1) Rational people make decisions at the margin by
a.following marginal traditions.
b.behaving in a random fashion.
c.thinking in black-and-white terms.
d.comparing marginal costs and marginal benefits.
2) When a supply curve or a demand curve shifts, the equilibrium price and equilibrium
quantity change.
a.True
b.False
3) In a vote between options A, B, and C, option C wins. When option B is eliminated
and a vote is taken between option A and option C, option A wins. The voting system
used fails to satisfy which of Arrow’s properties of a desirable voting system?
a.unanimity
b.transitivity
c.independence of irrelevant alternatives
d.No dictators
4) The more inelastic are demand and supply, the greater is the deadweight loss of a tax.
a.True
b.False
5) Microeconomics is the study of how households and firms make decisions and how
they interact in specific markets.
a.True
b.False
6) Air pollution from burning fossil fuels causes damages to crops and public health.
This is an example of
a.a market failure caused by an externality.
b.a market failure caused by market power.
c.a market failure caused by equality.
d.There is no market failure in this case.
7) When each person specializes in producing the good in which he or she has a
comparative advantage, each person can gain from trade but total production in the
economy is unchanged.
a.True
b.False
8) The Great Lakes are
a.private goods.
b.club goods.
c.common resources.
d.public goods.
9) The consumption of water by local residents that may include pesticide runoff from
local farmers’ fields is an
example of
a.market equilibrium.
b.market power.
c.externalities.
d.laissez-faire.
10) Figure 8-1
Suppose the government imposes a tax of P’ – P”’. The area measured by K+L represents
a.tax revenue.
b.consumer surplus before the tax.
c.producer surplus after the tax.
d.total surplus before the tax.
11) There are four homes along Belmont Circle, which surrounds a small plot of land.
The land currently has no trees, and the 4 homeowners — Adams, Benitez, Chen, and
Davis — are considering the idea of contributing to a pool of money that will be used to
plant up to 4 trees. The table represents their willingness to pay, that is, the maximum
amount that each homeowner is willing to contribute toward each tree.
Suppose the cost to plant each tree is $300. How many trees should be planted to
maximize the total surplus of the four homeowners?
a.1
b.2
c.3
d.4
12) Consumer surplus measures the benefit to buyers of participating in a market.
a.True
b.False
13) Suppose that gasoline prices increase dramatically this month. Lola commutes 100
miles to work each weekday.
Over the next few months, Lola drives less on the weekends to try to save money.
Within the year, she sells her home and purchases one only 10 miles from her place of
employment. These examples illustrate the importance of
a.the availability of substitutes in determining the .
b.a necessity versus a luxury in determining the .
c.the definition of a market in determining the .
d.the time horizon in determining the .
14) Table 7-1
If the price of the product is $110, then who would be willing to purchase the product?
a.Calvin
b.Calvin and Sam
c.Calvin, Sam, and Andrew
d.Calvin, Sam, Andrew, and Lori
15) Which of the following is a feature that is shared between perfect competition and
monopolistic competition, but not between monopolistic competition and monopoly?
a.rule for maximizing profits
b.ability to earn profits in the short run
c.entry in the long run
d.price exceeds marginal cost
16) Figure 15-17
Which of the following statements best
describes the changes that would occur if this firm were to switch from operating as a
single price profit-maximizing monopolist to perfect price discrimination?
a.The quantity would increase from I to J, the profit would increase from BCFE to
ACG, and the deadweight loss would decrease from EFG to zero.
b.The quantity would remain constant, the profit would increase from BCFE to ABCFE
and the deadweight loss would decrease from EFG to zero.
c.The quantity would decrease from J to I, the profit would decrease from ACG to
BCFE, and the deadweight loss would increase from EFG to ACG.
d.The quantity would increase from I to J, the profit would decrease from BCFE to
EFG, and the deadweight loss remain constant.
17) Bubba is a shrimp fisherman who can catch 4,000 pounds of shrimp per year.
Bubba is considering hiring his cousin Bobby to work for him. Bobby can catch 3,000
pounds of shrimp per year. If Bubba hires Bobby, what will be the total output of his
shrimp business?
a.7,000 pounds
b.3,500 pounds
c.3,000 pounds
d.1,000 pounds