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A 10% decrease in the price of energy bars leads to a 20% increase in the quantity of energy bars demanded. It appears that:

demand is elastic and total revenue will increase

According to Okun's law, a 2 percent increase in cyclical unemployment reduces output by almost:


advantages of specialization do not include

reduced interdependence

the aim of antitrust policy is to

prevent firms from acquiring or exercising undue market power

Approximately ____ of national income goes to wages and salaries for labor services.

75 percent

As an additional consumer obtains the benefits of a public good such as national defense, the benefits to existing consumers:

do not change

"as a rational person, you would expect individuals to always avoid actions that are illegal"

This is a false statement because it is expected that individuals will consider the consequences of their actions and that some will choose to commit illegal acts anyway.

Assume a perfectly competitive firm sells its output for $250 per unit. At its current 2,000 units of output, marginal cost is $180 and increasing, and average variable cost is $160. Assuming it wants to maximize its profits, it should:

increase output

Assume a price floor is imposed at the current equilibrium price in the market for lettuce. If the demand for lettuce then increases:

the quantity of lettuce supplied will increase

Assume that coffee and tea are substitutes for each other. If weather conditions cause a substantial portion of the available coffee crop to be destroyed, then most probably:

the demand for tea will increase.

Assuming fixed costs are positive, over a range of output in which average total costs were constant,

average variable cost would be rising as output increases

At the equilibrium price for gasoline:

both a. and d. are correct.

barriers that prevent the entry of new firms may arise because

economies of scale exist over a substantial range of industry demand.the government protects some firms from competition.

A basic characteristic of the firms in an oligopoly market structure is that they are:

large and interdependent

because of scarcity

we must sacrifice valuable alternatives to obtain more goods and services we desire

The Book Nook reduces prices by 20%. If the dollar value of The Book Nook's sales remain constant, it indicates that:

the quantity of books sold increases by 20%

a cartel is

a group of oligopolists who try to behave like a single monopolist and split the benefits among themselves.

Cartel members have a collective interest in ____ industry output and a private interest in ____ their own output.

decreasing; increasing

ceteris paribus, an increase in the price of a good will cause the

consumer surplus derived from the good to decrease

Ceteris paribus, if the cost of feeding and housing a family were to increase, it would increase a family's level of ____ poverty.


Ceteris paribus, if the vacancy rate in an apartment complex increased from 5% to 20% over the past two years, we would expect to see

the price decrease leading to an increase in quantity demanded.

Ceteris paribus, in which of the following cases would we expect economic profits to be greatest?

an unregulated monopolist who is able to price discriminate.

A change in which of the following variables does not cause a change in demand?

prices of unrelated goods

a competitive firm facing a perfectly elastic demand curve can

sell all of its output at the market price

constant returns to scale indicate that a firm is experiencing

per unit costs of production that remain stable as the scale of output expands.

Consumer surplus is:

the difference between what consumers are willing to pay and what they are required to pay for a good.

Cost-benefit analysis can determine the optimal amount of all the following EXCEPT

fairness of rules

the cost imposed on a firm from changing listed prices are called

the menu costs of inflation

Costs that accrue to the total population are called ____ costs. Costs incurred by the producer or consumer who makes the decision are called ____ costs.

social, private

cyclical unemployment arises when

business activity in the macroeconomy declines

a decrease in consumer incomes will

A. decrease the demand for an inferior good.

B. decrease the supply of an inferior good.

C. increase the demand for a normal good.

D. increase the supply of a normal good.

E. do none of the above.

the demand curve facing a monopolist

is less elastic than a perfectly competitive firms demand curve

Demand is said to be ____ when the quantity demanded is very responsive to changes in price.


the demand schedule for a good

indicates the quantities that will be purchased at alternative market prices

Despite the warning on a package of cigarettes about the potential health hazards of smoking, a man lights up a cigarette. An economist would conclude that:

in the man's judgment, the expected marginal benefit of smoking the cigarette outweighs the expected marginal cost.

the determination of which goods are public depends on

whether it is possible to exclude additional users from consuming the good if they do not pay for it.

The difference between a change in quantity supplied and a change in supply is that a change in:

quantity supplied is caused by a change in a good's own, current price, while a change in supply is caused by a change in some other variable, such as input prices, prices of related goods, expectations, or taxes.

discouraged workers are defined as those

who have given up looking for a job and are not counted as unemployed.

Don Keene promotes boxing matches. He makes $6,500 per fight. Which cost is most relevant to a decision as to whether to promote one more fight?

the marginal cost of promoting all boxing matches during the year

During an inflationary period, those most likely to suffer reduced wealth are those who are holding their wealth in:


each point on the supply curve shows

quantity supplied at that price

economic choices or tradeoffs are the result of?


an economic profit of zero implies

A. normal profit.

B. the firm is covering both explicit and implicit costs.

C. the firm's revenues are sufficient to compensate the money and time that the owners put into the business.

D. all of the above

economic profits are

less than accounting profits if implicit costs are greater than zero

economic profits will exist

economic profits are not sure to exist in any of the above cases

economic profits will take into account

both implicit and explicit costs.

economic resources are also known as?

factors of production

economics is concerned with

all of the answers are correct

economics is different from a "hard" science like physics because

economists cannot easily control all the variables that might influence human behavior

economics is most importantly concerned with?

studying how we allocate scarce resources to satisfy unlimited wants

economists believe that individuals act as if they are motivated by self-interest and..

respond in predictable ways to changing circumstances

economists believe that in regards to criminal behavior

those choosing to commit criminal acts weigh the expected marginal benefits rather than the expected marginal costs

Economists believe that oligopolists like American Airlines and the Kellogg Company:

carefully watch and anticipate the pricing and advertizing moves of their competitors.

economists use the term "business cycle" to refer to

fluctuations in economic activity, measured by GDP or unemployment

economists usually use the term "recession" to refer to

two or more consecutive quarters of declining real GDP

Effective free market ethical systems must provide for all of the following EXCEPT:

a clearly defined moral foundation

Elasticity of demand will ____ as the availability of substitutes ____.

Both c. and d. are correct answers.

The elasticity of supply is defined as the ____ change in quantity supplied divided by the ____ change in price.

percentage, percentage

entrepreneurship is

the resource that organizes the other factors of production in order to produce goods and or services

Ethical rules based on morals or concepts of fairness are called

normative ethics


can be defined in any of the above ways

Ethics violators like embezzlers, frauds, tax cheats and bank robbers

A. usually follow most rules and other ethics most of the time.

B. not only injure individuals and companies, but also often hurt entire markets.

C. often use rational cost-benefit analysis when deciding whether to cheat.

D. may feel so ashamed and guilty of their crimes that they are driven to suicide.

E. All of the above may be true of ethics violators.

an example of a capital resource is?

a dump truck

an example of an oligopoly is

the automobile indusrty

an example of in-kind income is

subsidized housing

an explicit cost is

an opportunity cost. an out of pocket expense

An externality occurs when:

people other than those making the demand and supply decisions share the benefits or the costs of an activity.

extractive industries such as farming mining or lumbering typically

are considered to be increasing cost industries

____ facilitates joint profit maximization for the oligopoly.


Fantastic Cuts Hair Salon knows that a 15% increase in the price of their haircuts will result in a 5% decrease in the number of haircuts sold. What is the elasticity of demand facing Fantastic Cuts?


f a perfectly competitive firm's marginal revenue was less than its marginal cost,

it would contract its output (but not raise its price) in order to increase its profits.

A federal program aimed at retraining the unemployed workers of the declining coal and steel industries is designed to reduce which type of unemployment?


a firm facing a horizontal demand curve

is characterized by all of the above

A firm sells grapefruit in a perfectly competitive market at a price of $1.50 per pound. The firm's marginal revenue:

equals $1.50

Firms will continue to enter a competitive industry until:

any economic profits have been competed away

A firm which owns its own equipment and is earning positive economic profits

is probably earning positive accounting profits

The first formal acknowledgement of the primary macroeconomic goals of price stability, high employment, and promoting economic growth in the United States came with passage of the:

the Employment Act of 1946

fixed costs are best defined as

costs that do not vary with output

for a perfectly competitive firm, average revenue is

equal to marginal revenue at all levels of output. equal to price at all levels of output

for a perfectly competitive firm, which of the following is always true


For a profit-maximizing monopolist, the price of a product is:

always greater than marginal revenue

A free market lacking clear ethical rules, adequate oversight and meaningful punishments for rule breakers might suffer:

A. decrease in market demand.

B. decrease in market supply.

C. decrease in equilibrium price.

D. total market collapse.

E. all of the above.

The free rider problem suggests that competitive markets will tend to:

produce less than the optimal quantity of a public good

Frictional unemployment occurs when:

a worker decides to quit to see a different job

from an economists perspective which of the following observations is not true

self-interest is purely monetary in nature

The GDP deflator represents a somewhat ____ measure of prices that the CPI and the GDP deflator tends to be ____ volatile than the CPI.

broader; less

given a fixed nominal interest rate on a loan, unanticipated deflation

increases the burden of paying off the loan

Graphically, consumer surplus is measured by:

the area below the demand curve, but above the market price.

Graphically which of the following is true for a monopoly?

The marginal revenue curve lies below the demand curve and is steeper than the demand curve.

high barriers to entry are generally found in

both c and d

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

is a reflection of the firm's small size relative to the total market.

human capital is?

the expertise or knowledge possessed by workers

a hypothesis is

a testable proposition

If a company offers a medical and dental care plan that offers benefits to all of the members of each employee's family for a given monthly premium, an employee who is a mother of five children and who has bad teeth who elects that plan would be an illustration of:

the adverse selection problem

If a good that features a positive externality is produced in an unregulated free market, the good will be:

under-produced and under-priced

If a negative externality results from the refining of oil, the cost of production as seen by the oil refinery:

does not include the external cost

If an unregulated monopolist operates in a market, then:

all the above

If a perfectly competitive firm is operating in the short run and seeks to maximize profit, the firm should:

increase output whenever market price exceeds marginal cost

If a perfectly competitive industry is neither expanding nor contracting, we would typically expect that:

economic profits to be zero the price of the good will be stable

If a positive externality results from the consumption of higher education, then the marginal benefit students receive from education:

is less than the marginal social benefit

If a profit-maximizing firm finds that price exceeds average variable cost and marginal cost is greater than marginal revenue, it should:

reduce output, but continue producing in the short run

If a regulatory board wanted to make sure that a natural monopoly earned a normal rate of return, it should set price which is equal to:

average total cost

If a regulatory commission wishes to allow a firm to earn a normal rate of return, it should set price equal to:

average total cost

If Don paints the outside of his house a horrendous color:

he probably has lowered the value of his home and the value of his neighbors' homeshe is unlikely to bear all the social costs of his actions.

If firms meet together to decide on prices and outputs, it is called:

overt collusion

If input costs remain the same as industry output expands, what would you expect to be the long-run impact of an increase in demand on an industry currently in long-run equilibrium?

there will be more firms but the price will remain the same

If labor is the only variable input, an additional worker increases output from 72 to 78 units, and the product price is $6, the marginal revenue product from an additional worker:

is $36

If new entry occurs in a perfectly competitive industry, the demand curve for each existing firm will:

shift down

if people are self-interested

as their preferences for leisure time increases, they are likely to work less. as the wages they are offered increases, they are likely to work more

If perfectly competitive industry B is currently realizing economic profits, we would expect that:

industry output will rise, good B will fall in price, and economic profits will tend to disappear.

If the demand for apples is highly elastic and the supply is highly inelastic, then if a tax is imposed on apples it will be paid:

largely by the sellers of apples

If the demand for software engineers ____ more slowly than does supply, wages of software engineers will ____

increase; fall

If the demand is perfectly inelastic, what would happen to the quantity demanded if there is a tiny increase in price?

quantity demanded will remain the same

If the economy is operating with full employment, which of the following is essentially eliminated?

cyclical unemployment

If the elasticity of demand for bangles is equal to 1, moving along the demand curve for bangles, an increase in price will:

increase the quantity demanded and leave total revenue unchanged.

If the elasticity of supply of a good was 2, how much would the price have to increase to lead to an increase in output of 6 percent?


If the elasticity of supply of bangles is equal to 1, moving along the supply curve for bangles, an increase in price will:

increases the quantity supplied and increases total revenue

If the firms in an oligopoly collude, the results will represent what other type of industry?


If the long-run industry supply curve in a perfectly competitive market slopes upward, then very likely input prices will ____ as industry output expands.


If the market demand curve in a perfectly competitive industry shifts right, the demand curve for each existing firm will:

shift up

If the price elasticity of demand was 4.0 (in absolute terms), a 10% off sale would lead to:

a 40% increase in purchases by customers.

if the price of tennis rackets were to increase, we would expect

the demand for tennis balls to decrease

If the production of a particular good involves significant external benefits, to force the externality to be internalized the government might:

offer a subsidy for production of the good in order to increase production.

If there are economies of scale throughout the relevant output range of production, which is false?

It would typically result from a firm's possession of an exclusive patent

If there are significant external costs associated with the production of a product, it can be said that the private cost of production to the firm ____ the cost to society associated with this product and output should ____ to move toward the efficient situation.

understates; decreases

If there is a surplus, ____ will be frustrated by their inability to exchange at the current price, and they will compete the prices ____ as a result.

sellers; down.

if the supply curve for a product is vertical, then the elasticity of supply is

equal to zero

If we know someone pays all their taxes and gives money to charity, we know that

only that they pay their taxes and give money to charity

If your company is in the range of output where it experiences economies of scale, you know:

a 5 percent increase in all inputs will increase output by more than 5 percent.

an implicit cost

is characterized by an opportunity cost and does not require an outlay of money

the importance of the ceteris paribus assumption is that it

allows one to analyze the relationship between two variables apart from the influences of other variables

the imposition of a price ceiling on a market often results in

a shortage

improvements in the productivity of labor will tend to

increase wages

in a competitive economy with no government sector

there will be too few public goods produced

in a perfectly competitive industry, influence over price is exerted by

the forced of supply and demand

In a perfectly competitive industry, the industry demand curve is ____, while in a monopolistic industry, the industry demand curve is:

downward sloping; downward sloping

in both perfect competition and monopoly, a firm

will be characterized by both b. and c.

An industry characterized by only a few firms in the market is called:

an oligopoly

in economics, the demand for a good refers to the amount of the good people

will buy at various prices

inflation exists when

the overall price level is rising

in free market economics

most market exchanges will result in all parties "winning."

In free markets which allows a high level of unethical corruption:

suppliers will be forced to be corrupt or to leave the market

In order for a market's ethics to be effective, all of the following must occur, EXCEPT

everyone must agree to take part in the market

In perfect competition, at the firm's profit maximizing short run output, which of the following is true?

all the above

In recent years, economists have come to believe that full employment in the U.S. economy occurs at an unemployment rate between:

4.5% and 5.5%

Interpret the following statement: "Demand exceeds the available quantity of apartment housing. If the price of apartment rentals were increased, demand would decrease and an equilibrium could be achieved."

The statement is incorrect because it confuses "demand" with "quantity demanded."

in the expansion phase of the business cycle

all the above

in the long run, economic profits are

possible for a monopolist but not for a perfectly competitive firm

In the typical CPI shopping basket, which of the categories below represents the largest percentage of consumer spending?


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