1) The Congressional Budget Office, which is staffed by economists, provides Congress
with independent evaluations of policy proposals.
a.True
b.False
2) The theory of efficiency wages suggests that
a.above-equilibrium wages increase worker productivity.
b.workers with higher levels of education earn more than workers with lower levels of
education.
c.workers signal their high ability to potential employers by completing formal years of
schooling.
d.union workers earn more than nonunion workers.
3) If the wages of a CPA decrease,
(i)her opportunity cost of leisure increases.
(ii)her opportunity cost of leisure decreases.
(iii)her hours of labor supply may increase.
(iv)her hours of labor supply may decrease.
a.(i) and (iii) only
b.(ii) and (iv) only
c.(i), (iii), and (iv) only
d.(ii), (iii), and (iv) only
4) Figure 10-6
Which price represents the equilibrium price of the product in this market?
a.P
b.P’
c.Either P or P’. It is necessary to know whether the externality is positive or negative to
determine which of these is the equilibrium price.
d.Some price between P and P’. The equilibrium price depends on the negotiating skills
of the interested parties.
5) Scenario 7-2
Suppose market demand and market supply are given by the equations:
Refer to Scenario 7-2. How much is total consumer surplus at the equilibrium price in
this market?
6) As tax laws become more complex,
a.the administrative burden of taxes will increase.
b.compliance costs are likely to decrease.
c.the government will collect more in tax revenue.
d.the amount of tax revenue lost to tax evasion will decrease.
7) When the price of a bracelet was $28 each, the jewelry shop sold 128 per month.
When it raised the price to $32 each, it sold 112 per month. Using the midpoint method,
the for bracelets is
a. 1.14
b. 1
c. 0.25
d. 0.13
8) Figure 8-2
The vertical distance between points A and B represents a tax in the market.
The amount of tax revenue received by the government is
a. $2.50.
b.$4.
c.$5.
d.$9.
9) Figure 10-11
On the
a.390th unit of output, private value exceeds private cost.
b.390th unit of output, private value exceeds external value.
c.450th unit of output, private value exceeds social value.
d.450th unit of output, private cost exceeds social value.
10) Scenario 13-10
Jessica makes photo frames. She spends $5 on the materials for each photo frame. She
can create one photo frame in an hour. She earns $10 per hour at a part-time job at the
local coffee shop. She can sell a photo frame for $30 each.
An economist would calculate the total cost for one photo frame to be
a. $5.
b.$10.
c.$15.
d.$25.
11) A firm is currently producing 100 units of output per day. The manager reports to
the owner that producing the 100th unit costs the firm $5. The firm can sell the 100th
unit for $5. The firm should continue to produce 100 units in order to maximize its
profits (or minimize its losses).
a.True
b.False
12) Which of the following statements is correct?
a.Firms with some degree of monopoly power are common, but firms with substantial
monopoly power are rare.
b.Firms with some degree of monopoly power are rare, as are firms with substantial
monopoly power.
c.Firms with some degree of monopoly power are common, as are firms with
substantial monopoly power.
d.Firms with some degree of monopoly power are rare, but firms with substantial
monopoly power are common.
13) Suppose there are six bait and tackle shops that sell worms in a lakeside resort town
in Minnesota. If we add the respective quantities that each shop would produce and sell
at each of the six bait and tackle shops when the price of worms is $2 per bucket, $2.50
per bucket, and $3 per bucket, and so forth, we have found the
a.market demand curve.
b.market supply curve.
c.equilibrium curve.
d.surplus or shortage depending on market conditions.
14) Diane’s Auto World installs tires on automobiles, light trucks, and sport utility
vehicles. She is a profit-maximizing business owner whose firm operates in a
competitive market. The marginal cost of installing a tire is $20. The marginal
productivity of the last worker that Diane hired was 2 tires per hour. What is the
maximum hourly wage that Diane was willing to pay the last worker hired?
a.$10
b.$20
c.$40
d.There is insufficient information to answer this question.
15) Which of the following comparisons best illustrates a compensating differential?
a.John’s wage is higher than Jane’s because the value of John’s marginal product is
higher than Jane’s.
b.Karl’s wage is higher than Kay’s because Karl is very personable, and Kay is very
gruff.
c.Beth’s wage is higher than Bill’s because Beth’s job may cause long-term health
problems, and Bill’s job will not impair his health.
d.All of the above are good illustrations of compensating differentials.
16) Uzbekistan’s Production Possibilities FrontierAzerbaijan’s Production
Possibilities Frontier
Azerbaijan’s opportunity cost of one nail is
a.1/4 bolt and Uzbekistan’s opportunity cost of one nail is 1/2 bolt.
b.1/4 bolt and Uzbekistan’s opportunity cost of one nail is 2 bolts.
c.4 bolts and Uzbekistan’s opportunity cost of one nail is 1/2 bolt.
d.4 bolts and Uzbekistan’s opportunity cost of one nail is 2 bolts.
17) Billie Jean has $120 to spend and wants to buy either a new amplifier for her guitar
or a new mp3 player to listen to music while working out. Both the amplifier and the
mp3 player cost $120, so she can only buy one. This illustrates the basic concept that
a.trade can make everyone better off.
b.people face trade-offs.
c.rational people think at the margin.
d.decisions made at the margin are not particularly important.
18) The shape of the total-cost curve is unrelated to the shape of the production
function.
a.True
b.False
19) For a profit-maximizing monopolist,
a.P > MR = MC.
b.P = MR = MC.
c.P > MR > MC.
d.MR < MC < P.
20) Suppose a tax is imposed on baseball bats. In which of the following cases will the
tax cause the equilibrium quantity of baseball bats to shrink by the smallest amount?
a.The response of buyers to a change in the price of baseball bats is strong, and the
response of sellers to a change in the price of baseball bats is weak.
b.The response of sellers to a change in the price of baseball bats is strong, and the
response of buyers to a change in the price of baseball bats is weak.
c.The response of buyers and sellers to a change in the price of baseball bats is strong.
d.The response of buyers and sellers to a change in the price of baseball bats is weak.