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1) Government spending is projected to rise over the next few decades. Three of the
most important reasons are spending on Social Security, Medicare, and healthcare.
a.True
b.False
2) Table 7-17
Both the demand curve and the supply curve are straight lines. If 6 units are bought and
sold, then total surplus is
a.$18 lower than it would be if the equilibrium number of units were bought and sold.
b.$22 lower than it would be if the equilibrium number of units were bought and sold.
c.$26 lower than it would be if the equilibrium number of units were bought and sold.
d.$6 higher than it would be if the equilibrium number of units were bought and sold.
3) A common solution to monopoly in European countries is public ownership.
a.True
b.False
4) A certain competitive firm sells its output for $20 per unit. The 50th unit of output
that the firm produces has a marginal cost of $22. Production of the 50th unit of output
does not necessarily
a.increase the firm's total revenue by $20.
b.increase the firm's total cost by $22.
c.decrease the firm's profit by $2.
d.increase the firm's average variable cost by $0.44.
5) William and Jamal live in the country of Dumexia. When Dumexia legalized
international trade in bananas, the price of bananas in Dumexia increased. As a result,
William became better off and Jamal became worse off. It follows that William is a
seller, and Jamal is a buyer, of bananas.
a.True
b.False
6) Narrative 22-1
Katie owns a boutique that sells highend women's clothing and accessories. Shana
works part-time at the boutique and frequently is the only employee in this small store.
Katie pays Shana a wage that is higher than the market wage for this type of job. When
the store is not full of customers, Shana diligently works on displays and cleans to keep
the store looking its best. Magda is a customer in the store who asks Shana's opinion on
the quality of some jeans she is considering purchasing. Even though she's had several
other customers return them due to flaws, Shana tells Magda the quality is great.
Belinda is another customer who is returning a necklace without revealing that she lost
a gem from it while wearing it.
Refer to Narrative 22-1. Which of the ladies is the victim of an adverse selection
problem?
a.Shana
b.Katie
c.Belinda
d.Magda
7) The more firms an oligopoly has,
a.the more likely it is to earn monopoly profits.
b.the higher the price of the product.
c.the farther the equilibrium quantity will be from the socially efficient quantity.
d.the more likely the firms will charge a price close to the perfectly competitive price.
8) Suppose that monopolistically competitive firms in a certain market are experiencing
losses. In the transition from this initial situation to a long-run equilibrium,
a.the number of firms in the market decreases.
b.each existing firm experiences a decrease in demand for its product.
c.each firm experiences an upward shift of its marginal cost and average total cost
curves.
d.each existing firm's average total cost falls to bring economic profit back to zero.
9) Which of the following statements regarding brand names in advertising is not
correct?
a.Brand names provide consumers with information about quality when quality cannot
be easily judged in advance of purchase.
b.Brand names give firms an incentive to maintain high quality to maintain the
reputation of the firm.
c.Brand names allow firms to produce and sell inferior products in the long run since
people will continue to purchase the brand-name product.
d.Brand names can cause consumers to perceive differences in products that do not
actually exist.
10) The practice of selling a product to retailers and requiring the retailers to charge a
specific price for the product is called
a.fixed retail pricing.
b.resale price maintenance.
c.cost plus pricing.
d.unfair trade.
11) Economists argue competitive markets provide a "natural remedy" to discriminatory
wage practices. Which of the following is widely recognized as a potential limit to the
effectiveness of that natural remedy?
a.Some workers are members in unions.
b.Some firms pay efficiency wages; others do not.
c.Some customers are discriminatory in their buying habits.
d.Some employees have accumulated more human capital than other employees.
12) Yvette buys and sells real estate. Two weeks ago, she paid $300,000 for a house on
Pine Street, intending to spend $50,000 on repairs and then sell the house for $400,000.
Last week, the city government announced a plan to build a new landfill on Pine Street
just down the street from the house Yvette purchased. As a result of the city's announced
plan, Yvette is weighing two alternatives: She can go ahead with the $50,000 in repairs
and then sell the house for $290,000, or she can forgo the repairs and sell the house as it
is for $250,000. She should
a.keep the house and live in it.
b.go ahead with the $50,000 in repairs and sell the house for $290,000.
c.forgo the repairs and sell the house as it is for $250,000.
d.move the house from Pine Street to a more desirable location, regardless of the cost of
doing so.
13) Preston goes to the movies every Sunday afternoon. The movie theater offers 4
combinations of popcorn and beverages: the "minicombo" costs $5 and includes a small
popcorn and a small drink, the "mediumcombo" costs $7 and includes a medium
popcorn and a medium drink, the "valuecombo" also costs $7 and includes a small
popcorn and a large drink, and the "largecombo" costs $9 and includes a large popcorn
and a large drink. Preston always purchases the "valuecombo." We can conclude that
a.Preston cannot afford the "largecombo".
b.Preston cannot afford the "mediumcombo".
c.Preston prefers a combo with a larger popcorn-to-beverage ratio.
d.Preston prefers a combo with a smaller popcorn-to-beverage ratio.
14) Studies of human decision-making have found that people do not give enough
weight to a small number of vivid observations.
a.True
b.False
15) Coal mining is a dangerous and dirty job. Suppose someone developed new
machinery that made coal mining safer and cleaner; at the same time, suppose it made
coal miners more productive. We would expect that the wages of coal miners would
a.rise.
b.fall.
c.stay exactly the same.
d.rise, fall, or stay the same.
