A demand curve shows the relationship between price and
a. income.
b. quantity demanded.
c. production.
d. income and quantity demanded.
If the crossprice elasticity of two goods is negative, then the two goods are
a. necessities.
b. complements.
c. normal goods.
d. inferior goods.
Which of the following is true about how the “invisible hand” influences economic
activity through prices when a product has lower demand than supply?
a. The price must decrease, causing more buyers to buy and less sellers to sell.
b. The price must decrease, causing more buyers to buy and more sellers to sell.
c. The price must increase, causing less buyers to buy and more sellers to sell.
d. The price must increase, causing less buyers to buy and less sellers to sell.
Assume for Brazil that the opportunity cost of each cashew is 100 peanuts. Which of
these pairs of points could be on Brazil’s production possibilities frontier?
a. (200 cashews, 30,000 peanuts) and (150 cashews, 35,000 peanuts)
b. (200 cashews, 40,000 peanuts) and (150 cashews, 30,000 peanuts)
c. (300 cashews, 60,000 peanut) and (200 cashews, 50,000 peanuts)
d. (300 cashews, 60,000 peanuts) and (200 cashews, 80,000 peanuts)
When the price of a good or service changes,
a. the demand curve shifts in the opposite direction.
b. the supply curve shifts in the opposite direction.
c. the supply curve shifts in the same direction.
d. there is a movement along a given supply curve.
Figure 619
Refer to Figure 619. Suppose a tax of $2 per unit is imposed on this market. How
much will buyers pay per unit after the tax is imposed?
a. $3
b. between $3 and $5
c. between $5 and $7
d. $7
A logical starting point from which the study of international trade begins is
a. the recognition that not all markets are competitive.
b. the recognition that government intervention in markets sometimes enhances the
economic welfare of the society.
c. the principle of absolute advantage.
d. the principle of comparative advantage.
The “invisible hand” is
a. used to describe the welfare system in the United States.
b. a concept developed by Adam Smith to describe the virtues of free markets.
c. a concept used by J.M. Keynes to describe the role of government in guiding the
allocation of resources in the economy.
d. a term used by some economists to characterize the role of government in an
economy — inevitable but invisible.
Figure 911
Refer to Figure 911. The change in total surplus in this market because of trade is
a. A, and this area represents a loss of total surplus.
b. B, and this area represents a gain in total surplus.
c. C, and this area represents a loss of total surplus.
d. D, and this area represents a gain in total surplus.
Which of the following events must cause equilibrium price to rise?
a. demand increases and supply decreases
b. demand and supply both decrease
c. demand decreases and supply increases
d. demand and supply both increase
Good news for farming can be bad news for farmers because the
a. supply curve for an individual farmer is usually perfectly elastic.
b. supply curve for an individual farmer is usually perfectly inelastic.
c. demand for basic foodstuffs is usually inelastic, meaning that factors that shift supply
to the right decrease total revenues to sellers.
d. demand for basic foodstuffs is usually elastic, meaning that factors that shift supply
to the right increase total revenues to sellers.
If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price
results in a
a. 0.2 percent decrease in the quantity demanded.
b. 5 percent decrease in the quantity demanded.
c. 20 percent decrease in the quantity demanded.
d. 40 percent decrease in the quantity demanded.
Figure 216
Refer to Figure 216. It is possible for this economy to produce
a. 30 gadgets and 90 widgets.
b. 50 gadgets and 80 widgets.
c. 80 gadgets and 50 widgets.
d. 90 gadgets and 30 widgets.
Which of the following scenarios is not consistent with the Laffer curve?
a. The tax rate is very low, and tax revenue is very low.
b. The tax rate is very high, and tax revenue is very low.
c. The tax rate is very high, and tax revenue is very high.
d. The tax rate is moderate (between very high and very low), and tax revenue is
relatively high.
Figure 823. The figure represents the relationship between the size of a tax and the tax
revenue raised by that tax.
Refer to Figure 823. If the economy is at point A on the curve, then a decrease in the
tax rate will
a. increase the deadweight loss of the tax and increase tax revenue.
b. increase the deadweight loss of the tax and decrease tax revenue.
c. decrease the deadweight loss of the tax and increase tax revenue.
d. decrease the deadweight loss of the tax and decrease tax revenue.
Figure 613
This figure shows the market demand and market supply curves for good X.
Refer to Figure 613. Which of the following price ceilings would be binding in this
market?
a. $4
b. $5
c. $6
d. $7
Figure 45
Refer to Figure 45. Which of the following would cause the demand curve to shift
from Demand C to Demand A in the market for DVDs?
a. an increase in the price of DVDs
b. a decrease in the price of DVD players
c. a change in consumer preferences toward watching movies in movie theaters rather
than at home
d. an expectation by buyers that their incomes will increase in the very near future
Diana is a personal trainer whose client Charles pays $80 per hourlong session. Charles
values this service at $100 per hour, while the opportunity cost of Diana’s time is $75
per hour. The government places a tax of $10 per hour on personal trainers. Before the
tax, what is the total surplus?
a. $25
b. $20
c. $5
d. $0
Consider Paul’s decision to go to college. If he goes to college, he will spend $90,000
on tuition, $15,000 on room and board, and $7,000 on books. If he does not go to
college, he will earn $22,000 working at a construction job and he will spend $11,000
on room and board. Paul’s cost of going to college is
a. $96,000.
b. $110,000.
c. $114,000.
d. $123,000.
Figure 913
Refer to Figure 913. Producer surplus before trade is
a. $3,600.
b. $4,400.
c. $5,200.
d. $6,600.
Figure 626
Refer to Figure 626. The perunit burden of the tax is
a. $2 for buyers and $6 for sellers.
b. $4 for buyers and $4 for sellers.
c. $6 for buyers and $2 for sellers.
d. $8 for buyers and $0 for sellers.
Figure 630
Panel (a)Panel (b)
Panel (c)
Refer to Figure 630. In which market will the majority of the tax burden fall on
sellers?
a. the market shown in panel (a).
b. the market shown in panel (b).
c. the market shown in panel (c).
d. All of the above are correct.
Figure 717
Refer to Figure 717. If the supply curve is S and the demand curve is D, what is total
producer surplus at the equilibrium price?
a. $202.50
b. $405
c. $810
d. $1,215
A rational decision maker takes an action only if the
a. marginal benefit is less than the marginal cost.
b. marginal benefit is greater than the marginal cost.
c. average benefit is greater than the average cost.
d. marginal benefit is greater than both the average cost and the marginal cost.
Which of the following words and phrases best captures the notion of equality?
a. minimum waste
b. maximum benefit
c. sameness
d. efficiency
When economists make
a. positive statements, they are speaking not as policy advisers but as scientists.
b. positive statements, they are speaking not as scientists but as forecasters.
c. normative statements, they are speaking not as policy advisers but as scientists.
d. normative statements, they are speaking not as policy advisers but as modelbuilders.
Figure 613
This figure shows the market demand and market supply curves for good X.
Refer to Figure 613. Which of the following price floors would be binding in this
market?
a. $3
b. $4
c. $5
d. $6
Figure 34
Lisa’s Production Possibilities FrontierBryce’s Production Possibilities Frontier
Refer to Figure 34. If the production possibilities frontiers shown are each for one year
of production, then which of the following combinations of sweaters and jackets could
Lisa and Bryce together not produce in a given year?
a. 1 sweater and 21 jackets
b. 2 sweaters and 20 jackets
c. 3 sweaters and 12 jackets
d. 5 sweaters and 4 jackets
In which of the following cases is it most likely that an increase in the size of a tax will
decrease tax revenue?
a. The price elasticity of demand is small, and the price elasticity of supply is large.
b. The price elasticity of demand is large, and the price elasticity of supply is small.
c. The price elasticity of demand and the price elasticity of supply are both small.
d. The price elasticity of demand and the price elasticity of supply are both large.
Table 319 Summary of the Gains from Trade
Alice Betty
Lemonade (in pitchers)PizzaLemonade (in pitchers)Pizza
Without Trade
Production and Consumption 200100180180
With Trade
Production 40000300
Trade Gives 193Gets 110Gets 190Gives 110
Consumption abcd
Gains from Trade efgh
Refer to Table 319. The values in the table represent the amounts of lemonade and
pizzas that Alice and Betty can produce in one week without and with specialization
and trade. What are Alice and Betty’s gains from specialization and trade?
a. Alice gains 7 pitchers of lemonade and 10 pizzas, while Betty gains 13 pitchers of
lemonade and 10 pizzas.
b. Alice gains 200 pitchers of lemonade and 100 pizzas, while Betty gains 180 pitchers
of lemonade and 180 pizzas.
c. Alice gains 207 pitchers of lemonade and 110 pizzas, while Betty gains 193 pitchers
of lemonade and 190 pizzas.
d. Alice gains 400 pitchers of lemonade and 0 pizzas, while Betty gains 0 pitchers of
lemonade and 300 pizzas.
When a government program is justified not on its merits but on the number of jobs it
will create,
a. the program is an efficient use of taxpayer dollars.
b. it should be approved only if the unemployment rate is low.
c. taxes should be raised to fund the program.
d. it is known as the “broken window fallacy.”
Suppose Brazil has a comparative advantage over other countries in producing
almonds, but other countries have an absolute advantage over Brazil in producing
almonds. If trade in almonds is allowed, Brazil
a. will import almonds.
b. will export almonds.
c. will either import almonds or export almonds, but it is not clear from the given
information.
d. would have nothing to gain either from exporting or importing almonds.
Table 313
Juanita and Shantala run a business that programs and tests cellular phones. Assume
that Juanita and Shantala can switch between programming and testing cellular phones
at a constant rate. The following table applies.
Minutes Needed toNumber of Cellular Phones Programmed or Tested in a 40Hour
Week
Program 1 Cellular PhoneTest 1 Cellular PhoneCellular Phones ProgrammedCellular
Phones Tested
Juanita ? 2 160 1200
Shantala 10 4 240 600
Refer to Table 313. Which of the following points would be on Shantala’s production
possibilities frontier, based on a 40hour week?
a. (120 cellular phones programmed, 250 cellular phones tested)
b. (180 cellular phones programmed, 150 cellular phones tested)
c. (240 cellular phones programmed, 600 cellular phones tested)
d. More than one of the above would be on Shantala’s production possibilities frontier.
Congressman Smith cites the “jobs argument” when he argues in favor of restrictions on
trade; he argues that everything can be produced at lower cost in other countries. The
likely flaw in Congressman Smith’s reasoning is that he ignores the fact that
a. there is no evidence that any worker ever lost his or her job because of free trade.
b. unemployment of labor is not a serious problem relative to other economic problems.
c. the gains from trade are based on comparative advantage.
d. the gains from trade are based on absolute advantage.