Required Review

Question 1 The crucial problem of economics is

Answer to question 1 Allocating scarce productive resources to satisfy wants.

Question 10 Which of the following will cause the demand curve for Product A to shift to the left?

Answer to question 10 an increase in money income if A is an inferior good

Question 11 A leftward shift of the product supply curve might be caused by:

Answer to question 11 some firms leaving the industry

Question 12 If the supply and demand curve for a product both decrease we can say that equilibrium:

Answer to question 12 quantity must decline, but equilibrium price may either rise, fall, or remain

Question 13 The price elasticity of demand coefficient indicates

Answer to question 13 buyer responsiveness to price changes

Question 14 The demand for a product is said to be inelastic with respect to price if:

Answer to question 14 consumers are largely unresponsive to a per unit price change

Question 15 Price floors and ceiling prices

Answer to question 15 interfere with the rationing function of prices

Question 16 Which idea is inconsistent with pure competition?

Answer to question 16 Product differentiation

Question 17 Which characteristic would best be associated with pure competition?

Answer to question 17 Price taker

Question 18 Which is true under conditions of pure competition?

Answer to question 18 The demand curve for a firm is perfectly elastic

Question 19 Total revenue for producing 8 units of output is $48. Total revenue for producing 9 units of output is $63. Given this information, the:

Answer to question 19 Marginal revenue for producing the ninth unit is $15

Question 2 The basic economic problem is reflected in which of the following concepts? I. Opportunity cost II. Production Possibilities III. The fallacy of composition. IV. Ceteris paribus

Answer to question 2 I and II only.

Question 20 Which is necessarily true for a purely competitive firm in short-run equilibrium?

Answer to question 20 Marginal revenue less marginal cost equals zero

Question 21 Refer to the above graph. The level of output at which this firm will produce is:

Answer to question 21 OC

Question 22 Refer to the above graph. The level of output at which this firm will shut down is:

Answer to question 22 0A

Question 23 Refer to the above graph. The level of output at which this firm is maximizing an economic profit is:

Answer to question 23 0C

Question 24 A firm should increase the quantity of output as long as its:

Answer to question 24 Marginal revenue is greater than its marginal cost

Question 25 Refer to the above graph. At output level H, the area:

Answer to question 25 BCGF represents the firm's fixed costs of production

Question 26 Refer to the above graph. At output level H, the area:

Answer to question 26 0CGH represents the firm's variable cost of production

Question 27 Refer to the above graph. At output level H, the area of economic profit is:

Answer to question 27 BAEF

Question 28 One major barrier to entry under pure monopoly arises from:

Answer to question 28 Ownership of essential resources

Question 29 Which is a barrier to entry?

Answer to question 29 Patents

Question 3 Which of the following is true of the concept of increasing cost?

Answer to question 3 It suggests that the use of resources to produce a set of goods and services means that as more of one is produced, some of the other must be sacrificed.

Question 30 The pure monopolist who is nondiscriminating must decrease price on all units of a product sold in order to sell additional units. This explains why:

Answer to question 30 Marginal revenue is less than average revenue

Question 31 Given a downsloping linear demand curve, when total revenue is decreasing, marginal revenue is:

Answer to question 31 Negative and demand is inelastic

Question 32 A monopolist can sell 10 units at $12 per unit and 9 units at $13 per unit. The marginal revenue from the 10th unit is:

Answer to question 32 $3

Question 33 Refer to the above graph. The profit-maximizing monopolist in it will set its price and output at:

Answer to question 33 0J and 0V, respectively

Question 34 The economic incentive for price discrimination depends on:

Answer to question 34 Differences among buyers' demand elasticities

Question 35 Which would be characteristic of monopolistic competition?

Answer to question 35 Relatively small market share for each firm

Question 36 One difference between monopolistic competition and pure competition is that:

Answer to question 36 There is some control over price in monopolistic competition

Question 37 Which market model is characterized by many firms, differentiated products, and relatively easy entry?

Answer to question 37 Monopolistic competition

Question 38 A monopolistically competitive firm in the short run is producing where price is $3.00 and marginal cost is $1.50. To maximize profits:

Answer to question 38 It is unclear what the firm should do without knowing marginal revenue

Question 39 Suppose some firms exit an industry characterized by monopolistic competition. We would expect the demand curve of a firm already in the industry to:

Answer to question 39 Shift to the right

Question 4 In which way does a straight line production possibilities curve differ from a concave production possibilities curve?

Answer to question 4 A straight-line production possibilities curve has a constant opportunity cost.

Question 40 Refer to the above graphs. A short-run equilibrium that would produce profits for a monopolistically competitive firm would be represented by graph:

Answer to question 40 A

Question 41 Refer to the above graphs. A short-run equilibrium that would produce losses for a monopolistically competitive firm would be represented by graph:

Answer to question 41 D

Question 42 Refer to the above graphs. The long-run equilibrium for a monopolistically competitive firm is represented by graph

Answer to question 42 B

Question 43 A major distinction between a monopolistically competitive firm and an oligopolistic firm is that:

Answer to question 43 A recognized interdependence exists between firms in one industry but not in the other

Question 44 Which would be most characteristic of oligopoly?

Answer to question 44 Mutual interdependence

Question 45 When firms in an industry reach an agreement to fix prices, divide up market share, or otherwise restrict competition, they are practicing the strategy of:

Answer to question 45 Collusion

Question 46 In an oligopoly undergoing game theory competition, each player tries to:

Answer to question 46 Maximize its own profits

Question 47 The demand for a productive resource is said to be "derived" because the demand for the factor:

Answer to question 47 Depends on the demand for the product it is used to make

Question 48 Marginal resource cost is:

Answer to question 48 The increase in a firm's total cost caused by hiring one additional unit of an input

Question 49 Marginal revenue product is the increase in:

Answer to question 49 Total revenue from the use of an additional unit of a resource

Question 5 A decrease in the price of silicon chips and increased production of user-friendly software will affect the price and quantity of computers in which of the following ways? Price : Quantity

Answer to question 5 It's either "Decrease : Decrease" or "May increase, decrease, or remain the same : Increase"

Question 50 Wayne's Jacket Shop sells Wayne's jackets for $20 each. Wayne finds that when he hires workers, this happens: Refer to the above table. What is the average revenue product of four workers?

Answer to question 50 $400

Question 51 Refer to the above table. If the price of Wayne's jackets rose to $25, what would the marginal product be of the third worker be?

Answer to question 51 30

Question 52 A profit-maximizing firm should hire an input as long as the:

Answer to question 52 Marginal revenue product of the input is at least as much as the cost of hiring the input

Question 53 Which is an example of a change in product demand that increases labor demand?

Answer to question 53 Tourism increases in popularity, increasing the demand for workers at tourist resorts

Question 54 If the supply of labor in a purely competitive labor market increases, the labor:

Answer to question 54 Supply curve for a single employer will shift down

Question 55 If the wage rate in a purely competitive labor market increases, it will cause the:

Answer to question 55 Marginal resource cost curve for a single competitive firm in the industry to shift leftward

Question 56 Suppose two workers can harvest $46 and three workers can harvest $60 worth of apples per day. On the basis of this information we can say that the:

Answer to question 56 Marginal revenue product of the third worker is $14

Question 57 Once a government has provided a public good, everyone:

Answer to question 57 Can obtain the benefit

Question 58 When the production of a product creates external costs greater than external benefits, a market economy will:

Answer to question 58 Allocate too many resources to production of the product

Question 59 If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be:

Answer to question 59 Subsidized

Question 6 The benefits received principle of taxation is most evident in

Answer to question 6 the excise tax on gasoline

Question 60 Refer to the above supply and demand graph. In the graph, point A is the current equilibrium level of output of this product and point B is the optimal level of output from society's perspective. S is the supply curve without a tax and S1 is the supply curve with a tax. This figure indicates that there is (are):

Answer to question 60 External costs from the production of this product

Question 61 Refer to the above supply and demand graph. In the graph, point A is the current equilibrium level of output of this product and point B is the optimal level of output from society's perspective. S is the supply curve without a tax and S1 is the supply curve with a tax. The external cost to society from the production of this product is measured by:

Answer to question 61 DE

Question 62 Refer to the above supply and demand graph. In the graph, point A is the current equilibrium level of output of this product and point B is the optimal level of output from society's perspective. S is the supply curve without a tax and S1 is the supply curve with a tax. One solution to this externality problem is to:

Answer to question 62 Tax producers by the amount DE

Question 63 Refer to the above supply and demand graph. In the graph, point A is the current equilibrium level of output of this product and point B is the optimal level of output from society's perspective. S is the supply curve without a tax and St is the supply curve with a tax. If government corrects this externality problem with a tax so that all costs are included in the cost of production, then the product price will be set at point:

Answer to question 63 G

Question 7 Which of the following best reflects the ability-to-pay philosophy of taxation?

Answer to question 7 a progressive income tax

Question 8 An income tax is progressive if the

Answer to question 8 percentage of income paid as taxes increases as income increases

Question 9 If the demand curve for product B shifts to the right as the price of product A declines, it can be concluded that

Answer to question 9 A and B are complementary goods