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Which of the following constitute the fundamental questions every economic system must answer?

What goods and service will be produced?
How will they be produced?
For whom will they be produced?

Labor, human capital, entrepreneurship, natural resources, and capital are all examples of which of
the following

Factors of production

In the figure above, consumer surplus is represented by the area


The law of diminishing marginal utility is most
useful for explaining the

Law of demand

The table above provides the total number of
workers and the resulting total output of Gyro's
Unlimited per hour, holding all other inputs
constant. Which of the following statements can be
made with certainty based on the available

Diminishing marginal returns begin when the
fourth worker is hired

The owner of a competitive firm making zero
economic profit

Is making exactly what she would make in her
next best alternative job

Which of the following is more likely to result from a
competitive market structure than from a monopoly making the same product?

Price equal to marginal cost

Which of the following is likely to have the most elastic demand?


What are the effects on the supply and demand curves for Frisbees if a new procedure reduces the cost of making Frisbee?

Demand: No change
Supply: Shifts right

Which of the following statements is true for a firm in a perfectly competitive industry?

Average revenue equals marginal revenue

Which of the following will shift the supply curve for
textbooks to the left?

A decrease in the price of a joint product

In the absence of intervention, imperfect competition, externalities, public goods, and imperfect information all result in which of the following?

Market failure

The line in the figure above is the most similar to a

Total cost curve

Firms with the following market structure(s) maximize profits by producing where marginal cost equals marginal revenue, if at all

Perfect competition
Monopolistic competition

The simplified PPFs for countries A and B appear in the figure above. Both countries have the same resources to work with. Which of the following statements is correct?

Country A has a comparative advantage in chairs and
country B has a comparative advantage in shirts.

Which of the following was not a landmark antitrust act?

The Wagner Act

In the same period there is a drought affecting the supply of pineapples and a discovery that assist in the avoidance of cancer. How will this combination of events affect the equilibrium price and quantity of pineapples?

Price: Increases
Quantity: May rise or fall

Which of the following statements accurately describes the relationship between average product (AP) and
marginal product (MP) of labor?

AP rises when MP is above it, and falls when MP is
below it.

Which of the following goods is likely to provide both the largest total utility and the smallest marginal utility?


In order to find the market supply curve for a particular good, one would

Add the firm supply curves horizontally

A competitive firm facing the demand and cost curves in the figure above should

Shut down immediately

A loud party in the neighborhood is disturbing people living nearby who would like to sleep. Which of the following is most likely to lead to an efficient solution to the problem?

Place a tax on parties equal to the value of the lost sleep
that results.

The figure above illustrates the supply and demand for solar panels in 1199, 50 panels were sold for $1,000 each, while in 1999, 50 panels were sold for $900 each. Which of the following combinations of supply and demand behavior most likely occurred?

Price: Shift left
Quantity: Shift right

Unlike a perfectly competitive firm, a monopoly

faces a downward sloping demand curve

Every time Mr. Hamm makes another pizza in his shop, he places $0/45 worth of sauce on top. For Mr. Hamm, the cost of pizza sauce is a component of which of the following?

Total Variable Costs
Marginal Cost
Total Costs

The Lerner index for a perfectly competitive firm is


Which of the following will increase wages for tuba

An increase in the price of tubas

After Julia received a raise in her income, she began purchasing more ice cream cones and fewer popsicles. For Julia, popsicles

are an inferior good

When the opportunity for price discrimination arises,

consumer surplus decreases

When a perfectly competitive labor market is in

everyone who wants to work has the opportunity to do so

On the basis of the information in the table above, and on the assumption that total fixed costs are 100, which of the following is a correct statement about the costs of basketball production?

The marginal cost curve falls and then rises

A production possibility frontier will be a straight line

resources are not specialized

An industry with a small number of firms
(say, 3 - 5) selling a standardized or differentiated
product would be called

an oligopoly

Which of the following are associated with public good?

free riders
adding demand curves vertically to find the demand
curve for society
nonrivalry in consumption

Loony Spoons Corporation sells silverware in a
competitive market at a constant price of $2 per piece. A competitive labor market sets the wage at $5 per hour. The table above indicates the total product per hour using various numbers of workers. How many workers should Loony Spoons hire per hour?


Which of the following statements about a price ceiling is accurate?

An effective price ceiling must be at a price below the
equilibrium price.

If a change in income of 10 percent would cause Alec's consumption of vitamins to increase by 15 percent, which of the following statements is the most likely to be

Alec's income elasticity of demand is 1.5.

The table above indicates the number of trees that can be planted per hour using different combination of inputs. All of the relevant numbers in the table are consistent with

constant returns to scale

In the payoff matrix in the figure above, a dominant
strategy equilibrium

does not exist

In the long run, a monopolistically competitive firm

earns zero economic profit

Which of the following is most likely to result in a shift to the right in the demand curve for orange juice?

Expectations of higher future income among juice

The value of the marginal product of labor always equals the marginal revenue product of labor for which type of firm?

Price taking

The industry that makes small plastic army figures uses a small fraction of the plastic demanded for all purposes. On this basis, we can conclude that the army-figures industry is most likely a(n)

Not enough info

Given the cost and revenue curves in the figure above, how many units of output should be produced in order to maximize profit?


The concentration ratio for a monopoly is


At a Nash equilibrium

neither party has an incentive to deviate from his or her

The condition that P = MC is the direct
requirement for which type of efficiency?

Allocative efficiency

In order for a firm to successfully carry out price
discrimination, which of the following conditions must hold?

The firm must have market power
Buyers with differing demand elasticities must be
The firm must be able to prevent the re-sale of its products

Several Internet companies have expanded the range of services they provide. For example, America Online provides long-distance phone service and provides music, toys, and auctions. If such companies find different outputs that are complimentary in production, or products that can share research and development costs or distribution networks, they are taking advantage of

economies of scope

The relationship between the marginal revenue curve and the demand curve for a monopoly is most similar to the relationship between the marginal factor cost curve and what curve for a monopsony?

Labor supply

What could the government do to most effectively
avoid a free rider program?

Supply public goods using tax dollars

The necessity for a monopoly to lower its price in order to sell more units of its product explains why

the marginal revenue curve is below the demand curve for
a monopoly

Based on the PPF in the figure above, the opportunity cost of producing the seventh carrot is

2 tomatoes

The market demand curve for labor will shift to the right when

the number of firms increases

Patents, control of resources, economies of scale, and exclusive licenses are

all barriers to entry

Which of the following statements is accurate in
regard to a perfectly competitive firm?

Price is determined by the equilibrium in the entire

Which of the following indicates that two goods are

A negative cross-price elasticity

Education makes Chris a better worker, voter, parent, and citizen. Since the benefits from education go beyond those that Chris enjoys himself, education provides

externalities and should be subsidized

When a negative externality exists as the result of the production of a good, the socially optimal quantity of output could be achieved by

placing limits on the quantity that can be produced

The demand for labor is derived from

the demand curve for the output produced by labor

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