Q&A Hero

Q: The 45 line on a Lorenz curve representsA) complete income equality. B) complete income inequality. C) complete wealth equality. D) complete wealth inequality.

Q: Collective bargaining contracts between management and the union negotiatorsA) also apply to the workers who are not members of the union.B) usually are settled only after a strike. C) cover wages only.D) cover wages and fringe benefits only.

Q: If the price of golf balls increases, what will likely happen to the demand for golf club manufacturing employees?A) It will increase. B) It will decrease.C) It will stay the same. D) Nothing, the two are not related.

Q: The change in total output due to the change in one variable input, while holding all other inputs constant, is the A) marginal revenue product. B) derived demand for labor. C) marginal physical product. D) market demand curve for labor.

Q: A natural monopoly that is not regulated will choose to produce at theA) minimum point of the long-run average cost curve.B) point at which marginal cost is above average total cost.C) point at which the demand curve intersects the long -run average cost curve. D) point at which marginal revenue equals marginal cost.

Q: The prisonersʹ dilemma is a game in whichA) the dominant strategy for all participants is to choose a strategy that makes them all worse off.B) the dominant strategy is to cooperate.C) only one of the firms is able to make above-normal profits.D) each firm, in making decisions on the basis of its own self -interest, also makes decisions that benefit the group as a whole.

Q: In the long run, monopolistic competitive firms are considered to be operating inefficiently because theirA) economic profits are positive. B) economic profits are zero.C) average total costs are not at a minimum. D) marginal costs are rising.

Q: When a monopolist sells the same product at different prices and the prices are related to cost differences, we haveA) monopoly pricing. B) marginal cost pricing. C) price discrimination. D) price differentiation.

Q: Which of the following is NOT a restriction the government imposes to keep potential entrantsout of a market?A) Patents B) TariffsC) Assistance with opening new firms D) Copyrights

Q: Economic profits at the short-run break-even point are A) positive. B) negative. C) equal to zero. D) indeterminate since they also depend on the size of the fixed costs.

Q: Increases in long-run average cost that result from output increases is A) the law of diminishing marginal product. B) economies of scale. C) constant returns to scale. D) diseconomies of scale.

Q: LaborOutputAverage Physical ProductMarginal Product110 -2 12 3 15452 5 9Using the above table, the average physical product and marginal physical w hen 4 workers are employed areA) 13 and 13, respectively. B) 13 and 14, respectively. C) 13 and 9, respectively. D) 14 and 13, respectively.

Q: When the anticipated rate of inflation declines, the real rate of interestA) increases. B) decreases.C) is not affected. D) increases exponentially.

Q: Suppose the supply of land is perfectly inelastic and landowners are receiving payments equal to $25,000 an acre. If the government taxed the landownersʹ income with a tax rate of 80 percent, how much tax would the government collect?A) Zero, because the owner would do something else with the tax rather than pay such a high tax.B) Less than $20,000 because the owners would change their behavior so as to pay less tax.C) More than $20,000 because the combined effects of all the owners trying to change their behavior actually would generate higher returns.D) $20,000 because the use of the land doesnʹt depend on the price the landowners receive for the land.

Q: Peter consumes bags of potato chips and cans of soft drink. The marginal utility of bags of potato chips is 10 utils per bag and the marginal utility of cans of soft drink is 50 utils per can. Potato chips cost $0.50 a bag, and a can of soft drink costs $1.00. What should Peter do?A) Peter should eat more chips, because they cost less.B) Peter should buy more chips and less soft drink.C) Peter should buy more soft drink, because it costs less.D) Peter should buy more soft drink and fewer potato chips.

Q: The price elasticity of supply is higher whenA) the number of buyers in the market decreases.B) the product in question is an inferior good.C) the number of buyers in the market increases.D) producers have more time to adjust to price changes.

Q: The slope of the perfectly inelastic demand curve is , the slope of the perfectly elastic demand curve is .A) undefined, zero B) one, oneC) zero, undefined D) one, zero

Q: The problem of overfishing in waters that are commonly owned can be solved when the government determines the total amount of fish can be removed from a given area during each fishing season. Then the fishermen A) will not be able to fish. B) can trade their rights (shares) to fish or not. C) will externalize their private costs to the government. D) will lower their private costs to fish.

Q: The Black Ash Steel Companyʹs plant belches large quantities of noxious fumes and black ash into the air. Residents in the surrounding area have higher medical bills because of Black Ashʹs pollution. These additional medical costs representA) a positive externality. B) a negative externality.C) the companyʹs private costs. D) the neighboring familiesʹ external costs.

Q: A geometric representation of the distribution of income is referred to asA) the labor supply curve. B) the Lorenz curve.C) the Phillips curve. D) the Keynesian cross.

Q: In an analytical sense, unions can be thought of asA) setters of minimum wages. B) monopoly buyers of workers.C) generators of inflation. D) monopsonies.

Q: There are a number of reasons why labor supply curves will shift in a particular industry. Which one of the following is NOT one of them? A) Changes in working conditions in an industry affect the labor supply curve. B) Job flexibility that determines the position of the labor supply curve. C) There is a change in the market wage rate. D) Taxes on labor affect the labor supply curve.

Q: If a firm employs an extra unit of labor, the additional product generated by employing the extra unit of labor isA) the marginal physical product of labor. B) the diminished marginal product. C) the outside edge. D) total product.

Q: Without any regulation, the natural monopolist willA) not produce any output.B) produce to the point at which P = ATC.C) produce less output than it would if the industry was purely competitive.D) have an upward-shifting average cost curve

Q: The dominant strategy in the prisonersʹ dilemma is forA) neither player to confess. B) both players to confess.C) only the dominant player to confess. D) the dominant player not to confess.

Q: Why is it that a monopolistically competitive firm cannot earn positive economic profits in the long run?

Q: When a monopolist sells the same product at different prices and the prices are not related to cost differences, we haveA) monopoly pricing. B) marginal cost pricing. C) price discrimination. D) price differentiation.

Q: Refer to the above figure. The long -run average cost curve and the long -run marginal cost curves representA) the cost curves for a competitive firm. B) the cost curves for a natural monopoly.C) a situation where a firm has control over the raw materials. D) a situation where a firm has a patent.

Q: The short-run break-even price is the point at whichA) price is less than marginal cost.B) marginal cost, average total cost and marginal revenue are all equal. C) average variable cost is at a minimum.D) marginal cost, price and average variable cost are all equal.

Q: Diseconomies to scale are illustrated byA) a downward sloping long-run average cost curve. B) a horizontal long-run average cost curve.C) an upward sloping long-run average cost curve.D) a long-run average cost curve that is shaped like an upside down U.

Q: LaborOutputAverage Physical ProductMarginal Product110 -2 12 3 15452 5 9Using the above table, the total product and average physical product when 5 workers are employed areA) 61 and 21, respectively. B) 62 and 13, respectively. C) 62 and 15, respectively. D) 61 and 12.2, respectively.

Q: If the rate of inflation is zero, prices are expected to remain stable, and the nominal rate of interest is 5 percent, then theA) real rate of interest is equal to the nominal rate. B) real rate of interest is less than the nominal rate.C) nominal rate is greater than the real rate of interest.D) investment demand schedule will shift upward.

Q: If all the return to a resource is economic rent, we know that A) the price of the resource is below its opportunity cost. B) the price of the resource equals its opportunity cost.C) the price of the resource is above its opportunity cost.D) the resource has no opportunity cost.

Q: The idea that consumers continue to adjust their purchases until the marginal utility per last dollar spent on all items is equal is called theA) law of increasing costs. B) law of diminishing marginal utility. C) rule of 72. D) consumer optimum.

Q: A perfectly elastic supply curve isA) a straight line that crosses the horizontal axis. B) a straight line coming out of the origin.C) a horizontal straight line. D) a vertical straight line.

Q: If an item has an absolute price elasticity of demand that is greater than 1, we say the demand for the item isA) elastic. B) inelastic.C) perfectly inelastic. D) unit elastic.

Q: The problem of overfishing in waters that are commonly owned can be solved byA) the use of the Coase Theorem.B) establishing property rights for fishing in the waters. C) subsidizing fishing.D) allowing the market to ration fish.

Q: If a good is produced by firms that incur all private and external costs, the price consumers payA) will be efficient since it includes all social costs. B) will be too low.C) will be too high because the consumers end up paying all of the costs instead of the firm. D) will be the correct price, but inefficient.

Q: The wealthiest 10 percent of the population owns aboutA) 30 percent of all the wealth in the United States.B) 50 percent of all the wealth in the United States. C) 70 percent of all the wealth in the United States. D) 90 percent of all the wealth in the United States.

Q: All of the following can raise wages of union members EXCEPT A) increasing the demand for non-union made goods.B) increasing the demand for union-made goods. C) limiting union membership over time.D) increasing the productivity of union workers.

Q: Which of the following would NOT a reason for a shift in the labor demand curve? A) A change in demand for the final product B) A change in labor productivity C) A change in the market wage rate D) A change in the price of a related input

Q: Holding other things constant, an increase in the use of capital in production would A) increase the marginal productivity of labor. B) decrease, but not proportionately, the marginal productivity of labor. C) not change the marginal productivity of labor. D) decrease proportionately the marginal productivity of labor.

Q: A regulated natural monopolist allowed to earn a ʺfairʺ rate of return would produce to the point at whichA) P = LAC. B) MR = LAC. C) MR = MC. D) P = MR.

Q: A tit-for-tat strategy is one in which oligopoliesA) cooperate as long as other members cooperate, but if anyone cheats, they cut the price until the cheater reverts to cooperation.B) cooperate almost all of the time, but occasionally do not cooperate in order to fool the antitrust authorities.C) keep cutting prices to punish rivals until the competitive price is reached.D) try to avoid the problems of the prisonersʹ dilemma, but actually make themselves worse off.

Q: Explain what will happen if firms in a monopolistically competitive industry are earning positive economic profits.

Q: Price discrimination isA) refusing to sell a given product to some group of customers. B) selling a given product at more than one price.C) selling a given product at more than one price, with the price differences reflecting differences in marginal cost in providing the product to different groups of customers.D) selling a given product at more than one price, with the price differences being unrelated to differences in cost.

Q: Economies of scale will lead to only one firm in the industry becauseA) by increasing output a firm is able to lower the cost per unit and change lower prices driving smaller firms out of business.B) one firm has an average cost curve, which has shifted below the average cost curves of its competitors.C) there are governmental entry restrictions.D) of government licensing.

Q: According to the above figure, if the firm is earning zero economic profits, what quantity is the firm selling and at what price?A) Q = 200; P = $4 B) Q = 1,000; P = $5C) Q = 800; P = $4 D) Q = 1,200; P = $7

Q: Economies to scale are illustrated by A) a downward sloping long-run average cost curve. B) a horizontal long-run average cost curve. C) an upward sloping long-run average cost curve. D) a long-run average cost curve that is shaped like an upside down U.

Q: LaborOutputAverage Physical ProductMarginal Product110 -2 12 3 15452 5 9Using the above table, the total product and average physical product when 3 workers are employed areA) 36 and 12, respectively. B) 39 and 13, respectively.C) 37 and 27, respectively. D) 40 and 10, respectively.

Q: Refer to the above figure. Which panel is consistent with Ricardoʹs view on the supply of land?A) Panel A B) Panel B C) Panel C D) Panel D

Q: When DVDs and hamburgers were the same price, Mavis consumed 3 hamburgers and 5 DVDs, and Mavis received 10 utils from the last hamburger and 15 utils from the last DVD consumed. What should be Mavisʹ consumption strategy?A) consume more DVDs and fewer burgers B) consume more burgers and fewer DVDsC) consume more of both itemsD) consume less of both items

Q: The price elasticity of supply isA) negative. B) zero.C) positive. D) unknown, depending on other factors.

Q: A perfectly elastic demand would imply what kind of demand curve?A) horizontal B) verticalC) upward sloping D) downward sloping

Q: The problem associated with endangered populations of migratory birds is theA) common property problem. B) free rider problem.C) deadweight loss problem. D) inefficient production problem.

Q: If a good is produced by firms that generate external costs, the price consumers pay A) will be efficient as long as it equals the marginal costs of the firms. B) will be too low. C) will be too high because the consumers end up paying the costs instead of the firm. D) will be the correct price, but the quantity sold of the good will be too large.

Q: In the United States, the distribution of wealthA) is the same as the distribution of income.B) is more unequal than the distribution of income. C) is more equal than the distribution of income.D) is equal for all families.

Q: A union-sponsored television campaign urging U.S. consumers to ʺLook for the union labelʺ is designed toA) increase the productivity of union labor.B) increase the derived demand for union labor by shifting consumer preferences in favor of union-made goods.C) raise wages by restricting the supply of union workers.D) remind consumers that if they do not buy union-made goods, unions will strike.

Q: If an increase in the price of one input causes an increase in demand for labor, the two inputs areA) complementary. B) substitutes.C) interchangeable. D) flexible.

Q: The additional production resulting from hiring one more worker isA) marginal physical product. B) marginal cost.C) marginal production. D) additional production.

Q: An unregulated natural monopolist would produce to the point at whichA) P = AC. B) MR = AC. C) MR = MC. D) P = MR.

Q: When decisions are guided strictly by short-run gains, this is known asA) opportunistic behavior. B) the prisonersʹ dilemma.C) tit-for-tat strategy. D) a positive-sum game.

Q: Why canʹt a monopolistic competitor earn economic profits in the long run?

Q: Which of the following will make price discrimination difficult for a monopolist?A) The possibility of resale of the product B) A constant marginal cost curveC) An increasing marginal cost D) A downward sloping demand curve

Q: A natural monopoly exists when A) the firm holds a patent. B) there are governmental entry restrictions. C) the firm owns all of the raw materials needed to produce the product. D) economies of scale occur.

Q: A perfectly competitive firmʹs short-run break-even output occursA) at the minimum point of its average variable cost curve.B) at the minimum point of its average total cost curve. C) at the minimum point of its marginal cost curve.D) at the intersection of its total cost curve and its marginal revenue curve.

Q: Constant returns to scale are illustrated byA) a downward sloping long-run average cost curve. B) a horizontal long-run average cost curve.C) an upward sloping long-run average cost curve.D) a long-run average cost curve that is shaped like an upside down U.

Q: Recently Apple Computer developed Appleʹs new iTunes Music Store, which offers more than 200,000 songs from five major record labels, for use with Appleʹs iPod and iMac. More than a million songs were downloaded the first week alone! In economic terms, CEO Steve Jobs helped convert capital and labor inputs into products consumers use. Any activity that results in the conversion of resources into products that can be used in consumption isA) not profitable. B) a start up venture. C) demand. D) production.

Q: The first economist to analyze economic rent wasA) Henry George. B) David Ricardo.C) Karl Marx. D) John Stuart Mill.

Q: A consumer who has chosen the right mix of goods and services to maximize his or her utility is said to have achievedA) consumer equilibrium. B) consumer benefit.C) consumer surplus. D) consumer optimum.

Q: A cafeteria is willing to produce 100 cups of coffee when the price is $1 and 150 cups of coffee when the price is $1.30, other things being equal. The price elasticity of supply of coffee isA) 1.53. B) 0.67. C) 0.10. D) 0.50.

Q: Demand is said to be inelastic whenA) a given percentage change in price will result in a less than proportionate percentage change in the quantity demanded.B) demand exhibits zero responsiveness to price changes.C) small price increases will lead to zero quantity demanded.D) a given percentage change in price will result in a greater than proportionate percentage change in the quantity demanded.

Q: Saving endangered speciesA) benefits all people in society without any trade -off. B) must involve the loss of another species.C) may involve a trade-off in terms of the loss of other economic activities. D) requires the government to list those species as common property.

Q: In economic analysis, air pollution, water pollution, and scenery destruction are considered to beA) externalities. B) internalities.C) private costs. D) marginal benefits.

Q: Since 1929, the distribution of money income in the United States hasA) become slightly more unequal. B) not dramatically changed.C) become more equal.D) shifted toward the poorer 20 percent away from the richer 20 percent.

Q: Unions can increase labor productivity by A) maximizing the number of workers in the union. B) reducing the supply of workers over time. C) reducing conflicts between workers and management. D) reducing the quantity of poorly made imports into the country.

Q: A change in a price of a substitute input for labor will causeA) a change in the demand for labor in the opposite direction of the price change. B) no change in the demand for labor.C) a change in the supply of labor in the opposite direction of the price change. D) a change in the demand for labor in the same direction of the price change.

Q: Derived demand meansA) the labor demand curve will be upward sloping.B) labor demand is derived from demand for the product it produces.C) labor demand will shift about in a random fashion. D) labor demand is determined by the supply of labor.

Q: The price charged by a monopolist is socially inefficient because the priceA) exceeds the true marginal cost of the resources used. B) is less than the opportunity cost of the resources used. C) puts the monopolist into a higher tax bracket.D) is too low.

Q: In a zero-sum gameA) both players are better off at the end of the game.B) both players are worse off at the end of the game.C) one playerʹs losses are exactly offset by another playerʹs gains.D) both players collude to make both of them better off.