1) Scenario 8-2
Roland mows Karla’s lawn for $25. Roland’s opportunity cost of mowing Karla’s lawn
is $20, and Karla’s willingness to pay Roland to mow her lawn is $28.
Assume Roland is required to pay a tax of $10 each time he mows a lawn. Which of the
following results is most likely?
a.Karla now will decide to mow her own lawn, and Roland will decide it is no longer in
his interest to mow Karla’s lawn.
b.Karla still is willing to pay Roland to mow her lawn, but Roland will decline her
offer.
c.Roland still is willing to mow Karla’s lawn, but Karla will decide to mow her own
lawn.
d.Roland and Karla still can engage in a mutually-agreeable trade.
2) The federal government is concerned about obesity in the United States. Congress is
considering two plans. One will ban the production and sale of “junk food.” The other
will increase nutritioneducation programs and include substantial advertising
campaigns to encourage healthy eating habits. The junk-food ban program
a.and the education program will reduce the quantity of junk food sold and raise the
price.
b.and the education program will reduce the quantity of junk food sold and lower the
price.
c.will reduce the quantity of junk food sold and raise the price. The education program
will reduce the quantity of junk food sold and lower the price.
d.will reduce the quantity of junk food sold and lower the price. The education program
will reduce the quantity of junk food sold and raise the price.
3) Tony is the owner of Tony’s Taqueria. Tony is a profitmaximizing owner whose firm
operates in a competitive market. An additional worker costs Tony $200 and has a
marginal productivity of 40 tacos. Assuming no other variable costs, what is the
marginal cost of a taco?
a.$200
b.$8
c.$5
d.There is insufficient information available to answer this question.
4) Assume that Zimbabwe and Portugal can switch between producing toothbrushes and
producing hairbrushes at a constant rate.
Zimbabwe has an absolute advantage in the production of
a.toothbrushes and a comparative advantage in the production of toothbrushes.
b.toothbrushes and a comparative advantage in the production of hairbrushes.
c.hairbrushes and a comparative advantage in the production of toothbrushes.
d.hairbrushes and a comparative advantage in the production of hairbrushes.
5) Table 22-20
The table below shows the preferred city budget (in millions) for in the city of
Springfield.
Refer to Table 22-20. In an election, each voter will select the budget closest to his or
her most preferred budget. In which of the following cases does a budget of $32 win?
a.$32 versus $10, and $32 versus $40
b.$32 versus $10, but not $32 versus $40
c.$32 versus $40, but not $32 versus $10
d.Neither $32 versus $10 nor $32 versus $40
6) Mike Miller is the town manager of Medfield, a town with 50,000 residents. At a
recent town meeting, several citizens proposed building a large public swimming pool
in the center of town for all of the residents to enjoy. A survey of all 50,000 residents
revealed that the pool would be worth $50 to each of them. The cost to build the
swimming pool is $1,000,000. Which of the following is the most efficient option?
a.The pool should be built and paid for with donations collected from residents, as these
donations should more than cover the cost of the pool.
b.The pool should be built and paid for by the town government and paid for with a tax
on the residents because all residents would benefit from it but some residents would
not donate if they were asked.
c.The pool should be built and paid for by the wealthiest ten percent of the residents.
d.The pool should not be built because the social value does not exceed the cost.
7) Which of the following would be most likely to have monopoly power?
a.an online bookstore
b.a municipal water company
c.a local restaurant
d.a grocery store
8) Laura is a gourmet chef who runs a small catering business in a competitive industry.
Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month.
Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is
$200. In order to maximize profits, Laura should
a.make more than 20 wedding cakes per month.
b.make fewer than 20 wedding cakes per month.
c.continue to make 20 wedding cakes per month.
d.We do not have enough information to answer the question.
9) The bowed shape of the production possibilities frontier can be explained by the fact
that
a.all resources are scarce.
b.economic growth is always occurring.
c.the opportunity cost of one good in terms of the other depends on how much of each
good the economy is producing.
d.the only way to get more of one good is to get less of the other.
10) When a particular negative externality affects a very large number of people, it is
likely that
a.government will not find it worthwhile to impose a corrective tax.
b.private solutions to the problem will dominate any attempt by government to alleviate
the problem.
c.the solution to externalities suggested by the Coase theorem will work very well.
d.the solution to externalities suggested by the Coase theorem will not work.
11) Efficiency means that
a.society is conserving resources in order to save them for the future.
b.society’s goods and services are distributed equally among society’s members.
c.society’s goods and services are distributed fairly, though not necessarily equally,
among society’s members.
d.society is getting the maximum benefits from its scarce resources.
12) In 2011, approximately what percentage of the U.S. federal government’s receipts
came from individual income taxes?
a.9%
b.15%
c.43%
d.67%
13) Which of the following can eliminate the inefficiency inherent in monopoly
pricing?
a.arbitrage
b.cost-plus pricing
c.price discrimination
d.regulations that force monopolies to reduce their levels of output