Q&A Hero

Q: The price elasticity of demand measuresA) changes in demand.B) how responsive producers are to a change in demand.C) how responsive consumers are to a change in price.D) how responsive consumers are to a change in income.

Q: Transaction costs are A) the costs, such as sales taxes, that are imposed by the government. B) equal to the hourly cost of a lawyer used to write a contract. C) the costs associated with making, reaching, and enforcing agreements. D) not true costs because they relate to time rather than real resources.

Q: Rising healthcare costs are attributable toA) people living longer and desiring more care.B) reliance on expensive technology to support and prolong life.C) third-party financing of healthcare costs. D) all of the above

Q: The less bowed the Lorenz Curve, theA) more equal the income distribution. B) less equal the income distribution.C) greater the number of low-income people. D) greater the number of high-income people.

Q: The United Auto Workers is striking against Ford. The Teamsters refuse to deliver steel to Ford.This is an example ofA) a jurisdictional dispute and is illegal under the Taft -Hartley Act. B) a secondary boycott and is illegal under the Taft -Hartley Act.C) a sympathy strike and is illegal under the Taft-Hartley Act. D) a closed shop and is illegal under the Wagner Act.

Q: The price elasticity of demand for labor equalsA) the percentage change in the price of labor divided by the percentage change in the supply of labor.B) the change in the quantity demanded of labor divided by the change in the price of labor.C) the slope of the demand curve for labor.D) the percentage change in the quantity demanded of labor divided by the percentage change in the price of labor.

Q: As a result of a conviction under the Sherman Antitrust Act, Standard Oil of New Jersey A) was fined for its extensive price discriminating activity. B) was restrained from oil exploration for twenty -five years, which enabled other oil firms to assume leadership in the industry. C) was broken up into many smaller companies. D) went bankrupt and no longer is in existence.

Q: Monopolistically competitive markets and oligopolies are similar in thatA) the number of firms is identical.B) the kinked demand curve can be used to analyze the firmsʹ pricing decisions. C) there is mutual interdependence amongst the firms.D) nonprice competition is a tool used.

Q: A situation in which one firmʹs actions with respect to price, quality, advertising and related changes may be strategically countered by the reactions of one or more other firms in the industry is known asA) strategic dependence. B) economies of scale. C) the concentration ratio. D) barriers to entry.

Q: A monopolistically competitive firm finds its profit-maximizing rate of output by equatingA) the marginal revenue of advertising with the marginal cost of advertising.B) average revenue and average total cost. C) price and marginal cost.D) marginal revenue and marginal cost.

Q: For a profit-maximizing monopolist,A) P > MC. B) P = MC. C) P = MR. D) P = ATC.

Q: If firms in a perfectly competitive industry are earning positive economic profits, then what will happen in the long run?

Q: For a perfectly competitive firm,A) price is greater than marginal revenue.B) price equals marginal revenue.C) price is less than marginal revenue.D) there is no relationship between price and marginal revenue.

Q: If average total cost is decreasing as more and more units are produced, then marginal cost must beA) rising. B) constant. C) below average total cost. D) negative.

Q: For a firm, we define the short run as a period of time during whichA) at least one input cannot be changed. B) all inputs can be changed.C) only the plant size can be changed. D) all inputs cannot be changed.

Q: A person starts his own business after quitting his job in which he made $75,000. Expenses include $100,000 for wages and salaries, which includes a wage for the owner of $75,000, utilities of $5000, equipment of $50,000, and materials of $40,000. If revenues are $200,000, his accounting and economic profits are respectivelyA) $80,000 and $5000. B) -$70,000 and -$70,000. C) -$70,000 and $5000. D) $5000 and $5000.

Q: In the above figure, if the budget line is the line DE, the consumer will maximize utility at pointA) A. B) B. C) C. D) G.

Q: Newspaper vending machines are often built so that customers can pay to lift a door and take a paper off a pile of daily newspapers. Newspaper distributors are not concerned about customers taking the whole stack of papers becauseA) the total utility of a daily newspaper is zero.B) the marginal utility of any one daily newspaper is zero. C) the marginal utility of a second daily newspaper is zero. D) the price of a daily newspaper is relatively low.

Q: If the price of apples went up by 25 percent, which of the following values of the cross price elasticity for oranges would be most reasonable to anticipate?A) 0.0 B) 1.2 C) -2.5 D) -1.0

Q: When discussing the price elasticity of demand we generally refer to the absolute price elasticity of demand by consumers. This means that we willA) disregard the law of demand.B) ignore its relationship to demand.C) disregard the minus sign.D) consider absolute rather than relative changes.

Q: One difficulty in using voluntary transactions to internalize externalities is thatA) people are motivated by self-interest and are often unwilling to engage in a transaction that might make another person better off.B) the government usually will not enforce contracts of this type.C) transaction costs of coming to an agreement can be very large when numerous people are involved.D) people usually donʹt understand what the real opportunity costs are that they face.

Q: Other things being equal, a national health insurance program wouldA) decrease the demand for health care. B) decrease moral hazard.C) decrease total health care expenditures.D) reduce individualsʹ incentives to make decisions that promote better health.

Q: The more bowed out the Lorenz curve, theA) less equal the income distribution. B) more equal the income distribution.C) greater the overall wealth in the economy. D) less the overall wealth in the economy.

Q: The Taft-Hartley Act of 1947 madeA) union shops illegal. B) closed shops illegal.C) sympathy strikes legal. D) secondary boycotts legal.

Q: All of the following make the demand for labor more elastic EXCEPT A) greater elasticity of demand for the final product.B) the longer the time period under consideration.C) the smaller the proportion of total costs accounted for by labor.D) the easier it is to substitute another input for labor.

Q: Section 1 of the Sherman Antitrust Act makes it illegal to A) form a monopolistically competitive firm. B) restrain trade. C) price discriminate. D) have an oligopoly.

Q: In which market structures is there product differentiation? A) Perfect competition and monopolistic competition B) Monopolistic competition and oligopoly C) Oligopoly and monopoly D) Perfect competition and monopoly

Q: When managers in oligopolistic firms make decisions that affect output or price, they mustA) also be sure they erect barriers to entry to prevent new entrants from affecting their plans. B) anticipate the reactions of their rivals and plan accordingly.C) register with the Antitrust Division of the Department of Justice. D) inform the regulators of their industry about their plans.

Q: Which will be true for a monopolistic competitor experiencing short-run losses?A) P > ATC B) P = ATC C) P < ATC D) P < MC

Q: Assume that a monopoly is producing at a profit -maximizing output level. If the firmʹs total fixed costs decrease, the firmA) should lower its price.B) should increase its price.C) should continue to produce at the same level. D) increase its output level.

Q: In a long-run perfectly competitive equilibrium,A) P = MR = MC > ATC. B) P = MR > MC = ATC. C) P = MR = MC = ATC. D) P > MR > MC = ATC.

Q: Marginal revenue isA) change in total revenue/change in output.B) total revenue/output.C) change in total revenue/output.D) total revenue/change in output.

Q: Which of the following is true?A) The MC curve intersects AFC at its minimum point. B) If MC is below AVC, AVC must be increasing.C) If MC is above ATC, ATC must be increasing. D) None of the above.

Q: The best way to think of the short run and the long run is as A) specific periods of time, although the time periods may differ across industries. B) planning terms that apply to managers. C) concepts that apply to all people who work for a firm. D) a concept that only accountants are concerned with.

Q: A person starts her own business. She quits her $40,000 a year job, rents an office for $15,000 a year, pays wages and salaries of $50,000 a year, utilities of $4,000 a year, and materials of $20,000. She uses her own car for sales work rather than leasing an equivalent car for $6000 a year. If revenues are $140,000, her accounting profit and economic profit are respectivelyA) $45,000 and $11,000. B) $45,000 and $5000. C) $51,000 and $5000. D) $51,000 and $45,000.

Q: Using the above figure, we can conclude thatA) the consumer will purchase goods at combination M.B) the consumer is indifferent between J and M. C) K is the optimal combination of goods.D) L is preferred to K.

Q: Glasses of WaterTotal UtilityMarginal Utility1100 2175 3225 4250 5260 6255 Using the above table, the marginal utility for the sixth glass of water isA) -5 utils. B) 255 utils. C) 5 utils. D) 260 utils.

Q: If the cross price elasticity of demand between two commodities is positive, then these commodities areA) are superior. B) are complements. C) are substitutes. D) are inferior.

Q: If the price of a cola increased by 12 % and consumers responded by purchasing 20 % less cola, the absolute value of price elasticity of demand for cola would beA) 0.20. B) 0.80. C) 1.67.D) 1.80.

Q: A farmer notices that a neighboring rancherʹs cattle are wandering and destroying some of his crops. The farmer decides to offer a payment to the rancher if the rancher will reduce the size of his herd. By doing so, the farmer A) can be sure that the size of the herd will be reduced and the size of his own harvest will be increased. B) indicates to the rancher that there is an opportunity cost to the wandering of the cattle, and thereby internalizes the externality. C) inadvertently bears the costs of the externality when the rancher should be liable for the costs. D) informs the rancher that the cattle have destroyed crops, which should induce the farmer to build a fence in order to maintain good relations.

Q: Other things being equal, a national health insurance program would A) generate higher life expectancies and lower infant mortality rates. B) generate lower life expectancies and higher infant mortality rates. C) increase total health care expenditures.D) increase the quality of life.

Q: In a Lorenz curve, perfect income equality is represented byA) a vertical line.B) a horizontal line.C) a rectangular hyperbola.D) a 45-degree line originating from the origin.

Q: The Taft-Hartley Act made all of the following illegal EXCEPT A) jurisdictional disputes.B) the Congress of Industrial Organizations. C) make-to-work laws.D) closed shops.

Q: The price elasticity of demand for labor will depend upon all but theA) price elasticity of demand for the final product. B) price elasticity of supply for the final product. C) time period being considered.D) availability of substitutes for inputs.

Q: The Sherman Antitrust Act was passed toA) protect companies from foreign competition. B) protect the monopoly profits of firms.C) control the growth of monopolies in the U.S.D) prevent market price from equaling marginal cost.

Q: In which market structures do firms earn long -term profits of zero? A) Perfect competition and monopolistic competition B) Monopolistic competition and oligopoly C) Oligopoly and monopoly D) Perfect competition and monopoly

Q: Which of the following is not true of an oligopoly?A) They advertise their product.B) The firms recognize their interdependence.C) A few firm account for a large portion of the total output.D) Firms are price takers.

Q: In the short run, a firm operating as a monopolistic competitor will produce to the point at whichA) MR = ATC. B) MC = ATC. C) P = MC. D) MR = MC.

Q: A monopolist is producing at an output level at which ATC = $5, P = $6, MC = $4, and MR = $3.We can conclude thatA) economic profit could be increased by producing more.B) economic profit could be increased by producing less. C) economic profit cannot be increased.D) the firm is earning $10 in economic profits.

Q: For a perfectly competitive firm at its long -run competitive equilibrium point,A) P = AR = MR = LATC = SATC = MC. B) P = AR = MR = LATC > SATC = MC. C) P = AR = MR = MC = LATC = AVC. D) P > MR > AR > MC > LATC > SATC.

Q: Which of the following is always true in the short run for a perfectly competitive firm that is maximizing economic profits?A) P = d = MR = MC = AVC B) P = d = MR = MC C) P = d = MR = Q D) MR = MC = Q

Q: In the table below, what are the marginal costs of the fourth unit of output?A) $10,000 B) $20,000 C) $30,000 D) $40,000

Q: For a wheat farmer in the middle of harvesting system, a fixed input would beA) workers hired. B) combines rented.C) the land that had been planted. D) trucks rented to haul the wheat.

Q: Any business wanting to attract financial capital must expect toA) earn a positive economic profit.B) keep implicit costs as close to zero as possible. C) pay a normal rate of return.D) pay a below normal rate of return in order to make a positive rate of return itself.

Q: An increase in income willA) shift the budget constraint to the right.B) make the budget constraint steeper. C) make the budget constraint flatter.D) make the budget constraint more bowed.

Q: Glasses of WaterTotal UtilityMarginal Utility1100 2175 3225 4250 5260 6255 Using the above table, diminishing marginal utility begins after the glass of water is consumed.A) 1st B) 2nd C) 6th D) 5th

Q: If the price of one good increases, and as a result the demand for another good increases, the goods areA) substitutes. B) normal goods. C) complements. D) inferior goods.

Q: If the price of gasoline increased by 10 % and consumers responded by purchasing 2 % less gasoline, the absolute value of price elasticity of demand for gasoline would equalA) 0.1. B) 0.5. C) 1.5. D) 0.2.

Q: With defined property rights, an externalityA) can only be corrected with government intervention. B) will not lead to a misallocation of resources.C) may be internalized with voluntary contracting, under certain circumstances. D) must lead to society producing inside its production possibilities frontier.

Q: What impact do private insurance companies and Medicare have on national medical costs? A) Medical costs go up because insurance leads to an increase in the quantity demanded of medical services. B) Medical costs go up because insurance will lead to the reduction in the supply of medical services due to the amount of paperwork required. C) Medical cost are unaffected by insurance companies. D) Medical costs go down because the insurance company pays the bill.

Q: The Lorenz curve shows what portion of total money income is accounted for byA) different proportions of a countryʹs households.B) only the wealthiest citizens. C) only poor people.D) taxpaying citizens only.

Q: Legislation that makes it illegal to require union membership as a condition of continuing employment is theA) National Labor Relations Act. B) Wagner Act.C) Congress of Industrial Organizations. D) collection of right-to-work laws.

Q: Suppose there are 1000 firms in a market and all are identical. Firm A will hire 20 workers when the wage rate is $10, 25 workers when the wage rate is $9, and 30 workers when the wage rate is $8. The equilibrium wage rate for a number of years has been $9. If the wage rate falls to $8, we know thatA) the quantity demanded for the market will increase to 30,000 workers.B) the quantity demanded for the market will increase to more than 30,000 workers. C) the quantity demanded for the market will increase to less than 30,000 workers.D) the quantity demanded for the market will increase, but we canʹt tell which of the above answers is correct.

Q: Which of the following will NOT be true if the antitrust laws are successful?A) Producers will earn zero economic profits in the long -run. B) Firms will not restrict output.C) Firms will produce the competitive output.D) Firms will produce the quantity at which marginal cost equals marginal revenue and charge a price that is greater than marginal cost.

Q: In which market structures do firms engage in nonprice competition? A) Perfect competition and monopolistic competition B) Monopolistic competition and oligopoly C) Oligopoly and monopoly D) Perfect competition and monopoly

Q: Which of the following is true of an oligopoly?A) They engage in nonprice competition.B) They do not react to actions of their competitors.C) Each firm produces a small portion of the total output. D) Firms do not care what their competitors do.

Q: The monopolistically competitive firm maximizes profit by producing to the point at whichA) ATC = AVC. B) MC = MR. C) MR = AR. D) MC = AR.

Q: A monopolist is producing at an output level at which ATC = $5, P = $6, MC = $3, and MR = $4. We can conclude thatA) economic profit could be increased by producing more. B) economic profit could be increased by producing less. C) economic profit cannot be increased.D) the firm is earning $10 in economic profits.

Q: In the long run, all firms in a perfectly competitive industryA) earn economic profits. B) break even.C) suffer economic losses.D) sell differentiated products to earn economic profits.

Q: Which of the following is always true for a perfectly competitive firm?A) P = d = MR B) P = d = AVCC) MC = MR = AVC D) AVC = ATC = P

Q: Use the above figure. At an output equal to ʺQʺ the total variable cost for the firm will be the areaA) OQAB. B) OQEB. C) OQFA. D) OQDC.

Q: Which of the following statements is not true about the short run and the long run?A) The short run for a firm is today while the long run is next week.B) These terms apply to the planning decisions of firms. C) The firm is always operating in the short run.D) In the short run, the firm can change the amount of variable inputs.

Q: What is the relationship between accounting and economic profits? A) Accounting profits are always larger than economic profits. B) Economic profits are always larger than accounting profits. C) There is no relationship between economic and accounting profits. D) Economic profits are always negative.

Q: A budget constraint showsA) all of the combinations of sets of goods that yield the same level of satisfaction.B) all of the possible combinations of goods that can be purchased with a specific budget. C) all of the goods the consumer gets positive marginal utility from when the goods are consumed.D) all of the goods that a consumer substitutes for other goods when prices fall.

Q: When you tell your mother, ʺIʹll never be tired of your cooking,ʺ you are saying theA) total utility of her cooking to you is constant. B) total utility of her cooking to you is equal to 1. C) marginal utility of her cooking to you is 0.D) marginal utility of her cooking to you will never be 0.

Q: The cross price elasticity of demand is defined asA) the percentage change in the supply for one good (a shift in the supply curve) divided by the percentage change in price of a related good.B) the percentage change in demand for two different commodities.C) the percentage change in the demand for one good (a shift in the demand curve) divided by the percentage change in price of a related good.D) the percentage change in price for two different commodities.

Q: Price elasticity of demand basically measuresA) the reliability of a product.B) the responsiveness of consumers to price changes. C) the variability of price changes.D) the percentage change in market price as a result of a change in demand.

Q: The costs associated with reaching and enforcing agreements are calledA) private property costs. B) common property costs.C) transaction costs. D) public costs.

Q: One problem with third-party financing of health care is thatA) people have more incentive to utilize health care.B) demand falls so that suppliers cannot take advantage of economies of scale. C) it reduces the quality of health care people receive.D) it discourages people from relying on their physiciansʹ advice in making health care decisions.

Q: According to the text, the lower half of U.S. households earn about what percentage of total income?A) 4 percent B) 9 percent C) 15 percent D) 28 percent