Figure 314
Arturo’s Production Possibilities FrontierDina’s Production Possibilities Frontier
Refer to Figure 314. Suppose Arturo is willing to trade 6 burritos to Dina for each 10
tacos that Dina produces and sends to Arturo. Which of the following combinations of
tacos and burritos could Dina then consume, assuming Dina specializes in taco
production and Arturo specializes in burrito production?
a. 100 tacos and 200 burritos
b. 200 tacos and 130 burritos
c. 300 tacos and 60 burritos
d. 340 tacos and 40 burritos
The GetThereSafe Bus company incurs an average cost of $45 for each passenger it
carries on its trip from Atlanta to Chattanooga. In advance of a particular trip, four seats
remain unsold. The bus company could increase its profit only if it
a. charged any ticket price above $0 for the four remaining seats.
b. charged at least $11.25 for each of the four remaining seats.
c. charged at least $45 for each of the four remaining seats.
d. paid four people to occupy the four remaining seats.
Which of the following demonstrates the law of supply?
a. When leather became more expensive, belt producers decreased their supply of belts.
b. When car production technology improved, car producers increased their supply of
cars.
c. When sweater producers expected sweater prices to rise in the near future, they
decreased their current supply of sweaters.
d. When ketchup prices rose, ketchup sellers increased their quantity supplied of
ketchup.
Adam Smith’s insight was that prices adjust to guide individual buyers and sellers to
reach outcomes where, in many cases,
a. opportunity cost is minimized for buyers.
b. scarcity is reduced for society.
c. wellbeing of society is maximized.
d. opportunity cost of production is maximized.
Which of the Ten Principles of Economics does welfare economics explain more fully?
a. The cost of something is what you give up to get it.
b. Rational people think at the margin.
c. Markets are usually a good way to organize economic activity.
d. People respond to incentives.
Senator Brown wants to increase taxes on people with high incomes and use the money
to help the poor. Senator Johnson argues that such a tax will discourage successful
people from working and will therefore make society worse off. An economist would
say that
a. we should agree with Senator Brown.
b. we should agree with Senator Johnson.
c. a good decision requires that we recognize both viewpoints.
d. there are no tradeoffs between equity and efficiency.
Figure 66
Refer to Figure 66. If the government imposes a price ceiling of $6 on this market,
then there will be
a. no shortage.
b. a shortage of 10 units.
c. a shortage of 20 units.
d. a shortage of 30 units.
A tax burden falls more heavily on the side of the market that
a. has a fewer number of participants.
b. is more inelastic.
c. is closer to unit elastic.
d. is less inelastic.
Inefficiency can be caused in a market by the presence of
a. market power.
b. externalities.
c. imperfectly competitive markets.
d. All of the above are correct.
Figure 47
Refer to Figure 47. If the demand curve for Good X shifts from Db to Da, then
a. firms would be willing to supply more of Good X than before at each possible price.
b. people are willing to buy less of Good X than before at each possible price.
c. people’s incomes must have increased.
d. the price of Good X has increased.
John Maynard Keynes believed the ideas of economists to be
a. generally incorrect.
b. powerful.
c. academic and without practical application.
d. rantings of madmen.
Figure 27
Refer to Figure 27. Inefficient production is represented by which point(s)?
a. L, M
b. N, O, P, Q
c. N, O, P
d. Q
Which of the following is correct?
a. Rent control and the minimum wage are both examples of price ceilings.
b. Rent control is an example of a price ceiling, and the minimum wage is an example
of a price floor.
c. Rent control is an example of a price floor, and the minimum wage is an example of a
price ceiling.
d. Rent control and the minimum wage are both examples of price floors.
Table 315
Labor Hours Needed to Make 1 Pound ofAmount Produced in 40 Hours
MeatPotatoesMeatPotatoes
Farmer8 hours/pound5 hours/pound5 pounds8 pounds
Rancher4 hours/pound10 hours/pound10 pounds4 pounds
Refer to Table 315. Which of the following combinations of meat and potatoes could
the farmer produce in 40 hours?
a. 1 pound of meat and 7 pounds of potatoes.
b. 2 pounds of meat and 5 pounds of potatoes.
c. 3 pounds of meat and 3 pounds of potatoes.
d. 4 pounds of meat and 2 pounds of potatoes.
Figure 722
Refer to Figure 722. Assume demand increases, which causes the equilibrium price to
increase from $50 to $70. The increase in producer surplus due to new producers
entering the market would be
a. $400.
b. $800.
c. $1,200.
d. $900.
Figure 316
Hosne’s Production Possibilities FrontierMerve’s Production Possibilities Frontier
Refer to Figure 316. If Hosne and Merve switch from each person dividing her time
equally between the production of purses and wallets to each person spending all of her
time producing the good in which she has a comparative advantage, then total
production of purses will increase by
a. 2.
b. 3.
c. 5.
d. 10.
When the nation of Mooseland first permitted trade with other nations, domestic
producers of sugar experienced a decrease in producer surplus of $5 million and total
surplus in Mooseland’s sugar market increased by $2 million. We can conclude that
a. Mooseland became an exporter of sugar.
b. the overall economic wellbeing of participants in the sugar market in Mooseland fell
because of trade.
c. consumer surplus in Mooseland increased by $7 million.
d. the opening of trade caused the domestic demand curve for sugar in Mooseland to
shift to the right.
Table 331
Labor Hours Needed to Make 1 Pound of:
Amount Produced in 40 hours
Meat PotatoesMeatPotatoes
Farmer8 hours/pound5 hours/pound5 pounds8 pounds
Rancher4 hours/pound10 hours/pound10 pounds4 pounds
Refer to Table 331. For the farmer, 12.8 pounds of
a. meat is the opportunity cost of 10.6 pounds of potatoes.
b. meat is the opportunity cost of 16.0 pounds of potatoes.
c. potatoes is the opportunity cost of 6.8 pounds of meat.
d. potatoes is the opportunity cost of 8.0 pounds of meat.
Which of the following would a permanent increase in the growth rate of the money
supply change permanently?
a. inflation
b. unemployment
c. both inflation and unemployment
d. neither inflation nor unemployment
Producer surplus measures the
a. benefits to sellers of participating in a market.
b. costs to sellers of participating in a market.
c. price that buyers are willing to pay for sellers’ output of a good or service.
d. benefit to sellers of producing a greater quantity of a good or service than buyers
demand.
If, at the current price, there is a surplus of a good, then
a. sellers are producing more than buyers wish to buy.
b. the market must be in equilibrium.
c. the price is below the equilibrium price.
d. quantity demanded equals quantity supplied.
In a market economy, who makes the decisions that guide most economic activity?
a. firms only
b. households only
c. firms and households
d. government
Trade between countries
a. allows each country to consume at a point outside its production possibilities frontier.
b. limits a country’s ability to produce goods and services on its own.
c. must benefit both countries equally; otherwise, trade is not mutually beneficial.
d. can best be understood by examining the countries’ absolute advantages.
Advocates of the minimum wage
a. deny that the minimum wage produces any adverse effects.
b. emphasize the benefits to teenagers of increases in the minimum wage.
c. emphasize the low annual incomes of those who work for the minimum wage.
d. All of the above are correct.
Figure 518
Refer to Figure 518. Using the midpoint method, what is the price elasticity of supply
between $4 and $5?
a. 0.50
b. 0.56
c. 1.80
d. 2.00
The collapse of communism in the Soviet Union and Eastern Europe took place mainly
in the
a. 1960s.
b. 1970s.
c. 1980s.
d. 1990s.
Economists, like mathematicians, physicists, and biologists,
a. make use of the scientific method.
b. try to address their subject with a scientist’s objectivity.
c. devise theories, collect data, and then analyze these data in an attempt to verify or
refute their theories.
d. All of the above are correct.
A surplus exists in a market if
a. there is an excess demand for the good.
b. quantity demanded exceeds quantity supplied.
c. the current price is above its equilibrium price.
d. All of the above are correct.
A binding price floor will reduce a firm’s total revenue
a. always.
b. when demand is elastic.
c. when demand is inelastic.
d. never.
Scenario 81
Erin would be willing to pay as much as $100 per week to have her house cleaned.
Ernesto’s opportunity cost of cleaning Erin’s house is $70 per week.
Refer to Scenario 81. Assume Erin is required to pay a tax of $5 when she hires
someone to clean her house. Which of the following is true?
a. Erin will continue to hire Ernesto to clean her house, but her consumer surplus will
decline.
b. Ernesto will continue to clean Erin’s house, and his producer surplus will increase.
c. Total economic welfare (consumer surplus plus producer surplus plus tax revenue)
will decrease.
d. All of the above are correct.
A manufacturer produces 400 units when the market price is $10 per unit and produces
600 units when the market price is $12 per unit. Using the midpoint method, for this
range of prices, the price elasticity of supply is about
a. 0.45.
b. 2.0.
c. 2.2.
d. 200.
For markets to work well, there must be
a. market power.
b. a central planner.
c. property rights.
d. abundant, not scarce, resources.
Your professor loves her work, teaching economics. She has been offered other
positions in the corporate world that would increase her income by 25 percent, but she
has decided to continue working as a professor. Her decision would not change unless
the marginal
a. cost of teaching increased.
b. benefit of teaching increased.
c. cost of a corporate job increased.
d. benefit of a corporate job decreased.
