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If a price floor is not binding, then
a. the equilibrium price is above the price floor.
b. the equilibrium price is below the price floor.
c. there will be a surplus in the market.
d. there will be a shortage in the market.
Fundamentally, economics deals with
a. scarcity.
b. money.
c. poverty.
d. banking.
Figure 422
Refer to Figure 422. What is the equilibrium price in this market?
a. $8
b. $12
c. $16
d. $20
A perfectly inelastic demand implies that buyers
a. decrease their purchases when the price rises.
b. purchase the same amount as before when the price rises or falls.
c. increase their purchases only slightly when the price falls.
d. respond substantially to an increase in price.
The smaller the price elasticity of demand, the
a. steeper the demand curve will be through a given point.
b. flatter the demand curve will be through a given point.
c. more strongly buyers respond to a change in price between any two prices P1 and P2.
d. smaller the decrease in equilibrium price when the supply curve shifts rightward
from S1 to S2.
An example of a firm with market power is a
a. delicatessen in New York.
b. cable TV provider in Tulsa.
c. clothing store in Chicago.
d. family farm in Kansas.
Although lawmakers legislated a fiftyfifty division of the payment of the FICA tax,
a. the actual tax incidence is unaffected by the legislated tax incidence.
b. the employer now is required by law to pay more than 50 percent of the tax.
c. the employee now is required by law to pay more than 50 percent of the tax.
d. employers are no longer required by law to pay any portion of the tax.
The amount of deadweight loss from a tax depends upon the
a. price elasticity of demand.
b. price elasticity of supply.
c. amount of the tax per unit.
d. All of the above are correct.
A decrease in input costs to firms in a market will result in a(n)
a. decrease in equilibrium price and an increase in equilibrium quantity.
b. decrease in equilibrium price and a decrease in equilibrium quantity.
c. increase in equilibrium price and a decrease in equilibrium quantity.
d. increase in equilibrium price and an increase in equilibrium quantity.
Five hundred units of good x are currently bought and sold. The marginal buyer is
willing to pay $40 for the 500th unit, and the cost to the marginal seller is $35 for the
500th unit. We know that
a. the equilibrium price of good x is somewhere between $35 and $40.
b. the equilibrium quantity of good x exceeds 500 units.
c. 500 units is not an efficient quantity of good x.
d. All of the above are correct.
Consider the market for portable air conditioners in equilibrium. A summer of
unseasonably cool weather would cause
a. both the equilibrium price and quantity to decrease.
b. both the equilibrium price and quantity to increase.
c. the equilibrium price to increase and the equilibrium quantity to decrease.
d. the equilibrium price to decrease and the equilibrium quantity to increase.
Which of the following statements about economic models is correct?
a. Economic models are built to mirror reality exactly.
b. Economic models are useful, but they should not be used for the purpose of
improving public policies.
c. Because economic models omit many details, they allow us to see what is truly
important.
d. Economic models seldom incorporate equations or diagrams.
In a perfectly competitive market, at the market price, buyers
a. cannot buy all they want, and sellers cannot sell all they want.
b. cannot buy all they want, but sellers can sell all they want.
c. can buy all they want, but sellers cannot sell all they want.
d. can buy all they want, and sellers can sell all they want.
In the market for oil in the short run, demand
a. and supply are both elastic.
b. and supply are both inelastic.
c. is elastic and supply is inelastic.
d. is inelastic and supply is elastic.
If the price elasticity of supply for a good is equal to infinity, then the
a. supply curve is vertical.
b. supply curve is horizontal.
c. supply curve also has a slope equal to infinity.
d. quantity supplied is constant regardless of the price.
Suppose that policymakers are considering placing a tax on either of two markets. In
Market A, the tax will have a significant effect on the price consumers pay, but it will
not affect equilibrium quantity very much. In Market B, the same tax will have only a
small effect on the price consumers pay, but it will have a large effect on the
equilibrium quantity. Other factors are held constant. In which market will the tax have
a larger deadweight loss?
a. Market A
b. Market B
c. The deadweight loss will be the same in both markets.
d. There is not enough information to answer the question.
Figure 917
Refer to Figure 917. Relative to the freetrade outcome, the imposition of the tariff
a. decreases imports of the good by 16 units and increases domestic production of the
good by 8 units.
b. decreases imports of the good by 16 units and increases domestic production of the
good by 16 units.
c. decreases imports of the good by 24 units and increases domestic production of the
good by 8 units.
d. decreases imports of the good by 24 units and increases domestic production of the
good by 24 units.
Total revenue
a. always increases as price increases.
b. increases as price increases, as long as demand is elastic.
c. decreases as price increases, as long as demand is inelastic.
d. remains unchanged as price increases when demand is unit elastic.
Figure 812
Refer to Figure 812. Suppose a $3 perunit tax is placed on this good. The tax causes
the price paid by buyers to
a. decrease by $3.
b. increase by $2.
c. decrease by $1.
d. increase by $6.
Figure 625
Refer to Figure 625. Suppose the same supply and demand curves apply, and a tax of
the same amount per unit as shown here is imposed. Now, however, the sellers of the
good, rather than the buyers, are required to pay the tax to the government. After the
sellers are required to pay the tax, relative to the case depicted in the graph, the burden
on buyers will be
a. larger, and the burden on sellers will be smaller.
b. smaller, and the burden on sellers will be larger.
c. the same, and the burden on sellers will be the same.
d. The relative burdens in the two cases cannot be determined without further
information.
When demand is unit elastic, price elasticity of demand equals
a. 1, and total revenue and price move in the same direction.
b. 1, and total revenue and price move in opposite directions.
c. 1, and total revenue does not change when price changes.
d. 0, and total revenue does not change when price changes.
Figure 54
Refer to Figure 54. If the price increases in the region of the demand curve between
points B and C, we can expect total revenue to
a. increase.
b. stay the same.
c. decrease.
d. first decrease, then increase until total revenue is maximized.
Table 318
The following table contains some production possibilities for an economy for a given
month.
ApplesOranges
120450
180?
240150
Refer to Table 318. If the production possibilities frontier is bowed outward, then “?”
could be
a. 150.
b. 225.
c. 300.
d. 375.
Figure 22
Refer to Figure 22. Devin works as an attorney for a corporation and is paid a salary in
exchange for the legal services he performs. Juan owns office buildings and rents his
buildings to companies in exchange for rent payments. If Devin’s income is represented
by a flow of dollars from Box D to Box B of this circularflow diagram, then Juan’s
income is represented by a flow of dollars
a. from Box A to Box C.
b. from Box C to Box A.
c. from Box B to Box D.
d. from Box D to Box B.
Taxes are of interest to
a. microeconomists because they consider how to balance equality and efficiency.
b. microeconomists because they consider how best to design a tax system.
c. macroeconomists because they consider how policymakers can use the tax system to
stabilize economic activity.
d. All of the above are correct.
Melody decides to spend three hours working overtime rather than going to the park
with her friends. She earns $20 per hour for overtime work. Her opportunity cost of
working is
a. the $60 she earns working.
b. the $60 minus the enjoyment she would have received from going to the park.
c. the enjoyment she would have received had she gone to the park.
d. nothing, since she would have received less than $60 worth of enjoyment from going
to the park.
Figure 823. The figure represents the relationship between the size of a tax and the tax
revenue raised by that tax.
Refer to Figure 823. The curve that is shown on the figure is called the
a. deadweightloss curve.
b. taxincidence curve.
c. Laffer curve.
d. Lorenz curve.
Suppose the tax on automobile tires is increased so that the tax goes from being a
"medium" tax to being a "large" tax. As a result, it is likely that
a. tax revenue increases, and the deadweight loss increases.
b. tax revenue increases, and the deadweight loss decreases.
c. tax revenue decreases, and the deadweight loss increases.
d. tax revenue decreases, and the deadweight loss decreases.
When a tax is imposed in a market, it willHTMLENTITY#8203HTMLENTITY
a. HTMLENTITY#8203HTMLENTITYalter the behavior of buyers.
b. HTMLENTITY#8203HTMLENTITYalter the behavior of sellers.
c. HTMLENTITY#8203HTMLENTITYhave no effect on the behavior or either buyers
or sellers.
d. HTMLENTITY#8203HTMLENTITYaffect the behavior of both buyers and sellers.
In the simple circularflow diagram, who buys the factors of production?
a. households only
b. firms only
c. both households and firms
d. neither households nor firms
Scenario 52
Suppose the demand function for good X is given by: where
is the quantity demanded of good X, is the price of good X, and is the price of
good Y, which is related to good X.
Refer to Scenario 52. Using the midpoint method, if the price of good X is constant at
$10 and the price of good Y decreases from $10 to $8, the cross price elasticity of
demand is about
a. 0.57, and X and Y are substitutes.
b. 0.22, and X and Y are complements.
c. 0.80, and X and Y are complements.
d. 2.57, and X and Y are complements.
