1) A positive externality
a.causes the product to be overproduced.
b.provides an additional benefit to market participants.
c.benefits consumers because it results in a lower equilibrium price.
d.is a benefit to a market bystander.
2) A signaling theory of education suggests that educational attainment
a.is a signal of high marginal productivity.
b.is correlated with natural ability.
c.increases the productivity of low-ability workers.
d.Both a and b are correct.
3) Refer to Figure 9-21. Consumer surplus with free trade is
a. $4,000.
b. $8,000.
c. $16,000.
d. $18,000.
4) Figure 8-5
Suppose that the government imposes a tax of P3 – P1.
The loss in total welfare that results from the tax is represented by area
a.A+B+D+F.
b.A+B+C.
c.D+H+F.
d.C+H.
5) Firms in industries that have competitors but do not face so much competition that
they are price takers are operating in either a(n)
a.oligopoly or perfectly competitive market.
b.oligopoly or monopoly market.
c.oligopoly or monopolistically competitive market.
d.monopoly or monopolistically competitive market.
6) The United States has less income inequality than
a.Ethiopia.
b.United Kingdom.
c.Vietnam.
d.Mexico.
7) The law of supply states that, other things equal, an increase in
a.price causes quantity supplied to increase.
b.price causes quantity supplied to decrease.
c.quantity supplied causes price to increase.
d.quantity supplied causes price to decrease.
8)
The opportunity cost of moving from point M to point L is
a.2 donuts.
b.2 donuts and 4 cups of coffee.
c.4 donuts.
d.4 cups of coffee.
9) When a tax is imposed on a good for which both demand and supply are very elastic,
a.sellers effectively pay the majority of the tax.
b.buyers effectively pay the majority of the tax.
c.the tax burden is equally divided between buyers and sellers.
d.None of the above is correct; further information would be required to determine how
the burden of the tax is distributed between buyers and sellers.
10) If there is an increase in market demand in a perfectly competitive market, then in
the short run prices will
a.rise.
b.remain unchanged at the minimum of average total cost.
c.fall.
d.remain unchanged at the minimum of marginal cost.
11) Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs:
If the firm is producing 3 units of output, it should produce
a.more units of output because its marginal revenue is greater than its marginal cost.
b.fewer units of output because its marginal revenue is less than its marginal cost.
c.more units of output because its marginal revenue is less than its marginal cost.
d.fewer units of output because its marginal revenue is greater than its marginal cost.
12) The production possibilities frontier illustrates
a.the combinations of output that an economy should produce.
b.the combinations of output that an economy should consume.
c.the combinations of output that an economy can produce.
d.All of the above are correct.
13) 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. Suppose the outcome of the game is one in which ABC’s profit is
$4 million and QRS’s profit is $14 million. The most likely explanation for this
outcome is that
a.each company pursued its dominant strategy.
b.each company’s objective was to maximize the sum of the two companies’ profits.
c.the two companies reached an agreement on what price to charge, and ABC
subsequently cheated.
d.the two companies reached an agreement on what price to charge, and QRS
subsequently cheated.
14) The government taxes corporate income on the basis of
a.profit.
b.the amount the firm receives for the goods or services it sells.
c.the number of employees.
d.All of the above are correct.
15) There are very few, if any, good substitutes for motor oil. Therefore, the
a.demand for motor oil would tend to be inelastic.
b.demand for motor oil would tend to be elastic.
c.demand for motor oil would tend to respond strongly to changes in prices of other
goods.
d.supply of motor oil would tend to respond strongly to changes in people’s tastes for
large cars relative to their
tastes for small cars.
16) Which of the following is an example of a barrier to entry?
a.Matthew offers free samples of his latest flavored coffee drink to entice customers to
buy a cup.
b.Mark charges a lower price to students than to faculty for his tattoo services.
c.Luke charges a higher hourly price to business students than to liberal arts students for
his economics tutoring.
d.John obtained a copyright for the song he wrote and recorded.
17) Which of the following is not a characteristic of a competitive market?
a.Buyers and sellers are price takers.
b.Each firm sells a virtually identical product.
c.Entry is limited.
d.Each firm chooses an output level that maximizes profits.
18) Which of the following is most likely to occur when the government enacts policies
to make the distribution of income more equal?
a.a more efficient allocation of resources
b.a distortion of incentives
c.unchanged behavior
d.All of the above are correct.
19) Figure 15-7
A profit-maximizing monopolist would earn profits of
a. $96.
b. $117.
c. $120.
d. $126.