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1) A good that is rival in consumption is one that someone can be prevented from using
if she did not pay for it.
a.True
b.False
2) Figure 10-4
This market
a.has no need for government intervention.
b.would benefit from a tax on the product.
c.would benefit from a subsidy for the product.
d.would maximize total well-being at Q3.
3) If the price were $4, a
a.surplus of 15 units would exist, and price would tend to fall.
b.shortage of 25 units would exist, and price would tend to rise.
c.surplus of 25 units would exist, and price would tend to fall.
d.shortage of 40 units would exist, and price would tend to rise.
4) Cross-price elasticity is used to determine whether goods are inferior or normal
goods.
a.True
b.False
5) Free markets allocate (a) the supply of goods to the buyers who value them most
highly and (b) the demand for goods to the sellers who can produce them at least cost.
a.True
b.False
6) When a monopolist increases the number of units it sells, there are two effects on
revenue. They are the
a.demand effect and the supply effect.
b.competition effect and the cost effect.
c.competitive effect and the monopoly effect.
d.output effect and the price effect.
7) An externality
a.results in an equilibrium that does not maximize the total benefits to society.
b.causes demand to exceed supply.
c.strengthens the role of the €invisible hand€ in the marketplace.
d.affects buyers but not sellers.
8) Figure 8-22
Suppose the government initially imposes a $3 per-unit tax on this good. Now suppose
the government is deciding whether to lower the tax to $1.50 or raise it to $4.50. Which
of the following statements is not correct?
a.Compared to the original tax, the larger tax will decrease tax revenue.
b.Compared to the original tax, the smaller tax will decrease deadweight loss.
c.Compared to the original tax, the smaller tax will decrease tax revenue.
d.Compared to the original tax, the larger tax will increase deadweight loss.
9) One reason that deadweight losses are so difficult to avoid is that
a.taxes affect the decisions that people make.
b.income taxes are not paid by everyone.
c.consumption taxes must be universally applied to all commodities.
d.the administrative burden is hard to calculate.
10) The theory of consumer choice is to demand as the theory of
a.public goods is to supply.
b.oligopoly is to supply.
c.the competitive firm is to supply.
d.comparative advantage is to supply.
11) In the case of a technology spillover, internalizing a positive externality will cause
the supply curve of an industry to
a.shift to the right.
b.shift to the left.
c.become more elastic.
d.remain unchanged.
12) The Latin term caveat emptor, meaning "let the buyer beware," brings to mind the
problem of
a.hidden actions.
b.adverse selection.
c.principals and agents.
d.moral hazard.
13) Mary and Mike are twins who attended grammar school through college together.
Both twins got jobs in the same department of an accounting firm. They both work
equally hard and have received similar performance reviews. Mary earns $62,000 a
year, and Mike earns $80,000 a year. Select the best explanation for this wage
difference.
a.Mary has less human capital than Mike.
b.Mary has more human capital than Mike.
c.Mike has been discriminated against because he is male.
d.Mary has been discriminated against because she is female.
