1) Externalities are
a.side effects passed on to a party other than the buyers and sellers in the market.
b.side effects of government intervention in markets.
c.external forces that cause the price of a good to be higher than it otherwise would be.
d.external forces that help establish equilibrium price.
2) Free entry eliminates long-run profits for firms in competitive and monopolistic
industries.
a.True
b.False
3) After the patent runs out on a brand name drug, generic drugs enter the market. What
happens next in the market?
a.Price increases, and total surplus decreases.
b.Price decreases, and total surplus decreases.
c.Price decreases, and total surplus increases.
d.Price increases, and total surplus increases.
4) Figure 21-29
The figure below illustrates the preferences of a representative consumer, Nathaniel.
Refer to Figure 21-29. Interest rates increase by 4 percent. Nathaniel’s optimal choice
point moves from A to B. Nathaniel consumes
a.less while he is younger and saves more than he did before interest rates increased.
b.more while he is younger and saves more than he did before interest rates increased.
c.less while he is younger and saves less than he did before interest rates increased.
d.more while he is younger and saves less than he did before interest rates increased.
5) As the number of firms in an oligopoly market
a.decreases, the price charged by firms likely decreases.
b.decreases, the market approaches the competitive market outcome.
c.increases, the market approaches the competitive market outcome.
d.increases, the market approaches the monopoly outcome.
6) Suppose that Jamal is moving to a state where personal incomes are distributed
randomly. If Jamal believes in liberalism, he would prefer
a.an income distribution that is relatively equal.
b.that everyone has the same work opportunities and market-determined wage rates.
c.that private property be transformed to government property to safeguard people’s
incomes.
d.less economic assistance to the poor because it distorts the price system.
7) Assume there are nine voters in a certain small town and let x = the preferred number
of dollars spent per person per month on garbage collection. For Voters 1, 2 3, and 4, x
= $10; for Voter 5, x = $15; for Voter , x = $18; and for Voters 6, 7, 8 and 9, x = $20.
The median voter is
a.Voter 3.
b.Voter 4.
c.Voter 5.
d.Voter 6.
8) Which of the following is consistent with the elasticities given in Table 5-1?
a.A is a luxury and B is a necessity.
b.A is a good after an increase in income and B is that same good after a decrease in
income.
c.A has fewer substitutes than B.
d.A is a good immediately after a price increase and B is that same good 3 years after
the price increase.
9) If the for a good is 2, then a 10 percent decrease in the quantity demanded must be
the result of
a.a 0.2 percent increase in the price.
b.a 2.5 percent increase in the price.
c.a 5 percent increase in the price.
d.a 20 percent increase in the price.
10) Suppose a consumer consumes two goods, X and Y. The relative price of the two
goods equals the
a.marginal rate of substitution.
b.rate at which the consumer will give up X to gain Y while maintaining the same level
of utility.
c.slope of the budget constraint.
d.All of the above are correct.
11) Predatory pricing occurs when a firm
a.exercises its oligopoly power by raising its price through the formation of a cartel.
b.exercises its monopoly power by raising its price.
c.cuts its prices in order make itself more competitive.
d.cuts its prices temporarily in order to drive out any competition.
12) When a certain monopoly sets its price at $8 it sells 64 units. When the monopoly
sets its price at $9 it sells 62 units. The marginal revenue for the firm over this range is
a. $18.
b.$23.
c.$46.
d.$92.
13) Table 22-16
The Johnson family is planning a vacation and, though Mr. and Mrs. Johnson will be
paying for the trip, they have decided to use a democratic voting process to choose their
destination. The family members’ preferences are reflected in the table below.
Refer to Table 22-16. Mr. Johnson recommends using a vote by majority rule. If he
wants to ensure that his 1st choice becomes the family’s winning destination, he should
propose
a.first choosing between Opryland and the Grand Canyon, then choosing between the
winner of the first vote and Sea World, and finally choosing between the winner of the
second vote and Disneyland.
b.first choosing between Disneyland and Sea World, then choosing between the winner
of the first vote and the Grand Canyon and finally choosing between the winner of the
second vote and the Opryland.
c.first choosing between Sea World and the Grand Canyon, then choosing between the
winner of the first vote and Disneyland, and finally choosing between the winner of the
second vote and Opryland.
d.first choosing between Opryland and Disneyland, then choosing between the winner
of the first vote and the Grand Canyon, and finally choosing between the winner of the
second vote and Sea World.