1) If people can be prevented from using a certain good, then that good is called
a.rival in consumption.
b.excludable.
c.a common resource.
d.a public good.
2) An example of an information asymmetry is when a worker knows more than his
employer about his work effort.
a.True
b.False
3) Suppose an economist develops a theory that higher food prices arise from higher
gas prices. According to the scientific method, which of the following is the economist’s
next step?
a.Collect and analyze data.
b.Go to a laboratory and generate data to test the theory.
c.Publish the theory without testing it.
d.Consult with other economists to see they agree with the theory.
4) The price elasticity of supply along a typical supply curve is
a.constant.
b.equal to zero.
c.higher at low levels of quantity supplied and lower at high levels of quantity supplied.
d.lower at low levels of quantity supplied and higher at high levels of quantity supplied.
5) A neighborhood voted to develop a vacant lot into a vegetable garden. All of the
neighbors worked the land and sowed the seeds. A few neighbors picked and ate the
produce before the other neighbors had a chance. Which of the following could solve
this example of the Tragedy of the Commons?
a.The neighborhood divides the lot into equal size plots and each family can plant and
harvest only on their plot.
b.The neighborhood continues to work the land and sow the seeds as a group, but sells
all of the produce to willing buyers and reinvests the proceeds into the garden for the
next year.
c.The neighborhood decides to stop gardening on this land because there is no equitable
way to allocate the produce.
d.Both a and b are possible solutions to this example of the Tragedy of the Commons
6) Since 1946, the president of the United States has received guidance from the
Council of Economic Advisers.
a.True
b.False
7) In a market economy, supply and demand determine
a.both the quantity of each good produced and the price at which it is sold.
b.the quantity of each good produced but not the price at which it is sold.
c.the price at which each good is sold but not the quantity of each good produced.
d.neither the quantity of each good produced nor the price at which it is sold.
8) Figure 8-7
The vertical distance between points A and B represents a tax in the market.
As a result of the tax,
a.consumer surplus decreases from $200 to $80.
b.producer surplus decreases from $200 to $145.
c.the market experiences a deadweight loss of $80.
d.All of the above are correct.
9) Which of the following statements is not correct?
a.A patent is a way for the government to encourage the production of a good with
technology spillovers.
b.A tax is a way for the government to reduce the production of a good with a negative
externality.
c.A tax that accurately reflects social costs produces the socially optimal outcome.
d.Government policies cannot improve upon private market outcomes.
10) Private markets fail to account for externalities because
a.externalities don’t occur in private markets.
b.sellers include costs associated with externalities in the price of their product.
c.decisionmakers in the market fail to include the costs of their behavior to third parties.
d.the government cannot easily estimate the optimal quantity of pollution.
11) Mary’s Production Possibilities Frontier Kate’s Production Possibilities
Frontier
What is Mary’s opportunity cost of one muffin?
12) Describe the source of tension between cooperation and self-interest in a market
characterized by oligopoly. Use an example of an actual cartel arrangement to
demonstrate why this tension creates instability in cartels.
13) When economists disagree about whether a policy is fair, they are expressing a
difference in
14) Consider the market for 2-packs of light bulbs below.
At a price of $3, is there a shortage or surplus, and how large is the shortage/surplus?
15) Figure 21-32
The figure shows three indifference curves and a budget constraint for a consumer
named Hannah. When young, Hannah works and earns income. When old, she is retired
and earns no income.
Refer to Figure 21-32. From the figure we can determine how much income Hannah
earns when young and we can determine the interest rate. Could the interest rate rise to
a level at which Hannah could afford to be at point A?
16) Using our model of consumer choice, is it possible for a consumer to buy less of a
particular good when his income rises? Briefly explain.
17) Some government policies provide incentives for private decision makers to choose
to solve the problem of externalities on their own. What term do we use to describe
such policies?
18) Who said “The inherent vice of capitalism is the unequal sharing of blessings. The
inherent virtue of socialism is the equal sharing of miseries”?
19) Debbie quits her job, which pays $30,000 a year, to finish her college degree. Her
annual college expenses are $10,000 for tuition, $2,000 for books, and $700 for food.
What is her opportunity cost of attending college for the year?
20) Scenario 15-11
Vincent operates a scenic tour business in Boston. He has one bus which can fit 50
people per tour and each tour lasts 2 hours. His total cost of operating one tour is fixed
at $450. Vincent’s cost is not reduced if he runs a tour with a partially full bus. While
his cost is the same for all tours, Vincent charges each passenger his/her willingness to
pay: adults $18 per trip, children $10 per trip, and senior citizens $12 per trip. At those
rates, on a typical day Vincent’s demand is:
Assume that Vincent’s customers are always available for the tour¾ therefore, he can
fill his bus for each tour as long as there is sufficient total demand for the day.
What is Vincent’s profit on a typical day?