KTVM
KTVM
B
ANSWER:
17. Trade-offs are required because wants are unlimited and resources are
a. economical.
b. unlimited.
c. efficient.
d. marginal.
e. scarce.
E
ANSWER:
C
ANSWER:
C
ANSWER:
20. Which of the following is NOT a natural experiment capable of verifying or refuting the
theory you want to test?
a. Theory: Immigration has a negative effect on the wages of the local workforce.
Experiment: For political reasons, there is a sudden influx of people from Cuban
into Miami which is unparalleled in any other major American city.
b. Theory: A law which forces employers to pay a minimum wage reduces
employment. Experiment: The state of New Jersey introduces a minimum wage law
but Pennsylvania does not.
c. Theory: Legalising abortion has a negative effect on crime rates one generation
later. Experiment: Some American states legalize abortion in 1970, three years
before abortion is made legal in all American states.
d. All the cases produce natural experiments which are capable of explaining the
respective theory.
e. Your theory: Incomes in university towns are higher than in other towns.
Experiment: The government runs a program to build new universities mainly in
poor regions.
E
ANSWER:
21. Suppose you find €20. If you choose to use the €20 to go to a football match, your
opportunity cost of going to the game is
a. nothing, because you found the money.
b. €20 (because you could have used the €20 to buy other things) plus the value of your
time spent at the game.
c. €20 (because you could have used the €20 to buy other things) plus the value of your
time spent at the game, plus the cost of the dinner you purchased at the game.
d. €20 (because you could have used the €20 to buy other things).
e. none of these answers
B
ANSWER:
22. Since people respond to incentives, we would expect that, if the average salary of
accountants increases by 50% while the average salary of teachers increases by 20%, then
a. fewer students will take degree courses in accounting and more will take education
courses.
b. fewer students will take degree courses in education and more will take accounting
courses.
c. fewer students will attend university.
d. none of these answers.
B
ANSWER:
23. Which of the following is not part of the opportunity cost of going on holiday?
a. the money you spent on a theatre show there
b. the money you could have made if you had stayed at home and worked
c. the money you spent on food
d. the money you spent on airline tickets.
C
ANSWER:
B
ANSWER:
25. You are planning to run a hot dog stand during a forthcoming fair. You originally estimated
that you will generate sales revenue of €2000 and you have already spent €1000 building the
hot dog stand. The hot dog stand is nearly completed but now you estimate total sales to be
only €800 because the fair clashes with a major music festival in a nearby location.. You can
complete the hot dog stand for another €300. Should you complete the hot dog stand?
(Assume that there are no other costs - the hot dogs are costless to you.)
a. There is not enough information to answer this question.
b. Yes.
c. No.
B
ANSWER:
26. You are planning to run a hot dog stand during a forthcoming fair. You originally estimated
that you will generate sales revenue of €2000 and you have already spent €1000 building the
hot dog stand. The hot dog stand is nearly completed but now you estimate total sales to be
only €800 because the fair clashes with a major music festival in a nearby location.. You can
complete the hot dog stand for another €300. Your decision rule should be to complete the
hot dog stand as long as the cost to complete the stand is less than
a. €300
b. €100
c. €500
d. none of these answers.
e. €800
E
ANSWER:
Chapter 2: PPF
C
ANSWER:
D
ANSWER:
15. Which of the following will not shift a country's production possibilities frontier outward?
a. an advance in technology
b. an increase in the labour force
c. an increase in the capital stock
d. a reduction in unemployment
D
ANSWER:
A
ANSWER:
17. Refer to Exhibit 6. If the economy is operating at point C, the opportunity cost of producing
an additional 20 units of bacon is
a. 40 units of eggs.
b. 10 units of eggs.
c. 20 units of eggs.
d. 30 units of eggs.
e. 50 units of eggs.
E
ANSWER:
D
ANSWER:
B
ANSWER:
C
ANSWER:
C
ANSWER:
A
ANSWER:
B
ANSWER:
C
ANSWER:
A
ANSWER:
21. Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there is
no trade,
a. the domestic price of 1 ring is 1/4 of a watch.
b. the domestic price of 1 ring is 3 watches.
c. the domestic price of 1 ring is 1/3 of a watch.
d. the domestic price of 1 ring is 12 watches.
e. the domestic price of 1 ring is 4 watches.
C
ANSWER:
22. Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there is
no trade,
a. the opportunity cost of 1 watch is 1/4 of a ring.
b. the opportunity cost of 1 watch is 4 rings.
c. the opportunity cost of 1 watch is 3 rings.
d. the opportunity cost of 1 watch is 12 rings.
e. the opportunity cost of 1 watch is 1/3 of a ring.
C
ANSWER:
23. The figure shows how much a worker can produce in one day. Which of the following
statements about absolute advantage is true?
a. Australia has an absolute advantage in the production of food while Korea has an
absolute advantage in the production of electronics.
b. Korea has an absolute advantage in the production of food while Australia has an
absolute advantage in the production of electronics.
c. Australia has an absolute advantage in the production of both food and electronics.
d. Korea has an absolute advantage in the production of both food and electronics.
C
ANSWER:
24. The figure shows how much a worker can produce in one day. The opportunity cost of 1 unit
of electronics in Korea is
a. 4 units of food.
b. 5 units of food.
c. 1/5 of a unit of food.
d. 1/4 of a unit of food.
A
ANSWER:
25. The figure shows how much a worker can produce in one day. The opportunity cost of 1 unit
of electronics in Australia is
a. 4 units of food.
b. 1/4 units of food.
c. 2 units of food.
d. 1/2 of a unit of food.
C
ANSWER:
26. The figure shows how much a worker can produce in one day. The opportunity cost of 1 unit
of food in Korea is
D
ANSWER:
27. The figure shows how much a worker can produce in one day. The opportunity cost of 1 unit
of food in Australia is
28. The figure shows how much a worker can produce in one day. Which of the following
statements about comparative advantage is true?
C
ANSWER:
29. The figure shows how much a worker can produce in one day. Australia should
A
ANSWER:
30.
a. The price must be greater than 1/5 of a unit of food but less than 1/4 of a unit of
food.
b. The price must be greater than 4 units of food but less than 5 units of food.
c. The price must be greater than 2 of a unit of food but less than 4 of a unit of food.
d. The price must be greater than 1/4 units of food but less than 1/2 units of food.
C
ANSWER:
31. Suppose the world consists of two countries: the UK and Spain. Further, suppose there are
only two goods--food and clothing. Which of the following statements is true?
a. If the UK has an absolute advantage in the production of food, then Spain must have
an absolute advantage in the production of clothing.
b. none of these answers.
c. If the UK has a comparative advantage in the production of food, Spain might also
have a comparative advantage in the production of food.
d. If the UK has a comparative advantage in the production of food, it must also have a
comparative advantage in the production of clothing.
e. If the UK has a comparative advantage in the production of food, then Spain must
have a comparative advantage in the production of clothing.
E
ANSWER:
32. Use the production possibilities frontiers in Exhibit 4 to answer the question. Assume each
country has the same number of workers, say 20 million, and that each axis is measured in
metric tons per month. Argentina has a comparative advantage in the production of
a. neither fruit nor beef.
b. fruit.
c. both fruit and beef.
d. beef.
D
ANSWER:
33. Use the production possibilities frontiers in Exhibit 4 to answer the question. Assume each
country has the same number of workers, say 20 million, and that each axis is measured in
metric tons per month. Peru will export
C
ANSWER:
34. Use the production possibilities frontiers in Exhibit 4 to answer the question. Assume each
country has the same number of workers, say 20 million, and that each axis is measured in
metric tons per month. The opportunity cost of producing a metric ton of beef in Peru is
E
ANSWER:
35. Joe is a tax accountant. He receives €100 per hour doing tax returns. He can type 10,000
characters per hour into spreadsheets. He can hire an assistant who types 2,500 characters per
hour into spreadsheets. Which of the following statements is true?
a. none of these answers.
b. Joe should hire the assistant as long as he pays the assistant less than €25 per hour.
c. Joe should not hire an assistant because the assistant cannot type as fast as he.
d. Joe should hire the assistant as long as he pays the assistant less than €100 per hour.
B
ANSWER:
17. If an increase in the price of blue jeans leads to a decrease in the demand for
tennis shoes, then blue jeans and tennis shoes are
a. complements.
b. inferior goods.
c. normal goods.
d. none of these answers.
e. substitutes.
A
ANSWER:
18. The law of demand states that an increase in the price of a good
a. increases the supply of that good.
b. decreases the quantity demanded for that good along its demand curve.
c. decreases the demand for that good.
d. increases the quantity supplied of that good along its supply curve.
e. none of these answers.
B
ANSWER:
19. The law of supply states that an increase in the price of a good
a. none of these answers.
b. increases the quantity supplied of that good along its supply curve.
c. increases the supply of that good.
d. decreases the demand for that good.
e. decreases the quantity demanded for that good along its demand curve.
B
ANSWER:
20. If an increase in consumer incomes leads to a decrease in the demand for camping
equipment, then camping equipment is
a. a normal good.
b. none of these answers.
c. an inferior good.
d. a substitute good.
e. a complementary good.
C
ANSWER:
21. That the supply curve for ice cream cones is upward sloping indicates that
a. the marginal cost of providing ice cream cones increases as more cones are
produced.
b. as the price of ice cream cones increases, the production technology is upgraded.
c. as the price increases, the opportunity cost of making ice cream cones decreases.
d. all of the above.
e. none of the above.
A
ANSWER:
22. Which of the following shifts the demand for watches to the right?
a. an increase in the price of watches
b. none of these answers
c. a decrease in the price of watch batteries if watch batteries and watches are
complements
d. a decrease in consumer incomes if watches are a normal good
e. a decrease in the price of watches
C
ANSWER:
23. All of the following shift the supply of watches to the right except
a. an advance in the technology used to manufacture watches.
b. an increase in the price of watches.
c. All of these answers cause an increase in the supply of watches.
d. a decrease in the wage of workers employed to manufacture watches.
e. manufacturers' expectation of lower watch prices in the future.
B
ANSWER:
A
ANSWER:
B
ANSWER:
27. An increase (rightward shift) in the demand for a good will tend to cause
a. an increase in the equilibrium price and quantity.
b. none of these answers.
c. an increase in the equilibrium price and a decrease in the equilibrium quantity.
d. a decrease in the equilibrium price and an increase in the equilibrium quantity.
e. a decrease in the equilibrium price and quantity.
A
ANSWER:
28. A decrease (leftward shift) in the supply for a good will tend to cause
a. an increase in the equilibrium price and quantity.
b. a decrease in the equilibrium price and an increase in the equilibrium quantity.
c. none of these answers.
d. a decrease in the equilibrium price and quantity.
e. an increase in the equilibrium price and a decrease in the equilibrium quantity.
E
ANSWER:
29. Suppose there is an increase in both the supply and demand for personal computers. In the
market for personal computers, we would expect
a. the equilibrium quantity to rise and the equilibrium price to rise.
b. the equilibrium quantity to rise and the equilibrium price to fall.
c. the equilibrium quantity to rise and the equilibrium price to remain constant.
d. the change in the equilibrium quantity to be ambiguous and the equilibrium price to
rise.
e. the equilibrium quantity to rise and the change in the equilibrium price to be
ambiguous.
E
ANSWER:
30. Suppose there is an increase in both the supply and demand for personal computers. Further,
suppose the supply of personal computers increases more than demand for personal
computers. In the market for personal computers, we would expect
a. the change in the equilibrium quantity to be ambiguous and the equilibrium price to
fall.
b. the equilibrium quantity to rise and the equilibrium price to rise.
c. the equilibrium quantity to rise and the change in the equilibrium price to be
ambiguous.
d. the equilibrium quantity to rise and the equilibrium price to fall.
e. the equilibrium quantity to rise and the equilibrium price to remain constant.
D
ANSWER:
31. Which of the following statements is true about the impact of an increase in the price of
lettuce?
a. Both the demand for lettuce will decrease and the equilibrium price and quantity of
salad dressing will fall.
b. The supply of lettuce will decrease.
c. The demand for lettuce will decrease.
d. The equilibrium price and quantity of salad dressing will fall.
e. The equilibrium price and quantity of salad dressing will rise.
D
ANSWER:
32. Suppose a frost destroys much of the Florida orange crop. At the same time, suppose
consumer tastes shift toward orange juice. What would we expect to happen to the
equilibrium price and quantity in the market for orange juice?
a. Price will decrease; quantity is ambiguous.
b. The impact on both price and quantity is ambiguous.
c. Price will increase; quantity will increase.
d. Price will increase; quantity will decrease.
e. Price will increase; quantity is ambiguous.
E
ANSWER:
33. Suppose consumer tastes shift toward the consumption of apples. Which of the following
statements is an accurate description of the impact of this event on the market for apples?
a. There is an increase in the quantity demanded of apples along the demand curve and
in the supply for apples.
b. There is an increase in the demand and supply of apples.
c. There is an increase in the demand for apples and a decrease in the supply of apples.
d. There is a decrease in the quantity demanded of apples along its demand curve and
an increase in the supply for apples.
e. There is an increase in the demand for apples and an increase in the quantity supplied
of apples along the supply curve.
E
ANSWER:
34. Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future.
What would we expect to happen to the equilibrium price and quantity in the market for
wheat today?
a. The impact on both price and quantity is ambiguous.
b. Price will decrease; quantity is ambiguous.
c. Price will increase; quantity will decrease.
d. Price will increase; quantity is ambiguous.
e. Price will increase; quantity will increase.
D
ANSWER:
35. An inferior good is one for which an increase in income causes a(n)
a. decrease in supply.
b. increase in demand.
c. increase in supply.
d. decrease in demand.
D
ANSWER:
chapter 5 (Elasticity)
11. The price elasticity of demand is defined as
a. the percentage change in the quantity demanded divided by the percentage change in
income.
b. the percentage change in income divided by the percentage change in the quantity
demanded.
c. the percentage change in the quantity demanded of a good divided by the percentage
change in the price of that good.
d. none of these answers.
e. the percentage change in price of a good divided by the percentage change in the
quantity demanded of that good.
C
ANSWER:
A
ANSWER:
D
ANSWER:
14. Which of the following would cause a demand curve for a good to be price inelastic?
a. The good is a luxury.
b. There are a great number of substitutes for the good.
c. The good is a necessity.
d. None of these answers.
C
ANSWER:
15. The demand for which of the following is likely to be the most price inelastic?
a. transportation
b. taxi rides
c. bus tickets
d. airline tickets
A
ANSWER:
A
ANSWER:
17. If a fisherman must sell all of his daily catch before it spoils for whatever price he is offered,
once the fish are caught the fisherman's price elasticity of supply for fresh fish is
a. zero.
b. infinite.
c. one.
d. unable to be determined from this information.
A
ANSWER:
18. A decrease in supply (shift to the left) will increase total revenue in that market if
a. demand is price inelastic.
b. supply is price elastic.
c. supply is price inelastic.
d. demand is price elastic.
A
ANSWER:
19. If an increase in the price of a good has no impact on the total revenue in that market,
demand must be
a. all of these answers.
b. price inelastic.
c. unit price elastic.
d. price elastic.
C
ANSWER:
20. Technological improvements in agriculture that shift the supply of agricultural commodities
to the right tend to
a. increase total revenue to farmers as a whole because the demand for food is elastic.
b. increase total revenue to farmers as a whole because the demand for food is inelastic.
c. reduce total revenue to farmers as a whole because the demand for food is elastic.
d. reduce total revenue to farmers as a whole because the demand for food is inelastic.
D
ANSWER:
21. If supply is price inelastic, the value of the price elasticity of supply must be
a. infinite.
b. zero.
c. less than 1.
d. none of these answers.
e. greater than 1.
C
ANSWER:
22. If there is excess capacity in a production facility, it is likely that the firm's supply curve is
a. price inelastic.
b. none of these answers.
c. unit price elastic.
d. price elastic.
D
ANSWER:
23. Suppose that at a price of €30 per month, there are 30,000 subscribers to cable television in
Small Town. If Small Town Cablevision raises its price to €40 per month, the number of
subscribers will fall to 20,000. At which of the following prices does Small Town
Cablevision earn the greatest total revenue?
a. €0 per month
b. €30 per month
c. €40 per month
d. Either €30 or €40 per month because the price elasticity of demand is 1.0.
B
ANSWER:
24. If demand is linear (a straight line), then price elasticity of demand is
a. elastic in the upper portion and inelastic in the lower portion.
b. inelastic in the upper portion and elastic in the lower portion.
c. inelastic throughout.
d. constant along the demand curve.
e. elastic throughout.
A
ANSWER:
25. If consumers think that there are very few substitutes for a good, then
a. supply would tend to be price elastic.
b. none of these answers.
c. demand would tend to be price inelastic.
d. demand would tend to be price elastic.
e. supply would tend to be price inelastic.
C
ANSWER:
B
ANSWER:
C
ANSWER:
18. Suppose the equilibrium price for apartments is €500 per month and the government imposes
rent controls of €250. Which of the following is unlikely to occur as a result of the rent
controls?
a. There may be long lines of buyers waiting for apartments.
b. Landlords may discriminate among apartment renters.
c. Landlords may be offered bribes to rent apartments.
d. There will be a shortage of housing.
e. The quality of apartments will improve.
E
ANSWER:
D
ANSWER:
20. Which of the following statements about a binding price ceiling is true?
a. The shortage created by the price ceiling is greater in the short run than in the long
run.
b. The surplus created by the price ceiling is greater in the short run than in the long
run.
c. The surplus created by the price ceiling is greater in the long run than in the short
run.
d. The shortage created by the price ceiling is greater in the long run than in the short
run.
D
ANSWER:
21. Which side of the market is more likely to lobby government for a price floor?
a. the buyers
b. Neither buyers nor sellers desire a price floor.
c. the sellers
d. Both buyers and sellers desire a price floor.
C
ANSWER:
C
ANSWER:
A
ANSWER:
24. Which of the following statements is true if the government places a price ceiling on petrol at
€1.50 per litre and the equilibrium price is €1.00 per litre?
a. A significant increase in the demand for petrol could cause the price ceiling to
become a binding constraint.
b. A significant increase in the supply of petrol could cause the price ceiling to become
a binding constraint.
c. There will be a shortage of petrol.
d. There will be a surplus of petrol.
A
ANSWER:
25. Which of the following workers would be most likely to find it more difficult to get a job
after a rise in the minimum wage rate?
a. A teenage worker with few qualifications.
b. A manual worker with fifteen years of work experience.
c. A professional worker with a university degree.
d. All three are equally likely to find it difficult to get a job.
A
ANSWER:
26. Within the supply and demand model, a tax collected from the buyers of a good shifts the
a. supply curve downward by the size of the tax per unit.
b. supply curve upward by the size of the tax per unit.
c. demand curve upward by the size of the tax per unit.
d. demand curve downward by the size of the tax per unit.
D
ANSWER:
27. Within the supply and demand model, a tax collected from the sellers of a good shifts the
a. demand curve downward by the size of the tax per unit.
b. supply curve downward by the size of the tax per unit.
c. demand curve upward by the size of the tax per unit.
d. supply curve upward by the size of the tax per unit.
D
ANSWER:
28. Which of the following takes place when a tax is placed a good?
a. a decrease in the price buyers pay, an increase in the price sellers receive, and a
decrease in the quantity sold
b. an increase in the price buyers pay, a decrease in the price sellers receive, and an
increase in the quantity sold
c. a decrease in the price buyers pay, an increase in the price sellers receive, and an
increase in the quantity sold
d. an increase in the price buyers pay, a decrease in the price sellers receive, and a
decrease in the quantity sold
D
ANSWER:
D
ANSWER:
31. The burden of a tax falls more heavily on the sellers in a market when
a. both supply and demand are elastic.
b. both supply and demand are inelastic.
c. demand is inelastic and supply is elastic.
d. demand is elastic and supply is inelastic.
D
ANSWER:
32. A tax placed on a good that is a necessity for consumers will likely generate a tax burden that
a. falls more heavily on sellers.
b. falls entirely on sellers.
c. falls more heavily on buyers.
d. is evenly distributed between buyers and sellers.
C
ANSWER:
33. The burden of a tax falls more heavily on the buyers in a market when
a. both supply and demand are inelastic.
b. demand is elastic and supply is inelastic.
c. both supply and demand are elastic.
d. demand is inelastic and supply is elastic.
D
ANSWER:
34. Which of the following statements about the burden of a tax is correct?
a. The tax burden generated from a tax placed on a good consumers perceive to be a
necessity will fall most heavily on the sellers of the good.
b. The burden of a tax falls on the side of the market (buyers or sellers) from which it is
collected.
c. The distribution of the burden of a tax is determined by the relative elasticities of
supply and demand and is not determined by legislation.
d. The tax burden falls most heavily on the side of the market (buyers or sellers) that is
most willing to leave the market when price movements are unfavourable to them.
C
ANSWER:
35. For which of the following products would the burden of a tax likely fall more heavily on the
sellers?
a. clothing
b. food
c. housing
d. entertainment
D
ANSWER:
A
ANSWER:
D
ANSWER:
18. If a buyer's willingness to pay for a new Honda is €20,000 and she is able to actually buy it
for €18,000, her consumer surplus is
a. €18,000.
b. €20,000.
c. €2,000.
d. €0.
e. €38,000.
C
ANSWER:
19. An increase in the price of a good along a stationary demand curve
a. improves the material welfare of the buyers.
b. decreases consumer surplus.
c. improves market efficiency.
d. increases consumer surplus.
B
ANSWER:
20. Suppose there are three identical vases available to be purchased. Buyer 1 is willing to pay
€30 for one, buyer 2 is willing to pay €25 for one, and buyer 3 is willing to pay €20 for one.
If the price is €25, how many vases will be sold and what is the value of consumer surplus in
this market?
a. Three vases will be sold and consumer surplus is €80.
b. One vase will be sold and consumer surplus is €5.
c. One vase will be sold and consumer surplus is €30.
d. Three vases will be sold and consumer surplus is €0.
e. Two vases will be sold and consumer surplus is €5.
E
ANSWER:
E
ANSWER:
22. If a benevolent social planner chooses to produce less than the equilibrium quantity of a
good, then
a. total surplus is maximized.
b. the value placed on the last unit of production by buyers exceeds the cost of
production.
c. producer surplus is maximized.
d. the cost of production on the last unit produced exceeds the value placed on it by
buyers.
e. consumer surplus is maximized.
B
ANSWER:
23. If a benevolent social planner chooses to produce more than the equilibrium quantity of a
good, then
a. the value placed on the last unit of production by buyers exceeds the cost of
production.
b. the cost of production on the last unit produced exceeds the value placed on it by
buyers.
c. consumer surplus is maximized.
d. total surplus is maximized.
e. producer surplus is maximized.
B
ANSWER:
B
ANSWER:
C
ANSWER:
26. An increase in the price of a good along a stationary supply curve
a. increases producer surplus.
b. does all of the things described in these answers.
c. decreases producer surplus.
d. improves market equity.
A
ANSWER:
27. Adam Smith's "invisible hand" concept suggests that a competitive market outcome
a. maximizes total surplus.
b. generates equality among the members of society.
c. minimizes total surplus.
d. both maximizes total surplus and generates equality among the members of society.
A
ANSWER:
28. In general, if a benevolent social planner wanted to maximize the total benefits received by
buyers and sellers in a market, the planner should
a. choose a price below the market equilibrium price.
b. allow the market to seek equilibrium on its own.
c. choose any price the planner wants because the losses to the sellers (buyers) from
any change in price are exactly offset by the gains to the buyers (sellers).
d. choose a price above the market equilibrium price.
B
ANSWER:
E
ANSWER:
30. If a producer has market power (can influence the price of the product in the market) then
free market solutions
a. are equitable.
b. are efficient.
c. maximize consumer surplus.
d. are inefficient.
D
ANSWER:
32. If a market generates a side effect or externality, then free market solutions
a. maximize producer surplus.
b. are efficient.
c. are inefficient.
d. are equitable.
33. Medical care clearly enhances people’s lives. Therefore, we should consume medical care
until
a. everyone has as much as they would like.
b. the benefit buyers place on medical care is equal to the cost of producing it.
c. buyers receive no benefit from another unit of medical care.
d. we must cut back on the consumption of other goods.
B
ANSWER:
34. Joe has ten pairs of football boots and Sue has none. A pair of football boots costs €50 to
produce. If Joe values an additional pair of boots at €100 and Sue values a pair of boots at
€40, then to maximize
a. efficiency Sue should receive the glove.
b. efficiency Joe should receive the glove.
c. equity, Joe should receive the glove.
d. consumer surplus both should receive a glove.
B
ANSWER:
35. Suppose that the price of a new bicycle is €300. Natalie values a new bicycle at €400. It costs
€200 for the seller to produce the new bicycle. What is the value of total surplus if Natalie
buys a new bike?
a. €500
b. €300
c. €200
d. €400
e. €100
C
ANSWER:
Chapter 8: Taxe
16. Refer to Exhibit 4. If there is no tax placed on the product in this market, consumer surplus is
the area
a. C + D + F.
b. A.
c. A + B + E.
d. D + C + B.
e. A + B + C.
C
ANSWER:
17. Refer to Exhibit 4. If there is no tax placed on the product in this market, producer surplus is
the area
a. A + B + E.
b. D.
c. C + F.
d. A + B + C + D.
e. C + D + F.
E
ANSWER:
18. Refer to Exhibit 4. If a tax is placed on the product in this market, consumer surplus is the
area
a. D.
b. A.
c. A + B + E.
d. A + B + C + D.
e. A + B.
B
ANSWER:
20. Refer to Exhibit 4. If a tax is placed on the product in this market, tax revenue paid by the
buyers is the area
a. B + C + E + F.
b. B.
c. B + C.
d. A.
e. C.
B
ANSWER:
21. Refer to Exhibit 4. If a tax is placed on the product in this market, tax revenue paid by the
sellers is the area
a. C + F.
b. A.
c. B.
d. B + C + E + F.
e. C.
E
ANSWER:
22. Refer to Exhibit 4. If there is no tax placed on the product in this market, total surplus is the
area
a. B + C + E + F.
b. E + F.
c. A + B + C + D.
d. A + B + C + D + E + F.
e. A + D + E + F.
D
ANSWER:
23. Refer to Exhibit 4. If a tax is placed on the product in this market, total surplus is the area
a. A + B + C + D + E + F.
b. A + B + C + D.
c. A + D.
d. B + C + E + F.
e. E + F.
B
ANSWER:
24. Refer to Exhibit 4. If a tax is placed on the product in this market, deadweight loss is the area
a. B + C + E + F.
b. E + F.
c. B + C.
d. A + B + C + D.
e. A + D.
B
ANSWER:
25. Refer to Exhibit 4. Which of the following is true with regard to the burden of the tax in
Exhibit 4?
a. The buyers pay a larger portion of the tax because demand is more inelastic than
supply.
b. The sellers pay a larger portion of the tax because supply is more elastic than
demand.
c. The buyers pay a larger portion of the tax because demand is more elastic than
supply.
d. The sellers pay a larger portion of the tax because supply is more inelastic than
demand.
D
ANSWER:
26. Which of the following would likely cause the greatest deadweight loss?
a. a tax on salt
b. a tax on cigarettes
c. a tax on petrol
d. a tax on cruise line tickets
D
ANSWER:
27. A tax on petrol is likely to
a. generate a deadweight loss that is unaffected by the time period over which it is
measured.
b. cause a greater deadweight loss in the long run when compared to the short run.
c. none of these answers
d. cause a greater deadweight loss in the short run when compared to the long run.
B
ANSWER:
D
ANSWER:
29. Since the supply of undeveloped land is relatively inelastic, a tax on undeveloped land would
generate
a. a small deadweight loss and the burden of the tax would fall on the renter.
b. a large deadweight loss and the burden of the tax would fall on the landlord.
c. a large deadweight loss and the burden of the tax would fall on the renter.
d. a small deadweight loss and the burden of the tax would fall on the landlord.
D
ANSWER:
30. Which of the following is true with regard to a tax on labour income? Taxes on labour
income tend to encourage
a. the unscrupulous to enter the underground economy.
b. the elderly to retire early.
c. all of the things described in these answers.
d. second earners to stay home.
e. workers to work fewer hours.
C
ANSWER:
31. When a tax on a good starts small and is gradually increased, tax revenue
a. will fall.
b. will rise.
c. will first rise and then fall.
d. will first fall and then rise.
e. none of these answers
C
ANSWER:
32. The graph that shows the relationship between the size of a tax and the tax revenue collected
by the government is known as a
a. none of these answers
b. Reagan curve.
c. Keynesian curve.
d. Laffer curve.
e. Henry George curve.
D
ANSWER:
33. If a tax on a good is doubled, the deadweight loss from the tax
a. doubles.
b. stays the same.
c. increases by a factor of four.
d. could rise or fall.
C
ANSWER:
C
ANSWER:
35. When a tax distorts incentives to buyers and sellers so that fewer goods are produced and
sold than otherwise, the tax has
a. caused a deadweight loss.
b. decreased equity.
c. generated no tax revenue.
d. increased efficiency.
A
ANSWER:
D
ANSWER:
A
ANSWER:
EP= 100.000- 20.000 – 5000 – 40.000= 30.000
20. If there are implicit costs of production,
a. accounting profit will exceed economic profit.
b. economic profit will always be zero.
c. economic profit will exceed accounting profit.
d. accounting profit will always be zero.
e. economic profit and accounting profit will be equal.
D
ANSWER:
22. If a production function exhibits diminishing marginal product, the slope of the
corresponding total-cost curve
a. is linear (a straight line).
b. is negative throughout its length
c. becomes steeper as the quantity of output increases.
d. becomes flatter as the quantity of output increases.
C
ANSWER:
23. Refer to Figure 13-1. The marginal product of labour as production moves from employing
one worker to employing two workers is
Figure 13-1
Number of Workers Output
0 0
1 23
2 40
3 50
a. 0.
b. 10.
c. 17.
d. 23
e. 40.
C
ANSWER:
24. Refer to Figure 13-1. The production process described above exhibits
Figure 13-1
Number of Workers Output
0 0
1 23
2 40
3 50
a. constant marginal product of labour.
b. diminishing marginal product of labour.
c. increasing returns to scale.
d. increasing marginal product of labour.
e. decreasing returns to scale.
B
ANSWER:
B
ANSWER:
26. Refer to Figure 13-2. The average fixed cost of producing four units is
Figure 13-2
1 10 5
2 10 11
3 10 18
4 10 26
5 10 36
a. €2.50.
b. €5.
c. €9
d. €26.
e. €40.
A
ANSWER:
AFC= FC/Q
27. Refer to Figure 13-2. The average total cost of producing three units is
Figure 13-2
1 10 5
2 10 11
3 10 18
4 10 26
5 10 36
a. €6.
b. €3.33.
c. €9.33.
d. €12.66
e. €28.
C
ANSWER:
ATC= TC/Q
28. Refer to Figure 13-2. The marginal cost of changing production from three units to four units
is
Figure 13-2
1 10 5
2 10 11
3 10 18
4 10 26
5 10 36
a. €5.
b. €6.
c. €7.
d. €8.
e. €9.
D
ANSWER:
MC= DENTA TVC/ DENTA Q
29. Refer to Figure 13-2. The efficient scale of production is
Figure 13-2
1 10 5 15
2 10 11 21
3 10 18 28
4 10 26 36
5 10 36 46
a. one unit.
b. two units.
c. three units.
d. four units.
e. five units.
ATC: _
15
10.5
9.33
9
9.20
efficient scale of production: GIÁ TRỊ MÀ ATC THẤP NHẤT
30 When marginal costs are below average total costs,
a. average fixed costs are rising. c. average total costs are rising.
b. average total costs are falling. d. average total costs are minimized.
B
ANSWER:
MC< ATC ATC GIẢM
MC> ATC ATC TĂNG
MC = ATC ATC THẤP NHẤT ( EFFICIENT SCALE)
31. If marginal costs equal average total costs,
a. average total costs are falling. c. average total costs are maximized.
b. average total costs are rising. d. average total costs are minimized.
32. In the long run, if a very small factory were to expand its scale of operations, it is likely that
it would initially experience
a. an increase in average total costs. c. economies of scale.
b. diseconomies of scale. d. constant returns to scale.
33. The efficient scale of production is the quantity of output that minimizes
a. average fixed cost. c. average variable cost.
b. average total cost. d. marginal cost.
12. Which of the following markets would most closely satisfy the requirements for a
competitive market?
a. electricity
b. cable television
c. cola
d. milk
e. economics textbooks.
A
ANSWER:
D
ANSWER:
15. The competitive firm maximizes profit when it produces output up to the point where
a. price equals average variable cost.
b. marginal revenue equals average revenue.
c. marginal cost equals total revenue.
d. marginal cost equals marginal revenue.
16. A grocery store should close at night if the
a. variable costs of staying open are less than the total revenue due to staying open.
b. total costs of staying open are less than the total revenue due to staying open.
c. variable costs of staying open are greater than the total revenue due to staying open.
d. total costs of staying open are greater than the total revenue due to staying open.
17. If an input necessary for production is in limited supply so that an expansion of the industry
raises costs for all existing firms in the market, then the long-run market supply curve for a
good could be
a. perfectly inelastic. c. upward sloping.
b. perfectly elastic. d. downward sloping.
13. A firm whose average total cost continually declines at least to the quantity that could supply
the entire market is known as a
a. natural monopoly.
b. perfect competitor.
c. government monopoly.
d. regulated monopoly.
17. Refer to Exhibit 4. The profit-maximizing monopolist will choose the price and quantity
represented by point
a. A.
b. B.
c. C.
d. D.
e. none of these answers.
18. Refer to Exhibit 4. The efficient price and quantity are represented by point
a. D.
b. A.
c. B.
d. C.
e. none of these answers.
20. Compared to a perfectly competitive market, a monopoly market will usually generate
a. higher prices and lower output.
b. higher prices and higher output.
c. lower prices and lower output.
d. lower prices and higher output.
22. Which of the follow statements about price discrimination is not true?
a. Perfect price discrimination generates a deadweight loss.
b. Price discrimination can raise economic welfare.
c. Price discrimination requires that the seller be able to separate buyers according to
their willingness to pay.
d. Price discrimination increases a monopolist's profits.
e. For a monopolist to engage in price discrimination, buyers must be unable to engage
in arbitrage.
22. A monopoly is able to continue to generate economic profits in the long run because
a. there is some barrier to entry to that market.
b. potential competitors sometimes don't notice the profits.
c. the monopolist is financially powerful.
d. antitrust laws eliminate competitors for a specified number of years.
e. of all of the things described in these answers