Scenario 54
Milk has an inelastic demand, and beef has an elastic demand. Suppose that a
mysterious increase in bovine infertility decreases both the population of dairy cows
and the population of beef cattle by 50 percent.
Refer to Scenario 54. The change in equilibrium price will be
a. greater in the milk market than in the beef market.
b. greater in the beef market than in the milk market.
c. the same in the milk and beef markets.
d. Any of the above could be correct.
By comparing the world price of pecans to India’s domestic price of pecans, we can
determine whether India
a. will export pecans (assuming trade is allowed).
b. will import pecans (assuming trade is allowed).
c. has a comparative advantage in producing pecans.
d. All of the above are correct.
Figure 420
Refer to Figure 420. If the price is $10, then there would be a
a. shortage of 400 units, and price would rise.
b. surplus of 400 units, and price would rise.
c. shortage of 600 units, and price would rise.
d. surplus of 600 units, and price would rise.
Table 52
PriceQuantity
$2500
$20030
$15070
$100110
$50150
$0190
Refer to Table 52. Using the midpoint method, if the price falls from $100 to $50, the
price elasticity of demand is
a. zero.
b. inelastic.
c. unit elastic.
d. elastic.
Which of the following is the primary cause of inflation?
a. an increase in the quantity of money
b. an increase in government spending
c. an increase in unemployment
d. an increase in productivity
Equilibrium price must increase when demand
a. increases and supply does not change, when demand does not change and supply
decreases, and when demand decreases and supply increases simultaneously.
b. increases and supply does not change, when demand does not change and supply
decreases, and when demand increases and supply decreases simultaneously.
c. decreases and supply does not change, when demand does not change and supply
increases, and when demand decreases and supply increases simultaneously.
d. decreases and supply does not change, when demand does not change and supply
increases, and when demand increases and supply decreases simultaneously.
The production possibilities frontier is used to illustrate some basic economic ideas,
including
a. scarcity.
b. opportunity cost.
c. economic growth.
d. All of the above are correct.
If the United States changed its laws to allow for the legal sale of a kidney, which of the
following is least likely to occur?
a. The supply of kidneys would increase.
b. The shortage of kidneys would decrease.
c. Many lives would be saved.
d. The allocation of kidneys would be fair.
Which of the following statements is correct concerning the burden of a tax imposed on
takeout food?
a. Buyers bear the entire burden of the tax.
b. Sellers bear the entire burden of the tax.
c. Buyers and sellers share the burden of the tax.
d. We have to know whether it is the buyers or the sellers that are required to pay the
tax to the government in order to make this determination.
Figure 924
The following diagram shows the domestic demand and supply in a market. Assume
that the world price in this market is $20 per unit.
Refer to Figure 924. Suppose the government imposes a tariff of $10 per unit. With
trade and a tariff, consumer surplus is
a. $625 and producer surplus is $25.
b. $625 and producer surplus is $225.
c. $1,225 and producer surplus is $25.
d. $1,225 and producer surplus is $225.
Serena Williams should pay someone else to mow her lawn instead of mowing it
herself, unless
a. Serena has an absolute advantage over everyone else in mowing her lawn.
b. Serena has a comparative advantage over everyone else in mowing her lawn.
c. Serena’s opportunity cost of mowing her lawn is higher than it is for everyone else.
d. All of the above are correct.
Which of the following is not an example of the principle that trade can make everyone
better off?
a. Americans buy tube socks from China.
b. Residents of Maine drink orange juice from Florida.
c. A homeowner hires the kid next door to mow the lawn.
d. All of the above are examples of the principle that trade can make everyone better
off.
Suppose Rebecca needs a dog sitter so that she can travel to her sister’s wedding.
Rebecca values dog sitting for the weekend at $200. Susan is willing to dog sit for
Rebecca so long as she receives at least $175. Rebecca and Susan agree on a price of
$185. Suppose the government imposes a tax of $30 on dog sitting. The tax has made
Rebecca and Susan worse off by a total of
a. $30.
b. $25.
c. $10.
d. $5.
Demand is said to be inelastic if
a. buyers respond substantially to changes in the price of the good.
b. demand shifts only slightly when the price of the good changes.
c. the quantity demanded changes only slightly when the price of the good changes.
d. the price of the good responds only slightly to changes in demand.
Holding all other forces constant, if increasing the price of a good leads to a decrease in
total revenue, then the demand for the good must be
a. unit elastic.
b. inelastic.
c. elastic.
d. None of the above is correct because a price increase always leads to an decrease in
total revenue.
Figure 319
Chile’s Production Possibilities FrontierColombia’s Production Possibilities
Frontier
Refer to Figure 319. Chile’s opportunity cost of one pound of coffee is
a. 3/4 pound of soybeans and Colombia’s opportunity cost of one pound of coffee is 1/2
pound of soybeans.
b. 3/4 pound of soybeans and Colombia’s opportunity cost of one pound of coffee is 2
pounds of soybeans.
c. 4/3 pounds of soybeans and Colombia’s opportunity cost of one pound of coffee is
1/2 pound of soybeans.
d. 4/3 pounds of soybeans and Colombia’s opportunity cost of one pound of coffee is 2
pounds of soybeans.
Figure 724
Refer to Figure 724. At equilibrium, consumer surplus is measured by the area
a. AHG.
b. AFB.
c. ABD.
d. BDF.
Unlike minimum wage laws, wage subsidies
a. discourage firms from hiring the working poor.
b. cause unemployment.
c. help only wealthy workers.
d. raise the living standards of the working poor without creating unemployment.
Figure 622
Refer to Figure 622. How much tax revenue does this tax generate for the government?
a. $80.
b. $60.
c. $15.
d. $45.
People who provide you with goods and services
a. are acting out of generosity.
b. do so because they get something in return.
c. have chosen not to become interdependent.
d. are required to do so by the government.
New cars are normal goods. What will happen to the equilibrium price of new cars if
the price of gasoline rises, the price of steel falls, public transportation becomes cheaper
and more comfortable, autoworkers accept lower wages, and automobile insurance
becomes more expensive?
a. Price will rise.
b. Price will fall.
c. Price will stay exactly the same.
d. The price change will be ambiguous.
Figure 721
Refer to Figure 721. When the price is P1, area B represents
a. total surplus.
b. producer surplus.
c. consumer surplus.
d. profits.
Figure 627
This figure shows the market demand and market supply curves for good Z.
Refer to Figure 627. Suppose a tax of $3 per unit is imposed on this market. What will
be the new equilibrium quantity in this market?
a. less than 8 units
b. 8 units
c. between 8 units and 10 units
d. greater than 10 units
The current price of blue jeans is $30 per pair, but the equilibrium price of blue jeans is
$25 per pair. As a result,
a. the quantity supplied of blue jeans exceeds the quantity demanded of blue jeans at the
$30 price.
b. the equilibrium quantity of blue jeans exceeds the quantity demanded at the $30
price.
c. there is a surplus of blue jeans at the $30 price.
d. All of the above are correct.
Figure 512
Refer to Figure 512. Sellers’ total revenue would increase if the price
a. increased from $12 to $15.
b. decreased from $39 to $36.
c. decreased from $27 to $24.
d. All of the above are correct.
Which of the following assertions is not correct about the multilateral approach to free
trade?
a. The multilateral approach has the potential to result in freer trade than does the
unilateral approach.
b. The multilateral approach may have a political advantage over the unilateral
approach.
c. The multilateral approach is simpler than the unilateral approach.
d. NAFTA and GATT both represent multilateral approaches to free trade.
Table 44
PriceQuantity Demanded
by AdamQuantity Demanded
by BarbQuantity Demanded
by Carl
$1010822
$8121226
$6141630
$4162034
$2182438
$0202842
Refer to Table 44. Suppose the market consists of Barb and Carl only. If the price falls
by $2, the quantity demanded in the market increases by
a. 4 units.
b. 6 units.
c. 8 units.
d. 10 units.
When it comes to people’s tastes, economists generally believe that
a. tastes are based on forces that are well within the realm of economics.
b. tastes are based on historical and psychological forces that are beyond the realm of
economics.
c. tastes can only be studied through wellconstructed, reallife models.
d. because tastes do not directly affect demand, there is little need to explain people’s
tastes.
The highest form of competition is called
a. arbitrage.
b. monopolistic competition.
c. equilibrium.
d. perfect competition.
When quantity supplied decreases at every possible price, we know that the supply
curve has
a. shifted to the left.
b. shifted to the right.
c. not shifted; rather, we have moved along the supply curve to a new point on the same
curve.
d. not shifted; rather, the supply curve has become flatter.
Figure 613
This figure shows the market demand and market supply curves for good X.
Refer to Figure 613. If the government imposes a price floor of $7 on this market, then
there will be
a. no surplus.
b. a surplus of 10 units.
c. a surplus of 15 units.
d. a surplus of 20 units.
Figure 24
Refer to Figure 24. Inefficient production is represented by which point(s)?
a. Q, S
b. Q, S, T
c. R, U
d. T
Which two groups of decision makers are included in the simple circularflow diagram?
a. markets and government
b. households and government
c. firms and government
d. households and firms