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Terms in this set (161)

A perfectly price-discriminating monopolist is able to
a.
maximize profit and produce a socially-optimal level of output.
b.
maximize profit, but not produce a socially-optimal level of output.
c.
produce a socially-optimal level of output, but not maximize profit.
d.
exercise illegal preferences regarding the race and/or gender of its employees.
a
Refer to Figure 15-8. The deadweight loss caused by a profit-maximizing monopoly amounts to
a.
$150.
b.
$200.
c.
$250.
d.
$500.
c
When fixed costs are ignored because they are irrelevant to a business's production decision, they are called
a.
explicit costs.
b.
implicit costs.
c.
sunk costs.
d.
opportunity costs.
c
A monopolist will choose to increase output when
a.
market price increases.
b.
at all levels of output, marginal cost increases.
c.
at the present level of output, marginal revenue exceeds marginal cost.
d.
the demand curve shifts to the left.
c
Which of the following is not a reason for the existence of a monopoly?
a.
sole ownership of a key resource
b.
patents
c.
copyrights
d.
diseconomies of scale
d
When a firm has a natural monopoly, the firm's
a.
marginal cost always exceeds its average total cost.
b.
total cost curve is horizontal.
c.
average total cost curve is downward sloping.
d.
marginal cost curve must lie above the firm's average total cost curve.
c
Critics of advertising argue that advertising
a.
(i) creates desires that otherwise might not exist.
b.
(ii) hinders competition.
c.
(iii) often fails to convey substantive information.
d.
All of (i), (ii), and (iii) are correct.
c
When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,
a.
the demand curve will be perfectly elastic.
b.
price exceeds or equals marginal cost.
c.
marginal cost must be falling.
d.
marginal revenue exceeds marginal cost.
b
Refer to Table 17-15. In this game,
a.
neither player has a dominant strategy.
b.
both players have a dominant strategy.
c.
Firm A has a dominant strategy, but Firm B does not have a dominant strategy.
d.
Firm B has a dominant strategy, but Firm A does not have a dominant strategy.
a
Refer to Table 16-2. Which industry has the highest concentration ratio?
a.
Industry A
b.
Industry B
c.
Industry C
d.
Industry D
a
A consumer has preferences over two goods: books and movies. The three bundles shown in the table below lie on the same indifference curve for the consumer.
Which of the following properties of indifference curves would this consumer's preferences violate?
a.
Indifference curves are downward sloping.
b.
Indifference curves do not cross.
c.
Indifference curves are bowed inward.
d.
These bundles do not violate any of the properties of indifference curves.
c
When society requires that firms reduce pollution, there is
a.
a tradeoff because of reduced incomes to the firms' owners and workers.
b.
a tradeoff only if some firms are forced to close.
c.
no tradeoff, since the cost of reducing pollution falls only on the firms affected by the requirements.
d.
no tradeoff, since everyone benefits from reduced pollution.
a
Moira decides to spend two hours taking a nap rather than attending her classes. Her opportunity cost of napping is
a.
the value of the knowledge she would have received had she attended class.
b.
the $30 she could have earned if she had worked at her job for those two hours.
c.
the value of her nap less the value of attending class.
d.
nothing, since she would valued sleep more than attendance at class.
a
QN=3 (1624)
(17120) Productivity is defined as the
a.
amount of goods and services produced from each unit of labor input.
b.
number of workers required to produce a given amount of goods and services.
c.
amount of labor that can be saved by replacing workers with machines.
d.
actual amount of effort workers put into an hour of working time.
a
Refer to Table 2-2. What is the opportunity cost to Batterland of increasing the production of pancakes from 150 to 300?
a.
75 waffles
b.
150 waffles
c.
250 waffles
d.
325 waffles
a
When economists make normative statements, they are
a.
speaking as scientists.
b.
speaking as policy advisers.
c.
making claims about how the world is.
d.
revealing that they are very liberal in their views of how the world works.
b
The slope of a line is equal to
a.
the change in the value of x divided by the change in the value of y.
b.
the change in the value of y divided by the change in the value of x.
c.
the horizontal distance divided by the vertical distance.
d.
the value of y divided by the value of x.
b
Which of the following is an example of a market?
a.
(i) a gas station
b.
(ii) a garage sale
c.
(iii) a barber shop
d.
All of (i), (ii), and (iii) are examples of markets.
d
Refer to Figure 4-4. The graphs show the demand for cigarettes. In Panel (b), the leftward arrow is consistent with which of the following events?
a.
The price of cigarettes increased.
b.
A sales tax was placed on cigarettes.
c.
The prohibition of cigarette advertisements on television.
d.
Tobacco and marijuana are complements and the price of marijuana decreased.
c
Generally, the market for ice cream would be considered
a.
a monopolistic market.
b.
a competitive market.
c.
more organized than an auction.
d.
a market where individual sellers have significant pricing power.
b
Who gets scarce resources in a market economy?
a.
the government
b.
whoever the government decides gets them
c.
whoever wants them
d.
whoever is willing and able to pay the price
d
If the price elasticity of demand for a good is 0.4, then a 10 percent increase in price results in a
a.
0.4 percent decrease in the quantity demanded.
b.
2.5 percent decrease in the quantity demanded.
c.
4 percent decrease in the quantity demanded.
d.
40 percent decrease in the quantity demanded.
c
Refer to Figure 5-12. Over which range is the supply curve in this figure the most elastic?
a.
Between $16 and $40
b.
Between $40 and $100
c.
Between $100 and $220
d.
Between $220 and $430
a
If a price floor is a binding constraint on a market, then
a.
the equilibrium price must be above the price floor.
b.
the quantity demanded must exceed the quantity supplied.
c.
sellers cannot sell all they want to sell at the price floor.
d.
buyers cannot buy all they want to buy at the price floor.
c
When a binding price floor is imposed on a market
a.
(i) price no longer serves as a rationing device.
b.
(ii) the quantity supplied at the price floor exceeds the quantity that would have been supplied without the price floor.
c.
(iii) only some sellers benefit.
d.
All of (i), (ii), and (iii) are correct.
d
An inelastic demand means that
a.
consumers hardly respond to a change in price.
b.
consumers respond substantially to a change in price.
c.
consumers respond directly to a change in income.
d.
the change in quantity demanded is equal to the change in price.
a
Knowing that the demand for wheat is inelastic, if all farmers voluntarily did not plant wheat on 10 percent of their land, then
a.
consumers of wheat would buy more wheat.
b.
wheat farmers would suffer a reduction in their total revenue.
c.
wheat farmers would experience an increase in their total revenue.
d.
the demand for wheat would decrease.
c
In the housing market, rent controls cause quantity supplied to
a.
fall and quantity demanded to fall.
b.
fall and quantity demanded to rise.
c.
rise and quantity demanded to fall.
d.
rise and quantity demanded to rise.
b
The most basic tools of economics are
a.
demand and supply.
b.
price and quantity.
c.
monetary and fiscal policy.
d.
elasticity of demand and supply.
a
The flatter the demand curve through a given point, the
a.
greater the price elasticity of demand at that point.
b.
smaller the price elasticity of demand at that point.
c.
closer the price elasticity of demand will be to the slope of the curve.
d.
greater the absolute value of the change in total revenue when there is a movement from that point upward and to the left along the demand curve.
a
Refer to Figure 7-1. If the supply curve is S, the demand curve is D, and the equilibrium price is $100, what is the producer surplus?
a.
$625
b.
$1,250
c.
$2,500
d.
$5,000
c
A $2.00 tax levied on the sellers of mailboxes will shift the supply curve
a.
upward by exactly $2.00.
b.
upward by less than $2.00.
c.
downward by exactly $2.00.
d.
downward by less than $2.00.
a
When a tax is levied on buyers of tea
a.
buyers of tea and sellers of tea both are made worse off.
b.
buyers of tea are made worse off and the well-being of sellers is unaffected.
c.
buyers of tea are made worse off and sellers of tea are made better off.
d.
the well-being of both buyers of tea and sellers of tea is unaffected.
a
When a buyer's willingness to pay for a good is equal to the price of the good, the
a.
buyer's consumer surplus for that good is maximized.
b.
buyer will buy as much of the good as the buyer's budget allows.
c.
price of the good exceeds the value that the buyer places on the good.
d.
buyer is indifferent between buying the good and not buying it.
d
Refer to Figure 6-2. If the government imposes a binding price ceiling of $8.00 in this market, the result would be a
a.
surplus of 20.
b.
surplus of 40.
c.
shortage of 20.
d.
shortage of 40.
c
Which of the following events would increase producer surplus?
a.
(i) Sellers' costs stay the same and the price of the good increases.
b.
(ii) Sellers' costs increase and the price of the good stays the same.
c.
(iii) Sellers' costs increase and the price of the good decreases.
d.
All of (i), (ii), and (iii) are correct.
a
The term market failure refers to
a.
a market that fails to allocate resources efficiently.
b.
an unsuccessful advertising campaign which reduces demand.
c.
ruthless competition among firms.
d.
a firm that is forced out of business because of losses.
a
Refer to Figure 7-15. If the price decreases from $22 to $16 due to a shift in the supply curve, consumer surplus increases by
a.
$120.
b.
$360.
c.
$480.
d.
$600.
b
An externality is
a.
the costs that parties incur in the process of agreeing and following through on a bargain.
b.
the uncompensated impact of one person's actions on the well-being of a bystander.
c.
the proposition that private parties can bargain without cost over the allocation of resources.
d.
a market equilibrium tax.
b
An externality is the impact of
a.
society's decisions on the well-being of society.
b.
a person's actions on that person's well-being.
c.
one person's actions on the well-being of a bystander.
d.
society's decisions on the poorest person in the society.
c
This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods.
Refer to Figure 10-3. The social cost curve is above the supply curve because
a.
it takes into account the external costs imposed on society by the concert.
b.
it takes into account the effect of local noise restrictions on concerts in parks surrounded by residential neighborhoods.
c.
concert tickets are likely to cost more than the concert actually costs the organizers.
d.
residents in the surrounding neighborhoods get to listen to the concert for free.
a
A lighthouse is typically considered to be a public good because
a.
the owner of the lighthouse is able to exclude beneficiaries from enjoying the lighthouse.
b.
there is rarely another lighthouse nearby to provide competition.
c.
a nearby port authority cannot avoid paying fees to the lighthouse owner.
d.
all passing ships are able to enjoy the benefits of the lighthouse without paying.
d
Without government intervention, public goods tend to be
a.
overproduced and common resources tend to be overconsumed.
b.
overproduced and common resources tend to be underconsumed.
c.
underproduced and common resources tend to be overconsumed.
d.
underproduced and common resources tend to be underconsumed.
c
Government policy can potentially raise economic well-being
a. in all markets for goods and services.
b. in economic models, but not in reality.
c. when a good does not have a price attached to it.
d. never.
c
John has decided to start his own lawn-mowing business. To purchase the mowers and the trailer to transport the mowers, John withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is John's annual opportunity cost of the financial capital that has been invested in the business?
a. $30
b. $140
c. $170
d. $300
c
Economic profit is equal to
a. total revenue minus the explicit cost of producing goods and services.
b. total revenue minus the opportunity cost of producing goods and services.
c. total revenue minus the accounting cost of producing goods and services.
d. average revenue minus the average cost of producing the last unit of a good or service.
b
The curves below reflect information about the cost structure of a firm. Use the figure to answer the following questions
Refer to Figure 13-5. Curve A is U-shaped because of

a. diminishing marginal product.
b. increasing marginal product.
c. the fact that increasing marginal product follows decreasing marginal product.
d. the fact that decreasing marginal product follows increasing marginal product.
d
Refer to Table 14-5. The maximum profit available to this firm is
a. $2.
b. $3.
c. $4.
d. $5.
d
If a firm experiences constant returns to scale at all output levels, then its long-run average total cost curve would

a. slope downward.
b. be horizontal.
c. slope upward.
d. slope downward for low output levels and upward for high output levels.
b
Refer to Figure 13-9. The firm experiences economies of scale at which output levels?

a. (i) output levels less than M
b. (ii) output levels between M and N
c. (iii) output levels greater than N
d. All of (i), (ii), and (iii) are correct as long as the firm is operating in the long run.
a
A competitive market is in long-run equilibrium. If demand increases, we can be certain that price will

a. rise in the short run. Some firms will enter the industry. Price will then rise to reach the new long-run equilibrium.
b. rise in the short run. Some firms will enter the industry. Price will then fall to reach the new long-run equilibrium.
c. fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
d. not rise in the short run because firms will enter to maintain the price.
b
Refer to Figure 15-8. The deadweight loss caused by a profit-maximizing monopoly amounts to

a. $150.
b. $200.
c. $250.
d. $500.
c
Refer to Table 14-7. If the firm is currently producing 14 units, what would you advise the owners?

a. decrease quantity to 13 units
b. increase quantity to 17 units
c. continue to operate at 14 units
d. increase quantity to 16 units
d
Which of the following is an example of a barrier to entry?

(i) A key resource is owned by a single firm.
(ii) The costs of production make a single producer more efficient than a large number of producers.
(iii) The government has given the existing monopoly the exclusive right to produce the good.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) only
d. All of these examples are barriers to entry.
d
One difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firm produces where

a. marginal cost equals price, while a monopolist produces where price exceeds marginal cost.
b. marginal cost equals price, while a monopolist produces where marginal cost exceeds price.
c. price exceeds marginal cost, while a monopolist produces where marginal cost equals price.
d. marginal cost exceeds price, while a monopolist produces where marginal cost equals price.
a
Monopolies use their market power to

a. charge prices that equal minimum average total cost.
b. increase the quantity sold as they increase price.
c. charge a price that is higher than marginal cost.
d. dump excess supplies of their product on the market.
c
If a firm experiences diminishing marginal productivity of labor, the marginal product

a. increases as total product increases.
b. decreases as total product increases.
c. increases as total product decreases.
d. decreases as total product decreases.
b
Cartels are difficult to maintain because

a. (i) antitrust laws are difficult to enforce.
b. (ii) cartel agreements are conducive to monopoly outcomes.
c. (iii) there is always tension between cooperation and self-interest in a cartel.
d. All of (i), (ii), and (iii) are correct.
c
A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?
a.
Average revenue exceeds marginal revenue.
b.
Marginal revenue exceeds average revenue.
c.
Average revenue is equal to marginal revenue.
d.
Revenue is always maximized along with profit.
a
A special kind of imperfectly competitive market that has only two firms is called

a.
a two-tier competitive structure.
b.
an incidental monopoly.
c.
a doublet.
d.
a duopoly.
d
Labor markets are different from most other markets because labor demand is
a.
represented by a vertical line on a supply-demand diagram.
b.
represented by an upward-sloping line on a supply-demand diagram.
c.
such an elusive concept.
d.
derived.
d
Productivity is defined as the
a.
amount of goods and services produced from each unit of labor input.
b.
number of workers required to produce a given amount of goods and services.
c.
amount of labor that can be saved by replacing workers with machines.
d.
actual amount of effort workers put into an hour of working time.
A
The phenomenon of scarcity stems from the fact that
a.
most economies' production methods are not very good.
b.
in most economies, wealthy people consume disproportionate quantities of goods and services.
c.
governments restrict the production of too many goods and services.
d.
resources are limited.
D
Mitch has $100 to spend and wants to buy either a new amplifier for his guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $100, so he can only buy one. This illustrates the basic concept that
a.
trade can make everyone better off.
b.
people face trade-offs
c.
rational people think at the margin.
d.
people respond to incentives.
B
Economists build economic models by
a.
generating data.
b.
conducting controlled experiments in a lab.
c.
making assumptions.
d.
reviewing statistical forecasts.
C
Economists use models in order to
a.
learn how the economy works.
b.
make their profession appear more precise.
c.
make economics difficult for students.
d.
make sure that all of the details of the economy are included in their analysis.
A
Which of the following transactions does not take place in the markets for factors of production in the circular-flow diagram?
a.
a landowner leases land to a farmer
b.
a farmer hires a teenager to help with harvest
c.
a retired farmer sells his combine to a new farmer
d.
a woman buys corn for dinner
D
Which of these statements best represents the law of demand?
a.
When buyers' tastes for a good increase, they purchase more of the good.
b.
When income levels increase, buyers purchase more of most goods.
c.
When the price of a good decreases, buyers purchase more of the good.
d.
When buyers' demands for a good increase, the price of the good increases.
C
In a market economy, supply and demand determine
a.
both the quantity of each good produced and the price at which it is sold.
b.
the quantity of each good produced, but not the price at which it is sold.
c.
the price at which each good is sold, but not the quantity of each good produced.
d.
neither the quantity of each good produced nor the price at which it is sold.
A
In a market economy, supply and demand determine
a.
both the quantity of each good produced and the price at which it is sold.
b.
the quantity of each good produced, but not the price at which it is sold.
c.
the price at which each good is sold, but not the quantity of each good produced.
d.
neither the quantity of each good produced nor the price at which it is sold.
A
Which of the following would not shift the demand curve for mp3 players?
a.
a decrease in the price of mp3 players
b.
a trend that makes mp3 players more popular among 12-25 year olds
c.
an increase in the price of CDs, a complement for mp3 players
d.
a decrease in the price of satellite radio, a substitute for mp3 players
A
Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded. Price elasticity of demand for X is
a.
0.
b.
1.
c.
6.
d.
36.
B
Refer to Table 5-3. Using the midpoint method, what is the price elasticity of demand when price rises from $9 to $12?


a. 0.43
b. 0.67
c. 1.50
d. 2.33
D
Which of the following causes a shortage of a good?
a.
(i) a binding price floor
b.
(ii) a binding price ceiling
c.
(iii) a tax on the good
d.
More than one of (i), (ii), and (iii) is correct.
B
Policymakers use taxes
a.
to raise revenue for public purposes, but not to influence market outcomes.
b.
both to raise revenue for public purposes and to influence market outcomes.
c.
when they realize that price controls alone are insufficient to correct market inequities.
d.
only in those markets in which the burden of the tax falls clearly on the sellers.
B
A $0.10 tax levied on the buyers of socks will cause the
a.
supply curve for socks to shift down by $0.10.
b.
supply curve for socks to shift up by $0.10.
c.
demand curve for socks to shift down by $0.10.
d.
demand curve for socks to shift up by $0.10.
C
If the demand for textbooks is inelastic, then a decrease in the price of textbooks will
a.
increase total revenue of textbook sellers.
b.
decrease total revenue of textbook sellers.
c.
not change total revenue of textbook sellers.
d.
There is not enough information to answer this question.
B
Rent control
a.
serves as an example of how a social problem can be alleviated or even solved by government policies.
b.
serves as an example of a price ceiling.
c.
is regarded by most economists as an efficient way of helping the poor.
d.
is the most efficient way to allocate scarce housing resources.
B
The price elasticity of demand for bread
a.
(i) is computed as the percentage change in quantity demanded of bread divided by the percentage change in the price of bread.
b.
(ii) depends, in part, on the availability of close substitutes for bread.
c.
(iii) reflects the many economic, social, and psychological forces that influence consumers' tastes for bread.
d.
All of (i), (ii), and (iii) are correct.
D
Refer to Figure 6-12. How much tax revenue does this tax produce for the government?
a.
$24
b.
$30
c.
$32
d.
$56
A
Refer to Figure 6-12. The price paid by buyers after the tax is imposed is

a.
$3.
b.
$4.
c.
$5.
d.
$7.
D
A $2.00 tax levied on the sellers of mailboxes will shift the supply curve
a.
upward by exactly $2.00.
b.
upward by less than $2.00.
c.
downward by exactly $2.00.
d.
downward by less than $2.00.
A
If the minimum wage exceeds the equilibrium wage, then
a.
the quantity demanded of labor will exceed the quantity supplied.
b.
the quantity supplied of labor will exceed the quantity demanded.
c.
the minimum wage will not be binding.
d.
there will be no unemployment.
B
Brock is willing to pay $400 for a new suit, but he is able to buy the suit for $350. His consumer surplus is
a.
$50.
b.
$150.
c.
$350.
d.
$400.
A
The minimum wage was instituted to ensure workers
a.
a middle-class standard of living.
b.
employment.
c.
a minimally adequate standard of living.
d.
unemployment compensation.
C
Consumer surplus equals the
a.
value to buyers minus the amount paid by buyers.
b.
value to buyers minus the cost to sellers.
c.
amount received by sellers minus the cost to sellers.
d.
amount received by sellers minus the amount paid by buyers.
A
Which of the following statements is not correct?
a.
A seller would be eager to sell her product at a price higher than her cost.
b.
A seller would refuse to sell her product at a price lower than her cost.
c.
A seller would be indifferent about selling her product at a price equal to her cost.
d.
Since sellers cannot set the price for their product, they must be willing to sell their product at any price.
D
Market efficiency occurs when
a.
total surplus is maximized.
b.
producer surplus is maximized.
c.
all resources are being used.
d.
consumer surplus equals producer surplus.
A
The best remedy for market failure is often
a.
a market-based solution.
b.
shutdown of the market.
c.
no government intervention.
d.
externalizing the externalities.
A
This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods.
Refer to Figure 10-3. The social cost curve is above the supply curve because


a. it takes into account the external costs imposed on society by the concert.
b. it takes into account the effect of local noise restrictions on concerts in parks surrounded by residential neighborhoods.
c. concert tickets are likely to cost more than the concert actually costs the organizers.
d. residents in the surrounding neighborhoods get to listen to the concert for free.
A
The difference between social cost and private cost is a measure of the
a.
loss in profit to the seller as the result of a negative externality.
b.
cost of an externality.
c.
cost reduction when the negative externality is eliminated.
d.
cost incurred by the government when it intervenes in the market.
B
Goods that are not excludable include both
a.
private goods and public goods.
b.
natural monopolies and common resources.
c.
common resources and public goods.
d.
private goods and natural monopolies.
C
An overcrowded beach is an example of
a.
a positive externality.
b.
a Tragedy of the Commons.
c.
an environmentally inefficient allocation of resources.
d.
an economically unfair allocation of resources.
B
Government policy can potentially raise economic well-being
a.
in all markets for goods and services.
b.
in economic models, but not in reality.
c.
when a good does not have a price attached to it.
d.
never.
C
Which of the following measures of cost is best described as "the increase in total cost that arises from an extra unit of production?"
a.
variable cost
b.
average variable cost
c.
average total cost
d.
marginal cost
D
Which of the following statements about a production function is correct for a firm that uses labor to produce output?
a.
(i) The production function depicts the relationship between the quantity of labor and the quantity of output.
b.
(ii) The slope of the production function measures marginal product.
c.
(iii) The slopes of the production function and the total cost curve are inversely related; if one is increasing, the other is decreasing.
d.
All of (i), (ii), and (iii) are correct.
D
Which of the following costs would be regarded as an implicit cost?
a.
the cost of accounting services
b.
the opportunity cost of financial capital that has been invested in the business
c.
the cost of compliance with government regulation
d.
all costs that involve outlays of money by the firm
B
The minimum points of the average variable cost and average total cost curves occur where
a.
the marginal cost curve lies below the average variable cost and average total cost curves.
b.
the marginal cost curve intersects those curves.
c.
the average variable cost and average total cost curves intersect.
d.
the slope of total cost is the smallest.
B
In a competitive market, the actions of any single buyer or seller will
a.
have a negligible impact on the market price.
b.
have little effect on market equilibrium quantity but will affect market equilibrium price.
c.
affect marginal revenue and average revenue but not price.
d.
adversely affect the profitability of more than one firm in the market.
A
For a firm in a perfectly competitive market, the price of the good is always
a.
equal to marginal revenue.
b.
equal to total revenue.
c.
greater than average revenue.
d.
equal to the firm's efficient scale of output.
A
Refer to Table 14-7. If the firm is currently producing 14 units, what would you advise the owners?



a.
decrease quantity to 13 units
b.
increase quantity to 17 units
c.
continue to operate at 14 units
d.
increase quantity to 16 units
D
A profit-maximizing monopolist charges a price of $14. The intersection of the marginal revenue curve and the marginal cost curve occurs where output is 15 units and marginal cost is $7. What is the monopolist's profit?
a.
$90
b.
$105
c.
$180
d.
Not enough information is given to determine the answer.
D
A perfectly price-discriminating monopolist is able to
a.
maximize profit and produce a socially-optimal level of output.
b.
maximize profit, but not produce a socially-optimal level of output.
c.
produce a socially-optimal level of output, but not maximize profit.
d.
exercise illegal preferences regarding the race and/or gender of its employees.
A
A monopolistically competitive market is like a competitive market in that
a.
both market structures feature easy entry by new firms in the long run.
b.
the main objective of firms in both market structures is something other than profit maximization.
c.
firms in both market structures produce the welfare-maximizing level of output.
d.
firms in both market structures set price above marginal cost.
A
For a monopolist, when the price effect is greater than the output effect, marginal revenue is
a.
positive.
b.
negative.
c.
zero.
d.
maximized.
B
When a monopolist is able to sell its product at different prices, it is engaging in
a.
distribution pricing.
b.
quality-adjusted pricing.
c.
price differentiation.
d.
price discrimination.
D
Which of the following is a commonly-cited benefit of advertising?
a.
Advertising can be a signal of the quality of a product.
b.
Advertising impedes competition.
c.
Advertising reduces the deadweight loss associated with monopolistic competition.
d.
Advertising encourages free entry, which increases profits.
A
Giffen goods have positively-sloped demand curves because they are
a.
inferior goods with no substitution effect.
b.
normal goods with no substitution effect.
c.
inferior goods for which the substitution effect outweighs the income effect.
d.
inferior goods for which the income effect outweighs the substitution effect.
D
Table 17-12. This table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B).

Refer to Table 17-12. Which of the following statements about this game is true?



a.
Up is a dominant strategy for A and Right is a dominant strategy for B.
b.
Up is a dominant strategy for A and Left is a dominant strategy for B.
c.
Down is a dominant strategy for A and Right is a dominant strategy for B.
d.
Down is a dominant strategy for A and Left is a dominant strategy for B.
A
Predatory pricing involves a firm
a.
colluding with another firm to restrict output and raise prices.
b.
selling two individual products together for a single price rather than selling each product individually at separate prices.
c.
temporarily cutting the price of its product to drive a competitor out of the market.
d.
requiring that the firm reselling its product do so at a specified price.
C
The distinction between purchase price and rental price applies to which factor(s) of production?
a.
land only
b.
capital only
c.
land and capital only
d.
land, capital, and labor
C
The invisible hand refers to

a. how central planners made economic decisions.
b. how the decisions of households and firms lead to desirable market outcomes.
c. the control that large firms have over the economy.
d. government regulations without which the economy would be less efficient.
b
When a society cannot produce all the goods and services people wish to have it is said that the economy is experiencing

a. scarcity.
b. communism.
c. externalities.
d. market failure.
a
Mitch has $100 to spend and wants to buy either a new amplifier for his guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $100, so he can only buy one. This illustrates the basic concept that

a. trade can make everyone better off.
b. people face trade-offs
c. rational people think at the margin.
d. people respond to incentives.
b
When economists attempt to simplify the real world and make it easier to understand they make

a. assumptions.
b. mistakes in judgment.
c. predictions.
d. evaluations.
a
In the circular-flow diagram, firms produce

a. (i) goods and services using factors of production.
b. (ii) output using inputs.
c. (iii) factors of production using goods and services.
d. Both (i) and (ii) are correct.
d
A demand curve shows the relationship

a. between income and quantity demanded.
b. between price and income.
c. between price and quantity demanded.
d. among income, price, and quantity demanded.
c
Two goods are complements when a decrease in the price of one good
a. decreases the quantity demanded of the other good.
b. decreases the demand for the other good.
c. increases the quantity demanded of the other good.
d. increases the demand for the other good.
d
Suppose that Carolyn receives a pay increase. We would EXPECT

a. to observe Carolyn moving down and to the right along her given demand curve.
b. Carolyn's demand for inferior goods to decrease.
c. Carolyn will go shopping at a clothing store worse than before.
d. Carolyn's demand for normal goods to decrease.
b
Refer to Figure 4-4. The graphs show the demand for cigarettes. In Panel (b), the leftward arrow is consistent with which of the following events?

a. The price of cigarettes increased.
b. A sales tax was placed on cigarettes.
c. The prohibition of cigarette advertisements on television.
d. Tobacco and marijuana are complements and the price of marijuana decreased.
c
Which of the following expressions represents a cross-price elasticity of demand?

a. percentage change in quantity demanded of bread divided by percentage change in quantity supplied of bread
b. percentage change in quantity demanded of bread divided by percentage change in price of butter
c. percentage change in price of bread divided by percentage change in quantity demanded of bread
d. percentage change in quantity demanded of bread divided by percentage change in income
b
Which of the following statements is correct?

a. (i) The demand for flat-screen computer monitors is more elastic than the demand for monitors in general.
b. (ii) The demand for grandfather clocks is more elastic than the demand for clocks in general.
c. (iii) The demand for cardboard is more elastic over a long period of time than over a short period of time.
d. All of (i), (ii), and (iii) are correct.
d
The price elasticity of demand for a good measures the willingness of

a. consumers to buy less of the good as price rises.
b. consumers to avoid monopolistic markets in favor of competitive markets.
c. firms to produce more of a good as price rises.
d. firms to cater to the tastes of consumers.
a
A tax on the sellers of popcorn

a. increases the size of the popcorn market.
b. decreases the size of the popcorn market.
c. has no effect on the size of the popcorn market.
d. may increase, decrease, or have no effect on the size of the popcorn market.
b
Minimum-wage laws dictate the

a. average price employers must pay for labor.
b. highest price employers may pay for labor.
c. lowest price employers may pay for labor.
d. the highest and lowest prices employers may pay for labor.
c
The price elasticity of demand measures

a. buyers' responsiveness to a change in the price of a good.
b. the extent to which demand increases as additional buyers enter the market.
c. how much more of a good consumers will demand when incomes rise.
d. the movement along a supply curve when there is a change in demand.
a
Under rent control, bribery is a mechanism to

a. bring the total price of an apartment (including the bribe) closer to the equilibrium price.
b. allocate housing to the poorest individuals in the market.
c. force the total price of an apartment (including the bribe) to be less than the market price.
d. allocate housing to the most deserving tenants.
a
When the price of a good is $5, the quantity demanded is 120 units per month; when the price is $7, the quantity demanded is 100 units per month. Using the midpoint method, the price elasticity of demand is about

a. 0.55.
b. 1.83.
c. 2.
d. 0.45
a
The imposition of a binding price floor on a market causes quantity demanded to be
a. (i) greater than quantity supplied.
b. (ii) less than quantity supplied.
c. (iii) equal to quantity supplied.
d. Both (i) and (ii) are possible.
b
The goal of rent control is to

a. facilitate controlled economic experiments in urban areas.
b. help landlords by assuring them a low vacancy rate for their apartments.
c. help the poor by assuring them an adequate supply of apartments.
d. help the poor by making housing more affordable.
d
Consumer surplus is the

a. amount of a good consumers get without paying anything.
b. amount a consumer pays minus the amount the consumer is willing to pay.
c. amount a consumer is willing to pay minus the amount the consumer actually pays.
d. value of a good to a consumer.
c
Producer surplus measures the

a. benefits to sellers of participating in a market.
b. costs to sellers of participating in a market.
c. price that buyers are willing to pay for sellers' output of a good or service.
d. benefit to sellers of producing a greater quantity of a good or service than buyers demand.
a
A $2.00 tax levied on the sellers of mailboxes will shift the supply curve
a. upward by exactly $2.00.
b. upward by less than $2.00.
c. downward by exactly $2.00.
d. downward by less than $2.00.
a
Consumer surplus is equal to the
a. Value to buyers - Amount paid by buyers.
b. Amount paid by buyers - Costs of sellers.
c. Value to buyers - Costs of sellers.
d. Value to buyers - Willingness to pay of buyers.
a
Which of the following is correct?

a. A tax burden falls more heavily on the side of the market that is more elastic.
b. A tax burWhich of the following is correct?

a. A tax burden falls more heavily on the side of the market that is more elastic.
b. A tax burden falls more heavily on the side of the market that is less elastic.
c. A tax burden falls more heavily on the side of the market that is closer to unit elastic.
d. A tax burden is distributed independently of the relative elasticities of supply and demand.den falls more heavily on the side of the market that is less elastic.
c. A tax burden falls more heavily on the side of the market that is closer to unit elastic.
d. A tax burden is distributed independently of the relative elasticities of supply and demand.
b
Market efficiency occurs when
a. total surplus is maximized.
b. producer surplus is maximized.
c. all resources are being used.
d. consumer surplus equals producer surplus.
a
The Coase theorem states that

a. taxes are an efficient way for governments to remedy negative externalities.
b. subsidies are an efficient way for governments to remedy positive externalities.
c. industrial policies encourage technology spillovers.
d. in the absence of transaction costs, private parties can solve the problem of externalities on their own.
d
Refer to Figure 10-5. Which of the following statements is correct?

a. The marginal benefit of the positive externality is measured by P3 - P1.
b. The marginal cost of the negative externality is measured by P3 - P2.
c. The marginal cost of the negative externality is measured by P3 - P1.
d. The marginal cost of the negative externality is measured by P3 - P0.
c
Suppose that electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a $8 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

a. They are equal.
b. The after-tax equilibrium quantity is greater than the socially optimal quantity.
c. The after-tax equilibrium quantity is less than the socially optimal quantity.
d. There is not enough information to answer the question.
c
The difference between social cost and private cost is a measure of the
a. loss in profit to the seller as the result of a negative externality.
b. cost of an externality.
c. cost reduction when the negative externality is eliminated.
d. cost incurred by the government when it intervenes in the market
b
Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality

a. the supply curve would adequately reflect the marginal social cost of production.
b. consumers will be required to pay a higher price for steel than they would have if the externality were internalized.
c. the market equilibrium quantity will not be the socially optimal quantity.
d. producers will produce less steel than they otherwise would if the externality were internalized.
c
The Tragedy of the Commons occurs because

a. a common resource is rival in consumption.
b. a common resource is underutilized.
c. crimes are committed in public places.
d. common resources are subject to exclusionary rules.
a
A view of a spectacular sunset along a private beach is an example of a
a. private good.
b. public good.
c. nonrival but excludable good.
d. rival but nonexcludable good.
c
Most goods in the economy are

a. natural monopolies.
b. common resources.
c. public goods.
d. private goods.
d
A difference between explicit and implicit costs is that

a. explicit costs are greater than implicit costs.
b. explicit costs do not require a direct monetary outlay by the firm, whereas implicit costs do.
c. implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.
d. implicit costs are greater than explicit costs.
c
Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when the firm hires 2 workers, the total cost of production is $100. When the firm hires 3 workers, the total cost of production is $120. In addition, assume that the variable cost per unit of labor is the same regardless of the number of units of labor that are hired. What is the firm's fixed cost?

a. $40
b. $60
c. $80
d. $100
b
Which of the following costs would be regarded as an implicit cost?

a. the cost of accounting services
b. the opportunity cost of financial capital that has been invested in the business
c. the cost of compliance with government regulation
d. all costs that involve outlays of money by the firm
b
The firm's efficient scale is the quantity of output that minimizes

a. average total cost.
b. average fixed cost.
c. average variable cost.
d. marginal cost.
a
Refer to Figure 14-1. Which of the four prices corresponds to a perfectly competitive firm earning zero economic profits in the short run?

a. P1
b. P2
c. P3
d. P4
b
In the figure below, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms.
Refer to Figure 14-8. If at a market price of $1.75, 52,500 units of output are supplied to this market, how many identical firms are participating in this market?

a. 75
b. 100
c. 250
d. 300
d
A competitive market is in long-run equilibrium. If demand increases, we can be certain that price will

a. rise in the short run. Some firms will enter the industry. Price will then rise to reach the new long-run equilibrium.
b. rise in the short run. Some firms will enter the industry. Price will then fall to reach the new long-run equilibrium.
c. fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
d. not rise in the short run because firms will enter to maintain the price.
b
For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $10 and a marginal cost of $11. It follows that the

a. production of the 100th unit of output increases the firm's profit by $1.
b. production of the 100th unit of output increases the firm's average total cost by $1.
c. firm's profit-maximizing level of output is less than 100 units.
d. production of the 110th unit of output must increase the firm's profit by less than $1.
c
Which of the following statements is correct?

a. For all firms, marginal revenue equals the price of the good.
b. Only for competitive firms does average revenue equal the price of the good.
c. Marginal revenue can be calculated as total revenue divided by the quantity sold.
d. Only for competitive firms does average revenue equal marginal revenue.
d
If one were to compare a competitive market to a monopoly that engages in perfect price discrimination, one could say that

a. in both cases, total social welfare is the same.
b. total social welfare is maximized in the competitive market, but not in the perfectly discriminating monopoly.
c. in both cases, some potentially mutually beneficial trades do not occur.
d. consumer surplus is the same in both cases.
a
When a monopolist is able to sell its product at different prices, it is engaging in

a. distribution pricing.
b. quality-adjusted pricing.
c. price differentiation.
d. price discrimination.
d
A monopolist will choose to increase output when

a. market price increases.
b. at all levels of output, marginal cost increases.
c. at the present level of output, marginal revenue exceeds marginal cost.
d. the demand curve shifts to the left.
c
When quality cannot be easily judged in advance, what provides consumers with information about the quality of a product?

a. a brand name
b. a tie-in
c. the quantity available for sale
d. the amount of deadweight loss
a
A consumer's preferences provide a

a. ranking of the set of bundles that happen to fall on indifference curves.
b. relative ranking of bundles that provide more of all goods.
c. framework for evaluating market equilibriums.
d. complete ranking of all possible consumption bundles.
d
The practice of selling a product to retailers and requiring the retailers to charge a specific price for the product is called
a. fixed retail pricing.
b. resale price maintenance.
c. cost plus pricing.
d. unfair trade.
b
Which of the following could explain the change in the budget line from A to B?

a. (i) a simultaneous decrease in the price of X and the price of Y
b. (ii) an increase in income
c. (iii) an increase in income and a decrease in the price of Y
d. Both (i) and (ii) are correct.
d
The slope of the budget constraint is determined by the

a. relative price of the goods measured on the axes.
b. relative price of the goods measured on the axes and the consumer's income.
c. endowment of productive resources.
d. preferences of the consumer.
a
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