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1) Figure 9-14. On the diagram below, Q represents the quantity of crude oil and P
represents the price of crude oil.
A result of this country allowing international trade in crude oil is as follows:
a.The well-being of domestic crude-oil producers is now higher in that they now sell
more crude oil at a higher price per barrel.
b.The effect on the well-being of domestic crude-oil consumers is unclear in that they
now buy more crude oil, but at a higher price per barrel.
c.The effect on the well-being of the country is unclear in that domestic producer
surplus increases, while the effect on domestic consumer surplus is unclear.
d.All of the above are correct.
2) Which of the following statements is not correct?
a.An advantage of the Earned Income Tax Credit (EITC) is that it targets the working
poor better than the minimum wage because it does not benefit teenagers from
middle-class families who work summer jobs at the minimum wage.
b.A disadvantage of in-kind transfer programs such as food stamps is that they force
recipients to purchase from a restricted set of items which may not include things that
the poor need the most such as diapers or cleaning supplies.
c.A disadvantage of minimum wage laws is that they are expensive for state and local
governments to fund.
d.Effective minimum wage laws create a surplus of labor.
3) Which of the following statements is not correct?
a.If Fiona gets a higher wage and works more, the substitution effect is greater than the
income effect for her.
b.If Miguel experiences a wage decrease and works less, the income effect is greater
than the substitution effect for him.
c.If the substitution effect is greater than the income effect, the labor-supply curve is
upward sloping.
d.If the income effect is greater than the substitution effect, the labor-supply curve is
downward sloping.
4) Table 16-1
The following table shows the percentage of output supplied by the top eight firms in
four different industries.
Which industry is the most competitive?
a.Industry A
b.Industry B
c.Industry C
d.Industry D
5) Consider two individuals - Howard and Mai - each of whom would like to wear
sweaters and eat tasty food. The gains from trade between Howard and Mai are least
obvious in which of the following cases?
a.Howard is very good at knitting sweaters and at cooking tasty food, but Mai's skills in
both of these activities are very poor.
b.Howard is very good at knitting sweaters and at cooking tasty food; Mai is very good
at knitting sweaters, but she knows nothing about cooking tasty food.
c.Howard's skills in knitting sweaters are fairly good, but his skills in cooking tasty
food are fairly bad¾ Mai's skills in knitting sweaters are fairly bad, but her skills in
cooking tasty food are fairly good.
d.Howard's skills are such that he can produce only sweaters, and Mai's skills are such
that she can produce only tasty food.
6)
Assume the section of the demand curve from B to C corresponds to prices between $0
and $15. Then, when the price changes between $7 and $9,
a.quantity demanded changes proportionately less than the price.
b.quantity demanded changes proportionately more than the price.
c.quantity demanded changes the same amount proportionately as price.
d.the equals zero.
7) Table 15-21
Tommy's Tie Company, a monopolist, has the following cost and revenue information.
Assume that Tommy's is able to engage in perfect price discrimination.
If the monopolist can engage in perfect price discrimination, what is the total revenue
when 7 ties are sold?
a.$650
b.$700
c.$910
d.$1080
8) Which of the following practices are, at least in part, attempts to reduce moral hazard
problems?
a.Cashiers at movie theaters are required to give customers tickets.
b.An employer pays below equilibrium wages because he thinks his employees are not
working as hard as they could be.
c.Both A and B are correct.
d.None of the above are correct.
9) A binding minimum wage
a.affects employees but not employers.
b.lowers the productivity of workers.
c.raises the cost of labor to firms.
d.All of the above are correct.
10) Traci consumes two goods, lemonade and pretzels. Lemonade costs $1 per glass,
and she consumes it to the point where the marginal utility she receives from her last
glass of lemonade is 3.Pretzels cost $2 per bag. The relationship between the marginal
utility Traci gets from eating a bag of pretzels and the number of bags she eats per
month is as follows:
If Traci is maximizing his utility, how much does she spend on pretzels each month?
a.$2
b.$6
c.$8
d.$12
11) When a firm's longrun average total costs do not vary as output increases, the firm
exhibits
a.economies of scale.
b.constant returns to scale.
c.diseconomies of scale.
d.an efficient use of resources.
12) For a certain firm, the 100th unit of output that the firm produces has a marginal
revenue of $7 and a marginal cost of $10. It follows that the
a.production of the 100th unit of output increases the firm's profit by $3.
b.production of the 100th unit of output increases the firm's average total cost by $7.
c.firm's profit-maximizing level of output is less than 100 units.
d.production of the101st unit of output must increase the firm's profit by more than $3.
13) Firms operating in competitive markets produce output levels where marginal
revenue equals
a.price.
b.average revenue.
c.total revenue divided by output.
d.All of the above are correct.
14) If a firm is facing inelastic demand, then the firm should decrease price to increase
revenue.
a.True
b.False
15) Economists believe that production possibilities frontiers are often bowed because
a.trade-offs inevitably create unemployment.
b.resources are not completely adaptable.
c.opportunity costs are constant.
d.of improvements in technology.
16) When demand is inelastic, the is
a.less than 1, and price and total revenue will move in the same direction.
b.less than 1, and price and total revenue will move in opposite directions.
c.greater than 1, and price and total revenue will move in the same direction.
d.greater than 1, and price and total revenue will move in opposite directions.
17) Figure 21-3
In each case, the budget constraint moves from BC-1 to BC-2.
Refer to Figure 21-3. Which of the graphs in the figure reflects an increase in the price
of good Y only?
a.graph a
b.graph b
c.graph c
d.graph d
18) If occupational safety laws were changed so that firms no longer had to take
expensive steps to meet regulatory requirements, we would expect that
a.the demand for products in this industry would increase.
b.the market price of products in this industry would decrease in the short run but not in
the long run.
c.the firms in the industry would make a long-run economic profit.
d.competition would force producers to pass the lower production costs on to
consumers in the long run.
19) Figure 21-3
In each case, the budget constraint moves from BC-1 to BC-2.
Refer to Figure 21-3. Which of the graphs in the figure reflects an increase in the price
of good X only?
a.graph a
b.graph b
c.graph c
d.graph d
