1) An entrepreneur’s motivation to start a business arises from
a.an innate love for the type of business that he or she starts.
b.a desire to earn a profit.
c.an altruistic desire to provide the world with a good product.
d.All of the above could be correct.
2) Figure 9-14. On the diagram below, Q represents the quantity of crude oil and P
represents the price of crude oil.
When the country for which the figure is drawn allows international trade in crude oil,
a.consumer surplus for domestic crude-oil consumers decreases.
b.the demand for crude oil by domestic crude-oil consumers decreases.
c.the losses of the domestic losers outweigh the gains of the domestic winners.
d.domestic crude-oil producers sell less crude oil.
3) Corrective taxes differ from most taxes in that corrective taxes
a.reduce economic efficiency.
b.do not raise revenue for the government.
c.do not cause deadweight losses.
d.always result in a high burden on sellers of goods to which the corrective tax applies.
4) Given the table below, graph the demand and supply curves for flashlights. Make
certain to label the equilibrium price and equilibrium quantity.
a.What is the equilibrium price and the equilibrium quantity?
b.Suppose the price is currently $5. What problem would exist in the market? What
would you expect to happen to price? Show this on your graph.
c.Suppose the price is currently $2. What problem would exist in the market? What
would you expect to happen to price? Show this on your graph.
5) In a representative labor market,
a.the wage adjusts to balance the supply and demand for labor.
b.the wage equals the value of the marginal product of labor.
c.an increase in the supply of labor increases the equilibrium wage.
d.Both a and b are correct.
6) Table 18-9
The following table shows the production function for a particular business. The
numbers represent the various labor and output combinations the firm may choose for
its output on a daily basis.
Refer to Table 18-9. What is the marginal product of the third unit of labor?
a.40 units
b.50 units
c.60 units
d.180 units
7) The long-run supply curve in a competitive market is more elastic than the short-run
supply curve.
a.True
b.False
8) Sunshine’s Organic Market sells organic produce. Assume that labor is the only input
that varies for the firm. The store manager has determined that if she hires 12 workers,
the store can sell 300 pounds of produce per day. If she hires 13 workers, the store can
sell 370 pounds of produce per day. The store earns $4 for each pound of produce that it
sells, and the manager pays each worker $80 per day. Assuming no changes in either the
daily wages paid to store workers or the price at which the store sells its produce, what
is the minimum number of sales that would allow the firm to increase its profits by
hiring a 14th worker?
a.374 pounds per day
b.380 pounds per day
c.390 pounds per day
d.450 pounds per day
9) If the seller of a used car offers a limited warranty, the warranty is an example of a(n)
a.signal.
b.screen.
c.efficiency wage.
d.agent.
10) Sonny’s Surfer Shop produces and sells custom surf boards. Assume that labor is
the only input that varies for the firm. The firm’s owner has determined that if she hires
10 workers, the firm can produce 10 surf boards per day. If she hires 11 workers, the
firm can produce 12 surfboards per day. The firm sells each surfboard for $2,000, and it
pays each of its workers $200 per day. Which of the following is correct?
a.For the 11th worker, the value of the marginal product of labor is $400.
b.For the 11th worker, the value of the marginal product of labor is $4,000.
c.The firm should not hire the 11th worker since hiring this worker reduces profit.
d.In order to justify hiring the 11th worker the firm will need to raise the price of a
surfboard.
11) Figure 8-13
Suppose the government places a $5 per-unit tax on this good. The loss of producer
surplus resulting from this tax is
a.$60.
b.$45.
c.$30.
d.$15.
12) Scenario 15-8
Mega Media Cable TV is able to purchase an exclusive right to sell a premium sports
channel in its market area. Let’s assume that Mega Media pays $100,000 a year for the
exclusive marketing rights to the sports channel. Since Mega Media has already
installed cable to all of the homes in its market area, the marginal cost of delivering the
sports channel to subscribers is zero. The manager of Mega Media needs to know what
price to charge for the sports channel service to maximize her profit. Before setting
price, she hires an economist to estimate demand for the sports channel. The economist
discovers that there are two types of subscribers who value premium sporting channels.
First are the 3,000 die-hard sports fans who will pay as much as $150 a year for the new
channel. Second, the premium sports channel will appeal to 20,000 occasional sports
viewers who will pay as much as $25 a year for a subscription to it.
If Mega Media Cable TV is able to price discriminate, what would be the maximum
amount of profit it could generate?
a. $950,000
b. $850,000
c. $400,000
d. $350,000
13) In the ordered pair (20, 30), 20 is the
a.the x-coordinate.
b.the horizontal location of the point.
c.the y-coordinate.
d.Both a and b are correct.
14) Suppose a society consists of only two people, John and Jane. A utilitarian would
say that the proper role of government in this society is to
a.equalize the incomes of John and Jane.
b.equalize John’s utility and Jane’s utility.
c.equalize John’s marginal utility and Jane’s marginal utility.
d.maximize the sum of John’s utility and Jane’s utility.
15) John is an Asian 23-year-old male, and Ken is an Asian 43-year-old male. Both
John and Ken are economics majors, and they graduated from the same college with the
same GPA – John in 2006 and Ken in 1986. John and Ken are both financial advisers at
the same brokerage firm. John earns $52,000 a year, and Ken earns $88,000 a year.
Select the best explanation for this wage difference.
a.John has more human capital than Ken.
b.John has less human capital than Ken.
c.John has been discriminated against because he is young.
d.Ken has been discriminated against because he is old.
16) International trade can make some individuals within a country worse off, even as it
makes the country as a whole better off.
a.True
b.False
17) One existing government program that works much like a negative income tax is
Medicaid.
a.True
b.False
18) Which of the following statements is correct?
a.Public ownership is preferred to regulation in order to minimize the deadweight losses
associated with natural monopolies.
b.Antitrust laws are always the best way to limit monopoly power.
c.It is possible that the best approach to monopolies is for the government to do
nothing.
d.Marginal-cost pricing requires a natural monopoly to earn zero economic profits.
19) The amount of power that a monopoly has depends on whether there are close
substitutes for its product.
a.True
b.False
20) Which of the following statements is correct?
a.Economists almost always find it easy to conduct experiments in order to test their
theories.
b.Economics is not a true science because economists are not usually allowed to
conduct experiments to test their theories.
c.Economics is a social science rather than a true science because it cannot employ the
scientific method.
d.Economists are usually not able to conduct experiments, so they must rely on natural
experiments offered by history.