MC Questions Flashcards
Multiple choice questions, microeconomics Chapter 1,2,3...
1
Q
Microeconomics studies the allocation of
A) decision makers.
B) scarce resources.
C) models.
D) unlimited resources.
A
Scarce resources
2
Q
Microeconomics is often called
A) price theory.
B) decision science.
C) scarcity.
D) resource theory.
A
Price theory
3
Q
Society faces trade-offs because of
A) government regulations.
B) greedy corporations.
C) faceless bureaucrats.
D) scarcity
A
Scarcity
4
Q
The Oregon Health Care Plan is an example of how policymakers cope with
A) scarcity of medical treatment.
B) scarcity of patients.
C) scarcity of policy makers.
D) answering the question of how to produce
A
Scarcity of medical treatment
5
Q
The purpose of making assumptions in economic model building is to
A) force the model to yield the correct answer.
B) minimize the amount of work an economist must do.
C) simplify the model while keeping important details.
D) express the relationship mathematically.
A
Simplify the model while keeping important details.
6
Q
If a model’s predictions are correct, then
A) its assumptions must have been correct.
B) it is proven to be correct.
C) Both A and B above.
D) None of the above.
A
None of the above
7
Q
Economists tend to judge a model based upon
A) the reality of its assumptions.
B) the accuracy of its predictions.
C) its simplicity.
D) its complexity.
A
The accuracy of its predictions
8
Q
Most microeconomic models assume that decision-makers wish to
A) make themselves as well off as possible.
B) act selfishly.
C) not cooperate with others.
D) None of the above.
A
Make themselves as well off as possible
9
Q
Which of the following is an example of a normative statement?
A) A higher price for a good causes people to want to buy less of that good.
B) A lower price for a good causes people to want to buy more of that good.
C) To make the good available to more people, a lower price should be set.
D) If you consume this good, you will be better off.
A
To make the good available to more people, a lower price should be set.
10
Q
Which of the following is an example of a normative statement?
A) Since this good is bad for you, you should not consume it.
B) This good is bad for you.
C) If you consume this good, you will get sick.
D) People usually get sick after consuming this good.
A
Since this good is bad for you, you should not consume it.
11
Q
Which of the following is an example of a positive statement?
A) Since this good is bad for you, you should not consume it.
B) If this good is bad for you, you should not consume it.
C) If you consume this good, you will get sick.
D) None of the above
A
If you consume this good, you will get sick.
12
Q
According to the Law of Demand, the demand curve for a good will
A) shift leftward when the price of the good increases.
B) shift rightward when the price of the good increases.
C) slope downward.
D) slope upward.
A
Slope downward
13
Q
As the price of a good increases, the change in the quantity demanded can be shown by
A) shifting the demand curve leftward.
B) shifting the demand curve rightward.
C) moving down along the same demand curve.
D) moving up along the same demand curve.
A
Moving up along the same demand curve
14
Q
If the price of automobiles were to increase substantially, the demand curve for gasoline would most likely
A) shift leftward.
B) shift rightward.
C) become flatter.
D) become steeper
A
Shift leftward
15
Q
If the price of automobiles were to decrease substantially, the demand curve for public transportation would most likely
A) shift rightward.
B) shift leftward.
C) remain unchanged.
D) remain unchanged while quantity demanded would change.
A
Shift leftward
16
Q
An increase in the demand curve for orange juice would be illustrated as a
A) leftward shift of the demand curve.
B) rightward shift of the demand curve.
C) movement up along the demand curve.
D) movement down along the demand curve.
A
Rightward shift of the demand curve.
17
Q
The term “inverse demand curve” refers to
A) a demand curve that slopes upward.
B) expressing the demand curve in terms of price as a function of quantity.
C) the demand for “inverses.”
D) the difference between quantity demanded and supplied at each price.
A
Expressing the demand curve in terms of price as a function of quantity.
18
Q
If the demand for oranges is written as Q = 100 -5p, then the inverse demand function is
A) Q = 5p -100.
B) Q = 20 -.2p.
C) p = 20 -5Q.
D) p = 20 -.2Q.
A
p = 20 - .2Q
19
Q
If government regulations prohibit the production of a particular good, the demand curve for that good will most likely
A) shift leftward.
B) shift rightward.
C) remain unchanged.
D) disappear.
A
Remain unchanged
20
Q
Suppose the demand curve for a good shifts rightward, causing the equilibrium price to increase. This increase in the price of the good results in
A) a rightward shift of the supply curve.
B) an increase in quantity supplied.
C) a leftward shift of the supply curve.
D) a leftward movement along the supply curve.
A
An increase in quantity supplied
21
Q
Suppose there are 100 identical firms in the rag industry, and each firm is willing to supply 10 rags at any price. The market supply curve will be a(n)
A) vertical line where Q = 10.
B) vertical line where Q = 100.
C) vertical line where Q = 1000.
D) horizontal line where Q = 1000
A
Vertical line where Q = 1000
22
Q
The expression “increase in quantity supplied” is illustrated graphically as a
A) leftward shift in the supply curve.
B) rightward shift in the supply curve.
C) movement up along the supply curve.
D) movement down along the supply curve.
A
Movement up along the supply curve.
23
Q
If the supply curve of a product changes so that sellers are now willing to sell 2 additional units at any given price, the supply curve will
A) shift leftward by 2 units.
B) shift rightward by 2 units.
C) shift vertically up by 2 units.
D) shift vertically down by 2 units.
A
Shift rightward by 2 units
24
Q
The market supply curve is found by
A) horizontally summing all individual supply curves.
B) vertically summing all individual supply curves.
C) Either A or B above since they both give the same answer.
D) None of the above
A
Horizontally summing all individual supply curves.
25
Technological innovations in the production of computers has led to
A) a decrease in the quantity demanded for computers.
B) a rightward shift of the supply curve for computers.
C) a decrease in the quantity supplied of computers.
D) None of the above.
A rightward shift of the supply curve for computers.
26
Equilibrium is defined as a situation in which
A) neither buyers nor sellers want to change their behavior.
B) no government regulations exist.
C) demand curves are perfectly horizontal.
D) suppliers will supply any amount that buyers wish to buy.
Neither buyers nor sellers want to change their behavior.
27
A competitive equilibrium is described by
A) a price only.
B) a quantity only.
C) the excess supply minus the excess demand.
D) a price and a quantity.
A price and a quantity
28
Figure 2.1 shows a graph of the market for pizzas in a large town. No pizzas will be supplied unless the price is above
A) $0.
B) $5.
C) $12.
D) $14.
$5
29
Figure 2.1 shows a graph of the market for pizzas in a large town. No pizzas will be demanded unless price is less than
A) $0.
B) $5.
C) $12.
D) $14.
$14
30
Figure 2.1 shows a graph of the market for pizzas in a large town. At a price of $14, there will be
A) no pizzas supplied.
B) equilibrium.
C) excess supply.
D) excess demand
Excess supply
31
Figure 2.1 shows a graph of the market for pizzas in a large town. At a price of $5, there will be
A) excess demand.
B) excess supply.
C) equilibrium.
D) zero demand.
Excess demand
32
Figure 2.1 shows a graph of the market for pizzas in a large town. What are the equilibrium price and quantity?
A) p = 8, Q = 60
B) p = 60, Q = 8
C) p = 14, Q = 140 '
D) p = 5, Q = 60
p=8, Q=60
33
Figure 2.1 shows agraph of a market for pizzas in a large town. At a price of $7, what is the amount of excess demand?
A) 0; there is excess supply at $7.
B) 20 units
C) 30 units
D) 10 units
30 units
34
Figure 2.1 shows a graph of a market for pizzas in a large town. At a price of $10, the market
A) is not in equilibrium.
B) has excess supply.
C) does not have excess demand.
D) All of the above
All of the above
35
Figure 2.1 shows a graph of the market for pizzas in a large town. Suppose that concern over dietary habits has led the government to impose a restriction that limits suppliers to produce no more than 40 pizzas. What will the price of pizza be as a result of this quota?
A) $2
B) $7
C) $8
D) $10
$10
36
Figure 2.1 shows a graph of the market for pizzas in a large town. Suppose that concern over dietary habits has led the government to impose a restriction that limits suppliers to produce only 40 pizzas. As a result, for prices greater than $7, the
A) supply curve is unchanged.
B) supply curve is vertical.
C) demand curve becomes vertical.
D) demand curve becomes horizontal.
Supply curve is vertical
37
Figure 2.1 shows a graph of the market for pizzas in a large town. As a result of concern over the affordability of pizza, the government restricts sellers from charging a price over $7. As a result, the quantity of pizzas consumed will
A) increase.
B) decrease.
C) remain unchanged.
D) be indeterminable.
Decrease (price ceiling)
38
If pizza and tacos are substitutes, a decrease in the price of tacos would lead to a
A) decrease in the demand curve for pizza.
B) decrease in the quantity demanded of pizza.
C) decrease in the price of pizza.
D) All of the above
All of the above
39
Figure 2.2 shows three different supply-and-demand graphs. Which graph best represents the market for vacations on Mars?
A) graph A
B) graph B
C) graph C
D) None of the above
Graph A
40
Figure 2.2 shows three different supply-and-demand graphs. Which graph best represents the market for workers at your nearest fast-food restaurant?
A) graph A
B) graph B
C) graph C
D) None of the above.
Graph C
41
Figure 2.2 shows three different supply-and-demand graphs. Which graph best represents the market for the air we are currently breathing?
A) graph A
B) graph B
C) graph C
D) None of the above
Graph B
42
After tickets for a major sporting event are purchased at the official box office price, a market often develops whereby these tickets sell at prices well above the official box office price. Which of the following scenarios would NOT be able to explain this result?
A) The official price was below equilibrium from the moment the tickets were available.
B) Increased publicity causes the demand curve for the event to shift rightward.
C) The event was not a sellout.
D) Not everyone who wanted a ticket was able to buy one at the box office.
The event was not a sellout
43
Restricting imports tends to
A) shift the demand curve for the product to the left.
B) shift the demand curve for the product to the right.
C) change the shape of the supply curve.
D) increase the quantity supplied of a product.
Change the shape of the supply curve.
44
A drought in the Midwest will raise the price of wheat because of a
A) leftward shift in the supply curve.
B) rightward shift in the supply curve.
C) leftward shift in the demand curve.
D) rightward shift in the demand curve.
Leftward shift in the supply curve
45
Government prohibition of advertising liquor on television would most likely result in
A) a rightward shift in the demand curve for liquor.
B) a leftward shift in the demand curve for liquor.
C) a rightward shift in the demand curve for television advertising time.
D) no change in the market for either liquor or television advertising.
A leftward shift in the demand curve for liquor.
46
From the 1970s through the 1990s, the relative price of a college education has increased greatly. During the same time period, college enrollment has also increased. This evidence suggests that during this time period
A) the demand curve for a college education has shifted leftward.
B) the demand curve for a college education has shifted rightward.
C) the supplycurve for a college education has shifted leftward.
D) the supply curve for a college education has shifted rightward.
The demand curve for a college education has shifted rightward
47
Figure 2.3 shows four different markets with changes in either the supply curve or the demand curve. Which graph best illustrates the market for coffee after severe weather destroys a large portion of the coffee crop?
A) graph A
B) graph B
C) graph C
D) graph D
Graph C
48
Figure 2.3 shows four different markets with changes in either the supply curve or the demand curve. Which graph best illustrates the market for tea after severe weather destroys a large portion of the coffee crop?
A) graph A
B) graph B
C) graph C
D) graph D
Graph A
49
Figure 2.3 shows four different markets with changes in either the supply curve or the demand curve. Which graph best illustrates the market for computers after technological advances in making computers occur?
A) graph A
B) graph B
C) graph C
D) graph D
Graph B
50
Figure 2.3 shows four different markets with changes in either the supply curve or the demand curve. Which graph best illustrates the market for non-dairy coffee creamer after severe weather destroys a large portion of the coffee crop?
A) graph A
B) graph B
C) graph C
D) graph D
Graph D
51
Figure 2.3 shows four different markets with changes in either the supply curve or the demand curve. Which graph best illustrates the market for computer manuals after technological advances in making computers occur?
A) graph A
B) graph B
C) graph C
D) graph D
Graph A
52
Figure 2.3 shows four different markets with changes in either the supply curve or the demand curve. Which graph best illustrates the market for typewriters after technological advances in computerized word-processing software occur?
A) graph A
B) graph B
C) graph C
D) graph D
Graph D
53
Suppose a market were currently at equilibrium. A rightward shift of the demand curve would cause
A) an increase in price but a decrease in quantity.
B) a decrease in price but an increase in quantity.
C) an increase in both price and quantity.
D) a decrease in both price and quantity.
An increase in both price and quantity
54
Suppose a market were currently at equilibrium. A rightward shift of the supply curve would cause a(n)
A) increase in price but a decrease in quantity.
B) decrease in price but an increase in quantity.
C) increase in both price and quantity.
D) decrease in both price and quantity.
Decrease in price but an increase in quantity.
55
When import restrictions are placed on a good, and as a result the price of the good increases, the demand curve for that good will
A) shift rightward.
B) shift leftward.
C) become steeper.
D) be unaffected.
Be unaffected
56
When two goods are substitutes, a shock that raises the price of one good causes the price of the other good to
A) remain unchanged.
B) decrease.
C) increase.
D) change in an unpredictable manner
Increase
57
Municipalities that have adopted the policy of “rent control” typically set the rentals on certain apartments well below equilibrium.
As a result,
A) landlords have a difficult time finding tenants.
B) prospective tenants have a difficult time finding available apartments.
C) there is a surplus of apartments. D) All of the above.
Prospective tenants have a difficult time finding available apartments.
58
When “rent controls” result in a shortage of housing, landlords
A) use criteria other than price to allocate housing.
B) lower the price to allocate the housing.
C) attempt to attract renters.
D) None of the above.
Use criteria other than price to allocate housing
59
A restriction on the number of people allowed to be medical doctors in the United States would most likely
A) increase doctors’ fees.
B) decrease the demand for doctors.
C) decrease the demand for nurses. D) decrease the number of people who get sick.
Increase doctors' fees.
60
Figure 2.4 shows the market for crude oil. If a consumer group convinces the government to set a maximum price of $2 per barrel, then
A) 300 barrels of crude oil will be sold at $2.
B) zero barrels of crude oil will be sold.
C) zero barrels of crude oil will be demanded.
D) None of the above.
Zero barrels of crude oil will be sold.
61
Figure 2.4 shows the market for crude oil. If the oil exploration firms convince the government to set a minimum price of $4 per barrel, then
A) 100 barrels of crude oil will be sold at $4.
B) zero barrels of crude oil will be sold.
C) zero barrels of crude oil will be demanded.
D) None of the above.
100 barrels of crude oil will be sold at $4
62
Figure 2.4 shows the market for crude oil. If the government restricts output to no more than 300 barrels, then
A) 300 barrels of crude oil will be sold at $3.
B) 200 barrels of crude oil will be sold at $3.
C) zero barrels of crude oil will be sold.
D) None of the above.
200 barrels of crude oil will be sold at $3
63
If a government-imposed price ceiling causes the observed price in a market to be below the equilibrium price,
A) there will be excess demand.
B) there will be excess supply.
C) the curves will shift to make a new equilibrium at the regulated price.
D) None of the above.
There will be excess demand
64
In the labor market, if the government imposes a minimum wage that is below the equilibrium wage, then
A) workers who wish to work at the minimum wage will have a difficult time finding jobs.
B) firms will hire fewer workers than without the minimum wage law.
C) some workers may lose their jobs as a result.
D) nothing will happen to the wage rate or employment.
Nothing will happen to the wage rate or employment
65
It is appropriate to use the supply and demand model if, in a market,
A) everyone is a price taker with full information about the price and quality of the good.
B) firms sell identical products.
C) costs of trading are low.
D) All of the above.
All of the above
66
The change in price that results from a leftward shift of the supply curve will be greater if
A) the demand curve is relatively steep than if the demand curve is relatively flat.
B) the demand curve is relatively flat than if the demand curve is relatively steep.
C) the demand curve is horizontal than if the demand curve is vertical. D) the demand curve is horizontal than if the demand curve is downward sloping.
The demand curve is relatively steep than if the demand curve is relatively flat.
67
If the demand curve for a good is horizontal and the price is positive, then a leftward shift of the supply curve results in
A) a price of zero.
B) an increase in price.
C) a decrease in price.
D) no change in price
No change in price
68
Figure 3.1 shows the supply and demand curves for rice in the U.S. and Japan. Assume there is no trade between the two countries. If bad weather causes the supply curves in each country to shift leftward by the same amount, then
A) the price will increase in both countries.
B) the price will decrease in both countries.
C) the change in price cannot be determined.
D) None of the above.
The price will increase in both countries
69
Figure 3.1 shows the supply and demand curves for rice in the U.S. and in Japan. Assume there is no trade between the two countries. If bad weather causes the supply curves in each country to shift leftward by the same amount, then
A) the price will increase the same amount in both countries.
B) the price will decrease the same amount in both countries.
C) the price will increase more in Japan than in the U.S.
D) the price will decrease more in Japan than in the U.S.
The price will increase more in Japan than in the U.S.
70
A vertical demand curve results in
A) no change in quantity when the supply curve shifts.
B) no change in price when the supply curve shifts.
C) no change in the supply curve being possible.
D) no change in quantity when the demand curve shifts.
No change in quantity when the supply curve shifts
71
A vertical demand curve for a particular good implies that consumers are
A) sensitive to changes in the price of that good.
B) not sensitive to changes in the price of that good.
C) irrational.
D) not interested in that good.
Not sensitive to changes in the price
72
The percentage change in the quantity demanded in response to a percentage change in the price is known as the
A) slope of the demand curve.
B) excess demand.
C) price elasticity of demand.
D) all of the above.
Price elasticity of demand
73
Suppose the demand curve for a good is expressed as Q = 50 -2p. If the good currently sells for $3, then the price elasticity of demand is
A) -3 * (2/50).
B) -2 * (50/3).
C) -2 * (3/44).
D) -3 * (44/2)
-2* (3/44)
74
Suppose the demand curve for a good is expressed as Q = 100 -4p. If the good currently sells for $10, then the price elasticity of demand equals
A) -1.5.
B) -0.67.
C) -4.
D) -2.5.
-0.67
75
If an increase in income results in a rightward parallel shift of the demand curve, then at any given price, the price elasticity of demand will have
A) increased in absolute terms.
B) decreased in absolute terms.
C) remained unchanged.
D) increased, decreased or stayed the same. It cannot be determined.
Decreased in absolute terms
76
If the demand curve for orange juice is expressed as Q = 2000 -500p, where Q is quantity in gallons and p is price per gallon measured in dollars, then the demand for orange juice has a unitary elasticity when price equals
A) $0.
B) $1.
C) $2.
D) $4.
$2
77
If the demand curve for orange juice is expressed as Q = 2000 -500p, where Q is measured in gallons and p is measured in dollars, then at the price of $3, elasticity equals
A) -0.33.
B) -3.
C) -9.
D) -17.
-3
78
If the demand for orange juice is expressed as Q = 2000 -500p, where Q is measured in gallons and p is measured in dollars, then at the price of $3, the demand curve
A) is elastic.
B) has a unitary elasticity.
C) is inelastic.
D) is perfectly inelastic.
Is elastic
79
If the demand curve for comic books is expressed as Q = 10,000/p, then demand has a unitary elasticity
A) only when p=10000.
B) only when p=100.
C) always.
D) never
Always
80
If the demand curve for a good always has unitary price elasticity, what does this imply about consumer behavior?
A) Consumers do not react to a price change.
B) Consumers will spend a constant total amount on the good.
C) Consumers are irrational.
D) Consumers do not obey the Law of Demand.
Consumers will spend a constant total amount on the good
81
If the price elasticity of demand for a good is greater than one in absolute terms, we say that demand is
A) elastic.
B) inelastic.
C) perfect.
D) vertical.
Elastic
82
If the price of orange juice rises 10%, and as a result the quantity demanded falls by 8%, the price elasticity of demand for orange juice is
A) -1.25.
B) inelastic.
C) Both A and B above.
D) Neither A nor B above.
Inelastic
83
If the price of orange juice rises 10%, and as a result the quantity demanded falls by 8%, the price elasticity of demand for orange juice is
A) -1.25.
B) elastic.
C) Both A and B above.
D) Neither A nor B above.
Neither A nor B above
84
If the price of orange juice rises 10%, and as a result the quantity demanded falls by 8%, the price elasticity of demand for orange juice is
A) -1.25.
B) -80.0.
C) -0.80.
D) -10.0.
-0.80
85
If the price of orange juice rises 10%, and as a result the quantity demanded falls by 10%, then one can conclude that the demand for orange juice
A) is perfectly elastic.
B) is inelastic.
C) has a unitary elasticity.
D) has a constant elasticity.
Has a unitary elasticity
86
A horizontal demand curve for a good could arise because consumers
A) are irrational.
B) are not sensitive to price changes.
C) view this good as identical to another good.
D) have no good substitutes for this good.
View this good as identical to another good.
87
Which of the following is most likely to be true?
A) Income elasticity of demand for fur coats exceeds that of oatmeal.
B) Income elasticity of demand for oatmeal exceeds that of fur coats.
C) Income elasticity of demand for fur coats equals that of oatmeal.
D) It is not possible to make any prediction about relative income elasticities.
Income elasticity of demand for fur coats exceeds that of oatmeal
88
If a consumer doubles her quantity of ice cream consumed when her income rises by 25%, then her income elasticity of demand for ice cream is
A) 8.0.
B) 4.0.
C) .25.
D) .08.
4.0
89
If a good has an income elasticity of demand greater than 1, one might classify that good as
A) a necessity.
B) a luxury.
C) unusual.
D) inelastic.
A luxury
90
The market demand for wheat is Q = 100 -2p + 1pb, where pb is the price of barley. If the price of wheat is $2, the price elasticity of demand
A) equals (-4/46).
B) equals (-46).
C) equals (-1).
D) cannot be calculated without more information
Cannot be calculated without more information
91
The market demand for wheat is Q = 100 -2p + 1pb, where pbis the price of barley. The cross price elasticity of demand for wheat with respect to barley
A) cannot be calculated from just the information provided.
B) is negative.
C) suggests that wheat and barley are complements.
D) equals 1.
Cannot be calculated from just the information provided
92
The market demand for wheat is Q = 100 -2p + 1pb+ 2Y. If the price of wheat, p, is $2, and the price of barley, pb, is $3, and income, Y, is $1000, the income elasticity of wheat is
A) 2*(1000/2099).
B) 2.
C) 1/2*(1000/2099).
D) cannot be calculated from the information provided
2*(1000/2099)
93
The cross price elasticity of demand between two goods will be positive if
A) the two goods are complements.
B) the two goods are substitutes.
C) the two goods are luxuries.
D) one of the goods is a luxury and the other is a necessity.
If two goods are substitutes
94
In the late 1980s, the health benefits of oat bran were widely advertised. If the price of oats increased 50%, causing the quantity of oats supplied to increase by 40%, then the price elasticity of supply was
A) 1.25.
B) -1.25.
C) -0.80.
D) 0.80.
0.80
95
If the supply curve for orange juice is estimated to be Q = 40 + 2p, then, at a price of $2, the price elasticity of supply is
A) .01.
B) .09.
C) 1.
D) 11.
0.09
96
If the supply curve for orange juice is estimated to be Q = 40 + 2p, then
A) supply is price elastic at all prices.
B) supply is price inelastic at all prices.
C) supply is elastic only at prices below 20.
D) no general statements about price elasticity of supply can be made.
Supply is price inelastic at all prices.
97
The supply of movie tickets at one theater's box office for this Saturday's 4:30 show of a new movie is
A) perfectly elastic until all seats are filled.
B) unit elastic.
C) perfectly inelastic.
D) elastic.
Perfectly inelastic
98
The price elasticity of supply when the supply curve is Q = 5 is
A) 5.
B) perfectly inelastic.
C) perfectly elastic.
D) cannot be calculated from the information provided.
Perfectly inelastic
99
Electricity accounts for almost 20% of the cost of making steel. A 10% increase in electricity prices results in steel firms decreasing production and thereby demanding 5% less electricity. Over many years, technological innovations can change the way steel firms make steel and reduce the industry's energy requirements. This suggests that the steel industry's short-run elasticity of demand for electricity is probably
A) less than one in absolute terms in the short run.
B) less than its long-run elasticity of demand for electricity.
C) Both A and B above.
D) Neither A nor B above
Both A and B above
100
In the mid 1980s, the salaries of accounting professors with Ph.D.s increased dramatically. This resulted in an increase in enrollments in Ph.D accounting programs. Since a Ph.D. degree in accounting may take at least four years to complete, the short-run elasticity of supply of accounting professors is
A) greater than the long-run-elasticity of supply.
B) less than the long-run elasticity of supply.
C) equal to the long-run elasticity of supply.
D) equal to the short-run elasticity of demand.
Less than the long-run elasticity of supply.
101
The short-run elasticity of supply is less than the long-run elasticity of supply
A) because consumers' tastes and preferences change in the long run but not in the short run.
B) because producers can adjust the amount of machinery in the long run but not in the short
run.
C) only for durable goods.
D) only for nondurable goods.
Because producers can adjust the amount of machinery in the long run but not in the short run.
102
Relative to the short-run demand for gasoline, the long-run demand for gasoline is
A) probably more elastic since people need time to change automobiles and driving habits.
B) probably less elastic since people need time to change automobiles and driving habits.
C) probably more elastic because people can hoard this good.
D) probably less elastic because people cannotstore this good.
Probably more elastic since people need time to change automobiles and driving habits.
103
Suppose the supply curve and the demand curve both have unitary elasticity at all prices. The price increase to consumers resulting from a specific tax of $1 imposed on sellers will be
A) $1.
B) 50 cents.
C) zero.
D) impossible to calculate without knowing the slope of the supply curve.
50 cents
104
For a given positively sloped supply curve, the price increase to consumers resulting from a specific tax imposed on sellers will be
A) greater the more price elastic demand is.
B) greater the less price elastic demand is.
C) equal to the entire tax when demand is perfectly elastic.
D) equal to half of the tax whenever demand is unit elastic.
Greater the less price elastic demand is
105
A specific tax on sellers will
A) shift the demand curve to the right.
B) shift the demand curve to the left.
C) shift the supply curve to the right.
D) shift the supply curve to the left
Shift the supply curve to the left
106
Consumers will always pay the entire amount of a specific tax whenever
A) demand is perfectly inelastic.
B) supply is perfectly elastic.
C) Both A and B above.
D) Either A or B above but not at the same time.
Both A and B above
107
If the demand curve for a good is unit price elastic and the supply curve is perfectly price elastic, a $1 specific tax imposed on the sellers of this good will
A) shift the supply curve up vertically by $1.
B) shift the demand curve down vertically by $1.
C) not raise price at all.
D) cause price to increase but by less than $1.
Shift the supply curve up veritcally by $1.
108
Suppose the demand curve for a good is downward sloping and the supply curve is upward sloping. At the market equilibrium, if demand is more elastic than supply in absolute value, a $1 specific tax will
A) raise the price to consumers by 50 cents.
B) raise the price to consumers by less than 50 cents.
C) raise the price to consumers by more than 50 cents.
D) raise the price to consumers by $1.
Raise the price to consumers by less than 50 cents.
109
Suppose the demand curve is perfectly inelastic and the supply curve is upward sloping. The price sellers receive after a specific tax is imposed on sellers
A) is less than before the tax.
B) is higher than before the tax.
C) is unchanged.
D) depends on the supply elasticity.
Is unchanged
110
Suppose the demand curve for movie tickets has unitary price elasticity and the supply curve is perfectly price elastic. If 3 million tickets are currently sold at a price of $5, approximately how much tax revenue could the government generate from a $1 specific tax?
A) $18 million
B) $3 million
C) $2.5 million
D) $1.5 million
$2.5 million
111
In the case of a specific tax, tax incidence is independent of who pays
A) only when supply and demand elasticities are not constant.
B) only when the tax is collected from consumers.
C) in most but not all cases.
D) in all cases.
In all cases
112
The tax incidence of a specific tax or ad valorem tax is influenced by
A) who pays the tax.
B) the amount of the tax.
C) the price elasticities of supply and demand.
D) All of the above.
The price elasticities of supply and demand
113
An indifference curve represents bundles of goods that a consumer
A) views as equally desirable.
B) ranks from most preferred to least preferred.
C) prefers to any other bundle of goods.
D) All of the above.
Views as equally desirable
114
The principle that "More is better" results in indifference curves
A) sloping down.
B) not intersecting.
C) reflecting greater preferences the further they are from the origin. D) All of the above.
All of the above
115
There is an indifference curve through every bundle because of the assumption of
A) transitivity.
B) completeness.
C) rationality.
D) nonsatiation.
Completeness
116
Indifference curves are downward sloping because of the assumption of
A) completeness.
B) transitivity.
C) more is better.
D) All of the above.
More is better
117
If two indifference curves were to intersect at a point, this would violate the assumption of
A) transitivity.
B) completeness.
C) Both A and B above.
D) Neither A nor B above.
Transitivity
118
Indifference curves that are thick violate
A) the assumption of transitivity.
B) the assumption that more is better.
C) the assumption of completeness. D) none of the assumptions.
The assumption that more is better
119
Convexity of indifference curves implies that consumers are willing to
A) give up more "y" to get an extra "x" the more "x" they have.
B) give up more "y" to get an extra "x" the less "x" they have.
C) settle for less of both "x" and "y". D) acquire more "x" only if they do not have to give up any "y".
Give up more "y" to get an extra "x" the less "x" they have.
120
Measuring "y" on the vertical axis and "x" on the horizontal axis, convexity of indifference curves implies that the MRS of "y" for "x"
A) is decreasing as "x" increases.
B) is increasing as "x" increases.
C) is constant as "x" increases.
D) cannot be calculated for large levels of "x".
Is decreasing as "x" increases
121
For which of the following pairs of goods would most people likely have convex indifference curves?
A) nickels and dimes
B) left shoes and right shoes
C) movie tickets and concert tickets D) None of the above
Movie tickets and concert tickets
122
If two goods are perfect substitutes, then the indifference curves for those two goods would be
A) upward sloping and concave to the origin.
B) downward sloping and convex to the origin.
C) downward sloping and straight. D) L-shaped.
Downward sloping and straight.
123
The indifference curves for left shoes and right shoes would most likely be
A) upward sloping and concave to the origin.
B) downward sloping and convex to the origin.
C) downward sloping and straight lines.
D) L-shaped.
L-shaped
124
If two bundles are on the same indifference curve, then
A) the consumer derives the same level of utility from each.
B) the consumer derives the same level of ordinal utility from each but not the same level of cardinal utility.
C) no comparison can be made between the two bundles since utility cannot really be measured. D) the MRS between the two bundles equals one.
The consumer derives the same level of utitlity from each.
125
If Fred's marginal utility of pizza equals 10 and his marginal utility of salad equals 2, then
A) he would give up 5 pizzas to get the next salad.
B) he would give up 5 salads to get the next pizza.
C) he will eat five times as much pizza as salad.
D) he will eat five times as much salad as pizza.
He would give up 5 salads to get the next pizza.
126
If Fred's marginal rate of substitution of salad for pizza equals 5, then
A) he would give up 5 pizzas to get the next salad.
B) he would give up 5 salads to get the next pizza.
C) he will eat five times as much pizza as salad.
D) he will eat five times as much salad as pizza.
He would give up 5 salads to get the next pizza.
127
If Fred's marginal utility of pizza equals 10 and his marginal utility of salad equals 2, then we know that
A) his indifference curves are convex.
B) his indifference curves are L shaped.
C) his indifference curves are linear. D) his indifference curves are downward sloping.
His indifference curves are downward sloping
128
If the utility for two goods "x" and "y" is measured as U = x + y, then it can be concluded that
A) "x" and "y" are perfect substitutes.
B) "x" and "y" are perfect complements.
C) "x" and "y" are both bads.
D) the indifference curves on the x,y graph will be upward sloping.
"x" and "y" are perfect substitutes
128
If the utility for two goods "x" and "y" can be measured as U = x, then it can be concluded that
A) "x" and "y" are perfect complements.
B) "y" is a "bad".
C) the indifference curves on the x,y graph are upward sloping where "x" is measured on the horizontal axis. D) the indifference curves on the x,y graph are vertical where "x" is measured on the horizontal axis.
The indifference curves on the x,y graph are vertical where "x" is measured on the horizontal axis.
129
If the utility for two goods "x" and "y" can be measured as U = y, then it can be concluded that
A) "x" and "y" are perfect complements.
B) "x" is a "bad".
C) the indifference curves on the x,y graph are upward sloping where "x" is measured on the horizontal axis. D) the indifference curves on the x,y graph are horizontal where "x" is measured on the horizontal axis
The indifference curves on the x,y graph are horizontal where "x" is measured on the horizontal axis
130
If two goods, "x" and "y", are perfect substitutes, then which of the following best represents the utility function for the two goods?
A) U = x + y
B) U = x * y
C) U = x^2+ y^2
D) Any of the above.
U = x + y
131
If Johnny likes homework (H) but hates exercise (E), which of the following might best represent his utility function for homework and exercise?
A) U = H + E
B) U = H/E
C) U = H^2 + E^2
D) U = H^2 * E^2
U = H/E
132
Clifford lives by the motto "Eat, drink and be merry today, for tomorrow doesn't matter." If today's consumption is measured on the horizontal axis and tomorrow's consumption is measured on the vertical axis, Clifford's indifference curves
A) are horizontal straight lines.
B) are vertical straight lines.
C) show decreasing utility as one moves upward.
D) cannot be determined from the information given.
Are vertical straight lines.
133
Clifford lives by the motto "Eat drink and be merry today, for tomorrow doesn't matter." If today's consumption is represented by "x" and tomorrow's consumption is represented by "y", then which of the following best represents Clifford's utility function?
A) U=x-y
B) U=x/y
C) U=x
D) U=y
U = x
134
Joe's income is $500, the price of food (F) is $2 per unit and the price of shelter (S) is $100. Which of the following represents his budget constraint?
A) 500 = 2F + 100S
B) F = 250 -50S
C) S = 5 -.02F
D) All of the above
All of the above
135
Joe's income is $500, the price of food (F) is $2 per unit, and the price of shelter (S) is $100. Which of the following represents his marginal rate of transformation of food for shelter?
A) -5
B) -50
C) -.02
D) None of the above
-50
136
Joe's income is $500, the price of food (F) is $2 per unit, and the price of shelter (S) is $100. Which of the following represents his budget constraint?
A) 500 = 100F + 2S
B) 500 = 2F + 100S
C) S = 500 -2F
D) All of the above
500 = 2F + 100S
137
The marginal rate of transformation of y for x represents
A) the slope of the budget constraint.
B) the rate at which the consumer must give up y to get one more x.
C) -Px/Py.
D) All of the above.
All of the above
138
The marginal rate of transformation of y for x represents
A) the slope of the budget constraint.
B) the rate at which the consumer must give up x to get one more y.
C) -Py/Px.
D) All of the above.
The slope of the budget constraint
139
The rate at which a consumer must give up y to get one more x is equal to
A) -Px/Py.
B) -Py/Px.
C) -MUx/MUy.
D) MUy/MUx
-Px/Py
140
Betty consumes good x and good y. If the price of x =$3 and the price of y = $4, then
A) an extra unit of x costs 4/3 units of y.
B) an extra unit of y costs 4/3 units of x.
C) an extra unit of x costs 3/4 units of y.
D) Both B and C.
Both B and C
141
If the price of one good increases while the price of the other good and the consumer's income remain unchanged, what will happen to the budget line?
A) The budget line rotates inward from the intercept on the axis of the good that did not change in price.
B) The budget line rotates outward from the intercept on the axis of the good that did not change in price.
C) The budget line shifts inward without a change in slope.
D) The budget line shifts outward without a change in slope.
The budget line rotates inward from the intercept on the axis of the good that did not change in price
142
Lisa eats both pizzas and burritos. If the price of a pizza increases, Lisa's opportunity set
A) becomes larger.
B) becomes smaller.
C) is unchanged.
D) Unable to determine without more information.
Becomes smaller
143
If the consumer's income increases while the prices of both goods remain unchanged, what will happen to the budget line?
A) The budget line rotates inward from the intercept on the horizontal axis.
B) The budget line rotates outward from the intercept on the vertical axis.
C) The budget line shifts inward without a change in slope.
D) The budget line shifts outward without a change in slope.
The budget line shifts outward without a change in slope.
144
If the prices of both goods and income increase by the same percentage, what will happen to the budget line?
A) The budget line rotates inward from the intercept on the axis of the good that did not change in price.
B) The budget line rotates outward from the intercept on the axis of the good that did not change in price.
C) The budget line shifts outward without a change in slope.
D) Nothing.
Nothing
145
A consumer buys food (F) and shelter (S). If the consumer's income rises and there is no change in the prices of F or S, the marginal rate of transformation of F for S will
A) increase.
B) decrease.
C) stay the same.
D) change, but there is not enough information to know how.
Stay the same
146
If a consumer's budget line for food (F) and shelter (S) is represented as F = 250 -5S, we know that
A) the consumer's income is 250.
B) the price of shelter is 5.
C) the price of shelter is 5 times the price of food.
D) All of the above.
The price of shelter is 5 times the price of food.
147
The consumer is in equilibrium when
A) MRT = MRS.
B) Px/Py= MUx/MUy.
C) the budget line is tangent to the indifference curve at the bundle chosen.
D) All of the above.
All of the above
148
By selecting a bundlewhere MRS = MRT, the consumer is
A) achieving a corner solution.
B) reaching the highest possible indifference curve she can afford. C) not behaving in an optimal way. D) All of the above.
Reaching the highest possible indifference curve she can afford.
149
By selecting a bundle where MRS = MRT, the consumer is saying
A) "I value my last unit of each good equally."
B) "I am willing to trade one good for the other at the same rate that I am required to do so."
C) "I will equate the amounts spent on all goods consumed."
D) All of the above.
"I am willing to trade one good for the other at the same rate that I am required to do so."
150
With respect to consuming food and shelter, two consumers face the same prices and both claim to be in equilibrium. We therefore know that
A) they both have the same marginal utility for food.
B) they both have the same marginal utility for shelter.
C) they both havethe same MRS of food for shelter.
D) All of the above.
They both have the same MRS of food for shelter.
151
Johnny has allocated $30 toward coffee and tea and feels that coffee and tea are perfect substitutes. Due to differences in caffeine levels, his MRS of tea for coffee equals 2. If coffee and tea sell for the same price, Johnny will
A) spend all $30 on tea.
B) spend all $30 on coffee.
C) spend $20 on coffee and $10 on tea.
D) be indifferent between any bundle of coffee and tea costing $30.
Spend all $30 on coffee.
152
Lisa maximizes her utility by eating both pizzas and burritos. The price of a pizza is $10 and the price of a burrito is $5. When Lisa's utility is maximized,
A) the marginal utility of pizza is larger than the marginal utility of burritos.
B) the marginal utility of a burrito is larger than the marginal utility of a pizza.
C) the marginal utility of both goods is the same.
D) the good with a larger marginal utility cannot be determined without more information.
The marginal utility of pizza is larger than the marginal utility of burritos.
153
Max has allocated $100 toward meats for his barbecue. His budget line and an indifference map are shown in Figure 4.1. Which bundle will Max choose?
A) a
B) b
C) c
D) d
B
154
Max has allocated $100 toward meats for his barbecue. His budget line and an indifference map are shown in Figure 4.1. What is the price of chicken?
A) $0.80/lb
B) $1.25/lb
C) $4/lb
D) $5/lb
$5/lb
155
Max has allocated $100 toward meats for his barbecue. His budget line and an indifference map are shown in Figure 4.1. If the price of burger increases,
A) Max will buy less burger and more chicken.
B) Max will buy less burger and the same quantity ofchicken.
C) Max will buy less of both meats. D) More information is needed to answer the question.
More information is needed to answer the question.
156
Max has allocated $100 toward meats for his barbecue. His budget line and an indifference map are shown in Figure 4.1. What happens if Max's mother gives him 10 pounds of burger?
A) Max would have preferred receiving the dollar value of the burger.
B) Max is indifferent between this gift and the dollar value of the burger.
C) Max prefers this gift to the dollar value of the burger.
D) None of the above.
Max is indifferent between this gift and the dollar value of the burger.
157
Max has allocated $100 toward meats for his barbecue. His budget line and an indifference map are shown in Figure 4.1. What happens if Max's mother gives him 30 pounds of burger?
A) Max would have preferred receiving the dollar value of the burger.
B) Max is indifferent between this gift and the dollar value of the burger.
C) Max prefers this gift to the dollar value of the burger.
D) None of the above.
Max would have preferred receiving the dollar value of the burger.
158
Max has allocated $100 toward meats for his barbecue. His budget line and an indifference map are shown in Figure 4.1. What happens if Max receives a $100 cash grant to buy either meat o chicken?
A) Max will double his consumption of both meats.
B) Max will spend it all on burger. Because of its lower price, he can buy more ofit.
C) Max will take advantage of the gift by buying all chicken because it is the more expensive meat.
D) There is not enough information to answer the question.
Max will double his consumption of both meats.
159
Max has allocated $100 toward meats for his barbecue. His budget line and an indifference map are shown in Figure 4.1. Which of the following best describes Max's preferences?
A) d > b > e
B) d = b = e
C) a = b> c
D) a = b > e
a = b > e
160
Max has allocated $100 toward meats for his barbecue. His budget line and an indifference map are shown in Figure 4.1. Which of the following bundles are in Max's opportunity set?
A) a, b, c
B) b, d, e
C) a, b, d
D) None of the above.
b, d, e
161
Max has allocated $100 toward meats for his barbecue. His budget line and indifference map are shown in Figure 4.1. If the price of burger increases, which of the following bundles are in Max's opportunity set?
A) b, d, e
B) d, e
C) a, b, c, d, e
D) None of the labeled points are in Max's opportunity set.
None of the labeled points are in Max's opportunity set.
162
Figure 5.1 shows Bobby's indifference map for juice and snacks. Also shown are three budget lines resulting from different prices for snacks assuming he has $20 to spend on these goods. Which of the following points are on Bobby's price-consumption curve?
A) 10 snacks and 20 juices
B) 10 snacks and 0 juices
C) 10 snacks and 5 juices
D) 10 snacks and 15 juices
10 snacks and 15 juices
163
Figure 5.1 shows Bobby's indifference map for juice and snacks. Also shown are three budgetlines resulting from different prices for snacks assuming he has $20 to spend on these goods. Which of the following points are on Bobby's demand curve for snacks?
A) p = 2, q = 10
B) p = 2, q = 13
C) p = 2, q = 5
D) p = 1, q = 20
p = 2, q = 5
164
Figure 5.1 shows Bobby's indifference map for juice and snacks. Also shown are three budget lines resulting from different prices for snacks. This information could be used to determine
A) the slope of Bobby's demand curve for juice.
B) the amount by which Bobby's demand curve for juice shifts when his income rises.
C) the amount by which Bobby's demand curve for juice shifts when the price of snacks rises.
D) All of the above
The amount by which Bobby's demand curve for juice shifts when the price of snacks rises.
165
Figure 5.1 shows Bobby's indifference map for juice and snacks. Also shown are three budget lines resulting from different prices for snacks. As the price of snacks rises, Bobby's utility
A) stays the same.
B) increases.
C) decreases.
D) might change, but there is not enough information to determine.
Decreases
166
Figure 5.1 shows Bobby's indifference map for juice and snacks. Also shown are three budget lines resulting from different prices for snacks. Bobby's demand for snacks is
A) unit elastic.
B) elastic.
C) inelastic.
D) perfectly elastic.
Inelastic
167
As the price of a good rises, the consumer will experience
A) a desire to consume a different bundle.
B) a decrease in utility.
C) a southwesterly movement on the indifference map.
D) All of the above.
All of the above
168
An increase in the price of a good causes
A) a change in the slope of the budget line.
B) an increase in the consumption of that good.
C) a rightward shift of the demand curve for that good.
D) a parallel rightward shift of the budget line.
A change in the slope of the budget line.
169
Suppose a graph is drawn to show a consumer's preferences for football tickets and basketball tickets. The quantity of football tickets is measured on the horizontal axis. If the price-consumption curve is horizontal when the price of football tickets changes, then
A) football tickets are an inferior good.
B) the demand for football tickets is perfectly elastic.
C) the demand for football tickets is unit elastic.
D) the demand curve for football tickets will be horizontal.
The demand for football tickets is unit elastic.
170
Suppose the quantity of x is measured on the horizontal axis. If the price consumption curve is vertical when the price of x changes, then the demand for x is
A) perfectly elastic.
B) perfectly inelastic.
C) unit elastic.
D) There is not enough information to determine the price elasticity of demand for x.
Perfectly inelastic
171
Figure 5.2 shows Larry's indifference map and budget lines for ham and pork. Which of the following statements is TRUE?
A) Pork is an inferior good.
B) Ham is an inferior good.
C) Neither pork nor ham is an inferior good.
D) Both ham and pork are inferior goods.
Ham is an inferior good.
172
Figure 5.2 shows Larry's indifference map and budget lines for ham and pork. Which of the following statements is TRUE?
A) Larry's Engel curve for pork will be upward sloping.
B) Larry's Engel curve for pork will be downward sloping.
C) Larry's Engel curve for pork will be backward bending.
D) Larry's Engel curve for pork cannot be derived from the information provided.
Larry's Engel curve for pork will be upward sloping
173
Figure 5.2 shows Larry's indifference map and budget lines for ham and pork. Which of the following statements is TRUE?
A) Larry's demand curve for pork shifts rightward when his income increases.
B) Larry's income elasticity of demand for pork is greater than zero.
C) Pork is a normal good.
D) All of the above.
All of the above
174
After Joyce and Larry purchased their first house, they made additional home improvements in response to increases in income. After a while, their income rose so much that they could afford a larger home. Once they realized they would be moving, they reduced the amount of home improvements. Their Engel curve for home improvements on their current home is
A) negatively sloped.
B) flat.
C) positively sloped.
D) backward bending.
Backward bending
175
Suppose the quantity of x is measured on the horizontal axis. If the income consumption curve is vertical, then the income elasticity of demand for x is
A) 0.
B) 1.
C) -1.
D) There is not enough information to determine the income elasticity of demand for x.
0.
176
When John's income was low, he could not afford to dine out and would respond to a pay raise by purchasing more frozen dinners. Now that his income is high, a pay raise causes him
to dine out more often and buy fewer frozen dinners. Which graph in Figure 5.3 best represents John's Engel curve for frozen dinners?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
Graph A
177
When John's income was low, he could not afford to dine out and would respond to a pay raise by purchasing more frozen dinners. Now that his income is high, a pay raise causes him to dine out more often and buy fewer frozen dinners. Which graph in Figure 5.3 best represents John's Engel curve for dining out?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
Graph B
178
Even though Mary's income is very low, she makes sure that she purchases enough milk for her family to drink. As her income rises, she does buy more milk. Which graph in Figure 5.3 best represents Mary's Engel curve for milk?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
Graph C
179
When John was in college and his income was low, he drank "Red Ribbon" beer. As his income increased, he purchased better-quality beer and less "Red Ribbon." Which graph in Figure 5.3 best represents John's Engel curve for "Red Ribbon" beer?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
Graph D
180
Which graph in Figure 5.3 best represents a good that is an inferior good at some income levels, and a normal good at other income levels?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
Graph A
181
Median household income is $50,000 per year. The typical household spends about $125 per year on milk, which has an income elasticity of about 0.07. From this information, we can conclude that
A) milk is a luxury.
B) milk is a Giffen good.
C) the income effect from a change in the price of milk is very large.
D) the income effect from a change in the price of milk is very small.
The income effect from a change in the price of milk is very small.
182
When the price of a good changes, the total effect of the price change on the quantities purchased can be found by comparing the quantities purchased
A) on the old budget line and the new budget line.
B) on the original indifference curve when faced withthe original prices and when faced with the new prices.
C) on the new budget line and a hypothetical budget line that is a parallel shift back to the original indifference curve.
D) on the new indifference curve.
On the old budget line and the new budget line.
183
When the price of a good changes, the substitution effect can be found by comparing the equilibrium quantities purchased
A) on the old budget line and the new budget line.
B) on the original indifference curve when faced with the original prices and when faced with the new prices.
C) on the new budget line and a hypothetical budget line that is a parallel shift back to the original indifference curve.
D) on the new indifference curve.
On the original indifference curve when faced with the original prices and when faced with the new prices.
184
Suppose that frozen dinners were once a normal good for John, but now frozen dinners are an inferior good for him. John's demand curve for frozen dinners
A) has become steeper as a result. B) has become flatter as a result.
C) has not changed as a result.
D) has disappeared as a result.
Has become stepper as a result.
185
One characteristic of a Giffen good is that it
A) is a luxury good.
B) is an inferior good.
C) has an upward-sloping Engel curve.
D) All of the above.
Is an inferior good.
186
If a good is an inferior good, then its
A) demand curve will be upward sloping.
B) income effect reinforces the substitution effect.
C) income elasticity is negative.
D) Engel curve cannot be drawn.
Income elasticity is negative
187
Suppose Lisa spends all of her money on books and coffee. When the price of coffee decreases, the
A) substitution effect on coffee is positive, and the income effect on coffee is positive.
B) substitution effect on coffee is ambiguous, and the income effect on coffee is ambiguous.
C) substitution effect on coffee is positive, and the income effect on coffee is ambiguous.
D) substitution effect on coffee is ambiguous, and the income effect on coffee is positive.
Substitution effect on coffee is positive, and the income effect on coffee is ambiguous.
188
In the case of a normal good
A) demand curves always slope downward.
B) the income effect and substitution effect are in the same direction.
C) the Engel curve slopes upward. D) All of the above.
All of the above
189
Figure 5.4 shows Bobby's indifference map for soda and juice. B1 indicates his original budget line. B2 indicates his budget line resulting from a decrease in the price of soda. What change in quantity best represents his substitution effect?
A) 3
B) 10
C) 15
D) 7
3
190
Figure 5.4 shows Bobby's indifference map for soda and juice. B1 indicates his original budget line. B2 indicates his budget line resulting from a decrease in the price of soda. What change in quantity best represents his income effect?
A) 3
B) 10
C) 15
D) 7
7
191
Figure 5.4 shows Bobby's indifference map for soda and juice. B1 indicates his original budget line. B2 indicates his budget line resulting from an increase in the price of soda. From the graph, one can conclude that
A) Bobby views soda as an inferior good.
B) Bobby's demand for soda is perfectly inelastic.
C) Bobby views soda as a normal good.
D) the income elasticity of demand for soda is 1.
Bobby views soda as a normal good
192
The Slutsky equation shows that, holding the total effect constant, the income effect will be larger for goods that
A) have a smaller substitution effect.
B) make up a larger percentage of a household's budget.
C) have perfectly inelastic demand curves.
D) All of the above.
Make up a larger percentage of a household's budget.
193
Suppose that the interest rate paid to savers increases. As a result, Tom wishes to save less. This suggests that, for Tom,
A) the substitution effect is greater than the income effect.
B) the income effect is greater than the substitution effect.
C) utility maximization is not occurring.
D) future consumption is a luxury.
The income effect is greater than the substitution effect.
194
Suppose that the interest rate paid to savers increases. As a result, Tom wishes to save more. This suggests that, for Tom,
A) the substitution effect is greater than the income effect.
B) the income effect is greater than the substitution effect.
C) utility maximization is not occurring.
D) future consumption is a luxury.
The substitution effect is greater than the income effect.
195
A consumer price index adjustment overcompensates for inflation because it ignores
A) the income effect when relative prices change.
B) the substitution effect when relative prices change.
C) that some goods are inferior.
D) that the substitution effect may offset the income effect.
The substitution effect when relative prices change.
196
Employing a fixed-weight index like the Consumer Price Index to adjust a person's salary in response to inflation will overcompensate this person because doing so will allow this person to
A) buy the same bundle of goods as he did before the inflation.
B) achieve a higher level of utility than he did before the inflation.
C) achieve the same level of utility as before the inflation.
D) buy more of all goods.
Achieve a higher level of utility than he did before the inflation.
197
Under which of the following conditions will there be no substitution bias in the CPI?
A) Indifference curves are convex. B) Indifference curves are L shaped. C) Indifference curves are linear.
D) Indifference curves are downward sloping.
Indifference curves are L shaped.
198
Under which of the following conditions will there be no substitution bias in the CPI?
A) Lower-priced goods increase in price by a greater percentage than do higher-priced goods.
B) Higher-price goods increase in price bya greater percentage than do lower-priced goods.
C) All goods change in price by the same amount.
D) All goods change in price by the same percentage.
All goods change in price by the same percentage.
199
A true cost-of-living adjustment in response to a change in prices would compensate consumers so that they will be able to
A) purchase the same bundle they purchased before prices changed. B) achieve the same level of utility they did before prices changed.
C) face the same choices they did before prices changed.
D) achieve an increase in utility that is equal to the rate of inflation.
Achieve the same level of utility they did before prices changed.
200
If a person supplies more hours of labor in response to a wage increase, then
A) the substitution effect is greater than the income effect.
B) the income effect is greater than the substitution effect.
C) the income effect equals the substitution effect.
D) the person is not maximizing utility.
The substitution effect is greater than the income effect.
201
If a person supplies less hours of labor in response to a wage increase, then
A) the substitution effect is greater than the income effect.
B) the income effect is greater than the substitution effect.
C) the income effect equals the substitution effect.
D) the person is not maximizing utility.
The income effect is greater than the substitution effect.
202
A backward-bending labor supply curve implies that
A) the substitution effect dominates the income effect at higher wage rates but not at lower wage rates. B) the substitution effect dominates the income effect at lower wage rates but not at higher wage rates. C) leisure is an inferior good.
D) workers are irrational.
The substitution effect dominates the income effect at lower wage rates but not at higher wage rates.
203
If Bobby thinks that leisure is an inferior good, then his labor supply curve
A) is backward bending.
B) is always negatively sloped.
C) is always positively sloped.
D) does not exist.
Is always positively sloped
204
A tax cut that raises the after-tax wage rate will most likely result in more hours worked if
A) tax rates were low already.
B) the relevantportion of the labor supply curve is upward sloping.
C) the relevant portion of the labor supply curve is downward sloping. D) workers can be easily fooled.
The relevantportion of the labor supply curve is upward sloping.
205
If workers are in the backward-bending section of their labor supply curves, than an increase in the income tax rate will
A) increase the tax revenue and increase the number of hours worked.
B) increase the tax revenue and decrease the number of hours worked.
C) decrease the tax revenue and increase the number of hours worked.
D) decrease the tax revenue and decrease the number of hours worked.
Increase the tax revenue and increase the number of hours worked.
206
In response to an increase in the wage rate, the substitution effect will cause a person to
A) supply fewer hours of labor.
B) supply more hours of labor.
C) supply the same hours of labor. D) have a backward bend in her labor supply curve.
Supply more hours of labor.
207
In response to an increase in the wage rate, the income effect will cause a person to
A) supply fewer hours of labor.
B) supply more hours of labor.
C) supply the same hours of labor. D) have a horizontal labor supply curve.
Supply fewer hours of labor.
208
Economists typically assume that the owners of firms wish to
A) produce efficiently.
B) maximize sales revenues.
C) maximize profits.
D) All of the above.
Maximize profits
209
Which of the following statements best describes a production function?
A) the maximum profit generated from given levels of inputs
B) the maximum level of output generated from given levels of inputs
C) all levels of output that can be generated from given levels of inputs
D) all levels of inputs that could produce a given level of output
The maximum level of output generated from given levels of inputs.
209
With respect to production, the short run is best defined as a time period
A) lasting about six months.
B) lasting about two years.
C) in which all inputs are fixed.
D) in which at least one input is fixed
In which at least one input is fixed.
210
Joey cuts grass during the summer. He owns one lawn mower. For him, the short run is equal to
A) the amount of time it takes to acquire more customers.
B) the amount of time it takes to hire an additional employee.
C) the amount of time it takes to hire an additional employee and buy another lawn mower.
D) the amount of time it takes to mow one lawn.
The amount of time it takes to hire an additional employee and buy another lawn mower.
211
Joey cuts grass during the summer. He rents a lawn mower from his dad. Which of the following statements best illustrates the difference between the short run and the long run for Joey?
A) Joey's friends say they will help him, but when he calls them, they say they have other things to do.
B) When Joey acquires more customers, he responds by working more hours. Next year, he will buy a lawn mower and split the work with his brother.
C) Some customers pay Joey immediately; others wait till the following week.
D) Joey has had to turn away some customers because he is already too busy.
When Joey acquires more customers, he responds by working more hours. Next year, he will buy a lawn mower and split the work with his brother.
212
Figure 6.1 shows the short-run production function for Albert's Pretzels. The marginal productivity of labor
A) rises then falls as the amount of labor increases.
B) falls then rises as the amount of labor increases.
C) is greater than or equal to the average productivity of labor for all amounts of labor.
D) is less than or equal to the average productivity of labor for all amounts of labor.
Is less than or equal to the average productivity of labor for all amounts of labor.
213
Figure 6.1 shows the short-run production function for Albert's Pretzels. The marginal productivity of labor for the third worker is
A) 6.
B) 8.
C) 24.
D) not known from the information provided.
6.
214
Figure 6.1 shows the short-run production function for Albert's Pretzels. The marginal productivity of labor equals the average productivity of labor
A) for all levels of labor.
B) at none of the levels of labor.
C) only for the first worker.
D) only for the fifth worker.
Only for the first worker.
215
Figure 6.1 shows the short-run production function for Albert's Pretzels. The law of diminishing marginal productivity
A) appears with the second worker. B) has not yet appeared for any of the levels of labor.
C) first appears with the fifth worker.
D) is refuted by this evidence.
Appears with the second worker
216
If the average productivity of labor equals the marginal productivity of labor, then
A) the average productivity of labor is at a maximum.
B) the marginal productivity of labor is at a maximum.
C) Both A and B above.
D) Neither A nor B above.
The average productivity of labor is at a maximum.
217
Average productivity will fall as long as
A) marginal productivity is falling.
B) it exceeds marginal productivity. C) it is less than marginal productivity.
D) the number of workers is increasing.
It exceeds marginal productivity
218
If the marginal productivity of labor is constant for all levels of output, then the average productivity of labor
A) is constant.
B) equals the marginal productivity of labor.
C) Both A and B above.
D) Either A or B above but not both.
Both A and B above
219
Joey cuts lawns during the summer. Let q equal the number of acres mowed per day, and let L equal the number of hours worked per day. Joey never works more than eight hours per day, and during that time his short-run production function is q = 0.2 * L. Which of the following statements is FALSE?
A) Joey's marginal productivity equals his average productivity.
B) Joey's marginal productivity diminishes by 0.2 for each additional hour worked.
C) Joey's average productivity is constant.
D) Joey's marginal productivity is constant.
Joey's marginal productivity diminishes by 0.2 for each additional hour worked.
220
Which of the following statements best summarizes the law of diminishing marginal returns?
A) In the short run, as more labor is hired, output diminishes.
B) In the short run, as more labor is hired, output increases at a diminishing rate.
C) In the short run, the amount of labor a firm will hire diminishes as output increases.
D) As more labor is hired, the length of time that defines the short run diminishes.
In the short run, as more labor is hired, output increases at a diminishing rate.
221
Which situation is most likely to exhibit diminishing marginal returns to labor?
A) a factory that obtains a new machine for every new worker hired
B) a factory that hires more workers and never increases the amount of machinery
C) a factory that increases the amount of machinery and holds the number of worker
constant
D) None of these situations will result in diminishing marginal returns to labor
A factory that hires more workers and never increases the amount of machinery
222
Thomas Malthus' prediction of mass starvation resulting from diminishing marginal returns has not been fulfilled because
A) the law of diminishing marginal returns did not hold in this case.
B) Malthus ignored other factors like technological change.
C) relative to Malthus' day, larger percentage of today's labor works in the agricultural sector.
D) All of the above
Malthus ignored other factors like technological change
223
At Joey's Lawncutting Service, a lawn mower cannot cut grass without a laborer. A laborer cannot cut grass without a lawn mower. Which graph in Figure 6.2 best represents the isoquants for Joey's Lawncutting Service when capital per day is on the vertical axis and labor per day is on the horizontal axis?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
Graph A
224
Lectures in microeconomics can be delivered either by an instructor (labor) or a movie (capital) or any combination of both. Each minute of the instructor's time delivers the same amount of information as a minute of the movie. Which graph in Figure 6.2 best represents the isoquants for lectures in microeconomics when capital per day is on the vertical axis and labor per day is on the horizontal axis?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
Graph C
225
Which graph in Figure 6.2 represents the isoquants where, as the amount of labor used increases and the amount of capital used decreases, the marginal product of labor rises when capital per day is on the vertical axis and labor per day is on the horizontal axis?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
Graph D
226
To say that isoquants are convex is to say that
A) the marginal rate of technical substitution falls as labor increases. B) capital and labor are perfect substitutes.
C) labor, but not capital, is subject to the law of diminishing marginal returns.
D) there are constant returns to scale.
The marginal rate of technical substitution falls as labor increases.
227
One way to explain the convexity of isoquants is to say that
A) as labor increases and capital decreases, MPLrises while MPK falls.
B) as labor increases and capital decreases, MPL falls while MPK rises. C) as labor increases and capital decreases, MPL and MPK both fall. D) as labor increases and capital decreases, MPL and MPK both rise.
As labor increases and capital decreases, MPL falls while MPK rises.
228
An isoquant represents levels of capital and labor that
A) have constant marginal productivity.
B) yield the same level of output.
C) incur the same total cost.
D) All of the above.
Yield the same level of output.
229
Suppose the production of paved roadways can be represented as q = L0.5+ K0.5. Which of the following statements is (are) TRUE?
A) Labor is subject to diminishing marginal productivity in the short run.
B) Labor and capital are imperfect substitutes.
C) The isoquants for paved roadways are convex.
D) All of the above.
All of the above
230
L-shaped isoquants imply that production requires that the inputs
A) are perfect substitutes.
B) are imperfect substitutes.
C) cannot be used together.
D) must be used together in a certain proportion.
Must be used together in a certain proportion.
231
Isoquants that are downward-sloping straight lines imply that the inputs
A) are perfect substitutes.
B) are imperfect substitutes.
C) cannot be used together.
D) must be used together in a certain proportion.
Are perfect substitutes.
232
Isoquants that are downward-sloping straight lines exhibit
A) an increasing marginal rate of technical substitution.
B) a decreasing marginal rate of technicalsubstitution.
C) a constant marginal rate of technical substitution.
D) a marginal rate of technical substitution that cannot be determined
A constant marginal rate of technical substitution.
233
The slope of an isoquant tells us
A) how much output increases when both inputs are increased.
B) the increase in MPLwhen capital increases.
C) the decrease in capital necessary to keep output constant when labor increases by one unit.
D) the decrease in capital necessary to keep MPLconstant when labor increases by one unit.
The decrease in capital necessary to keep output constant when labor increases by one unit.
234
The steeper an isoquant is
A) the greater is the marginal productivity of labor relative to that of capital.
B) the greater is the substitutability between capital and labor.
C) the greater is the need to keep capital and labor in fixed proportions.
D) the greater isthe level of output.
The greater is the marginal productivity of labor relative to that of capital.
235
With capital on the vertical axis and labor on the horizontal axis, vertical isoquants imply that
A) capital and labor are perfect substitutes.
B) capital and labor must be used together in a certain proportion.
C) capital is not productive.
D) labor is not productive
Capital is not productive
236
Returns to scale refers to the change in output when
A) all inputs increase proportionately.
B) labor increases holding all other inputs fixed.
C) capital equipment is doubled.
D) specialization improves.
All inputs increase proportionately.
237
The table in Figure 6.3 shows the levels of output resulting from different levels of inputs. Which of the following conclusions can be drawn from this information?
A) Increasing returns to scale exist when 100 units of output are produced.
B) Constant returns to scale exist throughout all levels of production. C) Labor is subject to diminishing marginal productivity in the short run.
D) No firm conclusions can be drawn
Increasing returns to scale exist when 100 units of output are produced.
238
The table in Figure 6.3 shows the levels of output resulting from different levels of inputs. Returns to scale are greatest at which level of output?
A) 100 -200 units
B) 200 -400 units
C) 400 -600 units
D) There is insufficient information to answer the question.
100-200 units
239
The table in Figure 6.3 shows the levels of output resulting from different levels of inputs. At which level of input are there constant returns to scale?
A) 400 -600 units
B) Constant returns to scale exist throughout all levels of production. C) Constant returns to scale do not exist at any level of production.
D) No firm conclusions can be drawn.
400 -600 units
240
Suppose the production of VCRs can be represented by the following production function: q = L0.4K0.4. Which of the following statements is (are) TRUE?
A) The production function has decreasing returns to scale.
B) The marginal productivity of labor falls as labor increases in the short run.
C) Capital and labor can be substituted for one another.
D) All of the above.
The production function has decreasing returns to scale.
241
Suppose the production of VCRs can be represented by the following production function: q = L0.4K0.4. The firm currently produces q1 units. If all inputs doubled, the new level of output will equal
A) 2^0.4q1.
B) 2^0.8q1.
C) 0.8 q1.
D) 1.6 q1
2^0.8q1.
242
Returns to scale is a concept that operates
A) only in the short run.
B) only in the long run.
C) in both the long run and the short run.
D) in either the long run or the short run but never both.
Only in the long run
243
Figure 6.4 shows the isoquants for producing steel. Increasing returns to scale are
A) present when producing less than 10,000 tons.
B) present when producing less than 20,000 tons.
C) present when producing less than 30,000 tons.
D) never present.
Present when producing less than 10,000 tons.
244
Figure 6.4 shows the isoquants for producing steel. Decreasing returns to scale are
A) present when producing more than 10,000 tons.
B) present when producing more than 20,000 tons.
C) present when producing more than 30,000 tons.
D) never present
Present when producing more than 20,000 tons.
245
Figure 6.4 shows the isoquants for producing steel. Constant returns to scale are
A) present when producing less than 10,000 tons.
B) present when producing between 10,000 and 20,000 tons.
C) present when producing more than 20,000 tons.
D) never present.
Present when producing between 10,000 and 20,000 tons.
246
Figure 6.4 shows the isoquants for producing steel. When producing more than 20,000 tons there are
A) increasing returns to scale.
B) decreasing returns to scale.
C) constant returns to scale.
D) economies of scale.
Decreasing returns to scale.
247
Figure 6.4 shows the isoquants for producing steel. When producing less than 10,000 tons there are
A) increasing returns to scale.
B) decreasing returns to scale.
C) constant returns to scale.
D) diseconomies of scale.
Increasing returns to scale.
248
Figure 6.4 shows the isoquants for producing steel. When producing between 10,000 and 20,000 tons there are
A) increasing returns to scale.
B) decreasing returns to scale.
C) constant returns to scale.
D) economies of scale
Constant returns to scale.
249
The returns to scale of the production function Q = 50 L.4K.2are
A)50
B).6
C).8
D)50^6
.6
250
Joey's lawn cutting service recently traded in its push mowers for gasoline-powered mowers. Joey still requires one worker per lawnmower; however, more grass is now cut in the same amount of time as before. This is an example of
A) labor-saving technical change.
B) non-neutral technical change.
C) neutral technical change.
D) organizational change.
Neutral technical change.
251
Suppose the production function for a certain device is q = L + K. If a labor-saving technical change has occurred, which of the following could be the new production function?
A) q = L + 5K
B) q = 5 * (L + K)
C) q = 5L + K
D) All of the above are possible.
q = L + 5K
252
Suppose the production function for a certain device is q = L + K. If neutral technical change has occurred, which of the following could be the new production function?
A) q = L + 5K
B) q = 5 * (L + K)
C) q = 5L + K
D) All of the above are possible.
q = 5 * (L + K)
253
Albert's Pretzel Baking Company used to have four workers who were each in charge of making their own pretzels from start to finish. Now, one worker mixes the dough, another shapes it, the third puts the unbaked pretzels into the oven and the fourth removes the finished product. Output has doubled. This is an example of
A) neutral technical change.
B) labor-saving technical change.
C) an organizational innovation.
D) economies of scale.
An organizational innovation.
254
Over a five-year span, the ABC Co. reduced the amount of labor it hired. At the same time, the marginal productivity of labor increased. Which of the following COULD explain this observation?
A) the law of diminishing marginal returns
B) labor saving technical change
C) organizational innovation
D) All of the above.
All of the above
255
Economic costs of an input include
A) only implicit costs.
B) only explicit costs.
C) both implicit and explicit costs. D) whatever management wishes to report the shareholders
Both implicit and explicit costs.
256
Sarah earns $40,000 per year working for a large corporation. She is thinking of quitting this job to work fulltime in her own business. She will invest her savings of $50,000 (which currently has an annual 10% rate of return) into the business. Her annual opportunity cost of this new business is
A) $0.
B) $40,000.
C) $45,000.
D) $90,000.
$45,000.
257
The Nifty Gum Co. has purchased a large parcel of land for $1 million. The company recently discovered that the land is contaminated and is worthless to all possible buyers. The opportunity cost of the land is
A) $0.
B) $1 million.
C) some amount greater than $0 but less than $1 million.
D) equal to the cost of the factory that was planned to be built there.
$0
258
Johnny has worked as a CPA for five years and wants to open his own public accounting practice. The cost of his college degree in accounting represents
A) the opportunity cost of this endeavor.
B) a sunk cost.
C) an expense.
D) a variable cost.
A sunk cost
259
If a firm buys a building so as to have office space for its workers, the monthly opportunity cost of the building is best measured as
A) the monthly mortgage payment the firm must pay.
B) the price the firm paiddivided by twelve.
C) zero.
D) the rent the firm could earn if it rented the building to another firm.
The rent the firm could earn if it rented the building to another firm.
260
Joey's Lawncutting Service rents office space from Joey's dad for $300 per month. Joey's dad is thinking of increasing the rent to $400 per month. As a result Joey's marginal cost of cutting grass will
A) increase by $100 divided by the amount of grass cut.
B) increase by $100.
C) decrease by $100.
D) not change.
Not change
261
Suppose a firm can only vary the quantity of labor hired in the short run. An increase in the cost of capital will
A) increase the firm's marginal cost. B) decrease the firm's marginal cost.
C) have no effect on the firm's marginal cost.
D) More information is needed to answer the question.
Have no effect on the firm's marginal cost.
262
Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q. The marginal cost of the 5th T-shirt is
A) 2.
B) 10.
C) 12.
D) 60.
2
263
Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q. The average cost of the 5th T-shirt is
A) 2.
B) 12.
C) 52.
D) 60.
12
264
Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q. Which of the following statements is TRUE at all levels of production?
A) MC = AVC
B) MC = AC
C) MC > AFC
D) All of the above.
MC = AVC
265
Suppose the short-run production function is q = 10 * L. If the wage rate is $10 per unit of labor, then AVC =
A) q.
B) q/10.
C) 10/q.
D) 1.
1
266
Suppose the short-run production function is q = 10 * L. If the wage rate is $10 per unit of labor, then MC=
A) q.
B) q/10.
C) 10/q.
D) 1.
1
267
Suppose the short-run production function is q = L0.5. If the marginal cost of producing the tenth unit is $5, what is the wage per unit of labor?
A) $10
B) $5
C) $2.5
D) Cannot be determined without more information.
$2.5
268
Suppose the short-run production function is q = 10 * L. If the wage rate is $10 per unit of labor, then AFC =
A) 0.
B) 1.
C) 10/q.
D) Cannot determined from the information provided.
Cannot determined from the information provided.
269
When a firm produces one unit, the variable cost is $3. When the firm produces two units, the variable cost is $6. What is the marginal cost associated with two units of production?
A) $2
B) $0.5
C) $6
D) $3
$3
270
In the short run, the point at which diminishing marginal returns to labor begin is the point at which the marginal cost curve
A) peaks.
B) bottoms out.
C) is upward sloping.
D) is downward sloping
Bottoms out
271
If the marginal cost of producing a good is increasing as a firm produces more of the good, then which of the following must be TRUE?
A) AFC is rising.
B) AVC is rising.
C) MC > AVC.
D) MPL is falling.
MPL is falling
272
If the average cost of producing a good is increasing as a firm produces more of the good, then which of the following must be TRUE?
A) AFC is falling.
B) AVC is rising.
C) MC > AVC.
D) All of the above.
All of the above.
273
If a particular production process is subject to diminishing marginal returns to labor at every level of output, then at every level of output
A) AC is upward sloping.
B) MC exceeds AVC.
C) AFC is constant.
D) All of the above.
MC exceeds AVC
274
Suppose each worker must use only one shovel to dig a trench, and shovels are useless by themselves. In the short run, an increase in the price of shovels will result in
A) fewer shovels being purchased. B) more workers being hired.
C) a decrease in the firm's output. D) no change in the firm's output.
No change in the firm's output
275
Which of the following will cause the marginal cost curve of making cigarettes to shift?
A) A $5 million penalty charged to eachcigarette maker.
B) A $1 per pack tax on cigarettes. C) A $1 million advertising campaign by the American Cancer Society.
D) All of the above.
A $1 per pack tax on cigarettes.
276
Which of the following will cause the average cost curve of making cigarettes to shift?
A) A $5 million penalty charged to each cigarette maker.
B) A $1 per pack tax on cigarettes. C) A $1 an hour wage increase paid to all cigarette production workers. D) All of the above.
All of the above
277
Which of the following will cause the average fixed cost curve of making cigarettes to shift?
A) A $5 million penalty charged to each cigarette maker.
B) A $1 per pack tax on cigarettes. C) A $3 per hour wage increase.
D) An increase in the demand for cigarettes.
A $5 million penalty charged to each cigarette maker.
278
In the long run, fixed costs are
A) sunk.
B) avoidable.
C) larger than in the short run.
D) not included in production decisions
Avoidable
279
The slope of the isocost line tells the firm how much
A) capital must be reduced to keep total cost constant when hiring one more unit of labor.
B) capital must be increased to keep total cost constant when hiring one more unit of labor.
C) more expensive a unit of capital costs relative a unit of labor.
D) the isocost curve will shift outward if the firm wishes to produce more.
Capital must be reduced to keep total cost constant when hiring one more unit of labor.
280
The slope of the isoquant tells the firm how much
A) output increases when labor increases by one unit.
B) output increases when capital and labor are doubled.
C) capital must decrease to keep output constant when labor increases by one unit.
D) a unit of capital costs relative to the cost of labor.
Capital must decrease to keep output constant when labor increases by one unit.
281
When the isocost line is tangent to the isoquant, then
A) MRTS = w/r.
B) the firm is producing that level of output at minimum cost.
C) the last dollar spent on capital yields as much extra output as the last dollar spent on labor.
D) All of the above.
All of the above.
282
When the isocost line is tangent to the isoquant, then
A) MPL= MPK.
B) the firm is producing that level of output at minimum cost.
C) the firm has achieved the right economies of scale.
D) All of the above.
The firm is producing that level of output at minimum cost.
283
If the isoquants are straight lines or L-shaped, then a cost-minimizing firm will
A) not be able to minimize costs.
B) find the lowest isocost line touching the relevant isoquant.
C) find the highest isocost line touching the relevant isoquant.
D) choose not to produce any output.
Find the lowest isocost line touching the relevant isoquant
284
Suppose MPL= 0.5*(q/L) and MPK= 0.5*(q/K). In the long run, the firm will hire equal amounts of capital and labor
A) all of the time.
B) only when w = r.
C) only when w = 0.5 * r.
D) at no point in time.
Only when w = r
285
Suppose that each worker must use only one shovel to dig a trench, and shovels are useless by themselves. In the long run, an increase in the price of shovels will result in
A) fewer shovels being purchased to produce the same number of trenches.
B) more workers being hired to produce the same number of trenches.
C) the firm wishing to produce more trenches.
D) no change in the firm's input mix
No change in the firm's input mix.
286
Suppose that each worker must use only one shovel to dig a trench, and shovels are useless by themselves. In the long run, the firm will experience
A) increasing returns to scale.
B) constant returns to scale.
C) decreasing returns to scale.
D) The returns to scale cannot be determined from the information provided.
The returns to scale cannot be determined from the information provided.
287
Suppose that each worker must use only one shovel to dig a trench, and shovels are useless by themselves. In the long run, the firm's cost function is
A) TC = (w/r) * q.
B) TC = (w + r)/q.
C) TC = (w + r).
D) TC = (w+r) * q
TC = (w+r) * q
288
At the XYZ Co., a unit of capital costs 3 times as much as a unit of labor. If the isoquants are convex, and the firm does not change its input mix in the long run, we can conclude that
A) MPK= 3 * MPL.
B) the firm will not hire any capital. C) the firm will hire 3 times as much labor as capital.
D) the firm will hire 3 times as much capital as labor.
MPK = 3*MPL
289
The production of cigarettes is highly automated; however, a worker is required to monitor each machine. Machines and workers do not interact with one another. Given this information, there are most likely
A) economies of scale.
B) economies of scope.
C) constant returns to scale.
D) increasing returns to scale.
Constant returns to scale.
290
Suppose that capital and labor must be kept in a fixed proportion to produce a particular good. For example, digging a trench requires one worker who has one shovel. What does this imply about returns to scale?
A) There are constant returns to scale.
B) There are increasing returns to scale.
C) There are decreasing returns to scale.
D) Nothing.
There are constant returns to scale.
291
Assuming that w and r are both positive, if the long-run expansion path is horizontal, then
A) MPK= 0.
B) MRTS is a function of capital only. C) w = r.
D) All of the above.
MRTS is a function of capital only.
292
Figure 7.1 shows the long-run expansion path. The long-run average cost curve will be
A) horizontal.
B) downward sloping.
C) upward sloping.
D) vertical.
Downward sloping.
293
If a production function is represented as q = L^aK^b, the long-run average cost curve will be horizontal as long as
A) a + b = 0.
B) a + b = 1.
C) q > 0.
D) L = K.
a + b =1
294
If there are diseconomies of scale within a given range of output, which of following is(are) TRUE?
A) The short-run average cost curve must be upward sloping within that range of output.
B) The long-run average cost curve must be upward sloping within that range of output.
C) Long-run average cost must equal short-run average cost.
D) All of the above.
The long-run average cost curve must be upward sloping within that range of output.
295
The total cost of producing one unit is $50. The total cost of producing two units is $75. At a production level of two units, the cost function exhibits
A) economies of scale.
B) rising average costs.
C) increasing marginal costs.
D) constant returns to scale.
Economies of scale.
296
Long-run average cost is never greater than short-run average cost because in the long run
A) capital costs equal zero.
B) the firm can move to the lowest possible isocost curve.
C) wages always increase over time. D) wages always decrease over time
Tthe firm can move to the lowest possible isocost curve.
297
Which of the following statements best explains why long-run average cost is never greater than short-run average cost?
A) In the long run, tangency of the isocost and isoquant is attainable. This is not necessarily true in the short run.
B) In the long run, diseconomies of scale might not occur, but in the short run diminishing marginal returns do.
C) In the long run, the cost of capital declines because the firm is able to pay down some of its debts.
D) In the long run, the average cost curve neednot be U-shaped, but in the short run it is.
In the long run, tangency of the isocost and isoquant is attainable. This is not necessarily true in the short run.
298
In the short run, the expansion path is
A) horizontal.
B) vertical.
C) diagonal.
D) indeterminate.
Horizontal
299
Economists define a market to be competitive when the firms
A) spend large amounts of money on advertising to lure customers away from the competition.
B) watch each other's behavior closely.
C) are price takers.
D) All of the above.
Are price takers.
300
If consumers view the output of any firm in a market to be identical to the output of any other firm in the market, the demand curve for the output of any given firm
A) will be identical to the market demand curve.
B) will be horizontal.
C) will be vertical.
D) cannot be determined from the information given.
Will be horizontal
301
In the absence of any government regulation on price, if a firm has no power to set price on its own, one can safely conclude
A) the demand curve for the firm's product is horizontal.
B) there are many firms in the industry.
C) the market is in long-run equilibrium.
D) the firms in this industry are not profitable.
The demand curve for the firm's product is horizontal.
302
In a perfectly competitive market,
A) firms can freely enter and exit.
B) firms sell a differentiated product.
C) transaction costs are high.
D) All of the above.
Firms can freely enter and exit.
303
In a competitive market, if buyers did not know all the prices charged by the many firms,
A) all firms still face horizontal demand curves.
B) firms sell a differentiated product.
C) demand curves can be downward sloping for some or all firms.
D) the number of firms will most likely decrease.
Demand curves can be downward sloping for some or all firms.
304
Many car owners and car dealers describe their different cars for sale in the local newspapers and list their asking price. Many people shopping for a used car consider the different choices listed in the paper. The market for used cars could be described as
A) competitive.
B) perfectly competitive.
C) non-competitive.
D) having high transaction costs
Competitve.
305
Many car owners and car dealers describe their different cars for sale in the local newspapers and list their asking price. Many people shopping for a used car consider the different choices listed in the paper. The absence of which condition prohibits this market from being described as perfectly competitive?
A) Buyers and sellers know the prices.
B) Firms freely enter and exit.
C) Transaction costs are low.
D) Consumer believes all firms sell identical products.
Consumer believes all firms sell identical products.
306
If a firm operates in a perfectly competitive market, then it will most likely
A) advertise its product on television.
B) settle for whatever price is offered.
C) have a difficult time obtaining information about the market price. D) have an easy time keeping other firms out of the market.
Settle for whatever price is offered.
307
If a firm happened to be the only seller of a particular product, it might behave as a price taker as long as
A) buyers have full information about the firm's price.
B) the transaction costs of doing business with this firm are low.
C) there are many buyers.
D) there is free entry and exit.
There is free entry and exit.
308
The demand curve an individual competitive firm faces is known as its
A) excess demand curve.
B) market demand curve.
C) residual demand curve.
D) leftover demand curve
Residual demand curve
309
If a firm makes zero economic profit, then the firm
A) has total revenues greater than its costs.
B) must shut down.
C) can be earning positive business profit.
D) must have no fixed costs.
Can be earning positive business profit.
310
If marginal revenue equals marginal cost, the firm is maximizing profits as long as
A) the resulting profits are positive. B) marginal cost exceeds marginal revenue for greater levels of output.
C) the average cost curve lies above the demand curve.
D) All of the above are required.
Marginal cost exceeds marginal revenue for greater levels of output.
311
Figure 8.1 shows the cost curves for a competitive firm. If the firm is to earn economic profit, price must exceed
A) $0.
B) $5.
C) $10.
D) $11.
$10
312
Figure 8.1 shows the cost curves for a competitive firm. If the firm is to operate in the short run, price must exceed
A) $0.
B) $5.
C) $10.
D) $11.
$5
313
Figure 8.1 shows the cost curves for a competitive firm. If the market price is $15 per unit, the firm will earn profits of
A) $0.
B) $4.
C) $40.
D) $160.
$160
314
A firm will shut down in the short run if
A) total fixed costs are too high.
B) total revenue from operating would not cover all costs.
C) total revenue from operating would not cover variable costs.
D) total revenue from operating would not cover fixed costs.
Total revenue from operating would not cover variable costs.
315
If a competitive firm maximizes short-run profits by producing some quantity of output, which of the following must be true at that level of output?
A) p = MC.
B) MR = MC.
C) p =>AVC.
D) All of the above.
All of the above.
316
If a competitive firm maximizes short-run profits by producing some quantity of output, which of the following must be true at that level of output?
A) p > MC.
B) MR > MC.
C) p =>AVC.
D) All of the above.
p =>AVC.
317
If a firm finds that it maximizes short-run profits by shutting down, which of the following must be true?
A) p < AVC for all levels of output.
B) p < AVC only for the level of output at which p = MC.
C) p < AVC only if the firm has no fixed costs.
D) The firm will earn zero profit.
p < AVC for all levels of output.
318
If a profit-maximizing firm finds that, at its current level of production, MR > MC, it will
A) earn greater profits than if MR = MC.
B) increase output.
C) decrease output.
D) shut down.
Increase output.
319
If a profit-maximizing firm finds that, at its current level of production, MR < MC, it will
A) decrease output.
B) increase output.
C) shut down.
D) operate at a loss.
Decrease output.
320
The competitive firm's supply curve is equal to
A) its marginal cost curve.
B) the portion of its marginal cost curve that lies above AC.
C) the portion of its marginal cost curve that lies above AVC.
D) the portion of its marginal cost curve that lies above AFC.
The portion of its marginal cost curve that lies above AVC.
321
If afirm is a price taker, then its marginal revenue will always equal
A) price.
B) total cost.
C) zero.
D) one.
Price
322
An increase in the cost of an input will result in
A) a leftward shift in the firm's supply curve.
B) an upward shift of the firm's marginal cost curve.
C) a leftward shift of the market supply curve.
D) All of the above.
All of the above
323
When the production of a good involves several inputs, an increase in the cost of one input will cause total costs to
A) rise more than in proportion.
B) rise less than in proportion.
C) remain unchanged.
D) rise by the exact amount of the input price increase
Rise less than in proportion.
324
Suppose TC = 10 + (0.1 * q2). If p = 10, the firm's profits will be
A) 240.
B) 250.
C) 260.
D) -10 because the firm will shut down.
240
324
If a competitive firm is in short-run equilibrium, then
A) profits equal zero.
B) it will not operate at a loss.
C) an increase in its fixed cost will have no effect on profit.
D) an increase in its fixed cost will have no effect on output.
An increase in its fixed cost will have no effect on output.
324
Suppose TC = 10 + (0.1 * q2). If there are 100 identical firms in the market, the market supply curve is
A) Q = 1000 * p.
B) Q = 500 * p.
C) Q = 100 * p.
D) Q = 10.
Q = 500 * p.
325
Figure 8.2 shows the cost curves fora typical firm in a market and three possible market supply curves. If there are 100 identical firms, the market supply curve is best represented by
A) curve A.
B) curve B.
C) curve C.
D) Either curve A or B, but definitely not C.
Curve C
325
If a firm is currently in short-run equilibrium earning a profit, what impact will a lump-sum tax have on its production decision?
A) The firm will decrease output to earn a higher profit.
B) The firm will increase output but earn a lower profit.
C) The firm will not change output but earn a lower profit.
D) The firm will not change output and earn a higher profit.
The firm will not change output but earn a lower profit.
326
Suppose that once a well is dug, water flows out of it continuously without any additional effort. Customers collect their water and pay a per gallon fee when they leave the site of the well. In the short run, the competitive firm in this market
A) will not shut down because variable costs are zero.
B) has no fixed costs.
C) faces diminishing marginal returns.
D) can act as a price setter.
Will not shut down because variable costs are zero.
327
Suppose that once a well is dug, water flows out of it continuously without any additional effort. Customers collect their water and pay a per gallon fee when they leave the site of the well. In the short run, the competitive firm in this market
A) has no variable costs.
B) has no fixed costs.
C) will shut down.
D) can produce water at no cost.
Has no variable costs.
328
If a competitive firm cannot earn profit at any level of output during a given short-run period, then which of the following is LEAST likely to occur?
A) It will shut down in the short run and wait until the price increases sufficiently.
B) It will exit the industry in the long run.
C) It will operate at a loss in the short run.
D) It will minimize its loss by decreasing output so that price exceeds marginal cost.
It will minimize its loss by decreasing output so that price exceeds marginal cost.
329
In deciding whether to operate in the short run, the firm must be concerned with the relationship between price of the output and
A) total cost.
B) average variable cost.
C) total fixed cost.
D) the number of buyers.
Average variable cost.
330
In the long run, profits will equal zero in a competitive market because of
A) constant returns to scale.
B) identical products being produced by all firms.
C) the availability of information.
D) free entry and exit.
Free entry and exit.
331
Assuming a horizontal long-run market supply curve, which of the following statements is (are) TRUE about competitive firms in the long run?
A) p = MC
B) p = AC
C) profit = 0
D) All of the above.
All of the above
332
Long-run market supply curves are upward sloping if
A) firms are identical.
B) the number of firms is restricted in the long run.
C) input prices fall as the industry expands.
D) All of the above.
The number of firms is restricted in the long run.
333
Long-run market supply curves are downward sloping if
A) firms are identical.
B) the number of firms is restricted in the long run.
C) input prices fall as the industry expands.
D) All of the above.
Input prices fall as the industry expands.
334
If firms in a competitive market are not identical, then the long-run market supply curve will be
A) horizontal.
B) upward sloping.
C) downward sloping.
D) undetermined.
Upward sloping
335
Suppose that for each firm in the competitive market for potatoes, long-run average cost is minimized at $0.20 per pound when 500 pounds are grown. If the long-run supply curve is horizontal, then
A) some firms will enjoylong-run profits because they operate at minimum average cost.
B) the long-run price will be $0.20 per pound.
C) each consumer will purchase $100 worth of potatoes.
D) the long-run price will be set just above $0.20 per pound.
The long-run price will be $0.20 per pound.
336
Suppose that for each firm in the competitive market for potatoes, long-run average cost is minimized at $0.20 per pound when 500 pounds are grown. The demand for potatoes is Q = 10,000/p. If the long-run supply curve ishorizontal, then how many firms will this industry sustain in the long run?
A) 0
B) 100
C) 50,000
D) There is not enough information to answer.
100
337
Suppose that for each firm in the competitive market for potatoes, long-run average cost is minimized at $0.20 per pound when 500 pounds are grown. The demand for potatoes is Q = 10000/p. If the long-run supply curve is horizontal, then how much will consumers spend, in total, on potatoes?
A) $0
B) $500
C) $10,000
D) $50,000
$10,000
338
Suppose that for each firm in the competitive market for potatoes, long-run average cost is minimized at $0.20 per pound when 500 pounds are grown. The demand for potatoes is Q = 10000/p. If the long-run supply curve is horizontal, then how many pounds of potatoes will be consumed in total?
A) 0
B) 500
C) 10,000
D) 50,000
50,000
339
In the long run, competitive firms MUST be profit maximizers because if they do not maximize profits
A) they will not survive.
B) they will not be price takers.
C) they will attract entry.
D) the profits that they do earn will only cover variable costs.
They will not survive.
340
Long-run economic rent or profit do not exist for fixed factors like land because,
A) bidding drives up the price of the factor until no economic rent exists.
B) there is no market for such factors.
C) these factors have L-shaped isoquants.
D) these factors will earn economic profits.
Bidding drives up the price of the factor until no economic rent exists.
341
Mister Jones was selling his house. The asking price was $220,000, and Jones decided he would take no less than $200,000. After some negotiation, Mister Smith purchased the house for $205,000. Smith's consumer surplus is
A) $5,000.
B) $15,000.
C) $20,000.
D) not able to be calculated from the information given.
Not able to be calculated from the information given.
342
Mary purchased a stuffed animal toy for $5. After a few weeks, someone offered her $100 for the toy. Mary refused. One can conclude that Mary's consumer surplus from the toy is
A) less than $5.
B) at least $95.
C) at least $100.
D) $105.
At least $95.
343
Joe's demand for spring water can be represented as p = 10 -Q (where p is measured in $/gallon and Q is measured in gallons). He recently discovered a spring where water can be obtained free of charge. His consumer surplus from this water is
A) $0.
B) $50.
C) $100.
D) unknown based upon the information provided.
$50
344
Figure 9.1 shows the market demand curve for telecommunication while driving one's car (time spent on the car phone). The current price is $0.35 per minute. If the price were to increase by ten cents per minute, consumer surplus will
A) fall to $820.
B) fall by $84.
C) fall by $58.
D) fall to $369.
Fall by $84.
345
Figure 9.1 shows the market demand curve for telecommunication while driving one's car (time spent on the car phone). At the current price of $0.35 per minute, consumer surplus equals
A) $301.00.
B) $924.50.
C) $1,225.50.
D) $1,250.00.
$924,50
346
As the price of a good increases, the loss in consumer surplus is larger,
A) the more elastic demand is.
B) the more money previously spent on the good.
C) the less money previously spent on the good.
D) the smaller the price increase.
The more money previously spent on the good.
347
If lower-income households spend a greater share of their income on cigarettes than do higher-income households, then a tax that raises the price of cigarettes will
A) cause lower-income households to incur a greater loss of consumer surplus than that incurred by higher-income households.
B) cause higher-income households to incur a greater loss of consumer surplus than that incurred by lower-income households.
C) raise consumer surplus among higher-income households.
D) cause consumer surplus to decline among smokers, but the relative impact cannot be determined from the given information.
Cause consumer surplus to decline among smokers, but the relative impact cannot be determined from the given information.
348
Suppose consumers of cigarettes can be classified into two groups: heavy users and light users. Heavy users purchase more cigarettes and are less sensitive to price changes relative to light users. To determine whether a heavy user suffers a greater loss of consumer surplus than a light user does when the price of cigarettes increases, one would need to know
A) each group's average income.
B) the actual quantities purchased by each.
C) each individual's price elasticity of demand.
D) no additional information.
No additional information
349
Sarah's demand curve for whiskey has the same slope as Pete's; however, it lies to the right of Pete's. An increase in the price of whiskey will cause
A) Sarah to incur a greater loss of consumer surplus than Pete will.
B) Pete to incur a greater loss of consumer surplus than Sarah will. C) Sarah and Pete to incur the same loss of consumer surplus.
D) Sarah's demand curve to shift closer to Pete's.
Sarah to incur a greater loss of consumer surplus than Pete will.
350
Producer surplus is equal to
A) the area under the supply curve. B) the difference between price and average cost for all units sold.
C) the difference between price and marginal cost for all units sold.
D) the firm's profit when fixed costs exist.
The difference between price and marginal cost for all units sold.
351
Mister Jones was selling his house. The asking price was $220,000, and Jones decided he would take no less than $200,000. After some negotiation, Mister Smith purchased the house for $205,000. Jones' producer surplus is
A) $5,000.
B) $15,000.
C) $20,000.
D) not able to be calculated from the information given.
$5,000
352
Suppose the market supply curve is p = 5 + Q. At a price of 10, producer surplus equals
A) 50.
B) 25.
C) 12.50.
D) 10.
12.50
353
In the short run, if a firm operates, it earns a profit of $500. The fixed costs of the firm are $100. This firm has a producer surplus of
A) $500.
B) $100.
C) $400.
D) $600.
$400
354
Economists claim that measuring society's welfare as CS + PS
A) is inappropriate since ultimately everyone is a consumer.
B) is valid only when the same person could be either a consumer or a producer.
C) treats the gains to consumers and producers equally.
D) is not commonly accepted.
Treats the gains to consumers and producers equally.
355
If a market produces a level of output below the competitive equilibrium, then
A) social welfare is not maximized. B) consumer surplus might still be maximized.
C) the actual price will be below the equilibrium price.
D) social welfare might still be enhanced if a price ceiling keeps price below the competitive price.
Social welfare is not maximized.
356
A competitive market maximizes social welfare because in a competitive market
A) profits are zero.
B) price equals marginal cost of the last unit produced.
C) price equals average cost of the last unit produced.
D) there is free entry and exit.
Price equals marginal cost of the last unit produced.
357
If a market produces a level of output that exceeds the competitive equilibrium output, then
A) social welfare will be higher.
B) producer surplus will be higher. C) marginal cost will exceed price. D) All of the above
Marginal cost will exceed price.
358
If an economist states that not enough of a good is being produced, she usually means that
A) not everyone can afford the good.
B) price exceeds marginal cost.
C) consumer surplus equals zero.
D) at equilibrium, some people who still wish to buy the good cannot find a seller.
Price exceeds marginal cost.
359
Deadweight loss occurs when
A) producer surplus is greater than consumer surplus.
B) the maximum level of total welfare is not achieved.
C) consumer surplus is reduced.
D) an inferior good is consumed.
The maximum level of total welfare is not achieved.
360
The services of real estate brokers are provided in a competitive market. If the state Board of Realtors enacts several requirements that limit the number of real estate brokers, which of the following is most likely to occur?
A) The supply curve of real estate brokers will shift to the left.
B) The supply curve of real estate brokers will shift to the right.
C) Social welfare will remain unchanged.
D) The supply curve will remain unchanged.
The supply curve of real estate brokers will shift to the left.
361
The services of real estate brokers are provided in a competitive market. If the state Board of Realtors enacts several requirements that limit the number of real estate brokers, which of the following is most likely to occur?
A) Consumer surplus will increase. B) Producer surplus will increase.
C) Entry of new brokers will increase.
D) Social welfare will increase.
Producer surplus will increase.
362
The services of real estate brokers are provided in a competitive market. If the state Board of Realtors enacts several requirements that limit the number of real estate brokers, then social welfare will most likely
A) not change but there will be a transfer from consumer to producer.
B) not change but there will be a transfer from producer to consumer.
C) decrease although producers are made better off.
D) decrease although consumers are made better off.
Decrease although producers are made better off.
362
The services of real estate brokers are provided in a competitive market. If the state Board of Realtors enacts several requirements that limit the number of real estate brokers, then consumer surplus will most likely
A) increase.
B) decrease.
C) remain unchanged.
D) There is not enough information to answer.
Decrease
363
Figure 9.2 shows supply and demand curves for apartment units in a large city. If the city government passes a law that establishes $350 per month as the legal maximum rent, the loss in social welfare equals
A) b + c.
B) f.
C) a.
D) f + g.
f + g
364
Figure 9.2 shows supply and demand curves for apartment units in a large city. If the city government passes a law that establishes $350 per month as the legal maximum rent, deadweight loss occurs because
A) consumers place a greater value on the last apartment unit than the cost to supply it.
B) the supplier of the last apartment unit receives a rental price that is less than the marginal cost of supplying it.
C) the quantity of apartments supplied has decreased.
D) All of the above.
Consumers place a greater value on the last apartment unit than the cost to supply
365
Figure 9.2 shows supply and demand curves for apartment units in a large city. If the city government passes a law that establishes $350 per month as the legal maximum rent, the consumer's net gain in surplus equals
A) c -f.
B) b -f.
C) d -f.
D) Answer cannot be determined from the information given.
c - f
366
Figure 9.2 shows supply and demand curves for apartment units in a large city. If the city government passes a law that establishes $350 per month as the legal maximum rent, producer surplus
A) increases.
B) decreases.
C) stays the same.
D) changes in a direction that cannot be determined from the information given.
Decreases
367
Figure 9.2 shows supply and demand curves for apartment units in a large city. If the city government passes a law that establishes $350 per month as the legal maximum rent, producer surplus decreases by
A) d.
B) b + f.
C) c + g.
D) i.
c + g
368
Figure 9.2 shows supply and demand curves for apartment units in a large city. If the city government passes a law that establishes $350 per month as the legal maximum rent, producer surplus will be
A) d.
B) d + e.
C) d + g.
D) d + c + g.
d
369
Figure 9.2 shows supply and demand curves for apartment units in a large city. At the unregulated equilibrium, producer surplus will be
A) d.
B) d + e.
C) d + g.
D) d + c + g
d + c + g
370
Figure 9.2 shows supply and demand curves for apartment units in a large city. The area "e" represents
A) the loss in producer surplus if a rent ceiling of $350 is imposed.
B) the total variable cost of supplying Q1units.
C) the marginal cost of supplying Q1 units.
D) the total revenue received by supplying Q1 units.
The total variable cost of supplying Q1units.
371
Figure 9.2 shows supply and demand curves for apartment units in a large city. The area "c" represents
A) the loss in consumer surplus if a rent ceiling of $350 is imposed.
B) a transfer from producers to consumers if a rent ceiling of $350 is imposed.
C) a transfer from consumers to producers if a rent ceiling of $350 is imposed.
D) the total revenue received by supplying Q1 units.
A transfer from producers to consumers if a rent ceiling of $350 is imposed.
372
Figure 9.3 shows supply and demand curves for milk. In an effort to help farmers, the government passes a law that establishes a $3 per gallon price support. To maintain the price support, government expenditures must equal
A) k + i.
B) f + g + h + i + j.
C) f + g + h + i + j + k.
D) f + g + h + i + j + k + e.
f + g + h + i + j + k.
373
Figure 9.3 shows supply and demand curves for milk. In an effort to help farmers, the government passes a law that establishes a $3 per gallon price support. To maintain the price support, government must purchase
A) Q1 gallons.
B) Q2 gallons.
C) Q1 - Q2 gallons.
D) Q2 - Q1 gallons.
Q2 - Q1 gallons.
374
Figure 9.3 shows supply and demand curves for milk. In an effort to help farmers, the government passes a law that establishes a $3 per gallon price support. As a result, consumer surplus falls by
A) a.
B) b + f.
C) f + g.
D) b + f -c.
b + f
375
Figure 9.3 shows supply and demand curves for milk. In an effort to help farmers, the government passes a law that establishes a $3 per gallon price support. The loss in social welfare resulting from this price support equals
A) k + i.
B) j.
C) [$3 * (Q2-Q1)] -h.
D) $3 * k.
[$3 * (Q2-Q1)] -h
376
Figure 9.3 shows supply and demand curves for milk. If the government passes a $2 per gallon specific tax, the loss in social welfare will equal
A) b + c + f + g.
B) f + g.
C) b + f.
D) c + g.
f + g
377
Figure 9.3 shows supply and demand curves for milk. If the government passes a $2 per gallon specific tax, the loss in consumer surplus will equal
A) b + c + f + g.
B) f + g.
C) b + f.
D) c + g.
b + f
378
Figure 9.3 shows supply and demand curves for milk. If the government passes a $2 per gallon specific tax, the loss in producer surplus will equal
A) b + c + f + g.
B) f + g.
C) b + f.
D) c + g.
c + g
379
Figure 9.3 shows supply and demand curves for milk. If the government passes a $2 per gallon specific tax, the tax revenue is
A) $2 * Q1.
B) $2 * Q2.
C) $2 *(Q2-Q1).
D) $2
$2 * Q1
380
Figure 9.4 shows the market for rice in Japan. S2 represents the domestic supply curve, and S1 represents the world supply curve. If imported rice is banned, the loss in social welfare is
A) a + b + c + d + e.
B) a.
C) c + e.
D) a + c + d + e.
a + c + d + e
381
Figure 9.4 shows the market for rice in Japan. S2represents the domestic supply curve, and S1represents the world supply curve. If a $1 tariff is imposed on imported rice, the loss in social welfare is
A) b + c + d + e. '
B) a.
C) c + e.
D) a + c + d + e.
c + e
382
Figure 9.4 shows the market for rice in Japan. S2represents the domestic supply curve, and S1represents the world supply curve. Suppose a free market exists. If a $1 per unit tariff is imposed on imported rice, the quantity of imported rice will decrease by
A) 10 units.
B) 20 units.
C) 30 units.
D) 40 units.
20 units
383
Figure 9.4 shows the market for rice in Japan. S2represents the domestic supply curve, and S1represents the world supply curve. Suppose a free market exists. An import quota of 30 units would
A) cause consumer surplus to fall by "e".
B) cause social welfare to fall by $30.
C) increase producer surplus by "d". D) have no effect.
Have no effect
384
Figure 9.4 shows the market for rice in Japan. S2 represents the domestic supply curve, and S1 represents the world supply curve. Suppose a free market exists. The smallest tariff necessary to completely eliminate imported rice is
A) $1 per unit.
B) $2 per unit.
C) $3 per unit.
D) $4 per unit.
$2 per unit.
385
Figure 9.4 shows the market for rice in Japan. S2 represents the domestic supply curve, and S1 represents the world supply curve. A $1 per unit tariff has the same effect on producer and consumer surplus as a quota of
A) 10 units.
B) 20 units.
C) 30 units.
D) 40 units.
10 units
386
Tariffs and quotas create a loss in social welfare because
A) producer surplus declines.
B) revenues from tariffs are misspent.
C) consumer surplus declines.
D) All of the above.
Consumer surplus declines.
387
The welfare loss from an import quota is greater than that of an equivalent tariff because
A) tariff revenues can be used to society's benefit.
B) the loss in consumer surplus is not as large.
C) domestic producers gain more from a quota than from a tariff.
D) tariff revenues represent an additional deadweight loss.
Tariff revenues can be used to society's benefit.
388
The cost of lobbying for an import quota in a perfectly competitive market
A) increases the welfare loss of the quota.
B) decreases the deadweight loss of the quota.
C) shifts the supply curve of the good to the left.
D) increases the consumer surplus.
Increases the welfare loss of the quota.
389
