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Which tools allow economists to determine if the allocation of resources determined by
free markets is desirable?
a. profits and costs to firms
b. consumer and producer surplus
c. the equilibrium price and quantity
d. incomes of and prices paid by buyers
If the demand curve and the supply curve for a good are straight lines, then the
deadweight loss that results from a tariff is represented on the supplyanddemand graph
by
a. the area of one triangle.
b. the area of one rectangle.
c. the combined areas of two different triangles.
d. the combined areas of two different rectangles.
At the equilibrium price of a good, the good will be sold by those sellers
a. whose cost is more than price.
b. whose cost is less than price.
c. that can produce the good.
d. enter the market first.
You have just been hired as a business consultant to determine what pricing policy
would be appropriate to increase the total revenue of a therapeutic massage spa. The
first step you would take would be to
a. increase the price of all massages.
b. reduce staff in order to reduce operating costs.
c. determine the price elasticity of supply for massages.
d. determine the price elasticity of demand for massages.
If the price elasticity of demand for a good is 6, then a 3 percent decrease in price
results in
a. a 20 percent increase in the quantity demanded.
b. an 18 percent increase in the quantity demanded.
c. a 2 percent increase in the quantity demanded.
d. a 1.8 percent increase in the quantity demanded.
A tax of $0.25 is imposed on each bag of potato chips that is sold. The tax decreases
producer surplus by $600 per day, generates tax revenue of $1,220 per day, and
decreases the equilibrium quantity of potato chips by 120 bags per day. The tax
a. decreases consumer surplus by $645 per day.
b. decreases the equilibrium quantity from 6,000 bags per day to 5,880 bags per day.
c. decreases total surplus from $3,000 to $1,800 per day.
d. creates a deadweight loss of $15 per day.
Which of the following statements about the consumers’ responses to rising gasoline
prices is correct?
a. Because gasoline is a necessity, consumers do not decrease their quantity demanded
in either the short run or the long run.
b. Consumers react to a 10% increase in price with about a 10% decrease in quantity
demanded in both the short run and long run.
c. Consumers decrease their quantity demanded more in the short run than in the long
run.
d. Consumers decrease their quantity demanded more in the long run than in the short
run.
The market for diamond rings is closely linked to the market for highquality diamonds.
If a large quantity of highquality diamonds enters the market, then the
a. supply curve for diamond rings will shift right, which will create a shortage at the
current price. Price will increase, which will decrease quantity demanded and increase
quantity supplied. The new market equilibrium will be at a higher price and higher
quantity.
b. supply curve for diamond rings will shift right, which will create a surplus at the
current price. Price will decrease, which will increase quantity demanded and decrease
quantity supplied. The new market equilibrium will be at a lower price and higher
quantity.
c. demand curve for diamond rings will shift right, which will create a shortage at the
current price. Price will increase, which will decrease quantity demanded and increase
quantity supplied. The new market equilibrium will be at a higher price and higher
quantity.
d. demand curve for diamond rings will shift right, which will create a surplus at the
current price. Price will decrease, which will increase quantity demanded and decrease
quantity supplied. The new market equilibrium will be at a lower price and higher
quantity.
Figure 716
Refer to Figure 716. Suppose the price of the good is $400. Then, on the first unit of
the good that is sold, producer surplus amounts to
a. $200.
b. $300.
c. $400.
d. $450.
Figure 510
Refer to Figure 510. Total revenue when the price is P1 is represented by the area(s)
a. B + D.
b. A + B.
c. C + D.
d. D.
Total surplus is
a. equal to consumer surplus minus producer surplus.
b. equal to the total value to buyers minus the total cost to sellers.
c. equal to consumers' willingness to pay plus producers’ cost.
d. greater than the sum of consumer surplus plus producer surplus.
If a surplus exists in a market, then we know that the actual price is
a. above the equilibrium price, and quantity supplied is greater than quantity demanded.
b. above the equilibrium price, and quantity demanded is greater than quantity supplied.
c. below the equilibrium price, and quantity demanded is greater than quantity supplied.
d. below the equilibrium price, and quantity supplied is greater than quantity demanded.
Policies such as rent control and trade barriers persist in spite of the fact that economists
are virtually united in their opposition to such policies, probably because
a. economists have not yet convinced the general public that the policies are
undesirable.
b. economists engage in positive analysis, not normative analysis.
c. economists have values that are different from the values of most noneconomists.
d. economists’ theories are not easily confirmed or refuted in laboratory analysis.
Comparative advantage is related most closely to which of the following?
a. output per hour
b. opportunity cost
c. efficiency
d. bargaining strength in international trade
Which of the following statements is correct about the roles of economists?
a. Economists are best viewed as policy advisers.
b. Economists are best viewed as scientists.
c. In trying to explain the world, economists are policy advisers; in trying to improve
the world, they are scientists.
d. In trying to explain the world, economists are scientists; in trying to improve the
world, they are policy advisers.
Which of these statements best represents the law of demand?
a. When buyers’ tastes for a good increase, they purchase more of the good.
b. When income levels increase, buyers purchase more of most goods.
c. When the price of a good decreases, buyers purchase more of the good.
d. When buyers’ demands for a good increase, the price of the good increases.
HTMLENTITY#8203HTMLENTITYThe incidence of a tax is
a. HTMLENTITY#8203HTMLENTITYalways determined by the demand side of the
market.
b. HTMLENTITY#8203HTMLENTITYalways determined by the supply side of the
market.
c. HTMLENTITY#8203HTMLENTITYalways determined by the interaction of the
demand and supply side of the market..
d. HTMLENTITY#8203HTMLENTITYalways determined by which side of the market
the government imposes the tax on.
Which of the following can lead to market failure?
a. externalities and market power
b. externalities but not market power
c. market power but not externalities
d. neither externalities nor market power
Which of the following statements about the consumers’ responses to rising gasoline
prices is correct?
a. About 10 percent of the longrun reduction in quantity demanded arises because
people drive less and about 90 percent arises because they switch to more fuelefficient
cars.
b. About 90 percent of the longrun reduction in quantity demanded arises because
people drive less and about 10 percent arises because they switch to more fuelefficient
cars.
c. About half of the longrun reduction in quantity demanded arises because people drive
less and about half arises because they switch to more fuelefficient cars.
d. Because gasoline is a necessity, consumers do not decrease their quantity demanded
in either the short run or the long run.
Which of the following is not correct?
a. Economists who argue that labor taxes are highly distorting believe that labor supply
is fairly elastic.
b. Economists who argue that labor taxes are not highly distorting believe that labor
supply is fairly inelastic.
c. Economists who argue that labor supply is fairly inelastic cite elderly workers who
adjust the date they retire as an example.
d. Economists who argue that labor supply is fairly elastic cite workers who adjust the
hours of overtime that they work as an example.
Figure 920
The figure illustrates the market for rice in Vietnam.
Refer to Figure 920. Given that Vietnam is a small country, it is apparent from the
figure that
a. Vietnam will export rice if trade is allowed.
b. Vietnam will import rice if trade is allowed.
c. Vietnam has nothing to gain either by importing or exporting rice.
d. the world price will fall if Vietnam begins to allow its citizens to trade with other
countries.
Economic models
a. are not useful because they omit many realworld details.
b. are usually composed of diagrams and equations.
c. are useful because they do not omit any realworld details.
d. are usually plastic representations of the economy.
Scenario 91
The beforetrade domestic price of peaches in the United States is $40 per bushel. The
world price of peaches is $52 per bushel. The U.S. is a pricetaker in the market for
peaches.
Refer to Scenario 91. If trade in peaches is allowed, the
a. price paid by American consumers of peaches is unchanged relative to the notrade
situation.
b. total wellbeing of American producers of peaches is diminished relative to the
notrade situation.
c. total wellbeing of American consumers of peaches is enhanced relative to the notrade
situation.
d. total wellbeing of the United States is enhanced relative to the notrade situation.
Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium
quantity of the good to decrease from 200 units to 100 units. The tax decreases
consumer surplus by $450 and decreases producer surplus by $300. The deadweight
loss from the tax is
a. $250.
b. $500.
c. $750.
d. $1,000.
Figure 82
The vertical distance between points A and B represents a tax in the market.
Refer to Figure 82. Consumer surplus without the tax is
a. $6, and consumer surplus with the tax is $1.50.
b. $6, and consumer surplus with the tax is $4.50.
c. $10, and consumer surplus with the tax is $1.50.
d. $10, and consumer surplus with the tax is $4.50.
Macroeconomics is the study of
a. individual decision makers.
b. international trade.
c. economywide phenomena.
d. markets for large products.
Which of the following will cause a decrease in producer surplus?
a. the imposition of a binding price ceiling in the market
b. an increase in the number of buyers of the good
c. income increases and buyers consider the good to be normal
d. the price of a complement decreases
A price ceiling will be binding only if it is set
a. equal to the equilibrium price.
b. above the equilibrium price.
c. below the equilibrium price.
d. either above or below the equilibrium price.
Figure 323
The graph below represents the various combinations of ham and cheese (in pounds)
that the nation of Bonovia could produce in a given month.
Refer to Figure 323. In the nation of Cropitia, the opportunity cost of a pound of
cheese is 1.5 pounds of ham. Bonovia and Cropitia both can gain from trading with one
another if one pound of cheese trades for
a. 1.0 pound of ham.
b. 1.4 pounds of ham.
c. 2.1 pounds of ham.
d. All of the above are correct.
Figure 44
YasmineMercedes
Refer to Figure 44. Which of the following statements is correct?
a. If the price is $6, the market quantity demanded is 15 units.
b. If the price is $9, the market quantity demanded is 24 units.
c. If the price is $12, the market quantity demanded is 9 units.
d. If the price is $15, the market quantity demanded is 39 units.
