1) Soup is an inferior good if the demand
a.for soup falls when the price of a substitute for soup rises.
b.for soup rises when the price of soup falls.
c.curve for soup slopes upward.
d.for soup falls when income rises.
2) One of the things that employers can do to lessen the moral hazard problem
involving their employees is to pay them in advance for their work.
a.True
b.False
3) Figure 8-21
Suppose the market is represented by Demand 1 and Supply 1. At first the government
places a $3 per-unit tax on this good. Then the government decides to raise the tax to $6
per unit. Compared to the original tax rate, the higher tax will
a.increase tax revenue and increase the deadweight loss from the tax.
b.not change tax revenue and increase the deadweight loss from the tax.
c.decrease tax revenue and increase the deadweight loss from the tax.
d.decrease tax revenue and decrease the deadweight loss from the tax.
4) Hilda’s Hair Hysteria earned $3,750 in total revenue last month when it sold 125
haircuts. This month it earned
$3,600 in total revenue when it sold 90 haircuts. The for Hilda’s Hair Hysteria is
a. 0.33.
b. 0.88.
c. 1.14.
d. 7.98.
5) Which of the following statements is not correct?
a.Both the human capital theory and the signaling theory of education could explain
why college graduates earn more than high school graduates.
b.The signaling theory of education suggests that the ability to complete a college
degree is correlated with the ability to perform well in the labor market.
c.If the human capital theory of education is correct, a government policy that pays for
additional schooling for all workers would not increase wages.
d.If the signaling theory of education is correct, a government policy that pays for
additional schooling for all workers would not increase wages.
6) The can tell us whether goods are
a.normal or inferior.
b.elastic or inelastic.
c.luxuries or necessities.
d.complements or substitutes.
7) Each seller of a product is willing to sell as long as the price he or she can receive is
greater than the opportunity cost of producing the product.
a.True
b.False
8) Figure 21-20
The following graph illustrates a representative consumer’s preferences for
marshmallows and chocolate chip cookies:
Refer to Figure 21-20. Assume that the consumer has an income of $40. Based on the
information available in the graph, which of the following price-quantity combinations
would be on her demand curve for marshmallows if the price of chocolate chips were
$4?
a.P=$2, Q=3
b.P=$2, Q=9
c.P=$4, Q=3
d.P=$4, Q=9
9) When considering household savings, the relative price between consuming when
young and consuming when old is the
a.consumption rate.
b.interest rate that individuals can earn on their private savings.
c.prime rate.
d.federal funds rate.
10) Suppose a typical worker in India can produce 32 units of product in an eight-hour
day, while a typical worker in Bangladesh can produce 30 units of product in a 10-hour
day. We can conclude that
a.worker productivity in Bangladesh is higher than in India.
b.the standard of living will likely be higher in India than in Bangladesh.
c.productivity is 4 units per hour for the worker in Bangladesh and 3 units per hour for
the worker in India.
d.there will be no difference between the standard of living in India and Bangladesh.
11) The two types of imperfectly competitive markets are
a.markets with advertising and markets with price competition.
b.public goods and common resources.
c.oligopoly and monopoly.
d.monopolistic competition and oligopoly.
12) George and Jerry are competitors in a local market. Each is trying to decide if it is
better to advertise on TV, on radio, or not at all. If they both advertise on TV, each will
earn a profit of $3,000. If they both advertise on radio, each will earn a profit of $5,000.
If neither advertises at all, each will earn a profit of $10,000. If one advertises on TV
and the other advertises on radio, then the one advertising on TV will earn $4,000 and
the other will earn $2,000. If one advertises on TV and the other does not advertise,
then the one advertising on TV will earn $8,000 and the other will earn $5,000. If one
advertises on radio and the other does not advertise, then the one advertising on radio
will earn $9,000 and the other will earn $6,000. If both follow their dominant strategy,
then George will
a.advertise on TV and earn $3,000.
b.advertise on radio and earn $5,000.
c.advertise on TV and earn $8,000.
d.not advertise and earn $10,000.
13) Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline
slopes upward. The production of the 1,000th gallon of gasoline entails the following:
♦ private cost of $3.10;
♦ social cost of $3.55;
♦ value to consumers of $3.70.
Suppose the equilibrium quantity of gasoline is 1,150 gallons; that is, QMARKET =
1,150. Then the equilibrium price of a gallon could be
a. $2.80.
b. $3.00.
c. $3.30.
d. $3.80.
14) Scenario 13-12
Ariana withdrew $400,000 out of her personal savings account and used it to start her
new Internet cafe. The savings account pays 3 percent interest per year. During the first
year of her business, Ariana sold 2,000 cups of coffee for $2.50 per cup and 4,000 hours
of Internet time, also at $2.50 per hour. During the first year, the business made
monetary outlays of $9,000. You may assume that there is no opportunity cost to
Ariana’s time.
Ariana’s accounting profit for the year was
a. $-394,000.
b. $-6,000.
c. $6,000.
d. $12,000.
15) Inflation is defined as
a.a period of rising productivity in the economy.
b.a period of rising income in the economy.
c.an increase in the overall level of output in the economy.
d.an increase in the overall level of prices in the economy.
16) What is the defining characteristic of a natural monopoly? Give an example of a
natural monopoly.
17) Scenario 17-6
Assume that a local telecommunications company sells high speed internet access and
cable television. The company’s only two customers are Taylor and Tim. Taylor is
willing to pay $50 per month for high speed internet access and $50 per month for cable
television. Tim is willing to pay only $20 per month for high speed internet access, but
is willing to pay $70 per month for cable television. Assume that the
telecommunications company can provide each of these products at zero marginal cost.
Refer to Scenario 17-6. If the telecommunications provider is able to use tying to price
high speed internet access and cable television, what is the profit-maximizing price to
charge for the “tied” good?
18) Table 22-25
Sophie, Huan, and Santiago are lost with no map or GPS available. They come to an
intersection at which they can turn left, turn right, or continue going straight. Their
preferences are summarized in the table.
Refer to Table 22-25. The travelers decide to conduct pairwise voting with the majority
determining the outcome of each vote to decide their next move. If they first choose
between going left and going right, and then choose between the winner of the first vote
and going straight, which direction will they go?
19) Figure 21-31
The figure shows two indifference curves and two budget constraints for a consumer
named Kevin.
Refer to Figure 21-31. Suppose Kevin is optimally purchasing 21 shirts and 28
sweaters, and he is spending $1,680 on sweaters. What is the price of a shirt?
20) List three reasons why wages could be set above the equilibrium wage.
21) Is a congested nontoll road excludable? Is it rival in consumption? How do we
classify a congested nontoll road in terms of the four types of goods?
22) Figure 18-12. The figure shows the relationship between the number of mechanics
hired and the number of car repairs performed per day at a car-repair shop.
Refer to Figure 18-12. What
is the marginal product of the second mechanic?
23) Suppose the for a product is 0.5. If a supplier wants to increase revenue, what
change should it make to price, if any?