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Table 63
The following table contains the demand schedule and supply schedule for a market for
a particular good. Suppose sellers of the good successfully lobby Congress to impose a
price floor $2 above the equilibrium price in this market.
PriceQuantity
DemandedQuantity
Supplied
$0150
$1133
$2116
$399
$4712
$5515
$6318
Refer to Table 63. Following the imposition of a price floor $2 above the equilibrium
price, irate buyers convince Congress to repeal the price floor and to impose a price
ceiling $1 below the former price floor. The resulting market price is
a. $2.
b. $3.
c. $4.
d. $5.
“Other things equal, when the price of a good rises, the quantity supplied of the good
also rises, and when the price falls, the quantity supplied falls as well.” This
relationship between price and quantity supplied
a. is referred to as the law of supply.
b. applies only to a few goods in the economy.
c. is represented by a downwardsloping supply curve.
d. All of the above are correct.
Figure 321
Uzbekistan’s Production Possibilities FrontierAzerbaijan’s Production Possibilities
Frontier
Refer to Figure 321. Without trade, Uzbekistan produced and consumed 12 bolts and
36 nails and Azerbaijan produced and consumed 14 bolts and 24 nails. Then, each
country agreed to specialize in the production of the good in which it has a comparative
advantage and trade 16 bolts for 38 nails. As a result, Uzbekistan gained
a. 2 bolts and 2 nails and Azerbaijan gained 2 bolts and 18 nails.
b. 4 bolts and 2 nails and Azerbaijan gained 2 bolts and 14 nails.
c. 14 bolts and 38 nails and Azerbaijan gained 16 bolts and 42 nails.
d. 16 bolts and 38 nails and Azerbaijan gained 16 bolts and 38 nails.
A $2 tax per gallon of paint placed on the buyers of paint will shift the demand curve
a. downward by exactly $2.
b. downward by less than $2.
c. upward by exactly $2.
d. upward by less than $2.
A key lesson from the payroll tax is that the
a. tax is a tax solely on workers.
b. tax is a tax solely on firms that hire workers.
c. tax eliminates any wedge that might exist between the wage that firms pay and the
wage that workers receive.
d. true burden of a tax cannot be legislated.
Which of the following products would be considered scarce?
a. bread
b. baseballs autographed by Babe Ruth
c. motorcycles
d. All of the above are correct.
What is the most important factor that explains differences in living standards among
countries?
a. labor unions
b. minimum wage laws
c. productivity
d. efficiency
When the government attempts to improve equality in an economy the result is often
a. an increase in overall output in the economy.
b. additional government revenue since overall income will increase.
c. a reduction in equality.
d. a reduction in efficiency.
Figure 23
Refer to Figure 23. Which of the following is an activity undertaken by the actors in
rectangle 2?
a. produce and sell goods and services
b. hire and use factors of production
c. own and sell factors of production
d. exchange goods and services between firms and households
Figure 97. The figure applies to the nation of Wales and the good is cheese.
Refer to Figure 97. Which of the following is a valid equation for Welsh producer
surplus with trade?
a. Producer surplus with trade = (1/2)P0Q0.
b. Producer surplus with trade = (1/2)P1Q1.
c. Producer surplus with trade = (1/2)P1Q2.
d. None of the above is correct.
To determine whether a good is considered normal or inferior, one could examine the
value of the
a. income elasticity of demand for that good.
b. price elasticity of demand for that good.
c. price elasticity of supply for that good.
d. crossprice elasticity of demand for that good.
Table 333
Chris and Tony’s Production Opportunities
TomatoesPasta Sauce
Chris10 lbs300 jars
Tony14 lbs280 jars
Refer to Table 333 Chris and Tony both produce tomatoes and pasta sauce. The table
shows their possible production per month if both work the same number of 8 hour
days. Which of the following prices would result in a mutually advantageous trade
between Chris and Tony?
a. 1 lb. of tomatoes for 23 jars of sauce
b. 1 lb. of tomatoes for 27 jars of sauce
c. 1 lb. of tomatoes for 33 jars of sauce
d. .Both a and b are correct.
Table 333
Chris and Tony’s Production Opportunities
TomatoesPasta Sauce
Chris10 lbs300 jars
Tony14 lbs280 jars
Refer to Table 333 Chris and Tony both produce tomatoes and pasta sauce. The table
shows their possible production per month if both work the same number of 8 hour
days. Which of the following statements is correct?
a. Tony has a comparative advantage in the production of sauce.
b. Chris has a comparative advantage in the production of tomatoes.
c. Tony has an absolute advantage in the production of tomatoes.
d. Chris has an absolute advantage in the production of tomatoes.
“Owners of firms in young industries should be willing to incur temporary losses if they
believe that those firms will be profitable in the long run.” This observation helps to
explain why many economists are skeptical about the
a. nationalsecurity argument.
b. infantindustry argument.
c. unfaircompetition argument.
d. jobs argument.
Figure 92
The figure illustrates the market for calculators in a country.
Refer to Figure 92. Without trade, producer surplus is
a. $423.
b. $845.
c. $1,690.
d. $3,380.
You have just been hired as a business consultant to determine what pricing policy
would be appropriate to increase the total revenue of a bakery. The first step you would
take would be to
a. increase the price of every loaf of bread in the store.
b. look for ways to cut costs and increase profit for the bakery.
c. determine the price elasticity of demand for the bakery's products.
d. determine the price elasticity of supply for the bakery’s products.
Figure 912
Refer to Figure 912. Consumer surplus before trade is
a. $14,400.
b. $16,800.
c. $21,600.
d. $24,800.
Something that induces a person to act is called
a. a tradeoff.
b. a policy.
c. an incentive.
d. an opportunity cost.
Figure 318
Bintu’s Production Possibilities FrontierJuba’s Production Possibilities Frontier
Refer to Figure 318. The opportunity cost of 1 cup for Bintu is
a. 1/8 bowl.
b. 1/4 bowl.
c. 4 bowls.
d. 8 bowls.
Assume the price of gasoline is $2.40 per gallon, and the equilibrium quantity of
gasoline is 12 million gallons per day with no tax on gasoline. Starting from this initial
situation, which of the following scenarios would result in the largest deadweight loss?
a. A 10 percent increase in the price of gasoline reduces the quantity of gasoline
demanded by 2 percent and it increases the quantity of gasoline supplied by 5 percent;
and the tax on gasoline amounts to $0.40 per gallon.
b. A 10 percent increase in the price of gasoline reduces the quantity of gasoline
demanded by 2 percent and it increases the quantity of gasoline supplied by 7 percent;
and the tax on gasoline amounts to $0.40 per gallon.
c. A 10 percent increase in the price of gasoline reduces the quantity of gasoline
demanded by 1 percent and it increases the quantity of gasoline supplied by 8 percent;
and the tax on gasoline amounts to $0.35 per gallon.
d. There is insufficient information to make this determination.
Figure 724
Refer to Figure 724. If 10 units of the good are produced and sold, then
a. the marginal cost to sellers exceeds the marginal value to buyers.
b. producer surplus is maximized.
c. total surplus is minimized.
d. the marginal value to buyers exceeds the marginal cost to sellers.
A major difference between tariffs and import quotas is that
a. tariffs create deadweight losses, but import quotas do not.
b. tariffs help domestic consumers, and import quotas help domestic producers.
c. tariffs raise revenue for the government, but import quotas create surplus for those
who get the licenses to import.
d. All of the above are correct.
Economists believe that production possibilities frontiers are often bowed because
a. tradeoffs inevitably create unemployment.
b. resources are not completely adaptable.
c. opportunity costs are constant.
d. of improvements in technology.
Kristi sells purses. Her cost is $35 per purse. On a certain day, she sells 12 purses, and
her producer surplus for that day amounts to $180. Kristi sold each purse for
a. $65.
b. $50.
c. $45.
d. $53.
Suppose a country abandons a notrade policy in favor of a freetrade policy. If, as a
result, the domestic price of pistachios decreases to equal the world price of pistachios,
then
a. that country becomes an exporter of pistachios.
b. that country has a comparative advantage in producing pistachios.
c. at the world price, the quantity of pistachios demanded in that country exceeds the
quantity of pistachios supplied in that country.
d. All of the above are correct.
Resources are
a. scarce for households but plentiful for economies.
b. plentiful for households but scarce for economies.
c. scarce for households and scarce for economies.
d. plentiful for households and plentiful for economies.
Figure 314
Arturo’s Production Possibilities FrontierDina’s Production Possibilities Frontier
Refer to Figure 314. Dina has an absolute advantage in the production of
a. burritos and a comparative advantage in the production of tacos.
b. burritos and a comparative advantage in the production of burritos.
c. neither good and a comparative advantage in the production of tacos.
d. neither good and a comparative advantage in the production of burritos.
Absolute advantage is found by comparing different producers’
a. opportunity costs.
b. payments to land, labor, and capital.
c. input requirements per unit of output.
d. locational and logistical circumstances.
When demand is elastic, a decrease in price will cause
a. an increase in total revenue.
b. a decrease in total revenue.
c. no change in total revenue but an increase in quantity demanded.
d. no change in total revenue but a decrease in quantity demanded.
Because it is difficult for economists to use experiments to generate data, they generally
must
a. do without data.
b. substitute assumptions for data when data are unavailable.
c. rely upon hypothetical data that were previously concocted by other economists.
d. use whatever data the world gives them.
Suppose the demand for macaroni is inelastic, the supply of macaroni is elastic, the
demand for cigarettes is inelastic, and the supply of cigarettes is elastic. If a tax were
levied on the sellers of both of these commodities, we would expect that the burden of
a. both taxes would fall more heavily on the buyers than on the sellers.
b. the macaroni tax would fall more heavily on the sellers than on the buyers, and the
burden of the cigarette tax would fall more heavily on the buyers than on the sellers.
c. the macaroni tax would fall more heavily on the buyers than on the sellers, and the
burden of the cigarette tax would fall more heavily on the sellers than on the buyers.
d. both taxes would fall more heavily on the sellers than on the buyers.
Suppose the cost of flying a 200seat plane for an airline is $100,000 and there are 10
empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby
passenger is willing to pay $300, the airline should
a. sell the ticket because the marginal benefit exceeds the marginal cost.
b. sell the ticket because the marginal benefit exceeds the average cost.
c. not sell the ticket because the marginal benefit is less than the marginal cost.
d. not sell the ticket because the marginal benefit is less than the average cost.
Market power and externalities are examples of
a. laissezfaire economics.
b. public policy.
c. market failure.
d. welfare economics.
The scientific method is applicable to studying
a. natural sciences, but not social sciences.
b. social sciences, but not natural sciences.
c. both natural sciences and social sciences.
d. None of the above is correct.
