1) Economic mobility refers to the
a. government’s attempt to distribute monetary assistance to areas most in need.
b. ability of families to freely relocate to find good jobs.
c. movement of people among income classes.
d. movement of resources from one country to another.
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2) A Giffen good is a good for which an increase in the price
a. decreases the quantity supplied.
b. increases the quantity supplied.
c. decreases the quantity demanded.
d. increases the quantity demanded.
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3) Once a cartel is formed, the market is in effect served by
a. a monopoly.
b. an oligopoly.
c. imperfect competition.
d. monopolistic competition.
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4) A monopolist maximizes profits by
a. producing an output level where marginal revenue equals marginal cost.
b. charging a price equal to marginal revenue and marginal cost.
c. charging a price where marginal cost equals average total cost.
d. Both a and b are correct.
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5) The Borda count fails to satisfy which of Kenneth Arrow’s properties of a “perfect” voting system?
a. no dictator
b. unanimity
c. transitivity
d. independence of irrelevant alternatives
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6)
Refer to Table 22-3. Which of the following statements is correct?
a. In a pairwise election, “library” beats “ice rink.”
b. In a pairwise election, “ice rink” beats “community center.”
c. In a pairwise election, “library” beats “community center.”
d. All of the above are correct.
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7) When the loss from a business-stealing externality exceeds the gain from a product-variety externality,
a. firms are more likely to operate at efficient scale.
b. there are likely to be too many firms in a monopolistically competitive market.
c. market efficiency is likely to be enhanced by the entry of new firms.
d. all firms are earning zero economic profit.
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8)
Refer to Table 22-14. Mr. Johnson recommends using a vote by majority rule. If he wants to ensure that his 1st choice becomes the familys winning destination, he should propose
a. first choosing between Opryland and the Grand Canyon, then choosing between the winner of the first vote and Sea World, and finally choosing between the winner of the second vote and Disneyland.
b. first choosing between Disneyland and Sea World, then choosing between the winner of the first vote and the Grand Canyon and finally choosing between the winner of the second vote and the Opryland.
c. first choosing between Sea World and the Grand Canyon, then choosing between the winner of the first vote and Disneyland, and finally choosing between the winner of the second vote and Opryland.
d. first choosing between Opryland and Disneyland, then choosing between the winner of the first vote and the Grand Canyon, and finally choosing between the winner of the second vote and Sea World.
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9) Employers can try to overcome the moral-hazard problem involving their employees by
a. paying their employees more often.
b. paying their employees below-equilibrium wages since the employees will likely shirk some of their responsibilities.
c. better monitoring their employees’ work efforts.
d. requiring their employees to take a pre-employment work effort test.
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10) A life insurance company requires new applicants to have a medical exam prior to writing the insurance policy. This requirement is an example of
a. signaling.
b. screening.
c. moral hazard.
d. adverse selection.
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11) When strategic interactions are important to pricing and production decisions, a typical firm will
a. set the price of its product equal to marginal cost.
b. consider how competing firms might respond to its actions.
c. generally operate as if it is a monopolist.
d. consider exiting the market.
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12) 
Refer to Figure 18-1. The marginal product of the fourth worker is
a. 60 units of output.
b. 75 units of output.
c. 285 units of output.
d. 345 units of output.
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13) 
Refer to Table 17-18. If these two firms agree to cooperate to maximize their joint profit, the outcome of the game will be
a. 10 units of output for Firm A and 10 units of output for Firm B.
b. 10 units of output for Firm A and 12 units of output for Firm B.
c. 12 units of output for Firm A and 10 units of output for Firm B.
d. 12 units of output for Firm A and 12 units of output for Firm B.
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14) 
Refer to Table 17-13. Increasing the size of its store and parking lot is a dominant strategy for
a. Lopes, but not for HomeMax.
b. HomeMax, but not for Lopes.
c. both stores.
d. neither store.
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15) 
Refer to Figure 16-8. In order to maximize its profit, the firm will choose to produce
a. 100 units of output, and its profit will be positive.
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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16)
Refer to Figure 21-1. Which point in the figure showing a consumers budget constraint represents the consumer’s income divided by the price of a CD?
a. point A
b. point C
c. point D
d. point E
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17) On a vacation to China, you find yourself eating every meal at the local Burger King rather than buying a meal from one of the street vendors. Your traveling companion claims that you are irrational, since you never eat Burger King hamburgers when you are home, and Burger King’s hamburgers cost more than the meals prepared and sold by China’s street vendors. An economist would most likely explain your behavior by suggesting that
a. your behavior is rational, but your friend’s behavior is clearly irrational.
b. you are clearly irrational, but your friends behavior is rational.
c. the Burger King brand name suggests consistent quality.
d. the advertising by Burger King in China is more persuasive than the advertising by Burger King in your home town.
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18) 
Refer to Table 17-20. What is the Nash Equilibrium in this dorm room cleaning game?
a. Nadia: Clean Maddie: Clean
b. Nadia: Don’t Clean Maddie: Clean
c. Nadia: Clean Maddie: Don’t Clean
d. Nadia: Don’t Clean Maddie: Don’t Clean
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19) Scenario 20-1
Suppose that a society is made up of five families whose incomes are as follows:
$120,000; $90,000; $30,000; $30,000; and $18,000.
The federal government is considering two potential income tax plans:
Plan A is a negative income tax plan where the taxes owed equal 1/3 of income minus $20,000.
Plan B is a two-tiered plan where families earning less than $35,000 pay no income tax and families earning more than $35,000 pay 10% of their income in taxes. The income tax revenue collected from those families earning over $35,000 is then redistributed equally to those families earning less than $35,000.
Refer to Scenario 20-1. Assuming that utility is directly proportional to the cash value of after-tax income, which government policy would an advocate of liberalism prefer?
a. Plan A
b. Plan B
c. either Plan A or Plan B
d. neither Plan A nor Plan B because any plan that forcibly redistributes income is against the philosophy
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20) The Sherman Antitrust Act prohibits executives of competing companies from
a. fixing prices, but it does not prohibit them from talking about fixing prices.
b. even talking about fixing prices.
c. sharing with one another their knowledge of game theory.
d. failing to stand by agreements that they had made with one another.
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21) Economic mobility in the United States is so great that fewer than
a. 3 percent of families are poor for 8 or more years.
b. 5 percent of families are poor for 8 or more years.
c. 8 percent of families are poor for 8 or more years.
d. 10 percent of families are poor for 8 or more years.
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22) Which of the following statements is not correct?
a. The percentage of the population that suffers from long-term poverty is far smaller than the percentage of the population that suffers from short-term poverty because there is a high level of economic mobility in the United States.
b. Permanent income is a better measure of a family’s ability to buy the necessities of life than is transitory income.
c. The economic life cycle theory explains why gifts of goods and services reduce poverty for the very young and the very old.
d. Because people can borrow and save to smooth out changes in income, their standard of living in any one year depends more on lifetime income than on a particular year’s income.
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23) When a night watchman only performs two walk-throughs per night when he is being paid to perform five walk-throughs per night, it is an example of
a. both moral hazard and adverse selection.
b. neither moral hazard nor adverse selection.
c. moral hazard, but not adverse selection.
d. adverse selection, but not moral hazard.
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24) When economists refer to a firm’s capital, they are describing the
a. markets for final goods and services.
b. stock of equipment and buildings used in production.
c. amount of bank financing used by the firm.
d. amount of financing provided by the equity markets.
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25) 
Refer to Figure 15-4. A profit-maximizing monopoly’s total cost is equal to
a. P4 x Q3.
b. P2 x Q3.
c. P1 x Q3.
d. (P4-P1) x Q3.
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26) In recent years, the amount of international trade in which the United States engages has increased. Which of the following accurately describes the effect(s) on labor demanded by firms in the United States?
a. The demand for both skilled and unskilled labor has increased.
b. The demand for both skilled and unskilled labor has decreased.
c. The demand for skilled labor relative to unskilled labor has risen.
d. The demand for unskilled labor relative to skilled labor has risen.
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27) Scenario 17-3. Consider two countries, Muria and Zenya, that are engaged in an arms race. Each country must decide whether to build new weapons or to disarm existing weapons. Each country prefers to have more arms than the other because a large arsenal gives it more influence in world affairs. But each country also prefers to live in a world safe from the other country’s weapons. The following table shows the possible outcomes for each decision combination. The numbers in each cell represent the countrys ranking of the outcome (4 = best outcome, 1 = worst outcome).
Refer to Scenario 17-3. Which of these statements is correct?
(i) Muria is better off building new weapons if Zenya builds new weapons.
(ii) Muria is better off building new weapons if Zenya disarms existing weapons.
(iii) Building new weapons is Muria’s dominant strategy.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. (i), (ii), and (iii)
Answer: View Answer
28)
Refer to Figure 21-22. When the price of X is $80, the price of Y is $20, and the consumers income is $160, the consumers optimal choice is D. Then the price of X decreases to $20. The demand curve can be illustrated as the movement from
a. D to E.
b. D to C.
c. C to E.
d. E to D.
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29) Which of the following is an example of a barrier to entry?
a. Matthew offers free samples of his latest flavored coffee drink to entice customers to buy a cup.
b. Mark charges a lower price to students than to faculty for his tattoo services.
c. Luke charges a higher hourly price to business students than to liberal arts students for his economics tutoring.
d. John obtained a copyright for the song he wrote and recorded.
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30) Scenario 18-7
Suppose the following events occur in the market for university economics professors.
Event 1: A recession in the U.S. economy lowers the opportunity cost of going to graduate school in economics to become a university economics professor.
Event 2: An increasing number of students in U.S. primary and secondary schools increases the number of students entering college, increasing the output price of university economics professors services.
Refer to Scenario 18-7. As a result of these two events, holding all else constant, the equilibrium quantity of university economics professors will
a. increase.
b. decrease.
c. not change.
d. It is not possible to determine what will happen to the equilibrium quantity.
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31) If an increase in the interest rate raises savings, then
a. the substitution effect is greater than the income effect.
b. the income effect is greater than the substitution effect.
c. the income effect and the substitution effect move in the same direction.
d. we are unable to determine the sizes of the income and substitution effects without more information.
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32) Roberto consumes Coke exclusively. He claims that there is a clear taste difference and that competing brands of cola leave an unsavory taste in his mouth. In a blind taste test, Roberto is found to prefer Coke to store-brand cola eight out of ten times. The results of Robertos taste test would refute claims by critics of brand names that
a. consumers are always willing to pay more for brand names.
b. brand names cause consumers to perceive differences that do not really exist.
c. consumers with the lowest levels of income are the most likely to be influenced by brand name advertising.
d. brand names are a form of socially efficient advertising.
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33) 
Refer to Figure 18-10. Assume W1 = $20 and W2 = $22, and the market is always in equilibrium. A shift of the labor demand curve from D1 to D2 would
a. increase the value of the marginal product of labor by $2.
b. increase the value of the marginal product of labor by less than $2.
c. decrease the value of the marginal product of labor by more than $2.
d. not change the value of the marginal product of labor.
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34)
Refer to Figure 20-2. Between 1965 and 2001, during recessions (the shaded bars) the number of individuals in poverty has
a. increased.
b. decreased.
c. not changed.
d. decreased and then increased.
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35) For a monopolist, marginal revenue is
a. equal to price, as it is for a perfectly competitive firm.
b. less than price, as it is for a perfectly competitive firm.
c. equal to price, whereas marginal revenue is less than price for a perfectly competitive firm.
d. less than price, whereas marginal revenue is equal to price for a perfectly competitive firm.
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36) Casey consumes two goods, hamburgers and ice cream sandwiches. He has maximized his utility given his income. Ice cream sandwiches costs $2, and he consumes them to the point where the marginal utility he receives is 6. Hamburgers cost $4, and the relationship between the marginal utility that Casey gets from eating hamburgers and the number he eats per month is as follows:
Hamburgers 1 2 3 4 5 6
Marginal Utility 20 16 12 8 4 0
How many hamburgers does Casey buy each month?
a. 1
b. 2
c. 3
d. 4
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37) In the United States, long-term poverty affects
a. more families than short-term poverty.
b. an equal number of families as short-term poverty.
c. slightly fewer families than short-term poverty.
d. many fewer families than short-term poverty.
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38) A monopolistically competitive market
a. has some features of monopoly and some features of competition.
b. has one large, dominant firm and many other smaller firms.
c. is difficult to enter.
d. occurs whenever firms earn zero economic profit.
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39) Which of the following is a characteristic of a corporation but not of a small family-owned business?
a. The firm buys inputs in markets for the factors of production.
b. The firm sells output in markets for goods and services.
c. The firm is guided in its decisions by the objective of profit maximization.
d. The firm faces a principal-agent problem created by the separation of ownership and control.
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40) Many Democrats who campaigned in the 2006 elections supported raising the U.S. minimum wage. Critics of raising the minimum wage argue that minimum-wage laws are
a. too expensive for local governments to fund.
b. too expensive for local governments to administer.
c. imprecise in their ability to help the working poor.
d. easy for businesses to pay.
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41) Using indifference curves and budget constraints, graphically illustrate the substitution and income effect that would result from a change in the price of a normal good.
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42) Monopolistic competition is the only market structure that features many sellers.
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43) Assume you are a critic of welfare reforms that impose a time limit on the number of years a person is eligible for welfare benefits. What is the foundation of your critique?
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44) If the ABC company owns the exclusive rights to mine land in Afghanistan for Lapis Lazuli, a rare stone used in jewelry which is found only in Afghanistan, the company benefits from a barrier to entry.
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45) The Condorcet voting paradox shows that outcomes based on dictatorial preferences do not always obey the property of transitivity.
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46) Explain why the following situation is likely to persist: soccer players in Europe are the highest paid athletes and in the US they are among the lowest paid athletes.
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47) What are the four ways that government policymakers can respond to the problem of monopoly?
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