1) Effective signals
a.convey useful information from informed parties to uninformed parties.
b.impose little or no cost on the signaler.
c.cannot be conveyed accurately when there is an information asymmetry.
d.raise the quantity sold but reduce the price sellers receive.
2) Suppose Hank and Tony can both produce corn. If Hank’s opportunity cost of
producing a bushel of corn is 2 bushels of soybeans and Tony’s opportunity cost of
producing a bushel of corn is 3 bushels of soybeans, then Hank has the comparative
advantage in the production of corn.
a.True
b.False
3) Because it is
a.excludable but not rival in consumption, a sweatshirt is a club good.
b.rival in consumption but not excludable, a sweatshirt is a club good.
c.both excludable and rival in consumption, a sweatshirt is a private good.
d.neither excludable nor rival in consumption, a sweatshirt is a public good.
4) Table 22-11
Five voters must choose from among four options: A, B, C, or D. Each voter’s
preferences are summarized in the table below. Options higher in the table are more
preferred by the voter.
Refer to Table 22-11. The town administrator would much rather have more tax revenue
than have to cut any programs or services. If he wants to ensure that winning choice
from voting is increasing taxes, how should he set up the voting?
a.First vote: taxes vs. streetlights; Second vote: winner of the first vote vs. police; Third
vote: winner of the second vote vs. arts
b.First vote: arts vs. streetlights; Second vote: winner of the first vote vs. police; Third
vote: winner of the second vote vs. taxes
c.First vote: police vs. taxes; Second vote: winner of the first vote vs. arts; Third vote:
winner of the second vote vs. streetlights
d.The town administrator should use a Borda count.
5) A natural monopoly occurs when
a.the product is sold in its natural state, such as water or diamonds.
b.there are economies of scale over the relevant range of output.
c.the firm is characterized by a rising marginal cost curve.
d.production requires the use of free natural resources, such as water or air.
6) Acme Home Builders, Inc., has built 24 houses so far this year at a total cost to the
company of $4.80 million. If the company builds a 25thhouse, its total cost will increase
to $5.05 million. Which of the following statements is correct?
a.For the first 24 houses, the average cost per house was $205,000.
b.The marginal cost of the 25thhouse, if it is built, will equal $250,000.
c.If the company can sell the 25thhouse for at least $202,000, then it should build it.
d.All of the above are correct.
7) A concentration ratio
a.measures the percentage of total sales of the top firm in the industry.
b.reflects the level of competition in an industry.
c.is inversely related to the price charged by the top firm in the industry.
d.All of the above are correct.
8) Suppose that a “doggie day care” firm uses only two inputs: hourly workers (labor)
and a building (capital). In the short run, the firm most likely considers
a.both labor and capital to be fixed.
b.both labor and capital to be variable.
c.labor to be variable and capital to be fixed.
d.capital to be variable and labor to be fixed.
9) If everyone benefits from helping the poor,
a.government intervention cannot improve social well-being.
b.eliminating taxes aimed at redistributing income will make rich people better off.
c.taxing the wealthy to raise living standards of the poor can potentially make everyone
better off.
d.private markets can adequately provide charity programs to help the poor, despite
free-rider problems.
10) Federal government spending on Social Security, Medicare, and Medicaid as a
percentage of GDP rose from
a.10 percent in 1950 to more than 50 percent today.
b.10 percent in 1950 to more than 20 percent today.
c.1 percent in 1950 to more than 10 percent today.
d.1 percent in 1950 to more than 20 percent today.
11) A computer is an example of human capital.
a.True
b.False
12) If Wrex can produce more math problems per hour and more book reports per hour
than Maxine can, then Wrex cannot gain from trading math problems and book reports
with Maxine.
a.True
b.False
13) Barb and Jim run a business that sets up and tests computers. Assume that Barb and
Jim can switch between setting up and testing computers at a constant rate. The
following table applies.
Which of the following points would not be on Barb’s production possibilities frontier,
based on a 40-hour week?
a.(0 computers set up, 40 computers tested)
b.(8 computers set up, 32 computers tested)
c.(25 computers set up, 20 computers tested)
d.(30 computers set up, 16 computers tested)
14) The most efficient tax possible is a
a.lump-sum tax.
b.marginal tax.
c.proportional tax.
d.value-added tax.
15) Figure 7-24
Refer to Figure 7-24. The equilibrium allocation of resources is
a.efficient because total surplus is maximized at the equilibrium.
b.efficient because consumer surplus is maximized at the equilibrium.
c.inefficient because consumer surplus is larger than producer surplus at the
equilibrium.
d.inefficient because producer surplus is not maximized.
16) Under which of the following market structures would consumers likely pay the
highest price for a product?
a.perfect competition
b.monopolistic competition
c.oligopoly
d.monopoly
17) The economic field of industrial organization examines how firms’ decisions about
prices and quantities depend on the market conditions they face.
a.True
b.False
18) If sellers expect higher basket prices in the near future, the current
a.supply of baskets will increase.
b.supply of baskets will decrease.
c.supply of baskets will be unaffected.
d.demand for baskets will decrease.
19) A production point is said to be efficient if there is no way for the economy to
produce more of one good without producing less of another.
a.True
b.False
20) Assume that the farmer and the rancher can switch between producing pork and
producing tomatoes at a constant rate.
The farmer should specialize in the production of
a.pork and the rancher should specialize in the production of tomatoes.
b.tomatoes and the rancher should specialize in the production of pork.
c.both goods and the rancher should specialize in the production of neither good.
d.neither good and the rancher should specialize in the production of both goods.