1) An example of a transitory change in income is the
a.annual cost of living adjustment to your salary.
b.increase in income that results from a job promotion linked to your education.
c.increase in income of California orange growers that results from an orange-killing
frost in Florida.
d.All of the above are correct.
2) A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which
principle of economics does this illustrate?
a.People face tradeoffs.
b.The cost of something is what you give up to get it.
c.Rational people think at the margin.
d.People respond to incentives.
3) The free-rider problem
a.forces the supply of a public good to exceed its demand.
b.results in common resources becoming club goods.
c.explains why many local governments supply public goods.
d.results in public goods becoming private goods.
4) Although national defense is currently a public good, economists who advocate small
government generally agree that the U.S. should privatize national defense to increase
the efficiency of the good.
a.True
b.False
5) When firms are neither entering nor exiting a perfectly competitive market,
a.total revenue must equal total cost for each firm.
b.economic profits must be zero.
c.price must equal the minimum of marginal cost for each firm.
d.Both a and b are correct.
6) When firms are neither entering nor exiting a perfectly competitive market,
a.total revenue must equal total variable cost for each firm.
b.economic profits must be zero.
c.price must equal average variable cost for each firm.
d.Both a and c are correct.
7) Guns and butter are used to represent the classic societal tradeoff between spending
on
a.durable and nondurable goods.
b.imports and exports.
c.national defense and consumer goods.
d.law enforcement and agriculture.
8) When comparing average wages for black and white men in the United States, wages
paid to black men have been about 20 percent less than those paid to white men.
a.True
b.False
9) A tax on an imported good is called a
a.quota.
b.tariff.
c.supply tax.
d.trade tax.
10) In a perfectly competitive market, the goods offered for sale are all exactly the
same.
a.True
b.False
11) Nine friends who love the beach decide to pool their financial resources and equally
share the cost of a one-week house rental on Nantucket. Suppose that the beach outside
of the house becomes more congested when the nine additional people join the other
beachgoers. Which of the following statements is not correct?
a.Use of the beach by the nine new beachgoers will yield a negative externality.
b.The town can reduce the congestion externality by raising the fee to access the beach.
c.An increase in the fee to access the beach could be viewed as a corrective tax on the
externality of congestion.
d.Each of the nine friends would have been better off staying at home.
12) A perfectly inelastic demand implies that buyers
a.decrease their purchases when the price rises.
b.purchase the same amount as before when the price rises or falls.
c.increase their purchases only slightly when the price falls.
d.respond substantially to an increase in price.
13) Marcia is a white 23-year-old female, and Joan is a black 23-year-old female. Both
Marcia and Joan were economics majors, and they graduated from the same college in
the same year with the same GPA. Marcia and Joan both got identical jobs at a
brokerage firm after graduating from college. They both work equally hard. Marcia
earns $38,000 a year, and Joan earns $30,000 a year. Select the best explanation for this
wage difference.
a.Marcia has less human capital than Joan.
b.Marcia receives a compensating wage differential that Joan does not.
c.Joan has been discriminated against because she is black.
d.Marcia has been discriminated against because she is white.
14)
Which of the following best describes the movement from E1 to E2?
a.a decrease in supply
b.an increase in supply
c.a movement along the supply curve
d.a decrease in demand
15) Figure 8-9
The vertical distance between points A and C represents a tax in the market.
The imposition of the tax causes the price paid by buyers to increase by
a. $20.
b. $200.
c. $300.
d. $500.
16) Examples of goods that are excludable include
a.fireworks displays and fire protection.
b.internet radio subscriptions and knowledge.
c.premium movie channels and streetlights.
d.mobile phones and fire protection.
17) Barb and Jim run a business that sets up and tests computers. Assume that Barb and
Jim can switch between setting up and testing computers at a constant rate. The
following table applies.
Barb’s opportunity cost of testing one computer is setting up
a.4/5 computer and Jim’s opportunity cost of testing one computer is setting up 3/4
computer.
b.4/5 computer and Jim’s opportunity cost of testing one computer is setting up 4/3
computers.
c.5/4 computers and Jim’s opportunity cost of testing one computer is setting up 3/4
computer.
d.5/4 computers and Jim’s opportunity cost of testing one computer is setting up 4/3
computers.
18) Which of the following is not correct?
a.Economists who argue that labor taxes are highly distorting believe that labor supply
is fairly elastic.
b.Economists who argue that labor taxes are not highly distorting believe that labor
supply is fairly inelastic.
c.Economists who argue that labor supply is fairly inelastic cite elderly workers who
adjust the date they retire as an example.
d.Economists who argue that labor supply is fairly elastic cite workers who adjust the
hours of overtime that they work as an example.
19) Pietro is 40 years old and is laid off from his job at the paper plant and borrows
from his savings for 8 months until he finds a new job. Pietro’s
a.transitory income likely exceeds his permanent income for that year.
b.borrowing is representative of a normal economic life cycle.
c.permanent income is largely unaffected by this one time change to his income.
d.economic mobility during this year is highly unusual, as US workers tend to stay in a
particular income class.
20) If these are the only four sellers in the market, then the market quantity supplied at
a price of $10 is
a.3 units.
b.11 units.
c.25 units.
d.44 units.