ECON questions

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Economic choice and competitive behavior are the result of

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c. scarcity.

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Refer to Figure 2-8. What is the opportunity cost of the movement from point A to point C?

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b. 100 baseballs

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If an airline company has several empty seats on a flight and the full price of an air ticket is $500 and the marginal cost per passenger is $100, then it will be profitable for the airline to

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d. charge a stand-by passenger more than $100.

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Which of the following will most likely occur under a system of clearly defined and enforced private property rights?

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d. Resource owners will gain by discovering and employing their resources in ways that are highly valued by others.

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Because of a late night out with friends, Alexandra decided to sleep in rather than attend her 8 a.m. economics class. According to economic analysis, her choice was

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d. rational if Alexandra values sleep more highly than the benefit she expects to receive from attending the class.

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Refer to Figure 2-4. Which of the following is true?

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b. Point B is efficient.

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The primary benefit that results when a nation employs its resources in accordance with the principle of comparative advantage is

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b. a larger output resulting from a more efficient use of resources.

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A rational decision maker takes an action if and only if

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a. the marginal benefit of the action exceeds the marginal cost of the action.

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Every economy must ration goods in some way because of

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d. scarcity.

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If a firm or a nation desires to maximize its output, each productive assignment should be carried out by those persons who

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b. have a comparative advantage in the productive activity.

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According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study

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b. outweighs the extra cost.

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If a decision maker uses marginal analysis, then the relevant costs are the

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d. additional costs of a particular activity or product.

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Which of the following sayings best reflects the concept of opportunity cost?

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b. "Time is money."

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A local restaurant offers an "all you can eat" buffet for $15. Mia eats four servings but leaves half of a fifth helping uneaten. Why?

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c. Her marginal value of food has fallen to zero.

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The highest valued alternative that must be given up in order to choose an option is called

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a. opportunity cost.

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Ethan washes and irons his own shirts. Tiana, his boss, sends her clothes to a laundry. Which is the most plausible economic explanation for this difference?

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d. Tiana has a higher opportunity cost of laundering her clothes than Ethan does.

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Refer to Figure 2-8. If the economy moves from point C to point B, then which of the following statements is correct?

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b. The opportunity cost of each additional baseball is 2 bananas.

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For a college student who wishes to calculate the true costs of going to college, the costs of room and board

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b. should be counted only to the extent that they are more expensive at college than elsewhere.

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The difference between a positive economic statement and a normative statement is that

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c. a positive statement can be proved; a normative statement cannot

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Andre, a wheat farmer, is deciding whether or not to add fertilizer to his crops. If he adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, Andre should add fertilizer if it costs less than

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b. $20 per pound.

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Refer to Figure 3-17. When the price is P2, consumer surplus is

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a. A.

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The number of people willing to buy tickets to the Super Bowl is invariably greater than the number of tickets (and seats) available. This is evidence that the price of the tickets is

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c. lower than the equilibrium price.

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Refer to Figure 3-12. Suppose D1 and S1 indicate initial conditions in the market for ice cream. Which of the following changes would tend to shift this market from D1 to D2?

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b. an increase in the price of frozen yogurt, a substitute for ice cream

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Which of the following would most likely increase the demand for peanut butter?

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a. a decrease in the price of jelly, a good that is often used with peanut butter

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Refer to Figure 3-4. A reduction in the price of the grain used to feed cattle results in

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b. the supply curve for beef shifting to the right resulting in lower beef prices and a higher quantity sold.

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Refer to Figure 3-9. Given the demand (D) and supply (S) for gasoline, if the price of gasoline were $3 per gallon,

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b. producers would be supplying more than consumers wished to purchase.

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Refer to Figure 3-6. Suppose D1 and S1 indicate initial conditions in the market for ice cream. Which of the following changes would tend to cause a shift from S1 to S2 in the market for ice cream?

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d. a decrease in the price of milk, an ingredient used to produce ice cream

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Refer to Figure 3-23. The movement from point A to point B on the graph shows

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d. an increase in quantity demanded.

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Refer to Figure 3-22. Which of the four graphs represents the market for winter coats as we progress from winter to spring?

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b. B

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When a nuclear-powered electrical plant is permitted to dump radioactive waste at no cost into a recreational waterway lowering the value boaters receive from the waterway, the

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d. firm's cost of producing electricity will be lower than the community's true opportunity cost.

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Refer to Figure 3-9. Given the demand (D) and supply (S) for gasoline, if the price of gasoline were $1 per gallon,

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a. consumers would wish to purchase more than was being supplied.

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Refer to Figure 3-22. Which of the four graphs represents the market for oranges after a major hurricane hits Florida damaging the orange crop?

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d. D

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If Shawn only pays $25,000 to purchase a new car even though he would have been willing to pay as much as $35,000 for the car, this indicates that

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c. Shawn reaped $10,000 of consumer surplus from the transaction.

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"A reduction in gasoline prices caused the demand for gasoline to increase. The lower gas prices also led to an increase in demand for large cars, causing their prices to rise." These statements

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b. contain one error; the lower gasoline prices would cause an increase in the quantity demanded of gasoline, not an increase in demand.

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When competitive forces in an industry are weak,

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d. higher prices and less than optimal production may result.

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Refer to Figure 3-16. When the price falls from P2 to P1, producer surplus

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b. decreases by an amount equal to A + B.

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If the consumption of a good by one individual does not change the amount of the good available to others, the good is considered to be

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b. nonrival-in-consumption.

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If cable TV service and satellite TV service are substitutes,

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a. a decrease in the price of cable will decrease the demand for satellite TV.

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Refer to Figure 3-23. The movement from point A to point B on the graph would be caused by

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b. a decrease in price.

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Refer to Figure 3-9. If D and S represent the demand and supply for gasoline, what is the equilibrium price and quantity?

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b. price, $2; quantity, 30

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Erin values the utility of her first cup of coffee at $1.00; a second cup, $0.75; and a third cup, $0.50. If she drinks three cups of coffee for breakfast,

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a. her marginal utility from the third cup of coffee is $0.50.

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After downing three glasses of lemonade on a hot summer afternoon, Reagan says, "You would have to pay me to drink another glass!" This statement best illustrates

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c. the law of diminishing marginal utility.

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If the price of apples decreases by 2 percent and causes apple consumption to increase by 4 percent, the price elasticity of demand is ____, indicating the demand is ____.

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a. 2; elastic

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If Santiago thinks the last dollar spent on jeans yields less satisfaction than the last dollar spent on shoes, and Santiago is a utility-maximizing consumer, he should

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d. increase his spending on shoes and decrease his spending on jeans.

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Refer to Table 20-1. If the current price of pizza is $1.10 per slice, what is Jamir's consumer surplus if he buys five slices of pizza?

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b. $1.00

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Refer to Figure 20-7. In the price range between $3 and $4, the price elasticity of the demand curve depicted in this graph is

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c. elastic.

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If the price elasticity of demand for coffee is 0.4, then a 50 percent increase in the price of coffee would reduce quantity demanded by about

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c. 20 percent.

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If the demand for a good is elastic, then total revenue

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b. increases as price decreases.

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A good that takes up a very large percentage of the consumer's budget will tend to have

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a. a more elastic demand.

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How does the concept of the price elasticity of demand allow us to improve upon our understanding of demand?

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a. Price elasticity allows us to analyze the degree of responsiveness of consumer purchases to price changes.

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The demand for a product is likely to be more elastic when

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d. more good substitutes for the product are available.

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If the price of a good is $5, a consumer will

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b. consume all units that have a marginal utility greater than $5.

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Suppose a software developer announces it is cutting the prices of some of its video games by 25 percent. Assuming it is seeking to increase revenues, it must believe that the elasticity of demand for these products is

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a. elastic.

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Demand will be more inelastic when

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a. the time consumers have to adjust to price changes is short.

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Refer to Figure 20-11. As price falls from PA to PB, which demand curve represents the most elastic demand?

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a. D1

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The difference between the amount consumers would be willing to pay and the amount they actually pay for a good is called

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b. consumer surplus.

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If a 10 percent rise in price leads to a reduction in quantity demanded of more than 10 percent,

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a. demand is elastic.

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When comparing the price elasticity of demand for a broad product category such as toilet paper to the price elasticity of demand for a specific brand of toilet paper such as Charmin,

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b. demand will generally be more elastic for the single brand.

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Larger firms will often have lower minimum per-unit costs than smaller firms because

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b. large-scale output allows greater specialization for both labor and machines in the production process.

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How would the cost curves of a doughnut shop be affected by an increase in the price of flour, an important ingredient used to produce doughnuts?

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c. marginal cost, average variable cost, and average total cost will shift upward.

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Refer to Figure 21-2. Calculate the firm's total cost of producing 20 units of output.

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b. $120

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Refer to Figure 21-1. What is the firm's total cost when it produces four units?

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c. 60

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Which of the following is the best example of a fixed cost for a business that makes windows?

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a. the annual property taxes and insurance premium on the building owned by the firm

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Marginal cost is best defined as

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c. the amount added to total cost when one more unit of output is produced.

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Refer to Figure 21-10. Calculate the firm's approximate average total cost when it produces 12 units.

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d. $20

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Refer to Figure 21-1. At what output would the firm's per-unit cost of production be minimized?

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a. 3*

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If two workers can produce 22 units of output, and the addition of a third worker increases output to 30 units, the marginal product of the third worker is

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a. 8 units.

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In the short run, if average variable cost equals $50, average total cost equals $75, and output equals 100, the total fixed cost must be

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b. $2,500.

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If fixed cost at quantity (Q) = 100 is $130, then

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d. fixed cost at Q = 200 is $130.

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Refer to Figure 21-3. If the marginal cost curve were constructed, at what output would it cross the AVC curve?

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b. 3

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A fruit packing plant usually shuts down for three months each year. During that period, what happens to its costs?

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a. Its fixed costs are still positive, but its variable costs go to zero.

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If total fixed cost (TFC) is $200,000 and average variable cost (AVC) is $30 when 10,000 units are produced, average total cost (ATC) is

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c. $50.

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Refer to Figure 21-3. At what output would a properly constructed marginal cost curve cross the ATC curve?

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b. 4

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Which of the following represents a long-run adjustment?

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c. construction of a new assembly-line plant by a car manufacturer

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In the short run, a firm will eventually experience rising average total costs because of

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d. the law of diminishing returns.

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Refer to Table 21-1. What is the marginal cost of producing the third unit of output?

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a. $22

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A downward-sloping portion of a long-run average total cost curve is the result of

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a. economies of scale.

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The upward-sloping portion of a long-run average total cost curve is the result of

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b. diseconomies of scale.

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The opportunity cost of an option

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c. is the highest-valued alternative that must be given up as the result of choosing the option.

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A cold spell in Florida extensively reduced the orange crop, and as a result, California oranges commanded a higher price. Which of the following statements best explains the situation?

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c. The supply of Florida oranges fell, causing their price to increase and the demand for California oranges to increase.

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Refer to Figure 3-7. Suppose D1 and S1 indicate the initial conditions in the market for ice cream. Which of the following changes would tend to cause the shift from D1 to D2 in the market for ice cream?

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b. an increase in the price of frozen yogurt, a substitute for ice cream

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From the viewpoint of economic efficiency, when competitive forces in an industry are weak, market allocation will often lead to

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b. an output of the product that is less than the amount consistent with ideal economic efficiency.

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Refer to Figure 3-22. Which of the four graphs illustrates an increase in quantity supplied?

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a. A

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"I like ice cream, but after eating homemade ice cream last night, I want to have something else for dessert today." This statement most clearly reflects

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d. the law of diminishing marginal utility.

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Refer to Figure 2-1. Point A is

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b. inefficient.

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Refer to Figure 3-10. Indicate the equilibrium price and quantity.

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b. price, $15; quantity, 3,000

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If an economy is operating at a point inside the production possibilities curve,

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a. its resources are not being used efficiently.

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Markets may have difficulty providing the proper quantity of a public good because

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a. individuals will tend to become free riders, and private firms will have difficulty generating enough revenue to produce an efficient quantity of the good.

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Assume that corn and soybeans are alternatives that could be grown by most farmers. An increase in the price of corn will

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c. decrease the supply of soybeans.

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Suppose the state of Colorado imposes a one dollar per pack tax on cigarettes, which increases their price by 30 percent, and as a result, the quantity sold declines by 20 percent. The absolute value of the price elasticity of demand for cigarettes is equal to

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b. 0.67.

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Refer to Figure 22-12. This graph illustrates a

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b. competitive price-taker firm that is only able to break even when it is maximizing economic profit.

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Which of the following is a reason to study the decisions of price takers?

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c. The price-taker model enhances our knowledge of competition as a dynamic process.

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Refer to Figure 22-4. This graph indicates the cost conditions for a firm operating in a price-taker market. If the market price of the firm's product is $6, what action will maximize the firm's profit?

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c. produce an output of 5 million

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In price-taker markets, individual firms have no control over price. Therefore, the firm's marginal revenue curve is

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c. constant at the market price of the product.

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Refer to Figure 22-4. This graph indicates the cost conditions for a firm operating in a price-taker market. If the market price of the product is $8, indicate the firm's profit-maximizing output and total revenue.

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d. output, 6 million; total revenue, $48 million

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Refer to Figure 22-4. This graph indicates the cost conditions for a firm operating in a price-taker market. At a market price of $6, indicate the firm's total revenue and total cost at its profit-maximizing level of output.

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b. total revenue, $30 million; total cost, $30 million

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Refer to Figure 22-2. This graph illustrates a price-taker firm

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c. taking economic losses.

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A firm in a price-taker market

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a. will sell its output at the price that is determined in the overall market.

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Refer to Figure 22-1. This graph shows the marginal and average total cost curves for a competitive price-taker firm. What would be the minimum market price that this firm could face and still continue to remain in business in the long run earning zero economic profit?

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b. $5

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Refer to Table 22-2. If the Tuckers are profit maximizers, how many tomatoes should they produce when the market price is $500 per ton?

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b. 7

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Refer to Figure 22-13. If the market price this price-taker firm faces were to rise from P3 to P4, in the short run the firm would

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b. expand output from Q3 to Q4 and go from earning zero economic profit to positive economic profit.

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Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive price-taker market when price falls below the minimum of average variable cost?

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b. The firm will stop production in the short run to minimize its losses.

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When firms in a price-taker market are temporarily able to charge prices that exceed their production costs,

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b. additional firms will be attracted into the market until price falls to the level of per-unit production cost.

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If marginal revenue exceeds marginal cost, a price-taker firm should

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a. expand output.

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In competitive price-taker markets, firms

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a. can sell all of their output at the market price.

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When market conditions in a price-taker market are such that firms cannot cover their production costs,

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c. some firms will go out of business, causing prices to rise until the remaining firms can cover their production costs.

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In general, firms will produce at a rate of output such that marginal revenue equals marginal cost because this output rate will

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d. maximize the firm's profit.

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Refer to Figure 22-15. The figure illustrates the current market conditions for a representative firm in a competitive price-taker market. Which of the following is true for this industry?

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b. Firms would continue to operate in the short run earning economic losses, and some firms would exit in the long run.

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Refer to Figure 22-13. If the market price facing this price-taker firm fell to P1, the firm should

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d. shut down immediately

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When a law is passed that requires businesses to obtain permission from government officials in order to enter a market, this is an example of

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b. a barrier to entry

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Refer to Figure 23-4. Assuming it can cover its variable costs in the short run, what price should this competitive price-searcher firm charge if it wants to maximize its profit?

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c. $20

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Refer to Figure 23-8. This figure illustrates

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d. a price-searcher firm earning zero economic profits.

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If a movie theater is going to gain by charging students a lower ticket price than other customers,

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a. the demand of students must be more elastic than that of other customers.

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The strategy underlying price discrimination is to

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c. increase total revenue by charging higher prices to those with the most inelastic demand for the product and lower prices to those with the most elastic demand.

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Refer to Figure 23-2. If the cost and demand conditions of this competitive price-searcher firm are representative of the market, what will happen in the future?

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c. New firms will enter the market, and demand facing this firm will decline.

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Refer to Figure 23-11. Which of the graphs shown would be consistent with a firm in a price-searcher market that would earn economic losses if it operated where it was maximizing profit?

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b. Panel b

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If a market is in long-run equilibrium, which of the following conditions will be present in a competitive price-taker market but absent from a competitive price-searcher market?

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c. P = MC

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Why do airlines often charge students and vacationers a lower price than business travelers?

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c. The demand of students and vacationers is generally more elastic than the demand of business travelers.

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Compared to the outcome when the firms are price takers, competitive price-searcher markets will result in

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a. a wider variety of products and higher prices.

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A practice whereby a seller charges different prices to different consumers of the same product or service is called

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a. price discrimination.

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In a competitive price-searcher market, the firms will

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a. be able to choose their price, and the entry barriers into the market will be low.

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A profit-maximizing price searcher will always expand output to the point where

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b. marginal revenue equals marginal cost.

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Refer to Figure 23-11. Which of the graphs shown would be consistent with a firm in a price-searcher market that is earning a positive economic profit?

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c. Panel c

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Refer to Figure 23-2. What is the maximum economic profit this firm will be able to earn?

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b. $20

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If a government wanted to increase the prosperity of a nation, it could best serve this goal by

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c. reducing barriers that restrict the ability of potential competitors to enter markets.

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Which of the following is a necessary condition for price discrimination to be profitable?

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b. Groups of consumers with different demand elasticities must be easily distinguishable.

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Refer to Figure 23-2. What price should this competitive price-searcher firm charge if it wants to maximize its profit?

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d. $10

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Refer to Figure 23-4. If the cost and demand conditions of this competitive price-searcher firm are representative of the market, what will happen in the future?

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a. Some firms will go out of business, and the demand facing remaining firms will rise.

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Refer to Figure 23-4. What is the maximum economic profit this firm will be able to earn if it operates?

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a. $200 loss

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In the long run, neither competitive price takers nor competitive price searchers will be able to earn economic profits because

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c. competition will force prices down to the level of per-unit production costs.

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Which of the following is true?

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b. If the production of a good is highly profitable relative to other industries, new competitors will enter as long as there are not barriers preventing them from doing so.

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Oligopolistic agreements on price tend to be unstable because

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b. although the monopoly price maximizes the joint profits of the firms, a secret price cut by any individual firm will increase the profits of that firm; hence, collusive agreements tend to break down.

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The prisoners' dilemma is used to illustrate the basic idea that

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a. oligopolistic firms would be better off if they collude, but each has an incentive to cheat on the collusive agreement.

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If the average total cost curve lies entirely above the demand curve of a monopolist,

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c. the monopolist will suffer economic losses.

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Which of the following explains why firms in competitive price-searcher and competitive price-taker markets will both have zero economic profits in the long run but a monopoly will not?

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c. In both competitive price-searcher and competitive price-taker markets, the barriers to entry are low so profits attract competitors; this is not true under a monopoly.

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If pizza used to be produced in a competitive price-taker market, and now the pizza market has become a monopoly, we can expect

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a. less pizza to be sold at a higher price.

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Because each oligopolist cares about its own profit rather than the collective profit of all the oligopolists together,

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a. collusive agreements are hard to maintain.

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An oligopolistic firm that is deciding the price to charge, the output to produce, or the quality of product to offer, must consider

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b. the potential reactions of rivals in the market.

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When natural monopoly is present in an industry, the per-unit costs of production will be

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b. lowest when a single firm generates the entire output of the industry.

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A monopolist will maximize profits by

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c. producing the output where marginal revenue equals marginal cost.

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Which of the following provides the most secure protection for a firm with monopoly power?

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b. legal barriers restricting entry into the market of the monopolist

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Which of the following best explains why economists are generally critical of unregulated monopolists?

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d. Monopolists restrict output, and as a result, they fail to produce units that are valued more than the marginal cost of producing them.

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The two conflicting tendencies that a firm has in an oligopolistic industry are the incentive to

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d. cooperate to maximize joint profits and the incentive to cheat on the agreement in order to increase the firm's share of the profit.

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Assuming that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?

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c. The output of the monopolist will be too small and the price too high.

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Refer to Figure 24-10. What price will a profit-maximizing monopolist charge?

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d. P4

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A market situation where a small number of rival sellers compose the entire industry is called

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d. oligopoly.

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As a group, oligopolists would always earn the highest profit if they would

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c. charge the same price that a monopolist would charge if the market were a monopoly.

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At his current level of output, a monopolist has an MR of $10, an MC of $6, and an economic profit of zero. If the market demand curve is downward sloping and his marginal cost curve upward sloping, the monopolist

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b. could increase his profit by increasing his output.

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Cartels are difficult to maintain because

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c. there is always tension between cooperation and self-interest in a cartel.

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The key element in a monopoly situation is

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b. high barriers keeping potential rivals out of the market.

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Refer to Table 25-2. What is the marginal product of the third worker?

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a. 7

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Refer to Table 25-2. Suppose that the firm pays its workers $75 per day. Each unit of output sells for $10. How many days of labor should the firm hire?

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b. 2

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Refer to Figure 25-1. If this graph indicates the short-run and long-run supply curves for a resource, which of the following would probably be the long-run supply curve of the resource?

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d. Sa

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A competitive car wash currently hires 4 workers, who together can wash 80 cars per day. Suppose the market price of car washes is $5 per wash, and the price of workers is $60 per day. The car wash should hire a fifth worker if it would increase total production to at least

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a. 92 cars per day.

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Which of the following is a correct statement about the labor market?

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a. Workers determine the supply of labor, and firms determine the demand for labor.

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Makena's Auto World installs tires on automobiles, light trucks, and sport utility vehicles. She is a profit-maximizing business owner whose firm operates in a competitive market. The marginal cost of installing a tire is $10. The marginal productivity of the last worker that Makena hired was 2 tires per hour. What is the maximum hourly wage that Makena was willing to pay the last worker hired?

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c. $20

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Refer to Figure 25-4. As the number of workers increases,

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a. total output increases, but at a decreasing rate.

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The demand for a resource is generally more

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b. inelastic in the short run because it takes time to alter the ratio of resources used in many production processes.

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Which of the following labor resources will likely have the most elastic supply schedule in the short run?

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c. retail cashiers

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The supply curve of a human resource will be more elastic the

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a. easier it is to obtain the skill and knowledge necessary to provide the resource.

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Refer to Figure 25-2. The demand D1 and short-run supply SSR of accountants is indicated in this graph. Which of the following would most likely shift the demand for accountants from D1 to D2?

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b. enacting legislation that increases the complexity of personal and business tax returns

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Which of the following is the most accurate definition of a worker's "marginal revenue product"?

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b. the change in the firm's total revenue as the result of hiring an additional worker

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Other things constant, if the demand for a final product is quite elastic, the demand for a resource used to produce the product will tend to be

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d. quite elastic as well.

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Refer to Table 25-2. Suppose that the firm pays its workers $55 per day. Each unit of output sells for $12. How many days of labor should the firm hire?

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b. 4

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If a firm is using a resource hired in a perfectly competitive market, and if the price of the resource exceeds the marginal revenue product of the resource,

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b. less of the resource should be used.

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The marginal productivity principle says that a profit-maximizing firm should

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b. hire labor until another worker costs more to hire than he can earn for the firm.

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Refer to Table 25-6. If the security guards can be hired for $45 per day, how many guards should the shop hire?

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c. 4

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What happens to labor supply in the pear-picking market when the wage paid to apple pickers increases?

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b. The labor supply will decrease.

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Which of the following most clearly illustrates the concept of "derived demand"?

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b. An increase in the demand for new houses leads to an increase in the demand for construction workers.

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When the price of steel rises, Ford uses more aluminum in the production of its cars. This is an example of

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b. substitution in production.

1 of 170

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Economic choice and competitive behavior are the result of

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c. scarcity.

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Refer to Figure 2-8. What is the opportunity cost of the movement from point A to point C?

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b. 100 baseballs

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If an airline company has several empty seats on a flight and the full price of an air ticket is $500 and the marginal cost per passenger is $100, then it will be profitable for the airline to

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d. charge a stand-by passenger more than $100.

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Which of the following will most likely occur under a system of clearly defined and enforced private property rights?

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d. Resource owners will gain by discovering and employing their resources in ways that are highly valued by others.

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Because of a late night out with friends, Alexandra decided to sleep in rather than attend her 8 a.m. economics class. According to economic analysis, her choice was

answer

d. rational if Alexandra values sleep more highly than the benefit she expects to receive from attending the class.

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Refer to Figure 2-4. Which of the following is true?

answer

b. Point B is efficient.

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The primary benefit that results when a nation employs its resources in accordance with the principle of comparative advantage is

answer

b. a larger output resulting from a more efficient use of resources.

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A rational decision maker takes an action if and only if

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a. the marginal benefit of the action exceeds the marginal cost of the action.

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Every economy must ration goods in some way because of

answer

d. scarcity.

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If a firm or a nation desires to maximize its output, each productive assignment should be carried out by those persons who

answer

b. have a comparative advantage in the productive activity.

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According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study

answer

b. outweighs the extra cost.

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If a decision maker uses marginal analysis, then the relevant costs are the

answer

d. additional costs of a particular activity or product.

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Which of the following sayings best reflects the concept of opportunity cost?

answer

b. "Time is money."

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A local restaurant offers an "all you can eat" buffet for $15. Mia eats four servings but leaves half of a fifth helping uneaten. Why?

answer

c. Her marginal value of food has fallen to zero.

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The highest valued alternative that must be given up in order to choose an option is called

answer

a. opportunity cost.

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Ethan washes and irons his own shirts. Tiana, his boss, sends her clothes to a laundry. Which is the most plausible economic explanation for this difference?

answer

d. Tiana has a higher opportunity cost of laundering her clothes than Ethan does.

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Refer to Figure 2-8. If the economy moves from point C to point B, then which of the following statements is correct?

answer

b. The opportunity cost of each additional baseball is 2 bananas.

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For a college student who wishes to calculate the true costs of going to college, the costs of room and board

answer

b. should be counted only to the extent that they are more expensive at college than elsewhere.

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The difference between a positive economic statement and a normative statement is that

answer

c. a positive statement can be proved; a normative statement cannot

question

answer

b. $20 per pound.

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Refer to Figure 3-17. When the price is P2, consumer surplus is

answer

a. A.

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The number of people willing to buy tickets to the Super Bowl is invariably greater than the number of tickets (and seats) available. This is evidence that the price of the tickets is

answer

c. lower than the equilibrium price.

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Refer to Figure 3-12. Suppose D1 and S1 indicate initial conditions in the market for ice cream. Which of the following changes would tend to shift this market from D1 to D2?

answer

b. an increase in the price of frozen yogurt, a substitute for ice cream

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Which of the following would most likely increase the demand for peanut butter?

answer

a. a decrease in the price of jelly, a good that is often used with peanut butter

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Refer to Figure 3-4. A reduction in the price of the grain used to feed cattle results in

answer

b. the supply curve for beef shifting to the right resulting in lower beef prices and a higher quantity sold.

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Refer to Figure 3-9. Given the demand (D) and supply (S) for gasoline, if the price of gasoline were $3 per gallon,

answer

b. producers would be supplying more than consumers wished to purchase.

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Refer to Figure 3-6. Suppose D1 and S1 indicate initial conditions in the market for ice cream. Which of the following changes would tend to cause a shift from S1 to S2 in the market for ice cream?

answer

d. a decrease in the price of milk, an ingredient used to produce ice cream

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Refer to Figure 3-23. The movement from point A to point B on the graph shows

answer

d. an increase in quantity demanded.

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Refer to Figure 3-22. Which of the four graphs represents the market for winter coats as we progress from winter to spring?

answer

b. B

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When a nuclear-powered electrical plant is permitted to dump radioactive waste at no cost into a recreational waterway lowering the value boaters receive from the waterway, the

answer

d. firm's cost of producing electricity will be lower than the community's true opportunity cost.

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Refer to Figure 3-9. Given the demand (D) and supply (S) for gasoline, if the price of gasoline were $1 per gallon,

answer

a. consumers would wish to purchase more than was being supplied.

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Refer to Figure 3-22. Which of the four graphs represents the market for oranges after a major hurricane hits Florida damaging the orange crop?

answer

d. D

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If Shawn only pays $25,000 to purchase a new car even though he would have been willing to pay as much as $35,000 for the car, this indicates that

answer

c. Shawn reaped $10,000 of consumer surplus from the transaction.

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"A reduction in gasoline prices caused the demand for gasoline to increase. The lower gas prices also led to an increase in demand for large cars, causing their prices to rise." These statements

answer

b. contain one error; the lower gasoline prices would cause an increase in the quantity demanded of gasoline, not an increase in demand.

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When competitive forces in an industry are weak,

answer

d. higher prices and less than optimal production may result.

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Refer to Figure 3-16. When the price falls from P2 to P1, producer surplus

answer

b. decreases by an amount equal to A + B.

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If the consumption of a good by one individual does not change the amount of the good available to others, the good is considered to be

answer

b. nonrival-in-consumption.

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If cable TV service and satellite TV service are substitutes,

answer

a. a decrease in the price of cable will decrease the demand for satellite TV.

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Refer to Figure 3-23. The movement from point A to point B on the graph would be caused by

answer

b. a decrease in price.

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Refer to Figure 3-9. If D and S represent the demand and supply for gasoline, what is the equilibrium price and quantity?

answer

b. price, $2; quantity, 30

question

Erin values the utility of her first cup of coffee at $1.00; a second cup, $0.75; and a third cup, $0.50. If she drinks three cups of coffee for breakfast,

answer

a. her marginal utility from the third cup of coffee is $0.50.

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After downing three glasses of lemonade on a hot summer afternoon, Reagan says, "You would have to pay me to drink another glass!" This statement best illustrates

answer

c. the law of diminishing marginal utility.

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If the price of apples decreases by 2 percent and causes apple consumption to increase by 4 percent, the price elasticity of demand is ____, indicating the demand is ____.

answer

a. 2; elastic

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If Santiago thinks the last dollar spent on jeans yields less satisfaction than the last dollar spent on shoes, and Santiago is a utility-maximizing consumer, he should

answer

d. increase his spending on shoes and decrease his spending on jeans.

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Refer to Table 20-1. If the current price of pizza is $1.10 per slice, what is Jamir's consumer surplus if he buys five slices of pizza?

answer

b. $1.00

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Refer to Figure 20-7. In the price range between $3 and $4, the price elasticity of the demand curve depicted in this graph is

answer

c. elastic.

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If the price elasticity of demand for coffee is 0.4, then a 50 percent increase in the price of coffee would reduce quantity demanded by about

answer

c. 20 percent.

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If the demand for a good is elastic, then total revenue

answer

b. increases as price decreases.

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A good that takes up a very large percentage of the consumer's budget will tend to have

answer

a. a more elastic demand.

question

How does the concept of the price elasticity of demand allow us to improve upon our understanding of demand?

answer

a. Price elasticity allows us to analyze the degree of responsiveness of consumer purchases to price changes.

question

The demand for a product is likely to be more elastic when

answer

d. more good substitutes for the product are available.

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If the price of a good is $5, a consumer will

answer

b. consume all units that have a marginal utility greater than $5.

question

answer

a. elastic.

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Demand will be more inelastic when

answer

a. the time consumers have to adjust to price changes is short.

question

Refer to Figure 20-11. As price falls from PA to PB, which demand curve represents the most elastic demand?

answer

a. D1

question

The difference between the amount consumers would be willing to pay and the amount they actually pay for a good is called

answer

b. consumer surplus.

question

If a 10 percent rise in price leads to a reduction in quantity demanded of more than 10 percent,

answer

a. demand is elastic.

question

When comparing the price elasticity of demand for a broad product category such as toilet paper to the price elasticity of demand for a specific brand of toilet paper such as Charmin,

answer

b. demand will generally be more elastic for the single brand.

question

Larger firms will often have lower minimum per-unit costs than smaller firms because

answer

b. large-scale output allows greater specialization for both labor and machines in the production process.

question

How would the cost curves of a doughnut shop be affected by an increase in the price of flour, an important ingredient used to produce doughnuts?

answer

c. marginal cost, average variable cost, and average total cost will shift upward.

question

Refer to Figure 21-2. Calculate the firm's total cost of producing 20 units of output.

answer

b. $120

question

Refer to Figure 21-1. What is the firm's total cost when it produces four units?

answer

c. 60

question

Which of the following is the best example of a fixed cost for a business that makes windows?

answer

a. the annual property taxes and insurance premium on the building owned by the firm

question

Marginal cost is best defined as

answer

c. the amount added to total cost when one more unit of output is produced.

question

Refer to Figure 21-10. Calculate the firm's approximate average total cost when it produces 12 units.

answer

d. $20

question

Refer to Figure 21-1. At what output would the firm's per-unit cost of production be minimized?

answer

a. 3*

question

If two workers can produce 22 units of output, and the addition of a third worker increases output to 30 units, the marginal product of the third worker is

answer

a. 8 units.

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In the short run, if average variable cost equals $50, average total cost equals $75, and output equals 100, the total fixed cost must be

answer

b. $2,500.

question

If fixed cost at quantity (Q) = 100 is $130, then

answer

d. fixed cost at Q = 200 is $130.

question

Refer to Figure 21-3. If the marginal cost curve were constructed, at what output would it cross the AVC curve?

answer

b. 3

question

A fruit packing plant usually shuts down for three months each year. During that period, what happens to its costs?

answer

a. Its fixed costs are still positive, but its variable costs go to zero.

question

If total fixed cost (TFC) is $200,000 and average variable cost (AVC) is $30 when 10,000 units are produced, average total cost (ATC) is

answer

c. $50.

question

Refer to Figure 21-3. At what output would a properly constructed marginal cost curve cross the ATC curve?

answer

b. 4

question

Which of the following represents a long-run adjustment?

answer

c. construction of a new assembly-line plant by a car manufacturer

question

In the short run, a firm will eventually experience rising average total costs because of

answer

d. the law of diminishing returns.

question

Refer to Table 21-1. What is the marginal cost of producing the third unit of output?

answer

a. $22

question

A downward-sloping portion of a long-run average total cost curve is the result of

answer

a. economies of scale.

question

The upward-sloping portion of a long-run average total cost curve is the result of

answer

b. diseconomies of scale.

question

The opportunity cost of an option

answer

c. is the highest-valued alternative that must be given up as the result of choosing the option.

question

A cold spell in Florida extensively reduced the orange crop, and as a result, California oranges commanded a higher price. Which of the following statements best explains the situation?

answer

c. The supply of Florida oranges fell, causing their price to increase and the demand for California oranges to increase.

question

answer

b. an increase in the price of frozen yogurt, a substitute for ice cream

question

From the viewpoint of economic efficiency, when competitive forces in an industry are weak, market allocation will often lead to

answer

b. an output of the product that is less than the amount consistent with ideal economic efficiency.

question

Refer to Figure 3-22. Which of the four graphs illustrates an increase in quantity supplied?

answer

a. A

question

"I like ice cream, but after eating homemade ice cream last night, I want to have something else for dessert today." This statement most clearly reflects

answer

d. the law of diminishing marginal utility.

question

Refer to Figure 2-1. Point A is

answer

b. inefficient.

question

Refer to Figure 3-10. Indicate the equilibrium price and quantity.

answer

b. price, $15; quantity, 3,000

question

If an economy is operating at a point inside the production possibilities curve,

answer

a. its resources are not being used efficiently.

question

Markets may have difficulty providing the proper quantity of a public good because

answer

a. individuals will tend to become free riders, and private firms will have difficulty generating enough revenue to produce an efficient quantity of the good.

question

Assume that corn and soybeans are alternatives that could be grown by most farmers. An increase in the price of corn will

answer

c. decrease the supply of soybeans.

question

answer

b. 0.67.

question

Refer to Figure 22-12. This graph illustrates a

answer

b. competitive price-taker firm that is only able to break even when it is maximizing economic profit.

question

Which of the following is a reason to study the decisions of price takers?

answer

c. The price-taker model enhances our knowledge of competition as a dynamic process.

question

answer

c. produce an output of 5 million

question

In price-taker markets, individual firms have no control over price. Therefore, the firm's marginal revenue curve is

answer

c. constant at the market price of the product.

question

answer

d. output, 6 million; total revenue, $48 million

question

answer

b. total revenue, $30 million; total cost, $30 million

question

Refer to Figure 22-2. This graph illustrates a price-taker firm

answer

c. taking economic losses.

question

A firm in a price-taker market

answer

a. will sell its output at the price that is determined in the overall market.

question

answer

b. $5

question

Refer to Table 22-2. If the Tuckers are profit maximizers, how many tomatoes should they produce when the market price is $500 per ton?

answer

b. 7

question

Refer to Figure 22-13. If the market price this price-taker firm faces were to rise from P3 to P4, in the short run the firm would

answer

b. expand output from Q3 to Q4 and go from earning zero economic profit to positive economic profit.

question

Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive price-taker market when price falls below the minimum of average variable cost?

answer

b. The firm will stop production in the short run to minimize its losses.

question

When firms in a price-taker market are temporarily able to charge prices that exceed their production costs,

answer

b. additional firms will be attracted into the market until price falls to the level of per-unit production cost.

question

If marginal revenue exceeds marginal cost, a price-taker firm should

answer

a. expand output.

question

In competitive price-taker markets, firms

answer

a. can sell all of their output at the market price.

question

When market conditions in a price-taker market are such that firms cannot cover their production costs,

answer

c. some firms will go out of business, causing prices to rise until the remaining firms can cover their production costs.

question

In general, firms will produce at a rate of output such that marginal revenue equals marginal cost because this output rate will

answer

d. maximize the firm's profit.

question

Refer to Figure 22-15. The figure illustrates the current market conditions for a representative firm in a competitive price-taker market. Which of the following is true for this industry?

answer

b. Firms would continue to operate in the short run earning economic losses, and some firms would exit in the long run.

question

Refer to Figure 22-13. If the market price facing this price-taker firm fell to P1, the firm should

answer

d. shut down immediately

question

When a law is passed that requires businesses to obtain permission from government officials in order to enter a market, this is an example of

answer

b. a barrier to entry

question

Refer to Figure 23-4. Assuming it can cover its variable costs in the short run, what price should this competitive price-searcher firm charge if it wants to maximize its profit?

answer

c. $20

question

Refer to Figure 23-8. This figure illustrates

answer

d. a price-searcher firm earning zero economic profits.

question

If a movie theater is going to gain by charging students a lower ticket price than other customers,

answer

a. the demand of students must be more elastic than that of other customers.

question

The strategy underlying price discrimination is to

answer

c. increase total revenue by charging higher prices to those with the most inelastic demand for the product and lower prices to those with the most elastic demand.

question

Refer to Figure 23-2. If the cost and demand conditions of this competitive price-searcher firm are representative of the market, what will happen in the future?

answer

c. New firms will enter the market, and demand facing this firm will decline.

question

Refer to Figure 23-11. Which of the graphs shown would be consistent with a firm in a price-searcher market that would earn economic losses if it operated where it was maximizing profit?

answer

b. Panel b

question

If a market is in long-run equilibrium, which of the following conditions will be present in a competitive price-taker market but absent from a competitive price-searcher market?

answer

c. P = MC

question

Why do airlines often charge students and vacationers a lower price than business travelers?

answer

c. The demand of students and vacationers is generally more elastic than the demand of business travelers.

question

Compared to the outcome when the firms are price takers, competitive price-searcher markets will result in

answer

a. a wider variety of products and higher prices.

question

A practice whereby a seller charges different prices to different consumers of the same product or service is called

answer

a. price discrimination.

question

In a competitive price-searcher market, the firms will

answer

a. be able to choose their price, and the entry barriers into the market will be low.

question

A profit-maximizing price searcher will always expand output to the point where

answer

b. marginal revenue equals marginal cost.

question

Refer to Figure 23-11. Which of the graphs shown would be consistent with a firm in a price-searcher market that is earning a positive economic profit?

answer

c. Panel c

question

Refer to Figure 23-2. What is the maximum economic profit this firm will be able to earn?

answer

b. $20

question

If a government wanted to increase the prosperity of a nation, it could best serve this goal by

answer

c. reducing barriers that restrict the ability of potential competitors to enter markets.

question

Which of the following is a necessary condition for price discrimination to be profitable?

answer

b. Groups of consumers with different demand elasticities must be easily distinguishable.

question

Refer to Figure 23-2. What price should this competitive price-searcher firm charge if it wants to maximize its profit?

answer

d. $10

question

Refer to Figure 23-4. If the cost and demand conditions of this competitive price-searcher firm are representative of the market, what will happen in the future?

answer

a. Some firms will go out of business, and the demand facing remaining firms will rise.

question

Refer to Figure 23-4. What is the maximum economic profit this firm will be able to earn if it operates?

answer

a. $200 loss

question

In the long run, neither competitive price takers nor competitive price searchers will be able to earn economic profits because

answer

c. competition will force prices down to the level of per-unit production costs.

question

Which of the following is true?

answer

b. If the production of a good is highly profitable relative to other industries, new competitors will enter as long as there are not barriers preventing them from doing so.

question

Oligopolistic agreements on price tend to be unstable because

answer

question

The prisoners' dilemma is used to illustrate the basic idea that

answer

a. oligopolistic firms would be better off if they collude, but each has an incentive to cheat on the collusive agreement.

question

If the average total cost curve lies entirely above the demand curve of a monopolist,

answer

c. the monopolist will suffer economic losses.

question

Which of the following explains why firms in competitive price-searcher and competitive price-taker markets will both have zero economic profits in the long run but a monopoly will not?

answer

c. In both competitive price-searcher and competitive price-taker markets, the barriers to entry are low so profits attract competitors; this is not true under a monopoly.

question

If pizza used to be produced in a competitive price-taker market, and now the pizza market has become a monopoly, we can expect

answer

a. less pizza to be sold at a higher price.

question

Because each oligopolist cares about its own profit rather than the collective profit of all the oligopolists together,

answer

a. collusive agreements are hard to maintain.

question

An oligopolistic firm that is deciding the price to charge, the output to produce, or the quality of product to offer, must consider

answer

b. the potential reactions of rivals in the market.

question

When natural monopoly is present in an industry, the per-unit costs of production will be

answer

b. lowest when a single firm generates the entire output of the industry.

question

A monopolist will maximize profits by

answer

c. producing the output where marginal revenue equals marginal cost.

question

Which of the following provides the most secure protection for a firm with monopoly power?

answer

b. legal barriers restricting entry into the market of the monopolist

question

Which of the following best explains why economists are generally critical of unregulated monopolists?

answer

d. Monopolists restrict output, and as a result, they fail to produce units that are valued more than the marginal cost of producing them.

question

The two conflicting tendencies that a firm has in an oligopolistic industry are the incentive to

answer

d. cooperate to maximize joint profits and the incentive to cheat on the agreement in order to increase the firm's share of the profit.

question

Assuming that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?

answer

c. The output of the monopolist will be too small and the price too high.

question

Refer to Figure 24-10. What price will a profit-maximizing monopolist charge?

answer

d. P4

question

A market situation where a small number of rival sellers compose the entire industry is called

answer

d. oligopoly.

question

As a group, oligopolists would always earn the highest profit if they would

answer

c. charge the same price that a monopolist would charge if the market were a monopoly.

question

answer

b. could increase his profit by increasing his output.

question

Cartels are difficult to maintain because

answer

c. there is always tension between cooperation and self-interest in a cartel.

question

The key element in a monopoly situation is

answer

b. high barriers keeping potential rivals out of the market.

question

Refer to Table 25-2. What is the marginal product of the third worker?

answer

a. 7

question

Refer to Table 25-2. Suppose that the firm pays its workers $75 per day. Each unit of output sells for $10. How many days of labor should the firm hire?

answer

b. 2

question

Refer to Figure 25-1. If this graph indicates the short-run and long-run supply curves for a resource, which of the following would probably be the long-run supply curve of the resource?

answer

d. Sa

question

answer

a. 92 cars per day.

question

Which of the following is a correct statement about the labor market?

answer

a. Workers determine the supply of labor, and firms determine the demand for labor.

question

answer

c. $20

question

Refer to Figure 25-4. As the number of workers increases,

answer

a. total output increases, but at a decreasing rate.

question

The demand for a resource is generally more

answer

b. inelastic in the short run because it takes time to alter the ratio of resources used in many production processes.

question

Which of the following labor resources will likely have the most elastic supply schedule in the short run?

answer

c. retail cashiers

question

The supply curve of a human resource will be more elastic the

answer

a. easier it is to obtain the skill and knowledge necessary to provide the resource.

question

Refer to Figure 25-2. The demand D1 and short-run supply SSR of accountants is indicated in this graph. Which of the following would most likely shift the demand for accountants from D1 to D2?

answer

b. enacting legislation that increases the complexity of personal and business tax returns

question

Which of the following is the most accurate definition of a worker's "marginal revenue product"?

answer

b. the change in the firm's total revenue as the result of hiring an additional worker

question

Other things constant, if the demand for a final product is quite elastic, the demand for a resource used to produce the product will tend to be

answer

d. quite elastic as well.

question

Refer to Table 25-2. Suppose that the firm pays its workers $55 per day. Each unit of output sells for $12. How many days of labor should the firm hire?

answer

b. 4

question

If a firm is using a resource hired in a perfectly competitive market, and if the price of the resource exceeds the marginal revenue product of the resource,

answer

b. less of the resource should be used.

question

The marginal productivity principle says that a profit-maximizing firm should

answer

b. hire labor until another worker costs more to hire than he can earn for the firm.

question

Refer to Table 25-6. If the security guards can be hired for $45 per day, how many guards should the shop hire?

answer

c. 4

question

What happens to labor supply in the pear-picking market when the wage paid to apple pickers increases?

answer

b. The labor supply will decrease.

question

Which of the following most clearly illustrates the concept of "derived demand"?

answer

b. An increase in the demand for new houses leads to an increase in the demand for construction workers.

question

When the price of steel rises, Ford uses more aluminum in the production of its cars. This is an example of

answer

b. substitution in production.

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