1) Monopolistic competition is characterized by a few sellers offering similar products,
whereas oligopoly is characterized by many sellers offering differentiated products.
a.True
b.False
2) When market conditions in a competitive industry are such that firms cannot cover
their total production costs, then
a.the firms will suffer long-run economic losses.
b.the firms will suffer short-run economic losses that will be exactly offset by long-run
economic profits.
c.some firms will exit the market, causing prices to rise until the remaining firms can
cover their total production costs.
d.all firms will go out of business, since consumers will not pay prices that enable firms
to cover their total production costs.
3) Suppose the government levies a “fat tax” on naturallysweetened carbonated
beverages to try to reduce the number of overweight children. If the tax revenues pay
for the health problems of overweight children, the tax would satisfy the
a.ability-to-pay principle.
b.benefits principle.
c.vertical-equity principle.
d.horizontal-equity principle.
4) When deciding what price to charge consumers, the monopolist may choose to
charge them different prices based on the customers’
a.geographical location.
b.age.
c.income.
d.All of the above are correct.
5) Which of the following is correct?
a.Consumer surplus refers to a situation in which there are more buyers than sellers in a
market.
b.Producer surplus refers to a situation in which there are more sellers than buyers in a
market.
c.Total surplus is measured as the area below the demand curve and above the supply
curve, up to the equilibrium quantity.
d.All of the above are correct.
6) Figure 14-8
Suppose a firm operating in a competitive market has the following cost curves:
Which segment of the supply curve represents the firm shutting down?
a.ABCD
b.BCD
c.CD
d.AB
7) A competitive market is in long-run equilibrium. If demand increases, we can be
certain that price will
a.rise in the short run. Some firms will enter the industry. Price will then rise to reach
the new long-run equilibrium.
b.rise in the short run. Some firms will enter the industry. Price will then fall to reach
the new long-run equilibrium.
c.fall in the short run. All, some, or no firms will shut down, and some of them will exit
the industry. Price will then rise to reach the new long-run equilibrium.
d.not rise in the short run because firms will enter to maintain the price.
8) Which of the following is not a typical solution to the “Tragedy of the Commons?”
a.taxing the use of the common resource
b.turning the common resource into a club good
c.turning the common resource into a private good
d.regulating the use of the common resource
9) Each of the following would be considered a common resource except a
a.water reservoir.
b.streetlight.
c.a congested road.
d.book from a public library.
10) Dee is an accomplished actress and a homeowner who pays a landscaper to
maintain her lawn rather than do it herself. Dee has determined that she can earn more
in the hour it would take her to work on her lawn than she must pay her landscaper.
This scenario is an example of which principle of economics?
a.Trade can make everyone better off.
b.Markets are usually a good way to organize economic activity.
c.Governments can sometimes improve market outcomes.
d.Prices rise when the government prints too much money.
11) In the prisoners’ dilemma game with Bonnie and Clyde as the players, the likely
outcome is
a.a very good outcome for both players.
b.a very good outcome for Bonnie, but a bad outcome for Clyde.
c.a very good outcome for Clyde, but a bad outcome for Bonnie.
d.a bad outcome for both players.
12) Bruce engages in an activity that diminishes the well-being of Shawna. Bruce pays
no compensation to Shawna for her loss in well-being. What specific term do
economists use to describe this situation?
13) The benefit to buyers of participating in a market is measured by
a.the price elasticity of demand.
b.consumer surplus.
c.the maximum amount that buyers are willing to pay for the good.
d.the equilibrium price.
14) Gerald spends his weekly income on gin and cocktail olives. The price of gin has
risen from $7 to $9 per bottle, the price of cocktail olives has fallen from $6 to $5 per
jar, and Gerald’s income has stayed fixed at $46 per week. Since the price changes,
Gerald has been buying 4 bottles of gin and 2 jars of cocktail olives per week. At the
original prices, 4 bottles of gin and 2 jars of cocktail olives would have
a.exactly exhausted his income.
b.cost more than his income.
c.cost less than his income.
d.could have maximized his satisfaction given his budget constraint.
15) When the buyer knows less than the seller about the characteristics of the good
being sold, there is
a.a principal-agent problem.
b.a moral hazard problem.
c.an adverse selection problem.
d.a signaling problem.
16) Once the demand curve for a product or service is drawn, it
a.remains stable over time.
b.can shift either rightward or leftward.
c.is possible to move along the curve, but the curve will not shift.
d.tends to become steeper over time.
17) An unhealthy person would likely choose a medical insurance policy with a
a.low premium and a high deductible.
b.high premium and a high deductible.
c.high premium and no deductible.
d.The unhealthy person would choose not to be insured.
18) When economists are trying to explain the world, they are
a.scientists.
b.policy advisers.
c.in the realm of microeconomics rather than macroeconomics.
d.in the realm of normative economics rather than positive economics.