Final Study Guide

rlnclples of Mlcroeconomlcs
llnal SLudy Culde

1he erlod of Llme over
whlch a flrm can change a||
facLors of producLlon ls?
A 1he perlod of ulmlnlshlng 8eLurns
8 1he ShorL 8un
C 1he erlod of flxed producLlon
u 1he Long 8un
L -one of Lhe above
1he erlod of Llme over
whlch a flrm can change a||
facLors of producLlon ls?
A 1he perlod of ulmlnlshlng 8eLurns
8 1he ShorL 8un
C 1he erlod of flxed producLlon
D 1he Long kun
L -one of Lhe above
1he knowledge and skllls
acqulred by workers Lhrough
educaLlon and experlence are
known as?
A -aLural resources
8 labor
C uman caplLal
u hyslcal caplLal
L -one of Lhe above
1he knowledge and skllls
acqulred by workers Lhrough
educaLlon and experlence are
known as?
A -aLural resources
8 labor
numan cap|ta|
u hyslcal caplLal
L -one of Lhe above
Suppose Chlo can produce donuLs per hour of
labor whlle ennsylvanla can produce donuLs per
hour of labor Chlo can produce cups of coffee per
hour of labor whlle ennsylvanla can also produce
cups of coffee per hour of labor
3 1he opporLunlLy cosL of a donuL ln ennsylvanla ls?
A x cup of coffee
8 Z cup of coffee
C cup of coffee
u cups of coffee
L -one of Lhe above
4 Whlch of Lhe followlng sLaLemenLs ls Lrue?
A ennsylvanla has abso|ute advantage ln Lhe producLlon of donuLs
8 ennsylvanla has comparat|ve advantage ln Lhe producLlon of cups of
coffee
C Chlo has comparat|ve advantage ln Lhe producLlon of cups of coffee
u -one of Lhe above sLaLemenLs ls Lrue
A x cup of coffee
8 Z cup of coffee
C cup of coffee
u cups of coffee
L -one of Lhe above
coffee
A x cup of coffee
8 Z cup of coffee
C cup of coffee
u cups of coffee
L -one of Lhe above
coffee
When prlce $ quanLlLy
8 lf Lhe prlce rlses Lo $3
quanLlLy 6
A ;+8
8 $;
C $;+6
u 4;+
L -one of Lhe above
When prlce $ quanLlLy
8 lf Lhe prlce rlses Lo $3
quanLlLy 6
A ;+8
8 $;
1]2+60
u 4;+
L -one of Lhe above
6 lf Lhe flrm ls operaLlng aL Lhe quanLlLy labeled
x ln Lhe graph above whaL should Lhe flrm do?
A lncrease Lhe quanLlLy produced
8 uecrease Lhe quanLlLy produced
C MalnLaln Lhe quanLlLy produced aL Lhe level x
$
;
MC
M8
x
6 lf Lhe flrm ls operaLlng aL Lhe quanLlLy labeled
x ln Lhe graph above whaL should Lhe flrm do?
Increase the quant|ty produced
8 uecrease Lhe quanLlLy produced
C MalnLaln Lhe quanLlLy produced aL Lhe level x
$
;
MC
M8
x
Whlch of Lhe flrm LoLal cosL curves deplcLed below ls conslsLenL wlLh
Lhe flrm's marglnal cosL curve (prevlous sllde)?
1C 1C 1C 1C
; ; ; ;
A llrm A 8 llrm 8 C llrm C u llrm u
8 Whlch of Lhe flrms ln quesLlon above has no flxed cosLs?
A
8
C
u
1C 1C 1C 1C
; ; ; ;
I|rm 8 llrm 8 C llrm C u llrm u
A
8
C
u
1C 1C 1C 1C
; ; ; ;
I|rm 8 llrm 8 C llrm C u llrm u
A
8
u
AL your flrm's currenL level of
ouLpuL marglnal revenues ls $8
and marglnal cosL ls $ WhaL
should your flrm do?
A lncrease ouLpuL
8 uecrease ouLpuL
C keep ouLpuL aL Lhe currenL level
u -oL enough lnformaLlon Lo answer Lhls
quesLlon
AL your flrm's currenL level of
ouLpuL marglnal revenues ls $8
and marglnal cosL ls $ WhaL
should your flrm do?
Increase output
8 uecrease ouLpuL
C keep ouLpuL aL Lhe currenL level
u -oL enough lnformaLlon Lo answer Lhls
quesLlon
WhaL are Lhe
uemand ShlfLers?
W lncome (normal or lnferlor good)
W rlce of relaLed goods (subsLlLuLes or
complemenLs)
W 1asLes
W opulaLlon
W luLure rlce LxpecLaLlons
WhaL are Lhe 4
supply shlfLers?
W Change ln lnpuL cosL (varlable cosL)
W 1echnologlcal Change
W -umber of llrms
W llrms expecLaLlons abouL fuLure prlces
WhaL ls Lhe law of demand?
uecreases ln prlce resulL ln lncreases ln quanLlLy
demanded
1he movemenL from polnL A Lo polnL
8 ls?
A A decrease ln supply
8 An lncrease ln supply
C A decrease ln quanLlLy supplled
u An lncrease ln quanLlLy supplled
1he movemenL from supply curve S Lo S could
be caused by?
A A decrease ln Lhe number of flrms ln Lhe markeL
8 An lmprovemenL ln Lechnology
C An lncrease ln consumer lncome
u An lncrease ln lnpuL prlces
S S
8
A
;
8 ls?
D n |ncrease |n quant|ty supp||ed
be caused by?
8 An lmprovemenL ln Lechnology
S S
8
A
;
8 ls?
D n |ncrease |n quant|ty supp||ed
be caused by?
8 n |mprovement |n techno|ogy
S S
8
A
;
lzza and burrlLos are subsLlLuLes
lf Lhe prlce of a burrlLo decreases
whaL wlll happen Lo Lhe equlllbrlum
prlce and quanLlLy ln Lhe markeL for
plzza?
A rlce wlll lncrease quanLlLy wlll lncrease
8 rlce wlll lncrease quanLlLy wlll decrease
C rlce wlll decrease quanLlLy wlll lncrease
u rlce wlll decrease quanLlLy wlll decrease
lzza and burrlLos are subsLlLuLes
lf Lhe prlce of a burrlLo decreases
whaL wlll happen Lo Lhe equlllbrlum
prlce and quanLlLy ln Lhe markeL for
plzza?
D r|ce w||| decrease quant|ty w||| decrease
3 1he prlce of a good ls currenLly
$3 and Lhe markeL ls ln
surplus Whlch of Lhe followlng
ls Lrue?
A 1he equlllbrlum prlce ls more Lhan $3
8 1he equlllbrlum prlce ls $3
C 1he equlllbrlum prlce ls less Lhan $3
3 1he prlce of a good ls currenLly
$3 and Lhe markeL ls ln
surplus Whlch of Lhe followlng
ls Lrue?
A 1he equlllbrlum prlce ls more Lhan $3
8 1he equlllbrlum prlce ls $3
1he equ|||br|um pr|ce |s |ess than 5300
4 lf Lhe prlce of a good decreases
and Lhe quanLlLy of a good
decreases ln equlllbrlum we can
conclude LhaL?
A uemand lncreased
8 uemand decreased
C Supply lncreased
u Supply decreased
4 lf Lhe prlce of a good decreases
and Lhe quanLlLy of a good
decreases ln equlllbrlum we can
conclude LhaL?
A uemand lncreased
Demand decreased
C Supply lncreased
u Supply decreased
WhaL ls Lhe law of
supply?
As prlce lncreases flrm's wlll supply lncreaslng
quanLlLles Lo Lhe markeL
Suppose LhaL producers revlew news LhaL
prlce wlll lncrease nexL monLh (Cnly
producers recelve Lhls news) WhaL wlll
happen Lo equlllbrlum prlce and quanLlLy ln
Lhe current markeL?
Suppose LhaL producers revlew news LhaL
prlce wlll lncrease nexL monLh (Cnly
producers recelve Lhls news) WhaL wlll
happen Lo equlllbrlum prlce and quanLlLy ln
Lhe current markeL?
r|ce w||| |ncrease quant|ty w||| decrease
6Suppose LhaL consumers demand
unlLs when Lhe prlce of a good ls $
AfLer Lhe prlce lncrease Lo $
consumers demand 4 unlLs
uemand for Lhls good ls?
A LlasLlc
8 lnelasLlc
C DnlL LlasLlc
6Suppose LhaL consumers demand
unlLs when Lhe prlce of a good ls $
AfLer Lhe prlce lncrease Lo $
consumers demand 4 unlLs
uemand for Lhls good ls?
A LlasLlc
Ine|ast|c
C DnlL LlasLlc
An elasLlc curve ls?
A llaLLer
8 SLeeper
An elasLlc curve ls?
A I|atter
8 SLeeper
8 When a good ls lnelasLlc lL
ls?
A SenslLlve Lo prlce
8 -oL senslLlve
8 When a good ls lnelasLlc lL
ls?
A SenslLlve Lo prlce
Not sens|t|ve
-ecesslLy's are more?
A lnelasLlc
8 LlasLlc
-ecesslLy's are more?
Ine|ast|c
8 LlasLlc
WhaL ls Lhe prlce elasLlclLy of demand?
Lp change ln quanLlLy
change ln prlce
;;
;%%%%%%
lor lncome elasLlclLy of demand and prlce

elasLlclLy of demand whaL klnd of good ls
greaLer Lhan zero? Less Lhan zero?
W CreaLer-ormal and SubsLlLuLes
W Lesslnferlor and complemenLs
Changes ln all of Lhe followlng are llkely Lo
shlfL Lhe demand curve for compuLers except
A opulaLlon
8 lncome
C 1he prlce of compuLers
u 1he prlce of sofLware
Changes ln all of Lhe followlng are llkely Lo
shlfL Lhe demand curve for compuLers except
A opulaLlon
8 lncome
1he pr|ce of computers
u 1he prlce of sofLware
3 lf a company generaLes a pos|t|ve exLernallLy ln
Lhe producLlon of lL's good buL Lhe value of Lhls
exLernallLy ls not reflecLed ln Lhe flrm's cosLs or
revenues Lhen
A 1he company ls produclng less Lhan
would be efflclenL
8 1he company ls produclng more Lhan would be
efflclenL
C 1he company ls produclng aL Lhe efflclenL level
3 lf a company generaLes a pos|t|ve exLernallLy ln
Lhe producLlon of lL's good buL Lhe value of Lhls
exLernallLy ls not reflecLed ln Lhe flrm's cosLs or
revenues Lhen
1he company |s produc|ng |ess than
wou|d be eff|c|ent
8 1he company ls produclng more Lhan would be
efflclenL
41he prlce of good x lncreases uemand for
good ? decreases Cood x and good ? are
A ComplemenLs
8 SubsLlLuLes
C lnelasLlc
u -one of Lhe above
41he prlce of good x lncreases uemand for
good ? decreases Cood x and good ? are
omp|ements
8 SubsLlLuLes
C lnelasLlc
u -one of Lhe above
oe runs a book sLore e pays hls employees
$ a year and hls lnvenLory cosLs hlm
$ a year 8efore openlng Lhe book sLore
oe worked as a barLender earnlng $3 per
year WhaL would an economlsL say ls oe's cosL of
runnlng Lhe book sLore?
A $3
8 $
C $
u $
L -one of Lhe above
oe runs a book sLore e pays hls employees
$ a year and hls lnvenLory cosLs hlm
$ a year 8efore openlng Lhe book sLore
oe worked as a barLender earnlng $3 per
year WhaL would an economlsL say ls oe's cosL of
runnlng Lhe book sLore?
A $3
8 $
C $
u $
None of the above
6?our company uLlllzes a Lechnology LhaL glves you
decreaslng marglnal cosLs as Lhe quanLlLy
produced lncreases Whlch of Lhe LoLal cosL
curves ls conslsLenL wlLh your marglnal cosLs?
A llrm A
8 llrm 8
C llrm C
u llrm u
1C 1C 1C 1C
; ; ; ;
llrm A llrm 8 llrm C llrm u
6?our company uLlllzes a Lechnology LhaL glves you
decreaslng marglnal cosLs as Lhe quanLlLy
produced lncreases Whlch of Lhe LoLal cosL
curves ls conslsLenL wlLh your marglnal cosLs?
A llrm A
8 llrm 8
C llrm C
D I|rm D
1C 1C 1C 1C
; ; ; ;
llrm A llrm 8 llrm C llrm u
SLaLemenL lf good x ls a necesslLy lL wlll have a
more elasLlc demand curve Lhan good ? whlch ls a
luxury
SLaLemenL uemand for good Z wlll be more
elasLlc over longer Llme perlods
A SLaLemenL ls true SLaLemenL ls true
8 SLaLemenL ls true SLaLemenL ls fa|se
C SLaLemenL ls fa|se SLaLemenL ls true
u SLaLemenL ls fa|se SLaLemenL ls fa|se
SLaLemenL lf good x ls a necesslLy lL wlll have a
more elasLlc demand curve Lhan good ? whlch ls a
luxury
SLaLemenL uemand for good Z wlll be more
elasLlc over longer Llme perlods
A SLaLemenL ls true SLaLemenL ls true
8 SLaLemenL ls true SLaLemenL ls fa|se
C SLaLemenL ls fa|se SLaLemenL ls true
u SLaLemenL ls fa|se SLaLemenL ls fa|se
nours study|ng conom|cs 0 1 2 3 4 S
1oLal 8eneflLs 4 34 4 48
1oLal CosL 8 4 48
8Where do dlmlnlshlng reLurns seL ln wlLh respecL Lo Lhe
benef|ts of sLudylng Lconomlcs?
A 8eyond hours of sLudylng
8 8eyond hours of sLudylng
C 8eyond hours of sLudylng
u 8eyond 3 hours of sLudylng
L 8eyond 4 hours of sLudylng
WhaL ls Lhe opLlmal amounL of Llme Lo spend sLudylng
Lconomlcs
A hours
8 hours
C hours
u 3 hours
L hours
1oLal CosL 8 4 48
eyond 2 hours of study|ng
Lconomlcs
A hours
8 hours
C hours
u 3 hours
L hours
1oLal CosL 8 4 48
eyond 2 hours of study|ng
Lconomlcs
A hours
8 hours
C hours
D 3 hours
L hours
3
4
3 4 6
ountry
3
4
6
3 4
ountry
Cars Cars
CompuLers CompuLers
3 WhaL ls Lhe opporLunlLy cosL of a compuLer ln counLry A?
A $3 car
8 Z car
C $3 car
u car
L cars
3
4
3 4 6
ountry
3
4
6
3 4
ountry
Cars Cars
CompuLers CompuLers
3 WhaL ls Lhe opporLunlLy cosL of a compuLer ln counLry A?
A $3 car
x car
C $3 car
u car
L cars
3
4
3 4 6
ountry
3
4
6
3 4
ountry
Cars Cars
CompuLers CompuLers
3 Whlch of Lhe followlng sLaLemenLs regardlng comparaLlve advanLage ls Lrue?
A CounLry A has comparaLlve advanLage ln cars
8 CounLry A has comparaLlve advanLage ln compuLers
C CounLry A has comparaLlve advanLage ln boLh cars and compuLers
u CounLry 8 has comparaLlve advanLage ln boLh cars and compuLers
3
4
3 4 6
ountry
3
4
6
3 4
ountry
Cars Cars
CompuLers CompuLers
3 Whlch of Lhe followlng sLaLemenLs regardlng comparaLlve advanLage ls Lrue?
A CounLry A has comparaLlve advanLage ln cars
ountry has comparat|ve advantage |n computers
C CounLry A has comparaLlve advanLage ln boLh cars and compuLers
u CounLry 8 has comparaLlve advanLage ln boLh cars and compuLers
3
4
3 4 6
ountry
3
4
6
3 4
ountry
Cars Cars
CompuLers CompuLers
3 Whlch of Lhe followlng scenarlos represenLs galns from Lrade for both counLrles?
A CounLry A speclallzes ln cars counLry 8 speclallzes ln compuLers and counLry A
Lrades car for compuLers
8 CounLry A speclallzes ln cars counLry 8 speclallzes ln compuLers and counLry A
Lrades cars for compuLers
C CounLry A speclallzes ln compuLers counLry 8 speclallzes ln cars and counLry A
Lrades compuLers for car
u CounLry A speclallzes ln compuLers counLry 8 speclallzes ln cars and counLry A
Lrades 3 compuLers for cars
L -one of Lhe above
3
4
3 4 6
ountry
3
4
6
3 4
ountry
Cars Cars
CompuLers CompuLers
3 Whlch of Lhe followlng scenarlos represenLs galns from Lrade for both counLrles?
A CounLry A speclallzes ln cars counLry 8 speclallzes ln compuLers and counLry A
Lrades car for compuLers
8 CounLry A speclallzes ln cars counLry 8 speclallzes ln compuLers and counLry A
Lrades cars for compuLers
C CounLry A speclallzes ln compuLers counLry 8 speclallzes ln cars and counLry A
Lrades compuLers for car
D ountry spec|a||zes |n computers country spec|a||zes |n cars and country
trades 3 computers for 2 cars
L -one of Lhe above
r|ce uant|ty Demanded uant|ty Supp||ed
$ 6
$8 4
$6 3 3
$4 4
$
331he equlllbrlum prlce and quanLlLy ln Lhe markeL deplcLed ln Lable
are
A $ and
8 $6 and 3
C $6 and 6
u $ and 3
34 1he equaLlon of Lhe supply curve ln Lhe markeL deplcLed ln Lable ls
A ;+
8 ;+
C $;+3$
u ;
L -one of Lhe above
$ 6
$8 4
$6 3 3
$4 4
$
are
A $ and
56 and 30
C $6 and 6
u $ and 3
A ;+
8 ;+
C $;+3$
u ;
L -one of Lhe above
$ 6
$8 4
$6 3 3
$4 4
$
are
A $ and
56 and 30
C $6 and 6
u $ and 3
A ;+
8 ;+
C $;+3$
u ;
None of the above
3Suppose markeL supply lncreases and aL Lhe
same Llme markeL demand also lncreases
Whlch of Lhe followlng wlll be
unamb|guous|y Lrue?
A Lqulllbrlum prlce wlll lncrease
8 Lqulllbrlum prlce wlll decrease
C Lqulllbrlum quanLlLy wlll lncrease
u Lqulllbrlum quanLlLy wlll decrease
3Suppose markeL supply lncreases and aL Lhe
same Llme markeL demand also lncreases
Whlch of Lhe followlng wlll be
unamb|guous|y Lrue?
A Lqulllbrlum prlce wlll lncrease
8 Lqulllbrlum prlce wlll decrease
qu|||br|um quant|ty w||| |ncrease
u Lqulllbrlum quanLlLy wlll decrease
36 Suppose LhaL eggs and bacon are complemenLs lf Lhe
prlce of bacon decreases whaL Llll happen Lo Lhe
equlllbrlum prlce and quanLlLy ln Lhe egg markeL?
A Lqulllbrlum prlce wlll lncrease equlllbrlum quanLlLy wlll
lncrease
8 Lqulllbrlum prlce wlll lncrease equlllbrlum quanLlLy wlll
decrease
C Lqulllbrlum prlce wlll decrease equlllbrlum quanLlLy wlll
lncrease
u Lqulllbrlum prlce wlll decrease equlllbrlum quanLlLy wlll
decrease
36 Suppose LhaL eggs and bacon are complemenLs lf Lhe
prlce of bacon decreases whaL Llll happen Lo Lhe
equlllbrlum prlce and quanLlLy ln Lhe egg markeL?
qu|||br|um pr|ce w||| |ncrease equ|||br|um quant|ty w|||
|ncrease
8 Lqulllbrlum prlce wlll lncrease equlllbrlum quanLlLy wlll
decrease
lncrease
decrease
3Cood x ls an lnferlor good Cood Z ls a close
subsLlLuLe for good x We expecL good x Lo
have whlch of Lhe followlng demand
elasLlclLys?
A -egaLlve lncome elasLlclLy negaLlve cross prlce elasLlclLy
wlLh respecL Lo good Z
8 -egaLlve lncome elasLlclLy poslLlve cross prlce elasLlclLy
C oslLlve lncome elasLlclLy negaLlve cross prlce elasLlclLy
u oslLlve lncome elasLlclLy poslLlve cross prlce elasLlclLy
3Cood x ls an lnferlor good Cood Z ls a close
subsLlLuLe for good x We expecL good x Lo
have whlch of Lhe followlng demand
elasLlclLys?
A -egaLlve lncome elasLlclLy negaLlve cross prlce elasLlclLy
Negat|ve |ncome e|ast|c|ty pos|t|ve cross pr|ce e|ast|c|ty
w|th respect to good 2
C oslLlve lncome elasLlclLy negaLlve cross prlce elasLlclLy
u oslLlve lncome elasLlclLy poslLlve cross prlce elasLlclLy
38ln anuary Lhe prlce of coffee was $ and
4 cups were consumed ln lebruary Lhe
prlce of a cup of coffee was $3 and cups
were consumed WhaL mlghL have caused Lhls
change?
A 1he prlce of Lea (a subsLlLuLe for coffee) decreased
8 1he prlce of Lea lncreased
C 1he wages of coffee workers lncreased
u 1he wages of coffee workers decreased
L -one of Lhe above
38ln anuary Lhe prlce of coffee was $ and
4 cups were consumed ln lebruary Lhe
prlce of a cup of coffee was $3 and cups
were consumed WhaL mlghL have caused Lhls
change?
A 1he prlce of Lea (a subsLlLuLe for coffee) decreased
8 1he prlce of Lea lncreased
1he wages of coffee workers |ncreased
u 1he wages of coffee workers decreased
L -one of Lhe above
38egardlng Ann and 8ob whose demand for
sandwlches conforms wlLh Lhe law of
demand?
A Cnly Ann's
8 Cnly 8ob's
C 8oLh 8ob's and Ann's
u -elLher 8ob's nor Ann's
r|ce nn's uant|ty
Demanded
ob's uant|ty
Demanded
har||e's uant|ty
Demanded
$3 3 4
$4
38egardlng Ann and 8ob whose demand for
sandwlches conforms wlLh Lhe law of
demand?
A Cnly Ann's
8 Cnly 8ob's
oth ob's and nn's
u -elLher 8ob's nor Ann's
r|ce nn's uant|ty
Demanded
ob's uant|ty
Demanded
har||e's uant|ty
Demanded
$3 3 4
$4
4 Suppose LhaL Ann 8ob and Charlle are Lhe only
demanders of sandwlches ln Lhe markeL lf Lhe
currenL prlce of sandwlches ls $4 and Lhe
currenL quanLlLy supplled Lo Lhe markeL ls
Lhen
A 1here ls currenLly a surplus of sandwlches and Lhe
equlllbrlum prlce ls greaLer Lhan $4
8 1here ls currenLly a surplus of sandwlches and Lhe
equlllbrlum prlce ls less Lhan $4
C 1here ls currenLly a shorLage of sandwlches and Lhe
u 1here ls currenLly a shorLage of sandwlches and Lhe
r|ce nn's uant|ty
Demanded
ob's uant|ty
Demanded
har||e's uant|ty
Demanded
$3 3 4
$4 4
4 Suppose LhaL Ann 8ob and Charlle are Lhe only
demanders of sandwlches ln Lhe markeL lf Lhe
currenL prlce of sandwlches ls $4 and Lhe
currenL quanLlLy supplled Lo Lhe markeL ls
Lhen
A 1here ls currenLly a surplus of sandwlches and Lhe
8 1here ls currenLly a surplus of sandwlches and Lhe
1here |s current|y a shortage of 2 sandw|ches and the
equ|||br|um pr|ce |s greater than 54
u 1here ls currenLly a shorLage of sandwlches and Lhe
r|ce nn's uant|ty
Demanded
ob's uant|ty
Demanded
har||e's uant|ty
Demanded
$3 3 4
$4 4
41he prlce elasLlclLy of demand ls closely
relaLed Lo Lhe slope of Lhe demand curve
1he more responslve Lhe consumers are Lo a
change ln prlce
A 1he sLeeper Lhe demand curve wlll be
8 1he flaLLer Lhe demand curve wlll be
C 1he furLher Lo Lhe rlghL Lhe demand curve wlll be
41he prlce elasLlclLy of demand ls closely
relaLed Lo Lhe slope of Lhe demand curve
1he more responslve Lhe consumers are Lo a
change ln prlce
A 1he sLeeper Lhe demand curve wlll be
1he f|atter the demand curve w||| be
C 1he furLher Lo Lhe rlghL Lhe demand curve wlll be
4?ou have Lo pay $ for a flu shoL aL Lhe healLh
cenLer AfLer you recelve Lhe flu shoL lL ls
less llkely LhaL Lhe people around you wlll
conLracL Lhe flu 1he flu shoL ls an example
of
A A poslLlve exLernallLy
8 A negaLlve exLernallLy
C 1he reallLy prlnclple
u ulmlnlshlng reLurns
4?ou have Lo pay $ for a flu shoL aL Lhe healLh
cenLer AfLer you recelve Lhe flu shoL lL ls
less llkely LhaL Lhe people around you wlll
conLracL Lhe flu 1he flu shoL ls an example
of
pos|t|ve externa||ty
8 A negaLlve exLernallLy
C 1he reallLy prlnclple
u ulmlnlshlng reLurns
$ 1C
18
;
A 8 C
431he flrm wlLh cosL and revenue plcLured
above wlll
A Make a loss aL quanLlLy A
8 Make a loss aL quanLlLy 8
C Make a loss aL quanLlLy C
u Make a proflL aL quanLlLy A
L -one of Lhe above
$ 1C
18
;
A 8 C
431he flrm wlLh cosL and revenue plcLured
above wlll
A Make a loss aL quanLlLy A
8 Make a loss aL quanLlLy 8
Make a |oss at quant|ty
u Make a proflL aL quanLlLy A
L -one of Lhe above
$ 1C
18
;
A 8 C
44 lf f|xed costs aL Lhe flrm lncrease whlch of Lhe
followlng wlll be Lrue of Lhe quanLlLy Lhe flrm
produces (Lo maxlmlze proflL) and Lhe flrm proflL
A roflL maxlmlzlng quanLlLy wlll lncrease and proflL wlll decrease
8 roflL maxlmlzlng quanLlLy wlll lncrease and proflL wlll sLay Lhe same
C roflL maxlmlzlng quanLlLy wlll sLay Lhe same and proflL wlll decrease
u roflL maxlmlzlng quanLlLy wlll sLay Lhe same and proflL wlll sLay Lhe same
L roflL maxlmlzlng quanLlLy wlll decrease and proflL wlll decrease
$ 1C
18
;
A 8 C
44 lf f|xed costs aL Lhe flrm lncrease whlch of Lhe
followlng wlll be Lrue of Lhe quanLlLy Lhe flrm
produces (Lo maxlmlze proflL) and Lhe flrm proflL
A roflL maxlmlzlng quanLlLy wlll lncrease and proflL wlll decrease
8 roflL maxlmlzlng quanLlLy wlll lncrease and proflL wlll sLay Lhe same
rof|t max|m|z|ng quant|ty w||| stay the same and prof|t w||| decrease
u roflL maxlmlzlng quanLlLy wlll sLay Lhe same and proflL wlll sLay Lhe same
L roflL maxlmlzlng quanLlLy wlll decrease and proflL wlll decrease
4Suppose LhaL Lhe quanLlLy of rlnclples of
Lconomlcs LexLbooks supplled ln Lhe markeL
exceeds Lhe quanLlLy of LexLbooks
demanded We expecL LhaL
A 1he prlce of LexLbooks wlll lncrease
8 1he prlce of LexLbooks wlll decrease
C 1he supply wlll lncrease Lo meeL demand
u 1he demand wlll lncrease Lo meeL Lhe supply
L -one of Lhe above
4Suppose LhaL Lhe quanLlLy of rlnclples of
Lconomlcs LexLbooks supplled ln Lhe markeL
exceeds Lhe quanLlLy of LexLbooks
demanded We expecL LhaL
A 1he prlce of LexLbooks wlll lncrease
1he pr|ce of textbooks w||| decrease
C 1he supply wlll lncrease Lo meeL demand
u 1he demand wlll lncrease Lo meeL Lhe supply
L -one of Lhe above
461he markeL for plzza's ln Lhe ClLy of kenL ls
perfecLly compeLlLlve and consumer demand ls
glven by Lhe equaLlon $;+66 1he
producer supply ln Lhe plzza markeL ls glven by
Lhe equaLlon $;+3 lf Lhe currenL prlce of
plzza ls $ Lhe plzza markeL ln kenL ls
A ln shorLage
8 ln Surplus
C ln equlllbrlum
461he markeL for plzza's ln Lhe ClLy of kenL ls
perfecLly compeLlLlve and consumer demand ls
glven by Lhe equaLlon $;+66 1he
producer supply ln Lhe plzza markeL ls glven by
Lhe equaLlon $;+3 lf Lhe currenL prlce of
plzza ls $ Lhe plzza markeL ln kenL ls
In shortage
8 ln Surplus
C ln equlllbrlum
4MarkeL demand daLa lndlcaLe LhaL 8 movle
LlckeLs sold aL a prlce of $6 whlle 6 movle
LlckeLs wlll be sold aL a prlce of $ Whlch of
Lhe followlng ls Lrue?
A 1he demand for movle LlckeLs ls lnelasLlc
8 1he demand for movle LlckeLs ln elasLlc
C 1he demand for movle LlckeLs ls unlL elasLlc
4MarkeL demand daLa lndlcaLe LhaL 8 movle
LlckeLs sold aL a prlce of $6 whlle 6 movle
LlckeLs wlll be sold aL a prlce of $ Whlch of
Lhe followlng ls Lrue?
A 1he demand for movle LlckeLs ls lnelasLlc
1he demand for mov|e t|ckets |n e|ast|c
C 1he demand for movle LlckeLs ls unlL elasLlc
48 8lcycles are an lnferlor good lf lncome
lncreases whaL wlll happen Lo Lhe equlllbrlum
prlce and quanLlLy ln Lhe blcycle markeL?
decrease
8 Lqulllbrlum prlce wlll decrease equlllbrlum quanLlLy wlll be
amblguous
lncrease
decrease
L -one of Lhe above
48 8lcycles are an lnferlor good lf lncome
lncreases whaL wlll happen Lo Lhe equlllbrlum
prlce and quanLlLy ln Lhe blcycle markeL?
decrease
8 Lqulllbrlum prlce wlll decrease equlllbrlum quanLlLy wlll be
amblguous
lncrease
D qu|||br|um pr|ce w||| decrease equ|||br|um quant|ty w|||
decrease
L -one of Lhe above
4 ?ou are hlred as a buslness consulLanL wlLh Lhe
goal of ralslng LoLal revenue for Lhe ACML
dynamlLe company ?ou declde LhaL ACML
should ralse Lhe prlce of dynamlLe alLhough you
reallze Lhls may resulL ln ACML selllng fewer
sLlcks of dynamlLe 1hls sLraLegy wlll be mosL
effecLlve aL ralslng LoLal revenue lf
A 1he demand for dynamlLe ls lnelasLlc
8 1he demand for dynamlLe ls elasLlc
C -elLher a or b ls correcL LlasLlclLy of demand has no effecL
on LoLal revenue
4 ?ou are hlred as a buslness consulLanL wlLh Lhe
goal of ralslng LoLal revenue for Lhe ACML
dynamlLe company ?ou declde LhaL ACML
should ralse Lhe prlce of dynamlLe alLhough you
reallze Lhls may resulL ln ACML selllng fewer
sLlcks of dynamlLe 1hls sLraLegy wlll be mosL
effecLlve aL ralslng LoLal revenue lf
1he demand for dynam|te |s |ne|ast|c
8 1he demand for dynamlLe ls elasLlc
C -elLher a or b ls correcL LlasLlclLy of demand has no effecL
on LoLal revenue
Whlch of Lhe followlng evenLs could explaln
Lhe shlfL from producLlon posslblllLy fronLler
A Lo producLlon posslblllLy fronLler 8?
A Consumers lncrease Lhelr LasLe for bagels
8 1here was a Lechnologlcal advance bagel producLlon
C 1he amounL of labor avallable (used ln boLh baLLery
and bagel producLlon) lncreased
u 1here was a Lechnologlcal advance ln baLLery
producLlon
8aLLerles
A 8
8agels
Whlch of Lhe followlng evenLs could explaln
Lhe shlfL from producLlon posslblllLy fronLler
A Lo producLlon posslblllLy fronLler 8?
A Consumers lncrease Lhelr LasLe for bagels
1here was a techno|og|ca| advance bage| product|on
C 1he amounL of labor avallable (used ln boLh baLLery
and bagel producLlon) lncreased
u 1here was a Lechnologlcal advance ln baLLery
producLlon
8aLLerles
A 8
8agels
lf Lhe economy has ldle (nonoperaLlng) facLorles lL ls
operaLlng aL whlch polnL?
A olnL A
8 olnL 8
C olnL C
u -one of Lhe above
Cars
8
C
A
u
uonuLs
Whlch of Lhe followlng polnLs ls posslble and
efflclenL?
A olnL A
8 olnL 8
C olnL C
u -one of Lhe above
o|nt
8 olnL 8
C olnL C
u -one of Lhe above
Cars
8
C
A
u
uonuLs
efflclenL?
A olnL A
8 olnL 8
C olnL C
u -one of Lhe above
o|nt
8 olnL 8
C olnL C
u -one of Lhe above
Cars
8
C
A
u
uonuLs
efflclenL?
A olnL A
o|nt
C olnL C
u -one of Lhe above
Cars
8
C
A
u
uonuLs
31he opporLunlLy cosL of maklng donuLs ls hlghesL
aL whlch polnL?
A olnL A
8 olnL 8
C olnL u
Cars
8
C
A
u
uonuLs
31he opporLunlLy cosL of maklng donuLs ls hlghesL
aL whlch polnL?
A olnL A
8 olnL 8
o|nt D
41he prlce of a hamburger has lncreased whlle Lhe
quanLlLy of hamburgers sold has also lncreased lf
hamburgers are a normal good and plzza ls a
subsLlLuLe for a hamburger Lhen whlch of Lhe
followlng could accounL for Lhe prlce and quanLlLy
changes descrlbed above?
A An lncrease ln Lhe cosL of hamburger buns
8 A decrease ln lncome
C An lncrease ln Lhe number of hamburger sLands
u An lncrease ln Lhe cosL of plzza
41he prlce of a hamburger has lncreased whlle Lhe
quanLlLy of hamburgers sold has also lncreased lf
hamburgers are a normal good and plzza ls a
subsLlLuLe for a hamburger Lhen whlch of Lhe
followlng could accounL for Lhe prlce and quanLlLy
changes descrlbed above?
A An lncrease ln Lhe cosL of hamburger buns
8 A decrease ln lncome
C An lncrease ln Lhe number of hamburger sLands
D n |ncrease |n the cost of p|zza
lf LlckeLs sell for $ whaL wlll be Lhe LoLal
consumer surplus for Lhls group of
consumers?
A $
8 $4
C $
u $
L $
onsumer W||||ngness to ay
ennlfer $
uan $
uavld $
Llsa $4
ken $
lf LlckeLs sell for $ whaL wlll be Lhe LoLal
consumer surplus for Lhls group of
consumers?
A $
8 $4
5S0
u $
L $
ennlfer $
uan $
uavld $
Llsa $4
ken $
6lf Lhere ls only one LlckeL Lo be sold Lo
Lhls group ln an aucLlon whaL wlll Lhe
LlckeL sell for?
A $6
8 $
C $4
u $
ennlfer $
uan $
uavld $
Llsa $4
ken $
6lf Lhere ls only one LlckeL Lo be sold Lo
Lhls group ln an aucLlon whaL wlll Lhe
LlckeL sell for?
A $6
8 $
541
u $
ennlfer $
uan $
uavld $
Llsa $4
ken $
$
MC
M8
;uanLlLy
q q q3
WhaL quanLlLy should Lhe flrm deplcLed ln llgure 4 produce?
A q
8 q
C q3
81he flrm deplcLed ln llgure 4 ls currenLly produclng q unlLs 1he
flrm ls
A 8reaklng even
8 Maklng a proflL
C Maklng a loss
u -oL enough lnformaLlon provlded
$
MC
M8
;uanLlLy
q q q3
A q
q2
C q3
flrm ls
A 8reaklng even
8 Maklng a proflL
C Maklng a loss
u -oL enough lnformaLlon provlded
$
MC
M8
;uanLlLy
q q q3
A q
q2
C q3
flrm ls
A 8reaklng even
8 Maklng a proflL
C Maklng a loss
D Not enough |nformat|on prov|ded
rlce Supply
4
3
uemand
; ; ;3 ;uanLlLy
A
8 C
u L
l
When Lhe markeL deplcLed ln flgure reaches equlllbrlum aL
(;3) consumer surplus wlll be equal Lo Lhe area of
A Area A
8 Area A + Area 8
C Area A + Area 8 + Area C
u Area u + Area L + Area l
L -one of Lhe above
rlce Supply
4
3
uemand
; ; ;3 ;uanLlLy
A
8 C
u L
l
When Lhe markeL deplcLed ln flgure reaches equlllbrlum aL
(;3) consumer surplus wlll be equal Lo Lhe area of
A Area A
8 Area A + Area 8
rea + rea + rea
u Area u + Area L + Area l
L -one of Lhe above
6 1wo counLrles are conslderlng Lradlng Lea and
coffee CounLry A has abso|ute advanLage ln
boLh goods CounLry A has comparat|ve
advanLage ln Lea producLlon Whlch of Lhe
followlng ls Lrue?
A CounLry A cannoL galn from Lradlng
8 CounLry A musL have comparaLlve advanLage ln coffee
producLlon
C CounLry 8 cannoL galn from Lradlng
u CounLry 8 musL have a comparaLlve advanLage ln coffee
producLlon
6 1wo counLrles are conslderlng Lradlng Lea and
coffee CounLry A has abso|ute advanLage ln
boLh goods CounLry A has comparat|ve
advanLage ln Lea producLlon Whlch of Lhe
followlng ls Lrue?
A CounLry A cannoL galn from Lradlng
8 CounLry A musL have comparaLlve advanLage ln coffee
producLlon
C CounLry 8 cannoL galn from Lradlng
D ountry must have a comparat|ve advantage |n coffee
product|on
6 ollLlclans seeklng voLes ln Chlo have recenLly
crlLlclzed Lhe -Al1A Lrade agreemenL as cosLlng
Chlo manufacLurlng [obs" (-Al1A reduced Lrade
barrlers beLween Lhe DS Mexlco and Canada)
LconomlsLs counLry LhaL -Al1A has resulLed ln
lncreased employmenL ln [obs requlrlng hlgh levels of
Lechnologlcal sklll (hlgh Lech [obs) Clven Lhe class
dlscusslon abouL galns from Lrade boLh Lhe
pollLlclans and economlsLs would be correcL lf
A Mexlco had comparaLlve advanLage ln manufacLurlng
Lhe DS had comparaLlve advanLage ln hlgh Lech [obs
8 Mexlco had comparaLlve advanLage ln hlgh Lech [obs
Lhe DS had comparaLlve advanLage ln manufacLurlng
C -one of Lhe above
6 ollLlclans seeklng voLes ln Chlo have recenLly
crlLlclzed Lhe -Al1A Lrade agreemenL as cosLlng
Chlo manufacLurlng [obs" (-Al1A reduced Lrade
barrlers beLween Lhe DS Mexlco and Canada)
LconomlsLs counLry LhaL -Al1A has resulLed ln
lncreased employmenL ln [obs requlrlng hlgh levels of
Lechnologlcal sklll (hlgh Lech [obs) Clven Lhe class
dlscusslon abouL galns from Lrade boLh Lhe
pollLlclans and economlsLs would be correcL lf
Mex|co had comparat|ve advantage |n manufactur|ng
the US had comparat|ve advantage |n h|gh tech [obs
8 Mexlco had comparaLlve advanLage ln hlgh Lech [obs
Lhe DS had comparaLlve advanLage ln manufacLurlng
C -one of Lhe above
6Suppose you flnd $ lf you choose Lo use Lhe
$ Lo go Lo Lhe fooLball game your opporLunlLy
cosL of golng Lo Lhe game ls
A -oLhlng because you found Lhe money
8 $ (because you could have used Lhe $ Lo buy oLher
Lhlngs)
C $ (because you could have used Lhe $ Lo buy oLher
Lhlngs) plus Lhe value of your Llme spenL aL Lhe game
u $ (because you could have used Lhe $ Lo buy oLher
Lhlngs) plus Lhe value of your Llme spenL aL Lhe game plus
Lhe cosL of Lhe dlnner you purchased aL Lhe game
L -one of Lhe above
6Suppose you flnd $ lf you choose Lo use Lhe
$ Lo go Lo Lhe fooLball game your opporLunlLy
cosL of golng Lo Lhe game ls
A -oLhlng because you found Lhe money
8 $ (because you could have used Lhe $ Lo buy oLher
Lhlngs)
520 (because you cou|d have used the 520 to buy other
th|ngs) p|us the va|ue of your t|me spent at the game
u $ (because you could have used Lhe $ Lo buy oLher
Lhlngs) plus Lhe value of your Llme spenL aL Lhe game plus
Lhe cosL of Lhe dlnner you purchased aL Lhe game
L -one of Lhe above
638ecause people respond Lo lncenLlves we would
expecL LhaL lf Lhe average salary of accounLanLs
lncreases by percenL whlle Lhe average salary of
Leachers lncreases by percenL
A SLudenLs wlll shlfL ma[ors from educaLlon Lo accounLlng
8 SLudenLs wlll shlfL ma[ors from accounLlng Lo educaLlon
C lewer sLudenLs wlll aLLend college
u -one of Lhe above ls Lrue
638ecause people respond Lo lncenLlves we would
expecL LhaL lf Lhe average salary of accounLanLs
lncreases by percenL whlle Lhe average salary of
Leachers lncreases by percenL
Students w||| sh|ft ma[ors from educat|on to account|ng
8 SLudenLs wlll shlfL ma[ors from accounLlng Lo educaLlon
C lewer sLudenLs wlll aLLend college
64Whlch of Lhe followlng acLlvlLles ls mosL llkely
Lo produce an exLernallLy?
A A sLudenL slLs aL home and waLches Lelevlslon
8 A sLudenL has a parLy ln her dorm room
C A sLudenL reads a novel for pleasure
u A sLudenL eaLs a hamburger ln Lhe sLudenL unlon
64Whlch of Lhe followlng acLlvlLles ls mosL llkely
Lo produce an exLernallLy?
A A sLudenL slLs aL home and waLches Lelevlslon
student has a party |n her dorm room
C A sLudenL reads a novel for pleasure
u A sLudenL eaLs a hamburger ln Lhe sLudenL unlon
6Whlch of Lhe followlng producLs would be
leasL capable of produclng an exLernallLy?
A ClgareLLes
8 SLereo equlpmenL
C lnoculaLlons agalnsL dlsease
u LducaLlon
L lood
6Whlch of Lhe followlng producLs would be
leasL capable of produclng an exLernallLy?
A ClgareLLes
8 SLereo equlpmenL
C lnoculaLlons agalnsL dlsease
u LducaLlon
Iood
66?ou have spenL $ bulldlng a hoLdog sLand
based on esLlmaLes of sales of $ 1he hoL
dog sLand ls nearly compleLed buL now you
esLlmaLe LoLal sales Lo be only $8 ?ou can
compleLe Lhe hoLdog sLand for anoLher $3
Should you compleLe Lhe hoLdog sLand?
(Assume LhaL Lhe hoL dogs cosL you noLhlng)
A ?es
8 -o
C 1here ls noL enough lnformaLlon Lo answer Lhls quesLlon
66?ou have spenL $ bulldlng a hoLdog sLand
based on esLlmaLes of sales of $ 1he hoL
dog sLand ls nearly compleLed buL now you
esLlmaLe LoLal sales Lo be only $8 ?ou can
compleLe Lhe hoLdog sLand for anoLher $3
Should you compleLe Lhe hoLdog sLand?
(Assume LhaL Lhe hoL dogs cosL you noLhlng)
es
8 -o
C 1here ls noL enough lnformaLlon Lo answer Lhls quesLlon
6Whlch of Lhe followlng ls a facLor of
producLlon?
A Land
8 Labor
C CaplLal
u Money
L All of Lhe above are facLors of producLlon
6Whlch of Lhe followlng ls a facLor of
producLlon?
A Land
8 Labor
C CaplLal
D Money
L All of Lhe above are facLors of producLlon
68 olnLs on Lhe producLlon posslblllLles
fronLler are
A LfflclenL
8 lnefflclenL
C DnaLLalnable
u -ormaLlve
L -one of Lhe above
68 olnLs on Lhe producLlon posslblllLles
fronLler are
ff|c|ent
8 lnefflclenL
C DnaLLalnable
u -ormaLlve
L -one of Lhe above
6Whlch of Lhe followlng wlll noL shlfL a
counLry's producLlon posslblllLles fronLler
ouLward?
A An lncrease ln Lhe caplLal sLock
8 An advance ln Lechnology
C A reducLlon ln unemploymenL
u An lncrease ln Lhe labor force
6Whlch of Lhe followlng wlll noL shlfL a
counLry's producLlon posslblllLles fronLler
ouLward?
A An lncrease ln Lhe caplLal sLock
8 An advance ln Lechnology
reduct|on |n unemp|oyment
u An lncrease ln Lhe labor force
Lconomlc growLh ls deplcLed by
A A movemenL along a producLlon posslblllLles fronLler
Loward caplLal goods
8 A shlfL ln Lhe producLlon posslblllLles fronLler ouLward
C A shlfL ln Lhe producLlon posslblllLles fronLler lnward
u A movemenL from lnslde Lhe curve Loward Lhe curve
Lconomlc growLh ls deplcLed by
A A movemenL along a producLlon posslblllLles fronLler
Loward caplLal goods
sh|ft |n the product|on poss|b|||t|es front|er outward
C A shlfL ln Lhe producLlon posslblllLles fronLler lnward
u A movemenL from lnslde Lhe curve Loward Lhe curve
8acon
4 A
8 l
3
L C
3 4 6
lf Lhe economy ls operaLlng aL polnL C Lhe opporLunlLy cosL of produclng an addlLlonal
unlLs of bacon ls
A unlLs of eggs
8 unlLs of eggs
C 3 unlLs of eggs
u 4 unlLs of eggs
L unlLs of eggs
u
Lggs
8acon
4 A
8 l
3
L C
3 4 6
lf Lhe economy ls operaLlng aL polnL C Lhe opporLunlLy cosL of produclng an addlLlonal
unlLs of bacon ls
A unlLs of eggs
20 un|ts of eggs
C 3 unlLs of eggs
u 4 unlLs of eggs
L unlLs of eggs
u
Lggs
8acon
4 A
8 l
3
L C
3 4 6
lf Lhe economy were operaLlng aL polnL L
A 1he opporLunlLy cosL of addlLlonal unlLs of eggs ls unlLs of bacon
8 1he opporLunlLy cosL of addlLlonal unlLs of eggs ls unlLs of bacon
C 1he opporLunlLy cosL of addlLlonal unlLs of eggs ls 3 unlLs of bacon
u addlLlonal unlLs of eggs can be produced wlLh no lmpacL on bacon
producLlon
u
Lggs
8acon
4 A
8 l
3
L C
3 4 6
lf Lhe economy were operaLlng aL polnL L
A 1he opporLunlLy cosL of addlLlonal unlLs of eggs ls unlLs of bacon
8 1he opporLunlLy cosL of addlLlonal unlLs of eggs ls unlLs of bacon
C 1he opporLunlLy cosL of addlLlonal unlLs of eggs ls 3 unlLs of bacon
D 20 add|t|ona| un|ts of eggs can be produced w|th no |mpact on bacon
product|on
u
Lggs
8acon
4 A
8 l
3
L C
3 4 6
3 olnL l represenLs
A A comblnaLlon of producLlon LhaL can be reached lf we reduce Lhe producLlon of
eggs by unlLs
8 A comblnaLlon of producLlon LhaL ls lnefflclenL because Lhere are unemployed
resources
C A comblnaLlon of producLlon LhaL can be reached lf Lhere ls a sufflclenL advance
ln Lechnology
u -one of Lhe above
u
Lggs
8acon
4 A
8 l
3
L C
3 4 6
3 olnL l represenLs
A A comblnaLlon of producLlon LhaL can be reached lf we reduce Lhe producLlon of
eggs by unlLs
8 A comblnaLlon of producLlon LhaL ls lnefflclenL because Lhere are unemployed
resources
comb|nat|on of product|on that can be reached |f there |s a suff|c|ent advance
|n techno|ogy
u -one of Lhe above
u
Lggs
8acon
4 A
8 l
3
L C
3 4 6
4 As we move from polnL A Lo polnL u
A 1he opporLunlLy cosL of eggs ln Lerms of bacon ls consLanL
8 1he opporLunlLy cosL of eggs ln Lerms of bacon falls
C 1he opporLunlLy cosL of eggs ln Lerms of bacon rlses
u 1he economy becomes more efflclenL
L 1he economy becomes less efflclenL
u
Lggs
8acon
4 A
8 l
3
L C
3 4 6
4 As we move from polnL A Lo polnL u
A 1he opporLunlLy cosL of eggs ln Lerms of bacon ls consLanL
8 1he opporLunlLy cosL of eggs ln Lerms of bacon falls
1he opportun|ty cost of eggs |n terms of bacon r|ses
u 1he economy becomes more efflclenL
L 1he economy becomes less efflclenL
u
Lggs
lf a naLlon has an absoluLe advanLage ln Lhe
producLlon of a good
A lL can produce LhaL good aL a lower opporLunlLy cosL
LhaL lLs Lradlng parLner
8 lL can produce LhaL good uslng fewer resources Lhan lLs
Lradlng parLner
C lL can beneflL by resLrlcLlng lmporLs of LhaL good
u lL wlll speclallze ln Lhe producLlon of LhaL good and
exporL lL
L -one of Lhe above ls Lrue
lf a naLlon has an absoluLe advanLage ln Lhe
producLlon of a good
A lL can produce LhaL good aL a lower opporLunlLy cosL
LhaL lLs Lradlng parLner
It can produce that good us|ng fewer resources than
|ts trad|ng partner
u lL wlll speclallze ln Lhe producLlon of LhaL good and
exporL lL
6lf a naLlon has a comparaLlve advanLage ln
Lhe producLlon of a good
A lL can produce LhaL good aL a lower opporLunlLy
cosL Lhan lLs Lradlng parLner
8 lL can produce LhaL good uslng fewer resources
Lhan lLs Lradlng parLner
u lL musL be Lhe only counLry wlLh Lhe ablllLy Lo
produce LhaL good
6lf a naLlon has a comparaLlve advanLage ln
Lhe producLlon of a good
It can produce that good at a |ower opportun|ty
cost than |ts trad|ng partner
8 lL can produce LhaL good uslng fewer resources
Lhan lLs Lradlng parLner
u lL musL be Lhe only counLry wlLh Lhe ablllLy Lo
produce LhaL good
Whlch of Lhe followlng sLaLemenLs abouL Lrade
ls Lrue?
A DnresLrlcLed lnLernaLlonal Lrade beneflLs every person
ln a counLry equally
8 eople LhaL are skllled aL all acLlvlLles cannoL beneflL
from Lrade
C 1rade can beneflL everyone ln socleLy because lL allows
people Lo speclallze ln acLlvlLles ln whlch Lhey have an
absoluLe advanLage
u 1rade can beneflL everyone ln socleLy because lL allows
people Lo speclallze ln acLlvlLles ln whlch Lhey have a
comparaLlve advanLage
Whlch of Lhe followlng sLaLemenLs abouL Lrade
ls Lrue?
A DnresLrlcLed lnLernaLlonal Lrade beneflLs every person
ln a counLry equally
8 eople LhaL are skllled aL all acLlvlLles cannoL beneflL
from Lrade
C 1rade can beneflL everyone ln socleLy because lL allows
people Lo speclallze ln acLlvlLles ln whlch Lhey have an
absoluLe advanLage
D 1rade can benef|t everyone |n soc|ety because |t a||ows
peop|e to spec|a||ze |n act|v|t|es |n wh|ch they have a
comparat|ve advantage
8Accordlng Lo Lhe prlnclple of comparaLlve
advanLage
A CounLrles wlLh a comparaLlve advanLage ln Lhe
producLlon of every good need noL speclallze
8 CounLrles should speclallze ln Lhe producLlon of goods
LhaL Lhey en[oy consumlng
C CounLrles should speclallze ln Lhe producLlon of goods
for whlch Lhey use fewer resources ln producLlon LhaL Lhelr
Lradlng parLner
u CounLrles should speclallze ln Lhe producLlon of goods
for whlch Lhey have a lower opporLunlLy cosL of producLlon
Lhan Lhelr Lradlng parLner
8Accordlng Lo Lhe prlnclple of comparaLlve
advanLage
A CounLrles wlLh a comparaLlve advanLage ln Lhe
producLlon of every good need noL speclallze
8 CounLrles should speclallze ln Lhe producLlon of goods
LhaL Lhey en[oy consumlng
C CounLrles should speclallze ln Lhe producLlon of goods
for whlch Lhey use fewer resources ln producLlon LhaL Lhelr
Lradlng parLner
D ountr|es shou|d spec|a||ze |n the product|on of goods
for wh|ch they have a |ower opportun|ty cost of
product|on than the|r trad|ng partner
Whlch of Lhe followlng sLaLemenLs ls Lrue?
A Selfsufflclency ls Lhe road Lo prosperlLy for mosL
counLrles
8 A selfsufflclenL counLry consumes ouLslde lLs
producLlon posslblllLles fronLler
C A selfsufflclenL counLry aL besL can consume on lLs
u Cnly counLrles wlLh an absoluLe advanLage ln Lhe
producLlon of every good should sLrlve Lo be self
sufflclenL
A Selfsufflclency ls Lhe road Lo prosperlLy for mosL
counLrles
8 A selfsufflclenL counLry consumes ouLslde lLs
se|fsuff|c|ent country at best can consume on
|ts product|on poss|b|||t|es front|er
u Cnly counLrles wlLh an absoluLe advanLage ln Lhe
producLlon of every good should sLrlve Lo be self
sufflclenL
8Suppose a counLry's workers can produce 4
waLches per hour or rlngs per hour lf
Lhere ls no Lrade
A 1he domesLlc prlce of rlng ls 3 waLches
8 1he domesLlc prlce of rlng ls $3 of a waLch
C 1he domesLlc prlce of rlng ls 4 waLches
u 1he domesLlc prlce of rlng x of a waLch
L 1he domesLlc prlce of rlng ls waLches
Lhere ls no Lrade
A 1he domesLlc prlce of rlng ls 3 waLches
1he domest|c pr|ce of 1 r|ng |s 1]3 of a watch
C 1he domesLlc prlce of rlng ls 4 waLches
u 1he domesLlc prlce of rlng x of a waLch
L 1he domesLlc prlce of rlng ls waLches
Lhere ls no Lrade
A 1he opporLunlLy cosL of waLch ls 3 rlngs
8 1he opporLunlLy cosL of waLch ls $3 of a rlng
C 1he opporLunlLy cosL of waLch ls 4 rlngs
u 1he opporLunlLy cosL of waLch ls x of a rlng$
L 1he opporLunlLy cosL of waLch ls rlngs
Lhere ls no Lrade
1he opportun|ty cost of 1 watch |s 3 r|ngs
8 1he opporLunlLy cosL of waLch ls $3 of a rlng
C 1he opporLunlLy cosL of waLch ls 4 rlngs
u 1he opporLunlLy cosL of waLch ls x of a rlng$
L 1he opporLunlLy cosL of waLch ls rlngs
Iood ducat|on
AusLralla
korea 8 4
8 Whlch of Lhe followlng sLaLemenLs abouL absoluLe advanLage ls Lrue?
A AusLralla has an absoluLe advanLage ln Lhe producLlon of food whlle korea
has a n absoluLe advanLage ln Lhe producLlon of elecLronlcs
8 korea has an absoluLe advanLage ln Lhe producLlon of food whlle AusLralla
has an absoluLe advanLage ln Lhe producLlon of elecLronlcs
C AusLralla has an absoluLe advanLage ln Lhe producLlon of boLh food and
elecLronlcs
u korea has an absoluLe advanLage ln Lhe producLlon of boLh food and
elecLronlcs
8 1he opporLunlLy cosL of unlL of elecLronlcs ln AusLralla ls
A unlLs of food C 4 unlLs
8 $ of a unlL of food u x of a unlL of food
83 1he opporLunlLy cosL of unlL of elecLronlcs ln korea
A unlLs of food C 4 unlLs of food
8 Z of a unlL of food u x of a unlL of food
84 1he opporLunlLy cosL of unlL of food ln AusLralla ls
A unlLs of elecLronlcs C 4 unlLs of elecLronlcs
8 $ of a unlL of elecLronlcs u x of a unlLs of elecLronlcs
Iood ducat|on
AusLralla
korea 8 4
ustra||a has an abso|ute advantage |n the product|on of both food and
e|ectron|cs
elecLronlcs
A unlLs of food C 4 unlLs
Iood ducat|on
AusLralla
korea 8 4
e|ectron|cs
elecLronlcs
A unlLs of food 4 un|ts
Iood ducat|on
AusLralla
korea 8 4
e|ectron|cs
elecLronlcs
A 2 un|ts of food C 4 unlLs of food
Iood ducat|on
AusLralla
korea 8 4
e|ectron|cs
elecLronlcs
A 2 un|ts of food C 4 unlLs of food
8 $ of a unlL of elecLronlcs D x of a un|ts of e|ectron|cs
Iood ducat|on
AusLralla
korea 8 4
8 1he opporLunlLy of cosL unlL of food ln korea ls
8 Z of a unlL of elecLronlcs u x of a unlL of elecLronlcs
86 Whlch of Lhe followlng sLaLemenLs abouL comparaLlve advanLage ls Lrue?
A AusLralla has a comparaLlve advanLage ln Lhe producLlon of food whlle korea
has a comparaLlve advanLage ln Lhe producLlon of elecLronlcs
8 korea has a comparaLlve advanLage ln Lhe producLlon of food whlle AusLralla
C AusLralla has a comparaLlve advanLage ln Lhe producLlon of boLh food and
elecLronlcs
u korea has a comparaLlve advanLage ln Lhe producLlon of boLh food and
elecLronlcs
L -elLher counLry has a comparaLlve advanLage
8 korea should
A Speclallze ln food producLlon exporL food and lmporL elecLronlcs
8 Speclallze ln elecLronlcs producLlon exporL elecLronlcs and lmporL food
C roduce boLh goods because nelLher counLry has a comparaLlve advanLage
u roduce nelLher good because lL has an absoluLe dlsadvanLage ln Lhe producLlon of
boLh goods
Iood ducat|on
AusLralla
korea 8 4
x of a un|t of e|ectron|cs u x of a unlL of elecLronlcs
A AusLralla has a comparaLlve advanLage ln Lhe producLlon of food whlle korea
elecLronlcs
elecLronlcs
8 korea should
boLh goods
Iood ducat|on
AusLralla
korea 8 4
ustra||a has a comparat|ve advantage |n the product|on of food wh||e korea
has a comparat|ve advantage |n the product|on of e|ectron|cs
elecLronlcs
elecLronlcs
8 korea should
boLh goods
Iood ducat|on
AusLralla
korea 8 4
ustra||a has a comparat|ve advantage |n the product|on of food wh||e korea
has a comparat|ve advantage |n the product|on of e|ectron|cs
elecLronlcs
elecLronlcs
8 korea should
Spec|a||ze |n e|ectron|cs product|on export e|ectron|cs and |mport food
boLh goods
Iood ducat|on
AusLralla
korea 8 4
88 rlces of elecLronlcs can be sLaLed ln Lerms of unlLs of food WhaL
ls Lhe range of prlces of elecLronlcs for whlch boLh counLrles could
galn from Lrade?
A 1he prlce musL be greaLer Lhan $ of a unlL of food buL less Lhan x of a
unlL of food
8 1he prlce musL be greaLer Lhan 4 unlLs of food buL less Lhan unlLs of
food
C 1he prlce musL be greaLer Lhan x of a unlL of food buL less Lhan Z of a
unlL of food
u 1he prlce musL be greaLer Lhan unlLs of food buL less Lhan 4 unlLs of
food
Iood ducat|on
AusLralla
korea 8 4
88 rlces of elecLronlcs can be sLaLed ln Lerms of unlLs of food WhaL
ls Lhe range of prlces of elecLronlcs for whlch boLh counLrles could
galn from Lrade?
A 1he prlce musL be greaLer Lhan $ of a unlL of food buL less Lhan x of a
unlL of food
8 1he prlce musL be greaLer Lhan 4 unlLs of food buL less Lhan unlLs of
food
C 1he prlce musL be greaLer Lhan x of a unlL of food buL less Lhan Z of a
unlL of food
D 1he pr|ce must be greater than 2 un|ts of food but |ess than 4 un|ts of
food
8 Suppose Lhe world conslsLs of Lwo counLrles Lhe
DnlLed SLaLes and Mexlco lurLhermore suppose
Lhere are only Lwo goods food and cloLhlng
A lf Lhe DnlLed SLaLes has an absoluLe advanLage ln Lhe
producLlon of food Lhen Mexlco musL have an absoluLe
advanLage ln Lhe producLlon of cloLhlng
8 lf Lhe DnlLed SLaLes has a comparaLlve advanLage ln Lhe
producLlon of food Lhen Mexlco musL have a comparaLlve
C lf Lhe DnlLed SLaLes has a comparaLlve advanLage ln Lhe
producLlon of food lL musL also have a comparaLlve advanLage
ln Lhe producLlon of cloLhlng
u lf Lhe DnlLed SLaLes has a comparaLlve advanLage ln Lhe
producLlon of food Mexlco mlghL also have a comparaLlve
advanLage ln Lhe producLlon of food
8 Suppose Lhe world conslsLs of Lwo counLrles Lhe
DnlLed SLaLes and Mexlco lurLhermore suppose
Lhere are only Lwo goods food and cloLhlng
A lf Lhe DnlLed SLaLes has an absoluLe advanLage ln Lhe
producLlon of food Lhen Mexlco musL have an absoluLe
If the Un|ted States has a comparat|ve advantage |n the
product|on of food then Mex|co must have a comparat|ve
advantage |n the product|on of c|oth|ng
C lf Lhe DnlLed SLaLes has a comparaLlve advanLage ln Lhe
producLlon of food lL musL also have a comparaLlve advanLage
ln Lhe producLlon of cloLhlng
u lf Lhe DnlLed SLaLes has a comparaLlve advanLage ln Lhe
producLlon of food Mexlco mlghL also have a comparaLlve
advanLage ln Lhe producLlon of food
ArgenLlna has a comparaLlve advanLage ln Lhe producLlon of
A 8oLh frulL and beef C 8eef
8 lrulL u -elLher frulL nor beef
eru wlll exporL
1he opporLunlLy cosL of produclng meLrlc Lon of beef ln eru ls
A $3 Lon of frulL
8 Lon of frulL
C Lons of frulL
u 3 Lons of frulL
L 6 Lons of frulL
4
6
8
4 6
eru
lrulL
8eef
4 6
rgent|na
A 8oLh frulL and beef eef
eru wlll exporL
A $3 Lon of frulL
8 Lon of frulL
C Lons of frulL
u 3 Lons of frulL
L 6 Lons of frulL
4
6
8
4 6
eru
lrulL
8eef
4 6
rgent|na
eru wlll exporL
Iru|t u -elLher frulL nor beef
A $3 Lon of frulL
8 Lon of frulL
C Lons of frulL
u 3 Lons of frulL
L 6 Lons of frulL
4
6
8
4 6
eru
lrulL
8eef
4 6
rgent|na
eru wlll exporL
Iru|t u -elLher frulL nor beef
A $3 Lon of frulL
8 Lon of frulL
C Lons of frulL
D 3 tons of fru|t
L 6 Lons of frulL
4
6
8
4 6
eru
lrulL
8eef
4 6
rgent|na
3oe ls a Lax accounLanL e recelves $ per
hour dolng Lax reLurns e can Lype
characLers per hour lnLo spreadsheeLs e can
hlre an asslsLanL who Lypes characLers per
hour lnLo spreadsheeLs Whlch of Lhe followlng
sLaLemenLs ls Lrue?
A oe should noL hlre an asslsLanL because Lhe
asslsLanL cannoL Lype as fasL as he can
8 oe should hlre Lhe asslsLanL as long as he pays Lhe
asslsLanL less Lhan $ per hour
C oe should hlre Lhe asslsLanL as long as he pays Lhe
3oe ls a Lax accounLanL e recelves $ per
hour dolng Lax reLurns e can Lype
characLers per hour lnLo spreadsheeLs e can
hlre an asslsLanL who Lypes characLers per
hour lnLo spreadsheeLs Whlch of Lhe followlng
sLaLemenLs ls Lrue?
A oe should noL hlre an asslsLanL because Lhe
asslsLanL cannoL Lype as fasL as he can
8 oe should hlre Lhe asslsLanL as long as he pays Lhe
Ioe shou|d h|re the ass|stant as |ong as he pays
the ass|stant |ess than 52S per hour
4lf an lncrease ln Lhe prlce of blue [eans leads
Lo an lncrease ln Lhe demand for Lennls
shoes Lhen blue [eans and Lennls shoes are
A SubsLlLuLes
8 ComplemenLs
C -ormal goods
u lnferlor goods
L -one of Lhe above
4lf an lncrease ln Lhe prlce of blue [eans leads
Lo an lncrease ln Lhe demand for Lennls
shoes Lhen blue [eans and Lennls shoes are
Subst|tutes
8 ComplemenLs
C -ormal goods
u lnferlor goods
L -one of Lhe above
1he low JemoJ sLaLes LhaL an lncrease ln Lhe
prlce of a good
A uecreases Lhe demand for LhaL good
8 uecreases Lhe quanLlLy demanded for LhaL good
C lncreases Lhe supply of LhaL good
u lncreases Lhe quanLlLy supplled of LhaL good
L uoes none of Lhe above
1he low JemoJ sLaLes LhaL an lncrease ln Lhe
prlce of a good
A uecreases Lhe demand for LhaL good
Decreases the quant|ty demanded for that good
C lncreases Lhe supply of LhaL good
u lncreases Lhe quanLlLy supplled of LhaL good
L uoes none of Lhe above
6lf an lncrease ln consumer lncome leads Lo a
decrease ln Lhe demand for camplng equlpmenL
Lhen camplng equlpmenL ls
A A complemenLary good
8 A subsLlLuLe good
C A normal good
u An lnferlor good
L -one of Lhe above
6lf an lncrease ln consumer lncome leads Lo a
decrease ln Lhe demand for camplng equlpmenL
Lhen camplng equlpmenL ls
A A complemenLary good
8 A subsLlLuLe good
C A normal good
D n |nfer|or good
L -one of Lhe above
Whlch of Lhe followlng shlfLs Lhe demand for
waLches Lo Lhe rlghL?
A A decrease ln Lhe prlce of waLches
8 A decrease ln consumer lncomes lf waLches are a
normal good
C A decrease ln Lhe prlce of waLch baLLerles lf waLch
baLLerles and waLches are complemenLs
u An lncrease ln Lhe prlce of waLches
L -one of Lhe above
Whlch of Lhe followlng shlfLs Lhe demand for
waLches Lo Lhe rlghL?
A A decrease ln Lhe prlce of waLches
8 A decrease ln consumer lncomes lf waLches are a
normal good
decrease |n the pr|ce of watch batter|es |f watch
batter|es and watches are comp|ements
u An lncrease ln Lhe prlce of waLches
L -one of Lhe above
8All of Lhe followlng shlfL Lhe supply of
waLches Lo Lhe rlghL excepL
A An lncrease ln Lhe prlce of waLches
8 An advance ln Lhe Lechnology used Lo manufacLure
waLches
C A decrease ln Lhe wage of workers employed Lo
manufacLure waLches
u ManufacLurers' expecLaLlons of lower waLch prlces ln
Lhe fuLure
L All of Lhe above cause an lncrease ln Lhe supply of
waLches
8All of Lhe followlng shlfL Lhe supply of
waLches Lo Lhe rlghL excepL
n |ncrease |n the pr|ce of watches
8 An advance ln Lhe Lechnology used Lo manufacLure
waLches
C A decrease ln Lhe wage of workers employed Lo
manufacLure waLches
u ManufacLurers' expecLaLlons of lower waLch prlces ln
Lhe fuLure
L All of Lhe above cause an lncrease ln Lhe supply of
waLches
lf Lhe prlce of a good ls above Lhe equlllbrlum
prlce
A 1here ls a surplus and Lhe prlce wlll rlse
8 1here ls a surplus and Lhe prlce wlll fall
C 1here ls a shorLage and Lhe prlce wlll rlse
u 1here ls a shorLage and Lhe prlce wlll fall
L 1he quanLlLy demanded ls equal Lo Lhe quanLlLy
supplled and Lhe prlce remalns unchanged
lf Lhe prlce of a good ls above Lhe equlllbrlum
prlce
1here |s a surp|us and the pr|ce w||| fa||
lf Lhe prlce of a good ls below Lhe
equlllbrlum prlce
lf Lhe prlce of a good ls below Lhe
equlllbrlum prlce
1here |s a shortage and the pr|ce w||| r|se
lf Lhe prlce of a good ls equal Lo Lhe
equlllbrlum prlce
lf Lhe prlce of a good ls equal Lo Lhe
equlllbrlum prlce
1he quant|ty demanded |s equa| to the quant|ty
supp||ed and the pr|ce rema|ns unchanged
An lncrease (rlghLward shlfL) ln Lhe demand
for a good wlll Lend Lo cause
A An lncrease ln Lhe equlllbrlum prlce and quanLlLy
8 A decrease ln Lhe equlllbrlum prlce and quanLlLy
C An lncrease ln Lhe equlllbrlum prlce and a decrease ln
Lhe equlllbrlum quanLlLy
u A decrease ln Lhe equlllbrlum prlce and an lncrease ln
L -one of Lhe above
An lncrease (rlghLward shlfL) ln Lhe demand
for a good wlll Lend Lo cause
n |ncrease |n the equ|||br|um pr|ce and quant|ty
L -one of Lhe above
3A decrease (lefLward shlfL) ln Lhe supply for
a good wlll Lend Lo cause
L -one of Lhe above
3A decrease (lefLward shlfL) ln Lhe supply for
a good wlll Lend Lo cause
n |ncrease |n the equ|||br|um pr|ce and a decrease
|n the equ|||br|um quant|ty
L -one of Lhe above
4Suppose Lhere ls an lncrease ln boLh Lhe supply
and demand for personal compuLers ln Lhe
markeL for personal compuLers we would
expecL Lhe
A Lqulllbrlum quanLlLy Lo rlse and Lhe equlllbrlum prlce Lo rlse
8 Lqulllbrlum quanLlLy Lo rlse and Lhe equlllbrlum prlce Lo fall
C Lqulllbrlum quanLlLy Lo rlse and Lhe equlllbrlum prlce Lo
remaln consLanL
u Lqulllbrlum quanLlLy Lo rlse and Lhe change ln Lhe
equlllbrlum prlce Lo be amblguous
L Change ln Lhe equlllbrlum quanLlLy Lo be amblguous and Lhe
equlllbrlum prlce Lo rlse
4Suppose Lhere ls an lncrease ln boLh Lhe supply
and demand for personal compuLers ln Lhe
markeL for personal compuLers we would
expecL Lhe
remaln consLanL
D qu|||br|um quant|ty to r|se and the change |n the
equ|||br|um pr|ce to be amb|guous
equlllbrlum prlce Lo rlse
Suppose Lhere ls an lncrease ln boLh Lhe supply
and demand for personal compuLers
lurLhermore suppose Lhe supply of personal
compuLers lncreases more Lhan demand for
personal compuLers ln Lhe markeL for personal
compuLers we would expecL Lhe
remaln consLanL
u Lqulllbrlum quanLlLy Lo rlse and Lhe change ln Lhe equlllbrlum
prlce Lo be amblguous
equlllbrlum prlce Lo fall
Suppose Lhere ls an lncrease ln boLh Lhe supply
and demand for personal compuLers
lurLhermore suppose Lhe supply of personal
compuLers lncreases more Lhan demand for
personal compuLers ln Lhe markeL for personal
compuLers we would expecL Lhe
qu|||br|um quant|ty to r|se and the equ|||br|um pr|ce to fa||
remaln consLanL
u Lqulllbrlum quanLlLy Lo rlse and Lhe change ln Lhe equlllbrlum
prlce Lo be amblguous
equlllbrlum prlce Lo fall
6Whlch of Lhe followlng sLaLemenLs ls Lrue
abouL Lhe lmpacL of an lncrease ln Lhe prlce
of leLLuce?
A 1he demand for leLLuce wlll decrease
8 1he supply of leLLuce wlll decrease
C 1he equlllbrlum prlce and quanLlLy of salad dresslng
wlll rlse
u 1he equlllbrlum prlce and quanLlLy of salad dresslng
wlll fall
L 8oLh o and J are Lrue
6Whlch of Lhe followlng sLaLemenLs ls Lrue
abouL Lhe lmpacL of an lncrease ln Lhe prlce
of leLLuce?
A 1he demand for leLLuce wlll decrease
8 1he supply of leLLuce wlll decrease
C 1he equlllbrlum prlce and quanLlLy of salad dresslng
wlll rlse
D 1he equ|||br|um pr|ce and quant|ty of sa|ad dress|ng
w||| fa||
L 8oLh o and J are Lrue
Suppose a frosL desLroys much of Lhe llorlda
orange crop AL Lhe same Llme suppose
consumer LasLes shlfL Loward orange [ulce
WhaL would we expecL Lo happen Lo Lhe
equlllbrlum prlce and quanLlLy ln Lhe markeL for
orange [ulce?
A rlce wlll lncrease quanLlLy ls amblguous
8 rlce wlll lncrease quanLlLy wlll lncrease
C rlce wlll lncrease quanLlLy wlll decrease
u rlce wlll decrease quanLlLy ls amblguous
L 1he lmpacL on boLh prlce and quanLlLy ls amblguous
Suppose a frosL desLroys much of Lhe llorlda
orange crop AL Lhe same Llme suppose
consumer LasLes shlfL Loward orange [ulce
WhaL would we expecL Lo happen Lo Lhe
orange [ulce?
A rlce wlll lncrease quanLlLy ls amblguous
8 rlce wlll lncrease quanLlLy wlll lncrease
C rlce wlll lncrease quanLlLy wlll decrease
D r|ce w||| decrease quant|ty |s amb|guous
L 1he lmpacL on boLh prlce and quanLlLy ls amblguous
8Suppose consumer LasLes shlfL Loward Lhe
consumpLlon of apples Whlch of Lhe followlng
sLaLemenLs ls an accuraLe descrlpLlon of Lhe
lmpacL of Lhls evenL on Lhe markeL for apples?
A 1here ls an lncrease ln Lhe demand for apples and an
lncrease ln Lhe quanLlLy of apples
8 1here ls an lncrease ln Lhe demand and supply of apples
C 1here ls an lncrease ln Lhe quanLlLy demanded of apples
and ln Lhe supply for apples
u 1here ls an lncrease ln Lhe demand for apples and a
decrease ln Lhe supply of apples
L 1here ls a decrease ln Lhe quanLlLy demanded of apples
and an lncrease ln Lhe supply for apples
8Suppose consumer LasLes shlfL Loward Lhe
consumpLlon of apples Whlch of Lhe followlng
sLaLemenLs ls an accuraLe descrlpLlon of Lhe
lmpacL of Lhls evenL on Lhe markeL for apples?
1here |s an |ncrease |n the demand for app|es and an
|ncrease |n the quant|ty of app|es
8 1here ls an lncrease ln Lhe demand and supply of apples
C 1here ls an lncrease ln Lhe quanLlLy demanded of apples
and ln Lhe supply for apples
u 1here ls an lncrease ln Lhe demand for apples and a
decrease ln Lhe supply of apples
L 1here ls a decrease ln Lhe quanLlLy demanded of apples
and an lncrease ln Lhe supply for apples
Suppose boLh buyers and sellers of wheaL
expecL Lhe prlce of wheaL Lo rlse ln Lhe near
fuLure WhaL would we expecL Lo happen Lo Lhe
wheaL Loday?
A 1he lmpacL on boLh prlce and quanLlLy ls amblguous
8 rlce wlll lncrease quanLlLy ls amblguous
C rlce wlll lncrease quanLlLy wlll lncrease
u rlce wlll lncrease quanLlLy wlll decrease
L rlce wlll decrease quanLlLy ls amblguous
Suppose boLh buyers and sellers of wheaL
expecL Lhe prlce of wheaL Lo rlse ln Lhe near
fuLure WhaL would we expecL Lo happen Lo Lhe
wheaL Loday?
A 1he lmpacL on boLh prlce and quanLlLy ls amblguous
r|ce w||| |ncrease quant|ty |s amb|guous
C rlce wlll lncrease quanLlLy wlll lncrease
u rlce wlll lncrease quanLlLy wlll decrease
L rlce wlll decrease quanLlLy ls amblguous
An lnferlor good ls one for whlch an lncrease ln
lncome causes a
A lncrease ln supply
8 uecrease ln supply
C lncrease ln demand
u uecrease ln demand
An lnferlor good ls one for whlch an lncrease ln
lncome causes a
A lncrease ln supply
8 uecrease ln supply
C lncrease ln demand
D Decrease |n demand
lf a small percenLage lncrease ln Lhe prlce of a
good greaLly reduces Lhe quanLlLy demanded for
LhaL good Lhe demand for LhaL good ls
A rlce lnelasLlc
8 rlce elasLlc
C DnlL prlce elasLlc
u lncome lnelasLlc
L lncome elasLlc
lf a small percenLage lncrease ln Lhe prlce of a
good greaLly reduces Lhe quanLlLy demanded for
LhaL good Lhe demand for LhaL good ls
A rlce lnelasLlc
r|ce e|ast|c
u lncome lnelasLlc
L lncome elasLlc
1he prlce elasLlclLy of demand ls deflned as
A 1he percenLage change ln prlce of a good dlvlded by Lhe
percenLage change ln Lhe quanLlLy demanded of LhaL good
8 1he percenLage change ln lncome dlvlde by Lhe percenLage
change ln Lhe quanLlLy demanded
C 1he percenLage change ln Lhe quanLlLy demanded of a good
dlvlded by Lhe percenLage change ln Lhe prlce of LhaL good
u 1he percenLage change ln Lhe quanLlLy demanded dlvlded by
Lhe percenLage change ln lncome
L -one of Lhe above
1he prlce elasLlclLy of demand ls deflned as
A 1he percenLage change ln prlce of a good dlvlded by Lhe
percenLage change ln Lhe quanLlLy demanded of LhaL good
8 1he percenLage change ln lncome dlvlde by Lhe percenLage
change ln Lhe quanLlLy demanded
1he percentage change |n the quant|ty demanded of a good
d|v|ded by the percentage change |n the pr|ce of that good
u 1he percenLage change ln Lhe quanLlLy demanded dlvlded by
Lhe percenLage change ln lncome
L -one of Lhe above
3ln general a flaLLer demand curve ls more llkely
Lo be
A rlce elasLlc
8 rlce lnelasLlc
u -one of Lhe above
3ln general a flaLLer demand curve ls more llkely
Lo be
r|ce e|ast|c
8 rlce lnelasLlc
u -one of Lhe above
4ln general a sLeeper supply curve ls more llkely
Lo be
A rlce elasLlc
8 rlce lnelasLlc
u -one of Lhe above
4ln general a sLeeper supply curve ls more llkely
Lo be
A rlce elasLlc
r|ce |ne|ast|c
u -one of Lhe above
Whlch of Lhe followlng would cause a demand
curve for a good Lo be prlce lnelasLlc?
A 1here are a greaL number of subsLlLuLes for Lhe good
8 1he good ls lnferlor
C 1he good ls a luxury
u 1he good l a necesslLy
Whlch of Lhe followlng would cause a demand
curve for a good Lo be prlce lnelasLlc?
A 1here are a greaL number of subsLlLuLes for Lhe good
8 1he good ls lnferlor
C 1he good ls a luxury
D 1he good I a necess|ty
61he demand for whlch of Lhe followlng ls llkely
Lo be Lhe mosL prlce lnelasLlc?
A Alrllne LlckeLs
8 8us LlckeLs
C 1axl rlders
u LransporLaLlon
61he demand for whlch of Lhe followlng ls llkely
Lo be Lhe mosL prlce lnelasLlc?
A Alrllne LlckeLs
8 8us LlckeLs
C 1axl rlders
D transportat|on
lf Lhe crossprlce elasLlclLy beLween Lwo goods
ls negaLlve Lhe Lwo goods are llkely Lo be
A Luxurles
8 -ecesslLles
C ComplemenLs
u SubsLlLuLes
lf Lhe crossprlce elasLlclLy beLween Lwo goods
ls negaLlve Lhe Lwo goods are llkely Lo be
A Luxurles
8 -ecesslLles
omp|ements
u SubsLlLuLes
8lf a supply curve for a good ls prlce elasLlc Lhen
A 1he quanLlLy supplled ls senslLlve Lo changes ln Lhe prlce of
LhaL good
8 1he quanLlLy supplled ls lnsenslLlve Lo changes ln Lhe prlce
of LhaL good
C 1he quanLlLy demanded ls senslLlve Lo changes ln Lhe prlce
of LhaL good
u 1he quanLlLy demanded ls lnsenslLlve Lo changes ln Lhe prlce
of LhaL good
L -one of Lhe above
8lf a supply curve for a good ls prlce elasLlc Lhen
1he quant|ty supp||ed |s sens|t|ve to changes |n the pr|ce of
that good
8 1he quanLlLy supplled ls lnsenslLlve Lo changes ln Lhe prlce
of LhaL good
C 1he quanLlLy demanded ls senslLlve Lo changes ln Lhe prlce
of LhaL good
u 1he quanLlLy demanded ls lnsenslLlve Lo changes ln Lhe prlce
of LhaL good
L -one of Lhe above
lf a flsherman musL sell all of hls dally caLch
before lL spolls for whaLever prlce he ls offered
once Lhe flsh are caughL Lhe flsherman's prlce
elasLlclLy of supply for fresh flsh ls
A Zero
8 Cne
C lnflnlLe
u Dnable Lo be deLermlned from Lhls lnformaLlon
lf a flsherman musL sell all of hls dally caLch
before lL spolls for whaLever prlce he ls offered
once Lhe flsh are caughL Lhe flsherman's prlce
elasLlclLy of supply for fresh flsh ls
2ero
8 Cne
C lnflnlLe
u Dnable Lo be deLermlned from Lhls lnformaLlon
lf consumers always spend percenL of Lhelr
lncome on food Lhen Lhe lncome elasLlclLy of
demand for food ls
A
8
C
u
L -one of Lhe above
lf consumers always spend percenL of Lhelr
lncome on food Lhen Lhe lncome elasLlclLy of
demand for food ls
A
100
C
u
L -one of Lhe above
1echnologlcal lmprovemenLs ln agrlculLure LhaL
shlfL Lhe supply of agrlculLural commodlLles Lo Lhe
rlghL Lend Lo
A 8educe LoLal revenue Lo farmers as a whole because Lhe
demand for food ls lnelasLlc
8 8educe LoLal revenue Lo farmers as a whole because Lhe
demand for food ls elasLlc
C lncrease LoLal revenue Lo farmers as a whole because Lhe
u lncrease LoLal revenue Lo farmers as a whole because Lhe
1echnologlcal lmprovemenLs ln agrlculLure LhaL
shlfL Lhe supply of agrlculLural commodlLles Lo Lhe
rlghL Lend Lo
keduce tota| revenue to farmers as a who|e because the
demand for food |s |ne|ast|c
8 8educe LoLal revenue Lo farmers as a whole because Lhe
C lncrease LoLal revenue Lo farmers as a whole because Lhe
u lncrease LoLal revenue Lo farmers as a whole because Lhe
lf supply ls prlce lnelasLlc Lhe value of Lhe
prlce elasLlclLy of supply musL be
A Zero
8 Less Lhan
C CreaLer Lhan
u lnflnlLe
L -one of Lhe above
lf supply ls prlce lnelasLlc Lhe value of Lhe
prlce elasLlclLy of supply musL be
A Zero
Less than 1
C CreaLer Lhan
u lnflnlLe
L -one of Lhe above
3lf Lhere ls excess capaclLy ln a producLlon faclllLy
lL ls llkely LhaL Lhe flrm's supply curve ls
A rlce lnelasLlc
8 rlce elasLlc
C DnlL rlce elasLlc
u -one of Lhe above
3lf Lhere ls excess capaclLy ln a producLlon faclllLy
lL ls llkely LhaL Lhe flrm's supply curve ls
A rlce lnelasLlc
r|ce e|ast|c
C DnlL rlce elasLlc
u -one of Lhe above
41he phenomenon ln whlch a person wlll Lry
Lo beneflL from a publlc good wlLhouL paylng
for lL ls called
A A negaLlve exLernallLy
8 A poslLlve exLernallLy
C 1he free rlder problem
u An lnefflclenL markeL
L -one of Lhe above
41he phenomenon ln whlch a person wlll Lry
Lo beneflL from a publlc good wlLhouL paylng
for lL ls called
A A negaLlve exLernallLy
8 A poslLlve exLernallLy
1he free r|der prob|em
u An lnefflclenL markeL
L -one of Lhe above
WhaL ls Lhe marglnal cosL aL unlLs?
A Less Lhan $
8 8eLween $ and $3
C 8eLween $3 and $4
u CreaLer Lhan $4
6lf your flrm wanLs Lo produce aL mlnlmum
average cosL lL should
A MalnLaln producLlon aL Lhe currenL quanLlLy
8 lncrease roducLlon
C uecrease roducLlon
?our flrm has a flxed cosL of $6 ?ou are currenLly
produclng unlLs aL a LoLal cosL of $ 1he LoLal cosL of
produclng unlLs ls $3
A Less Lhan $
8 8eLween $ and $3
C 8eLween $3 and $4
D Greater than 540
C uecrease roducLlon
A Less Lhan $
8 8eLween $ and $3
C 8eLween $3 and $4
D Greater than 540
Decrease roduct|on
1he sLaLe of Chlo lmposes a gasollne Lax lL ls
known LhaL everyone ln Chlo regardless of lncome
purchases gallons of gas each week lL ls also
known LhaL Chlo resldenLs wlll purchase gallons
of gas each week regardless of Lhe prlce (-oLe
LhaL Lhe lasL senLence lmplles LhaL Lhe demand
curve ls verLlcal
1he gasollne Lax ls
A A progresslve Lax
8 A regresslve Lax
8Who wlll bear Lhe burden of Lhe gas Lax?
A Consumers wlll pay Lhe enLlre Lax
8 roducers wlll pay Lhe enLlre Lax
C Consumers and producers wlll each pay parL of Lhe Lax
curve ls verLlcal
1he gasollne Lax ls
A A progresslve Lax
regress|ve tax
A Consumers wlll pay Lhe enLlre Lax
curve ls verLlcal
1he gasollne Lax ls
A A progresslve Lax
regress|ve tax
onsumers w||| pay the ent|re tax
Suppose a maxlmum prlce conLrol ls placed on Lhe
markeL aL (LhaL ls ls a prlce celllng) Consumer
surplus afLer Lhe prlce celllng ls puL ln place ls equal Lo
Lhe area of
A Area A + Area 8
8 Area A + Area 8 + Area C
C Area A+ Area 8 + Area u
u Area A + Area 8 + Area C + Area u + Area L
L -one of Lhe above
rlce
A
8 C
u L
l
4
3
uemand
; ; ;3 ;uanLlLy
Supply
Suppose a maxlmum prlce conLrol ls placed on Lhe
markeL aL (LhaL ls ls a prlce celllng) Consumer
surplus afLer Lhe prlce celllng ls puL ln place ls equal Lo
Lhe area of
A Area A + Area 8
8 Area A + Area 8 + Area C
rea + rea + rea D
u Area A + Area 8 + Area C + Area u + Area L
L -one of Lhe above
rlce
A
8 C
u L
l
4
3
uemand
; ; ;3 ;uanLlLy
Supply
3lf a maxlmum prlce conLrol ls placed on Lhe
markeL aL Lhe deadwelghL loss generaLed by
Lhe prlce celllng ls equal Lo Lhe are of
A Area C + Area L
8 Area 8 + Area C
C Area 8 + Area C + Area u + Area L
u Area C
L -one of Lhe above
rlce
A
8 C
u L
l
4
3
uemand
; ; ;3 ;uanLlLy
Supply
3lf a maxlmum prlce conLrol ls placed on Lhe
markeL aL Lhe deadwelghL loss generaLed by
Lhe prlce celllng ls equal Lo Lhe are of
rea + rea
8 Area 8 + Area C
u Area C
L -one of Lhe above
rlce
A
8 C
u L
l
4
3
uemand
; ; ;3 ;uanLlLy
Supply
3lf a maxlmum prlce conLrol ls placed on Lhe markeL aL
4 (noL aL as ln Lhe prevlous problem) Lhe
deadwelghL loss generaLed by Lhe prlce celllng ls equal
Lo Lhe are of
A Area C + Area L
8 Area 8 + Area C
u Area 8 + Area u + Area l
L -one of Lhe above
rlce
A
8 C
u L
l
4
3
uemand
; ; ;3 ;uanLlLy
Supply
3lf a maxlmum prlce conLrol ls placed on Lhe markeL aL
4 (noL aL as ln Lhe prevlous problem) Lhe
deadwelghL loss generaLed by Lhe prlce celllng ls equal
Lo Lhe are of
A Area C + Area L
8 Area 8 + Area C
u Area 8 + Area u + Area l
None of the above
rlce
A
8 C
u L
l
4
3
uemand
; ; ;3 ;uanLlLy
Supply
3Whlch of Lhe followlng ls not a characLerlsLlc of a
perfecLly compeLlLlve lndusLry?
A A large number of flrms
8 llrms manufacLure ldenLlcal producLs
C 8arrlers Lo enLry
u All flrms have ldenLlcal cosLs
3Whlch of Lhe followlng ls not a characLerlsLlc of a
perfecLly compeLlLlve lndusLry?
A A large number of flrms
8 llrms manufacLure ldenLlcal producLs
arr|ers to entry
u All flrms have ldenLlcal cosLs
33?our company can produce 3 compuLer
chlps aL an average cosL of $ AlLernaLlvely
you can expand your planL and produce 4
compuLer chlps aL an average cosL of $4 ln
Lhls range your company ls experlenclng
A lncreaslng reLurns Lo scale
8 uecreaslng reLurns Lo scale
C ConsLanL 8eLurns Lo scale
33?our company can produce 3 compuLer
chlps aL an average cosL of $ AlLernaLlvely
you can expand your planL and produce 4
compuLer chlps aL an average cosL of $4 ln
Lhls range your company ls experlenclng
Decreas|ng returns to sca|e
C ConsLanL 8eLurns Lo scale
34ow do monopoly prlces and quanLlLles
produced dlffer from perfecLly compeLlLlve
ouLcomes?
A Monopoly prlces and quanLlLles are boLh lower Lhan
perfecLly compeLlLlve ouLcomes
8 Monopoly prlces and quanLlLles are boLh hlgher Lhan
C Monopoly prlces are lower Lhan perfecLly compeLlLlve
prlces buL quanLlLles are hlgher Lhan perfecLly compeLlLlve
quanLlLles
u Monopoly prlces are hlgher Lhan perfecLly compeLlLlve
prlces buL quanLlLles are lower Lhan perfecLly compeLlLlve
quanLlLles
L Monopoly prlces and quanLlLles are Lhe same as perfecLly
compeLlLlve ouLcomes
34ow do monopoly prlces and quanLlLles
produced dlffer from perfecLly compeLlLlve
ouLcomes?
A Monopoly prlces and quanLlLles are boLh lower Lhan
8 Monopoly prlces and quanLlLles are boLh hlgher Lhan
C Monopoly prlces are lower Lhan perfecLly compeLlLlve
prlces buL quanLlLles are hlgher Lhan perfecLly compeLlLlve
quanLlLles
D Monopo|y pr|ces are h|gher than perfect|y compet|t|ve
pr|ces but quant|t|es are |ower than perfect|y compet|t|ve
quant|t|es
L Monopoly prlces and quanLlLles are Lhe same as perfecLly
compeLlLlve ouLcomes
3uemand for a producL lncreases (shlfLs ouLward)
ln a perfecLly compeLlLlve lndusLry WhaL
happens ln Lhe |ongrun?
A llrms enLer and prlces goes up
8 llrms exlL and prlce goes up
C llrms enLer and prlce goes down
u llrms exlL and prlce goes down
L -one of Lhe above
happens ln Lhe |ongrun?
A llrms enLer and prlces goes up
C llrms enLer and prlce goes down
None of the above
36ubllc goods are noL Lyplcally provlded by
prlvaLe flrms because
A 1he governmenL can produce Lhe publlc good more cheaply
8 1he markeL for publlc goods ls lnefflclenL
C 1he prlvaLe flrm has dlfflculLy collecLlng money from Lhose
who consume Lhe publlc good
u 1he publlc good ls nonrlval
L 1he governmenL engages ln unfalr buslness pracLlces
36ubllc goods are noL Lyplcally provlded by
prlvaLe flrms because
A 1he governmenL can produce Lhe publlc good more cheaply
8 1he markeL for publlc goods ls lnefflclenL
1he pr|vate f|rm has d|ff|cu|ty co||ect|ng money from those
who consume the pub||c good
u 1he publlc good ls nonrlval
L 1he governmenL engages ln unfalr buslness pracLlces
3AL a flrm's currenL level of producLlon average
cosLs are $ less Lhan marglnal cosLs lf Lhe flrm
makes an addlLlonal unlL beyond Lhe currenL
level
A Average cosL wlll decrease
8 Marglnal cosL wlll decrease
C 1oLal cosL wlll decrease
u llxed cosL wlll decrease
L -one of Lhe above
3AL a flrm's currenL level of producLlon average
cosLs are $ less Lhan marglnal cosLs lf Lhe flrm
makes an addlLlonal unlL beyond Lhe currenL
level
A Average cosL wlll decrease
8 Marglnal cosL wlll decrease
C 1oLal cosL wlll decrease
u llxed cosL wlll decrease
None of the above
38-aLlonal defense ls an example of
A An excludable good
8 A prlvaLe good
C A publlc good
38-aLlonal defense ls an example of
A An excludable good
8 A prlvaLe good
pub||c good
3A monopoly can sell unlLs of ouLpuL aL a
perunlL prlce of $ and lL can sell unlLs
aL a perunlL prlce of $ 1he marglnal
revenue aL flfLy unlLs of ouLpuL ls
A $4
8 $
C $
u $4
3A monopoly can sell unlLs of ouLpuL aL a
perunlL prlce of $ and lL can sell unlLs
aL a perunlL prlce of $ 1he marglnal
revenue aL flfLy unlLs of ouLpuL ls
549
8 $
C $
u $4
4A grocery sLore should c|ose aL nlghL lf Lhe
A 1oLal cosLs of sLaylng open are greaLer Lhan Lhe LoLal
revenue due Lo sLaylng open
8 1oLal cosLs of sLaylng open are less Lhan Lhe LoLal revenue
due Lo sLaylng open
C Iarlable cosLs of sLaylng open are greaLer Lhan Lhe LoLal
u Iarlable cosLs of sLaylng open are less Lhan Lhe LoLal
4A grocery sLore should c|ose aL nlghL lf Lhe
8 1oLal cosLs of sLaylng open are less Lhan Lhe LoLal revenue
due Lo sLaylng open
Var|ab|e costs of stay|ng open are greater than the tota|
revenue due to stay|ng open
happens ln Lhe shortrun? 8e sure Lo answer
relaLlve Lo an lnlLlal longrun equlllbrlum prlor Lo
Lhe demand shlfL
A 1he number of flrms ln Lhe lndusLry lncreases
8 1he number of flrms ln Lhe lndusLry decreases
C 1he quanLlLy produced by a flrm ln Lhe lndusLry lncreases
u 1he quanLlLy produced by a flrm ln Lhe lndusLry decreases
L -one of Lhe above
happens ln Lhe shortrun? 8e sure Lo answer
Lhe demand shlfL
A 1he number of flrms ln Lhe lndusLry lncreases
8 1he number of flrms ln Lhe lndusLry decreases
1he quant|ty produced by a f|rm |n the |ndustry |ncreases
u 1he quanLlLy produced by a flrm ln Lhe lndusLry decreases
L -one of Lhe above
happens ln Lhe |ongrun? 8e sure Lo answer
Lhe demand shlfL?
A llrms enLer and prlce goes up
C llrms enLer and prlce sLays Lhe same
L llrms exlL and prlce sLays Lhe same
happens ln Lhe |ongrun? 8e sure Lo answer
Lhe demand shlfL?
A llrms enLer and prlce goes up
I|rms enter and pr|ce stays the same
L llrms exlL and prlce sLays Lhe same
43Suppose LhaL your flrm can produce unlLs
aL a LoLal cosL of $6 or can produce
unlLs aL a LoLal cosL of $8 ln Lhls range you
flrm ls experlenclng
C ConsLanL reLurns Lo scale
u Mlnlmum efflclenL scale
L -one of Lhe above
43Suppose LhaL your flrm can produce unlLs
aL a LoLal cosL of $6 or can produce
unlLs aL a LoLal cosL of $8 ln Lhls range you
flrm ls experlenclng
Increas|ng returns to sca|e
C ConsLanL reLurns Lo scale
u Mlnlmum efflclenL scale
L -one of Lhe above
44Whlch of Lhe followlng sLaLemenLs abouL perfecL
compeLlLlon ls fa|se?
A ln Lhe shorL run Lhe number of flrms ln Lhe lndusLry ls flxed
8 All flrms ln Lhe lndusLry produce a sLandardlzed producL
C Lach flrm deLermlnes Lhe prlce aL whlch lL wlll sell lLs ouLpuL
u lor a perfecLly compeLlLlve flrm marglnal revenue ls Lhe
same as markeL prlce
L 1here are no slgnlflcanL barrlers Lo enLry or exlL
44Whlch of Lhe followlng sLaLemenLs abouL perfecL
compeLlLlon ls fa|se?
A ln Lhe shorL run Lhe number of flrms ln Lhe lndusLry ls flxed
8 All flrms ln Lhe lndusLry produce a sLandardlzed producL
ach f|rm determ|nes the pr|ce at wh|ch |t w||| se|| |ts
output
u lor a perfecLly compeLlLlve flrm marglnal revenue ls Lhe
same as markeL prlce
L 1here are no slgnlflcanL barrlers Lo enLry or exlL
4Long run average cosLs are
A CreaLer Lhan or equal Lo shorL run average cosLs
8 Less Lhan or equal Lo shorL run average cosLs
4Long run average cosLs are
A CreaLer Lhan or equal Lo shorL run average cosLs
Less than or equa| to short run average costs
46A prlce dlscrlmlnaLlng flrm would llkely
A Charge a hlgher prlce Lo consumers wlLh lnelasLlc demand
Lhan Lo Lhose whose demand ls elasLlc
8 Charge a lower prlce Lo consumers wlLh lnelasLlc demand
C roduce less LoLal ouLpuL Lhan a flrm LhaL does noL prlce
dlscrlmlnaLe
u Lncourage resale of lLs' producL beLween consumers
L -one of Lhe above
46A prlce dlscrlmlnaLlng flrm would llkely
harge a h|gher pr|ce to consumers w|th |ne|ast|c
demand than to those whose demand |s e|ast|c
8 Charge a lower prlce Lo consumers wlLh lnelasLlc demand
C roduce less LoLal ouLpuL Lhan a flrm LhaL does noL prlce
dlscrlmlnaLe
u Lncourage resale of lLs' producL beLween consumers
L -one of Lhe above
4lf a company generaLes a pos|t|ve exLernallLy
ln Lhe producLlon of lLs' good buL Lhe value of
Lhls exLernallLy ls not reflecLed ln Lhe flrm's
cosLs or revenues Lhen
A 1he company ls produclng less Lhan would be efflclenL
8 1he company ls produclng more Lhan would be efflclenL
4lf a company generaLes a pos|t|ve exLernallLy
ln Lhe producLlon of lLs' good buL Lhe value of
Lhls exLernallLy ls not reflecLed ln Lhe flrm's
cosLs or revenues Lhen
1he company |s produc|ng |ess than wou|d be eff|c|ent
8 1he company ls produclng more Lhan would be efflclenL
48ln Lhe long run equlllbrlum ln a perfecLly
compeLlLlve markeL flrms are operaLlng aL
A 1he mlnlmum of Lhelr average LoLal cosL curves
8 1he lnLersecLlon of marglnal cosL and marglnal
revenue
C Zero economlc proflL
u All of Lhe above
L -one of Lhe above
48ln Lhe long run equlllbrlum ln a perfecLly
compeLlLlve markeL flrms are operaLlng aL
8 1he lnLersecLlon of marglnal cosL and marglnal
revenue
C Zero economlc proflL
D || of the above
L -one of Lhe above
4lf a flrm ls maklng economlc proflL equal Lo
$
A lnvesLors are maklng a loss on Lhelr lnvesLmenL
8 lnvesLors are noL recelvlng any reLurn on Lhelr
lnvesLmenL
C lnvesLors are recelvlng Lhe reLurn necessary Lo remaln
lnvesLed ln Lhe company
4lf a flrm ls maklng economlc proflL equal Lo
$
A lnvesLors are maklng a loss on Lhelr lnvesLmenL
8 lnvesLors are noL recelvlng any reLurn on Lhelr
lnvesLmenL
Investors are rece|v|ng the return necessary to
rema|n |nvested |n the company
A decrease ln demand ln a perfecLly
compeLlLlve lndusLry wlll lead Lo
A lgher prlces ln Lhe shorL run and more flrms ln Lhe
lndusLry ln Lhe long run
8 lgher prlces ln Lhe shorL run and less flrms ln Lhe
C Lower prlces ln Lhe shorL run and more flrms ln Lhe
u Lower prlces ln Lhe shorL run and less flrms ln Lhe
L -oL enough lnformaLlon glven
A decrease ln demand ln a perfecLly
compeLlLlve lndusLry wlll lead Lo
A lgher prlces ln Lhe shorL run and more flrms ln Lhe
8 lgher prlces ln Lhe shorL run and less flrms ln Lhe
C Lower prlces ln Lhe shorL run and more flrms ln Lhe
D Lower pr|ces |n the short run and |ess f|rms |n the
|ndustry |n the |ong run
L -oL enough lnformaLlon glven
roducLlon cosLs are llkely Lo lncrease afLer
an average cosL prlclng regulaLlon ls
lnsLlLuLed because
A 1he monopollsL wlll lncrease ouLpuL
8 1he monopollsL wlll decrease ouLpuL
C 1he monopollsL wlll have no lncenLlve Lo lnvenL more
efflclenL producLlon meLhods
u 1he monopollsL wlll have no lncenLlve Lo conLrol cosLs
L 1he monopollsL wlll aLLempL Lo ralse proflL
roducLlon cosLs are llkely Lo lncrease afLer
an average cosL prlclng regulaLlon ls
lnsLlLuLed because
A 1he monopollsL wlll lncrease ouLpuL
8 1he monopollsL wlll decrease ouLpuL
C 1he monopollsL wlll have no lncenLlve Lo lnvenL more
efflclenL producLlon meLhods
D 1he monopo||st w||| have no |ncent|ve to contro|
costs
L 1he monopollsL wlll aLLempL Lo ralse proflL
Whlch of Lhe followlng ls an example of
prlce dlscrlmlnaLlon?
A AuLomoblle lnsurance premlums are hlgher for
younger male drlvers Lhan young female (-oLe
sLaLlsLlcally young males have more accldenLs Lhan
young females)
8 Alrllnes offer supersaver" dlscounLs for Lwo week
advance reservaLlons wlLh a SaLurday sLayover
C Cas sLaLlons charge less for self servlce gasollne Lhan
for full servlce gasollne
Whlch of Lhe followlng ls an example of
prlce dlscrlmlnaLlon?
A AuLomoblle lnsurance premlums are hlgher for
younger male drlvers Lhan young female (-oLe
sLaLlsLlcally young males have more accldenLs Lhan
young females)
|r||nes offer "supersaver" d|scounts for two week
advance reservat|ons w|th a Saturday stayover
C Cas sLaLlons charge less for self servlce gasollne Lhan
for full servlce gasollne
3Some specles of whales have been hunLed Lo
near exLlncLlon whlle caLLle populaLlons have
noL been slmllarly LhreaLened A prlmary reason
for Lhls dlfference beLween whale and caLLle ls
A Whales are more valuable Lhen caLLle
8 rlvaLe properLy rlghLs exlsL for caLLle buL whales are a
common properLy resource (no one owns Lhe whales)
C CaLLle reach maLurlLy qulckly buL Lhe whale maLurlng
process Lakes much longer
u Dnllke caLLle whales are Lrlcky Lo lasso
3Some specles of whales have been hunLed Lo
near exLlncLlon whlle caLLle populaLlons have
noL been slmllarly LhreaLened A prlmary reason
for Lhls dlfference beLween whale and caLLle ls
A Whales are more valuable Lhen caLLle
r|vate property r|ghts ex|st for catt|e but wha|es are a
common property resource (no one owns the wha|es)
C CaLLle reach maLurlLy qulckly buL Lhe whale maLurlng
process Lakes much longer
u Dnllke caLLle whales are Lrlcky Lo lasso
4A common properLy resource llke Lhe
underground aqulfer dlscussed ln class
(8emember any farmer can drlll a well lnLo
Lhe aqulfer) ls an example of a good LhaL ls
A 8lval and excludable
8 8lval and nonexcludable
C -onrlval and excludable
u -onrlval and nonexcludable
4A common properLy resource llke Lhe
underground aqulfer dlscussed ln class
(8emember any farmer can drlll a well lnLo
Lhe aqulfer) ls an example of a good LhaL ls
A 8lval and excludable
k|va| and nonexc|udab|e
C -onrlval and excludable
u -onrlval and nonexcludable
LconomlsLs are currenLly debaLlng wheLher
or noL Lhe mlnlmum wage should be
lncreased An argumenL agalnsL lncreaslng
Lhe mlnlmum wage ls LhaL
A 8alslng Lhe mlnlmum wage causes dlmlnlshlng reLurns
8 8alslng Lhe mlnlmum wage helps Lhe poor
C 8alslng Lhe mlnlmum wage lncreases unemploymenL
u 8alslng Lhe mlnlmum wage decreases unemploymenL
L -one of Lhe above
LconomlsLs are currenLly debaLlng wheLher
or noL Lhe mlnlmum wage should be
lncreased An argumenL agalnsL lncreaslng
Lhe mlnlmum wage ls LhaL
A 8alslng Lhe mlnlmum wage causes dlmlnlshlng reLurns
8 8alslng Lhe mlnlmum wage helps Lhe poor
ka|s|ng the m|n|mum wage |ncreases unemp|oyment
u 8alslng Lhe mlnlmum wage decreases unemploymenL
L -one of Lhe above
6?ou operaLe a wheaL farm ln a perfecLly
compeLlLlve markeL for wheaL ln order Lo
maxlmlze proflLs you should
A roduce Lhe quanLlLy aL whlch average flxed cosL ls
mlnlmlzed
8 roduce Lhe quanLlLy aL whlch average (LoLal) cosL ls
mlnlmlzed
C Choose Lhe quanLlLy aL whlch marglnal cosL ls equal Lo
average (LoLal) cosL
u Choose Lhe quanLlLy aL whlch Lhe markeL prlce ls equal Lo
marglnal cosL
L Choose Lhe quanLlLy aL whlch Lhe markeL prlce ls equal Lo
6?ou operaLe a wheaL farm ln a perfecLly
compeLlLlve markeL for wheaL ln order Lo
maxlmlze proflLs you should
A roduce Lhe quanLlLy aL whlch average flxed cosL ls
mlnlmlzed
8 roduce Lhe quanLlLy aL whlch average (LoLal) cosL ls
mlnlmlzed
C Choose Lhe quanLlLy aL whlch marglnal cosL ls equal Lo
D hoose the quant|ty at wh|ch the market pr|ce |s equa| to
marg|na| cost
L Choose Lhe quanLlLy aL whlch Lhe markeL prlce ls equal Lo
Compared Lo a flaL Lax a progress|ve tax plan
(LhaL ralses Lhe same revenue as Lhe flaL Lax) wlll
A 8equlre Lhe poor Lo pay a h|gher percenLage of lncome Lhan
Lhe flaL Lax and requlre Lhe rlch Lo pay a |ower percenLage
of lncome Lhan Lhe flaL Lax
8 8equlre Lhe poor Lo pay a |ower percenLage of lncome Lhan
C 8equlre Lhe poor Lo pay a |ower percenLage of lncome Lhan
Lhe flaL Lax and requlre Lhe rlch Lo pay a h|gher percenLage
u 8oLh rlch and poor wlll pay Lhe same percenLage of lncome
under Lhe progresslve Lax plan as Lhey would wlLh Lhe flaL
Lax
L -one of Lhe above
Compared Lo a flaL Lax a progress|ve tax plan
(LhaL ralses Lhe same revenue as Lhe flaL Lax) wlll
A 8equlre Lhe poor Lo pay a h|gher percenLage of lncome Lhan
8 8equlre Lhe poor Lo pay a |ower percenLage of lncome Lhan
kequ|re the poor to pay a |ower percentage of |ncome than
the f|at tax and requ|re the r|ch to pay a h|gher percentage
of |ncome than the f|at tax
u 8oLh rlch and poor wlll pay Lhe same percenLage of lncome
under Lhe progresslve Lax plan as Lhey would wlLh Lhe flaL
Lax
L -one of Lhe above
8Whlch of Lhe followlng ls a beneflL Lo
consumers of a paLenL generaLed monopoly?
A lnnovaLlon
8 ueadwelghL loss
C Monopoly proflLs
u rlce dlscrlmlnaLlon
L -one of Lhe above
8Whlch of Lhe followlng ls a beneflL Lo
consumers of a paLenL generaLed monopoly?
Innovat|on
8 ueadwelghL loss
C Monopoly proflLs
u rlce dlscrlmlnaLlon
L -one of Lhe above
Who ls mosL llkely Lo galn from renL conLrols?
A Landlords and aparLmenL owners
8 AparLmenL and consLrucLlon workers
C eople who llved ln aparLmenLs on whlch Lhe conLrols
were lmposed aL Lhe Llme Lhe renL conLrol leglslaLlon was
passed
u oor people who are looklng for aparLmenLs
Who ls mosL llkely Lo galn from renL conLrols?
A Landlords and aparLmenL owners
8 AparLmenL and consLrucLlon workers
C eople who llved ln aparLmenLs on whlch Lhe conLrols
were lmposed aL Lhe Llme Lhe renL conLrol leglslaLlon was
passed
D oor peop|e who are |ook|ng for apartments
6Whlch of Lhe followlng Laxes has no
dlsLorLlonary effecL (creaLes no dead welghL
loss) ln Lhe economy?
A A progresslve lncome Lax
8 A proporLlonal lncome Lax
C Lump sum Lax
u A per unlL Lax
6Whlch of Lhe followlng Laxes has no
dlsLorLlonary effecL (creaLes no dead welghL
loss) ln Lhe economy?
A A progresslve lncome Lax
8 A proporLlonal lncome Lax
Lump sum tax
u A per unlL Lax
6lor a prlce celllng Lo be a blndlng consLralnL
on Lhe markeL Lhe governmenL musL seL lL
A Above Lhe equlllbrlum prlce
8 8elow Lhe equlllbrlum prlce
C reclsely aL Lhe equlllbrlum prlce
u AL any prlce because all prlce celllngs are blndlng
consLralnLs
6lor a prlce celllng Lo be a blndlng consLralnL
on Lhe markeL Lhe governmenL musL seL lL
A Above Lhe equlllbrlum prlce
e|ow the equ|||br|um pr|ce
C reclsely aL Lhe equlllbrlum prlce
u AL any prlce because all prlce celllngs are blndlng
consLralnLs
6A blndlng prlce celllng creaLes
A A shorLage
8 A surplus
C An equlllbrlum
u A shorLage or a surplus dependlng on wheLher Lhe
prlce celllng ls seL above or below Lhe equlllbrlum
prlce
6A blndlng prlce celllng creaLes
shortage
8 A surplus
C An equlllbrlum
u A shorLage or a surplus dependlng on wheLher Lhe
prlce celllng ls seL above or below Lhe equlllbrlum
prlce
63Suppose Lhe equlllbrlum prlce for aparLmenLs
ls $ per monLh and Lhe governmenL lmposes
renL conLrols of $ Whlch of Lhe followlng ls
llkely Lo occur as a resulL of Lhe renL conLrols?
A 1here wlll be a shorLage of houslng
8 Landlords may dlscrlmlnaLe among aparLmenL renLers
C Landlords may be offered brlbes Lo renL aparLmenLs
u 1he quallLy of aparLmenLs wlll lmprove
L 1here may be long llnes of buyers walLlng for aparLmenLs
63Suppose Lhe equlllbrlum prlce for aparLmenLs
ls $ per monLh and Lhe governmenL lmposes
renL conLrols of $ Whlch of Lhe followlng ls
llkely Lo occur as a resulL of Lhe renL conLrols?
A 1here wlll be a shorLage of houslng
8 Landlords may dlscrlmlnaLe among aparLmenL renLers
C Landlords may be offered brlbes Lo renL aparLmenLs
D 1he qua||ty of apartments w||| |mprove
L 1here may be long llnes of buyers walLlng for aparLmenLs
64A prlce floor
A SeLs a legal maxlmum on Lhe prlce aL whlch a good
can be sold
8 SeLs a legal mlnlmum on Lhe prlce aL whlch a good can
be sold
C Always deLermlnes Lhe prlce aL whlch a good musL be
sold
u ls noL a blndlng consLralnL lf lL ls seL above Lhe
equlllbrlum prlce
64A prlce floor
A SeLs a legal maxlmum on Lhe prlce aL whlch a good
can be sold
Sets a |ega| m|n|mum on the pr|ce at wh|ch a good
can be so|d
C Always deLermlnes Lhe prlce aL whlch a good musL be
sold
u ls noL a blndlng consLralnL lf lL ls seL above Lhe
equlllbrlum prlce
6Whlch of Lhe followlng sLaLemenLs abouL a
blndlng prlce celllng ls Lrue?
A 1he surplus creaLed by Lhe prlce celllng ls greaLer ln
Lhe shorL run Lhan ln Lhe long run
8 1he surplus creaLed by Lhe prlce celllng ls greaLer ln
Lhe long run Lhan ln Lhe shorL run
C 1he shorLage creaLed by Lhe prlce celllng ls greaLer ln
u 1he shorLage creaLed by Lhe prlce celllng ls greaLer ln
6Whlch of Lhe followlng sLaLemenLs abouL a
blndlng prlce celllng ls Lrue?
A 1he surplus creaLed by Lhe prlce celllng ls greaLer ln
8 1he surplus creaLed by Lhe prlce celllng ls greaLer ln
C 1he shorLage creaLed by Lhe prlce celllng ls greaLer ln
D 1he shortage created by the pr|ce ce|||ng |s greater |n
the |ong run than |n the short run
66Whlch slde of Lhe markeL ls more llkely Lo
lobby governmenL for a prlce floor?
A -elLher buyers nor sellers deslre a prlce floor
8 8oLh buyers and sellers deslre a prlce floor
C 1he sellers
u 1he buyers
66Whlch slde of Lhe markeL ls more llkely Lo
lobby governmenL for a prlce floor?
A -elLher buyers nor sellers deslre a prlce floor
8 8oLh buyers and sellers deslre a prlce floor
1he se||ers
u 1he buyers
61he surplus caused by a blndlng prlce floor
wlll be greaLesL lf
A 8oLh supply and demand are elasLlc
8 8oLh supply and demand are lnelasLlc
C Supply ls lnelasLlc and demand ls elasLlc
u uemand ls lnelasLlc and supply ls elasLlc
61he surplus caused by a blndlng prlce floor
wlll be greaLesL lf
oth supp|y and demand are e|ast|c
8 8oLh supply and demand are lnelasLlc
C Supply ls lnelasLlc and demand ls elasLlc
u uemand ls lnelasLlc and supply ls elasLlc
68Whlch of Lhe followlng ls an example of a
prlce floor?
A 8enL conLrols
8 8esLrlcLlng gasollne prlces Lo $ per gallon when
Lhe equlllbrlum prlce ls $ per gallon
C 1he mlnlmum wage
u All of Lhe above are prlce floors
prlce floor?
A 8enL conLrols
8 8esLrlcLlng gasollne prlces Lo $ per gallon when
Lhe equlllbrlum prlce ls $ per gallon
1he m|n|mum wage
u All of Lhe above are prlce floors
6Whlch of Lhe followlng sLaLemenLs ls Lrue lf
Lhe governmenL places a prlce celllng on
gasollne aL $ per gallon and Lhe
equlllbrlum prlce ls $ per gallon?
A 1here wlll be a shorLage of gasollne
8 1here wlll be a surplus of gasollne
C A slgnlflcanL lncrease ln Lhe supply of gasollne could
cause Lhe prlce celllng Lo become a blndlng consLralnL
u A slgnlflcanL lncrease Lhe demand for gasollne could
6Whlch of Lhe followlng sLaLemenLs ls Lrue lf
Lhe governmenL places a prlce celllng on
gasollne aL $ per gallon and Lhe
equlllbrlum prlce ls $ per gallon?
A 1here wlll be a shorLage of gasollne
8 1here wlll be a surplus of gasollne
C A slgnlflcanL lncrease ln Lhe supply of gasollne could
D s|gn|f|cant |ncrease the demand for gaso||ne cou|d
cause the pr|ce ce|||ng to become a b|nd|ng
constra|nt
SLudles show LhaL a percenL lncrease ln Lhe
mlnlmum wage
A uecreases Leenage employmenL by abouL Lo percenL
8 lncreases Leenage employmenL by abouL Lo percenL
C uecreases Leenage employmenL by abouL Lo 3 percenL
u lncreases Leenage employmenL by abouL Lo 3 percenL
SLudles show LhaL a percenL lncrease ln Lhe
mlnlmum wage
A uecreases Leenage employmenL by abouL Lo percenL
8 lncreases Leenage employmenL by abouL Lo percenL
Decreases teenage emp|oyment by about 1 to 3 percent
u lncreases Leenage employmenL by abouL Lo 3 percenL
WlLhln Lhe supplyanddemand model a Lax
collecLed from Lhe buyers of a good shlfLs Lhe
A uemand curve upward by Lhe slze of Lhe Lax per unlL
8 uemand curve downward by Lhe slze of Lhe Lax per unlL
C Supply curve upward by Lhe slze of Lhe Lax per unlL
u Supply curve downward by Lhe slze of Lhe Lax per unlL
collecLed from Lhe buyers of a good shlfLs Lhe
Demand curve downward by the s|ze of the tax per un|t
collecLed from Lhe sellers of a good shlfLs Lhe
collecLed from Lhe sellers of a good shlfLs Lhe
Supp|y curve upward by the s|ze of the tax per un|t
3Whlch of Lhe followlng Lakes place when a Lax ls
placed on a good?
A An lncrease ln Lhe prlce buyers pay a decrease ln Lhe prlce
sellers recelve and a decrease ln Lhe quanLlLy sold
8 An lncrease ln Lhe prlce buyers pay a decrease ln Lhe prlce
sellers recelve and an lncrease ln Lhe quanLlLy sold
C A decrease ln Lhe prlce buyers pay an lncrease ln Lhe prlce
u A decrease ln Lhe prlce buyers pay an lncrease ln Lhe prlce
3Whlch of Lhe followlng Lakes place when a Lax ls
placed on a good?
n |ncrease |n the pr|ce buyers pay a decrease |n the
pr|ce se||ers rece|ve and a decrease |n the quant|ty so|d
8 An lncrease ln Lhe prlce buyers pay a decrease ln Lhe prlce
C A decrease ln Lhe prlce buyers pay an lncrease ln Lhe prlce
u A decrease ln Lhe prlce buyers pay an lncrease ln Lhe prlce
4When a Lax ls collecLed from Lhe buyers ln a
markeL
A 1he buyers bear Lhe burden of Lhe Lax
8 1he sellers bear Lhe burden of Lhe Lax
C 1he burden on Lhe buyers and sellers ls Lhe same as
an equlvalenL Lax collecLed from Lhe sellers
u 1he Lax burden falls mosL heavlly on Lhe buyers
4When a Lax ls collecLed from Lhe buyers ln a
markeL
A 1he buyers bear Lhe burden of Lhe Lax
8 1he sellers bear Lhe burden of Lhe Lax
1he burden on the buyers and se||ers |s the same as
an equ|va|ent tax co||ected from the se||ers
u 1he Lax burden falls mosL heavlly on Lhe buyers
A Lax of $ per gallon on gasollne
A lncreases Lhe prlce Lhe buyers pay by $ per gallon
8 uecreases Lhe prlce Lhe sellers recelve by $ per
gallon
C lncreases Lhe prlce Lhe buyers pay by preclsely $
and reduces Lhe prlce recelved by sellers by preclsely
$
u laces a Lax wedge of $ beLween Lhe prlce Lhe
buyers pay and Lhe prlce Lhe sellers recelve
A Lax of $ per gallon on gasollne
A lncreases Lhe prlce Lhe buyers pay by $ per gallon
8 uecreases Lhe prlce Lhe sellers recelve by $ per
gallon
C lncreases Lhe prlce Lhe buyers pay by preclsely $
and reduces Lhe prlce recelved by sellers by preclsely
$
D |aces a tax wedge of 5100 between the pr|ce the
buyers pay and the pr|ce the se||ers rece|ve
61he burden of a Lax falls more heavlly on
Lhe sellers ln a markeL when
A uemand ls lnelasLlc and supply ls elasLlc
8 uemand ls elasLlc and supply ls lnelasLlc
C 8oLh supply and demand are elasLlc
u 8oLh supply and demand are lnelasLlc
Lhe sellers ln a markeL when
Demand |s e|ast|c and supp|y |s |ne|ast|c
A Lax placed on a good LhaL ls a necesslLy for
consumers wlll llkely generaLe a Lax burden
LhaL
A lalls more heavlly on buyers
8 lalls more heavlly of sellers
C ls evenly dlsLrlbuLed beLween buyers and sellers
u lalls enLlrely on sellers
A Lax placed on a good LhaL ls a necesslLy for
consumers wlll llkely generaLe a Lax burden
LhaL
Ia||s more heav||y on buyers
8 lalls more heavlly of sellers
C ls evenly dlsLrlbuLed beLween buyers and sellers
u lalls enLlrely on sellers
Lhe buyers ln a markeL when
Lhe buyers ln a markeL when
Demand |s |ne|ast|c and supp|y |s e|ast|c
Whlch of Lhe followlng sLaLemenLs abouL Lhe
burden of a Lax ls correcL?
A 1he Lax burden generaLed from a Lax placed on a good
consumers percelve Lo be a necesslLy wlll fall mosL heavlly
on Lhe sellers of Lhe good
8 1he Lax burden falls mosL heavlly on Lhe slde of Lhe markeL
(buyers or sellers) LhaL ls mosL wllllng Lo leave Lhe markeL
when prlce movemenLs are unfavorable
C 1he burden of a Lax lands on Lhe slde of Lhe markeL (buyers
or sellers) from whlch lL ls collecLed
u 1he dlsLrlbuLlon of Lhe burden of a Lax ls deLermlned by Lhe
relaLlve elasLlc Lles of supply and demand and ls noL
deLermlned by leglslaLlon
Whlch of Lhe followlng sLaLemenLs abouL Lhe
burden of a Lax ls correcL?
A 1he Lax burden generaLed from a Lax placed on a good
consumers percelve Lo be a necesslLy wlll fall mosL heavlly
on Lhe sellers of Lhe good
8 1he Lax burden falls mosL heavlly on Lhe slde of Lhe markeL
(buyers or sellers) LhaL ls mosL wllllng Lo leave Lhe markeL
when prlce movemenLs are unfavorable
C 1he burden of a Lax lands on Lhe slde of Lhe markeL (buyers
or sellers) from whlch lL ls collecLed
D 1he d|str|but|on of the burden of a tax |s determ|ned by
the re|at|ve e|ast|c t|es of supp|y and demand and |s not
determ|ned by |eg|s|at|on
8lor whlch of Lhe followlng producLs would
Lhe burden of a Lax llkely fall more heavlly on
Lhe sellers?
A lood
8 LnLerLalnmenL
C CloLhlng
u ouslng
8lor whlch of Lhe followlng producLs would
Lhe burden of a Lax llkely fall more heavlly on
Lhe sellers?
A lood
nterta|nment
C CloLhlng
u ouslng
A
C l
u
L 8
8
o
uemand
s
; ;
Supply
Slze of Lax per unlL
rlce
;uanLlLy
8lf Lhere ls no Lax placed on Lhe producL ln Lhls markeL consumer surplus ls Lhe area
A A + 8 + C C A + 8 + L L A
8 u + C + 8 u C + u + l
8 lf Lhere ls noL Lax placed on Lhe producL ln Lhls markeL producer surplus ls Lhe area
A A + 8 + C + u C u LA + 8 + L
8 C + u + l u C + l
83 lf a Lax ls placed on Lhe producL ln Lhls markeL consumer surplus ls Lhe area
A A C A + 8 + L L u
8 A + 8 u A + 8 + C + u
84 lf a Lax ls placed on Lhe producL ln Lhls markeL producer surplus ls Lhe area
A A C C + u + l L A + 8 + C + u
8 A + 8 + L u u
A
C l
u
L 8
8
o
uemand
s
; ;
Supply
rlce
;uanLlLy
A A + 8 + C + + L A
8 u + C + 8 u C + u + l
A A + 8 + C + u C u LA + 8 + L
8 C + u + l u C + l
A A C A + 8 + L L u
8 A + 8 u A + 8 + C + u
A A C C + u + l L A + 8 + C + u
8 A + 8 + L u u
A
C l
u
L 8
8
o
uemand
s
; ;
Supply
rlce
;uanLlLy
A A + 8 + C + + L A
8 u + C + 8 u C + u + l
A A + 8 + C + u C u LA + 8 + L
+ D + I u C + l
A A C A + 8 + L L u
8 A + 8 u A + 8 + C + u
A A C C + u + l L A + 8 + C + u
8 A + 8 + L u u
A
C l
u
L 8
8
o
uemand
s
; ;
Supply
rlce
;uanLlLy
A A + 8 + C + + L A
8 u + C + 8 u C + u + l
A A + 8 + C + u C u LA + 8 + L
+ D + I u C + l
C A + 8 + L L u
8 A + 8 u A + 8 + C + u
A A C C + u + l L A + 8 + C + u
8 A + 8 + L u u
A
C l
u
L 8
8
o
uemand
s
; ;
Supply
rlce
;uanLlLy
A A + 8 + C + + L A
8 u + C + 8 u C + u + l
A A + 8 + C + u C u LA + 8 + L
+ D + I u C + l
C A + 8 + L L u
8 A + 8 u A + 8 + C + u
A A C C + u + l L A + 8 + C + u
8 A + 8 + L D D
A
C l
u
L 8
8
o
uemand
s
; ;
Supply
rlce
;uanLlLy
8lf a Lax ls placed on Lhe producL ln Lhls markeL producer surplus ls Lhe area
A A C C L 8 + C + L + l
8 8 u 8 + C
86lf a Lax ls placed on Lhe producL ln Lhls markeL Lax revenue pald by Lhe sellers ls Lhe area
A A C C L 8 + C + L + l
8 8 u C + l
8lf Lhere ls noL Lax placed on Lhe producL ln Lhls markeL LoLal surplus ls Lhe area
A A + 8 + C + u C 8 + C + L + l L A + u + L + l
8 A + 8 + C + u + L + l u L + l
88lf a Lax ls placed on Lhe producL ln Lhls markeL LoLal surplus ls Lhe area
A A + 8 + C + u C 8 + C + L + l u A + u
8 A + 8 + C + u + L + l u L + l
A
C l
u
L 8
8
o
uemand
s
; ;
Supply
rlce
;uanLlLy
A A C C L 8 + C + L + l
u 8 + C
A A C C L 8 + C + L + l
8 8 u C + l
A A + 8 + C + u C 8 + C + L + l L A + u + L + l
8 A + 8 + C + u + L + l u L + l
A A + 8 + C + u C 8 + C + L + l u A + u
8 A + 8 + C + u + L + l u L + l
A
C l
u
L 8
8
o
uemand
s
; ;
Supply
rlce
;uanLlLy
A A C C L 8 + C + L + l
u 8 + C
A A L 8 + C + L + l
8 8 u C + l
A A + 8 + C + u C 8 + C + L + l L A + u + L + l
8 A + 8 + C + u + L + l u L + l
A A + 8 + C + u C 8 + C + L + l u A + u
8 A + 8 + C + u + L + l u L + l
A
C l
u
L 8
8
o
uemand
s
; ;
Supply
rlce
;uanLlLy
A A C C L 8 + C + L + l
u 8 + C
A A L 8 + C + L + l
8 8 u C + l
A A + 8 + C + u C 8 + C + L + l L A + u + L + l
+ + + D + + I u L + l
A A + 8 + C + u C 8 + C + L + l u A + u
8 A + 8 + C + u + L + l u L + l
A
C l
u
L 8
8
o
uemand
s
; ;
Supply
rlce
;uanLlLy
A A C C L 8 + C + L + l
u 8 + C
A A L 8 + C + L + l
8 8 u C + l
A A + 8 + C + u C 8 + C + L + l L A + u + L + l
+ + + D + + I u L + l
+ + + D C 8 + C + L + l u A + u
8 A + 8 + C + u + L + l u L + l
A
C l
u
L 8
8
o
uemand
s
; ;
Supply
rlce
;uanLlLy
8lf a Lax ls placed on Lhe producL ln Lhls markeL deadwelghL loss ls Lhe area
A 8 + C C A + 8 + C + u L A + u
8 8 + C + L + l u L + l
Whlch of Lhe followlng ls Lrue wlLh regard Lo Lhe burden of Lhe Lax ln LxhlblL 4?
A 1he buyers pay a larger porLlon of Lhe Lax because demand ls more lnelasLlc Lhan
supply
8 1he buyers pay a larger porLlon of Lhe Lax because demand ls more elasLlc Lhan
supply
C 1he sellers pay a larger porLlon of Lhe Lax because supply ls more elasLlc Lhan
demand
u 1he sellers pay a larger porLlon of Lhe Lax because supply ls more lnelasLlc Lhan
demand
A
C l
u
L 8
8
o
uemand
s
; ;
Supply
rlce
;uanLlLy
A 8 + C C A + 8 + C + u L A + u
8 8 + C + L + l D + I
supply
supply
demand
u 1he sellers pay a larger porLlon of Lhe Lax because supply ls more lnelasLlc Lhan
demand
A
C l
u
L 8
8
o
uemand
s
; ;
Supply
rlce
;uanLlLy
A 8 + C C A + 8 + C + u L A + u
8 8 + C + L + l D + I
supply
supply
demand
D 1he se||ers pay a |arger port|on of the tax because supp|y |s more |ne|ast|c than
demand
Whlch of Lhe followlng would llkely cause
Lhe greaLesL deadwelghL loss?
A A Lax on clgareLLes
8 A Lax on salL
C A Lax on crulse llne LlckeLs
u A Lax on gasollne
Whlch of Lhe followlng would llkely cause
Lhe greaLesL deadwelghL loss?
A A Lax on clgareLLes
8 A Lax on salL
tax on cru|se ||ne t|ckets
u A Lax on gasollne
A Lax on gasollne ls llkely Lo
A Cause a greaLer deadwelghL loss ln Lhe long run when
compared Lo Lhe shorL run
8 Cause a greaLer deadwelghL loss ln Lhe shorL run
when compared Lo Lhe long run
C CeneraLe a deadwelghL loss LhaL ls unaffecLed by Lhe
Llme perlod over whlch lL ls measure
u -one of Lhe above ls correcL
A Lax on gasollne ls llkely Lo
ause a greater deadwe|ght |oss |n the |ong run
when compared to the short run
8 Cause a greaLer deadwelghL loss ln Lhe shorL run
when compared Lo Lhe long run
C CeneraLe a deadwelghL loss LhaL ls unaffecLed by Lhe
Llme perlod over whlch lL ls measure
u -one of Lhe above ls correcL
3ueadwelghL loss ls greaLesL when
A 8oLh supply and demand are relaLlvely lnelasLlc
8 8oLh supply and demand are relaLlvely elasLlc
C Supply ls elasLlc and demand ls perfecLly lnelasLlc
u uemand ls elasLlc and supply ls perfecLly lnelasLlc
3ueadwelghL loss ls greaLesL when
A 8oLh supply and demand are relaLlvely lnelasLlc
oth supp|y and demand are re|at|ve|y e|ast|c
C Supply ls elasLlc and demand ls perfecLly lnelasLlc
u uemand ls elasLlc and supply ls perfecLly lnelasLlc
4An exLernallLy ls
A 1he beneflL LhaL accrues Lo Lhe buyer ln Lhe markeL
8 1he cosL LhaL accrues Lo Lhe seller ln a markeL
C 1he uncompensaLed lmpacL of one person's acLlons on
Lhe wellbelng of a bysLander
u 1he compensaLlon pald Lo a flrm's exLernal consulLanLs
4An exLernallLy ls
A 1he beneflL LhaL accrues Lo Lhe buyer ln Lhe markeL
8 1he cosL LhaL accrues Lo Lhe seller ln a markeL
1he uncompensated |mpact of one person's act|ons on
the we||be|ng of a bystander
u 1he compensaLlon pald Lo a flrm's exLernal consulLanLs
A negaLlve exLernallLy generaLes
A A soclal cosL curve LhaL ls above Lhe supply curve
(prlvaLe cosL curve) for a good
8 A soclal cosL curve LhaL ls below Lhe supply curve
C A soclal value curve LhaL ls above Lhe demand curve
(prlvaLe value curve) for a good
u -one of Lhe above
A negaLlve exLernallLy generaLes
soc|a| cost curve that |s above the supp|y curve
(pr|vate cost curve) for a good
8 A soclal cosL curve LhaL ls below Lhe supply curve
C A soclal value curve LhaL ls above Lhe demand curve
u -one of Lhe above
6A poslLlve exLernallLy generaLes
8 A soclal value curve LhaL ls above Lhe demand curve
C A soclal value curve LhaL ls below Lhe demand curve
u -one of Lhe above
6A poslLlve exLernallLy generaLes
soc|a| va|ue curve that |s above the demand curve
(pr|vate va|ue curve) for a good
C A soclal value curve LhaL ls below Lhe demand curve
u -one of Lhe above
A negaLlve exLernallLy (LhaL has noL been
lnLernallzed) cases Lhe
A CpLlmal quanLlLy Lo exceed Lhe equlllbrlum quanLlLy
8 Lqulllbrlum quanLlLy Lo exceed Lhe opLlmal quanLlLy
C Lqulllbrlum quanLlLy Lo equal Lhe opLlmal quanLlLy
u Lqulllbrlum quanLlLy Lo be elLher above or below Lhe
opLlmal quanLlLy
A negaLlve exLernallLy (LhaL has noL been
lnLernallzed) cases Lhe
qu|||br|um quant|ty to exceed the opt|ma| quant|ty
opLlmal quanLlLy
8A poslLlve exLernallLy (LhaL has noL been
lnLernallzed) causes Lhe
opLlmal quanLlLy
8A poslLlve exLernallLy (LhaL has noL been
lnLernallzed) causes Lhe
Cpt|ma| quant|ty to exceed the equ|||br|um quant|ty
opLlmal quanLlLy
1o lnLernallze a negaLlve exLernallLy an
approprlaLe publlc pollcy response would be
Lo
A 8an Lhe producLlon of all goods creaLlng negaLlve
exLernallLles
8 ave Lhe governmenL Lake over Lhe producLlon of Lhe
good causlng an exLernallLy
C Subsldlze Lhe good
u 1ax Lhe good
1o lnLernallze a negaLlve exLernallLy an
Lo
A 8an Lhe producLlon of all goods creaLlng negaLlve
exLernallLles
8 ave Lhe governmenL Lake over Lhe producLlon of Lhe
good causlng an exLernallLy
D 1ax the good
When an lndlvldual buys a car ln a
congesLed urban area lL generaLes
A An efflclenL markeL ouLcome
8 A Lechnology splllover
C A poslLlve exLernallLy
u A negaLlve exLernallLy
When an lndlvldual buys a car ln a
congesLed urban area lL generaLes
A An efflclenL markeL ouLcome
8 A Lechnology splllover
C A poslLlve exLernallLy
D negat|ve externa||ty
Accordlng Lo Lhe Coase Lheorem prlvaLe
parLles can solve Lhe problem of exLernallLles
lf
A Lach affecLed parLy has equal power ln Lhe
negoLlaLlons
8 1he parLy affecLed by Lhe exLernallLy has Lhe lnlLlal
properLy rlghL Lo be lefL alone
C 1here are no LransacLlon cosLs
u 1he governmenL requlres Lhem Lo negoLlaLe wlLh each
oLher
L 1here are a large number of affecLed parLles
Accordlng Lo Lhe Coase Lheorem prlvaLe
parLles can solve Lhe problem of exLernallLles
lf
A Lach affecLed parLy has equal power ln Lhe
negoLlaLlons
8 1he parLy affecLed by Lhe exLernallLy has Lhe lnlLlal
properLy rlghL Lo be lefL alone
1here are no transact|on costs
u 1he governmenL requlres Lhem Lo negoLlaLe wlLh each
oLher
L 1here are a large number of affecLed parLles
1o lnLernallze a poslLlve exLernallLy an
Lo
A 8an Lhe good creaLlng Lhe exLernallLy
8 ave Lhe governmenL produce Lhe good unLll Lhe
value of an addlLlonal unlL ls zero
u 1ax Lhe good
1o lnLernallze a poslLlve exLernallLy an
Lo
A 8an Lhe good creaLlng Lhe exLernallLy
8 ave Lhe governmenL produce Lhe good unLll Lhe
value of an addlLlonal unlL ls zero
Subs|d|ze the good
u 1ax Lhe good
38ob and 1om llve ln a unlverslLy dorm 8ob
values playlng loud muslc aL a value of $
1om values peace and quleL aL a value of $
Whlch of Lhe followlng sLaLemenLs ls e?
A lL ls efflclenL for 8ob Lo conLlnue Lo play loud muslc
8 lL ls efflclenL for 8ob Lo sLop playlng loud muslc only lf 1om
has Lhe properLy rlghL Lo peace and quleL
C lL ls efflclenL for 8ob Lo sLop playlng loud muslc only lf 8ob
has Lhe properLy rlghL Lo play loud muslc
u lL ls efflclenL for 8ob Lo sLop playlng loud muslc regardless
of who has Lhe properLy rlghL Lo Lhe level of sound
values playlng loud muslc aL a value of $
1om values peace and quleL aL a value of $
Whlch of Lhe followlng sLaLemenLs ls e?
A lL ls efflclenL for 8ob Lo conLlnue Lo play loud muslc
8 lL ls efflclenL for 8ob Lo sLop playlng loud muslc only lf 1om
has Lhe properLy rlghL Lo peace and quleL
C lL ls efflclenL for 8ob Lo sLop playlng loud muslc only lf 8ob
has Lhe properLy rlghL Lo play loud muslc
D It |s eff|c|ent for ob to stop p|ay|ng |oud mus|c regard|ess
of who has the property r|ght to the |eve| of sound
values playlng loud muslc aL a value of $ 1om
values peace and quleL aL a value of $ Whlch
of Lhe followlng sLaLemenLs ls e abouL an
efflclenL soluLlon Lo Lhls exLernallLy problem lf 8ob
has Lhe rlghL Lo play loud muslc and lf Lhere are no
LransacLlon cosLs?
A 8ob wlll pay 1om $ and 8ob wlll sLop paylng loud muslc
8 1lm wlll play 8ob beLween $ and $ and 8ob wlll sLop
playlng loud muslc
C 8ob wlll pay 1om $ and 8ob wlll conLlnue Lo play loud
muslc
u 1om wlll pay 8ob beLween $ and $ and 8ob wlll
conLlnue Lo play loud muslc
values playlng loud muslc aL a value of $ 1om
values peace and quleL aL a value of $ Whlch
of Lhe followlng sLaLemenLs ls e abouL an
efflclenL soluLlon Lo Lhls exLernallLy problem lf 8ob
has Lhe rlghL Lo play loud muslc and lf Lhere are no
LransacLlon cosLs?
A 8ob wlll pay 1om $ and 8ob wlll sLop paylng loud muslc
1|m w||| p|ay ob between 5100 and 51S0 and ob w||| stop
p|ay|ng |oud mus|c
C 8ob wlll pay 1om $ and 8ob wlll conLlnue Lo play loud
muslc
u 1om wlll pay 8ob beLween $ and $ and 8ob wlll
conLlnue Lo play loud muslc
1he gasguzzler Lax LhaL ls placed on new
vehlcles LhaL geL very poor mlleage ls an
example of
A A Lradable polluLlon permlL
8 An appllcaLlon of Lhe Coase Lheorem
C An aLLempL Lo lnLernallze a poslLlve exLernallLy
u An aLLempL Lo lnLernallze a negaLlve exLernallLy
1he gasguzzler Lax LhaL ls placed on new
vehlcles LhaL geL very poor mlleage ls an
example of
A A Lradable polluLlon permlL
8 An appllcaLlon of Lhe Coase Lheorem
C An aLLempL Lo lnLernallze a poslLlve exLernallLy
D n attempt to |nterna||ze a negat|ve externa||ty
6A correcLlve Lax on polluLlon
A SeLs Lhe prlce of polluLlon
8 SeLs Lhe quanLlLy of polluLlon
C ueLermlnes Lhe demand for polluLlon rlghLs
u 8educes Lhe lncenLlves for Lechnologlcal lnnovaLlons
Lo furLher reduce polluLlon
6A correcLlve Lax on polluLlon
Sets the pr|ce of po||ut|on
8 SeLs Lhe quanLlLy of polluLlon
C ueLermlnes Lhe demand for polluLlon rlghLs
u 8educes Lhe lncenLlves for Lechnologlcal lnnovaLlons
Lo furLher reduce polluLlon
lf one person's consumpLlon of a good
dlmlnlshes oLher people's use of Lhe good
Lhe good ls sald Lo be
A A common resource
8 A good produced by a naLural monopoly
C 8lval ln consumpLlon
u Lxcludable
lf one person's consumpLlon of a good
dlmlnlshes oLher people's use of Lhe good
Lhe good ls sald Lo be
A A common resource
8 A good produced by a naLural monopoly
k|va| |n consumpt|on
u Lxcludable
8A publlc good ls
A 8oLh rlval ln consumpLlon and excludable
8 -elLher rlval ln consumpLlon nor excludable
C 8lval ln consumpLlon buL noL excludable
u -oL rlval ln consumpLlon buL excludable
8A publlc good ls
Ne|ther r|va| |n consumpt|on nor exc|udab|e
A prlvaLe good ls
A prlvaLe good ls
oth r|va| |n consumpt|on and exc|udab|e
A common resource ls
A common resource ls
k|va| |n consumpt|on but not exc|udab|e
A good produced by a naLural monopoly ls
A good produced by a naLural monopoly ls
D Not r|va| |n consumpt|on but exc|udab|e
ubllc goods are dlfflculL for a prlvaLe
markeL Lo provlde due Lo
A 1he publlc goods problem
8 1he rlvalness problem
C 1he 1ragedy of Lhe Commons
u 1he freerlder problem
ubllc goods are dlfflculL for a prlvaLe
markeL Lo provlde due Lo
A 1he publlc goods problem
8 1he rlvalness problem
C 1he 1ragedy of Lhe Commons
D 1he freer|der prob|em
3Suppose each of nelghbors on a sLreeL
values sLreeL repalrs aL $3 1he cosL of
Lhe sLreeL repalrs ls $4 Whlch of Lhe
followlng sLaLemenLs ls e?
A lL ls noL efflclenL Lo have Lhe sLreeL repalred
8 lL ls efflclenL for each nelghbor Lo pay $3 Lo repalr
Lhe secLlon of sLreeL ln fronL of hls home
C lL ls efflclenL for Lhe governmenL Lo Lax Lhe resldenLs
$ each and repald Lhe road
3Suppose each of nelghbors on a sLreeL
values sLreeL repalrs aL $3 1he cosL of
Lhe sLreeL repalrs ls $4 Whlch of Lhe
followlng sLaLemenLs ls e?
A lL ls noL efflclenL Lo have Lhe sLreeL repalred
8 lL ls efflclenL for each nelghbor Lo pay $3 Lo repalr
Lhe secLlon of sLreeL ln fronL of hls home
It |s eff|c|ent for the government to tax the res|dents
52000 each and repa|d the road
4A free rlder ls a person who
A 8ecelves Lhe beneflL of a good buL avolds paylng for lL
8 roduces a good buL falls Lo recelve paymenL for Lhe good
C ays for a good buL falls Lo recelve any beneflL from Lhe
good
u lalls Lo produce goods buL ls allowed Lo consume goods
4A free rlder ls a person who
kece|ves the benef|t of a good but avo|ds pay|ng for |t
8 roduces a good buL falls Lo recelve paymenL for Lhe good
C ays for a good buL falls Lo recelve any beneflL from Lhe
good
u lalls Lo produce goods buL ls allowed Lo consume goods
Whlch of Lhe followlng ls an example of a
publlc good?
A Whales ln Lhe ocean
8 Apples on a Lree ln a publlc park
C oL dogs aL a plcnlc
u -aLlonal uefense
publlc good?
A Whales ln Lhe ocean
8 Apples on a Lree ln a publlc park
C oL dogs aL a plcnlc
D Nat|ona| Defense
6A poslLlve exLernallLy affecL markeL
efflclency ln a manner slmllar Lo
A rlvaLe good
8 ubllc good
C Common resource
u 8lval good
6A poslLlve exLernallLy affecL markeL
A rlvaLe good
ub||c good
C Common resource
u 8lval good
Suppose LhaL requlrlng moLorcycle rlders Lo
wear helmeLs reduces Lhe probablllLy of a
moLorcycle faLallLy form 3 percenL Lo
percenL over Lhe llfeLlme of a moLorcycle rlder
and LhaL Lhe cosL of a llfeLlme supply of helmeLs
ls $ lL ls efflclenL for Lhe governmenL Lo
requlre rlders Lo wear helmeLs lf human llfe ls
valued aL
A $ or more
8 $ or more
C $ or more
u $ or more
L $ or more
Suppose LhaL requlrlng moLorcycle rlders Lo
wear helmeLs reduces Lhe probablllLy of a
moLorcycle faLallLy form 3 percenL Lo
percenL over Lhe llfeLlme of a moLorcycle rlder
and LhaL Lhe cosL of a llfeLlme supply of helmeLs
ls $ lL ls efflclenL for Lhe governmenL Lo
requlre rlders Lo wear helmeLs lf human llfe ls
valued aL
A $ or more
8 $ or more
C $ or more
u $ or more
5S00000 or more
8A negaLlve exLernallLy affecLs markeL
A A prlvaLe good
8 A publlc good
C A common resource
u An excludable good
8A negaLlve exLernallLy affecLs markeL
A A prlvaLe good
8 A publlc good
common resource
u An excludable good
When governmenLs employ cosLbeneflL
analysls Lo help Lhem declde wheLher Lo
provlde a publlc good measurlng beneflLs ls
dlfflculL because
A Cne can never place a value on human llfe or Lhe
envlronmenL
8 8espondenLs Lo quesLlonnalres have llLLle lncenLlve Lo
Lell Lhe LruLh
C 1here are no beneflLs Lo Lhe publlc because a publlc
good ls noL excludable
u 1he beneflLs are lnflnlLe because a publlc good ls noL
rlval ln consumpLlon and an lnflnlLe amounL of people
can consume lL aL Lhe same Llme
When governmenLs employ cosLbeneflL
analysls Lo help Lhem declde wheLher Lo
provlde a publlc good measurlng beneflLs ls
dlfflculL because
A Cne can never place a value on human llfe or Lhe
envlronmenL
kespondents to quest|onna|res have ||tt|e |ncent|ve to
te|| the truth
C 1here are no beneflLs Lo Lhe publlc because a publlc
good ls noL excludable
u 1he beneflLs are lnflnlLe because a publlc good ls noL
rlval ln consumpLlon and an lnflnlLe amounL of people
can consume lL aL Lhe same Llme
common resource?
A A naLlonal park
8 A flreworks dlsplay
C -aLlonal uefense
u lron ore
common resource?
nat|ona| park
8 A flreworks dlsplay
C -aLlonal uefense
u lron ore
1he 1ragedy of Lhe Commons ls a parable
LhaL lllusLraLes why
A ubllc Coods are underproduced
8 rlvaLe goods are underconsumed
C Common resources are overconsumed
u -aLural monopolles overproduce goods
1he 1ragedy of Lhe Commons ls a parable
LhaL lllusLraLes why
A ubllc Coods are underproduced
8 rlvaLe goods are underconsumed
ommon resources are overconsumed
u -aLural monopolles overproduce goods
Whlch of Lhe followlng are poLenLlal
soluLlons Lo Lhe problem of alr polluLlon?
A AucLlon off polluLlon permlLs
8 CranL rlghLs of Lhe clean alr Lo clLlzens so LhaL flrms
musL purchase Lhe rlghL Lo polluLe
C 8egulaLe Lhe amounL of polluLanLs LhaL flrms can puL
ln Lhe alr
u All of Lhe above
Whlch of Lhe followlng are poLenLlal
soluLlons Lo Lhe problem of alr polluLlon?
A AucLlon off polluLlon permlLs
8 CranL rlghLs of Lhe clean alr Lo clLlzens so LhaL flrms
musL purchase Lhe rlghL Lo polluLe
C 8egulaLe Lhe amounL of polluLanLs LhaL flrms can puL
ln Lhe alr
D || of the above
3When markeL fall Lo allocaLe resources
efflclenLly Lhe ulLlmaLe source of Lhe
problem ls usually
A 1haL prlces are noL hlgh enough so people
overconsume
8 1haL prlces are noL low enough so flrms overproduce
C 1haL properLy rlghLs have noL been well esLabllshed
u CovernmenL regulaLlon
3When markeL fall Lo allocaLe resources
efflclenLly Lhe ulLlmaLe source of Lhe
problem ls usually
A 1haL prlces are noL hlgh enough so people
overconsume
8 1haL prlces are noL low enough so flrms overproduce
1hat property r|ghts have not been we|| estab||shed
u CovernmenL regulaLlon
4lf a person can be prevenLed from uslng a
good Lhe good ls sald Lo be
A A common resource
8 A publlc good
u Lxcludable
4lf a person can be prevenLed from uslng a
good Lhe good ls sald Lo be
A A common resource
8 A publlc good
D xc|udab|e
A congesLed Loll road ls
A A prlvaLe good
8 A publlc good
C A common resource
u A good produced by a naLural monopoly
A congesLed Loll road ls
pr|vate good
8 A publlc good
C A common resource
u A good produced by a naLural monopoly
6A person who regularly waLches publlc
Lelevlslon buL falls Lo conLrlbuLe Lo publlc
Lelevlslon's fundralslng drlves ls known as
A A common resource
8 A cosLly rlder
C A free rlder
u An unwelcome rlder
L Lxcess baggage
6A person who regularly waLches publlc
Lelevlslon buL falls Lo conLrlbuLe Lo publlc
Lelevlslon's fundralslng drlves ls known as
A A common resource
8 A cosLly rlder
free r|der
u An unwelcome rlder
L Lxcess baggage
Whlch of Lhe followlng Laxes ls Lhe mosL
efflclenL Lax?
A A proporLlonal lncome Lax
8 A progresslve lncome Lax
C A consumpLlon Lax
u A lumpsum Lax
Whlch of Lhe followlng Laxes ls Lhe mosL
efflclenL Lax?
A A proporLlonal lncome Lax
8 A progresslve lncome Lax
C A consumpLlon Lax
D |umpsum tax
8A progresslve Lax sysLem ls one where
A Marglnal Lax raLes are low
8 Marglnal Lax raLes are hlgh
C lgher lncome Laxpayers pay more Laxes Lhan do lower
lncome Laxpayers
u lgher lncome Laxpayers pay a greaLer percenLage of Lhelr
lncome ln Laxes Lhan do lower lncome Laxpayers
8A progresslve Lax sysLem ls one where
A Marglnal Lax raLes are low
8 Marglnal Lax raLes are hlgh
C lgher lncome Laxpayers pay more Laxes Lhan do lower
lncome Laxpayers
D n|gher |ncome taxpayers pay a greater percentage of
the|r |ncome |n taxes than do |ower |ncome taxpayers
1he marglnal producL of labor as producLlon moves
from employlng one worker Lo employlng Lwo workers ls
A u 3
8 L 4
C
Number of workers Cutput

3
4
3
31he producLlon process descrlbed above exhlblLs
A ConsLanL marglnal producL of labor
8 lncreaslng marglnal producL of labor
C ulmlnlshlng marglnal producL of labor
u lncreaslng reLurns Lo scale
L uecreaslng reLurn Lo scale
A u 3
8 L 4
17

3
4
3
C ulmlnlshlng marglnal producL of labor
A u 3
8 L 4
17

3
4
3
D|m|n|sh|ng marg|na| product of |abor
3Whlch of Lhe followlng ls a varlable cosL ln
Lhe shorL run?
A Wages pald Lo facLory labor
8 aymenL on Lhe lease for facLory equlpmenL
C 8enL on Lhe facLory
u lnLeresL paymenLs on borrowed flnanclal caplLal
L Salarles pald Lo upper managemenL
3Whlch of Lhe followlng ls a varlable cosL ln
Lhe shorL run?
Wages pa|d to factory |abor
8 aymenL on Lhe lease for facLory equlpmenL
C 8enL on Lhe facLory
u lnLeresL paymenLs on borrowed flnanclal caplLal
L Salarles pald Lo upper managemenL
3When marglnal cosLs are below average
cosLs
A Average flxed cosLs are rlslng
8 Average LoLal cosLs are falllng
C Average LoLal cosLs are rlslng
u Average LoLal cosLs are mlnlmlzed
3When marglnal cosLs are below average
cosLs
A Average flxed cosLs are rlslng
verage tota| costs are fa|||ng
C Average LoLal cosLs are rlslng
u Average LoLal cosLs are mlnlmlzed
33lf marglnal cosLs equal average LoLal cosLs
A Average LoLal cosLs are rlslng
C Average LoLal cosLs are mlnlmlzed
u Average LoLal cosLs are maxlmlzed
33lf marglnal cosLs equal average LoLal cosLs
A Average LoLal cosLs are rlslng
verage tota| costs are m|n|m|zed
u Average LoLal cosLs are maxlmlzed
34lf as Lhe quanLlLy produced lncreases a
producLlon funcLlon flrsL exhlblLs lncreaslng
marglnal producL and laLer dlmlnlshlng
marglnal producL Lhe correspondlng
marglnal cosL curve
A Slope upward
8 8e Dshaped
C Slope downward
u 8e flaL (horlzonLal)
34lf as Lhe quanLlLy produced lncreases a
producLlon funcLlon flrsL exhlblLs lncreaslng
marglnal producL and laLer dlmlnlshlng
marglnal producL Lhe correspondlng
marglnal cosL curve
A Slope upward
e Ushaped
C Slope downward
u 8e flaL (horlzonLal)
3ln Lhe long run lf a very small facLory were
Lo expand lLs scale of operaLlons lL ls llkely
LhaL lL would lnlLlally experlence
A Lconomles of scales
8 ConsLanL reLurns Lo scale
C ulseconomles of scale
u An lncrease ln average LoLal cosLs
3ln Lhe long run lf a very small facLory were
Lo expand lLs scale of operaLlons lL ls llkely
LhaL lL would lnlLlally experlence
conom|es of sca|es
8 ConsLanL reLurns Lo scale
C ulseconomles of scale
u An lncrease ln average LoLal cosLs
361he efflclenL scale of producLlon ls Lhe
quanLlLy of ouLpuL LhaL mlnlmlzes
A Average LoLal cosL
8 Marglnal cosL
C Average flxed cosL
u Average varlable cosL
361he efflclenL scale of producLlon ls Lhe
quanLlLy of ouLpuL LhaL mlnlmlzes
verage tota| cost
8 Marglnal cosL
C Average flxed cosL
u Average varlable cosL
3Consumer surplus ls Lhe area
A Above Lhe supply curve and below Lhe prlce
8 8elow Lhe supply curve and above Lhe prlce
C Above Lhe demand curve and below Lhe prlce
u 8elow Lhe demand curve and above Lhe prlce
L 8elow Lhe demand curve and above Lhe supply curve
3Consumer surplus ls Lhe area
D e|ow the demand curve and above the pr|ce
38A buyer's wllllngness Lo pay ls
A 1haL buyer's consumer surplus
8 1haL buyer's producer surplus
C 1haL buyer's maxlmum amounL he ls wllllng Lo pay for a good
u 1haL buyer's mlnlmum amounL he ls wllllng Lo pay for a good
L -one of Lhe above
38A buyer's wllllngness Lo pay ls
A 1haL buyer's consumer surplus
8 1haL buyer's producer surplus
1hat buyer's max|mum amount he |s w||||ng to pay for a
good
u 1haL buyer's mlnlmum amounL he ls wllllng Lo pay for a good
L -one of Lhe above
3lf a buyer's wllllngness Lo pay for a new
onda ls $ and she ls able Lo acLually
buy lL for $8 her consumer surplus ls
A $
8 $
C $8
u $
L $38
3lf a buyer's wllllngness Lo pay for a new
onda ls $ and she ls able Lo acLually
buy lL for $8 her consumer surplus ls
A $
52000
C $8
u $
L $38
4An lncrease ln Lhe prlce of a good along a
sLaLlonary demand curve
A lncreases consumer surplus
8 uecreases consumer surplus
C lmproves Lhe maLerlal welfare of Lhe buyer
u lmproves Lhe markeL efflclency
sLaLlonary demand curve
A lncreases consumer surplus
Decreases consumer surp|us
C lmproves Lhe maLerlal welfare of Lhe buyer
u lmproves Lhe markeL efflclency
4Suppose Lhere are Lhree ldenLlcal vases avallable
Lo be purchased 8uyer ls wllllng Lo pay $3 for
one buyer ls wlll Lo pay $ for one and buyer
3 ls wllllng Lo pay $ for one lf Lhe prlce ls $
how many vases wlll be sold and whaL ls Lhe value
of consumer surplus ln Lhls markeL?
A Cne vase wlll be sold and consumer surplus ls $3
8 Cne vase wlll be sold and consumer surplus ls $
C 1wo vases wlll be sold and consumer surplus ls $
u 1hree vases wlll be sold and consumer surplus ls $
L 1hree vases wlll be sold and consumer surplus ls $8
4Suppose Lhere are Lhree ldenLlcal vases avallable
Lo be purchased 8uyer ls wllllng Lo pay $3 for
one buyer ls wlll Lo pay $ for one and buyer
3 ls wllllng Lo pay $ for one lf Lhe prlce ls $
how many vases wlll be sold and whaL ls Lhe value
of consumer surplus ln Lhls markeL?
A Cne vase wlll be sold and consumer surplus ls $3
8 Cne vase wlll be sold and consumer surplus ls $
1wo vases w||| be so|d and consumer surp|us |s 5S
u 1hree vases wlll be sold and consumer surplus ls $
L 1hree vases wlll be sold and consumer surplus ls $8
4roducer surplus ls Lhe area
4roducer surplus ls Lhe area
bove the supp|y curve and be|ow the pr|ce
43lf a benevolenL soclal planner chooses Lo
produce less Lhan Lhe equlllbrlum quanLlLy of a
good Lhen
A roducer surplus ls maxlmlzed
8 Consumer surplus ls maxlmlzed
C 1oLal surplus ls maxlmlzed
u 1he value placed on Lhe lasL unlL of producLlon by
buyers exceeds Lhe cosL of producLlon
L 1he cosL of producLlon on Lhe lasL unlL produced
exceeds Lhe value placed on lL by buyers
produce less Lhan Lhe equlllbrlum quanLlLy of a
good Lhen
D 1he va|ue p|aced on the |ast un|t of product|on by
buyers exceeds the cost of product|on
produce more Lhan Lhe equlllbrlum quanLlLy of
a good Lhen
produce more Lhan Lhe equlllbrlum quanLlLy of
a good Lhen
1he cost of product|on on the |ast un|t produced
exceeds the va|ue p|aced on |t by buyers
41he seller's cosL of producLlon ls
A 1he seller's consumer surplus
8 1he seller's producer surplus
C 1he maxlmum amounL Lhe seller ls wllllng Lo accepL
for a good
u 1he mlnlmum amounL Lhe seller ls wllllng Lo accepL
for a good
L -one of Lhe above
41he seller's cosL of producLlon ls
A 1he seller's consumer surplus
8 1he seller's producer surplus
C 1he maxlmum amounL Lhe seller ls wllllng Lo accepL
for a good
D 1he m|n|mum amount the se||er |s w||||ng to accept
for a good
L -one of Lhe above
461oLal surplus ls Lhe area
461oLal surplus ls Lhe area
e|ow the demand curve and above the supp|y curve
sLaLlonary supply curve
A lncreases producer surplus
8 uecreases producer surplus
C lmproves markeL equlLy
u uoes all of Lhe above
sLaLlonary supply curve
Increases producer surp|us
8 uecreases producer surplus
C lmproves markeL equlLy
u uoes all of Lhe above
48Adam SmlLh's lnvlslble hand" concepL
suggesLs LhaL a compeLlLlve markeL ouLcome
A Mlnlmlzes LoLal surplus
8 Maxlmlzes LoLal surplus
C CeneraLes equallLy among Lhe members of socleLy
u uoes boLh and n
48Adam SmlLh's lnvlslble hand" concepL
suggesLs LhaL a compeLlLlve markeL ouLcome
A Mlnlmlzes LoLal surplus
Max|m|zes tota| surp|us
C CeneraLes equallLy among Lhe members of socleLy
u uoes boLh and n
4ln general lf a benevolenL soclal planner
wanLed Lo maxlmlze Lhe LoLal beneflLs
recelved by buyers and sellers ln a markeL
Lhe planner should
A Choose a prlce above Lhe markeL equlllbrlum prlce
8 Choose a prlce below Lhe markeL equlllbrlum prlce
C Allow Lhe markeL Lo seek equlllbrlum on lLs own
u Choose any prlce Lhe planner wanLs because Lhe
losses Lo Lhe sellers (buyers) from any change ln prlce
are exacLly offseL by Lhe galns Lo Lhe buyers (sellers)
4ln general lf a benevolenL soclal planner
wanLed Lo maxlmlze Lhe LoLal beneflLs
recelved by buyers and sellers ln a markeL
Lhe planner should
A Choose a prlce above Lhe markeL equlllbrlum prlce
8 Choose a prlce below Lhe markeL equlllbrlum prlce
||ow the market to seek equ|||br|um on |ts own
u Choose any prlce Lhe planner wanLs because Lhe
losses Lo Lhe sellers (buyers) from any change ln prlce
are exacLly offseL by Lhe galns Lo Lhe buyers (sellers)
lf buyers are raLlonal and Lhere ls no markeL
fallure
A lree markeL soluLlons are efflclenL
8 lree markeL soluLlons generaLe equallLy
C lree markeL soluLlons maxlmlze LoLal surplus
u All of Lhe above are Lrue
L A and c are correcL
lf buyers are raLlonal and Lhere ls no markeL
fallure
A lree markeL soluLlons are efflclenL
8 lree markeL soluLlons generaLe equallLy
C lree markeL soluLlons maxlmlze LoLal surplus
and c are correct
lf a producer has markeL power (can
lnfluence Lhe prlce of Lhe producL ln Lhe
markeL) Lhen free markeL soluLlons
A CeneraLe equallLy
8 Are efflclenL
C Are lnefflclenL
u Maxlmlze consumer surplus
lf a producer has markeL power (can
lnfluence Lhe prlce of Lhe producL ln Lhe
markeL) Lhen free markeL soluLlons
A CeneraLe equallLy
8 Are efflclenL
re |neff|c|ent
u Maxlmlze consumer surplus
lf a markeL generaLes a slde effecL or
exLernallLy Lhen free markeL soluLlons
A CeneraLe equallLy
8 Are efflclenL
C Are lnefflclenL
u Maxlmlze producer surplus
lf a markeL generaLes a slde effecL or
exLernallLy Lhen free markeL soluLlons
A CeneraLe equallLy
8 Are efflclenL
re |neff|c|ent
u Maxlmlze producer surplus
3lf a markeL ls efflclenL Lhen
A 1he markeL allocaLes ouLpuL Lo Lhe buyers who value
lL Lhe mosL
8 1he markeL allocaLes buyers Lo Lhe sellers who can
produce Lhe good aL leasL cosL
C 1he quanLlLy produced ln Lhe markeL maxlmlzes Lhe
sum of consumer and producer surplus
3lf a markeL ls efflclenL Lhen
A 1he markeL allocaLes ouLpuL Lo Lhe buyers who value
lL Lhe mosL
8 1he markeL allocaLes buyers Lo Lhe sellers who can
produce Lhe good aL leasL cosL
C 1he quanLlLy produced ln Lhe markeL maxlmlzes Lhe
sum of consumer and producer surplus
D || of the above are true
4Medlcal care clearly enhances people's
llves 1herefore we should consume medlcal
care unLll
A Lveryone has much as Lhey would llke
8 1he beneflL buyers place on medlcal care ls equal Lo
Lhe cosL of produclng lL
C 8uyers recelve no beneflL from anoLher unlL of
medlcal care
u We musL cuL back on Lhe consumpLlon of oLher goods
4Medlcal care clearly enhances people's
llves 1herefore we should consume medlcal
care unLll
A Lveryone has much as Lhey would llke
1he benef|t buyers p|ace on med|ca| care |s equa| to
the cost of produc|ng |t
C 8uyers recelve no beneflL from anoLher unlL of
medlcal care
u We musL cuL back on Lhe consumpLlon of oLher goods
oe has Len baseball gloves and Sue has
none A baseball glove cosLs $ Lo produce
lf oe values an addlLlonal baseball glove aL
$ and Sue values a baseball glove aL $4
Lhen Lo maxlmlze
A Lfflclency oe should recelve Lhe glove
8 Lfflclency Sue should recelve Lhe glove
C Consumer surplus boLh should recelve a glove
u LqulLy oe should recelve Lhe glove
oe has Len baseball gloves and Sue has
none A baseball glove cosLs $ Lo produce
lf oe values an addlLlonal baseball glove aL
$ and Sue values a baseball glove aL $4
Lhen Lo maxlmlze
ff|c|ency Ioe shou|d rece|ve the g|ove
8 Lfflclency Sue should recelve Lhe glove
C Consumer surplus boLh should recelve a glove
u LqulLy oe should recelve Lhe glove
6Suppose LhaL Lhe prlce of a new blcycle ls
$3 Sue values a new blcycle aL $4 lL cosLs
$ for Lhe seller Lo produce Lhe new blcycle
WhaL ls Lhe value of LoLal surplus lf Sue buys a
new blke?
A $
8 $
C $3
u $4
L $
6Suppose LhaL Lhe prlce of a new blcycle ls
$3 Sue values a new blcycle aL $4 lL cosLs
$ for Lhe seller Lo produce Lhe new blcycle
WhaL ls Lhe value of LoLal surplus lf Sue buys a
new blke?
A $
5200
C $3
u $4
L $
Whlch of followlng ls a characLerlsLlc of
a compeLlLlve markeL?
A 1here are many buyers and sellers ln Lhe markeL
8 1he goods offered for sale are largely Lhe same
C llrms can freely enLer or exlL Lhe markeL
u llrms generaLe small buL poslLlve economlc proflLs ln
Lhe long run
L All of Lhe above are characLerlsLlcs of a compeLlLlve
markeL
Whlch of followlng ls a characLerlsLlc of
a compeLlLlve markeL?
A 1here are many buyers and sellers ln Lhe markeL
8 1he goods offered for sale are largely Lhe same
C llrms can freely enLer or exlL Lhe markeL
D I|rms generate sma|| but pos|t|ve econom|c prof|ts |n
the |ong run
L All of Lhe above are characLerlsLlcs of a compeLlLlve
markeL
8Whlch of Lhe followlng markeLs would more
closely saLlsfy Lhe requlremenLs for a
compeLlLlve markeL?
A Cold bulllon
8 LlecLrlclLy
C Cable Lelevlslon
u Soda
L All of Lhe above represenL compeLlLlve markeLs
8Whlch of Lhe followlng markeLs would more
closely saLlsfy Lhe requlremenLs for a
compeLlLlve markeL?
Go|d bu|||on
8 LlecLrlclLy
C Cable Lelevlslon
u Soda
L All of Lhe above represenL compeLlLlve markeLs
lf a compeLlLlve flrm doubles lLs ouLpuL lLs
LoLal revenue
A More Lhan doubles
8 uoubles
C Less Lhan doubles
u CannoL be deLermlned because Lhe prlce of Lhe good
may rlse or fall
lf a compeLlLlve flrm doubles lLs ouLpuL lLs
LoLal revenue
A More Lhan doubles
Doub|es
C Less Lhan doubles
u CannoL be deLermlned because Lhe prlce of Lhe good
may rlse or fall
6lor a compeLlLlve flrm marglnal revenue ls
A Lqual Lo Lhe prlce of Lhe good sold
8 Average revenue dlvlded by Lhe quanLlLy sold
C 1oLal revenue dlvlded by Lhe prlce
u Lqual Lo Lhe quanLlLy of Lhe good sold
6lor a compeLlLlve flrm marglnal revenue ls
qua| to the pr|ce of the good so|d
8 Average revenue dlvlded by Lhe quanLlLy sold
C 1oLal revenue dlvlded by Lhe prlce
u Lqual Lo Lhe quanLlLy of Lhe good sold
61he compeLlLlve flrm maxlmlzes proflL when
lL produces ouLpuL up Lo Lhe polnL where
A Marglnal cosL equals LoLal revenue
8 Marglnal revenue equals average revenue
C Marglnal cosL equals marglnal revenue
u rlce equals average varlable cosL
61he compeLlLlve flrm maxlmlzes proflL when
lL produces ouLpuL up Lo Lhe polnL where
A Marglnal cosL equals LoLal revenue
8 Marglnal revenue equals average revenue
Marg|na| cost equa|s marg|na| revenue
u rlce equals average varlable cosL
6lf a compeLlLlve flrm ls produclng a level of
ouLpuL where marglnal revenue exceeds
marglnal cosL Lhe flrm could lncreases proflLs
lf lL
A lncreased producLlon
8 uecreased producLlon
C MalnLalned producLlon aL Lhe currenL level
u 1emporarlly shuL down
6lf a compeLlLlve flrm ls produclng a level of
ouLpuL where marglnal revenue exceeds
marglnal cosL Lhe flrm could lncreases proflLs
lf lL
Increased product|on
8 uecreased producLlon
C MalnLalned producLlon aL Lhe currenL level
u 1emporarlly shuL down
63ln Lhe shorL run Lhe compeLlLlve flrm's
supply curve ls Lhe
A LnLlre marglnalcosL curve
8 orLlon of Lhe marglnalcosL curve LhaL lles above Lhe
averageLoLalcosL curve
C orLlon of Lhe marglnalcosL LhaL lles above Lhe average
varlablecosL curve
u Dpwardsloplng porLlon of Lhe averageLoLalcosL curve
L Dpwardsloplng porLlon of Lhe averagevarlablecosL
curve
63ln Lhe shorL run Lhe compeLlLlve flrm's
supply curve ls Lhe
averageLoLalcosL curve
ort|on of the marg|na|cost that ||es above the
averagevar|ab|ecost curve
u Dpwardsloplng porLlon of Lhe averageLoLalcosL curve
L Dpwardsloplng porLlon of Lhe averagevarlablecosL
curve
64ln Lhe long run Lhe compeLlLlve flrm's supply
curve ls Lhe
average LoLal cosL curve
C orLlon of Lhe marglnal cosL curve LhaL lles above Lhe
average varlable cosL curve
u Dpward sloplng porLlon of Lhe average LoLal cosL curve
L Dpward sloplng porLlon of Lhe average varlable cosL
curve
64ln Lhe long run Lhe compeLlLlve flrm's supply
curve ls Lhe
ort|on of the marg|na|cost curve that ||es above the
average tota| cost curve
C orLlon of Lhe marglnal cosL curve LhaL lles above Lhe
average varlable cosL curve
u Dpward sloplng porLlon of Lhe average LoLal cosL curve
L Dpward sloplng porLlon of Lhe average varlable cosL
curve
6A grocery sLore should close aL nlghL lf Lhe
8 1oLal cosLs of sLaylng open are less Lhan Lhe LoLal
C Iarlable cosLs of sLaylng open are greaLer Lhan Lhe
LoLal revenue due Lo sLaylng open
6A grocery sLore should close aL nlghL lf Lhe
8 1oLal cosLs of sLaylng open are less Lhan Lhe LoLal
Var|ab|e costs of stay|ng open are greater than the
tota| revenue due to stay|ng open
661he long run markeL supply curve
A ls always more elasLlc Lhan Lhe shorL run markeL
supply curve
8 ls always less elasLlc Lhan Lhe shorL run markeL supply
curve
C as Lhe same elasLlclLy as Lhe shorL run markeL supply
curve
u ls always perfecLly elasLlc
661he long run markeL supply curve
Is a|ways more e|ast|c than the short run market
supp|y curve
8 ls always less elasLlc Lhan Lhe shorL run markeL supply
curve
C as Lhe same elasLlclLy as Lhe shorL run markeL supply
curve
u ls always perfecLly elasLlc
6ln Lhe long run some flrms wlll exlL Lhe
markeL lf Lhe prlce of Lhe good offered for
sale ls less Lhan
A Marglnal revenue
8 Marglnal cosL
C Average cosL
u Average revenue
L Average LoLal cosL
6ln Lhe long run some flrms wlll exlL Lhe
markeL lf Lhe prlce of Lhe good offered for
sale ls less Lhan
A Marglnal revenue
8 Marglnal cosL
C Average cosL
u Average revenue
verage tota| cost
68lf all flrms ln a markeL have ldenLlcal cosL
sLrucLures and lf lnpuLs used ln Lhe producLlon
of Lhe good ln LhaL markeL are readlly
avallable Lhen Lhe long run markeL supply
curve for LhaL good should be
A erfecLly elasLlc
8 uownward sloplng
C Dpward sloplng
u erfecLly lnelasLlc
68lf all flrms ln a markeL have ldenLlcal cosL
sLrucLures and lf lnpuLs used ln Lhe producLlon
of Lhe good ln LhaL markeL are readlly
avallable Lhen Lhe long run markeL supply
curve for LhaL good should be
erfect|y e|ast|c
8 uownward sloplng
C Dpward sloplng
6lf an lnpuL necessary for producLlon ls ln
llmlLed supply so LhaL an expanslon of Lhe
lndusLry ralses cosLs for all exlsLlng flrms ln
Lhe markeL Lhen Lhe long run markeL supply
curve for a good should be
A erfecLly elasLlc
8 uownward sloplng
C Dpward sloplng
6lf an lnpuL necessary for producLlon ls ln
llmlLed supply so LhaL an expanslon of Lhe
lndusLry ralses cosLs for all exlsLlng flrms ln
Lhe markeL Lhen Lhe long run markeL supply
curve for a good should be
A erfecLly elasLlc
8 uownward sloplng
Upward s|op|ng
lf Lhe long run markeL supply curve for a good
ls perfecLly elasLlc an lncrease ln Lhe demand
for LhaL good wlll ln Lhe long run cause
A An lncrease ln Lhe prlce of Lhe good and an lncrease ln
Lhe number of flrms ln Lhe markeL
8 An lncrease ln Lhe prlce of Lhe good buL no lncrease ln
C An lncrease ln Lhe number of flrms ln Lhe markeL buL no
lncrease ln Lhe prlce of Lhe good
u -o lmpacL on elLher Lhe prlce of LhaL good or Lhe
number of flrms ln Lhe markeL
lf Lhe long run markeL supply curve for a good
ls perfecLly elasLlc an lncrease ln Lhe demand
for LhaL good wlll ln Lhe long run cause
A An lncrease ln Lhe prlce of Lhe good and an lncrease ln
8 An lncrease ln Lhe prlce of Lhe good buL no lncrease ln
n |ncrease |n the number of f|rms |n the market but
no |ncrease |n the pr|ce of the good
u -o lmpacL on elLher Lhe prlce of LhaL good or Lhe
number of flrms ln Lhe markeL
ln Lhe long run equlllbrlum ln a compeLlLlve
markeL flrms are operaLlng aL
8 1he lnLersecLlon of marglnal cosL and marglnal revenue
C 1helr efflclenL scale
u Zero economlc proflL
L All of Lhe above
ln Lhe long run equlllbrlum ln a compeLlLlve
markeL flrms are operaLlng aL
8 1he lnLersecLlon of marglnal cosL and marglnal revenue
C 1helr efflclenL scale
u Zero economlc proflL
|| of the above
Whlch of Lhe followlng ls noL a barrler Lo
enLry ln a monopollzed markeL?
A 1he governmenL glves a slngle flrm Lhe excluslve rlghL
Lo produce some good
8 1he cosLs of producLlon make a slngle producer more
efflclenL Lhan a large number of producers
C A key resource ls owned by a slngle flrm
u A slngle flrm ls very large
Whlch of Lhe followlng ls noL a barrler Lo
enLry ln a monopollzed markeL?
A 1he governmenL glves a slngle flrm Lhe excluslve rlghL
Lo produce some good
8 1he cosLs of producLlon make a slngle producer more
efflclenL Lhan a large number of producers
C A key resource ls owned by a slngle flrm
D s|ng|e f|rm |s very |arge
3A flrm whose average LoLal cosL conLlnually
decllnes aL leasL Lo Lhe quanLlLy LhaL could
supply Lhe enLlre markeL ls known as a
A erfecL compeLlLor
8 -aLural monopoly
C CovernmenL monopoly
u 8egulaLed monpoly
3A flrm whose average LoLal cosL conLlnually
decllnes aL leasL Lo Lhe quanLlLy LhaL could
supply Lhe enLlre markeL ls known as a
A erfecL compeLlLor
Natura| monopo|y
C CovernmenL monopoly
u 8egulaLed monopoly
4When a monopollsL produces an addlLlonal
unlL Lhe marglnal revenue generaLed by LhaL
unlL musL be
A Above Lhe prlce because Lhe ouLpuL effecL ouLwelghs
Lhe prlce effecL
8 Above Lhe prlce because Lhe prlce effecL ouLwelghs Lhe
ouLpuL effecL
C 8elow Lhe prlce because Lhe effecL ouLwelghs Lhe prlce
effecL
u 8elow Lhe prlce because Lhe prlce effecL ouLwelghs Lhe
ouLpuL effecL
4When a monopollsL produces an addlLlonal
unlL Lhe marglnal revenue generaLed by LhaL
unlL musL be
A Above Lhe prlce because Lhe ouLpuL effecL ouLwelghs
Lhe prlce effecL
8 Above Lhe prlce because Lhe prlce effecL ouLwelghs Lhe
ouLpuL effecL
C 8elow Lhe prlce because Lhe effecL ouLwelghs Lhe prlce
effecL
D e|ow the pr|ce because the pr|ce effect outwe|ghs
the output effect
A monopollsL maxlmlzes proflL by produclng
Lhe quanLlLy aL whlch
A Marglnal revenue equals marglnal cosL
8 Marglnal revenue equals prlce
C Marglnal cosL equals prlce
u Marglnal cosL equal demand
L -one of Lhe above occurs
A monopollsL maxlmlzes proflL by produclng
Lhe quanLlLy aL whlch
Marg|na| revenue equa|s marg|na| cost
8 Marglnal revenue equals prlce
C Marglnal cosL equals prlce
u Marglnal cosL equal demand
L -one of Lhe above occurs
6Whlch of Lhe followlng sLaLemenLs abouL
prlce and marglnal cosL ln compeLlLlve and
monopollzed markeLs ls e?
A ln compeLlLlve markeLs prlce equals marglnal cosL ln
monopollzed markeLs prlce equals marglnal cosL
8 ln compeLlLlve markeLs prlce exceeds marglnal cosL ln
monopollzed markeLs prlce exceeds marglnal cosL
C ln compeLlLlve markeL prlce equals marglnal cosL ln
u ln compeLlLlve markeLs prlce exceeds marglnal cosL ln
prlce and marglnal cosL ln compeLlLlve and
monopollzed markeLs ls e?
A ln compeLlLlve markeLs prlce equals marglnal cosL ln
8 ln compeLlLlve markeLs prlce exceeds marglnal cosL ln
In compet|t|ve market pr|ce equa|s marg|na| cost |n
monopo||zed markets pr|ce exceeds marg|na| cost
u ln compeLlLlve markeLs prlce exceeds marglnal cosL ln
SouLhWesLern ls a monopollsL ln Lhe
producLlon of your LexLbook because
A SouLhwesLern owns a key resource ln Lhe producLlon
of LexLbooks
8 SouLhwesLern ls a naLural monopoly
C 1he governmenL has granLed souLhwesLern excluslve
rlghLs Lo produce Lhls LexLbook
u SouLhwesLern ls a very large company
SouLhWesLern ls a monopollsL ln Lhe
producLlon of your LexLbook because
A SouLhwesLern owns a key resource ln Lhe producLlon
of LexLbooks
8 SouLhwesLern ls a naLural monopoly
1he government has granted southwestern
exc|us|ve r|ghts to produce th|s textbook
u SouLhwesLern ls a very large company
81he lnefflclency assoclaLed wlLh monopoly
ls due Lo
A 1he monopoly's proflLs
8 1he monopoly's losses
C CverproducLlon of Lhe good
u DnderproducLlon of Lhe good
81he lnefflclency assoclaLed wlLh monopoly
ls due Lo
A 1he monopoly's proflLs
8 1he monopoly's losses
C CverproducLlon of Lhe good
D Underproduct|on of the good
Compared Lo a perfecLly compeLlLlve
markeL a monopoly markeL wlll usually
generaLe
A lgher prlces and hlgher ouLpuL
8 lgher prlces and lower ouLpuL
C Lower prlces and lower ouLpuL
u Lower prlces and hlgher ouLpuL
Compared Lo a perfecLly compeLlLlve
markeL a monopoly markeL wlll usually
generaLe
A lgher prlces and hlgher ouLpuL
n|gher pr|ces and |ower output
C Lower prlces and lower ouLpuL
u Lower prlces and hlgher ouLpuL
81he monopollsL's supply curve
A ls Lhe marglnal cosL curve above average varlable cosL
8 ls Lhe marglnal cosL curve above average LoLal cosL
C ls Lhe upward sloplng porLlon of Lhe average LoLal cosL
curve
u ls Lhe upward sloplng porLlon of Lhe average varlable
cosL
L uoes noL exlsL
81he monopollsL's supply curve
A ls Lhe marglnal cosL curve above average varlable cosL
8 ls Lhe marglnal cosL curve above average LoLal cosL
C ls Lhe upward sloplng porLlon of Lhe average LoLal cosL
curve
u ls Lhe upward sloplng porLlon of Lhe average varlable
cosL
Does not ex|st
8Dslng governmenL regulaLlons Lo force a
naLural monopoly Lo charge a prlce equal Lo
lLs marglnal cosL wlll
A lmprove efflclency
8 8alse Lhe prlce of Lhe good
C ALLracL addlLlonal flrms Lo enLer Lhe markeL
u Cause Lhe monopollsL Lo exlL Lhe markeL
8Dslng governmenL regulaLlons Lo force a
naLural monopoly Lo charge a prlce equal Lo
lLs marglnal cosL wlll
A lmprove efflclency
8 8alse Lhe prlce of Lhe good
C ALLracL addlLlonal flrms Lo enLer Lhe markeL
D ause the monopo||st to ex|t the market
81he purpose of anLlLrusL laws ls Lo
A 8egulaLe Lhe prlces charged by a monopoly
8 lncrease compeLlLlon ln an lndusLry by prevenLlng
mergers and breaklng up large flrms
C lncrease merger acLlvlLy Lo help generaLe synergles
LhaL reduce cosLs and ralse efflclency
u CreaLe publlc ownershlp of naLural monopolles
L uo all of Lhe above
81he purpose of anLlLrusL laws ls Lo
A 8egulaLe Lhe prlces charged by a monopoly
Increase compet|t|on |n an |ndustry by prevent|ng
mergers and break|ng up |arge f|rms
C lncrease merger acLlvlLy Lo help generaLe synergles
LhaL reduce cosLs and ralse efflclency
u CreaLe publlc ownershlp of naLural monopolles
L uo all of Lhe above
83ubllc ownershlp of naLural monopolles
A 1ends Lo be lnefflclenL
8 Dsually lowers Lhe cosL of producLlon dramaLlcally
C CreaLes synergles beLween Lhe newly acqulred flrm
and oLher governmenLowned companles
u uoes none of Lhe above
83ubllc ownershlp of naLural monopolles
1ends to be |neff|c|ent
8 Dsually lowers Lhe cosL of producLlon dramaLlcally
C CreaLes synergles beLween Lhe newly acqulred flrm
and oLher governmenLowned companles
u uoes none of Lhe above
prlce dlscrlmlnaLlon ls Lrue?
A rlce dlscrlmlnaLlon can ralse economlc welfare
8 rlce dlscrlmlnaLlon requlres LhaL Lhe seller be able Lo
separaLe buyers accordlng Lo Lhelr wllllngness Lo pay
C erfecL prlce dlscrlmlnaLlon generaLes a deadwelghL
loss
u rlce dlscrlmlnaLlon lncreases a monopollsL's proflLs
L lor a monopollsL Lo engage ln prlce dlscrlmlnaLlon
buyers musL be unable Lo engage ln arblLrage
prlce dlscrlmlnaLlon ls Lrue?
A rlce dlscrlmlnaLlon can ralse economlc welfare
8 rlce dlscrlmlnaLlon requlres LhaL Lhe seller be able Lo
separaLe buyers accordlng Lo Lhelr wllllngness Lo pay
erfect pr|ce d|scr|m|nat|on generates a deadwe|ght
|oss
u rlce dlscrlmlnaLlon lncreases a monopollsL's proflLs
L lor a monopollsL Lo engage ln prlce dlscrlmlnaLlon
buyers musL be unable Lo engage ln arblLrage
8lf regulaLors break up a naLural monopoly
lnLo many smaller flrms Lhe cosL of
producLlon
A Wlll fall
8 Wlll rlse
C Wlll remaln Lhe same
u Could elLher rlse or fall dependlng ln Lhe elasLlclLy of
Lhe monopollsL's supply curve
8lf regulaLors break up a naLural monopoly
lnLo many smaller flrms Lhe cosL of
producLlon
A Wlll fall
W||| r|se
C Wlll remaln Lhe same
u Could elLher rlse or fall dependlng ln Lhe elasLlclLy of
Lhe monopollsL's supply curve
86A monopoly ls able Lo conLlnue Lo generaLe
economlc proflLs ln Lhe long run because
A oLenLlal compeLlLors someLlmes don'L noLlce Lhe
proflLs
8 1here ls some barrler Lo enLry Lo LhaL markeL
C 1he monopollsL ls flnanclally powerful
u AnLlLrusL laws ellmlnaLe compeLlLors for a speclfled
number of years
L Cf all of Lhe above
86A monopoly ls able Lo conLlnue Lo generaLe
economlc proflLs ln Lhe long run because
A oLenLlal compeLlLors someLlmes don'L noLlce Lhe
proflLs
1here |s some barr|er to entry to that market
C 1he monopollsL ls flnanclally powerful
u AnLlLrusL laws ellmlnaLe compeLlLors for a speclfled
number of years
L Cf all of Lhe above
8lf marglnal revenue exceeds marglnal cosL a
monopollsL should
A lncrease ouLpuL
8 uecrease ouLpuL
C keep ouLpuL Lhe same because proflLs are maxlmlzed
when marglnal revenue exceeds marglnal cosL
u 8alse Lhe prlce
8lf marglnal revenue exceeds marglnal cosL a
monopollsL should
Increase output
8 uecrease ouLpuL
C keep ouLpuL Lhe same because proflLs are maxlmlzed
when marglnal revenue exceeds marglnal cosL
u 8alse Lhe prlce
88Whlch of Lhe followlng ls noL a
characLerlsLlc of a monopollsLlcally
compeLlLlve markeL?
A Many sellers
8 ulfferenLlaLed producLs
C Longrun economlc proflLs
u lree enLry and exlL
88Whlch of Lhe followlng ls noL a
characLerlsLlc of a monopollsLlcally
compeLlLlve markeL?
A Many sellers
8 ulfferenLlaLed producLs
Longrun econom|c prof|ts
u lree enLry and exlL
8Whlch of Lhe followlng producLs ls leasL
llkely Lo be sold ln a monopollsLlcally
compeLlLlve markeL?
A Ildeo games
8 8reakfasL cereal
C 8eer
u coLLon
8Whlch of Lhe followlng producLs ls leasL
llkely Lo be sold ln a monopollsLlcally
compeLlLlve markeL?
A Ildeo games
8 8reakfasL cereal
C 8eer
D cotton
Whlch of Lhe followlng ls Lrue regardlng Lhe
slmllarlLles and dlfferences ln monopollsLlc
compeLlLlon and monopoly?
A 1he monopollsL faces a downwardsloplng demand curve
whlle Lhe monopollsLlc compeLlLor faces an elasLlc demand
curve
8 1he monopollsL makes economlc proflLs ln Lhe long run
whlle Lhe monopollsLlc compeLlLor makes zero economlc
proflLs ln Lhe long run
C 8oLh Lhe monopollsL and Lhe monopollsLlc compeLlLor
operaLe aL Lhe efflclenL scale
u 1he monopollsL charges a prlce above marglnal cosL whlle
Lhe monopollsLlc compeLlLor charges a prlce equal Lo
marglnal cosL
slmllarlLles and dlfferences ln monopollsLlc
compeLlLlon and monopoly?
A 1he monopollsL faces a downwardsloplng demand curve
whlle Lhe monopollsLlc compeLlLor faces an elasLlc demand
curve
1he monopo||st makes econom|c prof|ts |n the |ong run
wh||e the monopo||st|c compet|tor makes zero econom|c
prof|ts |n the |ong run
C 8oLh Lhe monopollsL and Lhe monopollsLlc compeLlLor
operaLe aL Lhe efflclenL scale
u 1he monopollsL charges a prlce above marglnal cosL whlle
Lhe monopollsLlc compeLlLor charges a prlce equal Lo
marglnal cosL
ln Lhe shorL run lf Lhe prlce ls above average
LoLal cosL ln a monopollsLlcally compeLlLlve
markeL Lhe flrm makes
A Losses and flrms enLer Lhe markeL
8 Losses and flrms exlL Lhe markeL
C roflLs and flrms enLer Lhe markeL
u roflLs and flrms exlL Lhe markeL
ln Lhe shorL run lf Lhe prlce ls above average
LoLal cosL ln a monopollsLlcally compeLlLlve
markeL Lhe flrm makes
A Losses and flrms enLer Lhe markeL
8 Losses and flrms exlL Lhe markeL
rof|ts and f|rms enter the market
u roflLs and flrms exlL Lhe markeL
producLlon and prlclng declslons of
monopollsLlcally compeLlLlve flrms?
MonopollsLlcally compeLlLlve flrms choose Lhe
quanLlLy aL whlch marglnal cosL equals
A Average LoLal cosL and Lhen use Lhe demand curve Lo
deLermlne Lhe prlce conslsLenL wlLh Lhls quanLlLy
8 Marglnal revenue and Lhen use Lhe demand curve Lo
C Average LoLal cosL and Lhen use Lhe supply curve Lo
u Marglnal revenue and Lhen use Lhe supply curve Lo
producLlon and prlclng declslons of
monopollsLlcally compeLlLlve flrms?
MonopollsLlcally compeLlLlve flrms choose Lhe
quanLlLy aL whlch marglnal cosL equals
A Average LoLal cosL and Lhen use Lhe demand curve Lo
Marg|na| revenue and then use the demand curve to
determ|ne the pr|ce cons|stent w|th th|s quant|ty
C Average LoLal cosL and Lhen use Lhe supply curve Lo
u Marglnal revenue and Lhen use Lhe supply curve Lo
3Whlch of Lhe followlng ls e wlLh regard Lo
monopollsLlcally compeLlLlve flrms' scale of
producLlon and prlclng declslons?
MonopollsLlcally compeLlLlve flrms produce
A AL Lhe efflclenL scale and charge a prlce equal Lo marglnal
cosL
8 AL Lhe efflclenL scale and charge a prlce above marglnal cosL
C WlLh excess capaclLy and charge a prlce equal Lo marglnal
cosL
u WlLh excess capaclLy and charge a prlce above marglnal cosL
3Whlch of Lhe followlng ls e wlLh regard Lo
monopollsLlcally compeLlLlve flrms' scale of
producLlon and prlclng declslons?
MonopollsLlcally compeLlLlve flrms produce
A AL Lhe efflclenL scale and charge a prlce equal Lo marglnal
cosL
8 AL Lhe efflclenL scale and charge a prlce above marglnal cosL
C WlLh excess capaclLy and charge a prlce equal Lo marglnal
cosL
D W|th excess capac|ty and charge a pr|ce above marg|na|
cost
4Cne source of lnefflclency ln monopollsLlc
compeLlLlon ls LhaL
A 8ecause prlce ls above marglnal cosL surplus ls
redlsLrlbuLed from buyers and sellers
8 8ecause prlce ls above marglnal cosL some unlLs are noL
produced LhaL buyers value ln excess of Lhe cosL of
producLlon and Lhls causes a deadwelghL loss
C MonopollsLlcally compeLlLlve flrms produce beyond Lhelr
efflclenL scale
u MonopollsLlcally compeLlLlve flrms earn economlc
4Cne source of lnefflclency ln monopollsLlc
compeLlLlon ls LhaL
A 8ecause prlce ls above marglnal cosL surplus ls
redlsLrlbuLed from buyers and sellers
ecause pr|ce |s above marg|na| cost some un|ts are
not produced that buyers va|ue |n excess of the cost of
product|on and th|s causes a deadwe|ght |oss
C MonopollsLlcally compeLlLlve flrms produce beyond Lhelr
efflclenL scale
u MonopollsLlcally compeLlLlve flrms earn economlc
When flrms enLer a monopollsLlcally
compeLlLlve markeL and Lhe buslnesssLeallng
exLernallLy ls larger Lhan Lhe producLvarleLy
exLernallLy Lhen
A 1here are Loo many flrms ln Lhe markeL and markeL
efflclency could be lncreased
8 1here are Loo few flrms ln Lhe markeL and markeL
efflclency could be lncreased wlLh addlLlonal enLry
C 1he number of flrms ln Lhe markeL ls opLlmal and Lhe
markeL ls efflclenL
u 1he only way Lo lmprove efflclency ln Lhls markeL ls for
Lhe governmenL Lo regulaLe lL llke a naLural monopoly
When flrms enLer a monopollsLlcally
compeLlLlve markeL and Lhe buslnesssLeallng
exLernallLy ls larger Lhan Lhe producLvarleLy
exLernallLy Lhen
1here are too many f|rms |n the market and market
eff|c|ency cou|d be |ncreased
8 1here are Loo few flrms ln Lhe markeL and markeL
efflclency could be lncreased wlLh addlLlonal enLry
C 1he number of flrms ln Lhe markeL ls opLlmal and Lhe
markeL ls efflclenL
u 1he only way Lo lmprove efflclency ln Lhls markeL ls for
Lhe governmenL Lo regulaLe lL llke a naLural monopoly
61he use of Lhe word compeLlLlon" ln Lhe
name of Lhe markeL sLrucLure called
monopollsLlc compeLlLlon" refers Lo Lhe facL
LhaL
A MonopollsLlc compeLlLlve flrms charge prlces equal Lo
Lhe mlnlmum of Lhelr average LoLal cosL [usL llke
compeLlLlve flrms
8 MonopollsLlcally compeLlLlve flrms face a downward
sloplng demand curve [usL llke compeLlLlve flrms
C 1he producLs are dlfferenLlaLed ln a monopollsLlcally
compeLlLlve markeL [usL llke ln a compeLlLlve markeL
u 1here are many sellers ln a monopollsLlcally compeLlLlve
markeL and Lhere ls free enLry and exlL ln Lhe markeL
[usL llke a compeLlLlve markeL
61he use of Lhe word compeLlLlon" ln Lhe
name of Lhe markeL sLrucLure called
monopollsLlc compeLlLlon" refers Lo Lhe facL
LhaL
A MonopollsLlc compeLlLlve flrms charge prlces equal Lo
Lhe mlnlmum of Lhelr average LoLal cosL [usL llke
compeLlLlve flrms
8 MonopollsLlcally compeLlLlve flrms face a downward
sloplng demand curve [usL llke compeLlLlve flrms
C 1he producLs are dlfferenLlaLed ln a monopollsLlcally
compeLlLlve markeL [usL llke ln a compeLlLlve markeL
D 1here are many se||ers |n a monopo||st|ca||y
compet|t|ve market and there |s free entry and ex|t |n
the market [ust ||ke a compet|t|ve market
1he use of Lhe word monopoly" ln Lhe name
of Lhe markeL sLrucLure called monopollsLlc
compeLlLlon" refers Lo Lhe facL LhaL
A A monopollsLlcally compeLlLlve flrm faces a downward
sloplng demand curve for lLs dlfferenLlaLed producL and
so does a monopollsL
8 MonopollsLlcally compeLlLlve markeLs have free enLry
and exlL [usL llke a monopollsLlc markeL
C MonopollsLlcally compeLlLlve flrms charge prlces equal
Lo Lhelr marglnal cosLs [usL llke monopollsLs
u MonopollsLlcally compeLlLlve flrms produce beyond Lhelr
efflclenL scale and so do monopollsLs
1he use of Lhe word monopoly" ln Lhe name
of Lhe markeL sLrucLure called monopollsLlc
compeLlLlon" refers Lo Lhe facL LhaL
monopo||st|ca||y compet|t|ve f|rm faces a downward
s|op|ng demand curve for |ts d|fferent|ated product and
so does a monopo||st
8 MonopollsLlcally compeLlLlve markeLs have free enLry
and exlL [usL llke a monopollsLlc markeL
C MonopollsLlcally compeLlLlve flrms charge prlces equal
Lo Lhelr marglnal cosLs [usL llke monopollsLs
u MonopollsLlcally compeLlLlve flrms produce beyond Lhelr
efflclenL scale and so do monopollsLs
8ow much proflL ls Lhe perfecLly compeLlLlve flrm ln flgure maklng?
A $3 C $4
8 $3 u 1he flrm ls Laklng a loss
L -one of Lhe above
ln Lhe longrun we would expecL
A llrms Lo exlL Lhls markeL
8 llrms Lo enLer Lhls markeL
C -o change ln Lhe number of flrms ln Lhe markeL
u -one of Lhe above
5320 C $4
L -one of Lhe above
8 llrms Lo enLer Lhls markeL
u -one of Lhe above
5320 C $4
L -one of Lhe above
I|rms to enter th|s market
u -one of Lhe above
3lf a monopoly ls operaLlng ln Lhe markeL
deplcLed ln Lhe flgure consumer surplus
would be equal Lo Lhe area of
A A8L
8 8ClL
C Ll
u 8CL
3Monopoly proflLs ln Lhls markeL would
be glven by Lhe area
A A8L
8 8uCL
C 8CL
u 8ClL
L -one of Lhe above
3lf Lhls flrm was regulaLed by an average cosL
prlclng rule lL would operaLe aL polnL
A L
8 l
C
u 8
L -one of Lhe above
33Whlch of Lhe followlng areas accounLs for
Lhe lnefflclency assoclaLed wlLh a
monopoly ln Lhls markeL?
A A8L
8 8ClL
C Ll
u 8uCL
L -one of Lhe above
A A8L
I
C Ll
u 8CL
A A8L
8 8uCL
C 8CL
u 8ClL
L -one of Lhe above
A L
8 l
C
u 8
L -one of Lhe above
A A8L
8 8ClL
C Ll
u 8uCL
L -one of Lhe above
A A8L
I
C Ll
u 8CL
A A8L
8 8uCL
C 8CL
D I
L -one of Lhe above
A L
8 l
C
u 8
L -one of Lhe above
A A8L
8 8ClL
C Ll
u 8uCL
L -one of Lhe above
A A8L
I
C Ll
u 8CL
A A8L
8 8uCL
C 8CL
D I
L -one of Lhe above
A L
8 l
n
u 8
L -one of Lhe above
A A8L
8 8ClL
C Ll
u 8uCL
L -one of Lhe above
A A8L
I
C Ll
u 8CL
A A8L
8 8uCL
C 8CL
D I
L -one of Lhe above
A L
8 l
n
u 8
L -one of Lhe above
A A8L
8 8ClL
In
u 8uCL
L -one of Lhe above
34lf a perfecLly compeLlLlve flrm were operaLlng ln Lhe markeL
deplcLed ln Lhe flgure consumer surplus would be equal Lo Lhe
are of
A A8L
8 8ClL
C Ll
u 8uCL
L -one of Lhe above
34lf a perfecLly compeLlLlve flrm were operaLlng ln Lhe markeL
deplcLed ln Lhe flgure consumer surplus would be equal Lo Lhe
are of
A A8L
8 8ClL
C Ll
u 8uCL
None of the above
31he soclally opLlmal quanLlLy ls
A Less Lhan quanLlLy ;
8 ;uanLlLy ;
C ;uanLlLy ;
u More Lhan quanLlLy ;
36Suppose Lhere ls no lnLerference ln Lhls
markeL Lo accounL for Lhe exLernallLy (LhaL
ls no properLy rlghLs are asslgned Lo quleL
ln Lhe nelghborhood) 1he LoLal soclal
value of Lhe markeL would be
A A +8 + u +l
8 A + 8 + C + u + L + l
C A + 8 + C + u + L + l l
u A + 8 + u + l + C + l
L A + 8 + u + l l
31he Coase Lheorem suggesLs LhaL Lhe markeL lf flgure 3 could be made efflclenL
(assumlng Lhere are on LransacLlon cosLs) lf
A 1he bar was glven Lhe rlghLs Lo Lhe nelghborhood quleL
8 1he are resldenLs were glven rlghLs Lo nelghborhood quleL
C 1he governmenL was glven rlghLs Lo nelghborhood quleL
u All of Lhe above are correcL
L -one of Lhe above are correcL
uant|ty 1
C ;uanLlLy ;
A A +8 + u +l
8 A + 8 + C + u + L + l
C A + 8 + C + u + L + l l
u A + 8 + u + l + C + l
L A + 8 + u + l l
uant|ty 1
C ;uanLlLy ;
A A +8 + u +l
8 A + 8 + C + u + L + l
+ + + D + + I I I
u A + 8 + u + l + C + l
L A + 8 + u + l l
uant|ty 1
C ;uanLlLy ;
A A +8 + u +l
8 A + 8 + C + u + L + l
+ + + D + + I I I
u A + 8 + u + l + C + l
L A + 8 + u + l l
D || of the above are correct
38Conslder Lhe markeL ln llgure 4 lf Lhe governmenL
lmposes a per unlL Lax of 3 Lhen Lhe LoLal surplus
afLer Lhe Lax ls lmposed ls glven by
A A + l
8 A + 8 + C
C A + 8 + u +l
u 8 + C + u + L
L -one of Lhe above
38Conslder Lhe markeL ln llgure 4 lf Lhe governmenL
lmposes a per unlL Lax of 3 Lhen Lhe LoLal surplus
afLer Lhe Lax ls lmposed ls glven by
A A + l
8 A + 8 + C
+ + D +I
u 8 + C + u + L
L -one of Lhe above
31he markeL for hand Lools (such as hammers and
screwdrlvers) ls domlnaLed by 8lack uecker
SLanley and CrafLsman 1hls markeL ls besL
descrlbed as
A CompeLlLlve
8 Monopoly
C Cllgopoly
u uuopoly
31he markeL for hand Lools (such as hammers and
screwdrlvers) ls domlnaLed by 8lack uecker
SLanley and CrafLsman 1hls markeL ls besL
descrlbed as
A CompeLlLlve
8 Monopoly
C||gopo|y
u uuopoly
3A markeL sLrucLure ln whlch many flrms sell
producLs LhaL are slmllar buL noL ldenLlcal ls
known as
A erfecL compeLlLlon
8 Monopoly
C Cllgopoly
u -one of Lhe above
3A markeL sLrucLure ln whlch many flrms sell
producLs LhaL are slmllar buL noL ldenLlcal ls
known as
A erfecL compeLlLlon
8 Monopoly
C Cllgopoly
D None of the above
3lf ollgopollsLs engage ln colluslon and
successfully form a carLel Lhe markeL ouLcome
ls
A 1he same as lf lL were served by a monopoly
8 1he same as lf lL were served by compleLlve flrms
C LfflclenL because cooperaLlon lmproves efflclency
u know as a -ash equlllbrlum
3lf ollgopollsLs engage ln colluslon and
successfully form a carLel Lhe markeL ouLcome
ls
1he same as |f |t were served by a monopo|y
8 1he same as lf lL were served by compleLlve flrms
C LfflclenL because cooperaLlon lmproves efflclency
u know as a -ash equlllbrlum
3Suppose an ollgopollsL lndlvldually maxlmlzes lLs
proflLs When calculaLlng proflLs lf Lhe ouLpuL
effecL exceeds Lhe prlce effecL on Lhe marglnal
unlL of producLlon Lhen Lhe ollgopollsL
A as maxlmlzed proflLs
8 Should produce more unlLs
C Should produce fewer unlLs
u Should exlL Lhe lndusLry
L ls ln a -ash equlllbrlum
3Suppose an ollgopollsL lndlvldually maxlmlzes lLs
proflLs When calculaLlng proflLs lf Lhe ouLpuL
effecL exceeds Lhe prlce effecL on Lhe marglnal
unlL of producLlon Lhen Lhe ollgopollsL
A as maxlmlzed proflLs
Shou|d produce more un|ts
C Should produce fewer unlLs
u Should exlL Lhe lndusLry
L ls ln a -ash equlllbrlum
33As Lhe number of sellers ln an ollgopoly
grows larger an ollgopollsLlc markeL looks
more llke
A Monopoly
8 uuopoly
C CompeLlLlve markeL
u A colluslon soluLlon
grows larger an ollgopollsLlc markeL looks
more llke
A Monopoly
8 uuopoly
ompet|t|ve market
u A colluslon soluLlon
34When an ollgopollsL lndlvldually chooses lLs
level of producLlon Lo maxlmlze lLs proflLs lL
produces an ouLpuL LhaL ls
A More Lhan Lhe level produced by a monopoly and less
Lhan Lhe level produced by a compeLlLlve markeL
8 Less Lhan Lhe level produced by a monopoly and more
C More Lhan Lhe level produced by elLher a monopoly or
a compeLlLlve markeL
u Less Lhan Lhe level produced by elLher a monopoly or a
compeLlLlve markeL
produces an ouLpuL LhaL ls
More than the |eve| produced by a monopo|y and |ess
than the |eve| produced by a compet|t|ve market
8 Less Lhan Lhe level produced by a monopoly and more
C More Lhan Lhe level produced by elLher a monopoly or
a compeLlLlve markeL
u Less Lhan Lhe level produced by elLher a monopoly or a
compeLlLlve markeL
charges a prlce LhaL ls
A More Lhan Lhe prlce charged by a monopoly and less
Lhan Lhe prlce charged by a compeLlLlve markeL
8 Less Lhan Lhe prlce charged by a monopoly and more
C More Lhan Lhe prlce charged by elLher a monopoly or a
compeLlLlve markeL
u Less Lhan Lhe prlce charged by elLher a monopoly or a
compeLlLlve markeL
charges a prlce LhaL ls
A More Lhan Lhe prlce charged by a monopoly and less
Less than the pr|ce charged by a monopo|y and more
than the pr|ce charged by a compet|t|ve market
C More Lhan Lhe prlce charged by elLher a monopoly or a
compeLlLlve markeL
u Less Lhan Lhe prlce charged by elLher a monopoly or a
compeLlLlve markeL
lncreases
A Colluslon ls more llkely Lo occur because a larger number
of flrms can place pressure on any flrm LhaL defecLs
8 CuLpuL ln Lhe markeL Lends Lo fall because each flrm
musL cuL back on producLlon
C 1he prlce ln Lhe markeL moves furLher from marglnal
cosL
u 1he prlce ln Lhe markeL moves closer Lo marglnal cosL
lncreases
A Colluslon ls more llkely Lo occur because a larger number
of flrms can place pressure on any flrm LhaL defecLs
8 CuLpuL ln Lhe markeL Lends Lo fall because each flrm
musL cuL back on producLlon
C 1he prlce ln Lhe markeL moves furLher from marglnal
cosL
D 1he pr|ce |n the market moves c|oser to marg|na| cost
3A slLuaLlon ln whlch ollgopollsLs lnLeracLlng
wlLh on anoLher each choose Lhelr besL
sLraLegy glven LhaL all Lhe oLher ollgopollsLs
have chosen ls known as a
A Colluslon soluLlon
8 CarLel
C -ash equlllbrlum
u uomlnanL sLraLegy
3A slLuaLlon ln whlch ollgopollsLs lnLeracLlng
wlLh on anoLher each choose Lhelr besL
sLraLegy glven LhaL all Lhe oLher ollgopollsLs
have chosen ls known as a
A Colluslon soluLlon
8 CarLel
Nash equ|||br|um
u uomlnanL sLraLegy
38Dnder compeLlLlon Lhe prlce and
quanLlLy ln Lhls markeL would be
A $88
8 $6
C $46
u $
L $4
r|ce uant|ty
$

4
6
8 8

6
4
4 6
3 8

4
3lf Lhe duopollsLs ln Lhls baseball markeL collude and
successfully form a carLel whaL ls Lhe prlce LhaL each
should charge ln order Lo maxlmlze proflLs?
A $8
8 $
C $6
u $
L $4
3lf Lhe duopollsLs ln Lhls baseball markeL collude and successfully form a
carLel how much proflL wlll eon earn?
A $ C $3 L $
8 $3 u $36
A $88
8 $6
C $46
u $
502400
r|ce uant|ty
$

4
6
8 8

6
4
4 6
3 8

4
A $8
8 $
C $6
u $
L $4
A $ C $3 L $
8 $3 u $36
A $88
8 $6
C $46
u $
502400
r|ce uant|ty
$

4
6
8 8

6
4
4 6
3 8

4
A $8
8 $
56
u $
L $4
A $ C $3 L $
8 $3 u $36
A $88
8 $6
C $46
u $
502400
r|ce uant|ty
$

4
6
8 8

6
4
4 6
3 8

4
A $8
8 $
56
u $
L $4
A $ C $3 L $
8 $3 D 53600
3ohn's car ls ln need of repalr so ohn decldes
Lo sell lL Lo avold Lhe repalr blll Dnaware of
Lhe problem Susan buys Lhe car 1hls ls an
example of
A Adverse selecLlon
8 Moral hazard
C Lfflclency wages
u ldden acLlons
3ohn's car ls ln need of repalr so ohn decldes
Lo sell lL Lo avold Lhe repalr blll Dnaware of
Lhe problem Susan buys Lhe car 1hls ls an
example of
dverse se|ect|on
8 Moral hazard
C Lfflclency wages
u ldden acLlons
3udy wanLs Lo avold buylng a car LhaL ls a
lemon She Lakes a car she would llke Lo buy
Lo her mechanlc before she purchases lL
1hls ls know as
A Moral hazard
8 Adverse screenlng
C Slgnallng
u Screenlng
3udy wanLs Lo avold buylng a car LhaL ls a
lemon She Lakes a car she would llke Lo buy
Lo her mechanlc before she purchases lL
1hls ls know as
A Moral hazard
8 Adverse screenlng
C Slgnallng
D Screen|ng
33Chrls ls a Lravellng salesman for an apparel
company ln Lhls employmenL relaLlonshlp
Chrls ls Lhe
A rlnclpal
8 AgenL
C Slgnaler
u Screener
33Chrls ls a Lravellng salesman for an apparel
company ln Lhls employmenL relaLlonshlp
Chrls ls Lhe
A rlnclpal
gent
C Slgnaler
u Screener
34Whlch of Lhe followlng musL be Lrue abouL a
slgnal LhaL ls used Lo reveal prlvaLe
lnformaLlon ln order for Lhe slgnal Lo be
effecLlve?
A lL musL be free Lo Lhe lnformed parLy
8 lL musL be cosLly Lo Lhe lnformed parLy buL less cosLly
Lo Lhe parLy wlLh Lhe hlgherquallLy producL
C lL musL be as seen on 1I"
u lL musL be applled Lo an lnexpenslve producL
34Whlch of Lhe followlng musL be Lrue abouL a
lnformaLlon ln order for Lhe slgnal Lo be
effecLlve?
A lL musL be free Lo Lhe lnformed parLy
It must be cost|y to the |nformed party but |ess cost|y
to the party w|th the h|gherqua||ty product
C lL musL be as seen on 1I"
u lL musL be applled Lo an lnexpenslve producL
lnformaLlon?
A 8ob carefully chooses a speclal glfL for Carolyn
8 Lexus adverLlses lLs cars durlng Lhe Super 8owl
C Madelyn earns her M8A from Lhe arvard 8uslness
School
lnformaLlon?
A 8ob carefully chooses a speclal glfL for Carolyn
8 Lexus adverLlses lLs cars durlng Lhe Super 8owl
C Madelyn earns her M8A from Lhe arvard 8uslness
School
D || of the above are correct
36Whlch of Lhe followlng besL demonsLraLes
Lhe problem of moral hazard?
A karen doesn'L buy healLh lnsurance because lL ls Loo
expenslve and she ls healLhy
8 8achel chooses Lo aLLend a wellrespecLed college
C ulck drlves more recklessly afLer he buys auLo
lnsurance
u A llfe lnsurance company forces lred Lo have a
physlcal prlor Lo selllng hlm lnsurance
36Whlch of Lhe followlng besL demonsLraLes
Lhe problem of moral hazard?
A karen doesn'L buy healLh lnsurance because lL ls Loo
expenslve and she ls healLhy
8 8achel chooses Lo aLLend a wellrespecLed college
D|ck dr|ves more reck|ess|y after he buys auto
|nsurance
u A llfe lnsurance company forces lred Lo have a
physlcal prlor Lo selllng hlm lnsurance
1oLal cosL (1C) equaLlon
1Cllxed cosL (lC) + Iarlable cosL (IC)
Marglnal cosL (MC)
1he change ln LoLal cosL when we produce one
addlLlonal unlL
Average LoLal cosL (AC) equaLlon
AC1C$q
3 lf markeL prlce ls $4 Lhls flrm wlll
A roduce unlLs
8 roduce beLween and 8 unlLs
C roduce beLween 8 and unlLs
u roduce more Lhan unlLs
38lf markeL prlce ls $4 Lhls flrm wlll
A Make a proflL of $ or more
8 Make a proflL beLween $ and $
C 8reak even (proflL$)
u Make a loss beLween $ and $
L Make a loss of $8 or more
3lf Lhe markeL prlce ls $8 we expecL
A An lncrease ln Lhe number of flrms ln Lhls markeL ln Lhe long run
8 A decrease ln Lhe number of flrms ln Lhls markeL ln Lhe long run
C -o change ln Lhe number of flrms ln Lhls markeL ln Lhe long run
u A prlce decrease ln Lhe long run
33lf Lhe markeL prlce ls $ Lhe flrm wlll
A Make a proflL greaLer Lhan $
C Make proflL $
u Make a loss beLween $ and $8
L Make a loss of more Lhan $8
roduce 0 un|ts
C Make proflL $
roduce 0 un|ts
Make a prof|t between 51 and 5S000
C Make proflL $
roduce 0 un|ts
decrease |n the number of f|rms |n th|s market |n the |ong run
C Make proflL $
roduce 0 un|ts
decrease |n the number of f|rms |n th|s market |n the |ong run
Make prof|t 50

Final Study Guide

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Final Study Guide

Uploaded by

Copyright:

Available Formats

rlnclples of Mlcroeconomlcs

llnal SLudy Culde

lor lncome elasLlclLy of demand and prlce

You might also like