Econ 1101
C
A common resource is a. both rival in consumption and excludable. b. neither rival in consumption nor excludable. c. rival in consumption but not excludable. d. not rival in consumption but excludable.
B
A congested toll road is a. a public good. b. a private good. c. a common resource. d. a club good.
D
A corrective tax on pollution a. sets the quantity of pollution. b. determines the demand for pollution rights. c. reduces the incentive for technological innovations to further reduce pollution. d. sets the price of pollution.
A
A grocery store should close at night if the a. variable costs of staying open are greater than the total revenue due to staying open. b. total costs of staying open are less than the total revenue due to staying open. c. total costs of staying open are greater than the total revenue due to staying open. d. variable costs of staying open are less than the total revenue due to staying open.
D
A negative externality affects market efficiency in a manner similar to a. a private good. b. a public good. c. an excludable good. d. a common resource.
D
A person who regularly watches public television but fails to contribute to public television's fund-raising drives is known as a. a costly rider. b. an unwelcome rider. c. a common rider. d. a free rider. e. excess baggage.
C
A positive externality (that has not been internalized) causes the a. equilibrium quantity to be either above or below the optimal quantity. b. equilibrium quantity to equal the optimal quantity. c. optimal quantity to exceed the equilibrium quantity. d. equilibrium quantity to exceed the optimal quantity.
A
A positive externality affects market efficiency in a manner similar to a a. public good. b. private good. c. rival good. d. common resource.
B
A public good is a. both rival in consumption and excludable. b. neither rival in consumption nor excludable. c. rival in consumption but not excludable. d. not rival in consumption but excludable.
B
According to the Coase theorem, private parties can solve the problem of externalities if a. the government requires them to negotiate with each other. b. there are no transaction costs. c. there are a large number of affected parties. d. the party affected by the externality has the initial property right to be left alone. e. each affected party has equal power in the negotiations.
C
Accounting profit is equal to total revenue minus a. variable costs. b. implicit costs. c. explicit costs. d. the sum of implicit and explicit costs. e. marginal costs.
B
Because producers are better able to organize than consumers are, we would expect there to be political pressure to create a. free trade. b. import restrictions. c. export restrictions. d. none of the above.
A
Economic profit is equal to total revenue minus a. the sum of implicit and explicit costs. b. implicit costs. c. explicit costs. d. marginal costs. e. variable costs.
A
For a competitive firm, marginal revenue is a. equal to the price of the good sold. b. equal to the quantity of the good sold. c. average revenue divided by the quantity sold. d. total revenue divided by the price.
E
Government revenue from the tariff is the area a. D + F. b. D + E + F. c. C + D + E + F. d. G. e. E.
D
If a competitive firm doubles its output, its total revenue a. less than doubles. b. more than doubles. c. cannot be determined because the price of the good may rise or fall. d. doubles.
C
If a competitive firm is producing a level of output where marginal revenue exceeds marginal cost, the firm could increase profits if it a. maintained production at the current level. b. decreased production. c. increased production. d. temporarily shut down.
D
If a production function exhibits diminishing marginal product, its slope a. is linear (a straight line). b. could be any of the above. c. becomes steeper as the quantity of the input increases. d. becomes flatter as the quantity of the input increases
D
If a production function exhibits diminishing marginal product, the slope of the corresponding total-cost curve a. is linear (a straight line). b. could be any of the above. c. becomes flatter as the quantity of output increases. d. becomes steeper as the quantity of output increases.
D
If all firms in a market have identical cost structures and if inputs used in the production of the good in that market are readily available, then the long-run market supply curve for that good should be a. perfectly inelastic. b. upward sloping. c. downward sloping. d. perfectly elastic.
B
If an increase in a consumer's income causes the consumer to decrease her quantity demanded of a good, then the good is a. a normal good. b. an inferior good. c. a complementary good. d. a substitute good.
A
If an increase in a consumer's income causes the consumer to increase his quantity demanded of a good, then the good is a. a normal good. b. a complementary good. c. a substitute good. d. an inferior good.
C
If an input necessary for production is in limited supply so that an expansion of the industry raises costs for all existing firms in the market, then the long-run market supply curve for a good could be a. perfectly elastic. b. perfectly inelastic. c. upward sloping. d. downward sloping.
A
If consumption when young and when old are both normal goods, an increase in the interest rate a. will increase the quantity of saving if the substitution effect outweighs the income effect. b. will always decrease the quantity of saving. c. will increase the quantity of saving if the income effect outweighs the substitution effect. d. will always increase the quantity of saving.
E
If free trade is allowed, producer surplus is the area a. A + B + C + D. b. A + B + C. c. C. d. B + C. e. B + C + D.
B
If leisure is a normal good, an increase in the wage a. will always increase the quantity of labor supplied. b. will increase the amount of labor supplied if the substitution effect outweighs the income effect. c. will increase the amount of labor supplied if the income effect outweighs the substitution effect. d. will always decrease the amount of labor supplied.
D
If marginal costs equal average total costs, a. average total costs are maximized. b. average total costs are rising. c. average total costs are falling. d. average total costs are minimized.
C
If one person's consumption of a good diminishes other people's use of the good, the good is said to be a. a club good. b. excludable. c. rival in consumption. d. a common resource.
A
If the long-run market supply curve for a good is perfectly elastic, an increase in the demand for that good will, in the long run, cause a. an increase in the number of firms in the market but no increase in the price of the good. b. an increase in the price of the good but no increase in the number of firms in the market. c. an increase in the price of the good and an increase in the number of firms in the market. d. no impact on either the price of the good or the number of firms in the market.
C
If the world price for a good exceeds the before-trade domestic price for a good, then that country must have a. an absolute disadvantage in the production of the good. b. an absolute advantage in the production of the good. c. a comparative advantage in the production of the good. d. a comparative disadvantage in the production of the good.
B
If there are implicit costs of production, a. economic profit will always be zero. b. accounting profit will exceed economic profit. c. accounting profit will always be zero. d. economic profit and accounting profit will be equal. e. economic profit will exceed accounting profit.
C
If, as the quantity produced increases, a production function first exhibits increasing marginal product and later diminishing marginal product, the corresponding marginal-cost curve will a. slope downward. b. slope upward. c. be U-shaped. d. be flat (horizontal).
E
In long-run equilibrium in a competitive market, firms are operating at a. the minimum of their average-total-cost curves. b. the intersection of marginal cost and marginal revenue. c. their efficient scale. d. zero economic profit. e. all of the above.
C
In the long run, if a very small factory were to expand its scale of operations, it is likely that it would initially experience a. constant returns to scale. b. an increase in average total costs. c. economies of scale. d. diseconomies of scale.
A
In the long run, some firms will exit the market if the price of the good offered for sale is less than a. average total cost. b. marginal cost. c. average revenue. d. marginal revenue.
D
In the long run, the competitive firm's supply curve is the a. upward-sloping portion of the average-total-cost curve. b. upward-sloping portion of the average-variable-cost curve. c. portion of the marginal-cost curve that lies above the average-variable-cost curve. d. portion of the marginal-cost curve that lies above the average-total-cost curve. e. entire marginal-cost curve.
C
In the short run, the competitive firm's supply curve is the a. upward-sloping portion of the average-variable-cost curve. b. portion of the marginal-cost curve that lies above the average-total-cost curve. c. portion of the marginal-cost curve that lies above the average-variable-cost curve. d. upward-sloping portion of the average-total-cost curve. e. entire marginal-cost curve.
B
Indifference curves for perfect substitutes are a. bowed inward. b. straight lines. c. nonexistent. d. bowed outward. e. right angles.
C
Public goods are difficult for a private market to provide due to a. the rivalness problem. b. the Tragedy of the Commons. c. the free-rider problem. d. the public goods problem.
A
Suppose a consumer must choose between the consumption of sandwiches and pizza. If we measure the quantity of pizza on the horizontal axis and the quantity of sandwiches on the vertical axis, and if the price of a pizza is $10 and the price of a sandwich is $5, then the slope of the budget constraint is a. 2. b. 1/2. c. 5. d. 10.
C
Suppose each of 20 neighbors on a street values street repairs at $3,000. The cost of the street repair is $40,000. Which of the following statements is true? a. It is not efficient to have the street repaired. b. It is efficient for each neighbor to pay $3,000 to repair the section of street in front of his home. c. It is efficient for the government to tax the residents $2,000 each and repair the road. d. None of the above is true.
A
Suppose that requiring motorcycle riders to wear helmets reduces the probability of a motorcycle fatality from 0.3 percent to 0.2 percent over the lifetime of a motorcycle rider and that the cost of a lifetime supply of helmets is $500. It is efficient for the government to require riders to wear helmets if human life is valued at a. $500,000 or more. b. $100 or more. c. $500 or more. d. $50,000 or more. e. $150 or more.
B
Suppose that the consumer must choose between buying socks and belts. Also, suppose that the consumer's income is $100. Use Exhibit 4 to answer question Suppose that the price of a pair of socks falls from $5 to $2. The income effect is represented by the movement from point a. y to point x. b. x to point y. c. x to point z. d. z to point x.
A
Suppose we measure the quantity of good X on the horizontal axis and the quantity of good Y on the vertical axis. If indifference curves are bowed inward, as we move from having an abundance of good X to having an abundance of good Y, the marginal rate of substitution of good Y for good X (the slope of the indifference curve) a. rises. b. could rise or fall depending on the relative prices of the two goods. c. stays the same. d. falls.
B
The Tragedy of the Commons is a parable that illustrates why a. club goods are overconsumed. b. common resources are overconsumed. c. private goods are underconsumed. d. public goods are underproduced.
B
The change in consumption that results when a price change moves the consumer along a given indifference curve is known as the a. income effect. b. substitution effect. c. normal effect. d. complementary effect. e. inferior effect.
C
The competitive firm maximizes profit when it produces output up to the point where a. price equals average variable cost. b. marginal cost equals total revenue. c. marginal cost equals marginal revenue. d. marginal revenue equals average revenue.
A
The consumer's optimal purchase of any two goods is the point where a. the consumer reaches the highest indifference curve subject to remaining on the budget constraint. b. the budget constraint crosses the indifference curve. c. the consumer has reached the highest indifference curve. d. the two highest indifference curves cross.
D
The efficient scale of production is the quantity of output that minimizes a. average variable cost. b. marginal cost. c. average fixed cost. d. average total cost.
C
The limit on the consumption bundles that a consumer can afford is known as a. the consumption limit. b. the marginal rate of substitution. c. the budget constraint. d. an indifference curve.
C
The long-run market supply curve a. is always perfectly elastic. b. has the same elasticity as the short-run market supply curve. c. is more elastic than the short-run market supply curve. d. is less elastic than the short-run market supply curve.
D
Tradable pollution permits a. determine the demand for pollution rights. b. reduce the incentive for technological innovations to further reduce pollution. c. set the price of pollution. d. set the quantity of pollution.
C
Use Exhibit to answer question If the price is P4, a competitive firm will maximize profits if it produces a. Q1. b. Q2. c. Q3. d. Q4. e. Q5.
D
Use Exhibit to answer question If the price is P4, the firm will earn profits equal to the area a. (P2 − P1) × Q2. b. (P3 − P2) × Q3. c. (P4 − P2) × Q4. d. (P4 − P3) × Q3. e. None of the above is correct.
C
Use Exhibit to answer question In the long run, some competitive firms will exit the market if the price is below a. P3. b. P1. c. P2. d. P4.
E
Use Exhibit to answer question In the long run, the competitive equilibrium is a. P1, Q1. b. P4, Q5. c. P4, Q3. d. P4, Q4. e. P2, Q2.
D
Use Exhibit to answer question In the short run, competitive firms will temporarily shut down production if the price falls below a. P3. b. P2. c. P4. d. P1.
D
Use the following information to answer question The marginal product of labor as production moves from employing one worker to employing two workers is a. 0. b. 40. c. 10. d. 17. e. 23.
A
Use the following information to answer question The production process described above exhibits a. diminishing marginal product of labor. b. decreasing returns to scale. c. increasing returns to scale. d. increasing marginal product of labor. e. constant marginal product of labor.
D
Use the following information to answer question. The average fixed cost of producing four units is a. $26. b. $10. c. $5. d. $2.50. e. none of the above.
D
Use the following information to answer question. The average total cost of producing three units is a. $18. b. $6. c. $3.33. d. $9.33. e. $28.
E
Use the following information to answer question. The efficient scale of production is a. five units. b. three units. c. one unit. d. two units. e. four units.
A
Use the following information to answer question. The marginal cost of changing production from three units to four units is a. $8. b. $9. c. $5. d. $6. e. $7.
B
Use the following information to answer question. Madelyn owns a small pottery factory. She can make 1,000 pieces of pottery per year and sell them for $100 each. It costs Madelyn $20,000 for the raw materials to produce the 1,000 pieces of pottery. She has invested $100,000 in her factory and equipment: $50,000 from her savings and $50,000 borrowed at 10 percent (assume that she could have loaned her money out at 10 percent, too). Madelyn can work at a competing pottery factory for $40,000 per year. The accounting profit at Madelyn's pottery factory is a. $35,000. b. $75,000. c. $70,000. d. $30,000. e. $80,000.
C
Use the following information to answer question. Madelyn owns a small pottery factory. She can make 1,000 pieces of pottery per year and sell them for $100 each. It costs Madelyn $20,000 for the raw materials to produce the 1,000 pieces of pottery. She has invested $100,000 in her factory and equipment: $50,000 from her savings and $50,000 borrowed at 10 percent (assume that she could have loaned her money out at 10 percent, too). Madelyn can work at a competing pottery factory for $40,000 per year. The economic profit at Madelyn's pottery factory is a. $35,000. b. $80,000. c. $30,000. d. $70,000. e. $75,000.
D
When governments employ cost-benefit analysis to help them decide whether to provide a public good, measuring benefits is difficult because a. one can never place a value on human life or the environment. b. there are no benefits to the public because a public good is not excludable. c. the benefits are infinite because a public good is not rival in consumption and an infinite amount of people can consume it at the same time. d. respondents to questionnaires have little incentive to tell the truth.
C
When marginal costs are below average total costs, a. average total costs are minimized. b. average total costs are rising. c. average total costs are falling. d. average fixed costs are rising.
C
When markets fail to allocate resources efficiently, the ultimate source of the problem is usually a. that prices are not low enough so firms overproduce. b. government regulation. c. that property rights have not been well established. d. that prices are not high enough so people overconsume.
C
When politicians argue that outsourcing or offshoring of technical support to India by Dell Computer Corporation is harmful to the U.S. economy, they are employing which of the following arguments for restricting trade? a. the deadweight-loss argument b. the infant-industry argument c. the jobs argument d. the national-security argument
D
Which of the following is a variable cost in the short run? a. Rent on the factory b. Interest payments on borrowed financial capital c. Salaries paid to upper management d. Wages paid to factory labor e. Payment on the lease for factory equipment
D
Which of the following is an example of a public good? a. whales in the ocean b. hot dogs at a picnic c. apples on a tree in a public park d. national defense
D
Which of the following is not a characteristic of a competitive market? a. There are many buyers and sellers in the market. b. The goods offered for sale are largely the same. c. Firms can freely enter or exit the market. d. Firms generate small but positive economic profits in the long run. e. All of the above are characteristics of a competitive market.
C
Which of the following is not considered a transaction cost incurred by parties in the process of contracting to eliminate a pollution externality? a. costs incurred due to a large number of parties affected by the externality b. costs incurred due to lawyers' fees c. costs incurred to reduce the pollution d. costs incurred to enforce the agreement
E
Which of the following is not employed as an argument in support of trade restrictions? a. Free trade is harmful to importing countries if foreign countries subsidize their exporting industries. b. Free trade harms the national security if vital products are imported. c. Free trade harms infant industries in an importing country. d. Free trade destroys domestic jobs. e. Free trade harms both domestic producers and domestic consumers and therefore reduces total surplus.
C
Which of the following is not true regarding the outcome of a consumer's optimization process? a. The consumer's indifference curve is tangent to his budget constraint. b. The consumer has reached his highest indifference curve subject to his budget constraint. c. The consumer is indifferent between any two points on his budget constraint. d. The marginal utility per dollar spent on each good is the same. e. The marginal rate of substitution between goods is equal to the ratio of the prices between goods.
D
Which of the following is true about the consumer's optimum consumption bundle? At the optimum, a. the indifference curve is tangent to the budget constraint. b. the slope of the indifference curve equals the slope of the budget constraint. c. the relative prices of the two goods equals the marginal rate of substitution. d. all of the above are true. e. none of the above is true
D
Which of the following is true regarding tradable pollution permits and corrective taxes? a. Corrective taxes are more likely to reduce pollution to a targeted amount than tradable pollution permits. b. Tradable pollution permits efficiently reduce pollution only if they are initially distributed to the firms that can reduce pollution at the lowest cost. c. To set the quantity of pollution with tradable pollution permits, the regulator must know everything about the demand for pollution rights. d. Corrective taxes and tradable pollution permits create an efficient market for pollution. e. Do all of the above.
A
Which of the following markets would most closely satisfy the requirements for a competitive market? a. gold bullion b. electricity c. cable television d. soda e. All of the above represent competitive markets.
C
Which of the following statements about import quotas is true? a. Import quotas are preferred to tariffs because they raise more revenue for the imposing government. b. An import quota reduces the price to the domestic consumers. c. For every tariff, there is an import quota that could have generated a similar result. d. Voluntary quotas established by the exporting country generate no deadweight loss for the importing country.
B
Which of the following statements is not true with regard to the standard properties of indifference curves? a. Higher indifference curves are preferred to lower ones. b. Indifference curves are bowed outward. c. Indifference curves do not cross each other. d. Indifference curves are downward sloping.
C
Which of the following statements is true? a. A self-sufficient country consumes outside its production possibilities frontier. b. Self-sufficiency is the road to prosperity for most countries. c. A self-sufficient country at best can consume on its production possibilities frontier. d. Only countries with an absolute advantage in the production of every good should strive to be self-sufficient.
D
Which of the following statements is true? a. All costs are fixed in the short run. b. All costs are variable in the short run. c. All costs are variable in the long run. d. All costs are fixed in the long run.
