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When OPEC raised the price of crude oil in the 1970s, it caused the
a. demand for gasoline to increase.
b. demand for gasoline to decrease.
c. supply of gasoline to increase.
d. supply of gasoline to decrease.
Most studies indicate that tobacco and marijuana tend to be
a. substitutes.
b. complements.
c. unrelated because one good is legal while the other one is illegal.
d. inferior goods.
If a study by medical researchers finds that eating brown rice causes weight loss while
eating white rice causes weight gain, then we likely would see
a. an increase in demand for brown rice and a decrease in demand for white rice.
b. a decrease in demand for brown rice and an increase in demand for white rice.
c. an increase in demand for both brown and white rice.
d. no change in demand for either type of rice because weight loss is not a determinant
of demand.
Table 410
The following table shows the number of cases of water each seller is willing to sell at
the prices listed.
Price per caseAlpine SpringsBrook MountainCascade WatersDew Good
$0.000 cases0 cases0 cases0 cases
$3.00100 cases40 cases60 cases100 cases
$6.00200 cases80 cases120 cases200 cases
$9.00300 cases120 cases180 cases300 cases
Refer to Table 410. If the four suppliers listed are the only suppliers in this market and
the market quantity demanded is 500 cases when the price is $5.00, which of the
following statements is correct?
a. The market is in equilibrium at a price of $5.00.
b. There is a surplus of 100 cases at a price of $5.00.
c. There is a shortage of 100 cases at a price of $5.00.
d. There is a shortage of 50 cases at a price of $5.00.
Total surplus measures the
a. loss to buyers from paying higher prices plus the benefit to sellers from receiving
lower prices.
b. buyers’ willingness to pay less the sellers’ costs.
c. fairness of the distribution of resources in society.
d. value to the government of goods and services sold in society.
Figure 324
The production possibilities frontiers below show how much Bob and Betty can each
produce in 8 hours of time.
Bob’s Production Possibilities FrontierBetty’s Production Possibilities Frontier
Refer to Figure 324. Bob has
a. an absolute and comparative advantage producing good x.
b. an absolute but not a comparative advantage producing good x.
c. a comparative but not an absolute advantage producing good x.
d. neither a comparative nor an absolute advantage producing good x.
Table 51
GoodPrice Elasticity of Demand
A1.9
B0.8
Refer to Table 51. Which of the following is consistent with the elasticities given in
Table 51?
a. A is laundry detergent and B is Tide.
b. A is Diet Pepsi and B is soda.
c. A is food and B is a yacht.
d. A is toilet paper and B is candles.
A minimum wage that is set above a market's equilibrium wage will result in an excess
a. demand for labor, that is, unemployment.
b. demand for labor, that is, a shortage of workers.
c. supply of labor, that is, unemployment.
d. supply of labor, that is, a shortage of workers.
If a 20% change in price results in a 15% change in quantity supplied, then the price
elasticity of supply is about
a. 1.33, and supply is elastic.
b. 1.33, and supply is inelastic.
c. 0.75, and supply is elastic.
d. 0.75, and supply is inelastic.
Table 336
Minutes Needed
to Make 1
TowelUmbrella
Antigua1220
Barbuda1510
Refer to Table 336. What is Barbuda’s opportunity cost of one umbrella?
a. 3/5 towels
b. 2/3 towels
c. 3/2 towels
d. 5/3 towels
Table 314
Assume that Nick and Faldo can switch between producing wheat and producing cloth
at a constant rate.
Quantity Produced in 1 Hour
Bushels of WheatYards of Cloth
Nick812
Faldo615
Refer to Table 314. Assume that Nick and Faldo each has 2 hours available. If each
person divides his time equally between the production of wheat and cloth, then total
production is
a. 8 bushels of wheat and 15 yards of cloth.
b. 14 bushels of wheat and 27 yards of cloth.
c. 16 bushels of wheat and 30 yards of cloth.
d. 28 bushels of wheat and 34 yards of cloth.
Suppose that the market price for pizzas increases. The increase in producer surplus
comes from the benefit of the higher prices to
a. only existing sellers who now receive higher prices on the pizzas they were already
selling.
b. only new sellers who enter the market because of the higher prices.
c. both existing sellers who now receive higher prices on the pizzas they were already
selling and new sellers who enter the market because of the higher prices.
d. Producer surplus does not increase; it decreases.
Economists face an obstacle that many other scientists do not face. What is that
obstacle?
a. It is often difficult to formulate theories in economics.
b. It is often impractical to perform experiments in economics.
c. Economics cannot be addressed objectively; it must be addressed subjectively.
d. The scientific method cannot be applied to the study of economics.
Figure 215
Refer to Figure 215. Consider the production possibilities frontier for an economy that
produces only sofas and cars. When society moves from point A to point B,
a. the opportunity cost is the same as when society moves from point B to point C.
b. it is giving up cars to get sofas.
c. the opportunity cost is increasing.
d. it moves from an inefficient point to an efficient point.
The “invisible hand” refers to
a. how central planners made economic decisions.
b. how the decisions of households and firms lead to desirable market outcomes.
c. the control that large firms have over the economy.
d. government regulations without which the economy would be less efficient.
Scenario 92
• For a small country called Boxland, the equation of the domestic demand curve for
cardboard is
,
where represents the domestic quantity of cardboard demanded, in tons, and
represents the price of a ton of cardboard.
• For Boxland, the equation of the domestic supply curve for cardboard is
,
where represents the domestic quantity of cardboard supplied, in tons, and again
represents the price of a ton of cardboard.
Refer to Scenario 92. Suppose the world price of cardboard is $45. Then, relative to
the notrade situation, international trade in cardboard
a. benefits Boxlandian consumers by $721 and harms Boxlandian producers by
$525.00.
b. benefits Boxlandian consumers by $721 and harms Boxlandian producers by
$598.50.
c. benefits Boxlandian consumers by $672 and harms Boxlandian producers by
$598.50.
d. harms Boxlandian consumers by $336 and harms Boxlandian producers by $525.00.
Figure 68
Refer to Figure 68. The price of the good would continue to serve as the rationing
mechanism if
a. a price ceiling of $3 is imposed.
b. a price ceiling of $5 is imposed.
c. a price floor of $5 is imposed.
d. All of the above are correct.
Figure 922
The following diagram shows the domestic demand and domestic supply in a market. In
addition, assume that the world price in this market is $40 per unit.
Refer to Figure 922. With free trade, consumer surplus is
a. $48,000 and producer surplus is $48,000.
b. $18,000 and producer surplus is $12,000.
c. $108,000 and producer surplus is $12,000.
d. $18,000 and producer surplus is $48,000.
The decision of which assumptions to make is
a. an easy decision for an economist, but a difficult decision for a physicist or a chemist.
b. not a particularly important decision for an economist.
c. usually regarded as an art in scientific thinking.
d. usually regarded as the easiest part of the scientific method.
Figure 822
Refer to Figure 822. Suppose the government initially imposes a $3 perunit tax on this
good. Now suppose the government is deciding whether to lower the tax to $1.50 or
raise it to $4.50. Which of the following statements is not correct?
a. Compared to the original tax, the larger tax will decrease tax revenue.
b. Compared to the original tax, the smaller tax will decrease deadweight loss.
c. Compared to the original tax, the smaller tax will decrease tax revenue.
d. Compared to the original tax, the larger tax will increase deadweight loss.
Economists at the Department of the Treasury
a. design U.S. currency and coins.
b. provide Congress with the annual budget.
c. enforce the U.S. antitrust laws.
d. provide advice on tax policy to the President.
What will happen in the market for shotgunshell ammunition now if buyers expect
higher shotgunshell prices in the near future?
a. The demand for shotgunshell ammunition will increase.
b. The demand for shotgunshell ammunition will decrease.
c. The demand for shotgunshell ammunition will be unaffected.
d. The supply of shotgunshell ammunition will increase.
Figure 425
The graph below pertains to the supply of paper to colleges and universities.
Refer to Figure 425. All else equal, sellers expecting the price of paper to decrease
next month when many college students leave campuses for the summer would cause a
current move from
a. x to y.
b. y to x.
c. SA to SB.
d. SB to SA.
When a university bookstore prices chemistry textbooks at $200 each, it generally sells
120 books per month. If it lowers the price to $160, sales increase to 160 books per
month. Given this information, we know that the price elasticity of demand for
chemistry books is about
a. 1.29, and a decrease in price from $200 to $160 results in an increase in total
revenue.
b. 1.29, and a decrease in price from $200 to $160 results in a decrease in total revenue.
c. 0.78, and a decrease in price from $200 to $160 results in an increase in total
revenue.
d. 0.78, and a decrease in price from $200 to $160 results in a decrease in total revenue.
Figure 926
The diagram below illustrates the market for baseballs in the U.S.
Refer to figure 926. After the opening of the baseball market to international trade,
producer surplus in the U.S.
a. HTMLENTITY#8203HTMLENTITYincreases by the area G.
b. HTMLENTITY#8203HTMLENTITYdecreases by the area E + F.
c. HTMLENTITY#8203HTMLENTITYdecreases by the area B + E.
d. HTMLENTITY#8203HTMLENTITYincreases by the area B + E + G
The deadweight loss from a tax of $2 per unit will be smallest in a market with
a. inelastic supply and elastic demand.
b. inelastic supply and inelastic demand.
c. elastic supply and elastic demand.
d. elastic supply and inelastic demand.
Table 53
Consider the following demand schedule.
PriceQuantity Demanded
$01,000
$3800
$6600
$9400
$12200
$150
Refer to Table 53. Using the midpoint method, in which range is demand most elastic?
a. $0 to $3
b. $3 to $6
c. $9 to 12
d. $12 to $15
Last year, Jim bought 8 tickets to sporting events when his income was $30,000. This
year, his income is $33,000, and he purchased 10 tickets to sporting events. Holding
other factors constant and using the midpoint method, it follows that Jim’s income
elasticity of demand is about
a. 0.43, and Jim regards tickets to sporting events as inferior goods.
b. 0.43, and Jim regards tickets to sporting events as normal goods.
c. 2.33, and Jim regards tickets to sporting events as inferior goods.
d. 2.33, and Jim regards tickets to sporting events as normal goods.
Figure 89
The vertical distance between points A and C represents a tax in the market.
Refer to Figure 89. The perunit burden of the tax on sellers is
a. $20.
b. $200.
c. $300.
d. $500.
Suppose there are six bait and tackle shops that sell worms in a lakeside resort town in
Minnesota. If we add the respective quantities that each shop would produce and sell at
each of the six bait and tackle shops when the price of worms is $2 per bucket, $2.50
per bucket, and $3 per bucket, and so forth, we have found the
a. market demand curve.
b. market supply curve.
c. equilibrium curve.
d. surplus or shortage depending on market conditions.
Table 337
Output of pottery in one sixhour session
VasesMugs
Sarah 8 32
Charles 10 25
Refer to Table 337. Sarah and Charles are both potters and each can switch between
the production of vases and mugs at a constant rate. The table shows the total number of
vases or decorative mugs that each person can produce in a sixhour session of
producing pottery. Sarah has an absolute advantage in
a. the production of vases and a comparative advantage in the production of vases.
b. the production of mugs and a comparative advantage in the production of mugs.
c. the production of neither good and a comparative advantage in the production of
vases.
d. the production of both goods and a comparative advantage in the production of mugs.
How does the concept of elasticity allow us to improve upon our understanding of
supply and demand?
a. Elasticity allows us to analyze supply and demand with greater precision than would
be the case in the absence of the elasticity concept.
b. Elasticity provides us with a better rationale for statements such as “an increase in x
will lead to a decrease in y” than we would have in the absence of the elasticity concept.
c. Without elasticity, we would not be able to address the direction in which price is
likely to move in response to a surplus or a shortage.
d. Without elasticity, it is very difficult to assess the degree of competition within a
market.
Figure 615
Refer to Figure 615. Suppose a price ceiling of $2 is imposed on this market. As a
result,
a. the quantity of the good supplied decreases by 30 units.
b. the demand curve shifts to the left so as to now pass through the point (quantity = 30,
price = $2).
c. buyers’ total expenditure on the good decreases by $75.
d. buyers’ total expenditure on the good falls by $15.
Figure 915
Refer to Figure 915. Consumer surplus with trade and without a tariff is
a. A.
b. A + B.
c. A + C + G.
d. A + B + C + D + E + F.
When a country allows trade and becomes an importer of a good,
a. both domestic producers and domestic consumers become better off.
b. domestic producers become better off, and domestic consumers become worse off.
c. domestic producers become worse off, and domestic consumers become better off.
d. both domestic producers and domestic consumers become worse off.
