1) Other things equal, a particular job will likely pay a higher wage if it involves
a.danger to the worker.
b.personal enjoyment for the worker.
c.intellectual stimulation for the worker.
d.All of the above are correct.
2) Increases in productivity are not responsible for increased standards of living in the
United States.
a.True
b.False
3) Which of the following will cause an increase in producer surplus?
a.the imposition of a binding price ceiling in the market
b.buyers expect the price of the good to be lower next month
c.the price of a substitute increases
d.income increases and buyers consider the good to be inferior
4) The government finances the budget deficit by
a.borrowing from the public.
b.borrowing solely from the Federal Reserve Bank.
c.printing currency in the amount of the budget deficit.
d.requiring that budget surpluses occur every other year to pay off the deficits.
5) Total output in an economy increases when each person specializes because
a.there is less competition for the same resources.
b.each person spends more time producing that product in which he or she has a
comparative advantage.
c.a wider variety of products will be produced within each country due to
specialization.
d.government necessarily plays a larger role in the economy due to specialization.
6) Suppose New York City passes a local “big gulp” tax that taxes carbonated beverages
larger than 20 ounces if they contain sugar or high fructose corn syrup. If the revenue
from the “big gulp” tax is earmarked for diabetes research, the “big gulp” tax may be
justified
a.on the basis of the ability-to-pay principle.
b.because it is an example of a lump-sum tax and thus is the most efficient tax.
c.on the basis of the benefits principle.
d.because it is an example of a progressive tax and thus is the most equitable tax.
7) Most taxes distort incentives and move the allocation of resources away from the
social optimum. Why do corrective taxes avoid the disadvantages of most other taxes?
a.Corrective taxes apply only to goods that are bad for people’s health, such as
cigarettes and alcohol.
b.Because corrective taxes correct for market externalities, they take into consideration
the well-being of bystanders.
c.Corrective taxes provide incentives for the conservation of natural resources.
d.Corrective taxes do not affect deadweight loss.
8) If we know that the demand curve for good x fails to reflect the total value to society
of that good, then we know that
a.the market for good x is characterized by an externality, but we cannot determine
whether the externality is positive or negative from this fact alone.
b.the market for good x is characterized by a positive externality.
c.the market for good x is characterized by a negative externality.
d.the supply curve for good x fails to reflect the cost to society of producing that good.
9) If transfer payments are included when evaluating tax burdens, then the average tax
rate of the poorest quintile of taxpayers would be approximately
a.negative 30 percent.
b.negative 10 percent.
c.positive 1 percent.
d.positive 8 percent.
10) Figure 7-16
Producer surplus amounts to $300 if the price of the good is
a. $300.
b. $350.
c. $400.
d. $450.
11) Figure 15-9
The deadweight loss caused by a profit-maximizing monopoly amounts to a. $250.
b. $500.
c. $750.
d. $1,000.
12) Honey producers provide a positive externality to orchards because
a.the honey producers get more honey.
b.the orchard owner frequently gets stung by the honey producer’s bees.
c.the orchard owner does not have to purchase bees to pollinate his flowers.
d.the honey producers have to rent access to the orchard grounds.
13) Christopher owns and manages a small tea shop. We assume that Christopher
(i)does not directly care about the quantity of tea that he sells.
(ii)does not directly care about the number of workers that he hires.
(iii)wants to maximize the quantity of tea that he sells.
(iv)wants to minimize the number of workers that he hires.
(v)wants to maximize profits.
a.(i) and (ii) only
b.(i), (ii), and (v) only
c.(iii) and (iv) only
d.(iii), (iv), and (v) only
14) At present, the United States uses a system of quotas to limit the amount of sugar
imported into the country. Which of the following statements is most likely true?
a.The quotas are probably the result of lobbying from U.S. consumers of sugar. The
quotas increase consumer surplus for the United States, reduce producer surplus for the
United States, and harm foreign sugar producers.
b.The quotas are probably the result of lobbying from U.S. producers of sugar. The
quotas increase producer surplus for the United States, reduce consumer surplus for the
United States, and harm foreign sugar producers.
c.The quotas are probably the result of lobbying from foreign producers of sugar. The
quotas reduce producer surplus for the United States, increase consumer surplus for the
United States, and benefit foreign sugar producers.
d.U.S. lawmakers did not need to be lobbied to impose the quotas because total surplus
for the United States is higher with the quotas than without them.
15) The principle that people should pay taxes based on the benefits they receive from
government services is called the
a.pay principle.
b.tax-benefit principle.
c.government services principle.
d.benefits principle.
16) Figure 16-11
The profit for this firm is
a. $375.
b. $500.
c. $1000.
d. $1250.
17) In the circular-flow diagram, firms produce goods and services using the factors of
production.
a.True
b.False
18) Which of the following qualify as part of our economy’s capital income?
a.wages paid to workers
b.interest paid to the owners of corporate bonds
c.rent paid on farmland
d.All of the above are correct.
19) A positive externality will cause a market to produce
a.more than is socially desirable.
b.less than is socially desirable.
c.the socially optimal equilibrium amount.
d.more than the same market would produce in the presence of a negative externality.
20) It should not be surprising if the public sector fails to pay for the right amount or
right kinds of basic research because
a.basic research is not a public good.
b.the benefits of basic research are hard to measure.
c.members of Congress usually have little expertise in science.
d.Both b and c are correct.