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Which of the following is not a characteristic of a perfectly competitive market?
a. Different sellers sell identical products.
b. There are many sellers.
c. Sellers must accept the price the market determines.
d. All of the above are characteristics of a perfectly competitive market.
Economists compute the price elasticity of demand as the
a. percentage change in price divided by the percentage change in quantity demanded.
b. change in quantity demanded divided by the change in the price.
c. percentage change in quantity demanded divided by the percentage change in price.
d. percentage change in quantity demanded divided by the percentage change in
income.
If the government removes a tax on a good, then the quantity of the good sold will
a. increase.
b. decrease.
c. not change.
d. All of the above are possible.
Which of the following events could cause an increase in the supply of ceiling fans?
a. The number of sellers of ceiling fans increases.
b. There is an increase in the price of air conditioners, and consumers regard air
conditioners and ceiling fans as substitutes.
c. There is an increase in the price of the motor that powers ceiling fans.
d. All of the above are correct.
Figure 218
Relationship between Price and Restaurant Meals
Refer to Figure 218. In the ordered pair (8, 24)
a. the xcoordinate is 8 and the ycoordinate is 24.
b. the xcoordinate is 24 and the ycoordinate is 8.
c. the numbers tell the location of the origin.
d. the 8 represents the price and the 24 represents the number of restaurant meals.
When, in our analysis of the gains and losses from international trade, we assume that a
particular country is small, we are
a. assuming the domestic price before trade will continue to prevail once that country is
opened up to trade with other countries.
b. assuming there is no demand for that country’s domesticallyproduced goods by other
countries.
c. assuming international trade can benefit producers, but not consumers, in that
country.
d. making an assumption that is not necessary to analyze the gains and losses from
international trade.
Which of the following statements about markets is most accurate?
a. Markets are usually a good way to organize economic activity.
b. Markets are usually inferior to central planning as a way to organize economic
activity.
c. Markets fail and are therefore not an acceptable way to organize economic activity.
d. Markets are a good way to organize economic activity in developed nations, but not
in less developed nations.
Figure 320
Canada’s Production Possibilities FrontierMexico’s Production Possibilities
Frontier
Refer to Figure 320. If Canada and Mexico switch from each country dividing its time
equally between the production of Good X and Good Y to each country spending all of
its time producing the good in which it has a comparative advantage, then total
production of Good X will increase by
a. 3 units.
b. 6 units.
c. 9 units.
d. 12 units.
Suppose that demand for a good decreases and, at the same time, supply of the good
decreases. What would happen in the market for the good?
a. Equilibrium price would decrease, but the impact on equilibrium quantity would be
ambiguous.
b. Equilibrium price would increase, but the impact on equilibrium quantity would be
ambiguous.
c. Equilibrium quantity would decrease, but the impact on equilibrium price would be
ambiguous.
d. Equilibrium quantity would increase, but the impact on equilibrium price would be
ambiguous.
Figure 25
Refer to Figure 25. The opportunity cost of obtaining 40 additional dryers by moving
from point D to point C is
a. 0 washers.
b. 20 washers.
c. 40 washers.
d. None of the above; the economy cannot move from point D to point C.
Figure 918. On the diagram below, Q represents the quantity of peaches and P
represents the price of peaches. The domestic country is Isoland.
Refer to Figure 918. If Isoland allows international trade and if the world price of
peaches is $5, then
a. Isoland has a comparative advantage, relative to other countries, in producing
peaches.
b. Isoland will import peaches.
c. consumer surplus with trade exceeds consumer surplus without trade.
d. All of the above are correct.
Suppose your management professor has been offered a corporate job with a 30 percent
pay increase. He has decided to take the job. For him, the marginal
a. cost of leaving was greater than the marginal benefit.
b. benefit of leaving was greater than the marginal cost.
c. benefit of teaching was greater than the marginal cost.
d. All of the above are correct.
Figure 81
Refer to Figure 81. Suppose the government imposes a tax of P' P'''. The deadweight
loss due to the tax is measured by the area
a. J+K+L+M.
b. J+K+L+M+N.
c. I+Y.
d. I+Y+B.
Suppose that Juan Carlos is filling out a survey that he received in the mail. The survey
asks him what he would do if the price of his favorite toothpaste increased. Juan Carlos
reports that he would switch to a different brand. The survey asks what he would do if
the price of all toothpastes increased. Juan Carlos reports that he must use toothpaste, so
he would have to adjust his spending elsewhere. These examples illustrate the
importance of
a. changes in total revenue in determining the price elasticity of demand.
b. a necessity versus a luxury in determining the price elasticity of demand.
c. the definition of a market in determining the price elasticity of demand.
d. the time horizon in determining the price elasticity of demand.
The local bakery makes such great cinnamon rolls that consumers do not respond much
at all to a change in the price. If the owner is only interested in increasing revenue, she
should
a. lower the price of the cinnamon rolls.
b. leave the price of the cinnamon rolls unchanged.
c. raise the price of the cinnamon rolls.
d. reduce costs.
When, in our analysis of the gains and losses from international trade, we assume that a
country is small, we are in effect assuming that the country
a. cannot experience significant gains or losses by trading with other countries.
b. cannot have a significant comparative advantage over other countries.
c. cannot affect world prices by trading with other countries.
d. All of the above are correct.
For the purpose of analyzing the gains and losses from a tax on a good, we use tax
revenue as a direct measure of the
a. government's benefit from the tax.
b. government's loss from the tax.
c. deadweight loss of the tax.
d. overall net gain to society of the tax.
Table 53
Consider the following demand schedule.
PriceQuantity Demanded
$01,000
$3800
$6600
$9400
$12200
$150
Refer to Table 53. Using the midpoint method, what is the price elasticity of demand
between $0 and $3?
a. 0.11
b. 0.22
c. 0.40
d. 2.00
Table 325
Assume that Maya and Miguel can switch between producing mixers and producing
toasters at a constant rate.
Hours Needed to Make 1Amount Produced in 40 Hours
mixertoastermixerstoasters
Maya8558
Miguel201024
Refer to Table 325. The opportunity cost of 1 toaster for Maya is
a. 0.625 mixers.
b. 1.6 hours of labor.
c. 1.6 mixers.
d. 8 hours of labor.
Figure 511
Refer to Figure 511. Suppose this demand curve is a straight, downwardsloping line all
the way from the horizontal intercept to the vertical intercept. We choose two prices, P1
and P2, and the corresponding quantities demanded, Q1 and Q2, for the purpose of
calculating the price elasticity of demand. Also suppose P2 > P1. In which of the
following cases could we possibly find that (i) demand is elastic and (ii) a decrease in
price from P1 to P2 causes an decrease in total revenue?
a. 0 < P1 < P2 < $10.
b. $10 < P1 < P2 < $20.
c. P1 > $20.
d. None of the above is correct.
Buyers and sellers who have no influence on market price are referred to as
a. market pawns.
b. monopolists.
c. price takers.
d. price setters.
Figure 414
Refer to Figure 414. Which of the following would explain a movement from E1 to
E2?
a. There is an improvement in the technology used to produce this good.
b. The cost of an input to the production of this good increases.
c. This good becomes very popular.
d. The price of a substitute good decreases.
When two variables have a negative correlation and the xvariable decreases,
a. the yvariable increases.
b. the yvariable decreases.
c. the yvariable stays the same.
d. the xvariable can never be positive.
The nation of Aquilonia has decided to end its policy of not trading with the rest of the
world. When it ends its trade restrictions, it discovers that it is importing incense,
exporting steel, and neither importing nor exporting rugs. We can conclude that
Aquilonia’s new freetrade policy has
a. increased consumer surplus and producer surplus in the incense market.
b. increased consumer surplus in the steel market and left producer surplus in the rug
market unchanged.
c. decreased consumer surplus in both the steel and rug markets.
d. decreased consumer surplus in the steel market and increased total surplus in the
incense market.
Suppose the equilibrium price of a tube of toothpaste is $2, and the government
imposes a price floor of $3 per tube. As a result of the price floor, the
a. demand curve for toothpaste shifts to the left.
b. supply curve for toothpaste shifts to the right.
c. quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms
want to supply increases.
d. quantity supplied of toothpaste stays the same.
Positive statements are not
a. descriptive.
b. prescriptive.
c. claims about how the world is.
d. made by economists speaking as scientists.
At Nick’s Bakery, the cost to make homemade chocolate cake is $4 per cake. As a result
of selling five cakes, Nick experiences a producer surplus in the amount of $17.50.
Nick must be selling his cakes for
a. $6.50 each.
b. $7.50 each.
c. $9.50 each.
d. $10.50 each.
The slope of a line passing through the points (15, 3) and (10, 6) is
a. 3/5.
b. 3/5.
c. 5/3.
d. 5/3.
Table 321
Assume that Jamaica and Norway can switch between producing coolers and producing
radios at a constant rate. The following table shows the number of coolers or number of
radios each country can produce in one day.
Output Produced in One Day
CoolersRadios
Jamaica126
Norway243
Refer to Table 321. Jamaica has an absolute advantage in the production of
a. coolers and Norway has an absolute advantage in the production of radios.
b. radios and Norway has an absolute advantage in the production of coolers.
c. both goods and Norway has an absolute advantage in the production of neither good.
d. neither good and Norway has an absolute advantage in the production of both goods.
Table 315
Labor Hours Needed to Make 1 Pound ofAmount Produced in 40 Hours
MeatPotatoesMeatPotatoes
Farmer8 hours/pound5 hours/pound5 pounds8 pounds
Rancher4 hours/pound10 hours/pound10 pounds4 pounds
Refer to Table 315. Which of the following combinations of meat and potatoes could
the rancher not produce in 40 hours?
a. 2 pounds of meat and 3 pounds of potatoes.
b. 3 pounds of meat and 3 pounds of potatoes.
c. 4 pounds of meat and 2 pounds of potatoes.
d. 5 pounds of meat and 2 pound of potatoes.
Table 711
The only four producers in a market have the following costs:
SellerCost
Evan$50
Selena$100
Angie$150
Kris$200
Refer to Table 711. If Evan, Selena, and Angie sell the good, and the resulting producer
surplus is $300, then the price must have been
a. $200.
b. $300.
c. $450.
d. $600.
Taxes are costly to market participants because they
a. transfer resources from market participants to the government.
b. alter incentives.
c. distort market outcomes.
d. All of the above are correct.
A tax on the sellers of coffee mugs
a. increases the size of the coffee mug market.
b. decreases the size of the coffee mug market.
c. has no effect on the size of the coffee mug market.
d. may increase, decrease, or have no effect on the size of the coffee mug market.
When a country allows international trade and becomes an importer of a good,
a. domestic producers of the good become better off.
b. domestic consumers of the good become better off.
c. the gains of the winners fall short of the losses of the losers.
d. All of the above are correct.
Tariffs and quotas are different in the sense that
a. tariffs cause deadweight losses, while quotas do not cause deadweight losses.
b. tariffs raise revenue for the government, while quotas do not raise revenue for the
government.
c. tariffs enhance the wellbeing of domestic consumers, while quotas diminish the
wellbeing of domestic consumers.
d. tariffs enhance the wellbeing of domestic producers, while quotas diminish the
wellbeing of domestic producers.
