An increase in the size of a tax is most likely to increase tax revenue in a market with
a. elastic demand and elastic supply.
b. elastic demand and inelastic supply.
c. inelastic demand and elastic supply.
d. inelastic demand and inelastic supply.
Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent
decrease in the quantity of X demanded. Price elasticity of demand for X is
a. 0.
b. 1.
c. 6.
d. 36.
Which of the following is an example of a positive, as opposed to normative,
statement?
a. Inflation is more harmful to the economy than unemployment is.
b. If welfare payments increase, the world will be a better place.
c. Prices rise when the government prints too much money.
d. When public policies are evaluated, the benefits to the economy of improved equality
should be considered more important than the costs of reduced efficiency.
Which of the following rates of growth in the money supply is likely to lead to the
lowest level of inflation in the economy?
a. 1 percent per year
b. 3 percent per year
c. 5 percent per year
d. 7 percent per year
If the demand for leather decreases, producer surplus in the leather market
a. increases.
b. decreases.
c. remains the same.
d. may increase, decrease, or remain the same.
Table 716
PriceQuantity
DemandedQuantity
Supplied
$12.00036
$10.00330
$ 8.00624
$ 6.00918
$ 4.001212
$ 2.00156
$ 0.00180
Refer to Table 716. Both the demand curve and the supply curve are straight lines. At
equilibrium, producer surplus is
a. $24.
b. $32.
c. $48.
d. $64.
Figure 912
Refer to Figure 912. Producer surplus after trade is
a. $28,000.
b. $30,000.
c. $35,200.
d. $38,400.
Figure 45
Refer to Figure 45. Which of the following would cause the demand curve to shift
from Demand B to Demand C in the market for mattresses?
a. a decrease in the price of mattresses
b. a decrease in the price of custom wooden sleigh bed frames
c. a change in consumer tastes away from wooden bedroom furniture
d. a decrease in the number of people in the United States
New oak tables are normal goods. What would happen to the equilibrium price and
quantity in the market for oak tables if the price of maple tables rises, the price of oak
wood rises, more buyers enter the market for oak tables, and the price of the glue used
in the production of the new oak tables increased?
a. Price will fall, and the effect on quantity is ambiguous.
b. Price will rise, and the effect on quantity is ambiguous.
c. Quantity will fall, and the effect on price is ambiguous.
d. Quantity will rise, and the effect on price is ambiguous.
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.
In most societies, resources are allocated by
a. a single central planner.
b. a small number of central planners.
c. those firms that use resources to provide goods and services.
d. the combined actions of millions of households and firms.
Figure 710
Refer to Figure 710. Which area represents producer surplus when the price is P1?
a. BCG
b. ACH
c. ABGD
d. DGH
A supply curve can be used to measure producer surplus because it reflects
a. the actions of sellers.
b. quantity supplied.
c. sellers’ costs.
d. the amount that will be purchased by consumers in the market.
Refer to Table 42. Whose demand does not obey the law of demand?
a. Abby’s
b. Brandi’s
c. Carrie’s
d. DeeDee’s
When a tax is imposed on the sellers of a good, the supply curve shifts
a. upward by the amount of the tax.
b. downward by the amount of the tax.
c. upward by less than the amount of the tax.
d. downward by less than the amount of the tax.
The term “invisible hand” was coined by
a. Adam Smith.
b. David Ricardo.
c. Karl Marx.
d. Benjamin Franklin.
Guns and butter are used to represent the classic societal tradeoff between spending on
a. durable and nondurable goods.
b. imports and exports.
c. national defense and consumer goods.
d. law enforcement and agriculture.
Producer surplus directly measures
a. the wellbeing of sellers.
b. production costs.
c. excess demand.
d. unsold inventories.
If a tax is levied on the buyers of a product, then there will be a(n)
a. downward shift of the supply curve.
b. upward shift of the supply curve.
c. movement up and to the right along the supply curve.
d. movement down and to the left along the supply curve.
Equilibrium quantity must decrease when demand
a. increases and supply does not change, when demand does not change and supply
decreases, and when both demand and supply decrease.
b. increases and supply does not change, when demand does not change and supply
increases, and when both demand and supply decrease.
c. decreases and supply does not change, when demand does not change and supply
increases, and when both demand and supply decrease.
d. decreases and supply does not change, when demand does not change and supply
decreases, and when both demand and supply decrease.
Figure 917
Refer to Figure 917. With free trade, consumer surplus is
a. $400 and producer surplus is $200.
b. $400 and producer surplus is $800.
c. $1,600 and producer surplus is $200.
d. $1,600 and producer surplus is $800.
Figure 421
Refer to Figure 421. What is the equilibrium price in this market?
a. $0
b. $5
c. $10
d. $20
Today’s supply curve for iPods could shift in response to a change in
a. today’s price of iPods.
b. the expected future price of iPods.
c. the number of buyers of iPods.
d. All of the above are correct.
Figure 91
The figure illustrates the market for coffee in Guatemala.
Refer to Figure 91. From the figure it is apparent that
a. Guatemala will experience a shortage of coffee if trade is not allowed.
b. Guatemala will experience a surplus of coffee if trade is not allowed.
c. Guatemala has a comparative advantage in producing coffee, relative to the rest of
the world.
d. foreign countries have a comparative advantage in producing coffee, relative to
Guatemala.
For which of the following goods is the income elasticity of demand likely lowest?
a. subscriptions to premium movie channels through the local cable television provider
b. hidefinition DVD players
c. champagne
d. housing
Suppose an economist advises a city’s mayor to begin charging drivers a fee to drive on
a busy highway during congested times. The mayor does not implement the policy
because it would not be popular with voters. Which of the following statements best
describes the scenario?
a. This is a common occurrence. The policymaker knows the best policy but chooses
not to institute it for other reasons.
b. This is a common occurrence. The policymaker usually disregards an economist’s
advice because they do not believe it is the most efficient policy.
c. This is an unlikely occurrence. Most of the time, policymakers follow the advice of
economists and institute the most efficient policies.
d. This would never happen. Policymakers always follow the advice of economists.
Table 35
Assume that Aruba and Iceland can switch between producing coolers and producing
radios at a constant rate.
Labor Hours
Needed to Make 1
CoolerRadio
Aruba25
Iceland14
Refer to Table 35. Which of the following represents Aruba’s production possibilities
frontier when 100 labor hours are available?
a.
b.
c.
d.
Figure 82
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 82. The amount of tax revenue received by the government is
a. $2.50.
b. $4.
c. $5.
d. $9.
Table 312
Barb and Jim run a business that sets up and tests computers. Assume that Barb and Jim
can switch between setting up and testing computers at a constant rate. The following
table applies.
Minutes Needed toNumber of Computers Set Up or Tested in a 40Hour Week
Set Up 1 Computer Test 1 Computer Computers Set UpComputers Tested
Barb48?5040
Jim30408060
Refer to Table 312. The number of minutes needed by Barb to test a computer is
a. 36.
b. 48.
c. 60.
d. 64.
Which of the following is an example of something economists study?
a. Mitch chooses to work overtime to earn extra income for his family.
b. Megan sells her physics textbook from last semester to her roommate for half the
price of a new textbook.
c. The unemployment rate in the United States has fallen by two percentage points in
the last few years.
d. All of the above are correct.
When a country allows trade and becomes an exporter of a good,
a. domestic producers gain and domestic consumers lose.
b. domestic producers lose and domestic consumers gain.
c. domestic producers and domestic consumers both gain.
d. domestic producers and domestic consumers both lose.
Suppose Japan exports cars to Russia and imports wine from France. This situation
suggests
a. Japan has a comparative advantage relative to France in producing wine, and Russia
has a comparative advantage to Japan in producing cars.
b. Japan has a comparative advantage relative to Russia in producing cars, and France
has a comparative advantage relative to Japan in producing wine.
c. Japan has an absolute advantage relative to Russia in producing cars, and France has
an absolute advantage relative to Japan in producing wine.
d. Japan has an absolute advantage relative to France in producing wine, and Russia has
an absolute advantage relative to Japan in producing cars.
Figure 917
Refer to Figure 917. With trade and a tariff, consumer surplus is
a. $808 and producer surplus is $200.
b. $808 and producer surplus is $392.
c. $1,024 and producer surplus is $200.
d. $1,024 and producer surplus is $392.
