1) In general, less productive workers are paid less than more productive workers.
a.True
b.False
2)
Using the midpoint method, what is the price elasticity of supply between $100 and
$220?
a. 0.58
b.0.67
c.1.00
d.1.73
3) Bob, the manager and owner of a small company, believes in the theory of efficiency
wages. As such, Bob would be most likely to agree with which of the following quotes?
a.”The only place where success comes before work is in the dictionary.”
b.”Work hard. Play harder.”
c.”Pay a man for the job you want him to do.”
d.”Imagination is more important than knowledge.”
4) Producer surplus directly measures
a.the well-being of sellers.
b.production costs.
c.excess demand.
d.unsold inventories.
5) Even economists who advocate small government agree that national defense is a
good that the government should provide.
a.True
b.False
6) The overriding reason why households and societies face many decisions is that
a.resources are scarce.
b.goods and services are not scarce.
c.incomes fluctuate with business cycles.
d.people, by nature, tend to disagree.
7) Bubba is a shrimp fisherman who used $2,000 from his personal savings account to
buy a boat and equipment for his shrimp business. The savings account paid 2%
interest. What is Bubba’s annual opportunity cost of the financial capital that he
invested in his business?
a.$20
b.$40
c.$200
d.$400
8) In 2008, the Los Angeles Times asked members of the American public whether free
international trade has helped or hurt the economy. Of those surveyed,
a.57 percent said free international trade helped the economy.
b.26 percent said free international trade helped the economy.
c.30 percent said free international trade hurt the economy.
d.16 percent said free international trade hurt the economy.
9) Which of the following is a tax on labor?
a.Medicare tax
b.Social Security tax
c.federal income tax
d.All of the above are labor taxes.
10) When a country allows trade and becomes an importer of a good,
a.everyone in the country benefits.
b.the gains of the winners exceed the losses of the losers.
c.the losses of the losers exceed the gains of the winners.
d.everyone in the country loses.
11) With linear demand and supply curves in a market, suppose a tax of $0.20 per unit
on a good creates a deadweight loss of $40. If the tax is increased to $0.50 per unit, the
deadweight loss from the new tax will be
a. $200.
b. $250.
c. $475.
d. $625.
12) The general term for market structures that fall somewhere between monopoly and
perfect competition is
a.incomplete markets.
b.imperfectly competitive markets.
c.oligopoly markets.
d.monopolistically competitive markets.
13) The problem that arises when one person performs a task on behalf of another
person is called
a.the hidden characteristics problem.
b.the lemons problem.
c.moral hazard.
d.adverse selection.
14) Table 17-29
Suppose that two firms, Wild Willy’s Wonderdrink (Firm W) and Hyper Hank’s
Hydration (Firm H), comprise the market for energy drinks. Each firm determines that
it could lower its costs and increase its profits if both firms reduced their advertising
budgets. But for the plan to work, each firm must agree to refrain from advertising.
Each firm believes that advertising works by increasing the demand for the firm’s
energy drinks, but each firm also believes that if neither firm advertises, the cost
savings will outweigh the lost sales. The table below lists each firm’s individual profits:
Firm W
Breaks agreement Maintains agreement
and advertises and does not advertise
Refer to Table 17-29. Which of the following statement(s) correctly characterizes the
outcome of this game?
a.There is a Nash equilibrium when both firms advertise.
b.Both Firm W and Firm H have a dominant strategy to advertise.
c.Although both firms collectively would earn higher profits by maintaining the
agreement not to advertise, self- interest will cause each firm to break the agreement.
d.All of the above are correct.
15) The trade-off between the production of one good and the production of another
good can change over time because of technological advances.
a.True
b.False
16) Lump-sum taxes are equitable but not efficient.
a.True
b.False
17) Scenario 13-15
Joan grows pumpkins. If Joan plants no seeds on her farm, she gets no harvest. If she
plants 1 bag of seeds, she gets 500 pumpkins. If she plants 2 bags, she gets 800
pumpkins. If she plants 3 bags, she gets 900 pumpkins. A bag of seeds costs $100, and
seeds are her only cost.
Joan’s production function exhibits
a.increasing marginal product.
b.decreasing marginal product.
c.constant marginal product.
d.Any of the above could be correct.
18) Insurance companies charge annual premiums to collect revenue, which they then
use to pay customers who file claims for damages they incur. Because of the moral
hazard problem insurance companies separate customers into groups. Group 1:
customers who file few claims & Group 2: customers that file a lot of claims. After
creating these groups, what happens to the average annual premium within a group?
a.Group 1: average annual premium increases Group 2: average annual premium
increases
b.Group 1: average annual premium decreases Group 2: average annual premium
increases
c.Group 1: average annual premium increases Group 2: average annual premium
decreases
d.Group 1: average annual premium decreases Group 2: average annual premium
decreases
19) Mary’s Production Possibilities Frontier Kate’s Production Possibilities
Frontier
Who has a comparative advantage in making muffins?
20) Scenario 9-3
Suppose domestic demand and domestic supply in a market are given by the following
equations:
With no trade allowed, how much are consumer surplus, producer surplus, and total
surplus in this market?
21) In terms of gains from trade, why is it true that taxes cause deadweight losses?
22) Table 17-34
Suppose that two oil companies – BP and Exxon – own adjacent natural gas fields. The
profits that each firm earns depends on both the number of wells it drills and the
number of wells drilled by the other firm. The table below lists each firm’s individual
profits:
Refer to Table 17-34. Does BP have a dominant strategy? If so, describe it.
23) Some advocates of antipoverty programs claim that fighting poverty is a public
good. Describe why government intervention may be necessary to reduce poverty.
24) Figure 9-27
The following diagram shows the domestic demand and supply curves in a market.
Assume that the world price in this market is $20 per unit.
If the country allows free trade, by how much do consumer surplus, producer surplus,
and total surplus change with trade?
25) Which theorem asserts that private economic actors can often solve the problem of
externalities among themselves?
26) Scenario 9-3
Suppose domestic demand and domestic supply in a market are given by the following
equations:
Suppose the world price in this market is $8 per unit, and suppose the country imposes
a $1 per unit tariff. If the country allows trade with a tariff, how much are consumer
surplus, producer surplus, tariff revenue, and total surplus?
27) Suppose that you have a choice between going to the movies with a friend for three
hours or working at your job. If you go to the movies, you will spend $12 on a ticket
and $6 on popcorn. If you choose to work, you will earn $10 an hour.
What is your opportunity cost of working?
28) Perry’s Production Possibilities FrontierJordan’s Production Possibilities
Frontier