Managerial Economics

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1. Monopolistic competition differs from perfect competition primarily because in

A) monopolistic competition, firms can differentiate their products.

B) perfect competition, firms can differentiate their products.

C) monopolistic competition, entry into the industry is blocked.

D) monopolistic competition, there are relatively few barriers to entry.

2. In San Francisco there are many retail clothing stores. Each store is slightly different from every other store. Retail clothing stores are an example of what market structure?

A) perfect competition

B) monopolistic competition

C) oligopoly

D) monopoly

3. Which of the following features distinguishes monopolistically competitive firms from monopolies and oligopolies?

A) Monopolistically competitive firms cannot influence market price by virtue of their size alone while monopolies and oligopolies can.

B) Monopolistically competitive firms are not constrained by market demand while monopolies and oligopolies are.

C) Monopolistically competitive firms are price takers while monopolies and oligopolies are not.

D) Monopolistically competitive firms sell a homogeneous product while monopolies and oligopolies sell a differentiated product.

4. In monopolistic competition, firms can have some market power

A) by virtue of size alone.

B) by producing differentiated products.

C) because of barriers to entry into the industry.

D) because of barriers to exit from the industry.

5. Firms gain control over price in monopolistic competition by

A) blocking entry of other firms into the industry.

B) producing a product for which there are no close substitutes.

C) differentiating their products.

D) colluding with other firms to set prices.

6. The hand soap industry is an example of a(n) ________ industry.

A) perfectly competitive

B) monopolistic

C) monopolistically competitive

D) oligopolistic

7. Which of the following is a characteristic of monopolistically competitive industries?

A) significant barriers to entry

B) strategic behavior

C) product differentiation

D) a small number of firms

8. Price is a limited decision variable in which of the following market organizations?

A) perfect competition

B) monopoly

C) monopolistic competition

D) oligopoly

9. Perfect competition differs from monopolistic competition primarily because

A) in perfect competition, firms have homogeneous products.

B) in perfect competition, price is a decision variable.

D) in monopolistic competition, there are many firms in the industry.

10. In Chicago there are many restaurants. Each restaurant is slightly different from every other restaurant. Restaurants are an example of which market structure?

A) perfect competition

B) monopolistic competition

C) oligopoly

D) monopoly

11. The measure or value upon which a tax is levied is the

A) tax base.

B) tax rate.

C) tax structure.

D) tax incidence.

12. Every tax has two parts: a(n) ________ and a(n) ________.

A) base; rate structure

B) incidence; rate

C) base; incidence

D) rate structure; excess burden

13. The tax rate structure is the

A) measure or value upon which a tax is levied.

B) measure of who pays the tax.

C) study of how taxes change over time.

D) percentage of a tax base that must be paid in taxes.

14. A tax whose burden, expressed as a percentage of income, falls as income increases is a

A) regressive tax.

B) progressive tax.

C) proportional tax

D) benefits-received tax.

15. A tax whose burden is the same proportion of income for all households is

A) a regressive tax.

B) a progressive tax.

C) a proportional tax.

D) an equal tax

16. The excise tax is

A) progressive.

B) regressive.

C) proportional.

D) an ability-to-pay tax.

17. The U.S. individual income tax is designed to be

A) progressive.

B) regressive.

C) proportional.

D) an ability-to-pay tax.

18. The largest portion of federal government revenues comes from

A) the individual income tax.

B) excise taxes.

C) social insurance payroll taxes.

D) corporate income taxes.

19. A family that earns $20,000 a year pays $400 a year in taxes on clothing. A family that earns $40,000 a year pays $200 a year in taxes on clothing. The tax on clothing is

A) a progressive tax.

B) a regressive tax.

C) a proportional tax.

D) a benefits-received tax.

20. A family that earns $20,000 a year pays $1,000 a year in payroll taxes. A family that earns $40,000 a year pays $2,000 a year in payroll taxes. The payroll tax is

A) a progressive tax.

B) a regressive tax.

C) a proportional tax.

D) a benefits-received tax.

21. A family that earns $20,000 a year pays $200 a year in city wage taxes. A family that earns $40,000 a year pays $1,600 a year in city wage taxes. The city wage tax is

A) a progressive tax.

B) a regressive tax.

C) a proportional tax.

D) a benefits-received tax.

22. A comprehensive tax of 15% on all forms of income with no deductions or exclusions is an example of a

A) proportional tax.

B) progressive tax.

C) regressive tax.

D) rate tax.

23. The total amount of tax you pay divided by your total income is the

A) marginal tax rate.

B) average tax rate.

C) total tax rate.

D) proportional tax rate.

24. The ________ tax rate is the tax rate paid on any additional income earned.

A) average

B) total

C) marginal

D) proportional

25. Suppose there is a permanent shift of consumer preferences away from pretzels and toward potato chips. The most likely result would be

A) in the short run, economic losses in the potato chip market.

B) in the long run, a fall in the supply of potato chips.

C) in the short run, a rise in the price of pretzels.

D) short-run profits in the potato chip market increase.

26. Preferences have just shifted away from beef and into mutton. If you are a sheep rancher, the best profit-maximizing strategy is to

A) shut down.

B) produce as much as possible to earn profits in the short run.

C) shift some of your ranching capacity into cattle raising.

D) cut prices to increase market share.

27. Which of the following questions is not answered by general equilibrium analysis?

A) Are equilibria in different markets compatible with one another?

B) Can all markets simultaneously be in equilibrium?

C) How will a change in one market affect another market?

D) What outcome is most desirable for the whole society?

28. Demand determines price entirely when

A) demand is downward sloping.

B) demand is perfectly inelastic.

C) supply is perfectly inelastic.

29. There is great concern over the idea that citizens should have to provide specific identification to be able to vote in elections. A study of the costs and benefits of implementing a voter identification program is an example of

A) laissez-faire economics.

B) positive economics.

C) labor economics.

D) normative economics.

30. The amount of education that one has is an important factor in the determination of his or her wage rate. This is best described as

A) a positive statement.

B) an example of the fallacy of composition

C) a normative statement.

D) an example of marginalism.

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