1) A society consists of three individuals: Larry, Margaret, and Nina. In terms of income
and utility, Larry is currently best-off, Margaret ranks in the middle, and Nina is
worst-off. Which of the following statements is correct?
a.Utilitarianism suggests that government policies should strive to maximize the sum of
all three individuals’ utility.
b.Liberalism suggests that government policies should strive to maximize the sum of
Larry’s utility and Nina’s utility.
c.Libertarianism suggests that government policies should strive to make Nina better off
at the cost of Larry and Margaret.
d.Utilitarianism suggests that the government policies should strive to make Nina better
off than Margaret.
2) If two goods are complements, their cross-price elasticity will be
a.positive.
b.negative.
c.zero.
d.equal to the difference between the income elasticities of demand for the two goods.
3) Which of the following is not a reason why government agencies subsidize basic
research?
a.The private market devotes too few resources to basic research.
b.The general knowledge developed through basic research can be used without charge.
c.The social benefit of additional knowledge is perceived to be greater than the cost of
the subsidies.
d.The government wants to attract the brightest researchers away from private research
firms.
4) Suppose Susan can wash three windows per hour or she can iron six shirts per hour.
Paul can wash two windows per hour or he can iron five shirts per hour.
a.Susan has an absolute advantage over Paul in washing windows.
b.Susan has a comparative advantage over Paul in washing windows.
c.Paul has a comparative advantage over Susan in ironing shirts.
d.All of the above are correct.
5) When the price of a good increases, all else equal, the higher price
a.reduces the consumer’s set of buying opportunities.
b.leads to a parallel shift of the budget constraint.
c.will necessarily lead to an increase in the consumption of goods whose price did not
change.
d.generally discourages the consumption of inferior goods.
6) If a change in the price of a good results in no change in total revenue, then
a.the demand for the good must be elastic.
b.the demand for the good must be inelastic.
c.the demand for the good must be unit elastic.
d.buyers must not respond very much to a change in price.
7) The theory of consumer choice examines how
a.firms make profit-maximizing decisions.
b.consumers make utility-maximizing decisions.
c.wages are determined in competitive labor markets.
d.prices are determined in competitive goods markets.
8) Which of the following goods are not likely to be sold in monopolistically
competitive markets?
a.jeans
b.books
c.tap water
d.clocks
9) An example of normative analysis is studying
a.how market forces produce equilibrium.
b.surpluses and shortages.
c.whether equilibrium outcomes are socially desirable.
d.income distributions.
10)
Suppose this economy is producing at point D. Which of the following statements
would best explain this situation?
a.The economy has insufficient resources to produce at a more desirable point.
b.The economy’s available technology prevents it from producing at a more desirable
point.
c.There is widespread unemployment in the economy.
d.Any of the above statements would be a legitimate explanation for this situation.
11) Figure 7-14
At the equilibrium price, producer surplus is
a. $800.
b. $400.
c. $450.
d. $900.
12) When a tax is imposed on buyers, consumer surplus decreases but producer surplus
increases.
a.True
b.False
13) In some games, the noncooperative equilibrium is bad for the players and bad for
society.
a.True
b.False
14) Refer to Figure 9-15. With trade and without a tariff, the price and domestic
quantity demanded are
a.P1 and Q1.
b.P1 and Q4.
c.P2 and Q2.
d.P2 and Q3.
15) “Signaling” refers to actions by an informed party for the sole purpose of
a.telling another party that the signaler has information to reveal, without actually
revealing that information.
b.conveying false information.
c.induce employees to put in the effort they are capable of.
d.credibly revealing private information.
16) Suppose that when the average college student’s income is $10,000 per year, the
annual quantity demanded of Patty’s Pizza is 50 and the annual quantity demanded of
Sue’s Subs is 80. Suppose that when the price of Patty’s Pizza increases from $8 to $10
per pie, the quantity demanded of Sue’s Subs increases from 80 to 100. Suppose also
that when the average student’s income increases to $12,000 per year, the annual
quantity demanded of Patty’s Pizza increases from 50 to 60.
Using the midpoint method, what is the income elasticity of demand for pizza and what
does the value indicate about the demand for pizza?
a.The income elasticity is 0.18 so pizza is a normal good.
b.The income elasticity is -1 so pizza is an inferior good.
c.The income elasticity is 1 so pizza is unitary elastic.
d.The income elasticity is 1 so pizza is a normal good.
17) Brazil’s Production Possibilities Frontier
If the production possibilities frontier shown is for 24 hours of production, then how
long does it take Brazil to make one cashew?
a.1/10 hour
b.1/3 hour
c.3 hours
d.10 hours