1) Refer to Figure 7-23.
Figure 7-23
The equilibrium price is
a.P1.
b.P2.
c.P3.
d.P4.
2) In the simple circular flow diagram, the flow of money from the firms to the markets
for factors of production is called
a.spending.
b.revenue.
c.income.
d.wages, rent, and profit.
3) If Darby values a soccer ball at $50, and she pays $40 for it, her consumer surplus is
$10.
a.True
b.False
4) The key issue in determining the efficiency of public versus private ownership of a
monopoly is
a.the tendency for efficient management of publicly owned enterprises.
b.the inability of private monopolies to get rid of managers that are doing a bad job.
c.the propensity of private monopolies to generate excessive profits.
d.how ownership of the firm affects the cost of production.
5) Monopolies are inefficient because they
(i)eliminate barriers to entry.
(ii)price their product at a level where marginal revenue exceeds marginal cost.
(iii)restrict output below the socially efficient level of production.
a.(i) and (ii) only
b.(ii) and (iii) only
c.(iii) only
d.(i), (ii), and (iii)
6) If your income is $50,000, your income tax liability is $10,000, and you paid $0.25
in taxes on the last dollar you earned, your
a.marginal tax rate is 20 percent.
b.average tax rate is 5 percent.
c.marginal tax rate is 25 percent.
d.average tax rate is 25 percent.
7) Scenario 18-2
Gertrude Kelp owns three boats that participate in commercial fishing for fresh Pacific
salmon off the coast of Alaska. As part of her business she hires a captain and several
crew members for each boat. In the market for fresh Pacific salmon, there are thousands
of firms like Gertrude’s. While Gertrude usually catches a significant number of fish
each year, her contribution to the entire harvest of salmon is negligible relative to the
size of the market.
Refer to Scenario 18-2. In the fresh Pacific salmon product market, Gertrude has some
control over the
a.price she charges for her fresh salmon.
b.quantity of fresh salmon that she supplies to the market.
c.competitive environment of the market.
d.supply of labor in the market.
8) To enhance the well-being of society, a social planner will encourage firms to
increase production when
a.the firms are producing basic goods.
b.there is a shortage in the market.
c.technology spillovers are associated with production.
d.negative externalities €spill over€ into production.
9) along a linear, downward-sloping demand curve increases as price falls.
a.True
b.False
10) The consumer’s optimal choice is the one in which the marginal utility per dollar
spent on good X is
a.equal to the marginal utility per dollar saved on good X.
b.greater than the marginal utility per dollar spent on good Y.
c.equal to the marginal utility per dollar spent on good Y.
d.less than the marginal utility per dollar spent on good Y.
11) Figure 15-4
If the monopoly firm is currently producing Q4 units of output, then a decrease in
output will necessarily cause profit to
a.remain unchanged.
b.decrease.
c.increase as long as the new level of output is at least Q2.
d.None of the above is correct. The monopolist currently maximizing profits at Q4.
12) $ Which of the following scenarios is a successful example of the Coase theorem?
a.Cathy offers Mary $20 not to smoke. Mary accepts and does not smoke.
b.Mary pays Cathy $16 so that Mary can smoke.
c.Mary pays Cathy $14 so that Mary can smoke.
d.Cathy offers Mary $15 not to smoke. Mary accepts and does not smoke.
13) Figure 7-12
If the equilibrium price is $200, what is the producer surplus?
a. $7,500
b. $3,750
c. $10,000
d. $15,000
14) “Other things equal, when the price of a good rises, the quantity supplied of the
good also rises, and when the price falls, the quantity supplied falls as well.” This
relationship between price and quantity supplied
a.is referred to as the law of supply.
b.applies only to a few goods in the economy.
c.is represented by a downward-sloping supply curve.
d.All of the above are correct.
15) The nation of Isolani forbids international trade. In Isolani, you can exchange 1 car
for 5 motorcycles. In other countries, you can exchange 1 car for 4 motorcycles. These
facts indicate that
a.other countries have an absolute advantage, relative to Isolani, in producing cars.
b.Isolani has a comparative advantage, relative to other countries, in producing cars.
c.if Isolani were to allow trade, it would import motorcycles.
d.the world price of motorcycles exceeds the price of motorcycles in Isolani.
16) Which of the following is an example of general knowledge, as opposed to specific
knowledge that can be patented?
a.the invention of a longer-lasting battery
b.a mathematical theorem
c.a method for constructing a high-performance microchip
d.the chemical formula for an adhesive
17) Figure 17-5. Two companies, ABC and QRS, are sellers in the same market. Each
company decides whether to charge a high price or a low price. In the figure, the dollar
amounts are payoffs and they represent annual profits for the two companies.
Refer to Figure 17-5. If the two companies make their pricing decisions independently,
then it is likely that ABC will
a.charge a high price only if QRS charges a high price.
b.charge a high price only if QRS charges a low price.
c.charge a high price regardless of whether QRS charges a high price or a low price.
d.None of the above are correct.
18) Figure 16-6
Which of the graphs shown would be consistent with a profit maximizing firm in a
monopolistically competitive market that is earning a positive profit?
a.panel a
b.panel b
c.panel c
d.panel d
19) Inefficiency can be caused in a market by the presence of
a.market power.
b.externalities.
c.imperfectly competitive markets.
d.All of the above are correct.
20) Eldin is a house painter. He can paint three houses per week. He is considering
hiring his friend Murphy. Murphy can paint five houses per week. What is the
maximum total output possible if Eldin hires Murphy?
a.2 houses
b.3 houses
c.5 houses
d.8 houses