1) The consumer’s optimum choice is represented by
a.MUx/MUy = Px/Py.
b.MUx/Px = MUy/Py.
c.MRSxy = Px/Py.
d.All of the above are correct.
2) Suppose that an MBA degree creates no externality because the benefits of an MBA
are internalized by the student in the form of higher wages. If there are no government
subsidies for MBAs, then which of the following statements is correct?
a.The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs.
b.The equilibrium quantity of MBAs will be greater than the socially optimal quantity
of MBAs.
c.The equilibrium quantity of MBAs will be less than the socially optimal quantity of
MBAs.
d.There is not enough information to answer the question.
3) Patents do not
a.provide firms an incentive to research.
b.assign property rights to inventors.
c.protect the rights of inventors for their lifetimes.
d.internalize externalities.
4) Scenario 13-7
Julia prepares tax returns and does bookkeeping. Last year her revenues from the tax
and bookkeeping business were $150,000, and her expenses for the business were
$15,000. When she started her tax and bookkeeping business, Julia gave up her
supplemental job doing in-home pet sitting. She used to earn $10,000 per year from pet
sitting. Assume that she incurred no costs for her pet sitting business.
Julia’s accounting profits are
a. $160,000.
b. $150,000.
c. $135,000.
d. $125,000.
5) Suppose that Thierry and Abdul are duopolists. Thierry is producing 700 units of
output, and Abdul is producing 500 units of output. When Abdul produces 500 units,
Thierry maximizes profit by producing 700 units. When Thierry produces 700 units of
output, Abdul maximizes profit by producing 500 units. Thierry and Abdul are
a.pricing at the minimum of marginal cost.
b.in a competitive market.
c.at a Nash equilibrium.
d.engaging in mark-up pricing.
6) Internalizing a positive externality will cause the demand curve to
a.shift to the right.
b.shift to the left.
c.become more elastic.
d.remain unchanged.
7) If Freedonia changes its laws to allow international trade in software and the world
price is higher than its domestic price, then it must be the case that
a.both consumer surplus and producer surplus increase.
b.consumer surplus increases and producer surplus decreases.
c.consumer surplus decreases and producer surplus increases.
d.both consumer surplus and producer surplus decrease.
8) Which of the following statements is correct?
a.Monopolistic competition is similar to monopoly because both market structures are
characterized by firms being price makers rather than price takers.
b.Monopolistic competition is similar to perfect competition because both market
structures are characterized by differentiated products.
c.Monopolistic competition is similar to oligopoly because both market structures are
characterized by strategic interaction between firms in the market.
d.Monopolistic competition is similar to perfect competition because both market
structures are characterized by perfectly elastic demand curves for firms.
9) In an economy in which decisions are guided by prices and individual self-interest,
there is
a.the potential to achieve efficiency in production.
b.a strong need for government intervention in the market.
c.less efficiency than would be observed in a centrally-planned economy.
d.more need for a strong legal system to control individual greed than would be needed
in a centrally-planned economy.
10) Figure 21-9
Refer to Figure 21-9. If the price of good Y is $5, what is the price of good X?
a. $500
b. $150
c. $16.67
d. $1.50
11) Figure 8-7
The vertical distance between points A and B represents a tax in the market.
Suppose a 20thunit of the good were sold by a seller to a buyer. Which of the following
statements is correct?
a.For the 20thunit, the difference between the buyer’s value and the seller’s cost is less
than the tax per unit.
b.For the 20thunit, the difference between the buyer’s value and the seller’s cost is
greater than the tax per unit.
c.For the 20thunit, the difference between the buyer’s value and the seller’s cost is equal
to the tax per unit.
d.It makes sense for the buyer to buy and for the seller to sell the 20thunit, with or
without the tax in place.
12) Table 12-1
Assume that the price of a weekend ski pass is $45 and that the price reflects the actual
unit cost of providing a weekend of skiing. Suppose the government imposes a tax of
$12 on skiing, which raises the price of a weekend ski pass to $57. How much tax
revenue is collected from these four skiers?
a.$0.
b.$12.
c.$36.
d.$48.
13) The term used to describe a situation in which markets do not allocate resources
efficiently is
a.economic meltdown.
b.market failure.
c.equilibrium.
d.the effect of the invisible hand.
14) Table 18-11
Consider the following daily production data for MadeFromScratch, Inc.
MadeFromScratch sells cupcakes for $2 each and pays the workers a wage of $325 per
day.
Refer to Table 18-11. What is the fourth worker’s marginal product of labor?
a.120 cupcakes
b.140 cupcakes
c.160 cupcakes
d.180 cupcakes
15) Table 20-13
Distribution of Income in Imagination
Refer to Table 20-13. The Human Development Report computes a measure of
inequality by dividing the income of the richest 10% of the population by the income of
the poorest 10%. What is the value for this measure of inequality in Imagination?
16) d.
17) Figure 7-33
Refer to Figure 7-33. Suppose demand shifts such that consumers wish to purchase 12
fewer units at every price.
How much is total surplus in this market at the new equilibrium price?
18) Between which two quantities listed is demand most elastic?
19) If greater equality is the benefit of government intervention into the allocation of
society’s resources, what is the cost?
20) Consider the markets for mobile and landline telephone service. Suppose that when
the average income of residents of Plainville is $55,000 per year, the quantity demanded
of landline telephone service is 12,500 and the quantity demanded of mobile service is
28,000. Suppose that when the price of mobile service rises from $100 to $120 per
month, the quantity demanded of landline service decreases to 11,000. Suppose also
that when the average income increases to $60,000, the quantity demanded of mobile
service increases to 33,000.
Using the midpoint method, what is the cross for landline and mobile service?
21) Suppose that Christine values a baseball hat at $20, and Mark values one at $18.
The pretax price of a baseball hat is $14. The government imposes a $5 tax on baseball
hats, which raises the price to $19. What is the deadweight loss from the tax?