To minimize deadweight loss, markets where demand is relatively _____ and supply is
relatively _____ should be taxed.
A) elastic; inelastic
B) elastic; elastic
C) inelastic; elastic
D) inelastic; inelastic
Figure: Shifts in Demand and Supply II
(Figure: Shifts in Demand and Supply II) Look at the figure Shifts in Demand and
Supply II. The figure shows how supply and demand might shift in response to specific
events. Suppose vast new oilfields are discovered offshore of California and gasoline
prices fall. Which panel BEST describes how this will affect the market for sport utility
vehicles, a complement in consumption to gasoline?
A) panel A
B) panel B
C) panel C
D) panel D
Scenario: Music Downloads and Streamed Movies
Phillip has an income of $300 per month, which he uses to purchase music downloads
(MD) and streamed movies (SM). Each music download costs $1 and each streamed
movie costs $5.
(Scenario: Music Downloads and Streamed Movies) Read the scenario Music
Downloads and Streamed Movies. For Phillip, the horizontal (music download)
intercept is:
A) 20.
B) 300.
C) 30.
D) 10.
Price ceilings will impose costs on society because they:
A) will eliminate long waiting lines.
B) may result in black market prices, which are lower than the market-determined price
would be.
C) lead to a smaller quantity offered on the market.
D) help businesses instead of consumers.
Figure: Budget Lines for Tea and Scones
(Figure: Budget Lines for Tea and Scones) Look at the figure Budget Lines for Tea and
Scones. For months now, Agnes has had $20 per month to spend on tea and scones. The
price of each cup of tea and each scone has been $1. Which of the charts shows what
will happen to her budget line if the price of a cup of tea falls to $0.50?
A) A
B) B
C) C
D) D
If the government imposes a limit on sales of a good or service by licensing the right to
sell a given quantity of the good, the difference between the demand and supply price
is:
A) the quota rent.
B) the market price of the license if the license is tradable.
C) the quota price.
D) the quota rent plus the market price of the license if the license is tradable.
A shift of the demand curve for thin-crust pizza would NOT be caused by a change in:
A) buyers’ incomes.
B) the price of thin-crust pizza.
C) the price of thick-crust pizza.
D) the popularity of thin-crust pizza.
(Table: Costs of Producing Bagels) Look at the table Cost of Producing Bagels.
Marginal cost reaches its minimum value for the _____ bagel.
A) first
B) third
C) fourth
D) fifth
Health care in the United States is DIFFERENT FROM that of other wealthy countries
in all of the following ways EXCEPT that:
A) Americans rely more on private health insurance.
B) Americans spend more per person on health care.
C) the United States is the only country in which large numbers of people lack health
insurance.
D) the United States is the only country that provides government health care.
When a perfectly competitive industry is in long-run equilibrium, its firms:
A) earn more than zero economic profits.
B) combine their variable and fixed resources inefficiently.
C) are not in short-run equilibrium.
D) allocate all of their resources efficiently.
Which of the following is a quantity control?
A) the Medicare reimbursement schedule for physicians
B) the minimum wage
C) unemployment insurance
D) limits on the number of red snappers that can be caught in the Gulf of Mexico
For a perfectly competitive firm, marginal revenue:
A) is less than price.
B) is greater than price.
C) decreases as the firm increases output.
D) is equal to price.
A tax system achieves equity when:
A) taxes are distributed fairly, however society may define fair.
B) it minimizes the costs to the economy of tax collection.
C) it is efficient.
D) taxes are lump sum.
If a player has an incentive to cheat no matter what the other player does and if both
players act in this manner, both players will be worse off. This is a:
A) prisoners’ dilemma.
B) tit-for-tat strategy.
C) price leadership model.
D) kinked demand curve model.
In perfect competition, a change in fixed cost will:
A) cause a change in the price in the short run.
B) cause a change in output in the short run.
C) encourage entry or exit in the long run so that price will change enough to leave
firms earning zero profits.
D) cause a change in variable cost.
Figure: Rita’s Time Allocation Budget Line
(Figure: Rita’s Time Allocation Budget Line) Look at the figure Rita’s Time Allocation
Budget Line. It is based on 80 hours available for labor and leisure. If her hourly wage
doubles, the new time allocation budget line will have a point at _____ hours of leisure
and _____ in income.
A) 30; $1,000
B) 40; $400
C) 50; $700
D) 60; $280
Figure: Consumer Equilibrium III
(Figure: Consumer Equilibrium III) Look at the figure Consumer Equilibrium III. The
lowest level of total utility at which Ivan still spends all of his income is associated with
point _____ on _____.
A) A; I3
B) C; I3
C) E; I2
D) B; I1
To encourage people to retire later, because people usually exploit opportunities to
make themselves better off, the government could:
A) reduce Social Security benefits.
B) raise the tax rate on older individuals.
C) engage in a public service campaign explaining the value of these employees to the
economy.
D) increase Social Security benefits.
(Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During
the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly
competitive industry. Assume that costs are constant in each interval; that is, the
variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for
the mower. His variable costs include fuel, his time, and mower parts. If the price for
mowing a lawn is $70, how much is Alex’s total cost at the profit-maximizing output?
A) $3,500
B) $2,800
C) $2,100
D) $1,500
The demand curve for videos has shifted to the right. What could have caused it?
A) a fall in the price of videos
B) an increase in the price of videos
C) an increase in the supply of videos
D) an increase in the incomes of buyers
(Table: The Market for Fried Twinkies) Look at the table The Market for Fried
Twinkies. The government decides to tax fried Twinkies at a rate of $0.30 per Twinkie
and collect that tax from the producers. After paying the tax, producers will receive
_____ per Twinkie, and they will sell _____ Twinkies after the tax.
A) $1.10; 3,000
B) $1.20; 5,000
C) $1.30; 7,000
D) $1.50; 5,000
Figure: Gain in Producer Surplus
(Figure: Gain in Producer Surplus) Look at the figure Gain in Producer Surplus. Which
of the following areas represent producer surplus when the price is equal to P2?
A) D, E, and F
B) B and C
C) D and E
D) A, B, and C
(Table: Variable Costs for Lots) Look at the table Variable Costs for Lots. During the
winter, Alexa runs a snow-clearing service in a perfectly competitive industry. Assume
that costs are constant in each interval; that is, the variable cost of clearing anywhere
from 1 through 10 lots is $200. Her only fixed cost is $1,000 for a snowplow. Her
variable costs include fuel, her time, and hot coffee. If the price to clear a lot is $60,
what is Alexa’s profit or loss at the optimal output?
A) $3,000
B) $1,100
C) $900
D) $3,850
A popular train station has free parking for commuters who take the train. This often
results in many people being unable to find a parking spot and missing their train. To
solve this problem, all commuters should be:
A) given a parking pass along with their ticket.
B) required to pay for parking.
C) able to purchase an annual pass which allows them to park at the train station.
D) exempt from parking lot fees.
(Table: Cherry Farm) Look at the table Cherry Farm. If all farms are the same size, how
much economic profit will each farm earn when the industry is in long-run equilibrium?
A) $0
B) $100
C) “$200
D) $1,000
Figure: The Restaurant Market
(Figure: The Restaurant Market) The figure The Restaurant Market shows curves facing
a typical restaurant. Assume that many firms, differentiated products, and easy entry
and exit characterize the market. In the long run:
A) restaurants will leave the market.
B) restaurants will enter the market.
C) restaurants will neither enter nor exit the market.
D) Not enough information is given to answer the question.
Figure: Short-Run Costs II
(Figure: Short-Run Costs II) Look at the figure Short-Run Costs II. At 6 units of output,
average variable cost is approximately:
A) $100.
B) $120.
C) $200.
D) $250.
Figure: Comparative Advantage Eastland and Westland produce only two goods,
boxes of peaches and boxes of oranges, and this figure shows each nation’s production
possibility frontier for the two goods.
(Figure: Comparative Advantage) Look at the figure Comparative Advantage. Westland
has an absolute advantage in producing:
A) oranges only.
B) peaches only.
C) both oranges and peaches.
D) neither oranges or peaches.
(Table: Trade-off of Study Time
and Leisure Time) Look at the table Trade-off of Study Time and Leisure Time. A
student sleeps 8 hours per day and divides the remaining time between study and leisure
time. Suppose this student is studying 4 hours and spending 10 hours doing leisure
activities. This point is:
A) outside the production possibility frontier.
B) inside the production possibility frontier.
C) on the production possibility frontier.
D) both efficient and feasible.
The marginal social benefit of pollution:
A) increases as more pollution is emitted.
B) equals zero when the social optimal quantity of pollution is produced.
C) equals the marginal social cost of pollution in all markets at equilibrium.
D) is the benefit to society of one more unit of pollution.
When a monopoly maximizes profit, the loss of surplus by consumers is _____ the
monopolist’s gain in profit.
A) less than
B) equal to
C) more than
D) sometimes more than and sometimes less than