1) Scenario 12-1
Ken places a $20 value on a cigar, and Mark places a $17 value on it. The equilibrium
price for this brand of cigar is $15.
Suppose the government levies a tax of $1 on each cigar, and the equilibrium price of a
cigar increases to $16. Because total consumer surplus has
a.fallen by more than the tax revenue, the tax has a deadweight loss.
b.fallen by less than the tax revenue, the tax has no deadweight loss.
c.fallen by exactly the amount of the tax revenue, the tax has no deadweight loss.
d.increased by less than the tax revenue, the tax has a deadweight loss.
2) The quantity demanded of a good is the amount that buyers are
a.willing to purchase.
b.willing and able to purchase.
c.willing, able, and need to purchase.
d.able to purchase.
3) The De Beers Diamond company advertises heavily to promote the sale of all
diamonds, not just its own. This is evidence that it has a monopoly position to some
degree.
a.True
b.False
4) Peru’s Production Possibilities Frontier
Suppose Madagascar is willing to trade 40 rubies to Peru for each emerald that Peru
produces and sends to Madagascar. Which of the following combinations of emeralds
and rubies could Peru then consume, assuming Peru specializes in emerald production?
a.2 emeralds and 240 rubies
b.3 emeralds and 220 rubies
c.4 emeralds and 200 rubies
d.5 emeralds and 140 rubies
5) One way to characterize the difference between positive statements and normative
statements is as follows:
a.Positive statements tend to reflect optimism about the economy and its future,
whereas normative statements tend to reflect pessimism about the economy and its
future.
b.Positive statements offer descriptions of the way things are, whereas normative
statements offer opinions on how things ought to be.
c.Positive statements involve advice on policy matters, whereas normative statements
are supported by scientific theory and observation.
d.Economists outside of government tend to make normative statements, whereas
government-employed economists tend to make positive statements.
6) A person can benefit from specialization and trade by obtaining a good at a price that
is
a.lower than his or her opportunity cost of that good.
b.the same as his or her opportunity cost of that good.
c.higher than his or her opportunity cost of that good.
d.different than his or her opportunity cost of that good.
7) Assume the price of gasoline is $2.00 per gallon, and the equilibrium quantity of
gasoline is 10 million gallons per day with no tax on gasoline. Starting from this initial
situation, which of the following scenarios would result in the largest deadweight loss?
a.The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for
gasoline is 0.6; and the gasoline tax amounts to $0.20 per gallon.
b.The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for
gasoline is 0.4; and the gasoline tax amounts to $0.20 per gallon.
c.The price elasticity of demand for gasoline is 0.2; the price elasticity of supply for
gasoline is 0.6; and the gasoline tax amounts to $0.30 per gallon.
d.There is insufficient information to make this determination.
8) Corrective taxes are more efficient than regulations for keeping the environment
clean.
a.True
b.False
9) On a bowed production possibilities frontier, as you move down along the curve
a.more of one good must be given up to receive one unit of the other good.
b.the available production technology does not change.
c.the opportunity cost increases.
d.All of the above are correct.
10) A difference between explicit and implicit costs is that
a.explicit costs must be greater than implicit costs.
b.explicit costs do not require a direct monetary outlay by the firm, whereas implicit
costs do.
c.implicit costs do not require a direct monetary outlay by the firm, whereas explicit
costs do.
d.implicit costs must be greater than explicit costs.
11) Firms that spend the greatest percentage of their revenue on advertising tend to be
firms that sell
a.highly-differentiated consumer goods.
b.goods produced by natural monopolies.
c.agricultural products.
d.products with a limited shelf life such as milk and lettuce.
12) Which statement best describes the effect(s) that occur when a monopoly firm
reduces the price of its product?
a.The “price effect” causes total revenue to fall.
b.The “output effect” causes total revenue to rise.
c.The “revenue effect” causes total revenue to remain constant.
d.Both a and b are correct.