1) Assume that the farmer and the rancher can switch between producing pork and
producing tomatoes at a constant rate.
The opportunity cost of 1 pound of tomatoes for the farmer is
a.1/2 pound of pork.
b.2 hours of labor.
c.2 pounds of pork.
d.4 hours of labor.
2) Figure 8-2
The vertical distance between points A and B represents a tax in the market.
The imposition of the tax causes the price received by sellers to
a.decrease by $2.
b.increase by $3.
c.decrease by $4.
d.increase by $5.
3) In the long run, a firm should exit the industry if its total costs exceed its total
revenues.
a.True
b.False
4) Goods that are not rival in consumption include both
a.private goods and common resources.
b.club goods and public goods.
c.common resources and public goods.
d.private goods and club goods.
5) In communism, central planners decide which of the following?
a.what goods and services will be produced
b.how much will be produced
c.who produced and consumed the goods and services
d.All of the above are correct.
6) Table 17-23
Two bottled beverage manufacturers (Firm A and Firm B) determine that they could
lower their costs, and thus increase their profits, if they reduced their advertising
budgets. But for the plan to work, each firm must agree to refrain from advertising.
Each firm believes that advertising works by increasing the demand for the firm’s
product, but each firm also believes that if neither firm advertises, the costs savings will
outweigh the lost sales. Listed in the table below are the individual profits for each firm.
Refer to Table 17-23. At the Nash equilibrium, how much profit will Firm B earn?
a.$3,500 because firm B will maintain the agreement not to advertise, but firm A will
break the agreement and choose to advertise.
b.$4,000 because each firm will break the agreement and choose to advertise.
c.$5,000 because each firm will maintain the agreement and choose not to advertise.
d.$6,000 because firm A will maintain the agreement not to advertise, but firm B will
break the agreement and choose to advertise.
7) When all firms choose their best strategy given the strategies that all the other firms
have chosen, the result is a Nash equilibrium.
a.True
b.False
8) Firms in a competitive market are said to be price takers because there are many
sellers in the market, and the goods offered by the firms are very similar if not identical.
a.True
b.False
9) Economists believe that the optimal level of pollution is zero.
a.True
b.False
10) Refer to Figure 9-24. Suppose the government imposes a tariff of $10 per unit.
With trade and a tariff, total surplus is
a. $750.
b. $900.
c. $950.
d. $1,550.
11) Scenario 19-5
Jason works part-time at a grocery store after school. Jason has worked at the store for
two years but still hasn’t received a wage increase, even though newer employees have
received raises. Jason has threatened his employer with a lawsuit if he doesn’t get a
raise in the next few weeks. Jason believes he is a victim of labor-market
discrimination.
Refer to Scenario 19-5. Why might an economist be skeptical of Jason’s discrimination
complaint?
a.Through antitrust laws, discriminating firms can be penalized with large fees.
b.Differences in wages alone do not by themself prove discrimination.
c.Discrimination leads to profit maximization.
d.Even if customers dislike Jason because he’s not helpful, if the store operates in a
competitive market the
store will pay Jason the same as other workers.
12) Rank the following state and local government expenditure categories from smallest
to largest.
a.education, health, highways
b.education, highways, health
c.highways, health, education
d.health, education, highways.
13) In practice, the U.S. income tax system is filled with special provisions that alter a
family’s tax based on its specific circumstances.
a.True
b.False
14) A small island off the coast of Cape Cod contains two restaurants and two retail
stores. Tourists need to take a ferry boat to reach the island, but with a recent slowdown
in the economy, tourists are less willing to pay for the boat ride to visit the island. The
owners of the restaurants and stores on the island – Restaurants 1 and 2, and Stores A
and B – think that if tourists could ride the ferry for free, they would be happy to visit
the island, eat and shop. The business owners are considering contributing to a pool of
money that will be used to pay for roundtrip ferry service each day. The table represents
their willingness to pay, that is, the maximum amount that each business owner is
willing to contribute, per day, to pay for each ferry trip.
Suppose the cost to run the ferry for each roundtrip is $750 per day and the 4 business
owners have agreed to split the costs of the ferry trips equally. How many ferry trips
would the owner of Restaurant 1 prefer to have?
a.0
b.1
c.2
d.3
15) Which of the following statements does not accurately describe the market for
labor?
a.The characteristics of workers, such as their education and experience, the
characteristics of jobs, such as their pleasantness or unpleasantness, and the presence or
absence of discrimination by employers all determine equilibrium wages.
b.Labor unions, minimum wage laws, and efficiency wages all may increase wages
above their equilibrium level.
c.Firms are willing to pay more for better-educated workers as long as there is an excess
supply of this type of worker.
d.Discrimination by employers against a group of workers may artificially lower wages
for that group.
16) How does the concept of elasticity allow us to improve upon our understanding of
supply and demand?
a.Elasticity allows us to analyze supply and demand with greater precision than would
be the case in the absence of the elasticity concept.
b.Elasticity provides us with a better rationale for statements such as “an increase in x
will lead to a decrease in y” than we would have in the absence of the elasticity concept.
c.Without elasticity, we would not be able to address the direction in which price is
likely to move in response to a surplus or a shortage.
d.Without elasticity, it is very difficult to assess the degree of competition within a
market.
17) An increase in the output price will increase the firm’s demand for labor, all else
equal.
a.True
b.False
18) Which tax system requires higher-income taxpayers to have lower tax rates, even
though they pay a larger amount of tax when compared to lower-income taxpayers?
a.a proportional tax
b.a progressive tax
c.a regressive tax
d.a lump-sum tax
19) Using the midpoint method, if the price falls from $200 to $150, the is
a.zero.
b.unit elastic.
c.inelastic.
d.elastic.
20) If John’s willingness to pay for a good is $20 and the price of the good is $15, how
much is John’s consumer surplus
from purchasing the good?
21) What is the deadweight loss due to profit-maximizing monopoly pricing under the
following conditions: The price charged for goods produced is $10. The intersection of
the marginal revenue and marginal cost curves occurs where output is 100 units and
marginal revenue is $5. The socially efficient level of production is 110 units. The
demand curve is linear and downward sloping, and the marginal cost curve is constant.
22) Briefly describe the tradeoff between equity and efficiency of tax systems using a
few examples.
23) Assume each college degree that is granted conveys an external benefit of $3,500.
The granting of the 500th college degree entails a private cost of $15,000 and a private
value of $25,000. What is the social value of the 500th college degree?
24) Figure 15-24
Which letter represents the profit-maximizing quantity chosen by the single price
monopolist?
25) Figure 21-30
The graph shows two budget constraints for a consumer.
Refer to Figure 21-30. What particular change would result in a rotation of the budget
constraint from Budget Constraint A to Budget Constraint B?
26) If tax revenues from a cigarette tax are used to pay for healthcare expenses related
to lung cancer, the cigarette tax could be justified using the.