Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/56

Click to flip

56 Cards in this Set

  • Front
  • Back
Which of the following best states the law of comparative advantage?
(A) Differences in relative costs of production are the key to determining patterns of trade.
(B) Differences in absolute costs of production determine which goods should be traded between nations.
(C) Tariffs and quotas are beneficial in increasing international competitiveness.
(D) Nations should not specialize in the production of goods and services.
(E) Two nations will not trade if one is more efficient than the other in the production of all goods.
x
If a retail firm plans to increase the price of a product it sells, the firm must believe that
(A) the good is an inferior good
(B) the price of complements will also increase
(C) the price of substitutes will decrease
(D) demand for the product is perfectly price elastic
(E) demand for the product is price inelastic
x
If it were possible to increase the output of both military goods and consumption goods, which of the following statements about the economy would be true?
(A) The economy is inefficient and inside the production possibilities curve.
(B) The economy is inefficient and on the production possibilities curve.
(C) The economy is efficient and on the production possibilities curve.
(D) The economy is efficient and inside the production possibilities curve.
(E) The economy is efficient and outside the production possibilities curve.
x
Which of the following would necessarily cause a decrease in the price of a product?
(A) An increase in the number of buyers and a decrease in the price of an input
(B) An increase in the number of buyers and a decrease in the number of firms producing the product
(C) An increase in average income and an improvement in production technology
(D) A decrease in the price of a substitute product and an improvement in production technology
(E) A decrease in the price of a substitute product and an increase in the price of an input
x
Agricultural price supports will most likely result in
(A) shortages of products if the price supports are above the equilibrium price
(B) shortages of products if the price supports are at the equilibrium price
(C) surpluses of products if the price supports are above the equilibrium price
(D) surpluses of products if the price supports are below the equilibrium price
(E) a balance between quantity demanded and quantity supplied if the price floor is above the equilibrium price
x
The market equilibrium price of home heating oil is $1.50 per gallon. If a price ceiling of $1.00 per gallon is imposed, which of the following will occur in the market for home heating oil?
I. Quantity supplied will increase.
II. Quantity demanded will increase.
III. Quantity supplied will decrease.
IV. Quantity demanded will decrease.
(A) II only
(B) I and II only
(C) I and IV only
(D) II and III only
(E) III and IV only
x
Assume that a consumer finds that her total expenditure on compact discs stays the same after the price of compact discs declines. Which of the following is true for this consumer over the price range?
(A) Compact discs are inferior goods.
(B) The consumer’s demand for compact discs increased.
(C) The consumer’s demand for compact discs is perfectly price elastic.
(D) The consumer’s demand for compact discs is perfectly price inelastic.
(E) The consumer’s demand for compact discs is unit price elastic.
x
An improvement in production technology for a certain good leads to
(A) an increase in demand for the good
(B) an increase in the supply of the good
(C) an increase in the price of the good
(D) a shortage of the good
(E) a surplus of the good
x
If the demand for a product is price elastic, which of the following is true?
(A) An increase in the product price will have no effect on the firm’s total revenue.
(B) An increase in the product price will increase the firm’s total revenue.
(C) A decrease in the product price will increase the firm’s total revenue.
(D) A decrease in the product price will decrease the firm’s rate of inventory turnover.
(E) A decrease in the product price will decrease the total cost of goods sold.
x
If an increase in the price of good X causes a decrease in the demand for good Y, good Y is
(A) an inferior good
(B) a luxury good
(C) a necessary good
(D) a substitute for good X
(E) a complement to good X
x
Questions 15–17 are based on the table below, which shows a firm’s total cost for different levels of output. Output Total Cost
0 $24
1 33
2 41
3 48
4 54
5 61
6 69
Which of the following is the firm’s average total cost of producing 3 units of output?

(A) $48.00
(B) $16.00
(C) $14.00
(D) $13.50
(E) $ 7.00
x
Questions 15–17 are based on the table below, which shows a firm’s total cost for different levels of output.

Output Total Cost
0 $24
1 33
2 41
3 48
4 54
5 61
6 69
Which of the following is the firm’s average fixed cost of producing 2 units of output?
(A) $24.00
(B) $20.50
(C) $12.00
(D) $ 8.00
(E) $ 7.50
x
Marginal revenue is the change in revenue that results from a one-unit increase in the

(A) variable input
(B) variable input price
(C) output level
(D) output price
(E) fixed cost
x
In the short run, if the product price of a perfectly competitive firm is less than the minimum average variable cost, the firm will

(A) raise its price
(B) increase its output
(C) decrease its output slightly but increase its profit margin
(D) lose more by continuing to produce than by shutting down
(E) lose less by continuing to produce than by shutting down
x
Suppose that the license paid by each business to operate in a city increases from $400 per year to $500 per year. What effect will this increase have on a firm’s short-run costs?
Marginal Average Average
Cost Total Cost Variable Cost
(A) Increase Increase Increase
(B) Increase Increase No effect
(C) No effect No effect No effect
(D) No effect Increase Increase
(E) No effect Increase No effect
x
Suppose that the license paid by each business to operate in a city increases from $400 per year to $500 per year. What effect will this increase have on a firm’s short-run costs?
Marginal Average Average
Cost Total Cost Variable Cost
(A) Increase Increase Increase
(B) Increase Increase No effect
(C) No effect No effect No effect
(D) No effect Increase Increase
(E) No effect Increase No effect
x
Which of the following statements is true of perfectly competitive firms in long-run equilibrium?
(A) Firm revenues will decrease if production is increased.
(B) Total firm revenues are at a maximum.
(C) Average fixed cost equals marginal cost.
(D) Average total cost is at a minimum.
(E) Average variable cost is greater than marginal cost.
x
If an industry has been dumping its toxic waste free of charge into a river, government action to ensure a more efficient use of resources would have which of the following effects on the industry’s output and product price?
Output Price
(A) Decrease Decrease
(B) Decrease Increase
(C) Increase Decrease
(D) Increase Increase
(E) Increase No change
x
Assume that a perfectly competitive industry is in long-run equilibrium. A permanent increase in demand will eventually result in
(A) a decrease in demand because the price will increase and people will buy less of the output
(B) a decrease in supply because the rate of output and the associated cost will both increase
(C) an increase in price but no increase in output
(D) an increase in output
(E) a permanent shortage, since the quantity demanded is now greater than the quantity supplied
x
Economists are critical of monopolies principally because monopolies
(A) gain too much political influence
(B) are able to avoid paying their fair share of taxes
(C) are unfair to low-income consumers
(D) lead to an inefficient use of scarce productive resources
(E) cause international political tension by competing with one another overseas for supplies of raw materials
x
Which of the following statements must be true in a perfectly competitive market?
(A) A firm’s marginal revenue equals price.
(B) A firm’s average total cost is above price in the long run.
(C) A firm’s average fixed cost rises in the short run.
(D) A firm’s average variable cost is higher than price in the long run.
(E) Large firms have lower total costs than small firms.
x
A perfectly competitive firm produces in an industry whose product sells at a market price of $100. At the firm’s current rate of production, marginal cost is increasing and is equal to $110. To maximize its profi ts, the firm should change its output and price in which of the following ways?
Output Price
(A) Decrease Increase
(B) Decrease No change
(C) No change Increase
(D) Increase No change
(E) Increase Decrease
x
The typical firm in a monopolistically competitive industry earns zero profit in long-run equilibrium because
(A) advertising costs make monopolistic competition a high-cost market structure rather than a low-cost market structure
(B) there are close substitutes for each firm’s product
(C) there are no significant restrictions on entering or exiting the industry
(D) the firms in the industry are unable to engage in product differentiation
(E) the firms in the industry do not operate at the minimum point on their long-run average cost curves
x
In the long run, compared with a perfectly competitive firm, a monopolistically competitive firm with the same costs will have
(A) a higher price and higher output
(B) a higher price and lower output
(C) a lower price and higher output
(D) a lower price and lower output
(E) the same price and lower output
x
Which of the following describes what will happen to market price and quantity if firms in a perfectly competitive market form a cartel?
Price Quantity
(A) Decrease Decrease
(B) Decrease Increase
(C) Increase Increase
(D) Increase Decrease
(E) Increase No change
x
The diagram above depicts cost and revenue curves for a firm. What are the firm’s profit-maximizing output and price?
Output Price
(A) 0S 0D
(B) 0R 0E
(C) 0Q 0F
(D) 0Q 0B
x
Imperfectly competitive firms may be allocatively inefficient because they produce at a level of output such that
(A) average cost is at a minimum
(B) marginal revenue is greater than marginal cost
(C) price equals marginal revenue
(D) price equals marginal cost
(E) price is greater than marginal cost
x
In a market economy, public goods are unlikely to be provided in sufficient quantity by the private sector because
(A) private firms are less efficient at producing public goods than is the government
(B) the use of public goods cannot be withheld from those who do not pay for them
(C) consumers lack information about the benefits of public goods
(D) consumers do not value public goods highly enough for firms to produce them profitably
(E) public goods are inherently too important to be left to private firms to produce
x
Assume that both input and product markets are competitive. If capital is fixed and the product
price increases, in the short run firms will increase production by increasing
(A) capital until marginal revenue equals the product price
(B) capital until the average product of capital equals the price of capital
(C) labor until the value of the marginal product of labor equals the wage rate
(D) labor until the marginal product of labor equals the wage rate
(E) labor until the ratio of product price to the marginal product of labor equals the wage rate
x
In which of the following ways does the United States government currently intervene in the working of the market economy?
I. It produces certain goods and services.
II. It regulates the private sector in an effort to achieve a more efficient allocation
of resources.
III. It redistributes income through taxation and public expenditures.
(A) I only
(B) II only
(C) III only
(D) II and III only
(E) I, II, and III
x
If hiring an additional worker would increase a firm’s total cost by less than it would increase its total revenue, the firm should
(A) not hire that worker
(B) hire that worker
(C) hire that worker only if another worker leaves or is fired
(D) hire that worker only if the worker can raise the firm’s productivity
(E) reduce the number of workers employed by that firm
x
If a firm wants to produce a given amount of output at the lowest possible cost, it should use resources in such a manner that
(A) it uses relatively more of the less expensive resource
(B) it uses relatively more of the resource with the highest marginal product
(C) each resource has just reached the point of diminishing marginal returns
(D) the marginal products of each resource are equal
(E) the marginal products per dollar spent on each resource are equal
x
If the firms in an industry pollute the environment and are not charged for the pollution, which of the following is true from the standpoint of the efficient use of resources?
(A) Too much of the industry’s product is produced, and the price of the product is higher than the marginal social cost.
(B) Too much of the industry’s product is produced, and the price of the product is lower than the marginal social cost.
(C) Too little of the industry’s product is produced, and the price of the product is higher than the marginal social cost.
(D) Too little of the industry’s product is produced, and the price of the product is lower than the marginal social cost.
(E) The industry is a monopoly.
x
Using equal amounts of resources, Country A can produce either 30 tons of mangoes or 10 tons of bananas, and Country B can produce either 10 tons of mangoes or 6 tons of bananas. Which of the following relationships is consistent with the information above?
(A) Country A Comparative advantage in production of mangoes
Country B Comparative advantage in production of bananas
(B) Country A Comparative advantage in production of bananas
Country B Comparative advantage in production of mangoes
(C) Country A Absolute advantage in production of mangoes
Country B Absolute advantage in production of bananas
(D) Country A Absolute advantage in production of bananas
Country B Absolute advantage in production of mangoes
(E) Country A Comparative disadvantage in production of mangoes
Country B Comparative disadvantage in production of bananas
x
The graph above shows the market for chocolates. Suppose that the government imposes a price floor equal to 0H. After the implementation of the price floor, consumer surplus in this market will be equal to
(A) ABH
(B) ACI
(C) AE0
(D) 0CE
(E) 0IC
x
A firm in monopolistic competition CANNOT do which of the following?
(A) Earn short-run profits.
(B) Advertise its product.
(C) Prevent new firms from entering the market.
(D) Compete by its choice of location.
(E) Set the price for its product.
x
Which of the following is a necessary condition for a firm to engage in price discrimination?
(A) The firm faces a highly elastic demand.
(B) The firm is able to set its own price.
(C) The firm is maximizing its revenue.
(D) Buyers are only concerned about product quality.
(E) Buyers are not fully informed about price.
x
Which of the following is true if total utility is maximized?
(A) Marginal utility is equal to zero.
(B) Marginal utility is positive.
(C) Marginal utility is negative.
(D) Average utility is maximized.
(E) Average utility is minimized.
x
If the cross-price elasticity of demand between good A and good B is negative, then good A and good B are
(A) substitutes
(B) complements
(C) unrelated
(D) in high demand
(E) in low demand
x
Assume that a firm in a certain industry hires its workers in a perfectly competitive labor market. As the firm hires additional workers, the marginal factor cost is
(A) decreasing steadily
(B) increasing steadily
(C) constant
(D) decreasing at first, then increasing
(E) increasing at first, then decreasing
x
A profit-maximizing monopolist will hire an input up to the point at which
(A) marginal factor cost equals marginal
revenue product
(B) marginal factor cost equals marginal revenue
(C) average factor cost equals average revenue product
(D) average factor cost equals value of the marginal product
(E) average revenue equals marginal revenue
x
The pay-off matrix above gives the profits associated with the strategic choices of two oligopolistic firms. The first entry in each cell is the profit to Firm A and the second to Firm B. Suppose that Firm A and Firm B agree to restrict output, but have no power to enforce that agreement. In the long run, each firm will most likely earn which of the following profits?
Firm A Firm B
(A) $10 $80
(B) $30 $30
(C) $50 $50
(D) $80 $10
(E) $80 $80
x
Suppose that the natural monopolist whose cost and revenue curves are depicted above is subject to government regulation. If the government’s objective is to make this monopoly produce the socially optimal level of output, it should set price equal to
(A) 0A
(B) 0B
(C) 0C
(D) 0D
(E) 0E
x
A production possibilities curve can be used to show which of the following?
(A) Absence of trade-offs in the production of goods
(B) The limits on production due to scarcity of resources
(C) The amount of investment spending necessary to reach full employment
(D) The labor-force participation rate
(E) The average productivity of resources
x
The total cost of producing 200 mangoes is $2,400, and the total variable cost is $1,400. The average fixed cost of producing 200 mangoes is
(A) $1,200
(B) $1,000
(C) $12
(D) $7
(E) $5
x
Which of the following will cause the supply of chocolate to increase?
(A) An increase in the price of cocoa butter, a product that is jointly produced with chocolate
(B) An increase in the price of chocolate
(C) An increase in the price of cocoa beans, a major input in the production of chocolate
(D) A decrease in the price of butterscotch, a substitute for chocolate
(E) An effective price ceiling in the market for chocolate
x
In long-run equilibrium, the price charged by a monopolistically competitive fi rm is
(A) greater than its average total cost but equal to its marginal cost
(B) less than its average total cost but equal to its marginal cost
(C) equal to its average total cost but less than its marginal cost
(D) equal to its average revenue but less than its average total cost
(E) equal to its average total cost but greater than its marginal cost
x
Economists call a firm’s demand for labor a derived demand because
(A) the number of workers hired depends mainly on the demand for the product the workers produce
(B) workers must be at least sixteen years old before they are considered part of the labor force
(C) workers need the salaries they receive from firms to demand goods and services
(D) the federal government taxes workers to derive revenues needed to finance its budget
(E) the firm needs skilled workers to operate its equipment
x
The imposition of an excise tax by the government caused the shift of supply curve shown in the diagram above. Which area on the diagram represents the deadweight loss caused by the tax?
(A) UWX
(B) VWX
(C) RSXW
(D) STUV
(E) UXZY
x
Which of the following causes an increase in the demand for labor?
(A) An increase in the wage rate
(B) An increase in the price of the good that labor is producing
(C) A decrease in the marginal product of labor
(D) A decrease in the demand for the good that labor is producing
(E) A decrease in the price of capital, a substitute for labor
x
According to the law of demand, which of the following increases as the price of a good decreases?
(A) The quantity demanded of the good
(B) The demand for the good
(C) The quantity demanded of a substitute good
(D) The demand for a substitute good
(E) The price of a substitute good
x
Which of the following is true of a pure public good?
(A) The government provides it at a zero cost.
(B) Nonpaying users can be excluded from consuming it.
(C) People willingly reveal their true preference for it.
(D) It is difficult to determine a person’s marginal valuation of it.
(E) One person’s consumption of it reduces its availability to others.
x
Average total cost is equal to the sum of
(A) total fixed cost and total variable cost
(B) marginal cost and average fi xed cost
(C) average fixed cost and average variable cost
(D) marginal cost and average variable cost
(E) marginal cost, average fixed cost, and average variable cost
x
Compared to a perfectly competitive industry, a profit-maximizing monopoly with identical costs of production will produce
(A) a lower quantity of output and charge a higher price
(B) a higher quantity of output and charge a lower price
(C) a lower quantity of output and charge a lower price
(D) a higher quantity of output and charge a higher price
(E) the same quantity of output and charge a higher price
x
A production possibilities curve is typically bowed outward because of the
(A) law of demand
(B) law of increasing opportunity costs
(C) substitution effect
(D) income effect
(E) principle of comparative advantage
x
A firm is currently producing a level of output at which marginal cost is increasing and greater than average variable cost and marginal revenue is greater than marginal cost. To maximize profits, this firm should
(A) decrease output
(B) increase output
(C) maintain its current output level
(D) shut down
(E) increase its price
x