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1) Although economists and accountants treat many costs differently, they both treat the
cost of capital the same.
a.True
b.False
2) Which of the following statements is not correct?
a.Medical research can be an example of a public good.
b.The private market will tend to undersupply public goods.
c.The free-rider problem occurs when a good is nonexcludable.
d.All goods provided by the government are public goods.
3) Refer to Figure 9-23. With free trade allowed, this country
a.exports 5 units of the good.
b.imports 5 units of the good.
c.exports 13 units of the good.
d.imports 13 units of the good.
4) Which of the following is not an example of asymmetric information?
a.When someone is applying for a job, the employer checks references to determine the
previous work habits of the applicant.
b.When an employee purchases group life insurance without taking a physical exam,
she knows more about her health than does the insurance company.
c.When someone is considering buying a used car from a dealership, the dealer knows
more about the true condition of the car than does the potential buyer.
d.All of the above are examples of asymmetric information.
5) Suppose the government taxes 25 percent of the first $60,000 of income and 40
percent of all income above
$60,000. For a person earning $200,000, the marginal tax rate is
a.25 percent, and the average tax rate is 32.5 percent.
b.25 percent, and the average tax rate is 36 percent.
c.40 percent, and the average tax rate is 32.5 percent.
d.40 percent, and the average tax rate is 36 percent.
6) Because there are many buyers and sellers in a perfectly competitive market, no one
seller can influence the market price.
a.True
b.False
7) If the for a good is 1.4, then a 14 percent increase in the quantity demanded must be
the result of
a.a 0.1 percent decrease in the price.
b.a 1 percent decrease in the price.
c.a 10 percent decrease in the price.
d.a 19.6 percent decrease in the price.
8) In a market economy,
a.households decide which firms to work for and what to buy with their incomes.
b.firms decide whom to hire and what to make.
c.a central planner makes decisions about production and consumption.
d.Both a and b are correct.
9) Most economists believe that a corporate income tax affects the stockholders of a
corporation but not its employees or customers.
a.True
b.False
10) The quantity demanded of a product is the amount that buyers are willing and able
to purchase at a particular price.
a.True
b.False
11) Figure 8-25
How much is consumer surplus at the market equilibrium?
12) Professional organizations (for example, the American Medical Association and the
American Bar Association) have been active advocates for regulation to restrict the
right of professionals to advertise. Describe what economic incentives might exist for
existing professionals to restrict advertising.
13) Scenario 8-3
Suppose the market demand and market supply curves are given by the equations:
Suppose that a tax of T is placed on buyers so that the demand curve becomes:
If T = 40, how much is the burden of the tax on the buyers and on the sellers?
14) A government policy aimed at protecting people against the risk of adverse events is
called .
15) Describe the output and price effects that influence the profit-maximizing decision
faced by a firm in an oligopoly market. How does this differ from output and price
effects in a monopoly market?
16) With a minimum wage law, the workers who remain employed benefit from a .
17) Suppose that Kara values a hot fudge sundae at $6 and Stacia values one at $5. The
pretax price of a hot fudge sundae is $3. The government imposes a $1 tax on hot fudge
sundaes, which raises the price to $4. What is the deadweight loss from the tax?
18) Describe the relationship between average total cost and marginal cost.
