Q2. Moon Limited is a monopolistic firm. It sells its current output quantity at a price higher than its marginal cost. Which of the following is correct?
A)The firm is making economic losses.
B)An increase in the firm's output will increase its profits.
C)The price at which the firm is selling produces no deadweight loss.
D)The firm would be allocatively efficient if price would equal marginal cost.
E) The consumers will be ready to pay more than marginal cost for a higher quantity.
Q3.Applying cost-benefit analysis, a business should only purchase a large machine if the business
A) can pass the cost of the machine onto consumers
B)projects sales growth based on the machine's use
C) estimates that the machine's cost is less than the revenue it will generate
D) assigns a high utility to the machine based on consumer perceptions
E)has enough financial capital to replace the machine in five years
Q4.Which of the following terms describes a market in which the market size for cups of coffee is 20,000 cups per day in a city and the production at minimum efficient scale equals 500 cups per day?
Q6. Assume that there are two major telecommunications companies in a country. Firm A controls 45%, and Firm B controls 37% of the telecommunications market. Firm C controls the remaining portion of the total sales. For the market structure to be an oligopoly, what must be true?
A)All firms sell the same exact product.
B)One firm must control the entire market.
C)There is a dominant strategy for all firms.
D)The is no price discrimination of consumers.
E)There are high barriers to entry into the market.
Q7. Use the graph to answer the question that follows.
Which of the following scenarios would explain the supply shift from S1 to S2?
A)A per-unit tax on a product
B)A cap on the price sellers can charge
C)Consumer expectations of a future price decrease
D)The number of suppliers producing a good increases
E)Technological advancements in production create the need for less supply
Q8.Which of the following questions help determine resource allocation in an economy?
A)How should goods and services be produced?
B)What percentage of workers should attend college?
C)Should factories be located in urban or rural areas?
D)Where can raw materials be acquired to produce goods?
E)What sort of work should be rewarded with high salaries?
Q10. Domestic rice farmers are demanding that the government set an import tariff. From an economic perspective, which of the following statements could explain why?
A)The rice farmers want to reduce demand in the domestic market to ease the burden they experience in production.
B) The rice farmers want to increase demand in the domestic market to increase their revenues.
C)The rice farmers expect that helping generate government revenue will lead to more favorable trade deals in the long run.
D)The rice farmers expect the intervention to reduce foreign rice in the market, which will increase their production, price, and surplus.
E) The rice farmers assume that the intervention will increase the foreign rice brought into the market and reduce both price and consumer surplus.
Q11. If a good's price elasticity of supply is inelastic and its quantity supplied decreased by 20%, which of the following must be true?
A)Price must have decreased by exactly 20%.
B)Price must have decreased by more than 20%.
C)Price must have decreased by less than 20%.
D) Quantity supplied must have decreased by 20 units.
E)Quantity supplied must have increased by 10 units.
Q12. Which of the following describes a situation where the social marginal cost is equal to the social marginal benefit at equilibrium?
Q13. A firm will continue to hire workers so long as ________ is greater than or equal to ________.
A)total product; total cost
B)marginal product; marginal cost
C)marginal revenue; marginal cost
D)average revenue product; average factor cost
E)marginal revenue product; marginal factor cost
If the equilibrium quantity is 150 widgets, what is the equilibrium price?
Q15. Use the graph to answer the question that follows.
Assume the crude oil market is experiencing the inefficiency shown in the graph, and the demand curve remains constant. Which of the following economic policies could cause social marginal cost to equal private marginal cost and move the market to an allocatively efficient result?
A)Reducing the tariff on foreign gasoline imports
B)A reduced quota of foreign gasoline imports
C)A decrease in the excise tax on gasoline
D)An increase in the excise tax on gasoline
E) A government subsidy to gasoline consumers
Q16. Ware Limited is a monopolist. Use the graph, which represents the market graph of Ware Limited, to answer the question that follows.
Ware Limited uses perfect price discrimination to increase its profits. Which figure represents the change in consumer surplus?
Q17. Which of the following describes the effect that would occur on pencils if the government implemented a per unit subsidy on pencils?
A)The price of pencils would increase.
B)The output supplied in a market would increase.
C)The output supplied in a market would decrease.
D)A decrease in the number of suppliers of a product.
E)The opportunity cost of producing pencils would increase.
Q18. Use the graph to answer the question that follows.
If the price is set to P1, what area represents the producer surplus in the graph shown above?
B) B + C + D
C) C + D + F
D) B + C + D + G
E) B + C + D + E + F
Where is inefficiency illustrated on the graph of a production possibilities curve (PPC)?
A)Points along the curve
B)Points at the beginning or end of the curve
C)Points inside the curve
D)Points along the horizontal axis
E)Points along the vertical axis
Q20. At a company's current level of production, the marginal cost is less than the marginal benefit. Based on this, which of the following is true?
A)The firm is operating beyond its production possibilities curve.
B)The firm is operating at a loss.
C)To be efficient, the firm should increase production.
D)To be efficient, the firm should decrease production.
E)The firm is operating at optimal efficiency.
Q21. Assume a coal power plant is causing an increased amount of pollution because there is a change in the amount of carbon in the coal. If the pollution causes a negative social externality that has no effect on private costs and benefits, in which of the following ways does the socially efficient equilibrium compare to the free market equilibrium?
A)Optimal social quantity will equal private quantity, and social price will equal private price.
B)Optimal social quantity will be less than the private unregulated quantity, and social price will be less than private price.
C) Optimal social quantity will be less than the private unregulated quantity, and the optimal social price will be greater than the private price.
D)Optimal social quantity will be greater than the private unregulated quantity, and social price will be less than private price.
E)Optimal social quantity will be greater than the private unregulated quantity, and social price will be greater than private price.
Q23. The graph below represents the labor supply curve of a monopsonistic firm.
What is the quantity of labor and the wage that will maximize the firm's profits?
A)Firm's profits are maximized at quantity = Q1 and wage = W4
B)Firm's profits are maximized at quantity = Q2 and wage = W3
C)Firm's profits are maximized at quantity = Q2 and wage = W5
D)Firm's profits are maximized at quantity = Q3 and wage = W1
E)Firm's profits are maximized at quantity = Q1 and wage = W2
Q24. Which of the following is an expression of the production function?
A)As inputs increase, total output increases until minimum efficient scale is reached, then declines.
B)As inputs increase, total output increases but at a slowing rate when diminishing returns sets in.
C)As inputs increase, total output decreases because of the inverse relationship between input and output.
D)As marginal costs increase, total output will increase in order to gain higher total revenue and profits.
E)As marginal costs increase, total output decreases until maximum efficient scale is restored.
Q25. Use the graph to answer the question that follows.
Assume this firm cannot price discriminate. What is the profit maximizing price and quantity?
Q26. Use the graph to answer the following question.
In long-run monopolistic competition, what does the distance between Q1 and Q2 represent?
E) Excess capacity
Q27. A firm has total explicit costs of $20,000 and implicit costs of $40,000. It currently earns total revenue of $100,000. The firm is earning a
A) positive economic profit of $40,000
B)positive accounting profit of $60,000
C)negative accounting profit of $80,000
D)negative economic profit of $40,000
E)economic and accounting profit of $120,000
Q28. Use the graph below to answer the following question
Between points A and B, the long-run average total cost curve is characterized by ________ because the firm is experiencing ________ returns to scale.
A)economies of scale; constant
B)economies of scale; increasing
C)economies of scale; decreasing
D)diseconomies of scale; increasing
E)diseconomies of scale; decreasing
Q29. Ceteris paribus, ________ will increase quantity demanded, while ________ will decrease demand.
A)a price increase; more buyers
B) a price decrease; fewer buyers
C)a price decrease; a general income increase
D)advertising; more buyers
E)advertising; an income increase
Q30. Use the graph to answer the question that follows.
In the illustrated scenario, which of the following is true about the effects of a price floor?
A)A surplus of the good will be created.
B)A shortage of the good will be created.
C)The amount of producer surplus will decrease.
D)The amount of consumer surplus will increase.
E)There is no change in the consumer or producer surplus.
Q32. A firm operates in a perfectly competitive market. In which of the following situations will the market be attractive for new firms to enter, assuming there are no barriers of entry?
A)Market price < Average total cost
B)Market price = Average total cost
C)Market price > Average total cost
D)Market price < Average variable cost
E)Market price = Average variable cost
How many movies maximize Benjamin's utility per dollar spent?
Q34. Use the graph to answer the question that follows.
Based on the chart above, if the product sells at a price of $1 per unit, what is the marginal revenue product of the second unit of labor?
Q35. John starts a bicycle business and makes and sells bicycles similar to those of his competitors. The bicycle industry has no barriers to entry and exit and there are many firms in the industry. John controls the price of his bicycles. Which of the following would have to occur for John's business to become a perfectly competitive firm?
A)The business would have to sell highly differentiated products.
B)There would have to be barriers to entry in the bicycle business.
C)John would have to sell the quantity that would maximize his profits.
D)The number of firms in the bicycle market would have to become restricted.
E)John would have to become a price taker, accepting the market price for bicycles.
Q37. The students in an economics class calculated cross-price elasticity to be zero. Which of the following could be the two goods considered?
A)The price of cars increases by 5 percent, and the quantity of butter remains constant.
B)The price of bread remains constant, and the quantity of butter decreases by 2 percent.
C)The price of cars increases by 5 percent, and the quantity of bikes increases by 5 percent.
D)The price of cars decreases by 2 percent, and the quantity of petrol increases by 2 percent.
E)The price of butter decreases by 7 percent, and the quantity of margarine decreases by 7 percent.
Q38. Jasmine owns a farm and sells produce to local restaurants and grocery stores. If her farm is perfectly competitive, what profits and losses can she expect to make in the short and in the long run?
A)Jasmine may earn economic profits or losses in the short run and in the long run.
B)Jasmine may earn zero economic profit in the short run and profits in the long run.
C)Jasmine may earn zero economic profit in the short run and losses in the long run.
D) Jasmine may earn economic profits or losses in the long run but not in the short run.
E)Jasmine may earn economic profits or losses in the short run but not in the long run.
Q39. Use the graph to answer the question that follows.
Assume that the market shown is perfectly competitive with no externalities. If the production output is 15,000 units, then
A)total surplus is being maximized
B)deadweight loss is being minimized
C)deadweight loss is being maximized
D)total surplus is not being maximized
E)consumer and producer surplus are maximized
Q40. One way that externalities can be eliminated is to
B)increase transaction costs
C)ensure perfect information
D)properly define property rights
E)relax enforcement of property rights
Q41. Use the graph to answer the prompt.
According to the graph, the opportunity cost for producing the first helicopter is ________ airplanes.
Q42. Which of the following explains why economic trade-offs are still necessary even in very rich societies?
A)Competition between societies makes trade-offs inevitable.
B)Different laws must be navigated based on economic system.
C)Resources are unlimited, requiring a deliberate exercise of restraint.
D)The production and exchange of goods and services must be efficient.
E)All societies have unlimited wants and desires with limited resources to produce goods.
Q43. A technology company has invented a new device and has been awarded a patent for this product for twenty years. This creates ________, which provides the company opportunity to become a monopolist.
A)a barrier to entry
B)a few competitors
C)low startup costs
D)free entry and exit
E)similar but differentiated products
Q44. Country X has a Gini coefficient of 0.45, whereas Country P has a Gini coefficient of 0.40. What must be true about these two countries?
A)Country X has a higher income per capita than Country P.
B)Country P has a higher income per capita than Country X.
C) Country X has a higher standard of living than Country P.
D)Country X has higher economic inequality than Country P.
E)Country P has higher economic inequality than Country X.
Q45. Which of the following statements about income and wealth distribution is true?
A)Inheritance distributes wealth more equally.
B)Discrimination in labor markets distributes income less equally.
C)Progressive tax makes income distribution less equal.
D)Access to quality education by a few distributes income more equally.
E) Differences in degree of labor specialization distributes income more equally.
Q46. Use the graph to answer the question that follows.
What is the price elasticity of demand going from 24 units to 30 units of Product Z?
Q47. Which of the following events correctly describes the outcome in a competitive market?
A) An increase in demand, ceteris paribus, causes a decrease in equilibrium price and quantity.
B) An increase in supply, ceteris paribus, causes a decrease in equilibrium price and an increase in equilibrium quantity.
C) A decrease in demand, ceteris paribus, causes an increase in equilibrium price and quantity.
D) An increase in supply, ceteris paribus, causes an increase in equilibrium price and a decrease in equilibrium quantity.
E) A decrease in demand, ceteris paribus, causes an increase in equilibrium price and a decrease in equilibrium quantity.
Q48. What is the quantity of the product that Edward buys when the market is in equilibrium?
Q50. A worker can get paid $100 for a four-hour professional development course. If she must sacrifice making a product to sell online that earns her $10 per hour so she can attend the course, what is her opportunity cost?
Q51. If marginal product increased from 50 to 60 when the quantity of labor increased from 200 to 205, then what must be true of costs over this range of output?
A)Marginal costs are decreasing.
B)Marginal costs are increasing.
C)Average total costs are increasing.
D)Average fixed costs are increasing.
E)Average variable costs are decreasing.
Q52. Top Limited is currently maximizing its profits and earning only normal economic profits. Which of the following describes Top's situation?
A)Marginal revenue = marginal cost; total cost = zero
B)Marginal revenue < marginal cost; total revenue = total cost
C)Marginal revenue = marginal cost; total revenue > total cost
D)Marginal revenue < marginal cost; total revenue < total cost
E)Marginal revenue = marginal cost; total revenue = total cost
Q53. Assume that all cell phone company workers are more productive because of a new technology. How does this affect the demand for labor in the telecommunications industry?
A)The quantity demanded of labor shifts to the left.
B)The market labor demand curve shifts to the left.
C)The market labor demand curve shifts to the right.
D)The slope of the market labor demand curve increases.
E)The slope of the market labor demand curve decreases.
Q54. Use the graph to answer the question that follows.
What is the amount of tax revenue collected in this market?
Q55. Use the graph to answer the question that follows.
In order to correct for the externality shown, a government should impose a per-unit
A)price control of P^E
B)tax equal to P^C − P^P
C)tax equal to P^C − P^E
D)subsidy equal to P^C − P^E
E)subsidy equal to P^C − P^P
Q56. Country A and Country B are debating who has a comparative advantage and who has an absolute advantage. Country A has an opportunity cost of 1/2 car for every plane produced. Country B has an opportunity cost of 2/3 car for every plane produced. Given the information above, which of the following must be true?
A)Country A has an absolute advantage in plane production.
B)Country B has an absolute advantage in plane production.
C)Country B has a comparative advantage in plane production.
D)Country A has a comparative advantage in plane production.
E)Country A and Country B have a comparative advantage in plane production.
Q57. The residents in a countryside go fishing at will in the only river that flows through their town. What type of good best describes this river?
D)Artificially scarce good
E)Common pool resource
Q58. Suppose the price elasticity of demand for widgets is 2, and the price of widgets decreases by 10 percent. The change in quantity demanded of widgets must
A)increase by 5 percent
B)decrease by 5 percent
C)increase by 20 percent
D)decrease by 20 percent
E)decrease by 200 percent
Q59. Use the graph to answer the question that follows.
Assuming the graph shows the cost structure of a perfectly competitive firm, what does point B represent?
A)The break-even point
B)The long-run shutdown point
C)The minimum efficient scale
D)The short-run shutdown point
E)The minimum of the supply curve
Q60. The demand for a good for which there is a per-unit tax becomes less elastic, ceteris paribus. What would be the impact of the change in elasticity of demand?
A)The government will decrease the value of the tax.
B)The government will collect less tax revenue.
C)Producers will pay a greater portion of the tax than before.
D)Consumers will pay a greater portion of the tax than before.
E)There will be no change in tax incidence.