Practice QuestionsChapter 1 1. Resources are a. scarce for households but plentiful for economies. b. plentiful for households but scarce for economies. c. scarce for households and scarce for economies. d. plentiful for households and plentiful for economies. 2. Economics deals primarily with the concept of a. scarcity. b. money. c. poverty. d. banking. 3. The terms equality and efficiency are similar in that they both refer to benefits to society. However they are different in that a. equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources. b. equality refers to maximizing benefits from scarce resources and efficiency refers to uniform distribution of those benefits. c. equality refers to everyone facing identical tradeoffs and efficiency refers to the opportunity cost of the benefits. d. equality refers to the opportunity cost of the benefits and efficiency refers to everyone facing identical tradeoffs. 4. The opportunity cost of an item is a. the number of hours needed to earn money to buy the item. b. what you give up to get that item. c. usually less than the dollar value of the item. d. the dollar value of the item. 5. High-school athletes who skip college to become professional athletes a. obviously do not understand the value of a college education. b. usually do so because they cannot get into college. c. understand that the opportunity cost of attending college is very high. d. are not making a rational decision since the marginal benefits of college outweigh the marginal 1 costs of college for high-school athletes. Chapter 2 6. Which of the following is not correct? a. Economists use some familiar words in specialized ways. b. Economics has its own language and its own way of thinking, but few other fields of study do. c. Supply, demand, elasticity, comparative advantage, consumer surplus, and deadweight loss are all terms that are part of the economist’s language. d. The value of the economist’s language lies in its ability to provide you with a new and useful way of thinking about the world in which you live. 7. Refer to the figure below. The opportunity cost of moving from point U to point R is a. 60 bushels of apples. b. 80 bushels of apples. c. 80 sweaters. d. 160 sweaters. 8. An assumption an economist might make while studying international trade is a. there are only two countries. b. countries only produce two goods. c. technology does not change. d. All of the above are possible assumptions. 2 9. Which of the following would likely be studied by a microeconomist rather than a macroeconomist? a. the effect of foreign direct investment on economic growth b. the effect of a sales tax on the cigarette industry c. the effect of an investment tax credit on the economy’s capital stock d. the effect of a war on government spending 10. Which of the following is an example of a normative, as opposed to positive, statement? a. If the price of a product decreases, people’s willingness to buy that product will increase. b. Reducing tax rates on the wealthy would benefit the nation. c. If the national saving rate were to increase, so would the rate of economic growth. d. The elimination of trade restrictions would increase an economy’s standard of living. 3 the more resources the economy uses to produce one good. c. under all circumstances. 14. 13. b. under no circumstances. when the economy is self-sufficient. A production possibilities frontier is a straight line when a. c. have similar tastes and abilities.Chapter 3 11. he or she is referring to the fact that we all a. When an economist points out that you and millions of other people are interdependent. d. d. 12. when the rate of tradeoff between the two goods being produced is constant. the fewer resources it has available to produce the other good. c. rely upon one another for the goods and services we consume. d. Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate. the rate of tradeoff between the two goods being produced depends on how much of each good is being produced. an economy is interdependent and engaged in trade instead of self-sufficient. b. An economy’s production possibilities frontier is also its consumption possibilities frontier a. Labor Hours Needed to Make 1 Cooler Radio Aruba 2 5 Iceland 1 4 4 . the rate of tradeoff between the two goods being produced is constant. are concerned about one another’s wellbeing. b. rely upon the government to provide us with the basic necessities of life. Refer to t he t a bl e above . d. c. A farmer has the ability to grow either corn or cotton or some combination of the two. Which of the following represents Aruba's production possibilities frontier when 100 labor hours are available? a. it follows that the farmer’s opportunity cost of a bushel of corn multiplied by his opportunity cost of a bushel of cotton 5 . b. 15. Given no other information. d. What is Brad’s opportunity cost of producing one pound of beef? a. Which of the following is not correct? a. The producer who requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good. The gains from specialization and trade are based not on comparative advantage but on absolute advantage. Assume that Brad and Theresa can switch between producing wheat and producing beef at a constant rate. is equal to 1. b. c. 5/3 bushels of wheat 6 . is equal to 0. 16. In one month. Given this. d. c. is between 0 and 1. Ken has an absolute advantage in chairs. Ken and Traci are two woodworkers who both make tables and chairs. d. The producer who has the smaller opportunity cost of producing a good is said to have a comparative advantage in producing that good. Traci has an absolute advantage in chairs. The producer who gives up less of other goods to produce Good X has the smaller opportunity cost of producing Good X. 6/5 bushels of wheat c. 18. b. b. is greater than 1. 5/6 bushel of wheat b. c. whereas Traci can make 8 tables or 24 chairs. Traci has a comparative advantage in chairs. 17. Ken can make 3 tables or 18 chairs. we know that a. 3/5 bushels of wheat d. a. Ken has a comparative advantage in tables. Minutes Needed to Make 1 Bushel of Wheat Pound of Beef Brad 10 12 Theresa 6 10 Refer to the table above. Which of the following is an example of a market? a. c. a gas station b. b.Chapter 4 19. taxes and government spending. can be used to predict the impact on the economy of various events and policies. d. d. All of the above are correct. All of the above are examples of markets. are direct policy tools used by government agencies to regulate the economy. politics and religion. In a market economy. but they are not helpful when a market is out of equilibrium. illustrate when an market is in equilibrium. supply and demand are important because they a. 7 . c. The forces that make market economies work are a. supply and demand. 20. work and leisure. a garage sale c. a barber shop d. b. 21. increase in demand. The quantity demanded of a good is the amount that buyers are a. and the quantity of the product produced is determined by buyers. d. b. None of the above is correct. able. d. c. c. Leo has a limited number of sellers from which to buy coffee beans. d. willing. b. decrease in quantity demanded. None of the above is correct. able to purchase. d. increase in quantity demanded. It follows that a. 23. and the quantity of the product produced is determined by sellers. b. Leo will negotiate with sellers whenever he buys coffee beans. and the quantity of the product produced are both determined by sellers. the price of a product a. and need to purchase. willing to purchase. 24. Leo cannot influence the price of coffee beans even if he buys a large quantity of them. b. is determined by buyers. c.22. willing and able to purchase. The movement from point A to point B on the graph shows a(n) a. decrease in demand. Assume Leo buys coffee beans in a competitive market. is determined by sellers. Refer to figure below. In a competitive market. 25. 8 . c. d. The following table contains a demand schedule for a good. d. 200. when a determinant of the demand for coffee other than the price of coffee changes. d. c. The demand curve for coffee shifts a. Amanda's demand for each of two goods that are complements to increase. d. 27. 26. Refer to figure above. 29. c. b. your demand for vanilla pudding 9 . demand for the good decreases as income increases. Both b and c are correct. b. A movement along the demand curve might be caused by a change in a. pies filled with banana cream and vanilla pudding. Amanda's demand for inferior goods to decrease. Amanda's demand for normal goods to decrease. 0. income. Price Quantity Demanded $30 A $50 300 If the law of demand applies to this good. the price of the good or service that is being demanded. 31. Suppose you like to make. c. 400. d. good is inferior. the prices of substitutes or complements. Suppose that Amanda receives a pay increase. b. As a result. demand for the good conforms to the law of demand. b. b. 100. You notice that the price of bananas has increased. All of the above are correct. We would expect a. 30. It is apparent from the figure that the a. c. to observe Amanda moving down and to the right along her given demand curve. from scratch. then A could be a. 28. when the price of coffee changes. only when income changes. c. expectations about future prices. be unaffected. 10 . None of the above is necessarily correct. firm must increase output to maintain profit levels. decreases. 32. and the supply of tires decreases. would a. supply of bicycles will shift to the left. demand for bicycle assembly workers will increase. There is insufficient information given to answer the question. is unaffected. Workers at a bicycle assembly plant currently earn the mandatory minimum wage. decrease. d. d. a decrease in quantity demanded. the demand for tires a. 33. b. an increase in quantity demanded. then it is likely that the a. a decrease in demand. b. increase. The shift from Da to Db is called a. If the federal government increases the minimum wage by $1. b. d. Suppose an increase in the price of rubber coincides with an advance in the technology of tire production. 34. is unaffected. an increase in demand.00 per hour. supply of bicycles will shift to the right. and the supply of tires increases. d. c. c. c. and the supply of tires increases. As a result of these two events. Refer to figure above. b. c. d. demand and supply both increase 39. can affect today’s supply. This change a. c. when demand does not change and supply increases. we would a. 36. producers changed their expectations about the future. d. when demand does not change and supply decreases. the firms’ costs to fall. when demand does not change and supply decreases. and when both demand and supply decrease. If car manufacturers begin using new labor-saving technology on their assembly lines. Today. and when both demand and supply decrease. prices at and above the equilibrium price. Equilibrium quantity must decrease when demand a. c. decreases and supply does not change. b. but not at the equilibrium price. d. individual car manufacturers to move up and to the right along their individual supply curves. and when both demand and supply decrease. 11 . Which of the following events must cause equilibrium quantity to rise? a. the supply of cars to increase. can affect future supply. demand and supply both decrease c. and when both demand and supply decrease. b. b. 37. demand increases and supply decreases b. a smaller quantity of labor to be used. c. increases and supply does not change. decreases and supply does not change. 35. 38. prices at and below the equilibrium price. prices above and below the equilibrium price. the equilibrium price but not above or below the equilibrium price. when demand does not change and supply increases. not expect a. b. increases and supply does not change. c. d. demand decreases and supply increases d. but not today’s supply. can cause a movement along a supply curve. cannot affect either today’s supply or future supply. Buyers are able to buy all they want to buy and sellers are able to sell all they want to sell at a. Refer to the table above. whose demand for sandwiches conforms to the law of demand? a. Which combination would produce an increase in equilibrium quantity and an indeterminate change in equilibrium price? a. c. C d. Regarding Harry and Darby. only for Harry b. All of the above are correct. only Darby’s c. if sandwiches and potato chips are complements for Harry. Harry’s demand curve is identical to Jake’s demand curve. B c. Harry’s Quantity Darby’s Quantity Jake’s Quantity Price Demanded Demanded Demanded $3 3 4 3 $5 1 2 x a. Then it must be true that a. Suppose x = 1. then those two goods are also complements for Jake. for both Harry and Darby d. This cannot be determined from the given information. only for Darby c. Refer to table above. A b. d. An Increase in Supply A Decrease in Supply An Increase in Demand A B A Decrease in Demand C D 40. Harry and Jake have the same income. both Harry’s and Darby’s d. D 41. Then the slope of the market demand curve 12 . which is lower than Darby’s income. Refer to table above. Suppose x = 1. b. Refer to the table above. Refer to table above. Regarding Harry and Darby. for whom are sandwiches a normal good? a. only Harry’s b. The demand schedule below pertains to sandwiches demanded per week. c. d. neither Harry’s nor Darby’s b. b. d. c. 13 .is a. -1/3.3. 1/3. -3. more it is regarded as a luxury. 14 . b. c. broader the definition of the market. the a. the availability of substitutes for the good 44.Chapter 5 42. d. quantity demanded responds to a change in income. Holding all other forces constant. The price elasticity of demand measures how much a. the time horizon b. d. quantity demanded responds to a change in price. b. longer the period of time. price responds to a change in demand. c. the steepness or flatness of the supply curve for the good c. demand responds to a change in supply. b. d. 30 percent increase in the quantity demanded. c. the number of gallons of gasoline demanded would fall substantially over a ten-year period because a. 46. the definition of the market for the good d. c. when the price of gasoline rises.33 percent increase in the quantity demanded. the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline. greater the availability of close substitutes. then a 12 percent decrease in price results in a a. A good will have a more inelastic demand. b. If the price elasticity of demand for a good is 4. buyers will have substantially more real income over a ten-year period. buyers tend to be much less sensitive to a change in price when given more time to react. 3 percent increase in the quantity demanded. 43. Which of the following is not a determinant of the price elasticity of demand for a good? a. 45. 0. buyers tend to be much more sensitive to a change in price when given more time to react. 50. Supply Curve X Supply Curve Y Supply Curve Z Price $5.00.00 $5. and beef has an elastic demand. Scenario Milk has an inelastic demand.00 $7. 0.00 $7.00 to $1.00 $5.84 when the price increased from $1. In March the price of widgets was $2.00 to $1.50 and 1. There is no difference in the elasticities of the three supply curves. and Wendy's Widgets produced 80 widgets.00.50 to $2. Supply curve Y c.00.50 to $2.00 Quantity Supplied 200 300 300 400 400 500 Refer to the table above. 48 percent increase in the quantity demanded.50 to $2. In February the price of widgets was $1.19 when the price increased from $1. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Refer to Scenario above. d.19 when the price increased from $1.84 when the price increased from $1.50 and 0. 49.00. The price elasticity of supply of Wendy's Widgets was about a. and Wendy's Widgets produced 140 widgets. Using the midpoint method. Supply curve X b. d. 0.79 when the price increased from $1.00 $7. increase in the milk market and decrease in the beef market. decrease in the milk market and increase in the beef market.79 when the price increased from $1.27 when the price increased from $1. which of the three supply curves has the most inelastic price elasticity of supply? a. b.50 and 1. c. 1. Supply curve Z d. In January the price of widgets was $1.50 and 0.27 when the price increased from $1. 15 . c.00 to $1.00. b.50 to $2. 48. 1. and Wendy's Widgets produced 110 widgets. 47.00 to $1.00. The equilibrium price will a. increase in both the milk and beef markets. 52. decrease in both the milk and beef markets. 51. b. greater in the milk market than in the beef market. Refer to Scenario above. greater in the milk market than in the beef market. c. the same in the milk and beef markets. increase in the milk market and decrease in the beef market. increase in both the milk and beef markets. greater in the beef market than in the milk market. b. c. decrease in both the milk and beef markets. the same in the milk and beef markets. decrease in the milk market and increase in the beef market. d. c. greater in the beef market than in the milk market. d. The change in equilibrium quantity will be a. Any of the above could be correct. b. d. 16 . Refer to Scenario above. Refer to Scenario above. Any of the above could be correct. 50. d. The equilibrium quantity will a. The change in equilibrium price will be a. both a minimum wage and a maximum wage that firms may pay workers. a maximum rent that landlords may charge tenants. d. 54. 17 . the exact wage that firms must pay workers. b. a maximum wage that firms may pay workers. b. Minimum-wage laws dictate a.Chapter 6 53. both a minimum rent and a maximum rent that landlords may charge tenants. Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling becomes effective. a minimum wage that firms may pay workers. 55. c. the exact rent that landlords must charge tenants. Rent-control laws dictate a. c. a minimum rent that landlords may charge tenants. d. d. the price rises above the previous equilibrium. suggests that you should impose a binding price ceiling in order to avoid a shortage of oranges. non-binding price floor that creates a surplus. You have responsibility for economic policy in the country of Freedonia. b. a shortage will certainly develop. b. 56. increase. a larger quantity of the good is supplied. Figure This figure shows the market demand and market supply curves for good Y Refer to Figure. Charles 18 . decrease. George. Recently. Otto. then the price paid by buyers will a. c. a third advisor. Charles. c. c. Which of your three advisors is most likely to have studied economics? a. d. If the government removes a binding price ceiling from a market. A government-imposed price of $24 in this market is an example of a a. increase. who is one of your advisors. 58. George b. a. another one of your advisors. a smaller quantity of the good is demanded. decrease. a smaller quantity of the good is bought and sold. b. d. and the quantity sold in the market will increase. non-binding price ceiling that creates a shortage. argues that without a binding price floor. 57. binding price floor that creates a surplus. and the quantity sold in the market will increase. and the quantity sold in the market will decrease. and the quantity sold in the market will decrease. says that the best way to avoid a shortage of oranges is to take no action at all. the neighboring country of Sylvania has cut off all exports of oranges to Freedonia. binding price ceiling that creates a shortage. $6. sellers will bear the entire burden of the tax. but their views on positive economics are different. Refer to the figure above.$10. c. b. c. the government will bear the entire burden of the tax. The effective price that sellers receive after the tax is imposed is a. 61. If a tax is levied on the sellers of flour. Apparently. 19 . Otto d. $8. c. The price that buyers pay after the tax is imposed is a. all three advisors have studied economics. $16. b. c. $16. b. 60. Refer to Figure above. buyers and sellers will share the burden of the tax. 59.$24. d.$10. buyers will bear the entire burden of the tax. d. then a. both sellers and buyers of tea are made worse off. When a tax is levied on sellers of tea. 20 . a. the allocation of resources affects economic well-being. the well-being of both sellers and buyers of tea is unaffected. Refer to Figure above. 63. sellers of tea are made worse off. $14. Welfare economics is the study of how a. d. The amount of the tax per unit is a.$8.$24. c. d. c. b. d. sellers of tea are made worse off. and the well-being of buyers is unaffected. b. $6. a price ceiling compares to a price floor. Chapter 7 64. and buyers of tea are made better off. b.$18. 62. Consumer surplus is a. d. c. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. minimizes the expenditure of buyers. Consumer surplus is a. producer surplus. the amount a buyer is willing to pay for a good minus the cost of producing the good. d. d. consumer surplus. the amount by which the quantity supplied of a good exceeds the quantity demanded of the good. price of the good exceeds the value that the buyer places on the good. c. 66. 65. This maximum is called a. b. c. 67. buyer will buy as much of the good as the buyer’s budget allows. buyer is indifferent between buying the good and not buying it. Moe. b. 21 . the government helps poor people. 68. the a. b. 69. Suppose Larry. a consumer’s optimal choice affects her demand curve. represented on a graph by the area below the demand curve and above the price. a good measure of economic welfare if buyers' preferences are the primary concern. willingness to pay. a buyer's willingness to pay for a good plus the price of the good. The particular price that results in quantity supplied being equal to quantity demanded is the best price because it a. maximizes the combined welfare of buyers and sellers. Each has in mind a maximum amount that he will bid. a concept that helps us make normative statements about the desirability of market outcomes. buyer’s consumer surplus for that good is maximized. maximizes tax revenue for the government. All of the above are correct. When a buyer’s willingness to pay for a good is equal to the price of the good. c. a resistance price. d. and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. d. b. c. c. b. maximizes costs of the seller. d. b. d. b.$2. Andrew’s consumer surplus is $15 and total consumer surplus is $67. If the price of the product is $122. Calvin b. 22 . $41. Calvin’s consumer surplus is $45 and total consumer surplus is $85. 73. Andrew. How much is Bob willing to pay for the book? a. d. $28. Consumer surplus increases. Sam. a. $43. 72. and Lori 71. Calvin and Sam c. Refer to the figure above. Calvin. Consumer surplus decreases. b. Bob purchases a book for $6.00 Lori $100. what happens to consumer surplus in the market for oak cabinets? a. Sam’s consumer surplus is $30 and total consumer surplus is $90. $405. $8. Calvin. c. 74. Sam. Refer to the figure above. Lori’s consumer surplus is $2 and total consumer surplus is $100. b. then the total consumer surplus is a.$4.50. $6. If the market price is $105.00 Sam $135.00 70. c. and his consumer surplus is $2. then who would be willing to purchase the product? a. c. If the price of the product is $110.00 Andrew $120. If the price of oak lumber increases. d.Buyer Willingness To Pay Calvin $150. Refer to the figure above. and Andrew d. c. Consumer surplus will not change consumer surplus; only producer surplus changes. d. Consumer surplus depends on what event led to the increase in the price of oak lumber. 75. Refer to the figure above. When the price is P1, consumer surplus is a. A. b. A+B. c. A+B+C. d. A+B+D. 76. Refer to the figure above. When the price is P2, consumer surplus is a. A. b. B. c. A+B. d. A+B+C. 77. Refer to the figure above. When the price rises from P1 to P2, consumer surplus a. increases by an amount equal to A. b. decreases by an amount equal to B+C. c. increases by an amount equal to B+C. d. decreases by an amount equal to C. 78. Refer to the figure above. Area C represents the a. decrease in consumer surplus that results from a downward-sloping demand curve. b. consumer surplus to new consumers who enter the market when the price falls from P2 to P1. 23 c. increase in producer surplus when quantity sold increases from Q2 to Q1. d. decrease in consumer surplus to each consumer in the market when the price increases from P1 to P2. 79. Refer to the figure above. When the price rises from P1 to P2, which of the following statements is not true? a. The buyers who still buy the good are worse off because they now pay more. b. Some buyers leave the market because they are not willing to buy the good at the higher price. c. Buyers place a higher value on the good after the price increase. d. Consumer surplus in the market falls. 24 Chapter 8 80. When a tax is levied on a good, the buyers and sellers of the good share the burden, a. provided the tax is levied on the sellers. b. provided the tax is levied on the buyers. c. provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers. d. regardless of how the tax is levied. 81. When a tax is placed on the buyers of a product, a result is that buyers effectively pay a. less than before the tax, and sellers effectively receive less than before the tax. b. less than before the tax, and sellers effectively receive more than before the tax. c. more than before the tax, and sellers effectively receive less than before the tax. d. more than before the tax, and sellers effectively receive more than before the tax. 82. The benefit to buyers of participating in a market is measured by a. the price elasticity of demand. b. consumer surplus. c. the maximum amount that buyers are willing to pay for the good. d. the equilibrium price. 83. The decrease in total surplus that results from a market distortion, such as a tax, is called a a. wedge loss. b. revenue loss. 25 increase by $5. increase by $5. c. deadweight loss. Refer to Figure above. d. increase by 1 unit. decrease by $2. 26 . increase by 2 units. consumer surplus loss. Refer to Figure above. increase by $3.c. c. d. decrease by $4. The imposition of the tax causes the quantity sold to a. decrease by 1 unit. b. b. 85. 86. d. 84. increase by $3. Refer to Figure above. The imposition of the tax causes the price paid by buyers to a. The imposition of the tax causes the price received by sellers to a. c. decrease by 2 units. b. decrease by $4. decrease by $2. d. Chapter 10 87. A negative externality arises when a person engages in an activity that has a. will always improve market outcomes. b. externalities. scarcity. too much competition. d. c. is necessary to control individual greed. 88. Market failure can be caused by a. 27 . may improve market outcomes in the presence of externalities. c. government intervention a. an adverse effect on a bystander who is not compensated by the person who causes the effect. low consumer demand. b. d. reduces efficiency in the presence of externalities. 89. In a market economy. Jack receives personal benefits from his own consumption of a certain good. private costs exceed social costs at the private market solution. externalities cannot be corrected without government regulation. b. taxing goods that have negative externalities b. opportunity cost of technology c. The government cannot improve upon the outcomes of private markets. Which of the following represents a way that a government can help the private market to internalize an externality? a. d. c. Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole? a. 92. 90. 28 . a beneficial effect on a bystander who pays the person who causes the effect. Jack receives a benefit from John's consumption of a certain good. b. Jack's benefit exceeds John's benefit when they each consume the same good. d. 93. A positive externality occurs when a. social cost b. Both a and b are correct. Jack's receives a loss from John’s consumption of a certain good. technology spillover 94. b. c. Corrective taxes distort incentives. internalization of an externality d. Markets are often inefficient when negative externalities are present because a. d. an adverse effect on a bystander who is compensated by the person who causes the effect. d. a beneficial effect on a bystander who does not pay the person who causes the effect. social costs exceed private costs at the private market solution. it is hard to estimate the market demand curve and thus charge the "right" corrective tax. c. b. c. In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because a. production externalities lead to consumption externalities. subsidizing goods that have positive externalities c. selling pollution permits create a net increase in pollution. 91. a transaction cost. a sunk cost. a corrective tax. a. For private goods allocated in markets. b. Corrective taxes provide greater flexibility to firms that can reduce pollution at a low cost. 96. Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of a. the externality theorem. c. the Coase theorem. 29 . d. they can solve the problem of externalities on their own. an opportunity cost. an implicit cost. is called a. d. Chapter 11 97. prices guide the decisions of buyers and sellers and these decisions lead to an efficient allocation of resources. the Pigovian theorem. The proposition that if private parties can bargain without cost over the allocation of resources. d. 95. c. b. b. When a good is excludable. Goods that are rival in consumption and excludable would be considered a. c. no more than one person can use the good at the same time. club goods. private goods. The box labeled B represents a. common resources. one person's use of the good diminishes another person's ability to use it. b. d. 30 . public goods. d. d. club goods. 101. the government guides the decisions of buyers and sellers and these decisions lead to an efficient allocation of resources. Rival in Consumption? Yes No Excludable? Yes A B No C D 100. b. common resources. c. everyone will be excluded from using the good. Refer to Figure 11-1. c. c. Refer to Figure above. 98. public goods. private goods. private goods. a. d. prices guide the decisions of buyers and sellers and these decisions lead to an inefficient allocation of resources. b. people can be prevented from using the good. 99. club goods. b. common resources. the government guides the decisions of buyers and sellers and these decisions lead to an inefficient allocation of resources. c. The box labeled A represents a. b. free. As with many public goods. the costs always exceed the benefits. d. excludable. members of Congress are often experts in the sciences. The Tragedy of the Commons c. The Wise Woman d. 103. Refer to Figure above. c. public goods. c. benefits are hard to measure. rival in consumption. patents correct for an unknown portion of the externality. Which parable describes the problem of wild animals that are hunted to the point of extinction? a. common resources. private goods. b. public goods. 105. d. a private good. determining the appropriate level of government support for the production of general knowledge is difficult because a. Coase theorem b. d. c. 102. The Tortoise and the Hare 31 . club goods. A free-rider problem exists for any good that is not a. b. The box labeled C represents a. 104. d. The Carolina Christmas Tree Corporation grows and sells 500 Christmas trees. (iii) maximize profit. price/quantity. 108. b. $32.500.000. total revenue. d. Price times quantity. and (iii) 107. marginal revenue . total gross profit. d. (ii) and (iii) only c. b. $25. c. a. net revenue. Chapter 13 106. 109. 32 . Total revenue equals a.input. (i) and (ii) only b. c.500. The amount of money that a firm receives from the sale of its output is called a. c. total net profit. d.500. b. (iii) only d. output . (ii) set the price of the product as high as possible. $67. The average cost of production per tree is $50. $7. (i). Economists normally assume that the goal of a firm is to (i) sell as much of its product as possible. (ii).marginal cost. The Carolina Christmas Tree Corporation’s total revenues are a. Each tree sells for a price of $65. A difference between explicit and implicit costs is that a.(i). d. His profits are a. d. (iii). market value of the inputs a firm uses in production. $125. plus total cost. c.50. His total costs are $125. $25. 114. Marcus sells 300 candy bars at $0. Pete owns a shoe-shine business. b. (i) and (ii) only b. c. Which of the following costs would be implicit costs? (i) shoe polish (ii) rent on the shoe stand (iii) wages Pete could earn delivering newspapers (iv) interest that Pete’s money was earning before he spent his savings to set up the shoeshine business a. (iii) and (iv) only d. fixed cost less variable cost. amount a firm receives for the sale of its output. $150.50 each. minus total cost. times total cost. d. 113. explicit costs do not require a direct monetary outlay by the firm. implicit costs must be greater than explicit costs. $124. whereas explicit costs do. b. Profit is defined as total revenue a. b. c. whereas implicit costs do. c.110. and (iv) 33 .(iv) only c. implicit costs do not require a direct monetary outlay by the firm. d. divided by total cost. 112. quantity of output minus the quantity of inputs used to make a good. 111. b. Total cost is the a. (ii). explicit costs must be greater than implicit costs. explicit costs from total revenue because these are the only costs that can be measured explicitly. When calculating a firm's profit. the relationship between cost and output. 3. Suppose that a “doggie day care” firm uses only two inputs: hourly workers (labor) and a building (capital). d. how a firm turns inputs into output. Bobby can catch 3. capital to be variable and labor to be fixed. c. 117. c. implicit costs from total revenue because these include both the costs that can be directly measured as well as the costs that can be indirectly measured. d.000 pounds 120. the firm most likely considers a. Bubba is considering hiring his cousin Bobby to work for him. b. both labor and capital to be variable. 1. Bubba is a shrimp fisherman who can catch 4. the opportunity costs from total revenue because these include both the implicit and explicit costs of the firm. b.500 pounds c. The firm can vary the size of its factory but not the number of workers it employs. Which of these assumptions is often realistic for a firm in the short run? a. The firm can vary both the size of its factory and the number of workers it employs. The marginal product of labor is equal to the 34 .000 pounds of shrimp per year. 118. 116.115. 3.000 pounds of shrimp per year. the minimal cost of producing a given level of output. an economist will subtract only a.000 pounds b.000 pounds d. what will be the total output of his shrimp business? a. the marginal cost because the cost of the next unit is the only relevant cost. b. The firm can vary neither the size of its factory nor the number of workers it employs. labor to be variable and capital to be fixed. b. c. 7. d. d. If Bubba hires Bobby. 119. In the short run. both labor and capital to be fixed. The firm can vary the number of workers it employs but not the size of its factory. how a firm maximizes profits. c. A production function describes a. total cost of production and total revenue. 10 units of output b. c. b. The length of the short run a. The firm is able to produce 340 units of output with a 16th worker. b. 25 units of output 122. d. What is the marginal product of the 16th worker? a. Suppose a firm currently produces 325 units of output per day with 15 workers. is always less than 6 months. d. is different for different types of firms. c. d. b. 15 units of output c. quantity of output produced and the total cost of production. A total-cost curve shows the relationship between the a. incremental profit associated with a one unit increase in labor. 16 units of output d. output is not variable. b. The total cost to the firm of producing zero units of output is a. incremental cost associated with a one unit increase in labor. b. d. a. can never exceed 3 years. total cost of production and profit. there are no fixed costs. can never exceed 1 year. zero in both the short run and the long run. quantity of an input used and the total cost of production. 123. the size of the factory is fixed. One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that in the short run. increase in labor necessary to generate a one unit increase in output. c. 121. c. increase in output obtained from a one unit increase in labor. 124. 125. its fixed cost in the short run and zero in the long run. the number of workers used to produce the firm's product is fixed. 35 . a. c. has the potential for economies of scale. a. average fixed costs are falling. 126. inputs that were variable in the short run become fixed. large management structures are bureaucratic and inefficient. All of the above are correct. Which of the following explains why long-run average cost at first decreases as output increases? a. 130. benefits from increased size because it can take advantage of greater specialization. inputs that were fixed in the short run remain fixed. c. In the long run. c. inputs that were fixed in the short run become variable. and managers do not have enough to do. diseconomies of scale b. d. long-run average total costs rise as output increases. its variable cost in both the short run and the long run. less-efficient use of inputs c. 36 . c. c. is unlikely to experiences acute problems with coordination. d. there are too few employees. they are too small to take advantage of specialization. average fixed costs begin to rise again. b. b. d. 127. gains from specialization of inputs (economies of scale) 128. variable inputs are rarely used. the firm a. Economies of scale occur when a. long-run average total costs fall as output increases. 129. At low levels of production. d. its fixed cost in both the short run and the long run. d. average fixed costs are constant. b. Firms may experience diseconomies of scale when a. The figure below depicts average total cost functions for a firm that produces automobiles. fixed costs becoming spread out over more units of output d. b. Average Total Cost. Refer to Figure above. the firm experiences a. In addition. 133. ATCD 132. diseconomies of scale. constant returns to scale. b. both the benefits of specialization and diminishing marginal productivity. $0 $10 1 200 200 $20 $10 2 350 $40 $10 3 450 $60 $10 4 50 $80 $10 5 25 $100 $10 37 . Fill out the table below. d. 131. c. Refer to Figure above. ATCA b. Which of the curves is most likely to characterize the short-run average total cost curve of the smallest factory? a. At levels of output between M and N. This is not a multiple choice question. economies of scale. ATCB c. calculate the Total Cost. Marginal Product Variable Cost Fixed Cost Labor Output 0 0 -. ATCC d. 6 530 $120 $10 Chapter 14 38 . c. electricity and cable television 137. In which pair would the firm in the first market listed experience a dramatic decline in sales. has little or no market power. Suppose a firm in each of the two markets listed below were to increase its price by 15 percent. 135. 39 . a firm's marginal cost is zero. income tax rates of consumers in that market. c. market entrants. is small relative to the size of the gasoline market. firms’ costs of production in that market. When buyers in a competitive market take the selling price as given. For any competitive market. interest rates on government bonds. Free entry means that a. no legal barriers prevent a firm from entering an industry. 136. cotton and soybeans b. but the firm in the second market listed would not? a. the government pays any entry costs for individual firms. d. Each firm sells a virtually identical product. its sales of gasoline would decrease substantially because your local gas station a. 139. c. Entry is limited. b.134. b. b. d. government-funded research lowers the costs of patents and other barriers to entry. d. All of the above are correct. Buyers and sellers are price takers. the supply curve is closely related to the a. gasoline and corn c. is a competitive firm. If your local gasoline station raised its price by 20 percent. #2 lead pencils and college textbooks d. they are said to be a. 138. d. b. Which of the following is not a characteristic of a competitive market? a. c. preferences of consumers who purchase products in that market. Each firm chooses an output level that maximizes profits. monopolists. price takers. For this firm. 40 . Land of Many Lakes (LML) sells butter to a broker in Albert Lea. have any fixed costs of production. All of the above are correct. Why does a firm in a competitive industry charge the market price? a. d. b. $39. b. 140. $13. the marginal revenue is a. $26. c. b. For this firm. $39. Refer to Table 1. 143. If a firm charges more than the market price. choose the price at which it sells its butter. the price is a. c. set marginal revenue equal to marginal cost to maximize profit. d. Because the market for butter is generally considered to be competitive. LML does not a. c. choose the quantity of butter to produce. b. Minnesota. Table 1 The table represents a demand curve faced by a firm in a competitive market. d. it loses potential revenue.b. 141. $26. Quantity Total Revenue 0 $0 1 $13 2 $26 3 $39 4 $52 142. $0. Refer to Table 1. If a firm charges less than the market price. it loses all its customers to other firms. free riders. c. The firm can sell as many units of output as it wants to at the market price. d. If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue. 41 . average revenue exceeds marginal cost. Refer to Table 1. its total cost is less than $4. The marginal cost of producing the 4th unit is a. b. the firm is earning a positive profit. decreasing output would increase the firm's profit. 145. b. d. d. All of the above are correct. 146. c.$8. d. Refer to Table 2. its marginal revenue is less than $8. b.000. $0. $13. 144. b. c. $13. If a competitive firm is selling 500 units of its product at a price of $8 per unit and earning a positive profit. the average revenue is a. then a. $0. $39. c. then a. $26. its average revenue is greater than $8. Table 2 Suppose that a firm in a competitive market faces the following revenues and costs: Quantity Total Revenue Total Cost 0 $0 $3 1 $7 $5 2 $14 $9 3 $21 $15 4 $28 $23 5 $35 $33 6 $42 $45 7 $49 $59 147. d. For this firm. All of the above are correct. c. $7. c.$23. d. 42 . $10. and is earning $240 economic profit in the short run. If the firm produces the profit-maximizing level of production. The firm is producing 40 units of output. $10 c. how much profit will the firm earn? a. Refer to Figure 1. $11 d. 6 units 149. $4 c. $9 b. has an average total cost of production equal to $5.148. Refer to Table 2. 5 units d. Refer to Table 2. Which line segment best reflects the short-run supply curve for this firm? 43 . $8 150. 4 units c. $6 d. What is the current market price? a. 3 units b. Consider a firm operating in a competitive market. At which level of production will the firm maximize profit? a. $12 Figure 1 Suppose a firm operating in a competitive market has the following cost curves: 151. $2 b. zero accounting profits. d. d. CD c. CD d. more firms will enter the market. b. positive. Figure 2 Suppose a firm in a competitive industry has the following cost curves: 44 . average total costs will fall. Which segment of the supply curve represents the firm shutting down? a. AB 153. positive economic profits. BCD c. c. or zero economic profits. If duck calls sell for $10 each and average total cost per unit is $11 at the profit-maximizing output level. negative. each firm in a competitive industry earns a. b. 154. ABCF b. zero economic profits. the equilibrium price per duck call will fall. Refer to Figure 1. c. Phil sells duck calls in a perfectly competitive market. ABCD b. a. some firms will exit from the market. then in the long run a. DF d. In the long run. BCD 152. Individual firms will earn negative economic profits in the short run. Refer to Figure 14-13. 156. d. Refer to Figure 2. so there is no incentive for firms to enter or exit the industry. the firms will shut down. Because the price is below the firm’s average variable costs. c. 45 . which will entice other firms to enter the industry. b. what will happen in the long run? a. which will cause some firms to exit the industry. the firms will shut down.155. which will cause some firms to exit the industry. Because the price is below the firm’s average variable costs. c. If the price is $6 in the short run. If the price is $2 in the short run. b. which will entice other firms to enter the industry. The price is consistent with zero economic profits. so there is no incentive for firms to enter or exit the industry. Nothing. Individual firms will earn positive economic profits in the short run. d. The price is consistent with zero economic profits. Nothing. what will happen in the long run? a. Individual firms will earn positive economic profits in the short run. Individual firms will earn negative economic profits in the short run. marginal cost equals price.000 per carat? a. marginal cost exceeds price. marginal cost equals price. c. because stockholders would not allow such a high price c. price exceeds marginal cost. because the company would sell so few copies that they would earn higher profits by selling at a 46 . c. The DeBeers Company faces very little competition from other firms in the wholesale diamond market. d. not in the best interest of society. d. inefficient. b. 159. because the government would not allow such a high price b. while a monopolist produces where marginal cost exceeds price. b. the outcome in a market with a monopoly is often a. A perfectly competitive firm produces where a. Because monopoly firms do not have to compete with other firms. 158.Chapter 15 157. while a monopolist produces where marginal cost equals price. All of the above are correct. while a monopolist produces where marginal cost equals price. while a monopolist produces where price exceeds marginal cost. one that fails to maximize total economic well-being. Why isn’t the price of the wholesale diamonds $10. a local restaurant d. Which of the following would be most likely to have monopoly power? a. Which of the following monopoly types best coincides with the figure? 47 . Mark charges a lower price to students than to faculty for his tattoo services. c. The fundamental source of monopoly power is a. Luke charges a higher hourly price to business students than to liberal arts students for his economics tutoring. Which of the following is an example of a barrier to entry? a. d. Figure 1 163. b. barriers to entry. d. The shape of the average total cost curve reveals information about the nature of the barrier to entry that might exist in a monopoly market. a local electrical cooperative 162. an online bookstore c. a national florist b. decreasing average total cost. profit. 160. John obtained a copyright for the song he wrote and recorded. c. Refer to Figure 1. b. a product without close substitutes. 161. Matthew offers free samples of his latest flavored coffee drink to entice customers to buy a cup. lower price d. All of the above are correct. Which of the following is not a difference between monopolies and perfectly competitive markets? a. d. Monopolies use their market power to a. d. 167.Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a price equal to marginal cost. c. government-created monopoly d. must lie entirely below the average total cost curve.increase the quantity sold as they increase price. b. 165. Considering the relationship between average total cost and marginal cost. d. ownership of a key resource by a single firm b. the marginal cost curve for this firm a. which of the following equalities is always true? 48 . diseconomies of scale. 166. b. a patent or copyright monopoly 164. charge prices that equal minimum average total cost.a. Monopolies can earn profits in the long run while perfectly competitive firms break even.Monopolies face downward sloping demand curves while perfectly competitive firms face horizontal demand curves. charge a price that is higher than marginal cost. increasing marginal cost. c.maximizing monopolist to take advantage of a. Refer to Figure 1.dump excess supplies of their product on the market. For a monopoly firm. b. diminishing marginal product. economies of scale. c. natural monopoly c. must lie entirely above the average total cost curve. c. Refer to Figure 1. The shape of the average total cost curve in the figure suggests an opportunity for a profit. must be upward sloping. d. b. Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not. does not exist. 168. a. Panel C d. Panel A b. price = marginal revenue b. Refer to Figure 2. Refer to Figure 2. Panel C d.Panel B c.Panel D 49 . Which panel could represent the demand curve facing the soybean industry? a.Panel D 170. price = total revenue d.marginal revenue = marginal cost Figure 2 169. Which panel could represent the demand curve facing a soybean farmer? a.Panel B c. Panel A b.price = average revenue c. T c. Panel C d. Refer to Figure 2.Panel D Figure 3 172. W d. (K-B)*W d.Z 174. What price will the monopolist charge? a.5[(K-C)*(Z-T)] 50 . (K-C)*W b. Which panel could represent the demand curve facing a local cable television provider if that firm in a monopolist? a. K d. 171. How much output will the monopolist produce? a.Panel B c.C c. Refer to Figure 3. Refer to Figure 3. A b. 0. Panel A b.L 173. Refer to Figure 3. O b. What area measures the monopolist’s profit? a.(L-A)*T c. quantity = X b. price = A.the triangle 1/2[(A-C)*(Y-X)] c. What is the area of deadweight loss? a. What is the monopoly price and quantity? a. quantity = X d.the triangle 1/2[(A-C)*(Y-X)] 51 . price = B. quantity = Y c. price = A.price = B.price = C. Refer to Figure 4.the rectangle (A-C)*X b. Refer to Figure 4.price = C.the rectangle (A-C)*X plus the triangle 1/2[(A-C)*(Y-X)] 178.the triangle 1/2[(A-B)*(Y-X)] d.the rectangle (A-C)*X b. quantity = X 177. quantity = Y c. quantity = X 176. What area represents the total surplus lost due to monopoly pricing? a. quantity = X d. Refer to Figure 4. price = B. What is the socially efficient price and quantity? a. quantity = X b. Refer to Figure 4.price = B. Figure 4 175. deadweight loss. 52 . b. c. price discrimination. c. perfect price discrimination. d. This is an example of a. income. the rectangle (A-C)*X plus the triangle 1/2[(A-C)*(Y-X)] 179. the monopolist may choose to charge them different prices based on the customers' a.the triangle 1/2[(A-B)*(Y-X)] d. d. geographical location. All of the above are correct. 180. c. b. Customers who purchase an audio CD from Sally’s Sounds are charged 20% more than customers who purchase the audio CD from the Sally's Sounds website. When deciding what price to charge consumers. age. socially inefficient output. Unlike monopolies and monopolistically competitive markets. cooperative situation. In the language of game theory. strategic situation. In which of the following markets are strategic interactions among firms most likely to occur? a. a situation in which each person must consider how others might respond to his or her own actions is called a a. An oligopolistic market has only a few sellers. d. markets to which patent and copyright laws apply b. quantifiable situation. perfectly competitive and oligopolistic markets b. c. b. Oligopolistic firms are interdependent in a way that competitive firms are not. the market for corn 184. d. Which of the following statements about oligopolies is not correct? a. Game theory is important for understanding which of the following market types? a. The actions of any one seller can have a large impact on the profits of all other sellers. 183. b. the market for piano lessons c. 182. tactical situation. c. oligopolies prices do not exceed their marginal revenues. the market for tennis balls d. perfectly competitive markets but not oligopolistic markets 53 .Chapter 17 181. If two firms comprise the entire soft drink market. own wells that produce safe drinking water. that market were a duopoly. 185. then their combined output will be equal to the output that would be observed if the market were a monopoly. b. c.000 units of output. One duopolist produces 2. The weekly town demand schedule and total revenue schedule 54 . Which of the following statements is correct? a.000 units of output and the other produces 1. They bring the water to town and sell it at whatever price the market will bear. the market would be a(n) a. b. d. c. profit maximization and cost minimization. A distinguishing feature of an oligopolistic industry is the tension between a. duopoly.400 units of output and the other produces 1. If. Although the logic of selfinterest decreases a duopoly’s price below the monopoly price. If duopolists successfully collude. cooperation and self interest. To keep things simple. d. oligoplistic but not perfectly competitive markets d. Although the logic of selfinterest increases a duopoly’s level of output above the monopoly level. c. Each duopolist produces 1.000 units of output. monopolistically competitive market. oligopolistically competitive market. b. Each week Rochelle and Alec work together to decide how many gallons of water to pump.500 units of output. Table 17-1 Imagine a small town in which only two residents. c. d. Rochelle and Alec. One duopolist produces 3. b. If a certain market were a monopoly. instead. short-run decisions and long-run decisions. 188. d. then which of the following outcomes would be most likely if the duopolists successfully collude? a. then the monopolist would maximize its profit by producing 4. it does not push the duopolists to reach the competitive price. it does not push the duopolists to reach the competitive level. All of the above are correct. producing a small amount of output and charging a price above marginal cost. Each duopolist produces 4. 187. neither oligopolistic nor perfectly competitive markets. suppose that Rochelle and Alec can pump as much water as they want without cost so that the marginal cost of water equals zero. Nash equilibrium.600 units of output.500 units of output. 186. c. 500 c. 600 d. If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water. what price will they charge? a. $8.200 0 0 189.000 c.500 800 20 16. how many gallons of water will be produced and sold? a.000 500 35 17. $25 b. how much profit will each of them earn? a.000 192.000 300 45 13.000 900 15 13.500 600 30 18.500 400 40 16. for water is shown in the table below: Quantity (in gallons) Total Revenue (and Price Total Profit) 0 $60 $0 100 55 5. If the market for water were perfectly competitive instead of 55 . $40 190.500 200 50 10. Refer to Table 17-1. $35 d. $9. $18.000 10 10. 1.200 191. If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water. Refer to Table 17-1. If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water.500 1.000 d. 0 b.000 700 25 17. Refer to Table 17-1.100 5 5. Refer to Table 17-1. $30 c.000 1.750 b.500 1. $12. 800 d. If this market for water were perfectly competitive instead of monopolistic. $20 c. $30 c. Refer to Table 17-1. 0 gallons b. 0 gallons b. Refer to Table 17-1. 600 gallons c.200 gallons 193. Suppose the town enacts new antitrust laws that prohibit Rochelle and Alec from operating as a monopoly. What is the socially efficient quantity of water? a. $60 195. Suppose the town enacts new antitrust laws that prohibit Rochelle and Alec from operating as a monopoly. 56 . 600 gallons c. 600 b. 900 gallons d. Refer to Table 17-1. 1. how many gallons of water would be produced and sold? a. Refer to Table 17-1. $30 196. $40 d.200 gallons 194. How many gallons of water will be produced and sold once Rochelle and Alec reach a Nash equilibrium? a. What will be the price of water once Rochelle and Alec reach a Nash equilibrium? a. 1. $15 b. $25 d. 900 gallons d. 700 c. A lack of cooperation by oligopolists trying to maintain monopoly profits a. is desirable for society as a whole. 900 197. monopolistic. what price would be charged? a. $0 b. 198. a. marginal products. b. when each player chooses his dominant strategy the players reach a Nash equilibrium. the more likely it is that the game among the oligopolists will be played over and over again. labor demands. factors of production. c. a. is not desirable for society as a whole. the smaller the number of buyers of the oligopolists’ product. In the prisoners’ dilemma. c. cooperative outcome if a. only one player has a dominant strategy. is not a concern due to antitrust laws. profit factors. The inputs used to produce goods and services are called a. b. 200. Oligopolists may well be able to reach their preferred. a sufficient number of firms can be persuaded to lower their prices. the greater the number of oligopolists. c. d. d. c. b. A cooperative agreement among oligopolists is more likely to be maintained. 57 . they learn that a Nash equilibrium is in their best long-term interests. the number of oligopolists is large.b. the game they play is repeated a sufficient number of times. the larger the number of buyers of the oligopolists’ product. 199. may or may not be desirable for society as a whole. c. Chapter 18 201. b. the prisoners easily collude in order to achieve the best possible payoff for both. d. d. when each player chooses his dominant strategy the players achieve the best joint outcome. d. Workers with higher levels of education earn more. c. and (iii) only d. Suppose that Chloe opens a dog grooming business in a local shopping center. has little or no control over the wage it pays its workers. and clippers (iii) shampoo. (i). 205. c. (i) only b.202. scissors. combs. Factors that decrease the demand for labor will decrease the equilibrium wage. is aggressive in pursuing the most skilled workers in the labor market. has little or no control over the number of workers it hires. and flea prevention treatments (iv) Chloe’s time spent on bookkeeping and bill paying a. but it cannot choose how many workers to hire. d. neither the wage it pays its workers nor the number of workers it hires. A tractor manufacturer’s demand for assemblyline workers is inseparably linked to the supply of tractors. d. labor b. Which of the following is not an example of a factor of production? a. 58 . (ii). b. the wage it pays its workers. than workers with lower levels of education. (ii). To say that a firm is competitive in the labor market is to say that the firm a. land d.(i) and (ii) only c. on average. To say that a firm is competitive in the labor market is to say that the firm can choose a. both the wage it pays its workers and the number of workers it hires. and (iv) 204. water. (i). interest c. Which of the following is an example of a firm’s derived demand? a. (iii). b. All of the above are correct. c. capital 203. is aggressive in trying to keep its workers’ wages low. b. Which of the following would be an example of a factor of production used by Chloe? (i) her employees’ time (ii) brushes. 206. but positive. Labor markets are different from most other markets because labor demand is a. diminishing profitability 59 . b. the effects on marginal product are ambiguous. 209. unresponsive to changes in the final prices of the products produced by the labor. All of the above are correct. 208. a derived demand. as more workers are employed. If hiring more workers results in each additional worker contributing successively smaller amounts of output. marginal revenue product minus the wage paid to the worker. b. b. both markets for goods and services and markets for labor services. but at a decreasing rate. output increases. When a production function exhibits a diminishing. d. all markets except those in which demand is derived demand. the number of workers it hires. marginal product of labor. markets for goods and services but not to markets for labor services. then which of the following is present? a. 210. d. markets for goods and services but not to markets for factors of production. d. market prices for final goods and services. but it cannot choose the wage it pays its workers. 207. c. as more workers are employed. c. output declines as more workers are employed. but at an increasing rate. increase in the amount of output from an additional unit of labor. c. d. marginal productivities of labor and capital. total amount of output divided by the total units of labor. output increases. a. unresponsive to changes in wages. 212. The basic tools of supply and demand apply to a. c. None of the above is correct. b. demand for chocolate bars. The marginal product of labor is the a. Factor markets for chocolate bars are influenced by the a. d. b. very responsive to labor supply. c. d. 211. Juanita is trying to convince the owner of a jewelry store to hire her. the wage rate must be more than $60 per day. and the value of the marginal product of labor decreases. 213. reduce total cost by hiring additional workers. marginal product of labor is increasing. c. She argues that she could help the shop sell an additional three rings per day for a profit of $20 each. d. value of the marginal product of labor exceeds the wage. 216. the wage rate must be less than $60 per day. and the value of the marginal product of labor stays constant. d. 214. then the firm could a. 215. d. and the value of the marginal product of labor decreases. If the value of the marginal product of labor is less than the wage. Typically. diminishing total product c. 60 . b. c. hiring Juanita would involve a negative marginal product. increase profit by hiring additional labor. the marginal product of labor a. c. b. b. when 74 employees are hired. It is possible to infer that. We observe a profit-maximizing firm hiring its 75th employee. as a firm hires additional workers. b. but the owner does not hire her. decreases. d. increase profit by reducing the amount of labor hired. wage exceeds the value of the marginal product of labor. decreases. the a. then a. the wage rate must be less than $20 per day. increase revenue by lowering output. diminishing marginal product d. firm is attempting to increase its market share. b. If the facts are not in dispute. Both b and c are correct. and the value of the marginal product of labor increases. stays constant. c. decreases. backward sloping. vertical. b. c. $280 d. his labor supply curve is a. Miguel receives a pay raise at his part-time job from $7. 4 units b. b. horizontal.50 to $9 per hour. 8 units d. What is the marginal product of the second worker? a. For this price range. vertical. horizontal. $20 c. 6 units c. He used to work 10 hours per week. c. If a worker respond to an increase in the opportunity cost of leisure by taking less leisure. Refer to Figure above. but now he decides to work 12 hours per week. $300 219. backward sloping. upward sloping. 12 units 218. 61 .217. 220. d. Refer to Figure above. $1 b. Suppose that the price of the output is $20. then his labor supply curve is a. What is the value of the marginal product of the fourth worker? a. 62 . a labor-saving technological change d. Labor-saving technology causes which of the following? (i) The marginal productivity of labor increases. c. The supply curve for soybean workers increases. upward sloping. (iii) Labor demand shifts to the right. the supply of factors of production other than labor. (i) and (iii) only b. The supply curve for soybean workers decreases. (iii) her hours of labor supply may increase. and (iv) only 223. 222. given that workers who detassel corn can easily work weeding soybean fields? a. The demand curve for soybean workers decreases. Which of the following would shift a market labor supply curve to the right? a. (ii) her opportunity cost of leisure decreases. and (iv) only d. the tradeoff between leisure and work. 221. an increase in immigration c. b. (ii) The marginal productivity of labor decreases. Suppose that the wage paid to workers who detassel corn rises. (iii). (ii). a decrease in the wage rate 224. d. immigration trends. 225. d.(ii) and (iv) only c. A household member's decision about how much labor to supply is most closely linked to a. c. (i). What happens in the market for workers who weed soybean fields. d. If the wages of a CPA decrease. an increase in the price of output b. a. b. (i) her opportunity cost of leisure increases. (iv) her hours of labor supply may decrease. (iii). The demand curve for soybean workers increases. technological change. (i) and (iii) only d. maximize the use of the welfare system. (iv) Labor demand shifts to the left. make the distribution of income more efficient. A country’s standard of living depends on its ability to produce goods & People face tradeoffs. c. c. a. Which two of the Ten Principles of Economics are illustrated in this chapter? a. Governments enact policies to a. d. (i) only b. 227. People face tradeoffs & Prices rise when the government prints too much money . (ii) and (iv) only Chapter 20 226. Prices rise when the government prints too much money & Governments can sometimes improve market outcomes. b. minimize the use of in-kind transfers. (ii) only c. b. d. Governments can sometimes improve market outcomes & People face tradeoffs. make the distribution of income more equal. 63 . easy. c. Because many of the poorest families receive in-kind transfers. 64 . d. c. an income distribution similar to South Africa’s. c. 50 percent of the households would receive exactly 50 percent of the income. we find that the U. How much inequality is there in society? d. problematic. Which of the following is not correct? a. so inequality measures based on current income may be misleading. What are people's wages? b. d. When we compare the income distribution of the United States to those of other countries. each household's relative share of income would increase. How does labor-force experience affect wages? c.S. How do people adjust their behavior due to taxation? 229. 230. a. 231. a bit more inequality than the typical country. because countries collect data in different ways. the top fifth of households would have 50 percent of the income. one of the most unequal income distributions. c. Economists study poverty and income inequality to answer which of the following questions? a. Comparing the United States household income distribution to other countries is a. b. an income distribution similar to Japan’s. each household's relative share of income would decrease. d. because international agreements require countries to standardize their income accounting procedures. d. more families have lower standards of living when compared to poverty rates based on income. equality measures based only on income may not reflect a person’s standard of living. 232. Many measures of inequality are based on income. b.228. has a. easy. because data is available for all countries in the world. Because people can borrow and save to smooth out life cycle changes in income. b. which may not reflect a person’s standard of living. If income were equally distributed among households. A person’s standard of living depends more on her permanent income than her transitory income. problematic. because some countries collect data on expenditures instead of incomes. b. All of the above are correct. b. Saving and borrowing is indicative of a family that a. income inequality rate. annual extended-family income rather than annual personal income. b. income only. b. b. poverty rate. 234.233. is most likely to be poor. economic mobility 237. d. Which of the following is not correct? a. c. 238. Poverty is correlated with age. The statement that "measures of the distribution of income are based on money income" relates to which problem in measuring inequality? a. The poverty rate is based on a family’s a. b. d. income and in-kind transfers. c. in-kind transfers only. d. lifetime income rather than annual income. transitory versus permanent income d. aggregate income rather than annual personal income. income. does not adjust its standard of living to reflect transitory changes in income. Poverty is correlated with race. 235. A commonly-used gauge of poverty is the a. and other government aid. 65 . economic life cycle c. average income rate. c. income averaged across seasons rather than across years. the life cycle theory would suggest that one's standard of living depends on a. social inequality rate. in-kind transfers b. in-kind transfers. c. has a difficult time balancing its standard of living. Because people can borrow when they are young. c. d. Poverty is correlated with family composition. 236. 000 before taxes would have how much after-tax income? a. Refer to Scenario 1. This negative income tax would guarantee what minimum level of income to every family? a. economic mobility Scenario 1 Suppose the government implemented a negative income tax and used the following formula to compute a family’s tax liability: Taxes owed = (1/5 of income) . $80. $50.000 b. Refer to Scenario 1 .000 before taxes would have how much after-tax income? a. d.000 d.000 240. $95. $45.$15. $40. Refer to Scenario 1. $10. These actions relate to which problem in measuring inequality? a. $55. 239.000 c.000 242.000 c. in-kind transfers b. $15. a negative income tax d.000 241. $5.000 b.000 66 . $50.000 d.000 b.000 d. $65. A family earning $100. Suppose that young people often borrow and then repay the loans when they are older. -$5. A family earning $50. is most likely millionaires.000 c. the economic life cycle c. b. When the government provides poor families with antipoverty programs such as welfare. A negative income tax subsidizes the incomes of poor people. A negative income tax only applies to working people. so it encourages people to get full-time work. and makes the allocation of resources less efficient. c. An advantage of a negative income tax is that it is not based on the number of children. so it does not provide incentives for unmarried women to have children. d. Medicaid. 244.243. Which of the following is not correct? a. False 67 . d. True b. b. When the government enacts policies to make the distribution of income more equitable. it distorts incentives. 245. the recipients can usually receive benefits for an unlimited amount of time. the government creates an egalitarian distribution of income. a. alters behavior. Supporters advocate the use of the Earned Income Tax Credit as a way to help the working poor. c. the incentive to work and earn more income remains unchanged. a. and the Earned Income Tax Credit which are all tied to income. food stamps. it is common for families to face very high effective marginal tax rates. then what is the price of a CD? a. $5 c. If the consumer’s income is $140.Chapter 21 246. 247. $3 b. The theory of consumer choice examines how a. prices are determined in competitive goods markets. $9 68 . $7 d. b. wages are determined in competitive labor markets. d. firms make profit-maximizing decisions. c. Refer to Figure above. consumers make utility-maximizing decisions. b. X and Y. graph d d. Utility measures the a. Which of the graphs in the figure could reflect an increase in income? a. 249. 69 . All of the above are correct. All of the above are correct. rate at which the consumer will give up X to gain Y while maintaining the same level of utility. income a consumer receives from consuming a bundle of goods. d. satisfaction a consumer receives from consuming a bundle of goods. c. b. Refer to Figure above. relative price of the two goods. graph a b. marginal rate of substitution. None of the above is correct. d. Suppose a consumer consumes two goods. graph b c. c.248. The slope of the budget constraint equals the a. satisfaction a consumer places on her budget constraint. 250. C 34. C 14. D 26. B 19. A 32. C 37. A 33. D 40. C 17. D 36. D 38. C 20. B 7. B 5. C 24. D 29. B 31. A 41. C 6. C 2. C 15. B 11. D 22. D 28. A 8. c 41 b. B 25. A 3. a. C 27. B 12. d 41 c. D 9. C 16. c 70 . C 13.Answers 1. D 23. B 30. D 18. D 35. D 21. A 4. D 39. B 10. b 75. b 62. c 82. d 64. c 84. a 50. b 86. b 53. c 74. a 57. c 71. c 63. c 80. b 78. a 71 . d 70. b 42. a 43. d 61. a 52. b 79. b 67. b 46. b 45.41 d. c 60. b 72. d 81. c 48. b 44. d 51. d 68. c 83. a 49. b 54. c 55. c 66. b 73. c 58. a 59. b 85. a 69. a 56. a 77. c 76. d 47. a 65. b 131. a 125. a 120. c 116. d 104. d 121. b 126. c 118. c 112. a 95. c 108. d 96. a 101. d 128. a 93. c 109. b 119. b 106. b 102. d 130. b 99. c 110. c 111. a 113. c 107. b 129. d 91.87. b 122. a 132. c 117. b 89. c 103. c 72 . d 97. d 94. c 88. c 114. a 90. c 92. d 100. b 105. c 124. a 98. b 127. c 115. b 123. 133. b 155. No correct answer listed in the answer choices. d 153. d 160. d 157. c 146. b 148. a 149. c 145. d 163. a 158. b 154. c 143. Marginal Variable Cost Fixed Cost Total Cost ATC (TC/Q) Labor Output (Q) Product (VC + FC) 0 0 -. d 135. d 141. c 167. c 150. Answer is CDF. a 161. c 138. c 73 . d 142. d 139. 152. $0 $10 $10 -- 1 200 200 $20 $10 $30 $30/200 = $0. c 144.15 2 350 150 $40 $10 $50 $50/350 = $0. d 140. b 164. b 156. c 151. d 159. c 137. b (remember the GPA example in the book from cost chapter) 166.14 3 450 100 $60 $10 $70 Fill these out 4 500 50 $80 $10 $90 5 525 25 $100 $10 $110 6 530 5 $120 $10 $130 134. a 165. c 147. d 162. c 136. b 203. a 198. c 173. b 169. a 209. d 194. a 195. c 174. b 212. b 179. b 181. b 170. a 74 . a 177. c 213. d 199. d 201. b 206. c 184. d 202. c 211. c 189. d 182. c 205. c (Cross these out) 197. d 208. b 176. a 207. b 178. b (Cross these out) 196. d 180. d 188. b 186. a 171. d 193. d 204. c 175. d 200. b 190. c 172. b 192. c 210. c 191. c 183. d 187. c 185.168. b 75 . b 240. b 233. b 217. d 226. c 245. b 219. c 243. a 237. d 232. a 244. a 246. c 215. c 250. a 238. c 227. c 239. c 248. d 223. b 249. d 225. b 247. d 231. b 216. d 242. c 222. d 234. d 236.214. c 229. d 241. b 224. d 230. c 235. b 228. d 221. c 220. a 218.