1) In the transition from the short run to the long run, the number of firms in a
competitive industry is
a.fixed.
b.increasing at a constant rate.
c.decreasing.
d.able to adjust to market conditions.
2) If employers are profit-maximizers, then
a.competition will always eventually eliminate employment discrimination.
b.employment discrimination may persist if consumers discriminate.
c.employment discrimination will persist because it is always profitable.
d.compensating differentials cannot exist.
3) Taxes can create deadweight losses because they
a.allow the government to fund private goods.
b.create administrative burdens as people comply with tax laws.
c.allow the government to fund public goods.
d.Both b and c are correct.
4) A small island off the coast of Cape Cod contains two restaurants and two retail
stores. Tourists need to take a ferry boat to reach the island, but with a recent slowdown
in the economy, tourists are less willing to pay for the boat ride to visit the island. The
owners of the restaurants and stores on the island – Restaurants 1 and 2, and Stores A
and B – think that if tourists could ride the ferry for free, they would be happy to visit
the island, eat and shop. The business owners are considering contributing to a pool of
money that will be used to pay for roundtrip ferry service each day. The table represents
their willingness to pay, that is, the maximum amount that each business owner is
willing to contribute, per day, to pay for each ferry trip.
Suppose the cost to run the ferry for each roundtrip is $1,000. How many ferry trips
should there be to maximize the total surplus of the four business owners?
a.1
b.2
c.3
d.4
5) Total surplus is represented by the area below the
a.demand curve and above the price.
b.price and up to the point of equilibrium.
c.demand curve and above the supply curve, up to the equilibrium quantity.
d.demand curve and above the horizontal axis, up to the equilibrium quantity.
6) Figure 8-2
The vertical distance between points A and B represents a tax in the market.
The loss of consumer surplus associated with some buyers dropping out of the market
as a result of the tax is
a.$0.
b. $1.50.
c. $3.
d. $4.50.
7) The sum of consumer and producer surplus measures the total benefits that buyers
and sellers receive from participating in a market.
a.True
b.False
8) Many economists believe that the U.S. tax system would be made more efficient if
the basis of taxation were changed so that people paid taxes, more so than they do now,
based on their
a.saving rather than their income.
b.spending rather than their income.
c.income rather than their wealth.
d.wealth rather than their spending.
9) Fixed costs are those costs that remain fixed no matter how long the time horizon is.
a.True
b.False
10) The prisoners’ dilemma game
a.is a situation in which two players both have dominant strategies which lead to the
highest total payoff for the two players.
b.has no Nash equilibrium since players, after agreeing to play their dominant strategy,
will have an incentive to switch to another strategy.
c.has a Nash equilibrium, but the Nash equilibrium outcome is not the outcome the
players would agree to if they could cooperate with each other.
d.Both a and c are correct.
11) Figure 7-20
For quantities less than M, the value to the marginal buyer is
a.greater than the cost to the marginal seller, so increasing the quantity increases total
surplus.
b.less than the cost to the marginal seller, so increasing the quantity increases total
surplus.
c.greater than the cost to the marginal seller, so decreasing the quantity increases total
surplus.
d.less than the cost to the marginal seller, so decreasing the quantity increases total
surplus.
12) All Giffen goods are
a.inferior goods, and all inferior goods are Giffen goods.
b.inferior goods, but not all inferior goods are Giffen goods.
c.normal goods, but not all normal goods are Giffen goods.
d.normal goods, and all normal goods are Giffen goods.
13) Billy’s Bean Bag Emporium produced 300 bean bag chairs but sold only 275 of the
units it produced. The average cost of production for each unit of output produced was
$100. The price for each of the 275 units sold was $95. Total profit for Billy’s Bean Bag
Emporium would be
a. -$3,875.
b. $26,125.
c. $28,500.
d. $30,000.
14) The midpoint method for calculating elasticities is convenient in that it allows us to
a.ignore the percentage change in quantity demanded and instead focus entirely on the
percentage change in price.
b.calculate the same value for the elasticity, regardless of whether the price increases or
decreases.
c.assume that sellers’ total revenue stays constant when the price changes.
d.restrict all elasticity values to between 0 and 1.
15)
Assume the section of the demand curve from A to B corresponds to prices between $8
and $16. Then, when the price changes between $9 and $10,
a.quantity demanded changes proportionately less than the price.
b.quantity demanded changes proportionately more than the price.
c.quantity demanded changes the same amount proportionately as price.
d.the equals 1.
16) The difference between specific knowledge and general knowledge is that
a.the creation of general knowledge is usually more profitable for the creator.
b.specific knowledge is excludable, while general knowledge is not excludable.
c.general knowledge is excludable, while specific knowledge is not excludable.
d.general knowledge is rival in consumption, while specific knowledge is not rival in
consumption.