1) Brazil’s Production Possibilities Frontier
The fact that the line slopes downward reflects the fact that
a.for Brazil, it is more costly to produce peanuts than it is to produce cashews.
b.Brazil will produce more peanuts and fewer cashews as time goes by.
c.Brazil faces a tradeoff between producing peanuts and producing cashews.
d.Brazil should specialize in producing cashews.
2) Figure 18-1
On the graph, L represents the quantity of labor and Q represents the quantity of output
per week.
Refer to Figure 18-1. Suppose the firm sells its output for $25 per unit, and it pays
each of its workers $1,000 per week. Also, the firm’s nonlabor costs are fixed and they
amount to $2,000. The firm maximizes profit by hiring
a.2 workers.
b.3 workers.
c.4 workers.
d.5 workers.
3) Suppose that 50 ice cream cones are demanded at a particular price. If the price of
ice cream cones rises from that price by 4 percent, the number of ice cream cones
demanded falls to 46. Using the midpoint approach to calculate the , it follows that the
a.demand for ice cream cones in this price range is elastic.
b.demand for ice cream cones in this price range is inelastic.
c.demand for ice cream cones in this price range is unit elastic.
d. for ice cream cones in this price range is 0.
4) A monopolistically competitive firm faces a downward-sloping demand curve
because there are few firms in the market.
a.True
b.False
5) Table 20-5
Distribution of Income in Umakastan
Refer to Table 20-5. If the poverty rate in Umakastan is 10%, what is the poverty line?
a.$18,750
b.$20,000
c.$34,690
d.$38,000
6) Suppose a tax of $3 per unit is imposed on a good. The supply curve is a typical
upward-sloping straight line, and the demand curve is a typical downward-sloping
straight line. The tax decreases consumer surplus by $3,900 and decreases producer
surplus by $3,000. The tax generates tax revenue of $6,000. The tax decreased the
equilibrium quantity of the good from
a. 2,000 to 1,500.
b. 2,400 to 2,000.
c. 2,600 to 2,000.
d. 3,000 to 2,400.
7) Suppose that workers immigrate to Minnesota from Canada. Which of the following
correctly describes what would happen in the market for labor in Minnesota?
a.The equilibrium wage would increase, and the quantity of labor would increase. With
more workers, the added output from an extra worker is larger.
b.The equilibrium wage would decrease, and the quantity of labor would decrease. With
fewer workers, the added output from an extra worker is smaller.
c.The equilibrium wage would decrease, and the quantity of labor would increase. With
more workers, the added output from an extra worker is smaller.
d.The equilibrium wage would decrease, and the quantity of labor would increase. With
more workers, the added output from an extra worker is larger.
8) The second number in any ordered pair is
a.the x-coordinate.
b.the y-coordinate.
c.the horizontal location of the point.
d.the slope.
9) Which of the following is not correct about most economic models?
a.They are composed of equations and diagrams.
b.They contribute very little to economists’ understanding of the real world.
c.They omit many features of the real-world economy.
d.In constructing models, economists make assumptions.
10) Which of the following is not an example of a principal trying to solve the
moral-hazard problem? The principal
a.calls the agent’s references.
b.installs hidden cameras to monitor the agent’s behavior.
c.pays the agent efficiency wages.
d.pays the agent a year-end bonus.
11) If a tax shifts the supply curve downward (or to the right), we can infer that the tax
was levied on
a.buyers of the good.
b.sellers of the good.
c.both buyers and sellers of the good.
d.We cannot infer anything because the shift described is not consistent with a tax.
12) Suppose the income of buyers in a market for an inferior good decreases and a
technological advancement occurs also. What would we expect to happen in the
market?
a.Equilibrium price would decrease, but the impact on equilibrium quantity would be
ambiguous.
b.Equilibrium quantity would increase, but the impact on equilibrium price would be
ambiguous.
c.Equilibrium quantity would decrease, but the impact on equilibrium price would be
ambiguous.
d.None of the above is correct.
13) The likely outcome of the standard prisoners’ dilemma game is that
a.neither prisoner confesses.
b.exactly one prisoner confesses.
c.both prisoners confess.
d.Not enough information is given to answer this question.
14) Scenario 17-4.
Consider two cigarette companies, PM Inc. and Brown Inc. If neither company
advertises, the two companies split the market and earn $50 million each. If they both
advertise, they again split the market, but profits are lower by $10 million since each
company must bear the cost of advertising. Yet if one company advertises while the
other does not, the one that advertises attracts customers from the other. In this case, the
company that advertises earns $60 million while the company that does not advertise
earns only $30 million.
Refer to Scenario 17-4. In 1971, Congress passed a law that banned cigarette
advertising on television. If cigarette companies are profit maximizers, it is likely that
a.neither company opposed the ban on advertising.
b.Brown Inc. sued the federal government on grounds that the ban constitutes a civil
rights violation.
c.both companies sued the federal government on grounds that the ban constitutes a
civil rights violation.
d.both companies retaliated with black-market operations.
15) Table 12-11
If Peggy has taxable income of $43,000, her tax liability is
a. $1,920.
b. $4,400.
c. $6,320.
d. $8,175.
16) Comparing firms in perfectly competitive markets to monopoly firms, which can
earn economic profits in the long run?
17) What might cause diseconomies of scale?
18) Figure 9-26
The following diagram shows the domestic demand and domestic supply curves in a
market.
Suppose the world price in this market is
$7. If the country allows free trade, how many units will domestic consumers demand,
and how many units will domestic producers produce?
19) Of the following countries, which has the most equal distribution of income?
United States, Brazil, Mexico, China, Japan, Germany, United Kingdom, Russia
20) Briefly explain how research into new technologies gives rise to a positive
externality.