1) Scenario 13-3
Kachina is a senior majoring in graphic design at Awesome University (AU). While she
has been attending college, Kachina started a computer consulting business to help
senior citizens learn how to use their iPads. Kachina charges $25 per hour for her
consulting services. She also works 5 hours a week for the Economics Department to
maintain that department’s Web page. The Economics Department pays Kachina $20
per hour.
If Kachina can work additional hours at either job, what is the opportunity cost if she
spends one hour reading a novel?
a.$20
b.$25
c.$100
d.$125
2) Suppose Reta is planning for retirement in a two-period world. In the first period
Reta is young and earns $1 million, and in the second period Reta is old and retired and
earns nothing. The interest rate is initially 10 percent, but then it falls to 7 percent. After
the interest rate falls, the
a.substitution effect will induce Reta to consume more when she is young.
b.substitution effect will induce Reta to consume less when she is young.
c.income effect will induce Reta to consume more when she is young.
d.change in interest rates affects the substitution effect but not the income effect.
3) The opportunity cost of going to college is
a.the total spent on food, clothing, books, transportation, tuition, lodging, and other
expenses.
b.the value of the best opportunity a student gives up to attend college.
c.zero for students who are fortunate enough to have all of their college expenses paid
by someone else.
d.zero, since a college education will allow a student to earn a larger income after
graduation.
4) When externalities are present, reaching an efficient outcome is especially difficult
when the number of interested parties is large.
a.True
b.False
5) If the size of a tax doubles, the deadweight loss doubles.
a.True
b.False
6) Figure 21-5
Refer to Figure 21-5. Assume that a consumer faces the budget constraint shown in
graph (a) in January and the budget constraint shown in graph (b) in February. If the
consumer’s income has remained constant, then what has happened to prices between
January and February?
a.The price of X has fallen, but there could not have been a change in the price of Y.
b.The price of Y has fallen, but there could not have been a change in the price of X.
c.The price of X has fallen, and the price of Y has risen.
d.The price of Y has fallen, and the price of X has risen.
7) When an economist evaluates a positive statement, he or she is primarily
a.examining evidence.
b.acting as a scientist.
c.concerned with verifying how the world is.
d.All of the above are correct.
8) A decrease in the number of sellers in the market causes
a.the supply curve to shift to the left.
b.the supply curve to shift to the right.
c.a movement up and to the right along a stationary supply curve.
d.a movement downward and to the left along a stationary supply curve.
9) Kelly has decided to start his own business giving sailing lessons. To purchase
equipment for the business, Kelly withdrew $1,000 from his savings account, which
was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest
rate of 7%. What is Kelly’s annual opportunity cost of the financial capital that has been
invested in the business?
a.$30
b.$140
c.$170
d.$300
10) If only a few people are affected by an externality, then it is likely that
a.corrective taxes will provide the most efficient solution to the externality.
b.command-and-control regulation will provide the most efficient solution to the
externality.
c.a private solution to the inefficiency will occur.
d.a private solution will be very difficult to negotiate.
11) Figure 16-13
Which letter represents the profit-maximizing price?
12) The for a good measures the willingness of
a.consumers to buy less of the good as price rises.
b.consumers to avoid monopolistic markets in favor of competitive markets.
c.firms to produce more of a good as price rises.
d.firms to respond to the tastes of consumers.
13) Suppose that Amanda receives a pay increase. We would expect
a.to observe Amanda moving down and to the right along her given demand curve.
b.Amanda’s demand for inferior goods to decrease.
c.Amanda’s demand for each of two goods that are complements to increase.
d.Amanda’s demand for normal goods to decrease.
14) An example of a price that changes only infrequently is the price of
a.stocks on the New York Stock Exchange.
b.crude oil.
c.residential real estate.
d.magazines sold at newsstands.
15) To gain 2 donuts by moving from point L to point
M, society must sacrifice
a.efficiency.
b.employment.
c.4 cups of coffee.
d.More than one of the above is correct.