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1) Which of the following is an important cause of inflation in an economy?
a.increases in productivity in the economy
b.the influence of positive externalities on the economy
c.lack of property rights in the economy
d.growth in the quantity of money in the economy
2) In an oligopoly, each firm knows that its profits
a.depend only on how much output it produces.
b.depend only on how much output its rival firms produce.
c.depend on both how much output it produces and how much output its rival firms
produce.
d.will be zero in the long run because of free entry.
3) Figure 8-11
Suppose Q1= 4; Q2 = 7; P1= $6; P2= $8; and P3= $10. Then the deadweight loss of the
tax is
a.$6.
b.$8.
c.$9.
d.$12.
4) According to the signaling view, education
a.has no effect on lifetime earnings.
b.alters work ethic.
c.enhances productivity.
d.is an indicator of natural ability.
5) For a firm to price discriminate,
a.it must be a natural monopoly.
b.it must be regulated by the government.
c.it must have some market power.
d.consumers must tell the firm what they are willing to pay for the product.
6) A reduction in an input price will cause a change in quantity supplied but not a
change in supply.
a.True
b.False
7) As a general rule, when accountants calculate profit they account for explicit costs
but usually ignore
a.certain outlays of money by the firm.
b.implicit costs.
c.operating costs.
d.fixed costs.
8) Which of the following is an example of the free-rider problem?
a.Both Zoe and Zach receive low-cost dental care at the local dental school, so neither
of them pays the full cost of the care.
b.Alfred receives a free lunch from the local "Meals on Wheels" program because of his
low monthly income.
Yet his next door neighbor, Alice, is not eligible for the free lunch.
c.Bruce owns Buster, a large dog who barks whenever anyone walks near his house.
Betty lives next to Bruce, and Buster's barking can be heard whenever anyone walks
near her house, too. Thus, Betty receives free protection from burglars because of
Buster's barking.
d.Sam purchases a burger at a fast food restaurant and gets a second burger free because
the restaurant is having a buy one, get one free sale.
9) Which of the following is an example of a barrier to entry?
a.Tom charges a higher price than his competitors for his golf lessons.
b.Dick charges a lower price than his competitors for his lawn-mowing services.
c.Harry offers free concerts on Sunday afternoons as a form of advertising.
d.Larry obtains a copyright for the new computer game that he invented.
10) Which of the following is an example of asymmetric information?
a.When someone is applying for a job, the employer checks references to determine the
previous work habits of the applicant.
b.When an employee purchases group life insurance without taking a physical exam,
she knows more about her health than does the insurance company.
c.When someone is considering buying a used car from a dealership, the potential buyer
requests documentation of the repair history of the car.
d.All of the above are correct.
11) To fully understand the progressivity of government policies, one should only look
at the proportion of total income that individuals pay in taxes each year.
a.True
b.False
12) Many Democrats support raising the U.S. minimum wage. Critics of raising the
minimum wage argue that minimum-wage laws are
a.too expensive for local governments to fund.
b.too expensive for local governments to administer.
c.imprecise in their ability to help the working poor.
d.easy for businesses to pay.
