1) Economists sometimes give conflicting advice because
a.graduate students in economics are encouraged to argue with each other.
b.economists have different values and scientific judgment.
c.economists acting as scientists do not like to agree with economists acting as policy
advisers.
d.economics is more of a belief system than a science.
2) Table 17-21
The Chicken Game is named for a contest in which drivers test their courage by driving
straight at each other. John and Paul have a common interest to avoid crashing into each
other, but they also have a personal, competing interest to not turn first to demonstrate
their courage to those observing the contest. The payoff table for this situation is
provided below. The payoffs are shown as (John, Paul).
Refer to Table 17-21. If Paul chooses Drive Straight, what will John choose to do and
what will John’s payoff equal?
a.Turn, 5
b.Drive Straight, 0
c.Turn, 20
d.Drive Straight, 5
3) A free-rider problem exists for any good that is not
a.rival in consumption.
b.a private good.
c.free.
d.excludable.
4) The government can potentially improve market outcomes if market inequalities or
market failure exists.
a.True
b.False
5) If marijuana were legalized, it is likely that there would be an increase in the supply
of marijuana. Advocates of marijuana legalization argue that this would significantly
reduce the amount of revenue going to the criminal organizations that currently supply
marijuana. These advocates believe that the
a.supply for marijuana is elastic.
b.demand for marijuana is elastic.
c.supply for marijuana is inelastic.
d.demand for marijuana is inelastic.
6) Which of the following statements is correct?
a.Vertical equity is the idea that taxpayers with similar abilities to pay taxes should pay
the same amount.
b.Horizontal equity is the idea that taxes should be levied on a person according to how
well that person can shoulder the burden.
c.A regressive tax would mean that high-income tax payers pay a larger fraction of their
income in taxes than would low-income taxpayers.
d.A proportional tax would mean that high-income and low-income taxpayers pay the
same fraction of income in taxes.
7) Lead is an important input in the production of crystal. If the price of lead decreases,
then we would expect the supply of
a.crystal to be unaffected.
b.crystal to decrease.
c.crystal to increase.
d.lead to increase.
8) In the early 1970s, OPEC’s goal was to
a.decrease the world-wide price of oil so that the quantity demanded increased, thus
raising total revenues for OPEC members.
b.increase the world-wide price of oil by reducing the quantity of oil supplied.
c.increase the world-wide price of oil by increasing the quantity of oil supplied, thus
raising total revenues for OPEC members.
d.decrease the world-wide price of oil so that quantity demanded increased.
9) On a graph, the area below a demand curve and above the price measures
a.producer surplus.
b.consumer surplus.
c.deadweight loss.
d.willingness to pay.
10) In recent years, the amount of international trade in which the United States
engages has
a.increased, raising domestic demand for unskilled labor.
b.increased, reducing domestic demand for unskilled labor.
c.decreased, raising domestic demand for unskilled labor.
d.decreased, reducing domestic demand for unskilled labor.
11) Scenario 14-2
Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm‘s
marginal cost equals $20 and its average total cost equals $25. The firm sells its output
for $30 per unit.
At Q = 1,000, the firm‘s profits equal
a. -$5,000.
b. $2,500.
c. $5,000.
d. $10,000.
12) You own an ice cream store and are concerned that an employee may be giving
generous scoops to friends and relatives and smaller scoops to some other customers.
This may be reducing sales. In this example, you are the
a.principal and the your employee is the agent.
b.agent and the your employee is the principal.
c.signaler and the your employee is the screener.
d.screener and the owner of the coffee ship is the signaler.
13) Figure 8-1
Suppose the government imposes a tax of P’ – P”’. The area measured by
I+J+K+L+M+Y represents
a.total surplus before the tax.
b.total surplus after the tax.
c.consumer surplus before the tax.
d.deadweight loss from the tax.
14) Figure 8-11
The deadweight loss of the tax is represented by the
a.length of the line segment connecting points A and B.
b.length of the line segment connecting points A and C.
c.length of the line segment connecting points B and C.
d.area of the triangle bounded by the points A, B, and C.
15) How does free trade relate to the theory of oligopoly?
16) Is the following a positive or normative statement? The federal minimum wage is
lower than many state minimum wages.
17) Why do wild salmon populations face the threat of extinction while goldfish
populations are in no such danger?
18) How does an import quota differ from an equivalent tariff?
19) In the short run, as compared to the long run, both the and the price elasticity of
supply tend to be more
20) Invisible hand is a term used by the economist to describe how the decisions of
households and firms lead to desirable market outcomes.
21) If identical firms that remain in a competitive market over the long run make zero
economic profit, why do these firms choose to remain in the market?
22) Figure 15-22
How much profit will this monopolist earn if it charges each consumer the same price?