1) The Laffer curve illustrates how taxes in markets with greater elasticities of demand
compare to taxes in markets with smaller elasticities of supply.
a.True
b.False
2) For an economist, the idea of making assumptions is regarded generally as a
a.bad idea, since doing so leads to the omission of important ideas and variables from
economic models.
b.bad idea, since doing so invariably leads to data-collection problems.
c.good idea, since doing so helps to simplify the complex world and make it easier to
understand.
d.good idea, since economic analysis without assumptions leads to complicated results
that the general public finds hard to understand.
3) For a good that is a necessity, demand
a.tends to be inelastic.
b.tends to be elastic.
c.has unit elasticity.
d.cannot be represented by a demand curve in the usual way.
4) When firms in a monopolistically competitive market engage in price-related
advertising, defenders of advertising argue that
a.the quality of products sold in the market always increases.
b.customers are less likely to be informed about other characteristics of the product.
c.new firms are discouraged from entering the market.
d.each firm has less market power.
5) Critics of advertising argue that firms use advertising to manipulate consumers’
tastes.
a.True
b.False
6) When firms in a competitive market have different costs, it is likely that
a.free entry and exit in the market will be violated.
b.the market will no longer be considered competitive.
c.long-run market supply will be downward sloping.
d.some firms will earn positive economic profits in the long run.
7) If a shortage exists in a market, then we know that the actual price is
a.above the equilibrium price, and quantity supplied is greater than quantity demanded.
b.above the equilibrium price, and quantity demanded is greater than quantity supplied.
c.below the equilibrium price, and quantity demanded is greater than quantity supplied.
d.below the equilibrium price, and quantity supplied is greater than quantity demanded.
8) Additional firms often do not try to compete with a natural monopoly because
a.they fear retaliation in the form of pricing wars from the natural monopolist.
b.they are unsure of the size of the market in general.
c.they know they cannot achieve the same low costs that the natural monopolist enjoys.
d.the natural monopoly does not make a large profit.
9) Suppose the government imposes a tax in a certain market in order to internalize an
externality. This type of policy is based on which of the Ten Principles of Economics?
a.People face trade-offs.
b.People respond to incentives.
c.Markets are usually a good way to organize economic activity.
d.The cost of something is what you give up to get it.
10) Relationship Between Years of Education and Annual Income
According to the graph, the correlation between years of education and annual income
is
a.positive
b.negative
c.inverse
d.normative
11) Giffen goods have positively-sloped demand curves because they are
a.normal goods for which the income effect outweighs the substitution effect.
b.normal goods for which the substitution effect outweighs the income effect.
c.inferior goods for which the income effect outweighs the substitution effect.
d.inferior goods for which the substitution effect outweighs the income effect.