Figure 6-5
If the demand curve in Figure 6-5 is unit elastic, then total expenditure at A is ____ total
expenditure at B.
a. greater than
b. less than
c. equal to
d. less elastic than
Education is subsidized because it generates beneficial externalities.
a. True
b. False
In an ideal competitive market economy
a. resources are allocated according to a person’s needs.
b. resources are allocated according to ability to pay.
c. social and individual needs are met by the market.
d. All of the above are true.
If the PPF for guns and butter is bowed outward from the origin, this indicates constant
opportunity cost between the two goods.
a. True
b. False
The ____ the demand curve for a good, the ____ the change in equilibrium quantity
after a shift of the supply curve.
a. flatter; greater
b. flatter; smaller
c. farther from the origin at every output level; greater
d. farther from the origin at every output level; smaller
Trade adjustment assistance in the United States began in 1962. The program
a. was designed to provide assistance to firms or workers who suffer idle facilities,
unprofitability, and unemployment because of sharp increases in imports.
b. provided little assistance to victims of free trade before the 1970s.
c. was enlarged and worker benefits were extended in 1981 by the Reagan
administration.
d. All of the above are correct.
A free rider is one who enjoys the benefits of a public good without paying for it.
a. True
b. False
Thomas Edison once complained that he was not making a profit selling light bulbs
because his plants were operating 25 percent below capacity. He estimated that he could
increase output 25 percent with a 2 percent increase in the cost of production. He sold
the 25 percent on the foreign market at a price below what he called the “cost of
production.” We can deduce that Edison really meant
a. Marginal cost was below average cost but less than marginal revenue.
b. Average cost exceeded variable cost, which exceeded marginal revenue.
c. Variable cost exceeded fixed cost but was less than marginal revenue.
d. Marginal cost was above average cost but greater than marginal revenue.
The saying “the lower the price, the better” may not always be correct for an economy’s
public interest because
a. people should have to pay for what they want.
b. people will overuse something they perceive as being cheaper than the utility they
receive for it.
c. the government can no longer afford to provide all the goods and services it provides
because it is slowly going broke.
d. cheaper prices will make people buy less of other things.
The average cost curve shows the total cost divided by quantity produced for various
levels of output.
a. True
b. False
The federal income tax began in the United States with the
a. Morrill Act of 1862.
b. addition of the Bill of Rights to the Constitution in 1791.
c. passage of the 16th Amendment to the Constitution in 1913.
d. New Deal legislation of the 1930s.
Demand elasticity equals quantity times price.
a. True
b. False
A major problem with the negative income tax is that
a. low tax rates imply low break-even incomes.
b. low tax rates imply high break-even incomes.
c. high tax rates imply low minimums.
d. All of the above are correct.
Generally speaking, markets do a(n) ____ job of reconciling the demands of fairness
and efficiency.
a. excellent
b. above-average
c. average
d. poor
Most innovation comes from universities and governments, which are inherently market
driven.
a. True
b. False
If two families are equally situated except that one rents and the other owns their home,
the existing tax system will lead to
a. vertical inequity.
b. equal treatment of both.
c. horizontal inequity.
d. equal burden sharing.
In the U.S. the total amount of work time lost to strikes is less than the amount of work
time lost for coffee breaks.
a. True
b. False
The demand curve of a perfectly competitive firm is vertical.
a. True
b. False
Average cost curves decline because
a. fixed cost is spread out over larger amounts of production.
b. it becomes cheaper to produce an infinite amount of goods.
c. additional units of production are inferior.
d. variable costs increase with each additional amount of production.