1) Supporters of raising the minimum wage argue that minimum-wage laws are
a.a tax-free way to help the working poor. Businesses bear the burden of paying higher
wages, not the government.
b.better than the Earned Income Tax Credit (EITC) in targeting the working poor. The
EITC may benefit teenagers from middle-class families who work summer jobs at the
minimum wage.
c.better than in-kind transfers such as food stamps in providing food rather than
unhealthy items such as drugs or alcohol.
d.a way to increase employment of those likely to earn the minimum wage.
2) Which of the following is not an example of a group responding to an incentive?
a.Students attend class because of an attendance policy that reduces their grade for
absences.
b.Consumers buy more of a product when it is on sale at a reduced price.
c.Universities offer fewer online classes when they generate more revenue than
traditional classes.
d.Employees work harder to earn higher commissions.
3) You have just been hired as a business consultant to determine what pricing policy
would be appropriate to increase the total revenue of a bakery. The first step you would
take would be to
a.increase the price of every loaf of bread in the store.
b.look for ways to cut costs and increase profit for the bakery.
c.determine the for the bakery’s products.
d.determine the price elasticity of supply for the bakery’s products.
4) Scenario 15-5
An airline knows that there are two types of travelers: business travelers and
vacationers. For a particular flight, there are 100 business travelers who will pay $600
for a ticket while there are 50 vacationers who will pay $300 for a ticket. There are 150
seats available on the plane. Suppose the cost to the airline of providing the flight is
$20,000, which includes the cost of the pilots, flight attendants, fuel, etc.
How much profit will the airline earn if it sets the price of each ticket at $300?
a. -$15,000
b. -$5,000
c. $25,000
d. $45,000
5) The demand for beer is more elastic than the demand for milk, so a tax on beer
would have a smaller deadweight loss than an equivalent tax on milk, all else equal.
a.True
b.False
6) Table 17-22
Brian and Matt own the only two bicycle repair shops in town. Each must choose
between a low price for repair work and a high price. The annual economic profit from
each strategy is indicated in the table. The profits are shown as (Matt, Brian) in each
cell.
Refer to Table 17-22. Which of the following statements is correct if Brian and Matt
will play this game only once?
a.The Nash equilibrium is the high price.
b.A Nash equilibrium cannot be established unless Brian and Matt collude.
c.A Nash equilibrium cannot be established without the players repeating the game.
d.The Nash equilibrium price is the low price.
7) Figure 9-13
Producer surplus before trade is
a. $3,600.
b. $4,400.
c. $5,200.
d. $6,600.
8) In the long run, assuming that the owner of a firm in a competitive industry has
positive opportunity costs, she
a.should exit the industry unless her economic profits are positive.
b.will earn zero accounting profits but positive economic profits.
c.will earn zero economic profits but positive accounting profits.
d.should ignore opportunity costs because they are a type of sunk cost that disappears in
the long run.
9) The shape of the marginal cost curve tells a producer something about the marginal
product of her workers.
a.True
b.False
10) Table 15-7
Sally owns the only shoe store in town. She has the following cost and revenue
information.
What is the marginal revenue from selling the 2nd pair of shoes?
a. $140
b. $150
c. $160
d. $170
11) Athos, Porthos,and Aramis each like to take fencing lessons. The price of a fencing
lesson is $11. Athos values a lesson at $16, Porthos at $14, and Aramis at $12. Suppose
that if the government taxes fencing lessons at $2 each, the price will rise to $13. A
consequence of the tax is that consumer surplus shrinks by
a.$4 and tax revenues increase by $6, so there is a deadweight loss of $2.
b.$6 and tax revenues increase by $6, so there is no deadweight loss.
c.$5 and tax revenues increase by $6, so there is no deadweight loss.
d.$5 and tax revenues increase by $4, so there is a deadweight loss of $1.
12) On a graph we draw a consumer’s budget constraint, measuring the number of
pineapples on the horizontal axis
and the number of pencils on the vertical axis. If the slope of the budget constraint is -6,
then
a.a pineapple costs six times as much as a pencil.
b.the opportunity cost of a pineapple is 6 pencils.
c.the opportunity cost of a pencil is one-sixth of a pineapple.
d.All of the above are correct.
13) The adage, There is no such thing as a free lunch, means
a.even people on welfare have to pay for food.
b.the cost of living is always increasing.
c.people face tradeoffs.
d.all costs are included in the price of a product.
14) Jessica receives a raise at her current part-time job from $9 to $11 per hour. If her
labor supply curve is backward sloping, she will work fewer hours after receiving the
pay raise.
a.True
b.False
15) Figure 9-7. The figure applies to the nation of Wales and the good is cheese.
With trade, the Welsh price of cheese and the Welsh quantity of cheese demanded are
a.P1 and Q2.
b.P1 and Q1.
c.P0 and Q0.
d.P3 and Q1.
16) When the government implements programs such as progressive income tax rates,
which of the following is likely to occur?
a.equality is increased and efficiency is increased.
b.equality is increased and efficiency is decreased.
c.equality is decreased and efficiency is increased.
d.equality is decreased and efficiency is decreased.
17) An increase in the price of a good would
a.increase the supply of the good.
b.increase the amount purchased by buyers.
c.give producers an incentive to produce more.
d.decrease both the quantity demanded of the good and the quantity supplied of the
good.
18) “The customer is always right” explains
a.the higher wages paid to members of a union.
b.compensating differentials.
c.persistent wage discrimination based on consumer preferences.
d.All of the above are correct.