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The main difference between the short run and the long run is that:
A. Firms earn zero profits in the long run
B. The long run always refers to a time period of one year or longer
C. In the short run, one or more inputs is fixed
D. In the long run, only one variable can be fixed
Diminishing returns are observed as a firm increases production by adding variable inputs to at least one fixed input because:
A. The ability or quality of the variable inputs hired decreases as more are hired
B. The firm must lower the price of its product when it produces more units of output
C. The per unit cost it must pay for variable inputs increases as more inputs are hired
D. As more variable inputs are hired, the amount of the fixed input per variable input decreases
3. When the total product curve is falling, the:
A. Marginal product of labor is zero
B. Marginal product of labor is negative
C. Average product of labor is increasing
D. Average product of labor must be negative
There would be a unique product for which there are few close substitutes under which market model?
A. Monopolistic competition
B. Pure competition
C. Pure monopoly
Mutual interdependence would tend to limit control over price in which market model?
A. Monopolistic competition
B. Pure competition
C. Pure monopoly
There is no control over price by firms in:
B. Pure monopoly
C. Pure competition
D. Monopolistic competition
One major barrier to entry under pure monopoly arises from:
A. The availability of close substitutes for a product
B. Ownership of essential resources
C. The price taking ability of the firm
D. Diseconomies of scale
Natural monopolies result from:
C. Control over an essential natural resource
D. Extensive economies of scale in production
With a natural monopoly, the fair return price:
A. Is allocatively efficient; the socially optimal price is allocatively inefficient
B. Is allocatively inefficient; the socially optimal price is allocatively efficient
C. And the socially optimal price are both allocatively inefficient
D. And the socially optimal price are both allocatively efficient
What is the meaning of the phrase "dilemma of regulation"?
A. Natural monopolies achieve economies of scale, but charge high prices when there is no government regulation; government regulation reduces prices, but results in diseconomies of scale
B. Natural monopolies are profitable, but only if the government permits price discrimination; government regulation to restrict price discrimination reduces monopoly prices, but the regulation also reduces monopoly output
C. The fair return price achieves allocative efficiency, but may produce economic losses; the socially optimal price yields a normal profit but may not be allocatively efficient
D. The socially optimal price achieves allocative efficiency, but may produce economic losses; the fair return price yields a
The goal of product differentiation and advertising in monopolistic competition is to make:
A. The firm allocatively efficient even if it is not productively efficient
B. The firm productively efficient even if it is not allocatively efficient
C. Price less of a factor and product differences more of a factor in consumer purchases
D. Price more of a factor and product differences less of a factor in consumer purchases
In a monopolisitically competitive industry, the four-firm concentration ratio would be:
A. High, and the Herfindahl index would be high
B. High, and the Herfindahl index would be low
C. Low, and the Herfindahl index would be high
D. Low, and the Herfindahl index would be low
13. If monopolistically competitive firms in an industry are making an economic profit, then:
A. New firms will enter the industry and product demand will increase for the existing firms
B. Firms will exit the industry and product demand will decrease for the firms that remain
C. Firms will exit the industry and product demand will increase for the firms that remain
D. New firms will enter the industry and product demand will decrease for the existing firms
Refer to the above graph of a representative firm in monopolistic competition. What does line 4 represent?
B. Marginal cost
C. Marginal revenue
D. Average total cost
Other things being equal, the elasticity of demand for labor will be greater the:
A. Smaller the proportion of total costs accountable for by labor costs
B. Smaller the elasticity of demand for the product it produces
C. Larger the number of close substitute resources available
D. More rapid the decline in its marginal productivity
A profit-maximizing firm should hire an input as long as the:
A. Firm can increase its total revenue
B. Price of the input doesn't exceed the price of the other inputs used in the firm's production
C. Marginal revenue product of the input is at least as much as the cost of hiring the input
D. Marginal revenue product of the input is greater than the marginal revenue product of other inputs the firm is using
Marginal revenue product is the increase in:
A. Total revenue from a decrease in the price of the product
B. Marginal revenue from a decrease in the price of the product
C. Marginal revenue from the use of an additional unit of a resource
D. Total revenue from the use of an additional unit of a resource
An example of derived demand is the demand for:
A. Housing by consumers
B. Machines by businesses
C. Paper products by households
D. Agricultural products by foreign consumers
Derived demand is the demand:
A. That arises because of monopoly control of resources in a market
B. For a product based on the tastes and preferences of consumers
C. Derived from consumer satisfaction with a product
D. For a resource to produce a product
Real wages would rise if the:
A. Prices of goods and services rose more rapidly than nominal-wage rates
B. Prices of goods and services rose less rapidly than nominal-wage rates
C. Prices of goods and services and wage rates both rose
D. Prices of goods and services and wage rates both fell
The wage rate is:
A. The total revenue minus the total cost of the firm
B. The marginal revenue minus the marginal cost of the firm
C. The price paid per unit of capital goods
D. The price paid per unit of labor services
Which would be an explanation for the high level of productivity in the United States?
A. Increased capital accumulation
B. A decline in the quality of education
C. A reduction in the quality of labor
D. A rise in the rate of unemployment
A firm in a purely competitive product market finds it must increase wages to attract extra workers. The firm will hire labor up to the point where the marginal:
A. Product of labor equals the wage rate
B. Revenue product of labor is greater than the wage rate
C. Revenue product of labor starts to decline
D. Revenue product equals the cost of hiring an extra worker
Economists would not consider which one of the following to be a productive economic resource?
B. Capital goods
If a firm buys a new computer system that costs $12,000 a year it can reduce the firm's cost by $900 a year. The firm should borrow funds and purchase this machine if it can negotiate an annual interest rate on the loan between:
A. 6 and 7 percent
B. 8 and 9 percent
C. 10 and 12 percent
D. 13 and 14 percent
A decline in the interest rate is likely to:
A. Lower capital investment
B. Increase the quantity of loanable funds demanded
C. Come about when there is a shortage of loanable funds
D. Result from an increase in the marginal product of capital
Suppose many businesses want to increase their stock of capital goods and decide to borrow funds to do it. Which would be the likely result of this event?
A. Interest rates would increase
B. Interest rates would decrease
C. The equilibrium quantity of loanable funds would decrease
D. The equilibrium quantity of loanable funds would remain unchanged
Other things equal, the interest rate on a loan will be larger:
A. The less the risk involved
B. The larger the amount of the loan
C. The longer the length of the loan
D. If loan interest is exempt from taxation
Other things equal, the interest rate on a loan will be smaller:
A. the greater the risk involved
B. The smaller the amount of the loan
C. The shorter the length of the loan
D. If loan interest is exempt from taxation
The pure rate of interest is best approximated by the:
A. 1-month Treasury bills
B. Prime interest rate
C. Federal funds rate
D. 30-year Treasury bond rate
It will be most likely that an industry would borrow funds to expand capital facilities when the:
A. Pure rate of interest is greater than the real rate of interest
B. Expected rate of return is greater than the interest rate
C. Demand for money is greater than the supply of money
D. Real rate of interest is greater than the nominal rate of interest
If you pay $10,625 annually on a $125,000 loan and the rate of inflation is 3 percent, then the:
A. Real rate of interest is 4.5 percent
B. Nominal rate of interest is 8.5 percent
C. Real rate of interest is 6.5 percent
D. Nominal rate of interest is 11.5 percent
A usury law is a law that sets the:
A. Federal funds rate
B. Maximum interest rate at which loans can be made
C. Spread between the prime rate of interest and credit card rates
D. Interest paid on 90-day Treasury bills and 30-year bonds of the U.S. government
Which one of the following acts declared "Every contract, combination ... or conspiracy, in restraint of trade or commerce among the several states ... to be illegal"?
A. the Wheeler-Lea Act
B. the Federal Trade Commission Act
C. the Sherman Act
D. the Interstate Commerce Act
The Clayton Act of 1914:
A. outlawed price discrimination, tying contracts, intercorporate stockholding, and interlocking directorates that lessen competition.
B. prohibited unfair or deceptive acts or practices in commerce that tend to reduce competition.
C. outlawed vertical and conglomerate mergers.
D. prohibited one firm from acquiring the assets of another when the effect was to limit competition.
A function of the Federal Trade Commission is to:
A. investigate instances of faulty and misleading advertising.
B. establish railway rates for interstate railroads.
C. ban or recall unsafe consumer products.
D. prevent insider trading in securities markets.
Tying contracts are illegal under the:
A. Wagner Act of 1935.
B. Clayton Act of 1914.
C. FTC Act of 1914.
D. Celler-Kefauver Act of 1950.
The government was successful in gaining an antitrust conviction in the:
A. U.S. Steel case.
B. IBM case.
C. Alcoa case.
D. DuPont cellophane case.
Which of the following laws prohibited mergers by stock acquisition if the effect was to lessen competition?
A. Celler-Kefauver Act of 1950
B. Wheeler-Lea Act of 1938
C. Clayton Act of 1914
D. Sherman Act of 1890
Which of the following gave the Federal Trade Commission responsibility to protect the public against false and misleading advertising?
A. Celler-Kefauver Act of 1950
B. Wheeler-Lea Act of 1938
C. Clayton Act of 1914
D. Sherman Act of 189
In which of the following cases did the final court decision result in a breakup of the firm into competing businesses?
A. Microsoft case
B. Standard Oil case
C. U.S. Steel case
D. DuPont cellophane case
In the Microsoft antitrust case, the Federal government said in essence that:
A. the mere presence of monopoly violated the Sherman Act, irrespective of Microsoft's behavior.
B. Microsoft was a "bad monopoly."
C. Microsoft was generally a "good monopoly," but that its tying contracts involving Internet Explorer violated the Clayton Act.
D. the case was similar to the U.S. Steel case of 1920.
The rule of reason indicated that:
A. if less than four firms account for three-fourths of an industry's sales, the industry is in violation of the Sherman Act.
B. social regulation should not be enforced unreasonably so that costs exceed benefits.
C. the mere possession of monopoly power is a violation of the antitrust laws.
D. only contracts and combinations that unreasonably restrain trade violate the antitrust laws.
A merger between an automobile manufacturer and a maker of automobile tires is an example of a:
A. conglomerate merger.
B. horizontal merger.
C. vertical merger.
D. tying contract.
A merger of several firms operating in different industries-for example, a trucking company, a fast-food chain, and a brokerage house-is called:
A. an integrated merger.
B. a conglomerate merger.
C. a vertical merger.
D. a horizontal merger.
Structuralists take the position that:
A. the rule of reason is appropriate and desirable in interpreting the Sherman Act.
B. only unreasonable anticompetitive acts should be regarded as violations of the antitrust laws.
C. industries should be judged on the basis of their technological progress and their price-output behavior.
D. an industry that is highly concentrated will behave monopolistically.
Behavioralists believe that:
A. if four or fewer firms control more than half of the market for a product, then the Sherman Act is being violated.
B. industries should be judged on the basis of their price-output behavior and their technological progressiveness.
C. there is no evidence that any monopolistic industries has abused its market power.
D. all concentrations of economic power are socially undesirable.
Patent laws are controversial because:
A. they are in legal conflict with the provisions of the Federal Trade Commission Act.
B. they are at the core of the problem of whether monopoly is based on industry structure or behavior.
C. while patents encourage innovation, they are also a source of monopoly power.
D. any firm whose monopoly power is based on patents is automatically exempt from the antitrust laws.
The largest efficiency gains from deregulation have occurred in the:
A. natural gas and cable television industries.
B. cable television and railroad industries.
C. communications and stockbrokering industries.
D. airlines, trucking, and railroad industries.
Social, as distinct from industrial, regulation is the major focus of the:
A. Federal Trade Commission.
B. Federal Energy Regulatory Commission.
C. Federal Communications Commission.
D. Consumer Products Safety Commission.
Which is correct?
A. Wealth is less equally distributed than income and therefore increases income inequality.
B. Wealth is more equally distributed than income and therefore increases income inequality.
C. Wealth is less equally distributed than income and therefore decreases income inequality.
D. Wealth is more equally distributed than income and therefore decreases income inequality.
In the United States:
A. taxes decrease, but transfers increase, income inequality.
B. taxes increase, but transfers reduce, income inequality.
C. both taxes and transfers decrease income inequality.
D. both taxes and transfers increase income inequality.
The primary purpose of Social Security is to:
A. subsidize families in need.
B. offset the progressiveness of the personal income tax.
C. provide income for workers who are temporarily unemployed.
D. provide income for retired and disabled workers.
Which is a cause of growing income inequality in the United States in the last decade?
A. Competition in exporting to other countries among several major industries
B. Industrial restructuring from services to goods production
C. A widening wage gap between skilled and unskilled workers
D. An increase in the progressivity of the Federal tax system
What is a major reason for growing income inequality in the United States?
A. Higher marginal tax rates
B. Unemployment benefits
C. More skilled workers
D. Import competition
Which statement applies to the Social Security system?
A. Benefits are paid on the basis of need
B. It provides cash assistance and services to families with dependent children
C. It is financed by payroll taxes on employees and employers
D. Benefit levels vary throughout the nation because the system is administered by the individual states
Which statement concerning the table above is correct?
A. The distribution of income was the same in 2006 as in 1970
B. In 2006, 20 percent of the population earned over half of the income
C. In 1970, the poorest 60 percent of the population earned 13.3 percent of the income
D. The share of income going to the highest-income quintile was lower in 2006 than in 1970
The necessity to maintain incentives to work and incentives to produce output would be a point made by an individual making the case for:
A. Income equality
B. Income inequality
C. Maximization of total utility
D. Maximization of marginal utility
Government programs that pay benefits to those who are unable to earn income because of permanent handicaps or to those who have very low incomes are called:
A. Public assistance programs
B. Social insurance programs
C. Affirmative action programs
D. Entitlement programs
Which statement is correct?
A. The Social Security Act requires all employers to insure their workers against industrial accidents and diseases
B. The poor have gotten richer and the rich have gotten poorer in the United States; i.e., the degree of income inequality has decreased.
C. Over 90 percent of the workers in the United States are currently covered by Social Security.
D. About one-fifth of our population is now classified as living in poverty.
The Earned Income Tax Credit:
A. increases the personal income tax liability of low-income working families.
B. provides a cash payment to low-income working families if their tax credit exceeds their tax liability.
C. is designed to make labor force employment less attractive.
D. was eliminated as part of welfare reform in 1996.
The TANF program:
A. is a form of social insurance.
B. has been found to be unconstitutional by the Supreme Court.
C. limits total lifetime welfare benefits to 5 years and requires people to work after receiving benefits for 2 years.
D. perpetuates the so-called culture of poverty
A. helps finance medical expenses for those participating in the TANF and Supplemental Security Income programs.
B. has been abandoned in favor of privately provided medical insurance.
C. is a program of medical insurance for the aged and retired.
D. is a compulsory national health insurance program which covers all adult Americans.
Since its inception in 1996, the Temporary Assistance for Needy Families (TANF) program has:
A. increased, rather than reduced, the number of people on welfare.
B. reduced the number of people on welfare by more than one-half.
C. aided the poor by automatically increasing welfare payments when inflation occurs.
D. greatly increased the unemployment rate.
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