1) Kari downloads 7 songs per month when the price is $1.29 per song and 10 songs per
month when the price is $0.99 per song. Kari’s behavior demonstrates the law of
a.price.
b.supply.
c.demand.
d.income.
2) Suppose that a firm operating in perfectly competitive market sells 300 units of
output at a price of $3 each. Which of the following statements is correct?
(i)Marginal revenue equals $3.
(ii)Average revenue equals $3.
(iii)Total revenue equals $900.
a.(i) only
b.(iii) only
c.(i) and (ii) only
d.(i), (ii), and (iii)
3) In the circular-flow diagram, households and firms are the decision makers.
a.True
b.False
4) Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the
market for wheat is generally considered to be competitive, Mr. McDonald maximizes
his profit by choosing
a.to produce the quantity at which average variable cost is minimized.
b.to produce the quantity at which average fixed cost is minimized.
c.the quantity at which market price is equal to Mr. McDonald‘s marginal cost of
production.
d.the quantity at which market price exceeds Mr. McDonald‘s marginal cost of
production by the greatest amount.
5) Figure 8-13
Suppose the government places a $5 per-unit tax on this good. The loss of consumer
surplus resulting from this tax is
a.$80.
b.$40.
c.$30.
d.$10.
6) The more elastic are supply and demand in a market, the greater are the distortions
caused by a tax on that market, and the more likely it is that a tax cut in that market will
raise tax revenue.
a.True
b.False
7) Which of the following would cause price to decrease?
a.a decrease in supply
b.an increase in demand
c.a surplus of the good
d.a shortage of the good
8) When price is greater than marginal cost for a firm in a competitive market,
a.marginal cost must be falling.
b.the firm must be minimizing its losses.
c.there are opportunities to increase profit by increasing production.
d.the firm should decrease output to maximize profit.
9) OPEC failed to maintain a high price of oil in the long run, partly because both the
supply of oil and the demand for oil are more elastic in the long run than in the short
run.
a.True
b.False
10) Ellie and Brendan both produce apple pies and vanilla ice cream. If Ellie’s
opportunity cost of one apple pie is 1/2 gallon of ice cream and Brendan’s opportunity
cost of one apple pie is 1/4 gallon of ice cream, Ellie has a comparative advantage in
the production of ice cream.
a.True
b.False
11) A tax placed on buyers of tuxedoes shifts the
a.demand curve for tuxedoes downward, decreasing the price received by sellers of
tuxedoes and causing the quantity of tuxedoes to increase.
b.demand curve for tuxedoes downward, decreasing the price received by sellers of
tuxedoes and causing the quantity of tuxedoes to decrease.
c.supply curve for tuxedoes upward, decreasing the effective price paid by buyers of
tuxedoes and causing the quantity of tuxedoes to increase.
d.supply curve for tuxedoes upward, increasing the effective price paid by buyers of
tuxedoes and causing the quantity of tuxedoes to decrease.
12) Buyers are able to buy all they want to buy and sellers are able to sell all they want
to sell at
a.prices at and above the equilibrium price.
b.prices at and below the equilibrium price.
c.prices above and below the equilibrium price, but not at the equilibrium price.
d.the equilibrium price but not above or below the equilibrium price.
13) If we observe a great deal of advertising of men’s shaving products, we can infer
that
a.the market for those products is perfectly competitive.
b.it costs firms very little to produce those products.
c.those products are highly differentiated.
d.firms are irrational in their decisions to advertise.
14) Roads can be considered either public goods or common resources, depending on
how congested they are.
a.True
b.False
15) Several arguments for restricting trade have been advanced. Those arguments do
not include
a.the jobs argument.
b.the protection-as-a-bargaining-chip argument.
c.the no-deadweight-loss argument.
d.the infant-industry argument.