TEST BANK for Principles of Microeconomics, 8th Edition by Robert Frank, Ben Bernanke by ACADEMIAMILL

Chapter 1 CHAPTER 1 1)

Economics is best defined as the study of

A) inflation, interest rates, and the stock market. B) supply and demand. C) how people make choices in the face of scarcity and the implications of those choices for society as a whole. D) the financial concerns of businesses and individuals.

Economics is best defined as the study of A) the financial concerns of businesses and individuals. B) the role of government in limiting the choices people make. C) choice in the face of limited resources. D) whether we will have enough resources in the future.

Economists recognize that because people have limited resources A) government intervention is necessary. B) they have to make trade-offs. C) they will never be happy. D) our future is bleak.

The Scarcity Principle states that

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A) people don't have enough money to buy what they want. B) society will eventually run out of resources. C) with limited resources, having more of one thing means having less of another. D) some countries have fewer resources than others.

An implication of scarcity is that A) people will never be happy. B) making trade-offs becomes unnecessary as wealth increases. C) some people will always be poor. D) people must make trade-offs.

If all the world's resources were to magically increase one hundredfold, then A) people would still have to make trade-offs. B) economics would no longer be relevant. C) scarcity would disappear. D) trade-offs would become unnecessary.

The Scarcity Principle applies to A) poor people primarily. B) consumers primarily. C) firms primarily. D) everyone.

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8) Forest lives in complete isolation in Montana. He is self-sufficient and feeds himself through hunting, fishing, and farming. Which of the following statements about Forest is true? A) Forest has unlimited resources. B) Forest is not required to make trade-offs because he is self-sufficient. C) Forest has to make trade-offs. D) Forest doesn't have to consider costs and benefits.

The Scarcity Principle applies to A) all decisions. B) only market decisions, e.g., buying a car. C) only non-market decisions, e.g., watching a sunset. D) only the poor.

10) Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. The decision Chris must make is A) not an economic problem because neither activity costs money. B) not an economic problem because it's an hour that Chris has no matter what he does. C) an economic problem because the tuition Chris pays covers the cost of both the gym and the library. D) an economic problem because Chris has only one hour, and engaging in one activity means giving up the other.

11) Jackie wants to go to the football game this weekend, but she has a paper due on Monday. It will take her the whole weekend to write the paper. Jackie decides to stay home and work on the paper. According to the Scarcity Principle, the reason Jackie doesn't go to the game is that

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A) Jackie prefers schoolwork to football games. B) writing the paper is easier than going to the game. C) Jackie can't go the game and finish the paper. D) going to the game won't be fun.

12) Whether studying the output of the U.S. economy or how many classes a student will take, a unifying concept is that A) wants are limited and resources are unlimited, so trade-offs are unnecessary. B) wants are unlimited and resources are scarce, so trade-offs have to be made. C) wants are limited and resources are unlimited, so trade-offs have to be made. D) both wants and resources are unlimited, so trade-offs are unnecessary.

13)

The Cost-Benefit Principle indicates that an action should be taken if A) its total benefits exceed its total costs. B) its average benefits exceed its average costs. C) its net benefit (benefit minus cost) is zero. D) its extra benefit is greater than or equal to its extra cost.

14) If a person takes an action if, and only if, the extra benefits from taking that action are at least as great as the extra costs, then that person is A) not following the Cost-Benefit Principle. B) following the Scarcity Principle. C) following the Cost-Benefit Principle. D) not rational.

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15) Choosing to study for an exam until the extra benefit (e.g., improved score) equals the extra cost (e.g., the value of forgone activities) is A) not an economic choice. B) an application of the Cost-Benefit Principle. C) an application of the Scarcity Principle. D) not rational because it ignores the importance of total benefits and total costs.

16)

The Scarcity Principle tells us ______, and the Cost-Benefit Principle tells us ______. A) that choices must be made; how to make good choices B) that good choices eliminate scarcity; how to make good choices C) how to make choices; that choices must be made D) how to make good choices; that choices involve costs and benefits

17) According to the Cost-Benefit Principle, you should go see the latest Fast and Furious movie with your friends this weekend if A) the extra benefits of seeing the movie are greater than the extra costs of seeing the movie. B) you really like action movies. C) you can afford to go to the movies. D) the average benefit you get from going to the movies is greater than the average cost of a ticket.

18)

A rational person

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A) makes choices based on total benefits and total costs. B) makes choices based on added benefits and added costs. C) undertakes activities until the net benefits become less than zero. D) considers the financial benefits and financial costs of making a choice.

19) Suppose that the extra cost to Ava of a third glass of soda is zero because she's at a restaurant that gives free refills. According to the Cost-Benefit Principle Ava should A) drink a third glass of soda. B) drink a third glass of soda if the extra benefit of doing so is positive. C) drink a third glass of soda if her total benefit from drinking soda is positive. D) not drink a third glass of soda.

20) Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $30, and if she washes clothes, she will earn $45. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose to ______ because it generates a ______ economic surplus. A) mow the lawn; bigger B) wash clothes; bigger C) mow the law; smaller D) wash clothes; smaller

21) Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $24, and if she washes clothes, she will earn $28. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose ______ because ______.

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A) not to mow the lawn; it generates a bigger economic surplus B) not to wash clothes; it generates a bigger economic surplus C) not to wash clothes; it generates a smaller economic surplus D) not to mow the lawn; it generates a smaller economic surplus

22)

Dean should play golf instead of preparing for tomorrow's exam in economics if

A) he is irrational. B) the benefit of golfing is greater than the benefit of studying. C) the economic surplus from playing golf is greater than the economic surplus from studying. D) Dean can play golf for free.

23) Lauren was accepted at three different graduate schools, and she must choose one. Elite U costs $50,000 per year and did not offer Lauren any financial aid. Lauren values attending Elite U at $60,000 per year. State College costs $30,000 per year and offered Lauren an annual $10,000 scholarship. Lauren values attending State College at $40,000 per year. NoName U costs $20,000 per year and offered Lauren a full $20,000 annual scholarship. Lauren values attending NoName at $15,000 per year. Lauren's opportunity cost of attending Elite U is A) $70,000. B) $50,000. C) $20,000. D) $15,000.

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24) Lauren was accepted at three different graduate schools, and she must choose one. Elite U costs $50,000 per year and did not offer Lauren any financial aid. Lauren values attending Elite U at $60,000 per year. State College costs $30,000 per year and offered Lauren an annual $10,000 scholarship. Lauren values attending State College at $40,000 per year. NoName U costs $20,000 per year and offered Lauren a full $20,000 annual scholarship. Lauren values attending NoName at $15,000 per year. Lauren's opportunity cost of attending State College is A) $35,000. B) $30,000. C) $20,000. D) $15,000.

25) Lauren was accepted at three different graduate schools, and she must choose one. Elite U costs $50,000 per year and did not offer Lauren any financial aid. Lauren values attending Elite U at $60,000 per year. State College costs $30,000 per year and offered Lauren an annual $10,000 scholarship. Lauren values attending State College at $40,000 per year. NoName U costs $20,000 per year and offered Lauren a full $20,000 annual scholarship. Lauren values attending NoName at $15,000 per year. Lauren's opportunity cost of attending Elite U is A) $20,000. B) $70,000. C) $50,000. D) $15,000.

26) Lauren was accepted at three different graduate schools, and she must choose one. Elite U costs $50,000 per year and did not offer Lauren any financial aid. Lauren values attending Elite U at $60,000 per year. State College costs $30,000 per year and offered Lauren an annual $10,000 scholarship. Lauren values attending State College at $40,000 per year. NoName U costs $20,000 per year and offered Lauren a full $20,000 annual scholarship. Lauren values attending NoName at $15,000 per year. Lauren's opportunity cost of attending NoName U is

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A) $60,000. B) $30,000. C) $20,000. D) $15,000.

27) Lauren was accepted at three different graduate schools and must choose one. Elite U costs $50,000 per year and did not offer Lauren any financial aid. Lauren values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Lauren an annual $10,000 scholarship. Lauren values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Lauren a full $20,000 annual scholarship. Laruren values attending NoName at $15,000 per year. Lauren maximizes her economic surplus by attending A) Elite U. B) State College. C) NoName U because she has a full scholarship there. D) NoName U because the annual cost is only $20,000.

28) Lauren was accepted at three different graduate schools, and she must choose one. Elite U costs $50,000 per year and did not offer Lauren any financial aid. Lauren values attending Elite U at $60,000 per year. State College costs $30,000 per year and offered Lauren an annual $10,000 scholarship. Lauren values attending State College at $40,000 per year. NoName U costs $20,000 per year and offered Lauren a full $20,000 annual scholarship. Lauren values attending NoName at $15,000 per year. What is Lauren's economic surplus from attending State College instead of her next best alternative? A) $40,000 B) $20,000 C) $10,000 D) $5,000

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29) Jen spends her afternoon at the beach, paying $1 to rent a beach umbrella and $11 for food and drinks rather than spending an equal amount of money to go to a movie. Her opportunity cost of going to the beach is A) the $12 she spent on the umbrella, food, and drinks. B) only $0 because she would have spent $12 to go to the movie. C) the value she places on seeing the movie. D) the value she places on seeing the movie plus the $12 she spent on the umbrella, food, and drinks.

30) Jen spends her afternoon at the beach, paying $5 to rent a beach umbrella and $15 for food and drinks rather than spending an equal amount of money to go to a movie. Her opportunity cost of going to the beach is A) the value she places on going to the beach minus $20. B) the value she places on going to the beach. C) the value she places on seeing the movie. D) the value she places on seeing the movie minus $20.

31) All else equal, relative to a person who earns minimum wage, a person who earns $30 per hour has A) a higher opportunity cost of working an additional hour. B) a higher opportunity cost of taking the day off work. C) a lower opportunity cost of driving farther to work. D) the same opportunity cost of spending time on leisure activities.

32)

The opportunity cost of an activity includes the value of

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A) all of the alternatives that must be forgone. B) the next-best alternative that must be forgone. C) the least-best alternative that must be forgone. D) the chosen activity minus the value of the next-best alternative.

33) Kendall is thinking about going to the movies tonight. A movie ticket costs $15, and she'll have to cancel a $20 dog-sitting job that she would have been willing to do for free. Kendall's opportunity cost of going to the movies is A) $5. B) $15. C) $20. D) $35.

34) Kendall is thinking about going to the movies tonight. A movie ticket costs $15, and she'll have to cancel a $20 dog-sitting job that she would have been willing to do for free. Kendall’s opportunity cost of going to the movies is A) $45. B) $30. C) $35. D) $35.

35)

The economic surplus of an action is A) the benefit gained by taking an action. B) the difference between the explicit and implicit costs of taking an action. C) the difference between the benefit and the cost of taking an action. D) the money a person has left over after taking an action.

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36) You are trying to decide whether to purchase a Harry Potter book online or borrow it from the library. There is no charge for borrowing a book from the library, but going to the library takes more time than ordering a book online. Regardless of how you get the book, its benefit to you is the same. If the cost of buying the book online is $13, then you should A) borrow the book from the library because you can get it from the library for free. B) borrow the book from the library if the cost of doing so (in terms of the extra time it takes) is less than $13. C) borrow the book from the library if the cost of doing so (in terms of the extra time it takes) is greater than $13. D) buy the book online because it takes less time.

37) Alex received a four-year scholarship to State U that covered tuition and fees, room and board, and books and supplies. If Alex becomes a full-time student, then A) attending State U for four years is costless for Alex. B) Alex has no incentive to study hard while at State U. C) the opportunity cost of attending State U includes the money Alex could have earned working for four years. D) the opportunity cost of attending State U includes the sum of the benefits Alex would have had from attending each of the other schools to which Alex was admitted.

38) Suppose Monique is willing to pay up to $15,000 for a used Ford pick-up truck. If she buys one for $12,000, her economic _____ would be ______. A) benefit; $12,000 B) cost; $15,000 C) surplus; $3,000 D) surplus; $12,000

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39) Suppose Monique is willing to pay up to $20,000 for a used Ford pick-up truck. If she buys one for $15,500, her economic ______ would be ______. A) cost; $35,500 B) benefit; $35,500 C) benefit; $4,500 D) surplus; $4,500

40)

If individuals are rational, they should choose actions that yield the A) largest total benefits. B) smallest total costs. C) smallest economic surplus. D) largest economic surplus.

41) Suppose the most you would be willing to pay for a plane ticket home is $250. If you buy one for $175, then your economic surplus is A) $250. B) $175. C) $75. D) $0.

42) Suppose the most you would be willing to pay for a plane ticket home is $300. If you buy one for $240, then your economic surplus is

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A) $540. B) $240. C) $60. D) a plane ticket home.

43)

The Cost-Benefit Principle A) fully captures how people choose between alternatives. B) provides an abstract model of how people should choose between alternatives. C) describes how people behave once they have enough education. D) provides little insight into how people actually chose between alternatives.

44)

Economists believe the Cost-Benefit Principle is A) a simple but useful model of how people should make choices. B) a comprehensive description of all the factors that influence people's choices. C) an interesting intellectual exercise with little applicability to the real world. D) of little use to those who wish to learn how to make better decisions.

45)

The cost-benefit model used by economists is A) unrealistic because it is too detailed and specific to apply to most situations. B) unrealistic because everyone can think of times when he or she violated the principle. C) useful because everyone follows it all of the time. D) useful because most people follow it most of the time.

46)

Economists use abstract models because

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A) every economic situation is unique, so it is impossible to make generalizations. B) every economic situation is essentially the same, so specific details are unnecessary. C) they are useful for describing general patterns of behavior. D) computers have allowed economists to develop abstract models.

47) is

The fact that most people make some decisions based on intuition rather than calculation

A) irrational, because intuition is usually wrong. B) consistent with the cost-benefit model because calculating costs and benefits is irrational. C) consistent with the cost-benefit model because most people intuitively weigh costs and benefits. D) inconsistent with the cost-benefit model, but still rational.

48) Moe has a big exam tomorrow. He considered studying this evening but decided to hang out with Curly instead. If neither activity involves any explicit costs, and Moe always chooses rationally, it must be true that A) the opportunity cost of studying is greater than the value Moe gets from spending time with Curly. B) the opportunity cost of studying is less than the value Moe gets from spending time with Curly. C) Moe gets more benefit from spending time with Curly than from studying. D) Moe gets less benefit from spending time with Curly than from studying.

49) If one fails to account for implicit costs in decision making, then applying the costbenefit rule will be flawed because

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A) the benefits will be overstated. B) the costs will be understated. C) the benefits will be understated. D) the costs will be overstated.

50) Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfare is $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1,400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfare is $450. If you do not use the frequent-flyer coupon to fly to Miami, should you go to Miami? A) Yes, your benefit is more than your cost. B) No, your benefit is less than your cost. C) Yes, your benefit is equal to your cost. D) No, because there are no benefits in the trip.

51) Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfare is $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1,400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfare is $450. What is the opportunity cost of using the coupon for the Miami trip? A) $100 B) $450 C) $500 D) $550

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52) Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfare is $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1,400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfare is $450. Should you use the frequent flyer coupon to go to Miami? A) Yes, your benefit is more than your cost. B) No, your benefit is less than your cost. C) Yes, your benefit is equal to your cost. D) No, because there are no benefits in the trip.

53) Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfare is $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1,400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfare is $450. If the Chicago-Atlanta round-trip air fare were $350, should you use the coupon to go to Miami? A) No, your economic surplus would be −$50. B) No, your economic surplus would be −$100. C) Yes, your economic surplus would be $50. D) Yes, your economic surplus would be $400.

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54) Sam earns $25,000 per year (after taxes), and Sam's spouse, Ryan, earns $35,000 (after taxes). They have two pre-school-aged children. Childcare for their children costs $12,000 per year. Given that Ryan doesn't want to stay home with the kids, regardless of what Sam does, Sam should stay home with the kids if, and only if, the value of Sam spending more time with the kids is greater than A) $37,000 per year. B) $25,000 per year. C) $13,000 per year. D) $12,000 per year.

55) You paid $35 for a ticket (which is nonrefundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is the most you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same time as the concert. You would have to work 4 hours and she would pay you $11/hr. The cost to you of working is $2/hr. Should you go to the concert instead of working Saturday? A) Yes, the benefit of going to the concert is more than the cost. B) No, the benefit of going to the concert is less than the cost. C) Yes, the benefit of going to the concert is equal to the cost. D) No, because there are no benefits of going to the concert.

56) You paid $35 for a ticket (which is nonrefundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is the most you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same time as the concert. You would have to work 4 hours and she would pay you $11/hr. The cost to you of working is $2/hr. What is the opportunity cost of going to the concert? A) $1 B) $9 C) $35 D) $36

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57) You paid $35 for a ticket (which is nonrefundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is the most you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same time as the concert. You would have to work 4 hours and she would pay you $11/hr. The cost to you of working is $2/hr. What is your opportunity cost of going to work on Saturday? A) $0 B) $9 C) $35 D) $36

58) You paid $35 for a ticket (which is nonrefundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is the most you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same time as the concert. You would have to work 4 hours and she would pay you $11/hr. The cost to you of working is $2/hr. Your economic surplus from going to work instead of seeing SPAM on Saturday is A) $0. B) $1. C) $35. D) $36.

59) Matt has decided to purchase his textbooks for the semester. His options are to purchase the books online with next-day delivery at a cost of $175, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $170. Last week he drove to campus to buy a concert ticket because they offered 25 percent off the regular price of $16. The benefit to Matt of buying his books at the university bookstore instead of online is

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A) $5. B) $9. C) $170. D) $175.

60) Matt has decided to purchase his textbooks for the semester. His options are to purchase the books online with next-day delivery at a cost of $175, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $170. Last week he drove to campus to buy a concert ticket because they offered 25 percent off the regular price of $16. The benefit to Matt of driving to campus to buy the concert ticket last week was A) $2. B) $4. C) $9. D) $16.

61) Matt has decided to purchase his textbooks for the semester. His options are to purchase the books online with next-day delivery at a cost of $175, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $170. Last week he drove to campus to buy a concert ticket because they offered 25 percent off the regular price of $16. Given that driving to campus to buy the concert ticket was rational for Matt, Matt should A) not drive to campus to buy the books because the $5 he would save is only two percent of the cost of the books, and that is much less than the 25 percent he saved on the concert ticket. B) drive to campus to buy the books because the books are cheaper at the bookstore than online. C) drive to campus to buy the books because the $5 he would save is more than he saved by driving to campus to buy the concert ticket. D) not drive to campus to buy the books because the cost of gas and his time must certainly be more than the $5 he would save.

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62) Matt has decided to purchase his textbooks for the semester. His options are to purchase the books online with next-day delivery at a cost of $175, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $170. Last week he drove to campus to buy a concert ticket because they offered 25 percent off the regular price of $16. Assume the minimum that Matt would be willing to accept to drive to campus is equal to the $4 he saved on the concert ticket. What would his economic surplus be if he bought his textbooks at the university bookstore rather than online? A) $5 B) $1 C) $50 D) $20

63)

The marginal benefit of an activity is the A) same as the total benefit of an activity. B) total benefit of an activity divided by the level of the activity. C) extra benefit associated with an extra unit of the activity. D) total benefit associated with an extra unit of the activity.

64) Suppose the total benefit of watching 1 baseball game is 100, the total benefit of watching 2 games is 120, and the total benefit of watching 3 games is 125. In this case, the marginal benefit of watching the 3rd game is A) 125. B) 5. C) 41.67. D) 375.

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65) Suppose the total benefit of watching 1 baseball game is 100, the total benefit of watching 2 games is 130, and the total benefit of watching 3 games is 150. In this case, the marginal benefit of watching the 3rd game is A) 150. B) 50. C) 20. D) 30.

66) The extra benefit that results from carrying out one additional unit of an activity is the ______ of the activity. A) marginal benefit B) total benefit C) average benefit D) economic benefit

67)

The marginal cost of an activity is the

A) change in the total cost of the activity that results from carrying out an additional unit of the activity. B) total cost of the activity divided by the change in the level of the activity. C) total cost of the activity divided by the level of the activity. D) change in the level of the activity divided by the change in the cost of the activity.

68) The extra cost that results from carrying out one additional unit of an activity is the _____ of the activity.

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A) marginal benefit B) marginal cost C) reservation cost D) opportunity cost

69)

Dividing the total cost of undertaking n units of an activity by n reveals the A) average benefit. B) marginal cost. C) units per cost. D) average cost.

70) For the fall semester, you had to pay a nonrefundable fee of $600 for your meal plan, which gives you up to 150 meals. If you eat all of the meals, your average cost per meal is A) $6.00. B) $5.00. C) $4.00. D) $0.25.

71) For the fall semester, you had to pay a nonrefundable fee of $800 for your meal plan, which gives you up to 240 meals. If you eat 160 meals, your average cost per meal is A) $2.00. B) $5.00. C) $0.20. D) $6.00.

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72) For the fall semester, you had to pay a nonrefundable fee of $600 for your meal plan, which gives you up to 150 meals. If you only eat 1 meal, your average cost for a meal is A) $600. B) $150. C) $4. D) $596.

73) For the fall semester, you had to pay a nonrefundable fee of $600 for your meal plan, which gives you up to 150 meals. If you eat 100 meals, your marginal cost of the 100th meal is A) $6.00. B) $4.00. C) $0.25. D) $0.

74)

The average benefit of n units of an activity is the A) total benefit of n units divided by n. B) n divided by the total benefit of n units. C) n times the total benefit of n units. D) extra benefit from carrying out one additional unit of the activity.

75) You save $10 on gas every week because you take the bus to school. You have class 5 days a week. What is your average benefit per day of taking the bus to school?

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A) $10 B) $5 C) $2 D) $0

76) Your scholarship depends on your maintaining a 3.5 cumulative GPA. Your GPA for last semester was 3.6, which brought your cumulative GPA down. What must be true? A) Last semester's grades were higher than your overall GPA. B) Last semester's grades were lower than your overall GPA. C) If this semester's grades are the same as last semester's, your overall GPA will stay the same. D) If this semester's grades are the same as last semester's, you might lose your scholarship.

77)

Refer to the accompanying table. The average cost of 4 units of this activity is Units of Activity

Total Cost

Total Benefit

$ 0

100

160

190

100

210

150

220

210

225

A) $20. B) $25. C) $30. D) $40.

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78)

Refer to the accompanying table. The marginal cost of the 3rd unit of this activity is Units of Activity

Total Cost

Total Benefit

$ 0

100

160

190

100

210

150

220

210

225

A) $30 B) $25 C) $20 D) $10

79)

Refer to the accompanying table. The average benefit of 2 units of activity is Units of Activity

Total Cost

Total Benefit

$ 0

100

160

190

100

210

150

220

210

225

A) $80. B) $60. C) $40. D) $20.

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80)

Refer to the accompanying table. The marginal benefit of the 5th unit of activity is Units of Activity

Total Cost

Total Benefit

$ 0

100

160

190

100

210

150

220

210

225

A) $50. B) $44. C) $10. D) $5.

81) Refer to the accompanying table. According to the Cost-Benefit Principle, how many units of this activity should be carried out? Units of Activity

Total Cost

Total Benefit

$ 0

100

160

190

100

210

150

220

210

225

A) 1 B) 3 C) 4 D) 6

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82)

Refer to the accompanying table. The average cost of 5 units of activity is Units of Activity

Total Cost

Total Benefit

$ 0

A) $4. B) $6. C) $8. D) $10.

83)

Refer to the accompanying table. The marginal cost of the 4th unit of activity is Units of Activity

Total Cost

Total Benefit

$ 0

A) $5. B) $6. C) $8. D) $10.

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84)

Refer to the accompanying table. The average benefit of 4 units of activity is Units of Activity

Total Cost

Total Benefit

$ 0

A) $4. B) $5. C) $9. D) $10.

85)

Refer to the accompanying table. The marginal benefit of the 6th unit of activity is

Units of Activity

Total Cost

Total Benefit

$ 0

A) $1. B) $2. C) $4. D) $7.

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86) Refer to the accompanying table. According to the Cost-Benefit Principle, how many units of this activity should be carried out? Units of Activity

Total Cost

Total Benefit

$ 0

A) 2 B) 3 C) 4 D) 5

87) The accompanying table shows how total donations, average donations, total labor costs, and average labor costs vary depending on the number of employees State U hires for its fundraising activities: Number of Employees

Total Donations

$ 30,000

42,426

3 4 5

Average Donations

Total Labor Costs

Average Labor Costs $ 8,000

$ 17,000 $ 17,321

27,000

60,000

9,500 13,416

50,000

The total value of donations raised by three employees is

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A) $43,899. B) $45,000. C) $48,911. D) $51,963.

88) The accompanying table shows how total donations, average donations, total labor costs, and average labor costs vary depending on the number of employees State U hires for its fundraising activities: Number of Employees

Total Donations

$ 30,000

42,426

3 4

Average Donations

Total Labor Costs

$ 8,000 $ 17,000 $ 17,321

27,000

60,000

Average Labor Costs

9,500 13,416

50,000

The total labor cost with 4 employees is A) $21,500. B) $22,000. C) $38,000. D) $43,121.

89) The accompanying table shows how total donations, average donations, total labor costs, and average labor costs vary depending on the number of employees State U hires for its fundraising activities: Number of Employees

Version 1

Total Donations

Average Donations

Total Labor Costs

Average Labor Costs

$ 30,000

42,426

3 4

$ 8,000 $ 17,000 $ 17,321

27,000

60,000

9,500 13,416

50,000

The president of State U decides to hire fundraising employees as long as their average benefit exceeds their average cost. This results in ______ employees being hired and a net benefit (total donations minus total labor costs) of ______. A) 5; $17,080 B) 5; $67,080 C) 4; $60,000 D) 4; $22,000

90) The accompanying table shows how total donations, average donations, total labor costs, and average labor costs vary depending on the number of employees State U hires for its fundraising activities: Number of Employees

Total Donations

$ 30,000

42,426

3 4 5

Average Donations

Total Labor Costs

Average Labor Costs $ 8,000

$ 17,000 $ 17,321

27,000

60,000

9,500 13,416

50,000

The marginal benefit (in terms of extra donations) of the 2nd employee is

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A) $42,426. B) $21,213. C) $12,426. D) $11,337.

91) The accompanying table shows how total donations, average donations, total labor costs, and average labor costs vary depending on the number of employees State U hires for its fundraising activities: Number of Employees

Total Donations

$ 30,000

42,426

Average Donations

Average Labor Costs $ 8,000

$ 17,000

3 4

Total Labor Costs

$ 17,321

27,000

60,000

9,500

13,416

50,000

The marginal cost of the 4th employee is A) $9,500. B) $10,750. C) $11,000. D) $13,000.

92) The accompanying table shows how total donations, average donations, total labor costs, and average labor costs vary depending on the number of employees State U hires for its fundraising activities: Number of Employees

Version 1

Total Donations

Average Donations

Total Labor Costs

Average Labor Costs

$ 30,000

42,426

3 4

$ 8,000 $ 17,000 $ 17,321

27,000

60,000

9,500 13,416

50,000

The Chair of the Economics Department at State U says that fundraising employees should be hired as long as their marginal benefit exceeds their marginal cost. If the University follows this advice, then ______ employee(s) will hired, and the net benefit (total donations minus total labor costs) will be ______. A) 1; $22,000 B) 2; $25,426 C) 3; $25,426 D) 2; $3,476

93) The accompanying table shows how total donations, average donations, total labor costs, and average labor costs vary depending on the number of employees State U hires for its fundraising activities: Number of Employees

Total Donations

$ 30,000

42,426

3 4 5

Average Donations

Total Labor Costs

Average Labor Costs $ 8,000

$ 17,000 $ 17,321

27,000

60,000

9,500 13,416

50,000

The net benefit of hiring fundraisers is largest when ______ employees are hired.

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A) 4 B) 3 C) 2 D) 1

94) Ginger bought a phone that came with a $10 rebate. Ginger should fill out and mail in the rebate form if A) the opportunity cost of the time and trouble of sending in the rebate form is less than $10. B) the opportunity cost of the time and trouble of sending in the rebate form is more than $10. C) she would have bought the phone without the rebate, and so sending in the rebate form involves no opportunity cost. D) Ginger's surplus from purchasing the phone was less than $10.

95) Tony notes that an electronics store is offering a flat $20 off all prices in the store. Tony reasons that if he wants to buy something with a price of $50, then it is a good offer, but if he wants to buy something with a price of $500, then it is not a good offer. This is an example of A) inconsistent reasoning; saving $20 is saving $20. B) the proper application of the Cost-Benefit Principle. C) rational choice because saving 40 percent is better than saving 4 percent. D) inconsistent reasoning because prices are sunk costs.

96) Suppose a retail store was offering 10 percent off list prices on all goods. The benefit of the 10 percent savings is

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A) unrelated to the list price of the good. B) negatively related to the list price of the good. C) positively related to the list price of the good. D) zero since costs and benefits shouldn't be measured proportionally.

97) A firm pays Alexa $40 per hour to assemble personal computers. Each day, Alexa can assemble 4 computers if she works 1 hour, 7 computers if she works 2 hours, 9 computers if she works 3 hours, and 10 computers if she works 4 hours. Alexa cannot work more than 4 hours day. Each computer consists of a motherboard, a hard drive, a case, a monitor, a keyboard, and a mouse. The total cost of these parts is $600 per computer. What is the marginal cost of producing the computers that Alexa can assemble during her 3rd hour of work? A) $5,400 B) $5,520 C) $1,200 D) $1,240

98) A firm pays Alexa $40 per hour to assemble personal computers. Each day, Alexa can assemble 4 computers if she works 1 hour, 7 computers if she works 2 hours, 9 computers if she works 3 hours, and 10 computers if she works 4 hours. Alexa cannot work more than 4 hours day. Each computer consists of a motherboard, a hard drive, a case, a monitor, a keyboard, and a mouse. The total cost of these parts is $600 per computer. What is the marginal cost of producing the computers that Alexa can assemble during her 2nd hour of work? A) $1,800 B) $1,840 C) $4,200 D) $4,280

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99) A firm pays Alexa $40 per hour to assemble personal computers. Each day, Alexa can assemble 4 computers if she works 1 hour, 7 computers if she works 2 hours, 9 computers if she works 3 hours, and 10 computers if she works 4 hours. Alexa cannot work more than 4 hours day. Each computer consists of a motherboard, a hard drive, a case, a monitor, a keyboard, and a mouse. The total cost of these parts is $600 per computer. If the firm sells each computer for $625, then how many hours a day should the firm employ Alexa to maximize its net benefit from her employment? A) 1 hour B) 2 hours C) 3 hours D) 4 hours

100) A firm pays Alexa $40 per hour to assemble personal computers. Each day, Alexa can assemble 4 computers if she works 1 hour, 7 computers if she works 2 hours, 9 computers if she works 3 hours, and 10 computers if she works 4 hours. Alexa cannot work more than 4 hours day. Each computer consists of a motherboard, a hard drive, a case, a monitor, a keyboard, and a mouse. The total cost of these parts is $600 per computer. If the firm sells each computer for $650, then how many hours a day should the firm employ Alexa to maximize its net benefit from her employment? A) 1 hour B) 2 hours C) 3 hours D) 4 hours

101) If Sasha works for 6 hours she can rent out 9 apartments, and if she works for 7 hours she can rent out 12 apartments. The marginal benefit of Sasha's 7th hour of work equals

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A) 12 apartments. B) 9 apartments. C) 3 apartments. D) 1 apartment.

102) If Sasha works for 5 hours she can rent out 8 apartments, and if she works for 6 hours she can rent out 9 apartments. The marginal benefit of Sasha's 6th hour of work equals A) 3 apartments. B) 1 apartment. C) 4 apartments. D) 2 apartments.

103) The accompanying table shows the relationship between the speed of a computer's CPU and its benefits and costs. Assume that all other features of the computer are the same (that is, CPU speed is the only source of variation), and only the CPU speeds listed in the table are available for purchase. CPU GHz Total Benefit 2.0

$ 1,000

2.5

$ 1,400

3.0

Marginal Benefit

$ 1,900

4.0

$ 2,000

Marginal Costs

$ 900 $ 100 $ 300

3.5

Total Cost

$ 1,200 $ 1,500 $ 400

The marginal benefit of upgrading from a 2.0GHz computer to a 2.5GHz computer is

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A) $1,400. B) $1,000. C) $400. D) $100.

104) The accompanying table shows the relationship between the speed of a computer's CPU and its benefits and costs. Assume that all other features of the computer are the same (that is, CPU speed is the only source of variation), and only the CPU speeds listed in the table are available for purchase. CPU GHz Total Benefit 2.0

$ 1,000

2.5

$ 1,400

3.0

Marginal Benefit

$ 1,900

4.0

$ 2,000

Marginal Costs

$ 900 $ 100 $ 300

3.5

Total Cost

$ 1,200 $ 1,500 $ 400

The total benefit of a 3.0GHz computer is A) $300. B) $900. C) $1,700. D) $1,650.

105) The accompanying table shows the relationship between the speed of a computer's CPU and its benefits and costs. Assume that all other features of the computer are the same (that is, CPU speed is the only source of variation), and only the CPU speeds listed in the table are available for purchase.

Version 1

CPU GHz Total Benefit 2.0

$ 1,000

2.5

$ 1,400

3.0

Marginal Benefit

$ 1,900

4.0

$ 2,000

Marginal Costs

$ 900 $ 100 $ 300

3.5

Total Cost

$ 1,200 $ 1,500 $ 400

The total cost of a 2.5GHz computer is A) $1,000. B) $900. C) $200. D) $100.

106) The accompanying table shows the relationship between the speed of a computer's CPU and its benefits and costs. Assume that all other features of the computer are the same (that is, CPU speed is the only source of variation), and only the CPU speeds listed in the table are available for purchase. CPU GHz Total Benefit 2.0

$ 1,000

2.5

$ 1,400

3.0

Marginal Benefit

$ 1,900

4.0

$ 2,000

Marginal Costs

$ 900 $ 100 $ 300

3.5

Total Cost

$ 1,200 $ 1,500 $ 400

The marginal cost of upgrading from a 2.5GHz to 3.0GHz computer is

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A) $400. B) $300. C) $200. D) $100.

107) The accompanying table shows the relationship between the speed of a computer's CPU and its benefits and costs. Assume that all other features of the computer are the same (that is, CPU speed is the only source of variation), and only the CPU speeds listed in the table are available for purchase. CPU GHz Total Benefit 2.0

$ 1,000

2.5

$ 1,400

3.0

Marginal Benefit

$ 1,900

4.0

$ 2,000

Marginal Costs

$ 900 $ 100 $ 300

3.5

Total Cost

$ 1,200 $ 1,500 $ 400

Application of the Cost-Benefit Principle would lead one to purchase a ______ computer. A) 2.0GHz B) 2.5GHz C) 3.0GHz D) 4.0GHz

108) The accompanying table shows the relationship between the speed of a computer's CPU and its benefits and costs. Assume that all other features of the computer are the same (that is, CPU speed is the only source of variation), and only the CPU speeds listed in the table are available for purchase.

Version 1

CPU GHz Total Benefit 2.0

$ 1,000

2.5

$ 1,400

3.0

Marginal Benefit

$ 1,900

4.0

$ 2,000

Marginal Costs

$ 900 $ 100 $ 300

3.5

Total Cost

$ 1,200 $ 1,500 $ 400

Choosing a 3.5GHz computer would be irrational because A) its marginal benefit is less than its marginal cost. B) its marginal benefit is equal to its marginal cost. C) it is impossible to tell the difference compared to a 3.0GHz computer. D) its marginal benefit is greater than its marginal cost.

109) Jack has a ticket to see Post Malone for which he paid $30 yesterday. He takes an unpaid day off from work to get ready for the concert. When he arrives at the concert, five different people offer him $70 for his ticket. Jack decides to keep his ticket. At the time he makes this decision, his opportunity cost of seeing Post Malone is A) $30 plus his forgone earnings. B) $40. C) $70. D) $70 plus his forgone earnings.

110) Jody has purchased a nonrefundable $75 ticket to attend a Miley Cyrus concert on Friday night. Subsequently, she is asked to go to out dinner at no expense to her. If she uses cost-benefit analysis to choose between going to the concert and going out to dinner, the opportunity cost of going out to dinner should include

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A) only the entertainment value of the concert. B) the cost of the ticket plus the entertainment value of the concert. C) only the cost of concert ticket. D) neither the cost of the ticket nor the entertainment value of the concert.

111) You won a free ticket to see the latest superhero movie this Friday night (which you can costlessly resell for its face value of $15). Your favorite band is also performing on Friday and is your only alternative activity. Friday is your last chance to see either the movie or the band. Tickets to see your favorite band cost $30, and on any given day, you would be willing to pay as much as $50 for a ticket. Based on this information, what is your opportunity cost of going to see the movie on Friday? A) $0 B) $30 C) $35 D) $50

112) You want to buy a TV that regularly costs $250. You can either buy the TV from a nearby store or from a store that's downtown. Relative to going to the nearby store, driving downtown involves additional time and gas. The downtown store, however, has a 10 percent off sale this week. Last week you drove downtown to save $20 on some concert tickets, a 15 percent savings. Should you drive downtown to buy the TV? A) Yes, because you will save 10 percent, which is better than nothing. B) No, because you will save more than $20. C) Yes, because you will save more than $20. D) No, because you will only save 10 percent, which is less than 15 percent.

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113) The accompanying table shows the relationship between the number of times you get your car washed each month and your total monthly benefit from car washes. Each car wash costs $15. Number of Car Washes Per Month

Total Monthly Benefit from Car Washes

$ 0

What's the average benefit of 4 car washes per month? A) $14 B) $12 C) $8 D) $4

114) The accompanying table shows the relationship between the number of times you get your car washed each month and your total monthly benefit from car washes. Each car wash costs $15. Number of Car Washes Per Month

Total Monthly Benefit from Car Washes

$ 0

What is the marginal cost of the 5th car wash each month?

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A) $15 B) $14 C) $12 D) $4

115) The accompanying table shows the relationship between the number of times you get your car washed each month and your total monthly benefit from car washes. Each car wash costs $15. Number of Car Washes Per Month

Total Monthly Benefit from Car Washes

$ 0

What is the marginal benefit of the 3rd car wash each month? A) $4 B) $12 C) $16 D) $48

116) The accompanying table shows the relationship between the number of times you get your car washed each month and your total monthly benefit from car washes. Each car wash costs $15. Number of Car Washes Per Month

Version 1

Total Monthly Benefit from Car Washes

$ 0

How many times a month should you get your car washed? A) 1 B) 2 C) 3 D) 4

117) Ushi owns an apple farm and plans to spend 4 hours today picking apples. The number of apples he can pick per hour depends on the total number of hours he spends working in either the east orchard or the west orchard in the manner shown in the accompanying table: Hours in East Orchard

Number of Apples Per Hour

Hours in West Orchard

Number of Apples Per Hour

If Ushi spends 2 hours picking apples in the east orchard and 2 hours picking apples in the west orchard, how many apples in total will Ushi be able to pick today? A) 21 B) 42 C) 84 D) 92

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118) Ushi owns an apple farm and plans to spend 4 hours today picking apples. The number of apples he can pick per hour depends on the total number of hours he spends working in either the east orchard or the west orchard in the manner shown in the accompanying table: Hours in East Orchard

Number of Apples Per Hour

Hours in West Orchard

Number of Apples Per Hour

What is the opportunity cost to Ushi of spending an additional hour picking apples in the East orchard? A) 10 apples B) 20 apples C) 30 apples D) 40 apples

119) Ushi owns an apple farm and plans to spend 4 hours today picking apples. The number of apples he can pick per hour depends on the total number of hours he spends working in either the east orchard or the west orchard in the manner shown in the accompanying table below. Hours in East Orchard

Number of Apples Per Hour

Hours in West Orchard

Number of Apples Per Hour

What is the marginal benefit to Ushi of the 2nd hour he spends picking in the east orchard? A) 8 apples B) 24 apples C) 32 apples D) 64 apples

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120) Ushi owns an apple farm and plans to spend 4 hours today picking apples. The number of apples he can pick per hour depends on the total number of hours he spends working in either the east orchard or the west orchard in the manner shown in the accompanying table: Hours in East Orchard

Number of Apples Per Hour

Hours in West Orchard

Number of Apples Per Hour

How should Ushi divide his time between the east and the west orchard? A) He should spend all 4 hours in the east orchard. B) He should spend 3 hours in the east orchard and 1 hour in the west orchard. C) He should spend 2 hours in east orchard and 2 hours in the west orchard. D) He should spend 1 hour in the east orchard and 3 hours in the west orchard.

121)

Positive economic principles are those that A) are always correct. B) are influenced by political ideology. C) indicate how people should behave. D) predict how people will behave.

122) One thing that distinguishes normative economic principles from positive economic principles is that

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A) normative principles are pessimistic and positive principles are optimistic. B) normative principles reflect social norms, and positive principles reflect universal truths. C) normative principles tell us how people should behave, and positive principles tell us how people will behave. D) normative principles tell us how people will behave, and positive principles tell us how people should behave.

123) Normative economic principles are concerned with how people ______ make decisions while positive economic principles are concerned with how people ______ make decisions. A) do; should B) should; do C) in power; in ordinary life D) in ordinary life; in power

124) An editorial in the paper argues that a person only should be allowed to attend school if the marginal cost of educating that person is less than the marginal benefit of educating that person. The writer's reasoning is an application of A) positive economics. B) negative economics. C) normative economics. D) economic naturalism.

125)

The Incentive Principle states that a person

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A) is more likely to take an action if its cost increases. B) is more likely to take an action if its benefit increases. C) should take an action if its cost increases. D) should take an action if its benefit increases.

126)

The Incentive Principle is an example of A) an economic decision-making pitfall. B) overestimating the benefits of an action. C) a positive economic principle. D) a normative economic principle.

127) According to the Incentive Principle, people will be less likely to smoke if the government A) increases taxes on smoking-cessation devices such as nicotine patches. B) increases taxes on cigarettes, effectively raising the price. C) subsidizes hospitals treating lung disease. D) invests more money in cancer research.

128)

According to the Incentive Principle A) it is irrational to perform volunteer services. B) people will always take the highest-paying job they are offered. C) benefits are more important than costs in making a decision. D) people tend to do more of something when its benefits are greater.

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129)

Microeconomics differs from macroeconomics in that microeconomics focuses on A) the performance of the entire economy. B) issues such as inflation, unemployment, and economic growth. C) the choices made by individuals and the implications of those choices. D) government policies designed improve the performance of the national economy.

130)

Macroeconomics differs from microeconomics in that macroeconomics focuses on A) individual choices and group behavior in individual markets. B) the performance of national economies and ways to improve that performance. C) production in specific markets. D) prices in specific markets.

131) The study of individual choice and its implications for the behavior of prices and quantities in individual markets is A) microeconomics. B) a normative economic principle. C) the Scarcity Principle. D) macroeconomics.

132)

Which branch of economics is most likely to study differences in countries' growth rates? A) Microeconomics B) Normative economics C) Macroeconomics D) Experimental economics

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133)

Which of the following would not be studied in microeconomics? A) How individual firms decide how much to produce B) Whether to study or watch TV tonight C) How an early freeze in California will affect the price of fruit D) Whether the federal budget should be balanced

134)

Which of the following would not be studied in macroeconomics? A) The causes of the Great Depression B) The growth rate of the U.S. economy C) How a sharp increase in gasoline prices is likely to affect SUV sales D) The impact of government spending on the economy

135)

By convention, there are two major divisions of economics, called A) marginal benefit and marginal cost. B) reservation price and opportunity cost. C) microeconomics and macroeconomics. D) rational economics and irrational economics.

136)

A study that deals with the salaries of university professors would be considered A) macroeconomics. B) microeconomics. C) economic naturalism. D) real economics.

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137) A study that deals with the impact of government debt on economic growth would be considered A) rational economics. B) macroeconomics. C) microeconomics. D) government economics.

138) In deciding how many guitars to buy for his shop before the Christmas season, Miguel is making a(n) ______ decision. A) microeconomic B) macroeconomic C) normative D) irrational

139) A study of the impact of various government policies on economic growth would be considered A) microeconomics. B) macroeconomics. C) government economics. D) marginal economics.

140)

The field of economics that would be most concerned with a recent fall in interest rates is

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A) microeconomics. B) macroeconomics. C) economic naturalism. D) marginal economics.

141)

An economic naturalist is someone who A) uses economic arguments to protect the environment. B) has an innate talent for using economic concepts. C) applies economic insights to understand everyday life. D) studies the process of natural selection in a cost-benefit framework.

142) With ATMs, it is possible to retrieve cash from the bank at any time. One hundred years ago, one could only get cash from the bank during business hours, say, 9 a.m. to 3 p.m. The present availability of 24-hour service has arisen because A) flexibility was not valued 100 years ago. B) it was impossible to provide 24-hour service 100 years ago. C) the cost of providing 24-hour service is much lower today. D) government forced banks to become more convenient.

143) The number of U.S. households with access to the Internet has grown rapidly. Compared to 50 years ago, one would predict that when considering a major purchase, people today will gather

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A) less information because the Internet has lowered the cost of gathering information. B) less information because the Internet has increased the benefit of gathering information. C) more information because the Internet has lowered the cost of gathering information. D) more information because the Internet has increased the cost of gathering information.

144) Every time you go to the grocery store, you try to wait in the shortest line. But the lines always seem to be roughly the same length. Why? A) Random chance equalizes the length of the lines. B) Other people are trying to choose the shortest line too. C) The cashiers work at the same speed. D) The cashiers do not have an incentive to work faster.

145) Suppose there are two parallel highways between two cities with approximately equal traffic. What would you expect to happen if the state began charging tolls to drive on one of those highways? A) More drivers would drive on the non-toll road, making the toll road less congested. B) More drivers would drive on the toll road making the non-toll road less congested. C) Traffic would remain evenly divided between the two roads as drivers continuously sought the less-congested route. D) Traffic would decrease on both roads.

146) During times of high unemployment, colleges often observe an increase in enrollment even if tuition remains unchanged. Why?

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A) Students go to college even when the net benefit is negative. B) The opportunity cost of attending college is lower when unemployment is high. C) The opportunity cost of attending college is higher when unemployment is high. D) The benefit of attending college is lower because college graduates are less likely to find jobs.

147) The last time gas prices increased drastically, sales of large sport utility vehicles (SUVs) fell. Why? A) Higher gas prices lowered the benefit of driving an SUV. B) Higher gas prices increased the benefit of driving an SUV. C) Higher gas prices increased the cost of driving a SUV. D) Higher gas prices lowered the cost of driving a SUV.

148) Due to the fact that Curly used his frequent flyer miles to fly to visit Moe, Curly told Moe that it didn't cost him anything to visit. Is Curly correct? A) Yes, because Curly's frequent flyer miles made the trip free. B) Yes, because Curly could stay at Moe's house for free. C) No, because Curly could have used his frequent flyer miles to go somewhere else instead. D) No, because Curly had to pay for earlier trips in order to earn the frequent flyer miles.

149) Enrique can either drive to work, which takes half an hour and uses $1.50 worth of gas, or take the bus, which takes an hour and costs $1. How should Enrique get to work?

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A) Enrique should take the bus because it costs $0.50 less than driving. B) Enrique should drive because it saves half an hour relative to taking the bus. C) Enrique should drive if saving half an hour is worth $0.50 or more. D) Enrique should take the bus if saving half an hour is worth $0.50 or more.

150) You have two options for how to spend the afternoon. You can either go see a movie with your roommate or work as a tutor for the Math Department. From experience, you know that going to see a movie gives you $20 worth of enjoyment, and with your student discount, a movie ticket only costs $12. If you spend the afternoon working as a math tutor, you will get paid $45. On a typical day, you wouldn't be willing to spend the afternoon working as a math tutor for less than $35. What is your opportunity cost of seeing a movie this afternoon? A) $8 B) $12 C) $22 D) $57

151) You have two options for how to spend the afternoon. You can either go see a movie with your roommate or work as a tutor for the Math Department. From experience, you know that going to see a movie gives you $20 worth of enjoyment, and with your student discount, a movie ticket only costs $12. If you spend the afternoon working as a math tutor, you will get paid $45. On a typical day, you wouldn't be willing to spend the afternoon working as a math tutor for less than $35. What is your economic surplus from working as a math tutor instead of going to the movies? A) $8 B) $2 C) $12 D) $10

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152) You have two options for how to spend the afternoon. You can either go see a movie with your roommate or work as a tutor for the Math Department. From experience, you know that going to see a movie gives you $20 worth of enjoyment, and with your student discount, a movie ticket only costs $12. If you spend the afternoon working as a math tutor, you will get paid $45. On a typical day, you wouldn't be willing to spend the afternoon working as a math tutor for less than $35. Should you go see a movie or work as a math tutor? A) You should work as a math tutor. B) You should go to the movies. C) You should do neither. D) Both options are equally good.

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Answer Key Test name: Chap 01_8e_Frank 1) C 2) C 3) B 4) C 5) D 6) A 7) D 8) C 9) A 10) D 11) C 12) B 13) D 14) C 15) B 16) A 17) A 18) B 19) B 20) B 21) D 22) C 23) A 24) A 25) B 26) C Version 1

27) B 28) D 29) C 30) C 31) B 32) B 33) D 34) C 35) C 36) B 37) C 38) C 39) D 40) D 41) C 42) C 43) B 44) A 45) D 46) C 47) C 48) C 49) B 50) B 51) B 52) B 53) C 54) C 55) B 56) D Version 1

57) C 58) B 59) A 60) B 61) C 62) B 63) C 64) B 65) C 66) A 67) A 68) B 69) D 70) C 71) B 72) A 73) D 74) A 75) C 76) B 77) B 78) C 79) A 80) C 81) B 82) B 83) C 84) C 85) B 86) B Version 1

87) D 88) C 89) A 90) C 91) C 92) B 93) C 94) A 95) A 96) C 97) D 98) B 99) C 100) D 101) C 102) B 103) C 104) C 105) A 106) C 107) C 108) A 109) C 110) A 111) C 112) C 113) A 114) A 115) B 116) B Version 1

117) C 118) A 119) B 120) B 121) D 122) C 123) B 124) C 125) B 126) C 127) B 128) D 129) C 130) B 131) A 132) C 133) D 134) C 135) C 136) B 137) B 138) A 139) B 140) B 141) C 142) C 143) C 144) B 145) A 146) B Version 1

147) C 148) C 149) C 150) C 151) B 152) A

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CHAPTER 2 1)

An individual has an absolute advantage in producing pizzas if that individual A) has a lower opportunity cost of producing pizzas than anyone else. B) can produce more pizzas in a given amount of time than anyone else. C) has a higher opportunity cost of producing pizzas than anyone else. D) charges the lowest price for pizzas.

If Mark has an absolute advantage over Beth in preparing meals, then A) it takes Mark more time to prepare a meal than Beth. B) the problem of scarcity applies to Beth but not to Mark. C) Mark's opportunity cost of preparing a meal is lower than is Beth's. D) Mark can prepare more meals in a given time period than Beth.

3) If Jorge can produce two pairs of pants per hour while Eva can produce one pair per hour, then it must be true that A) Jorge has a comparative advantage in producing pants. B) Jorge has an absolute advantage in producing pants. C) Eva has a comparative advantage in producing pants. D) Jorge has both comparative and absolute advantage in producing pants.

4) If a nation can produce more computers per year than any other nation, that nation has a(n) ______ advantage in the production of computers. A) comparative B) absolute C) relative D) natural

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If you have a comparative advantage in a particular task, then A) you complete it faster than other people. B) you give up more to accomplish that task than do others. C) you give up less to accomplish that task than do others. D) you have specialized in that task, while others have not.

Ashley has a comparative advantage over her classmates in writing term papers if she: A) can write term papers faster than her classmates. B) has an absolute advantage in writing term papers. C) always earns an A on her term papers. D) has a lower opportunity cost of writing term papers than her classmates.

7) If a nation has the lowest opportunity cost of producing a good, that nation has a(n) ______ in the production of that good. A) comparative advantage B) absolute advantage C) comparative advantage and an absolute advantage D) absolute advantage and possibly a comparative advantage

Which of the following statements is true? A) Absolute advantage implies comparative advantage. B) Comparative advantage does not require absolute advantage. C) Absolute advantage requires comparative advantage. D) Comparative advantage requires absolute advantage.

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9) If Aaliyah can produce 3 pairs of shoes per hour, while Bahjat can produce 2, then ______ has a(n) ______ advantage in producing shoes. A) Aaliyah; absolute B) Aaliyah; comparative C) Bahjat; absolute D) Bahjat; comparative

10)

According to the accompanying table, Kate has the absolute advantage in making Time to Make a Pie

Time to Make a Cake

Kate

60 minutes

80 minutes

Julia

50 minutes

60 minutes

A) pies. B) neither pies nor cakes. C) cakes. D) both pies and cakes.

11)

According to the accompanying table, Kate has the absolute advantage in making Time to Make a Pie

Time to Make a Cake

Kate

60 minutes

90 minutes

Julia

45 minutes

75 minutes

A) pies. B) neither pies nor cakes. C) both pies and cakes. D) cakes.

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12)

According to the accompanying table, Julia has the absolute advantage in making Time to Make a Pie

Time to Make a Cake

Kate

60 minutes

80 minutes

Julia

50 minutes

60 minutes

A) pies. B) neither pies nor cakes. C) cakes. D) both pies and cakes.

13)

According to the accompanying table, Julia has the absolute advantage in making Time to Make a Pie

Time to Make a Cake

Kate

60 minutes

55 minutes

Julia

45 minutes

55 minutes

A) both pies and cakes. B) cakes. C) neither pies nor cakes. D) pies.

14)

Refer to the accompanying table. Kate's opportunity cost of making a pie is Time to Make a Pie

Time to Make a Cake

Kate

60 minutes

80 minutes

Julia

50 minutes

60 minutes

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A) 3/4 of a cake. B) 4/3 of a cake. C) 5/6 of a cake. D) 6/5 of a cake.

15)

Refer to the accompanying table. Kate's opportunity cost of making a pie is Time to Make a Pie

Time to Make a Cake

Kate

60 minutes

90 minutes

Julia

45 minutes

75 minutes

A) 5/3 of a cake. B) 3/5 of a cake. C) 2/3 of a cake. D) 3/2 of a cake.

16)

Refer to the accompanying table. Kate's opportunity cost of making a cake is Time to Make a Pie

Time to Make a Cake

Kate

60 minutes

80 minutes

Julia

50 minutes

60 minutes

A) 3/4 of a pie. B) 4/3 of a pie. C) 5/6 of a pie. D) 6/5 of a pie.

17)

Refer to the accompanying table. Kate's opportunity cost of making a cake is

Version 1

Time to Make a Pie

Time to Make a Cake

Kate

50 minutes

60 minutes

Julia

60 minutes

80 minutes

A) 3/4 of a pie. B) 6/5 of a pie. C) 5/6 of a pie. D) 4/3 of a pie.

18)

Refer to the accompanying table. Julia's opportunity cost of making a pie is Time to Make a Pie

Time to Make a Cake

Kate

60 minutes

80 minutes

Julia

50 minutes

60 minutes

A) 60 cakes. B) 6 cakes. C) 6/5 of a cake. D) 5/6 of a cake.

19)

Refer to the accompanying table. Julia's opportunity cost of making a cake is Time to Make a Pie

Time to Make a Cake

Kate

60 minutes

80 minutes

Julia

50 minutes

60 minutes

A) 60 cakes. B) 6 cakes. C) 6/5 of a pie. D) 5/6 of a pie.

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20) Refer to the accompanying table. ______ has the comparative advantage in making pies and ______ the comparative advantage in making cakes. Time to Make a Pie

Time to Make a Cake

Kate

60 minutes

80 minutes

Julia

50 minutes

60 minutes

A) Kate; Kate B) Julia; Julia C) Kate; Julia D) Julia; Kate

21) Refer to the accompanying table. Based on their comparative advantage, Kate should specialize in making _______ while Julia should specialize in making _______. Time to Make a Pie

Time to Make a Cake

Kate

60 minutes

80 minutes

Julia

50 minutes

60 minutes

A) pies; cakes B) cakes; pies C) neither pies nor cakes; both pies and cakes D) both pies and cakes; neither pies nor cakes

22) Refer to the accompanying table. Based on their comparative advantage, Kate should specialize in making _______ while Julia should specialize in making _______. Time to Make a Pie

Time to Make a Cake

Kate

50 minutes

80 minutes

Julia

60 minutes

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A) both pies and cakes; neither pies nor cakes B) pies; cakes C) cakes; pies D) neither pies nor cakes; both pies and cakes

23) Suppose it takes Dan 5 minutes to make a sandwich and 15 minutes to make a smoothie, and it takes Tamika 6 minutes to make a sandwich and 12 minutes to make a smoothie. What is the opportunity cost to Dan of making a sandwich? A) 1/3 of a smoothie B) 3 smoothies C) 15 smoothies D) 5 smoothies

24) Suppose it takes Dan 5 minutes to make a sandwich and 15 minutes to make a smoothie, and it takes Tamika 6 minutes to make a sandwich and 12 minutes to make a smoothie. Which of the following statements is correct? A) Dan has the comparative advantage in smoothies, but Tamika has the absolute advantage in smoothies. B) Dan has the comparative and absolute advantage in sandwiches. C) Dan has the comparative and absolute advantage in smoothies. D) Dan has the comparative advantage in sandwiches, but Tamika has the absolute advantage in sandwiches.

25) Suppose it takes Dan 5 minutes to make a sandwich and 15 minutes to make a smoothie, and it takes Tamika 6 minutes to make a sandwich and 12 minutes to make a smoothie. Which of the following statements is correct?

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A) Tamika should specialize in sandwiches and smoothies. B) Dan should specialize in smoothies, and Tamika should specialize in sandwiches. C) Dan should specialize in sandwiches, and Tamika should specialize in smoothies. D) Dan should specialize in both sandwiches and smoothies.

26) Suppose it takes Paul 3 hours to bake a cake and 2 hours to mow the lawn, and suppose it takes Tom 2 hours to bake a cake and 1 hour to mow the lawn. Which of the following statements is correct? A) Paul has the absolute advantage in baking cakes. B) Paul has the comparative advantage in mowing the lawn. C) Paul has the comparative advantage in baking cakes. D) Paul has the absolute advantage in mowing the lawn.

27) Suppose Xin and Zander work in a bakery making pies and cakes. Suppose it takes Xin 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Zander 2 hours to make a pie and 1.5 hours to make a cake. Which of the following statements is correct? A) Xin has a comparative advantage in pies, and Zander has an absolute advantage in pies. B) Xin has a comparative and absolute advantage in pies. C) Zander has a comparative and absolute advantage in pies. D) Zander has a comparative advantage in pies, and Xin has an absolute advantage in pies.

28) Suppose Xin and Zander work in a bakery making pies and cakes. Suppose it takes Xin 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Zander 2 hours to make a pie and 1.5 hours to make a cake. Which of the following statements is correct?

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A) Xin should specialize in both pies and cakes. B) There are no gains from specialization and trade. C) Zander should specialize in pies, and Xin should specialize in cakes. D) Xin should specialize in pies, and Zander should specialize in cakes.

29) Suppose Xin and Zander work in a bakery making pies and cakes. Suppose it takes Xin 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Zander 2 hours to make a pie and 1.5 hours to make a cake. What is the opportunity cost to Xin of making a cake? A) 2/3 of a pie. B) 1 pie. C) 1.5 pies. D) 1.33 pies.

30) Refer to the accompanying table. According to the table, Corey has the absolute advantage in Pizzas Made Per Hour

Pizzas Delivered Per Hour

Corey

Elena

A) making pizza. B) neither making nor delivering pizza. C) delivering pizza. D) making and delivering pizza.

31) Refer to the accompanying table. According to the table, Elena has the absolute advantage in Pizzas Made Per Hour

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Pizzas Delivered Per Hour

Corey

Elena

A) making pizza. B) neither making nor delivering pizza. C) delivering pizza. D) making and delivering pizza.

32)

Refer to the accompanying table. Corey's opportunity cost of making a pizza is delivering Pizzas Made Per Hour

Pizzas Delivered Per Hour

Corey

Elena

A) 2 pizzas. B) 3/2 of a pizza. C) 2/3 of a pizza. D) 1/2 of a pizza.

33)

Refer to the accompanying table. Corey's opportunity cost of delivering a pizza is making Pizzas Made Per Hour

Pizzas Delivered Per Hour

Corey

Elena

A) 6 pizzas. B) 12 pizzas. C) 2 pizzas. D) 1/2 of a pizza.

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34)

Refer to the accompanying table. Elena's opportunity cost of making a pizza is delivering Pizzas Made Per Hour

Pizzas Delivered Per Hour

Corey

Elena

A) 3 pizzas. B) 2 pizzas. C) 3/2 of a pizza. D) 2/3 of a pizza.

35)

Refer to the accompanying table. Elena's opportunity cost of delivering a pizza is making Pizzas Made Per Hour

Pizzas Delivered Per Hour

Corey

Elena

A) 12 pizzas. B) 10 pizzas. C) 3/2 of a pizza. D) 2/3 of a pizza.

36) Refer to the accompanying table. ______ has the comparative advantage in making pizza, and ______ has the comparative advantage in delivering pizza. Pizzas Made Per Hour

Pizzas Delivered Per Hour

Corey

Elena

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A) Corey; Corey B) Elena; Elena C) Elena; Corey D) Corey; Elena

37) Refer to the accompanying table. Based on their comparative advantages, Elena should specialize in _______, and Corey should specialize in _______. Pizzas Made Per Hour

Pizzas Delivered Per Hour

Corey

Elena

A) delivering pizza; making pizza B) making pizza; delivering pizza C) neither making pizza nor delivering pizza; both making pizza and delivering pizza D) both making pizza and delivering pizza; neither making pizza nor delivering pizza

38) Jamal and Alex live together and share household chores. They like to cook some meals ahead of time and eat leftovers. The accompanying table shows the number of rooms they can each clean and the number of meals they can each cook in an hour. Rooms Cleaned Per Hour Meals Cooked Per Hour Jamal

Alex

Which of the following is true?

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A) Jamal has both an absolute advantage and a comparative advantage over Alex in both tasks. B) Alex has a comparative advantage over Jamal in cleaning. C) Jamal has a comparative advantage over Alex in cleaning. D) Alex has both an absolute advantage and a comparative advantage over Jamal in both tasks.

39) Jamal and Alex live together and share household chores. They like to cook some meals ahead of time and eat leftovers. The accompanying table shows the number of rooms they can each clean and the number of meals they can each cook in an hour. Rooms Cleaned Per Hour Meals Cooked Per Hour Jamal

Alex

If Alex and Jamal work out an efficient arrangement for these two chores, then under that arrangement: A) Alex and Jamal each would do half of the cooking and half of the cleaning. B) Alex would do all of the cleaning, while Jamal would do all the cooking. C) Jamal would do all of the cleaning and all of the cooking. D) Jamal would do all of the cleaning, while Alex would do all of the cooking.

40) Jamal and Alex live together and share household chores. They like to cook some meals ahead of time and eat leftovers. The accompanying table shows the number of rooms they can each clean and the number of meals they can each cook in an hour. Rooms Cleaned Per Hour Meals Cooked Per Hour Jamal

Alex

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For Alex, the opportunity cost of cleaning one room is making ______ meal(s); for Jamal the opportunity cost of cleaning one room is making ______ meal(s). A) 4; 4 B) 1; 4/5 C) 1; 5/4 D) 3; 5

41) Dent 'n' Scratch Used Cars and Trucks employs 3 salespeople. Data for their sales last month are shown in the accompanying table: Cars Sold

Trucks Sold

Kristen

Joe

Raj

Based on last month's data, ______ has an absolute advantage in selling cars and ______ has an absolute advantage in selling trucks. A) Joe; Joe B) Kristen; Raj C) Raj; Kristen D) Kristen; Joe

42) Dent 'n' Scratch Used Cars and Trucks employs 3 salespeople. Data for their sales last month are shown in the accompanying table: Cars Sold

Trucks Sold

Kristen

Joe

Raj

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Based on last month's data, Kristen's opportunity cost of selling a truck is selling A) 10 cars. B) 1/2 of a car. C) 1 car. D) 2 cars.

43) Dent 'n' Scratch Used Cars and Trucks employs 3 salespeople. Data for their sales last month are shown in the accompanying table: Cars Sold

Trucks Sold

Kristen

Joe

Raj

Based on last month's data, Joe's opportunity cost of selling a truck is selling A) 9 cars. B) 1 car. C) 4 cars. D) 1/3 of a car.

44) Dent 'n' Scratch Used Cars and Trucks employs 3 salespeople. Data for their sales last month are shown in the accompanying table: Cars Sold

Trucks Sold

Kristen

Joe

Raj

Based on last month's data, Raj's opportunity cost of selling a truck is selling

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A) 4 cars. B) 1/3 of a car. C) 3 cars. D) 1/4 of a car.

45) Dent 'n' Scratch Used Cars and Trucks employs 3 salespeople. Data for their sales last month are shown in the accmpanying table: Cars Sold

Trucks Sold

Kristen

Joe

Raj

Based on last month's data, Joe's opportunity cost of selling a car is ______ than Raj's, and Joe's opportunity cost of selling a car is ______ than Kristen's. A) less; greater B) greater; less C) less; less D) greater; greater

46) Dent 'n' Scratch Used Cars and Trucks employs 3 salespeople. Data for their sales last month are shown in the accompanying table: Cars Sold

Trucks Sold

Kristen

Joe

Raj

Based on last month's data, ______ should specialize in truck sales, and ______ should specialize in car sales.

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A) Joe; Raj B) Raj; Kristen C) Kristen; Raj D) Kristen; Joe

47) The textbook notes that the last time a major league batter hit .400 was in 1941. This is because A) the average quality of batters has fallen. B) the league imposes harsh penalties for steroid use. C) specialization by pitchers, infielders, and outfielders has made it harder for batters to hit. D) baseball diamonds have become larger.

48) Ginger and Maryann are lost in the jungle, where the only things to eat are mangoes and fish. Ginger can gather more mangoes per hour than Maryann and can also catch more fish per hour than can Maryann. Therefore A) there are no gains to specialization and trade for Ginger. B) there are no gains to specialization and trade for Maryann. C) Maryann should specialize in the activity for which she has a comparative advantage. D) Ginger should specialize in the activity for which she has an absolute advantage.

49) In general, individuals and nations should specialize in producing those goods for which they have a(n) A) absolute advantage. B) comparative advantage. C) absolutely comparative advantage. D) absolute advantage and a comparative advantage.

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50) If Ana devotes all her time to making fudge, she can make 3 pounds of fudge an hour, and if she devotes all her time to making toffee, she can make 2 pounds of toffee an hour. If Leo devotes all his time to making fudge, he can make 4 pounds of fudge an hour, and if he devotes all his time to making toffee, he can make 5 pounds of toffee an hour. What is Leo's opportunity cost of making a pound of fudge? A) 0.8 of a pound of toffee B) 1.25 pounds of toffee C) 4 pounds of toffee D) 5 pounds of toffee

51) If Ana devotes all her time to making fudge, she can make 3 pounds of fudge an hour, and if she devotes all her time to making toffee, she can make 2 pounds of toffee an hour. If Leo devotes all his time to making fudge, he can make 4 pounds of fudge an hour, and if he devotes all his time to making toffee, he can make 5 pounds of toffee an hour. Which of the following statements is correct? A) Ana has both an absolute advantage and the comparative advantage in fudge. B) Ana has the comparative advantage in toffee, but Leo has the absolute advantage in toffee. C) Ana has the comparative advantage in fudge, but Leo has the absolute advantage in fudge. D) Leo has both the absolute advantage and the comparative advantage in fudge.

52) If Ana devotes all her time to making fudge, she can make 3 pounds of fudge an hour, and if she devotes all her time to making toffee, she can make 2 pounds of toffee an hour. If Leo devotes all his time to making fudge, he can make 4 pounds of fudge an hour, and if he devotes all his time to making toffee, he can make 5 pounds of toffee an hour. According to The Principle of Comparative Advantage, Ana and Leo will be able to produce more overall if

Version 1

A) Ana specializes in fudge and Leo specializes in toffee. B) Leo specializes in fudge and Ana specializes in toffee. C) both Leo and Ana specialize in fudge. D) the Principle of Comparative Advantage does not hold in this example.

53) When Thurston catches 10 fish a day, he can gather a maximum of 40 coconuts, and when he catches 20 fish a day, he can gather a maximum of 30 coconuts. If Thurston's opportunity cost of producing each good increases as he produces more of it, and he decides to catch 30 fish a day, then the maximum number of coconuts he can gather must be A) equal to 20. B) greater than 20. C) greater than 10. D) less than 20.

54) Suppose Karl divides his time between making birdhouses and growing artichokes. Karl's friend recently gave Karl some new woodworking tools that greatly reduced the amount of time it takes Karl to make each birdhouse, but the new tools had no impact on the amount of time it takes Karl to grow artichokes. Thus, the new tools _____ Karl's opportunity cost of growing artichokes. A) had no effect on B) decreased C) increased D) halved

55) In general, individuals and nations should specialize in producing goods ______ other individuals or nations.

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A) that they can produce more quickly than B) that they can produce less quickly than C) for which they have a lower opportunity cost compared to D) for which they have a higher opportunity cost compared to

56)

A country is most likely to have a comparative advantage in the production of cars if A) it imports most of the raw materials necessary to produce cars. B) its citizens prefer driving cars to other forms of transportation. C) it has strict environmental protection laws governing automobile emissions. D) it has a relative abundance in the natural resources needed to produce cars.

57) The United States generally has a comparative advantage in the development of technology because it has A) large amounts of natural resources. B) a disproportionate share of the world's best research universities. C) the greatest need for new technology. D) patent laws, which no other country has.

58) The emergence of English as the de facto world language _____ a comparative advantage in the production of books, movies, and popular music. A) has given English-speaking countries B) has given non-English-speaking countries C) has no effect on which country has D) has given all countries

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59) The United States was unable to maintain its dominance in the production of televisions because A) the highly technical skills necessary to produce televisions are greater in other countries. B) the raw materials necessary to build televisions became scarce in the United States. C) the product designs evolved too rapidly for engineers in the United States to keep up. D) automated techniques allowed production to be outsourced to countries with lessskilled workers.

60) A graph that illustrates the maximum amount of one good that can be produced for every possible level of production of the other good is called a A) production possibilities curve. B) consumption possibilities curve. C) production function. D) supply curve.

61)

The production possibilities curve shows

A) the minimum amount of one good that can be produced for every possible production level of the other good. B) how increasing the resources used to produce one good increases the production of the other good. C) the maximum amount of one good that can be produced for every possible production level of the other good. D) how increasing the production of one good allows production of the other good to also rise.

62) Points that lie outside the production possibilities curve are ______, and points that lie inside the production possibilities curve are ______.

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A) efficient; inefficient B) inefficient; efficient C) unattainable; attainable D) attainable; unattainable

63)

Points that lie beneath the production possibilities curve are A) unattainable and inefficient. B) unattainable but efficient. C) attainable but inefficient. D) attainable and efficient.

64) If a country is producing at point where an increase in the production of one good requires a reduction in the production of another good, then it must be producing at an A) inefficient point. B) efficient point. C) unattainable point. D) undesirable point.

65) Suppose Colin brews beer and makes cheese. If Colin can increase his production of beer without decreasing his production of cheese, then he is producing at an A) inefficient point. B) efficient point. C) unattainable point. D) ideal point.

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66) If Ana devotes all her time to making fudge, she can make 3 pounds of fudge an hour, and if she devotes all her time to making toffee, she can make 2 pounds of toffee an hour. If Leo devotes all his time to making fudge, he can make 4 pounds of fudge an hour, and if he devotes all his time to making toffee, he can make 5 pounds of toffee an hour. Suppose that Ana and Leo decide to work together as a team. Can they produce 2 pounds of fudge and 4.5 pounds of toffee each hour? A) Yes, this point is both attainable and efficient. B) No, this point is not attainable. C) Yes, this point is attainable, but inefficient. D) No, this point is not attainable and inefficient.

67) If Ana devotes all her time to making fudge, she can make 4 pounds of fudge an hour, and if she devotes all her time to making toffee, she can make 3 pounds of toffee an hour. If Leo devotes all his time to making fudge, he can make 5 pounds of fudge an hour, and if he devotes all his time to making toffee, he can make 3 pounds of toffee an hour. Suppose that Ana and Leo decide to work together as a team. Can they produce 4 pounds of fudge and 4 pounds of toffee each hour? A) No, this point is attainable, but inefficient. B) No, this point is not attainable. C) Yes, this point is attainable, but inefficient. D) Yes, this point is both attainable and efficient.

68)

The downward slope of the production possibilities curve illustrates the A) Scarcity Principle. B) Cost-Benefit Principle. C) Incentive Principle. D) Principle of Comparative Advantage.

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69) The accompanying figure shows the production possibilities curve for the island of Genovia:

The opportunity cost of producing a car in Genovia is A) 5,000 tons of agricultural products. B) 500 tons of agricultural products. C) 5 tons of agricultural products. D) 50 tons of agricultural products.

70) The accompanying figure shows the production possibilities curve for the island of Genovia:

The opportunity cost of producing one ton of agricultural products in Genovia is

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A) 1,000 cars. B) 1 car. C) 1/5 of a car. D) 1/50 of a car.

71) The accompanying figure shows the production possibilities curve for the island of Genovia:

If 500 cars are produced in Genovia, a maximum of ______ tons of agricultural products can be produced. A) 50,000 B) 25,000 C) 45,000 D) 40,000

72)

The slope of a production possibilities curve is ______ because ______. A) negative; producing more of one good requires producing less of the other B) negative; producing less of one good requires producing less of the other C) positive; producing more of one good requires producing more of the other D) positive; producing more of one good requires producing less of the other

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73) The accompanying figure shows Isabella's daily production possibilities curve for dresses and skirts.

The maximum number of dresses that Isabella can make in a day is represented by point A) U B) T C) V D) W

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74) The accompanying figure shows Isabella's daily production possibilities curve for dresses and skirts.

The maximum number of skirts that Isabella can make in a day is represented by point A) U B) T C) V D) Z

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75) The accompanying figure shows Isabella's daily production possibilities curve for dresses and skirts.

Point U is A) attainable. B) efficient. C) unattainable. D) inefficient.

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76) The accompanying figure shows Isabella's daily production possibilities curve for dresses and skirts.

Of the labeled points, only ______ are attainable. A) T and U B) X, Y, and Z C) W, X, Y, Z, and V D) W, X, Y, Z, V, and T

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77) The accompanying figure shows Isabella's daily production possibilities curve for dresses and skirts.

Of the labeled points, only ______ are efficient. A) T and U B) X, Y, and Z C) W, X, Y, Z, and V D) W, X, Y, Z, V, and T

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78) The accompanying figure shows Isabella's daily production possibilities curve for dresses and skirts.

Point T is A) attainable. B) efficient. C) both attainable and efficient. D) neither attainable nor efficient.

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79) The accompanying figure shows Isabella's daily production possibilities curve for dresses and skirts.

Point Y is ______, and point V is ______. A) efficient; inefficient B) inefficient; efficient C) efficient; efficient D) inefficient; inefficient

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80) The accompanying figure shows Isabella's daily production possibilities curve for dresses and skirts.

Relative to point X, at point Y A) more dresses and more skirts are produced. B) more skirts and fewer dresses are produced. C) more dresses and fewer skirts are produced. D) fewer skirts and fewer dresses are produced.

81) Refer to the accompanying figure. For Pat, the opportunity cost of removing one bag of trash is planting

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A) 100 bulbs. B) 5 bulbs. C) 1/100 of a bulb. D) 1/5 of a bulb.

82) Refer to the accompanying figure. For Pat, the opportunity cost of planting one bulb is removing

A) 20 bags of trash. B) 5 bags of trash. C) 1/20 of a bag of trash. D) 1/5 of a bag of trash.

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83) Refer to the accompanying figure. For Chris, the opportunity cost of removing one bag of trash is planting

A) 25 bulbs. B) 1/25 of a bulb. C) 3 bulbs. D) 1/3 of a bulb.

84) Refer to the accompanying figure. For Chris, the opportunity cost of planting one bulb is removing

A) 25 bags of trash. B) 1/25 of a bag of trash. C) 3 bags of trash. D) 1/3 of a bag of trash.

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85) Refer to the accompanying figure. If Pat and Chris were to specialize in the task in which each has a comparative advantage

A) Chris would plant bulbs and Pat would remove trash. B) Chris would remove trash and Pat would plant bulbs. C) Pat and Chris would each spend half of their time each task. D) both Pat and Chris would plant bulbs because they both have an absolute advantage in that task.

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86) Refer to the accompanying figure. If Pat and Chris each spend half their time on each task, then

A) the outcome will be efficient. B) they will plant more bulbs and remove fewer bags of trash than if they had each specialized in the task at which they have a comparative advantage. C) they will plant fewer bulbs and remove fewer bags of trash than if they each had specialized in the task at which they have a comparative advantage. D) the outcome will be unattainable.

87)

On a graph of a production possibilities curve, if a point is attainable, then it A) must be efficient. B) might or might not be efficient. C) is efficient only if it does not exhaust all currently available resources. D) must completely exhaust all currently available resources.

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88)

Any combination of goods that can be produced with currently available resources is an A) attainable point. B) efficient point. C) inefficient point. D) attainable and efficient point.

89)

On a graph of a production possibilities curve, an inefficient point is A) necessarily an attainable point. B) not necessarily an attainable point. C) necessarily an unattainable point. D) possibly an unattainable point.

90) Consider a graph of a production possibilities curve. If a producer is operating at an inefficient point, then that producer A) cannot produce more of one good without giving up some of the other good. B) can produce more of one good without producing less of the other good. C) must be at an unattainable point on the production possibilities curve. D) must be specializing in activities for which it has a comparative advantage.

91)

Points that lie below the production possibilities curve are inefficient because A) more of one good could be produced without producing less of the other. B) producing more of one good means producing less of the other. C) producers face scarcity. D) too many goods are being produced.

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92) Refer to the accompanying figure. Growing 1,000 bushels of wheat and no bushels of corn each year is

A) inefficient and unattainable. B) inefficient but attainable. C) efficient but unattainable. D) efficient and attainable.

93)

Refer to the accompanying figure. It is efficient for this farmer to

A) grow 500 bushels of wheat and 500 bushels of corn. B) grow 250 bushels of wheat and 500 bushels of corn. C) grow 500 bushels of wheat and 250 bushels of corn. D) grow 1,000 bushels of wheat and 500 bushels of corn.

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94) is

Refer to the accompanying figure. The opportunity cost of producing one bushel of corn

A) 2 bushels of wheat. B) ½ bushel of wheat. C) 500 bushels of wheat. D) 250 bushels of wheat.

95) is

Refer to the accompanying figure. The opportunity cost of producing one bushel of wheat

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A) 2 bushels of corn. B) ½ bushel of corn. C) 1,000 bushels of corn. D) 500 bushels of corn.

96)

If a given production combination is known to be attainable, then it A) must be on the production possibilities curve. B) must be an inefficient point. C) must be an efficient point. D) could be either an inefficient or efficient point.

97)

If a given production combination is efficient, then it must be A) above the production possibilities curve. B) on the production possibilities curve. C) either an attainable or unattainable point. D) below the production possibilities curve.

98) Working efficiently and splitting her time equally between the two tasks, Jordan can write 3 essays and outline 4 chapters each week. If Jordan's production possibilities curve is a straight line, it must be true that A) 3 essays and 5 chapter outlines would be attainable but inefficient. B) 2 essays and 3 chapter outlines would be unattainable but efficient. C) 3 essays and 5 chapter outlines would be unattainable. D) 2 essays and 3 chapter outlines would be both attainable and efficient.

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99) Working efficiently and splitting her time equally between the two tasks, Jordan can write 3 essays and outline 4 chapters each week. If Jordan’s production possibilities curve is a straight line, it must be true that A) 3 essays and 5 chapter outlines would be attainable and efficient. B) 3 essays and 5 chapter outlines would be attainable but inefficient. C) 4.5 essays and 2 chapter outlines would be attainable and efficient. D) 4.5 essays and 2 chapter outlines would be unattainable.

100) Assume point A on a linear production possibilities curve represents the combination of 12 coffees and 3 cappuccinos, and point B represents 3 coffees and 6 cappuccinos. Suppose coffees are on the vertical axis and cappuccinos are on the horizontal axis. The absolute value of the slope of the production possibilities curve between points A and B equals A) 6. B) 4. C) 3. D) 1/3.

101) Assume point A on a linear production possibilities curve represents the combination of 12 coffees and 3 cappuccinos, and point B represents 3 coffees and 6 cappuccinos. Suppose coffees are on the vertical axis and cappuccinos are on the horizontal axis. The opportunity cost of a cup of coffee is A) 3 cappuccinos. B) 9 cappuccinos. C) 1/3 of a cappuccino. D) 6 cappuccinos.

102) Generally, on a linear two-good production possibilities curve, the opportunity cost of the good measured on the vertical axis is

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A) one minus the opportunity cost of the good measured on the horizontal axis. B) the reciprocal of the opportunity cost of the good measured on the horizontal axis. C) the absolute value of the slope of the production possibilities curve. D) the negative of the opportunity cost of the good measured on the horizontal axis.

103)

If a linear, two-good production possibilities curve has a slope of −2, then

A) having an additional unit of the good measured on the vertical axis means giving up 2 units of the good measured on the horizontal axis. B) having an additional unit of the good measured on the vertical axis means giving up 1/2 unit of the good measured on the horizontal axis. C) you have an absolute advantage in the good measured on the vertical axis. D) you have a comparative advantage in the good measured on the vertical axis.

104) that

The idea that tradeoffs have to be made when resources are scarce is reflected in the fact

A) points below the production possibilities curve are efficient. B) points below the production possibilities curve are inefficient. C) the production possibilities curve has a negative slope. D) the slope of a linear production possibilities is constant.

105)

In a two-person, two-good economy, the gains to specialization will be larger when

A) one person has an absolute advantage in both goods. B) neither person has an absolute advantage. C) there are small differences between the individuals in their opportunity costs of producing the two goods. D) there are large differences between the individuals in their opportunity costs of producing the two goods.

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106) According to the Principle of Increasing Opportunity Cost, in expanding the production of any good, we should start by utilizing the resources that A) we have the most of. B) we have the least of. C) have the highest opportunity cost. D) have the lowest opportunity cost.

107) Smith and Jones comprise a two-person economy. Their hourly rates of production are shown in the accompanying table. Calculators Per Hour

Computers Per Hour

Smith

100

Jones

120

The opportunity cost of making a calculator for Smith is ______ and for Jones it is ______. A) 0.10 computers; 0.05 computers B) 10 computers; 20 computers C) 1 computer; 0.5 computers D) 0.6 computers; 1.2 computers

108) Smith and Jones comprise a two-person economy. Their hourly rates of production are shown in the accompanying table. Calculators Per Hour

Computers Per Hour

Smith

Jones

The opportunity cost of making a computer for Smith is ______ and for Jones it is ______.

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A) 6 calculators; 4 calculators B) 0.17 calculators; 0.25 calculators C) 3 calculators; 6 calculators D) 0.33 calculators; 0.67 calculators

109) Smith and Jones comprise a two-person economy. Their hourly rates of production are shown in the accompanying table. Calculators Per Hour

Computers Per Hour

Smith

100

Jones

120

If Smith and Jones devote all of their resources to producing computers, then the maximum number of computers they can produce in an hour is A) 120. B) 6. C) 16. D) 10.

110) Smith and Jones comprise a two-person economy. Their hourly rates of production are shown in the accompanying table. Calculators Per Hour

Computers Per Hour

Smith

Jones

If Smith and Jones each completely specialize according to their comparative advantage, then the maximum number of calculators they can produce in an hour is

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A) 68. B) 64. C) 136. D) 72.

111) Smith and Jones comprise a two-person economy. Their hourly rates of production are shown in the accompanying table. Calculators Per Hour

Computers Per Hour

Smith

100

Jones

120

Suppose Smith and Jones begin by producing 16 computers and 0 calculators per hour. If they wish to produce 14 computers and 40 calculators per hour efficiently, then Smith should spend ______, and Jones should spend ______. A) 1 hour making computers; 40 minutes making computers and 20 minutes making calculators B) 1 hour making computers; 20 minutes making computers and 40 minutes making calculators C) 30 minutes making each; 30 minutes making each D) 45 minutes making computers and 15 making calculators; 1 hour making calculators

112) Smith and Jones comprise a two-person economy. Their hourly rates of production are shown in the accompanying table. Calculators Per Hour

Computers Per Hour

Smith

100

Jones

120

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Suppose Smith and Jones begin by producing 0 computers and 220 calculators per hour. If they wish to produce 2 computers and 200 calculators per hour efficiently, then Smith should spend ______, and Jones should spend ______. A) 30 minutes making each; 30 minutes making each B) 48 minutes making computers and 12 minutes making calculators; 1 hour making calculators C) 1 hour making calculators; 10 minutes making computers and 50 minutes making calculators D) 12 minutes making computers and 48 minutes making calculators; 1 hour making calculators

113) Smith and Jones comprise a two-person economy. Their hourly rates of production are shown in the accompanying table. Calculators Per Hour

Computers Per Hour

Smith

100

Jones

120

If Smith and Jones are dividing their time efficiently and producing more than 10 computers and fewer than 120 calculators per hour, then Smith will ______ and Jones will ______. A) produce only computers; produce only calculators B) produce only computers; split his time between computers and calculators C) split his time between computers and calculators; produce only computers D) produce only calculators; produce only computers

114) Smith and Jones comprise a two-person economy. Their hourly rates of production are shown in the accompanying table. Calculators Per Hour Smith

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100

Computers Per Hour 10

Jones

120

If Smith and Jones are dividing their time efficiently and producing fewer than 10 computers and more than 120 calculators per hour, then Smith will ______ and Jones will ______. A) split his time between computers and calculators; produce only calculators B) produce only calculators; split his time between computers and calculators C) produce only calculators; produce only computers D) produce only computers; produce only calculators

115) Smith and Jones comprise a two-person economy. Their hourly rates of production are shown in the accompanying table. Calculators Per Hour

Computers Per Hour

Smith

100

Jones

120

Suppose Smith and Jones begin by producing 100 calculators per hour; as Smith and Jones choose to efficiently produce fewer computers and more calculators, ______ should devote more time to calculators because his ______. A) Smith; absolute advantage is larger B) Jones; absolute advantage is smaller C) Jones; opportunity costs are lower D) Smith; opportunity costs are lower

116) Earth Movers & Shakers operates 3 iron ore mines. The accompanying table shows each mine's total daily production and the current number of miners at each mine. All miners work for the same wage, and each miner in any given mine produces the same number of tons per day as every other miner in that mine. Total Tons Per Day Mother Lode

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100

Number of Miners 25

Scraping Bottom

Middle Drift

The opportunity cost of moving one miner from Mother Lode to another mine is A) 2 tons per day. B) 3 tons per day. C) 4 tons per day. D) 1 ton per day.

117) Earth Movers & Shakers operates 3 iron ore mines. The accompanying table shows each mine's total daily production and the current number of miners at each mine. All miners work for the same wage, and each miner in any given mine produces the same number of tons per day as every other miner in that mine. Total Tons Per Day

Number of Miners

Mother Lode

100

Scraping Bottom

Middle Drift

The opportunity cost of moving one miner from Scraping Bottom to another mine is A) 0 tons per day. B) 3 tons per day. C) 4 tons per day. D) 5 tons per day.

118) Earth Movers & Shakers operates 3 iron ore mines. The accompanying table shows each mine's total daily production and the current number of miners at each mine. All miners work for the same wage, and each miner in any given mine produces the same number of tons per day as every other miner in that mine. Total Tons Per Day

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Number of Miners 50

Mother Lode

100

Scraping Bottom

Middle Drift

The opportunity cost of moving one miner from Middle Drift to another mine is A) 1 ton per day. B) 3 tons per day. C) 4 tons per day. D) 5 tons per day.

119) Earth Movers & Shakers operates 3 iron ore mines. The accompanying table shows each mine's total daily production and the current number of miners at each mine. All miners work for the same wage, and each miner in any given mine produces the same number of tons per day as every other miner in that mine. Total Tons Per Day

Number of Miners

Mother Lode

100

Scraping Bottom

Middle Drift

Suppose Earth Movers & Shakers needs to fill an order for 60 tons of ore in a single day. If it has no other orders for that day, it should A) take it all from Mother Lode. B) take it all from Middle Drift. C) take 30 tons from Scraping Bottom and 30 tons from Middle Drift. D) take 20 tons from each of the three mines.

120) Earth Movers & Shakers operates 3 iron ore mines. The accompanying table shows each mine's total daily production and the current number of miners at each mine. All miners work for the same wage, and each miner in any given mine produces the same number of tons per day as every other miner in that mine.

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Total Tons Per Day

Number of Miners

Mother Lode

100

Scraping Bottom

Middle Drift

Suppose Earth Movers & Shakers needs to fill an order for 100 tons of ore in a single day. If it has no other orders to fill that day, and it's not possible to transfer miners from one mine to another, it should A) take it all from Mother Lode. B) take 75 tons from Middle Drift and 25 tons from Mother Lode. C) take 75 tons from Middle Drift and 25 tons from Scraping Bottom. D) take 30 tons from Scraping Bottom and 70 tons from Mother Lode.

121) Refer to the accompanying figure. If this restaurant makes 75 salads in one hour, then what's the maximum number of pizzas it can make in that same hour?

A) 0 B) 10 C) 20 D) 30

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122)

Refer to the accompanying figure. Relative to point B, at point C this restaurant is

A) making more pizzas and more salads. B) making more pizzas and fewer salads. C) making fewer pizzas and more salads. D) operating more efficiently.

123) Refer to the accompanying figure. Moving from point C to point B, the opportunity cost of 25 more salads is

A) 5 pizzas. B) 10 pizzas. C) 15 pizzas. D) 30 pizzas.

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124) Refer to the accompanying figure. Moving from point B to point A, the opportunity cost of 25 more salads is

A) 5 pizzas. B) 10 pizzas. C) 15 pizzas. D) 20 pizzas.

125)

Refer to the accompanying figure. The opportunity cost of making an additional salad

A) remains constant regardless of how many salads are made. B) increases as the number of salads increases. C) decreases as the number of pizzas decreases. D) decreases as the number of salads increases.

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126) Refer to the accompanying figure. If this restaurant goes from producing 20 to 25 pizzas per hour, then which of the following statements is true?

A) It has to give up exactly 25 salads. B) It has to give up more than 12.5 salads. C) It has to give up exactly 12.5 salads. D) It has to give up fewer than 12.5 salads.

127) Refer to the accompanying figure. As the production of pizza increases, the opportunity cost of producing pizza

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A) doesn't change. B) decreases. C) increases. D) becomes negative.

128)

Refer to the accompanying figure. Which of the following is true?

A) Point A is efficient because it is farthest from the origin. B) Point D is efficient because it requires using the fewest resources. C) Point F is the most efficient because medical care is the highest there. D) Points B, C, E, and F are efficient.

129) Refer to the accompanying figure. Suppose that the government requires that resources be used efficiently. Which of the following would the government definitely not allow?

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A) Specialization in warhead production. B) Specialization in medical care production. C) Production at any point other than C. D) Production at point D.

130) Refer to the accompanying figure. If this economy is currently producing at point C, then the opportunity cost of providing 100 additional units of medical care would be

A) 800 warheads. B) 400 warheads. C) 200 warheads. D) 100 warheads.

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131) Refer to the accompanying figure. The opportunity cost of increasing medical care from 200 to 400 units is ______ the opportunity cost of increasing medical care from 400 to 600 units.

A) greater than B) less than C) exactly the same as D) twice as much as

132)

Production possibilities curves for large economies are generally bow-shaped because A) specialization gives some producers a comparative advantage. B) opportunity costs tend to decrease with increases in production. C) opportunity costs tend to increase with increases in production. D) as more resources are used to produce a good, those resources become less expensive.

133)

The Principle of Increasing Opportunity Costs states that

A) productive people do the hardest tasks first. B) when increasing production, resources with the lowest opportunity costs should be used first. C) when increasing production, resources with the lowest opportunity costs should be used last. D) opportunity costs increase when too little is produced.

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134) You have noticed that your next-door neighbor, Arya, always works in the garden, and her husband, Suresh, always walks the dog. You conclude that if Suresh and Arya are efficient, then it must be the case that A) Arya has an absolute advantage in gardening. B) Suresh has a comparative advantage in walking the dog. C) Arya's opportunity cost of walking the dog is lower than Suresh's. D) Suresh experiences increasing opportunity costs when he gardens, but not when he walks the dog.

135) You have noticed that your next-door neighbor, Arya, always walks the dog, and her husband, Suresh, always works in the garden. You conclude that if Suresh and Arya are efficient, then it must be the case that A) Arya has a comparative advantage in gardening. B) Suresh's opportunity cost for gardening is not constant. C) Suresh's opportunity cost of walking the dog is higher than Arya's. D) Suresh does not have an absolute advantage in gardening.

136)

The benefits of specialization can be used to explain why A) workers prefer to work on a variety of tasks during the day. B) machines are more productive than human workers. C) individuals and nations benefit from trade. D) big companies take advantage of smaller ones.

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137) Jasmine divides her time between studying Physics and studying Economics. Her production possibilities curve for her final grade in each class is shown in the accompanying figure.

Both of Jasmine's professors require at least a 65 to pass and a 90 to earn an A. Which of the following is true? A) Jasmine can pass both classes. B) Jasmine can pass economics, but only if she fails physics. C) Jasmine can pass physics, but only if she fails economics. D) Jasmine could earn an A in economics and still pass physics.

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138) Jasmine divides her time between studying physics and studying economics. Her production possibilities curve for her final grade in each class is shown in the accompanying figure.

Which of the following is true? A) Jasmine has a comparative advantage in physics. B) Jasmine's opportunity cost of studying for each subject is increasing. C) Jasmine has a comparative advantage in economics. D) Jasmine has an absolute advantage in economics.

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139) Jasmine divides her time between studying physics and studying economics. Her production possibilities curve for her final grade in each class is shown in the accompanying figure.

According to Jasmine's PPC, moving from a 70 to an 80 in economics A) is inefficient. B) has a lower opportunity cost than moving from an 80 to a 90. C) is unattainable. D) has a higher opportunity cost than moving from an 80 to a 90.

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140) Jasmine divides her time between studying physics and studying economics. Her production possibilities curve for her final grade in each class is shown in the accompanying figure.

If Jasmine moves from Point A to point C, her grade in Physics will go down by ______ her grade in economics. A) less than the increase in B) more than the increase in C) more than the decrease in D) less than the decrease in

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141) Jasmine divides her time between studying physics and studying economics. Her production possibilities curve for her final grade in each class is shown in the accompanying figure.

The Principle of Increasing Opportunity Cost is reflected in the fact that the opportunity cost going from 70 to 80 in economics is A) lower than the opportunity cost of going from 80 to 90 in economics. B) higher than the opportunity cost of going from 80 to 90 in economics. C) lower than the opportunity cost of going from 80 to 90 in physics. D) the same as the opportunity cost of going from 70 to 80 in physics.

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142) Jasmine divides her time between studying physics and studying economics. Her production possibilities curve for her final grade in each class is shown in the accompanying figure.

Jasmine needs to earn at least an 80 in both economics and physics to keep her scholarship. Given her current PPC, an 80 in both classes is ______. A) unattainable B) attainable C) efficient D) inefficient

143) that

Refer to the accompanying figure. For the nation whose PPC is shown, it must be true

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A) the nation's productive resources are better suited to making milk than to making movies. B) the nation's productive resources are better suited to making movies than to making milk. C) some of the nation's productive resources are better suited to making milk, and some are better suited to making movies. D) the nation has a comparative advantage in making milk.

144)

Refer to the accompanying figure. At point D, the opportunity cost of making milk is

A) low because the economy is specializing in making milk. B) high because productive resources that are better suited to making movies are not being used to make milk. C) high because productive resources that are better suited to making movies are being used to make milk. D) high because the economy is not operating efficiently.

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145)

Refer to the accompanying figure. This economy would be operating at point B if

A) it was operating efficiently. B) the opportunity cost of making milk were higher than the opportunity cost of making movies. C) the opportunity cost of making movies were higher than the opportunity cost of making milk. D) resources that are better suited to making movies were being used to make milk, while resources that are better suited to making milk were being used to make movies.

146) Refer to the accompanying figure. If this economy were currently operating at point D, then in order to make more movies

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A) the first productive resources to switch to making movies should be those with the lowest opportunity cost of making milk. B) the first productive resources to switch to making movies should be those with the highest opportunity cost of making milk. C) no productive resources would need to switch from making milk to movies because point D is already efficient. D) no productive resources would need to switch from making milk to movies because each resource should continue to be used according to its comparative advantage.

147) The accompanying figure shows Avery's weekly production possibilities curve for scarves.

For Avery, the opportunity cost of making a red scarf is A) decreasing. B) increasing. C) 1 blue scarf. D) zero.

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148) The accompanying figure shows Avery's weekly production possibilities curve for scarves.

Avery's PPC would shift outward if she A) knits more red scarves and fewer blue scarves each week. B) devotes less time to knitting each week. C) devotes more time to knitting each week. D) knits fewer red scarves and more blue scarves each week.

149)

Economic growth can result from a(n) A) increase in the amount of productive resources. B) increase in number of the minimum wage jobs. C) increase in the amount of consumer goods produced. D) decrease in the number of workers available.

150)

Which of the following is NOT a reason why there are gains to specialization?

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A) It eliminates many of the costs of switching from one task to another. B) It further improves skills through experience and practice. C) It increases the amount of productive resources in the economy. D) It allows individuals to concentrate on the activities in which they have a comparative advantage.

151) An increase in an economy's productive resources will lead the production possibilities curve to A) shift inward. B) shift outward. C) become flatter. D) stay the same.

152) Suppose that Nepal invests less in new factories and equipment than does the United States. This will likely cause A) Nepal's production possibilities curve to shift outward faster than the U.S.'s. B) The U.S.'s production possibilities curve to shift inward faster than Nepal's. C) The U.S.'s production possibilities curve to shift outward faster than Nepal's. D) Nepal's production possibilities curve to shift inward faster than the U.S.'s.

153)

If a nation restricts imports, it will A) benefit each individual citizen in that nation. B) increase the total value of goods and services produced in that nation. C) decrease the total value of goods and services produced in that nation. D) harm each individual citizen in that nation.

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154)

Regarding specialization, it is generally true that A) more specialization is always better. B) less specialization is always better. C) specialization imposes costs as well as benefits. D) more specialization is always worse.

155)

You are the Minister of Trade for a small island country with the following annual PPC:

You are negotiating a trade agreement with a neighboring island with the following annual PPC:

As soon as you see the other island’s PPC, you realize there are A) no gains from trade because you both have the same comparative advantage. B) no gains from trade because there is no difference in your ability to harvest coconuts. C) no gains from trade because the other island has an absolute advantage. D) gains from trade because your island has a comparative advantage in coconuts.

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156)

You are the Minister of Trade for a small island country with the following annual PPC:

You are negotiating a trade agreement with a neighboring island with the following annual PPC:

If the other island's delegate offers to give you 2 fish for every 1 coconut you give them, you will A) accept their offer because you do not have the comparative advantage in fish. B) refuse their offer because the opportunity cost to you of a coconut is more than 2 fish. C) accept their offer because you do not have an absolute advantage in fish. D) refuse their offer because the opportunity cost to you of a coconut is less than 2 fish.

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157)

You are the Minister of Trade for a small island country with the following annual PPC:

You are negotiating a trade agreement with a neighboring island with the following annual PPC:

What's the minimum number of fish you would be willing to accept in exchange for a coconut? A) 5 B) 4 C) 3 D) 2

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158)

You are the Minister of Trade for a small island country with the following annual PPC:

You are negotiating a trade agreement with a neighboring island with the following annual PPC:

If you offer to give the other island 1 coconut for every 4 fish they give you, then they will A) refuse your offer because they have a comparative advantage in fish. B) accept your offer because your opportunity cost of a coconut is less than 4 fish. C) refuse your offer because they can produce as many coconuts as you can. D) accept your offer because their opportunity cost of a coconut is greater than 4 fish.

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159)

You are the Minister of Trade for a small island country with the following annual PPC:

You are negotiating a trade agreement with a neighboring island with the following annual PPC:

Both islands specialize exclusively in the product for which they have a comparative advantage. You have agreed to give 350 coconuts to the other island in exchange for 1,300 fish. After the trade, your island has a total of ______ coconuts and ______ fish. A) 150; 2,800 B) 500; 1,300 C) 150; 1,300 D) 500; 1,500

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160)

You are the Minister of Trade for a small island country with the following annual PPC:

You are negotiating a trade agreement with a neighboring island with the following annual PPC:

Both islands specialize exclusively in the product for which they have a comparative advantage. You have agreed to give 350 coconuts to the other island in exchange for 1,300 fish. After the trade the other island has a total of ______ coconuts and ______ fish. A) 850; 1,200 B) 500; 1,200 C) 350; 1,500 D) 350; 1,200

161) If country A can produce more of practically everything than can country B, then which of the following statements is true?

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A) Country A has no incentive to trade with country B. B) Country B cannot have a comparative advantage in the production of any good that country A wants to buy. C) Trade can benefit both countries. D) Country B has no incentive to trade with country A.

162) As the differences in opportunity costs between the U.S. and its trading partners increase, the potential gains from specialization and trade ______. A) increase B) decrease C) stay the same D) become unpredictable

163)

One reason there is political opposition to international trade is that A) the potential gains from specialization and trade are small. B) trade does not increase the total value of goods and services produced by a nation. C) the differences in opportunity costs between countries are small. D) not everyone benefits from trade.

164) One concern regarding the North American Free Trade Agreement (NAFTA) was that it would lead A) the total value of goods and services produced by the United States to fall. B) wages in Mexico to rise. C) highly skilled workers in the United States to lose their jobs. D) unskilled workers in the United States to lose their jobs.

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165)

When a nation reduces the barriers to international trade A) each individual citizen becomes better off. B) each individual citizen becomes worse off. C) the total value of all goods and services produced by the nation falls. D) the total value of all goods and serviced produced by the nation rises.

166)

The benefits to specialization are even greater when two trading partners have A) absolute advantages in producing the same goods. B) similar consumption preferences. C) very similar opportunity costs. D) large differences in opportunity costs.

167)

According to the textbook, the evidence indicates that NAFTA has A) reduced the wages of skilled workers in the United States. B) reduced the employment of unskilled workers in the United States significantly. C) stopped illegal immigration from Mexico. D) not significantly reduced the employment of unskilled workers in the United States.

168) According to the textbook, NAFTA was expected to help which country exploit its comparative advantage in the production of goods made by unskilled labor? A) Canada B) Cuba C) Mexico D) The USA

169)

Outsourcing is a term increasingly used to refer to the act of

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A) hiring illegal immigrants. B) importing raw materials into the United States from other countries. C) exporting final goods to other countries. D) replacing relatively expensive American workers with low-wage workers overseas.

170)

The fundamental reason firms outsource is that A) low-wage workers in other countries are more productive than are U.S. workers. B) hiring low-wage workers overseas reduces firms' costs. C) outsourcing increases employment overseas. D) U.S. workers cannot perform the tasks performed by workers in other countries.

171)

When a U.S. firm engages in outsourcing, it benefits ______ and harms ______. A) the firm; the U.S. consumers of the firm's products B) the U.S. consumers of the firm's products; the firm C) the U.S. consumers of the firm's products; the firm's U.S. employees D) the U.S. consumers of the firm's products; the firm's foreign employees

172)

All else equal, the jobs that are the least likely to be outsourced are those that A) do not involve face-to-face contact. B) can be done by a computer. C) require face-to-face communication. D) can be broken down into series of well-defined steps.

173)

Which of the following jobs is least likely to be outsourced?

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A) Flipping hamburgers B) Technical assistance over the phone for your computer C) Transcription of physicians' records D) Software design

174)

Which of the following is true regarding President Trump and NAFTA? A) He opposed NAFTA and led renegotiations B) He opposed NAFTA but was unsuccessful in renegotiating it C) He supported NAFTA and opposed renegotiations D) He supported NAFTA but nonetheless renegotiated it

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Answer Key Test name: Chap 02_8e_Frank 1) B 2) D 3) B 4) B 5) C 6) D 7) A 8) B 9) A 10) B 11) B 12) D 13) D 14) A 15) C 16) B 17) B 18) D 19) C 20) C 21) A 22) B 23) A 24) B 25) C 26) C Version 1

27) D 28) C 29) A 30) A 31) C 32) D 33) C 34) C 35) D 36) D 37) A 38) C 39) D 40) B 41) B 42) D 43) B 44) D 45) A 46) B 47) C 48) C 49) B 50) B 51) C 52) A 53) D 54) C 55) C 56) D Version 1

57) B 58) A 59) D 60) A 61) C 62) C 63) C 64) B 65) A 66) C 67) B 68) A 69) D 70) D 71) B 72) A 73) D 74) C 75) C 76) D 77) C 78) A 79) C 80) B 81) B 82) D 83) C 84) D 85) B 86) C Version 1

87) B 88) A 89) A 90) B 91) A 92) D 93) C 94) A 95) B 96) D 97) B 98) C 99) C 100) C 101) C 102) B 103) B 104) C 105) D 106) D 107) A 108) A 109) C 110) B 111) A 112) D 113) B 114) A 115) C 116) C Version 1

117) B 118) D 119) B 120) B 121) D 122) B 123) A 124) B 125) B 126) D 127) C 128) D 129) D 130) B 131) B 132) C 133) B 134) B 135) C 136) C 137) A 138) B 139) B 140) A 141) A 142) A 143) C 144) C 145) D 146) B Version 1

147) C 148) C 149) A 150) C 151) B 152) C 153) C 154) C 155) D 156) B 157) C 158) D 159) C 160) D 161) C 162) A 163) D 164) D 165) D 166) D 167) D 168) C 169) D 170) B 171) C 172) C 173) A 174) A

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CHAPTER 3 1) If a country’s economic decisions are made by an individual or small number of individuals, then it has a A) centralized economy. B) free-market economy. C) capitalist economy. D) open economy.

A good example of central planning at work in the U.S. is A) car manufacturers establishing suggested retail prices. B) McDonald's fries being the same everywhere. C) unions working with businesses to establish wages. D) New York City's rent control program.

The entire group of buyers and sellers of a particular good or service makes up A) the demand curve. B) the supply curve. C) a market. D) the equilibrium price and quantity.

4) Suppose you bought three tickets to a concert in advance at the University ticket window. At the last minute one friend canceled, so you could use only two of the tickets. You sold the third ticket just outside the entrance to the concert for more than the price you had originally paid. Which transaction occurred in a market?

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A) The advance purchase at the University was the only market transaction. B) The sale that occurred at the concert entrance was the only market transaction. C) Both the purchase at the University ticket window and the sale at the concert entrance were market transactions. D) Neither the purchase at the University ticket window nor the sale at the concert entrance was a market transaction.

5) Suppose you camped out in front of an electronics store to be one of the 200 lucky people able to purchase the latest gaming system. You bought the system for $350. Two weeks later you see that the same system can be sold on e-Bay for $600, so you sell your system. Your market role was as a A) consumer in both markets. B) consumer at the electronics store and a seller on e-Bay. C) consumer at the electronics store; the e-Bay transaction did not occur in a market. D) seller in both markets.

6) To understand how the price of a good is determined in a free market, one must account for the desires of A) buyers. B) sellers. C) governmental agencies. D) buyers and sellers.

Buyers and sellers of a particular good make up the A) market for the good. B) demand for the good. C) supply for the good. D) production possibilities curve for the good.

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8) "All else constant, consumers will purchase more of a good as the price falls." This statement reflects the behavior underlying A) the demand curve. B) a change in demand. C) the supply curve. D) a change in supply.

The demand curve illustrates the fact that consumers tend to purchase A) more of a good as it becomes more popular. B) name-brand products more frequently than generic products. C) more of a good as its price falls. D) more of a good as their incomes rise.

10)

Which of the following is not true of a demand curve? A) It has negative slope. B) It shows the amount consumers want to buy at various prices. C) It relates the price of an item to the quantity demanded of that item. D) It reflects sellers' reservations prices.

11)

A demand curve is ______ sloping because ______. A) downward; of increasing opportunity costs B) upward; people prefer to purchase high-quality consumer goods C) downward; reservation prices tend to fall over time D) downward; fewer people are willing to buy an item at higher prices

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12) As coffee becomes more expensive, Joe starts drinking tea instead of coffee. This is called A) the income effect of a price change. B) a decrease in reservation price. C) the substitution effect of a price change. D) a decrease in demand.

13) Suppose that as the price of apples rises, people switch from eating apples to eating oranges. This is known as A) the normal effect of a price change. B) the income effect of a price change. C) a decrease in the demand for apples. D) the substitution effect of a price change.

14) You can spend $10 for lunch and you would like to purchase two cheeseburgers. When you get to the restaurant, you find out the price for cheeseburger has increased from $5 to $6, so you decide to purchase just one cheeseburger. This is best described as A) the substitution effect of a price change. B) the income effect of a price change. C) a decrease in the buyer's reservation price. D) an increase in the buyer's reservation price.

15) After the price of Revlon nail polish increased, Jen stopped buying Revlon nail polish and started buying a cheaper brand of nail polish instead. This is called

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A) the substitution effect of a price change. B) the income effect of a price change. C) a decrease in the buyer's reservation price. D) a decrease in the seller's reservation price.

16) When the price of a good changes, the amount of that good that buyers wish to buy changes A) solely because of the substitution effect. B) solely because of the income effect. C) because of both the substitution and the income effects. D) only if the substitution effect and the income effect do not cancel out each other.

17)

The buyer's reservation price for a particular good or service is the A) smallest price the buyer would be willing to pay for it. B) same as the market price. C) largest price the buyer would be willing to pay for it. D) price the buyer must pay to ensure he or she gets it.

18)

Shelly purchases a leather purse for $400. One can infer that A) she paid too much. B) her reservation price was at least $400. C) her reservation price was exactly $400. D) her reservation price was less than $400.

19) Gertie saw a pair of jeans that she was willing to buy for $35. The price tag, though, said they were $29.99. Therefore Version 1

A) Gertie should not buy the jeans because they will be of lower quality than she expected. B) Gertie should not buy the jeans because the price is not equal to her reservation price. C) Gertie should buy the jeans because the price is less than her reservation price. D) Gertie should buy the jeans because the price is more than her reservation price.

20)

One reason the demand curve slopes ______ is that as prices fall ______. A) upward; more people find that the price is now less than their reservation price. B) upward; fewer people find that the price is now less than their reservation price. C) downward; more people find that the price is now less than their reservation price. D) downward; fewer people find that the price is now less than their reservation price.

21) When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. Thus, we can infer that Moe's reservation price for a slice of pizza is A) less than $1.75. B) at least $1.75 but less than $2. C) exactly $1.75. D) exactly $2.00.

22) The quantity that sellers wish to sell tends to ______ as price increases, and so the supply curve is ______ sloping. A) increase; downward B) decrease; downward C) increase; upward D) decrease; upward

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23)

The supply curve illustrates that firms A) increase the supply of a good when its price rises. B) increase the quantity supplied of a good when its price rises. C) decrease the quantity supplied of a good when input prices rise. D) decrease the supply of a good when its price rises.

24)

As the price of a good rises A) firms generally decrease the supply of the good. B) more firms can cover their opportunity cost of producing the good. C) firms generally increase the supply of the good. D) government regulation becomes more justified.

25) her

Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 is

A) marginal revenue. B) equilibrium price. C) reservation price. D) seller's surplus.

26) Suppose that the market price for hot dogs sold by street vendors has just risen from $4.50 to $5, and that in response Curly has now begun operating a hot dog cart. We can assume that Curly's reservation price for hot dogs is A) at least $5. B) $4.50. C) greater than $4.50 but no more than $5. D) $5.

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27)

A seller's reservation price is generally equal to A) the buyer's reservation price. B) the seller's opportunity cost of producing an additional unit. C) the seller's marginal benefit from producing an additional unit. D) the market price.

28)

A seller’s reservation price is generally equal to A) the buyer's reservation price. B) the seller's average cost. C) the seller's marginal cost. D) the market price.

29)

Which of the following is not a characteristic of a market in equilibrium? A) There is neither excess supply nor excess demand. B) Neither buyers nor sellers want the price to change. C) Sellers can sell as many units as they want at the equilibrium price. D) Buyers can buy as many units as they want at the equilibrium price.

30)

When a market is in equilibrium A) there is either excess demand or excess supply. B) both excess demand and excess supply are positive. C) both excess demand and excess supply are positive and equal to each other. D) there is neither excess demand nor excess supply.

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31)

Equilibrium price and quantity are determined by A) demand. B) supply. C) government regulations. D) both supply and demand.

32)

Excess demand occurs A) whenever the market is in equilibrium. B) whenever the market is not in equilibrium. C) when price is above the equilibrium price. D) when price is below the equilibrium price.

33)

If price is above the equilibrium price, then there will be A) both excess supply and excess demand. B) neither excess supply nor excess demand. C) excess supply. D) excess demand.

34)

The price of bananas will increase in response to A) an excess supply of bananas. B) an excess demand for bananas. C) an increase in the quantity of bananas supplied. D) an increase in the supply of bananas.

35)

If there is an excess supply of sport utility vehicles, then

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A) supply is greater than demand. B) quantity supplied is greater than quantity demanded. C) demand is greater than supply. D) quantity demanded is greater than quantity supplied.

36) Refer to the accompanying figure. The equilibrium price is ______, and the equilibrium quantity is ______.

A) $8; 6 B) $6; 4 C) $4; 6 D) $2; 8

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37)

Refer to the accompanying figure. At a price of $9, there will be

A) excess demand and upward pressure on the price. B) excess supply and upward pressure on the price. C) excess demand and downward pressure on the price. D) excess supply and downward pressure on the price.

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38)

Refer to the accompanying figure. At a price of $3, there will be

A) an excess demand of 5 units. B) an excess demand of 7 units. C) an excess supply of 7 units. D) an excess supply of 2 units.

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39)

Refer to the accompanying figure. At a price of $2, there will be

A) an excess demand of 8 units. B) an excess supply of 8 units. C) an excess supply of 1.33 units. D) an excess demand of 6.67 units.

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40) Refer to the accompanying figure. If the price is $4 today and there is no change in either supply or demand, one would expect the price in the future to be

A) $4. B) less than $4. C) greater than $6. D) greater than $4.

41)

When the current price of a good is below the equilibrium price A) buyers have an incentive to offer to pay sellers more than the current price. B) there will be excess supply. C) the price will tend to stay below the equilibrium price. D) sellers will notice their inventories are growing.

42)

In a free market, if the price of a good is below the equilibrium price, then

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A) the government will set a higher price to reestablish the market equilibrium. B) sellers, dissatisfied with growing inventories, will raise their prices. C) buyers, hoping to ensure they acquire the good, will bid the price higher. D) sellers, dissatisfied with growing inventories, will lower their prices.

43)

In a free market, if the price of a good is above the equilibrium price, then A) sellers, dissatisfied with growing inventories, will raise their prices. B) buyers, hoping to ensure they acquire the good, will bid the price lower. C) the government will set a lower price to reestablish the market equilibrium. D) sellers, dissatisfied with growing inventories, will lower their prices.

44)

Which of following is not true of the equilibrium price? A) Buyers who are willing to pay the equilibrium price can acquire the good. B) It measures the value of the last unit sold to consumers. C) It is fair in the sense that everyone can afford basic goods and services. D) Sellers who are willing to accept the equilibrium price can sell what they produce.

45)

When a market is not in equilibrium A) government intervention is required to achieve equilibrium. B) there is neither excess supply nor excess demand. C) the economic motives of sellers and buyers will move the market to its equilibrium. D) a change in either supply or demand is required to reestablish equilibrium.

46) Suppose that when the price of oranges is $3 per pound, the quantity demanded is 4.7 tons per day and the quantity supplied is 3.9 tons. In this case

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A) excess demand will lead the price of oranges to rise. B) excess supply will lead the price of oranges to fall. C) excess demand will lead the price of oranges to fall. D) excess supply will lead the price of oranges to rise.

47) Suppose that when the price of broccoli is $4 per pound, buyers wish to buy 500 pounds per day and sellers wish to sell 800 pounds per day. In this case A) excess supply will lead the price of broccoli to fall. B) excess demand will lead the price of broccoli to fall. C) excess supply will lead the price of broccoli to rise. D) excess demand will lead the price of broccoli to rise.

48) Suppose you bought a concert ticket from Ticketmaster for $50, but when you get to the concert, there are a large number of people waiting outside who offer to pay you more than $50 for your ticket. What is probably true? A) There is an excess demand for tickets at the Ticketmaster price. B) The Ticketmaster price was above the equilibrium price. C) There is an excess supply of tickets at the Ticketmaster price. D) The Ticketmaster price is the equilibrium price.

49) You have noticed that there is a persistent shortage of teachers in an urban school district in your state. Based on this observation, you suspect that A) the wage for teachers in that district is higher than the wage in suburban districts. B) the wage for teachers in that district is lower than the equilibrium wage. C) there is an excess supply of teachers in suburban districts. D) the demand for teachers in the urban school district is too low.

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50) Suppose the market demand curve is given by Qd = 80 − 10 P, and the market supply curve is given by Qs = 10 + 15 P. What is the equilibrium price and quantity? A) P* = $3.00 andQ* = 50 B) P* = $3.00 andQ* = 52 C) P* = $2.80 andQ* = 52 D) P* = $2.80 andQ* = 50

51) Suppose the market demand curve is given by Qd = 80 − 10P, and the market supply curve is given by Qs = 10 + 15P. What is the equilibrium price and quantity? A) P* = $3 and Q* = 52 B) P* = $2.80 and Q* = 50 C) P* = $3 and Q* = 50 D) P* = $2.80 and Q* = 52

52) Suppose you drive a car that gets good gas mileage, and you notice that more and more people are driving gas-guzzling cars. Their increased demand for gas A) does not affect you. B) is likely to cause the price you pay for gas to decrease. C) is likely to cause the price you pay for gas to increase. D) does not change the price you pay, but it reduces the quantity of gas supplied.

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53) Refer to the accompanying figure. The equilibrium price is ______, and the equilibrium quantity is ______.

A) $30; 15 B) $25; 20 C) $25; 5 D) $35; 20

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54)

Refer to the accompanying figure. If the current market price were $20

A) the market would be in equilibrium. B) there would be an excess supply of 25 units. C) there would be an excess demand of 25 units. D) there would be an excess demand of 35 units.

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55) Refer to the accompanying figure. Suppose all the sellers in this market started out charging a price of $45 per unit. What is the most likely result?

A) They would all make a large profit because $45 is more than the equilibrium price. B) They would all just break even because $45 is their reservation price. C) They would lower their prices because at $45 there would be excess supply. D) They would lower their prices because at $45 there would be excess demand.

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56) Refer to the accompanying figure. If the government imposed a price ceiling of $40, what would happen in this market?

A) There would be excess supply. B) There would be excess demand. C) The price ceiling would have no effect. D) The equilibrium quantity would fall.

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57) Refer to the figure below. There would be an excess supply of 25 units at a price of ______.

A) $20 B) $35 C) $45 D) $50

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58) Refer to the figure below. There would be an excess supply of 25 units at a price of ______.

A) $35.00 B) $45.00 C) $50.00 D) $20.00

59) The tendency of markets to automatically gravitate toward equilibrium is an application of the A) Scarcity Principle. B) Cost-Benefit Principle. C) Principle of Comparative Advantage. D) Incentive Principle.

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60)

Refer to the given table. Price Per Unit

Column A Units Per Year Column B Units Per Year

$ 40

110

$ 45

$ 50

$ 55

$ 60

Suppose the columns in this table reflect demand and supply. If the current market price is $50, then you would expect A) the market price to fall. B) the market price to rise. C) demand to decrease and supply to decrease. D) supply to decrease.

61)

Which of the following is not a characteristic of rent controls? A) Greater availability of apartments B) Excess demand for apartments C) Fewer newly built apartment buildings D) Lower expenditures on maintenance

62) Suppose one knows two facts: first, the market for prescription drugs experiences chronic shortages, and second, the government sets the price for prescription drugs. One can conclude that the government has A) set the price too high. B) set the price above the equilibrium price. C) encouraged buyers to hoard prescription drugs. D) set the price below the equilibrium price.

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63)

A price ceiling that is set above the equilibrium price A) will lead to a black market. B) will have no effect on the market. C) will lead to excess supply in the market. D) will lead to excess demand in the market.

64)

In a market in which the government has set a price ceiling below the equilibrium price A) the quantity demanded will equal quantity supplied. B) there will be excess supply. C) a black market might develop. D) quantity supplied will exceed quantity demanded.

65)

According to the textbook, government price controls fail because A) they are not enforced by government. B) legislation cannot alter basic economic incentives. C) bureaucrats lack accurate market data. D) firms ignore the price controls.

66) A movement along a demand curve from one price-quantity combination to another is called a A) change in quantity demanded. B) shift in the demand curve. C) change in demand. D) change in quantity supplied.

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67) "As the price of personal computers continues to fall, demand increases." This headline is inaccurate because A) a change in the price of personal computers shifts the demand curve. B) a change in the price of personal computers shifts the supply curve. C) the statement is backwards: increased demand leads to lower prices. D) a falling price of personal computers increases the quantity demanded, not demand.

68)

The quantity of tea demanded will increase if A) the population of tea drinkers grows. B) the price of coffee rises. C) the income of tea drinkers increases. D) the price of the tea falls.

69)

If the demand for a good decreases as income decreases, then the good is: A) a complementary good. B) a normal good. C) an inferior good. D) a substitute good.

70) If the demand for gadgets increases as a result of a decrease in the price of widgets, the widgets and gadgets are A) complementary goods. B) substitute goods. C) normal goods. D) elastically demanded.

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71)

It is likely that for most people A) coffee and tea are substitutes. B) coffee and nondairy creamer are substitutes. C) coffee and Coke are complements. D) coffee and coffee mugs are substitutes.

72)

Office workers and word processing programs are complements if

A) an increase in the price of word processing programs leads to an increase in the demand for office workers. B) a decrease in the wage paid to office workers leads to an increase in the demand for word processing programs. C) they perform similar functions. D) a decrease in the wage paid to office workers leads to a leftward shift in the demand for word processing programs.

73)

What might cause a demand curve to shift to the right? A) An increase in the price of a substitute B) A decrease in the product's own price C) An increase in the price of a complement D) A decrease in the price of a substitute

74) If the demand for olives falls when the price of cheese falls, then we know that cheese and olives are

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A) normal goods. B) complements. C) substitutes. D) inferior goods.

75) If the demand for cucumbers falls when the price of tomatoes rises, then we know that tomatoes and cucumbers are A) substitutes. B) complements. C) inferior goods. D) normal goods.

76) If the demand for cucumbers rises when the price of tomatoes falls, then we know that tomatoes and cucumbers are A) normal. B) inferior. C) complements. D) substitutes.

77)

If the demand for steak increases as income increases, then steak is A) a complementary good. B) a normal good. C) an inferior good. D) a substitute good.

78)

If an increase in the price of good X leads to a decrease in the demand for good Y, then

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A) goodX and goodY are complements. B) goodX and goodY are normal goods. C) goodX and goodY are substitutes. D) goodX is a normal good and goodY is an inferior good.

79)

Two goods are complements if A) people tend to consume either one or the other. B) there are no substitutes for either of them. C) an increase in the price of one good leads to a decrease in demand for the other. D) an increase in the price of one good leads to an increase in demand for the other.

80)

A decrease in the price of pizza will lead to A) an increase in the demand for pizza. B) an increase in the quantity of pizza demanded. C) a decrease in the quantity of pizza demanded. D) a decrease in the number of consumers.

81)

If the demand for computers increases as consumers' incomes rise, then computers are A) an inferior good. B) a complementary good. C) a normal good. D) a substitute good.

82) If an increase in income leads to a decrease in the demand for ground beef, then ground beef is a(n)

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A) normal good. B) complementary good. C) substitute good. D) inferior good.

83)

If the demand curve for bologna shifts to the right as income falls then bologna is a(n) A) normal good. B) complementary good. C) substitute good. D) inferior good.

84) Suppose sport utility vehicles get poor gas mileage compared to other available cars. If the price of gasoline increases, then one would expect A) the demand for gasoline to decrease. B) the demand for sport utility vehicles to decrease. C) the demand for sport utility vehicles to increase. D) the quantity demanded of sport utility vehicles to decrease.

85) Suppose the residents of Metropolis travel to work either by bus or train. If the price of train tickets increases, then A) the demand for train tickets will increase. B) the demand for bus tickets will increase. C) the demand for train tickets will decrease. D) the demand for bus tickets will decrease.

86)

If the price of doughnuts decreases, then one would expect the

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A) supply of doughnuts to decrease. B) quantity of doughnuts supplied to decrease. C) supply of doughnuts to increase. D) quantity of doughnuts supplied to increase.

87) Suppose that the price of doughnuts decreases. Given that doughnut holes are a byproduct of producing doughnuts, one would expect A) the supply of doughnut holes to decrease. B) the supply of doughnuts to decrease. C) the supply of doughnut holes to increase. D) the supply of doughnuts to increase.

88)

For two goods, X and Y, to be classified as substitutes, it must be the case that A) X andY are identical. B) consumers tend to purchase both items together. C) when the price ofX rises, the demand forY decreases. D) when the price ofX rises, the demand forY increases.

89) At the beginning of the fall semester, college towns experience large increases in their populations, causing A) a decrease in the quantity of apartments demanded. B) an increase in the supply of apartments. C) an increase in the demand for apartments. D) a decrease in the quantity of apartments supplied.

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90) Suppose one observes that when the price of peanut butter increases, the demand for jelly increases. One should conclude that A) peanut butter and jelly are complements. B) peanut butter and jelly are substitutes. C) peanut butter and jelly are normal goods. D) peanut butter and jelly are inferior goods.

91) Refer to the accompanying figure. Suppose the solid line shows the current demand curve for coffee. In response to an announcement that much of next year’s coffee crop has been destroyed by a storm in Brazil, you should expect

A) an increase in the quantity of coffee demanded, but no shift in the demand curve. B) the demand curve to shift to D(A) in anticipation of higher future prices. C) the demand curve to shift to D(B) in anticipation of higher future prices. D) neither a change in quantity demanded nor a shift in demand because next year’s coffee crop will not affect the current demand for coffee.

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92) Refer to the accompanying figure. Suppose the solid line shows the current demand for coffee. In response to a news story explaining that coffee causes heart disease, you should expect

A) tthe quantity of coffee demanded to decrease, but no shift in the demand curve. B) the demand curve to shift to D(A) because some people will stop drinking coffee. C) the demand curve to shift to D(B) in anticipation of higher future prices. D) neither a change in quantity demanded nor a shift in demand.

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93) Refer to the accompanying figure. Suppose the solid line shows the current demand for coffee. In response to news that next year’s coffee harvest will be extremely good due to favorable weather conditions, you should expect

A) the quantity of coffee demanded to decrease, but no shift in the demand curve. B) the demand curve to shift to D(A) in anticipation of lower future prices. C) the demand curve to shift to D(B) in anticipation of lower future prices. D) neither a change in quantity demanded nor a shift in demand because it will be a long time before next year’s coffee crop is harvested.

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94) Refer to the accompanying figure. Suppose the solid line shows the demand for coffee. If coffee and tea are substitutes and the price of tea falls, then you would expect

A) a decrease in the quantity of coffee demanded, but no shift in the demand curve. B) an increase in the quantity of coffee demanded, but no shift in the demand curve. C) the demand curve to shift to D(A). D) the demand curve to shift to D(B)

95) Suppose that a disease that affects people who consume beef has been discovered in the United States. One likely result is A) an increase in buyers' reservation prices for beef. B) a decrease in demand for chicken. C) a decrease in demand for beef. D) a decrease in the quantity demanded of beef.

96) Assume consumers eat either rice or pasta for dinner every night. If the price of rice increases, then one would expect to see Version 1

A) an increase in the quantity of pasta demanded. B) an increase in the demand for pasta. C) a decrease in the quantity of pasta demanded. D) a decrease in the demand for pasta.

97) Suppose that new scientific studies conclude that high-fiber diets do not reduce the risk of developing colon cancer as well as was previously thought. The likely result will be that the A) quantity demanded of high-fiber foods will fall. B) demand for high-fiber foods will decrease. C) supply of high-fiber foods will increase. D) price of high-fiber foods will rise.

98)

Which of the following is likely to lead to a decrease in the demand for tennis balls? A) An increase in the price of the rubber used to make tennis balls. B) An increase in the price of tennis balls. C) An increase in the price of tennis racquets. D) An increase in the expected future price of tennis balls.

99)

If fast food is an inferior good then A) the demand for fast food will fall as income falls. B) the demand for fast food will fall as income rises. C) the quantity of fast food demanded will rise as the price of fast food rises. D) the demand for fast food will fall as the price of fast food rises.

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100) Refer to the accompanying figure. Moving from demand curve D1 to demand curve D2 illustrates a(n)

A) increase in quantity demanded. B) increase in demand. C) decrease in demand. D) decrease in quantity demanded.

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101) Refer to the accompanying figure. Moving from demand curve D2 to demand curve D1 could be caused by a(n)

A) increase in the product’s expected future price. B) increase in quantity supplied. C) increase in the price of a substitute. D) increase in the price of a complement.

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102) Refer to the accompanying figure. Moving from demand curve D1 to demand curve D2 could be caused by

A) a decrease in the product’s expected future price. B) an increase in quantity supplied. C) an increase in the price of a close substitute. D) an increase in the price of a complement.

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103) Refer to the accompanying figure. Moving from demand curve D1 to demand curve D2 could be caused by

A) a decrease in the price of a close substitute. B) a decrease in income, if this is an inferior good. C) an increase in the supply of the good. D) a decrease in the product's expected future price.

104) All else equal, a decrease in the demand for oranges will lead to a(n) ______ in equilibrium price and a(n) ______ in equilibrium quantity. A) increase; decrease B) decrease; decrease C) decrease; increase D) increase; increase

105)

As the price of cookies increases, firms that produce cookies will

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A) increase the supply of cookies. B) increase the quantity of cookies supplied. C) decrease the supply of cookies. D) decrease the quantity of cookies supplied.

106)

Which of the following would cause an increase in quantity of wheat supplied? A) The price farmers receive for their wheat rises. B) The price of fertilizer farmers use in their fields falls. C) The price firms pay for liability insurance falls. D) New, better technology for farming is introduced.

107)

If the price of rubber (an input to the production of tires) increases A) the supply of tires will increase. B) the supply of tires will decrease. C) the demand for tires will increase. D) the demand for tires will decrease.

108) As the price of flour (an input in the production of cookies) increases, firms that produce cookies will A) increase the supply of cookies. B) increase the quantity of cookies supplied. C) decrease the supply of cookies. D) decrease the quantity of cookies supplied.

109) Suppose that the technology used to manufacture laptops has improved. The likely result would be Version 1

A) an increase in supply of laptops. B) an increase in quantity supplied of laptops. C) a decrease in supply of laptops. D) a decrease in quantity supplied of laptops.

110)

Which of the following factors will lead to a decrease in the current supply of a good? A) A fall in the current price of a good or service B) A technological advance that decreases production costs C) A decrease in the price of inputs to the production process D) A belief that the price of a good or service will go up in the future

111)

What might cause a decrease in current supply of a product? A) An increase in the product's own price B) New information that leads sellers to believe that the product's price will fall in the

future C) New information that leads sellers to believe that the product's price will rise in the future D) A decrease in the price of one of the inputs used to make the product

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112) Refer to the accompanying figure, which shows the market for Marvel action figures. Suppose the solid line represents the current supply of Marvel action figures. If retailers learn that a new Marvel movie will be released in several months, this news is likely to cause

A) a decrease in the quantity supplied, but no change in current supply. B) neither a change in supply nor a change in quantity supplied since only future demand will change. C) current supply to shift to S(B) in anticipation of higher future prices. D) current supply to shift to S(A) in anticipation of higher future prices.

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113) Refer to the accompanying figure, which shows the market for Marvel action figures. Suppose the solid line represents the current supply of Marvel action figures. If the price of the plastic used to make action figures rises, current supply will

A) shift to S(B). B) not change because a change in the price of plastic will not affect the demand for action figures. C) shift to S(A). D) not change; only the quantity supplied will change.

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114) Refer to the accompanying figure, which shows the market for cups of coffee. At the original market equilibrium

A) 50 cups are sold per hour at a price of $1.00 each. B) 50 cups are sold per hour at a price of $2.50 each. C) 40 cups are sold per hour at a price of $2.00 each. D) 60 cups are sold per hour at a price of $1.50 each.

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115) Refer to the accompanying figure, which shows the market for cups of coffee. What might cause a shift from the original demand curve to the new demand curve?

A) An expectation that coffee prices will fall in the future B) An increase in the price of coffee creamer C) A decrease in the price of tea D) An increase in consumers’ tastes for coffee

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116) Refer to the accompanying figure, which shows the market for cups of coffee. What might cause a shift from the original supply curve to the new supply curve?

A) A storm that wipes out a large part of the coffee crop B) A new technology that reduces amount of coffee beans needed to make a good cup of coffee C) A news report that coffee consumption increases longevity D) An increase in the price of tea

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117) Refer to the accompanying figure, which shows the market for cups of coffee. Starting from the original market equilibrium, if all buyers’ reservation prices increase by $3.00, then the equilibrium price of coffee

A) would increase by $3. B) would increase by less than $3. C) would increase by more than $3. D) would not change.

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118) Refer to the accompanying figure, which shows the market for cups of coffee. Consider the original supply and the original demand curve. If the government imposes a price ceiling of $1 on a cup of coffee, then there would be

A) a short-term excess demand for coffee, followed by an increase in the equilibrium price. B) an excess supply of coffee. C) an excess demand for coffee. D) a new equilibrium at a price of $1.00 per cup and a quantity of 50 cups per hour.

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119)

Refer to the accompanying figure. An increase in demand is represented by a shift from

A) curve A to curve B. B) curve B to curve A. C) curve C to curve D. D) curve D to curve C.

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120)

Refer to the accompanying figure. A decrease in demand is represented by a shift from

A) curve A to curve B. B) curve B to curve A. C) curve C to curve D. D) curve D to curve C.

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121)

Refer to the accompanying figure. An increase in supply is represented by a shift from

A) curve A to curve B. B) curve B to curve A. C) curve C to curve D. D) curve C to curve B.

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122)

Refer to the accompanying figure. A decrease in supply is represented by a shift from

A) curve A to curve B. B) curve B to curve A. C) curve C to curve D. D) curve D to curve C.

123)

Refer to the given table. Relative to column A, column B represents Price Per Unit

Column A Units Per Year Column B Units Per Year

$ 20

100

110

A) a decrease in demand. B) an increase in demand. C) a decrease in supply. D) an increase in supply.

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124)

Refer to the given table. Relative to column A, column B represents Price Per Unit

Column A Units Per Year Column B Units Per Year

$ 20

A) an increase in supply. B) an increase in demand. C) a decrease in demand. D) a decrease in supply.

125) Refer to the given table. Suppose the columns in this table reflect demand and supply. At a price of $30 Price Per Unit

Column A Units Per Year Column B Units Per Year

$ 20

100

A) the market will be in equilibrium. B) there will be an excess demand of 95 units. C) there will be an excess supply of 45 units. D) there will be an excess demand of 45 units.

126) Refer to the given table. Suppose the columns in this table reflect demand and supply. There will be an excess demand of 45 units at a price of

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Price Per Unit

Column A Units Per Year Column B Units Per Year

$ 20

100

A) $20. B) $40. C) $60. D) $30.

127) Refer to the given table. Suppose the columns in this table reflect demand and supply. There will be an excess supply of 5 units at a price of Price Per Unit

Column A Units Per Year Column B Units Per Year

$ 20

100

A) $60. B) $50. C) $40. D) $20.

128)

Refer to the given table. The equilibrium price in this market is Price Per Unit

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Column A Units Per Year Column B Units Per Year

$ 20

100

A) between $20 and $30. B) between $30 and $40. C) between $40 and $50. D) nonexistent.

129)

An increase in the demand for GM automobiles results in A) a lower equilibrium price for GM automobiles. B) an increase in the quantity supplied of GM automobiles. C) an increase in the supply of GM automobiles. D) a lower equilibrium quantity of GM automobiles.

130)

Which of the following is not a determinant of the demand for gasoline? A) Consumers' incomes B) The price of diesel C) The price of automobiles D) The supply of gasoline

131)

When the supply of a good decreases, there will be a(n) A) decrease in demand. B) decrease in buyers' reservation prices for the good. C) decrease in the quantity demanded. D) increase in the quantity demanded.

132)

When the supply curve shifts to the left and there is no change in demand

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A) the market cannot reestablish an equilibrium. B) the equilibrium price will fall. C) the equilibrium quantity will rise. D) the equilibrium price will rise.

133)

If the supply curve and the demand curve both shift to the left, then the new equilibrium A) quantity will be higher, but the direction of the price change is uncertain. B) price will be lower, but the direction of the change in quantity is uncertain. C) price will be higher, but the direction of the change in quantity is uncertain. D) quantity will be lower, but the direction of the price change is uncertain.

134)

If supply increases, then A) demand will increase. B) the quantity demanded will increase. C) the quantity demanded will decrease. D) price will increase.

135) Suppose demand decreases, but there is no change in supply. As the market reaches its new equilibrium A) excess demand will lead the price to rise. B) excess supply will lead the price to rise. C) excess demand will lead the price to fall. D) excess supply will lead the price to fall.

136) Suppose supply decreases, but there is no change in demand. As the market reaches its new equilibrium Version 1

A) excess demand will lead the price to rise. B) excess supply will lead the price to rise. C) excess demand will lead the price to fall. D) excess supply will lead the price to fall.

137)

When the demand curve shifts to the right and supply doesn't change A) quantity demanded will rise. B) equilibrium price will fall. C) equilibrium quantity will rise. D) supply will rise.

138) A decrease in both the equilibrium price and the equilibrium quantity of rice is best explained by A) an increase in the demand for rice. B) an increase in the supply of rice. C) a decrease in the supply of rice. D) a decrease in the demand for rice.

139) An increase in both the equilibrium price and the equilibrium quantity of DVD players is best explained by A) an increase in the demand for DVD players. B) an increase in the supply of DVD players. C) a decrease in the supply of DVD players. D) a decrease in the demand for DVD players.

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140) Suppose we observe an increase in both the equilibrium price and quantity of bread. This is best explained by A) an increase in the cost of flour used in the production of bread. B) a technological advance that lowers the marginal cost of producing bread. C) a decrease in the price of butter, a complement to bread. D) a decrease in the price of pasta, a substitute to bread.

141) Suppose that the equilibrium price of T-shirts increases, and the equilibrium quantity of T-shirts decreases. This is best explained by A) an increase in the demand for T-shirts. B) a decrease in the supply of T-shirts. C) an increase in the supply of T-shirts. D) a decrease in the demand for T-shirts.

142) Suppose that the equilibrium price of apples decreases, and the equilibrium quantity of apples increases. This is best explained by A) an increase in the demand for apples. B) a decrease in the supply of apples. C) a decrease in the demand for apples. D) an increase in the supply of apples.

143) Suppose you observe a decrease in the equilibrium price and quantity of corn. Of the options listed below, this is best explained by A) a decrease in the cost of growing corn. B) an increase in the cost of growing corn. C) a rise in consumer income assuming corn is a normal good. D) a fall in consumer income assuming corn is a normal good.

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144) Suppose we observe a decrease in the equilibrium price of tuna and an increase in the equilibrium quantity of tuna. This is best explained by A) a decrease in the cost of fuel used by tuna fishing boats. B) a decrease in the tuna population in the oceans. C) a decrease in the expected future price of tuna. D) an increase in the price of salmon, a substitute for tuna.

145) Suppose you observe an increase in the equilibrium price of coffee and a decrease in the equilibrium quantity of coffee. Of the options listed below, this is most consistent with A) a decrease in consumer income assuming coffee is a normal good. B) an increase in the cost of producing coffee. C) an increase in consumer income assuming coffee is a normal good. D) a decrease in the cost of producing coffee.

146) If pencils and paper are complements for most consumers, then if the price of paper increases, you would expect A) the equilibrium price and quantity of pencils to fall. B) the equilibrium price and quantity of pencils to rise. C) the equilibrium price of pencils to fall and the equilibrium quantity of pencils to rise. D) the equilibrium price of pencils to rise and the equilibrium quantity of pencils to fall.

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147) Refer to the accompanying figure. Assume demand remains unchanged at D1. If supply shifts from S1 to S2, then the equilibrium price will ______ and the equilibrium quantity will ______.

A) rise; fall B) rise; rise C) fall; fall D) fall; rise

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148) Refer to the accompanying figure. Assume demand remains unchanged at D1. If supply shifts from S2 to S1, then the equilibrium price will ______ and the equilibrium quantity will ______.

A) rise; fall B) rise; rise C) fall; fall D) fall; rise

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149) Refer to the accompanying figure. If demand shifts from D1 to D2, and at the same time, supply shifts from S1 to S2, then according to the figure

A) the equilibrium quantity will increase, and the equilibrium price will decrease. B) the equilibrium quantity will increase, and the equilibrium price will increase. C) the equilibrium quantity will decrease, and the equilibrium price will increase. D) the equilibrium quantity will decrease, and the equilibrium price will decrease.

150) If demand increases and supply decreases, the change in the equilibrium price will be ______, and the change in the equilibrium quantity will be ______. A) positive; positive B) positive; negative C) positive; uncertain D) uncertain; positive

151) If supply and demand both increase, the new equilibrium price will be ______ and the new equilibrium quantity will be ______.

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A) lower; lower B) lower; uncertain C) uncertain; higher D) higher; higher

152) If supply and demand both decrease, the new equilibrium price will be ______ and the new equilibrium quantity will be ______. A) lower; lower B) lower; uncertain C) higher; higher D) uncertain; lower

153) If supply increases and demand decreases, the new equilibrium price will be ______ and the new equilibrium quantity will be ______. A) lower; lower B) lower; uncertain C) higher; higher D) higher; uncertain

154) Suppose the equilibrium price and quantity of ketchup fall. The most likely explanation for these changes is A) a decrease in the demand for ketchup. B) an increase in the demand for ketchup. C) a decrease in the supply of ketchup. D) an increase in the supply of ketchup.

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155) Suppose that the equilibrium price of pickles falls while the equilibrium quantity rises. The most likely explanation for these changes is A) a decrease in demand for pickles. B) an increase in demand for pickles. C) a decrease in the supply of pickles. D) an increase in the supply of pickles.

156) Suppose that the equilibrium price of french fries rises while the equilibrium quantity falls. The most likely explanation for these changes is A) a decrease in demand for french fries. B) an increase in demand for french fries C) an increase in the supply of french fries. D) a decrease in the supply of french fries.

157) Assume the demand for coffee increases and the supply of coffee decreases. Which of the following outcomes is certain to occur? A) The equilibrium price of coffee will rise. B) The equilibrium quantity of coffee will rise. C) The equilibrium price of coffee will fall. D) The equilibrium quantity of coffee will fall.

158) Assume the demand for sugar decreases and the supply of sugar increases. Which of the following outcomes is certain to occur? A) The equilibrium price of sugar will rise. B) The equilibrium quantity of sugar will rise. C) The equilibrium price of sugar will fall. D) The equilibrium quantity of sugar will fall.

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159) Assume both the demand for beef and the supply of beef decrease. Which of the following outcomes is certain to occur? A) The equilibrium price of beef will rise. B) The equilibrium quantity of beef will rise. C) The equilibrium price of beef will fall. D) The equilibrium quantity of beef will fall.

160) Assume both the demand for bagels and the supply of bagels increase. Which of the following outcomes is certain to occur? A) The equilibrium price of bagels will rise. B) The equilibrium quantity of bagels will rise. C) The equilibrium price of bagels will fall. D) The equilibrium quantity of bagels will fall.

161) Suppose a new study highlights the health benefits of eating bacon. At the same time, suppose the cost of producing bacon falls. Given these changes, you should expect to see A) a decrease in the equilibrium price of bacon, but it's hard to say what will happen to the equilibrium quantity. B) an increase in the equilibrium quantity of bacon, but it's hard to say what will happen to the equilibrium price. C) an increase in both the equilibrium price and quantity of bacon. D) an increase in the equilibrium price of bacon, but it's hard to say what will happen to the equilibrium quantity.

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162) Refer to the accompanying figure. Assume the market is originally at point W. Movement to point X is the result of

A) an increase in demand and no change in supply. B) an increase in demand and a decrease in supply. C) a decrease in demand and an increase in supply. D) no change in demand and an increase in supply.

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163) Refer to the accompanying figure. Assume the market is originally at point X. Movement to point W is the result of

A) no change in demand and a decrease in supply. B) no change in demand and an increase in supply. C) a decrease in demand and no change in supply. D) a decrease in demand and an increase in supply.

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164) Refer to the accompanying figure. Assume the market is originally at point W. Movement to point Y is the result of

A) an increase in demand and an increase in quantity supplied. B) an increase in supply and an increase in demand. C) an increase in supply and an increase in quantity demanded. D) a decrease in supply and an increase in quantity demanded.

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165) Refer to the accompanying figure. Assume the market is originally at point W. Movement to point Z is a combination of

166) Suppose that both the supply of iPads and the demand for iPads decrease. One can predict that the A) equilibrium price will rise, but the change in equilibrium quantity is uncertain. B) equilibrium price and quantity will fall. C) equilibrium price and quantity will rise. D) equilibrium quantity will fall, but the change in equilibrium price is uncertain.

167) Suppose rice is a normal good. If consumers' incomes fall, and a new technology is introduced that lowers the marginal cost of producing rice, then the equilibrium

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A) price of rice will increase, but we cannot say for sure what will happen to the equilibrium quantity. B) price of rice will fall, but we cannot say for sure what will happen to the equilibrium quantity. C) quantity of rice will increase, but we cannot say for sure what will happen to the equilibrium price. D) quantity of rice will decrease, but we cannot say for sure what will happen to the equilibrium price.

168) Suppose Bianca buys a used a textbook from Sebastian for $55. If Bianca’s surplus from this transaction was $10, we can infer that A) Bianca's reservation price was $45. B) Bianca's reservation price was $60, and Sebastian's reservation price was $50. C) Bianca's reservation price was $65. D) Sebastian's reservation price was $45.

169) Suppose Bianca buys a used a textbook from Sebastian for $60. If Bianca’s surplus from this transaction was $12, we can infer that A) Bianca's reservation price was $72. B) Bianca's reservation price was $48. C) Sebastian's reservation price was $48. D) Bianca's reservation price was $66, and Sebastian's reservation price was $54.

170) Suppose that Tom bought a bike from Lauren for $195. If Lauren’s reservation price was $185, and Tom's reservation price was $215, the seller’s surplus from this transaction was

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A) $195. B) $10. C) $20. D) $215.

171) Suppose that Tom bought a bike from Lauren for $195. If Lauren’s reservation price was $185, and Tom's reservation price was $215, the seller’s surplus from this transaction was A) $20. B) $195. C) $215. D) $10.

172) Suppose that Tom bought a bike from Lauren for $195. If Lauren’s reservation price was $185, and Tom’s reservation price was $215, the buyer's surplus from this transaction was A) $195. B) $10. C) $20. D) $215.

173) Suppose that Tom bought a bike from Lauren for $150. If Lauren’s reservation price was $125, and Tom's reservation price was $180, the buyers surplus from this transaction was A) $125. B) $25. C) $30. D) $55.

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174) Suppose that Tom bought a bike from Lauren for $195. If Lauren’s reservation price was $185 and Tom’s reservation price was $215, the total economic surplus from this transaction was A) $30. B) $185. C) $195. D) $215.

175) Suppose that Tom bought a bike from Lauren for $200. If Lauren’s reservation price was $170, and Tom's reservation price was $225, the total economic surplus from this transaction was A) $55. B) $170. C) $25. D) $30.

176) Suppose that Tom bought a bike from Lauren for $200. If Lauren’s reservation price was $170, and Tom's reservation price was $225, the seller’s surplus from this transaction was A) $55. B) $30. C) $25. D) $170.

177) Suppose that Tom bought a bike from Lauren for $160. If Lauren’s reservation price was $150, and Tom's reservation price was $200, the buyer's surplus from this transaction was

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A) $50. B) $40. C) $10. D) $200.

178)

An outcome is socially optimal if it A) is an equilibrium outcome. B) leaves no unexploited opportunities for individuals. C) is determined by the government. D) maximizes total economic surplus.

179)

Efficiency occurs if the A) market is in equilibrium. B) socially optimal quantity of goods and services is being produced. C) individually rational quantity of goods and services is being produced. D) government does not interfere with market prices.

180)

Efficiency is an important social goal because A) it ensures a fair outcome. B) it ensures a normative outcome. C) movements toward economic efficiency make the total economic pie larger. D) it takes into consideration the distribution of income.

181) Assume that Joe is willing to produce a hamburger for $1, and Mary is willing to pay $3 for a hamburger. Which of the following is true?

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A) Joe and Mary can make a mutually beneficial exchange. B) Joe and Mary cannot make a mutually beneficial exchange. C) Joe and Mary will not trade in equilibrium. D) Joe and Mary will only trade if the equilibrium price is less than $1.

182)

When two people agree to a price in a negotiation, we can assume that

A) each one will receive equal benefits from the transaction. B) the seller will receive more benefit from the transaction than the buyer. C) only one of the parties will benefit, but there is not enough information to determine which one it will be. D) both parties will benefit.

183) If there are no unexploited opportunities for individuals in a particular market, then one can conclude that A) government regulation has been successful. B) the market is in equilibrium. C) the market is not in equilibrium. D) a socially optimal outcome has been achieved.

184)

The situation described in the book as "smart for one, dumb for all" occurs when A) individuals act rationally, so there are no unexploited opportunities for society as a

whole. B) individuals act rationally, but there are still unexploited opportunities for society as a whole. C) individuals make better decisions when they are alone than when they are part of a group. D) individuals make better decisions when they are part of a group than when they are alone.

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185) If the local slaughterhouse gives off an unpleasant stench, then the equilibrium quantity of meat will be _____ the quantity that maximizes total economic surplus. A) more equitable than B) equal to C) lower than D) higher than

186)

If the equilibrium quantity of a good is also the socially optimal quantity, then A) total economic surplus has been maximized. B) the marginal benefit to consumers of another unit of the good is zero. C) the marginal cost to producers of another unit of the good is zero. D) it's possible to make at least one person better off without hurting anyone else.

187) If the production of oranges reduces global warming, then the equilibrium quantity of oranges will be ______ the socially optimal quantity. A) higher than B) lower than C) equal to D) more valuable than

188)

A market equilibrium might not maximize total economic surplus because A) efficiency is not an important social goal. B) in a market equilibrium individuals do not act rationally. C) in a market equilibrium individuals do not exploit all opportunities for individual gain. D) sometimes goods entail costs and benefits that do not fall on buyers and sellers.

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189) Everyone in the neighborhood has been complaining about the deteriorating condition of the park, but nobody has cleaned it up. Why not? A) There is an excess demand for parks in the neighborhood. B) There is an excess supply of parks in the neighborhood. C) The social benefit of cleaning the park exceeds the social cost of cleaning it. D) No single person's benefit from cleaning the park exceeds that person's cost of cleaning it.

190)

The Equilibrium Principle asserts that in a market equilibrium A) no unexploited opportunities exist for society. B) unexploited opportunities exist for individuals but not for society. C) unexploited opportunities exist for both individuals and society. D) no unexploited opportunities exist for individuals.

191)

A market equilibrium A) is socially optimal. B) leaves unexploited opportunities for individuals. C) might not maximize total economic surplus. D) is never socially optimal.

192)

A market equilibrium A) leaves unexploited opportunities for individuals. B) maximizes total economic surplus. C) exploits all gains achievable through collective action. D) leaves no unexploited opportunities for individuals.

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193)

The market equilibrium quantity A) maximizes total economic surplus. B) is sometimes the socially optimal quantity. C) is the socially optimal quantity. D) is not the socially optimal quantity.

194) Suppose quantity demanded is given by Qd = 100 − P, and quantity supplied is given by Qs = 20 + 3 P. In this case, equilibrium price, P*, and equilibrium quantity, Q*, are A) P*= $40.00,Q*= 110. B) P*= $30.00,Q*= 85. C) P*= $26.67,Q*= 60. D) P*= $20.00,Q*= 80.

195) Suppose quantity demanded is given byQd = 180 −P, and quantity supplied is given byQs = 30 + 3P. In this case, equilibrium price,P*, and equilibrium quantity,Q*, are A) P*= 37.5, Q*= 142.5 . B) P*= 50, Q*= 25. C) P*= 75, Q*= 187.5. D) P*= 52.5, Q*= 106.25.

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Answer Key Test name: Chap 03_8e_Frank 1) A 2) D 3) C 4) C 5) B 6) D 7) A 8) A 9) C 10) D 11) D 12) C 13) D 14) B 15) A 16) C 17) C 18) B 19) C 20) C 21) B 22) C 23) B 24) B 25) C 26) C Version 1

27) B 28) C 29) B 30) D 31) D 32) D 33) C 34) B 35) B 36) B 37) D 38) A 39) D 40) D 41) A 42) C 43) D 44) C 45) C 46) A 47) A 48) A 49) B 50) C 51) D 52) C 53) D 54) C 55) C 56) C Version 1

57) D 58) C 59) D 60) B 61) A 62) D 63) B 64) C 65) B 66) A 67) D 68) D 69) B 70) A 71) A 72) B 73) A 74) C 75) B 76) D 77) B 78) A 79) C 80) B 81) C 82) D 83) D 84) B 85) B 86) B Version 1

87) A 88) D 89) C 90) B 91) C 92) B 93) B 94) C 95) C 96) B 97) B 98) C 99) B 100) B 101) D 102) C 103) C 104) B 105) B 106) A 107) B 108) C 109) A 110) D 111) C 112) D 113) C 114) C 115) D 116) B Version 1

117) B 118) C 119) C 120) D 121) A 122) B 123) B 124) D 125) D 126) D 127) B 128) C 129) B 130) D 131) C 132) D 133) D 134) B 135) D 136) A 137) C 138) D 139) A 140) C 141) B 142) D 143) D 144) A 145) B 146) A Version 1

147) D 148) A 149) B 150) C 151) C 152) D 153) B 154) A 155) D 156) D 157) A 158) C 159) D 160) B 161) B 162) A 163) C 164) C 165) B 166) D 167) B 168) C 169) A 170) B 171) D 172) C 173) C 174) A 175) A 176) B Version 1

177) B 178) D 179) B 180) C 181) A 182) D 183) B 184) B 185) D 186) A 187) B 188) D 189) D 190) D 191) C 192) D 193) B 194) D 195) A

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CHAPTER 4 1)

The price elasticity of demand for a good measures the responsiveness of A) demand to a 1 percent change in price of that good. B) price to a 1 percent change in the demand for that good. C) quantity demanded to a 1 percent change in price of that good. D) price to a 1 percent change in the quantity demanded of that good.

The price elasticity of demand is a measure of A) the change in quantity demanded of a good that results from a change in its price. B) the change in price of a good that results from a change in its quantity demanded. C) the demand for a good. D) how consumers respond to excess demand.

3) The percentage change in quantity demanded that results from a 1 percent change in price is known as the A) price elasticity of supply. B) price elasticity of demand. C) income elasticity of demand. D) cross-price elasticity of demand.

4) When calculating price elasticity of demand, if the percentage change in price is negative, then the percentage change in quantity demanded is typically A) greater than one. B) positive. C) less than one. D) negative.

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5) If the price of cheese falls by 1 percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese is equal to A) 30. B) 0.30. C) 0.333. D) 3.

6) If the price of cheese falls by 1 percent and the quantity demanded rises by 4.5 percent, then the price elasticity of demand for cheese is equal to A) 4.5. B) 0.22. C) 45. D) 0.45.

7) If the price of textbooks increases by one percent and the quantity demanded falls by onehalf percent, then the price elasticity of demand is equal to A) 0.05. B) 0.5. C) 2. D) 5.

8) If the price of textbooks increases by one percent and the quantity demanded falls by onehalf percent, then demand for textbooks is

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A) negative. B) inelastic. C) elastic. D) unit elastic.

9) If the price of textbooks increases by one percent and the quantity demanded falls by three-fourths percent, then demand for textbooks is A) positive. B) unit elastic. C) elastic. D) inelastic.

10)

The price elasticity of demand is typically expressed as a positive number because

A) price and quantity move in the same direction. B) the demand curve has a positive slope. C) it's convenient to use absolute values. D) both the numerator and the denominator are negative, so the formula yields a positive number.

11) If the absolute value of the price elasticity of demand for tickets to a football game is 2, then if the price increases by 1 percent, quantity demanded decreases by A) 0.5 percent. B) 1 percent. C) 2 percent. D) 4 percent.

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12) If the absolute value of the price elasticity of demand for cell phone service is 3, then if the price of cell phone service increases by 1 percent, quantity demanded would A) increase by 0.33 percent. B) decrease by 0.33 percent. C) increase by 3 percent. D) decrease by 3 percent.

13) If 20 percent increase in the price of a good leads to a 60 percent decrease in the quantity demanded, then what is the price elasticity of demand? A) 30 B) 3 C) 1/3 D) 1/6

14) If 60 percent increase in the price of a good leads to a 15 percent decrease in the quantity demanded, then what is the price elasticity of demand? A) 40 B) 4 C) 1/8 D) 1/4

15) If a 10 percent decrease in the price of a good leads to a 20 percent increase in the quantity demanded, then what is the price elasticity of demand? A) 0.5 B) 2 C) 10 D) 20

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16) If a 25 percent decrease in the price of a good leads to a 30 percent increase in the quantity demanded, then what is the price elasticity of demand? A) 12 B) 0.83 C) 1.2 D) 10

17) If the price elasticity of demand for pineapples is 0.75, then a 4 percent increase in the price of pineapples will lead to a A) 3 percent decrease in the quantity of pineapples demanded. B) 3 percent increase in the quantity of pineapples demanded. C) 0.75 percent decrease in the quantity of pineapples demanded. D) 0.75 percent increase in the quantity of pineapples demanded.

18) If the price elasticity of demand for pineapples is 0.75, then a 4 percent increase in the price of pineapples will lead to a A) 3 percent decrease in the quantity of pineapples demanded. B) 0.75 percent increase in the quantity of pineapples demanded. C) 3 percent increase in the quantity of pineapples demanded. D) 0.75 percent decrease in the quantity of pineapples demanded.

19) If the price elasticity of demand for chicken is 2, then a 20 percent decrease in the price of chicken will lead to a

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A) 10 percent decrease in the quantity demanded of chicken. B) 10 percent increase in the quantity demanded of chicken. C) 40 percent decrease in the quantity demanded of chicken. D) 40 percent increase in the quantity demanded of chicken.

20) If the price elasticity of demand for food is 0.03, then a 6 percent increase in the price of food will lead to a ______ decrease in quantity demanded. A) 0.018 percent B) 0.18 percent C) 1.8 percent D) 18 percent

21) If the price elasticity of demand for food is 0.3, then a 7 percent decrease in the price of food will lead to a ______ increase in quantity demanded. A) 21 percent B) 0.4 percent C) 4 percent D) 2.1 percent

22) If the price elasticity of demand for cigarettes is 0.55, and the price of cigarettes increases by 10 percent, then the quantity of cigarettes demanded will fall by A) 0.55 percent. B) 5.5 percent. C) 55 percent. D) 550 percent.

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23)

The demand for a good is elastic if the price elasticity of demand is A) equal to one. B) greater than one. C) less than one. D) equal to zero.

24) If the price elasticity of demand for a good is greater than one, then the demand for that good is A) elastic. B) inelastic. C) unit elastic. D) perfectly elastic.

25) If the price elasticity of demand for a good is between zero and one, then the demand for that good is A) perfectly elastic. B) elastic. C) inelastic. D) unit elastic.

26) is

The demand for a good is inelastic with respect to price if the price elasticity of demand

A) equal to one. B) greater than one. C) less than one. D) equal to negative one.

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27) The demand for a good is unit elastic with respect to price if the price elasticity of demand is A) equal to one. B) greater than one. C) less than one. D) greater than negative one.

28)

If the price elasticity of demand for a good equals one, then the demand for that good is A) elastic. B) inelastic. C) unit elastic. D) perfectly elastic.

29) When the price of hot dogs is $1.50 each, 500 hot dogs are sold every day. After the price falls to $1.35 each, 510 hot dogs are sold every day. At the original price, what is the price elasticity of demand for hot dogs? A) 66.67 B) 5 C) 2 D) 0.2

30) When the price of hot dogs is $2.00 each, 500 hot dogs are sold every day. After the price falls to $1.80 each, 525 hot dogs are sold every day. At the original price, what is the price elasticity of demand for hot dogs?

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A) 125 B) 5 C) 0.5 D) 2.5

31) When the price of NBA tickets is $25 each, 30,000 tickets are sold. After the price rises to $30 each, 20,000 tickets are sold. At the original price, the demand for NBA ticket is A) elastic. B) inelastic. C) unit elastic. D) perfectly elastic.

32) If the percentage change in the price of a good is less than the resulting percentage change in the quantity demanded of that good, then the demand for that good is A) elastic. B) inelastic. C) unit elastic. D) perfectly inelastic.

33) If consumers respond to a 10% price reduction by buying twice as much of a particular good, we would conclude that A) there was excess demand at the original price. B) there was excess supply at the original price. C) the price elasticity of demand at the original price was greater than one. D) the price elasticity of demand at the original price was less than one.

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34) Suppose a 10% increase in the price of aspirin leads to a 5% decrease in the quantity demanded of aspirin. The demand for aspirin, therefore, is A) elastic. B) inelastic. C) unit elastic. D) perfectly inelastic.

35) If the percentage change in the price of a good is equal to the percentage change in the quantity demanded of that good, then the demand for that good is A) elastic. B) inelastic. C) unit elastic. D) perfectly elastic.

36)

If the demand for a good is highly elastic, that good is likely to have A) many close complements. B) few close complements. C) many close substitutes. D) few close substitutes.

37) If consumers can easily switch to a close substitute when the price of a good increases, demand for that good is likely to be A) elastic. B) inelastic. C) unit elastic. D) perfectly inelastic.

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38)

When the demand for a good is inelastic, that good is likely to have A) many close complements. B) few close complements. C) many close substitutes. D) few close substitutes.

39)

All else equal, the price elasticity of demand tends to be higher when A) a good has many substitutes. B) the time horizon is relatively short. C) people spend a small fraction of their budget on the good. D) supply increases.

40) If consumers cannot readily switch to a close substitute when the price of a good increases, the demand for that good is likely to be A) elastic. B) inelastic. C) unit elastic. D) perfectly elastic.

41)

Which of the following is likely to have the highest price elasticity of demand? A) Shoes B) Running shoes C) Nike running shoes D) The price elasticity of demand will be the same for all of the answers listed.

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42) For which of the following products is demand likely to be least elastic with respect to price? A) Food B) Vegetables C) Green vegetables D) Green beans

43) Suppose the company that owns the vending machines on your campus has doubled the price of a can of soda. They then notice that they are selling approximately 15 percent fewer sodas. The price elasticity of demand for sodas from the campus vending machines, therefore, is A) inelastic. B) unit elastic. C) elastic. D) infinite.

44) Suppose the company that owns the vending machines on your campus has doubled the price of a can of soda. If they then still sell almost the same number of sodas per day, this suggests A) students do not have good nutritional information. B) soda purchases represent a large fraction of students' budgets. C) there are few other places to purchase soda on campus. D) the price elasticity of demand for soda is equal to 1.

45) Suppose the price of a Snickers candy bar is $2 at both the airport and the grocery store. The price elasticity of demand for a Snickers candy bar at an airport is likely to be ______ the price elasticity of demand for a Snickers candy bar at the grocery store.

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A) less than B) equal to C) greater than D) the reciprocal of

46)

All else equal, the price elasticity of demand for a good tends to be lower A) if the good has few close substitutes. B) if the good represents a large share of a consumer's budget. C) in the long run. D) if the good has many close substitutes.

47) Jeans, in general, have fewer close substitutes than a specific brand of jeans. Therefore, the demand for jeans, in general, will be _______ than the demand for a specific brand of jeans. A) more elastic B) less elastic C) more unit elastic D) less inelastic

48) Satellite TV is a close substitute for cable TV. Small satellite dishes were developed that made it less costly for individual consumers to subscribe to satellite TV service. This caused the price elasticity of demand for cable TV service to A) become more inelastic. B) become less elastic. C) become more elastic. D) shift to the left.

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49) Suppose that the demand for electricity has been found to be price inelastic. The most likely explanation for this finding is that A) electricity is a luxury good. B) the fraction of income spent on electricity is large. C) few substitutes for electricity exist. D) electricity is sold in a monopoly market.

50) Suppose that there is only one small clothing store in the remote village of Green Acres, and until recently the townspeople bought their shirts there. As more people in Green Acres become connected to the Internet, the price elasticity of demand for shirts at the Green Acres store will A) increase because the Internet offers more substitutes. B) decrease because the Internet offers more substitutes. C) remain the same, but the quantity demanded will decrease as more people shop online. D) remain the same, but the demand will decrease as more people shop online.

51) All else equal, the price elasticity of demand for small-budget items such as soap tends to be ______ than the price elasticity of demand for big-ticket items such as flat-screen TVs. A) higher B) lower C) very high D) the same

52) All else equal, compared to small-budget items such as paper towels, the price elasticity of demand for big-ticket items such as refrigerators is

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A) higher. B) lower. C) very low. D) equal.

53)

You would expect the price elasticity of demand for transportation generally to be

A) the same as price elasticity of the demand for bus tickets. B) greater than price elasticity of the demand for bus tickets. C) less than price elasticity of the demand for bus tickets. D) greater than price elasticity of the demand for bus tickets when bus tickets are expensive, but less than price elasticity of the demand for bus tickets when the prices of bus tickets fall.

54)

Demand tends to be ______ in the short run than in the long run. A) more elastic B) less elastic C) more variable D) less important

55) Suppose you have one hour to catch a flight to Miami for spring break, and it takes 45 minutes to drive to the airport. Your car is almost out of gas and the price of gas at the closest gas station is higher than at other gas stations that are much farther away. To you, the price elasticity of demand for gas is likely to be ______ than it would be if you had several hours before the flight. A) higher B) lower C) more variable D) no different

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56) Assume the price of gasoline doubles tonight and remains at that price for the next two years. Compared with the long-run price elasticity of demand for gasoline, the short-run price elasticity of demand for gasoline will be ______. A) higher B) more variable C) the same D) lower

57) The reason a brand name item (e.g., Tyson chicken) has a larger price elasticity than a class of items (e.g., chicken) is that A) there are fewer substitutes for Tyson chicken than for chicken generally. B) it takes a lot of time to adjust to a substitute brand of chicken. C) the share of income spent on "chicken" is larger than spent on "Tyson Chicken". D) there are fewer substitutes for chicken generally than for Tyson chicken.

58) Suppose that the short-run price elasticity of demand for electricity is 0.03, and the longrun price elasticity of demand is 1.2. One would classify the short-run elasticity as being ___________ and the long-run elasticity as being ____________. A) elastic; elastic B) elastic; inelastic C) inelastic; unit elastic D) inelastic; elastic

59) Economists have found that the price elasticity of demand for water is higher in the summer than in the winter. Why is this likely to be so?

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A) Winter is longer than summer, and price elasticity is lower over longer time horizons. B) Summer is longer than winter, and price elasticity is higher over longer time horizons. C) Winter water use tends to be for necessities such as cleaning and cooking, and summer water use tends to be for both necessities and non-necessities such as gardening and recreation. D) People take more vacations in the summer and so use less water at home.

60)

If the elasticity of demand for the latest Taylor Swift album is 1.4, this means

A) few substitutes for the American Idol album exist. B) a 1 percent increase in the price leads to a 14 percent decrease in quantity demanded. C) a 10 percent decrease in the price leads to a 140 percent increase in quantity demanded. D) a 5 percent increase in the price leads to a 7 percent decrease in quantity demanded.

61) Suppose you learn that in 1900, households spent about 40 percent of their budget on food, and today, they spend about 10 percent of their budget on food. All else equal, this suggests that the price elasticity of demand for food A) is probably negative. B) has always been very high. C) is probably lower now than it was in 1900. D) is probably higher now than it was in 1900.

62) If the quantity demanded of a good is Q when the price for the good is P, the price elasticity of demand for that good at that point is A) (P/Q) × (1/slope). B) (Q/P) × (1/slope). C) (P/Q) × (slope). D) Q ×P × (1/slope).

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63) If the absolute value of slope of the demand curve is 2.5, price is $6 per unit, and the quantity demanded is 8 units, then the price elasticity of demand is A) 0.3. B) 0.533. C) 1.6. D) 1.875.

64) If the absolute value of slope of the demand curve is 2, price is $5 per unit, and the quantity demanded is 8 units, then the price elasticity of demand is A) 0.8. B) 1.333. C) 1.25. D) 0.313.

65) If the absolute value of the slope of the demand curve is 0.25, price is $8 per unit, and quantity demanded is 12 units, then demand for this good is A) perfectly elastic. B) elastic. C) unit elastic. D) inelastic.

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66)

The accompanying graph depicts demand.

The slope of the demand curve (ignoring the negative sign) is A) 2. B) 1.5. C) 1. D) 0.5.

67)

The accompanying graph depicts demand.

The price elasticity of demand at point A is

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A) 5/2. B) 5/8. C) 2/5. D) 8/5.

68)

The accompanying graph depicts demand.

At point A, demand is A) inelastic. B) elastic. C) unit elastic. D) perfectly elastic.

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69)

The accompanying graph depicts demand.

The price elasticity of demand at point B is A) 3/4. B) 4/3. C) 3. D) 1/3.

70)

The accompanying graph depicts demand.

The price elasticity of demand at point C is

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A) 3/16. B) 16/3. C) 3/4. D) 3/8.

71)

The accompanying graph depicts demand.

The price elasticity of demand at point D is A) 5/2. B) 1/2. C) 2/5. D) 2.

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72)

The accompanying graph depicts demand.

At point D, demand is A) price inelastic. B) price elastic. C) unit elastic. D) perfectly price elastic.

73) Suppose two demand curves intersect and so have a point in common. At that point, demand shown by the steeper curve will be _______ the flatter curve. A) more elastic than B) less elastic than C) as elastic as D) more likely to be unit elastic than

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74)

Refer to the accompanying graph. What is the price elasticity of demand at point A?

A) 3 B) 2 C) 0.33 D) 0.2

75) Refer to the accompanying graph. What is the price elasticity of demand when the price of rice is $3 per pound?

A) 0.5 B) 0.67 C) 0.75 D) 2

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76) Refer to the accompanying figure. What is the price elasticity of demand when the price of rice is $6 per pound?

A) 0.5 B) 0.67 C) 2 D) 3

77) Refer to the accompanying figure. The absolute value of the slope of the demand curve D1 is ______, and the absolute value of the slope of demand curve D2 is ______.

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A) 1/2; 2 B) 2; 1/2 C) 5/4; 4/5 D) 4/5; 5/4

78) Refer to the accompanying figure. For demand curve D1, what is the price elasticity of demand when P = 12?

A) 12 B) 6 C) 4 D) 3

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79) Refer to the accompanying figure. When the price is equal to 8, the price elasticity of demand for the demand curve D1 is ______ and for D2 the price elasticity of demand is _____.

A) 4; 1 B) 1; 4 C) 4; 4 D) 2; 4

80) Refer to the accompanying figure. At P = 8 and Q = 4, D1 is ______ elastic than D2, which is shown graphically as D1 being _____ D2.

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A) more; flatter than B) more; steeper than C) less; flatter than D) less; steeper than

81) Refer to the accompanying figure. When P = 4, the price elasticity of demand for the demand curve D1 is ______ and D2 is ______.

A) 3; 3 B) 2/3; 1/3 C) 1/3; 3 D) 1/3; 2/3

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82) Refer to the accompanying figure. At P = 4, how does the price elasticity of demand for D1 compare to that for D2?

A) It will be equal for D1 and D2. B) It will be greater for D1 than for D2. C) It will be lower for D1 than D2. D) The price elasticity of demand for both D1 and D2 will be greater than one.

83) As one moves down along a linear demand curve (i.e., from high price, low quantity pairs to low price, high quantity pairs), demand A) becomes more elastic. B) increases. C) decreases. D) becomes less elastic.

84)

On a given linear demand curve, as price increases demand becomes A) more elastic. B) less elastic. C) more negative. D) more variable.

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85)

At the midpoint of a straight-line demand curve, the price elasticity of demand is A) greater than one. B) less than one. C) equal to one. D) zero.

86) Suppose the price P on a given demand curve results in a price elasticity of demand equal to 1. Any price higher than P will lie on the ______ part of the demand curve, and any price lower than P will lie on the ______ part of the demand curve. A) elastic; inelastic B) unit elastic; inelastic C) inelastic; elastic D) elastic; unit elastic

87)

The price elasticity of demand equals 1 A) whenever the slope of a straight-line demand curve is greater than 1 in absolute value. B) at the midpoint of a straight-line demand curve. C) whenever the slope of a straight-line demand curve is less than 1 in absolute value. D) whenever the slope of a straight-line demand curve equals zero.

88) If consumers completely cease purchasing a product when its price increases by any amount, then demand is A) inelastic. B) perfectly inelastic. C) unit elastic. D) perfectly elastic.

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89)

If the demand curve is horizontal, then demand is A) perfectly inelastic. B) unit elastic. C) elastic. D) perfectly elastic.

90)

If a demand curve is horizontal at P = $5, then the price elasticity of demand is A) 5. B) 0.2. C) 0. D) infinite.

91)

For any horizontal demand curve, the price elasticity of demand is A) 0. B) 1. C) infinite. D) equal to the price of the good.

92) If the percentage change in quantity demanded is zero for any percentage change in the price of the good, demand is classified as A) inelastic. B) perfectly inelastic. C) unit elastic. D) perfectly elastic.

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93)

If the slope of a demand curve is infinite, then the price elasticity of demand is A) zero. B) infinite. C) one. D) equal to the price of the good.

94)

A demand curve that is drawn as a vertical line has a price elasticity of demand equal to A) 0. B) 1. C) infinity. D) the quantity.

95) If the demand curve for open-heart surgery is vertical for people with serious heart conditions, then the demand for open-heart surgery is ______ with respect to price. A) unit elastic B) inelastic C) perfectly elastic D) perfectly inelastic

96) If the demand curve for a good is a vertical line at Q = 1, then a decrease in the price of that good will A) decrease the quantity demanded. B) increase the quantity demanded. C) lead the quantity demanded to fall to zero. D) not change the quantity demanded.

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97) A perfectly elastic demand curve has a slope of ______ while a perfectly inelastic demand curve has a slope of ______. A) infinity; 0 B) 1; 0 C) 0; 1 D) 0; infinity

98) When the price of insulin is $10, consumers demand 100 units; when the price is $15, consumers demand 100 units; and when the price is $20, consumers demand 100 units. Based on this information, the demand for insulin is A) unit elastic. B) perfectly elastic. C) perfectly inelastic. D) elastic.

99) Refer to the accompanying figure. Let εX denote the price elasticity of demand at point X. Which of the following describes the relationship between εA, εB, and εC?

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A) εA> εC> εB B) εA> εB> εC C) εC> εB> εA D) εB> εC> εA

100) Refer to the accompanying figure. Assume the slopes of the two demand curves are the same. Let eA denote the price elasticity of demand at point A, and let eB denote the price elasticity of demand at point B.

Which of the following statements is correct? A) eA > eB B) eA < eB C) eA = eB D) eA ÷ eB < 0

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101) Refer to the accompanying figure. At a price of $2, the total expenditure on lattes each hour equals

A) $30. B) $40. C) $60. D) $80.

102)

Refer to the accompanying figure. If the price of a latte increases from $2.00 to $2.50

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A) total expenditure would increase. B) total expenditure would stay the same. C) total expenditure would decrease. D) the change in total expenditure, if any, would depend on the supply curve.

103) Refer to the accompanying figure. Suppose this demand curve shows the demand for lattes at a single coffee shop that charges $2.00 for a latte. If the manager wants to increase total revenue, what should the manager do?

A) Increase the price from $2.00 to $3.00. B) Increase the price from $2.00 to $2.50. C) Reduce the price from $2.00 to $1.00. D) Reduce the price from $2.00 to $1.75.

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104) Refer to the accompanying figure. If the price of this good is initially $3, and price falls by a few cents, then what will happen to total expenditure on this good?

A) Total expenditure will rise. B) Total expenditure will not change. C) Total expenditure will fall. D) Total expenditure will fall to 0.

105)

If demand is ______ with respect to price, a price increase will ______ total revenue. A) elastic; increase B) inelastic; increase C) unit elastic; decrease D) inelastic; decrease

106) To increase total revenue, firms with ______ demand should lower price, and firms with ______ demand should increase price. A) elastic; unit B) elastic; inelastic C) inelastic; elastic D) unit; inelastic

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107)

A firm that produces a good with many substitutes will most likely find that A) lowering its price will increase total revenue. B) lowering its price will decrease total revenue. C) raising its price will increase total revenue. D) lowering its price will not affect total revenue.

108) Which of the following determines whether a firm will earn higher revenues when it raises its price? A) The cost of the firm's inputs. B) Government regulation of the industry. C) The price elasticity of demand. D) None of these, because companies always earn higher revenues when they increase price.

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109) Suppose that a new drug (A) has been approved to treat a life-threatening disease. The demand for that drug is shown on the accompanying graph by demand curve A. Prior to approval of this drug, the only treatment for this condition was any one of several nonprescription, or over-the-counter, pain relievers. The demand for one brand of the several nonprescription pain relievers is also shown on the graph as demand curve B.

Demand for the new drug is ______ while demand for one brand of the over-the-counter pain relievers is ______. A) the line labeled A; the line labeled B B) the line labeled B; the line labeled A C) the horizontal line at $60; the line labeled B D) the vertical line at 100; the line labeled A

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110) Suppose that a new drug (A) has been approved to treat a life-threatening disease. The demand for that drug is shown on the accompanying graph by demand curve A. Prior to approval of this drug, the only treatment for this condition was any one of several nonprescription, or over-the-counter, pain relievers. The demand for one brand of the several nonprescription pain relievers is also shown on the graph as demand curve B.

At a price of $15 (the price at which the two demand curves intersect), the price elasticity of demand for the new drug is ______ the price elasticity of demand for the over-the-counter pain reliever. A) greater than B) less than C) the same as D) the reciprocal of

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111) Suppose that a new drug (A) has been approved to treat a life-threatening disease. The demand for that drug is shown on the accompanying graph by demand curve A. Prior to approval of this drug, the only treatment for this condition was any one of several nonprescription, or over-the-counter, pain relievers. The demand for one brand of the several nonprescription pain relievers is also shown on the graph as demand curve B.

The manufacturer of the new drug would ______ total revenue by increasing the price from $15 to $16. A) increase B) decrease C) experience no change in D) experience an uncertain change in

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112) Suppose that a new drug (A) has been approved to treat a life-threatening disease. The demand for that drug is shown on the accompanying graph by demand curve A. Prior to approval of this drug, the only treatment for this condition was any one of several nonprescription, or over-the-counter, pain relievers. The demand for one brand of the several nonprescription pain relievers is also shown on the graph as demand curve B.

The manufacturer of the over-the-counter pain reliever would _______ total revenue by increasing the price from $15 to $16. A) increase B) decrease C) experience no change in D) experience an uncertain change in

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113) Suppose that a new drug (A) has been approved to treat a life-threatening disease. The demand for that drug is shown on the accompanying graph by demand curve A. Prior to approval of this drug, the only treatment for this condition was any one of several nonprescription, or over-the-counter, pain relievers. The demand for one brand of the several nonprescription pain relievers is also shown on the graph as demand curve B.

A likely reason for the difference in the slopes of the demand curves is that A) the over-the-counter pain reliever has many substitutes, but the new drug does not. B) one drug is new on the market, but the other has been available for a long time. C) one drug is heavily regulated by the Food and Drug Administration and the other is not. D) one market is in equilibrium and the other is not.

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114) Suppose that a new drug (A) has been approved to treat a life-threatening disease. The demand for that drug is shown on the accompanying graph by demand curve A. Prior to approval of this drug, the only treatment for this condition was any one of several nonprescription, or over-the-counter, pain relievers. The demand for one brand of the several nonprescription pain relievers is also shown on the graph as demand curve B.

If the manufacturer of the new drug chose to increase its price from $30 to $35, consumers would buy ______ doses and have _____ total expenditures. A) more; higher B) fewer; lower C) more; lower D) fewer; higher

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115) Suppose that a new drug (A) has been approved to treat a life-threatening disease. The demand for that drug is shown on the accompanying graph by demand curve A. Prior to approval of this drug, the only treatment for this condition was any one of several nonprescription, or over-the-counter, pain relievers. The demand for one brand of the several nonprescription pain relievers is also shown on the graph as demand curve B.

If the manufacturer of the new drug chose to increase its price from $70 to $75, consumers would buy ______ doses and have ______ total expenditures. A) more; higher B) fewer; lower C) more; lower D) fewer; higher

116) If the San Diego Opera decreases the price of their opera tickets and their total revenue falls, then this suggests that, at the original price, the demand for tickets to the San Diego Opera was A) unit elastic. B) elastic. C) inelastic. D) either elastic or inelastic.

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117) Diet Coke is a close substitute for Diet Pepsi. When Coca-Cola introduced Diet Coke in 1982, the price elasticity of demand for Diet Pepsi ______ and PepsiCo's ability to raise revenues through price increases ______. A) increased; was reduced B) increased; increased C) decreased; was reduced D) had no effect; was reduced

118) When Taylor raised the price of earrings at Taylor's Boutique, her total revenue from selling earrings increased. This suggests that A) the demand for Taylor's earrings at the original price was elastic. B) there are many other boutiques competing with Taylor. C) there was excess demand for earrings at the original price. D) the demand for Taylor's earrings at the original price was inelastic.

119) The owner of a pizza shop observes that when she raises the price of a large pizza, her total revenue decreases, and when she lowers the price of a large pizza, her total revenue increases. This suggests that A) pizza lovers act irrationally. B) the demand for her large pizzas is elastic with respect to price. C) there are few good substitutes for a large pizza. D) the demand for her large pizzas is inelastic with respect to price.

120) When Joe's Gas raises its price for regular unleaded gasoline, total revenue from regular unleaded gas falls to zero. It must be the case that

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A) the demand for Joe's regular unleaded gasoline is perfectly elastic. B) the demand for Joe's regular unleaded is inelastic. C) there are not many good substitutes for Joe's regular unleaded gasoline. D) consumers are switching to premium grades of gasoline.

121) If the demand for electricity is inelastic, and the local utility wants to increase its total revenue, it should _______ its price. A) reduce B) raise C) not change D) frequently change

122) Suppose that total expenditures for coffee reach a maximum at a price of $5 per pound. At this price, the demand for coffee is A) elastic. B) inelastic. C) unit elastic. D) perfectly inelastic.

123) Suppose that Rohan had been charging $1 per pound for potatoes. When Rohan lowered the price to $0.90 per pound, his total revenue fell. When Rohan raised the price to $1.10, total revenue also fell. Which of the following could explain this? A) $1 is the equilibrium price for potatoes. B) At 90 cents, there is excess demand for potatoes. C) $1.10 is more than Rohan's customers' reservation prices. D) The price elasticity of demand for potatoes is equal to 1 at a price of $1 per pound.

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124) At a price of $20 each, the demand for t-shirts from a group's fundraising activity is unit elastic. Thus, the group's total revenue from selling t-shirts ______ at a price of $20 each. A) will equal $0. B) reaches its minimum. C) reaches its maximum. D) will equal $1.

125) The responsiveness of the quantity demanded of one good to a change in the price of a different good is measured by the A) price elasticity of demand. B) income elasticity of demand. C) price elasticity of supply. D) cross-price elasticity of demand.

126)

If two products are substitutes, then the A) income elasticity of demand for both will be high. B) price elasticity of demand for both will be positive. C) cross-price elasticity of demand between them will be negative. D) cross-price elasticity of demand between them will be positive.

127)

If cross-price elasticity of demand between two goods is positive, the two goods are A) substitutes. B) inferior. C) complements. D) normal.

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128)

The cross-price elasticity of demand between two goods that are substitutes can never be A) negative. B) less than one. C) greater than one. D) positive.

129) If bagels and cereal are substitutes, then the cross-price elasticity of demand between bagels and cereal will be A) greater than one. B) less than one. C) greater than zero. D) less than zero.

130) If the cross-price elasticity of demand between lettuce and salad dressing is negative, then when the price of lettuce rises, the demand for salad dressing will ______. A) increase B) decrease C) remain the same D) become more inelastic

131) If the demand for salad dressing increases when the price of lettuce decreases, the crossprice elasticity of demand between salad dressing and lettuce will be ______ because these two goods are ______.

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A) equal to 1; inelastic B) zero; inferior C) negative; substitutes D) negative; complements

132) The cross-price elasticity of demand between bread and potatoes is estimated to be 0.5. This implies bread and potatoes are A) normal goods. B) substitutes. C) unrelated. D) complements.

133) The income elasticity of demand for corndogs is estimated to be −1. This implies corndogs are A) a substitute. B) a normal good. C) an inferior good. D) a complement.

134) If the cross-price elasticity of demand between blueberries and yogurt is negative, then the two goods are A) substitutes. B) normal goods. C) complements. D) inferior goods.

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135)

If the cross-price elasticity of demand between two goods is −1.2, then the two goods are A) inferior. B) elastically demanded. C) complements. D) substitutes.

136) Suppose that if the price of plane tickets increased, more people would choose to travel by train. If this happened, you would know that A) plane tickets are an inferior good. B) the cross-price elasticity between plane tickets and train tickets is positive. C) the cross-price elasticity between plane tickets and train tickets is negative. D) plane tickets and train tickets are complements.

137) If most consumer goods and services are ______, then most income elasticities are ______. A) normal; negative B) inferior; positive C) normal; greater than one D) normal; positive

138) During recessions, when some workers lose their jobs and have lower incomes, sales of durable goods (goods with a life expectancy of 3 years or more) decline. Apparently, durable goods are

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A) substitutes. B) normal goods. C) complements. D) inferior goods.

139) In surveying their alumni, State U's economics department discovered that ramen noodle consumption declined once students graduated and found jobs. One conclusion the survey team might draw from this result is that A) there is excess demand for ramen noodles. B) the equilibrium price for ramen noodles is too high. C) college graduates have a high reservation price for ramen noodles. D) ramen noodles are an inferior good.

140)

If your income elasticity of demand for hot dogs is negative, then A) your demand curve for hot dogs is not downward sloping. B) hot dogs are an inferior good for you. C) hot dogs have no close substitutes for you. D) you must not enjoy eating hot dogs.

141)

A change in consumers' incomes causes a change in A) demand. B) supply. C) the demand for normal goods but not the demand for inferior goods. D) the cross-price elasticity of demand.

142)

If the income elasticity for a particular good is negative, then

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A) the good is a normal good. B) as income increases, consumers will tend to purchase more of the good. C) as income increases, consumers will tend to purchase less of the good. D) the good is a luxury good.

143) Suppose you believe that plaid flannel shirts are an inferior good, and you want to test this with economic data. You expect to find that the income elasticity for plaid flannel shirts is A) close to zero. B) greater than zero, but less than one. C) greater than one. D) less than zero.

144) You have found data that indicates that the income elasticity of demand for generic (unbranded) shampoo is −0.7. You should conclude that generic shampoo: A) is a normal good. B) has inelastic demand. C) is below its equilibrium price. D) is an inferior good.

145) The percentage change in quantity supplied that results from a 1 percent change in price is known as the A) cross-price elasticity of supply. B) slope of the supply curve. C) price elasticity of supply. D) cross-price elasticity of demand.

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146)

The price elasticity of supply at a point is the A) percentage change in quantity supplied divided by the percentage change in price. B) percentage change in price divided by the percentage change in quantity supplied. C) change in quantity supplied divided by the change in price. D) change in price divided by the change in quantity supplied.

147) If a 1 percent increase in the price of oranges leads to a five percent increase in the quantity supplied, the price elasticity of supply for oranges is ______. A) 1/5 B) 1/2 C) 5 D) 2

148) Suppose an increase in the price of golf clubs from $75 to $125 leads to an increase in quantity supplied from 200 units to 300 units. The price elasticity of supply for golf clubs at the original price of $75 is ______, so supply is ______. A) 2; elastic B) 2; inelastic C) 4/3; elastic D) 3/4; inelastic

149) Suppose an increase in the price of hamburger from $3 to $4 leads to an increase in quantity supplied from 100 units to 150 units. At the original price, the price elasticity of supply for hamburgers is ______ so supply is ______. A) 2/3; elastic B) 2/3; inelastic C) 3/2; elastic D) 3/2; inelastic

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150) Suppose an increase in the price of hamburger from $4 to $5 leads to an increase in quantity supplied from 100 units to 105 units. At the original price, the price elasticity of supply for hamburgers is ______ so supply is ______. A) 1/5; inelastic B) 5; elastic C) 1/5; elastic D) 5; inelastic

151)

Refer to the accompanying figure. What is the slope of the supply curve?

A) 4 B) 2 C) 1/2 D) 1

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152)

Refer to the accompanying figure. What is the price elasticity of supply at point A?

A) 4 B) 2 C) 1 D) 1/2

153) Refer to the accompanying figure. What is the price elasticity of supply at point B and point C?

A) 1/2; 3/4 B) 3/4; 1/2 C) 3; 2 D) 1; 1

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154)

Refer to the accompanying figure. If P = $6, then the price elasticity of supply is

A) less than zero. B) positive, but less than one. C) one. D) greater than one.

155) Refer to the accompanying figure. If the price rises from $10 to $14, what will happen to the price elasticity of supply?

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A) It increases. B) It decreases. C) It stays the same. D) This cannot be determined from the information provided.

156) It takes many years to train to become an orthopedic surgeon. This suggests that, in the short run, a sudden increase in the demand for orthopedic surgeons will A) not affect the salaries of orthopedic surgeons. B) have no impact on the number of people who decide to become orthopedic surgeons. C) lead to a large increase in the number of orthopedic surgeons. D) have little effect on the number of trained orthopedic surgeons.

157) The inputs used to produce cupcakes (e.g., flour, sugar, butter, and labor) are also used to produce cookies, cakes, muffins, pies, and many other goods. This suggests that A) the supply curve for cupcakes is downward sloping. B) the elasticity of supply of cupcakes is relatively high. C) the elasticity of supply of cupcakes is relatively low. D) cupcakes are a normal good.

158) The price elasticity of supply for the Hope Diamond is zero because there is only one. Therefore, the supply curve for the Hope Diamond is A) elastic. B) perfectly inelastic. C) unit elastic. D) perfectly elastic.

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159) Suppose that each serving of mac & cheese costs $0.50 to make no matter how many servings are produced. This means that the price elasticity of supply for mac & cheese is ______ and the supply curve is ______. A) one; perfectly inelastic B) zero; perfectly elastic C) infinite; perfectly inelastic D) infinite; perfectly elastic

160) Antony's Pizza uses the same dough, sauce, and cheese for pizza and calzones. When the price of pizza is low Antony produces more calzones. For Antony, the supply of pizza is ______ compared with the supply at a pizza restaurant that does not serve calzones. A) less price elastic B) more price elastic C) higher D) lower

161) Oil and oil products remain the main fuel for cars, planes, ships, and power plants. The amount of oil still in the earth is finite. Given this information, the supply of gasoline is A) relatively elastic. B) relatively inelastic. C) unit elastic. D) greater than the quantity demanded.

162) The championship game will be held next weekend in your college's 40,000-seat stadium. The supply of tickets to the game

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A) will increase because the price charged will be higher. B) is elastic. C) is perfectly inelastic. D) depends on which teams make it to the championship game.

163) For Outback Steakhouse, seating capacity is limited in the short run. In the long run, they can add as many seats as they want. Therefore, the price elasticity of supply for meals at Outback would be ______ in the short run than in the long run. A) higher B) lower C) the same D) more variable

164) You read online that, at current rates of production, the yearly world supply of food is sufficient to feed the projected 2050 population of earth, but that after 2050 there will be massive starvation. This prediction appears to assume that A) the long-run supply of food is perfectly elastic. B) the long-run supply of food is perfectly inelastic. C) the short-run supply of food is perfectly elastic. D) the short-run elasticity of supply of food is greater than long-run elasticity of supply.

165) In 1985 a desert community stopped pumping water from a 1,000 foot well because it had run dry. In 2005 the price of water doubled. The community then drilled the well deeper and started pumping again. In this community,

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A) the supply of water is perfectly inelastic because it is a finite resource. B) water production is characterized by increasing opportunity costs. C) markets cannot reach equilibrium because there is a persistent shortage of water. D) higher water prices can reduce quantity demanded but cannot increase quantity supplied.

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Answer Key Test name: Chap 04_8e_Frank 1) C 2) A 3) B 4) B 5) D 6) A 7) B 8) B 9) D 10) C 11) C 12) D 13) B 14) D 15) B 16) C 17) A 18) A 19) D 20) B 21) D 22) B 23) B 24) A 25) C 26) C Version 1

27) A 28) C 29) D 30) C 31) A 32) A 33) C 34) B 35) C 36) C 37) A 38) D 39) A 40) B 41) C 42) A 43) A 44) C 45) A 46) A 47) B 48) C 49) C 50) A 51) B 52) A 53) C 54) B 55) B 56) D Version 1

57) D 58) D 59) C 60) D 61) C 62) A 63) A 64) D 65) B 66) D 67) A 68) B 69) B 70) C 71) C 72) A 73) B 74) A 75) A 76) C 77) B 78) D 79) B 80) D 81) D 82) C 83) D 84) A 85) C 86) A Version 1

87) B 88) D 89) D 90) D 91) C 92) B 93) A 94) A 95) D 96) D 97) D 98) C 99) A 100) A 101) C 102) C 103) D 104) C 105) B 106) B 107) A 108) C 109) A 110) B 111) A 112) B 113) A 114) D 115) B 116) C Version 1

117) A 118) D 119) B 120) A 121) B 122) C 123) D 124) C 125) D 126) D 127) A 128) A 129) C 130) B 131) D 132) B 133) C 134) C 135) C 136) B 137) D 138) B 139) D 140) B 141) A 142) C 143) D 144) D 145) C 146) A Version 1

147) C 148) D 149) C 150) A 151) C 152) C 153) D 154) D 155) B 156) D 157) B 158) B 159) D 160) B 161) B 162) C 163) B 164) B 165) B

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CHAPTER 5 1) After subsistence levels of food, shelter, and clothing have been provided, economists refer to all other goods and services as A) needs. B) inferior goods. C) wants. D) luxuries.

2) In some countries, medical care is provided free-of-charge to citizens and is paid for by the government. In those countries, medical care A) is not a scarce resource. B) is available at zero opportunity cost. C) is rationed by some nonmonetary method. D) does not exhibit diminishing marginal returns.

3) Jane is shopping for a new computer. A computer can be delivered to Jane's home for $1,200. Alternatively, Jane can pick up the same computer at the warehouse for $1,000. How should Jane buy the computer? A) Jane should drive to the warehouse because $1,000 is less than $1,200. B) Jane should drive to the warehouse if her cost of driving to the warehouse is less than $200. C) Jane should drive to the warehouse if her cost of driving to the warehouse is greater than $200. D) Jane should drive to the warehouse because the $200 she would save by driving to the warehouse is more than 10% of the purchase price.

4) The tendency for consumers to purchase more of a good or service as its price falls is captured by the

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A) law of supply. B) law of increasing cost. C) Low-Hanging Fruit Principle. D) law of demand.

The law of demand indicates that as the cost of an activity A) falls, less of the activity will occur. B) rises, more of the activity will occur. C) rises, the level of the activity may or may not increase depending on the individual. D) rises, less of the activity will occur.

6) According to the law of demand, when the price of shoes ______, people will consume ______ shoes. A) rises; more B) falls; more C) rises; the same amount D) falls; the same amount

7) As the price of computers falls, the quantity of computers demanded increases. This is an application of A) the law of supply. B) the production possibilities curve. C) the law of demand. D) needs versus wants.

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8) Subsistence levels of consumption—the amount of food, shelter, and clothing required to maintain our health—are referred to as A) needs. B) inferior goods. C) wants. D) luxuries.

Taking a limousine to a five-star restaurant in New York is a A) necessity to Richie Rich but a luxury to Joe Average. B) necessity to both Joe Average and Richie Rich. C) want to both Joe Average and Richie Rich. D) want to Richie Rich and a luxury to Joe Average.

10)

Shelter for homeless people is an example of A) a want. B) a need. C) something they can live without. D) something hard to find.

11)

Higher education is a ______ and assigned textbooks are ______. A) need; needs B) want; wants C) need; wants D) want; needs

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12) Growing rice requires extensive irrigation in California. Economists consider water to be a ______ for rice farmers in California. A) want B) need C) luxury D) inferior good

13) According to economists, the satisfaction people get from their consumption activities is called A) demand. B) utility. C) a need. D) a want.

14) The goal of utility maximization is to allocate your ______ in order to maximize your ______. A) utility; spending B) resources; satisfaction C) time; work D) resources; desires

15) During Thanksgiving you participated in a pumpkin pie–eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. Your total utility ______ with the first three pies you ate.

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A) increased B) decreased C) stayed the same D) first increased than decreased

16) During Thanksgiving you participated in a pumpkin pie–eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. After the third pie, your total utility A) increased, but by less than for the first three pies. B) decreased. C) stayed the same. D) was zero.

17) During Thanksgiving you participated in a pumpkin pie–eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. You got ______ utility from eating the first pie than from eating the third pie. A) less B) more C) the same amount of D) less variable

18) During Thanksgiving you participated in a pumpkin pie–eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. You got ______ utility from eating the fourth pie than from eating the second pie.

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A) less B) more C) the same amount of D) less variable

19) Sven likes to water ski, but he can only water ski during the one week each year when he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight hours and enjoyed every hour. The second day, Sven slept in and then skied for seven hours, which was fun but not as much fun as the first day. The third day, Sven skied for six hours, but was starting to get a bit bored by the end. The fourth day, Sven skied for four hours and then took a nap. On the fifth day of Sven's vacation, Sven went blueberry picking all day. Sven's total utility ______ with each hour that he skied. A) increased B) decreased C) remained constant D) first increased than decreased

20) Sven likes to water ski, but he can only water ski during the one week each year when he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight hours and enjoyed every hour. The second day, Sven slept in and then skied for seven hours, which was fun but not as much fun as the first day. The third day, Sven skied for six hours, but was starting to get a bit bored by the end. The fourth day, Sven skied for four hours and then took a nap. On the fifth day of Sven's vacation, Sven went blueberry picking all day. On the fifth day of Sven's vacation, he had decided that another hour of skiing would yield A) more utility than blueberry picking. B) the same level of utility as the day before. C) less utility than blueberry picking. D) no utility at all.

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21) Sven likes to water ski, but he can only water ski during the one week each year when he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight hours and enjoyed every hour. The second day, Sven slept in and then skied for seven hours, which was fun but not as much fun as the first day. The third day, Sven skied for six hours, but was starting to get a bit bored by the end. The fourth day, Sven skied for four hours and then took a nap. On the fifth day of Sven's vacation, Sven went blueberry picking all day. Sven's marginal utility from his first hour of skiing was ______ his marginal utility from his tenth hour of skiing. A) less than B) greater than C) the same as D) more negative

22) Sven likes to water ski, but he can only water ski during the one week each year when he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight hours and enjoyed every hour. The second day, Sven slept in and then skied for seven hours, which was fun but not as much fun as the first day. The third day, Sven skied for six hours, but was starting to get a bit bored by the end. The fourth day, Sven skied for four hours and then took a nap. On the fifth day of Sven's vacation, Sven went blueberry picking all day. Sven's vacation convinced him that A) even for activities he really enjoys, diminishing marginal utility eventually sets in. B) blueberry picking yields higher total utility than does water skiing. C) even for activities he really enjoys, total utility declines over time. D) economic theory applies to things you buy, but not to recreational activities.

23)

The additional utility gained from consuming an additional unit of a good is called A) total utility. B) marginal utility. C) costly utility. D) a util.

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24) Keira's total utility after eating 99 Reese's Peanut Butter Cups was greater than her total utility after eating 100 Reese's Peanut Butter Cups. Therefore, Keira's marginal utility from the 100th peanut butter cup was A) positive, but less than one. B) positive, but less than his marginal utility for the 99th peanut butter cup. C) zero. D) negative.

25) The term marginal utility denotes the amount by which ______ changes when consumption changes by ______ unit(s). A) total utility; 1 B) demand; 10 C) demand; 1 D) total utility; 10

26) As Lynn eats more pizza, we would typically expect her marginal utility from eating pizza to A) increase. B) decrease. C) stay the same. D) equal the price of pizza.

27) Laura's total utility from consuming 8, 9, and 10 bonbons is 35, 42, and 45, respectively. Her marginal utility from the 9th bonbon is _____.

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A) 77 B) 7 C) 42 D) 4.67

28) Laura's total utility from consuming 10, 11, and 12 bonbons is 65, 83, and 90, respectively. Her marginal utility from the 12th bonbon is _____. A) 173 B) 7 C) 90 D) 7.5

29) When Lorenzo eats 1 slice of pizza for lunch, his total utility is 23, and when he eats 2 slices of pizza for lunch, his total utility is 42. Assuming that Lorenzo's marginal utility from eating pizza is always positive, we can infer that his total utility from eating 3 slices of pizza at lunch is A) greater than 42 and less than 84. B) greater than 42 and less than 46. C) greater than 42 and less than 61. D) greater than 23 and less than 42.

30) When Lorenzo eats 1 slice of pizza for lunch, his total utility is 250, and when he eats 2 slices of pizza for lunch, his total utility is 420. Assuming that Lorenzo’s marginal utility from eating pizza is always positive, we can infer that his total utility from eating 3 slices of pizza at lunch is

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A) greater than 250 and less than 670. B) greater than 420 and less than 500. C) greater than 420 and less than 590. D) greater than 250 and less than 420.

31) Suppose Jamal's marginal utility from the first taco he eats is 15, and his marginal utility from the second taco he eats is 12. One can infer that A) Jamal's total utility from eating two tacos is 27. B) Jamal's should eat one taco. C) Jamal's average utility from eating two tacos is 27. D) Jamal's should eat two tacos.

32)

If marginal utility is positive, then as consumption increases A) the consumer will not experience diminishing marginal utility. B) total utility will not change. C) total utility will increase. D) the demand curve will have a positive slope.

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33)

Refer to the accompanying figure. The total utility of consuming 4 pizzas a week is

A) 15. B) 22.5. C) 75. D) 90.

34)

Refer to the accompanying figure. The marginal utility of the 6th pizza is

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A) 95. B) 100. C) 5. D) 17.5.

35)

Refer to the accompanying figure. The total utility of consuming two pizzas a week is

A) 25. B) 30. C) 55. D) 75.

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36)

Refer to the accompanying figure. The marginal utility of the 7th pizza is

A) 100. B) 5. C) −100. D) −5.

37) Refer to the accompanying figure. Total utility increases with each additional pizza up to the ______ and then declines, but marginal utility ______ with each additional pizza consumed.

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A) 7th pizza; increases B) 6th pizza; increases C) 5th pizza; stays the same D) 6th pizza; decreases

38) Preeti has vast riches and consumes thousands of dollars' worth of consumer goods each week, yet she is never satisfied. Why not? A) People's wants are unlimited. B) Preeti fails to choose rationally. C) The law of diminishing marginal utility shows that consuming too many material goods lowers total utility. D) Utility is unrelated to the level of consumption.

39)

It is impossible for total utility to be ______ when marginal utility is ______. A) increasing; increasing B) decreasing; positive C) positive; negative D) increasing; decreasing

40) For Michael, the first cup of coffee he drinks every morning is heavenly. The second one is pretty good, but not as good as the first, and if he drinks a third cup he feels jittery and sick. For Michael, the marginal utility from drinking a cup of coffee is clearly A) decreasing. B) increasing. C) positive. D) negative.

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41) is

Refer to the accompanying table. The total utility of consuming two dinners out per week

Number of Dinners Out per Week 1

Total Utility

Marginal Utility

100

235

250

A) less than 100. B) 75. C) 175. D) 160.

42)

Refer to the accompanying table. The marginal utility of the 3rd dinner is Number of Dinners Out per Week 1

Total Utility

Marginal Utility

100

235

250

A) 60. B) 75. C) 135. D) 160.

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43)

Refer to the accompanying table. The marginal utility of the 3rd dinner is Number of Dinners Out Per Week 1

Total Utility

Marginal Utility

100

225

250

A) 50. B) 75. C) 125. D) 150.

44)

Refer to the accompanying table. The marginal utility of the 4th dinner out per week is Number of Dinners Out per Week 1

Total Utility

Marginal Utility

100

235

250

A) 75. B) 60. C) 250. D) 15.

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45)

Refer to the accompanying table. The marginal utility of consuming the 2nd apple is Number of Apples

Total Utility

A) 35. B) 10. C) 15. D) 20.

46)

Refer to the accompanying table. The marginal utility of consuming apples is Number of Apples

Total Utility

A) constant. B) first increasing, but decreasing after the fourth apple. C) decreasing after the first apple. D) constantly increasing.

47)

Refer to the accompanying figure. The marginal utility of the 5th apple is

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Number of Apples

Total Utility

A) −5. B) 0. C) 5. D) 45.

48) Refer to the accompanying table. Total utility ______ as additional apples are consumed, but marginal utility ______ with each additional apple consumed. Number of Apples

Total Utility

A) first decreases then increases; decreases B) first increases then decreases; decreases C) first decreases then increases; increases D) first increases then decreases; increases

49) If Jasper's total utility is maximized when he owns 10 pairs of shoes, then Jasper's total utility from owning 7 pairs of shoes is ______ Jasper's total utility from owning 8 pairs. A) greater than B) equal to C) less than D) less than or equal to

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50) The tendency for marginal utility to decline as consumption increases beyond some point is called A) the law of demand. B) the law of diminishing marginal utility. C) the rational spending rule. D) utility maximization.

51) If the marginal utility of the 3rd cup of coffee is 23 and the marginal utility of the 4th cup is 15, then A) it is optimal for the consumer to have 3 cups of coffee. B) the price of a cup of coffee must be relatively low. C) it is optimal for the consumer to have 4 cups of coffee. D) there is evidence of diminishing marginal utility.

52) Joaquin’s marginal utility from an additional slice of pumpkin pie is 4 utils and his marginal utility from an additional slice of pecan pie is 6 utils. If a slice of pumpkin pie costs $2.50, and a slice of pecan pie costs $3, then Joaquin A) should reallocate his spending towards pumpkin pie and away from pecan pie. B) should reallocate his spending towards pecan pie and away from pumpkin pie. C) is maximizing his utility. D) should spend more on pumpkin pie and more on pecan pie.

53) Joaquin’s marginal utility from an additional slice of pumpkin pie is 16 utils and his marginal utility from an additional slice of pecan pie is 13 utils. If a slice of pumpkin pie costs $4.00, and a slice of pecan pie costs $3.25, then Joaquin

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A) should reallocate his spending towards pecan pie and away from pumpkin pie. B) is maximizing his utility. C) should reallocate his spending towards pumpkin pie and away from pecan pie. D) should spend less on pumpkin pie and less on pecan pie.

54)

According to the law of diminishing marginal utility

A) as you consume less of something, your total utility will decrease. B) as you consume less of something, your marginal utility from consuming that good will increase. C) you should never consume more of something if your marginal utility is decreasing. D) if your total utility is increasing as you consume more of something, then your marginal utility must be increasing as well.

55) Sienna gets 18, 23, and 25 units worth of total utility from consuming 10, 11, and 12 raw oysters, respectively, and the price per oyster is 25 cents. Thus, one can infer that Sienna A) is not maximizing her utility. B) is experiencing diminishing marginal utility. C) should not consume any more oysters. D) has consumed too many oysters.

56) Hector wants to maximize his utility. At his current level of consumption, Hector's marginal utility from an additional cup of coffee is 15 utils, and his marginal utility from an additional can of soda is 11 utils. If the price of a cup of coffee is $3 and the price of a can of soda is $2, Hector should A) reallocate his spending away from coffee and towards soda. B) reallocate his spending away from soda and towards coffee. C) not change his consumption of either coffee or soda. D) decrease his spending on both coffee and soda.

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57)

Refer to the accompanying figure. As Jeff watches more movies, his marginal utility

A) gets larger. B) gets smaller. C) does not change. D) gets close to one.

58) Refer to the accompanying figure. When Jeff goes from watching 3 to 4 movies a day, his total utility

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A) increases. B) decreases. C) does not change. D) gets close to zero.

59)

Refer to the accompanying figure. For Jeff, the consumption of movies reflects the law of

A) demand. B) diminishing marginal utility. C) total utility maximization. D) marginal utility maximization.

60) Assume that Destiny has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3. Destiny can buy a maximum of ______ loaves of bread or a maximum of ______ jars of peanut butter. A) 20; 10 B) 15; 15 C) 10; 20 D) 10; 5

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61) Assume that Destiny has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $2.50. Destiny can buy a maximum of ______ loaves of bread or a maximum of ______ jars of peanut butter. A) 20; 12 B) 32; 32 C) 12; 20 D) 10; 6

62) Assume that Destiny has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3. If Destiny's income rises to $45, then compared to what she could purchase at her original income, Destiny can now buy a maximum of ______ more loaves of bread or a maximum of ______ more jars of peanut butter. A) 5; 15 B) 10; 30 C) 5; 20 D) 10; 5

63) Assume that Destiny has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3. At the original income of $30, if the price of a loaf of bread decreased to $1 and the price of a jar of peanut butter increased to $5, then after the price changes, Destiny could buy a maximum of ______ loaves of bread or a maximum of ______ jars of peanut butter. A) 10 fewer; 4 fewer B) 10 more; 4 more C) 10 more; 4 fewer D) 10 more; 4 more

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64) Assume that Destiny has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3. Suppose that at the original income of $30, the price of a loaf of bread increased to $3 and the price of a jar of peanut butter decreased to $2. After the price changes, Destiny can buy a maximum of ______ loaves of bread or a maximum of ______ jars of peanut butter. A) 10 fewer; 5 more B) 15 fewer; 10 more C) 10 fewer; 10 more D) 15 fewer; 5 more

65) Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $3 a pound and the price of shrimp is $5 a pound. Casey can buy a maximum of ______ pounds of fish or a maximum of ______ pounds of shrimp. A) 30; 50 B) 50; 30 C) 15; 30 D) 30; 15

66) Casey earns $210 a week and consumes only fish and shrimp. The price of fish is $3 a pound and the price of shrimp is $5 a pound. Casey can buy a maximum of ______ pounds of fish or a maximum of ______ pounds of shrimp. A) 30; 24 B) 24; 30 C) 70; 42 D) 42; 70

67) Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $1.50 a pound and the price of shrimp is $5 a pound. Casey can buy a maximum of ______ pounds fish or a maximum of ______ pounds shrimp.

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A) 10; 30 B) 30; 50 C) 30; 100 D) 100; 30

68) The ______ combination of goods is the combination that yields the highest total utility given a consumer's income. A) affordable B) economical C) utility satiating D) optimal

69) At his current level of consumption, Evan gets twice as much marginal utility from an additional bottle of water as that from an additional bottle of soda. If the price of soda is $1.00 per bottle, then Evan is maximizing utility if the price of a bottle of water is A) $1. B) $1.50. C) $2. D) $0.50.

70) At his current level of consumption, Evan gets half as much marginal utility from an additional bottle of water as that from an additional bottle of soda. If the price of soda is $1.80 per bottle, then Evan is maximizing utility if the price of a bottle of water is: A) $3.60 B) $2.36 C) $0.90 D) $1.11

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71) Suppose that Cathy spends all of her income on 20 units of good X and 25 units of good Y. Cathy's marginal utility from the 20th unit of good X is 9 utils, and her marginal utility from the 25th unit of good Y is 19 utils. If the price of good X is $0.50 per unit and the price of good Y is $1.00 per unit, then to comply with the rational spending rule, Cathy should: A) purchase more than 20 units of good X and less than 25 units of Y. B) purchase less than 20 units of good X and more than 25 units of good Y. C) purchase more than 20 units of good X and more than 25 units of good Y. D) continue to purchase 20 units of good X and 25 units of good Y.

72) Suppose that Fiona spends all of her income on 7 units of good X and 11 units of good Y. Fiona's marginal utility from the 7th unit of good X is 40 utils, and her marginal utility from the 11th unit of good Y is 50 utils. If the price of good X is $16 per unit and the price of good Y is $17.50 per unit, then to comply with the rational spending rule, Fiona should: A) purchase more than 7 units of good X and less than 11 units of good Y. B) purchase less than 7 units of good X and more than 11 units of good Y. C) purchase more than 7 units of good X and more than 11 units of good Y. D) purchase less than 7 units of good X and less than 11 units of good Y.

73) Suppose that Fiona spends all of her income on 10 units of good X and 14 units of good Y. Fiona's marginal utility from the 10th unit of good X is 24 utils, and her marginal utility from the 14th unit of good Y is 20 utils. If the price of good X is $8 per unit and the price of good Y is $5 per unit, then to comply with the rational spending rule, Fiona should A) purchase more than 10 units of good X and less than 14 units of good Y. B) purchase less than 10 units of good X and more than 14 units of good Y. C) purchase more than 10 units of good X and more than 14 units of good Y. D) purchase less than 10 units of good X and less than 14 units of good Y.

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74) Suppose that each week Henry buys 12 peaches and 3 apples at his local farmer's market. Both kinds of fruit cost $1 each. From this we can infer that A) Henry is not maximizing his utility. B) if Henry is maximizing his utility, then his marginal utility from the 12th peach he buys must be greater than his marginal utility from the 3rd apple he buys. C) if Henry is maximizing his utility, then his marginal utility from the 12th peach he buys must equal his marginal utility from the 3rd apple he buys. D) for Henry the law of diminishing marginal utility does not apply to peaches.

75) Suppose that Coke and Sprite each sell for $2 a can. Each month Joe buys 6 cans of Sprite and 30 cans of Coke. From this we can infer that A) Joe is buying too many cans of Sprite. B) Joe is buying too many cans of Coke. C) Joe is maximizing his utility if his marginal utility from the 6th can of Sprite he buys is less than his marginal utility from the 30th can of Coke he buys. D) Joe is maximizing his utility if his marginal utility from the 6th can of Sprite he buys is equal to his marginal utility from the 30th can of Coke he buys.

76) Suppose a cup of tea costs $0.60 and a scone costs $1.20. If Amelia spends all of her income on these two goods, and at her current level of consumption, she receives a marginal utility of 6 utils from the last cup of tea she buys and a marginal utility of 24 utils from the last scone she buys, then Amelia should A) buy more tea and fewer scones. B) buy less tea and more scones. C) not change her consumption of tea and scones. D) buy more tea and more scones.

77) At her current level of consumption, Jess gets half as much marginal utility from an additional bagel as from an additional muffin. If the price of muffin is $2 each, then Jess is maximizing her utility if the price of a bagel is Version 1

A) $1. B) $1.50. C) $2. D) $4.

78) At her current level of consumption, Cameron gets 3 times more marginal utility from an additional game of pinball than from an additional game of ping pong. If the price of a ping pong game is $0.50, then she is maximizing utility if the price of a pinball game is A) $1. B) $1.50. C) $2. D) $3.

79) Suppose that at Miles's current level of consumption, his marginal utility from a pizza is 10 utils, and his marginal utility from a pint of ice cream is 16 utils. If the price of a pizza is $8, and the price of a pint of ice cream is $5, is Miles maximizing his utility? A) No, he should shift his spending away from ice cream and towards pizza. B) Yes, the marginal utility is greater than the price for both ice cream and pizza. C) No, he should shift his spending away from pizza and towards ice cream. D) Yes, the marginal utility per dollar is equal for ice cream and pizza.

80) Suppose that at Miles's current level of consumption, his marginal utility from a pizza is 6 utils, and his marginal utility from a pint of ice cream is 10 utils. If the price of a pizza is $9.00, and the price of a pint of ice cream is $12.00, is Miles maximizing his utility? A) No, he should shift his spending away from ice cream and towards pizza. B) Yes, the marginal utility is less than the price for both ice cream and pizza. C) No, he should shift his spending away from pizza and towards ice cream. D) Yes, the marginal utility per dollar is equal for ice cream and pizza.

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81) Angela is currently playing five games of pool and bowling three games. At this level of consumption, her marginal utility from a game of pool is 10 and her marginal utility from bowling a game is 6. If both pool and bowling cost $1 a game, Angela should A) bowl more and play pool less. B) just go home. C) bowl only. D) bowl less and play pool more.

82) Suppose the price of an apple is $0.75, and the price of a banana is $0.50. If Hugh is maximizing his utility, and his marginal utility from consuming an apple is 24 utils, then his marginal utility from consuming a banana must be A) 12 utils. B) 16 utils. C) 32 utils. D) 36 utils.

83) Suppose the price of an apple is $0.75, and the price of a banana is $0.50. If Hugh is maximizing his utility, and his marginal utility from consuming an apple is 24 utils, then his marginal utility from consuming a banana must be A) 12 utils. B) 16 utils. C) 32 utils. D) 36 utils.

84) Jamie's marginal utility from muffins and from doughnuts (in utils) is shown in the accompanying table. Jamie spends a total of $8 on muffins and/or doughnuts every morning. The price of each muffin is $2 and the price of each doughnut is $1.

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Muffins per Day

Marginal Utility per Muffin

Doughnuts per Day

Marginal Utility per Doughnut

If Jamie consumes 3 muffins a day, then what is her marginal utility per dollar spent on the third muffin? A) 10 B) 20 C) 30 D) 40

85) Jamie's marginal utility from muffins and from doughnuts (in utils) is shown in the accompanying table. Jamie spends a total of $8 on muffins and/or doughnuts every morning. The price of each muffin is $2 and the price of each doughnut is $1. Muffins per Day

Marginal Utility per Muffin

Doughnuts per Day

Marginal Utility per Doughnut

If Jamie consumes 2 doughnuts a day, then what is her marginal utility per dollar spent on the second doughnut? A) 10 B) 15 C) 20 D) 40

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86) Jamie's marginal utility from muffins and from doughnuts (in utils) is shown in the accompanying table. Jamie spends a total of $8 on muffins and/or doughnuts every morning. The price of each muffin is $2 and the price of each doughnut is $1. Muffins per Day

Marginal Utility per Muffin

Doughnuts per Day

Marginal Utility per Doughnut

What is Jamie's optimal combination of muffins and doughnuts each day? A) 1 muffin, 6 doughnuts B) 2 muffins, 4 doughnuts C) 3 muffins, 2 doughnuts D) 4 muffins, zero doughnuts

87) Taylor's marginal utility from watching movies and from eating out (in utils) is shown in the accompanying table. Taylor spends exactly $100 every month on these two forms of entertainment; the price of each movie is $10 and the price of each dinner is $20. Movies per Month Marginal Utility per Movie

Dinners Out per Month

Marginal Utility per Dinner

150

140

120

100

If Taylor watches 2 movies a month, Taylor will eat out ______ times per month, and have marginal utility per dollar of ______ from movies and a marginal utility per dollar of ______ from eating out. A) 3; 5; 6 B) 2; 5; 7 C) 4; 5; 5 D) 4; 4; 6

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88) Taylor's marginal utility from watching movies and from eating out (in utils) is shown in the accompanying table. Taylor spends exactly $100 every month on these two forms of entertainment; the price of each movie is $10 and the price of each dinner is $20. Movies per Month Marginal Utility per Movie

Dinners Out per Month

Marginal Utility per Dinner

150

140

120

100

If Taylor eats out 3 times a month, Taylor will watch ______ movies, and have marginal utility per dollar of ______ from eating out and a marginal utility per dollar of ______ from going to the movies. A) 4; 6; 2 B) 3; 2; 6 C) 4; 6; 1/2 D) 3; 4; 4

89) Taylor's marginal utility from watching movies and from eating out (in utils) is shown in the accompanying table. Taylor spends exactly $100 every month on these two forms of entertainment; the price of each movie is $10 and the price of each dinner is $20. Movies per Month Marginal Utility per Movie

Dinners Out per Month

Marginal Utility per Dinner

150

140

120

100

Taylor's optimal combination of movies and eating out is

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A) 3 movies and 3 dinners. B) 4 movies and 3 dinners. C) 3 movies and 4 dinners. D) 2 movies and 4 dinners.

90) Let MUc denote the marginal utility that Pablo receives from a cup of coffee, and let Pc denote the price of a cup of coffee. We typically expect that as Pablo buys more coffee A) MUc/Pc will rise. B) MUc/Pc will fall. C) MUc/Pc will not change. D) MUc and Pc will both fall.

91) Purchasing goods such that the ratio of marginal utility to price is equal across all goods results in the A) greatest total utility. B) lowest expenditure. C) greatest marginal utility. D) same expenditure on all goods.

92)

If a consumer buys two different goods, the rational spending rule requires that the A) total expenditure on the two goods be equal. B) ratio of total utility to price be equal for the two goods. C) ratio of average utility to price be equal for the two goods. D) ratio of marginal utility to price be equal for the two goods.

93)

For two goods, A and B, the rational spending rule is expressed as

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A) MUA = MUB. B) MUA × MUB = PA × PB. C) (MUA/PB) = (MUB/PA). D) (MUA/PA) = (MUB/PB).

94) Suppose Suzanne allocates her spending on apples and bananas according to the rational spending rule. If the price of apples is less than the price of bananas, then at Suzanne's optimal consumption bundle, her marginal utility from apples will be A) less than her marginal utility from bananas. B) greater than her marginal utility from bananas. C) equal to her marginal utility from bananas. D) equal to zero.

95) You are trying to decide how to spend your last lunch dollar. You should use that dollar to buy more of the item A) that costs the least. B) that gives you the highest average utility per dollar. C) that gives you the highest marginal utility per dollar. D) from which you already have gained the greatest total utility.

96) Suppose you want to maximize your total utility. If your marginal utility per dollar spent is higher for one good than for all others, then you should A) reallocate your spending away from that good. B) reallocate your spending towards that good. C) spend more on all goods. D) spend less on all goods.

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97) For two goods, coffee and scones, suppose that MUcoffee / Pcoffee = 4 and MUscones / Pscones = 3. To maximize your total utility from these two goods, you should purchase A) less coffee and more scones. B) more coffee and fewer scones. C) less coffee and fewer scones. D) more coffee and more scones.

98) Suppose that at your current consumption of two goods, A and B, MUA/ PA = 25 and MUB/ PB = 20. In order to maximize, your utility you should A) leave your spending unchanged. B) purchase less of A and more of B. C) purchase more of A and less of B. D) purchase less of A and B.

99)

The rational spending rule is derived from the consumer's desire to A) maximize utility. B) minimize expenditures. C) obtain the lowest possible price. D) maximize the number of goods purchased.

100) When the price of a good rises, marginal utility per dollar spent on that good ______, leading consumers to purchase ______ of that good. A) rises; more B) falls; more C) rises; less D) falls; less

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101) When the price of a good falls, marginal utility per dollar spent on that good ______, prompting consumers to purchase ______ of that good. A) rises; more B) falls; more C) rises; less D) falls; less

102)

Refer to the accompanying table. The law of diminishing marginal utility Units

Marginal Utility of Good Marginal Utility of Good A B

A) applies to Good A but not Good B. B) does not apply to either Good A or Good B. C) applies to Good B but not Good A. D) applies to both Good A and Good B.

103) Refer to the accompanying table. If the price of Good A is $1 and the price of Good B is $3, then the rational spending rule is satisfied when the consumer purchases ______ units of Good A and ______ units of Good B. Units

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Marginal Utility of Good Marginal Utility of Good A B

A) 4; 3 B) 3; 4 C) 4; 4 D) 3; 3

104) Refer to the accompanying table. If the price of Good A is $5 and the price of Good B is $4, then the rational spending rule is satisfied when the consumer purchases ______ units of Good A and ______ units of Good B. Units

Marginal Utility of Good Marginal Utility of Good A B

A) 3; 3 B) 1; 3 C) 4; 2 D) 3; 2

105) Refer to the accompanying table. If the price of Good A is $2 and the price of Good B is $6, then the rational spending rule is satisfies when the consumer purchases ______ units of Good A and ______ units of Good B. Units

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Marginal Utility of Good Marginal Utility of Good A B

A) 1; 1 B) 2; 1 C) 4; 3 D) 3; 2

106)

Refer to the accompanying table. The law of diminishing marginal utility Units

Utils per Year from T-shirts Utils per Year from Sweaters

400

135

720

180

960

210

1,120

A) applies to t-shirts but not sweaters. B) does not apply to either t-shirts or sweaters. C) applies to sweaters but not t-shirts. D) applies to both t-shirts and sweaters.

107) Refer to the accompanying table. If the price of a t-shirt is $6 and the price of a sweater is $80, then the rational spending rule is satisfied when the consumer purchases _____ t-shirts and ______ sweaters. Units

Utils per Year from T-shirts Utils per Year from Sweaters

400

135

720

180

960

210

1,120

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A) 4; 3 B) 3; 4 C) 4; 4 D) 4; 1

108) Refer to the accompanying table. If the price of a t-shirt is $10 and the price of a sweater is $40, then the rational spending is satisfied when the consumer purchases ______ t-shirts and ______ sweaters. Units

Utils per Year from T-shirts Utils per Year from Sweaters

400

135

720

180

960

210

1,120

A) 1; 4 B) 3; 2 C) 4; 4 D) 2; 3

109) If a consumer reallocates his or her spending away from Good A and towards Good B, then the consumer’s total utility will increase if A) MUA/PA > MUB/PB. B) MUA/PA < MUB/PB. C) MUA/PA > 0 and MUB/PB > 0. D) MUA/PA < 0 and MUB/PB < 0.

110) If a consumer reallocates his or her spending away from Good B and towards Good A, then the consumer's total utility will increase if Version 1

A) MUA/PA > MUB/PB. B) MUA/PA < MUB/PB. C) MUA/PA > 0 and MUB/PB > 0. D) MUA/PA < 0 and MUB/PB < 0.

111) The dollar price of a good relative to the average dollar price of all other goods is the good's A) market price. B) equilibrium price. C) nominal price. D) real price.

112)

The absolute price of a good in dollar terms is the good's A) market price. B) equilibrium price. C) nominal price. D) marginal price.

113) The fact that the average price of a gallon of gasoline is much higher in England than in the U.S. leads to which of the following predictions? A) Drivers in England will buy cars with poorer gas mileage than will drivers in the U.S. B) Drivers in England will drive a greater number of miles than will drivers in the U.S. C) Drivers in the U.S. will take fewer trips than will drivers in England. D) Large cars with poor gas mileage will be less popular in England than in the U.S.

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114) Fran runs a doughnut shop in a tiny 3-person town. The accompanying table shows the quantity demand by the three townspeople at various prices: Price per Doughnut

Quantity Demanded Quantity Demanded Quantity Demanded by Alberto by Briana by Guang

10 cents

25 cents

35 cents

50 cents

When the price of a doughnut is 50 cents, what is the market demand for doughnuts? A) 31 doughnuts B) 20 doughnuts C) 9 doughnuts D) 5 doughnuts

115) Fran runs a doughnut shop in a tiny 3-person town. The accompanying table shows the quantity demand by the three townspeople at various prices: Price per Doughnut

Quantity Demanded Quantity Demanded Quantity Demanded by Alberto by Briana by Guang

10 cents

25 cents

35 cents

50 cents

When the price of a doughnut is 25 cents, what is the market demand for doughnuts? A) 9 doughnuts B) 13 doughnuts C) 16 doughnuts D) 20 doughnuts

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116) Suppose the market for shoes consists of three consumers. The accompanying table shows the quantity demanded at various prices for each consumer: Price per Pair

Pairs Demanded Pairs Demanded Pairs Demanded by Juan by Leigh by Hector

$ 100

What is the market demand for shoes when the price is $50 a pair? A) 7 pairs B) 11 pairs C) 15 pairs D) It will depend on the quantity supplied when the price is $50 a pair.

117) Suppose the market for shoes consists of three consumers. The accompanying table shows the quantity demanded at various prices for each consumer: Price per Pair Pairs Demanded by Pairs Demanded Pairs Demanded Juan by Leigh by Hector $ 100

At $100 per pair, market demand A) intersects the y-axis. B) intersects the x-axis. C) is the same as Leigh's demand. D) is less than the quantity supplied.

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118) Suppose the market for shoes consists of three consumers. The accompanying table shows the quantity demanded at various prices for each consumer: Price per Pair

Pairs Demanded Pairs Demanded Pairs Demanded by Juan by Leigh by Hector

$ 100

The data suggest that Leigh: A) has a higher income than either Juan or Hector do. B) does not experience diminishing marginal utility. C) prefers shoes to other items that are for sale. D) has a greater demand for shoes than either Juan or Hector does.

119) Refer to the accompanying figure. If Laura and Chris are the only two consumers in this market, then at a price of $2.00 per pound, the market demand for hamburger is

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A) 2 pounds per week. B) 4 pounds per week. C) 6 pounds per week. D) 8 pounds per week.

120) Refer to the accompanying figure. If Laura and Chris are the only two consumers in this market then at a price of $2.50 per pound, the market demand for hamburger is

A) 1.5 pounds per week. B) 3 pounds per week. C) 4 pounds per week. D) 4.5 pounds per week.

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121) Refer to the accompanying figure. If Laura and Chris are the only two consumers in this market, then the market demand for hamburger will be 9 pounds per week when the price of hamburger is

A) $1 per pound. B) $1.50 per pound. C) $2 per pound. D) $2.50 per pound.

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122) Refer to the accompanying figure. If Laura and Chris are the only two consumers in this market, then when the price of hamburger decreases from $2.50 to $2 per pound, the quantity demanded in the market will ______ by ______ pound(s) per week.

A) decrease; 1.5 B) increase; 1.5 C) decrease; 1 D) increase; 1

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123) Refer to the accompanying figures. If Mallory and Rick are the only two consumers in this market and the price of soda is $0.25 per can, then what will be the market demand for soda per month?

A) 60 cans B) 70 cans C) 90 cans D) 130 cans

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124) Refer to the accompanying figures. If Mallory and Rick are the only two consumers in this market and the price of soda is $0.75 per can, then what will be the market demand for soda each month?

A) 70 B) 50 C) 30 D) 20

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125) Refer to the accompanying figures. If Mallory and Rick are the only two consumers in this market, then the market demand for soda will be 90 cans per month when the price of a can of soda is ____.

A) $1.50 B) $1.25 C) $0.75 D) $0.50

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126) Refer to the accompanying figures. If Mallory and Rick are the only two consumers in this market and the price of soda increases from $0.75 to $1 per can, the quantity of soda demanded in the market will ______ by ______ cans per month.

A) decrease; 20 B) increase; 20 C) decrease; 40 D) increase; 40

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127) Refer to the accompanying figures. If the price of soda is $1.25 per can, then the quantity of soda demanded in the market each month is

A) 40. B) 30. C) 10. D) 0.

128) Suppose that at a price of 25 cents per orange, 500 consumers each demand 4 oranges, and at a price of 20 cents per orange, 750 consumers each demand 5 oranges. Therefore, the market demand for oranges is ______ at a price of 25 cents per orange and ______ at a price of 20 cents per orange. A) 4; 5 B) 500; 750 C) 1,250; 1,500 D) 2,000; 3,750

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129) Suppose that at a price of 25 cents per orange, 500 consumers each demand 3 oranges, and at a price of 20 cents per orange, 800 consumers each demand 5 oranges. Therefore, the market demand for oranges is ______ at a price of 25 cents per orange and ______ at a price of 20 cents per orange. A) 3; 5 B) 500; 800 C) 1,200; 1,250 D) 1,500; 4,000

130) The accompanying figure shows the annual demand for haircuts for one person in the town of Beaumont. There are a total of 300 residents in Beaumont, each with this same demand curve.

If the residents of Beaumont purchase a total of 1,800 haircuts each year, then the market price for a haircut must be A) $40. B) $35. C) $30. D) $20.

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131) The accompanying figure below shows a single consumer’s demand for ice cream at the student union.

During a regular semester, there are 500 students on campus. Each student's weekly demand for ice cream is shown above. When the price of ice cream is $2 per scoop, those 500 students purchase a total of _____ scoops per week from the student union. A) 2,000 B) 2,500 C) 3,000 D) 5,000

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132) The accompanying figure shows a single consumer's demand for ice cream at the student union:

During the summer, there are 300 students on campus. Each student's weekly demand for ice cream is shown above. When the price of ice cream is $2 per scoop, those 300 students purchase a total of ______ scoops per week from the student union. A) 1,200 B) 1,500 C) 1,800 D) 3,000

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133) The accompanying figure shows a single consumer's demand for ice cream at the student union:

If there are 1,000 students on campus during a regular semester, and each student's weekly demand for ice cream is shown above, then when the student union charges $3 per scoop, those 1,000 students purchase a total of ______ scoops per week. A) 400 B) 1,000 C) 2,000 D) 4,000

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134) The accompanying figure shows a single consumer’s demand for ice cream at the student union:

The student union sells a total of 7,200 scoops of ice cream each week at a price of $2 per scoop. If every student who buys ice cream has the demand curve shown above, then there must be ______ students purchasing ice cream each week. A) 800 B) 1,200 C) 1,500 D) 2,000

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135) The accompanying figure shows a single consumer's demand for ice cream at the student union:

An increase in the number of students on this campus would cause A) the demand curve shown above to shift to the right. B) the demand curve shown above to shift to the left. C) the market demand curve for ice cream from the student union to shift to the right. D) no change in the market demand curve for ice cream from the student union.

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136) The accompanying figure shows a single consumer's demand for ice cream at the student union:

Zoe is one of the students whose demand curve for ice cream is shown above. When price is $4, Zoe demands ______ scoops per week, and when price is $2, Zoe demands ______ scoops. A) 1; 3 B) 2; 5 C) 2; 4 D) 2; 6

137)

Consumer surplus measures

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A) the increase in a buyer's total utility when the buyer purchases additional units of a good. B) the difference between the quantity demanded and the quantity supplied at a given price. C) the difference between a buyer's marginal utility from consuming a product and the price actually paid. D) the difference between the most a buyer would be willing to pay for a product and the price actually paid.

138) Sejal's reservation price for her economics textbook is $100. The week before the semester begins, Sejal finds a copy of her textbook online for $75. Sejal's consumer surplus from buying the textbook online is A) $125. B) $100. C) $75. D) $25.

139) Sejal's reservation price for her economics textbook is $120. The week before the semester begins, Sejal finds a copy of her textbook online for $100. Sejal's consumer surplus from buying the textbook online is A) $140. B) $120. C) $100. D) $20.

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140) The accompanying figure shows the demand curve for a product that can be sold only in whole-number amounts:

What is the maximum price that any buyer would be willing to pay for the first unit? A) $40 B) $35 C) $25 D) $15

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141) The accompanying figure shows the demand curve for a product that can be sold only in whole-number amounts:

At a price of $15 per unit, what would be the total consumer surplus in this market each day? A) $0 B) $6 C) $15 D) $75

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142) The accompanying figure shows the demand curve for a product that can be sold only in whole-number amounts:

At a price of $25 per unit, what would be the total consumer surplus in this market each day? A) $0 B) $5 C) $15 D) $30

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143) Refer to the accompanying figure. What is the equilibrium quantity of bananas in this market?

A) 0 pounds/day B) 3 pounds/day C) 4 pounds/day D) 5 pounds/day

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144) Refer to the accompanying figure. What is the equilibrium price of bananas in this market?

A) $0/pound B) $1/pound C) $4/pound D) $5/pound

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145)

Refer to the accompanying figure. At the equilibrium price, total consumer surplus is

A) $7.50 per day. B) $10 per day. C) $15 per day. D) $40 per day.

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146) Refer to the accompanying figure. What is total consumer surplus at the market equilibrium?

A) $6 per day B) $80 per day C) $160 per day D) $240 per day

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147) Refer to the accompanying figure. Suppose the dairy lobby convinces the government to impose price controls in this market. If the government requires cheese to be sold for a price of $8 per pound, then, relative to before the price controls, total consumer surplus in the market would

A) increase. B) decrease. C) not change. D) increase and then decrease.

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148) Refer to the accompanying figure. Suppose the dairy lobby convinces the government to impose price controls in this market. If the government requires cheese to be sold for a price of $8 per pound, total consumer surplus in the market would equal

A) $20 per day. B) $60 per day. C) $80 per day. D) $120 per day.

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149) Refer to the accompanying figure. Suppose a consumer protection group convinces the government to impose price controls in this market. If the government requires cheese to be sold for less than the equilibrium price, then, relative to before the price controls, total consumer surplus in the market:

A) would increase because consumers would be able to purchase the same quantity of cheese at a lower price. B) would increase because consumers would be able to purchase more cheese at a lower price. C) could either increase or decrease. D) would decrease because of the reduction in equilibrium price.

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150) Refer to the accompanying figure. At the equilibrium price, total consumer surplus in this market is

A) $4,000 per day. B) $8,000 per day. C) $12,000 per day. D) $24,000 per day.

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151)

Refer to the accompanying figure:

Suppose Zeynep's budget constraint is initially given by BC1. If her budget constraint shifts to BC2, this could be the result of A) an increase in the price of cheese sandwiches and a decrease in the price of ham sandwiches. B) a decrease in the price of cheese sandwiches and an increase in income. C) a decrease in the price of cheese sandwiches and an increase in the price of ham sandwiches. D) an increase in the price of cheese sandwiches and a decrease in income.

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152)

Refer to the accompanying figure:

If Zeynep's current budget constraint is BC2, and her budget for ham sandwiches and cheese sandwiches is $120, then the price of a cheese sandwich is A) $2. B) $6. C) $9. D) $12.

153) At her current level of consumption, Wiebke's marginal utility from an additional pencil is 15 utils, and her marginal utility from an additional pen is 10 utils. This implies that Wiebke would be willing to give up at most _____ pencils for an additional pen. A) 0.66 B) 0.75 C) 1.5 D) 3

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154)

Refer to the accompanying figure:

Suppose that James’s initial budget constraint shifts from BC1 to BC2, and as a result, his best affordable bundle moves from point A to point B. According to this figure A) spinach is an inferior good. B) potatoes are an inferior good. C) spinach and potatoes are substitutes. D) spinach and potatoes are complements.

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155)

Refer to the accompanying figure:

From the figure, we can infer that James's marginal rate of substitution is A) the same at point A and point B. B) higher at point B than point A. C) higher at point A than point B. D) constant.

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Answer Key Test name: Chap 05_8e_Frank 1) C 2) C 3) B 4) D 5) D 6) B 7) C 8) A 9) C 10) B 11) B 12) A 13) B 14) B 15) A 16) B 17) B 18) A 19) A 20) C 21) B 22) A 23) B 24) D 25) A 26) B Version 1

27) B 28) B 29) C 30) C 31) A 32) C 33) D 34) C 35) C 36) D 37) D 38) A 39) B 40) A 41) C 42) A 43) A 44) D 45) C 46) C 47) A 48) B 49) C 50) B 51) D 52) B 53) B 54) B 55) B 56) A Version 1

57) B 58) A 59) B 60) A 61) A 62) D 63) C 64) A 65) B 66) C 67) D 68) D 69) C 70) C 71) B 72) B 73) B 74) C 75) D 76) B 77) A 78) B 79) C 80) C 81) D 82) B 83) B 84) A 85) C 86) B Version 1

87) C 88) C 89) D 90) B 91) A 92) D 93) D 94) A 95) C 96) B 97) B 98) C 99) A 100) D 101) A 102) D 103) A 104) B 105) C 106) D 107) D 108) D 109) B 110) A 111) D 112) C 113) D 114) C 115) C 116) B Version 1

117) C 118) D 119) C 120) D 121) A 122) B 123) D 124) B 125) D 126) C 127) D 128) D 129) D 130) D 131) C 132) C 133) D 134) B 135) C 136) D 137) D 138) D 139) D 140) A 141) D 142) D 143) D 144) D 145) A 146) B Version 1

147) B 148) A 149) C 150) C 151) B 152) B 153) A 154) C 155) C

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CHAPTER 6 1)

A rational seller will sell another unit of output A) whenever the seller is earning a profit. B) if the cost of making another unit is less than the revenue gained from selling another

unit. C) as long as the quantity demanded is greater than zero. D) if the seller can charge more than the equilibrium price.

2) Your neighbors have offered to pay you to look after their dog while they are on vacation. It will take you one hour per day to feed, walk, and care for the dog, which you can do either before or after you go to work. Your regular job pays $10 per hour, and you can work up to eight hours per day. The smallest amount of money you would accept to look after your neighbor's dog each day is equal to A) $10, because that is your opportunity cost of one hour of work. B) $15, because overtime wages are generally 1.5 times your regular wage when you work more than eight hours a day. C) zero, because your regular job is not available for more than eight hours per day. D) the value you place on one hour of leisure.

3) Which of the following best explains why you are more likely to see a poor person than a wealthy person picking up aluminum cans to sell? A) Wealthy people do not care about the environment. B) The opportunity cost of picking up cans is higher for wealthy people than for poor people. C) Wealthy people are more concerned about their public image than are poor people. D) Wealthy people are more aware of diseases transmitted through litter than are poor people.

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4) John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table. Time cleaning windows (hours/day)

Total number of windows cleaned

What is John's opportunity cost of cleaning windows for an hour? A) $14 B) $8 C) $7 D) $2

5) John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table. Time cleaning windows (hours/day)

Total number of windows cleaned

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The benefit John receives from his first hour cleaning windows is A) $14. B) $18. C) $7. D) $2.

6) John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table. Time cleaning windows (hours/day)

Total number of windows cleaned

The first hour John spends cleaning windows costs him ______ that he could have earned in the grocery store. A) $2 B) $7 C) $14 D) $18

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7) John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table. Time cleaning windows (hours/day)

Total number of windows cleaned

A second hour cleaning windows will yield additional earnings of ______. A) $2 B) $14 C) $8 D) $7

8) John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table. Time cleaning windows (hours/day)

Total number of windows cleaned

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Should John spend a third hour cleaning windows? A) Yes, because he would earn $28. B) Yes, because the additional amount he would earn is $14, which is greater than his opportunity cost of $7. C) No, because the additional amount he would earn is $6, which is less than his opportunity cost of $7. D) Yes, because the additional amount he would earn is $6, which is better than earning nothing.

9) John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table. Time cleaning windows (hours/day)

Total number of windows cleaned

How many hours a day should John spend cleaning windows? A) 1 B) 2 C) 3 D) 4

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10) John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table. Time cleaning windows (hours/day)

Total number of windows cleaned

What is the lowest price per window that would induce John to spend at least one hour per day cleaning windows? A) $7 B) $1 C) $3 D) $2

11) John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table. Time cleaning windows (hours/day)

Total number of windows cleaned

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What is the lowest price per window that John would be willing to accept to spend 4 hours per day cleaning windows? A) $7 B) $2 C) $3.50 D) $11

12) John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table. Time cleaning windows (hours/day)

Total number of windows cleaned

If we plot John's opportunity cost per window on the vertical axis and the number of windows cleaned each day on the horizontal axis, we will have John's ______ curve for window-cleaning services. A) production possibilities B) supply C) benefit D) demand

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13) For a given seller, the accompanying figure shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. What is this seller's reservation price for the 250th unit?

A) $2 B) $4 C) $8 D) $14

14) For a given seller, the accompanying figure shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. If the market price of this good is $6, how many units would this seller produce?

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A) 50 B) 150 C) 250 D) 300

15) For a given seller, the accompanying figure shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. As the market price of this good increases, the quantity produced by this seller will ______.

A) increase B) decrease C) stay the same D) stay the same until the price rises above $6 per unit, and then it will increase

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16) For a given seller, the accompanying figure shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. If the market consists of 50 identical sellers, each with the same opportunity cost as the seller depicted in the figure, then how many units would be supplied in the market at a price of $14 per unit?

A) 350 B) 1,750 C) 17,500 D) 175,000

17)

A seller’s supply curve shows the seller’s A) willingness to pay for an additional unit of output at each quantity. B) opportunity cost of producing an additional unit of output at each quantity. C) hourly wage for producing an additional unit of output at each quantity. D) profit from producing an additional unit of output at each quantity.

18)

Individual supply curves generally slope ______ because ______.

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A) downward; sellers become more efficient with practice B) upward; profits increase with quantity C) downward; inputs are cheaper when purchased in high volume D) upward; of increasing opportunity costs

19) As the market price of a service increases, more potential sellers will decide to perform that service because A) higher prices result in higher revenue. B) more potential sellers will find that the market price exceeds their reservation price. C) it’s more prestigious to produce high-priced services. D) higher prices lead to lower opportunity costs.

20)

The primary objective of most private firms is to A) maximize revenue. B) maximize profit. C) minimize cost. D) maximize output.

21)

The most important challenge facing a firm in a perfectly competitive market is deciding A) whether to maximize its profits. B) how much to produce. C) what price to charge. D) whether to advertise.

22)

Total revenue minus both explicit and implicit costs defines a firm’s

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A) gross earnings. B) profit. C) marginal earnings. D) net worth.

23)

A firm's total profit equals A) P − MC. B) (P −ATC) ×Q. C) P ×Q. D) (P −ATC) ÷Q.

24) Which of the following statements is true for both Microsoft and a locally owned restaurant? A) Both are perfect competitors. B) Both confront perfectly elastic demand for their products. C) Neither firm is able to influence the price of their products. D) Both seek to maximize profits.

25)

Which of the following is a defining characteristic of all perfectly competitive markets? A) Each firm in the market faces a perfectly inelastic demand curve. B) The market demand curve is perfectly elastic. C) All firms sell the same standardized product. D) Consumers display strong brand loyalty.

26)

Which of the following is NOT true of a perfectly competitive firm?

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A) It faces a perfectly elastic demand curve. B) It is unable to influence the price of the good it sells. C) It seeks to maximize revenue. D) It sells only a small fraction of the total quantity exchanged in the market.

27)

Which of the following is NOT a characteristic of a perfectly competitive market?

A) Each firm in the market sells a somewhat different variant of the good. B) There are many sellers, each of which sells only a small fraction of the total quantity exchanged. C) Buyers and sellers are well-informed. D) Sellers can easily buy and sell the productive resources needed to enter the market.

28) If the market for butter is perfectly competitive, then the demand curve facing a firm that produces butter will be: A) unit elastic. B) perfectly inelastic. C) perfectly elastic. D) upward sloping.

29)

In which of the following markets do firms sell the same standardized product? A) Four-door cars B) 2% milk C) Desktop computers D) Sandwiches

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30) Last year, Amada grew fresh vegetables, which she sold at her local farmers market, but this year, Amada did not plant any vegetables and went to work at a bank instead. If Amada’s decision to change careers did not affect the price of vegetables at the farmers market, then this suggests that A) the demand for vegetables did not change. B) the market for vegetables is perfectly competitive. C) the demand for vegetables increased this year. D) the market demand for vegetables is perfectly inelastic.

31) Last year, Amada grew fresh vegetables, which she sold at her local farmers market, but this year, Amada did not plant any vegetables and went to work at a bank instead. Which of the following best explains Amada’s career change? A) Amada's opportunity costs of gardening exceeded Amada's benefits from working at the bank. B) Amada's opportunity costs of working at the bank exceeded Amada's benefits from gardening. C) Amada's opportunity costs of working at the bank exceeded Amada's opportunity costs of gardening. D) Amada's opportunity costs of gardening exceeded Amada's opportunity costs of working at the bank.

32)

A price-taker faces a demand curve that is A) vertical at the market price. B) upward sloping. C) downward sloping. D) horizontal at the market price.

33) that

One implication of the shape of the demand curve facing a perfectly competitive firm is

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A) if the firm increases its price above the market price, it will earn higher revenue. B) if the firm decreases its price below the market price, it will earn higher revenue. C) if the firm increases its price above the market price, it will earn zero revenue. D) the market would be unable to reach a new equilibrium if demand changed.

34)

An imperfectly competitive firm is one that A) has at least some influence over the market price. B) charges any price it wants. C) seeks to maximize revenue. D) faces a perfectly inelastic demand curve.

35)

A profit-maximizing perfectly competitive firm must decide A) only what price to charge, taking output as fixed. B) both what price to charge and how much to produce. C) only how much to produce, taking price as fixed. D) only which industry to join, taking price and output as fixed.

36) Denise sells lemonade in front of her house in the summer. Several other kids in Denise’s neighborhood also run lemonade stands in the summer. The lemonade market in Denise’s neighborhood is more likely to be perfectly competitive if A) all of the kids advertise heavily. B) each stand tries to get more customers by offering different varieties of lemonade and snacks. C) each lemonade stand sells the same kind of lemonade. D) some of the neighborhood parents build elaborate booths for their kids’ stands while some kids sell from makeshift tables.

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37) Denise sells lemonade in front of her house in the summer. Several other kids in Denise’s neighborhood also run lemonade stands in the summer. If the lemonade market is perfectly competitive, and Denise is charging the equilibrium price, then Denise can increase her revenue if she A) decreases the price of her lemonade and doesn’t change her output. B) increases the price of her lemonade and decreases her output. C) increases the price of her lemonade and doesn’t change her output. D) keeps the price of her lemonade the same and increases the output.

38) Denise sells lemonade in front of her house in the summer. Several other kids in Denise's neighborhood also run lemonade stands in the summer. Suppose that the first week of summer, Denise charged 25 cents for an 8-ounce cup of lemonade, her next-door neighbor Jason charged 50 cents for an 8-ounce cup of lemonade, and Gina across the street charged 15 cents for an 8ounce cup of lemonade. Assuming the market for lemonade is perfectly competitive, what is most likely to happen? A) Everyone will start to charge 50 cents to maximize revenue. B) A price war will break out, and all of the kids will lower their prices. C) Each kid will keep his or her price at the original amount. D) Eventually prices will equalize across all three lemonade stands.

39) Which of the following would be considered a factor of production in the provision of bus service? A) The revenue from the sale of bus tickets B) The amount it costs to provide bus service between two locations C) Bus drivers D) The hourly wage paid to bus drivers

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40)

The short run is best defined as A) one year or less. B) a period of time sufficiently short that all factors of production are variable. C) the period of time between quarterly accounting reports. D) a period of time sufficiently short that at least one factor of production is fixed.

41)

A fixed factor of production A) is fixed in the long run but variable in the short run. B) is fixed only in the short run. C) is fixed in both the short run and the long run. D) is common in large firms but rare in small firms.

42)

A variable factor of production A) is fixed in the long run but variable in the short run. B) plays no role in the law of diminishing marginal returns. C) is variable in both the short run and the long run. D) is variable only in the short run.

43)

The long run is best defined as A) one year or more. B) a period of time sufficiently long that all factors of production are variable. C) the period of time between annual accounting reports. D) a period of time sufficiently long that at least one factor of production is fixed.

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44) According to the law of diminishing returns, when some factors of production are fixed, in order to increase production by a given amount, a firm will eventually need to add successively A) smaller and smaller quantities of the variable factors of production. B) constant quantities of the variable factors of production. C) larger and larger quantities of the variable factors of production. D) larger and larger quantities of the fixed factor of production.

45)

Which of the following is the most likely to be a fixed factor of production at a farm? A) The land on which the farm is located B) The number of workers hired to harvest the crops C) The amount of fertilizer used each week D) The amount of water used each day

46) Which of the following is the most likely to be a fixed factor of production at a pizza restaurant? A) The number of waiters B) The size of the seating area C) The amount of pizza dough D) The amount of electricity

47) Which of the following is the most likely to be a variable factor of production at a university? A) The number of librarians B) The size of the football stadium C) The size of the student union D) The location of the university

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48) One reason that variable factors of production tend to show diminishing returns in the short run is that A) capital equipment is often idle in the short run. B) there is only so much that can be produced using additional variable inputs when some factors of production are fixed. C) large firms cannot effectively manage their resources. D) the cost of employing additional resources increases as firms employ more of those resources.

49) To produce 150 units of output per day, a firm must use 3 employees. To produce 300 units of output per day, the firm must use 8 employees. Apparently, the firm is A) producing in the long run. B) experiencing diminishing returns. C) not using any fixed factors of production. D) experiencing negative returns.

50) Suppose 30 employees can produce 50 units of output per day. Assuming the presence of diminishing marginal returns, producing 100 units of output per day would require A) an additional 30 employees. B) more than 30 additional employees. C) a total of 60 or fewer employees. D) fewer than 30 additional employees.

51) Suppose 12 employees can produce 100 units of output per day. Assuming the presence of diminishing marginal returns, with 6 employees the firm could produce

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A) 50 units of output per day. B) 75 units of output per day. C) less than 50 units of output per day. D) more than 50 units of output per day.

52) Refer to the accompanying table. As the firm increases the number of employees each day from 1 to 2, output increases by Output Per Day

Number of Employees

132

165

A) 33 units. B) 66 units. C) 99 units. D) 132 units.

53) Refer to the accompanying table. To increase output from 33 to 66 units per day requires ______ extra employee(s); to increase output from 66 to 99 units per day requires ______ extra employee(s). Output Per Day

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Number of Employees

132

165

A) 1; 1 B) 1; 2 C) 2; 1 D) 2; 4

54) Refer to the accompanying table. To increase output from 99 to 132 units per day requires ______ extra employees; to increase output from 132 to 165 units per day requires ______ extra employees. Output Per Day

Number of Employees

132

165

A) 11; 18 B) 7; 11 C) 4; 3 D) 3; 4

55) Refer to the accompanying table. The law of diminishing marginal returns becomes evident after ______ units of output are produced. Output Per Day

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Number of Employees

132

165

A) 33 B) 66 C) 99 D) 132

56) The accompanying table describes the relationship between the number of workers hired by a call center each hour and the number of calls the call center can make each hour. The call center has only 1 telephone. The telephone costs the firm $5/hour (regardless of how many calls are made), and each worker is paid $10 per hour. Calls Per Hour

Number of Telephones

Number of Workers Per Hour

What is the total cost of making 6 calls an hour? A) $30 B) $40 C) $60 D) $65

57) The accompanying table describes the relationship between the number of workers hired by a call center each hour and the number of calls the call center can make each hour. The call center has only 1 telephone. The telephone costs the firm $5/hour (regardless of how many calls are made), and each worker is paid $10 per hour. Calls Per Hour

Number of Telephones

Number of Workers Per Hour

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What is the variable cost of making 16 calls an hour? A) $80 B) $40 C) $45 D) $85

58) The accompanying table describes the relationship between the number of workers hired by a call center each hour and the number of calls the call center can make each hour. The call center has only 1 telephone. The telephone costs the firm $5/hour (regardless of how many calls are made), and each worker is paid $10 per hour. Calls Per Hour

Number of Telephones

Number of Workers Per Hour

Average variable cost is minimized when output is approximately A) 6 units. B) 16 units. C) 22 units. D) 24 units.

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59) The accompanying table describes the relationship between the number of workers hired by a call center each hour and the number of calls the call center can make each hour. The call center has only 1 telephone. The telephone costs the firm $5/hour (regardless of how many calls are made), and each worker is paid $10 per hour. Calls Per Hour

Number of Telephones

Number of Workers Per Hour

If the price of a telephone increases from $5 to $10 an hour and nothing else changes, then A) total cost would not change. B) marginal cost would increase by $5 at every level of output. C) marginal cost would not change. D) average total cost would increase by $5 at every level of output.

60) The accompanying table describes the relationship between the number of workers hired by a call center each hour and the number of calls the call center can make each hour. The call center has only 1 telephone. The telephone costs the firm $5/hour (regardless of how many calls are made), and each worker is paid $10 per hour. Calls Per Hour

Number of Telephones

Number of Workers Per Hour

Given the information in the table above, what is the call center’s marginal cost when it goes from making 6 calls an hour to making 16 calls an hour?

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A) $0.50 B) $2 C) $10 D) $20

61) The accompanying table describes the relationship between the number of workers hired by a call center each hour and the number of calls the call center can make each hour. The call center has only 1 telephone. The telephone costs the firm $5/hour (regardless of how many calls are made), and each worker is paid $10 per hour. Calls Per Hour

Number of Telephones

Number of Workers Per Hour

Given the information in the table above, what is the call center’s marginal cost when it goes from making 16 calls an hour to making 22 calls an hour? A) $3.33 B) $0.30 C) $20 D) $4.17

62) If a firm spends $400 to produce 20 units of output and spends $880 to produce 40 units, then between 20 and 40 units of output, the marginal cost of production is: A) $20. B) $24. C) $22. D) $480.

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63) If a firm spends $150 to produce 25 units of output and spends $330 to produce 50 units, then between 25 and 50 units of output, the marginal cost of production is: A) $6. B) $6.60. C) $7.20. D) $180.

64)

Marginal cost is calculated as A) total revenue minus total costs. B) the change in output divided by the change in total costs. C) the percentage change in total costs divided by the percentage change in output. D) the change in total cost divided by the change in output.

65)

If a production process exhibits diminishing returns, then as output rises A) average total cost will eventually decrease. B) marginal cost will eventually increase. C) total fixed cost will eventually increase. D) total revenue will eventually decrease.

66) Assume that each day a firm uses 13 employee-hours per day and an office to produce 100 units of output. The price of each unit output is $5, the hourly wage rate is $10, and rent on the office is $200 per day. Each day the firm earns a ______ of ______. A) profit; $370 B) loss; $370 C) profit; $170 D) loss; $170

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67) Assume that each day a firm uses 8 employee-hours per day and an office to produce 100 units of output. The price of each unit output is $6, the hourly wage rate is $12, and rent on the office is $700 per day. Each day the firm earns a ______ of ______. A) profit; $196 B) profit; $600 C) loss; $196 D) loss; $600

68)

In general, when the price of a variable factor of production increases A) total cost falls. B) the profit maximizing level of output rises. C) the profit-maximizing price falls. D) marginal cost rises.

69)

In general, when the price of a fixed factor of production increases A) the profit-maximizing price falls. B) marginal cost is unchanged. C) marginal cost increases. D) the profit-maximizing level of output increases.

70) Suppose a profit-maximizing firm in a perfectly competitive market is earning an economic profit of $1,345. If the firm’s fixed cost increases from $200 to $300, the firm will A) reduce its output. B) raise its price. C) earn a greater profit. D) earn a smaller profit.

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71) Suppose a profit-maximizing firm in a perfectly competitive market is collecting $1,999 in total revenues. If the total cost of its fixed factors of production falls from $500 to $400, the firm will A) expand its output. B) lower its price. C) earn greater profits or smaller losses. D) earn smaller profits or larger losses.

72) Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The accompanying table describes the relationship between the number of employeehours the firm uses each day and the firm’s daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. Employee-Hours Per Day

Output Per Day

120

160

200

This firm’s fixed cost each day is A) $66. B) $64. C) $50. D) $14.

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73) Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The accompanying table describes the relationship between the number of employeehours the firm uses each day and the firm’s daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. Employee-Hours Per Day

Output Per Day

120

160

200

When the firm uses 9 employee-hours per day, its total variable cost each day is A) $30. B) $56. C) $84. D) $126.

74) Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The accompanying table describes the relationship between the number of employeehours the firm uses each day and the firm’s daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. Employee-Hours Per Day

Output Per Day

120

160

200

When the firm uses 9 employee-hours per day, its total cost each day is

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A) $126. B) $64. C) $56. D) $176.

75) Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The accompanying table describes the relationship between the number of employeehours the firm uses each day and the firm’s daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. Employee-Hours Per Day

Output Per Day

120

160

200

When the firm uses 9 employee-hours per day, its total revenue each day is A) $240. B) $160. C) $120. D) $18.

76) Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The accompanying table describes the relationship between the number of employeehours the firm uses each day and the firm’s daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. Employee-Hours Per Day

Version 1

Output Per Day

120

160

200

When the firm uses 9 employee-hours per day, it earns a daily ______ of ______. A) loss; $64 B) profit; $64 C) loss; $114 D) profit; $114

77) Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The accompanying table describes the relationship between the number of employeehours the firm uses each day and the firm’s daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. Employee-Hours Per Day

Output Per Day

120

160

200

When the firm uses 1 employee-hours per day, it earns a daily ______ of ______. A) loss; $16 B) loss; $66 C) profit; $16 D) profit; $66

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78) Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The accompanying table describes the relationship between the number of employeehours the firm uses each day and the firm’s daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. Employee-Hours Per Day

Output Per Day

120

160

200

What is the marginal cost of production between 80 and 120 units of output each day? A) $1.40 B) $1.75 C) $14 D) $70

79) Refer to the accompanying table. It is clear that diminishing returns sets in after ______ workers per day. Number of Workers Per Day

Version 1

Output Per Day

A) 3 B) 4 C) 5 D) 6

80) Refer to the accompanying table. It is clear that diminishing returns sets in after ______ workers per day. Number of Workers Per Day

Output Per Day

A) 4 B) 2 C) 1 D) 3

81) The accompanying table shows a pizzeria’s fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. Number of Pizzas Per Day

Version 1

Fixed Cost ($/Day)

Variable Cost ($/Day)

500

150

500

250

500

450

100

500

850

125

500

1,650

When the pizzeria makes 100 pizzas a day, its fixed cost is ______ and its total cost is ______. A) $350; $850 B) $500; $850 C) $500; $1,350 D) $850; $1,650

82) The accompanying table shows a pizzeria’s fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. Number of Pizzas

Fixed Cost ($/Day)

Variable Cost ($/Day)

500

150

500

250

500

450

100

500

850

125

500

1,650

When the pizzeria makes 50 pizzas, its average total cost is ______. A) $5 B) $10 C) $15 D) $20

83) The accompanying table shows a pizzeria’s fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. Number of Pizzas

Version 1

Fixed Cost ($/Day)

Variable Cost ($/Day)

500

150

500

250

500

450

100

500

850

125

500

1,650

When the pizzeria makes 100 pizzas, its average total cost is ______. A) $5 B) $10 C) $8.50 D) $13.50

84) The accompanying table shows a pizzeria’s fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. Number of Pizzas

Fixed Cost ($/Day)

Variable Cost ($/Day)

500

150

500

250

500

450

100

500

850

125

500

1,650

When the pizzeria makes 50 pizzas, its average variable cost is ______. A) $5 B) $10 C) $15 D) $20

85) The accompanying table shows a pizzeria’s fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. Number of Pizzas

Version 1

Fixed Cost ($/Day)

Variable Cost ($/Day)

500

150

500

250

500

450

100

500

850

125

500

1,650

When the pizzeria makes 25 pizzas, its average fixed cost is ______. A) $5 B) $6 C) $10 D) $20

86) The accompanying table shows a pizzeria’s fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. Number of Pizzas

Fixed Cost ($/Day)

Variable Cost ($/Day)

500

150

500

250

500

450

100

500

850

125

500

1,650

Between 25 and 50 pizzas, the pizzeria’s marginal cost is ______. A) $4 B) $6 C) $8 D) $16

87) The accompanying table shows a pizzeria’s fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. Number of Pizzas

Version 1

Fixed Cost ($/Day)

Variable Cost ($/Day)

500

150

500

250

500

450

100

500

850

125

500

1,650

When the pizzeria makes 125 pizzas, its total revenue is _____. A) $2,500 B) $1,250 C) $125 D) $20

88) The accompanying table shows a pizzeria’s fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. Number of Pizzas

Fixed Cost ($/Day)

Variable Cost ($/Day)

500

150

500

250

500

450

100

500

850

125

500

1,650

When the pizzeria makes 100 pizzas, it earns an economic ______ of ______. A) loss; $650 B) profit; $650 C) loss; $500 D) profit; $1,150

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89)

Refer to the accompanying figure. At quantities less than 50 doughnuts per day

A) marginal cost is declining. B) the return to the firm’s variable factors of production must be increasing. C) average cost is declining because marginal cost is increasing. D) average cost is declining because marginal cost is less than average cost.

90) Refer to the accompanying figure. If the market for doughnuts is perfectly competitive, then assuming this firm can earn enough revenue to cover its variable cost, it should produce

Version 1

A) 50 doughnuts per day. B) the quantity of doughnuts at which average total cost equals the market price. C) the quantity of doughnuts at which marginal cost equals the market price. D) the quantity of doughnuts at which average total cost is minimized.

91) Refer to the accompanying figure. If the market for doughnuts is perfectly competitive, and the price of a doughnut is 10 cents, then this firm

A) should shut down. B) should produce 50 doughnuts. C) should shut down in the long run. D) will earn an economic loss.

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92) Refer to the accompanying figure. If the market for doughnuts is perfectly competitive, and the price of a doughnut is 25 cents, then this firm should

A) shut down. B) produce 90 doughnuts. C) produce 80 doughnuts. D) produce 50 doughnuts.

93) Refer to the accompanying figure. If the market for doughnuts is perfectly competitive, and the price of a doughnut is 25 cents, then at this firm’s profit maximizing level of output, the firm will earn an economic ______ of ______ per day.

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A) profit; $80 B) profit; $8 C) loss; $10 D) loss; $80

94) The price equals marginal cost rule for profit maximization is a specific example of which core principle? A) The Scarcity Principle B) The Cost-Benefit Principle C) The Principle of Comparative Advantage D) The Efficiency Principle

95) Suppose a firm produces the level of output at which the marginal cost of the last unit produced equals the price of the good. Which of the following statements is always true? A) The firm should shut down if its total revenue is less than its variable cost. B) The firm will earn a positive economic profit. C) The firm is maximizing its profit. D) The firm should produce more if its economic profit is positive.

96) Even when a firm produces the level of output at which price equals marginal cost, it should shut down if its total revenue is less than its A) marginal cost. B) fixed cost. C) variable cost. D) total cost.

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97) Suppose that when a firm produces the level of output at which price equals marginal cost, the firm’s total revenue is less than its variable cost. In this case, the firm should A) not change its level of output even if it’s earning an economic loss in the short run. B) shut down. C) produce more so that its total revenue increases. D) purchase more fixed factors of production.

98) Suppose that when a perfectly competitive firm produces 500 units of output a day, it earns an economic loss. If the price of each unit of output is $1.50, then, in the short run, it is clear that this firm A) should shut down. B) should not shut down if its total variable cost is less than $750. C) is not maximizing its profit. D) should produce more than 500 units a day.

99) Suppose that at a firm's profit-maximizing level of output, its total revenue is $1,250, the total cost of its variable factors of production is $1,000, and its total fixed cost is $500. This firm will ______ in the short run, and it will ______ in the long run. A) shut down; reopen for business B) earn a profit; earn a loss C) earn a loss; earn a profit D) not shut down; exit the industry

100)

If a firm shuts down in the short run, then its A) total revenue and total cost will fall to zero. B) profit will equal zero. C) economic loss will equal its fixed costs. D) economic loss will equal its variable costs.

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101) Suppose that when a perfectly competitive firm produces 1,000 units of output, its total variable cost is $1,900. If the marginal cost of producing the 1,000th unit is $1.70, and if the market price of each unit of output is $1.70, then the firm should A) shut down. B) raise its price. C) increase output. D) continue to produce 1000 units.

102) Abdul runs a fishing lodge and has a very profitable business during the summer. In the fall, the number of guests at the lodge starts to decline. Abdul should keep the lodge open A) all year because his summer profits offset any losses he might have in the winter. B) only during those months in which his total revenue exceeds his total cost. C) only during those months in which his total revenue exceeds his fixed cost. D) only during those months in which his total revenue exceeds his variable cost.

103)

Average variable cost is defined as A) total cost divided by total output. B) total cost divided by number of workers. C) variable cost divided by total output. D) variable cost divided by price.

104)

Average total cost is defined as A) total cost divided by total output. B) total cost divided by price. C) variable cost divided by total output. D) variable cost divided by price.

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105) Suppose Aiko is a potter who makes mugs. Her total costs depend on the number of mugs she makes each day, as shown in the accompanying table. Number of Mugs Per Day

Total Cost Per Day

$ 10

$ 14

$ 19

$ 25

$ 32

$ 40

$ 49

Aiko’s fixed cost is ______ per day. A) $0 B) $10 C) $39 D) $49

106) Suppose Aiko is a potter who makes mugs. Her total costs depend on the number of mugs she makes each day, as shown in the accompanying table. Number of Mugs Per Day

Total Cost Per Day

$ 10

$ 14

$ 19

$ 25

$ 32

$ 40

$ 49

When Aiko produces 5 mugs per day, her average variable cost is ______.

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A) $6 B) $8 C) $30 D) $40

107) Suppose Aiko is a potter who makes mugs. Her total costs depend on the number of mugs she makes each day, as shown in the accompanying table. Number of Mugs Per Day

Total Cost Per Day

$ 10

$ 14

$ 19

$ 25

$ 32

$ 40

$ 49

The marginal cost if the 4th mug per day is ______. A) $5 B) $7 C) $8 D) $32

108) Suppose Aiko is a potter who makes mugs. Her total costs depend on the number of mugs she makes each day, as shown in the accompanying table. Number of Mugs Per Day

Total Cost Per Day

$ 10

$ 14

$ 19

$ 25

$ 32

Version 1

$ 40

$ 49

If the market for mugs is perfectly competitive, and mugs sell for $7.50 each, then Aiko should make ______ mugs per day. A) 0 B) 4 C) 5 D) 6

109) Suppose Aiko is a potter who makes mugs. Her total costs depend on the number of mugs she makes each day, as shown in the accompanying table. Number of Mugs Per Day

Total Cost Per Day

$ 10

$ 14

$ 19

$ 25

$ 32

$ 40

$ 49

If the market for mugs is perfectly competitive, and mugs sell for $7.50 each, then at her profitmaximizing level of output, Aiko will earn a ______ of ______ per day. A) loss; $2 B) loss; $10 C) profit; $2 D) profit; $30

110) Suppose Aiko is a potter who makes mugs. Her total costs depend on the number of mugs she makes each day, as shown in the accompanying table.

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Number of Mugs Per Day

Total Cost Per Day

$ 10

$ 14

$ 19

$ 25

$ 32

$ 40

$ 49

If Aiko’s fixed costs decrease, then in the short run, her profit-maximizing level of output will: A) not change. B) increase. C) decrease. D) only increase if she can earn a positive profit.

111) Suppose Vivek owns a small company that makes kites. The market for kites is perfectly competitive, and kites sell for $25 each. Vivek’s total production costs vary depending on the number of kites he makes each day, as shown in the accompanying table. Number of kites Per Day Total Cost Per Day ($) 0

100

110

126

148

172

200

235

When Vivek makes 2 kites per day, what is his average variable cost? A) $13 B) $26 C) $50 D) $63

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112) Suppose Vivek owns a small company that makes kites. The market for kites is perfectly competitive, and kites sell for $25 each. Vivek’s total production costs vary depending on the number of kites he makes each day, as shown in the accompanying table. Number of kites Per Day Total Cost Per Day ($) 0

100

110

126

148

172

200

235

What is the profit-maximizing number of kites for Vivek to make each day? A) 3 B) 4 C) 5 D) 0

113) Suppose Vivek owns a small company that makes kites. The market for kites is perfectly competitive, and kites sell for $25 each. Vivek’s total production costs vary depending on the number of kites he makes each day, as shown in the accompanying table. Number of kites Per Day Total Cost Per Day ($) 0

100

110

126

148

172

200

235

What is Vivek’s economic profit at his profit-maximizing level of output?

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A) −$72 B) −$73 C) −$75 D) −$100

114) Suppose Vivek owns a small company that makes kites. The market for kites is perfectly competitive, and kites sell for $25 each. Vivek’s total production costs vary depending on the number of kites he makes each day, as shown in the accompanying table. Number of kites Per Day Total Cost Per Day ($) 0

100

110

126

148

172

200

235

Should Vivek shut down? A) Yes, because his economic profit is negative. B) Yes, because he cannot earn enough revenue to cover his variable cost. C) No, because his economic profit is positive. D) No, because he can earn enough revenue to cover his variable cost.

115) Suppose Vivek owns a small company that makes kites. The market for kites is perfectly competitive, and kites sell for $25 each. Vivek’s total production costs vary depending on the number of kites he makes each day, as shown in the accompanying table. Number of kites Per Day Total Cost Per Day ($)

Version 1

100

110

126

148

172

200

235

If Vivek’s fixed cost rises, then in the short run, his A) profit-maximizing level of output will rise. B) profit-maximizing level of output will fall. C) profit-maximizing level of output will not change. D) economic profit will not change.

116) Suppose Sarah owns a small company that makes wedding cakes. The accompanying table shows how Sarah’s total cost varies depending on the number of wedding cakes she makes each day. Number of Cakes Per Day

Total Cost Per Day

$ 100

$ 180

$ 220

$ 300

$ 400

$ 520

$ 660

Sarah’s fixed cost is ______ per day. A) $10 B) $20 C) $100 D) $200

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117) Suppose Sarah owns a small company that makes wedding cakes. The accompanying table shows how Sarah’s total cost varies depending on the number of wedding cakes she makes each day. Number of Cakes Per Day

Total Cost Per Day

$ 100

$ 180

$ 220

$ 300

$ 400

$ 520

$ 660

When Sarah produces 2 cakes per day, her average variable cost is ______. A) $60 B) $100 C) $110 D) $120

118) Suppose Sarah owns a small company that makes wedding cakes. The accompanying table shows how Sarah’s total cost varies depending on the number of wedding cakes she makes each day. Number of Cakes Per Day

Total Cost Per Day

$ 100

$ 180

$ 220

$ 300

$ 400

$ 520

$ 660

The marginal cost of the 4th wedding cake per day is ______.

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A) $100 B) $120 C) $300 D) $400

119) Suppose Sarah owns a small company that makes wedding cakes. The accompanying table shows how Sarah’s total cost varies depending on the number of wedding cakes she makes each day. Number of Cakes Per Day

Total Cost Per Day

$ 100

$ 180

$ 220

$ 300

$ 400

$ 520

$ 660

If the market for wedding cakes is perfectly competitive, and wedding cakes sell for $95 each, then Sarah should produce ______ cakes per day. A) 0 B) 3 C) 5 D) 6

120) Suppose Sarah owns a small company that makes wedding cakes. The accompanying table shows how Sarah’s total cost varies depending on the number of wedding cakes she makes each day. Number of Cakes Per Day

Total Cost Per Day

$ 100

$ 180

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$ 220

$ 300

$ 400

$ 520

$ 660

If the market for wedding cakes is perfectly competitive, and wedding cakes sell for $95 each, then at her profit-maximizing level of output, Sarah will earn a ______ of ______ per day. A) loss; $100 B) loss; $15 C) profit; $15 D) profit; $285

121) Suppose Sarah owns a small company that makes wedding cakes. The accompanying table shows how Sarah’s total cost varies depending on the number of wedding cakes she makes each day. Number of Cakes Per Day

Total Cost Per Day

$ 100

$ 180

$ 220

$ 300

$ 400

$ 520

$ 660

If the market for wedding cakes is perfectly competitive, and wedding cakes sell for $125 each, then Sarah should produce ______ cakes per day. A) 0 B) 3 C) 5 D) 6

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122) Suppose Sarah owns a small company that makes wedding cakes. The accompanying table shows how Sarah’s total cost varies depending on the number of wedding cakes she makes each day. Number of Cakes Per Day

Total Cost Per Day

$ 100

$ 180

$ 220

$ 300

$ 400

$ 520

$ 660

If the market for wedding cakes is perfectly competitive, and wedding cakes sell for $125 each, then at her profit-maximizing level of output, Sarah’s profit will be ______ per day. A) $90 B) $100 C) $105 D) $625

123) Suppose Sarah owns a small company that makes wedding cakes. The accompanying table shows how Sarah’s total cost varies depending on the number of wedding cakes she makes each day. Number of Cakes Per Day

Total Cost Per Day

$ 100

$ 180

$ 220

$ 300

$ 400

$ 520

$ 660

Version 1

If Sarah’s fixed costs double, then in the short run, her profit-maximizing level of output A) will shrink to zero if she starts earning a loss. B) will increase. C) will decrease. D) will not change.

124) When Acme Dynamite produces 250 units of output, its variable cost is $2,000, and its fixed cost is $500. It sells each unit of output for $25.When Acme Dynamite produces 250 units of output, its average variable cost is ______ and its average total cost is ______. A) $8; $2 B) $10; $10 C) $10; $2 D) $8; $10

125) When Acme Dynamite produces 250 units of output, its variable cost is $2,000, and its fixed cost is $500. It sells each unit of output for $25. When Acme Dynamite produces 250 units of output, its profit is A) $6,250. B) $5,750. C) $4,250. D) $3,750.

126) When Acme Dynamite produces 200 units of output, its variable cost is $3,000, and its fixed cost is $500. It sells each unit of output for $30. When Acme Dynamite produces 200 units of output, its profit is

Version 1

A) $2,000. B) $3,000. C) $6,000. D) $2,500.

127) When Acme Dynamite produces 250 units of output, its variable cost is $2,000, and its fixed cost is $500. It sells each unit of output for $25. If the price of dynamite drops to $10, should Acme Dynamite continue to operate in the short run? A) No, because price is less than average total cost. B) Yes, because price is less than average variable cost. C) No, because price is not greater than average total cost. D) Yes, because price is greater than average variable cost.

128) In general, perfectly competitive firms maximize their profit by producing the level of output at which A) average cost is minimized. B) total cost is minimized. C) average cost equals price. D) marginal cost equals price.

129) If a perfectly competitive firm produces an output level at which price is greater than marginal cost, then the firm should A) employ more fixed factors of production. B) reduce output to earn greater profits or smaller losses. C) expand output to earn greater profits or smaller losses. D) leave its output decision unchanged because it is earning a profit.

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130) If a perfectly competitive firm produces an output level at which price is less than marginal costs, then the firm should A) raise its price. B) reduce output to earn greater profits or smaller losses. C) expand output to earn greater profits or smaller losses. D) leave its output level unchanged provided it is covering its variable cost.

131)

An increase in the price a firm receives for its output will lead the firm to A) expand output. B) leave output unchanged and earn greater profits. C) leave output unchanged and earn smaller losses. D) reduce output.

132)

A decrease in the price a firm receives for its output will lead the firm to A) expand output. B) cut its payments to its factors of production. C) leave output unchanged. D) reduce output.

133) Suppose a perfectly competitive firm is producing 37 units output, and the marginal cost of the 37th unit is $3. If the firm can sell each unit of output for $5 and the firm’s revenue is sufficient to cover its variable cost, the firm should A) lower its price. B) decrease production. C) increase production. D) raise its price.

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134) Suppose a perfectly competitive firm is producing 77 units of output, and the marginal cost of the 77th unit is 11. If the firm can sell each unit of output for $8 and the firm’s revenue is sufficient to cover its variable cost, the firm should A) lower its price. B) decrease production. C) increase production. D) raise its price.

135) Suppose a perfectly competitive firm is producing 1,000 units of output and the marginal cost of the 1,000th unit is $7. If the firm can sell each unit of output for $7 and the firm’s revenue is sufficient to cover its variable cost, the firm should A) leave production unchanged. B) increase price to increase profits. C) increase production to increase profits. D) decrease production to lower losses.

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136) The accompanying graph shows the cost curves for Mei's mushroom gathering business, which is perfectly competitive.

In the graph above, the average variable cost curve is labeled _____, the average total cost curve is labeled _____, and the marginal cost curve is labeled ______. A) A; B; C B) C; B; A C) B; C; A D) C; A; B

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137) The accompanying graph shows the cost curves for Mei's mushroom gathering business, which is perfectly competitive.

The curve labeled A is upward sloping because A) of high fixed costs. B) of diminishing returns to Mei’s variable factors of production. C) an increase in the demand for mushrooms increases the supply of mushrooms. D) variable costs increase as output increases.

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138) The accompanying graph shows the cost curves for Mei's mushroom gathering business, which is perfectly competitive.

If mushrooms sell for $10 per bushel, and Mei chooses the profit-maximizing quantity, she will gather A) 50 bushels. B) 20 bushels. C) 30 bushels. D) zero bushels.

Version 1

139) The accompanying graph shows the cost curves for Mei's mushroom gathering business, which is perfectly competitive.

If mushrooms sell for $40 per bushel, and Mei chooses the profit-maximizing quantity, she will A) earn zero profit. B) earn negative profit (a loss). C) earn positive profit. D) shut down.

140) The accompanying graph shows the cost curves for Mei's mushroom gathering business, which is perfectly competitive.

Mei's short run supply curve is

Version 1

A) curve C to the right of curve A. B) curve B to the right of curve A. C) curve A above curve B. D) curve A above curve C.

141)

A profit-maximizing firm will only produce a positive amount of output if A) its total revenue is greater than its total cost. B) its total revenue is greater than its fixed cost. C) its total revenue equals its total cost. D) its total revenue is greater than or equal to its variable cost.

142) When plotting marginal and average cost curves, the ______ cost curve always crosses the ______ cost curve at its ______. A) average fixed; marginal; minimum B) marginal; average total; minimum C) marginal; average variable; maximum D) average variable; marginal; maximum

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143) Refer to the accompanying graph. If this firm is a price taker, then when the price of each unit of output is $30, this firm’s profit-maximizing level of output is ______.

A) 30 B) 60 C) 80 D) 100

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144) Refer to the accompanying graph. If this firm is a price taker, then when the price of each unit of output is $30, this firm’s total revenue at its profit-maximizing level of output is ______.

A) $3,000 B) $2,400 C) $1,800 D) $900

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145) Refer to the accompanying graph. If this firm is a price taker, then when the price of each unit of output is $30, this firm’s total cost at its profit-maximizing level of output is ______.

A) $900 B) $1,200 C) $1,600 D) $2,700

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146) Refer to the accompanying graph. If this firm is a price taker, then when the price of each unit of output is $30, how much profit does this firm earn at its profit-maximizing level of output?

A) $500 B) $800 C) $1,200 D) $1,600

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147) Refer to the accompanying graph. If this firm is a price taker, then when the price of each unit if output is $15, what is this firm’s profit-maximizing level of output?

A) 0 B) 45 C) 60 D) 80

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148) Refer to the accompanying graph. If this firm is a price taker and the price of each unit of output is $15, then at this firm’s profit-maximizing level of output, it will earn a ______ of ______.

A) loss, $60 B) profit, $180 C) loss, $300 D) loss, $900

Version 1

149) Refer to the accompanying graph. If this firm is a price taker and the price of each unit of output is $15, then this firm should

A) produce 60 units of output. B) shut down in the short run. C) raise its price to increase its revenue. D) lower its output to decrease its marginal cost.

Version 1

150) Refer to the accompanying graph. If this firm is a price taker and the price of each unit of output is $9, then this firm should

A) produce 45 units of output. B) shut down in the short run. C) raise its price to increase its revenue. D) lower its output to decrease its marginal cost.

Version 1

151) Refer to the accompanying graph. If this firm is a price taker and the price of each unit of output is $9, then at its profit-maximizing level of output, this firm will earn a ______ of ______.

A) loss; $60 B) loss; $300 C) profit; $495 D) profit; $900

152)

When the price of a perfectly competitive firm’s output rises A) the firm will produce more. B) the firm’s marginal cost curve will shift to the right. C) the firm will produce less. D) the firm’s marginal cost curve will shift to the left.

153) A perfectly competitive firm's supply curve is the portion of its ______ cost curve that lies above its ______ cost curve.

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A) average total; marginal B) average variable; marginal C) marginal; average total D) marginal; average variable

154) A technological innovation that reduces a firm’s cost of producing additional units of output will lead to A) an increase in the quantity supplied by the firm, but no change in the firm’s supply. B) an increase in the firm’s supply. C) a decrease in the quantity supplied by the firm, but no change in the firm’s supply. D) a decrease in the firm’s supply.

155) If crude oil is a variable factor of production for a firm, then an increase in the price of crude oil will lead to A) a decrease in the quantity supplied by the firm, but no change in the firm's supply. B) a decrease in the firm's supply. C) an increase in the quantity supplied by the firm, but no change in the firm's supply. D) an increase in the firm's supply.

156)

When more firms enter an industry

A) the amount produced by each of the new firms will be greater than the amount produced by each of the original firms. B) the industry supply curve will shift left. C) the amount produced by each of the new firms will be less than the amount produced by each of the original firms. D) the industry supply curve will shift right.

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157) Assume that the production technology required to produce goods X and Y is very similar. If a firm that is producing good X notices that the market price of good Y is rising, it will A) intensify its production of good X. B) shift into producing good Y. C) anticipate a price increase for good X. D) charge a higher price for good X.

158)

Which of the following will cause an increase in market supply? A) A decrease in the number of firms in the market. B) An increase in demand for the good. C) A technological innovation that lowers the marginal cost of producing the good. D) An increase in the price of the good.

159)

Which of the following will cause a decrease in the supply of jeans? A) An increase in the wages paid to workers who make jeans. B) A decrease in the demand for jeans. C) A decrease in the price of jeans. D) A decrease in the expected future price of jeans.

160) An increase in consumers' demand for espresso will lead to an increase in ______, while an increase in the number of firms producing espresso will lead to a(n) ______. A) quantity supplied; decrease in supply B) supply; increase in quantity supplied C) quantity supplied; increase in supply D) supply; decrease in supply

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161)

As price increases, firms in a perfectly competitive market find that it is A) beneficial to produce more units of output. B) more difficult to sell their product. C) beneficial to produce fewer units of output. D) easier to sell their product.

162) If a perfectly competitive firm can sell each unit of output for $9, and the marginal cost of the last unit produced is $8.50, then the A) extra benefit of the last unit produced is less than the extra cost. B) firm should lower its output level in order to increase profits. C) firm is earning an average profit of $0.50. D) extra benefit of the last unit produced is greater than the extra cost.

163) The difference between the price a seller actually receives for a good and the seller's reservation price is A) producer surplus. B) profit. C) variable cost. D) consumer surplus.

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164) Refer to the accompanying figure. The equilibrium price in this market is ______ and the equilibrium quantity is ______.

A) $25; 25 B) $25; 30 C) $30; 25 D) $30; 30

165) Refer to the accompanying figure. When this market is in equilibrium, total producer surplus in the market is ______ per day.

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A) $500 B) $375 C) $250 D) $0

166) Refer to the accompanying figure. Suppose a law is passed requiring restaurants to charge no more than $25 per meal. This law would:

A) decrease producer surplus. B) increase producer surplus. C) have no effect on producer surplus. D) have an ambiguous effect on producer surplus.

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167) Refer to the accompanying figure. In this market, equilibrium price is ______ and equilibrium quantity is ______.

A) $10, 25 B) $25, 10 C) $50, 20 D) $20, 50

168)

Refer to the accompanying figure. Total producer surplus in this market is:

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A) $10 B) $125 C) $250 D) $500

169) Suppose the current market price for wheat is $10 per bushel and there are 200,000 bushels sold each day. If the supply curve is a straight line that intersects the price axis at $2 per bushel, what is the total amount of producer surplus in this market? A) $800,000 B) $1,600,000 C) $25,000 D) $100,000

170) Suppose the current market price for wheat is $12 per bushel and there are 150,000 bushels sold each day. If the supply curve is a straight line that intersects the price axis at $1 per bushel, what is the total amount of producer surplus in this market? A) $831,818 B) $1,650,000 C) $825,000 D) $13,636

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Answer Key Test name: Chap 06_8e_Frank 1) B 2) D 3) B 4) C 5) A 6) B 7) C 8) C 9) B 10) B 11) C 12) B 13) B 14) D 15) A 16) C 17) B 18) D 19) B 20) B 21) B 22) B 23) B 24) D 25) C 26) C Version 1

27) A 28) C 29) B 30) B 31) D 32) D 33) C 34) A 35) C 36) C 37) D 38) D 39) C 40) D 41) B 42) C 43) B 44) C 45) A 46) B 47) A 48) B 49) B 50) B 51) D 52) A 53) B 54) D 55) B 56) D Version 1

57) A 58) C 59) C 60) B 61) A 62) B 63) C 64) D 65) B 66) C 67) C 68) D 69) B 70) D 71) C 72) C 73) D 74) D 75) A 76) B 77) C 78) B 79) B 80) D 81) C 82) C 83) D 84) A 85) D 86) A Version 1

87) A 88) B 89) D 90) C 91) B 92) C 93) B 94) B 95) A 96) C 97) B 98) B 99) D 100) C 101) A 102) D 103) C 104) A 105) B 106) A 107) B 108) B 109) A 110) A 111) A 112) B 113) A 114) D 115) C 116) C Version 1

117) A 118) A 119) B 120) B 121) C 122) C 123) D 124) D 125) D 126) D 127) D 128) D 129) C 130) B 131) A 132) D 133) C 134) B 135) A 136) B 137) B 138) D 139) C 140) D 141) D 142) B 143) C 144) B 145) C 146) B Version 1

147) C 148) A 149) A 150) B 151) B 152) A 153) D 154) B 155) B 156) D 157) B 158) C 159) A 160) C 161) A 162) D 163) A 164) C 165) C 166) A 167) B 168) B 169) A 170) C

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CHAPTER 7 1)

Economic theory assumes that a firm’s goal is to A) earn an accounting profit. B) earn an economic profit. C) maximize its accounting profit. D) maximize its economic profit.

Explicit costs A) measure the opportunity costs of the resources supplied by the firm's owners. B) are fixed in the short run. C) measure the payments made to the firm's factors of production. D) are variable in the short run.

Which of the following is NOT an example of an explicit cost?

A) The overtime wages paid to workers. B) The income the owner could have earned in his or her next best employment opportunity. C) The salaries paid to the managers who help run the business. D) The rent the owner pays each month to lease office space.

Which of the following statements about explicit costs is true? A) They are the only costs that matter to business owners. B) They usually exceed implicit costs. C) They are difficult to measure. D) They appear on the firm's balance sheet.

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Which of the following statements about implicit costs is true? A) They are always fixed. B) They measure the forgone opportunities of the firm's owners. C) They exceed explicit costs. D) They do not enter into the calculation of economic profit.

Accounting profit is equal to A) total revenue minus implicit costs. B) total revenue minus explicit costs. C) total revenue minus explicit and implicit costs. D) economic profit minus implicit costs.

An example of an implicit cost is A) interest paid on a bank loan used to purchase equipment. B) wages paid to a family member who works at the firm. C) the value of a spare bedroom turned into a home office. D) operating costs of a company-owned car.

If you were to start your own business, your implicit costs would include the A) rent that you have paid in advance for the use of a building. B) opportunity cost of the time you spend working at the business. C) profit you earn over and above your normal profit. D) interest that you pay on your business loans.

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9) Suppose you own a small business. Last month, your total revenue was $6,000. In addition, you paid $1,000 in monthly rent for office space, $200 in monthly rent for equipment, $3,000 to your workers in wages for the month, and $1,000 for the supplies you used that month. If you correctly determine that your economic profit last month was −$200, then it must be true that A) your implicit costs are $0 per month. B) your implicit costs are $800 per month. C) your implicit costs are $1,000 per month. D) your implicit costs are $1,400 per month.

10) Suppose you own a small business. Last month, your total revenue was $6,000. In addition, you paid $1,000 in monthly rent for office space, $200 in monthly rent for equipment, $3,000 to your workers in wages for the month, and $1,000 for the supplies you used that month. If you correctly determine that your economic profit last month was −$200, then it must be true that A) your implicit costs are $0 per month. B) your implicit costs are $1,000 per month. C) your implicit costs are $800 per month. D) your implicit costs are $1,400 per month.

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11) Curly told Larry about his new business venture: Curly pays Acme International $1,000 per month for supplies, works out of his apartment on his own computer, and earns a monthly revenue of $1,500. Should Larry quit his job and do what Curly is doing? A) Yes, as long as Larry has at least $1,000 in savings to get started. B) Not if Larry is earning more than $500 per month at his current job. C) Not unless Larry can borrow the $1,000 monthly payment at no interest. D) Yes, as long as Larry can work out if his apartment and owns a computer.

12)

If a firm is earning zero economic profit, then A) the firm's revenues are sufficient to pay its explicit costs, but not its implicit costs. B) the owner will not be able to pay himself or herself a salary. C) the firm will shut down in the long run, but will continue to operate in the short run. D) the firm's accounting profit is equal to the firm’s implicit costs.

13)

Which of the following would not be included in the calculation of accounting profit? A) The wages paid to the company's workers. B) The salary the owner could have earned working elsewhere. C) The rent paid by the owner for the use of a building. D) The medical insurance coverage for the company's workers.

14)

Economic profit is equal to A) accounting profit plus implicit costs. B) total revenue minus accounting profit. C) total revenue minus the sum of explicit and implicit costs. D) accounting profit minus explicit costs.

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15)

Accounting profit minus implicit costs equals A) total revenues. B) economic profit. C) explicit costs. D) fixed costs.

16)

Which of the following statements is true? A) Accounting profit is always positive. B) Economic profit is always positive. C) Economic profit is greater than or equal to accounting profit. D) Accounting profit is greater than or equal to economic profit.

17)

A firm earns a normal profit when its A) accounting profit is positive. B) economic profit is positive. C) economic profit is zero. D) accounting profit is zero.

18) Last year Christine worked as a consultant. She hired an administrative assistant for $15,000 per year and rented office space (utilities included) for $3,000 per month. Her total revenue for the year was $100,000. If Christine hadn’t worked as a consultant, she would have worked at a real estate firm earning $40,000 a year. Last year, Christine's explicit costs were ______, and her implicit costs were ______.

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A) $15,000; $43,000 B) $18,000; $40,000 C) $36,000; $140,000 D) $51,000; $40,000

19) Last year Christine worked as a consultant. She hired an administrative assistant for $14,500 per year and rented office space (utilities included) for $2,500 per month. Her total revenue for the year was $115,000. If Christine hadn’t worked as a consultant, she would have worked at a real estate firm earning $45,000 a year. Last year, Christine's explicit costs were ______, and her implicit costs were ______.

A) $44,500; $45,000 B) $17,000; $47,500 C) $14,500; $45,000 D) $30,000; $160,000

20) Last year Christine worked as a consultant. She hired an administrative assistant for $15,000 per year and rented office space (utilities included) for $3,000 per month. Her total revenue for the year was $100,000. If Christine hadn’t worked as a consultant, she would have worked at a real estate firm earning $40,000 a year. Christine's opportunity cost of working as a consultant last year was ______. A) $15,000 B) $51,000 C) $40,000 D) $36,000

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21) Last year Christine worked as a consultant. She hired an administrative assistant for $15,000 per year and rented office space (utilities included) for $3,000 per month. Her total revenue for the year was $100,000. If Christine hadn’t worked as a consultant, she would have worked at a real estate firm earning $40,000 a year. Last year, Christine's accounting profit was ______ and her economic profit was ______. A) $100,000; $64,000 B) $64,000; $49,000 C) $49,000; $9,000 D) $9,000; 0

22) Last year Christine worked as a consultant. She hired an administrative assistant for $13,500 per year and rented office space (utilities included) for $3,200 per month. Her total revenue for the year was $135,000. If Christine hadn’t worked as a consultant, she would have worked at a real estate firm earning $55,000 a year. Last year, Christine's accounting profit was ______ and her economic profit was ______. A) $83,100; $28,100 B) $121,500; $80,000 C) $96,600; −$55,000 D) $118,300; $76,800

23) Last year Christine worked as a consultant. She hired an administrative assistant for $15,000 per year and rented office space (utilities included) for $3,000 per month. Her total revenue for the year was $100,000. If Christine hadn’t worked as a consultant, she would have worked at a real estate firm earning $40,000 a year. For Christine to earn a normal profit as a consultant, her accounting profit would have to be ______.

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A) $51,000 B) $40,000 C) $9,000 D) $0

24) Taylor used to work as a yoga instructor at the local gym earning $35,000 a year. Taylor quit that job and started working as a personal trainer. Taylor makes $50,000 in total annual revenue. Taylor's only out-of-pocket costs are $12,000 per year for rent and utilities, $1,000 per year for advertising and $3,000 per year for equipment. Taylor's explicit costs are ______, and Taylor's implicit costs are ______. A) $36,000; $15,000 B) $15,000; $36,000 C) $16,000; $35,000 D) $35,000; $16,000

25) Taylor used to work as a yoga instructor at the local gym earning $32500 a year. Taylor quit that job and started working as a personal trainer. Taylor makes $60,000 in total annual revenue. Taylor's only out-of-pocket costs are $12,000 per year for rent and utilities, $1,000 per year for advertising and $2,700 per year for equipment. Taylor's explicit costs are ______, and Taylor's implicit costs are ______. A) $15,700; $32,500 B) $33,600; $16,800 C) $16,800; $33,600 D) $32,500; $15,700

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26) Taylor used to work as a yoga instructor at the local gym earning $35,000 a year. Taylor quit that job and started working as a personal trainer. Taylor makes $50,000 in total annual revenue. Taylor's only out-of-pocket costs are $12,000 per year for rent and utilities, $1,000 per year for advertising and $3,000 per year for equipment. Taylor's accounting profit is _______, and Taylor's economic profit is _______. A) $50,000; $15,000 B) $34,000; −$1,000 C) $34,000; $15,000 D) $15,000; −$1,000

27) Taylor used to work as a yoga instructor at the local gym earning $41,000 a year. Taylor quit that job and started working as a personal trainer. Taylor makes $55,000 in total annual revenue. Taylor's only out-of-pocket costs are $12,000 per year for rent and utilities, $1,000 per year for advertising and $2,500 per year for equipment. Taylor's accounting profit is _______, and Taylor's economic profit is _______. A) $34,500; $29,500 B) $39,500; $−1,500 C) $−1,500; $39,500 D) $29,500; $34,500

28) Taylor used to work as a yoga instructor at the local gym earning $35,000 a year. Taylor quit that job and started working as a personal trainer. Taylor makes $50,000 in total annual revenue. Taylor's only out-of-pocket costs are $12,000 per year for rent and utilities, $1,000 per year for advertising and $3,000 per year for equipment. For Taylor to earn normal profit, Taylor's accounting profit would have to be ______.

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A) $50,000 B) $35,000 C) $15,000 D) $0

29)

If a firm is earning zero economic profit, then its accounting profit will A) be negative. B) decrease in the long run. C) increase in the long run. D) be positive.

30) If the owners of a business are receiving total revenues just sufficient to cover all of their explicit and implicit costs, then they are A) doing better than their next best alternative. B) earning a normal profit. C) earning an economic loss. D) doing worse than their next best alternative.

31) Suppose Juliana owns a small business making handbags. Each month she makes 18 handbags, which she sells for $100 each. The materials used to make each handbag cost $50. In addition, Juliana uses a spare room in her house to make the handbags and store her supplies. If she were not using the spare room for her business, she would use it as a guest room, an option that Juliana would value at $250 per month. If Juliana weren't making handbags, she would work at Trader Joe's earning $800 per month. What is Juliana's accounting profit each month? A) $150 B) $900 C) $650 D) $750

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32) Suppose Juliana owns a small business making handbags. Each month she makes 18 handbags, which she sells for $100 each. The materials used to make each handbag cost $50. In addition, Juliana uses a spare room in her house to make the handbags and store her supplies. If she were not using the spare room for her business, she would use it as a guest room, an option that Juliana would value at $250 per month. If Juliana weren’t making handbags, she would work at Trader Joe’s earning $800 per month. What is Juliana’s economic profit each month? A) −$150 B) $900 C) $650 D) $750

33) Refer to the accompanying table. An output level of 25 units, this firm’s accounting profit is ______, and its economic profit is ______. Quantity

Total Revenue

Explicit Costs

Implicit Costs

100

125

150

161

A) zero; $8 B) $125; $113 C) $125; zero D) zero; −$8

34) Refer to the accompanying table. An output level of 15 units, this firm’s accounting profit is ______, and its economic profit is ______. Quantity 10

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Total Revenue 50

Explicit Costs 36

Implicit Costs 5

100

125

150

161

A) $6; $63 B) $12; $6 C) $6; $12 D) $63; $6

35) Suppose Lando Calrissian owns a smuggling business whose total revenue is $30,000 per month. The accompanying table shows Lando’s monthly expenses. If Lando weren't a smuggler, he would earn $6,000 per month working for the Rebel Alliance. Apart from pay, Lando is indifferent between working as a smuggler and working for the Rebel Alliance. Fuel

$ 4,000

Maintenance

12,000

Weapons

6,000

Bribes

3,000

What is Lando’s accounting profit each month? A) $1,000 B) $5,000 C) −$1,000 D) −$5,000

36) Suppose Lando Calrissian owns a smuggling business whose total revenue is $30,000 per month. The accompanying table shows Lando’s monthly expenses. If Lando weren't a smuggler, he would earn $6,000 per month working for the Rebel Alliance. Apart from pay, Lando is indifferent between working as a smuggler and working for the Rebel Alliance. Fuel

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$ 4,000

Maintenance

12,000

Weapons

6,000

Bribes

3,000

In the long run, we would expect Lando to A) join the Rebel Alliance since his accounting profit from smuggling is negative. B) continue smuggling since his accounting profit from smuggling is positive. C) continue smuggling since his economic profit from smuggling is positive. D) join the Rebel Alliance since his economic profit from smuggling is negative.

37) Refer to the accompanying table. At what output level or levels are this firm’s owners doing as well as or better than they could do with the next best use of their resources? Quantity

Total Revenue

Explicit Costs

Implicit Costs

$ 50

$ 36

$ 5

100

125

150

161

A) 10 units B) 10 and 15 units C) 10, 15, and 20 units D) 10, 15, 20, and 25 units

38) Adam Smith coined the term "invisible hand" to describe the process by which the actions of independent, self-interested buyers and sellers will A) always lead an economy to ruin. B) often lead to the most efficient allocation of resources. C) always lead to the most efficient allocation of resources. D) often lead to increasing inequality.

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39) Adam Smith's theory of the invisible hand posits the actions of independent, selfinterested buyers and sellers will ______ lead to the most efficient allocation of resources. A) always B) often C) rarely D) never

40) Adam Smith's theory of the invisible hand posits that the most efficient allocation of resources is often achieved by A) reducing economic inequality. B) government intervention in the market. C) collective action. D) the actions of independent, self-interested buyers and sellers.

41) Refer to the accompanying table. Suppose all firms in this industry have identical costs to this firm and are producing 15 units of output. One can predict that Quantity

Total Revenue

Explicit Costs

Implicit Costs

$ 50

$ 36

$ 5

100

125

150

161

A) new firms will enter the industry. B) old firms will exit the industry. C) firms will attempt to lower their implicit costs. D) price must rise.

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42) The role that prices play in distributing scarce goods and services to those consumers who value them the most highly is known as the ______ function of price. A) allocative B) multiplicative C) equilibrium D) rationing

43) The role that prices play in directing resources away from overcrowded markets and towards markets that are underserved is known as the ______ function of price. A) allocative B) market C) rationing D) transitive

44)

Which of the following is an example of the rationing function of price? A) Switching from a Ph.D. in economics to one in finance because finance salaries are

higher B) Bill Gates purchasing the Mona Lisa for $5 billion C) A firm attempting to lower its explicit costs D) Government price controls

45)

The allocative function of price is to

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A) distribute scarce goods and services to those consumers who value them the most highly. B) ensure that firms in perfectly competitive markets earn an economic profit. C) direct resources away from markets that are overcrowded and toward markets that are underserved. D) provide subsidies to low-income families so they can purchase essential goods and services.

46) Generally, ______ motivates firms to enter an industry, while ______ motivates firms to exit an industry. A) economic profit; economic loss B) accounting profit; accounting loss C) accounting profit; economic loss D) economic profit; accounting loss

47) Suppose farmers in a given market can either grow soybeans or corn on their land. In addition, suppose an increase in the demand for corn causes the price of corn to increase. All else equal, an increase in the price of corn creates an incentive for farmers to A) switch away from growing corn and into growing soybeans. B) switch away from growing soybeans and into growing corn. C) grow less corn, but not change their production of soybeans. D) grow more corn, but not change their production of soybeans.

48) Suppose farmers in a given market can either grow soybeans or corn on their land. In addition, suppose an increase in the demand for corn causes the price of corn to increase. In the long run, this increase in the demand for corn is likely to ______ the price of soybeans.

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A) lead to an increase in B) lead to a decrease in C) have no effect on D) have an ambiguous effect on

49) Suppose farmers in a given market can either grow soybeans or corn on their land. In addition, suppose an increase in the demand for corn causes the price of corn to increase. As a result of the increase in the price of corn, farmers who were already growing corn will earn an A) economic loss in the short run. B) economic profit in the long run. C) economic profit in the short run. D) economic loss in the long run.

50) If the firms in a market are earning an economic profit, then, in the long run, the market ______ curve will shift to the ______. A) demand; right B) supply; right C) supply; left D) demand; left

51) If the firms in a market have positive economic profits, then, in the long run, the market ______ curve will shift to the ______. A) demand; left B) supply; right C) supply; left D) demand; right

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52) Suppose all firms in a perfectly competitive industry are earning an economic profit. One would expect that, over time, the number of firms in the industry will ______ and the market price will ______. A) rise; fall B) fall; rise C) rise; rise D) rise; stay the same

53)

If all firms in a perfectly competitive industry are earning a normal profit, then A) new firms will enter the industry. B) existing firms will exit the industry. C) there is no incentive for firms to enter or exit the industry. D) the market supply curve will shift to the left.

54)

If all firms in a perfectly competitive industry are experiencing economic losses, then A) some firms will exit the industry, until economic profit is positive. B) some firms will exit the industry, until accounting profit equals zero. C) all existing firms will stay in the industry, hoping for better times. D) some firms will exit the industry, until economic profit equals zero.

55)

Entry into a perfectly competitive industry occurs whenever A) accounting profit is equal to zero. B) accounting profit is greater than zero. C) economic profit is greater than zero. D) economic profit is equal to zero.

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56)

In an industry with free entry and exit, positive economic profit A) indicates a market failure. B) can never occur. C) cannot be sustained indefinitely. D) can be sustained indefinitely.

57)

In the long run, in a perfectly competitive industry A) economic profit tends to persist. B) the number of firms in the industry will increase. C) economic loss tends to persist. D) economic profit and loss are driven to zero by entry and exit.

58) Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive.

The long-run equilibrium price in this industry is

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A) $15. B) $10. C) $5. D) $0.

59) Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive.

If the market supply curve is given by S3, then in the long run firms will A) exit the market, leading the market supply curve to shift back to S2. B) exit the market, leading the market supply curve to shift back to S1. C) enter the market, leading the market supply curve to shift back to S2. D) neither enter nor exit the market, so the market supply curve will remain at S3.

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60) Assume that all firms in this industry have identical cost curves and that the market is perfectly competitive.

If the market supply curve is given by S1, then in the long run firms will A) enter the market, leading the market supply curve to shift out to S3. B) enter the market, leading the market supply curve to shift out to S2. C) exit the market, leading the market supply curve to shift out to S2. D) neither enter nor exit the market, so the market supply curve will remain at S1.

61) Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive.

In the short run, firms in this market will shut down if the market price is

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A) greater than $10. B) less than $15. C) less than $10. D) less than $5.

62) Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive.

The firm depicted in the graph on the right faces a demand curve that is A) horizontal at the market price. B) less than the market demand curve. C) the same as the marginal cost curve. D) the same as the market demand curve.

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63) Assume that all firms in this industry have identical cost curves and that the market is perfectly competitive.

In the long run, there will be ______ firms in this market. A) 10 B) 15 C) 25 D) 50

64) In perfectly competitive markets, an implication of entry and exit in response to economic profit and loss is that A) firms must earn positive economic profit in the long run. B) firms will produce the quantity that minimizes average variable costs in the short run. C) firms will produce the quantity that minimizes average total costs in the long run. D) market demand is completely elastic.

65) One difference between the long run and the short run in a perfectly competitive industry is that

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A) economic profit in the long run is always greater than it is in the short run. B) economic profit in the short run is always greater than it is in the long run. C) firms necessarily earn zero economic profit in the long run but may earn positive or negative economic profit in the short run. D) firms necessarily earn positive economic profit in the long run but may earn positive or negative economic profit in the short run.

66) The figure below depicts the short-run market equilibrium in a perfectly competitive market and the cost curves for a representative firm in that market. Assume that all firms in this market have identical cost curves.

The long-run market equilibrium quantity in this industry is A) 300. B) 500. C) 700. D) more than 700.

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67) The figure below depicts the short-run market equilibrium in a perfectly competitive market and the cost curves for a representative firm in that market. Assume that all firms in this market have identical cost curves.

Given that the current equilibrium price is $8, what will happen to the number of firms in this market in the long run? A) The number of firms in the market will not change unless there is a change in either demand or in the cost of production. B) The number of firms in the market will fall as firms exit the market in response to negative economic profit. C) It is impossible to determine whether the number of firms in this market will rise or fall. D) The number of firms in the market will rise as firms enter the market in response to positive economic profit.

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68) The figure below depicts the short-run market equilibrium in a perfectly competitive market and the cost curves for a representative firm in that market. Assume that all firms in this market have identical cost curves.

In the long run equilibrium in this market A) price will equal $5, and there will be 20 firms in the industry. B) price will equal $5, and there will be 10 firms in the industry. C) price will equal $8, and there will be 20 firms in the industry. D) price will equal $5 and total output will equal 500 units, but there is not enough information to determine how many firms will be in the industry.

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69) The figure below depicts the short-run market equilibrium in a perfectly competitive market and the cost curves for a representative firm in that market. Assume that all firms in this market have identical cost curves.

A starting assumption about this industry was that all of the firms in the market had identical cost curves. This assumption is A) unrealistic because each firm is unique. B) realistic because any cost-saving innovation adopted by one firm will be quickly adopted by others. C) unrealistic because firms closely guard the details of their production processes. D) realistic because firms rarely seek out cost-saving innovations.

70) Which of the following best describes how a perfectly competitive industry would respond to a sudden increase in popularity of the product? The market demand curve would shift to the right, leading to A) a higher equilibrium price in the short run and entry into the market in the long run. B) a higher equilibrium price in the short run and a permanent increase in economic profit. C) no change in the short-run equilibrium price, and a higher long-run equilibrium quantity. D) a lower short-run equilibrium price due to the entry of firms into the market.

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71) One assumption of the perfectly competitive model is free entry and exit. This assumption most directly leads to the implication that A) firms will have to spend money on advertising. B) positive economic profit is only possible in the short run. C) firms will compete on the basis of better service rather than lower prices. D) a long-run equilibrium cannot be achieved.

72)

Free entry and exit of firms is a characteristic of A) all industries in the U.S. economy. B) perfectly competitive industries. C) centralized economies. D) industries in which firms are earning positive economic profit.

73)

The allocative function of price cannot operate unless there is A) a significant barrier to entry. B) both free entry and free exit. C) either free entry or free exit. D) neither free entry no free exit.

74)

In a market with barriers to entry A) firms will earn zero economic profit in the long run. B) economic profit will not fall to zero in the long run. C) prices will direct productive resources toward underserved markets. D) the implications of Adam Smith's theory of the invisible hand can be expected to hold.

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75) Assume that all firms in this industry have identical cost curves and that the market is perfectly competitive.

If S3 is the market supply curve, then in the short run, the profit-maximizing level of output for a single firm in this market is ______ gallons per week.

A) 0 B) 200 C) 400 D) 8,000

76) Assume that all firms in this industry have identical cost curves and that the market is perfectly competitive.

If the market supply curve is given by S3, then we would expect firms to

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A) exit the market in the long run. B) enter the market in the long run. C) neither exit nor enter the market in the long run. D) shut down in the short run.

77) Assume that all firms in this industry have identical cost curves and that the market is perfectly competitive.

If S3 is the market supply curve, then each firm in this market will earn an economic loss of ______ per week. A) $1,000 B) $1,500 C) $2,000 D) $3,000

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78) Assume that all firms in this industry have identical cost curves and that the market is perfectly competitive.

If the market supply curve is given by S3, then what will happen to the market supply curve in the long run? A) It will stay at S3, but the quantity supplied will increase. B) It will shift to S2. C) It will shift to S1. D) It will stay at S3, but the quantity supplied will decrease.

79) Assume that all firms in this industry have identical cost curves and that the market is perfectly competitive.

In the long run, the equilibrium price will be _____ per gallon-, and each firm's profitmaximizing quantity will be ______ gallons per week. Version 1

A) $20; 400 B) $15; 6,000 C) $15; 300 D) $20; 4,000

80) Assume that all firms in this industry have identical cost curves and that the market is perfectly competitive.

In the long run, how much profit will each firm in this industry earn each week? A) $0 B) $1,000 C) $1,500 D) $2,000

81) According to the theory of the invisible hand, if buyers and sellers are free to pursue their own self-interest, the result often will be A) an incomplete allocation of resources. B) the exploitation of productive resources. C) an equitable allocation of resources. D) an efficient allocation of resources.

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82) E-commerce and an internet presence are important to many firms, requiring employees with specialized skills that are in short supply. The invisible hand solves the employment problem by A) encouraging the government to set up training programs to provide workers with the necessary skills. B) giving workers an incentive to acquire the necessary skills on their own in order to receive higher wages. C) providing free internet access. D) discouraging firms from using new technologies.

83)

In a free market economy, the decisions of buyers and sellers are A) random. B) motivated by custom and tradition. C) coordinated by the government. D) guided by prices.

84) Some people have argued that the government should provide free medical care to everyone. Under this system A) the price of medical care will allocate resources efficiently. B) the price of medical care will ration resources efficiently. C) prices will not ration medical care so there will be no scarcity. D) prices will not ration medical care so some other rationing method will be used.

85) If resources are misallocated in a perfectly competitive market, then, in the long run, profit opportunities will

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A) bring about a more efficient allocation of resources. B) bring about a less efficient allocation of resources. C) not bring about a reallocation of resources unless there is government regulation. D) not bring about a reallocation of resources unless firms are subsidized.

86)

Barriers to entry are forces that A) limit consumers from purchasing new products. B) limit new firms from joining an industry. C) promote a more efficient allocation of resources across the economy. D) limit the government from intervening in markets.

87)

Economic rent is

A) the amount people pay for an apartment in a perfectly competitive market. B) the payment made to the owner of a factor of production, which is usually equal to the owner's reservation price. C) the difference between the payment made to the owner of a factor of production and the owner's reservation price. D) sometimes higher and sometimes lower than the owner's reservation price.

88) Lesedi is willing to babysit for $6 an hour. Her neighbor has asked her to babysit for $8 an hour. Assuming Lesedi accepts the offer A) her consumer surplus will be $2 per hour. B) her economic rent will be $2 per hour. C) her economic profit will be $8 per hour. D) her accounting profit will be $8 per hour, and her economic profit will be $0 per hour.

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89)

Which of the following is a characteristic of economic rent? A) It equals economic profit minus accounting profit. B) It is driven towards zero by free entry. C) It can be positive, zero, or negative. D) It can never be negative.

90) Angelina Jolie's economic rent from starring in a movie is equal to the difference between A) her initial salary offer and her final salary, including royalties. B) her final salary and what she could earn by starring in a different movie. C) her final salary and the average salary for leading actresses. D) her final salary and the least she would be willing to accept to star in the movie.

91)

Superstar professional athletes can sustain their economic rents because A) team owners will pay anything to win a championship. B) they are represented by highly skilled agents. C) their opportunity costs of playing their sport are high. D) they have unique talents that they can sell to the highest bidder.

92) Professor Plum, who earns $100,000 per year, read in the paper today that the university pays its basketball coach $1 million per year in exchange for his agreement to remain at the university for at least three more years. The coach earns more than Professor Plum because A) the demand for sporting events exceeds the demand for college degrees. B) universities value sports more than academics. C) the coach is able to earn economic rent due to his unique talents. D) the coach has more human capital than does Professor Plum.

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93)

Unlike economic profit, economic rent A) can be less than zero. B) may not be driven to zero by competition. C) doesn't involve opportunity costs. D) only applies to land.

94) Duke is a highly skilled negotiator who could work for many law firms. The law firm that hires Duke is able to collect twice as much revenue per hour of Duke's time than it can for any other negotiator in town. The increased revenue will A) be evenly split between Duke and the law firm to maximize surplus. B) all go to the law firm because the firm bears the risk of running the business. C) all go to Duke because, if it didn't, another firm could hire Duke away. D) be split between Duke and the law firm, but how it will be split cannot be determined without more information.

95)

Factors of production are the most likely to earn economic rent when they A) are used by many different firms. B) cannot easily be duplicated. C) are fixed in the short run. D) have high reservation prices.

96) The supplier of a factor of production has a reservation price of $100. The purchaser of the factor of production has a reservation price of $200. If the factor of production is unique, then

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A) there will be no transaction since $200 is greater than $100. B) a transaction will occur, and the price paid for the factor of production will be $150. C) a transaction will occur, and the price paid for the factor of production will be $200. D) a transaction will occur, and the price paid for the factor of production will be $100.

97) Consider a perfectly competitive industry in a long-run equilibrium. If a single firm in that industry discovers a significant cost-saving production technology, then A) all firms in the market will earn an economic profit in the short run. B) the rest of the industry will quickly adopt the new technology. C) the firm will earn an economic profit in the long run. D) all the firms in the market will earn an economic profit in the long run.

98) Suppose several United States software design companies compete with each other in a perfectly competitive environment. If one company decides to move some of its offices to a lowwage country in order to reduce operating costs, then A) the other companies will still be able to remain profitable while operating solely in the United States. B) the company that moves to the low-wage country will earn a positive economic profit in the long run. C) other companies will have an incentive to move to the low-wage country in order to remain competitive. D) the company that moves to the low-wage country will soon return to the United States.

99)

A cost-saving innovation in a perfectly competitive industry will lead to A) entry by new firms. B) economic profits for new firms. C) economic profits for a few firms for a short time. D) a leftward shift of the industry supply curve.

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100) The statement, "If a deal is too good to be true, then it probably is not true," is most closely related to which core economic principle? A) The Low-Hanging Fruit principle B) The No-Cash-on-the-Table Principle C) The Cost-Benefit Principle D) The Scarcity Principle

101)

The No-Cash-on-the-Table Principle states that there are A) never unexploited opportunities available to individuals. B) never unexploited opportunities available to individuals in equilibrium. C) sometimes unexploited opportunities available to individuals in equilibrium. D) always unexploited opportunities available to individuals.

102) If the market supply curve does not capture all of the costs to society of producing an additional unit of good, then A) the market equilibrium will be socially optimal. B) the market equilibrium will not be efficient. C) the allocation of resources will be efficient. D) the market will not be in equilibrium.

103) If the market demand curve does not capture all of the benefits to society of buying an additional unit of good, then A) the market equilibrium will be socially optimal. B) the market equilibrium will not be efficient. C) the allocation of resources will be socially optimal. D) the market will not be in equilibrium.

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104) The phrase "smart for one, but dumb for all" refers to the idea that the individual pursuit of self-interest A) only leads to an efficient outcome when everyone is well-informed. B) always leads to an efficient outcome. C) never leads to an efficient outcome. D) doesn't always lead to an efficient outcome.

105)

Adam Smith believed that the individual pursuit of self-interest A) is impossible in a perfectly competitive market. B) should usually be discouraged. C) always leads to an efficient outcome. D) often promotes the broader interests of society.

106) If it is possible to make a change that will help some people without harming others, then the situation is A) efficient. B) inefficient. C) fair. D) unfair.

107)

A situation is efficient if it is

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A) possible to find a transaction that will make at least one person better off, even if others are made worse off. B) possible to find a transaction that will make everyone better off. C) possible to find a transaction that will make at least one person better off without harming others. D) not possible to find a transaction that will make at least one person better off without harming others.

108)

If there is excess demand in a market, then this suggests that A) there is no way to help some people without harming others. B) there is an opportunity for mutually beneficial trades. C) the market price is above the equilibrium price. D) the market is in equilibrium.

109)

Which of the following describes a surplus-enhancing transaction? A) The federal government taxes the wealthy to pay for programs to help the poor. B) A firm lays off 25 workers in order to cut costs. C) A person pays $10.00 to buy a scoop of ice cream at a baseball game. D) Your state government imposes a higher minimum wage than the one set by federal

law.

110) Suppose your economics professor has an extra copy of a textbook that he or she would like to give to a student in the class. The scheme that is the most likely to result in an efficient outcome is A) randomly selecting one student to receive the textbook. B) auctioning off the textbook to the highest bidder. C) letting students take turns using the textbook. D) giving the textbook to the student who has the lowest midterm score.

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111) Serena has been waiting for Hamilton to come to her local theater. When it finally does come, tickets cost $60. Serena's reservation price is $75. But when Serena tries to buy a ticket, they are sold out. Serena decides to try to buy a ticket from a scalper (a person who purchased extra tickets at the box office with the intent to resell them at a higher price). If Serena finds someone who is willing to sell her a ticket for $70, she should A) not purchase the ticket because it is overpriced. B) not purchase the ticket because the cost to the scalper was only $60. C) purchase the ticket because doing so will make her $5 better off. D) purchase the ticket even though doing so will reduce total economic surplus.

112) Serena has been waiting for Hamilton to come to her local theater. When it finally does come, tickets cost $60. Serena's reservation price is $75. But when Serena tries to buy a ticket, they are sold out. Suppose Sven was able to purchase a ticket at the box office for $60. Sven's reservation price for the ticket is $65. If Sven attends Hamilton and Serena does not, then this situation is A) inefficient because Sven and Serena could have made a mutually beneficial trade. B) efficient because Sven paid less for the ticket than his reservation price. C) efficient because Sven arrived at the ticket counter before the show was sold out. D) inefficient because Serena would have enjoyed the show too.

113) that

Suppose the market for coffee is in equilibrium at a price of $5 per pound. This means

A) any producer who sells coffee can earn a positive economic profit. B) potential producers not producing coffee have reservation prices less than $5 per pound. C) everyone can afford to buy coffee. D) potential consumers not buying coffee value it at less than $5 per pound.

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114)

The accompanying figure shows the supply and demand curves for oranges in Smallville.

At the price of $4 per pound, sellers offer ______ pounds of oranges per day, and buyers want to purchase ______ pounds of oranges a day. A) 10; 30 B) 10; 20 C) 20; 20 D) 30; 10

115)

The accompanying figure shows the supply and demand curves for oranges in Smallville.

The marginal buyer values the tenth pound of oranges at ______.

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A) $0 B) $4 C) $8 D) $12

116)

The figure below shows the supply and demand curves for oranges in Smallville.

The marginal buyer values the thirty-fifth pound of oranges at ______. A) $6 B) $14 C) $10 D) $2

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117)

The accompanying figure shows the supply and demand curves for oranges in Smallville.

At a price of $4 per pound there will be an excess ______ of ______ pounds of oranges per day. A) supply; 20 B) demand; 30 C) supply; 10 D) demand; 20

118)

The accompanying figure shows the supply and demand curves for oranges in Smallville.

What is the marginal cost of producing the tenth pound of oranges?

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A) $2 B) $3 C) $4 D) $5

119)

The figure below shows the supply and demand curves for oranges in Smallville.

What is the marginal cost of producing the twenty-fifth pound of oranges?

A) $2 B) $10 C) $4 D) $6

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120)

The accompanying figure shows the supply and demand curves for oranges in Smallville.

When this market is in equilibrium, total economic surplus is ______ per day. A) $0 B) $80 C) $160 D) $320

121)

The accompanying figure shows the supply and demand curves for jeans in Smallville.

At the price of $60 per pair, sellers offer _____- pairs of jeans per day, and buyers wish to purchase ______ pairs of jeans a day.

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A) 60; 20 B) 8; 24 C) 16; 16 D) 24; 8

122)

The accompanying figure shows the supply and demand curves for jeans in Smallville.

At a price of $60 per pair, there will be an excess ______ of ______ pairs of jeans per day. A) supply; 24 B) supply; 16 C) demand; 16 D) demand; 8

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123)

The accompanying figure shows the supply and demand curves for jeans in Smallville.

Suppose jeans initially sell for $60 per pair. If the price of jeans falls to $40 per pair, then total economic surplus will increase by ______ per day. A) $160 B) $80 C) $40 D) $20

124)

The accompanying figure shows the supply and demand curves for jeans in Smallville.

The equilibrium price will NOT lead to the largest possible total economic surplus if

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A) jeans are purchased by consumers with reservation prices greater than $40. B) the market for jeans is perfectly competitive. C) the production of jeans generates air pollution. D) there are diminishing returns in the production of jeans.

125)

A market equilibrium is only efficient if A) the consumer surplus and the producer surplus associated with a given transaction are

equal. B) consumer surplus and producer surplus are both zero. C) all relevant costs and benefits are reflected in the market supply and demand curves. D) output is distributed equitably among consumers.

126) Suppose the production of cotton causes substantial environmental damage because the pesticides used by cotton farmers often make their way into nearby rivers and streams and are very harmful to fish and other wildlife. Economists would consider the environmental damage that results from the production of cotton to be a(n) A) relevant cost of production. B) relevant cost of production only if cotton farmers are charged a fine for the damage done. C) relevant cost of production only if the environmental damage negatively affects other firms. D) implicit cost of production that cotton farmers will take into account when determining their profit-maximizing level of output.

127) Suppose the production of cotton causes substantial environmental damage because the pesticides used by cotton farmers often make their way into nearby rivers and streams, and they are very harmful to fish and other wildlife. If cotton farmers do not have to pay for the environmental damage caused by the pesticides used to grow cotton, then the market equilibrium price will be ______ and the market equilibrium quantity will be ______.

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A) inefficiently high; inefficiently low B) inefficiently high; inefficiently high C) inefficiently low; inefficiently high D) inefficiently low; inefficiently low

128) Which of the following statements best expresses why economic efficiency should be society's first goal? A) Efficiency gives the poor an incentive to improve their economic status. B) Since the consensus on what is a fair distribution of goods is impossible, efficiency is the next best goal. C) People are not really concerned about the problems of the poor, so government must address them instead. D) Efficiency maximizes total economic surplus and thereby allows other goals to be more easily achieved.

129)

If the demand curve fails to capture all of the benefits of consumption, then the A) equilibrium price will be efficient, but the equilibrium quantity will be inefficiently

large. B) equilibrium price will be inefficiently low. C) government needs to impose regulations that require more consumption. D) equilibrium price will be inefficiently high.

130)

Which of the following is not necessarily true in a market equilibrium? A) Price represents the value of an extra unit of consumption. B) Both rich and poor have adequate access to the good. C) Price represents the cost of an extra unit of production. D) All mutually beneficial trades have been made.

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131)

Efficiency is an important goal because when markets are efficient A) there is less income inequality. B) the poor benefit more than the wealthy. C) there are more resources available to achieve other goals. D) there is no need for government intervention in the economy.

132)

A price ceiling that is set below the equilibrium price will result in A) higher total economic surplus. B) a shortage of the good. C) a surplus of the good. D) higher producer surplus.

133)

A price ceiling that is set below the equilibrium price will cause A) producer surplus to fall. B) total economic surplus to rise. C) quantity supplied to exceed quantity demanded. D) an increase in demand.

134)

A price ceiling that is set above the equilibrium price will result in A) a market price that is above the equilibrium price. B) a loss in total economic surplus. C) no change in total economic surplus. D) an increase in consumer surplus.

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135) If an individual consumer is willing to pay $11 for one unit of a good but is able to purchase it for $7, then his or her consumer surplus from the purchase of that unit would be A) $18. B) $11. C) $7. D) $4.

136) If an individual consumer is willing to pay $100 for one unit of a good but is able to purchase it for $72, then his or her consumer surplus from the purchase of that unit would be A) $72. B) $28. C) $86. D) $100.

137) If an individual producer is willing to produce one unit of a good for $2.50 but is able to sell it for $7.50, then his or her producer surplus from the sale of that unit would be A) $10. B) $7.50. C) $5. D) $6.25.

138) If an individual producer is willing to produce one unit of a good for $5.50 but is able to sell it for $16.00, then his or her producer surplus from the sale of that unit would be A) $10.50. B) $16.00. C) $13.25. D) $21.50.

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139) The cumulative difference between the price producers actually receive for a good and the lowest price for which they would have been willing to sell it is called A) producer surplus. B) lost surplus. C) total economics surplus. D) consumer surplus.

140)

The sum of producer surplus and consumer surplus is A) normal profit. B) total economic profit. C) total surplus. D) the marginal benefit of a good.

141) Suppose a market is in equilibrium. The area below the demand curve and above the market price is: A) total economic surplus. B) producer surplus. C) consumer surplus. D) the loss in total economic surplus.

142) Suppose a market is in equilibrium. The area below the market price and above the supply curve is A) the loss in total economic surplus. B) producer surplus. C) consumer surplus. D) total economic surplus.

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143)

Consumer surplus is the cumulative difference between A) consumers' incomes and consumers' expenditures. B) the amount consumers are willing to pay and the price they actually pay. C) the suggested retail price and the price consumers actually pay. D) consumers' savings and consumers' expenditures.

144) In a perfectly competitive market, if supply and demand fully reflect all of the costs and benefits associated with production and consumption, then total economic surplus is maximized when A) price controls keep prices low enough that most consumers can purchase the item. B) consumer surplus and producer surplus are equal. C) consumer surplus is greater than producer surplus. D) the market is in equilibrium.

145)

Refer to the accompanying figure.

When the market is unregulated, consumer surplus is represented by the area

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A) AJE. B) ABC. C) AGI. D) DBC.

146)

Refer to the accompanying figure.

When the market is unregulated, producer surplus is represented by the area A) ABC. B) DGF. C) DBC. D) FHC.

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147)

Refer to the accompanying figure.

If a price ceiling were imposed at point G, then excess demand would be measured by the distance between points A) G and I. B) F and I. C) K and I. D) F and K.

148)

Refer to the accompanying figure.

If a price ceiling were imposed at point G, then producer surplus would be represented by the area ______.

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A) DBC B) DGF C) 0GFQ2 D) 0DFQ2

149)

Refer to the accompanying figure.

If a price ceiling were imposed at point G, the consumer surplus would be represented by the area ______. A) BJEH B) BAEH C) JAE D) GAEF

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150)

Refer to the accompanying figure.

If a price ceiling were imposed at point G, the loss in total economic surplus would be represented by the area ______. A) FEC B) DAC C) GJEF D) JAE + DGF

151)

Refer to the accompanying figure.

If this market is unregulated, the economic surplus received by consumers is Version 1

A) $4. B) $8. C) $16. D) $24.

152)

Refer to the accompanying figure.

If this market is unregulated, the economic surplus received by producers is A) $16. B) $24. C) $32. D) $48.

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153)

Refer to the accompanying figure.

If this market is unregulated, total economic surplus is A) $20. B) $32. C) $48. D) $84.

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154)

Refer to the accompanying figure.

If a price ceiling were imposed at $4, consumer surplus would be A) $36. B) $20. C) $24. D) $28.

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155)

Refer to the accompanying figure.

If a price ceiling were imposed at $4, producer surplus would be A) $24. B) $16. C) $8. D) $4.

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156)

Refer to the accompanying figure.

If a price ceiling were imposed at $4, total economic surplus would be ______, which is ______ less than when the market is unregulated market. A) $8; $24 B) $24; $8 C) $24; $16 D) $48; $8

157)

Subsidies are most likely to

A) reduce consumer surplus. B) increase total economic surplus. C) reduce total economic surplus. D) leave total economic surplus unchanged, but transfer surplus from producers to consumers.

158) Suppose that in an effort to help single parents, the government decides to pay part of the cost of childcare. This measure would increase ______ in the market for childcare.

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A) efficiency B) consumer surplus C) total economic surplus D) producer surplus

159) Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown below.

With no subsidy, the equilibrium price of sugar is ______ per ton, and the equilibrium quantity is ______ tons per day.

A) $1,000; 12 B) $1,000; 8 C) $1,500; 12 D) $1,500; 8

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160) Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown in the accompanying figure.

With no subsidy, what is consumer surplus? A) $1,000 per day B) $4,000 per day C) $8,000 per day D) $9,000 per day

161) Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown in the accompanying figure.

With no subsidy, what is producer surplus?

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A) $0 per day B) $1,000 per day C) $4,000 per day D) $8,000 per day

162) Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown in the accompanying figure.

If the government provides a subsidy of $500 per ton, the equilibrium price of sugar will be ______ per ton, and the equilibrium quantity will be ______ tons per day. A) $1,000; 12 B) $1,000; 8 C) $1,500; 12 D) $1,500; 8

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163) Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown in the accompanying figure.

If the government provides a subsidy of $500 per ton, then consumer surplus will be ______ per day. A) $1,000 B) $4,000 C) $8,000 D) $9,000

164) Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown in the accompanying figure.

If the government provides a subsidy of $500 per ton, then producer surplus will be ______ per day.

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A) $0 B) $1,000 C) $4,000 D) $8,000

165) Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown in the accompanying figure.

If the government provides a subsidy of $500 per ton, then relative to before the subsidy, consumer surplus will ______ by ______ per day. A) decrease; $500 B) decrease; $1,000 C) increase; $1,000 D) increase; $5,000

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166) Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown in the accompanying figure.

If the government provides a subsidy of $500 per ton, then the cost of subsidy, which must be borne by taxpayers, will be ______ per day. A) $500 B) $2,000 C) $5,000 D) $6,000

167) Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown in the accompanying figure.

If the government provides a subsidy of $500 per ton, then relative to before the subsidy, total economic surplus will ______ by ______ per day.

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A) increase; $6,500 B) decrease; $6,500 C) increase; $1,000 D) decrease; $1,000

168)

The main problem with price subsidies is that they A) do not help the poor afford essential goods and services. B) are not effective at lowering prices. C) lead to a decrease in demand. D) lower total economic surplus.

169)

The fact that price subsidies reduce economic surplus implies that A) we can find an alternative policy that will make both the rich and the poor better off. B) price subsidies help the rich but not the poor. C) price subsidies are not effective at lowering prices. D) the quantity bought and sold in the market will fall.

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Answer Key Test name: Chap 07_8e_Frank 1) D 2) C 3) B 4) D 5) B 6) B 7) C 8) B 9) C 10) B 11) B 12) D 13) B 14) C 15) B 16) D 17) C 18) D 19) A 20) C 21) C 22) A 23) B 24) C 25) A 26) B Version 1

27) B 28) B 29) D 30) B 31) B 32) A 33) D 34) B 35) B 36) D 37) C 38) B 39) B 40) D 41) A 42) D 43) A 44) B 45) C 46) A 47) B 48) A 49) C 50) B 51) B 52) A 53) C 54) D 55) C 56) C Version 1

57) D 58) B 59) A 60) B 61) D 62) A 63) A 64) C 65) C 66) B 67) D 68) A 69) B 70) A 71) B 72) B 73) B 74) B 75) B 76) A 77) C 78) B 79) C 80) A 81) D 82) B 83) D 84) D 85) A 86) B Version 1

87) C 88) B 89) D 90) D 91) D 92) C 93) B 94) C 95) B 96) C 97) B 98) C 99) C 100) B 101) B 102) B 103) B 104) D 105) D 106) B 107) D 108) B 109) C 110) B 111) C 112) A 113) D 114) A 115) D 116) D Version 1

117) D 118) C 119) B 120) C 121) D 122) B 123) A 124) C 125) C 126) A 127) C 128) D 129) B 130) B 131) C 132) B 133) A 134) C 135) D 136) B 137) C 138) A 139) A 140) C 141) C 142) B 143) B 144) D 145) B 146) C Version 1

147) B 148) B 149) D 150) A 151) C 152) A 153) B 154) B 155) D 156) B 157) C 158) B 159) D 160) B 161) A 162) A 163) D 164) A 165) D 166) D 167) D 168) D 169) A

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CHAPTER 8 1)

A price setter is a firm that A) attempts but fails to be perfectly competitive. B) has the ability to set price at any level it wishes. C) has some degree of control over its price. D) faces perfectly inelastic demand.

A pure monopoly exists when A) many firms produce a good with no close substitutes. B) a single firm produces a good with no close substitutes. C) only a single firm is present in the market. D) a single firm produces a good with many close substitutes.

In many cities in the United States, a single firm provides electricity. Those firms are A) monopolists. B) oligopolists. C) monopolistic competitors. D) perfect competitors.

If a firm operates in an oligopoly, it is

A) one of a small number of firms that produce goods that are either close or perfect substitutes. B) the only firm that produces a good with no close substitutes. C) one of a large number of firms that produce goods that are either close or perfect substitutes. D) one of a large number of firms that produce a good with no close substitute.

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A monopolistically competitive firm is one A) that behaves like a monopolist. B) of many firms that sell products that are close but not perfect substitutes. C) of many firms that all sell the exact same product. D) of a small number of firms that sell products that are close but not perfect substitutes.

6) The essential feature that differentiates imperfectly competitive firms from perfectly competitive firms is that an imperfectly competitive firm A) produces a good with no close substitutes. B) faces high barriers to entry. C) coordinates their output decisions with other firms. D) faces a downward-sloping demand curve.

An imperfectly competitive firm faces a demand curve that is A) perfectly elastic. B) more than perfectly elastic. C) perfectly inelastic. D) downward-sloping.

8) An imperfectly competitive firm faces a demand curve that is ______, while a perfectly competitive firm faces a demand curve that is ______. A) vertical; downward-sloping B) horizontal; downward-sloping C) vertical; horizontal D) downward-sloping; horizontal

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9) Given the demand curve it faces, if an imperfectly competitive firm wants to sell another unit of output, it must A) increase its advertising. B) increase the value of its product. C) lower its price. D) lower its quality.

10) Suppose a firm's total revenue is $100 when it sells 10 units, and $110 when it sells 11 units. The firm, therefore, is a(n) A) pure monopolist. B) oligopolist. C) monopolistic competitor. D) perfect competitor.

11) Suppose a perfectly competitive firm and a monopolist are both charging $5 for their respective products. From this, one can infer that A) the marginal benefit from selling an additional unit of output is $5 for both firms. B) the marginal benefit from selling an additional unit of output is $5 for the competitive firm and less than $5 for the monopolist. C) the marginal benefit from selling an additional unit of output is less than $5 for both firms. D) the competitive firm is charging too much, and the monopolist is charging too little.

12)

If a firm faces a downward-sloping demand curve, then

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A) the firm could be either a perfectly competitive firm or an imperfectly competitive firm. B) the firm's marginal revenue from selling an additional unit of output is less than price. C) it is a perfectly competitive firm. D) the firm's production process exhibits economies of scale.

13) To sell an extra unit of output, a perfectly competitive firm ______, and an imperfectly competitive firm ______. A) need not alter its price; must lower its price B) must hope the market price falls; must lower its price C) need not alter its price; need not alter its price D) must lower its price; must lower its price

14)

"Market power" refers to a firm's ability to A) undercut its competitors' prices. B) force consumers to buy high-priced products. C) raise its price without losing all of its sales. D) influence the price its competitors charge.

15)

A good is characterized by network economies if it A) can be used by more than one person at a time. B) becomes cheaper to produce as more people buy it. C) becomes more valuable as more people own it. D) is widely advertised on television.

16)

Which of the following is not an example of a good with network economies?

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A) A cell phone B) Internet service C) A computer printer D) Facebook

17)

Which of the following firms is most likely to be a pure monopolist? A) A clothing retailer with the best location in a mall B) A grocery store in a large city C) The most popular hot dog vendor on a city street corner D) The only gas station in a small, isolated town

18) De Beers accounts for approximately 80% of diamond sales worldwide. The source of its market power is A) its exclusive ownership of South African diamond mines. B) its patent on diamond production. C) the perfectly inelastic demand for diamonds. D) the engagement customs of couples in Western cultures.

19) In exchange for a share of the revenues earned on campus, State U has granted CheapFizz the exclusive right to sell soft drinks in the student union and in vending machines on campus. Prior to the deal, three soft drink companies sold beverages on campus; now no other soft drink company is allowed to sell its products on campus. CheapFizz now has market power due to A) economies of scale in the production of soda. B) its exclusive ownership of an input. C) its exclusive license to sell soda. D) network economies in the consumption of soda.

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20) In exchange for a share of the revenues earned on campus, State U has granted CheapFizz the exclusive right to sell soft drinks in the student union and in vending machines on campus. Prior to the deal, three soft drink companies sold beverages on campus; now no other soft drink company is allowed to sell its products on campus. Prior to the deal, a 12-ounce can of CheapFizz sold for 75 cents. After the deal you would expect a 12-ounce can of CheapFizz to sell for A) 75 cents because that is the market price. B) less than 75 cents because CheapFizz will have greater volume and so can lower its price. C) more than 75 cents because the demand curve for CheapFizz soda will shift to the left. D) more than 75 cents because CheapFizz is the only company that can sell soda on campus.

21) In exchange for a share of the revenues earned on campus, State U has granted CheapFizz the exclusive right to sell soft drinks in the student union and in vending machines on campus. Prior to the deal, three soft drink companies sold beverages on campus; now no other soft drink company is allowed to sell its products on campus. The beneficiaries of this deal is/are A) the students at State U. B) State U. C) State U and CheapFizz. D) CheapFizz.

22)

Patents, which confer market power, are intended to A) protect consumers from imitations or knockoffs. B) enable patent holders to charge lower prices for new and innovative products. C) encourage innovation by helping firms recoup the costs of research and development. D) maintain the dominance of U.S. firms.

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23)

According to the textbook, the most important and enduring sources of market power are A) government franchises. B) patents. C) copyrights. D) economies of scale.

24)

Start-up costs A) have no impact on the number of firms in an industry because they are sunk costs. B) are inversely related to variable costs. C) are the one-time costs incurred when beginning the production of a new product. D) are always greater than marginal costs.

25) When a pharmaceutical company introduces a new drug, its research and development costs are ______, and the cost of the chemicals used in manufacturing the drug are ______. A) start-up costs; fixed costs B) fixed costs; start-up costs C) start-up costs; variable costs D) marginal costs; variable costs

26) A firm is most likely to experience economies of scale if its start-up costs are high and its marginal cost is A) increasing. B) low. C) high. D) decreasing.

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27)

Economies of scale exist when A) firms become larger. B) input prices are falling. C) the average cost of production falls as output rises. D) doubling all the inputs leads to less than double the output.

28)

Economies of scale arise from: A) constant returns to scale. B) increasing returns to scale. C) decreasing returns to scale. D) constant marginal returns to scale.

29) If a firm's production process exhibits increasing returns to scale, then doubling all the firm's inputs will lead output to A) double. B) more than double. C) less than double. D) fall by one-half.

30) A firm whose production process exhibits constant returns to scale would find that if it doubled all of its inputs, its output would A) double. B) more than double. C) less than double. D) remain constant.

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31) If a firm is experiencing economies of scale, then as the firm's output rises, its average total cost A) falls. B) rises. C) does not change. D) becomes negative.

32)

A monopoly that results from economies of scale is called a(n) A) antitrust violator. B) large-scale monopolist. C) natural monopoly. D) cost-plus firm.

33)

Which of the following industries does not fit the natural monopoly model? A) Electricity B) Cable TV C) Fast food restaurants D) Natural gas

34)

A natural monopoly is a monopoly that arises from A) having an exclusive right to operate in a national park. B) having exclusive control over the natural resources used to produce a good. C) a firm's natural desire to maximize its profit. D) economies of scale.

35)

If a natural monopoly decreases the quantity of output it produces, then

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A) its average cost will decrease. B) its average cost will increase. C) it will have to decrease its price. D) its profit will increase.

36)

If a natural monopoly increases the quantity of output it produces, then A) its average cost will decrease. B) its average cost will increase. C) it will have to increase its price. D) its profit will increase.

37)

Natural monopolies are most likely to arise when firms have A) low start-up costs and low marginal costs. B) high start-up costs and low marginal costs. C) low start-up costs and high marginal costs. D) high start-up costs and high marginal costs.

38) Imagine that you are an entrepreneur making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10 Q, where Q represents the number of tshirts you make. Your fixed cost is $______, and your marginal cost is $______. A) 300; 10 B) 10Q; 300 C) 300; 10Q D) 30; 310Q

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39) Imagine that you are an entrepreneur making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 275 + 10 Q, where Q represents the number of tshirts you make. Your fixed cost is $______, and your marginal cost is $______--.

A) 27.50; 265Q B) 275; 10 C) 275; 10Q D) 10Q; 275

40) Imagine that you are an entrepreneur making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10 Q, where Q represents the number of tshirts you make. As you increase your production of t-shirts, your average fixed cost ______ and your marginal cost ______. A) decreases; increases B) increases; decreases C) decreases; stays the same D) stays the same; increases

41) Imagine that you are an entrepreneur making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10 Q, where Q represents the number of tshirts you make. If you make 100 t-shirts, your average total cost is A) $3. B) $10. C) $3.10. D) $13.

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42) Imagine that you are an entrepreneur making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 210 + 7 Q, where Q represents the number of tshirts you make. If you make 100 t-shirts, your average fixed cost is. A) $2.17. B) $2.10. C) $7.00. D) $16.80.

43) Imagine that you are an entrepreneur making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10 Q, where Q represents the number of tshirts you make. If you make 1,000 t-shirts, your average total cost is A) $3. B) $3.10. C) $10.30. D) $1.03.

44) Given the total cost function TC = 2,000 + 2 Q, when output is 1,000 units, average total cost is ______ and total fixed cost is ______. A) $4,000; $2 B) $2,000; $4 C) $4; $2,000 D) $2; $4,000

45) Given the total cost function TC = 3,200 + 4.2 Q, when output is 1,000 units, total cost is ______ and average fixed cost is ______.

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A) $7,400; $3.2 B) $7.4; $3,200 C) $3,200; $7.4 D) $3.2; $7,400

46) a

Industries in which firms have high fixed costs and low marginal costs are likely to have

A) large number of small firms. B) small number of large firms. C) large number of large firms. D) small number of small firms.

47) Consider an industry with two firms producing similar products. Each firm’s total cost (in dollars) is given below. Acme Manufacturing: TC = 100 + 3 Q. Generic Industries: TC = 500 + 3 Q. Which of the following statements is true? A) Acme has a lower marginal cost than does Generic. B) Acme and Generic have the same marginal cost. C) Marginal cost at each firm depends on the level of output. D) Acme has greater economies of scale than does Generic.

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48) Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Acme Manufacturing: TC = 100 + 3 Q Generic Industries: TC = 500 + 3 Q When each firm is producing the same quantity, Acme's average total cost is A) lower than Generic's average total cost. B) equal to Generic's average total cost. C) higher than Generic's average total cost. D) lower than Generic's average total cost at some levels of output, and higher than Generic's average total cost at other levels of output.

49) Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Acme Manufacturing: TC = 100 + 3 Q Generic Industries: TC = 500 + 3 Q Suppose that Acme and Generic face the same demand curve. If each firm produces its profitmaximizing level of output and earns a positive economic profit, then which of the following statements is true? A) Acme will produce more output than Generic. B) Generic will produce more output than Acme. C) Acme and Generic will produce the same quantity and will have the same profits. D) Acme and Generic will produce the same quantity, but Acme will have higher profits.

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50) Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Mega Corp: TC = 5,000 + 100 Q Big Inc: TC = 4,000 + 200 Q We can conclude that ______ has a higher fixed cost and ______ has a higher marginal cost. A) Big Inc; Mega Corp B) Mega Corp; Big Inc C) Big Inc; Big Inc D) Mega Corp; Mega Corp

51) Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Mega Corp: TC = 5,000 + 100 Q Big Inc: TC = 4,000 + 200 Q If each firm produces 10 units, Mega Corp's total cost will be ______, and Big Inc's total cost will be ______. A) $6,000; $6,000 B) $5,000; $4,000 C) $5,100; $4,200 D) $15,000; $14,200

52) Consider an industry with two firms producing similar products. Each firm’s total cost (in dollars) is given below. Mega Corp: TC = 5,000 + 100 Q Big Inc: TC = 4,000 + 200 Q If each firm produces 80 units, Mega Corp’s total cost will be ______, and Big Inc’s total cost will be ______.

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A) $8,062; $16,050 B) $13,000; $20,000 C) $5,000; $4,000 D) $5,100; $4,200

53) Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Mega Corp: TC = 5,000 + 100 Q Big Inc: TC = 4,000 + 200 Q When each firm produces 8 units, ______ has a lower total cost, and when each firm produces 12 units, ______ has a lower total cost. A) Big Inc; Mega Corp B) Mega Corp; Big Inc C) Big Inc; Big Inc D) Mega Corp; Mega Corp

54) Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Mega Corp: TC = 5,000 + 100 Q Big Inc: TC = 4,000 + 200 Q For both firms, average total cost A) declines as quantity increases. B) increases as quantity increases. C) is constant for all quantities. D) declines as quantity increases for Mega Corp and increases as quantity increases for Big Inc.

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55) Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Mega Corp: TC = 5,000 + 100 Q Big Inc: TC = 4,000 + 200 Q If each firm is producing 15 units, you would expect A) both firms to continue to produce 15 units. B) Big Inc to charge a lower price than Mega Corp. C) Mega Corp to charge a lower price than Big Inc. D) both Mega Corp and Big Inc to reduce output and charge higher prices.

56)

The primary objective of an imperfectly competitive firm is to A) charge the highest possible price. B) maximize total revenue. C) minimize total cost. D) maximize profit.

57)

Both a perfectly competitive firm and a monopolist find that

A) price and marginal revenue are the same. B) they can sell as many units of output as they want at the market price. C) it is best to expand production until the benefit and the cost of the last unit produced are equal. D) price is less than marginal revenue.

58) For all firms, the additional revenue collected from the sale of one additional unit of output is termed

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A) price. B) average revenue. C) marginal profit. D) marginal revenue.

59) When a perfectly competitive firm sells additional units of output, ______, and when a monopolist sells additional units of output, ______. A) total revenue always rises; total revenue could rise, fall, or remain unchanged B) total revenue does not change; total revenue rises C) marginal revenue stays the same; marginal revenue rises D) total revenue rises; total revenue falls

60) If a firm collects $80 in revenue when it sells 4 units, $100 in revenue when it sells 5 units, and $120 in revenue when it sells 6 units, then one can infer the firm is a(n) A) perfect competitor. B) monopolistic competitor. C) oligopolist. D) monopolist.

61) If a firm collects $90 in revenue when it sells 4 units, $100 in revenue when it sells 5 units, and $105 in revenue when it sells 6 units, then one can infer the firm is a A) perfect competitor. B) profit maximizer. C) price taker. D) monopolist.

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62) If a firm's total revenue is $112 when it sells 16 units, $119 when it sells 17 units and $126 when it sells 18 units, then the firm is A) only an imperfectly competitive firm if it sets MR=MC. B) either a perfectly or imperfectly competitive firm. C) an imperfectly competitive firm. D) a perfectly competitive firm.

63) For perfectly competitive firms, marginal revenue ______ price; for monopolists, marginal revenue ______ price. A) equals; equals B) equals; is greater than C) is less than; equals D) equals; is less than

64) The demand curve for a perfectly competitive firm is ______, while the demand curve for a monopolist is ______. A) perfectly elastic; downward-sloping B) vertical; downward-sloping C) perfectly elastic; perfectly inelastic D) perfectly inelastic; perfectly elastic

65) Suppose the accompanying table describes the demand for a good produced by monopolist. Price

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Quantity

$ 20

The monopolist’s total revenue from selling one unit is ______, and the monopolist’s marginal revenue from selling the first unit is ______. A) $20; $20 B) $0; $20 C) $20; $0 D) $0; $0

66) Suppose the accompanying table describes the demand for a good produced by monopolist. Price

Quantity

$ 20

The monopolist’s total revenue from selling six units is ______, and the monopolist’s marginal revenue from selling the sixth unit is ______.

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A) $105; $2.50 B) $90; $10 C) $2.50; $10 D) $90; $2.50

67) Suppose the accompanying table describes the demand for a good produced by monopolist. Price

Quantity

$ 10

The total revenue from selling 6 units is ______, and the marginal revenue of selling the 6th unit is ______.

A) $5; $5 B) $30; $0 C) $24; $5 D) $30; $1

68) Suppose the accompanying table describes the demand for a good produced by monopolist. Price

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Quantity

$ 10

The monopolist’s marginal revenue from selling the 4th unit of output is less than $7 because A) marginal cost is greater than $3. B) the consumer only pays $4 for the 4th unit. C) it has to charge $1 less for each of the first 3 units of output. D) demand is perfectly elastic.

69) Suppose the accompanying table describes the demand for a good produced by monopolist. Price

Quantity

$ 10

Based on the data in the table, we know the firm should A) be able earn an economic profit. B) produce more than 7 units. C) not produce the 7th unit. D) not produce the 5th unit.

70)

If the demand curve facing a monopolist shifts, then the monopolist’s

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A) marginal revenue curve and profit-maximizing level of output will change. B) marginal revenue curve will not change, but its profit-maximizing level of output will. C) total cost curve will change, but its variable cost curve will not. D) marginal revenue curve will change, but its profit-maximizing level of output will not.

71)

Suppose a monopolist faces the following demand curve.

This demand curve can be used to determine A) the total cost associated with producing different levels of output. B) the monopolist’s total revenue at different price and quantity combinations. C) the impact of advertising on demand. D) the marginal cost associated with producing different levels of output.

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72)

Suppose a monopolist faces the following demand curve.

If you were to draw the monopolist’s marginal revenue curve, it would

A) lie on top of the demand curve. B) intersect the vertical axis at $35. C) intersect the horizontal axis at 35. D) have a slope equal to the reciprocal of the slope of the demand curve.

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73)

Suppose a monopolist faces the following demand curve.

If the monopolist were to sell 20 units of output, its total revenue would be A) $50. B) $100. C) $140. D) $1,000.

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74)

Suppose a monopolist faces the following demand curve.

If the monopolist were to sell 65 units of output, its total revenue would be A) $32.50. B) $325. C) $162. D) $5.

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75)

Suppose a monopolist faces the following demand curve.

The marginal revenue of the 35th unit of output is A) $35. B) $10. C) $0. D) −$5.

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76)

Suppose a monopolist faces the following demand curve.

The marginal revenue of the 25th unit of output is A) $20. B) $45. C) −$25. D) $25.

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77)

Suppose a monopolist faces the following demand curve.

The monopolist maximizes its profits by A) charging $70 for each unit. B) producing 35 units, since this is where total revenue is maximized. C) producing the level of output at which marginal revenue minus marginal cost is greatest. D) producing the level of output at which marginal revenue equals marginal cost.

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78)

Suppose a monopolist faces the demand curve shown.

If the monopolist’s marginal cost is constant and equal to $30, its profit-maximizing level of output is A) 50 units. B) 40 units. C) 20 units. D) 30 units.

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79)

Suppose a monopolist faces the demand curve shown.

If the monopolist’s marginal cost is constant and equal to $10, its profit-maximizing level of output is A) 45 units. B) 30 units. C) 60 units. D) 15 units.

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80)

Refer to the accompanying figure.

This firm's marginal revenue curve would intersect the vertical axis at ______. A) $70 B) $0 C) $20 D) $35

81) Once a firm has determined the quantity of output it wishes to sell, the maximum price it can charge for each unit is determined by A) the average cost of making the product. B) the demand curve facing the firm. C) the marginal cost of making the product. D) the firm’s marginal revenue curve.

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82)

Suppose the accompanying figure illustrates the demand curve facing a monopolist.

At a price of $8 per unit, the total revenue for this monopolist is ______ per day, and the marginal revenue earned from the last unit sold is ______. A) $8; $8 B) $3,200; $8 C) $3,200; $4 D) $3,200; $0

83)

Suppose the accompanying figure illustrates the demand curve facing a monopolist.

Suppose this firm maximizes its profits by charging a price of $8 per unit. This implies that the firm’s

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A) marginal cost is $8. B) marginal cost is $0. C) average total cost is $8. D) marginal cost is less than $8.

84)

Suppose the accompanying figure illustrates the demand curve facing a monopolist.

If the monopolist decreases its price from $12 to $10, its total revenue will A) increase by $1,000. B) decrease by $1,000. C) increase by $600. D) decrease by $600.

85) If the demand curve facing the monopolist is P = 70 − 14 Q, then the slope of its marginal revenue curve is A) −28. B) −14. C) −7. D) −35.

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86) If the demand curve facing the monopolist is P = 70 − 10 Q, then the slope of its marginal revenue curve is A) −10. B) −7. C) −15. D) −20.

87) Because monopolists charge a price in excess of marginal cost, it must be the case that monopolists A) earn a positive economic profit. B) earn a negative economic profit. C) produce more than the socially optimal level of output. D) produce less than the socially optimal level of output.

88)

When marginal revenue is zero A) profit is maximized. B) total cost is minimized. C) elasticity of demand is zero. D) total revenue is maximized.

89)

The monopolist will maximize profits at the output level for which A) price equals marginal cost. B) price equals average total cost. C) marginal revenue equals average total cost. D) marginal revenue equals marginal cost.

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90)

The profit maximizing rule P = MC applies to A) all firms. B) monopolists only. C) both perfectly competitive firms and imperfectly competitive firms. D) perfectly competitive firms only.

91)

The profit maximizing rule MR = MC applies to A) all firms. B) monopolists only. C) perfectly competitive firms only. D) imperfectly competitive firms only.

92) If a monopolist's marginal revenue exceeds its marginal cost at its current level of output, then to maximize its profit the monopolist should A) do nothing. B) decrease output in order to increase the gap between marginal revenue and marginal cost. C) increase output until marginal revenue equals marginal cost. D) increase output until price equals marginal cost.

93)

All profit-maximizing firms chose the level of output at which A) MR = MC B) P = MC C) MR = P D) MR < P

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94) The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve, and average total cost curve for a monopolist.

This monopolist maximizes its profit by producing ______ units per day and charging a price of ______ per unit. A) 4; $6 B) 8; $6 C) 4; $18 D) 8; $14

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95) The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve, and average total cost curve for a monopolist.

The socially optimal level of output is

A) 4 units per day. B) 5 units per day. C) 8 units per day. D) 10 units per day.

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96) The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve, and average total cost curve for a monopolist.

At this monopolist’s profit-maximizing level of output, it A) earns an economic profit of $16 per day. B) incurs an economic loss of $16 per day. C) earns an economic profit of $64 per day. D) incurs an economic loss of $64 per day.

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97) The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve, and average total cost curve for a monopolist.

At the socially optimal level of output, this monopolist would A) earn an economic profit of $16. B) incur an economic loss of $16. C) incur an economic loss of $64. D) incur an economic loss of $112.

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98) The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve, and average total cost curve for a monopolist.

At this monopolist’s profit-maximizing level of output, the deadweight loss to society equals

A) $0 per day. B) $16 per day. C) $24 per day. D) $64 per day.

99) Suppose the accompanying table describes the relationship between price and quantity demanded for a monopolist. Quantity

Price

$ 10

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The marginal revenue of the third unit of output is A) $24. B) $8. C) $6. D) −$1.

100) Suppose the accompanying table describes the relationship between price and quantity demanded for a monopolist. Quantity

Price

$ 10

The marginal revenue of the fifth unit of output is A) $30. B) $6. C) $2. D) −$2.

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101) Suppose the accompanying table describes the relationship between price and quantity demanded for a monopolist.

Quantity

Price

$ 10

If the marginal cost of producing each unit of output is $5, then this monopolist’s profitmaximizing level of output is A) 5. B) 4. C) 3. D) 2.

102) Suppose the accompanying table describes the relationship between price and quantity demanded for a monopolist. Quantity

Price

$ 10

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If the marginal cost of producing each unit of output is $5, then this monopolist maximizes its profit by charging ______ per unit. A) $3 B) $5 C) $6 D) $8

103) Suppose the accompanying table describes the relationship between price and quantity demanded for a monopolist. Quantity

Price

$ 10

If the marginal cost of producing each unit of output is $2.50, then this monopolist maximizes its profit by charging ______ per unit. A) $7 B) $2.50 C) $8.50 D) $4

104) Suppose the accompanying table describes the relationship between price and quantity demanded for a monopolist. Quantity

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Price

$ 10

If the marginal cost of producing each unit of output is $5, then the socially optimal level of output is A) 3 units. B) 6 units. C) 7 units. D) 4 units.

105) Suppose the accompanying table describes the relationship between price and quantity demanded for a monopolist. Quantity

Price

$ 10

If the marginal cost of producing each unit of output is $5, then at the monopolist’s profitmaximizing level of output, the monopolist produces ______ units of output than is socially optimal.

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A) 3 fewer B) 3 more C) 2 fewer D) 1 more

106) Suppose the accompanying figure shows the demand curve, marginal revenue curve, and marginal cost curve for a monopolist.

The profit-maximizing level of output for this monopolist is ______ units per day. A) F B) G C) H D) I

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107) Suppose the accompanying figure shows the demand curve, marginal revenue curve, and marginal cost curve for a monopolist.

The profit-maximizing price for this monopolist to charge is A) A. B) B. C) C. D) E.

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108) Suppose the accompanying figure shows the demand curve, marginal revenue curve, and marginal cost curve for a monopolist.

At this monopolist’s profit-maximizing level of output, its total revenue equals the area A) 0HNC. B) 0FJB. C) 0FLE. D) ELJB.

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109) Suppose the accompanying figure shows the demand curve, marginal revenue curve, and marginal cost curve for a monopolist.

When this monopolist maximizes its profit, consumer surplus equals the area A) ABJ. B) ACN. C) AELJ. D) ACKJ.

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110) Suppose the accompanying figure shows the demand curve, marginal revenue curve, and marginal cost curve for a monopolist.

The socially optimal level of output is ______ units per day. A) F B) G C) H D) I

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111) Suppose the accompanying figure shows the demand curve, marginal revenue curve, and marginal cost curve for a monopolist.

At the monopolist’s profit-maximizing level of output, deadweight loss equals the area A) C0N. B) ALN. C) JLN. D) JKN.

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112) Suppose the accompanying figure shows the demand curve, marginal revenue curve, and marginal cost curve for a monopolist.

This monopolist maximizes its profit by producing ______ textbooks per week and charging a price of ______ per textbook. A) 150; $20 B) 100; $40 C) 100; $80 D) 150; $40

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113) Suppose the accompanying figure shows the demand curve, marginal revenue curve, and marginal cost curve for a monopolist.

At this monopolist’s profit-maximizing level of output, consumer surplus is A) $9,000. B) $4,500. C) $4,000. D) $2,000.

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114) Suppose the accompanying figure shows the demand curve, marginal revenue curve, and marginal cost curve for a monopolist.

At this monopolist’s profit-maximizing level of output, deadweight loss equals A) $1,000. B) $2,000. C) $4,000. D) $6,000.

115)

The reason economists consider monopoly to be socially undesirable is that monopolists A) earn too much economic profit. B) can charge any price they want. C) exploit the inelastic nature of demand. D) produce less than the socially optimal level of output.

116) The profit-maximizing level of output for a perfectly competitive firm is socially efficient, while the profit-maximizing level of output for a monopolist is not because under perfect competition ______, while under monopoly ______.

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A) P = MC; P > MC B) P < MR; P = MR C) P = MR; P < MR D) P = MC; P < MC

117) If a monopolist calculates its marginal revenue to be $15 and marginal cost to be $16, then the monopolist should A) lower its price. B) increase its output. C) leave its output and price unchanged. D) decrease its output.

118) If a monopolist's marginal revenue is $25 and its marginal cost is $19, then the monopolist should A) raise its price. B) increase its output. C) leave its output and price unchanged. D) decrease its output.

119)

Price discrimination means charging A) higher prices to women and minorities. B) different prices for different products because production costs are different. C) the same price to all buyers even if production costs are different. D) different prices to different buyers for essentially the same good or service.

120)

A perfectly price discriminating monopolist charges each buyer

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A) exactly his or her marginal cost. B) more than his or her reservation price. C) exactly his or her reservation price. D) the perfectly competitive equilibrium price.

121)

Imperfect price discrimination occurs when a monopolist A) charges a single price to all buyers. B) price discriminates but some buyers pay less than their reservation price. C) price discriminates but some buyers pay more than their reservation price. D) charges all buyers exactly their reservation price.

122) Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservation prices are listed in the accompanying table. Customer

Reservation Price ($/Rental)

What is the socially optimal number of bikes for Island Bikes to rent out each day? A) 6 B) 5 C) 4 D) 3

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123) Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed in the accompanying table. Customer

Reservation Price ($/Rental)

If Island Bikes charges a single price to all of its customers, then how many bikes will it rent out each day? A) 6 B) 5 C) 4 D) 3

124) Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed in the accompanying table. Customer

Reservation Price ($/Rental)

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If Island Bikes charges a single price to all of its customers, then what price will it charge? A) $4 B) $8 C) $12 D) $16

125) Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed in the accompanying table. Customer

Reservation Price ($/Rental)

If Island Bikes charges a single price to all of its customers, then what will be its daily economic profit? A) $26 B) $27 C) $33 D) $36

126) Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed in the accompanying table.

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Customer

Reservation Price ($/Rental)

Suppose Island Bikes knows that customers whose reservation prices are at least $10 always rent bikes before noon, while those whose reservation prices are below $10 never do so. If Island bikes can charge a different price in the morning and in the afternoon, then in the morning, it will rent out _______ bike(s) and charge _______ per bike. A) 1; $22 B) 2; $16 C) 3; $12 D) 4; $8

127) Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed in the accompanying table. Customer

Reservation Price ($/Rental)

Suppose Island Bikes knows that customers whose reservation prices are at least $10 always rent bikes before noon, while those whose reservation prices are below $10 never do so. If Island bikes can charge a different price in the morning and in the afternoon, then in the afternoon, it will rent out ______ bike(s) and charge ______ per bike. Version 1

A) 1; $8 B) 2; $6 C) 3; $4 D) 5; $10

128) Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed in the accompanying table. Customer

Reservation Price ($/Rental)

Suppose Island Bikes knows that customers whose reservation prices are at least $10 always rent bikes before noon, while those whose reservation prices are below $10 never do so. If Island Bikes charges a different price in the morning and in the afternoon, then what will be its daily economic profit? A) $27 B) $32 C) $33 D) $39

129) Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed in the accompanying table.

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Customer

Reservation Price ($/Rental)

Suppose Island Bikes knows that customers whose reservation prices are at least $10 always rent bikes before noon, while those whose reservation prices are below $10 never do so. If Island Bikes charges a different price in the morning and in the afternoon, then what will be the total economic surplus?

A) $49 B) $41 C) $9 D) $3

130) Suppose Lydia owns the only lawn-mowing business in the small town of Pleasant Pastures. There are 8 people each week whose lawns she might cut, each with a reservation price given in the accompanying table. Assume that the marginal cost of mowing each lawn is constant and equal to $25. Customer

Reservation Price

$ 36

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If Lydia charges the same price to all of her customers, then how many lawns should she mow each week? A) 2 B) 3 C) 4 D) 5

131) Suppose Lydia owns the only lawn-mowing business in the small town of Pleasant Pastures. There are 8 people each week whose lawns she might cut, each with a reservation price given in the accompanying table. Assume that the marginal cost of mowing each lawn is constant and equal to $25. Customer

Reservation Price

$ 36

If Lydia charges the same price to all of her customers, then what price should she charge if she wants to maximize her profit? A) $34 B) $30 C) $26 D) $32

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132) Suppose Campus Books, a profit-maximizing firm, is the only supplier of the textbook for a given class. The marginal cost of supplying each book is constant and equal to $10, and Campus Books has no fixed costs. The accompanying table shows the reservation prices of the eight students enrolled in the class. Customer

Reservation Price ($/Book)

How many books will Campus Books sell if it must charge a single price to all of its customers? A) 3 B) 4 C) 5 D) 7

133) Suppose Campus Books, a profit-maximizing firm, is the only supplier of the textbook for a given class. The marginal cost of supplying each book is constant and equal to $10, and Campus Books has no fixed costs. The accompanying table shows the reservation prices of the eight students enrolled in the class. Customer

Reservation Price ($/Book)

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What price will Campus Books charge if it must charge a single price to all of its customers? A) $36 B) $18 C) $24 D) $10

134) Suppose Campus Books, a profit-maximizing firm, is the only supplier of the textbook for a given class. The marginal cost of supplying each book is constant and equal to $10, and Campus Books has no fixed costs. The table shows the reservation prices of the eight students enrolled in the class. Customer

Reservation Price ($/Book)

What will be Campus Books’ economic profit if it must charge a single price to all of its customers? A) $180 B) $130 C) $128 D) $120

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135) Suppose Campus Books, a profit-maximizing firm, is the only supplier of the textbook for a given class. The marginal cost of supplying each book is constant and equal to $10, and Campus Books has no fixed costs. The accompanying table shows the reservation prices of the eight students enrolled in the class. Customer

Reservation Price ($/Book)

What is the socially optimal number of books? A) 8 B) 5 C) 6 D) 7

136) Suppose Campus Books, a profit-maximizing firm, is the only supplier of the textbook for a given class. The marginal cost of supplying each book is constant and equal to $10, and Campus Books has no fixed costs. The accompanying table shows the reservation prices of the eight students enrolled in the class. Customer

Reservation Price ($/Book)

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If Campus Books is permitted to charge 2 prices, and the bookstore knows customers with a reservation price above $30 never bother with coupons, whereas those with a reservation price of $30 or less always use them, then the bookstore will set the list price of the book to be ____-_ and the discounted price of the book to be ______. A) $30; $24 B) $36; $30 C) $36; $24 D) $30; $18

137) Suppose Campus Books, a profit-maximizing firm, is the only supplier of the textbook for a given class. The marginal cost of supplying each book is constant and equal to $10, and Campus Books has no fixed costs. The accompanying table shows the reservation prices of the eight students enrolled in the class. Customer

Reservation Price ($/Book)

If Campus Books is permitted to charge 2 prices, and the bookstore knows customers with a reservation price above $30 never bother with coupons, whereas those with a reservation price of $30 or less always use them, then how many in total books will the bookstore sell? A) 8 B) 7 C) 6 D) 5

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138) Suppose Campus Books, a profit-maximizing firm, is the only supplier of the textbook for a given class. The marginal cost of supplying each book is constant and equal to $10, and Campus Books has no fixed costs. The accompanying table shows the reservation prices of the eight students enrolled in the class. Customer

Reservation Price ($/Book)

If Campus Books is permitted to charge 2 prices, and the bookstore knows customers with a reservation price above $30 never bother with coupons, whereas those with a reservation price of $30 or less always use them, then what will be the bookstore’s total economic profit? A) $158 B) $154 C) $150 D) $130

139) A perfectly price discriminating monopolist's profit is ______ the profit of a monopolist who charges the same price to all of its customers. A) the same as B) less than C) higher than D) sometimes less than and sometimes greater than.

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140) Consider a monopolist who charges a single price to all of its customers. If this monopolist starts price discriminating, its output will ______ and its profit will ______. A) fall; rise B) fall; fall C) rise; fall D) rise; rise

141) Suppose a monopolist produces two different products. If the marginal cost of producing one is lower than the marginal cost of producing the other, and the monopolist charges a different price for the two goods, then the monopolist is A) not price discriminating. B) imperfectly price discriminating. C) perfectly price discriminating. D) not maximizing its profit.

142) Relative to a monopolist charging a single price to all consumers, price discrimination ______ total economic surplus. A) has no effect on B) sometimes increases and sometimes decreases C) decreases D) increases

143) Relative to a monopoly charging a single price to all consumers, perfect price discrimination ______ producer surplus and ______ consumer surplus. A) increases; decreases B) increases; increases C) decreases; decreases D) decreases; increases.

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144)

In order to effectively price discriminate, one requirement is that a seller must be able to A) resell the product. B) identify customers with different reservation prices. C) avoid detection because price discrimination is illegal. D) reduce costs when producing the discounted item.

145)

Airlines that charge higher prices for seats in the first-class cabin are A) not price discriminating because the product is not the same. B) price discriminating because all passengers on the plane are traveling the same route. C) perfect price discriminators. D) using the hurdle method of price discrimination.

146) Airlines that charge higher prices for customers who purchase their tickets at the last minute are A) not price discriminating because the cost of the ticket is not the same. B) price discriminating by identifying passengers with higher reservation prices. C) perfect price discriminators. D) lowering total economic surplus.

147) When a consumer must take some sort of additional action to receive a lower price, the consumer is being subjected to A) "bait and switch" sales tactics. B) perfect price discrimination. C) the "hurdle" method of price discrimination. D) the "rebate and wait" method of price discrimination.

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148) A consumer goes to purchase a TV advertised for $300. As he is checking out, the clerk informs him of a $20 rebate offer for the TV, which he fills out and receives in 3 months. What can one infer about the consumer's reservation price? A) It was at least $300. B) It was at most $280. C) It was exactly $300. D) It was at least $280 but less than $300.

149) Suppose a monopolist offers a $20 mail-in rebate on an item with a list price of $100. In order for the rebate to be a perfect hurdle, it must be the case that A) buyers use the rebate if and only if they have a reservation price between $80 and $100. B) all buyers with a reservation price greater than $80 use the rebate. C) some buyers with a reservation price greater than $80 use the rebate. D) buyers use the rebate if and only if their cost of filling out the rebate is less than $20.

150)

Which of the following is not an example of the hurdle method of price discrimination? A) Offering a mail-in rebate B) Permanently reducing all prices by 10 percent C) Charging less for airline tickets if the trip includes a Saturday night stayover D) Giving a discount on movie tickets to people with a student ID

151)

Monopolists use the hurdle method of price discrimination in order to

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A) separate consumers on the basis of their reservation prices. B) lower their marginal cost. C) increase the demand for their good. D) produce the socially optimal level of output.

152)

Which of the following is not an example of the hurdle method of price discrimination? A) A coupon for $10 off any purchase of $50 or higher. B) A mail-in rebate on a printer. C) An early-bird discount for people who order dinner before 5 p.m. D) A lower price on strawberries when they are in season.

153)

Relative to a single price monopolist, a price discriminating monopolist generates

A) less total surplus. B) more total surplus. C) the same amount of total surplus, but more consumer surplus and less producer surplus. D) the same amount of total surplus, but less consumer surplus and more producer surplus.

154) Under cost-plus regulation, a regulated firm is permitted to charge prices that cover the explicit cost of production plus a markup to cover the A) opportunity cost of the resources supplied by the firm's owners. B) extra cost associated with the state ownership of natural monopolies. C) cost of winning a government contract. D) owner's economic rent.

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155)

One problem with cost-plus regulation is that A) there is no way for a regulated firm's owners to recoup their opportunity costs. B) it blunts regulated firms' incentives to cut costs. C) government ownership is often inefficient. D) consumers would be willing to pay more for higher quality goods.

156)

One problem with government ownership of natural monopolies is that A) the government has no reason to set price equal to marginal cost. B) the government could violate its own antitrust laws. C) government-owned firms have weaker incentives to cut costs than do privately-owned

firms. D) it forces the government to either raise taxes or lower spending.

157)

One problem with antitrust laws is that they A) are too recent to be understood by most lawyers. B) encourage too many mergers. C) blunt firms' incentives to cut costs. D) may prevent companies from achieving economies of scale.

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Answer Key Test name: Chap 08_8e_Frank 1) C 2) B 3) A 4) A 5) B 6) D 7) D 8) D 9) C 10) D 11) B 12) B 13) A 14) C 15) C 16) C 17) D 18) A 19) C 20) D 21) C 22) C 23) D 24) C 25) C 26) B Version 1

27) C 28) B 29) B 30) A 31) A 32) C 33) C 34) D 35) B 36) A 37) B 38) A 39) B 40) C 41) D 42) B 43) C 44) C 45) A 46) B 47) B 48) A 49) D 50) B 51) A 52) B 53) A 54) A 55) C 56) D Version 1

57) C 58) D 59) A 60) A 61) D 62) D 63) D 64) A 65) A 66) B 67) B 68) C 69) C 70) A 71) B 72) C 73) D 74) B 75) C 76) A 77) D 78) C 79) B 80) A 81) B 82) D 83) B 84) C 85) A 86) D Version 1

87) D 88) D 89) D 90) D 91) A 92) C 93) A 94) C 95) C 96) B 97) C 98) C 99) C 100) C 101) C 102) D 103) A 104) B 105) A 106) A 107) B 108) B 109) A 110) C 111) C 112) C 113) D 114) A 115) D 116) A Version 1

117) D 118) B 119) D 120) C 121) B 122) A 123) D 124) C 125) B 126) C 127) B 128) C 129) A 130) B 131) D 132) C 133) A 134) B 135) A 136) C 137) B 138) A 139) C 140) D 141) A 142) D 143) A 144) B 145) A 146) B Version 1

147) C 148) A 149) A 150) B 151) A 152) D 153) B 154) A 155) B 156) C 157) D

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CHAPTER 9 1)

Game theory provides tools that are used to model A) the behavior of perfectly competitive firms. B) the cost functions faced by firms. C) consumer demand. D) strategic interdependencies.

The three elements of a game are A) the firm, the consumers, and the profit. B) the players, the strategies, and the payoffs. C) the model, the graph, and the costs. D) the costs, the revenue, and the profit.

3) Game theory is not useful in understanding perfect competition because in a perfectly competitive market A) no single firm can influence the market price, so firms' decisions are not interdependent. B) each firm only cares about its own profit, so there is no interdependence. C) there are too many firms to be able to model their behavior accurately using game theory. D) the payoffs to firms' choices are unknown.

A payoff matrix shows A) the payoff to being a monopolist. B) the demand curve facing a firm when there are only two firms. C) the payoffs for each possible combination of strategies. D) the payoff to being a perfectly competitive firm.

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A dominant strategy exists if A) a player has a strategy that yields the highest payoff regardless of the other player's

choice. B) both players have the highest payoff when they make the same choice. C) both players make the same choice. D) one strategy yields the highest possible payoff.

Consider the accompanying payoff matrix. Player B Player A

Up Down

Left 60 for A 60 for B 5 for A 70 for B

Right 70 for A 5 for B 50 for A 50 for B

What is player A’s dominant strategy?

A) Up B) Down C) Left D) Right

Consider the accompanying payoff matrix. Player B Player A

Up Down

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Left 60 for A 60 for B 10 for A 10 for B

Right 75 for A 100 for B 50 for A 50 for B

What is player A’s dominant strategy? A) Up B) Left C) Down D) Right

8) Refer to the accompanying figure. In this game, how many dominant strategies does Player A have? Player B Player A

Up Down

Left 5 for A 30 for B −2 for A 10 for B

Right 10 for A 12 for B 8 for A 15 for B

A) 0 B) 1 C) 2 D) 4

9) Refer to the accompanying figure. In this game, how many dominant strategies does Player B have? Player B Player A

Up Down

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Left 5 for A 30 for B −2 for A 10 for B

Right 10 for A 12 for B 8 for A 15 for B

A) 0 B) 1 C) 2 D) 4

10)

Refer to the accompanying figure. In this game, the dominated strategy for Player A: Player B Player A

Up Down

Left 5 for A 30 for B −2 for A 10 for B

Right 10 for A 12 for B 8 for A 15 for B

A) is to play up. B) is to cooperate with Player B. C) is to play down. D) will depend on Player B's move.

11)

Refer to the accompanying figure. What is the Nash equilibrium of this game? Player B Player A

Up Down

Left 5 for A 30 for B −2 for A 10 for B

Right 10 for A 12 for B 8 for A 15 for B

A) A chooses Up, B chooses Right B) A chooses Up, B chooses Left C) A chooses Down, B chooses Right D) A chooses Down, B chooses Left

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12)

Refer to the accompanying figure. What is the Nash equilibrium of this game? Player B Player A

Up Down

Left 11 for A 30 for B −2 for A 4 for B

Right 10 for A 1 for B −4 for A 15 for B

A) A chooses Down, B chooses Right B) A chooses Up, B chooses Right C) A chooses Up, B chooses Left D) A chooses Down, B chooses Left

13)

Refer to the accompanying figure. Player B can infer that Player A will Player B Player A

Up Down

Left 5 for A 30 for B −2 for A 10 for B

Right 10 for A 12 for B 8 for A 15 for B

A) always choose Down. B) always choose Up. C) want to choose Down if B chooses Left and want to choose Up if B chooses Right. D) want to choose Up if B chooses Left and want to choose Down if B chooses Right.

14)

Refer to the figure below. Player B can infer that Player A will Player B Player A

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Left 0 for A

Right 10 for A

Down

30 for B −2 for A 10 for B

100 for B 15 for A 15 for B

A) always choose Up. B) want to choose Up if B chooses Left and want to choose Down if B chooses Right. C) always choose Down. D) want to choose Down if B chooses Left and want to choose Up if B chooses Right.

15)

Refer to the accompanying figure. Player A can infer that Player B will Player B Player A

Up Down

Left 5 for A 30 for B −2 for A 10 for B

Right 10 for A 12 for B 8 for A 15 for B

A) choose Left. B) choose Right. C) choose Left when A chooses Up and choose Right when A chooses Down. D) Player A cannot infer anything about what Player B will do given this matrix.

16)

Refer to the accompanying figure. Based on the matrix above Cory Jess

A B

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A 5 for Jess 5 for Cory 10 for Jess 0 for Cory

B 0 for Jess −5 for Cory −5 for Jess 10 for Cory

A) Jess has a dominant strategy, but Cory does not. B) Cory has a dominant strategy, but Jess does not. C) both Cory and Jess have a dominant strategy. D) neither Cory nor Jess has a dominant strategy.

17)

Refer to the accompanying figure. Based on the matrix Cory Jess

A B

A −5 for Jess 5 for Cory 10 for Jess 6 for Cory

B 0 for Jess 15 for Cory −8 for Jess 10 for Cory

A) Cory has a dominant strategy, but Jess does not. B) neither Cory nor Jess has a dominant strategy. C) both Cory and Jess have a dominant strategy. D) Jess has a dominant strategy, but Cory does not.

18)

Refer to the figure below. If Jess chooses A, then Cory's best response is: Cory Jess

A B

A 5 for Jess 5 for Cory 10 for Jess 0 for Cory

B 0 for Jess −5 for Cory −5 for Jess 10 for Cory

A) non-existent. B) to choose A. C) to choose B. D) to choose the cell in which Cory's payoff is 10.

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19)

Refer to the figure below. If Cory chooses A, then Jess’s best response is: Cory Jess

A B

A 5 for Jess 5 for Cory 10 for Jess 0 for Cory

B 0 for Jess −5 for Cory −5 for Jess 10 for Cory

A) non-existent. B) to choose A. C) to choose B. D) to choose the cell in which Jess’s payoff is 10

20)

Consider the accompanying payoff matrix. Player B Player A

Up Down

Left 60 for A 60 for B 5 for A 70 for B

Right 70 for A 5 for B 50 for A 50 for B

Suppose both players make their choices simultaneously and independently. What is the Nash equilibrium of this game? A) Player A chooses Down, and player B chooses Left. B) Player A chooses Up, and player B chooses Right. C) Player A chooses Up, and player B chooses Left. D) Player A chooses Down, and player B chooses Right.

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21) Savannah is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a profit of $1,000. If Savannah cuts her price to $2.90 and Sam continues to charge $3, then Savannah's profit will be $1,350, and Sam's profit will be $500. Similarly, if Sam cuts her price to $2.90 and Savannah continues to charge $3, then Sam's profit will be $1,350, and Savannah's profit will be $500. If Sam and Savannah both cut their price to $2.90, then they will each earn a profit of $900. For Savannah, keeping her price at $3 per gallon is a: A) revenue-maximizing strategy. B) dominant strategy. C) dominated strategy. D) profit-maximizing strategy.

22) Savannah is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a profit of $1,000. If Savannah cuts her price to $2.90 and Sam continues to charge $3, then Savannah's profit will be $1,350, and Sam's profit will be $500. Similarly, if Sam cuts his price to $2.90 and Savannah continues to charge $3, then Sam's profit will be $1,350, and Savannah's profit will be $500. If Sam and Savannah both cut their price to $2.90, then they will each earn a profit of $900. For Sam, cutting her price to $2.90 per gallon is a: A) revenue-maximizing strategy. B) dominant strategy. C) dominated strategy. D) profit-maximizing strategy.

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23) Savannah is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a profit of $1,000. If Savannah cuts her price to $2.90 and Sam continues to charge $3, then Savannah’s profit will be $1,350, and Sam’s profit will be $500. Similarly, if Sam cuts her price to $2.90 and Savannah continues to charge $3, then Sam’s profit will be $1,350, and Savannah’s profit will be $500. If Sam and Savannah both cut their price to $2.90, then they will each earn a profit of $900. The clear outcome of this game is that: A) Savannah will cut her price and Sam won't. B) both Savannah and Sam will cut their price. C) Sam will cut her price and Savannah won't. D) neither Savannah nor Sam will cut their price.

24) Savannah is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a profit of $1,000. If Savannah cuts her price to $2.90 and Sam continues to charge $3, then Savannah's profit will be $1,350, and Sam's profit will be $500. Similarly, if Sam cuts her price to $2.90 and Savannah continues to charge $3, then Sam's profit will be $1,350, and Savannah's profit will be $500. If Sam and Savannah both cut their price to $2.90, then they will each earn a profit of $900. For both Savannah and Sam, ______ is a ______. A) cutting the price to $2.90; dominated strategy B) leaving the price at $3; Nash equilibrium C) leaving the price at $3; dominant strategy D) cutting the price to $2.90; dominant strategy

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25) Savannah is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a profit of $1,000. If Savannah cuts her price to $2.90 and Sam continues to charge $3, then Savannah's profit will be $1,350, and Sam's profit will be $500. Similarly, if Sam cuts her price to $2.90 and Savannah continues to charge $3, then Sam's profit will be $1,350, and Savannah's profit will be $500. If Sam and Savannah both cut their price to $2.90, then they will each earn a profit of $900. If both players choose their dominated strategy, they will each earn ______, and if both players choose their dominant strategy they will each earn______. A) $500; $1,350 B) $900; $1,350 C) $900; $1,000 D) $1,000; $900

26) Savannah is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a profit of $1,000. If Savannah cuts her price to $2.90 and Sam continues to charge $3, then Savannah's profit will be $1,350, and Sam's profit will be $500. Similarly, if Sam cuts her price to $2.90 and Savannah continues to charge $3, then Sam's profit will be $1,350, and Savannah's profit will be $500. If Sam and Savannah both cut their price to $2.90, then they will each earn a profit of $900. In this situation, the Nash equilibrium yields a: A) lower payoff than each would receive if each played her dominant strategy. B) higher payoff than each would receive if each played her dominant strategy. C) lower payoff than each would receive if each played her dominated strategy. D) the same payoff that each would receive if each played her dominated strategy.

27)

In the Nash equilibrium of a prisoner's dilemma:

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A) there is no cash left on the table. B) there is unrealized opportunity for both players to gain. C) total economic surplus is maximized. D) both players have equal payoffs.

28)

A prisoner's dilemma is a game in which:

A) neither player has a dominant strategy. B) one player has a dominant strategy, and the other does not. C) the players' payoffs are smaller when both play their dominant strategy compared to when both play a dominated strategy. D) the players' payoffs are larger when both play their dominant strategy compared to when both play a dominated strategy.

29)

The dilemma in a prisoner's dilemma is that: A) the outcome is random, so players are uncertain about which strategy to play. B) only one player has a dominant strategy, but the other player is uncertain about what

to do. C) the players would be better off if they both played a dominated strategy. D) the players may be trapped in a game they don't know how to play.

30)

A prisoner's dilemma illustrates situations in which:

A) resources with the lowest opportunity cost should be used first. B) everyone does best when each person specializes in the activities in which he or she has a comparative advantage. C) efficiency is an important social goal. D) there is a conflict between the narrow self-interest of individuals and the broader interests of a group.

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31)

The reason that the prisoner's dilemma presents a dilemma is that:

A) neither player has a comparative advantage, so neither can infer what the other player will choose. B) the market cannot be in equilibrium because the players do not have dominant strategies. C) each player has an incentive to play his or her dominant strategy, but when both choose the dominant strategy each player has a lower payoff than if they both had chosen the dominated strategy. D) each player has an incentive to play his or her dominated strategy, but when both choose the dominated strategy each player has a lower payoff than if they both had chosen the dominant strategy.

32)

Consider the accompanying payoff matrix. Player B Player A

Up Down

Left 60 for A 60 for B 5 for A 70 for B

Right 70 for A 5 for B 50 for A 50 for B

Is this game a prisoner’s dilemma? A) Yes. B) No. C) It’s a prisoner’s dilemma for player A, but not for player B. D) It’s a prisoner’s dilemma for player B, but not for player A.

33)

Consider the accompanying payoff matrix. Column Cruises

Version 1

Offer reduced rates Row Resorts

Offer reduced rates Keep rates high

50 for Row 50 for Column 10 for Row 500 for Column

Keep rates high 500 for Row 10 for Column 300 for Row 300 for Column

If Column Cruises offers reduced rates, and Row Resorts keeps its rates high, then Row Resorts will earn ______, and Column Cruises will earn ______.

A) 300; 300 B) 50; 50 C) 500; 10 D) 10; 500

34)

Consider the accompanying payoff matrix.

Row Resorts

Offer reduced rates Keep rates high

Column Cruises Offer reduced Keep rates rates high 50 for Row 500 for Row 50 for Column 10 for Column 10 for Row 300 for Row 500 for Column 300 for Column

If Column Cruises offers reduced rates, and Row Resorts keeps its rates high, then Row Resorts will earn ______, and Column Cruises will earn ______. A) 10; 500 B) 50; 50 C) 500; 10 D) 300; 300

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35)

Consider the accompanying payoff matrix.

Row Resorts

Offer reduced rates Keep rates high

Column Cruises Offer reduced rates Keep rates high 50 for Row 500 for Row 50 for Column 10 for Column 10 for Row 300 for Row 500 for Column 300 for Column

If Row Resorts offers reduced rates, then Column Cruises would receive the highest payoff if it A) kept its rates high. B) offered reduced rates. C) entered into a cartel with Row Resorts and agreed to jointly reduce rates. D) choose either strategy because it will have the same payoff in either case.

36)

Consider the accompanying payoff matrix.

Row Resorts

Offer reduced rates Keep rates high

Column Cruises Offer reduced rates Keep rates high 50 for Row 500 for Row 50 for Column 10 for Column 10 for Row 300 for Row 500 for Column 300 for Column

If Row Resorts keeps its rates high, then Column Cruises would receive the highest payoff if it A) kept its rates high. B) offered reduced rates. C) agreed with Row Resorts to reduce their rates at exactly the same time. D) choose either strategy because it will have the same payoff in either case.

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37)

Consider the accompanying payoff matrix.

Row Resorts

Offer reduced rates Keep rates high

Column Cruises Offer reduced rates Keep rates high 50 for Row 500 for Row 50 for Column 10 for Column 10 for Row 300 for Row 500 for Column 300 for Column

The dominant strategy for Row Resorts is to _____, and the dominant strategy for Column Cruises is to ______. A) keep rates high; keep rates high B) offer reduced rates; offer reduced rates C) keep rates high; offer reduced rates D) offer reduced rates; keep rates high

38)

Consider the accompanying payoff matrix.

Row Resorts

Offer reduced rates Keep rates high

Column Cruises Offer reduced rates Keep rates high 50 for Row 500 for Row 50 for Column 10 for Column 10 for Row 300 for Row 500 for Column 300 for Column

When Row Resorts and Column Cruises both play their dominant strategy A) both firms do better than if they had both played their dominated strategy. B) Row Resorts earns a higher profit than does Column Cruises. C) both firms do worse than if they had both played their dominated strategy. D) Column Cruises earns a higher profit than does Row Resorts.

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39)

Consider the accompanying payoff matrix.

Row Resorts

Offer reduced rates Keep rates high

Column Cruises Offer reduced rates Keep rates high 50 for Row 500 for Row 50 for Column 10 for Column 10 for Row 300 for Row 500 for Column 300 for Column

If both firms offer reduced rates, each earns ______, and if both firms keep their rates high, each earns ______. A) 300; 50 B) 50; 300 C) 300; 500 D) 500; 300

40) A game involving two players with two possible strategies is a prisoner's dilemma if each player has a dominant strategy and A) neither player plays their dominant strategy. B) each player's payoff is higher when both play their dominated strategy than when both play their dominant strategy. C) each player's payoff is higher when both play their dominant strategy than when both play their dominated strategy. D) there is a Nash equilibrium that yields the highest payoff for both players.

41) The accompanying payoff matrix shows the payoffs (in millions of dollars) for two firms, A and B, for two different strategies, investing in new capital or not investing in new capital. Firm B Firm A

Version 1

Invest

Invest 20 for A 20 for B

Not Invest 70 for A 5 for B

Not Invest

5 for A 70 for B

50 for A 50 for B

Firm A’s dominant strategy is to ______, and Firm B’s dominant strategy is to ______.

A) invest; not invest B) not invest; invest C) invest; invest D) not invest; not invest

42) The accompanying payoff matrix shows the payoffs (in millions of dollars) for two firms, A and B, for two different strategies, investing in new capital or not investing in new capital. Firm B Firm A

Invest Not Invest

Invest 32 for A 20 for B 5 for A 20 for B

Not Invest 70 for A 30 for B 10 for A 50 for B

Firm A’s dominant strategy is to ______, and Firm B’s dominant strategy is to ______. A) invest; invest B) not invest; not invest C) invest; not invest D) not invest; invest

43) The accompanying payoff matrix shows the payoffs (in millions of dollars) for two firms, A and B, for two different strategies, investing in new capital or not investing in new capital. Firm B Firm A

Version 1

Invest

Invest 20 for A 20 for B

Not Invest 70 for A 5 for B

Not Invest

5 for A 70 for B

50 for A 50 for B

This game is an example of a A) cartel. B) credible promise. C) prisoner's dilemma. D) game with multiple equilibria.

44) The accompanying payoff matrix shows the payoffs (in millions of dollars) for two firms, A and B, for two different strategies, investing in new capital or not investing in new capital. Firm B Firm A

Invest Not Invest

Invest 20 for A 20 for B 5 for A 70 for B

Not Invest 70 for A 5 for B 50 for A 50 for B

An industry spy comes to firm B and claims to know what firm A has decided. Given that each firm already knows the payoff matrix, how much would this information be worth to firm B? A) $0 B) $50 million C) $30 million D) $70 million

45) The accompanying payoff matrix shows the payoffs (in millions of dollars) for two firms, A and B, for two different strategies, investing in new capital or not investing in new capital. Firm B Firm A

Version 1

Invest

Invest 20 for A 20 for B

Not Invest 70 for A 5 for B

Not Invest

5 for A 70 for B

50 for A 50 for B

An industry spy comes to firm B and offers to pay B in exchange for B's certain and enforceable promise to not invest. How much must the spy pay B? A) $0 B) At least $15 million C) At least $35 million D) At least $50 million

46) The accompanying payoff matrix shows the payoffs (in millions of dollars) for two firms, A and B, for two different strategies, investing in new capital or not investing in new capital. Firm B Firm A

Invest Not Invest

Invest 20 for A 20 for B 5 for A 70 for B

Not Invest 70 for A 5 for B 50 for A 50 for B

An industry spy from firm A comes to firm B and offers to pay B in exchange for B's certain and enforceable promise to not invest. What is the most that firm A will be willing to pay B to not invest? A) $30 million B) $20 million C) $35 million D) $50 million

47) The accompanying payoff matrix shows the payoffs (in millions of dollars) for two firms, A and B, for two different strategies, investing in new capital or not investing in new capital. Firm B Invest

Version 1

Not Invest

Firm A

Invest Not Invest

2.5 for A 20 for B 5 for A 70 for B

70 for A 5 for B 80 for A 50 for B

An industry spy from firm A comes to firm B and offers to pay B in exchange for B's certain and enforceable promise to not invest. What is the most that firm A will be willing to pay B to not invest? A) $75 million B) $5 million C) $40 million D) $42.5 million

48) Suppose Firm A and Firm B are considering whether to invest in a new production technology. For each firm, the payoff to investing (given in thousands of dollars per day) depends upon whether the other firm invests, as shown in the accompanying payoff matrix. Firm B Firm A

Invest Don't Invest

Invest 6 for A 6 for B 7 for A 5 for B

Not Invest 5 for A 7 for B 8 for A 8 for B

Which of the following statements is correct? A) It cannot be determined whether Firm A has a dominated strategy. B) "Don't invest" is a dominated strategy for Firm A. C) Firm A does not have a dominated strategy. D) "Invest" is a dominated strategy for Firm A.

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49) Suppose Firm A and Firm B are considering whether to invest in a new production technology. For each firm, the payoff to investing (given in thousands of dollars per day) depends upon whether the other firm invests, as shown in the payoff matrix below. Firm B Firm A

Invest Don't Invest

Invest 6 for A 6 for B 7 for A 5 for B

Don't Invest 5 for A 7 for B 8 for A 8 for B

What is the Nash equilibrium of this game? A) Firm A invests, and Firm B doesn't invest. B) Firm A doesn't invest, and Firm B invests. C) Firm A doesn’t invest, and Firm B doesn't invest. D) Firm A invests, and Firm B invests.

50) Suppose Firm A and Firm B are considering whether to invest in a new production technology. For each firm, the payoff to investing (given in thousands of dollars per day) depends upon whether the other firm invests, as shown in the accompanying payoff matrix. Firm B Firm A

Invest Don't Invest

Invest 12 for A 6 for B 7 for A 9 for B

Not Invest 5 for A 0 for B 0 for A 8 for B

What is the Nash equilibrium of this game? A) Firm A doesn't invest, and Firm B invests. B) Firm A doesn't invest, and Firm B doesn't invest. C) Firm A invests, and Firm B doesn't invest. D) Firm A invests, and Firm B invests.

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51) Suppose Firm A and Firm B are considering whether to invest in a new production technology. For each firm, the payoff to investing (given in thousands of dollars per day) depends upon whether the other firm invests, as shown in the accompanying payoff matrix. Firm B Firm A

Invest Don't Invest

Invest 6 for A 6 for B 7 for A 5 for B

Don't Invest 5 for A 7 for B 8 for A 8 for B

Is this game a prisoner’s dilemma? A) Yes. B) No. C) It cannot be determined. D) Only when both Firm A and Firm B invest.

52) The accompanying payoff matrix shows the daily profit for two firms, Row Restaurant and Column Cafe, for two different strategies, publishing coupons in the student paper and not publishing coupons in the student paper.

Row Restaurant

Publish Coupons Do not Publish Coupons

Column Cafe Publish Coupons Do not Publish Coupons $25 for Row $200 for Row $25 for Column $10 for Column $10 for Row $120 for Row $200 for Column $120 for Column

If Column Cafe publishes coupons and Row Restaurant does not, then Row Restaurant will earn ______, and Column Cafe will earn ______.

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A) $10; $200 B) $25; $25 C) $200; $10 D) $120; $120

53) The accompanying payoff matrix shows the daily profit for two firms, Row Restaurant and Column Cafe, for two different strategies, publishing coupons in the student paper and not publishing coupons in the student paper.

Row Restaurant

Publish Coupons Do not Publish Coupons

Column Cafe Publish Coupons Do not Publish Coupons $25 for Row $200 for Row $25 for Column $10 for Column $10 for Row $120 for Row $200 for Column $120 for Column

If Row Restaurant publishes coupons, Column Cafe would earn the highest profit if it A) did not publish coupons. B) also published coupons. C) chooses either strategy because Column Cafe will have the same profit in either case. D) only offered coupons half of the time.

54) The payoff matrix below shows the daily profit for two firms, Row Restaurant and Column Cafe, for two different strategies, publishing coupons in the student paper and not publishing coupons in the student paper.

Row Restaurant

Publish Coupons Do not Publish

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Column Cafe Publish Coupons Do not Publish Coupons $25 for Row $200 for Row $25 for Column $10 for Column $10 for Row $120 for Row

Coupons

$200 for Column

$120 for Column

The payoffs of this game are such that A) if Row Restaurant expects Column Cafe to choose its dominant strategy, then Row Restaurant should choose its dominated strategy. B) profit at each firm is higher when they both follow their dominant strategy than when they both follow their dominated strategy. C) both firms would benefit from a law that made publishing coupons illegal. D) an agreement not to publish coupons would be easy to maintain because neither firm has an incentive to defect.

55) A coalition of firms who agree to restrict output for the purpose of earning an economic profit is called a(n) A) pure monopoly. B) oligopoly. C) cartel. D) duopoly.

56)

Cartel agreements are difficult to sustain because

A) it's a dominant strategy for each cartel member to cheat on the cartel agreement. B) the collective payoff to all the cartel members is lower when they all abide by the cartel agreement. C) cartel members do not face the economic incentives inherent in a prisoner's dilemma. D) it's usually easy to discover if one of the members has cheated.

57)

Most cartels cease to be effective because

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A) of strict enforcement of antitrust legislation. B) of the incentive to cheat on the cartel agreement. C) the dominant firm buys out the other firms. D) consumers discover the cartel and buy from other firms instead.

58) Quick Buck and Pushy Sales produce and sell identical products and face zero marginal and average cost. The accompanying graph shows the market demand curve for their product.

If Quick Buck and Pushy Sales decide to collude and work together as a monopolist, then together they should produce ______ units per month and charge ______ per unit. A) 3,000; $1 B) 4,000; $2 C) 2,000; $2 D) 1,000; $3

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59) Quick Buck and Pushy Sales produce and sell identical products and face zero marginal and average cost. The accompanying graph shows the market demand curve for their product.

If Quick Buck and Pushy Sales decide to collude and work together as a monopolist with each firm producing half the quantity demanded by the market at the monopoly price, then what will be Quick Buck’s economic profit? A) $1,000 B) $2,000 C) $3,000 D) $4,000

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60) Quick Buck and Pushy Sales produce and sell identical products and face zero marginal and average cost. The accompanying graph shows the market demand curve for their product.

Suppose Quick Buck and Pushy Sales decide to collude and work together as a monopolist with each firm producing half the quantity demanded by the market at the monopoly price. If Quick Buck cheats by reducing its price to $1 while Pushy Sales continues to comply with the collusive agreement, then Quick Buck will sell ______ units and Pushy Sales will sell ______ units. A) 0; 3,000 B) 3,000; 1,000 C) 2,000; 1,000 D) 3,000; 0

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61) Quick Buck and Pushy Sales produce and sell identical products and face zero marginal and average cost. The accompanying graph shows the market demand curve for their product.

Suppose Quick Buck and Pushy Sales decide to collude and work together as a monopolist with each firm producing half the quantity demanded by the market at the monopoly price. If Quick Buck cheats by reducing its price to $1 while Pushy Sales continues to comply with the collusive agreement, then Quick Buck’s economic profit will be ______. A) $6,000 B) $4,000 C) $2,000 D) $3,000

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62) Quick Buck and Pushy Sales produce and sell identical products and face zero marginal and average cost. The accompanying graph shows the market demand curve for their product.

Suppose Quick Buck and Pushy Sales decide to collude and work together as a monopolist with each firm producing half the quantity demanded by the market at the monopoly price. If Quick Buck cheats by reducing its price to $1 and Pushy Sales matches the price cut, then if consumers are evenly split between the two firms, what will be Quick Buck’s economic profit? A) $1,000 B) $1,500 C) $2,000 D) $3,000

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63) Suppose Acme and Mega produce and sell identical products and face zero marginal and average cost. The accompanying graph shows the market demand curve for their product.

For a monopolist facing this demand curve, the profit-maximizing quantity is ______ and the profit-maximizing price is ______. A) 50; $2 B) 100; $2 C) 50; $3 D) 100; $1

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64) Suppose Acme and Mega produce and sell identical products and face zero marginal and average cost. The accompanying graph shows the market demand curve for their product.

If Acme and Mega decide to collude and work together as a monopolist with each firm producing half the quantity demanded by the market at the monopoly price, then what will be Mega’s economic profit? A) $0 B) $50 C) $100 D) $150

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65) Suppose Acme and Mega produce and sell identical products and face zero marginal and average cost. The accompanying graph shows the market demand curve for their product.

Suppose Acme and Mega decide to collude and work together as a monopolist with each firm producing half the quantity demanded by the market at the monopoly price. If Mega cheats on the agreement by reducing its price to $1 while Acme continues to comply with the collusive agreement, then Mega will then sell ______ units and Acme will sell ______ units. A) 150; 50 B) 100; 50 C) 150; 0 D) 100; 0

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66) Suppose Acme and Mega produce and sell identical products and face zero marginal and average cost. The accompanying graph shows the market demand curve for their product.

Suppose Acme and Mega decide to collude and work together as a monopolist with each firm producing half the quantity demanded by the market at the monopoly price. If Mega cheats on the agreement by reducing its price to $1 while Acme continues to comply with the collusive agreement, then Mega’s economic profit will be A) $75. B) $100. C) $150. D) $200.

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67) Suppose Acme and Mega produce and sell identical products and face zero marginal and average cost. The accompanying graph shows the market demand curve for their product.

Suppose Acme and Mega decide to collude and work together as a monopolist with each firm producing half the quantity demanded by the market at the monopoly price. If Mega cheats on the agreement by reducing its price to $1 and Acme matches the price cut, then if consumers are evenly split between the two firms, Acme’s economic profit will be A) $75. B) $100. C) $150. D) $200.

68)

OPEC is an example of a A) monopsony. B) cartel. C) monopoly. D) duopoly.

69) Suppose the market for bottled water is served by two oligopolists. If they reach an agreement to restrict production and charge a price above marginal cost, then

Version 1

A) they will earn a larger profit than a monopolist would have earned. B) they will charge a higher price than a monopolist would have charged. C) their agreement is likely to eventually collapse. D) neither firm will have an incentive to cheat on the agreement since it benefits them both.

70) Before it became illegal, cigarette manufacturers once relied heavily on TV advertising. According to the textbook, when the government banned TV advertising, the cigarette manufacturers A) supported the ban due to their concern over health effects of smoking. B) thought their First Amendment rights were being violated. C) were made worse off because the ban significantly reduced cigarette sales. D) benefited because the decision about whether to advertise on TV was a prisoner's dilemma.

71) The market for bagels contains two firms: BagelWorld (BW) and Bagels'R'Us (BRU). The owners of the two firms decide to fix the price of bagels. The accompanying table shows how each firm’s profit (in dollars) depends on whether they abide by the agreement or cheat on the agreement. Bagel World Bagels'R'Us

Cheat Abide

Cheat 40 for BRU 40 for BW 0 for BRU 80 for BW

Abide 80 for BRU 0 for BW 45 for BRU 45 for BW

For Bagel World, ______ is a ______.

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A) abiding by the agreement; dominant strategy B) cheating on the agreement; dominated strategy C) cheating on the agreement; dominant strategy D) abiding by the agreement; dominant strategy when Bagels'R'Us also abides

72) The market for bagels contains two firms: BagelWorld (BW) and Bagels'R'Us (BRU). The owners of the two firms decide to fix the price of bagels. The accompanying table shows how each firm’s profit (in dollars) depends on whether they abide by the agreement or cheat on the agreement. Bagel World Bagels'R'Us

Cheat Abide

Cheat 40 for BRU 40 for BW 0 for BRU 80 for BW

Abide 80 for BRU 0 for BW 45 for BRU 45 for BW

For Bagels'R'Us, ______ is a ______. A) abiding by the agreement; dominant strategy B) cheating on the agreement; dominated strategy C) cheating on the agreement; dominant strategy D) abiding by the agreement; dominant strategy when Bagel World also abides

73) The market for bagels contains two firms: BagelWorld (BW) and Bagels'R'Us (BRU). The owners of the two firms decide to fix the price of bagels. The accompanying table shows how each firm’s profit (in dollars) depends on whether they abide by the agreement or cheat on the agreement.

Bagels'R'Us

Cheat Abide

Version 1

Bagel World Cheat Abide 40 for BRU 80 for BRU 40 for BW 10 for BW 10 for BRU 45 for BRU

80 for BW

45 for BW

In the Nash equilibrium of this game

A) both firms abide by the agreement B) Bagel World abides and Bagels'R'Us cheats C) both firms cheat on the agreement D) Bagel World cheats and Bagels 'R' Us abides

74) The market for bagels contains two firms: BagelWorld (BW) and Bagels'R'Us (BRU). The owners of the two firms decide to fix the price of bagels. The accompanying table shows how each firm’s profit (in dollars) depends on whether they abide by the agreement or cheat on the agreement. Bagel World Bagels'R'Us

Cheat Abide

Cheat 24 for BRU 40 for BW 10 for BRU 9 for BW

Abide 80 for BRU 15 for BW 40 for BRU 45 for BW

In the Nash equilibrium of this game A) Bagel World abides and Bagels'R'Us cheats B) Bagel World cheats and Bagels'R'Us abides C) both firms abide by the agreement D) both firms cheat on the agreement

75) The market for bagels contains two firms: BagelWorld (BW) and Bagels'R'Us (BRU). The owners of the two firms decide to fix the price of bagels. The accompanying table shows how each firm’s profit (in dollars) depends on whether they abide by the agreement or cheat on the agreement. Bagel World

Version 1

Bagels'R'Us

Cheat Abide

Cheat 40 for BRU 40 for BW 0 for BRU 80 for BW

Abide 80 for BRU 0 for BW 45 for BRU 45 for BW

Is this game a prisoner’s dilemma? A) No, because cheating yields the highest payoff for both firms B) Yes, because if both firms played their dominated strategy, they each would earn a higher payoff than when they both play their dominant strategy. C) Yes, because if both firms played their dominant strategy, they each would earn a higher payoff than when they both play their dominated strategy. D) No, because neither firm has a dominant strategy

76) The market for bagels contains two firms: BagelWorld (BW) and Bagels'R'Us (BRU). The owners of the two firms decide to fix the price of bagels. The accompanying table shows how each firm’s profit (in dollars) depends on whether they abide by the agreement or cheat on the agreement.

Bagels'R'Us

Cheat Abide

Bagel World Cheat Abide 40 for BRU 80 for BRU 40 for BW 0 for BW 0 for BRU 45 for BRU 80 for BW 45 for BW

Suppose the game above is repeated every day, and both firms adopt the following strategy: cooperate on the first day, then if the other firm cheats, cheat the next day, and if the other firm abides, abide the next day. This type of strategy is known as A) a prisoner's dilemma. B) the cartel solution. C) a tit-for-tat strategy. D) the golden rule.

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77) The market for bagels contains two firms: BagelWorld (BW) and Bagels'R'Us (BRU). The owners of the two firms decide to fix the price of bagels. The accompanying table shows how each firm’s profit (in dollars) depends on whether they abide by the agreement or cheat on the agreement. Bagel World Bagels'R'Us

Cheat Abide

Cheat 40 for BRU 40 for BW 0 for BRU 80 for BW

Abide 80 for BRU 0 for BW 45 for BRU 45 for BW

Suppose the game above is repeated every day, and both firms adopt the following strategy: cooperate on the first day, then if the other firm cheats, cheat the next day, and if the other firm abides, abide the next day. This type of strategy is likely to increase the probability that A) both firms cheat. B) Bagel World cheats. C) both firms abide. D) Bagels'R'Us cheats.

78) The accompanying table shows how the payoffs to two political candidates depend on whether the candidates run a positive or negative campaign. The payoffs are given in terms of the percentage change in the number of votes received.

Democratic Candidate

Positive Campaign Negative Campaign

Republican Candidate Positive Negative Campaign Campaign 0% for D −5% for D 0% for R +5% for R +5% for D −2% for D −5% for R −2% for R

Running a negative campaign is ______ for the ______ candidate.

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A) a dominated strategy; Democratic B) a dominated strategy; Republican C) a dominant strategy; Democratic D) neither a dominant nor dominated strategy; Republican

79) The accompanying table shows how the payoffs to two political candidates depend on whether the candidates run a positive or negative campaign. The payoffs are given in terms of the percentage change in the number of votes received.

Democratic Candidate

Positive Campaign Negative Campaign

Republican Candidate Positive Negative Campaign Campaign 0% for D −5% for D 0% for R +5% for R +5% for D −2% for D −5% for R −2% for R

In the Nash equilibrium of this game A) both candidates run positive campaigns. B) one candidate runs a positive campaign, and the other runs a negative campaign. C) as long as one party runs a positive campaign, the other does too. D) both candidates run negative campaigns.

80) The table below shows how the payoffs to two political candidates depend on whether the candidates run a positive or negative campaign. The payoffs are given in terms of the percentage change in the number of votes received.

Democratic Candidate

Positive Campaign Negative Campaign

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Republican Candidate Positive Negative Campaign Campaign 0% for D −5% for D 0% for R +5% for R +5% for D −2% for D

−5% for R

−2% for R

Suppose that the Republican candidate tells the Democratic candidate that he intends to run a positive campaign. The likely result is that A) both candidates will run a positive campaign. B) the Republican candidate will run a positive campaign, and the Democratic candidate will run a negative campaign. C) both candidates will run a negative campaign. D) the Republican candidate will run a negative campaign, and the Democratic candidate will run a positive campaign.

81) According to the text, everyone shouts at a party in order to be heard. If instead everyone spoke at a normal volume people would still be heard, but people continue to shout because A) shouting is a dominated strategy. B) shouting is a dominant strategy. C) shouting can be sustained using a tit-for-tat strategy. D) the payoff matrix is unknown to the people at a party.

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82) Suppose Grandis and Immanis are the only two companies that sell the product whose market demand curve is shown in the accompanying figure. For both companies, both average total cost and marginal cost are constant and equal to $2 ( ATC = MC = $2).

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83) Suppose Grandis and Immanis are the only two companies that sell the product whose market demand curve is shown in the accompanying figure. For both companies, both average total cost and marginal cost are constant and equal to $2 ( ATC = MC = $2).

Suppose Grandis and Immanis agree to collude by both charging the price a monopolist would charge and each producing half of the monopolist’s profit-maximizing level of output. Grandis, however, decides to cheat on the collusive agreement. If Grandis charges $1 less than the monopoly price while Immanis continues to charge the monopoly price, then Grandis will earn a profit of _____ per day. A) $160 B) $80 C) $40 D) $20

84)

In a repeated prisoner's dilemma, players A) never learn to play their dominant strategies. B) can sustain cooperation by employing a tit-for-tat strategy. C) can sustain cooperation by playing their dominant strategy. D) always play their dominant strategy.

85)

A strategy that limits defection in a repeated prisoner's dilemma game is

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A) a Nash equilibrium. B) a tit-for-tat strategy. C) a cartel. D) an ultimatum bargaining game.

86)

The tit-for-tat strategy only works for a prisoner's dilemma that A) has only one Nash equilibrium. B) is played only one time. C) does not have a Nash equilibrium. D) is repeated.

87) In tit-for-tat, if your partner ______ in your first interaction, then you will ______ in your next interaction. A) defects; cooperate B) defects; defect C) cooperates; defect D) defects; refuse to play

88)

A decision tree is used when modeling A) any type of game. B) simultaneous decisions. C) a prisoner's dilemma. D) games in which timing matters.

89) A ______ describes the possible moves in a game in sequence and lists the payoffs to each possible combination of moves. Version 1

A) decision tree B) payoff matrix C) game graph D) multi-period game

90)

A credible threat is A) possible to carry out. B) legally enforceable. C) in the threatener's interest to carry out. D) not in the threatener's interest to carry out.

91)

A credible promise is A) in the promiser's interest to keep. B) legally enforceable. C) made by an honest person. D) possible to keep.

92) Suppose Jordan and Lee are trying to decide what to do on a Friday. Jordan would prefer to see a comedy while Lee would prefer to see a documentary. One documentary and one comedy are showing at the local cinema. The payoffs they receive from seeing the films either together or separately are shown in the accompanying payoff matrix. Both Jordan and Lee know the information contained in the payoff matrix. They purchase their tickets simultaneously, ignorant of the other's choice. Jordan Lee

Comedy Documentary

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Comedy 3 for Lee 5 for Jordan 2 for Lee

Documentary 1 for Lee 1 for Jordan 5 for Lee

2 for Jordan

3 for Jordan

Which of the following statements is true? A) Jordan does not have a dominant strategy. B) For Jordan, seeing a comedy is a dominant strategy. C) For Jordan, seeing a documentary is a dominant strategy. D) Jordon’s dominant strategy depends on Lee's choice.

93) Suppose Jordan and Lee are trying to decide what to do on a Friday. Jordan would prefer to see a comedy while Lee would prefer to see a documentary. One documentary and one comedy are showing at the local cinema. The payoffs they receive from seeing the films either together or separately are shown in the payoff matrix below. Both Jordan and Lee know the information contained in the payoff matrix. They purchase their tickets simultaneously, ignorant of the other's choice. Jordan Lee

Comedy Documentary

Comedy 3 for Lee 5 for Jordan 2 for Lee 2 for Jordan

Documentary 1 for Lee 1 for Jordan 5 for Lee 3 for Jordan

Which of the following statements is true? A) Lee does not have a dominant strategy. B) For Lee, seeing a comedy is a dominant strategy. C) For Lee, seeing a documentary is a dominant strategy. D) Lee’s dominant strategy depends on Jordan's choice.

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94) Suppose Jordan and Lee are trying to decide what to do on a Friday. Jordan would prefer to see a comedy while Lee would prefer to see a documentary. One documentary and one comedy are showing at the local cinema. The payoffs they receive from seeing the films either together or separately are shown in the payoff matrix below. Both Jordan and Lee know the information contained in the payoff matrix. They purchase their tickets simultaneously, ignorant of the other's choice. Jordan Lee

Comedy Documentary

Comedy 3 for Lee 5 for Jordan 2 for Lee 2 for Jordan

Documentary 1 for Lee 1 for Jordan 5 for Lee 3 for Jordan

This game A) is a prisoner's dilemma. B) is not a prisoner's dilemma. C) is an ultimatum bargaining game. D) has no Nash equilibrium.

95) Suppose Jordan and Lee are trying to decide what to do on a Friday. Jordan would prefer to see a comedy while Lee would prefer to see a documentary. One documentary and one comedy are showing at the local cinema. The payoffs they receive from seeing the films either together or separately are shown in the accompanying payoff matrix. Both Jordan and Lee know the information contained in the payoff matrix. They purchase their tickets simultaneously, ignorant of the other's choice. Jordan Lee

Comedy Documentary

Comedy 3 for Lee 5 for Jordan 2 for Lee 2 for Jordan

Documentary 1 for Lee 1 for Jordan 5 for Lee 3 for Jordan

Which of the following statements is true?

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A) The lower-left cell is the only Nash equilibrium. B) Both the lower-left and upper-right cells are Nash equilibria. C) Both the upper-left and lower-right cells are Nash equilibria. D) The upper-right cell is the only Nash equilibrium.

96) Suppose Jordan and Lee are trying to decide what to do on a Friday. Jordan would prefer to see a comedy while Lee would prefer to see a documentary. One documentary and one comedy are showing at the local cinema. The payoffs they receive from seeing the films either together or separately are shown in the accompanying payoff matrix. Both Jordan and Lee know the information contained in the payoff matrix. They purchase their tickets simultaneously, ignorant of the other's choice. Jordan Lee

Comedy Documentary

Comedy 1 for Lee 5 for Jordan 2 for Lee 1 for Jordan

Documentary 1 for Lee 3 for Jordan 3 for Lee 3 for Jordan

Which of the following statements is true? A) Both the upper-right and lower-left cells are Nash equilibria. B) The upper-left cell is the only Nash equilibrium. C) The lower-right cell is the only Nash equilibrium. D) Both the upper-left and lower-right cells are Nash equilibria.

97) Suppose Jordan and Lee are trying to decide what to do on a Friday. Jordan would prefer to see a comedy while Lee would prefer to see a documentary. One documentary and one comedy are showing at the local cinema. The payoffs they receive from seeing the films either together or separately are shown in the payoff matrix below. Both Jordan and Lee know the information contained in the payoff matrix. They purchase their tickets simultaneously, ignorant of the other's choice. Jordan

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Lee

Comedy Documentary

Comedy 3 for Lee 5 for Jordan 2 for Lee 2 for Jordan

Documentary 1 for Lee 1 for Jordan 5 for Lee 3 for Jordan

Suppose a timing element is added to the game, and that Jordan buys a ticket first. Then, after seeing Jordon’s choice, Lee buys a ticket. What will be the equilibrium outcome? A) Both Jordan and Lee will buy a ticket to the comedy. B) Both Jordan and Lee will buy a ticket to the documentary C) Jordan will buy a ticket to the comedy and Lee will buy a ticket to the documentary. D) Jordan will buy a ticket to the documentary and Lee will buy a ticket to the comedy.

98)

Consider to the accompanying payoff matrix. Player B Player A

Up Down

Left 60 for A 60 for B 5 for A 70 for B

Right 70 for A 5 for B 50 for A 50 for B

If player A makes his or her choice before player B, then what will be the equilibrium outcome of this game? A) Player A and player B both get 60. B) Player A and player B both get 50. C) Player A gets 5 and player B gets 70. D) Player A gets 70 and player B gets 5.

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99) Player 1 and Player 2 are playing a game in which Player 1 has the first move at A in the decision tree shown below. Once Player 1 has chosen either Up or Down, Player 2, who can see what Player 1 has chosen, must choose Up or Down at B or C. Both players know the payoffs at the end of each branch.

What is the equilibrium outcome of this game? A) Player 1 and Player 2 both choose Up. B) Player 1 and Player 2 both choose Down. C) Player 1 chooses Up and Player 2 chooses Down. D) Player 1 chooses Down, and Player 2 chooses Up.

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100) Player 1 and Player 2 are playing a game in which Player 1 has the first move at A in the decision tree shown below. Once Player 1 has chosen either Up or Down, Player 2, who can see what Player 1 has chosen, must choose Up or Down at B or C. Both players know the payoffs at the end of each branch.

Suppose Player 1 and Player 2 enter into a binding agreement in which Player 1 agrees to pay Player 2 a fixed amount of money to get Player 2 to play Up when it is Player 2’s turn. How much will Player 1 have to pay Player 2 to get Player 2 to play Up? A) $0. B) at least $10. C) at least $20. D) at least $50.

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101) Player 1 and Player 2 are playing a game in which Player 1 has the first move at A in the decision tree shown below. Once Player 1 has chosen either Up or Down, Player 2, who can see what Player 1 has chosen, must choose Up or Down at B or C. Both players know the payoffs at the end of each branch.

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102) Player 1 and Player 2 are playing a game in which Player 1 has the first move at A in the decision tree shown below. Once Player 1 has chosen either Up or Down, Player 2, who can see what Player 1 has chosen, must choose Up or Down at B or C. Both players know the payoffs at the end of each branch.

If Player 2 could make a credible commitment to choose either Up or Down when his or her turn came, then what would Player 2 do? A) Player 2 would not commit to choosing either strategy. B) Player 2 would commit to choosing Up. C) Player 2 would commit to choosing Down. D) Player 2 would commit to mimicking Player 1’s strategy.

103) Suppose two companies, Macrosoft and Apricot, are considering whether to develop a new product, a touch-screen t-shirt. The payoffs to each of developing a touch-screen t-shirt depend upon the actions of the other, as shown in the payoff matrix below (the payoffs are given in millions of dollars).

Apricot

Develop Don't Develop

Macrosoft Develop Don't Develop −2 for A 5 for A −2 for M 0 for M 0 for A 0 for A 5 for M 0 for M

Which of the following statements is correct?

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A) Apricot’s dominant strategy is to develop a touch-screen t-shirt. B) Apricot’s dominant strategy is to develop a touch-screen t-shirt if Macrosoft does not. C) Apricot’s dominant strategy is to not develop a touch screen t-shift. D) Apricot does not have a dominant strategy.

104) Suppose two companies, Macrosoft and Apricot, are considering whether to develop a new product, a touch-screen t-shirt. The payoffs to each of developing a touch-screen t-shirt depend upon the actions of the other, as shown in the payoff matrix below (the payoffs are given in millions of dollars).

Apricot

Develop Don't Develop

Macrosoft Develop Don't Develop −2 for A 5 for A −2 for M 0 for M 0 for A 0 for A 5 for M 0 for M

If Macrosoft and Apricot make their decision at the same time, then which of the following statements is correct? A) The only Nash equilibrium is that both develop a touch-screen t-shirt. B) The only Nash equilibrium is that neither develops a touch-screen t-shirt. C) The game does not have a Nash equilibrium. D) The game has more than one Nash equilibrium.

105) Suppose two companies, Macrosoft and Apricot, are considering whether to develop a new product, a touch-screen t-shirt. The payoffs to each of developing a touch-screen t-shirt depend upon the actions of the other, as shown in the payoff matrix below (the payoffs are given in millions of dollars).

Apricot

Version 1

Develop

Macrosoft Develop Don't Develop −2 for A 5 for A

Don't Develop

−2 for M 0 for A 5 for M

0 for M 0 for A 0 for M

Suppose Apricot makes its decision first, and then Macrosoft makes its decision after seeing Apricot’s choice. What will be the equilibrium outcome of this game? A) Apricot will develop a touch-screen t-shirt, and Macrosoft will not. B) Macrosoft will develop a touch-screen t-shirt, and Apricot will not. C) Both Apricot and Macrosoft will develop a touch-screen t-shirt. D) Neither Apricot nor Macrosoft will develop a touch-screen t-shirt.

106) Suppose two companies, Macrosoft and Apricot, are considering whether to develop a new product, a touch-screen t-shirt. The payoffs to each of developing a touch-screen t-shirt depend upon the actions of the other, as shown in the payoff matrix below (the payoffs are given in millions of dollars).

Apricot

Develop Don't Develop

Macrosoft Develop Don't Develop −2 for A 5 for A −2 for M 0 for M 0 for A 0 for A 5 for M 0 for M

Suppose Apricot makes its decision first, and then Macrosoft makes its decision after seeing Apricot’s choice. What will happen if, before Apricot chooses, Macrosoft announces that it is going to develop a touch-screen t-shirt no matter what Apricot does? A) Apricot will develop a touch-screen t-shirt, and Macrosoft will not because Macrosoft’s threat is not credible. B) Macrosoft will develop a touch-screen t-shirt, and Apricot will not because it’s not in Apricot’s interest to develop a touch-screen t-shirt if Macrosoft also develops one. C) Both Apricot and Macrosoft will develop a touch-screen t-shirt because neither company will want to back down. D) Neither Apricot nor Macrosoft will develop a touch-screen t-shirt because they will both realize that they are in a no-win situation.

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107)

In sequential games, the player who moves first

A) always has a first-mover advantage. B) has a first-mover advantage only when he or she is able to make a credible threat or promise to choose a dominated strategy. C) has a first-mover advantage only when the second mover fails to choose the dominant strategy. D) sometimes has an advantage and sometimes has a disadvantage.

108)

A monopolistically competitive firm

A) sells products that are perfect substitutes for its competitors' products, so must compete on the basis of location. B) sells products that are close substitutes for its competitors' products, so will locate as far away from its competitors as possible. C) sometimes distinguishes its output from that of its competitors by locating in a more convenient place. D) will be more successful the more similar its output is to its competitors' output.

109) Suppose that you have noticed that almost all of the car dealers in your city are located along a three-block stretch of the same street. A likely reason for this clustering of car dealers is that A) the dealers are better able to form a cartel. B) each dealer is attempting to locate closest to the customers. C) there is a social norm in that city that dealers follow in choosing location. D) each dealer sells a different brand of car, so they are not competitors and do not have to be concerned about the other dealers' locations.

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110) One thousand adults live in Milltown. Every day, they all leave work at 4:30 p.m., arrive home at exactly 5:00 p.m., and go to bed at 9:00 p.m. Three fundraisers—Alpha, Beta, and Charlie—have targeted Milltown's population. To get a donation, they must call Milltown's residents after they get home from work but before they go to bed. Because the charities raising the funds are identical, the first to call a willing donor will get the donation. Beta's manager has decided that the best time to call is 7:00 p.m. because it is exactly halfway between 5:00 p.m. and bedtime. Which of the following is true? A) Beta is certain to generate the most donations. B) Alpha and Charlie will also make calls at 7:00 p.m. C) Alpha and Charlie will divide up the rest of the market, with one choosing to call at 6:00 p.m. and the other at 8:00 p.m. D) Beta's manager did not choose wisely.

111) One thousand adults live in Milltown. Every day, they all leave work at 4:30 p.m., arrive home at exactly 5:00 p.m., and go to bed at 9:00 p.m. Three fundraisers—Alpha, Beta, and Charlie—have targeted Milltown's population. To get a donation, they must call Milltown's residents after they get home from work but before they go to bed. Because the charities raising the funds are identical, the first to call a willing donor will get the donation. Calls made by the fundraisers will tend to be A) evenly distributed throughout the evening. B) clustered near 5:00 p.m. C) clustered near 6:00 p.m. D) clustered near 7:00 p.m.

112) One thousand adults live in Milltown. Every day, they all leave work at 4:30 p.m., arrive home at exactly 5:00 p.m., and go to bed at 9:00 p.m. Three fundraisers—Alpha, Beta, and Charlie—have targeted Milltown's population. To get a donation, they must call Milltown's residents after they get home from work but before they go to bed. Because the charities raising the funds are identical, the first to call a willing donor will get the donation. To an economic naturalist, this scenario would explain why

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A) fundraising calls typically occur shortly before people go to bed. B) fundraising calls typically occur shortly after people arrive home from work. C) fundraising calls are outsourced to Asian countries. D) telephone fundraisers have become less popular.

113) The last time you went on a road trip, you noticed that there were several fast-food outlets clustered near some freeway exits, but none at the others. Now that you are familiar with Hotelling's model, you know that the reason for this is A) zoning laws. B) firms vying for a favorable location. C) failure by the firms to correctly distribute themselves. D) the existence of fast-food cartels.

114) Hotelling's model has been used to describe differentiation in the political "market." Suppose that 100 voters are evenly distributed between the extreme left and the extreme right on the political spectrum, and that all voters vote, and they always vote for the candidate closest to them on this spectrum. The numbers on this spectrum represent the number of voters lying to the left of the number. So, at the midpoint, 50 voters lie to the left and 50 to the right.

If Candidate X is running for office against Candidate Z, then A) all voters to the left of Z will vote for X, and all voters to the right of Z will vote for Z. B) all voters who would have voted for Y will vote for X. C) Candidate Z will win. D) Candidate X might win.

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115) Hotelling's model has been used to describe differentiation in the political "market." Suppose that 100 voters are evenly distributed between the extreme left and the extreme right on the political spectrum, and that all voters vote, and they always vote for the candidate closest to them on this spectrum. The numbers on this spectrum represent the number of voters lying to the left of the number. So, at the midpoint, 50 voters lie to the left and 50 to the right.

Suppose Candidate X is running against Candidate Y. If Candidate Z enters the race A) approximately half of the voters who were going to vote for X will now vote for Z. B) X will win because Y and Z will be competing for the same voters. C) all of the voters who were going to vote for Y will now vote for Z. D) most of the voters who were going to vote for Y will now vote for Z.

116) Hotelling's model has been used to describe differentiation in the political "market." Suppose that 100 voters are evenly distributed between the extreme left and the extreme right on the political spectrum, and that all voters vote, and they always vote for the candidate closest to them on this spectrum. The numbers on this spectrum represent the number of voters lying to the left of the number. So, at the midpoint, 50 voters lie to the left and 50 to the right.

If Candidate X is running against Candidate Z, by moving to the right Candidate X would A) lose some votes from voters on the far left but gain approximately the same number of votes from Z. B) not lose any votes from voters on the left and gain some votes from Z. C) force Z to move farther to the right in order to keep the same number of votes. D) win the election if the move placed X anywhere to the right of 25 on the spectrum.

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117) Hotelling's model has been used to describe differentiation in the political "market." Suppose that 100 voters are evenly distributed between the extreme left and the extreme right on the political spectrum, and that all voters vote, and they always vote for the candidate closest to them on this spectrum. The numbers on this spectrum represent the number of voters lying to the left of the number. So, at the midpoint, 550 voters lie to the left and 50 to the right.

If Candidate Y is running against Candidate Z A) Candidate Y will have an incentive to move to the left, and Candidate Z will have an incentive to move to the right. B) Both candidates will have an incentive to move to the left. C) Both candidates will have an incentive to move toward each other's position. D) Neither candidate has any incentive to move.

118) Hotelling's model has been used to describe differentiation in the political "market." Suppose that 100 voters are evenly distributed between the extreme left and the extreme right on the political spectrum, and that all voters vote, and they always vote for the candidate closest to them on this spectrum. The numbers on this spectrum represent the number of voters lying to the left of the number. So, at the midpoint, 50 voters lie to the left and 50 to the right.

To an economic naturalist, this model helps explain why political candidates A) take more extreme positions than are held by the general population. B) move toward more centrist positions during campaign season. C) work to bring federally funded projects to their home districts. D) are loyal to their political parties.

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119) Miniville is an isolated town located on the southern shore of Lake Condescending, a very large lake. The western edge of Miniville is adjacent to impassable mountains and there are no towns or businesses for many miles to the east. The 300 residents of Miniville are evenly distributed along 3 miles of shoreline on the lake, east of the mountains. Lake Shore Drive, the only street in town, provides access to Miniville's homes and businesses. All residents live between the lake and the street; businesses locate on the other side of the street. Lake Shore Drive is 3 miles long, and the points labeled A, B, and C are 1, 2, and 3 miles from the western end of Lake Shore Drive, respectively. All residents of Miniville shop at the store located closest to their homes.

______ residents of Miniville live west of point B, and _____ live east of point A. A) 100; 200 B) 150; 150 C) 200; 200 D) 200; 100

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120) Miniville is an isolated town located on the southern shore of Lake Condescending, a very large lake. The western edge of Miniville is adjacent to impassable mountains and there are no towns or businesses for many miles to the east. The 300 residents of Miniville are evenly distributed along 3 miles of shoreline on the lake, east of the mountains. Lake Shore Drive, the only street in town, provides access to Miniville's homes and businesses. All residents live between the lake and the street; businesses locate on the other side of the street. Lake Shore Drive is 3 miles long, and the points labeled A, B, and C are 1, 2, and 3 miles from the western end of Lake Shore Drive, respectively. All residents of Miniville shop at the store located closest to their homes.

Because all residents of Miniville shop at the store located closest to their homes, the optimal location for the first store to open in Miniville is A) at the western end of Lake Shore Drive. B) there is no single optimal location for the first store. C) Point A. D) Point C.

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121) Miniville is an isolated town located on the southern shore of Lake Condescending, a very large lake. The western edge of Miniville is adjacent to impassable mountains and there are no towns or businesses for many miles to the east. The 300 residents of Miniville are evenly distributed along 3 miles of shoreline on the lake, east of the mountains. Lake Shore Drive, the only street in town, provides access to Miniville's homes and businesses. All residents live between the lake and the street; businesses locate on the other side of the street. Lake Shore Drive is 3 miles long, and the points labeled A, B, and C are 1, 2, and 3 miles from the western end of Lake Shore Drive, respectively. All residents of Miniville shop at the store located closest to their homes.

If one store is located at A and the other store is located at B A) all of the people living between A and the mountains will shop at the store at A. B) some, but not all, of the people living east of B will shop at the store at B. C) exactly half of the people living west of B will shop at the store at B. D) exactly half of the people living east of B will shop at the store at B.

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122) Miniville is an isolated town located on the southern shore of Lake Condescending, a very large lake. The western edge of Miniville is adjacent to impassable mountains and there are no towns or businesses for many miles to the east. The 300 residents of Miniville are evenly distributed along 3 miles of shoreline on the lake, east of the mountains. Lake Shore Drive, the only street in town, provides access to Miniville's homes and businesses. All residents live between the lake and the street; businesses locate on the other side of the street. Lake Shore Drive is 3 miles long, and the points labeled A, B, and C are 1, 2, and 3 miles from the western end of Lake Shore Drive, respectively. All residents of Miniville shop at the store located closest to their homes.

If one store is located at A and the other store is located at C A) 150 people will shop at each store. B) 200 people will shop at the store at A, and 100 people will shop at the store at C. C) 100 people will shop at the store at A, and 200 people will shop at the store at C. D) 100 people will certainly shop at each store, but where the other 100 will shop is indeterminant.

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123) Miniville is an isolated town located on the southern shore of Lake Condescending, a very large lake. The western edge of Miniville is adjacent to impassable mountains and there are no towns or businesses for many miles to the east. The 300 residents of Miniville are evenly distributed along 3 miles of shoreline on the lake, east of the mountains. Lake Shore Drive, the only street in town, provides access to Miniville's homes and businesses. All residents live between the lake and the street; businesses locate on the other side of the street. Lake Shore Drive is 3 miles long, and the points labeled A, B, and C are 1, 2, and 3 miles from the western end of Lake Shore Drive, respectively. All residents of Miniville shop at the store located closest to their homes.

If the first store to open in Miniville is located at A, to maximize the number of customers it attracts, the next store to open should locate A) just west of A. B) at B. C) at C. D) just east of A.

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124) Miniville is an isolated town located on the southern shore of Lake Condescending, a very large lake. The western edge of Miniville is adjacent to impassable mountains and there are no towns or businesses for many miles to the east. The 300 residents of Miniville are evenly distributed along 3 miles of shoreline on the lake, east of the mountains. Lake Shore Drive, the only street in town, provides access to Miniville's homes and businesses. All residents live between the lake and the street; businesses locate on the other side of the street. Lake Shore Drive is 3 miles long, and the points labeled A, B, and C are 1, 2, and 3 miles from the western end of Lake Shore Drive, respectively. All residents of Miniville shop at the store located closest to their homes.

If three stores were to open sequentially, you would expect that those stores would be located A) at points A, B, and C. B) halfway between the mountains and A, halfway between A and B, and halfway between B and C. C) in a cluster, nearest the mountains. D) in a cluster, near the location chosen by the first store to locate.

125) When players cannot achieve their goals because they are unable to make credible threats or promises, the situation is called a A) prisoner's dilemma. B) Nash equilibrium. C) failure of dominant strategies. D) commitment problem.

126)

A commitment problem exists when people cannot achieve their goals because

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A) they cannot make credible threats or promises. B) they cannot play their dominant strategy. C) the payoff matrix is unknown. D) they do not have the first-mover advantage in a sequential move game.

127) Something that changes incentives so as to make otherwise empty threats or promises credible is called a A) Nash equilibrium. B) commitment device. C) strategic device. D) dominant strategy.

128)

According to the textbook, the owners of restaurants encourage tipping in order to A) ensure that their servers earn enough money. B) solve a commitment problem with their servers. C) sustain cooperation in a repeated prisoner's dilemma. D) avoid playing a dominated strategy.

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129) Tracy and Amy are playing a game in which Tracy has the first move at X in the accompanying decision tree. Once Tracy has chosen either the top or bottom branch at X, Amy, who can see what Tracy has chosen, must choose the top or bottom branch at Y or Z. Both players know the payoffs at the end of each branch.

In the equilibrium this game, Tracy chooses the ______ branch, and then Amy chooses the ______ branch. A) top; top B) top; bottom C) bottom; top D) bottom; bottom

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130) Tracy and Amy are playing a game in which Tracy has the first move at X in the accompanying decision tree. . Once Tracy has chosen either the top or bottom branch at X, Amy, who can see what Tracy has chosen, must choose the top or bottom branch at Y or Z. Both players know the payoffs at the end of each branch.

In the equilibrium of this game A) Tracy and Amy both get 125. B) Tracy gets 75 and Amy gets 150. C) Tracy gets 300 and Amy gets 200. D) Tracy gets 25 and Amy gets 225.

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131) Tracy and Amy are playing a game in which Tracy has the first move at X in the accompanying decision tree. Once Tracy has chosen either the top or bottom branch at X, Amy, who can see what Tracy has chosen, must choose the top or bottom branch at Y or Z. Both players know the payoffs at the end of each branch.

If before Tracy chose, Amy could make a credible commitment to choose either the top or bottom branch when her turn came, then Amy would commit to the ______ branch and Tracy would choose the ______ branch. A) top; top B) bottom; bottom C) top; bottom D) bottom; top

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132) Tracy and Amy are playing a game in which Tracy has the first move at X in the accompanying decision tree. Once Tracy has chosen either the top or bottom branch at X, Amy, who can see what Tracy has chosen, must choose the top or bottom branch at Y or Z. Both players know the payoffs at the end of each branch.

If before Tracy chose, Amy could make a credible commitment to choose either the top or bottom branch when her turn came, then we would expect Tracy to get a payoff of ______ and Amy to get a payoff of ______. A) 25; 225 B) 300; 200 C) 75; 150 D) 125; 125

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133) Tracy and Amy are playing a game in which Tracy has the first move at X in the accompanying decision tree. Once Tracy has chosen either the top or bottom branch at X, Amy, who can see what Tracy has chosen, must choose the top or bottom branch at Y or Z. Both players know the payoffs at the end of each branch.

The equilibrium to the game results in ______ for Amy and Tracy relative to what they could get if they could solve their ______. A) lower payoffs; prisoner's dilemma B) higher payoffs; commitment problem C) lower payoffs; credible threat D) lower payoffs; commitment problem

134)

Which of the following is NOT a commitment device?

A) A nonrefundable advance payment to reserve a room at a resort. B) A manufacturer's 2-year agreement to fix, at no cost to you, anything that breaks on your computer. C) A pre-nuptial agreement that provides for a large penalty in the event a spouse has an affair. D) High fines for illegal parking on campus.

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135)

Commitment devices are necessary when A) people cannot correctly identify their dominant strategy. B) players cannot trust that other players will avoid playing a dominated strategy. C) following through on a threat or promise is not in a player's best interest. D) commitments cannot be purchased.

136) Lee and Cody are playing a game in which Lee has the first move at A in the accompanying decision tree. Once Lee has chosen either aggression or cooperation, Cody, who can see what Lee has chosen, must choose either aggression or cooperation at B or C. Both players know the payoffs at the end of each branch.

If Lee chooses aggression, Cody will respond with ______, and if Lee chooses cooperation, Cody will respond with ______. A) aggression; cooperation B) aggression; aggression C) cooperation; aggression D) cooperation; cooperation

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137) Lee and Cody are playing a game in which Lee has the first move at A in the decision tree shown below. Once Lee has chosen either aggression or cooperation, Cody, who can see what Lee has chosen, must choose either aggression or cooperation at B or C. Both players know the payoffs at the end of each branch.

Suppose Cody tells Lee that if Lee chooses aggression, then Cody will also choose aggression, and if Lee chooses cooperation, then Cody will also choose cooperation. Cody’s statement is A) a commitment device. B) not credible. C) a description of the two equilibria in this game. D) credible.

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138) Lee and Cody are playing a game in which Lee has the first move at A in the accompanying decision tree. Once Lee has chosen either aggression or cooperation, Cody, who can see what Lee has chosen, must choose either aggression or cooperation at B or C. Both players know the payoffs at the end of each branch.

In the equilibrium of this game, Lee chooses ______, and then Cody chooses ______. A) aggression; aggression B) aggression; cooperation C) cooperation; aggression D) cooperation; cooperation

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139) Lee and Cody are playing a game in which Lee has the first move at A in the accompanying decision tree. Once Lee has chosen either aggression or cooperation, Cody, who can see what Lee has chosen, must choose either aggression or cooperation at B or C. Both players know the payoffs at the end of each branch.

Suppose Lee and Cody enter into a binding nonaggression agreement. As part of that agreement, they negotiate a fine that Cody would have to pay to Lee if Cody chooses aggression after Lee chooses cooperation. For the fine to be effective, it would have to be A) less than 15. B) at least 15. C) equal to 40. D) equal to 25.

140) Mexico and the members of OPEC produce crude oil. Realizing that it would be in their best interests to form an agreement on production goals, a meeting is arranged, and an informal, verbal agreement is reached. If both Mexico and OPEC abide by the agreement, then OPEC's profit will be $200 million and Mexico's profit will be $100 million. If both Mexico and OPEC cheat on the agreement, then OPEC's profit will be $175 million and Mexico's profit will be $80 million. If only OPEC cheats, then OPEC's profit will be $185 million, and Mexico's profit will be $60 million. If only Mexico cheats, then Mexico's profit will be $110 million, and OPEC's profit will be $150 million. To Mexico, the payoff to cheating is either

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A) $60 million or $100 million. B) $150 million or $200 million. C) $80 million or $110 million. D) $100 million or $110 million.

141) Mexico and the members of OPEC produce crude oil. Realizing that it would be in their best interests to form an agreement on production goals, a meeting is arranged, and an informal, verbal agreement is reached. If both Mexico and OPEC abide by the agreement, then OPEC's profit will be $200 million and Mexico's profit will be $100 million. If both Mexico and OPEC cheat on the agreement, then OPEC's profit will be $175 million and Mexico's profit will be $80 million. If only OPEC cheats, then OPEC's profit will be $185 million, and Mexico's profit will be $60 million. If only Mexico cheats, then Mexico's profit will be $110 million, and OPEC's profit will be $150 million. To OPEC, the payoff to abiding by the agreement is either A) $150 million or $200 million. B) $200 million or $185 million. C) $60 million or $100 million. D) $175 million or $185 million.

142) Mexico and the members of OPEC produce crude oil. Realizing that it would be in their best interests to form an agreement on production goals, a meeting is arranged, and an informal, verbal agreement is reached. If both Mexico and OPEC abide by the agreement, then OPEC's profit will be $200 million and Mexico's profit will be $100 million. If both Mexico and OPEC cheat on the agreement, then OPEC's profit will be $175 million and Mexico's profit will be $80 million. If only OPEC cheats, then OPEC's profit will be $185 million, and Mexico's profit will be $60 million. If only Mexico cheats, then Mexico's profit will be $110 million, and OPEC's profit will be $150 million. Which of the following statements is correct?

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A) Mexico does not have dominant strategy. B) Mexico's dominant strategy is to abide by the agreement. C) Mexico does not have a dominated strategy. D) Mexico's dominant strategy is to cheat on the agreement.

143) Mexico and the members of OPEC produce crude oil. Realizing that it would be in their best interests to form an agreement on production goals, a meeting is arranged, and an informal, verbal agreement is reached. If both Mexico and OPEC abide by the agreement, then OPEC's profit will be $200 million and Mexico's profit will be $100 million. If both Mexico and OPEC cheat on the agreement, then OPEC's profit will be $175 million and Mexico's profit will be $80 million. If only OPEC cheats, then OPEC's profit will be $185 million, and Mexico's profit will be $60 million. If only Mexico cheats, then Mexico's profit will be $110 million, and OPEC's profit will be $150 million. Which of the following statements is correct? A) OPEC does not have dominant strategy. B) OPEC's dominant strategy is to abide by the agreement. C) OPEC's dominated strategy is to cheat on the agreement. D) OPEC's dominant strategy is to cheat on the agreement.

144) Mexico and the members of OPEC produce crude oil. Realizing that it would be in their best interests to form an agreement on production goals, a meeting is arranged, and an informal, verbal agreement is reached. If both Mexico and OPEC abide by the agreement, then OPEC's profit will be $200 million and Mexico's profit will be $100 million. If both Mexico and OPEC cheat on the agreement, then OPEC's profit will be $175 million and Mexico's profit will be $80 million. If only OPEC cheats, then OPEC's profit will be $185 million, and Mexico's profit will be $60 million. If only Mexico cheats, then Mexico's profit will be $110 million, and OPEC's profit will be $150 million. In the Nash equilibrium of this game

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A) both Mexico and OPEC abide by the agreement. B) both Mexico and OPEC cheat on the agreement. C) Mexico cheats on the agreement and OPEC abides by the agreement. D) OPEC cheats on the agreement and Mexico abides by the agreement.

145) Mexico and the members of OPEC produce crude oil. Realizing that it would be in their best interests to form an agreement on production goals, a meeting is arranged, and an informal, verbal agreement is reached. If both Mexico and OPEC abide by the agreement, then OPEC's profit will be $200 million and Mexico's profit will be $100 million. If both Mexico and OPEC cheat on the agreement, then OPEC's profit will be $175 million and Mexico's profit will be $80 million. If only OPEC cheats, then OPEC's profit will be $185 million, and Mexico's profit will be $60 million. If only Mexico cheats, then Mexico's profit will be $110 million, and OPEC's profit will be $150 million. This game is _______ because ______. A) a prisoner's dilemma; not cheating is better for both B) not a prisoner's dilemma; cheating is better for both C) a prisoner's dilemma; cheating is better for both D) not a prisoner's dilemma; OPEC does not have a dominant strategy

146) Mexico and the members of OPEC produce crude oil. Realizing that it would be in their best interests to form an agreement on production goals, a meeting is arranged, and an informal, verbal agreement is reached. If both Mexico and OPEC abide by the agreement, then OPEC's profit will be $200 million and Mexico's profit will be $100 million. If both Mexico and OPEC cheat on the agreement, then OPEC's profit will be $175 million and Mexico's profit will be $80 million. If only OPEC cheats, then OPEC's profit will be $185 million, and Mexico's profit will be $60 million. If only Mexico cheats, then Mexico's profit will be $110 million, and OPEC's profit will be $150 million. Suppose Mexico chooses first, and then OPEC, after seeing Mexico's choice, chooses second. Before Mexico chooses, OPEC tells Mexico that if Mexico cheats on the agreement, then OPEC will also cheat, and if Mexico abides by the agreement, then OPEC will also abide. This is an example of a ______, and the outcome is that ______.

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A) commitment problem; neither will cheat B) credible threat; neither will cheat C) prisoner's dilemma; both will cheat D) noncredible threat; both will cheat

147) P-TV and QRS-TV are trying to decide whether to air a sitcom or a reality show in a given time slot. Viewers like both sitcoms and reality shows, but sitcoms are more expensive to produce than reality shows since real actors need to be hired. QRS-TV makes its decision first, and then P-TV observes that choice before making its decision. Both stations know all of the information in the accompanying decision tree.

Given the information in this decision tree, if QRS-TV announces that it will air a sitcom, it can expect to A) lose $5 million. B) earn $5 million. C) earn $10 million. D) earn $20 million.

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148) P-TV and QRS-TV are trying to decide whether to air a sitcom or a reality show in a given time slot. Viewers like both sitcoms and reality shows, but sitcoms are more expensive to produce than reality shows since real actors need to be hired. QRS-TV makes its decision first, and then P-TV observes that choice before making its decision. Both stations know all of the information in the accompanying decision tree.

Given the information in this decision tree, if QRS-TV announces that it will air a reality show, it can expect to A) lose $5 million. B) earn $5 million. C) earn $10 million. D) earn $20 million.

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149) P-TV and QRS-TV are trying to decide whether to air a sitcom or a reality show in a given time slot. Viewers like both sitcoms and reality shows, but sitcoms are more expensive to produce than reality shows since real actors need to be hired. QRS-TV makes its decision first, and then P-TV observes that choice before making its decision. Both stations know all of the information in the accompanying decision tree.

P-TV will air a sitcom A) only if QRS-TV is also airing a sitcom. B) only if QRS-TV is airing a reality show. C) no matter what QRS-TV does. D) never.

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150) P-TV and QRS-TV are trying to decide whether to air a sitcom or a reality show in a given time slot. Viewers like both sitcoms and reality shows, but sitcoms are more expensive to produce than reality shows since real actors need to be hired. QRS-TV makes its decision first, and then P-TV observes that choice before making its decision. Both stations know all of the information in the accompanying decision tree.

In the equilibrium of this game A) both stations will air reality shows. B) both stations will air sitcoms. C) QRS-TV will air a sitcom and P-TV will air a reality show. D) QRS-TV will air a reality show and P-TV will air a sitcom.

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151) P-TV and QRS-TV are trying to decide whether to air a sitcom or a reality show in a given time slot. Viewers like both sitcoms and reality shows, but sitcoms are more expensive to produce than reality shows since real actors need to be hired. QRS-TV makes its decision first, and then P-TV observes that choice before making its decision. Both stations know all of the information in the accompanying decision tree.

Suppose QRS-TV enters into an agreement with P-TV that gives QRS-TV the exclusive right to air a reality show during this time slot. QRS-TV would have to pay P-TV ______ in order to persuade P-TV to enter into this agreement. A) at least $10 million B) nothing C) at least $5 million D) more than zero, but less than $5 million

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152) P-TV and QRS-TV are trying to decide whether to air a sitcom or a reality show in a given time slot. Viewers like both sitcoms and reality shows, but sitcoms are more expensive to produce than reality shows since real actors need to be hired. QRS-TV makes its decision first, and then P-TV observes that choice before making its decision. Both stations know all of the information in the accompanying decision tree.

Suppose QRS-TV enters into an agreement with P-TV that gives QRS-TV the exclusive right to air a reality show during this time slot. QRS-TV would be willing to pay P-TV _______ in order to persuade P-TV to enter into this agreement. A) no more than $10 million B) nothing C) more than $10 million D) no more than $5 million

153) Relative to a world in which some people are motivated by nonmaterial incentives, if all people were motivated solely by financial incentives, then A) transactions in the business world would be the same, but personal interactions would not. B) economic efficiency would be achieved more often. C) there would be no commitment problems. D) both business transactions and personal interactions would be different.

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154)

A purely self-interested diner is more likely to tip A) whenever he can afford to. B) only when dining in a very up-scale restaurant. C) only when dining in a restaurant at which he often eats. D) always, to assure good service.

155)

Psychological incentives A) are not important in economic settings. B) never serve as commitment devices. C) are not important in non-economic settings. D) can serve as commitment devices.

156)

Emotions like guilt and sympathy A) are irrelevant to economic decision-making. B) reduce the likelihood that a transaction will maximize total economic surplus. C) can solve commitment problems. D) can solve commitment problems, but generally reduce players' payoffs.

157) Suppose there are two small island countries: Avarice, which is populated by people who are completely self-interested, and Altruism, which is populated by people who have adopted social norms of generosity and cooperation. Commitment problems will be A) largely avoided in Avarice, but prevalent in Altruism. B) largely avoided in Altruism, but prevalent in Avarice. C) prevalent on both islands. D) largely avoided on both islands.

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158) Suppose there are two small island countries: Avarice, which is populated by people who are completely self-interested, and Altruism, which is populated by people who have adopted social norms of generosity and cooperation. If two residents of Avarice play a prisoner's dilemma game, they are likely to A) never reach the Nash equilibrium. B) reach the Nash equilibrium more often than would residents of Altruism. C) reach the Nash equilibrium less often than would residents of Altruism. D) play their dominated strategies more often than would residents of Altruism.

159) Suppose there are two small island countries: Avarice, which is populated by people who are completely self-interested, and Altruism, which is populated by people who have adopted social norms of generosity and cooperation. Suppose residents of each island often play prisoner's dilemma games, always matched with a person from the same island, but not a person who they know or will play with again. If the same number of games is played on each island, you would expect A) the residents of Avarice to have higher average payoffs than the residents of Altruism. B) players on both islands to quickly converge to playing their dominant strategies. C) the residents of Altruism to have higher average payoffs than the residents of Avarice. D) players on both islands to quickly converge to playing their dominated strategies.

160) The use of psychological incentives to solve commitment problems would be least effective in games played A) repeatedly between strangers. B) once between family members. C) repeatedly between family members. D) once between strangers.

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Answer Key Test name: Chap 09_8e_Frank 1) D 2) B 3) A 4) C 5) A 6) A 7) A 8) B 9) A 10) C 11) B 12) C 13) B 14) B 15) A 16) D 17) A 18) B 19) C 20) C 21) C 22) B 23) B 24) D 25) D 26) C Version 1

27) B 28) C 29) C 30) D 31) C 32) B 33) D 34) A 35) B 36) B 37) B 38) C 39) B 40) B 41) C 42) C 43) C 44) A 45) B 46) D 47) A 48) D 49) C 50) D 51) B 52) A 53) B 54) C 55) C 56) A Version 1

57) B 58) C 59) B 60) D 61) D 62) B 63) B 64) C 65) C 66) C 67) A 68) B 69) C 70) D 71) C 72) C 73) C 74) D 75) B 76) C 77) C 78) C 79) D 80) C 81) B 82) D 83) B 84) B 85) B 86) D Version 1

87) B 88) D 89) A 90) C 91) A 92) A 93) A 94) B 95) C 96) C 97) A 98) A 99) C 100) C 101) D 102) C 103) D 104) D 105) A 106) A 107) D 108) C 109) B 110) D 111) B 112) B 113) B 114) C 115) D 116) B Version 1

117) C 118) B 119) C 120) B 121) A 122) B 123) D 124) D 125) D 126) A 127) B 128) B 129) C 130) B 131) D 132) B 133) D 134) D 135) C 136) C 137) B 138) B 139) B 140) C 141) A 142) D 143) A 144) B 145) D 146) B Version 1

147) B 148) C 149) D 150) A 151) C 152) A 153) D 154) C 155) D 156) C 157) B 158) B 159) C 160) D

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CHAPTER 10 1)

In traditional economic models, homo economicus refers to a decision maker who

A) is narrowly self-interested, well-informed, highly disciplined, and cognitively capable enough to solve optimization problems. B) searches for relevant facts in a potentially haphazard way and who quits once his or her understanding has reached a certain threshold. C) makes frequent departures from rational choice and instead relies upon judgmental heuristics, or rules of thumb, to guide decisions. D) lacks impulse control and, as a result, may experience regret.

2) In traditional economic models, the narrowly self-interested, well-informed, highly disciplined, and cognitively formidable decision maker is often referred to as A) a boundedly rational agent. B) a behavioral economist. C) homo economicus. D) a satisficer.

3) In traditional economic models, homo economicus is assumed to be all of the following except A) highly disciplined. B) altruistic. C) well-informed. D) cognitively sophisticated.

4) In traditional economic models, homo economicus is assumed to be all of the following except

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A) highly disciplined. B) patriotic. C) narrowly self-interested. D) cognitively sophisticated.

5) In traditional economic models, which of the following does not describe homo economicus? A) Impulsive B) Narrowly self-interested C) Well-informed D) Cognitively sophisticated

Homo economicus is all of the following except A) highly disciplined. B) narrowly self-interested. C) well-informed. D) cognitively naive.

7) The decision-making strategy that aims for adequate results because optimal results may necessitate excessive expenditure of resources is known as A) the present-aim standard of rationality. B) satisficing. C) loss aversion. D) the adaptive rationality standard.

Satisficing is the decision-making strategy that

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A) aims for adequate results when achieving optimal results may necessitate an excessive expenditure of resources. B) aims for optimal results in situations where the decision maker has perfect information. C) attempts to minimize the harm from losses rather than maximize the pleasure from gains. D) focuses on how one's consumption compares to the consumption of others, rather than on absolute consumption.

_______ is the property of an entity whose individual units are interchangeable. A) Representativeness B) Availability C) Progressivity D) Fungibility

10)

Fungibility is the property of an entity whose individual units A) are less valuable when used together. B) are nearly impossible to identify. C) are interchangeable. D) each serve a unique purpose.

11)

If an entity is fungible, then its individual units are A) of value for a short period of time. B) nearly impossible to purchase. C) useless without the other units. D) interchangeable.

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12) When Tversky and Khaneman asked one group of people to imagine that, having previously purchased a ticket for $10, they arrive at the theater to discover they have lost their ticket and a second group to imagine that they arrive just before the performance to buy a ticket and find they have lost $10 from their wallets, the majority of people in the lost ticket group said they _____ still attend the performance, and the majority of people in the lost $10 group said they _____ still attend the performance. A) would; would not B) would; would C) would not; would not D) would not; would

13) When researchers compare people who are asked to imagine that, having previously purchased a ticket for $10, they arrive at the theater to discover they have lost their ticket to people who are asked to imagine that they arrive just before the performance to buy a ticket and find they have lost $10 from their wallets, which group is more likely to say that they would still attend the performance? A) The lost ticket group B) The lost $10 group C) Both groups are equally likely to say they would attend the performance. D) Both groups report that they would no longer go to the performance.

14) Suppose one group of people is asked to imagine that, having previously purchased a ticket for $10, they arrive at the theater to discover they have lost their ticket, and a second group of people is asked to imagine that they arrive just before the performance to buy a ticket and find they have lost $10 from their wallets. According to the rational choice model, which group should be more likely to say they would still attend the performance?

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A) The lost ticket group B) The lost $10 group C) Both groups should be equally likely to say they would attend. D) Neither group should be interested in attending the performance.

15) When Tversky and Khaneman asked one group of people to imagine that, having previously purchased a ticket for $10, they arrive at the theater to discover they have lost their ticket and a second group to imagine that they arrive just before the performance to buy a ticket and find they have lost $10 from their wallets, they found that people in the lost ticket group were more likely to say they would ______ the performance, even though the rational choice model predicts that people in _____. A) still attend; the lost $10 group should be more likely to say they would still attend B) still attend; both groups should be equally likely to say they would still attend C) no longer attend; the lost $10 group should be more likely to say they would no longer attend D) no longer attend; both groups should be equally likely to say they would still attend

16)

Rules of thumb that reduce computation costs are known as A) optimality constraints. B) decision trees. C) cost-benefit calculations. D) judgmental and decision heuristics.

17)

Judgmental and decision heuristics are A) a way of calculating computation costs. B) derived from the rational choice model but imply higher computation costs. C) rules of thumb that reduce computation costs. D) used to test the rational choice model when computation costs are small.

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18) The rule of thumb that estimates the frequency of an event by the ease with which it is possible to summon examples from memory is the A) adjustment heuristic. B) anchoring heuristic. C) representative heuristic. D) availability heuristic.

19) The _______ is a rule of thumb that estimates the frequency of an event by the ease with which it is possible to summon examples from memory. A) Weber-Fechner law B) adaptive rationality standard C) availability heuristic D) representative heuristic

20) According to the availability heuristic, the more easily we can recall examples of an event A) the less likely we judge the event to be. B) the more likely we judge the event to be. C) the more we like the event. D) the less we like the event.

21)

According to the availability heuristic, we often estimate the frequency of an event by A) using available data from either the government or other organizations. B) how much we enjoyed the event. C) the degree to which the event resembles stereotypical members of a category. D) the ease with which we can recall relevant examples.

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22) Suppose Anna just received a parking ticket. According to the availability heuristic, this will tend to make Anna A) think people frequently receive parking tickets. B) think people should not receive parking tickets. C) dislike parking tickets. D) less likely to pay future parking tickets.

23) Suppose Paul just saw a car accident while driving home from work. According to the availability heuristic, this is likely to make Paul think that A) people only get into car accidents if they are bad drivers. B) he is extremely lucky. C) car accidents are rare. D) car accidents are more common than they really are.

24) Suppose Christina just saw an advertisement on television for an antidepressant, but it has been a long time since James saw one. According to the availability heuristic A) Christina is likely to think that depression is more common than James. B) James is likely to think that depression is more common than Christina. C) Christina and James are likely to think that depression is equally common. D) Christina and James are equally likely to think that people recover from depression.

25) Suppose Bobby just watched a documentary about the massive decline in house prices during the Great Recession. According to the availability heuristic, this is likely to make Bobby

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A) believe that he is wealthier than other people. B) think the movie is biased towards the status quo. C) believe that house prices will be more stable in the future. D) worry that the price of his own house might fall.

26) According to the availability heuristic, which of the following will make Anke more likely believe that she will win a lot of money if she buys a lottery ticket? A) Her boss hinting that she will soon receive a raise at work B) The fact that it has been several years since she purchased a lottery ticket C) Watching a news report about someone winning $2 million playing the lottery D) The fact that is has been several years since anyone has won the lottery

27) If Haru has just watched a television show in which the main character is killed in an airplane crash, then the availability heuristic predicts that he will A) more accurately assess the pros and cons of air travel. B) never watch that television show again. C) overestimate the dangers of air travel. D) underestimate the dangers of air travel.

28) The rule of thumb according to which people are more likely to assume something belongs to a given category if it shares many characteristics with the stereotypical members of that category is the A) adjustment heuristic. B) representative heuristic. C) anchoring heuristic. D) availability heuristic.

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29) The _______ is the rule of thumb according to which people's belief about the likelihood that something belongs to a given category increases with the extent to which it shares characteristics with the stereotypical members of that category. A) representative heuristic B) adaptive rationality standard C) availability heuristic D) Weber-Fechner law

30) According to the representative heuristic, people's belief about the likelihood that something belongs to a given category _______ the extent to which it shares characteristics with the stereotypical members of that category. A) will only rarely be influenced by B) is unaffected by C) decreases with D) increases with

31) According to the representative heuristic, people are more likely to believe that something belongs to a given category if A) people believe that they themselves are members of the category. B) people can recall other members of the category. C) it shares characteristics with the stereotypical members of that category. D) it is unlike the stereotypical members of that category.

32) According to the _______, if Enzokuhle has many of the characteristics of a stereotypical basketball player (for example, she is tall), then people will be more likely to assume she plays basketball.

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A) adaptive rationality standard B) representative heuristic C) availability heuristic D) Weber-Fechner law

33) According to the representative heuristic, if Kenya has many of the characteristics of a millionaire, then people will A) be less likely to think that she is a millionaire. B) be more likely to think that she is a millionaire. C) want to have those same characteristics. D) think that many people are millionaires.

34) According to the representative heuristic, people will tend to think that Kayleigh is a vegetarian if A) they themselves are vegetarians. B) if the fraction of vegetarians in the population is increasing. C) they have just read a book about vegetarians. D) Kayleigh has many of the characteristics of a stereotypical vegetarian.

35) According to the representative heuristic, people will tend to think that Francesco is a civil rights activist if A) they have just watched a movie about a civil rights activist. B) they themselves are civil rights activists. C) if the fraction of civil rights activists in the population is increasing. D) Francesco has many of the characteristics of a stereotypical civil rights activist.

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36) Suppose that Bishara has many of the same characteristics as the stereotypical mathematician. According to the representative heuristic, this will tend to make people think that A) Bishara is good at math. B) Bishara is bad at math. C) many people are good at math. D) many people are bad at math.

37) According to the representative heuristic, people will be more likely to assume that Delilah is a lawyer if A) they plan to apply to law school at some point in the future. B) there are few other lawyers living in the same geographic region. C) Delilah vehemently denies being a lawyer. D) Delilah has many of the characteristics of a stereotypical lawyer.

38) According to the representative heuristic, you are more likely to assume that someone you just met is an architect if A) you recently watched a television show about architects. B) that person has many of the characteristics of an architect. C) you also happened to meet two other architects earlier in the day. D) it has been a long time since you last met an architect.

39) Suppose that 90 percent of women who are Krista's age do not have high cholesterol and 10 percent do. If a cholesterol test indicates that Krista has high cholesterol, but the test is only accurate 80 percent of the time, then the probability that Krista really does have high cholesterol is roughly

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A) 90 percent. B) 80 percent. C) 31 percent. D) 18 percent.

40) Suppose that 80 percent of women who are Krista's age do not have high cholesterol and 20 percent do. If a cholesterol test indicates that Krista does not have high cholesterol, but the test is only accurate 75 percent of the time, then the probability that Krista really does not have high cholesterol is roughly A) 92 percent. B) 10 percent. C) 8 percent. D) 15 percent.

41) Suppose that only 2 percent of all people are geniuses. If an IQ test indicates that Albert is a genius, but the test is only accurate 90 percent of the time, then the probability that Albert really is a genius is roughly A) 18 percent. B) 2 percent. C) 10 percent. D) 16 percent

42) Suppose that only 5 percent of all people are geniuses. If an IQ test indicates that Albert is a genius, but the test is only accurate 80 percent of the time, then the probability that Albert actually is not a genius is roughly

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A) 83 percent B) 10 percent. C) 17 percent. D) 19 percent.

43) The phenomenon that unusual events are likely to be followed by more nearly normal is known as A) the adaptive rationality standard. B) regression to the mean. C) anchoring and adjustment. D) fungibility.

44) _______ is the phenomenon that unusual events are likely to be followed by more nearly normal ones. A) The present aim standard of rationality B) Loss aversion C) Anchoring and adjustment D) Regression to the mean

45)

Regression to the mean refers to the phenomenon in which unusual events are A) likely to be followed by events that are more normal. B) unlikely to ever occur in the first place. C) likely to be followed by events that are even more unusual. D) occurring on a regular basis.

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46) Suppose Danielle receives the highest grade in the class on the first exam in her economics course. Regression to the mean implies that Danielle A) isn't likely to do as well on the second exam. B) is likely to do even better on the second exam. C) is likely to get an A in the class. D) is unlikely to forget the material she studied for the exam.

47) Suppose Stephen's first novel makes the New York Times bestseller list. Regression to the mean implies that his second novel A) will have a similar plot to his first model. B) will be even more popular than his first novel. C) won’t be as popular as his first novel. D) will be a complete flop.

48) Last week, Gina's bakery sold fewer cupcakes than ever before. Regression to the mean implies that the bakery A) has probably had other bad weeks, but Gina can't remember them. B) will sell more cupcakes this week. C) is likely to go out of business. D) should stop selling cupcakes.

49) Eric brews beer for a hobby. He has noticed that whenever he brews an unusually bad batch of beer, his next batch is much better. One explanation for this is that Eric learns from his past mistakes. Another explanation is A) status quo bias. B) regression to the mean. C) loss aversion. D) the representative heuristic.

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50) An estimation technique that begins with an initial approximation, which is then modified in accordance with additional information, is known as A) status quo bias. B) regression to the mean. C) anchoring and adjustment. D) the representative heuristic.

51) _______ is an estimation technique that begins with an initial approximation, which is then modified in accordance with additional information. A) The adaptive rationality standard B) Status quo bias C) Regression to the mean D) Anchoring and adjustment

52) When people use anchoring and adjustment to estimate something, the adjustment they make when they receive new information is typically A) in the wrong direction. B) highly accurate. C) too large. D) too small.

53) Typically, when people use anchoring and adjustment to estimate something, the importance of _______ in influencing their assessment is too large.

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A) the anchor B) the adjustment C) both the anchor and the adjustment D) neither the anchor nor the adjustment

54) Suppose Evan and Robert are each filling out a separate survey about parking on campus. On Evan's survey, the first question asks about whether he thinks the fine for parking illegally on campus should be $50, and on Robert's survey the first question asks about whether he thinks the fine should be $100. For both Evan and Robert, the second question asks how much each thinks the fine currently is. If Evan and Robert know nothing about the parking fines on campus, but each uses anchoring and adjustment to form his assessment, then, all else equal, you would expect A) Evan's estimate of the current fine to be higher than Robert's. B) both of them to guess a number between $50 and $100. C) their estimates to be identical. D) Robert's estimate of the current fine to be higher than Evan's.

55) Suppose Chelsea reads two news articles about future house prices. The first article predicts that house prices will fall next month, and the second predicts that house prices will rise next month. Valerie reads the same two articles, but she first reads the one that predicts that house prices will rise, and then reads the one that predicts that house prices will fall. If Chelsea and Valerie know very little about future house prices, and each uses anchoring and adjustment to form her assessment, then, all else equal, which of them is more likely to think that house prices will rise next month? A) Chelsea B) Valerie C) They are both equally likely to think that house prices will rise D) They will both think that house prices will stay the same

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56) The relationship according to which the perceived change in any stimulus varies according to the size of the change measured as a proportion of the original stimulus is known as A) status quo bias. B) the representative heuristic. C) the Weber-Fechner law. D) regression to the mean.

57) _______ is the relationship according to which the perceived change in any stimulus varies according to the size of the change measured as a proportion of the original stimulus. A) The adaptive rationality standard B) The Weber-Fechner law C) The representative heuristic D) Regression to the mean

58) The Weber-Fechner law is the relationship according to which the perceived change in any stimulus A) depends upon an initial approximation, which is then updated in accordance with additional information. B) depends upon the ease with which it is possible to summon similar changes from memory. C) varies according to the size of the change measured as a proportion of the original stimulus. D) varies depending upon whether the change triggers loss aversion.

59)

According to the Weber-Fechner law, the perceived change in any stimulus

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A) does not depend on the size of the change in proportion to the original stimulus. B) is larger when the change is large in proportion to the original stimulus. C) is larger when the change is small in proportion to the original stimulus. D) is zero regardless of the size of the original stimulus.

60) According to the Weber-Fechner law, when the change in a stimulus is large in proportion to the original stimulus, the perceived size of the change will be A) large. B) small. C) zero. D) impossible to determine.

61) According to the Weber-Fechner law, when the change in a stimulus is small in proportion to the original stimulus, the perceived size of the change will be A) large. B) small. C) greater than one. D) impossible to determine.

62) According to the Weber-Fechner law, the perceived size of a change in a stimulus will be large when the change in the stimulus A) is a rare event. B) occurs frequently. C) is small in proportion to the original stimulus. D) is large in proportion to the original stimulus.

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63) Consider two coupons: one offers 10 percent off a pair of jeans that costs $100, and the other offers 50 percent off a pair of sunglasses that costs $20. Using either coupon requires driving to the shopping mall across town. If the Weber-Fechner law holds, which coupon will people tend to perceive as being more valuable? A) The coupon for the jeans since $100 is greater than $20. B) The coupon for the sunglasses since 50 percent is greater than 10 percent. C) They will be seen as equally valuable since both lead to a savings of $10. D) Neither coupon will be of value to anyone since both require driving across town.

64) Consider two coupons: one offers 12 percent off a pair of jeans that costs $100, and the other offers 50 percent off a pair of sunglasses that costs $30. Using either coupon requires driving to the shopping mall across town. If the Weber-Fechner law holds, which coupon will people tend to perceive as being more valuable? A) They will be seen as equally valuable since they both lead to savings. B) The coupon for the sunglasses since $15 is greater than $12. C) The coupon for the sunglasses since 30 percent is greater than 12 percent. D) The coupon for the jeans since $100 is greater than $30.

65) Consider two coupons: one offers 50 percent off a scarf that costs $20, and the other offers 5 percent off a jacket that costs $200. Using either coupon requires driving to the shopping mall across town. If the Weber-Fechner law holds, which coupon will people tend to perceive as being more valuable? A) The coupon for the scarf since 50 percent is greater than 5 percent. B) The coupon for the jacket since $200 is greater than $20. C) They will be seen as equally valuable since both lead to a savings of $10. D) Neither coupon will be of value to anyone since both require driving across town.

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66) Consider two coupons: one offers 50 percent off a scarf that costs $20, and the other offers 5 percent off a jacket that costs $200. Using either coupon requires driving to the shopping mall across town. If the Weber-Fechner law holds, which coupon will people tend to perceive as being more valuable? A) The coupon for the jacket since $200 is greater than $20. B) The coupon for the scarf since 50 percent is greater than 5 percent. C) They will be seen as equally valuable since both lead to a savings of $10. D) Neither coupon will be of value to anyone since both require driving across town.

67) Suppose Alyssa is willing to drive across town to save 50 percent on a soccer ball with a list price of $40. If Alyssa is rational, this implies that she would A) not be willing to drive across town to save 50 percent on a skateboard with a list price of $100. B) be willing to drive across town to save 50 percent on a book with a list price of $20. C) be willing to drive across town to save 5 percent on a bike with a list price of $400. D) not be willing to drive across town to save $20 on a shirt with a list price of $60.

68) Suppose Alyssa is willing to drive across town to save $20 on a soccer ball with a list price of $40. If Alyssa is rational, this implies that she A) would not be willing to drive across town to save 50 percent on a skateboard with a list price of $100. B) would be willing to drive across town to save 5 percent on a bike with a list price of $400. C) would not be willing to drive across town to save $20 on a shirt with a list price of $60. D) would be willing to drive across town to save 50 percent on a book with a list price of $20.

69) Suppose Michael is willing to drive across town to save 40 percent on a sweatshirt with a list price of $80. If Michael is rational, this implies that he should Version 1

A) not be willing to drive across town to save 40 percent on a microwave with a list price of $200. B) be willing to drive across town to save 40 percent on a book with a list price of $30. C) be willing to drive across town to save 10 percent on a guitar with a list price of $320. D) not be willing to drive across town to save $35 on a shirt with a list price of $70.

70) Kendra is having difficulty deciding between two cars, A and B. As shown in the accompanying diagram, A has more cargo room than B, but lower gas mileage. Ideally Kendra would like a car with both a lot of cargo room and good gas mileage.

If Kendra behaves like most decision-makers, then the addition of option C would A) decrease her likelihood of buying a car. B) have no impact on her choice of A and B. C) increase her likelihood of picking A. D) increase her likelihood of picking B.

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71) Corey is having difficulty deciding between two dishwashers, A and B. As shown in the accompanying diagram, A makes more noise than B, but is cheaper. Ideally, Corey would like a dishwasher that is both quiet and inexpensive.

If Corey behaves like most decision-makers, then the addition of option C would A) decrease his likelihood of buying a dishwasher. B) have no impact on his choice of A and B. C) increase his likelihood of picking A. D) increase his likelihood of picking B.

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72) Natasha is having difficulty deciding between two jobs, A and B. As shown in the accompanying diagram, A is closer to home than B but doesn't pay as well. Ideally, Natasha would like a job that both pays well and is close to her home.

If Natasha behaves like most decision-makers, then the addition of option C would A) decrease her likelihood of accepting any job. B) have no impact on her choice of A and B. C) increase her likelihood of picking A. D) increase her likelihood of picking B.

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73) Brandon is having difficulty deciding between two jobs, X and Y. As shown in the accompanying diagram, X entails a greater risk of injury than Y but pays more. Ideally, Brandon would like a job that both pays well and does not entail a high risk of injury.

If Brandon behaves like most decision-makers, then the addition of option Z would A) decrease his likelihood of accepting any job. B) increase his likelihood of picking Y. C) have no impact on his choice of X and Y. D) increase his likelihood of picking X.

74) In situations where people make decisions with perfectly predictable consequences, traditional economic models cannot explain A) why people experience regret. B) how people maximize their utility. C) how risk aversion influences decisions. D) what the rational choice should be.

75) Traditional economic models _______ the fact that people sometimes regret making decisions with perfectly predictable consequences.

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A) account for B) can easily explain C) cannot explain D) are supported by

76) The fact that people sometimes regret having made a decision with perfectly predictable consequences A) suggests that people like to be unhappy. B) is a natural prediction of many traditional economic models. C) cannot be explained by traditional economic models. D) is a core assumption upon which traditional economic models are built.

77)

Impulse-control problems can arise when people A) discount the future too little. B) discount the future too heavily. C) place too much weight on future costs and benefits. D) place too little weight on current costs and benefits.

78) The tendency to experience losses as more painful than the pleasures that result from gains of the same magnitude is known as A) the availability heuristic. B) loss aversion. C) the present-aim standard of rationality. D) regression to the mean.

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79) The phenomenon that unusual events are likely to be followed by more nearly normal ones is known as A) regression to the mean. B) anchoring and adjustment. C) the representativeness heuristic. D) adaptive rationality standard.

80) _______ is the tendency to experience losses as more painful than the pleasures that result from gains of the same magnitude. A) The availability heuristic B) Fungibility C) The present-aim standard of rationality D) Loss aversion

81)

Loss aversion is the tendency to experience losses as A) just as painful as the pleasures that result from gains of the same magnitude. B) more painful than the pleasures that result from gains of the same magnitude. C) less painful than the pleasures that result from gains of the same magnitude. D) more painful than gains of any magnitude.

82)

Loss aversion is the tendency to A) weigh losses more heavily than gains. B) weigh gains more heavily than losses. C) enjoy gains, but dislike losses. D) dislike gains, but enjoy losses.

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83)

Fungibility is the property of an entity

A) whereby it experiences losses as more painful than the pleasures that result from gains of the same magnitude. B) whose individual units are interchangeable, as money in separate accounts. C) that aims for adequate results because optimal results may necessitate excessive expenditure of resources. D) that permits additional preferences to be added if they can be shown not to handicap resource acquisition in competitive environments.

84) Suppose Whitney is willing to pay $200 to buy a new phone. Loss aversion implies that if Whitney already had just bought the phone, you would A) have to pay her less than $200 to part with it. B) have to pay her more than $200 to part with it. C) have to pay her exactly $200 to part with it. D) not be able to get her to part with it for any amount of money.

85) Suppose Vincent is willing to pay $350 to buy a new bike. Loss aversion implies that if Vincent had just bought the bike, you would A) have to pay him less than $350 to part with it. B) have to pay him more than $350 to part with it. C) have to pay him exactly $350 to part with it. D) not be able to get him to part with it for any amount of money.

86) Suppose you would have to pay Alicia at least $150 to get her to part with a ticket she just bought to see her favorite band play next Friday. Loss aversion implies that if Alicia had not yet bought the ticket, she would

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A) be willing to pay more than $150 for it. B) be willing to pay less than $150 for it. C) be willing to pay exactly $150 for it. D) no longer be interested in purchasing it.

87) Suppose you would have to pay Troy at least $12 to get him to part with his new water bottle. Loss aversion implies that if Troy had not yet purchased the water bottle, he would A) be willing to pay more than $12 to buy it. B) be willing to pay exactly $12 to buy it. C) be willing to pay less than $12 to buy it. D) no longer be interested in buying it.

88) Studies have shown that when people are asked to imagine a hypothetical illness, the amount of money they say they would be willing to pay to avoid getting the illness is _______ they would be willing to pay for a cure if they were already sick. A) unrelated to the amount B) the same as C) more than D) less than

89)

Evidence suggests that as the importance of what's at stake grows, loss aversion A) is reversed. B) becomes much less pronounced. C) becomes even more pronounced. D) does not change.

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90)

Widespread behavioral evidence suggests that people A) are unable to assess the relative value of gains and losses. B) place equal weight on gains and losses. C) weigh gains more heavily than losses. D) weigh losses more heavily than gains.

91)

The general resistance to change, often stemming from loss aversion, is known as A) status quo bias. B) regression to the mean. C) the present aim standard of rationality. D) the Weber-Fechner law.

92)

_______ is the general resistance to change, often stemming from loss aversion. A) Status quo bias B) Regression to the mean C) The present aim standard of rationality D) Anchoring and adjustment

93)

Status quo bias is the A) general enthusiasm for change, often stemming from regression to the mean. B) general resistance to change, often stemming from loss aversion. C) inefficiency that stems from constant change. D) inefficiency that stems from anchoring and adjustment.

94)

Because every policy change generates winners and losers, loss aversion generates

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A) status quo bias. B) regression to the mean. C) fungibility. D) anchoring and adjustment.

95) When it comes to enacting policy changes, loss aversion often leads to status quo bias because A) people's estimates of their gains from the policy are often too large. B) people's estimate of their losses from the policy are often too small. C) the support from those who stand to gain from the policy often overwhelms the resistance from those who stand to lose. D) the resistance from those who stand to lose from the policy often overwhelms the support from those who stand to gain.

96)

In the realm of public policy, loss aversion makes it A) difficult to enact policy changes. B) easy to enact policy changes. C) difficult to identify those who stand to lose from policy changes. D) easy to identify which policies involve the largest efficiency gains.

97)

Traditional economic models cannot explain why A) some people buy expensive cars and others buy cheap cars. B) people leave tips at restaurants where they regularly dine. C) people donate money to charity completely anonymously. D) people buy more of certain goods when their income falls.

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98) The present aim standard of rationality accommodates a much _______ range of observed behavior than traditional economic models, but has been criticized because the model is too _______. A) narrower; flexible B) broader; inflexible C) broader; flexible D) narrower; inflexible

99) The _______ accommodates a much broader range of observed behavior than traditional economic models, but has been criticized because virtually any bizarre behavior can be explained by assuming people have a sufficiently strong taste for it. A) adaptive rationality standard B) availability heuristic C) ultimatum bargaining game D) present aim standard of rationality

100)

The present aim standard of rationality

A) assumes that people's goals are themselves a choice variable and that people's choices about which goals to pursue are made efficiently. B) takes people's goals as given and assumes that people are efficient at pursuing whatever goals they happen to hold at the moment of action. C) assumes that people act in their own self-interest because cooperating with others is irrational. D) argues that people are only able behave rationally if they are aware of how their actions affect others.

101)

One criticism of the present-aim standard of rationality is that it

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A) assumes that people's goals are a choice variable. B) only accounts for a narrow range of observed behavior. C) cannot explain why people do things that are not in their narrow self-interest. D) can be used to "explain" virtually any bizarre behavior.

102)

The adaptive rationality standard

103)

According to the adaptive rationality standard, people's goals are

A) a choice variable, and people may not be efficient at choosing which goals to pursue. B) a choice variable, and people's choices about which goals to pursue are made efficiently. C) fixed, and people are efficient at pursuing whatever goals they happen to hold at the moment of action. D) fixed, and people are often inefficient at pursuing those goals, which explains why people experience regret.

104) The _______ assumes that people choose efficient means to achieve their ends, but it regards goals as objects of choice that are subject to a similar efficiency requirement.

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A) present aim standard of rationality B) adaptive rationality standard C) Weber-Fechner law D) standard rational choice model

105)

According to the adaptive rationality standard, individuals A) are irrational if they choose to have preferences that are not self-interested. B) always behave according to their own narrow self-interest. C) are unable to choose what kind of preferences to have. D) might rationally choose to have preferences that are not self-interested.

106) According to the adaptive rationality standard, people might choose to have unselfish preferences because A) people sometimes make irrational choices. B) doing so could be in their own best interest. C) they do not know how to make efficient choices. D) they have no other choice.

107) According to the adaptive rationality standard, one reason people might rationally choose to have preferences that are not narrowly self-interested is that A) even rational people sometimes make irrational choices. B) doing so could help them solve commitment problems. C) they do not know how to act in their own self-interest. D) they have no other choice.

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108) The _______ is a game in which the first player has the power to confront the second player with a take-it-or-leave-it offer. A) Nash bargaining game B) matching pennies game C) ultimatum bargaining game D) repeated prisoner's dilemma

109) A game in which the first player has the power to confront the second player with a takeit-or-leave-it offer is the A) ultimatum bargaining game. B) matching pennies game. C) Nash bargaining game. D) repeated prisoner's dilemma.

110)

The ultimatum bargaining game is a game in which A) the second player doesn't know the strategy choice of the first player. B) the first player confronts the second player with a take-it-or-leave-it offer. C) both players have a dominant strategy to cheat the other player. D) both players give each other an ultimatum.

111) If a Proposer and a Responder are asked to split $100 in the ultimatum bargaining game, standard economic theory would predict that the Responder should A) reject any amount over $50. B) accept any amount offered by the Proposer. C) reject any amount less than $50. D) only accept an offer for exactly $50.

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112) If a Proposer and a Responder are asked to split $100 in the ultimatum bargaining game, standard economic theory would predict that the Proposer should offer the Responder A) exactly $25. B) exactly $50. C) the largest dollar amount possible. D) the smallest dollar amount possible.

113) In numerous experiments, researchers have found that if a Proposer and a Responder are asked to split a fixed sum on money in the ultimatum bargaining game, the Proposer will, on average, offer the Responder A) nothing. B) exactly the amount that would be predicted by economic theory. C) more than would be predicted by standard economic theory. D) less than would be predicted by standard economic theory.

114) In laboratory experiments, researchers have found that the behavior of Proposers and Responders in the ultimatum game is consistent with people A) acting in their own narrow self-interest. B) valuing fairness. C) behaving irrationally. D) not understanding the game.

115) In laboratory experiments, the behavior of players in the ultimatum game suggests that people

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A) act in their own narrow self-interest. B) have impulse control problems. C) are deceitful. D) value fairness.

116)

Traditional economic models assume that people care about A) neither absolute nor relative consumption. B) both absolute and relative consumption. C) absolute consumption. D) relative consumption.

117)

In traditional economic models, people A) care about how their consumption compares to the consumption of others. B) do not care about how their consumption compares to the consumption of others. C) care only about the consumption of others. D) care more about losses in consumption than gains in consumption.

118)

If people care about relative consumption rather than absolute consumption, then A) their behavior will be consistent with traditional economic models. B) there is little need for government intervention in markets. C) their choices will lead to an efficient allocation of resources. D) individuals' decisions need not lead to socially optimal outcomes.

119)

Laws restricting gambling can be seen as an attempt to limit the consequences of

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A) regression to the mean. B) status quo bias. C) anchoring and adjustment. D) impulse-control problems.

120)

Government programs aimed at stimulating personal savings A) are designed to take advantage of the flaws in the availability heuristic. B) help mitigate regression to the mean in most cases. C) increase welfare if people discount the future too heavily. D) decrease economic efficiency if people have impulse-control problems.

121)

Consider these two hypothetical worlds:

World A: You receive 100 units of Good X, while everyone else receives 115. World B: You receive 85 units of Good X, while everyone else receives 70. If you would prefer to live in World A, this suggests that to you, Good X is most likely a A) nonpositional good. B) positional good. C) satisficing good. D) fungible good.

122)

Consider these two hypothetical worlds:

World A: You receive 52.5 units of Good X, while everyone else receives 50. World B: You receive 55 units of Good X, while everyone else receives 57.5. If you would prefer to live in World A, this suggests that to you Good X is most likely

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A) a representative good. B) an anchored good. C) a positional good. D) a nonpositional good.

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Answer Key Test name: Chap 10_8e_Frank 1) A 2) C 3) B 4) B 5) A 6) D 7) B 8) A 9) D 10) C 11) D 12) D 13) B 14) C 15) D 16) D 17) C 18) D 19) C 20) B 21) D 22) A 23) D 24) A 25) D 26) C Version 1

27) C 28) B 29) A 30) D 31) C 32) B 33) B 34) D 35) D 36) A 37) D 38) B 39) C 40) A 41) D 42) A 43) B 44) D 45) A 46) A 47) C 48) B 49) B 50) C 51) D 52) D 53) A 54) D 55) B 56) C Version 1

57) B 58) C 59) B 60) A 61) B 62) D 63) B 64) C 65) A 66) B 67) C 68) B 69) C 70) C 71) C 72) D 73) B 74) A 75) C 76) C 77) B 78) B 79) A 80) D 81) B 82) A 83) B 84) B 85) B 86) B Version 1

87) C 88) C 89) C 90) D 91) A 92) A 93) B 94) A 95) D 96) A 97) C 98) C 99) D 100) B 101) D 102) A 103) B 104) B 105) D 106) B 107) B 108) C 109) A 110) B 111) B 112) D 113) C 114) B 115) D 116) C Version 1

117) B 118) D 119) D 120) C 121) A 122) C

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CHAPTER 11 1)

A cost of an activity that falls on people not engaged in the activity is called a(n) A) external benefit. B) prisoner's dilemma. C) negative externality. D) positive externality.

Which of the following is an example of an activity with an external cost? A) Raising honeybees where neighbors on all sides grow apples B) Keeping your front yard clean C) Speeding on the interstate D) Having to buy batteries for the new remote that came with a TV

A benefit of an activity received by people not participating in the activity is called a(n) A) winner's curse. B) positive externality. C) external cost. D) negative externality.

4) Suppose Frank likes to snack on sugary candy. Frank knows that it is bad for his teeth to eat sugary candy, but he doesn't care. Frank's snacking habits have no impact on anyone other than Frank. In this case, Frank's consumption of sugary candy generates A) a negative externality. B) a positive externality. C) neither a positive nor a negative externality. D) both a positive and a negative externality.

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5) Carmen listens to opera music every evening when she gets home from work. Carmen loves listening to opera, but her neighbor Paul, who can also hear the music, hates it. If Paul is the only person besides Carmen who can hear the music, then Carmen's music generates A) a negative externality. B) a positive externality. C) neither a positive nor a negative externality. D) both a positive and a negative externality.

6) On Saturdays, Lisa goes to the park to play her saxophone. Some of the people in the park love listening to Lisa play, while others find her music really annoying. In this case, Lisa's saxophone playing generates A) a negative externality. B) a positive externality. C) neither a positive nor a negative externality. D) both positive and negative externalities.

7) Given that most people like the smell of baking cinnamon rolls and dislike the smell of burning tires, baking cinnamon rolls generates ______ externality, and burning tires generates ______ externality. A) a positive; a negative B) a negative; a positive C) a positive, no D) no; a negative

Which of the following is not an example of an activity with external benefits?

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A) Eating a sandwich in the dining hall B) Planting flowers in your front yard C) Installing smoke alarms in your house D) Having your car's faulty exhaust system repaired

The existence of a negative externality will result in A) a less than optimal level of production. B) a greater than optimal level of production. C) prices that are artificially high. D) elimination of deadweight loss.

10) If the market equilibrium quantity is greater than the socially optimal quantity, one can infer that A) the private supply curve for the activity is to the left of the socially optimal supply curve. B) the private demand curve for the activity is below the socially optimal demand. C) there is a positive externality associated with this good. D) there is a negative externality associated with this good.

11) that

If the market equilibrium quantity is less than the socially optimal quantity, one can infer

A) the private supply curve for the activity is below the socially optimal supply curve. B) the private demand curve for the activity is above the socially optimal demand. C) there is a positive externality associated with this good. D) there is a negative externality associated with this good.

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12)

If the equilibrium quantity is equal to the socially optimal quantity, one can infer that A) the supply curve for the activity is below the socially optimal supply curve. B) there is no externality associated with this good. C) there is a positive externality associated with this good. D) there is a negative externality associated with this good.

13)

In the case of either a positive or negative externality, a good's market price will A) be too low. B) be too high. C) not fully reflect a good's social marginal cost or social marginal benefit. D) not equate the quantity supplied by sellers with the quantity demanded by buyers.

14) If coal mining produces a negative externality because it leads to environmental damage, then, at the market equilibrium, the A) price of coal will be higher than the socially optimal price. B) quantity of coal produced will be less than the socially optimal quantity. C) quantity of coal produced will be greater than the socially optimal quantity. D) supply curve will lie to the left of the regulated supply curve.

15) If the consumption of good generates an external benefit, then the market equilibrium quantity will be A) socially optimal. B) less than the socially optimal quantity. C) greater than the socially optimal quantity. D) equal to zero.

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16) If either the production or consumption of a good generates an external cost, then the market equilibrium quantity will be A) socially optimal. B) less than the socially optimal quantity. C) greater than the socially optimal quantity. D) equal to zero.

17)

If either the production or consumption of a good generates an external cost, then the A) social demand curve will lie to the right of the private demand curve. B) social marginal cost curve will lie to the right of the private marginal cost curve. C) social marginal cost curve will lie to the left of the private marginal cost curve. D) social demand for the good will equal zero.

18)

If either the production or consumption of a good generates an external benefit, then the

A) social demand curve will lie to the right of the private demand curve. B) social demand curve will lie to the left of the private demand curve. C) social marginal cost curve will lie to the left of the private marginal cost curve. D) social marginal cost of the good will equal zero.

19)

If the production of a good generates a positive externality, then A) production of the good is harmful. B) there will be deadweight loss at the market equilibrium quantity. C) total economic surplus will be maximized at the market equilibrium quantity. D) the government should tax producers of the good.

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20) If the production of oranges generates an external benefit, then we would expect the market equilibrium quantity of oranges to be A) equal to the socially optimal quantity. B) less than the socially optimal quantity. C) greater than the socially optimal quantity. D) equal to the socially optimal quantity plus the external benefit.

21) An external benefit implies that private markets will provide ______ than the socially optimal quantity, and an external cost implies that private markets will provide ______ than the socially optimal quantity. A) more; more B) less; less C) more; less D) less; more

22) An external benefit implies that private markets will provide ______ than the socially optimal quantity, and a negative externality implies that private markets will provide ______ than the socially optimal quantity. A) more; more B) more; less C) less; less D) less; more

23) If the production of a good generates a negative externality, then at the market equilibrium quantity, the marginal cost to society of another unit of the good will be

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A) less than the marginal benefit of another unit. B) greater than the marginal benefit of another unit. C) equal to the marginal benefit of another unit. D) negative due to the external cost.

24) Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the vaccine.

At the private market equilibrium, the price of each dose is A) $50. B) $60. C) $70. D) $80.

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25) Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the vaccine.

The private market equilibrium quantity is ______ doses per day. A) 50 B) 75 C) 100 D) 125

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26) Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the vaccine.

The external benefit of each dose is A) $70 B) $50 C) $30 D) $20

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27) Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the vaccine.

The total external benefit of 50 doses is: A) $200 B) $250 C) $1,000 D) $500

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28) Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the vaccine.

The private demand for the vaccine is given by ______, and social demand for the vaccine is given by ______. A) D1; MC B) D2; MC C) D1; D2 D) D2; D1

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29) Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the vaccine.

At the private market equilibrium, the deadweight loss is ______ per day. A) $0 B) $125 C) $250 D) $500

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30) Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the vaccine.

The socially optimal quantity of the vaccine is ______ doses per day. A) 50 B) 75 C) 100 D) 125

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31)

Refer to the figure below. This graph describes a good that

A) generates positive externalities. B) should be banned. C) generates negative externalities. D) the government should subsidize.

32) Refer to the figure below. Private markets will provide _____ units of this good per day, and the socially optimal number of units per day is ______.

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A) H; F B) H; G C) F; G D) G; F

33) Refer to the figure below. The deadweight loss at the market equilibrium quantity is equal to the area ______.

A) ½ × EF × AC B) ½ × FG × BD C) ½ × FG × AC D) ½ × GH × BD

34) The Coase theorem states that if at no cost people can negotiate the purchase and sale of the right to perform activities that cause externalities, then they A) can always arrive at efficient solutions to the problems caused by externalities. B) will never arrive at efficient solutions to the problems caused by externalities. C) will never perform activities that generate negative externalities. D) will always perform activities that generate positive externalities.

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35) The insight that people can always arrive at efficient solutions to the problems caused by externalities if they can negotiate the purchase and sale of the right to perform activities that cause externalities is called the _______. A) Sherman Act B) Coase theorem C) tragedy of the commons D) prisoner's dilemma

36) Kate and Ali can live together in a two-bedroom apartment for $600 per month, or they can each rent a one-bedroom apartment for $400 per month. Apart from the rent, they are indifferent between living together and living apart, except for one problem: Kate hates Ali's taste in music. Kate would be willing to pay up to $100 a month to avoid hearing Ali's music. Ali would give up listening to her music for no less than $300 per month. If Kate and Ali decide to live together, is it socially optimal for Ali to play her music in the apartment? A) Yes, because the benefit to Ali of listening to her music is greater than the cost to Kate. B) No, because the benefit to Ali of listening to her music is less than the cost to Kate. C) Yes, because the benefit to Ali of listening to her music is less than the cost to Kate. D) No, because the benefit to Ali of listening to her music is greater than the cost to Kate.

37) Kate and Ali can live together in a two-bedroom apartment for $1,100 per month, or they can each rent a one-bedroom apartment for $900 per month. Apart from the rent, they are indifferent between living together and living apart, except for one problem: Kate hates Ali's taste in art. Kate would be willing to pay up to $200 a month to avoid seeing Ali's art. Ali would give up hanging her art on the wall for no less than $400 per month. If Kate and Ali decide to live together, is it socially optimal for Ali to hang her art in the apartment?

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A) No, because the benefit to Ali of hanging her art on the wall is greater than the cost to Kate. B) Yes, because the benefit to Ali of hanging her art on the wall is greater than the cost to Kate. C) No, because the benefit to Ali of hanging her art on the wall is less than the cost to Kate. D) Yes, because the benefit to Ali of hanging her art on the wall is less than the cost to Kate.

38) Kate and Ali can live together in a two-bedroom apartment for $600 per month, or they can each rent a one-bedroom apartment for $400 per month. Apart from the rent, they are indifferent between living together and living apart, except for one problem: Kate hates Ali's taste in music. Kate would be willing to pay up to $100 a month to avoid hearing Ali's music. Ali would give up listening to her music for no less than $300 per month. Which, if any, of the following ways of splitting the total monthly rent would induce them to live together? A) Kate pays $150 per month and Ali pays $450 per month B) Kate pays $250 per month and Ali pays $350 per month C) Kate pays $375 per month and Ali pays $125 per month D) There is no way to split the rent to induce them to live together.

39) Kate and Ali can live together in a two-bedroom apartment for $950 per month, or they can each rent a one-bedroom apartment for $700 per month. Apart from the rent, they are indifferent between living together and living apart, except for one problem: Kate hates Ali's hang her art in the apartment. Kate would be willing to pay up to $350 a month to avoid seeing Ali's art. Ali would give up hanging her art on the wall for no less than $200 per month. Which, if any, of the following ways of splitting the total monthly rent would induce them to live together? A) There is no way to split the rent to induce them to live together. B) Kate pays $600 per month and Ali pays $350 per month. C) Kate pays $375 per month and Ali pays $575 per month. D) Kate pays $400 per month and Ali pays $550 per month.

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40) Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The accompanying table shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window. Quick Burger Operates a Drive-Through Window

Quick Burger Does Not Operate Drive-Through Window

Quick Burger

$ 24,000

$ 15,000

The Sunshine Café

$ 11,000

$ 23,000

Is it socially optimal for Quick Burger to operate a drive-through window? A) No, because The Sunshine Café’s payoff is lower when Quick Burger operates a drive-through window. B) No, because total payoffs are higher when Quick Burger does not operate a drivethrough window. C) Yes, because Quick Burger’s payoff is higher when Quick Burger operates a drivethrough window. D) Yes, because total payoffs are higher when Quick Burger operates a drive-through window.

41) Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The accompanying table shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window. Quick Burger Operates a Drive-Through Window

Quick Burger Does Not Operate Drive-Through Window

Quick Burger

$ 24,000

$ 20,000

The Sunshine Café

$ 17,000

$ 23,000

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Is it socially optimal for Quick Burger to operate a drive-through window? A) Yes, because total payoffs are higher when Quick Burger operates a drive-through window. B) Yes, because Quick Burger’s payoff is lower when Quick Burger operates a drivethrough window. C) No, because total payoffs are higher when Quick Burger does not operate a drivethrough window. D) No, because The Sunshine Café’s payoff is lower when Quick Burger operates a drive-through window.

42) Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The accompanying table shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window. Quick Burger Operates a Drive-Through Window

Quick Burger Does Not Operate Drive-Through Window

Quick Burger

$ 24,000

$ 15,000

The Sunshine Café

$ 11,000

$ 23,000

If Quick Burger has the legal right to operate a drive-through, and Quick Burger and The Sunshine Café cannot negotiate with each other, then will Quick Burger operate a drive-through window? A) No, because it is not socially efficient to operate a drive-through. B) Yes, because Quick Burger’s payoff is higher when it operates a drive-through. C) No, because it would lower the payoff for The Sunshine Café. D) It cannot be determined.

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43) Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The accompanying table shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window. Quick Burger Operates a Drive-Through Window

Quick Burger Does Not Operate Drive-Through Window

Quick Burger

$ 24,000

$ 30,000

The Sunshine Café

$ 12,000

$ 23,000

If Quick Burger has the legal right to operate a drive-through, and Quick Burger and The Sunshine Café CANNOT negotiate with each other, then will Quick Burger operate a drivethrough window?

A) No, because Quick Burger's payoff is lower when it operates a drive-through. B) Yes, because it is socially efficient to operate a drive-through. C) No, because it would lower the payoff for The Sunshine Café. D) The answer depends on the elasticity of demand.

44) Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The accompanying table shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window. Quick Burger Operates a Drive-Through Window

Quick Burger Does Not Operate Drive-Through Window

Quick Burger

$ 24,000

$ 15,000

The Sunshine Café

$ 11,000

$ 23,000

Version 1

If Quick Burger has the legal right to operate a drive-through, and Quick Burger and The Sunshine Café can negotiate with each other at no cost, then will Quick Burger operate a drivethrough window? A) No, because it is not socially efficient to operate a drive-through. B) Yes, because Quick Burger’s payoff is higher when it operates a drive-through. C) No, because it would lower the payoff for The Sunshine Café. D) It cannot be determined.

45) Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The accompanying table shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window. Quick Burger Operates a Drive-Through Window

Quick Burger Does Not Operate Drive-Through Window

Quick Burger

$ 24,000

$ 15,000

The Sunshine Café

$ 11,000

$ 23,000

If Quick Burger has the legal right to operate a drive-through window, then the Sunshine Café would have to pay Quick Burger at least ______ per month to not operate a drive-through window. A) $9,000 B) $11,000 C) $15,000 D) $24,000

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46) Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The accompanying table shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window. Quick Burger Operates a Drive-Through Window

Quick Burger Does Not Operate Drive-Through Window

Quick Burger

$ 24,000

$ 21,000

The Sunshine Café

$ 19,000

$ 23,000

If Quick Burger has the legal right to operate a drive-through window, then the Sunshine Café would be willing to pay Quick Burger as much as ______ per month to NOT operate a drivethrough window. A) $3,000 B) $2,000 C) $19,000 D) $21,000

47) Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The accompanying table shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window. Quick Burger Operates a Drive-Through Window

Quick Burger Does Not Operate Drive-Through Window

Quick Burger

$ 24,000

$ 15,000

The Sunshine Café

$ 11,000

$ 23,000

If Quick Burger has the legal right to operate a drive-through window, then the Sunshine Café would be willing to pay Quick Burger as much as ______ per month to NOT operate a drivethrough window.

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A) $9,000 B) $11,000 C) $12,000 D) $15,000

48) Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The accompanying table shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window. Quick Burger Operates a Drive-Through Window

Quick Burger Does Not Operate Drive-Through Window

Quick Burger

$ 24,000

$ 12,000

The Sunshine Café

$ 12,000

$ 23,000

49) Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The accompanying table shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window. Quick Burger Operates a Drive-Through Window

Version 1

Quick Burger Does Not Operate Drive-Through 23

Window Quick Burger

$ 24,000

$ 15,000

The Sunshine Café

$ 11,000

$ 23,000

Suppose Quick Burger has the legal right to operate a drive-through window, and Quick Burger and the Sunshine Café can negotiate with each other at no cost. Which of the following arrangements would lead to the socially optimal outcome? A) Quick Burger pays The Sunshine Café $12,500 per month to operate the drivethrough window. B) Quick Burger pays The Sunshine Café $10,500 per month to operate the drive-through window. C) The Sunshine Café pays Quick Burger $12,500 per month not to operate the drivethrough window. D) The Sunshine Café pays Quick Burger $10,500 per month not to operate the drivethrough window.

50) Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The accompanying table shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window. Quick Burger Operates a Drive-Through Window

Quick Burger Does Not Operate Drive-Through Window

Quick Burger

$ 24,000

$ 20,000

The Sunshine Café

$ 17,000

$ 23,000

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A) The Sunshine Cafe pays Quick Burger $5,000 per month not to operate the drivethrough window. B) Quick Burger pays The Sunshine Cafe $5,000 to operate the drive-through window. C) The Sunshine Cafe pays Quick Burger $12,250 not to operate the drive-through window. D) Quick Burger pays The Sunshine Cafe $15,250 to operate the drive-through window.

51) Suppose there are 10 people playing cards in a room. One of them wants to smoke a cigar, nine of them dislike the smell of cigar smoke. The smoker values the privilege of smoking at $5, and each of the other nine people of the room would be willing to pay 50 cents for clean air in the room. The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. If all 10 people can negotiate with each other at no cost, then which of the following outcomes is consistent with the Coase theorem? A) The cigar smoker will not be able to smoke because the majority of people in the room dislike the smell of cigar smoke. B) The cigar smoker will pay each of the other nine people 55 cents, and they will agree to allow smoking. C) The cigar smoker will smoke because the external cost of smoking does not need to be taken into consideration. D) The nine nonsmokers will each pay the cigar smoker 50 cents and the cigar smoker will not smoke.

52) Suppose there are 10 people playing cards in a room. One of them wants to smoke a cigar, nine of them dislike the smell of cigar smoke. The smoker values the privilege of smoking at $5, and each of the other nine people of the room would be willing to pay 50 cents for clean air in the room. The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. Is it socially optimal for the cigar smoker to smoke?

Version 1

A) No, because the majority of people in the room dislike the smell of cigar smoke. B) No, because the value to the cigar smoker of smoking is less than the total value to the other people in the room of clean air. C) Yes, because the value to the cigar smoker of smoking is greater than the total value to the other people in the room of clean air. D) Yes, because the value to the cigar smoker of smoking is greater than 50 cents.

53) Suppose there are 10 people playing cards in a room. One of them wants to smoke a cigar, nine of them dislike the smell of cigar smoke. The smoker values the privilege of smoking at $5, and each of the other nine people of the room would be willing to pay 50 cents for clean air in the room. The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. If the cigar smoker paid each other occupant 50 cents for the right to smoke, the cigar smoker would be ______ and the other occupants would be _______. A) better off; worse off B) better off; just as well off as before the payment C) better off; better off D) worse off; just as well off as before the payment

54) Suppose there are ten people playing cards in a room. One of them wants to smoke a cigar, nine of them dislike the smell of cigar smoke. The smoker values the privilege of smoking at $5, and each of the other nine people of the room would be willing to pay 50 cents for clean air in the room. The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. If the rules governing the room instead stated that smoking is allowed unless everyone in the room agrees to prohibit it, then A) the nonsmoking occupants will pay the cigar smoker to not smoke. B) the cigar smoker will smoke and not have to pay the other occupants for the external cost. C) the cigar smoker will smoke and will pay each other occupant 50 cents. D) the parties may or may not be able to reach a negotiated agreement depending on the bargaining strength of each.

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55) Suppose there are 10 people playing cards in a room. One of them wants to smoke a cigar, nine of them dislike the smell of cigar smoke. The smoker values the privilege of smoking at $5, and each of the other nine people of the room would be willing to pay 50 cents for clean air in the room. The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. If all 10 people can negotiate with each other at no cost, then the Coase theorem predicts that if the cigar smoker has the right to determine whether smoking is allowed, then there ______ be smoking, and if the other nine people in the room have the right to determine whether smoking is allowed, then there ______ be smoking. A) will; will B) will; will not C) will not; will not D) will not; will

56) Suppose there are 10 people playing cards in a room. One of them wants to smoke a cigar, nine of them dislike the smell of cigar smoke. The smoker values the privilege of smoking at $5, and each of the other nine people of the room would be willing to pay 50 cents for clean air in the room. The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. Declaring the card room a nonsmoking area with no opportunity to negotiate would A) decrease total economic surplus. B) increase total economic surplus. C) leave total economic surplus unchanged but redistribute benefits. D) efficiently solve the externality problem.

57) Suppose that your neighbor smokes in his yard. You can smell his cigarette smoke from inside your house, and you dislike the smell. Which of the following statements is correct?

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A) If it is difficult for you and your neighbor to negotiate with each other, then you may not be able to arrive at an efficient solution to this problem. B) Since your neighbor has the legal right to smoke in his yard, you will not be able to arrive at an efficient solution to this problem. C) It not socially optimal for your neighbor to smoke in his yard. D) There is no efficient solution to this problem.

58)

The Coase theorem implies that the initial allocation of property rights

A) determines all aspects of the final outcome of the negotiated agreement. B) does not determine which person will be entitled to engage in the externality generating activity but does determine which person will receive compensation. C) determines which person will be entitled to engage in the externality generating activity but does not affect which person will receive compensation. D) must be assigned to the person with the greatest costs.

59) Curly and Moe are considering living alone or being roommates and splitting the rent for the next 12 months. If they live alone, they each rent a one-bedroom, one-bath apartment for $500 per month, while if they are roommates, they can split a two-bedroom, one-bath apartment for $800 per month. The one difficulty they have is that Moe snores very loudly. Curly estimates the cost of poor sleep due to Moe's snoring at $150 per month. Moe could obtain a snoreeliminating device for $50 per month. The least costly solution to the externality present in this situation is for A) Curly to endure Moe's snoring. B) both to live alone. C) Moe to eliminate his snoring. D) Moe to pay Curly for his discomfort.

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60) Curly and Moe are considering living alone or being roommates and splitting the rent for the next 12 months. If they live alone, they each rent a one-bedroom, one-bath apartment for $500 per month, while if they are roommates, they can split a two-bedroom, one-bath apartment for $800 per month. The one difficulty they have is that Moe snores very loudly. Curly estimates the cost of poor sleep due to Moe's snoring at $150 per month. Moe could obtain a snoreeliminating device for $50 per month. The actual monthly gain in surplus to Curly and Moe from living together after addressing the snoring problems in the least costly way is A) $200. B) $150. C) $100. D) $50.

61) Curly and Moe are considering living alone or being roommates and splitting the rent for the next 12 months. If they live alone, they each rent a one-bedroom, one-bath apartment for $500 per month, while if they are roommates, they can split a two-bedroom, one-bath apartment for $800 per month. The one difficulty they have is that Moe snores very loudly. Curly estimates the cost of poor sleep due to Moe's snoring at $150 per month. Moe could obtain a snoreeliminating device for $50 per month. Curly would be willing to pay _____ per month to eliminate Moe's snoring. A) exactly $50 B) no more than $100 C) up to $150 D) nothing

62) Curly and Moe are considering living alone or being roommates and splitting the rent for the next 12 months. If they live alone, they each rent a one-bedroom, one-bath apartment for $500 per month, while if they are roommates, they can split a two-bedroom, one-bath apartment for $800 per month. The one difficulty they have is that Moe snores very loudly. Curly estimates the cost of poor sleep due to Moe's snoring at $150 per month. Moe could obtain a snoreeliminating device for $50 per month. Curly and Moe have both taken an economics course and so are willing to apply the Coase theorem and negotiate. Who will compensate the other?

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A) Neither Moe nor Curly has the initial property right, and so neither will compensate the other. B) Moe must compensate Curly because Moe is the one who is snoring. C) Curly must compensate Moe because Curly is the one who is bothered by the snoring. D) Either Moe will compensate Curly or Curly will compensate Moe because the alternative, renting separate apartments, leaves each worse off.

63) Suppose Oscar and Felix share an apartment. Oscar likes to leave his dirty dishes in the sink, and this really bothers Felix. When Oscar leaves his dirty dishes in the sink, Oscar's surplus from their living arrangement is $400 per month, and Felix's surplus is $300 per month. On the other hand, when Oscar does not leave his dirty dishes in the sink, Oscar's surplus from their living arrangement is $350 per month, and Felix's surplus is $325 per month. There are no rules or regulations that prevent Oscar from leaving his dishes in the sink. In this case, the socially optimal outcome can be achieved A) if Felix gives Oscar $25 per month to stop leaving his dishes in the sink. B) if Felix gives Oscar $50 per month to stop leaving his dishes in the sink. C) if Felix gives Oscar more than $75 per month to stop leaving his dishes in the sink. D) without any intervention.

64) Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains for the three parties are listed in the accompanying table. Gains to Erie

With Filter

Without Filter

$ 200,000

$ 400,000

Fishermen

180,000

50,000

Bird watchers

130,000

25,000

When Erie Textiles operates without a filter, the total gain to all three parties is

Version 1

A) $985,000. B) $325,000. C) $510,000. D) $475,000.

65) Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains for the three parties are listed in the accompanying table. Gains to Erie

With Filter

Without Filter

$ 200,000

$ 400,000

Fishermen

180,000

50,000

Bird watchers

130,000

25,000

When Erie Textiles operates with a filter, the total gain by all three parties is A) $985,000. B) $600,000. C) $510,000. D) $475,000.

66) Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains for the three parties are listed in the accompanying table. Gains to Erie Fishermen

Version 1

With Filter

Without Filter

$ 200,000

$ 400,000

180,000

50,000

Bird watchers

130,000

25,000

The cost of the filter to Erie Textiles is ______, and the net benefit of the filter to the fishermen and bird watchers is A) $400,000; $310,000. B) $310,000; $200,000. C) $200,000; $75,000. D) $200,000; $235,000.

67) Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains for the three parties are listed in the accompanying table. Gains to Erie

With Filter

Without Filter

$ 200,000

$ 400,000

Fishermen

180,000

50,000

Bird watchers

130,000

25,000

If Erie Textiles does not install the filter, there will be a net social ______ of A) loss; $35,000. B) gain; $75,000. C) loss; $110,000. D) gain; $200,000.

Version 1

68) Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains for the three parties are listed in the accompanying table. With Filter

Without Filter

$ 200,000

$ 400,000

Fisherman

180,000

$ 150,000

Bird Watchers

130,000

$ 100,000

Gains to Erie

If Erie Textiles installs the filter, there will be a net social ______ of ______. A) loss; $140,000 B) gain; $200,000 C) gain; $100,000 D) loss; $150,000

69) Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains for the three parties are listed in the accompanying table. Gains to Erie

With Filter

Without Filter

$ 200,000

$ 400,000

Fishermen

180,000

50,000

Bird watchers

130,000

25,000

Local fishermen and bird watchers would be willing to compensate Erie Textiles ______ for operating with a filter.

Version 1

A) up to $310,000 B) no more than $235,000 C) no more than $75,000 D) nothing

70) Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains for the three parties are listed in the accompanying table. Gains to Erie

With Filter

Without Filter

$ 200,000

$ 400,000

Fishermen

180,000

50,000

Bird watchers

130,000

25,000

If all three parties can communicate and negotiate with each other at no cost, will Erie Textiles use a filter? A) No, because it makes $200,000 less in profit with the filter. B) Yes, because the benefit it would receive from being able to advertise that it acts in an environmentally responsible way exceeds the cost of using a filter. C) No, because use of a filter would result in smaller total economic surplus. D) Yes, because fishermen and bird watchers are willing to pay enough to Erie Textiles to offset the cost of using a filter.

71) Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains for the three parties are listed in the accompanying table.

Version 1

Gains to Erie

With Filter

Without Filter

$ 200,000

$ 400,000

Fishermen

180,000

50,000

Bird watchers

130,000

25,000

Suppose that Erie Textiles can only negotiate with one of the affected groups. Will Erie operate with a filter? A) Yes, if they negotiate with the bird watchers, but not if they negotiate with the fishermen. B) No, regardless of which group they negotiate with. C) Yes, if they negotiate with the fishermen, but not if they negotiate with the bird watchers. D) Yes, regardless of which group they negotiate with.

72) Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains for the three parties are listed in the accompanying table. Gains to Erie

With Filter

Without Filter

$ 200,000

$ 400,000

Fishermen

180,000

50,000

Bird watchers

130,000

25,000

Suppose you observe that Erie has not added a filter. You could conclude that the Coase theorem failed to solve the externality problem because

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A) Erie's benefits to operating without a filter are greater than the benefits of a filter to the fishermen and bird watchers. B) negotiation with many individual fishermen and bird watchers was too costly. C) Erie has a property right to the river. D) regulators prevent application of the Coase theorem when the environment is at stake.

73) Suppose that the EPA has proposed strict controls on the amount of sulfur that diesel fuel contains. These controls were designed to fully offset the cost of pollution generated by diesel fuel vehicles. The effect of the regulation is estimated to increase the equilibrium price of a gallon of diesel fuel by 10 cents. Assuming that the supply of diesel fuel has a positive slope and demand has a negative slope, one can infer that the EPA determined that the external A) benefit of using diesel fuel is less than 10 cents. B) cost of using diesel fuel is greater than 10 cents. C) cost of using diesel fuel is less than 10 cents. D) cost of using diesel fuel is equal to 10 cents.

74) Suppose that the EPA has proposed strict controls on the amount of sulfur that diesel fuel contains. These controls were designed to fully offset the cost of pollution generated by diesel fuel vehicles. The effect of the regulation is estimated to increase the equilibrium price of a gallon of diesel fuel by 10 cents. Assuming that the supply of diesel fuel has a positive slope and demand has a negative slope, the quantity of diesel fuel sold after imposition of the regulation will A) remain the same. B) increase. C) decrease. D) decrease only if diesel fuel is a normal good.

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75) Suppose that the EPA has proposed strict controls on the amount of sulfur that diesel fuel contains. These controls were designed to fully offset the cost of pollution generated by diesel fuel vehicles. The effect of the regulation is estimated to increase the equilibrium price of a gallon of diesel fuel by 10 cents. Suppose that demand for diesel fuel is perfectly inelastic and supply has a positive slope. The effect of the regulation will _______ than if demand were not perfectly inelastic. A) increase price and quantity by more B) increase price by less and reduce quantity by more C) decrease price and quantity by more D) increase price by more and reduce quantity by less

76) A policy maker has argued for higher taxes on gasoline to reduce the negative externalities associated with driving. This policy will lead to a relatively ______ reduction in driving if demand is ______. A) small; perfectly elastic B) large; perfectly inelastic C) small; relatively inelastic D) large; relatively inelastic

77)

From the perspective of an externality, most communities have zoning laws to A) control external benefits. B) control external costs. C) encourage positive externalities. D) raise government revenues.

78) Which one of the following government actions is intended to generate positive externalities?

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A) Taxing polluting industries B) Speed limits on the highways C) Requiring autos to meet minimum emissions regulations D) Subsidies for planting trees on hillsides

79) If an activity generates a positive externality, the government can increase total economic surplus by ______ the activity, and if an activity generates a negative externality, the government can increase total economic surplus by ______ the activity. A) taxing; banning B) subsidizing; banning C) subsidizing; taxing D) publicizing; taxing

80)

The optimal quantity of a negative externality is zero if A) it imposes a high enough cost on society. B) it is costly for people to negotiate with each other. C) the majority of voters decide to eliminate the externality. D) the marginal cost of reducing the externality is zero.

81)

If the marginal cost of reducing pollution is positive, then A) pollution should be reduced as much as technically feasible. B) the marginal benefit of reducing pollution is zero. C) the optimal amount of pollution is zero. D) the optimal amount of pollution is greater than zero.

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82) This graph shows the marginal cost and marginal benefit associated with roadside litter cleanup. Assume that the marginal benefit curve and marginal cost curve each have their usual slope.

The socially optimal number of bags of litter removed from the roadside each day is A) 10. B) 15. C) 20. D) 30.

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83) This graph shows the marginal cost and marginal benefit associated with roadside litter cleanup. Assume that the marginal benefit curve and marginal cost curve each have their usual slope.

From the graph, one can infer that: A) the marginal benefit of picking up the 10th bag of litter exceeds the marginal cost. B) the marginal cost of picking up the 10th bag of litter exceeds the marginal benefit. C) the marginal benefit of picking up the 20th bag of litter exceeds the marginal cost. D) the total benefit of having 30 bags removed is zero.

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84) This graph shows the marginal cost and marginal benefit associated with roadside litter cleanup. Assume that the marginal benefit curve and marginal cost curve each have their usual slope.

The marginal cost of litter removal ______ due to ______. A) decreases; gains from specialization B) increases; the Coase Theorem C) increases; increasing opportunity costs D) decreases; diminishing returns to inputs

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85) This graph shows the marginal cost and marginal benefit associated with roadside litter cleanup. Assume that the marginal benefit curve and marginal cost curve each have their usual slope.

Picking up the 20th bag of litter would A) be socially efficient. B) increase total economic surplus. C) create deadweight loss. D) be socially efficient but would not be consistent with the actions of self-interested individuals.

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86) This graph shows the marginal cost and marginal benefit associated with roadside litter cleanup. Assume that the marginal benefit curve and marginal cost curve each have their usual slope.

According to this graph, the marginal benefit of litter removal is highest when the --______ bag of litter is removed. A) 1st B) 10th C) 15th D) 30th

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87) This graph shows the marginal cost and marginal benefit associated with roadside litter cleanup. Assume that the marginal benefit curve and marginal cost curve each have their usual slope.

Suppose the state highway department has picked up 15 bags of litter. Protesters have staged a demonstration demanding that the highway department return to pick up the remaining litter. From an economic efficiency perspective, the protesters have a ______ claim because ______. A) legitimate; litter generates a negative externality B) faulty; the additional resources needed to remove more litter could be better used elsewhere C) faulty; the government is not responsible for taking care of private property D) legitimate; the government has a responsibility to take action when private market incentives do not yield the socially optimal outcome

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88) This graph shows the marginal cost and marginal benefit associated with roadside litter cleanup. Assume that the marginal benefit curve and marginal cost curve each have their usual slope.

A state initiative requiring towns to spend at least $20 per day on litter removal would be ______ because ______. A) efficient; reducing litter is socially optimal B) inefficient; the marginal cost of litter removal would exceed the marginal benefit C) inefficient; $20 is insufficient to remove all of the litter D) efficient; it solves the inefficiency created by the negative externality

89) In order to achieve the socially optimal level of output, goods that entail negative externalities should be A) banned. B) subsidized. C) taxed. D) provided by the government.

90) In order to achieve the socially optimal level of output, goods that entail positive externalities should be

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A) required. B) subsidized. C) taxed. D) deregulated.

91)

When the government imposes a tax on a good, total economic surplus will A) always fall. B) only increase if the good entails a positive externality. C) only increase if the good entails a negative externality. D) never change.

92)

If the government wants to increase economic efficiency, it should A) never tax goods. B) never subsidize goods. C) tax goods that entail positive externalities. D) subsidize goods that entail positive externalities.

93) Numerous studies have shown that breathing second-hand cigarette smoke is harmful to your health. This suggests that a tax on cigarettes will A) increase total economic surplus. B) decrease total economic surplus. C) have no effect on total economic surplus. D) lead to a decrease in the price of cigarettes.

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94)

Refer to the accompanying figure. From this graph, you can infer that paper production

A) generates no externalities at quantities less than 300 tons per day. B) generates an external cost of $50 per ton per year. C) generates an external cost of $150 per ton per year. D) should be prohibited.

95) Refer to the accompanying figure. This graph suggests that the private market provides incentives to

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A) eliminate the externalities generated by paper production. B) under-produce paper relative to the social optimum. C) over-produce paper relative to the social optimum. D) over-price paper relative to the social optimum.

96) Refer to the figure below. In this case, the private market ______ resources efficiently because ______.

A) does not allocate; demand and supply do not cross at the market equilibrium B) does not allocate; some of the costs of paper production do not fall on producers C) allocates; firms are motivated to maximize profit D) allocates; consumers are willing to pay the external cost of production

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97) Refer to the accompanying figure. The socially optimal quantity of paper is ______ tons per year.

A) 0 B) 360 C) 150 D) 300

98) Refer to the accompanying figure. If negotiation is impractical, the socially optimal level of production can be achieved by

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A) banning production of paper. B) compensating those injured by the externality. C) imposing a tax on paper equal to the external cost. D) subsidizing paper by the amount of the external benefit.

99) Refer to the accompanying figure. At the market equilibrium quantity, the social marginal cost of the last ton of paper produced is ______ the marginal benefit of the last ton of paper produced.

A) less than or equal to B) equal to C) less than D) greater than

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100) Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the vaccine.

The government could increase total economic surplus by A) taxing production of the vaccine. B) encouraging people to pay each other to get the vaccine. C) subsidizing production of the vaccine. D) providing 250 doses of the vaccine for free.

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101) Refer to the accompanying figure. The socially optimal level of output could be achieved by imposing a tax on each unit equal to the distance ______.

A) EG B) AC C) EF D) BC

102) Refer to the accompanying figure. At the private market equilibrium quantity, the social marginal cost of the last unit produced is ______ the marginal benefit of the last unit produced.

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A) equal to B) greater than C) less than D) less important than

103)

Refer to the accompanying figure. This graph describes a good that

A) generates positive externalities. B) should be banned. C) generates negative externalities. D) the government should tax.

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104) Refer to the accompanying figure. The socially optimal quantity in this market is ______ units per day.

A) T B) U C) V D) W

105) Refer to the accompanying figure. Private incentives in this market generate deadweight loss equal to _______.

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A) ½ × UW × LM B) ½ × UV × LN C) ½ × VW × LN D) ½ × VW × KM

106) Refer to the accompanying figure. The socially optimal quantity in this market could be achieved by imposing a ______ equal to the vertical distance ______.

A) tax; LN B) subsidy; LN C) tax; LM D) subsidy; LM

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107) Refer to the accompanying figure. At the private market equilibrium quantity, the marginal cost of the last unit produced is ______ the social marginal benefit of the last unit produced.

A) equal to B) greater than C) less than D) more important than

108) The tendency for a resource that has no price to be used until its marginal benefit falls to zero is referred to as A) a social norm. B) a positional arms race. C) the Coase theorem. D) the tragedy of the commons.

109)

The tragedy of the commons refers to the

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A) overuse of resources that have no price. B) overuse of resources that have no cost. C) underproduction of goods that have external benefits. D) failure of the Coase theorem when negotiation is costly.

110)

Which of the following would be most vulnerable to the tragedy of the commons? A) Restrooms in a restaurant B) Timber on public land C) Cattle on a ranch D) Apples in Phoebe's apple orchard

111) Since the cost of using more of any resource is ______, viewing any resource's price as zero leads to ______. A) positive; underutilization B) negative; overutilization C) positive; a surplus D) positive; overutilization

112)

The essential cause of the tragedy of the commons is the fact that A) it can be difficult to solve the free-rider problem. B) one person's use of a commonly held resource imposes an external cost on others. C) when a resource has no price, it leads to a positional externality. D) governments may not tax activities that generate negative externalities.

113)

The essential reason some species of whales have nearly been driven to extinction is that

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A) it is difficult to define and enforce property rights to whales. B) the demand for whales is extremely high. C) the price of whales is very low. D) experienced whalers find it easy to catch whales.

114) Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town. (An aquifer is an underground body of water.) As more people settled in Dry Gulch, the aquifer level fell and new wells had to be drilled deeper at higher cost. The residents of Dry Gulch will overuse water relative to the social optimum because ______. A) each resident will fail to adequately consider the external cost of his or her own water use B) water is a scarce resource C) each resident will fail to adequately consider the external benefit of his or her own water use D) the marginal cost of water is increasing

115) Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town. (An aquifer is an underground body of water.) As more people settled in Dry Gulch, the aquifer level fell and new wells had to be drilled deeper at higher cost. The town council has proposed putting a meter on each household's pump and charging residents for each gallon of water used. This would A) have no effect on water use. B) discourage residents from using too much water. C) convert private property to public property. D) reduce total economic surplus.

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116) Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town. (An aquifer is an underground body of water.) As more people settled in Dry Gulch, the aquifer level fell and new wells had to be drilled deeper at higher cost. In Dry Gulch, the supply of water is A) perfectly inelastic. B) perfectly elastic. C) upward-sloping. D) downward-sloping.

117) Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town. (An aquifer is an underground body of water.) As more people settled in Dry Gulch, the aquifer level fell and new wells had to be drilled deeper at higher cost. Compared to a town in which all residents collectively decide on how much water to use, water use will likely be ______ in Dry Gulch. A) higher B) the same C) lower D) the same or lower

118)

If it is possible to place a commonly held resource under private ownership, then the A) tragedy of the commons can be solved. B) tragedy of the commons becomes even worse. C) privately held resource will be overused relative to the social optimum. D) privately held resource will be underused relative to the social optimum.

119) Total economic surplus will be ______ in nations with well-defined property rights than in nations with poorly-defined property rights.

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A) less predictable B) no different C) higher D) lower

120)

Which of the following is most likely to be used efficiently? A) A privately owned natural resource B) A private good that entails an external cost C) A publicly owned natural resource D) A private good that entails an external benefit

121) The following data show the relationship between the number of drivers who leave for work at 8 a.m., their average commute time, and their marginal benefit of commuting. Number of Drivers Who Leave at 8 a.m.

Average Commute Time

Marginal Benefit

100

30 minutes

$ 10

200

65 minutes

300

110 minutes

400

170 minutes

500

260 minutes

If commuters view highway use as having a price of zero, then one can predict that ______ drivers will leave for downtown at 8:00 a.m. A) 500 B) 400 C) 300 D) 200

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122) The following data show the relationship between the number of drivers who leave for work at 8 a.m., their average commute time, and their marginal benefit of commuting. Number of Drivers Who Leave at 8 a.m.

Average Commute Time

Marginal Benefit

100

30 minutes

$ 10

200

65 minutes

300

110 minutes

400

170 minutes

500

260 minutes

If there is no charge to use the highway, then one would expect that ______ than the socially optimal number of drivers will leave at 8 a.m. because ______. A) more; each driver’s use of the highway imposes an external cost on other drivers by increasing the commute time B) more; the social marginal benefit of using the highway is greater than the private marginal benefit C) less; each driver’s use of the highway imposes an external cost on other drivers by increasing the commute time D) less; the private marginal benefit of using the highway is greater than the social marginal benefit

123) The following data show the relationship between the number of drivers who leave for work at 8 a.m., their average commute time, and their marginal benefit of commuting.

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Number of Drivers Who Leave at 8 a.m.

Average Commute Time

Marginal Benefit

100

30 minutes

$ 10

200

65 minutes

300

110 minutes

400

170 minutes

500

260 minutes

One way for the government to increase economic efficiency would be for it to A) require all 500 drivers to collectively decide when each should leave for work. B) subsidize gasoline consumption. C) require employers to allow workers to arrive late for work. D) charge a toll to use the highway during rush hour.

124) A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10 percent interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in the accompanying table. Assume that if a villager is indifferent between buying a bond and buying a goat, the villager will buy a goat. Number of goats on the commons

Price per 2-year old goat ($)

Income per goat ($/year)

The villagers will buy a year-old goat if the goat can be sold for a price of at least _____ when it is 2 years old. A) $55 B) $75 C) $70 D) $65

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125) A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10 percent interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in the accompanying table. Assume that if a villager is indifferent between buying a bond and buying a goat, the villager will buy a goat. Number of goats on the commons

Price per 2-year old goat ($)

Income per goat ($/year)

If each villager is purely self-interested, how many goats will be sent onto the commons? A) 2 B) 3 C) 4 D) 5

126) A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10 percent interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in the accompanying table. Assume that if a villager is indifferent between buying a bond and buying a goat, the villager will buy a goat. Number of goats on the commons

Price per 2-year old goat ($)

Income per goat ($/year)

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What will be the total village income if each villager decides how to invest based on his or her individual self-interest? A) $5 B) $125 C) $75 D) $25

127) A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10 percent interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in the accompanying table. Assume that if a villager is indifferent between buying a bond and buying a goat, the villager will buy a goat. Number of goats on the commons

Price per 2-year old goat ($)

Income per goat ($/year)

What is the socially optimal number of goats to be sent out onto the commons? A) 5 B) 4 C) 3 D) 2

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128) A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10 percent interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in the accompanying table. Assume that if a villager is indifferent between buying a bond and buying a goat, the villager will buy a goat. Number of goats on the commons

Price per 2-year old goat ($)

Income per goat ($/year)

If the villagers purchase the socially optimal number of goats and bonds, then total village income will be ______. A) $250 B) $125 C) $70 D) $15

129) A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10 percent interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in the accompanying table. Assume that if a villager is indifferent between buying a bond and buying a goat, the villager will buy a goat. Number of goats on the commons

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Price per 2-year old goat ($)

Income per goat ($/year)

When each villager decides how to invest based on his or her narrow self-interest, total village income will be ______ when the village collectively decides how to invest. A) lower than B) higher than C) the same as D) either higher than or lower than depending on the price of the goats

130) Lunch in Jamie's dorm is an all-you-can-eat buffet, served from 11 a.m. until 1 p.m. By noon, the buffet is picked over, and by 12:30, there are very few popular items left. The garbage bins, though, are full of food. The buffet in Jamie's dorm is an example of A) an efficient subsidy. B) the tragedy of the commons. C) excess supply in the market. D) a good with positive externalities.

131) Lunch in Jamie's dorm is an all-you-can-eat buffet, served from 11 a.m. until 1 p.m. By noon, the buffet is picked over, and by 12:30, there are very few popular items left. The garbage bins, though, are full of food. Over time, you would expect that students would A) stop eating so much at lunch because they would notice that it generates waste. B) start distributing themselves more evenly over the lunch hours to avoid long lines. C) come earlier and earlier for lunch in order to have a better selection from which to choose. D) be pickier in their selections from the buffet.

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132) Lunch in Jamie's dorm is an all-you-can-eat buffet, served from 11 a.m. until 1 p.m. By noon, the buffet is picked over, and by 12:30, there are very few popular items left. The garbage bins, though, are full of food. If the cafeteria changed its policy so that students had to pay for each item chosen, students would A) make the same selections as before but eat more of what they select. B) select only the most expensive items in the buffet. C) encounter shortages earlier in the day. D) only select an item if its marginal benefit is greater than or equal to its price.

133) When Brady is driving, he throws his cigarette butts out the window, reasoning that other people will clean up the litter on the side of the road. By throwing his cigarette butts out the window, Brady is A) helping to achieve the socially optimal level of litter. B) creating a positive externality for himself. C) imposing an external cost on others. D) treating his private property as common property.

134) When one's performance is judged relative to others' performance and not by an absolute standard A) players will overinvest in performance enhancements. B) players will underinvest in performance enhancements. C) the incentive to sabotage the other players is lessened. D) a positional externality is not possible.

135)

A positional externality

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A) only occurs in sports. B) arises in situations in which rewards depend on absolute performance. C) results in underinvestment in performance enhancement. D) arises in situations in which rewards depend on relative performance.

136) Suppose that in most car collisions between cars of unequal size, the smaller car sustains the most damage and its occupants suffer the most injury. In answering the following question, assume that, on average, smaller cars generate less air pollution than larger cars and that every person in the economy drives at least one car. Relative to driving an average car, driving a larger-than-average car generates A) an external cost. B) an external benefit. C) neither an external benefit nor an external cost. D) a prisoner's dilemma.

137) Suppose that in most car collisions between cars of unequal size, the smaller car sustains the most damage and its occupants suffer the most injury. In answering the following question, assume that, on average, smaller cars generate less air pollution than larger cars and that every person in the economy drives at least one car. As the average size of cars increases, an individual's incentive to buy a smaller car A) increases in order to prevent injury to others. B) increases to offset the external cost of air pollution. C) decreases because of the increased risk of injury in a collision. D) remains the same because car purchases depend on individual preferences.

138) Suppose that in most car collisions between cars of unequal size, the smaller car sustains the most damage and its occupants suffer the most injury. In answering the following question, assume that, on average, smaller cars generate less air pollution than larger cars and that every person in the economy drives at least one car. Suppose the size of all cars increased by 25 percent. Collisions between two cars would cause ______ and air pollution would ______. Version 1

A) less injury; increase B) greater injury; increase C) neither greater nor less injury; remain the same D) neither greater nor less injury; increase

139) Suppose that in most car collisions between cars of unequal size, the smaller car sustains the most damage and its occupants suffer the most injury. In answering the following question, assume that, on average, smaller cars generate less air pollution than larger cars and that every person in the economy drives at least one car. In deciding what kind of car to buy, individuals A) will fully internalize the safety benefit to others of driving a small car. B) will fully internalize the full cost of the air pollution caused by larger cars. C) will have a strong incentive to buy large cars because large cars are safer than small cars. D) will not consider their own safety in deciding what kind of car to buy.

140)

Which of the following investments is part of a positional arms race? A) Watching your friend train for a soccer game B) Renting movies for the weekend C) Studying hard for your economics exam because your professor grades on a curve D) Playing golf for fun

141) The town of Pleasantville has two local TV stations. If one of them invests in the newest weather forecasting technology, one can predict that A) the other station will continue to use its current weather forecasting technology. B) the other station will upgrade its weather forecasting technology. C) both stations eventually will switch back to the old weather forecasting technology. D) the quality of weather forecasts will remain unchanged.

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142)

From society's standpoint, positional arms races lead to outcomes that are A) dominant. B) desirable. C) inefficient. D) efficient.

143)

According to the textbook, social norms A) are usually ignored. B) are a type of positional externality. C) can help curtail positional arms races. D) are never effective at limiting positional arms races.

144) According to the textbook, if students are graded on a curve so that each student's grade depends upon their performance relative to other students, the resulting positional arms race is partially offset by social norms that A) encourage everyone to study hard. B) discourage studying by labeling hard-working students as "nerds." C) award only the very top performers. D) encourage people to save money for college.

145)

Which of the following is an example of a positional arms control agreement? A) Campaign spending limits B) Highly selective admissions standards at colleges C) Prohibiting speech that causes more harm than good D) Public education

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146) The following payoff matrix shows the outcomes for the United States and Russia from relying on conventional weapons versus atomic weapons in a military conflict. The percentages refer to the fraction of the population that would die.

The Nash equilibrium outcome of this game is for A) both countries to have conventional weapons. B) both countries to have atomic weapons. C) Russia to have atomic weapons and the U.S. to have conventional weapons. D) the U.S. to have atomic weapons and Russia to have conventional weapons.

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147) The following payoff matrix shows the outcomes for the United States and Russia from relying on conventional weapons versus atomic weapons in a military conflict. The percentages refer to the fraction of the population that would die.

For the US, the dominant strategy is to have _______, and for Russia, the dominant strategy is to have ______. A) atomic weapons; conventional weapons B) conventional weapons; atomic weapons C) conventional weapons; conventional weapons D) atomic weapons; atomic weapons

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148) The following payoff matrix shows the outcomes for the United States and Russia from relying on conventional weapons versus atomic weapons in a military conflict. The percentages refer to the fraction of the population that would die.

This situation above illustrates a positional externality because A) using atomic weapons is a dominated strategy. B) using atomic weapons improves each country’s outcome but hurts the other country. C) the game does not have a Nash equilibrium. D) no matter what kind of weapons each country chooses, many people will die.

149) Shel and Fran are neighbors. They work at the same firm and hold the same title. Shel finds that when Fran's consumption rises, Shel feels worse off. Fran feels the same way about Shel's consumption. Fran has bought a new Jaguar (a luxury car), and shortly thereafter, Shel bought a new Mercedes (also a luxury car). Shel and Fran seem to be A) making independent rational consumption decisions. B) unaware of the other's actions. C) involved in a positional arms race. D) imposing external benefits on each other.

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150) Shel and Fran are neighbors. They work at the same firm and hold the same title. Shel finds that when Fran's consumption rises, Shel feels worse off. Fran feels the same way about Shel's consumption. Suppose the firm that employs both Fran and Shel begins to offer one hour of overtime at 1.5 times their base hourly wage. It is likely that A) Fran will work more but not Shel. B) Shel will work more but not Fran. C) neither Fran nor Shel will work more. D) both Fran and Shel will work more.

151) Your economics professor has announced that he or she will assign final grades as follows: the top 20 percent of students will get an A, the bottom 20 percent of students will get an F, and everyone else will get a C. This grading scheme generates a positional externality because A) society as whole will be better off when people are educated. B) students will study hard no matter how the professor assigns final grades. C) each student's final grade depends on his or her relative standing. D) studying requires both time and effort.

152) Your economics professor has announced that he or she will assign final grades as follows: the top 20 percent of students will get an A, the bottom 20 percent of students will get an F, and everyone else will get a C. You would expect that, as the semester progresses, students who really care about getting an A will A) study less and less to maintain low standards. B) try to forget about the grading scheme. C) engage in a positional arms race, studying more and more. D) maintain a stable agreement to not study for exams.

153)

The most efficient distribution of pollution abatement is such that the

Version 1

A) extent of pollution abatement is the same across all geographic regions. B) extent of pollution abatement is the same across all polluters. C) largest reductions in pollution are made by the largest polluters. D) marginal cost of abatement is the same across all polluters.

154) If the marginal cost of pollution abatement differs across firms, then regulations that require all polluters to reduce pollution by a fixed proportion will be A) efficient. B) inefficient C) ineffective. D) fair to all polluters.

155) For a fixed percent reduction in pollution emissions to be economically efficient, it would have to be the case that A) the marginal cost of pollution control is the same across all firms. B) enforcement is vigorous. C) all firms be the same size. D) large polluters reduce emissions by more than small polluters.

156) If the marginal cost of pollution abatement is smaller for large firms than it is for small firms, then it is efficient for A) small firms to reduce pollution by more than large firms. B) small firms and large firms to reduce pollution by a fixed proportion. C) small firms and large firms to increase pollution by a fixed proportion. D) large firms to reduce pollution by more than small firms.

Version 1

157) Two companies, Dirty Incorporated and Filthy Incorporated, each have access to 5 different production processes, each of which has a different cost and produces a different amount of pollution. The daily costs of the processes and the number of tons of smoke emitted are shown in the accompanying table. Process (smoke/day)

A (4 tons/day)

B (3 tons/day)

C (2 tons/day)

D (1 tons/day)

E (0 tons/day)

Cost to Dirty Incorporated ($/day)

$ 100

$ 200

$ 380

$ 740

$ 1,460

Cost to Filthy Incorporated ($/day)

400

430

490

580

700

If pollution is unregulated, then a total of ______ tons of smoke will be emitted each day. A) 1 B) 2 C) 4 D) 8

158) Two companies, Dirty Incorporated and Filthy Incorporated, each have access to 5 different production processes, each of which has a different cost and produces a different amount of pollution. The daily costs of the processes and the number of tons of smoke emitted are shown in the accompanying table. Process (smoke/day)

A (4 tons/day)

B (3 tons/day)

C (2 tons/day)

D (1 tons/day)

E (0 tons/day)

Cost to Dirty Incorporated ($/day)

$ 100

$ 200

$ 380

$ 740

$ 1,460

Cost to Filthy Incorporated ($/day)

400

430

490

580

700

Suppose pollution is initially unregulated. If the City Council requires each firm to reduce emissions by 50 percent, then the total cost to society of this policy will be ______ per day.

Version 1

A) $370 B) $380 C) $490 D) $870

159) Two companies, Dirty Incorporated and Filthy Incorporated, each have access to 5 different production processes, each of which has a different cost and produces a different amount of pollution. The daily costs of the processes and the number of tons of smoke emitted are shown in the accompanying table. Process (smoke/day)

A (4 tons/day)

B (3 tons/day)

C (2 tons/day)

D (1 tons/day)

E (0 tons/day)

Cost to Dirty Incorporated ($/day)

$ 100

$ 200

$ 380

$ 740

$ 1,460

Cost to Filthy Incorporated ($/day)

400

430

490

580

700

Suppose pollution is initially unregulated. If the City Council imposes a tax of $91 per day on each ton of smoke emitted, then total emissions will fall to ______ tons of smoke per day.

A) 1 B) 2 C) 5 D) 8

160) Two companies, Dirty Incorporated and Filthy Incorporated, each have access to 5 different production processes, each of which has a different cost and produces a different amount of pollution. The daily costs of the processes and the number of tons of smoke emitted are shown in the accompanying table.

Version 1

Process (smoke/day)

A (4 tons/day)

B (3 tons/day)

C (2 tons/day)

D (1 tons/day)

E (0 tons/day)

Cost to Dirty Incorporated ($/day)

$ 100

$ 200

$ 380

$ 740

$ 1,460

Cost to Filthy Incorporated ($/day)

400

430

490

580

700

Suppose pollution is initially unregulated. If the City Council imposes a tax of $91 per day on each ton of smoke emitted, then what will be the total cost to society of the resulting reduction in pollution? A) $90 B) $180 C) $270 D) $360

161) Suppose there are three power-generating plants, each of which has access to 5 different production processes. The accompanying table summarizes the cost of each production process and the corresponding number of tons of smoke emitted each. Process (smoke/day)

A (4 tons/day)

B (3 tons/day)

C (2 tons/day)

D (1 tons/day)

E (0 tons/day)

Cost to Firm X ($/day)

$ 500

$ 514

$ 530

$ 555

$ 585

Cost to Firm Y ($/day)

400

420

445

480

520

Cost to Firm Z ($/day)

300

325

360

400

550

If pollution is unregulated, then total daily smoke emission will be ______ tons.

Version 1

A) 4 B) 12 C) 9 D) 8

162) Suppose there are three power-generating plants, each of which has access to 5 different production processes. The accompanying table summarizes the cost of each production process and the corresponding number of tons of smoke emitted each. Process (smoke/day)

A (4 tons/day)

B (3 tons/day)

C (2 tons/day)

D (1 tons/day)

E (0 tons/day)

Cost to Firm X ($/day)

$ 500

$ 514

$ 530

$ 555

$ 585

Cost to Firm Y ($/day)

400

420

445

480

520

Cost to Firm Z ($/day)

300

325

360

400

550

Suppose the government requires each firm to reduce pollution to 2 tons of smoke per day, so that total daily smoke emission is 6 tons. The total cost to society of this policy will be ______ per day. A) $59 B) $42 C) $230 D) $135

163) Suppose there are three power-generating plants, each of which has access to 5 different production processes. The accompanying table summarizes the cost of each production process and the corresponding number of tons of smoke emitted each. Process (smoke/day)

Version 1

A (4 tons/day)

B (3 tons/day)

C (2 tons/day)

D (1 tons/day)

E (0 tons/day)

Cost to Firm X ($/day)

$ 500

$ 514

$ 530

$ 555

$ 585

Cost to Firm Y ($/day)

400

420

445

480

520

Cost to Firm Z ($/day)

300

325

360

400

550

It would cost Firm X ______ to reduce emissions by one ton if it currently emits 3 tons, and ______ to reduce emissions by one ton if it currently emits 2 tons. A) $14; $25 B) $14; $16 C) $16; $25 D) $30; $55

164) Suppose there are three power-generating plants, each of which has access to 5 different production processes. The accompanying table summarizes the cost of each production process and the corresponding number of tons of smoke emitted each. Process (smoke/day)

A (4 tons/day)

B (3 tons/day)

C (2 tons/day)

D (1 tons/day)

E (0 tons/day)

Cost to Firm X ($/day)

$ 500

$ 514

$ 530

$ 555

$ 585

Cost to Firm Y ($/day)

400

420

445

480

520

Cost to Firm Z ($/day)

300

325

360

400

550

For all three firms, the marginal cost of pollution abatement is A) increasing. B) decreasing. C) constant. D) decreasing and then increasing.

Version 1

165) Suppose there are three power-generating plants, each of which has access to 5 different production processes. The accompanying table summarizes the cost of each production process and the corresponding number of tons of smoke emitted each. Process (smoke/day)

A (4 tons/day)

B (3 tons/day)

C (2 tons/day)

D (1 tons/day)

E (0 tons/day)

Cost to Firm X ($/day)

$ 500

$ 514

$ 530

$ 555

$ 585

Cost to Firm Y ($/day)

400

420

445

480

520

Cost to Firm Z ($/day)

300

325

360

400

550

Suppose the government imposes a tax of $21 on each ton of smoke emitted. To minimize costs, Firm X will emit ______ tons; Firm Y will emit ______ tons, and Firm Z will emit ______ tons. A) 1; 2; 3 B) 2; 3; 4 C) 3; 4; 4 D) 1; 2; 4

166) Suppose there are three power-generating plants, each of which has access to 5 different production processes. The accompanying table summarizes the cost of each production process and the corresponding number of tons of smoke emitted each. Process (smoke/day)

A (4 tons/day)

B (3 tons/day)

C (2 tons/day)

D (1 tons/day)

E (0 tons/day)

Cost to Firm X ($/day)

$ 500

$ 514

$ 530

$ 555

$ 585

Cost to Firm Y ($/day)

400

420

445

480

520

Cost to Firm Z ($/day)

300

325

360

400

550

The least costly way of lowering smoke emissions from 12 tons to 9 tons per day would be for Version 1

A) each firm to reduce emissions by 1 ton, emitting 3 tons each. B) Firm X to emit 2 tons, Firm Y to emit 3 tons and Firm Z to emit 4 tons. C) Firm X to emit 4 tons, Firm Y to emit 3 tons and Firm Z to emit 2 tons. D) Firm X to emit 1 ton, Firm Y to emit 4 tons and Firm Z to emit 4 tons.

167) Suppose there are three power-generating plants, each of which has access to 5 different production processes. The accompanying table summarizes the cost of each production process and the corresponding number of tons of smoke emitted each. Process (smoke/day)

A (4 tons/day)

B (3 tons/day)

C (2 tons/day)

D (1 tons/day)

E (0 tons/day)

Cost to Firm X ($/day)

$ 500

$ 514

$ 530

$ 555

$ 585

Cost to Firm Y ($/day)

400

420

445

480

520

Cost to Firm Z ($/day)

300

325

360

400

550

Suppose the government decides to impose a tax on each ton of smoke emitted. What would be the lowest tax, in whole dollars, that would reduce emissions to 6 tons per day? A) $21 per ton B) $26 per ton C) $36 per ton D) $41 per ton

168) Two firms, Kegareta Incorporated and Sucio Enterprises, have access to five production processes, each one of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the accompanying table. A 4 tons/day

Version 1

B 3 tons/day

C 2 tons/day

D 1 tons/day

E 0 tons/day

Kegareta Incorporated

$ 40

$ 85

$ 135

$ 190

$ 250

Sucio Enterprises

120

175

250

345

460

If the government requires each firm to cut its emissions by 50 percent, what would be the total cost to society of this policy? A) $120 per day B) $180 per day C) $385 per day D) $225 per day

169) Two firms, Kegareta Incorporated and Sucio Enterprises, have access to five production processes, each one of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the accompanying table. A 4 tons/day

B 3 tons/day

C 2 tons/day

D 1 tons/day

E 0 tons/day

Kegareta Incorporated

$ 40

$ 85

$ 135

$ 190

$ 250

Sucio Enterprises

120

175

250

345

460

Suppose the government wants to reduce pollution by 50 percent by imposing a tax of $ T per day on each ton of smoke emitted. Of the options listed, what’s the smallest tax, $ T, that will achieve this goal? A) $51 B) $56 C) $61 D) $54

Version 1

170) Two firms, Kegareta Incorporated and Sucio Enterprises, have access to five production processes, each one of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the accompanying table. A 4 tons/day

B 3 tons/day

C 2 tons/day

D 1 tons/day

E 0 tons/day

Kegareta Incorporated

$ 40

$ 85

$ 135

$ 190

$ 250

Sucio Enterprises

120

175

250

345

460

Suppose the government imposes a tax of $56 per day on each ton of smoke emitted. Assuming the revenue the government collects from the tax is used to offset other taxes, what’s the total cost to society of this policy? A) $120 per day B) $180 per day C) $205 per day D) $225 per day

171) Two firms, Acme and FirmCo, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the accompanying table. Process (smoke/day)

A (4 tons/day)

B (3 tons/day)

c (2 tons/day)

D (1 tons/day)

E (0 tons/day)

Cost to Acme ($/day)

$ 750

$ 800

$ 1,000

$ 1,400

$ 2,000

Cost to FirmCo ($/day)

500

750

1,200

2,200

4,000

If pollution is unregulated, the two firms will produce using process ______, and a total of ______ tons of smoke will be emitted each day. Version 1

A) C; 12 B) D; 4 C) B; 16 D) A; 20

172) Two firms, Acme and FirmCo, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the accompanying table. Process (smoke/day)

A (4 tons/day)

B (3 tons/day)

c (2 tons/day)

D (1 tons/day)

E (0 tons/day)

Cost to Acme ($/day)

$ 750

$ 800

$ 1,000

$ 1,400

$ 2,000

Cost to FirmCo ($/day)

500

750

1,200

2,200

4,000

Suppose the firms are both currently using process A. If the government requires each firm to reduce pollution by 20 percent, then the firms will adopt process ______, and a total of ______ tons of smoke will be emitted each day. A) A; 18 B) B; 16 C) C; 12 D) D; 8

173) Two firms, Acme and FirmCo, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the accompanying table. Process (smoke/day) Cost to Acme ($/day)

Version 1

A (4 tons/day)

B (3 tons/day)

c (2 tons/day)

D (1 tons/day)

E (0 tons/day)

$ 750

$ 800

$ 1,000

$ 1,400

$ 2,000

Cost to FirmCo ($/day)

500

750

1,200

2,200

4,000

Suppose the firms are both currently using process A. If the government requires each firm to reduce pollution by 20 percent, then the total cost to society of this policy will be ______ per day. A) $300 B) $950 C) $1,550 D) $2,350

174) Two firms, Acme and FirmCo, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the accompanying table. Process (smoke/day)

A (4 tons/day)

B (3 tons/day)

c (2 tons/day)

D (1 tons/day)

E (0 tons/day)

Cost to Acme ($/day)

$ 750

$ 800

$ 1,000

$ 1,400

$ 2,000

Cost to FirmCo ($/day)

500

750

1,200

2,200

4,000

Suppose the firms are both currently using process A. If the government imposes a tax of $110 per ton of smoke emitted, then Acme will use process ______, and FirmCo will use process ______. A) B; A B) C; A C) C; C D) D; C

Version 1

175) Two firms, Acme and FirmCo, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the accompanying table. Process (smoke/day)

A (4 tons/day)

B (3 tons/day)

c (2 tons/day)

D (1 tons/day)

E (0 tons/day)

Cost to Acme ($/day)

$ 750

$ 800

$ 1,000

$ 1,400

$ 2,000

Cost to FirmCo ($/day)

500

750

1,200

2,200

4,000

Suppose the firms are both currently using process A. If the government imposes a tax of $110 per ton of smoke emitted, a total of ______ tons of smoke will be emitted each day, and the total cost to society of this policy will be ______ per day. A) 14; $500 B) 16; $250 C) 18; $50 D) 20; $0

176) The major difficulty with using a tax on pollution instead of a fixed percentage reduction regulation is A) that firms would not pay the tax. B) that it would cause prices to rise. C) that it only works in theory. D) establishing the optimal size of the tax.

177)

Compared to a fixed percentage reduction regulation, a tax on pollution encourages

Version 1

A) firms to reduce pollution by the same percent. B) firms to use the same technology to reduce pollution. C) firms that can more cheaply reduce pollution to make larger reductions. D) big firms to make larger reductions because they can more easily afford it.

178)

In the absence of environmental protection laws, firms pollute because A) business owners follow different norms than do environmentalists. B) controlling emissions costs money, thereby reducing profits. C) business owners do not believe that pollution is a problem. D) the cost pollution imposes on society is small relative to the cost of reducing pollution.

179) The primary advantage to selling pollution permits rather than using a fixed percent reduction for all firms is that A) the government can raise additional revenue. B) pollution reduction is accomplished in the least costly way possible. C) enforcement costs are eliminated. D) pollution is driven to zero.

180)

The use of pollution permits by the government to reduce pollution is A) theoretically interesting, but untried in the United States. B) workable in theory but unworkable in practice. C) common in several parts of the United States. D) common in the third world.

181)

Compared to taxing pollution, an advantage of auctioning pollution permits is that

Version 1

A) the largest reductions in pollution are made by the firms that can do so the most cheaply. B) auctioning permits raises revenue for the government. C) it allows the public to directly reduce pollution by purchasing permits. D) it ensures that all firms reduce pollution by the same amount.

182) Two firms, Industrio and Capitalista, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the accompanying table. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted. Process (smoke/day)

A (4 tons/day)

B (3 tons/day)

C (2 tons/day)

D (1 tons/day)

E (0 tons/day)

Cost to Industrio ($/day)

$ 350

$ 400

$ 500

$ 700

$ 1,000

Cost to Capitalista ($/day)

225

250

290

400

600

Given that both firms are currently using process A, the cost of requiring the firms to reduce pollution by 25 percent is ______ per day. A) $75 B) $375 C) $215 D) $790

Version 1

183) Two firms, Industrio and Capitalista, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the accompanying table. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted. Process (smoke/day)

A (4 tons/day)

B (3 tons/day)

C (2 tons/day)

D (1 tons/day)

E (0 tons/day)

Cost to Industrio ($/day)

$ 350

$ 400

$ 500

$ 700

$ 1,000

Cost to Capitalista ($/day)

225

250

290

400

600

Given that both firms are currently using process A, if the government decided to auction pollution permits, it would need to sell _____ permits in order to reduce pollution by 25 percent. A) 6 B) 4 C) 2 D) 1

184) Two firms, Industrio and Capitalista, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the accompanying table. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted. Process (smoke/day) Cost to Industrio

Version 1

A (4 tons/day)

B (3 tons/day)

C (2 tons/day)

D (1 tons/day)

E (0 tons/day)

$ 350

$ 400

$ 500

$ 700

$ 1,000

($/day) Cost to Capitalista ($/day)

225

250

290

400

600

If neither firm had any permits, Industrio would be willing to pay up to ______ for the right to emit 1 ton of smoke, and Capitalista would be willing to pay up to ______ for the right to emit 1 ton of smoke. A) $50; $25 B) $1,000, $600 C) $50, $50 D) $300, $200

185) Two firms, Industrio and Capitalista, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the accompanying table. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted. Process (smoke/day)

A (4 tons/day)

B (3 tons/day)

C (2 tons/day)

D (1 tons/day)

E (0 tons/day)

Cost to Industrio ($/day)

$ 350

$ 400

$ 500

$ 700

$ 1,000

Cost to Capitalista ($/day)

225

250

290

400

600

Suppose a permit system has been adopted and each firm has already purchased one permit. Industrio would be willing to pay up to ______ for the right to emit a second ton of smoke, and Capitalista would be willing to pay up to ______ for the right to emit a second ton of smoke.

Version 1

A) $200; $300 B) $200; $110 C) $100; $40 D) $500; $290

186) Two firms, Industrio and Capitalista, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the accompanying table. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted. Process (smoke/day)

A (4 tons/day)

B (3 tons/day)

C (2 tons/day)

D (1 tons/day)

E (0 tons/day)

Cost to Industrio ($/day)

$ 350

$ 400

$ 500

$ 700

$ 1,000

Cost to Capitalista ($/day)

225

250

290

400

600

Suppose the government decides to sell 6 permits allowing a total of 6 tons of pollution. The government starts the bidding with an opening price of $30. What happens next? A) A total of five permits will be demanded, forcing the government to lower the price. B) Industrio will purchase all available permits at $30. C) Industrio will demand 3 permits and Capitalista will demand 3 permits. D) A total of seven permits will be demanded, forcing the government to raise the price.

Version 1

187) Two firms, Industrio and Capitalista, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the accompanying table. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted. Process (smoke/day)

A (4 tons/day)

B (3 tons/day)

C (2 tons/day)

D (1 tons/day)

E (0 tons/day)

Cost to Industrio ($/day)

$ 350

$ 400

$ 500

$ 700

$ 1,000

Cost to Capitalista ($/day)

225

250

290

400

600

Suppose the government decides to auction 6 permits. The government conducts the auction by starting at a price of $1 and asking how many permits each firm wants to buy at that price. If the total is more than 6, it raises the price by $1 and asks again until the total quantity demanded falls to 6. Under this system, each permit will sell for ______ with Industrio buying ______ and Capitalista buying ______. A) $31; 2; 4 B) $41; 4; 2 C) $51; 4; 2 D) $101; 3; 3

188) Suppose that a government agency is trying to decide between two pollution-reduction policy options. Under the permit option, 100 pollution permits would be sold, each allowing emission of one unit of pollution. Firms would be forced to shut down if they produced any units of pollution for which they did not hold a permit. Under the pollution tax option, firms would be taxed $250 for each unit of pollution emitted. The regulated firms all currently pollute and face varying costs of pollution reduction, though all face increasing marginal costs of pollution reduction. Suppose the permit policy is adopted. A firm will wish to purchase its first permit if the price of that permit is less than or equal to the

Version 1

A) increase in costs associated with reducing its existing emissions by one unit. B) lowest cost of eliminating one unit of pollution. C) reduction in costs associated with increasing its emissions from zero to one unit. D) average cost of eliminating one unit of pollution.

189) Suppose that a government agency is trying to decide between two pollution-reduction policy options. Under the permit option, 100 pollution permits would be sold, each allowing emission of one unit of pollution. Firms would be forced to shut down if they produced any units of pollution for which they did not hold a permit. Under the pollution tax option, firms would be taxed $250 for each unit of pollution emitted. The regulated firms all currently pollute and face varying costs of pollution reduction, though all face increasing marginal costs of pollution reduction. Suppose the tax policy is adopted. A firm will be willing to pay the tax if $250 is less than or equal to A) the cost of reducing its existing pollution by one unit. B) its marginal revenue. C) its average total cost of production. D) the average cost of eliminating one unit of pollution.

190) Suppose that a government agency is trying to decide between two pollution-reduction policy options. Under the permit option, 100 pollution permits would be sold, each allowing emission of one unit of pollution. Firms would be forced to shut down if they produced any units of pollution for which they did not hold a permit. Under the pollution tax option, firms would be taxed $250 for each unit of pollution emitted. The regulated firms all currently pollute and face varying costs of pollution reduction, though all face increasing marginal costs of pollution reduction. Because firms face increasing marginal costs to reduce pollution, the demand curve for pollution permits will be A) upward sloping. B) downward sloping. C) perfectly inelastic. D) perfectly elastic.

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191) Suppose that a government agency is trying to decide between two pollution reduction policy options. Under the permit option, 100 pollution permits would be sold, each allowing emission of one unit of pollution. Firms would be forced to shut down if they produced any units of pollution for which they did not hold a permit. Under the pollution tax option, firms would be taxed $250 for each unit of pollution emitted. The regulated firms all currently pollute and face varying costs of pollution reduction, though all face increasing marginal costs of pollution reduction. The two policies being considered will result in the same amount of pollution reduction A) never. B) always. C) only if the equilibrium price in the pollution permit market is $250. D) only if the equilibrium price in the pollution permit market is greater than $250.

192) Suppose that a government agency is trying to decide between two pollution-reduction policy options. Under the permit option, 100 pollution permits would be sold, each allowing emission of one unit of pollution. Firms would be forced to shut down if they produced any units of pollution for which they did not hold a permit. Under the pollution tax option, firms would be taxed $250 for each unit of pollution emitted. The regulated firms all currently pollute and face varying costs of pollution reduction, though all face increasing marginal costs of pollution reduction. Suppose the regulators chose the permit policy instead of the tax policy. What might explain that decision? A) Permit auctions raise more revenue than do taxes. B) The permit policy allows regulators to achieve reduction goals without having detailed knowledge about firms' abatement costs. C) The permit policy will reduce pollution by more than would the tax policy. D) Firms prefer the permit policy because it allows them to choose the least-costly reduction technology.

193)

Pollution permit policies achieve an ______ outcome because _____.

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A) inefficient; wealthier firms can afford to purchase more permits. B) efficient; firms that have the lowest cost of reducing pollution will be able to pay more for each permit. C) inefficient; the supply of permits is set by the government and so is perfectly inelastic. D) efficient; firms that have the highest cost of reducing pollution will have the greatest incentive to purchase permits.

194) Suppose you are an economic researcher, and you have access to detailed information about all of the firms in a given geographic area. You would conclude that the pollution reduction policy in that area is efficient if you observe that A) all firms produce approximately the same amount of pollution. B) the cleanest firms are also the most profitable. C) the marginal cost of reducing pollution is the same for all firms at current emissions levels. D) all firms currently use the same pollution reduction technology.

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Answer Key Test name: Chap 11_8e_Frank 1) C 2) C 3) B 4) C 5) A 6) D 7) A 8) A 9) B 10) D 11) C 12) B 13) C 14) C 15) B 16) C 17) C 18) A 19) B 20) B 21) D 22) D 23) B 24) A 25) B 26) D Version 1

27) C 28) C 29) C 30) C 31) C 32) D 33) C 34) A 35) B 36) A 37) A 38) B 39) B 40) B 41) C 42) B 43) A 44) A 45) A 46) A 47) C 48) A 49) D 50) A 51) B 52) C 53) B 54) B 55) A 56) A Version 1

57) A 58) B 59) C 60) B 61) B 62) D 63) D 64) D 65) C 66) D 67) A 68) A 69) B 70) D 71) B 72) B 73) B 74) C 75) D 76) C 77) B 78) D 79) C 80) D 81) D 82) B 83) A 84) C 85) C 86) A Version 1

87) B 88) B 89) C 90) B 91) C 92) D 93) A 94) B 95) C 96) B 97) D 98) C 99) D 100) C 101) B 102) B 103) A 104) D 105) D 106) D 107) C 108) D 109) A 110) B 111) D 112) B 113) A 114) A 115) B 116) C Version 1

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117) A 118) A 119) C 120) A 121) A 122) A 123) D 124) A 125) D 126) D 127) C 128) C 129) A 130) B 131) C 132) D 133) C 134) A 135) D 136) A 137) C 138) D 139) C 140) C 141) B 142) C 143) C 144) C 145) A 146) B Version 1

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147) D 148) B 149) C 150) D 151) C 152) C 153) D 154) B 155) A 156) D 157) D 158) A 159) C 160) C 161) B 162) D 163) C 164) A 165) B 166) B 167) B 168) D 169) B 170) C 171) D 172) B 173) A 174) B 175) B 176) D Version 1

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177) C 178) B 179) B 180) C 181) C 182) A 183) A 184) D 185) B 186) D 187) B 188) C 189) A 190) B 191) C 192) B 193) D 194) C

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103

CHAPTER 12 1)

Adam Smith's invisible hand only leads to an efficient outcome when

A) buyers are fully informed about all relevant aspects of a product and the market in which it is traded. B) buyers collect information up to the point at which the marginal cost of having more information equals the marginal benefit of having more information. C) buyers have more information about the product being traded than do sellers. D) buyers have less information about the product being traded than do sellers.

Information about the quality of a product is

A) intangible, and therefore not subject to economic principles. B) impossible to objectively assess, and therefore not subject to economic principles. C) both beneficial to have and costly to obtain, and therefore subject to economic principles. D) subject to economic principles only when it is paid for, for example by subscribing to Consumer Reports or by hiring a financial advisor.

According to the textbook, middlemen: A) add no value to economic activity. B) only add value if the consumer gets a good deal. C) only add value to themselves. D) provide value through information and coordination.

4) Sydney sells snow globes from a cart. When the cart is located on the sidewalk near a discount store, Sydney's customers have reservation prices of $5. When Sydney's cart is located on a sidewalk in an upscale mall, wealthier customers with reservation prices of $10 buy snow globes. Assume that Sydney can sell the same volume at either location and that marginal and average costs are $3 per globe at both locations. Total economic surplus will be maximized if Sydney Version 1

A) alternates between the two locations and price discriminates. B) sells only near the discount store and charges $5. C) sells only in the upscale mall and charges $10. D) alternates between the two locations and charges $5 at both locations.

5) Sydney sells snow globes from a cart. When the cart is located on the sidewalk near a discount store, Sydney's customers have reservation prices of $5. When Sydney's cart is located on a sidewalk in an upscale mall, wealthier customers with reservation prices of $10 buy snow globes. Assume that Sydney can sell the same volume at either location and that marginal and average costs are $3 per globe at both locations. Information about the reservation prices of Sydney's customers increases total surplus by A) allowing consumers with different incomes to acquire things they value. B) helping to ensure that snow globes go to consumers who like them most. C) encouraging sellers to locate in underserved areas. D) helping to ensure that snow globes go to consumers with the greatest willingness to pay.

Better information about consumers' reservation prices generally leads to A) a reduction in producer surplus. B) acquisition of goods by consumers who are willing to pay the highest price. C) equitable distribution of goods among low-income consumers. D) acquisition of goods by consumers with the greatest need.

When auctions, such as those used on eBay, are used to sell a product, then A) information about consumers' true reservation prices is minimized. B) information about consumers' true reservation prices is revealed. C) consumers have an incentive to bid above their true reservation prices. D) consumers have an incentive to bid below their true reservation prices.

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8) Suppose you are planning to sell your house. You value your house at $150,000. If you do not hire a realtor, you will be able to sell your house to a buyer whose reservation price is $180,000. If you hire a realtor, you will be able to sell your house to a buyer whose reservation price is $200,000. Assume that the realtor’s opportunity cost of negotiating the sale is $10,000. In this case, does using a realtor to sell your house increase total economic surplus? A) No, because you value the house at $150,000 no matter who buys it. B) No, because your house only generated economic surplus when it was first built. C) It depends on the sales price of the house, which isn't given in the question. D) Yes, using a realtor increases total economic surplus by $10,000.

9) Suppose you are planning to sell your house. You value your house at $200,000. If you do not hire a realtor, you will be able to sell your house to a buyer whose reservation price is $220,000. If you hire a realtor, you will be able to sell your house to a buyer whose reservation price is $250,000. Assume that the realtor's opportunity cost of negotiating the sale is $5,000. In this case, how much additional economic surplus is generated by using a realtor to sell your house? A) None, because you value the house at $200,000 no matter who buys it. B) $250,000 C) $200,000 D) $25,000

10) Suppose you are planning to sell your house. You value your house at $200,000. If you do not hire a realtor, you will be able to sell your house to a buyer whose reservation price is $225,000. If you hire a realtor, you will be able to sell your house to a buyer whose reservation price is $260,000. Assume that the realtor's opportunity cost of negotiating the sale is $9,000. In this case, how much additional economic surplus is generated by using a realtor to sell your house?

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A) None, because the value of your house is $225,000 no matter who buys it. B) $251,000 C) $26,000 D) $60,000

11) In markets with incomplete information, middlemen tend to ________total economic surplus by ______. A) reduce; raising prices B) reduce; giving misleading information C) increase; raising prices D) increase; matching sellers with buyers who have high reservation prices

12) Dan owns an autographed copy of a Miley Cyrus CD that he values at $100. If he sells the CD at the garage sale he's planning to hold in a few weeks, it will be sold to a buyer with a reservation price of $175. If he sells it on eBay, it will be sold to a buyer with a reservation price of $500. eBay will charge Dan $50 to auction the CD, which just covers eBay's opportunity cost of running the auction. Relative to selling the CD at his garage sale, auctioning the CD on eBay will lead A) to no change in total economic surplus. B) total economic surplus to increase by $500. C) total economic surplus to increase by $275. D) total economic surplus to increase by $100.

13) Dan owns an autographed copy of a Miley Cyrus CD that he values at $75. If he sells the CD at the garage sale he's planning to hold in a few weeks, it will be sold to a buyer with a reservation price of $110. If he sells it on eBay, it will be sold to a buyer with a reservation price of $160. eBay will charge Dan $20 to auction the CD, which just covers eBay's opportunity cost of running the auction. Relative to selling the CD at his garage sale, auctioning the CD on eBay will lead

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A) total economic surplus to increase by $75. B) total economic surplus to increase by $160. C) total economic surplus to increase by $30. D) to no change in total economic surplus.

14) Emily is planning to sell an antique grandfather clock that she values at $200. If she sells the clock on Craigslist, it will be bought by someone who values it at $450. If she uses an antique dealer to sell the clock, it will be bought by someone who values it at $850. The antique dealer will charge Emily $100 to sell the clock, which just covers the antique dealer's opportunity cost of selling the clock. Relative to selling the clock on Craigslist, selling the clock through an antique dealer will lead A) to no change in total economic surplus. B) total economic surplus to decrease by $100. C) total economic surplus to increase by $400. D) total economic surplus to increase by $300.

15)

Can sales agents, such as realtors, generate economic surplus?

A) No, because the value of a product is based purely on the cost of producing it and not on who buys it. B) No, because sales agents don't produce anything new. C) Yes, but only if they work for free, otherwise they are a waste of resources. D) Yes, because they help ensure that goods are purchased by consumers who value them the most highly.

16)

The optimal amount of information to acquire before making a purchase is

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A) zero. B) as much as possible. C) the amount such that the total cost of acquiring information equals the total benefit. D) the amount such that the marginal cost of acquiring information equals the marginal benefit.

17)

The reason the marginal benefit of information curve is downward sloping is because A) some information is useless. B) most information is useless. C) information adds less and less benefit as more of it is acquired. D) there is only so much to learn about a product.

18)

The marginal cost curve for information is upward sloping because

A) most information is provided by sources that have a vested interest in offering false information. B) consumers tend to start with the least expensive sources of information and then progress to more expensive sources. C) there is only so much to learn about a product. D) most information is misleading.

19) Morgan lives in San Francisco and likes to dine out. Morgan has noticed that prices at restaurants near popular tourist destinations in the city tend to be higher than at restaurants of the same quality in other neighborhoods. One reason for this is that A) search costs are higher for people who are unfamiliar with the area. B) residents don't like to eat in restaurants frequented by tourists. C) tourists don't worry about money while on vacation. D) restaurant meals are a small fraction of the total cost of a vacation.

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20) Gasoline prices tend to be higher at stations that are just off the freeway than they are at stations in the middle of town. The most likely reason for this is that A) freeway exit stations sell a higher quality product. B) people who buy gas at freeway exit stations tend to have higher search costs. C) freeway exit stations are more likely to have an attached convenience store. D) demand for gas at freeway exits is lower than it is in the middle of town.

21) This graph illustrates the marginal costs and marginal benefits of acquiring information before making a major purchase.

If the original curves are MB0 and MC0, the optimal quantity of information about this product is A) I1. B) I2. C) I3. D) I4.

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22) This graph illustrates the marginal costs and marginal benefits of acquiring information before making a major purchase.

Suppose the marginal cost and marginal benefit curves were MC0 and MB0 several decades ago. However, because information about this product is now available online, the A) optimal amount of information will decrease. B) optimal amount of information will increase. C) optimal amount of information will stay the same, but it will cost less to acquire. D) demand for information will increase.

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23) This graph illustrates the marginal costs and marginal benefits of acquiring information before making a major purchase.

Suppose this graph describes a town in which the only way to gather any information about the good is through Consumer Reports. If the subscription price of Consumer Reports increases, then the impact of this could be portrayed by the marginal A) benefit curve shifting from MB0 to MB1. B) cost curve shifting from MC1 to MC0. C) benefit curve shifting from MB1 to MB0. D) cost curve shifting from MC0 to MC1.

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24) Refer to the accompanying figure. If the original curves are MB1 and MC1, rational consumers will gather ______ units of information.

A) 4 B) 5 C) 6 D) 9

25) Refer to the accompanying figure. The growth of access to the Internet will cause the marginal

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A) benefit curve to shift from MB2 to MB1. B) benefit curve to shift from MB1 to MB2. C) cost curve to shift from MC2 to MC1. D) cost curve to shift from MC1 to MC2.

26) Refer to the accompanying figure. If the relevant curves are MC1 and MB2, a rational consumer will acquire ______ units of information, the amount for which marginal benefit for information is ______ its marginal cost.

A) 4; equal to B) 4; more than C) 5; more than D) 5; equal to

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27) Refer to the accompanying figure. Suppose MC1 is the marginal cost of information and MB1 is the marginal benefit of information. Should a rational consumer pay $6 to get a 5th unit of information?

A) Yes, because at this price, the marginal benefit of the 5th unit exceeds its marginal cost. B) No, because at this price, the marginal benefit of the 5th unit is less than its marginal cost. C) Yes, because at this price, the marginal benefit of the 5th unit equals its marginal cost. D) No, because at this price, the marginal benefit of the 5th unit exceeds its marginal cost.

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28) Refer to the accompanying figure. Suppose MC1 is the marginal cost of information and MB1 is the marginal benefit of information. Should a rational consumer pay $8 to get a 7th unit of information?

A) Yes, because at this price, the marginal benefit of the 7th unit exceeds its marginal cost. B) Yes, because at this price, the marginal benefit of the 7th unit is less than its marginal cost. C) No, because at this price, the marginal benefit of the 7th unit is less than its marginal cost. D) No, because at this price, the marginal benefit of the 7th unit exceeds its marginal cost.

29) Suppose Mia is going to buy a house and a dishwasher. Assuming the marginal cost of searching for both is the same, one can predict that Mia will A) spend more time searching for the house than the dishwasher. B) spend more time searching for the dishwasher than the house. C) spend equal amounts of time searching for the dishwasher and the house. D) trust the information from her real estate agent but not from the dishwasher salesperson.

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30) Grace and Will are moving to LA at the same time and both wish to find apartments to rent. Grace is staying with her aunt for free while Will is paying to stay at a motel. If their search costs are otherwise identical, one can predict that A) Grace and Will will spend the same number of days searching. B) Will will spend more days searching than Grace. C) Grace will spend more days searching than Will. D) Will will have better information.

31) The difference between the price of electronic equipment in a retail store and on the Internet partly reflects A) the extent to which middlemen drive the price up for extra profit. B) the lack of competition between brick and mortar stores and online stores. C) the value of personal attention and support at a retail store. D) excessive markup.

32)

The marginal benefit of additional information A) rises as more information is collected. B) is independent of the amount of information that has already been acquired. C) tends to be lower for expensive items than inexpensive items. D) falls as more information is collected.

33)

The marginal cost of collecting information A) rises as more information is collected. B) falls as more information is collected. C) is now zero because of the Internet. D) is independent of the amount of information that has already been acquired.

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34)

Rationally, search should continue until A) all search options have been explored. B) the marginal benefit of search equals the marginal cost of search. C) the marginal benefit of search is zero. D) the marginal cost of search is zero.

35)

The free-rider problem arises when people A) obtain a good for less than the market equilibrium price. B) who do not pay for a good cannot be excluded from consuming it. C) who do not pay for a good cannot consume it. D) who pay for a good cannot consume it.

36)

The free-rider problem occurs when A) buyers pay less than their reservation price. B) sellers receive more than their reservation price. C) people who do not pay for a good or service cannot be excluded from enjoying it. D) people who pay for a good or service cannot be excluded from enjoying it.

37) In the presence of the free-rider problem, the market will provide ______ of a good or service. A) more than the socially optimal quantity B) the socially optimal quantity C) less than the socially optimal quantity D) either more than or less than the socially optimal quantity

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38) Pat goes to the local electronics store to learn about high-end audio equipment. The salesperson spends an hour talking with Pat and demonstrating equipment. Pat then leaves and orders an audio system on the Internet for $250 less than the price at the store. Pat's behavior A) is illegal. B) is a form of statistical discrimination. C) illustrates the free-rider problem. D) illustrates the problem of adverse selection.

39) Because of ______, the market will provide ______ the socially optimal level of information. A) the credibility problem; more B) the problem of adverse selection; less C) moral hazard; more D) the free-rider problem; less

40) The sum of the possible outcomes of a gamble multiplied by their respective probabilities is known as A) a fair gamble. B) the variance of the gamble. C) a better-than-fair gamble. D) the expected value of the gamble.

41) Alison decides to play the lottery. She has a 5 percent probability of winning $100 and a 95 percent probability of winning zero. The expected value of playing the lottery is

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A) $100. B) $5. C) $10. D) $0.

42) Alison decides to play the lottery. She has a 0.1 percent probability of winning $20,000 and a 99.9 percent probability of winning zero. The expected value of playing the lottery is A) $0. B) $200,000. C) $20. D) $0.10.

43) Frank is considering moving to Denver. There is a 70 percent chance that he will find a job that pays $1,000 more than what he currently earns and a 30 percent chance he will find one that pays $3,000 less. The expected value of moving to Denver is A) −$200. B) $200. C) $700. D) $900.

44) Frank is considering moving to Denver. There is a 90 percent chance that he will find a job that pays $4,000 more than what he currently earns and a 10 percent chance he will find one that pays $5,000 less. The expected value of moving to Denver is A) $500. B) $3,100. C) $6,200. D) $3,600.

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45)

If a gamble has an expected value of zero, then it is termed a(n) A) better-than-fair gamble. B) unfair gamble. C) zero gamble. D) fair gamble.

46) Curly is offered the following gamble: a 25 percent chance of winning $1,500 and a 75 percent chance of losing $500. This is a(n) A) fair gamble. B) worse-than-fair gamble. C) almost-fair gamble. D) better-than-fair gamble.

47) Curly is offered the following gamble: a 20 percent chance of winning $12,500 and a 80 percent chance of losing $3,125. This is a(n) A) fair gamble. B) better-than-fair gamble. C) worse-than-fair gamble. D) zero-sum gamble.

48) A 65 percent chance of winning $10 and a 35 percent chance of losing $5 would be classified as a(n) A) better-than-fair gamble. B) worse-than-fair gamble. C) unfair gamble. D) fair gamble.

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49) A 80 percent chance of winning $35 and a 20 percent chance of losing $40 would be classified as a(n) A) fair gamble. B) worse-than-fair gamble. C) worse-than-unfair gamble. D) better-than-fair gamble.

50)

A risk-neutral individual will A) accept only better-than-fair gambles. B) see risk as neither good nor bad. C) accept only gambles with an expected value of zero or greater. D) accept only gambles with an expected value of zero.

51)

A risk-averse individual will A) never accept any gamble. B) accept a fair gamble. C) only choose certain events. D) accept only better-than-fair gambles.

52) Pascal is risk-averse while Marion is risk-neutral. Both are confronted with the following gamble: win $5,000 with the probability of 80 percent or lose $15,000 with a probability of 20 percent. One can predict that A) both might accept the gamble. B) only Pascal will accept the gamble. C) only Marion will accept the gamble. D) neither will accept the gamble.

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53) Pascal is risk-neutral while Marion is risk-neutral. Both are confronted with the following gamble: win $5,000 with the probability of 70 percent or lose $15,000 with a probability of 30 percent. One can predict that A) only Marion will accept the gamble. B) only Pascal will accept the gamble. C) both might accept the gamble. D) neither will accept the gamble.

54) Consider the gamble inherent in looking for an apartment. If the expected value of going to see another apartment is zero, then A) both risk-averse and risk-neutral people will consider seeing another apartment. B) only risk-averse people will consider seeing another apartment. C) risk-averse people will not consider seeing another apartment. D) risk-neutral people will not consider seeing another apartment.

55) Malik and Toby both live in a little town and are trying to sell their cars. Both of their cars have a blue book value of $10,000. Malik has an American car like most of the people in town own. Toby owns the only Bulgarian car in town. If people in their town are risk-averse, then who will get closest to the blue book value for his car? A) Malik will because American cars are better than Bulgarian cars. B) Toby will because there is less uncertainty about the quality of Malik's car. C) Malik will because there is less uncertainty about the quality of Malik's car. D) Both should get the same price for their cars because both cars have the same blue book value.

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56) Suppose Vinnie is looking for a month-long vacation rental in San Diego. The first vacation rental Vinnie finds costs $800 per month. If he looks for another vacation rental, there's a 75 percent chance he'll find another one for $800 per month and a 25 percent chance he'll find one for $600 per month. Other than price, all of the vacation rentals are identical. Vinnie's marginal cost of searching for an additional vacation rental is $45. For Vinnie, the expected value of searching for another vacation rental is A) $200. B) $50. C) $45. D) $5.

57) Suppose Vinnie is looking for a month-long vacation rental in San Diego. The first vacation rental Vinnie finds costs $1,300 per month. If he looks for another vacation rental, there's a 82 percent chance he'll find another one for $1,300 per month and a 18 percent chance he'll find one for $1,000 per month. Other than price, all of the vacation rentals are identical. Vinnie's marginal cost of searching for an additional vacation rental is $50. For Vinnie, the expected value of searching for another vacation rental is A) $50. B) $300. C) $4. D) $54.

58) Suppose Vinnie is looking for a month-long vacation rental in San Diego. The first vacation rental Vinnie finds costs $800 per month. If he looks for another vacation rental, there's a 75 percent chance he'll find another one for $800 per month and a 25 percent chance he'll find one for $600 per month. Other than price, all of the vacation rentals are identical. Vinnie's marginal cost of searching for an additional vacation rental is $45. Since searching for another apartment is a ______ gamble, if Vinnie is risk-neutral, then he ______ search for another apartment.

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A) better-than-fair; will not B) better-than-fair; will C) fair; will not D) fair; will

59) Suppose Hailey is offered the following gamble: with probability 0.1 she will win $90, with probability 0.4 she will win $50, and with probability 0.5 she will lose $60. The expected value of this gamble is found by solving A) 0.1 × ($90 − $60) + 0.4 × ($50 − $60) B) (0.1 × $90) + (0.4 × $50) C) (0.1 × $90) + (0.4 × $50) − (0.5 × $60) D) ($90 + $50 − $60)/3

60) Suppose Hailey is offered the following gamble: with probability 0.1 she will win $90, with probability 0.4 she will win $50, and with probability 0.5 she will lose $60. The expected value of this gamble is ______. A) −$1 B) $0 C) $1 D) $2

61) Suppose Hailey is offered the following gamble: with probability 0.1 she will win $90, with probability 0.4 she will win $50, and with probability 0.5 she will lose $60. Hailey will A) accept this gamble if she is risk-averse, but not if he is risk-neutral. B) accept this gamble if she is risk-neutral, but not if he is risk-averse. C) accept this gamble if she is either risk-neutral or risk-averse. D) not accept this gamble if she is risk-neutral.

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62) Obi-Wan is considering whether to buy a lightsaber. With probability 0.50 he will value the lightsaber at $4,000, and with probability 0.50 he will value it at $1,000. If Obi-Wan is riskaverse, then he will be willing to pay ______ for a new lightsaber. A) more than $4,000 B) more than $2,500 C) less than $4,000 D) less than $2,500

63) Obi-Wan is considering whether to buy a lightsaber. With probability 0.50 he will value the lightsaber at $4,000, and with probability 0.50 he will value it at $1,000. If new lightsabers sell for $2,500, then buying a new lightsaber is a A) fair gamble. B) better-than-fair gamble. C) less-than-fair gamble. D) less-than-fair gamble if Obi-Wan is risk-neutral.

64) Suppose Danielle is considering whether to see Zombie Revenge III at her local movie theater. Tickets cost $12 each, but Danielle isn't sure how much she's going to like the movie. There's a 40 percent chance she'll get $20 worth of enjoyment from seeing the movie, and there's a 60 percent chance she'll only get $10 worth of enjoyment from seeing the movie. Danielle's expected value of seeing the movie is A) $20. B) $14. C) $4. D) $2.

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65) Suppose Danielle is considering whether to see Zombie Revenge IV at her local movie theater. Tickets cost $10 each, but Danielle isn't sure how much she's going to like the movie. There's a 50 percent chance she'll get $25 worth of enjoyment from seeing the movie, and there's a 50 percent chance she'll only get $10 worth of enjoyment from seeing the movie. Danielle's expected value of seeing the movie is A) $0. B) $20. C) $12.50. D) $7.50.

66) Suppose someone offers Max the following gamble: with probability 0.50 he will win $10 and with probability 0.50 he will lose $8. The expected value of this gamble is A) $5. B) $2. C) $1. D) $0.

67) Cal has a choice between two gambles. The first gamble offers a 50 percent chance of winning $20 and a 50 percent chance of losing $20. The second gamble offers a 20 percent chance of winning $100 and an 80 percent chance of losing $20. Which choice has the higher expected value? A) The expected value of both gambles is the same, so Cal would be indifferent between the two. B) The expected value of the first gamble is higher. C) The expected value of both gambles is the same, but Cal would prefer the first gamble since the chances of winning are higher. D) The expected value of the second gamble is higher.

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68) Mel is thinking of going on a cruise. Mel values a cruise in nice weather at $2,000 and values a cruise in bad weather at $50. The probability of nice weather is 60 percent, and the probability of bad weather is 40 percent. Trip insurance is sometimes available. If purchased, it allows travelers to delay the cruise until the weather is nice. If Mel is risk-neutral, then in the absence of trip insurance, the most she will be willing to pay for the cruise is A) $1,200. B) $1,250. C) $1,220. D) $1,000.

69) Mel is thinking of going on a cruise. Mel values a cruise in nice weather at $2,000 and values a cruise in bad weather at $50. The probability of nice weather is 60 percent, and the probability of bad weather is 40 percent. Trip insurance is sometimes available. If purchased, it allows travelers to delay the cruise until the weather is nice. Suppose that the price of the cruise is $1,200. If Mel is risk-neutral, then Mel should A) not buy trip insurance. B) only buy trip insurance if it costs less than $780. C) only buy trip insurance if it costs less than $20. D) only buy trip insurance if it costs less than $50.

70) Mel is thinking of going on a cruise. Mel values a cruise in nice weather at $2,000 and values a cruise in bad weather at $50. The probability of nice weather is 60 percent, and the probability of bad weather is 40 percent. Trip insurance is sometimes available. If purchased, it allows travelers to delay the cruise until the weather is nice. The amount of money that Mel is willing to pay for trip insurance will be A) higher if she is risk-averse instead of risk-neutral. B) lower if she is risk-averse instead of risk-neutral. C) the same regardless of whether she is risk-averse or risk-neutral. D) positive if she is risk-neutral and negative if she is risk-averse.

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71) A gamble that offers a 1 percent chance of winning $699.93 and a 99 percent chance of losing $7.07 would be classified as a(n) A) better-than-fair gamble. B) less-than-fair gamble. C) fair gamble. D) unfair gamble.

72)

If a gamble has an expected value of $10, then one can predict that A) only risk-averse people will take the gamble. B) no risk-averse person will take the gamble. C) all risk-neutral people will take the gamble. D) the gamble never pays out more than $10.

73) Suppose that the salary range for recent college graduates with a bachelor's degree in economics is $30,000 to $50,000, with 25 percent of jobs offering $30,000 per year, 50 percent offering $40,000 per year, and 25 percent offering $50,000 per year and that in all other respects, the jobs are equally satisfying. Assume that in this market, a job offer remains open for only a short time so that continuing to search requires an applicant to reject any current job offer. The expected starting salary for a college graduate with a bachelor's degree in economics is A) $30,000. B) $40,000. C) $45,000. D) $50,000.

74) Suppose that the salary range for recent college graduates with a bachelor's degree in economics is $30,000 to $50,000, with 25 percent of jobs offering $30,000 per year, 50 percent offering $40,000 per year, and 25 percent offering $50,000 per year and that in all other respects, the jobs are equally satisfying. Assume that in this market, a job offer remains open for only a short time so that continuing to search requires an applicant to reject any current job offer. Moe has just received a job offer that pays $40,000 per year. Moe should Version 1

A) reject the offer regardless of his preference for risk. B) accept the offer if he is risk-averse. C) reject the offer if he is risk-averse. D) only accept the offer if he is risk-neutral.

75) Suppose that the salary range for recent college graduates with a bachelor's degree in economics is $30,000 to $50,000, with 25 percent of jobs offering $30,000 per year, 50 percent offering $40,000 per year, and 25 percent offering $50,000 per year and that in all other respects, the jobs are equally satisfying. Assume that in this market, a job offer remains open for only a short time so that continuing to search requires an applicant to reject any current job offer. Who will accept an offer of $30,000? A) Graduates who have been searching the longest B) Graduates who enjoy taking risks C) Graduates who are either risk-neutral or risk-averse D) Graduates who are risk-averse

76) Suppose that the salary range for recent college graduates with a bachelor's degree in economics is $30,000 to $50,000, with 25 percent of jobs offering $30,000 per year, 50 percent offering $40,000 per year, and 25 percent offering $50,000 per year and that in all other respects, the jobs are equally satisfying. Assume that in this market, a job offer remains open for only a short time so that continuing to search requires an applicant to reject any current job offer. If this scenario describes job searches in general, the segment of the population that is most risk-averse will tend to earn A) average salaries. B) below-average salaries. C) above-average salaries. D) stable salaries.

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77) Alexa, who is risk-neutral, is looking for a one-bedroom apartment to rent for the month of August while she's on vacation in Seattle. All of the one-bedroom apartments in the neighborhood where she wants to stay are of equal quality, but 70 percent rent for $700 per month, 20 percent rent for $600 per month, and 10 percent rent for $500 per month. The first apartment Alexa finds rents for $700 per month. If the cost to Alexa of searching for an apartment is $30, then searching for another apartment is a gamble with an expected value of A) $0. B) $10. C) $20. D) $40.

78) Alexa, who is risk-neutral, is looking for a one-bedroom apartment to rent for the month of August while she's on vacation in Seattle. All of the one-bedroom apartments in the neighborhood where she wants to stay are of equal quality, but 70 percent rent for $700 per month, 20 percent rent for $600 per month, and 10 percent rent for $500 per month. The first apartment Alexa finds rents for $700 per month. Suppose Alexa is risk-neutral. If the cost to Alexa of searching for another apartment is $30, then will he search for another apartment? A) No, because searching for another apartment is a less-than-fair gamble. B) Yes, because searching for another apartment is a better-than-fair gamble. C) No, because searching for another apartment is a fair gamble. D) Yes, because searching for another apartment is a fair gamble.

79) Alexa, who is risk-neutral, is looking for a one-bedroom apartment to rent for the month of August while she's on vacation in Seattle. All of the one-bedroom apartments in the neighborhood where she wants to stay are of equal quality, but 70 percent rent for $700 per month, 20 percent rent for $600 per month, and 10 percent rent for $500 per month. The first apartment Alexa finds rents for $700 per month. If the cost to Alexa of searching for an apartment is $40, then searching for another apartment is a gamble with an expected value of

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A) −$10. B) $0. C) $10. D) $20.

80) Alexa, who is risk-neutral, is looking for a one-bedroom apartment to rent for the month of August while she's on vacation in Seattle. All of the one-bedroom apartments in the neighborhood where she wants to stay are of equal quality, but 70 percent rent for $700 per month, 20 percent rent for $600 per month, and 10 percent rent for $500 per month. The first apartment Alexa finds rents for $700 per month. Suppose Alexa is risk-averse. If the cost to Alexa of searching for another apartment is $40, then will she search for another apartment? A) No, because searching for another apartment is a less-than-fair gamble. B) Yes, because searching for another apartment is a better-than-fair gamble. C) No, because searching for another apartment is a fair gamble. D) Yes, because searching for another apartment is a fair gamble.

81)

The existence of long-term leases agreements in rental markets

A) benefits landlords by keeping occupancy rates high and harms tenants by reducing their mobility. B) harms landlords and benefits tenants by preventing landlords from raising the rent each month. C) creates an informational advantage for landlords. D) solves a commitment problem that is inherent in markets with imperfect information.

82)

When the expected value of search increases

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A) fewer searches occur. B) the number of searches does not change. C) more searches occur. D) the cost of searching falls.

83) Several websites, like Pricewatch.com, allow consumers to input the name of a product, and the site then returns a list of suppliers with their respective prices for the product. This A) increases the benefit of search. B) increases the free-rider problem. C) reduces the benefit of search. D) reduces the cost of search.

84) Suppose that there is not enough parking at an urban university. Sometimes students come to campus, spend a few minutes searching for a parking spot, and then decide that going to class isn't worth the effort of continuing to search for a parking spot, so they go home. Assume that all professors give midterm exams on the same day. You would expect the optimal amount of time spent searching for a parking spot on that day to _____ because ______. A) decrease; the marginal cost of search is higher B) increase; the marginal cost of search is lower C) increase; the marginal benefit of search is higher D) decrease; the marginal benefit of search is lower

85) There are two employers in Bucolic that hire people who do not have a high school degree: a grocery store and a hardware store. The grocery store pays $10 per hour and the hardware store pays $12 per hour. People who work at either store can work as many hours as they want at those wages. Assume that it takes two hours to interview for a job. Lee works at the grocery store but would like to work at the hardware store. If Lee interviews at the hardware store, there is a 10 percent probability of being hired. Assume that Lee is risk-neutral. In terms of forgone earnings, what does it cost Lee to spending two hours interviewing for a job at the hardware store? Version 1

A) 0 B) $2 C) $10 D) $20

86) There are two employers in Bucolic that hire people who do not have a high school degree: a grocery store and a hardware store. The grocery store pays $10 per hour and the hardware store pays $12 per hour. People who work at either store can work as many hours as they want at those wages. Assume that it takes two hours to interview for a job. Lee works at the grocery store but would like to work at the hardware store. If Lee interviews at the hardware store, there is a 10 percent probability of being hired. Assume that Lee is risk-neutral. What is Lee's expected hourly benefit from interviewing at the hardware store? A) $12 B) $0.12 C) $0.20 D) $2

87) There are two employers in Bucolic that hire people who do not have a high school degree: a grocery store and a hardware store. The grocery store pays $10 per hour and the hardware store pays $12 per hour. People who work at either store can work as many hours as they want at those wages. Assume that it takes two hours to interview for a job. Lee works at the grocery store but would like to work at the hardware store. If Lee interviews at the hardware store, there is a 10 percent probability of being hired. Assume that Lee is risk-neutral. How many hours must Lee anticipate working at the hardware store to justify interviewing for the job? A) 1 hour B) 10 hours C) 100 hours D) 60 hours

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88) Imagine a world in which landlords always fix problems quickly, tenants never damage property and always pay their rent in a timely fashion. In such a world, lease agreements would ______. A) still exist to solve the commitment problem B) be unnecessary C) apply only to people with low monthly income D) only serve the interests of tenants

89) Suppose Sandy is moving to Washington, D.C. for a year-long job working for the government. She has decided to rent one of two apartments. Both apartments cost $1,000 per month and are identical except for the fact that one is a monthly rental and the other has a yearlong lease. Which of the following best explains why Sandy might pick the year-long lease? A) There is no good reason for Sandy to pick the year-long lease because the two apartments are identical. B) Sandy might worry that if she picks the monthly rental, she will get kicked out if the landlord finds someone willing to pay more than $1,000 per month. C) Sandy might worry that if she picks the monthly rental, she will have to move if she finds another apartment for less than $1,000 per month. D) There is no good reason for Sandy to pick the year-long lease because the monthly rental allows her more flexibility.

90)

If sellers have more information about the quality of goods than do buyers, then A) buyers always will be exploited. B) buyers will never make purchases. C) sellers of better-than-average goods will have difficulty getting their asking price. D) sellers of lower-than-average goods will have difficulty getting their asking price.

91) When buyers and sellers are not equally informed about the characteristics of the goods and services offered for sale, information is said to be

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A) costly-to-fake. B) asymmetric. C) credible. D) symmetric.

92) There are two employers in Bucolic that hire people who do not have a high school degree: a grocery store and a hardware store. The grocery store pays $10 per hour and the hardware store pays $12 per hour. People who work at either store can work as many hours as they want at those wages. Assume that it takes two hours to interview for a job. Lee works at the grocery store but would like to work at the hardware store. If Lee interviews at the hardware store, there is a 10 percent probability of being hired. Assume that Lee is risk-neutral. How many hours must Lee anticipate working at the hardware store to justify interviewing for the job? A) 1 hour B) 10 hours C) 100 hours D) 60 hours

93) In which of the following markets is the presence of asymmetric information of little concern to the buyer? A) The market for used textbooks B) The market for used houses C) The market for used computers D) The market for used cars

94)

The lemons model is used to analyze

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A) the market for citrus fruit. B) markets with asymmetric information. C) markets in which search is costly. D) the Low-Hanging-Fruit Principle.

95)

The major prediction of the lemons model is that A) asymmetric information reduces the average quality of goods offered for sale. B) people will generally choose "low-hanging fruit." C) a used car in good condition can be sold for a higher-than-average price. D) used cars offered for sale are generally in better-than-average condition.

96)

In the market for used cars, the lemons model predicts that A) sellers are less likely to sell low-quality cars than high-quality cars. B) buyers are more likely to overstate their reservation price. C) sellers are more likely to sell low-quality cars than high-quality cars. D) sellers are more likely to understate the condition of their cars.

97) The lemons model predicts that the market price of high-quality used cars will be ______ the true value of high-quality used cars, so that only relatively ______ cars will be put up for sale in market. A) greater than; high-quality B) less than; high-quality C) greater than; low-quality D) less than; low-quality

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98) Consumers know that some fraction, p, of all new cars produced and sold in the market are defective. The defective ones cannot be identified except by those who own them. Cars do not depreciate with use. Consumers are risk-neutral and value nondefective cars at $8,000. If new cars sell for $6,000 and used cars sell for $2,000, then what is the fraction p? A) 0.25 B) 0.33 C) 0.50 D) 0.67

99) Consumers know that some fraction, p, of all new cars produced and sold in the market are defective. The defective ones cannot be identified except by those who own them. Cars do not depreciate with use. Consumers are risk-neutral and value nondefective cars at $8,000. If new cars sell for $7,000} and used cars sell for $3,000, then what is the fraction p? A) 0.80 B) 0.75 C) 0.20 D) 0.38

100)

The lemons problem gives the owners of above-average-quality used cars an incentive to: A) exaggerate the quality of their cars when selling them. B) offer a warranty when selling their cars. C) understate the true quality of their cars when selling them. D) ask for a sales price that is higher than the blue book value of their car.

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101) Suppose that there are two types of houses for sale: those with solid foundations and those with cracked foundations. In all other respects, the two types of houses are identical. Houses with solid foundations are worth $200,000, while those with cracked foundations are worth $200,000 minus the $20,000 to fix the crack, or $180,000. Sellers know which type of house they have, but buyers cannot detect whether the foundation has a crack. Suppose that 80 percent of the houses for sale have a solid foundation and 20 percent of the houses for sale have a cracked foundation. If buyers are risk-neutral and know the that 80 percent of the houses for sale have a solid foundation while 20 percent have a cracked foundation, then how much will buyers be willing to pay for a house? A) $200,000 B) $196,000 C) $180,000 D) $160,000

102) Suppose that there are two types of houses for sale: those with solid foundations and those with cracked foundations. In all other respects, the two types of houses are identical. Houses with solid foundations are worth $200,000, while those with cracked foundations are worth $200,000 minus the $20,000 to fix the crack, or $180,000. Sellers know which type of house they have, but buyers cannot detect whether the foundation has a crack. Suppose that 80 percent of the houses for sale have a solid foundation and 20 percent of the houses for sale have a cracked foundation. If buyers are risk-neutral and know the that 80 percent of the houses for sale have a solid foundation while 20 percent have a cracked foundation, then the owners of houses with a solid foundation will find that A) potential buyers are offering more than $200,000. B) potential buyers are offering $200,000. C) potential buyers are offering $180,000. D) it is not worthwhile to sell their houses.

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103) Suppose that there are two types of houses for sale: those with solid foundations and those with cracked foundations. In all other respects, the two types of houses are identical. Houses with solid foundations are worth $200,000, while those with cracked foundations are worth $200,000 minus the $20,000 to fix the crack, or $180,000. Sellers know which type of house they have, but buyers cannot detect whether the foundation has a crack. Suppose that 80 percent of the houses for sale have a solid foundation and 20 percent of the houses for sale have a cracked foundation. If some of the owners of houses with solid foundations remove their houses from the market because they can't sell their house for a price that is as high as the value of their house, then A) buyers' reservation prices will rise. B) the owners of houses with a cracked foundation will also take their houses off the market. C) the proportion of homes for sale with a cracked foundation will rise. D) the average sales price of a house will rise.

104) Suppose that there are two types of houses for sale: those with solid foundations and those with cracked foundations. In all other respects, the two types of houses are identical. Houses with solid foundations are worth $200,000, while those with cracked foundations are worth $200,000 minus the $20,000 to fix the crack, or $180,000. Sellers know which type of house they have, but buyers cannot detect whether the foundation has a crack. Suppose that 80 percent of the houses for sale have a solid foundation and 20 percent of the houses for sale have a cracked foundation. In the long run, we would expect A) 80 percent of the houses for sale to have a solid foundation, 20 percent to have a cracked foundation, and houses to sell for $196,000. B) 100 percent of the houses for sale to have a cracked foundation and to sell for $180,000. C) 100 percent of the houses for sale to have a solid foundation and to sell for $200,000. D) 100 percent of the houses for sale to have a cracked foundation and to sell for more than $180,000.

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105) Suppose that there are two types of houses for sale: those with solid foundations and those with cracked foundations. In all other respects, the two types of houses are identical. Houses with solid foundations are worth $200,000, while those with cracked foundations are worth $200,000 minus the $20,000 to fix the crack, or $180,000. Sellers know which type of house they have, but buyers cannot detect whether the foundation has a crack. Suppose that 80 percent of the houses for sale have a solid foundation and 20 percent of the houses for sale have a cracked foundation. How could the owner of a house with a solid foundation credibly signal to potential buyers that the house has a solid foundation? A) Keep the house on the market for $200,000 because eventually buyers will catch on. B) Simply tell potential buyers that the foundation is solid. C) Lower the asking price to $196,000. D) Offer a warranty to fix any foundation problems that develop in the next 12 months.

106) Suppose Joe has a reliable two-year-old Honda Civic that's in excellent condition and that he would be willing to sell for $13,000. Lauren, who is risk-neutral, is considering whether to buy Joe's car. She's willing to pay $14,000 for a two-year-old Honda Civic that is reliable and only $10,000 for one that's not reliable. Lauren cannot tell whether Joe's car is reliable, but she believes that only 20 percent of two-year-old Hondas for sale in the market are reliable and that the other 80 percent are not reliable. To Lauren, Joe's car looks just like every other two-year-old Honda that's for sale. What's the most Lauren is willing to pay for Joe's car? A) $10,000 B) $10,800 C) $13,000 D) $14,000

107) Suppose Joe has a reliable two-year-old Honda Civic that's in excellent condition and that he would be willing to sell for $13,000. Lauren, who is risk-neutral, is considering whether to buy Joe's car. She's willing to pay $14,000 for a two-year-old Honda Civic that is reliable and only $10,000 for one that's not reliable. Lauren cannot tell whether Joe's car is reliable, but she believes that only 20 percent of two-year-old Hondas for sale in the market are reliable and that the other 80 percent are not reliable. Will Lauren buy Joe's car?

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A) Yes, because Lauren is willing to pay $14,000 for a car that's reliable. B) No, because Lauren will not be willing to pay Joe $13,000. C) Maybe, because Lauren might be willing to pay as much as $14,000. D) Yes, because Lauren will be willing to pay Joe more than $13,000.

108) Suppose Joe has a two-year-old Honda Civic that's in excellent condition and that he would be willing to sell for $13,000. Lauren, who is risk-neutral, is considering whether to buy Joe's car. She's willing to pay $14,000 for a two-year-old Honda Civic that's in excellent condition and only $10,000 for one that's not in excellent condition. Lauren cannot tell whether Joe's car is in excellent condition. She believes that only 20 percent of two-year-old Hondas for sale in the market are in excellent condition and that the other 80 percent are not in excellent condition. If other people who own two-year-old Honda Civics in excellent condition are like Joe, and other buyers in the market are like Lauren, then which of the following is likely to occur in the long run? A) The sales price of two-year-old Hondas will rise. B) The sales price of two-year-old Hondas will not change. C) The quality of two-year-old Honda Civics offered for sale will rise. D) The quality of two-year-old Honda Civics offered for sale will fall.

109) Suppose Joe has a two-year-old Honda Civic that's in excellent condition and that he would be willing to sell for $13,000. Lauren, who is risk-neutral, is considering whether to buy Joe's car. She's willing to pay $14,000 for a two-year-old Honda Civic that's in excellent condition and only $10,000 for one that's not in excellent condition. Lauren cannot tell whether Joe's car is in excellent condition. She believes that only 20 percent of two-year-old Hondas for sale in the market are in excellent condition and that the other 80 percent are not in excellent condition. If Joe offers a warranty in which he makes a legally binding commitment to pay for any major repairs the car needs in the next 18 months, then this ______ serve a credible signal because ______.

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A) will; it is more costly for people with low-quality cars to offer such a warranty B) will; people who own cars that are in excellent condition are usually honest C) will not; it is less costly for people with low-quality cars to offer such a warranty D) will not; people who sell used cars are rarely honest

110) It is spring, and several graduates of State U are seeking employment. State U graduates have evenly distributed GPAs, from 2.0 to 4.0, with an average GPA of 3.0. The largest employer in town, Acme Dynamite, is interviewing candidates, hoping to hire a few hard workers. While Acme does not require students to submit a transcript with their applications, the hiring officer believes that high GPAs signal a willingness to work hard. Jordan is a recent graduate and is applying for a job with Acme. Jordan's GPA is 3.3. Should Jordan include a transcript with her job application? A) No, because it is not required. B) Yes, because if she does not, Acme will infer that her GPA is 3.0 or lower. C) No, because her GPA is not much better than average. D) No, because it will make Jordan look worse relative to those with higher grades.

111) It is spring, and several graduates of State U are seeking employment. State U graduates have evenly distributed GPAs, from 2.0 to 4.0, with an average GPA of 3.0. The largest employer in town, Acme Dynamite, is interviewing candidates, hoping to hire a few hard workers. While Acme does not require students to submit a transcript with their applications, the hiring officer believes that high GPAs signal a willingness to work hard. Acme has received applications from 10 graduates of State U. Five included transcripts, all of which indicated GPAs of 3.0 or better. Acme will most likely infer that the five graduates who did not include transcripts A) had GPAs of less than 3.0. B) had GPAs of more than 3.0. C) had GPAs evenly distributed between 2.0 and 4.0. D) did not carefully read the application instructions.

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112) It is spring, and several graduates of State U are seeking employment. State U graduates have evenly distributed GPAs, from 2.0 to 4.0, with an average GPA of 3.0. The largest employer in town, Acme Dynamite, is interviewing candidates, hoping to hire a few hard workers. While Acme does not require students to submit a transcript with their applications, the hiring officer believes that high GPAs signal a willingness to work hard. Minka is a recent graduate if State U and is applying for a job with Acme. Minka's GPA is 2.9. Should Minka include a transcript with her job application? A) No, because her GPA is worse than average. B) No, because Acme did not request it. C) Yes, because students with higher-than-average GPAs will always include a transcript, so if Minka doesn't send a transcript, Acme will infer that Minka's GPA is even lower than it is. D) Yes, because if she doesn't send a transcript, Acme will infer that Minka is willing to work harder than she actually wants to work.

113) It is spring, and several graduates of State U are seeking employment. State U graduates have evenly distributed GPAs, from 2.0 to 4.0, with an average GPA of 3.0. The largest employer in town, Acme Dynamite, is interviewing candidates, hoping to hire a few hard workers. While Acme does not require students to submit a transcript with their applications, the hiring officer believes that high GPAs signal a willingness to work hard. Suppose that all State U students have the same academic ability when they enter college and do not learn anything in college that will be useful to them while working at Acme. Students differ only in their willingness to work hard and study for their classes. In this case A) Acme will not care about a student's GPAs because all students enter college with the same academic ability. B) Acme will not care about a student's GPAs because the students at State U don’t learn anything useful in their classes. C) there is no benefit to studying hard in college. D) Acme will use a student's GPA as a signal of the student's willingness to work hard.

114)

One way that sellers can credibly signal that they have a high-quality product is to

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A) sell very little of their product in order to create scarcity. B) spend a lot of money on advertising. C) lower their marginal cost of production. D) simply tell buyers more about their product.

115) The seller of an existing house claims that it is in great shape, and he is offering a twoyear warranty on the house. His statements about the quality of his house are likely to be A) credible even in the absence of a warranty. B) overstated. C) true because offering a warranty is a costly-to-fake signal. D) untrue because otherwise he would not offer the warranty.

116)

A warranty on a used car is a credible signal of quality because A) many used cars come with warranties. B) sellers who offer warranties are more honest than most people. C) it would cost the seller too much to honor a warranty on a low-quality car. D) it indicates the car is of average quality.

117)

For a signal to convey credible information about the quality of a good, the signal must A) not be costly to send. B) be equally costly to send, regardless of the good's quality. C) be less costly to send if the good is low quality than high quality. D) be less costly to send if the good is high quality than low quality.

118)

According to the textbook, expensive advertising campaigns are

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A) not a credible signal of quality because of adverse selection. B) a credible signal of product quality. C) only a credible signal of product quality if they mention a money-back guarantee. D) a waste of resources because they provide no useful information about product quality.

119)

To prospective employers, an honors degree from a highly selective college is

A) a credible signal about whether a job applicant is intelligent and hardworking. B) a credible signal about whether a job applicant has had a job before. C) not a credible signal about whether a job applicant is intelligent and hardworking. D) only a credible signal about a whether job applicant is intelligent and hardworking if the job requires a college degree.

120)

Conspicuous consumption is an effective signal of ability if high-ability people A) tend to have low-paying but prestigious jobs. B) are famous. C) tend to receive the highest salaries. D) save most of what they earn.

121) Even though conspicuous consumption can serve as a credible signal of ability, it can lead to socially inefficient outcomes because A) conspicuous consumption has been demonstrated to be poorly correlated with ability. B) conspicuous consumption is not highly correlated with earnings. C) conspicuous consumption can lead to positional arms races. D) earnings and ability are very poorly correlated.

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122)

When attorneys, accountants, and other professionals wear expensive clothing, it

A) only serves as a useful signal of ability if they already have well-established reputations. B) does not serve as a credible signal of ability because anyone can wear nice clothes. C) is a waste of money because professionals do not need to signal their ability. D) can serve as a credible signal of ability.

123)

Conspicuous consumption is a more effective signal of ability for people who A) live in large cities instead of small towns. B) already have well-established reputations. C) live in small towns instead of large cities. D) don’t understand moral hazard.

124) When an individual is judged by the characteristics of the groups to which he or she belongs rather than on his or her own characteristics, it is called A) adverse selection. B) statistical discrimination. C) the lemons model. D) moral hazard.

125)

Insurance companies practice statistical discrimination because A) young males are willing to pay more for insurance than other groups. B) the demand for insurance is very inelastic. C) young males are more likely than other groups to generate insurance claims. D) insurance markets aren't perfectly competitive.

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126)

Statistical discrimination occurs when A) individuals are judged solely on the basis of their personal characteristics. B) individuals are judged on the basis of the groups to which they belong. C) firms have perfect information about each potential buyer. D) statistics are used to make employment decisions.

127) Statistical discrimination in the automobile insurance industry means that young male drivers who drive ______ will pay ______ rates relative to the claims they generate. A) carefully; lower B) recklessly; higher C) carefully; higher D) slowly; lower

128)

Which of the following helps explain the problem of disappearing political discourse? A) The lemons model B) Adverse selection C) Moral hazard D) Statistical discrimination

129) According to the theory of disappearing political discourse, politicians remain silent about issues because politicians A) are unsure of their opinions. B) don't have enough information. C) fear that if they speak out they will be misunderstood. D) fear that voters do not fully understand the issues.

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130) In the absence of laws requiring individuals to purchase insurance, insurance is most attractive to A) the poor. B) the wealthy. C) those with lowest likelihood of filing a claim. D) those with the highest likelihood of filing a claim.

131) The pattern in which insurance is purchased more frequently by those who are the most costly for companies to insure is referred to as A) adverse selection. B) statistical discrimination. C) risk aversion. D) moral hazard.

132) Suppose Jack just booked a ticket to fly home to see his family for Thanksgiving. When he purchases the ticket, he decides to purchase travel insurance that allows him to get a full refund on his ticket if he's too sick to travel. Knowing this, Jack doesn't bother to take care of himself in the weeks leading up to the trip, reasoning that if he ends up being too sick to travel, then he can always get a full refund. Jack's failure to take care of himself in the weeks leading up to his trip is an example of A) adverse selection. B) the lemons model. C) a positional externality. D) moral hazard.

133) Hans decides to start brushing his teeth less often after signing up for dental insurance. This is an example of

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A) moral hazard. B) adverse selection. C) both adverse selection and moral hazard. D) neither adverse selection nor moral hazard.

134) Suppose that there are two employers in Tinytown. CareCo offers a generous health insurance package to all employees, while ApathyInc pays slightly higher wages than CareCo, but does not offer health insurance. All else equal, a person who is unhealthy and expects to have high healthcare costs will A) prefer to work for CareCo. B) stop going to the doctor. C) be equally happy working for either firm. D) prefer to work for ApathyInc.

135)

If Tim insures his car against theft, it will A) decrease the likelihood that his car will be stolen. B) have no effect on the likelihood that his car will be stolen. C) increase his incentive to prevent his car from being stolen. D) decrease his incentive to prevent his car from being stolen.

136) Carson and Fran are both thrill seekers. Carson has health insurance and Fran does not. One can predict that A) Fran will engage in fewer dangerous activities. B) Carson will engage in fewer dangerous activities. C) Carson and Fran will participate in the same number of dangerous activities. D) Carson's health insurance will not affect Carson's behavior.

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137) Malika just got a new car. Because Malika obtained full-coverage car insurance, Malika will have an incentive to ______ because of ______. A) drive more cautiously than if she didn't have insurance; moral hazard B) drive more cautiously than if she didn't have insurance; adverse selection C) drive less cautiously than if she didn't have insurance; adverse selection D) drive less cautiously than if she didn't have insurance; moral hazard

138)

Which one of the following policies mitigates the negative effects of moral hazard? A) Mandatory car insurance for car owners B) Lowering everyone's insurance premium C) Increasing everyone's insurance premium D) Insurance policies with large deductibles

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Answer Key Test name: Chap 12_8e_Frank 1) A 2) C 3) D 4) C 5) D 6) B 7) B 8) D 9) D 10) C 11) D 12) C 13) C 14) D 15) D 16) D 17) C 18) B 19) A 20) B 21) A 22) B 23) B 24) A 25) D 26) D Version 1

27) B 28) C 29) A 30) C 31) C 32) D 33) A 34) B 35) B 36) C 37) C 38) C 39) D 40) D 41) B 42) C 43) A 44) B 45) D 46) A 47) A 48) A 49) D 50) C 51) D 52) A 53) D 54) C 55) C 56) D Version 1

57) C 58) B 59) C 60) A 61) D 62) D 63) A 64) D 65) D 66) C 67) D 68) C 69) B 70) C 71) C 72) C 73) B 74) B 75) D 76) B 77) B 78) B 79) B 80) C 81) D 82) C 83) D 84) C 85) D 86) C Version 1

87) C 88) A 89) B 90) C 91) B 92) C 93) A 94) B 95) A 96) C 97) D 98) B 99) C 100) B 101) B 102) D 103) C 104) B 105) D 106) B 107) B 108) D 109) A 110) B 111) A 112) C 113) D 114) B 115) C 116) C Version 1

117) D 118) B 119) A 120) C 121) C 122) D 123) A 124) B 125) C 126) B 127) C 128) D 129) C 130) D 131) A 132) D 133) A 134) A 135) D 136) A 137) D 138) D

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CHAPTER 13 1)

In competitive labor markets, _____ demand labor and ______ supply labor. A) firms; labor unions B) labor unions; firms C) workers; firms D) firms, workers

2) In a competitive labor market, if a firm pays a worker less than that worker's VMP, then in the long run A) the firm will earn positive economic profits. B) competing firms will hire the worker away. C) the worker will have no incentive to work hard. D) the supply of workers will fall.

The additional output a firm gets from hiring an additional unit of labor is the A) value of the marginal product of labor. B) total product of labor. C) marginal product of labor. D) average product of labor.

The value of marginal product of labor equals the A) marginal product of labor times the net price for which each unit of output sells. B) total product of labor divided by the net price for which each unit of output sells. C) marginal product of labor divided by the net price for which each unit of output sells. D) average product of labor times the wage rate.

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5) The marginal product of the 14th worker is 8 and the firm sells its output for $4 per unit. If labor is the only variable cost, then the value of the 14th worker's marginal product is A) $2. B) $4. C) $12. D) $32.

6) The marginal product of the 18th worker is 12 and the firm sells its output for $6 per unit. If labor is the only variable cost, then the value of the 18th worker's marginal product is A) $1.50. B) $6. C) $72. D) $66.67.

7) Espresso Yourself Coffee Shop hires workers in a competitive labor market to make coffee. The ingredients required to make each cup of coffee cost 50 cents. The coffee shop’s hourly output of coffee varies with the number of workers hired, as shown in the accompanying table. Each cup of coffee sells for $2. Number of workers

Coffee (cups/hour)

The marginal product of the fourth worker is ______ cups of coffee per hour.

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A) 70 B) 60 C) 17.5 D) 10

8) Espresso Yourself Coffee Shop hires workers in a competitive labor market to make coffee. The ingredients required to make each cup of coffee cost 50 cents. The coffee shop’s hourly output of coffee varies with the number of workers hired, as shown in the accompanying table. Each cup of coffee sells for $2. Number of workers

Coffee (cups/hour)

The marginal product of the first worker is ______ cups of coffee per hour. A) 0 B) 12.5 C) 25 D) 45

9) Espresso Yourself Coffee Shop hires workers in a competitive labor market to make coffee. The ingredients required to make each cup of coffee cost 50 cents. The coffee shop’s hourly output of coffee varies with the number of workers hired, as shown in the accompanying table. Each cup of coffee sells for $2.

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Number of workers

Coffee (cups/hour)

The marginal product of the third worker is ______ than the marginal product of the second worker, implying that ______. A) greater; diminishing returns are absent B) less; diminishing returns are present C) neither greater nor less; the third worker will be hired D) less; the third worker will never be hired

10) Espresso Yourself Coffee Shop hires workers in a competitive labor market to make coffee. The ingredients required to make each cup of coffee cost 50 cents. The coffee shop’s hourly output of coffee varies with the number of workers hired, as shown in the accompanying table. Each cup of coffee sells for $2. Number of workers

Coffee (cups/hour)

The dollar value to the coffee shop of hiring the fifth worker is ______ per hour.

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A) $1.50 B) $2.00 C) $5.00 D) $7.50

11) Espresso Yourself Coffee Shop hires workers in a competitive labor market to make coffee. The ingredients required to make each cup of coffee cost 75 cents. The coffee shop’s hourly output of coffee varies with the number of workers hired, as shown in the accompanying table. Each cup of coffee sells for $3.00. Number of workers

Coffee (cups/hour)

The dollar value to the coffee shop of hiring the fifth worker is ______ per hour. A) $13.50 B) $19.50 C) $7.50 D) $6.00

12) Espresso Yourself Coffee Shop hires workers in a competitive labor market to make coffee. The ingredients required to make each cup of coffee cost 50 cents. The coffee shop’s hourly output of coffee varies with the number of workers hired, as shown in the accompanying table. Each cup of coffee sells for $2. Number of workers

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Coffee (cups/hour) 5

The value of marginal product of the first worker is ______ per hour. A) $37.50 B) $25.00 C) $2.00 D) $1.50

13) Espresso Yourself Coffee Shop hires workers in a competitive labor market to make coffee. The ingredients required to make each cup of coffee cost 50 cents. The coffee shop’s hourly output of coffee varies with the number of workers hired, as shown in the table. Each cup of coffee sells for $2.00. Number of workers

Coffee (cups/hour)

The value of marginal product of the fifth worker is ______ per hour. A) $2.50 B) $12.50 C) $5.00 D) $7.50

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14) Espresso Yourself Coffee Shop hires workers in a competitive labor market to make coffee. The ingredients required to make each cup of coffee cost 50 cents. The coffee shop’s hourly output of coffee varies with the number of workers hired, as shown in the accompanying table. Each cup of coffee sells for $2.00. Number of workers

Coffee (cups/hour)

The most the coffee shop would be willing pay the third worker is ______ per hour. A) $60.00 B) $45.00 C) $22.50 D) $15.00

15) Espresso Yourself Coffee Shop hires workers in a competitive labor market to make coffee. The ingredients required to make each cup of coffee cost 75 cents. The coffee shop’s hourly output of coffee varies with the number of workers hired, as shown in the accompanying table. Each cup of coffee sells for $3.00. Number of workers

Coffee (cups/hour)

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The most the coffee shop would be willing pay the third worker is ______ per hour. A) $22.50 B) $40.50 C) $18.00 D) $58.50

16) Sam owns a candy factory and hires workers in a competitive labor market to pack cases of candy. The company's weekly output of cases of candy varies with the number of workers hired, as shown in the accompanying table. Number of workers

Cases/week

160

310

450

580

700

810

The marginal product of the fourth worker is _______ cases per week. A) 110 B) 130 C) 140 D) 145

17) Sam owns a candy factory and hires workers in a competitive labor market to pack cases of candy. The company's weekly output of cases of candy varies with the number of workers hired, as shown in the accompanying table. Number of workers

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Cases/week

160

310

450

580

700

810

If each case sells for $5 more than the cost of the materials used in producing it, then the value of marginal product of the second worker is ______ per week. A) $150 B) $310 C) $315 D) $750

18) Sam owns a candy factory and hires workers in a competitive labor market to pack cases of candy. The company's weekly output of cases of candy varies with the number of workers hired, as shown in the accompanying table. Number of workers

Cases/week

160

310

450

580

700

810

If each case sells for $3 more than the cost of the materials used in producing it, then the most Sam would pay the fifth worker is ______ per week. A) $330 B) $360 C) $390 D) $120

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19) Sam owns a candy factory and hires workers in a competitive labor market to pack cases of candy. The company's weekly output of cases of candy varies with the number of workers hired, as shown in the accompanying table. Number of workers

Cases/week

160

310

450

580

700

810

If each case sells for $5 more than the cost of the materials used in producing it, and the competitive market wage is $625/week, then how many workers should Sam hire each week? A) 5 B) 4 C) 3 D) 2

20) Sam owns a candy factory and hires workers in a competitive labor market to pack cases of candy. The company's weekly output of cases of candy varies with the number of workers hired, as shown in the accompanying table. Number of workers

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Cases/week

160

310

450

580

700

810

If each case sells for $10 more than the cost of the materials used in producing it, and the competitive market wage is $1,150/week, then how many workers should Sam hire each week? A) 5 B) 3 C) 6 D) 4

21) Suppose the Fluffy Pillow Company produces pillows. The number of pillows it can produce each hour depends on the number of workers it hires, as shown in the accompanying table. In addition, each pillow can be sold for $2 more than the cost of the materials needed to produce it. Number of workers Number of pillows per hour per hour 0

What is the value of the marginal product of the second worker hired each hour? A) $36 B) $84 C) $16 D) $24

22) Suppose the Fluffy Pillow Company produces pillows. The number of pillows it can produce each hour depends on the number of workers it hires, as shown in the accompanying table. In addition, each pillow can be sold for $2 more than the cost of the materials needed to produce it.

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Number of workers Number of pillows per hour per hour 0

What is the value of the marginal product of the 3rd worker hired each hour? A) $18 B) $30 C) $15 D) $36

23) Suppose the Fluffy Pillow Company produces pillows. The number of pillows it can produce each hour depends on the number of workers it hires, as shown in the accompanying table. In addition, each pillow can be sold for $2 more than the cost of the materials needed to produce it. Number of workers Number of pillows per hour per hour 0

If the hourly wage for people who make pillows is $10, then how many workers should the Fluffy Pillow Company hire each hour?

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A) 1 B) 2 C) 3 D) 4

24) Suppose the Fluffy Pillow Company produces pillows. The number of pillows it can produce each hour depends on the number of workers it hires, as shown in the accompanying table. In addition, each pillow can be sold for $2 more than the cost of the materials needed to produce it. Number of workers Number of pillows per hour per hour 0

If the hourly wage for people who make pillows is $10, then how many workers should the Fluffy Pillow Company hire each hour? A) 2 B) 4 C) 3 D) 1

25) Suppose the Tasty Taco Company produces tacos. The number of tacos it can produce each hour depends on the number of workers it hires, as shown in the accompanying table. In addition, each taco can be sold for 50 cents more than the cost of the ingredients needed to produce it. Number of workers per hour

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Number of tacos per hour 13

What is the value of the marginal product of the fourth worker hired each hour? A) $70 B) $35 C) $5 D) $10

26) Suppose the Tasty Taco Company produces tacos. The number of tacos it can produce each hour depends on the number of workers it hires, as shown in the accompanying table. In addition, each taco can be sold for 50 cents more than the cost of the ingredients needed to produce it. Number of workers per hour

Number of tacos per hour

If the hourly wage for people who make tacos is $8, then how many workers should the Tasty Taco Company hire each hour? A) 1 B) 2 C) 3 D) 4

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27) Suppose the MC Hammer Company produces hammers. The number of hammers it can produce each hour depends on the number of workers it hires, as shown in the accompanying table. In addition, each hammer can be sold for $2 more than the cost of the materials needed to produce it. Number of workers Number of hammers per hour per hour 0

What is the value of the marginal product of the second worker hired each hour? A) $36 B) $72 C) $16 D) $32

28) Suppose the MC Hammer Company produces hammers. The number of hammers it can produce each hour depends on the number of workers it hires, as shown in the accompanying table. In addition, each hammer can be sold for $2 more than the cost of the materials needed to produce it. Number of workers Number of hammers per hour per hour

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If the hourly wage for people who make hammers is $17 per hour, then how many workers should the MC Hammer Company hire each hour? A) 1 B) 2 C) 3 D) 4

29) Gino's Pizza shop hires workers in a competitive market to make pizza. The ingredients required to make each pizza cost $5. Daily output at Gino's Pizza varies with the number of workers hired, as shown in the accompanying table. Number of workers

Pizzas/day

The marginal product of the third worker is ______ pizzas per day. A) 12 B) 14 C) 16 D) 18

30) Gino's Pizza shop hires workers in a competitive market to make pizza. The ingredients required to make each pizza cost $5. Daily output at Gino's Pizza varies with the number of workers hired, as shown in the accompanying table. Number of workers

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Pizzas/day

If the pizzas sell for $10 each, and the competitive market wage is $75 per day, Gino will hire ______ workers and produce ______ pizzas per day. A) 5; 84 B) 2; 36 C) 3; 54 D) 4; 70

31) Gino's Pizza shop hires workers in a competitive market to make pizza. The ingredients required to make each pizza cost $5. Daily output at Gino's Pizza varies with the number of workers hired, as shown in the accompanying table. Number of workers

Pizzas/day

If pizzas sell for $8 each, what is the value marginal product for the fourth worker? A) $96 per day B) $112 per day C) $48 per day D) $128 per day

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32) Paper Pushers Incorporated hires workers in a competitive labor market. Apart from labor, the company has no other variable inputs. The company’s hourly output varies with the number of workers hired, as shown in the accompanying table. Workers

Pages/hour

105

125

140

150

155

As Paper Pushers Incorporated hires more workers each hour, the marginal product of labor ______. A) increases B) decreases C) remains constant D) decreases and then increases

33) Paper Pushers Incorporated hires workers in a competitive labor market. Apart from labor, the company has no other variable inputs. The company’s hourly output varies with the number of workers hired, as shown in the accompanying table. Workers

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Pages/hour

105

125

140

150

155

If the market price of each page is $5, the first worker's VMPL is ______ per hour, and the third worker's VMPL is ______ per hour. A) $20; $525 B) $200; $150 C) $200; $525 D) $20; $15

34) Paper Pushers Incorporated hires workers in a competitive labor market. Apart from labor, the company has no other variable inputs. The company’s hourly output varies with the number of workers hired, as shown in the accompanying table. Workers

Pages/hour

105

125

140

150

155

The VMPL of the sixth worker is ______ than the VMPL of the fourth worker because ______. A) less; the firm experiences economies of scale B) more; of the law of increasing returns C) less; of the law of diminishing returns D) more; workers can specialize and exploit their comparative advantage

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35) Paper Pushers Incorporated hires workers in a competitive labor market. Apart from labor, the company has no other variable inputs. The company’s hourly output varies with the number of workers hired, as shown in the accompanying table. Workers

Pages/hour

105

125

140

150

155

If each page sells for $2 and the market wage is $15 per hour, then this firm will hire ______ workers per hour. A) 4 B) 5 C) 6 D) 7

36) Paper Pushers Incorporated hires workers in a competitive labor market. Apart from labor, the company has no other variable inputs. The company’s hourly output varies with the number of workers hired, as shown in the accompanying table. Workers

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Pages/hour

105

125

140

150

155

If the price of each page increases, then the demand for workers will A) remain the same because changes in the output market will not affect the demand for labor. B) increase because the workers will be motivated to produce more. C) increase because the value of the marginal product of labor will increase. D) decrease because at a higher sales price the firm will not have to produce as much output.

37)

The optimal number of workers for a perfectly competitive firm to hire occurs when A) total labor cost equals total revenue. B) diminishing marginal productivity is first experienced. C) the wage rate equals the marginal product of the last worker. D) the wage rate equals the value of marginal product of the last worker.

38)

In the market for labor, the demand function describes the A) number of workers who are willing to work at each wage. B) output of workers who are paid a given wage. C) number of workers a firm is willing to hire at each wage. D) demand for the firm's output.

39)

A firm's demand for labor will increase if the A) price of the firm's output increases. B) price of the firm's output decreases. C) marginal product of labor decreases. D) wage rate rises.

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40)

Technological advances that increase the marginal product of labor will lead to A) a decrease in the demand for labor because the firm will not need as many workers. B) an increase in the demand for labor because workers will be more productive. C) no change in demand for labor because the demand for labor depends on the wage. D) a decrease in the supply of labor because fewer workers can get the job done.

41) If demand for the product you make were to suddenly decline, you would expect the equilibrium price of the product to fall, which would lead to: A) an increase in the VMPL of each worker. B) a decrease in the VMPL of each worker. C) no change the VMPL of each worker because product prices do not affect worker productivity. D) a decrease in the marginal productivity of each worker.

42)

A firm is unlikely to hire a worker if A) the additional revenue generated by hiring the worker is less than his or her wage. B) the additional output a firm gets by hiring the worker is greater than his or her wage. C) there are diminishing marginal returns to labor. D) the minimum wage set by law is less than the equilibrium wage in the market.

43) Kyle works for a perfectly competitive firm where he receives a wage rate of $15. From this, one can infer that A) Kyle's marginal product is at least $15. B) the price of the firm's output is at least $15. C) Kyle's reservation wage is $15. D) the value of Kyle's marginal product is at least $15.

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44)

The general rule governing the hiring of workers is to A) minimize average labor costs. B) equate marginal labor costs to marginal labor benefits. C) equate total labor costs to total labor benefits. D) maximize the marginal product of labor.

45) In order to maximize its profits, a firm that hires workers in a perfectly competitive labor market will hire workers until the A) extra revenue generated from hiring another worker equals the extra profit from hiring that worker. B) extra revenue generated from hiring another worker equals the extra cost of hiring that worker. C) the marginal wage rate equals marginal product of the last worker. D) the marginal product of labor begins to decline.

46) In a perfectly competitive labor market, if the value of marginal product of the last worker hired is $20 and the wage rate is $25, then the firm should A) hire fewer workers. B) hire more workers. C) not change the number of workers it hires. D) either hire more or fewer workers, depending on the price of the firm's output.

47) If the labor market in the United States is perfectly competitive, the labor supply curve would shift to the right if

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A) the United States relaxed its immigration laws. B) fewer mothers started returning to work after their children were born. C) firms replaced human workers with robots. D) firms opened more plants overseas.

48) To derive the labor demand curve for a particular market, one should ______for all the firms in the market. A) vertically sum the value of the marginal product of labor curves B) vertically sum the marginal product of labor curves C) horizontally sum the value of the marginal product of labor curves D) horizontally sum the marginal product of labor curves

49)

The value of marginal product curve is downward sloping because A) firms must lower price to sell more. B) at lower wages, only less qualified workers are available. C) of the law of diminishing returns. D) profits decline as more workers are hired.

50) Suppose it is observed that the equilibrium wage and employment level have both risen in a competitive labor market. One can infer that the A) supply of labor has increased. B) demand for labor has decreased. C) demand for labor has increased. D) supply of labor has decreased.

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51)

Assume that this graph illustrates a perfectly competitive labor market.

Equilibrium in this labor market is at a wage of ______ per hour and an employment level of ______ person-hours per day. A) $30; 100 B) $30; 150 C) $20; 200 D) $20; 125

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52)

Assume that this graph illustrates a perfectly competitive labor market.

Suppose a minimum wage law required the wage to be at least $20 per hour in this market. If that happened, then A) there would be an excess supply of person-hours. B) there would be excess demand for person-hours. C) the demand for person-hours would shift to the right. D) there would be no change in the equilibrium number of person-hours.

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53)

Assume that this graph illustrates a perfectly competitive labor market.

In this market, at a wage of $40 A) the market would be in equilibrium. B) more people would want to work than number of job openings. C) firms would not be able to find enough workers to fill all their positions. D) approximately 175 worker hours would be hired.

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54)

Assume that this graph illustrates a perfectly competitive labor market.

If the supply of person-hours in this market shifts to the right, then the equilibrium wage will ______ and the equilibrium number of person-hours will ______. A) fall; increase B) increase; increase C) stay the same; increase D) fall; decrease

55)

In a competitive labor market, the equilibrium wage rate is determined by A) government regulation. B) employers. C) labor demand and labor supply. D) employees.

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56) Suppose that the accompanying graph describes the current labor market for high school teachers.

If the wage is w*, then A) there will be a shortage of certified teachers. B) there will be a surplus of certified teachers. C) there will be neither a shortage nor a surplus of certified teachers. D) teachers will be underpaid.

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57) Suppose that the accompanying graph describes the current labor market for high school teachers.

Why might the supply curve in this market shift to the left? A) Distance learning and computer technology replace human teachers. B) Women enter the workforce in greater numbers. C) Immigration by families with children increases the need for teachers. D) More attractive employment opportunities become available in other professions.

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58) Suppose that the accompanying graph describes the current labor market for high school teachers.

Given an initial wage of w*, then immediately following a decrease in supply A) there will be a shortage of high school teachers. B) there will be an excess supply of high school teachers. C) the reservation wage of each remaining teacher will fall. D) the equilibrium wage will fall.

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59) Suppose that the accompanying graph describes the current labor market for high school teachers.

Suppose supply of labor decreases. At the new equilibrium, wages would be ______ and ______ teachers would be hired. A) higher; more B) higher; fewer C) lower; fewer D) lower; more

60)

A reduction in workers' marginal productivity would result in A) an increase in labor demand. B) an increase in equilibrium employment level. C) a reduction in the equilibrium wage rate. D) a decrease in labor supply.

61)

A decrease in demand for a firm's output results in a(n)

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A) increase in labor supply. B) decrease in labor demand. C) decrease in labor supply. D) increase in labor demand.

62)

If technological developments increase the marginal product of labor, then the A) supply of labor will increase. B) demand for labor will decrease. C) the equilibrium wage rate will decrease. D) demand for labor will increase.

63) Suppose the market wage for cashiers increases from $7 per hour to $9 per hour. As a result, Ushi, who is a cashier, now works five more hours per week. On the other hand, Chris, who is also a cashier, now works five fewer hours per week. Ushi's behavior illustrates the ______ effect of a wage increase. A) demand B) supply C) income D) substitution

64) Suppose the market wage for cashiers increases from $7 per hour to $9 per hour. As a result, Ushi, who is a cashier, now works five more hours per week. On the other hand, Chris, who is also a cashier, now works five fewer hours per week. Chris's behavior illustrates the ______ effect of a wage increase. A) demand B) supply C) income D) substitution

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65) Assume that the accompanying graph describes the current labor market for nurses in a mid-sized city and that the labor market is perfectly competitive.

Suppose that several years ago the supply of nurses in this city was S0. What might explain the change from S0 to S1? A) An increase in nurses' wages B) A decrease in nurses' wages C) Increased immigration of people trained as nurses in other countries D) Increased employment opportunities outside of nursing

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66) Assume that the accompanying graph describes the current labor market for nurses in a mid-sized city and that the labor market is perfectly competitive.

If supply shifts from S0 to S1 and demand shifts from D0 to D1, then A) wages will have to rise to $60 to avoid a nursing shortage. B) wages will have to rise to $50 to avoid a nursing shortage. C) a wage of $40 will be sufficient to achieve equilibrium. D) a wage of $50 will lead to an excess supply of nurses.

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67) Assume that the accompanying graph describes the current labor market for nurses in a mid-sized city and that the labor market is perfectly competitive.

If supply shifts from S0 to S1 and demand shifts from D0 to D1, then the equilibrium wage will ______, and the equilibrium number of nurses will ______. A) stay the same; stay the same B) stay the same; increase C) increase; stay the same D) increase; increase

68) If the labor market for doctors is perfectly competitive, then an increase in the demand for doctors is likely to cause A) doctors' wages to increase. B) the working conditions of doctors to deteriorate. C) a persistent shortage of doctors. D) the supply of doctors to fall.

69) Taken together, factors such as education, training, experience, intelligence, and work habits are known as

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A) statistical discrimination factors. B) human capital. C) productivity factors. D) learned behaviors.

70)

The value of a worker's marginal product of labor A) is not affected by a worker’s stock of human capital. B) is lower for workers with more human capital. C) is higher for workers with more human capital. D) only depends on a worker's stock of human capital.

71)

Which of the following factors is not part of an individual's stock of human capital? A) Intelligence B) Years of education C) Employment status D) Initiative

72) Ben and Ashley are identical in every way except for one: Ashley has a master's degree and Ben does not. You would expect Ashley to be paid A) the same amount as Ben. B) more than Ben and more than his VMP. C) less than Ben. D) more than Ben.

73) A group of workers who bargain collectively with employers for higher wages and better working conditions is called a Version 1

A) labor monopsony. B) labor union. C) labor collective. D) closed shop.

74)

A labor union in a labor market is analogous to a(n) ______ in an output market. A) monopsony B) oligopoly C) cartel D) perfect competitor

75) that

One reason nonunionized firms do not always drive unionized firms out of business is

A) markets are not competitive. B) unionized firms reduce the value of total output. C) unionized firms hire more selectively, employing workers with greater human capital. D) unionized firms receive government subsidies.

76) Which of the following is not a reason why unionized firms can successfully compete with nonunionized firms? A) Employee morale may be higher at unionized firms, so workers are more productive. B) Communication between management and workers is better at unionized firms. C) Labor turnover is lower at unionized firms, so unionized firms have lower hiring costs. D) Unionized firms are legally protected from price competition with nonunionized firms.

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77) According to the textbook, the union wage premium for workers with the same amount of human capital is about ______. A) 40 percent B) 30 percent C) 20 percent D) 10 percent

78) Union membership in the United States probably ______ an important explanation for why workers with similar qualifications earn different incomes because union membership rates are relatively ______. A) is; high B) is; low C) is not; high D) is not; low

79) If workers in one part of the labor market unionize, then all else equal, we would expect the wages of unionized workers to ______, and the wages of nonunionized workers to ______. A) rise; fall B) rise; remain unchanged C) remain unchanged; fall D) fall; remain the same

80)

The union wage premium refers to the A) dues one must pay in order to be in a union. B) union wage rate minus union membership dues. C) deduction for union insurance. D) amount by which union wages exceed nonunion wages.

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81)

Differences in wage rates associated with differences in working conditions are called A) compensating income differentials. B) equalizing wage ratios. C) conditional differentials. D) compensating wage differentials.

82) The fact that many primary and secondary school teachers enjoy work schedules that coincide with their children's school schedules A) implies that teachers will earn less than workers with similar qualifications in other jobs. B) implies that teachers will earn more than workers with similar qualifications in other jobs. C) has no bearing on the wages of teachers relative to the wages of workers in other jobs. D) arises because the market for teachers is a winner-take-all market.

83)

Jobs in which there is a higher risk of injury or death will A) hire risk-averse workers. B) pay less than otherwise similar jobs. C) pay the same as otherwise similar jobs. D) pay more than otherwise similar jobs.

84)

An arbitrary preference by an employer for one group of workers over another is termed A) customer discrimination. B) statistical discrimination. C) employer discrimination. D) employee discrimination.

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85) Suppose Sarah has been offered a position as web designer at Firm A and Firm B. Both firms require their employees to work for 9 hours a day, but Firm A allows its employees to have a flexible work schedule, while Firm B requires its employees to be at work from 9 a.m. to 5 p.m. Otherwise, the jobs are identical. You would expect: A) Sarah's wages to be the same at both firms. B) Sarah's wages to be higher at Firm A than at Firm B. C) Sarah's wages to be lower at Firm A than at Firm B. D) Sarah to turn down both job offers.

86) Kelly just graduated from State U and has three job offers: teaching at a prestigious private high school nine months a year with summers off, working 40 hours a week at a bank in a small city, and working more than 60 hours a week for a high-powered investment firm in New York. The annual salary for each of these offers is probably A) lowest at the investment firm, in the middle at the bank, and highest at the high school. B) lowest at the bank, in the middle at the investment firm, and highest at the high school. C) lowest at the high school, in the middle at the investment firm, and highest at the bank. D) lowest at the high school, in the middle at the bank, and highest at the investment firm.

87) Kelly just graduated from State U and has three job offers: teaching at a prestigious private high school nine months a year with summers off, working 40 hours a week at a bank in a small city, and working more than 60 hours a week for a high-powered investment firm in New York. Suppose all of the jobs paid exactly the same annual salary, and that most people prefer leisure to work, all else equal. If that were the case A) there would be a shortage of teachers at the high school. B) there would be a surplus of workers at the investment firm. C) there would be a surplus of teachers at the high school. D) people would naturally sort themselves into the job that best suits their talents.

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88) Kelly just graduated from State U and has three job offers: teaching at a prestigious private high school nine months a year with summers off, working 40 hours a week at a bank in a small city, and working more than 60 hours a week for a high-powered investment firm in New York. Suppose all of the jobs currently offer exactly the same annual salary, and that most people prefer leisure to work, all else equal. In order to attract workers, the ______ would have to offer a ______ salary than the others. A) high school; lower B) bank; higher C) investment firm; lower D) investment firm; higher

89) Assume that the average male wage rate is 20 percent higher than the average female wage rate. One can infer that A) this is evidence of discrimination because females should be paid the same as males. B) employers undervalue female employees, so they are able to pay them less. C) customers overvalue male employers, so employers pay males more. D) this is evidence of discrimination only if all factors affecting productivity are equal.

90) Charlie is getting a divorce. He selects a female lawyer at a large law firm because he believes they are more aggressive in obtaining favorable settlements in divorce cases. Charlie's behavior is an example of ______ discrimination. A) market B) employer C) employee D) customer

91) Consumer discrimination exists when consumers are willing to pay ______ for a good or service produced by the favored group, even though the quality of the good or service is ______. Version 1

A) more; better B) less; the same C) more; worse D) more; the same

92) Males major in engineering much more frequently than females. Starting salaries for engineers (male or female) are much higher than average. As a result, the observed gender wage gap for all college graduates will be ______ than the gender wage gaps in specific majors because ______. A) larger; of employer discrimination B) smaller; males and females choose different majors C) larger; of academic discrimination D) larger; males and females choose different majors

93) Inga and Owen both work for the same firm on the same career ladder. Each has the same stock of human capital except for one difference: Inga has worked at the firm for 10 continuous years, but Owen has had two leaves of absence mixed in with his 10 years of experience with the firm. One should expect A) Inga and Owen to earn the same income. B) Owen to earn more than Inga. C) Inga to earn twice as much as Owen. D) Inga to earn more than Owen.

94) Suppose males place less importance on the social approval of their job and more on the income they receive. The gender wage gap would therefore be ______ than if this difference did not exist because of ______.

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A) smaller; compensating wage differentials B) larger; compensating wage differentials C) larger; employer discrimination D) smaller; employee discrimination

95)

A winner-take-all labor market is one in which A) large differences in human capital translate into small differences in wages. B) one worker receives all of the available compensation and the rest receive nothing. C) small differences in human capital translate into small differences in wages. D) small differences in human capital translate into large differences in wages.

96) In professional baseball, some players earn over $20 million per year, while the average salary is about $4 million per year. The most likely explanation for this is that A) the market for baseball players is a winner-take-all market. B) the best players are five times better than the average player. C) owners are overspending on players' salaries. D) racial discrimination.

97)

Balanced across the board, U.S. income growth characterizes the period of the A) 1980s to the present. B) entire 20th century. C) 1960s to 1990s. D) mid 1940s to the early 1970s.

98) According to the textbook, the real mean income of the top 5 percent of families increased by ______ percent from 1980 to 2018. Version 1

A) 10 B) 80 C) 125 D) 55

99) The growth in income inequality in the United States since the early 1980s has been driven primarily by the dramatic A) increase in real incomes for the top 1 percent of earners. B) increase in real incomes for the top 10 percent of earners. C) increase in real incomes for the top 20 percent of earners. D) decrease in real incomes for the bottom 20 percent of earners.

100) According to John Rawls, if people had to choose an income distribution without any knowledge of their own talents and abilities, they would likely prefer an income distribution that A) rewards hard work. B) rewards innate intelligence C) rewards creativity. D) gives everyone an equal share.

101) The reason people in Professor Rawls' thought experiment would choose an equal distribution of income is that A) they are concerned about the welfare of others. B) they fear ending up in a disadvantaged position themselves. C) people are risk neutral. D) it is the easiest distribution to implement.

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102) The degree of income inequality produced by competitive markets, in Professor Rawls' view, is A) minor. B) greater than the amount people would prefer. C) consistent with the ideal amount. D) acceptable.

103) Matt is offered a job driving the campus shuttle bus from 4 p.m. to 6 p.m. each Monday. His reservation wage for this job is $7 per hour. If the campus transportation director offers Matt $50 per hour, how much economic surplus will Matt enjoy as a result of accepting the job? A) $36 per hour B) $43 per hour C) $50 per hour D) $86 per hour

104) Matt is offered a job driving the campus shuttle bus from 4 p.m. to 6 p.m. each Monday. His reservation wage for this job is $7 per hour. Suppose the campus transportation director offers Matt $50 per hour. Will Matt accept this job? A) Yes, accepting the job means a positive economic surplus for Matt. B) No, accepting the job means a negative economic surplus for Matt. C) Yes, although accepting the job means a negative economic surplus for Matt, it is still better than having no job. D) No, although accepting the job means a positive economic surplus for Matt, still it is not the best option for him.

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105) Matt is offered a job driving the campus shuttle bus from 4 p.m. to 6 p.m. each Monday. His reservation wage for this job is $7 per hour. Now suppose the director offers Matt $50 per hour, but also announces that Matt’s earnings will be divided equally among Matt and the 99 other students who live in Matt's dorm. What will be Matt’s economic surplus from accepting the job? A) $0.50 per hour B) $1.00 per hour C) −$6.00 per hour D) −$6.50 per hour

106) Matt is offered a job driving the campus shuttle bus from 4 p.m. to 6 p.m. each Monday. His reservation wage for this job is $7 per hour. Now suppose the director offers Matt $50 per hour, but also announces that the earnings from the job will be divided equally among Matt and the 99 other students who live in Matt's dorm. Will Matt accept this job? A) Yes, accepting the job means a positive surplus for Matt. B) No, accepting the job means a negative surplus for Matt. C) Yes, although accepting the job means a negative surplus for Matt, still it is better than having no job. D) No, although accepting the job means a positive surplus for Matt, still it is not the best option for him.

107) Matt is offered a job driving the campus shuttle bus from 4 p.m. to 6 p.m. each Monday. His reservation wage for this job is $7 per hour. Now suppose the director offers Matt $50 per hour, but also announces that the earnings from the job will be divided equally among Matt and four other students. Will Matt accept this job? A) No, because the other students are free riders. B) No, because it is not fair for Matt to do the work and then have to share the wage. C) Yes, because $50 divided by five is greater than Matt's reservation wage. D) Yes, because Matt believes in the Rawlsian theory of justice.

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108) Elena is offered a job answering the phone in the State U economics department during lunchtime, from noon to 1 p.m., Tuesdays and Thursdays. Her reservation wage for this job is $15 per hour. If the department chair offers Elena $150 per week, how much economic surplus will she enjoy as a result of accepting the job? A) $15 per week B) $120 per week C) $135 per week D) $150 per week

109) Elena is offered a job answering the phone in the State U economics department during lunchtime, from noon to 1 p.m., Tuesdays and Thursdays. Her reservation wage for this job is $15 per hour. If the department chair offers Elena $150 per week, will Elena accept this job? A) There's not enough information to determine what Elena would do. B) Yes, accepting the job means a positive economic surplus for Elena. C) No, accepting the job means a negative economic surplus for Elena. D) Yes, although accepting the job means a negative economic surplus for Elena, still it is better than having no job.

110) Elena is offered a job answering the phone in the State U economics department during lunchtime, from noon to 1 p.m., Tuesdays and Thursdays. Her reservation wage for this job is $15 per hour. Now suppose the department chair announces that the $150 per week earnings from the job will be divided equally among Elena and 299 other students in the department. How much economic surplus will Elena enjoy each week if she accepts the job? A) $0.50 B) −$14.00 C) −$29.00 D) −$29.50

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111) When the government transfers resources to the poor in the form of a good or service, it is called A) the Earned Income Tax Credit (EITC). B) Temporary Assistance to Needy Families (TANF). C) an in-kind transfer. D) a regressive tax.

112)

Food stamps and Medicaid are examples of

A) cash transfer programs. B) in-kind transfer programs. C) welfare programs that have been eliminated. D) programs created by the Personal Responsibility and Work Opportunity Reconciliation Act.

113)

In 1996, the Personal Responsibility and Work Opportunity Reconciliation Act: A) transferred responsibility for welfare programs from the state to the federal level. B) placed a five-year lifetime limit on welfare payments to any given recipient. C) increased the federal minimum wage. D) established the earned income tax credit (or EITC).

114)

To say that a given welfare program is means-tested implies that A) in order to qualify, one must have the means. B) the size of the payment reflects the mean value of consumption based on family size. C) in order to qualify, one must show that one means to find a job. D) the more income one earns, the smaller the size of the benefit.

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115)

An in-kind transfer payment is A) made out of kindness. B) a cash payment. C) a benefit in the form of a good or service. D) less costly to provide than a cash payment.

116)

A welfare payment that is reduced when the recipient earns more income is a(n) A) fair benefit. B) inducement for the poor to find employment. C) unconditional benefit. D) means-tested benefit.

117)

Means-tested welfare benefits provide recipients with a strong incentive to A) leave welfare. B) underreport their earnings. C) work. D) accurately disclose their earnings.

118) Leo is a welfare recipient who qualifies for two means-tested cash benefit programs. If he does not earn any income, he receives $225 from each program. For each dollar he earns (which his employer is required to report to the welfare agency), his benefit from each program is reduced by 75 cents until the benefit equals zero. In the absence of any earnings, Leo will receive ______ in cash from each program, for a total of ______ in benefits.

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A) $225; $225 B) $225; $450 C) $225; $400 D) $200; $400

119) Leo is a welfare recipient who qualifies for two means-tested cash benefit programs. If he does not earn any income, he receives $225 from each program. For each dollar he earns (which his employer is required to report to the welfare agency), his benefit from each program is reduced by 75 cents until the benefit equals zero. Suppose Leo earns $10. He will lose ______ from each benefit, for a total loss of _____. A) $0.75; $1.00 B) $7.50; $7.50 C) $7.50; $15.00 D) $0.75; $1.50

120) Leo is a welfare recipient who qualifies for two means-tested cash benefit programs. If he does not earn any income, he receives $225 from each program. For each dollar he earns (which his employer is required to report to the welfare agency), his benefit from each program is reduced by 75 cents until the benefit equals zero. If Leo earns $150, then he will receive ______ in total benefits from the two programs. A) $337.50. B) $300. C) $225. D) 0.

121) Leo is a welfare recipient who qualifies for two means-tested cash benefit programs. If he does not earn any income, he receives $500 from each program. For each dollar he earns (which his employer is required to report to the welfare agency), his benefit from each program is reduced by 70 cents until the benefit equals zero. If Leo earns $250, then he will receive ______ in total benefits from the two programs. Version 1

A) $825. B) $0. C) $750. D) $650.

122) Leo is a welfare recipient who qualifies for two means-tested cash benefit programs. If he does not earn any income, he receives $225 from each program. For each dollar he earns (which his employer is required to report to the welfare agency), his benefit from each program is reduced by 75 cents until the benefit equals zero. If Leo only values income and not how the income was acquired, then he must earn ______ to be as well off as when he earns nothing and receives benefits. A) $225 B) $300 C) $450 D) $350

123) Leo is a welfare recipient who qualifies for two means-tested cash benefit programs. If he does not earn any income, he receives $225 from each program. For each dollar he earns (which his employer is required to report to the welfare agency), his benefit from each program is reduced by 75 cents until the benefit equals zero. If Leo values income and not the source of the income, then if he can only earn $400, he will choose to A) work. B) not work and refuse the benefits. C) not work and accept the benefits. D) work part time.

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124) Leo is a welfare recipient who qualifies for two means-tested cash benefit programs. If he does not earn any income, he receives $225 from each program. For each dollar he earns (which his employer is required to report to the welfare agency), his benefit from each program is reduced by 75 cents until the benefit equals zero. When Leo's earnings are less than $300, each extra dollar he earns causes his total income (earnings plus benefits) to A) fall by 25 cents. B) rise by 50 cents. C) fall by 50 cents. D) rise by 75 cents.

125)

Those who favor programs aimed at reducing inequality argue that these programs A) provide a financial incentive to work harder. B) provide a financial incentive to invest in human capital. C) help reduce poverty. D) discourage firms from discriminating in their hiring.

126) Those who do not favor programs aimed at reducing inequality argue that these programs A) increase the crime rates. B) reduce people's incentive to work hard. C) penalize people who are unable to work through no fault of their own. D) prevent the economy from reaching equilibrium in the labor market.

127) A program under which the government gives all citizens a substantial lump sum payment that is financed by a tax earned income is termed a(n)

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A) positive income tax. B) in-kind transfer. C) unearned income tax credit. D) negative income tax.

128) The level of income below which the federal government classifies a family as poor is called the A) relative measure of poverty. B) absolute measure of poverty. C) poverty threshold. D) median income threshold.

129) A minimum wage law prohibits employers from paying workers less than a specified hourly wage. If the minimum wage is above the equilibrium wage A) there will be an excess supply of labor. B) there will be an excess demand for labor. C) it creates a price ceiling. D) employment levels will not fall.

130)

Imposing a minimum wage above the equilibrium wage A) makes all workers better off. B) lowers labor costs. C) increases the size of the total wage bill. D) makes some workers worse off.

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131) Suppose the elasticity of labor demand is less than 1 in absolute value. Imposing a minimum wage above the equilibrium wage will A) increase the earnings of every worker. B) result in full employment. C) increase the earnings of workers as a group. D) make few workers better off.

132) If the elasticity of labor demand is greater than one, then imposing a minimum wage above the equilibrium wage will cause A) the firms' total wage bill to fall. B) employment to rise. C) the firms' total wage bill to rise. D) no adverse employment effects.

133) Consider the accompanying figure representing the labor market below. Suppose the government passes a minimum wage requiring employers to pay at least $8.00 per hour.

After the imposition of the minimum wage, employment will equal ______ person-hours per day.

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A) 2,000 B) 4,000 C) 6,000 D) 8,000

134) Consider the accompanying figure representing the labor market. Suppose the government passes a minimum wage requiring employers to pay at least $8.00 per hour.

Employment will fall by ______ person-hours per day as a result of the minimum wage. A) 2,000 B) 4,000 C) 6,000 D) 8,000

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135) Consider the accompanying figure representing the labor market below. Suppose the government passes a minimum wage requiring employers to pay at least $8.00 per hour.

Prior to the imposition of the minimum wage, employer surplus is ______ per day, and after the imposition of the minimum wage, employer surplus is ______ per day. A) $9,000; $1,000 B) $9,000; $5,000 C) $18,000; $2,000 D) $18,000; $14,000

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136) Consider the accompanying figure representing the labor market below. Suppose the government passes a minimum wage requiring employers to pay at least $8.00 per hour.

Prior to the imposition of the minimum wage, worker surplus is ______ per day, and after the imposition of the minimum wage, worker surplus is ______ per day. A) $9,000; $1,000 B) $9,000; $5,000 C) $18,000; $2,000 D) $18,000; $14,000

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137) Consider the accompanying figure representing the labor market below. Suppose the government passes a minimum wage requiring employers to pay at least $8.00 per hour.

As a result of the imposition of the minimum wage, total economic surplus falls by ______ per day A) $6,000 B) $8,000 C) $12,000 D) $24,000

138)

Consider the accompanying figure representing the labor market.

In the absence of any government intervention, the equilibrium wage is ______ per hour, and the equilibrium employment level is ______ workers per hour. Version 1

A) $12; 600 B) $12; 200 C) $8; 400 D) $4; 200

139)

Consider the accompanying figure representing the labor market.

If a minimum wage of $12 per hour is imposed in this labor market, then A) 200 workers will lose their jobs. B) 400 workers will earn $12 an hour. C) total earnings will rise. D) worker surplus will fall.

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140)

Consider the accompanying figure representing the labor market.

If a minimum wage of $10 per hour is imposed in this labor market, then: A) 400 workers will get a pay raise. B) there will be 200 unemployed workers. C) 300 workers will lose their jobs. D) worker surplus will fall.

141)

Consider the accompanying figure representing the labor market.

If a minimum wage of $12 per hour is imposed in this labor market, then worker surplus will ______ and employer surplus will ______.

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A) rise; fall B) fall; fall C) stay the same; fall D) rise; stay the same

142)

Consider the accompanying figure representing the labor market.

The imposition of a $12 per hour minimum wage causes total economic surplus in this labor market to ______ by ______. A) rise; $800 B) fall; $800 C) rise; $400 D) fall; $1,600

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143)

Consider the accompanying figure representing the labor markets shown.

If the government imposes a minimum wage above $6 per hour, then total earnings will ______. A) rise B) fall C) stay the same D) initially rise and then fall

144) In terms of improving the standard of living of the poor, one drawback on the earned income tax credit (EITC) is that A) it provides workers with in-kind transfers. B) it is only available to individuals whose incomes are above a certain threshold. C) it provides no benefits to people who are unemployed. D) it gives firms a strong incentive to lay off low-wage workers.

145)

The earned income tax credit (or EITC)

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A) reduces the tax rate on investment income. B) provides tax credits to firms that hire low-income workers. C) reduces the sales tax paid by low-income workers. D) gives low-income workers credits on their federal income taxes.

146)

For people with very low incomes, the earned income tax credit operates like a(n) A) tax on wages. B) lump sum transfer. C) wage subsidy. D) in-kind transfer.

147)

Unlike the minimum wage, the earned income tax credit does not A) cause an incentive for employers to lay off low-wage workers. B) cost the government money. C) improve the economic well-being of the working poor. D) increase total economic surplus.

148)

According to the textbook, the best possible solution to the problem of poverty is A) a combination of a negative income tax and public employment. B) to maintain the current system. C) a negative income tax with the tax credit equal to the poverty threshold. D) the complete elimination of all efforts to assist the poor.

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Answer Key Test name: Chap 13_8e_Frank 1) D 2) B 3) C 4) A 5) D 6) C 7) D 8) C 9) B 10) D 11) A 12) A 13) D 14) C 15) B 16) B 17) D 18) B 19) B 20) A 21) A 22) B 23) D 24) B 25) C 26) B Version 1

27) D 28) C 29) D 30) D 31) C 32) B 33) B 34) C 35) C 36) C 37) D 38) C 39) A 40) B 41) B 42) A 43) D 44) B 45) B 46) A 47) A 48) C 49) C 50) C 51) B 52) D 53) B 54) A 55) C 56) A Version 1

57) D 58) A 59) B 60) C 61) B 62) D 63) D 64) C 65) D 66) A 67) C 68) A 69) B 70) C 71) C 72) D 73) B 74) C 75) C 76) D 77) D 78) D 79) A 80) D 81) D 82) A 83) D 84) C 85) C 86) D Version 1

87) C 88) D 89) D 90) D 91) D 92) D 93) D 94) B 95) D 96) A 97) D 98) C 99) A 100) D 101) B 102) B 103) B 104) A 105) D 106) B 107) C 108) B 109) B 110) D 111) C 112) B 113) B 114) D 115) C 116) D Version 1

117) B 118) B 119) C 120) C 121) D 122) C 123) C 124) C 125) C 126) B 127) D 128) C 129) A 130) D 131) C 132) A 133) A 134) B 135) A 136) D 137) C 138) C 139) A 140) B 141) A 142) B 143) B 144) C 145) D 146) C Version 1

147) A 148) A

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CHAPTER 14 1) If a good can be consumed by one person without reducing its availability to others, then it is a ______ good. A) nonexcludable B) pure public C) common D) nonrival

If a good is nonrival, then A) it has no substitutes. B) consumers can enjoy it without paying for it. C) consumption of the good by one person does not diminish its availability to others. D) consumption of the good by one person diminishes its availability to others.

3) If it is difficult, or costly, to prevent people who do not pay for a good from consuming the good, then the good is a ______ good. A) nonexcludable B) pure public C) private D) nonrival

National defense is an example of a good that is A) neither nonrival nor nonexcludable. B) largely nonrival and nonexcludable. C) only nonexcludable. D) only nonrival.

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Which of the following items is an example of a good that is nonrival but excludable? A) Pay-per-view movies B) Corn C) National defense D) Broadcast television

6) Sunil's neighbor Lao keeps his front yard well-manicured and plants beautiful flowers which Sunil enjoys. If local law prevents Lao from fencing his yard, the beauty of Lao’s front yard is A) nonrival. B) a private good. C) nonexcludable. D) both nonrival and nonexcludable.

A swing at a popular, unfenced public park is A) nonrival. B) nonexcludable. C) a collective good. D) a pure public good.

8) Your state department of transportation is considering installing toll booths with gates on a quiet section of highway. If this is done, a good that is currently a A) public good will become a private good. B) nonrival good will become a rival good. C) nonexcludable good will become an excludable good. D) rival good will become an excludable good.

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A good or service that is highly nonrival and highly nonexcludable is a ______ good. A) pure public B) commons C) collective D) private

10) A good or service that is rival but nonexcludable is called a ______, and a good or service that is nonrival but excludable is called a ______. A) public good; private good B) commons good; public good C) commons good; collective good D) public good; collective good

11) A good or service that is rival but nonexcludable is called a ______, and a good or service that is nonrival and nonexcludable is called a ______. A) commons good; private good B) commons good; public good C) private good; public good D) private good; collective good

12)

A good or service that is both rival and excludable is a A) public good. B) private good. C) collective good. D) commons good.

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13)

A pure public good is one that is A) highly nonrival and highly nonexcludable. B) neither nonrival nor nonexcludable. C) nonexcludable but rival. D) nonrival but excludable.

14)

A collective good is one that, to at least some degree, is A) nonrival but excludable. B) nonexcludable but rival. C) consumed by more than one person. D) both nonrival and nonexcludable.

15)

Which of the following is the best example of a pure public good? A) Cable television B) A national park C) National defense D) Education

16)

Which of the following is NOT an example of a public good? A) National defense B) Police protection C) The ocean D) Government-subsidized public housing

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17)

Goods like Wi-Fi networks that are nonrival but excludable are known as A) pure public goods. B) private goods. C) commons goods. D) collective goods.

18)

Goods like fish in the ocean that are rival but nonexcludable are known as A) private goods. B) collective goods. C) commons goods. D) public goods.

19) Suppose the latest Avengers movie first played in theaters, where it sold out during its opening week. Several months later it was available on pay-per-view TV. Two years later it was shown on CBS, a broadcast television network. When the movie was playing in theaters, it was a ______ good; when it was available on pay-per-view TV, it was a ______ good; and when it was shown on CBS, it was a ______ good. A) private; public; public B) private; collective; public C) collective; private; commons D) collective; commons; public

20)

When someone buys a movie on DVD, the DVD is a ______ good. A) public B) private C) collective D) commons

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21) Suppose Lamar owns a piece of property with a large lake. Initially, Lamar and his family were the only people who swam in the lake. Then Lamar started selling tickets to people who wanted to go swimming in the lake. When Lamar died, he left the lake and the land it was on to the state, stipulating that the lake be left open to the public for swimming. Due to the lake's remote location, it was never crowded. After Lamar died, the lake became a ______ good. A) private B) commons C) collective D) public

22) Suppose Lamar owns a piece of property with a large lake. Initially, Lamar and his family were the only people who swam in the lake. Then Lamar started selling tickets to people who wanted to go swimming in the lake. When Lamar died, he left the lake and the land it was on to the state, stipulating that the lake be left open to the public for swimming. Due to the lake's remote location, it was never crowded. When Lamar started selling tickets to the public, the lake became a ______ good. A) private B) commons C) collective D) public

23) A highway without any tolls between 12 a.m. and 5 a.m. when there is very little traffic is an example of a ______ good. A) collective B) public C) private D) commons

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24)

A crowded beach without an entrance fee is a ______ good. A) public B) private C) pure public D) commons

25)

A patch of edible mushrooms growing wild in a national forest is a ______ good. A) public B) private C) pure public D) commons

26)

Pure public goods A) should always be provided by government. B) should always be provided by private firms. C) are frequently provided by the government and are sometimes provided by private

firms. D) are, by definition, goods and services provided by the government.

27)

Broadcast television is an example of A) a collective good provided by the government. B) a private good provided by private firms. C) a private good provided by the government. D) a public good provided by private firms.

28)

Collective goods tend to be underprovided by private markets because

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A) of the free-rider problem. B) of inefficiencies in the income tax system. C) these types of goods are usually provided by the government instead. D) it is not socially optimal for the price of these goods to be greater than zero.

29)

The government should only provide a pure public good if ______ and ______. A) the good is indeed a public good; the majority of voters want it to be provided B) the good’s benefits exceed its costs; there is no less costly way to provide it C) voters desire the good; no new taxes will be needed D) the good's benefits exceed its costs; the government can afford to provide the good

30)

If all taxpayers pay the same dollar amount, the tax is termed a A) proportional tax. B) progressive tax. C) head tax. D) per unit tax.

31)

If all taxpayers pay the same percentage of their income in taxes, the tax is termed a(n) A) proportional tax. B) progressive tax. C) head tax. D) per unit tax.

32) If taxpayers pay a smaller fraction of their income in taxes as their incomes rise, the tax is ______ and if taxpayers pay a larger fraction of their income in taxes as their income rise, the tax is ______. Version 1

A) regressive; progressive B) progressive; regressive C) proportional; progressive D) regressive; proportional

33) Lisa pays $12,000 in taxes and earns $150,000. Bart pays $7,000 in taxes. If the tax system is proportional, then Bart's income is A) $56,000. B) $125,000. C) $87,500. D) $98,000.

34) Lisa pays $15,000 in taxes and earns $160,000. Bart pays $7,500 in taxes. If the tax system is proportional, then Bart's income is A) $106,667. B) $112,500. C) $70,313. D) $80,000.

35) Spike pays $14,000 in taxes and earns $100,000. Ace earns $120,000. If the tax system is progressive, Ace will pay ______ in taxes. A) $15,500 B) more than $16,800 C) more than $15,500 but less than $16,800 D) $16,800

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36) If the government needs to raise revenue to pay for a public good, the ideal tax structure would tax A) all citizens by the same amount. B) all citizens in proportion to their willingness to pay for the public good. C) all citizens by the same proportion of their income. D) only citizens who state that they will use the public good.

37)

Under a head tax, the amount of tax paid is A) the same for all taxpayers. B) proportional to each taxpayer's income. C) a linearly increasing function of the taxpayer's income. D) the same for all taxpayers who use the public good.

38)

If the government uses a head tax to finance a public good, then the A) proportion of income paid in taxes is constant. B) dollar amount paid by each taxpayer declines as income rises. C) proportion of income paid in taxes declines as income rises. D) proportion of income paid in taxes increases as income rises.

39)

A proportional tax results in A) a larger percentage of income going to taxes as income rises. B) a smaller percentage of income going to taxes as income rises. C) the same dollar amount going to taxes for all taxpayers. D) the same percentage of income going to taxes for all taxpayers.

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40) Joe earns $10,000 in income and pays $1,000 in taxes while Jack earns $30,000 and pays $4,000 in taxes. The structure of this tax is A) progressive. B) proportional. C) regressive. D) a head tax.

41) Joe earns $15,000 in income and pays $3,000 in taxes while Jack earns $40,000 and pays $8,000 in taxes. The structure of this tax is A) a logrolling tax. B) proportional. C) progressive. D) regressive.

42) Kenya pays $6,000 in taxes and earns $60,000. Evan pays $4,000 in taxes. If the tax system is progressive, then Evan earns A) $40,000. B) more than $40,000 but less than $60,000. C) less than $40,000. D) more than $60,000.

43) The current U.S. income tax system requires taxpayers to pay a higher marginal tax rate on higher levels of taxable income. Suppose that the tax rate is 10 percent on the first $15,000 of taxable income, 15 percent on the next $45,000 of taxable income, 30 percent on the next $60,000 of taxable income, and 35 percent on taxable income above $120,000. This income tax system is

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A) progressive. B) regressive. C) proportional. D) progressive when income is low, then regressive.

44) The current U.S. income tax system requires taxpayers to pay a higher marginal tax rate on higher levels of taxable income. Suppose that the tax rate is 10 percent on the first $15,000 of taxable income, 15 percent on the next $45,000 of taxable income, 30 percent on the next $60,000 of taxable income, and 35 percent on taxable income above $120,000. Suppose the tax code also includes provisions that allow taxpayers to reduce the income on which they are taxed, and that those provisions most often apply to the richest taxpayers. These provisions tend to make the tax code A) more progressive. B) more efficient. C) less progressive. D) less regressive.

45) The small city of Pleasantville is considering building a public swimming pool that costs $1,000. Each resident’s marginal benefit of the swimming pool is shown in the accompanying table. It takes a 4/5 majority to pass any tax measure, and all residents must vote. Voter

Marginal Benefit

Kyle

$ 420

Dylan

360

Ava

350

Sia

190

Destiny

170

The total social benefit of the swimming pool is

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A) $1,490. B) $1,000. C) $1,590. D) $1,120.

46) The small city of Pleasantville is considering building a public swimming pool that costs $1,000. Each resident’s marginal benefit of the swimming pool is shown in the accompanying table. It takes a 4/5 majority to pass any tax measure, and all residents must vote. Voter

Marginal Benefit

Kyle

$ 420

Dylan

360

Ava

350

Sia

190

Destiny

170

Building the swimming pool would ______ total economic surplus because ______. A) decrease; the total cost of the pool is greater than the total social benefit of the pool B) decrease; taxes would have to be collected to build the pool C) increase; the total social benefit of the pool is greater than the total cost of the pool D) increase; the cost of building the pool can be passed to users from other towns

47) The small city of Pleasantville is considering building a public swimming pool that costs $1,000. Each resident’s marginal benefit of the swimming pool is shown in the accompanying table. It takes a 4/5 majority to pass any tax measure, and all residents must vote. Voter

Marginal Benefit

Kyle

$ 420

Dylan

360

Ava

350

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Sia

190

Destiny

170

If Ava proposes that the city build the pool and finance it with a $200 tax on each resident, then ______ residents will vote in favor of the proposal and ______ will vote against, so the proposal will ______. A) 1; 4; pass B) 4; 1; pass C) 2; 3; fail D) 3; 2; fail

48) The small city of Pleasantville is considering building a public swimming pool that costs $900. Each resident’s marginal benefit of the swimming pool is shown in the accompanying table. It takes a 4/5 majority to pass any tax measure, and all residents must vote. Voter

Marginal Benefit

Kyle

$ 420

Dylan

360

Ava

350

Sia

190

Destiny

170

If Ava proposes that the city build the pool and finance it with a $180 tax on each resident, then ______ residents will vote in favor of the proposal and ______ will vote against, so the proposal will ______. A) 4;1; fail B) 1;4; pass C) 1;4; fail D) 4;1; pass

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49) The small city of Pleasantville is considering building a public swimming pool that costs $1,000. Each resident’s marginal benefit of the swimming pool is shown in the accompanying table. It takes a 4/5 majority to pass any tax measure, and all residents must vote. Voter

Marginal Benefit

Kyle

$ 420

Dylan

360

Ava

350

Sia

190

Destiny

170

Dylan proposes that the city let a private company build the pool and charge residents a one-time fee to use the pool as much as they like. Only residents who pay the fee would be allowed to use the pool. If the private company were allowed to set a single fee, then A) no private company would offer to build the pool. B) a private company would offer to build the pool and would set the fee equal to $200. C) a private company would offer to build the pool and would set the fee equal to $250. D) a private company would offer to build the pool and would set the fee equal to $298.

50) The small city of Pleasantville is considering building a public swimming pool that costs $1,000. Each resident’s marginal benefit of the swimming pool is shown in the accompanying table. It takes a 4/5 majority to pass any tax measure, and all residents must vote. Voter

Marginal Benefit

Kyle

$ 420

Dylan

360

Ava

350

Sia

190

Destiny

170

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Kyle proposes that the city auction the right to build the pool to the highest-bidding company. The winning company would be able to charge residents a one-time fee to use the pool as much as they like, and only residents who pay the fee would be allowed to use the pool. If the private company could perfectly price discriminate, then

A) no private company would bid on the right to build the pool. B) a private company would be willing to bid up to $490 to build the pool. C) a private company would be willing to bid up to $1,000 to build the pool. D) a private company would be willing to bid up to $1,490 to build the pool.

51) Kris, Taylor, and Maxine are the only three residents in a neighborhood. A public good that would benefit all of them has a one-time installation cost of $900. The value of the public good to each resident is shown in the accompanying table. Any tax plan must be approved by simple majority. Resident

Reservation Price

Income

Kris

$ 100

$ 1,000

Taylor

200

5,000

Maxine

700

6,000

Installing the public good would ______ total economic surplus by ______. A) increase; $100 B) decrease; $100 C) decrease; $900 D) increase; $1,000

52) Kris, Taylor, and Maxine are the only three residents in a neighborhood. A public good that would benefit all of them has a one-time installation cost of $1,900. The value of the public good to each resident is shown in the accompanying table. Any tax plan must be approved by simple majority. Resident

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Reservation Price

Income 16

Kris

$ 350

$ 1,000

Taylor

450

5,000

Maxine

1,000

6,000

Installing the public good would ______ total economic surplus by ______.

A) increase; $100 B) decrease; $100 C) increase; $1,850 D) decrease; $200

53) Kris, Taylor, and Maxine are the only three residents in a neighborhood. A public good that would benefit all of them has a one-time installation cost of $900. The value of the public good to each resident is shown in the accompanying table. Any tax plan must be approved by simple majority. Resident

Reservation Price

Income

Kris

$ 100

$ 1,000

Taylor

200

5,000

Maxine

700

6,000

Suppose that the government knows each resident’s reservation price. To collect no more than $900 in tax revenue, each resident should be charged ______ percent of their ______. A) 100; reservation price B) 70; reservation price C) 20; income D) 90; reservation price

54) Kris, Taylor, and Maxine are the only three residents in a neighborhood. A public good that would benefit all of them has a one-time installation cost of $900. The value of the public good to each resident is shown in the accompanying table. Any tax plan must be approved by simple majority.

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Resident

Reservation Price

Income

Kris

$ 100

$ 1,000

Taylor

200

5,000

Maxine

700

6,000

If the government proposes to pay for the public good with a head tax of $300 per resident, then: A) all three will vote in favor of the tax. B) Maxine will vote in favor of the tax, but Kris and Taylor will vote against it. C) Maxine will vote against the tax, but Kris and Taylor will vote in favor of it. D) all three residents will vote against the tax.

55) Kris, Taylor, and Maxine are the only three residents in a neighborhood. A public good that would benefit all of them has a one-time installation cost of $900. The value of the public good to each resident is shown in the table below. Any tax plan must be approved by simple majority. Resident

Reservation Price

Income

Kris

$ 100

$ 1,000

Taylor

200

5,000

Maxine

700

6,000

If the government proposes to pay for the public good with a head tax of $300 per resident, then A) all three residents will vote against the tax. B) Maxine will vote against the tax, but Kris and Taylor will vote in favor of it. C) all three will vote in favor of the tax. D) Maxine will vote in favor of the tax, but Kris and Taylor will vote against it.

56) Kris, Taylor, and Maxine are the only three residents in a neighborhood. A public good that would benefit all of them has a one-time installation cost of $900. The value of the public good to each resident is shown in the accompanying table. Any tax plan must be approved by simple majority.

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Resident

Reservation Price

Income

Kris

$ 100

$ 1,000

Taylor

200

5,000

Maxine

700

6,000

If the government proposes to pay for the public good with a proportional income tax of 8 percent, then: A) all three voters will vote in favor of the tax. B) Maxine and Taylor will vote against the tax, but Kris will vote in favor of it. C) Kris and Maxine will vote in favor of the tax, but Taylor will vote against it. D) all three voters will vote against the tax.

57) Kris, Taylor and Maxine are the only three residents in a neighborhood. A public good that would benefit all of them has a one-time installation cost of $900. The value of the public good to each resident is shown in the accompanying table. Any tax plan must be approved by simple majority. Resident

Reservation Price

Income

Kris

$ 275

$ 1,000

Taylor

375

5,000

Maxine

910

6,000

If the government proposes to pay for the public good with a proportional income tax of 9 percent, then A) Kris and Maxine will vote in favor of the tax, but Taylor will vote against it. B) Kris will vote in favor of the tax, but Taylor and Maxine will vote against it. C) all three voters will vote in favor of the tax. D) all three voters will vote against the tax.

58) Suppose a study finds that the income elasticity of demand for a public good is greater than 1. This implies that the public good should be financed through a ______ income tax system.

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A) collective B) regressive C) proportional D) progressive

59)

The demand curve for a public good is constructed by A) summing voters’ desired quantity of the public good at each price. B) surveying voters on how much of a particular public good they would use at each

price. C) summing voters' reservation prices at each quantity. D) dividing the total cost of providing the public good by the number of potential users.

60) Suppose Rekha's demand for a public good is P = 7 − 0.3 Q and Mike's demand is P = 10 − 1.5 Q. The equation for the total demand for the public good is A) P = 20 − 3.0Q. B) P = 17 − 1.8Q. C) P = 3 − 1.2Q. D) P = 14 − 0.6Q.

61) Suppose Rekha's demand for a public good is P = 10 − 0.9 Q and Mike's demand is P = 16 − 1.3 Q. The equation for the total demand for the public good is A) P = 20 − 2.6Q. B) P = 6 − 0.4Q. C) P = 32 − 1.8Q. D) P = 26 − 2.2Q.

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62) To derive the market demand curve for a private good, one sums the ______. For a public good, one sums the ______. A) individual quantities at various prices; individual quantities at various prices B) individual prices at various quantities; individual quantities at various prices C) individual quantities at various prices; individual prices at various quantities D) individual prices at various quantities; individual prices at various quantities

63) If voters A, B, and C have the following demand curves for a public library Pa = 5 − Q, Pb = 10 − 2 Q, and Pc = 15 − 3 Q, then social demand for a public library is A) P = 6 − 30Q. B) P = 15 −Q. C) P = 30 − 3Q. D) P = 30 − 6Q.

64)

Which of the following statements about the provision of public goods is true? A) The government should always provide public goods. B) The optimal level of a public good occurs when all taxpayers receive some of the

good. C) If the marginal benefit of a public good exceeds its marginal cost, more should be provided. D) The total benefit of a public good should equal its total cost.

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65)

Suppose the market consists of three individuals: Citizen A, Citizen B, and Citizen C.

If the good shown on the graphs is a private good, then at a price of $4, market demand is ______ units. A) 60 B) 30 C) 10 D) 5

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66)

Suppose the market consists of three individuals: Citizen A, Citizen B, and Citizen C.

If the good shown on the graphs is a public good, then the marginal benefit of the 30th unit is A) $30. B) $9. C) $4. D) $2.

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67)

Suppose the market consists of three individuals: Citizen A, Citizen B, and Citizen C.

If the good shown on the graphs is a public good, and the marginal cost of providing each unit is constant and equal to $5, then what is the optimal quantity of the public good? A) 50 units B) 40 units C) 30 units D) 20 units

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68)

Suppose the market consists of 3 individuals: Citizen A, Citizen B, and Citizen C.

If the good shown on the graphs is a public good, and the marginal cost of providing each unit is constant and equal to $15, then what is the optimal quantity of the public good? A) 15 units B) 0 units C) 10 units D) 5 units

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69)

Suppose the market consists of 3 individuals: Citizen A, Citizen B, and Citizen C.

If the good shown on the graphs is a public good, and the marginal cost of the 20th unit is $10, then the optimal quantity of the public good is A) zero. B) 20 units C) less than 20 units. D) greater than 20 units.

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70) Consider a town with three residents. The residents’ demand curves for various acres of a public park are shown in the accompanying graphs.

The public’s willingness to pay for the 2nd acre of parkland is ______. A) $6 B) $8 C) $14 D) $26

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71) Consider a town with three residents. The residents’ demand curves for various acres of a public park are shown in the accompanying graphs.

The public is willing to pay $14 for the _____ acre of parkland. A) 2nd B) 4th C) 6th D) 8th

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72) Consider a town with three residents. The residents’ demand curves for various acres of a public park are shown in the accompanying graphs.

The public is willing to pay $14 for the _____ acre of parkland. A) 2nd B) 4th C) 6th D) 8th

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73) Consider a town with three residents. The residents’ demand curves for various acres of a public park are shown in the accompanying graphs.

Suppose the town can purchase land for the park at a cost of $20 per acre. The optimal park size would be ______ acres. A) 2 B) 4 C) 6 D) 8

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74) Consider a town with three residents. The residents’ demand curves for various acres of a public park are shown in the accompanying graphs.

Suppose the town can purchase land for the park at a cost of $8 per acre. The optimal park size would be ______ acres. A) 2 B) 4 C) 6 D) 8

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75) Consider a town with three residents. The residents’ demand curves for various acres of a public park are shown in the accompanying graphs.

If the park is currently 2 acres, and land costs $20 per acre, the town should A) reduce the size of the park. B) purchase two additional acres. C) not change the size of the park. D) purchase 4 additional acres.

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76) Consider a town with three residents. The residents’ demand curves for various acres of a public park are shown in the accompanying graphs.

Suppose the city receives a grant that pays one half of the cost of each acre the city buys. If the cost of land is $28 per acre, the optimal park size is A) 8. B) 2. C) 4. D) 6.

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77) There are 20 residents in the village of Towneburg. The size of the village’s annual fireworks display depends upon the number of shells that are fired off. Each resident’s demand for fireworks is shown in the accompanying graph. The total cost of the fireworks display is $1,000 plus $10 per shell.

What is the vertical intercept of the village's demand curve for fireworks? A) 25 B) 50 C) 10 D) 1,000

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78) There are 20 residents in the village of Towneburg. The size of the village’s annual fireworks display depends upon the number of shells that are fired off. Each resident’s demand for fireworks is shown in the accompanying graph. The total cost of the fireworks display is $1,000 plus $10 per shell.

What is the horizontal intercept of the village's demand curve for fireworks? A) 25 B) 50 C) 100 D) 500

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79) There are 20 residents in the village of Towneburg. The size of the village’s annual fireworks display depends upon the number of shells that are fired off. Each resident’s demand for fireworks is shown in the accompanying graph. The total cost of the fireworks display is $1,000 plus $10 per shell.

Suppose 10 shells have been fired off. What is the marginal cost of firing off one more shell? A) $0 B) $10 C) $25 D) $100

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80) There are 20 residents in the village of Towneburg. The size of the village’s annual fireworks display depends upon the number of shells that are fired off. Each resident’s demand for fireworks is shown in the accompanying graph. The total cost of the fireworks display is $1,000 plus $10 per shell.

Collectively, the residents of Towneburg would be willing to pay ______ for the 10th shell, and the marginal cost of the 10th shell is ______. A) $30; $100 B) $600; $1,100 C) $30; $10 D) $600; $10

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81) There are 20 residents in the village of Towneburg. The size of the village’s annual fireworks display depends upon the number of shells that are fired off. Each resident’s demand for fireworks is shown in the accompanying graph. The total cost of the fireworks display is $1,000 plus $10 per shell.

Collectively, the residents of Towneburg would be willing to pay ______ for the 24th shell, and the marginal cost of the 24th shell is ______. A) $20; $200 B) $20; $10 C) $40; $200 D) $40; $10

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82) There are 20 residents in the village of Towneburg. The size of the village’s annual fireworks display depends upon the number of shells that are fired off. Each resident’s demand for fireworks is shown in the accompanying graph. The total cost of the fireworks display is $1,000 plus $10 per shell.

Collectively, the residents of Towneburg would be willing to pay ______ for the 25th shell, and the marginal cost of the 25th shell is ______. A) $10; $2,500 B) $0; $10 C) $20; $10 D) $0; $3,500

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83) There are 20 residents in the village of Towneburg. The size of the village’s annual fireworks display depends upon the number of shells that are fired off. Each resident’s demand for fireworks is shown in the accompanying graph. The total cost of the fireworks display is $1,000 plus $10 per shell.

If Towneburg’s fireworks display has 20 shells, then the size of the display is A) optimal. B) larger than optimal. C) smaller than optimal. D) unaffordable.

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84) There are 20 residents in the village of Towneburg. The size of the village’s annual fireworks display depends upon the number of shells that are fired off. Each resident’s demand for fireworks is shown in the accompanying graph. The total cost of the fireworks display is $1,000 plus $10 per shell.

Cheap Charlie is one of Towneburg's 20 residents. While Charlie enjoys fireworks as much as the next Towneburger, when the fireworks fund-raising campaign kicks off, he claims to hate them. Cheap Charlie is trying to A) free ride. B) rent seek. C) force the village to be more efficient. D) log-roll.

85) For many pure public goods like fireworks displays, weather forecasts, and television broadcasts the marginal cost of serving one more consumer is ______, and the optimal quantity of the public good occurs when______. A) zero; provision is infinite B) determined by average cost rather than marginal cost; price equals average cost C) greater than the average cost; the government provides the good D) zero; the marginal benefit of the public good equals zero

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86) Suppose that the marginal cost of providing public television to one more viewer is zero. If a public television station sets the price of public television equal to its marginal cost, then A) the station will have an incentive to provide the optimal level of programming. B) the station's total revenue will be zero. C) the station's total revenue will be positive when there are only a few viewers, but will decline as more viewers tune in. D) the television station will earn zero economic profit.

87) Suppose a private monopolist is supplying a good that is nonrival but excludable. The market demand for the good is P = 24 – 3 Q. If the marginal cost of providing this good is $0, but the firm charges $12, then the monopolist will provide ______ units, and the efficient number of units is ______. A) 4; 8 B) 6; 8 C) 2; 2 D) 4; 2

88) Suppose a private monopolist is supplying a good that is nonrival but excludable. The market demand for the good is P = 30 − 2 Q. If the marginal cost of providing this good is $6, but the firm charges $18, then the monopolist will provide ______ units, and the efficient number of units is ______. A) 18; 9 B) 6; 12 C) 12; 12 D) 6; 9

89) The marginal cost of providing another viewer with access to HBO is zero. Since only people who pay for HBO can watch it

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A) fewer than the socially optimal number of people will have access to HBO. B) more than the socially optimal number of people will have access HBO. C) HBO will not be profitable in the long run. D) access to HBO is nonexcludable.

90) According to the textbook, the private provision of television programming may not be socially optimal because A) consumers do not pay for broadcast television. B) the government strictly regulates the market. C) most consumers do not like watching television commercials. D) programs are chosen based on audience size rather than the value to the audience.

91) Lane and Riley are the only two residents in a neighborhood, and they share the same driveway. They would like to have the driveway paved. The value of the paved driveway is $1,500 to Lane and $900 to Riley. Regardless of who pays for the paving both people will benefit from it. What is the most a contractor can charge to pave the driveway and still be assured of being hired by at least one of them? A) $600 B) $900 C) $1,500 D) $2,400

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92) Lane and Riley are the only two residents in a neighborhood, and they share the same driveway. They would like to have the driveway paved. The value of the paved driveway is $1,500 to Lane and $900 to Riley. Regardless of who pays for the paving both people will benefit from it. If the cost of paving the driveway is $2,000, then it is ______ for the driveway to be paved because total economic surplus would ______. A) inefficient; fall by $1,100 B) efficient; increase by $400 C) inefficient; fall by $500 D) efficient; increase by $1,100

93) Lane and Riley are the only two residents in a neighborhood, and they share the same driveway. They would like to have the driveway paved. The value of the paved driveway is $1,500 to Lane and $900 to Riley. Regardless of who pays for the paving both people will benefit from it. If the cost of paving the driveway is $2,000 and Lane proposes that they each pay 50 percent of this cost, then Riley ______ agree to Lane’s proposal because ______. A) will; repaving the driveway would increase total economic surplus B) will not; repaving the driveway would lower total economic surplus C) will; if they split the cost, then Riley’s economic surplus would increase D) will not; if they split the cost, then Riley’s economic surplus would decrease

94) Assume that each day 10,000 children watch Sesame Street on public television and that watching Sesame Street generates a benefit of $100 per child per year. Once a year, public television holds a pledge drive asking viewers to make voluntary contributions in order to keep the programming available to everyone. The broadcast of Sesame Street yields a total social benefit of _____ per year.

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A) $0 B) $100 C) $10,000 D) $1,000,000

95) Assume that each day 10,000 children watch Sesame Street on public television and that watching Sesame Street generates a benefit of $100 per child per year. Once a year, public television holds a pledge drive asking viewers to make voluntary contributions in order to keep the programming available to everyone. Suppose each parent has just one child who watches Sesame Street. Each parent has a private incentive to contribute ______ during the pledge drive. A) $0 B) $100 C) $10,000 D) $1,000,000

96) Assume that each day 10,000 children watch Sesame Street on public television and that watching Sesame Street generates a benefit of $100 per child per year. Once a year, public television hold a pledge drive asking viewers to make voluntary contributions in order to keep the programming available to everyone. If public television stations collect less than $100 per child during the pledge drive, then this is evidence A) that the government should not subsidize public television. B) that parents do not care about their children. C) of the free-rider problem. D) that head taxes are regressive.

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97) One disadvantage of using the government to provide pure public goods is that everyone receives ______ of the public good and has ______ for the public good. A) a different amount; a different reservation price B) a different amount; the same reservation price C) the same amount; a different reservation price D) the same amount; the same reservation price

98) Citizens of Tinytown are considering building a new park. If each voter in Tinytown has a reservation price that is less than the total cost of the park, then A) the benefit of the park is less than the cost of the park, so the park should not be built. B) some sort of collective action by voters will be necessary to fund the park. C) a private firm will have an incentive to build the park. D) the park will never be built.

99) There are 100 residents in the City of Mos Eisley. Each resident’s willingness to pay for an additional acre of parkland ( P) depends on the number of acres the City already has ( Q) and is given by P = 20 − 0.10 Q. If parkland is a public good, and the cost of each acre of parkland is constant and equal to $500, then what is the socially optimal number of acres of parkland in Mos Eisley? A) 520 acres B) 185 acres C) 150 acres D) 0 acres

100) There are 100 residents in the City of Mos Eisley. Each resident’s willingness to pay for an additional acre of parkland ( P) depends on the number of acres the City already has ( Q) and is given by P = 50 − 0.2 Q. If parkland is a public good, and the cost of each acre of parkland is constant and equal to $400, then what is the socially optimal number of acres of parkland in Mos Eisley?

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A) 230 acres B) 0 acres C) 150 acres D) 450 acres

101) Hannah, Lucas, and Eli are the only three residents of the village of Fantasma. They are considering whether to construct a hiking trail in the mountains surrounding the village. Because congestion on the trail is unlikely, it would be nonrival. Hannah values the trail at $300 per month, Lucas values the trail at $100 per month, and Eli values the trail at $80 per month. The cost of building and maintaining the trail is $420 per month. Given this information, it is A) socially optimal to build the trail. B) not socially optimal to build the trail. C) only socially optimal to build the trail if the majority of voters are in favor. D) not socially optimal to build the trail if it is paid for through taxes.

102) Hanna, Lucas, and Eli are the only three residents of the village of Fantasma. They are considering whether to construct a hiking trail in the mountains surrounding the village. Because congestion on the trail is unlikely, it would be nonrival. Hannah values the trail at $300 per month, Lucas values the trail at $100 per month, and Eli values the trail at $80 per month. The cost of building and maintaining the trail is $420 per month. If Hannah proposes a tax whereby all three of them split the cost of the trail equally, then will the majority of them support this tax? A) No, because building the trail is not socially optimal. B) No, even though building the trail is socially optimal. C) Yes, even though building the trail is not socially optimal. D) Yes, because building the trail is socially optimal.

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103) If a boxing fight is shown on pay-per-view television every Saturday at 4 p.m., the demand curve for each fight is given in the accompanying graph.

If viewing a fight were free to anyone who tuned in, total economic surplus would be ______. A) $25 million B) $50 million C) $225 million D) $625 million

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104) If a boxing fight is shown on pay-per-view television every Saturday at 4 p.m., the demand curve for each fight is given in the accompanying graph.

If the regulated pay-per-view charge to watch a fight were $5 per household, then what would be the loss in total economic surplus relative to when there is no charge to watch the fight? A) $25 million B) $50 million C) $225 million D) $625 million

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105) If a boxing fight is shown on pay-per-view television every Saturday at 4 p.m., the demand curve for each fight is given in the accompanying graph.

If the regulated pay-per-view charge to watch a fight were $15 per household, then ______ households would watch the fight, and the loss is total economic surplus would be ______ relative to when there is no charge to watch the fight. A) 10 million; $25 million B) 20 million; $225 million C) 20 million; $25 million D) 10 million; $225 million

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106) If a boxing fight is shown on pay-per-view television every Saturday at 4 p.m., the demand curve for each fight is given in the accompanying graph.

If there is a pay-per-view charge to watch a fight, the outcome is ______ because ______. A) efficient; prices will allocate the program to those who value it the most B) efficient; the marginal cost of an additional viewing household is zero C) inefficient; the marginal cost of an additional viewing household is zero D) inefficient; television stations would not always make a profit

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107) If the popular television show The Bachelor is shown on pay-per-view television every Monday at 9 p.m., then the demand curve for each episode is given in the accompanying graph.

If each episode were shown for free, total economic surplus would be ______. A) $4,000 million B) $2,000 million C) $1,280 million D) $720 million

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108) If the popular television show The Bachelor is shown on pay-per-view television every Monday at 9 p.m., then the demand curve for each episode is given in the accompanying graph.

If the regulated pay-per-view charge were $30 per household, what would be the loss in total economic surplus relative to when there is no charge to watch an episode? A) $4,000 million B) $2,000 million C) $1,280 million D) $720 million

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109) If the popular television show The Bachelor is shown on pay-per-view television every Monday at 9 p.m., then the demand curve for each episode is given in the accompanying graph.

If the regulated pay-per-view charge is decreased from $20 to $0 per household, what would be the gain in total economic surplus? A) $4,000 million B) $320 million C) $1,280 million D) $720 million

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110) If the popular television show The Bachelor is shown on pay-per-view television every Monday at 9 p.m., then the demand curve for each episode is given in the accompanying graph.

Given that the marginal cost of showing an episode to an additional household is $0 A) the pay-per-view channel’s economic profit will be zero. B) the pay-per-view channel will maximize its profit by charging $0 for each episode. C) more than the socially optimal number of households will watch each episode D) fewer than the socially optimal number of households will watch each episode.

111)

The development of pay-per-view technology A) converted a collective good into a private good. B) allows consumers to see movies that were previously unavailable for several years. C) converted a pure public good into a collective good. D) has made all consumers worse off.

112) An Internet site that maintains a database of product reviews that anyone can access and that has advertisement banners is

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A) a private good. B) a privately provided public good. C) a government provided public good. D) a privately provided collective good.

113) Will and Grace have adjoining unfenced back yards, and each has just adopted a new puppy. Will values a fence between their yards at $250 and Grace values a fence between their yards at $200. The cost of building the fence is $300, which will be split equally if they both agree to build the fence. Therefore, their payoff matrix is as follows. If Will decides to build the fence, then Grace will earn a higher payoff by ______, and if Will decides to not build the fence, then Grace will earn a higher payoff by ______. Will Grace

Build Not build

Build $50 for Grace $100 for Will $200 for Grace −$50 for Will

Not build −$100 for Grace $250 for Will $0 for Grace $0 for Will

A) not helping to build the fence, building the fence B) helping to build the fence; also not building the fence C) helping to build the fence; building the fence D) not helping to build the fence; also not building the fence

114) Will and Grace have adjoining unfenced back yards, and each has just adopted a new puppy. Will values a fence between their yards at $250 and Grace values a fence between their yards at $200. The cost of building the fence is $300, which will be split equally if they both agree to build the fence. Therefore, their payoff matrix is as follows. Will Grace

Build Not

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Build $50 for Grace $100 for Will $200 for Grace

Not build −$100 for Grace $250 for Will $0 for Grace

build

−$50 for Will

$0 for Will

Will's dominant strategy in this game is to A) build the fence. B) help build the fence if he sees Grace building the fence. C) not build the fence. D) alternate between building the fence and not building the fence.

115) Will and Grace have adjoining unfenced back yards, and each has just adopted a new puppy. Will values a fence between their yards at $250 and Grace values a fence between their yards at $200. The cost of building the fence is $300, which will be split equally if they both agree to build the fence. Therefore, their payoff matrix is as follows. Will Grace

Build Not build

Build $50 for Grace $100 for Will $200 for Grace −$50 for Will

Not build −$100 for Grace $250 for Will $0 for Grace $0 for Will

In the Nash equilibrium of this game A) Will and Grace will both build the fence and split the cost. B) Will will build the fence by himself. C) the fence will be built, but it is uncertain who will build it. D) no fence will be built.

116) Will and Grace have adjoining unfenced back yards, and each has just adopted a new puppy. Will values a fence between their yards at $250 and Grace values a fence between their yards at $200. The cost of building the fence is $300, which will be split equally if they both agree to build the fence. Therefore, their payoff matrix is as follows. Will Build

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Not build

Grace

Build Not build

$50 for Grace $100 for Will $200 for Grace −$50 for Will

−$100 for Grace $250 for Will $0 for Grace $0 for Will

This game is a(n) ______ because ______. A) tragedy of the commons; the back yard is treated as a common area by the puppies. B) prisoner’s dilemma; by playing their dominant strategy, both Will and Grace do worse than if they had both played their dominated strategy. C) example of logrolling; both neighbors need to cooperate to provide the good. D) inequitable situation; Grace does not value a fence as highly as does Will.

117)

The problems of externalities and poorly formed property rights are A) minor in modern economies. B) among several rationales for the existence of government. C) better solved by private rather than government action. D) the only two legitimate reasons for creating government.

118)

Beyond the provision of public goods, government exists to address A) national defense. B) the problem of declining moral values. C) limiting personal freedom. D) externalities and property rights.

119) The presence of an unregulated negative externality means that the unregulated market equilibrium quantity is

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A) efficient. B) smaller than is optimal. C) larger than is optimal. D) greater than demand.

120)

The government subsidizes education because A) it is a pure public good. B) private firms will not provide education. C) the government can provide a better education than can private firms. D) education is thought to have positive externalities.

121)

When a negative externality is present in a market, the government should A) always intervene. B) intervene it if the public supports doing so. C) never intervene. D) intervene if the benefit of doing so exceeds the cost.

122)

The most appropriate level of government to provide public goods is A) local. B) state. C) dependent on the specific public good in question. D) federal.

123)

One justification for the creation of a federal level of government is

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A) the ability to deficit spend. B) economies of scale in the provision of military defense. C) to encourage local diversity in the types of public goods provided. D) greater responsiveness to the will of the voters.

124) If one state is suffering from acid rain as a result of sulfur dioxide emissions from the industries in a neighboring state, then A) the individual states can easily reach a solution to the problem. B) the problem is best addressed through federal regulation. C) state courts can provide adequate remedies. D) the acid rain ceases to be an externality.

125) It will be difficult to find a solution to the problems caused by greenhouse gas emissions because A) the scientific evidence on the negative effects of greenhouse gas emissions is weak. B) voters are not aware of the problems caused by greenhouse gas emissions. C) an international political organization would be necessary to enforce a solution. D) the technology to reduce greenhouse gas emissions is undeveloped.

126)

Pork barrel programs are government programs that A) benefit agriculture. B) increase total economic surplus but lack political support. C) benefit industry. D) benefit local areas but are of questionable value from a national perspective.

127)

Logrolling refers to

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A) legislation that affects the timber industry. B) the practice whereby legislators support each other's pork barrel spending. C) the practice of introducing many similar bills in hopes that one of the versions will pass. D) the practice of attaching a controversial bill to a large appropriations bill.

128) There are 10 states in the democratic nation of Katlandia, and each state has 10,000 residents. Although incomes vary, each Katlandian pays a tax equal to the total cost of all government projects divided by the number of residents in the country. Currently, two states each have one army base. An army base adds $2 million to a state’s local economy each year. In addition, in terms of increased security, the annual marginal benefit to Katlandia of having an additional army base is shown in the accompanying graph. The total cost of an army base is $8 million per year.

Taxes in Katlandia are A) regressive. B) based on each resident’s willingness to pay. C) proportional. D) progressive.

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129) There are 10 states in the democratic nation of Katlandia, and each state has 10,000 residents. Although incomes vary, each Katlandian pays a tax equal to the total cost of all government projects divided by the number of residents in the country. Currently, two states each have one army base. An army base adds $2 million to a state’s local economy each year. In addition, in terms of increased security, the annual marginal benefit to Katlandia of having an additional army base is shown in the accompanying graph. The total cost of an army base is $8 million per year.

The marginal benefit of adding a third army base equals the local marginal benefit of $2 million plus the marginal benefit to Katlandia of ______. A) $0 B) $1 million C) $3 million D) $22.5 million

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130) There are 10 states in the democratic nation of Katlandia, and each state has 10,000 residents. Although incomes vary, each Katlandian pays a tax equal to the total cost of all government projects divided by the number of residents in the country. Currently, two states each have one army base. An army base adds $2 million to a state’s local economy each year. In addition, in terms of increased security, the annual marginal benefit to Katlandia of having an additional army base is shown in the accompanying graph. The total cost of an army base is $8 million per year.

It is socially optimal for Katlandia to have A) one army base. B) two army bases. C) three army bases. D) four army bases.

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131) There are 10 states in the democratic nation of Katlandia, and each state has 10,000 residents. Although incomes vary, each Katlandian pays a tax equal to the total cost of all government projects divided by the number of residents in the country. Currently, two states each have one army base. An army base adds $2 million to a state’s local economy each year. In addition, in terms of increased security, the annual marginal benefit to Katlandia of having an additional army base is shown in the accompanying graph. The total cost of an army base is $8 million per year.

If Katlandia builds a third army base, the country will have A) the efficient number of bases. B) more than the efficient number of bases. C) fewer than the efficient number of bases. D) more bases than they can afford.

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132) There are 10 states in the democratic nation of Katlandia, and each state has 10,000 residents. Although incomes vary, each Katlandian pays a tax equal to the total cost of all government projects divided by the number of residents in the country. Currently, two states each have one army base. An army base adds $2 million to a state’s local economy each year. In addition, in terms of increased security, the annual marginal benefit to Katlandia of having an additional army base is shown in the accompanying graph. The total cost of an army base is $8 million per year.

Suppose the department of defense proposes to build a third base in the state of New Porkswick. Apart from the value of the additional security to the nation, the state economy will benefit by ______ per resident, and each resident's taxes will increase by ______. A) $200; $800 B) $20; $800 C) $200; $80 D) $20; $80

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133) There are 10 states in the democratic nation of Katlandia, and each state has 10,000 residents. Although incomes vary, each Katlandian pays a tax equal to the total cost of all government projects divided by the number of residents in the country. Currently, two states each have one army base. An army base adds $2 million to a state’s local economy each year. In addition, in terms of increased security, the annual marginal benefit to Katlandia of having an additional army base is shown in the accompanying graph. The total cost of an army base is $8 million per year.

Suppose the department of defense proposes to build a third base in the state of New Porkswick. The state representative from New Porkswick will _____ this proposal because ______. A) not support; it is not socially optimal for Katlandia to have a third army base. B) support; it is socially optimal for Katlandia to have a third army base. C) not support; the benefits to his or her constituents would be smaller than the resulting increase in taxes. D) support; the benefits to his or her constituents would outweigh the resulting increase in taxes.

134)

The combination of pork barrel spending and logrolling leads to

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A) inefficiently large government spending. B) the largest net benefit for society. C) the quick termination of projects that are wasteful. D) under provision of public goods.

135)

The socially unproductive efforts of people or firms to win a prize is called A) rent-seeking. B) the winner's curse. C) logrolling. D) crowding out.

136) Consider a laboratory experiment in which subjects are given the chance to bid on a $20 bill. The initial bid must be at least 50 cents, and each succeeding bid must exceed the previous bid by 50 cents. The rules of the auction specify that when the bidding ceases, the $20 bill will be given to the top bidder, and both the highest bidder and the second highest bidder must pay their final bid. In experimental settings such as this, researchers have found that A) the sum of the top two bids is typically less than $20. B) no one wants to participate in the auction. C) the sum of the top two bids typically exceeds $20. D) the top bid is exactly $20.

137) MegaCable and Acme are competing for an exclusive contract to provide the city of Dustin with cable television for the next year. The firm that wins the contract will earn an economic profit of $5 million. The contact will be awarded to the firm that spends the most on lobbying. If both firms spend the same amount on lobbying, then the winner will be determined by a coin flip, so each will have a 50 percent chance of winning. If both firms refrain from spending anything on lobbying, the expected profit from the contract is

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A) $5 million. B) $2.5 million. C) $2 million. D) $1 million.

138) MegaCable and Acme are competing for an exclusive contract to provide the city of Dustin with cable television for the next year. The firm that wins the contract will earn an economic profit of $5 million. The contact will be awarded to the firm that spends the most on lobbying. If both firms spend the same amount on lobbying, then the winner will be determined by a coin flip, so each will have a 50 percent chance of winning. Suppose MegaCable spends $2 on lobbying, and Acme spends $1 on lobbying. In this case, MegaCable’s economic profit net of its lobbying costs will be ______, and Acme’s economic profit net of its lobbying costs will be ______. A) $4,999,998; −$1 B) $5 million; −$1 C) $2.5 million; $2.5 million D) 0; $5 million

139) MegaCable and Acme are competing for an exclusive contract to provide the city of Dustin with cable television for the next year. The firm that wins the contract will earn an economic profit of $5 million. The contact will be awarded to the firm that spends the most on lobbying. If both firms spend the same amount on lobbying, then the winner will be determined by a coin flip, so each will have a 50 percent chance of winning. Suppose MegaCable spends $2,000,002 on lobbying, and Acme spends $2,000,001 on lobbying. In this case, MegaCable’s economic profit net of its lobbying costs will be ______, and Acme’s economic profit net of its lobbying costs will be ______.

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A) $5 million; 0 B) $2,999,998; −$2,000,001 C) $2.5 million; $2.5 million D) $499,998; −$2,000,001

140) MegaCable and Acme are competing for an exclusive contract to provide the city of Dustin with cable television for the next year. The firm that wins the contract will earn an economic profit of $5 million. The contact will be awarded to the firm that spends the most on lobbying. If both firms spend the same amount on lobbying, then the winner will be determined by a coin flip, so each will have a 50 percent chance of winning. The socially optimal amount for each firm to spend on lobbying is ______. A) $0 B) $2,500,000 C) $5,000,000 D) $10,000,000

141) The accompanying table shows the marginal benefit and marginal cost of purchasing an additional unit of three different public goods. Marginal benefit

Marginal cost

Total spending on the public good

Public good 1

$ 20

$ 1,500

Public good 2

800

Public good 3

700

The government is spending more than is socially optimal on A) public good 1. B) public good 2. C) public good 3. D) public good 1 and public good 2.

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142) The accompanying table shows the marginal benefit and marginal cost of purchasing an additional unit of three different public goods. Marginal benefit

Marginal cost

Total spending on the public good

Public good 1

$ 20

$ 1,500

Public good 2

800

Public good 3

700

The government is spending the socially optimal amount on A) public good 1. B) public good 2. C) public good 3. D) public good 1 and public good 2.

143) The accompanying table shows the marginal benefit and marginal cost of purchasing an additional unit of 3 different public goods. Marginal benefit

Marginal cost

Total spending on the public good

Public good 1

$ 20

$ 1,500

Public good 2

800

Public good 3

700

Total economic surplus could be increased by reallocating total spending away from A) public good 2 toward public good 3. B) public good 3 toward public good 1. C) public good 2 toward public good 1. D) public good 1 toward public good 3.

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144) When private firms reduce investment because of the increase in interest rates brought about by government borrowing it is termed A) logrolling. B) crowding out. C) monetary policy. D) rent seeking.

145) Even if a tax imposed in a market generates a loss in surplus for the participants in that market, the tax could still increase economic efficiency if A) voters approve of the tax. B) the government needs to generate tax revenue. C) the public expenditures financed by the tax lead to a big enough increase in economic surplus. D) the tax revenue is used to fund spending by local governments.

146)

If a tax imposed in a market generates deadweight in that market, then the tax A) will necessarily lower economic surplus. B) could still increase economic surplus, depending on how the tax revenue is spent. C) will never be approved by voters. D) will generate very little tax revenue.

147) When the federal government borrows money, the resulting ______ in interest rates will lead private investment to ______. A) decrease; rise B) decrease; fall C) increase; rise D) increase; fall

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148)

Some people oppose deficit spending because it A) promotes logrolling. B) crowds out private investment. C) leads to rent seeking. D) violates the cost-benefit principle.

149)

The deadweight loss from taxing a good will be smaller for goods A) whose supply and demand curves are more inelastic. B) whose supply and demand curves are more elastic. C) that are relatively expensive. D) that are consumed by a large fraction of the population.

150) If low-income households spend a larger share of their income on food than do highincome households, then a tax on food is A) a progressive tax. B) a regressive tax. C) a proportional tax. D) a way to redistribute from the wealthy to the poor.

151) The taxing agency in your state would like to impose a sales tax in a way that minimizes deadweight loss. To achieve this goal, it should tax A) goods that are relatively inexpensive. B) all goods equally. C) goods whose supply and demand curves are relatively inelastic. D) goods but not services.

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152)

The government can raise tax revenue and increase total economic surplus by taxing A) goods that generate positive externalities. B) goods that generate negative externalities. C) luxury goods that are primarily consumed by wealthy individuals. D) goods whose supply and demand curves are highly elastic.

153)

The negative effect of a tax on the economic surplus of participants in a market should A) be enough to convince the government that the tax is a bad idea. B) be weighed against the potential benefits of the public goods financed by the tax. C) ensure that the tax will never be approved by voters. D) be ignored if the government needs to generate tax revenue.

154)

If the government taxes a good that generates a negative externality, then the government A) will generate tax revenue, but lower economic surplus. B) can increase total economic surplus, but tax revenue will fall. C) can increase total economic surplus and generate tax revenue. D) will neither increase total economic surplus nor generate tax revenue.

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Answer Key Test name: Chap 14_8e_Frank 1) D 2) C 3) A 4) B 5) A 6) D 7) B 8) C 9) A 10) C 11) B 12) B 13) A 14) A 15) C 16) D 17) D 18) C 19) B 20) B 21) D 22) C 23) B 24) D 25) D 26) C Version 1

27) D 28) D 29) B 30) C 31) A 32) A 33) C 34) D 35) B 36) B 37) A 38) C 39) D 40) A 41) B 42) B 43) A 44) C 45) A 46) C 47) D 48) D 49) A 50) B 51) A 52) B 53) D 54) B 55) D 56) C Version 1

57) A 58) D 59) C 60) B 61) D 62) C 63) D 64) C 65) A 66) B 67) B 68) A 69) D 70) D 71) C 72) B 73) B 74) D 75) B 76) D 77) D 78) A 79) B 80) D 81) D 82) B 83) C 84) A 85) D 86) B Version 1

87) A 88) B 89) A 90) D 91) C 92) B 93) D 94) D 95) A 96) C 97) C 98) B 99) C 100) A 101) A 102) B 103) D 104) A 105) B 106) C 107) B 108) D 109) B 110) D 111) C 112) B 113) D 114) C 115) D 116) B Version 1

117) B 118) D 119) C 120) D 121) D 122) C 123) B 124) B 125) C 126) D 127) B 128) A 129) C 130) B 131) B 132) C 133) D 134) A 135) A 136) C 137) B 138) A 139) B 140) C 141) B 142) A 143) A 144) B 145) C 146) B Version 1

147) B 148) B 149) A 150) B 151) C 152) B 153) B 154) C

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CHAPTER 15 1)

A society could achieve a higher level of production if A) each person in the society is a jack-of-all trades. B) each person specializes according to their comparative advantage. C) it does not trade with other nations. D) it does not have taxes on imported goods.

2) In general, a nation can enjoy a higher standard of living by ______ than by being selfsufficient. A) increasing its versatility B) avoiding trade with other nations C) specialization and trading D) taxing imported goods

An economy that does NOT trade with the rest of the world is a(n),: A) open economy. B) command economy. C) trade economy. D) closed economy.

If Fredonia has a closed economy, it _____ with other countries. A) trades B) does not trade C) prevents its citizens from traveling to other countries but trades D) does not negotiate

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An economy that trades with the rest of the world is a(n) A) open economy. B) command economy. C) trade economy. D) closed economy.

If Atlantis has an open economy, then it A) trades with other countries. B) does not trade with other countries. C) has a democratically elected government. D) allows imports but not exports.

7) The production possibility curve (PPC) shows the _____ production of one good for ______ production level of the other good. A) minimum; every possible B) maximum; every possible C) minimum; the maximum D) maximum; the minimum

8) An economy has two workers, Paula and Ricardo. Every day they work, Paula can produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12 shirts. What is the opportunity cost for Paula to produce one computer? A) 1/4 shirt B) 1/2 shirt C) 1 shirt D) 4 shirts

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9) An economy has two workers, Paula and Ricardo. Every day they work, Paula can produce 5 computers or 15 shirts, and Ricardo can produce 6 computers or 21 shirts. What is the opportunity cost for Paula to produce one computer? A) 3.5 shirts B) 1/3 of a shirt C) 3 shirts D) 2/7 of a shirt

10) An economy has two workers, Paula and Ricardo. Every day they work, Paula can produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12 shirts. What is the opportunity cost for Ricardo to produce one computer? A) 1/4 of a shirt B) 1/2 of a shirt C) 2 shirts D) 4 shirts

11) An economy has two workers, Paula and Ricardo. Every day they work, Paula can produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12 shirts. What is the opportunity cost for Paula to produce one shirt? A) 1/4 of a computer B) 1/2 of a computer C) 2 computers D) 4 computers

12) An economy has two workers, Paula and Ricardo. Every day they work, Paula can produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12 shirts. What is the opportunity cost for Ricardo to produce one shirt?

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A) 1/4 of a computer B) 1/2 of a computer C) 2 computers D) 4 computers

13) An economy has two workers, Paula and Ricardo. Every day they work, Paula can produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12 shirts. ________ has the comparative advantage in computers and _______ has the comparative advantage in shirts. A) Paula; Paula B) Paula; Ricardo C) Ricardo; Paula D) Ricardo; Ricardo

14) An economy has two workers, Paula and Ricardo. Every day they work, Paula can produce 4 computers or 12 shirts, and Ricardo can produce 8 computers or 10 shirts. ________ has the comparative advantage in computers and _______ has the comparative advantage in shirts. A) Ricardo; Paula B) Paula; Paula C) Paula; Ricardo D) Ricardo; Ricardo

15) An economy has two workers, Paula and Ricardo. Every day they work, Paula can produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12 shirts. To maximize total output, Paula should specialize in producing _____ while Ricardo should specialize in producing _______.

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A) computers; shirts B) shirts; computers C) computers; computers D) shirts; shirts

16) An economy has two workers, Paula and Ricardo. Every day they work, Paula can produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12 shirts. What is the most of each good that can be produced each day if each worker fully specializes according to his/her comparative advantage? A) 4 computers and 12 shirts. B) 5 computers and 14 shirts C) 6 computers and 16 shirts D) 8 computers and 22 shirts

17) An economy has two workers, Paula and Ricardo. Every day they work, Paula can produce 8 computers or 10 shirts, and Ricardo can produce 4 computers or 12 shirts. What is the most of each good that can be produced each day if each worker fully specializes according to his/her comparative advantage? A) 10 computers and 16 shirts B) 8 computers and 12 shirts C) 6 computers and 8 shirts D) 4 computers and 10 shirts.

18) An economy has two workers, Jen and Rich. Every day they work, Jen can produce 2 TVs or 10 radios, and Rich can produce 4 TVs or 12 radios. What is the opportunity cost for Jen to produce one TV?

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A) 1/5 of a radio B) 1/3 of a radio C) 5 radios D) 10 radios

19) An economy has two workers, Jen and Rich. Every day they work, Jen can produce 2 TVs or 10 radios, and Rich can produce 4 TVs or 12 radios. What is the opportunity cost for Rich to produce one TV? A) 1/5 of a radio B) 1/3 of a radio C) 3 radios D) 12 radios

20) An economy has two workers, Jen and Rich. Every day they work, Jen can produce 2 TVs or 10 radios, and Rich can produce 4 TVs or 12 radios. What is the opportunity cost for Jen to produce one radio? A) 1/10 of a TV B) 1/5 of a TV C) 5 TVs D) 10 TVs

21) An economy has two workers, Jen and Rich. Every day they work, Jen can produce 2 TVs or 10 radios, and Rich can produce 4 TVs or 12 radios. What is the opportunity cost for Rich to produce one radio? A) 1/12 of a TV B) 1/6 of a TV C) 1/3 of a TV D) 4 TVs

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22) An economy has two workers, Jen and Rich. Every day they work, Jen can produce 2 TVs or 10 radios, and Rich can produce 4 TVs or 12 radios. _______ has the comparative advantage in TVs and _______ has the comparative advantage in radios. A) Jen; Jen B) Rich; Rich C) Jen; Rich D) Rich; Jen

23) An economy has two workers, Jen and Rich. Every day they work, Jen can produce 2 TVs or 10 radios, and Rich can produce 4 TVs or 12 radios. To maximize total output, Jen should specialize in producing _____ while Rich should specialize in producing _______. A) TVs; radios B) TVs; TVs C) radios; TVs D) radios; both goods

24) An economy has two workers, Jen and Rich. Every day they work, Jen can produce 2 TVs or 10 radios, and Rich can produce 4 TVs or 12 radios. What is the most of each type that can be produced per day if each worker fully specializes according to his/her comparative advantage? A) 2 TVs and 6 radios B) 3 TVs and 8 radios C) 4 TVs and 10 radios D) 5 TVs and 12 radios

25) Tamara can produce either 5,000 pounds of cheese or 20 cars per year. Jamal can produce either 5,000 pounds of cheese or 10 cars per year. Tamara's opportunity cost of producing one car is _____ pounds of cheese. Version 1

A) 1/250 B) 1/20 C) 20 D) 250

26) Tamara can produce either 5,000 pounds of cheese or 20 cars per year. Jamal can produce either 5,000 pounds of cheese or 10 cars per year. Tamara's opportunity cost of producing one pound of cheese is ______ car(s). A) 1/250 B) 1/20 C) 20 D) 250

27) Tamara can produce either 5,000 pounds of cheese or 20 cars per year. Jamal can produce either 5,000 pounds of cheese or 10 cars per year. Jamal's opportunity cost of producing one pound of cheese is ______ car(s). A) 1/500 B) 1/250 C) 1/10 D) 500

28) Tamara can produce either 5,000 pounds of cheese or 20 cars per year. Jamal can produce either 5,000 pounds of cheese or 10 cars per year. Jamal's opportunity cost of producing one car is ______ pound(s) of cheese. A) 1/250 B) 1/20 C) 250 D) 500

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29) Tamara can produce either 5,000 pounds of cheese or 20 cars per year. Jamal can produce either 5,000 pounds of cheese or 10 cars per year. Tamara has a comparative advantage in producing _____, and Jamal has a comparative advantage in producing ______. A) cars; cars B) cars; cheese C) cheese; cars D) cheese; cheese

30) Tamara can produce either 5,000 pounds of cheese or 20 cars per year. Jamal can produce either 5,000 pounds of cheese or 10 cars per year. By the principle of comparative advantage, Tamara should specialize in producing A) both cheese and cars. B) cheese. C) cars. D) neither cheese nor cars.

31) Tamara can produce either 5,000 pounds of cheese or 20 cars per year. Jamal can produce either 5,000 pounds of cheese or 10 cars per year. By the principle of comparative advantage, Jamal should specialize in producing A) both cheese and cars. B) cheese. C) cars. D) neither cheese nor cars.

32) Tamara can produce either 5,000 pounds of cheese or 20 cars per year. Jamal can produce either 5,000 pounds of cheese or 10 cars per year. If both Tamara and Jamal produce the good in which they have comparative advantage, the total annual output of this economy will be

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A) 10,000 pounds of cheese. B) 30 cars. C) 10,000 pounds of cheese and 30 cars. D) 5,000 pounds of cheese and 20 cars.

33) The accompanying graph is the production possibility curve for a three-person economy, with workers Janna, Drew, and Kari.

Who has the greatest comparative advantage in shoe production? A) Janna B) Drew C) Kari D) None of them

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34) The accompanying graph is the production possibility curve for a three-person economy, with workers Janna, Drew, and Kari.

Who has the greatest comparative advantage in rice production? A) Janna B) Drew C) Kari D) None of them

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35) The accompanying graph is the production possibility curve for a three-person economy, with workers Janna, Drew, and Karl.

The slope of the PPC between points X and Y is determined by _____ opportunity cost. A) Janna’s B) Drew’s C) Kari’s D) Janna and Drew’s

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36) The accompanying graph is the production possibility curve for a three-person economy, with workers Janna, Drew, and Karl.

The slope of the PPC between points Y and Z is determined by _____ opportunity cost. A) Janna’s B) Drew’s C) Kari’s D) Janna and Drew’s

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37) The accompanying graph is the production possibility curve for a three-person economy, with workers Janna, Drew, and Karl.

Who has the highest opportunity cost of producing rice? A) Janna B) Drew C) Kari D) Janna and Drew

38)

A country's economic welfare most directly depends on A) what it can produce. B) what its citizens can consume. C) how many goods and services it imports. D) how many goods and services it exports.

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39) The combination of goods and services Mexico's citizens might feasibly consume are called Mexico's A) total consumption. B) total production. C) production possibilities. D) consumption possibilities.

40) If a society's consumption possibilities are identical to its production possibilities that society has A) a closed economy. B) an open economy. C) a two-person economy. D) a free trade policy.

41) The country Happy Land claims that it is producing everything its citizens consume. This situation is called A) a closed economy. B) an open economy. C) protectionism. D) autarky.

42)

Citizens can consume more of everything in a(n) A) autarky. B) closed economy. C) open economy. D) economy with many citizens.

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43)

Autarky is a situation in which a country is economically A) dependent on trade. B) self-sufficient. C) underdeveloped. D) destroyed.

44) In an open economy, a society's consumption possibilities are typically ____ its production possibilities. A) less than B) equal to C) unrelated to D) greater than

45) If the United States consumption possibilities are greater than its production possibilities, then the United States must have A) a closed economy. B) an open economy. C) autarky. D) protectionism.

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46) The accompanying graph shows the production possibilities curve for the economy with only two members, Selena and Arturo. Selena can produce either 50 pounds of beef or 2 computers per week, and Arturo can produce 100 pounds of beef or 1 computer per week. Both of them work 40 weeks per year.

If both Arturo and Selena worked full-time producing beef, how many pounds of beef can they produce per year? A) 2,000 pounds B) 4,000 pounds C) 6,000 pounds D) 8,000 pounds

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47) The accompanying graph shows the production possibilities curve for the economy with only two members, Selena and Arturo. Selena can produce either 50 pounds of beef or 2 computers per week, and Arturo can produce 100 pounds of beef or 1 computer per week. Both of them work 40 weeks per year.

Selena’s opportunity cost of producing one computer is _____ pounds of beef. A) 1/50 B) 1/25 C) 25 D) 50

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48) The accompanying graph shows the production possibilities curve for the economy with only two members, Selena and Arturo. Selena can produce either 50 pounds of beef or 2 computers per week, and Arturo can produce 100 pounds of beef or 1 computer per week. Both of them work 40 weeks per year.

Arturo’s opportunity cost of producing one computer is _____ pounds of beef. A) 1/50 B) 1/100 C) 50 D) 100

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49) The accompanying graph shows the production possibilities curve for the economy with only two members, Selena and Arturo. Selena can produce either 50 pounds of beef or 2 computers per week, and Arturo can produce 100 pounds of beef or 1 computer per week. Both of them work 40 weeks per year.

Selena’s opportunity cost of producing one pound of beef is _____. A) 1/50 of a computer B) 1/25 of a computer C) 25 computers D) 50 computers

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50) The accompanying graph shows the production possibilities curve for the economy with only two members, Selena and Arturo. Selena can produce either 50 pounds of beef or 2 computers per week, and Arturo can produce 100 pounds of beef or 1 computer per week. Both of them work 40 weeks per year.

Arturo’s opportunity cost of producing one pound of beef is _____. A) 1/100 of a computer B) 1/50 of a computer C) 50 computers D) 100 computers

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51) The accompanying graph shows the production possibilities curve for the economy with only two members, Selena and Arturo. Selena can produce either 50 pounds of beef or 2 computers per week, and Arturo can produce 100 pounds of beef or 1 computer per week. Both of them work 40 weeks per year.

Selena has a comparative advantage in producing ____, and Arturo has a comparative advantage in producing ____. A) beef; beef B) beef; computers C) computers; beef D) computers; computers

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52) The accompanying graph shows the production possibilities curve for the economy with only two members, Selena and Arturo. Selena can produce either 50 pounds of beef or 2 computers per week, and Arturo can produce 100 pounds of beef or 1 computer per week. Both of them work 40 weeks per year.

How much of each good is produced if each worker fully specializes according to comparative advantage? A) 8,000 pounds of beef and 120 computers B) 6,000 pounds of beef and 160 computers C) 4,000 pounds of beef and 80 computers D) 6,000 pounds of beef and 120 computers

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53) The accompanying graph shows the production possibilities curve for the economy with only two members, Selena and Arturo. Selena can produce either 50 pounds of beef or 2 computers per week, and Arturo can produce 100 pounds of beef or 1 computer per week. Both of them work 40 weeks per year.

If this country has an open economy, Selena and Arturo can get _____ pounds of beef in exchange of a computer. A) 25 B) 50 C) 80 D) 120

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54) The accompanying graph shows the production possibilities curve for the economy with only two members, Selena and Arturo. Selena can produce either 50 pounds of beef or 2 computers per week, and Arturo can produce 100 pounds of beef or 1 computer per week. Both of them work 40 weeks per year.

With the opportunity to trade, Selena can trade all the computers she can produce per year if she specializes in producing computers, for _____ pounds of beef. A) 2,000 B) 3,000 C) 4,000 D) 6,000

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55) The accompanying graph shows the production possibilities curve for the economy with only two members, Selena and Arturo. Selena can produce either 50 pounds of beef or 2 computers per week, and Arturo can produce 100 pounds of beef or 1 computer per week. Both of them work 40 weeks per year.

With the opportunity to trade Selena and Arturo can _____ the maximum consumption of computers by _____ units. A) decrease; 80 B) increase; 160 C) decrease; 160 D) increase; 40

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56) The accompanying graph shows the production possibilities curve for the economy with only two members, Selena and Arturo. Selena can produce either 50 pounds of beef or 2 computers per week, and Arturo can produce 100 pounds of beef or 1 computer per week. Both of them work 40 weeks per year.

With the open trade economy, Selena and Arturo can consume any combination of beef and computers from the line: A) XY. B) PQ. C) XYZ. D) PY.

57) Lijuan and Jin live on an island where they are the only two workers. Lijuan can either catch 10 fish or gather 40 pounds of berries each day, and Jin can either catch 8 fish or gather 24 pounds of berries each day. Both of them work 200 days per year. At current world prices 1 fish trades for 3.5 pounds of berries. In a closed economy, who has the comparative advantage in catching fish?

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A) Lijuan and Jin B) Jin C) Lijuan D) Neither of them

58) Lijuan and Jin live on an island where they are the only two workers. Lijuan can either catch 10 fish or gather 40 pounds of berries each day, and Jin can either catch 8 fish or gather 24 pounds of berries each day. Both of them work 200 days per year. At current world prices 1 fish trades for 3.5 pounds of berries. Who has the comparative advantage in producing berries? A) Lijuan and Jin B) Jin C) Lijuan D) Neither of them

59) Lijuan and Jin live on an island where they are the only two workers. Lijuan can either catch 10 fish or gather 40 pounds of berries each day, and Jin can either catch 8 fish or gather 24 pounds of berries each day. Both of them work 200 days per year. At current world prices 1 fish trades for 3.5 pounds of berries. How much of each good can be produced if each worker fully specializes according to comparative advantage? A) 1,600 fish and 8,000 pounds of berries B) 2,000 fish and 8,000 pounds of berries C) 3,600 fish and 12,800 pounds of berries D) 1,600 fish and 4,800 pounds of berries

60) Lijuan and Jin live on an island where they are the only two workers. Lijuan can either catch 10 fish or gather 40 pounds of berries each day, and Jin can either catch 8 fish or gather 24 pounds of berries each day. Both of them work 200 days per year. At current world prices 1 fish trades for 3.5 pounds of berries. In a closed economy, if the citizens of this island consume 1,200 fish per year, how many pounds of berries can they consume?

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A) 12,800 pounds B) 9,200 pounds C) 8,000 pounds D) 4,800 pounds

61) Lijuan and Jin live on an island where they are the only two workers. Lijuan can either catch 10 fish or gather 40 pounds of berries each day, and Jin can either catch 8 fish or gather 24 pounds of berries each day. Both of them work 200 days per year. At current world prices 1 fish trades for 3.5 pounds of berries. If they open up to trade and the citizens of the island consumed 1,200 fish per year, how many pounds of berries can they consume every year? A) 12,800 pounds B) 9,400 pounds C) 9,200 pounds D) 8,000 pounds

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62) The accompanying figure shows the annual production possibilities curve for a small country that is open to trade with the rest of the world. Suppose the world price of cashews is $12 per pound, and the world price of mangos is $4 per pound. As indicated in the figure, at these prices, this country will produce 21,000 pounds of mangos and 5,000 pounds of cashews each year.

Suppose that the residents of this country are allergic to cashews and only want to consume mangos. Given that this country is open to trade with the rest of the world, how many mangos in total can its residents consume each year? A) 44,000 pounds B) 36,000 pounds C) 30,000 pounds D) 39,000 pounds

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63) The accompanying figure shows the annual production possibilities curve for a small country that is open to trade with the rest of the world. Suppose the world price of cashews is $12 per pound, and the world price of mangos is $4 per pound. As indicated in the figure, at these prices, this country will produce 21,000 pounds of mangos and 5,000 pounds of cashews each year.

At this country’s current level of production, what is the opportunity cost of a pound of mangos in terms of cashews? A) 1/3 pounds of cashews B) 3 pounds of cashews C) 5/21 pounds of cashews D) 21/5 pounds of cashews

64) In a many-worker economy the consumption possibilities line touches the production possibility curve A) at one point. B) at two points. C) at three points. D) at more than three points.

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65) of

The slope of a many-worker consumption possibilities is determined by the relative price

A) both goods in the domestic market. B) both goods in the world market. C) the good that is most in demand. D) the good that is least in demand.

66) Consider a many-worker economy with two goods. With access to international trade, a country can consume the greatest amount of both goods by producing at the point where the A) slope of production possibilities curve is equal to slope of consumption possibilities curve. B) consumption possibilities curve intersects the production possibility curve. C) slope of consumption possibilities curve is greater than the slope of the production possibility curve. D) production possibilities curve intersects the horizontal axis.

67) If the opportunity cost of producing a good domestically exceeds the opportunity cost of purchasing it on the world market, a country can gain by A) increasing production and decreasing imports. B) increasing production and decreasing exports. C) decreasing production and increasing exports. D) decreasing production and increasing imports.

68) If the opportunity cost of producing a good domestically is less than the opportunity cost of purchasing it on the world market, a country can gain by

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A) increasing production and decreasing imports. B) increasing production and decreasing exports. C) decreasing production and increasing exports. D) decreasing production and increasing imports.

69)

Refer to the accompanying graph.

The maximum amount of good A can be consumed in this economy without trade is A) F units. B) P units. C) G units. D) Q units.

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70)

Refer to the accompanying graph.

The maximum amount of good B that can be consumed in this economy with international trade is A) F units. B) P units. C) G units. D) Q units.

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71)

Refer to the accompanying graph.

FH is the_____, which tells us how much of good B must be exchanged on ________market to obtain an additional good A. A) production possibility curve; world B) production possibility curve; domestic C) consumption possibilities curve; world D) consumption possibilities curve; domestic

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72)

Refer to the accompanying graph.

With free trade, this country's citizens can consume the greatest amount of both good A and good B if the country produces at point A) F. B) G. C) H. D) P.

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73)

Refer to the accompanying graph.

If this country is producing between point G and Q, it will gain by ______ its production of good A and importing more _______. A) increasing; good B B) increasing; good A C) decreasing; good B D) decreasing; good A

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74)

Refer to the accompanying graph.

If this country is producing between point P and G, it will gain by ______ its production of good A and importing more _______. A) increasing; good B B) increasing; good A C) decreasing; good B D) decreasing; good A

75) The price at which a good or service is traded on international markets is called the ________ price. A) international B) world C) universal D) market

76)

The world price of a good is determined by the

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A) country that produces the good. B) supply of that good in the world market. C) demand for that good in the world market. D) worldwide demand and supply of that good.

77) If the price of a good in a closed economy is greater than the world price, then if the country opens its markets to world trade the country will be a ______ of that good. A) net importer B) net exporter C) importer and exporter D) producer

78) The United States imports garments from third world countries. This means that if the U.S. economy were closed, the domestic price of goods would be _____ the world price of garments. A) less than B) greater than C) equal to D) close to

79) The United States imports shoes from third world countries. This means that if the U.S. economy were closed, the domestic price of goods would be _____ the world price of shoes. A) less than B) greater than C) equal to D) close to

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80) If a country is a net importer of a good, domestic suppliers will supply _____ of that good after it opens itself to international trade. A) more B) the same amount C) none D) less

81) If a country is a net importer of a good, the price of that good will ____ when the economy goes from closed to open for trade. A) increase B) stay the same C) first increase then decrease D) decrease

82)

What is the price of cars if this were a closed economy?

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A) $6,000/car B) $8,000/car C) $10,000/car D) $14,000/car

83) If the accompanying graph represents a closed economy, how many cars will be exchanged?

A) 20,000 B) 40,000 C) 60,000 D) 80,000

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84) If the accompanying graph represents an open economy, the price of a car will be ________.

A) $6,000/car B) $8,000/car C) $10,000/car D) $14,000/car

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85) If the accompanying graph represents an open economy, quantity of cars demanded domestically will be ________.

A) 20,000 B) 40,000 C) 60,000 D) 80,000

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86) If the accompanying graph represents an open economy, quantity supplied of cars by the domestic producers will be ________.

A) 20,000 B) 40,000 C) 60,000 D) 80,000

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87) How many cars will the country represented in the accompanying graph import in an open economy situation?

A) 20,000 B) 40,000 C) 60,000 D) 80,000

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88) Opening the economy represented in the accompanying graph to trade would benefit ______ and harm _____.

A) everyone; no one B) no one; everyone C) domestic car consumers; domestic car producers D) domestic car producers; domestic car consumers

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89) If Utopia has a closed economy, the price of tile is $_____ per case, and if it has an open economy the price of tile is $_____ per case.

A) 15; 20 B) 20; 15 C) 30; 15 D) 15; 10

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90) If Utopia has a closed economy, the number of cases of tile consumed each year is _____ per year, and if it has an open economy the number of cases of tile consumed is _____ per year.

A) 200; 450 B) 300; 200 C) 300; 450 D) 450; 200

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91)

If Utopia opened itself to trade it would

A) import 150 cases of tile per year. B) export 100 cases of tile per year. C) export 450 cases of tile per year. D) import 250 cases of tile per year.

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92) Relative to a closed economy, if Utopia opened itself to trade, domestic tile producers would:

A) produce 150 more cases of tile. B) produce 150 fewer cases of tile. C) produce 100 fewer cases of tile. D) produce the same amount of tile.

93)

If this is a closed economy, the price of a TV will be

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A) $75. B) $125. C) $175. D) $275.

94)

If this is a closed economy, the number of TVs exchanged will be

A) 30,000. B) 60,000. C) 90,000. D) 120,000.

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95)

In an open economy, the price of a TV will be

A) $75. B) $125. C) $175. D) $275.

96)

In an open economy, the quantity demanded of TVs in the domestic market will be.

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A) 30,000. B) 60,000. C) 90,000. D) 120,000.

97)

In an open economy, the quantity supplied of TVs in the domestic market will be.

A) 30,000. B) 60,000. C) 90,000. D) 120,000.

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98)

In an open economy, how many TVs will this country import?

A) 30,000 B) 60,000 C) 90,000 D) 120,000

99)

Opening this economy to trade would benefit ______ and harm _____.

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A) everyone; no one B) no one; everyone C) domestic TV consumers; domestic TV producers D) domestic TV producers; domestic TV consumers

100) If the price of a good in a closed economy is lower than the world price, then with an open economy this country will be a ______ of that good. A) net importer B) net exporter C) price taker D) price setter

101) China exports toys to the United States; in a closed economy China must have a domestic price that is _____ the world price of toys. A) less than B) greater than C) equal to D) close to

102) Japan exports cars to the other countries of the world. In an open economy Japan is most likely to have a domestic price that is _____ the world price of cars. A) less than B) greater than C) equal to D) close to

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103) Suppose that a country with a closed economy opens itself to international trade and becomes a net exporter. In that case, domestic suppliers will supply _____ of that good after it opens itself to international trade. A) more B) same amount C) none D) less

104) Refer to the accompanying figure, which shows the annual domestic supply and annual domestic demand for jeans in a small country.

If the world price of a pair of jeans is $40, and this country is open to trade with the rest of the world, then it will ______ pairs of jeans each year. A) export 24,000 B) import 24,000 C) import 28,000 D) export 4,000

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105) Refer to the accompanying figure, which shows the annual domestic supply and annual domestic demand for jeans in a small country.

Suppose this country initially does not trade with the rest of the world. If the world price of a pair of jeans is $40, and this country opens itself to trade, then the annual domestic production of jeans will A) increase from 20,000 to 28,000. B) fall from 28,000 to 4,000. C) fall from 20,000 to 4,000. D) increase from 4,000 to 28,000.

106) Suppose that a country with a closed economy opens itself to international trade and becomes a net exporter. In that case, the price of that good will ____ when the economy goes from closed to open for trade. A) increase B) stay the same C) first decrease then increase D) decrease

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107) If the domestic quantity supplied of a good is greater than the domestic quantity demanded, the country is likely to be a(n) A) consumer of the good. B) importer of the good. C) importer and exporter. D) exporter of the good.

108)

If this is a closed economy, what will the price of a bike be?

A) $20 B) $40 C) $100 D) $140

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109) If the accompanying graph represents a closed economy, how many bikes will be produced?

A) 20,000 B) 50,000 C) 80,000 D) 100,000

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110)

In an open economy, the price of a bike is.

A) $20 B) $40 C) $100 D) $140

111)

In an open economy, the quantity demanded of bikes in the domestic market is

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A) 20,000. B) 50,000. C) 80,000. D) 100,000.

112)

In an open economy, the quantity supplied of bikes in the domestic market is

A) 20,000. B) 50,000. C) 80,000. D) 100,000.

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113) In an open economy, how many bikes will the country represented in the accompanying graph export?

A) 20,000 B) 50,000 C) 60,000 D) 80,000

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114) Suppose this economy is currently closed. _______ is/are most likely to want open trade, and ________ is/are most likely to oppose opening the economy to trade.

A) Bike manufacturers; bike purchasers B) Bike purchasers; bike manufacturers C) Bike manufacturers; the government D) The government; bike purchasers

115)

If this is a closed economy, how much will a bushel of corn cost?

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A) $1 B) $3 C) $5 D) $7

116)

If this is a closed economy, how many bushels of corn will be produced?

A) 150 million bushels B) 300 million bushels C) 600 million bushels D) 900 million bushels

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117)

In an open economy, the price of a bushel of corn is

A) $1. B) $3. C) $5. D) $7.

118)

In an open economy, the quantity demanded of corn in the domestic market is

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A) 150 million bushels. B) 300 million bushels. C) 600 million bushels. D) 900 million bushels.

119)

In an open economy, the quantity supplied of bushels of corn is

A) 150 million bushels. B) 300 million bushels. C) 600 million bushels. D) 900 million bushels.

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120) In an open economy, the country represented in the accompanying graph will ________ million bushels of corn.

A) import 150 B) export 300 C) import 600 D) export 600

121)

Why is there often resistance to free trade? A) Free trade does not benefit the economy as a whole. B) Specific groups may be hurt by free trade. C) Free trade does not benefit the global economy. D) Free trade usually hurts consumers.

122)

If the United States is a net importer of bananas, free trade will benefit the A) domestic banana producers. B) rich citizens of the Unite States. C) poor citizens of the United States. D) domestic banana consumers.

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123)

If the domestic consumers of a good benefit from free trade, it suggests that the country A) is a net importer of that good. B) is a net exporter of that good. C) has a comparative advantage in that good. D) is not able to produce that good.

124)

If the domestic producers of a good are hurt by a free trade, it suggests that the country A) is a net importer of that good. B) is a net exporter of that good. C) has a comparative advantage in that good. D) is not able to produce that good.

125)

If Nepal is a net importer of computers, free trade will hurt the A) domestic producers of computers. B) rich citizens of Nepal. C) poor citizens of Nepal. D) domestic consumers of computers.

126)

If the domestic producers of a good benefit from free trade, it suggests that the country A) is a net importer of that good. B) is a net exporter of that good. C) does not have an absolute advantage in that good. D) does not have a comparative advantage in that good.

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127)

If Australia is a net exporter of wool, free trade will benefit the A) domestic producers. B) rich citizens of Australia. C) poor citizens of Australia. D) domestic consumers.

128)

If a country is a net exporter, free trade will hurt A) domestic producers. B) rich citizens of the country. C) poor citizens of the country. D) domestic consumers.

129) Taiwan exports tools to the United States. Consumers in Taiwan will probably pay a _____ price for tools with free trade than they would with a closed economy. A) lower B) somewhat lower C) higher D) more fair

130)

Free trade is ______, because it ______ the size of the pie available to the economy. A) inefficient; decreases B) inefficient; increases C) efficient; decreases D) efficient; increases

131)

Protectionism is the view that free trade is ______ and should be _______.

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A) helpful; encouraged B) illegal; forbidden C) inevitable; allowed D) harmful; restricted

132)

Protectionism is the view that A) a country's free trade agreements should be enforced. B) free trade is harmful and should be restricted. C) a country can best defend itself against foreign attack if it opens itself to trade. D) free trade agreements best protect a nation's economic interests.

133)

A tariff is a tax imposed on ______ good. A) an imported B) a luxury C) an illegal D) a domestic

134) There is 5 percent average tax on imported goods in the United States. This tax is known as a(n) A) income tax. B) sales tax. C) tariff. D) quota.

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135)

What is the domestic price of sugar in a closed economy?

A) $500/ton B) $1,000/ton C) $2,000/ton D) $3,000/ton

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136) As indicated in the accompanying graph, what is the world price of sugar without the tariff?

A) $500/ton B) $1,000/ton C) $1,500/ton D) $2,000/ton

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137) As indicated in the accompanying graph, what is the amount of tariff imposed on a ton of sugar?

A) $1 B) $50 C) $500 D) $1,000

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138) As indicated in the accompanying graph, the increase in the price of sugar created by the tariff will lead domestic production to increase by ____ tons per year, compared to when the economy is open without the tariff.

A) 10 B) 20 C) 30 D) 40

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139) Based on the information in the accompanying graph, the increase in the price of sugar created by the tariff will lead domestic consumption to fall by _____ tons per year, compared to when the economy is open without the tariff.

A) 10 B) 20 C) 30 D) 40

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140) Based on the information in the accompanying graph, compared to an open economy without a tariff, the amount of imported sugar will drop from _____ tons to _____ tons after the tariff is imposed.

A) 20; 10 B) 40; 20 C) 60; 30 D) 80; 40

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141) Based on the information in the accompanying graph, the amount of revenue the government collects after imposing the tariff is ________.

A) $1,000 B) $4,000 C) $10,000 D) $40,000

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142) Based on the information in the accompanying graph, relative to an environment with free trade and no tariff, the winners from the tariff are the domestic ________, and the losers from the tariff are the domestic ______.

A) consumers of sugar; producers of sugar B) producers of sugar and the government; consumers of sugar C) producers of sugar; consumers of sugar and the government D) consumers of sugar and the government; producers of sugar

143) The demand for microwaves in a certain country is given by: D = 8,000 –30 P, where P is the price of a microwave. Supply by domestic microwave producers is: S = 4,000 + 10 P. Suppose the economy is closed. The equilibrium price of a microwave is _____ and equilibrium quantity is____. A) $50; 8,000 B) $75; 6,000 C) $100; 5,000 D) $125; 4,000

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144) The demand for microwaves in a certain country is given by: D = 8,000 – 30 P, where P is the price of a microwave. Supply by domestic microwave producers is: S = 4,000 + 10 P. If this economy opens to trade while the world price of a microwave is $50, the domestic quantity demanded will be ______ and quantity supplied will be _____. A) 5,000; 5,000 B) 6,000; 4,000 C) 6,500; 3,000 D) 6,500; 4,500

145) The demand for microwaves in a certain country is given by: D = 10,000 − 40 P, where P is the price of a microwave. Supply by domestic microwave producers is: S = 5,000 + 12 P. If this economy opens to trade while the world price of a microwave is $50, the domestic quantity demanded will be ______ and quantity supplied will be _____. A) 4,000; 6,600 B) 6,000; 5,600 C) 6,000; 6,100 D) 8,000; 5,600

146) The demand for microwaves in a certain country is given by: D = 8,000 –30 P, where P is the price of a microwave. Supply by domestic microwave producers is: S = 4,000 + 10 P. If this economy opens to trade while the world price of a microwave is $50, how many microwaves will be imported or exported? A) 1,000 imported B) 2,000 imported C) 3,000 exported D) 2,000 exported

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147) The demand for microwaves in a certain country is given by: D = 8,000 − 30 P, where P is the price of a microwave. Supply by domestic microwave producers is: S = 4,000 + 10 P. If this economy opens to trade while the world price of a microwave is $80, how many microwaves will be imported or exported? A) 800 imported B) 1,600 exported C) 1,600 imported D) 800 exported

148) The demand for microwaves in a certain country is given by: D = 8,000 – 30 P, where P is the price of a microwave. Supply by domestic microwave producers is: S = 4,000 + 10 P. If this economy opens to trade while the world price of a microwave is $50, and the government imposes a tariff of $30 per microwave, then the domestic quantity demanded will be ______ microwaves. A) 4,000 B) 4,500 C) 5,000 D) 5,600

149) The demand for microwaves in a certain country is given by: D = 8,000 – 30 P, where P is the price of a microwave. Supply by domestic microwave producers is: S = 4,000 + 10 P. If this economy opens to trade while the world price of a microwave is $50, and the government imposes a tariff of $30 per microwave, then the domestic quantity supplied will be ____ microwaves. A) 4,000 B) 4,500 C) 4,800 D) 5,000

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150) The demand for microwaves in a certain country is given by: D = 8,000 –30 P, where P is the price of a microwave. Supply by domestic microwave producers is: S = 4,000 + 10 P. If this economy opens to trade while the world price of a microwave is $50, and the government imposes a tariff of $30 per microwave, then this country will ______ microwaves. A) import 400 B) import 800 C) export 800 D) export 400

151) The demand for microwaves in a certain country is given by: D = 8,000 − 30 P, where P is the price of a microwave. Supply by domestic microwave producers is: S = 4,000 + 10 P. If this economy opens to trade while the world price of a microwave is $100, and the government imposes a tariff of $50 per microwave, then this country will ______ microwaves. A) import 4,000 B) import 2,000 C) export 4,000 D) export 2,000

152) The demand for microwaves in a certain country is given by: D = 8,000 – 30 P, where P is the price of a microwave. Supply by domestic microwave producers is: S = 4,000 + 10 P. If this economy opens to trade while the world price of a microwave is $50, and the government imposes a tariff of $30 per microwave, then the tariff revenue collected by the government will be ________. A) $4,000 B) $24,000 C) $40,000 D) $60,000

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153) The demand for microwaves in a certain country is given by: D = 10,000 − 40 P, where P is the price of a microwave. Supply by domestic microwave producers is: S = 5,000 + 12 P. If this economy opens to trade while the world price of a microwave is $50, and the government imposes a tariff of $40 per microwave, then the tariff revenue collected by the government will be ________. A) $1,600 B) $24,000 C) $16,000 D) $12,800

154)

A legal limit on the quantity of a good that may be imported is called a(n) A) tariff. B) quota. C) trade limit. D) import tax.

155) Suppose the automobile industry can import 10 percent of the total quantity demanded of cars in the U.S. This is an example of a(n) ________. A) tariff B) quota C) trade limit D) import tax

156)

One means of enforcing a quota is to require importers to A) obtain a sales permit. B) pay an import tax. C) obtain a license. D) pay a sales tax.

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157) Based on the information in the accompanying graph, what is the domestic price of a TV in a closed economy?

A) $137.50 B) $125 C) $100 D) $75

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158) Based on the information in the accompanying graph, what is the price of a TV in an open economy without a quota?

A) $150 B) $125 C) $100 D) $75

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159) Based on the information in the accompanying graph, what is the price of a TV in an open economy with a quota?

A) $150 B) $125 C) $100 D) $75

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160) Based on the information in the accompanying graph, after the imposition of the quota, the quantity demanded of TVs is

A) 20,000. B) 40,000. C) 80,000. D) 100,000.

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161) Based on the information in the accompanying graph, after the imposition of the quota, the numbers of TVs imported will drop by _____ units.

A) 20,000 B) 40,000 C) 80,000 D) 100,000

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162) Based on the information in the accompanying graph, after the imposition of the quota, the amount of revenue collected by the government is

A) $0. B) $50,000. C) $75,000. D) $150,000.

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163) Based on the information in the accompanying graph, the clear winners from the quota are the ________, and the losers are the______.

A) domestic consumers; domestic producers B) government; domestic consumers C) importers; domestic producers D) domestic producers; domestic consumers

164) The demand for cars in a certain country is given by: D = 20,000 – P, where P is the price of a car. Supply by domestic car producers is: S = 5,000 + 0.5 P. Suppose the economy is closed. The equilibrium price of a car is _____ and equilibrium quantity is____. A) $6,000; 14,000 B) $8,000; 12,000 C) $10,000; 10,000 D) $12,000; 8,000

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165) The demand for cars in a certain country is given by: D = 20,000 – P, where P is the price of a car. Supply by domestic car producers is: S = 5,000 + 0.5 P. If this economy is open to trade, and the world price of a car is $6,000, the domestic quantity demanded will be ______ and quantity supplied will be _____. A) 14,000; 8,000 B) 12,000; 8,000 C) 12,000; 10,000 D) 8,000; 14,000

166) The demand for cars in a certain country is given by: D = 15,000 − P, where P is the price of a car. Supply by domestic car producers is: S = 5,750 + 0.2 P. If this economy is open to trade, and the world price of a car is $5,500, the domestic quantity demanded will be ______ and quantity supplied will be _____. A) 9,500; 3,425 B) 6,850; 9,500 C) 9,500; 6,850 D) 19,000; 13,700

167) The demand for cars in a certain country is given by: D = 20,000 – P, where P is the price of a car. Supply by domestic car producers is: S = 5,000 + 0.5 P. If this economy is open to trade, and the world price of a car is $6,000, how many cars will be imported? A) 2,000 B) 3,000 C) 4,000 D) 6,000

168) The demand for cars in a certain country is given by: D = 18,000 − P, where P is the price of a car. Supply by domestic car producers is: S = 4,500 + 0.5 P. If this economy is open to trade, and the world price of a car is $1,000, how many cars will be imported?

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A) 12,000 B) 3,000 C) 4,000 D) 15,000

169) The demand for cars in a certain country is given by: D = 20,000 – P, where P is the price of a car. Supply by domestic car producers is: S = 5,000 + 0.5 P. If this economy is open to trade, and the world price of a car is $6,000, and the government imposes a quota allowing 3,000 cars to be imported, then domestic price of the car will be ________. A) $5,000 B) $6,000 C) $8,000 D) $10,000

170) The demand for cars in a certain country is given by: D = 21,000 − P, where P is the price of a car. Supply by domestic car producers is: S = 4,250 + 0.25 P. If this economy is open to trade, and the world price of a car is $4,000, and the government imposes a quota allowing 7,500 cars to be imported, then domestic price of the car will be ________. A) $13,400 B) $4,000 C) $7,400 D) $10,400

171) The demand for cars in a certain country is given by: D = 20,000 – P, where P is the price of a car. Supply by domestic car producers is: S = 5,000 + 0.5 P. If this economy opens to trade while the world price of a car is $6,000, and the government imposes a quota allowing 3,000 cars to be imported, then domestic equilibrium quantity of cars will be

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A) 6,000. B) 8,000. C) 10,000. D) 12,000.

172) The demand for cars in a certain country is given by: D = 20,000 – P, where P is the price of a car. Supply by domestic car producers is: S = 5,000 + 0.5 P. If this economy opens to trade while the world price of a car is $6,000, and the government imposes a quota allowing 3,000 cars to be imported, then the winners are. A) domestic consumers. B) domestic consumers and import permit holders. C) domestic producers and the government. D) domestic producers and import permit holders.

173) Suppose a government is considering imposing either a tariff or a quota on imported grain, and either policy will result in exactly 750 tons of grain being imported. How do these policies differ? A) The price of grain under the tariff will be higher than the price under the quota. B) The price of grain under the quota will be higher than the price under the tariff. C) Domestic production will be higher with the quota than with the tariff. D) The quota will generate revenue for the firms that hold import licenses, while the tariff will generate revenue for the government.

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174) Refer to the accompanying figure, which shows the annual domestic supply and annual domestic demand for jeans in a small country.

Suppose this country is open to trade with the rest of the world, and the world price of a pair of jeans is $40. If the government imposes a quota on imported jeans of 12,000 pairs per year, then the new equilibrium price of jeans in this country will be A) $60. B) $80. C) $100. D) $120.

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Answer Key Test name: Chap 15_8e_Frank 1) B 2) C 3) D 4) B 5) A 6) A 7) B 8) D 9) C 10) C 11) A 12) B 13) C 14) A 15) B 16) C 17) B 18) C 19) C 20) B 21) C 22) D 23) C 24) C 25) D 26) A Version 1

27) A 28) D 29) B 30) C 31) B 32) D 33) A 34) C 35) B 36) C 37) A 38) B 39) D 40) A 41) D 42) C 43) B 44) D 45) B 46) C 47) C 48) D 49) B 50) A 51) C 52) C 53) B 54) C 55) D 56) B Version 1

57) B 58) C 59) A 60) B 61) B 62) B 63) A 64) A 65) B 66) A 67) D 68) A 69) D 70) A 71) C 72) B 73) D 74) A 75) B 76) D 77) A 78) B 79) B 80) D 81) D 82) D 83) B 84) C 85) C 86) A Version 1

87) B 88) C 89) B 90) C 91) D 92) C 93) C 94) B 95) B 96) C 97) A 98) B 99) C 100) B 101) A 102) C 103) A 104) B 105) C 106) A 107) D 108) C 109) B 110) D 111) A 112) C 113) C 114) A 115) B 116) C Version 1

117) C 118) B 119) D 120) D 121) B 122) D 123) A 124) A 125) A 126) B 127) A 128) D 129) C 130) D 131) D 132) B 133) A 134) C 135) D 136) B 137) D 138) B 139) B 140) D 141) D 142) B 143) C 144) D 145) D 146) B Version 1

147) A 148) D 149) C 150) B 151) D 152) B 153) D 154) B 155) B 156) C 157) A 158) D 159) B 160) C 161) C 162) A 163) D 164) C 165) A 166) C 167) D 168) A 169) C 170) C 171) D 172) D 173) D 174) B

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PANDEMIC: 1)

COVID-19 was labeled a(n) ________. This is the most serious designation for a disease. A) pandemic B) epidemic C) outbreak D) infodemic

2) COVID-19 became much more difficult to control when a new case could not be easily tied to a known case. This situation is best described as A) community spread. B) an imported case. C) family spread. D) an infodemic.

The least serious designation for a disease is considered a(n) A) outbreak. B) pandemic. C) epidemic. D) limited illness.

How did COVID-19 get its name? A) It was a coronavirus first discovered in 2019. B) The “Wuhan virus” had already been used for a prior illness. C) It was the 19th variety of coronavirus. D) It was closely tied to a virus found by a woman, Francis Covid.

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5) was

As of July 1, 2020, the country with the highest percentage of global cases of COVID-19

A) the United States. B) China. C) Spain. D) Italy.

6) As of July 1, 2020, the country with the highest percentage of the population having COVID-19 was A) Italy. B) the United States. C) China. D) Iran.

The country/region with the earliest COVID-19 cases was A) China/Asia. B) Spain/Europe. C) the United States/Americas. D) South Africa/Africa.

8) The country with the most COVID-19 tests per capita prior to March 24, 2020, was ________, while the country that led in absolute testing by May 1 was ________.

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A) South Korea; the United States B) the United States; South Korea C) China; South Korea D) Italy; the United States

9) The COVID-19 related deaths in developed countries were concentrated most starkly among A) people over age 60. B) men. C) women. D) people under age 60.

10) The COVID-19 related deaths in developed countries were concentrated most starkly among A) men. B) women. C) people between the ages of 25 and 45. D) children.

11)

The ________ resulted in the most deaths among modern pandemics. A) Spanish Flu (H1N1) B) Swine Flu (H1N1) C) SARS (SARS-COV) D) Asian Flu (H2N2)

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12)

The pandemic with the most significant economic impact was A) COVID-19 (SARS-COV2). B) Spanish Flu (H1N1). C) Swine Flu (H1N1). D) SARS (SARS-COV).

13)

The economic impact of epidemics/pandemics prior to COVID-19

A) is difficult to gauge because while recessions occurred during many of them, the aligning epidemic/pandemic was not the clear cause. B) was counterintuitive because unemployment rates were falling during these times. C) was always clear because recessions were unambiguously tied to these events. D) is difficult to gauge because there were no recessions that occurred during any of them.

14)

The infection mortality rate/case fatality rate can be understated when there

A) are people who die without a disease diagnosis (when the disease was likely a contributing factor). B) are asymptomatic cases. C) are people who die of other ailments when they also have the particular disease. D) is a shortage of tests for the disease.

15) The method-circumstance combination that leads to predictions with the lowest level of confidence is

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A) extrapolation when the growth rate is uncertain. B) extrapolation when the growth rate is certain. C) interpolation when the growth rate is uncertain. D) interpolation when the growth rate is certain.

16) Worldwide data on cases and deaths resulting from epidemics and pandemics are assembled by ________ and use ________. A) the World Health Organization; country-provided information B) the World Health Organization; independently generated information C) the Centers for Disease Control; independently generated information D) the European Union; country-provided information

17) A logarithmic scale is used to show the progression of cases and deaths when they increase at _________ rates because it ________. A) exponential; shows details at low magnitudes that linear scales do not B) exponential; masks the political impact C) algebraic; shows details at low magnitudes that linear scales do not D) algebraic; masks the political impact

18) Deaths associated with COVID-19 were concentrated in ________ prior to March 2020 but were concentrated in ________ thereafter. A) the Western Pacific (China, Korea, etc.); Europe and the Americas B) Africa; the Western Pacific (China, Korea, etc.) C) Europe and the Americas; Africa D) the Western Pacific (China, Korea, etc.); Africa

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19)

The ________ for PPE and hand sanitizer ________ as a result of COVID-19. A) demand; increased B) demand; decreased C) supply; increased D) supply; decreased

20) The use of different forms of masks (N95, surgical, cloth) can be modeled on a supply and demand diagram using the concept of A) substitutes. B) complements. C) normal goods. D) inferior goods.

21) In the context of the supply and demand model, melt-blown fabric is a(n) _________ to N95 masks. A) input B) complement C) substitute D) alternative output

22) The use of face shields over masks can be modeled on a supply and demand diagram using the concept of

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A) complements. B) substitutes. C) normal goods. D) inferior goods.

23) The donation of materials to quilters so that they could make fabric masks can be modeled on a supply and demand diagram using the concept of A) subsidies. B) substitutes. C) complements. D) inferior goods.

24) The supply and demand diagram had to be adapted to accommodate an oddity in the oil futures market. That oddity was A) a negative price. B) a negative quantity. C) a tax. D) a price ceiling.

25) Many retailers did not increase their prices of some goods (toilet paper and cleaning materials) in response to a COVID-19 related dramatic increase in demand. Instead they A) instituted per-customer quantity limits. B) refused to stock those goods. C) raised the prices of other goods. D) closed their stores.

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26)

When a law that prevents price gouging, it usually comes in the form of a(n) A) price ceiling. B) price floor. C) equilibrium price. D) tax.

27)

A price ceiling on PPE would A) generate a shortage. B) prevent a shortage. C) generate a surplus. D) prevent a surplus.

28) The first drug to be approved under an emergency declaration by the Food and Drug Administration for use against COVID-19 was A) Remdesivir (an existing antiviral drug). B) hydroxychloroquine (an existing antimalarial drug). C) Antivir (a newly invented antiviral drug). D) Covax (a newly invented antibiotic drug).

29)

When a drug or vaccine is invented, it

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A) must go through phases of testing to ensure that it is safeand effective before it can be sold. B) must go through testingonly to ensure that it is safe before it can be sold. C) must go through testingonly to ensure that it is effective before it can be sold. D) can be marketed immediately unless it is proven unsafe.

30)

Resources were reallocated toward the production of hand sanitizer in that A) distilleries began to make it. B) the military (through the Defense Production Act) was deployed. C) Ford and GM (through the Defense Production Act) were compelled to make it. D) melt-blown fabric makers were asked to produce it.

31) The Defense Production Act allows the president to compel private companies to produce needed goods in a national emergency. President Trump invoked it in response to COVID-19 to force ________ to make ________. A) Ford and GM; ventilators B) 3M; melt-blown fabric C) Gilead Sciences; hydroxychloroquine D) Clorox; bleach

32) During COVID-19, the fixed-capital problem and the global supply chain problem were each in evidence regarding the shortage of A) N95 masks. B) ventilators. C) hand sanitizer. D) respirators.

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33)

The ________ was the first to see dramatic economic consequences from COVID-19. A) airline industry B) higher education system C) grocery business D) rental housing business

34)

________ research is best described as a public good compared to ________ research. A) Basic; translational B) Translational; basic C) Vaccine; treatment D) Treatment; vaccine

35) The existence of the strategic petroleum reserve and the national stockpile of ventilators and respirators are examples of A) public goods. B) private goods. C) price excludable public goods. D) congestible public goods.

36)

The ________ sector saw increased sales as a result of COVID-19.

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A) grocery B) travel C) oil D) retail

37) The ________ industry saw a dramatic increased volume of activity as a result of COVID-19. A) financial services B) rental housing C) coal D) services

38)

The housing industry experienced ________ as a result of COVID-19. A) eviction suspensions B) new limits on rent increases C) rent forgiveness (but mortgage payments were still required) D) rent and mortgage payment forgiveness

39)

The drop in oil and gasoline prices during early 2020 was a result of a

A) dramatic decline in demand (from stay at home orders) and a production spike that resulted from a disagreement between Saudi Arabia and Russia. B) dramatic decline in demand (from stay at home orders) accompanied by a global production cut. C) production cut that resulted from an agreement between Saudi Arabia and Russia. D) production spike that resulted from a global disagreement.

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40)

The unemployment rate in the United States prior to March 2020 was A) at a 50-year low. B) about average (post–World War II). C) rising rather rapidly. D) lower than it had ever been.

41)

Weekly initial claims for unemployment through March 1, 2020, were A) low (less than 250,000). B) modest (between 250,000 and 300,000). C) high (between 400,000 and 700,000). D) at all-time highs (above 1,000,000).

42)

Between mid-February and mid-March 2020, world stock markets were A) declining rapidly and were highly volatile. B) stable. C) highly volatile but ended the period at the same level as they had started it. D) increasing.

43)

Between mid-February and late March 2020, U.S. 10-year Treasury interest rates were A) declining. B) stable. C) increasing. D) zero.

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44) Weekly initial claims for unemployment in April 2020 were ________ those experienced during the Great Recession. A) approximately 5–10 times B) twice C) the same as D) lower than

45) The unemployment rates for April and May 2020 were ________ those experienced during the Great Recession. A) greater than B) equal to C) less than

46)

________ were already in or near a recession when the COVID-19 pandemic hit. A) Japan, France, and Germany B) The United States and China C) The United States and Japan D) Japan and China

47)

Exports and imports ________ as an immediate result of COVID-19.

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A) both declined B) both increased C) diverged (with exports rising and imports falling) D) diverged (with imports rising and exports falling)

48)

The first-quarter decline in U.S. RGDP was A) among the top ten worst quarters in post–World War II history. B) the worst quarter in post–World War II history. C) negligible. D) typical of a normal recession.

49) Every country experienced economic declines (in RGDP) in the first quarter of 2020. Relative to most developed countries, the United States’ situation was A) somewhat better. B) typical. C) somewhat worse. D) dramatically worse.

50) When a BLS unemployment survey participant describes themselves as “employed but away from work” when they are really unemployed, this ________ the unemployment rate. A) understates B) overstates C) has no impact on

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51)

The country that was already in a deep recession when the COVID-19 pandemic hit was A) Japan. B) Germany. C) the United States. D) the United Kingdom.

52) COVID-19 caused many foreign investors to move their portfolios from their home country to the United States to invest in the safest possible assets. These were ________ and the result was that by late March 2020 ________. A) 3-month Treasuries; interest rates for them were negative B) 10-year Treasuries; interest rates for them were negative C) AAA corporate bonds; interest rates for them were negative D) U.S. stocks; U.S. stock markets skyrocketed

53)

COVID-19 caused many state budgets to go into deficits. That lead to a concern that A) municipal bonds with adjustable rates would have their yields skyrocket. B) 3-month Treasury interest rates would go negative. C) 10-year Treasury interest rates would go negative D) AAA corporate bond interest rates would go negative.

54)

The phrase “flattening the curve” as it related to COVID-19 was shorthand for A) slowing the progression of the disease to avoid overwhelming health systems. B) finding a cure/vaccine as quickly as possible. C) waiting until the disease disappeared. D) increasing medical personnel faster than patient demand.

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55) The country with the best success in controlling the spread of COVID-19 through testing and contact tracing during early 2020 was A) South Korea. B) the United Kingdom. C) Spain. D) Italy.

56) Based on the Oxford University Index of Stringency, from February through early March, ________ were the most strict, while ________ were the most lax. A) China and South Korea; Canada and the United States B) Canada and the United States; Germany and France C) China and South Korea, Italy and Spain D) Italy and Spain; Germany and France

57) Based on the Oxford University of Stringency, from late March through early May, ________ were the most strict, while ________ were the most lax. A) Italy and France; Japan and China B) Canada and the United States; Germany and France C) China and South Korea, Italy and Spain D) Italy and Spain; Germany and France

58)

As the economic impact of COVID-19 became apparent,

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A) monetary and fiscal policy actions of unprecedented scale and rapidity were engaged. B) Congress and President Trump did little and left policy responses to the Federal Reserve. C) the Federal Reserve did little and left policy responses to Congress and President Trump. D) monetary and fiscal policy actions of unprecedented scale and rapidity were needed but both the Federal Reserve and Congress chose to wait.

59) The mark-to-market accounting rule ________ and made the Great Recession worse than it would have otherwise been. The rule continued to be in place thereafter. During the COVID19 recession, the Federal Reserve ________. A) was enforced; waived the rule B) was waived; waived it again C) was passed and enforced; adjusted the rule to make it more strict D) was waived; permanently eliminated the rule

60) Regarding Tier 1 assets and the leverage ratio, the Federal Reserve ________ during the COVID-19 recession. A) set more lenient standards B) eliminated its rules C) strongly stood by its rules D) increased its stringency standards

61) The size of the Federal Reserve balance sheet ________ from its 2019 level by May 2020.

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A) almost doubled B) increased by 10 percent C) remained unchanged D) decreased

62) Relative to the quantitative easing associated with the slow growth period from 2011 through 2014, the Federal Reserve’s response to the COVID-19 recession was A) of the same size but transpired over weeks, not years. B) much larger. C) much less dramatic. D) ineffective.

63) The monetary and fiscal policy actions taken in response to COVID-19 were primarily designed to A) increase aggregate demand. B) increase aggregate supply. C) decrease aggregate demand. D) decrease aggregate supply.

64) The Federal Reserve’s monetary policy actions were designed to ________. The fiscal policy actions taken by Congress and the President were designed to ________. A) increase aggregate demand; increase aggregate demand as well B) increase aggregate supply; increase aggregate supply as well C) increase aggregate demand; increase aggregate supply D) increase aggregate supply; increase aggregate demand

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65)

The Families First Act’s primary focus was on A) paid leave for those who were ill or caring for someone who was ill with COVID-19. B) unemployment compensation. C) stimulus checks. D) funding regular operations of government.

66) The CARES Act treatment of unemployment claims was different from that of typical recessions because A) there was a $600 per week federal supplement and coverage was extended to gig workers and the self-employed. B) the system was entirely taken over by the federal government. C) the replacement rate (typically established by states) was made uniform across the country. D) the caps on unemployment checks were eliminated.

67) The criticism of fiscal policy that focuses on the ________ lag was entirely irrelevant because it was obvious when the recession began. A) recognition B) administrative C) operational D) implementation

68) The criticism of fiscal policy that focuses on the ________ lag was not a concern during the COVID-19 recession because the Federal Reserve and Congress acted so quickly.

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A) operational B) recognition C) administrative D) implementation

69) Relative to the Obama-era stimulus package for the Great Recession, the combined size of the COVID-19 stimulus was A) several times greater. B) slightly greater in inflation-adjusted terms. C) greater in nominal terms but not in inflation-adjusted terms. D) smaller.

70) The magnitude of combined fiscal and monetary policy was the greatest (relative to GDP) in A) the United States. B) the United Kingdom. C) Germany. D) Greece.

71) When monetary policy is ineffective, it is because of the breakdown in the ________ and is labeled ________. A) monetary transmission mechanism; the liquidity trap B) liquidity transmission mechanism; the monetary trap C) banking system; a run D) money printing machinery; the liquidity trap

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72) _________ have a comparative advantage in the manufacturing of generic drugs. That _________ a sufficient reason for them to produce generic drugs for all countries. A) China and India; is not B) China and India; is C) Canada and Mexico; is D) Canada and Mexico; is not

73)

A reason to limit trade revealed by COVID-19 is the need to A) maintain access to health-related goods during a pandemic. B) produce health-related goods at the lowest expense. C) produce health-related goods in the country with the comparative advantage. D) produce health-related goods in the country with the absolute advantage.

74)

The global nature of the supply chain ________ the economic impact of COVID-19. A) magnified B) dampened C) eliminated

75) Goods imported from Chinese manufacturers are generally ________. This is called the ________.

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A) made from components manufactured in many places; global supply chain B) made in one location; singular supply source C) made from components manufactured in many places; singular supply source D) made in one location; global supply chain

76) _________ has a comparative advantage in the manufacturing of PPE. That _________ sufficient reason to have them produce these goods for everyone. A) China; is not B) China; is C) Canada; is D) Canada; is not

77)

During March and April 2020, the U.S. dollar

A) increased in value relative to nearly all world currencies. B) decreased in value relative to nearly all world currencies. C) increased in value relative to Asian currencies (won, yuan, yen) but decreased in value relative to the euro. D) decreased in value relative to Asian currencies (won, yuan, yen) but increased in value relative to the euro.

78) One of the issues brought to light by COVID-19 was the degree to which the global supply chain makes us dependent upon both ________ for ________. A) China and India; medications B) Canada and Mexico; toilet paper C) Germany and France; auto parts D) Egypt and Morocco; cotton

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79) One of the issues brought to light by COVID-19 was the degree to which the global supply chain makes Apple dependent on A) its own component part suppliers throughout China. B) Chinese buyers. C) cargo ships to transport its goods. D) European subsidies.

80) COVID-19 made the process by which resources are transformed into products (called ________) much more obviously dependent on the processes that facilitate the movement of goods to end users or to another manufacturer (called ________). A) operations; supply chain management B) supply chain management; operations C) operations; export-import management D) supply chain management; export-import management

81) COVID-19 disrupted air travel, air cargo, ship travel, and ship cargo. This disruption is primarily one of ________, but it also can impact ________ when companies can’t get the components that they need to make finished goods. A) supply chain management; operations B) operations; supply chain management C) operations; export-import management D) supply chain management; export-import management

82)

The currency that took the most dramatic hit against the dollar in March 2020 was the

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A) British pound. B) Japanese yen. C) South Korean won. D) Chinese yuan.

83)

The currency that took the least dramatic hit against the dollar in March 2020 was the A) South Korean won. B) British pound. C) Japanese yen. D) Chinese yuan.

84) The phenomenon where foreign investors sell their financial assets denominated in their home currency so as to buy U.S. dollar denominated U.S. Treasuries is called ________ and it ________ the value of the dollar. A) a flight to safety; increases B) a flight to safety; decreases C) search for returns; increases D) search for returns; decreases

85) The reasons economists acknowledge that trade could be limited increased as a result of COVID-19 to include the need to ensure that the country has access to health-related goods ________. This is similar to the ________ argument. A) in a pandemic; national defense B) in a pandemic; environmental C) at the cheapest possible price; national defense D) at the cheapest possible price; opportunity cost

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Answer Key Test name: The Economics of Pandemics Test bank 1) A 2) A 3) A 4) A 5) A 6) B 7) A 8) A 9) A 10) A 11) A 12) A 13) A 14) A 15) A 16) A 17) A 18) A 19) A 20) A 21) A 22) A 23) A 24) A 25) A 26) A Version 1

27) A 28) A 29) A 30) A 31) A 32) A 33) A 34) A 35) A 36) A 37) A 38) A 39) A 40) A 41) A 42) A 43) A 44) A 45) A 46) A 47) A 48) A 49) A 50) A 51) A 52) A 53) A 54) A 55) A 56) A Version 1

57) A 58) A 59) A 60) A 61) A 62) A 63) A 64) A 65) A 66) A 67) A 68) A 69) A 70) A 71) A 72) A 73) A 74) A 75) A 76) A 77) A 78) A 79) A 80) A 81) A 82) A 83) A 84) A 85) A

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