1) Which of the following industries is least likely to exhibit the characteristic of free
entry?
a.ethnic restaurants
b.municipal water and sewer
c.corn farming
d.grocery stores
2) If the price of walnuts rises, many people would switch from consuming walnuts to
consuming pecans. But if the price of salt rises, people would have difficulty
purchasing something to use in its place. These examples illustrate the importance of
a.the availability of close substitutes in determining the .
b.a necessity versus a luxury in determining the .
c.the definition of a market in determining the .
d.the time horizon in determining the .
3) Figure 10-16
This graph shows the market for pollution when permits are issued to firms and traded
in the marketplace. The equilibrium price of pollution is
a.$50
b.$500
c. $1,000
d. $2,000
4) Consider a competitive market with a large number of identical firms. The firms in
this market do not use any resources that are available only in limited quantities. In
long-run equilibrium, market price is determined by
a.the minimum point on the firms‘ average variable cost curve.
b.the minimum point on the firms‘ average total cost curve.
c.the portion of the marginal cost curve below average variable cost.
d.a firm‘s level of sunk costs.
5) Figure 17-4. Aaron and Ed are roommates. After a big snowstorm, their driveway
needs to be shoveled. Each person has to decide whether to take part in shoveling the
driveway. At the end of the day, either the driveway will be shoveled (if one or both
roommates take part in shoveling), or it will remain unshoveled (if neither roommate
shovels). With happiness measured on a scale of 1 (very unhappy) to 10 (very happy),
the possible outcomes are as follows:
Refer to Figure 17-4. In pursuing his own self-interest, Aaron will
a.refrain from shoveling whether or not Ed shovels.
b.shovel only if Ed shovels.
c.shovel only if Ed refrains from shoveling.
d.shovel whether or not Ed shovels.
6) Table 13-2
What is the marginal product of the first worker?
a.300 units
b.200 units
c.100 units
d.50 units
7) Holding all other forces constant, if increasing the price of a good leads to a decrease
in total revenue, then the demand for the good must be
a.unit elastic.
b.inelastic.
c.elastic.
d.None of the above is correct because a price increase always leads to an decrease in
total revenue.
8) Suppose that an employer can hire workers with brown hair and workers with blonde
hair. Each type of worker has the same productivity. Which of the following is correct if
the employer discriminates by hiring only workers with brown hair?
a.The employer will be just as efficient as a nondiscriminating employer.
b.The employer will face higher costs than firms that focus only on maximizing profits.
c.The employer will immediately go out of business because discrimination is illegal.
d.The employer will face union strikes.
9) Table 22-16
The Johnson family is planning a vacation and, though Mr. and Mrs. Johnson will be
paying for the trip, they have decided to use a democratic voting process to choose their
destination. The family members’ preferences are reflected in the table below.
Refer to Table 22-16. Mr. Johnson recommends using a vote by majority rule and
proposes first choosing between Opryland and the Grand Canyon, then choosing
between the winner of the first vote and Sea World, and finally choosing between the
winner of the second vote and Disneyland. If everyone votes according to their
preferences,
a.the winner of the first vote will be Opryland, the winner of the second vote will be
Sea World, and the winner of the final vote will be Disneyland.
b.the winner of the first vote will be Grand Canyon, the winner of the second vote will
be Grand Canyon, and the winner of the final vote will be Disneyland.
c.the winner of the first vote will be Grand Canyon, the winner of the second vote will
be Sea World, and the winner of the final vote will be Disneyland.
d.the winner of the first vote will be Grand Canyon, the winner of the second vote will
be Grand Canyon, and the winner of the final vote will be Grand Canyon.
10) The difference between accounting profit and economic profit is
a.explicit costs.
b.implicit costs.
c.total revenue.
d.marginal product.
11) Figure 7-10
Which area represents producer surplus when the price is P2?
a.BCG
b.ACH
c.ABGD
d.AHGB
12) Even the demand for a necessity such as gasoline will respond to a change in price,
especially over a longer time horizon.
a.True
b.False
13) If the consumer’s income and all prices simultaneously decrease by one-half, then
the optimum consumption will
a.shift outward relative to the original optimum.
b.move leftward along the original budget constraint.
c.shift inward relative to the original optimum.
d.not change.
14) Which of the following is an example of a normative, as opposed to positive,
statement?
a.Gasoline prices ought to be lower than they are now.
b.The federal government should raise taxes on wealthy people.
c.The social security system is a good system and it deserves to be preserved as it is.
d.All of the above are normative statements.
15) Consider a profit-maximizing monopoly pricing under the following conditions.
The profit-maximizing quantity is 40 units, the profit-maximizing price is $160, and the
marginal cost of the 40th unit is $120. If the good were produced in a perfectly
competitive market, the equilibrium quantity would be 50, and the equilibrium price
would be $150. The demand curve and marginal cost curves are linear. What is the
value of the deadweight loss created by the monopolist?
a. $40
b. $100
c. $200
d. $400
16) Tolls are not effective in altering people’s incentives to drive during rush hour.
a.True
b.False
17) A monopolist faces a
a.horizontal demand curve.
b.vertical demand curve.
c.downward-sloping demand curve.
d.U-shaped demand curve.