The longrun effects of rent controls are a good illustration of the principle that
a. society faces a shortrun tradeoff between unemployment and inflation.
b. the cost of something is what you give up to get it.
c. people respond to incentives.
d. government can sometimes improve on market outcomes.
“Other things equal, when the price of a good rises, the quantity demanded of the good
falls, and when the price falls, the quantity demanded rises.” This relationship between
price and quantity demanded
a. applies to most goods in the economy.
b. is represented by a downwardsloping demand curve.
c. is referred to as the law of demand.
d. All of the above are correct.
Figure 315
Perry’s Production Possibilities FrontierJordan’s Production Possibilities Frontier
Refer to Figure 315. If Perry and Jordan switch from each person dividing their time
equally between the production of novels and poems to each person spending all of
their time producing the good in which they have a comparative advantage, then total
production of novels will increase by
a. 1.
b. 2.
c. 3.
d. 4.
Scenario 92
• For a small country called Boxland, the equation of the domestic demand curve for
cardboard is
,
where represents the domestic quantity of cardboard demanded, in tons, and
represents the price of a ton of cardboard.
• For Boxland, the equation of the domestic supply curve for cardboard is
,
where represents the domestic quantity of cardboard supplied, in tons, and again
represents the price of a ton of cardboard.
Refer to Scenario 92. Suppose the world price of cardboard is $45. Then Boxland’s
gains from international trade in cardboard amount to
a. $88.75.
b. $102.50.
c. $122.50.
d. $135.00.
Figure 22
Refer to Figure 22. Boxes C and D of this circularflow diagram represent
a. households and government.
b. firms and government.
c. the markets for goods and services and the markets for financial assets.
d. the markets for goods and services and the markets for factors of production.
At price of $1.25, a paper manufacturer is willing to supply 150 spiral notebooks per
day. At a price of $1.50, the paper manufacturer is willing to supply 175 spiral
notebooks per day. Using the midpoint method, the price elasticity of supply is about
a. 1.18.
b. 1.00.
c. 0.85.
d. 0.25.
If a firm is a price taker, it operates in a
a. competitive market.
b. monopoly market.
c. oligopoly market.
d. monopolistically competitive market.
Suppose Rebecca needs a dog sitter so that she can travel to her sister’s wedding.
Rebecca values dog sitting for the weekend at $200. Susan is willing to dog sit for
Rebecca so long as she receives at least $150. Rebecca and Susan agree on a price of
$175. Suppose the government imposes a tax of $10 on dog sitting. The tax has made
Rebecca and Susan worse off by a total of
a. $50.
b. $40.
c. $20.
d. $10.
Table 716
PriceQuantity
DemandedQuantity
Supplied
$12.00036
$10.00330
$ 8.00624
$ 6.00918
$ 4.001212
$ 2.00156
$ 0.00180
Refer to Table 716. The equilibrium price is
a. $10.00.
b. $8.00.
c. $6.00.
d. $4.00.
Assume the supply curve for diapers is a typical, upwardsloping straight line, and the
demand curve for diapers is a typical, downwardsloping straight line. Suppose the
equilibrium quantity in the market for diapers is 1,000 per month when there is no tax.
Then a tax of $0.50 per diaper is imposed. The effective price paid by buyers increases
from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40.
The government’s tax revenue amounts to $475 per month. Which of the following
statements is correct?
a. After the tax is imposed, the equilibrium quantity of diapers is 900 per month.
b. The demand for diapers is more elastic than the supply of diapers.
c. The deadweight loss of the tax is $12.50.
d. The tax causes a decrease in consumer surplus of $380.
Figure 320
Canada’s Production Possibilities FrontierMexico’s Production Possibilities
Frontier
Refer to Figure 320. At which of the following prices would both Canada and Mexico
gain from trade with each other?
a. 9 units of Good Y for 6 units of Good X
b. 8 units of Good Y for 20 units of Good X
c. 70 units of Good Y for 30 units of Good X
d. Canada and Mexico could not both gain from trade with each other at any price.
Tom walks Bethany’s dog once a day for $50 per week. Bethany values this service at
$60 per week, while the opportunity cost of Tom’s time is $30 per week. The
government places a tax of $35 per week on dog walkers. After the tax, what is the loss
in total surplus?
a. $50
b. $30
c. $25
d. $0
Figure 84
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 84. The perunit burden of the tax on sellers is
a. $7.
b. $5.
c. $4.
d. $3.
Figure 84
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 84. The amount of the tax on each unit of the good is
a. $5.
b. $7.
c. $8.
d. $12.
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.
Table 64
The following table contains the demand schedule and supply schedule for a market for
a particular good. Suppose sellers of the good successfully lobby Congress to impose a
price floor $3 above the equilibrium price in this market.
PriceQuantity
DemandedQuantity
Supplied
$0150
$1133
$2116
$399
$4712
$5515
$6318
Refer to Table 64. Following the imposition of a price floor $3 above the equilibrium
price, irate buyers convince Congress to repeal the price floor and to impose a price
ceiling $1 below the former price floor. The resulting shortage is
a. 0 units.
b. 4 units.
c. 5 units.
d. 10 units.
The ability of an individual to own and exercise control over scarce resources is called
a. market failure.
b. property rights.
c. externality.
d. market power.
The adage, “There is no such thing as a free lunch,” means
a. even people on welfare have to pay for food.
b. the cost of living is always increasing.
c. people face tradeoffs.
d. all costs are included in the price of a product.
Figure 915
Refer to Figure 915. The amount of government revenue created by the tariff is
a. B.
b. E.
c. D + F.
d. B + D + E + F.
Table 73
The only four consumers in a market have the following willingness to pay for a good:
BuyerWillingness to Pay
Carlos$15
Quilana$25
Wilbur$35
Mingla$45
Refer to Table 73. If there is only one unit of the good and if the buyers bid against
each other for the right to purchase it, then the consumer surplus will be
a. $0 or slightly more.
b. $10 or slightly less.
c. $30 or slightly more.
d. $45 or slightly less.
Figure 74
Refer to Figure 74. When the price falls from P1 to P2, which area represents the
increase in consumer surplus to existing buyers?
a. BDF
b. AFG
c. BCGD
d. ABC
Figure 629
Suppose the government imposes a $2 on this market.
Refer to Figure 629. The buyers will bear a higher share of the tax burden than sellers
if the demand is
a. D1, and the supply is S1.
b. D2, and the supply is S1.
c. D1, and the supply is S2.
d. D2, and the supply is S2.
Billie Jo values a stainless steel dishwasher for her new house at $500, but she succeeds
in buying one for $425. Billie Jo’s willingness to pay for the dishwasher is
a. $150.
b. $425.
c. $500.
d. $850.
Figure 32
Brazil’s Production Possibilities Frontier
Refer to Figure 32. The fact that the line slopes downward reflects the fact that
a. for Brazil, it is more costly to produce peanuts than it is to produce cashews.
b. Brazil will produce more peanuts and fewer cashews as time goes by.
c. Brazil faces a tradeoff between producing peanuts and producing cashews.
d. Brazil should specialize in producing cashews.
In the simple circular flow diagram, the flow of money from the firms to the markets
for factors of production is called
a. spending.
b. revenue.
c. income.
d. wages, rent, and profit.
Assume that a 4 percent decrease in income results in a 6 percent increase in the
quantity demanded of a good. The income elasticity of demand for the good is
a. negative, and the good is an inferior good.
b. negative, and the good is a normal good.
c. positive, and the good is an inferior good.
d. positive, and the good is a normal good.
Figure 91
The figure illustrates the market for coffee in Guatemala.
Refer to Figure 91. When trade in coffee is allowed, producer surplus in Guatemala
a. increases by the area B + D.
b. increases by the area B + D + G.
c. decreases by the area C + F.
d. decreases by the area G.
When demand is perfectly inelastic, the demand curve will be
a. negatively sloped, because buyers decrease their purchases when the price rises.
b. vertical, because buyers purchase the same amount as before whenever the price rises
or falls.
c. positively sloped, because buyers increase their purchases when price rises.
d. positively sloped, because buyers increase their total expenditures when price rises.
Ralph Nader’s book Unsafe at Any Speed caused Congress to require
a. safety glass in all new cars.
b. seat belts in all new cars.
c. air bags in all new cars.
d. stricter drunk driving laws in all states.
Figure 625
Refer to Figure 625. The burden of the tax on buyers is
a. $1 per unit.
b. $1.50 per unit.
c. $2 per unit.
d. $3 per unit.
In general, elasticity is a measure of
a. the extent to which advances in technology are adopted by producers.
b. the extent to which a market is competitive.
c. how firms’ profits respond to changes in market prices.
d. how much buyers and sellers respond to changes in market conditions.
Scenario 91
The beforetrade domestic price of peaches in the United States is $40 per bushel. The
world price of peaches is $52 per bushel. The U.S. is a pricetaker in the market for
peaches.
Refer to Scenario 91. If trade in peaches is allowed, the price of peaches in the United
States
a. will be greater than the world price.
b. will be equal to the world price.
c. will be less than the world price.
d. could be greater than, equal to, or less than the world price; this cannot be
determined.
Which of the following can policy do?
a. alter incentives
b. alter tradeoffs
c. change opportunity costs
d. All of the above are correct.
Figure 320
Canada’s Production Possibilities FrontierMexico’s Production Possibilities
Frontier
Refer to Figure 320. Canada’s opportunity cost of one unit of Good X is
a. 1/2 unit of Good Y and Mexico’s opportunity cost of one unit of Good X is 1/2 unit
of Good Y.
b. 1/2 unit of Good Y and Mexico’s opportunity cost of one unit of Good X is 2 units of
Good Y.
c. 2 units of Good Y and Mexico’s opportunity cost of one unit of Good X is 1/2 unit of
Good Y.
d. 2 units of Good Y and Mexico’s opportunity cost of one unit of Good X is 2 units of
Good Y.