Name: __________________________ Date: _____________ 1.

Which of the following demonstrates how people respond to incentives that make them better off? A) More students major in economics when they hear that salaries for economists are rising. B) Students are assigned dorm rooms through a lottery system. C) Students are encouraged to donate blood because it is the ìright thing to do.î D) Students and faculty are encouraged to wear college apparel to support the college athletic teams. 2. Which of the following statements is a positive statement? Which is a normative statement? X. The federal minimum wage is increasing to $6.50 an hour. Y. The minimum wage should be high enough that families will not live in poverty. A) X is positive; Y is normative B) X is positive; Y is positive C) X is normative; Y is positive D) X is normative; Y is normative Use the following to answer question 3: Figure: DVD Market

3. (Figure: DVD Market) At a rental price of $3, there will be A) equilibrium in the rental market for DVDs. B) an increase in demand. C) an excess supply of 40 DVD rentals. D) an excess demand of 40 DVD rentals. 4. All other things being constant, a decrease in the price of a good will result in: A) an increase in demand. B) an increase in supply. C) an increase in the quantity demanded. D) more being supplied. 5. Which of the following is true if there is a decrease in the demand for ice cream? A) There is an increase in producer surplus. B) There is a decrease in producer surplus. C) There is no change in producer surplus. D) It's impossible to tell what will happen to producer surplus.

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8. B) 11. Page 2 . D) 0. D) $300. using the midpoint method.91. (Figure: Demand for Shirts) The price elasticity of demand for the segment AB.Use the following to answer question 6: Figure: Demand for Shirts 6. is: A) 13. 9. The average total cost curve in the short run slopes upward due to: A) economies of scale. If a perfectly competitive firm sells 30 units of output at a price of $10 per unit. C) less than $10. D) price-maximizer. C) increasing returns.1. B) diseconomies of scale. D) diminishing returns. B) more than $10. its marginal revenue is: A) $10. If a local California avocado stand operates in a perfectly competitive market. C) price-discriminator. B) price-taker. 7. that stand owner will be a: A) price-maker. C) 0.

D) the minimum level of AFC. B) difficult entry and exit. but only slightly. 13. In the model of perfect competition: A) the consumer is at the mercy of powerful firms that can set prices wherever they prefer. 11. B) individual firms can influence the price. B) marginal revenue is less than P4. C) the intersection of the MC and ATC curves. D) Marginal revenue and price are unrelated in perfect competition.Use the following to answer question 10: Figure: Profit Maximizing 10. A necessary condition of perfect competition is: A) standardized product. then profit: A) is maximized. D) can be increased by decreasing the price. C) no individual or firm has enough power to have any impact on price. The shut-down price is: A) the price at which economic profit is zero. (Figure: Profit Maximizing) The figure shows cost curves for a firm operating in a perfectly competitive market. C) can be increased by decreasing production. D) the price is determined by how many years are left in the product's patent. 14. C) few buyers and sellers. If the market price is P4: A) marginal revenue and price are the same. Page 3 . If a perfectly competitive firm is producing a quantity that generates MC = MR. C) marginal revenue is greater than P4. D) cooperation and interdependence between sellers. B) can be increased by increasing production. B) the minimum level of AVC. 12.

Firms in the model of perfect competition will: A) maximize total revenue by using the marginal decision rule. B) marginal revenue.15. C) constant under perfect competition. B) increase output up to the point that the marginal revenue is greater than the marginal cost. If the market price is P4: A) firms will leave the industry and the price will fall in the long run. C) the market supply curve will shift to the left and price will fall in the long run. D) always negative. C) increase output up to the point that the marginal revenue is equal to the marginal cost. Page 4 . (Figure: Profit Maximizing) The figure shows cost curves for a firm operating in a perfectly competitive market. D) the firm will produce q4. D) always attempt to minimize average variable cost. B) there will be economic profits and firms will enter the industry in the long run. 16. Use the following to answer question 17: Figure: Profit Maximizing 17. The slope of the total cost curve is: A) marginal cost.

B) economic profit for firms in the short run. Use the following to answer question 20: Table: Total Cost for a Perfectly Competitive Firm Page 5 .Use the following to answer question 18: Figure: A Perfectly Competitive Firm in the Short Run 18. D) P. C) increase in demand. B) F. A decrease in production costs for firms in a perfectly competitive market will cause a(n): A) permanent increase in price. (Figure: A Perfectly Competitive Firm in the Short Run) The firm will shut down in the short run if the price falls below: A) G. 19. D) increase in firms' marginal revenue. C) E.

One of the earliest attempts to curb monopoly power in the United States was the ________. C) In the long run. which of the following statements is true? A) In the long run.00. (Table: Total Cost for a Perfectly Competitive Firm) If the market price is $6. price will change to reflect whatever change we observe in average production cost. P 22. 24. F B) greater than. D) Perfect competition generates prices greater than marginal costs. Which of the following is true? A) If price falls below average variable cost the firm will shut down in the short run. E C) greater than. A) five B) seven C) eight D) nine Use the following to answer question 21: Figure: A Perfectly Competitive Firm in the Short Run 21. while losses lead firms to enter the industry. (Figure: A Perfectly Competitive Firm in the Short Run) The firm will produce in the short run if the price is ________ the price indicated by ________. D) Economic profit is always positive in the long run. In a perfectly competitive market. B) The existence of profits leads firms to exit the industry. the profit-maximizing quantity of output is ________ units. B) Total revenue and marginal revenue are the same in perfect competition. C) Economic profit per unit is found by subtracting MC from price. A) breakup of Microsoft Corporation B) breakup of El Paso Natural Gas company C) breakup of the steel industry D) breakup of the Standard Oil company Page 6 .20. 23. A) at least as much as. N D) at least as much as. economic profits are positive.

25. 30. cups of coffee are differentiated by: A) style. then the gasoline industry in Smalltown is probably best characterized as: A) perfect competitive. collusion between firms usually leads to higher profits than noncooperative behavior. C) advertising. the demand curve for the firms that remain in the industry shifts to the left. C) quantity-taker. the marginal revenue a monopolist receives from selling one more unit of a good is less than the price at which that unit is sold because of: A) diminishing marginal returns. 28. 31. D) cartels. D) price-taker. D) type. C) quality. 27. Page 7 . D) declining average fixed cost. The failure to produce enough to minimize average total cost is termed: A) economic profits. formal. For these customers. B) quantity-minimizer. D) it is illegal and because there is an incentive for each firm to cheat on a collusive agreement. If there are three gas stations in the town of Smalltown. C) a downward-sloping demand curve. A firm that faces a downward-sloping demand curve is a: A) price-setter. collusion doesn't usually occur in the United States because: A) it is illegal. B) entry of new firms shifts the demand curve for existing firms to the right. D) firms earn large economic profits in the long run. However. B) either homogeneous or heterogeneous products. 26. C) an oligopolistic firm will typically prefer lower profits if the only way to make higher profits is to improve the profit position of its rivals. B) monopolistic competitive. 29. 32. C) monopolistic. D) oligopolistic. After the first unit sold. Noncooperative behavior is characterized by: A) collusion. B) location. B) increasing marginal cost. C) undercutting competitors' prices. In an oligopolistic market structure. D) excess production. B) there is an incentive for each firm to cheat on a collusive agreement. Many customers will walk right past a diner that serves coffee and go to Starbucks and pay more for a cup of coffee. B) excess capacity. In monopolistic competition: A) firms advertise to increase demand for their product. C) when some firms exit.

(Figure: A Profit-Maximizing Monopoly Firm) This profit-maximizing monopoly firm's profit per unit is: A) $5.Use the following to answer question 33: Figure: A Profit-Maximizing Monopoly Firm 33. B) $13. Use the following to answer question 34: Figure: Monopoly Model Page 8 . C) $14. D) $20.

C) 0SBJ. 37. If in response to its reduction in cost the firm changes its price in a profitmaximizing way. B) P. C) E. C) remain unchanged. (Figure: Monopoly Model) The profit-maximizing price is the one indicated by: A) Z. (Figure: Monopoly Model) When the firm is in equilibrium (that is. B) Each supplier has the same costs. B) fall. 35. Page 9 . Suppose that a profit-maximizing monopoly firm experiences a substantial technological change that reduces its marginal and average total costs by $40. B) IPDH. then we can predict that its total output will: A) rise. its total revenue is the area of rectangle: A) SPDB. Use the following to answer question 36: Figure: Monopoly Model 36. D) There are only a few buyers of peaches.34. Which of the following would make it difficult for Georgia peach suppliers to collude? A) There are only a few suppliers. maximizing its economic profit). D) F. D) 0PDJ. since peaches are homogeneous. C) Buyers of peaches have a great deal of bargaining power. D) It is not possible to make a determination from the information given.

43. in order to maximize profits this firm should: A) increase output. 41. C) not possible and which is rival in consumption. C) in the process of providing goods and services we enjoy.38. it is already maximizing profits. B) a public good. A common resource is a good or service for which exclusion is: A) possible and which is rival in consumption. The schools of bluefin tuna are best described as: A) a private good. no matter what other costs may be involved. with or without human activity. D) external benefits. A monopoly is producing where average total cost equals $30. decreases D) remains constant. decreases 42. C) Environmental Protection Agency. The principal government agency in the United States responsible for enforcing national environmental policies is the: A) Department of Agriculture. C) external costs. If ATC is at its minimum level and the ATC curve is U-shaped. D) pollution occurs naturally. D) not possible and which is nonrival in consumption. marginal revenue is $40. D) there is no pollution. B) possible and which is nonrival in consumption. 45. increases C) increases. B) Department of the Interior. B) the marginal benefit of consumption. A) decreases. 40. D) Department of Justice. B) consumers want goods and services at the lowest prices. C) an artificially scarce resource. B) reduce output. Bluefin tuna travel in schools throughout the world's oceans. Fishing boats from many nations harvest bluefin tuna as the schools migrate through their national waters. C) do nothing. D) a common resource. and the price is $50. C) the marginal social benefit of pollution is less than the marginal social cost of pollution. 44. Page 10 . pollution occurs. Damage to the environment occurs because: A) most businesses just don't care about the environment. 39. The marginal cost of pollution emissions ________ as the quantity of pollution emissions ________. increases B) increases. D) shut down. The socially optimal quantity of pollution occurs where: A) the marginal social benefit of pollution is equal to the marginal social cost of pollution. Pigouvian taxes are taxes designed to reduce: A) the marginal cost of production. B) the marginal social benefit of pollution is greater than the marginal social cost of pollution.

rival 47. B) society has achieved its socially optimal level of pollution. C) reach an efficient solution only if the government intervenes in the market. C) the market is producing too much pollution. Regardless of whether or not they pay for them. nonrival D) nonexcludable. D) the market is producing too little pollution. Use the following to answer question 51: Figure: The Socially Optimal Quantity of Pollution 51. C) land defilement from strip mining. A public good is ________ and ________ in consumption. A) excludable. B) firms will continue to pollute C) the optimal quantity of pollution will occur. All of the following are examples of external cost except: A) the smoke nuisance of a factory. Page 11 . According to the Coase theorem. If the marginal benefit received from pollution is greater than its marginal cost. without government intervention: A) firms will continue to pollute until the marginal social benefit is zero. B) zoning restrictions on your property. D) weeds on your next-door neighbor's lawn. B) public goods. D) reach an efficient solution only if the negative externalities are offset by positive externalities. (Figure: The Socially Optimal Quantity of Pollution) In the figure. rival B) nonexcludable. 49. D) public goods and common resources. nonrival C) excludable. C) common resources. when negative externalities are present a market will: A) always reach an efficient solution. D) The outcome cannot be determined without more information. 48.46. 50. people cannot be excluded from receiving the benefits of: A) private goods. then: A) society's well-being can be improved if the quantity of pollution decreases. B) reach an efficient solution if transaction costs are low.

If the current level of pollution is at Q1: A) not enough pollution is being emitted. (Figure: MSB and MSC of Pollution) The accompanying graph shows the marginal social cost and marginal social benefit of pollution. Use the following to answer question 53: Figure: Efficiency and Pollution Page 12 . as the MSB > MSC. C) too much pollution is being emitted. as the MSB > MSC. B) not enough pollution is being emitted. as the MSB = MSC. as the MSB < MSC. D) the socially optimal amount of pollution is being emitted.Use the following to answer question 52: Figure: MSB and MSC of Pollution 52.

55. Page 13 . marginal social cost would be less than marginal social benefit C) 20.000. C) social cost of mosquito control is more than $100. C) the price will be less than the marginal social benefit.000. B) benefit for all individual citizens adds up to at least $100. B) the price will be less than the marginal social cost. D) the price will be less than the marginal cost to livestock farmers.000. The town should provide the additional mosquito control only if the marginal: A) benefit for any individual citizen is at least $100. it would be efficient B) 45. then ________. 54.000. Without government regulation. Suppose the small town of Falls Valley estimates the marginal cost of providing one more treatment for mosquito control at $100. at the market equilibrium price and quantity of livestock: A) not enough livestock will be raised. marginal social benefit would be less than marginal social cost D) 20.53.000. D) social cost of mosquito control is less than $100. the marginal social benefit would be $7. Consider the market for livestock and assume there is a marginal external cost associated with raising livestock. (Figure: Efficiency and Pollution) If this market produced ________ tons. A) 30.

12. 34. 16. 4. 51. 26. 52. 30. 2. 14. 7. 35. 15. 43. 25. 49. 28. 37. 11. 24. 31. 27. 48. 13. 5. 39. 19. 40. 50. 42. 20. A A D C B B D B A A A A B C C A B D B D D A A D D B C C D C A A B D C B A A C C B D A C C B B B D D A A Page 14 . 22. 23. 33. 44. 6. 3. 41. 21. 47. 17. 45. 36. 9. 46. 32. 10. 29.Answer Key 1. 8. 18. 38.

53. B Page 15 . A 54. B 55.

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