Exhibit 2-1 John and Harry’s Production Possibilities for Ironing Shirts and Typing
Papers
Exhibit 2-1 shows the production possibilities for ironing shirts and typing papers for
John and Harry. Each has 5 hours per week to spend on these tasks. Which of the
following statements is correct?
a. John has a comparative advantage in ironing.
b. John has a comparative advantage in typing.
c. John has an absolute advantage in typing.
d. John has a comparative advantage in both ironing and typing.
e. Neither can gain from specialization and exchange.
You tell your friend that the stock market does well when we have Republican
presidents so you are going to vote republican in the next presidential election. Because
she is such a good friend she gently points out to you that you
a. are correct only when the economy is in a recession
b. have mistakenly inferred causation from observed correlation
c. have ignored secondary effects
d. have committed the fallacy of composition
e. are correct only when the United States enjoys economic growth
Exhibit 19-6
Exhibit 19-6 shows domestic supply and demand for baseballs in the United States. The
world price of a baseball is $3. With free trade, how many baseballs will be purchased
in the United States?
a. 4,000
b. 6,000
c. 8,000
d. 10,000
e. 12,000
Suppose the star pitcher on a university’s baseball team, who is now a sophomore,
decides to finish college instead of joining a major league team. In doing this, he is
giving up a $40,000 salary for each of the next two years. At an interest rate of 10
percent, the total value of this sacrifice is approximately
a. $46,000
b. $77,777
c. $69,420
d. $80,000
e. $88,000
Households act as suppliers when they provide
a. goods and services to firms and governments
b. resources to firms and governments
c. tax payments to governments
d. the demand for only what firms supply or make available
e. money to firms in exchange for goods and services
An import quota is a
a. tax on imports
b. legal limit on the amount of a specific good that can be imported into a particular
country
c. tax on import quantities above the legal limit
d. way to increase tariff revenues
e. legal incentive for members of GATT to increase their exports of a particular good
The market supply curve of a particular product indicates the total quantities
a. that are actually sold during a given time period
b. that buyers are willing to purchase at alternative prices
c. that sellers are willing and able to offer at alternative prices
d. that sellers are willing to offer for sale
e. of complements offered for sale
The purchase of the assets of one steelmaker by another steelmaker might be a violation
of the
a. Clayton Act
b. Federal Trade Commission Act
c. Wheeler-Lea Act
d. Celler-Kefauver Anti-Merger Act
e. Robinson-Patman Act
Exhibit 5-18
Use the information in Exhibit 5-18 to calculate the price elasticity of supply for
restaurant meals.
a. 7
b. 2
c. 1/2
d. 3/5
e. 5/3
In the prisoner’s dilemma game, the sentence that each player receives depends on
a. neither strategy chosen
b. only the strategy the player chooses
c. only the strategy the other player chooses
d. the strategy the player chooses and on the strategy the other player chooses
e. None of the answers is correct.
What is the effect of a decrease in the price of potato chips on the market for pretzels?
a. Both equilibrium price and equilibrium quantity rise.
b. Both equilibrium price and equilibrium quantity fall.
c. Equilibrium price rises and equilibrium quantity falls.
d. Equilibrium price falls and equilibrium quantity rises.
e. Equilibrium price and equilibrium quantity remain unchanged.
Exhibit 20-7
Imagine there are only two countries in the world, Mexico and Canada, and two
currencies, pesos and Canadian dollars. If Mexico’s central bank wants to protect its
currency from depreciating in response to the demand shift shown in Exhibit 20-7,
which of the following is most likely to be the policy it will choose?
a. increasing the supply of pesos
b. decreasing the supply of Canadian dollars
c. purchasing Canadian dollars with newly issued pesos
d. purchasing pesos with reserves of Canadian dollars
e. selling pesos to Canadians
In which of the following situations will the equilibrium price of wheat increase and the
change in the equilibrium quantity of wheat be indeterminate?
a. if supply and demand both decline
b. if supply and demand both rise
c. if supply declines and demand rises
d. if supply rises and demand declines
e. if supply remains constant and demand rises
Zipco’s economic profit is equal to its
a. total revenue minus accounting profit
b. total revenue minus explicit costs
c. total revenue plus accounting profit
d. total revenue plus opportunity costs
e. accounting profit minus implicit costs
Unlike a “service,” a “good”
a. is desirable
b. uses resources to satisfy wants
c. is physical and tangible
d. is abundant and free
e. is a resource
Which of the following correctly describes the relationship between the marginal cost
and average variable cost curves?
a. MC is everywhere above AVC
b. AVC is everywhere above MC
c. MC crosses AVC at AVC’s minimum point
d. MC crosses AVC at MC’s minimum point
e. both AVC and MC first rise and then fall
International reserves are
a. foreign exchange held by governments only
b. foreign exchange held by central banks only
c. foreign exchange held by governments or central banks
d. gold only
e. various internationally acceptable assets
Exhibit 9-14
The production level that will maximize the profit (or minimize loss) for the monopoly
in Exhibit 9-14 is
a. 0
b. 22
c. 17
d. 12
e. more than 22
If Helen gives up the opportunity to bake 40 cakes for each room she paints and Josh
can paint one room in the time it takes him to bake 60 cakes, which of the following is
true?
a. The opportunity cost of painting is higher for Helen.
b. The opportunity cost of baking cakes is lower for Josh.
c. The opportunity cost of painting one room is 1/40 of a cake for Helen.
d. The opportunity cost of baking one cake is 60 rooms painted for Josh.
e. The opportunity cost of cakes cannot be computed.
The motivating force behind an increase in supply in a long-run adjustment to
equilibrium is
a. lower prices
b. economic profits that are present in the short run
c. higher profit expectations among owners of firms in the industry, triggered by
increased prices
d. normal profits witnessed by individuals outside the industry that trigger entry
e. the decreases in average cost that can be obtained through economies of scale
The partnership is the least common form of business organization in the United States.
a. True
b. False
Business conduct that is illegal per se is illegal
a. only if there is no economic rationale for it
b. only if it results in a monopoly
c. without regard to its economic rationale or consequences
d. only if it is prohibited by the Clayton Act
e. whether or not Congress has passed legislation prohibiting the practice
Which of the following is not an example of De Beers trying to increase consumer
demand?
a. sending the marketing message that a diamond last forever and so should love
b. ads that illustrate that a diamond should remain in the family and not be sold
c. informing potential customers about how diamonds lose monetary value over time
d. introducing the idea of the diamond engagement ring
e. the “spirit ring” as a sign of independence
Assuming a constant cost industry, consumer surplus would be greater under monopoly
than if the industry were perfectly competitive.
a. True
b. False
The length of time that represents the long run
a. is greater than one year
b. is greater than six months
c. is longer in service industries than in manufacturing
d. is the same for all industries
e. varies from industry to industry
Contracts are enforced by
a. the firms that make the contracts through buy-out clauses
b. law firms that specialize in contract enforcement
c. corporations specializing in contract writing and enforcement
d. the government through the judicial system
e. both households and firms through customer relations departments
The slope of a budget line equals minus the ratio of the
a. marginal utilities of the goods indicated on the two axes
b. total utilities of the goods indicated on the two axes
c. lowest possible consumption levels for each of the goods indicated on the two axes
d. prices of the goods indicated on the two axes
e. sum of the prices of the goods indicated on the two axes and the budget
What would happen to the budget line when the price of tennis shoes decreases if tennis
shoes are measured on the horizontal axis?
a. It would shift to the left.
b. It would rotate outward along the horizontal axis.
c. It would rotate inward along the horizontal axis.
d. It would rotate outward along the vertical axis.
e. It would rotate inward along the vertical axis.
Mark and Charles are roommates at college. Each has written a 25-page term paper for
the same English class. They are equally poor typists. Charles types his own paper and
gets paid by Mark to type his, too. On the basis of the information given, which one of
the following must be true?
a. Mark is wealthier than Charles.
b. Mark needs more time to study than Charles.
c. Charles hates typing.
d. Mark and Charles have different utilities for typing but place the same value on time.
e. Mark’s opportunity cost of typing is higher than Charles’s.
If wage rates are lower in Mexico than in Germany, labor costs per unit of output can
still be higher in Mexico.
a. True
b. False
Exhibit 1-4
According to the curve in Exhibit 1-4, if P increases from $10 to $14, Q
a. stays the same
b. Q increases from 6 to 8
c. Q increases from 6 to 10
d. Q decreases from 6 to 2
e. Q decreases from 6 to 0