1) Of the total income earned in the U.S. economy, approximately
a.33 percent is earned by workers, and 67 percent is earned by landowners.
b.50 percent is earned by workers, 25 percent is earned by landowners, and 25 percent
is earned by owners of capital.
c.67 percent is earned by workers, and 33 percent is earned by owners of land and
capital.
d.90 percent is earned by workers, and 10 percent is earned by owners of land and
capital.
2) Consumer surplus is the amount a buyer actually has to pay for a good minus the
amount the buyer is willing to pay for it.
a.True
b.False
3) Which of the following events would cause a movement upward and to the left along
the demand curve for olives?
a.The number of people who purchase olives decreases.
b.Consumer income decreases, and olives are a normal good.
c.The price of pickles decreases, and pickles are a substitute for olives.
d.The price of olives rises.
4) According to proponents of the signaling theory of education, an increase in the
education levels of all workers would
a.increase workers’ productivity and increase their wages.
b.increase workers’ productivity but leave their wages unaffected.
c.leave workers’ productivity unaffected but increase their wages.
d.leave workers’ productivity and wages unaffected.
5) Scenario 15-9
Suppose executives at an art museum know that 100 adults are willing to pay $12 for
admission to the museum on a weekday. Suppose the executives also know that 200
students are willing to pay $8 for admission on a weekday. The cost of operating the
museum on a weekday is $2,000.
How much profit will the museum earn if it charges all customers $8 for admission?
a. $200
b. $400
c. $800
d. $2,400
6) Efficiency is related to the size of the economic pie, whereas equality is related to
how the pie gets sliced and distributed.
a.True
b.False
7) The Condorcet paradox shows that there is no scheme for aggregating individual
preferences into a valid set of social preferences.
a.True
b.False
8) Economists assume that the typical person who starts her own business does so with
the intention of
a.donating the profits from her business to charity.
b.capturing the highest number of sales in her industry.
c.maximizing profits.
d.minimizing costs.
9) Figure 8-22
Suppose the government initially imposes a $3 per-unit tax on this good. Now suppose
the government is deciding whether to lower the tax to $1.50 or raise it to $4.50. Which
of the following statements is not correct?
a.Compared to the original tax, the larger tax will decrease tax revenue.
b.Compared to the original tax, the smaller tax will decrease deadweight loss.
c.Compared to the original tax, the smaller tax will decrease tax revenue.
d.Compared to the original tax, the larger tax will increase deadweight loss.
10) Suppose Brazil has a comparative advantage over other countries in producing
almonds, but other countries have an absolute advantage over Brazil in producing
almonds. If trade in almonds is allowed, Brazil
a.will import almonds.
b.will export almonds.
c.will either import almonds or export almonds, but it is not clear from the given
information.
d.would have nothing to gain either from exporting or importing almonds.
11) Figure 9-1
The figure illustrates the market for coffee in Guatemala.
In the absence of trade, the equilibrium price of coffee in Guatemala is
a. $30.
b. $90.
c. $110.
d. $140.
12) Janet knows that she will ultimately face retirement. Assume that Janet will
experience two periods in her life, one in which she works and earns income, and one in
which she is retired and earns no income. Janet can earn $250,000 during her working
period and nothing in her retirement period. She must both save and consume in her
work period and can earn 10 percent interest on her savings.
a.Use a graph to demonstrate Janet’s budget constraint.
b.On your graph, show Janet at an optimal level of consumption in the work period
equal to $150,000. What is the implied optimal level of consumption in her retirement
period?
c.Now, using your graph from part b above, demonstrate how Janet will be affected by
an increase in the interest rate on savings to 14 percent. Discuss the role of income and
substitution effects in determining whether Janet will increase, or decrease her savings
in the work period.
13) Suppose that the labor market for life guards is initially in equilibrium. Then a new
television series debuts which glamorizes the social opportunities for life guards. What
happens to the equilibrium wage and quantity of life guards?
a.Both the equilibrium wage and quantity increase.
b.Both the equilibrium wage and quantity decrease.
c.The equilibrium wage increases, and the equilibrium quantity decreases.
d.The equilibrium wage decreases, and the equilibrium quantity increases.
14) Some colleges charge all students the same fee for a weekly dining services meal
plan. Suppose that students differ by how much food they consume each week. For
example, members of the women’s swimming team consume, on average, twice as
much food as the average female college student, and the average male college student
consumes 20 percent more food than the average female college student. The dining
services fee is most like a(n)
a.excise tax that conforms to the benefits principle.
b.excise tax that violates the benefits principle.
c.lump-sum tax that conforms to the benefits principle.
d.lump-sum tax that violates the benefits principle.
15) Import quotas and tariffs produce similar results. Which of the following is not one
of those results?
a.The domestic price of the good increases.
b.Consumer surplus of domestic consumers increases.
c.Producer surplus of domestic producers increases.
d.A deadweight loss is experienced by the domestic country.
16) Deadweight loss is the
a.decline in total surplus that results from a tax.
b.decline in government revenue when taxes are reduced in a market.
c.decline in consumer surplus when a tax is placed on buyers.
d.loss of profits to business firms when a tax is imposed.
17) The economic inefficiency of a monopolist can be measured by the
a.deadweight loss.
b.value of the unrealized trades that could be made if the monopolist produced the
socially-efficient output.
c.area above marginal cost but beneath demand from the monopoly output to the
socially-efficient output.
d.All of the above are correct.
18) Which of the following market structures is considered a differentiated products
market?
a.Perfect competition
b.Monopolistic competition
c.Monopoly
d.Both a and b are differentiated products markets.
19) Figure 8-21
Suppose the market is represented by Demand 1 and Supply 1. At first the government
places a $3 per-unit tax on this good. Then the government decides to raise the tax to $6
per unit. How would you characterize the decision to raise the tax rate from $3 to $6 per
unit? The decision is
a.a good one because it increases tax revenue while decreasing the deadweight loss
from the tax.
b.a bad one because it does not increase tax revenue yet increases the deadweight loss
from the tax.
c.a bad one because it decreases tax revenue while increasing the deadweight loss from
the tax.
d.unclear because it increases tax revenue yet also increases the deadweight loss from
the tax.