ECO 211
10. Refer to Figure 8-3. The loss in producer surplus caused by the tax is measured by the area a. ABC. b. P1P3ABC. c. P1P2BC. d. P1C0.
C. P1P2BC
21. Refer to Figure 16-3. The maximum total short-run economic profit for the monopolistically competitive firm in this figure is a. $1,500. b. $6,000. c. $10,500. d. $12,500.
a. $1,500.
Larry's Lunchcart is a small street vendor business. If Larry makes 15 pretzels in his first hour of business and incurs a total cost of $16.50, his average total cost per pretzel is a. $1.10. b. $6.50. c. $15.00. d. $16.50.
a. $1.10
Refer to Table 10-1. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome? a. $2 b. $3 c. $9 d. $10
a. $2
Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when the firm hires 4 workers, the firm produces 50 units of output. If the fixed cost of production is $4, the variable cost per unit of labor is $20, and the marginal product of labor for the fifth unit of labor is 2, what is the average total cost of production when the firm hires 5 workers? a. $2.00 b. $20.00 c. $20.80 d. $22.80
a. $2.00
Refer to Figure 7-9. If the supply curve is S and the demand curve shifts from D to D', what is the increase in producer surplus due to new producers entering the market? a. $625 b. $2,500 c. $3,125 d. $5,625
a. $625
17. Refer to Figure 16-3. At the profit-maximizing, or loss-minimizing, output level, how many units of output will the firm in this figure produce? a. 15 b. 20 c. 25 d. This firm will choose not to produce.
a. 15
.Refer to Table 3-2. Assume that Aruba and Iceland each has 80 labor hours available. Originally, each country divided its time equally between the production of coolers and radios. Now, each country spends all its time producing the good in which it has a comparative advantage. As a result, the total output of coolers increased by a. 20. b. 40. c. 60. d. 80.
a. 20.
Refer to Table 14-10. At which level of production will the firm maximize profit? a. 3 units b. 4 units c. 5 units d. 6 units
a. 3 units
Refer to Figure 13-9. Which of the curves is most likely to characterize the short-run average total cost curve of the smallest factory? a. ATCA b. ATCB c. ATCC d. ATCD
a. ATCA
Which of the following statements best reflects a price-taking firm? a. If the firm were to charge more than the going price, it would sell none of its goods. b. The firm has an incentive to charge less than the market price to earn higher revenue. c. The firm can sell only a limited amount of output at the market price before the market price will fall. d. Price-taking firms maximize profits by charging a price above marginal cost.
a. If the firm were to charge more than the going price, it would sell none of its goods.
6. Which of the following statements is correct? a. If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit. b. If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling fewer units at a higher price per unit. c. When a monopolist produces where price equals the minimum of average total cost, it earns a positive economic profit. d. If the monopolist is earning a positive economic profit, it must be producing where MR =
a. If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit.
Refer to Figure 8-3. The price that sellers effectively receive after the tax is imposed is a. P1. b. P2. c. P3. d. P4.
a. P1
Refer to Figure 8-3. The amount of the tax on each unit of the good is a. P3-P1. b. P3-P2. c. P2-P1. d. P4-P3.
a. P3-P1
Refer to Figure 8-3. The amount of tax revenue received by the government is equal to the area a. P3ACP1. b. ABC. c. P2DAP3. d. P1CDP2.
a. P3ACP1
Refer to Figure 9-1. Relative to the no-trade situation, trade with the rest of the world results in a. Scotland consumers paying a higher price for wool. b. a decrease in producer surplus in Scotland. c. a decrease in total surplus in Scotland. d. All of the above are correct.
a. Scotland consumers paying a higher price for wool.
Refer to Figure 9-1. When trade is allowed, a. Scotland producers of wool become better off and Scotland consumers of wool become worse off. b. Scotland consumers of wool become better off and Scotland producers of wool become worse off. c. both Scotland producers and consumers of wool become better off. d. both Scotland producers and consumers of wool become worse off.
a. Scotland producers of wool become better off and Scotland consumers of wool become worse off.
Refer to Figure 9-1. From the figure it is apparent that a. Scotland will export wool if trade is allowed. b. Scotland will import wool if trade is allowed. c. Scotland has nothing to gain either by importing or exporting wool. d. the world price will fall if Scotland begins to allow its citizens to trade with other countries.
a. Scotland will export wool if trade is allowed.
Suppose that a negative externality is created by the production of good X. Which of the following statements is correct? a. The social cost of producing good X includes the private cost plus the cost to bystanders of the externality. b. The increased social cost can be graphed as a decrease in demand. c. The market equilibrium quantity will be the socially optimal quantity as long as the government does not interfere. d. Both a and b are correct.
a. The social cost of producing good X includes the private cost plus the cost to bystanders of the externality.
28. Refer to Scenario 17-1. If Irun fails to live up to the production agreement and overproduces, which of the following statements will be true of Urun's condition? a. Urun will invariably be worse off than before the agreement was broken. b. Urun will counter by decreasing its production in order to maintain price stability. c. Urun's profit will be maximized by holding its production constant. d. Urun's profit will be unaffected by Irun's actions.
a. Urun will invariably be worse off than before the agreement was broken.
Refer to Figure 13-9. At levels of output less than M, the firm experiences a. economies of scale. b. diseconomies of scale. c. constant returns to scale. d. both diminishing marginal productivity and coordination problems.
a. economies of scale.
Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands falls below the minimum of its average total cost, but still lies above the minimum of average variable cost, in the short run the firm will a. experience losses but will continue to produce rubber bands. b. shut down. c. earn both economic and accounting profits. d. raise the price of its product.
a. experience losses but will continue to produce rubber bands.
Refer to Figure 9-1. With trade, Scotland will a. export 11 units of wool. b. export 5 units of wool. c. import 15 units of wool. d. import 6 units of wool.
a. export 11 units of wool.
Refer to Table 14-8. The firm will produce a quantity greater than 4 because at 4 units of output, marginal cost a. is less than marginal revenue. b. equals marginal revenue. c. is greater than marginal revenue. d. is minimized.
a. is less than marginal revenue.
Suppose the monetary payoff associated with recycling aluminum cans increases. One should expect that: a. more aluminum cans will be recycled. b. fewer aluminum cans will be recycled. c. the number of aluminum cans recycled will not change. d. the quality of aluminum cans used will also increase.
a. more aluminum can will be recycled.
Refer to Figure 10-10. An increase in output from 120 units to 160 units would a. move the market from a socially efficient outcome to a socially inefficient outcome. b. increase the external cost per unit of output. c. increase total economic well-being. d. be an action of which a benevolent social planner would approve.
a. move the market from a socially efficient outcome to a socially inefficient outcome.
Refer to Figure 13-9. The firm experiences economies of scale at which output levels? a. output levels less than M b. output levels between M and N c. output levels greater than N d. All of the above are correct as long as the firm is operating in the long run.
a. output levels less than M
30. As the number of firms in an oligopoly increases, the a. price approaches marginal cost, and the quantity approaches the socially efficient level. b. price and quantity approach the monopoly levels. c. price effect exceeds the output effect. d. individual firms' profits increase.
a. price approaches marginal cost, and the quantity approaches the socially efficient level.
10. What do economists call the business practice of selling the same good at difference prices to different cus-tomers? a. price discrimination b. collusion c. compensating differential d. Both a and b are correct
a. price discrimination
A tax imposed on the sellers of a good will raise the a. price paid by buyers and lower the equilibrium quantity. b. price paid by buyers and raise the equilibrium quantity. c. effective price received by sellers and lower the equilibrium quantity. d. effective price received by sellers and raise the equilibrium quantity.
a. price paid by buyers and lower the equilibrium quantity.
When consumers face rising gasoline prices, they typically a. reduce their quantity demanded more in the long run than in the short run. b. reduce their quantity demanded more in the short run than in the long run. c. do not reduce their quantity demanded in the short run or the long run. d. increase their quantity demanded in the short run but reduce their quantity demanded in the long run.
a. reduce their quantity demanded more in the short run than in the long run.
At all levels of production higher than the point where the marginal cost curve crosses the average variable cost curve, average variable cost a. rises. b. remains unaffected. c. falls. d. All of the above are possible depending on the shape of the marginal cost curve.
a. rises.
Internalizing a positive externality will cause the demand curve to a. shift to the right. b. shift to the left. c. become more elastic. d. remain unchanged.
a. shift to the right.
When a country allows trade and becomes an exporter of a good, a. the gains of the domestic producers of the good exceed the losses of the domestic consumers of the good. b. the gains of the domestic consumers of the good exceed the losses of the domestic producers of the good. c. the losses of the domestic producers of the good exceed the gains of the domestic consumers of the good. d. the losses of the domestic consumers of the good exceed the gains of the domestic producers of the good.
a. the gains of the domestic producers of the good exceed the losses of the domestic consumers of the good.
Trade raises the economic well-being of a nation in the sense that a. the gains of the winners exceed the losses of the losers. b. everyone in an economy gains from trade. c. since countries can choose what products to trade, they will pick those products that are most beneficial to society. d. the nation joins the international community when it begins to engage in trade.
a. the gains of the winners exceed the losses of the losers.
38. Refer to Figure 10-10. Taking into account private and external costs, the maximum total surplus that can be achieved in this market is a. $760. b. $1,080. c. $1,440. d. $1,920.
b. $1,080.
Refer to Figure 9-17. Without trade, total surplus is a. $600. b. $1,200. c. $1,800. d. $2,250.
b. $1,200.
Refer to Table 13-12. What is the marginal cost of the 2nd cake at Betty's Bakery? a. $14 b. $15 c. $28 d. $34
b. $15
Refer to Figure 8-4. The amount of deadweight loss as a result of the tax is a. $105. b. $210. c. $490. d. $600.
b. $210.
Refer to Figure 9-17. The amount of revenue collected by the government from the tariff is a. $32. b. $288. c. $368. d. $720.
b. $288.
Refer to Figure 8-4. The tax results in a loss of consumer surplus that amounts to a. $120. b. $340. c. $450. d. $510.
b. $340
Refer to Figure 8-4. The per-unit burden of the tax on buyers is a. $3. b. $4. c. $5. d. $8.
b. $4.
Refer to Table 13-6. Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of chairs produced. Assume the number of machines does not change. If the factory produces at a rate of 78 chairs per hour, what is the total machine cost per day? a. $20 b. $40 c. $240 d. We are unable to determine total machine costs from the information given.
b. $40
16. Refer to Figure 9-1. In the absence of trade, the equilibrium price of wool in Scotland is a. $15. b. $45. c. $55. d. $70.
b. $45.
Refer to Table 13-6. Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of chairs produced. If the factory produces at a rate of 35 chairs per hour, what is the total labor cost per hour? a. $40 b. $48 c. $384 d. $424
b. $48
Refer to Figure 8-4. The amount of tax revenue received by the government is equal to a. $350. b. $490. c. $700. d. $840.
b. $490.
Refer to Figure 8-4. The amount of the tax on each unit of the good is a. $5. b. $7. c. $8. d. $12.
b. $7.
Refer to Figure 8-4. The equilibrium price before the tax is imposed is a. $12, and the equilibrium quantity is 70. b. $8, and the equilibrium quantity is 100. c. $5, and the equilibrium quantity is 70. d. $5, and the equilibrium quantity is 100.
b. $8, and the equilibrium quantity is 100.
33. Refer to Table 13-6. Assume the Wooden Chair Factory currently employs 2 workers. What is the marginal product of labor when the factory adds a 3rd worker? a. 5 chairs per hour b. 10 chairs per hour c. 20 chairs per hour d. 25 chairs per hour
b. 10 chairs per hour
Refer to Figure 10-10. The socially optimal quantity of output is a. 120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by the seller of the 120th unit. b. 120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by society of the 120th unit. c. 160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by the seller of the 160th unit. d. 160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by society of the 160th unit.
b. 120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by society of the 120th unit.
Refer to Figure 10-10. "The social cost of the last unit produced exceeds the value to buyers of the last unit produced by $3." This statement is correct at which quantity of output? a. 120 units b. 140 units c. 160 units d. The statement is true at all quantities of output.
b. 140 units
32. Refer to Table 13-6. Assume the Wooden Chair Factory currently employs 5 workers. What is the marginal product of labor when the factory adds a 6th worker? a. 5 chairs per hour b. 15 chairs per hour c. 25 chairs per hour d. 70 chairs per hour
b. 15 chairs per hour
Refer to Table 10-1. What is the socially-optimal quantity of output in this market? a. 1 unit b. 2 units c. 3 units d. 4 units
b. 2 units
Refer to Table 10-1. What is the equilibrium quantity of output in the market? a. 2 units b. 3 units c. 4 units d. 5 units
b. 3 units
Refer to Table 15-1. If the monopolist wants to maximize its revenue, how many units of its product should it sell? a. 4 b. 5 c. 6 d. 8
b. 5
Refer to Figure 8-3. The amount of deadweight loss associated with the tax is equal to a. P3ACP1. b. ABC. c. P2ADP3. d. P1DCP2.
b. ABC
22. Refer to Figure 16-3. Which of the following will occur in the long run in this industry? a. Firms will exit this industry. b. Firms will enter this industry. c. This firm will continue to earn positive economic profits. d. This firm will incur losses.
b. Firms will enter this industry.
Why does a firm in a competitive industry charge the market price? a. If a firm charges less than the market price, it loses potential revenue. b. If a firm charges more than the market price, it loses all its customers to other firms. c. The firm can sell as many units of output as it wants to at the market price. d. All of the above are correct.
b. If a firm charges more than the market price, it loses all its customers to other firms.
Refer to Figure 8-3. The equilibrium price before the tax is imposed is a. P1. b. P2. c. P3. d. P4.
b. P2
Refer to Figure 8-3. The per unit burden of the tax on buyers is a. P3-P1. b. P3-P2. c. P2-P1. d. P4-P3.
b. P3-P2
Refer to Figure 8-3. The loss in consumer surplus caused by the tax is measured by the area a. P1P3AC. b. P3ABP2. c. P1P3ABC. d. ABC.
b. P3ABP2
Refer to Figure 7-9. If the demand curve is D and the supply curve shifts from S' to S, what is the change in producer surplus? a. Producer surplus increases by $625. b. Producer surplus increases by $1,875. c. Producer surplus decreases by $625. d. Producer surplus decreases by $1,875.
b. Producer surplus increases by $1,875.
5. Refer to Table 15-1. Assume this monopolist's marginal cost is constant at $12. What quantity of output (Q) will it produce and what price (P) will it charge? a. Q = 4, P = $29 b. Q = 4, P = $26 c. Q = 5, P = $23 d. Q = 7, P = $17
b. Q = 4, P = $26
Refer to Figure 8-3. Which of the following equations is valid for the tax revenue that the tax provides to the government? a. Tax revenue = (P2 - P1)xQ1 b. Tax revenue = (P3 - P1)xQ1 c. Tax revenue = (P3 - P2)xQ1 d. Tax revenue = (P3 - P1)x(Q2 - Q1)
b. Tax revenue = (P3 - P1)xQ1
8. Suppose when a monopolist produces 50 units its average revenue is $8 per unit, its marginal revenue is $4 per unit, its marginal cost is $4 per unit, and its average total cost is $3 per unit. What can we conclude about this monopolist? a. The monopolist is currently maximizing profits, and its total profits are $200. b. The monopolist is currently maximizing profits, and its total profits are $250. c. The monopolist is not currently maximizing its profits; it should produce more units and charge a lower price to maximize profit. d. The monopolist is not currently maximizing its profits; it should produce fewer units and charger a higher price to maximize profit.
b. The monopolist is currently maximizing profits, and its total profits are $250.
At Bert's Bootery, the total cost of producing twenty pairs of boots is $400. The marginal cost of producing the twenty-first pair of boots is $83. We can conclude that the a. average variable cost of 21 pairs of boots is $23. b. average total cost of 21 pairs of boots is $23. c. average total cost of 21 pairs of boots is $15.09. d. marginal cost of the 20th pair of boots is $20.
b. average total cost of 21 pairs of boots is $23
26. Refer to Scenario 17-1. The fact that both countries have colluded to earn higher profit shows their desire to keep their combined level of output a. above the monopoly level. b. below the Nash equilibrium level. c. equal to the Nash equilibrium level. d. above the Nash equilibrium level.
b. below the Nash equilibrium level.
Refer to Figure 6-15. Suppose a tax of $2 per unit is imposed on this market. How much will sellers receive per unit after the tax is imposed? a. $3 b. between $3 and $5 c. between $5 and $7 d. $7
b. between $3 and $5
Refer to Figure 9-17. When the country moves from free trade to trade and a tariff, consumer surplus a. decreases by $576 and producer surplus does not change. b. decreases by $576 and producer surplus increases by $192. c. decreases by $792 and producer surplus does not change. d. decreases by $792 and producer surplus increases by $192.
b. decreases by $576 and producer surplus increases by $192.
Raisin bran and milk are complementary goods. A decrease in the price of raisins will a. increase consumer surplus in the market for raisin bran and decrease producer surplus in the market for milk. b. increase consumer surplus in the market for raisin bran and increase producer surplus in the market for milk. c. decrease consumer surplus in the market for raisin bran and increase producer surplus in the market for milk. d. decrease consumer surplus in the market for raisin bran and decrease producer surplus in the market for milk.
b. increase consumer surplus in the market for raisin bran and increase producer surplus in the market for milk.
Refer to Figure 9-1. When trade in wool is allowed, producer surplus in Scotland a. increases by the area B + D. b. increases by the area B + D + G. c. decreases by the area C + F. d. decreases by the area G.
b. increases by the area B + D + G.
Refer to Figure 9-1. When trade in wool is allowed, consumer surplus in Scotland a. increases by the area B + D. b. increases by the area C + F. c. decreases by the area B + D. d. decreases by the area D + G.
b. increases by the area C + F.
Refer to Figure 7-22. At the quantity Q2, the marginal value to buyers a. and the marginal cost to sellers are both P2. b. is P2, and the marginal cost to sellers is P3. c. and the marginal cost to sellers are both P3. d. is P3, and the marginal cost to sellers is P2.
b. is P2, and the marginal cost to sellers is P3.
Moving production from a high-cost producer to a low-cost producer will a. lower total surplus. b. raise total surplus. c. lower producer surplus. d. raise producer surplus but lower consumer surplus.
b. raise total surplus.
Which of the following would likely be studied by a microeconomist rather than a macroeconomist? a. the effect of foreign direct investment on economic growth b. the effect of a sales tax on the cigarette industry c. the effect of an investment tax credit on the economy's capital stock d. the effect of a war on government spending
b. the effect of a sales tax on the cigarette industry
Refer to Table 14-9. If the firm produces 4 units of output, a. marginal cost is $4. b. total revenue is greater than variable cost. c. marginal revenue is less than marginal cost. d. the firm is maximizing profit.
b. total revenue is greater than variable cost.
Refer to Table 14-10. The marginal cost of producing the 4th unit is a.$7. b.$8. c.$10. d.$23.
b.$8.
Refer to Figure 9-17. With free trade, consumer surplus is a. $400 and producer surplus is $200. b. $400 and producer surplus is $800. c. $1,600 and producer surplus is $200. d. $1,600 and producer surplus is $800.
c. $1,600 and producer surplus is $200.
Refer to Figure 9-17. With free trade, total surplus is a. $600. b. $1,200. c. $1,800. d. $2,400.
c. $1,800.
19. Refer to Figure 16-3. At the profit-maximizing, or loss-minimizing, output level, the firm in this figure has total revenue of approximately a. $6,000. b. $9,000. c. $10,500. d. $12,500.
c. $10,500.
Refer to Table 15-1. What is the marginal revenue for the monopolist for the sixth unit sold? a. $3 b. $5 c. $11 d. $17
c. $11
Refer to Table 15-1. If the monopolist sells 8 units of its product, how much total revenue will it receive from the sale? a. $14 b. $40 c. $112 d. $164
c. $112
Refer to Scenario 13-6. Tony's accounting profit equals a. $-80. b. $130. c. $170. d. $260.
c. $170.
Refer to Figure 7-9. If the supply curve is S, the demand curve is D, and the equilibrium price is $100, what is the producer surplus? a. $625 b. $1,250 c. $2,500 d. $5,000
c. $2,500
Refer to Table 13-6. Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of chairs produced. What is the total daily cost of producing at a rate of 55 chairs per hour if the factory operates 8 hours per day? a. $480 b. $576 c. $520 d. $616
c. $520
Refer to Table 13-6. Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of chairs produced. If the factory produces at a rate of 70 chairs per hour and operates 8 hours per day, what is the factory's total labor cost per day? a. $72 b. $112 c. $576 d. $616
c. $576
24. Refer to Table 17-7. Suppose the market for this product is served by two firms who have formed a cartel and are colluding to set the price and quantity in this market. If the marginal cost to produce this product is constant at $2 per unit, then what price will the cartel set in this market? a. $4 b. $5 c. $6 d. $7
c. $6
25. Refer to Table 17-7. Suppose the market for this product is served by two firms who have formed a cartel and are colluding to set the price and quantity in this market. If the marginal cost to produce this product is constant at $2 per unit and there is no fixed cost, then what will the combined profit of the cartel be? a. $40 b. $60 c. $80 d. $120
c. $80
16. Refer to Figure 16-3. At the profit-maximizing, or loss-minimizing, output level, the firm in this figure has total costs of approximately a. $600. b. $6,000. c. $9,000. d. $12,500.
c. $9,000.
Refer to Figure 9-17. The deadweight loss caused by the tariff is a. $24. b. $72. c. $96. d. $144.
c. $96.
Refer to Figure 10-8. What is the socially-optimal quantity of output in this market? a. 8 units b. Between 8 and 10 units c. 10 units d. More than 10 units
c. 10 units
Refer to Figure 9-1. With trade, total surplus in the Scotland wool market amounts to a. 312.5. b. 367.0. c. 467.5. d. 495.0.
c. 467.5.
Refer to Table 14-8. In order to maximize profits, the firm will produce a. 1 unit of output because marginal cost is minimized. b. 4 units of output because marginal revenue exceeds marginal cost. c. 6 units of output because marginal revenue equals marginal cost. d. 8 units of output because total revenue is maximized.
c. 6 units of output because marginal revenue equals marginal cost.
Refer to Table 14-8. The firm will not produce an output level beyond a. 4 units. b. 5 units. c. 6 units. d. 7 units.
c. 6 units.
Refer to Figure 9-1. In the absence of trade, total surplus in Scotland is represented by the area a. A + B + C. b. A + B + C + D + F. c. A + B + C + D + F + G. d. A + B + C + D + F + G + H.
c. A + B + C + D + F + G.
Which of the following statements about a well-maintained yard best conveys the general nature of the externality? a. A well-maintained yard conveys a positive externality because it increases the home's market value. b. A well-maintained yard conveys a negative externality because it increases the property tax liability of the owner. c. A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood. d. A well-maintained yard cannot provide any type of externality.
c. A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood.
Which of the following statements is not correct? a. Tradable pollution permits have an advantage over corrective taxes if the government is uncertain as to the optimal size of the tax necessary to reduce pollution to a specific level. b. Both corrective taxes and tradable pollution permits provide market-based incentives for firms to reduce pollution. c. Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution. d. Both corrective taxes and tradable pollution permits reduce the cost of environmental protection and thus should increase the public's demand for a clean environment.
c. Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution.
Refer to Figure 8-3. The per-unit burden of the tax on sellers is a. P3-P1. b. P3-P2. c. P2-P1. d. P4-P3.
c. P2-P1
Refer to Figure 8-3. The price that buyers effectively pay after the tax is imposed is a. P1. b. P2. c. P3. d. P4.
c. P3
Refer to Figure 9-1. From the figure it is apparent that a. Scotland will experience a shortage of wool if trade is not allowed. b. Scotland will experience a surplus of wool if trade is not allowed. c. Scotland has a comparative advantage in producing wool, relative to the rest of the world. d. foreign countries have a comparative advantage in producing wool, relative to Scotland.
c. Scotland has a comparative advantage in producing wool, relative to the rest of the world.
Refer to Table 10-1. Which of the following statements is correct? a. If the external benefit per unit of output were $0 instead of $2, then the socially efficient quantity of output would be 4 units. b. A tax of $4 per unit would enable this market to move from the equilibrium quantity of output to the socially optimal level of output. c. Taking the external cost into account, total surplus declines when the 3rd unit of output is produced and consumed. d. The market for flu shots is a market to which the concepts in this table apply very well.
c. Taking the external cost into account, total surplus declines when the 3rd unit of output is produced and consumed.
Refer to Figure 4-10. Which of the following would cause the supply curve to shift from Supply A to Supply C in the market for winter coats? a. an increase in the price of winter coats b. a decrease in the number of firms selling winter coats c. a decrease in the price of zippers and snaps d. a decrease in the price of winter hats and gloves
c. a decrease in the price of zippers and snaps
If there is an improvement in technology one would expect a. a movement along the supply curve. b. a shift upward (or to the left) of the supply curve. c. a shift downward (or to the right) of the supply curve. d. a movement down along the supply curve.
c. a shift downward )or to the right) of the supply curve.
Refer to Figure 16-3. The firm in this figure is monopolistically competitive. It illustrates a. the shut-down case. b. a long-run economic profit. c. a short-run economic profit. d. a short-run loss.
c. a short-run economic profit.
Refer to Figure 8-4. The price that sellers effectively receive after the tax is imposed is a. $12. b. between $8 and $12. c. between $5 and $8. d. $5.
c. between $5 and $8.
Refer to Figure 9-17. Relative to the free-trade outcome, the imposition of the tariff a. decreases imports of the good by 16 units and increases domestic production of the good by 8 units. b. decreases imports of the good by 16 units and increases domestic production of the good by 16 units. c. decreases imports of the good by 24 units and increases domestic production of the good by 8 units. d. decreases imports of the good by 24 units and increases domestic production of the good by 24 units.
c. decreases imports of the good by 24 units and increases domestic production of the good by 8 units.
Refer to Figure 13-9. At output levels greater than N, the firm experiences a. economies of scale. b. constant returns to scale. c. diseconomies of scale. d. minimum efficient scale.
c. diseconomies of scale.
11. A monopolist's profits with price discrimination will be a. lower than if the firm charged a single, profit-maximizing price b. the same as if the firm charged a single, profit-maximizing price. c. higher than if the firm charged just one price because the firm will capture more consumer surplus. d. higher than if the firm charged a single price because the costs of selling the good will be lower.
c. higher than if the firm charged just one price because the firm will capture more consumer surplus.
27. Refer to Scenario 17-1. As long as the combined level of output is less than the Nash equilibrium level, both Irun and Urun have the individual incentive to a. hold production constant. b. decrease production. c. increase production. d. increase price.
c. increase production.
Refer to Figure 10-10. A decrease in output from 160 units to 120 units would a. move the market from a socially efficient outcome to a socially inefficient outcome. b. reduce the external cost per unit of output. c. increase total economic well-being. d. not be an action of which a benevolent social planner would approve.
c. increase total economic well-being.
29. equilibrium, it a. is always in their best interest to supply more to the market. b. is always in their best interest to supply less to the market. c. is always in their best interest to leave their quantities supplied unchanged. d. may be in their best interest to do any of the above, depending on market conditions.
c. is always in their best interest to leave their quantities supplied unchanged.
9. Price discrimination a. forces monopolies to charge a lower price as a result of government regulation. b. is an attempt by a monopoly to prevent some customers from purchasing its product by charging a high price. c. is an attempt by a monopoly to increases its profit by selling the same good to different customers at different prices. d. increases the consumer surplus associated with a monopolistic market.
c. is an attempt by a monopoly to increases its profit by selling the same good to different customers at different prices.
The efficient scale of the firm is the quantity of output that a. maximizes marginal product. b. maximizes profit. c. minimizes average total cost. d. minimizes average variable cost.
c. minimizes average total cost.
Refer to Figure 10-8. If the government wanted to subsidize this market to achieve the socially- optimal level of output, how large would the subsidy need to be? a. less than $2 b. $2 c. more than $2 d. The size of the subsidy cannot be determined from the figure.
c. more than $2
7. A reduction in a monopolist's fixed costs would a. decrease the profit-maximizing price and increase the profit-maximizing quantity produced. b. increase the profit-maximizing price and decrease the profit-maximizing quantity produced. c. not effect the profit-maximizing price or quantity. d. possibly increase, decrease or not effect profit-maximizing price and quantity, depending on the elasticity of demand.
c. not effect the profit-maximizing price or quantity.
Dioxin emission that results from the production of paper is a good example of a negative externality because a. self-interested paper firms are generally unaware of environmental regulations. b. there are fines for producing too much dioxin. c. self-interested paper producers will not consider the full cost of the dioxin pollution they create. d. toxic emissions are the best example of an externality.
c. self-interested paper producers will not consider the full cost of the dioxin pollution they create.
14. A similarity between monopoly and monopolistic competition is that in both market structures a. strategic interactions among sellers are important. b. there are a small number of sellers. c. sellers are price makers rather than price takers. d. there are only a few buyers but many sellers.
c. sellers are price makers rather than price takers.
60. A tax on sellers will shift the a. demand curve upward by the amount of the tax. b. demand curve downward by the amount of the tax. c. supply curve upward by the amount of the tax. d. supply curve downward by the amount of the tax. 11
c. supply curve upward by the amount of the tax.
The production possibilities frontier illustrates a. the combinations of output that an economy should produce. b. the combinations of output that an economy should consume. c. the combinations of output that an economy can produce. d. All of the above are correct.
c. the combinations of output that an economy can produce.
When a certain nation abandoned a policy of prohibiting international trade in automobiles in favor of a free-tree policy, the result was that the country began to import automobiles. The change in policy improved the well-being of that nation in the sense that a. both producers of automobiles and consumers of automobiles in that nation became better off as a result. b. the gains to automobile producers in that nation exceeded the losses of the automobile consumers in that nation. c. the gains to automobile consumers in that nation exceeded the losses of the automobile producers in that nation. d. even though total surplus in that nation decreased, it was still true that consumer surplus and producer surplus increased.
c. the gains to automobile consumers in that nation exceeded the losses of the automobile producers in that nation.
Refer to Table 14-10. If the firm produces the profit-maximizing level of production, how much profit will the firm earn? a.$2 b.$4 c.$6 d.$8
c.$6
Refer to Table 14-10. This firm should continue to produce and sell units as long as the marginal cost of production is less than or equal to a.$3. b.$5. c.$7. d.$9.
c.$7.
Refer to Figure 9-17. With trade and a tariff, consumer surplus is a. $808 and producer surplus is $200. b. $808 and producer surplus is $392. c. $1,024 and producer surplus is $200. d. $1,024 and producer surplus is $392.
d. $1,024 and producer surplus is $392.
Refer to Figure 9-17. With trade and a tariff, total surplus is a. $1,224. b. $1,416. c. $1,512. d. $1,704.
d. $1,704.
Refer to Table 13-12. What is the variable cost of producing 8 cakes at Betty's Bakery? a. $120 b. $140 c. $155 d. $160
d. $160
Refer to Table 15-1. When 4 units of output are produced and sold, what is average revenue? a. $17 b. $21 c. $23 d. $26
d. $26
Refer to Table 13-12. What is the average total cost of producing 2 cakes at Betty's Bakery? a. $14.00 b. $18.50 c. $22.50 d. $26.50
d. $26.50
Refer to Scenario 13-6. An economist would calculate Tony's total cost to equal a. $130. b. $250. c. $300. d. $380.
d. $380.
18. Refer to Figure 16-3. What price will the monopolistically competitive firm charge in this market? a. $15 b. $400 c. $500 d. $700
d. $700
23. Refer to Table 17-7. If this market is perfectly competitive and the marginal cost is constant at $2 per unit, then how much output will be produced? a. 20 b. 30 c. 35 d. 40
d. 40
Refer to Figure 9-1. In the absence of trade, total surplus in the Scotland wool market amounts to a. 187.5 b. 275.0 c. 378.5 d. 412.5
d. 412.5
Refer to Figure 6-6. Which of the following statements is correct? a. A price ceiling set at $12 would be binding, but a price ceiling set at $8 would not be binding. b. A price floor set at $8 would be binding, but a price ceiling set at $8 would not be binding. c. A price ceiling set at $9 would result in a surplus. d. A price floor set at $11 would result in a surplus.
d. A price floor set at $11 would result in a surplus.
Refer to Figure 13-9. Which curve represents the long-run average total cost? a. ATCA b. ATCB c. ATCC d. ATCD
d. ATCD
Refer to Figure 10-10. Which of the following statements is correct? a. The private cost of producing the 160th unit of output is $16. b. The social cost of producing the 160th unit of output is $22. c. The external cost of producing the 160th unit of output is $6. d. All of the above are correct
d. All of the above are correct
Refer to Figure 13-9. In the long run, the firm can operate on which of the following average total cost curves? a. ATCA b. ATCB c. ATCC d. All of the above are correct.
d. All of the above are correct.
Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect a. new firms to enter the market. b. the market price to fall. c. its profits to fall. d. All of the above are correct.
d. All of the above are correct.
Which of the following must always be true as the quantity of output increases? a. Marginal cost must rise. b. Average total cost must rise. c. Average variable cost must rise. d. Average fixed cost must fall.
d. Average fixed cost must fall.
Which of the following statements is not correct about a market in equilibrium? a. The price determines which buyers and which sellers participate in the market. b. Those buyers who value the good more than the price choose to buy the good. c. Those sellers whose costs are less than the price choose to produce and sell the good. d. Consumer surplus will be equal to producer surplus.
d. Consumer surplus will be equal to producer surplus.
Refer to Figure 8-3. Which of the following equations is valid for the deadweight loss of the tax? a. Deadweight loss = (1/2)(P2 - P1)(Q2 + Q1) b. Deadweight loss = (1/2)(P3 - P1)(Q2 + Q1) c. Deadweight loss = (1/2)(P3 - P2)(Q2 - Q1) d. Deadweight loss = (1/2)(P3 - P1)(Q2 - Q1)
d. Deadweight loss = (1/2)(P3 - P1)(Q2 - Q1)
When a tax is imposed on a good for which both demand and supply are very elastic, a. sellers effectively pay the majority of the tax. b. buyers effectively pay the majority of the tax. c. the tax burden is equally divided between buyers and sellers. d. None of the above is correct; further information would be required to determine how the burden of the tax is distributed between buyers and sellers.
d. None of the above is correct; further information would be required to determine how the burden of the tax is distributed between buyers and sellers.
Which of the following is not true when the price of a good or service falls? a. Buyers who were already buying the good or service are better off. b. Some new buyers, who are now willing to buy, enter the market. c. The total consumer surplus in the market increases. d. The total value of purchases before and after the price change is the same.
d. The total value of purchases before and after the price change is the same.
Marginal cost is equal to average total cost when a. average variable cost is falling. b. average fixed cost is rising. c. marginal cost is at its minimum. d. average total cost is at its minimum.
d. average total cost is at its minimum.
If marginal cost is greater than average total cost, then a. profits are increasing. b. economies of scale are becoming greater. c. average total cost remains constant. d. average total cost is increasing.
d. average total cost is increasing.
12. 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.
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.
The deadweight loss from a tax of $8 per unit will be smallest in a market with a. elastic demand and elastic supply. b. elastic demand and inelastic supply. c. inelastic demand and elastic supply. d. inelastic demand and inelastic supply.
d. inelastic demand and inelastic supply.
The competitive firm's short-run supply curve is its a. marginal revenue curve, but only the portion where marginal revenue exceeds marginal cost. b. marginal cost curve. c. marginal cost curve, but only the portion above the minimum of average total cost. d. marginal cost curve, but only the portion above the minimum of average variable cost.
d. marginal cost curve, but only the portion above the minimum of average variable cost.
Average total cost is increasing whenever a. total cost is increasing. b. marginal cost is increasing. c. marginal cost is less than average total cost. d. marginal cost is greater than average total cost.
d. marginal cost is greater than average total cost.
3. 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
Refer to Figure 6-13. In this market, a minimum wage of $7.25 creates a labor a. shortage of 2,250 workers. b. shortage of 4,500 workers. c. surplus of 2,250 workers. d. surplus of 4,500 workers.
d. surplus of 4,500 workers.
Refer to Figure 7-22. At the quantity Q3, a. the market is in equilibrium. b. consumer surplus is maximized. c. the sum of consumer surplus and producer surplus is maximized. d. the marginal value to buyers is less than the marginal cost to sellers.
d. the marginal value to buyers is less than the marginal cost to sellers.
Refer to Table 13-6. The Wooden Chair Factory experiences diminishing marginal product of labor with the addition of which worker? a. the third worker b. the fourth worker c. the fifth worker d. the sixth worker
d. the sixth worker
20. Refer to Figure 16-3. Assume the firm in the figure is currently producing 10 units of output and charging $600. The firm a. will increase its profits if it raises its price and reduces its production level. b. will increase its profits if it lowers its price and expands its production level. c. is maximizing profits. d. will increase its profits if it raises its prices and expands its production level.
d. will increase its profits if it raises its prices and expands its production level.
One observes that the equilibrium price and quantity of a DVD player both increase. This is a result of: (Hint: try to draw demand-supply curves) a. An increase in demand with supply constant b. An increase in demand coupled with a decrease in supply c. An increase in demand coupled with an increase in supply d. A decrease in demand with supply constant
a. An increase in demand with supply constant
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.
As coffee becomes less expensive, Joe starts drinking more coffee because he can afford to buy more of it. This is called: a. Income effect b. Substitution effect. c. Law of demand. d. Law of supply.
a. Income effect
Refer to Figure 4-5. Suppose that the federal government is concerned about obesity in the United States. Congress is considering two plans. One would require "junk food" producers to include warning labels on all junk food. The other would impose a tax on all products considered to be junk food. If the warning labels are successful, we could illustrate the plan as producing a movement from a. Point A to Point B in Panel 1. b. Point B to Point A in Panel 1. c. Point A to Point C in Panel 2. d. Point C to Point A in Panel 2.
a. Point A to Point B in Panel 1.
For a particular good, a 10 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. The relevant time horizon is short. b. The good is a luxury. c. The market for the good is narrowly defined. d. There are many close substitutes for this good. 6
a. The relevant time horizon is short.
In the market for oil in the short run, demand a. and supply are both elastic. b. and supply are both inelastic. c. is elastic and supply is inelastic. d. is inelastic and supply is elastic.
a. and supply are both elastic.
Refer to Figure 6-11. If the government imposes a price ceiling at $3, it would be a. binding if market demand is Demand A or Demand B b. non-binding if market demand is Demand A or Demand B. c. binding if market demand is Demand A and non-binding if market demand is Demand B. d. non-binding if market demand is Demand A and binding if market demand is Demand B.
a. binding if market demand is Demand A or Demand B.
A decrease in supply will cause the largest increase in price when a. both supply and demand are inelastic. b. both supply and demand are elastic. c. demand is elastic and supply is inelastic. d. demand is inelastic and supply is elastic.
a. both supply and demand are inelastic.
Refer to Table 3-2. Aruba should specialize in the production of a. coolers and Iceland should specialize in the production of radios. b. radios and Iceland should specialize in the production of coolers. c. both goods and Iceland should specialize in the production of neither good. d. neither good and Iceland should specialize in the production of both goods
a. coolers and Iceland should specialize in the production of radios.
Refer to Scenario 5-2. The change in equilibrium price will be a. greater in the aged cheddar cheese market than in the bread market. b. greater in the bread market than in the aged cheddar cheese market. c. the same in the aged cheddar cheese and bread markets. d. Any of the above could be correct.
a. greater in the aged cheddar cheese market than in the bread market.
A tax levied on the sellers of blueberries a. increases sellers' costs, reduces profits, and shifts the supply curve up. b. increases sellers' costs, reduces profits, and shifts the supply curve down. c. decreases sellers' costs, increases profits, and shifts the supply curve up. d. decreases sellers' costs, increases profits, and shifts the supply curve down.
a. increases sellers' costs, reduces profits, and shifts the supply curve up.
"Other things equal, when the price of a good rises, the quantity supplied of the good also rises, and when the price falls, the quantity supplied falls as well." This relationship between price and quantity supplied a. is referred to as the law of supply. b. applies only to a few goods in the economy. c. is represented by a downward-sloping supply curve. d. All of the above are correct.
a. is referred to as the law of supply.
Refer to Table 5-6. Using the midpoint method, the income elasticity of demand for good Y is a. 2.33, and good Y is a normal good. b. -2.33, and good Y is an inferior good. c. -0.43, and good Y is a normal good. d. -0.43, and good Y is an inferior good.
b. -2.33, and good Y is an inferior good.
Using data in the above table, a rational economic agent will consume how many bottle(s) of beer? a. 1 bottle b. 2 bottles c. 3 bottles d. 0 bottle
b. 2 bottles
Refer to Table 3-2. At which of the following prices would both Aruba and Iceland gain from trade with each other? a. 2 radios for 4 coolers b. 2 radio for 6 coolers c. 2 radio for 10 coolers d. Aruba and Iceland could not both gain from trade with each other at any price.
b. 2 radio for 6 coolers
The downward sloping of demand curve is due to the fact that (read carefully!): a. As the price increases, purchasing power of income increases. b. As price increases, people may switch to consume substitute good. c. As price of the good increases, the quantity supplied increases. d. B, C are correct.
b. As price increases, people may switch to consume substitute good.
Which of the following is not possible? a. Demand is elastic, and a decrease in price causes an increase in revenue. b. Demand is unit elastic, and a decrease in price causes an increase in revenue. c. Demand is inelastic, and an increase in price causes an increase in revenue. d. Demand is perfectly inelastic, and an increase in price causes an increase in revenue.
b. Demand is unit elastic, and a decrease in price causes an increase in revenue.
Refer to Figure 2-3. This economy cannot produce at which point(s)? a. J b. J, L c. J, L, M d. L
b. J, L
Refer to Figure 2-3. This economy has the ability to produce at which point(s)? a. J, K, M, N b. K, M, N c. K, N d. M
b. K, M, N
Refer to Figure 4-21. Which of the following movements would illustrate the effect in the market for golf balls of an increase in green fees? a. Point A to Point B b. Point C to Point B c. Point C to Point D d. Point A to Point D
b. Point C to Point B
Refer to Figure 4-21. Which of the following movements would illustrate the effect in the market for paper napkins as a result of a "Go Green" advertising campaign encouraging people to use cloth napkins? a. Point A to Point B b. Point C to Point B c. Point C to Point D d. Point A to Point D
b. Point C to Point B
New cars are normal goods. What will happen to the equilibrium price of new cars if the price of gasoline rises, the price of steel falls, public transportation becomes cheaper and more comfortable, auto-workers accept lower wages, and automobile insurance becomes more expensive? a. Price will rise. b. Price will fall. c. Price will stay exactly the same. d. The price change will be ambiguous.
b. Price will fall
For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. There are many substitutes for this good. b. The good is a necessity. c. The market for the good is narrowly defined. d. The relevant time horizon is long.
b. The good is a necessity.
Cross-price elasticity is used to determine whether goods are substitutes or complements. a. The statement is incorrect. b. The statement is correct. Moreover, if the cross-price elasticity is negative, both goods are substitutes to each other. b. The statement is correct. Moreover, if the cross-price elasticity is negative, both goods are complements. d. None of the above is correct.
b. The statement is correct. Moreover, if the cross-price elasticity is negative, both goods are complements.
Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded? a. a 7.5 increase in the price of the good b. a 13.33 percent increase in the price of the good c. an increase in the price of the good from $7.50 to $10 d. an increase in the price of the good from $10 to $17.50
b. a 13.33 percent increase in the price of the good
Refer to Figure 4-4. Which of the following would cause the demand curve to shift from Demand B to Demand C in the market for DVDs in the United States? a. a decrease in the price of DVDs b. a decrease in the price of DVD players c. a change in consumer preferences toward watching movies in movie theaters rather than at home d. a decrease in the number of people in the United States
b. a decrease in the price of DVD players
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
A perfectly elastic demand implies that a. buyers will not respond to any change in price. b. any rise in price above that represented by the demand curve will result in a quantity demanded of zero. c. quantity demanded and price change by the same percent as we move along the demand curve. d. price will rise by an infinite amount when there is a change in quantity demanded.
b. any rise in price above that represented by the demand curve will result in a quantity demanded of zero.
When the price of a good is lower than the equilibrium price, a. a surplus will exist. b. buyers desire to purchase more than is produced. c. sellers desire to produce and sell more than buyers wish to purchase. d. quantity supplied exceeds quantity demanded.
b. buyers desire to purchase more than is produced.
Price ceilings and price floors that are binding a. are desirable because they make markets more efficient and more fair. b. cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price. c. can have the effect of restoring a market to equilibrium. d. are imposed because they can make the poor in the economy better off without causing adverse effects.
b. cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price.
The most obvious benefit of specialization and trade is that they allow us to a. work more hours per week than we otherwise would be able to work. b. consume more goods than we otherwise would be able to consume. c. spend more money on goods that are beneficial to society, and less money on goods that are harmful to society. d. consume more goods by forcing people in other countries to consume fewer goods.
b. consume more goods than we otherwise would be able to consume
Refer to Figure 4-8. The movement from Point A to Point B represents a(n) a. shift in the supply curve. b. decrease in the quantity supplied. c. increase in the quantity supplied. d. Both a) and b) are correct.
b. decrease in the quantity supplied.
A tax on the sellers of coffee mugs a. increases the size of the coffee mug market. b. decreases the size of the coffee mug market. c. has no effect on the size of the coffee mug market. d. may increase, decrease, or have no effect on the size of the coffee mug market.
b. decreases the size of the coffee mug market.
Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is a. inelastic and equal to 6. b. elastic and equal to 6. c. inelastic and equal to 0.17. d. elastic and equal to 0.17.
b. elastic and equal to 6.
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.
For a competitive market, a. a seller can always increase her profit by raising the price of her product. b. if a seller charges more than the going price, buyers will go elsewhere to make their purchases. c. a seller often charges less than the going price to increase sales and profit. d. a single buyer can influence the price of the product but only when purchasing from several sellers in a short period of time.
b. if a seller charges more than the going price, buyers will go elsewhere to make their purchases.
Refer to Table 4-2. If these are the only four buyers in the market, then when the price decreases from $6 to $4, the market quantity demanded a. increases by 0.75 units. b. increases by 3 units. c. increases by 8 units. d. decreases by 27 units.
b. increases by 3 units
An increase in price causes an increase in total revenue when demand is a. elastic. b. inelastic. c. unit elastic. d. All of the above are possible.
b. inelastic
Oil is considered to be a non-renewable energy source. Oil a. is an unlimited resource. b. is a scarce resource. c. is not a productive resource. d. has no opportunity cost.
b. is a scarce recource
Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will a. raise both price and total revenues. b. lower both price and total revenues. c. raise price and lower total revenues. d. lower price and raise total revenues.
b. lower both price and total revenues.
Suppose that when income rises, the demand curve for doctor's visits shifts to the right. In this case, we know doctor's visits are a. inferior goods. b. normal goods. c. perfectly competitive goods. d. durable goods.
b. normal goods.
The adage, "There is no such thing as a free lunch," is used to illustrate the principle that a. goods are scarce. b. people face tradeoffs. c. income must be earned. d. households face many decisions.
b. people face tradeoffs.
Normative economics is concerned with how people _____ make decisions while positive economics is concerned with how people _____ make decisions. a. in the real world; in models b. should; do c. in power; in ordinary life d. in ordinary life; in power
b. should; do
Matthew bakes apple pies that he sells at the local farmer's market. If the price of apples increases, the a. supply curve for Matthew's pies will increase. b. supply curve for Matthew's pies will decrease. c. demand curve for Matthew's pies will increase. d. demand curve for Matthew's pies will decrease.
b. supply curve for Matthew's pies will decrease.
When price is below the market equilibrium price: a. there will be an excess supply. b. the quantity demanded will exceed the quantity supplied. c. demand will shift in and supply will shift out. d. none of the above.
b. the quantity demanded will exceed the quantity supplied.
. If a tax is levied on the sellers of a product, then there will be a(n) a. downward shift of the supply curve. b. upward shift of the supply curve. c. movement up and to the right along the supply curve. d. movement down and to the left along the supply curve.
b. upward shift of the supply curve.
If sellers do not adjust their quantity supplied at all in response to a change in price, the price elasticity of supply is a. zero, and the supply curve is horizontal. b. zero, and the supply curve is vertical. c. infinity, and the supply curve is horizontal. d. infinity, and the supply curve is vertical.
b. zero, and the supply curve is vertical.
Suppose Tara chooses to engage in an activity that she values at $80 on a night in which she faced two alternatives, all of which do not or would not have cost her any more money. She values one alternative at $60 and another at $30. The opportunity cost to her of engaging in the activity is a. $90 b. $80 c. $60 d. $140
c. $60
If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is about a. 0.63, and supply is elastic. b. 0.63, and supply is inelastic. c. 1.60, and supply is elastic. d. 1.60, and supply is inelastic.
c. 1.60, and supply is elastic.
Refer to Table 3-2. Aruba's opportunity cost of one cooler is a. 0.4 radio and Iceland's opportunity cost of one cooler is 0.25 radio. b. 0.4 radio and Iceland's opportunity cost of one cooler is 4 radios. c. 2.5 radios and Iceland's opportunity cost of one cooler is 0.25 radio. d. 2.5 radios and Iceland's opportunity cost of one cooler is 4 radios.
c. 2.5 radios and Iceland's opportunity cost of one cooler is 0.25 radio.
Refer to Table 4-2. If these are the only four buyers in the market, then the market quantity demanded at a price of $8 is a. 4 units. b. 6 units. c. 24 units. d. 32 units.
c. 24 units
Refer to Table 3-2. Suppose Aruba decides to increase its production of radios by 10. What is the opportunity cost of this decision? a. 0.25 coolers b. 2.5 coolers c. 4 coolers d. 25 coolers
c. 4 coolers
Refer to Figure 2-3. Efficient production is represented by which point(s)? a. J, K, N b. K, M, N c. K, N d. L, M
c. K, N
Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen over time. Which of the following explanations would be most consistent with this observation? a. Consumers have experienced an increase in income, and beef-production technology has improved. b. The price of chicken has risen, and the price of steak sauce has fallen. c. New medical evidence has been released that indicates a negative correlation between a person's beef consumption and life expectancy. d. The demand curve for beef must be positively sloped.
c. New medical evidence has been released that indicates a negative correlation between a person's beef consumption and life expectancy.
Refer to Figure 6-15. Suppose a tax of $2 per unit is imposed on this market. Which of the following is correct? a. One-fourth of the burden of the tax will fall on buyers, and three-fourths of the burden of the tax will fall on sellers. b. One-third of the burden of the tax will fall on buyers, and two-thirds of the burden of the tax will fall on sellers c. One-half of the burden of the tax will fall on buyers ,and one-half of the burden of the tax will fall on sellers. d. Two-thirds of the burden of the tax will fall on buyers, and one-third of the burden of the tax will fall on sellers.
c. One-half of the burden of the tax will fall on buyers ,and one-half of the burden of the tax will fall on sellers.
Refer to Figure 4-5. Suppose that the federal government is concerned about obesity in the United States. Congress is considering two plans. One would require "junk food" producers to include warning labels on all junk food. The other would impose a tax on all products considered to be junk food. We could illustrate the tax as producing a movement from a. Point A to Point B in Panel 1. b. Point B to Point A in Panel 1. c. Point A to Point C in Panel 2. d. Point C to Point A in Panel 2.
c. Point A to Point C in Panel 2.
What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the price of steel rises, public transportation becomes cheaper and more comfortable, and auto-workers negotiate higher wages? a. Price will fall, and the effect on quantity is ambiguous. b. Price will rise, and the effect on quantity is ambiguous. c. Quantity will fall, and the effect on price is ambiguous. d. Quantity will rise, and the effect on price is ambiguous.
c. Quantity will fall, and the effect on price is ambiguous.
Refer to Table 4-2. Whose demand does not obey the law of demand? a. William's b. Fergie's c. Taboo's d. apl.de.ap's
c. Taboo's
Refer to Figure 4-7. The graphs show the demand for cigarettes. In Panel (a), the arrows are consistent with which of the following events? a. Tobacco and marijuana are complements, and the price of marijuana decreased. b. Tobacco is a "gateway drug," and the price of marijuana increased. c. The price of cigarettes increased. d. The arrows are consistent with all of these events.
c. The price of cigarettes increased.
15. Refer to Figure 4-4. Which of the following would cause the demand curve to shift from Demand C to Demand A in the market for DVDs? a. an increase in the price of DVDs b. a decrease in the price of DVD players c. a change in consumer preferences toward watching movies in movie theaters rather than at home d. an expectation by buyers that their incomes will increase in the very near future
c. a change in consumer preferences toward watching movies in movie theaters rather than at home
Refer to Figure 6-15. Suppose a tax of $2 per unit is imposed on this market. How much will buyers pay per unit after the tax is imposed? a. $3 b. between $3 and $5 c. between $5 and $7 d. $7
c. between $5 and $7
Refer to Figure 6-15. Suppose a tax of $2 per unit is imposed on this market. What will be the new equilibrium quantity in this market? a. less than 50 units b. 50 units c. between 50 units and 100 units d. greater than 100 units
c. between 50 units and 100 units
Refer to Figure 6-11. If the government imposes a price floor at $9, it would be a. binding if market demand is Demand A or Demand B. b. non-binding if market demand is Demand A or Demand B. c. binding if market demand is Demand A and non-binding if market demand is Demand B. d. non-binding if market demand is Demand A and binding if market demand is Demand B.
c. binding if market demand is Demand A and non-binding if market demand is Demand B.
. Refer to Scenario 5-2. Total consumer spending on aged cheddar cheese will a. increase, and total consumer spending on bread will increase. b. increase, and total consumer spending on bread will decrease. c. decrease, and total consumer spending on bread will increase. d. decrease, and total consumer spending on bread will decrease.
c. decrease, and total consumer spending on bread will increase.
You have just been hired as a business consultant to determine what pricing policy would be appropriate in order to increase the total revenue of a bakery. The first step you would take would be to a. increase the price of every loaf of bread in the store. b. look for ways to cut costs and increase profit for the bakery. c. determine the price elasticity of demand for the bakery's products. d. determine the price elasticity of supply for the bakery's products.
c. determine the price elasticity of demand for the bakery's products.
When a surplus exists in a market, sellers a. raise price, which increases quantity demanded and decreases quantity supplied, until the surplus is eliminated. b. raise price, which decreases quantity demanded and increases quantity supplied, until the surplus is eliminated. c. lower price, which increases quantity demanded and decreases quantity supplied, until the surplus is eliminated. d. lower price, which decreases quantity demanded and increases quantity supplied, until the surplus is eliminated.
c. lower price, which increases quantity demanded and decreases quantity supplied, until the surplus is eliminated.
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.
Suppose that 500 candy bars are demanded at a particular price. If the price of candy bars rises from that price by 10 percent, the number of candy bars demanded falls to 480. Using the midpoint approach to calculate the price elasticity of demand, it follows that the a. demand for candy bars in this price range is unit elastic. b. price increase will decrease the total revenue of candy bar sellers. c. price elasticity of demand for candy bars in this price range is about 0.41. d. price elasticity of demand for candy bars in this price range is about 0.24.
c. price elasticity of demand for candy bars in this price range is about 0.41.
Other things equal, when the price of a good falls, the a. quantity supplied of the good increases. b. supply decreases. c. quantity supplied of the good decreases. d. demand increases.
c. quantity supplied of the good decreases.
Refer to Figure 4-7. The graphs show the demand for cigarettes. In Panel (b), the arrows are consistent with which of the following events? a. an increase in the price of cigarettes b. placing a tax on cigarettes c. the prohibition of cigarette advertisements on television d. decreasing the price of marijuana, given that tobacco and marijuana are complements
c. the prohibition of cigarette advertisements on television
Which of the following statements is correct? a. The demand for flat-screen computer monitors is more elastic than the demand for monitors in general. b. The demand for grandfather clocks is more elastic than the demand for clocks in general. c. The demand for cardboard is more elastic over a long period of time than over a short period of time. d. All of the above are correct.
d. All of the above are correct.
Which of the following is (are) a determinant(s) of demand for gasoline? a. The price of gasoline. b. The price of automobiles. c. Consumers' incomes. d. B and C are correct.
d. B and C are correct.
Refer to Figure 2-3. Unemployment could cause this economy to produce at which point(s)? a. J, L b. J, L, M c. K, N d. M
d. M
What will happen to the equilibrium price of new textbooks if more students attend college, paper becomes cheaper, textbook authors accept lower royalties, and fewer used textbooks are sold? a. Price will rise. b. Price will fall. c. Price will stay exactly the same. d. The price change will be ambiguous.
d. The price change will be ambiguous.
Which of the following events would cause a movement upward and to the left along the demand curve for olives? a. The number of people who purchase olives decreases. b. Consumer income decreases, and olives are a normal good. c. The price of pickles decreases, and pickles are a substitute for olives. d. The price of olives rises.
d. The price of olives rises.
Refer to Figure 4-4. Which of the following would cause the demand curve to shift from Demand C to Demand A in the market for tennis balls in the United States? a. an increase in the price of tennis balls b. a decrease in the price of tennis racquets c. an expectation by buyers that their incomes will increase in the very near future d. a decrease in the number of people in the United States under age 70
d. a decrease in the number of people in the United States under age 70
The Scarcity Principle implies that: a. having more of one thing generally means having less of another. b. trade-offs are necessary when making decisions. c. nothing, even if it is given to you, is ever really free. d. all of the above are implied by the Scarcity Principle.
d. all of the above are implied by the Scarcity Principle.
A supply curve slopes upward because a. as more is produced, total cost of production falls. b. an increase in input prices increases supply. c. the quantity supplied of most goods and services increases over time. d. an increase in price gives producers an incentive to supply a larger quantity.
d. an increase in price gives producers an incentive to supply a larger quantity.
Refer to Scenario 5-2. The equilibrium price will a. increase in both the aged cheddar cheese and bread markets. b. increase in the aged cheddar cheese market and decrease in the bread market. c. decrease in the aged cheddar cheese market and increase in the bread market. d. decrease in both the aged cheddar cheese and bread markets.
d. decrease in both the aged cheddar cheese and bread markets.
Refer to Scenario 5-2. The equilibrium quantity will a. increase in both the aged cheddar cheese and bread markets. b. increase in the aged cheddar cheese market and decrease in the bread market. c. decrease in the aged cheddar cheese market and increase in the bread market. d. decrease in both the aged cheddar cheese and bread markets.
d. decrease in both the aged cheddar cheese and bread markets.
If marijuana were legalized, it is likely that there would be an increase in the supply of marijuana. Advocates of marijuana legalization argue that this would significantly reduce the amount of revenue going to the criminal organizations that currently supply marijuana. These advocates believe that the a. supply for marijuana is elastic. b. demand for marijuana is elastic. c. supply for marijuana is inelastic. d. demand for marijuana is inelastic.
d. demand for marijuana is inelastic.
Which of the following is likely to have the most price elastic demand? a. dental floss b. milk c. salt d. diamond earrings
d. diamond earrings
If car manufacturers begin using new labor-saving technology on their assembly lines, we would not expect a. a smaller quantity of labor to be used. b. the supply of cars to increase. c. the firms' costs to fall. d. individual car manufacturers to move up and to the right along their individual supply curves.
d. individual car manufacturers to move up and to the right along their individual supply curves.
Refer to Table 3-2. Aruba has an absolute advantage in the production of a. coolers and Iceland has an absolute advantage in the production of radios. b. radios and Iceland has an absolute advantage in the production of coolers. c. both goods and Iceland has an absolute advantage in the production of neither good. d. neither good and Iceland has an absolute advantage in the production of both goods.
d. neither good and Iceland has an absolute advantage in the production of both goods.
As we move downward and to the right along a linear, downward-sloping demand curve, a. both slope and elasticity remain constant. b. slope changes but elasticity remains constant. c. both slope and elasticity change. d. slope remains constant but elasticity changes.
d. slope remains constant but elasticity changes.
Efficiency means that a. society is conserving resources in order to save them for the future. b. society's goods and services are distributed equally among society's members. c. society's goods and services are distributed fairly, though not necessarily equally, among society's members. d. society is getting the maximum benefits from its scarce resources.
d. society is getting the maximum benefits from its scarce resources
Suppose that a decrease in the price of good X results in fewer units of good Y being demanded. This implies that X and Y are a. complementary goods. b. normal goods. c. inferior goods. d. substitute goods.
d. substitute goods.
A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct? a. Both the mayor and city manager would be correct if demand were price elastic. b. Both the mayor and city manager would be correct if demand were price inelastic. c. The mayor would be correct if demand were price elastic; the city manager would be correct if demand were price inelastic. d. The mayor would be correct if demand were price inelastic; the city manager would be correct if demand were price elastic.
d. the mayor would be correct if demand were price inelastic; the city manager would be correct if demand were price elastics