The idea of horizontal equity in taxation implies that
a. equally situated individuals should be taxed equally.
b. unequally situated individuals should be taxed unequally.
c. benefits should be given first to those individuals who need them most.
d. the greatest tax burden should be borne by the wealthiest individuals.
The “law” of diminishing returns asserts that marginal returns will ultimately diminish
when the quantity of one input is increased.
a. True
b. False
Opportunity cost is the value of the next best alternative to a given choice.
a. True
b. False
Control of a scarce resource or input can serve as an entry barrier.
a. True
b. False
Shortages normally accompany an effective price floor.
a. True
b. False
If investment is zero, the capital stock
a. continues to flow.
b. falls to zero.
c. remains constant.
d. grows steadily.
There is strong evidence that entrepreneurs are characteristically:
a. driven by greed
b. overoptimistic
c. not good business people
d. satisfied with the status quo
Investment is a flow of resources into the production of new capital.
a. True
b. False
Requiring all firms to reduce emissions by the same percentage is
a. impossible.
b. inefficient.
c. inequitable.
d. unenforceable under the law.
In the long run, a perfectly competitive firm maximizes profit so P = MC = AC.
a. True
b. False
California passed a law called “Proposition 2 1/2” that limited property taxes to 2.5
percent of property value. Naturally this reduced taxes on many properties, and
apartment landlords had more money at the end of the year at given rents. This windfall
could be called an economic rent only if
a. we push the definition of economic rent too far.
b. the supply of rental units can be expanded.
c. the supply of rental units is fixed.
d. competitors can build housing at costs that yield the return that was earned before the
tax cut.
Specialization is the concept of devoting resources to the production of only a small
number of goods and services.
a. True
b. False
A computer manufacturer sells 1,000 units per month at $500 each. A price cut to $400
is being considered. His marginal cost is constant at $300 per unit. To maintain profits,
quantity sold must increase to at least
a. 1,500.
b. 2,000.
c. 2,500.
d. 3,000.
The U.S. government has accumulated a net national debt of almost 60% of GDP.
Compared to other countries, this is:
a. smaller than that of many fiscally healthy countries
b. larger than that of many fiscally healthy countries
c. about the same as that of troubled debtor nations
d. larger than that of troubled debtor nations
When an economy is operating with maximum efficiency, the production of more of
commodity A will entail the production of less of commodity B because
a. resources are specialized and are not shiftable.
b. resources are limited.
c. the structure of demand is fixed at any point in time.
d. material wants are insatiable.
When interdiction efforts manage to stem the flow of illegal drugs into the United
States, assuming no change in demand, the price of these substances rises. This price
increase leads to more crime as addicts attempt to maintain their now more-expensive
habits. Economists call this side-effect of the drug business
a. the illusion of rationality.
b. an externality.
c. the cost disease of personal services.
d. inflation.
e. unemployment.
A firm producing a smoke externality is producing
a. more than the socially optimal quantity of output.
b. less than the socially optimal quantity of output.
c. exactly the socially optimal quantity of output.
d. There is insufficient information to answer.
One country has an absolute advantage over another country if it can produce a good
using smaller quantities of resources.
a. True
b. False
Vertical equity refers to the notion that individuals at all levels should be taxed equally.
a. True
b. False
The economic effects of a quota are identical to those of a tariff.
a. True
b. False
Peter Piper picks a peck of pickled peppers using 10 units of labor and two
pepper-picking machines. The last worker hired picked 100 peppers, and the last
machine added 1,000 peppers. If labor can be hired at $5 a pepper picker and machines
cost $5,000, what advice do you have for Peter Piper?
Baumol and Blinder argue that oligopolies are interdependent firms. What do they mean
by this? Give three examples of the types of interdependence which might occur.
Along a straight-line demand curve, why does the price elasticity of demand grow
steadily smaller as we move from left to right?
“The market has failed to provide enough rental housing in New York City. This
demonstrates another failure of free markets-they may lead to shortages of necessities.”
Explain why you agree or disagree.
Dryden Press can produce 10,000 textbooks using 10 machines and 100 workers or
using five machines and 300 workers. It can produce 20,000 textbooks using 10
machines and 300 workers or five machines and 600 workers. Construct a
two-dimensional contour-type graph to show the relationship between the output of
textbooks and the labor and machinery inputs.
Profits or losses must be temporary for perfectly competitive firms. Why?