1.In the United States and in most European countries, aging populations and declining
birthrates threaten public finances. As the population ages, there are fewer workers
paying taxes relative to the number of retired people receiving government benefits.
Which of the following government policies would NOT help reduce the pressure on
public finances?(Points:1)
offer financial incentives to increase the birthrate
reduce taxes paid by current workers so that they an save for their future
reduce retiree benefit payments
raise the retirement age
2.In

the first six months of 2003, branches of Commerce Bank in New York City were
robbed 14 times. The New York City Police recommended steps the bank could take to
deter robberies, including the installation of plastic barriers called "bandit barriers." The
police were surprised the bank did not take their advice. According to a deputy
commissioner of police, "Commerce does very little of what we recommend. They’ve
told our detectives they have no interest in ever putting in the barriers."
It would seem that Commerce bank would have a strong incentive to install "bandit
barriers" to deter robberies. Why wouldn’t they do it? (Points:1)
The banks would rather delay installation of any theft deterring equipment in anticipation
of new lower cost innovations in the security devices market.
The banks must have weighed the cost of installing bandit barriers against the benefits
and decided that they have "no interest in ever putting in the barriers".
The banks are concerned that "bandit barriers" would send the wrong message to
customers — that the bank is unsafe.
The banks probably resent any interference from the police department.
3.Cassie’s

Quilts alters, reconstructs and restores heirloom quilts. Cassie has just spent
$800
purchasing, cleaning and reconstructing an antique quilt which she expects to sell for
$1,500 once she is finished. After having spent $800, Cassie discovers that she would
need some special period fabric that would cost her $200 in material and time in order
to complete the task. Alternatively, she can sell the quilt "as is" now for $900. What is
the marginal cost of completing the task?(Points:1)
$200
$500
$1,000
$1,000 plus the value of her time
4.The

term "market" in economics refers to(Points:1)
a place where money changes hands.
a legal institution where exchange can take place.
a group of buyers and sellers of a product and the arrangement by which they come

together to trade.
an organization which sells goods and services.
5.The

revenue received from the sale of an additional unit of a product (Points:1)
is a marginal benefit to the firm.
is called profit.
is called gross sales.
is called a net gain.
6.

Table 2-3

Table 2-3 shows the number of labor hours required to produce a digital camera and a
pound of wheat in China and South Korea.
Refer to Table 2-3. China has a comparative advantage in (Points : 1)
both products.
wheat production.
digital camera production.
neither product.
7.The

production possibilities frontier model shows that (Points:1)
if consumers decide to buy more of a product its price will increase.
a market economy is more efficient in producing goods and services than is a centrally
planned economy.
economic growth can only be achieved by free market economies.
if all resources are fully and efficiently utilized, more of one good can be produced only
by producing less of another good.
8.Which
(Points:1)

of the following countries does not come close to the free market benchmark?

The United States
Japan
Cuba
France
9.In

2002, BMW made a tactical decision to use a robot to attach the gearbox to the
engines of its vehicles instead of using two workers as it had done previously. The robot
method had a higher cost but installed the gearbox in exactly the right position. In

making this decision, BMW (Points:1)
faced no tradeoffs because the robot method increased efficiency.
faced a tradeoff between higher cost and lower precision (in installing the gearbox in
exactly the right position).
adopted a negative technological change because it replaced workers with robots.
eroded some of its competitiveness in the luxury car market because of its increased
cost of production.
10.A

successful market economy requires well defined property rights and (Points:1)
balanced supplies of all factors of production.
an independent court system to adjudicate disputes based on the law.
detailed government regulations.
a safety net to ensure that those who cannot participate in the market economy can earn
an income.
11.A

major factor contributing to the slow growth rate of less developed economies is

(Points:1)

the lack of well-defined and enforceable property rights.
the lack of natural resources.
the lack of workers.
the high rate of illiteracy.
12.Which

of the following would cause both the equilibrium price and equilibrium
quantity of barley (assume that barley is an inferior good) to increase? (Points:1)
An increase in consumer income.
A drought that sharply reduces barley output.
A decrease in consumer income.
Unusually good weather that results in a bumper crop of barley.
13.

Table 3-1
Refer to Table 3-1. The table above shows the demand schedules for loose-leaf tee of
two individuals (Sunil and Mia) and the rest of the market. If the price of loose-tea raises
from $3 to $4 the market quantity demanded would (Points : 1)
decrease by 32 pounds.
increase by 64 pounds.
increase by 32 pounds.
decrease by 64 pounds.

14.If

the quantity demanded for a product exceeds the quantity supplied the market
price will rise until(Points:1)
the quantity demanded equals the quantity supplied. The product will then no longer be
scarce.
quantity demanded equals quantity supplied. The equilibrium price will then be greater
than the market price.
only wealthy consumers will be able to afford the product.
quantity demanded equals quantity supplied. The market price will then equal the
equilibrium price.
15.What

is the difference between an "increase in supply" and an "increase in quantity
supplied"?(Points:1)
There is no difference between the two terms; they both refer to a shift of the supply
curve.
There is no difference between the two terms; they both refer to a movement along a
given supply curve
An "increase in supply" means the supply curve has shifted to the right while an
"increase in quantity supplied" means at any given price supply has increased.
An "increase in supply" means the supply curve has shifted to the right while an
"increase in quantity supplied" refers to a movement along a given supply curve in
response to an increase in price.
16.

Figure 3-4

Refer to Figure 3-4. The figure above represents the market for canvas tote bags.
Compare the conditions in the market when the price is $50 and when the price is $35.
Which of the following describes how the market differs at these prices? (Points : 1)
At each price there is a surplus; the surplus is greater at $35 than at $50.
The difference between quantity supplied and quantity demanded is greater at $50 than
at $35.
At each price there is a surplus; firms will lower the equilibrium price in order to eliminate
the surplus.
At each price the supply of tote bags exceeds that demand for tote bags.
17.Brett

buys a new cell phone for $100. He receives consumer surplus of $80 from the
purchase. How much does Brett value his cell phone? (Points:1)
$180
$100
$80
$20

18.The

difference between the highest price a consumer is willing to pay for a good and
the price the consumer actually pays is called(Points:1)
producer surplus.
the substitution effect.
the income effect.
consumer surplus.
19.

Figure 4-5

Refer to Figure 4-5. The figure above represents the market for iced tea. Assume that
this is a competitive market. If 20,000 units of iced tea are sold (Points : 1)
the deadweight loss is equal to economic surplus.
producer surplus equals consumer surplus.
the marginal benefit of each of the 20,000 units of iced tea equals $3.
marginal benefit is equal to marginal cost.
20.Economic

surplus(Points:1)
does not exist when a competitive market is in equilibrium.
is equal to the sum of consumer surplus and producer surplus.
is the difference between quantity demanded and quantity supplied when the market
price for a product is greater than the equilibrium price.
is equal to the difference between consumer surplus and producer surplus.
21.

Figure 4-9

Figure 4-9 shows the market for cigarettes. The government plans to impose a unit tax
in this market.
Refer to Figure 4-9. What is the size of the unit tax? (Points : 1)
$8
$5
$3
Cannot be determined from the figure.

22.Suppose

the demand curve for a product is downward sloping and the supply curve
is upward sloping. If a unit tax is imposed in the market for this product, (Points:1)
sellers bear the entire burden of the tax.
the tax burden will be shared among the government, buyers and sellers.
buyers bear the entire burden of the tax.
the tax burden will be shared by buyers and sellers.
23.Which

of the following would result in a lower absolute value of the price elasticity of
demand for a product?(Points:1)
wide variety of substitutes available for the good
short time period considered
the good is a luxury item
the expenditure on the good large relative to one’s budget
24.If

the percentage change in price is 20 percent and the value of the price elasticity of
demand is -5, then quantity demanded (Points:1)
will increase by 100 percent.
will increase by 5 percent.
will decrease by 100 percent.
impossible to determine without additional information.
25.When

demand is unit price elastic, a change in price causes total revenue to stay the
same because(Points:1)
the percentage change in quantity demanded exactly offsets the percentage change in
price.
buyers are buying the same quantity.
total revenue never changes with price changes.
the change in profit is offset by the change in production cost.
26.Which
(Points:1)

of the following statements about the price elasticity of demand is correct?

The elasticity of demand for a good in general is equal to the elasticity of demand for a
specific brand of the good.
The absolute value of the elasticity of demand ranges from zero to one.
Demand is more elastic in the long run than it is in the short run.
Demand is more elastic the smaller percentage of the consumer’s budget the item takes
up.
27.The

price elasticity of the supply of teenage labor services is approximately 1.36.
Suppose the minimum wage rises from $6.60 per hour to $7.00. Using the midpoint
formula, calculate the approximately change in the will the quantity supplied of teenage

labor. (Points:1)
5.9 percent
13.6 percent
8 percent
There is insufficient information to answer the question.
28.A

firm has successfully adopted a positive technological change when (Points:1)
it can produce more output using the same inputs.
it produces less pollution in its production process.
can pay its workers less yet increase its output.
it sees an increase in worker productivity.
29.Refer

to Figure 10-5. Identify the minimum efficient scale of production.(Points:1)

Qa
Qb
Qc
Qd
30.

Figure 10-7

Refer to Figure 10-7. The lines shown in the diagram are isocost lines. Which of the
following shows an increase in the firm’s total cost budget while the price of labor and
capital remain unchanged? (Points : 1)
the movement from CE to BF
the movement from CE to AF
the movement from BD to AF
the movement from BD to CE
31.

Table 10-2
Table 10-2 shows cost data for Lotus Lanterns, a producer of whimsical night lights.
Refer to Table 10-2. What is the average variable cost per unit of production when the
firm produces 90 lanterns? (Points : 1)
$490
$33.67

$7.67
$5.40
32.What

is the difference between "diminishing marginal returns" and "diseconomies of
scale"? (Points:1)
Both concepts explain why marginal cost increases after some point but diminishing
marginal returns applies only in the short run when there is at least one fixed factor,
while diseconomies of scale applies in the long run when all factors are variable.
Both concepts explain why average total cost increases after some point but diminishing
marginal returns applies only in the short run when there is at least one fixed factor,
while diseconomies of scale applies in the long run when all factors are variable.
Diminishing marginal returns which applies only in the short run, when at least one factor
is fixed, explains why marginal cost increases, while diseconomies of scale which
applies in the long run, when all factors are variable, explains why average cost
increases.
Diminishing marginal returns which applies only in the short run, when at least one factor
is fixed, explains why average variable cost increases, while diseconomies of scale
which applies in the long run, when all factors are variable, explains why average total
cost increases.
33.The

president of Toyota’s Georgetown plant was quoted as saying, "Demand for high
volumes saps your energy. Over a period of time, it eroded our focus [and] thinned out
the expertise and knowledge we painstakingly built up over the years." This quote
suggests that(Points:1)
Toyota was experiencing an excess demand for its automobiles which it had difficulty
keeping up with.
as Toyota expanded its capacity, it experienced diseconomies of scale.
Toyota was focused on "churning" out cars that it did not invest sufficiently in training its
workers.
high demand for Toyota’s cars prevented the company from focusing on its strength:
auto design.
34.

Figure 11-1

Refer to Figure 11-1. If the firm is producing 200 units, (Points : 1)
it breaks even.
it is making a loss.
it should cut back its output to maximize profit.

it should increase its output to maximize profit.
35.The

demand for each seller’s product in perfect competition is horizontal at the
market price because(Points:1)
each seller is too small to affect market price.
the price is set by the government.
all the sellers get together and set the price.
all the demanders get together and set the price.
36.Market

supply is found by(Points:1)
vertically summing the relevant part of each individual producer’s marginal cost curve.
horizontally summing the relevant part of each individual producer’s marginal cost curve.
vertically summing each individual producer’s average total cost curve.
horizontally summing each individual producer’s average total cost curve.
37.Which

of the following describes a situation in which a good or service is produced at
the lowest possible cost?(Points:1)
productive efficiency
allocative efficiency
marginal efficiency
profit maximization
38.

Figure 11-5

Figure 11-5 shows cost and demand curves facing a typical firm in a constant-cost
perfectly competitive industry.
Refer to Figure 11-5. What is the minimum price the firm requires to produce output?
(Points : 1)
$20
$14
$5
It cannot be determined
39.A

possible advantage of a horizontal merger for the economy is that (Points:1)
the merging firms could avoid losses.
the merged firm might reap economies of scale which could translate into lower prices.

the degree of competition in the industry will be intensified.
the government stands to collect more corporate income tax revenue.
40.A

merger between the Ford Motor Company and General Motors would be an
example of a(Points:1)
vertical merger.
horizontal merger.
conglomerate merger.
trust.
41.

Figure 14-8

In 2006 the California government changed its regulatory policy to allow competition
into the cable television market. Figure 14-8 shows the cable television market in
California.
Refer to Figure 14-8. Following the policy change, the subscription price falls from PM
to Pc. What is the increase in consumer surplus as a result of this change? (Points : 1)
the area A+B+C
the area B+C
the area D+F
the area B+C+D
42.The

Aluminum Company of America (Alcoa) had a monopoly until the 1940s because

(Points:1)

it was a public enterprise.
it had a patent on the manufacture of aluminum.
the company had a secret technique for making aluminum from bauxite.
it had control of almost all available supply of bauxite.
43.If

a theatre company expects $250,000 in ticket revenue from five performances and
288,000 in ticket revenue if it adds a sixth performance, the (Points:1)
marginal revenue of the sixth performance is $48,000.
marginal revenue of the sixth performance is $38,000.
cost of staging the sixth performance is probably higher than the cost of staging the
previous five.
company will be making a loss on the sixth performance because its ticket sales will be
less than average received from the previous five.

44.

Figure 14-7
Figure 14-7 shows the cost and demand curves for the Erickson Power Company.
Refer to Figure 14-7. Why won’t regulators require that Erickson Power produce the
economically efficient output level? (Points : 1)
because there is insufficient demand at that output level
because at the economically efficient output level, the marginal cost of producing the last
unit sold exceeds the consumers’ marginal value for that last unit
because Erickson Power will earn zero profit
because Erickson Power will sustain persistent losses and will not continue in business
in the long run.
45.In

the long run, if price is less than average cost, (Points:1)
there is an incentive for firms to exit the market.
there is profit incentive for firms to enter the market.
the market must be in long-run equilibrium.
there is no incentive for the number of firms in the market to change.
46.

Table 12-2

Eco Energy is a monopolistically competitive producer of a sports beverage called
Power On. Table 12-2 shows the firm’s demand and cost schedules.
Refer to Table 12-2. What is the maximum output (Q) that maximizes profit and what is
the price (P) charged? (Points : 1)
P=$55; Q=5 cases
P=$50; Q=6 cases
P=$45; Q=7 cases
P=$40; Q=8 cases
47.If

a monopolistically competitive firm breaks even, the firm (Points:1)
is earning an accounting profit and will have to pay taxes on that profit.
is earning zero accounting and zero economic profit.
should advertise its product to stimulate demand.

expand production.
48.Long

run equilibrium under monopolistic competition is similar to that under perfect
competition in that(Points:1)
firms produce at the minimum point of their average cost curves.
price equals marginal cost.
firms earn normal profits.
price equals marginal revenue.
49.You

have just opened a new Italian restaurant in your hometown where there are
three other Italian restaurants. Your restaurant is doing a brisk business and you
attribute your success to your distinctive northern Italian cuisine using locally grown
organic produce. What is likely to happen to your business in the long run? (Points:1)
Your competitors are likely to change their menus to make their products more similar to
yours.
Your success will invite others to open competing restaurants and ultimately your profits
will be driven to zero.
If your success continues, you will be likely to establish a franchise and expand your
market size.
If you continue to maintain consistent quality, you will be able to earn profits indefinitely.
50.OPEC

periodically meets to agree to restrict the cartel’s oil output, and yet almost
every member of OPEC produces more than its own output quota. This suggests that
OPEC has a(Points:1)
cooperative equilibrium.
noncooperative equilibrium.
new potential entrants.
threat of substitute goods.
51.What

is a prisoners’ dilemma? (Points:1)
a game that involves no dominant strategies
a game in which prisoners are stumped because they cannot communicate with each
other
a game in which players act in rational, self-interested ways that leave everyone worse
off
a game in which players collude to outfox authorities
52.Consider

two oligopolistic industries selling the same product in different locations. In
the first industry, firms always match price changes by any other firm in the industry. In
the second industry, firms always ignore price changes by any other firm. which of the
following statements is true about these two industries, holding everything else

constant?(Points:1)
Market prices are likely to be higher in the first industry in which firms always match
price changes by rival firms than in the second where firms ignore their rivals’ price
changes.
Market prices are likely to be lower in the first industry where firms always match price
changes by rival firms than in the second where firms ignore their rivals’ price changes.
Market prices are likely to be the same in both markets because they are both
oligopolistic markets.
No conclusions can be drawn about the pricing behavior under these very different firm
behavior.
53.Why

does a prisoners’ dilemma lead to a noncooperative equilibrium? (Points:1)
because each player had agreed before the game started to minimize the harm that he
can inflict on the other players
because each player is uncertain how other players will play the game
because players must choose from have a limited number of non-dominant strategies
because each rational player has a dominant strategy to play a certain way regardless of
what other players do
54.The

DeBeers Company of South Africa was able to block competition through (Points:

1)

economies of scale.
ownership of an essential input.
government-imposed barriers.
differentiating its product.
55.Until

the late 1990s, airlines would post proposed changes in ticket prices on
computer reservations systems several days before the new ticket prices went into
effect. Then the federal government took action to end the practice. Now airlines can
only post prices on their reservations systems for tickets that are immediately available
for sale.
Source: Scott McCartney, "Airfare Wars Show Why Deals Arrive and Depart," Wall Street Journal, March
19, 2002.

Why would the federal government object to the old system of posting prices before
they went into effect? (Points : 1)
because it is a form of price discrimination in that consumers who need to travel
immediately are subject to different fares compared to those who will travel at a later
date when the price changes go into effect
because it is essentially a form of price signaling; airlines try to determine the reaction of
competitors before committing to a price change
because it creates chaos in the air travel market: if an airline plans to cut fares, then
consumers are likely to postpone purchases but if an airline plans to increase fares, then

a shortage will result.
because it makes it more difficult for airlines to agree on ticket price changes and likely
to spark an airfare war
56.Demand

in factor markets differs from demand in product markets in that (Points:1)
the demand for a factor of production is difficult to determine.
the demand for a factor of production is influenced by workers’ productivity and by the
producers’ expected sales revenues, not by tastes and preferences of consumers.
demand for a factor of production is based on the tastes and preferences of firms.
demand for a factor of production is based on the tastes and preferences of resource
owners.
57.Painters

who paint water towers earn higher wages relative to painters who paint
houses because(Points:1)
the demand for tower painters is greater than the demand for residential painters.
painting water towers is more risky than painting houses.
the tower painters’ union is probably more powerful than the wall painters’ union.
the supply of water tower painters exceeds the supply of wall painters.
58.According

to the signaling hypothesis, (Points:1)
signaling about job openings occur in help wanted classified ads.
a college diploma signals to employers that a person has certain desirable
characteristics.
a slowdown in output signals to companies the need to hire more labor.
a high unemployment rate is a signal to the government to take some policy action.
59.Customer

discrimination occurs when(Points:1)
a firm pays workers different wages based on irrelevant factors.
customers refuse to buy products produced by a racially diverse workforce.
customers refuse to buy products they believe to be of poor quality.
workers refuse to serve customers of a different race.
60.Suppose

a competitive firm is paying a wage of $12 an hour and sells its product at
$3 per unit. Assume that labor is the only input. If, hiring another worker would increase
output by three units per hour, then to maximize profits the firm should (Points:1)
not change the number of workers it currently hires.
not hire an additional worker.
hire another worker.
There is not enough information to answer the question.

61.

Table 16-2
Refer to Table 16-2. What is the profit-maximizing quantity of labor that the firm should
hire? (Points : 1)
5 units
$4 units
$3 units
2 units
62.A

decrease in the wage rate causes(Points:1)
an increase in the quantity of labor demanded.
a rightward shift of the firm’s labor demand curve.
a leftward shift of the firm’s labor demand curve.
a decrease in labor’s productivity.
63.Consider

this quote from an article in the Wall Street Journal: "The stock of educated
workers isn’t increasing fast enough to keep up with rising demand. ……. Employers are
paying the typical four-year college graduate [without graduate school] 75% more than
they pay high-school grads. Twenty-five years ago, they were paying 40% more.
Employers insist on ever better-educated, skilled workers. "
Source: David Wessel, "Lack of Well-Educated Workers Has Lots of Roots, No Quick Fix", Wall Street
Journal, April 19, 2007, Page A2.

Which of the following best explains the rapid increase in the wage differential between
college graduates and high school graduates? (Points : 1)
The demand for college educated workers shifted to the right while the supply of college
educated workers shifted to the left.
The supply of high-school educated workers shifted to the right faster than the demand
for college educated workers shifted to the right.
The demand for college educated workers shifted to the right faster than the supply of
college educated workers shifted to the right.
The demand for high-school educated workers shifted to the left faster than the supply of
college educated workers shifted to the right.
64.Economic

discrimination takes place when an employer (Points:1)
pays workers the lowest wage possible.
pays workers different wages on the basis of some arbitrary characteristics of workers
that are irrelevant to the job performed.
pays lower wages to workers who are not as productive as other workers.
pays workers compensating wage differentials.

65.Suppose

a competitive firm is paying a wage of $12 an hour and sells its product at
$3 per unit. Assume that labor is the only input. If the last worker hired increases output
by three units per hour, then to maximize profits the firm should (Points:1)
not change the number of workers it currently hires.
lay off some of its workers.
hire additional workers.
There is not enough information to answer the question.
66.Scenario:

In academia, professors in some disciplines receive higher salaries than
others. For example, professors teaching in business schools receive higher salaries
than professors in the English department. Suppose in Unity College, assistant
professors in the business school earn $Wb while assistant professors in the English
department earn $We < Wb. Now suppose the government passes comparable worth
legislation that requires academic institutions to pay all faculty the same salaries.
Following the passage of comparable worth legislation, Unity College responds by
placing salaries at $Wa between the two existing salaries. Which of the following is the
result of the legislation?(Points:1)
The supply of English professors increase and the supply of business professors
decrease.
The demand for English professors decrease and the demand for business professors
increase.
There will be a surplus in the market for English professors and a shortage in the market
for business professors.
There will be a surplus in the market for English professors and the market for business
professors will not be affected.
67.Gross

domestic product understates the total production of final goods and services
because of the omission of(Points:1)
exports.
inflation.
intermediate goods.
nonmarket household production.
68.If

prices in the economy rise, then(Points:1)
the purchasing power of a dollar rises.
the purchasing power of a dollar stays constant.
the purchasing power of a dollar declines.
the purchasing power of a dollar cannot be determined.
69.

Table 19-5

Consider the table above showing three stages of production of an automobile.
Refer to Table 19-5. The value added by the automobile dealer equals (Points : 1)
$7,000.
$15,000.
$18,000.
$25,000.
70.The

output of Mexican citizens who work in Texas would be included in the (Points:1)
gross domestic product of Mexico.
gross national product of Mexico.
gross national product of the United States.
net national product of the United States.
71.Disposable

personal income equals personal income (Points:1)
minus personal tax payments.
plus government transfer payments.
minus personal tax payments plus government transfer payments.
minus government transfer payments plus personal tax payments.
72.If

net taxes fall by $80