For economists, historical episodes
a. are not worthy of study because they offer few insights into current economic events
and problems.
b. are not worthy of study because laboratory experiments provide more reliable data.
c. are worthy of study because economists rely entirely on observation, rather than on
theory.
d. are worthy of study because they serve as valuable substitutes for laboratory
experiments.
Which of the following is correct?
a. The word economy comes from the Greek word for “rational thinker.”
b. Economists study the management of scarce resources.
c. Because economists believe that people pursue their best interests, they are not
interested in how people interact.
d. All of the above are correct.
Economists regard events from the past as
a. irrelevant, since history is unlikely to repeat itself.
b. of limited interest, since those events seldom provide any useful economic data.
c. interesting but not particularly valuable, since those events cannot be used to evaluate
presentday economic theories.
d. interesting and valuable, since those events are capable of helping us to understand
the past, the present, and the future.
If a nonbinding price floor is imposed on a market, then the
a. quantity sold in the market will decrease.
b. quantity sold in the market will stay the same.
c. price in the market will increase.
d. price in the market will decrease.
Table 52
PriceQuantity
$2500
$20030
$15070
$100110
$50150
$0190
Refer to Table 52. Using the midpoint method, if the price falls from $100 to $50, the
absolute value of the price elasticity of demand is
a. 0.31.
b. 0.46.
c. 1.25.
d. 2.17
Suppose that in a particular market, the demand curve is highly elastic, and the supply
curve is highly inelastic. If a tax is imposed in this market, then the
a. buyers will bear a greater burden of the tax than the sellers.
b. sellers will bear a greater burden of the tax than the buyers.
c. buyers and sellers are likely to share the burden of the tax equally.
d. buyers and sellers will not share the burden equally, but it is impossible to determine
who will bear the greater burden of the tax without more information.
Table 327
Assume that Huang and Min can switch between producing parasols and producing
porcelain plates at a constant rate.
Labor Hours Needed to Make 1Quantity Produced in 36 Hours
ParasolPlateParasolPlate
Huang26186
Min24189
Refer to Table 327. Assume that Huang and Min each has 36 labor hours available.
Originally, each person divided his/her time equally between the production of parasols
and plates. Now, each person spends all their time producing the good in which they
have a comparative advantage. As a result, the total output of plates increased by
a. 0.
b. 1.5.
c. 3.
d. 9.
Figure 96
The figure illustrates the market for roses in a country.
Refer to Figure 96. The size of the tariff on roses is
a. $4.
b. $2.
c. $2.
d. $1.
Spain is an importer of computer chips, taking the world price of $12 per chip as given.
Suppose Spain imposes a $5 tariff on chips. As a result,
a. Spanish consumers of chips and Spanish producers of chips both gain.
b. Spanish consumers of chips gain and Spanish producers of chips lose.
c. Spanish consumers of chips lose and Spanish producers of chips gain.
d. Spanish consumers of chips and Spanish producers of chips both lose.
Suppose the government has imposed a price ceiling on laptop computers. Which of the
following events could transform the price ceiling from one that is not binding into one
that is binding?
a. Improvements in production technology reduce the costs of producing laptop
computers.
b. The number of firms selling laptop computers decreases.
c. Consumers’ income decreases, and laptop computers are a normal good.
d. The number of consumers buying laptop computers decreases.
Table 321
Assume that Jamaica and Norway can switch between producing coolers and producing
radios at a constant rate. The following table shows the number of coolers or number of
radios each country can produce in one day.
Output Produced in One Day
CoolersRadios
Jamaica126
Norway243
Refer to Table 321. Jamaica’s opportunity cost of one cooler is
a. 0.5 radios, and Norway’s opportunity cost of one cooler is 0.125 radios.
b. 0.5 radios, and Norway’s opportunity cost of one cooler is 8 radios.
c. 2 radios, and Norway’s opportunity cost of one cooler is 0.125 radios.
d. 2 radios, and Norway’s opportunity cost of one cooler is 8 radios.
Suppose John and Wayne are the only two demanders of cowboy movies. Each month,
John buys six cowboy movies when the price is $10 each, and he buys four cowboy
movies when the price is $15 each. Each month, Wayne buys four cowboy movies
when the price is $10 each, and he buys two cowboy movies when the price is $15
each. Which of the following points is on the market demand curve?
a. quantity demanded = 2; price = $15
b. quantity demanded = 4; price = $25
c. quantity demanded = 10; price = $10
d. quantity demanded = 16; price = $25
Table 713
The only four producers in a market have the following costs:
SellerCost
Abbey$30
Bev$40
Carl$55
Dale$65
Refer to Table 713. If Abbey, Bev, and Carl sell the good, and the resulting producer
surplus is $55 altogether, then the price must have been
a. $40.
b. $50.
c. $60.
d. $70.
Table 48
PriceFirm X’s
Quantity
SuppliedFirm Y’s
Quantity
SuppliedFirm Z’s
Quantity
Supplied
$0000
$3246
$64812
$961218
$1281624
$15102030
Refer to Table 48. Suppose Firm X and Firm Y are the only two sellers in the market.
If the market price decreases from $12 to $9, quantity supplied will
a. decrease by 6 units.
b. decrease by 12 units.
c. increase by 6 units.
d. increase by 12 units.
Figure 55
Refer to Figure 55. At a price of $70 per unit, sellers’ total revenue equals
a. $700.
b. $1050.
c. $1250.
d. $1400.
Which of the following is likely to have the most price elastic demand?
a. clothing
b. blue jeans
c. Tommy Hilfiger jeans
d. All three would have the same elasticity of demand because they are all related.
A decrease in the size of a tax is most likely to increase tax revenue in a market with
a. elastic demand and elastic supply.
b. elastic demand and inelastic supply.
c. inelastic demand and elastic supply.
d. inelastic demand and inelastic supply.
Table 72
This table refers to five possible buyers’ willingness to pay for a case of Vanilla Coke.
BuyerWillingness To Pay
David$8.50
Laura$7.00
Megan$5.50
Mallory$4.00
Audrey$3.50
Refer to Table 72. If the market price is $5.50, the consumer surplus in the market will
be
a. $3.00.
b. $4.50.
c. $15.50.
d. $21.00.
Table 21
The following table contains some production possibilities for an economy for a given
month.
HammersNails
3900
6?
9300
Refer to Table 21. If the production possibilities frontier is bowed outward, then “?”
could be
a. 400.
b. 450.
c. 600.
d. 750.
Table 72
This table refers to five possible buyers’ willingness to pay for a case of Vanilla Coke.
BuyerWillingness To Pay
David$8.50
Laura$7.00
Megan$5.50
Mallory$4.00
Audrey$3.50
Refer to Table 72. If the price of Vanilla Coke is $6.90, who will purchase the good?
a. all five individuals
b. Megan, Mallory and Audrey
c. David, Laura and Megan
d. David and Laura
For a good that is taxed, the area on the relevant supplyanddemand graph that
represents government’s tax revenue is
a. smaller than the area that represents the loss of consumer surplus and producer
surplus caused by the tax.
b. bounded by the supply curve, the demand curve, the effective price paid by buyers,
and the effective price received by sellers.
c. a right triangle.
d. a triangle, but not necessarily a right triangle.
Table 331
Labor Hours Needed to Make 1 Pound of:
Amount Produced in 40 hours
Meat PotatoesMeatPotatoes
Farmer8 hours/pound5 hours/pound5 pounds8 pounds
Rancher4 hours/pound10 hours/pound10 pounds4 pounds
Refer to Table 331. Relative to the rancher, the farmer has
a. a comparative advantage in the production of meat, because the farmer’s opportunity
cost of a pound of meat is lower than the rancher’s opportunity cost of a pound of meat.
b. a comparative advantage in the production of potatoes, because the rancher requires
less time than the farmer to produce a pound of potatoes.
c. a comparative advantage in the production of potatoes; relative to the farmer, the
rancher has a comparative advantage in the production of meat.
d. an absolute advantage in the production of both meat and potatoes.
Figure 61
Panel (a)Panel (b)
Refer to Figure 61. The price ceiling shown in panel (b)
a. is not binding.
b. creates a surplus.
c. creates a shortage.
d. Both a) and b) are correct.
Suppose a country abandons a notrade policy in favor of a freetrade policy. If, as a
result, the domestic price of beans increases to equal the world price of beans, then
a. that country becomes an exporter of beans.
b. that country has a comparative advantage in producing beans.
c. at the world price, the quantity of beans supplied in that country exceeds the quantity
of beans demanded in that country.
d. All of the above are correct.
If the size of a tax increases, tax revenue
a. increases.
b. decreases.
c. remains the same.
d. may increase, decrease, or remain the same.
The “broken window fallacy”
a. explains why inflation is so high.
b. is a justification for the government to print more money.
c. is illustrated when a government program is justified not on its merits but on the
number of jobs it will create.
d. has nothing to do with public policy.
Economists view the fact that Florida grows oranges, Texas pumps oil, and California
makes wine as
a. confirmation of the virtues of free trade.
b. confirmation of the infantindustry argument.
c. confirmation that free trade agreements are not necessary.
d. confirmation that specialization in absolute advantage works.
Figure 625
Refer to Figure 625. As the figure is drawn, who sends the tax payment to the
government?
a. The buyers send the tax payment.
b. The sellers send the tax payment.
c. A portion of the tax payment is sent by the buyers, and the remaining portion is sent
by the sellers.
d. The question of who sends the tax payment cannot be determined from the figure.
Figure 923
The following diagram shows the domestic demand and domestic supply for a market.
Assume that the world price in this market is $120 per unit.
Refer to Figure 923. With free trade, the domestic price and domestic quantity
demanded are
a. $90 and 5.
b. $90 and 10.
c. $120 and 5.
d. $120 and 18.
Elasticity of demand is closely related to the slope of the demand curve. The more
responsive buyers are to a change in price, the
a. steeper the demand curve will be.
b. flatter the demand curve will be.
c. further to the right the demand curve will sit.
d. closer to the vertical axis the demand curve will sit.
The principle that “trade can make everyone better off” applies to interactions and trade
between
a. families.
b. states within the United States.
c. nations.
d. All of the above are correct.
Figure 518
Refer to Figure 518. Using the midpoint method, what is the price elasticity of supply
between $5 and $6?
a. 0.60
b. 0.64
c. 1.57
d. 1.67
Figure 416
Refer to Figure 416. The shift from S to S’ in the market for peaches could be caused
by a(n)
a. increase in the price of peaches.
b. decrease in the price of pears.
c. increase in income.
d. decrease in the labor costs of the workers who pick peaches.
Figure 424
The diagram below pertains to the demand for turkey in the United States.
Refer to Figure 424. All else equal, an increase in the productivity of turkey farmers
would cause a move from
a. DA to DB.
b. DB to DA.
c. x to y.
d. y to x.
If consumers view cappuccinos and latts as substitutes, what would happen to the
equilibrium price and quantity of latts if the price of cappuccinos falls?
a. Both the equilibrium price and quantity would increase.
b. Both the equilibrium price and quantity would decrease.
c. The equilibrium price would increase, and the equilibrium quantity would decrease.
d. The equilibrium price would decrease, and the equilibrium quantity would increase.