An artificially scarce good is a good or service for which exclusion is _____ and which
is _____ in consumption.
A) possible; rival
B) possible; nonrival
C) not possible; rival
D) not possible; nonrival
(Table: Marginal Utility per Dollar of M&Ms) Look at the table Marginal Utility per
Dollar of M&Ms. The price of M&Ms is $2 per bag. The marginal utility per dollar of
the fifth bag of M&Ms is:
A) 0.
B) 0.5.
C) 1.
D) 8.
Figure: The Market for Laptop Sleeves
(Figure: The Market for Laptop Sleeves) Look at the figure The Market for Laptop
Sleeves. Assume that S and D are the domestic supply and demand curves and the
world price is PW. Identify the area of government tax revenue when a tariff raises the
domestic price from the world price to PT.
A) D + E + F
B) D + F
C) E
D) B
Which of the following is an environmental policy based on tradable emission permits?
A) a charge to companies of $1 for every 100 units of pollutants emitted
B) paying companies $1 for each 10% reduction in emissions
C) allowing companies to buy and sell the right to a certain level of emissions
D) ignoring pollution and letting private markets operate without government
interference
The price elasticity of demand for gasoline in the long run has been estimated to be 1.5.
If an extended war in the Middle East caused the price of oil (from which gasoline is
made) to increase and remain high for a decade, how would that affect total
expenditures on gasoline in the long run, all other things equal?
A) Total expenditures would rise.
B) Total expenditures would fall.
C) Total expenditures would remain unchanged.
D) The information is insufficient to answer the question.
When countries spend increasingly large amounts of funds on military production as a
means of impressing an equally powerful antagonistic neighbor with possible military
superiority, a prisoners’ dilemma evolves, since both countries would be better off if
they did not pursue such a strategy. This is an example of:
A) a tacit agreement.
B) an arms race.
C) a price leadership model.
D) exclusive dealing.
(Table: Optimal Choice of Milk and Honey) Look at the table Optimal Choice of Milk
and Honey. The price of milk is $2 per gallon, and the price of honey is $4 per jar. Hal’s
income is $16. If he spends all of his income on milk, the most he can buy is _____
gallons, and his total utility will be _____.
A) 4; 104
B) 6; 12
C) 8; 144
D) 8; 4
When a public transit system (such as a subway or bus line) raises its fares, its total
revenue may increase. This suggests that demand is:
A) unstable.
B) price-inelastic.
C) price-elastic.
D) price unit-elastic.
Which of the following is NOT a factor in determining the price elasticity of demand?
A) the number of available substitutes
B) time
C) the proportion of the budget spent on the item
D) the slope of the supply curve
Which of the following is NOT TRUE of indifference curves for ordinary goods?
A) They never cross.
B) They slope downward.
C) They are convex from the origin.
D) Indifference curves farther from the origin have lower levels of utility.
(Table: The Market for Fried Twinkies) Look at the table The Market for Fried
Twinkies. Of the $0.30 tax per fried Twinkie, consumers actually pay _____, while
producers actually pay _____.
A) $0.30; $0.00
B) $0.15; $0.15
C) $0.20; $0.10
D) $0.00; $0.30
Which of the following is an example of an import quota?
A) A limit on the total number of shoes imported from Italy.
B) Regulations specifying that each imported toy from China must meet certain safety
guidelines.
C) A tax of $100 on each Suzuki motorcycle produced in the United States.
D) A tax of 10% of the value of each Suzuki motorcycle imported from Japan.
An excise tax is levied on suppliers. The incidence of the tax:
A) is typically on the consumer more than the producer.
B) is typically on the producer more than the consumer.
C) is typically split equally between the producer and the consumer.
D) cannot be determined without more information.
Given the general agreement that pollution is undesirable and social welfare is
increased by reducing pollution, the optimal level of pollution in a society is:
A) zero.
B) the level that reduces the marginal social costs of pollution to zero.
C) the level at which the marginal social cost is equal to the marginal social benefit.
D) the level that minimizes the average total cost of producing the product that
generates the pollution.
If the marginal tax rate is less than the average tax rate, the tax system is:
A) proportional.
B) progressive.
C) degressive.
D) regressive.
Figure: Water Works
(Figure: Water Works) Look at the figure Water Works, which describes a small town’s
water works, a natural monopoly. If regulators allow the water works to charge the price
that covers average total costs, consumer surplus will be:
A) $1,600.
B) $1,400.
C) $1,000.
D) $2,812.50.
Other things being equal, the price elasticity of demand for a product will be lower:
A) if many substitutes are available.
B) if it is a large part of the consumer’s budget.
C) in the long run than in the short run.
D) if there are few or no substitutes available.
Lena and Jess are roommates. Lena hates to clean the bathroom. Jess will agree to clean
the bathroom only if Lena vacuums the living room. This statement best represents this
economic concept:
A) The real cost of something is what you must give up to get it.
B) “How much” is a decision at the margin.
C) People usually exploit opportunities to make themselves better off.
D) There are gains from trade.
Figure: Indifference Curves and Consumption Bundles
(Figure: Indifference Curves and Consumption Bundles) Look at the figure Indifference
Curves and Consumption Bundles. In the figure, the initial optimum is at a. The price of
hot dogs now increases. The change in hot dog consumption due to the substitution
effect is:
A) H3 to H2.
B) H3 to H1.
C) H2 to H1.
D) H1 to H2.
Assume the price elasticity of demand for corn has been estimated to be 2.33. Flash
floods destroy 10% of the nation’s crop of corn. Which of the following best describes
how this will affect total expenditures on corn, all other things equal?
A) Total expenditures will remain unchanged.
B) Total expenditures will fall.
C) Total expenditures will rise.
D) The information is insufficient to answer the question.
(Table: Externalities from Parks) The table Externalities from Parks shows the marginal
social benefit and the marginal social cost of preserving various amounts of land in a
city for a public park. At the socially optimum amount of land dedicated to the public
park the marginal social cost will be:
A) $225.
B) $150.
C) $100.
D) $0.
If two firms are identical in all respects except that one has more of the fixed input
capital than another, the marginal product curve for the firm with more capital:
A) must equal the marginal product curve for the firm with less capital.
B) will lie above the marginal product curve for the firm with less capital.
C) will lie below the total marginal curve for the firm with less capital.
D) will show no diminishing marginal returns.
Figure: Four Markets for DVDs
(Figure: Four Markets for DVDs) Look at the figure Four Markets for DVDs. If D1 or
S1 is the original curve and D2 or S2 is the new curve, which of the graphs shows a
change that results in a decrease in the quantity of DVDs supplied?
A) A
B) B
C) C
D) D
A person who is willing to pay an insurance premium to lessen financial risk is said to
be:
A) a moral hazard.
B) risk-loving.
C) risk-averse.
D) risk-neutral.
The best measure of the opportunity cost of any choice is:
A) the monetary cost of that choice.
B) whatever you have given up to make that choice, even if no monetary costs are
involved.
C) the cost associated with not taking full advantage of the opportunity offered by that
choice.
D) your hourly wage.
Figure: Demand, Revenue, and Cost Curves
(Figure: Demand, Revenue, and Cost Curves) Look at the figure Demand, Revenue,
and Cost Curves. Figglenuts-R-Us is a monopolist in the figglenut market.
Figglenuts-R-Us will sell _____ figglenuts and set a price of _____ to maximize profits.
A) 70; $65
B) 100; $50
C) 120; $40
D) 150; $46
The provision of disabled-parking passes to those with disabilities often requires that
more than enough spaces be available for those with disabilities. As a result, many of
these spaces are vacant quite often when they could be used by able-bodied individuals.
Such a situation illustrates the:
A) trade-off between efficiency and equity.
B) trade-off between efficiency and specialization.
C) ability of markets to provide efficient and equitable outcomes.
D) power of the market to provide for equilibrium outcomes.