Betty knows that she needs to save 20% of her annual income for retirement. However, she spends 90% of her income each year. This is an indication that Betty’s preferences area.irrational.b.inconsistent over time.c.satisficing rather than maximizing.d.undefined.ANSWER: binconsistent over time.SECTION: OBJECTIVE: 25.Behavioral economics a.integrates psychological insights into economic models.b.relies on the assumption that homo economicus describes economic decisionmaking.c.assumes that economic agents have full information about the conditions surrounding their decisions.d.All of the above are correct.ANSWER: aintegrates psychological insights into economic models.SECTION: OBJECTIVE:
Trang 1a run the train because the total revenues are greater than the total costs
1
Trang 2a economically inefficient.
Trang 3a is fundamental to economic growth.
Trang 5b central banks always accommodate changes in the economy by increasing or decreasing the money supply.
Trang 11c also has a comparative advantage in the production of those goods.
d is producing at a point on its production possibilities frontier
8 What can be said regarding absolute advantage in production for the two countries shown in this figure?
Trang 12c will try to get along without trade.
d will export raw materials and import finished products
11 In the marketplace, John voluntarily sells his last two loaves of bread to Mary for $2. We can infer that this will benefit
b economically inefficient because the country with the absolute advantage is made worse off
c ineffective in improving efficiency, since one country’s gain will be offset by the other country’s loss
d economically efficient only if each country also has the absolute advantage in producing their good
Trang 15a an increase in the price of bicycles
b a decrease in the price of bicycles
c a decrease in consumer incomes
Trang 16d a popular new movie that convinces teens that skateboards are really cool
8 This diagram shows the market for inline roller skates. Which of the following would cause a movefrom point A to point C?
a 50
b 100.
c 150
d 500
Trang 1712 If the same dairy can produce either whole milk or skim milk, an increase in the profitability of whole milk results in a(n)
Trang 19b $200,000 per acre.
c $300,000 per acre
d $400,000 per acre.
24 Consider this diagram of the market for beachfront property in Connecticut. If the local governmentdecides to establish a price of $200,000 per acre there will be
Trang 21d greater than zero.
8 A 5 percent increase in the price of sugar reduces sugar consumption by about 10 percent. The increase causes households to
to pay for these additional costs if
a there are many substitutes for first class mail service
Trang 22b no anthrax is found on the mail.
c the demand for first class mail service is inelastic.
d the rate increase is a very large one
13 Suppose that the elasticity of supply of lawn mowers is 1.5. If the price of lawn mowers rises 5 percent, the quantity supplied of lawn mowers would
Trang 23b Consumers are less sensitive to changes in the price of gasoline in the long run.
c Within every price range, the price elasticity of demand is less elastic in the long run
d The price elasticity of demand for gasoline tends to be unit elastic in the long run
26 If the fines and jail time for dealing illegal drugs were reduced, we would expect
Trang 24a an increased demand for illegal drugs.
b an increased supply of illegal drugs, a lower price, and higher quantity traded.
c a decreased supply of illegal drugs, a higher price, and lower quantity traded
d no change in the market for illegal drugs because buyers and sellers believe they won’t get caught
Chapter 6
Supply, Demand, and
Government Policies
1 When the government issues ration coupons, it is an indication that the government has prohibited the use of which rationing mechanism?
a excess supply of fish will be eliminated
b purpose of that price ceiling would be defeated.
Trang 25c price ceiling must have been too low.
d price of fish set by the price ceiling would rise
6 Assume that the government sets a ceiling on the interest rate that banks charge on loans. If the ceiling is set below the market equilibrium interest rate, the result will be
Trang 26a higher; lower
b lower; lower
c higher; higher
Trang 27a Producers of A bear a greater share (relative to consumers) of their market’s tax burden than the producers of B.
b Product B has a smaller elasticity of supply than product A
c Tax revenue is greater from product A
d Tax revenue is greater from product B
20 Consider the impact of a tax on sellers, shown in this diagram of the market for whiskey. In this case, the total tax revenue collected by the government is
a $3.00
b $1500.00
c $13,500.00.
d $40,500.00
Trang 2821 Consider the impact of a tax on sellers, shown in this diagram of the market for whiskey. In this case, the buyers’ share is and the sellers’ share is .
Trang 33b the price received by the seller equals the price paid by the buyer and the quantity demanded is less than the quantity supplied by the amount of the tax.
c the tax is equal to the price paid by the buyer and quantity demanded is equal to the quantity supplied
d there cannot be a market equilibrium with a tax on sales
ANSWER: a the quantity demanded equals the quantity supplied and the price buyers pay exceeds the price sellers receive by the perunit tax
Trang 346 A perunit tax on a good creates deadweight loss because
a it makes demand more inelastic
b it makes supply more elastic
c by increasing the price consumers pay, and reducing the price sellers receive, it prevents some mutually beneficial trades
d the government wastes the tax revenues it receives
ANSWER: c by increasing the price consumers pay, and reducing the price sellers receive, it prevents some mutually beneficial trades
SECTION: 1 OBJECTIVE: 1
7 Consider the impact of a tax in the market described in this diagram. The equilibrium price and quantity exchanged in the market before the tax is
Trang 358 Consider the impact of a tax in the market described in this diagram. The equilibrium price and quantity exchanged in the market after the tax is
Trang 36a taxes on land generate no deadweight loss and lots of revenues for government.
b politicians recognize that the supply of beachfront property is perfectly inelastic and so the tax would generate no deadweight loss
c taxes on land are paid entirely by the suppliers since the supply of beachfront property is perfectly inelastic
Trang 406 Consider this diagram of the market for pocket calculators in Venezuela. In the absence of trade, theprice and quantity of calculators sold are
Trang 419 Consider this diagram of the market for pocket calculators in Venezuela. A tariff would completely eliminate imports of calculators if it equaled
Trang 4214 The United States is the world’s leading grain producing nation. Exporting U.S. grain causes the
a domestic consumption of grain to rise because of the added foreign demand
b price of grain in the domestic market to fall because foreigners are now taking some of the domestic demand
16 Domestic producers gain from the opportunity to export goods to foreign countries because
a the freetrade price of the good is higher than the domestic price in the absence of trade
b producers are able to reach a wider market
c although the freetrade price is lower than in the absence of trade, producers are able to sell a greater quantity
d production rises, although there is no change in the price of the good compared to the notrade situation
ANSWER: a the freetrade price of the good is higher than the domestic price in the absence of trade.SECTION: 2 OBJECTIVE: 2
Trang 466 If a perfectly competitive industry is not forced to take account of a negative externality it creates, it will produce where
Trang 4816 A dentist shared an office building with a radio station. The electrical current from the dentist’s drillcauses static in the radio broadcast, causing the radio station to lose $10,000 in discounted future profits. The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. What is the economically efficient outcome?
Trang 4918 What economic argument suggests that if transactions costs are sufficiently low, the equilibrium is economically efficient regardless of how property rights are distributed?
Trang 50d results in more pollution than without the regulations.
ANSWER: c can be too burdensome to producers who can pay the fines more easily than they can reduce pollution
d are efficient because they eliminate all pollution
ANSWER: set a quantity of pollution that will exist
SECTION: 3 OBJECTIVE: 5
Trang 5126 This diagram shows the market for pollution when permits are issued to firms and traded in the marketplace. The equilibrium price of pollution here is
Trang 52d Fred watches many public television programs, but he has never sent in a contribution to the station.
ANSWER: d Fred watches many public television programs, but he has never sent in a contribution to the station
SECTION: 2 OBJECTIVE: 2
Trang 53This table describes the defense demands for three groups of people in Happyville. Each curve shows the maximum amount the group is willing to pay for a given quantity of Happyville defense.
Trang 5414 The “open source” movement in the technology industry supports the idea that programming code should be made freely available. This group believes that
a there is a negative externality generated by technological advancement when private property rights are enforced
b the costs of maintaining private property rights are greater than the benefit to society of making advances freely available
c the costs of maintaining private property rights are less than the benefits to society of making advances freely available
d the costs and benefits of making advances freely available exactly offset one another
ANSWER: c the costs of maintaining private property rights are less than the benefits to society of making advances freely available
SECTION: 2 OBJECTIVE: 4
15 If antipoverty and public assistance programs are public goods, then
a the private benefits to society of providing such programs are undervalued
b the private marketplace can provide a socially optimal quantity of these programs with no government interference
SECTION: 2 OBJECTIVE: 4
Trang 55a the cow is raised in developed economies while the elephant lives primarily in lessdeveloped nations.
Trang 65d average fixed costs begin to rise again.
ANSWER: b large management structures may be bureaucratic and inefficient
SECTION: 4 OBJECTIVE: 5
Trang 6622 A local bagel company plans to keep and maintain its bagel factory, which is estimated to last 25 years. All cost decisions it makes during the 25year period
Trang 68Unit Marginal Marginal
$550 per flight. Currently, Cold Duck’s revenues are $1,000 per flight. All prices and costs are expected to continue at their present levels. If it wants to maximize profit, Cold Duck Airlines should
Trang 7017 A corporation has been steadily losing money on one of its product lines. The factory used to produce that brand cost $20 million to build 10 years ago. The firm now is considering an offer to buy that factory for $15 million. Which of the following statements about the decision to sell or not
to sell is correct?
a The firm should turn down the purchase offer because the factory cost more than $15 million to build
b The $20 million spent on the factory is a sunk cost that should not affect the decision
c The $20 million spent on the factory is an implicit cost, which should be included in the decision
d The firm should sell the factory only if it can reduce its costs elsewhere by $5 million
ANSWER: b The $20 million spent on the factory is a sunk cost that should not affect the decision.SECTION: 2 OBJECTIVE: 4
a the firms will suffer longrun economic losses
b the firms will suffer shortrun economic losses that will be exactly offset by longrun economic profits
c some firms will go out of business, causing prices to rise until the remaining firms can cover their production costs
d all firms will go out of business, since consumers will not pay prices that enable firms to cover their production costs
ANSWER: c some firms will go out of business, causing prices to rise until the remaining firms can covertheir production costs
SECTION: 3 OBJECTIVE: 5
Trang 71a the demand for the products of this industry would increase.
b the market price of the products of this industry would decrease in the short run but not in the long run
c the firms in the industry would make a longrun economic profit
d competition would force producers to pass the lower production costs on to consumers in the long run
ANSWER: d competition would force producers to pass the lower production costs on to consumers in the long run
SECTION: 3 OBJECTIVE: 5
24 The textile industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses and many sellers have left the industry. Economic theory suggests that these conditions will
Trang 736 If a monopolist can sell 7 units when the price is $3 and 8 units when the price is $2, then marginal revenue of selling the eighth unit is equal to
Trang 7516 Suppose potatoes were produced in Canada by many, many firms in perfect competition. In
Belgium, only one firm produces potatoes for the Belgium market. Suppose further that for the competitive firms and the monopoly minimum ATC is the same. We would expect that in Belgium the price of potatoes is and potatoes are produced and sold than in Canada
a false; price increases will mean fewer sales, and lower costs will mean higher profits (or smaller losses)
b true; this is the primary reason why economists believe that monopolies result in economic inefficiency
c false; the monopolist is a price taker
d true; consumers in a monopoly market have no substitutes to turn to when the monopolist raisesprices
ANSWER: a false; price increases will mean fewer sales, and lower costs will mean higher profits (or smaller losses)
SECTION: 3 OBJECTIVE: 3
18 Many economists criticize monopolists because they produce at output levels that are not efficient. That is to say, monopolists
Trang 76c produces the same monopoly level of output as when a single price is charged.
d charges some customers a price below marginal cost because costs are covered by the highpriced buyers
d higher than if the firm charged a single price because the costs of selling the good will be lower.ANSWER: c higher than if the firm charged just one price because the firm will capture more consumer surplus
SECTION: 5 OBJECTIVE: 5
Trang 7911 An equilibrium in which each firm in an oligopoly industry maximizes profit, given the actions of its rivals, is called
Trang 80in the table. The upper right side of each rectangle shows Brian’s profits; the lower left side shows Matt’s profits. Which of the following statements is correct for a onetrial game?
Trang 8120 After initial success, the OPEC cartel saw the price of oil and the revenues of its members decline due, in part, to
Trang 836 Which of the following is a characteristic of oligopoly or monopolistic competition, but not perfect competition?
Trang 8410 At the profitmaximizing, or lossminimizing, output level, the firm in this figure has total costs approximately equal to
c Due to product differentiation, firms choose output levels where P > ATC
d Firms keep some surplus output on hand in case there is a shift in the demand for their product.ANSWER: b The output produced by a typical firm is less than what would occur at the minimum point
on its ATC curve
SECTION: 1 OBJECTIVE: 3
Trang 8515 Which of the following individuals quoted below is least likely to argue that excess capacity in monopolistically competitive industries is a waste of resources?
a “An automobile is transportation, nothing else.”
b “Tomatoes or no tomatoes. The choice of toppings on a burger can be important to a consumer these days when individualism is increasingly important to people.”
c “Gasoline is gasoline no matter what the brand name.”
d “I take the airline that will get me from A to B at the lowest price.”
ANSWER: b “Tomatoes or no tomatoes. The choice of toppings on a burger can be important to a consumer these days when individualism is increasingly important to people.”
SECTION: 1 OBJECTIVE: 3
16 The traditional view of monopolistic competition holds that this type of industrial structure is inefficient because