1. Which of the following statements is true about a downward-sloping demand curve that is a straight line? The slope and the elasticity are the same at all points. The slope remains the same, but elasticity rises as you move down the demand curve. The slope remains the same, but elasticity falls as you move down the demand curve. The slope and the elasticity fall as you move down the demand curve 2. The best example of positive externality is: roller coaster rides. pollution.  alcoholic beverages.  education. 3. Suppose that college tuition is higher this year than last and that more students are enrolled in college this year than last year.  Based on this information, we can best conclude that: despite the increase in price, quantity demanded rose due to some other factors changing.  the demand for a college education is positively sloped.  the law of demand is invalid.  this situation has nothing to do with the law of demand. 4. Suppose foreign shrimp prices drop by 32 percent and importers gain a 90 percent market share.  From this information, what would economists strongly suspect about this industry? The large sales of foreigners indicate they are better strategic business bargainers than Americans are. Foreign sellers probably are colluding on price to maximize profits. Americans have a comparative advantage in shrimping. Foreigners have a comparative advantage in shrimping. 5. The theory that quantity supplied and price are positively related, other things constant, is referred to as the law of:  supply opportunity cost profit maximization demand 6. At one time, sea lions were depleting the stock of steelhead trout. One idea to scare sea lions away from the Washington coast was to launch fake killer whales, which are predators of sea lions. The cost of making the first whale is $16,000 ($5,000 for materials and $11,000 for the mold). The mold can be reused to make additional whales, and so additional whales cost $5,000 each. Based on these numbers, the production of fake killer whales exhibits: Increasing returns to scale Decreasing returns to scale Diminishing marginal product Constant returns to scale 7. Using 100 workers and 10 machines, a firm can produce 10,000 units of output; using 250 workers and 25 machines, the firm produces 21,000 units of output. These facts are best explained by:  Economies of scale Diseconomies of scale Diminishing marginal productivity Economies of scope 8. Cartels are organizations that:  Coordinate the output and pricing decisions of a group of firms. Use predatory pricing to monopolize industries. Keep markets contestable. Encourage price wars. 9. Price elasticity of demand is the: Percentage change in quantity of a good demanded divided by the percentage change in the price of that good. Change in the quantity of a good demanded divided by the change in the price of that good. Percentage change in price of that good divided by the percentage change in the quantity of that good demanded. Change in the price of a good divided by the change in the quantity of that good demanded.  10. For a monopolist, the price of a product: Equals the marginal revenue. Equals the marginal cost. Is less than the marginal revenue. Exceeds the marginal revenue. 11. A perfectly competitive firm facing a price of $50 decides to produce 500 widgets. Its marginal cost of producing the last widget is $50. If the firm’s goal is to maximize profit, it should:  Produce more widgets Produce fewer widgets Continue producing 500 widgets Shut down 12. Microeconomics is the study of: business cycles a firm’s pricing policies unemployment inflation  13. When Ross Perot ran for president as a third party candidate in 1992, he argued that free trade with Mexico would result in massive job losses in the United States because Mexican wages were so low. Which of the following is the best explanation of why few economists agreed with Perot? Economists did not believe any jobs would be lost in the United States. Economics believed that the U.S. unemployment would rise. Although economics predicted that unemployment would rise, the increased profits of corporations would raise stock prices enough to compensate for the lost jobs. Although economists believed that in some areas the United States would lose jobs, they expected the United States would gain jobs in other areas. 14. Suppose OPEC announces it will increase production. Using supply and demand analysis to predict the effect of increased production on equilibrium price and quantity, the first step is to show the: demand curve shifting to the left. demand curve shifting to the right. supply curve shifting to the left. supply curve shifting to the right 15. The law of diminishing marginal productivity implies that the marginal product of a variable input: Eventually declines Is constant Never declines Always declines  16. In 1997, the federal government reinstated a 10 percent excise tax on airline tickets. The industry tried to pass on the full 10 percent ticket tax to consumers but was able to boost fares by only 4 percent. From this you can conclude that the: Supply of airline tickets is perfectly inelastic. Supply elasticity of airline tickets is less than infinity. Demand for airline tickets is perfectly inelastic. Demand elasticity for airline tickets is greater than zero in absolute value. 17. Graphically, a change in price causes: a movement along a given supply curve, not a shift. the supply curve to shift. both supply and demand to shift. the demand curve to shift 18. Microeconomics and macroeconomics are: Not related because they are taught separately. Interrelated because both are often taught by the same instructors. Interrelated because what happens in the economy as a whole is based on individual decisions. Virtually identical, though one is much more difficult than the other. 19. Suppose people freely choose to spend 40 percent of their income on health care, but then the government decides to tax 40 percent of that person’s income to provide the same level of coverage as before. What can be said about deadweight loss in each case? Taxing income results in deadweight loss, and purchasing health care on one’s own doesn’t result in deadweight loss. There is no difference between goods that are purchased in the market in either case. There is no difference because the total spending remains the same and the health care purchased remains the same. Taxing income results in less deadweight loss because government knows better what health care coverage is good for society. 20. Mr. Woodward’s cabinet shop is experiencing rapid growth in sales. As sales have increased, Mr. Woodward has found it necessary to hire more workers. However, he has observed that doubling the number of workers has less than doubled his output. What is the likely explanation? The law of diminishing marginal utility The law of demand The law of diminishing marginal productivity The law of supply 21. The DeBeers company is a profit-maximizing monopolist that exercises monopoly power in the distribution of diamonds. If the company earns positive economic profits this year, the price of diamonds will: Exceed both the marginal cost and the average total cost of diamonds. Exceed the marginal cost of diamonds but equal to the average total cost of diamonds. Be equal to the average total cost of diamonds. Be equal to the marginal cost of diamonds 22. Oligopoly is probably the best market for technological change because: The typical oligopoly keeps price very close to average total cost because it fears the entry of new rivals if its profits are excessively high. The typical oligopoly has the funds to carry out research and development and believe that its competitors are innovating, which motivates it to conduct research and development. Research and development occurs only if government subsidizes such activity, and government tends to subsidize oligopolies. The typical oligopoly lacks the funds to carry out research and development and therefore will use basic research from universities 23. A monopoly firm is different from a perfectly competitive firm in that: There are many substitutes for a monopolist’s product whereas there are no substitutes for a competitive firm’s product. A monopolist’s demand curve is perfectly inelastic whereas a perfectly competitive firm’s demand curve is perfectly elastic. A monopolist can influence market price whereas a perfectly competitive firm cannot. A competitive firm has a u-shaped average cost curve whereas a monopolist does not. 24. Many call centers that provide telephone customer services for U.S. companies have been established in India, but few or none have been established in China. Why? Indian labor costs are equal to Chinese labor costs. Chinese labor lacks the specific language skills needed to make call centers profitable in China. China is at a more advanced stage of economic development than India. China lacks the political infrastructure to support call centers. 25. Other things held constant in a competitive labor market, if workers negotiate a contract in which the employer agrees to pay an hourly of $17.85 while the market equilibrium hour rate is $16.50, the: Quantity of workers supplied will exceed the quantity of workers demanded. Demand for labor will increase until the equilibrium wage rate is $17.85. Supply of labor will decrease until the equilibrium wage rate is $17.85. Quantity of workers demanded will exceed the quantity of workers supplied. 26. Alex is playing his music at full volume in his dorm room. The other people living on his floor found this to be a nuisance, but Alex doesn’t care. Alex’s music playing is an example of: Positive externality Negative externality Pareto externality Normative externality 27. In 2011, the Department of Justice sued AT&T to block its merger with the cell phone service provider T-Mobile. To defend itself against the charge, AT&T argued that the:  Merger would improve and expand cellular service to consumers. Government had guaranteed it exclusive control of cell phone service. Combined company could raise prices, allowing it to survive in a rapidly changing market. Government had no authority to block mergers in the telephone industry 28. A reduction in the supply of labor will cause wages to: Decrease and employment to decrease. Decrease and employment to increase. Increase and employment to decrease. Increase and employment to increase. 29. There are many restaurants in the city of Raleigh, each one offering food and services that differ from those of its competitors.  There is also free entry of sellers into the market, and each seller serves a very small fraction of the total number of meals served each day.  The restaurant industry in Raleigh is best characterized as: A pure monopoly. Perfectly competitive. Monopolistically competitive. An oligopoly  30. Strategic decision making is most important in:  Oligopolistic markets. Competitive markets. Monopolistically competitive markets. Monopolistic markets. SET 2 1. Because you can only obtain more of one good by giving up some of another good, the shape of a production possibility curve is: upward sloping. perfectly vertical. perfectly horizontal. downward sloping 2. Refer to the table shown. The average product when eight workers are employed is: _____6____ Number of workers Total Output 1 4 2 10 3 18 4 28 5 35 6 41 7 45 8 48 9 50 10 49 3. A resource is said to have a comparative advantage if: it is equally suited to the production of all goods. its suitability to the production of one good changes as it produces more of that good. its suitability to the production of one good does not change as it produces more of that good. it is better suited to the production of one good than to the production of an alternative good. 4. Refer to the graph shown. Initially, the market is in equilibrium with price equal to $3 and quantity equal to 100. Government imposes a tax on suppliers of $1 per unit. The effect of the tax is to: lower the price consumers pay from $3 to $2. lower the price sellers keep after paying the tax. raise the price consumers pay from $3 to $4. raise the price sellers keep after paying the tax. 5. Refer to the table shown. Diminishing marginal productivity begins when the: fourth worker is hired. sixth worker is hired. third worker is hired. fifth worker is hired 6. Refer to the graph shown. If this monopolistically competitive firm maximizes profit, it will charge $45 per dress. charge $85 per dress. charge $78 per dress. shut down because it cannot cover its opportunity costs 7. The price of a ticket to a rock concert is set at $35. All the tickets for the concert sell out 1 hour after they go on sale and there are still 1,000 fans who want to buy tickets. It follows that: the quantity of tickets demanded is equal to the quantity supplied at the $35 price. the equilibrium price of tickets to the concert is less than $35. the equilibrium price of tickets to the concert is more than $35. the equilibrium price of tickets to the concert is $35. 8. Which of the following statements is true? Many different production processes can be economically efficient, but only the method that involves the lowest possible cost is technically efficient. Many different production processes can be technically efficient, but only the method that involves the lowest possible cost is economically efficient. There are many production processes that are both technically and economically efficient, but only one of these involves the lowest possible cost. There is only one production process that is technically efficient, and this process is also economically efficient. 9. State what type of business combination is occurring in the following scenario: Samsung and Sony become partners in a flat screen manufacturing company. Joint venture Conglomerate Vertical merger Horizontal merger 10. Suppose a firm finds that an additional dollar spent on labor increases output more than does an additional dollar spent on machines. Under these conditions, the firm should substitute machines for labor if it  wants to increase economic efficiency is economically efficient is technically efficient should substitute labor for machines if it wants to increase economic efficiency 11. Economists and laypeople see the pros and cons of international trade in different ways. Which of the following is one of those ways? Laypeople enjoy the benefits of trade in terms of lower consumer prices. Laypeople recognize that the United States has a comparative advantage in services. Laypeople tend to think of foreign trade only in terms of manufactured goods. Laypeople believe in the law of one price and economists do not. 12. The morel is a prized mushroom that is often abundant in the Western United States in years after forest fires. Suppose two companies are buying morels from workers willing to find them. One company offers to pay workers $5.00 per pound, and the other company will pay workers only $4.00 per pound. Economists would say that the lower-paying company will attract the more creative and innovative pickers and the higher-paying company will attract the others. this situation violates the law of one price and is not likely to persist. the higher-paying company will attract the more creative and innovative pickers and the lower-paying company will attract the others. the company willing to pay only $4.00 has a comparative advantage in selling morels. 13. Which of the following is the best example of a macroeconomic externality? One person saving less without considering the effect on their retirement needs One person starting a business without knowing whether the goods will sell Many people saving more without considering the effect on unemployment One person spending more in order to help stimulate the economy 14. If MR < mc,="" a="" monopolist=""> maintain the same level of production. stop producing. decrease production. increase production. 15. Opponents of government intervention in the economy argue that externalities: may not be effectively corrected by the government. are themselves the inevitable result of government policies. do not create problems for the model. should be corrected with regulations rather than subsidies. 16. State what type of business combination is occurring in the following scenario: IBP meat processing firm buys American Cattle, a very large cattle ranch. Joint venture Vertical merger Horizontal merger Conglomerate 17. Refer to the graph shown. At which point is elasticity zero? B D C A 18. A Wall Street Journal headline reads: “Cigar Shortage Draws New Brands into Market”. The shortage resulted from a renewed interest in smoking cigars. What best describes the facts behind the headline? Price is too low, quantity demanded exceeds quantity supplied. The cigar market is in equilibrium. Price is too low, demand exceeds supply. A shift in supply has equilibrated supply and demand. 19. Refer to the graph shown. If hamburger dinners are produced by a perfectly competitive industry with a market demand D: price will equal marginal cost. output will be the same as it would be under monopoly. price will equal $6. price will be greater than marginal revenue. 20. State what type of business combination is occurring in the following scenario: Golf Smith, a golf supply retailer busy its competitor, Vango golf. Horizontal merger Conglomerate Joint venture Vertical merger 21. According to the text, Microeconomics, Colander (2013), economics is the study of how: government policies can be used to meet individuals&#39; wants and desires. human beings coordinate their wants and desires. scarce resources are allocated to their most productive uses. governments allocate resources while facing constraints. 22. Oligopoly is characterized by low market concentration. inability to set price. no barriers to entry. few sellers. 23. When Ross Perot ran for president as a third party candidate in 1992, he argued that free trade with Mexico would result in massive job losses in the United States because Mexican wages were so low.  Which of the following is the best explanation for why few economists agreed with Perot? Although economists agreed that in some areas the United States would lose jobs, they expected that the United States would gain jobs in other areas. Economists believed that the U.S. unemployment rate would rise. Although economists predicted that unemployment would rise, the increased profits of corporations would raise stock prices enough to compensate for the lost jobs. Economists did not believe that any jobs would be lost in the United States 24. Refer to the graph shown. The figure shows the demand and supply curves for eggs and shows two equilibrium points, E1 and E2. An increase in demand from D1 to D2 would cause price to decline from $1.25 to $1.00 a dozen and a shortage of 2,000 dozen eggs per week. price to rise from $1.00 to $1.25 a dozen and a surplus of 2,000 dozen eggs per week. price to rise from $1.00 to $1.25 a dozen and equilibrium quantity to be 3,000 dozen eggs per week. price to remain at $1.00 a dozen and a shortage of 2,000 dozen eggs per week 25. Germany restricts the use of nonrefillable bottles and cans. The European Union argues that the rules aren&#39;t just protecting the environment; they also are protecting German beverage makers from competition. The EU sees Germany&#39;s environmentalism as _____________________.? a quota a tariff a regulatory trade restriction an embargo 26. Oligopoly is probably the best market for technological change because funds for research and development are available in an oligopoly due to innovation, which motivates the need for research and development. the typical oligopoly lacks the funds for research and development and therefore will use basic research from universities. pricing within the typical oligopoly tends to be very close to average total cost because of the entry of new rivals if its profits are excessively high. research and development occurs only if government subsidizes such activity, and government tends to subsidize oligopolies 27. George Davis and Michael Wohlgenant estimate that for every 1 percent increase in the price of Christmas trees, quantity demanded falls by 0.6 percent. . The demand for Christmas trees is __________________. perfectly inelastic inelastic elastic unit elastic 28. State what type of business combination is occurring in the following scenario: A tobacco producer busy a carbonated beverage plant. Joint venture Conglomerate Vertical merger Horizontal merger 29. Suppose the minimum possible price of constructing homes if $50 per square foot.  As a result of a sharp drop in the demand for home construction, the equilibrium price of home construction falls to $40 per square foot. Assuming the home construction industry is perfectly competitive and there are no specialized inputs, firms will: exit the industry, and the price will remain at $40 in the long run. enter the industry as the price rises above $40 in the long run. exit the industry, and the price will rise above $40 in the long run. exit the industry, and the price will fall below $40 in the long run. 30. Refer to the table shown.  At what level of employment is the marginal product of labor seven? 7 5  2 4