Mankiw Microeconomics Practice

Refer to Figure 7-9. If producer surplus is $19, then the price of the good is a. $13.50. b. $14.50. c. $11.50. d. $9.75.

a. $13.50.

Refer to Figure 8-6. When the tax is imposed in this market, the price sellers effectively receive is a. $6. b. $10. c. $16. d. $4.

a. $6.

Refer to Figure 21-7. Suppose a consumer has $200 in income, the price of a book is $5, and the price of a DVD is $10. What is the value of B? a. 20 b. 10 c. 2 d. 40

a. 20

Suppose a tax of $5 per unit is imposed on a good. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. The tax decreases consumer surplus by $10,000 and decreases producer surplus by $15,000. The deadweight loss of the tax is $2,500. The tax decreased the equilibrium quantity of the good from a. 5,500 to 4,500. b. 5,000 to 3,000. c. 6,500 to 5,500. d. 6,000 to 4,000.

a. 5,500 to 4,500.

Refer to Figure 7-4. Which area represents consumer surplus at a price of P1? a. BDF b. ABC c. AFG d. ABDG

a. BDF

Which of the following is an example of a normative - as opposed to a positive - statement? a. The government should increase the tax on gasoline. b. The US unemployment rate increased to 10 percent in 2009. c. The US income tax rate increases with the amount of income earned. d. The discount rate is the interest rate the Federal Reserve charges banks to borrow funds.

a. The government should increase the tax on gasoline.

Suppose that a negative externality is created by the production of good X. Which of the following statements is correct? a. The social cost of producing good X includes the private cost plus the cost to bystanders of the externality. b. The increased social cost can be graphed as a decrease in demand. c.The market equilibrium quantity will be the socially optimal quantity as long as the government does not interfere. d. Both a and b are correct.

a. The social cost of producing good X includes the private cost plus the cost to bystanders of the externality.

Market failure associated with the free-rider problem is a result of a. benefits that accrue to those who don't pay. b. market power. c. losses that accrue to providers of the product. d. a problem associated with pollution.

a. benefits that accrue to those who don't pay.

Refer to Figure 6-20. Suppose a tax of $5 per unit is imposed on this market. How much will buyers pay per unit after the tax is imposed? a. between $10 and $14 b. $14 c. $5 d. between $5 and $10

a. between $10 and $14

Refer to Figure 21-12. The marginal rate of substitution between bundles V and Z is a. greater than the marginal rate of substitution between bundles Z and T. b. less than the marginal rate of substitution between bundles Z and T. c. equal to the marginal rate of substitution between bundles Z and T. d. We are unable to compare the marginal rates of substitution.

a. greater than the marginal rate of substitution between bundles Z and T.

A good will have a more elastic demand, the a. greater the availability of close substitutes. b. shorter the period of time. c. more broad the definition of the market. d. more it is regarded as a necessity.

a. greater the availability of close substitutes.

To increase their individual profits, members of a cartel have an incentive to a. increase production above the level agreed upon. b. ignore the choices made by the other firms and act as a monopolist. c. charge a higher price than the other members of the cartel. d. charge the same price a monopolist would charge.

a. increase production above the level agreed upon.

A tax burden falls more heavily on the side of the market that a. is more inelastic. b. is less inelastic. c. has a fewer number of participants. d. is closer to unit elastic.

a. is more inelastic.

The supply of a good will be more elastic, the a. longer the time period being considered. b. larger the number of close substitutes for the good. c. more the good is considered a luxury. d. broader is the definition of the market for the good.

a. longer the time period being considered.

Marginal revenue can become negative for a. monopoly firms but not for competitive firms. b. competitive firms but not for monopoly firms. c. neither competitive nor monopoly firms. d. both competitive and monopoly firms.

a. monopoly firms but not for competitive firms.

The Coase theorem asserts that, in the presence of externalities, a. private economic actors sometimes can reach a bargain that produces an efficient outcome. b. private economic actors always can reach a bargain that makes everyone better off. c. corrective taxes cannot be very effective. d. private solutions cannot be very effective.

a. private economic actors sometimes can reach a bargain that produces an efficient outcome.

Ford Motor Company announces that next month it will offer $3,000 rebates on new Mustangs. As a result of this information, today's demand curve for Mustangs a. shifts to the left. b.shifts either to the right or to the left, but we cannot determine the direction of the shift from the given information. c. will not shift; rather, the demand curve for Mustangs will shift to the right next month. d. shifts to the right.

a. shifts to the left.

When good X is produced, some people benefit. A free-rider problem arises when a. the number of beneficiaries is large and it is impossible to prevent anyone from benefiting. b. the number of beneficiaries is large and it is possible to prevent some people from benefiting. c. the number of people who benefit is small and it is impossible to prevent anyone from benefiting. d. the number of beneficiaries is small and it is possible to prevent some people from benefiting.

a. the number of beneficiaries is large and it is impossible to prevent anyone from benefiting.

Refer to Figure 6-21. The price that buyers pay after the tax is imposed is a. $9.00. b. $12.00. c. $10.50. d. $8.00.

b. $12.00.

Refer to Figure 8-6. When the tax is imposed in this market, buyers effectively pay what amount of the $10 tax? a. $4 b. $6 c. $0 d. $10

b. $6

Refer to Table 4-1. If the market consists of Michelle and Hillary only and the price falls by $1, the quantity demanded in the market increases by a. 5 units. b. 3 units. c. 4 units. d. 2 units.

b. 3 units.

Refer to Figure 17-4. If this game is played only once, then which of the following outcomes is the most likely one? a. Aaron and Ed both shovel. b. Aaron shovels and Ed does not shovel. c. Ed shovels and Aaron does not shovel. d. All of the above outcomes are equally likely.

b. Aaron shovels and Ed does not shovel.

Which of the following statements is correct? a. Government should subsidize goods with either positive or negative externalities. b. Government should tax goods with negative externalities and subsidize goods with positive externalities. c. Government should tax goods with either positive or negative externalities. d. Government should tax goods with positive externalities and subsidize goods with negative externalities.

b. Government should tax goods with negative externalities and subsidize goods with positive externalities.

Which of the following statements is correct? a. Hidden actions and hidden characteristics are both associated with the adverse-selection problem. b. Hidden actions are associated with the moral-hazard problem, whereas hidden characteristics are associated with the adverse-selection problem. c. Hidden actions and hidden characteristics are both associated with the moral-hazard problem. d. Hidden actions are associated with the adverse-selection problem, whereas hidden characteristics are associated with the moral-hazard problem.

b. Hidden actions are associated with the moral-hazard problem, whereas hidden characteristics are associated with the adverse-selection problem.

What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the price of steel rises, public transportation becomes cheaper and more comfortable, and auto-workers negotiate higher wages? a. Quantity will rise, and the effect on price is ambiguous. b. Quantity will fall, and the effect on price is ambiguous. c. Price will rise, and the effect on quantity is ambiguous. d. Price will fall, and the effect on quantity is ambiguous.

b. Quantity will fall, and the effect on price is ambiguous.

Refer to Table 7-3. If the market price for the good is $20, who will purchase the good? a. Carlos and Quilana only b. Quilana, Wilbur, and Ming-la only c. Ming-la only d. Quilana and Wilbur only

b. Quilana, Wilbur, and Ming-la only

Suppose that when the price of ginger ale is $2 per bottle, firms can sell 4 million bottles. When the price of ginger ale is $3 per bottle, firms can sell 2 million bottles. Which of the following statements is true? a. The demand for ginger ale is income inelastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers. b. The demand for ginger ale is price elastic, so an increase in the price of ginger ale will decrease the total revenue of ginger ale producers. c. The demand for ginger ale is income elastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers. d. The demand for ginger ale is price inelastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers.

b. The demand for ginger ale is price elastic, so an increase in the price of ginger ale will decrease the total revenue of ginger ale producers.

Which of the following is an example of a normative, as opposed to positive, statement? a. In response to the most recent recession, the federal government extended the duration of unemployment benefits. b. The federal government's responses to the most recent recession were insufficient. c. To stimulate the economy during the most recent recession, the federal government increased spending. d. Following the most recent recession, the economy is recovering at a slower than usual pace.

b. The federal government's responses to the most recent recession were insufficient.

A budget constraint shows a. the maximum utility that a consumer can achieve for a given level of income. b. a series of bundles that cost the consumer the same amount of money. c. a series of bundles that give the consumer the same level of utility. d. All of the above are correct.

b. a series of bundles that cost the consumer the same amount of money.

For a typical natural monopoly, average total cost is a. rising, often because marginal costs are very large. b. declining, often because fixed costs are very large. c. declining, often because marginal costs are very large. d. rising, often because fixed costs are very large.

b. declining, often because fixed costs are very large.

A leftward shift of a supply curve is called a(n) a. increase in quantity supplied. b. decrease in supply. c. decrease in quantity supplied. d. increase in supply.

b. decrease in supply.

The study of how society manages its scarce resources is most closely associated with which field of study? a. accounting b. economics c. environmental studies d. management

b. economics

A command-and-control policy is another term for a a. pollution permit. b. government regulation. c. corrective tax. d. Both a and b are correct.

b. government regulation.

Exceptionally favorable growing conditions in the vineyards of Napa Valley would cause a(n) a. increase in the demand for wine, increasing price. b. increase in the supply of wine, decreasing price. c. decrease in the demand for wine, decreasing price. d. decrease in the supply of wine, increasing price.

b. increase in the supply of wine, decreasing price.

Refer to Table 4-13. Suppose Harry, Darby, and Jake are the only demanders of sandwiches. Also suppose the following: • x = 2. • The current price of a sandwich is $3.00. • The market quantity supplied of sandwiches is 4. • The slope of the supply curve is 2. Then there is currently a a. surplus of 6 sandwiches, and the equilibrium price of a sandwich is $5.00. b. shortage of 6 sandwiches, and the equilibrium price of a sandwich is $5.00. c. surplus of 6 sandwiches, and the equilibrium price of a sandwich is less than $3.00. d. shortage of 6 sandwiches, and the equilibrium price of a sandwich is less than $3.00.

b. shortage of 6 sandwiches, and the equilibrium price of a sandwich is $5.00.

Today's supply curve for gasoline could shift in response to a change in a. today's price of gasoline. b. the expected future price of gasoline. c. the number of buyers of gasoline. d. All of the above are correct.

b. the expected future price of gasoline.

The slope of an indifference curve is a. the marginal rate of preference. b. the marginal rate of substitution. c. the rate of change of consumer's preferences. d. always equal to the slope of the budget constraint.

b. the marginal rate of substitution.

Profit is defined as a. marginal revenue minus marginal cost. b. total revenue minus total cost. c. average revenue minus average total cost. d. net revenue minus depreciation.

b. total revenue minus total cost.

Refer to Figure 6-24. The per-unit burden of the tax on buyers of the good is a. $2. b. $8. c. $6. d. $4.

c. $6.

Refer to Figure 7-6. At the equilibrium price, consumer surplus is a. $1,400. b. $1,600. c. $800. d. $700.

c. $800.

Refer to Table 15-6. What is the marginal revenue from the sale of the 4th unit? a. $9 b. $3 c. -$3 d. $24

c. -$3

Refer to Table 17-18. If these two firms agree to cooperate to maximize their joint profit, the outcome of the game will be a. 12 units of output for Firm A and 12 units of output for Firm B. b. 12 units of output for Firm A and 10 units of output for Firm B. c. 10 units of output for Firm A and 10 units of output for Firm B. d. 10 units of output for Firm A and 12 units of output for Firm B.

c. 10 units of output for Firm A and 10 units of output for Firm B.

Refer to Table 13-2. What is the marginal product of the fourth worker? a. 100 units b. 200 units c. 50 units d. 300 units

c. 50 units

Which of the following statements best reflects a price-taking firm? a. The firm can sell only a limited amount of output at the market price before the market price will fall. b. If the firm were to charge less than the going price, it would maximize its profits and revenues. c. If the firm were to charge more than the going price, it would sell none of its goods. d. Both b and c are correct.

c. If the firm were to charge more than the going price, it would sell none of its goods.

Refer to Figure 2-10, Panel (a) and Panel (b). Which of the following is not a result of the shift of the economy's production possibilities frontier from Panel (a) to Panel (b)? a. The tradeoff between the production of tractors and sofas changes. b. The opportunity cost of a sofa is higher at all levels of sofa production. c. Production of 2 tractors and 10 sofas becomes efficient. d. Production of 6 tractors and 14 sofas becomes possible.

c. Production of 2 tractors and 10 sofas becomes efficient.

Refer to Figure 5-19. Which of the following statements is not correct? a. Supply curve A is perfectly inelastic. b. Supply curve B is perfectly elastic. c. Supply curve C is unit elastic. d. Supply curve D is more elastic than supply curve C.

c. Supply curve C is unit elastic.

Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized, mutually beneficial trades are a. less of a concern for a monopoly than competitive market. b. offset by the higher profits earned by a monopolist. c. a function of the reduction in the quantity produced by a monopolist in comparison to a competitive market. d. All of the above are correct.

c. a function of the reduction in the quantity produced by a monopolist in comparison to a competitive market.

Which of the following events would unambiguously cause an increase in the equilibrium price of cotton shirts? a. an increase in the price of wool shirts and a decrease in the price of raw cotton b. a decrease in the price of wool shirts and an increase in the price of raw cotton c. an increase in the price of wool shirts and an increase in the price of raw cotton d. a decrease in the price of wool shirts and a decrease in the price of raw cotton

c. an increase in the price of wool shirts and an increase in the price of raw cotton

The value of a business owner's time is an example of a. total revenue. b. an explicit cost. c. an opportunity cost. d. a fixed cost.

c. an opportunity cost.

When a firm is experiencing diseconomies of scale, long-run a. average total cost is minimized. b. marginal cost is minimized. c. average total cost is less than long-run marginal cost. d. average total cost is greater than long-run marginal cost.

c. average total cost is less than long-run marginal cost.

The price elasticities of supply and demand affect a. the size of the deadweight loss from a tax but not the tax incidence. b. neither the size of the deadweight loss from a tax nor the tax incidence. c. both the size of the deadweight loss from a tax and the tax incidence. d. the tax incidence but not the size of the deadweight loss from a tax.

c. both the size of the deadweight loss from a tax and the tax incidence.

If a good is inferior, then an increase in income will result in a(n) a. increase in the demand for the good. b. movement up and to the left along the demand curve for the good. c. decrease in the demand for the good. d. movement down and to the right along the demand curve for the good.

c. decrease in the demand for the good.

In the prisoners' dilemma game with Bonnie and Clyde as the players, the likely outcome is one a. in which neither Bonnie nor Clyde confesses. b. that involves neither Bonnie nor Clyde pursuing a dominant strategy. c. in which both Bonnie and Clyde confess. d. that is ideal in terms of Bonnie's self-interest and in terms of Clyde's self-interest.

c. in which both Bonnie and Clyde confess.

The national defense of the United States is not rival because a. my enjoyment of the national defense does diminish your enjoyment of the national defense of the United States. b. once the nation is defended, it is impossible to prevent any single person from enjoying the benefit of this defense. c. my enjoyment of the national defense does not diminish your enjoyment of the national defense of the United States. d. once the nation is defended, it is possible to prevent any single person from enjoying the benefit of this defense.

c. my enjoyment of the national defense does not diminish your enjoyment of the national defense of the United States.

Which of the following is likely to have the most price inelastic demand? a. protein powder b. yoga mats c. prescription medicine d. gym memberships

c. prescription medicine

The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own, is called a. the externality theorem. b. the Pigovian theorem. c. the Coase theorem. d. a corrective tax.

c. the Coase theorem.

Suppose Rebecca needs a dog sitter so that she can travel to her sister's wedding. Rebecca values dog sitting for the weekend at $200. Susan is willing to dog sit for Rebecca so long as she receives at least $175. Rebecca and Susan agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. What is the deadweight loss of the tax? a. the maximum value that Rebecca would pay for dog sitting b. the $30 tax c. the lost benefit to Rebecca and Susan because after the tax, Susan will not dog sit for Rebecca d.the lost benefit to Rebecca of being unable to hire a dog sitter because Rebecca is the one who would pay the tax

c. the lost benefit to Rebecca and Susan because after the tax, Susan will not dog sit for Rebecca

When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is a. 1.50, and an increase in price will result in an increase in total revenue for good A. b. 1.50, and an increase in price will result in a decrease in total revenue for good A. c. 0.67, and an increase in price will result in a decrease in total revenue for good A. d. 0.67, and an increase in price will result in an increase in total revenue for good A.

d. 0.67, and an increase in price will result in an increase in total revenue for good A.

Refer to Table 4-3. If these are the only four buyers in the market, then the market quantity demanded at a price of $2 is a. 0 units. b. 3.5 units. c. 12 units. d. 14 units.

d. 14 units.

In the prisoners' dilemma game, self-interest leads a. each prisoner to confess. b. to a breakdown of any agreement that the prisoners might have made before being questioned. c. to an outcome that is not particularly good for either prisoner. d. All of the above are correct.

d. All of the above are correct.

Refer to Figure 21-14. Which of the following statements is correct? a. The indifference curves represented in graph a are perfect substitutes. b. The indifference curves represented in graph b are perfect complements. c. The indifference curves represented in graph c are neither perfect substitutes not perfect complements. d. All of the above are correct.

d. All of the above are correct.

In the circular-flow diagram, firms produce a. goods and services using factors of production. b. output using inputs. c. factors of production using goods and services. d. Both (a) and (b) are correct.

d. Both (a) and (b) are correct.

Refer to Figure 15-12. Which area represents the deadweight loss from monopoly? a. C+F b. A+B c. A+B+C+F d. G

d. G

Refer to Figure 21-4. Which of the graphs in the figure could reflect a decrease in income? a. graph a b. graph b c. graph d d. None of the above is correct.

d. None of the above is correct.

Refer to Figure 21-10. Which of the following comparisons is correct regarding the marginal rate of substitution (MRS) of donuts for cake? a. The MRS is the same between bundles A and B and bundles B and C because all three bundles lie on the same indifference curve. b. The MRS is greater between bundles E and B than between bundles B and D. c. The MRS is greater between bundles B and C than between bundles A and B. d. The MRS is greater between bundles A and B than between bundles B and C.

d. The MRS is greater between bundles A and B than between bundles B and C.

You own an ice cream store and are concerned that an employee may be giving generous scoops to friends and relatives and smaller scoops to some other customers. This is an example of a. behavioral economics. b. adverse selection. c. signaling. d. a moral hazard problem.

d. a moral hazard problem.

Market failure can be caused by a. too much competition. b. low consumer demand. c. scarcity. d. externalities.

d. externalities.

A positive externality a. is a benefit to the consumer of the good. b. results in an optimal level of output. c. is a benefit to the producer of the good. d. is a benefit to someone other than the producer and consumer of the good.

d. is a benefit to someone other than the producer and consumer of the good.

The poverty rate is the percentage of the population that have a family income level below the a. income maintenance threshold. b. bottom quintile of the income distribution. c. minimum wage. d. poverty line.

d. poverty line.