DK

Question 1

To an economist, the field of industrial organization answers which of the following questions?

a. Why are consumers subject to the law of demand?

b. Why do firms experience diminishing marginal productivities of their inputs?

c. How does the number of firms affect prices and the efficiency of market outcomes?

d. How can government intervention improve industrial production when externalities are present?

Answer 1

c. How does the number of firms affect prices and the efficiency of market outcomes?

Question 2

Which of the following is an example of an implicit cost?

a. Salaries paid to owners who work for the firm

b. Interest on money borrowed to finance equipment purchases

c. Cash payments for raw materials

d. Foregone rent on office space owned and used by the firm

Answer 2

d. Foregone rent on office space owned and used by the firm

Question 3

Jacqui decides to open her own business and earns $50,000 in accounting profit the first year. When deciding to open her own business, she turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Jacqui’s economic profit from running her own business?

a. $-55,000

b. $-5,000

c. $5,000

d. $20,000

Answer 3

c. $5,000

Question 4

Walter used to work as a high school teacher for $40,000 per year but quit in order to start his own painting business. To invest in his painting business, he withdrew $20,000 from his savings, which paid 3 percent interest, and borrowed $30,000 from his uncle, whom he pays 3 percent interest per year. Last year Walter paid $25,000 for supplies and had revenue of $60,000.

Walter asked Tyler the accountant and Greg the economist to calculate his painting business’s costs.

a. Tyler says his costs are $25,900, and Greg says his costs are $66,500.

b. Tyler says his costs are $25,000, and Greg says his costs are $65,000.

c. Tyler says his costs are $66,500, and Greg says his costs are $66,500.

d. Tyler says his costs are $75,000, and Greg says his costs are $41,500.

Answer 4

a. Tyler says his costs are $25,900, and Greg says his costs are $66,500.

Question 5

Walter used to work as a high school teacher for $40,000 per year but quit in order to start his own painting business. To invest in his painting business, he withdrew $20,000 from his savings, which paid 3 percent interest, and borrowed $30,000 from his uncle, whom he pays 3 percent interest per year. Last year Walter paid $25,000 for supplies and had revenue of $60,000. Walter asked Tyler the accountant and Greg the economist to calculate his painting business’s profit.

Which of the following statements is correct?

a. Tyler says his profit is $25,900, and Greg says his profit is $66,500.

b. Tyler says his profit is $35,000, and Greg says he lost $5,900.

c. Tyler says his profit is $34,100, and Greg says he lost $6,500.

d. Tyler says his profit is $34,100, and Greg says his profit is $34,100.

Answer 5

c. Tyler says his profit is $34,100, and Greg says he lost $6,500.

Question 6

Which of the following statements is correct?

a. Assuming that explicit costs are positive, economic profit is greater than accounting profit.

b. Assuming that implicit costs are positive, accounting profit is greater than economic profit.

c. Assuming that explicit costs are positive, accounting profit is equal to economic profit.

d. Assuming that implicit costs are positive, economic profit is positive.

Answer 6

b. Assuming that implicit costs are positive, accounting profit is greater than economic profit.

Question 7

Economic profit is equal to total revenue minus the

a. explicit cost of producing goods and services.

b. opportunity cost of producing goods and services.

c. accounting cost of producing goods and services.

d. implicit cost of producing goods and services.

Answer 7

b. opportunity cost of producing goods and services.

Question 8

Economic profit

a. will never exceed accounting profit.

b. is most often equal to accounting profit.

c. is always at least as large as accounting profit.

d. is a less complete measure of profitability than accounting profit.

Answer 8

a. will never exceed accounting profit.

Question 9

Total revenue minus only implicit costs is called

a. accounting profit.

b. economic profit.

c. opportunity cost.

d. None of the above is correct.

Answer 9

d. None of the above is correct.

Question 10

Which of the following expressions is correct?

a. accounting profit = economic profit + implicit costs

b. accounting profit = total revenue - implicit costs

c. economic profit = accounting profit + explicit costs

d. economic profit = total revenue - implicit costs

Answer 10

a. accounting profit = economic profit + implicit costs

Question 11

Korie wants to start her own business making custom furniture. She can purchase a factory that costs $400,000. Korie currently has $500,000 in the bank earning 3 percent interest per year. If Korie purchases the factory with her own money, what is the annual implicit opportunity cost of purchasing the factory?
a. $0
b. $3,000
c. $12,000
d. $15,000

Answer 11

c. $12,000

Question 12

Kachina is a senior majoring in graphic design at Awesome University (AU). While she has been attending college, Kachina started a computer consulting business to help senior citizens learn how to use their iPads. Kachina charges $25 per hour for her consulting services. She also works 5 hours a week for the Economics Department to maintain that department’s webpage. The Economics Department pays Kachina $20 per hour. If Kachina can work additional hours at either job, what is the opportunity cost if she spends one hour reading a novel?
a. $20
b. $25
c. $100
d. $125

Answer 12

b. $25

Question 13

Suppose that Abdul opens a coffee shop. He receives a loan from a bank for $100,000. He withdraws $50,000 from his personal savings account. The interest rate on the loan is 8%, and the interest rate on his savings account is 2%.
Abdul’s explicit cost of capital is:
a. $8,000
b. $4,000
c. $2,000
d. $1,000

Answer 13

a. $8,000

Question 14

Suppose that Abdul opens a coffee shop. He receives a loan from a bank for $100,000. He withdraws $50,000 from his personal savings account. The interest rate on the loan is 8%, and the interest rate on his savings account is 2%. Abdul’s implicit cost of capital is:
a. $8,000
b. $4,000
c. $2,000
d. $1,000

Answer 14

d. $1,000

Question 15

Which of these assumptions is often realistic for a firm in the short run?
a. The firm can vary both the size of its factory and the number of workers it employs.
b. The firm can vary the size of its factory but not the number of workers it employs.
c. The firm can vary the number of workers it employs but not the size of its factory.
d. The firm can vary neither the size of its factory nor the number of workers it employs.

Answer 15

c. The firm can vary the number of workers it employs but not the size of its factory.

Question 16

Assume a certain firm regards the number of workers it employs as variable but regards the size of its factory as fixed. This assumption is often realistic:
a. in the short run but not in the long run.
b. in the long run but not in the short run.
c. both in the short run and in the long run.
d. neither in the short run nor in the long run.

Answer 16

a. in the short run but not in the long run.

Question 17

A production function describes:
a. how a firm maximizes profits.
b. how a firm turns inputs into output.
c. the minimal cost of producing a given level of output.
d. the relationship between cost and output.

Answer 17

b. how a firm turns inputs into output.

Question 18

If a firm uses labor to produce output, the firm’s production function depicts the relationship between:
a. the number of workers and the quantity of output.
b. marginal product and marginal cost.
c. the maximum quantity that the firm can produce as it adds more capital to a fixed quantity of labor.
d. fixed inputs and variable inputs in the short run.

Answer 18

a. the number of workers and the quantity of output.

Question 19

The marginal product of labor is equal to the:
a. incremental cost associated with a one unit increase in labor.
b. incremental profit associated with a one unit increase in labor.
c. increase in labor necessary to generate a one unit increase in output.
d. increase in output obtained from a one unit increase in labor.

Answer 19

d. increase in output obtained from a one unit increase in labor.

Question 20

The marginal product of labor can be defined as the change in:
a. profit divided by the change in labor.
b. output divided by the change in labor.
c. labor divided by the change in output.
d. labor divided by the change in total cost.

Answer 20

b. output divided by the change in labor.

Question 21

When a firm’s only variable input is labor, then the slope of the production function measures the:
a. quantity of labor.
b. quantity of output.
c. total cost.
d. marginal product of labor.

Answer 21

d. marginal product of labor.

Question 22

At which number of workers does diminishing marginal product begin (usually)?
a. 1
b. 2
c. 3
d. 4

Answer 22

b. 2

Question 23

When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing:
a. diminishing labor.
b. diminishing output.
c. diminishing marginal product.
d. negative marginal product.

Answer 23

c. diminishing marginal product.

Question 24

On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product?
a. The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.
b. The farmer is able to produce 5,400 bushels of wheat when he hires 4 workers.
c. The farmer is able to produce 5,200 bushels of wheat when he hires 4 workers.
d. Any of the above could be correct.

Answer 24

d. Any of the above could be correct.

Question 25

As Bubba's Bubble Gum Company adds workers while using the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Bubba’s Bubble Gum Company encounters: a. economies of scale. b. diseconomies of scale. c. increasing marginal product. d. diminishing marginal product.

Answer 25

d. diminishing marginal product.

Question 26

If a production function shows declining marginal product of an input as the quantity of the input increases, then the production function exhibits: a. diminishing profitability. b. increasing returns to scale. c. increasing marginal product. d. decreasing marginal product.

Answer 26

d. decreasing marginal product.

Question 27

Scenario 13-14 If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost. Farmer Brown’s total cost curve is Refer to Scenario 13-14. a. Increasing at an increasing rate. b. Increasing at a decreasing rate. c. Increasing at a constant rate. d. Decreasing.

Answer 27

a. Increasing at an increasing rate.

Question 28

Which of the following statements about a production function is correct for a firm that uses labor to produce output? a. The production function depicts the relationship between the quantity of labor and the quantity of output. b. The slope of the production function measures marginal product. c. The slopes of the production function and the total cost curve are inversely related; if one is increasing, the other is decreasing. d. All of the above are correct.

Answer 28

d. All of the above are correct.

Question 29

A total-cost curve shows the relationship between the a. quantity of an input used and the total cost of production. b. quantity of output produced and the total cost of production. c. total cost of production and profit. d. total cost of production and total revenue.

Answer 29

b. quantity of output produced and the total cost of production.

Question 30

If the total cost curve gets steeper as output increases, the firm is experiencing a. diseconomies of scale. b. economies of scale. c. diminishing marginal product. d. increasing marginal product.

Answer 30

c. diminishing marginal product.

Question 31

David’s firm experiences diminishing marginal product for all ranges of inputs. The total cost curve associated with David’s firm a. gets flatter as output increases. b. gets steeper as output increases. c. is constant for all ranges of output. d. is unrelated to the production function.

Answer 31

b. gets steeper as output increases.

Question 32

The nature of a firm’s cost (fixed or variable) depends on the a. firm’s revenues. b. time horizon under consideration. c. price the firm charges for output. d. explicit but not implicit costs.

Answer 32

b. time horizon under consideration.

Question 33

The total cost to the firm of producing zero units of output is a. zero in both the short run and the long run. b. its fixed cost in the short run and zero in the long run. c. its fixed cost in both the short run and the long run. d. its variable cost in both the short run and the long run.

Answer 33

b. its fixed cost in the short run and zero in the long run.

Question 34

The long-run average total cost curve is a. flatter than the short-run average total cost curve, but not necessarily horizontal. b. horizontal. c. falling as output increases. d. rising as output increases.

Answer 34

a. flatter than the short-run average total cost curve, but not necessarily horizontal.

Question 35

When comparing short-run average total cost with long-run average total cost at a given level of output, a. short-run average total cost is typically above long-run average total cost. b. short-run average total cost is typically the same as long-run average total cost. c. short-run average total cost is typically below long-run average total cost. d. the relationship between short-run and long-run average total cost follows no clear pattern.

Answer 35

a. short-run average total cost is typically above long-run average total cost.

Question 36

Which of the following explains why long-run average cost at first decreases as output increases? a. diseconomies of scale b. less-efficient use of inputs c. fixed costs becoming spread out over more units of output d. gains from specialization of inputs

Answer 36

d. gains from specialization of inputs

Question 37

When a firm is experiencing economies of scale, long-run a. average total cost is minimized. b. average total cost is greater than long-run marginal cost. c. average total cost is less than long-run marginal cost. d. marginal cost is minimized.

Answer 37

b. average total cost is greater than long-run marginal cost.

Question 38

Economies of scale occur when a firm’s a. marginal costs are constant as output increases. b. long-run average total costs are decreasing as output increases. c. long-run average total costs are increasing as output increases. d. marginal costs are equal to average total costs for all levels of output.

Answer 38

b. long-run average total costs are decreasing as output increases.

Question 39

Economies of scale occur when a. long-run average total costs rise as output increases. b. long-run average total costs fall as output increases. c. average fixed costs are falling. d. average fixed costs are constant.

Answer 39

b. long-run average total costs fall as output increases.

Question 40

A firm that wants to achieve economies of scale could do so by a. assigning limited tasks to its employees, so they can master those tasks. b. employing a smaller number of workers. c. producing a smaller quantity of output. d. producing an output level higher than the efficient scale.

Answer 40

a. assigning limited tasks to its employees, so they can master those tasks.

Question 41

In the long run, a company that produces and sells popcorn incurs total costs of $1,050 when output is 90 canisters and $1,200 when output is 120 canisters. The popcorn company exhibits a. diseconomies of scale because total cost is rising as output rises. b. diseconomies of scale because average total cost is rising as output rises. c. economies of scale because total cost is rising as output rises. d. economies of scale because average total cost is falling as output rises.

Answer 41

d. economies of scale because average total cost is falling as output rises.

Question 42

Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart buys its goods in large quantities and, therefore, at cheaper prices. Wal-Mart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Wal-Mart because of low prices. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that a. consumers do not react to changing prices. b. there are diseconomies of scale in retail sales. c. there are economies of scale in retail sales. d. there are diminishing returns to producing and selling retail goods.

Answer 42

c. there are economies of scale in retail sales.

Question 43

Which of the following statements is not correct? a. In the long run, there are no fixed costs. b. Marginal cost is independent of fixed costs. c. Economies of scale is a short-run concept. d. Diminishing marginal product explains increasing marginal cost.

Answer 43

c. Economies of scale is a short-run concept.

Question 44

Constant returns to scale occur when the firm’s long-run a. total costs are constant as output increases. b. average total costs are constant as output increases. c. average cost curve is falling as output increases. d. average cost curve is rising as output increases.

Answer 44

b. average total costs are constant as output increases.

Question 45

Suppose that a firm’s long-run average total costs of producing an individual income tax return is $75 when it produces 1,000 returns and $75 when it produces 1,200 returns. For this range of output, the firm is experiencing a. economies of scale. b. constant returns to scale. c. diseconomies of scale. d. specialization.

Answer 45

b. constant returns to scale.

Question 46

When a firm is experiencing diseconomies of scale, long-run a. average total cost is minimized. b. average total cost is greater than long-run marginal cost. c. average total cost is less than long-run marginal cost. d. marginal cost is minimized.

Answer 46

c. average total cost is less than long-run marginal cost.

Question 47

Firms may experience diseconomies of scale when a. they are too small to take advantage of specialization. b. large management structures are bureaucratic and inefficient. c. there are too few employees, and managers do not have enough to do. d. average fixed costs begin to rise again.

Answer 47

b. large management structures are bureaucratic and inefficient.

Question 48

Suppose that a firm’s long-run average total costs of producing handcrafted chairs is $300 when it produces 10,000 chairs and $325 when it produces 11,000 chairs. For this range of output, the firm is likely experiencing a. economies of scale. b. constant returns to scale. c. specialization. d. coordination problems.

Answer 48

a. economies of scale.

Question 49

In setting the production level, a firm's cost curves a. by themselves do not tell us what decisions the firm will make. b. dictate what decisions the firm will make. c. have no bearing on what decisions the firm will make. d. None of the above is correct.

Answer 49

a. by themselves do not tell us what decisions the firm will make.

Question 50

The analysis of competitive firms sheds light on the decisions that lie behind the a. demand curve. b. supply curve. c. way firms make pricing decisions in the not-for-profit sector of the economy. d. way financial markets set interest rates.

Answer 50

b. supply curve.

Question 51

Suppose a firm in each of the two markets listed below were to increase its price by 30 percent. In which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm in the second market listed would not? a. oil and natural gas b. cable television and gasoline c. restaurants and MP3 players d. movie theaters and ballpoint pens

Answer 51

b. cable television and gasoline

Question 52

Who is a price taker in a competitive market? a. buyers only b. sellers only c. both buyers and sellers d. neither buyers nor sellers

Answer 52

c. both buyers and sellers

Question 53

In a competitive market, the actions of any single buyer or seller will a. have a negligible impact on the market price. b. have little effect on market equilibrium quantity but will affect market equilibrium price. c. affect marginal revenue and average revenue but not price. d. adversely affect the profitability of more than one firm in the market.

Answer 53

a. have a negligible impact on the market price.

Question 54

A competitive firm would benefit from charging a price below the market price because the firm would achieve (i) higher average revenue. (ii) higher profits. (iii) lower total costs. a. (i) only b. (ii) and (iii) only c. (i), (ii), and (iii) d. None of the above is correct.

Answer 54

d. None of the above is correct.

Question 55

Which of the following characteristics of competitive markets is necessary for firms to be price takers? (i) There are many sellers. (ii) Firms can freely enter or exit the market. (iii) Goods offered for sale are largely the same. a. (i) and (ii) only b. (i) and (iii) only c. (ii) only d. (i), (ii), and (iii)

Answer 55

b. (i) and (iii) only

Question 56

Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to a. increase. b. remain unchanged. c. decrease by less than 20 percent. d. decrease by more than 20 percent.

Answer 56

b. remain unchanged.

Question 57

In a market economy, supply and demand are important because they a. play a critical role in the allocation of the economy’s scarce resources. b. determine how much of each good gets produced. c. can be used to predict the impact on the economy of various events and policies. d. All of the above are correct.

Answer 57

d. All of the above are correct.

Question 58

In a perfectly competitive market, at the market price, a. buyers cannot buy all they want and sellers cannot sell all they want. b. buyers cannot buy all they want, but sellers can sell all they want. c. buyers can buy all they want, but sellers cannot sell all they want. d. buyers can buy all they want and sellers can sell all they want.

Answer 58

d. buyers can buy all they want and sellers can sell all they want.

Question 59

Which of the following is a reason perfect competition is a useful simplification, despite the diversity of market types we find in the world? a. Perfectly competitive markets are the easiest to analyze because everyone participating in the market takes the price as given by market conditions. b. Some degree of competition is present in most markets. c. There are many buyers and many sellers in all types of markets. d. Many of the lessons that we learn by studying supply and demand under perfect competition apply in more complicated markets as well.

Answer 59

c. There are many buyers and many sellers in all types of markets.

Question 60

“Other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises.” This relationship between price and quantity demanded a. applies to most goods in the economy. b. is represented by a downward-sloping demand curve. c. is referred to as the law of demand. d. All of the above are correct.

Answer 60

d. All of the above are correct.

Question 61

To obtain the market demand curve for a product, sum the individual demand curves a. vertically. b. diagonally. c. horizontally. d. and then average them.

Answer 61

c. horizontally.

Question 62

When we move along a given demand curve, a. only price is held constant. b. income and price are held constant. c. all nonprice determinants of demand are held constant. d. all determinants of quantity demanded are held constant.

Answer 62

c. all nonprice determinants of demand are held constant.

Question 63

Once the demand curve for a product or service is drawn, it a. remains stable over time. b. can shift either rightward or leftward. c. is possible to move along the curve, but the curve will not shift. d. tends to become steeper over time.

Answer 63

b. can shift either rightward or leftward.

Question 64

If something happens to alter the quantity demanded at any given price, then a. the demand curve becomes steeper. b. the demand curve becomes flatter. c. the demand curve shifts. d. we move along the demand curve.

Answer 64

c. the demand curve shifts.

Question 65

The demand curve for hot dogs a. shifts when the price of hot dogs changes because the price of hot dogs is measured on the vertical axis of the graph. b. shifts when the price of hot dogs changes because the quantity demanded of hot dogs is measured on the horizontal axis of the graph. c. does not shift when the price of hot dogs changes because the price of hot dogs is measured on the vertical axis of the graph. d. does not shift when the price of hot dogs changes because the quantity demanded of hot dogs is measured on the horizontal axis of the graph.

Answer 65

c. does not shift when the price of hot dogs changes because the price of hot dogs is measured on the vertical axis of the graph.

Question 66

Suppose that Carolyn receives a pay increase. We would expect a. to observe Carolyn moving down and to the right along her given demand curve. b. Carolyn's demand for inferior goods to decrease. c. Carolyn's demand for each of two goods that are complements to increase. d. Carolyn's demand for normal goods to decrease.

Answer 66

b. Carolyn's demand for inferior goods to decrease.

Question 67

Two goods are substitutes when a decrease in the price of one good a. decreases the demand for the other good. b. decreases the quantity demanded of the other good. c. increases the demand for the other good. d. increases the quantity demanded of the other good.

Answer 67

a. decreases the demand for the other good.

Question 68

Which of the following might cause the demand curve for an inferior good to shift to the left? a. a decrease in income b. an increase in the price of a substitute c. an increase in the price of a complement d. None of the above is correct.

Answer 68

c. an increase in the price of a complement

Question 69

Ford Motor Company announces that next month it will offer $3,000 rebates on new Mustangs. As a result of this information, today’s demand curve for Mustangs a. shifts to the right. b. shifts to the left. c. shifts either to the right or to the left, but we cannot determine the direction of the shift from the given information. d. will not shift; rather, the demand curve for Mustangs will shift to the right next month.

Answer 69

b. shifts to the left.

Question 70

A market supply curve is determined by a. vertically summing individual supply curves. b. horizontally summing individual supply curves. c. finding the average quantity supplied by sellers at each possible price. d. finding the average price at which sellers are willing and able to sell a particular quantity of the good.

Answer 70

b. horizontally summing individual supply curves.

Question 71

Lead is an important input in the production of crystal. If the price of lead decreases, then we would expect the supply of a. crystal to be unaffected. b. crystal to decrease. c. crystal to increase. d. lead to increase.

Answer 71

c. crystal to increase.

Question 72

Workers at a bicycle assembly plant currently earn the mandatory minimum wage. If the federal government increases the minimum wage by $1.00 per hour, then it is likely that the a. demand for bicycle assembly workers will increase. b. supply of bicycles will shift to the right. c. supply of bicycles will shift to the left. d. firm must increase output to maintain profit levels.

Answer 72

c. supply of bicycles will shift to the left.

Question 73

An increase in the price of rubber coincides with an advance in the technology of tire production. As a result of these two events, a. the demand for tires decreases and the supply of tires increases. b. the demand for tires is unaffected and the supply of tires decreases. c. the demand for tires is unaffected and the supply of tires increases. d. None of the above is necessarily correct.

Answer 73

d. None of the above is necessarily correct.

Question 74

If car manufacturers begin utilizing new labor-saving technology on their assembly lines, we would not expect a. a smaller quantity of labor to be used. b. the supply of cars to increase. c. the firms’ costs to fall. d. individual car manufacturers to move up and to the right along their individual supply curves.

Answer 74

c. the firms’ costs to fall.

Question 75

Which of the following might cause the supply curve for an inferior good to shift to the right? a. An increase in input prices. b. A decrease in consumer income. c. An improvement in production technology that makes production of the good more profitable. d. A decrease in the number of sellers in the market.

Answer 75

c. An improvement in production technology that makes production of the good more profitable.

Question 76

If suppliers expect the price of their product to fall in the future, then they will a. decrease supply now. b. increase supply now. c. decrease supply in the future but not now. d. increase supply in the future but not now.

Answer 76

b. increase supply now.

Question 77

What will happen in the rice market now if sellers expect higher rice prices in the near future? a. The supply of rice will increase. b. The supply of rice will decrease. c. The supply of rice will be unaffected. d. The demand for rice will decrease.

Answer 77

b. The supply of rice will decrease.

Question 78

Funsters, Inc., the largest toy company in the country, sells its most popular doll for $15. It has just learned that its leading competitor, Toysorama, is mass-producing an excellent copy and plans to flood the market with their $5 doll in 6 weeks. Funsters should a. “fight fire with fire” by decreasing supply of its doll for 6 weeks and then increasing the supply. b. increase the supply of their doll now before the other doll hits the market. c. increase the price of their doll now. d. discontinue their doll.

Answer 78

b. increase the supply of their doll now before the other doll hits the market.

Question 79

You are offered a free ticket to see the Chicago Cubs play the Chicago White Sox at Wrigley Field. Assume the ticket has no resale value. Willie Nelson is performing on the same night, and his concert is your next-best alternative activity. Tickets to see Willie Nelson cost $40. On any given day, you would be willing to pay up to $50 to see and hear Willie Nelson perform. Assume there are no other costs of seeing either event. Based on this information, at a minimum, how much would you have to value seeing the Cubs play the White Sox to accept the ticket and go to the game? A. $0 B. $10 C. $40 D. $50

Answer 79

B. $10

Question 80

A drought in California destroys many red grapes. As a result of the drought, the consumer surplus in the market for red grapes A. increases, and the consumer surplus in the market for red wine increases. B. increases, and the consumer surplus in the market for red wine decreases. C. decreases, and the consumer surplus in the market for red wine increases. D. decreases, and the consumer surplus in the market for red wine decreases.

Answer 80

D. decreases, and the consumer surplus in the market for red wine decreases.

Question 81

If the cost of producing sofas decreases, then consumer surplus in the sofa market will A. increase. B. decrease. C. remain constant. D. increase for some buyers and decrease for other buyers.

Answer 81

A. increase.

Question 82

When the demand for a good increases and the supply of the good remains unchanged, consumer surplus A. decreases. B. is unchanged. C. increases. D. may increase, decrease, or remain unchanged.

Answer 82

D. may increase, decrease, or remain unchanged.

Question 83

Consumer surplus is a good measure of economic welfare if policymakers want to A. maximize total benefit. B. minimize deadweight loss. C. respect the preferences of sellers. D. respect the preferences of buyers.

Answer 83

D. respect the preferences of buyers.

Question 84

A seller's willingness to sell is A. measured by the seller's cost of production. B. related to her supply curve, just as a buyer’s willingness to buy is related to his demand curve. C. less than the price received if producer surplus is a positive number. D. All of the above are correct.

Answer 84

D. All of the above are correct.

Question 85

Which of the following will cause an increase in producer surplus? A. the imposition of a binding price ceiling in the market B. buyers expect the price of the good to be lower next month C. the price of a substitute increases D. income increases and buyers consider the good to be inferior

Answer 85

C. the price of a substitute increases

Question 86

If the demand for a good or service decreases, producer surplus A. increases. B. decreases. C. remains the same. D. may increase, decrease, or remain the same.

Answer 86

B. decreases.

Question 87

Which tools allow economists to determine if the allocation of resources determined by free markets is desirable? A. profits and costs to firms B. consumer and producer surplus C. the equilibrium price and quantity D. incomes of and prices paid by buyers

Answer 87

B. consumer and producer surplus

Question 88

Total surplus is A. the total cost to sellers of providing the good minus the total value of the good to buyers. B. the total value of the good to buyers minus the cost to sellers of providing the good. C. the difference between consumer surplus and sellers' cost. D. always smaller than producer surplus.

Answer 88

B. the total value of the good to buyers minus the cost to sellers of providing the good.

Question 89

Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus A. would necessarily increase even if the higher price resulted in a surplus of widgets. B. would necessarily decrease because the higher price would create a surplus of widgets. C. might increase or decrease. D. would be unaffected.

Answer 89

C. might increase or decrease.

Question 90

PlayStations and PlayStation games are complementary goods. A technological advance in the production of PlayStations will A. increase consumer surplus in the market for PlayStations and decrease producer surplus in the market for PlayStation games. B. increase consumer surplus in the market for PlayStations and increase producer surplus in the market for PlayStation games. C. decrease consumer surplus in the market for PlayStations and increase producer surplus in the market for PlayStation games. D. decrease consumer surplus in the market for PlayStations and decrease producer surplus in the market for PlayStation games.

Answer 90

B. increase consumer surplus in the market for PlayStations and increase producer surplus in the market for PlayStation games.