1) Scenario 13-9
Ellie has been working for an engineering firm and earning an annual salary of $80,000.
She decides to open her own engineering business. Her annual expenses will include
$15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for
utilities, and a $35,000 salary for a secretary/bookkeeper. Ellie will cover her start-up
expenses by cashing in a $20,000 certificate of deposit on which she was earning
annual interest of $500.
Ellie’s annual economic costs will equal
a. $55,200.
b. $75,200.
c. $80,500.
d. $135,700.
2) Refer to Figure 9-23. With free trade, the domestic price and domestic quantity
supplied are
a. $90 and 10.
b. $90 and 18.
c. $120 and 5.
d. $120 and 18.
3) The amount of deadweight loss from a tax depends upon the
a.price elasticity of demand.
b.price elasticity of supply.
c.amount of the tax per unit.
d.All of the above are correct.
4) The U.S. military defends Jacob from foreign attackers. The fact that Jacob enjoys
this protection does not detract
from others Americans’ enjoyment of it. For this reason, we say that national defense is
a.excludable.
b.not excludable.
c.rival in consumption.
d.not rival in consumption.
5)
Figure 8-4
The vertical distance between points A and B represents a tax in the market.
The price that buyers
effectively pay after the tax is imposed is
a. $12.
b.between $8 and $12.
c.between $5 and $8.
d. $5.
6) Suppose the Federal Reserve announces that it will be making a change to a key
interest rate to increase the money supply. This is likely because
a.the Federal Reserve is worried about inflation.
b.the Federal Reserve is worried about unemployment.
c.the Federal Reserve is hoping to reduce the demand for goods and services.
d.the Federal Reserve is worried that the economy is growing too quickly.
7) Two individuals engage in the same two productive activities. In which of the
following circumstances would neither individual have a comparative advantage in
either activity?
a.One individual’s production possibilities frontier is steeper than the other individual’s
production possibilities frontier.
b.One individual is faster at both activities than the other individual.
c.One individual’s opportunity costs are the same as the other individual’s opportunity
costs.
d.None of the above is correct; one of the two individuals always will have a
comparative advantage in at least one of the two activities.
8) Suppose that electricity producers create a negative externality equal to $5 per unit.
Further suppose that the government gives a $5 per-unit subsidy to producers. What is
the relationship between the equilibrium quantity and the socially optimal quantity of
electricity to be produced?
a.They are equal.
b.The equilibrium quantity is greater than the socially optimal quantity.
c.The equilibrium quantity is less than the socially optimal quantity.
d.There is not enough information to answer the question.
9) In the ordered pair (10,30), 10 is the y-coordinate and 30 is the z-coordinate.
a.True
b.False
10) Katya owns a math-tutoring business. Her accountant most likely includes which of
the following costs on her financial statements?
(i)workbooks containing practice problems
(ii)rent for the storefront
(iii)wages Katya could earn as a bookkeeper
(iv)interest that Katya’s money was earning before she spent her savings to set up the
tutoring business
a.(i) only
b.(i) and (ii) only
c.(iii) and (iv) only
d.(i), (ii), (iii), and (iv)
11) Scenario 12-1
Ken places a $20 value on a cigar, and Mark places a $17 value on it. The equilibrium
price for this brand of cigar is $15.
Suppose the government levies a tax of $3 on each cigar, and the equilibrium price of a
cigar increases to $18. How much tax revenue is collected?
a.$0
b.$2
c.$3
d.$6
12) In a given market, how are the equilibrium price and the market-clearing price
related?
a.There is no relationship.
b.They are the same price.
c.The market-clearing price exceeds the equilibrium price.
d.The equilibrium price exceeds the market-clearing price.
13) Suppose a consumer has an income of $800 per month and that she spends her
entire income each month on beer and bratwurst. The price of a pint of beer is $5, and
the price of a bratwurst is $4. Which of the following combinations of beers and
bratwursts represents a point that would lie to the exterior of the consumer’s budget
constraint?
a.160 beers and 200 bratwursts
b.40 beers and 50 bratwursts
c.80 beers and 100 bratwursts
d.160 beers and 0 bratwursts
14) John Maynard Keynes described economics as an easy subject at which very few
excel. Which of the following is not one of the reasons Keynes gave for why so few
people excel at the study of economics?
a.An economist must also be a mathematician, historian, statesman, and philosopher in
some degree.
b.An economist must understand symbols and speak in words.
c.An economist must be purposeful and disinterested in a simultaneous mood.
d.An economist must understand environmental science, regulation, and political
science.
15) If John’s marginal utility derived from the consumption of another candy bar is 1
and the price of the candy bar is $1.50, then
a.this is the last candy bar John will purchase since the marginal utility is less than the
price.
b.the opportunity cost of the candy bar is less than $1.50.
c.if John purchases and consumes the candy bar his total satisfaction will go down
because the marginal utility is less than the price.
d.there is not enough information to determine if John will or will not purchase the
candy bar.
16) Comparative advantage is related most closely to which of the following?
a.output per hour
b.opportunity cost
c.efficiency
d.bargaining strength in international trade
17) Which of the following is not an example of the opportunity cost of going to
school?
a.The money a student could have earned by working if he had not gone to college.
b.The nap a student could have enjoyed if he had not attended class.
c.The party a student could have enjoyed if he had not stayed in to study for his exam.
d.The money a student spends on rent for his apartment while attending school.
18) Economic models
a.are not useful because they omit many real-world details.
b.are usually composed of diagrams and equations.
c.are useful because they do not omit any real-world details.
d.are usually plastic representations of the economy.