Figure 820
On the vertical axis of each graph, DWL is deadweight loss.
Refer to Figure 820. Which graph correctly illustrates the relationship between the size
of a tax and the size of the deadweight loss associated with the tax?
a. Panel (a)
b. Panel (b)
c. Panel (c)
d. Panel (d)
Which of the following tools and concepts is useful in the analysis of international
trade?
a. total surplus
b. domestic supply
c. equilibrium price
d. All of the above are correct.
In a given market, how are the equilibrium price and the marketclearing price related?
a. There is no relationship.
b. They are the same price.
c. The marketclearing price exceeds the equilibrium price.
d. The equilibrium price exceeds the marketclearing price.
Figure 98. On the diagram below, Q represents the quantity of cars and P represents the
price of cars.
Refer to Figure 98. The country for which the figure is drawn
a. has a comparative advantage relative to other countries in the production of cars and
it will export cars.
b. has a comparative advantage relative to other countries in the production of cars and
it will import cars.
c. has a comparative disadvantage relative to other countries in the production of cars
and it will export cars.
d. has a comparative disadvantage relative to other countries in the production of cars
and it will import cars.
After much consideration, you have chosen Ireland over Spain for your Study Abroad
program next year. However, the deadline for your final decision is still months away
and you may reverse this decision. Which of the following events would prompt you to
reverse this decision?
a. The marginal benefit of going to Spain increases.
b. The marginal cost of going to Spain increases.
c. The marginal benefit of going to Ireland increases.
d. The marginal cost of going to Ireland decreases.
As a student, Anne spends 40 hours per week writing term papers and completing
homework assignments. On one axis of her production possibilities frontier is measured
the number of term papers written per week. On the other axis is measured the number
of homework assignments completed per week. Anne’s production possibilities frontier
is a straight line if
a. she faces no tradeoff between writing term papers and completing homework
assignments.
b. she can switch between writing term papers and completing homework assignments
at a constant rate.
c. the rate at which she can switch between homework assignments and term papers
depends on the number of homework assignments she is completing and on the number
of term papers she is writing.
d. she is required by her professors to spend half of her time on term papers and the
other half of her time on homework assignments.
Which of the following statements is valid when supply is perfectly elastic at a price of
$4?
a. The elasticity of supply approaches infinity.
b. The supply curve is vertical.
c. At a price below $4, quantity supplied is infinite.
d. At a price above $4, quantity supplied is zero.
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 would be
a. $2,500.
b. $900.
c. $800.
d. $1,600.
An example of a price that changes only infrequently is the price of
a. stocks on the New York Stock Exchange.
b. crude oil.
c. residential real estate.
d. magazines sold at newsstands.
Figure 817
Refer to Figure 817. Suppose the government imposes a $1 tax in each of the four
markets represented by demand curves D1, D2, D3, and D4. The deadweight will be the
largest in the market represented by
a. D1.
b. D2.
c. D3.
d. D4.
Suppose that Firms A and B each produce highresolution computer monitors, but Firm
A can do so at a lower cost. Cassie and David each want to purchase a highresolution
computer monitor, but David is willing to pay more than Cassie. If Firm A produces a
monitor that Cassie buys but David does not, then the market outcome illustrates which
of the following principles?
(i)Free markets allocate the supply of goods to the buyers who value them most highly,
as measured by their willingness to pay.
(ii)Free markets allocate the demand for goods to the sellers who can produce them at
the least cost.
a. (i) only
b. (ii) only
c. both (i) and (ii)
d. neither (i) nor (ii)
In markets, prices move toward equilibrium because of
a. the actions of buyers and sellers.
b. government regulations placed on market participants.
c. increased competition among sellers.
d. buyers’ ability to affect market outcomes.
Table 412
A country club usually only allows members to purchase tickets for its celebrity golf
tournament, but the club is considering allowing nonmembers to purchase tickets this
year. The demand and supply schedules are as follows:
PriceQuantity Demanded
by MembersQuantity Demanded
by NonmembersQuantity Supplied
$101000500600
$15800400600
$20600300600
$25400200600
$30200100600
Refer to Table 412. If only members are allowed to purchase tickets to this year’s
celebrity golf tournament, then what will be the equilibrium price?
a. $10
b. $15
c. $20
d. $25
Which of the following areas of study typifies microeconomics as opposed to
macroeconomics?
a. the impact of minimumwage laws on employment in the fast food industry
b. the effect of changes in household saving rates on the growth rate of national income
c. the impact of faster money growth on the rate of inflation
d. a comparison of alternative tax policies and their respective impacts on the rate of the
nation’s economic growth
Suppose that the US market for soybeans is not open to international trade. Currently,
soybeans sell for $6.00 per bushel in the US and the world price for soybeans is $8.00
per bushel. This information implies that
a. the US has an absolute advantage in the production of soybeans and if the market
opens to international trade, the US would export soybeans.
b. the US does not have an absolute advantage in the production of soybeans and if the
market opens to international trade, the US would import soybeans.
c. the US has a comparative advantage in the production of soybeans and if the market
opens to international trade, the US would export soybeans.
d. the US does not have a comparative advantage in the production of soybeans and if
the market opens to international trade, the US would import soybeans.
Which of the following topics are more likely to be studied by a macroeconomist than
by a microeconomist?
a. the effect of taxes on the prices of airline tickets, and the profitability of
automobilemanufacturing firms
b. the price of beef, and wage differences between genders
c. how consumers maximize utility, and how prices are established in markets for
agricultural products
d. the percentage of the labor force that is out of work, and differences in average
income from country to country
Figure 317
Maxine’s Production Possibilities FrontierDaisy’s Production Possibilities Frontier
Refer to Figure 317. Suppose Daisy is willing to trade 3/4 tart to Maxine for each pie
that Maxine makes and sends to Daisy. Which of the following combinations of pies
and tarts could Maxine not then consume, assuming Maxine specializes in making pies
and Daisy specializes in making tarts?
a. 4 pies and 6 tarts
b. 6 pies and 5 tarts
c. 8 pies and 3 tarts
d. 10 pies and 1.5 tarts
Figure 621
Refer to Figure 621. What is the amount of the tax per unit?
a. $1
b. $2
c. $3
d. $4
Figure 62
Refer to Figure 62. The price ceiling
a. causes a shortage of 45 units of the good.
b. makes it necessary for sellers to ration the good.
c. is not binding because it is set below the equilibrium price.
d. causes a shortage of 40 units of the good.
Studying which of the following is helpful in learning to think like an
economistHTMLENTITY#8203HTMLENTITY?
a. HTMLENTITY#8203HTMLENTITYtheory.
b. HTMLENTITY#8203HTMLENTITYcase studies.
c. examples of economics in the news.
d. HTMLENTITY#8203HTMLENTITYall of the above.
Suppose goods A and B are substitutes for each other. We would expect the crossprice
elasticity between these two goods to be
a. positive.
b. negative.
c. either positive or negative. It depends whether A and B are normal goods or inferior
goods.
d. either positive or negative. It depends whether the current price level is on the elastic
or inelastic portion of the demand curve.
A city wants to raise revenues to build a new municipal swimming pool next year. The
mayor suggests that the city raise the price of admission to the current municipal pools
this year to raise revenues. The city manager suggests that the city lower the price of
admission to raise revenues. Who is correct?
a. Both the mayor and city manager would be correct if demand were price elastic.
b. Both the mayor and city manager would be correct if demand were price inelastic.
c. The mayor would be correct if demand were price elastic; the city manager would be
correct if demand were price inelastic.
d. The mayor would be correct if demand were price inelastic; the city manager would
be correct if demand were price elastic.
Figure 54
Refer to Figure 54. The section of the demand curve from B to C represents the
a. elastic section of the demand curve.
b. perfectly elastic section of the demand curve.
c. unit elastic section of the demand curve.
d. inelastic section of the demand curve.
Scenario 82
Roland mows Karla’s lawn for $25. Roland’s opportunity cost of mowing Karla’s lawn
is $20, and Karla’s willingness to pay Roland to mow her lawn is $28.
Refer to Scenario 82. If Karla hires Roland to mow her lawn, Roland’s producer
surplus is
a. $2.
b. $3.
c. $5.
d. $25.
Today’s demand curve for gasoline could shift in response to a change in
a. today’s price of gasoline.
b. the expected future price of gasoline.
c. the number of sellers of gasoline.
d. All of the above are correct.
Table 310
Assume that Japan and Korea can switch between producing cars and producing
airplanes at a constant rate.
Hours Needed to Make 1Quantity Produced in 2400 Hours
CarAirplaneCarAirplane
Japan301508016
Korea 501504816
Refer to Table 310. Assume that Japan and Korea each has 2400 hours available. If
each country divides its time equally between the production of cars and airplanes, then
total production is
a. 40 cars and 8 airplanes.
b. 64 cars and 16 airplanes.
c. 80 cars and 16 airplanes.
d. 128 cars and 32 airplanes.
Which of the following would likely have the smallest deadweight loss relative to the
tax revenue?
a. a head tax (that is, a tax everyone must pay regardless of what one does or buys)
b. an income tax
c. a tax on compact discs
d. a tax on caviar
An example of a perfectly competitive market would be the market for
a. tennis racquets.
b. pizza.
c. garbage collection.
d. wheat.
You have driven 800 miles on a vacation and then you notice that you are only 15 miles
from an attraction you hadn’t known about, but would really like to see. In computing
the opportunity cost of visiting this attraction you had not planned to visit, you should
include
a. both the cost of driving the first 800 miles and the next 15 miles.
b. the cost of driving the first 800 miles, but not the cost of driving the next 15 miles.
c. the cost of driving the next 15 miles, but not the cost of driving the first 800 miles.
d. neither the cost of driving the first 800 miles nor the cost of driving the next 15
miles.
Which of the following would increase in response to a increase in the price of ironing
boards?
a. the quantity of irons demanded at each possible price of irons
b. the equilibrium quantity of irons
c. the equilibrium price of irons
d. None of the above is correct.
Figure 814
Refer to Figure 814. Which of the following statements is correct?
a. Supply 1 is more elastic than supply 2.
b. Demand 2 is more elastic than demand 1.
c. Demand 1 is more elastic than supply 1.
d. All of the above are correct.
When a country abandons a notrade policy, adopts a freetrade policy, and becomes an
exporter of a particular good,
a. producer surplus increases and total surplus increases in the market for that good.
b. producer surplus increases and total surplus decreases in the market for that good.
c. producer surplus decreases and total surplus increases in the market for that good.
d. producer surplus decreases and total surplus decreases in the market for that good.
The production of methamphetamine (meth) is a social problem in the Midwest. Iowa is
considering two potential programs: Operation Methbust would increase the number of
sheriffs’ deputies to search out and destroy methamphetamine labs. Operation Say No
to Meth would increase the training required of public school teachers so that they
could better educate students about the health risks of using meth. Assuming that each
program were successful, which of the following statements is correct?
a. Both Operation Methbust and Say No would reduce the demand for meth.
b. Both Operation Methbust and Say No would reduce the supply of meth.
c. Operation Methbust would reduce the demand for meth; Operation Say No would
reduce the supply of meth.
d. Operation Methbust would reduce the supply of meth; Operation Say No would
reduce the demand for meth.
When policymakers are considering a particular action, they can use consumer surplus
as a(n)
a. objective measure of the benefits to buyers as determined by policymakers.
b. measure of the benefits to buyers as the buyers perceive them.
c. potentially flawed measure of the benefits to buyers if the buyers are not rational.
d. Both b) and c) are correct.
When a tax is imposed on a good for which the supply is relatively elastic and the
demand is relatively inelastic,
a. buyers of the good will bear most of the burden of the tax.
b. sellers of the good will bear most of the burden of the tax.
c. buyers and sellers will each bear 50 percent of the burden of the tax.
d. both equilibrium price and quantity will increase.
