1) For which of the following goods is the income elasticity of demand likely lowest?
a.water
b.sapphire pendant necklaces
c.filet mignon steaks
d.fresh fruit
2) Daryn is raking leaves to earn money for his university’s economics club. In the first
hour, he rakes 8 bags of leaves. In the second hour, he rakes 6 bags of leaves. If he
earns $8 per hour, the value of the marginal product of the second hour of labor is $16.
a.True
b.False
3) A model that shows how dollars flow through markets among households and firms
is called the
a.production possibilities frontier.
b.circular-flow diagram.
c.demand and supply diagram.
d.comparative advantage model.
4) Scenario 16-2
Suppose market demand for a product is given by the equation P = 20 – Q. For this
market demand curve, marginal revenue is MR = 20 – 2Q.
If the marginal cost of producing this good is 0, how much total consumer surplus
would consumers receive in this market?
a.10
b.20
c.50
d.100
5) Transaction costs
a.can keep private parties from solving externality problems.
b.are incurred in the production process due to externalities.
c.increase when taxes are imposed to correct negative externalities.
d.are eliminated when the government intervenes in a market with externalities.
6) When comparing the salaries of a superstar CPA and a superstar golfer,
a.both can earn tremendously high salaries because both can meet with millions of
clients.
b.the superstar CPA will not earn as much as the superstar golfer because superstar
accountants do not have access to the same sophisticated technologies that superstar
golfers do.
c.the superstar CPA will not earn as much as the superstar golfer because a superstar
accountant can only work with a limited number of clients per day, whereas millions of
fans can enjoy the services provided by a superstar golfer on a given day by watching a
televised tournament.
d.the superstar CPA will not earn as much as the superstar golfer because customers are
unable to distinguish superstar accountant from a mediocre accountant.
7) A logical starting point from which the study of international trade begins is
a.the recognition that not all markets are competitive.
b.the recognition that government intervention in markets sometimes enhances the
economic welfare of the society.
c.the principle of absolute advantage.
d.the principle of comparative advantage.
8) Firms that operate in competitive product markets and choose to practice
discrimination in hiring workers
a.will survive if they increase production and garner a larger market share.
b.will eventually earn zero economic profits.
c.will survive as long as they are willing to have a smaller market share.
d.are likely to eventually go out of business.
9) Another way to think of the marginal seller is the seller who
a.will accept the lowest price of any seller in the market.
b.requires the highest price of any potential seller in the market.
c.would leave the market first if the price were any lower.
d.would leave the market last if the price falls.
10) Crude oil is primarily supplied to the world market by a few Middle Eastern
countries. Such a market is an example of a(n)
(i)imperfectly competitive market.
(ii)monopoly market.
(iii)oligopoly market.
a.(i) and (ii) only
b.(ii) and (iii) only
c.(i) and (iii) only
d.(iii) only
11) A macroeconomist – as opposed to a microeconomist – would study
a.the effects of rent control on housing in New York City.
b.the effects of foreign competition on the US auto industry.
c.the effects of borrowing by the federal government.
d.the effects of raising the gasoline tax on transit ridership.
12)
Your friend John created the graph above to illustrate that snowstorms are caused by
more snowblowers being sold. You inform him that his interpretation is incorrect due to
a.omitted variable bias.
b.reverse causality.
c.slope mismatch.
d.shifting versus moving along a curve.