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5 Steps To A 5 AP Microeconomics Macroeconomics 2008-2009 2nd Edition Eric Dodge - Solutions
If this firm were a profit-maximizing monopolist, the price and output would be which of the following?(A) 0a and Q1(B) 0c and Q1(C) 0e and Q1(D) 0e and Q2(E) 0f and Q1
Which of the following is true of monopoly markets?(A) Dead weight loss exists in the short run, but not in the long run.(B) A homogenous product allows for long-run entry of competing firms.(C) Collusion between close rivals creates pricing above marginal cost.(D) Barriers to entry allow for the
Declining populations of tuna in the Atlantic Ocean have likely had which of the following impacts on the wages of tuna fishermen, the employment of tuna fishermen, and real estate prices in New England fishing towns?
For the perfectly competitive firm, the profit maximizing decision to shut down is made when the price(A) falls below minimum average total cost.(B) is greater than minimum average variable cost, but lower than minimum average total cost.(C) falls below minimum average variable cost.(D) is equal to
Which of the following might explain how a price decrease might cause a decrease in quantity demanded and an upward sloping demand curve?(A) The good is inferior and the income effect is stronger than the substitution effect.(B) The good is normal and the income effect is stronger than the
Jason cleans swimming pools in a perfectly competitive local market. A profit-maximizer, he can charge $10 per pool to clean 9 pools per day, incurring total variable costs of $80 and total fixed costs of $20. Which of the following is true?(A) Jason should shut down in the short run, with economic
If a market is organized by a cartel, we can expect(A) normal profits for all cartel firms.(B) an incentive for cartel firms to cheat on the cartel agreement.(C) profit maximization by individual firms in the cartel.(D) allocative efficiency.(E) perfectly competitive prices.
If the market price is above the perfectly competitive firm’s average total cost curve, we expect that in the long run,(A) the industry contracts as firms exit the market.(B) the industry expands as firms exit the market.(C) the industry contracts as firms enter the market.(D) the industry
Which of the following is true in the long run in perfect competition?(A) P = MR = MC = ATC(B) P = MR = MC > ATC(C) P > MR = MC = ATC(D) P = MR > MC = ATC(E) P > MR = MC > ATC
The demand curve for a perfectly competitive firm’s product is(A) downward sloping and equal to the market demand curve.(B) perfectly elastic.(C) perfectly inelastic.(D) “kinked” at the going market price.(E) the same as the firm’s marginal cost curve.
If total product of labor is rising at an increasing rate,(A) marginal product of labor is rising.(B) marginal product of labor is at its minimum.(C) marginal product of labor is at its maximum.(D) marginal cost is rising.(E) average product of labor is at its minimum.
Which of the following is an example of a longrun adjustment for the owners of a small café?(A) The owners switch from whole wheat to sourdough bread.(B) The owners hire several part-time workers to cover the dinner shifts.(C) The owners work overtime on a busy weekend.(D) The owners install more
You are told that the cross-price elasticity between goods X and Y is +2.0. This means that(A) goods X and Y are normal goods.(B) goods X and Y are inferior goods.(C) goods X and Y are complementary goods.(D) goods X and Y are substitute goods.(E) good X is twice as elastic as good Y.
When a firm is earning a normal profit from the production of a good, it is true that(A) total revenues from production are equal to explicit costs.(B) explicit costs are equal to implicit costs.(C) total revenues from production are equal to implicit costs.(D) total revenues from production are
If Matt’s total utility from consuming bratwurst increased at a constant rate, no matter how many bratwurst Matt consumed, what would Matt’s demand curve for bratwurst look like?(A) Vertical(B) Horizontal(C) Downward sloping(D) Upward sloping(E) First upward, but eventually downward sloping
The market for Cincinnati Reds baseball tickets is currently in equilibrium. Which of the following events would most likely increase the consumer surplus received by Reds fans?(A) The Reds offer discounted parking for all home games.(B) The Reds increase hot dog prices to reflect a higher cost of
Monopoly dead weight loss is the result of(A) setting the price above marginal cost.(B) setting the price above average total cost.(C) monopoly output being greater than the competitive output.(D) long-run normal profits.(E) marginal revenue equaling marginal cost.
Suppose the county government sends each parent a coupon that can be used to subsidize the cost of sending each child to daycare. What would you expect to occur in the market for daycare services?(A) The demand for daycare falls, lowering the price.(B) The demand for daycare rises, increasing the
Using the diagram above, which of the following might have caused the outward movement of the production possibility frontier?(A) A decrease in the availability of fertile farmland.(B) A plague of destructive grasshoppers.(C) An increase in the productivity of the labor force.(D) A severe and
Which of the following causes the supply curve of paper to shift to the left?(A) Paper producers expect lower paper prices in the months ahead.(B) The price of pencils, a complement to paper, increases.(C) Improvements in the technology used to produce paper.(D) Household income falls.(E)
You are told that the income elasticity for CDs is + 1.5. This means that(A) a 10 percent increase in income produces a 15 percent increase in consumption of CDs.CDs are a normal luxury good.(B) a 10 percent increase in income produces a 15 percent increase in consumption of CDs.CDs are an inferior
Which of the following is true of a price floor?(A) The price floor shifts the demand curve to the left.(B) An effective floor creates a shortage of the good.(C) The price floor shifts the supply curve of the good to the right.(D) To be an effective floor, it must be set above the equilibrium
Suppose the price elasticity of demand for cigarettes is less than one. When an excise tax is imposed on cigarette production, it changes the price, quantity, and consumer spending in which of the following ways?
Which of the following would best complete a short definition of economics? “Economics is the study of . . .”(A) how unlimited resources are allocated between scarce wants.(B) how money is circulated through the economy.(C) how corporations maximize the share price of their stock.(D) how
When the production or consumption of a good creates a positive externality, it is deemed a market failure because at the market quantity(A) the marginal social benefit exceeds the marginal social cost.(B) the marginal social cost exceeds the marginal social benefit.(C) society produces too much of
Every day Molly spends her lunch money consuming apples, at $1 each, and oranges, at $2 each. At her current level of consumption, Molly’s marginal utility of apples is 12 and her marginal utility of oranges is 18. If she has already spent all of her lunch money, how should Molly change her
If the price were to rise from 0B to 0C,(A) dollars spent on this good would increase if demand for the good were price elastic.(B) dollars spent on this good would decrease if demand for the good were price inelastic.(C) dollars spent on this good would increase if demand for the good were price
If the market is initially in equilibrium, which of the following would create a new equilibrium at point H?(A) A decrease in consumer income if this good is normal.(B) An increase in the price of a substitute for this good.(C) A decrease in the cost of a production input for this good.(D) An
Assuming no government involvement in this market, if the current price were at the level of 0A, we would expect(A) a surplus in the market to be eliminated by rising prices.(B) a shortage in the market to be eliminated by falling prices.(C) a surplus in the market to be eliminated by falling
Which of the following statements are true of a capitalist market economy?I. Economic resources are publicly owned.II. Freedom of enterprise is critical.III. The price system allocates resources in the most efficient way.(A) I only(B) II only(C) III only(D) I and II only(E) II and III only
Which of the following is the best example of a public good?(A) Private violin lessons(B) The volunteer fire department in your community(C) A ticket for admission to a museum(D) A bag of potato chips(E) A history textbook
The United States is trading salmon to Peru in exchange for anchovies. If these nations are trading based upon relative opportunity costs, what must be the case?(A) The United States has comparative advantage in anchovy production and Peru has comparative advantage in salmon production.(B) The
Suppose the market for roses is currently in equilibrium. If the supply of roses falls, while at the same time the demand for roses rises, what can you say about the price and quantity of roses in the market?(A) Price and quantity both rise.(B) Price rises, but the change in quantity is
Nancy has the choice to spend one hour studying for an exam, mowing the lawn for one hour at a wage of $6, or babysitting her niece for one hour at a wage of $8. If we know that Nancy has chosen to study for the exam, which of the following is true?(A) The benefit received from studying is greater
At the birthday party of your best friend, you see Skylar help himself to a second piece of cake. For this individual, it must be the case that(A) the marginal benefit of the second piece of cake is less than the marginal cost.(B) the total benefit received from eating cake is falling.(C) the ratio
When the United States places an import quota on imported sugar, we expect which of the following effects?(A) Consumers seek substitutes for sugar and products that use sugar.(B) Consumers consume more sugar and products that use sugar.(C) The supply of sugar increases.(D) Net exports in the United
If the Japanese economy suffers a deep, prolonged recession, in what ways would U.S. net exports and the values of the dollar and yen change?
Which of the following is a consequence of a protective tariff on imported steel?(A) Net exports fall.(B) Income is transferred from steel consumers to steel producers.(C) Allocative efficiency is improved.(D) Income is transferred from domestic steel to foreign steel producers.(E) Aggregate supply
You hear that the United States has a negative balance in the current account. With this information we conclude that(A) there is a trade deficit.(B) there is a capital account deficit.(C) there is a capital account surplus.(D) more U.S. dollars are being sent abroad than foreign currencies are
If the U.S. dollar and Chinese yuan are traded in flexible currency markets, which of the following causes an appreciation of the dollar relative to the Chinese yuan?(A) Lower interest rates in the United States relative to China.(B) Lower price levels in China relative to the United States.(C)
The united states produces rice in a competitive market. With free trade, the world price is lower than the domestic price. What must be true?(A) The United States begins to import rice to make up for a domestic shortage.(B) The United States begins to export rice to make up for a domestic
Which of the following is a predictable advantage of expansionary monetary policy in a recession? (A) Decreases aggregate demand so that the price level falls. (B) Increases aggregate demand, which increases real GDP and increases employment. (C) Increases unemployment, but low prices negate this
To move the economy closer to full employment, the central bank decides that the federal funds rate must be increased. The appropriate open market operation is to ______, which ______ the money supply, ______ aggregate demand, and fight ______.
If the money supply increases, what happens in the money market? (Assuming money demand is downward sloping)(A) The nominal interest rates rises.(B) The nominal interest rates falls.(C) The nominal interest rate does not change.(D) Transaction demand for money falls.(E) Transaction demand for money
Which is NOT a way that the Fed can affect the money supply?(A) A change in discount rate.(B) An open market operation.(C) A change in reserve ratio.(D) A change in tax rates.(E) Buying Treasury securities from commercial banks.
If a bank has $500 in checking deposits and the bank is required to reserve $50, what is the reserve ratio? How much does the bank have in excess reserves?(A) 10 percent, $450 in excess reserves.(B) 90 percent, $50 in excess reserves.(C) 90 percent, $450 in excess reserves.(D) 10 percent, $50 in
Which function of money best defines $1.25 as the price of a 20 oz. bottle of pop?(A) Medium of exchange.(B) Unit of account.(C) Store of value.(D) Transfer of ownership.(E) Fiat money.
The effect of the spending multiplier is lessened if(A) the price level is constant with an increase in aggregate demand.(B) the price level falls with an increase in aggregate supply.(C) the price level is constant with an increase in long-run aggregate supply.(D) the price level falls with an
What is the main contrast between the short-run and long-run Phillips curve?(A) In the short run there is a positive relationship between inflation and unemployment, and in the long run the relationship is negative.(B) In the short run there is a positive relationship between inflation and
Equilibrium real GDP is far below full employment and the government lowers household taxes. Which is the likely result?(A) Unemployment falls with little inflation.(B) Unemployment rises with little inflation.(C) Unemployment falls with rampant inflation.(D) Unemployment rises with rampant
Stagflation most likely results from(A) increasing AD with constant AS.(B) decreasing AS with constant AD.(C) decreasing AD with constant AS.(D) a decrease in both AD and AS.(E) an increase in both AD and AS.
Which is the best way to describe the AS curve in the long run?(A) Always vertical in the long run.(B) Always upward sloping because it follows the Law of Supply.(C) Always horizontal.(D) Always downward sloping.(E) Without more information we cannot predict how it looks in the long run.
Using the model of AD and AS, what happens to real GDP, the price level, and unemployment with more consumption spending (C)?
Which of the following is the source of the supply of loanable funds?(A) The stock market.(B) Investors.(C) Net exports.(D) Banks and mutual funds.(E) Savers.
The tax multiplier increases in magnitude when(A) the MPS increases.(B) the spending multiplier falls.(C) the MPC increases.(D) government spending increases.(E) taxes increase.
Which of the following choices is most likely to create the greatest decrease in real GDP?(A) The government decreases spending, matched with a decrease in taxes.(B) The government increases spending with no increase in taxes.(C) The government decreases spending with no change in taxes.(D) The
Which of the following events most likely increases real GDP?(A) An increase in the real rate of interest.(B) An increase in taxes.(C) A decrease in net exports.(D) An increase in government spending.(E) A lower value of consumer wealth.
Which of the following is true about the consumption function?(A) The slope is equal to the MPC.(B) The slope is equal to the MPS.(C) The slope is equal to MPC + MPS.(D) It shifts upward when consumers are more pessimistic about the future.(E) It shifts downward when consumer wealth increases in
When disposable income increases by $X,(A) consumption increases by more than $X.(B) saving increases by less than $X.(C) saving increases by exactly $X.(D) saving remains constant.(E) saving decreases by more than $X.
You are working at a supermarket bagging groceries but you are unhappy about your wage so you quit and begin looking for a new job at a competing grocery store. What type of unemployment is this?(A) Cyclical(B) Structural(C) Seasonal(D) Frictional(E) Discouraged
What is the unemployment rate?(A) 5 percent(B) 2.5 percent(C) 5.5 percent(D) 7 percent(E) Unknown, as we do not know the number of discouraged workers.
What is the size of the labor force?(A) 2000(B) 950(C) 900(D) 1000(E) 1950
If Real GDP = $200 billion and the price index = 200, Nominal GDP is(A) $4 billion.(B) $400 billion.(C) $200 billion.(D) $2 billion.(E) impossible to determine since the base year is not given.For questions 4 to 5 use the information below for a small town.Total Population: 2000 Total Employed
GDP is $10 million, consumer spending is $6 million, government spending is $3 million, exports are $2 million, and imports are $3 million. How much is spent for investments?(A) $0 million(B) $1 million(C) $2 million(D) $3 million(E) $4 million
Which of the following transactions would be counted in GDP?(A) The wage you receive from babysitting your neighbor’s kids.(B) The sale of illegal drugs.(C) The sale of cucumbers to a pickle manufacturer.(D) The sale of a pound of tomatoes at a supermarket.(E) The resale of a sweater you received
Jason earns $1000 a week and pays a total of$200 in taxes. Jennifer earns $2000 a week and pays a total of $300 in taxes. We can conclude from this information that their income is taxed with a(n)(A) progressive tax.(B) proportional tax.(C) regressive tax.(D) tax bracket.(E) egalitarian tax.
Production of energy (i.e, electricity, natural gas, heating oil) creates a negative externality in the form of air pollution blown to communities downwind from the source of the pollution. Of the choices below, which is the most appropriate policy to remedy this negative externality?(A) a per unit
Which of the following is the best example of a public good?(A) A lighthouse on a rocky coastline.(B) Tickets to the Super Bowl.(C) A granola bar.(D) A cup of coffee.(E) A magazine subscription.
Which of the following scenarios best describes a negative externality?(A) A roommate subscribes to a monthly CD club and you share the same taste in music.(B) Your neighbor has a swimming pool and you have an open invitation to come on over for a pool party.(C) Your neighbor has a swimming pool
In the figure below, X represents(A) spillover benefits.(B) a potential producer subsidy to eliminate an externality.(C) a potential consumer subsidy to eliminate an externality.(D) both A and C.(E) A, B, and C.
If a firm hires labor in a monopsony labor market, the wage and employment are(A) $3 and zero.(B) $4 and 10.(C) $5 and 20.(D) $6 and 30.(E) $7 and 40.
If a firm is hiring labor in the perfectly competitive labor market, the wage and employment are(A) $3 and zero.(B) $4 and 10.(C) $5 and 20.(D) $6 and 30.(E) $7 and 40.
A competitive labor market is currently in equilibrium. Which of the following most likely increases the market wage?(A) More students graduate with the necessary skills for this labor market.(B) Demand for the good produced by this labor is stronger.
The price of labor is $2 and the price of capital is $1. The marginal product of labor is 200 and the marginal product of capital is 50. What should the firm do?(A) Increase capital and decrease labor so that the marginal product of capital falls and the marginal product of labor rises.(B) Increase
Your aunt runs a small firm from her home making apple pies. She hires some friends to help her. Which of the following situations would most likely increase her demand for labor?(A) The price of apple peelers/corers rises.(B) Your aunt’s friends gossip all day, slowing their dough making
Dead weight loss occurs in(A) monopolistic competition as P > MC.(B) monopoly markets because P > MC.(C) oligopoly markets because P > MC.(D) all of the above.(E) none of the above.
If these firms do not collude, the outcome will be:(A) Both firms maintain the status quo.(B) Both firms advertise.(C) Firm X advertises and Firm Y maintains the status quo.(D) Firm Y advertises and Firm X maintains the status quo.
Which of these situations is not an example of price discrimination?(A) Brent works nights so he chooses to buy bread at 7 a.m. rather than at 7 p.m.(B) Bob and Nancy each receive a “$1 off”coupon in the mail, but Bob redeems it while Nancy does not.(C) Katie buys 12 Cokes for $3 and Josh buys
If the perfectly competitive price is currently above minimum ATC, we can expect which of the following events in the long run?(A) Price rises as firms enter the industry.(B) Market equilibrium quantity rises as firms exit the industry.(C) Nothing, the industry is currently in longrun
Which characteristic is likely a part of a monopoly market but not of monopolistic competition?(A) Differentiated products(B) Patents and copyrights(C) Possibility of profit in the short run(D) Dead weight loss exists(E) None of the above
For a competitive firm, what is the most important thing to consider in deciding whether to shut down in the short run?(A) Compare AVC to MR.(B) Compare TR to TC.(C) Do not produce if the TFC is not covered by revenue.(D) Produce the highest quantity demanded regardless of price.(E) Compare P to
At the q3 level of output,(A) AFC = $d2 – $d1.(B) MC = $d2.(C) TVC = $d2.(D) ATC = $d3.(E) AFC = $d3 – $d2.
The curves labeled W, X, Y, Z refer to which respective cost functions?(A) MC, AVC, ATC, and AFC.(B) MC, TC, TVC, and AFC.(C) MC, ATC, AVC, and AFC.(D) MC, ATC, AVC, and TFC.(E) ATC, AVC, AFC, and MC.
If the per unit price of labor, a variable resource, increases, it causes which of the following?(A) An upward shift in AFC.(B) An upward shift in MPL.(C) A downward shift in ATC.(D) An upward shift in MC.(E) A downward shift in AFC.
Which of the following cost and production relationships is inaccurately stated?(A) AFC = AVC − ATC(B) MC = ∆TVC/∆Q(C) TVC = TC − TFC(D) APL = TPL/L(E) MC = w/MPL
The Law of Diminishing Marginal Returns is responsible for(A) AVC that first rises, but eventually falls, as output increases.(B) AFC that first rises, but eventually falls, as output increases.(C) MP that first falls, but eventually rises, as output increases.(D) MC that first falls, but
Which of the following is most likely an example of production inputs that can be adjusted in the long run, but not in the short run?(A) Amount of wood used to make a desk.(B) Number of pickles put on a sandwich.(C) The size of a McDonald’s kitchen.(D) Number of teacher’s assistants in local
The competitive market equilibrium is at point C. If a per unit excise tax is imposed on the production of this good, the revenue collected by the government is(A) the area BDE.(B) the area BADH.(C) the area GDH.(D) the area DAC.(E) the area GDAB.
The competitive market equilibrium is at point C. If a per unit excise tax is imposed on the production of this good, the dead weight loss is(A) the area BDE.(B) the area BADH.(C) the area GDH.(D) the area DAC.(E) the area GDAB.
A consequence of a price floor is(A) a persistent shortage of the good.(B) an increase in total welfare.(C) a persistent surplus of the good.(D) elimination of dead weight loss.(E) an increase in quantity demanded and a decrease in quantity supplied.
Mrs. Johnson spends her entire daily budget on potato chips, at a price of $1 each, and onion dip at a price of $2 each. At her current consumption bundle, the marginal utility of chips is 12 and the marginal utility of dip is 30. Mrs. Johnson should(A) do nothing; she is consuming her utility
To raise total revenue, owners should(A) decrease price as demand is elastic.(B) decrease price as demand is inelastic.(C) increase price as demand is elastic.(D) increase price as demand is inelastic.(E) do nothing; they are already maximizing total revenue.
A small business estimates price elasticity for the product to be
If the price of corn rises 5 percent and the quantity demanded for corn falls 1 percent, then(A) Ed = 5 and demand is price elastic.(B) Ed = 1/5 and demand is price elastic.(C) Ed = 5 and demand is price inelastic.(D) Ed = 1/5 and demand is price inelastic.(E) Ed = 5 and corn is a luxury good.
The competitive market provides the best outcome for society because(A) consumer surplus is minimized while producer surplus is maximized.(B) the total welfare is maximized.(C) producer surplus is minimized while consumer surplus is maximized.(D) the difference between consumer and producer surplus
The apple market is in equilibrium. Suppose we observe that apple growers are using more pesticides to increase apple production. At the same time, we hear that the price of pears, a substitute for apples, is rising. Which of the following is a reasonable prediction for the new price and quantity
The market for denim jeans is in equilibrium, and the price of polyester pants, a substitute good, rises. In the jean market(A) supply falls, increasing the price and decreasing the quantity.(B) supply falls, increasing the price and increasing the quantity.(C) demand falls, increasing the price
Suppose that aluminum is a key production input in the production of bicycles. If the price of aluminum falls, and all other variables are held constant, we expect(A) the demand for aluminum to rise.(B) the supply of bicycles to rise.(C) the supply of bicycles to fall.(D) the demand for bicycles to
If average household income rises and we observe that the demand for pork chops increases, pork chops must be(A) an inferior good.(B) a normal good.(C) a surplus good.(D) a necessity.(E) a shortage good.
When the price of pears increases, we expect the following:(A) quantity demanded of pears rises.(B) quantity supplied of pears falls.(C) quantity demanded of pears falls.(D) demand for pears falls.(E) supply of pears rises.
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