Q&A Hero

Q: The difference between price elasticity of demand and income elasticity of demand is thatA) income elasticity of demand examines how an individualʹs income changes when prices change and the price elasticity of demand examines how quantity demand changes when price changes.B) income elasticity refers to the movement along the demand curve while price elasticity refers to a horizontal shift of the demand curve.C) income elasticity measures the responsiveness of income to changes in supply while price elasticity of demand measures the responsiveness of demand to a change in price.D) income elasticity refers to a horizontal shift of the demand curve while price elasticity of demand refers to a movement along the demand curve.

Q: If the absolute price elasticity of demand for automobiles is equal to 0.75, we sayA) that demand is inelastic.B) that demand is elastic.C) that there is a strong responsiveness of quantity demanded to automobiles price cuts.D) none of the above is correct.

Q: When there is a resource for which property rights are not well defined and there is a difference between private costs and social costs, then all but which of the following is a way to close the difference?A) The free market system B) TaxationC) Subsidization D) Regulation

Q: As a result of moral hazard,A) both physicians and hospitals order more procedures.B) physicians and hospital administrators have no incentive to raise costs.C) patients increasingly have to worry about the expense of operations and other medical procedures.D) both physicians and hospitals have a financial interest in trying to keep hospital costs down.

Q: A Lorenz curve that represents an unequal income distribution isA) a straight line starting at the origin. B) a straight line starting at 100%C) a bowed curved. D) a line that has a kink in the middle of it.

Q: The National Labor Relations Act (Wagner Act) A) prohibited the creation of company unions. B) guaranteed workers the right to organize.C) set the minimum wage at $5.15 an hour.D) set the length of the workweek at 40 hours.

Q: In a perfectly competitive labor market, the industry demand curve is and the industry supply curve is .A) perfectly elastic; upward sloping B) downward sloping; upward slopingC) upward sloping; downward sloping D) vertical; perfectly elastic

Q: Which of the following organizations is exempt from prosecution under the Sherman Antitrust Act (1890)?A) retailers B) book publishersC) labor unions D) television stations

Q: Commonwealth Edison is the only provider of electricity to many households in the Chicago area. Commonwealth Edison is regulated by the government. This type of regulation is known asA) the Federal Register. B) social regulation.C) the market share test. D) economic regulation.

Q: If a retail food chain merged with a meat packing company, this would be an example of aA) horizontal merger. B) conglomerate merger.C) vertical merger. D) diagonal merger.

Q: A monopolistic competitor is like a monopolist in the long run in that when economic profits areA) equal to zero, positive economic profits are made.B) equal to zero, economic profits are made.C) greater than zero, changes in output are due to changes to plants by existing firms and there is no entry.D) greater than zero, price exceeds marginal cost.

Q: Suppose that the profit maximizing level of output for the monopolist is 10 units, and price = $50, ATC = $35, and AVC = $25. What is the monopolyʹs profit?A) $50 B) $150 C) $250 D) $500

Q: In a perfectly competitive market, if P < MC, then A) too little output is being produced. B) too much output is being produced. C) production is efficient, as the firm is earning profits. D) the firm is paying a price for resources that is too high.

Q: OutputTotal Costs100$400101402102405103409104414105420106427107435Refer to the above table. If the price is $5, the maximum economic profits this firm could earn isA) $520. B) $420. C) $414. D) $106.

Q: If the marginal product curve is intersecting the average product curve, we know thatA) the average variable cost curve is intersecting the average total cost curve.B) the marginal cost curve is intersecting the average fixed cost curve. C) the average total cost curve lies above the marginal cost curve.D) the marginal cost curve is intersecting the average total cost curve.

Q: Changes in production functions are associated with changes inA) the level of output. B) demand.C) the levels of costs. D) technology.

Q: Suppose that the implicit cost for a business was $1,000 and the explicit cost was $5,000 and that the firm sold 1,000 units of its products at $6 per item. We can conclude that the firmʹsA) accounting profit was $6,000, and its economic profit was $0. B) accounting and economic profits were both $0.C) accounting profit was $1,000, and economic profit cannot be determined. D) accounting profit was $1,000, and economic profit was $0.

Q: Use the above figure. When the budget line rotates from ʺbʺ to ʺcʺA) fewer units of J and fewer units of K will be purchased. B) more units of J and more units of K will be purchased. C) fewer units of J and more units of K will be purchased. D) more units of J and fewer units of K will be purchased.

Q: The price of good ʺaʺ is $5 and the price of good ʺbʺ is $15. If the marginal utility of good ʺaʺ is 20 then the marginal utility of good ʺbʺ must be to have an optimum combination of goods purchased.A) 4 B) 20 C) 60 D) 80

Q: The responsiveness of demand to changes in income holding the goodʹs relative price constant isA) price elasticity of demand. B) income elasticity of demand.C) elasticity of supply. D) cross price elasticity of demand.

Q: If the absolute value of the price elasticity of demand for a product is greater than 1, thenA) quantity demanded is not very sensitive to price changes.B) demand is elastic.C) demand is unit-elastic. D) demand is inelastic.

Q: The best method to reduce pollution is A) to never start polluting. B) to establish private property rights. C) dependent upon the characteristics of the resources and the transaction costs. D) dependent upon the quality of government bureaucrats and the level of greed in the society.

Q: In insurance markets, moral hazard occurs when the behavior ofA) the insured person changes in a way that raises costs for the insurer, since the insured person no longer bears the full costs of that behavior.B) the insurer changes in a way that raises costs for the insured person, since the insurer no longer bears the full costs of that behavior.C) the insured person changes in a way that eliminates rising health care costs for the insurer, since the insured person no longer bears the full costs of that behavior.D) the insured person has an incentive to under consume medical services, simply because the insured person no longer bears the full cost of medical services.

Q: The more bowed out the Lorenz curve is, theA) more equal the distribution of income. B) less equal the distribution of income.C) richer the society. D) poorer the society.

Q: If you want to become an actor, and you must join the Screen Actors Guild after your first job, the Screen Actors Guild is a(n)A) closed shop. B) open shop. C) agency shop. D) union shop.

Q: Which of the following would cause the labor demand curve to shift to the right?A) A decrease in demand for the product the labor is used to produceB) An increase in labor productivityC) A decrease in the price of a complimentary resourceD) All of the above

Q: Another name for the ʺChain Store Actʺ is A) the Sherman Antitrust Act of 1890. B) the Clayton Act of 1914.C) the Federal Trade Commission Act of 1914.D) the Robinson-Patman Act of 1936

Q: Which type of regulation applies to all firms in the economy, as opposed to only covering specific industries?A) Economic regulation B) Social regulationC) Rate regulation D) Statutory regulation

Q: FirmAnnual Sales ($ million)13502200315041005756 through 3050Total925A market structure characterized by a small number of interdependent sellers is called a(n) A) monopoly. B) monopolistic competition.C) monopsony. D) oligopoly.

Q: A monopolistic competitor is like a competitive firm in the long run, because A) it earns positive economic profits. B) it earns zero economic profits C) both firms will earn positive economic profits. D) both firms will increase price to increase profits.

Q: A monopolist will earn economic profits whenA) AVC is a minimum. B) ATC intersects the demand curve.C) ATC lies above the demand curve. D) ATC lies below the demand curve.

Q: In a perfectly competitive market, if P > MC, then A) too little output is being produced. B) too much output is being produced. C) production is efficient, as the firm is earning profits. D) the firm is paying a price for resources that is too high.

Q: OutputTotal Costs100$400101402102405103409104414105420106427107435Refer to the above table. If the price is $5, the perfectly competitive firm should produceA) 104 units. B) 105 units. C) 106 units. D) 107 units.

Q: Short-run cost relationships for a firm areA) determined by the law of diminishing marginal product.B) determined by the specific long-run relationships that exist. C) due to the level of wages relative to other input prices.D) due to the normal contractual relations in a market.

Q: The concept of the production function implies that a firm using resources inefficiently willA) obtain less output than the theoretical production function shows. B) obtain more output than the theoretical production function shows.C) obtain exactly the amount that the theoretical production function shows. D) not be subject to diminishing marginal product.

Q: If the interest rate is 10 percent and a business pays $100,000 for a lease on a factory, the explicit costs areA) $110,000. B) $10,000. C) $100,000. D) $90,000.

Q: Use the above figure. When the budget line rotates from ʺbʺ to ʺcʺA) the price of product J increases. B) the price of product J decreases. C) the price of product K increases. D) the price of product K decreases.

Q: The consumer optimum (for two goods, a and b) is reached whenA) TUa = TUb. B) MUa = MUb.C) TUa/Pa = TUb/Pb. D) MUa/Pa = MUb/Pb.

Q: A measure of the responsiveness of demand to changes in income, all other things being constant, isA) income elasticity of demand. B) price income elasticity of demand. C) price elasticity of demand. D) cross price elasticity of demand.

Q: When demand is perfectly inelastic, the demand curve isA) horizontal. B) vertical.C) upward sloping. D) downward sloping.

Q: Which of the following is NOT a possible solution to the problem of pollution?A) Converting a resource that is communally owned into a privately owned resource. B) Imposing a tax on polluters that is related to the amount of pollution.C) Regulating the amount of pollution that a firm can produce.D) Subsidizing the costs of production of activities that generate pollution.

Q: A major benefit of a health savings account is that itA) combats moral hazard.B) means more health care services will be demanded. C) eliminates rising health care costs.D) creates the incentive to see a doctor regularly.

Q: The Lorenz curveA) shows what portion of the population are living in poverty and what portion are living in wealth.B) shows what portion of total money income is accounted for by different proportions of the nationʹs households.C) shows what portion of the population is working as professionals, white - and blue-collar, workers and workers at menial tasks.D) breaks down the income levels of each group in the economy.

Q: If you get a job and are never required to join the union, this is known as a(n)A) closed shop. B) open shop. C) agency shop. D) union shop.

Q: In a perfectly competitive labor market, the labor supply curve facing the firm will beA) upward sloping. B) downward sloping.C) horizontal. D) vertical.

Q: The act of Congress which prohibited ʺunfair or deceptive acts or practices in commerceʺ is calledA) the Federal Trade Commission Act of 1914. B) the Clayton Act.C) the Chain Store Act.D) the Robinson-Patman Act.

Q: Which of the following federal agencies is NOT engaged in economic regulation?A) The Federal Reserve B) Federal Aviation AdministrationC) Food and Drug Administration D) Federal Deposit Insurance Corporation

Q: FirmAnnual Sales ($ million)13502200315041005756 through 3050Total925Refer to the above table. The four -firm concentration ratio isA) 86.5 percent. B) 33.3 percent. C) 13.3 percent. D) 11.6 percent.

Q: If monopolistically competitive firms earn short-run economic profits, we expect to seeA) new firms enter the industry, which shifts the demand curves of the existing firms to the left until firms earn zero economic profits.B) new firms trying to enter the industry, but unable to do so because of barriers to entry.C) existing firms altering their scale of plant to try to capture larger profits. The combined effect is to cause all firms to earn zero economic profits.D) existing firms increasing prices to try to capture larger economic profits.

Q: A monopolist will not earn any economic profits whenA) AVC is a minimum. B) AFC is very high.C) ATC lies above the demand curve. D) ATC lies below the demand curve.

Q: A firmʹs long-run position under perfect competition is often said to be efficient becauseA) P = AR > MC = AVC. B) P = AR > MR = MC. C) P = MR = AVC = AFC. D) P = MR = MC = ATC.

Q: How do we determine whether a firm has maximized profits?

Q: Marginal physical product of labor equalsA) the wage. B) the wage divided by marginal cost.C) marginal cost divided by the wage. D) marginal cost times the wage.

Q: When a firm uses technological improvements to increase output from the same amount of inputs, the result isA) a new production function. B) losses.C) guaranteed profits. D) diseconomies of scale.

Q: An example of an implicit cost isA) payment of a salary to a CEO of a company.B) a business using a building owned by the business owner. C) a payment to a resource owner.D) the payment of interest on a bond.

Q: If the quantity of hamburgers is measured along the horizontal axis and the quantity of movies is measured along the vertical axis, an increase in the price of a movie would be shown byA) shifting the budget constraint in towards the origin. B) shifting the budget constraint out.C) rotating the budget constraint around the horizontal intercept such that the new vertical intercept is closer to the origin.D) making the budget constraint steeper.

Q: The consumer optimum for consuming two goods is achieved whenA) the total utility from each good is equal. B) the price of each good is equal.C) the price multiplied by the marginal utility is equal for the two goods. D) the marginal utility per last dollar spent is equal for the two goods.

Q: The income elasticity of demand isA) the percentage change in demand divided by the percentage change in income.B) the change in income divided by the percentage change in price. C) the change in quantity demanded divided by the change in price.D) the percentage change in income divided by the percentage change in quantity demanded.

Q: Suppose that the absolute price elasticity for cookies equals 0.53. We could then say that the demand for cookies isA) elastic. B) inelastic.C) unit-elastic. D) perfectly elastic.

Q: In which of the following externality situations would it be most likely that voluntary agreements could be used to internalize an externality? A) Littering on highways B) Overharvesting of alligators in Louisiana C) Poaching of elephants in Africa D) Trees of one neighbor blocking a view of another

Q: Joseph decides to join the Big State Universityʹs football team when he learns that his health insurance will pay for any subsequent injury. This illustratesA) a moral hazard problem. B) monopolistic behavior. C) a symmetric information problem. D) oligopolistic behavior.

Q: Which of the following is the best definition of what economists define as total income?A) Payment for labor services.B) Payment for labor services and for ownership of other factors of production.C) Payment for labor services, for use of other factors of production, and gifts and government transfers.D) Inheritance.

Q: If you get a job and are required to join the union within a month, this is known as a(n)A) closed shop. B) open shop. C) agency shop. D) union shop.

Q: Suppose the price elasticity of demand for iPods is inelastic. What would you expect about the demand elasticity for workers producing iPods? Explain.

Q: The law passed by Congress in 1914 that was designed to sharpen or define further the vagueness of the Sherman Act is calledA) the Robinson-Patman Act. B) the Wheeler-Lea Act.C) the Clayton Act. D) the Federal Trade Commission Act.

Q: Which of the following federal agencies is NOT engaged in social regulation?A) Environmental Protection Agency B) Federal Trade CommissionC) Food and Drug Administration D) Federal Deposit Insurance Corporation

Q: In a 50-firm industry, two of the smallest firms merge. Yet the 4 -firm concentration ratio and the 8-firm concentration ratio did not change. All things considered, we can say that the industry hasA) moved closer to pure competition because the number of firms decreased.B) moved farther away from competition because the number of firms decreased.C) experienced no change in competition even though the number of firms decreased. D) to be identified first; otherwise there is no way to tell.

Q: If firms in a monopolistically competitive industry experience short-run losses, A) some firms would like to exit the industry but find they cannot.B) firms increase prices further, until they make at least a normal return.C) firms increase advertising spending to increase demand, until they make at least a normal return.D) some firms exit the industry, causing the demand curves for the remaining firms to shift to the right until they earn a normal profit.

Q: According to the above figure, what are the profits of the firm if it produces 50,000 units?A) -$5,000 per day B) -$10,000 per dayC) -$7,500 per day D) -$17,500 per day

Q: Which of the following best describes a situation of economic efficiency?A) A firm produces to the point at which P = AVC, with MR < MC. B) A firm produces to the point at which P = ATC, with MC < MR. C) A firm produces to the point at which MR = AFC, with P = AVC. D) A firm produces to the point at which MR = MC, with P = MC.

Q: Why should a firm not produce more than the rate of output at which marginal revenue equals marginal cost?

Q: Quantity of LaborTotal ProductAverage ProductMarginal Product122222225226303812729410025195115231561262111Refer to the above table. At what quantity of labor does the average variable cost curve start to increase?A) After 1 unit B) After 2 units C) After 3 units D) After 6 units

Q: Suppose that one worker can produce 15 cookies, two workers can produce 35 cookies together, and three workers can produce 65 cookies together. What is the average product of the first three workers?A) 65 cookies B) 30 cookies C) 17.5 cookies D) 21.67 cookies

Q: When a business has implicit costs,A) economic profits are greater than accounting profits. B) economic and accounting profits are the same.C) economic profits are less than accounting profits. D) economic costs are the same as accounting costs.

Q: A consumer optimum is characterized byA) the marginal rate of substitution of one good divided by its price equal to the marginal rate of substitution of the other good divided by its price. B) the marginal rate of substitution equal to unity.C) the marginal rate of substitution equal to the ratio of the prices of the two goods.D) the marginal rate of substitution divided by the price ratio of the two goods equal to the income of the consumer.

Q: Despite the fact that water is necessary to sustain life, it is less expensive than soft drinks. Economic theory suggests that this is so becauseA) there is a conspiracy among soft drinks producers to hold prices artificially high.B) although the total utility of water consumption is high, its marginal utility per dollar spent is low when compared to soft drinks.C) consumers are irrational.D) sellers of water hold the price of water artificially low because of its importance.

Q: When Mary earned $3,200 per month, she bought 2 concert tickets each month. Now her monthly income is $5,600, and the number of concert tickets she purchases has risen to 3 per month. Maryʹs income elasticity of demand for concert tickets equals and the tickets are a(n) good for Mary.A) -1.36; normal B) -0.21; inferiorC) +0.21; complementary D) +0.73; normal

Q: The greater is the absolute price elasticity of demand, theA) larger is the responsiveness of quantity demanded to the price change.B) smaller is the responsiveness to a price change. C) larger is the income of the buyer.D) higher is the change in demand to an income change.

Q: Voluntary agreements may not be a feasible method to internalize an externality whenA) the dollar value of the externality is large.B) the externality is negative rather than positive. C) there are significant transaction costs.D) there are high taxes on the firms that cause the externalities.

Q: The health care market in the United States is characterized by A) considerable government involvement. B) third-party payment of health care costs. C) asymmetric information between providers and consumers. D) all of the above