1) An efficient tax system is one that imposes small deadweight losses and small
administrative burdens.
a.True
b.False
2) Suppose that when the price of ginger ale is $2 per bottle, firms can sell 4 million
bottles. When the price of ginger ale is $3 per bottle, firms can sell 2 million bottles.
Which of the following statements is true?
a.The demand for ginger ale is income inelastic, so an increase in the price of ginger ale
will increase the total revenue of ginger ale producers.
b.The demand for ginger ale is income elastic, so an increase in the price of ginger ale
will increase the total revenue of ginger ale producers.
c.The demand for ginger ale is price inelastic, so an increase in the price of ginger ale
will increase the total revenue of ginger ale producers.
d.The demand for ginger ale is price elastic, so an increase in the price of ginger ale will
decrease the total revenue of ginger ale producers.
3) The study by economists Cox and Alm found that the 2006 after-tax income of the
richest fifth of U.S. households is
a.equal to the after-tax income of the poorest fifth.
b.7 times the after-tax income of the poorest fifth.
c.14 times the after-tax income of the poorest fifth.
d.21 times the after-tax income of the poorest fifth.
4) In the short run, a firm operating in a monopolistically competitive market
a.produces an output level where marginal revenue equals average total cost.
b.sets price equal to demand where marginal revenue equals marginal cost.
c.must earn zero economic profits.
d.maximizes revenues as well as profits.
5) Table 18-8
Harold and Maude own a dance studio where they and their employees teach ballroom
dancing. Their company is a competitive, profit-maximizing firm. Harold and Maude’s
production function is detailed in the table below.
Refer to Table 18-8. If Harold and Maude pay their workers $80 per day and charge
$20 per dance lesson, what is the value of the marginal product of the second worker?
a.$400
b.$800
c.$1,600
d.$4,800
6) A tax affects
a.buyers only.
b.sellers only.
c.buyers and sellers only.
d.buyers, sellers, and the government.
7) A study by labor economists Hamermesh and Biddle found that
a.shorter-than-average men earn more than shorter-than-average women, all else equal.
b.above-average looking people earn more than average-looking people, all else equal.
c.shorter women earn more than taller women, all else equal.
d.All of the above are correct.
8) The provision of public goods gives rise to
a.no externalities.
b.positive externalities.
c.negative externalities.
d.rivalries in consumption.
9) A microeconomist € as opposed to a macroeconomist € might study
a.the effect of a national healthcare program on the nation’s unemployment rate.
b.the effect of new regulations on production in the pulp and paper industry.
c.the effect of changes in interest rates on gross domestic product.
d.the growth rate of production in the economy.
10) The entry of new firms into a competitive market will
a.increase market supply and increase market price.
b.increase market supply and decrease market price.
c.decrease market supply and increase market price.
d.decrease market supply and decrease market price.
11) Scenario 15-7
Black Box Cable TV is able to purchase an exclusive right to sell a premium movie
channel (PMC) in its market area. Let’s assume that Black Box Cable pays $150,000 a
year for the exclusive marketing rights to PMC. Since Black Box has already installed
cable to all of the homes in its market area, the marginal cost of delivering PMC to
subscribers is zero. The manager of Black Box needs to know what price to charge for
the PMC service to maximize her profit. Before setting price, she hires an economist to
estimate demand for the PMC service. The economist discovers that there are two types
of subscribers who value premium movie channels. First are the 4,000 die-hard TV
viewers who will pay as much as $150 a year for the new PMC premium channel.
Second, the PMC channel will appeal to 20,000 occasional TV viewers who will pay as
much as $20 a year for a subscription to PMC.
What is the deadweight loss associated with the nondiscriminating pricing policy
compared to the price discriminating policy?
a. $375,000
b. $400,000
c. $475,000
d. It cannot be determined from the information provided.
12) Table 18-8
Harold and Maude own a dance studio where they and their employees teach ballroom
dancing. Their company is a competitive, profit-maximizing firm. Harold and Maude’s
production function is detailed in the table below.
Refer to Table 18-8. What is the marginal product of the fourth worker?
a.250 students
b.62.5 students
c.50 students
d.30 students
13) When the price of a good is higher than the equilibrium price,
a.a shortage will exist.
b.buyers desire to purchase more than is produced.
c.sellers desire to produce and sell more than buyers wish to purchase.
d.quantity demanded exceeds quantity supplied.
14) Moral hazard and adverse selection are similar asymmetric information problems
but moral hazard involves hidden actions while adverse selection involves hidden
characteristics.
a.True
b.False