FINAL EXAM ECON PRACTICE EXAMS

35. Teddy's production possibilities curve for goods M and N is described by the following equation: M = 21 - 3*N. The maximum amount of N Teddy can produce is A) 63. B) 21. C) 14. D) 7. E) 0.

D) 7.

41. If the monopolist's demand curve is P=30-5*Q, then her marginal revenues are A) 30 - 5*Q. B) 60 - 10*Q. C) 60 - 5*Q. D) -5*Q. E) 30 - 10*Q.

E) 30 - 10*Q.

25. Utility is to the Law of Diminishing Marginal Utility as ___ is to the Law of Diminishing Marginal Returns. A. Total Cost B. Production C. Average Cost D. Elasticity

B. Production

16. Suppose a 10% increase in price causes a 12% decrease in quantity demanded. Then we would say demand is A. unit elastic. B. elastic. C. inelastic. D. hyperbolic.

B. elastic.

37. Given the total cost function, TC=100+7*Q, fixed costs are A) $100. B) $100/Q. C) $7. D) $7/Q. E) $107.

A) $100.

50. When the perfectly price discriminating monopolist profit maximizes, consumer surplus is A) 0. B) maximized. C) $9. D) $45. E) $36.

A) 0.

97. Which of the following would result in an increase in supply? A) A reduction in the premiums firms pay for liability insurance. B) A reduction in the quality of technology used by firms. C) An increase in demand. D) An increase in consumers' incomes. E) An increase in the population of consumers.

A) A reduction in the premiums firms pay for liability insurance.

94. Which of the following is not a characteristic of governmental rent controls? A) Equitable distribution of apartments. B) Excess demand for apartments. C) Fewer newly built apartment building. D) Deteriorating quality of existing apartment buildings. E) Very low vacancy rates.

A) Equitable distribution of apartments.

4. Which of the following items is an example of a nonrival but excludable good? A) Pay-per-view movies. B) Corn. C) National defense. D) Broadcast TV. E) Access to the Internet.

A) Pay-per-view movies.

33. Which of the following factors of production is likely to be fixed in the short run? A) The location of the firm. B) The number of employee-hours. C) The amount of electricity consumed. D) The amount of paper used. E) The amount of RAM installed in the network server.

A) The location of the firm.

16. Suppose a person makes a choice that seems inconsistent with the cost-benefit principle. Which of the following statements represents the most reasonable conclusion to draw? A) The person (explicitly or implicitly) over-estimated the benefits or under-estimated the costs or both B) The abstraction of the cost-benefit principle is so great as to be unable to explain behavior. C) The person does not grasp how decisions should be made. D) The person is simply irrational. E) Because people don't explicitly calculate benefits and costs, it is not surprising that choices are made which violate the cost-benefit principal.

A) The person (explicitly or implicitly) over-estimated the benefits or under-estimated the costs or both

24. Which of the following would cause an increase in quantity supplied? A) The price farmers receive for their crops rises. B) The United Auto Workers negotiates a wage increase for its union members. C) The price firms pay for liability insurance falls. D) New, faster computer processors are introduced. E) OPEC limits the production of crude oil.

A) The price farmers receive for their crops rises.

41. Viewed from the perspective of a common property rights problem, reductions in the poaching of elephants for their ivory could be accomplished by A) assigning the property rights of the elephant herds to specific tribes. B) increasing enforcement efforts against poachers. C) lessening the demand for ivory. D) taxing ivory products. E) banning the importation of ivory

A) assigning the property rights of the elephant herds to specific tribes.

75. Good W is on the vertical axis and good Z is on the horizontal. A technological innovation that improved labor's productivity for W but had zero effect on the productivity of Z would cause the production possibilities curve to A) become steeper. B) shift away from the origin. C) become flatter. D) shift towards the origin. E) change in an unknowable way.

A) become steeper.

99. The scarcity principle indicates that __________ and the cost-benefit principle indicates __________. A) choices must be made; how to make the choices B) how to make the choices; choices must be made C) choices must be made; just one of many possible ways to make the choices D) choices must be made; the choices will be poor E) choices must be made; the costs can never outweigh the benefits of the choices

A) choices must be made; how to make the choices

21. Price floors always cause A) deadweight loss. B) a shortage. C) too much consumption. D) too little production. E) quantity demanded to exceed quantity supplied.

A) deadweight loss.

8. Perfect price discrimination is when A) each buyer pays their reservation price. B) most buyers pay their reservation price. C) the monopolist is not caught discriminating. D) sellers discriminate on the basis of religion.

A) each buyer pays their reservation price.

49. When a market is not in equilibrium then A) it is always possible to identify unexploited opportunities. B) demanders are dissatisfied with the market. C) suppliers are dissatisfied with the market. D) government intervention is necessary. E) it will have a tendency to remain in disequilibrium.

A) it is always possible to identify unexploited opportunities.

4. If marginal benefit is less than marginal cost, a rational choice involves A) less of the activity. B) no more of the activity. C) more of the activity. D) more or less, depending on the benefits of other activities.

A) less of the activity.

18. If an economy is producing inside its production possibilities frontier, then A) more output could be produced with the available resources. B) that economy's production is efficient. C) that economy is producing an unattainable quantity of goods and services. D) no one can be made better off without making someone else worse off.

A) more output could be produced with the available resources.

2. An inefficient point is A) necessarily an attainable point. B) may be an attainable point. C) necessarily an unattainable point. D) possible an unattainable point. E) one that uses too many resources.

A) necessarily an attainable point.

10. Pareto efficiency is a situation where A) no one can be made better off without harming someone else. B) trades that make some better off without harming others exist. C) some dead weight loss is created. D) everyone gets the same.

A) no one can be made better off without harming someone else.

7. If it is impossible or highly costly to prevent consumers from consuming a good when they have not paid for it, the good would be classified as a(n) __________ good. A) nonexcludable B) pure public C) private D) nonrival E) common

A) nonexcludable

15. The motivation for private solutions to externalities is that A) resources are misallocated and thus cash is on the table. B) individuals are today more concerned about pollution. C) of profit maximization. D) of utility maximization. E) individuals mistrust governmental solutions.

A) resources are misallocated and thus cash is on the table.

48. Jose is vacationing on Padre Island during Spring Break. He goes to the beach early on a sunny afternoon because he knows it will be crowded and he wants to have sufficient room to put out a large beach towel to lie on while sunning himself. Later that afternoon the beach fills to capacity and the family next to Jose raises a large beach umbrella to shade themselves from the sun. The shade from the umbrella also covered the area where Jose was lying. In this case, the sunlight was: A) scarce because Jose would have to forego a place on the beach to receive the sunlight. B) not scarce because it is freely available (i.e., Jose did not have to pay money for it). C) scarce because the neighboring family absorbed all the sunlight with their umbrella. D) not scarce because Jose could move to another location to receive the sunlight. E) scarce because the beach was full to capacity

A) scarce because Jose would have to forego a place on the beach to receive the sunlight.

10. The Yellowstone National Park is a jointly consumed good in the sense that A) the size and beauty of the park is the same for all visitors. B) typically only families visit the park. C) while the government owns the park, private firms provide the lodgings. D) all taxpayers pay for its upkeep even if they don't visit the park. E) it is a national resource.

A) the size and beauty of the park is the same for all visitors.

22. Choosing efficiency as the first social goal and equity as the second means A) when equity is considered, the surplus available is as large as possible. B) society is unconcerned with the problems of the underprivileged. C) society will become more materialistic. D) greater income inequality. E) the rich get richer and the poor get poorer.

A) when equity is considered, the surplus available is as large as possible.

60. Assume that Joe is willing to produce another hamburger that costs $1 to make. Mary is hungry and is willing to buy a hamburger for $3. According to the No Cash on the Table principle, Joe and Mary A) will make a trade. B) will only make a trade if Joe can get Mary to spend more than $3 for the hamburger. C) will only make a trade if Mary can get Joe to charge less than $1 for the hamburger. D) may or may not make a trade. E) will never trade; they will look for better deals.

A) will make a trade.

1. A natural monopoly occurs when: A. long-run average costs fall continuously. B. a firm owns or controls some resource essential to production. C. long-run average costs rise continuously as output is increased. D. a company produces a good that many consumers want to buy.

A. long-run average costs fall continuously.

60. If the monopolist's demand curve is P=90-3*Q, then the price at which marginal revenues are zero is A) $90. B) $45. C) $30. D) $15. E) $3.

B) $45.

53. Sophia wants to go to a friend's house this evening, but has promised her mother that she would clean the house during that time. Her brother, James, has offered to clean the house for her if she will pay him $10. Sophia replies, "I'll pay you five dollars (and not a cent more!)." The: A) $10 represents Sophia's reservation price of going to her friend's house this evening. B) $5 represents Sophia's opportunity cost of cleaning the house this evening. C) $10 represents James's reservation price and Sophia's opportunity cost of going to her friend's house this evening. D) difference between the $10 James has asked for to clean the house and the $5 Sophia has offered represents the economic surplus of going to her friend's house this evening. E) $10 represents the opportunity cost and the $5 is the marginal benefit of going to her friend's house this evening.

B) $5 represents Sophia's opportunity cost of cleaning the house this evening.

25. The price equals marginal cost rule for profit maximization is a specific example of which of the following core principles? A) Scarcity. B) Cost-benefit. C) Comparative advantage. D) Equilibrium. E) Efficiency.

B) Cost-benefit.

21. Mary and Joe live on neighboring islands. Assume that in one hour Joe can either collect 3 coconuts or 9 dates. In one hour Mary can either collect 2 coconuts or 8 dates. According to the principle of comparative advantage, A) Joe and Mary will never trade. B) Joe and Mary could expand their consumption possibilities by having Joe specialize in coconuts and Mary specialize in dates and then trading with one another. C) Joe and Mary could expand their consumption possibilities by having Joe specialize in dates and Mary specialize in coconuts and then trading with one another. D) Mary should give Joe some of her dates for free.

B) Joe and Mary could expand their consumption possibilities by having Joe specialize in coconuts and Mary specialize in dates and then trading with one another.

29. The market for widgets is characterized by many different sellers who all sell widgets with slightly different characteristics (e.g., some are small, some are large, etc.). There are no barriers to entering this market. The market structure that best describes the widget market is: A) Perfect Competition B) Monopolistic Competition C) Oligopoly D) Monopoly

B) Monopolistic Competition

34. Assume both the demand and the supply of Athlon 700 Mhz processors increase. Which of the following outcomes is certain to occur? A) The equilibrium price of Athlon 700 Mhz processors will rise. B) The equilibrium quantity of Athlon 700 Mhz processors will rise. C) The equilibrium price of Athlon 700 Mhz processors will fall. D) The equilibrium quantity of Athlon 700 Mhz processors will fall. E) Neither the equilibrium price nor the equilibrium quantity of Athlon 700 Mhz processors can be predicted.

B) The equilibrium quantity of Athlon 700 Mhz processors will rise.

8. The reason a family doctor would send one of his patients to a surgeon to remove a tumor is because the surgeon has A) an absolute advantage in providing treatment. B) a comparative advantage in providing treatment due to inborn talent and training. C) a comparative advantage in providing treatment due to cultural differences. D) an arrangement with the family doctor to fee split unnecessary surgeries. E) a better bedside manner.

B) a comparative advantage in providing treatment due to inborn talent and training.

84. The existence of externalities results in A) harm to those directly involved. B) a misallocation of resources. C) a greater than optional level of production. D) a less than optimal level of production. E) harm to those indirectly involved.

B) a misallocation of resources.

17. In general, individuals and nations should specialize in producing those goods for which they have a(n) A) absolute advantage. B) comparative advantage. C) absolutely comparative advantage. D) absolute and comparative advantage. E) comparatively absolute advantage

B) comparative advantage.

3. A nonexcludable good is one for which A) the availability of the good does not depend on the number of consumers. B) consumers can consume the good without paying for it. C) consumers can't remove from their budget. D) consumers must pay for before they can consume it. E) consumption continues despite serious health risks, e.g., cigarettes.

B) consumers can consume the good without paying for it.

23. Price ceilings always result in A) a surplus. B) fewer mutually beneficial trades taking place. C) quantity supplied exceeding quantity demanded. D) increased access to price controlled goods. E) too much production.

B) fewer mutually beneficial trades taking place.

4. The __________ the difference between domestic opportunity costs and international opportunity costs, the __________ the potential benefits of trading with other countries. A) smaller; greater B) greater; greater C) greater; smaller D) larger; more insignificant E) closer to zero is; more significant

B) greater; greater

90. If the price of an item falls, then one would expect to see a(n) A) increase in demand. B) increase in quantity demanded. C) decrease in quantity supplied. D) decrease in supply. E) fewer consumers.

B) increase in quantity demanded.

50. Suppose the price of beer increases. One would expect to see in the wine market a(n) A) increase in the quantity of wine demanded. B) increase in the demand for wine. C) decrease in the quantity of wine demanded. D) decrease in the demand for wine. E) indeterminate change in the wine market.

B) increase in the demand for wine.

89. As the price of cookies increases, firms that produce cookies will A) increase the supply of cookies. B) increase the quantity of cookies supplied. C) decrease the supply of cookies. D) decrease the quantity of cookies supplied. E) leave their production unchanged.

B) increase the quantity of cookies supplied.

45. The supply curve illustrates that firms A) increase the supply of a good when its price rises. B) increase the quantity supplied of a good when its price rises. C) decrease the quantity supplied of a good when input prices fall. D) increase the quantity supplied of a good when input prices rise. E) decrease the quantity supplied to earn higher profits.

B) increase the quantity supplied of a good when its price rises.

46. According to the text, government price controls fail because A) they are not enforced. B) legislation can not repeal basic economic motives. C) bureaucrats lack accurate market data. D) firms ignore the restrictions. E) the penalties for violations are not large enough.

B) legislation can not repeal basic economic motives.

98. As the price of a good rises, A) firms earn larger profits. B) more firms can cover their opportunity costs of producing the good. C) firms find they can raise price by even more. D) consumers become more willing to purchases the good. E) government regulation becomes more justified.

B) more firms can cover their opportunity costs of producing the good.

18. Good economic models A) often leave out important variables, causing serious errors. B) omit many details to allow us to see what is truly important. C) are designed to give a complete picture of a given relationship. D) cause economics to be misunderstood by the general public.

B) omit many details to allow us to see what is truly important.

18. The major cost or penalty imposed by increasing specialization is A) excessive workloads. B) reduced variation in work tasks. C) reduced variety in the types of jobs. D) increased worker vulnerability to being fired. E) being a jack-of-all-trades but master of none.

B) reduced variation in work tasks.

5. A private good possesses the characteristics of being A) rival but nonexcludable. B) rival and excludable. C) nonrival but excludable. D) nonrival and nonexcludable. E) rival or excludable but not both.

B) rival and excludable.

42. Assume that the production technology required to produce goods X and Y are very similar. If a firm that is producing good X notices that the market price of good Y is rising, it will A) intensify its production of good X. B) shift into producing good Y. C) anticipate a price increase for good X. D) leave its production decisions unchanged. E) charge a higher price for good X.

B) shift into producing good Y.

12. Imperfect price discrimination occurs when A) the monopolist charges a single price to all consumers. B) some buyers pay less than their reservation price. C) some buyers pay more than their reservation price. D) all buyers pay less than their reservation price. E) all buyers pay their reservation price.

B) some buyers pay less than their reservation price.

33. If, in a particular market, all unexploited opportunities have been realized one can conclude that A) government regulation has proven successful. B) the market is in equilibrium. C) demanders are unable to find adequate amounts of the good. D) excess demand is present. E) excess supply is present.

B) the market is in equilibrium.

82. The opportunity cost of an activity is the value of A) an alternative forgone. B) the next-best alternative forgone. C) the least-best alternative forgone. D) the difference between the chosen activity and the next-best alternative forgone. E) the alternative one would have preferred to choose.

B) the next-best alternative forgone.

58. In general, the law of demand asserts that a negative relationship exists between A) only the list price and quantity demanded. B) the total monetary and non-monetary price and quantity demanded. C) only the final price paid and quantity demanded. D) only the non-monetary price and quantity demanded. E) only the sale price and quantity demanded.

B) the total monetary and non-monetary price and quantity demanded.

76. The use of economic models, like the cost-benefit principle, means economists believe that A) this is how people explicitly choose between alternatives. B) this is a reasonable abstraction of how people choose between alternatives. C) those who explicitly make decisions this way are smarter. D) with enough education, all people will start to explicitly make decisions this way. E) this is the way the world ought to explicitly make decisions.

B) this is a reasonable abstraction of how people choose between alternatives.

82. Suppose that the production of oranges reduces global warming by .1%. The equilibrium price of oranges is _______ because not all of the _________ are accounted for in the marketplace. A) too high; benefits B) too low; benefits C) too high; costs D) too low; costs E) optimal; costs

B) too low; benefits

65. Suppose that a further increase in specialization allows a country to increase total output by 10% but afterward it was discovered that work absenteeism increased by 30%. This is likely an example of A) modern production. B) too much specialization. C) too little specialization. D) inefficiencies caused by labor unions. E) worker laziness.

B) too much specialization.

18. The shutdown condition for a firm is where A) total revenues are less than the total cost of fixed and variable factors of production. B) total revenues are less than the cost of variable factors of production. C) total revenues are less than the cost of fixed factors of production. D) profits are negative. E) profits are zero.

B) total revenues are less than the cost of variable factors of production.

9. Taken together, factors like education, training, experience, intelligence, and work habits are known as A. statistical discrimination factors. B. human capital. C. innate abilities. D. learned behaviors.

B. human capital.

18. If a firm is experiencing diminishing marginal returns to a variable input, you might guess that A. marginal costs are also declining. B. marginal costs are increasing. C. the firm is failing to choose an optimal level of output. D. average fixed costs are increasing.

B. marginal costs are increasing.

19. Suppose the firm knows that it is not going to shutdown but it is going to earn a loss. It should pick the output level where A. total costs are minimized. B. price equals marginal costs. C. total revenues are maximized. D. the costs of the variable factors of production are minimized.

B. price equals marginal costs.

3. The concept of price elasticity of demand measures A. the number of buyers in a market. B. the sensitivity of consumers to price changes. C. the extent to which the demand curve shifts as the result of a price decline. D. only the slope of the demand curve.

B. the sensitivity of consumers to price changes.

The "Break Even" point occurs where: A. marginal revenue equals marginal cost. B. total revenue equals total cost. C. marginal product is at a maximum. D. average fixed cost equals average variable cost.

B. total revenue equals total cost.

93. Amy is thinking about going to the movies tonight to see Nutty Professor 2. A ticket costs $7 and she will have to cancel her dog-sitting job that pays $30. The cost of seeing the movie is A) $7. B) $30. C) $37. D) $37 minus the benefit of seeing the movie. E) indeterminate.

C) $37.

89. If the marginal costs of 1, 2, and 3 hours of talking on the phone are $50, $75, and $105, then the total costs are A) $50, $150, and $315. B) $50, $41.67, $115. C) $50, 125, and $230. D) $50, $175, and $405. E) impossible to calculate with information given.

C) $50, 125, and $230.

11. The equation for Cartman's production possibilities curve is A = 13 - ½*B, where A and B are the two goods he can produce. The opportunity cost to Cartman of producing an extra unit of B is A) -.5 units of A. B) -2 units of A. C) .5 units of A. D) 2 units of A. E) -2/5 units of A.

C) .5 units of A.

12. Maria can produce 100 pounds of tomatoes or 25 pounds of squash in her garden each summer, while Tonya can produce 50 pounds of tomatoes or 25 pounds of squash. The absolute values of the slope of Maria's and Tonya's production possibility curves, respectively, are: A) 1/4 and 1/2. B) 1/2 and 1/4. C) 4 and 2. D) 2 and 4. E) 100 and 50.

C) 4 and 2.

55. Which of following is not true of an equilibrium price? A) Consumers who are willing to pay the equilibrium price can acquire the good. B) It measures the value of the last unit sold to consumers. C) It is always a fair and just price. D) Firms who are willing to accept the equilibrium price can sell what they produce. E) It measures the cost of resources required to produce the last unit.

C) It is always a fair and just price.

86. Joe's opportunity cost of producing body piercing is 3 while Sam's is .75. The Principle of Increasing Opportunity Cost would indicate that to produce more and more body piercing A) Joe would be used first followed by Sam. B) Sam would always be used. C) Sam would be used first and then Joe. D) The sequencing of Sam and Joe is irrelevant. E) Joe would always be used.

C) Sam would be used first and then Joe.

89. All but one of the following factors would lessen the ability of the Coase Theorem to solve an externality. Which one? A) Negotiating requires lawyers and legal documents. B) Many individuals bear the external cost. C) When the externality is an external benefit. D) Many individuals generate the external cost. E) The parties involved distrust and dislike each other.

C) When the externality is an external benefit.

100. Concave (bowed out) production possibilities curve would indicate A) decreasing opportunity costs. B) the slope is getting smaller in absolute value. C) a large economy with many workers. D) a small economy with a handful of workers. E) constant opportunity costs.

C) a large economy with many workers.

17. A reduction in the workers' marginal productivity would result in A) an increase in labor supply. B) an increase in equilibrium employment level. C) a reduction int he equilibrium wage rate. D) a decrease in labor supply. E) no change.

C) a reduction int he equilibrium wage rate.

26. When each individual concentrates on performing the tasks and producing the goods for which he or she has the lowest opportunity cost, they are producing in accordance with the Principle of: A) increasing opportunity cost. B) decreasing opportunity cost. C) comparative advantage. D) scarcity E) low-hanging-fruit.

C) comparative advantage.

46. A firm wishes to increase its total revenues by changing the price it charges. To be successful, the firm must ____________ price if demand for their product is _________. A) decrease; inelastic B) increase; elastic C) decrease; elastic D) increase; unit elastic E) decrease; unit elastic

C) decrease; elastic

52. Smith is a corn farmer earning economic profits and Wesson is a wheat farmer receiving a normal profit. Wesson has an incentive to become a corn farmer because A) his accounting profits are negative. B) he is not currently covering his opportunity costs. C) he could earn more than his next best alternative. D) his accounting profits are zero. E) it is easy to switch from wheat to corn production.

C) he could earn more than his next best alternative.

26. If not for the existence of unique or essential factors of production, supply curves would be A) highly inelastic. B) perfectly inelastic. C) highly elastic. D) downward sloping. E) vertical

C) highly elastic.

25. Without the aid of a graph, one can say definitively that if both supply and demand increase simultaneously, the new equilibrium price is ___________ and the new equilibrium quantity is _________________. A) lower; lower B) lower; indeterminate C) indeterminate; higher D) indeterminate; lower E) higher; indeterminate.

C) indeterminate; higher

39. A first come, first served allocation mechanism results in a(n) A) efficient equilibrium. B) efficient equilibrium if you get served. C) inefficient equilibrium. D) inefficient equilibrium if you don't get served. E) efficient equilibrium if you don't get served.

C) inefficient equilibrium.

60. When some factors of production are fixed, equal sized increases in production will eventually require A) smaller increases in the variable factor. B) equal sized increases in the variable factor. C) larger increases in the variable factor. D) larger increases in the fixed factors. E) higher profits.

C) larger increases in the variable factor.

64. In order for an economic model to be valid, A) all people must explicitly mimic the model. B) most people must explicitly mimic the model. C) most people must act as if they explicitly mimic the model. D) it must gain professional acceptance. E) it must be mathematical.

C) most people must act as if they explicitly mimic the model.

5. When part of the cost of an activity falls on people not pursuing the activity, it is call a(n) A) external benefit. B) prisoner's dilemma. C) negative externality. D) positive externality. E) efficient allocation.

C) negative externality.

3. The observation that individuals do not act only on narrow self interested motives means that A) game theory is nearly useless. B) behavior appears random. C) new avenues are available for solving commitment problems. D) society has become more enlightened. E) the accuracy of game theory predictions has improved.

C) new avenues are available for solving commitment problems.

19. If government chooses to use a head tax to finance a particular public good, then the A) percent of income paid in taxes is constant. B) amount of tax paid by each taxpayer declines as income rises. C) percent of income paid in taxes declines as income rises. D) percent of income paid in taxes increases as income rises. E) taxpayers that used the public good pay a greater amount than those who do not use it.

C) percent of income paid in taxes declines as income rises.

28. Assuming that avocados are a normal good, which of the following might explain a shift in the demand curve from D1 to D? A) Consumer incomes increase. B) the price of tortilla chips, a complementary product, decreases. C) production technology for avocados improves, and sellers flood the market with avocados. D) the price of tomatoes, a substitute product, decreases.

C) production technology for avocados improves, and sellers flood the market with avocados.

96. Suppose coal mining produces a negative externality in the form of polluted streams. One can deduce that the unregulated A) price of coal is too high. B) quantity is too small. C) quantity is too large. D) supply is too low. E) demand is too great.

C) quantity is too large.

41. As the law of diminishing marginal returns becomes more evident, marginal costs A) fall. B) become negative. C) rise. D) remain constant. E) become positive.

C) rise.

45. If the external cost of an activity is added to the private costs, then the A) supply curve shifts right. B) quantity supplied rises. C) supply curve shifts left. D) quantity supplied falls. E) demand curve shifts left.

C) supply curve shifts left.

17. The present value of the promise of $1000 to be paid a year from now is A) the value it will have one year from now. B) the value of having $1000 today instead of one year from now. C) the amount necessary, at the current interest rate, to be worth $1000 a year from now. D) the amount that $1000 invested today at the current interest rate will be worth a year from now.

C) the amount necessary, at the current interest rate, to be worth $1000 a year from now.

73. Imagine a world with unlimited resources (including time). On this planet, A) personal strife would not exist. B) the scarcity principle would not apply but the cost-benefit principle would. C) the cost-benefit principle would be irrelevant because tradeoffs would not exist. D) the scarcity principle would still apply. E) the discipline of economics would be more important.

C) the cost-benefit principle would be irrelevant because tradeoffs would not exist.

63. Eighteenth century economist Adam Smith believed the price of a good was determined by A) its value to the consumer. B) its value to the supplier. C) the expense involved in producing it. D) custom and tradition. E) government decree.

C) the expense involved in producing it.

49. Benny has one hour before bedtime and he can either watch TV or listen to his new Korn CD. He chooses to listen to the CD. The scarcity principle's influence on Benny is seen in A) the decision to listen to music. B) the decision not to watch TV. C) the fixed amount of time before bed. D) the decision to choose between TV and music. E) Benny's taste in music.

C) the fixed amount of time before bed.

49. A country's production possibilities curve is concave to the origin (i.e., bowed outward) because: A) of the principle of scarcity. B) the production of a good is expanded by first employing those resources with an absolute advantage. C) the production of a good is expanded by first employing those resources with the lowest opportunity cost. D) there is a trade off that requires a decrease in the production of one good in order to increase the production of another good. E) of the principle of absolute advantage

C) the production of a good is expanded by first employing those resources with the lowest opportunity cost.

13. An increase in price will cause A) the supply curve to shift to the right. B) the supply curve to shift to the left. C) the quantity supplied to increase. D) the quantity supplied to decrease.

C) the quantity supplied to increase.

25. It is clear that if S1 contains the entire amount of the external cost, A) too little was being produced. B) demand was too large. C) the socially optimal amount of production, and hence the socially optimal amount of external cost, is not zero. D) Q3 production is excessive. E) the marginal benefit of Q3 is less than the marginal social cost.

C) the socially optimal amount of production, and hence the socially optimal amount of external cost, is not zero.

27. From an efficiency perspective, imposing a 100% tax on land owners was justified by the argument that A) land owners were typically wealthy and deserved to be heavily taxed. B) demand for land was perfectly elastic. C) the supply of land was perfectly inelastic. D) land was distributed unequally.

C) the supply of land was perfectly inelastic.

92. For two goods, X and Y, to be classified as complements, it must be the case that A) X and Y are indistinguishable. B) consumers tend to purchase either X or Y. C) when the price of X rises, the demand for Y decreases. D) when the price of X rises, the demand for Y increases. E) X and Y look alike.

C) when the price of X rises, the demand for Y decreases.

10. If demand is unit elastic, then A. the demand curve is a horizontal line. B. the demand curve is a vertical line. C. a one percent increase in price causes a one percent decrease in quantity demanded. D. the demand curve has a slope of zero.

C. a one percent increase in price causes a one percent decrease in quantity demanded.

5. The rational spending rule states that consumers should A. consume such that the total utility gained from each good is equal. B. consume such that the marginal utility gained from each good is equal. C. consume such that the marginal utility gained per dollar spent on each good is equal. D. save as much money as possible.

C. consume such that the marginal utility gained per dollar spent on each good is equal.

7. In a perfectly competitive market, ___ are price takers. A. consumers only B. producers only C. consumers and producers D. no market participants

C. consumers and producers

30. If a product or service requires a unique input, elasticity of supply will be ________ relative to the elasticity of supply of a product or service that does not require a unique input A. less elastic in the short run, but more elastic in the long run B. more elastic in both the short run and in the long run. C. less elastic in both the short run and in the long run. D. more elastic in the short run and less elastic in the long run.

C. less elastic in both the short run and in the long run.

29. The more elastic supply is, the ___ the burden of the tax borne by ___. A. greater; sellers B. greater; buyers and sellers C. lesser; sellers D. lesser; buyers

C. lesser; sellers

53. Which of the following statements is not an example of the law of demand? A) "I think I'll wait to leave for work at 9:30 a.m. so that traffic is not so heavy." B) "The local record store has all their CD's on sale; I'm going to buy some right now." C) "With unemployment so high, I can't find a job. I think I'll enroll at the local college." D) "The increase in apartment rents is causing me to consider renting out our spare bedroom." E) "The Internet has increased the amount of information I collect before making a purchase."

D) "The increase in apartment rents is causing me to consider renting out our spare bedroom."

22. A price elasticity of demand of -0.3 means a A) 10 percent increase in the price results in a 3 percent increase in quantity demanded. B) 3 percent increase in the price results in a 3 percent decrease in quantity demanded. C) 10 percent increase in the price results in a 3 percent decrease in demand. D) 10 percent increase in the price results in a 3 percent decrease in quantity demanded. E) 10 percent increase in the price results in a 3 percent increase in demand.

D) 10 percent increase in the price results in a 3 percent decrease in quantity demanded.

35. Which of the following will not cause a shift in the demand curve for Athlon processors? A) An increase in the price of memory. B) A decrease in the price of Pentium III processors. C) A decrease in the price of motherboards. D) A decrease in the price of Athlon processors. E) An increase in consumers' incomes.

D) A decrease in the price of Athlon processors.

90. Which of the following statements is true? A) An unattainable point is inefficient. B) An efficient point may or may not be attainable. C) An inefficient point must be unattainable. D) An efficient point must be attainable. E) An attainable point must be efficient.

D) An efficient point must be attainable.

36. English speaking countries have a comparative advantage in literature and movies because A) the English language is the most expressive. B) of imperialism. C) the best writers and directors tend to be born in English speaking countries. D) English is the de facto world language. E) foreign books and movies are excessively symbolic.

D) English is the de facto world language.

5. One of the major factors contributing to the U.S. achieving a global comparative advantage in producing movies, books and popular music is because: A) the U.S. has more capital used in the production of mass media than other nations. B) the U.S. has more entrepreneurs than other nations. C) the U.S. has a better educational systems than other nations. D) English is the native language of the U.S. and the de facto world language. E) the U.S. has more writers with an innate superiority over writers in other nations.

D) English is the native language of the U.S. and the de facto world language.

40. Which of the following is not true of a demand curve? A) It has negative slope. B) It shows the amount consumers are willing and able to purchase at various prices, holding other factors constant. C) It relates the price of an item to the quantity demanded of that item. D) It relates the price of an item to the demand for that item. E) It shows that consumers tend to purchase less of a good as its price rises.

D) It relates the price of an item to the demand for that item.

44. The profit maximizing monopolist will produce where __________.

D) MR=MC

51. Which of the following statements about perfect price discrimination is false? A) Perfect price discrimination will lessen losses or raise profits for the monopolist. B) Buyers pay their reservation price for the good. C) Total economic surplus is maximized. D) Practicing perfect price discrimination means the monopolist is no longer setting marginal revenue equal to marginal costs. E) Consumer surplus is zero.

D) Practicing perfect price discrimination means the monopolist is no longer setting marginal revenue equal to marginal costs.

30. Which of the following is an example of a governmental solution to an external benefit? A) Requiring autos to meet minimum emissions regulation. B) Building safety requirements for office buildings. C) Regulations of food additives. D) Public service ads encouraging exercise and good nutrition. E) Public service ads discouraging smoking.

D) Public service ads encouraging exercise and good nutrition.

8. Which of the following is not a proper justification for charging the government with the responsibility for collecting revenues to finance a public good? A) No single individual may have a reservation price high enough to pay for the public good. B) Negotiation between private citizens about each person's contribution is costly. C) Individuals may attempt to free ride on the contributions of others. D) The costs of the public good exceed the benefits. E) The number of citizens affected may be so large as to render private negotiation impossible.

D) The costs of the public good exceed the benefits.

38. If a good or service is labeled normal, then A) as income falls, demand for the item increases. B) as income rises, quantity demanded for the item decreases. C) as income rises, quantity demanded for the item increases. D) as income rises, demand for the item increases. E) as income falls, quantity demanded for the item increases.

D) as income rises, demand for the item increases.

91. The solution to a commitment problem A) must be a change in the material incentives. B) is never a change in the psychological incentives. C) must be a change in the psychological incentives. D) can be a change in the material incentives, the psychological incentives or both. E) is either a change in the material incentives or the psychological incentives but never both.

D) can be a change in the material incentives, the psychological incentives or both.

10. A good or service that is rival but is to some extent nonexcludable is called a(n) A) public good. B) pure public good. C) collective good. D) commons good. E) private good.

D) commons good.

48. Increases in the prices firms pay for inputs causes a(n) A) decrease in quantity supplied. B) increase in supply. C) increase in quantity supplied. D) decrease in supply. E) output prices to fall.

D) decrease in supply.

74. Specialization of labor not only results in the ability to produce a larger amount of goods due to innate differences in people's skills, but also by: A) rigidly segmenting work. B) switching back and forth among numerous tasks. C) breaking a task down into mind-numbing repetitive tasks. D) deepening skills through practice and experience. E) eliminating the need to train and educate the workers to perform different tasks.

D) deepening skills through practice and experience.

18. If the external benefit of an activity is added to the private benefits, then the A) demand curve shifts left. B) quantity demanded rises. C) supply curve shifts right. D) demand curve shifts right. E) quantity demanded falls.

D) demand curve shifts right.

39. Suppose that both supply and demand for beer decrease. One can predict that the A) equilibrium price will rise but the equilibrium quantity can increase or decrease. B) equilibrium price and quantity will decrease. C) equilibrium price and quantity will rise. D) equilibrium quantity will fall but the equilibrium price can rise or fall. E) change in price and quantity are both unknown.

D) equilibrium quantity will fall but the equilibrium price can rise or fall.

66. Despite the benefits of specialization and exchange indicated in the theory of comparative advantage, some groups have opposed free trade agreements because: A) wealthier economies gain, but poor nations lose from free trade. Page 12 B) in order for one nation to gain from trade, another nation must lose. C) they don't understand the theory of comparative advantage. D) every individual does not gain from trade. E) contrary to the theory of comparative advantage, evidence suggests that there are few benefits from free trade.

D) every individual does not gain from trade.

22. Suppose government attempts to provide assistance to blacksmiths by establishing a minimum prices that can be charged for horseshoe repair. One would expect to observe A) a market achieving equilibrium. B) excess demand for horseshoe repairs. C) consumers arranging for "black market" repairs, paying more than the regulated price. D) excess supply of horseshoe repairs. E) blacksmiths choosing to become silversmiths.

D) excess supply of horseshoe repairs.

39. If the firm produces an output level where price is greater than marginal costs, then the firm should A) pay more to its variable factors of production. B) pay more to its fixed factors of production. C) contract output to earn greater profits or smaller losses. D) expand output to earn greater profits or smaller losses. E) leave its output decision unchanged.

D) expand output to earn greater profits or smaller losses.

93. According to Professor Coase, when thinking about solutions to externalities, it is important to remember that A) only those indirectly involved need by considered. B) government regulation in nearly always necessary. C) only those directly involved need be considered. D) externalities are reciprocal. E) those who generate external costs must be forced to stop.

D) externalities are reciprocal.

23. A price taker confronts a demand curve that is A) vertical at the market price. B) upward sloping. C) downward sloping. D) horizontal at the market price. E) elastic.

D) horizontal at the market price.

18. Pay-per-view television programming is __________ because __________. A) efficient; the marginal cost is zero B) inefficient; TV should be free C) inefficient; consumers can express their preferences D) inefficient; the marginal cost is zero E) efficient; otherwise wrestling specials would never be seen

D) inefficient; the marginal cost is zero

15. Karl Marx, the intellectual father of communism, objected to capitalism generally and specialization specifically, because A) it resulted in too much output. B) insufficient attention was paid to pollution and worker safety. C) it generated a class of wealthy, idle capitalists. D) it reduced the worker to a machine. E) it resulted in low quality goods.

D) it reduced the worker to a machine.

84. The benefits to specialization are enhanced when the two trading partners have A) absolute advantages in producing the same goods. B) similar consumption preferences. C) very similar opportunity costs. D) large comparative advantages in different goods. E) the same inborn talent and experience.

D) large comparative advantages in different goods.

23. According to the textbook, psychologists have found that if people lose $10 on the way to make a $10 purchase they tend to __________ while if they make the $10 purchase and then lose or break the good they tend to __________. A) not make the purchase; make the purchase again B) not make the purchase; not make the purchase again C) make the purchase anyway; make the purchase again D) make the purchase anyway; not make the purchase again E) get widely upset; go psycho

D) make the purchase anyway; not make the purchase again

43. The easier it is for the firm to acquire additional amounts of the factors of production they use, the A) smaller the numerical value of the price elasticity of supply. B) less elastic supply will be. C) greater the opportunity for earning profits. D) more elastic supply will be. E) more inelastic supply will be.

D) more elastic supply will be.

6. If a good can be consumed by one person and the availability of the good to others is not reduced, this good would be classified as a(n) __________ good. A) nonexcludable B) pure public C) private D) nonrival E) common

D) nonrival

98. A positional externality A) can only occur in sports. B) arises in situations where absolute performance is judged. C) results in under investment in performance enhancement. D) occurs when an increase is one player's performance reduces the expected reward of the other players. E) is when the queue one is in moves slowly.

D) occurs when an increase is one player's performance reduces the expected reward of the other players.

34. After correcting an externality, the equilibrium price and quantity both rose. The externality must have been a(n) A) negative externality. B) positional externality. C) prisoner's dilemma. D) positive externality. E) insufficient information to determine.

D) positive externality.

99. A reduction in the length of the workday would cause the production possibilities curve to A) become steeper. B) shift away from the origin. C) become flatter. D) shift towards the origin. E) change in an unpredictable way.

D) shift towards the origin.

86. The inefficiency induced by all positional arms races is that A) the rankings don't change. B) the increase in performance is small. C) the increase in performance is negative. D) spending on performance enhancements escalates without end. E) the rankings change too much.

D) spending on performance enhancements escalates without end.

32. A university observes that when it raises the price of football tickets, total revenue from football games increases and when they lower ticket prices, total revenue falls. This suggests A) football fans act irrationally. B) the demand for tickets to football games must be elastic. C) there are many good substitutes for college football games D) the demand for tickets to football games must be inelastic. E) the demand for tickets to football games is unit elastic.

D) the demand for tickets to football games must be inelastic.

16. The optimal quantity of a negative externality is zero if A) it kills many people. B) it kills a few people and injures many. C) it injures everyone D) the marginal cost of reducing it is zero. E) it involves pollution or consumer safety.

D) the marginal cost of reducing it is zero.

14. Maria spends her afternoon at the beach, paying $2 to rent a beach umbrella and $10 for food and drinks rather than spending an equal amount of money to go to a movie. The opportunity cost of going to the beach is: A) zero, because the money she spent was for food, drinks and an umbrella rather than to enter the beach. B) the $12 she spent on the umbrella, food and drinks. C) only $2 because she would have spent the money on food and drinks whether or not she went to the beach. D) the movie she missed seeing. E) the movie she missed seeing plus the $12 she spent on the umbrella, food and drinks.

D) the movie she missed seeing.

24. The reason the invisible hand does not allocate resources efficiently in the market is because A) there is too much demand. B) the private supply curve, S1, does not include the external cost of production. C) the social supply curve, S, includes the external cost of production. D) the private supply curve, S, does not include the external cost of production. E) equilibrium can't be achieved.

D) the private supply curve, S, does not include the external cost of production.

17. The significant difference between perfect competitors and imperfect competitors is A) their maximizing objective. B) the structure of their costs. C) the relationship of marginal costs to total costs. D) the relationship of price to marginal revenues. E) the relationship of marginal revenues and marginal costs.

D) the relationship of price to marginal revenues.

51. In a particular labor market, the equilibrium wage rate is $15. From this information, one can infer that A) the value of the marginal product is $15. B) the marginal labor cost is $15. C) the market is socially efficient. D) the value of the marginal product is greater than or equal to $15. E) the market is perfectly competitive.

D) the value of the marginal product is greater than or equal to $15.

82. Committing an illegal act and allowing the kidnapper to record it solves the commitment problem because A) the kidnapper will now consider the victim a member of the crime club. B) the kidnapper's threat to kill the victim if he goes to the police is now credible. C) the monetary gain from the crime committed by the victim is greater than the ransom demand. D) the victim's promise to remain silent is now credible. E) the victim's threat to pay a bounty for the capture of the kidnapper is now credible.

D) the victim's promise to remain silent is now credible.

27. The optimal number of workers for a perfectly competitive firm to hire occurs when A) total labor costs equal total revenues. B) the lowest possible wage is accepted by workers. C) the wage rate equals the marginal product of the last worker. D) the wage rate equals the value of marginal product of the last worker. E) the largest output is achieved.

D) the wage rate equals the value of marginal product of the last worker.

56. Suppose the local slaughterhouse gives off an unpleasant stench. The price of meat would then be _______ because not all of the _________ are accounted for in the marketplace. A) too high; benefits B) too low; benefits C) too high; costs D) too low; costs E) an equilibrium; costs

D) too low; costs

88. If the full marginal costs of producing a certain good are greater than the sellers' marginal costs, then A) the market will produce the socially optimal outcome. B) the equilibrium price will reflect the true cost of production. C) too little of the good will be produced. D) too much of the good will be produced. E) the total economic surplus will be maximized.

D) too much of the good will be produced.

42. When marginal revenues are zero, A) profits are maximized. B) total costs are minimized. C) elasticity of demand is zero. D) total revenues are maximized. E) total revenues are minimized.

D) total revenues are maximized.

7. For two goods, X and Y, to be classified as substitutes, it must be the case that A) X and Y are identical. B) consumers tend to purchase both items. C) when the price of X rises, the demand for Y decreases. D) when the price of X rises, the demand for Y increases. E) X and Y taste alike.

D) when the price of X rises, the demand for Y increases.

52. Ben and Ashley are identical in every way except for one: Ashley has an IQ score 10 points higher than Ben. All else equal, human capital theory would predict Ashley A) and Ben will earn the same. B) will earn exactly 10% more than Ben. C) will earn less than Ben. D) will earn more than Ben. E) will earn 5% more than Ben.

D) will earn more than Ben.

3. Assume that Joe is willing to produce another hamburger that costs $3 to make. Mary is hungry and is willing to buy a hamburger for $7. According to the No Cash on the Table principle, Joe and Mary A) will never trade; they will look for better deals. B) will only make a trade if Joe can get Mary to spend more than $8 for the hamburger. C) will only make a trade if Mary can get Joe to charge less than $1 for the hamburger. D) will make a trade.

D) will make a trade.

23. The state legislature needs to raise revenue and is considering taxing one of four different products. On the basis of efficiency, which market would an economist recommend taxing? A. Widgets; the demand elasticity is 1.2 and the supply elasticity is 2.4 B. Gzots; the demand elasticity is 1.3 and the supply elasticity is 5.1 C. Thingamajigs; the demand elasticity is 0.2 and the supply elasticity is 0.9 D. Whirlygigs; the demand elasticity is 0.1 and the supply elasticity is 0.2

D. Whirlygigs; the demand elasticity is 0.1 and the supply elasticity is 0.2

27. In a model of competitive labor markets in the United States, the supply curve would shift to the right if A. the United States relaxed its immigration laws. B. a cultural or social change occurred such that fewer mothers returned to work after their children were born. C. firms replaced human workers with robots. D. firms opened more plants overseas.

D. firms opened more plants overseas.

3. The law of diminishing marginal utility is defined as the tendency for the additional utility _____ from consuming an additional unit of a good to ______ as consumption increases beyond some point. A. lost; increase B. lost; decrease C. gained; increase D. gained; decrease

D. gained; decrease

22. Currently the market price of widgets is $25 per widget. Congress is debating placing a price floor on widgets of $20. This price floor would cause price to ___ and the quantity of widgets to ___. A. rise; fall B. fall; fall C. fall; remain unchanged D. remain unchanged; remain unchanged

D. remain unchanged; remain unchanged

9. Which of the following would not generally be considered a factor of production for a firm? A. labor B. capital C. electricity D. rent

D. rent

21. A perfectly competitive market is in short run equilibrium with a price such that all firms in the market are earning positive economic profits. As the market moves toward long run equilibrium, the market supply curve will shift ___ and each firm's economic profits will ___. A. left; rise B. left; fall C. right; rise D. right; fall

D. right; fall

17. The Illinois Central Railroad once asked the Illinois Commerce Commission for permission to increase its commuter rates by 20%. The railroad argued that declining revenues made this rate increase essential. Opponents of the rate argued that the railroad's revenues would fall because of the rate hike. It can be concluded that A. both groups felt that demand was elastic, but for different reasons. B. both groups felt that demand was inelastic, but for different reasons. C. the railroad felt that demand was elastic, while opponents felt it was inelastic. D. the railroad felt that demand was inelastic, while opponents felt it was elastic.

D. the railroad felt that demand was inelastic, while opponents felt it was elastic.

The "Income Effect" indicates that A. a rise in money income will cause consumers to buy smaller quantities of normal goods. B. when the price of a product falls, the lower price will cause the consumer to buy more of that product now that it is relatively cheaper. C. consumers should substitute among various products until the marginal utility from the last unit of each product purchased is the same. D. when the price of a product falls, a consumer will be able to buy more of it with a specific money income.

D. when the price of a product falls, a consumer will be able to buy more of it with a specific money income.

54. Which of the following statements about common property rights is false? A) Common property is owned by everyone. B) Common property is treated as though its price is zero. C) Common property is owned by no one. D) A common property resource will be overused. E) All common property rights problems can be easily solved by assigning the rights to someone.

E) All common property rights problems can be easily solved by assigning the rights to someone.

6. Which of following is not true of a market equilibrium? A) Quantity demanded equals quantity supplied. B) There is no tendency for price to change. C) The supply curve intersects the demand curve. D) Buyers can purchase exactly the amount they are willing to purchase at the equilibrium price. E) Supply equals demand.

E) Supply equals demand.

10. As described in the textbook, which of the following is not characteristic of an ultimatum bargaining game? A) The first player establishes the terms. B) The second player either accepts or rejects the terms. C) The offer is a take it or leave it offer. D) The second player may accept the terms. E) The second player will always reject the terms.

E) The second player will always reject the terms.

29. The statement "I'll work harder this semester to improve my GPA." is A) a credible threat. B) an empty promise. C) an empty threat. D) a credible promise. E) a possible credible promise.

E) a possible credible promise.

8. Human capital theory proposes that A) a worker's wage is independent of his stock of human capital. B) physical capital has human like qualities. C) a worker's wage is inversely related to his stock of human capital. D) humans have machine like qualities. E) a worker's wage is directly related to his stock of human capital.

E) a worker's wage is directly related to his stock of human capital.

83. A payoff matrix A) shows only the players of the game. B) shows only the possible strategies of the game. C) summarizes most of the elements of a game. D) shows only the payoffs to each of the strategies. E) completely summarizes the three elements of a game.

E) completely summarizes the three elements of a game.

12. The responsiveness of quantity demanded for good M when the price of good N changes is measured by the A) price elasticity of demand. B) income elasticity of demand. C) price elasticity of supply. D) preference elasticity of demand. E) cross price elasticity of demand.

E) cross price elasticity of demand.

85. Assume that reading produces a positive externality. It will be the case that the __________ than the socially optimal amount. A) supply of reading will be greater B) price of reading will be greater C) supply of reading will be less D) demand for reading will be greater E) demand for reading will be less

E) demand for reading will be less

13. The common feature in pure monopoly, oligopoly, and monopolistic competition is A) the absence of close substitutes. B) blocked entry. C) interdependent decision making by firms. D) price discrimination. E) downward sloping demand.

E) downward sloping demand.

30. If a given production combination is known to be attainable, then it must be A) on the production possibilities curve. B) beyond the production possibilities curve. C) an efficient point. D) an inefficient point. E) either an inefficient or efficient point.

E) either an inefficient or efficient point.

7. The value of marginal product A) equals marginal product. B) describes the costs of hiring an extra worker. C) equals marginal product divided by price. D) generally increases. E) equals marginal product times price.

E) equals marginal product times price.

16. A price taker __________ and a price setter __________. A) equates price to marginal revenues; equates price to marginal costs. B) seeks to maximize revenues; seeks to maximize profits. C) never earns a profit; always earns a profit. D) must accept the market price; may charge any price he wants. E) equates price to marginal revenues; finds that price is greater than marginal revenue.

E) equates price to marginal revenues; finds that price is greater than marginal revenue.

24. A fixed factor of production is A) fixed in the long run but variable in the short run. B) plays no role in the law of diminishing marginal returns. C) fixed in both the short run and the long run. D) common in large firms but rare in small firms. E) fixed only in the short run.

E) fixed only in the short run.

9. The law of diminishing marginal returns A) is a long run concept. B) applies only to small and medium sized firms. C) is a short and long run concept. D) applies only to large firms. E) is a short run concept.

E) is a short run concept.

59. If the firm experiences an increase in the cost of a fixed factor of production it will A) increase output. B) raise its price C) decrease output. D) lower its price. E) leave its output decision unchanged.

E) leave its output decision unchanged.

9. A Nash equilibrium must result in A) both players being made better off. B) both players being made worse off. C) one payer being worse off and one being better off. D) dominate strategies for both players. E) neither player wishing to change their strategy.

E) neither player wishing to change their strategy.

20. The public restrooms along with the Interstate are A) nonrival. B) a collective good. C) both nonrival and nonexcludable. D) a pure public good. E) nonexcludable.

E) nonexcludable.

2. Interdependency is an important consideration when modeling the behavior of A) consumers. B) strangers. C) perfectly competitive firms. D) monopolists. E) oligopolies.

E) oligopolies.

20. Suppose a market is in equilibrium. The area between the market price and the supply curve is A) the deadweight loss. B) the value of trades not made. C) consumer surplus. D) total economic surplus. E) producer surplus.

E) producer surplus.

57. In a competitive labor market, it is observed that the equilibrium wage rate and employment level have both risen. One can infer that A) the supply of labor has increased. B) the demand for labor has fallen. C) the price firms receive for their output has declined. D) the supply of labor has decreased. E) the demand for labor has increased.

E) the demand for labor has increased.

21. It is always the case that A) pollution should be reduced as much as technically feasible. B) the marginal benefit of reduced pollution is nearly zero. C) the optimal amount of any negative externality is close to zero. D) negative externalities always require a legislative solution. E) the optimal amount of any negative externality is greater than zero.

E) the optimal amount of any negative externality is greater than zero.

31. Suppose that Penn's opportunity cost of producing an extra Pepsi is 3 cheeseburgers while Teller's opportunity cost is .14 cheeseburgers. One could predict that A) Penn must have an absolute advantage in producing cheeseburgers. B) Teller must have an absolute advantage in producing Pepsi's. C) they have little to gain from specialization and coordinating production. D) Teller has a comparative advantage in cheeseburger production. E) they have a potentially large gain to specialization and coordinating production.

E) they have a potentially large gain to specialization and coordinating production.

6. The political concern expressed about the North American Free Trade Agreement (NAFTA) was that A) prices to U.S. consumers would fall. B) wages in Mexico would rise. C) highly skilled workers in the U.S. would lose their jobs. D) illegal immigration would fall. E) unskilled workers in the U.S. would lose their jobs.

E) unskilled workers in the U.S. would lose their jobs.