Which of the following is an example of government regulation of a natural monopoly
distorting incentives?
a. A natural monopoly is held to average-cost pricing; therefore, it has little incentive to
hold costs down.
b. A natural monopoly is protected from competitors; therefore, it is rude to its
customers.
c. A natural monopoly is protected from competitors; therefore, it doesn’t care much
about the quality of the product it sells.
d. a and c
e. a, b, and c
Exhibit 22-13
What dollar amounts go in blanks (R) and (S), respectively?
a. $80; $20
b. $80; $30
c. $30; $30
d. $130; $50
e. There is not enough information to answer this question.
Labor is a resource that is necessary to produce many goods. “If the price of labor
falls,” says the economist, “the prices of goods will soon follow.” How does this work?
a. If the price of labor falls, the supply of goods rises, and the prices of those goods fall.
b. If the price of labor falls, the quantity supplied of goods rises, and the prices of those
goods fall.
c. If the price of labor falls, the demand for goods falls, and the prices of those goods
fall.
d. If the price of labor falls, the demand for goods rises, and the prices of those goods
fall.
e. If the price of labor falls, the supply of goods falls, and the prices of those goods fall.
Exhibit 30-3
The real interest rate in year 1 is
a. 10 percent.
b. -5 percent.
c. 15 percent.
d. -15 percent.
e. 5 percent.
If Alex and Adam each specialize in the good in which he has a comparative advantage
and then engage in trade, ____________________ can consume a combination of
goods that lies beyond his PPF.
a. Alex, but not Adam,
b. Adam, but not Alex
c. Alex and Adam
d. neither Alex nor Adam
Exhibit 3-3
A movement from point Z to point W would have been the result of
a. a reduction in the price of good Y.
b. an increase in taxes paid by the producers of good Y.
c. a decline in technology in the production of good Y.
d. an increase in the number of buyers of good Y.
Which of the following statements is false?
a. Income elasticity of demand measures the responsiveness of quantity demanded to
changes in income.
b. Price elasticity of demand measures the responsiveness of quantity demanded to
changes in price.
c. Price elasticity of demand and the slope of a demand curve are the same thing.
d. The more substitutes for a good, the higher the price elasticity of demand, ceteris
paribus.
If Americans demand goods produced in Mexico, it leads to a demand for Mexican
pesos and a supply of U.S. dollars on the foreign exchange market.
a. True
b. False
The demand to attend a certain college is represented by a downward-sloping demand
curve. The supply of spots at the college is represented by a vertical supply curve. At
the tuition that students are charged, there is a shortage of spots at the college. If the
demand to attend the college rises, but the tuition stays constant, it follows that the
a. GPA required to attend the college will probably rise.
b. GPA required to attend the college will probably fall.
c. SAT score required to attend the college will probably not change.
d. a and c
e. There is not enough information to answer this question.
Exhibit 22-2
What is the average variable cost of producing 90 units of output?
a. $1.00
b. $1.17
c. $1.59
d. $1.44
e. There is not enough information provided to answer the question.
Positive externalities can be internalized using persuasion, but persuasion is not
effective with negative externalities.
a. True
b. False
Exhibit 2-5
As more fax machines are produced, the opportunity cost of producing them
a. increases.
b. decreases.
c. remains constant.
d. first decreases and then increases.
Making a decision at the margin is __________ an all-or-nothing decision.
a. consistent with
b. inconsistent with
c. the same as making
d. conditioned upon making
At a price of $20, the quantity demanded of good X is ____________ than the quantity
supplied of good X, and economists would use this information to predict that the price
of good X would soon ______________.This would push the price __________ the
equilibrium price.
a. greater; fall; toward
b. greater; rise; toward
c. less; fall; toward
d. less; rise; away from
e. less; fall; away from
Exhibit 3-8
A price of $1 will result in a ___________________ in this market which will cause the
price of the product to gravitate ________________.
a. shortage; downward
b. shortage; upward
c. surplus; downward
d. surplus; upward
Suppose that a federal election is coming soon and the government has been running
persistent large budget deficits.Constitutional economists would most likely urge
___________________ in order to eliminate future budget deficits.
a. voters to vote for liberal candidates
b. voters to vote for conservative candidates
c. Congress to pass a law constraining them to spend no more than what they are
receiving in tax revenues
d. Congress to remove all constraints on spending and taxes.
How are changes in opportunity cost predicted to affect behavior?
a. The lower the opportunity cost of doing X, the less likely X will be done.
b. The higher the opportunity cost of doing X, the less likely X will be done.
c. The lower the opportunity cost of doing X, the more likely X will be done.
d. a and c
e. b and c
International trade exists because countries
a. can make themselves better off through trade.
b. want to be neighborly with each other.
c. want to be political allies.
d. want to improve diplomatic relations with each other.
e. want to avoid war with each other.