1) Which of the following statements is correct regarding a firm‘s decision-making?
a.The decision to shut down and the decision to exit are both short-run decisions.
b.The decision to shut down and the decision to exit are both long-run decisions.
c.The decision to shut down is a short-run decision, whereas the decision to exit is a
long-run decision.
d.The decision to exit is a short-run decision, whereas the decision to shut down is a
long-run decision.
2) Historical episodes allow economists to illustrate and evaluate current economic
theories.
a.True
b.False
3) When the price of an inferior good decreases,
a.both the income and substitution effects encourage the consumer to purchase more of
the good.
b.both the income and substitution effects encourage the consumer to purchase less of
the good.
c.the income effect encourages the consumer to purchase more of the good, and the
substitution effect encourages the consumer to purchase less of the good.
d.the income effect encourages the consumer to purchase less of the good, and the
substitution effect encourages the consumer to purchase more of the good.
4) When a tax is imposed on a good, consumer surplus decreases and producer surplus
remains unchanged.
a.True
b.False
5) An optimal tax is one that minimizes the
a.external benefit.
b.total deadweight loss from the tax.
c.income taxes.
d.horizontal equity.
6) Table 12-5
What is the marginal tax rate for a person who makes $120,000?
a. 25%
b.35%
c.45%
d.60%
7) Which of the following is not an example of price discrimination by a firm?
a.children’s meals at a restaurant
b.a natural gas company charging customers a higher rate in the winter than in the
summer
c.a senior citizens’ discount
d.coupons in the Sunday newspaper
8) There are four homes along Belmont Circle, which surrounds a small plot of land.
The land currently has no trees, and the 4 homeowners — Adams, Benitez, Chen, and
Davis — are considering the idea of contributing to a pool of money that will be used to
plant up to 4 trees. The table represents their willingness to pay, that is, the maximum
amount that each homeowner is willing to contribute toward each tree.
Suppose the cost to plant each tree is $380 and the 4 homeowners have agreed to split
all tree-planting costs equally. Which homeowner(s) would be opposed to planting any
trees?
a.only Davis
b.only Adams and Davis
c.only Adams, Benitez, and Davis
d.Adams, Benitez, Chen, and Davis
9) Foregone investment opportunities are an example of
a.an explicit cost.
b.an implicit cost.
c.revenues.
d.profits.
10) Arrow’s impossibility theorem shows that it is impossible to find a better voting
system than pairwise majority voting.
a.True
b.False
11) Excessive fishing occurs because
a.each individual fisherman has little incentive to maintain the species for the next year.
b.fishermen rely on government managers to worry about fish populations.
c.fishermen are unionized, so they are not concerned with externalities.
d.fishermen have other marketable skills and do not fear exploitation of fish reserves.
12) Generally, a firm is more willing and able to increase quantity supplied in response
to a price change when
a.the relevant time period is short rather than long.
b.the relevant time period is long rather than short.
c.supply is inelastic.
d.the firm is experiencing capacity problems.
13) A decrease in demand will cause a decrease in price, which will cause a decrease in
supply.
a.True
b.False