Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the
question.
1) 1)

The firm described in the accompanying diagram is selling in

A) a market in which there are an extremely large number of other firms producing
the same product.
B) an imperfectly competitive market.
C) a purely competitive market.
D) a market in which demand is elastic at all prices.

2) The term government failure refers to the 2)

A) economically inefficient outcomes caused by voting problems or incentive
structures in government.
B) inability of government agencies to provide adequate police protection in
low-income neighborhoods.
C) large losses suffered by publicly owned water, gas, and electric companies.
D) large number of bankruptcies that have occurred recently among local
governments.

3) Which of the following is related to the special-interest effect? 3)

A) earmarks B) logrolling
C) pork-barrel politics D) all of these

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4) Which of the following is the best example of rent-seeking behavior? 4)
A) Consumers try to get flying cars produced by telling automakers they are willing
to pay for them.
B) Students at a university lobby the administration to improve dorms and reduce
class sizes without increasing tuition.
C) Senators vote for what their constituents want so they can get reelected.
D) Voters consider a ballot measure that would increase taxes to better fund schools.

5) 5)

If the firm in the diagram lowers price from P1 to P2, it will

A) lose P1P2ca in revenue from the price cut but increase revenue by Q1acQ2 from
the increase in sales.
B) incur an increase in total revenue because it is operating on the inelastic segment
of the demand curve.
C) incur a decline in total revenue because it is operating on the elastic segment of
the demand curve.
D) lose P1P2ba in revenue from the price cut but increase revenue by Q1bcQ2 from
the increase in sales.

6) At the equilibrium price, 6)

A) quantity supplied may exceed quantity demanded or vice versa.
B) there are forces that cause price to fall.
C) there are forces that cause price to rise.
D) there are no pressures on price to either rise or fall.

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7) 7)

Refer to the diagram. A government price support program to aid farmers is best
illustrated by
A) price A. B) price B. C) price C. D) quantity E.

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8) 8)

Refer to the diagram, which shows demand and supply conditions in the competitive
market for product X. A shift in the demand curve from D0 to D1 might be caused by
a(n)
A) increase in money incomes if X is a normal good.
B) increase in the price of substitute product Y.
C) decrease in income if X is an inferior good.
D) increase in the price of complementary good Y.

9) 9)
Public Good Larry Curley Moe
Lighthouse Third Choice First Choice Second Choice
Highway Second Choice Third Choice First Choice
Submarine First Choice Second Choice Third Choice

Refer to the table. The inconsistency illustrated by the table is that, while a majority of
voters prefer the
A) lighthouse to the highway and the lighthouse to the submarine, they also prefer
the submarine to the highway.
B) highway to the lighthouse and the submarine to the highway, they also prefer the
lighthouse to the submarine.
C) lighthouse to the submarine and the highway to the submarine, they also prefer
the highway to the lighthouse.
D) highway to the lighthouse and the submarine to the lighthouse, they also prefer
the submarine to the highway.

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10) Which of the following is characteristic of a pure monopolist's demand curve? 10)
A) Its elasticity coefficient is 1 at all levels of output.
B) It is the same as the market demand curve.
C) Average revenue is less than price.
D) Price and marginal revenue are equal at all levels of output.

11) A pure monopolist should never produce in the 11)

A) inelastic segment of its demand curve, because it can increase total revenue and
reduce total cost by increasing price.
B) elastic segment of its demand curve, because it can increase total revenue and
reduce total cost by lowering price.
C) segment of its demand curve, where the price elasticity coefficient is greater than
one.
D) inelastic segment of its demand curve, because it can always increase total
revenue by more than it increases total cost by reducing price.

12) Answer the question on the basis of the following table that shows the total costs and 12)
total benefits facing a city of five different potential baseball stadiums of increasing
size. All figures are in millions of dollars.

Stadium Total Cost Total Benefit

A $80 $140
B 100 200
C 130 250
D 165 290
E 220 300

Applying the median-voter model and assuming that there are equal numbers of voters
supporting each stadium, we would expect
A) no stadium to be built, because of political gridlock.
B) stadium C to be built, but this would not be the most socially efficient outcome.
C) stadium D to be built because it produces the most socially efficient outcome.
D) stadium C to be built, which would be the most socially efficient outcome.

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13) 13)

The diagram indicates that the marginal revenue of the sixth unit of output is
A) −$1. B) $24. C) $4. D) $1.

14) Answer the question on the basis of the accompanying table, which shows the demand 14)
schedule facing a nondiscriminating monopolist.

P Qd
$10 1
7 2
5 3
3 4
1 5

The monopolist will select its profit-maximizing level of output somewhere within the
A) 3–5 unit range of output. B) 1–4 unit range of output.
C) 2–4 unit range of output. D) 1–3 unit range of output.

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15) 15)
Average Total
Total Output Price Marginal Revenue Cost Marginal Cost
1 $100 $100 $100.00 $30
2 90 80 63.00 26
3 80 60 52.67 32
4 70 40 49.50 40
5 60 20 49.60 50
6 50 0 50.00 52
7 40 -20 52.29 66
8 30 -40 55.75 80
9 20 -60 60.67 100
10 10 -80 67.60 130

Refer to the data for a nondiscriminating monopolist. At its profit-maximizing output,

this firm's price will exceed its marginal cost by ________ and its average total cost by
________.
A) $24; $27.33 B) $20; $27.33 C) $30; $20.50 D) $10; $10.40

16) A pure monopolist is producing an output such that ATC = $4, P = $5, MC = $2, and 16)
MR = $3. This firm is realizing
A) a loss that could be reduced by producing more output.
B) an economic profit that could be increased by producing less output.
C) a loss that could be reduced by producing less output.
D) an economic profit that could be increased by producing more output.

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17) 17)

Refer to the diagram for a pure monopolist. Monopoly price will be

A) b. B) a. C) e. D) c.

18) 18)

Refer to the diagram for a pure monopolist. Monopoly output will be

A) f. B) g.
C) h. D) between f and g.

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19) A single-price monopoly is economically inefficient because, at the profit-maximizing 19)
output,
A) marginal revenue exceeds product price at all profitable levels of production.
B) MC > P.
C) monopolists always price their products on the basis of the ability of consumers
to pay rather than on costs of production.
D) society values additional units of the monopolized product more highly than it
does the alternative products those resources could otherwise produce.

20) X-inefficiency refers to a situation in which a firm 20)

A) encounters diseconomies of scale.
B) fails to achieve the minimum average total costs attainable at each level of
output.
C) is not as technologically progressive as it might be.
D) fails to realize all existing economies of scale.

21) Which of the following is an example of a public good? 21)

A) a sofa B) a bottle of soda
C) a weather warning system D) a television set

22) (Consider This) Children are charged less than adults for admission to professional 22)
baseball games but are charged the same prices as adults at the concession stands.
Which of the following conditions of price discrimination explains why this occurs?
A) Groups must have different elasticities of demand for the product.
B) The items can be bought by people in the low-price group and transferred to
members of the high-price group.
C) The seller must be able to identify buyers by group characteristics such as age or
income.
D) The seller must have some monopoly power; that is, it must be able to set the
product price.

23) (Consider This) Suppose that a large tree on Betty's property is blocking Chuck's view 23)
of the lake below. Betty accepts Chuck's offer to pay Betty $100 for the right to cut
down the tree. This situation describes
A) a market for externality rights.
B) the optimal allocation of a public good.
C) the Coase theorem.
D) nonrivalry and nonexcludability.

24) Suppose a firm offers its workers a cafeteria plan in which it allows workers to allocate 24)
a set amount of fringe benefit money toward specific insurance. Mary, who has five
kids needing braces, selects the family dental coverage. This is an example of the
A) moral hazard problem. B) adverse selection problem.
C) principal-agent problem. D) free-rider problem.

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25) A shift to the right in the demand curve for product A can be most reasonably explained 25)
by saying that
A) the price of A has increased and, as a result, consumers want to purchase less of
it.
B) consumer incomes have declined, and consumers now want to buy less of A at
each possible price.
C) consumer preferences have changed in favor of A so that they now want to buy
more at each possible price.
D) the price of A has declined and, as a result, consumers want to purchase more of
it.

26) 26)
(1) (2) (3) (4) (5)
Qd Qd Price Qs Qs
50 40 $10 70 80
60 50 9 60 70
80 60 8 50 60
90 70 7 40 50
100 80 6 30 40

Refer to the table. In relation to column (3), a change from column (1) to column (2)
would mostly likely be caused by
A) consumers expecting that prices will be higher in the future.
B) an increase in input prices.
C) government subsidizing production of the good.
D) reduced taste for the good.

27) The law of supply indicates that, other things equal, 27)
A) producers will offer more of a product at low prices than at high prices.
B) producers will offer more of a product at high prices than at low prices.
C) consumers will purchase less of a good at high prices than at low prices.
D) the product supply curve is downsloping.

28) In the past few years, the demand for donuts has greatly increased. This increase in 28)
demand might best be explained by
A) consumers expecting donut prices to fall.
B) an increase in the cost of making donuts.
C) an increase in the price of coffee.
D) a change in buyer tastes.

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29) 29)

Refer to the diagram. An increase in quantity supplied is depicted by a

A) shift from S1 to S2. B) move from point x to point y.
C) move from point y to point x. D) shift from S2 to S1.

30) Which of the following statements about market failure is not true? 30)
A) Market failure always results from some government action or policy in a
market.
B) Market failure causes an inefficient allocation of resources, even in a competitive
market.
C) Market failure can come from causes on the demand side or the supply side of a
market.
D) Market failure can result from the number of sellers in a market being too few to
ensure competition.

31) (Consider This) Children are charged less than adults for admission to professional 31)
baseball games but are charged the same prices as adults at the concession stands. This
pricing system occurs because
A) children have an elastic demand for game tickets but an inelastic demand for
concession items.
B) the seller can prevent children from buying game tickets for adults but cannot
prevent children from buying concession items for adults.
C) children can personally "consume" only a single game ticket but can personally
consume more than one concession item.
D) children have an inelastic demand for game tickets but an elastic demand for
concession items.

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32) Unlike a private good, a public good 32)
A) has no opportunity costs.
B) produces no positive or negative externalities.
C) is characterized by rivalry and excludability.
D) has benefits available to all, including nonpayers.

33) Which of the following would not shift the demand curve for beef? 33)
A) a widely publicized study that indicates beef consumption increases one's
cholesterol
B) a reduction in the price of cattle feed
C) a change in the incomes of beef consumers
D) an effective advertising campaign by pork producers

34) Assume that Abby, Ben, Clara, Joe, and Matt are the only citizens in a community. A 34)
proposed public good has a total cost of $1,000. All five citizens will share an equal
portion of this cost in taxes. The benefit of the public good is $220 to Abby, $210 to
Ben, $210 to Clara, $180 to Joe, and $120 to Matt. In a majority vote, this proposal will
most likely be
A) defeated, two in favor and three against.
B) accepted, three in favor and two against.
C) accepted, four in favor and one against.
D) defeated, one in favor and four against.

35) (Last Word) Alex owns a luxury automobile and regularly purchases high-end fashion 35)
items online. Kara drives an old sedan and does most online shopping on eBay and
Amazon. Suppose both Alex and Kara search the same online retailer for a nice watch
to give on Father's Day. Based on Big Data and personalized pricing, we would expect
A) Alex and Kara to see the same price for a given watch.
B) that either Alex or Kara might see a higher price for the same watch, as
algorithms randomly determine what price each consumer sees.
C) Alex to see a lower price than Kara for the same watch.
D) Alex to see a higher price than Kara for the same watch.

36) Barriers to entry 36)

A) usually result in pure competition.
B) are typically the result of wrongdoing on the part of a firm.
C) exist in economic theory but not in the real world.
D) can result from government regulation.

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37) Answer the question on the basis of the following cost data. 37)

Output Total Cost

0 $24
1 33
2 41
3 48
4 54
5 61
6 69

The average total cost of producing 3 units of output is

A) $16. B) $12. C) $13.50. D) $14.

38) Answer the question on the basis of the following cost data. 38)

Output Total Cost

0 $24
1 33
2 41
3 48
4 54
5 61
6 69

The marginal cost of producing the sixth unit of output is

A) $8. B) $24. C) $16. D) $12.

39) Answer the question on the basis of the following cost data. 39)

Output Total Cost

0 $24
1 33
2 41
3 48
4 54
5 61
6 69

The average fixed cost of producing 3 units of output is

A) $6. B) $5.50. C) $7.40. D) $8.

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40) 40)

Refer to the short-run production and cost data. In Figure A curve (1) is
A) average product and curve (2) is marginal product.
B) marginal product and curve (2) is average product.
C) total product and curve (2) is average product.
D) total product and curve (2) is marginal product.

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Answer Key
Testname: UNTITLED1

1) B
2) A
3) D
4) B
5) D
6) D
7) C
8) D
9) B
10) B
11) A
12) B
13) A
14) D
15) C
16) D
17) D
18) A
19) D
20) B
21) C
22) B
23) C
24) B
25) C
26) D
27) B
28) D
29) C
30) A
31) B
32) D
33) B
34) B
35) D
36) D
37) A
38) A
39) D
40) A

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