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1) Suppose that Elmer's hourly wage increases, and he decides to work fewer hours. For
Elmer, the substitution effect
of the wage change is
a.only partially offset by the income effect.
b.more than offset by the income effect.
c.exactly offset by the income effect.
d.We do not have enough information with which to answer the question.
2) A technology spillover is a type of negative externality.
a.True
b.False
3) If the marginal cost of producing the fifth unit of output is higher than the marginal
cost of producing the fourth unit of output, then at five units of output, average total
cost must be rising.
a.True
b.False
4) Assume that Brad and Theresa can switch between producing wheat and producing
beef at a constant rate.
Brad has an absolute advantage in the production of
a.wheat and Theresa has an absolute advantage in the production of beef.
b.beef and Theresa has an absolute advantage in the production of wheat.
c.both goods and Theresa has an absolute advantage in the production of neither good.
d.neither good and Theresa has an absolute advantage in the production of both goods.
5) Elasticity is
a.a measure of how much buyers and sellers respond to changes in market conditions.
b.the study of how the allocation of resources affects economic well-being.
c.the maximum amount that a buyer will pay for a good.
d.the value of everything a seller must give up to produce a good.
6) The top 5 percent of U.S. annual family income in 2011 was $205,200 or more.
a.True
b.False
7) Figure 9-5
The figure illustrates the market for tricycles in a country.
The horizontal line at the world price of tricycles represents the
a.demand for tricycles from the rest of the world.
b.supply of tricycles from the rest of the world.
c.level of inefficiency in the domestic market caused by trade.
d.surplus in the domestic tricycle market.
8) A popular resort restaurant will maximize profits if it chooses to stay open during the
lesscrowded €off season€ when its total revenues exceed its variable costs.
a.True
b.False
9) The benefit that government receives from a tax is measured by
a.deadweight loss.
b.consumer surplus.
c.tax incidence.
d.tax revenue.
10) Lisa's Production Possibilities FrontierBryce's Production Possibilities
Frontier
17) Figure 8-26
Suppose the government places a $3 tax per unit on this good. How much is consumer
surplus after the tax is imposed?
18) Use a graph to demonstrate the circumstances that would prevail in a perfectly
competitive market where firms are experiencing economic losses. Identify costs,
revenue, and the economic losses on your graph. Using your graph, determine whether
an individual firm will shut down in the short run, or choose to remain in the market.
Explain your answer.
19) What is the main difficulty facing cost-benefit analysts when they attempt to
evaluate the worthiness of proposed public projects?
20) Bob Edwards owns a bagel shop. Bob hires an economist who assesses the shape of
the bagel shop's average total cost (ATC) curve as a function of the number of bagels
produced. The results indicate a U-shaped average total cost curve. Bob's economist
explains that ATC is U-shaped for two reasons. The first is the existence of diminishing
marginal product, which causes it to rise. What would be the second reason? Assume
that the marginal cost curve is linear. (Hint: The second reason relates to average fixed
cost)
21) An absence of property rights often leads to market failure. When this is the case,
how does society usually solve the problem?
22) What are the three most important factors of production?
