1)
Which of the following would cause the demand curve to shift from Demand B to
Demand C in the market for mattresses?
a.a decrease in the price of mattresses
b.a decrease in the price of custom wooden sleigh bed frames
c.a change in consumer tastes away from wooden bedroom furniture
d.a decrease in the number of people in the United States
2) When there are two people and each is capable of producing two goods, it is possible
for one person to have a comparative advantage over the other in both goods.
a.True
b.False
3) Whether a good is a luxury or necessity depends on the
a.price of the good.
b.preferences of the buyer.
c.intrinsic properties of the good.
d.scarcity of the good.
4) Life insurance companies usually require applicants to have physicals and disclose
information on their health. This practice is designed to address
a.a principal-agent problem.
b.a moral-hazard problem.
c.a problem involving hidden characteristics.
d.all of the above are correct.
5) Which of the following would be an example of a principal trying to deal with a
moral hazard problem?
a.The parents of an infant secretly place video cameras in their house before the
baby-sitter arrives.
b.An insurance company checks police records to determine if its policyholders have
received traffic citations.
c.An employer examines his workers’ output on a daily basis.
d.All of the above are correct.
6) Imagine a 2,000-acre park with picnic benches, trees, and a pond. Suppose it is
publicly owned, and people are invited to enjoy its beauty. When the weather is nice, it
is difficult to find parking on summer afternoons. Otherwise, it is a great place. An
efficient solution to the parking problem would be to
a.prohibit parking in the vicinity of the park.
b.charge higher prices for parking at busy times.
c.police the parking area and ticket cars that are parked illegally.
d.do nothing.
7) Externalities can be corrected by each of the following except
a.self-interest.
b.moral codes and social sanctions.
c.charity.
d.normal market adjustments.
8) The “competition” in monopolistically competitive markets is most likely a result of
having many sellers in the market.
a.True
b.False
9) A typical society strives to get the most it can from its scarce resources. At the same
time, the society attempts to distribute the benefits of those resources to the members of
the society in a fair manner. In other words, the society faces a tradeoff between
a.guns and butter.
b.efficiency and equality.
c.inflation and unemployment.
d.work and leisure.
10) You go to the movieplex where movies ordinarily cost $9. You are intending to see
a movie for which you have a $3 off coupon good for only that movie at that time.
However, when you get there you see a friend who asks if you would rather see a new
release. Both movies start and end at the same time. If you decide to see the new release
with your friend, what is your opportunity cost?
a.the amount you value the first movie + $3
b.the amount you value the first movie + $9
c.$3
d.$9
11) Table 17-12
The table shows the town of Driveaway’s demand schedule for gasoline. Assume the
town’s gasoline seller(s) incurs a cost of $2 for each gallon sold, with no fixed cost.
Refer to Table 17-12. If there are exactly five sellers of gasoline in Driveaway and if
they collude, then which of the following outcomes is most likely?
a.Each seller will sell 20 gallons, charge a price of $6, and earn a profit of $80.
b.Each seller will sell 30 gallons, charge a price of $5, and earn a profit of $90.
c.Each seller will sell 40 gallons, charge a price of $4, and earn a profit of $120.
d.Each seller will sell 50 gallons, charge a price of $3, and earn a profit of $50.
12) Suppose Jamaica has an absolute advantage over other countries in producing sugar,
but other countries have a comparative advantage over Jamaica in producing sugar. If
trade in sugar is allowed, Jamaica
a.will import sugar.
b.will export sugar.
c.will either import sugar or export sugar, but it is not clear from the given information.
d.would have nothing to gain either from exporting or importing sugar.
13) Table 12-21
The dollar amounts in the last three columns are the taxes owed under the three
different tax systems.
Which of the three tax systems is proportional?
a.Tax System A
b.Tax System B
c.Tax System C
d.None of the systems are proportional.
14) Figure 16-12
Compare the price and marginal cost in this market with price and marginal cost if this
were a perfectly competitive market.
15) Figure 9-28
The following diagram shows the domestic demand and domestic supply curves in a
market.
With no trade allowed, how much are consumer surplus, producer surplus, and total
surplus in this market?
16) Scenario 10-4
The demand curve for fire extinguishers slopes downward and the supply curve for fire
extinguishers slopes upward. The production of the 500th fire extinguisher entails the
following:
♦ a private cost of $10;
♦ an external cost of $0;
♦ a private value of $9;
♦ an external benefit of $3.
What is the social value of the 500th fire extinguisher?
17) It costs a company $30,000 to produce 600 heart rate monitors. The company’s cost
will be $30,070 if it produces an additional heart rate monitor. The company is currently
producing 600 heart rate monitors.
What is the minimum price that would induce this company to produce the 601st heart
rate monitor?
18) Figure 9-28
The following diagram shows the domestic demand and domestic supply curves in a
market.
With no trade allowed, what are the equilibrium price and equilibrium quantity in this
market?
19) Who would be more likely to study the inflation rate in the United States, a
macroeconomist or a microeconomist?