1) Why do some policymakers support a consumption tax rather than an earnings tax?
a.The average tax rate would be lower under a consumption tax.
b.A consumption tax would encourage people to save earned income.
c.A consumption tax would raise more revenues than an income tax.
d.The marginal tax rate would be higher under an earnings tax.
2) Which of the following is an example of a payroll tax?
a.a tax on the wages that a firm pays its workers
b.a ‘sin” tax on distilled alcohol
c.a tax on corporate profits
d.the portion of federal income taxes earmarked to pay for national defense
3) All competitive firms earn zero economic profit in both the short run and the long
run.
a.True
b.False
4) The town of Isle is on a small island connected to Big City by a single bridge. Most
of the residents of Isle work in Big City. As a result, the bridge becomes very congested
for 2 hours each day at the typical morning and evening commute times. Which of the
following policies considered by the mayor of Isle would likely be most effective in
alleviating the congestion?
a.A fixed toll for the bridge payable by every vehicle crossing the bridge at all days and
times.
b.A variable toll for the bridge payable only by vehicles crossing the bridge during the
congested commute times.
c.Any vehicle crossing the bridge at any time must have a sticker paid for with a
one-time fee of $25.
d.A press conference in which the mayor requests that people try to cross the bridge
earlier or later than the typical commute times.
5) A profit-maximizing firm in a competitive market will always make marginal
adjustments to production as long as
a.average revenue is greater than average total cost.
b.average revenue is equal to marginal cost.
c.marginal cost is greater than average total cost.
d.price is above or below marginal cost.
6) Suppose that in a Borda count election, outcome X is preferred to outcome Y, and
outcome Y is preferred to outcome Z, when outcomes X, Y, and Z are all available
options. When Y is removed as an option, however, outcome Z is preferred to outcome
X. This would violate Arrow’s assumption that voting systems should satisfy
a.unanimity.
b.transitivity.
c.the independence of irrelevant alternatives.
d.no dictators.
7) Barking dogs cannot be considered an externality because externalities must be
associated with some form of market exchange.
a.True
b.False
8) In general, demand curves for luxuries tend to be price elastic.
a.True
b.False
9) Concerning the labor market and taxes on labor, economists disagree about
a.the size of the tax on labor.
b.the size of the deadweight loss of the tax on labor.
c.whether or not a tax on labor places a wedge between the wage that firms pay and the
wage that workers receive.
d.All of the above are correct.
10) Macroeconomics is the study of
a.individual decision makers.
b.international trade.
c.economy-wide phenomena.
d.markets for large products.
11) Production Opportunities
Assume that England and France each has 40 labor hours available. If each country
divides its time equally between the production of cheese and wine, then total
production is
a.8 units of cheese and 10 units of wine
b.24 units of cheese and 15 units of wine
c.40 units of cheese and 20 units of wine
d.48 units of cheese and 30 units of wine
12) What are the two shortrun effects of increasing the quantity of nation’s money?
13) Economists use game theory to analyze.
14) Figure 15-22
If the monopolist uses perfect price discrimination, how much deadweight loss results?
15) Ed promises his wife that he will mow the lawn on Saturday morning, but when
Saturday morning arrives he changes his mind and says he will do it on Sunday. What
insight about human behavior can be deduced from Ed’s decision?
16) Consider a small family wheat farm. List some examples of implicit costs of
farming.
17) Like biologists and physicists, economists use the dispassionate development and
testing of how the world works known as the