1) Table 7-5
For each of three potential buyers of oranges, the table displays the willingness to pay
for the first three oranges of the day. Assume Allison, Bob, and Charisse are the only
three buyers of oranges, and only three oranges can be supplied per day.
If the market price of an orange increases from $0.70 to $1.40, then consumer surplus
a.increases by $2.60.
b.decreases by $0.70.
c.decreases by $2.50.
d.decreases by $2.60.
2)
The shift from S to S’ could be caused by an
a.increase in the price of the good.
b.improvement in production technology.
c.increase in income.
d.increase in input prices.
3) Which of the following is not a commonly-advanced argument for trade restrictions?
a.the jobs argument
b.the national-security argument
c.the infant-industry argument
d.the efficiency argument
4) Using the midpoint method, what is the income elasticity of demand for good X?
a. -3.5
b. -0.29
c.0.29
d.3.5
5) How does advertising signal to consumers that the product is a good one?
a.By seeing famous people using the product, consumers infer that they too can be
famous.
b.By being willing to spend money on advertising, firms let consumers know the
product is likely a good one since firms would not likely advertise a poor product.
c.By making consumers laugh during commercials, firms are associating positive
experiences with the product.
d.Without allowing consumers to actually use the product, it is not possible for firms to
signal to consumers the product’s quality.
6) Advertisements that appear to convey no information at all
a.are usually associated with “infomercials.”
b.are useless to consumers but valuable to firms.
c.are useless to firms but valuable to consumers for their entertainment quality alone.
d.may convey information to consumers by providing them with a signal that firms are
willing to spend significant amounts of money to advertise.
7) If the price elasticity of supply is 1.2, and price increased by 5%, quantity supplied
would
a.increase by 4.2%.
b.increase by 6%.
c.decrease by 4.2%.
d.decrease by 6%.
8) Chile’s Production Possibilities Frontier Colombia’s Production Possibilities
Frontier
At
which of the following prices would both Chile and Colombia gain from trade with
each other?
a.6 pounds of soybeans for 9 pounds of coffee
b.8 pounds of soybeans for 20 pounds of coffee
c.11 pounds of soybeans for 33 pounds of coffee
d.Chile and Colombia could not both gain from trade with each other at any price.
9) Horizontal and vertical equity are the two primary measures of efficiency of a tax
system.
a.True
b.False
10) Suppose a tax of $5 per unit is imposed on a good, and the tax causes the
equilibrium quantity of the good to decrease from 200 units to 100 units. The tax
decreases consumer surplus by $450 and decreases producer surplus by $300. The
deadweight loss from the tax is
a. $250.
b. $500.
c. $750.
d. $1,000.
11) In a market economy, supply and demand determine both the quantity of each good
produced and the price at which it is sold.
a.True
b.False
12) Suppose researchers at the University of Wisconsin discover a new vitamin that
increases the milk production of dairy cows. If the demand for milk is relatively
inelastic, the discovery will
a.raise both price and total revenues.
b.lower both price and total revenues.
c.raise price and lower total revenues.
d.lower price and raise total revenues.
13) Which of the following best describes the idea of excess capacity in monopolistic
competition?
a.Firms produce more output than is socially desirable.
b.The output produced by a typical firm is less than what would occur at the minimum
point on its ATC curve.
c.Due to product differentiation, firms choose output levels where price equals average
total cost.
d.Firms keep some surplus output on hand in case there is a shift in the demand for their
product.
14) In a competitive market, there are so few buyers and so few sellers that each has a
significant impact on the market price.
a.True
b.False