Monopolistically competitive firms constantly develop new products in an effort to
A) make the demand for their product more elastic.
B) increase the demand for their product.
C) increase the marginal cost of their product.
D) None of the above are correct.
Ques. 2For a consumer, the marginal utility of good A is 25 and its price is 5. The marginal utility of good B is 60 and its price is 12. The consumer has allocated his entire budget. Is this consumer maximizing his total utility? Explain your answer.
What will be an ideal response?
Ques. 3The figure above shows a labor market. If there is a monopsony in this labor market, the wage rate is
A) 4 per hour.
B) 6 per hour.
C) 8 per hour.
D) 10 per hour.
Ques. 4A progressive income tax is one that
A) taxes income so that the average tax rate decreases with the level of income.
B) taxes all income above the guaranteed minimum at an average rate that decreases with income.
C) taxes income so that the average tax rate increases with the level of income.
D) taxes income at a constant rate, regardless of the level of income.
Ques. 5Gasoline is a normal good. If the price of gasoline falls, a consumer buys more gasoline because of
A) only an income effect.
B) only a substitution effect.
C) an increase in the marginal rate of substitution.
D) both an income effect and a substitution effect.
Ques. 6Firms organize production by using a mixture of two systems: (1 ) command systems and (2 ) incentive systems.
Indicate whether the statement is true or false
Ques. 7One way of reducing the moral hazard problem in the automobile insurance market is for drivers to
A) carry high deductibles.
B) carry no deductibles.
C) all have good driving records.
D) never make any claims.
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