Incorrect Answers

Front 1

Question: If the ratio of the marginal product of labor to the marginal product of land is 1/3, a firm making an optimal input combination should

Back 1

pay each worker 1/3 as much as the price of a unit of land.

Front 2

Question: Large capital accumulation is facilitated in a corporate form of business because of

Back 2

limited liability.

Front 3

Question: Costs are clearly minimized for a given level of output as long as the firm

Back 3

is not able to increase output by substituting a dollar?s worth of input for a dollar?s worth of input B or vice versa.

Front 4

Question: If the marginal utility of food divided by the price of food exceeds the marginal utility of clothing divided by the price of clothing,

Back 4

more should be spent on food and less on clothing.

Front 5

Question: Which best expresses the relationship between the market and individual demand curves?

Back 5

The market demand curve is found by adding the quantities demanded by each consumer at each possible price.

Front 6

Question: The additional satisfaction received from consuming an additional unit of a commodity is called the

Back 6

Correct answer is: e) marginal utility.

Front 7

Question: The relevant cost for making short-run production decisions is the

Back 7

variable cost.

Front 8

Question: Which of the following characteristics would be inappropriate when describing a perfectly competitive market?

Back 8

Some power over price

Front 9

Question: Which of the following is a principal determinant of the market supply curve?

Back 9

The level of input prices

Front 10

Question: If a perfectly competitive firm in the short run can sell its output at $2.50 per bushel and it has an average variable cost of $2.75 per bushel and a marginal cost of $2.50 per bushel, it should

Back 10

cut output to zero.

Front 11

Question: The shape of the total revenue curve of a perfectly competitive firm is

Back 11

an upward-sloping straight line.

Front 12

Question: If the marginal cost for a perfectly competitive, profit-maximizing firmcurrently exceeds the price of its output, the firm should

Back 12

contract output.

Front 13

Question: Which of the following would be excluded from the key characteristics used to classify a market structure?

Back 13

Level of technology

Front 14

Question: A perfectly competitive firm?s marginal cost curve above the minimum value of average variable cost is equivalent to the

Back 14

firm?s supply curve.

Front 15

Question: The percentage change in the quantity demanded of one commodity resulting from a 1 percent change in the price of a complementary commodity is called the

Back 15

cross elasticity of demand.

Front 16

Question: If a firm faces a horizontal demand curve,

Back 16

increases in revenues are possible without reductions in its price.

Front 17

Question: In the 1970s, gasoline shortages provoked a considerable number of serious proposals to ration gasoline. Shortages of certain agricultural commodities have not provoked such proposals because

Back 17

there are more substitutes available for most individual agricultural commodities.

Front 18

Question: When a price decrease produces a decline in the total amount spent on a commodity, demand is said to be

Back 18

price inelastic.

Front 19

Question: If a 1 percent increase in price causes a firm?s sales to decline by 1/2 of 1 percent, the price elasticity of demand is

Back 19

Correct answer is: c) 0.5.

Front 20

Question: If a $1 price increase causes the quantity demanded to fall by 7 units, the demand is

Back 20

of unitary elasticity.

Front 21

Question: The important determinants of the price elasticity of demand are the

Back 21

number and closeness of available substitutes, importance in consumers? budgets, and length of the time period.

Front 22

Question: The sensitivity of the quantity demanded to the total money income of consumers in a market is measured by the

Back 22

income elasticity of demand.

Front 23

Question: The percentage change in the quantity demanded of one commodity resulting from a 1 percent change in the price of a complementary commodity is called the

Back 23

cross elasticity of demand.

Front 24

Question: If a firm faces a horizontal demand curve,

Back 24

increases in revenues are possible without reductions in its price.

Front 25

Question: In the 1970s, gasoline shortages provoked a considerable number of serious proposals to ration gasoline. Shortages of certain agricultural commodities have not provoked such proposals because

Back 25

there are more substitutes available for most individual agricultural commodities.

Front 26

Question: When a price decrease produces a decline in the total amount spent on a commodity, demand is said to be

Back 26

price inelastic.

Front 27

Question: If a 1 percent increase in price causes a firm?s sales to decline by 1/2 of 1 percent, the price elasticity of demand is

Back 27

0.5.

Front 28

Question: If a $1 price increase causes the quantity demanded to fall by 7 units, the demand is

Back 28

possibly any of the above; there is not enough information to determine which is correct.

Front 29

Question: When the total amount spent on a commodity remains unchanged as price is raised or lowered, demand is said to be

Back 29

of unitary elasticity.

Front 30

Question: The important determinants of the price elasticity of demand are the

Back 30

number and closeness of available substitutes, importance in consumers? budgets, and length of the time period.

Front 31

Question: The sensitivity of the quantity demanded to the total money income of consumers in a market is measured by the

Back 31

income elasticity of demand.

Front 32

Question: Resources are considered to be misallocated when

Back 32

price exceeds marginal cost.

Front 33

Question: A key characteristic of oligopoly is

Back 33

actual and perceived interdependence among firms.

Front 34

Question: An oligopolistic market is one with

Back 34

few sellers.

Front 35

Question: Monopolistic competition and oligopoly are similar in that firms in both markets

Back 35

tend to charge higher prices than under perfect competition.

Front 36

Question: There is a strong tendency for oligopolists to cheat on collusive agreements because

Back 36

a cheater can benefit both when all the other parties abide by the agreement and when other parties also cheat.

Front 37

Question: The presence of a price leader in an oligopolistic industry

Back 37

allows firms to coordinate their behavior short of outright collusion

Front 38

Question: In the United States collusive arrangements are difficult to accomplish and maintain for long periods because

Back 38

of the existence of antitrust laws.

Front 39

Question: The basic distinction between perfect competition and monopolistic competition is that

Back 39

perfectly competitive firms produce an identical product; monopolistically competitive firms produce similar products.

Front 40

Question: A profit-maximizing cartel should produce where

Back 40

marginal cost equals marginal revenue.

Front 41

Question: Which of the following policies would be least desirable in helping to control pollution?

Back 41

Zero economic growth

Front 42

Question: When firms do not have to pay the true social costs for resources,

Back 42

the public is induced to buy more of that output than it would otherwise.

Front 43

Question: One means of increasing national output without increasing pollution at a commensurate rate is to

Back 43

substitute the production of nonpolluting products for polluting products.

Front 44

Question: Pollution control programs can lead to an adverse redistribution of income when

Back 44

polluting goods and services play a bigger role in the budgets of the poor than of the rich.

Front 45

Question: A market-based approach for reducing pollution to a specific overall authorized level can be achieved by using

Back 45

transferable emissions permits.

Front 46

Question: The social cost of pollution equals 4P, where P is the level of pollution, and the cost of pollution control equals 10 ? 1P. What is the optimal level of pollution?

Back 46

0

Front 47

Question: As a result of this government action, we would expect that the price of glass produced by Crystal would

Back 47

rise.

Front 48

Question: The EPA has estimated that it would cost $60 billion to remove 85 to 90 percent of water pollutants from industrial and municipal sources, but a zero discharge of pollutants would cost about $320 billion. This suggests that

Back 48

pollution control costs increase at an increasing rate as the level of pollution desired is lowered.

Front 49

Question: A sensible pollution control goal for society is to

Back 49

minimize the sum of the costs of pollution and the costs of controlling pollution.