Dorothy is trying to decide how to allocate her time between work and leisure. Suppose
that she can work a maximum of 75 hours per week. If she can earn $15 per hour, the
vertical intercept of her time allocation budget line (with income plotted vertically and
leisure plotted horizontally) is:
A) $15.
B) 75 hours.
C) 5.
D) $1,125.
(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social
benefit and cost of various amounts of pollution from a coal mine. At the efficient
quantity of pollution the marginal social benefit of pollution is:
A) $400.
B) $300.
C) $200.
D) $100.
Why might the supply curve of insurance policies shift to the right?
A) The wealth of the sellers of insurance increases.
B) Premiums increase.
C) Risk aversion increases.
D) Diversification increases.
Suppose a competitive market has a downward-sloping demand curve and a horizontal
supply curve. If the supply curve shifts downward, equilibrium price will _____,
equilibrium quantity will _____, consumer surplus will _____, and producer surplus
will _____.
A) decrease; increase; increase; decrease
B) decrease; decrease; increase; not change
C) decrease; increase; increase; not change
D) decrease; increase; not change; increase
Economists describe the satisfaction consumers receive from consuming goods and
services as:
A) utility.
B) income effects.
C) budget constraints.
D) substitution effects.
Figure: Pollution and Efficiency
(Figure: Pollution and Efficiency) Look at the figure Pollution and Efficiency. In this
market, whose sulfur emission is a result of production, an efficient solution is one in
which:
A) MSB < MSC.
B) MSC < MSB.
C) total cost = total benefit.
D) MSC = MSB.
(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes
Sergei’s total costs for his perfectly competitive all-natural ice cream firm. If the market
price of a tub of ice cream is $35, how many tubs of ice cream will Sergei produce in
the short run?
A) 1
B) 2
C) 3
D) 4
Figure: Tom’s Production Possibilities
(Figure: Tom’s Production Possibilities)
Look at the figure Tom’s Production Possibilities. Which point or points represent(s) an
inefficient combination of coconuts and fish?
A) A only
B) A and B
C) C only
D) B and D
Figure: The Market for Music Downloads
(Figure: The Market for Music Downloads) Look at the graph The Market for Music
Downloads. If the government imposes a tax of $3 in this market, the government will
receive tax revenue of:
A) $20.
B) $30.
C) $60.
D) $75.
Suppose bad weather and pollution dramatically reduce the supply of crawfish in
Louisiana next year. This would most likely lead to _____ in the marginal utility of
crawfish consumption.
A) an increase
B) a decrease
C) no change
D) substitution and income effects
Which of the following statements is CORRECT?
A) Resource scarcity is not a major concern in the rich countries of the world.
B) Some opportunity costs are zero.
C) An economic situation is in equilibrium when no individual would be better off
taking a different action.
D) Some very talented, skilled individuals who can do everything better than most
people should not specialize in doing any one thing.
Figure: Hot Drinks Sold and Temperature
(Figure: Hot Drinks Sold and Temperature) Look
at the figure Hot Drinks Sold and Temperature. If we move from point K to point L in
the figure, the outside temperature has ______ degrees and the number of hot drinks
sold has ______.
A) decreased by 30; increased by 30
B) increased by 20; decreased by 20
C) increased by 30; decreased by 30
D) increased by 40; decreased by 40
To be binding, a price ceiling must be set at a price:
A) lower than the equilibrium price.
B) higher than the equilibrium price.
C) the same as the equilibrium price.
D) Any price ceiling is binding.
(Table: Workers and Corn Output) Look at the table Workers and Corn Output. Laura is
a price-taking farmer who produces corn. Assume the wage rate for workers is $125 and
the price per bushel of corn is $10. To maximize profits Laura should employ _____
workers.
A) two
B) three
C) four
D) six
Amanda recently graduated from college, and she has a job offer with uncertain
income: there is a 70% probability that she will make $10,000 and a 30% probability
that she will make $70,000. The expected value of Amanda’s income is:
A) $40,000.
B) $21,000.
C) $28,000.
D) $10,000.
Which of the following illustrates the law of demand?
A) An increase in tuition encourages more students to enroll in college because the
quality of education has risen.
B) Consumers buy more personal computers because prices have fallen.
C) Oil companies drill for new sources because prices are higher.
D) Fewer people play golf because incomes are lower.
Production possibility frontiers:
A) illustrate the production choices available to an economy.
B) assume full employment but not maximum efficiency.
C) assume maximum efficiency but not full employment.
D) are used to illustrate the law of decreasing opportunity costs.
Figure: The Market for Hamburgers
(Figure: The Market for Hamburgers) Look at the figure The Market for Hamburgers.
The maximum total surplus for the market is _____, and it occurs at a price equal to
_____.
A) $550; $1.50
B) $600; $1.50
C) $1,050; $2
D) Not enough information is provided to answer this question, since the maximum
total surplus could occur anywhere.
In Europe the minimum wage has led to:
A) lower unemployment, especially among young workers.
B) a proliferation of large companies in Italy.
C) widespread evasion of the minimum wage law in the black market for labor.
D) European governments hiring the surplus of workers.
If the price of corn rises, we expect:
A) the quantity of corn demanded to rise.
B) the quantity of corn supplied to rise.
C) the demand for corn to shift inward.
D) the supply of corn to shift outward.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $40, how many lawns will Alex mow?
A) 0
B) 20
C) 30
D) 40
Which of the following describes two goods that are most likely substitutes in
consumption?
A) loaves of bread and sticks of butter
B) loaves of bread and toasters
C) loaves of bread and hamburger buns
D) loaves of bread and gasoline
A social insurance program is aimed at:
A) keeping people from earning less than $10,000.
B) people who have encountered unexpected financial distress.
C) reducing the percentage of families living below the poverty line.
D) households with children.
Greater levels of utility are represented by:
A) indifference curves that are farther from the origin.
B) indifference curves that are closer to the origin.
C) moving up to the left on the same indifference curve.
D) moving down to the right on the same indifference curve.
Which model states that nations that are abundant in a factor will have a comparative
advantage in a good whose production is intensive in that factor?
A) the pauper labor fallacy model
B) the Ricardian model
C) the Heckscher”Ohlin model
D) the oligopoly model
Market failure may occur because:
A) individual actions have side effects that are not properly taken into account by the
market.
B) one party to a trade benefits more than another.
C) all goods are suited for efficient management by markets.
D) of regulated self-interest.
Table: Pumpkin Market
(Table: Pumpkin Market) There are two consumers, Andy and Ben, in the market for
pumpkins. Their willingness to pay for each pumpkin is shown in the table Pumpkin
Market. There are two producers of pumpkins, Cindy and Diane, and their costs are also
shown. The equilibrium price for pumpkins is $8 and the equilibrium quantity is 5. At
the equilibrium price and quantity, Cindy sells _____ pumpkins, and her producer
surplus is_____.
A) four; $2
B) three; $8
C) two; $3
D) one; $5