1) DeShawn has spent $600 purchasing and repairing an old fishing boat, which he
expects to sell for $900 once the repairs are complete. DeShawn discovers that, in
addition to the $600 he has already spent, he needs to make an additional repair, which
will cost another $400, in order to make the boat worth $900 to potential buyers. He can
sell the boat as it is now for $400. What should he do?
a.He should sell the boat as it is now for $400.
b.He should keep the boat since it would not be rational to spend $1,000 on repairs and
then sell the boat for $900.
c.He should complete the repairs and sell the boat for $900.
d.It does not matter which action he takes; the outcome is the same either way.
2) In a competitive market, firms are unable to differentiate their product from that of
other producers.
a.True
b.False
3) Refer to Figure 7-22.
At the equilibrium price, total surplus is
a. $2,500.
b. $1,000.
c. $3,500.
d. $7,000.
4) Suppose a country begins to allow international trade in steel. Which of the
following outcomes will be observed regardless of whether the country finds itself
importing steel or exporting steel?
a.The sum of consumer surplus and producer surplus for domestic traders of steel
increases.
b.The quantity of steel demanded by domestic consumers increases.
c.Domestic producers of steel receive a higher price for steel.
d.The losses of the losers exceed the gains of the winners.
5) Assume that Maya and Miguel can switch between producing mixers and producing
toasters at a constant rate.
Assume that Maya and Miguel each has 60 hours available. If each person divides
his/her time equally between the production of mixers and toasters, then total
production is
a.8 mixers and 16 toasters.
b.3.5 mixers and 6 toasters.
c.15 mixers and 9 toasters.
d.20 mixers and 12 toasters.
6) Table 17-13
Two home-improvement stores (Lopes and HomeMax) in a growing urban area are
interested in expanding their market share. Both are interested in expanding the size of
their store and parking lot to accommodate potential growth in their customer base. The
following game depicts the strategic outcomes that result from the game. Increases in
annual profits of the two home-improvement stores are shown in the table below.
Refer to Table 17-13. Increasing the size of its store and parking lot is a dominant
strategy for
a.Lopes, but not for HomeMax.
b.HomeMax, but not for Lopes.
c.both stores.
d.neither store.
7) Private decisions about consumption of common resources and production of public
goods usually lead to an
a.efficient allocation of resources and external effects.
b.efficient allocation of resources and no external effects.
c.inefficient allocation of resources and external effects.
d.inefficient allocation of resources and no external effects.
8) If macaroni and cheese is an inferior good, then an increase in
a.the price will cause the demand curve for macaroni and cheese to shift to the left.
b.the price will cause the demand curve for macaroni and cheese to shift to the right.
c.a consumer’s income will cause the demand curve for macaroni and cheese to shift to
the left.
d.a consumer’s income will cause the demand curve for macaroni and cheese to shift to
the right.
9) 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. Assume that the
government places a $4 tax on each slice of cheesecake and that the new equilibrium
price is $9. How much tax revenue will be generated from sales to Regina and Roger?
a.zero
b.$4
c.$8
d.$12
10) A country club usually only allows members to purchase tickets for its celebrity
golf tournament, but the club is considering allowing non-members to purchase tickets
this year. The demand and supply schedules are as follows:
If both members and non-members are allowed to purchase tickets to this year’s
celebrity golf tournament, then what will be the equilibrium price?
a.$10
b.$15
c.$20
d.$25
11) Which of the following conditions is characteristic of a monopolistically
competitive firm in long-run equilibrium?
a.P > demand and P = MR
b.ATC > demand and MR = MC
c.P > MC and demand = ATC
d.P < ATC and demand > MR
12) It costs a company $35,000 to produce 500 graphing calculators. The company’s
cost will be $35,080 if it produces an additional graphing calculator. If the company
produces 501 graphing calculators then
a.its average cost is greater than its marginal cost.
b.its average cost and its marginal cost are equal.
c.its average cost is less than its marginal cost.
d.This cannot be determined from the information given.
13) Figure 13-3
The changing slope of the total cost curve reflects
a.decreasing average variable cost.
b.decreasing average total cost.
c.decreasing marginal product.
d.increasing fixed cost.
14) Figure 7-24
Refer to Figure 7-24. At equilibrium, producer surplus is
a. $36.
b.$72.
c.$54.
d.$18.
15) A typical indifference curve is upward sloping.
a.True
b.False
16) When a natural monopoly exists, it is
a.always cost effective for government-owned firms to produce the product.
b.never cost effective for one firm to produce the product.
c.always cost effective for two or more private firms to produce the product.
d.never cost effective for two or more private firms to produce the product.
17) Which of the following would increase in response to a decrease in the price of
ironing boards?
a.the quantity of irons demanded at each possible price of irons
b.the equilibrium quantity of irons
c.the equilibrium price of irons
d.All of the above are correct.
18) How does total revenue change as one moves downward and to the right along a
linear demand curve?
a.It always increases.
b.It always decreases.
c.It first increases, then decreases.
d.It is unaffected by a movement along the demand curve.
19) The supply of a good will be more elastic, the
a.more the good is considered a luxury.
b.broader is the definition of the market for the good.
c.larger the number of close substitutes for the good.
d.longer the time period being considered.
20) Government action in cases of asymmetric information may not be an ideal solution
because
a.the private market can sometimes deal with information asymmetries on its own.
b.the government tends to have more information than private parties.
c.both (a) and (b).
d.None of the above is correct.