Domestic producers of a good become better off, and domestic consumers of a good
become worse off, when a country begins allowing international trade in that good and
a. the country becomes an importer of the good as a result.
b. the world price exceeds the domestic price of the good that prevailed before
international trade was allowed.
c. other countries have a comparative advantage, relative to the country in question, in
producing the good.
d. total surplus does not change as a result.
Which of the following is a principle concerning how people interact?
a. Markets are usually a good way to organize economic activity.
b. Rational people think at the margin.
c. People respond to incentives.
d. All of the above are correct.
Which of the following statements is correct?
a. A decrease in the size of a tax always decreases the tax revenue raised by that tax.
b. A decrease in the size of a tax always decreases the deadweight loss of that tax.
c. Tax revenue decreases when there is a small decrease in the tax rate and the economy
is on the downwardsloping part of the Laffer curve.
d. An increase in the size of a tax leads to an increase in the deadweight loss of the tax
only if the economy is on the upwardsloping part of the Laffer curve.
Figure 911
Refer to Figure 911. Producer surplus in this market after trade is
a. C.
b. C + B.
c. A + B + D.
d. B + C + D.
Kristi and Rebecca sell lemonade on the corner for $0.50 per cup. It costs them $0.10 to
make each cup. On a certain day, their producer surplus is $20. How many cups did
Kristi and Rebecca sell?
a. 40.
b. 200.
c. 8.
d. 50.
In the circularflow diagram, which of the following items does not flow from firms to
households?
a. goods
b. services
c. capital
d. profit
Figure 97. The figure applies to the nation of Wales and the good is cheese.
Refer to Figure 97. Which of the following is a valid equation for Welsh consumer
surplus with trade?
a. Consumer surplus with trade = (1/2)(Q0)(P1P0).
b. Consumer surplus with trade = (1/2)(Q0)(P3P0).
c. Consumer surplus with trade = (1/2)(Q1)(P3P1).
d. None of the above is correct.
The balance between maximizing a society’s income and an equal distribution of that
income is an illustration of
a. scarcity.
b. tradeoffs.
c. the forces of supply and demand.
d. none of the above.
The market demand curve
a. is found by vertically adding the individual demand curves.
b. slopes upward.
c. represents the sum of the prices that all the buyers are willing to pay for a given
quantity of the good.
d. represents the sum of the quantities demanded by all the buyers at each price of the
good.
Table 24
Production Possibilities for Picnicland
HotdogsBurgers
18000
1350450
900750
450975
01125
Refer to Table 24. What is the opportunity cost to Picnicland of increasing the
production of hotdogs from 450 to 900?
a. 150 burgers
b. 225 burgers
c. 300 burgers
d. 450 burgers
If an externality is present in a market, economic efficiency may be enhanced by
a. government intervention.
b. a decrease in foreign competition.
c. fewer market participants.
d. weaker property rights.
Among economic models, the circularflow diagram is unusual in that it
a. drastically simplifies the real world.
b. features more than one type of market.
c. features flows of dollars.
d. does not involve mathematics.
The Federal Insurance Contribution Act (FICA) tax is an example of a(n)
a. payroll tax.
b. sales tax.
c. farm subsidy.
d. income subsidy.
Figure 624
Refer to Figure 624. Andrew is a buyer of the good. Taking the tax into account, how
much does Andrew effectively pay to acquire one unit of the good?
a. $16
b. $18
c. $24
d. $26
Figure 95
The figure illustrates the market for tricycles in a country.
Refer to Figure 95. Bearing in mind that this country is “small,” which of the
following events conceivably could cause the country to switch from being an importer
of tricycles to an exporter of tricycles?
a. Incomes of domestic citizens increase, and tricycles are a normal good.
b. Within this country, the price of a substitute for tricycles decreases.
c. Within this country, the price of a complement to tricycles decreases.
d. Wages increase for domestic workers who produce tricycles.
The minimum wage does not apply to
a. jobs for teenagers.
b. jobs for members of minority groups.
c. unpaid internships.
d. jobs that include onthejob training.
If the number of buyers in a market decreases, then
a. demand will increase.
b. demand will decrease.
c. supply will increase.
d. supply will decrease.
Table 322
Assume that Zimbabwe and Portugal can switch between producing toothbrushes and
producing hairbrushes at a constant rate.
Machine Minutes
Needed to Make 1
ToothbrushHairbrush
Zimbabwe310
Portugal56
Refer to Table 322. Zimbabwe has an absolute advantage in the production of
a. toothbrushes and a comparative advantage in the production of toothbrushes.
b. toothbrushes and a comparative advantage in the production of hairbrushes.
c. hairbrushes and a comparative advantage in the production of toothbrushes.
d. hairbrushes and a comparative advantage in the production of hairbrushes.
Suppose a tax of $1 per unit is imposed on a good. The more elastic the supply of the
good, other things equal, the
a. smaller is the response of quantity supplied to the tax.
b. larger is the tax burden on sellers relative to the tax burden on buyers.
c. larger is the deadweight loss of the tax.
d. All of the above are correct.
In a market economy, supply and demand determine
a. both the quantity of each good produced and the price at which it is sold.
b. the quantity of each good produced but not the price at which it is sold.
c. the price at which each good is sold but not the quantity of each good produced.
d. neither the quantity of each good produced nor the price at which it is sold.
Wheat is the main input in the production of flour. If the price of wheat decreases, then
we would expect the
a. demand for flour to increase.
b. demand for flour to decrease.
c. supply of flour to increase.
d. supply of flour to decrease.
Scenario 53
The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both
goods are considered to be normal goods by a majority of consumers. Suppose that a
large income tax increase decreases the demand for both goods by 10%.
Refer to Scenario 53. Total consumer spending on aged cheddar cheese will
a. increase, and total consumer spending on bread will increase.
b. increase, and total consumer spending on bread will decrease.
c. decrease, and total consumer spending on bread will increase.
d. decrease, and total consumer spending on bread will decrease.
Suppose that when the price of good X falls from $6 to $4, the quantity demanded of
good Y rises from 30 units to 40 units. Using the midpoint method, the crossprice
elasticity of demand is
a. 0.71, and X and Y are complements.
b. 1.40, and X and Y are complements.
c. 0.71, and X and Y are substitutes.
d. 1.40, and X and Y are substitutes.
If soybean farmers know that the demand for soybeans is inelastic, in order to increase
their total revenues they should
a. use more fertilizers and weed killers to increase their yields.
b. plant additional acres to increase their output.
c. reduce the number of acres they plant to decrease their output.
d. Both a and b are correct.
Suppose a tax of $5 per unit is imposed on a good. The supply curve is a typical
upwardsloping straight line, and the demand curve is a typical downwardsloping
straight line. The tax decreases consumer surplus by $10,000 and decreases producer
surplus by $15,000. The deadweight loss of the tax is $2,500. The tax decreased the
equilibrium quantity of the good from
a. 6,500 to 5,500.
b. 5,500 to 4,500.
c. 5,000 to 3,000.
d. 6,000 to 4,000.
Figure 724
Refer to Figure 724. The equilibrium allocation of resources is
a. efficient because total surplus is maximized at the equilibrium.
b. efficient because consumer surplus is maximized at the equilibrium.
c. inefficient because consumer surplus is larger than producer surplus at the
equilibrium.
d. inefficient because producer surplus is not maximized.
Which of the following observations was made famous by Adam Smith in his book The
Wealth of Nations?
a. There is no such thing as a free lunch.
b. People buy more when prices are low than when prices are high.
c. No matter how much people earn, they tend to spend more than they earn.
d. Households and firms interacting in markets are guided by an “invisible hand” that
leads them to desirable market outcomes.
Danita rescues dogs from her local animal shelter. When Danita’s income rises by 7
percent, her quantity demanded of dog biscuits increases by 12 percent. For Danita, the
income elasticity of demand for dog biscuits is
a. negative, and dog biscuits are a normal good.
b. negative, and dog biscuits are an inferior good.
c. positive, and dog biscuits are an inferior good.
d. positive, and dog biscuits are a normal good.
Suppose that the demand for digital cameras is elastic, and the supply of digital cameras
is inelastic. A tax of $20 per camera levied on digital cameras will decrease the effective
price received by sellers of digital cameras by
a. less than $10.
b. $10.
c. between $10 and $20.
d. $20.
Bob purchases a book, and his consumer surplus is $3. If Bob is willing to pay $8 for
the book, then the price of the book must be
a. $3.
b. $8.
c. $5.
d. $11.
In the short run, which of the following rates of growth in the money supply is likely to
lead to the highest level of unemployment in the economy?
a. 1 percent per year
b. 2 percent per year
c. 3 percent per year
d. 4 percent per year
Figure 92
The figure illustrates the market for calculators in a country.
Refer to Figure 92. The world price for calculators represents
a. the demand for calculators from the rest of the world.
b. the supply of calculators from the rest of the world.
c. the level of inefficiency in the domestic market caused by trade.
d. the gap between domestic quantity demanded and domestic quantity supplied and the
resulting shortage.
Table 338
Output produced in one growing season
CornSoybeans
Iowa 3045
Nebraska 4080
Refer to Table 338. Iowa and Nebraska can both produce corn and soybeans, and can
switch between the production of corn and soybeans at a constant rate. The table
illustrates the amount of corn or soybeans each state can produce in one growing
season. Using the information from the table, Iowa’s opportunity cost of producing one
bushel of corn is
a. 1.5 bushels of soybeans and Nebraska’s is 2 bushels of soybeans.
b. 1.5 bushels of soybeans and Nebraska’s is 0.5 bushels of soybeans.
c. 0.67 bushels of soybeans and Nebraska’s is 2 bushels of soybeans.
d. 0.67 bushels of soybeans and Nebraska’s is 0.5 bushels of soybeans.
All else equal, what happens to consumer surplus if the price of a good decreases?
a. Consumer surplus increases.
b. Consumer surplus decreases.
c. Consumer surplus is unchanged.
d. Consumer surplus may increase, decrease, or remain unchanged.
Table 36
Assume that Zimbabwe and Portugal can switch between producing toothbrushes and
producing hairbrushes at a constant rate.
Machine Minutes
Needed to Make 1
ToothbrushHairbrush
Zimbabwe310
Portugal56
Refer to Table 36. Which of the following represents Zimbabwe’s and Portugal’s
production possibilities frontiers when each country has 60 minutes of machine time
available?
a. Zimbabwe Portugal
b. Zimbabwe Portugal
c. Zimbabwe Portugal
d. Zimbabwe Portugal