1)
Figure 8-4
The vertical distance between points A and B represents a tax in the market.
The equilibrium price
before the tax is imposed is
a.$12, and the equilibrium quantity is 35.
b.$8, and the equilibrium quantity is 50.
c.$5, and the equilibrium quantity is 35.
d.$5, and the equilibrium quantity is 50.
2) Which of the following conditions is characteristic of a monopolistically competitive
firm in both the short-run and the long run?
a.P > MC
b.MC = ATC
c.P < MR
d.All of the above are correct.
3) The graph below represents the various combinations of ham and cheese (in pounds)
that the nation of Bonovia could produce in a given month.
In the nation of Cropitia, the opportunity cost of a pound of ham is 0.3 pounds of
cheese. Bonovia and Cropitia both can gain from trading with one another if one pound
of ham trades for
a.0.40 pounds of cheese.
b.0.55 pounds of cheese.
c.0.75 pounds of cheese.
d.All of the above are correct.
4) Assume that for good X the supply curve for a good is a typical, upward-sloping
straight line, and the demand curve is a typical downward-sloping straight line. If the
good is taxed, and the tax is doubled, the
a.base of the triangle that represents the deadweight loss quadruples.
b.height of the triangle that represents the deadweight loss doubles.
c.deadweight loss of the tax doubles.
d.All of the above are correct.
5) When a firm exits a monopolistically competitive market, the individual demand
curves faced by all remaining firms in that market will
a.shift in a direction that is unpredictable without further information.
b.shift to the right.
c.shift to the left.
d.remain unchanged. It is the supply curve that will shift.
6) Your college roommate receives a pay raise at her part-time job from $9 to $11 per
hour. She used to work 25 hours per week, but now she decides to work 20 hours per
week in order to spend more time studying economics. For this price range, her labor
supply curve is
a.vertical.
b.horizontal.
c.upward sloping.
d.backward sloping.
7) Table 17-24
Two firms are considering going out of business and selling their assets. Each considers
what happens if the other goes out of business. The payoff matrix below shows the net
gain or loss to each firm.
Refer to Table 17-24. Which firm’s dominant strategy is to sell?
a.firm A’s and firm B’s
b.firm A’s but not firm B’s
c.firm B’s but not firm A’s
d.neither firm A’s nor firm B’s
8) Suppose that the supply of aged cheddar cheese is inelastic, and the supply of bread
is elastic. Both goods are considered to be normal goods by a majority of consumers.
Suppose that a large income tax increase decreases the demand for both goods by 10%.
The price elasticity of supply for bread could be
a. -1.
b.0
c.0.5
d.1.5
9) A commonly-used gauge of poverty is the
a.income inequality rate.
b.average income rate.
c.poverty rate.
d.social inequality rate.
10) All differences in wages that are not accounted for by differences in human-capital
investment are likely to be a result of discrimination.
a.True
b.False
11) The Coase theorem states that
a.taxes are an efficient way for governments to remedy negative externalities.
b.subsidies are an efficient way for governments to remedy positive externalities.
c.industrial policies encourage technology spillovers.
d.in the absence of transaction costs, private parties can solve the problem of
externalities on their own.
12) 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. What will these two companies do if they behave as individual
profit maximizers?
a.Neither company will advertise.
b.Both companies will advertise.
c.One company will advertise, the other will not.
d.There is no way of knowing without knowing how many customers are stolen through
advertising.
13)
Figure 7-24
Refer to Figure 7-24. At equilibrium, total surplus is
a. $36.
b.$54.
c.$18.
d.$108.
14) State and local governments
a.are funded entirely by their own tax base.
b.receive the majority of their tax revenues from corporate income taxes.
c.are generally not responsible for collecting sales taxes.
d.receive some of their funds from the federal government.
15) Both Dave and Caroline produce sweaters and socks. If Dave’s opportunity cost of 1
sweater is 3 socks and Caroline’s opportunity cost of 1 sweater is 5 socks, then
a.Dave has a comparative advantage in the production of sweaters.
b.Caroline has a comparative advantage in the production of sweaters.
c.Dave has a comparative advantage in the production of socks.
d.Dave has a comparative advantage in the production of both sweaters and socks.
16) Which of the following is not an example of a positive, as opposed to normative,
statement?
a.Higher gasoline prices will reduce gasoline consumption.
b.Equality is more important than efficiency.
c.Trade restrictions lower our standard of living.
d.If a nation wants to avoid inflation, it will restrict the growth rate of the quantity of
money.
17) When existing firms in a competitive market are profitable, an incentive exists for
a.new firms to seek government subsidies that would allow them to enter the market.
b.new firms to enter the market, even without government subsidies.
c.existing firms to raise prices.
d.existing firms to increase production.