Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question. |
| 1. | The U.S. and China produce guns and rice. The country with the lowest opportunity cost of guns (in terms of rice) will a. | import guns. | b. | have an absolute advantage in guns. | c. | export rice. | d. | have a comparative advantage in rice. | e. | have a comparative advantage in guns.
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| 2. | Which of the following is a correct statement about marginal cost (MC)? a. | Marginal cost is the same as average total cost. | b. | Marginal cost is the same as variable cost. | c. | Marginal cost is the same as fixed cost. | d. | Marginal cost is the difference between fixed and variable cost. | e. | none of the above
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| 3. | | Itchy | Scratchy | Bombs | 10 | 8 | Missiles | 6 | 4 | | | |
The table above shows how many bombs or missiles Itchy and Scratchy can produce in one year. (For example, Itchy could produce 10 bombs or 6 missiles in a year.) Which of the following is an accurate statement about absolute advantage? a. | Itchy has the absolute advantage in both goods. | b. | Scratchy has the absolute advantage in both goods. | c. | No one has the absolute advantage in missiles. | d. | Itchy has the absolute advantage in bombs, while Scratchy has the absolute advantage in missiles. | e. | Itchy has the absolute advantage in missiles, while Scratchy has the absolute advantage in bombs.
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| 4. | When one person uses a common pool resource, a. | an externality arises. | b. | other people are worse off. | c. | it is difficult to charge him or her for usage of it. | d. | that person gets the benefits of usage. | e. | all of these answers are correct.
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| 5. | Producer surplus is measured by a. | profits. | b. | the area above the supply curve but below the price. | c. | the area below the demand curve but above the price. | d. | the area below the supply curve. | e. | the area above the average cost curve but below the price.
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| 6. | If the price elasticity of demand for radios is 2.5, then a 50 percent reduction in the price of radios will lead to a. | the sale of 200 additional radios. | b. | the sale of 125 percent more radios than before. | c. | the sale of 150 percent more radios than before. | d. | the sale of 50 percent more radios than before. | e. | the sale of 25 percent more radios than before.
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| 7. | An important implicit cost of almost every business is a. | the cost of accounting services. | b. | the cost of compliance with government regulations. | c. | the return capital invested in the business could have earned elsewhere. | d. | interest payments on debt. | e. | payments to outside contractors.
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| 8. | Other things remaining the same, as U.S. imports increase, the quantity of a. | U.S. dollars demanded increases. | b. | foreign currency demanded decreases. | c. | U.S. dollars supplied decreases. | d. | foreign currency demanded increases. | e. | none of the above
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| 9. | The silverware industry has been in serious decline since the 1980s. Family dining habits are less formal so people purchase less silverware. Also, in 1979-1980, the price of silver increased from $5 to $21 per ounce. Which graph in the above figure best illustrates these developments? a. | (1) | b. | (2) | c. | (3) | d. | (4) | e. | all of these figures are equally good
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| 10. | In 1862, the Homestead Act made land available to farmers at a price of zero. Yet many farmers preferred to purchase land along the rail line from the railroad. The farmers a. | were fooled by the railroad owners. | b. | did not understand supply and demand analysis. | c. | knew the soil was better near the railroad tracks. | d. | realized it would be less costly to grow and transport crops on land near railroads. | e. | were bribed by the railroad owners.
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| 11. | A firm’s total cost is $10,957 when it produces a quantity of 50. Rounded to the nearest dollar, what is the firm’s average total cost at this quantity? a. | 413 | b. | 250 | c. | 219 | d. | 187 | e. | none of the above
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| 12. | Wendy sells motor homes in the retail market. She buys the motor homes from the manufacturer for a cost that does not vary with the number she purchases. She can sell six per week at $20,000 each. If she limits sales to five, she can charge $21,000 each. She will sell six per week if the cost of buying each motor home from the manufacturer is no more than a. | $20,000 | b. | $10,000 | c. | $15,000 | d. | $21,000 | e. | $30,000
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| 13. | Suppose the price elasticity of demand for a product is infinite. This means that: a. | if you increase the price 1%, revenues will increase. | b. | if you increase the price 1%, revenues will stay the same. | c. | if you increase the price 1%, revenues will fall to zero. | d. | if you increase the price 1%, profit will increase. | e. | none of the above
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| 14. | Which of these would cause a leftward shift of the demand for tongue piercings? a. | a tongue ring fad | b. | discovery that tongue piercings can lead to infections | c. | lower price of tongue rings | d. | higher incomes among young people | e. | higher wages for tongue piercers
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| 15. | In a market-based economic system, the use of scarce resources a. | occurs in an essentially random manner. | b. | is determined primarily by consumer demand. | c. | does not respond to changes in preferences. | d. | is fixed by the appropriate government agency. | e. | depends entirely on the whims of wealthy capitalists.
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| 16. | In the figure above, how much more than the competitive price will the monopolist charge? |
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