Figure 89
The vertical distance between points A and C represents a tax in the market.
Refer to Figure 89. The total surplus without the tax is
a. $8,000.
b. $12,000.
c. $20,000.
d. $40,000.
Figure 515
Refer to Figure 515. Using the midpoint method, what is the price elasticity of supply
between points B and C?
a. 1.67
b. 1.19
c. 0.84
d. 0.61
Figure 96
The figure illustrates the market for roses in a country.
Refer to Figure 96. The imposition of a tariff on roses
a. increases the number of roses imported by 100.
b. increases the number of roses imported by 200.
c. decreases the number of roses imported by 200.
d. decreases the number of roses imported by 400.
For a particular good, a 10 percent increase in price causes a 3 percent decrease in
quantity demanded. Which of the following statements is most likely applicable to this
good?
a. The relevant time horizon is short.
b. The good is a luxury.
c. The market for the good is narrowly defined.
d. There are many close substitutes for this good.
If the current allocation of resources in the market for wallpaper is efficient, then it must
be the case that
a. producer surplus equals consumer surplus in the market for wallpaper.
b. the market for wallpaper is in equilibrium.
c. on the last unit of wallpaper that was produced and sold, the value to buyers
exceeded the cost to sellers.
d. All of the above are correct.
Figure 726
Refer to Figure 726. If the government imposes a price floor of $90 in this market,
then consumer surplus will be
a. $225.
b. $450.
c. $975.
d. $1,350
A typical society strives to get the most it can from its scarce resources. At the same
time, the society attempts to distribute the benefits of those resources to the members of
the society in a fair manner. In other words, the society faces a tradeoff between
a. guns and butter.
b. efficiency and equality.
c. inflation and unemployment.
d. work and leisure.
Suppose there is an early freeze in California that reduces the size of the lemon crop.
What happens to consumer surplus in the market for lemons?
a. Consumer surplus increases.
b. Consumer surplus decreases.
c. Consumer surplus is not affected by this change in market forces.
d. We would have to know whether the demand for lemons is elastic or inelastic to
make this determination.
Externalities are
a. side effects passed on to a party other than the buyers and sellers in the market.
b. side effects of government intervention in markets.
c. external forces that cause the price of a good to be higher than it otherwise would be.
d. external forces that help establish equilibrium price.
Total surplus
a. can be used to measure a market’s efficiency.
b. is the sum of consumer and producer surplus.
c. is the value to buyers minus the cost to sellers.
d. All of the above are correct.
President Ronald Reagan once joked that a Trivial Pursuit game designed for
economists would
a. have no questions but hundreds of answers.
b. have 100 questions and 3,000 answers.
c. have 1,000 questions but no answers.
d. never produce a winner.
Figure 67
Refer to Figure 67. Which of the following price controls would cause a shortage of 20
units of the good?
a. a price ceiling set at $6
b. a price ceiling set at $5
c. a price floor set at $9
d. a price floor set at $8
Figure 25
Refer to Figure 25. Suppose this economy is producing at point D. Which of the
following statements would best explain this situation?
a. The economy has insufficient resources to produce at a more desirable point.
b. The economy’s available technology prevents it from producing at a more desirable
point.
c. There is widespread unemployment in the economy.
d. Any of the above statements would be a legitimate explanation for this situation.
Incomes of U.S. households in the 1970s and 1980s
a. grew rapidly, due to the widespread success of labor unions in pushing up wages
during those decades.
b. grew rapidly, due to several increases in the minimum wage during those decades.
c. grew rapidly, due to government policies that discouraged the importation of foreign
products during those decades.
d. grew slowly, due to slow growth of the output of goods and services per hour of U.S.
workers’ time during those decades.
Figure 89
The vertical distance between points A and C represents a tax in the market.
Refer to Figure 89. The producer surplus without the tax is
a. $3,000.
b. $8,000.
c. $12,000.
d. $24,000.
Suppose demand is perfectly inelastic, and the supply of the good in question decreases.
As a result,
a. the equilibrium quantity decreases, and the equilibrium price is unchanged.
b. the equilibrium price increases, and the equilibrium quantity is unchanged.
c. the equilibrium quantity and the equilibrium price both are unchanged.
d. buyers’ total expenditure on the good is unchanged.
Table 323
Assume that the farmer and the rancher can switch between producing pork and
producing tomatoes at a constant rate.
Labor Hours Needed to Make 1 Pound of Pounds Produced in 24 Hours
PorkTomatoesPorkTomatoes
Farmer6348
Rancher4466
Refer to Table 323. The farmer has an absolute advantage in the production of
a. pork.
b. tomatoes.
c. both goods.
d. neither good.
Table 57
The following table shows a portion of the demand schedule for a particular good at
various levels of income.
PriceQuantity Demanded
(Income = $5,000)Quantity Demanded
(Income = $7,500)Quantity Demanded
(Income = $10,000)
$24234
$20468
$166912
$1281216
$8101520
$4121824
Refer to Table 57. Using the midpoint method, when income equals $7,500, what is the
price elasticity of demand between $16 and $20?
a. 0.56
b. 0.75
c. 1.33
d. 1.80
Scenario 53
Suppose that the supply of aged cheddar cheese is inelastic, and the supply of bread is
elastic. Both goods are considered to be normal goods by a majority of consumers.
Suppose that a large income tax increase decreases the demand for both goods by 10%.
Refer to Scenario 53. The price elasticity of supply for aged cheddar cheese could be
a. 1.
b. 0.
c. 0.5.
d. 1.5.
Figure 624
Refer to Figure 624. In the aftertax equilibrium, government collects
a. $1,440 in tax revenue; of this amount, $960 represents a burden on buyers and $480
represents a burden on sellers.
b. $1,440 in tax revenue; of this amount, $720 represents a burden on buyers and $720
represents a burden on sellers.
c. $1,680 in tax revenue; of this amount, $1,260 represents a burden on buyers and $420
represents a burden on sellers.
d. $1,680 in tax revenue; of this amount, $840 represents a burden on buyers and $840
represents a burden on sellers.
Suppose Brent, Callie, and Danielle each purchase a particular type of electric pencil
sharpener at a price of $20. Brent’s willingness to pay was $22, Callie’s willingness to
pay was $25, and Danielle’s willingness to pay was $30. Which of the following
statements is correct?
a. Had the price of the pencil sharpener been $24 rather than $20, only Danielle would
have been a buyer.
b. Brent’s consumer surplus is the smallest of the three individual consumer surpluses.
c. For the three individuals together, consumer surplus amounts to $60.
d. The fact that all three individuals paid $20 for the same type of pencil sharpener
indicates that each one placed the same value on that pencil sharpener.
Figure 626
Refer to Figure 626. How much tax revenue does this tax produce for the government?
a. $480
b. $640
c. $360
d. $120
Which of the following would cause a movement along the supply curve for cupcakes?
a. an improvement in technology for commercial mixers
b. a decrease in the price of cupcakes
c. an increase in the price of cake flour
d. All of the above are correct.
Table 316
The following table contains some production possibilities for an economy for a given
month.
BlanketsCoats
8600
12?
16200
Refer to Table 316. If the production possibilities frontier is a straight line, then “?”
must be
a. 200.
b. 300.
c. 400.
d. 500.
When a country abandons a notrade policy, adopts a freetrade policy, and becomes an
importer 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.
Figure 89
The vertical distance between points A and C represents a tax in the market.
Refer to Figure 89. The loss of producer surplus as a result of the tax is
a. $3,000.
b. $6,000.
c. $9,000.
d. $12,000.
Which of the following firms is most likely to have market power?
a. a grocery store in a metropolitan area
b. a convenience store in a suburb
c. a pub in a college town
d. the only gasoline station in a rural area
The world price of a ton of steel is $1,000. Before Russia allowed trade in steel, the
price of a ton of steel there was $650. Once Russia allowed trade in steel with other
countries, Russia began
a. exporting steel and the price per ton in Russia remained at $650.
b. exporting steel and the price per ton in Russia increased to $1,000.
c. importing steel and the price per ton in Russia remained at $650.
d. importing steel and the price per ton in Russia increased to $1,000.
Demand is said to be inelastic if the
a. quantity demanded changes proportionately more than price.
b. price changes proportionately more than income.
c. quantity demanded changes proportionately less than price.
d. quantity demanded changes proportionately the same as price.
Refer to Figure 24. At which point is this economy producing its maximum possible
quantity of doors?
a. R
b. S
c. T
d. U
Which of the following is an example of an externality?
a. A paper mill dumps waste into the river.
b. A neighbor’s loud music disrupts sleep.
c. A drunk driver causes an accident that injures another person.
d. All of the above are correct.
Figure 315
Perry’s Production Possibilities FrontierJordan’s Production Possibilities Frontier
Refer to Figure 315. The opportunity cost of 1 novel for Perry is
a. 1/6 poem.
b. 2 poems.
c. 6 poems.
d. 12 poems.
Figure 315
Perry’s Production Possibilities FrontierJordan’s Production Possibilities Frontier
Refer to Figure 315. If Perry and Jordan each spends all of his/her time producing the
good in which s/he has a comparative advantage and trade takes place at a price of 1
novel for 7 poems, then
a. Perry and Jordan will both gain from this trade.
b. Perry will gain from this trade, but Jordan will not.
c. Jordan will gain from this trade, but Perry will not.
d. neither Perry nor Jordan will gain from this trade.
Figure 85
Suppose that the government imposes a tax of P3 P1.
Refer to Figure 85. The tax is levied on
a. buyers only.
b. sellers only.
c. both buyers and sellers.
d. This is impossible to determine from the figure.