ECO2023 - Quiz and Test Questions
A monopoly redistributes consumer surplus so that the consumers gain and the producer loses. True False
False
Marginal cost is what you gain when you get one more unit of something True False
False
Subsidized services from the government go to only households with below-average incomes True False
False
when the demand for skateboards decreases and the supply of skateboards remains unchanged, the quantity supplied of skateboards decreases as the price rises True False
False
A monopoly charges a higher price than a perfectly competitive industry True False
True
A price floor is the lowest price at which it is legal to trade a particular good, service, or factor of production True False
True
A single-price monopoly maximizes profit by producing the quantity at which marginal revenue equals marginal cost True False
True
At a given wage rate, the quantity of high-skilled labor demanded exceeds the quantity of low-skilled labor demanded True False
True
Firms in monopolistic competition are free to enter or exit the market True False
True
If a firms earns an economic profit, the return to the entrepreneur exceeds normal profit True False
True
In the long run, firms responds to an economic loss by exiting by exiting a perfectly competitive market True False
True
In the used car market, a warranty is an example of a signal. True False
True
Inequality of annual income overstates the degree of lifetime inequality True False
True
Oligopoly is a market in which a small number of firms compete. True False
True
The distribution of income after taxes and benefits is more equal than the market distribution of income. True False
True
The greater the cost of acquiring a skill, the greater is the vertical distance between the supply curve of high-skilled labor and the supply curve of low-skilled labor True False
True
a change in marginal benefit or a change in marginal cost brings a change in the incentives that we face and leads us to change our actions True False
True
as the price of a good increases, if the quantity demanded of it remains the same, the demand for the good is perfectly inelastic True False
True
as time passes, the elasticity of supply increases True False
True
if all the factors of production are fully employed, the economy will produce at a point on the production possibilities frontier True False
True
if the price of asparagus is below the equilibrium price, there is a shortage of asparagus and the price of asparagus will rise until the shortage disappears True False
True
to achieve the gains from trade, a producer specializes in the product in which he or she has a comparative advantage and then trades with others True False
True
when Sue's income increases, her demand for movies increases. For Sue, movies are a normal good True False
True
when new technology for producing computers is used by manufacturers, the supply of computers increases True False
True
Several students are discussing the concept of price elasticity while standing in line at the campus bookstore. Which of the following quotations describes an inelastic demand for a product? a. "a price increase really scares me. It wouldn't reduce my purchases of school supplies very much, but I know for sure that I'll end up spending a lot more than I was before" b. "an increase in price will cause me to buy fewer school supplies, but I don't expect to see any change in my overall spending, one way or the other" c. "Since business at my job has slowed down, my income is a lot lower than it used to be. Consequently, I won't be able to buy as much even if prices don't rise." d. "I think the higher prices are really going to cut my overall spending on school supplies"
a. "a price increase really scares me. It wouldn't reduce my purchases of school supplies very much, but I know for sure that I'll end up spending a lot more than I was before"
Use statements I and II to answer this question. (I) A payment that the government makes to private producers to cover part of the costs of production is a subsidy. (II) Vouchers can help overcome the inefficiency created by a good with an external benefit a. Both I and II are true b. Both I and II are false c. I is false; II is true d. I is true; II is true
a. Both I and II are true
Use statements I and II to answer this question. (I) In order to keep the price of a crop above the equilibrium price and equal to the supported price, the government must buy some of the crop. (II) Price supports are efficient because they guarantee production of the good. a. I is true; II is false b. Both I and II are true c. Both I and II are false d. I is false; II is false
a. I is true; II is false
a rise in the price of a substitute in production for widgets leads to a. a decrease in the supply that good b. no change in the supply of widgets c. a decrease in the quantity supplied of widgets d. an increase in the supply of widgets e. no change in either the supply or the quantity supplied of widgets
a. a decrease in the supply that good
a cost paid in money to hire a resource is a. an explicit cost b. an implicit cost c. an economic profit d. a normal profit e. an alternative-use cost
a. an explicit cost
Which of the following statements is FALSE? to be successful, a cartel must a. be able to engage in price discrimination b. overcome the incentive of each seller to lower price in order to increase its share of the cartel profits c. be able to detect cheating and enforce the cartel agreement against cheaters d. include enough sellers to effectively limit quantity but not so many sellers that high negotiation costs and small individuals gains prevent reaching an agreement
a. be able to engage in price discrimination
when we say that Kuwait has a comparative advantage over the U.S. in the production of crude oil, we mean that Kuwait a. can produce crude oil at lower opportunity cost than the U.S. b. can produce more crude oil each year than the U.S. c. can produce more crude oil at lower money cost than the U.S. d. has more crude oil than the U.S. e. has more of the resources needed to produce crude oil than the U.S.
a. can produce crude oil at lower opportunity cost than the U.S.
the excess burden of a tax is the _______ from the tax and is larger the ________ elastic the demand for the good being taxed a. deadweight loss; more b. deadweight loss; less c. surplus; more d. surplus; less
a. deadweight loss; more
if the marginal benefit of the next slice of pizza exceeds the marginal cost, you will a. eat the slice of pizza b. not eat the slice of pizza c. be unable to choose between eating or not eating d. eat half the slice e. more information is needed about how much the marginal benefit exceeds the marginal cost to determine if you will or will not eat the slice
a. eat the slice of pizza
to increase its economic growth, a nation should a. encourage education because that increases the quality of labor b. limit the number of people in college because they produce nothing c. eliminate expenditure on capital goods d. encourage spending on goods and services e. increase current consumption
a. encourage education because that increases the quality of labor
Which of the following is not a problem in health-care markets? a. hospitals are not trying to maximize their profit b. asymmetric information c. public health externalities d. a missing insurance market e. None of the above answers are correct; that is, all the answers are problems in health-care markets
a. hospitals are not trying to maximize their profit
If a perfectly competitive firm is maximizing its profit and is making an economic profit, which of the following is correct? i. price equals marginal revenue ii. marginal revenue equals marginal curve iii. price is greater than average total cost a. i, ii, and iii b. i and ii only c. i and iii only d. i only e. i and iii only
a. i, ii, and iii
In the United States, the demand for labor is more elastic than the supply of labor. Currently, the law says that Social Security taxes fall equally on employers and workers. In reality, the Social Security tax ________. a. is paid mostly by the worker b. is paid mostly by the employer c. does not create a deadweight loss d. is split evenly between the employer and the worker, just as the law says
a. is paid mostly by the worker
the cost of producing one more unit of a good or service that is borne by the producer of that good or service a. is the marginal private cost b. always equals the benefit the consumer derives from that good or service c. equals the cost borne by people than the producer d. is the external cost e. is the marginal social cost
a. is the marginal private cost
If you have private information that you are a riskier driver than your record indicates, you are likely to buy from your insurance company a policy that has a ________ deductible and a _________ premium. a. low; high b. low; low c. high; high d. high; low e. None of the above answers are correct because private information has no effect in the market for insurance
a. low; high
The absence of barriers to entry in monopolistic competition means that in the long run firms a. make zero economic profit (that is, earn a normal accounting profit). b. incur an economic loss c. make an economic profit d. make either an economic profit or zero economic profit (that is, a normal accounting profit). e. make either zero economic profit (that is, a normal accounting profit) or incur an economic loss
a. make zero economic profit (that is, earn a normal accounting profit).
the paramount goal of a firm is to a. maximize profit b. maximize sales c. maximize total revenus d. force its competitors into bankruptcy e. minimize its costs
a. maximize profit
In the short run, a perfectly competitive firm a. might earn an economic profit, incur an economic loss, or break even (that is, earn zero economic profit or, what is the same thing, a normal accounting profit). b. must break even (earn zero economic profit or a normal accounting profit). c. must incur an economic loss d. must earn an economic profit e. None of the above answers is correct.
a. might earn an economic profit, incur an economic loss, or break even (that is, earn zero economic profit or, what is the same thing, a normal accounting profit).
The key to ensuring competitive behavior in any market is a. no barriers to entry into the market in the long run b. no price discrimination c. no strategic behavior by suppliers in the market d. many small suppliers in the market e. product homogeneity
a. no barriers to entry into the market in the long run
it is __________ for someone to have a comparative advantage in all activities. It is __________ for someone to have an absolute advantage in all activities a. not possible; possible b. not possible; not possible c. possible; possible d. possible; not possible
a. not possible; possible
If buyers cannot assess the quality of used cars and there are no warranties a. only lemons are sold b. good cars are sold at higher prices than bad cars c. only good used cars are sold d. lemons are good cars sells for the same price e. there is no adverse selection problem.
a. only lemons are sold
the cross elasticity of demand is _________ for a substitute and ____________ for a complement a. positive; negative b. negative; positive c. positive; positive d. negative; negative
a. positive; negative
the characteristic from which all economic problems arise is a. scarcity b. how to make a profit c. hunger d. political decisions e. providing a minimal standard of living for every person
a. scarcity
the correlation between alcohol abuse and other risky behaviors has led many universities to adopt policies strictly regulating the consumption of alcohol by students. A research paper by the National Bureau of Economic Research concludes, however, that the correlation between alcohol abuse and other risky behaviors most likely reflects on omitted variable. Which of the following explanations best fits the definition of omitted variables a. some students have a taste or preference for risky activities, which causes them to both abuse alcohol and engage in other risky behaviors b. students who engage in other risky behavior abuse alcohol to overcome their inhibitions c. even though the data show a correlation between alcohol abuse and other risky behaviors, it is merely a coincidence and there is really no causal relationship of any kind d. abuse by students of alcohol causes them to engage in other risky behaviors
a. some students have a taste or preference for risky activities, which causes them to both abuse alcohol and engage in other risky behaviors
The cost of acquiring a skill accounts for why the a. supply of high-skilled workers is different than the supply of low-skilled workers b. demand for high-skilled workers is different from the supply of low-killed workers c. supply curves of high-skilled and low-skilled works cross d. demand for high-skilled workers is different from the supply of high-skilled workers e. demand for high-skilled workers is different than the demand for low-skilled workers
a. supply of high-skilled workers is different than the supply of low-skilled workers
the quantity supplied of a good, service, or resource is _________ during a specified period and at a specified price a. the amount the people are able and willing to sell b. the amount that people are willing and able to buy c. the amount that people are able to sell d. the amount that people are willing to sell e. the amount sold
a. the amount the people are able and willing to sell
Electricity generates a negative production externality because ________. a. the marginal social cost of producing it exceeds the marginal (private) cost of producing it b. a marginal external cost lowers the marginal benefit from consuming it. c. the marginal (private) cost of producing it increases as more of it is produced d. its marginal benefit decreases as more of it is consumed
a. the marginal social cost of producing it exceeds the marginal (private) cost of producing it
The market for a good is efficient if _______. a. the total surplus is maximized b. the marginal cost of producing the good is minimized c. the marginal benefit from the good is maximized d. the consumer surplus is maximized
a. the total surplus is maximized
To produce 10 shirts, the total cost is $80; to produce 11 shirts, the total cost is $99. The marginal cost of the 11th shirt is equal to a. $80 b. $19 c. $9 d. $99 e. $8
b. $19
To produce 10 shirts, the total cost is $80; to produce 11 shirts, the total cost is $99. The marginal cost of the 11th shirt is equal to. a. $99 b. $19 c. $80 d. $9 e. $8
b. $19
The cross elasticity of demand for good A with respect to the price of good B is 0.2. A 10 percent change in the price of good B will lead to a ________ perfect change in the quantity of good A demanded. Goods A and B are ________. a. -05; substitutes b. 2; substitutes c. 0.5; complements d. -2; complements
b. 2; substitutes
Use statements I and II to answer this question. (I) Most true monopolies are created or sanctioned by government. (II) In any market where a few large suppliers dominate the market, the suppliers will act as if they were monopolists. a. I is false; II is true b. I is true; II is false c. Both I and II are true d. Both I and II are false
b. I is true; II is false
which of the following is not a key idea in the economic way of thinking? a. choices respond to incentives b. Poor people are discriminated against and should be treated more fairly c. a rational choice is made at the margin d. People make rational choices by comparing costs and benefits
b. Poor people are discriminated against and should be treated more fairly
A firm in monopolistic competition has __________ demand curve a. a horizontal b. a downward sloping c. a U-shaped d. a vertical e. an upward-sloping
b. a downward sloping
a cost paid in money to hire a resource is a. a normal profit b. an explicit cost c. an economic profit d. an implicit cost e. an alternative-use cost
b. an explicit cost
Suppose the United States and Cuba decide to open up trade. If each country specializes in the good in which it has a comparative advantage, ________ will gain from trade because _________. a. only the United States consumption possibilities in Cuba will lies outside its PPF and U.S. consumption possibilities will not change b. both countries; consumption possibilities in both Cuba and the U.S. will lie outside their PPF's c. neither country; their consumption possibilities will not change d. only Cuba; its consumption possibilities will lie outside its PPF and U.S. consumption possibilities will not change
b. both countries; consumption possibilities in both Cuba and the U.S. will lie outside their PPF's
If people specialize according to ________ advantage and then trade, they can get a consumption _________ their production possibilities frontiers a. absolute; outside b. comparative; outside c. absolute; inside d. comparative; inside
b. comparative; outside
the opportunity cost of economic growth is _________ and the benefit of economic growth is __________. a. increased current consumption; increased future consumption b. decreased current consumption; increased future consumption c. nothing; increased future consumption d. increased current consumption; decreased future consumption e. decreased current consumption; decreased future consumption
b. decreased current consumption; increased future consumption
As more of a good is consumed, its marginal benefit _______, and as more of a good is produced, its marginal cost _________. a. increases; decreases b. decreases; increases c. decreases; decreases d. increases; increases
b. decreases; increases
Vaccination against infectious diseases _______ so private markets will provide _______ efficient quantity of vaccination a. has a positive externality; less than the b. has a positive externality; less than the c. is a public good; the d. leads to adverse selection; less than the e. is a public good; less than the
b. has a positive externality; less than the
The market supply curve is the a. vertical sum of the individual supply minus the market demand b. horizontal sum of the individual supply curves c. horizontal sum of the individual supply curves minus the market demand d. vertical sum of the individual supply curves e. vertical average of the individual supply curves
b. horizontal sum of the individual supply curves
sales of high definition TV's have increased dramatically over the last year. Some students in an economics class suggest that sales increased because consumers' incomes and consumer confidence have been increasing. Other students attribute the increase to decreases in manufacturing cost as the scale of production increases. How can you resolve this debate? a. It depends on whether the demand curve or supply curve changed first b. if the equilibrium price of TV's decreased, then the dominant cause must have been the increase in supply. c. if the equilibrium price of TV's decreased, then the dominant cause must have been the increase in demand d. there is no way to distinguish between these two competing explanations for the increases in sales
b. if the equilibrium price of TV's decreased, then the dominant cause must have been the increase in supply.
In the used car market with a pooling equilibrium, there _________ for used cars, and __________ are sold. a. is one price; both lemons and good cars b. is one price; only lemons c. are two prices; both lemons and good cars d. are two prices: only lemons
b. is one price; only lemons
If a minimum wage is introduced that is above the equilibrium wage rate, a. the quantity of labor services demanded increases b. job search activity increases c. unemployment decreases because more workers accept jobs at the higher minimum wage. d. the supply of labor increases and the supply of labor curve shifts rightward e. the quantity of labor supplied decreases because of the increase in unemployment
b. job search activity increases
a price support directly sets the a. equilibrium quantity b. lowest price for which the good may be sold c. highest price for which the good may be sold d. subsidy the government must receive from producers e. amount of production
b. lowest price for which the good may be sold
Product differentiation means a. making a product that is entirely unique b. making a product that is slightly different from products of competing firms c. the inability to set your own price d. making a product that has perfect substitutes e. making you demand curve horizontal
b. making a product that is slightly different from products of competing firms
Product differentiation means a. making a product that is entirely unique b. making product that is slightly different from products of competing firms c. the inability to set your own price d. making a product that has perfect substitutes. e. making your demand curve horizontal
b. making product that is slightly different from products of competing firms
A subsidy internalizes a positive externality if it is equal to a. total external benefit b. marginal external benefit c. marginal social benefit d. marginal private benefit e. total social benefit
b. marginal external benefit
For a common resource, efficiency requires that the ______ equals the _______ a. marginal social benefit; marginal external cost b. marginal social benefit; marginal social cost c. marginal social benefit; marginal private cost d. marginal external benefit; marginal external cost e. marginal private benefit; marginal private cost
b. marginal social benefit; marginal social cost
a graph of the relationship between two variables is a line that slopes down to the right. These two variables are ________ related a. trend-line b. negatively c. not d. directly e. positively
b. negatively
the opportunity cost of one more slice of pizza in terms of sodas is the a. total number of sodas that we have divided by the total number of pizza slices that we have. b. number of sodas we have to give up to get one extra slice of pizza c. total number of pizza slices that we have divided by the total number of sodas that we have d. number of pizza slices we have to give up to get one extra soda e. price of pizza minus the price of the soda
b. number of sodas we have to give up to get one extra slice of pizza
a market structure in which a small number of firms compete and natural or legal barriers prevent entry of new firms is called a. monopoly b. oligopoly c. oligopolistic competition d. monopolistic competition
b. oligopoly
suppose that the price of lettuce used to produce tacos increases. As a result, the equilibrium price of a taco _________ and the equilibrium quantity _________. a. rises; increases b. rises; decreases c. falls; decreases d. falls; increases e. does not change; decreases
b. rises; decreases
Jaime has enough money to buy either a Mountain Dew or a Pepsi or a bag of chips. He chooses to buy the Mountain Dew. The opportunity cost of the Mountain Dew is a. the Pepsi and the bad of chips b. the Pepsi or the bag of chips whichever is the highest-valued alternative given up c. the Mountain Dew d. the Pepsi because it is a drink, as is the Mountain Dew e. zero because he enjoys the Mountain Dew
b. the Pepsi or the bag of chips whichever is the highest-valued alternative given up
Marginal cost is equal to a. a cost that is not related to the quantity produced b. the change in total cost that result from a one-unit increase in output c. the total cost of a firm's production d. total cost minus fixed cost e. the change in fixed cost that results from one-unit increase in output
b. the change in total cost that result from a one-unit increase in output
to determine who bears the greater share of a tax, we compare a. the number of buyers to the number of sellers b. the elasticity of supply to the elasticity of demand c. the size of the tax to the price of the good d. government tax revenue to the revenue collected by the suppliers e. the pre-tax quantity to the post-tax quantity
b. the elasticity of supply to the elasticity of demand
the price elasticity of demand is a measure of the extend to which the quantity demanded of a good changes when _______ changes and all other influences on buyers plan remain the same. a. income b. the price of the good c. the demand alone d. the price of a related good e. both the demand and the supply simultaneously
b. the price of the good
the price elasticity of demand is a measure of the extent to which the quantity demanded of a good changes when ________ changes and all other influences on buyers plans remain the same a. income b. the price of the good c. the demand alone d. the price of a related good e. both the demand and the supply simultaneously
b. the price of the good
when underproduction occurs, a. consumer surplus increases to a harmful amount b. there is a deadweight loss that is borne by the entire society c. producers gain more surplus at the expense of consumers d. marginal cost is gather than marginal benefit e. the deadweight loss harms only consumers
b. there is a deadweight loss that is borne by the entire society
Moral hazard in the market for health-care services leads a. to a separating equilibrium b. to providers over treating patients c. patients to adopt healthy life styles d. to all people buying health insurance e. to healthy people not buying health insurance
b. to providers over treating patients
Choose the statement that is not correct. a. The ATC curve eventually slopes upward because average variable cost eventually increases. b. Initially as output increases, average fixed cost and average variable cost decrease, so average total cost decreases and the ATC curve slopes downward c. An increase in output always increases average total cost. d. the shape of the ATC curve combines the shapes of the AFC and the AVC curve
c. An increase in output always increases average total cost.
Use statements I and II to answer this question. (I) Deadweight loss is the loss of consumer and producer surplus that is not offset by a gain to anyone else when the quantity is inefficient. (II) Taxes and subsidies, price ceilings and price floors, and positive and negative externalities all may give rise to a deadweight loss a. Both I and II false b. I is true; II is false c. Both I and II are true d. I is false; II is true
c. Both I and II are true
Use statements I and II to answer this question. (I) Monopoly is inefficient and results in a deadweight loss because of underproduction. (II) Monopoly redistributes wealth by transferring some surplus from consumers to producers a. Both I and II are false. b. I is false; II is true c. Both I and II are true d. I is true; II is false
c. Both I and II are true
higher income households tend to consume more wine than lower income households. This suggests that wine is a. a substitute good b. an inferior good c. a normal good d. a complementary good e. an unrelated good
c. a normal good
A monopoly market has a. a few firms b. only two firms in it c. a single firm d. two dominating firms in the market e. some unspecified number of firms in it.
c. a single firm
The fact that people who know they are risky drivers are more likely to buy auto insurance reflects a. signaling b. moral hazard c. adverse selection d. the lemons problem e. a separating equilibrium
c. adverse selection
in the case against Microsoft, it was claimed that combining Internet Explorer and Windows was a. illegal territorial confinement b. predatory pricing c. an illegal tying arrangement d. an inefficient resale maintenance agreement e. creating one product that is convenient for the consumers
c. an illegal tying arrangement
Points inside the PPF are all a. attainable and have fully employed resources b. unattainable and have fully employed resources c. attainable and have some unemployed resources d. unattainable and have some unemployed resources e. unafforadable
c. attainable and have some unemployed resources
Rent ceilings a. ensure that housing goes to the poor. b. eliminate the problem of scarcity c. benefit renters living in rent-controlled apartments d. benefit landlords because the landlords know what rent to charge their renters e. allocate resources efficiently
c. benefit renters living in rent-controlled apartments
Rent ceilings a. ensure that housing goes to the poor. b. eliminate the problem of scarcity c. benefit renters living in rent-controlled apartments d. benefit landlords because the landlords now what rent to charge their renters e. allocate resources efficiently
c. benefit renters living in rent-controlled apartments
the tendency for the values of two variables to move in a predictable and related way is called a. causation b. rationality c. correlation d. consistency
c. correlation
when a country's production possibilities frontier shifts outward over time, the country is experiencing a. higher unemployment of resources b. a decrease in unemployment of resources c. economic growth d. an end to opportunity cost e. no opportunity cost
c. economic growth
In the used car market, with a pooling equilibrium the price of a lemon is ________ the price of a good used car and with a separating equilibrium the price of a lemon is _________ the price of a good used car. a. equal to; more than b. less than, equal to c. equal to; less than d. equal to; equal to e. more than; more than
c. equal to; less than
For a single-price monopoly, price is a. one-half of marginal revenue b. equal to marginal revenue c. greater than marginal revenue d. unrelated to marginal revenue e. always less than average total cost when the firm maximizes its profit
c. greater than marginal revenue
Which of the following is (are) price discrimination? i. charging different prices based on differences in production cost ii. charging business flyers a higher airfare than tourists iii. charging more for the first pizza than the second a. i only b. ii only c. ii and iii d. i and iii e. i, ii, and iii
c. ii and iii
Which of the following is (are) prohibited if it substantially lessens competition or creates a monopoly? i. price discrimination ii. tying arrangements iii. exclusive dealing a. i only b. ii only c. ii and iii d. iii only e. i, ii, and iii
c. ii and iii
If the government assigns private property right to a common resource, then the a. resource becomes subject to the free riding problem b. resources are under-utilized c. marginal private cost becomes equal to the marginal social cost. d. resource cannot be utilized e. government needs to set a quota to achieve efficiency,
c. marginal private cost becomes equal to the marginal social cost.
To maximize its profit, a single-price monopoly produces the quantity at which a. average total cost is at its minimum b. the difference between marginal revenue and marginal cost is as large as possible c. marginal revenue equals marginal cost d. the marginal revenue curve intersects the horizontal axis e. the marginal cost curve intersects the demand curve
c. marginal revenue equals marginal cost
A single-price monopoly maximizes profit or minimizes loss by producing the quantity at which _______. a. marginal revenus equals marginal cost and setting the price equal to marginal revenue b. marginal revenue equals marginal cost and setting the price equal to marginal cost c. marginal revenue equals marginal cost and setting the price equal to the most people are willing to pay for that quantity d. its total revenue will be as large as possible
c. marginal revenue equals marginal cost and setting the price equal to the most people are willing to pay for that quantity
If an external benefit is present, then the a. marginal private benefit curve lies above the marginal private cost curve b. marginal social cost curve lies above the marginal private benefit curve c. marginal social benefit curve lies above the marginal private benefit curve d. marginal social benefit is equal to the marginal social cost e. marginal social benefit curve is the same as the marginal private benefit curve
c. marginal social benefit curve lies above the marginal private benefit curve
if an external benefit is present, then the a. marginal private benefit curve lies above the marginal private cost curve b. marginal social cost curve lies above the marginal private benefit curve. c. marginal social benefit curve lies above the marginal private benefit curve. d. marginal social benefit is equal to the marginal social cost. e. marginal social benefit curve is the same as the marginal private benefit curve
c. marginal social benefit curve lies above the marginal private benefit curve.
When a firm in a monopolistically competitive market is making economic profits, ________. a. new firms will enter the market in the long run only if firms have excess capacity. b. new firms will not enter the market in the long run because increased competition will eliminate excess capacity c. new firms will enter the market in the long run d. new firms will not enter the market in the long run because of barriers to entry
c. new firms will enter the market in the long run
The fact that firms in oligopoly are interdependent means that a. they can produce either identical or differentiated goods. b. there are barriers to entry c. one firms profits are affected by other firms actions d. there are too many of them for any one firm to influence price e. they definitely compete with each other so that the price is driven down to the monopoly level.
c. one firms profits are affected by other firms actions
If a perfectly competitive industry is taken over by a single firm that operates as a single-price monopoly, the price will ________ and the quantity will ________. a. rise, increase b. fall, increase c. rise, decrease d. fall, decrease e. not change, decrease
c. rise, decrease
If a perfectly competitive industry is taken over by a single firm that operates as single-price monopoly, the price will ______ and the quantity will _______ a. rise, increase b. fall, increase c. rise, decrease d. fall, decrease e. not change, decrease
c. rise, decrease
a tax on income from land in Montana is borne entirely by landowners because the a. deadweight loss from the tax would otherwise be infinite b. demand for land is perfectly inelastic c. supply of land is perfectly inelastic d. demand for land is perfectly elastic e. supply of land is perfectly elastic
c. supply of land is perfectly inelastic
Value is a. the difference between the price paid for a good and the marginal cost of producing that unit of the good. b. objective so that it is determined by market forces, not preferences c. the marginal benefit we get from consuming another unit of a good or service. d. the price we pay for a good e. the cost of resources used to produce a good.
c. the marginal benefit we get from consuming another unit of a good or service.
why does more U.S. grown food going to China increase the price of food in the United States? a. the quantity of food supplied in the United States decreases. A movement upward along the supply curve occurs and the price rise b. the supply of food in the United States increases. The supply curve shifts rightward and the price of food rises c. the supply of food in the United States decreases. The supply curve shifts leftward and the price of food rises d. the increase in the demand for U.S. grown food increases the supply of U.S. grown food. The demand for U.S. grown food increases more than the supply of U.S. grown food, so the price rises.
c. the supply of food in the United States decreases. The supply curve shifts leftward and the price of food rises
Total cost is equal to the sum of a. total fixed cost and total product b. total revenue and total cost c. total variable cost and total fixed cost d. total variable cost and total product e. the marginal cost plus the total fixed cost plus the total variable cost
c. total variable cost and total fixed cost
when people make rational choices, they a. necessarily make a decision in the social interest b. behave selfishly c. weigh the costs and benefits of their options and act to satisfy their wants d. are necessarily making the best decision e. do not consider their emotions
c. weigh the costs and benefits of their options and act to satisfy their wants
cost is a. greater than market price, which results in a profit for firms b. always equal to the marginal benefit for every unit of a good produced c. what the seller must give up to produce the good d. what the buyer pays to get the good e. the same thing as price
c. what the seller must give up to produce the good
Which of the following statements correctly describes the relationship between average cost and marginal cost? a. when marginal cost is less than average cost, average cost and marginal cost are decreasing. b. When marginal cost is greater than average cost, average cost and marginal cost are increasing. c. when marginal cost is less than average cost, average cost is decreasing. When marginal cost is greater than average cost, average cost is increasing d. when marginal cost is decreasing, average cost is decreasing. When marginal cost is increasing, average cost is increasing
c. when marginal cost is less than average cost, average cost is decreasing. When marginal cost is greater than average cost, average cost is increasing
India is pressuring the oil-rich countries in the Persian Gulf to pay minimum wages to 5 millions unskilled Indians working in the Gulf. Because the supply of unskilled workers is perfectly elastic, if the Persian Gulf countries paid Indian workers a minimum wage above the equilibrium wage paid to other unskilled workers, migrant Indian workers would be _________ because _________. a. worse off; they would lose their jobs in the Persian Gulf and return to India, so the supply of workers in India decreases and the wage rate in India falls b. better off; they would receive a higher wage c. worse off; they would lose their jobs in the Persian Gulf and return to India, so the supply of workers in India increases and the wage rate in India falls d. better off; fewer Indians would be employed in the Persian Gulf but the Indians that remain would earn a higher wage e. better off; although many would lose their jobs in the Persian Gulf, the Indian government would be forced to raise the minimum wage in India
c. worse off; they would lose their jobs in the Persian Gulf and return to India, so the supply of workers in India increases and the wage rate in India falls
To produce 10 shirts, the total cost is $80; to produce 11 shirts, the total cost is $99. The marginal cost of the 11th shirt is equal to. a. $8 b. $9 c. $80 d. $19 e. $99
d. $19
A single-price monopoly can sells 1 unit for $9.00. In order to sell 2 units, the price must be $8.50 per unit. The marginal revenue from selling the second unit is a. $8.50 b. $17.00 c. $17.50 d. $8.00 e. $9.00
d. $8.00
Use statements I and II to answer this question. (I) Because the inefficiency of monopoly results from underproduction, price discrimination can improve efficiency by providing an incentive for buyers to buy more of the good. (II) Price discrimination may improve efficiency by improving efficiency by improving utilization of a facility and conserving on scarce resources. a. I is false; II is true b. I is true; II is false c. Both I and II are false d. Both I and II are true
d. Both I and II are true
Choose the statement that is not correct. a. International cartels can operate legally b. a cartel is a group of firms acting together to limit output, raise price, and increase economic profit c. Cartels are illegal in the United States d. Cartels are stable organizations organizations that can maintain the monopoly price indefinitely
d. Cartels are stable organizations organizations that can maintain the monopoly price indefinitely
Which of the following is most likely NOT an example of price discrimination? a. Hotels offer discounts on room rates to senior citizens b. Restaurants charge higher prices for dining after 7:00 p.m. than for dining before 7:00 p.m. c. Theaters charge lower prices for children than for adults d. Hair cutters charge more to cut women hair than to cut mens hair
d. Hair cutters charge more to cut women hair than to cut mens hair
Which of the following statements about markets, property rights, and externalities is FALSE? a. creating new property rights or enforcing existing property rights can sometimes internalize an externality b. when property rights are well-defined and enforced and transaction costs are low, market prices provide incentives for individuals to reach an efficient outcome. c. private negotiation may internalize an externality if only a small number of people are involved and transaction costs are low. d. It is always more efficient to internalize an externality than to do nothing
d. It is always more efficient to internalize an externality than to do nothing
"Comparative advantage" is defined as a situation in which one person can produce a. all goods for lower opportunity costs than another person b. more of all goods than another person c. more of a good than another person d. a good for a lower opportunity cost than another person e. a good for a lower dollar cost than another person
d. a good for a lower opportunity cost than another person
All of the following can achieve an efficient use of a common resource except ___________. a. assigning property rights to convert the common resource to private use b. individual transferable quotas that total the efficient quantity c. individual transferable quotas that trade at marginal external cost d. a production quota equal to the marginal external cost
d. a production quota equal to the marginal external cost
a price ceiling is a government regulation that makes it illegal to charge a price a. below some specified level b. for a good or service c. below the equilibrium price d. above some specified level e. above the equilibrium price
d. above some specified level
a person, state, region, or nation has a(n) __________ advantage in an activity if they are more productive than another person, state, region, or nation in performing that activity. A person, state, region, or nation has a(n) __________ advantage in an activity if they can perform the activity at a lower opportunity cost than another person, region, state, or region. a. absolute; absolute b. comparative; absolute c. comparative; comparative d. absolute; comparative
d. absolute; comparative
Average total cost equals a. marginal cost plus opportunity cost b. marginal cost divided by output c. marginal multiplied by the quantity of output d. average fixed cost plus average variable cost e. total fixed cost plus total variable cost
d. average fixed cost plus average variable cost
the measure used to determine whether two goods are complements or substitutes is called the a. price elasticity of demand b. price elasticity of supply c. income elasticity d. cross elasticity of demand e. substitute elasticity of demand
d. cross elasticity of demand
in general, as the consumption of a good or service increases, the marginal benefit from consuming that good or service a. increases b. stays the same c. at first increases and then decreases d. decreases e. at first decreases and then increases
d. decreases
according to the principle of comparative advantage, a. each good should be produced by the country that can produce the largest quantity of the good with its available resources b. wealthy countries have a comparative advantage over poor countries in the production of all goods c. each country should strive toward self-sufficiency in order to maximize its total output d. each good should be produced by the country with the lowest opportunity cost in order to maximize output.
d. each good should be produced by the country with the lowest opportunity cost in order to maximize output.
if the marginal benefit of the next slice of pizza exceeds the marginal cost, you will a. more information is needed about how much the marginal benefit exceeds the marginal cost to determine if you will or will not eat the slice b. not eat the slice of pizza c. be unable to choose between eating or not eating d. eat the slice of pizza e. eat half the slice
d. eat the slice of pizza
When a country's production possibilities frontier shifts outward over time, the country is experiencing a. higher unemployment of resources b. a decrease in unemployment of resources c. no opportunity cost d. economic growth e. an end to opportunity cost
d. economic growth
A natural monopoly is one that arises from a. copyright law b. a firm buying up all of a natural resource c. ownership of a natural resource d. economies of scale e. patent law
d. economies of scale
to increase its economic growth, a nation should a. encourage spending on goods and services b. eliminate expenditure on capital goods c. increase current consumption d. encourage education because the increases the quality of labor e. limit that number of people in college because they produce nothing
d. encourage education because the increases the quality of labor
Two variables are unrelated if their graph is i. a vertical line ii. a 45-degree line iii. a horizontal line a. i, ii, and iii b. iii only c. ii only d. i and iii e. i only
d. i and iii
Private ownership of a resource provides incentives for owners to i. avoid imposing external cost on other people ii. invest in efficient maintenance of the resource iii. use up or deplete the resource rather than conserving it for the future iv. use the resource so as to maximize its social value a. i, ii, iii and iv b. ii, iii, and iv c. i, ii and iii d. i, ii, and iv e. i, iii, and iv
d. i, ii, and iv
some individuals enjoy strawberries dipped in chocolate. For these individuals, a decrease in the price of strawberries will, ceteris paribus a. decreases the demand for chocolate b. have no effect on either the demand for or the quantity demanded of chocolate c. decrease the quantity demanded of chocolate but not the demand d. increase the demand for chocolate e. increase the quantity demanded of chocolate but not the demand
d. increase the demand for chocolate
Once a monopoly has determined how much it produces, it will charge a price that a. minimizes marginal cost b. is determined by the intersection of the marginal revenue and average total cost curves c. is independent of the amount produced d. is determined by its demand curve e. is equal to its average total cost
d. is determined by its demand curve
It is _________ for someone to have a comparative advantage in all activities. It is _________ for someone to have an absolute advantage in all activities a. not possible; not possible b. possible; not possible c. possible; possible d. not possible; possible
d. not possible; possible
the opportunity cost of enamor slice of pizza in terms of sodas is the a. number of pizza slices we have to give up to get one extra soda b. price of a pizza minus the price of a soda c. total number of sodas that we have divided by the total number of pizza slices that we have d. number sodas we have to give up to get one extra slice of pizza e. total number of pizza slices that we have divided by the total number of sodas that we have
d. number sodas we have to give up to get one extra slice of pizza
If buyers cannot assess the quality of used cars and there are no warranties. a. lemons and good cars sell for the same price b. only good used cars are sold. c. there is no adverse selection problem d. only lemons are sold e. good cars are sold at higher prices than bad cars
d. only lemons are sold
Of the following types of income tax systems, the one that provides the greatest amount of redistribution from the rich to the poor is a a. money-income tax b. flat-rate income tax c. proportional income tax d. progressive income tax e. regressive income tax
d. progressive income tax
Suppose the government imposes a tax on coffee of $2 a cup. The rise in the price of a cup of Starbucks coffee will be ________, the ________ is the ________ coffee. a. larger; less elastic; supply of b. Both a and b are correct c. smaller; less elastic; supply of d. smaller; more elastic; demand for e. larger; more elastic demand for
d. smaller; more elastic; demand for
a Pakistani textile worker can produce 5 yards of denim cloth or 5 pairs of finished denim jeans in one day. An American textile worker can produce 75 yards of denim cloth or 15 pairs of finished jeans in one day. To maximize the total output of denim cloth and finished jeans, a. the American worker produces both denim cloth and finished jeans and the Pakistani worker produced nothing b. the Pakistani and American textile workers should each spend half their time producing denim cloth and the other half producing finished jeans c. the Pakistani worker produces denim cloth and the American worker produces finished jeans d. the Pakistani worker produces finished jeans and the American worker produces denim cloth
d. the Pakistani worker produces finished jeans and the American worker produces denim cloth
a seller can price discriminate between two groups of buyers if _______ a. average total costs differ between the two groups b. marginal costs differ between the two groups c. all individuals have the same willingness to pay. d. the average willingness to pay differs between the two groups
d. the average willingness to pay differs between the two groups
all of the following are examples of scarcity except _______ a. deciding whether to go skiing during spring break or to catch up on your course work b. deciding how to study for both an economics exam and a chemistry exam that take place on the same day c. deciding whether to play the piano or to study for the next hour d. the light provided by the sun
d. the light provided by the sun
Pizza and tacos are substitutes in consumption. If the price of pizzas increases, what happens? a. the demand for pizzas decreases and the demand for tacos increases. b. the demands for both goods decreases c. the quantity demanded of tacos increases and the quantity demanded of pizza d. the quantity demanded of pizza decreases and the demand for tacos increases e. the demand for each decreases because because both are normal goods.
d. the quantity demanded of pizza decreases and the demand for tacos increases
you would expect a lower price to increase the number of people who decide to take a cruise because ___________. a. everyone loves a bargain b. a lower price means more time spent in port and less time cruising c. lower prices suggest the cruise line is facing tough economic times and people cruise now before the cruise line goes out of business d. with a lower price more people will have a marginal benefit that exceeds price e. a lower price raises the marginal benefit
d. with a lower price more people will have a marginal benefit that exceeds price
Toronto civic leaders are looking at such options as toad tolls, a regional gas tax, and increased parking fees to reduce traffic congestion on Toronto's streets. Toll roads, a regional gas tax, and increased parking fees all _______ make Toronto's streets less congested because ________. a. would not; additional charges on Toronto's drivers would not change driving habits b. would not; drivers would still consider only their private cost of driving, which would not be affected c. would not; drivers would switch to public transit only if transit prices fall d. would; drivers would consider the external cost of driving in Toronto e. would; drivers would consider the external benefit of driving in Toronto
d. would; drivers would consider the external cost of driving in Toronto
Choose the statement that is not correct a. when goods are allocated using market prices, the consumers with the highest marginal benefit receive the goods b. when market prices are not allowed to ration goods, inefficiencies are created c. when market prices are not allowed to rise to their equilibrium, shortages arise d. when market prices are not allowed to ration goods, other allocation mechanisms such as first-come, first-served are used e. Government controls send signals to producers to supply those goods that consumers value most highly.
e. Government controls send signals to producers to supply those goods that consumers value most highly.
Which of the following statements is correct? a. Marginal external cost equals marginal (private) cost minus marginal social cost. b. Marginal social cost plus marginal (private) cost equals marginal external cost c. Marginal (private) cost plus marginal social cost equals marginal external cost. d. Marginal social cost plus marginal external cost equals marginal (private) cost. e. Marginal social cost equals marginal (private) cost plus marginal external cost.
e. Marginal social cost equals marginal (private) cost plus marginal external cost.
Rent ceilings a. allocate resources efficiently b. benefit landlords because the landlords know what rent to charge their renters c. ensure that housing goes to the poor d. eliminate the problem of scarcity e. benefit renters living in rent-controlled apartments
e. benefit renters living in rent-controlled apartments
"As more people buy gym memberships, the demand for running shoes will increase and the price of a pair of running shoes will rise. The rise in the price of a pair of running shows will increases the supply of running shoes." This statements is ________ because _________. a. false; the price of a pair of running shoes does not rise when the demand for running shoes increases b. true; when demand increases, supply increases so that the price of the good does not fall c. true; when demand increases, supply increases so that no surplus occurs d. true; the increase in the price of a pair of running shows increases the supply of running shoes, which eliminates any shortage e. false; as the price of a pair of running shoes rises, the supply does not increase.
e. false; as the price of a pair of running shoes rises, the supply does not increase.
When a firm shuts down, it incurs a loss equal to its total __________ cost. A firm will shut down if price is less than minimum __________ cost. a. fixed; marginal b. fixed; average total c. variable; average variable d. variable; average total e. fixed; average variable
e. fixed; average variable
If tuition at a college is $30,000 and the external benefit of graduation from this college is $10,000 then i. in the absence of any government intervention, the number of students graduating is less than the efficient number ii. the government could increase the number of graduates by giving the college a $10,000 subsidy per student iii. the government could increase the number of graduates by giving the students $10,000 vouchers a. i only b. i and ii c. i and iii d. ii and iii e. i, ii, and iii
e. i, ii, and iii
A minimum wage set above the equilibrium wage rate a. decreases the quantity of labor services supplied b. shifts the labor supply curve rightward c. shifts the labor supply curve leftward d. has no effect on the quantity of labor services supplied e. increases the quantity of labor services supplied
e. increases the quantity of labor services supplied
A perfectly competitive firm maximizes its profit or minimizes its loss by producing that quantity at which a. total revenue equals total cost b. total revenue is equal to marginal cost. c. total cost is at its minimum d. total revenue is at its maximum e. marginal revenue is equal to marginal cost
e. marginal revenue is equal to marginal cost
the marginal social benefit of a good is the marginal benefit to a. the consumer minus the marginal cost to the seller b. people other than the consumer c. the consumer d. the consumer minus the marginal benefit to other people e. the consumer plus the marginal benefit to other people.
e. the consumer plus the marginal benefit to other people.
which of the following is an example of an implicit cost? a. dollars paid to a supplier for materials used in production b. wages paid to employees c. liability insurance payments made only once a year d. interest paid to a bank on a building loan e. the cost of using capital an owner donates to the business
e. the cost of using capital an owner donates to the business
To economists, scarcity means that a. limited wants cannot be satisfied by the unlimited resources b. a person looking for work is not able to find work c. the number of people without jobs rises when economic times are bad d. there can never answers to the what, how or for whom questions e. unlimited wants cannot be satisfied by the limited resources
e. unlimited wants cannot be satisfied by the limited resources
Which of the following statements about poverty is (are) correct? i. Blacks and Hispanics have higher poverty rates than whites ii. Over the last 40 years, poverty rates for all groups have generally increased iii. Most household spells of poverty last much longer than one year
i only
Differences in skills i. can arise partly from differences in education and/or partly from differences in on-the-job training ii. can lead to large differences in earnings iii. result in different demand curves for high-skilled and low-skilled labor
i, ii, and iii
a requirement of perfect competition is that i. many firms sell an identical product to many buyers. ii. there are no restrictions on entry info (or exit from) the market, and established firms have no advantage over new firms iii. sellers and buyers are well informed about prices
i, ii, and iii
In the short run, a perfectly competitive firm
might have an economic profit, incur an economic loss, or zero economic profit (or what is the same thing, just break even or earn a normal accounting profit).
if perfectly competitive firms are making an economic profit, then
new firms enter the market and the economic profit of the firms already in the market decreases
the four market types are
perfect competition, monopoly, monopolistic competition, and oligopoly
in the short run, total fixed cost does not change when the firm changes its output true false
true