1) The national defense of the United States is not excludable because
a.my enjoyment of the national defense does not diminish your enjoyment of the
national defense of the United States.
b.my enjoyment of the national defense does diminish your enjoyment of the national
defense of the United States.
c.once the nation is defended, it is impossible to prevent any single person from
enjoying the benefit of this defense.
d.once the nation is defended, it is possible to prevent any single person from enjoying
the benefit of this defense.
2) In a competitive market with identical firms,
a.an increase in demand in the short run will result in a new price above the minimum
of average total cost, allowing firms to earn a positive economic profit in both the short
run and the long run.
b.firms cannot earn positive economic profit in either the short run or long run.
c.firms can earn positive economic profit in the long run if the long-run market supply
curve is upward sloping.
d.free entry and exit into the market requires that firms earn zero economic profit in the
long run even though they may be able to earn positive economic profit in the short run.
3) Refer to Figure 9-25. With free trade, total surplus is
a. $800.
b. $1,200.
c. $1,600.
d. $2,000.
4) Figure 8-19
The vertical distance between points A and B represents the original tax.
The original tax can be represented by the
vertical distance AB. Suppose the government is deciding whether to lower the tax to
CD or raise it to FG. Which of the following statements is correct?
a.Compared to the original tax, the larger tax will decrease both tax revenue and
deadweight loss.
b.Compared to the original tax, the smaller tax will increase both tax revenue and
deadweight loss.
c.Compared to the original tax, the larger tax will decrease tax revenue and increase
deadweight loss.
d.Both a and b are correct.
5) Refer to Figure 9-24. With free trade, total surplus is
a. $500.
b. $800.
c. $1,000.
d. $1,300.
6) When a firm has a natural monopoly, the firm’s
a.marginal cost always exceeds its average total cost.
b.total cost curve is horizontal.
c.average total cost curve is downward sloping.
d.marginal cost curve must lie above the firm’s average total cost curve.
7) When a consumer is purchasing the best combination of two goods, X and Y, subject
to a budget constraint, we say that the consumer is at an optimal choice point. A graph
of an optimal choice point shows that it occurs
a.along the highest indifference curve.
b.along the lowest budget constraint.
c.where the indifference curve is tangent to the budget constraint.
d.All of the above are correct.
8) Figure 21-9
Refer to Figure 21-9. If the consumer has $600 in income, what is the price of good Y?
a. $20
b.$6
c.$3
d. $0.33
9) Figure 7-13
If the equilibrium price rises from $60 to $120, what is the producer surplus to new
producer s in the market?
a. $1,200
b. $2,400
c. $3,600
d. $4,800
10) Table 15-21
Tommy’s Tie Company, a monopolist, has the following cost and revenue information.
Assume that Tommy’s is able to engage in perfect price discrimination.
If the monopolist can engage in perfect price discrimination, what is total profit at the
profit-maximizing quantity?
a.$325
b.$435
c.$565
d.$1000
11) The median voter’s preferred outcome is the same as the
a.average preferred outcome.
b.outcome preferred by the greatest number of voters.
c.outcome produced by majority rule.
d.outcome preferred by Arrow’s “perfect” voter.
12) A university’s football stadium is never more than half-full during football games.
This indicates
a.the ticket price is above the equilibrium price.
b.the ticket price is below the equilibrium price.
c.the ticket price is at the equilibrium price.
d.nothing about the equilibrium price.
13) Table 17-19
Consider a small town that has two grocery stores from which residents can choose to
buy a loaf of bread. The store owners each must make a decision to set a high bread
price or a low bread price. The payoff table, showing profit per week, is provided
below. The profit in each cell is shown as (Store 1, Store 2).
Refer to Table 17-19. If grocery store 1 sets a high price, what price should grocery
store 2 set? And what will grocery store 2’s payoff equal?
a.Low price, $400
b.High price, $50
c.Low price, $250
d.High price, $325
14) An example of an in-kind transfer to the poor is
a.the negative income tax.
b.the Earned Income Tax Credit (EITC).
c.Medicaid.
d.Temporary Assistance for Needy Families (TANF).
15) Assume that the government proposes a negative income tax that calculates taxes
owed by the formula, Taxes Owed = (a x Income) – b. A family with an income of
$40,000 pays $5,000 in taxes, and a family with an income of $12,000 receives an
income subsidy of $2,000.
a.What is the value for “a”?
b.What is the value for “b”?
c.What is the tax liability of a family with an income of $50,000?
d.At what level of income will a family neither pay taxes, nor receive an income
subsidy?
16) Table 22-2
Three longtime friends-Allen, Brian, and Cody-are deciding how they will spend their
Sunday afternoon. They all agree that they should do one of three things: go to a movie,
play golf, or go to a baseball game. They also agree that they will have two pairwise
votes to determine how to spend their afternoon, with the majority determining the
outcome on each vote. The first, second, and third choices for each person are as
indicated in the table below.
Refer to Table 22-2. Which of the following statements is correct?
a.In a pairwise election, “movie” beats “golf.”
b.In a pairwise election, “golf” beats “baseball game.”
c.In a pairwise election, “baseball game” beats “movie.”
d.None of the above is correct.
17) Scenario 16-7
Consider the problem facing two firms, YumYum and Bertollini, in the frozen food
market. Each firm has just come up with an idea for a new “frozen meal for two”which
it would sell for $9. Assume that the marginal cost for each new product is a constant
$2, and the only fixed cost is for advertising. Each company knows that if it spends $12
million on advertising it will get 1.5 million consumers to try its new product. YumYum
has done market research which suggests that its product does not have any ‘staying”
power in the market. Even though it could get 1.5 million consumers to buy the product
once, it is unlikely that they will continue to buy the product in the future. Bertollini’s
market research suggests that its product is very good, and consumers who try the
product will continue to be consumers over the ensuing year. On the basis of its market
research, Bertollini estimates that its initial 1.5 million customers will buy one unit of
the product each month in the coming year, for a total of 18 million units.
Which of the following is most likely?
a.Both YumYum and Bertollini will advertise.
b.Neither YumYum nor Bertollini will advertise.
c.YumYum will advertise, but Bertollini will not advertise.
d.Bertollini will advertise, but YumYum will not advertise.