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Answers for Chapter 21 Fill-in-the-blanks: 1. Market power 5. Marginal revenue 2. Perfect competition 6. average variable 3. Perfect competition 7. economic efficiency 4. horizontal Multiple Choice: 1. d 9. b. 17. b. 2. c. 10. b. 18. d. 3. c. 11. a. 19. c. 4. b. 12. c. 20. b. 5.b. 13.a. 21. a. 6. c. 14. c. 22. b. 7. d. 15. d. 8. c. 16. c. Problems: 1. Price $7 - Quantity MC D = P = MR 2. The shutdown point occurs if price falls below AVC. By shutting down, a firm limits its loss to its fixed costs. If the firm continued producing, it would incur a loss greater than its fixed costs. 3. If economic losses are occurring in a perfectly competitive market: (1) the number of firms will decrease as existing firms leave the market (2) the market price will increase as the market supply decreases (3) the economic loss will be eliminated FOR REVIEW ONLY - NOT FOR DISTRIBUTION 21 - 15 Perfect Competition
Table for Multiple Choice Questions 7. through 10.: Price Quantity Total Revenue Marginal Revenue Total Cost Marginal Cost Profit $10 0 $0 X $13 X $-13 10 1 10 $10 15 $2 -5 10 2 20 10 19 4 1 10 3 30 10 25 6 5 10 4 40 10 33 8 7 10 5 50 10 43 10 7 10 6 60 10 55 12 5 10 7 70 10 69 14 1 Table for Multiple Choice Questions 18. through 22.: Quantity TC MC Price TR MR 10 $475 X $40 $400 $40 11 490 $15 40 440 40 12 510 20 40 480 40 13 535 25 40 520 40 14 565 30 40 560 40 15 600 35 40 600 40 16 640 40 40 640 40 FOR REVIEW ONLY - NOT FOR DISTRIBUTION Perfect Competition 21 - 16
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PRINCIPLES OF ECONOMICS JEFF HOLT S
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Principles of Economics, 6th Editio
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16. Study Guide for Chapter 7 17. C
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11. Appendix: Book Review - “The
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20. Appendix: The NCAA Cartel 21. S
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Introduction: A Brief History of U.
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In the twentieth century, per capit
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Appendix: The 35 Largest National E
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Multiple Choice: ___ 1. The Jamesto
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2. Describe the economic cost of th
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Chapter 1 Scarcity and Choices The
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Example 5B: At the end of 1982, the
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Example 11: When Cindy quits her jo
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consequences may result in failure
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An upward sloping curve (as in Exam
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In making decisions, humans tend to
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5. ______________________ _________
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___ 13. If the value of one variabl
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Y Point X Y A 0 1 B 3 3 C 6 5 D 9 7
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Chapter 2 Trade and Economic System
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Example 4B: The following quantitie
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1. An increase in the quantity of r
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3. For whom to produce? This is det
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The graph below illustrates the shi
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The two primary economic systems ar
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___ 12. The capitalist vision sees
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___ 25. According to the book “Ca
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Chapter 3 Demand, Supply, and Equil
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. For inferior goods, income and de
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The same information can be placed
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Not only does a free market elimina
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$7 - 6 - 5 - S 3 S1 S 2 Price 4 - 3
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Example 17: The graph below illustr
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Questions for Chapter 3 Fill-in-the
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___ 12. Assuming a market originall
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$8 - 7 - 6 - 5 - Price 4 - 3 - 2 -
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Chapter 4 Inflation and Unemploymen
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Computing the Rate of Inflation The
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Full Employment Though unemployment
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3. Cyclical unemployment - due to d
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During the Great Depression, the ec
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Appendix: Think Like an Economist -
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Answer questions 8. and 9. based on
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___ 25. The extension of unemployme
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Chapter 5 Measuring Total Output: G
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5. Leisure. Leisure time is by defi
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The U.S. is a high per capita GDP c
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Example 17: In “An International
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The simple circular flow diagram be
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___ 3. Which of the following would
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2. Explain what nonproduction trans
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Chapter 6 The Aggregate Market The
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Example 2C: Assume the same facts a
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Example 5B: The price of crude oil
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Price Level Real GDP SRAS AD 2 AD 1
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Appendix: Why the Aggregate Demand
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___ 3. DEF Company can invest in ne
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2. List and explain the two factors
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Chapter 7 Classical Economic Theory
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Notice that the investment demand c
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Long-Run Equilibrium If Real GDP is
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Example 6B: When the economy is in
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Laissez-faire If the economy is sel
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___ 5. According to Say’s Law: a.
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3. On the graph below, draw an aggr
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Chapter 8 Keynesian Economic Theory
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Example 2B: The graph below illustr
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Example 5: Assume that the table be
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Notice on the graph on the previous
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According to Keynesian theory, a ch
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“The General Theory” also inclu
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___ 8. If the consumption function
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3. If the MPC is .667, and investme
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Chapter 9 Fiscal Policy The basic e
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Keynesian Fiscal Policy Theory and
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Example 5A: The federal government
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The Laffer Curve What will happen t
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Appendix: The Importance of Incenti
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___ 4. A decrease in government exp
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2. Explain what automatic stabilize
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Chapter 10 Money, Money Creation, a
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Example 4B: The castaways on Gillig
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Looking at the balance sheet below,
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Demand-side One-shot Inflation Exam
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4. Inflation increases uncertainty
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life; it came into existence not by
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calculated by using the potential d
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___ 12. If the required-reserve rat
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4. Referring to the balance sheet f
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Chapter 11 The Federal Reserve Syst
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5. After Bank X sells the $300,000
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Low Mortgage Interest Rates Mortgag
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Relaxed Standards for Mortgage Loan
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The Bursting of the Housing Bubble
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On February 17, 2009, the federal g
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Fed policies caused short-term inte
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___ 10. The Fed’s most important
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___ 25. In response to the recessio
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Chapter 12 Monetary Policy The basi
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2. A change in aggregate demand (AD
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Monetarist Transmission Mechanism C
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3. Borrowers do not have to seek ou
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Appendix: Book Review - “The Age
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Questions for Chapter 12 Fill-in-th
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___ 16. The primary source of incom
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7. According to Alan Greenspan, wha
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Chapter 13 Taxes, Deficits, and the
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Example 5: In 2015, Taxpayer A had
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of $5 and a quantity of 10 units. T
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The complexity of the tax law also
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the current government spending and
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cut of 1964. The top rate was lower
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___ 6. Federal excise taxes: a. are
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3. How would eliminating the loopho
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Chapter 14 Economic Growth The basi
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2. Labor. Labor can contribute to e
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estricting international trade (e.g
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An improvement in technology (e.g.
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The table below shows the economic
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will increase both Real GDP and per
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___ 8. Which of the following is co
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___ 26. The opinion that economic g
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Chapter 15 Less Developed Countries
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Example 8: Countries A, B, C, and D
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Obstacles to Economic Development f
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c. Restrictions on international tr
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Appendix: Book Review - “The Powe
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Example 25: In Brazil, about half t
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Study Guide for Chapter 15 Chapter
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___ 13. Among the counterproductive
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4. List four ways that governments
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Chapter 16 International Trade The
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Other Benefits of Free Internationa
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Example 6: The graph below illustra
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competitive disadvantage. But dumpi
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is only 25% as productive as before
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Smith was skeptical of government a
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___ 4. For Country X, what is the o
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___ 18. Frédéric Bastiat’s “P
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4. On the graph below: (1) What is
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Chapter 17 Elasticity We are often
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Example 4A: What is price elasticit
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Example 5A: Gertie’s Gas and Go i
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Example 10A: When the price of Good
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Example 13B: On the graph below, su
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$7 - 6 - 5 - Price 4 - 3 - 2 - 1 -
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In the long run, would the deadweig
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___ 7. The factors that determine w
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3. a. Which price (or prices) from
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Chapter 18 Utility The basic econom
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Nonetheless, society generally assu
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Example 9: Capital City operates a
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Marginal rate of substitution - the
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The diamond-water paradox is the ob
Page 310 and 311: Complete the table below to answer
Page 312 and 313: 4. The graph below shows indifferen
Page 314 and 315: Chapter 19 The Firm The basic econo
Page 316 and 317: than contributing to team productio
Page 318 and 319: 1. Difficulty in raising large amou
Page 320 and 321: Corporations also use self-financin
Page 322 and 323: Example 24: A blacksmith who produc
Page 324 and 325: For financing needs, proprietorship
Page 326 and 327: ___ 13. Corporations: a. are comple
Page 328 and 329: 5. List two things that the absence
Page 330 and 331: Chapter 20 Production and Costs The
Page 332 and 333: In Example 5B, Birdwell finds that
Page 334 and 335: variable cost initially decreases,
Page 336 and 337: Quantity TC MC AFC AVC ATC 0 240 X
Page 338 and 339: If the scale of operation is increa
Page 340 and 341: average total cost. Average fixed c
Page 342 and 343: ___ 11. Concerning the cost curves:
Page 344 and 345: 5. Complete the following cost tabl
Page 346 and 347: Chapter 21 Perfect Competition The
Page 348 and 349: Even though a perfect competitor ca
Page 350 and 351: Example 6C: This example builds on
Page 352 and 353: At what price will there be neither
Page 354 and 355: Appendix: Perfect Competition in th
Page 356 and 357: Multiple Choice: ___ 1. A perfect c
Page 358 and 359: ___ 17. Perfect competition: a. req
Page 362 and 363: Chapter 22 Monopoly Of the four mar
Page 364 and 365: 3. Exclusive ownership of an essent
Page 366 and 367: maximizing quantity (4 units) creat
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Page 370 and 371: 2. Negotiating, beginning at a high
Page 372 and 373: Legal barriers are created by gover
Page 374 and 375: ___ 8. The slope of the demand curv
Page 376 and 377: Price Quantity 3. List some of the
Page 378 and 379: Chapter 23 Monopolistic Competition
Page 380 and 381: For Percomp (the perfect competitor
Page 382 and 383: Example 7A: The graph below represe
Page 384 and 385: Example 9: The Organization of the
Page 386 and 387: Example 12 illustrates the dilemma
Page 388 and 389: its current price and quantity. The
Page 390 and 391: ___ 14. Game theory: a. is a method
Page 392 and 393: Answers for Chapter 23 Fill-in-the-
Page 394 and 395: Chapter 24 Factor Markets The basic
Page 396 and 397: $ $240 - 200 - 160 - 120 - 80 - 40
Page 398 and 399: Since producers will attempt to equ
Page 400 and 401: 2. Differences in nonmoney aspects
Page 402 and 403: were his strikeouts, walks, and hom
Page 404 and 405: ___ 3. To maximize profits, a produ
Page 406 and 407: ___ 19. According to the book, “M
Page 408 and 409: Multiple Choice: 1. a. 8. c. 15. d.
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Chapter 25 Labor Unions The primary
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The elasticity of demand for union
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Example 4A: Assume that the graph b
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Notice from the graph in Example 6
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Wage Factory A Quantity of Labor S
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As a cartel, a labor union faces a
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___ 10. For a monopsony: a. there i
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3. The graph below represents a lab
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Chapter 26 Interest, Present Value,
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An increase in expected rates of re
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An asset is valuable because we exp
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Example 13B: General Ordnance prove
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Appendix: Present Value Table One f
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___ 4. An increase in expected rate
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Problems: 1. List and explain the t
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Chapter 27 Market Failure The basic
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External Benefit If a market genera
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Example 2: To encourage the consump
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$100 - 90 - 80 - MSC 70 - $ 60 - 50
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A common good is nonexcludable. Non
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___ 5. What government policy would
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4. Based on the information on the
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Chapter 28 Public Choice and Govern
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Candidates and the Median Voter Mod
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Example 8: According to State and F
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Example 10: When Elvis Presley was
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4. Pessimistic bias. This is the te
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___ 5. An elected official will: a.
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2. If a certain policy will yield s
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Chapter 29 Government Regulation of
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underproduction is the amount that
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micromanagement results in business
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market. They may agree with their c
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Questions for Chapter 29 Fill-in-th
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___ 10. The public interest theory
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4. List the four types of costs imp
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Chapter 30 Agriculture and Health C
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weather may cause bumper crops. Bad
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Security and Rural Investment Act o
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Example 12: From 1960 to 2013, the
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1. NHI would provide universal heal
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d. Insurance providers are not allo
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Answer questions 7. through 10. by
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___ 21. If there were no individual
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Chapter 31 Income Distribution and
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Income is more equally distributed
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over a typical career is the accumu
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Ideal Income Redistribution The ide
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Poverty - a family whose income fal
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Appendix: Income Inequality around
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How is this story an analogy for th
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___ 2. In 2013, the Lowest Income 6
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Problems: 1. Explain the two primar
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Absolute advantage - when one natio
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Fiat money - money by government de
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Nonrivalrous good - a good for whic
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Absolute advantage, 16-9 Absolute e
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“Company town”, 25-6 Comparativ
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Eli Lilly and Company, 22-1 Emergen
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Houston, Texas, 15-10 Human capital
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Market, 3-1, 3-8-9 Market basket, 4
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Political bias, 9-4, 12-7 Political
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Short run production, 20-2-3 Short-
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Upturns, 9-4 USDA, 27-9, 30-1-2, 30
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