1) Figure 10-11
The graph represents a market in which
a.there is no externality.
b.there is a positive externality.
c.there is a negative externality.
d.The answer cannot be determined from inspection of the graph.
2) Assume that Zimbabwe and Portugal can switch between producing toothbrushes and
producing hairbrushes at a constant rate.
Zimbabwe’s opportunity cost of one hairbrush is
a.3/10 toothbrush and Portugal’s opportunity cost of one hairbrush is 5/6 toothbrush.
b.3/10 toothbrush and Portugal’s opportunity cost of one hairbrush is 6/5 toothbrushes.
c.10/3 toothbrushes and Portugal’s opportunity cost of one hairbrush is 5/6 toothbrush.
d.10/3 toothbrushes and Portugal’s opportunity cost of one hairbrush is 6/5
toothbrushes.
3) An oligopoly would tend to restrict output and drive up price if
a.barriers to entering the industry are negligible.
b.firms engage in informative advertising.
c.firms produce a standardized product.
d.firms collude and behave like a monopoly.
4) Refer to Scenario 9-2. Suppose the world price of cardboard is $60. Then Boxland’s
gains from international trade in cardboard amount to
a. $145.
b. $160.
c. $210.
d. $320.
5) Firm A
Firm B
If these are the only two sellers in the market, then the market quantity supplied at a
price of $8 is
a.14 units.
b.15 units.
c.16 units.
d.29 units.
6) Which of the following statements is not correct?
a.Private markets tend to over-produce products with negative externalities.
b.Private markets tend to under-produce products with positive externalities.
c.Private parties can bargain to efficient outcomes even in the presence of externalities.
d.Private parties are usually more successful in achieving efficient outcomes than
government policies.
7) In corporations, which of the following are principals but not agents?
a.shareholders
b.the board of directors
c.managers
d.workers
8) Cross-price elasticity is used to determine whether goods are substitutes or
complements.
a.True
b.False
9) Table 17-23
Two bottled beverage manufacturers (Firm A and Firm B) determine that they could
lower their costs, and thus increase their profits, if they reduced their advertising
budgets. But for the plan to work, each firm must agree to refrain from advertising.
Each firm believes that advertising works by increasing the demand for the firm’s
product, but each firm also believes that if neither firm advertises, the costs savings will
outweigh the lost sales. Listed in the table below are the individual profits for each firm.
Refer to Table 17-23. Suppose that the two firms, A and B, make an agreement to
withhold any advertising for one month to lower each firm’s costs and raise each firm’s
profits. If the firms reach the Nash equilibrium,
a.both firms will choose not to advertise.
b.firm A will choose not to advertise, but firm B will break the agreement and choose to
advertise.
c.firm B will choose not to advertise, but firm A will break the agreement and choose to
advertise.
d.both firms will break the agreement and choose to advertise.
10) Figure 14-9
Suppose a firm operating in a competitive market has the following cost curves:
The firm will exit the market for any price on the line segment
a.ABCD.
b.AB.
c.CD.
d.None of the above is correct.