Assume that a 50 percent gasoline tax led to a large increase in its price and only a
small decrease in the quantity of gasoline demanded. Economic analysis would lead one
to conclude that
A) gasoline should be taxed because the benefits of the tax would exceed the costs.
B) gasoline should not be taxed because the benefits are uncertain.
C) gasoline should not be taxed on ethical grounds since ethical benefits and costs can’t
be measured.
D) the benefits of taxing gasoline is a normative issue. Economic analysis can be used
to contribute to discussion of this issue but cannot decide it.
Consider a used car market in which half the cars are good and half are bad (lemons). If
buyers are rational, the prices being offered for used cars will result in
A) an equal proportion of a good cars and lemons being sold in an efficient market.
B) a larger proportion of good cars being sold and consequently, consumer surplus is
increased.
C) a larger proportion of lemons being sold and consequently, producer surplus is
increased.
D) an equal proportion of good cars and lemons being sold in an inefficient market.
Table 2-2 Production choices for Nadia’s Neckware
Assume Nadia’s Neckware only produces ascots and bowties. A combination of 16
ascots and 6 bowties would appear
A) along Nadia’s production possibilities frontier.
B) inside Nadia’s production possibilities frontier.
C) outside Nadia’s production possibilities frontier.
D) at the horizontal intercept of Nadia’s production possibilities frontier.
Table 13-4
Table 13-4 lists estimated revenues and costs (per week) for plastic vials (100 vials per
box) for the Victoria Biological Supplies Company. Victoria sells plastic vials to
university and private research laboratories. Victoria’s profit-maximizing quantity sold
(Q) and price (P) are
A) Q = 3; P = $7.
B) Q = 4; P = $6.
C) Q = 5; P = $5.
D) Q = 6; P = $4.
In the short run, if marginal product is at its maximum, then
A) average cost is at its minimum.
B) average variable cost is at its minimum.
C) marginal cost is at its minimum.
D) total cost is at its maximum.
Scenario 1-4 Suppose a cigar manufacturer currently sells 1,500 cigars per week and
makes a profit of $3,000 per week. The plant foreman observes, “Although the last 500
cell cigars we produced and sold increased our revenue by $7,500 and our costs by
$7,000, we are only making an overall profit of $3,000 per week so I think we need to
cut back on production.”
Using marginal analysis terminology, what is another economic term for the
incremental revenue received from the sale of the last 500 cigars?
A) gross earnings
B) marginal revenue
C) sales revenue
D) gross profit
Figure 13-4
Given the economy is at point A in year 1, what will happen to the price level in year 2?
A) It will rise.
B) It will fall.
C) It will remain constant.
D) not enough information to answer the question
What is the difference between a firm’s marginal revenue and its marginal revenue
product?
A) Marginal revenue is the change in sales revenue from selling one more unit of output
while marginal revenue product is the profit earned from hiring one more worker.
B) Marginal revenue is the change in sales revenue from selling one more unit of output
while marginal revenue product is the change in total revenue from hiring one more
worker.
C) Marginal revenue is the increase in revenue when a firm raises its output price while
marginal revenue product is the increase in marginal product when a firm hires an
additional worker.
D) There is no difference between the two terms.
Figure 13-2
Ceteris paribus, an increase in workers and firms adjusting to having previously
overestimated the price level would be represented by a movement from
A) SRAS1 to SRAS2.
B) SRAS2 to SRAS1.
C) point A to point B.
D) point B to point A.
Article Summary. In an attempt to discourage smoking, New York City Mayor
Michael Bloomberg proposed a bill which would set a $10.50 minimum price for a
pack of cigarettes. The bill would also prohibit retailers from offering any
discounts such as 2-for-1 offers or accepting discount coupons. New York City
already has the highest cigarette tax in the country, at $5.85 per pack, and the state
of New York is one of many which already require cigarettes be marked up by a
specified percentage. This bill is a companion to one which would require stores to
keep tobacco products hidden from sight. Although the bills are expected to be
challenged in court, a precedent has been set in Rhode Island, where a court
upheld a ruling allowing the city of Providence to forbid retailers from accepting
coupons and offering discounts on cigarettes. Source: Vivian Yee, “Bloomberg
Seeks End to Cheap Cigarettes,” New York Times, March 26, 2013.
The minimum price of $10.50 per pack of cigarettes being proposed by Mayor
Bloomberg is an example of
A) a price ceiling.
B) a price floor.
C) an economically efficient price.
D) a black market price.
The consumption function describes the relationship between
A) consumption spending and national income.
B) consumption spending and aggregate income.
C) consumption spending and disposable income.
D) consumption spending and personal income.