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1 .To understand most of today's economic activity in the U.S. economy, we should look at which of the following
a. perfect competition and pure monopoly
b. perfect competition and oligopoly
c. oligopoly and monopolistic competition
d. monopolistic competition and monopoly
2 .In the long run the prices charged by a firm in monopolistic competition will be
a. high enough to provide profits to the firm.
b. so low that many firms will drop out of the industry.
c. equal to marginal cost.
d. equal to average cost, including the opportunity cost of capital.
Figure 12-2 3. In Figure 12-2, which of the graphs represents a monopolistic competitor in long-run equilibrium?
d. 4 5 . The apparent stickiness of the price of goods sold by oligopolists can be explained by the
a. contestable markets model.
b. sales maximization model.
c. kinked demand curve model.
d. entry deterrence model.
6 . If an oligopolistic manufacturer believes that he faces a kinked demand curve for his product, he thinks his
competitors will ____ if he lowers his price and ____ if he raises his price.
a. lower their prices; raise their prices.
b. lower their prices; not raise their prices
c. not lower their prices; raise their prices
d. not lower their prices; not raise their prices
Figure 12-3 8. Oligopolist A cuts price in an attempt to enlarge his share of the market. His competitors retaliate with identical
price cuts. In this case, in Figure 12-3, oligopolist A will move from point A to which point?
9. An externality is an event which
a. is external to economics.
b. always brings harm to someone in the economy.
c. is incidental to some market activity.
d. harms the economy as a whole rather than a particular person.
10. A market transaction causes an externality if someone
a. directly involved in the transaction receives uncompensated benefits or costs from it.
b. not directly involved in the transaction receives uncompensated benefits or costs from it.
c. directly involved in the transaction seeks legal assistance to ensure that the transaction is
d. not directly involved in the transaction interferes in it by imposing regulations or product
d. A firm is generating detrimental externalities when
MSC is less than MPC.
MSC is the same as MPC.
MSC is greater than MPC.
MPC includes some incidental costs. 12.
The cost disease of the service sector is evidenced by
a. a failure of the market mechanism.
b. increased quality of public and private services.
c. dramatic increases in municipal budget burdens for education, health care, and police and
d. the increased productivity in the services area.
____ 13. Which of the following contribute to productivity growth? a. the education and experience of the labor force.
b. investment in plants and equipment.
c. innovation resulting in new products.
d. innovation resulting in new processes.
e. All of the above are correct.
14 . Capitalism is a market economic system with
a. most production processes controlled by the government.
b. most production processes controlled by private firms with minimal government control.
c. all production processes controlled by private firms.
d. all production processes controlled by the government.
e. most production processes controlled by the government, with some control by private
15. Firms share technology with rivals,
a. in order to better compete with their rivals.
b. in order to help out when their rivals are in trouble.
c. to share the substantial risks of innovation.
d. because they are required to by law.
e. in order to pass false information to their rivals in order to drive them out of business. 16. A firm producing a smoke externality is producing
a. more than the socially optimal quantity of output.
b. less than the socially optimal quantity of output.
c. exactly the socially optimal quantity of output.
d. There is insufficient information to answer.
17. Rising prices help control the process of resource depletion by
a. discouraging consumption and waste.
b. stimulating more efficient use of the depletable resource.
c. encouraging resource-saving innovation.
d. doing all of the above.
18. The incidence of a tax refers to
a. who actually collects the tax.
b. how frequently the tax is collected.
c. who bears the economic burden of the tax.
d. how the tax affects prices or wages.
19. Which factor of production receives the greatest share of the U.S. national income?
20. The marginal productivity principle says that a profit-maximizing firm should
a. hire capital until its marginal product is zero.
b. hire labor until another worker costs more to hire than he can earn for the firm.
c. hire the quantities of capital and of labor at which their marginal products are equal.
d. hire capital until its marginal product is negative. 21. Mr. Calhoun owned a worn-out piece of farmland for growing cotton, which he had been unable to rent for years.
Suddenly he was getting offers from cotton farmers to lease his land. What is the most likely explanation of this?
a. The price of cotton went down.
b. The physical productivity of the land went up.
c. Taxes on land went up.
d. The price of cotton went up.
22. A $1,000 to be received at a future date
a. is worth less than a $1,000 received today.
b. is worth more than a $1,000 received today.
c. has the same value as $1,000 received today.
d. is worth less than $1,000 received yesterday.
23. Usury laws typically regulate
a. interest rates paid on savings.
b. interest rates charged on loans.
c. rents charged on land.
d. economic rent earned in all factor markets.
24. A ceiling on interest rates is likely to lead to
a. an increase in lending activity.
b. more rapid capital formation by business.
c. increases in hiring of labor.
d. a shortage of loanable funds.
Figure 19-3 25. Which panel in Figure 19-3 represents the case of an effective usury law?
26. The distinguishing feature of the land market is that the
a. supply is highly inelastic.
b. supply is highly elastic.
c. demand is highly inelastic.
d. demand is highly elastic.
27. The theory of land rent holds that
a. all plots of land are identical.
b. all land yields a positive rent return. c. rent on any piece of land will equal the difference between the cost of producing the
output on that land and the cost of producing it on marginal land.
d. competition for superior plots of land will force the rent on those lands to a marginal
return of zero.
28. Which factor receives the profit from production?
29. Invention is the discovery of a new process or idea. Innovation is
a. the continuing search for inventions.
b. copying ideas from rival firms.
c. putting an invention to work.
d. basic research.
30. Discounting is the process of
a. cutting prices to get rid of surplus stocks.
b. finding the present value of future dollars.
c. finding the future value of present dollars.
d. giving special concessions to special customers.
31. If the interest rate is positive, the present value of $10 to be received in the future is
a. less than $10.
b. equal to $10.
c. more than $10.
d. Any of the above is possible, depending on the interest rate and when the payment is to be
32. The income effect of a wage increase is expected to increase
a. supply of labor.
b. supply of goods and services.
c. demand for leisure.
d. demand for labor.
33. The substitution effect of a wage increase
a. probably leads most workers to want to work more.
b. certainly leads all workers to want to work more.
c. probably leads most workers to want to work less.
d. certainly leads most firms to want to employ more workers.
34. Statistical studies in the United States have reached the conclusion that for low-income workers
a. the substitution effect is greater than the income effect.
b. the income effect is greater than the substitution effect.
c. the income effect is about equal to the substitution effect.
d. the substitution effect is of the "wrong" sign.
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