1) Anthony and Addie are playing the ultimatum game, starting with $100. The coin flip
results in Anthony being the one to propose a division of the $100. Anthony proposes
that he gets $99 and Addie gets $1. Which of the following statements is correct?
a.Because the 991 split isn’t fair, Anthony should not make this offer.
b.Conventional economic theory predicts that Anthony will propose a 99-1 split, just as
he did.
c.Experimental evidence suggests that Addie will accept the 991 split because, even
though it isn’t fair, it’s better than nothing.
d.Economic theory predicts that Anthony should choose a 60-40 split to maximize his
payoff.
2) The supply curve for the monopolist
a.is horizontal.
b.is vertical.
c.is upward sloping.
d.does not exist.
3) Consider the town of Springfield with only three residents, Sophia, Amber, and
Cedric. The three residents are trying to determine how large, in acres, they should
build the public park. The table below shows each resident’s willingness to pay for each
acre of the park.
Suppose the cost to build the park is $9 per acre. How large should the park be to
maximize total surplus from the park in Springfield?
a.2 acres
b.3 acres
c.4 acres
d.5 acres
4) Figure 14-2
Suppose a firm operating in a competitive market has the following cost curves:
Which of the four prices corresponds to a firm earning negative economic profits in the
short run and shutting down?
a.Pa
b.Pb
c.Pc
d.Pd
5) Uzbekistan’s Production Possibilities FrontierAzerbaijan’s Production
Possibilities Frontier
If
Uzbekistan and Azerbaijan each spends all its time producing the good in which it has a
comparative advantage and trade takes place at a price of 12 bolts for 36 nails, then
a.neither Uzbekistan nor Azerbaijan will gain from this trade.
b.Uzbekistan will gain from this trade, but Azerbaijan will not.
c.Azerbaijan will gain from this trade, but Uzbekistan will not.
d.both Uzbekistan and Azerbaijan will gain from this trade.
6) A woman gives her boyfriend a birthday present. The gift could be viewed by the
boyfriend as a
a.moral hazard problem.
b.screening device.
c.signal of how much she cares for him.
d.All of the above are correct.
7) Drug companies are allowed to be monopolists in the drugs they discover in order to
a.increase the availability of expensive but useful medications.
b.increase the overall welfare of society through better health because drug companies
continually produce better medications.
c.encourage research.
d.All of the above are correct.
8) Table 22-2
Three longtime friends-Allen, Brian, and Cody-are deciding how they will spend their
Sunday afternoon. They all agree that they should do one of three things: go to a movie,
play golf, or go to a baseball game. They also agree that they will have two pairwise
votes to determine how to spend their afternoon, with the majority determining the
outcome on each vote. The first, second, and third choices for each person are as
indicated in the table below.
Refer to Table 22-2. If (1) the first vote pits “baseball game” against “golf,” and (2) the
second vote pits “movie” against the winner of the first vote, then
a.”Baseball game” wins the first vote and “baseball game” wins the second vote, so they
go to a baseball game.
b.”Baseball game” wins the first vote and “movie” wins the second vote, so they go to a
movie.
c.”golf” wins the first vote and “golf” wins the second vote, so they play golf.
d.”golf” wins the first vote and “movie” wins the second vote, so they go to a movie.
9) When something of value has no price attached to it,
a.externalities will be present.
b.production of the product has no cost.
c.government should not intervene to produce the product.
d.private companies will eventually produce the product, and the good will no longer be
free.
10) In the United States, technological advances help explain persistently rising
employment in the face of rising wages.
a.True
b.False
11) Public service announcements, mandatory health warnings on cigarette packages,
and the prohibition of cigarette advertising on television are all policies aimed at
shifting the demand curve for cigarettes to the right.
a.True
b.False
12) When a firm’s average total cost curve continually declines, the firm is a
a.government-created monopoly.
b.natural monopoly.
c.revenue monopoly.
d.All of the above are correct.
13) Over the past several years, the earnings gap between high-skilled and low-skilled
workers has
(i)narrowed because the demand for unskilled labor has risen over time relative to the
demand for skilled labor.
(ii)widened because the demand for skilled labor has risen over time relative to the
demand for unskilled labor.
(iii)narrowed because the supply of unskilled labor has risen over time relative to the
supply of skilled labor.
(iv)widened because the supply of skilled labor has risen over time relative to the
supply of unskilled labor.
a.(i) only
b.(ii) only
c.(i) and (iii) only
d.(ii) and (iv) only
14) Free trade causes job losses in industries in which a country does not have a
comparative advantage, but it also causes job gains in industries in which the country
has a comparative advantage.
a.True
b.False
15) Perfect price discrimination
a.increases profits to the firm.
b.increases total surplus.
c.decreases consumer surplus.
d.All of the above are correct.
16) An increase in the price of a substitute good will shift the demand curve for a good
to the right.
a.True
b.False