Economics Quiz 2

The primary claim of defenders of advertising is that it

• conveys information about firm profitability.

• is psychological rather than informational.

• enhances the information available to consumers.

• reduces the elasticity of demand for a firm's product.

Policymakers use taxes

• to raise revenue for public purposes but not to influence market outcomes

• when they realize that price controls alone are insufficient to correct market inequities

• both to raise revenue for public purposes and to influence market outcomes

• only in those markets in which the burden of the tax falls clearly on the sellers

Motor oil and gasoline are complements. If the price of motor oil increases, consumer surplus in the gasoline market

• decreases

• is unchanged

• increases

• may increase, decrease, or remain unchanged

Which of the following statements is not correct?

• The theory of consumer choice explains how people choose between textbooks and energy drinks.

• The theory of consumer choice explains how people choose between labor and leisure.

• The theory of consumer choice explains how people choose between spending now and spending in the future.

• The theory of consumer choice explains how people choose between price and cost

For a certain firm, the 250th unit of output that the firm produces has a marginal revenue of $20 and a marginal cost of $15. It follows that the

• production of the 250th unit of output increases the firm's profit by $5.

• production of the 250th unit of output increases the firm's average total cost by $15.

• firm's profit-maximizing level of output is less than 250 units.

• production of the 249th unit of output must increase the firm's profit by less than $5.

Product A are currently selling for $20 per unit, but the equilibrium price of product A is $13 per unit. Then,

• This creates a shortage of product to exist and the market price of that product to increase.

• This creates a shortage of product to exist and the market price of that product to decrease.

• This creates a surplus of product to exist and the market price of that product to increase.

• This creates a surplus of product to exist and the market price of that product to decrease.

The maximum price that a consumer will pay for a good is called the

• cost.

• willingness to pay.

• variable cost.

• fixed cost.

If the government levies a $500 tax per car on sellers of cars, then the price received by sellers of cars would

• decrease by exactly $500

• decrease by less than $500

• decrease by more than $500

• increase by an indeterminate amount

Which of the following market in which the highest output would be produced?

• perfect competition

• monopolistic competition

• oligopoly

• monopoly

Competitive firms are different from monopolies in which of the following ways? (i) Competitive firms are price takers; (ii) Marginal revenue for a competitive firm equals price, while marginal revenue for a monopoly is less than the price; (iii) Monopolies must lower their price in order to sell more, while competitive firms do not have to do so.

• (i) and (ii) only

• (ii) and (iii) only

• (i) and (iii) only

• (i), (ii), and (iii)