1) In the markets for goods and services in the circular-flow diagram,
a.households provide firms with savings for investment.
b.households provide firms with labor, land, and capital.
c.firms provide households with output.
d.firms provide households with profit.
2) Negative externalities lead markets to produce a smaller quantity of a good than is
socially desirable, while positive externalities lead markets to produce a larger quantity
of a good than is socially desirable.
a.True
b.False
3) Economist Kenneth Arrow wrote a famous book in 1951 in which he took up the
question,
a.Is there a perfect voting system?
b.Are preferences transitive?
c.Is a dictatorship a good form of government?
d.Does Democracy work?
4) Which of the following would be most likely to contribute to the breakdown of a
cartel in a natural resource (e.g., bauxite) market?
a.high prices
b.low price elasticity of demand
c.high compatibility of member interests
d.unequal member ownership of the natural resource
5) Table 10-1
The following table shows the private value, private cost, and external cost for various
quantities of output in a market.
Which of the following statements is correct?
a.If the external benefit per unit of output were $0 instead of $2, then the socially
efficient quantity of output would be 4 units.
b.A tax of $4 per unit would enable this market to move from the equilibrium quantity
of output to the socially optimal level of output.
c.Taking the external cost into account, total surplus declines when the 3rd unit of
output is produced and consumed.
d.The market for flu shots is a market to which the concepts in this table apply very
well.
6) Which of the following combinations of meat and potatoes could the rancher not
produce in 40 hours?
a.2 pounds of meat and 3 pounds of potatoes.
b.3 pounds of meat and 3 pounds of potatoes.
c.4 pounds of meat and 2 pounds of potatoes.
d.5 pounds of meat and 2 pound of potatoes.
7) Figure 14-13
Suppose a firm in a competitive industry has the following cost curves:
If the price is $6 in the short run, what will happen in the long run?
a.Nothing. The price is consistent with zero economic profits, so there is no incentive
for firms to enter or exit the industry.
b.Individual firms will earn positive economic profits in the short run, which will entice
other firms to enter the industry.
c.Individual firms will earn negative economic profits in the short run, which will cause
some firms to exit the industry.
d.Because the price is below the firm‘s average variable costs, the firms will shut down.
8) Suppose the cost of flying a 100-seat plane for an airline is $50,000 and there are 10
empty seats on a flight. The average cost per seat is
a.$50.
b.$500.
c.$50,000.
d.This cannot be determined from the information given.
9) Production Opportunities
Which of the following combinations of cheese and wine could France produce in 40
hours?
a.2 units of cheese and 20 units of wine
b.4 units of cheese and 15 units of wine
c.6 units of cheese and 5 units of wine
d.8 units of cheese and 20 units of wine
10) Asymmetric information
a.is not an area of current research in economics.
b.can take the form of a hidden action or a hidden characteristic.
c.explains Arrow’s impossibility theorem.
d.is uncommon in corporate management.
11) Suppose we are analyzing the market for hot chocolate. Graphically illustrate the
impact each of the following would have on demand or supply. Also show how
equilibrium price and equilibrium quantity would change.
a.Winter starts, and the weather turns sharply colder.
b.The price of tea, a substitute for hot chocolate, falls.
c.The price of cocoa beans decreases.
d.The price of whipped cream falls.
e.A better method of harvesting cocoa beans is introduced.
f.The Surgeon General of the U.S. announces that hot chocolate cures acne.
g.Protesting farmers dump millions of gallons of milk, causing the price of milk to rise.
h.Consumer income falls because of a recession, and hot chocolate is considered a
normal good.
i.Producers expect the price of hot chocolate to increase next month.
j.Currently, the price of hot chocolate is $0.50 per cup above equilibrium.
12) Suppose your management professor has been offered a corporate job with a 30
percent pay increase. He has decided to take the job. For him, the marginal
a.cost of leaving was greater than the marginal benefit.
b.benefit of leaving was greater than the marginal cost.
c.benefit of teaching was greater than the marginal cost.
d.All of the above are correct.
13) Figure 17-2. Two companies, Acme and Pinnacle, each decide whether to produce
a good quality product or a poor quality product. In the figure, the dollar amounts are
payoffs and they represent annual profits for the two companies.
Refer to Figure 17-2. If this game is played only once, then the most likely outcome is
that
a.both firms produce a poor quality product.
b.Acme produces a poor quality product and Pinnacle produces a good quality product.
c.Acme produces a good quality product and Pinnacle produces a poor quality product.
d.both firms produce a good quality product.
14) Table 15-7
Sally owns the only shoe store in town. She has the following cost and revenue
information.
What are Sally’s fixed costs?
a.$0
b.$100
c.$600
d.$745
15) The greatest difficulty with cost-benefit analysis of a public project is determining
a.whether government revenue is sufficient to cover the cost of the project.
b.which contractor should be awarded the project.
c.the cost of the project.
d.the value or benefit of the project.