1) About four out of five millionaires in the United States earned their money rather
than inherited it.
a.True
b.False
2) The Social Security tax, and to a large extent, the federal income tax, are labor taxes.
a.True
b.False
3) An agreement among firms regarding price and/or production levels is called
a.an antitrust market.
b.a free-trade arrangement.
c.collusion.
d.a Nash agreement.
4) In the absence of taxes, Carlos would prefer to purchase a large fishing boat with a
75 hp motor. The government has recently decided to place a tax on boats with 75 hp
motors or higher. If Carlos decides to purchase a smaller boat with a 50 hp motor as a
result of the tax, which of the following statements is correct?
a.Other people who choose to purchase large boats will incur the cost of the deadweight
loss of the tax.
b.There are no deadweight losses as long as some people still choose to purchase large
boats.
c.In order to determine the size of the deadweight loss, we must add the revenues from
the tax to the loss in Carlos’s consumer surplus.
d.Carlos is worse off, and his loss of welfare is part of the deadweight loss of the tax.
5) Which of the following statements regarding monopolistic competition is not
correct?
a.In the long-run equilibrium, price equals average total cost.
b.In the long-run equilibrium, firms earn zero economic profit.
c.In the long-run equilibrium, firms charge a price above marginal cost.
d.In the long-run equilibrium, firms produce a quantity in excess of their efficient scale.
6) All scientific models, including economic models, simplify reality in order to
improve our understanding of it.
a.True
b.False
7) Suppose that the labor market for life guards is initially in equilibrium. Whistles are
an important safety tool that life guards use as a part of their jobs. A fire destroys the
largest factory that produces whistles. In the market for life guards the equilibrium
wage
a.increases because the marginal productivity of life guards increases.
b.decreases because the marginal productivity of life guards decreases.
c.increases because the supply of life guards increases.
d.decreases because the supply of life guards decreases.
8) A person who takes a prescription drug to control high cholesterol most likely has a
demand for that drug that is
a.inelastic.
b.unit elastic.
c.elastic.
d.highly responsive to changes in income.
9) Assume that England and Holland can switch between producing milk and oats at a
constant rate.
We could use the information in the table to draw a production possibilities frontier for
England and a second production possibilities frontier for Holland. If we were to do
this, measuring milk along the horizontal axis, then
a.the slope of England’s production possibilities frontier would be 10/4 and the slope of
Holland’s production possibilities frontier would be -4/3.
b.the slope of England’s production possibilities frontier would be 4/10 and the slope of
Holland’s production possibilities frontier would be -3/4.
c.the slope of England’s production possibilities frontier would be 10/4 and the slope of
Holland’s production possibilities frontier would be 4/3.
d.the slope of England’s production possibilities frontier would be 4/10 and the slope of
Holland’s production possibilities frontier would be 3/4.
10) A profit-maximizing firm in a monopolistically competitive market is characterized
by which of the following?
a.marginal cost exceeds marginal revenue
b.average revenue equals marginal cost
c.price exceeds marginal cost
d.All of the above are correct.
11) Figure 15-25
If this firm profit maximizes, which letter represents the price it will charge?
12) 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 going to the movies?
13) Figure 21-31
The figure shows two indifference curves and two budget constraints for a consumer
named Kevin.
Refer to Figure 21-31. If Kevin’s income is $1,260, then what is the price of a sweater?
14) Assume that Japan and Korea can switch between producing cars and producing
airplanes at a constant rate.
15) Which of the three political philosophies discussed in the textbook, if any, view the
total income of society as a shared resource that a social planner can freely redistribute
to achieve some social goal?