1) When goods do not have a price, which of the following primarily ensures that the
good is produced?
a.buyers
b.sellers
c.government
d.the market
2)
Which arrow represents the flow of land, labor, and capital?
a.A
b.B
c.C
d.D
3) The Sherman Antitrust Act states that if a person can prove that he was damaged by
an illegal arrangement to restrain trade, he could sue and recover three times the
damages he sustained.
a.True
b.False
4) Figure 9-7. The figure applies to the nation of Wales and the good is cheese.
With trade, Wales
a.imports Q2– Q1units of cheese.
b.exports Q2– Q1units of cheese.
c.imports Q2– Q0units of cheese.
d.exports Q2– Q0units of cheese.
5) Suppose the demand for peaches decreases. What will happen to producer surplus in
the market for peaches?
a.It increases.
b.It decreases.
c.It remains unchanged.
d.It may increase, decrease, or remain unchanged.
6) Adam Smith
a.and David Ricardo both opposed free trade.
b.opposed free trade, but David Ricardo supported it.
c.supported free trade, but David Ricardo opposed it.
d.and David Ricardo both supported free trade.
7) In the 1980s, President Ronald Reagan argued that high tax rates distorted economic
incentives to work and save. In the 1990s, President Bill Clinton argued that the rich
were not paying their fair share of taxes. Which of the following statements best
summarizes the economic theories behind the differing philosophies?
a.President Reagan was concerned about vertical equity, whereas President Clinton was
concerned about horizontal equity.
b.President Reagan was concerned about average tax rates, whereas President Clinton
was concerned about horizontal equity.
c.President Reagan was concerned about marginal tax rates, whereas President Clinton
was concerned about vertical equity.
d.None of the above is correct.
8) Suppose that a firm produces electricity by burning coal. The production process
creates a negative externality of air pollution. If the firm does not internalize the cost of
the externality, it will produce where
a.the value of electricity to consumers equals the private cost of producing electricity.
b.the value of electricity to consumers equals the social cost of producing electricity.
c.the cost of the externality is maximized.
d.the transaction costs of private bargaining are minimized.
9) A monopolistically competitive market is characterized by barriers to entry.
a.True
b.False
10) Figure 15-5
At the profit-maximizing level of output,
a.marginal revenue is equal to P3
b.marginal cost is equal to P3
c.average revenue is equal to P2
d.average total cost is equal to P6
11) A toll on a congested road is in essence
a.an interstate highway tax.
b.a Department of Motor Vehicles tax.
c.a gasoline tax.
d.a corrective tax.
12) The art in scientific thinking is
a.finding the right problem to study.
b.deciding which assumptions to make.
c.the ability to make an abstract subject easy to understand.
d.not something in which economists have to be skilled.
13) According to the Coase theorem, whatever the initial distribution of rights, the
interested parties can bargain to an efficient outcome.
a.True
b.False
14) Table 17-28
Suppose that two firms determine that each could lower its costs and increase its profits
if both reduced their advertising budgets. But in order for the plan to work, each firm
must agree to refrain from advertising. Each firm believes that advertising works by
increasing the demand for the firm’s product, but each firm also believes that if neither
firm advertises, the cost savings will outweigh the lost sales. The table below lists each
firm’s individual profits:
Firm A
Breaks agreement Maintains agreement
and advertises and does not advertise
Refer to Table 17-28. Does either Firm A or Firm B have a dominant strategy?
a.Firm A has a dominant strategy, but Firm B does not.
b.Firm A does not have a dominant strategy, but Firm B does.
c.Neither Firm A nor Firm B has a dominant strategy.
d.Both Firm A and Firm B have a dominant strategy.
15) Table 10-4
Take into account private and external costs and assume the quantity of output is always
a whole number (that is, fractional units of output are not possible). The maximum total
surplus that can be achieved in this market is
a.$29.
b.$35.
c.$40.
d.$46.
16) Uzbekistan’s Production Possibilities FrontierAzerbaijan’s Production
Possibilities Frontier
If the production possibilities frontiers shown are each for two days of production, then
which of the following combinations of bolts and nails could Uzbekistan and
Azerbaijan together not make in a given 2-day production period?
a.9 bolts and 122 nails
b.21 bolts and 98 nails
c.36 bolts and 56 nails
d.47 bolts and 18 nails
17) Points inside the production possibilities frontier represent feasible levels of
production.
a.True
b.False
18) Which of the following goods is nonrival in consumption and excludable?
a.Grand Canyon National Park on a rainy, cool day
b.Disney World on a rainy, cool day
c.a crowded public beach on a sunny, warm day
d.White Mountain ski resort on a sunny, mild day
19) Economists believe that production possibilities frontiers rarely have a bowed
shape.
a.True
b.False
20) Scenario 17-3.
Consider two countries, Kinglandia and Rovinastan, that are engaged in an arms race.
Each country must decide whether to build new weapons or to disarm existing
weapons. Each country prefers to have more arms than the other because a large arsenal
gives it more influence in world affairs. But each country also prefers to live in a world
safe from the other country’s weapons. The following table shows the possible
outcomes for each decision combination. The numbers in each cell represent the
country’s ranking of the outcome (10 = best outcome, 1 = worst outcome).
Refer to Scenario 17-3. If each country only makes a choice of whether to build or
disarm one time and Rovinastan chooses to build new weapons, then Kinglandia will
a.disarm to signal its willingness to cooperate.
b.disarm to promote world peace.
c.build new weapons to prevent the loss of influence in world affairs.
d.None of the above are correct.