c. opposite; price d. opposite the budget
c. opposite; price
The purpose of behavioral economics is to determine why: a. people maximize utility b. firms maximize profit and minimize costs c. people make decisions that appear to be irrational d. markets usually behave in an efficient manner
c. people make decisions that appear to be irrational
To practice effective price discrimination, a monopolist must be able to: a. estimate its own production and cost functions b. avoid charging too low a price c. prevent the resale of goods among groups of buyers d. calculate the income level of each buyer in the market
c. prevent the resale of goods among groups of buyers
Individuals in a market who must take the market price as given are: a. quantity minimizers b. quantity takers c. price takers d. price searchers
c. price takers
If the government imposes a $5 excise tax on leather shoes and the price of leather shoes increases by $2: a. the government will receive less tax revenue than anticipated b. consumers are paying more of the tax than the producers c. producers are paying more of the tax than are the consumers d. the quantity of shoes sold will increase
c. producers are paying more of the tax than are the consumers
According to the substitution effect, a decrease in the price of a product leads to an increase in the quantity of the product demanded because buyers: a. have more real income b. purchase fewer substitute goods c. purchase more of the now less expensive good d. purchase more complementary goods
c. purchase more of the now less expensive good
The Coase theorem states that, in the presence of externalities, a market economy will: a. always reach an efficient solution b. never reach an efficient solution c. reach an efficient solution if transaction costs are sufficiently low and property rights are well-defined d. reach an efficient solution only in the case of government regulation
c. reach an efficient solution if transaction costs are sufficiently low and property rights are well-defined
Critics of advertising argue that it: a. tends to make markets more perfect b. leads to low-cost mass production c. results in higher prices to consumers d. encourages competition through new- product advertising
c. results in higher prices to consumers
China, which is labor-abundant, has a comparative advantage in clothing production, which is labor-intensive. Which model explains this pattern of comparative advantage? a. the Ricardian model b. a model of increasing returns c. the Heckscher- Ohlin model d. a model of autarky
c. the Heckscher- Ohlin model
Perfect competition is characterized by: a. rivalry in advertising b. fierce quality competition c. the inability of any one firm to influence price d. widely recognized brands
c. the inability of any one firm to influence price
Given the general agreement that pollution is undesirable and social welfare is increased by reducing pollution, the optimal level of pollution in a society is: a. zero b. the level that reduces the marginal social costs of pollution to zero c. the level at which the marginal social cost is equal to the marginal social benefit d. the level that minimizes the average total cost of producing the product that generates the pollution
c. the level at which the marginal social cost is equal to the marginal social benefit
When workers earn income, they and their employer pay equal portions of FICA (the Federal Insurance Contributions Act). Which statement is TRUE? a. the worker and the employer each bear half of the burden (incidence) of the tax b. the employer bears almost all of the burden of the tax c. the worker bears almost all of the burden of the tax d. it's impossible to determine who bears the burden of the tax
c. the worker bears almost all of the burden of the tax
Licenses that are exchangeable and that enable the holder to pollute up to a specified amount during a given period are called: a. emissions taxes b. environmental standards c. tradable emissions permits d. Pigouvian taxes
c. tradable emissions permits
Prior to any taxes, the equilibrium price of gasoline is $3 per gallon. Then a $1-per-gallon tax is levied. As a result, the price of gasoline rises to $3.75 per gallon. The incidence of the $1 tax is _____ paid by consumers and _____ paid by producers. a. $0.25; $0.75 b. $0.50; $0.50 c. $0; $1.00 d. $0.75; $0.25
d. $0.75; $0.25
You decide to quit your $60,000-per-year job as an information technology specialist and illustrate children's books. At the end of the first year of illustrating, you have earned $20,000. You also spent $5,000 for paint and paper. Your economic profit in the first year as an illustrator is: a. $15,000 b. $20,000 c. -$40,000 d. -$45,000
d. -$45,000
A monopoly will have a Herfindahl-Hirschman index equal to: a. 1 b. 100 c. 1,000 d. 10,000
d. 10,000
Which statement BEST describes the income effect of a price increase? a. The price of bacon increases, so Michelle buys more sausage b. The price of corn chips increases, so Michelle buys potato chips c. The tuition at the public university increases, so Michelle attends a community college d. Michelle's apartment rent increases, so she cancels her subscription to a monthly magazine
d. Michelle's apartment rent increases, so she cancels her subscription to a monthly magazine
To engage in price discrimination, a firm must be: a. a price taker b. one of many firms in an industry c. unable to identify consumers whose elasticities differ d. a price setter and able to identify consumers whose elasticities differ
d. a price setter and able to identify consumers whose elasticities differ
The average total cost of producing cell phones in a factory is $20 at the current output level of 100 units per week. If the fixed cost is $1,200 per week: a. average fixed cost is $20 b. total cost is $3,200 c. variable cost is $2,000 d. average variable cost is $8
d. average variable cost is $8
An external benefit is a: a. negative externality b. benefit that accrues to domestic firms as a result of the actions of foreign (external) firms c. benefit that accrues to foreign (external) firms as a result of the actions of domestic firms d. benefit that individuals or firms confer on other without receiving compensation
d. benefit that individuals or firms confer on other without receiving compensation
The profit-maximizing rule MC = MR is followed by firms operating in: a. monopolistic competition but not perfect competition b. perfect competition but not monopolistic competition c. either monopolistic competition or perfect competition, depending on the costs of production d. both monopolistic competition and perfect competition
d. both monopolistic competition and perfect competition
If tax efficiency is the only goal, a tax system should be designed to minimize its: a. burden b. administrative costs c. impact on the poor d. burden and its administrative costs
d. burden and its administrative costs
The BEST example of an artificially scarce good is: a. legal services b. national defense c. a municipal library d. cable television programming
d. cable television programming
If a monopolist is producing a quantity where MC > MR, then profit: a. is maximized b. is maximized only if MC=P c. can be increased by increasing production d. can be increased by decreasing production
d. can be increased by decreasing production
If a perfectly competitive firm is producing a quantity where P < MC, then profit: a. is maximized b. can be increased by increasing production c. can be increased by decreasing production d. can be increased by decreasing the price
d. can be increased by decreasing the price
An increase in a consumer's income will NOT: a. shift the budget line away from the origin b. increase the horizontal intercept c. increase the vertical intercept d. change the slope of the budget line
d. change the slope of the budget line
The term diminishing returns refers to a: a. falling interest rate that can be expected as one's investment in a single asset increases b. reduction in profits caused by increasing output beyond the optimal point c. decrease in total output due to the firm hiring uneducated workers d. decrease in the extra output due to the use of an additional unit of a variable input when all other inputs are held constant
d. decrease in the extra output due to the use of an additional unit of a variable input when all other inputs are held constant
The term autarky refers to a situation when a country: a. trades goods and services based on the principle of comparative advantage b. trades goods and services based on the principle of absolute advantage c. trades goods and services based on the principle of Ricardian advantage d. does not trade with other countries
d. does not trade with other countries
For the monopolistically competitive wild-caught seafood market, the demand curve for any individual firm is _____, and there are _____ producers of seafood. a. downward sloping; few b. upward sloping; many c. vertical; few d. downward sloping; many
d. downward sloping; many
Taxation according to the benefits principle is best illustrated in the United States by: a. personal income tax b. sales tax c. corporate income tax d. gasoline tax
d. gasoline tax
A perfectly competitive firm will earn a profit in the short run when it produces the profit-maximizing quantity of output and the price is: a. greater than marginal cost b. less than marginal cost c. less than average variable cost d. greater than average total cost
d. greater than average total cost
Suppose the price elasticity of demand for coffee at the Coffee Barn equals 1.71 for women and 0.55 for men. A successful price discrimination strategy would lead to _____ prices for men and _____ prices for women _____. a. lower; lower; in any circumstances b. lower; higher; in any circumstances c. lower; higher; as long as men can't resell drinks to women d. higher; lower; as long as women can't resell drinks to men
d. higher; lower; as long as women can't resell drinks to men
Assume that the United States imposes an import quota on Scottish wool suits. Relative to the equilibrium price that would prevail in the absence of quotas, the equilibrium price of suits in the United States will most likely _____ and the equilibrium price of suits in Scotland will most likely _____. a. remain the same; decrease b. remain the same; increase c. increase; increase d. increase; decrease
d. increase; decrease
Lucy bought some stock 10 years ago that has been priced at half of her purchase price for the past 5 years. However, Lucy refuses to sell the stock, thinking that, if she waits long enough, she will recover her investment. What type of behavior does this represent? a. mental accounting b. bounded rationality c. risk aversion d. loss aversion
d. loss aversion
When the market does NOT result in an efficient allocation of scarce resources, economists say that there has been: a. market dropout b. normative economics c. market disincentives d. market failure
d. market failure
Suppose that some firms in a perfectly competitive industry are earning positive economic profits. In the long run, the: a. industry is in equilibrium b. industry supply curve will shift to the left c. number of firms in the industry will not change d. number of firms in the industry will increase
d. number of firms in the industry will increase
If there are two gas stations in a very small town, then the gas station business there is probably BEST characterized as: a. perfectly competitive b. monopolistically competitive c. monopolistic d. oligopolistic
d. oligopolistic
Suppose the Alaskan king crab harvest is unregulated, and any person with a boat can go offshore, lower a crab pot, and harvest king crab. This common resource will likely be _____ because the marginal social cost of harvesting crabs _____ the market price of crab. a. overfished; is equal to b. overfished; is less than c. efficiently fished; is equal to d. overfished; exceeds
d. overfished; exceeds
The practice of charging different prices to different customers for the same good or service, even though the cost of supplying those customers is the same, is: a. privatization b. monopolization c. output competition d. price discrimination
d. price discrimination
Many hotel chains offer discounts to senior citizens. This is an example of _____ that is _____ in the United States. a. market power; illegal b. single- price monopoly power; legal c. price discrimination; illegal d. price discrimination; legal
d. price discrimination; legal
If the United States removed the tariffs and quotas on sugar, in the U.S. market for sugar: a. consumer surplus would not change b. consumer surplus would decrease c. total surplus would decrease d. producer surplus would decrease
d. producer surplus would decrease
Sales taxes are considered to be: a. an unfair burden on wealthy people, who spend more money on goods subject to sales tax b. progressive c. the most important source of revenue for the federal government d. regressive
d. regressive
Sales taxes are considered to be: a. proportional b. progressive c. digressive d. regressive
d. regressive
The willingness to sacrifice some economic payoff to avoid a potential loss is: a. irrational behavior b. bounded rationally c. the result of a concern about fairness d. risk aversion
d. risk aversion
To calculate the Herfindahl-Hirschman index (HHI), one must _____ market share(s) of _____ in the industry. a. sum the; the four largest firms b. sum the; all of the firms c. divide the; the largest firm by the sum of the four largest firms d. sum of the squared; all of the firms
d. sum of the squared; all of the firms
An input whose quantity can be changed in the short run is a(n) _____ input. a. marginal b. fixed c. incremental d. variable
d. variable
You own a lemonade stand in a competitive market, and as such, you are a price-taking firm. Which event would MOST likely increase your market power? a. the government abolishes the system of patents and copyrights b. a booming economy increases the demand for lemonade and attracts entry into the market c. the average total cost curve for firms in the industry becomes horizontal d. you acquire exclusive rights to harvest lemons from all domestic citrus orchards
d. you acquire exclusive rights to harvest lemons from all domestic citrus orchards