If the government decides to impose a $700 tax on U.S. citizens vacationing abroad,
then the deadweight loss from this tax will be:
A) relatively small.
B) relatively large.
C) zero.
D) absorbed by foreign governments.
Figure: Water Works
(Figure: Water Works) Look at the figure Water Works, which describes a small town’s
water works, a natural monopoly. If regulators allow the monopolist to charge a price
that just covers average total cost, the water works will serve _____ customers.
A) 200
B) 300
C) 375
D) 400
(Table: Externalities from Parks) The table Externalities from Parks shows the marginal
social benefit and the marginal social cost of preserving various amounts of land in a
city for a public park. Without government intervention, at the amount of land dedicated
to the public park the marginal social benefit will be:
A) $225.
B) $150.
C) $100.
D) $0.
Corner offices in high-rise office buildings usually cost more to rent than other offices.
This best illustrates the economic principle of:
A) marginal analysis.
B) scarce resources.
C) resources being used as efficiently as possible to achieve society’s goals.
D) opportunity costs.
Which of the following is a quota?
A) rent controls in New York City
B) property taxes on beachfront property in Florida
C) limits on the number of bushels of clams that can be caught in New Jersey
D) the maximum reimbursement that insurance will pay for a medical procedure
(Table: Demand and Total Cost) Look at the table Demand and Total Cost. Lenoia runs
a natural monopoly producing electricity for a small mountain village. The table shows
Lenoia’s demand and total cost of producing electricity. The profit-maximizing quantity
of electricity for her to produce is _____ megawatts.
A) 2
B) 3
C) 4
D) 5
The more work people do, all other things unchanged, the:
A) more their free time.
B) greater their nonmarket use of time.
C) less income they have.
D) less leisure they have.
A tax on imported goods or services is a:
A) quota.
B) tariff.
C) nontariff barrier.
D) trade embargo.
Figure: Tax Incidence
(Figure: Tax Incidence) Look at the figure Tax Incidence. All other things unchanged,
when a good or service is characterized by a relatively inelastic supply, as shown in
panel _____, a greater share of the burden of an excise tax is borne by _____.
A) A; buyers
B) B; sellers
C) A; sellers
D) B; buyers
The tendency of people to avoid paying for a good’s benefits when the benefits can be
obtained for free is called the _____ problem.
A) free-cost
B) free-rider
C) free-goods
D) free-market
The free-rider problem refers to:
A) the situation in the Old West when land was largely unfenced and riders had
unfettered access to private range land.
B) qualifications, or riders, that clients do not request, but which lawyers tend to
include in contracts anyway.
C) a variation on the phrase “There’s no such thing as a free lunch,” which is replaced
by “There’s no such thing as a free ride.”
D) lack of incentive for consumers to pay for a nonexcludable good.
Consumer surplus is represented by the area _____ the demand curve and _____ the
market price.
A) above; below
B) above; above
C) below; above
D) below; below
Figure: The Demand and Supply of Wheat
(Figure: The Demand and Supply of Wheat) Look at the figure The Demand and
Supply of Wheat. What is the equilibrium price in this wheat market?
A) $6
B) $4
C) $2
D) $8
Producer surplus for an individual seller is equal to:
A) the price of the good minus the cost of producing the good.
B) the cost of the good minus the willingness to pay for the good.
C) the willingness to pay for the good minus the price of the good.
D) the cost of the good minus the price of the good.
Figure: Monopolistic Competition III
(Figure: Monopolistic Competition III) The figure Monopolistic Competition III shows
the demand, marginal revenue, marginal cost, and average total cost curves for Pat’s
Pizza Parlor, a monopolistic competitor in the food-to-go industry. Pat’s Pizza Parlor’s
maximal profit will be:
A) $0.
B) $350.
C) $700.
D) $900.
Assume that the United States imposes an import quota on Italian shoes. Relative to the
equilibrium world price that would exist in the absence of import quotas, the
equilibrium price of shoes in the United States will most likely _____, and the
equilibrium price of shoes in Italy will most likely _____.
A) increase; decrease
B) decrease; remain the same
C) decrease; increase
D) increase; remain the same
If suppliers expect prices for their product to rise next year, then one would expect:
A) a shift in the demand curve for the product this year.
B) a decrease in the quantity demanded this year.
C) a shift to the left in the supply curve for the product this year.
D) a shift to the right in the supply curve for the product this year.
Milk is an important ingredient in the production of ice cream. If the price of milk
increases, then one would expect, holding all other things constant:
A) the supply curve for ice cream to shift left.
B) the supply curve for ice cream to shift right.
C) no change in the supply curve for ice cream.
D) a movement along the supply curve for ice cream curve, resulting in more ice cream
supplied.
An inefficient allocation of resources will occur when:
A) decision makers are faced with the full costs and benefits of their actions.
B) there are clearly defined property rights.
C) no alternative would increase the welfare of society.
D) decision makers are not faced with the full benefits and costs of their choices.
_____ occurs if Ford offers rebates on its most popular truck and Chevrolet follows
A) Tacit collusion
B) Nonprice competition
C) Antitrust policy
D) Price leadership
The trade-off between work and leisure underlying the supply of labor involves the
substitution effect and the _____ effect.
A) production
B) elasticity
C) income
D) complementary
Scenario: The Production of Wheat and Toys
The table describes the production of two goods,
wheat and toys, in country A and country B. Each country has a linear production
possibility frontier with respect to its production of the two goods. The numbers in each
column represent the total number of units each country could produce if it used all of
its resources to produce the good.
(Scenario: The Production of Wheat and Toys) Look at the scenario Production of
Wheat and Toys. Country A has an absolute advantage in _____ and a comparative
advantage in the production of _____.
A) toys; wheat
B) toys; toys
C) wheat and toys; wheat
D) neither good; toys
Suppose price elasticity of demand is relatively inelastic for good X. If the price
elasticity of supply for good X is elastic and an excise tax is imposed on good X, who
will bear the greater burden of the tax?
A) consumers
B) producers
C) both consumers and producers equally
D) government
Suppose that the first four workers generate corresponding total outputs of baby diapers
of 200, 350, 450, and 500, respectively. The marginal product of the second worker is:
A) 50.
B) 100.
C) 150.
D) 200.
The relation between an individual’s consumption bundle and her satisfaction is called a
_____ function.
A) demand
B) production
C) consumption
D) utility
Figure: Perfect Competition
(Figure: Perfect Competition) Look at the figure Perfect Competition. A perfectly
competitive industry’s total output is given by the intersection of:
A) marginal revenue and marginal cost.
B) demand and marginal cost.
C) demand and marginal revenue.
D) marginal revenue and average total cost.
Given a supply curve that is positively sloped and a demand curve for a normal good
that is negatively sloped, an increase in income will most likely result in:
A) an increase in equilibrium price and quantity.
B) a decrease in equilibrium price and an increase in equilibrium quantity.
C) a decrease in both equilibrium price and quantity.
D) an increase in equilibrium price and a decrease in equilibrium quantity.
Sally must submit a form to enroll in her company’s flexible medical benefits program.
Although she has been employed over a year, she has yet to complete the form. Which
type of irrational behavior does this represent?
A) status quo bias
B) mental accounting
C) loss aversion
D) risk aversion
Lakisha’s labor supply curve is downward-sloping for wage rates greater than $40 per
hour and upward-sloping for wage rates less than $40 per hour. If leisure is a normal
good for Lakisha and if the wage is _____, the substitution effect of a wage increase is
_____ than the income effect.
A) greater than $40; greater
B) equal to $18; less
C) greater than $40; less
D) greater than $20; less
