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1) Scenario 14-3
Suppose a certain competitive firm is producing Q=500 units of output. The marginal
cost of the 500th unit is $17, and the average total cost of producing 500 units is $12.
The firm sells its output for $20.
At Q=500, the firm's profits equal
a. $1,000.
b. $4,000.
c. $7,000.
d. $10,000.
2) Shrimp Galore, a shrimp harvesting business in the Pacific Northwest, has a 30-year
loan on its shrimp harvesting boat. The annual loan payment is $25,000 and the boat
has a market (salvage) value that exceeds its outstanding loan balance. Prior to the 2010
shrimp harvesting season, Shrimp Galore's accountant predicted that at expected market
prices for shrimp, Shrimp Galore would have a net loss of $75,000 dollars after paying
all 2010 expenses (including the annual loan payment). In this case, Shrimp Galore
should
a.produce nothing and experience a loss of $25,000.
b.produce nothing and experience a loss of $75,000.
c.continue to operate because expected profits will rise in the future.
d.continue to operate even though it predicts a loss of $75,000.
3) Table 17-12
The table shows the town of Driveaway's demand schedule for gasoline. Assume the
town's gasoline seller(s) incurs a cost of $2 for each gallon sold, with no fixed cost.
Refer to Table 17-12. If the market for gasoline in Driveaway is perfectly competitive,
then the equilibrium price of gasoline is
a.$0 and the equilibrium quantity is 400 gallons.
b.$1 and the equilibrium quantity is 350 gallons.
c.$2 and the equilibrium quantity is 300 gallons.
d.$4 and the equilibrium quantity is 200 gallons.
4) Figure 8-11
The length of the line segment connecting points A and B represents
a.the difference between the price paid by buyers after the tax is imposed and the price
received by sellers after the tax is imposed.
b.the size of the tax.
c.the "tax wedge."
d.All of the above are correct.
5) Table 12-13
The table below provides information on the 4 households that make up a small
economy and how much they would pay in taxes under 3 types of taxes.
In this economy Tax A exhibits
a.horizontal and vertical equity.
b.horizontal equity but not vertical equity.
c.vertical equity but not horizontal equity.
d.neither horizontal nor vertical equity.
6) Figure 9-9
Consumer surplus in this market after trade is
a.A.
b.A + B.
c.A + B + D.
d.C.
7) Table 10-4
Which of the following policies would move the market from the market equilibrium to
the socially optimal equilibrium?
a.a tax of $4 per unit of output
b.a subsidy of $4 per unit of output
c.a tax of $6 per unit of output
d.a subsidy of $6 per unit of output
8) Which of the following statements helps to explain why government drug
interdiction increases drug-related crime?
a.The direct impact is on buyers, not sellers.
b.Successful drug interdiction policies reduce the demand for illegal drugs.
c.Drug addicts will have an even greater need for quick cash to support their habits.
d.In the short run, both equilibrium quantities and prices will fall in the markets for
illegal drugs.
9) Scenario 9-1
The before-trade domestic price of peaches in the United States is $40 per bushel. The
world price of peaches is
$52 per bushel. The U.S. is a price-taker in the market for peaches.
If trade in peaches is allowed, the price of peaches in the United States
a.will be greater than the world price.
b.will be equal to the world price.
c.will be less than the world price.
d.could be greater than, equal to, or less than the world price; this cannot be determined.
10) If the social value of producing a good is always higher than the private value of
producing it, then there is a
a.negative externality associated with the production of the good, and the market
equilibrium quantity of the good is less than the socially optimal quantity.
b.negative externality associated with the production of the good, and the socially
optimal quantity of the good is less than the market equilibrium quantity.
c.positive externality associated with the production of the good, and the market
equilibrium quantity of the good is less than the socially optimal quantity.
d.positive externality associated with the production of the good, and the socially
optimal quantity of the good is less than the market equilibrium quantity.
11) Suppose scientists provide evidence that people who drink energy drinks are more
likely to have a heart attack than people who do not drink energy drinks. We would
expect to see
a.no change in the demand for energy drinks.
b.a decrease in the demand for energy drinks.
c.an increase in the demand for energy drinks.
d.a decrease in the supply of energy drinks.
12) Which of the following statements about state income taxes is correct?
a.Some states do not tax income at all.
b.If states tax income, they must follow federal guidelines for designing the tax
structure.
c.States are not allowed to have a higher marginal tax rate than the federal marginal tax
rate.
d.All of the above are correct.
13) Which of the following does not represent a tradeoff facing a consumer?
a.choosing to purchase more of all goods
b.choosing to spend more time on leisure and less time on work
c.choosing to spend more now and consume less in the future
d.choosing to purchase less of one good in order to purchase more of another good
14) Unemployment would cause an economy to
a.produce inside its production possibilities frontier.
b.produce on its production possibilities frontier.
c.produce outside its production possibilities frontier.
d.experience an inward shift of its production possibilities frontier.
15) Figure 10-19
Each additional unit of the good that is produced yields an external
a.benefit of $15.
b.benefit of $36.
c.cost of $15.
d.cost of $36.
16) A firm that would experience higher average total cost by increasing production is
operating with excess capacity.
a.True
b.False
17) Price discrimination can increase both the monopolist's profits and society's
welfare.
a.True
b.False
18) The two words economists use most often are
a.inflation and trade.
b.supply and demand.
c.competition and prices.
d.markets and equilibrium.
19) In a particular country in 1998, the average worker needed to work 25 hours to
produce 40 units of output. In that same country in 2008, the average worker needed to
work 40 hours to produce 68 units of output. In that country, the productivity of the
average worker
a.decreased by 1.7 percent between 1998 and 2008.
b.remained unchanged between 1998 and 2008.
c.increased by 4.75 percent between 1998 and 2008.
d.increased by 6.25 percent between 1998 and 2008.
