1) Currently you purchase ten frozen pizza per month. You will graduate from college
in December, and you will start a new job in January. You have no plans to purchase
frozen pizzas in January. For you, frozen pizzas are a(n)
a.substitute good.
b.normal good.
c.inferior good.
d.complementary good.
2) When incentives to earn income are distorted by income redistribution programs,
a.losses can exceed potential gains from greater equality of income.
b.total income in an economy can fall.
c.total utility in society can fall.
d.All of the above are correct.
3) Which of the following statements about a production function is correct for a firm
that uses labor to produce output?
a.The production function depicts the relationship between the quantity of labor and the
quantity of output.
b.The slope of the production function measures marginal product.
c.The slopes of the production function and the total cost curve are inversely related; if
one is increasing, the other is decreasing.
d.All of the above are correct.
4) Suppose the long-run supply curve for a good is upward-sloping. The upward slope
could be explained by
a.increases in production costs resulting from more firms coming into the market.
b.a breakdown of the €free entry and exit€ feature of competition.
c.a breakdown of the €price taking€ feature of competition.
d.a stable demand curve for the good, that is, a demand curve that never shifts.
5) The decisions of firms and households are guided by prices and self-interest in a
a.command economy.
b.centrally-planned economy.
c.market economy.
d.All of the above are correct.
6) Many economists believe that a family bases its spending decisions on its permanent,
or average, income rather than on transitory income.
a.True
b.False
7) Which of the following is an example of a normative, as opposed to positive,
statement?
a.Following the most recent recession, the economy is recovering at a slower than usual
pace.
b.To stimulate the economy during the most recent recession, the federal government
increased spending.
c.In response to the most recent recession, the federal government extended the
duration of unemployment benefits.
d.The federal government’s responses to the most recent recession were insufficient.
8) Over the past several years, the earnings gap between high-skilled and low-skilled
workers has
a.increased.
b.decreased.
c.remained constant.
d.first increased by a small percent, then decreased by a large percent.
9) The classic example of adverse selection is the market for used cars.
a.True
b.False
10) The business activities of Firm A confer positive externalities on Firm B, and the
business activities of Firm B confer positive externalities on Firm A. If the two firms
merged, then
a.their respective markets would move closer to the social optimum.
b.their respective markets would move further away from the social optimum.
c.total surplus in their respective markets would decrease.
d.the merger would serve as an example of a misguided public policy toward
externalities.
11) When a country allows trade and becomes an importer of a good,
a.both domestic producers and domestic consumers become better off.
b.domestic producers become better off, and domestic consumers become worse off.
c.domestic producers become worse off, and domestic consumers become better off.
d.both domestic producers and domestic consumers become worse off.
12) Table 17-7
The information in the table below shows the total demand for internet radio
subscriptions in a small urban market. Assume that each company that provides these
subscriptions incurs an annual fixed cost of $20,000 (per year) and that the marginal
cost of providing an additional subscription is always $16.
Refer to Table 17-7. Assume there are two profit-maximizing internet radio providers
operating in this market. Further assume that they are not able to collude on the price
and quantity of subscriptions to sell. How many subscriptions will be sold altogether
when this market reaches a Nash equilibrium?
a. 2,000
b. 3,000
c. 4,000
d. 5,000
13) When the price of a good is low, selling the good is profitable, and so the quantity
supplied is large.
a.True
b.False
14) In some circumstances, selling pollution permits may be better than levying a
corrective tax.
a.True
b.False
15) Which of the following statements is correct?
a.Corrective taxes are often preferred over direct regulation because they typically
reduce externalities at a lower cost.
b.Corrective taxes distort economic incentives.
c.Corrective taxes are often preferred over direct regulation because they typically
reduce externalities at a faster rate.
d.Both a and b are correct.
16) Figure 10-2.
The graph depicts the market for plastic.
Suppose that the production of plastic creates a social cost which is depicted in the
graph above. Without any government regulation, how much plastic will be produced?
a.200
b.500
c.650
d.900
17) Figure 8-14
Which of the following statements is not correct?
a.Supply 2 is more elastic than supply 1
b.Demand 2 is more elastic than demand 1
c.Supply 1 is more inelastic than supply 2
d.Demand 2 is more inelastic than supply 2
18)
Which of the following could be an omitted variable in the graph?
a.the price of snowblowers
b.a change in consumers’ incomes
c.a change in the seasons
d.All of the above are correct.
19) Sizable economic profits can persist over time under monopoly if the monopolist
a.produces that output where average total cost is at a maximum.
b.is protected by barriers to entry.
c.operates as a price taker rather than a price maker.
d.earns revenues that exceed variable costs.
20) Which of the following statements is correct?
a.The demand for natural gas is more elastic over a short period of time than over a
long period of time.
b.The demand for smoke alarms is more elastic than the demand for Persian rugs.
c.The demand for bourbon whiskey is more elastic than the demand for alcoholic
beverages in general.
d.All of the above are correct.