1) Which of the following statements is correct?
a.The more similar Firm A’s product is to Firm B’s product, the more likely Firm A is to
advertise.
b.Monopolistically competitive firms advertise in order to increase the elasticity of the
demand curve they face.
c.According to the signaling theory, the more product information an advertisement
contains, the more effective it is.
d.Brand names may help consumers if they provide information about the quality of a
product when acquiring such information is difficult.
2) Refer to Figure 9-21. Producer surplus with free trade is
a. $14,000.
b. $18,000.
c. $24,000.
d. $32,000.
3) In the United States, long-term poverty, defined as a family having an income below
the poverty line for eight or more years, is
a.common, affecting approximately 25 percent of all American families.
b.common, affecting approximately 15 percent of all American families.
c.uncommon, affecting approximately 8 percent of all American families.
d.rare, affecting approximately 3 percent of all American families.
4) At the consumer’s optimum the
a.budget constraint will have a slope of MUx/Px.
b.slope of the indifference curve is equal to the slope of the budget constraint.
c.indifference curve will intersect the budget constraint at the midpoint of the budget
constraint.
d.Both b and c are correct.
5) If your wage increases from $10 per hour to $15 per hour, then your
a.opportunity cost of an hour of leisure decreases by $5 per hour.
b.opportunity cost of an hour of leisure increases by $5 per hour.
c.out-of-pocket cost of an hour of leisure decreases by $5 per hour.
d.out-of-pocket cost of an hour of leisure increases by $5 per hour.
6) Adam Smith suggested that an invisible had guides market economies. In this
analogy, what is the baton that the invisible hand uses to conduct the economic
orchestra?
a.the government
b.prices
c.subsidies
d.the Federal Reserve
7) If price is $25, then quantity demanded and
quantity supplied, respectively, are
a.500 units and 500 units.
b.500 units and 800 units.
c.600 units and 600 units.
d.800 units and 500 units.
8) A firm is currently producing 100 units of output per day. The manager reports to the
owner that producing the 100th unit costs the firm $5. The firm can sell the unit for $6.
The firm should produce more than 100 units in order to maximize its profits (or
minimize its losses).
a.True
b.False
9) Suppose there is a flood in St. Louis, Missouri, that destroys several beer bottling
facilities. Which of the following would not be a direct result of this event?
a.Sellers would not be able to produce and sell as much as before at each relevant price.
b.The supply would decrease.
c.Buyers would not be willing to buy as much as before at each relevant price.
d.The equilibrium price would rise.
10) If the United States changed its laws to allow for the legal sale of a kidney, which of
the following is likely to occur?
a.The price of kidneys would rise to balance supply and demand.
b.The gains from trade would make both buyers and sellers better off.
c.Thousands of lives would be saved.
d.All of the above are correct.
11) When free riders are present in a market, the market generally fails to provide the
efficient outcome.
a.True
b.False
12) Suppose that in 2020 the average citizen’s federal tax bill is $12,466, and total
federal spending is $10,824 per person. In 2020, the federal government will have
a.a budget surplus.
b.a budget deficit.
c.horizontal equity.
d.vertical equity.
13) Which of these statements best represents the law of demand?
a.When buyers’ tastes for a good increase, they purchase more of the good.
b.When income levels increase, buyers purchase more of most goods.
c.When the price of a good decreases, buyers purchase more of the good.
d.When buyers’ demands for a good increase, the price of the good increases.
14) Which of the following is an example of price discrimination?
a.An online bookstore charges more for overnight shipping than standard shipping
when customers buy books from it.
b.Airline tickets are more expensive for first-class seats than for coach.
c.Hotel rates for AAA members are lower than for nonmembers.
d.All of the above are correct.
15) Refer to Figure 9-17. With trade and a tariff, consumer surplus is
a.$808 and producer surplus is $200.
b.$808 and producer surplus is $392.
c.$1,024 and producer surplus is $200.
d.$1,024 and producer surplus is $392.
16) The elderly represent the largest demographic group in poverty.
a.True
b.False
17) When demand is elastic, a decrease in price will cause
a.an increase in total revenue.
b.a decrease in total revenue.
c.no change in total revenue but an increase in quantity demanded.
d.no change in total revenue but a decrease in quantity demanded.