1) Simply asking people how much they value a highway is not a reliable way of
measuring the benefits and costs because
a.those who stand to gain have an incentive to tell the truth.
b.those who stand to lose have an incentive to exaggerate their true costs.
c.answers to the survey questions will always be downwardly biased.
d.not everyone asked will be using the highway.
2) A demand curve shows the relationship between price and
a.income.
b.quantity demanded.
c.production.
d.income and quantity demanded.
3) Suppose that eight workers can manufacture 70 radios per day and that nine workers
can manufacture 90 radios per day. If radios can be sold for $20 each, the value of
marginal product of the ninth worker is
a.20 radios.
b.90 radios.
c.$200.
d.$400.
4) Assume that Aruba and Iceland can switch between producing coolers and producing
radios at a constant rate.
Iceland should export
a.coolers and import radios.
b.radios and import coolers.
c.both goods and import neither good.
d.neither good and import both goods.
5) Suppose the government levies a tax of the vertical distance from point A to point B.
Using the graph shown, determine the value of each of the following:
a.equilibrium price before the tax
b.consumer surplus before the tax
c.producer surplus before the tax
d.total surplus before the tax
e.consumer surplus after the tax
f.producer surplus after the tax
g.total tax revenue to the government
h.total surplus (consumer surplus+producer surplus+tax revenue) after the tax
i.deadweight loss
6) Suppose that Company A’s railroad cars pass through Farmer B’s corn fields. The
railroad causes an externality to the farmer because the railroad cars emit sparks that
cause $1,500 in damage to the farmer’s crops. There is a special soy-based grease that
the railroad could purchase that would eliminate the damaging sparks. The grease costs
$1,200. Suppose that the railroad is not liable for any damage caused to the crops.
Assume that there are no transaction costs. Which of the following characterizes the
efficient outcome?
a.The railroad will continue to operate but will pay the farmer $1,500 in damages.
b.The railroad will purchase the grease for $1,200 and pay the farmer nothing because
no crop damage will occur.
c.The farmer will incur $1,500 in damages to his crops.
d.The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage
will occur.
7) A tax
a.lowers the price buyers pay and raises the price sellers receive.
b.raises the price buyers pay and lowers the price sellers receive.
c.places a wedge between the price buyers pay and the price sellers receive.
d.Both b) and c) are correct.
8) Which tax system requires higher-income taxpayers to pay a higher percentage of
their income in taxes?
a.a progressive tax
b.a proportional tax
c.a regressive tax
d.a lump-sum tax
9) Which of these terms are used interchangeably?
a.goods and services and inputs
b.goods and services and factors of production
c.inputs and factors of production
d.land, labor, and capital and goods and services
10) A dairy produces and sells organic milk. Last year it sold 500,000 gallons of milk at
a price of $7 per gallon. For last year, the firm’s
a.total revenue was $3.5 million.
b.economic profit was $3.5 million.
c.accounting profit was $3.5 million.
d.explicit costs were $3.5 million.
11) To an economist, the field of industrial organization answers which of the following
questions?
a.Why are consumers subject to the law of demand?
b.Why do firms experience diminishing marginal productivities of their inputs?
c.How does the number of firms affect prices and the efficiency of market outcomes?
d.How can government intervention improve industrial production when externalities
are present?
12) When we examine historical data on income inequality in the U.S., we see that the
distribution of income gradually became
a.more equal between 1935 and 2011.
b.more equal between 1935 and 1973, but that trend reversed itself between 1973 and
2011.
c.more unequal between 1935 and 1973, but that trend reversed itself between 1973 and
2011.
d.more unequal between 1935 and 2011.
13) Figure 18-1
On the graph, L represents the quantity of labor and Q represents the quantity of output
per week.
Refer to Figure 18-1. The marginal product of the second worker is
a.90 units of output.
b.105 units of output.
c.210 units of output.
d.330 units of output.
14) John Rawls, who developed the way of thinking called liberalism, argued that
government policies should be aimed at maximizing the sum of utility of everyone in
society.
a.True
b.False
15) Fiona’s hourly wage decreases from $10 to $8. Which of the following describes a
consequence of the decrease in Fiona’s wage?
a.The opportunity cost of Fiona’s leisure time has increased.
b.Fiona may choose to work more hours due to the decrease in her wage.
c.Fiona may choose to work fewer hours due to the decrease in her wage.
d.Both b and c are correct.
16) The x-coordinate of an ordered pair specifies the
a.diagonal location of the point.
b.vertical location of the point.
c.horizontal location of the point.
d.quadrant location in which the point is located.
17) Each firm in a monopolistically competitive market
a.earns both short-run and long-run profits.
b.faces a downward-sloping demand curve.
c.cannot earn economic profit in the short run.
d.sets price equal to marginal cost.
18)
Which of the following statements is true about point G for this economy?
a.Point G is currently unattainable.
b.Point G is efficient.
c.At point G, more cakes are produced than cookies.
d.There is unemployment at point G.