1) Economists and accountants both include forgone income as a cost to a small
business owner.
a.True
b.False
2) To achieve the optimal provision of public goods, the
a.market should be allowed to arrive at an equilibrium without government
intervention.
b.government must limit the provision of the goods.
c.government must tax producers of the goods.
d.government must either provide the goods or subsidize their production.
3) The labor supply curve reflects how workers’ decisions about the labor-leisure
tradeoff respond to changes in the opportunity cost of leisure.
a.True
b.False
4) In the Tragedy of the Commons, joint action among the individual citizens would be
necessary to solve their common resource problem unless the government intervenes.
a.True
b.False
5) Individual profit earned by Dave, the oligopolist, depends on which of the following?
(i)The quantity of output that Dave produces
(ii)The quantities of output that the other firms in the market produce
(iii)The extent of collusion between Dave and the other firms in the market
a.(i) and (ii)
b.(ii) and (iii)
c.(iii) only
d.(i), (ii), and (iii)
6) Scenario 13-11
Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can
build one in 30 minutes. He is semi-retired but earns $8 per hour at the local hardware
store. He can sell a birdhouse for $20 each.
An economist would calculate the total profit for one birdhouse to be a. $7.
b.$11.
c.$12.
d.$15.
7) Suppose that the Town of Mapledale is considering hiring an additional firefighter.
The expected benefit is estimated to be worth $5 for each of Mapledale’s 15,000
residents. What should the city do?
a.Hire the firefighter because additional fire protection is priceless.
b.Hire the firefighter if the cost of the new firefighter is less than $75,000.
c.Do not hire the firefighter because the costs exceed the benefits.
d.Hire the firefighter only if the benefit to the residents exceeds $75,000.
8) Scenario 15-2
Consider a local, privately-owned electrical cooperative named Poweshiek Power
Company (PPCo). PPCo has just completed a clean-coal-burning electrical power plant
in Iowa. Currently, PPCo can meet the electricity needs of all residents in the county. In
fact, its capacity far exceeds the needs of the county. After just a few years of operation,
the shareholders of PPCo experienced incredibly high rates of return on their
investment due to the profitability of the corporation.
Which of the following statements is most likely to be true?
(i)New entrants to the market know they will have a smaller market share than PPCo
currently has.
(ii)PPCo is a natural monopoly.
(iii)PPCo would experience higher profits if it were government-run.
a.(i) and (ii) only
b.(ii) and (iii) only
c.(i) and (iii) only
d.(i), (ii), and (iii)
9) Monopolistically competitive firms, like monopoly firms, maximize their profits by
charging a price that exceeds marginal cost.
a.True
b.False
10) Table 22-12
The following table shows the preferences for the five voters in a city regarding how to
deal with the city’s diseased trees.
A = do nothing
B = follow the expert’s advice to remove every tree
C = remove every 4th tree now and perhaps more later D = use an untested spraying
alternative
Refer to Table 22-12. Consider the public policy for dealing with diseased trees. Based
on the preferences in the table, which of the following statements is correct?
a.Outcome D is preferred to outcome C overall.
b.Outcome B is preferred to outcome C overall.
c.Outcome D is preferred to outcome B overall.
d.Outcome A is preferred to outcome D overall.
11) Figure 14-9
Suppose a firm operating in a competitive market has the following cost curves:
Which line segment best reflects the long-run supply curve for this firm?
a.ABCD
b.BC
c.ABC
d.None of the above is correct. We must know the firm‘s average variable cost.
12) Suppose the American Medical Association announces that men who shave their
heads are less likely to die of heart failure. We could expect the current demand for
a.hair gel to increase.
b.razors to increase.
c.combs to increase.
d.shampoo to increase.
13) Government policies resulting in reduced efficiency include
(i)the welfare system
(ii)unemployment insurance
(iii)progressive income tax
a.(i) only
b.(ii) only
c.(i) and (ii) only
d.(i), (ii), and (iii)
14) Figure 9-12
With trade, domestic production and domestic consumption, respectively, are
a. 1,200 and 800.
b. 1,600 and 800.
c. 800 and 1,200.
d. 800 and 1,600.
15) A likely example of complementary goods for most people would be
a.canoes and paddles.
b.snow mobiles and sofas.
c.coffee and tea.
d.tennis balls and basketballs.
16) Market power and externalities are examples of
a.laissez-faire economics.
b.public policy.
c.market failure.
d.welfare economics.
17) Why does a firm in a competitive industry charge the market price?
a.If a firm charges less than the market price, it loses potential revenue.
b.If a firm charges more than the market price, it loses all its market power.
c.The firm can only sell limited number of units of output, so it wants to sell at the
market price in order to lower its costs.
d.All of the above are correct.
18) State two examples of government-created monopolies.
19) Give some examples of the benefits and costs of antitrust laws.
20) Aniella believes that the demand for unskilled labor is relatively inelastic. Carmella
believes that the demand for unskilled labor is relatively elastic. Which is an advocate
of minimum-wage laws?
21) Figure 8-26
Suppose the government places a $3 tax per unit on this good. What price will sellers
receive for the good after the tax is imposed?
22) Suppose the market for home-grown peppers in the town of Smallville is comprised
of two farmers. Explain why they might try to collude.
23) Lindsay and Tim are playing the ultimatum game starting with $100. Based on the
coin toss, Lindsay is the player to propose a division of the $100. If Lindsay acts as
economic theory assumes and Tim acts as experimental evidence shows, Tim will
24) Why are the actions of the firms in an oligopoly interdependent?
25) Why do we say that the demand for labor is a derived demand?
26) Figure 16-12
How much excess capacity does this firm have?