1) Economists normally assume that the goal of a firm is to
(i)earn profits as large as possible, even if it means reducing output.
(ii)earn revenues as large as possible, even if it means reducing profits.
(iii)minimize costs, regardless of profits.
a.(i) only
b.(i) and (ii) only
c.(ii) and (iii) only
d.(i), (ii), and (iii)
2) The exit of existing firms from a competitive market will
a.increase market supply and increase market price.
b.increase market supply and decrease market price.
c.decrease market supply and increase market price.
d.decrease market supply and decrease market price.
3) People are willing to pay more for a diamond than for a bottle of water because
a.the marginal cost of producing an extra diamond far exceeds the marginal cost of
producing an extra bottle of water.
b.the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra
bottle of water.
c.producers of diamonds have a much greater ability to manipulate diamond prices than
producers of water have to manipulate water prices.
d.water prices are held artificially low by governments, since water is necessary for life.
4) Figure 8-1
Suppose the government imposes a tax of P’ – P”’. The area measured by I+Y represents
the
a.deadweight loss due to the tax.
b.loss in consumer surplus due to the tax.
c.loss in producer surplus due to the tax.
d.total surplus before the tax.
5) Table 22-12
The following table shows the preferences for the five voters in a city regarding how to
deal with the city’s diseased trees.
A = do nothing
B = follow the expert’s advice to remove every tree
C = remove every 4th tree now and perhaps more later D = use an untested spraying
alternative
Refer to Table 22-12. Consider the public policy for dealing with the diseased trees.
Using pairwise majority voting with A versus B, then the winner of that vote versus C,
then the winner of that vote versus D, which policy wins?
a.A
b.B
c.C
d.D
6) Economic models omit many details to allow us to see what is truly important.
a.True
b.False
7) Among all countries in the world, the United States has the most income inequality.
a.True
b.False
8) Which of the following is most likely sold in a monopolistically competitive market?
a.sports drinks
b.cable TV programming
c.a share of McDonald’s stock
d.sunglasses
9) The largest category of federal government spending is growing because
a.the U.S. must spend more on national defense due to the war against terror.
b.the elderly population is increasing due to rising life expectancies.
c.expenditures on space exploration have increased dramatically.
d.expenditures on school voucher programs have increased dramatically.
10) If the is 1.5, regardless of which two points on the demand curve are used to
compute the elasticity, then demand is
a.perfectly inelastic, and the demand curve is vertical.
b.elastic, and the demand curve is a straight, downward-sloping line.
c.perfectly elastic, and the demand curve is horizontal.
d.elastic, and the demand curve is something other than a straight, downward-sloping
line.
11) A decrease in demand shifts the demand curve to the left.
a.True
b.False
12) Table 14-6
The following table presents cost and revenue information for a firm operating in a
competitive industry.
What is the marginal revenue from selling the 3rd unit?
a. $55
b. $120
c. $137
d. $140
13) The demand for Rice Krispies is more elastic than the demand for cereal in general.
a.True
b.False
14) Laws that restrict the smoking of cigarettes in public places are examples of
government intervention that is intended to reduce
a.efficiency.
b.equality.
c.externalities.
d.productivity.
15) The particular price that results in quantity supplied being equal to quantity
demanded is the best price because it
a.maximizes costs of the seller.
b.maximizes tax revenue for the government.
c.maximizes the combined welfare of buyers and sellers.
d.minimizes the expenditure of buyers.
16) In the case of a technology spillover, internalizing a positive externality through a
government subsidy will cause the industry’s supply curve to
a.shift up by an amount equal to the subsidy.
b.shift down by an amount less than the subsidy.
c.shift down by an amount equal to the subsidy.
d.shift down by an amount greater than the subsidy.