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Canada and the U.S. both produce wheat and computer software. Canada is said to have
the comparative advantage in producing wheat if
a. Canada requires fewer resources than the U.S. to produce a bushel of wheat.
b. the opportunity cost of producing a bushel of wheat is lower for Canada than it is for
the U.S.
c. the opportunity cost of producing a bushel of wheat is lower for the U.S. than it is for
Canada.
d. the U.S. has an absolute advantage over Canada in producing computer software.
If toast and butter are complements, then which of the following would increase the
demand for toast?
a. a decrease in the price of toast
b. a decrease in the price of butter
c. an increase in the price of butter
d. Both a and b are correct.
Which of the following is not possible?
a. Demand is elastic, and a decrease in price causes an increase in revenue.
b. Demand is unit elastic, and a decrease in price causes an increase in revenue.
c. Demand is inelastic, and an increase in price causes an increase in revenue.
d. Demand is perfectly inelastic, and an increase in price causes an increase in revenue.
Figure 727
Refer to Figure 727. Sellers whose costs are greater than the equilibrium price are
represented by segment
a. AC.
b. CK.
c. BC.
d. CH.
Figure 723
Refer to Figure 723. If the price were P3, consumer surplus would be represented by
the area
a. A.
b. A+B+C.
c. D+H+F.
d. A+B+C+D+H+F.
Suppose that you have received $300 as a birthday gift. You can spend it today or you
can put the money in a bank account for a year and earn 5 percent interest. The
opportunity cost of spending the money today, in terms of what you could have after
one year, is
a. $0.
b. $15.
c. $305.
d. $315.
Which of the following would likely be studied by a macroeconomist rather than a
microeconomist?
a. the effect of an increase in the alcohol tax on the market for beer
b. the effect of foreign competition on the domestic auto industry
c. the effect of a price war in the airline industry
d. the effect of an increase in the minimum wage on an economy’s overall rate of
unemployment
Suppose the U.S. and Japan both produce airplanes and televisions and the U.S. has a
comparative advantage in the production of airplanes while Japan has a comparative
advantage in the production of televisions. If the U.S. exports airplanes to Japan and
imports televisions from Japan,
a. both countries, as a whole, will be better off.
b. all individuals in both countries will be better off.
c. both countries, as a whole, will be worse off.
d. all individuals in both countries will be worse off.
Figure 926
The diagram below illustrates the market for baseballs in the U.S.
Refer to figure 926. Prior to opening the U.S. baseball market to trade, the equilibrium
price of a baseball is
a. $16
b. $12
c. $10
d. $8
Table 411
PriceQuantity
DemandedQuantity
Supplied
$101060
$82045
$63030
$44015
$2500
Refer to Table 411. If the price were $8, a
a. shortage of 20 units would exist, and price would tend to rise.
b. surplus of 25 units would exist, and price would tend to fall.
c. shortage of 25 units would exist, and price would tend to rise.
d. surplus of 45 units would exist, and price would tend to fall.
Michael is a college student. He can either buy a textbook for $100 or save up for a
road trip he wants to take during the summer. This illustrates the principle that
a. trade can make everyone better off.
b. people face tradeoffs.
c. rational people think at the margin.
d. people respond to incentives.
Which of the following is likely to have the most price elastic demand?
a. fountain ink pens
b. milk
c. disposable diapers
d. shampoo
A simultaneous increase in both the demand for MP3 players and the supply of MP3
players would imply that
a. both the value of MP3 players to consumers and the cost of producing MP3 players
has increased.
b. both the value of MP3 players to consumers and the cost of producing MP3 players
has decreased.
c. the value of MP3 players to consumers has decreased, and the cost of producing MP3
players has increased.
d. the value of MP3 players to consumers has increased, and the cost of producing MP3
players has decreased.
The relatively low inflation experienced in the United States in the 1990s is attributable
to
a. slow growth of U.S. productivity during the 1990s.
b. slow growth of the quantity of money in the U.S. in the 1990s.
c. low levels of government spending in the U.S. in the 1980s and 1990s.
d. the eightyear presidency of William Jefferson Clinton during the 1990s.
Table 81
MarketCharacteristic
ADemand is very elastic.
BDemand is very inelastic.
CSupply is very elastic.
DSupply is very inelastic.
Refer to Table 81. Suppose the government is considering levying a tax in one or more
of the markets described in the table. Which of the markets will maximize the
deadweight loss(es) from the tax?
a. market B only
b. markets A and C only
c. markets B and D only
d. market D only
Figure 516
Refer to Figure 516. Using the midpoint method, what is the price elasticity of supply
between $4 and $6?
a. 0.75
b. 1.00
c. 1.20
d. 1.25
Figure 514
Refer to Figure 514. Using the midpoint method, what is the price elasticity of supply
between $100 and $220?
a. 0.58
b. 0.67
c. 1.00
d. 1.73
Table 52
PriceQuantity
$2500
$20030
$15070
$100110
$50150
$0190
Refer to Table 52. Using the midpoint method, if the price falls from $200 to $150, the
price elasticity of demand is
a. zero.
b. unit elastic.
c. inelastic.
d. elastic.
The demand for salt is inelastic, and the supply of salt is elastic. The demand for caviar
is elastic, and the supply of caviar is inelastic. Suppose that a tax of $1 per pound is
levied on the sellers of salt, and a tax of $1 per pound is levied on the buyers of caviar.
We would expect that most of the burden of these taxes will fall on
a. sellers of salt and the buyers of caviar.
b. sellers of salt and the sellers of caviar.
c. buyers of salt and the sellers of caviar.
d. buyers of salt and the buyers of caviar.
Suppose buyers of vodka are required to send $5.00 to the government for every bottle
of vodka they buy. Further, suppose this tax causes the effective price received by
sellers of vodka to fall by $3.00 per bottle. Which of the following statements is
correct?
a. This tax causes the demand curve for vodka to shift downward by $5.00 at each
quantity of vodka.
b. The price paid by buyers is $2.00 per bottle more than it was before the tax.
c. Sixty percent of the burden of the tax falls on sellers.
d. All of the above are correct.
Which of the following examples does not illustrate the principle represented by the
adage, "There is no such thing as a free lunch"?
a. Melissa needs to pay her rent and her electric bill.
b. Kevin must choose between buying a new flat screen television and buying his
textbooks for this semester.
c. Robert must decide between studying for his psychology exam and working at his
parttime job.
d. Lisa can spend her money on a new smart phone or on a weekend trip.
The sum of all the individual supply curves for a product is called
a. total supply.
b. market supply.
c. aggregate supply.
d. total output.
A tax on gasoline encourages people to drive smaller, more fuelefficient cars. Which
principle of economics does this illustrate?
a. People face tradeoffs.
b. The cost of something is what you give up to get it.
c. Rational people think at the margin.
d. People respond to incentives.
Labor taxes may distort labor markets greatly if
a. labor supply is highly inelastic.
b. many workers choose to work 40 hours per week regardless of their earnings.
c. the number of hours many parttime workers want to work is very sensitive to the
wage rate.
d. “underground” workers do not respond to changes in the wages of legal jobs because
they prefer not to pay taxes.
If the price elasticity of demand for a good is 0.5, then a 5 percent increase in price
results in a
a. 0.1 percent decrease in the quantity demanded.
b. 1 percent decrease in the quantity demanded.
c. 2.5 percent decrease in the quantity demanded.
d. 10 percent decrease in the quantity demanded.
The "invisible hand" refers to
a. the government.
b. the free market.
c. central planners.
d. large businesses.
If the government removes a binding price floor from a market, then the price paid by
buyers will
a. increase, and the quantity sold in the market will increase.
b. increase, and the quantity sold in the market will decrease.
c. decrease, and the quantity sold in the market will increase.
d. decrease, and the quantity sold in the market will decrease.
Table 25
Corn (in bushels)Wheat (in bushels)
20000
1600700
12001300
8001800
4002200
02500
Refer to Table 25. Table 25 shows one set of production possibilities. Based on the
values in the table, the production possibilities frontier is
a. bowed outward indicating increasing opportunity costs.
b. bowed outward indicating decreasing opportunity costs.
c. a straight line indicating constant opportunity costs.
d. bowed inward indicating increasing opportunity costs.
Price controls
a. always produce a fair outcome.
b. always produce an efficient outcome.
c. can generate inequities of their own.
d. All of the above are correct.
The benefit that government receives from a tax is measured by
a. deadweight loss.
b. consumer surplus.
c. tax incidence.
d. tax revenue.
Hamid spends an hour studying instead of watching TV with his friends. The
opportunity cost to him of studying is
a. the improvement in his grades from studying for the hour.
b. the improvement in his grades from studying minus the enjoyment of watching TV.
c. the enjoyment he would have received if he had watched TV with his friends.
d. zero. Since Hamid chose to study rather than to watch TV, the value of studying must
have been greater to him than the value of watching TV.
Figure 316
Hosne’s Production Possibilities FrontierMerve’s Production Possibilities Frontier
Refer to Figure 316. Hosne has an absolute advantage in the production of
a. purses and Merve has an absolute advantage in the production of wallets.
b. wallets and Merve has an absolute advantage in the production of purses.
c. both goods and Merve has an absolute advantage in the production of neither good.
d. neither good and Merve has an absolute advantage in the production of both goods.
Because the demand for wheat tends to be inelastic, the development of a new, more
productive hybrid wheat would tend to
a. increase the total revenue of wheat farmers.
b. decrease the total revenue of wheat farmers.
c. decrease the demand for wheat.
d. decrease the supply of wheat.
