1) The quantity sold in a market will decrease if the government
a. decreases a binding price floor in that market.
b. increases a binding price ceiling in that market.
c. increases a tax on the good sold in that market.
d. All of the above are correct.
Answer:
2)
Refer to Figure 6-24. The buyers will bear a higher share of the tax burden than sellers if the demand is
a. D1, and the supply is S1.
b. D2, and the supply is S1.
c. D1, and the supply is S2.
d. D2, and the supply is S2.
Answer:
3) Refer to Table 3-5. Assume that England and Spain each has 40 labor hours available. If each country divides its time equally between the production of cheese and bread, then total production is
a. 20 units of cheese and 5 units of bread.
b. 25 units of cheese and 7.5 units of bread.
c. 40 units of cheese and 10 units of bread.
d. 50 units of cheese and 15 units of bread.
Answer:
4) The prairie dog has always been considered a problem for American cattle ranchers. They dig holes that cattle and horses can step in, and they eat grass necessary for cattle. Recently, ranchers have discovered that there is a demand for prairie dogs as pets. In some areas, prairie dogs can sell for as high as $150 each. Cattlemen are now fencing off prairie dog towns on their land so these towns will not be disturbed by their cattle.
Draw a ranchers production possibilities frontier showing increasing opportunity cost of cattle production in terms of prairie dog production. Using a separate graph for each situation, show what would happen to the initial production possibilities frontier in each of the following situations:
a. The outcome is efficient, with ranchers choosing to produce equal numbers of cattle and prairie dogs.
b. As a protest against the government introducing the gray wolf back into the wild in their state, ranchers decide to withhold 25 percent of the available grassland for grazing.
c. The price of prairie dogs increases to $200 each, so ranchers decide to allot additional land for prairie dogs.
d. The government grants new leases to ranchers, giving them 10,000 new acres of grassland each for grazing.
e. A drought destroys most of the available grass for grazing of cattle, but not for prairie dogs since they also eat plant roots.
Answer:
5) Which of the following would most likely serve as an example of a monopoly?
a. a bakery in a large city
b. a bank in a large city
c. a local cable television company
d. a small group of corn farmers
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6) In the circular-flow diagram, which of the following items flows from households to firms through the markets for the factors of production?
a. goods and services
b. land, labor, and capital
c. dollars spent on goods and services
d. wages, rent, and profit
Answer:
7) You wear either shorts or sweatpants every day. You notice that sweatpants have gone on sale, so your demand for
a. sweatpants will increase.
b. sweatpants will decrease.
c. shorts will increase.
d. shorts will decrease.
Answer:
8) $2.50 0 4 0 0
Refer to Table 4-3. If these are the only four buyers in the market, then the market quantity demanded at a price of $2 is
a. 0 units.
b. 3.5 units.
c. 12 units.
d. 14 units.
Answer:
9) In the United States, the overall level of prices more than doubled during the
a. 1950s.
b. 1960s.
c. 1970s.
d. 1980s.
Answer:
10) Which of the following is not an example of a public policy?
a. rent-control laws
b. minimum-wage laws
c. taxes
d. equilibrium laws
Answer:
11) A payroll tax is a
a. fixed number of dollars that every firm must pay to the government for each worker that the firm hires.
b. tax that each firm must pay to the government before the firm can hire workers and operate its business.
c. tax on the wages that firms pay their workers.
d. tax on all wages above the minimum wage.
Answer:
12) 
Refer to Figure 3-2. If the production possibilities frontier shown is for 40 hours of production, then how long does it take Peru to make one ruby?
a. 1/6 hour
b. 1/5 hour
c. 5 hours
d. 6 hours
Answer:
13) If Shawn can produce donuts at a lower opportunity cost than Sue, then
a. Shawn has a comparative advantage in the production of donuts.
b. Sue has a comparative advantage in the production of donuts.
c. Shawn should not produce donuts.
d. Shawn is capable of producing more donuts than Sue in a given amount of time.
Answer:
14) Economists generally support
a. trade restrictions.
b. government management of trade.
c. export subsidies.
d. free international trade.
Answer:
15)
Refer to Figure 6-3. In panel (b), there will be
a. a shortage of wheat.
b. equilibrium in the market.
c. a surplus of wheat.
d. lines of people waiting to buy wheat.
Answer:
16) An outcome that can result from either a price ceiling or a price floor is
a. an enhancement of efficiency.
b. undesirable rationing mechanisms.
c. a surplus.
d. a shortage.
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17) The sum of all the individual supply curves for a product is called
a. total supply.
b. market supply.
c. aggregate supply.
d. total output.
Answer:
18)
Refer to Figure 5-5. Using the midpoint method, between prices of $48 and $54, price elasticity of demand is about
a. 0.92.
b. 3.89.
c. 4.33.
d. 5.67.
Answer:
19)
Refer to Figure 5-16. Using the midpoint method, what is the price elasticity of supply between point A and point B?
a. 0.58
b. 0.71
c. 1.06
d. 1.4
Answer:
20) A rationale for government involvement in a market economy is
a. markets sometimes fail to produce a fair distribution of economic well-being.
b. markets sometimes fail to produce an efficient allocation of resources.
c. property rights have to be enforced.
d. All of the above are correct.
Answer:
21) 
Refer to Figure 3-8. Chiles opportunity cost of one pound of coffee is
a. 3/4 pound of soybeans and Colombias opportunity cost of one pound of coffee is 1/2 pound of soybeans.
b. 3/4 pound of soybeans and Colombias opportunity cost of one pound of coffee is 2 pounds of soybeans.
c. 4/3 pounds of soybeans and Colombias opportunity cost of one pound of coffee is 1/2 pound of soybeans.
d. 4/3 pounds of soybeans and Colombias opportunity cost of one pound of coffee is 2 pounds of soybeans.
Answer:
22)
Refer to Figure 4-18. At a price of $12, there is a
a. surplus of 1 unit.
b. surplus of 2 units.
c. shortage of 1 unit.
d. shortage of 2 units.
Answer:
23) 
Refer to Figure 2-12. Which of the following statements is true about point B for this economy?
a. Point B is currently unattainable.
b. Point B is efficient.
c. At point B, more pillows are produced than blankets.
d. There is unemployment at point B.
Answer:
24) When the government attempts to improve equality in an economy the result is often
a. an increase in overall output in the economy.
b. additional government revenue since overall income will increase.
c. a reduction in equality.
d. a reduction in efficiency.
Answer:
25) What you give up to obtain an item is called your
a. opportunity cost.
b. explicit cost.
c. monetary cost.
d. direct cost.
Answer:
26) For two individuals who engage in the same two productive activities, it is impossible for one of the two individuals to
a. have a comparative advantage in both activities.
b. have an absolute advantage in both activities.
c. be more productive per unit of time in both activities.
d. gain from trade with each other.
Answer:
27) If a paper factory does not bear the entire cost of the pollution it emits, it will
a. not emit any pollution so as to avoid the entire cost of the pollution.
b. emit lower levels of pollution.
c. emit an acceptable level of pollution.
d. emit too much pollution.
Answer:
28) Canada and the U.S. both produce wheat and computer software. Canada is said to have the comparative advantage in producing wheat if
a. Canada requires fewer resources than the U.S. to produce a bushel of wheat.
b. the opportunity cost of producing a bushel of wheat is lower for Canada than it is for the U.S.
c. the opportunity cost of producing a bushel of wheat is lower for the U.S. than it is for Canada.
d. the U.S. has an absolute advantage over Canada in producing computer software.
Answer:
29) Suppose the American Medical Association announces that men who shave their heads are less likely to die of heart failure. We could expect the current demand for
a. hair gel to increase.
b. razors to increase.
c. combs to increase.
d. shampoo to increase.
Answer:
30) Refer to Table 3-8. Huang has an absolute advantage in the production of
a. parasols and a comparative advantage in the production of parasols.
b. parasols and a comparative advantage in the production of plates.
c. neither good and a comparative advantage in the production of parasols.
d. neither good and a comparative advantage in the production of plates.
Answer:
31) Table 3-4
Assume that the farmer and the rancher can switch between producing meat and producing potatoes at a constant rate.
Labor Hours Needed to Make 1 Pound of Pounds Produced in 24 Hours
Meat Potatoes Meat Potatoes
Farmer 8 2 3 12
Rancher 3 6 8 4
Refer to Table 3-4. Which of the following combinations of meat and potatoes could the farmer produce in 24 hours?
a. 1 pound of meat and 8 pounds of potatoes.
b. 2 pounds of meat and 5 pounds of potatoes.
c. 3 pounds of meat and 12 pounds of potatoes.
d. 4 pounds of meat and 8 pounds of potatoes.
Answer:
32) Which of the following transactions does not take place in the markets for the factors of production in the circular-flow diagram?
a. Jason provides plumbing services for a plumbing company and receives an hourly wage from the company for his services.
b. Jennifer works as a marriage counselor and her clients pay her on a per-hour basis for her services.
c. Brody owns several shopping malls and receives rent payments from the companies that operate those malls.
d. Bree sells advertising for a newspaper and receives a commission from the newspaper company for each advertisement that she sells.
Answer:
33) 
Refer to Figure 3-3. Without trade, Arturo produced and consumed 240 tacos and 120 burritos and Dina produced and consumed 100 tacos and 150 burritos. Then, each person agreed to specialize in the production of the good in which they have a comparative advantage and trade 260 tacos for 156 burritos. As a result, Arturo gained
a. 20 tacos and 24 burritos and Dina gained 40 tacos and 6 burritos.
b. 20 tacos and 36 burritos and Dina gained 160 tacos and 6 burritos.
c. 260 tacos and 144 burritos and Dina gained 140 tacos and 156 burritos.
d. 260 tacos and 156 burritos and Dina gained 260 tacos and 156 burritos.
Answer:
34) 
Refer to Figure 2-2. If the flow of goods and services is part of what is represented by the inner loop of this circular-flow diagram, then
a. the flow of factors of production is also part of what is represented by the inner loop.
b. the flow of income paid to households is also part of what is represented by the inner loop.
c. the flow of revenue to firms is also part of what is represented by the inner loop.
d. households must be sellers of output.
Answer:
35) Kelly and David are both capable of repairing cars and cooking meals. Which of the following scenarios is not possible?
a. Kelly has a comparative advantage in repairing cars and David has a comparative advantage in cooking meals.
b. Kelly has an absolute advantage in repairing cars and David has an absolute advantage in cooking meals.
c. Kelly has a comparative advantage in repairing cars and in cooking meals.
d. David has an absolute advantage in repairing cars and in cooking meals.
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36) The principle that “trade can make everyone better off” applies to interactions and trade between
a. families.
b. states within the United States.
c. nations.
d. All of the above are correct.
Answer:
37) The opportunity cost of going to college is
a. the total spent on food, clothing, books, transportation, tuition, lodging, and other expenses.
b. the value of the best opportunity a student gives up to attend college.
c. zero for students who are fortunate enough to have all of their college expenses paid by someone else.
d. zero, since a college education will allow a student to earn a larger income after graduation.
Answer:
38) 
Refer to Figure 2-6. If this economy devotes all of its resources to the production of clocks, then it will produce
a. 0 clocks and 35 candles.
b. 10 clocks and 25 candles.
c. 16 clocks and 0 candles.
d. 16 clocks and 35 candles.
Answer:
39) Which of the following words and phrases best captures the notion of equality?
a. minimum waste
b. maximum benefit
c. sameness
d. efficiency
Answer:
40) Suppose that when the price of wheat is $2 per bushel, farmers can sell 10 million bushels. When the price of wheat is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true? The demand for wheat is
a. income inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers.
b. income elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers.
c. price inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers.
d. price elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers.
Answer:
41) Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of demand.
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42) Economic policies often have effects that their architects did not intend or anticipate.
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43) One common example of a price ceiling is rent control.
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44) When two variables move in the same direction, the curve relating them is downward sloping, and we say the variables are negatively related.
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45) It is possible for the U.S. to gain from trade with Germany even if it takes U.S. workers fewer hours to produce every good than it takes German workers.
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46) An outcome is said to be efficient if an economy is getting all it can from the scarce resources it has available.
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47) Cocoa and marshmallows are complements, so a decrease in the price of cocoa will cause an increase in the demand for marshmallows.
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48) A decrease in demand will cause a decrease in price, which will cause a decrease in supply.
Answer: