1) A firm operating in a perfectly competitive industry will shut down in the short run if
its economic profits fall to zero because it is likely to be earning negative accounting
profits.
a.True
b.False
2) In the simple circular-flow diagram, households
a.are the only decision makers.
b.own the factors of production.
c.are buyers of inputs.
d.consume only some of the goods and services that firms produce.
3) The Borda count fails to satisfy which of Kenneth Arrow’s properties of a “perfect”
voting system?
a.no dictator
b.unanimity
c.transitivity
d.independence of irrelevant alternatives
4) A tariff is a
a.limit on how much of a good can be exported.
b.limit on how much of a good can be imported.
c.tax on an exported good.
d.tax on an imported good.
5)
Using the midpoint method, what is the price elasticity of supply between $6 and $8?
a. 0.86
b.1.00
c.1.17
d.1.25
6) Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline
slopes upward. The production of the 1,000th gallon of gasoline entails the following:
♦ private cost of $3.10;
♦ social cost of $3.55;
♦ value to consumers of $3.70.
The production of the 1,000th gallon of gasoline entails an
a.external cost of $0.15.
b.external cost of $0.45.
c.external benefit of $0.15.
d.external benefit of $0.45.
7) Suppose that residents of a town are asked to vote on the best way to improve the
safety of an intersection. The three choices are: a stoplight, a 4-way stop, and a 2-way
stop. When the mayor asks the residents to choose between a stoplight and a 4-way
stop, the residents choose a 4-way stop. Then, when the mayor asks them to choose
between a 4-way stop and a 2-way stop, they choose a 2-way stop. However, if the
mayor firsts asks the residents to choose between a 4-way stop and a 2-way stop, they
choose a 2-way stop. Then, when the mayor asks the residents to choose between a
2-way stop and a stoplight, they choose a stoplight. What does this example illustrate?
a.Arrow’s impossibility theorem
b.the Condorcet paradox
c.a Borda count
d.the median voter theorem
8) Which of the following statements does not help to explain why government drug
interdiction increases drug-related crime?
a.The demand for illegal drugs is inelastic.
b.Interdiction results in drug addicts having a greater need for quick cash.
c.Interdiction results in an increase in the amount of money needed to buy the same
amount of drugs.
d.Government drug programs are more lenient now with drug offenders than they were
in the 1980s.
9) A likely example of complementary goods for most people would be
a.butter and margarine.
b.lawnmowers and automobiles.
c.chips and salsa.
d.cola and lemonade.
10) Table 14-4
The table represents a demand curve faced by a firm in a competitive market.
For this firm, the price is
a. $0.
b.$5.
c.$10.
d.$15.
11) Suppose France imposes a tariff on wine of 3 euros per bottle. If government
revenue from the tariff amounts to 30 million euros per year and if the quantity of wine
supplied by French wine producers, with the tariff, is 8 million bottles per year, then we
can conclude that
a.the quantity of wine demanded by France, with the tariff, is 18 million bottles per
year.
b.the quantity of wine demanded by France, without the tariff, would be 24 million
bottles per year.
c.the amount of the deadweight loss is 24 million euros per year.
d.the tariff causes French buyers of wine to pay 2 euros more per bottle than they would
pay without the tariff.
12) The signals that guide the allocation of resources in a market economy are
a.surpluses and shortages.
b.quantities.
c.government policies.
d.prices.
13) Figure 19-2
Refer to Figure 19-2. This figure depicts labor demand and supply in a nonunionized
labor market. The original equilibrium wage is $10. If a labor union subsequently
establishes a union shop and negotiates an hourly wage of
$12.50, then there will be an excess
a.demand of 100 workers.
b.demand of 300 workers.
c.supply of 100 workers.
d.supply of 300 workers.
14) Frannie spends her income on rice and beans. At her optimum, Frannie’s
a.utility from consuming rice is equal to her utility from consuming beams.
b.marginal utility of rice is equal to her marginal utility of beans.
c.marginal utility per dollar spent on rice equals her marginal utility per dollar spent on
beans.
d.marginal rate of substitution is equal to 1.
15) Some goods, such as lighthouses, can switch between being public goods and being
private goods depending on the circumstances.
a.True
b.False
16) Today the typical American pays approximately what percent of income in taxes,
including all federal, state, and local taxes?
a.5 percent
b.25 percent
c.35 percent
d.50 percent
17) A New York legislator wanted to create a deposit on cigarettes butts. If
implemented, people would have the incentive to (1) not toss cigarette butts onto public
streets and sidewalks, and (2) pick butts up to redeem them for the cash. The
degradation of the environment from littered cigarette butts is a
a.private goods problem.
b.Nash equilibrium.
c.Tragedy of the Commons.
d.cost-benefit equilibrium.
18) Which of the following descriptions best depicts the substitution effect?
a.the change in consumption resulting from a change in the consumer’s income, holding
the prices of the goods constant
b.the change in consumption resulting from a change in the consumer’s income, holding
the consumer’s level of satisfaction constant
c.the change in consumption resulting from a change in the price of one good, holding
the consumer’s level of satisfaction constant
d.the change in consumption resulting from a change in the price of one good, allowing
the consumer’s level of satisfaction to change
19) The deadweight loss of a tax is
a.the reduction in economic welfare of taxpayers that exceeds the revenue raised by the
government.
b.the improved efficiency created as people reallocate resources according to the tax
incentive rather than the true costs and benefits.
c.the loss in tax revenues.
d.Both a and b are correct.
20) Consider the market for university economics professors. Suppose the opportunity
cost of going to graduate school to get a Ph.D. in economics increases for many
individuals. Suppose it generally takes about five years to get a Ph.D. in economics.
Holding all else constant, in five years the equilibrium quantity of university economics
professors will
a.increase.
b.decrease.
c.not change.
d.It is not possible to determine what will happen to the equilibrium quantity.