1) Carolyn’s Pottery Shop produces vases that sell for $15 each. Assume that labor is
the only input that varies for the firm. If Carolyn hires 10 workers, she can produce and
sell 500 vases per week. If she hires 11 workers, she can produce and sell 560 vases per
week. Carolyn pays each of her workers $400 per week. Which of the following is
correct?
a.For the 11th worker, the marginal profit is $500.
b.For the 11th worker, the marginal revenue product is $500.
c.The firm is maximizing its profit.
d.If the firm is employing 11 workers, then its profit would increase if it cut back to 10
workers.
2) Adam Smith’s example of the pin factory demonstrates that economies of scale result
from specialization.
a.True
b.False
3) If the production of computer chips yields greater technology spillovers than the
production of potato chips, the government should
a.encourage the production of computer chips with subsidies.
b.discourage the production of potato chips with taxes.
c.encourage the production of potato chips with subsidies.
d.discourage the production of computer chips with taxes.
4) Tying can be thought of as a form of price discrimination.
a.True
b.False
5) Which of the following ideas is the most plausible?
a.Reducing a high tax rate is less likely to increase tax revenue than is reducing a low
tax rate.
b.Reducing a high tax rate is more likely to increase tax revenue than is reducing a low
tax rate.
c.Reducing a high tax rate will have the same effect on tax revenue as reducing a low
tax rate.
d.Reducing a tax rate can never increase tax revenue.
6) Saving and borrowing is indicative of a family that
a.is most likely to be poor.
b.has a difficult time balancing its standard of living.
c.does not adjust its standard of living to reflect transitory changes in income.
d.is most likely millionaires.
7) If Kindle e-readers and Nook e-readers are substitutes, a higher price for Nooks
would result in a(n)
a.increase in the demand for Nooks.
b.decrease in the demand for Nooks.
c.increase in the demand for Kindles.
d.decrease in the demand for Kindles.
8) The demand curve for coffee shifts
a.only when income changes.
b.when a determinant of the demand for coffee other than the price of coffee changes.
c.when the price of coffee changes.
d.Both b and c are correct.
9) The legislation passed by Congress in 1914 to strengthen the government’s powers
and authorize private lawsuits was the
a.Morgan Act.
b.Sherman Act.
c.Clayton Act.
d.14th Amendment.
10) In which of the following tax systems do taxes increase as income increases?
a.both proportional and progressive
b.proportional but not progressive
c.progressive but not proportional
d.neither proportional nor progressive
11) If a study by medical researchers finds that eating brown rice causes weight loss
while eating white rice causes weight gain, then we likely would see
a.an increase in demand for brown rice and a decrease in demand for white rice.
b.a decrease in demand for brown rice and an increase in demand for white rice.
c.an increase in demand for both brown and white rice.
d.no change in demand for either type of rice because weight loss is not a determinant
of demand.
12) The indifference curves for perfect substitutes are right angles.
a.True
b.False
13) Figure 16-1
Which of the following sets of explanations best describes the differences between the
graphs above?
a.Panel A: monopolistically competitive firm’s demand curve
Panel B: monopoly firm’s demand curve Panel C: oligopoly firm’s demand curve
Panel D: perfectly competitive firm’s demand curve
b.Panel A: oligopoly firm’s demand curve
Panel B: perfectly competitive firm’s demand curve
Panel C: monopolistically competitive firm’s demand curve
Panel D: supply curve
c.Panel A: perfectly competitive firm’s demand curve
Panel B: monopolistically competitive firm’s demand curve Panel C: monopoly firm’s
demand curve
Panel D: supply curve
d.Panel A: monopolistically competitive firm’s demand curve Panel B: monopoly firm’s
demand curve
Panel C: perfectly competitive firm’s demand curve
Panel D: supply curve
14) Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her
own catering business. She spent $12,000 of her savings, which had been earning 10
percent interest per year, on equipment for her business. She also borrowed $12,000
from her bank at 10 percent interest, which she also spent on equipment. For the past
several months she has spent $1,000 per month on ingredients and other variable costs.
Also for the past several months she has taken in $3,500 in monthly revenue. In the
short run, Susan should
a.shut down her business, and in the long run she should exit the industry.
b.continue to operate her business, but in the long run she should exit the industry.
c.continue to operate her business, but in the long run she will probably face
competition from newly entering firms.
d.continue to operate her business, and she is also in long-run equilibrium.
15) If sellers do not adjust their quantity supplied at all in response to a change in price,
the price elasticity of supply is
a.zero, and the supply curve is horizontal.
b.zero, and the supply curve is vertical.
c.infinity, and the supply curve is horizontal.
d.infinity, and the supply curve is vertical.
16) Chris and Tony’s Production Opportunities
Chris and Tony both produce tomatoes and pasta sauce. The table shows their possible
production per month if both work the same number of 8 hour days. Which of the
following prices would result in a mutually advantageous trade between Chris and
Tony?
a.1 lb. of tomatoes for 23 jars of sauce
b.1 lb. of tomatoes for 27 jars of sauce
c.1 lb. of tomatoes for 33 jars of sauce
d.Both a and b are correct.
17) If the quantity demanded of a certain good responds only slightly to a change in the
price of the good, then the
a.demand for the good is said to be elastic.
b.demand for the good is said to be inelastic.
c.law of demand does not apply to the good.
d.demand curve for the good shifts only slightly in response to a change in price.