- For a good that is a luxury, demand
Select one:
a.
cannot be represented by a demand curve in the usual way.
b.
tends to be inelastic.
c.
has unit elasticity.
d.
tends to be elastic.
- For a monopoly, the socially efficient level of output occurs where
a.
price equals average total cost.
b.
marginal revenue equals marginal cost.
c.
price equals marginal cost.
d.
marginal revenue equals average total cost.
34. For which pairs of goods is the cross-price elasticity most likely to be positive?
a.
Pens and pencils
b.
Bicycle frames and bicycle tires
c.
Digital college textbooks and iPhones
d.
Peanut butter and jelly
- If a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a positive profit, then
a.
its marginal revenue is less than $10.
b.
its total cost is more than $9,000.
c.
the firm cannot be a competitive firm because competitive firms cannot earn positive profits.
d.
its average total cost is less than $10.
- If a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a positive profit, then
a.
its marginal revenue is less than $10.
b.
the firm cannot be a competitive firm because competitive firms cannot earn positive profits.
c.
its average total cost is less than $10.
d.
its total cost is more than $9,000.
37. If a price floor is not binding, then
a.
there will be a shortage in the market.
b.
the equilibrium price is below the price floor.
c.
the equilibrium price is above the price floor.
d.
there will be a surplus in the market.
38. If a sawmill creates too much noise for local residents,
a.
the government should avoid intervening because the market will always allocate resources efficiently.
b.
noise restrictions will force residents to move out of the area.
c.
the government can raise economic well-being through noise-control regulations.
d.
a sense of social responsibility will cause owners of the mill to reduce noise levels.
39. If government regulation sets the maximum price for a natural monopoly equal to its marginal cost, then the natural monopolist will
a.
earn zero economic profits.
b.
earn economic profits.
c.
earn economic losses.
d.
produce a lower quantity of output than is socially optimal.
40. If the government removes a binding price ceiling from a market, then the price paid by buyers will
a.
increase, and the quantity sold in the market will increase.
b.
decrease, and the quantity sold in the market will increase.
c.
increase, and the quantity sold in the market will decrease.
d.
decrease, and the quantity sold in the market will decrease.
41. If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a
a.
5 percent decrease in the quantity demanded.
b.
20 percent decrease in the quantity demanded.
c.
0.2 percent decrease in the quantity demanded.
d.
40 percent decrease in the quantity demanded.
42. In some cases, tradable pollution permits may be better than a corrective tax because
a.
the government can set a maximum level of pollution using permits.
b.
pollution permits are never preferred over a corrective tax.
c.
pollution permits generate more revenue for the government than a corrective tax.
d.
pollution permits allow for a market solution while a corrective tax does not.
43. In which of the following market structures can firms earn economic profits in the long run?
a.
Monopolistic competition and monopoly
b.
Monopolistic competition only
c.
Perfect competition only
d.
Monopoly only
44. Motor oil and gasoline are complements. If the price of motor oil increases, consumer surplus in the gasoline market
a.
decreases.
b.
may increase, decrease, or remain unchanged.
c.
increases.
d.
is unchanged.
45. Private decisions about consumption of common resources and production of public goods usually lead to an
a.
inefficient allocation of resources and no external effects.
b.
efficient allocation of resources and no external effects.
c.
inefficient allocation of resources and external effects.
d.
efficient allocation of resources and external effects.
46. Producers have little incentive to produce a public good because
a.
there is a free-rider problem.
b.
there is a Tragedy of the Commons.
c.
the social benefit is less than the social cost.
d.
the social benefit is less than the private benefit.
47. Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following:
• a private cost of $3.10;
• a social cost of $3.55;
• a value to consumers of $3.70.
Refer to Scenario 10-1. Suppose the dollar amount of the externality, per gallon of gasoline, is constant, regardless of how much gasoline is produced. Then the externality could be internalized if producers of gasoline were
a.
required to pay a tax of $0.30 per gallon of gasoline sold.
b.
provided a subsidy of $0.45 per gallon of gasoline sold.
c.
required to pay a tax of $0.45 per gallon of gasoline sold.
d.
provided a subsidy of $0.30 per gallon of gasoline sold.
48. Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following:
• a private cost of $3.10;
• a social cost of $3.55;
• a value to consumers of $3.70.
Refer to Scenario 10-1. Let QMARKET represent the equilibrium quantity of gasoline, and let QOPTIMUMrepresent the socially optimal quantity of gasoline. Which of the following inequalities is correct?
a.
1,000 < QOPTIMUM< QMARKET
b.
QOPTIMUM< 1,000 < QMARKET
c.
QMARKET< 1,000 < QOPTIMUM
d.
QOPTIMUM< QMARKET< 1,000
49. Scenario 14-1
Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm’s marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit.
Refer to Scenario 14-1. To maximize its profit, the firm should
a.
decrease its output but continue to produce.
b.
shut down.
c.
continue to produce 1,000 units.
d.
increase its output.
50. Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?
a.
$10 and 50 units
b.
$5 and 50 units
c.
$10 and 100 units
d.
$5 and 100 units
51. Suppose that in a particular market, the supply curve is highly elastic and the demand curve is highly inelastic. If a tax is imposed in this market, then the
a.
sellers will bear a greater burden of the tax than the buyers.
b.
buyers and sellers are likely to share the burden of the tax equally.
c.
buyers and sellers will not share the burden equally, but it is impossible to determine who will bear the greater burden of the tax without more information.
d.
buyers will bear a greater burden of the tax than the sellers.
52. Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market?
a.
Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.
b.
Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.
c.
Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
d.
Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.
53. Table 14-5
Suppose that a firm in a competitive market faces the following revenues and costs:
Quantity (Units) | Marginal Cost (Dollars) | Marginal Revenue (Dollars) |
12 | 5 | 7 |
13 | 6 | 7 |
14 | 7 | 7 |
15 | 8 | 7 |
16 | 9 | 7 |
17 | 10 | 7 |
Refer to Table 14-5. If the firm is currently producing 14 units, what would you advise the owners?
a.
Increase quantity to 16 units
b.
Continue to operate at 14 units
c.
Increase quantity to 15 units
d.
Decrease quantity to 13 units
54. Table 15-2
Suppose a monopolist faces the following demand curve:
Price (Dollars per unit) | Quantity (Units) |
8 | 300 |
7 | 400 |
6 | 500 |
5 | 600 |
4 | 700 |
3 | 800 |
2 | 900 |
1 | 1,000 |
Refer to Table 15-2. The monopolist has fixed costs of $1,000 and has a constant marginal cost of $2 per unit. If the monopolist were able to perfectly price discriminate, how many units would it sell?
a.
900
b.
4,200
c.
500
d.
400
55. Table 4-6
Price (Dollars per unit) | Quantity Demanded (Units) | Quantity Supplied (Units) |
10 | 10 | 60 |
8 | 20 | 45 |
6 | 30 | 30 |
4 | 40 | 15 |
2 | 50 | 0 |
Refer to Table 4-6.If the price were $8, a
a.
shortage of 25 units would exist, and price would tend to rise.
b.
shortage of 20 units would exist, and price would tend to rise.
c.
surplus of 25 units would exist, and price would tend to fall.
d.
surplus of 45 units would exist, and price would tend to fall.
56. Table 5-2
Price (Dollars per unit) | Quantity Demanded (Units) |
250 | 0 |
200 | 30 |
150 | 70 |
100 | 110 |
50 | 150 |
0 | 190 |
Refer to Table 5-2. Using the midpoint method, if the price falls from $200 to $150, the absolute value of the price elasticity of demand is
a.
5.3.
b.
2.8.
c.
0.36.
d.
0.8.
57. The deadweight loss from a tax per unit of good will be smallest in a market with
a.
elastic supply and elastic demand.
b.
inelastic supply and elastic demand.
c.
elastic supply and inelastic demand.
d.
inelastic supply and inelastic demand.
58. What happens to consumer surplus in the cell phone market if cell phones are normal goods and buyers of cell phones experience an increase in income?
a.
Consumer surplus remains unchanged.
b.
Consumer surplus increases.
c.
Consumer surplus decreases.
d.
Consumer surplus may increase, decrease, or remain unchanged.
59. Which of the following costs of publishing a book is a fixed cost?
a.
Composition, typesetting, and jacket design for the book
b.
The costs of paper and binding
c.
Shipping and postage expenses
d.
Author royalties of 5 percent per book
60. You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that
a.
both the mayor and the city manager think that demand is elastic.
b.
the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.
c.
the mayor thinks demand is elastic, and the city manager thinks demand is inelastic.
d.
both the mayor and the city manager think that demand is inelastic.
