According to economist Colin Camera of the California Institute of Technology, many New York taxi drivers decide when to finish work by setting an income goal for themselves.

1) An economist who is studying the relationship between themoney supply, interest rates, and the rate of inflation is engagedin
A. microeconomic research
B. macroeconomic research
C. theoretical research, because there is no data on thesevariables
D. empirical research, because there is no economic theory relatedto these variables

2) A basic difference between microeconomics and macroeconomics isthat microeconomics
A. focuses on the choices of individual consumers, whilemacroeconomics considers the behavior of large businesses
B. focuses on financial reporting by individuals, whilemacroeconomics focuses on financial reporting by large firms
C. examines the choices made by individual participants in aneconomy, while macroeconomics considers the economy’s overallperformance
D. focuses on national markets, while macroeconomics concentrateson international markets

3) The distinction between supply and the quantity supplied is bestmade by saying that
A. the quantity supplied is represented graphically by a curve andsupply as a point on that curve associated with a particularprice
B. supply is represented graphically by a curve and the quantitysupplied as a point on that curve associated with a particularprice
C. the quantity supplied is in direct relation with prices, whereassupply 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 forpetroleum began to rise rapidly in the 1990s. Much of the increasein demand was met by additional supplies from sources outside theOrganization of Petroleum Exporting Countries (OPEC). OPEC, duringthis time, was unable to restrain output among members in itseffort to lift oil prices. What best describes these events?
A. The rise in demand shifted the demand for oil to the right. OPECactions shifted the demand for oil back to the left.
B. The rise in demand shifted the demand for oil to the right. Asprice rose, the supply of oil also rose.
C. The rise in demand shifted the demand for oil to the right. Asprice rose, the quantity of oil supplied rose.
D. The rise in demand reflects a movement down along the demandcurve as supply shifted to the right when suppliers produced moreoil.

5) Price elasticity of demand is the:
A. change in the quantity of a good demanded divided by the changein the price of that good
B. change in the price of a good divided by the change in thequantity of that good demanded
C. percentage change in price of that good divided by thepercentage change in the quantity of that good demanded
D. percentage change in quantity demanded of a good divided by thepercentage change in the price of that good

6) If average movie ticket prices rise by about 5 percent andattendance falls by about 2 percent, other things being equal, theelasticity 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 equalsthe
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 workeris 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 ornot to invest in robotic equipment to develop a more cost-effectiveproduction technique.
B. An automobile manufacturing company is considering whether ornot to expand its existing workforce, while keeping the samefactory and equipment.
C. A business consulting firm is considering whether or not to hireinterns to assist with research and data processing.
D. A business consulting firm is considering whether or not to addnew 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

According to economist Colin Camera 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 onbusy days when the effective hourly wage is higher, taxi driverswill
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 threedrivers. He owns three vans that employees use to make deliveries,but he is considering hiring a fourth driver. If he hires a fourthdriver, he can schedule breaks and lunch hours so all three vansare in constant use, allowing him to increase deliveries per dayfrom 60 to 75. This will cost an additional $75 per day to hire thefourth driver. The marginal cost per delivery of increasing outputbeyond 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 fixedcosts

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 expectedaverage total cost
D. the difference between expected total revenue and expected totalcost

15) If a firm in a perfectly competitive market experiences atechnological 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 perfectcompetition is that
A. free entry and exit is possible in a monopolized industry, butimpossible in a competitive industry
B. competitive firms control market supply, but monopolies donot
C. the monopolist’s demand curve is the industry demand curve,while the competitive firm’s demand curve is perfectly elastic
D. profits are driven to zero in a monopolized industry, but may bepositive in a competitive industry.

17) A monopoly firm is different from a c
ompetitive firm in that
A. there are many substitutes for a monopolist’s product whilethere are no substitutes for a competitive firm’s product
B. a monopolist’s demand curve is perfectly inelastic while acompetitive firm’s demand curve is perfectly elastic
C. a monopolist can influence market price while a competitive firmcannot
D. a competitive firm has a U-shaped average cost curve while amonopolist does not

18) The difference between a perfectly competitive firm and amonopolistically competitive firm is that a monopolisticallycompetitive firm faces a
A. horizontal demand curve and price equals marginal cost inequilibrium
B. horizontal demand curve and price exceeds marginal cost inequilibrium
C. downward-sloping demand curve and price equals marginal cost inequilibrium
D. downward-sloping demand curve and price exceeds marginal cost inequilibrium
19) As long as marginal cost is below marginal revenue, a perfectlycompetitive 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 asthe marginal
A. benefit of advertising is positive
B. cost of advertising is positive
C. benefit of advertising exceeds the marginal cost ofadvertising
D. cost of advertising exceeds the marginal benefit ofadvertising

21) In the Flint Hills area of Kansas, proposals to build windturbines to generate electricity have pitted environmentalistagainst environmentalist. Members of the Kansas Sierra Club supportthe turbines as a way to reduce fossil fuel usage, while localchapters of the Nature Conservancy say they will befoul thelandscape. 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 oftenoccurs because
A. the marginal external cost resulting from the activity is notreflected in the market price
B. the marginal external cost resulting from the activity isreflected in the market price
C. the existence of imports from foreign countries takes jobs andincome away from U.S. citizens
D. consumers will consume the good at a level where theirindividual marginal benefits exceed the marginal costs borne by thefirm producing the good
23) A merger between a textile mill and a clothing manufacturingcompany 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 insurancecompany 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, whatproblem may be created when a country subsidizes the cost of energyto consumers to help alleviate the burden of higher energycosts?
A. It hurts the poor and benefits the rich.
B. It leads to less fuel being used than the amount that maximizesconsumer surplus.
C. It encourages the consumption of too much fuel at the expense ofother goods.
D. It has no effect; consumers gain a surplus, but taxpayers losethe same amount because they must finance the subsidy.

26) Suppose people freely choose to spend 40 percent of theirincome on health care, but the government decides to tax 40 percentof a person’s income to provide the same level of coverage asbefore. What can be said about deadweight loss in each case?
A. Taxing income results in deadweight loss, while purchasinghealth care on one’s own does not result in deadweight loss.
B. Taxing income results in less deadweight loss, becausegovernment knows better what health care coverage is good forsociety.
C. There is no difference because the goods are purchased in themarket in either case.
D. There is no difference because the total spending remains thesame and the health care purchased remains the same.

27) The U.S. textile industry is relatively small because the USimports most of its clothing. A clear result of the importation ofclothing is
A. there is less variety available than there would be withoutimports
B. the quality of clothing is lower than it would be withoutimports
C. the price of clothing is higher than it would be withoutimports
D. the price of clothing is lower than it would be withoutimports

28) Countries can expect to gain from international trade as longas they
A. keep production diversified
B. specialize according to their comparative advantage
C. produce only those goods for which they have a relatively highopportunity cost
D. use trade restrictions to reduce competition for domesticproducers

29) Which of the following is an example of the law of oneprice?
A. Exchange rates tend to have equivalent values. For example, oneItalian lire equals one U.S. dollar.
B. Because people have essentially the same basic needs whereverthey live, they tend to buy the same bundle of goods.
C. Because wages are so much lower in China, eventually all U.S.jobs will be outsourced to China, leaving the US to import allgoods at one price.
D. Because their countries have similar institutions, the pricepaid for a computer in Germany and the United States are about thesame when converted into the same currency.

30) The fact that U.S. managers’ salaries are substantially greaterthan 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

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