1)
Boxes C and D of this circular-flow diagram represent
a.households and government.
b.firms and government.
c.the markets for goods and services and the markets for financial assets.
d.the markets for goods and services and the markets for factors of production.
2) Suppose that the cost of installing an overhead pedestrian walkway in a college town
is $150,000. The walkway is expected to reduce the risk of fatality by 1.5 percent, and
the cost of a human life is estimated at $10 million. The town should
a.install the walkway because the estimated benefit is twice the cost.
b.be indifferent between installing and not installing the walkway because the estimated
benefit equals the cost.
c.not install the walkway, since the cost is twice the estimated benefit.
d.install the walkway, since the cost of even a single life is too great not to take action.
3) Which of the following relationships involves asymmetric information?
a.A recruiter for a college football team evaluates the performance of a high-school
player.
b.A loan applicant knows more about the likelihood her business will be successful than
the loan officer.
c.Someone considering buying running shoes looks at a number of online reviews by
buyers.
d.All of the above are correct.
4) Table 17-2
Imagine a small town in which only two residents, Abby and Brad, own wells that
produce safe drinking water. Each week Abby and Brad work together to decide how
many gallons of water to pump. They bring water to town and sell it at whatever price
the market will bear. To keep things simple, suppose that Abby and Brad can pump as
much water as they want without cost so that the marginal cost is zero. The weekly
town demand schedule and total revenue schedule for water is shown in the table
below:
Refer to Table 17-2. Suppose the town enacts new antitrust laws that prohibit Abby
and Brad from operating as a monopoly. What will be the price of water once Abby and
Brad reach a Nash equilibrium?
a.$12
b.$8
c.$6
d.$4
5) Reduced competition through merging of companies will raise social welfare
a.if the social cost from the synergies exceeds the benefit of increased market power.
b.if the benefit from the synergies exceeds the social cost of increased market power.
c.always.
d.never.
6) If two players engaged in a prisoner’s dilemma game are likely to repeat the game,
they are more likely to cooperate than if they play the game only once.
a.True
b.False
7) Game theory is necessary to understand which kinds of markets?
(i)perfectly competitive
(ii)monopolistically competitive
(iii)oligopoly
(iv)duopoly
(v)monopoly
a.(i) and (ii) only
b.(iii), (iv), and (v) only
c.(iii) and (iv) only
d.(i), (ii), (iii), (iv), and (v)
8) Which of the following statements best captures the relationship between
microeconomics and macroeconomics?
a.For the most part, microeconomists are unconcerned with macroeconomics, and
macroeconomists are unconcerned with microeconomics.
b.Microeconomists study markets for small products, whereas macroeconomists study
markets for large products.
c.Microeconomics and macroeconomics are distinct from one another, yet they are
closely related.
d.Microeconomics is oriented toward policy studies, whereas macroeconomics is
oriented toward theoretical studies.
9) Suppose that you have $100 today and expect to receive $100 one year from today.
Your money market account pays an annual interest rate of 25%, and you may borrow
money at that interest rate. Consider the budget constraint between ‘spending today” on
the horizontal axis and ‘spending a year from today” on the vertical axis. What is the
slope of this budget constraint?
a. -0.75
b. -1.00
c. -1.25
d. -2.25
10) Which of the following is correct?
a.Incomes tend to be high for young workers
b.Incomes tend to rise sharply at retirement
c.Incomes tend to peak at around age 50
d.Current income is more equally distributed than permanent income
11) The United States has more income inequality than Brazil and South Africa.
a.True
b.False
12) A consumer chooses an optimal consumption point where the
a.marginal rate of substitution equals the relative price ratio.
b.slope of the indifference curve exceeds the slope of the budget constraint.
c.ratios of all the marginal utilities are equal.
d.All of the above are correct.
13) Chile’s Production Possibilities Frontier Colombia’s Production Possibilities
Frontier
Chile’s opportunity cost of one pound of coffee is
a.3/4 pound of soybeans and Colombia’s opportunity cost of one pound of coffee is 1/2
pound of soybeans.
b.3/4 pound of soybeans and Colombia’s opportunity cost of one pound of coffee is 2
pounds of soybeans.
c.4/3 pounds of soybeans and Colombia’s opportunity cost of one pound of coffee is 1/2
pound of soybeans.
d.4/3 pounds of soybeans and Colombia’s opportunity cost of one pound of coffee is 2
pounds of soybeans.
14) The simplest type of oligopoly is
a.monopoly.
b.duopoly.
c.monopolistic competition.
d.oligopolistic competition.
15) If the government were to intervene and set the price of a dozen eggs above the
market price, then we would expect, relative to the market outcome,
a.an increase in the number of eggs people want to buy and an increase in the number
of eggs farmers want to sell.
b.an increase in the number of eggs people want to buy and a decrease in the number of
eggs farmers want to sell.
c.a decrease in the number of eggs people want to buy and an increase in the number of
eggs farmers want to sell.
d.a decrease in the number of eggs people want to buy and a decrease in the number of
eggs farmers want to sell.
16) Assume that Huang and Min can switch between producing parasols and producing
porcelain plates at a constant rate.
Min has an absolute advantage in the production of
a.plates and a comparative advantage in the production of plates.
b.parasols and a comparative advantage in the production of plates.
c.neither good and a comparative advantage in the production of parasols.
d.neither good and a comparative advantage in the production of plates.
17) Figure 9-5
The figure illustrates the market for tricycles in a country.
With trade, the price of tricycles in this country is
a.$11, with 200 tricycles produced in this country and another 320 tricycles imported.
b.$11, with 360 tricycles produced in this country and another 160 tricycles imported.
c.$19, with 200 tricycles produced in this country and another 160 tricycles imported.
d.$19, with 360 tricycles produced in this country and another 320 tricycles imported.