An agreement negotiated by two countries that places a numerical limit on the quantity
of a good that can be imported by one country from another country is called
A) a non-tariff trade barrier.
B) an export quota.
C) an import quota.
D) a voluntary export restraint.
If the marginal benefit of reducing emissions of some air pollutant is greater than the
marginal cost
A) further reductions will make society better off.
B) the marginal benefit will rise and the marginal cost will fall as further reductions are
made.
C) economic efficiency will be achieved when emissions are reduced to zero.
D) private businesses, rather the consumers, should be made to pay for the cost of
further reductions.
Private costs
A) are borne by producers of a good while social costs are borne by government.
B) are borne by consumers of a good while social costs are borne by government.
C) are borne by producers of a good while social costs are borne by society at large.
D) are borne by producers of a good while social costs are borne by those who cannot
afford to purchase the good.
Which of the following statements about two-part tariffs is false?
A) Because each individual has a different individual demand curve, if there is just one
entrance fee some consumers will be able to reap some consumer surplus.
B) The producer cannot capture the entire consumer surplus because the entrance fee
might discourage some potential consumers even though they would have been willing
to pay a lesser entrance fee.
C) Two-part tariff pricing allows a producer to capture the entire consumer surplus.
D) For two-part tariff pricing to be successful, the producer must be able to identify two
distinct customer groups.
Increases in the marginal product of labor result from
A) the use of new technology.
B) hiring more efficient workers.
C) the division of labor and specialization.
D) increasing the usage of all inputs.
The economic analysis of minimum wage involves both normative and positive
analysis. Consider the following consequences of a minimum wage:
a. The minimum wage law causes unemployment.
b. A minimum wage law benefits some groups and hurts others.
c. In some cities such as San Francisco and New York, it would be impossible for
low-skilled workers to live comfortably in the city without minimum wage laws.
d. The gains to winners of a minimum wage law should be valued more highly than the
losses to losers because the latter primarily comprises businesses.
Which of the consequences above are positive statements and which are normative
statements?
A) a, b, and c are positive statements and d is a normative statement.
B) a and b are positive statements, c and d are normative statement.
C) Only a is a positive statement, b, c, and d are normative statements.
D) a and c are positive statements, b and d are normative statements.
Which of the following summarizes the information provided by a Lorenz curve?
A) the Lorenz coefficient
B) the income distribution ratio
C) the Gini coefficient
D) the slope (the rise divided by the run) of the Lorenz curve at a particular point on the
curve
In an effort to serve consumers who have become more health conscious, a number of
firms have begun developing small electronic devices which allow people to monitor
various health conditions. These firms are reacting to which of the three key economic
ideas?
A) people are rational
B) people respond to economic incentives
C) optimal decisions are made at the margin
D) firms attempt to maximize revenues
An equilibrium in a game in which players pursue their own self-interest is called
A) a Nash equilibrium.
B) a cooperative equilibrium.
C) a noncooperative equilibrium.
D) a prisoner’s dilemma.
Studies show that the income elasticity of demand for wine is approximately five. What
does this mean?
A) A 1 percent decrease in the price of wine leads to a 5 percent increase in wine
consumption.
B) A 1 percent increase in income leads to a 5 percent increase in wine consumption.
C) A 5 percent increase in income leads to a 1 percent increase in wine consumption.
D) Wine is a relatively elastic good.
The demand for most farm products is relatively inelastic. All else constant, what is the
effect on farm revenues as a result of the introduction of new and better farm equipment
which increases productivity?
A) Farm revenues increase.
B) Farm revenues decrease.
C) Farm revenues remain constant because consumers will not increase their
consumption of farm products by much.
D) Farm revenues could increase or decrease depending on the cost of this new
equipment.
The branch of economics which studies how households and firms interact in markets is
called
A) macroeconomics.
B) microeconomics.
C) positive economics.
D) normative economics.
Figure 3-5
Refer to Figure 3-5. In a free market such as that depicted above, a surplus is
eliminated by
A) a price increase, increasing the supply and decreasing the demand.
B) a price decrease, decreasing the supply and increasing the demand.
C) a price decrease, decreasing the quantity supplied and increasing the quantity
demanded.
D) a price increase, increasing the quantity supplied and decreasing the quantity
demanded.
Table 14-4
Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale
town of Montecito. Each firm must decide on whether to increase its advertising budget
to compete for customers. If one firm increases its advertising budget but the other does
not, then the firm with the higher advertising budget will increase its profit. Table 14-4
shows the payoff matrix for this advertising game.
Refer to Table 14-4. Does Alistair have a dominant strategy and if so, what is it?
A) Yes, Alistair should increase its advertising budget.
B) Yes, Alistair should keep its advertising budget as is.
C) There are two dominant strategies: if Baine increases its advertising budget, then
Alistair’s best bet is to keep its budget the same but if Baine does not increase its budget
then Alistair should raise its advertising budget.
D) No, there is no dominant strategy.
A linear downward-sloping demand curve has price elasticities (in absolute values) that
A) increase as price decreases.
B) remain constant along the demand curve.
C) decrease as price decreases.
D) are greater than or equal to 1.
Which of the following is a normative economic statement?
A) Rising global demand for coal has led to increases in the price of coal.
B) With rising mortgage rates and rising unemployment rates, the number of unsold
homes has increased.
C) The state of Texas is considering increasing funds for light-rail development to
promote the use of public transportation.
D) Pharmaceutical manufacturers should not be allowed to patent their products so
prescription drugs would be more affordable.
Table 6-3
Refer to Table 6-3. Over what range of prices is the demand elastic?
A) over the entire range of prices
B) between $14 and $16
C) between $8 and $16
D) between $2 and $8
Suppose a decrease in the supply of wheat results in an increase in revenue. This
indicates that
A) the decrease in quantity sold is proportionately larger than the resulting change in
price.
B) the resulting increase in price is proportionately greater than decrease in quantity
sold.
C) the demand curve for wheat must be vertical.
D) the supply curve for wheat must be vertical.
When a monopolistically competitive firm lowers it price one bad thing happens to the
firm. What is this “one bad thing” called?
A) the output effect
B) the income effect
C) the substitution effect
D) the price effect
If a corporate bond with a face value of $5,000 pays yearly coupon payments of $100,
what is the coupon rate?
A) 2%
B) 5%
C) 10%
D) 20%
Figure 3-6
Refer to Figure 3-6. The figure above represents the market for canvas tote bags.
Compare the conditions in the market when the price is $50 and when the price is $35.
Which of the following describes how the market differs at these prices?
A) At each price there is a surplus; the surplus is greater at $35 than at $50.
B) The difference between quantity supplied and quantity demanded is greater at $50
than at $35.
C) At each price there is a surplus; firms will lower the equilibrium price in order to
eliminate the surplus.
D) At each price the supply of tote bags exceeds that demand for tote bags.
Government imposed quantitative limits on the amount of pollution firms are allowed
to produce is an example of
A) the Pigovian method of pollution control.
B) a command-and-control approach to pollution reduction.
C) a Coasian solution to pollution reduction.
D) a tradable emission allowance system of pollution control.
The price of admission to Walt Disney World
A) can vary by your age and address.
B) is the same for everyone.
C) is determined by the weather on the day of admission.
D) is kept low to attract customers, but prices of food and souvenirs inside the park vary
by your age, address and other factors.
Article Summary
According to the Department of Agriculture, net farm income will fall from $91.1
billion in 2014 to $58.3 billion in 2015, a 36 percent drop and the largest percentage
decline since 1983. Falling prices on corn and soybeans are responsible for a portion of
the decline in income, as are lower prices for dairy products, hogs, and chickens. The
USDA is, however, predicting lower production costs due to falling prices for energy,
seed, fertilizer, and pesticides.
Source: Jesse Newman, “U.S. Farm Income to Fall to Lowest Level in Nine Years,”
Wall Street Journal, August 25, 2015.
Refer to the Article Summary above. All else equal, the lower production costs should
help offset some of the falling income and
A) keep profits from falling to an even lower level.
B) keep prices from falling to an even lower level.
C) reduce the equilibrium quantity of agricultural output.
D) prevent losses from occurring in the agricultural sector.
Total utility
A) cannot decrease as a person consumes more and more of a good.
B) has a constant rate of increase as a person consumes more and more of a good.
C) is equal to the sum of the marginal utilities of all units consumed.
D) is negative when marginal utility is declining.
Table 2-3
Production Choices for Dina’s Diner
Refer to Table 2-3. Assume Dina’s Diner only produces sliders and hot wings. A
combination of 80 sliders and 50 hot wings would appear
A) along Dina’s production possibilities frontier.
B) inside Dina’s production possibilities frontier.
C) outside Dina’s production possibilities frontier.
D) at the vertical intercept of Dina’s production possibilities frontier.
Which of the following is a positive economic statement?
A) The standard of living in the United States is too low.
B) If the price of beef falls, a larger quantity of it will be bought.
C) The government should implement a national consumption tax.
D) The U.S. government should increase regulations on the banking industry.
Harry attended a baseball card show in New York City where he bought a number of
rookie cards of Pittsburgh Pirates baseball players from the 1950s and 1960s. Harry
then sold the cards in Pittsburgh, Harry’s hometown, where he knew the cards sold for
higher prices. The profits Harry earned from these transactions are called
A) arbitrage profits.
B) normal profits.
C) accounting profits.
D) implicit profits.
In the long run
A) the firm’s fixed costs are greater than its fixed costs in the short run.
B) all of the firm’s costs are explicit costs; there are no implicit costs of production.
C) the firm is more profitable than it is in the short run.
D) all of the firm’s costs are variable costs.
Collusion is
A) common among monopoly firms.
B) an agreement among firms to charge the same price or otherwise not to compete.
C) necessary for firms to raise money by borrowing from investors or from banks in
order to fund research and development required to develop new products.
D) legal under U.S. antitrust laws if the intent is to increase competition.
What is the term that explains why voters often lack knowledge of pending legislation,
and lack knowledge of the views of candidates for office on a range of issues that affect
their own (the voters’) welfare?
A) the voting paradox
B) logrolling
C) rational ignorance
D) regulatory capture
Both presidents Kennedy and Reagan proposed significant cuts in income taxes.
Opponents of these tax cut proposals argued that
A) the tax cuts would benefit high-income taxpayers.
B) cutting state sales taxes, rather than federal income taxes, would result in greater
economic efficiency.
C) while the tax cuts would result in greater economic efficiency, there was too much
opposition to the tax cuts in Congress. As it turned out, Congress ultimately approved
both tax cut proposals.
D) it would be better to cut taxes on corporate profits.
Which of the following is a possible solution when a scarce resource is subject to the
tragedy of the commons?
A) access to the commons can be restricted through community norms and laws
B) offer subsidies to consumers
C) force people to move away from the commons
D) persuade people to use less of the scarce resource through an advertising campaign
According to the horizontal-equity principle of taxation
A) individuals who receive the benefits of a good or service should bear a greater share
of the tax burden.
B) individuals who are most able to pay should bear a greater share of the tax burden.
C) people in the same economic situation should be treated equally.
D) individuals who are willing to bear a greater share of the tax burden should be
compensated with non-monetary benefits.