4. According to the graph, assume that Cliff and Paul were both producing wheat and corn, and each were dividing their time equally between the two. T

Transcription

1 1. Your professor loves his work, teaching economics. He has been offered other positions in the corporate world making 25 percent more, but has decided to stay in teaching. His decision would not change unless the marginal a. cost of teaching increased. b. benefit of teaching increased. c. cost of teaching decreased. d. cost of a corporate job increased. 2. According to the graph, if this economy puts all of its resources into the production of bathtubs it could produce a. 20 barrels and 12 bathtubs. b. 35 barrels and no bathtubs. c. no barrels and 16 bathtubs. d. This economy would not choose to put all of its resources into the production of one good. 3. According to the graph, if this economy moved from point C to point E, a. it still would not be producing efficiently. b. there would be no gain in either bathtubs or barrels. c. it would be producing more barrels and more bathtubs than at point C. d. It is not possible for this economy to move from point C to point E without additional resources. 1

2 4. According to the graph, assume that Cliff and Paul were both producing wheat and corn, and each were dividing their time equally between the two. Then they decide to specialize in the product they have a comparative advantage in. As a result, total production of corn would a. increase by 1 bushel. b. increase by 3 bushels. c. increase by 5 bushels. d. decrease by 2 bushels. 5. According to the graph, which of the following is true for Cliff and Paul? a. Paul has a comparative advantage in both wheat and corn. b. Paul has a comparative advantage in wheat and Cliff has a comparative advantage in corn. c. Cliff has a comparative advantage in wheat and Paul has a comparative advantage in corn. d. Cliff has a comparative advantage in both wheat and corn. 6. Two goods are substitutes if a decrease in the price of one good a. increases the demand for the other good. b. reduces the demand for the other good. c. reduces the quantity demanded of the other good. d. increases the quantity demanded of the other good. 7. When we move up or down a given demand curve, a. only price is held constant. b. income and the price of the good are held constant. c. all nonprice determinants of demand are assumed to be constant. d. all determinants of quantity demanded are held constant. 2

3 8. Which of the following cause and effect events is in order for a seller? a. Technology improves, profit falls, the supply curve shifts left. b. An input price falls, profit increases, the supply curve shifts right. c. An input price rises, profit falls, the supply curve shifts right. d. An input price rises, profit rises, the supply curve shifts left. 9. Funsters, Inc., the largest toy company in the country, sells its most popular doll for $15. It has just learned that its leading competitor Toysorama is mass producing an excellent copy and plans to flood the market with their $5 doll in 6 weeks. Funsters should a. increase the supply of their doll now before the other doll hits the market. b. fight fire with fire and decrease supply for 6 weeks and then increase the supply of its doll too. c. continue business as usual, since consumers will not buy the cheaper imitation. d. discontinue this doll. 10. A decrease in resource costs to firms in a market will result in a. a decrease in equilibrium price and an increase in equilibrium quantity. b. a decrease in equilibrium price and a decrease in equilibrium quantity. c. an increase in equilibrium price and no change in equilibrium quantity. d. an increase in equilibrium price and an increase in equilibrium quantity. 11. Which chain of events occurs in the correct order? a. Quantity supplied increases, price increases, demand increases. b. Price increases, demand increases, quantity supplied increases. c. Demand increases, price increases, quantity supplied increases. d. Any of the above could be correct. 12. Which of the following would definitely result in a higher price in the market for Snickers? a. demand increases and supply decreases b. demand and supply both decrease c. demand decreases and supply increases d. demand and supply both increase 13. What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell? a. Price will fall and the effect on quantity is ambiguous. b. Price will rise and the effect on quantity is ambiguous. c. Quantity will fall and the effect on price is ambiguous. d. Quantity will rise and the effect on price is ambiguous. 3

4 14. New cars are normal goods. What will happen to the equilibrium price of new cars if the price of gasoline rises, the price of steel falls, public transportation becomes cheaper and more comfortable, auto-workers accept lower wages and automobile insurance becomes more expensive? a. Price will rise. b. Price will fall. c. Price will stay exactly the same. d. The price change will be ambiguous. 15. When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, you know that the demand for bubble gum is a. inelastic. b. elastic. c. unit elastic. d. perfectly inelastic. 16. The flatter the demand curve through a given point, the a. greater the price elasticity of demand. b. smaller the price elasticity of demand. c. closer the price elasticity of demand will be to the slope of the curve. d. more equal the price elasticity of demand will be to the slope of the curve. 17. On a downward-sloping linear demand curve, total revenue would be at a maximum at the a. midpoint of the demand curve. b. lower end of the demand curve. c. upper end of the demand curve. d. It is impossible to tell without knowing prices and quantities demanded. 18. A demand curve with a zero elasticity is perfectly a. inelastic and vertical. b. inelastic and horizontal. c. elastic and vertical. d. elastic and horizontal. 19. Because the demand for wheat tends to be inelastic, the development of a new, more productive hybrid wheat would tend to a. increase the total revenue of wheat farmers. b. decrease the total revenue of wheat farmers. c. weaken the demand for wheat. d. weaken the supply of wheat. 4

5 20. A decrease in supply will cause the largest increase in price when a. both supply and demand are inelastic. b. both supply and demand are elastic. c. demand is elastic and supply is inelastic. d. demand is inelastic and supply is elastic. 21. If a binding price ceiling is imposed in a market a. there will be a surplus in the market. b. the price will be legally forced toward equilibrium price. c. there will be a shortage in the market. d. market forces will guarantee that the price will be at equilibrium. 22. A binding price floor in a market sets price a. above equilibrium price and causes a shortage. b. above equilibrium price and causes a surplus. c. below equilibrium price and causes a surplus. d. below equilibrium price and causes a shortage. 23. In the housing market, rent controls cause quantity supplied to a. fall and quantity demanded to fall. b. fall and quantity demanded to rise. c. rise and quantity demanded to fall. d. rise and quantity demanded to rise. 5

6 24. According to the graph, the price buyers will pay after the tax is imposed is a. $ b. $ c. $ d. $ According to the graph, the amount of the tax imposed in this market is a. $ b. $6.00. c. $4.00. d. $ According to the graph, the amount of the tax that buyers would pay would be a. $ b. $6.00. c. $4.00. d. $ If a tax is imposed on a market with elastic demand and inelastic supply, a. buyers will bear most of the burden of the tax. b. sellers will bear most of the burden of the tax. c. the burden of the tax will be shared equally between buyers and sellers. d. it is impossible to determine how the burden of the tax will be shared. 28. If the cost of producing sofas decreases, consumer surplus will a. increase, then decrease. b. decrease. c. remain constant. d. increase. 6

7 29. The Surgeon General announces that eating chocolate increases tooth decay. As a result, the equilibrium market price of chocolate a. increases, and producer surplus increases. b. increases, and producer surplus decreases. c. decreases, and producer surplus decreases. d. decreases, and producer surplus increases. 30. Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for widgets to $6, producer surplus a. would necessarily increase even if the higher price resulted in a surplus of widgets. b. would necessarily decrease because the higher price would create a surplus of widgets. c. might increase or decrease. d. would be unaffected. 31. When a tax is imposed on a good we know that the losses to buyers and sellers a. are equal to the revenue raised by the government. b. are less than the revenue raised by the government. c. exceed the revenue raised by the government. d. cannot be compared to the tax revenue raised by the government since the amount of the tax will vary from good to good. 32. When evaluating the size of the deadweight loss due to a tax we know that the a. greater the elasticities of supply and demand, the greater the deadweight loss. b. smaller the elasticities of supply and demand, the greater the deadweight loss. c. smaller the decrease in both quantity demanded and quantity supplied, the greater the deadweight loss. d. primary factor that determines the size of the deadweight loss in the percentage the tax is of price. 33. The Laffer curve indicates each of the following EXCEPT income tax collections will be a. very low if income tax rates are very low. b. very low if income tax rates are very high. c. at a maximum if income tax rates are at some intermediate level between very low and very high. d. very high if income tax rates are very high. 7

8 34. Suppose that the equilibrium quantity in the market for widgets has been 200 per month. Then a tax of $5 per widget is imposed on widgets. The price paid by buyers increases by $2 and the after-tax price received by sellers falls by $3. The government is able to raise $750 per month in revenue from the tax. The deadweight loss from the tax is a. $250. b. $125. c. $75. d. $ When a country allows trade and becomes an exporter of a good consumer surplus a. and producer surplus will increase. b. and producer surplus will decrease. c. will increase and producer surplus will decrease. d. will decrease and producer surplus will increase. 36. Turkey is an importer of goose down pillows. The world price of these pillows is $50. Turkey imposes a $7 tariff on pillows. Turkey is a price-taker in the pillow market. As a result of the tariff Turkey s price of pillows will be a. $50 and the quantity of pillows purchased will decrease. b. $57 and the quantity of pillows purchased will decrease. c. $50 and the quantity of pillows purchased will increase. d. $57 and the quantity of pillows purchased will increase. 37. A tariff and an import quota will both a. increase the quantity of imports and raise domestic price. b. increase the quantity of imports and lower domestic price. c. reduce the quantity of imports and raise domestic price. d. reduce the quantity of imports and lower domestic price. 8

9 38. According to the graph, the amount of the quota is a. 100 birdhouses. b. 200 birdhouses. c. 300 birdhouses. d. 400 birdhouses. 39. According to the graph, as a result of the quota, domestic producer surplus increases by a. $100. b. $200. c. $300. d. $ According to the graph, the gain as a result of the quota to license holders who import birdhouses would be a. $100. b. $200. c. $400. d. $ Mallory decides to spend 3 hours working overtime rather than watching a video with her friends. She earns $8 an hour. Her opportunity cost of working is a. the $24 she earns working. b. the $24 minus the enjoyment she would have received from watching the video. c. the enjoyment she would have received had she watched the video. d. nothing, since she would have received less than $24 of enjoyment from the video. 2. If the average income of an Australian is higher than the average income of a Russian, it is most likely because a. productivity is higher in Australia than in Russia. b. Australia has a more industrial economy than Russia. c. there is more competition in Australia than in Russia. d. labor unions are more aggressive in Australia than in Russia. 9

10 3. In a circular-flow diagram, a. taxes flow from households to firms, and transfer payments flow from firms to households. b. income payments flow from firms to households, and sales revenue flows from households to firms. c. resources flow from firms to households, and goods and services flow from households to firms. d. inputs and outputs flow in the same direction as the flow of dollars, from firms to households. 4. On the production possibilities frontier shown, the opportunity cost to the economy of getting 30 additional toothbrushes by moving from point A to point D is a. 10 toasters. b. 15 toasters. c. 20 toasters. d. 25 toasters. 5. On the production possibilities frontier shown, the opportunity cost of getting 15 additional toasters by moving from point D to point C is a. 10 toothbrushes. b. 20 toothbrushes. c. 30 toothbrushes. d. It is impossible for the economy to move from point D to point C. 10

11 6. On the production possibilities frontier shown, the opportunity cost in terms of toothbrushes of getting 10 additional toasters by moving from point B to point A is a. 20 toothbrushes. b. 10 toothbrushes. c. 5 toothbrushes. d. zero, since the economy has the additional resources to produce 10 additional toasters. 7. The difference between production possibilities frontiers that are bowed out and those that are linear is that a. bowed out production possibilities frontiers illustrate tradeoffs where linear production possibilities frontiers do not. b. bowed out production possibilities frontiers show increasing opportunity cost where linear ones show constant opportunity cost. c. bowed out production possibilities frontiers are the result of perfectly shiftable resources where linear production possibilities frontiers are not. d. linear production possibilities frontiers illustrate real world conditions more than bowed out production possibilities frontiers. For the following question(s), use the accompanying table. Labor Hours needed to make one unit of: Amount produced in 160 hours: Quilts Dresses Quilts Dresses Helen Carolyn According to the table, Helen has an absolute advantage in a. dresses and Carolyn has an absolute advantage in quilts. b. quilts and Carolyn has an absolute advantage in dresses. c. neither good and Carolyn has an absolute advantage in both goods. d. both goods and Carolyn has an absolute advantage in neither good. 9. According to the table, Helen and Carolyn both could benefit by Helen specializing in a. dresses and Carolyn specializing in quilts. b. neither good and Carolyn specializing in both goods. c. quilts and Carolyn specializing in dresses. d. both goods and Carolyn specializing in neither good. 11

12 10. Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Oatland can grow either 20 bushels of corn or 5 bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. Which of the following statements is true? a.both countries could gain from trade with each other. b. Neither country would gain from trade because Cornland has an absolute advantage in both goods. c. Neither country would gain from trade because neither one has a comparative advantage. d. Only Oatland could possibly gain from trade. 11. Two goods are complements if a decrease in the price of one good a. increases the quantity demanded of the other good. b. reduces the demand for the other good. c. reduces the quantity demanded of the other good. d. raises the demand for the other good. 12. You love peanut butter. You hear on the news that 50 % of the peanut crop in the South has been wiped out, which will cause the price to double by the end of the year. As a result, a. your demand for peanut butter will increase by the end of the year. b. your demand for peanut butter increases today. c. your demand for peanut butter falls as you look for a substitute good. d. you decide to give up peanut butter completely. 13. When quantity demanded has increased at every price, it might be because a. the number of buyers in the market has decreased. b. income has increased and this good is an inferior good. c. the consumer prefers another good more than this good. d. the price of a substitute good has increased. 14. If a surplus exists in a market we know that the actual price is a. above equilibrium price and quantity supplied is greater than quantity demanded. b. above equilibrium price and quantity demanded is greater than quantity supplied. c. below equilibrium price and quantity demanded is greater than quantity supplied. d. below equilibrium price and quantity supplied is greater than quantity demanded. 12

13 15. An early frost in the vineyards of Napa Valley would cause a. an increase in the demand for wine, increasing price. b. an increase in the supply of wine, decreasing price. c. a decrease in the demand for wine, decreasing price. d. a decrease in the supply of wine, increasing price. 16. Suppose that the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market? a. The equilibrium price would increase, but the impact on the amount sold in the market would be ambiguous. b. The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous. c. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. d. Both equilibrium price and equilibrium quantity would increase. 17. Music compact discs are normal goods. What will happen to the equilibrium price and quantity of music compact discs if musicians accept lower royalties, compact disc players become cheaper, more firms start producing music compact discs and music lovers experience an increase in income? a.price will fall and the effect on quantity is ambiguous. b. Price will rise and the effect on quantity is ambiguous. c. Quantity will fall and the effect on price is ambiguous. d. Quantity will rise and the effect on price is ambiguous. 18. If a 15 percent increase in price causes a 30 percent decrease in quantity demanded, this product might a. have no close substitute. b. be a luxury. c. be part of a broadly defined market. d. be in a short time horizon. 19. When small changes in price lead to infinite changes in quantity demanded, demand is perfectly a. elastic and will be horizontal. b. inelastic and will be horizontal. c. elastic and will be vertical. d. inelastic and will be vertical. 20. How does total revenue change as one moves down a linear demand curve? a. It increases. b. It decreases. c. It first increases, then decreases. d. It is unaffected by a movement along the demand curve. 13

14 21. When demand is elastic in the current price range, a. an increase in price would increase total revenue because the decrease in quantity demanded is less than the increase in price. b. an increase in price would decrease total revenue because the decrease in quantity demanded is greater than the increase in price. c. a decrease in price would decrease total revenue because the increase in quantity demanded is smaller than the decrease in price. d. a decrease in price would not affect the total revenue. 22. Food and clothing tend to have a. small income elasticities because consumers, regardless of their incomes, choose to buy these goods. b. small income elasticities because consumers will buy proportionately more at higher income levels than they will at low income levels. c. large income elasticities because they are necessities. d. large income elasticities because they are relatively cheap. 23. If wheat farmers know that the demand for wheat is inelastic, and they want to increase their total revenue, they should all a. plant more wheat so that they would be able to sell more each year. b. increase spending on fertilizer in an attempt to produce more on the acres they farm. c. reduce the number of acres they plant in wheat. d. use better machinery. 24. Binding price ceilings in a market cause quantity demanded to be a. greater than quantity supplied. b. equal to quantity supplied. c. less than quantity supplied. d. Any of the above are possible. 25. According to the graph shown, with a price ceiling present in this market, when the supply curve for gasoline shifts from S1 to S2 14

15 a. the price will increase to P3. b. a surplus will occur at the new market price of P2. c. the market price will stay at P1 due to the price ceiling. d. a shortage will occur at the price ceiling of P Without the price ceiling in this market for gasoline, when the supply curve shifts from S1 to S2 the price will a. increase to P3, but a shortage will still exist. b. increase to P3 and the market will clear. c. remain at P1 and a shortage will still exist. d. eventually move to P2 without government assistance. 27. A minimum wage imposed above a market s equilibrium wage will result in the quantity a. supplied of labor being greater than the quantity demanded of labor and unemployment will occur. b. demanded of labor being greater than the quantity supplied of labor and unemployment will occur. c. supplied of labor being greater than the quantity demanded of labor and a shortage of workers will occur. d. demanded of labor being greater than the quantity supplied of labor and a shortage of workers will occur. 28. A tax placed on kite buyers will shift a. supply upward, causing equilibrium price to rise and equilibrium quantity to fall. b. demand upward, causing both equilibrium price and quantity to rise. c. supply downward, causing equilibrium price to fall and equilibrium quantity to rise. d. demand downward, causing both equilibrium price and quantity to fall. 29. If a tax is imposed on a market with inelastic demand and elastic supply, a. buyers will bear most of the burden of the tax. b. sellers will bear most of the burden of the tax. c. the burden of the tax will be shared equally between buyers and sellers. d. it is impossible to determine how the burden of the tax will be shared. 30. Suppose there is an early freeze in California that ruins the lemon crop. What happens to consumer surplus in the market for lemons? a. It increases. b. It decreases. c. It is not affected by this change in market forces. d. It increases very briefly then decreases. 15

16 31. Dallas buys strawberries, and would be willing to pay more than he now has to pay. Suppose that Dallas has a change in his tastes such that he values strawberries more than before. If the market price is the same as before, then a. Dallas s consumer surplus would be unaffected. b. Dallas s consumer surplus would increase. c. Dallas s consumer surplus would decrease. d. Dallas would be wise to buy fewer strawberries than before. 32. Which of the following is NOT correct? a. consumer surplus = value to buyers amount paid by buyers b. producer surplus = amount received by sellers cost of sellers c. total surplus = value to buyers amount paid by buyers + amount received by sellers costs of sellers d. total surplus = value to sellers costs of sellers 33. Suppose that the equilibrium price in the market for widgets is $5. If a law reduced the maximum legal price for widgets to $4, a. consumer surplus would necessarily increase even if the lower price resulted in a shortage of widgets. b. consumer surplus would necessarily decrease because the lower price would create a shortage of widgets. c. consumer surplus might increase or decrease. d. consumer surplus would be unaffected. 34. Orange juice and apple juice are substitutes. Bad weather that sharply reduced the orange harvest would a. increase consumer surplus in the market for orange juice but decrease producer surplus in the market for apple juice. b. increase consumer surplus in the market for orange juice and increase producer surplus in the market for apple juice. c. decrease consumer surplus in the market for orange juice but increase producer surplus in the market for apple juice. d. decrease consumer surplus in the market for orange juice and decrease producer surplus in the market for apple juice. 35. A tax on a good a. raises the price buyers pay and lowers the price sellers receive. b. raises both the price buyers pay and the price sellers receive. c. lowers both the price buyers pay and the price sellers receive. d. lowers the price buyers pay and raises the price sellers receive. 16

17 36. When a tax is imposed on a good we know that the losses to buyers and sellers a. are equal to the revenue raised by the government. b. are less than the revenue raised by the government. c. exceed the revenue raised by the government. d. cannot be compared to the tax revenue raised by the government since the amount of the tax will vary from good to good. 37. If the supply of land is fixed, a tax on land would be paid a. entirely by the landowners. b. entirely by the renters or users of the land. c. partly by landowners and partly by land users. d. only by workers. 38. A tax placed on land (fixed) would cause a. a huge deadweight loss. b. no deadweight loss. c. landlords to not bear any of the burden of the tax. d. enough tax revenue so that all other taxes could be eliminated. 39. When a country is on the downward-sloping side of the Laffer curves, cutting tax rates will a. lower tax revenues and increase deadweight loss. b. lower both tax revenues and deadweight loss. c. increase tax revenues and decrease deadweight loss. d. increase both tax revenues and deadweight loss. 40. If the supply of a good is relatively elastic, changing the price causes a. a relatively small change in the amounts that buyers are willing to buy. b. a relatively small change in the amounts sellers are willing to sell. c. a relatively large change in the amounts sellers are willing to sell. d. no change in the amounts sellers are willing to sell. 1. Production possibilities frontiers are usually bowed outward. This is because a. the more resources a society uses to produce one good, the fewer resources it has available to produce another good. b. it reflects the fact that the opportunity cost of producing a good decreases as more and more of that good is produced. c. of the effects of technological change. d. resources are specialized, that is, some are better at producing particular goods rather than other goods. 17

18 2. When an economy is operating inside its production possibilities frontier we know that a. there are unused resources or inefficiencies in the economy. b. all of the economy s resources are fully employed. c. economic growth would have to occur in order for the economy to move to a point on the frontier. d. in order to produce more of one good, the economy would have to give up some of the other good. 3. Which of these statements is a normative statement (as opposed to a positive statement)? a. Gasoline prices ought to be lower than they are now. b. The federal government should raise taxes on wealthy people. c. The social security system is a good system and it deserves to be preserved as it is. d. All of the above are normative statements. 4. The difference between production possibilities frontiers that are bowed out and those that are straight lines is that a. bowed-out production possibilities frontiers apply to economies that face tradeoffs, whereas straight-line production possibilities frontiers apply to economies that do not face tradeoffs. b. bowed-out production possibilities frontiers apply to economies in which resources are not specialized, whereas straight-line production possibilities frontiers apply to economies in which resources are specialized. c. bowed-out production possibilities frontiers illustrate increasing opportunity cost, whereas straight-line production possibilities frontiers illustrate constant opportunity cost. d. straight-line production possibilities frontiers illustrate real-world conditions, whereas bowed-out production possibilities frontiers illustrate more simplistic assumptions. 18

19 5. The opportunity cost of 1 bushel of corn is a. 4/5 bushel of wheat for Paul and 3/2 bushels of wheat for Cliff; thus, Paul has the comparative advantage in growing corn. b. 4/5 bushel of wheat for Paul and 3/2 bushels of wheat for Cliff; thus, Cliff has the comparative advantage in growing corn. c. 5/4 bushels of wheat for Paul and 2/3 bushel of wheat for Cliff; thus, Paul has the comparative advantage in growing corn. d. 5/4 bushels of wheat for Paul and 2/3 bushel of wheat for Cliff; thus, Cliff has the comparative advantage in growing corn. 6. Assume Cliff and Paul were both producing wheat and corn, and each person was dividing his time equally between the two. Then each decides to specialize in the product in which he has a comparative advantage. As a result of this change, total production of corn would a. increase by 1 bushel. b. increase by 3 bushels. c. increase by 5 bushels. d. decrease by 2 bushels. 7. Which of the following events could shift the demand curve for gasoline to the left? a. Income of gasoline buyers rises, and gasoline is a normal good. b. Income of gasoline buyers falls, and gasoline is an inferior good. c. Public service announcements are run on television, encouraging people to walk or ride bicycles instead of driving cars. d. The price of gasoline rises. 8. When we move along a given demand curve, a. only price is held constant. b. income and the price of the good are held constant. c. all nonprice determinants of demand are held constant. d. all determinants of quantity demanded are held constant. 9. Which of the following events could shift both the demand curve and the supply curve for a good? a. A technological advance pertaining to the production of the good is observed. b. Incomes of all buyers of the good increase. c. The number of sellers of the good increases. d. Everyone revises upward their expectation of next month s price of the good. 10. Suppose there is an earthquake that destroys several corn canneries. Which of the following would not be a direct result of this event? a. Sellers would decrease their ability to produce and sell as much as before at each relevant price. b. The supply would decrease. c. Buyers would not be willing to buy as much as before at each relevant price. d. The equilibrium price would rise. 19

20 11. Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market? a. The equilibrium price would increase, but the impact on the amount sold in the market would be ambiguous. b. The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous. c. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. d. Both equilibrium price and equilibrium quantity would increase. 12. Suppose that a decrease in the price of good X results in fewer units of good Y being sold. This implies that X and Y are a. complementary goods. b. normal goods. c. inferior goods. d. substitute goods. 13. What will happen to the equilibrium price and quantity of traditional camera film if traditional cameras become more expensive, digital cameras become cheaper, the cost of the resources needed to manufacture traditional film falls and more firms decide to manufacture traditional film? a. Price will fall and the effect on quantity is ambiguous. b. Price will rise and the effect on quantity is ambiguous. c. Quantity will fall and the effect on price is ambiguous. d. The effect on both price and quantity is ambiguous. 14. The demand for Chocolate Chip Cookie Dough ice cream is likely quite elastic because a. ice cream must be eaten quickly. b. this particular flavor of ice cream is viewed as a necessity by many ice-cream lovers. c. the market is broadly defined. d. other flavors of ice cream are good substitutes for this particular flavor. 15. Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the a. steeper the demand curve will be. b. flatter the demand curve will be. c. further to the right the demand curve will sit. d. closer to the vertical axis the demand curve will sit. 16. Suppose demand is perfectly elastic and the supply of the good in question decreases. As a result, a. the equilibrium quantity decreases and the equilibrium price is unchanged. b. the equilibrium price increases and the equilibrium quantity is unchanged. c. the equilibrium quantity and the equilibrium price both are unchanged. d. buyers total expenditure on the good is unchanged. 20

21 17. How does total revenue change as one moves downward and to the right along a linear demand curve? a. It always increases. b. It always decreases. c. It first increases, then decreases. d. It is unaffected by a movement along the demand curve. 18. If the price elasticity of demand for tuna is -0.7, then a 1.5% increase in the price of tuna will decrease the quantity demanded of tuna by a. 1.05% and tuna sellers' total revenue will increase as a result. b. 1.05% and tuna sellers' total revenue will decrease as a result. c. 2.14% and tuna sellers' total revenue will increase as a result. d. 2.14% and tuna sellers' total revenue will decrease as a result. 19. OPEC successfully raised the world price of oil in the 1970s and early 1980s, primarily due to a. an inelastic demand for oil and a reduction in the amount of oil supplied. b. a reduction in the amount of oil supplied and a world-wide oil embargo. c. a world-wide oil embargo and an elastic demand for oil. d. a reduction in the amount of oil supplied and an elastic demand for oil. 20. If corn farmers know that the demand for corn is inelastic, and they want to increase their total revenue, they should all a. plant more corn so that they would be able to sell more each year. b. increase spending on fertilizer in an attempt to produce more corn on the acres they farm. c. reduce the number of acres they plant in corn. d. contribute to a fund that promotes technological advances in corn production. 21

22 21. Which of the following statements is correct? a. A price ceiling set at $12 would be binding, but a price ceiling set at $8 would not be binding. b. A price floor set at $8 would be binding, but a price ceiling set at $8 would not be binding. c. A price ceiling set at $9 would result in an excess supply. d. A price floor set at $11 would result in a surplus. 22. If the government imposes a price ceiling of $12 in this market, the result would be a. a surplus of 10. b. a surplus of 20. c. a shortage of 20. d. neither a surplus nor a shortage. 23. A tax on bicycles that buyers of bicycles are required to pay shifts a. the demand curve downward, causing both the price received by sellers and the equilibrium quantity to fall. b. the demand curve upward, causing both the price received by sellers and the equilibrium quantity to rise. c. the supply curve downward, causing the price received by sellers to fall and the equilibrium quantity to rise. d. the supply curve upward, causing the price received by sellers to rise and the equilibrium quantity to fall. 22

23 24. In which market will the majority of the tax burden fall on the buyer? a. market (a) b. market (b) c. market (c) d. All of the above are correct. 25. In which market will the tax burden be most equally divided between the buyer and the seller? a. market (a) b. market (b) c. market (c) d. All of the above are correct. 26. Suppose your own demand curve for tomatoes slopes downward. Suppose also that, for the last tomato you bought this week, you paid a price exactly equal to your willingness to pay. Then a. you should buy more tomatoes before the end of the week. b. you already have bought too many tomatoes this week. c. your consumer surplus on the last tomato you bought is zero. d. your consumer surplus on all of the tomatoes you have bought this week is zero. 27. Suppose televisions are a normal good and buyers of televisions experience a decrease in income. As a result, consumer surplus in the television market a. decreases. b. is unchanged. c. increases. d. may increase, decrease, or remain unchanged. 28. When the price falls from P 2 to P 1, producer surplus a. decreases by an amount equal to C. b. decreases by an amount equal to A + B. c. decreases by an amount equal to A + C. d. increases by an amount equal to A + B. 23

24 29. Area B represents a. the combined profits of all producers when the price is P 2. b. the increase in producer surplus to all producers as the result of an increase in the price from P 1 to P 2. c. producer surplus to new producers entering the market as the result of an increase in the price from P 1 to P 2. d. that portion of the increase in producer surplus that is offset by a loss in consumer surplus when the price increases from P 1 to P When cigarettes are taxed and sellers of cigarettes are required to pay the tax to the government, a. the size of the cigarette market is reduced. b. the price paid by buyers of cigarettes decreases. c. the demand for cigarettes decreases. d. there is a movement downward and to the right along the demand curve for cigarettes. 31. Suppose a tax of $4 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 2,000 units to 1,700 units. The tax decreases consumer surplus by $3,000 and it decreases producer surplus by $4,400. The deadweight loss of the tax is a. $200. b. $400. c. $600. d. $1, Which of the following quantities decrease in response to a tax on a good? a. the size of the market for the good, the effective price of the good paid by buyers, and consumer surplus b. the size of the market for the good, producer surplus, and the well-being of buyers of the good (consumer surplus) c. the effective price received by sellers of the good, the wedge between the effective price paid by buyers and the effective price received by sellers, and consumer surplus d. None of the above is necessarily correct unless we know whether the tax is levied on buyers or on sellers. 33. Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss? a. The greater are the price elasticities of supply and demand, the greater is the deadweight loss. b. The greater is the price elasticity of supply and the smaller is the price elasticity of demand, the greater is the deadweight loss. c. The smaller are the decreases in quantity demanded and quantity supplied, the greater the deadweight loss. d. The smaller is the wedge between the effective price to sellers and the effective price to buyers, the greater is the deadweight loss. 24

25 34. When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will a. decrease tax revenue and decrease the deadweight loss. b. decrease tax revenue and increase the deadweight loss. c. increase tax revenue and decrease the deadweight loss. d. increase tax revenue and increase the deadweight loss. 35. When a country allows trade and becomes an importer of a good, a. both domestic producers and domestic consumers become better off. b. domestic producers become better off, and domestic consumers become worse off. c. domestic producers become worse off, and domestic consumers become better off. d. both domestic producers and domestic consumers become worse off. 36. When a nation first begins to trade with other countries and the nation becomes an exporter of corn, a. this is an indication that the world price of corn exceeds the nation s domestic price of corn in the absence of trade. b. this is an indication that the nation has a comparative advantage in producing corn. c. the nation s consumers of corn become worse off and the nation s producers of corn become better off. d. All of the above are correct. 37. Which of the following statements is true? a. Free trade benefits a country when it exports but harms it when it imports. b. "Voluntary" limits on Canadian exports of hogs are better for the United States than U.S. tariffs placed on Canadian hog exports. c. Tariffs and quotas differ in that tariffs work like a tax and therefore impose deadweight losses, whereas quotas do not impose deadweight losses. d. Free trade benefits a country both when it exports and when it imports. 25

26 38. The amount of revenue collected by the government from the tariff is a. $200. b. $400. c. $500. d. $ The amount of deadweight loss caused by the tariff equals a. $100. b. $200. c. $400. d. $ Import quotas and tariffs produce similar results. Which of the following is not one of those results? a. The domestic price of the good increases. b. Consumer surplus of domestic consumers increases. c. Producer surplus of domestic producers increases. d. A deadweight loss is experienced by the domestic country. 26

27 1.a 2.c 3.a 4.b 5.c 6.b 7.c 8.b 9.a 10.a 11.c 12.a 13.a 14.b 15.b 16.a 17.a 18.a 19.b 20.a 21.c 22.b 23.b 24.a 25.a 26.c 27.b 28.d 29.c 30.c 31.c 32.a 33.d 34.b 35.d 36.b 37.c 38.b 39.c 40.c 1.c 2.a 3.b 27

28 28 4.c 5.d 6.d 7.b 8.d 9.c 10.c 11.d 12.b 13.d 14.a 15.d 16.c 17.d 18.b 19.a 20.c 21.b 22.a 23.c 24.a 25.d 26.b 27.a 28.d 29.a 30.b 31.b 32.d 33.c 34.c 35.a 36.c 37.a 38.b 39.c 40.c 1.d 2.a 3.d 4.c 5.a 6.b 7.c 8.c 9.d 10.c 11.c 12.d 13.a 14.d 15.b 16.a 17.c 18.a 19.a 20.c 21.d 22.d 23.a

29 24.b 25.c 26.c 27.d 28.b 29.c 30.a 31.c 32.b 33.a 34.c 35.c 36.d 37.d 38.b 39.b 40.b 29