1) Scenario 17-3.
Consider two countries, Kinglandia and Rovinastan, that are engaged in an arms race.
Each country must decide whether to build new weapons or to disarm existing
weapons. Each country prefers to have more arms than the other because a large arsenal
gives it more influence in world affairs. But each country also prefers to live in a world
safe from the other country’s weapons. The following table shows the possible
outcomes for each decision combination. The numbers in each cell represent the
country’s ranking of the outcome (10 = best outcome, 1 = worst outcome).
Refer to Scenario 17-3. Building new weapons is a dominant strategy for
a.Kinglandia, but not for Rovinastan.
b.Rovinastan, but not for Kinglandia.
c.both Kinglandia and Rovinastan.
d.neither Kinglandia nor Rovinastan.
2) An increase in demand shifts the demand curve to the left.
a.True
b.False
3) Draw indifference curves that reflect the following preferences.
a.pencils with white erasers and pencils with pink erasers
b.left shoes and right shoes
c.potatoes and rice
d.income and polluted water
4) Table 17-8
For a certain small town, the table shows the demand schedule for water. Assume the
marginal cost of supplying water is constant at $4 per bottle.
Refer to Table 17-8. If there are two suppliers of water, Victor and Sami, and if they
have successfully formed a cartel and split the market evenly, then how many bottles
will Sami supply?
a.100
b.200
c.300
d.400
5) Table 15-7
Sally owns the only shoe store in town. She has the following cost and revenue
information.
What is the total revenue from selling 6 pairs of shoes?
a. $100
b. $600
c. $625
d. $660
6) When a university bookstore prices chemistry textbooks at $200 each, it generally
sells 120 books per month. If it lowers the price to $160, sales increase to 160 books per
month. Given this information, we know that the for chemistry books is about
a.1.29, and a decrease in price from $200 to $160 results in an increase in total revenue.
b.1.29, and a decrease in price from $200 to $160 results in a decrease in total revenue.
c.0.78, and a decrease in price from $200 to $160 results in an increase in total revenue.
d.0.78, and a decrease in price from $200 to $160 results in a decrease in total revenue.
7) William engages in an activity that influences the well-being of a bystander. In which
of the following instances does an externality arise?
a.The impact of William€s activity on the bystander is adverse, and William
compensates the bystander
accordingly.
b.The impact of William€s activity on the bystander is adverse, but William fails to
compensate the bystander.
c.The impact of William€s activity on the bystander is beneficial and the bystander
compensates William
accordingly.
d.Externalities arise in all of the above cases.
8)
Figure 8-4
The vertical distance between points A and B represents a tax in the market.
The tax results in a loss
of producer surplus that amounts to
a. $75.50.
b. $90.00.
c. $112.50.
d. $127.50.
9) The 2011 U.S. distribution of income shows that the top 5 percent of families earn
approximately how much income per year?
a.$170,000 and over
b.$205,000 and over
c.$250,000 and over
d.$325,000 and over
10) If there is an increase in market demand in a perfectly competitive market, then in
the short run
a.there will be no change in the demand curves faced by individual firms in the market.
b.the demand curves for firms will shift downward.
c.the demand curves for firms will become more elastic.
d.profits will rise.
11) In the case of a moral-hazard problem, which of the following is not a way for the
principal to encourage the agent to act more responsibly? The principal could
a.better monitor the agent.
b.pay the agent above-equilibrium wages.
c.delay payment to the agent.
d.stop paying bonuses.
12) Suppose a country imposes a lump-sum income tax of $5,000 on each individual in
the country. What is the average income tax rate for an individual who earns $40,000
during the year?
a.0%
b.10%
c.More than 10%
d.The average tax rate cannot be determined without knowing the entire tax schedule.
13) The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic.
Both goods are considered to be normal goods by a majority of consumers. Suppose
that a large income tax increase decreases the demand for both goods by 10%.
The change in equilibrium price will be
a.greater in the aged cheddar cheese market than in the bread market.
b.greater in the bread market than in the aged cheddar cheese market.
c.the same in the aged cheddar cheese and bread markets.
d.Any of the above could be correct.
14) If Shawn can produce more donuts in one day than Sue can produce in one day,
then
a.Shawn has a comparative advantage in the production of donuts.
b.Sue has a comparative advantage in the production of donuts.
c.Shawn has an absolute advantage in the production of donuts.
d.Sue has an absolute advantage in the production of donuts.
15) Table 17-11
Only two firms, ABC and XYZ, sell a particular product. The table below shows the
demand curve for their product. Each firm has the same constant marginal cost of $8
and zero fixed cost.
Refer to Table 17-11. What is the socially efficient quantity of the product?
a.25
b.35
c.50
d.70
16) Which of the following is likely to have the most price inelastic demand?
a.strawberry-banana milk shakes
b.gasoline in the short run
c.diamond earrings
d.box seats at a major league baseball game
17) A cooperative agreement among oligopolists is less likely to be maintained,
a.the greater the number of oligopolists.
b.the larger the number of buyers of the oligopolists’ product.
c.the smaller the number of buyers of the oligopolists’ product.
d.the more likely it is that the game among the oligopolists will be played over and over
again.
18) In 1776, the American Revolution was sparked by anger over
a.the extravagant lifestyle of British royalty.
b.the crimes of British soldiers stationed in the American colonies.
c.British taxes imposed on the American colonies.
d.the failure of the British to protect American colonists from attack by hostile Native
Americans.
19) Which of the following correctly lists the products in order from most advertised to
least advertised?
a.soft drinks, breakfast cereals, dog food
b.corn, dog food, communication satellites
c.dog food, communication satellites, corn
d.wheat, corn, crude oil
20) Which of the following statements is correct?
a.Environmental degradation is an example of a free rider problem..
b.The division between public goods and common resources is clear-cut.
c.Some goods, such as lighthouses, may be either private or public goods.
d.The free-rider problem prevents governments from supplying public goods.