1) Suppose that Australia imposes a tariff on imported beef. If the increase in producer
surplus is $100 million, the increase in tariff revenue is $200 million, and the reduction
in consumer surplus is $500 million, the deadweight loss of the tariff is $300 million.
a.True
b.False
2) If the price of ice cream rose to $30 per gallon, consumers would purchase fewer
gallons of ice cream than if the price were $4 per gallon. If the price of chocolate sauce
fell to $0.50 per can, consumers would purchase more chocolate sauce than if the price
were $5 per can. These relationships illustrate the
a.law of supply.
b.law of demand.
c.difference between normal and inferior goods.
d.difference between substitute and complement goods.
3) Maxine’s Production Possibilities FrontierDaisy’s Production Possibilities
Frontier
a.increase the elasticity of demand for differentiated products.
b.enhance competition and encourage more product diversity.
c.reduce competition and reduce social welfare.
d.encourage the consumption of all homogenous goods.
7) A disadvantage associated with a minimum wage law to reduce poverty is that it
a.encourages illegitimate births because single women with children receive higher
payments.
b.rewards laziness because it provides payments to those with low incomes regardless
of their work effort.
c.focuses on children and the disabled while neglecting the working poor.
d.may benefit the teenage children of families who are not poor.
8) Hosne’s Production Possibilities FrontierMerve’s Production Possibilities
Frontier
Hosne’s opportunity cost of one wallet is
a.4/5 purse and Merve’s opportunity cost of one wallet is 2/3 purse.
b.4/5 purse and Merve’s opportunity cost of one wallet is 3/2 purses.
c.5/4 purses and Merve’s opportunity cost of one wallet is 2/3 purse.
d.5/4 purses and Merve’s opportunity cost of one wallet is 3/2 purses.
9) When employers pay an efficiency wage above the market equilibrium wage, this
will likely result in
a.a surplus of labor.
b.no unemployment.
c.an increase in the number of people employed.
d.an decrease in the quantity of labor supplied.
10) Hosne’s Production Possibilities FrontierMerve’s Production Possibilities
Frontier
Hosne should specialize in the production of
a.purses.
b.wallets.
c.both goods.
d.neither good.
11) Table 7-4
The numbers in Table 7-1 reveal the maximum willingness to pay for a ticket to a
Chicago Cubs vs. St. Louis Cardinal’s baseball game at Wrigley Field.
If you have a ticket that you sell to the group in an auction, what will be the selling
price?
a.slightly more than $20.
b.slightly more than $25.
c.slightly more than $50.
d.slightly more than $60.
12) Economic theory assumes people are always rational. Yet observation indicates that
people do not always behave rationally. Which of the following is not a systematic
mistake people make in their decisionmaking?
a.People often interpret information to fit beliefs already held.
b.People place too much emphasis in their decisionmaking on a few extreme situations
of which they are aware.
c.People tend to view current prices differently than they view future prices.
d.People are too sure of their own abilities.
13) When firms are faced with making strategic choices to maximize profit, economists
typically use
a.the theory of monopoly to model their behavior.
b.the theory of aggressive competition to model their behavior.
c.game theory to model their behavior.
d.cartel theory to model their behavior.
14) The profit-maximizing rule for a firm in a monopolistically competitive market is to
always select the quantity at which
a.marginal revenue is equal to marginal cost.
b.average total cost is equal to marginal revenue.
c.average total cost is equal to price.
d.average revenue exceeds average total cost.
15) Figure 16-1
Which of the graphs illustrates a relatively elastic, though not perfectly elastic, demand
curve consistent with a market that has many substitute products?
a.Panel A
b.Panel B
c.Panel C
d.Panel D
16) If Suzette responds to an increase in the interest rate by decreasing her saving, then,
for Suzette,
a.the increase in the interest rate creates an income effect that is greater than the
substitution effect.
b.the increase in the interest rate creates a substitution effect that is greater than the
income effect.
c.consumption when young and consumption when old are perfect substitutes.
d.consumption when young and consumption when old are perfect complements.
17) Factor markets for chocolate bars are influenced by the
a.demand for chocolate bars.
b.marginal productivities of labor and capital.
c.market prices for final goods and services.
d.All of the above are correct.
18) It has been said that many of the patrons in McDonald’s restaurants in foreign
locations are American tourists. A likely reason why many Americans dine at
McDonald’s while vacationing abroad is
a.they can’t get enough McDonald’s food when they are at home.
b.they know and trust the quality associated with the McDonald’s brand name.
c.the food at local restaurants is of inferior quality.
d.that Americans, by their nature, are not very adventurous.
19) Table 17-6
Imagine a small town in which only two residents, Kunal and Naj, own wells that
produce safe drinking water. Each week Kunal and Naj work together to decide how
many gallons of water to pump, to bring the water to town, and to sell it at whatever
price the market will bear. Assume Kunal and Naj can pump as much water as they
want without cost so that the marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water are shown in
the table below.
Refer to Table 17-6. If the market for water were perfectly competitive instead of
monopolistic, how many gallons of water would be produced and sold?
a.25
b.100
c.200
d.300
20) Given the following two equations:
1)Total Surplus = Consumer Surplus + Producer Surplus
2)Total Surplus = Value to Buyers – Cost to Sellers
Show how equation (1) can be used to derive equation (2).
21) When the Shaffers had a monthly income of $4,000, they usually ate out 8 times a
month. Now that the couple makes $4,500 a month, they eat out 10 times a month.
Compute the couple’s income elasticity of demand using the midpoint method. Explain
your answer. Is a restaurant meal a normal or inferior good to the couple?
22) At its current level of production a profit-maximizing firm in a competitive market
receives $12.50 for each unit it produces and faces an average total cost of $10. At the
market price of $12.50 per unit, the firm‘s marginal cost curve crosses the marginal
revenue curve at an output level of 1,000 units. What is the firm‘s current profit? What
is likely to occur in this market and why?
23) Scenario 17-6
Assume that a local telecommunications company sells high speed internet access and
cable television. The company’s only two customers are Taylor and Tim. Taylor is
willing to pay $50 per month for high speed internet access and $50 per month for cable
television. Tim is willing to pay only $20 per month for high speed internet access, but
is willing to pay $70 per month for cable television. Assume that the
telecommunications company can provide each of these products at zero marginal cost.
Refer to Scenario 17-6. If the telecommunications company is unable to use tying,
what is the profit-maximizing price to charge for high speed internet access?
24) Among male workers over age 25, about what percent has a college degree? What is
this percentage for black male workers over age 25?
25) Angie was the last worker hired by a firm that is competitive in the labor market.
The labor market always is in equilibrium. The firm sells its output for $24 per unit.
When Angie was hired, the firm’s output increased by 2 units per hour as a result. What
is Angie’s hourly wage?
26) A field experiment conducted by economists in the Chinese province of Hunan
provided evidence that, for poor households in that province, rice is agood.
27) For Meg, the substitution effect of an interest-rate increase is stronger than the
income effect. In response to a higher interest rate, will Meg save more or will she save
less?
28) Scenario 16-3
Peter operates an ice cream shop in the center of Fairfield. He sells several unusual
flavors of organic, homemade ice cream so he has a monopoly over his own ice cream,
though he competes with many other firms selling ice cream in Fairfield for the same
customers. Peter’s demand and cost values for sales per day are given in the table below.
(Everyone who purchases Peter’s ice cream buys a double scoop cone because it’s so
delicious.)
When Peter maximizes his profits, what is his total cost per day?
29) Comparing firms in perfectly competitive markets to monopoly firms, which
produces more output?