1) Suppose there is an increase in supply that reduces market price. Consumer surplus
increases because (1) consumer surplus received by existing buyers increases and (2)
new buyers enter the market.
a.True
b.False
2) Duties of the Council of Economic Advisers include
a.advising the president and writing the annual Economic Report of the President.
b.implementing the president’s tax policies.
c.tracking the behavior of the nation’s money supply.
d.All of the above are correct.
3) Figure 17-2. Two companies, Acme and Pinnacle, each decide whether to produce a
good quality product or a poor quality product. In the figure, the dollar amounts are
payoffs and they represent annual profits for the two companies.
Refer to Figure 17-2. The dominant strategy for Acme is to
a.produce a good quality product, and the dominant strategy for Pinnacle is to produce a
good quality product.
b.produce a good quality product, and the dominant strategy for Pinnacle is to produce
a poor quality product.
c.produce a poor quality product, and the dominant strategy for Pinnacle is to produce a
good quality product.
d.produce a poor quality product, and the dominant strategy for Pinnacle is to produce a
poor quality product.
4) Corrective taxes enhance efficiency, but the cost to administer them exceeds the
revenue they raise for the government.
a.True
b.False
5) Danita rescues dogs from her local animal shelter. When Danita’s income rises by 7
percent, her quantity demanded
of dog biscuits increases by 12 percent. For Danita, the income elasticity of demand for
dog biscuits is
a.negative, and dog biscuits are a normal good.
b.negative, and dog biscuits are an inferior good.
c.positive, and dog biscuits are an inferior good.
d.positive, and dog biscuits are a normal good.
6) If Martina’s income increases and, as a result, she chooses to buy more latt©s per
month at each price, then her demand curve will
a.shift to the right.
b.shift to the left.
c.not shift; instead, Martina will move along her demand curve downward and to the
right.
d.not shift; instead, Martina will move along her demand curve upward and to the left.
7) Which of the following best illustrates the concept of “derived demand?”
a.An increase in the wages of auto workers will lead to an increase in the demand for
robots in automobile factories.
b.An automobile producer’s decision to supply more cars will lead to an increase in the
demand for automobile production workers.
c.An automobile producer’s decision to supply more minivans results from a decrease in
the demand for station wagons.
d.An increase in the price of gasoline will lead to an increase in the demand for small
cars.
8) Which of the following is not held constant in a supply schedule?
a.production technology
b.the price of the good
c.the prices of inputs
d.expectations
9) Which effect of a price change moves the consumer along the same indifference
curve to a point with a new marginal rate of substitution?
a.the budget effect
b.the preference effect
c.the substitution effect
d.the income effect
10) A household member’s decision about how much labor to supply is most closely
linked to
a.the supply of factors of production other than labor.
b.technological change.
c.the tradeoff between leisure and work.
d.immigration trends.
11) When the market price is above the equilibrium price, suppliers are unable to sell all
they want to sell.
a.True
b.False
12) On average, truck drivers who drive on dangerous ice-covered roads earn more per
mile driven than similarly skilled truck drivers who drive on normal roads. The
difference in pay can be attributed to
a.the marginal product of labor.
b.the marginal product of capital.
c.diminishing marginal returns.
d.a compensating differential.
13) For a particular good, a 12 percent increase in price causes a 3 percent decrease in
quantity demanded. Which of the following statements is most likely applicable to this
good?
a.There are many substitutes for this good.
b.The good is a necessity.
c.The market for the good is narrowly defined.
d.The relevant time horizon is long.
14) Figure 10-4
Without government intervention, the equilibrium quantity would be
a.Q1.
b.Q2.
c.Q3.
d.Q4.
15) Scenario 12-3
Suppose Roger and Regina receive great satisfaction from their consumption of
cheesecake. Regina would be willing to purchase only one slice and would pay up to $8
for it. Roger would be willing to pay $11 for his first slice,$9 for his second slice, and
$5 for his third slice. The current market price is $5 per slice. How much consumer
surplus does Regina receive from consuming her slice of cheesecake?
a.$3
b.$5
c.$9 d
d.. $12
16) Critics of advertising argue that advertising
a.creates desires that otherwise might not exist.
b.enhances competition.
c.benefits television viewers who enjoy TV commercials.
d.All of the above are correct.
17) Table 14-14
The following table presents cost and revenue information for Bob‘s bakery production
and sales.
What is the total revenue from selling 5 units?
a. $2.50
b. $3.25
c. $12.50
d. $16.25
18) The production possibilities frontier provides an illustration of the principle that
a.trade can make everyone better off.
b.governments can sometimes improve market outcomes.
c.people face trade-offs.
d.people respond to incentives.