ECO 2023 Test 1 Study Guide Questions

Allocative efficiency is achieved when the marginal benefit of a good a. exceeds the marginal cost by as much as possible. b. exceeds the marginal cost but not by as much as possible. c. is less than the marginal cost. d. equals the marginal cost. e. equals zero.

. equals the marginal cost.

Deadweight loss is the decrease in ____ (only consumer surplus; consumer surplus and producer surplus; only producer surplus) that results from an inefficient level of production.

; consumer surplus and producer surplus;

(An externality; A public good) is a good or service that is consumed simultaneously by everyone, even if they don't pay for it

A public good

____ (Production; Allocative) efficiency occurs when the economy produces the most highly valued combination of goods and services on the PPF.

Allocative

A sustained expansion of production possibilities is called ____.

Economic Growth

(Horizontal; Vertical) equity requires that taxpayers with the same ability to pay do pay the same taxes.

Horizontal

____ (Marginal; Average) cost is the change in total cost that results from a one-unit increase in output.

Marginal

____ (Production; Allocative) efficiency occurs at each combination of goods and services on the PPF.

Prodcution

____ (Rational ignorance; The principle of minimum differentiation) is the decision to not acquire information because the marginal cost of doing so exceeds the expected marginal benefit.

Rational ignorance;

True of False A point outside the production possibilities frontier is unattainable.

True

True of False All Production points on the PPF are production efficient

True

The average total cost curve is ____ (S-shaped; Ushaped).

U Shaped

A person has ____ (a comparative; an absolute) advantage in an activity if that person can perform the activity at a lower opportunity cost than someone else.

a comparative

The PPF shows that economic growth requires ____ (a decrease; an increase) in the current production of consumption goods.

a decrease

The percentage of an additional dollar that is paid in tax is ____ (a progressive tax; a marginal tax; an average tax) rate

a marginal tax

Suppose you're willing to tutor a student for $10 an hour. The student pays you $15 an hour. What is your producer surplus? a. $5 an hour b. $10 an hour c. $15 an hour d. $25 an hour e. more than $25 an hour

a. $5 an hour

When income increases from $20,000 to $30,000 the number of home-delivered pizzas per year increases from 22 to 40. The income elasticity of demand for homedelivered pizza equals a. 1.45. b 0.69. c. 0.58. d. 0.40. e. 2.86.

a. 1.45.

When a firm raises the price of its product, what happens to total revenue? a. If demand is elastic, total revenue decreases. b. If demand is unit elastic, total revenue increases. c. If demand is inelastic, total revenue decreases. d. If demand is elastic, total revenue increases. e. If demand is unit elastic, total revenue decreases.

a. If demand is elastic, total revenue decreases.

____ is the decision not to acquire information because the marginal cost of doing so exceeds expected marginal benefit. a. Rational ignorance b. The principle of minimum differentiation c. A free rider d. Consumer ignorance e. The tragedy of the commons

a. Rational ignorance

Which of the following is not a potential solution to the tragedy of the commons? a. Subsidizing use of the resource b. Setting a production quota c. Granting individual transferable quotas d. Establish property rights to the resource e. None of the above are correct because they are all potential solutions to the tragedy of the commons.

a. Subsidizing use of the resource

If the costs to produce pizza increase, which will occur? a. The supply of pizza will decrease. b. The quantity of pizzas supplied will increase as sellers try to cover their costs. c. Pizza will cease to be produced and sold. d. The demand curve for pizza will shift leftward when the price of a pizza increases. e. The demand curve for pizza will shift rightward when the price of a pizza increases.

a. The supply of pizza will decrease.

The minimum wage is set above the equilibrium wage rate. Does the minimum wage create inefficiency? a. Yes. b. No. c. Only if the supply of labor is perfectly inelastic. d. Only if the supply of labor is perfectly elastic. e. Only if employment exceeds the efficient amount.

a. Yes.

The fact that Erin's enjoyment of a sunset on Saint Simon's Island does not preclude Alexander from enjoying the same sunset is an example of a. a good that is nonrival. b. a good that is excludable. c. a private good. d. the rival nature of consumption. e. a common resource.

a. a good that is nonrival.

Compared to taxes on labor income, taxes on capital income generate ____ deadweight loss and are paid by people who generally have the ____ ability to pay. a. a larger; most b. a larger; least c. a smaller; most d. a smaller; least e. no; least

a. a larger; most

If I order a pizza and invite my neighbors to eat it, the pizza is a. a private good. b. a common resource. c. a public good because many people ate it. d. either a common resource or a public good depending on whether it is overused. e. produced by a natural monopoly.

a. a private good.

Suppose the current equilibrium wage rate for lifeguards in Houston is $7.85 an hour. A minimum wage law that creates a price floor of $8.50 an hour leads to a. a surplus of lifeguards in Houston. b. a shortage of lifeguards in Houston. c. no changes in the lifeguard market. d. a change in the quantity of lifeguards supplied but no change in the quantity of lifeguards demanded. e. an increase in the number of lifeguards employed.

a. a surplus of lifeguards in Houston.

To be effective in raising people's wages, a minimum wage must be set a. above the equilibrium wage rate. b. below the equilibrium wage rate. c. equal to the equilibrium wage rate. d. below $7. e. either above or below the equilibrium wage depending on whether the supply curve of labor shifts rightward or le

a. above the equilibrium wage rate.

The income elasticity of demand for used cars is less than zero. So, used cars are a. an inferior good. b. a normal good. c. an inelastic good. d. a perfectly inelastic good. e. substitute goods.

a. an inferior good.

Marginal benefit equals the a. benefit that a person receives from consuming another unit of a good. b. additional efficiency from producing another unit of a good. c. increase in profit from producing another unit of a good. d. cost of producing another unit of a good. e. total benefit from consuming all the units of the good or service.

a. benefit that a person receives from consuming another unit of a good.

9. Government bureaucracies over-provide public goods and grow larger because of their goal of ____ combined with ____ of the voters. a. budget maximization; rational ignorance b. budget minimization; irrational intelligence c. budget maximization; minimum differentiation d. budget maximization; irrational exuberance e. minimum differentiation; budget maximization

a. budget maximization; rational ignorance

To keep the price at the level set by the price support, the government must a. buy some of the good. b. sell some of the good. c. receive a subsidy from the producers. d. insure that imports are readily available. e. be careful to always set the price support below the equilibrium price.

a. buy some of the good.

Demand is elastic if a. consumers respond strongly to changes in the product's price. b. a large percentage change in price brings about a small percentage change in quantity demanded. c. a small percentage change in price brings about a small percentage change in quantity demanded. d. the quantity demanded is not responsive to price changes. e. the demand curve is vertical.

a. consumers respond strongly to changes in the product's price.

When the minimum wage is raised, the ____ union labor ____. a. demand for; increases b. demand for; decreases c. supply of; increases d. supply of; decreases e. demand for; does not change

a. demand for; increases

For a product with a rapidly increasing opportunity cost of producing additional units, a. demand is price elastic. b. supply is price elastic. c. demand is price inelastic. d. supply is price inelastic. e. the demand curve is vertical.

a. demand is price elastic.

The opportunity cost of a firm using its own capital is a. economic depreciation. b. self ownership depreciation. c. economic loss. d. normal loss. e. capital loss.

a. economic depreciation.

When the percentage change in the quantity supplied exceeds the percentage change in price, then supply is a. elastic. b. inelastic. c. unit elastic. d. perfectly inelastic. e. perfectly elastic.

a. elastic.

For a common resource such as fish, the marginal private benefit ____ the marginal social benefit and the marginal private cost ____ the marginal social cost. a. equals; is less than b. is greater than; equals c. equals; equals d. is less than; is less than e. is greater than; is greater than

a. equals; is less than

. In general, the marginal cost curve a. has a positive slope. b. has a negative slope. c. is horizontal. d. is vertical. e. is U-shaped.

a. has a positive slope.

A rent ceiling creates a deadweight loss a. if it is set below the equilibrium rent. b. if it is set equal to the equilibrium rent. c. if it set above the equilibrium rent. d. if it decreases the taxes the government collects in the housing market. e. never, because if it did create a deadweight loss, the government would not impose it.

a. if it is set below the equilibrium rent.

Rent ceilings a. increase search activity. b. result in surpluses. c. are efficient. d. benefit producers. e. have no effect if they are set below the equilibrium rent.

a. increase search activity.

During 2011 the supply of gasoline decreased while at the same time the demand for gasoline increased. If the magnitude of the increase in demand was greater than the magnitude of the decrease in supply, then the equilibrium price of gasoline ____ and the equilibrium quantity ____. a. increased; increased b. increased; decreased c. increased; did not change d. decreased; did not change e. did not change; increased

a. increased; increased

A minimum wage set above the equilibrium wage rate a. increases the quantity of labor services supplied. b. decreases the quantity of labor services supplied. c. has no effect on the quantity of labor services supplied. d. shifts the labor supply curve rightward. e. shifts the labor supply curve leftward.

a. increases the quantity of labor services supplied.

During the winter of 2011-2012, the price of fuel oil increased enormously but the quantity demanded decreased only a little. This response indicates that the demand for fuel oil was a. inelastic. b. elastic. c. unit elastic. d. perfectly elastic. e. perfectly inelastic.

a. inelastic.

If the price of a pizza is $10 per pizza, the consumer surplus from the first pizza consumed ____ the consumer surplus from the second pizza consumed. a. is greater than b. equals c. is less than d. cannot be compared to e. None of the above answers is correct because more information is needed about the marginal cost of producing the pizzas to answer the question.

a. is greater than

A marginal benefit curve a. is the same as a demand curve. b. is the same as a supply curve. c. slopes upwards. d. is a vertical line at the efficient quantity. e. is U-shaped.

a. is the same as a demand curve.

If a nation devotes a larger share of its current production to consumption goods, then a. its economic growth will slow down. b. its PPF will shift outward. c. its PPF will shift inward. d. some productive factors will become unemployed. e. it must produce at a point within its PPF.

a. its economic growth will slow down.

The paramount goal of a firm is to a. maximize profit. b. maximize sales. c. maximize total revenue. d. minimize its costs. e. force its competitors into bankruptcy.

a. maximize profit.

A Pigovian tax ____ producers to decrease their pollution and emissions permits ____ producers to decrease their pollution. a. motivates; motivates b. motivates; sometimes motivates c. motivates; does not motivate d. does not motivate; motivates e. does not motivate; does not motivate

a. motivates; motivates

Which of the following is the best example of a public good? a. national defense b. a Ford Thunderbird c. Yosemite national park d. a Mountain Dew e. a satellite radio

a. national defense

Pollution is an example of a ____ externality. a. negative production b. positive production c. negative consumption d. positive consumption e. Coasian

a. negative production

The equilibrium price of a good occurs if the a. quantity of the good demanded equals the quantity of the good supplied. b. quantity of the good demanded is greater than the quantity of the good supplied. c. quantity of the good demanded is less than the quantity of the good supplied. d. demand for the good is equal to the supply of the good. e. price of the good seems reasonable to most buyers.

a. quantity of the good demanded equals the quantity of the good supplied.

When use of a good decreases the quantity available for someone else, the good is a. rival. b. nonrival. c. excludable. d. nonexcludable. e. a public good.

a. rival.

A private good is ____ and ____. a. rival; excludable b. rival; nonexcludable c. nonrival; excludable d. nonrival; nonexcludable e. scarce; expensive

a. rival; excludable

The marginal social benefit curve of a public good a. slopes downward. b. slopes upward. c. is vertical. d. is horizontal. e. is U-shaped.

a. slopes downward.

For a common resource, the marginal private cost curve ____ and the marginal social cost curve ____. a. slopes upward; slopes upward b. slopes upward; slopes downward c. slopes downward; slopes upward d. slopes downward; slopes downward e. is vertical; is horizontal

a. slopes upward; slopes upward

The short run is a time period during which a. some of the firm's resources are fixed. b. all of the firm's resources are fixed. c. all of the firm's resources are variable. d. the fixed cost equals zero. e. the firm cannot increase its output.

a. some of the firm's resources are fixed.

In a housing market with a rent ceiling set below the equilibrium rent, a. some people seeking an apartment to rent will not be able to find one. b. the total cost of renting an apartment will decrease for all those seeking housing. c. some landlords will not be able to find renters to fill available apartments. d. search will decrease because renters no longer need to search for less expensive apartments. e. None of the above answers are correct because to have an impact the rent ceiling must be set above the equilibrium rent.

a. some people seeking an apartment to rent will not be able to find one.

The marginal social benefit of a public good is the a. sum of the marginal benefits of all the individuals at each quantity. b. marginal benefit of the individual person who places the lowest value on the good, multiplied by the number of people in the economy. c. marginal benefit of the individual person who places the highest value on the good, multiplied by the number of people in the economy. d. benefit of the last person's consumption. e. average of the marginal benefits of all the individuals at each quantity.

a. sum of the marginal benefits of all the individuals at each quantity.

. The difference between the marginal benefit from a new pair of shoes and the price of the new pair of shoes is a. the consumer surplus from that pair of shoes. b. what we get. c. what we have to pay. d. the price when the marginal benefit is maximized. e. the consumer's expenditure on the shoes.

a. the consumer surplus from that pair of shoes.

Moving along the production possibilities frontier itself illustrates a. the existence of tradeoffs. b. the existence of unemployment of some factors of production. c. the benefits of free lunches. d. how free lunches can be exploited through trade. e. how tradeoffs need not occur if the economy is efficient.

a. the existence of tradeoffs.

. Which of the following is an example in which "the big tradeoff" can occur? a. the government redistributes income from the rich to the poor b. Ford increases the price of a pickup truck c. a basketball player signs a $5 million contract d. a college lowers tuition e. the price of p

a. the government redistributes income from the rich to the poor

Allocative efficiency occurs when a. the most highly valued goods and services are produced. b. all citizens have equal access to goods and services. c. the environment is protected at all cost. d. goods and services are free. e. production takes place at any point on the PPF.

a. the most highly valued goods and services are produced.

During a time with high unemployment, a country can increase the production of one good or service a. without decreasing the production of something else. b. but must decrease the production of something else. c. and must increase the production of something else. d. by using resources in the production process twice. e. but the opportunity cost is infinite.

a. without decreasing the production of something else.

Imposing a higher sales tax on the purchase of jewelry than on food is fair according to the ____ (ability-to-pay; benefits) principle.

ability to pay

Adam Smith believed that each participant in a competitive market is "led by ____ (an invisible hand; government actions)."

an invisible hand;

Rent ceilings ____ (are; are not) fair.

are not

To calculate the percentage change in price, the midpoint formula divides the change in price by the ____ (initial price; new price; average of the initial and the new price) and then multiplies by 100.

average of the initial and the new price

The price of a bag of pretzels rises from $2 to $3 and the quantity demanded decreases from 100 to 60. What is the price elasticity of demand? a. 1.0 b. 1.25 c. 40.0 d. 20.0 e. 0.80

b. 1.25

The government once imposed a luxury tax on very expensive jewelry. This tax followed the ____ principle. a. benefits b. ability-to-pay c. vertical equity d. horizontal equity e. fair-tax incidence

b. ability-to-pay

Suppose that the government imposes a price ceiling on gasoline that is below the equilibrium price. The black market for gasoline is ____ market in which the price ____ the ceiling price. a. a legal; exceeds b. an illegal; exceeds c. a legal; is less than d. an illegal; is less tha

b. an illegal; exceeds

Suppose the demand for barley is perfectly inelastic. The supply curve of barley is upward sloping. If a tax is imposed on barley, a. barley sellers pay the entire tax. b. barley buyers pay the entire tax. c. the government pays the entire tax. d. the tax is split evenly between barley buyers and sellers. e. who pays the tax depends on whether the government imposes the tax on barley sellers or on barley buyers.

b. barley buyers pay the entire tax.

. A price support ____ producers and ____ a deadweight loss. a. has no effect on; does not create b. benefits; creates c. harms; creates d. benefits; does not create e. harms; does not create

b. benefits; creates

A public good a. can only be consumed by one person at a time. b. can be consumed simultaneously by many people. c. is any good provided by a company owned by a member of the public. d. is any good provided by government. e. is both rival and excludable.

b. can be consumed simultaneously by many people.

Suppose the price of a scooter is $200 and Cora Lee is willing to pay $250. Cora Lee's a. consumer surplus from that scooter is $200. b. consumer surplus from that scooter is $50. c. marginal benefit from that scooter is $200. d. consumer surplus from that scooter is $150. e. consumer surplus from that scooter is $250.

b. consumer surplus from that scooter is $50.

The measure used to determine whether two goods are complements or substitutes is called the a. price elasticity of supply. b. cross elasticity of demand. c. price elasticity of demand. d. income elasticity. e. substitute elasticity of demand.

b. cross elasticity of demand.

A tax on labor income a. increases the quantity employed because the demand for labor increases. b. decreases the quantity employed because the supply of labor decreases. c. increases the quantity employed because the supply of labor increases. d. decreases the quantity employed because the demand for labor increases. e. does not change the quantity employed because people must have jobs in order to earn any income.

b. decreases the quantity employed because the supply of labor decreases.

In general, as the consumption of a good or service increases, the marginal benefit from consuming that good or service a. increases. b. decreases. c. stays the same. d. at first increases and then decreases. e. at first decreases and then increases.

b. decreases.

The number of people looking to buy ceiling fans increases, so there is an increase in the a. quantity of ceiling fans demanded and a surplus of ceiling fans. b. demand for ceiling fans and a rise in the price of a ceiling fan. c. demand for ceiling fans and a surplus of ceiling fans. d. supply of ceiling fans and no change in the price of a ceiling fan. e. demand for ceiling fans and in the supply of ceiling fans.

b. demand for ceiling fans and a rise in the price of a ceiling fan.

The Coase theorem is the proposition that if property rights exist, a small number of people are involved, and transactions costs are low, then private transactions are a. inefficient. b. efficient. c. inequitable. d. illegal. e. unnecessary.

b. efficient.

To determine who bears the greater share of a tax, we compare the a. number of buyers to the number of sellers. b. elasticity of supply to the elasticity of demand. c. size of the tax to the price of the good. d. government tax revenue to the revenue collected by the suppliers. e. pre-tax quantity to the post-tax quantity.

b. elasticity of supply to the elasticity of demand.

The producer surplus on a unit of a good is a. equal to the marginal benefit from the good minus its price. b. equal to the price of the good minus the marginal cost of producing it. c. always equal to consumer surplus. d. Both answers (a) and (c) are correct. e. Both answers (b) and (c) are correct.

b. equal to the price of the good minus the marginal cost of producing it.

Vertical equity implies that i. tax rates should be equal for all tax payers. ii. people with higher incomes should pay more in taxes. iii. people with higher incomes should pay a lower average tax rate. a. i only. b. ii only. c. iii only. d. i and ii. e. ii and iii.

b. ii only

When a price support is set above the equilibrium price, producers ____ the quantity supplied and consumers ____ the quantity demanded. a. increase; increase b. increase; decrease c. decrease; increase d. decrease; decrease e. do not change; do not change

b. increase; decrease

When someone enjoys the benefit of a good or service but does not pay for it, that person a. is a free range consumer. b. is a free rider. c. receives no marginal benefit from the good. d. must be consuming an excludable good e. is contributing to the tragedy of the commons.

b. is a free rider.

When a price ceiling is set below the equilibrium price, the quantity supplied ____ the quantity demanded and ____ exists. a. is less than; a surplus b. is less than; a shortage c. is greater than; a surplus d. is greater than; a shortage e. equals; an equilibrium

b. is less than, shortage

If a minimum wage is introduced that is above the equilibrium wage rate, a. the quantity of labor services demanded increases. b. job search activity increases. c. the supply of labor increases and the supply of labor curve shifts rightward. d. unemployment decreases because more workers accept jobs at the higher minimum wage rate. e. the quantity of labor supplied decreases because of the increase in unemployment.

b. job search activity increases.

If the government assigns private property rights to a common resource, then the a. resource is under-utilized. b. marginal private cost becomes equal to the marginal social cost. c. government needs to set a quota to achieve efficiency. d. resource becomes subject to the free riding problem. e. resource cannot be utilized.

b. marginal private cost becomes equal to the marginal social cost.

Increasing marginal returns occur when the a. average product of an additional worker is less than the average product of the previous worker. b. marginal product of an additional worker exceeds the marginal product of the previous worker. c. marginal product of labor is less than the average product of labor. d. total output of the firm is at its maximum. e. total product curve is horizontal.

b. marginal product of an additional worker exceeds the marginal product of the previous worker.

If an external benefit is present, then the a. marginal private benefit curve lies above the marginal private cost curve. b. marginal social benefit curve lies above the marginal private benefit curve. c. marginal social cost curve lies above the marginal private benefit curve. d. marginal social benefit is equal to the marginal social cost. e. marginal social benefit curve is the same as the marginal private benefit curve.

b. marginal social benefit curve lies above the marginal private benefit curve.

If a firm is willing to supply the 1,000th unit of a good at a price of $23 or more, we know that $23 is the a. highest price the seller hopes to realize for this output. b. minimum price the seller must receive to produce this unit. c. average price of all the prices the seller could charge. d. price that sets the marginal benefit equal to the price. e. only price for which the seller is willing to sell this unit of the good.

b. minimum price the seller must receive to produce this unit.

The greater the amount of time that passes after a price change, the a. less elastic supply becomes. b. more elastic supply becomes. c. more negative supply becomes. d. steeper the supply curve becomes. e. more vertical the supply curve becomes.

b. more elastic supply becomes.

With a price support program, who receives a subsidy? a. only consumers b. only producers c. the government d. importers e. both consumers and producers receive a subsidy

b. only producers

If the supply of capital is perfectly elastic, the incidence of a tax on capital income is a. paid entirely by the suppliers of capital. b. paid entirely by firms that demand capital. c. shared between firms that demand capital and the suppliers of capital. d. shared but not equally between firms that demand capital and the suppliers of capital. e. unknown.

b. paid entirely by firms that demand capital.

Which of the following is a method used by government to cope with the situation in which production of a good creates an external benefit? a. removing property rights b. paying subsidies c. issuing marketable permits d. running a lottery e. imposing a Coasian tax

b. paying subsidies

If a product is a normal good, then its income elasticity of demand is a. zero. b. positive. c. negative. d. indeterminate. e. greater than one.

b. positive.

If beef and pork are substitutes, the cross elasticity of demand between the two goods is a. negative. b. positive. c. indeterminate. d. elastic. e. greater than one.

b. positive.

The "fair-rules" view of fairness is based on a. income transfers from the rich to the poor. b. property rights and voluntary exchange. c. efficiency. d. the big tradeoff. e. allocating resources using majority rule

b. property rights and voluntary exchange

The price elasticity of supply equals the percentage change in the a. quantity demanded divided by the percentage change in the price of a substitute or complement. b. quantity supplied divided by the percentage change in price. c. quantity demanded divided by the percentage change in price. d. supply divided by the percentage change in the demand. e. quantity supplied divided by the percentage change in income.

b. quantity supplied divided by the percentage change in price.

Neither the supply of nor demand for a good is perfectly elastic or perfectly inelastic. So imposing a tax on the good results in a ____ in the price paid by buyers and ____ in the equilibrium quantity. a. rise; an increase b. rise; a decrease c. fall; an increase d. fall; a decrease e. rise; no change

b. rise; a decrease

Suppose that the price of lettuce used to produce tacos increases. This change means that the equilibrium price of a taco ____ and the equilibrium quantity ____. a. rises; increases b. rises; decreases c. falls; increases d. falls; decreases e. does not change; decreases

b. rises; decreases

If two goods have a cross elasticity of demand of −2, then when the price of the one increases, the demand curve of the other good a. shifts rightward. b. shifts leftward. c. remains unchanged. d. may shift rightward, leftward, or remain unchanged. e. remains unchanged but the supply curve shifts leftward

b. shifts leftward.

For a common resource, the equilibrium with no government intervention is such that marginal ____ equals marginal ____. a. private benefit; social cost b. social benefit; private cost c. social benefit; social cost d. external benefit; external cost e. social benefit; external cost

b. social benefit; private cost

The marginal cost of production that is borne by the entire society is the marginal a. private cost. b. social cost. c. external cost. d. public cost. e. user cost.

b. social cost

A tax on income from land in Montana is borne entirely by landowners because the a. demand for land is perfectly inelastic. b. supply of land is perfectly inelastic. c. supply of land is perfectly elastic. d. demand for land is perfectly elastic. e. deadweight loss from the tax would otherwise be infinite.

b. supply of land is perfectly inelastic.

Marginal product equals a. the total product produced by a certain amount of labor. b. the change in total product that results from a one-unit increase in the quantity of labor employed. c. total product divided by the total quantity of labor. d. the amount of labor needed to produce an increase in production. e. total product minus the quantity of labor.

b. the change in total product that results from a one-unit increase in the quantity of labor employed.

A price floor is a. the highest price at which it is legal to trade a particular good, service, or factor of production. b. the lowest price at which it is legal to trade a particular good, service, or factor of production. c. an illegal price to charge. d. the price when the stock market crashes. e. the lowest price for which the quantity demanded equals the quantity supplied.

b. the lowest price at which it is legal to trade a particular good, service, or factor of production.

The efficient quantity of a public good is a. the quantity produced by private firms. b. the quantity at which the marginal social benefit equals the marginal social cost. c. impossible to determine because each person's marginal benefit is different. d. the quantity at which the marginal social benefit exceeds the marginal social cost by as much as possible. e. where the demand curve and supply curve of the good intersects.

b. the quantity at which the marginal social benefit equals the marginal social cost.

If all education in the United States were provided by private, tuition-charging schools, a. too much education would be consumed. b. too little education would be consumed. c. the efficient level of education would be provided. d. the government would provide both students and schools with vouchers. e. education would no longer have an external benefit.

b. too little education would be consumed.

If the price of a product increases by 5 percent and the quantity demanded decreases by 5 percent, then the elasticity of demand is a. 0. b. 1. c. indeterminate. d. 5. e. 25.

b.1

A rent ceiling is effective if it is set ____ (above; below) the equilibrium rent.

below

The marginal private cost curve for a common resource lies ____ (above; below) the marginal social cost curve

below

An efficient allocation of labor occurs when the marginal ____ (benefit; cost) to firms ____ (equals; is greater than; is less than) the marginal ____ (benefit; cost) borne by workers.

benefit, equals, cost

The price of an individual transferable quota equals the marginal social ____ (benefit; cost) of the resource at the efficient quantity ____ (plus; minus) the marginal cost of using the resource.

benefit, minus

The ____ (ability-to-pay; benefits) principle is the proposition that people should pay taxes equal to the benefits they receive from public services.

benefits

The government maintains the price support by guaranteeing to ____ (buy; sell) the product at the support price.

buy

Suppose the price of a tie rises from $45 to $55. Using the midpoint method, what is the percentage change in price? a. 10 percent b. −10 percent c. 20 percent d. −20 percent e. 100 percent

c. 20 percent

If a firm supplies 200 units at a price of $50 and 100 units at a price of $40, using the midpoint formula what is the price elasticity of supply? a. 0.33 b. 1.00 c. 3.00 d. 5.00 e. 8.50

c. 3.00

. If the marginal private cost of producing one kilowatt of power in California is 8¢ and the marginal social cost of each kilowatt is 13¢, then the marginal external cost equals ____ a kilowatt. a. 8¢ b. 13¢ c. 5¢ d. 0¢ e. 21¢

c. 5¢

Which of the following is correct? a. The short run for a firm can be longer than the long run for the same firm. b. The short run is the same for all firms. c. The long run is the time frame in which the quantities of all resources can be varied. d. The long run is the time frame in which all resources are fixed. e. The long run does not exist for some firms.

c. The long run is the time frame in which the quantities of all resources can be varied.

Which of the following is the best explanation for why the price of gasoline increases during the summer months? a. Oil producers have higher costs of production in the summer. b. Sellers have to earn profits during the summer to cover losses in the winter. c. There is increased driving by families going on vacation. d. There is less competition among oil refineries in the summer. e. The number of gas stations open 24 hours a day rises in the summer months and so the price must rise to cover the higher costs.

c. There is increased driving by families going on vacation.

Which of the following is the best example of a common resource? a. national defense b. a Ford Thunderbird c. Yosemite national park d. a can of Mountain Dew e. a cable television network

c. Yosemite national park

A rent ceiling on housing creates a problem of allocating the housing units because a. the demand for housing decreases and the demand curve shifts leftward. b. the supply of housing increases and the supply curve shifts rightward. c. a shortage of apartments occurs. d. a surplus of apartments occurs. e. it eliminates search, which is one of the major ways housing units are allocated.

c. a shortage of apartments occurs.

The proposition that people should pay taxes according to how easily they can bear the burden is the ____ principle a. regressive tax b. benefits c. ability-to-pay d. fairness e. incidence of fairness

c. ability-to-pay

Which of the following best describes an externality? a. something that is external to the economy b. a sales tax on a good in addition to the market price c. an effect of a transaction felt by someone other than the consumer or producer d. anything produced in other countries e. a change from what is normal

c. an effect of a transaction felt by someone other than the consumer or producer

Costs paid in money to hire a resource is a. normal profit. b. an implicit cost. c. an explicit cost. d. an alternative-use cost. e. economic profit.

c. an explicit cost.

Sue and Mark are the only two members of a community. Sue's marginal benefit from one lighthouse is $2,000 and Mark's marginal benefit is $1,000. If the marginal social cost of one lighthouse is $2,500 and if a lighthouse is a public good, then for efficiency the lighthouse should a. be built but only Sue should be allowed to use it. b. be built but only Mark should be allowed to use it. c. be built and both Sue and Mark should be allowed to use it. d. not be built because its marginal cost exceeds Sue's marginal benefit. e. not be built because its marginal cost exceeds both Sue's and Mark's marginal benefit.

c. be built and both Sue and Mark should be allowed to use it.

Which of the following occurs when a market is efficient? a. producers earn the highest income possible b. production costs equal total benefit c. consumer surplus equals producer surplus d. scarce resources are used to produce the goods and services that people value most highly e. every consumer has all of the good or service he or she wants.

c. consumer surplus equals producer surplus

The efficient quantity of a public good can't be produced by private firms because a. only government has the necessary resources. b. it is impossible to determine the efficient amount. c. consumers have an incentive to free ride and not pay for their share of the good. d. private firms aren't large enough. e. the price would be too high if private firms produced the goods.

c. consumers have an incentive to free ride and not pay for their share of the good.

When governments tax capital income, the equilibrium quantity of capital a. increases because of the international mobility of capital. b. does not change because the supply of capital is perfectly elastic. c. decreases. d. does not change because the supply of capital is perfectly inelastic. e. might increase or decrease depending on whether the demand for capital is inelastic or elastic.

c. decreases.

If the minimum wage is above the equilibrium wage rate, then an increase in the minimum wage ____ employment and ____ unemployment. a. increases; increases b. increases; decreases c. decreases; increases d. decreases; decreases e. does not change; increases

c. decreases; increases

Candy makers accurately anticipate the increase in demand for candy for Halloween so that the supply of candy and the demand for candy increase the same amount. As a result, the price of candy ____ and the quantity of candy ____. a. rises; does not change b. falls; increases c. does not change; increases d. does not change; does not change e. rises; rises

c. does not change; increases

The difference between a firm's total revenue and its total cost is its ____ profit. a. explicit b. normal c. economic d. accounting e. excess

c. economic

The deadweight loss from a tax is called the a. marginal benefit of the tax. b. marginal cost of the tax. c. excess burden of the tax. d. net gain from taxation. e. net loss from taxation.

c. excess burden of the tax.

When Ronald takes another economics class, other people in society benefit. The benefit to these other people is called the marginal ____ benefit of the class. a. social b. private c. external d. opportunity e. extra

c. external

Neither the supply of nor demand for a good is perfectly elastic or perfectly inelastic. So imposing a tax on the good results in a ____ in the price received by sellers and a ____ in the price paid by buyers. a. rise; rise b. rise; fall c. fall; rise d. fall; fall e. no change; rise

c. fall; rise

The technology associated with manufacturing computers has advanced enormously. This change has led to the price of a computer ____ and the quantity ____. a. rising; increasing b. rising; decreasing c. falling; increasing d. falling; decreasing e. falling; not changing

c. falling; increasing

The cost of producing one more unit of a good or service that is borne by the producer of that good or service a. always equals the benefit the consumer derives from that good or service. b. equals the cost borne by people other than the producer. c. is the marginal private cost. d. is the external cost. e. is the marginal social cost.

c. is the marginal private cost

Cost a. is what the buyer pays to get the good. b. is always equal to the marginal benefit for every unit of a good produced. c. is what the seller must give up to produce the good. d. is greater than market price, which results in a profit for firms. e. means the same thing as price.

c. is what the seller must give up to produce the good.

A sales tax creates a deadweight loss because a. the sellers must complete paperwork when they sell an item. b. demand and supply both decrease. c. less is produced and consumed. d. citizens value government goods less than private goods. e. the government spends the tax revenue it collects.

c. less is produced and consumed.

The percentage of an additional dollar of income that is paid in tax is the a. sales tax. b. excise tax. c. marginal tax rate. d. personal income tax. e. regressive tax.

c. marginal tax rate.

In the short run, firms can increase output a. only by increasing the size of their plant. b. only by decreasing the size of their plant. c. only by increasing the amount of labor used. d. only by decreasing the amount of labor used. e. either increasing the amount of labor used or increasing the size of their plant.

c. only by increasing the amount of labor used.

The tragedy of the commons is the absence of incentives to a. correctly measure the marginal benefit. b. prevent under use of the common resource. c. prevent overuse and depletion of the common resource. d. discover the resource. e. prevent the free-rider problem.

c. prevent overuse and depletion of the common resource.

The benefit the consumer of a good or service receives is the a. social benefit. b. external benefit. c. private benefit. d. public benefit. e. consumption benefit.

c. private benefit

The concept of "the invisible hand" suggests that markets a. do not produce the efficient quantity. b. are always fair. c. produce the efficient quantity. d. are unfair though they might be efficient. e. allocate resources unfairly and inefficiently.

c. produce the efficient quantity.

If the average tax rate is constant as income increases, then the tax is called a. regressive. b. progressive. c. proportional. d. an average tax. e. efficient.

c. proportional

In an unregulated market with an external benefit, the a. quantity produced is greater than the efficient quantity. b. price charged is too high for efficiency. c. quantity produced is less than the efficient quantity. d. producer is causing pollution but not paying for it. e. government can impose a tax to restore the efficient amount of production.

c. quantity produced is less than the efficient quantity.

For a common resource, efficiency requires that the marginal ____ equals the marginal ____. a. private benefit; private cost b. social benefit; private cost c. social benefit; social cost d. external benefit; external cost e. social benefit; external cost

c. social benefit; social cost

If the renewal rate of a common resource equals its rate of use, then the resource use is definitely ____ and might be ____. a. unsustainable; efficient b. unsustainable; at its maximum c. sustainable; efficient d. at its maximum; efficient e. None of the above answers are correct..

c. sustainable; efficient

For a business, opportunity cost measures a. only the cost of labor and materials. b. only the implicit costs of the business. c. the cost of all the factors of production the firm employs. d. only the explicit costs the firm must pay. e. all of the firm's costs including its normal profit and its economic profit.

c. the cost of all the factors of production the firm employs.

Which of the following is an example of an implicit cost? a. wages paid to employees b. interest paid to a bank on a building loan c. the cost of using capital an owner donates to the business d. dollars paid to a supplier for materials used in production e. liability insurance payments made only once a year

c. the cost of using capital an owner donates to the business

The price elasticity of demand is a measure of the extent to which the quantity demanded of a good changes when ____ changes and all other influences on buyers' plans remain the same. a. income b. the price of a related good c. the price of the good d. the demand alone e. both the demand and supply simultaneously

c. the price of the good

When production moves from the efficient quantity to a point of overproduction, a. consumer surplus definitely increases. b. the sum of producer surplus and consumer surplus increases. c. there is a deadweight loss. d. consumers definitely lose and producers definitely gain. e. consumers definitely gain and producers definitely lose.

c. there is a deadweight loss.

Joan's income is $60,000 and she pays $6,000 in taxes. Juan's income is $40,000 and he pays $7,000 in taxes. This situation violates a. the benefits principle. b. the big tradeoff. c. vertical equity. d. horizontal equity. e. the fair-tax incidence principle.

c. vertical equity.

Rent ceilings ____ (can result in; do not result in) inefficiency.

can result in

A price ____ (ceiling; floor) is a regulation that makes it illegal to charge a price higher than a specified level.

ceiling

If people specialize according to ____ (comparative; absolute) advantage and then trade, they can get to a consumption ____ (outside; inside) their production possibilities frontiers.

comparative, outside

Because only one person can become chair of General Electric and collect a salary of tens of millions of dollars, this position is allocated in a type of ____ (first-come, first-served; contest; command) allocation scheme

contest; command

____ (Price; Cost) is what a seller must give up to produce a good and ____ (price; cost) is what a seller receives when the good is sold

cost, price

Taxes ____ (create; do not create) a deadweight loss

create

A price support ____ (creates; does not create) inefficiency and a deadweight loss.

creates

A tax on labor income ____ (creates; does not create) a deadweight loss.

creates

A minimum wage ____ (creates; does not create) unemployment and ____ (decreases; increases) job search activity.

creates, increases

The ____ (price; cross; income) elasticity of demand is a measure of the extent to which the demand for a good changes when the price of a substitute or complement changes, other things remaining the same

cross

If 25 workers can pick 100 flats of strawberries an hour, then average product is a. 100 flats an hour. b. 125 flats an hour. c. 75 flats an hour. d. 4 flats an hour. e. More information is needed about how many flats 24 workers can pick.

d. 4 flats an hour.

If polluting producers are required to pay a pollution tax, what is the effect on the supply and demand curves for the product? a. The quantity supplied along the supply curve will increase. b. The demand curve shifts leftward. c. The supply curve shifts rightward. d. The supply curve shifts leftward. e. Both the supply curve and the demand curve shift leftward.

d. The supply curve shifts leftward.

A price ceiling is a government regulation that makes it illegal to charge a price a. below the equilibrium price. b. above the equilibrium price. c. for a good or service. d. above some specified level. e. below some specified level.

d. above some specified level.

6. In a figure that shows a supply curve and a demand curve, producer surplus is the area a. below the demand curve and above the market price. b. below the supply curve and above the market price. c. above the demand curve and below the market price. d. above the supply curve and below the market price. e. between the demand curve and the supply curve.

d. above the supply curve and below the market price.

In a cap-and-trade policy, a pollution permit a. allows firms to pollute all they want without any cost. b. allows firms to buy additional rights to pollute from the government. c. eliminates pollution by setting the price of pollution permits above the marginal cost of polluting. d. allows firms to buy and sell the right to pollute from other firms. e. is the Coase solution to pollution.

d. allows firms to buy and sell the right to pollute from other firms.

Rent ceilings a. eliminate the problem of scarcity. b. allocate resources efficiently. c. ensure that housing goes to the poor. d. benefit renters living in rent-controlled apartments. e. benefit landlords because the landlords know what rent to charge their renters.

d. benefit renters living in rent-controlled apartments.

An external benefit is a benefit from a good or service that someone other than the ____ receives. a. seller of the good or service b. government c. foreign sector d. consumer e. market maker

d. consumer

A sales tax imposed on tires ____ consumer surplus and ____ producer surplus. a. increases; increases b. increases; decreases c. decreases; increases d. decreases; decreases e. does not change; does not change

d. decreases; decreases

When a social security tax is imposed on workers, employment ____ and when a social security tax is imposed on employers, employment ____. a. increases; increases b. increases; decreases c. decreases; increases d. decreases; decreases e. decreases; does not change

d. decreases; decreases

Which of the following is an example of a voucher? a. the postal service b. police services c. social security d. food stamps e. a tax on gasoline

d. food stamps

Which of the following taxes best illustrates the benefits principle of taxation? a. sales tax on clothing used to fund food stamps b. state income tax used to fund state universities c. medicare tax imposed on all workers used to fund medical care for the elderly d. gasoline tax used to fund road repairs e. federal income tax used to fund NASA spending

d. gasoline tax used to fund road repairs

The proposition that taxpayers with the same ability to pay should pay the same taxes is called a. the benefits principle. b. the ability-to-pay imperative. c. vertical equity. d. horizontal equity. e. fair-tax incidence principle.

d. horizontal equity

Because the U.S. income tax is a progressive tax, taxing married couples as two single persons can violate a. the benefits principle. b. the ability-to-pay imperative. c. vertical equity. d. horizontal equity. e. the government's need for more revenue.

d. horizontal equity.

Which of the following is correct? i. A surplus puts downward pressure on the price of a good. ii. A shortage puts upward pressure on the price of a good iii. There is no surplus or shortage at equilibrium. a. i and ii.. b. i and iii. c. ii and iii. d. i, ii, and iii. e. only iii.

d. i, ii, and iii.

Which of the following can result in market failure? i. competition ii. an external cost or an external benefit iii. a tax a. i only. b. ii only. c. iii only. d. ii and iii. e. i and iii.

d. ii and iii.

The supply of beachfront property on St. Simon's Island is a. elastic. b. unit elastic. c. negative. d. inelastic. e. perfectly elastic.

d. inelastic.

If substitutes for a good are readily available, the demand for that good a. does not change substantially if the price rises. b. does not change substantially if the price falls. c. is inelastic. d. is elastic. e. Both answers (a) and(b) are correct.

d. is elastic

The idea that unequal incomes are unfair generally uses the ____ principle of fairness. a. big tradeoff b. involuntary exchange c. voluntary exchange d. it's not fair if the result isn't fair e. it's not fair if the rules aren't fair

d. it's not fair if the result isn't fair

If the price of a good increases by 10 percent and the quantity supplied increases by 5 percent, then the elasticity of supply is a. greater than one and supply is elastic. b. negative and supply is inelastic. c. less than one and supply is elastic. d. less than one and supply is inelastic. e. greater than one and supply is inelastic.

d. less than one and supply is inelastic.

A price support directly sets the a. amount of production. b. subsidy the government must receive from producers. c. equilibrium quantity. d. lowest price for which the good may be sold. e. highest price for which the good may be sold.

d. lowest price for which the good may be sold.

A supply curve shows the ____ of producing one more unit of a good or service. a. producer surplus b. consumer surplus c. total benefit d. marginal cost e. marginal benefit to the producer

d. marginal cost

Marginal social benefit equals a. marginal external benefit. b. marginal private benefit. c. marginal private benefit minus marginal external benefit. d. marginal private benefit plus marginal external benefit e. marginal external benefit minus marginal private benefit.

d. marginal private benefit plus marginal external benefit

The market price of an individual transferable quota is equal to the a. marginal private benefit. b. marginal social benefit. c. marginal private benefit minus the marginal private cost. d. marginal social benefit minus the marginal cost. e. marginal private benefit plus the marginal cost.

d. marginal social benefit minus the marginal cost.

If the two political parties propose similar or identical policies, they are following the principle of a. rational ignorance. b. inefficient overprovision. c. free riding. d. minimum differentiation. e. the commons.

d. minimum differentiation.

A public good is ____ and ____. a. rival; excludable b. rival; nonexcludable c. nonrival; excludable d. nonrival; nonexcludable e. cheap; available

d. nonrival; nonexcludable

If a landlord will rent an apartment only to married couples over 30 years old, the land-lord is allocating resources using a ____ allocation method. a. first-come, first-served b. market price c. contest d. personal characteristics e. command

d. personal characteristics

1. The price elasticity of supply is a measure of the extent to which the quantity supplied of a good changes when only the a. cost of producing the product increases. b. quantity of the good demanded increases. c. supply increases. d. price of the good changes. e. number of firms changes.

d. price of the good changes.

The income elasticity of demand is the percentage change in the ____ divided by the percentage change in ____. a. quantity demanded; the price of a substitute or complement b. quantity supplied; price c. quantity demanded; price d. quantity demanded; income e. quantity demanded; the quantity supplied

d. quantity demanded; income

. The incidence of an income tax on labor income is generally that the tax is a. paid only by workers. b. paid only by employers. c. shared equally between workers and employers. d. shared but not necessarily equally between workers and employers. e. funded by the deadweight loss.

d. shared but not necessarily equally between workers and employers.

Tax incidence refers to a. how government taxes are spent by the government. b. the incidences of tax revolts by the tax payers. c. the amount of a tax minus its burden. d. the division of the burden of a tax between the buyers and the sellers. e. tax revenue minus excess burden.

d. the division of the burden of a tax between the buyers and the sellers.

Value is a. the price we pay for a good. b. the cost of resources used to produce a good. c. objective so that it is determined by market forces, not preferences. d. the marginal benefit we get from consuming another unit of a good or service. e. the difference between the price paid for a good and the marginal cost of producing that unit of the good.

d. the marginal benefit we get from consuming another unit of a good or service.

The cost of producing an additional unit of a good or service that falls on people other than the producer is a. the marginal cost. b. represented by the demand curve. c. represented by the supply curve. d. the marginal external cost. e. the marginal social cost.

d. the marginal external cost.

When underproduction occurs, a. producers gain more surplus at the expense of consumers. b. marginal cost is greater than marginal benefit. c. consumer surplus increases to a harmful amount. d. there is a deadweight loss that is borne by the entire society. e. the deadweight loss harms only consumers

d. there is a deadweight loss that is borne by the entire society.

Suppose the price of a movie falls from $9 to $7. Using the midpoint method, what is the percentage change in price? a. 33 percent b. −33 percent c. 25 percent d. −25 percent e. −97 percent

d. −25 percent

The excess burden of a tax is the ____ (deadweight loss; surplus) from the tax and is larger the ____ (more; less) elastic the demand for the good being taxed.

deadweight, more

A tax is regressive if the average tax rate ____ (increases; decreases) as income increases

decreases

If demand is elastic, an increase in price ____ (increases; decreases) total revenue.

decreases

As more of a good is consumed, its marginal benefit ____ (increases; decreases), and as more of a good is produced, its marginal cost ____ (increases; decreases).

decreases, increases

If a minimum wage is set above the equilibrium wage rate, the quantity of labor demanded ____ (decreases; increases) and the quantity of labor supplied ____ (decreases; increases).

decreases, increases

Demand curves are ____ (downward; upward) sloping

downward

When the price of going to a movie rises 5 percent, the quantity of DVDs demanded increases 10 percent. The cross elasticity of demand equals a. 10.0. b. 0.50. c. -0.50. d. −2.0. e. 2.0.

e. 2.0.

If 5 workers can wash 30 cars a day and 6 workers can wash 33 cars a day, then the marginal product of the 6th worker equals a. 30 cars a day. b. 33 cars a day. c. 5 cars a day. d. 5.5 cars a day. e. 3 cars a day.

e. 3 cars a day.

If the quantity supplied increases by 8 percent when the price rises by 2 percent, the price elasticity of supply is ____ percent. a. 10.0 b. 6.0 c. 0.25 d. 16.0 e. 4.0

e. 4.0

Price supports are generally used in a. labor markets. b. industrial markets. c. housing markets. d. markets for services. e. agricultural markets.

e. agricultural markets.

Which of the following is an example of an external cost? i. second-hand smoke ii. sulfur emitting from a smoke stack iii. garbage on the roadside a. i only. b. ii only. c. iii only. d. ii and iii. e. i, ii, and iii

e. i, ii, and iii

If tuition at a college is $30,000 and the external benefit of graduating from this college is $10,000, then i. in the absence of any government intervention, the number of students graduating is less than the efficient number. ii. the government could increase the number of graduates by giving the college a $10,000 subsidy per student. iii. the government could increase the number of graduates by giving the students $10,000 vouchers. a. i only. b. i and ii. c. i and iii. d. ii and iii. e. i, ii, and iii.

e. i, ii, and iii.

To have an effective price support program, the government must i. isolate the domestic market from the world market ii. pay the farmers a subsidy iii. introduce a price floor a. i only. b. ii only. c. iii only. d. ii and iii. e. i, ii, and iii.

e. i, ii, and iii.

When the production of a good has a marginal external cost, which of the following will occur in an unregulated market? i. Overproduction relative to the efficient level will occur. ii. The market price will be less than the marginal social cost at the equilibrium quantity. iii. A deadweight loss will occur. a. i only. b. ii only. c. iii only. d. i and ii. e. i, ii, and iii.

e. i, ii, and iii.

When income increases by 6 percent, the demand for potatoes decreases by 2 percent. The income elasticity of demand for potatoes equals a. −2.00. b. 3.00. c. −3.00. d. 0.33. e. −0.33.

e. −0.33.

A firm's total revenue minus total opportunity cost is ____ (normal; economic) profit.

economic

For a given elasticity of supply, the buyer pays a larger share of the tax the more ____ (elastic; inelastic) is the demand for the good.

elastic

Goods that can be produced at an almost constant opportunity cost have an ____ (elastic; inelastic) supply.

elastic

If the elasticity of supply is greater than 1, supply is ____ (elastic; inelastic).

elastic

If the percentage change in the quantity demanded exceeds the percentage change in the price, demand is ____ (elastic; inelastic).

elastic

Allocative efficiency is at the quantity where the marginal benefit is ____ (greater than; equal to; less than) marginal cost.

equal to

Allocative efficiency occurs when the marginal benefit of a good is ____ (greater than; equal to; less than) the marginal cost of the good.

equal to

The efficient quantity of a public good is the quantity at which the marginal benefit ____ the marginal cost.

equals,

In a diagram, the ____ is determined where the supply and demand curves intersect

equilibrium price

A cost paid in money is an ____ (explicit; implicit) cost; a cost incurred when a firm uses a factor of production for which it does not make a direct money payment is an ____ (explicit; implicit) cost.

explicit, implicit

By setting the pollution tax rate equal to the marginal ____ (external; private; social) cost, firms behave in the same way as they would if they bore the cost of the externality directly.

external

A good is ____ (rival; nonrival; excludable) if it is possible to prevent someone from enjoying its benefits.

exxludable

A normal good is a good that has a positive cross elasticity of demand.

f

A supply curve is a marginal benefit curve.

f

According to the "fair-rules" view of fairness, in times of natural disasters it is fair to force people to make available necessary goods and services at lower than usual prices.

f

Both vertical and horizontal equity can be achieved and the marriage tax problem eliminated if married couples are taxed as two single persons.

f

If the price increases by 10 percent and the quantity demanded decreases by 8 percent, the price elasticity of demand equals 1.25.

f

If the revenue from gasoline taxes is used to pay for road repairs, the tax reflects the ability-to-pay principle

f

Producer surplus equals the marginal benefit of a good minus the cost of producing it.

f

TF The law of demand states that other things remaining the same, if the price of a good rises, the quantity demanded of that good increases.

f

tf All externalities are negative.

f

tf In economics, cost and price are the same thing.

f

tf In economics, value and price refer to the same thing

f

tf Most production processes initially have decreasing marginal returns followed eventually by increasing marginal returns.

f

tf The marginal private benefit from a good or service must exceed the marginal external benefit

f

tf A common resource is nonrival and excludable.

f

tf A flu vaccination has an external benefit, so the marginal private benefit curve for flu vaccinations lies above the marginal social benefit curve for flu vaccinations.

f

tf A minimum wage is fair because low-income workers receive an increase in take-home pay.

f

tf A price support sets the maximum price for which farmers may sell their crop.

f

tf A private firm would produce too much of a public good.

f

tf A private good is nonrival and nonexcludable

f

tf A production point can be allocatively efficient but not be production efficient.

f

tf A rent ceiling always lowers the rent paid.

f

tf A taco from Taco Bell is a public good.

f

tf A tax on fast-food meals does not create a deadweight loss because the elasticity of supply of fast-food meals equals 1.0.

f

tf According to Adam Smith, the invisible hand suggests that competitive markets require government action to ensure that resources are allocated efficiently.

f

tf All of a firm's costs must be paid in money

f

tf An accountant measures profit as total revenue minus opportunity cost.

f

tf As summer comes to an end and winter sets in, the demand for and supply of hamburger buns decrease. The price of a hamburger bun definitely remains the same.

f

tf At the efficient level of use, the marginal private cost of a common resource exceeds the marginal social cost.

f

tf Because they decrease production, price supports decrease farmers' total revenue.

f

tf By issuing emission permits, the government sets the price for each unit of pollution produced.

f

tf Consumer surplus always equals zero because consumers always pay for the goods and services they consume.

f

tf Copper mining creates land pollution. If the copper mining industry is unregulated, then the quantity of copper mined is less than the efficient quantity

f

tf Firms hire labor, so they determine how much labor to supply in a market.

f

tf For a given elasticity of supply, the more inelastic the demand for a good, the smaller the share of the tax paid by the buyer.

f

tf If the cross elasticity of demand is negative, the two goods are substitutes.

f

tf If the percentage change in the quantity supplied is zero when the price changes, supply is perfectly elastic.

f

tf If the supply of capital is perfectly elastic, a tax on capital income decreases the demand for capital and decreases the interest rate.

f

tf Marginal social cost equals marginal private cost minus marginal external cost.

f

tf Market failure occurs if less than the efficient quantity of a good is produced but producing more than the efficient quantity does not result in market failure.

f

tf Price supports are efficient because they guarantee production of the good.

f

tf Rent ceilings are efficient because they lower the cost of housing to low-income families.

f

tf Sam has $40,000 of taxable income and pays $4,000 income tax. Bert has $50,000 of taxable income and pays $4,500 income tax. Sam and Bert live in a country with a progressive income tax.

f

tf The Coase theorem concludes that if property rights to a polluted river are assigned to the polluter, the quantity of pollution will increase.

f

tf The benefits principle asserts that those people who are harmed by the deadweight loss of a tax should not pay the tax

f

tf The efficient use of a common resource occurs when the marginal private benefit equals the marginal private cost.

f

tf The marginal benefit of a good increases as more of the good is consumed.

f

tf The price elasticity of demand equals the magnitude of the slope of the demand curve.

f

tf The supply of a storable good is perfectly inelastic.

f

tf The supply of apples is perfectly elastic on the day of a price change.

f

tf To overcome the inefficiency in the market for a good with an external benefit, the government can either tax or subsidize the good.

f

tf Vouchers can help overcome the inefficiency created by a good with an external cost but not the inefficiency created by a good with an external benefit.

f

tf When a minimum wage is set above the equilibrium wage rate, the employee's marginal cost of working exceeds the employer's marginal benefit from hiring labor.

f

tf When a rent ceiling is higher than the equilibrium rent, a black market emerges.

f

tf When the demand for skateboards decreases and the supply of skateboards remains unchanged, the quantity supplied of skateboards decreases as the price rises.

f

tf When the efficient quantity of a good is produced, the consumer surplus is always zero.

f

tf When the government imposes a tax on the sale of a good, the burden of the tax falls entirely on the buyer.

f

tf the marginal product of labor exceeds the average product of labor, the average product curve is downward sloping.

f

tf All combinations of goods and services on the production possibilities frontier are combinations of allocative efficiency.

f

tf Points on and below the total product curve are efficient.

f

tf The big tradeoff is the tradeoff between efficiency and happiness.

f (its efficiency and fairness)

tf For efficiency, a pollution tax must equal the marginal social cost.

f, the MEC

If the price exceeds the equilibrium price, the price ____ (rises; falls)

falls

If the supply of capital is perfectly elastic, a tax on capital income is paid entirely by the ____ (firms; suppliers of capital) and the tax ____ (creates; does not create) a deadweight loss.

firms, creates

A minimum wage is a price ____ (ceiling; floor).

floor

Along a production possibilities frontier, the opportunity cost of obtaining one more unit of a good is the amount of another good that is_____.

forgone

A person who enjoys the benefit of a good or service without paying for it is a ____.

free rider

Farmers ____ (gain; lose) from a price support and consumers ____ (gain; lose) from a price support

gain,lose

According to Robert Nozick, fairrules ideas require ____ (government intervention; property rights and voluntary exchange).

government intervention

A firm receives a producer surplus when price is ____ (greater; less) than marginal cost.

greater

A price ceiling is the ____ (highest; lowest) price at which it is legal to trade a particular good, service, or factor of production

highest

The tax ____ (elasticity; incidence) is the division of the burden of a tax between the buyer and the seller.

incidence

. A tax is like ____ (a decrease; an increase) in suppliers' costs

increase

When the price support is above the equilibrium price, producers ____ (increase; decrease) the quantity supplied and consumers ____ (increase; decrease) the quantity demanded.

increase, decrease

As more of a good is produced, its opportunity cost______.

increases

As time passes, the elasticity of supply ____ (increases; decreases).

increases

The stock of fish ____ (decreases; increases) when the renewal rate exceeds the catch rate

increases

A pollution externality creates an ____ (efficient; inefficient) equilibrium

inefficient

If the supply is perfectly ____ (elastic; inelastic), the seller pays the entire tax.

inelastic

The demand for a necessity is generally ____ (elastic; inelastic).

inelastic

When supply has a vertical supply curve, then the supply of the good is perfectly ____ (elastic; inelastic).

inelastic

If the supply of land is perfectly ____ (inelastic; elastic), a tax on income from land is paid entirely by the landowners and the tax ____ (creates; does not create) a deadweight loss.

inelastic, does not creates

. To use a common resource efficiently, establishing property rights ____ (is; is not) a potential solution.

is

Equilibrium in a competitive market ____ (is; is not) efficient.

is

It ____ (is; is not) possible for someone to have an absolute advantage in all activities

is

The demand curve ____ (is; is not) the marginal benefit curve.

is

Moving along a straight-line demand curve, the slope ____ (is constant; varies) and the elasticity ____ (is constant; varies).

is constant, varies

According to the Coase theorem, if property rights exist, then private transactions are efficient and the outcome ____ (is; is not) affected by who is assigned the property right.

is not

It ____ (is; is not) possible for someone to have a comparative advantage in all activities

is not

A Social Security tax imposed on workers and a Social Security tax imposed on firms both ____ (raise; lower) the wage rate that employees receive and ____ (increase; decrease) employment.

lower, decrease

A price floor is the ____ (highest; lowest) price at which it is legal to trade a particular good, service, or factor of production

lowest

When the marginal product of an additional worker is less than the marginal product of the previous worker, the firm experiences decreasing ____ (marginal; fixed) returns.

marginal

The benefit a person receives from consuming one more unit of a good is its ____.

marginal benefit

The opportunity cost of producing one more unit of a good is its ____.

marginal cost

The marginal private cost of an additional fishing boat is the ____ (marginal cost incurred by the boat's owner; marginal cost incurred by society)..

marginal cost incurred by the boat's owner;

Bureaucrats try to ____ (maximize; minimize) their budgets.

maximize

When the firm hires the quantity of labor so that the marginal product is at its maximum, marginal cost is at its ____ (maximum; minimum).

minimum

The consumer surplus equals the marginal benefit of a good ____ (plus; multiplied by; minus) the price paid for it.

minus

In the United States, the marriage tax problem is that a couple who both work pay often ____ (more; less) taxes when they are married than when they are single.

more

The ____ (less; more) inelastic the demand or the supply of housing, the smaller the deadweight loss created by a rent ceiling

more

The demand for a product is more elastic if there are ____ (more; fewer) substitutes for it.

more

A good is ____ (rival; nonrival; excludable) if its use by one person does not decrease the quantity available for someone else

nonrival

A common resource is ____ (rival; nonrival) and ____ (excludable; nonexcludable).

nonrival, nonexcludable

The return to entrepreneurship is ____ (normal; economic) profit and ____ (is; is not) part of the firm's opportunity cost.

normal, is

Production points ____ the PPF are production efficient.

on

Economic growth shifts the PPF ____ (inward; outward).

outward

The tragedy of the commons is the absence of incentives to prevent the ____ (overuse; under use) of a commonly owned resource

overuse

Average total cost equals average fixed cost ____ (plus; minus; times) average variable cost.

plus

Marginal social cost equals marginal private cost ____ (minus; plus) marginal external cost.

plus

Total cost equals total fixed cost ____ (plus; minus; times) total variable cost

plus

The cross elasticity of demand is ____ (positive; negative) for a substitute and ____ (positive; negative) for a complement.

positive, negative

The income elasticity of demand is ____ (positive; negative) for a normal good and ____ (positive; negative) for an inferior good.

positive, negative

A price support is a ____ (price ceiling; price floor) in an agricultural market.

price floor

The firm's goal is to maximize its ____ (growth; market share; profit)

profit

A good that is nonrival and nonexcludable is a ____ (private; public; common) good and a good that is rival and excludable is a ____ (private; public; common) good

public, private

The income elasticity of demand equals the percentage change in ____ (the quantity demanded; income) divided by the percentage change in ____ (quantity demanded; income).

quantity demanded, income

The price elasticity of demand equals the percentage change in the ____ (price; quantity demanded) divided by the percentage change in the ____ (price; quantity demanded).

quantity demanded, pri

The price elasticity of supply equals the percentage change in the ____ (price; quantity supplied) divided by the percentage change in the ____ (price; quantity supplied).

quantity of supply, price

Two views of fairness are that "it's not fair if the ____ (result; income distribution) isn't fair;" and "it's not fair if the ____ (rules; tradeoffs) aren't fair."

result, rules

Factors that change demand lead to a ____ (shift of; movement along) the demand curve.

shift of

The time frame in which the quantities of some resources are fixed is the ____ (long; market; short) run and the time frame in which the quantities of all resources can be varied is the (long; market; short) ____ run

short,long

A rent ceiling can create a housing ____ (shortage; surplus), which leads to ____ (increased; decreased) search activity

shortage, increased

Marginal ____ (social; external) benefit is the benefit enjoyed by society from one more unit of a good or service.

social

A payment that the government makes to private producers to cover part of the costs of production is ____ (a subsidy; public provision).

subsidy

The government gives a ____ to producers to cover part of the costs of production.

subsidy

When a market is efficient the a. sum of consumer surplus and producer surplus is maximized. b. deadweight gain is maximized. c. quantity produced is maximized. d. marginal benefit of the last unit produced exceeds the marginal cost by as much as possible. e. total benefit equals the total cost.

sum of consumer surplus and producer surplus is maximized.

A ____ (demand; supply) curve is a marginal cost curve.

supply

Above the midpoint of a straight-line demand curve, demand is elastic.

t

As the price of a good increases, if the quantity demanded of it remains the same, then demand for the good is perfectly inelastic.

t

If the price of tuna increases by 5 percent and the total revenue of tuna producers increases, then the demand for tuna is inelastic.

t

TF The number of buyers of grapefruit juice increases and at the same time severe frost decreases the supply of grapefruit juice. The price of grapefruit juice will rise.

t

The U.S. income tax, which uses progressive income taxes, can be considered fair based on the principle of vertical equity.

t

The minimum price for which Bobby will grow another pound of rice is 20¢, so the marginal cost of an additional pound of rice is 20¢

t

The taxes with the largest deadweight loss are taxes on capital income, and the people who pay these taxes generally have the greatest ability to pay taxes.

t

When the price of a service increases by 5 percent and the quantity demanded decreases by 5 percent, total revenue remains unchanged

t

tf If the price of asparagus is below the equilibrium price, there is a shortage of asparagus and the price of asparagus will rise until the shortage disappears.

t

tf In the short run, the firm's fixed inputs cannot be changed

t

tf The marginal social benefit curve for a public good slopes downward.

t

tf The total loss from a rent ceiling exceeds the deadweight loss.

t

tf When Hank earns an additional dollar, he pays 30 cents in additional tax. Hank's marginal tax rate is 30 percent

t

tf A demand curve is a marginal benefit curve.

t

tf A good is nonexcludable if it is impossible to prevent someone from benefiting from it.

t

tf A minimum wage has an impact when it is set above the equilibrium wage rate.

t

tf A minimum wage law can lead to increased job search activity and illegal hiring.

t

tf A public community college is an example of public provision of a good that has an external benefit

t

tf An income tax on labor creates a deadweight loss.

t

tf An inferior good has a negative income elasticity of demand.

t

tf An unregulated market underproduces products with external benefits, such as education

t

tf Beth is a free rider when she is protected by the nation's military but does not pay anything for the protection.

t

tf Fish in the ocean are rival and nonexcludable.

t

tf Gasoline refiners expect the price of oil will fall next month. If the supply of oil does not change, the equilibrium price of oil today falls and the equilibrium quantity today decreases.

t

tf Goods that can be produced at a constant (or very gently rising) opportunity cost have an elastic supply.

t

tf If a 5 percent increase in price increases the quantity supplied by 10 percent, the elasticity of supply equals 2.0.

t

tf If a firm earns an economic profit, the return to the entrepreneur exceeds normal profit.

t

tf If the average tax rate increases as income increases, the tax is a progressive tax.

t

tf If the cross elasticity between hamburgers and hot dogs is positive, then hamburgers and hot dogs are substitutes.

t

tf If the government imposes a pollution tax on lead mining equal to its marginal external cost, the quantity of lead mined will be the efficient quantity.

t

tf In order to have an effective price support, the government isolates the domestic market from the world market by restricting imports.

t

tf In order to keep the price of a crop above the equilibrium price and equal to the supported price, the government must buy some of the crop.

t

tf Property rights and production quotas are potential solutions to the tragedy of the commons.

t

tf Rational ignorance can lead to the provision of more than the efficient amount of a public good.

t

tf Smoking on a plane creates a negative externality.

t

tf The consumer surplus from one unit of a good is the marginal benefit from the good minus the price paid for it.

t

tf The efficient quantity of a public good is the quantity at which marginal social benefit equals marginal social cost.

t

tf The excess burden of a tax is the deadweight loss from the tax.

t

tf The expanded job opportunities from a college degree are a marginal private benefit enjoyed by college graduates.

t

tf The firm's goal is to maximize profit.

t

tf The principle that "it's not fair if the result isn't fair" can conflict with the principle that "it's not fair if the rules aren't fair."

t

tf The tragedy of the commons is the absence of incentives that prevent the overuse and depletion of a commonly owned resource.

t

tf When market prices are used to allocate resources, only the people who are able and willing to pay get the resources.

t

tf When the demand curve is the marginal benefit curve and the supply curve is the marginal cost curve, the competitive equilibrium is efficient.

t

tf When the government taxes a good that has a perfectly elastic supply, the buyer pays the entire tax.

t

tf When the income elasticity of demand is positive, the good is a normal good.

t

tf The opportunity cost of a dorm room is equal to its rent plus the value of the search time spent finding the dorm room.

t

tf When the price of a pizza is $20, 10 pizzas are supplied and when the price rises to $30 a pizza, 14 pizzas are supplied. The price elasticity of supply of pizzas is 0.83.

t

Marginal product equals ____ (total product; the change in total product) divided by the ____ (quantity of labor; increase in the quantity of labor).

the change in total product, increase in the quantity of labor

An increase in demand shifts the demand curve ____.

to the right

Average product equals the ____ (total product; change in total product) divided by the ____ (quantity of labor; change in quantity of labor).

total product;(quantity of labor

When resources are fully employed we face a _____.

tradeoff

If the government leaves education to the private market, ____ (overproduction; underproduction) occurs.

underproduction

The minimum wage is ____ (fair; unfair). Labor unions ____ (do not support; support) the minimum wage.

unfair, support

If the marginal product exceeds the average product, the average product curve slopes ____ (downward; upward).

upward

The law of decreasing returns states that as a firm uses more of a ____ (fixed; variable) input, with a given quantity of ____ (fixed; variable) inputs, the marginal product of the ____ (fixed; variable) input eventually decreases.

variable,fixed, variable

The marginal social benefit curve for a public good is the ____ (horizontal; vertical) sum of the individual marginal benefit curves

vertical

TF If the quantity of ice cream demanded at each price increases, there is a movement along the demand curve for ice cream.

T

TF Specialization and trade can make both producers better off even if one of them has an absolute advantage in producing all goods.

T

TF When Sue's income increases, her demand for movies increases. For Sue, movies are a normal good.

T

TF If the price of coffee is expected to rise next month, the supply of coffee this month will decrease

T

TF To achieve the gains from trade, a producer specializes in the product in which he or she has a comparative advantage and then trades with others.

T

TF When new technology for producing computers is used by manufacturers, the supply of computers increases.

T

The opportunity cost of increasing economic growth is the loss of the ____ (current; future) goods that can be consumed.

current

Moving between two points on a PPF, a country gains 6 automobiles and forgoes 3 trucks. The opportunity cost of 1 automobile is a. 3 trucks. b. 6 automobiles - 3 trucks. c. 2 trucks. d. 1/2 of a truck. e. 1 automobile.

d. 1/2 of a truck.

Other things equal, if Mexico devotes more resources to train its population than Spain, a. Mexico will be able to eliminate opportunity cost faster than Spain. b. Mexico will be able to eliminate scarcity faster than Spain. c. Spain will grow faster than Mexico. d. Mexico will grow faster than Spain. e. Mexico will have more current consumption than Spain.

d. Mexico will grow faster than Spain.

Pizza and tacos are substitutes and the price of a pizza increases. Which of the following correctly indicates what happens? a. The demand for pizzas decreases and the demand for tacos increases. b. The demand for both goods decreases. c. The quantity of tacos demanded increases and the quantity of pizza demanded decreases. d. The quantity of pizza demanded decreases and the demand for tacos increases. e. The demand for each decreases because both are normal goods

d. The quantity of pizza demanded decreases and the demand for tacos increases.

"Comparative advantage" is defined as a situation in which one person can produce a. more of all goods than another person. b. more of a good than another person. c. a good for a lower dollar cost than another person. d. a good for a lower opportunity cost than another person. e. all goods for lower opportunity costs than another person.

d. a good for a lower opportunity cost than another person.

Points inside the PPF are all a. unattainable and have fully employed resources. b. attainable and have fully employed resources. c. unattainable and have some unemployed resources. d. attainable and have some unemployed resources. e. unaffordable.

d. attainable and have some unemployed resources.

The price of leather used to produce shoes rises, so the supply of shoes ____ and the supply curve of shoes ____. a. increases; shifts rightward b. increases; shifts leftward c. decreases; shifts rightward d. decreases; shifts leftward e. does not change; does not shift

d. decreases; shifts leftward

If the price of a DVD falls, i. the demand curve for DVDs shifts rightward. ii. the demand curve for DVDs will not shift. iii. there is a movement along the demand curve for DVDs. a. i only. b. ii only. c. iii only. d. ii and iii. e. i and iii.

d. ii and iii.

Factors that change demand are ____, ____, ____, ____, ____, and ____.

-income, -expectations, - number of buyers in the -market, -preferences, -related goods

Factors that change supply are ____, ____, ____, ____, and ____.

-number of people in market -expectations -prices of related goods -productivity -prices of resources and inputs

TF A rise in the price of a computer increases the demand for computers because a computer is a normal good.

F

TF If people's incomes fall and all other influences on buying plans remain the same, the demand for computers will decrease and there will be a movement along the demand curve.

F

TF The law of supply states that other things remaining the same, if the price of a good rises, the supply of the good increases.

F

TF If the wage rate paid to chefs rises and all other influences on selling plans remain the same, the supply of restaurant meals will increase.

F

TF The supply of a good will increase and there will be a movement up along the supply curve of the good if the price of one of its substitutes in production falls.

F

True or False A person has an absolute advantage in an activity if the person can perform the activity at lower opportunity cost than someone else.

FALSE

True of False Moving from one point on the PPF to another point on the PPF illustrates a free lunch

False

True or False Economic growth abolishes scarcity.

False

True or False Moving from one point on the PPF to another point on the PPF has no opportunity cost

False

True or False Production possibilities per person in the United States have remained constant during the last 30 years.

False

True or False The opportunity cost of economic growth is less consumption goods in the future.

False

True or False WHen moving along the PPF, the quantity of CDs increases by 2 and the quantity of DVDs decreases by 1, so the opportunity cost is 2 CDs minues 1 DVD.

False

A _______ is a graph of the relationship between the quantity demanded of a good and its price.

Market Demand Curve

The _____ is the boundary between the combinations of goods and services that can and that cannot be produced given the available_________ and __________.

PPF, factors of production, state of technology

True of False If all the factors of production are fully employed, the economy will produce at a point on the production possibilities frontier.

True

True or False Increasing opportunity costs are common

True

Scott and Cindy both produce only pizza and tacos. In one hour, Scott can produce 20 pizzas or 40 tacos. In one hour, Cindy can produce 30 pizzas or 40 tacos. Scott's opportunity cost of producing 1 taco is a. 1/2 of a pizza. b. 1 pizza. c. 2 pizzas. d. 20 pizzas. e. 2 tacos.

a. 1/2 of a pizza.

Scott and Cindy both produce only pizza and tacos. In one hour, Scott can produce 20 pizzas or 40 tacos. In one hour, Cindy can produce 30 pizzas or 40 tacos. Cindy's opportunity cost of producing 1 taco is a. 3/4 of a pizza. b. 1 pizza. c. 30 pizzas. d. 40 pizzas. e. 1 taco.

a. 3/4 of a pizza.

The shift of the demand curve for pizza illustrated in Figure 4.3 could be the result of a. a rise in income if pizza is a normal good. b. a fall in the price of fried chicken, a substitute for pizza. c. consumers coming to believe that pizza is unhealthy. d. the belief that pizza will fall in price next month. e. a fall in the price of a pizza.

a. a rise in income if pizza is a normal good.

A country produces only cans of soup and ink pens. If the country produces on its bowed outward PPF and increases the production of cans of soup, the opportunity cost of additional a. cans of soup is increasing. b. cans of soup is decreasing. c. cans of soup remain unchanged. d. ink pens is increasing. e. More information is needed to determine what happens to the opportunity cost.

a. cans of soup is increasing.

The number of buyers of sport utility vehicles, SUVs, decreases sharply. So the a. demand curve for SUVs shifts leftward. b. demand curve for SUVs shifts rightward. c. demand curve for SUVs does not shift nor is there a movement along the demand curve. d. demand curve for SUVs does not shift but there is a movement downward along it. e. the supply curve for SUVs shifts rightward.

a. demand curve for SUVs shifts leftward.

The market supply curve is the ____ of the ____. a. horizontal sum; individual supply curves b. vertical sum; individual supply curves c. horizontal sum; individual supply curves minus the market demand d. vertical sum; individual supply curves minus the market demand e. vertical average; individual supply curves

a. horizontal sum; individual supply curves

Increasing opportunity costs exist a. in the real world. b. as long as there is high unemployment. c. only in theory but not in real life. d. for a country but not for an individual. e. inside the PPF but not on the PPF.

a. in the real world.

Teenagers demand more soda than other age groups. If the number of teenagers increases, everything else remaining the same, a. market demand for soda increases. b. market demand for soda decreases. c. market demand for soda does not change. d. there is a movement along the market demand curve for soda. e. None of the above answers is correct because the effect on the demand depends whether the supply curve shifts.

a. market demand for soda increases.

A person (or nation) has ____ (a comparative; an absolute) advantage if they are more productive than another in producing a good.

an absolute

In one hour John can produce 20 loaves of bread or 16 cakes. In one hour Phyllis can produce 30 loaves of bread or 15 cakes. Which of the following statements is true? a. Phyllis has a comparative advantage in producing cakes. b. John has a comparative advantage in producing cakes. c. Phyllis has an absolute advantage in both goods. d. John has an absolute advantage in both goods. e. Phyllis has a comparative advantage in producing both cakes and bread.

b. John has a comparative advantage in producing cakes.

Scott and Cindy both produce only pizza and tacos. In one hour, Scott can produce 20 pizzas or 40 tacos. In one hour, Cindy can produce 30 pizzas or 40 tacos. . Based on the data given, a. Cindy has a comparative advantage in producing tacos. b. Scott has a comparative advantage in producing tacos. c. Cindy and Scott have the same comparative advantage in producing tacos. d. neither Cindy nor Scott has a comparative advantage in producing tacos. e. Cindy and Scott have the same comparative advantage in producing pizzas.

b. Scott has a comparative advantage in producing tacos.

A rise in the price of a substitute in production for a good leads to a. an increase in the supply of that good. b. a decrease in the supply of that good. c. no change in the supply of that good. d. a decrease in the quantity of that good supplied. e. no change in either the supply or the quantity supplied of the good.

b. a decrease in the supply of that good.

The shift of the demand curve for pizza illustrated in Figure 4.3 could be the result of a. a rise in income if pizza is an inferior good. b. a fall in the price of soda, a complement for pizza. c. a decrease in the number of college students if college students eat more pizza than other age groups. d. a rise in the price of a pizza. e. a fall in the price of a pizza.

b. a fall in the price of soda, a complement for pizza.

The production possibilities frontier is a boundary that separates a. the combinations of goods that can be produced from the combinations of services. b. attainable combinations of goods and services that can be produced from unattainable combinations. c. equitable combinations of goods and services that can be produced from inequitable combinations. d. fair combinations of goods and services that can be consumed from unfair combinations. e. affordable product

b. attainable combinations of goods and services that can be produced from unattainable combinations.

When a country's production possibilities frontier shifts outward over time, the country is experiencing a. no opportunity cost. b. economic growth. c. higher unemployment of resources. d. a decrease in unemployment of resources. e. an end to opportunity cost.

b. economic growth.

Other things remaining the same, the quantity of a good or service demanded will increase if the price of the good or service a. rises. b. falls. c. does not change. d. rises or does not change. e. rises or falls.

b. falls.

The opportunity cost of one more slice of pizza in terms of sodas is the a. number of pizza slices we have to give up to get one extra soda. b. number of sodas we have to give up to get one extra slice of pizza. c. total number of sodas that we have divided by the total number of pizza slices that we have. d. total number of pizza slices that we have divided by the total number of sodas that we have. e. price of a pizza slice minus the price of a soda.

b. number of sodas we have to give up to get one extra slice of pizza.

An increase in the productivity of producing jeans results in a. the quantity of jeans supplied increasing. b. the supply of jeans increasing. c. buyers demanding more jeans because they are now more efficiently produced. d. buyers demanding fewer jeans because their price will fall, which signals lower quality. e. some change but the impact on the supply of jeans is impossible to predict.

b. the supply of jeans increasing.

Which of the following indicates that the law of supply applies to makers of soda? a. An increase in the price of a soda leads to an increase in the demand for soda. b. An increase in the price of a soda leads to an increase in the supply of soda. c. An increase in the price of a soda leads to an increase in the quantity of soda supplied. d. A decrease in the price of a soda leads to an increase in the quantity of soda demanded. e. A decrease in the price of a soda leads to an increase in the supply of soda.

c. An increase in the price of a soda leads to an increase in the quantity of soda supplied.

In one hour John can produce 20 loaves of bread or 8 cakes. In one hour Phyllis can produce 30 loaves of bread or 15 cakes. Which of the following statements is true? a. Phyllis has a comparative advantage in producing bread. b. John has a comparative advantage in producing cakes. c. Phyllis has an absolute advantage in both goods. d. John has an absolute advantage in both goods. e. Phyllis has a comparative advantage in producing both cakes and bread.

c. Phyllis has an absolute advantage in both goods.

One reason the demand for laptop computers might increase is a a. fall in the price of a laptop computers. b. fall in the price of a desktop computer. c. a change in preferences as laptops have become more portable, with faster processors and larger hard drives. d. poor quality performance record for laptop computers. e. a decrease in income if laptops are a normal good.

c. a change in preferences as laptops have become more portable, with faster processors and larger hard drives.

One reason supply curves have an upward slope is because a. increased supply will require increased technology. b. people will pay a higher price when less is supplied. c. a higher price brings a greater profit, so firms want to sell more of that good. d. to have more of the good supplied requires more firms to open. e. None of the above answers is correct because supply curves have a downward slope.

c. a higher price brings a greater profit, so firms want to sell more of that good.

The shift of the supply curve of pizza illustrated in Figure 4.8 (shift to the right) could be the result of a. a rise in income if pizza is a normal good. b. a fall in the price of soda, a consumer complement for pizza. c. an increase in the number of firms producing pizza. d. a rise in the price of a pizza. e. a rise in the wage paid the workers who make pizza.

c. an increase in the number of firms producing pizza.

The shift of the supply curve of pizza illustrated in Figure 4.8 (shift to the right) could be the result of a. a rise in the price of cheese used to produce pizza. b. a decrease in the number of firms producing pizza. c. an increase in the productivity of the firms producing pizza. d. a rise in the price of a substitute in production. e. a rise in the price of a pizza.

c. an increase in the productivity of the firms producing pizza

The opportunity cost of economic growth is ____ and the benefit of economic growth is ____. a. increased current consumption; increased future consumption b. increased current consumption; decreased future consumption c. decreased current consumption; increased future consumption d. decreased current consumption; decreased future consumption. e. nothing; increased future consumption.

c. decreased current consumption; increased future consumption

To increase its economic growth, a nation should a. limit the number of people in college because they produce nothing. b. encourage spending on goods and services. c. encourage education because that increases the quality of labor. d. increase current consumption. e. eliminate expenditure on capital goods.

c. encourage education because that increases the quality of labor.

Which of the following is correct? i. As an economy grows, the opportunity costs of economic growth decrease. ii. Economic growth has no opportunity cost. iii. The opportunity cost of economic growth is current consumption forgone. a. i only. b. ii only. c. iii only. d. i and iii. e. i and ii.

c. iii only.

1. The production possibilities frontier is a graph showing the a. exact point of greatest efficiency for producing goods and services. b. tradeoff between free lunches. c. maximum combinations of goods and services that can be produced. d. minimum combinations of goods and services that can be produced. e. resources available for the economy's production uses.

c. maximum combinations of goods and services that can be produced.

The quantity supplied of a good, service, or resource is ____ during a specified period and at a specified price. a. the amount that people are able to sell b. the amount that people are willing to sell c. the amount that people are able and willing to sell d. the amount that people are willing and able to buy e. the amount sold

c. the amount that people are able and willing to sell

Moving along a country's PPF, a reason opportunity costs increase is that a. unemployment decreases as a country produces more and more of one good. b. unemployment increases as a country produces more and more of one good. c. technology declines as a country produces more and more of one good. d. some resources are better suited for producing one good rather than the other. e. technology must advance in order to produce more and more of one good.

d. some resources are better suited for producing one good rather than the other.

When moving along a demand curve, which of the following changes? a. the consumers' incomes b. the prices of other goods c. the number of buyers d. the price of the good e. the consumers' preferences

d. the price of the good

The "law of demand" indicates that if the University of Maine increases its tuition, all other things remaining the same, a. the demand for classes will decrease at the University of Maine. b. the demand for classes will increase at the University of Maine. c. the quantity of classes demanded will increase at the University of Maine. d. the quantity of classes demanded will decrease at the University of Maine. e. both the demand for and the quantity of classes demanded wi

d. the quantity of classes demanded will decrease at the University of Maine.

The opportunity cost is equal to the quantity of the good forgone_________ the increase in the quantity of the other good.

divided by

Moving between two points on a PPF, a country gains 8 desktop computers and forgoes 4 laptop computers. The opportunity cost of 1 desktop computer is a. 4 laptops. b. 8 desktops. c. 1 desktop. d. 2 laptops. e. 1/2 of a laptop.

e. 1/2 of a laptop.

Points on the PPF are all a. unattainable and have fully employed resources. b. free lunches. c. inefficient. d. attainable and have some unemployed resources. e. production efficient.

e. production efficient.

The price at which the quantity demanded equals the quantity supplied is the ____.

equilibrium price

The ____ (quantity supplied; supply) of a good is the amount people are willing and able to sell during a specified period at a specified price.

quantity supplied

The law of supply states that other things remaining the same, if the price of a good rises, the quantity supplied ____.

increases

The ____ (demand schedule; law of demand) states that other things remaining the same, if the price of a good rises, the ____ (quantity demanded of; demand for) that good decreases.

law of demand,quantity demanded

An increase in supply ____ (raises; lowers) the equilibrium price and ____ (increases; decreases) the equilibrium quantity

lowers, increases

If both the demand and supply increase, definitely the equilibrium ____ increases but the effect on the equilibrium ____ is ambiguous.

quantity, price

An increase in demand ____ (raises; lowers) the equilibrium price and ____ (increases; decreases) the equilibrium quantity.

raises, increases

A change in the price of a good changes ____ (supply; the quantity supplied) and is illustrated by a ____ the supply curve.

the quantity supplied, shift along

Production points outside the PPF, are ____________.

unattainable

A supply curve is ____ (upward; downward) sloping.

upward