1) Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels
of oats per year, and a worker in Oatland can grow either 5 bushels of corn or 50
bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland.
If the two countries do not trade, Cornland will produce and consume 400 bushels of
corn and 100 bushels of oats, while Oatland will produce and consume 60 bushels of
corn and 400 bushels of oats. If each country made the decision to specialize in
producing the good in which it has a comparative advantage, then the combined yearly
output of the two countries would increase by
a.280 bushels of corn and 450 bushels of oats.
b.340 bushels of corn and 500 bushels of oats.
c.360 bushels of corn and 520 bushels of oats.
d.360 bushels of corn and 640 bushels of oats.
2) When the government imposes taxes on buyers and sellers of a good, society loses
some of the benefits of market efficiency.
a.True
b.False
3) Figure 14-11
The figure above is for a firm operating in a competitive industry. If there were eight
identical firms in the industry, which of the following price-quantity combinations
would be on the market supply curve?
a.A only
b.A and C only
c.B only
d.B and D only
4) Figure 9-1
The figure illustrates the market for coffee in Guatemala.
When trade in coffee is allowed, consumer surplus in Guatemala
a.increases by the area B + D.
b.increases by the area C + F.
c.decreases by the area B + D.
d.decreases by the area D + G.
5) Production possibilities frontiers cannot be used to illustrate tradeoffs.
a.True
b.False
6) Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves:
In the short run, if the market price is P4, individual firms in a competitive industry will
earn
a.positive profits.
b.zero profits.
c.losses but will remain in business.
d.losses and will shut down.
7) Scenario 13-5
Suppose that Emily opens a restaurant. She receives a loan from a bank for $200,000.
She withdraws $100,000 from her personal savings account. The interest rate on the
loan is 6%, and the interest rate on her savings account is 2%.
Emily’s implicit cost of capital is
a. $2,000.
b. $4,000.
c. $12,000.
d. $14,000.
8) Figure 9-10. The figure applies to Mexico and the good is rifles.
With trade, the equilibrium price of rifles and the equilibrium quantity of rifles
demanded in Mexico are
a.P1 and Q1.
b.P1 and Q2.
c.P2 and Q2.
d.P0 and Q0.
9) Suppose that a negative externality is created by the production of good X. Which of
the following statements is correct?
a.The social cost of producing good X includes the private cost plus the cost to
bystanders of the externality.
b.The increased social cost can be graphed as a decrease in demand.
c.The market equilibrium quantity will be the socially optimal quantity as long as the
government does not interfere.
d.Both a and b are correct.
10) Figure 8-7
The vertical distance between points A and B represents a tax in the market.
Which of the following statements summarizes the incidence of the tax?
a.For each unit of the good that is sold, buyers bear one-half of the tax burden, and
sellers bear one-half of the tax burden.
b.For each unit of the good that is sold, buyers bear one-third of the tax burden, and
sellers bear two-thirds of the tax burden.
c.For each unit of the good that is sold, buyers bear one-fourth of the tax burden, and
sellers bear three-fourths of the tax burden.
d.For each unit of the good that is sold, buyers bear three-fourths of the tax burden, and
sellers bear one-fourth of the tax burden.
11) Which of the following is correct?
a.Any event that changes the supply or demand for labor must change the value of the
marginal product.
b.A profit-maximizing firm hires workers so long as the wage rate exceeds the value of
the marginal product of labor.
c.An increase in the supply of labor increases both employment and wages.
d.A decrease in the demand for labor decreases wages but increases employment.
12)
The section of the demand curve from B to C represents the
a.elastic section of the demand curve.
b.perfectly elastic section of the demand curve.
c.unit elastic section of the demand curve.
d.inelastic section of the demand curve.
13) Figure 8-2
The vertical distance between points A and B represents a tax in the market.
The loss of producer surplus as a result of the tax is
a. $1.
b.$2.
c.$3.
d.$4.
14) The players in a two-person game are choosing between Strategy X and Strategy Y.
If the second player chooses Strategy X, the first player’s best outcome is to select X. If
the second player chooses Strategy Y, the first player’s best outcome is to select X. For
the first player, Strategy X is called a
a.dominant strategy.
b.collusive strategy.
c.repeated-trial strategy.
d.cartel strategy.
15) The ordered pair that represents the origin on a graph is
a.(1, 1).
b.(0, 0).
c.(-1, -1).
d.(, ).
16) Suppose that the market for large, 64-ounce soft drinks in the town of Pudgyville is
characterized by a typical, downward-sloping, linear demand curve and a typical,
upward-sloping, linear supply curve. The market is initially in equilibrium with 1,000
soft drinks sold per day. The newly-elected Mayor of Pudgyville wants to tax 64-ounce
soft drinks. She is considering either a $0.10 tax or a $0.30 tax. Her chief economic
advisor estimates that the number of soft drinks sold after a $0.10 tax will be 900 and
after a $0.30 tax will be 500. Which tax is better?
a.The $0.10 tax is better because it raises more revenue and creates a lower deadweight
loss than the $0.30 tax.
b.The $0.30 tax is better because it raises more revenue and creates a lower deadweight
loss than the $0.10 tax.
c.It is not clear which tax is better because although the $0.30 tax raises more tax
revenues, it creates a larger deadweight loss than the $0.10 tax.
d.It is not clear which tax is better because although the $0.10 tax raises more tax
revenues, it creates a larger deadweight loss than the $0.30 tax.
17) Table 15-7
Sally owns the only shoe store in town. She has the following cost and revenue
information.
What is the marginal revenue from selling the 8th pair of shoes?
a. $10
b. $20
c. $40
d. $90
18) The amount that producers receive for a good minus their costs of producing it
equals
a.quantity supplied.
b.supply price.
c.deadweight loss.
d.producer surplus.