Questions and Answers of Principles Of Microeconomics

Alexis, Bruno, and Camila each want an ice-cream cone. Alexis is willing to pay $12, Bruno is willing to pay $8, and Camila is willing to pay $4. The market price is $6. Consumer surplus equalsa.
If the price of an ice-cream cone falls to $3, the consumer surplus of Alexis, Bruno, and Camila increases bya. $6.b. $7.c. $8.d. $9.
The demand curve for cookies is downward-sloping. When the price of cookies is $3, the quantity demanded is 100. If the price falls to $2, what happens to consumer surplus?a. It falls by less than
Diego, Emi, and Finn are available to work as tutors for the semester. The opportunity cost of tutoring is $100 for Diego, $200 for Emi, and $400 for Finn. The university is hiring tutors at a price
Gavin has been working full-time as a gardener for $300 a week. When the market price of gardeners rises to $400, Hector becomes a gardener as well. How much does producer surplus rise as a result of
The supply curve for a product is Qs = 2P , and the market price is $10. What is producer surplus? (Graph the supply curve and recall the formula for the area of a triangle.)a. $5b. $20c. $100d.
Isabelle values her time at $60 an hour. She spends 2 hours giving Jayla a massage. Jayla was willing to pay as much as $300 for the massage, but they negotiated a price of $200. In this
An efficient allocation of resources maximizesa. consumer surplus.b. producer surplus.c. consumer surplus plus producer surplus.d. consumer surplus minus producer surplus.
When a market is in equilibrium, the buyers are those with the _________ willingness to pay and the sellers are those with the _________ costs.a. highest; highestb. highest; lowestc. lowest;
Producing a quantity larger than the equilibrium of supply and demand is inefficient because the marginal buyer’s willingness to pay isa. negative.b. zero.c. positive but less than the marginal
Kyra buys an iPhone for $240 and gets consumer surplus of $160.a. What is her willingness to pay?b. If she had bought the iPhone on sale for $180, what would her consumer surplus have been?c. If the
A tax on a good has a deadweight loss ifa. the reduction in consumer and producer surplus is greater than the tax revenue.b. the tax revenue is greater than the reduction in consumer and producer
Donna runs an inn and charges $300 a night for a room, which equals her cost. Sam, Harry, and Bill are three potential customers willing to pay $500, $325, and $250, respectively. When the government
Sophie pays Sky $50 to mow her lawn every week. When the government levies a mowing tax of $10 on Sky, he raises his price to $60. Sophie continues to hire him at the higher price. What is the change
If a policymaker wants to raise revenue by taxing goods while minimizing the deadweight losses, he should look for goods with _________ elasticities of demand and _________ elasticities of supply.a.
In the economy of Agricola, tenant farmers rent the land they use from landowners. If the supply of land is perfectly inelastic, then a tax on land would have _________ deadweight losses, and the
Suppose the demand for grape jelly is perfectly elastic (because strawberry jelly is a good substitute), while the supply is unit elastic. A tax on grape jelly would have _________ deadweight losses,
The Laffer curve illustrates that, in some circumstances, the government can reduce a tax on a good and increase thea. price paid by consumers.b. equilibrium quantity.c. deadweight loss.d.
Eggs have a supply curve that is linear and upward-sloping and a demand curve that is linear and downward-sloping. If a 2 cent per egg tax is increased to 3 cents, the deadweight loss of the taxa.
Peanut butter has an upward-sloping supply curve and a downward-sloping demand curve. If a 10 cent per pound tax is increased to 15 cents, the government’s tax revenuea. increases by less than 50
The country Autarka does not allow international trade. In Autarka, you can buy a wool suit for 3 ounces of gold. Meanwhile, in neighboring countries, you can buy the same suit for 2 ounces of gold.
The nation of Openia allows free trade and exports steel. If steel exports were prohibited, the price of steel in Openia would be _________, benefiting steel _________.a. higher; consumersb. lower;
When the nation of Ectenia opens itself to world trade in coffee beans, the domestic price of coffee beans falls. Which of the following describes the situation?a. Domestic production of coffee
When a nation opens itself to trade in a good and becomes an importer,a. producer surplus decreases, but consumer surplus and total surplus both increase.b. producer surplus decreases, consumer
If a nation that imports a good imposes a tariff, it will increasea. the domestic quantity demanded.b. the domestic quantity supplied.c. the quantity imported from abroad.d. the efficiency of the
Which of the following trade policies would benefit producers, hurt consumers, and increase the amount of trade?a. the increase of a tariff in an importing countryb. the reduction of a tariff in an
Lilliput imports rope from Brobdingnag, where rope producers are subsidized by the government because of their great political clout. The most efficient policy from the standpoint of Lilliput is toa.
The goal of multilateral trade agreements is usually toa. equalize the level of tariffs across nations so no nation is disadvantaged relative to others.b. use targeted tariffs to ensure that nations
Which of the following is an example of a positive externality?a. Dev mows Myra’s lawn and is paid $100 for the service.b. Dev’s lawnmower emits smoke that Myra’s neighbor Xavier has to
If the production of a good yields a negative externality, the social-cost curve lies _________ the supply curve, and the socially optimal quantity is _________ than the equilibrium quantity.a.
When the government levies a tax on a good equal to the external cost associated with the good’s production, it _________ the price paid by consumers and makes the market outcome _________
Which of the following statements about corrective taxes is generally NOT true?a. They increase what consumers pay for the good.b. They raise government revenue.c. They reduce the quantity sold in a
The government auctions off 500 units of pollution rights. The rights sell for $50 per unit, raising $25,000 of revenue for the government. This policy is equivalent to a corrective tax of _________
Command-and-control regulation may be better than a corrective tax ifa. a corrective tax would have differential effects on different industries.b. some polluters can reduce emissions more cheaply
According to the Coase theorem,a. private actors can reach agreement to solve the problem of externalities without the government.b. corrective subsidies are the best policy to solve the problem of
The Coase theorem does NOT apply ifa. there is a significant externality between two parties.b. the court system vigorously enforces all contracts.c. transaction costs make negotiation difficult.d.
Which categories of goods are excludable?a. private goods and club goodsb. private goods and common resourcesc. public goods and club goodsd. public goods and common resources
Which categories of goods are rival in consumption?a. private goods and club goodsb. private goods and common resourcesc. public goods and club goodsd. public goods and common resources
Which of the following is an example of a public good?a. residential housingb. national defensec. restaurant mealsd. fish in the ocean
Public goods area. efficiently provided by market forces.b. underprovided in the absence of government.c. overused in the absence of government.d. a type of natural monopoly.
The three residents of Smallville are considering a fireworks display. Clark values this public good at $80; Lana at $50; and Pete (who dislikes fireworks) at −$30. Fireworks cost the town $120, or
Which of the following is an example of a common resource?a. residential housingb. national defensec. restaurant mealsd. fish in the ocean
Common resources area. efficiently provided by market forces.b. underprovided in the absence of government.c. overused in the absence of government.d. a type of natural monopoly.
Route 66 is a toll road that is congested only during rush hour. During other times of day, the use of the highway is not _________, so the efficient toll is _________.a. excludable; higherb.
As a percent of national income, taxes in the United States area. higher than in France, Germany, and the United Kingdom.b. lower than in France, Germany, and the United Kingdom.c. higher than in
The two largest sources of tax revenue for the U.S. federal government area. personal and corporate income taxes.b. personal income taxes and payroll taxes for social insurance.c. corporate income
Betty gives piano lessons. She has an opportunity cost of $50 per lesson and charges $60. She has two students: Archie, who has a willingness to pay of $70, and Veronica, who has a willingness to pay
I f the tax code exempts the first $20,000 of income from taxation and then taxes 25 percent of all income above that level, then a person who earns $50,000 has an average tax rate of _________
L ump-sum taxesa. have a zero marginal tax rate.b. have a zero average tax rate.c. are costly to administer.d. impose large deadweight losses.
A toll is a tax on citizens who use toll roads. This policy can be viewed as an application ofa. the benefits principle.b. horizontal equity.c. vertical equity.d. tax progressivity.
In the United States, taxpayers in the top 1 percent of the income distribution pay about _________ percent of their income in federal taxes.a. 5b. 10c. 20d. 30
If the corporate income tax induces businesses to reduce their capital investment, thena. the tax does not have any deadweight loss.b. corporate shareholders benefit from the tax.c. workers bear some
Farmer McDonald gives banjo lessons for $20 per hour. One day, he spends 10 hours planting $100 worth of seeds on his farm. What total cost has he incurred?a. $100b. $200c. $300d. $400
Xavier opens up a lemonade stand for two hours.He spends $10 for ingredients and sells $60 worth of lemonade. In the same two hours, he could have mowed his neighbor’s lawn for $40. Xavier earns an
Farmer Greene faces diminishing marginal product.If she plants no seeds on her farm, she gets no harvest. If she plants 1 bag of seeds, she gets 3 bushels of wheat. If she plants 2 bags, she gets 5
Diminishing marginal product explains why, as a firm’s output increases,a. the production function and total-cost curve both get steeper.b. the production function and total-cost curve both get
A firm is producing 1,000 units at a total cost of$5,000. When it increases production to 1,001 units, its total cost rises to $5,008. For this firm,a. marginal cost is $5, and average variable cost
A firm is producing 20 units with an average total cost of $25 and a marginal cost of $15. If it increases production to 21 units, which of the following must occur?a. Marginal cost will decrease.b.
The government imposes a $1,000 per year license fee on all pizza restaurants. As a result, which cost curves shift?a. average total cost and marginal costb. average total cost and average fixed
If a higher level of production allows workers to specialize in particular tasks, a firm will likely exhibit _________ of scale and _________ average total cost.a. economies; fallingb. economies;
If Boeing produces 9 jets per month, its long-run total cost is $9 million per month. If it produces 10 jets per month, its long-run total cost is $11 million per month. Boeing exhibitsa. rising
What is marginal product, and what is meant by diminishing marginal product?
A perfectly competitive firma. chooses its price to maximize profits.b. sets its price to undercut other firms selling similar products.c. takes its price as given by market conditions.d. picks the
When a perfectly competitive firm increases the quantity it produces and sells by 10 percent, its marginal revenue _________ and its total revenue rises by _________.a. falls; less than 10 percentb.
A competitive firm maximizes profit by choosing the quantity at whicha. average total cost is at its minimum.b. marginal cost equals the price.c. average total cost equals the price.d. marginal cost
A competitive firm’s short-run supply curve is its _________ cost curve above its _________ cost curve.a. average-total-; marginalb. average-variable-; marginalc. marginal-; average-totald.
If a profit-maximizing, competitive firm is producing a quantity at which marginal cost is between average variable cost and average total cost, it willa. keep producing in the short run but exit the
In the long-run equilibrium of a competitive market with identical firms, what are the relationships among price P, marginal cost MC, and average total cost ATC?a. P > MC and P > ATC.b. P > MC and P
I n the short-run equilibrium of a competitive market with identical firms, if new firms are getting ready to enter, what are the relationships among price P, marginal cost MC, and average total cost
Suppose pretzel stands in New York City are a perfectly competitive market in long-run equilibrium.One day, the city starts imposing a $100 per month tax on each stand. How does this policy affect
Some government grants of monopoly power are desirable if theya. curtail the adverse effects of cut-throat competition.b. make industries more profitable.c. provide incentives for invention and
A firm is a natural monopoly if it exhibits _________ as its output increases.a. increasing total revenueb. increasing marginal costc. decreasing marginal revenued. decreasing average total cost
For a profit-maximizing monopoly that charges a single price, what is the relationship between price P, marginal revenue MR, and marginal cost MC?a. P = MR and MR = MC.b. P > MR and MR = MC.c. P = MR
I f a monopoly’s fixed costs increase, its price will _________ and its profit will _________.a. increase; decreaseb. decrease; increasec. increase; stay the samed. stay the same; decrease
Compared to the social optimum, a monopoly firm choosesa. a quantity that is too low and a price that is too high.b. a quantity that is too high and a price that is too low.c. a quantity and a price
The deadweight loss from monopoly arises becausea. the monopoly firm makes higher profits than a competitive firm would.b. some potential consumers who forgo buying the good value it more than its
Price discrimination by a monopolist refers to charging different prices based ona. the consumer’s willingness to pay.b. the consumer’s racial or ethnic group.c. the cost of producing the good
When a monopolist switches from charging a single price to practicing perfect price discrimination, it reducesa. the quantity produced.b. the firm’s profit.c. consumer surplus.d. total surplus.
A ntitrust regulators are likely to prohibit two firms from merging ifa. there are many other firms in the industry.b. there are sizable synergies to the combination.c. the combined firm will have a
If regulators impose marginal-cost pricing on a natural monopoly, a possible problem is thata. consumers will buy more of the good than is efficient.b. consumers will buy less of the good than is
Ariana Grande has just finished recording her latest CD. Her record company’s marketing department determines that the demand for the CD is as follows:The company can produce the CD with no fixed
Which of the following conditions does NOT describe a firm in a monopolistically competitive market?a. It sells a product different from its competitors.b. It takes its price as given by market
Which of the following markets best fits the definition of monopolistic competition?a. wheatb. tap waterc. crude oild. haircuts
A monopolistically competitive firm will increase its production ifa. marginal revenue is greater than marginal cost.b. marginal revenue is greater than average total cost.c. price is greater than
New firms will enter a monopolistically competitive market ifa. marginal revenue is greater than marginal cost.b. marginal revenue is greater than average total cost.c. price is greater than marginal
What is true of a monopolistically competitive market in long-run equilibrium?a. Price is greater than marginal cost.b. Price is equal to marginal revenue.c. Firms make positive economic profits.d.
If advertising makes consumers more loyal to particular brands, it could _________ the elasticity of demand and _________ the markup of price over marginal cost.a. increase; increaseb. increase;
If advertising makes consumers more aware of alternative products, it could _________ the elasticity of demand and _________ the markup of price over marginal cost.a. increase; increaseb. increase;
Advertising can be a signal of qualitya. if advertising is freely available to all firms.b. if the benefit of attracting customers is greater for firms with better products.c. only if consumers are
The key feature of an oligopolistic market is thata. each firm produces a different product from other firms.b. a single firm chooses a point on the market demand curve.c. each firm takes the market
If an oligopolistic industry organizes itself as a cooperative cartel, it will produce a quantity of output _________ the competitive level and _________ the monopoly level.a. less than; more thanb.
If an oligopoly does not cooperate and each firm chooses its own quantity, the industry will produce a quantity of output _________ the competitive level and _________ the monopoly level.a. less
As the number of firms in an oligopoly grows, the industry approaches a level of output _________ the competitive level and _________ the monopoly level.a. less than; more thanb. more than; less
The prisoners’ dilemma is a two-person game illustrating thata. the cooperative outcome could be worse for both people than the Nash equilibrium.b. even if the cooperative outcome is better than
Two people facing the prisoners’ dilemma may cooperate ifa. they recognize that the Nash equilibrium is worse for both people than the cooperative equilibrium.b. they will play the game repeatedly
The antitrust laws aim toa. facilitate cooperation among firms in oligopolistic industries.b. encourage mergers to take advantage of economies of scale.c. discourage firms from moving production
Antitrust enforcement is controversial mainly becausea. cooperative domestic firms are best equipped to deal with international competitors.b. some business practices that seem anticompetitive may in
Approximately what percentage of U.S. national income is paid to workers rather than to owners of capital and land?a. 25 percentb. 45 percentc. 65 percentd. 85 percent
If firms are competitive and profit-maximizing, the demand curve for labor is determined bya. the opportunity cost of workers’ time.b. the value of the marginal product of labor.c. the value of the
A bakery operating in competitive markets sells its output for $20 per cake and pays workers $10 per hour. To maximize profit, it should hire workers until the marginal product of labor isa. 1/2 cake

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