1) Scenario 20-5
Suppose the government implemented a negative income tax and used the following
formula to compute a family’s tax liability:
Taxes owed = (1/4 of income) – $10,000
Refer to Scenario 20-5. A family earning $70,000 before taxes would have how much
after-tax income?
a.$7,500
b.$52,500
c.$62,500
d.$77,500
2) Because of diminishing returns, a factor in abundant supply has a
a.high marginal product and a high rental price.
b.high marginal product and a low rental price.
c.low marginal product and a high rental price.
d.low marginal product and a low rental price.
3) Assume that a college student purchases only Ramen noodles and textbooks. If
Ramen noodles are an inferior good and textbooks are a normal good, then the income
effect associated with an increase in the price of a textbook will result in
a.a decrease in the consumption of textbooks and a decrease in the consumption of
Ramen noodles.
b.a decrease in the consumption of textbooks and an increase in the consumption of
Ramen noodles.
c.an increase in the consumption of textbooks and an increase in the consumption of
Ramen noodles.
d.an increase in the consumption of textbooks and a decrease in the consumption of
Ramen noodles.
4) Because natural monopolies have a declining average cost curve, regulating natural
monopolies by setting price equal to marginal cost would
a.cause the monopolist to operate at a loss.
b.result in a less than optimal total surplus.
c.maximize producer surplus.
d.result in higher profits for the monopoly.
5) Excess capacity is
a.an example of the inefficiencies of monopolistically competitive markets.
b.a short-run problem but not a long-run problem.
c.a characteristic of rising average total cost curves.
d.Both a and b are correct.
6) Which of the Ten Principles of Economics does welfare economics explain more
fully?
a.The cost of something is what you give up to get it.
b.Rational people think at the margin.
c.Markets are usually a good way to organize economic activity.
d.People respond to incentives.
7) Table 22-11
Five voters must choose from among four options: A, B, C, or D. Each voter’s
preferences are summarized in the table below. Options higher in the table are more
preferred by the voter.
Refer to Table 22-11. If the vote were conducted according to a Borda count system
where each person’s first choice receives 4 points, second choice 3 points, third choice 2
points and fourth choice 1 point, the result would be
a.that A would win.
b.that B would win.
c.that C would win.
d.a tie between A and D.
8) Microeconomics is the study of
a.how money affects the economy.
b.how individual households and firms make decisions.
c.how government affects the economy.
d.how the economy as a whole works.
9) An increase in supply will cause a decrease in price, which will cause an increase in
demand.
a.True
b.False
10) Figure 8-6
The vertical distance between points A and B represents a tax in the market.
When the government imposes the tax in this market, tax revenue is
a. $600.
b. $900.
c. $1,500.
d. $3,000.
11) Roberto consumes Coke exclusively. He claims that there is a clear taste difference
and that competing brands of cola leave an unsavory taste in his mouth. In a blind taste
test, Roberto is found to prefer Coke to store-brand cola eight out of ten times. The
results of Roberto’s taste test would refute claims by critics of brand names that
a.consumers are always willing to pay more for brand names.
b.brand names cause consumers to perceive differences that do not really exist.
c.consumers with the lowest levels of income are the most likely to be influenced by
brand name advertising.
d.brand names are a form of socially efficient advertising.
12) In which case do firms have some control over their price?
a.monopolistic competition and perfect competition
b.oligopoly but not perfect competition
c.perfect competition but not monopoly
d.neither monopolistic competition nor oligopoly
13) Figure 15-14
A benevolent social planner would have
the monopoly operate at an output level
a.less than Q0.
b.greater than Q0.
c.equal to Q0.
d.equal to zero.
14) Table 7-1
If the price of the product is $130, then who would be willing to purchase the product?
a.Calvin
b.Calvin and Sam
c.Calvin, Sam, and Andrew
d.Calvin, Sam, Andrew, and Lori
15) The free entry and exit of firms in a monopolistically competitive market
guarantees that
a.both economic profits and economic losses can persist in the long run.
b.both economic profits and economic losses disappear in the long run.
c.economic profits, but not economic losses, can persist in the long run.
d.economic losses, but not economic profits, can persist in the long run.
16) Scenario 15-4
Suppose a monopolist has a demand curve that can be expressed as P=90-Q. The
monopolist’s marginal revenue curve can be expressed as MR=90-2Q. The monopolist
has constant marginal costs and average total costs of $10.
The profit-maximizing monopolist will earn profits of
a. $6,400.
b. $3,200.
c. $1,600.
d. $800.