Figure 82
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 82. The loss of consumer surplus as a result of the tax is
a. $1.50.
b. $3.
c. $4.50.
d. $6.
When a binding price floor is imposed on a market,
a. price no longer serves as a rationing device.
b. the quantity supplied at the price floor exceeds the quantity that would have been
supplied without the price floor.
c. only some sellers benefit.
d. All of the above are correct.
The term used to describe a situation in which markets do not allocate resources
efficiently is
a. economic meltdown.
b. market failure.
c. equilibrium.
d. the effect of the invisible hand.
Suppose that the U.S. has a comparative advantage in the production of spreadsheet
software. As a result of opening up the market to international trade,
a. U.S. citizens benefit from lower software prices, increasing consumer surplus in the
market.
b. U.S. software producers are harmed, since the price that these producers receive will
decline as the price falls to the world price.
c. total surplus in this market will remain unchanged, as the decline in benefits received
by software producers exactly balances the increase in benefits received by US software
consumers.
d. U.S. producers benefit from higher software prices, increasing producer surplus in
the market.
When there is a technological advance in the pork industry, consumer surplus in that
market will
a. increase.
b. decrease.
c. not change, since technology affects producers and not consumers.
d. not change, since consumers’ willingness to pay is unaffected by the technological
advance.
The burden of a luxury tax falls
a. more on the rich than on the middle class.
b. more on the poor than on the rich.
c. more on the middle class than on the rich.
d. equally on the rich, the middle class, and the poor.
What would happen to the equilibrium price and quantity of latts if coffee shops began
using a machine that reduced the amount of labor necessary to produce them?
a. Both the equilibrium price and quantity would increase.
b. Both the equilibrium price and quantity would decrease.
c. The equilibrium price would increase, and the equilibrium quantity would decrease.
d. The equilibrium price would decrease, and the equilibrium quantity would increase.
The use of theory and observation is more difficult in economics than in sciences such
as physics due to the difficulty in
a. performing an experiment in an economic system.
b. applying mathematical methods to economic analysis.
c. analyzing available data.
d. formulating theories about economic events.
Which of the following is one of the basic reasons why economists often appear to give
conflicting advice to policymakers?
a. similar opinions about the validity of economic theories
b. significant differences in education
c. differences in personal values
d. a reliance on normative statement for research theories
When a country allows trade and becomes an exporter of bicycles,
a. domestic producers of bicycles are worse off, domestic consumers of bicycles are
better off, and the economic wellbeing of the country rises.
b. domestic producers of bicycles are worse off, domestic consumers of bicycles are
better off, and the economic wellbeing of the country falls.
c. domestic producers of bicycles are better off, domestic consumers of bicycles are
worse off, and the economic wellbeing of the country rises.
d. domestic producers of bicycles are better off, domestic consumers of bicycles are
worse off, and the economic wellbeing of the country falls.
If demand is price inelastic, then
a. buyers do not respond much to a change in price.
b. buyers respond substantially to a change in price, but the response is very slow.
c. buyers do not alter their quantities demanded much in response to advertising, fads,
or general changes in tastes.
d. the demand curve is very flat.
If the price of a good is low,
a. firms would increase profit by increasing output.
b. the quantity supplied of the good could be zero.
c. the supply curve for the good will shift to the left.
d. firms can and should raise the price of the product.
If marijuana were legalized, it is likely that there would be an increase in the supply of
marijuana. Advocates of marijuana legalization argue that this would significantly
reduce the amount of revenue going to the criminal organizations that currently supply
marijuana. These advocates believe that the
a. supply for marijuana is elastic.
b. demand for marijuana is elastic.
c. supply for marijuana is inelastic.
d. demand for marijuana is inelastic.
When the government places a tax on a product, the cost of the tax to buyers and sellers
a. is less than the revenue raised from the tax by the government.
b. is equal to the revenue raised from the tax by the government.
c. exceeds the revenue raised from the tax by the government.
d. Without additional information, such as the elasticity of demand for this product, it is
impossible to compare the cost of a tax to buyers and sellers with tax revenue.
If sellers respond to very small changes in price by adjusting their quantity supplied by
extremely large amounts, the price elasticity of supply approaches
a. zero, and the supply curve is horizontal.
b. zero, and the supply curve is vertical.
c. infinity, and the supply curve is horizontal.
d. infinity, and the supply curve is vertical.
Suppose the cost of operating a 100 room hotel for a night is $10,000 and there are 5
empty rooms for tonight. If the marginal cost of operating one room for one night is $30
and a customer is willing to pay $60 for the night, the hotel manager should
a. rent the room because the marginal benefit exceeds the marginal cost.
b. rent the room because the marginal benefit exceeds the average cost.
c. not rent the room because the marginal benefit is less than the marginal cost.
d. not rent the room because the marginal benefit is less than the average cost.
The famous observation that households and firms interacting in markets act as if they
are guided by an “invisible hand” that leads them to desirable market outcomes comes
from whose 1776 book?
a. David Ricardo
b. Thorstein Veblen
c. John Maynard Keynes
d. Adam Smith
The nation of Wheatland forbids international trade. In Wheatland, you can buy 1
pound of corn for 3 pounds of fish. In other countries, you can buy 1 pound of corn for
2 pounds of fish. These facts indicate that
a. Wheatland has a comparative advantage, relative to other countries, in producing
corn.
b. other countries have a comparative advantage, relative to Wheatland, in producing
fish.
c. the price of fish in Wheatland exceeds the world price of fish.
d. if Wheatland were to allow trade, it would import corn.
Figure 66
Refer to Figure 66. Which of the following statements is not correct?
a. A price ceiling set at $6 would be binding, but a price ceiling set at $12 would not be
binding.
b. A price floor set at $14 would be binding, but a price floor set at $8 would not be
binding.
c. A price ceiling set at $9 would result in a surplus.
d. A price floor set at $6 would result in a shortage.
In which of the following instances would the deadweight loss of the tax on cartons of
cigarettes increase by a factor of 9?
a. The tax on cartons of cigarettes increases from $10 to $11.11.
b. The tax on cartons of cigarettes increases from $10 to $20.
c. The tax on cartons of cigarettes increases from $10 to $30.
d. The tax on cartons of cigarettes increases from $10 to $90.
When a tax is imposed on the buyers of a good, the demand curve shifts
a. upward by the amount of the tax.
b. downward by the amount of the tax.
c. upward by less than the amount of the tax.
d. downward by less than the amount of the tax.
Which of the following statements about agriculture in the U.S. is correct?
a. Technological improvements typically increase both supply and revenue for
individual farmers.
b. Technological improvements that increased supply, coupled with inelastic demand
for foodstuffs, explain why the number of farmers has decreased dramatically over the
last century.
c. Because technological improvements increase the supply of a product for which
demand is inelastic, an individual farmer would be better off not adopting the new
technology.
d. All of the above are correct.
Figure 616
Refer to Figure 616. In this market, a minimum wage of $2.75 is
a. binding and creates a labor shortage.
b. binding and creates unemployment.
c. nonbinding and creates a labor shortage.
d. nonbinding and creates neither a labor shortage nor unemployment.
Max and Maddy charge people to park on their lawn while attending a nearby craft fair.
At the current price of $10, seven people park on their lawn. If they raise the price to
$15, they know that only five people will want to park on their lawn. Whether they have
seven or five cars parked on their lawn does not affect their costs. From this information
it follows that
a. they should leave the price at $10.
b. it does not matter if they charge $10 or $15.
c. they would do better charging $15 than $10.
d. they should raise the price even more.
Concerning the labor market and taxes on labor, economists disagree about
a. the size of the tax on labor.
b. the size of the deadweight loss of the tax on labor.
c. whether or not a tax on labor places a wedge between the wage that firms pay and the
wage that workers receive.
d. All of the above are correct.
In the 1970s, long lines at gas stations in the United States were primarily a result of the
fact that
a. OPEC raised the price of crude oil in world markets.
b. U.S. gasoline producers raised the price of gasoline.
c. the U.S. government maintained a price ceiling on gasoline.
d. Americans typically commuted long distances.
A market demand curve shows
a. the relationship between price and the number of buyers in a market.
b. how quantity demanded changes when the number of sellers changes.
c. the sum of all prices that individual buyers are willing and able to pay for each
possible quantity of the good.
d. how much of a good all buyers are willing and able to buy at each possible price.
Which of the following is not an example of a market?
a. A small town has only one seller of electricity.
b. In the United States, a sick person cannot legally purchase a kidney.
c. In Florida, there are many buyers and sellers of key lime pie.
d. The availability of Internet shopping has expanded the clothing choices for buyers
who do not live near large cities.
The term market failure refers to
a. a situation in which the market on its own fails to allocate resources efficiently.
b. an unsuccessful advertising campaign which reduces demand for a product.
c. a situation in which competition among firms becomes ruthless.
d. a firm that is forced out of business because of losses.
Which of the following is an example of a normative, as opposed to positive,
statement?
a. Universal health care would be good for U.S. citizens.
b. An increase in the cigarette tax would cause a decrease in the number of smokers.
c. A decrease in the minimum wage would decrease unemployment.
d. A law requiring the federal government to balance its budget would increase
economic growth.
Figure 38
Chile’s Production Possibilities FrontierColombia’s Production Possibilities
Frontier
Refer to Figure 38. If the production possibilities frontiers shown are each for one day
of production, then which of the following combinations of pounds of coffee and
pounds of soybeans could Chile and Colombia together not make in a given day?
a. 4 pounds of coffee and 17 pounds of soybeans
b. 8 pounds of coffee and 14 pounds of soybeans
c. 16 pounds of coffee and 9 pounds of soybeans
d. 24 pounds of coffee and 3 pounds of soybeans
Figure 95
The figure illustrates the market for tricycles in a country.
Refer to Figure 95. With trade, the price of tricycles in this country is
a. $11, with 200 tricycles produced in this country and another 320 tricycles imported.
b. $11, with 360 tricycles produced in this country and another 160 tricycles imported.
c. $19, with 200 tricycles produced in this country and another 160 tricycles imported.
d. $19, with 360 tricycles produced in this country and another 320 tricycles imported.
Figure 720
Refer to Figure 720. For quantities less than M, the value to the marginal buyer is
a. greater than the cost to the marginal seller, so increasing the quantity increases total
surplus.
b. less than the cost to the marginal seller, so increasing the quantity increases total
surplus.
c. greater than the cost to the marginal seller, so decreasing the quantity increases total
surplus.
d. less than the cost to the marginal seller, so decreasing the quantity increases total
surplus.
A key determinant of the price elasticity of supply is
a. the ability of sellers to change the price of the good they produce.
b. the ability of sellers to change the amount of the good they produce.
c. how responsive buyers are to changes in sellers’ prices.
d. the slope of the demand curve.
A university’s football stadium is always sold out, and students who wait in line for
hours may be turned away. This indicates
a. the ticket price is above the equilibrium price.
b. the ticket price is below the equilibrium price.
c. the ticket price is at the equilibrium price.
d. nothing about the equilibrium price.