Econ 40 [Cengage Test Question Compilation List]

If you are to receive a payment of $300 at the end of the first year and a payment of $450 at the end of the second year and the market interest rate is 4 percent, the present value of this income stream is:

$. 704. 51.

If $1 equals 4 pound, one pound is equal to _.

$0.25

Maria is willing to pay $5 for the first unit of baked tuna fish, $4.50 for the second unit, and $4 for the third. If the price of each unit of baked tuna fish is $4 her consumer surplus is:

$1.50.

Identify the impact of a tariff on a domestic country.

A decrease in the purchase of foreign goods and an increase in the purchase of domestically produced goods.

Which of these is a likely impact of a tax on a productive resource?

A decrease in the supply of the taxed resource

Identify a direct impact of an increase in the wage rate achieved through collective bargaining between union and management.

A decrease in the total number of workers hired

Which of the following is true of long run?

A firm can vary all its resources to change its output in the long run.

Which of these can explain the shape of the supply curve?

A higher price makes producers more willing and able to increase quantity supplied.

Which of the following couples is likely to have the highest income?

A husband who has an engineering degree and works in a government office and his wife who has an MBA and works as a bank executive.

A factory owner is planning to purchase an automated machine that will add $500 per year to his revenue forever. If the interest rate is 5 percent, the producer will purchase the machine so long as it costs less than:

$10,000.

Amanda has a choice of working full-time during the summer or attending summer school full-time. Summer tuition and books are $2,500, while her personal upkeep costs amount to $700. The earnings from the full-time work that she forgoes amounts to $8,000. Her rent is $1,000 for the summer, irrespective of her choice. Therefore, Amanda's opportunity cost of going to summer school is:

$10,500.

Identify an example of a competing-interest legislation.

A minimum wage law that sets the wage of workers above the market equilibrium.

Which of these exemplifies the movement of a resource from a low-valued use to a high-valued use?

Some carpenters give up leisure to work more when wages increase.

Identify a key feature of a mixed capitalist economy.

Some of the resources are publicly owned while others are held by private individuals.

World production will be maximized if each country:

Specializes in producing those goods in which it has a comparative advantage.

_ are people who buy or sell foreign exchange in hope of earning a profit from fluctuations in the exchange rate over time.

Speculators

Identify a difference between speculators and arbitrageurs.

Speculators take more risks than arbitrageurs do.

At the time of the breakdown of the Bretton Woods system, _.

Speculators were betting on the fall of the dollar.

Which of the following is true of permanent differences in resource prices?

Such differences do not cause resource reallocation.

The Comprehensive Environmental Response, Compensation, and Liability Act of 1980is popularly known as:

The Superfund law

Which of the following best describes an entrepreneur?

An organizer who seeks to maximize profits and assumes the risk of operation

Which of the following statements explains the shape of the market supply curve of a resource?

As the price of a resource rises, the quantity supplied of that resource increases.

Which of the following will happen if a monopolist starts practicing perfect price discrimination?

The demand curve also becomes the marginal revenue curve.

Which of these is a characteristic of monopolistic competition?

The demand curve faced by each individual firm is downward sloping.

Which of these is true for a nonprice-discriminating monopolist whose average revenue is equal to the average total cost at the profit-maximizing output?

The monopolist earns a normal profit.

When regulators require a natural monopolist to set price equal to its long-run average cost of production, _.

The monopolist will earn normal profit.

Which of these steps will be taken by a monopolist when the total variable cost of production falls due to a decline in the price of one or more resources used in production?

The monopolist will marginally reduce the price of its product to attract new customers.

Which of these will occur if a consumer tries to reallocate her budget after equilibrium has been reached?

Total utility will decrease.

Which of the following is reflected in the current account of a country?

Trade in goods as well as services.

Identify a market activity that takes place in an underground economy.

Trade in stolen goods.

For a monopolist who does not price discriminate, economic profit is maximized in the short run at a price of $200. Which of these can be concluded from the given information?

Average revenue of the firm at that output level is $200.

In which of these industrial sectors will unions be most successful in raising the wage rate?

Transportation

If the income received by the households in an economy is evenly distributed, the Lorenz curve:

Will be a straight line with a slope equal to one.

Economic choice is based on a comparison between expected marginal cost and expected marginal benefit. Here, the term "marginal" refers to:

a change in an economic variable.

An economist would classify _ as physical capital.

an entrepreneur's office building

At a given price, the amount by which quantity demanded exceeds quantity supplied is called _.

an equilibrium shortage

If a union for workers in the tobacco industry manages to negotiate a wage rate that is above the market-clearing level, there would be:

an excess supply of workers in this industry.

The participation of married women in the U.S. workforce has increased considerably since 1950 because of:

an increase in the opportunity cost of working at home.

The demand curve for a normal good will shift to the left when there is:

an increase in the price of a complementary good.

The equilibrium interest rate in the loanable funds market is likely to increase due to:

an increase in the productivity of capital.

The demand for labor in a particular market is likely to increase due to:

an increase in the productivity of each unit of labor resource.

If the wage for carpenters who build houses is $12 an hour and for those who make furniture, it is $10 an hour, and if the two activities are identical in all other respects, we can expect:

an increase in the supply of carpenters making houses but no change in demand.

A situation in which players have difficulty cooperating even though they would benefit from cooperation is called:

a prisoner's dilemma.

The difference between the selling price and the purchase price of a share of stock in a corporation is referred to as:

a realized capital gain.

Among the following individuals, the opportunity cost of time is likely to be the lowest for:

a retired person.

Specialization and centralized control are capable of reducing transaction costs when:

an economic transaction is highly complicated.

A firm is said to experience economies of scale when:

average cost falls as a firm expands its plant size.

Which of these will happen if a natural monopolist is legally required to charge a price equal to its marginal cost of production?

The monopoly firm will suffer a heavy loss and choose to shut down.

Which of these is predicted by a median-voter model?

The preference of the middle voter usually dominates the choices of others voters in a democracy.

_ if the purchasing power parity theory holds true.

The price of a traded good will be the same everywhere in the world.

Eliza's marginal utility from a third ice cream is 10, and her marginal utility from a second of chicken wrap is 30. If her consumption of the third ice cream increases her total utility, which of the following must be true?

The price of an ice cream is less than one third the price of a chicken wrap.

Suppose there is a sudden surge in the demand for coats in a country due to an unexpected freeze. If producers had not anticipated this kind of a weather change, which of the following is likely to happen in this market?

The price of coats will rise above the equilibrium price.

Which of these is a likely impact of an increase in output in a monopoly market?

The price of the product, as well as the marginal revenue, decreases, but marginal revenue falls faster than price.

Which of the following is an assumption made while calculating the price elasticity of demand for a product?

The prices of all other goods are constant.

A problem for developing countries is that:

The prices of primary goods fluctuate more widely than the prices of finished goods because crop supply fluctuates with the weather.

Identify the correct statement.

The scale of a firm is fixed in the short run.

In game theory, the outcome achieved when each player's choice does not depend on what the other player does is called the:

dominant-strategy equilibrium.

A(n) _ plots the relationship between the quantity demanded of foreign exchange and the exchange rate

downward-sloping curve

Producers of some goods reduce the current supply of their goods if they expect prices to rise in the near future. For which of the following goods will such a strategy be successful in increasing the profits of the producers?

Crude oil

The figure given below shows the domestic demand and supply of corn in a country. After the imposition of a tariff of $0.50 per bushel of corn, government revenue will equal the area:

e + p

In the case of an inferior good, an increase in consumers' incomes will lead to a(n):

leftward shift of the demand curve.

The Congress of Industrial Organizations (CIO) was formed to serve as a national organization of unions in:

mass-production industries.

The goal of a firm in a resource market is to:

maximize profit.

Households, like other economic decision makers, are viewed as rational. The goal of each household is to:

maximize utility.

Identify a key feature of a perfectly competitive market in the long run.

Easy entry and exit of firms in the market

One of the advantages of a market economy is that:

Economic activity is coordinated by price signals.

_ is needed to combine efficiently the factors of production in the production process.

Entrepreneurial ability

A socially optimal resource allocation can be achieved in a natural monopoly by setting the price:

Equal to the marginal cost of production

Identify the correct statement.

Equilibrium price will increase if demand increases and supply decreases.

Which of the following is a source of market failure?

Growth of monopoly power

When the value of a nation's merchandise imports is greater than the value of its exports, we can say that the nation:

Has an unfavorable balance of trade

The share of earnings going to the lowest income group in the United States has:

Increased due to the growth of single-parent households in the bottom group.

The recent trend observed in poverty rates for the elderly in the United States can be attributed to:

Increased spending on Social Security and Medicare.

Producers try to influence public regulation because:

It directly affects their livelihood.

Which of the following is true of a price floor?

It distorts the market and reduces economic welfare.

The income assistance program is different from the social insurance program because:

It does not require recipients to have a work history.

Which of the following is true of a patent law?

It encourages investment in research and innovation.

Identify a feature of the Bretton Woods system?

It established a worldwide system of fixed exchange rates.

Which of these is true about the study of economics?

It examines how people use their scarce resources to satisfy their unlimited wants.

Which of these is the objective of game theory?

It examines the strategic behavior among interdependent firms.

An underground transport service company is considered to be a natural monopoly because:

It experiences economies of scale in production.

Which of the following holds true for a natural monopoly?

It experiences economies of scale of the entire range of market demand.

A firm is said to have market power if:

It faces a downward-sloping demand curve for its products.

Which of these is true of special-interest legislation?

It has concentrated benefits but widespread costs

Which of these is an advantage of an economic theory?

It helps decision makers understand information.

Which of these is true of nonmarket work?

It includes the time spent on personal skill enhancement.

Which of these is true of the income effect of a wage increase?

It increases the demand for leisure.

Identify a feature of the current international monetary system.

It is a combination of the fixed and flexible exchange rate systems.

Which of the following is true of an externality?

It is a cost or a benefit that affects third parties.

Which of these is true of savings?

It is a key resource used in production.

Which of these is true of an economic system?

It is a set of social institutions and mechanisms organized to answer the three economic questions.

Which of these is true of the theory used to explain economic behavior?

It is a simplification of economic reality.

If in-kind transfers are included in the measurement of the aggregate income received by different households in the United State,s _.

The share of income going to the lower groups would increase.

The larger the number of firms in an industry:

The smaller its Herfindahl-Hirshman Index.

Which of these is true of nonprofit or not-for-profit firms?

These firms engage in charitable activities with a social purpose.

Which of the following is true of Social Security provided in the United States?

It is a social insurance program that supplements retirement incomes of those with a work history and a record of contributing to the program.

Which of these was an unintended consequence of antipoverty programs?

These programs reduced the incentive among the labor force to work and earn.

Which of the following is true of the total revenue curve faced by a perfectly competitive firm?

It is a straight line emanating from the origin with a constant slope.

Which of the following is true of trade restrictions?

These restrictions benefit a group of domestic producers.

Which of the following is true of the stockholders of a company?

They are liable only to the extent of their investment in the firm.

Which of these is true of signaling?

It is an attempt by the informed side of a market to communicate information that the other side would find valuable.

Identify a key feature of an exhaustible resource.

It is available in a finite amount

Which of the following is true of intellectual property?

It is created by human knowledge and idea.

Which of these is true of the supply of loanable funds curve?

It shows the positive relationship between the market interest rate and the quantity of loans supplied, other things constant.

Which of these is true of the demand curve faced by a monopolist?

It slopes downward.

Suppose the marginal cost of production increases. Which of these steps will be taken by a monopolist in the short run?

It will reduce its output to extract a higher price from customers.

If a country's currency depreciates in the foreign exchange market, _.

Its exports will become less expensive and its imports will become more expensive.

Retired people often tend to visit different grocery stores to pick up particular grocery items on sale. Which of the following can be concluded from this behavior?

They have a low opportunity cost of time.

Identify the correct statement about developing countries.

They need foreign exchange to pay for the import of capital and technology.

Which of these conditions is the profit-maximizing condition for a monopolistic competitor?

Marginal Revenue = Marginal Cost

The long-run equilibrium for a perfectly competitive firm ensures that:

Marginal Revenue = Marginal Cost = Average Total Cost.

_ is not an argument in favor of restricting trade.

Maximization of consumer surplus

Fiona has a comparative advantage over Maya in guitar tuning but not in painting a flower vase. In this case, they can gain from trade if:

Maya has a lower opportunity cost of painting a flower vase.

Welfare programs that provide money and in-kind assistance to the poor irrespective of the prior contributions received by them are referred to as:

Means-tested programs

If the additional satisfaction that Melita expects to derive from consuming another pizza is more than the price of the pizza, then:

Melita will purchase the pizza.

The progress of an economy is indicated by a:

Movement up the production chain from agriculture to manufacturing and then to services.

The solid wastes generated by the residents in the U.S. are higher than most other nations because:

Of higher income levels in the country that allow people to buy more.

Which of the following policies adopted by the owners of used cars have helped reduce the consequences of asymmetric information?

Offering money-back guarantees

Identify the market structure in which the minimum efficient scale of a typical firms relatively large compared to the industry output?

Oligopoly

Identify a reason why the issue of water pollution caused by the excessive use of pesticides has remained unaddressed in the U.S.

Pesticide regulations are often administered by state agricultural departments rather than environmental protection agencies.

If Peter can change a punctured car tire in 20 minutes and paint a fence in 10 minutes, and Lucy can change a punctured car tire in 15 minutes or paint a fence in 15 minutes, which of the following statements is true?

Peter has a comparative advantage in painting a fence.

Which of these is an implication of the statement "economic analysis is marginal analysis"?

People weigh the additional costs and additional benefits of various activities before making a choice.

If income is allocated according to marginal productivity, _.

People who have few resources to offer earn low incomes.

Which of the following categories of people are considered rent seekers?

People who use the government to change the rules of the market game in their favor.

Which of these is an example of a short-run adjustment in production made by a firm?

People's Bank hiring two new tellers to meet increased demand for customer services

An ad valorem tariff on a good is a:

Percentage of the import price of the good that has to be paid to the government.

Which of the following results from the immobility of a resource?

Permanent differences in the price of a resource across alternative uses

The stance adopted by voters when they realize that the cost of understanding and voting on a particular issue exceeds the benefit expected from doing so is referred to as:

Rational ignorance

About half the merchandise exports from low-income countries consist of:

Raw materials

Rent-seeking activities make the economy less efficient because these activities:

Redistribute resources from productive endeavors to nonproductive special interests.

Each member of the General Agreement on Tariffs and Trade (GATT) agreed to:

Reduce import quotas.

By imposing restrictions on the use of an open-access resource, the government can:

Reduce the common-pool problem.

The supply curve of a good that generates a positive externality:

Slopes upward, reflecting the marginal cost of producing each unit of the good.

Identify an example of a good that is produced in a monopolistically competitive market.

Smart phones

Identify a major social insurance program in the United States.

Social Security

Which of these aims at improving the health and safety of individuals in an economy?

Social regulation

Among the given goods, the value of the income elasticity of demand is likely to be largest for:

meals at upscale restaurants.

A(n) _ is an impartial observer who helps resolve differences between union and management.

mediator

The branch of economics that studies individual economic choices and how markets coordinate the choices of various decision makers is called:

microeconomics.

At the minimum efficient scale of output, a firm can:

minimize its long-run average cost of production.

The market structure that consists of many firms, each selling a slightly differentiated product is called:

monopolistic competition.

As digital SLR cameras become popular substitutes for point-and-shoot film cameras, demand for the latter is likely to become:

more price elastic.

Most companies invest heavily in advertising that aims to establish the uniqueness of a product in the consumer's mind. This strategy helps to make the demand for the product:

more price inelastic.

The price charged by a monopoly is:

more than its marginal revenue.

Narisa is likely to have a positive rate of time preference if she is willing to pay:

more to watch a movie during the first week of its release.

In order to satisfy unlimited wants with limited resources, people:

must make choices.

The degree of responsiveness of demand to changes in the level of income is:

negative for inferior goods.

The term "leisure" is used to describe the time spent on:

nonwork activities.

Consider the statement "The Congress should subsidize higher education." This statement is an example of a:

normative statement.

The composition of federal revenue shows that the share of _ taxes has doubled between 1960 and the current year.

payroll

In economic theory, an entrepreneur is described as an individual who:

pays resource owners for the opportunity to employ their resources in the firm.

The term "rational," used by economists to describe the behavior of individuals, means that:

people try to make the best choices they can, given the available time and information.

A good that is in fixed supply will have a(n):

perfectly inelastic supply curve.

The demand curve facing an individual firm in a perfectly competitive market is:

perfectly price elastic.

The long-run average cost curve of a firm is sometimes referred to as the firm's:

planning curve.

An output combination that cannot be achieved with the resources available to the producer and a given technology is represented by:

point outside the production possibilities frontier.

The cross-price elasticity of demand between butter and olive oil is likely to be:

positive because the goods are substitutes.

The phenomena wherein each individual tries to maximize the expected benefit achieved with a given cost or to minimize the expected cost of achieving a given benefit is called:

rational self-interest.

An economic theory is always based on simplifying assumptions because:

reality is unorganized and confusing and must be reduced to a comprehensible level.

When demand is inelastic, a decrease in price:

reduces total revenue.

A particular axis of the production possibilities frontier diagram measures:

the amount of a good produced during a year.

For a given demand curve, consume surplus is equal to:

the area beneath the demand curve and above the price.

Graphically, consumer surplus is reflected by:

the area under the demand curve but above the price line.

The inequality in economic profits garnered by cartel members are greater when:

the average cost of production differs across cartel members.

When the market price of a good sold in a perfectly competitive market decreases, _.

the average revenue curve shifts downward

The short-run variable costs of a law firm include:

the commission given to the lawyers.

The utility derived by a consumer from a particular good or service depends on:

the consumer's tastes and preferences.

The ratio of the percentage change in the demand for cars to the percentage change in the price of gasoline indicates:

the cross-price elasticity of demand between complements.

The secondary markets for stocks determine:

the current market value of a corporation.

Other things constant, in order to increase a company's capital stock, a producer has to sacrifice:

the current production of consumption goods.

When a monopolist is forced to keep its price below the profit-maximizing level, _.

the deadweight loss will decrease

A decrease in price of a good will lead to an increase in consumer surplus if:

the demand curve for the good is relatively flatter and demand is price elastic.

Sensodyne and Colgate Total are both popular toothpaste brands used by consumers. If Colgate Total offers a discount on its 4.1-oz pack, while Sensodyne makes no such attractive offer, _.

the demand for Colgate Total will increase

Sandra is the owner of a bakery chain. She uses butter and flour to produce the cakes and cookies served by the bakery. When the demand for her cookies increases, _.

the demand for butter is likely to increase

The deadweight loss of a monopoly is:

the difference between the total loss in consumer surplus and the gain in producer surplus.

A firm is said to be experiencing diminishing marginal returns when:

the marginal product of a resource used in production is positive but decreasing.

Suppose labor is the only variable input used in production. In this case, the marginal cost of production will increase when:

the marginal product of labor declines.

The marginal revenue product of a resource hired by a perfectly competitive firm is equal to:

the marginal product of the resource multiplied by the market price of the product.

The payroll tax in the U.S. is said to be regressive because:

the marginal tax rate declines as income increases.

The price at any point along the demand curve for a good reflects:

the marginal valuation of the good.

Other things constant, when the market interest rate increases:

the market value of the existing bonds of a company declines.

The concept of efficiency when used in the context of a production possibilities frontier refers to:

the maximum output achievable from the given resources.

A consumer can increase her total utility by consuming more wine and less beer with a given budget as long as:

the ratio of the marginal utility of wine to the price of wine exceeds the ratio of marginal utility of beer to the price of beer.

Mathematically, the average revenue of a firm is calculated as:

the ratio of total revenue and the quantity of output.

A sudden change in international oil prices caused the price of gasoline to decline drastically in the United States. This led consumers in the U.S. to increase their purchase of a number of commodities. The economic concept that explains this behavior is:

the real income effect.

A firm maximizes profit or minimizes loss by hiring resources up to the point where:

the resource's marginal revenue product equals its marginal resource cost.

In game theory, a payoff matrix is a table that lists:

the rewards and penalties associated with pursuing various strategies.

The market demand curve in a monopoly is:

the same as the demand curve for the monopolist's output.

A consumer is in equilibrium when the last dollar spent on each good yields:

the same marginal utility.

Given resource prices and technology, a firm can minimize its cost of producing a particular rate of output in the long run by operating along the points of tangency between:

the short-run average cost curve and the long-run average cost curve.

In a perfectly competitive market, the portion of a firm's marginal cost curve that intersects and rises above the lowest point on its average variable cost curve represents:

the short-run supply curve of the firm.

The output level at which the average revenue curve is tangent to the minimum point on the average variable cost curve is referred to as:

the shutdown point.

According to the law of diminishing marginal utility, other things constant, the more of a good a person consumes per period, _.

the smaller is the increase in total utility

The production possibilities frontier of an economy is likely to shift to the right when:

there is an increase in the size of the labor force.

A firm is likely to experience increasing marginal returns from labor when:

there is specialization and division of labor.

When the market price of a good rises above the equilibrium price, _.

there occurs a surplus

The firms in a perfectly competitive market will expand their scale of operation in the long run if:

they earn economic profits in the short run.

Consumers use firms instead of hiring resources directly from the market when:

they have a high opportunity cost of time.

The demand for most prescription drugs is perfectly inelastic because:

they have no close substitutes.

Innovation can be described as the process of:

turning an invention into a marketable product.

When the absolute value of the price elasticity of demand for a commodity is exactly equal to one, the demand for the commodity is said to be:

unit elastic.

The resource prices in a constant cost industry remain stable when output expands because the firms in this industry:

use a small portion of the available resources.

The value of income elasticity of demand is most likely to be negative for goods such as:

used cars.

Factors of production that can be adjusted quickly to increase or decrease production are called:

variable inputs.

According to the law of demand, given other things constant, the quantity of a good that a consumer is willing to and able to purchase:

varies inversely with its price.

The expansion of a firm into stages of production earlier or later than those in which it specializes is called:

vertical integration.

If Larry has an absolute advantage in gardening and car washing when compared when Gloria, then:

we can conclude nothing about comparative advantage.

The basic economic problem of scarcity:

will exist as long as resources are available in limited amounts.

A strict traffic regulation involves a fine of up to $500 on car owners who do not have a car seat but travel with a baby on board. As a result, the demand curve for car seats:

will shift to the right.

The demand for a resource directly depends on the:

willingness and ability of firms to buy it.

Which of the following factors led to the migration of workers in the U.S. from farms to urban areas?

A decline in the demand for labor in farming

Which of these resulted from the rent control imposed in New York City after World War I?

A decrease in the construction of new buildings

Which of the following implies an appreciation in the U.S. dollar?

A decrease in the number of U.S. dollars required to purchase foreign exchange.

Identify an example of a unilateral transfer.

Foreign aid

Which of these is true of ownership in a bureau?

Ownership cannot be transferred when a taxpayer moves out of the jurisdiction.

Identify a valid relation between price (P), average revenue (AR) and marginal revenue (MR) for a monopolistic competitor in the short run.

P = AR > MR

Which of these equations describes the relationship between market price (P), average revenue (AR), and marginal revenue (MR) for a profit-maximizing monopolist who charges a single price?

P = AR > MR

An adverse selection problem is likely to arise in the market for:

dancers.

The flexible exchange rate system is criticized because it:

Promotes inflation

The infant industry argument was formulated to:

Protect emerging domestic industries from foreign competition.

Import substitution as a development strategy was popular among developing countries because it:

Protected infant domestic industries from foreign competition.

When the distribution of income in a country become uneven, the Lorenz curve:

Pulls down to the right, away from the line of equal distribution.

The _ states that changes in the exchange rate reflect only changes in the price levels of two countries.

Purchasing power parity theory

Carol, a geology student, has no information about the education and social background of the representative she plans to vote for during the current election, She prefers spending her leisure hours reading a book instead of glancing the prospectus distributed by the electoral candidate. The stance adopted by her is a typical example of:

Rational ignorance

Identify a perfectly competitive firm from these examples.

A dairy farm

Which of these correctly defines a labor union?

A group of workers who organize to improve their terms of employment

Which of these goods is likely to have the highest price dispersion in dollar terms?

A high-end car

Identify an antipoverty measure that involves a direct market intervention by the government.

An minimum-wage law.

Which of these is a key feature of an economic model?

It covers the important elements of the economic problem.

In a capitalist economy, _.

Most of the resources are privately owned

Arbitrageurs are people who:

Simultaneously buy and sell currency to take advantage of exchange rate differences.

The Superfund law gave the federal government the power to control:

Sites contaminated with toxins.

The opportunity cost of receiving $200 one year from now, at an interest rate of 8 percent, is approximately:

$185 in the current year.

If 200 packs of corn chips are sold at a price of $10 each and the marginal product of the last unit of labor is 4, the firm's total revenue is:

$2,000.

If the marginal social benefit from an activity is worth $2,000 and the marginal private benefit is worth $1,800, then the marginal external benefit of the activity is.

$200

William Doyle, a brand conscious legal consultant, visits an upscale men's store and buys four formal shirts, each costing $200. What is the marginal value of the fourth shirt to William?

$200

Leather World Corp. produces 5,000 leather belts per week. Its average total cost each week is $80, and its fixed cost is $200,000. What is its variable cost?

$200,000

Suppose the demand for the output produced by a perfectly competitive firm is zero for any price at or above $10. As price falls from $10, the quantity of output demanded increases. If the equilibrium price and output of this firm are $4 and 10,000 units, respectively, the value of the consumer surplus would be:

$30,000.

Peyton, a fashion designer, plans to quit her current job, which pays $25,000 a year, and open a boutique. She intends to take over the building that she owns and currently rents to her friend for $8,000 a year. Her expenses in setting up the boutique will be $50,000 for raw materials and $5,000 for interior décor and electricity. Her implicit costs will amount to _.

$33,000

Other things constant, if the market interest rate increases from 4 percent to 9 percent per year, each $100 saved by an individual will earn:

$5 per year more than before.

Sally Wallace and Marc Richards formed a legal partnership to sell burgers and sandwiches on a roadside food truck. They purchased a specialized truck that had a built-in kitchen and a serving window for $150,000. The purchase was financed through a bank loan. However, within a month of starting the business, the partners decided to call off the project. They were able to sell the truck for $100,000 and were short of $50,000 to repay the bank loan. For how much of this debt is Sally legally liable?

$50,000

Sarah is willing to pay $150 for a leather jacket but manages to buy it from Amazon during a mega discount sale for $100. The consumer surplus enjoyed by Sarah because of the discount is:

$50.

Peyton, a fashion designer, plans to quit her current job, which pays $25,000 a year, and open a boutique. She intends to take over the building that she owns and currently rents to her friend for $8,000 a year. Her expenses in setting up the boutique will be $50,000 for raw materials and $5,000 for interior décor and electricity. What are Peyton's explicit costs?

$55,000

If the interest rate is 4 percent, $600 next year is worth _ today.

$576. 90

Henry Mclean owns a proprietorship that is in serious financial difficulty. The assets of the company are worth $100,000, but liabilities are $175,000. Henry holds stock in Nestle worth $200,000 and owns a private apartment worth $50,000. If he files bankruptcy, what amount of personal assets does he stand to lose?

$75,000

The present value of receiving $800 one year from now when the prevailing rate of interest is 5 percent is:

$761.90.

An individual is supposed to receive $10,000 two years from today. If the discount rate is 8 percent, the approximate present value of the investment is:

$8,573.

The present discounted value of $1,000 to be received after one year and with an interest rate of 11 percent is approximately:

$901.

When the price of a commodity increases from $1 to $3, the quantity of the good supplied by producers increases from 1,000 units to 3,000 units. This implies that the price elasticity of supply of the good is:

1.

When the daily wages of laborers increase from $30 to $40, the quantity of labor supplied increases from 200 workers per week to 300 workers per week. The price elasticity of supply of labor is:

1.4.

Suppose 400 LED bulbs can be manufactured in a factory daily using two machines and 50 workers. When the 51stand 52nd workers were hired, production increased to 410 bulbs and 425 bulbs respectively. The marginal product of the 51st worker is:

10 LED bulbs.

David wants to buy a flat in a newly constructed apartment that is available at a price of $24,000. He plans to give this out on rent to earn a monthly income of $200. His expected rate of return on this investment is:

10 percent.

If the market interest rate is 10 percent, the marginal cost of investing in capital is:

10 percent.

Tiara receives a utility of 10 utils from the consumption of one burrito and 12 utils from the consumption of two burritos. The marginal utility derived by her from the consumption of the second burrito is:

2 utils.

Suppose one worker can produce 75 guns or 150 toys in an hour in Petronia, a developing country. The opportunity cost of manufacturing one gun is:

20 toys

Deborah is a utility-maximizing consumer who purchases burritos and tortillas out of her daily food budget. She maximizes her utility when the marginal utility of the last tortillas is 40 units of utility and the prices of burritos and tortillas are $4 and $8, respectively. What was the marginal utility of the last burritos that Deborah consumed?

20 units of utility

Consider three firms in a ship building industry with market shares of 45 percent, 20 percent, and 35 percent, respectively. The Herfindahl-Hirschman Index for this industry is:

3,650

If an increase in the price of a tennis ball from $2 per piece to $3 per piece leads to an increase in its daily quantity supplied from 200 to 1,000 units, then the value of price elasticity of supply is:

3.33.

If total product for each of six units of labor is 10, 16, 20, 30, 34, and 36, respectively, the marginal product of the fifth unit is:

4

If the value of the price elasticity of demand is −0.5, this means that a:

4 percent decrease in price causes a 2 percent increase in quantity demanded.

The figure given below shows the domestic demand and supply of corn in a country. At a world price of $1.00 per bushel, _.

50 thousand bushels of corn will be imported.

Which of these is true of Nash equilibrium?

A Nash equilibrium occurs when the strategy chosen by each player is similar to the other player and the players enjoy identical payoffs.

Which of these is a valid difference between a stock and a bond?

A bond pays the owner a fixed periodic interest while a stock does not promise any fixed payment.

Identify an example of signaling.

A candidate supporting her résumé with a letter of recommendation

Which of the following economic systems uses only centralized economic planning to answer the basic economic questions?

A command economy

Identify an example of an open-access good.

A fish in the ocean

Which of the following is true of a floating exchange rate?

A floating exchange rate adjusts in response to market forces.

Which of these will allow a natural monopolist to continue its production when the government sets the price of its product equal to its marginal cost of production.

A government subsidy.

Which of the following is true of a market?

A market facilitates exchanges between buyers and sellers.

`Which of the following is likely to increase the supply of a good?

A new and improved production process

Identify a correct feature of a normative economic statement.

A normative statement cannot be verified by facts.

Identify an example of a durable good.

A piece of silver jewelry

Which of the following firms is likely to face a downward-sloping average cost curve for the entire range of market demand for its output?

A pipeline water supply company providing drinking water to houses.

Which of these is an example of special-interest legislation?

A price floor for milk sold by dairy farmers.

Which of the following types of intervention will improve the production efficiency of a good that creates a positive externality?

A production subsidy.

Identify an example of an open-access resource?

A public fishing lake

The marginal social benefit curve for cleaner air slopes downward because:

A reduction in emission is values more by society when pollution levels are high

The marginal social benefit curve for air quality reflects the addition benefit a society derives from:

A reduction in the level of pollution.

Which of these has resulted from the availability of information on the Internet?

A reduction in the price dispersion of similar goods

Which of the following is true of corporate bonds?

A risk associated with corporate bonds is corporate bankruptcy.

Identify an example of a temporary price differential in a resource market.

A salesman at a kid's apparel store earns more than a salesman at a departmental store.

Identify an example of economies of scale in production.

A school bus service provider is able to lower the monthly charges for each student when ten more students avail the bus service.

A major result of welfare reform in the United States has been:

A substantial increase in employment among mothers who head families.

Identify the correct definition of a tariff.

A tax on imports

A software company that sells an operating system requires consumers to purchase and install a specially designed antivirus program developed by it. This is an example of:

A tying contract.

In which of the following situations can a problem arise due to hidden characteristics?

A worker purchasing used furniture from a couple planning to move out to a different city

Which of these is likely to reduce the marginal cost of searching for additional information on a product?

An improvement in the technology used for the search

According to the income effect of a price change, an increase in the price of breakfast cereals (a normal good) will lead to a(n):

According to the income effect of a price change, an increase in the price of breakfast cereals (a normal good) will lead to a(n):

_ are not likely to be among the industrial market economies.

African countries.

Which of these is the primary source of water pollution in the U.S.?

Agricultural pesticides and fertilizers.

The term "underground economy" is used to describe:

All market activities that go unreported to evade taxes or are illegal.

Which of the following is a possibility under a fixed exchange rate system?

An increase in Japanese demand for U.S. agricultural goods will increase the supply of yen relative to the dollar.

The _ is recorded in the financial account of a country.

Amount of assets in one country owned by the citizens of another country.

Identify an example of vertical integration.

An e-commerce website acquiring a courier service company

Which of the following relationships can lead to a principal-agent problem?

An employee and an employer

Which of the following is true of an entrepreneur?

An entrepreneur is a residual claimant.

Which of these results from the substitution effect of a wage increase?

An increase in market work

A positive aspect of brain drain from developing countries is:

An increase in remittance sent home.

Which of these is likely to increase the opportunity cost of current consumption?

An increase in the market rate of interest

Which of these is a likely impact of a regulation that restricts the total number of taxis operating in metropolitan areas?

An increase in the producer surplus earned by taxi owners.

Identify the statement that best describes the fact that people are prone to inertia.

An individual decides to continue with an insurance policy even after its premium rate increases and alternative policies are available in the market.

Which of the following factors was the most important for increasing competition in the U.S. economy according to Shepherd?

Antitrust laws

A public policy that outlaws any attempt to monopolize or cartelize in markets where competition is necessary is called a(n):

Antitrust policy

The price of a piece of black forest cake is $3 and that of a vegetable club sandwich is $2. If the current level of consumption allows the consumer to maximize utility, it implies that:

As digital SLR cameras become popular substitutes for point-and-shoot film cameras, demand for the latter is likely to become:

Which of the following is an implication of the Coase theorem?

As long as bargaining costs are small, assigning property rights to parties will generate an efficient solution to an externality.

Identify an example of a derived demand.

As more high school graduates go on to college, more professors are hired.

Which of the following statements is correct?

At every age, those with more education earn more, on average.

Identify an example of an undifferentiated oligopoly.

Atlantic Steel

For which of the following items is the income effect of a price change likely to be the greatest?

Automobiles

In which of the following ways do contractionary policies help correct a balance-of-payments deficit?

By lowering both domestic incomes and the demand for imports.

The _ measures economic transactions that occur during a given time period between the individuals, firms, and government of one country and individuals, firms, and governments of other countries.

Balance of payment

In which of these occupations is it easy for the customers to observe and quantify the ability of workers?

Bartenders

To have an impact on the domestic market, an import quota must:

Be less than what would be imported with free trade.

Export promotion in developing countries _.

Boosts domestic efficiency

Government agencies charged with implementing legislation and financed by appropriations from legislative bodies are called:

Bureaus

The theory of bureaucratic behavior claims that:

Bureaus are monopoly suppliers of public goods and services.

Identify a valid difference between the consumer feedback received by bureaus and by private firms.

Bureaus receive relatively less consumer feedback as public goods and services are not sold in the market.

Which of these will guarantee positive economic profits to a monopolist in the long run?

Creating barriers to the entry of new firms in the market

The value of a country's exports is listed as a(n) _ in the balance-of-payments account.

Credit

According to William G. Shepherd, the growth in competition in the U.S. economy from 1958 to 2000 can be attributed to:

Deregulation

A difference between the World Trade Organization (WTO) and the General Agreement on Tariffs and Trade (GATT) is that, unlike GATT, the WTO _.

Covers services and trade-related aspects of intellectual property.

An increase in a fixed exchange rate is also referred to as _.

Devaluation

When an accused party in an antitrust violation agreement agrees not to do what it was charged with, without admitting guilt, a _ is signed.

Consent decree

In 2014, _ was the largest trading partner of the United States in terms of exports of goods and services.

Canada

"As a general rule, regulation is acquired by the industry and is designed and operated for its benefit." This argument put forward by George Stigler reflects the:

Capture theory of regulation.

Identify an example of a positive externality.

Carpooling during peak office hours

Identify an example of a fixed cost.

Charitable donations

Which of these is a form of price discrimination?

Cheaper call rates for long-distance night calls

Which of these firms is least likely to change its price following its competitor's pricing strategy?

Chevron

It is generally observed that birth rates are higher in developing economies compared to industrial economies, with a noticeable exception being _.

China

Which of the following groups of customers would be charged the lowest price by a monopolist for its product?

College students

_ is the basis of beneficial trade between countries.

Comparative advantage

A legislation that confers concentrated benefits on one group by imposing concentrated costs on another group is called:

Competing-interest legislation.

_ refers any international transfer made on favorable terms for the purpose of promoting economic development.

Foreign aid

For which of the following industries is the long-run industry supply curve perfectly elastic?

Constant-cost, perfectly competitive industry

Which of these is a likely impact of perfect price discrimination by a profit-maximizing monopolist?

Consumer surplus falls to zero.

Suppose a perfectly competitive firm is able to add a new dimension to its existing product through innovation. This gives the firm some market power, allowing it to control the price and output of the product. Which of these will be a likely impact on the consumer surplus?

Consumer surplus will decrease.

For which of these commodities is the income effect of a price change likely to be very small?

Cooking oil

The _ is the price of one currency in terms of another currency

Foreign exchange rate.

If Jacob produces one t-shirt in 4 hours and Diana produces one t-shirt in 3 hours, then it can be firmly concluded that:

Diana has an absolute advantage in making t-shirts.

Which of these can most suitably explain the difference in the earnings of two professional lawyers with the same work experience and education?

Difference in preference for nonmarket work

Saudi Arabia has an abundant supply of crude oil compared to other countries, while South Africa has a large stock of diamonds. This _ can be a basis of mutually beneficial trade between the two countries.

Difference in resource endowments

Predatory dumping seeks to:

Eliminate competitors in the foreign market

Kyra, a college student, prepares her own breakfast every day. David, her professor, buys food for breakfast from the college cafeteria. Which is the most plausible economic explanation for this difference?

David has a higher opportunity cost of cooking breakfast than Kyra does.

Which of the following individuals can be considered as an entrepreneur?

Dean Kamen, who holds patent over a mobile dialysis system and plans to make and market this product.

Identify a key feature of a pure capitalist economy.

Decision making is typically decentralized.

Suppose Toys and Toddlers, a toy manufacturing company, has been experiencing a steady loss of market over the past two decades due to competition from companies that sell lower-priced toys imported from foreign countries. It is likely to present the _ to lobby for import restrictions.

Declining industry argument

Differences in wages between the African Americans and the whites in the Untied States can be attributed to:

Differences in the quality of education received by each group.

Which of these can account for the difference in the earnings of a certified public accountant and a file clerk?

Differences in the time and money involved in developing the necessary skills

Governments of developing countries:

Discourage foreign investment by applying different exchange rates to different transactions.

Regional trade agreements can lead to:

Discrimination against non-members.

The interest group created by the elderly is supported by at least five constituencies. Identify any one such constituency.

Doctors and nursing-home operators.

_ benefit when a domestic government imposes a quota.

Domestic and foreign producers.

An industry in which the top four firms supply more than 60 percent of market output, with stable market shares, and evidence of cooperation, is categorized by William G. Shepherd as a(n):

Dominant firm

Which of the following is true according to the law of comparative advantage, in a two-commodity framework?

Each country should specialize in producing the good with the lower opportunity cost.

If all countries have identical resource endowments and efficiency in production, _.

Each country will still gain from trade as long as tastes differ across countries

Which of the following is true in autarky?

Each country's consumption possibilities are the same as its production possibilities.

Suppose the firms in a perfectly competitive industry were earning normal profit before an economic downturn decreased the market demand for the product. Which of the following will be a likely short-run impact of this economic change?

Each firm will incur economic loss.

Which of these is a characteristic of a constant-cost industry?

Each firm's per-unit costs are independent of the number of firms in the industry.

Which of the following aims to control the price and output in an industry in which a monopoly is likely to emerge.

Economic regulation.

Which of these is a prime responsibility of the federal government?

Economic stability

Industrial market countries are:

Economically advanced capitalist countries.

Which of these conditions can lead to the formation of a natural monopoly?

Economies of scale

Which of these is most likely to create a barrier to entry in an automobile industry?

Economies of scale

_ are not examples of trade restrictions.

Economies of scale

_ will not be considered a basis for trade between two nations.

Economies of scope

The Herfindahl-Hirschman Index is likely to be the highest in an industry with:

Eight firms of approximately the same size.

The demand for which of these commodities or services is more elastic in the long run than in the short run?

Electricity

Among the countries given below, _ has the lowest life expectancy at birth.

Ethiopia

Suppose an economic disturbance in the foreign exchange market increases the euro dollar exchange rate from $2 = €2 to $4 = €2. Which of the following is likely to happen in this case?

European imports will become more expensive in the United States.

Evan and Thomas are roommates at college. They cannot afford to send their clothes to laundry and are compelled to wash and iron them on their own. However, neither of them is good at washing and ironing. Thomas irons his own clothes and gets paid a very small amount by Evan to iron his clothes as well. On the basis of the information given, which one of the following must be true?

Evan's opportunity cost of ironing is higher than Thomas's.

The actions of arbitrageurs cause:

Exchange rates in different markets around the world to become almost identical.

The U.S. official poverty definition:

Excludes the value of noncash transfers.

Which of the following is a reason behind the feminization of poverty in the U.S.?

Families with a female householder have failed to take advantage of the booming job market.

In which of these sectors are differences most likely to be settled through binding arbitration?

Fire protection

Which of these statements best describes the thoughts of Sir Ronald Coase regarding the role of a firm?

Firms are more efficient than markets when production is complicated.

Which of the following is true of the long run in a perfectly competitive market?

Firms earn a normal profit.

Which of the following costs will be incurred by a firm even if it stalls production in the short run?

Fixed cost`

For which of the following items is demand both income inelastic and price inelastic?

Food

Which of the following taxes is based on the benefits-received principle of taxation?

Gasoline excise taxes

Economic regulation is likely to:

Generate profits for well-organized producer groups

An individual will be eligible to receive benefits under a means-tested program if:

Her income and assets are below a certain level.

Martha finds herself less motivated to examine the performance records of candidates for public offices because she believes that:

Her vote has no chance of deciding the election.

Which of the following can lead to a principal-agent problem?

Hidden actions

Low-income countries have a _.

High fertility rate as children are viewed as a source of farm labor.

Which of these is a feature of an undifferentiated oligopoly market?

High interdependence among firms

Developing economies have _ compared to industrial market economies.

Higher unemployment rates

Which of the following anti-competitive trade practices where prohibited by the Celler-Kefauver Anti-Merger Act?

Horizontal and vertical integration

Which of these industries is the most vulnerable to a strike?

Hospitality industry

The terms of trade between two countries measure:

How much of one good exchanges for a unit of another good.

A traditional handloom cotton-textile company in the East decides to shift to using a power loom as it is unable to find skilled labor resources. Which of the following economic questions does this decision answer?

How to produce?

In which of these situations is the common-pool problem likely to arise?

If a resource is freely accessible and overused.

Suppose Henry requires only four types of inputs to clean his house, but fourteen types of inputs to make a formal shirt. In which of the following cases will he minimize his transaction cost?

If he cleans the house on his own but buys the shirt from a shirt manufacturer

In which of the following cases will a government regulation allow a natural monopolist to earn profit?

If the price set by the government is equal to the monopolist's average cost of production.

The figure given below shows the domestic demand and supply of corn in a country. The government of the country decided to impose a tariff of $0.50 per bushel of corn. Which of the following will be true at the new domestic price?

Imports will decline to 25 thousand bushels

Which of these is true of a representative democracy?

In a representative democracy, a spokesperson is elected to represent a constituent's views.

Identify a key feature of a resource market.

In a resource market, firms are demanders and households are suppliers.

Which of the following facts regarding income distribution among families in the U.S. in recent years is true?

Income earned by the top fifth of the population has increased while that earned by the bottom fifth has declined.

Which of the following has resulted from increased international trade and deregulation in the U.S. economy according to William G. Shepherd?

Increase in competition

The figure given below shows the domestic demand and supply of corn in a country. The government of the country decided to impose a tariff of $0.50 per bushel of corn. The result will be a(n):

Increase in producer surplus represented by the area c.

Suppose Henry Lewinsky is allocating his weekly earnings between two goods, apples (A) and bananas (B). He observes that he is spending his entire income on a combination of A and B for which MUA/PA exceeds MUB/PB. Which of the following decisions will help him to increase total utility?

Increasing the consumption of apples and decreasing the consumption of bananas

Which of these is most likely to happen when a legislation increases the tax rate charged on the earnings of individuals.

Individuals will tend to underreport their income.

Which of the following problems is encountered when one side of the market is more aware about the quality of a product than the other side?

Information asymmetry

One of the basic requirements for making a rational choice is acquiring accurate information. Which of these is true about this information?

Information is costly to acquire.

Identify an activity that creates a positive externality in society.

Inoculating children against measles.

Identify a distinguishing characteristic of an oligopoly market.

Interdependence among the sellers

The country of Brylonia can raise its labor productivity by:

Investing more in human and physical capital.

It is evident from oil-rich countries that an abundant supply of a natural resource:

Is not sufficient to create a modern industrial economy

Which of the following is true of the social insurance system?

It aims to reduce poverty among the elderly who have a work history.

Which of these is true of a government license?

It allows firms to charge prices above the competitive level.

Which of the following is true of a temporary price differential in resource markets?

It can be eliminated in the long run by resource movements.

A firm is said to be experiencing economies of scale if:

It can more than double its output by doubling its inputs.

Which of the following is true of the opportunity cost of an activity?

It is equal to the value of the best alternative not chosen.

Which of the following is true of the concept of utility?

It is hard to measure because it is a subjective concept.

Which of the following is true of a market supply curve?

It is positively sloped.

Which of these is true of the market supply curve for a resource?

It is positively sloped.

Which of the following is true of the marginal benefit of acquiring additional information?

It is relatively large at first but reduces as more information is collected.

Which of the following is true of work?

It is subject to increasing marginal disutility.

Which of the following is true of a surplus in the market for a good?

It is the excess of quantity supplied over quantity demanded at a given price.

Which of the following is true of a price ceiling?

It must be set at or above the equilibrium price.

Which of the following is true of an antitrust policy?

It promotes a market structure that leads to greater competition.

Which of the following is true about migration?

It provides a valuable safety valve for poor countries.

One drawback of the direct majority rule is that:

It provides either too much or too little of the public good.

Which of these is true of behavioral economics?

It questions the basic assumptions in traditional economics, particularly rationality and will power.

Identify a feature of an import quota

It raises the price of an import above the world price and reduces the quantity demanded below the free trade level.

Which of these is a justification for an economic regulation?

It reallocates resources to increase social welfare.

Which of these is true of the Clean Air Act of 1970?

It recognized the atmosphere as an economic resource that has alternative uses.

Which of the following is true of the merchandise trade balance of a nation?

It reflects trade in tangible products.

Which of these is true of the marginal resource cost curve of a resource?

It represents the supply curve of the resource to the firm.

Which of these is a characteristic of a "good" in economics?

It requires scarce resources for production.

Which of the following is true of a sunk cost?

It should not be considered when making economic decisions.

Marley takes 10 minutes to iron a shirt and 10 minutes to water 15 flower plants in his garden. Kristen takes 10 minutes to iron a shirt and 15 minutes to water 15 flower plants. Which of the following statements is correct?

Kristen has a comparative advantage in ironing.

Wage rates are higher in the United States compared to other countries because

Labor productivity is high.

Which of these is supplied by households to the product market?

Labor resources

Which of these situations is most likely to occur if the wage rate of labor used in the cotton yarn industry rises relative to the wage rate in the jute industry?

Labor resources will be drawn from the jute industry to the cotton yarn industry.

According to the special interest theory, which of the following groups are likely to be most affected by public regulation?

Lawyer's union

Which of these workers and jobs is most suited to a winner-take-all labor market?

Lead actors and directors of successful movies

An import quota is a(n):

Legal limit on the amount of a specific good that can be imported.

Women in developing counties tend to be:

Less educated than men.

The figure given below shows the domestic demand and supply of corn in a country. The government of the country decided to impose a tariff of $0.50 per bushel of corn. This will lead to a:

Loss in consumer surplus represented by the area c + i + e + p +f

Which of the following is a requirement for economic development?

Low and predictable inflation that encourages saving.

Which of the following is a feature of foreign aid?

Low interest rates and longer repayment periods.

Labor productivity is low in low-income countries due to:

Low levels of investment

Which of these statements best describes the lemons problem?

Low-quality products dominate the market due to information mismatch between buyers and sellers.

In the market for pollution rights, the introduction of a low-cost pollution reduction technology is likely to:

Lower the value of a pollution permit.

Which of these can be considered as a role of an entrepreneur?

Obtaining the financial capital needed to start or expand a business

_ is a primary cause of infant mortality in low-income countries.

Malnutrition

The _ replaced the Bretton Woods system.

Managed float system

Identify an example of a "workfare" component that is included in a welfare program.

Mandatory job searches.

_ make up the bulk of exports from industrial economies.

Manufactured goods

Which of the following concepts can explain the shape of the short-run MC curve?

Marginal returns

Which of these conditions is true fora monopolistic competitor in the short run?

Marginal revenue is less than average revenue.

The sum of the additional private cost and the additional external cost of producing or consuming an extra unit of a good reflects the:

Marginal social cost of producing the good.

Which of the following expressions describes the condition for consumer equilibrium for two goods A and B?

Marginal utility of A/Price of A = Marginal utility of B/Price of B

A consumer allocating her budget between two goods x and y will be able to maximize her utility when:

Marginal utility of x/Marginal utility of y = Price of x/Price of y

Graphically, the socially optimal level of a public good corresponds to the point of intersection of the:

Market demand curve and the marginal cost curve.

Gross national income (GNI) of a country measures that:

Market value of all goods and services produced by a country's resources, regardless of their location.

Which of these groups in the U.S. are considered median voters by the electoral candidates?

Middle-class American workers

For which of these activities is the cost of identifying and hiring inputs the lowest?

Mowing and weeding a backyard garden

Autarky refers to:

National self-sufficiency with no interaction with foreigners.

Good A can be consumed by one individual without affecting the amount available for consumption by other individuals. Moreover, it is possible to prevent consumers who do not pay for Good A from consuming it. These features make Good A a(n):

Natural monopoly

Bella cleans the house in 1 hour and cooks dinner in 1 hour. Evan cleans the house in 2 hours and cooks dinner in 2 hours. Which of the following statements is true?

Neither Bella nor Evan would gain from specialization.

The special interest theory of regulation argues that government intervention and control in markets with a single firm or few firms generally benefits:

Only well-organized groups of producers

The international financial system _ before World War II.

Operated under a gold standard.

The comparative advantage of a country is determined by comparing the:

Opportunity costs of producing different goods.

When the government sets the break-even price in a natural monopoly, _.

Output falls short of the social optimal level

Identify the most commonly used yardstick to compare living standards across nations.

Output per capita

Which of the following occurs when a firm buys inputs from outside suppliers?

Outsourcing

Identify a possible reason for the demise of the Bretton Woods system?

Overvaluation of the dollar

Peter's weekly earnings of $200 are distributed between food, house rent, conveyance, and entertainment. Suppose for a particular allocation of these goods and services the marginal utilities per dollar spent are identical. Which of the following is true?

Peter will fail to maximize utility by choosing a different allocation.

_ accounted for the largest share of the import bill of the United States in 2014.

Petroleum products

_ are most likely to engage in rent seeking.

Political action committees.

When the value of pollution permits increases substantially, _.

Polluting firms will resort to low-cost pollution control technologies.

The government can reduce the side effects of pollution by assigning pollution rights only if:

Pollution can be easily monitored and polluters easily identified

Which of the following is true according to the convergence theory?

Poor countries will eventually catch up with rich, industrialized countries.

Which of the following types of legislation has widespread benefits but concentrated costs?

Populist legislation.

Which of these is true of positive economic statements?

Positive statements are based on facts.

Data on the poverty rates for different age groups in the U. S. since 1959 reveals that:

Poverty among the elderly declined substantially since 1970 and was the lowest among the groups in 2013.

Which of these is most likely to result from the rational ignorance of voters?

Predominance of special-interest legislation

When an individual consumes Good X, no other individual can consume it. Further, only those individuals who pay for Good X are able to consume it. These features imply that Good X is a(n):

Private good

The disappointing consequences of foreign aid has led to the:

Privatization of foreign aid.

Economies of scale in production lead firms to:

Produce more of a particular good.

In the market for a good that generates a positive externality, efficiency can be achieved by:

Producing more output than the private equilibrium act.

What is the purpose of government antitrust laws?

Prohibiting collusion among competitive firms

The activity undertaken by special-interest groups to gain special advantages from the government is called:

Rent seeking

In recent years, erstwhile socialist countries have:

Replaced centralized economic planning with market mechanisms.

Which of these describes renewable resources?

Resources that regenerate themselves for indefinite use.

If a developing country experiences a trade deficit, it is likely to:

Restrict imports of capital goods

Identify a key feature of a private good.

Rival in consumption and exclusive

Stephan can bake 10 cakes or 20 pizzas in one hour while Robin can bake 15 pizzas or 15 cakes in one hour. Which of the following statements is correct?

Robin has a comparative advantage over Stephan in the production of cakes.

_ include the formal and informal institutions that promote production and exchange.

Rules of the game

Sarah is a chef. She uses either sesame oil or olive oil in most of the dishes that she prepares for her customers. If the price of olive oil rises, we would expect:

Sarah's demand for sesame oil to increase.

Dumping is the practice of _.

Selling a product abroad at a price lower than the domestic price.

In 2014, _ had the largest share in the exports of the United States.

Services

The figure given below shows the domestic demand and supply of dates in a Middle Eastern country. If the world price of dates is $1 per pound, an import quota _.

Set below 100 pounds would not affect the level of imports

Camille has $100 per week to spend on good A, which has a price of $10, and good B, which has a price of $8. She buys six units of A and five of B. The marginal utility of the sixth unit of A is 50, and the marginal utility of the fifth unit of B is 40. Which of the following is true?

She is maximizing her utility.

Stella Mathew works as an office secretary at a monthly pay of $400. The management offers her an additional $100 per month to work extra hours each day. Which of these is most likely to occur due to the substitution effect of this additional benefit?

She will allot more time to market work.

Magic is the only unisex parlor that specializes in trendy haircuts in a small town. The owner, Florence, manages to earn an economic profit in the short run. However, she notices that her marginal revenue for the sixth customer each day is lower than the marginal cost of haircuts, although the demand for haircuts is quite high. Which of the following steps would be taken by Florence to correct this mismatch?

She would raise the price of haircut and try to reduce the number of haircuts done per day.

Which of the following is an example of a long-run adjustment in a firm?

Siemens healthcare sets up a new factory to increase its production of ultrasound machines.

Which of the follow U.S. agencies is responsible for pesticide regulation?

State departments of agriculture

A disadvantage of foreign aid is that it can:

Substitute domestic saving and increase consumption rather than investment.

The profit or loss earned by a public bureau affects the"

Tax rates charged by the government.

Which of these is a primary source of revenue for bureaus?

Taxes

Suppose the production of a good generates a negative externality and involves the use of fixed-production technology. Which of these policies will help reduce this externality?

Taxing the firm producing the good to increase the marginal private cost.

Which of the following programs is funded by the federal government to assist poor households with dependent children?

Temporary Assistance for Needy Families (TANF)

Which of the following statements can be categorized as normative?

The Congress must recognize that the growing national debt is the most serious problem that the country faces.

In 1945, the U.S. Supreme Court ruled that the aluminum company Alcoa had violated antitrust laws per se by controlling 90 percent of the aluminum ingot market. Which of these can be concluded about the court's decision in this respect?

The Court was using market structure rather than firm behavior as the test of legality.

Which of the following agencies in the U.S. coordinates with the Legislature to address common-pool problems?

The Environmental Protection Agency

Which of the following acts established a federal body to help enforce antitrust laws in the U.S.?

The Federal Trade Commission (FTC) Act of 1914

Which of the following organizations tracks the official poverty level in the United States and makes adjustments for family size and inflation?

The U.S. Census Bureau

_ is not an example of foreign aid.

The United States government purchasing raw materials from Saudi Arabia.

Which of these factors can cause a negative externality?

The absence of enforceable property rights to restrict the use of open-access resources

Which of these problems is encountered in labor markets where the abilities of the workers are intangible or unmeasurable?

The adverse selection problem

According to Smith, although each individual pursues his or her self-interest, the "invisible hand" promotes the general welfare. Which of the following phrases define the "invisible hand"?

The allocative role played by different institutions in a market

The increase in the ratio of the African American labor force employed in white-collar jobs can be attributed to:

The appointment of the Equal Employment Opportunity Commission by the federal government.

The sum of a country's balance on goods and services, net investment income from abroad, and net unilateral transfers abroad is known as:

The balance on current account

Which of these holds true for the production possibilities frontier for a given society?

The basic questions regarding what to produce, how to produce and for whom to produce are resolved by a set of mechanisms and institutions commonly referred to as the:

The income and poverty estimates of the U.S. Census Bureau show that:

The biggest decline in poverty occurred before 1970.

Other things constant, the lower the marginal cost of reducing greenhouse gases, _.

The cleaner the optimal level of air quality.

If a country has an absolute advantage in the production of a good, it implies that:

The country can produce the good using fewer resources than other countries.

Which of the following is likely to happen if there is an increase in incomes in Country A relative to incomes in Country B?

The currency of country A will depreciate, and the currency of country B will appreciate.

Which of these statements describes the concept of derived demand?

The demand for a resource arises from the demand for the product produced by the resource.

Which of these is most likely to occur when the price of a resource falls?

The demand for a substitute resource will decrease.

Internet shopping sites often list the prices offered by different sellers of a particular product, making price comparisons much easier. Which of the following is likely to result from this service?

The demand for each seller's product is likely to become more elastic.

Which of the following is likely to be observed when a nation experiences substantial economic growth?

The demand for inferior goods declines, and the demand for normal goods increases.

The Lorenz curve for income distribution in the United States households was closer to the line of equal distribution in 1980 and farther from the line of equal distribution in 2013. Which of the following can be concluded from this observation?

The distribution of income among the U.S. households has become more uneven over this period.

When official poverty estimates suggest that the poverty rate of a particular group has decreased, it implies that:

The earnings of some of the members in this group have increased.

Identify a valid difference between the equilibrium price-output combinations of a monopolist and a perfectly competitive firm.

The equilibrium output is comparatively lower and the equilibrium price is higher for a monopolist.

Identify a likely impact of an increase in market demand on a typical firm in a constant-cost industry that is in long-run equilibrium.

The equilibrium output will increase, while the equilibrium price will remain unchanged

Which of these is a likely impact of an increase in consumer income on the equilibrium price and quantity of normal good?

The equilibrium price and quantity will both increase.

Which of these will be a possible impact of an increase in demand in a perfectly competitive, increasing-cost industry?

The equilibrium price as well as the equilibrium output will increase.

The equilibrium outcome in a natural monopoly is considered to be inefficient because:

The equilibrium price exceeds the marginal cost of producing the last unit of output.

Suppose the consumption of a good generates positive externalities. Which of the following is true when the market for the good is in equilibrium as there is no government intervention?

The equilibrium quantity is less than the socially optimal quantity.

The coach of a basketball team observes that two of the players practice more energetically and enthusiastically during weekend practice sessions that happen in the evening than during weekday sessions that happen in the morning. This observation encourages him to shift the weekday practice sessions for the entire team from the morning to the evening. However, he soon finds that most of the players skip these practice sessions. Which of the following mistakes in reasoning was committed by the coach?

The fallacy of composition

An economic analyst assumes that if two variables are associated in time, one must necessarily cause the other. Which of the following mistakes in reasoning is being committed by her?

The fallacy that association is causation

Suppose a monopolistic competitor is producing an output at which marginal revenue is less than marginal cost. Which of the following steps should be taken by the firm in the short run in order to maximize profit?

The firm should increase price and decrease output.

At the end of a particular quarter, a perfectly competitive firm observes that its marginal cost of production is $15, while its marginal revenue is $18. Further, the market price of its product exceeds the average variable cost of production by $2. Given this information, which of the following decisions should be taken by the firm to maximize profit?

The firm should temporarily stall its production.

The total revenue of a perfectly competitive firm is $3,000, its variable cost of production is $2,800, and its fixed cost is $600. Which of the following decisions will be taken by the owner of the firm in the short run?

The firm will continue to operate in the short run since its total revenue exceeds its total variable cost.

Which of the following will hold true in the short run if a perfectly competitive firm stalls production?

The firm will have to bear its fixed cost.

To prove a firm guilty of violating the Sherman Act under a per se rule, the government needs to examine:

The firm's behavior in a market.

Edward marries Melisa and makes her the co-owner of his law firm. Melisa, who holds a degree in financial accounting, decides to handle the accounting work for the firm that was earlier outsourced to a consultant. Which of the following will result from this change?

The firm's explicit costs will fall, but its implicit costs will rise.

Which of these is a long run feature of firms in a monopolistically competitive market?

The firms can easily enter or leave the market.

Identify an economic agent that defines and enforces private property rights in the U.S.

The government

Cherita, a reputed fashion designer for children, chooses to exercise at a higher-priced gym, situated 2 miles from home, over a less costly gym, located 15 miles from home. Which of the following can be concluded from her behavior?

The higher monetary cost of the more expensive gym is offset by the higher opportunity cost of the lower-priced gym.

Which of the following topics is included in macroeconomics?

The impact of inflation on national income

Identify a key factor that has contributed to the increase in poverty since 1960.

The increase in the number of female householders.

Identify a difference between a collusive oligopoly and a perfectly competitive market.

The industry output in a collusive oligopoly is smaller than that in perfect competition and the market price in a collusive oligopoly is higher than that in perfect competition.

David wants to buy a flat in a newly constructed apartment that is available at a price of $24,000. He plans to give this out on rent to earn a monthly income of $200. However, he has to borrow $24,000 from a bank in order to purchase the flat. Which of the following if true would encourage David to make this purchase?

The interest rate on the bank loan is 8 percent.

Government intervention is not the only source of market disequilibrium. Which of these situations can also lead to temporary disequilibrium?

The introduction of a new product that attracts few customers

Which of the following describes a situation in which a negative externality is likely to be generated?

The jamming session of a high school rock back disturbing others.

The demand for foreign currency in the United States increases when:

The level of imports increases

In the case of a natural monopoly, for the entire range of market demand, _.

The long-run marginal cost curve lies below the long-run average cost curve.

Which of these describes the allocative inefficiency that results from the price-output decision of a profit maximizing monopolist?

The loss in consumer surplus

A natural monopoly is common in markets where:

The lowest average cost is achieved when a single firm serves the entire market.

In the absence of government intervention, the equilibrium quantity of a good with positive externality is determined where:

The marginal private demand curve intersects the marginal cost curve.

A total of 100 workers in a factory can produce 10,000 car radials in a day. When the 101st worker is hired by the firm, production increases to 10,200 car radials, and when the 102nd worker is employed, production increases to 10,500 radials. Which of these can be concluded from the given equation?

The marginal product of the 102nd worker is 300 car radials.

Artisan Co. is a labor-intensive cottage firm. When it adds the first four workers to its production process in the short run, its output rises from 0 to 15 to 35 to 45 to 50. Which of the following can be concluded about the marginal product of labor from this information?

The marginal product of the third worker is 10 units of output.

Which of these is a similarity between a monopolistically competitive firm and a non-price-discriminating monopolist?

The marginal revenue curve lies below the demand curve.

If the production of a good generates a positive externality, _.

The marginal social benefit curve lies to the right of the marginal private benefit curve.

Suppose the production of a good generates harmful gases. If a government decree requires firms to reduce emissions below the optimal level if emissions, _.

The marginal social benefit of reducing the externality will be less than the marginal cost of reducing the externality.

Which of these is observed when the market for a good that uses a fixed-production technology and creates a negative externality is in equilibrium?

The marginal social cost of production exceeds the marginal social benefit of production when the market is in equilibrium.

When Jason increased his consumption of eggs and reduced his consumption of bananas, his total utility increased. Which of the following can be concluded from this information?

The marginal utility per dollar spent on eggs exceeds that of bananas.

Which of the following conditions will guarantee that a firm has achieved productive efficiency?

The market price of the firm's product is equal to the minimum average cost.

Which of following is a correct statement?

The median income for households with two earners is about 90 percent higher than for households with only one earner.

In order to get elected, political candidates in a democracy usually appeal to:

The median voter

Which of these is true of a mediator in a labor negotiation?

The mediator is an impartial observer appointed by the government.

Identify the correct statement.

The operational plan pursued by a player in game theory is called a strategy.

Identify a valid comparison between colluding firms and competing firms.

The output under a cartel is lower than the competitive level.

Which of these is analyzed in macroeconomics?

The overall performance of the economy as a whole

Identify one advantage of a sole proprietorship form of business.

The owner has the right to take away the entire profit.

The houses located in an upscale neighborhood have well-maintained lawns and flower beds. However, after the owners handed over its possession to a bank, a particular house became dilapidated. The overall unclean and unkempt look of this house disrupts the neighborhoods aesthetics. Which of the following best explains why the externality faced by the other house owners in the neighborhood arises.

The owners of the well-maintained houses do not have property rights to a clean and pleasant neighborhood.

Which of these is a valid distinction between private firms and bureaus?

The ownership of private firms is transferable while that of public bureaus is nontransferable.

Consumers have much more incentive to gather and act on information about private choices rather than public choices because:

The payoff in making a private choice is more immediate and substantial.

Which of these is the correct formula for calculating the price elasticity of demand?

The percentage change in quantity demanded divided by the percentage change in price

Which of these is shown by a Lorenz curve?

The percentage of total income received by any given percentage of households when incomes are arrayed from smallest to largest.

In the market for used cars, car owners know the important characteristics of the vehicle they are selling. However, a prospective buyer can only guess the characteristics based on each car's appearance. Which of the following problems arises due to this information mismatch?

The problem of adverse selection

Identify an important feature of a monopoly market.

The product is unique and has no close substitute.

If the marginal social benefit from consuming a good exceeds the marginal private benefit, it implies that:

The production or consumption of the good generates a positive externality

Which of the following factors determines household income in a market economy?

The productivity of each member.

Suppose a business analyst observes that a perfectly competitive firm's marginal revenue, marginal cost, and average revenue are all equal to the price of its product when output is 5,000 units. If the rent paid by the firm for factory space increases, which of the following is likely to happen?

The profit-maximizing output will remain at 5,000 units, but the profit earnings will decrease.

If the U.S. dollar appreciates against the pound, _.

The quantity of British goods demanded in the U.S. will increase

Identify a difference between an import quota and a tariff.

The revenue from a tariff goes to the government of the domestic country, while the revenue from an import quota goes to producers who secure the rights to sell foreign goods in the domestic market.

Which of the following will be included in the study of microeconomics?

The study of individual producers in a market

Which of these is the most likely impact of an increase in the wage rate on the allocation of time between market work, nonmarket work, and leisure?

The substitution effect increases market work, while the income effect increases the demand for leisure.

The reliance on import substitution as a development strategy by developing countries leads to:

The substitution of low-cost foreign goods with high-cost domestic goods.

Which of these results from a higher wage negotiated by an inclusive union that is above the market-clearing wage rate?

The supply of labor in the nonunion sector increases and drives down the nonunion wage.

Identify a key feature of proportional taxation.

The taxpayers at all income levels pay the same percentage of their income in taxes.

Which of these activities will be considered market work?

The time spent teaching geography in a high school

Which of the following accounts for differences in income earnings across U.S. households?

The total number of working members in each household.

The terms "shady economy," "parallel economy," "informal economy," and "cash economy" are used by different nations to refer to:

The underground economy

Identify the correct definition of fiscal policy.

The use of government policies such as changes in government spending and tax rates to stabilize the economy

The balance on goods and services can be expressed as:

The value of all goods and services exported minus the value of all goods and services imported.

The merchandise trade balance is equal to:

The value of merchandise exports minus the value of merchandise imports.

Which of the following is true of a job that requires a long and expensive training period?

The wage rate in such job markets is high.

Which of these is true of union sector workers in the U.S.?

The wage rate in the union sector is about 15 percent higher than that in the nonunion sector.

Identify an example of a permanent resource price differential.

The wages paid to workers in a cigarette factory are higher than that paid in a biscuit factory.

The value of a country's currency will increase if

There is a rightward shift of the country's demand curve for foreign exchange.

Identify a key feature of explicit costs.

These are actual cash payments made by a firm to its suppliers of inputs.

Which of these describes the role of households in the simple circular-flow model?

They supply resources to the resource market.

Which of these is true of government bureaus?

They try to maximize their budget.

Which of these is true of the Sherman Antitrust Act?

This act is the first national legislation in the world against monopoly.

A comparison of poverty rates across different age groups in the U. S. reveals that:

Those under 18 years of age are currently the poorest.

The U.S. official poverty level of income was initially based on:

Three times the cost of a nutritionally adequate diet.

Which of these strategies will result in the highest payoff in a repeated-game setting?

Tit-for-tat strategy

Which of the following was not the purpose or the result of the Bretton Woods agreement?

To return to the gold standard.

Which of the following was the main purpose of the Bretton Woods meeting?

To set up a new international system of payments and to stabilize the exchange rate.

Identify the correct definition of privatization.

Turning government enterprises into private enterprises.

Kenny, Sheryl, and Gabriel share an apartment in a city. They need to decide how many bookshelves they want in the apartment. Kenny prefers four bookshelves to two bookshelves and two bookshelves to one bookshelf, Sheryl prefers two to one and one to four, and Gabriel prefers one to two and two to four. If they decide by majority rule (one versus two, two versus four, and so on), how many bookshelves will they buy?

Two

The U.S. demand for foreign exchange in general and euros in particular will increase if:

U.S. citizens purchase more European products and less U.S. products.

The _ was considered the key reserve currency under the Bretton Woods agreement.

U.S. dollar

Which of these holds true for a cottage industry system?

Under this system, production takes place in workers' homes.

_ occurs when skilled workers are employed in low-skill jobs or workers are working for less hours than they would like.

Underemployment

Identify an example of a social insurance program.

Unemployment insurance.

The Equal Employment Opportunity Commission, established by the Civil Rights Act of 1964, monitors cases involving:

Unequal pay for equal work and unequal access to promotion.

Which of the following conditions is common in a perfectly competitive market?

Uniform product price

Negative externalities refer to the:

Unintended side effects of activities that are themselves useful and purposeful.

Which of the following trends in the union system has been observed in the U.S. over the past years?

Union membership as a fraction of the workforce declined steadily since 1955.

Which of the following is an example of an income arising in the underground economy?

Unreported tips earned by waiters.

Which of the following is true of welfare recipients in the United States?

Welfare recipients face a high marginal tax rate on earned income.

In which of these sectors will unions be least successful in raising the wage rate?

Wholesale and retail trade

The government of a country declares several tax sops and resource subsidies to the manufacturers of arms and ammunition. It also grants new licenses to manufacturers willing to enter this industry. Which of the following economic questions does this attitude of the government help to answer?

What to produce?

If the government uses general tax revenues to subsidize the production of sugar, its actions will have:

Widespread costs and concentrated benefits.

Changes in marginal cost reflect changes in the marginal productivity of the variable resource. Which of the following is a valid relationship between marginal cost and marginal product?

When marginal product increases, marginal cost falls.

Under which of the following situations is a monopolist likely to keep its price below the profit maximizing level?

When the demand for the product is price inelastic

Which of these is a valid comparison between the demand curves faced by a monopolist and a perfectly competitive firm?

Which of these is a valid comparison between the demand curves faced by a monopolist and a perfectly competitive firm?

Which of these is likely to occur when a typical firm in an oligopoly market changes its product's quality, price, output, or advertising policy?

Which of these is likely to occur when a typical firm in an oligopoly market changes its product's quality, price, output, or advertising policy?

The supply curve for yogurt is likely to shift to the right if there is:

a decline in the price of sugar.

The listing of commodities and their respective prices on e-commerce websites such as Amazon.com has resulted in:

a decrease in the marginal cost of search.

The demand for labor in a particular industry is likely to decrease due to:

a decrease in the productivity of each worker.

A company that produces computer games hires technically skilled software engineers. In this case, the demand for the software engineers is also referred to as:

a derived demand.

A firm that sells products which are substitutes but are not viewed as identical by the consumers will face:

a downward-sloping demand curve.

The earnings of a general practitioner are likely to be lower than that of a gastroenterologist because:

a general practitioner lacks the extensive training and education acquired by a gastroenterologist.

Consumers who are willing to pay more for food that is easier to prepare tend to have:

a high opportunity cost of time.

A perfectly elastic supply curve is depicted as:

a horizontal line parallel to the output axis.

Consumers who value present consumption more than future consumption have:

a positive rate of time preference.

An example of a sole proprietorship form of business is:

a local coffee shop.

An inefficient output condition is represented by:

a point inside the production possibilities frontier.

Sabrina, a student of health care, gets inoculated against a contagious disease after observing three of her friends suffering badly from it. This action of Sabrina can lead to:

a positive externality.

A perfectly inelastic supply curve is depicted by:

a vertical straight line parallel to the price axis.

An individual is most likely to confront the principal-agent problem while availing services from:

an auto mechanic.

When a firm earns normal profit,

accounting profit equals implicit costs.

In the market for loanable funds, as the size of a loan increases:

administration costs as a proportion of the loan decreases.

If workers belong to the informed side of the market, while employers belong to the uninformed side, the problem of:

adverse selection is likely to occur.

Resources refer to:

all inputs used for producing goods and services.

The substitution effect of a price change for a good is zero if:

all prices change by the same percentage.

If the resource demand curve slopes downward and the resource supply curve is perfectly inelastic:

all resource earnings are economic rent.

A perfectly competitive firm guarantees _ in the long run.

allocative and productive efficiency

The cross-price elasticity of demand for unrelated goods is:

always zero.

An individual is least likely to confront the principal-agent problem while availing services from:

an air hostess.

Government outlays in the United States relative to GDP:

are below the average of advanced economies of the world.

In the utility analysis, economists assume that tastes and preferences:

are relatively stable for a given consumer.

A record of all economic transactions during a given period between residents of one country and residents of the rest of the world is called the:

balance of payments.

Other things remaining unchanged, the earnings of a resource from alternative uses will tend to:

be equal if the resource is freely mobile.

The process by which differences between two parties are settled with the help of a neutral third party is called:

binding arbitration.

In the market for loanable funds, banks act as intermediaries between:

borrowers and lenders.

The securities traded in the New York stock exchange or in the over-the-counter markets are mostly:

bought by institutional investors.

A comparison of the economic growth experienced by Taiwan and China, once they adopted different economic systems, reveals that:

capitalist economies have experienced better growth than command economies.

A craft union is most likely to be formed by workers in the:

carpentry industry.

Variable costs refer to costs that:

change as output changes.

The opportunity cost of choosing a particular item or activity:

changes over time and depends on circumstances.

In the prisoner's dilemma game, if player A chooses his dominant strategy, player B will:

choose his own dominant strategy.

An example of a market in which a resource is bought and sold would be the market for:

civil engineers.

The demand curve faced by a monopolist who can practice perfect price discrimination:

coincides with the marginal revenue curve.

If an increase in the price of one good decreases the demand for another good, the two goods are likely to be:

complements.

The long-run average cost curve of a firm is often horizontal over a particular output range. Over this range, the firm experiences:

constant average cost.

A linear production possibilities frontier represents:

constant opportunity cost of producing one good in terms of the forgone good.

When the price of a commodity increases along a given demand curve, _.

consumer surplus decreases

Governments in developing countries face difficulties pursuing policies conducive to economic development because:

consumers do not recognize their potential gains.

Allocative efficiency occurs when each firm produces the output that:

consumers value the most.

In the short run, if price exceeds average variable cost, a monopolistically competitive firm should:

continue producing the same quantity.

Sandra Brown spends her monthly income on cookies and bread. If the price of cookies is twice the price of bread, then Sandra maximizes her total utility when she buys:

cookies and bread until the marginal utility of cookies is double the marginal utility of bread.

A cartel in an oligopoly market is defined as a group of firms that agree to:

coordinate their production and pricing decisions.

A group of workers having a particular skill or work form a(n) _.

craft union

Product differentiation expenditures incurred by the firms in an industry can:

create barriers to entry.

Meg teaches some students the piano at her house over the weekend. During the summer break, her student strength increases, forcing her to divide the class into two separate batches. If the income effect of this increase in earnings is constant for Meg, the substitution effect is likely to:

decrease the time allotted to leisure during weekends.

Given a downward-sloping demand curve, a rightward shift of the supply curve:

decreases price but increases quantity.

The composition of federal outlays in recent years suggests that:

defense spending has declined by a large extent.

The price elasticity of demand for a product is the:

degree of responsiveness of quantity demanded to price.

Elasticity in economics measures the:

degree of responsiveness.

Monopolistic competitors tend to act independently because:

each firm controls a very small share of the market.

A corn producer in Texas faces a horizontal demand curve because:

each firm in the corn market has a small share in the market and is a price taker.

A firm in a perfectly competitive market has no control over the price because:

each firm is small relative to the market.

Specialized resources used in a firm tend to:

earn a higher proportion of their total earnings as economic rent than do resources with alternative uses.

The average total cost incurred by a ball bearing manufacturer equals the average revenue earned by him when he produces 1,000 units of output. This implies that at this output level the firm is:

earning a normal profit.

A firm's total revenue minus the opportunity cost of all resources used in production is called its:

economic profit.

The portion of a resource's earnings that exceeds its opportunity cost is referred to as:

economic rent.

The basic questions regarding what to produce, how to produce and for whom to produce are resolved by a set of mechanisms and institutions commonly referred to as the:

economic system.

The demand for a particular brand of smartphones decreases by 10 percent when the price increases by 5 percent. This implies that this brand of smartphones has _ demand.

elastic

Knowledge of price elasticity of demand is especially valuable to producers, because it indicates how a price change affects total revenue. A fall in the price of a good increases total revenue only if its demand is:

elastic.

negative for inferior goods.

elastic.

400 LED bulbs can be manufactured in a factory in a day using two machines and 50 workers. When the 51st worker is hired, production increases to 410 bulbs. If each LED bulb sells at a fixed price of $3 in the market, we can conclude that the marginal revenue product of the 51st worker is:

equal to $30.

For the last unit of a commodity purchased by a consumer, consumer surplus will always be:

equal to 0.

The earnings of a resource from alternative activities will tend to:

equalize if the nonmonetary aspects of supplying the resource to alternative uses are identical.

The government produces a public good and provides it to:

every citizen regardless of whether they pay or not.

In order to maximize utility, an individual should allocate time between market work, nonmarket work, and leisure so that the:

expected marginal utility of the last unit of time spent in each activity is identical.

According to Stigler's search model, the expected marginal benefit of a search is likely to be the highest for:

expensive goods.

The payment made to coal suppliers by a thermal power plant would be an example of a(n):

explicit cost.

In the absence of a union, at the market wage rate, each firm:

faces a horizontal, or perfectly elastic, supply of labor curve.

The marginal revenue product of a resource used by a perfectly competitive firm:

falls steadily when more number of resources are hired.

A key feature of an oligopoly market is that, there are:

few suppliers and many buyers.

Graphically, the distance between the total cost curve and the total variable cost curve at each level of output reflects the:

fixed cost.

The more time buyers get to adjust to a change in the price of a commodity, the _ is the demand curve for the commodity and the _ is its elasticity of demand.

flatter; higher

National defense is considered to be a public good because it is:

freely available to everyone once it is produced.

Legal restrictions such as patents:

give producers a temporary exclusive right to produce a new good.

Consider a firm that has the power to control price in the product market. If the marginal revenue product of the fourth worker hired by this firm is $20, and the price of the last unit of output produced is $4, then the marginal product of the fourth worker is:

greater than 5 units of output.

The total value of all the goods and services produced within an economy during a particular year is called the:

gross domestic product.

According to the law of comparative advantage, gains from specialization and trade can occur in a two-commodity exchange model when an individual having an absolute advantage in producing both the goods:

has a comparative cost advantage in the production of only one of the two goods.

Other things equal, the demand for workers who:

have acquired extensive training and education is high.

A price-discriminating monopolist supplies its product to students studying medicine and to health care providers. In order to maximize profit, a monopolist will charge a higher price to:

health care providers who are less sensitive to price.

The government provides public assistance to households that have few resources that are valued in the market. Such assistance can take the form of in-kind transfers like:

healthcare benefits.

Households in a resource market supply additional units of only those resources that:

help to maximize utility.

According to the law of comparative advantage, an individual should choose to produce a good if:

her opportunity cost of producing the good is the lowest.

The consumers of a product that has many substitutes in the market are:

highly sensitive to changes in price.

Suppose a union negotiates a wage above the market-clearing level. The firms hiring the union members will:

hire less labor resources.

A company produces LED searchlights using labor as a key resource. The management of this company observes that each of the next five additional workers is capable of producing 10 new searchlights a day. If the price of each searchlight is $4 and the workers are paid $20 per day, the company will:

hire new workers as long as the workers can produce more than 5 searchlights a day.

The demand curve for a particular brand of canned fish is likely to be _ as the demand for the product is _.

horizontal; perfectly price elastic

The supply of a commodity is said to be elastic:

if the percentage change in quantity supplied is more than the percentage change in price.

A firm's opportunity cost of using a resource it owns is called its:

implicit cost.

When Katie's earnings increase by 10%, her demand for Gucci leather handbags increases by 15%. This implies that the demand for Gucci leather handbags is:

income elastic.

Ceteris paribus, the more important an item is as a share of the consumer's budget, the greater is the _ effect of a price change and the more _ is the demand for the item.

income; elastic

A gambler who loses a huge sum at a horse race is likely to:

increase his supply of labor.

A price ceiling imposed by the government on apartment rentals in a prime residential area will lead to a(n):

increase in the demand for rented apartments.

Other things constant, an increase in the market interest rate will lead to a(n):

increase in the reward for saving and an increase in saving.

At an output level chosen by a monopolistic competitor, the revenue from selling an additional unit is $500 and the cost of producing that additional unit is $400. To maximize profit in the short run, the firm should:

increase its output.

When the demand for the good produced by a monopoly is price elastic, a decrease in price will:

increase the total revenue.

Given an upward-sloping supply curve, a rightward shift of the demand curve:

increases both equilibrium price and quantity.

The demand for a(n) _ decreases as money income increases.

inferior good

A price-guided "do-it-yourself" approach is useful when:

inputs can be easily identified and measured.

Services refer to:

intangible products or activities used to satisfy human wants. those activities that are less desirable than goods.

The term structure of interest rates implies that, other things constant, _.

interest rate is directly proportional to the duration of the loan

The equilibrium in the loanable funds market determines the:

interest rate.

The output that maximizes a cartel's profit corresponds to the point of:

intersection of the cartel's marginal cost curve and the market's marginal revenue curve.

The demand curve for a resource shows the:

inverse relationship between the price of the resource and the number of units of the resource demanded.

The long-run industry supply curve for a constant-cost industry:

is a horizontal line parallel to the output axis.

The statement "opportunity cost is subjective" implies that the opportunity cost of a particular activity:

is different for each individual.

You have a choice of playing tennis or cooking on a particular day. If you enjoy pursuing both these activities, your opportunity cost of cooking:

is higher on sunny days than it is on rainy days.

A fixed cost refers to a production cost that:

is independent of the rate of output.

For a monopolist that charges a single price to all consumers, marginal revenue:

is less than average revenue.

A monopolist is said to have market power because:

it has complete control over product price.

A monopolist's average revenue curve is the same as:

its demand curve.

A firm will continue its operation as long as:

its economic profit is positive.

A firm experiences diseconomies of scale when:

its long-run average cost increases as output increases.

Economists assume that if a good is free, consumers try to maximize their total utility from its consumption. This implies that the consumption of such a good will increase as long as:

its marginal utility is positive.

A resource is considered to be scarce when:

its price exceeds zero.

A firm experiences increasing marginal returns when:

its total product increases at an increasing rate.

The most valuable resource supplied by most households in a resource market is:

labor.

Consider a production possibilities frontier that shows different quantities of corn and sugar produced in an economy. If the corn production in the economy increases, _.

larger and larger amounts of sugar production must be given up

A price-discriminating monopolist who wants to maximize profits divides its market into two segments. The monopolist's marginal cost of producing each unit of output is $20. If it charges a price of $30 in the market segment where demand is relatively less elastic, its price in the market segment where demand is more elastic will be:

less than $30 but more than $20.

Unlike a perfectly competitive firm, the marginal revenue curve of a monopolist:

lies below the average revenue curve.

A short-run feature of a firm under perfect competition is:

limited entry and exit.

In order to restrict the supply of labor in an industry, the craft union:

limits its membership.

The minimum efficient scale refers to the:

lowest rate of output at which a firm takes full advantage of economies of scale.

According to economists, an individual making a rational choice will:

make decisions that can help him or her to achieve some predetermined goal.

The scientific method of economic analysis leads economists to accept an economic model only if it:

makes accurate predictions.

Product differentiation among the different firms that populate a monopolistically competitive market:

makes the demand curve faced by the firm price elastic.

Economic models are generally used for:

making predictions about cause and effect in the real world.

When the total cost of a competitive firm grows at an increasing rate with an increase in its output, we can conclude that its:

marginal cost is positive and increasing.

The change in total product that results when a firm increases its usage of a particular resource by one unit, keeping all other resources constant, is referred to as the:

marginal product of that resource.

A profit-maximizing monopolist will choose to supply the output at which:

marginal revenue equals marginal cost.

A profit-maximizing firm hires labor up to the point where labor's:

marginal revenue product equals its marginal resource cost.

The owner of a wheat farm sells her produce in a perfectly competitive market. Her annual wheat turnover amounts to 800 bushels, generating a total revenue of $4,800. However, harvesting the 801st bushel of wheat increases her total cost of farming from $4,800 to $4,806. This implies that the wheat producer's:

marginal revenue will equal marginal cost for the 801st bushel of wheat.

In a world without scarcity, a consumer would increase consumption as long as:

marginal utility is positive.

When the total utility derived from the consumption of bananas increases, the:

marginal utility is positive.

The change in satisfaction that results from a one-unit change in the consumption of a good is termed:

marginal utility.

The dollar value of the additional utility derived from consuming each additional unit of a good is referred to as:

marginal valuation.

The average revenue of a firm is equal to:

market price of its product.

Suppose the marginal product of the third worker hired by a soft toy company is 18 units and the price of the fifteenth unit of soft toy is $10. In this case, the marginal revenue product:

of the second worker is $180, if the product market is perfectly competitive.

In a labor market with hidden characteristics, employers can avoid the adverse selection problem by:

offering an efficiency wage.

In order to maximize total revenue, a monopolist always chooses to produce:

on the elastic portion of the demand curve.

The expression "there's no such thing as a free lunch" reflects the concept of:

opportunity cost.

The expression "time is money" pertains to the concept of:

opportunity cost.

Stockholders are defined as:

owners of a corporation who have limited liability.

Sandra Martin is the owner of the only diamond jewelry showroom in a town. She supplies jewelry mostly to the upscale residents of this town but is interested in expanding her customer base to middleclass households as well. Recently, she announced a 10 percent discount on the making charges for her new customers but continued to charge the same price to existing customers. This is an example of:

price discrimination

Suppose the marginal cost of supplying additional units of a good rises sharply when output expands. In this case, the supply of the good will be:

price inelastic.

If two firms in a perfectly competitive market have the same marginal cost, they are likely to:

produce the same quantity at the market price.

The last dollar spent on oranges yields Jacob more satisfaction than the last dollar spent on cheese cake. If Jacob is a utility-maximizing consumer, he should:

purchase more oranges so that total utility can be maximized.

The law of supply states that, other things remaining constant, the:

quantity supplied of a good is usually directly related to the price of the good.

The term "collective bargaining" refers to the process by which:

representatives of unions and management negotiate a labor agreement.

Organizing activities through the hierarchy of the firm is more efficient than market exchange when the production process:

requires different types of resource suppliers.

A decline in the price of soft drinks induces some soft drinks producers to manufacture canned fruit juice. This leads to a(n):

rightward shift of the supply curve of fruit juices

According to economists, "utility" is defined as the:

satisfaction received from consumption.

In the market for loanable funds, other things constant, an increase in the rate of interest will induce individuals to:

save more in the current period.

Interest rate is the annual reward for:

saving as a percentage of total income.

Jennifer is fond of shoes and shops for them every month. During a recent visit to her favorite shoe store, she was ready to pay $10 for the first pair of shoes she chose, $9 for the second pair, and $7 for the third pair. If the store offered a flat rate of $7 for all the shoes and Jennifer purchased all three pairs, we can conclude that:

she earned a consumer surplus worth $5 from the purchase of the shoes.

Tina consumes two pieces of candy bars during a snack break at her office. She finds out that the value of the second candy bar to her is equal to the price she paid for it. If the price of each candy bar is $1.50, then:

she earns a consumer surplus only from the consumption of the first chocolate.

An increase in the nation's capital stock in the current period will:

shift the economy's PPF outward in the next period.

A decrease in the price of corn is likely to:

shift the supply curve of wheat to the right.

If the number of producers operating in a particular industry decreases, the supply curve will:

shift to the left.

The marginal cost curve for information:

slopes upward, showing a positive relation between the information cost and the quantity of information gathered.

When the price of butter increased substantially, the consumption of margarine was found to increase. The economic concept that best explains this behavior is the:

substitution effect.

Households usually perform tasks such as cooking and cleaning without depending on the markets because:

such tasks do not demand expertise or special machinery.

A tax imposed by the government on the import of goods and services, in order to restrict trade, is called a(n):

tariff.

The scientific method used by economists to study economic problems enables them to:

test economic hypotheses to determine their validity.

A sales person at a pharmaceutical company earns a higher amount in commission and more perks every month than the other members in her team. If the members in the sales team have similar work experience and qualification, it is likely that this resource price differential results from:

the difference in the inherent quality of the resource.

The implicit costs of a firm will include:

the entrepreneurial skills of the owner.

Rational decision makers continue to acquire information as long as:

the expected marginal benefit from that information exceeds the marginal cost of gathering it.

A rational decision maker changes the status quo only if:

the expected marginal benefit from the change exceeds the expected marginal cost.

The factors assumed constant along the supply of loanable funds curve include:

the expected rate of inflation.

The minimum efficient scale is the lowest output at which:

the firm takes full advantage of economies of scale.

When the ratio of the percentage change in the demand for a good to the percentage change in income is greater than one, _.

the good is referred to as a luxury.

The less elastic the resource supply:

the greater the economic rent as a proportion of total earnings.

Each point on the production possibilities frontier represents:

the greatest achievable output levels with the given resources.

A cartel acts like a monopoly that runs many plants. Thus, its marginal cost curve is:

the horizontal sum of all the individual firms' marginal cost curves.

The short-run industry supply curve in perfect competition is:

the horizontal summation of the upward-sloping short-run marginal cost curves of all the firms.

A market is said to be in equilibrium when:

the independent plans of buyers match those of sellers.

According to the law of comparative advantage, _.

the individual with the lower opportunity cost of producing a particular good should specialize in the production of that good

The cost of borrowing in an economy increases if:

the interest rate increases, other things constant.

The demand curve shows:

the inverse relationship between price and quantity demanded.

The market wage rate for a particular job is likely to be high if:

the job involves a high probability of injury and death.

Price elasticity of supply is positively related to:

the length of the adjustment period under consideration.

In the production of laptops, the minimum efficient scale is 300,000 units per year. This implies that:

the long-run average cost of producing 200,000 laptops is more than the long-run average cost of producing 300,000 laptops.

The higher the interest rate, _.

the lower is the present value of a payment

An adverse selection problem may arise in hiring:

the manager of a company.

When a firm achieves allocative efficiency, _.

the marginal benefit of its output will be equal to its marginal cost of production

The slope of the total cost curve at each rate of output equals:

the marginal cost at that rate of output.

Suppose a firm incurs no fixed cost for producing a good. If the variable costs of production incurred by the firm for the first three units of output are $200, $400, and $650, respectively, we can conclude that:

the marginal cost of producing the third unit is $250.

A cartel's profit can be maximized only when output is allocated between the firms such that:

the marginal cost of the final unit produced by each firm is identical.

Consumers of an open-access resource continue to exploit it as long as:

the marginal private benefit from consumption exceeds the marginal private cost.

The interest rate charged on a loan is likely to be lower:

the more valuable the collateral backing up the loan, other things constant.

The rational self-interest theory proposed by economists emphasizes that:

the notion of self-interest does not rule out concern for others.

Although firms are highly efficient in reducing transaction and production costs, some activities are still performed by households. A household usually performs a task if:

the opportunity cost of performing it is lower than its market price.

The law of supply implies that:

the opportunity cost of production rises as output expands.

An important feature of perfect competition is:

the presence of a standardized product.

Microeconomics examines topics such as:

the price of a good in a competitive market.

If the government of a country restricts the import of Italian wine, _.

the price of both Italian wine as well as domestically produced wine will increase

If the law of supply holds true for Italian bread, the equilibrium price and equilibrium quantity of Italian bread is likely to decrease when:

the price of butter (a complement) increases.

Under pure capitalism, _.

the price system is used to guide resources to their highest-valued uses

If an increase in immigration of skilled workers lowers the wage rate in a particular industry:

the producers in the industry will demand more skilled workers.

The demand for loanable funds curve is likely to shift to the left when:

the productivity of capital decreases.

A particular point on the demand curve for a good indicates:

the quantity demanded of the good at a particular price.

A surplus in the market for oranges will cause:

the quantity of oranges supplied to decrease.

A point on the supply curve represents:

the quantity offered for sale at a particular price.

The total cost and the variable cost of producing 1,000 soft toys are $2,500and $1,800, respectively. This implies that:

the total fixed cost of producing the soft toys is $700.

The marginal revenue of a firm is graphically represented by the slope of:

the total revenue curve.

A perfectly competitive firm will be compelled to shut down its operation in the short run if, before the shutdown, at all positive output levels, _.

the total variable cost was more than the total revenue

The winner's curse applies to all cases of bidding in which:

the true value of the good being auctioned is initially uncertain.

The opportunity cost of a chosen item or activity equals:

the value of the best alternative not chosen.

If the value of a road repair contract is uncertain, too many contractors may submit their bids. Each of them is likely to quote the lowest amount possible and end up losing money after winning the bid. This is an example of:

the winner's curse.

Unlike a monopoly, in a perfectly competitive market, _.

there are no barriers to the entry of new firms

If the price of Diet Coke increases from 50 cents to 60 cents per can and the quantity demanded decreases from 150 cans to 100 cans, then, according to the midpoint formula, the value of price elasticity of demand for Pepsi-Cola is:

−2.2.