1) A society consists of three individuals: Sam, Tristan, and Ulyana. In terms of income
and utility, Sam is currently best-off, Tristan ranks in the middle, and Ulyana is
worst-off. Which of the following statements is correct?
a.Utilitarianism suggests that government policies should strive to maximize Ulyana’s
utility.
b.Liberalism suggests that government policies should strive to increase Ulyana’s
utility.
c.Libertarianism suggests that government policies should strive to improve Tristan’s
utility at the cost of Sam’s utility.
d.Libertarianism suggests that government policies should strive to make Sam, Tristan,
and Ulyana equally well off.
2) Figure 16-3
This figure depicts a situation in a monopolistically competitive market.
At the profitmaximizing level of output, what is this firm’s total cost of production?
a. $1,200
b. $1,400
c. $1,600
d. $1,875
3) Which of the following is an example of moral hazard?
a.a driver is arrested for drunk driving
b.a pet-sitter being paid to walk a dog for one hour per day only walks the dog for 20
minutes per day
c.a thief steals a car
d.All of the above are examples of moral hazard.
4) Figure 13-10
The firm experiences diseconomies of scale if it changes its level of output from
a.Q1 to Q2.
b.Q2 to Q3.
c.Q3 to Q4.
d.Q4 to Q5.
5) In the circular-flow diagram, another name for goods and services produced by firms
is
a.factors of production.
b.output.
c.inputs.
d.resources.
6) If the interest rate rises, an individual could choose to
a.increase consumption when young.
b.increase consumption when old.
c.decrease consumption when young.
d.Any of the above could be correct.
7)
Production at point K is
a.possible and efficient.
b.possible but inefficient.
c.impossible but efficient.
d.impossible and inefficient.
8) Most studies indicate that tobacco and marijuana tend to be
a.substitutes.
b.complements.
c.unrelated because one good is legal while the other one is illegal.
d.inferior goods.
9) Suppose there is an increase in the price of steel. We would expect the supply curve
for steel beams to
a.shift rightward.
b.shift leftward.
c.become flatter.
d.remain unchanged.
10) Shelley wins $1 million in her state’s lottery. If Shelley keeps working after she
wins the money, we can infer that the substitution effect must exactly offset the income
effect for her.
a.True
b.False
11) Table 22-7
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.
The voters are divided into three groups based on their preferences.
Voter Type
Refer to Table 22-7. If the first vote pits a stoplight against a 4-way stop and the second
vote pits a 2-way stop against the winner of the first vote, then the outcome is as
follows:
a.4-way stop wins the first vote and 4-way stop wins the second vote, so the town
installs a 4-way stop.
b.4-way stop wins the first vote and 2-way stop wins the second vote, so the town
installs a 2-way stop.
c.Stoplight wins the first vote and stoplight wins the second vote, so the town installs a
stoplight.
d.Stoplight wins the first vote and 2-way stop wins the second vote, so the town installs
a 2-way stop.
12) Competitive firms differ from monopolies in which of the following ways?
(i)Competitive firms do not have to worry about the price effect lowering their total
revenue.
(ii)Marginal revenue for a competitive firm equals price, while marginal revenue for a
monopoly is less than the price it is able to charge.
(iii)Monopolies must lower their price in order to sell more of their product, while
competitive firms do not.
a.(i) and (ii) only
b.(ii) and (iii) only
c.(i) and (iii) only
d.(i), (ii), and (iii)
13) If toast and butter are complements, then which of the following would increase the
demand for toast?
a.a decrease in the price of toast
b.a decrease in the price of butter
c.an increase in the price of butter
d.Both a and b are correct.
14) Suppose a profit-maximizing monopolist faces a constant marginal cost of $20,
produces an output level of 100 units, and charges a price of $50. The socially efficient
level of output is 200 units. Assume that the demand curve and marginal revenue curve
are the typical downward-sloping straight lines. The monopoly deadweight loss equals
$1,500.
a.True
b.False
15) If we observe that a consumer’s budget constraint has shifted inward, we can
assume that the consumer will buy
a.fewer normal goods and more inferior goods.
b.more normal goods and fewer inferior goods.
c.more normal goods and more inferior goods.
d.fewer normal goods and fewer inferior goods.
16) A drug interdiction program that successfully reduces the supply of illegal drugs in
the United States likely will
a.raise the price, reduce the quantity, decrease total revenues, and decrease crime.
b.lower the price, increase the quantity, increase total revenues, and increase crime.
c.raise the price, increase the quantity, decrease total revenues, and increase crime.
d.raise the price, reduce the quantity, increase total revenues, and increase crime.
17) The average-fixed-cost curve is constant.
a.True
b.False
18) Monopoly profit is not a social problem because
a.the size of the economic pie grows when monopoly profits increase.
b.producers are more efficient than consumers.
c.the profit represents a transfer from the consumer to the producer with no loss in total
surplus.
d.None of the above are correct.
19) The provision of a public good generates a
a.positive externality, as does the use of a common resource.
b.positive externality and the use of a common resource generates a negative
externality.
c.negative externality, as does the use of a common resource.
d.negative externality and the use of a common resource generates a positive
externality.
20) Figure 10-12
Which of the following is an appropriate label for Line 2?
a.social cost minus social value
b.social value minus private cost
c.demand
d.private value plus external benefit