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1) The optimal tax is difficult to determine because although revenues rise and fall as
the size of the tax increases, deadweight loss continues to increase.
a.True
b.False
2) Scenario 17-3.
Consider two countries, Kinglandia and Rovinastan, that are engaged in an arms race.
Each country must decide whether to build new weapons or to disarm existing
weapons. Each country prefers to have more arms than the other because a large arsenal
gives it more influence in world affairs. But each country also prefers to live in a world
safe from the other country's weapons. The following table shows the possible
outcomes for each decision combination. The numbers in each cell represent the
country's ranking of the outcome (10 = best outcome, 1 = worst outcome).
Refer to Scenario 17-3. Suppose the two countries agreed to disarm existing weapons.
In reality these two countries may have a hard time keeping this agreement due to
which of the following reasons?
(i)Even though Kinglandia has no incentive to cheat on the agreement, Rovinastan has
an incentive to cheat on the agreement.
(ii)Much like the prisoners' dilemma, both countries are better off reneging on the
agreement and building new weapons.
(iii)Both countries want to increase their world power by building new weapons.
a.(i) and (ii)
b.(ii) and (iii)
c.(i) and (iii)
d.(i), (ii), and (iii)
3) Diminishing marginal product is closely related to
a.diminishing total cost.
b.diminishing marginal cost.
c.increasing price.
d.increasing marginal cost.
4) Studies of human decision-making have detected systematic mistakes that people
make. Which of the following have been detected?
a.people are overconfident
b.people give too much weight to a small number of vivid observations
c.people are reluctant to change their minds
d.All of the above are correct.
5) The entry of new firms into a monopolistically competitive market is accompanied
by
a.both positive and negative externalities.
b.only positive externalities.
c.only negative externalities.
d.only private profit opportunities (no externalities).
6) Figure 13-3
Which of the following is true of the production function (not pictured) that underlies
this total cost function?
(i)Total output increases as the quantity of inputs increases but at a decreasing rate.
(ii)Marginal product is diminishing for all levels of input usage.
(iii)The slope of the production function decreases as the quantity of inputs increases.
a.(i) only
b.(ii) and (iii) only
c.(i) and (iii) only
d.(i), (ii), and (iii)
7) A firm in a monopolistically competitive market can earn both short-run and long-run
profits.
a.True
b.False
8) Some of the systematic mistakes that people make include
a.being overconfident.
b.placing too much weight on events that are more vivid compared to those with greater
statistical probability.
c.being generally unwilling to change their minds.
d.All of the above are correct.
9) Refer to Figure 9-19. With free trade, consumer surplus in the textile market
amounts to
a. $210.
b. $320.
c. $405.
d. $910.
10) Scenario 15-10
Vincent operates a scenic tour business in Boston. He has one bus which can fit 50
people per tour and each tour lasts 2 hours. His total cost of operating one tour is fixed
at $450. Vincent's cost is not reduced if he runs a tour with a partially full bus. While
his cost is the same for all tours, Vincent charges each passenger his/her willingness to
pay: adults $18 per trip, children $10 per trip, and senior citizens $12 per trip. At those
rates, on a typical day Vincent's demand is:
Assume that Vincent's customers are always available for the tour¾ therefore, he can
fill his bus for each tour as long as there is sufficient total demand for the day.
What is Vincent's total revenue on a typical day?
a. $1,500
b. $1,800
c. $2,170
d. $2,700
11) Figure 8-15
Suppose the cost to install each streetlight is $900 and the families have agreed to split
the cost of installing the streetlights equally. To maximize their own surplus, how many
streetlights would the Black's like the town to install?
a.0 streetlights
b.1 streetlight
c.2 streetlights
d.3 streetlights
19) The slope of a line is equal to
a.the change in the value of x divided by the change in the value of y.
b.the change in the value of y divided by the change in the value of x.
c.the horizontal distance divided by the vertical distance.
d.the value of y divided by the value of x.
20) Warrensburg is a small college town in Missouri. At the end of August each year,
the market demand for fast food in Warrensburg
a.increases.
b.decreases.
c.remains constant, but we observe a movement downward and to the right along the
demand curve.
d.remains constant, but we observe a movement upward and to the left along the
demand curve.
