1) Dog owners do not bear the full cost of the noise their barking dogs create and often
take too few precautions to prevent their dogs from barking. Local governments address
this problem by
a.making it illegal to “disturb the peace.”
b.having a well-funded animal control department.
c.subsidizing local animal shelters.
d.encouraging people to adopt cats.
2) If we want to gauge how much the income tax system distorts incentives, we should
use the
a.average tax rate.
b.ability-to-pay principle.
c.total tax revenue collected.
d.marginal tax rate.
3) In the long run a company that produces and sells kayaks incurs total costs of
$15,000 when output is 30 kayaks and $20,000 when output is 40 kayaks. The kayak
company exhibits
a.diseconomies of scale because total cost is rising as output rises.
b.constant returns to scale because average total cost is constant as output rises.
c.diseconomies of scale because average total cost is rising as output rises.
d.economies of scale because average total cost is falling as output rises.
4) The production possibilities frontier is a graph that shows the various combinations
of outputs that the economy can possibly produce given the available factors of
production and the available production technology.
a.True
b.False
5) Figure 8-18
Suppose the government imposes a $1 tax in each of the four markets represented by
supply curves S1, S2, S3, and S4. The deadweight will be the smallest in the market
represented by
a.S1.
b.S2.
c.S3.
d.S4.
6)
The section of the demand curve at point B represents the
a.elastic section of the demand curve.
b.inelastic section of the demand curve.
c.unit elastic section of the demand curve.
d.perfectly elastic section of the demand curve.
7) Competitive markets are characterized by
a.a small number of buyers and sellers.
b.unique products.
c.the interdependence of firms.
d.free entry and exit by firms.
8)
When price falls from $25 to $20, demand is
a.inelastic, since total revenue decreases from $4,000 to $2,500.
b.inelastic, since total revenue increases from $2,500 to $4,000.
c.elastic, since total revenue increases from $2,500 to $4,000.
d.unit elastic, since total revenue does not change.
9) Competitive firms that maximize profits will hire workers until the value of the
marginal product of labor
a.equals the wage.
b.equals the price of the final good.
c.begins to fall.
d.begins to rise.
10) Figure 7-16
If the demand curve is D and the supply curve shifts left from S to S’, what is the
change
in producer surplus when comparing the new equilibrium with the original equilibrium?
a.Producer surplus increases by $225.
b.Producer surplus increases by $675.
c.Producer surplus decreases by $225.
d.Producer surplus decreases by $675.
11) If the government regulates the price a natural monopolist can charge to be equal to
the firm’s average total cost, the firm has no incentive to reduce costs.
a.True
b.False
12) When a profit-maximizing firm in a competitive market has zero economic profit,
accounting profit
a.is negative.
b.is at least zero.
c.is also zero.
d.could be positive, negative or zero.
13) The market for novels is
a.perfectly competitive.
b.a monopoly.
c.monopolistically competitive.
d.an oligopoly.
14) Scenario 17-2.
Imagine that two oil companies, BQ and Exxoff, own adjacent oil fields. Under the
fields is a common pool of oil worth $144 million. Drilling a well to recover oil costs
$5 million per well. If each company drills one well, each will get half of the oil and
earn a $67 million profit ($72 million in revenue – $5 million in costs). Assume that
having X percent of the total wells means that a company will collect X percent of the
total revenue.
Refer to Scenario 17-2. Exxoff’s dominant strategy would lead to what sort of
well-drilling behavior?
a.Exxoff will never drill a second well.
b.Exxoff will always drill a second well.
c.Exxoff will drill a second well only if BQ drills a well.
d.Exxoff will drill a second well only if BQ does not drill a well.
15) Table 7-7
You have two essentially identical extra tickets to the Midwest Regional Sweet 16 game
in the men’s NCAA basketball tournament. The table shows the willingness to pay of
the four potential buyers in the market for a ticket to the game. You hold an auction to
sell the two tickets. Michael and Earvin each offer to pay
$360 for a ticket, and you sell them the two tickets. What is the total consumer surplus
in the market?
a. $720
b. $180
c. $140
d. $40
16) The business cycle is the
a.relationship between unemployment and inflation.
b.irregular fluctuations in economic activity.
c.positive relationship between the quantity of money in an economy and inflation.
d.predictable changes in economic activity due to changes in government spending and
taxes.