chapter 6-10 quizzes
If Mr. Smith thinks the last dollar spent on shirts yields less satisfaction than the last dollar spent on cola, and Smith is a utility-maximizing consumer, he should a. decrease his spending on cola. b. decrease his spending on cola and increase his spending on shirts. c. increase his spending on shirts. d. increase his spending on cola and decrease his spending on shirts.
D
Compared to the outcome when the firms are price takers, competitive price-searcher markets will result in a. a wider variety of products and higher prices. b. less product variety and higher prices. c. a wider variety of products and lower prices. d. less product variety and lower prices.
a
Which of the following provides the best summary of the basic idea of public choice analysis? a. Public choice analysis applies the principles of economics to political science topics. b. Public choice analysis takes the principles of political science and applies them to the traditional topics of economics. c. Public choice analysis uses the principle of majority rule to determine the efficiency of an action. d. Public choice analysis indicates there is a sharp distinction between economic and political topics.
a
Which of the following would shift a firm's short-run cost curves downward? a. an advance in technology b. an increase in employees' wages c. an increase in the demand for the firm's product d. an increase in excise taxes levied on the firm's product
a
Public choice theory suggests politicians will be most likely to favor redistribution of income from a. the rich to the poor. b. unorganized taxpayers to well-organized interest groups. c. middle-income taxpayers to both the rich and the poor. d. well-organized businesses and labor groups to consumers.
b
In 2008, the combined expenditures of federal, state, and local governments in the United States were approximately a. 14 percent of GDP. b. 24 percent of GDP. c. 35 percent of GDP. d. 44 percent of GDP.
d
A 10 percent increase in the price of sugar reduces sugar consumption by about 5 percent. The increase causes households to a. spend more on sugar. b. spend less on sugar. c. spend the same amount on sugar. d. consume more goods like coffee and tea that are complements of sugar.
A
A profit-maximizing price searcher will expand output to the point where a. total revenue equals total cost. b. marginal revenue equals marginal cost. c. price equals average total cost. d. price equals marginal cost.
b
Current tax rates are insufficient to finance the benefits promised by both the Social Security and Medicare programs. Are these unfunded promises surprising according to economic theory? a. Yes, political representatives have a strong incentive to levy taxes that are sufficient to cover the cost of all programs they favor. b. No, the unfunded promises reflect the shortsighted nature of the political process. c. Yes, political representatives generally favor balancing the government budget because this is best for the economy. d. No, even though debt financing often makes sense, politicians are reluctant to use it because it will damage their chances of being reelected.
b
In the short run, if average variable cost equals $50, average total cost equals $75, and output equals 100, the total fixed cost must be a. $25. b. $2,500. c. $5,000. d. $7,500.
b
Most voters will likely be concerned with a. most issues since most issues have some impact, however slight, on each citizen. b. only a few special issues (those that exert the most impact on the voters' personal welfare). c. most issues since information on most issues can be obtained at a low cost. d. the views of a particular political candidate on all issues.
b
Suppose a restaurant that is highly profitable during the summer months is unable to cover its total cost during the winter months. If it wants to maximize profits, the restaurant should a. shut down during the winter, even if it is able to cover its variable costs during that period. b. continue operating during the winter months if it is able to cover its variable costs. c. go a out of business immediately; losses should never be tolerated. d. lower its prices during the summer months.
b
The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because a. larger firms always have lower per-unit costs than smaller firms. b. at low levels of output, AFC will be high, while at high levels of output, MC will be high as the result of diminishing returns. c. diminishing returns will be present when output is small, and high AFC will push per-unit cost to high levels when output is large. d. diseconomies of scale will be present at both small and large output rates.
b
When firms in a price-taker market are temporarily able to charge prices that exceed their production costs, a. the firms will earn long-run economic profit. b. additional firms will be attracted into the market until price falls to the level of per-unit production cost. c. the firms will earn short-run economic profits that will be offset by long-run economic losses. d. the existing firms must be colluding or rigging the market, otherwise, they would be unable to charge such high prices.
b
When goods are produced privately, but the cost of their purchase is paid for by the taxpayer or some other third party, a. consumers have a strong incentive to search out those firms offering them the best deal. b. private producers of such goods will have little incentive to control costs and provide them at low prices. c. goods and services will only be supplied if consumers are willing to pay an amount sufficient to cover their production costs. d. the invisible hand will direct consumers and producers toward an efficient level of output.
b
When the price of a product rises, the increase in quantity supplied will generally be greater in the long run than the short run because a. producers maximize short-run, not long-run, profits. b. over time, new firms will enter the industry and old firms will expand their operations in response to the price increase. c. consumers are less resistant to higher prices in the long run than in the short run because they have fewer options in the long run. d. consumer income will expand in the long run, causing resource prices to rise, which will induce producers to increase output.
b
When we say that a firm is a price taker, we are indicating that the a. firm takes the price established in the market then tries to increase that price through advertising. b. firm can change output levels without having any significant effect on price. c. demand curve faced by the firm is perfectly inelastic. d. firm will have to take a lower price if it wants to increase the number of units that it sells.
b
Which of the following explains most clearly why business owners have a strong incentive to strive for operational efficiency? a. They recognize that operational efficiency promotes the public interest. b. As residual claimants, owners will receive a higher income from increased efficiency. c. The owners will be able to keep production costs low by providing free managerial services to the firm. d. The owners will be able to gain by paying employees below market wages, which will improve the overall efficiency of the economy.
b
Which of the following is a primary difference between price searchers and price takers? a. Price searchers maximize profits, but price takers do not. b. Price searchers have to cut their price to sell additional output, but price takers do not. c. The market demand for goods produced by price searchers is downward sloping, while the market demand for goods produced by price takers is horizontal. d. Profit-maximizing price searchers will expand output to the quantity where marginal revenue equals marginal cost, but price takers will not.
b
If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulatory requirements, we would expect a. the demand for the products of this industry to increase. b. the market price of the products of this industry to decrease in the short run but not in the long run. c. the firms in the industry to make long-run economic profit. d. competition to force producers to pass the lower production costs on to consumers in the long run.
d
Special-interest programs are highly attractive to vote-seeking politicians because a. these programs are highly efficient, and therefore, they tend to enhance the general welfare of the populace. b. members of special interest groups favoring these programs are less likely to vote than the taxpayers who pay for them. c. low-income recipients are the primary beneficiaries of special-interest programs. d. members of special interest groups favoring these programs feel strongly about them while most other voters are rationally uninformed about them.
d
When costs that vary with the level of output are divided by the output, you have calculated a. total changing cost. b. total fixed cost. c. average fixed cost. d. average variable cost.
d
Which of the following explains why managers of government agencies have little incentive to achieve operational efficiency? a. Public-sector managers need not fear bankruptcy when operational efficiency is not achieved. b. Public-sector managers seldom receive personal benefits if they find ways to improve the efficiency of their operations. c. Public-sector agencies typically do not face competition. d. All of the above explain why government agencies have little incentive to be efficient.
d
Which of the following is most likely to be an implicit cost of production? a. property taxes on a building owned by the firm b. transportation costs paid to a trucking supplier c. rental payments for a building utilized by the company and rented from another party d. interest income foregone on funds invested in the firm by the owners
d
If a Krispy Kreme doughnut shop near campus increases its prices by 5 percent, but revenues from its sales are unchanged, the price elasticity of demand for the services offered by the doughnut shop must be a. elastic. b. of unitary elasticity. c. inelastic. d. equal to 0.5.
B
If the price of gasoline goes up, and Dan now buys fewer candy bars because he has to spend more on gas, this would best be explained by a. the substitution effect. b. the income effect. c. the highly elastic demand for gasoline. d. all of the above.
B
Suppose the state of New York imposes a one dollar per pack tax on cigarettes, which increases their price by 30 percent, and as a result, the quantity sold declines by 20 percent. The price elasticity of demand for cigarettes is equal to a. 0.20. b. 0.67. c. 1.50. d. 3.00.
B
Which of the following would be the best example of consumer surplus? a. Jane does not get cell-phone service because she feels that it is worth less than the $30 a month fee. b. Sam pays $8 for a haircut that is worth $10 to him. c. Ralph buys a house for $104,000, the maximum amount that he would be willing to pay for it. d. Sue purchases a book for $20 and uses a credit card to pay for it.
B
"I like ice cream, but after eating homemade ice cream last night, I want to have something else for dessert today." This statement most clearly reflects a. the budget constraint. b. consumer irrationality. c. the second law of demand d. the law of diminishing marginal utility.
D
Studies indicate that the demand for fresh tomatoes is much more elastic than the demand for salt. These findings reflect that a. tomatoes are a necessity while salt is a luxury. b. it takes longer for consumers to adjust to a change in the price of salt than to a change in the price of tomatoes. c. salt will not spoil as easily as fresh tomatoes. d. more good substitutes exist for fresh tomatoes than for salt.
D
Suppose that the quantity of DVD players sold increased from 200 to 400 when the price fell from $225 to $175. Over this price range, the absolute value of the price elasticity of demand for DVD players is a. 0.25. b. 0.375. c. 1.0. d. 2.67. e. 4.0.
D
Which of the following represents a long-run adjustment? a. the hiring of four additional cashiers by a supermarket b. a cutback on purchases of coke and iron ore by a steel manufacturer c. construction of a new assembly-line plant by a car manufacturer d. the extra dose of fertilizer used by a farmer on his wheat crop
c
A downward-sloping portion of a long-run average total cost curve is the result of a. economies of scale. b. diseconomies of scale. c. diminishing returns. d. the existence of fixed resources.
a
As long as a market is contestable, then even if it has only a few sellers, the a. threat of new entrants will prevent the prices from rising above the competitive level. b. producers will be able to charge prices that are high enough to produce long-run economic profits. c. producers will not face new competition because the barriers to entry are high. d. market will never be expected to come close to the competitive result.
a
Entrepreneurial judgment a. is necessary to make business decisions when no fixed decision rule can be used. b. is fully incorporated into modern economic models of business behavior. c. requires decision makers to follow carefully defined rules regarding uncertainty, discovery, and business judgment. d. requires government advice and regulation.
a
If marginal revenue exceeds marginal cost, a price-taker firm should a. expand output. b. reduce output. c. lower its price. d. do both a and c.
a
In a competitive price-searcher market, the firms will a. be able to choose their price, and the entry barriers into the market will be low. b. be able to choose their price, and the entry barriers into the market will be high. c. have to accept the market price for their product, and the entry barriers into the market will be low. d. have to accept the market price for their product, and the entry barriers into the market will be high.
a
In competitive price-taker markets, firms a. can sell all of their output at the market price. b. produce differentiated products. c. can influence the market price by altering their output level. d. are large relative to the total market.
a
The law of diminishing returns a. explains why marginal cost eventually increases as output expands. b. implies that average fixed cost will remain unchanged as output expands. c. is true for physical production activities but not for activities such as studying. d. applies to a capitalist economy but would be irrelevant if the means of production were owned by the state.
a
A foreign exchange student bought a used car for $10,000 and resold it one year later for $6,500. Insurance, license, and operating costs for the year were $1,500. What was his economic cost of owning and operating the car for the year if the market rate of interest was 10 percent? a. $3,500 b. $5,000 c. $6,000 d. $8,500
c
If Sarah's income rises by 20 percent, and, as a result, she purchases 40 percent more designer clothing, her income elasticity for designer clothing is a. 0.5. b. 1.0. c. 2.0. d. Not enough information is given to answer this question.
c
If a government wanted to increase the prosperity of a nation, it could best serve this goal by a. protecting domestic industries from international trade, thus encouraging domestic growth. b. regulating the way in which firms can operate. c. reducing barriers that restrict the ability of potential competitors to enter markets. d. subsidizing firms that are in danger of going out of business.
c
If a market is in long-run equilibrium, which of the following conditions will be present in a competitive price-taker market but absent from a competitive price-searcher market? a. P = ATC b. MR = MC c. P = MC d. MR < P
c
If firms in a competitive price-searcher market are currently earning economic losses, then in the long run, a. new firms will enter the market, and the current firms will experience a decrease in demand for their products until zero economic profit is again restored. b. new firms will enter the market, and the current firms will experience an increase in demand for their products until zero economic profit is again restored. c. some existing firms will exit the market, and the remaining firms will experience an increase in demand for their products until zero economic profit is again restored. d. some existing firms will exit the market, and the remaining firms will experience a decrease in demand for their products until zero economic profit is again restored.
c
In price-taker markets, individual firms have no control over price. Therefore, the firm's marginal revenue curve is a. a downward-sloping curve. b. indeterminate. c. constant at the market price of the product. d. precisely the same as the firm's total revenue curve.
c
In the long run, neither competitive price takers nor competitive price searchers will be able to earn economic profits because a. entry barriers into these markets are high, raising the costs of each firm. b. the government will dictate moderate prices for these firms. c. competition will force prices down to the level of per-unit production costs. d. marginal revenue is always less than marginal cost when barriers to entry are low.
c
The rational-ignorance effect is a result of a. externalities that lead to an excess supply of information. b. the limited incentive of the news media to cover political campaigns. c. the expectation of individual voters that their vote will not be decisive. d. the lack of a college education on the part of most voters in the United States.
c
The strategy underlying price discrimination is a. to charge higher prices to customers who have good substitutes available to them and lower prices to customers without many substitutes available to them.. b. to charge everyone the same price but limit the quantity they are allowed to buy. c. to increase total revenue by charging higher prices to those with the most inelastic demand for the product and lower prices to those with the most elastic demand. d. to reduce per-unit cost by charging higher prices to those with the most inelastic demand and lower prices to those with the most elastic demand.
c
When market conditions in a price-taker market are such that firms cannot cover their production costs, a. the firms will suffer long-run economic losses. b. the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits. c. some firms will go out of business, causing prices to rise until the remaining firms can cover their production costs. d. all firms will go out of business, since consumers will not pay prices that enable firms to cover their production costs.
c
When voters pay taxes in proportion to the benefits they receive from government projects, a. efficient projects will tend to be opposed by a majority of voters. b. inefficient projects will often be favored by a majority of voters. c. projects that are efficient will tend to be favored by an overwhelming majority of voters. d. democratic political decision making can be expected to work poorly.
c