1) The theory of efficiency wages suggests that firms may pay above-equilibrium wages
a.to reduce employee turnover.
b.to prevent unions from recruiting members.
c.to reduce the need for minimum wage laws.
d.to increase the demand for better-skilled workers.
2) The marginal tax rate for a lump-sum tax
a.is always positive.
b.is always negative.
c.is zero.
d.can take on any value but must be greater than the average tax rate.
3) Figure 10-2. The graph depicts the market for plastic.
Suppose that the production of plastic creates a social cost which is depicted in the
graph above. What is the socially optimal quantity of plastic?
a.200 units
b.450 units
c.500 units
d.650 units
4) Which of these types of costs can be ignored when an individual or a firm is making
decisions?
a.sunk costs
b.marginal costs
c.variable costs
d.opportunity costs
5) Table 15-8
The following table provides information on the price, quantity, and average total cost
for a monopoly.
What is the maximum profit that the monopolist can earn?
a. $10
b.$20
c.$30
d.$40
6) Which of the following is the most correct statement about the relationship between
inflation and unemployment?
a.In the short run, falling inflation is associated with falling unemployment.
b.In the short run, falling inflation is associated with rising unemployment.
c.In the long run, falling inflation is associated with falling unemployment.
d.In the long run, falling inflation is associated with rising unemployment.
7) There is only one explanation for why economists give conflicting advice on policy
issues, and it is that they have different values about what policy should try to
accomplish.
a.True
b.False
8) Hosne’s Production Possibilities FrontierMerve’s Production Possibilities
Frontier
Merve should specialize in the production of
a.purses.
b.wallets.
c.both goods.
d.neither good.
9) Which of the following statements is correct?
a.Internalizing a negative externality will cause an industry to decrease the quantity it
supplies to the market and decrease the price of the good produced.
b.Internalizing a negative externality will cause an industry to decrease the quantity it
supplies to the market and increase the price of the good produced.
c.Internalizing a negative externality will cause an industry to increase the quantity it
supplies to the market and decrease the price of the good produced.
d.Internalizing a negative externality will cause an industry to increase the quantity it
supplies to the market and increase the price of the good produced.
10) A command-and-control policy is another term for a
a.pollution permit.
b.government regulation.
c.corrective tax.
d.Both a and b are correct.
11) 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 per day and the 4 business
owners have agreed to split the costs of the ferry trips equally. Which of the following
statements is correct?
a.The owner of Restaurant 1 would prefer to have 2 ferry trips.
b.The owner of Restaurant 2 would prefer to have 1 ferry trip.
c.The owners of Stores A and B would prefer to have 0 trips.
d.All of the above are correct.
12) The product-variety externality is associated with the
a.producer surplus that accrues to incumbent firms in a monopolistically competitive
industry.
b.loss of consumer surplus from exposure to additional advertising.
c.consumer surplus that is generated from the introduction of a new product.
d.opportunity cost of firms exiting a monopolistically competitive industry.
13) A negative externality will cause a private market to produce
a.less than is socially desirable.
b.more than is socially desirable.
c.exactly the quantity that is socially desirable.
d.less than the same market would produce in the presence of a positive externality.
14) Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves:
In the short run, if the market price is higher than P1 but less than P4, individual firms
in a competitive industry will earn
a.positive profits.
b.zero profits.
c.losses but will remain in business.
d.losses and will shut down.