1. (TCO 1) What is the economic meaning of the expression that “There is no such thing as a free lunch?” (Points : 3) It refers to “free-riders,” who do not pay for the cost of a product but who receive the benefit from it.
It means that economic freedom is limited by the amount of income available to the consumer.
It means that there is an opportunity cost when resources are used to provide “free” products.
It indicates that products only have value because people are willing to pay for them.
2. (TCO 1) Henry wants to buy a book. The economic perspective suggests that Henry will buy the book if (Points : 3) the book will give him utility.
his income is high.
the marginal cost of the book is greater than its marginal benefit.
the marginal benefit of the book is greater than its marginal cost.
3. (TCO 1) Which situation would most likely cause a nation’s production possibilities curve to shift inward? (Points : 3) The construction of more capital goods
An increase in discrimination based on race
An increase in the number of skilled immigrant workers
The destruction from bombing and warfare in a losing military conflict
4. (TCO 1) Which expression is another way of saying “marginal cost”? (Points : 3) Scarce resources
5. (TCO 1) Which is not a factor of production? (Points : 3) Money
6. (TCO 1) Another term for capitalism is (Points : 3) the command system.
the socialist economy.
the market system.
the system of inputs and outputs.
7. (TCO 1) Markets in which firms sell their output of goods and services are called (Points : 3) resource markets.
8. (TCO 1) Consumers express self-interest when they (Points : 3) seek the lowest price for a product.
reduce business losses.
collect economic profits.
search for jobs with the highest wages.
9. (TCO 1) Which is
not one of the five fundamental questions that an economy must deal with? (Points : 3) How will the goods and services be produced?
Why should the goods and services be produced?
Who is to receive the goods and services produced in the economy?
In what ways will progress be promoted?
10. (TCO 1) A characteristic of centrally planned economies is that (Points : 3) the price s relatively unimportant in allocating resources.
output reflects the pattern of consumer spending.
income is fairly distributed among individuals.
there are many incentives for innovation and hard work.
11. (TCO 2) The quantity demanded of a product increases as its price declines because the (Points : 3) lower price shifts the demand curve rightward.
lower price shifts the demand curve leftward.
lower price results in an increase in supply.
demand curve is downsloping.
12. (TCO 2) A surplus of a product will arise when price is (Points : 3) above equilibrium with the result that quantity demanded exceeds quantity supplied.
above equilibrium with the result that quantity supplied exceeds quantity demanded.
below equilibrium with the result that quantity demanded exceeds quantity supplied.
below equilibrium with the result that quantity supplied exceeds quantity demanded.
13. (TCO 2) Which of the following is a consequence of rent controls established to keep housing affordable for the poor? (Points : 3) Less rental housing is available as prospective landlords find it unprofitable to rent at restricted prices.
The quality of rental housing declines as landlords lack the funds and incentive to maintain properties.
Apartment buildings are torn down in favor of office buildings, shopping malls, and other buildings where rents are not controlled.
All of the above are consequences of rent controls.
14. (TCO 2) A headline reads “Lumber Prices Up Sharply.” In a competitive market, this situation would lead to a(n) (Points : 3) increase in the price and quantity of new homes.
decrease in the price and quantity of new homes.
increase in the price of new homes and decrease in quantity.
decrease in the price of new homes and increase in quantity.
15. (TCO 2) Two months ago, the Marbury Shirt company sold 200 shirts at $30 per shirt. Last month, the company raised its price to $35 per shirt and sold 300 shirts. Evidently the company experienced a(n) (Points : 3) decrease in demand.
increase in demand.
decrease in supply.
increase in supply.
16. (TCO 2) If the price-elasticity coefficient for a good is .75, the demand for that good is described as (Points : 3) normal.
17. (TCO 2) Total revenue falls as the price of a good is raised, if the demand for the good is (Points : 3) elastic.
18. (TCO 2) You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than 1. To increase total revenues, you should: (Points : 3) increase the price of the software.
decrease the price of the software.
hold the price of the software constant.
increase the supply of the software.
19. (TCO 2) A state government wants to increase the taxes on cigarettes to increase tax revenue. This tax would only be effective in raising new tax revenues if the price elasticity of demand is (Points : 3) unity.
20. (TCO 2) Movie theaters charge lower prices to see a movie in the afternoon than in the evening because there is an (Points : 3) inelastic supply of movies in the evening.
elastic demand to see movies in the evening.
elastic demand to see movies in the afternoon.
inelastic demand to see movies in the afternoon.
21. (TCO 3) Which would be an implicit cost for a firm? The cost (Points : 3) of worker wages and salaries for the firm.
paid for leasing a building for the firm.
paid for production supplies for the firm.
of wages foregone by the owner of the firm.
22. (TCO 3) Economic profits are equal to (Points : 3) total revenues minus fixed costs.
total revenues minus the costs of raw materials.
total revenues minus the opportunity costs of all inputs.
gross profit minus selling and operating expenses.
23. (TCO 3) The long run is a period of time, or a time frame, in which (Points : 3) all resources are fixed.
the level of output is fixed.
the amount of all resources can be varied.
the capacity of the production plant is fixed.
24. (TCO 3) Variable costs are (Points : 3) sunk costs.
costs that change every day.
costs that change with the level of production.
the change in total cost due to the production of an additional unit of output.
25. (TCO 3) At an output of 20,000 units per year, a firm’s variable costs are $80,000 and its average fixed costs are $3. The total costs per year for the firm are: (Points : 3) $80,000.
26. (TCO 3) A fast-food company spends millions of dollars to develop and promote a new hamburger on its menu only to find that consumers won’t buy it because they don’t like the taste. From an economic perspective, the company should (Points : 3) keep the hamburger on the menu because they’ve spent so much money and time developing and promoting the product.
spend more money to develop a more efficient way to cook the hamburger so it cooks in a shorter time.
pull the hamburger off the menu and treat the development and promotion expenditures as a sunk cost.
keep trying to sell the hamburger so that people who developed and promote it have a job with the company.
1. (TCO 3) Mutual interdependence would tend to limit control over price in which market model? (Points : 3) Monopolistic competition
2. (TCO 3) In which two market models would advertising be used most often? (Points : 3) Pure competition and monopolistic competition
Pure competition and pure monopoly
Monopolistic competition and oligopoly
Pure monopoly and oligopoly
3. (TCO 3) The fast-food restaurants would be an example of which market model? (Points : 3) Monopolistic competition
4. (TCO 3) In pure competition, the demand for the product of a single firm is perfectly (Points : 3) elastic because the firm produces a unique product.
inelastic because the firm produces a unique product.
elastic because many other firms produce the same product.
inelastic because many other firms produce the same product.
5. (TCO 3) T-Shirt Enterprises is selling in a purely competitive market. It is producing 3,000 units, selling them for $2 each. At this level of output, the average total cost is $2.50 and the average variable cost is $2.20. Based on these data, the firm should (Points : 3) shut down in the short run.
decrease output to 2,500 units.
ontinue to produce 3,000 units.
increase output to 3,500 units.
6. (TCO 3) A firm should increase the quantity of output as long as its (Points : 3) marginal revenue is greater than its marginal cost.
marginal cost is greater than its marginal revenue.
average revenue is greater than its average total cost.
average revenue is greater than its average variable cost.
7. (TCO 3) In pure competition, each extra unit of output that a firm sells will yield a marginal revenue that is (Points : 3) equal to the price.
less than the price.
greater than the price.
equal to the average cost.
8. (TCO 3) The classic example of a private, unregulated monopoly is (Points : 3) Xerox.
9. (TCO 3) Natural monopolies result from (Points : 3) patents and copyrights.
extensive economies of scale in production.
control over an essential natural resource.
10. (TCO 3) The nondiscriminating pure monopolist must decrease price on all units of a product sold in order to sell more units. This explains why (Points : 3) there are barriers to entry in pure monopoly.
a monopoly has a perfectly elastic demand curve.
marginal revenue is less than average revenue.
total revenues are greater than total costs at the profit-maximizing level of output.
11. (TCO 3) Which case below best represents a case of price discrimination? (Points : 3) An insurance company offers discounts to safe drivers.
A major airline sells tickets to senior citizens at lower prices than to other passengers.
A professional baseball team pays two players with identical batting averages different salaries.
A utility company charges less for electricity used during “off-peak” hours, when it does not have to operate its less-efficient generating plants.
12. (TCO 3) In which industry is monopolistic competition most likely to be found? (Points : 3) Utilities
13. (TCO 3) If monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will (Points : 3) increase.
become less elastic.
not be affected.
14. (TCO 3) In an oligopolistic market there are (Points : 3) many buyers.
15. (TCO 3) A low concentration ratio means that (Points : 3) there is a low probability of entering the industry.
there is a low probability of success in the industry.
each firm accounts for a small market share of the industry.
each firm accounts for a large market share of the industry.
16. (TCO 3) A major reason that firms form a cartel is to (Points : 3) reduce the elasticity of demand for the product.
enlarge the market share for each producer.
minimize the costs of production.
maximize joint profits.
17. (TCO 1) Which of the following is a land resource? (Points : 3) A farmer
An oil-drilling rig
A machine for detecting earthquakes
18. (TCO 1) Refer to the diagram which refers to the Circular Flow Model in Chapter 2. Arrows (1) and (3) are associated with
(Points : 3) the money market.
the resource market.
the product market.
19. (TCO 2) Refer to the diagram. An increase in quantity demanded is depicted by a
(Points : 3) move from Point x to Point y.
shift from D1 to D2.
shift from D2 to D1.
move from Point y to Point x.
20. (TCO 2) Refer to the information and assume the stadium capacity is 5,000. The supply of seats for the game
Price per Ticket
(Points : 3) varies inversely with ticket prices.
varies directly with ticket prices.
is perfectly inelastic.
is perfectly elastic.
21. (TCO 2) Which of the following goods (with their respective income-elasticity coefficients in parentheses) will most likely suffer a decline in demand during a recession? (Points : 3) Dinner at a nice restaurant (+1.8)
Chicken purchased at the grocery store for preparation at home (+0.25)
Facial tissue (+0.6)
Plasma-screen and LCD TVs (+4.2)
22. (TCO 3) The following cost data are for a firm in the short run:
Total Cost 0 $400 1 500 2 550 3 600 4 650 5 700
What is the firm’s average variable cost at an output of 5 units?
(Points : 3) $30
23. (TCO 1) Refer to the diagram. If society is producing nine units of bicycles and four units of computers and it now decides to increase computer output to six, the cost
(Points : 3) will be four units of bicycles.
will be two units of bicycles.
will be zero because unemployed resources are available.
of doing so cannot be determined from the information given.
24. (TCO 3) Any activity designed to transfer income or wealth to a particular individual or firm at society’s expense is called (Points : 3) patent protection.
25. (TCO 3) a.) What is the relationship between economies of scale and a natural monopoly? b.) Why is the level of output at which marginal revenue equals marginal cost the profit-maximizing output? (Points : 25) Question 26.
26. (TCO 2) Evaluate how the following situations will affect the demand curve for iPods.
(a) Income statistics show that income of 18–25-year-olds have increased by 10 percent over the last year.
(b) Efforts of music artists wanting greater protection of their music result in more stringent enforcement of copyrights and the shutdown of numerous illegal downloading sites.
(c) Believing that it has significant control of the market for portable digital music players, Apple decides to raise the price of iPods with the goal of increasing profits.
(d) The price of milk decreases.
(Points : 25)