1) Economics is the study of
a.production methods.
b.how society manages its scarce resources.
c.how households decide who performs which tasks.
d.the interaction of business and government.
2) Normative conclusions
a.come from positive analysis alone.
b.are based on ignorance of positive analysis.
c.involve value judgments.
d.reflect the economist’s role as scientist.
3) Table 18-1
Refer to Table 18-1. What is the marginal product of the third worker?
a.7
b.8
c.25
d.75
4) Economies of scale often arise because higher production levels allow specialization
among workers.
a.True
b.False
5) Which of the following is not correct?
a.When developing economic theories, graphs offer a way to visually express ideas that
might be less clear if described with equations or words.
b.Graphs are one way of expressing the relationships among variables.
c.When studying the relationship between two economic variables, graphs allow
economists to draw indisputable conclusions about causes and effects.
d.When analyzing economic data, graphs provide a powerful way of finding and
interpreting patterns.
6) Scenario 18-2
Gertrude Kelp owns three boats that participate in commercial fishing for fresh Pacific
salmon off the coast of Alaska. As part of her business she hires a captain and several
crew members for each boat. In the market for fresh Pacific salmon, there are thousands
of firms like Gertrude’s. While Gertrude usually catches a significant number of fish
each year, her contribution to the entire harvest of salmon is negligible relative to the
size of the market.
Refer to Scenario 18-2. If the price of fresh Pacific salmon were to increase
significantly, it is most likely that Gertrude would
a.reduce her demand for crew members.
b.sell some of her boats.
c.become a seller in at least one factor market.
d.hire more crew members.
7) Income elasticity of demand measures how
a.the quantity demanded changes as consumer income changes.
b.consumer purchasing power is affected by a change in the price of a good.
c.the price of a good is affected when there is a change in consumer income.
d.many units of a good a consumer can buy given a certain income level.
8) Moving downward and to the right along a linear demand curve, we know that total
revenue
a.first increases, then decreases.
b.first decreases, then increases.
c.always increases.
d.always decreases.
9) It is common knowledge that many U.S. national parks have become overused. One
possible solution to this problem is to
a.increase entrance fees.
b.decrease camping permit fees.
c.require all visitors to register upon entering the park.
d.sell the land that the parks currently occupy.
10) Table 22-6
Refer to Table 22-6. The table shows the preferences of 100 voters over three possible
outcomes: A, B, and C. If a Borda count election were held among these voters, giving
three points to each voter’s first choice, two points to the second choice, and one point
to the last choice, which outcome would win the election?
a.Outcome A
b.Outcome B
c.Outcome C
d.Either outcome A or outcome C since these have the same total score.
11) Which of the following is the most effective way to internalize a technology
spillover?
a.taxes
b.patents
c.government regulations
d.free markets
12) If consumers view cappuccinos and latt©s as substitutes, what would happen to the
equilibrium price and quantity of latt©s 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.
13) The following table contains some production possibilities for an economy for a
given month.
If the production possibilities frontier is bowed outward, then “?” could be
a.200
b.300
c.400
d.500
14) In which of the following instances would the deadweight loss of the tax on cartons
of cigarettes increase by a factor of 9?
a.The tax on cartons of cigarettes increases from $10 to $11.11.
b.The tax on cartons of cigarettes increases from $10 to $20.
c.The tax on cartons of cigarettes increases from $10 to $30.
d.The tax on cartons of cigarettes increases from $10 to $90.
15) Once a cartel is formed, the market is in effect served by
a.a monopoly.
b.an oligopoly.
c.imperfect competition.
d.monopolistic competition.
16) A competitive, profit-maximizing firm hires labor up to the point at which the wage
is equal to the.
17) As developing countries make a transition to market-based economies, one of the
first major capital investments is in “Western-quality” hotels. Explain why brand-name
hotel accommodations are a critical step in attracting foreign investment.
18) In the circular flow diagram, who owns the factors of production and consumes all
of the goods and services produced?
19) Ford and General Motors are considering expanding into the Vietnamese
automobile market. Devise a simple prisoners’ dilemma game to demonstrate the
strategic considerations that are relevant to this decision.
20) What is the at any point on a perfectly elastic demand curve?
21) If a supply curve is perfectly vertical, what is the value of the price elasticity of
supply?
22) Suppose a new market for tradable pollution permits is created. As long as there is a
free market for the pollution rights, the final allocation will be , regardless of the initial
allocation of permits.
23) Explain the relationship between labor earnings and the distribution of income.
24) Scenario 8-3
Suppose the market demand and market supply curves are given by the equations:
Suppose that a tax of T is placed on buyers so that the demand curve becomes:
If T = 40, what price will buyers pay and what price will sellers receive?