1) A positive externality
a.is a benefit to the producer of the good.
b.is a benefit to the consumer of the good.
c.is a benefit to someone other than the producer and consumer of the good.
d.results in an optimal level of output.
2) Adam Smith’s book The Wealth of Nations was published in a. 1692.
b. 1776.
c. 1816.
d. 1936.
3) Consumer surplus can be measured as the area between the demand curve and the
equilibrium price.
a.True
b.False
4) In corporations, a principal-agent problem can arise when
a.the shareholders are the principal and the managers are the agent.
b.the board of directors is the principal and the managers are the agent.
c.the shareholders are the principal and the board of directors is the agent.
d.All of the above are correct.
5) A monopolistically competitive market is characterized by
a.free entry, but not differentiated products.
b.differentiated products, but not long run profits.
c.long run profits, but not many firms.
d.many firms, but not free entry.
6) Suppose at the consumer’s current consumption bundle the marginal rate of
substitution of cheese for wine is ½ bottle of wine per pound of cheese. The price of
one pound of cheese is $6, and the price of a bottle of wine is $10.
The consumer should increase his consumption of
a.cheese, decrease his consumption of wine, and move to a lower indifference curve.
b.cheese, decrease his consumption of wine, and move to a higher indifference curve.
c.wine, decrease consumption of cheese, and move to a higher indifference curve.
d.cheese, decrease consumption of wine, and remain on the same indifference curve.
7) Assume that England and Spain can switch between producing cheese and producing
bread at a constant rate.
The opportunity cost of 1 unit of bread for Spain is
a.1/2 unit of cheese.
b.1/2 hour of labor.
c.2 units of cheese.
d.8 hours of labor.
8) The demand curve for capital
a.is vertical.
b.is horizontal.
c.is derived from households’ decisions concerning saving and spending.
d.reflects the marginal productivity of capital.
9) Like monopolists, oligopolists are aware that an increase in the quantity of output
always
a.reduces the price of their product.
b.reduces their profit.
c.reduces their revenue.
d.reduces productivity.
10) A friend of yours asks you why market prices are better than
government-determined prices. Because you understand economic principles, you say
that market-determined prices are better because they generally reflect
a.the value of a good to society, but not the cost of making it.
b.the cost of making a good to society, but not its value.
c.both the value of a good to society and the cost of making it.
d.neither the value of a good to society nor the cost of making it.
11) In order to explain the changing gap in earnings between skilled and unskilled
workers in recent years, economists have proposed two hypotheses. One hypothesis
emphasizes
a.compensating differentials.
b.the increased recognition that a larger stock of human capital usually leads to higher
earnings.
c.technological progress.
d.the decreasing importance of international trade.
12) The movement from point B to point C
could have been caused by
a.inflation.
b.a change in income.
c.a change in the price of grapes.
d.a change in the cost of producing grapes.