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.
When a tax is placed on the buyers of tennis racquets, the size of the tennis racquet
market
a. and the price paid by buyers both decrease.
b. decreases, but the price paid by buyers increases.
c. increases, but the price paid by buyers decreases.
d. and the price paid by buyers both increase.
Kelly and David are both capable of repairing cars and cooking meals. Which of the
following scenarios is not possible?
a. Kelly has a comparative advantage in repairing cars and David has a comparative
advantage in cooking meals.
b. Kelly has an absolute advantage in repairing cars and David has an absolute
advantage in cooking meals.
c. Kelly has a comparative advantage in repairing cars and in cooking meals.
d. David has an absolute advantage in repairing cars and in cooking meals.
Figure 921
The following diagram shows the domestic demand and domestic supply for a market.
In addition, assume that the world price in this market is $40 per unit.
Refer to Figure 921. With free trade, the domestic price and domestic quantity
demanded are
a. $30 and 1,200.
b. $40 and 800.
c. $30 and 800.
d. $40 and 1,600.
Figure 314
Arturo’s Production Possibilities FrontierDina’s Production Possibilities Frontier
Refer to Figure 314. Arturo’s opportunity cost of one burrito is
a. 3/4 taco and Dina’s opportunity cost of one burrito is 1/2 taco.
b. 3/4 taco and Dina’s opportunity cost of one burrito is 2 tacos.
c. 4/3 tacos and Dina’s opportunity cost of one burrito is 1/2 taco.
d. 4/3 tacos and Dina’s opportunity cost of one burrito is 2 tacos.
Tomato sauce and spaghetti noodles are complementary goods. A decrease in the price
of tomatoes will
a. increase consumer surplus in the market for tomato sauce and decrease producer
surplus in the market for spaghetti noodles.
b. increase consumer surplus in the market for tomato sauce and increase producer
surplus in the market for spaghetti noodles.
c. decrease consumer surplus in the market for tomato sauce and increase producer
surplus in the market for spaghetti noodles.
d. decrease consumer surplus in the market for tomato sauce and decrease producer
surplus in the market for spaghetti noodles.
Figure 426
Refer to Figure 426. Which of the following movements would illustrate the effect in
the market for swimming lessons of an increase in the incomes of parents with
schoolaged children?
a. Point A to Point B
b. Point C to Point B
c. Point C to Point D
d. Point A to Point D
Figure 318
Bintu’s Production Possibilities FrontierJuba’s Production Possibilities Frontier
Refer to Figure 318. The opportunity cost of 1 bowl for Bintu is
a. 1/4 cup.
b. 1/2 cup.
c. 2 cups.
d. 4 cups.
Figure 66
Refer to Figure 66. Which of the following price ceilings would be binding in this
market?
a. $8
b. $6
c. $12
d. $10
A decrease in the price of a good will
a. increase demand.
b. decrease demand.
c. increase quantity demanded.
d. decrease quantity demanded.
When the price of a good is measured in dollars, then the size of the deadweight loss
that results from taxing that good is measured in
a. units of the good that is being taxed.
b. units of a related good that is not being taxed.
c. dollars.
d. percentage change.
Low rates of inflation are generally associated with
a. low rates of government spending.
b. small or nonexistent government budget deficits.
c. low rates of productivity growth.
d. low rates of growth of the quantity of money.
Figure 922
The following diagram shows the domestic demand and domestic supply in a market. In
addition, assume that the world price in this market is $40 per unit.
Refer to Figure 922. Suppose the government imposes a tariff of $20 per unit. Relative
to the freetrade outcome, the imposition of the tariff
a. decreases imports of the good by 300 units and increases domestic production of the
good by 300 units.
b. decreases imports of the good by 300 units and increases domestic production of the
good by 600 units.
c. decreases imports of the good by 600 units and increases domestic production of the
good by 300 units.
d. decreases imports of the good by 600 units and increases domestic production of the
good by 600 units.
If the price elasticity of demand for a good is 4, then a 12 percent decrease in price
results in a
a. 0.33 percent increase in the quantity demanded.
b. 3 percent increase in the quantity demanded.
c. 30 percent increase in the quantity demanded.
d. 48 percent increase in the quantity demanded.
If car manufacturers begin using new laborsaving technology on their assembly lines,
we would not expect
a. a smaller quantity of labor to be used.
b. the supply of cars to increase.
c. the firms’ costs to fall.
d. individual car manufacturers to move up and to the right along their individual
supply curves.
The tax incidence
a. is the manner in which the burden of a tax is shared among participants in a market.
b. can be shifted to the buyer by imposing the tax on the buyers of a product in a
market.
c. can be shifted to the seller by imposing the tax on the sellers of a product in a market.
d. All of the above are correct.
Table 61
PriceQuantity
DemandedQuantity
Supplied
$2024000
$302000200
$401600400
$501200600
$60800800
$704001000
$8001200
Refer to Table 61. Suppose the government imposes a price ceiling of $70 on this
market. What will be the size of the shortage in this market?
a. 0 units
b. 400 units
c. 600 units
d. 1000 units
Figure 39
Uzbekistan’s Production Possibilities FrontierAzerbaijan’s Production Possibilities
Frontier
Refer to Figure 39. If the production possibilities frontiers shown are each for two days
of production, then which of the following combinations of bolts and nails could
Uzbekistan and Azerbaijan together make in a given 2day production period?
a. 12 bolts and 120 nails
b. 24 bolts and 96 nails
c. 38 bolts and 50 nails
d. 44 bolts and 24 nails
The proportion of minimumwage earners who are in families with incomes below the
poverty line is
a. less than onethird.
b. between onethird and onehalf.
c. between onehalf and twothirds.
d. greater than twothirds.
If the government removes a binding price ceiling from a market, then the price
received by sellers will
a. decrease, and the quantity sold in the market will decrease.
b. decrease, and the quantity sold in the market will increase.
c. increase, and the quantity sold in the market will decrease.
d. increase, and the quantity sold in the market will increase.
Holding all other factors constant and using the midpoint method, if a tractor
manufacturer increases production from 80 to 100 units when price increases by 15
percent, then supply is
a. inelastic, since the price elasticity of supply is equal to 0.68.
b. inelastic, since the price elasticity of supply is equal to 1.48.
c. elastic, since the price elasticity of supply is equal to 0.68.
d. elastic, since the price elasticity of supply is equal to 1.48.
For a particular good, a 3 percent increase in price causes a 10 percent decrease in
quantity demanded. Which of the following statements is most likely applicable to this
good?
a. The relevant time horizon is short.
b. The good is a necessity.
c. The market for the good is broadly defined.
d. There are many close substitutes for this good.
Figure 99
Refer to Figure 99. Producer surplus in this market after trade is
a. A.
b. A + B.
c. B + C + D.
d. C.
Figure 89
The vertical distance between points A and C represents a tax in the market.
Refer to Figure 89. The perunit burden of the tax on buyers is
a. $20.
b. $200.
c. $300.
d. $500.
Each of the following is a determinant of demand except
a. tastes.
b. production technology.
c. expectations.
d. the prices of related goods.
Suppose you like to make, from scratch, pies filled with banana cream and vanilla
pudding. You notice that the price of bananas has increased. As a result, your demand
for vanilla pudding would
a. decrease.
b. increase.
c. be unaffected.
d. There is insufficient information given to answer the question.
Which of the following would cause price to decrease?
a. a decrease in supply
b. an increase in demand
c. a surplus of the good
d. a shortage of the good
If a tax is levied on the buyers of a product, then there will be a(n)
a. upward shift of the demand curve.
b. downward shift of the demand curve.
c. movement up and to the left along the demand curve.
d. movement down and to the right along the demand curve.
Figure 81
Refer to Figure 81. Suppose the government imposes a tax of P’ P”’. The producer
surplus after the tax is measured by the area
a. M.
b. L+M+N+Y+B.
c. L+M+Y.
d. J.
Figure 917
Refer to Figure 917. With trade and a tariff, total surplus is
a. $1,224.
b. $1,416.
c. $1,512.
d. $1,704.
The economy of the former Soviet Union is best described as a
a. primitive economy.
b. market economy.
c. hybrid economy.
d. centrallyplanned economy.
Assume a market is perfectly competitive. When a new producer enters the market, the
a. price in the market increases.
b. price in the market decreases.
c. price in the market does not change.
d. market is no longer a competitive market.