1) Figure 8-10
Suppose the government imposes a tax that reduces the quantity sold in the market after
the tax to Q2. Without the tax, the consumer surplus is
a.(P0-P2) x Q2.
b. 1/2 x (P0-P2) x Q2.
c. (P0-P5) x Q5.
d. 1/2 x (P0-P5) x Q5.
2) Table 20-4
Source: U.S. Bureau of Census
Refer to Table 20-4. In 2011, the bottom 60% of families have
a.about 13% of total income in the U.S.
b.about 28% of total income in the U.S.
c.about 51% of total income in the U.S.
d.about 74% of total income in the U.S.
3) Answer each of the following questions about demand and consumer surplus.
a.What is consumer surplus, and how is it measured?
b.What is the relationship between the demand curve and the willingness to pay?
c.Other things equal, what happens to consumer surplus if the price of a good falls?
Why?
Illustrate using a demand curve.
d.In what way does the demand curve represent the benefit consumers receive from
participating in a market? In addition to the demand curve, what else must be
considered to determine consumer surplus?
4) Monopoly pricing prevents some mutually beneficial trades from taking place. These
unrealized, mutually beneficial trades are
a.of little concern to society.
b.a deadweight loss to society.
c.a sunk cost to society.
d.also observed in competitive markets.
5) When demand increases so that market price increases, producer surplus increases
because (1) producer surplus received by existing sellers increases, and (2) new sellers
enter the market.
a.True
b.False
6) A perfectly competitive firm produces where
a.marginal cost equals price, while a monopolist produces where price exceeds marginal
cost.
b.marginal cost equals price, while a monopolist produces where marginal cost exceeds
price.
c.price exceeds marginal cost, while a monopolist produces where marginal cost equals
price.
d.marginal cost exceeds price, while a monopolist produces where marginal cost equals
price.
7) Figure 10-2. The graph depicts the market for plastic.
A benevolent social planner would like to see
a.200 units of plastic produced.
b.500 units of plastic produced.
c.650 units of plastic produced.
d.more than 650 units of plastic produced.
8) Scenario 13-9
Ellie has been working for an engineering firm and earning an annual salary of $80,000.
She decides to open her own engineering business. Her annual expenses will include
$15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for
utilities, and a $35,000 salary for a secretary/bookkeeper. Ellie will cover her start-up
expenses by cashing in a $20,000 certificate of deposit on which she was earning
annual interest of $500.
According to an economist, which of the following revenue totals will yield Ellie’s
business $50,000 in economic profits? a. $55,200
b. $100,200 c. $132,500 d. $185,700
9) Vertical equity refers to a tax system in which individuals with similar incomes pay
similar taxes.
a.True
b.False
10) Why does a firm in a competitive industry charge the market price?
a.If a firm charges less than the market price, it loses potential revenue.
b.If a firm charges more than the market price, it loses all its customers to other firms.
c.The firm can sell as many units of output as it wants to at the market price.
d.All of the above are correct.
11) In the markets for the factors of production in the circular-flow diagram,
a.households are sellers and firms are buyers.
b.households are buyers and firms are sellers.
c.households and firms are both buyers.
d.households and firms are both sellers.
12) The word economy comes from the Greek word oikonomos, which means
a.environment.
b.production.
c.one who manages a household.
d.one who makes decisions.
13) Suppose the figure shows the market
demand for coffee. Suppose the price of tea, a substitute good, increases. Which of the
following changes would occur?
a.a movement along D2 from point A to point B
b.a movement along D2 from point B to point A
c.a shift from D1 to D2
d.a shift from D2 to D1