Econ 4001.01 Final
The price of lemonade is $0.50; the price of popcorn is $1.00. If Fred has maximized his utility by purchasing lemonade and popcorn, his marginal rate of substitution will be: a. 2 lemonades for each popcorn. b. 1 lemonades for each popcorn. c. 1/2 lemonade for each popcorn. d. indeterminate unless more information on Fred's marginal utilities is provided.
a. 2 lemonades for each popcorn.
A positive externality is shown by a marginal social benefit (MSB) curve that is a. above and to the right of the demand curve for the good that generates it. b. below and to the left of the demand curve for the good that generates it. c. above and to the left of the supply curve for the good that generates it. d. below and to the right of the supply curve for the good that generates it. e. positively related to both the supply curve and the demand curve for the good that generates it.
a. above and to the right of the demand curve for the good that generates it.
When the income-consumption curve has a positive slope throughout its entire length, we can conclude that a. both goods are inferior. b. both goods are normal. c. the good on the vertical (y) axis is inferior. d. the good on the horizontal (x) axis is inferior.
b. both goods are normal.
The difference between what a consumer is willing to pay for a unit of a good and what must be paid when actually buying it is called a. producer surplus. b. consumer surplus. c. cost benefit analysis. d. net utility.
b. consumer surplus.
The cross-price elasticity between a pair of complementary goods will be a. positive. b. negative. c. zero. d. positive or zero depending upon the strength of the relationship.
b. negative.
The slope of an indifference curve reveals: a. that preferences are complete. b. the marginal rate of substitution of one good for another good. c. the ratio of market prices. d. that preferences are transitive. e. none of the above
b. the marginal rate of substitution of one good for another good.
Which of the following is NOT a necessary condition for long run equilibrium under perfect competition? a. No firm has an incentive to enter the market. b. No firm has an incentive to exit the market. c. Prices are relatively low. d. Each firm earns zero economic profit. e. Each firm is maximizing profit.
c. Prices are relatively low.
A firm planning to engage in third-degree price discrimination (market segmentation) must face each of the following conditions except a. a sufficient degree of market power. b. consumers that differ in their willingness to pay or own-price elasticities of demand. c. economies of scale. d. an ability to prevent re-sale. e. an ability to segment the markets.
c. economies of scale.
A production function in which the inputs are perfectly substitutable would have isoquants that are a. convex to the origin. b. L-shaped. c. linear. d. concave to the origin.
c. linear.
Oscar consumes only two goods, X and Y. Assume that Oscar is not at a corner solution, but he is maximizing utility. Which of the following is NOT necessarily true? a. MRSxy = Px/Py. b. MUx/MUy = Px/Py. c. Px/Py = money income. d. Px/Py = slope of the indifference curve at the optimal choice. e. MUx/Px = MUy/Py.
c. Px/Py = money income.
A competitive firm's short run supply curve is a. Its marginal cost curve. b. The upward sloping portion of its marginal cost curve. c. The portion of its marginal cost curve that lies above average variable cost. d. The portion of its marginal cost curve that lies above average total cost. e. The upward sloping portion of its average variable cost curve.
c. The portion of its marginal cost curve that lies above average variable cost.
A firm's (long run) output expansion path is a. the firm's production function. b. a curve that makes the marginal product of the last unit of each input equal for each output. c. a curve that shows the least-cost combination of inputs needed to produce each level of output for given input prices. d. none of the above
c. a curve that shows the least-cost combination of inputs needed to produce each level of output for given input prices.
What type of good is clean air? a. Rival and exclusive. b. Nonrival and exclusive. c. Rival and nonexclusive. d. Nonrival and nonexclusive. e. Private.
d. Nonrival and nonexclusive.
Which of the following costs always declines as output increases? a. Average cost b. Marginal cost c. Fixed cost d. Average fixed cost e. Average variable cost
d. Average fixed cost
As long as the actual market price exceeds the equilibrium market price, there will be: a. downward pressure on the market price. b. upward pressure on the market price. c. no purchases made. d. both a) and c). e. both b) and c).
a. downward pressure on the market price.
A firm maximizes profit by operating at the level of output where a. Average revenue equals average cost. b. Average revenue equals average variable cost. c. Total costs are minimized. d. Marginal revenue equals marginal cost. e. Marginal revenue exceeds marginal cost by the greatest amount.
d. Marginal revenue equals marginal cost.
A perfectly competitive firm's profit maximizing condition can be written as a. P = MR. b. P = AVC. c. AR = MR. d. P = MC. e. P = AC.
d. P = MC.
The marginal rate of technical substitution is equal to the a. slope of the total product curve. b. change in output minus the change in labor. c. change in output divided by the change in labor. d. ratio of the marginal products of the inputs.
d. ratio of the marginal products of the inputs.
Suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift? a. The firm's short run supply curve b. Average total cost curve c. Average variable cost curve d. Average fixed cost curve e. None of the above; all of these cost curves shift
d. Average fixed cost curve
The fact that Alice spends no money on travel: a. implies that she does not derive any satisfaction from travel. b. implies that she is at a corner solution. c. implies that her MRS does not equal the price ratio. d. any of the above are possible.
d. any of the above are possible.
The change in the quantity demanded of a good resulting from a change in relative price with the level of utility held constant is called the ________ effect. a. Giffen b. real price c. income d. substituition
d. substituition
A market supply curve reveals: a. the quantity of output consumers are willing to purchase at each possible market price. b. the difference between quantity demanded and quantity supplied at each price. c. the maximum level of output a firm can produce, regardless of price. d. the quantity of output that producers are willing to produce and sell at each possible market price.
d. the quantity of output that producers are willing to produce and sell at each possible market price.
What happens in a perfectly competitive industry when economic profit is greater than zero? a. Existing firms may get larger. b. New firms may enter the industry. c. Firms may move along their LRAC curves to new outputs. d. There may be pressure on prices to fall. e. All of the above may occur.
e. All of the above may occur.
If the market for widgets is suddenly monopolized, we should expect: a. a decrease in the price of widgets. b. a decrease in consumer surplus in the widget market. c. a decrease in producer surplus in the widget market. d. a gain in social welfare in the widget market. e. an increase in widget consumption.
b. a decrease in consumer surplus in the widget market.
Which of the following would shift the market demand curve for new textbooks "out," or to the right? a. A fall in the price of paper used in publishing texts b. A fall in the price of equivalent used textbooks c. An increase in the number of students attending college d. A fall in the price of new textbooks.
c. An increase in the number of students attending college
For any given level of output: a. marginal cost must be greater than average cost. b. average variable cost must be greater than average fixed cost. c. average fixed cost must be greater than average variable cost. d. fixed cost must be greater than variable cost. e. None of the above is necessarily correct.
e. None of the above is necessarily correct.
At the profit-maximizing level of output, what is relationship between the total revenue (TR) and total cost (TC) curves? a. They must intersect, with TC cutting TR from below. b. They must intersect, with TC cutting TR from above. c. They must be tangent to each other. d. They cannot be tangent to each other. e. They must have the same slope.
e. They must have the same slope.
Which of the following is true concerning the income effect of a decrease in price? a. It will lead to an increase in consumption only for a normal good. b. It always will lead to an increase in consumption. c. It will lead to an increase in consumption only for an inferior good. d. It will lead to an increase in consumption only for a Giffen good.
a. It will lead to an increase in consumption only for a normal good.
An individual with a constant marginal utility of income will be a. risk averse. b. risk neutral. c. risk loving. d. cannot decide without more information
b. risk neutral.
Marginal utility measures: a. the slope of the indifference curve. b. the additional satisfaction from consuming one more unit of a good. c. the slope of the budget line. d. the marginal rate of substitution. e. none of the above.
b. the additional satisfaction from consuming one more unit of a good.
As we move downward along a demand curve for apples, a. consumer well-being decreases. b. the marginal utility of apples decreases. c. the marginal utility of apples increases. d. Both A and B are true. e. Both A and C are true.
b. the marginal utility of apples decreases.
Monopoly power results from the ability to a. set price equal to marginal cost. b. equate marginal cost to marginal revenue. c. set price above average variable cost. d. set price above marginal cost.
d. set price above marginal cost.
The change in the price of one good has no effect on the quantity demanded of another good. These goods are: a. complements. b. substitutes. c. both inferior. d. both Giffen Goods e. none of the above.
e. none of the above.
The optimum level of pollution emissions a. is zero. b. occurs where the marginal external benefit is zero. c. occurs where no damage to the environment is being done. d. occurs where the marginal external benefit equals the marginal external cost. e. occurs where the marginal external cost equals the marginal cost of abatement.
e. occurs where the marginal external cost equals the marginal cost of abatement.
A monopolist that charges each customer the maximum price that the customer is willing to pay is a. engaging in perfect price discrimination. b. converting producer surplus to consumer surplus. c. facing a situation where average revenue exceeds marginal revenue. d. engaging in third-degree price discrimination. e. all of the above.
a. engaging in perfect price discrimination.
Recently, Skooterville has experienced a large growth in population. As a result, the market demand curve for housing in Skooterville: a. has shifted to the right. b. has shifted to the left. c. has shifted down. d. both B and C are correct. e. none of the above.
a. has shifted to the right.
The principle of revealed preference would say that if Xavier chooses market basket A over market basket B then: a. if A is more expensive than B, then Xavier must prefer A over B. b. if A is more expensive than B, then Xavier must prefer B over A. c. if A is less expensive than B, then Xavier must prefer A over B. d. if A is less expensive than B, then Xavier must prefer B over A.
a. if A is more expensive than B, then Xavier must prefer A over B.
When the price of wood (which is an input in the production of furniture) falls, the consumer surplus associated with the consumption of furniture a. increases. b. decreases. c. does not change. d. could be any of the above.
a. increases.
A firm never operates a. on the downward sloping portion of its AVC curve. b. on the downward sloping portion of its ATC curve. c. at the minimum of its ATC curve. d. at the minimum of its LRAC curve. e. on its long-run marginal cost curve.
a. on the downward sloping portion of its AVC curve.
When an isocost line is just tangent to an isoquant, we know that a. output is being produced at minimum cost. b. output is not being produced at minimum cost. c. the two products are being produced at the least input cost to the firm. d. the two products are being produced at the highest input cost to the firm.
a. output is being produced at minimum cost.
To find the social marginal benefit of public goods, one needs to a. sum the consumers' demand curves vertically. b. sum the consumers' demand curves horizontally. c. sum the marginal private benefit and the marginal external benefit for each unit. d. sum the marginal private cost and the marginal external cost for each unit. e. subtract the individual portion of the tax burden necessary for the government to provide the good from the demand curve of each consumer who desires the good.
a. sum the consumers' demand curves vertically.
If a perfectly competitive firm's marginal cost (MC) and marginal revenue (MR) curves are equal at a point where MR is above AVC but below ATC, a. The firm is earning negative profit, and will shut down rather than produce that level of output. b. The firm is earning negative profit, but will continue to produce in the short run. c. The firm is still earning positive profit, as long as variable costs are covered. d. The firm is covering accounting costs, but not implicit (opportunity) costs. e. The firm can cover all of fixed costs but only a portion of variable costs.
b. The firm is earning negative profit, but will continue to produce in the short run.
If we take the production function and hold the level of output constant, allowing the amounts of capital and labor to vary, the curve that is traced out is called: a. the total product. b. a production isoquant. c. the average product. d. the marginal product. e. none of the above
b. a production isoquant.
A box of corn flakes is a. a rival good because many firms produce this product. b. a rival good because if Buyer 1 buys the box, then Buyer 2 cannot consume it. c. a non-rival good because there are only a few firms in the industry. d. a non-rival good because enough boxes of corn flakes are produced to allow everyone to buy as much as they desire. e. a public good.
b. a rival good because if Buyer 1 buys the box, then Buyer 2 cannot consume it.
5. When emissions are measured on the horizontal axis, the marginal cost of abating emissions is a. downward-sloping because emissions become easier to eliminate once firms make the initial commitment to do so. b. downward-sloping because a high level of emissions is cheap to attain, and a low level of emissions is expensive to attain. c. upward-sloping because emissions become easier to eliminate once firms make the initial commitment to do so. d. upward-sloping because a high level of emissions is cheap to attain, and a low level of emissions is expensive to attain. e. horizontal because the technology to remove emissions is assumed constant.
b. downward-sloping because a high level of emissions is cheap to attain, and a low level of emissions is expensive to attain.
When a consumer electronics company introduces a new products, it often sets a relatively high initial price, and lowers the price about a year later. This is an example of a. a two-part tariff. b. intertemporal price discrimination. c. first-degree price discrimination. d. second-degree price discrimination. e. third-degree price discrimination.
b. intertemporal price discrimination.
Blanca would prefer a certain income of $20,000 to a gamble with a 0.5 probability of $10,000 and a 0.5 probability of $30,000. Based on this information: a. we can infer that Blanca is risk neutral. b. we can infer that Blanca is risk averse. c. we can infer that Blanca is risk loving. d. we cannot infer Blanca's risk preferences.
b. we can infer that Blanca is risk averse.
A consumer maximizes satisfaction at the point where his valuation of good X, measured as the amount of good Y he would willingly give up to obtain an additional unit of X, equals: a. the magnitude of the slope of the indifference curve through that point. b. one over the magnitude of the slope of the indifference curve through that point. c. Px/Py d. Py/Px
c. Px/Py
Suppose that the marginal cost of an additional ton of steel produced by a Japanese firm is the same whether the steel is set aside for domestic use or exported abroad. If the price elasticity of demand for steel is greater abroad than it is in Japan (that is, foreign consumers are more responsive to price changes), which of the following is an expected outcome? a. The Japanese firm will sell more steel abroad than it will sell in Japan. b. The Japanese firm will sell more steel in Japan than it will sell abroad. c. The Japanese firm will charge a lower price abroad than in Japan d. The Japanese firm will charge a higher price abroad than in Japan. e. Consumer surplus will be greater than if domestic and international consumers were identical.
c. The Japanese firm will charge a lower price abroad than in Japan
Suppose the price of rice increases and you view rice as an inferior good. The substitution effect results in a ________ change in rice consumption, and the income effect leads to a ________ change in rice consumption. a. positive, positive b. positive, negative c. negative, positive d. negative, negative
c. negative, positive
The market demand for sirloin steak is probably more elastic than the market demand for all meat because a. steak is very expensive. b. people are worried about cholesterol. c. cattle raising is not very profitable. d. there are more substitutes for sirloin steak than for all meats.
d. there are more substitutes for sirloin steak than for all meats.
Which of the following causes a firm's long-run demand curve for labor to be relatively elastic? a. Labor and capital are relatively close substitutes. b. Labor and capital are complements. c. The scale effect is relatively small. d. Production isoquants are L-shaped. e. Isocost lines are downward sloping.
a. Labor and capital are relatively close substitutes.
For a two-part tariff imposed on two consumers, the entry fee should always be based on the: a. consumer surplus of the customer with lower willingness-to-pay. b. consumer surplus of the customer with higher willingness-to-pay. c. simple average of the consumer surplus for the two buyers. d. none of the above.
a. consumer surplus of the customer with lower willingness-to-pay
The concept of a risk premium applies to someone who is a. risk averse. b. risk neutral. c. risk loving. d. all of the above.
a. risk averse.
The marginal revenue product of labor can be expressed as the a. additional revenue received from selling one more unit of product. b. increment to revenue received from one additional unit of input hired. c. marginal physical product of an input times the average revenue received from the sale of the product. d. average physical product of the input times the marginal revenue received from the sale of the final product.
b. increment to revenue received from one additional unit of input hired.
Although rice is a staple of the Japanese diet, the Japanese government has long restricted the importation of rice into Japan. The result of this import quota is: a. to decrease the price of rice to the Japanese people. b. to decrease the consumer surplus of Japanese rice consumers. c. to decrease the producer surplus of Japanese rice producers. d. a welfare gain for the Japanese people. e. to increase the consumption of rice by the Japanese people.
b. to decrease the consumer surplus of Japanese rice consumers.
Ronny's Pizza House operates in the perfectly competitive local pizza market. If the price of pepperoni increases, what is the expected impact on Ronny's profit-maximizing output decision? a. Output increases to cover the higher input cost b. Output increases because the marginal cost curve shifts upward c. Output decreases because the marginal cost curve shifts upward d. Output decreases because the price of pizza must also increase
c. Output decreases because the marginal cost curve shifts upward
Suppose Ohio's state government is considering an increase in the sale tax imposed on yachts to help pay for government programs. Which of the following is true? a. The burden of this tax will fall entirely on yacht consumers. b. The burden of this tax will fall entirely on yacht manufacturers. c. The sales of yachts will decrease. d. The profit of yacht manufacturers will increase. e. Employment of workers in the yacht industry will increase.
c. The sales of yachts will decrease.
Suppose a graph showing the marginal external cost curve and marginal cost of abatement curve of emissions indicates that an emissions fee of $10/unit will lead to the optimal level of emissions. If the government sets an emissions fee of $5/unit, emissions will a. not be reduced at all. b. be reduced to zero. c. be above the optimal level, but will be curtailed relative to the level that would arise with no fee. d. exceed the optimal level by 50%. e. be below the optimal level by 50%.
c. be above the optimal level, but will be curtailed relative to the level that would arise with no fee.
When the federal government installs a price support program that requires the government to purchase all of a good not bought in the private economy at the support price, the impact on total welfare is the a. change in consumer surplus. b. change in consumer surplus + the change in producer surplus + the cost to government. c. change in consumer surplus + the change in producer surplus - the cost to government. d. change in consumer surplus + the change in producer surplus.
c. change in consumer surplus + the change in producer surplus - the cost to government.
In recent years, the world demand curve for copper shifted rightward due to continued economic growth in China and other emerging economies. Also, the costs of extracting the copper increased due to higher energy prices. As a result, we observed: a. higher equilibrium copper prices and unambiguously lower quantities. b. higher equilibrium copper prices and unambiguously higher quantities. c. higher equilibrium copper prices and either higher or lower quantities. d. lower equilibrium copper prices and either higher or lower quantities.
c. higher equilibrium copper prices and either higher or lower quantities.
An isocost line reveals the a. costs of inputs needed to produce along an isoquant. b. costs of inputs needed to produce along an expansion path. c. input combinations that can be purchased with a given outlay of funds. d. output combinations that can be produced with a given outlay of funds.
c. input combinations that can be purchased with a given outlay of funds.
Suppose there is currently a surplus of wheat on the world market. The problem of excess supply may be removed from the market by: a. lowering the market price. b. shifting the supply curve up (leftward). c. shifting the demand curve down (leftward). d. Both a) and b).
d. Both a) and b).
What is the difference between a price support and a price floor? a. A price support is below equilibrium; a price floor is above it. b. A price support is above equilibrium; a price floor is below it. c. Government buys the excess supply to maintain a price floor, but not a price support. d. Government buys the excess supply to maintain a price support, but not for a price floor. e. There is no difference between the two.
d. Government buys the excess supply to maintain a price support, but not for a price floor.
Which of the following is a negative externality connected to attending college? a. Completion of a college degree acts as a signaling mechanism to employers. b. Students incur costs such as books and materials in addition to tuition and fees. c. A requirement that everyone living in student housing must show proof of vaccination against certain communicable diseases. d. Other college students play loud music when you are trying to sleep. e. You will eventually receive benefits from college that you don't currently anticipate.
d. Other college students play loud music when you are trying to sleep.
Many mining and mineral extraction processes tend to exhibit increasing returns to scale. Suppose copper mines have increasing returns, and the existing copper mines reduce their capital and labor inputs by 25 percent in response to a global recession. What is the expected impact on copper output? a. Output increases by less than 25 percent b. Output decreases by less than 25 percent c. Output decreases by exactly 25 percent d. Output decreases by more than 25 percent
d. Output decreases by more than 25 percent
A government can impose an import quota or an equivalent tariff that achieves the same impact on trade. What is the key difference in the welfare outcomes of these two policy options? a. The domestic quantity supplied is larger under the tariff policy. b. The domestic price is higher under the tariff policy. c. The domestic price is lower under the tariff policy. d. The government captures some of the profits from foreign suppliers through the tariff revenue.
d. The government captures some of the profits from foreign suppliers through the tariff revenue.
Suppose Congress passes a law that states the price of gasoline may not exceed $6 per gallon (but may be lower). If the current price of gasoline is less than $6, what impact does this law have on the current price and quantity of gasoline in the US market? a. There is a shortage of gasoline b. There is a surplus of gasoline c. Quantity supplied currently equals quantity demanded, but a surplus is possible at prices above $6 d. The law currently has no impact, and the market clears at the equilibrium price
d. The law currently has no impact, and the market clears at the equilibrium price
Which always increase(s) as output increases? a. Marginal Cost only b. Fixed Cost only c. Total Cost only d. Total Cost and Variable Cost
d. Total Cost and Variable Cost
The short run is a. less than a year. b. three years. c. however long it takes to produce the planned output. d. a time period in which at least one input is fixed. e. a time period in which at least one set of outputs has been decided upon.
d. a time period in which at least one input is fixed.
If a firm is using the optimal, long run combination of labor and capital, a. the slopes of the production isoquant and isocost curves are equal. b. costs are minimized for the production of a given output. c. the marginal rate of technical substitution equals the ratio of input prices. d. all of the above e. a and c only
d. all of the above
An increase in technology that enhances labor productivity will likely result in: a. a decrease in labor employment and an increase in the wage rate. b. a decrease in labor employment and a decrease in the wage rate. c. an increase in labor employment and a decrease in the wage rate. d. an increase in labor employment and an increase in the wage rate. e. employers using less labor and more capital while the wage effect is unknown.
d. an increase in labor employment and an increase in the wage rate.
Unlike a firm buying a particular factor of production in a perfectly competitive market, a pure monopsonist a. pays a different price for each unit of the factor of production purchased. b. pays a price equal to its marginal value for the last unit purchased. c. sets marginal value equal to marginal expenditure in deciding how much of the factor to use. d. pays a price for the factor of production that depends on the number of units purchased.
d. pays a price for the factor of production that depends on the number of units purchased.
The endpoints (horizontal and vertical intercepts) of the budget line: a. measure its slope. b. measure the rate at which one good can be substituted for another. c. measure the rate at which a consumer is willing to trade one good for another. d. represent the quantity of each good that could be purchased if all of the budget were allocated to that good. e. indicate the highest level of satisfaction the consumer can achieve.
d. represent the quantity of each good that could be purchased if all of the budget were allocated to that good.
According to the law of diminishing returns a. the total product of an input will eventually be negative. b. the total product of an input will eventually decline. c. the marginal product of an input will eventually be negative. d. the marginal product of an input will eventually decline. e. none of the above
d. the marginal product of an input will eventually decline.
At every output level, a firm's short run average total cost (SR ATC) equals or exceeds its long run average cost (LRAC) because a. diminishing returns apply in the short run. b. returns to scale only exist in the long run. c. opportunity costs are taken into account in the short run. d. there are at least as many possibilities for substitution between factors of production in the long run as in the short run. e. none of the above
d. there are at least as many possibilities for substitution between factors of production in the long run as in the short run.
Which of the following conditions must hold in the equilibrium of a competitive market where the government puts a specific tax on consumers? a. The quantity sold and the price paid by the buyer must lie on the demand curve. b. The quantity sold and the seller's price must lie on the supply curve. c. The quantity demanded must equal the quantity supplied. d. The difference between the price the buyer pays and the price the seller receives must equal the specific tax. e. All of the above
e. All of the above
Which of the following situations is NOT possible? a. Short run ATC and LRAC are both increasing for some output levels. b. SR ATC is increasing but LRAC is decreasing for some output levels. c. SR ATC is decreasing but LRAC is increasing for some output levels. d. SR ATC and LRAC are both decreasing for some output levels. e. All of the above are possible.
e. All of the above are possible.
If a decline in the wage rate causes every firm in a market to hire more labor, a. the market supply curve for output will increase. b. the equilibrium price of output will decrease. c. every firm's marginal revenue product of labor curve will decrease. d. the typical firm will end up hiring less labor than it would if it were the only firm facing the lower wage. e. All of the above.
e. All of the above.
Cole's Coal Company is the only employer in a remote and mountainous region of the country, so the firm is a monopsony buyer of labor in the market. If the local population declines and there are fewer qualified coal miners available, which one of the curves used to determine the monopsony outcome in this market shifts? a. The demand curve b. The marginal valuation curve c. The average expenditure curve d. The marginal expenditure curve e. Both c) and d)
e. Both c) and d)
An amusement park charges an entrance fee of $35 per person plus $2.50 per ride. This is an example of a. second-degree price discrimination. b. third-degree price discrimination. c. intertemporal price discrimination. d. a quantity discount. e. a two-part tariff.
e. a two-part tariff.
When a firm engages in "perfect" (first-degree) price discrimination, a. consumer surplus is zero. b. consumers (as a group) buy more than they would if the firm charged a single, monopoly price. c. producer surplus is greater than it would be if the firm charged a single, monopoly price. d. the firm's profit is greater than it would be if the firm charged a single, monopoly price. e. all of the above
e. all of the above
An effective price ceiling causes a loss of A. producer surplus for certain and possibly consumer surplus as well. B. consumer surplus only. C. producer surplus only. D. consumer surplus for certain and possibly producer surplus as well. E. neither producer nor consumer surplus
A. producer surplus for certain and possibly consumer surplus as well.
Deadweight loss refers to A. losses in consumer surplus associated with excess government regulations. B. situations where market prices fail to capture all of the costs and benefits of a policy. C. net losses in total surplus. D. losses due to the policies of labor unions.
C. net losses in total surplus.
If a worker's labor supply curve is backward bending, then a. the income effect associated with a higher wage is greater than the substitution effect. b. the substitution effect associated with a higher wage is greater than the income effect. c. the substitution effect associated with a higher wage encourages more leisure. d. both a) and c) e. both b) and c)
a. the income effect associated with a higher wage is greater than the substitution effect.
A newly-certified medical doctor who accepts a job with an HMO will earn $100,000 with probability 0.95 and $60,000 with probability 0.05. The doctor's expected income is: a. $100,000 b. $98,000 c. $80,000 d. $60,000
b. $98,000
What is the value of the Lerner index under perfect competition? a. 1 b. 0 c. infinity d. two times the price e. Indeterminate without additional information
b. 0
If a worker's wage decreases, the substitution effect will a. decrease leisure, regardless of whether leisure is a normal or inferior good. b. increase leisure, regardless of whether leisure is a normal or inferior good. c. increase leisure only if leisure is a normal good. d. decrease leisure only if leisure is a normal good. e. be larger than the income effect.
b. increase leisure, regardless of whether leisure is a normal or inferior good.
If a worker views leisure as a normal good, then the income effect associated with a wage decrease will a. decrease the number of hours worked. b. increase the number of hours worked. c. leave the number of hours worked unchanged. d. leave the number of leisure hours unchanged. e. increase the sum of leisure plus hours worked.
b. increase the number of hours worked.
When compared to the demand curve for only one variable input, the demand curve for a factor input when several inputs are variable is a. less elastic. b. more elastic. c. vertical. d. horizontal. e. downward sloping.
b. more elastic.
Compared to the equilibrium price and quantity sold in a competitive market, a pure monopolist will charge a ________ price and sell a ________ quantity. a. higher; larger b. lower; larger c. higher; smaller d. lower; smaller e. none of these
c. higher; smaller
Suppose the major soft drink companies develop vending machines for canned and bottled drinks that can determine your maximum willingness-to-pay for a drink, and the machine charges you that price when you purchase a drink. If this were possible, the consumer surplus in the vended soft drink market would be: a. positive because consumer surplus equals consumer expenditures in this case. b. positive because the market demand curve is perfectly inelastic in this case. c. negative because people are not actually willing to pay their maximum value for the product. d. zero because all surplus value is captured by the seller.
d. zero because all surplus value is captured by the seller.
To achieve the optimal level of emissions, a government could set an emissions standard at the quantity a. where the marginal external cost curve intersects the marginal cost of abatement curve. b. located at the vertical intercept of the marginal external cost curve. c. located at the horizontal intercept of the marginal external cost curve. d. located at the vertical intercept of the marginal cost of abatement curve. e. located at the horizontal intercept of the marginal cost of abatement curve.
a. where the marginal external cost curve intersects the marginal cost of abatement curve.
A firm should always hire more labor when the marginal revenue product of labor a. equals the wage rate. b. exceeds the wage rate. c. is less than the wage rate. d. is downward sloping. e. None of these are true.
b. exceeds the wage rate.
Assume that yogurt is a normal good. If the price of yogurt rises, then the substitution effect results in the person buying ________ of the good and the income effect results in the person buying ________ of the good. a. more, more b. more, less c. less, more d. less, less
d. less, less
The marginal product of an input is a. total product divided by the amount of the input used to produce this amount of output. b. the addition to total output that adds nothing to total revenue. c. the addition to total output that adds nothing to profit. d. the addition to total output due to the addition of one unit of all other inputs. e. the addition to total output due to the addition of the last unit of an input, holding all other inputs constant.
e. the addition to total output due to the addition of the last unit of an input, holding all other inputs constant.
The price elasticity of gasoline supply in the U.S. is 0.4. If the price of gasoline rises by 8%, what is the expected change in the quantity of gasoline supplied in the U.S.? a. +3.2% b. -3.2% c. +32.0% d. +0.32%
a. +3.2%
A consumer has $100 per day to spend on product A, which has a unit price of $7, and product B, which has a unit price of $15. What is the slope of the budget line if good A is on the horizontal axis and good B is on the vertical axis? a. -7/15 b. -7/100 c. -15/7 d. 7/15
a. -7/15
The pure monopolist has no supply curve because a. the price set at any particular quantity level depends on the market demand curve. b. the price set at any particular quantity level depends on the marginal revenue curve. c. the monopolist's marginal cost curve changes considerably over time. d. the relationship between price and quantity depends on both marginal cost and average cost. e. although there is only a single seller at the current price, it is impossible to know how many sellers would be in the market at higher prices.
a. the price set at any particular quantity level depends on the market demand curve.
Assuming a standard S-shaped production function, marginal product crosses the horizontal axis (is equal to zero) at the point where a. average product is maximized. b. total product is maximized. c. diminishing returns set in. d. output per worker reaches a maximum. e. All of the above are true.
b. total product is maximized.
For a firm engaging in "perfect" (first-degree) price discrimination, marginal revenue is a. equal to the price paid for each unit of output. b. greater than the price paid for each unit of output. c. less than the price paid for each unit of output. d. less than the height of the demand curve for the given unit of output. e. less than marginal revenue would be for a non-discriminating monopolist.
a. equal to the price paid for each unit of output.
To find its profit-maximizing output level, a pure monopolist will a. equate marginal revenue and marginal cost. b. equate price and marginal cost. c. equate price and average total cost. d. equate market supply and market demand. e. all of the above.
a. equate marginal revenue and marginal cost.
A production function assumes a given a. technology. b. set of input prices. c. ratio of input prices. d. amount of capital and labor. e. amount of output.
a. technology.
From 1970 to 2010, the real price of a college education increased, and total enrollment increased. Which of the following could have caused this increase in price and enrollment? a. A shift to the right in the supply curve for college education and a shift to the left in the demand curve for college education. b. A shift to the left in the supply curve for college education and a shift to the right in the demand curve for college education. c. A shift to the left in the supply curve for college education and a shift to the left in the demand curve for college education. d. none of the above
b. A shift to the left in the supply curve for college education and a shift to the right in the demand curve for college education.
In the personal computer market, some large manufacturers are able to buy computer components (e.g., disk drives, memory chips) at lower prices than smaller firms in the market. This outcome indicates that the large firms have a. a degree of monopoly power. b. a degree of monopsony power. c. a Lerner Index equal to zero. d. a perfectly inelastic supply curve.
b. a degree of monopsony power.
A minimum wage policy induces an: a. excess demand for labor. b. excess supply of labor. c. efficient market outcome. d. elastic labor supply response.
b. excess supply of labor.
Which of the following statements is not a correct characterization of a pure monopoly? a. A monopolist is the sole producer in the market. b. A monopolist's price is determined from the market demand curve. c. A monopolist can charge as high a price as it likes. d. The monopolist's demand curve is downward sloping. e. The monopolist's marginal revenue is less than its average revenue.
c. A monopolist can charge as high a price as it likes.
A price floor policy establishes a minimum price for a market. Which of the following results from a binding price floor? a. Equilibrium b. Excess demand c. Excess supply d. Shortage
c. Excess supply
In contrast to various forms of price discrimination, peak-load pricing does not require a. the firm to have market power. b. the firm to establish more than one price. c. customers to be prevented from re-selling the product, or using it whenever they want. d. different types of consumers. e. all of the above.
d. different types of consumers.
When the market price is held above the competitive level, the deadweight loss is composed of: a. producer surplus losses associated with units that used to be traded on the market but are no longer exchanged. b. consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged. c. producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged. d. There is no deadweight loss if the government uses a price floor policy to increase the price.
c. producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
A risk-averse individual would always a. take a 10% chance at $100 rather than a sure $10. b. take a 50% chance at $4 and a 50% chance at $1 rather than a sure $2.50. c. take a sure $10 rather than a 10% chance at $100. d. take a sure $2 rather than a 50% chance at $4 and a 50% chance at $1. e. take C or D above.
c. take a sure $10 rather than a 10% chance at $100.
When labor usage is at 12 units, output is 36 units. From this we may infer that a. the marginal product of labor is 3. b. the total product of labor is 1/3. c. the average product of labor is 3. d. none of the above
c. the average product of labor is 3.
The process of dry cleaning clothing produces air pollutants. Therefore, in the market for dry cleaning service a. the equilibrium price and output level are both below their socially optimal levels. b. the equilibrium price and output level are both above their socially optimal levels. c. the equilibrium price is below its socially optimal level, while the equilibrium quantity is above its socially optimal level. d. the equilibrium price is above its socially optimal level, while the equilibrium quantity is above its socially optimal level. e. the equilibrium price and output level are both at the efficient level, but there is an excess supply.
c. the equilibrium price is below its socially optimal level, while the equilibrium quantity is above its socially optimal level.
Suppose that the prices of good A and good B were to suddenly double. If good A is plotted along the horizontal axis, a. the budget line will become steeper. b. the budget line will become flatter. c. the slope of the budget line will not change. d. the slope of the budget line will change, but in an indeterminate way.
c. the slope of the budget line will not change.
A firm operating in a perfectly competitive output market has a downward sloping short-run demand curve for labor because a. marginal revenue decreases as more labor is hired. b. output price decreases a more labor is hired. c. marginal utility decreases as more labor is hired. d. marginal product of labor decreases as more labor is hired. e. marginal cost increases as more output is produced.
d. marginal product of labor decreases as more labor is hired.
Consider a graph in which good Y is on the vertical axis and good X is on the horizontal axis. On this graph, the income-consumption curve has a positive slope for low incomes, then it takes a zero slope for a higher income, and then it takes a negative slope for even higher incomes (the curve looks like an arc, first rising and then falling as income increases). This curve illustrates that, for all income levels, a. both X and Y are normal. b. only Y is normal. c. both X and Y are inferior. d. only X is normal
d. only X is normal
A newly-certified medical doctor who accepts a job in private practice will earn $250,000 with probability 0.20 and $30,000 with probability 0.80. The doctor's expected utility from income is: a. $140,000 b. U(250,000) c. U($30,000) d. 0.5∗U(250,000) + 0.5∗U(30,000) e. 0.2∗U(250,000) + 0.8∗U(30,000)
e. 0.2∗U(250,000) + 0.8∗U(30,000)
The battery packs used in electric and hybrid automobiles are important components for manufacturing these cars. As the price of these batteries decline, we expect that the: a. supply curve for electric and hybrid autos will shift down (rightward). b. supply curve for electric and hybrid autos will shift up (leftward). c. demand curve for electric and hybrid autos will shift up (rightward). d. demand curve for electric and hybrid autos will shift down (leftward).
supply curve for electric and hybrid autos will shift down (rightward).