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1) Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and, as a
result, the quantity of tortilla chips demanded increases from 200 bags to 300 bags.
Using the midpoint method, the for tortilla chips in the given price range is
a. 0.33.
b. 0.45.
c. 2.20.
d. 3.00.
2) Production Possibilities for Picnicland
What is the opportunity cost to Picnicland of increasing the production of burgers from
450 to 750?
a.150 hotdogs
b.225 hotdogs
c.300 hotdogs
d.450 hotdogs
3) Which of the following is true at the level of output at which a competitive firm
maximizes profit?
a.price = marginal cost
b.price = wage/value of marginal product of labor
c.price = marginal product of labor/wage
d.All of the above are correct.
4) Juan Pablo and Zak are competitors in a local market. Each is trying to decide if it is
better to advertise on TV, on radio, or not at all. If they both advertise on TV, each will
earn a profit of $8,000. If they both advertise on radio, each will earn a profit of
$14,000. If neither advertises at all, each will earn a profit of $20,000. If one advertises
on TV and other advertises on radio, then the one advertising on TV will earn $12,000
and the other will earn $10,000. If one advertises on TV and the other does not
advertise, then the one advertising on TV will earn $22,000 and the other will earn
$4,000. If one advertises on radio and the other does not advertise, then the one
advertising on radio will earn $24,000 and the other will earn $8,000. If both follow
their dominant strategy, then Juan Pablo will
a.advertise on TV and earn $8,000.
b.advertise on radio and earn $14,000.
c.advertise on TV and earn $22,000.
d.not advertise and earn $20,000.
5) Suppose Russia exports sunflower seeds to Ireland and imports coffee from Brazil.
This situation suggests
a.Russia has a comparative advantage over Brazil in producing coffee, and Ireland has a
comparative advantage over Russia in producing sunflower seeds.
b.Russia has a comparative advantage over Ireland in producing sunflower seeds, and
Brazil has a comparative advantage over Russia in producing coffee.
c.Russia has an absolute advantage over Ireland in producing sunflower seeds, and
Brazil has an absolute advantage over Russia in producing coffee.
d.Russia has an absolute advantage over Brazil in producing coffee, and Ireland has an
absolute advantage over Russia in producing sunflower seeds.
6) Joe's Juice Shop operates in a monopolistically competitive market. Joe's is currently
producing where its average
total cost is minimized. In the long run we would expect Joe's output to
a.decrease and average total cost to increase.
b.decrease and average total cost to decrease.
c.remain unchanged as Joe's is doing the best it can.
d.increase and average total costs to decrease.
7) Katie wins $3 million in her state's lottery. If Katie drastically reduces the number of
hours she works after she wins the money, we can infer that the income effect is larger
than the substitution effect for her.
a.True
b.False
8) Assume, for Colombia, that the domestic price of coffee without international trade is
higher than the world price of coffee. This suggests that
a.other countries have a comparative advantage over Colombia in producing coffee.
b.Colombia has an absolute advantage over other countries in producing coffee.
c.Colombia will export coffee if international trade is allowed.
d.Colombian coffee buyers will become worse off if international trade is allowed.
9) If there is a shortage of farm laborers, we would expect
a.the wage of farm laborers to increase.
b.the wage of farm laborers to decrease.
c.the price of farm commodities to decrease.
d.a decrease in the demand for substitutes for farm labor.
10) Which of the following events could decrease the demand for labor?
a.An increase in the number of migrant workers
b.An increase in the marginal productivity of workers
c.A decrease in demand for the final product produced by labor
d.A decrease in the supply of labor
11) Which of the following statements is correct?
a.A decrease in the size of a tax always decreases the tax revenue raised by that tax.
b.A decrease in the size of a tax always decreases the deadweight loss of that tax.
c.Tax revenue decreases when there is a small decrease in the tax rate and the economy
is on the downward- sloping part of the Laffer curve.
d.An increase in the size of a tax leads to an increase in the deadweight loss of the tax
only if the economy is on the upward-sloping part of the Laffer curve.
12) Raising total utility is the prime objective of which political philosophy?
a.utilitarianism
b.liberalism
c.libertarianism
d.None of the above is correct.
13) An increase in price increases consumer surplus.
a.True
b.False
14) Suppose that Charles wants to dine at a fancy restaurant, but the only available table
is in the smoking section. Charles dislikes the smell of cigarette smoke. He notices that
only one person, Sam, is smoking in the smoking section. Charles values the absence of
smoke at $40. Sam values the ability to smoke in the restaurant at $15. Which of the
following represents an efficient solution in the absence of transaction costs?
a.Sam continues to smoke because he has a right to smoke in the smoking section.
b.Charles offers Sam between $15 and $40 not to smoke. Sam accepts, and both parties
are better off.
c.Charles offers Sam between $15 and $40 not to smoke. Sam declines because he has a
right to smoke in the smoking section.
d.Only a government policy banning smoking in restaurants will solve this problem.
15) Recall the four types of goods. Are national defense and basic research the same
type of good? Briefly explain.
16) How can a proportional tax achieve vertical equity?
17) For Molly, the substitution effect of a wage increase is stronger than the income
effect. In response to a wage increase, will Sally work more hours or will she work
fewer hours?
18) Suppose goods A and B are complements. If the price of good A increases, will the
demand for good B increase or decrease?
19) Suppose a tax is imposed on producers of aluminum as a means of internalizing the
externality associated with aluminum production. If the tax accurately reflects the
external costs of pollutants released into the atmosphere, then the new supply curve for
aluminum coincides with which other curve?
