1) Majority rule will produce the outcome most preferred by the median voter.
a.True
b.False
2) Which of the following is not an example of in-kind transfers?
a.food stamps
b.Medicaid
c.the Earned Income Tax Credit
d.housing vouchers
3) Which of the following statements is not correct?
a.Two examples of early antitrust laws are the Sherman and Clayton Antitrust Acts.
b.Antitrust laws automatically prevent mergers between companies that produce similar
products.
c.Antitrust laws give the government power to increase competition.
d.Antitrust laws can reduce social welfare if they prevent mergers that would lower
costs through more efficient joint production.
4) Profit-maximizing, competitive firms will not discriminate in the hiring of workers
unless consumers exercise a preference for discrimination in product markets or
governments mandate discrimination.
a.True
b.False
5) A tax on a good
a.gives buyers an incentive to buy less of the good than they otherwise would buy.
b.gives sellers an incentive to produce more of the good than they otherwise would
produce.
c.creates a benefit to the government, the size of which exceeds the loss in surplus to
buyers and sellers.
d.All of the above are correct.
6) Table 7-3
The only four consumers in a market have the following willingness to pay for a good:
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 good will sell for
a.$15 or slightly less.
b.$25 or slightly more.
c.$35 or slightly more.
d.$45 or slightly less.
7) Suppose that the market price for pizzas increases. The increase in producer surplus
comes from the benefit of the higher prices to
a.only existing sellers who now receive higher prices on the pizzas they were already
selling.
b.only new sellers who enter the market because of the higher prices.
c.both existing sellers who now receive higher prices on the pizzas they were already
selling and new sellers who enter the market because of the higher prices.
d.Producer surplus does not increase; it decreases.
8) In the game in which two oil companies own adjacent oil fields, the companies will
not use the oil efficiently because
a.neither company has a dominant strategy in the game.
b.the companies collude and produce a quantity of oil that is less than the
socially-efficient quantity.
c.the pool from which they recover the oil is a common resource.
d.the pool from which they recover the oil is not large enough to allow both companies
to earn a positive profit.
9) In his 1951 book, Social Choice and Individual Values, Kenneth Arrow used the term
“transitivity” to mean
a.A beats B only if everyone prefers A to B.
b.if everyone prefers A to B, then A beats B.
c.if A beats B and B beats C, then A must beat C.
d.everyone who is eligible to vote must vote; otherwise, the outcome is invalid.
10) Consider the market for university economics professors. Suppose the opportunity
cost of going to graduate school to get a Ph.D. in economics decreases for many
individuals. Suppose it generally takes about five years to get a Ph.D. in economics.
Holding all else constant, in five years the equilibrium wage for university economics
professors will
a.increase.
b.decrease.
c.not change.
d.It is not possible to determine what will happen to the equilibrium wage.
11) Figure 7-15
When the price is P1, producer surplus is
a.A.
b.C.
c.A+B.
d.C+D.
12) Scenario 16-3
Peter operates an ice cream shop in the center of Fairfield. He sells several unusual
flavors of organic, homemade ice cream so he has a monopoly over his own ice cream,
though he competes with many other firms selling ice cream in Fairfield for the same
customers. Peter’s demand and cost values for sales per day are given in the table below.
(Everyone who purchases Peter’s ice cream buys a double scoop cone because it’s so
delicious.)
Which of the following statements best describes the long run adjustment in this
market?
a.One or more ice cream shops in Fairfield closes, increasing the demand for Peter’s ice
cream. Peter’s profits increase and he sustains positive profits in the long run.
b.One or more ice cream shops in Fairfield closes, increasing the demand for Peter’s ice
cream. Peter’s profits increase until he earns zero profit.
c.One or more new ice cream shops in Fairfield opens and competes with Peter for
customers, reducing the demand for Peter’s ice cream. Peter’s profits decline until he
incurs losses and exits the industry.
d.One or more new ice cream shops in Fairfield opens and competes with Peter for
customers, reducing the demand for Peter’s ice cream. Peter’s profits decline until he
earns zero profit.
13) Figure 8-2
The vertical distance between points A and B represents a tax in the market.
Total surplus without the tax is
a.$10, and total surplus with the tax is $2.50.
b.$10, and total surplus with the tax is $7.50.
c.$20, and total surplus with the tax is $2.50.
d.$20, and total surplus with the tax is $7.50.
14) Suppose Iceland goes from being an isolated country to being an importer of coats.
As a result,
a.consumer surplus increases for consumers of coats in Iceland.
b.producer surplus increases for producers of coats in Iceland.
c.total surplus remains unchanged in the coat market in Iceland.
d.it is reasonable to infer that Iceland has a comparative advantage over other countries
in coat production.
15) Refer to Figure 9-24. Suppose the government imposes a tariff of $10 per unit. The
amount of revenue collected by the government from the tariff is
a.$50.
b.$100.
c.$150.
d. $200.
16) Figure 16-5
Panel b is consistent with a firm in a monopolistically competitive market that is
a.not in long-run equilibrium.
b.in long-run equilibrium.
c.producing its efficient scale of output.
d.earning a positive economic profit.
17) Today, people changed their expectations about the future. This change
a.can cause a movement along a demand curve.
b.can affect future demand but not today’s demand.
c.can affect today’s demand.
d.cannot affect either today’s demand or future demand.
18) Explain how a profit-maximizing monopolist chooses its level of output and the
price of its goods.
19) News reports from the western United States occasionally report incidents of cattle
ranchers slaughtering a large number of newborn calves and burying them in mass
graves rather than transporting them to markets. Assuming that this is rational behavior
by profit-maximizing “firms,” explain what economic factors may influence such
behavior.
20) Approximately what fraction of total income in the US economy comes from labor
earnings?
21) Figure 15-24
Which letter represents the profit-maximizing price chosen by the single price
monopolist?
22) Is measuring the effect of discrimination on wages relatively easy or relatively
difficult? Explain?
23) You have the afternoon free. You have a choice between going to the movies with a
friend or studying economics for three hours. If you go to the movies, you will spend
$12.00 on a ticket and $4.75 on popcorn. If you choose to study economics for three
hours, you will raise your exam grade by 15 points.
What is your opportunity cost of studying economics?