1) Which of the following is an example of an implicit cost?
(i) the owner of a firm forgoing an opportunity to earn a large salary working for a Wall
Street brokerage firm
(ii) interest paid on the firm’s debt
(iii) rent paid by the firm to lease office space
a.(ii) and (iii) only
b.(i) and (iii) only
c.(i) only
d.(iii) only
2) Suppose the demand for calendars increases in November. At the same time, the
price of the ink used in the production of calendars increases. In the market for
calendars, if the size of the shift of the demand curve is larger than the size of the shift
of the supply curve, then the equilibrium quantity rises.
a.True
b.False
3) The design of tax policy is one of the responsibilities of economists who work at the
a.Council of Economic Advisers.
b.Federal Reserve.
c.Department of the Treasury.
d.Congressional Budget Office.
4) Taxes create deadweight losses because they
a.reduce costs for firms.
b.distort incentives.
c.cause prices to decrease.
d.create revenue for the government.
5) Table 13-4
Charles’s Math Tutoring
Charles’s math tutoring company experiences diminishing marginal productivity with
the addition of the
a.first worker.
b.second worker.
c.third worker.
d.fourth worker.
6) A sidewalk runs across Jermichael’s front yard near the street. By law, anyone has the
right to use the sidewalk.
When Jermichael shovels the sidewalk after a heavy snowstorm,
a.he is providing a good that is excludable.
b.he is a free rider.
c.those who walk on the sidewalk are using a club good.
d.he is providing a good that is not rival and not excludable.
7) In general, Democrats tend to prefer
a.higher marginal tax rates to promote vertical equity, while Republicans tend to prefer
lower marginal tax rates to promote incentives to work and save.
b.lower marginal tax rates to promote vertical equity, while Republicans tend to prefer
higher marginal tax rates to promote incentives to work and save.
c.higher marginal tax rates to promote incentives to work and save, while Republicans
tend to prefer lower marginal tax rates to promote vertical equity.
d.lower marginal tax rates to promote incentives to work and save, while Republicans
tend to prefer higher marginal tax rates to promote vertical equity.
8) Table 20-10
*A Gini coefficient is a commonly used measure of income inequality, with values
between 0 and 1 (0 corresponds to perfect equality whereby everyone has exactly the
same income, and 1 corresponds to perfect inequality where one person has all the
income, while everyone else has zero income).
Source: The World Bank
Refer to Table 20-10. Which country has the most unequal income distribution?
a.Latvia
b.Italy
c.France
d.Sweden
9) The ultimatum game reveals that
a.it does not make sense to try to maximize profits.
b.people may have an innate sense of fairness that economic theory does not capture.
c.offering someone a wildly unfair outcome is usually ok since people tend to make
decisions using a ‘something is better than nothing” philosophy.
d.Both a and b.
10) The debate over whether advertising serves a valuable purpose in society is
definitively answered by economists who study the tastes and preferences of
individuals.
a.True
b.False
11) Which of the following groups has the highest poverty rate?
a.blacks
b.Asians
c.children (under age 18)
d.female households, no spouse present
12) Figure 7-11
If the supply curve is S and the demand curve shifts from D to D’, what is the change in
producer surplus?
a.Producer surplus increases by $3,125.
b.Producer surplus increases by $5,625.
c.Producer surplus decreases by $3,125.
d.Producer surplus decreases by $5,625.
13) Frank can make 20 hot dogs an hour or 10 pints of potato salad an hour. Earnest can
make 30 hot dogs an hour or 20 pints of potato salad an hour. Who has the comparative
advantage making hot dogs and who has the comparative advantage making potato
salad?
14) Suppose the government taxes 10 percent of the first $30,000 in income and 20
percent of all income over $30,000.
Calculate the marginal tax rate and the average tax rate for a person who earns $70,000.
15) A former senator remarked that €We cannot give anyone the option of polluting for
a fee.€ Do most economists agree with this statement, or do they disagree with it?
16) Scenario 20-7
Zooey is a single mother of two young children whose husband died in a tragic car
accident. She earns $20,000 per year working as a cashier at a grocery store. The
government uses a negative income tax system in which Taxes owed = (1/4 of income)
– $15,000.
Refer to Scenario 20-7. Zooey’s brother Zander owes $10,000 in taxes. How much
does he earn?
17) Lindsay and Tim are playing the ultimatum game starting with $100. Based on the
coin toss, Lindsay is the player to propose a division of the $100. If Lindsay acts as
economic theory assumes, she should propose that
18) At its current level of production a profit-maximizing firm in a competitive market
receives $12.50 for each unit it produces and faces an average total cost of $10. At the
market price of $12.50 per unit, the firm‘s marginal cost curve crosses the marginal
revenue curve at an output level of 1,000 units. What is the firm‘s current profit? What
is likely to occur in this market and why?
19) Monopolistically competitive firms could reduce the average total cost of producing
by increasing output; therefore, these firms have