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1) The Coase theorem asserts that the private market will always solve the problem of
externalities and allocate resources efficiently
a.even if private parties experience substantial costs of bargaining.
b.even if the initial distribution of legal rights is skewed in favor of some private parties
over others.
c.only when there is a large number of private parties that engage in bargaining.
d.All of the above are correct.
2) Tom quit his $65,000 a year corporate lawyer job to open up his own law practice. In
Tom's first year in business his total revenue equaled $150,000. Tom's explicit cost
during the year totaled $85,000. What is Tom's economic profit for his first year in
business?
a.$0
b. $20,000
c. $65,000
d. $85,000
3) The poverty rate is the percentage of the population that have a family income level
below the
a.income maintenance threshold.
b.poverty line.
c.bottom quintile of the income distribution.
d.minimum wage.
4) Antigua has an absolute advantage in the production of
a.towels and Barbuda has an absolute advantage in the production of umbrellas.
b.umbrellas and Barbuda has an absolute advantage in the production of towels.
c.both goods and Barbuda has an absolute advantage in the production of neither good.
d.neither good and Barbuda has an absolute advantage in the production of both goods.
5) Suppose that a competitive market is initially in equilibrium. Then demand increases.
If some resources used in production are not available in sufficient quantities for
entering firms,
a.the long-run market supply curve will be upward sloping.
b.the long-run market supply curve will be perfectly elastic.
c.in the long run firms will suffer economic losses, leading them to exit the industry.
d.the number of firms will decrease, and the market will become a monopoly.
6) Table 17-19
Consider a small town that has two grocery stores from which residents can choose to
buy a loaf of bread. The store owners each must make a decision to set a high bread
price or a low bread price. The payoff table, showing profit per week, is provided
below. The profit in each cell is shown as (Store 1, Store 2).
Refer to Table 17-19. What is grocery store 1's dominant strategy?
a.Grocery store 1 does not have a dominant strategy.
b.Grocery store 1 should always set a low price.
c.Grocery store 1 should always set a high price.
d.Grocery store 1 should set a low price when grocery store 2 sets a low price, and
grocery store 1 should set a high price when grocery store 2 sets a high price.
7) Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5
empty rooms for tonight. The marginal cost per room per night
a.is $40.
b.is $80.
c.is $120.
d.cannot be determined from the information given.
8) At a consumer's optimal choice, the consumer chooses the combination of goods that
equates the marginal rate of substitution and the price ratio.
a.True
b.False
9) Suppose that when the average college student's income is $10,000 per year, the
annual quantity demanded of Patty's Pizza is 50 and the annual quantity demanded of
Sue's Subs is 80. Suppose that when the price of Patty's Pizza increases from $8 to $10
per pie, the quantity demanded of Sue's Subs increases from 80 to 100. Suppose also
that when the average student's income increases to $12,000 per year, the annual
quantity demanded of Patty's Pizza increases from 50 to 60.
Using the midpoint method, the cross is
a.about 0.22, and the two goods are substitutes.
b.about -0.005, and the two goods are complements.
c.1, and the two goods are substitutes.
d.1, and the two goods are unitary elastic.
10) By definition, imports are
a.people who work in foreign countries.
b.goods in which a country has an absolute advantage.
c.limits placed on the quantity of goods leaving a country.
d.goods produced abroad and sold domestically.
11) Using the midpoint method, the for a good is computed to be approximately 2.
Which of the following events is consistent with a 0.1 percent increase in the price of
the good?
a.The quantity of the good demanded decreases from 250 to 150
b.The quantity of the good demanded decreases from 200 to 100
c.The quantity of the good demanded decreases by 0.05 percent.
d.The quantity of the good demanded decreases by 0.2 percent.
12) Suppose the government taxes 30 percent of the first $70,000 and 50 percent of all
income above $70,000. For a person earning $100,000, the marginal tax rate is
a.30 percent, and the average tax rate is 50 percent.
b.30 percent, and the average tax rate is 36 percent.
c.50 percent, and the average tax rate is 40 percent.
d.50 percent, and the average tax rate is 36 percent.
