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1.
The General Agreement on Tariffs and Trade (GATT) is
A) legislation that substantially increased tariffs in the early 1930s.
B) legislation that substantially lowered tariffs in the early 1930s.
C) an organization established after World War II to set the rules for international trade and reduce trade barriers among member nations.
D) an organization established in the early 1960s to protect U.S. industries from low-cost foreign producers.
2.
Refer to Figure 17-
10.
With the tariff, the domestic price and domestic quantity demanded are
A) P1 and Q1.
B) P1 and Q4.
C) P2 and Q2.
D) P2 and Q3.
3.
Figure 17-13
In Figure 17-13, the world price of a baseball is $3. With free trade, how many baseballs will the United States import?
A) 4,000
B) 6,000
C) 8
,000
D) 10,000
E) 12,000
4.
A nation can gain from international trade when
A) its relative production costs are the same as those of other countries
B) it exports goods for which it is a low-opportunity cost producer while importing goods that it could produce only at a high opportunity cost.
C) it imports goods for which it is a low-opportunity cost producer and exports goods for which it is a high opportunity cost producer.
D) it has a trade deficit
5.
The benefit (or satisfaction) that an individual expects to derive from an activity is called
A) opportunity cost
B) utility
C) marginal cost
D) scarcity
6.
When economists say an individual displays economizing behavior, they simply mean that she is
A) making a lot of money
B) buying only those products that are cheap and of low quality
C) learning how to run a business more effectively
D) seeking the lowest cost method to accomplish her objectives
7.
When economists say an individual has made a rational choice, they mean the individual has
A) made the choice by weighing their own subjective costs and benefits
B) made a “good” decision, one that reasonable outside observers would have also made
C) neglected to consider the unintended consequences arising from their decision
D) ignored their own personal interests and made the choice that is best for society
8.
Which of the following is not scarce?
A) an individual’s time
B) air
C) pencils
D) automobiles
9.
Which of the following statements about exchange is false?
A) The expectation of gain motivates people to engage in trade.
B) If a party to a potential exchange does not believe that it will lead to personal gain, he or she can chose not to engage in the trade.
C) Voluntary exchange is generally mutually beneficial to the trading partners.
D) If one trading partner gains, the other must lose.
10.
Use the production possibilities data below for Lebos and Slavia to answer the following question(s).
Refer to Table 2-1. Which of the following would be a mutually agreeable rate of exchange?
A) 1F = 1C
B) 1F = 2C
C) 1F = 3C
D) No exchange rate would be mutually agreeable
11.
Which of the following is NOT true of opportunity cost?
A) Opportunity costs are subjective because they depend upon how the decision-maker values his or her options.
B) Opportunity costs are only the monetary costs of lost options.
C) Opportunity costs are the highest-valued alternative sacrificed in order to choose an option.
D) Only the decision-maker can determine his or her opportunity costs for any particular action.
12.
In which statement(s) is “demand” used correctly?(I) “An increase in the price of hot dogs will reduce the demand for hot dogs.”(II) “An increase in the price of hot dogs will reduce the demand for hot dog buns.”
A) in both statements I and II
B) in statement I only
C) in statement II only
D) in neither statements I nor II
13.
Assume that black beans and rice are consistently in the diet of one particular family. How could you tell if these goods were complements, substitutes, or unrelated goods?
A) If the price of black beans rose and the consumption of rice remained the same, they would be substitutes.
B) If the price of black beans rose and the consumption of rice increased, they would be substitutes.
C) If the price of black beans rose and the consumption of rice decreased, they would be substitutes.
D) If the price of black beans rose and the consumption of both goods remained the same, they would be complements.
14.
Suppose the demand for tacos decreases. What will happen to producer surplus in the market for tacos?
A) It increases.
B) It decreases.
C) It remains unchanged.
D) It may increase, decrease, or remain unchanged.
15.
Refer to Table 3-2. If the price is $775, who would be willing to supply the product?
A) Dale and Jill
B) Dale, Jill and Denise
C) Denise, Catherine and Jackson
D) Catherine and Jackson
16.
If we observe a decrease in the price of a good and an increase in the amount of the good bought and sold, this could be explained by
A) an increase in the supply of the good
B) an increase in the demand for the good
C) a decrease in the demand for the good
D) a decrease in the supply of the good
17.
Figure 3-2
Given the supply and demand conditions illustrated in Figure 3-2, the equilibrium price of steak is
A) $2 per pound
B) $4 per pound
C) $6 per pound
D) $8 per pound
18.
Refer to Figure 3-
19.
Sellers whose costs are less than price are represented by which line segment?
A) AC
B) CE
C) BC
D) CD
19.
The efficiency of market organization is dependent on which of the following?
A) well-regulated supply and demand
B) the availability of low cost resources and high tariffs on foreign imports
C) competitive markets and well-defined and enforced private property rights
D) Government establishment of the invisible hand principle and the inelasticity of certain goods.
20.
Suppose the equilibrium price of a physical examination (“physical”) by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling,
A) the demand curve for physicals shifts to the right.
B) the supply curve for physicals shifts to the left.
C) the quantity demanded of physicals increases and the quantity supplied of physicals decreases.
D) the number of physicals performed will increase.
21.
About 35,000 general aviation multiengine airplanes are licensed to operate in the United States. If an additional $1,000-per-year tax was levied on each plane to raise general revenue, economic thinking suggests the
A) annual revenue from this tax would be less than $35,000,000.
B) annual revenue from this tax would be $35,000,000.
C) annual revenue from this tax would be more than $35,000,000.
D) number of airplanes would increase dramatically.
22.
A $25 government subsidy paid directly to buyers of jeans will result in
A) a downward shift in the demand curve for jeans by $
25.
B) an upward shift in the demand curve for jeans by $25.
C) a downward shift in the supply curve for jeans by $25.
D) an upward shift in the supply curve for jeans by $25.
23.
When government gives a subsidy to buyers of good X, the benefits of the subsidy flow to
A) the buyers of good X only.
B) the sellers of good X only.
C) the buyers and sellers of good x equally.
D) both the buyers and sellers of good x, and the distribution of the benefits will be dependent on the elasticity of demand and the elasticity of supply.
24.
Refer to Figure 4-18. In this market, which of the following price controls would be binding?
A) a price ceiling of $2.00, and it would cause a shortage
B) a price ceiling of $5.00, and it would cause a surplus
C) a price floor of $2.00, and it would cause a shortage
D) All of the above are correct.
25.
Refer to Figure 4-21. How much tax revenue does this tax produce for the government?
A) $480
B) $600
C) $800
D) $1,080
26.
If an economic action generates more costs than benefits, the action
A) by definition increases the nation’s economic welfare.
B) should not be undertaken from an efficiency standpoint.
C) should be subsidized by the government in order to make sure that it is undertaken.
D) is desirable from a public welfare standpoint even though many individuals will be harmed.
27.
Suppose that an MBA degree creates no externality because the benefits of an MBA are captured by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct?
A) The equilibrium quantity of MBAs will equal the efficient quantity of MBAs.
B) The equilibrium quantity of MBAs will be greater than the efficient quantity of MBAs.
C) The equilibrium quantity of MBAs will be less than the efficient quantity of MBAs.
D) The equilibrium price of MBAs will be greater than the efficient price of MBAs.
28.
Economic theory indicates that the behavior of
A) government employees differs from the behavior of employees in the private sector because government employees generally disregard their own personal self-interest when making decisions.
B) elected public officials differs from the behavior of all other individuals in society because they are not influenced by private interests.
C) individuals when they make decisions about who to vote for is very different from the behavior of these same individuals when they make other types of choices.
D) voters, government employees, and public officials is best understood by applying the same basic principle we use to predict the behavior of people in the private sector–that incentives matter.
29.
Producers tend to be better represented in lobbying efforts and other elements of the political process than consumers because
A) producers are generally more intelligent and, therefore, better informed.
B) producers are generally better organized than consumers.
C) producers are better educated than consumers.
D) the number of producers affected by the outcome of a particular political issue is usually greater than the number of consumers affected.
30.
The marginal value of a commodity to a consumer
A) increases as more of the good is consumed.
B) is exactly equal to price for all units purchased by the consumer.
C) is measured by the height of the individual consumer’s demand curve.
D) is equal to the area above the price and below the individual consumer’s demand curve.
31.
If Mr. Smith thinks the last dollar spent on shirts yields more satisfaction than the last dollar spent on cola, and Smith is a utility-maximizing consumer, he should
A) decrease his spending on cola.
B) decrease his spending on cola and increase his spending on shirts.
C) increase his spending on shirts.
D) increase his spending on cola and decrease his spending on shirts.
32.
Consider a consumer who purchases two goods, X and Y. If the price of good Y falls, then the substitution effect by itself will
A) cause the consumer to buy more of good Y and less of good X.
B) cause the consumer to buy more of good X and less of good Y.
C) not affect the amount of goods X and Y that the consumer buys.
D) result in an upward-sloping demand for good Y because of the substitution effect.
33.
Muriel’s income elasticity of demand for football tickets is 1.5. All else equal, this means that if her income increases by 20 percent, she will buy
A) 150 percent more football tickets.
B) 50 percent more football tickets.
C) 30 percent more football tickets.
D) 20 percent more football tickets.
34.
The price elasticity of supply
A) will be positive when supply is elastic and negative when it is inelastic.
B) will be negative when supply is elastic and positive when it is inelastic.
C) will always be positive.
D) will be positive when demand for the good is inelastic.
E) will be positive when demand for the good is elastic.
35.
Figure 7-13
Refer to Figure 7-13. A decrease in price from $15 to $10 leads to
A) a decrease in total revenue of $10, so the price elasticity of demand is greater than 1 in this price range.
B) a decrease in total revenue of $10, so the price elasticity of demand is less than 1 in this price range.
C) a decrease in total revenue of $20, so the price elasticity of demand is less than 1 in this price range.
D) a decrease in total revenue of $20, so demand is elastic in this price range.
36.
Since it is costly for stockholders to monitor corporate managers, managers may be able to achieve personal perks and pursue other policies that conflict with profit maximization. This is an example of
A) an external benefit.
B) economies of scale.
C) the principal-agent problem.
D) sunk costs.
37.
Use the table below to answer the following question.
What is the marginal cost of producing the third unit of output?
A) $22
B) $23.33
C) $73.33
D) This cannot be determined from the data.
38.
In the short run, which are most important in determining changes in output?
A) marginal costs and marginal revenue.
B) total costs and total revenue.
C) average costs and total revenue.
D) fixed costs.
39.
Use the table below to answer the following question.
Average total cost is at a minimum when output is
A) 2 units.
B) 3 units.
C) 4 units.
D) 5 units.
40.
Mr. Hudson notes that if he produces 10 pairs of shoes per day, his average fixed cost (AFC) is $14 and his marginal cost $8; if he produces 20 pairs of shoes per day, his MC is $15. What is his AFC when output is 20 pairs of shoes per day?
A) $5
B) $7
C) $8
D) $15
41.
When firms in a price-taker market are temporarily able to charge prices that exceed their production costs,
A) the firms will earn long-run economic profit.
B) additional firms will be attracted into the market until price falls to the level of per-unit production cost.
C) the firms will earn short-run economic profits that will be offset by long-run economic losses.
D) the existing firms must be colluding or rigging the market, otherwise, they would be unable to charge such high prices.
42.
Scenario 9-1Assume a certain competitive price-taker firm is producing Q = 1,000 units of output. At Q = 1,000, the firm’s marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit.Refer to Scenario 9-1. At Q = 1,000, the firm’s profit amounts to
A) −$200.
B) $1,000.
C) $3,000.
D) $4,000.
43.
Use the table of expected cost and revenue data for the Tuckers Tomato Farm below to answer the following
question(s). The Tuckers produce tomatoes in a greenhouse and sell them wholesale in a competitive pricetaker market.
Table 9-1
Refer to Table 9-1. If the Tuckers are profit maximizers, how many tomatoes should they produce when the market price is $500 per ton?
A) 6
B) 7
C) 8
D) 9
44.
A firm is currently operating where the MC of the last unit produced is $84, and the MR of this unit is $70. What would you advise this firm to do?
A) Shut down
B) Increase output
C) Stay at its current output
D) Decrease output
E) Decrease price
45.
In a constant-cost industry, an increase in output that increases the demand for resources used by the industry
A) is likely to result in higher prices for at least some resources.
B) causes the firm’s cost curves to shift downward.
C) causes the demand curve for the industry to rise.
D) is not likely to result in higher prices for resources.
46.
Use the figure to answer the following question(s).
Figure 9-3
Figure 9-3 depicts the cost curves of a firm in a price-taker industry. At what output would the firm’s per-unit cost be at a minimum?
A) 100
B) 125
C) 150
D) an output greater than 150
47.
Use the figure to answer the following question(s).
Figure 9-11
If the current market price for the firm depicted in Figure 9-11 is A, given the firm’s cost conditions, which output should it produce?
A) OM
B) OL
C) OK
D) OI
48.
The long-run supply curve is
A) a horizontal line for a constant-cost industry.
B) upward sloping for a decreasing-cost industry.
C) downward sloping for an increasing-cost industry.
D) all of the above.
49.
If Dell Computer finds that its marginal cost exceeds its marginal revenue on a model of laptop, then to maximize profit, it will
A) increase output if it is a price searcher, but this may not be proper if it is a price taker.
B) increase output if it is a price taker, but this may not be proper if it is a price searcher.
C) decrease output, regardless of whether it is a price taker or a price searcher.
D) increase output, regardless of whether it is a price taker or a price searcher.
50.
Many small U.S. cities are served by only one or two airlines. If a price increase in these markets allows other airlines to quickly and easily enter the market and compete, economists would call these markets
A) contestable markets.
B) high entry markets.
C) conventional markets.
D) monopolistic markets.
51.
In the real world, business decisions must be made through insight, trial, and error, without perfect knowledge about demand and costs. Will the profit-maximizing prices and levels of output from the simple economic models still be good guides to real outcomes?
A) No, because the simple economic models ignore the opportunity cost of resources.
B) No, because even entrepreneurs who are able to find the profit-maximizing prices and level of output will be unable to compete with other entrepreneurs who charge higher prices.
C) Yes, because they can hire economists who have sufficient knowledge of costs and demand conditions.
D) Yes, because the entrepreneurs who are best able to find the profit-maximizing prices and output levels will survive and expand, driving others out of competitive markets.
52.
Use the figure to answer the following question(s).
Figure 10-2
What is the maximum economic profit this firm depicted in Figure 10-2 will be able to earn?
A) zero
B) $20
C) $30
D) $100
53.
Which of the following is a true statement about the difference between a price-taker firm and a competitive price-searcher firm in the long run?
A) Both will sell their products at a price equal to average total cost, but only the price taker will produce at minimum average total cost.
B) Both will sell their products at a price equal to average total cost, but only the competitive price searcher will produce at minimum average total cost.
C) Only the price taker will sell its product at a price equal to average total cost.
D) Only the competitive price searcher will sell its product at a price equal to average total cost.
54.
If the firms in an oligopolistic industry can collude effectively (from the firms’ viewpoints), the resulting price and output in the market will be most similar to that of
A) a competitive price-searcher market.
B) pure monopoly.
C) bilateral monopoly.
D) a competitive price-taker market.
55.
The prisoners’ dilemma is used to illustrate the basic idea that
A) oligopolistic firms would be better off if they collude, but each has an incentive to cheat on the collusive agreement.
B) oligopolistic firms are always worse off when they collude.
C) oligopolistic firms never have an incentive to cheat on collusive agreements, unlike prisoners.
D) students who cheat on economics exams end up in jail.
56.
Assuming that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?
A) The output of the monopolist will be too large and the price too high.
B) The output of the monopolist will be too large and the price too low.
C) The output of the monopolist will be too small and the price too high.
D) The output of the monopolist will be too small and the price too low.
57.
Figure 11-18
The total revenue for the firm in Figure 11-18, a monopolist that maximizes profit while charging all customers the same price, is
A) $2,574
B) $2,808
C) $2,100
D) $1,638
E) $3,300
58.
The profit-maximizing price the monopoly will charge in Figure 11-20 is
A) irrelevant since the firm should shut down
B) $11
C) $16
D) $18
E) $22
59.
An increase in the price of a resource would cause
A) producers to substitute other inputs for the resource.
B) consumers to increase consumption of the goods that increase in price as the result of the higher resource price.
C) an increase in the demand for products that use the resource intensely.
D) a reduction in the price of goods produced with the resource.
60.
Refer to Table 12-2. This table describes the number of baseballs a manufacturer can produce per day with different quantities of labor. Each baseball sells for $5 in a competitive market. If the firm is maximizing the marginal product of labor, what is the firm’s marginal revenue product?
A) 140 baseballs.
B) $300.
C) $400.
D) $700.
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