ECO365 Week-5 Final-Solution

1) An economist who is studying the relationship between the money supply, interest rates, and the rate of inflation is engaged in
A. microeconomic research
B. macroeconomic research
C. theoretical research, because there is no data on these variables
D. empirical research, because there is no economic theory related to these variables
2) A basic difference between microeconomics and macroeconomics is that microeconomics
A. focuses on the choices of individual consumers, while macroeconomics considers the behavior of large businesses
B. focuses on financial reporting by individuals, while macroeconomics focuses on financial reporting by large firms
C. examines the choices made by individual participants in an economy, while macroeconomics considers the economy’s overall performance
D. focuses on national markets, while macroeconomics concentrates on international markets
3) The distinction between supply and the quantity supplied is best made by saying that
A. the quantity supplied is represented graphically by a curve and supply as a point on that curve associated with a particular price
B. supply is represented graphically by a curve and the quantity supplied as a point on that curve associated with a particular price
C. the quantity supplied is in direct relation with prices, whereas supply is in inverse relation
D. the quantity supplied is in inverse relation with prices, whereas supply is in direct relation
4) After several years of slow economic growth, world demand for petroleum began to rise rapidly in the 1990s. Much of the increase in demand was met by additional supplies from sources outside the Organization of Petroleum Exporting Countries (OPEC). OPEC, during this time, was unable to restrain output among members in its effort to lift oil prices. What best describes these events?
A. The rise in demand shifted the demand for oil to the right. OPEC actions shifted the demand for oil back to the left.
B. The rise in demand shifted the demand for oil to the right. As price rose, the supply of oil also rose.
C. The rise in demand shifted the demand for oil to the right. As price rose, the quantity of oil supplied rose.
D. The rise in demand reflects a movement down along the demand curve as supply shifted to the right when suppliers produced more oil.
5) Price elasticity of demand is the:
A. change in the quantity of a good demanded divided by the change in the price of that good
6) If average movie ticket prices rise by about 5 percent and attendance falls by about 2 percent, other things being equal, the elasticity of demand for movie tickets is about:
A. 0.0
B. 0.4
C. 0.6
D. 2.5
7) When labor is the variable input, the average product equals the
A. marginal product divided by the number of workers
B. marginal product multiplied by the number of workers
C. number of workers divided by the quantity of output
D. quantity of output divided by the number of workers
8) The increase in output obtained by hiring an additional worker is known as
A. the average product
B. the marginal product
C. the total product
D. value added
9) Which of the following is the best example of a long-run decision?
A. An automobile manufacturing company is considering whether or not to invest in robotic equipment to develop a more cost-effective production technique.
D. A business consulting firm is considering whether or not to add new computers while maintaining the same number of employees.
10) Other things being equal, when average productivity falls,
A. average fixed cost must rise
B. marginal cost must rise
C. average total cost must rise
D. average variable cost must rise
11) According to economist Colin Camerer of the California Institute of Technology, many New York taxi drivers decide when to finish work by setting an income goal for themselves. If this is true, then on busy days when the effective hourly wage is higher, taxi drivers will
A. work the same number of hours as they will on slower days
B. work fewer hours than they will on slower days
C. work more hours than they will on slower days
D. not work any hours
12) A firm’s demand for labor is derived from the
A. opportunity costs associated with labor and leisure
B. desires and needs of the entrepreneur
C. cost of labor inputs
D. demand for its output
13) Owen runs a delivery business and currently employs three drivers. He owns three vans that employees use to make deliveries, but he is considering hiring a fourth driver. If he hires a fourth driver, he can schedule breaks and lunch hours so all three vans are in constant use, allowing him to increase deliveries per day from 60 to 75. This will cost an additional $75 per day to hire the fourth driver. The marginal cost per delivery of increasing output beyond 60 deliveries per day
A. is $0 because Owen does not have to purchase another van
B. is $5
C. is $75
D. cannot be calculated without knowing Owen’s total fixed costs
14) Expected economic profit per unit is equal to
A. expected price
B. expected average total cost
C. the difference between expected average price and expected average total cost
D. the difference between expected total revenue and expected total cost
15) If a firm in a perfectly competitive market experiences a technological breakthrough,
A. other firms would find out about it eventually
B. other firms would find out about it immediately
C. other firms would not find out about it
D. some firms would find out about it, but others would not
16) A significant difference between monopoly and perfect competition is that
A. free entry and exit is possible in a monopolized industry, but impossible in a competitive industry
D. profits are driven to zero in a monopolized industry, but may be positive in a competitive industry.
17) A monopoly firm is different from a competitive firm in that
C. a monopolist can influence market price while a competitive firm cannot
D. a competitive firm has a U-shaped average cost curve while a monopolist does not
18) The difference between a perfectly competitive firm and a monopolistically competitive firm is that a monopolistically competitive firm faces a

19) As long as marginal cost is below marginal revenue, a perfectly competitive firm should
A. increase production
B. hold production constant
C. decrease production
D. reconsider past production decisions
20) Because a monopolistic competitor has some monopoly power, advertising to increase that monopoly power makes sense as long as the marginal
A. benefit of advertising is positive
D. cost of advertising exceeds the marginal benefit of advertising
21) In the Flint Hills area of Kansas, proposals to build wind turbines to generate electricity have pitted environmentalist against environmentalist. Members of the Kansas Sierra Club support the turbines as a way to reduce fossil fuel usage, while local chapters of the Nature Conservancy say they will befoul the landscape. The Sierra Club argues that wind turbines
A. are a source of negative externalities
B. reduce negative externalities elsewhere in the economy
C. create a free-rider problem
D. are a way of solving a free-rider problem
22) When negative externalities are present, market failure often occurs because
A. the marginal external cost resulting from the activity is not reflected in the market price
B. the marginal external cost resulting from the activity is reflected in the market price

23) A merger between a textile mill and a clothing manufacturing company would be considered a
A. horizontal merger
B. vertical merger
C. conglomerate merger
D. diagonal merger
24) A merger between a baby food company and a life insurance company would be considered a
A. horizontal merger
B. vertical merger
C. conglomerate merger
D. diagonal merger
25) From the point of view of consumer and producer surplus, what problem may be created when a country subsidizes the cost of energy to consumers to help alleviate the burden of higher energy costs?
A. It hurts the poor and benefits the rich.
B. It leads to less fuel being used than the amount that maximizes consumer surplus.
C. It encourages the consumption of too much fuel at the expense of other goods.
D. It has no effect; consumers gain a surplus, but taxpayers lose the same amount because they must finance the subsidy.
26) Suppose people freely choose to spend 40 percent of their income on health care, but the government decides to tax 40 percent of a person’s income to provide the same level of coverage as before. What can be said about deadweight loss in each case?

27) The U.S. textile industry is relatively small because the US imports most of its clothing. A clear result of the importation of clothing is

28) Countries can expect to gain from international trade as long as they
A. keep production diversified
B. specialize according to their comparative advantage
C. produce only those goods for which they have a relatively high opportunity cost
D. use trade restrictions to reduce competition for domestic producers
29) Which of the following is an example of the law of one price?

30) The fact that U.S. managers’ salaries are substantially greater than those of comparable managers in Japan may be related to
A. an increase in the demand for CEOs
B. an increase in the supply of CEOs
C. the comparatively greater competitive markets in Japan
D. the greater number of public goods provided in the United States

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