In the circularflow diagram, which of the following items flows from households to
firms through the markets for goods and services?
a. goods and services
b. dollars paid to land, labor, and capital
c. dollars spent on goods and services
d. wages, rent, and profit
Figure 52
Refer to Figure 52. As price falls from Pa to Pb, we could use the three demand curves
to calculate three different values of the price elasticity of demand. Which of the three
demand curves would produce the smallest elasticity?
a. D1
b. D2
c. D3
d. All of the above are equally elastic.
Table 39
Assume that Maya and Miguel can switch between producing mixers and producing
toasters at a constant rate.
Hours Needed to Make 1Amount Produced in 60 Hours
MixerToasterMixerToaster
Maya 631020
Miguel105612
Refer to Table 39. Which of the following combinations of mixers and toasters could
Miguel not produce in 80 hours?
a. 5 mixers and 6 toasters.
b. 6 mixers and 5 toasters.
c. 7 mixers and 2 toasters.
d. 4 mixers and 8 toasters.
For a vertical demand curve,
a. the slope is undefined, and the price elasticity of demand is equal to 0.
b. the slope is equal to 0, and the price elasticity of demand is undefined.
c. both the slope and price elasticity of demand are undefined.
d. both the slope and price elasticity of demand are equal to 0.
Normative conclusions
a. come from positive analysis alone.
b. are based on ignorance of positive analysis.
c. involve value judgments.
d. reflect the economist’s role as scientist.
Which of the following would be the most likely result of a binding price ceiling
imposed on the market for rental cars?
a. frequent rental programs such as “Rent nine times and the tenth rental is free!”
b. enhanced maintenance programs to promote the high quality of the cars
c. free gasoline given to people as an incentive to a rent a car
d. slow replacement of old rental cars with newer ones
Which of the following is an example of a normative, as opposed to positive,
statement?
a. The growth rate of the economy last year was higher than any other year in the last
decade.
b. The federal government reduced spending in the last quarter of the fiscal year.
c. The Federal Reserve Bank adjusted interest rates in response to the
lowerthanexpected growth rate of the economy.
d. The federal government should decrease unemployment benefits to stimulate the
economy out of the recession.
Figure 311
The graph below represents the various combinations of ham and cheese (in pounds)
that the nation of Bonovia could produce in a given month.
Refer to Figure 311. If the production possibilities frontier shown is for 240 hours of
production, then how long does it take Bonovia to make one pound of cheese?
a. 3/5 hour
b. 3/4 hour
c. 4/3 hours
d. 5/3 hours
If the tax on a good is increased from $1 per unit to $4 per unit, the deadweight loss
from the tax increases by a factor of
a. 5.
b. 9.
c. 16.
d. 24.
In the markets for the factors of production in the circularflow diagram,
a. households are sellers and firms are buyers.
b. households are buyers and firms are sellers.
c. households and firms are both buyers.
d. households and firms are both sellers.
Which of the following headlines is more closely related to what microeconomists
study than to what macroeconomists study?
a. Unemployment rate falls from 7.5 percent to 7.3 percent.
b. Real GDP falls by 0.4 percent in the third quarter.
c. Inflation was 2.4 percent last year.
d. The price of gasoline rises due to rising oil prices.
Figure 321
Uzbekistan’s Production Possibilities FrontierAzerbaijan’s Production Possibilities
Frontier
Refer to Figure 321. If Uzbekistan and Azerbaijan switch from each country dividing
its time equally between the production of bolts and nails to each country spending all
of its time producing the good in which it has a comparative advantage, then total
production will increase by
a. 5 bolts and 10 nails.
b. 15 bolts and 40 nails.
c. 20 bolts and 50 nails.
d. 30 bolts and 80 nails.
Prices usually reflect
a. only the value of a good to society.
b. only the cost to society of making a good.
c. both the value of a good to society and the cost to society of making the good.
d. neither the value of a good to society nor the cost to society of making the good.
When a tax is placed on a product, the price paid by buyers
a. rises, and the price received by sellers rises.
b. rises, and the price received by sellers falls.
c. falls, and the price received by sellers rises.
d. falls, and the price received by sellers falls.
A minimum wage that is set below a market’s equilibrium wage will
a. result in an excess demand for labor, that is, unemployment.
b. result in an excess demand for labor, that is, a shortage of workers.
c. result in an excess supply of labor, that is, unemployment.
d. have no impact on employment.
When a country abandons a notrade policy, adopts a freetrade policy, and becomes an
exporter of a particular good,
a. consumer surplus increases and total surplus increases in the market for that good.
b. consumer surplus increases and total surplus decreases in the market for that good.
c. consumer surplus decreases and total surplus increases in the market for that good.
d. consumer surplus decreases and total surplus decreases in the market for that good.
Table 714
SellerCost
LeBron$700
Kobe$600
Kevin$450
Steve$400
Refer to Table 714. You want to hire a professional photographer to take pictures of
your family. The table shows the costs of the four potential sellers in the local
photography market. You hire Kevin for a price of $500. What is his producer surplus?
a. $500
b. $150
c. $100
d. $50
One difference between a hypothetical benevolent king implementing the best policy
and the president implementing the best policy in the real world is the president has to
be concerned about
a. any misunderstandings in communicating the policy to the public.
b. whether the policy will affect his standing among different groups in the electorate.
c. what amendments will be suggested by members of Congress.
d. All of the above are correct.
When the government redistributes income from the wealthy to the poor,
a. efficiency is improved, but equality is not.
b. both wealthy people and poor people benefit directly.
c. people work less and produce fewer goods and services.
d. the government collects more revenue in total.
Suppose Ukraine subsidizes Ukrainian wheat farmers, while Russia offers no subsidy to
Russian wheat farmers. As a result of the Ukrainian subsidy, sales of Ukrainian wheat to
Russia
a. may prompt Russian farmers to invoke the infantindustry argument.
b. increase the consumer surplus of Russian buyers of wheat.
c. decrease the total surplus of the Russian people.
d. All of the above are correct.
Figure 87
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 87. As a result of the tax, consumer surplus decreases by
a. $130, producer surplus decreases by $170, tax revenue is $240, and deadweight loss
is $60.
b. $150, producer surplus decreases by $150, tax revenue is $240, and deadweight loss
is $60.
c. $160, producer surplus decreases by $160, tax revenue is $240, and deadweight loss
is $80.
d. $240, producer surplus decreases by $240, tax revenue is $400, and deadweight loss
is $80.
Michael values a stainless steel refrigerator for his new house at $3,500, but he
succeeds in buying one for $3,000. Michael’s consumer surplus is
a. $500.
b. $3,000.
c. $3,500.
d. $6,500.
When a good is taxed,
a. both buyers and sellers of the good are made worse off.
b. only buyers are made worse off, because they ultimately bear the burden of the tax.
c. only sellers are made worse off, because they ultimately bear the burden of the tax.
d. neither buyers nor sellers are made worse off, since tax revenue is used to provide
goods and services that would otherwise not be provided in a market economy.
Producer surplus equals
a. Value to buyers Amount paid by buyers.
b. Amount received by sellers Costs of sellers.
c. Value to buyers Costs of sellers.
d. Value to buyers Amount paid by buyers + Amount received by sellers Costs of
sellers.
Figure 81
Refer to Figure 81. Suppose the government imposes a tax of P’ P”’. The area measured
by J+K+L+M represents
a. total surplus after the tax.
b. total surplus before the tax.
c. deadweight loss from the tax.
d. tax revenue.
The design of tax policy is one of the responsibilities of economists who work at the
a. Council of Economic Advisers.
b. Federal Reserve.
c. Department of the Treasury.
d. Congressional Budget Office.
Figure 88
Suppose the government imposes a $10 per unit tax on a good.
Refer to Figure 88. After the tax goes into effect, producer surplus is the area
a. D+F+G+H+J.
b. D+F+G+H.
c. D+F+J.
d. J.
The basic tools of supply and demand are
a. useful only in the analysis of economic behavior in individual markets.
b. useful in analyzing the overall economy, but not in analyzing individual markets.
c. central to microeconomic analysis, but seldom used in macroeconomic analysis.
d. central to macroeconomic analysis as well as to microeconomic analysis.
The demand for chicken wings is more elastic than the demand for razor blades.
Suppose the government levies an equivalent tax on chicken wings and razor blades.
The deadweight loss would be larger in the market for
a. chicken wings than in the market for razor blades because the quantity of chicken
wings would fall by more than the quantity of razor blades.
b. chicken wings than in the market for razor blades because the quantity of razor
blades would fall by more than the quantity of chicken wings.
c. razor blades than in the market for chicken wings because the quantity of chicken
wings would fall by more than the quantity of razor blades.
d. razor blades than in the market for chicken wings because the quantity of razor
blades would fall by more than the quantity of chicken wings.
Figure 621
Refer to Figure 621. Acme, Inc. is a seller of the good. Acme sells a unit of the good to
a buyer and then pays the tax on that unit to the government. Acme is left with how
much money?
a. $8.00
b. $9.00
c. $10.50
d. $12.00
Figure 821
Refer to Figure 821. Suppose the market is represented by Demand 1 and Supply 1. At
first the government places a $3 perunit tax on this good. Then the government decides
to raise the tax to $6 per unit. How would you characterize the decision to raise the tax
rate from $3 to $6 per unit? The decision is
a. a good one because it increases tax revenue while decreasing the deadweight loss
from the tax.
b. a bad one because it does not increase tax revenue yet increases the deadweight loss
from the tax.
c. a bad one because it decreases tax revenue while increasing the deadweight loss from
the tax.
d. unclear because it increases tax revenue yet also increases the deadweight loss from
the tax.
The first number in any ordered pair is
a. the xcoordinate.
b. the ycoordinate.
c. the vertical location of the point.
d. the slope.
Figure 63
Panel (a)Panel (b)
Refer to Figure 63. A nonbinding price floor is shown in
a. both panel (a) and panel (b).
b. panel (a) only.
c. panel (b) only.
d. neither panel (a) nor panel (b).
In the circularflow diagram, which of the following items does not flow from
households to firms?
a. revenue
b. land, labor, and capital
c. factors of production
d. profit