1) Which political philosophy focuses on the process of determining the distribution of income rather than on the outcome?
a. utilitarianism
b. liberalism
c. libertarianism
d. welfarism
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2) Which of the following is not an example of a barrier to entry?
a. Mighty Mitchs Mining Company owns a unique plot of land in Tanzania, under which lies the only large deposit of Tanzanite in the world.
b. A college student starts a part-time tutoring business.
c. A novelist obtains a copyright for her new book.
d. A taxi cab driver in New York City obtains a license to legally provide transportation in New York City.
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3) For a long while, electricity producers were thought to be a classic example of a natural monopoly. People held this view because
a. the average cost of producing units of electricity by one producer in a specific region was lower than if the same quantity were produced by two or more producers in the same region.
b. the average cost of producing units of electricity by one producer in a specific region was higher than if the same quantity were produced by two or more produced in the same region.
c. the marginal cost of producing units of electricity by one producer in a specific region was higher than if the same quantity were produced by two or more producers in the same region.
d. electricity is a special non-excludable good that could never be sold in a competitive market.
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4) The signaling theory of education is most similar to the
a. human capital theory of education.
b. discrimination theory of advertising.
c. signaling theory of advertising.
d. efficiency wage theory of labor economics.
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5) Which of the following can be used to help explain wage differences among different groups of workers?
a. human capital acquired through education
b. human capital acquired through job experience
c. compensating differentials
d. All of the above can explain wage differences.
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6) 
Refer to Figure 16-9. In order to maximize its profit, the firm will choose to produce
a. 100 units of output, and its profit will be negative.
b. 100 units of output, and its profit will be zero.
c. 133.33 units of output, and its profit will be negative.
d. 133.33 units of output, and its profit will be zero.
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7) Which of the following statements is (are) true of a monopoly?
(i) A monopoly has the ability to set the price of its product at whatever level it desires.
(ii) A monopoly’s total revenue will always increase when it increases the price of its product.
(iii) A monopoly can earn unlimited profits.
a. (i) only
b. (ii) only
c. (i) and (ii) only
d. (ii) and (iii) only
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8) 
Refer to Table 15-12. In order to maximize profits, the firm should produce
a. 4 units of output.
b. 8 units of output.
c. 12 units of output.
d. 16 units of output.
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9) The marginal rate of substitution between two goods always equals the
a. marginal utility of one divided by the marginal utility of the other.
b. marginal utility of one times the marginal utility of the other.
c. price of one good divided by the price of the other.
d. Both a and c are correct.
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10) 
Refer to Table 18-8. Suppose this firm charges a price of $5 per unit of output and pays workers a wage equal to $160 per day. How many workers should this firm hire to maximize its profit?
a. 2 workers
b. 3 workers
c. 4 workers
d. 5 workers
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11) Scenario 22-2
The following table shows the preferences for the five voters in a city regarding how to deal with the citys diseased trees.
A = do nothing
B = follow the expert’s advice to remove every tree
C = remove every 4th tree now and perhaps more later
D = use an untested spraying alternative
Refer to Scenario 22-2. Consider the public policy for dealing with the diseased trees. Using a Borda count with 4 points assigned to the first choice, 3 points assigned to the second choice, 2 points assigned to the third choice, and 1 point assigned to the fourth choice, which policy wins?
a. A
b. B
c. C
d. D
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12) When firms are faced with making strategic choices in order to maximize profit, economists typically use
a. the theory of monopoly to model their behavior.
b. the theory of aggressive competition to model their behavior.
c. game theory to model their behavior.
d. cartel theory to model their behavior.
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13) 
Refer to Table 20-1. If the poverty line was $29,075, what would be the poverty rate?
a. less than 25%
b. between 25% and 50%
c. between 50% and 75%
d. There is insufficient information to answer this question.
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14) In a monopolistically competitive market,
a. entry by new firms is impeded by barriers to entry; thus, the number of firms in the market is never ideal.
b. entry by new firms is impeded by barriers to entry, but the number of firms in the market is nevertheless always ideal.
c. free entry ensures that the number of firms in the market is ideal.
d. there may be too few or too many firms in the market, despite free entry.
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15) The theory of consumer choice provides the foundation for understanding the
a. structure of a firm.
b. profitability of a firm.
c. demand for a firm’s product.
d. supply of a firm’s product.
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16) Under which of the following market structures would the highest output of a particular good be produced?
a. perfect competition
b. monopolistic competition
c. oligopoly
d. monopoly
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17) A study conducted by economists Marianne Bertrand and Sendhil Mullainathan found evidence of labor-market discrimination based on which of the following findings?
a. Restaurant customers preferred to be waited on by white waitresses rather than black waitresses.
b. Black basketball players earned more than white basketball players.
c. Employers were more likely to request interviews with job applicants with white names such as Greg than from applicants with black names such as Jamal.
d. Employers were more likely to request interviews with job applicants with masculine names such as Mark than from applicants with feminine names such as Lisa.
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18) “Left” gloves and “right” gloves provide a good example of
a. perfect substitutes.
b. perfect complements.
c. negatively sloped indifference curves.
d. positively sloped indifference curves.
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19) Economists John Kenneth Galbraith and Friedrich Hayek disagreed about the roles of advertising and government. Which of the following is correct?
a. Galbraith thought advertising artificially enhanced consumers desires for private goods, while Hayek thought no producer could determine consumers tastes though advertising.
b. Galbraith believed in enhancing personal freedoms, while Hayek advocated larger government.
c. Galbraith thought advertising was a waste of resources because it did not influence consumers, while Hayek thought advertising was powerful enough to determine consumers tastes.
d. Galbraith believed that the government should not interfere in markets, while Hayek believed that there was insufficient government regulation of marketing.
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20) When a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost,
a. the firm must be earning a positive economic profit.
b. the firm may be incurring economic losses
c. there is a deadweight loss to society, but it is exactly offset by the benefit of excess capacity.
d. new firms will enter the market in the long run.
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21) In a monopolistically competitive market, social welfare would be enhanced if
a. price equaled marginal cost.
b. government regulation eliminated the product-variety externality.
c. the government raised taxes to subsidize firms that price below average total cost.
d. there were fewer firms, making the industry closer to an oligopoly.
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22) Predatory pricing occurs when
a. firms collude to set prices. Economists are certain this practice is profitable.
b. firms collude to set prices. Economists are skeptical that this practice is profitable.
c. A monopolist decreases its prices to maintain its monopoly. Economists are certain this practice is profitable.
d. A monopolist decreases its prices to maintain its monopoly. Economists are skeptical that this practice is profitable.
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23) 
Refer to Table 17-12. When this game reaches a Nash equilibrium, the value of trade flow benefits will be
a. United States $35 b and Farland $285 b.
b. United States $65 b and Farland $75 b.
c. United States $140 b and Farland $5 b.
d. United States $130 b and Farland $275 b.
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24) In which of the following product markets are we likely to observe the largest amount of advertising?
a. markets with highly differentiated products
b. perfectly competitive markets
c. markets in which industrial products are sold
d. markets in which there is very little difference between different firms’ products
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25) Suppose that residents of a town are asked to vote on the best way to improve the safety of an intersection. The three choices are: a stoplight, a 4-way stop, and a 2-way stop. When the mayor asks the residents to choose between a stoplight and a 4-way stop, the residents choose a 4-way stop. Then, when the mayor asks them to choose between a 4-way stop and a 2-way stop, they choose a 2-way stop. However, if the mayor firsts asks the residents to choose between a 4-way stop and a 2-way stop, they choose a 2-way stop. Then, when the mayor asks the residents to choose between a 2-way stop and a stoplight, they choose a stoplight. What does this example illustrate?
a. Arrows impossibility theorem
b. the Condorcet paradox
c. a Borda count
d. the median voter theorem
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26) Which of the following is a characteristic of a natural monopoly?
a. Fixed costs are typically a small portion of total costs.
b. Average total cost declines over large regions of output.
c. The product sold is a natural resource such as diamonds or water.
d. All of the above are correct.
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27) Josh is currently consuming some of good X and some of good Y. If good Y is a normal good for Josh, an increase in his income will definitely cause him to
a. increase his consumption of X.
b. increase his consumption of Y.
c. decrease his consumption of X.
d. decrease his consumption of Y.
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28)
Refer to Table 22-1. If the first vote pits Italy against Greece and the second vote pits Ireland against the winner of the first vote, then the outcome is as follows:
a. Italy wins the first vote and Ireland wins the second vote, so they go to Ireland.
b. Italy wins the first vote and Italy wins the second vote, so they go to Italy.
c. Greece wins the first vote and Greece wins the second vote, so they go to Greece.
d. Greece wins the first vote and Ireland wins the second vote, so they go to Ireland.
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29) Unemployment insurance benefits is a type of
a. in-kind transfer.
b. negative income tax payment.
c. property income.
d. welfare payment.
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30) A dominant strategy is one that
a. makes every player better off.
b. makes at least one player better off without hurting the competitiveness of any other player.
c. increases the total payoff for the player.
d. is best for the player, regardless of what strategies other players follow.
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31) An example of an in-kind transfer to the poor is
a. the negative income tax.
b. the Earned Income Tax Credit (EITC).
c. Medicaid.
d. Temporary Assistance for Needy Families (TANF).
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32) 
Refer to Table 18-7. If Harold pays his workers $80 per day and sells his cranberries for $5 per bushel, what is the value of the marginal product of the second worker?
a. $80
b. $400
c. $6,400
d. $32,000
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33) Which of the following statements is not correct?
a. If the signaling theory of education is correct, additional schooling does not affect worker productivity but rather signals a correlation between natural ability and education.
b. The theory of efficiency wages suggests that firms pay higher wages to workers in order to induce workers to be more productive.
c. Discrimination against workers of a certain race or ethnicity is often in conflict with a firm’s desire to maximize profits.
d. The theory of compensating wage differentials reflects the different skills, abilities, and productivity of workers.
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34) Suppose that an economics department is offering a student exchange program with a university in Giessen, Germany. If the department requires students to submit an essay in order to be considered for the program, the essay may be an example of a(n)
a. signal.
b. screen.
c. efficiency wage.
d. principal.
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35) 
Refer to Figure 15-2. Which of the following statements is correct?
a. Panel C represents the typical demand curve for a perfectly competitive industry.
b. Panel B represents the typical demand curve for a monopoly.
c. Panel B represents the typical demand curve for a perfectly competitive firm.
d. All of the above are correct.
Answer: