1) If a firm notices that its average revenue equals the current market price, that firm
must be participating in a competitive market.
a.True
b.False
2) Karen’s cat causes Danny to sneeze. Karen values her cat’s companionship at $300
per year. The cost to Danny of tissues and her allergy medication is $350 per year.
Based on the Coase theorem,
a.Karen should pay Danny $400 so that she may keep her cat.
b.Karen should pay Danny $350 for tissues and allergy medication.
c.Danny should pay Karen $325 to give away her cat.
d.Danny should move.
3) An outcome is said to be efficient if an economy is getting all it can from the scarce
resources it has available.
a.True
b.False
4) Which of the following would be an example of an implicit cost?
(i)forgone investment opportunities
(ii)wages of workers
(iii)raw materials costs
a.(i) only
b.(ii) only
c.(ii) and (iii) only
d.(i) and (iii) only
5) Which of the following statements is not correct?
a.Corrective taxes can be used to place a price on the right to pollute.
b.Corrective taxes allocate pollution to those producers who face the highest cost of
reducing pollution.
c.Corrective taxes provide incentives to develop cleaner technologies.
d.Corrective taxes require the government to set a target level of pollution.
6) Table 14-14
The following table presents cost and revenue information for Bob‘s bakery production
and sales.
Suppose that due to a decrease in the market demand for bread the market price of
bread drops to $2.75. At this new price, if Bob produces and sells the profit-maximizing
quantity, how much profit will he earn?
a. $0.25
b. $1.25
c. $2.25
d. The firm will lose $6.25.
7) The federal taxes owed by a taxpayer depend
a.only upon the marginal tax rate on the taxpayer’s first $25,000 of income.
b.only upon the marginal tax rate on the taxpayer’s last $10,000 of income.
c.upon all the marginal tax rates up to the taxpayer’s overall level of income.
d.upon all the marginal tax rates, including those for income levels that exceed the
taxpayer’s overall level of
income.
8) Production Opportunities
We could use the information in the table to draw a production possibilities frontier for
England and a second production possibilities frontier for France. If we were to do this,
measuring cheese along the horizontal axis, then
a.the slope of England’s production possibilities frontier would be 4 and the slope of
France’s production possibilities frontier would be -0.4.
b.the slope of England’s production possibilities frontier would be 0.25 and the slope of
France’s production possibilities frontier would be -2.5.
c.the slope of England’s production possibilities frontier would be 0.25 and the slope of
France’s production possibilities frontier would be 2.5.
d.the slope of England’s production possibilities frontier would be 4 and the slope of
France’s production possibilities frontier would be 0.4.
9) Suppose the government is concerned about firms in the United States importing
illegal caviar. As a result, the government increases border patrols to catch illegal
shipments. U.S. Customs agents perform DNA testing on the caviar to determine if it
comes from endangered species of fish. If so, the government destroys the caviar.
What would we expect to observe in the caviar market?
a.Equilibrium prices and quantities will increase.
b.Equilibrium prices will increase by more if the demand for caviar is elastic than if
demand is inelastic.
c.Total revenues to caviar firms will increase if the demand for caviar is inelastic.
d.All of the above are correct.
10) Suppose a consumer spends her income on two goods: music CDs and DVDs. The
consumer has $200 to allocate to these two goods, the price of a CD is $10, and the
price of a DVD is $20. What is the maximum number of DVDs the consumer can
purchase?
a.10
b.20
c.40
d.50
11) Assume that Maya and Miguel can switch between producing mixers and producing
toasters at a constant rate.
The opportunity cost of 1 mixer for Miguel is
a.1/2 toaster.
b.1/2 hour of labor.
c.2 toasters.
d.8 hours of labor.
12) Figure 19-5
Refer to Figure 19-5. Given demand for labor, D1, and supply of labor, S2, which of
the following could be considered an efficiency wage?
a.$4
b.$5
c.$6
d.$7
13) Herbert Simon, one of the first social scientists to combine the study of economics
and psychology, suggested that humans should be viewed as
a.rational maximizers.
b.satisficers.
c.independent thinkers.
d.signalers.
14) Figure 10-4
If this market is currently producing at Q4, then total economic well-being would be
maximized if output
a.decreased to Q1.
b.decreased to Q2.
c.decreased to Q3.
d.stayed at Q4.