Econ Final Exam Review PDF

lOMoARcPSD|34137097 ECON Final EXAM Review Introduction to micro economics (York University) Scan to open on Studocu Studocu is not sponsored or endorsed by any college or university Downloaded by Daniah alobatty ([email protected]) ...

lOMoARcPSD|34137097 ECON Final EXAM Review Introduction to micro economics (York University) Scan to open on Studocu Studocu is not sponsored or endorsed by any college or university Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 Businesses must pay higher prices to obtain more labour because A. the marginal cost of worker time increases as more hours of labour are supplied. B. Workers have opportunity costs. C. the total cost of worker time increases as more hours of labour are supplied. D. the sunk costs increase as wage rates increase There are differences between your smart supply choices and smart demand choices. For your demand decision, A. sunk costs are always greater than marginal costs. B. the marginal benefit is the satisfaction you get. C. the marginal cost is the opportunity cost of time. D. the marginal cost increases as you provide more. Joanna gets paid $50 an hour to DJ at Club Keynes on Friday and Saturday nights. The Club is closed all other nights. She also gets paid $15 an hour to work at the library. The library will let her work as many hours as she has available. Club Karl wants to hire Joanna to DJ on Monday nights. The marginal opportunity cost of hiring Joanna at Club Karl is $15 an hour. Amber bakes cookies and muffins to sell at the market. If she bakes more muffins and fewer cookies, her A. marginal cost of baking muffins decreases. B. sunk costs decrease. C. marginal cost of baking cookies decreases. D. marginal cost of baking cookies increases. Since the marginal cost of your time increases, A. you give up the most valuable time last. B. you continue giving up time so long as you are paid. C. you give up the least valuable time last. D. all of the above are true. You spruced up the house you were renting by having the house painted; planting hedges and flowers; buying new patio furniture; installing new carpeting; and purchasing new houseplants, bookshelves, and bedspreads. You had to move unexpectedly to a new city. Which of the following is an example of a sunk cost? A. the cost of the houseplants B. the cost of the carpeting C. the cost of the bookshelves D. the cost of the bedspreads You are considering selling your used car and buying a new car. Which of the following would be a sunk cost? A. the trade minus in value of the used car B. the insurance cost of the new car Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 C. the efficiency of the new car D. the insurance you paid for the used car Sunk costs A. influence decisions already made. B. are part of marginal costs. C. are the same as marginal costs. D. are not part of opportunity costs. Komal bought a 1988 Toyota Corolla for $1900. A friend offered him $400 for the car last week. Komal has been offered a job in France and is evaluating his opportunity costs. Driving an ancient Toyota from Montreal to France is not possible. When calculating her opportunity costs, Komal should include A. the $1900 she spent to buy the car. B. the $1500 loss she would have to take on the Toyota. C. nothing, because this is a sunk cost. D. the $400 she could get from selling the Toyota. Abdul has paid $1200 for a night school class. He can still get a 75% refund if he drops out today. When deciding whether to drop out of school, Abdul should consider the A. $300 B. $900 C. $1200 D. $2100 Hailey plans to open a shoe store. She has agreed to pay $40 per pair of shoes that she will order from her supplier. She expects to sell 2000 pairs next month. She has signed a one year lease for $40000. A local television station offers to run a commercial for $15000, announcing his grand opening. When deciding whether or not to run this ad, Hailey's sunk costs are A.$55000 B.$120000 C.$135000 D.$40000 When the price of a product or service falls, this creates incentives for A. the quantity supplied to decrease because of the lower profits. B. the quantity supplied to increase because of the lower profits. C. the quantity supplied to increase because of covering the higher marginal opportunity costs of production. D. the quantity supplied to decrease because of the higher profits. When prices rise, individuals and businesses devote more of their time or resources to producing or supplying because A. of the need for a higher price to cover higher marginal opportunity costs. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 B. of their preferences. C. of higher demand. D. higher profits usually mean higher costs. Santiago's Stationary Services can produce cards and tablets. The daily production possibilities for the two products are shown below. In moving from combination C to D, the marginal opportunity cost of producing an additional tablet is 3 card(s). Steffie’s Stationary Services can produce cards and tablets. The daily production possibilities for the two products are shown below. If a card sells for $1, Steffie’s Stationary Services will need a price per tablet of $3 in order to produce 10 tablets. According to the law of supply, as the price of a product rises, A. it causes a movement down along the supply curve. B. the supply increases. C. it shifts the supply curve leftward. D. the quantity supplied by firms increases. Which of the following events would cause a decrease in supply of laptop computers? A. The price of memory chips used in laptop computers rises. B. Students expect laptop prices to rise. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 C. The price of machinery used to produce laptop computers decreases. D. Student income falls. A decrease in the number of pizza producers or an increase in the cost of mozzarella cheese used to make pizza will: A. Decrease supply of pizza. B. Decrease the price of pizza. C. Increase demand for pizza. D. Increase supply of pizza. Which of the following events would cause an increase in supply of economics textbooks? A. Economics textbooks become popular reading material. B. The number of publishers of economics textbooks increases. C. Students expect textbook prices to fall. D. Publishers expect that the market price of economics textbooks will rise next month. Suppose there is a rise in price of an input. This will cause A. an increase in supply or a shift to the right. B. a decrease in supply or a shift to the right. C. an increase in supply or a shift to the left. D. a decrease in supply or a shift to the left. A decrease in the number of pizza producers or a rise in price of mozzarella cheese used to make pizza shifts the A. supply curve for pizza leftward. B. demand curve for pizza rightward. C. demand curve for pizza leftward. D. supply curve for pizza rightward. A market A. is a location where buyers and sellers meet. B. is the existence of buyers and sellers. C. involves negotiations between buyers and sellers that result in exchange. D. is all of the above. For markets to work A. buyers and sellers must be familiar with one another. B. buyers and sellers must be registered in the market. C. governments must define and protect property rights. D. all of the above must hold. Voluntary exchange occurs in a market so long as the A. marginal opportunity cost for the seller is above the marginal benefit for the buyer. B. price is less than the marginal opportunity cost for the seller. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 C. marginal opportunity cost is below the marginal benefit for the buyer. D. marginal opportunity cost for the seller is above the price. Property rights A. are only important in the city. B. are enforced by government. C. are not important in the market. D. are none of the above. Voluntary exchange that occurs in a market A. is the result of competition among sellers. B. is a zero minus sum game. C. is mutually beneficial. D. is the result of voluntary opportunity cost. Prices A. are set by sellers. B. are regulated by government agencies. C. come from the interaction of demand and supply comma in markets with appropriate property rights. D. are none of the above. The miracle of markets A. occurs because government enforces property rights. B. is that businesses are free to set any prices they choose. C. is that scarcity is eliminated by the interaction of demand and supply in markets with appropriate property rights. D. is all of the above. When the price is above the market-clearing price, A. falling inventories will cause the price to rise. B. rising inventories will cause the price to fall. C. falling inventories will cause the price to fall. D. the market-clearing price will rise. Price signals in markets A. create incentives for consumers and producers that result in the production of all the products or services we want. B. coordinate the wishes of government regulators. C. are often wrong and cause market disruptions. D. create incentives for consumers and producers that result in surpluses and shortages of the products we want. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 The market-clearing price A. equalizes quantity demanded and quantity supplied. B. balances the forces of cooperation between consumers and businesses with the forces of competition between consumers and between businesses. C. measures the forces of competition between consumers and businesses, and the forces of cooperation between consumers and between businesses. D. all of the above. If in the market for Twinkies there are no shortages and no surpluses, then A. businesses would like to sell more Twinkies at the current price. B. the price in that market is called minimal price. C. Twinkies must be a normal good. D. the price in that market is called market clearing price. The market-clearing price will rise when A. supply decreases or demand decreases. B. supply increases or demand increases. C. supply decreases or demand increases. D. supply increases or demand decreases. In an efficient market outcome, A. marginal benefit equals marginal cost (MB equals MC) B. marginal benefit is greater than marginal cost left parenthesis MB greater than MC right parenthesis C. consumers buy only products and services when marginal benefit is less than price. D. total surplus is the lowest. The study of how wages are set for New Brunswick call centre workers is a A. bore. B. macroeconomic topic. C. negative externality. D. positive externality. E. microeconomic topic. What you can afford is limited by A. demand. B. money. C. preferences. D. substitutes. E. externalities. Feedback The correct answer is: money. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 Which will cause an increase in quantity demanded? A. a rise in the price of a substitute product B. an increase in income C. a fall in the price of the product D. a fall in the price of a complement product E. a rise in the price of the product Figure 1.3.2 Monthly Production Possibilities for a Country Producing Only Hockey Sticks and Maple Leaves Possibility Hockey Sticks Maple Leaves a 3 0 b 2 3 c 0 9 According to Figure 1.3.2, A. the opportunity cost of producing hockey sticks decreases as more hockey sticks are produced. B. the opportunity cost of producing hockey sticks stays the same as more hockey sticks are produced. C. the opportunity cost of producing hockey sticks increases as more hockey sticks are produced. D. a combination of 3 hockey sticks and 9 maples leaves is possible. E. a combination of 3 hockey sticks and 2 maple leaves is possible. Total growth (in height) is best described by the question, A. "How much have you grown since I last saw you?" B. "When did you get taller than your mother?" C. "Have you had a growth spurt?" D. "Did they stretch you on the rack to make you taller?" E. "How tall are you?" Feedback The correct answer is: "How tall are you?" Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 Some producers are chatting over a beer. Which quotation refers to a rightward shift of the supply curve? A. "Wage increases have forced us to raise our prices." B. "We anticipate a big increase in demand. Our product price should rise, so we are planning for an increase in output." C. "Our new, sophisticated equipment will enable us to undercut our competitors." D. "Some competing businesses are leaving the industry and prices are rising." E. "Raw material prices have sky-rocketed; we will have to pass the cost on to our customers." Feedback The correct answer is: "Our new, sophisticated equipment will enable us to undercut our competitors." A good economic model A. leaves out unnecessary information. B. is difficult to test. C. assumes that "other things are unchanged." D. is the mental equivalent of controlled experiments in a laboratory. E. does all of the above. The law of demand states that, if nothing else changes, A. a rise in the price of a product or service causes a decrease in quantity demanded. B. a rise in the price of a product or service causes a decrease in quantity supplied. C. an increase in incomes causes an increase in quantity demanded. D. a rise in the price of a product or service causes an increase in quantity demanded. E. an increase in incomes causes a decrease in quantity demanded. If we observe a rise in the equilibrium price of product A, we know that either the demand for A has A. increased or the supply of A decreased or both. B. increased or the supply of A increased or both. C. decreased or the supply of A increased or both. D. decreased or the supply of A decreased or both. E. none of the above. It takes Mom 30 minutes to cook dinner. In the same time, she can iron 6 shirts. Dad takes an hour to cook dinner and 30 minutes to iron a single shirt. A. Dad has an absolute advantage in ironing shirts. B. Mom should cook dinner and iron; trade is impossible. C. Dad should cook dinner; the opportunity cost is only 2 shirts. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 D. Dad has an absolute advantage in cooking. E. Dad should cook dinner; the opportunity cost is only 1 shirt. Feedback The correct answer is: Dad should cook dinner; the opportunity cost is only 2 shirts. Specialization eliminates A. dependency. B. scarcity. C. self-sufficiency. D. opportunity cost. E. mutual benefits. People pay more for diamonds than for water because A. there are no substitutes for water. B. water is scarce. C. marginal benefits from water are low and marginal benefits from diamonds are high. D. total benefits from diamonds are high and total benefits from water are low. E. people don't make smart choices. Feedback The correct answer is: marginal benefits from water are low and marginal benefits from diamonds are high. [MUST SHOW WORK] If demand increases and supply decreases, this leads to A. equilrium. B. lower prices. C. a shortage in the market. D. chaos. E. higher prices. Which statements are true? 1 Read a demand curve up and over. 2 Read a marginal benefit curve up and over. 3 Read a demand curve over and down. 4 Read a marginal benefit curve over and down. A. 1 and 2 B. 3 only C. 2 and 4 D. 2 and 3 Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 E. 1 and 4 Look at the market for water in Figure 2.3.1. A movement from point D to point B is caused by a(an) A. fall in the price of water. B. increase in the number of consumers. C. fall in the expected future price of water. D. rise in the expected future price of water. E. rise in the price of water. Mutually beneficial trade is also called A. international subsidization. B. self-sufficiency. C. a zero-sum game. D. involuntary trade. E. voluntary trade. Mutual gains from voluntary trade require differences in A. absolute advantage. B. comparative advantage. C. external costs. D. depreciation costs. E. implicit costs. Figure 1.3.2 Monthly Production Possibilities for a Country Producing Only Hockey Sticks and Maple Leaves Possibility Hockey Sticks Maple Leaves a 3 0 b 2 3 c 0 9 Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 In Figure 1.3.2, moving from possibility b to possibility c, the opportunity cost of producing one additional maple leaf is A. 1/3 hockey stick. B. 3 hockey sticks. C. 1/6 hockey stick. D. 2 hockey sticks. E. 6 hockey sticks. Your preferences measure A. how limited your time is. B. the availability of alternatives. C. the price of a product. D. how badly you want something. E. the availability of substitutes. [MUST SHOW WORK] When supply decreases, A. price falls and quantity demanded increases. B. price falls with no change in quantity demanded. C. demand decreases so that price remains the same. D. price rises and demand increases. E. price rises and quantity demanded decreases. Which will cause a movement down along a demand curve? A. a fall in the price of a complement product B. a rise in the price of the product C. an increase in income D. a fall in the price of the product E. a rise in the price of a substitute product [MUST SHOW WORK] If buyers expect the price of gasoline will be higher in the future, the price of gasoline today ________ and the quantity supplied today ________. A. falls; is unaffected B. falls; decreases C. rises; decreases D. falls; increases E. rises; increases Gina missed her shift at the restaurant in order to attend a soccer game. She paid $30 for the ticket, $20 for parking, and ate $10 worth of popcorn. Had she worked her shift, Gina would have earned $100. Her opportunity cost of attending the game is Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 A. $60. B. $150. C. $0. D. $160. E. $100. The demand for gasoline has increased. One explanation is that A. the price of automobiles is higher and gasoline and automobiles are complements. B. everyone expects tomorrow's gasoline price will be lower. C. consumer incomes are higher and gasoline is a normal good. D. consumer incomes are lower and gasoline is a normal good. E. the number of consumers has decreased. John gave Margaret a $20,000 painting for her birthday. Last week, an art dealer offered to buy the painting from Margaret for $25,000. Margaret said no. The opportunity cost of her decision is A. $25,000. B. $5,000. C. $20,000. D. $45,000. E. $0. A positive statement is about A. what ought to be. B. what the future should be. C. what should never be. D. what is. E. value judgements. Market supply is the A. sum of the quantities supplied by all businesses at each price. B. sum of the minimum prices that each business is willing to accept for each quantity supplied. C. difference between the minimum amount each business is willing to accept and the market price. D. price that covers all opportunity costs of production. E. difference between the maximum amount each business is willing to accept and the market price. Producer surplus is the area A. under the marginal benefit curve. B. above the marginal cost curve. C. below the market price but above the marginal cost curve. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 D. under the marginal benefit curve but above the marginal cost curve. E. under the marginal benefit curve but above the market price. As you shift your time away from alternative uses in order to work, A. you should stop attending class. B. the marginal cost of your time increases. C. the marginal cost of your time decreases. D. you give up your favourite alternatives first. E. you give up your least valuable alternatives last. All inputs in a business are equally productive at all activities. As the business increases its output, marginal opportunity cost A. is constant. B. decreases but eventually increases. C. increases. D. decreases. E. increases but eventually decreases. Which of the following influences the price elasticity of demand? A. total revenue earned when the price changes B. prices of inputs C. marginal opportunity cost D. proportion of the income spent on the product or service A DVD store raised the price of its DVDs from $24 to $36. Correspondingly, sales fell from 2,100 to 1,900 per month. Ignoring the negative sign, what is the price elasticity of demand? 0.25 and Demand is inelastic A(n) 6% decrease in price results in a(n) 60% increase in quantity demanded. The elasticity of demand is 10. A retailer noticed that by raising his price slightly, his total revenue increased. What can you conclude about the price elasticity of demand within the current price range? Demand is inelastic. When demand is inelastic, A. the value for elasticity is greater than 1. B. there is a high willingness to shop elsewhere. C. there is a large response in quantity demanded when the price rises. D. there is a small response in quantity demanded when the price rises. Suppose that Norma is disappointed in the revenue from her custom dress shop. She is thinking of raising the price, but she asks you for advice. You decide she should A. raise the price if income is inelastic. B. raise the price if income is elastic. C. lower the price if demand is elastic. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 D. lower the price if demand is inelastic. A clothing store decreases the price of its T-shirts from $16 to $10. Correspondingly, sales increase from 1,200 to 2,000 per month. The total revenue increased indicating that demand is elastic. When the Vancouver Sun newspaper lowered the weekly subscription price from $5.00 to $4.50 — a savings of 10% —the number of subscriptions sold increased by 30%. This suggests that their customers have ________ demand and that the lower price ________ revenues. A. inelastic; increased B. inelastic; decreased C. elastic; decreased D. elastic; increased A retailer noticed that when lowering his price slightly, his total revenue decreased. What can you conclude about the price elasticity of demand within the current price range? Demand is inelastic. If a 4 percent rise in the price of peanut butter causes total revenue to fall by 6 percent, then demand for peanut butter A. has a price elasticity of 0.5. B. is inelastic. C. is unit elastic. D. is elastic. Which of the following statements is true? A. Products or services with shorter times of production have a more elastic supply. B. When a large proportion of income is spent on a product or service, the more elastic the supply will be. C. Elasticity of supply= Percentage change in price/Percentage change in quantity supplied D. None of the above is true. If the price elasticity of supply is 0.2, when prices rise by 2%, the quantity supplied will A. decrease by 0.20% and the supply is considered inelastic. B. increase by 5.00% and the supply is considered elastic. C. increase by 0.4% and the supply is considered inelastic. D. decrease by 0.4% and the supply is considered elastic. When the price of an item was raised from $24 to $36, the quantity supplied increased from 800 to 1,200 per month. The price elasticity of supply is 2.00. Supply is unit elastic A 2% increase in price results in a 16% increase in quantity supplied. The elasticity of supply is 8. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 An important factor affecting price elasticity of supply is A. sunk costs. B. the ease with which buyers can obtain substitutes. C. availability of additional inputs. D. none of the above. If coffee and doughnuts are complements, we can conclude that A. the cross elasticity of demand is positive. B. the income elasticity of demand is negative. C. the cross elasticity of demand is negative. D. the income elasticity of demand is positive. If tacos are an inferior good, we can conclude that A. the cross elasticity of demand is positive. B. the income elasticity of demand is positive. C. the income elasticity of demand is negative. D. the cross elasticity of demand is negative. When the price of good A is $12, the quantity of good B purchased is 800. When the price of good A is $18, the quantity of good B purchased is 1,200. The cross-price elasticity of demand between goods A and B is A. 0.16. B. 0.40. C. 1.00. D. none of the above. These goods are substitutes. If the price of tables falls from $145 to $140, and this increases the sales of chairs by 650 units per month, we can say that tables and chairs are A. substitutes. B. normal goods. C. inferior goods. D. complements If the demand for a product is perfectly elastic, the incidence of a sales tax will be A. shared equally by producers and consumers. B. borne entirely by producers. C. shared unequally by producers and tax payers. D. borne entirely by consumers. The more inelastic the supply, A. the smaller the portion of the tax paid by producers. B. the smaller the portion of the tax paid by consumers. C. the more likely the tax will be shared equally by producers and consumers. D. the greater sunk costs. When prices are fixed below market−clearing levels, all of the following occur except Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 A. undesired decreases in inventories. B. surpluses. C. frustrated buyers. D. shortages. When prices are fixed above the equilibrium price, A. quantity demanded is less than quantity supplied. B. quantity demanded is greater than quantity supplied. C. there is an increase in demand. D. there is a decrease in supply. When prices are fixed below market−clearing levels, A. quantity adjusts to quantity demanded. B. sellers are frustrated. C. quantity demanded is greater than quantity supplied. D. surpluses occur. At a government rent ceiling there will be A. a subsidy to all tenants. B. frustrated landlords who can no longer find tenants. C. conversions of buildings to condominiums. D. tenants who have the upper hand in dealings with landlords. Rent controls A. fix rents below market−clearing levels. B. create housing surpluses. C. cause quantity adjustment in the form of apartment surpluses. D. give tenants the upper hand over landlords. A price floor set above the equilibrium price results in A. surpluses. B. shortages. C. a decrease in demand. D. the equilibrium price. A new minimum wage law can best help the working poor when A. businesses have many substitutes for unskilled labour. B. gains from workers who remain employed are less than the lost income of workers who lose their jobs. C. businesses have few substitutes for unskilled labour. D. none of the above is true. One of the perceived benefits of minimum wage laws is that A. the government is trying to do something to help the working poor. B. the government is trying to do something to help those who are out of work. C. workers who find their jobs after the higher minimum wage becomes law are worse off. D. there will be fewer jobs available. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 When the fee paid to doctors to perform a medical service is set above the equilibrium price and patients are required to pay for this service, we can predict that A. the price will be below the doctor's marginal opportunity cost. B. everyone will want the service. C. this service will be over−provided. D. there will be shortages of this service. Which of the statement about well-functioning markets is true? A. In well-functioning markets, outputs go to those most willing and able to pay. B. In a well-functioning housing market with no rent ceiling, scarce housing resources are allocated equitably. C. In well-functioning markets, outputs go to those most in need of the product or service. D. All of the above are true. In comparing U.S. market-driven health care with Canadian universal, government-run health care, A. the U.S.-style private market outcome is more equitable and more efficient. B. the Canadian-style government outcome is more equitable and less efficient. C. the U.S. health-care system has many waiting lists. D. U.S.-style private market outcome gives priority treatment to those patients who are most in need of the treatment. The outcomes of well-functioning markets A. deliver output to those most willing and able to pay. B. are such that all sellers have the same marginal costs. C. are efficient and equitable. D. are such that the marginal benefit of sellers matches the marginal benefit of buyers. Indicate whether the following statements are positive (P) or normative (N). The government should raise the tax on tobacco to discourage people from smoking. N Governments should arrange taxes so that people cannot avoid paying them. N Too few funds are allocated to health care in Canada. N A left−leaning politician probably A. thinks equality of outcomes is more important than equality of opportunity. B. thinks equality of opportunity is more important than equality of outcomes. C. is left−handed. D. does not think like an economist. Normative statements A. are rarely used in economics. B. are the assumptions of economists. C. are empirical information about some aspects of the economy. D. involve value judgments. Which of the following is a normative statement? Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 A. Young drivers cause more accidents than older drivers. B. You should call your mother at least once a week. C. Economists often make normative statements. D. Women live longer than men. If the price elasticity of supply is 5.0, when prices rise by 10%, the quantity supplied will A. decrease by 0.50% and the supply is considered elastic. B. increase by 5.00% and the supply is considered inelastic. C. increase by 50.0% and the supply is considered elastic. D. decrease by 50.0% and the supply is considered inelastic. One of the costs of minimum wage laws is that A. it tends to increase unemployment. B. there will be more jobs available. C. potential workers will spend less time and resources job searching. D. workers who keep their jobs after the higher minimum wage becomes law are better off. When governments fix prices below market−clearing levels, A. quantity supplied is greater than quantity demanded. B. quantity demanded is greater than quantity supplied. C. there is an increase in supply. D. there is a decrease in demand. E. quantity supplied equals quantity demanded. When governments fix prices above market−clearing levels, A. there is an increase in demand. B. quantity supplied is greater than quantity demanded. C. quantity supplied equals quantity demanded. D. there is a decrease in supply. E. quantity demanded is greater than quantity supplied. Economists tend to A. agree about efficiency but disagree about fairness. B. disagree more than they agree. C. disagree about efficiency and disagree about fairness. D. agree about efficiency and agree about fairness. E. disagree about efficiency and agree about fairness. If the supply of a product is perfectly elastic, the incidence of a sales tax will be A. shared equally by producers and consumers. B. shared unequally by producers and tax payers. C. borne entirely by producers. D. borne entirely by consumers. A right-leaning politician probably A. is more concerned with equity than efficiency. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 B. is skeptical about equality of opportunities. C. thinks equality of outcomes is more important than equality of opportunities. D. is more concerned with efficiency than equity. When prices are fixed above the equilibrium price, A. there is a decrease in supply. B. there is a decrease in demand. C. quantity demanded is less than quantity supplied. D. quantity demanded is greater than quantity supplied. The shortages and lineups created by setting a price ceiling for gasoline will be worst when the demand for gasoline by drivers is ________ and the supply of gasoline by the oil companies is ________. A. elastic; elastic B. inelastic; inelastic C. inelastic; elastic D. zero; infinity E. elastic; inelastic Suppose that Norma is disappointed in the revenue from her custom dress shop. She is thinking of raising the price, but she asks you for advice. You decide she should A. lower the price if demand is inelastic. B. raise the price if income is elastic. C. raise the price if income is inelastic. D. lower the price if demand is elastic. Rent controls A. create housing surpluses. B. give tenants the upper hand over landlords. C. cause quantity adjustment in the form of apartment shortages. D. subsidize only low−income tenants. If the supply of a product is perfectly inelastic, then a tax on the product is paid A. entirely by buyers. B. entirely by sellers. C. equally by buyers and sellers. D. mostly by buyers. E. mostly by sellers. When a city government sets a minimum price for taxi fares that is above the market−clearing price, we see A. frustrated riders who can't find a taxi. B. a decrease in demand. C. an increase in supply. D. an excess supply of taxis. E. a shortage of taxis. A fall in tuition fees increases the university's total revenue if the price elasticity of demand for university education is A. negative. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 B. equal to 1. C. less than the elasticity of supply. D. greater than 1. E. greater than zero but less than 1. The cross elasticity of demand between any two products is defined as the percentage change in the A. quantity of a product demanded divided by the percentage change in its price. B. price elasticity of demand for one product divided by the change in the price elasticity of demand for the substitute or complement. C. quantity demanded of one product divided by the percentage change in the price of a substitute or complement. D. quantity of a product demanded divided by the percentage change in income. E. price of a product divided by the percentage change in the price of the substitute or complement. You should choose your political positions and social goals A. to reflect your values. B. to take the high road. C. to frighten your parents. D. on the basis of economics. E. to offend as many people as you can. The more inelastic the supply, the A. more likely the tax will be shared equally by sellers and buyers. B. larger the portion of the tax paid by sellers. C. smaller the portion of the tax paid by sellers. D. greater the sunk costs. Which of the statement about well-functioning markets is true? A. In well-functioning markets, outputs go to those most willing and able to pay. B. In well-functioning markets, outputs go to those most willing to pay. C. In a well-functioning housing market with no rent ceiling, tenants pay a lower rent than in a market with an effective rent ceiling. D. None of the above is true. A fall in tuition fees decreases a school’s total revenue if the price elasticity of demand for education is A. greater than one. B. equal to one. C. greater than zero but less than one. D. negative. A perfectly elastic demand curve is A. horizontal. B. upward sloping. C. vertical. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 D. downward sloping. E. none of the above. A price ceiling set below the equilibrium price results in A. an increase in supply. B. shortages. C. surpluses. D. the equilibrium price. Indicate whether the following statements are positive (P) or normative (N). The government should raise the tax on tobacco to discourage people from smoking. N Governments should arrange taxes so that people cannot avoid paying them. N Sports celebrities earn too much money. N A new minimum wage law best helps the working poor when A. demand for unskilled labour is elastic. B. gains from workers who remain employed are greater than the lost income of workers who lose their jobs. C. businesses have many substitutes for unskilled labour. D. all of the above are true. E. none of the above are true. When price rises from $1.50 to $2.50, quantity supplied increases from 9,000 to 11,000 units. What is the price elasticity of supply using the midpoint formula? A. 0.4 B. 2.5 C. 4.0 D. 0.8 E. − 0.4 Advertising makes A. demand more inelastic. B. supply more inelastic. C. supply more elastic. D. demand more elastic. In an oligopolistic market, the products or services are often A. unrelated. B. perfect complements. C. not substitutable. D. close substitutes. E. extreme complements. Moving down a straight-line demand curve, price elasticity of demand Select one: Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 A. first increases, then decreases. B. is constant. C. first decreases, then increases. D. decreases. E. increases. Which factor leads a business to have an inelastic supply? Select one: A. A product or service that can be produced in a very short amount of time. B. Flexible contracts with the suppliers of key inputs. C. An understanding landlord who holds the lease on the store. D. A limited amount of time to respond to price changes. E. A lack of reliable customers. A price ceiling set above the equilibrium price results in Select one: A. surpluses. B. shortages. C. the equilibrium price. D. an increase in supply. E. a decrease in demand. Eliminating rent controls should lead landlords to create additional rental housing. This increase in rental units is largest when Select one: A. demand is elastic. B. there is a lack of available land in the area. C. demand is inelastic. D. supply is inelastic. E. supply is elastic. Which is not an outcome of rent ceilings? Select one: A. black market rents above the rent-controlled prices B. long waiting lists for rent-controlled housing C. a shortage of rental housing D. black market rents below the rent-controlled prices E. a surplus of condominium housing Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 A new minimum wage law most hurts the working poor when Select one: A. demand for unskilled labour is elastic. B. gains from workers who remain employed are greater than the lost income of workers who lose their jobs. C. businesses have few substitutes for unskilled labour. D. all of the above are true. E. none of the above are true. Figure 6.3.1 gives the supply and demand schedules for teenage labour in Moncton, New Brunswick. If this labour market is not regulated by government, Select one: A. the minimum hourly wage is $14. B. there is no teenage unemployment and the hourly wage rate is $12. C. teenage unemployment is 400 hours and the hourly wage rate is $12. D. there is no teenage unemployment and the hourly wage rate is $10. E. teenage unemployment is 400 hours and the hourly wage rate is $10. In general, which statements are true? 1 Opportunity costs are greater than accounting costs. 2 Opportunity costs are less than accounting costs. 3 Economic profits are greater than accounting profits. 4 Economic profits are less than accounting profits. Select one: A. 2 and 4 Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 B. 1 and 3 C. 1 and 4 D. 2 and 3 E. 1 only Explicit costs equal Select one: A. opportunity costs minus implicit costs. B. depreciation minus opportunity costs. C. implicit costs minus opportunity costs. D. opportunity costs minus depreciation. E. implicit costs minus depreciation. An individual business in perfect competition faces a demand curve that is Select one: A. vertical. B. steeply sloped. C. slightly sloped. D. horizontal. E. none of the above. An industry where a few big businesses produce slightly differentiated products is Select one: A. oligopoly. B. differentiated competition. C. monopolistic competition. D. perfect competition. E. monopoly. Business competition takes all of these forms except Select one: A. cutting costs. B. tiebreakers. C. building barriers to entry. D. buying competitors. E. innovating. Accounting costs represent Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 A. explicit costs paid by the firm. B. opportunity costs. C. both sunk and future costs. D. only marginal costs. Abdul operates his own business and pays himself a salary of $30,000 per year. He refused a job that pays $35,000 per year. What is the opportunity cost of Abdul's time in the business? A. $35,000 B. $30,000 C. $5,000 D. $65000 One night Komal and Clinton decided to open a chocolate cheesecake bakery. Komal cashed in a $20,000 savings deposit that was paying 4% interest per year. Clinton sold a $20,000 bond that was paying 1% interest per year. They also borrowed $1000 on their VISA cards for a year at 21% per year. Financing the chocolate cheesecake bakery in this way has implicit costs of A. $800 a year. B. $200 a year. C.$1,000 a year. D. $210 a year. If you borrow money from the bank to start up a business, the interest you pay to the bank is A. subtracted from profits to determine economic profits. B. an implicit cost. C. not included in the calculation of economic profits. D. an obvious cost. Christine wants to sell you a raffle ticket. There is a 1−in−100 chance that you will win $2,000. With this raffle, your expected winnings are A. $200. B. $0. C. $20. D. $2,000. Nada is a freelance writer who could work for a newspaper at $30,000 a year but instead runs her own business earning revenues of $95,000 a year. Her only business expenses are $3,000 for writing materials and $12,000 for rent. What are Nada's economic profits from working as a freelance writer? A. $80,000 B. $50,000 C. $45,000 D. $65000 The definition of accounting profits can also be written as A. Revenues − Obvious Costs. B. Accounting Profits + Hidden Opportunity Costs. C. Revenues − (Obvious Costs + Normal Profits). D. Revenues − (Obvious Costs + Hidden Opportunity Costs). A business has $300 in explicit costs and sells the resulting output for $450. The average profits in other industries are 30 percent of explicit costs. Which of the following statements is true? A. Implicit costs are $90. B. Normal profits are $135. C. Economic profits are greater than accounting profits. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 D. Economic profits are $150. The sum of implicit costs make up A. normal profits. B. expected profits. C. marginal profits. D. average profits. If your business earns accounting profits of $90,000 and economic profits of $50,000, what are your hidden opportunity costs? A. Cannot be computed because of insufficient information. B. $−40,000. C. $140,000. D. $40,000. With economic profits, A. businesses expand and enter the industry, demand increases, pushing quantities sold down and prices up, until prices just cover all opportunity costs of production and economic profits are zero. B. businesses expand and enter the industry, supply increases, pushing quantities sold up and prices down, until prices just cover all opportunity costs of production and economic profits are zero. C. businesses leave the industry, supply decreases, pushing quantities sold up and prices down, until prices just cover all opportunity costs of production and economic profits are zero. D. businesses leave the industry, demand decreases, pushing quantities sold down and prices up, until prices just cover all opportunity costs of production and economic profits are zero. If your business earns revenues of $80,000, has total obvious costs of $35,000, and normal profits of $50,000,you are likely to leave the industry, What are your economic profits or losses? A. $85,000. B. $−50,000. C. $−5,000. D. $−45,000. Economists use the term short−run market equilibrium to describe a market where A. quantity demanded equals quantity supplied, and economic profits are always zero. B. quantity demanded equals quantity supplied, but economic losses or profits can lead to changes in supply. C. quantity demanded is less than quantity supplied, economic profits are zero, and there is no tendency for change. D. quantity demanded is greater than quantity supplied, economic profits are zero, and there is no tendency for change. A business owner should enter an industry when A. additional benefits are less than additional opportunity costs. B. profits are greater than some opportunity costs. C. additional benefits are equal to additional opportunity costs. D. economic profits are positive. In perfect competition, A. a business always hires many workers. B. businesses are price makers. C. there are usually economic barriers to entry. D. businesses are price takers. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 The elasticity of demand is highest in A. monopolistic competition. B. oligopoly. C. monopoly. D. perfect competition. In perfect competition, sellers A. seek the price that yields zero profits. B. have no market power. C. seek the price that yields the greatest profits. D. produce a product with no advertising. Which market structure has maximum pricing power? A. monopolistic competition B. oligopoly C. perfect competition D. monopoly In a monopoly, A. a seller has market power and cannot set a price below the market price. B. a seller can influence the market price. C. a seller cannot influence the market price. D. a seller cannot legally set their price above the price that occurs in perfect competition. One of the characteristics of market structure is A. the type of government in an economy. B. government intervention in markets. C. availability of substitutes. D. oligopoly. In the market structure of perfect competition, A. market power is low and the elasticity of demand is high. B. market power is high and the elasticity of demand is high. C. market power is high and the elasticity of demand is low. D. market power is low and the elasticity of demand is low. Patents A. create market power by making demand less elastic. B. increase market power by creating economies of scale. C. increase market power by eliminating barriers to entry. D. create market power by preventing other businesses from entering the market Economies of scale mean that as you sell more of your product or service, A. you will need more workers. B. average costs decrease. C. opportunity costs decrease. D. monopoly power decreases. Barriers to entry A. allow monopolists to charge as high a price as they want. B. enable monopolists to earn economic profits in the long run. C. are a limit on business profits. D. are an attempt to distinguish a product or service from those of competitors. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 Which market structure has no barriers to entry, many sellers of the product, and some pricing power? A. monopolistic competition B. perfect competition C. oligopoly D. monopoly Which market structure has the highest barriers to entry? A. monopolistic competition B. perfect competition C. monopoly D. oligopoly An industry in which more than one business has price−making power but there are no barriers to entry is called A. oligopoly. B. differentiated competition. C. monopolistic competition. D. perfect competition. Which of the following statements is true? A. Elasticity of demand for monopoly is higher than for monopolistic competition. B. Economies of scale usually exist in perfect competition. C. Monopolistic competition pricing power is closer to monopoly than to perfect competition. D. Elasticity of demand for oligopoly is lower than for perfect competition. In the market structure of monopoly, A. there are no entry barriers. B. there are some close substitutes. C. elasticity of demand is low. D. there are several sellers. Schumpeter's theory of competitive innovations A. suggests that perfect competition is an impossible ideal. B. suggests that all industries eventually converge to perfect competition. C. suggests that competitive forces weed out companies that do not innovate. D. is called military intelligence. Business competition A. includes cutting costs. B. results in profits. C. is an active attempt to gain the market power of oligopoly. D. requires a licence. Which statement about creative destruction is true? A. Creative destruction is responsible for the movement of jobs offshore. B. Competitive innovations make businesses more productive but can destroy living standards. C. Creative destruction is a hazard for all businesses. D. Creative destruction is an economic barrier to entry. Business competition can take any of these forms except A. buying competitors. B. erecting barriers to entry. C. reducing barriers to entry. D. advertising. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 Which of the following statements about the one-price rule is correct? A. The one-price rule says that firms must only charge one price for all units sold. B. According to the one-price rule, marginal revenue is larger than the price for price makers. C. According to the one-price rule, firms agree on the price they will charge. D. The one−price rule is the reason marginal revenue is less than price for price makers. For a one−price monopolist, raising the price will always A. increase marginal revenues. B. decrease marginal revenues. C. increase marginal costs. D. decrease total revenues. Marginal revenue A. equals the price for price−making firms in perfect competition. B. equals the price for price−taking firms in perfect competition. C. is less than the price for price−taking firms in perfect competition. D. equals the price for price−taking firms in market structures other than perfect competition. Marginal revenue A. is sunk costs. B. is the revenue you get from selling one more unit of your product or service. C. is always less than the price. D. depends on fixed costs. When a firm is a price taker, A. marginal revenue is negative. B. marginal revenue is greater than the price. C. marginal revenue is equal to the price. D. marginal revenue is equal to zero. Many businesses face increasing marginal costs because A. most businesses are near capacity. B. in order to increase output, you have to purchase more inputs. C. a business may have to shift to more expensive sources of inputs in order to increase output. D. when the price rises, output increases. If you own an airline, the marginal cost of seating another passenger A. includes the marketing costs. B. includes the total fuel costs. C. includes the fuel used to carry the extra passenger. D. includes the wages of the pilots. If you own a fast−food service store and are operating near capacity, your marginal cost of serving another customer is A. equal to your marginal revenue. B. constant. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 C. increasing. D. decreasing. Smart decisions include considering A. if your business is in the increasing marginal cost group, or the constant marginal cost group. B. sunk costs. C. total costs. D. none of the above. Suppose Paola, of Paola's Piercing and Fingernail Parlour, is considering producing an additional piercing. Her marginal revenue is $9 and her marginal cost is $10. If Paola wants to make a smart decision, she A. should produce another piercing because total profits would go up by $1. B. should not produce another piercing because total profits would go down by $1. C. should produce another piercing because marginal revenue is less than marginal cost. D. should not produce another piercing because (marginal cost−marginal revenue) is negative. The quantity decision is to produce all quantities for which A. marginal revenue is greater than marginal cost. B. marginal cost is greater than marginal revenue. C. marginal revenue is greater than total cost. D. total revenue is greater than total cost. If marginal cost is greater than marginal revenue, A. producing an additional unit will increase revenue more than cost. B. producing an additional unit will increase profits. C. reducing production by an additional unit will leave profits unchanged. D. reducing production by an additional unit will increase profits. You have been working too many hours at your part-time job (which pays $17 per hour), and your economics marks are suffering. Your father, who wants you to do better in school but recognizes your desire for cash, offers you this deal. For every one percent increase in your mark on the next test, he will pay you $6. You estimate that one additional hour of studying will raise your mark 8 percent, a second hour of studying will raise your mark 6 percent, a third hour 5 percent, a fourth hour 4 percent, and a fifth hour 3 percent. If all you are trying to do is make the most money, and you have only five hours in total to divide between studying and working, how many hours should you study? 5 hours A price-discriminating business will charge a lower price in the market where the A. demand for the product is more elastic. B. demand for the product is less elastic. C. customers cannot be separated. D. output is lower. Price discrimination is possible when A. the seller can differentiate consumers with lower willingness to pay and charge them higher prices. B. the seller can prevent high−price buyers from reselling to low−price buyers. C. groups have the same demand elasticity. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 D. the seller can prevent consumer resale. Businesses practise price discrimination in order to A. sell all units of the product or service. B. separate customers into groups according to demand elasticities. C. increase a business's total profits. D. increase marginal cost. Which statement on price discrimination is true? A. Price discrimination involves raising the price to customers with elastic demand. B. When a business practises price discrimination, revenues from the low elasticity group offset the decline in revenue from the high elasticity group. C. When a business practises price discrimination, revenues increase from both the high and low elasticity groups. D. As a result of price discrimination, revenues decrease from both the high and low elasticity groups. Which statement about profit-maximizing firms and related market structure is NOT true? A. There is no product differentiation in perfect competition. B. Market structures with price makers have no benefits. C. Price-making firms can finance innovation. D. Perfect competition is more efficient than any market structure with price makers. Compared with perfect competition, a monopoly A. has lower profits and eliminates deadweight loss. B. has lower profits and increases producer surplus. C. charges a higher price and increases producer surplus. D. charges a higher price and eliminates deadweight loss. Natural monopolies create a challenge for policymakers because A. other firms argue the monopoly is anti−competitive. B. they want to avoid the inefficiencies of restricted output and higher price. C. there is not enough consumer choice in the market. D. it is difficult to determine the market demand. When regulating a natural monopoly A. incentives are created for managers of the regulated businesses to minimize costs. B. government regulators try to set prices that provide positive economic profit. C. government regulators try to set prices that just cover average total costs. D. government regulators use profit−maximizing regulation. A natural monopoly A. occurs when technology allows only a single seller to achieve lowest average total cost. B. has low fixed costs and high marginal costs. C. occurs when prices fall down to levels just covering average total costs. D. occurs when competitive forces push prices up. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 The two major policies that governments around the world use to deal with the challenge of natural monopoly are A. penalty and public ownership. B. collusion and regulation. C. regulation and penalty. D. public ownership and regulation. In a Nash equilibrium A. all players are maximizing their payoffs given the current behaviour of the other players. Your answer is correct. B. all players cooperate. C. none of the players are maximizing their payoffs given the current behaviour of the other players. D. none of the players could be better off with any other combination of strategies. The prisoner's dilemma shows that A. the players are better off if they act independently. B. the players would be better off if they could cooperate. Your answer is correct. C. people will always cheat. D. markets produce outcomes that are inefficient or inequitable. Game theory is A. a set of hypotheses that describe the way players design games. B. an outcome in which each player makes her own best choice given the choice of the other player. C. a situation where each player is motivated to cheat, yet both would be better off if they could trust each other to cooperate. D. a tool for understanding how players make decisions, taking into account what they expect rivals to do. The Competition Act attempts to distinguish two kinds of anti-competitive offences or practices with different legal penalties: Criminal offences include price fixing, bid rigging, and false or misleading advertising. Trials are held by the courts and penalties include prison sentences and fines. Civil offences include mergers, abusing a business's dominant market position, and other actions that lessen competition. Charges are heard by a quasi-judicial Competition Tribunal composed of federal judges and business experts. Penalties include fines and legal prohibitions of mergers and anti- competitive business practices. Since the recession of 1981-1983, the OPEC cartel A. has gained world prominence. B. has swung between periods of mistrust, cheating, and high oil prices, and periods of trust and lower oil prices. C. has abided by the Competition Act. D. has behaved as game theory predicts. The 1986 Competition Act A. includes bid rigging as a civil offence. B. has provisions for criminal penalities of fines and legal prohibitions of mergers. C. requires criminal charges be heard by a quasi−judicial Competition Tribunal. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 D. includes abusing a dominant market position as a civil offence. Anti-combine, or anti-trust, laws A. drive price−fixing agreements underground. B. encourage collusion among businesses to raise prices or restrict supplies to customers. C. drive price−fixing agreements into the open. D. make it more likely that businesses will communicate about fixing prices. A group of firms that try to work together to earn monopoly profits is called A. a natural monopoly. B. a crown corporation. C. a cartel. D. caveat emptor. Cartels A. are stable because members can increase their individual profits by monitoring others. B. transfer money from business profits to consumers. C. collude to increase economic profits. D. are encouraged because of natural monopolies. Trade-offs to deal with market failure involve A. evaluating whether the government outcome is better or worse than the market failure outcome. Your answer is correct. B. higher costs to individual consumers that generate political pressure for regulators to serve the public interest. C. serving the public interest and benefiting the industry being regulated. D. eliminating waste, achieving efficiency, and promoting the public interest. According to the public-interest view of government regulation, A. regulations are set and enforced in ways that promote the self-interests of businesses. B. industry interests subvert the regulatory process to their own advantage. C. government regulations serve the public interest and the industry being regulated. D. government regulations act to eliminate waste, among other things. According to the capture view of government regulation, A. anti-trust laws have the purpose of maintaining and encouraging competition in Canada. B. government regulations capture the public interest, just like the invisible hand of markets. C. government regulations act to eliminate waste, achieve efficiency, and promote the public interest. D. regulations are set and enforced in ways that promote the self−interests of businesses. The evidence regarding the success of government regulation A. shows regulated natural monopolies tend to earn higher rates of return than the average rate of profits in the economy. B. is mixed: some supports the public-interest view, some supports the capture view. C. shows costs for Crown corporations were significantly higher than for private businesses. D. shows market failure occurs when there are natural monopolies with economies of scale. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 A situation in which a benefit or a cost associated with an economic activity is experienced by a third party is called A. an externality. B. a public good. C. the tragedy of the commons. D. public provision. Which of the following is a private cost? A. the dumping of toxic waste near a residential area B. the cooling effect from the purchase of an iced drink C. the improvement in health from widespread inoculations D. the marketing costs of a firm Which of the following is an example of an externality? A. Car makers realize higher profits from a new car model. B. Someone lights a cigarette in a crowded elevator. C. Higher gasoline taxes to pay for road repairs. D. Someone gets a parking ticket for ignoring a parking meter. Consider the market for gasoline−fuelled cars, which creates a negative externality. In this case, A. the market quantity would be less than the smart choice for society. B. the production of gasoline−fuelled cars should be banned. C. the market quantity would be greater than the smart choice for society. D. the market price level would be higher than the smart choice for society. When social benefits are greater than private benefits, A. there is overproduction of a product or service. B. there are positive externalities. C. there is too much economic profit in the activity. D. there are negative externalities. When there are positive externalities, A. marginal social benefits are greater than marginal private costs. B. marginal social costs are greater than marginal private costs. C. marginal external benefits are greater than marginal private benefits. D. marginal social benefits are greater than marginal private benefits. Assume that a coal power plant considers only the private costs of its air polluting. It will A. minimize its production of electricity. B. use resources very carefully and in small quantities. C. be making a positive contribution to the greater community. D. produce too much electricity, and use up more economic resources than if it had to cover all the costs. Whenever there is a negative externality, A. the market will produce too little of the commodity. B. the product or service should not be produced. C. the market will produce too much of the product or service. D. the government should subsidize the production of the product or service. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 Economically speaking, the "efficient" level of pollution is A. the output where the marginal costs of pollution control are positive. B. the output where the total benefits from cleanup equal the total costs of cleanup. C. at the point at which the marginal social benefits from pollution control are equal to the marginal social costs of pollution control. D. at the output at which the marginal benefits of pollution control are less than the marginal costs of pollution control. The common objection to the cap-and-trade system is that A. it gives businesses the right to pollute. B. it creates a black market for pollution permits. C. it creates more pollution. D. it gives businesses a choice of reducing pollution themselves or buying permits for pollution. When there are negative externalities, a method of forcing a company to internalize the total cost of production is A. to provide firms and consumers with the information about the effects of pollution. B. to make the worst polluters shut down and go out of business. C. to pay businesses to pollute, or ignore the issue. D. to impose a tax on the company to reduce production. The primary advantage of the cap-and-trade system is that it A. shifts the burden of paying for pollution to taxpayers. B. increases tax revenues to the government that can be used for pollution control. C. eliminates pollution. D. gives businesses a choice of reducing pollution themselves or buying permits for pollution. Externalities can be corrected, and the market outcome will be the same as the socially best outcome if A. signals in the economy help decision makers identify all the costs of their actions. B. the externality is identified so that decision makers are forced to face the private and social costs of their actions. C. individuals are faced with the private and external costs of their actions when making decisions. D. regulations in the economy make decision makers assume all the benefits of their actions. Which of the following is not a way to correct for a negative externality? A. making the social marginal costs higher than the private marginal costs B. forcing the business to take all social costs into account C. forcing a reduction in the output of the product or service D. creating a tax on the product or service Which of the following has all the characteristics of a public good? A. a library B. rail transport service C. postal service D. national defence The free-rider problem exists because Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 A. public goods don't cost anything to produce. B. all people are willing to pay for what they consume. C. all products and services consumed and produced are private goods. D. someone benefits from the consumption of a product or service without paying his or her full share. In the absence of government, A. public goods are likely to be overprovided. B. public goods are likely to be underprovided. C. market failure is less likely to occur. D. the free-rider problem will occur. One characteristic of a public good is that it A. can be consumed simultaneously by many individuals. B. generates a negative externality. C. always eliminates the free-rider problem. D. can be offered to a small group of consumers. Public services are paid for by A. marginal social benefits. B. tax revenues. C. marginal social costs. D. external user fees. A subsidy is sometimes used by the government to correct the problems associated with A. positive externalities. B. the tragedy of the commons. C. negative externalities. D. monopolies. Public provision is used when A. marginal social benefit equals marginal social cost. B. it is difficult to collect revenues from users. C. there are barriers to entry. D. it is difficult to collect revenues from producers. Which of the following statements measures a flow (not a stock)? A. This week Joanne earned $400. B. Joanne is 22 years old. C. Joanne has $5,000 in her bank account. D. Joanne is almost 2 metres tall. You have $15,000 in a savings account at the beginning of this year and no other assets. If the annual interest rate is 9 percent, your annual income from capital is $ 1350. If you spend half of your annual income this year, your wealth at the end of this year is $ 15675 In the input market, households A. buy labour, capital, land, and entrepreneurship. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 B. neither buy nor sell labour, capital, land, and entrepreneurship. C. buy and sell labour, capital, land, and entrepreneurship. D. supply labour, capital, land, and entrepreneurship. Which of the following statements is true? A. Wealth, a flow, is what you own. B. Wealth, a stock, is payments to labour, capital, land, or other resources. C. Income, a stock, is the total value of all the assets you own. D. Income, a flow, is payments to labour, capital, land, or other resources. A business should hire additional workers when A. marginal revenue product > wage rate. B. marginal product > total product. C. marginal product > marginal revenue product. D. marginal revenue > wage rate. The rule that yields maximum profits for a business is: hire additional units of an input A. as long as marginal revenue product is greater than the price of the input. B. as long as marginal product is greater than the price of the input. C. as long as marginal revenue product is less than the price of the input. D. until the last unit of the output equals the last unit of the input. For inputs such as land or superstar talent, A. input and output prices are not related. B. input prices are determined by output prices. C. output prices are determined by input prices. D. none of the above is true. The market−clearing price for rare labour inputs in inelastic supply depends on A. the marginal opportunity cost of the labourer's time. B. the price of the output produced with this labour. Your answer is correct. C. the marginal productivity of the labour. D. none of the above. Economic rents can persist because A. businesses have to earn normal profits. B. prices cannot change. C. high input prices cause high output prices. D. no new competitors can enter the market. Superstars earn high-priced contracts because A. they are greedy. B. demand is determined by supply. C. rents are below the costs. D. fans are willing to buy tickets to the events. Downloaded by Daniah alobatty ([email protected])  lOMoARcPSD|34137097 In 2010, the average market income for the middle 20 percent of families was A. $3,100. B. $63,400. C. $166,800. D. $46,300. Poverty can be reduced by A. education and training. B. changing the calculations of the poverty line. C. lowering taxes. D. reducing the size of government budgets. Proportional taxes charge A. the same dollar amount as income increases. B. the same percentage as income increases. Your answer is correct. C. a lower percentage as income increases. D. a higher percentage as income increases. What is the relationship between economic efficiency and economic equity? A. There is a trade-off between equality and efficiency. B. More equality is generally more efficient. C. Redistribution of income reduces economic equality and increases economic efficiency. D. Income is equitably distributed in market economies without intervention by government. Downloaded by Daniah alobatty ([email protected])