Microeconomics Final – Flashcards with Answers
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1. The word that comes from the Greek word for "one who manages a household" is a. market. b. consumer. c. producer. d. economy.
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D
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2. Economics deals primarily with the concept of a. scarcity. b. poverty. c. change. d. power.
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A
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4. In economics, the cost of something is a. the dollar amount of obtaining it. b. always measured in units of time given up to get it. c. what you give up to get it. d. often impossible to quantify, even in principle.
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C
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5. When you calculate your true costs of going to college, what portion of your room-and-board expenses should be included? a. Your full room-and-board expenses should always be included. b. None of your room-and-board expenses should ever be included. c. You should include only the amount by which your room-and-board expenses exceed the income you earn while attending college. d. You should include only the amount by which your room-and-board expenses exceed the expenses for rent and food if you were not in college.
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D
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6. A marginal change is a a. change that involves little, if anything, that is important. b. large, significant adjustment. c. change for the worse, and so it is usually a short-term change. d. small, incremental adjustment.
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D
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7. Your professor loves her work, teaching economics. She has been offered other positions in the corporate world that would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not change unless the marginal a. cost of teaching increased. b. benefit of teaching increased. c. cost of teaching decreased. d. cost of a corporate job increased.
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A
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8. In a market economy, economic activity is guided by a. the government. b. corporations. c. central planners. d. self-interest and prices.
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D
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9. The "invisible hand" directs economic activity through a. advertising. b. prices. c. central planning. d. government regulations.
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B
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10. To increase living standards, public policy should a. ensure that workers are well educated and have the necessary tools and technology. b. make unemployment benefits more generous. c. move workers into jobs directly from high school. d. ensure a greater degree of equity, taking all income-earners into account.
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A
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1. In a market economy, a. supply determines demand and, in turn, demand determines prices. b. demand determines supply and, in turn, supply determines prices. c. the allocation of scarce resources determines prices and, in turn, prices determine supply and demand. d. supply and demand determine prices and, in turn, prices allocate scarce resources.
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D
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2. A competitive market is a market in which a. an auctioneer helps set prices and arrange sales. b. there are only a few sellers. c. the forces of supply and demand do not apply. d. no individual buyer or seller has any significant impact on the market price.
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D
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3. The term price takers refers to buyers and sellers in a. perfectly competitive markets. b. monopolies. c. markets that are regulated by government. d. markets in which buyers cannot buy all they want and/or sellers cannot sell all they want.
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A
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4. Which of the following would not be a determinant of the demand for a particular good? a. prices of related goods b. income c. tastes d. the prices of the inputs used to produce the good
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D
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5. Two goods are substitutes if a decrease in the price of one good a. decreases the demand for the other good. b. decreases the quantity demanded of the other good. c. increases the demand for the other good. d. increases the quantity demanded of the other good.
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A
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6. Two goods are complements if a decrease in the price of one good a. decreases the quantity demanded of the other good. b. decreases the demand for the other good. c. increases the quantity demanded of the other good. d. increases the demand for the other good.
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D
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8. A demand schedule is a table showing the relationship between a. quantity demanded and quantity supplied, and those quantities are usually positively related. b. quantity demanded and quantity supplied, and those quantities are usually negatively related. c. price and quantity demanded, and those quantities are usually positively related. d. price and quantity demanded, and those quantities are usually negatively related.
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D
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10. When the number of buyers in a market increases, a. the market demand curve shifts to the right. b. the demand curves of the individual demanders in the market are unaffected. c. the market demand for the good in question increases. d. Al of the above are correct.
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D
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11. Pizza is a normal good if a. the demand for pizza rises when income rises. b. the demand for pizza rises when the price of pizza falls. c. the demand curve for pizza slopes downward. d. the demand curve for pizza shifts to the right when the price of burritos falls, assuming pizza and burritos are substitutes.
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A
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17. The relationship between price and quantity supplied is a. negative. b. positive. c. the same as the relationship between price and quantity demanded. d. not well understood by economists because laboratory-type experiments have not been conducted.
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B
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18. A market supply curve is determined by a. vertically summing individual supply curves. b. horizontally summing individual supply curves. c. finding the average quantity supplied by sellers at each possible price. d. finding the average price at which sellers are willing and able to sell a particular quantity of the good.
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B
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19. If the number of sellers in a market increases, the a. demand in that market will increase. b. supply in that market will increase. c. supply in that market will decrease. d. demand in that market will decrease.
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B
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21. When we compare an increase in supply with an increase in quantity supplied, we know that a. the former is depicted by a movement along the supply curve and the latter is depicted by a shift of the curve. b. the former could be caused by a decrease in input costs and the latter would be caused by an increase in the price of the good. c. both are always caused by a change in demand. d. both are always caused by a change in the number of market participants.
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B
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24. The price at which quantity supplied equals quantity demanded is called the a. coordinating price. b. monopoly price. c. equilibrium price. d. All of the above are correct.
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C
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25. If, at the current price, there is a shortage of a good, a. sellers are producing more than buyers wish to buy. b. the market must be in equilibrium. c. the price is below the equilibrium price. d. quantity demanded equals quantity supplied.
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C
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33. In markets, prices move toward equilibrium because of a. the actions of buyers and sellers. b. government regulations placed on market participants. c. increased competition among sellers. d. buyers' ability to affect market outcomes.
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A
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34. A surplus exists in a market if a. there is an excess demand for the good. b. the situation is such that the law of supply and demand would predict an increase in the price of the good from its current level. c. the current price is above its equilibrium price. d. None of the above is correct.
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C
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37. When supply and demand both increase, equilibrium a. price will increase. b. price will decrease. c. quantity may increase, decrease, or remain unchanged. d. price may increase, decrease, or remain unchanged.
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D
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38. Which of the following sets of events would most likely cause an increase in the price of a new house? a. higher wages for carpenters, higher wood prices, increases in consumer incomes, higher apartment rents, increases in population and expectations of higher house prices in the future b. lower wages for carpenters, lower wood prices, increases in consumer incomes, higher apartment rents, increases in population and expectations of higher house prices in the future c. lower wages for carpenters, higher wood prices, decreases in consumer incomes, higher apartment rents, decreases in population and expectations of higher house prices in the future d. higher wages for carpenters, lower wood prices, decreases in consumer incomes, lower apartment rents, decreases in population and expectations of lower house prices in the future
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A
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39. In a free market system, what coordinates the actions of millions of people with their varying abilities and desires? a. producers b. prices c. consumers d. the government
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B
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38. Which of the following sets of events would most likely cause an increase in the price of a new house? a. higher wages for carpenters, higher wood prices, increases in consumer incomes, higher apartment rents, increases in population and expectations of higher house prices in the future b. lower wages for carpenters, lower wood prices, increases in consumer incomes, higher apartment rents, increases in population and expectations of higher house prices in the future c. lower wages for carpenters, higher wood prices, decreases in consumer incomes, higher apartment rents, decreases in population and expectations of higher house prices in the future d. higher wages for carpenters, lower wood prices, decreases in consumer incomes, lower apartment rents, decreases in population and expectations of lower house prices in the future
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A
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1. Price elasticity of demand shows how: A) To compute the slope of the demand curve. B) Quantity demanded responds to price changes. C) Quantity demanded responds to changes in the price of other goods. D) Price responds to quantity changes.
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B
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2. For downward-sloping linear demand curves, the price elasticity of demand: A) Is constant at each point on the curve. B) Varies throughout the demand curve. C) Tends to be elastic at relatively low prices. D) Is equal to the slope of the demand curve
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B
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3. For product X, the price elasticity of demand has an absolute value of 2. This means that quantity demanded will increase by: A) 1 percent for each 2 percent decrease in price, ceteris paribus. B) 1 unit for each $2 decrease in price, ceteris paribus. C) 2 percent for each 1 percent decrease in price, ceteris paribus. D) 2 units for each $1 decrease in price, ceteris paribus.
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C
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4. Suppose the quantity demanded of U.S. cars falls from 4.0 million to 3.0 million as a result of an average price increase from $20,000 to $25,000 per vehicle. The absolute value of the price elasticity of demand is closest to: A) 0.20. B) 1.29. C) 0.78. D) 0.29.
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B
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5. Suppose a university raises its tuition by 4 percent and as a result the enrollment of students decreases by 2 percent. The absolute value of the price elasticity of demand is: A) 0.50. B) 2.0. C) 8.0. D) 6.0.
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A
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6. A demand curve that is completely inelastic is: A) Horizontal. B) Vertical. C) Upward sloping. D) Downward sloping.
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B
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7. A demand curve that is completely elastic is: A) Horizontal. B) Vertical. C) Upward sloping. D) Downward sloping.
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A
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8. Which of the following influences the price elasticity of demand? A) Availability of substitutes. B) Price relative to budget. C) Length of time. D) All of the above.
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D
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9. Which of the following is likely to have the most inelastic price elasticity of demand? A) Automobiles. B) Pickup trucks. C) Hondas. D) The Hondas one Honda dealer sells.
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A
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10. Ceteris paribus, as the number of substitutes for a good increases the: A) Price elasticity of demand should become smaller. B) Price elasticity of demand should become larger. C) Cross-price elasticity of demand should become negative. D) Income elasticity of demand should become negative.
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B
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11. Ceteris paribus, the higher the ratio of price to income for a particular good, the: A) More elastic the demand for the good. B) Less elastic the demand for the good. C) More unitary elastic the demand for the good. D) Smaller the income elasticity for the good.
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A
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12. Ceteris paribus, the longer the time period, the: A) Smaller the income elasticity for the good. B) Less elastic the demand for the good. C) More unitary elastic the demand for the good. D) More elastic the demand for the good.
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D
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13. The total revenue effect of a movement along a demand curve can best be predicted using the: A) Law of diminishing marginal utility. B) Price elasticity of demand. C) Utility-maximizing rule. D) Law of demand.
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B
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14. Moving downward along a linear demand curve results in more: A) Inelastic demand and a changing slope. B) Inelastic demand but a constant slope. C) Elastic demand and a changing slope. D) Elastic demand and a constant slope.
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B
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15. If the price elasticity of demand is −1.0, and a firm raises its price by 15 percent, the quantity sold by the firm will: A) Fall by 15 percent. B) Fall by 6.7 percent. C) Rise by 15 percent. D) Rise by 150 percent.
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A
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16. Suppose AAA Airlines is suffering from low revenues and profits. If the company wants to increase ticket revenue and the price elasticity of demand is −0.75, the company should: A) Increase the price of tickets. B) Decrease the price of tickets. C) Keep the price unchanged because if the price is either increased or decreased total revenues will fall. D) Advertise. The only option the company has to raise total revenues is to advertise.
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A
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17. Ashley has budgeted $40 per month for candy bars. No matter how the price of candy bars changes, she spends exactly $40 per month. What does this behavior imply about Ashley's price elasticity of demand for candy bars? A) Her price elasticity of demand must equal zero. B) Her price elasticity of demand must be unitary. C) Her price elasticity of demand must be very inelastic since the amount he spends is not responsive to a price change. D) Her price elasticity of demand must be very elastic since the quantity demanded can change significantly if the price of candy bars changes significantly.
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B
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18. A price cut will increase the total revenue a firm receives, ceteris paribus, only if the demand for its product is: A) Elastic. B) Inelastic. C) Unitary elastic. D) Perfectly inelastic.
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A
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19. Suppose the income elasticity of demand for U.S. automobiles is 2.0. If the level of income decreases by 1 percent, the number of U.S. automobiles sold will, ceteris paribus: (TWO MEANS NORMAL GOOD) (-1% * 2.0 = -2%) A) Rise 0.5 percent. B) Rise 2.0 percent. C) Fall 0.5 percent. D) Fall 2.0 percent.
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D
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20. Suppose the income elasticity of demand for used automobiles is 3.0. If the level of income decreases by 1 percent, the number of used automobiles sold will, ceteris paribus: A) Rise 0.33 percent. B) Rise 3.0 percent. C) Fall 0.33 percent. D) Fall 3.0 percent.
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D
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21. Other things being equal, if income increases and as a result, the demand for good X increases, then good X is: A) An inferior good. B) A luxury good. C) A substitute good. D) A normal good.
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D
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22. Other things being equal, if the price of good X increases and as a result, the demand for good Y increases: A) Goods X and Y are inferior goods. B) Goods X and Y are normal goods. C) Goods X and Y are complementary goods. D) Goods X and Y are substitute goods.
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D
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23. If goods X and Y are complementary goods, an increase in the price of X will, ceteris paribus: A) Decrease the demand for X. B) Decrease the demand for Y. C) Increase the demand for Y. D) Not change the demand for Y.
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B
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24. Suppose the cross-price elasticity of demand for automobiles with respect to the price for gasoline is -0.10. If gasoline prices rise 20 percent, then automobile sales should, ceteris paribus: (what is changing * elasticity value = what changes) (cross price = substitutes and complements) A) Fall by 2 percent. B) Fall by 50 percent. C) Rise by 2 percent. D) Rise by 50 percent.
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A
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1. Welfare economics is the study of a. the well-being of less fortunate people. b. welfare programs in the United States. c. the effect of income redistribution on work effort. d. how the allocation of resources affects economic well-being.
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D
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2. The particular price that results in quantity supplied being equal to quantity demanded is the best price because it a. maximizes costs of the seller. b. maximizes tax revenue for the government. c. maximizes the combined welfare of buyers and sellers. d. minimizes the expenditure of buyers.
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C
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3. Consumer surplus is a. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. b. the amount a buyer is willing to pay for a good minus the cost of producing the good. c. the amount by which the quantity supplied of a good exceeds the quantity demanded of the good. d. a buyer's willingness to pay for a good plus the price of the good.
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A
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4. If a consumer places a value of $15 on a particular good and if the price of the good is $17, then a. the consumer has consumer surplus of $2 if he or she buys the good. b. the consumer does not purchase the good. c. the market is not a competitive market. d. there is going to be downward pressure on the price of the good.
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B
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7. A demand curve reflects each of the following except the a. willingness to pay of all buyers in the market. b. value each buyer in the market places on the good. c. highest price buyers are willing to pay for each quantity. d. ability of buyers to obtain the quantity they desire.
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D
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8. On a graph, consumer surplus is the area a. between the demand and supply curves. b. below the demand curve and above price. c. below the price and above the supply curve. d. below the demand curve and to the right of equilibrium price.
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B
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9. Which of the following is not true when the price of a good or service falls? a. Buyers who were already buying the good or service are better off. b. Some new buyers, who are now willing to buy, enter the market. c. The total consumer surplus in the market increases. d. The total value of purchases before and after the price change is the same.
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D
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12. Cost is a measure of the a. seller's willingness to sell. b. seller's producer surplus. c. producer shortage. d. seller's willingness to buy.
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A
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13. A supply curve can be used to measure producer surplus because it reflects a. the actions of sellers. b. quantity supplied. c. sellers' costs. d. the amount that will be purchased by consumers in the market.
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C
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14. Producer surplus is a. measured using the demand curve for a good. b. always a negative number for sellers in a competitive market. c. the amount a seller is paid minus the cost of production. d. the opportunity cost of production minus the cost of producing goods that go unsold.
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C
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20. Efficiency in a market is achieved when a. a social planner intervenes and sets the quantity of output after evaluating buyers' willingness to pay and sellers' costs. b. the sum of producer surplus and consumer surplus is maximized. c. all firms are producing the good at the same low cost per unit. d. no buyer is willing to pay more than the equilibrium price for any unit of the good.
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B
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21. Total surplus in a market is a. the total cost to sellers of providing the good minus the total value of the good to buyers. b. the total value of the good to buyers minus the cost to sellers of providing the good. c. the difference between consumer surplus and sellers' cost. d. always smaller than producer surplus.
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B
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22. At the equilibrium price of a good, the good will be purchased by those buyers who a. value the good more than price. b. value the good less than price. c. have the money to buy the good. d. consider the good a necessity.
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A
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23. The distinction between efficiency and equity can be described as follows: a. Efficiency refers to maximizing the number of trades among buyers and sellers; equity refers to maximizing the gains from trade among buyers and sellers. b. Efficiency refers to minimizing the price paid by buyers; equity refers to maximizing the gains from trade among buyers and sellers. c. Efficiency refers to maximizing the size of the pie; equity refers to producing a pie of a given size at the least possible cost. d. Efficiency refers to maximizing the size of the pie; equity refers to distributing the pie fairly among members of society.
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D
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24. Moving production from a high-cost producer to a low-cost producer will a. lower total surplus. b. raise total surplus. c. lower producer surplus. d. raise producer surplus but lower consumer surplus.
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B
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25. According to many economists, government restrictions on ticket scalping do all of the following except a. inconvenience the public. b. reduce the audience for cultural and sports events. c. waste the police's time. d. keep the cost of tickets to consumers low.
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D
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26. Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus a. would necessarily increase even if the higher price resulted in a surplus of widgets. b. would necessarily decrease because the higher price would create a surplus of widgets. c. might increase or decrease. d. would be unaffected.
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C
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27. Cornflakes and milk are complementary goods. A decrease in the price of corn will a. increase consumer surplus in the market for cornflakes and decrease producer surplus in the market for milk. b. increase consumer surplus in the market for cornflakes and increase producer surplus in the market for milk. c. decrease consumer surplus in the market for cornflakes and increase producer surplus in the market for milk. d. decrease consumer surplus in the market for cornflakes and decrease producer surplus in the market for milk.
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B
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28. A technological advance in the production of computers will a. increase consumer surplus in the market for computers and decrease producer surplus in the market for computer software. b. increase consumer surplus in the market for computers and increase producer surplus in the market for computer software. c. decrease consumer surplus in the market for computers and increase producer surplus in the market for computer software. d. decrease consumer surplus in the market for computers and decrease producer surplus in the market for computer software.
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B
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29. Inefficiency can be caused in a market by the presence of a. market power. b. externalities. c. imperfectly competitive markets. d. All of the above are correct.
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D
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1. To fully understand how taxes affect economic well-being, we must a. assume that economic well-being is not affected if all tax revenue is spent on goods and services for the people who are being taxed. b. know the dollar amount of all taxes raised in the country each year. c. compare the reduced welfare of buyers and sellers to the amount of revenue the government raises. d. take into account the fact that almost all taxes reduce the welfare of buyers, increase the welfare of sellers, and raise revenue for the government.
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C
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2. When a tax is levied on a good, the buyers and sellers of the good share the burden, a. provided the tax is levied on the sellers. b. provided the tax is levied on the buyers. c. provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers. d. regardless of how the tax is levied.
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D
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3. A tax levied on the sellers of a good shifts the a. supply curve upward (or to the left). b. supply curve downward (or to the right). c. demand curve upward (or to the right). d. demand curve downward (or to the left).
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A
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4. When a tax is imposed on the buyers of a good, the demand curve shifts a. downward by the amount of the tax. b. upward by the amount of the tax. c. downward by less than the amount of the tax. d. upward by more than the amount of the tax.
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A
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5. Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part of the tax burden, when a. the tax is placed on the sellers of the product. b. the tax is placed on the buyers of the product. c. the supply of the product is more elastic than the demand for the product. d. the demand for the product is more elastic than the supply of the product.
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C
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6. One result of a tax, irrespective of whether the tax is placed on the buyers or the sellers, is that the a. size of the market is unchanged. b. price the seller effectively receives is higher. c. supply curve for the good shifts upward by the amount of the tax. d. tax reduces the welfare of both buyers and sellers.
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D
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7. When a good is taxed, the burden of the tax a. falls more heavily on the side of the market that is more elastic. b. falls more heavily on the side of the market that is more inelastic. c. falls more heavily on the side of the market that is closer to unit elastic. d. is distributed independently of relative elasticities of supply and demand.
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B
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8. The benefit to buyers of participating in a market is measured by a. the price elasticity of demand. b. consumer surplus. c. the amount buyers are willing to pay for the good. d. producer surplus.
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B
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9. The decrease in total surplus that results from a market distortion, such as a tax, is called a a. wedge loss. b. revenue loss. c. deadweight loss. d. shrinkage of consumer surplus
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C
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19. Economists generally agree that the most important tax in the U.S. economy is a. the income tax. b. the tax on labor. c. the inheritance or death tax. d. corporate profit taxes.
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B
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20. Concerning the labor market and taxes on labor, economists disagree about a. the size of the tax on labor. b. the size of the deadweight loss of the tax on labor. c. whether or not a tax on labor places a wedge between the wage that firms pay and the wage that workers receive. d. All of the above are correct.
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B
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21. The Social Security tax is a tax on a. capital. b. labor. c. consumption expenditures. d. earnings during retirement.
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B
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22. The marginal tax rate on labor income for many workers in the United States is almost a. 30 percent. b. 40 percent. c. 50 percent. d. 65 percent.
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C
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23. Nobel Prize-winning economist Milton Friedman said that, "In my opinion, the least bad tax is the property tax on the unimproved value of land." Why? a. Land owners can afford the tax better than other people. b. A tax on unimproved land would be sufficient to fund government, so all other taxes could be abolished. c. Such a tax could generate more government revenue than any tax on labor or capital. d. A tax on unimproved land would have no deadweight loss.
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D
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24. The view held by Arthur Laffer and Ronald Reagan -- that cuts in tax rates would encourage people to increase the quantity of labor they supplied -- became known as a. California economics. b. welfare economics. c. supply-side economics. d. elasticity economics.
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C
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25. When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will a. decrease tax revenue and decrease the deadweight loss. b. decrease tax revenue and increase the deadweight loss. c. increase tax revenue and decrease the deadweight loss. d. increase tax revenue and increase the deadweight loss.
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C
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26. Which of the following statements is correct? a. In 2005, the combined Social Security-Medicare tax amounted to 15.3 percent of a worker's income. b. The White House budget office has asserted that Social Security and Medicare have promised to pay out $18 trillion more in benefits than they will receive in revenue in coming decades. c. If payroll taxes are increased to maintain current levels of Social Security and Medicare benefits, an expected result would be fewer hours worked per week by the average American worker. d. All of the above are correct.
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D
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1. Today the typical American pays what percent of her income in taxes, including property taxes, personal income taxes, corporate income taxes, payroll taxes, and sales taxes? a. 5 percent b. 18 percent c. 33 percent d. 50 percent
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C
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2. Which of the following statements is correct? a. Equity is more important than efficiency as a goal of the tax system. b. Efficiency is more important than equity as a goal of the tax system. c. Both equity and efficiency are important goals of the tax system. d. Neither equity nor efficiency is an important goal of the tax system.
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C
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3. The largest source of income for the federal government is a. individual income taxes. b. corporate taxes. c. tariffs. d. "sin" taxes on alcohol and cigarettes.
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A
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4. Which of the following is true about the percent of total income the U.S. government takes as taxes? a. In 1902 the government collected 7 percent of total income; in 2004, it collected 30 percent. b. In 1902 the government collected 30 percent of total income; in 2004, it collected 7 percent. c. In 1902 the government collected 7 percent of total income; in 2004, it collected 7 percent. d. In 1902 the government collected 30 percent of total income; in 2004, it collected 30 percent.
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A
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5. Which of the following statements about state income taxes is correct? a. Some states do not tax income at all. b. If states tax income, they must follow federal guidelines for designing the tax structure. c. States are not allowed to have a higher marginal tax rate than the federal marginal tax rate. d. All of the above are correct.
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A
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6. Which of the following statements is correct? a. National defense and Medicare are the two largest spending categories for the federal government. b. Welfare programs and highways are the two largest spending categories for state and local governments. c. Sales taxes and property taxes are the two most important revenue sources for state and local governments. d. Corporate income taxes are the largest source of revenue for the federal government.
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C
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7. In the United States, the payroll tax is also called a a. dividend income tax. b. social insurance tax. c. value added tax. d. capital gains tax.
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B
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8. If Nebraska imposed a tax on milk of 10 cents per gallon, a. this is an excise tax. b. this is an income tax. c. tax revenue will fall. d. the supply of milk will rise.
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A
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9. The federal government finances budget deficits by a. selling stock, much like a corporation. b. printing additional currency. c. borrowing from the public. d. raising property taxes.
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C
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10. Which of the following contributes to the projected rise in government spending on Social Security and Medicare as a percentage of GDP? a. increasing life expectancies b. falling fertility rates c. increasing health care costs d. All of the above are correct.
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D
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14. A tax levied on the total amount spent in retail stores is called a. a sales tax. b. an excise tax. c. a retail tax. d. an income tax.
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A
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15. All of the following are transfer payments except a. Medicaid. b. unemployment compensation. c. personal income taxes. d. Food Stamps.
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C
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16. The government's health plan for the elderly is called a. Medicaid. b. Medicare. c. Social Security. d. TANF.
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B
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17. The federal healthcare spending program that specifically targets the poor is called a. Medicaid. b. Medicare. c. National Institutes of Health. d. Blue Cross/Blue Shield
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A
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18. Which of the following is a characteristic of a more efficient tax system? a. The system minimizes deadweight loss. b. The system raises the same amount of revenue at a lower cost. c. The system minimizes administrative burdens. d. All of the above are correct.
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D
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19. A person's marginal tax rate equals her a. tax obligation divided by her marginal tax rate. b. increase in taxes if her income were to rise by $1. c. tax obligation divided by her income. d. increase in taxes if her marginal tax rate were to rise 1%.
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B
question
20. Which of the following statements is correct? a. The average tax rate gauges the sacrifice made by a taxpayer, whereas the marginal tax rate gauges the distortion of taxes on consumer decisions. b. The marginal tax rate gauges the sacrifice made by a taxpayer, whereas the average tax rate gauges the distortion of taxes on consumer decisions. c. The average tax rate measures how much the tax system discourages people from working. d. The marginal tax rate measures total taxes paid divided by total income.
answer
A
question
21. The U.S. income tax a. discourages saving. b. encourages saving. c. has no effect on saving. d. will reduce the administrative burden of taxation.
answer
A
question
22. High marginal income tax rates a. distort incentives to work. b. are used to encourage saving behavior. c. will invariably lead to lower average tax rates. d. are not associated with deadweight losses.
answer
A
question
23. Vertical equity states that taxpayers with a greater ability to pay taxes should a. contribute a decreasing proportion of each increment in income to taxes. b. contribute a larger amount than those with a lesser ability to pay. c. be less subject to administrative burdens of a tax. d. be less subject to tax distortions that lead to deadweight losses.
answer
B
question
24. Horizontal equity in taxation refers to the idea that people a. in unequal conditions should be treated differently. b. in equal conditions should pay equal taxes. c. should be taxed according to their ability to pay. d. should receive government benefits according to how much they have been taxed.
answer
B
question
25. Which of the following statements about a flat tax rate on personal income is correct? a. A flat tax raises more revenue that a regressive tax. b. A flat tax removes the incentives for tax avoidance through loopholes and other mechanisms. c. Estonia and Russia have abandoned the use of a flat tax because they were unable to administer it. d. When a flat tax rate is combined with a threshold that exempts some income, the rich will pay less under a flat tax system than they do under the present U.S. system.
answer
B
question
26. Which of the following tax systems is the most fair? a. proportional taxes b. regressive taxes c. progressive taxes d. There is no objective way to assess fairness among the three systems.
answer
D
question
1. When a firm has little ability to influence market prices it is said to be in a. a competitive market. b. a strategic market. c. a thin market. d. a power market.
answer
A
question
5. Which of the following is NOT a characteristic of a perfectly competitive market? a. Firms are price takers. b. Firms have difficulty entering the market. c. There are many sellers in the market. d. Goods offered for sale are largely the same.
answer
B
question
6. For a firm in a perfectly competitive market, the price of the good is always a. equal to marginal revenue. b. equal to total revenue. c. greater than average revenue. d. equal to the firm's efficient scale of output.
answer
A
question
7. When firms are said to be price takers, it implies that if a firm raises its price, a. buyers will go elsewhere. b. buyers will pay the higher price in the short run. c. competitors will also raise their prices. d. firms in the industry will exercise market power.
answer
A
question
8. Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to a. increase. b. remain unchanged. c. decrease by less than 20 percent. d. decrease by more than 20 percent.
answer
B
question
9. When a profit-maximizing firm in a competitive market has zero economic profit, accounting profit a. is negative (accounting losses). b. is positive. c. is also zero. d. could be positive, negative or zero.
answer
B
question
18. As a general rule, profit-maximizing producers in a competitive market produce output at a point where a. marginal cost is equal to marginal revenue. b. marginal cost is decreasing. c. marginal revenue is increasing. d. price is less than marginal revenue.
answer
A
question
19. A profit-maximizing firm will shut down in the short run when a. price is less than average variable cost. b. price is less than average total cost. c. average revenue is greater marginal cost. d. average revenue is greater than average fixed cost.
answer
A
question
24. When price is greater than marginal cost for a firm in a competitive market, a. marginal cost must be falling. b. the firm must be minimizing its losses. c. there are opportunities to increase profit by increasing production. d. the firm should decrease output to maximize profit.
answer
C
question
25. One of the most important determinants of the success of free-market capitalism is a. enlightened governments selecting firms that should not be allowed to exit a market. b. free entry and exit in markets. c. government regulation of market participants. d. having a few large firms rather than thousands of small ones.
answer
B
question
26. A firm will shutdown in the short run if, for all positive levels of output, a. its loss exceeds its fixed costs. b. its total revenue is less than its variable costs. c. the price of its product is less than its average variable cost. d. All of the above are correct.
answer
D
question
29. In a market with 1,000 identical firms, the short-run market supply is the a. marginal cost curve (above average variable cost) for a typical firm in the market. b. quantity supplied by the typical firm in the market. c. sum of the prices charged by each of the 1,000 individual firms. d. sum of the quantities supplied by each of the 1,000 individual firms.
answer
D
question
29. In a perfectly competitive market, the horizontal sum of all the individual firms' supply curves is a. zero. b. equal to the industry profits. c. the market supply curve. d. a horizontal line.
answer
C
question
30. When firms are neither entering nor exiting a perfectly competitive market, a. total revenue must equal total variable cost for each firm. b. economic profits must be zero. c. price must equal average variable cost for each firm. d. Both a and c are correct.
answer
B
question
1. Which of the following statements is correct? a. A competitive firm is a price maker and a monopoly is a price taker. b. A competitive firm is a price taker and a monopoly is a price maker. c. Both competitive firms and monopolies are price takers. d. Both competitive firms and monopolies are price makers.
answer
B
question
2. A fundamental source of monopoly market power arises from a. perfectly elastic demand. b. perfectly inelastic demand. c. barriers to entry. d. availability of "free" natural resources, such as water or air.
answer
C
question
3. Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often a. not in the best interest of society. b. one that fails to maximize total economic well-being. c. inefficient. d. All of the above are correct.
answer
D
question
4. When a natural monopoly exists, it is a. always cost effective for government-owned firms to produce the product. b. never cost effective for one firm to produce the product. c. always cost effective for two or more private firms to produce the product. d. never cost effective for two or more private firms to produce the product.
answer
D
question
5. A benefit to society of the patent and copyright laws is that those laws a. help to keep prices down. b. help to prevent a single firm from acquiring ownership of a key resource. c. encourage creative activity. d. discourage excessive amounts of output of certain products.
answer
C
question
6. Which of the following is not a reason for the existence of a monopoly? a. Sole ownership of a key resource b. Patents c. Copyrights d. Diseconomies of scale
answer
D
question
7. The key difference between a competitive firm and a monopoly firm is the ability to select a. the level of competition in the market. b. the level of production. c. inputs in the production process. d. the price of its output.
answer
D
question
8. The market demand curve for a monopolist is typically a. unitary elastic at the point of profit maximization. b. downward sloping. c. horizontal. d. vertical.
answer
B
question
9. In order to sell more of its product, a monopolist must a. sell to the government. b. sell in international markets. c. lower its price. d. use its market power to force up the price of complementary products.
answer
C
question
10. A profit-maximizing monopolist will produce the level of output at which a. average revenue is equal to average total cost. b. average revenue is equal to marginal cost. c. marginal revenue is equal to marginal cost. d. total revenue is equal to opportunity cost.
answer
C
question
11. Suppose a firm has a monopoly on the sale of widgets and faces a downward-sloping demand curve. When selling the 100th widget, the firm will always receive a. less marginal revenue on the 100th widget than it received on the 99th widget. b. more average revenue on the 100th widget than it received on the 99th widget. c. more total revenue on the 100 widgets than it received on the first 99 widgets. d. a lower average cost per unit at 100 units output than at 99 units of output.
answer
A
question
12. A monopolist can sell 200 units of output for $36.00 per unit. Alternatively, it can sell 201 units of output for $35.80 per unit. The marginal revenue of the 201st unit of output is
answer
A
question
13. A reduction in a monopolist's fixed costs would a. decrease the profit-maximizing price and increase the profit-maximizing quantity produced. b. increase the profit-maximizing price and decrease the profit-maximizing quantity produced. c. not affect the profit-maximizing price or quantity. d. possibly increase, decrease or not effect profit-maximizing price and quantity, depending on the elasticity
answer
C
question
22. The difference in total surplus between the socially efficient level of production and the monopolist's level of production is a. offset by regulatory revenues. b. called a deadweight loss. c. equal to the monopolist's profit. d. Both b and c are correct.
answer
B
question
24. One method used to control the ability of firms to capture monopoly profit in the United States is through a. government purchase of products produced by monopolists. b. government distribution of a monopolist's excess production. c. enforcement of antitrust laws. d. regulation of firms in highly competitive markets.
answer
C
question
25. Antitrust laws allow the government to a. prevent mergers. b. break up companies. c. promote competition. d. All of the above are correct.
answer
D
question
26. The assessment by George Stigler concerning the tradeoffs between "market failure" and "political failure" in the American economy provides support for which of the following solutions to the problems of monopolies? a. Public ownership of monopolies b. Government regulation of monopolies c. Government incentives to promote competition in monopolized industries d. Doing nothing at all
answer
D
question
27. The practice of selling the same goods to different customers at different prices, but with the same marginal cost, is known as a. price segregation. b. price discrimination. c. arbitrage. d. monopoly pricing.
answer
B
question
1. An oligopoly is a market in which a. there are only a few sellers, each offering a product similar or identical to the products offered by other firms in the market. b. firms are price takers. c. the actions of one seller in the market have no impact on the other sellers' profits. d. there are many price-taking firms, each offering a product similar or identical to the products offered by other firms in the market.
answer
A
question
2. One key difference between an oligopoly market and a competitive market is that oligopolistic firms a. are price takers while competitive firms are not. b. can affect the profit of other firms in the market by the choices they make while firms in competitive markets do not affect each other by the choices they make. c. sell completely unrelated products while competitive firms do not. d. sell their product at a price equal to marginal cost while competitive firms do not.
answer
B
question
3. The typical firm in the U. S. economy a. has some degree of market power. b. sells its product for a price that is equal to the marginal cost of producing the last unit. c. is perfectly competitive. d. is a monopoly.
answer
A
question
6. Imperfectly competitive firms are characterized by a. horizontal demand curves. b. standardized products. c. a large number of small firms. d. price making ability.
answer
D
question
7. The cigarette industry consists of large firms that compete vigorously through advertising which is directed at creating fantasy and image. Economists would characterize this industry as a. perfectly competitive. b. monopolistically competitive. c. an oligopoly. d. a monopoly.
answer
C
question
8. A special kind of imperfectly competitive market that has only two firms is called a. a two-tier competitive structure. b. an incidental monopoly. c. a doublet. d. a duopoly.
answer
D
question
9. As a group, oligopolists would always earn the highest profit if they would a. produce the perfectly competitive quantity of output. b. produce more than the perfectly competitive quantity of output. c. charge the same price that a monopolist would charge if the market were a monopoly. d. operate according to their own individual self-interests.
answer
C
question
10. When an oligopoly market reaches a Nash equilibrium, a. the market price will be different for each firm. b. the firms will not have behaved as profit maximizers. c. a firm will have chosen its best strategy, given the strategies chosen by other firms in the market. d. a firm will not take into account the strategies of competing firms.
answer
C
question
11. The equilibrium quantity in markets characterized by oligopoly is a. higher than in monopoly markets and higher than in perfectly competitive markets. b. higher than in monopoly markets and lower than in perfectly competitive markets. c. lower than in monopoly markets and higher than in perfectly competitive markets. d. lower than in monopoly markets and lower than in perfectly competitive markets.
answer
B
question
17. Games that are played more than once generally a. lead to outcomes dominated purely by self-interest. b. lead to outcomes that do not reflect joint rationality. c. encourage cheating on cartel production quotas. d. make collusive arrangements easier to enforce.
answer
D
question
20. A dominant strategy is one that a. makes every player better off. b. makes at least one player better off without hurting the competitiveness of any other player. c. increases the total payoff for the player. d. is best for the player, regardless of what strategy other players follow.
answer
D
question
21. An equilibrium occurs in a game when a. price equals marginal cost. b. quantity supplied equals quantity demanded. c. all independent strategies counterbalance all dominant strategies. d. all players follow a strategy that they have no incentive to change.
answer
D
question
22. The Sherman Antitrust Act a. overturned centuries-old views of English and American judges on agreements among competitors. b. had the effect of discouraging private lawsuits against conspiring oligopolists. c. strengthened the Clayton Act. d. elevated agreements among conspiring oligopolists from an unenforceable contract to a criminal conspiracy.
answer
D
question
23. The Clayton Act a. replaced the Sherman Act. b. strengthened the Sherman Act. c. was specifically designed to reduce the ability of cartels to organize. d. was enforced by the executive, rather than judicial, branch of government.
answer
B
question
24. The practice of selling a product to retailers and requiring the retailers to charge a specific price for the product is called a. fixed retail pricing. b. resale price maintenance. c. cost plus pricing. d. unfair trade.
answer
B
question
25. Which of the following groups or entities has the authority to initiate legal suits to enforce antitrust laws? a. The U.S. Justice Department b. Private citizens c. Corporations d. All of the above are correct.
answer
D
question
1. In a monopolistically competitive industry, firms set price a. equal to marginal cost since each firm is a price taker. b. below marginal cost since each firm is a price taker. c. above marginal cost since each firm is a price setter. d. always a fraction of marginal cost since each firm is a price setter.
answer
C
question
2. The profit-maximizing rule for a firm in a monopolistically competitive market is to always select the quantity at which a. marginal revenue is equal to marginal cost. b. average total cost is equal to marginal revenue. c. average total cost is equal to price. d. average revenue exceeds average total cost.
answer
A
question
3. Product differentiation causes the seller of a good to face what type of demand curve? a. Downward sloping b. Vertical c. Horizontal d. Any of the above could be correct since product differentiation does not affect the shape of the demand curve.
answer
A
question
4. The free entry and exit of firms in a monopolistically competitive market guarantees that a. both economic profits and economic losses can persist in the long run. b. both economic profits and economic losses disappear in the long run. c. economic profits, but not economic losses, can persist in the long run. d. economic losses, but not economic profits, can persist in the long run.
answer
B
question
5. When a firm's demand curve is tangent to its average total cost curve, the a. firm's economic profit is zero. b. firm must be earning economic profits. c. firm must be incurring economic losses. d. firm must be operating at its efficient scale.
answer
A
question
11. Hotels in New York City frequently experience an average vacancy rate of about 20 percent (i.e., on an average night, 80 percent of the hotel rooms are full). This kind of excess capacity is indicative of what kind of market? a. Monopoly b. Perfect competition c. Monopolistic competition d. Oligopoly
answer
C
question
12. Regulation of a firm in a monopolistically competitive market a. usually implies a very small administrative burden. b. will lower the firm's costs. c. is commonly used to enhance market efficiency. d. is unlikely to improve market efficiency.
answer
D
question
13. When a firm exits a monopolistically competitive market, the individual demand curves faced by all remaining firms in that market will a. shift in a direction that is unpredictable without further information. b. shift to the right. c. shift to the left. d. remain unchanged. It is the supply curve that will shift.
answer
B
question
14. New firms will likely enter a monopolistically competitive market when price exceeds a. marginal revenue. b. average revenue. c. marginal cost. d. average total cost.
answer
D
question
15. To maximize its profit, a monopolistically competitive firm a. takes the price as given and chooses its quantity, just as a competitive firm does. b. takes the price as given and chooses its quantity, just as a colluding oligopolist does. c. chooses its quantity and price, just as a competitive firm does. d. chooses its quantity and price, just as a monopoly does.
answer
D
question
16. In a long-run equilibrium, a. "excess capacity" applies to monopolistically competitive firms, but not to competitive firms. b. "zero economic profit" applies to competitive firms, but not to monopolistically competitive firms. c. "markup over marginal cost" applies to both monopolistically competitive and competitive firms. d. "product variety externalities" apply to both perfectly competitive firms and monopolistically competitive firms.
answer
A
question
21. In the long run, a. monopolistically competitive firms earn a higher profit than perfectly competitive firms because monopolistically competitive firms have some monopoly power. b. monopolistically competitive firms produce a higher output than perfectly competitive firms because competition drives the perfectly competitive firm's output down. c. both monopolistically competitive and perfectly competitive firms produce where P = MC. d. both monopolistically competitive and perfectly competitive firms produce where P = ATC.
answer
D
question
24. In which of the following market structures can firms earn economic profits in the long run? a. Perfect competition b. Monopolistic competition c. Monopoly d. Both b and c
answer
C
question
25. Critics of advertising argue that in some markets advertising may a. attract products of lower quality into the market. b. attract less informed buyers into the market. c. decrease elasticity of demand allowing firms to charge a larger markup over marginal cost. d. enhance competition in markets to an unnecessary degree.
answer
C
