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KTVM

The document consists of a series of questions and answers related to economics, covering topics such as trade-offs, opportunity costs, production possibilities, and comparative advantage. It emphasizes the importance of resource scarcity and decision-making in economic contexts. The questions also explore concepts like market economies, incentives, and the implications of trade on economic efficiency.

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0% found this document useful (0 votes)
14 views52 pages

KTVM

The document consists of a series of questions and answers related to economics, covering topics such as trade-offs, opportunity costs, production possibilities, and comparative advantage. It emphasizes the importance of resource scarcity and decision-making in economic contexts. The questions also explore concepts like market economies, incentives, and the implications of trade on economic efficiency.

Uploaded by

Mỹ Ngọc
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 52

Chapter 1 (Introduction)

16. Which of the following involve a trade-off?


a. Taking a nap
b. All of these answers involve trade-offs.
c. Watching a football game on Saturday afternoon
d. Going to university
e. Buying a new car

B
ANSWER:

17. Trade-offs are required because wants are unlimited and resources are
a. economical.
b. unlimited.
c. efficient.
d. marginal.
e. scarce.

E
ANSWER:

18. Economics is the study of


a. how society manages its unlimited resources.
b. how to reduce our wants until we are satisfied.
c. how society manages its scarce resources.
d. how to fully satisfy our unlimited wants.
e. how to avoid having to make trade-offs.

C
ANSWER:

19. A rational person does not act unless


a. the action is ethical.
b. the action produces marginal costs that exceed marginal benefits.
c. the action produces marginal benefits that exceed marginal costs.
d. the action makes money for the person.
e. none of these answers.

C
ANSWER:

20. Which of the following is NOT a natural experiment capable of verifying or refuting the
theory you want to test?
a. Theory: Immigration has a negative effect on the wages of the local workforce.
Experiment: For political reasons, there is a sudden influx of people from Cuban
into Miami which is unparalleled in any other major American city.
b. Theory: A law which forces employers to pay a minimum wage reduces
employment. Experiment: The state of New Jersey introduces a minimum wage law
but Pennsylvania does not.
c. Theory: Legalising abortion has a negative effect on crime rates one generation
later. Experiment: Some American states legalize abortion in 1970, three years
before abortion is made legal in all American states.
d. All the cases produce natural experiments which are capable of explaining the
respective theory.
e. Your theory: Incomes in university towns are higher than in other towns.
Experiment: The government runs a program to build new universities mainly in
poor regions.

E
ANSWER:

21. Suppose you find €20. If you choose to use the €20 to go to a football match, your
opportunity cost of going to the game is
a. nothing, because you found the money.
b. €20 (because you could have used the €20 to buy other things) plus the value of your
time spent at the game.
c. €20 (because you could have used the €20 to buy other things) plus the value of your
time spent at the game, plus the cost of the dinner you purchased at the game.
d. €20 (because you could have used the €20 to buy other things).
e. none of these answers

B
ANSWER:

22. Since people respond to incentives, we would expect that, if the average salary of
accountants increases by 50% while the average salary of teachers increases by 20%, then
a. fewer students will take degree courses in accounting and more will take education
courses.
b. fewer students will take degree courses in education and more will take accounting
courses.
c. fewer students will attend university.
d. none of these answers.

B
ANSWER:

23. Which of the following is not part of the opportunity cost of going on holiday?
a. the money you spent on a theatre show there
b. the money you could have made if you had stayed at home and worked
c. the money you spent on food
d. the money you spent on airline tickets.

C
ANSWER:

24. Which of the following statements is true about a market economy?


a. With a large enough computer, central planners could guide production more
efficiently than markets.
b. By following their self-interest, In a market the self-interested actions of market
participants are co-ordinated in such a way as to bring about an outcome from which
everybody benefits.
c. The strength of a market system is that it tends to distribute resources evenly across
consumers.
d. Taxes help prices communicate costs and benefits to producers and consumers.

B
ANSWER:

25. You are planning to run a hot dog stand during a forthcoming fair. You originally estimated
that you will generate sales revenue of €2000 and you have already spent €1000 building the
hot dog stand. The hot dog stand is nearly completed but now you estimate total sales to be
only €800 because the fair clashes with a major music festival in a nearby location.. You can
complete the hot dog stand for another €300. Should you complete the hot dog stand?
(Assume that there are no other costs - the hot dogs are costless to you.)
a. There is not enough information to answer this question.
b. Yes.
c. No.

B
ANSWER:

26. You are planning to run a hot dog stand during a forthcoming fair. You originally estimated
that you will generate sales revenue of €2000 and you have already spent €1000 building the
hot dog stand. The hot dog stand is nearly completed but now you estimate total sales to be
only €800 because the fair clashes with a major music festival in a nearby location.. You can
complete the hot dog stand for another €300. Your decision rule should be to complete the
hot dog stand as long as the cost to complete the stand is less than
a. €300
b. €100
c. €500
d. none of these answers.
e. €800

E
ANSWER:

Chapter 2: PPF

13. Which of the following is not a factor of production?


a. labour
b. land
c. money
d. capital
e. All of these answers are factors of production.

C
ANSWER:

14. Points on the production possibilities frontier are


a. inefficient.
b. normative.
c. unattainable.
d. efficient.
e. none of these answers.

D
ANSWER:

15. Which of the following will not shift a country's production possibilities frontier outward?
a. an advance in technology
b. an increase in the labour force
c. an increase in the capital stock
d. a reduction in unemployment

D
ANSWER:

6. Economic growth is depicted by


a. a shift in the production possibilities frontier outward.
b. a movement from inside the curve toward the curve.
c. a shift in the production possibilities frontier inward.
d. a movement along a production possibilities frontier toward capital goods.

A
ANSWER:

17. Refer to Exhibit 6. If the economy is operating at point C, the opportunity cost of producing
an additional 20 units of bacon is

a. 40 units of eggs.
b. 10 units of eggs.
c. 20 units of eggs.
d. 30 units of eggs.
e. 50 units of eggs.

E
ANSWER:

18. Refer to Exhibit 6. If the economy were operating at point E,


a. the opportunity cost of 20 additional units of eggs is 10 units of bacon.
b. the opportunity cost of 20 additional units of eggs is 20 units of bacon.
c. the opportunity cost of 20 additional units of eggs is 30 units of bacon.
d. 20 additional units of eggs can be produced with no impact on bacon production.

D
ANSWER:

19. Refer to Exhibit 6. Point F represents

a. none of these answers.


b. a combination of production that can be reached if we reduce the production of eggs
by 20 units.
c. a combination of production that can be reached if there is a sufficient advance in
technology.
d. a combination of production that is inefficient because there are unemployed
resources.
C
ANSWER:

20. Refer to Exhibit 6. As we move from point A to point D,

a. the opportunity cost of eggs in terms of bacon falls.


b. the opportunity cost of eggs in terms of bacon rises.
c. the opportunity cost of eggs in terms of bacon is constant.
d. the economy becomes less efficient.
e. the economy becomes more efficient.

B
ANSWER:

21. Which of the following statements is normative?


a. Large government deficits cause an economy to grow more slowly.
b. People work harder if the wage is higher.
c. The unemployment rate should be lower.
d. Printing too much money causes inflation.

C
ANSWER:

22. Positive statements are


a. macroeconomic.
b. microeconomic.
c. statements of description that can be tested.
d. statements of prescription that involve value judgments.
C
ANSWER:

Chapter 3: Gains from trade


16. Which of the following claims is NOT true? The distribution of a given amount of goods is
inefficient,
a. if some can still be made better off without making someone else worse off.
b. if there are still mutually beneficial trades which can be realized.
c. if I am unhappy with what I have but I cannot find a trading partner because
everybody else is happy with what they have.
d. if everybody s wellbeing can be increased simultaneously.
e. when everybody has been given the same amount of goods although tastes are
different and trade is prohibited.

C
ANSWER:

17. If a nation has a comparative advantage in the production of a good,


a. it can produce that good at a lower opportunity cost than its trading partner.
b. it can benefit by restricting imports of that good.
c. it can produce that good using fewer resources than its trading partner.
d. it must be the only country with the ability to produce that good.
e. none of these answers.

A
ANSWER:

18. Which of the following statements about trade is true?


a. Unrestricted international trade benefits every person in a country equally.
b. Trade can benefit everyone in society because it allows people to specialize in
activities in which they have a comparative advantage.
c. People that are skilled at all activities cannot benefit from trade.
d. Trade can benefit everyone in society because it allows people to specialize in
activities in which they have an absolute advantage.

B
ANSWER:

19. According to the principle of comparative advantage,


a. countries should specialize in the production of goods that they enjoy consuming.
b. countries with a comparative advantage in the production of every good need not
specialize.
c. countries should specialize in the production of goods for which they have a lower
opportunity cost of production than their trading partners.
d. countries should specialize in the production of goods for which they use fewer
resources in production than their trading partners.

C
ANSWER:

20. Which of the following statements is true?


a. A self-sufficient country can, at best, consume on its production possibilities frontier.
b. Only countries with an absolute advantage in the production of every good should
strive to be self-sufficient.
c. A self-sufficient country consumes outside its production possibilities frontier.
d. Self-sufficiency is the road to prosperity for most countries.

A
ANSWER:

21. Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there is
no trade,
a. the domestic price of 1 ring is 1/4 of a watch.
b. the domestic price of 1 ring is 3 watches.
c. the domestic price of 1 ring is 1/3 of a watch.
d. the domestic price of 1 ring is 12 watches.
e. the domestic price of 1 ring is 4 watches.

C
ANSWER:

22. Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there is
no trade,
a. the opportunity cost of 1 watch is 1/4 of a ring.
b. the opportunity cost of 1 watch is 4 rings.
c. the opportunity cost of 1 watch is 3 rings.
d. the opportunity cost of 1 watch is 12 rings.
e. the opportunity cost of 1 watch is 1/3 of a ring.

C
ANSWER:
23. The figure shows how much a worker can produce in one day. Which of the following
statements about absolute advantage is true?
a. Australia has an absolute advantage in the production of food while Korea has an
absolute advantage in the production of electronics.
b. Korea has an absolute advantage in the production of food while Australia has an
absolute advantage in the production of electronics.
c. Australia has an absolute advantage in the production of both food and electronics.
d. Korea has an absolute advantage in the production of both food and electronics.

C
ANSWER:

24. The figure shows how much a worker can produce in one day. The opportunity cost of 1 unit
of electronics in Korea is

a. 4 units of food.
b. 5 units of food.
c. 1/5 of a unit of food.
d. 1/4 of a unit of food.

A
ANSWER:
25. The figure shows how much a worker can produce in one day. The opportunity cost of 1 unit
of electronics in Australia is

a. 4 units of food.
b. 1/4 units of food.
c. 2 units of food.
d. 1/2 of a unit of food.

C
ANSWER:

26. The figure shows how much a worker can produce in one day. The opportunity cost of 1 unit
of food in Korea is

a. 1/5 of a unit of electronics.


b. 5 units of electronics.
c. 4 units of electronics.
d. 1/4 of a unit of electronics.

D
ANSWER:

27. The figure shows how much a worker can produce in one day. The opportunity cost of 1 unit
of food in Australia is

a. 1/2 of a unit of electronics.


b. 1/4 units of electronics.
c. 2 units of electronics.
d. 4 units of electronics.
A
ANSWER:

28. The figure shows how much a worker can produce in one day. Which of the following
statements about comparative advantage is true?

a. Australia has a comparative advantage in the production of both food and


electronics.
b. Korea has a comparative advantage in the production of both food and electronics.
c. Korea has a comparative advantage in the production of food while Australia has a
comparative advantage in the production of electronics.
d. Australia has a comparative advantage in the production of food while Korea has a
comparative advantage in the production of electronics.
e. Neither country has a comparative advantage.

C
ANSWER:

29. The figure shows how much a worker can produce in one day. Australia should

a. specialize in electronics production, export electronics, and import food.


b. produce neither good because it has an absolute disadvantage in the production of
both goods.
c. produce both goods because neither country has a comparative advantage.
d. specialize in food production, export food, and import electronics

A
ANSWER:
30.

a. The price must be greater than 1/5 of a unit of food but less than 1/4 of a unit of
food.
b. The price must be greater than 4 units of food but less than 5 units of food.
c. The price must be greater than 2 of a unit of food but less than 4 of a unit of food.
d. The price must be greater than 1/4 units of food but less than 1/2 units of food.

C
ANSWER:

31. Suppose the world consists of two countries: the UK and Spain. Further, suppose there are
only two goods--food and clothing. Which of the following statements is true?
a. If the UK has an absolute advantage in the production of food, then Spain must have
an absolute advantage in the production of clothing.
b. none of these answers.
c. If the UK has a comparative advantage in the production of food, Spain might also
have a comparative advantage in the production of food.
d. If the UK has a comparative advantage in the production of food, it must also have a
comparative advantage in the production of clothing.
e. If the UK has a comparative advantage in the production of food, then Spain must
have a comparative advantage in the production of clothing.

E
ANSWER:

32. Use the production possibilities frontiers in Exhibit 4 to answer the question. Assume each
country has the same number of workers, say 20 million, and that each axis is measured in
metric tons per month. Argentina has a comparative advantage in the production of
a. neither fruit nor beef.
b. fruit.
c. both fruit and beef.
d. beef.

D
ANSWER:

33. Use the production possibilities frontiers in Exhibit 4 to answer the question. Assume each
country has the same number of workers, say 20 million, and that each axis is measured in
metric tons per month. Peru will export

a. both fruit and beef.


b. beef.
c. fruit.
d. neither fruit nor beef.

C
ANSWER:

34. Use the production possibilities frontiers in Exhibit 4 to answer the question. Assume each
country has the same number of workers, say 20 million, and that each axis is measured in
metric tons per month. The opportunity cost of producing a metric ton of beef in Peru is

a. 1/3 ton of fruit.


b. 6 tons of fruit.
c. 1 ton of fruit.
d. 2 tons of fruit.
e. 3 tons of fruit.

E
ANSWER:

35. Joe is a tax accountant. He receives €100 per hour doing tax returns. He can type 10,000
characters per hour into spreadsheets. He can hire an assistant who types 2,500 characters per
hour into spreadsheets. Which of the following statements is true?
a. none of these answers.
b. Joe should hire the assistant as long as he pays the assistant less than €25 per hour.
c. Joe should not hire an assistant because the assistant cannot type as fast as he.
d. Joe should hire the assistant as long as he pays the assistant less than €100 per hour.

B
ANSWER:

chapter 4: Demand and supply


16. A perfectly competitive market has
a. firms that set their own prices.
b. only one seller.
c. at least a few sellers.
d. many buyers and sellers.
e. none of these answers.
D
ANSWER:

17. If an increase in the price of blue jeans leads to a decrease in the demand for
tennis shoes, then blue jeans and tennis shoes are
a. complements.
b. inferior goods.
c. normal goods.
d. none of these answers.
e. substitutes.

A
ANSWER:

18. The law of demand states that an increase in the price of a good
a. increases the supply of that good.
b. decreases the quantity demanded for that good along its demand curve.
c. decreases the demand for that good.
d. increases the quantity supplied of that good along its supply curve.
e. none of these answers.

B
ANSWER:

19. The law of supply states that an increase in the price of a good
a. none of these answers.
b. increases the quantity supplied of that good along its supply curve.
c. increases the supply of that good.
d. decreases the demand for that good.
e. decreases the quantity demanded for that good along its demand curve.

B
ANSWER:

20. If an increase in consumer incomes leads to a decrease in the demand for camping
equipment, then camping equipment is
a. a normal good.
b. none of these answers.
c. an inferior good.
d. a substitute good.
e. a complementary good.
C
ANSWER:

21. That the supply curve for ice cream cones is upward sloping indicates that
a. the marginal cost of providing ice cream cones increases as more cones are
produced.
b. as the price of ice cream cones increases, the production technology is upgraded.
c. as the price increases, the opportunity cost of making ice cream cones decreases.
d. all of the above.
e. none of the above.

A
ANSWER:

22. Which of the following shifts the demand for watches to the right?
a. an increase in the price of watches
b. none of these answers
c. a decrease in the price of watch batteries if watch batteries and watches are
complements
d. a decrease in consumer incomes if watches are a normal good
e. a decrease in the price of watches

C
ANSWER:

23. All of the following shift the supply of watches to the right except
a. an advance in the technology used to manufacture watches.
b. an increase in the price of watches.
c. All of these answers cause an increase in the supply of watches.
d. a decrease in the wage of workers employed to manufacture watches.
e. manufacturers' expectation of lower watch prices in the future.

B
ANSWER:

24. If the price of a good is above the equilibrium price,


a. there is a surplus (i.e. an excess supply) and the price will rise.
b. there is a shortage (i.e. an excess demand) and the price will fall.
c. there is a shortage (i.e. an excess demand) and the price will rise.
d. the quantity demanded is equal to the quantity supplied and the price remains
unchanged.
e. there is a surplus (i.e. an excess supply) and the price will fall.
E
ANSWER:

25. If the price of a good is below the equilibrium price,


a. there is a shortage (i.e. an excess demand) and the price will rise.
b. the quantity demanded is equal to the quantity supplied and the price remains
unchanged.
c. there is a shortage (i.e. an excess demand) and the price will fall.
d. there is a surplus (i.e. an excess supply) and the price will rise.
e. there is a surplus (i.e. an excess supply) and the price will fall.

A
ANSWER:

26. If the price of a good is equal to the equilibrium price,


a. there is a shortage (i.e. an excess demand) and the price will fall.
b. the quantity demanded is equal to the quantity supplied and the price remains
unchanged.
c. there is a surplus (i.e. an excess supply) and the price will rise.
d. there is a shortage (i.e. an excess demand) and the price will rise.
e. there is a surplus (i.e. an excess supply) and the price will fall.

B
ANSWER:

27. An increase (rightward shift) in the demand for a good will tend to cause
a. an increase in the equilibrium price and quantity.
b. none of these answers.
c. an increase in the equilibrium price and a decrease in the equilibrium quantity.
d. a decrease in the equilibrium price and an increase in the equilibrium quantity.
e. a decrease in the equilibrium price and quantity.

A
ANSWER:

28. A decrease (leftward shift) in the supply for a good will tend to cause
a. an increase in the equilibrium price and quantity.
b. a decrease in the equilibrium price and an increase in the equilibrium quantity.
c. none of these answers.
d. a decrease in the equilibrium price and quantity.
e. an increase in the equilibrium price and a decrease in the equilibrium quantity.
E
ANSWER:

29. Suppose there is an increase in both the supply and demand for personal computers. In the
market for personal computers, we would expect
a. the equilibrium quantity to rise and the equilibrium price to rise.
b. the equilibrium quantity to rise and the equilibrium price to fall.
c. the equilibrium quantity to rise and the equilibrium price to remain constant.
d. the change in the equilibrium quantity to be ambiguous and the equilibrium price to
rise.
e. the equilibrium quantity to rise and the change in the equilibrium price to be
ambiguous.

E
ANSWER:
30. Suppose there is an increase in both the supply and demand for personal computers. Further,
suppose the supply of personal computers increases more than demand for personal
computers. In the market for personal computers, we would expect
a. the change in the equilibrium quantity to be ambiguous and the equilibrium price to
fall.
b. the equilibrium quantity to rise and the equilibrium price to rise.
c. the equilibrium quantity to rise and the change in the equilibrium price to be
ambiguous.
d. the equilibrium quantity to rise and the equilibrium price to fall.
e. the equilibrium quantity to rise and the equilibrium price to remain constant.

D
ANSWER:

31. Which of the following statements is true about the impact of an increase in the price of
lettuce?
a. Both the demand for lettuce will decrease and the equilibrium price and quantity of
salad dressing will fall.
b. The supply of lettuce will decrease.
c. The demand for lettuce will decrease.
d. The equilibrium price and quantity of salad dressing will fall.
e. The equilibrium price and quantity of salad dressing will rise.

D
ANSWER:

32. Suppose a frost destroys much of the Florida orange crop. At the same time, suppose
consumer tastes shift toward orange juice. What would we expect to happen to the
equilibrium price and quantity in the market for orange juice?
a. Price will decrease; quantity is ambiguous.
b. The impact on both price and quantity is ambiguous.
c. Price will increase; quantity will increase.
d. Price will increase; quantity will decrease.
e. Price will increase; quantity is ambiguous.

E
ANSWER:

33. Suppose consumer tastes shift toward the consumption of apples. Which of the following
statements is an accurate description of the impact of this event on the market for apples?
a. There is an increase in the quantity demanded of apples along the demand curve and
in the supply for apples.
b. There is an increase in the demand and supply of apples.
c. There is an increase in the demand for apples and a decrease in the supply of apples.
d. There is a decrease in the quantity demanded of apples along its demand curve and
an increase in the supply for apples.
e. There is an increase in the demand for apples and an increase in the quantity supplied
of apples along the supply curve.

E
ANSWER:

34. Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future.
What would we expect to happen to the equilibrium price and quantity in the market for
wheat today?
a. The impact on both price and quantity is ambiguous.
b. Price will decrease; quantity is ambiguous.
c. Price will increase; quantity will decrease.
d. Price will increase; quantity is ambiguous.
e. Price will increase; quantity will increase.

D
ANSWER:

35. An inferior good is one for which an increase in income causes a(n)
a. decrease in supply.
b. increase in demand.
c. increase in supply.
d. decrease in demand.

D
ANSWER:
chapter 5 (Elasticity)
11. The price elasticity of demand is defined as
a. the percentage change in the quantity demanded divided by the percentage change in
income.
b. the percentage change in income divided by the percentage change in the quantity
demanded.
c. the percentage change in the quantity demanded of a good divided by the percentage
change in the price of that good.
d. none of these answers.
e. the percentage change in price of a good divided by the percentage change in the
quantity demanded of that good.

C
ANSWER:

12. In general, a flatter demand curve is more likely to be


a. price elastic.
b. unit price elastic.
c. none of these answers.
d. price inelastic.

A
ANSWER:

13. In general, a steeper supply curve is more likely to be


a. price elastic.
b. none of these answers.
c. unit price elastic.
d. price inelastic.

D
ANSWER:

14. Which of the following would cause a demand curve for a good to be price inelastic?
a. The good is a luxury.
b. There are a great number of substitutes for the good.
c. The good is a necessity.
d. None of these answers.

C
ANSWER:
15. The demand for which of the following is likely to be the most price inelastic?
a. transportation
b. taxi rides
c. bus tickets
d. airline tickets

A
ANSWER:

16. If a supply curve for a good is price elastic, then


a. the quantity supplied is sensitive to changes in the price of that good.
b. the quantity demanded is insensitive to changes in the price of that good.
c. the quantity demanded is sensitive to changes in the price of that good.
d. the quantity supplied is insensitive to changes in the price of that good.
e. none of these answers.

A
ANSWER:
17. If a fisherman must sell all of his daily catch before it spoils for whatever price he is offered,
once the fish are caught the fisherman's price elasticity of supply for fresh fish is
a. zero.
b. infinite.
c. one.
d. unable to be determined from this information.

A
ANSWER:

18. A decrease in supply (shift to the left) will increase total revenue in that market if
a. demand is price inelastic.
b. supply is price elastic.
c. supply is price inelastic.
d. demand is price elastic.

A
ANSWER:

19. If an increase in the price of a good has no impact on the total revenue in that market,
demand must be
a. all of these answers.
b. price inelastic.
c. unit price elastic.
d. price elastic.
C
ANSWER:

20. Technological improvements in agriculture that shift the supply of agricultural commodities
to the right tend to
a. increase total revenue to farmers as a whole because the demand for food is elastic.
b. increase total revenue to farmers as a whole because the demand for food is inelastic.
c. reduce total revenue to farmers as a whole because the demand for food is elastic.
d. reduce total revenue to farmers as a whole because the demand for food is inelastic.

D
ANSWER:

21. If supply is price inelastic, the value of the price elasticity of supply must be
a. infinite.
b. zero.
c. less than 1.
d. none of these answers.
e. greater than 1.

C
ANSWER:

22. If there is excess capacity in a production facility, it is likely that the firm's supply curve is
a. price inelastic.
b. none of these answers.
c. unit price elastic.
d. price elastic.

D
ANSWER:

23. Suppose that at a price of €30 per month, there are 30,000 subscribers to cable television in
Small Town. If Small Town Cablevision raises its price to €40 per month, the number of
subscribers will fall to 20,000. At which of the following prices does Small Town
Cablevision earn the greatest total revenue?
a. €0 per month
b. €30 per month
c. €40 per month
d. Either €30 or €40 per month because the price elasticity of demand is 1.0.

B
ANSWER:
24. If demand is linear (a straight line), then price elasticity of demand is
a. elastic in the upper portion and inelastic in the lower portion.
b. inelastic in the upper portion and elastic in the lower portion.
c. inelastic throughout.
d. constant along the demand curve.
e. elastic throughout.

A
ANSWER:

25. If consumers think that there are very few substitutes for a good, then
a. supply would tend to be price elastic.
b. none of these answers.
c. demand would tend to be price inelastic.
d. demand would tend to be price elastic.
e. supply would tend to be price inelastic.

C
ANSWER:

Chapter 6 : Government Actions in Markets


16. For a price ceiling to be a binding constraint on the market, the government must set it
a. above the equilibrium price.
b. below the equilibrium price.
c. precisely at the equilibrium price.
d. at any price because all price ceilings are binding constraints.

B
ANSWER:

17. A binding price ceiling creates


a. a shortage or a surplus depending on whether the price ceiling is set above or below
the equilibrium price.
b. a surplus.
c. a shortage.
d. an equilibrium.

C
ANSWER:

18. Suppose the equilibrium price for apartments is €500 per month and the government imposes
rent controls of €250. Which of the following is unlikely to occur as a result of the rent
controls?
a. There may be long lines of buyers waiting for apartments.
b. Landlords may discriminate among apartment renters.
c. Landlords may be offered bribes to rent apartments.
d. There will be a shortage of housing.
e. The quality of apartments will improve.

E
ANSWER:

19. A price floor


a. always determines the price at which a good must be sold.
b. sets a legal maximum on the price at which a good can be sold.
c. is not a binding constraint if it is set above the equilibrium price.
d. sets a legal minimum on the price at which a good can be sold.

D
ANSWER:

20. Which of the following statements about a binding price ceiling is true?
a. The shortage created by the price ceiling is greater in the short run than in the long
run.
b. The surplus created by the price ceiling is greater in the short run than in the long
run.
c. The surplus created by the price ceiling is greater in the long run than in the short
run.
d. The shortage created by the price ceiling is greater in the long run than in the short
run.

D
ANSWER:

21. Which side of the market is more likely to lobby government for a price floor?
a. the buyers
b. Neither buyers nor sellers desire a price floor.
c. the sellers
d. Both buyers and sellers desire a price floor.

C
ANSWER:

22. The surplus caused by a binding price floor will be greatest if


a. demand is inelastic and supply is elastic.
b. supply is inelastic and demand is elastic.
c. both supply and demand are elastic.
d. both supply and demand are inelastic.

C
ANSWER:

23. Which of the following is an example of a price floor?


a. the minimum wage
b. rent controls
c. restricting petrol prices to €1.00 per litre when the equilibrium price is €1.50 per litre
d. All of these answers are price floors.

A
ANSWER:

24. Which of the following statements is true if the government places a price ceiling on petrol at
€1.50 per litre and the equilibrium price is €1.00 per litre?
a. A significant increase in the demand for petrol could cause the price ceiling to
become a binding constraint.
b. A significant increase in the supply of petrol could cause the price ceiling to become
a binding constraint.
c. There will be a shortage of petrol.
d. There will be a surplus of petrol.

A
ANSWER:

25. Which of the following workers would be most likely to find it more difficult to get a job
after a rise in the minimum wage rate?
a. A teenage worker with few qualifications.
b. A manual worker with fifteen years of work experience.
c. A professional worker with a university degree.
d. All three are equally likely to find it difficult to get a job.

A
ANSWER:

26. Within the supply and demand model, a tax collected from the buyers of a good shifts the
a. supply curve downward by the size of the tax per unit.
b. supply curve upward by the size of the tax per unit.
c. demand curve upward by the size of the tax per unit.
d. demand curve downward by the size of the tax per unit.
D
ANSWER:

27. Within the supply and demand model, a tax collected from the sellers of a good shifts the
a. demand curve downward by the size of the tax per unit.
b. supply curve downward by the size of the tax per unit.
c. demand curve upward by the size of the tax per unit.
d. supply curve upward by the size of the tax per unit.

D
ANSWER:

28. Which of the following takes place when a tax is placed a good?
a. a decrease in the price buyers pay, an increase in the price sellers receive, and a
decrease in the quantity sold
b. an increase in the price buyers pay, a decrease in the price sellers receive, and an
increase in the quantity sold
c. a decrease in the price buyers pay, an increase in the price sellers receive, and an
increase in the quantity sold
d. an increase in the price buyers pay, a decrease in the price sellers receive, and a
decrease in the quantity sold

D
ANSWER:

29. When a tax is collected from the buyers in a market,


a. the tax burden falls most heavily on the buyers.
b. the buyers bear the burden of the tax.
c. the sellers bear the burden of the tax.
d. the tax burden on the buyers and sellers is the same as an equivalent tax collected
from the sellers.

D
ANSWER:

30. A tax of €1.00 per litre on petrol


a. places a tax wedge of €1.00 between the price the buyers pay and the price the sellers
receive.
b. decreases the price the sellers receive by €1.00 per litre.
c. increases the price the buyers pay by €1.00 per litre.
d. increases the price the buyers pay by precisely €0.50 and reduces the price received
by sellers by precisely €0.50.
A
ANSWER:

31. The burden of a tax falls more heavily on the sellers in a market when
a. both supply and demand are elastic.
b. both supply and demand are inelastic.
c. demand is inelastic and supply is elastic.
d. demand is elastic and supply is inelastic.

D
ANSWER:

32. A tax placed on a good that is a necessity for consumers will likely generate a tax burden that
a. falls more heavily on sellers.
b. falls entirely on sellers.
c. falls more heavily on buyers.
d. is evenly distributed between buyers and sellers.

C
ANSWER:

33. The burden of a tax falls more heavily on the buyers in a market when
a. both supply and demand are inelastic.
b. demand is elastic and supply is inelastic.
c. both supply and demand are elastic.
d. demand is inelastic and supply is elastic.

D
ANSWER:

34. Which of the following statements about the burden of a tax is correct?
a. The tax burden generated from a tax placed on a good consumers perceive to be a
necessity will fall most heavily on the sellers of the good.
b. The burden of a tax falls on the side of the market (buyers or sellers) from which it is
collected.
c. The distribution of the burden of a tax is determined by the relative elasticities of
supply and demand and is not determined by legislation.
d. The tax burden falls most heavily on the side of the market (buyers or sellers) that is
most willing to leave the market when price movements are unfavourable to them.

C
ANSWER:
35. For which of the following products would the burden of a tax likely fall more heavily on the
sellers?
a. clothing
b. food
c. housing
d. entertainment

D
ANSWER:

Chapter 7 : Efficiency or Markets


16. Consumer surplus is the area
a. below the demand curve and above the price.
b. above the supply curve and below the price.
c. above the demand curve and below the price.
d. below the supply curve and above the price.
e. below the demand curve and above the supply curve.

A
ANSWER:

17. A buyer's willingness to pay is that buyer's


a. minimum amount they are willing to pay for a good.
b. producer surplus.
c. consumer surplus.
d. maximum amount they are willing to pay for a good.
e. none of these answers.

D
ANSWER:

18. If a buyer's willingness to pay for a new Honda is €20,000 and she is able to actually buy it
for €18,000, her consumer surplus is
a. €18,000.
b. €20,000.
c. €2,000.
d. €0.
e. €38,000.

C
ANSWER:
19. An increase in the price of a good along a stationary demand curve
a. improves the material welfare of the buyers.
b. decreases consumer surplus.
c. improves market efficiency.
d. increases consumer surplus.

B
ANSWER:

20. Suppose there are three identical vases available to be purchased. Buyer 1 is willing to pay
€30 for one, buyer 2 is willing to pay €25 for one, and buyer 3 is willing to pay €20 for one.
If the price is €25, how many vases will be sold and what is the value of consumer surplus in
this market?
a. Three vases will be sold and consumer surplus is €80.
b. One vase will be sold and consumer surplus is €5.
c. One vase will be sold and consumer surplus is €30.
d. Three vases will be sold and consumer surplus is €0.
e. Two vases will be sold and consumer surplus is €5.

E
ANSWER:

21. Producer surplus is the area


a. below the supply curve and above the price.
b. below the demand curve and above the supply curve.
c. below the demand curve and above the price.
d. above the demand curve and below the price.
e. above the supply curve and below the price.

E
ANSWER:

22. If a benevolent social planner chooses to produce less than the equilibrium quantity of a
good, then
a. total surplus is maximized.
b. the value placed on the last unit of production by buyers exceeds the cost of
production.
c. producer surplus is maximized.
d. the cost of production on the last unit produced exceeds the value placed on it by
buyers.
e. consumer surplus is maximized.

B
ANSWER:
23. If a benevolent social planner chooses to produce more than the equilibrium quantity of a
good, then
a. the value placed on the last unit of production by buyers exceeds the cost of
production.
b. the cost of production on the last unit produced exceeds the value placed on it by
buyers.
c. consumer surplus is maximized.
d. total surplus is maximized.
e. producer surplus is maximized.

B
ANSWER:

24. The seller's cost of production is


a. none of these answers.
b. the minimum amount the seller is willing to accept for a good.
c. the seller's producer surplus.
d. the maximum amount the seller is willing to accept for a good.
e. the seller's consumer surplus.

B
ANSWER:

25. Total surplus is the area


a. above the supply curve and below the price.
b. below the demand curve and above the price.
c. below the demand curve and above the supply curve.
d. below the supply curve and above the price.
e. above the demand curve and below the price.

C
ANSWER:
26. An increase in the price of a good along a stationary supply curve
a. increases producer surplus.
b. does all of the things described in these answers.
c. decreases producer surplus.
d. improves market equity.

A
ANSWER:

27. Adam Smith's "invisible hand" concept suggests that a competitive market outcome
a. maximizes total surplus.
b. generates equality among the members of society.
c. minimizes total surplus.
d. both maximizes total surplus and generates equality among the members of society.

A
ANSWER:

28. In general, if a benevolent social planner wanted to maximize the total benefits received by
buyers and sellers in a market, the planner should
a. choose a price below the market equilibrium price.
b. allow the market to seek equilibrium on its own.
c. choose any price the planner wants because the losses to the sellers (buyers) from
any change in price are exactly offset by the gains to the buyers (sellers).
d. choose a price above the market equilibrium price.

B
ANSWER:

29. If buyers are rational and there is no market failure,


a. free market solutions are efficient.
b. free market solutions maximize total surplus.
c. all of these answers.
d. free market solutions are equitable.
e. free market solutions are efficient and free market solutions maximize total surplus.

E
ANSWER:

30. If a producer has market power (can influence the price of the product in the market) then
free market solutions
a. are equitable.
b. are efficient.
c. maximize consumer surplus.
d. are inefficient.

D
ANSWER:

31. If a market is efficient, then


a. the market allocates buyers to the sellers who can produce the good at least cost.
b. all of these answers.
c. none of these answers.
d. the quantity produced in the market maximizes the sum of consumer and producer
surplus.
e. the market allocates output to the buyers that value it the most.

32. If a market generates a side effect or externality, then free market solutions
a. maximize producer surplus.
b. are efficient.
c. are inefficient.
d. are equitable.

33. Medical care clearly enhances people’s lives. Therefore, we should consume medical care
until
a. everyone has as much as they would like.
b. the benefit buyers place on medical care is equal to the cost of producing it.
c. buyers receive no benefit from another unit of medical care.
d. we must cut back on the consumption of other goods.

B
ANSWER:
34. Joe has ten pairs of football boots and Sue has none. A pair of football boots costs €50 to
produce. If Joe values an additional pair of boots at €100 and Sue values a pair of boots at
€40, then to maximize
a. efficiency Sue should receive the glove.
b. efficiency Joe should receive the glove.
c. equity, Joe should receive the glove.
d. consumer surplus both should receive a glove.

B
ANSWER:

35. Suppose that the price of a new bicycle is €300. Natalie values a new bicycle at €400. It costs
€200 for the seller to produce the new bicycle. What is the value of total surplus if Natalie
buys a new bike?
a. €500
b. €300
c. €200
d. €400
e. €100

C
ANSWER:

Chapter 8: Taxe
16. Refer to Exhibit 4. If there is no tax placed on the product in this market, consumer surplus is
the area

a. C + D + F.
b. A.
c. A + B + E.
d. D + C + B.
e. A + B + C.

C
ANSWER:

17. Refer to Exhibit 4. If there is no tax placed on the product in this market, producer surplus is
the area
a. A + B + E.
b. D.
c. C + F.
d. A + B + C + D.
e. C + D + F.

E
ANSWER:

18. Refer to Exhibit 4. If a tax is placed on the product in this market, consumer surplus is the
area

a. D.
b. A.
c. A + B + E.
d. A + B + C + D.
e. A + B.

B
ANSWER:

20. Refer to Exhibit 4. If a tax is placed on the product in this market, tax revenue paid by the
buyers is the area

a. B + C + E + F.
b. B.
c. B + C.
d. A.
e. C.

B
ANSWER:

21. Refer to Exhibit 4. If a tax is placed on the product in this market, tax revenue paid by the
sellers is the area

a. C + F.
b. A.
c. B.
d. B + C + E + F.
e. C.

E
ANSWER:

22. Refer to Exhibit 4. If there is no tax placed on the product in this market, total surplus is the
area

a. B + C + E + F.
b. E + F.
c. A + B + C + D.
d. A + B + C + D + E + F.
e. A + D + E + F.

D
ANSWER:

23. Refer to Exhibit 4. If a tax is placed on the product in this market, total surplus is the area
a. A + B + C + D + E + F.
b. A + B + C + D.
c. A + D.
d. B + C + E + F.
e. E + F.

B
ANSWER:

24. Refer to Exhibit 4. If a tax is placed on the product in this market, deadweight loss is the area

a. B + C + E + F.
b. E + F.
c. B + C.
d. A + B + C + D.
e. A + D.

B
ANSWER:

25. Refer to Exhibit 4. Which of the following is true with regard to the burden of the tax in
Exhibit 4?

a. The buyers pay a larger portion of the tax because demand is more inelastic than
supply.
b. The sellers pay a larger portion of the tax because supply is more elastic than
demand.
c. The buyers pay a larger portion of the tax because demand is more elastic than
supply.
d. The sellers pay a larger portion of the tax because supply is more inelastic than
demand.

D
ANSWER:

26. Which of the following would likely cause the greatest deadweight loss?
a. a tax on salt
b. a tax on cigarettes
c. a tax on petrol
d. a tax on cruise line tickets

D
ANSWER:
27. A tax on petrol is likely to
a. generate a deadweight loss that is unaffected by the time period over which it is
measured.
b. cause a greater deadweight loss in the long run when compared to the short run.
c. none of these answers
d. cause a greater deadweight loss in the short run when compared to the long run.

B
ANSWER:

28. Deadweight loss is greatest when


a. supply is elastic and demand is perfectly inelastic.
b. demand is elastic and supply is perfectly inelastic.
c. both supply and demand are relatively inelastic.
d. both supply and demand are relatively elastic.

D
ANSWER:

29. Since the supply of undeveloped land is relatively inelastic, a tax on undeveloped land would
generate
a. a small deadweight loss and the burden of the tax would fall on the renter.
b. a large deadweight loss and the burden of the tax would fall on the landlord.
c. a large deadweight loss and the burden of the tax would fall on the renter.
d. a small deadweight loss and the burden of the tax would fall on the landlord.

D
ANSWER:

30. Which of the following is true with regard to a tax on labour income? Taxes on labour
income tend to encourage
a. the unscrupulous to enter the underground economy.
b. the elderly to retire early.
c. all of the things described in these answers.
d. second earners to stay home.
e. workers to work fewer hours.

C
ANSWER:

31. When a tax on a good starts small and is gradually increased, tax revenue
a. will fall.
b. will rise.
c. will first rise and then fall.
d. will first fall and then rise.
e. none of these answers

C
ANSWER:

32. The graph that shows the relationship between the size of a tax and the tax revenue collected
by the government is known as a
a. none of these answers
b. Reagan curve.
c. Keynesian curve.
d. Laffer curve.
e. Henry George curve.

D
ANSWER:

33. If a tax on a good is doubled, the deadweight loss from the tax
a. doubles.
b. stays the same.
c. increases by a factor of four.
d. could rise or fall.

C
ANSWER:

34. The reduction of a tax


a. will have no impact on tax revenue.
b. will always reduce tax revenue regardless of the prior size of the tax.
c. could increase tax revenue if the tax had been extremely high.
d. causes a market to become less efficient.

C
ANSWER:

35. When a tax distorts incentives to buyers and sellers so that fewer goods are produced and
sold than otherwise, the tax has
a. caused a deadweight loss.
b. decreased equity.
c. generated no tax revenue.
d. increased efficiency.
A
ANSWER:

Chapter 09 : Production and Cost


Accounting profit explicit cost
Economic profit  implicit cost
16. Accounting profit is equal to total revenue minus
a. implicit costs.
b. variable costs.
c. the sum of implicit and explicit costs.
d. explicit costs.
e. marginal costs.

D
ANSWER:

17. Economic profit is equal to total revenue minus


a. variable costs. c. explicit costs.
b. implicit costs. d. marginal costs.
18. Nicole owns a small pottery factory. She can make 1,000 pieces of pottery per year and sell
them for €100 each. It costs Nicole €20,000 for the raw materials to produce the 1,000 pieces
of pottery. She has invested €100,000 in her factory and equipment: €50,000 from her
savings and €50,000 borrowed at 10 per cent. (Assume that she could have loaned her money
out at 10 per cent, too.) Nicole can work at a competing pottery factory for €40,000 per year.
The accounting profit at Nicole's pottery factory is
a. €30,000.
b. €35,000.
c. €70,000.
d. €75,000.
e. €80,000.
Lợi nhuận kế toán: tổng doanh thu – chiphi kế toán
AP= 100000- 20000- 5000= 75000
19. Nicole owns a small pottery factory. She can make 1,000 pieces of pottery per year and sell
them for €100 each. It costs Nicole €20,000 for the raw materials to produce the 1,000 pieces
of pottery. She has invested €100,000 in her factory and equipment: €50,000 from her
savings and €50,000 borrowed at 10 percent (assume that she could have loaned her money
out at 10 percent, too). Nicole can work at a competing pottery factory for €40,000 per year.
The economic profit at Nicole's pottery factory is
a. €30,000.
b. €35,000.
c. €70,000.
d. €75,000.
e. €80,000.

A
ANSWER:
EP= 100.000- 20.000 – 5000 – 40.000= 30.000
20. If there are implicit costs of production,
a. accounting profit will exceed economic profit.
b. economic profit will always be zero.
c. economic profit will exceed accounting profit.
d. accounting profit will always be zero.
e. economic profit and accounting profit will be equal.

21. If a production function exhibits diminishing marginal product, its slope


a. is linear (a straight line).
b. becomes steeper as the quantity of the input increases.
c. could be any of these answers.
d. becomes flatter as the quantity of the input increases.

D
ANSWER:
22. If a production function exhibits diminishing marginal product, the slope of the
corresponding total-cost curve
a. is linear (a straight line).
b. is negative throughout its length
c. becomes steeper as the quantity of output increases.
d. becomes flatter as the quantity of output increases.

C
ANSWER:

23. Refer to Figure 13-1. The marginal product of labour as production moves from employing
one worker to employing two workers is

Figure 13-1
Number of Workers Output
0 0
1 23
2 40
3 50
a. 0.
b. 10.
c. 17.
d. 23
e. 40.

C
ANSWER:

24. Refer to Figure 13-1. The production process described above exhibits

Figure 13-1
Number of Workers Output
0 0
1 23
2 40
3 50
a. constant marginal product of labour.
b. diminishing marginal product of labour.
c. increasing returns to scale.
d. increasing marginal product of labour.
e. decreasing returns to scale.

B
ANSWER:

25. Which of the following is a variable cost in the short run?


a. rent on the factory
b. wages paid to factory labour
c. interest payments on borrowed financial capital
d. payment on the lease for factory equipment
e. salaries paid to upper management

B
ANSWER:

26. Refer to Figure 13-2. The average fixed cost of producing four units is

Figure 13-2

Quantity of Fixed Costs Variable Total Costs Marginal Costs


Output Costs
0 €10 €0

1 10 5

2 10 11
3 10 18

4 10 26

5 10 36
a. €2.50.
b. €5.
c. €9
d. €26.
e. €40.

A
ANSWER:
AFC= FC/Q
27. Refer to Figure 13-2. The average total cost of producing three units is

Figure 13-2

Quantity of Fixed Costs Variable Total Costs Marginal Costs


Output Costs
0 €10 €0

1 10 5

2 10 11

3 10 18

4 10 26

5 10 36
a. €6.
b. €3.33.
c. €9.33.
d. €12.66
e. €28.

C
ANSWER:
ATC= TC/Q
28. Refer to Figure 13-2. The marginal cost of changing production from three units to four units
is
Figure 13-2

Quantity of Fixed Costs Variable Total Costs Marginal Costs


Output Costs
0 €10 €0

1 10 5

2 10 11

3 10 18

4 10 26

5 10 36
a. €5.
b. €6.
c. €7.
d. €8.
e. €9.

D
ANSWER:
MC= DENTA TVC/ DENTA Q
29. Refer to Figure 13-2. The efficient scale of production is

Figure 13-2

Quantity of Fixed Costs Variable Total Costs Marginal


Output Costs Costs
0 €10 €0 10

1 10 5 15

2 10 11 21

3 10 18 28

4 10 26 36

5 10 36 46
a. one unit.
b. two units.
c. three units.
d. four units.
e. five units.
ATC: _
15
10.5
9.33
9
9.20
efficient scale of production: GIÁ TRỊ MÀ ATC THẤP NHẤT
30 When marginal costs are below average total costs,
a. average fixed costs are rising. c. average total costs are rising.
b. average total costs are falling. d. average total costs are minimized.

B
ANSWER:
MC< ATC  ATC GIẢM
MC> ATC  ATC TĂNG
MC = ATC  ATC THẤP NHẤT ( EFFICIENT SCALE)
31. If marginal costs equal average total costs,
a. average total costs are falling. c. average total costs are maximized.
b. average total costs are rising. d. average total costs are minimized.

32. In the long run, if a very small factory were to expand its scale of operations, it is likely that
it would initially experience
a. an increase in average total costs. c. economies of scale.
b. diseconomies of scale. d. constant returns to scale.

33. The efficient scale of production is the quantity of output that minimizes
a. average fixed cost. c. average variable cost.
b. average total cost. d. marginal cost.

34. Which of the following statements is true?


a. All costs are fixed in the short run. c. All costs are variable in the short run.
b. All costs are variable in the long run. d. All costs are fixed in the long run.
Chapter 10: Perfect Competition

11. Which of the following is not a characteristic of a competitive market?


a. All of these answers are characteristics of a competitive market.
b. There are many buyers and sellers in the market.
c. The goods offered for sale are largely the same.
d. Firms generate small but positive economic profits in the long run.
e. Firms can freely enter or exit the market.

12. Which of the following markets would most closely satisfy the requirements for a
competitive market?
a. electricity
b. cable television
c. cola
d. milk
e. economics textbooks.

13. If a competitive firm doubles its output, its total revenue


a. doubles.
b. more than doubles.
c. less than doubles.
d. cannot be determined because the price of the good may rise or fall.

A
ANSWER:

14. For a competitive firm, marginal revenue is


a. total revenue divided by the quantity sold.
b. equal to the quantity of the good sold.
c. average revenue divided by the quantity sold.
d. equal to the price of the good sold.

D
ANSWER:

15. The competitive firm maximizes profit when it produces output up to the point where
a. price equals average variable cost.
b. marginal revenue equals average revenue.
c. marginal cost equals total revenue.
d. marginal cost equals marginal revenue.
16. A grocery store should close at night if the
a. variable costs of staying open are less than the total revenue due to staying open.
b. total costs of staying open are less than the total revenue due to staying open.
c. variable costs of staying open are greater than the total revenue due to staying open.
d. total costs of staying open are greater than the total revenue due to staying open.

17. If an input necessary for production is in limited supply so that an expansion of the industry
raises costs for all existing firms in the market, then the long-run market supply curve for a
good could be
a. perfectly inelastic. c. upward sloping.
b. perfectly elastic. d. downward sloping.

18. In long-run equilibrium in a competitive market, firms are operating at


a. the minimum of their average-total-cost curves.
b. all of these answers are correct.
c. their efficient scale.
d. zero economic profit.
e. the intersection of marginal cost and marginal revenue.

Chapter 11: Monopoly


12. Which of the following is not a barrier to entry in a monopolized market?
a. A single firm is very large.
b. The government gives a single firm the exclusive right to produce some good.
c. The costs of production make a single producer more efficient than a large number
of producers.
d. A key resource is owned by a single firm.

13. A firm whose average total cost continually declines at least to the quantity that could supply
the entire market is known as a
a. natural monopoly.
b. perfect competitor.
c. government monopoly.
d. regulated monopoly.

14. A monopolist maximizes profit by producing the quantity at which


a. marginal revenue equals marginal cost.
b. marginal revenue equals price.
c. marginal cost equals price.
d. marginal cost equals demand.
e. none of these answers.
15. Which of the following statements about price and marginal cost in competitive and
monopolized markets is true?
a. In competitive markets, price equals marginal cost; in monopolized markets, price
exceeds marginal cost.
b. In competitive markets, price equals marginal cost; in monopolized markets, price
equals marginal cost.
c. In competitive markets, price exceeds marginal cost; in monopolized markets, price
exceeds marginal cost.
d. In competitive markets, price exceeds marginal cost; in monopolized markets, price
equals marginal cost.

16. Thomson is a monopolist in the production of your textbook because


a. Thomson has a legally protected exclusive right to produce this textbook.
b. Thomson owns a key resource in the production of textbooks.
c. Thomson is a natural monopoly.
d. Thomson is a very large company.

17. Refer to Exhibit 4. The profit-maximizing monopolist will choose the price and quantity
represented by point

a. A.
b. B.
c. C.
d. D.
e. none of these answers.
18. Refer to Exhibit 4. The efficient price and quantity are represented by point

a. D.
b. A.
c. B.
d. C.
e. none of these answers.

19. The inefficiency associated with monopoly is due to


a. underproduction of the good.
b. the monopoly's profits.
c. the monopoly's losses.
d. overproduction of the good.

20. Compared to a perfectly competitive market, a monopoly market will usually generate
a. higher prices and lower output.
b. higher prices and higher output.
c. lower prices and lower output.
d. lower prices and higher output.

21. Public ownership of natural monopolies


a. tends to be inefficient.
b. usually lowers the cost of production dramatically.
c. creates synergies between the newly acquired firm and other government-owned
companies.
d. does none of the things described in these answers.

22. Which of the follow statements about price discrimination is not true?
a. Perfect price discrimination generates a deadweight loss.
b. Price discrimination can raise economic welfare.
c. Price discrimination requires that the seller be able to separate buyers according to
their willingness to pay.
d. Price discrimination increases a monopolist's profits.
e. For a monopolist to engage in price discrimination, buyers must be unable to engage
in arbitrage.

22. A monopoly is able to continue to generate economic profits in the long run because
a. there is some barrier to entry to that market.
b. potential competitors sometimes don't notice the profits.
c. the monopolist is financially powerful.
d. antitrust laws eliminate competitors for a specified number of years.
e. of all of the things described in these answers

23. If marginal revenue exceeds marginal cost, a monopolists should


a. increase output.
b. decrease output.
c. keep output the same because profits are maximized when marginal revenue exceeds
marginal cost.
d. raise the price.

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