1) The nation of Cranolia used to prohibit international trade, but now trade is allowed,
and Cranolia is exporting furniture. Relative to the previous no-trade situation, buyers
of furniture in Cranolia are now better off.
a.True
b.False
2) A new Mexican restaurant opened in the town of Manchester. The residents of the
town are
a.happy because of the product-variety externality, while other restaurant owners are
unhappy because of the business-stealing externality.
b.happy because of the business-stealing externality, while other restaurant owners are
unhappy because of the product-variety externality.
c.unhappy because of the product-variety externality, while other restaurant owners are
happy because of the business-stealing externality.
d.unhappy because of the business-stealing externality, while other restaurant owners
are happy because of the product-variety externality.
3) Table 17-11
Only two firms, ABC and XYZ, sell a particular product. The table below shows the
demand curve for their product. Each firm has the same constant marginal cost of $8
and zero fixed cost.
Refer to Table 17-11. ABC and XYZ agree to maximize joint profits. However, while
ABC produces the agreed upon amount, XYZ breaks the agreement and produces 5
more than agreed. How much profit does XYZ make?
a. $90
b. $140
c. $240
d. $280
4) If Freedonia changes its laws to allow international trade in software and the world
price is lower than its domestic price, then it must be the case that
a.both consumer surplus and producer surplus increase.
b.consumer surplus increases and producer surplus decreases.
c.consumer surplus decreases and producer surplus increases.
d.both consumer surplus and producer surplus decrease.
5) A country has a comparative advantage in a product if the world price is
a.lower than that country’s domestic price without trade.
b.higher than that country’s domestic price without trade.
c.equal to that country’s domestic price without trade.
d.not subject to manipulation by organizations that govern international trade.
6) Table 16-5
This table shows the demand schedule, marginal cost, and average total cost for a
monopolistically competitive firm.
What price should this firm charge to maximize profit?
a.$6
b.$12
c.$18
d.$24
7) Utilitarianism is
a.a liberal religion that focuses on individual rights.
b.a political philosophy that believes the government should choose policies deemed to
be just by an impartial observer.
c.a political philosophy that believes the government should not redistribute income.
d.a political philosophy that believes the government should choose policies to
maximize the total utility of society.
8) Minimum wage laws
a.benefit all unskilled workers.
b.create unemployment, but if demand is relatively elastic, the unemployment effects
will be minor.
c.may help the nonpoor, such as teenagers from wealthy families.
d.reduce poverty by reducing unemployment.
9) Table 18-12
The table displays data for a small, competitive, profit-maximizing firm that produces
and sells envelopes. The time frame is one week.
Refer to Table 18-12. If the value of the marginal product of the first worker hired is
$938, then how many workers does the firm employ?
a.2
b.3
c.4
d.5
10) Consider the indifference curve map and budget constraint for two goods, X and Y.
Suppose the good on the horizontal axis, X, is normal. When the price of X increases,
the substitution effect
a.and income effect both cause an increase in the consumption of X.
b.causes a decrease in the consumption of X, and the income effect causes an increase
in the consumption of
X.However, the substitution effect is greater than the income effect.
c.causes an increase in the consumption of X, and the income effect causes a decrease
in the consumption of
X.However, the substitution effect is greater than the income effect.
d.and income effect both cause a decrease in the consumption of X.
11) Suppose a consumer spends her income on two goods: music CDs and DVDs. The
price of a CD is $8, and the price of a DVD is $20. If we graph the budget constraint by
measuring the quantity of CDs purchased on the vertical axis and the quantity of DVDs
on the horizontal axis, what is the slope of the budget constraint?
a.-5.0
b.-2.5
c.-0.4
d.The slope of the budget constraint cannot be determined without knowing the income
the consumer has available to spend on the two goods.