1) A likely effect of government policies that redistribute income and wealth from the
wealthy to the poor is that those policies
a.enhance equality.
b.enhance efficiency.
c.increase the reward for working hard.
d.All of the above are correct.
2) Assume that Japan and Korea can switch between producing cars and producing
airplanes at a constant rate.
Without trade, Japan produced and consumed 50 cars and 6 airplanes and Korea
produced and consumed 27 cars and 7 airplanes. Then, each country agreed to
specialize in the production of the good in which it has a comparative advantage and
trade 28 cars for 8 airplanes. As a result, Japan gained
a.0 cars and 2 airplanes and Korea gained 1 car and 1 airplane.
b.2 cars and 2 airplanes and Korea gained 1 car and 1 airplane.
c.28 cars and 8 airplanes and Korea gained 28 cars and 8 airplanes.
d.52 cars and 8 airplanes and Korea gained 28 cars and 8 airplanes.
3) Private companies will invest in medical research if
a.they will produce general knowledge.
b.they will produce a specific product for which they may receive a patent.
c.there is no government intervention in the market for medical products.
d.others will benefit from their discoveries.
4) The Sherman Antitrust Act
a.was passed to encourage judicial leniency in the review of cooperative agreements.
b.was concerned with self-interest dominated Nash equilibriums in prisoners’ dilemma
games.
c.enhanced the ability to enforce cartel agreements.
d.restricted the ability of competitors to engage in cooperative agreements.
5) A worker association that bargains with employers over wages and working
conditions is called
a.a strike.
b.an oligopoly.
c.a firm.
d.a union.
6) Which of the following sets of preferences satisfies the property of transitivity?
a.Cookies are preferred to pie. Pie is preferred to brownies. Cookies are preferred to
brownies.
b.Cookies are preferred to pie. Brownies are preferred to pie. Pie is preferred to
cookies.
c.Cookies are preferred to ice cream. Ice cream is preferred to brownies. Brownies are
preferred to cookies.
d.Cookies are preferred to pie. Ice cream is preferred to cookies. Pie is preferred to ice
cream.
7) What will happen to the equilibrium price of new textbooks if more students attend
college, paper becomes cheaper, textbook authors accept lower royalties, and fewer
used textbooks are sold?
a.Price will rise.
b.Price will fall.
c.Price will stay exactly the same.
d.The price change will be ambiguous.
8) Figure 8-22
Suppose the government changed the per-unit tax from $3.00 to $4.50. Compared to the
original tax rate, this higher tax rate would
a.increase tax revenue and increase the deadweight loss from the tax.
b.increase tax revenue and decrease the deadweight loss from the tax.
c.decrease tax revenue and increase the deadweight loss from the tax.
d.decrease tax revenue and decrease the deadweight loss from the tax.
9) Let P represent price; let QSrepresent quantity supplied; and assume the equation of
the supply curve is
If 80 units of the good are produced and sold, then producer
surplus amounts to $1,200.
a.True
b.False
10) Suppose that when the price of a 16 oz. to-go cup of gourmet coffee is $4.25,
students purchase 750 cups per day. If the price decreases to $3.75 per cup, which of the
following is the most likely outcome?
a.Students would purchase fewer than 750 cups per day.
b.Student would continue to purchase 750 cups per day.
c.Students would purchase more than 750 cups per day.
d.We do not have enough information to answer this question.
11) The U.S. welfare system was revised by a 1996 law that
a.consolidated all of the previous assistance programs into a single program.
b.limited the amount of time that people could receive assistance.
c.said it was no longer necessary for poor people to demonstrate an additional “need,”
such as small children or a disability, to qualify for assistance.
d.turned all federally-run welfare programs over to the states.
12) Which of the following is not correct?
a.Welfare is a broad term that includes a variety of government programs designed to
help poor people.
b.Since the early 1970s, welfare benefits adjusted for inflation have increased, as has
the percentage of children living with only one parent.
c.Critics of welfare programs argue that they can create incentives for unmarried
women to have children.
d.Supporters argue that welfare doesn’t cause the decline of twoparent families.
13) Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs:
Marginal revenue equals marginal cost when the firm produces
a.2 units.
b.3 units.
c.4 units.
d.5 units.
14) Which of the following industries is least likely to exhibit the characteristic of free
entry?
a.selling running apparel
b.satellite radio
c.yoga studios
d.wheat farming
15) Marginal revenue for a monopolist is computed as
a.average revenue divided by quantity sold.
b.average revenue times quantity divided by price.
c.total revenue divided by quantity sold.
d.change in total revenue per one unit increase in quantity sold.
16) The poverty rate is an absolute level of income set by the federal government for
each family size. A family with income below this rate is deemed to be in poverty.
a.True
b.False
17) Using the graph below, answer the following questions about hammers.
a.What is the equilibrium price of hammers before trade?
b.What is the equilibrium quantity of hammers before trade?
c.What is the price of hammers after trade is allowed?
d.What is the quantity of hammers imported after trade is allowed?
e.What is the amount of consumer surplus before trade?
f.What is the amount of consumer surplus after trade?
g.What is the amount of producer surplus before trade?
h.What is the amount of producer surplus after trade?
i.What is the amount of total surplus before trade?
j.What is the amount of total surplus after trade?
k.What is the change in total surplus because of trade?
18) Welfare economics is the study of
a.taxes and subsidies.
b.how technology is best put to use in the production of goods and services.
c.government welfare programs for needy people.
d.how the allocation of resources affects economic well-being.
19) For any country that allows free trade,
a.domestic quantity demanded is equal to domestic quantity supplied at the world price.
b.domestic quantity demanded is greater than domestic quantity supplied at the world
price.
c.both producers and consumers in that country gain when domestic products are
exported, but both groups lose when foreign products are imported.
d.the domestic price is equal to the world price.