1) When a single person (or small group) has the ability to influence market prices,
there is
a.competition.
b.market power.
c.an externality.
d.a lack of property rights.
2) Scenario 8-1
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.
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.
3) A free rider is a person who pays for a good but does not receive the benefit of it.
a.True
b.False
4) Costa Rica allows trade with the rest of the world. We can determine whether Costa
Rica has a comparative advantage in producing pharmaceuticals if we
a.know whether Costa Rica imports or exports pharmaceuticals.
b.compare the world price of pharmaceuticals to the price of pharmaceuticals that
would prevail in Costa Rica if trade with the rest of the world were not allowed.
c.compare the quantity of pharmaceuticals consumed in Costa Rica with the quantity of
pharmaceuticals that would be consumed in Costa Rica if trade with the rest of the
world were not allowed.
d.All of the above are correct.
5) Although regulation and corrective taxes are both capable of reducing pollution,
regulation accomplishes this goal more efficiently.
a.True
b.False
6) Instead of conducting laboratory experiments to generate data to test their theories,
economists often
a.ask winners of the Nobel Prize in Economics to evaluate their theories.
b.argue that data is impossible to collect in economics.
c.gather data from historical episodes of economic change.
d.assume that data would support their theories.
7) When a country abandons a no-trade policy, adopts a free-trade policy, and becomes
an exporter of a particular good,
a.consumer surplus increases and total surplus increases in the market for that good.
b.consumer surplus increases and total surplus decreases in the market for that good.
c.consumer surplus decreases and total surplus increases in the market for that good.
d.consumer surplus decreases and total surplus decreases in the market for that good.
8) Table 12-1
Assume that the price of a weekend ski pass is $45 and that the price reflects the actual
unit cost of providing a weekend of skiing. Suppose the government imposes a tax of
$12 on skiing, which raises the price of a weekend ski pass to $57. The deadweight loss
associated with the tax is
a.$5.
b.$12.
c.$36.
d.$41.
9) Table 17-6
Imagine a small town in which only two residents, Kunal and Naj, own wells that
produce safe drinking water. Each week Kunal and Naj work together to decide how
many gallons of water to pump, to bring the water to town, and to sell it at whatever
price the market will bear. Assume Kunal and Naj can pump as much water as they
want without cost so that the marginal cost of water equals zero.
The weekly town demand schedule and total revenue schedule for water are shown in
the table below.
Refer to Table 17-6. The socially efficient level of water supplied to the market would
be
a.50 gallons.
b.150 gallons.
c.225 gallons.
d.300 gallons.
10) Suppose that alcohol consumption creates a negative externality. What can the
government do to equate the equilibrium quantity of alcohol and the socially optimal
quantity of alcohol?
a.impose a tax on alcohol that is equal to the per-unit externality
b.offer a subsidy on alcohol that is equal to the per-unit externality
c.impose a regulation limiting the amount of alcohol that each consumer can purchase
d.nothing
11) The Occupational Safety and Health Administration (OSHA) has determined that
100 workers are exposed to a hazardous chemical used in the production of diet soft
drinks. The cost of imposing a regulation that would ban the chemical is $10 million.
OSHA has calculated that each person saved by this regulation has a value equal to $10
million. If the benefits are exactly equal to the costs, what probability is OSHA using to
assess the likelihood of a fatality from exposure to this chemical?
a. 0.001
b.0.01
c.0.1
d.1.0
12) Economists generally support
a.trade restrictions.
b.government management of trade.
c.export subsidies.
d.free international trade.
13) When a country allows international trade and becomes an importer of a good,
domestic producers of the good are better off, and domestic consumers of the good are
worse off.
a.True
b.False
14) Table 14-8
Suppose that a firm in a competitive market faces the following revenues and costs:
The firm will produce a quantity greater than 3 because at 3 units of output, marginal
cost
a.is greater than marginal revenue.
b.equals marginal revenue.
c.is less than marginal revenue.
d.is minimized.
15) Suppose a human life is worth $10 million. Installing a better lighting system in the
city park would reduce the risk of someone being murdered there from 3.5 to 2.9
percent over the life of the system. The city should install the new lighting system if its
cost does not exceed
a. $60,000.
b. $290,000.
c. $350,000.
d. $600,000.
16) For a typical consumer, indifference curves can intersect if they satisfy the property
of transitivity.
a.True
b.False
17) Normative statements are
a.not usually made by economists.
b.claims about how the world should be.
c.claims about how variables in the economy normally behave.
d.pessimistic interpretations of the economy.
18) Figure 16-4
At the profit-maximizing, or loss-minimizing, output level, the firm in this figure has
total costs of approximately
a. $12,000.
b. $18,000.
c. $21,000.
d. $24,000.
19) A person’s tax liability refers to
a.the percentage of income that a person must pay in taxes.
b.the amount of tax a person owes to the government.
c.the amount of tax the government is required to refund to each person.
d.deductions that can be legally subtracted from a person’s income each year.
20) Which of the following frontier areas of economics incorporates some findings
from psychology into the study of economic issues?
a.asymmetric information
b.political economy
c.behavioral economics
d.public economics