1) Along the elastic portion of a linear demand curve, total revenue rises as price rises.
a.True
b.False
2) Tradable pollution permits
a.have prices that are set by the government.
b.will be more valuable to firms that can reduce pollution only at high costs.
c.are likely to create a higher level of total pollution.
d.are less desirable than corrective taxes in reducing pollution.
3) Which of the following practices are, at least in part, attempts to reduce moral hazard
problems?
a.Parking ramps require customers to take a ticket with the time stamped on it from a
machine in order to gain entrance.
b.Part of the income of waiters and waitresses is based on tips.
c.Both A and B are correct.
d.None of the above are correct.
4) When market activity generates a negative externality, the level of output in the
market equilibrium is lower than the socially optimal level.
a.True
b.False
5) A transfer payment is a government payment
a.to companies that provide goods or services to government agencies.
b.designed to transfer funds from one government agency to another.
c.which transfers revenue from the federal government to state government.
d.not made in exchange for a good or service.
6) Suppose the nation of Canada forbids international trade. In Canada, you can obtain
a hockey stick by trading 5 baseball bats. In other countries, you can obtain a hockey
stick by trading 8 baseball bats. These facts indicate that
a.if Canada were to allow trade, it would export hockey sticks.
b.Canada has an absolute advantage, relative to other countries, in producing hockey
sticks.
c.Canada has a comparative advantage, relative to other countries, in producing
baseball bats.
d.All of the above are correct.
7) In his 1951 book, Social Choice and Individual Values, Kenneth Arrow defined a
“perfect” voting system. That system includes which of the following features?
a.unanimity
b.transitivity
c.absence of a dictator
d.All of the above are correct.
8) In making a short-run profit-maximizing production decision, the firm must consider
both fixed and variable cost.
a.True
b.False
9) A firm will shut down in the short run if revenue is not sufficient to cover all of its
fixed costs of production.
a.True
b.False
10) Monopoly pricing prevents some mutually beneficial trades from taking place.
These unrealized, mutually beneficial trades are
a.less of a concern for a monopoly than competitive market.
b.offset by the higher profits earned by a monopolist.
c.a function of the reduction in the quantity produced by a monopolist in comparison to
a competitive market.
d.All of the above are correct.
11) Figure 21-8
Refer to Figure 21-8. You have $600 to spend on good X and good Y. If good X costs
$100 and good Y costs $100, your budget constraint is
a.AB.
b.BC.
c.CD.
d.DE.
12) Figure 10-2. The graph depicts the market for plastic.
Suppose that the production of plastic creates a social cost which is depicted in the
graph above. Without any government regulation, what price will the firm charge per
unit of plastic?
a. $4.00
b. $6.00
c. $7.00
d. $10.00
13) For which of the following goods is the income elasticity of demand likely highest?
a.natural gas
b.doctor’s visits
c.hamburgers
d.boats
14) 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. What is Paul’s dominant strategy?
a.Paul has no dominant strategy.
b.Paul should always choose Turn.
c.Paul should always choose Drive Straight.
d.Paul has more than one dominant strategy.
15) The following table shows a portion of the demand schedule for a particular good at
various levels of income.
Using the midpoint method, at a price of $12, what is the income elasticity of demand
when income rises from $5,000 to $10,000?
a.0.00
b.0.41
c.1.00
d.2.45
16) If labor in Mexico is less productive than labor in the United States in all areas of
production,
a.then neither nation can benefit from trade.
b.then Mexico can benefit from trade but the United States cannot.
c.then the United States will have a comparative advantage relative to Mexico in the
production of all goods.
d.then both Mexico and the United States still can benefit from trade.
17) Table 13-5
The marginal product of the third worker is
a.9,000 units.
b.8,000 units.
c.7,000 units.
d.5,000 units.
18) Of the four countries below, which has the highest degree of income inequality?
a.Germany
b.Turkey
c.South Africa
d.Mexico
19) The lower the concentration ratio, the
a.more control an individual firm has to set prices.
b.more competitive the industry.
c.less competitive the industry.
d.Both a and c are correct.
20) Under which of the following scenarios would a park be considered a public good?
a.Visitors to the park must pay an admittance fee, but there are always plenty of empty
picnic tables.
b.Visitors to the park must pay an admittance fee and frequently all of the picnic tables
are in use.
c.Visitors can enter the park free of charge and there are always plenty of empty picnic
tables.
d.Visitors can enter the park free of charge, but frequently all of the picnic tables are in
use.