Macroeconomics Final Exam Review Problem Set Questions

Refer to Table 7-6. If the market price of an apple is $1.40, then consumer surplus amounts to A. $0.60. B. $1.20. C. $1.40. D. $3.40

A. $0.60.

Refer to Table 7-11. If Evan, Selena, and Angie sell the good, and the resulting producer surplus is $300, then the price must have been A. $200. B. $300. C. $450. D. $600.

A. $200.

The following table contains information about an economy that produces only rice and beans. The base year is 2014. Using the table above, what is the value of real GDP for 2016? A. $590 B. $660 C. $665 D. $920

A. $590

Suppose that in a closed economy GDP is equal to 15,000, taxes are equal to 4,000, consumption equals 10,000, and government expenditures equal 3,000. What are private saving and public saving? A. 1,000 and 1,000 B. 1,000 and -1,000 C. 2,000 and 1,000 D. 2,000 and -1,000

A. 1,000 and 1,000

Refer to the figure. If the per-unit tax is placed on the good in the market, the consumer surplus is the area _____ and the producer surplus is the area ____, respectively. A. A; D. B. A + B + C; D + E + F. C. D; C. D. E; F.

A. A; D.

The students living in "The Party House" are prone to host loud parties on Saturday night. They value these celebrations at $100. Their studious neighbors value peace and quiet at $90. The noise ordinance in this college town requires the police to stop loud parties if the neighbors complain. Assume zero transaction costs. An efficient solution for this problem would be for A. The Party House to pay the neighbors $91 to not call the police. B. The Party House to quit the loud parties. C. The Party House to invite the neighbors to one of the parties. D. The neighbors to pay the Party House $99 to be quiet.

A. The Party House to pay the neighbors $91 to not call the police.

6. Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct? A. The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs. B. The equilibrium quantity of MBAs will be greater than the socially optimal quantity of MBAs. C. The equilibrium quantity of MBAs will be less than the socially optimal quantity of MBAs. D. There is not enough information to answer the question

A. The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs.

Other things constant, if Dunkin Doughnuts increases the price of coffee, then both the CPI and GDP deflator increase. A. True B. False

A. True

The CPI gives greater weights to goods that consumers purchase more of. A. True B. False

A. True

The group of goods and services used to compute the GDP deflator changes automatically over time. A. True B. False

A. True

In which of the following instances is the present value of the future payment the largest? A. You will receive $1,000 in 5 years and the annual interest rate is 5 percent. B. You will receive $1,000 in 10 years and the annual interest rate is 3 percent. C. You will receive $2,000 in 10 years and the annual interest rate is 10 percent. D. You will receive $2,400 in 15 years and the annual interest rate is 8 percent.

A. You will receive $1,000 in 5 years and the annual interest rate is 5 percent.

Which of the following would shift the supply curve of iPhones to the right? A. a decrease in wages paid to workers making the iPhones. B. more advertising for iPhones. C. an increase in the price of iPads D. an increase in the price of iPhones

A. a decrease in wages paid to workers making the iPhones.

Refer to Figure 10-19. The social optimum can be reached if A. a subsidy of $36 is applied to each unit of the good. B. a subsidy of $23 is applied to each unit of the good. C. a tax of $23 is applied to each unit of the good. D. a tax of $15 is applied to each unit of the good.

A. a subsidy of $36 is applied to each unit of the good.

Refer to the figure. Which of the following would improve economic efficiency in the market? A. a tax equal to P1 - P3, the size of the marginal external cost B. a tax equal to P0 - P4, the size of the marginal external cost C. a subsidy equal to P1 - P3, the size of the marginal external benefit D. a subsidy equal to P0 - P4, the size of the marginal external benefit

A. a tax equal to P1 - P3, the size of the marginal external cost

Rocket Energy Drink Company buys sugar to produce energy drinks. At the end of a quarter both its inventory of sugar and its inventory of energy drinks has increased. Investment for the quarter will include A. both the increased inventory of sugar and the increased inventory of energy drinks. B. the increased inventory of sugar, but not the increased inventory of energy drinks. C. the increased inventory of energy drinks, but not the increased inventory of sugar. D. neither the increased inventory of sugar nor the increased inventory of energy drinks.

A. both the increased inventory of sugar and the increased inventory of energy drinks.

The market for gluten-free bread is characterized by an inelastic demand and an elastic supply. What would happen to the deadweight loss of a tax, if the supply would also be inelastic? A. decrease. B. increase. C. not change. D. we don't have enough information to answer the question.

A. decrease.

Refer to Figure 10-19. Note that the lines labeled "Demand" and "Social Value"are parallel. Also, the slopes of the lines on the graph reflect the following facts: (1) Private value and social value decrease by $1.00 with each additional unit of the good that is consumed, and (2) private cost increases by $1.40 with each additional unit of the good that is produced. Thus, when the 74th unit of the good is produced and consumed, social well-being A. decreases by $2.40. B. decreases by $1.60. C. increases by $1.00. D. increases by $1.40.

A. decreases by $2.40.

Refer to Figure 23-1. Which of the following pairs correctly identify X and Z? A. markets for factors of production and markets for goods and services B. firms and households C. GDP deflator and CPI D. flow of dollars and flow of inputs and outputs

A. markets for factors of production and markets for goods and services

Currently a country has real GDP per person of 500. Raising capital per worker by one would increase output per worker by 4. Other things the same, which of the following long-run combinations are consistent with the effects of this country increasing its saving rate? A. real GDP per person is 520 and raising capital per worker by one would increase output per worker by 3 B. real GDP per person is 520 and raising capital per worker by one would increase output per worker by 5 C. real GDP per person is 480 and raising capital per worker by one would increase output per worker by 3 D. real GDP per person is 480 and raising capital per worker by one would increase output per worker by 5

A. real GDP per person is 520 and raising capital per worker by one would increase output per worker by 3

An advance in technology would shift the A. supply curve to the right. B. supply curve to the left. C. demand curve to the right. D. demand curve to the left.

A. supply curve to the right.

A stove is produced by a firm in 2014, added to the firm's inventory in 2014, and sold to a household in 2015. It follows that A. the value of the good is added to the investment category of 2014 GDP, added to the consumption category of 2015 GDP, and subtracted from the investment category of 2015 GDP. B. the value of the good is added to the investment category of 2014 GDP, added to the consumption category of 2015 GDP, and not included in the investment category of 2015 GDP. C. the value of the good is added to the investment category of 2014 GDP, subtracted from the consumption category of 2015 GDP, and not included in the investment category of 2015 GDP. D. the value of the good is added to the investment category of 2014 GDP, subtracted from the consumption category of 2015 GDP, and added to the investment category of 2015 GDP.

A. the value of the good is added to the investment category of 2014 GDP, added to the consumption category of 2015 GDP, and subtracted from the investment category of 2015 GDP.

If a positive externality exists in the market for flu shots, the private market equilibrium occurs at a price that is A. too low and a quantity that is too low in comparison to the socially optimal equilibrium. B. too high and a quantity that is too low in comparison to the socially optimal equilibrium. C. too low and a quantity that is too high in comparison to the socially optimal equilibrium. D. the same as the socially optimal equilibrium.

A. too low and a quantity that is too low in comparison to the socially optimal equilibrium.

The citizens of Knoxville are complaining that the two pickle-makers in town, 'Crunchy Ponds pickles' and 'Sweet Rose pickles', are polluting the environment. Currently, each pickle-maker emits 20 tons of pollution per year. 'Crunchy Ponds pickles' could clean the pollution at a cost of $500 per ton. 'Sweet Rose pickles' could also clean the pollution, but a cost of $1,100 per ton. In an effort to reduce pollution, the government of Knoxville gives each pickle factory 10 tradable pollution permits. Each tradable pollution permit allows the owner to emit one ton of pollution, and its market value is $800. What is the cost of reducing pollution to the desired levels? How is this possible? A. total cost of cleaning 20 tons of pollution is $10,000 per year. 'Crunchy Ponds pickles' cleans 20 tons of pollution after selling 10 pollution permits to 'Sweet Rose pickles' B. total cost of cleaning 20 tons of pollution is $14,000 per year. 'Sweet Rose pickles' cleans 20 tons of pollution after selling 10 pollution permits to 'Crunchy Ponds pickles' C. total cost of cleaning 20 tons of pollution is $16,000 per year. 'Sweet Rose pickles' cleans 20 tons of pollution after selling 10 pollution permits to 'Crunchy Ponds pickles' D. total cost of cleaning 20 tons of pollution is $18,000 per year. 'Crunchy Ponds pickles' cleans 20 tons of pollution after selling 10 pollution permits to 'Sweet Rose pickles'

A. total cost of cleaning 20 tons of pollution is $10,000 per year. 'Crunchy Ponds pickles' cleans 20 tons of pollution after selling 10 pollution permits to 'Sweet Rose pickles'

Refer to Table 7-11. If the sellers bid against each other for the right to sell the good to a consumer, then the good will sell for A. $50 or slightly more. B. $100 or slightly less. C. $150 or slightly less. D. $200 or slightly more.

B. $100 or slightly less.

Tyler and Camille both live in Oklahoma. A new-car dealer in Oklahoma bought a new car from the manufacturer for $18,000 and sold it to Tyler for $22,000. Later that year, Tyler sold the car to Camille for $17,000. By how much did these transactions contribute to U.S. GDP for the year? A. $18,000 B. $22,000 C. $39,000 D. $57,000

B. $22,000

Refer to Table 7-11. If the sellers bid against each other for the right to sell the good to a consumer, then the producer surplus will be A. $0 or slightly more. B. $50 or slightly less. C. $150 or slightly less. D. $200 or slightly more.

B. $50 or slightly less.

Ronnie operates a lawn-care service. On each day, the cost of mowing the first lawn is $15, the cost of mowing the second lawn is $25, and the cost of mowing the third lawn is $40. His producer surplus on the first three lawns of the day is $100. If Ronnie charges all customers the same price for lawn mowing, that price is A. $20. B. $60. C. $80. D. $180

B. $60.

The table contains information about an economy that produces only rice and beans. The base year is 2014. Using the table, what is the value of nominal GDP for 2015? A. $590 B. $660 C. $760 D. $920

B. $660

Andrew got his first job at the age of 23, earning $30,000 a year. Andrew lives in an economy where all incomes grow at 3 percent per year. How old will Andrew be when his income will double? A. 40 years old. B. 46 years old. C. 50 years old. D. 54 years old.

B. 46 years old.

Suppose you buy a house in 2016 and finance it with a 30-year mortgage that has a 6 percent annual rate of interest. Inflation during 2017 is 4 percent. What is the real rate of interest you pay on your mortgage in 2017? A. 6 percent + 4 percent B. 6 percent - 4 percent C. 6 percent/4percent D. 6 percent - 6 percent x 4 percent

B. 6 percent - 4 percent

In July 1988 the price of postage stamps was 32 cents and the CPI was 118.5. In July 2015 the price of postage stamps was 44 cents and the CPI was 237.7. What was the real value in 2015 prices of postage stamps in 1988? A. 37.9 cents B. 64.2 cents C. 68.6 cents D. 79.6 cents

B. 64.2 cents

Refer to the figure. If there is no tax placed on the good in the market, total surplus is the area A. A + B + C + D. B. A + B + C + D + E + F. C. B + C + E + F. D. E + F.

B. A + B + C + D + E + F.

Which of the following is not an example of the free rider problem? A. A student working on a group project puts forth minimal effort because the team will receive a team grade rather than individual grades. B. A park ranger takes a nap in his car because his boss is working hundreds of miles away and will never know about the nap. C. Tim attends a neighborhood party with live music; the other neighbors have paid $5 each to give to the local band members, but Tim does not pay. D. Shannon catches a ride to a volleyball game with her friends but does not offer to pay for gas.

B. A park ranger takes a nap in his car because his boss is working hundreds of miles away and will never know about the nap.

Which of the following is not a characteristic of pollution permits? A. Prices are set by supply and demand. B. Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation. C. Real-world markets for pollution permits include sulfur dioxide and carbon. D. Firms for whom pollution reduction is very expensive are willing to pay more for permits than firms for whom pollution reduction is less expensive

B. Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation.

During the last twelve months country A had a population of 20,000, 15,000 workers who each worked 8 hours, and production of 2,400,000 goods. Country B had a population of 16,000, 12,000 workers who each worked 8 hours a day and produced 2,112,000 goods. Which of the following is correct? A. Country A had the highest productivity and the highest real GDP per person. B. Country B had the highest productivity and the highest real GDP per person. C. Country A had the highest productivity and Country B had the highest real GDP per person. D. Country B had the highest productivity and Country A had the highest real GDP per person.

B. Country B had the highest productivity and the highest real GDP per person.

50. Which of the following statements is not correct? A. Patents help internalize the externalities associated with technological advances. B. Economists typically prefer regulations to corrective taxes because regulations provide more incentives for firms to seek continued reductions in pollution. C. Allowing firms to trade pollution permits will lower the total cost of reducing pollution. D. A big impediment to implementing the Coase theorem in many cases is high transactions costs.

B. Economists typically prefer regulations to corrective taxes because regulations provide more incentives for firms to seek continued reductions in pollution.

One bag of flour is sold for $1.00 to a bakery, which uses the flour to bake bread that is sold for $3.00 to consumers. A second bag of flour is sold for $1 to a grocery store who sells it to a consumer for $2.00. Taking these four transactions into account, what is the effect on GDP? A. GDP increases by $3.00. B. GDP increases by $5.00. C. GDP increases by $6.00. D. GDP increases by $7.00.

B. GDP increases by $5.00.

In 1991 a median home cost $122,000 and CPI = 137. In 2016, the median home cost $219,400 and CPI = 237.7. In real terms A. Houses were more expensive in 1991. B. Houses were more expensive in 2016. C. Houses were the same in both years. D. Not enough information to answer.

B. Houses were more expensive in 2016.

Refer to the figure. The socially optimal level of output is A. Q1. B. Q2. C. Q3. D. Q4

B. Q2.

Assuming the graph is drawn to scale, which of the following is true regarding the burden of the tax in market above? A. Buyers pay a larger share of the tax because demand is more elastic than supply. B. Sellers pay a larger share of the tax because supply is more inelastic than demand. C. Sellers pay a larger share of the tax because supply is more elastic than demand. D. Buyers pay a larger share of the tax because demand is more inelastic than supply.

B. Sellers pay a larger share of the tax because supply is more inelastic than demand.

Suppose that Company A's railroad cars pass through Farmer B's corn fields. The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops. There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks. The grease costs $1,200. Suppose that the farmer has the right to compensation for any damage that his crops suffer. Assume that there are no transaction costs. Which of the following characterizes the efficient outcome? A. The railroad will continue to operate but will pay the farmer $1,500 in damages. B. The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur. C. The farmer will incur $1,500 in damages to his crops. D. The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur.

B. The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur.

Refer to the graph. If the price falls from P2 to P1, area B represents the A. total increase in consumer surplus. B. additional consumer surplus to initial consumers. C. consumer surplus to new consumers. D. additional producer surplus to initial producers.

B. additional consumer surplus to initial consumers.

Refer to Figure 10-19. Each additional unit of the good that is produced yields an external A. benefit of $15. B. benefit of $36. C. cost of $15. D. cost of $36.

B. benefit of $36.

Consider three different closed economies with the following national income statistics. Country A has taxes of $40 billion, transfers of $20 billion, and government expenditures on goods and services of $30 billion. County B has private savings of $60 billion, and investment expenditures of $40 billion. Country C has GDP of $300 billion, investment of $90, consumption of $180 billion, taxes of $60 billion and transfers of $20 billion. From this information, we know that A. country A has the largest government budget deficit. B. country B has the largest government budget deficit. C. country C has the largest government budget deficit. D. The government budget deficit is equal in all three countries.

B. country B has the largest government budget deficit.

A newspaper article informs you that most businesses reduced production in the last quarter but also sold from their inventories during the last quarter. Based on this information GDP likely A. increased. B. decreased. C. stayed the same. D. may have increased, decreased, or stayed the same.

B. decreased.

Suppose that all economies have the same ratio of investment to GDP. The conventional view of production processes is that capital is characterized by A. diminishing returns, so that real GDP in rich countries would grow faster than in poor countries. B. diminishing returns, so that real GDP in rich countries would grow slower than in poor countries. C. increasing returns, so that real GDP in rich countries would grow faster than in poor countries. D. increasing returns, so that real GDP in rich countries would grow slower than in poor countries.

B. diminishing returns, so that real GDP in rich countries would grow slower than in poor countries.

Refer to Figure 23-1. Which of the following pairs correctly identify W and Y? A. markets for factors of production and markets for goods and services B. firms and households C. expenditures and income D. consumption and investment

B. firms and households

Assume that your roommate is very messy. According to campus policy, you have a right to live in an uncluttered apartment. Suppose she gets an $80 benefit from being messy but imposes a $60 cost on you. The Coase theorem would suggest that an efficient solution would be for your roommate to A. stop her messy habits or else move out. B. pay you at least $60 but less than $80 to live with the clutter. C. continue to be messy and force you to move out. D. demand payment of at least $60 but no more than $80 to clean up after herself.

B. pay you at least $60 but less than $80 to live with the clutter.

Timber companies are most likely to engage in over-logging of forests on A. publicly owned land because it is a public good. B. publicly owned land because it is a common resource. C. private land because of the free rider problem. D. both privately owned land and publicly owned land with equal probability.

B. publicly owned land because it is a common resource.

In the last few years the U.S. government budget deficit has increased. Other things the same this means the A. supply of loanable funds shifted right, interest rate increased, and quantity of loanable funds declined. B. supply of loanable funds shifted left, interest rate increased, and quantity of loanable funds declined. C. demand for loanable funds shifted right, interest rate increased, and quantity of loanable funds increased. D. demand for loanable funds shifted left, interest rate decreased, and quantity of loanable funds declined.

B. supply of loanable funds shifted left, interest rate increased, and quantity of loanable funds declined

Refer to the labor market graph. The imposition of an $8 minimum wage would cause A. tax revenues to increase by $2 per worker. B. unemployment of 35 labor hours. C. a labor shortage of 35 labor hours. D. no change in the equilibrium wage and employment because the minimum wage is not binding.

B. unemployment of 35 labor hours.

For an economy with $3 billion government purchases, $1 billion exports, $11 billion consumption spending, $1 billion imports, and $2 billion investment, the GDP is: A. $12 billion B. $14 billion C. $16 billion D. $17 billion

C. $16 billion

Your grandmother tells you that she earned $3.15 an hour at her summer job as a freight handler in 1964. Since then prices have risen 490%. In order to keep her purchasing power constant, what would her wage rate be today? A. $12.29 B. $15.44 C. $18.59 D. $21.74

C. $18.59

A farmer sells five pounds of pecans to a Smith's Fresh Pecans for $10. Smith's Fresh Pecans resells three pounds for $4.50 per pound. The remaining pecans are shelled and canned and sold for a total of $8.00 Taking these transactions into account, how much is added to GDP? A. $22.50 B. $29.50 C. $21.50 D. $31.50

C. $21.50

At Nick's Bakery, the cost to make a cheese danish is $1.50 per danish. As a result of selling ten danishes, Nick experiences a producer surplus in the amount of $20. Nick must be selling his danishes for A. $2.00 each. B. $0.50 each. C. $3.50 each. D. $5.00 each.

C. $3.50 each.

Refer to Figure 10-19. Note that the lines labeled "Demand" and "Social Value"are parallel. Also, the slopes of the lines on the graph reflect the following facts: (1) Private value and social value decrease by $1.00 with each additional unit of the good that is consumed, and (2) private cost increases by $1.40 with each additional unit of the good that is produced. Thus, when the 59th unit of the good is produced and consumed, social well-being increases by A. $28.00. B. $31.40. C. $33.60. D. $36.00.

C. $33.60.

Suppose you inherit an antique doll from your Great Aunt Sadie. The doll has a sentimental value of $100 to you. Jane is a collector who is willing to pay $800 for your doll. If you sell the doll to Jane for $600, your producer surplus is ___ and Jane's consumer surplus is _____, respectively: A. $800, $800. B. $700, $900. C. $500, $200. D. $200, $700.

C. $500, $200.

Suppose there are only two firms in an economy: Cowhide, Inc. produces leather and sells it to Couches, Inc., which produces and sells leather furniture. With each $1,000 worth of leather that it buys from Cowhide, Inc., Couches, Inc. produces a couch and sells it for $2,600. Neither firm had any inventory at the beginning of 2015. During that year, Cowhide produced enough leather for 25 couches. Couches, Inc. bought 80% of that leather for $20,000 and promised to buy the remaining 20% for $5,000 in 2016. Couches, Inc. produced 20 couches during 2015 and sold each one during that year for $2,600. What was the economy's GDP for 2015? A. $25,000 B. $52,000 C. $57,000 D. $65,000

C. $57,000

In 2014, a farmer grows and sells $3 million worth of corn to Big Flakes Cereal Company. Big Flakes Cereal Company produces $8 million worth of cereal in 2014, with sales to households during the year of $7 million. The unsold $1 million worth of cereal remains in Big Flake Cereal Company's inventory at the end of 2014. The transactions just described contribute how much to GDP for 2014? A. $3 million B. $7 million C. $8 million D. $11 million

C. $8 million

AA Appliances sells refrigerators. In 2015 it added $100,000 to its inventory. $10,000 of this addition was from used refrigerators, and the remaining $90,000 was from their purchases of newly manufactured refrigerators. How much of AA's inventory is included in 2015 GDP? A. $0 B. $10,000 C. $90,000 D. $100,000

C. $90,000

Which of the following is a disadvantage of government provision of a public good such as national defense? (i) The government does not know the exact willingness of consumers to pay for the public good. (ii) The free-rider problem is more likely to occur when the government provides a public good than when the private sector provides a public good. (iii) Taxpayers do not agree on the optimal quantity of the public good that the government should provide. A. (i) only B. (i) and (ii) only C. (i) and (iii) only D. (i), (ii), and (iii)

C. (i) and (iii) only

If real GDP is $14 trillion and nominal GDP is $16 trillion what is the GDP deflator? A. 100x($14 trillion/$16 trillion) B. $14 trillion/$16 trillion C. 100x($16 trillion/$14 trillion) D. $16 trillion/$14 trillion

C. 100x($16 trillion/$14 trillion)

In 2013, XYZ Corporation had total earnings of $500 million and XYZ retained 20 percent of its earnings for future investments. If the price of a share of XYZ stock is $70 and if 100 million shares of its stock is outstanding, then what is the price-earnings ratio? A. 6.25 B. 11.2 C. 14.0 D. 17.5

C. 14.0

Use the information in the table above to calculate the consumer price index for 2016 using 2015 as the base year. A. 137.5 B. 150 C. 162.5 D. 183.3

C. 162.5

Refer to Table 7-6. If the market price of an apple is $1.40, then the market quantity of apples demanded per day is A. 1. B. 2. C. 3. D. 4.

C. 3.

Revive Beverage Company (RBC) is considering buying new bottling equipment for its factories. It will take one year to order and install the equipment. The second year they will gain $2 million in revenues. The third year they will gain $3 million in revenues. At the start of the fourth year they will scrap the equipment and a salvage company will haul it away for free but with no payment to RBC. At which of the following prices and interest rates would RBC find the equipment profitable? A. 4.85 million and 6% B. 4.65 million and 7% C. 4.35 million and 8% D. All of the above combinations are profitable.

C. 4.35 million and 8%

Refer to the figure. If the per-unit tax is placed on the good in the market, the tax revenue is the area A. A + B + E B. C + D + F C. B + C D. E + F

C. B + C

Suppose that cold temperatures cause a decrease in the supply of tea. What should happen in the market for coffee, assuming tea and coffee are substitutes? A. The equilibrium price will increase, and the equilibrium quantity will decrease. B. The equilibrium price will decrease, and the equilibrium quantity will increase. C. Both the equilibrium price and quantity will increase. D. Both the equilibrium price and quantity will decrease.

C. Both the equilibrium price and quantity will increase.

Which of the following is an example of the free-rider problem? A. Both Zoe and Zach receive low-cost dental care at the local dental school, so neither of them pays the full cost of the care. B. Alfred receives a free lunch from the local "Meals on Wheels" program because of his low monthly income. Yet his next door neighbor, Alice, is not eligible for the free lunch. C. Bruce owns Buster, a large dog who barks whenever anyone walks near his house. Betty lives next to Bruce, and Buster's barking can be heard whenever anyone walks near her house, too. Thus, Betty receives free protection from burglars because of Buster's barking. D. Sam purchases a burger at a fast food restaurant and gets a seco

C. Bruce owns Buster, a large dog who barks whenever anyone walks near his house. Betty lives next to Bruce, and Buster's barking can be heard whenever anyone walks near her house, too. Thus, Betty receives free protection from burglars because of Buster's barking.

A stairwell in a certain office building is always congested at 12:00 p.m. and 1:00 p.m. The congestion is so bad that people have been complaining to the building's owner. Which of the following methods would be the most efficient way of reducing congestion? A. Assign each person in the building a time when they are allowed to use the stairwell. B. Encourage people to voluntarily keep off the stairwell during peak times. C. Charge everyone who uses the stairwell when it is congested the same fee. People who value the use of the stairs the most will be the ones who use the stairwell at peak times. D. Hold a lottery to determine who wins the right to use the stairwell at peak times.

C. Charge everyone who uses the stairwell when it is congested the same fee. People who value the use of the stairs the most will be the ones who use the stairwell at peak times.

Which of the following illustrates the Tragedy of the Commons problem? A. Cost-benefit analysis is difficult to conduct because people often undervalue public goods. B. Bakeries emit enticing aromas, which may encourage people to over eat. C. Commercial fishing companies over-fish Chilean sea bass. D. People who attend local fireworks displays do not always pay for them.

C. Commercial fishing companies over-fish Chilean sea bass.

Which of the following statements is not correct? A. Tradable pollution permits have an advantage over corrective taxes if the government is uncertain as to the optimal size of the tax necessary to reduce pollution to a specific level. B. Both corrective taxes and tradable pollution permits provide market-based incentives for firms to reduce pollution. C. Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution. D. Both corrective taxes and tradable pollution permits reduce the cost of environmental protection and thus should increase the public's demand for a clean environment.

C. Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution.

Karen's cat causes Danny to sneeze. Karen values her cat's companionship at $300 per year. The cost to Danny of tissues and her allergy medication is $350 per year. Based on the Coase theorem, A. Karen should pay Danny $400 so that she may keep her cat. B. Karen should pay Danny $350 for tissues and allergy medication. C. Danny should pay Karen $325 to give away her cat.

C. Danny should pay Karen $325 to give away her cat.

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that A. Jenny pays Abe $150 to give the dog to his parents who live on an isolated farm. B. Abe pays Jenny $350 for her inconvenience. C. Jenny pays Abe $300 to give the dog to his parents who live on an isolated farm. D. There is no private transaction that would improve this situation.

C. Jenny pays Abe $300 to give the dog to his parents who live on an isolated farm.

Which of the following statements is correct? A. Environmental degradation is an example of a free rider problem.. B. The division between public goods and common resources is clear-cut. C. Some goods, such as lighthouses, may be either private or public goods. D. The free-rider problem prevents governments from supplying public goods.

C. Some goods, such as lighthouses, may be either private or public goods.

An American company operates a fast food restaurant in Paris, France. Which of the following statements is accurate? A. The value of the goods and services produced by the restaurant is included in both French GDP and U.S. GDP. B. The value added by American workers and equipment in France is included in U.S. GDP and the value added by French workers and equipment is added to French GDP. C. The value of the goods and services produced by the restaurant is included in French GDP, but not in U.S. GDP. D. The value of the goods and services produced by the restaurant is included in U.S. GDP, but not in French GDP.

C. The value of the goods and services produced by the restaurant is included in French GDP, but not in U.S. GDP.

When an American household purchases a bottle of Italian wine for $100, A. U.S. consumption does not change, U.S. net exports decrease by $100, and U.S. GDP decreases by $100. B. U.S. consumption does not change, U.S. net exports increase by $100, and U.S. GDP increases by $100. C. U.S. consumption increases by $100, U.S. net exports decrease by $100, and U.S. GDP does not change. D. U.S. consumption increases by $100, U.S. net exports do not change, and U.S. GDP increases by $100.

C. U.S. consumption increases by $100, U.S. net exports decrease by $100, and U.S. GDP does not change.

GA wind farm in Iowa buys a large turbine generator from a Swedish-owned factory located in Connecticut that uses workers who live in Connecticut. As a result, A. U.S. investment, GDP, and GNP all increase by the same amount. B. U.S. investment increases, but GDP and GNP are unaffected by the purchase. C. U.S. investment and GDP increase by the same amount, but U.S. GNP increases by a smaller amount. D. U.S. investment and GNP increase by the same amount, but U.S. GDP increases by a smaller amount

C. U.S. investment and GDP increase by the same amount, but U.S. GNP increases by a smaller amount

A German citizen buys an automobile produced in the United States by a Japanese company. As a result, A. U.S. net exports increase, U.S. GDP is unaffected, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected. B. U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, German GNP is unaffected, and German GDP decreases. C. U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected. D. U.S. net exports and GDP are unaffected, Japanese GNP increases, and German net exports, GNP, and GDP decrease.

C. U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected.

17. Which of the following would not be a result of a binding price ceiling on child care? A. a quantity of child care demanded greater than quantity supplied B. a decrease in quality of care C. an increase in the quantity of child care supplied D. a lower price of childcare.

C. an increase in the quantity of child care supplied

Rhinoceroses are among the most endangered species. Which of the following policies would result in an efficient quantity of rhinoceroses? The governments of countries A. enact laws to make killing a rhino illegal. B. assign private property rights to individuals with rhinos on their land but only if they pledge not to kill rhinos for their horns. C. assign property rights to individuals with rhinos on their land, allowing them to use rhinos for whatever purposes they choose. D. relocate all rhinos to public parks.

C. assign property rights to individuals with rhinos on their land, allowing them to use rhinos for whatever purposes they choose.

The market for gluten-free breakfast cereal is shown in the graph above. Suppose the government enacts a $2 tax per unit, imposed on the sellers. The policy will cause: A. the equilibrium price of gluten-free breakfast cereals to rise by $2. B. buyers to bear a higher burden of the tax than sellers. C. buyers and sellers to each bear a $1 burden of the tax. D. a shortage of gluten-free breakfast cereals.

C. buyers and sellers to each bear a $1 burden of the tax.

Refer to Table 7-6. If the market price of an apple increases from $1.40 to $1.60, then consumer surplus A. decreases by $0.15. B. decreases by $0.30. C. decreases by $0.45. D. increases by $0.15.

C. decreases by $0.45.

20. Suppose that the City of Bloomington imposes a $1 per-tire recycling fee on buyers whenever they purchase a new tire. We can illustrate the tax on a graph by shifting the demand curve A. down by $1; the price received by sellers would fall by $1. B. up by $1; the price received by sellers would rise by $1. C. down by $1; the price paid by buyers would rise by less than $1. D. up by $1; the price paid by buyers would fall by less than $1

C. down by $1; the price paid by buyers would rise by less than $1.

Other things constant, if the government increases its expenditures but not taxes A. public saving and the interest rate will rise. B. public saving will rise and the interest rate will fall. C. public saving will fall and the interest rate will rise. D. public saving and the interest rate will fall.

C. public saving will fall and the interest rate will rise.

The deadweight loss from a tax A. reflects the fact that paying taxes reduces the purchasing power of income. B. measures the revenue raised by the tax plus the administrative costs of the tax. C. reflects the inefficiency in resource allocation because the tax distorts incentives. D. measures the administrative costs of collecting taxes, such as the salaries of tax collectors.

C. reflects the inefficiency in resource allocation because the tax distorts incentives.

Other prices the same, an increase in the price of French wine would increase A. both the GDP deflator and the CPI. B. the GDP deflator but not the CPI. C. the CPI but not the GDP deflator. D. neither the GDP deflator nor the CPI.

C. the CPI but not the GDP deflator.

Sally purchased a log-splitter five years ago. This year, she purchases some new parts, gasoline, oil, and spends 2 hours repairing the log-splitter. Which of the following is included in this year's GDP? A. the amount she paid to buy the new parts B. the amount she paid to buy new parts and gasoline C. the amount she paid to buy new parts, gasoline, and oil. D. the amount she paid to buy new parts, gasoline, oil, and the market value of the 2 hours spent to repair the log-splitter.

C. the amount she paid to buy new parts, gasoline, and oil.

Refer to Figure 10-19. Which of the following decreases as the quantity of the good is increased? A. the private cost of the good B. the social cost of the good C. the private value of the good D. the external benefit of the good

C. the private value of the good

The citizens of Knoxville are complaining that the two pickle-makers in town, 'Crunchy Ponds pickles' and 'Sweet Rose pickles', are polluting the environment. Currently, each pickle-maker emits 20 tons of pollution per year. 'Crunchy Ponds pickles' could clean the pollution at a cost of $500 per ton. 'Sweet Rose pickles' could also clean the pollution, but a cost of $1,100 per ton. In an effort to reduce pollution, the government of Knoxville decrees that from now on, each pickle factory has to reduce pollution to 10 tons per year each, or else. What is the cost of reducing pollution to the desired levels? A. total cost of cleaning 20 tons of pollution is $10,000 per year; it costs 'Crunchy Ponds pickles' $1,000 to clean 10 tons of pollution; it costs 'Sweet Rose pickles' $9,000 to clean 10 tons of pollution. B. total cost of cleaning 20 tons of pollution is $14,000 per year; it costs 'Crunchy Ponds pickles' $4,000 to clean 12 tons of pollution; it costs 'Sweet Rose pickles' $10,000 to clean 12 tons of pollution. C. total cost of cleaning 20 tons of pollution is $16,000 per year; it costs 'Crunchy Ponds pickles' $5,000 to clean 10 tons of pollution; it costs 'Sweet Rose pickles' $11,000 to clean 10 tons of pollution. D. total cost of cleaning 20 tons of pollution is $18,000 per year; it costs 'Crunchy Ponds pickles' $6,000 to clean 12 tons of pollution; it costs 'Sweet Rose pickles' $12,000 to clean 12 tons of pollution.

C. total cost of cleaning 20 tons of pollution is $16,000 per year; it costs 'Crunchy Ponds pickles' $5,000 to clean 10 tons of pollution; it costs 'Sweet Rose pickles' $11,000 to clean 10 tons of pollution.

If real GDP is $2200 billion, the GDP deflator is 110, nominal net exports are $100 billion, nominal investment is $200 billion, and nominal government expenditures are $400 billion, what is nominal consumption? A. $1300 B. $1500 C. $1520 D. $1720

D. $1720

Quality Motors is a Japanese-owned company that produces automobiles; all of its automobiles are produced in American plants. In 2010 Quality Motors produced $30 million worth of automobiles, with $17 million in sales to Americans, $9 million in sales to Canadians, and $4 million worth of automobiles added to Quality Motors' inventory. The transactions just described contribute how much to U.S. GDP for 2010? A. $17 million B. $21 million C. $26 million D. $30 million

D. $30 million

Consider two cars manufactured by Chevrolet in 2014. During 2014, Chevrolet sells one of the two cars to Emily for $20,000. Later in the same year, Emily sells the car to Jim for $18,000. The second automobile, with a market value of $19,000, is unsold at the end of 2014 and it remains in Chevrolet's inventory. The transactions just described contribute how much to GDP for 2014? A. $20,000 B. $37,000 C. $38,000 D. $39,000

D. $39,000

The market for gluten-free breakfast cereal is shown in the graph. The after-tax price paid by buyers and price received by sellers are, respectively, A. $4.00 $6.00 B. $5.00 $6.00 C. $6.00 $5.00 D. $6.00 $4.00

D. $6.00 $4.00

44. Michigan Cranberry Company sold $10 million worth of cranberries it produced. In producing cranberries, it purchased $1 million dollars worth of supplies from foreign countries and paid workers who reside in Canada but commute to the U.S. $1 million. How much did these transactions add to U.S. GDP? A. $12 million B. $11 million C. $10 million D. $9 million

D. $9 million

What causes the Tragedy of the Commons? (i) Social and private incentives differ. (ii) Common resources are not rival in consumption and are not excludable. (iii) Common resources are not excludable but are rival in consumption. A. (i) only B. (ii) only C. (i) and (ii) only D. (i) and (iii) only

D. (i) and (iii) only

The fixed basket of goods contains 200 cans of soda and 100 pizzas. The base year is 2014, and the prices for soda and pizza are given below. Refer to the table above. What is the inflation rate for 2016? A. 7.5% B. 8.75% C. 16.25% D. 17.6%

D. 17.6%

Kristi and Rebecca sell lemonade on the corner for $0.50 per cup. It costs them $0.10 to make each cup. On a certain day, their producer surplus is $20. How many cups did Kristi and Rebecca sell? A. 40. B. 200. C. 8. D. 50.

D. 50.

The fixed basket of goods contains 200 cans of soda and 100 pizzas. The base year is 2014, and the prices for soda and pizza are given below. Refer to the table above. The values for the CPI in 2015 and 2016 are, respectively: A. 85, 105 B. 108.1, 91.95 C. 100, 100 D. 92.5, 108.75

D. 92.5, 108.75

Refer to Figure 23-1. Which of the following correctly identifies the flow of dollars? A. W, X, Y and Z B. K, M, L and N C. C, K, M and D D. A, L, N and B

D. A, L, N and B

In 2015, the minimum wage according to federal law was $7.25 per hour. Increasing minimum wage to $8 per hour (approximately a 10% increase) will probably lead to: A. higher income for the working poor B. 1-3% increase in teenage unemployment C. more teenagers dropping out of school and preventing some unskilled workers from getting the on-the-job training they need D. All of the above

D. All of the above

By driving onto a congested road for which no toll is charged, a driver A. contributes to the overuse of a common resource. B. contributes to a negative-externality problem. C. is inflicting additional time cost on all of the other drivers. D. All of the above are correct.

D. All of the above are correct.

Refer to the graph. Which of the following is correct? A. At P1, consumer surplus is (A + B + C) - (D + E + F). B. At P2, producer surplus is (D + E + F) - (A + B + C). C. At P3, consumer surplus is greater than at P2, and producer surplus is smaller than at P2, but total surplus is maximized. D. At P3, producer surplus is smaller than at P1.

D. At P3, producer surplus is smaller than at P1.

The purchase of rice produced this period is included in GDP if the rice is A. used in a meal a restaurant sells during the same period they buy the rice. B. purchased by a family who uses it to make tuna casserole for its supper. C. purchased by a frozen food company to increase its inventory. D. B and C are correct.

D. B and C are correct.

Refer to the figure. If the per-unit tax is placed on the good in the market, the deadweight loss is the area A. B + C B. B + C + E + F C. A + B + C + D D. E + F

D. E + F

All else equal, if there are diminishing returns, then what happens to productivity if both capital and labor increase? A. Productivity will definitely fall. B. Productivity will definitely be unchanged. C. Productivity will definitely rise. D. None of the above are necessarily correct.

D. None of the above are necessarily correct.

Wally owns a dog whose barking annoys Wally's neighbor, Corrine. Suppose that the benefit of owning the dog is worth $700 to Wally and that Corrine bears a cost of $500 from the barking. Assuming Wally has the legal right to keep the dog, a possible private solution to this problem is that A. Wally pays Corrine $600 for her inconvenience. B. Corrine pays Wally $400 to give the dog to his parents who live on an isolated farm. C. Corrine pays Wally $550 to give the dog to his parents who live on an isolated farm. D. The current situation is efficient.

D. The current situation is efficient.

A dentist shares an office building with a radio station. The electrical current from the dentist's drill causes static in the radio broadcast, causing the radio station to lose $10,000 in profits. The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. What is the economically efficient outcome? A. The radio station puts up a shield, which it pays for. B. The radio station puts up a shield, which the dentist pays for. C. Neither the radio station nor the dentist purchase additional equipment. D. The dentist gets a new drill; it does not matter who pays for it.

D. The dentist gets a new drill; it does not matter who pays for it.

The CPI overstates the increase in the cost of living because: A. it doesn't take into account that consumers substitute toward goods that become relatively cheaper. B. it doesn't take into account the introduction of new goods that allow consumers access to a greater variety of goods . C. it doesn't take into account improvements in the quality of goods in the market basket. D. all of the above are correct.

D. all of the above are correct.

In the case of public goods, free markets A. fail to allocate resources efficiently because government intervention is faster and less expensive than market-based solutions. B. are efficient but government intervention is not efficient. C. are not efficient but government intervention is efficient. D. fail to allocate resources efficiently because property rights are not well established.

D. fail to allocate resources efficiently because property rights are not well established.

Suppose a local city council hires a team of economists from a nearby university to conduct a cost-benefit analysis of building a new public school. The economists should consider which of the following: i) the benefits to the children who will use the school ii) the costs to the tax payers who will pay for the school iii) the increased productivities of the teachers iv) the benefits to the community of having better-educated children A. i) and ii) only B. i) and iv) only C. i), ii), and iii) only D. i), ii), iii), and iv)

D. i), ii), iii), and iv)

25. In some African countries, elephants are killed for the ivory in their tusks. In Kenya it is illegal to kill elephants and sell their ivory. In Namibia, a landowner is allowed to kill elephants, but only those on his own land. In which country is the population of elephants on the rise, and why? A. in Kenya, because the elephants are protected by the law. B. in Kenya, because the elephants live on elephant reservations. C. in Namibia, because the elephants are protected by the law. D. in Namibia, where elephants are private property and the landowners have an incentive to protect the elephants.

D. in Namibia, where elephants are private property and the landowners have an incentive to protect the elephants.

24. In the 1960s, the lobstering community of Port Lincoln on Australia's southern coast set a limit on the number of traps that could be set and then sold licenses for those traps. Since then, any newcomer could enter the business only by buying a license from another lobsterman. This government intervention in the lobster market caused an A. increase in economic efficiency because of the existence of a positive externality. B. decrease in economic efficiency because of the existence of a free-rider problem. C. decrease in economic efficiency because of the existence of a common-resource problem. D. increase in economic efficiency because of the existence of a common-resource problem.

D. increase in economic efficiency because of the existence of a common-resource problem.

A person who is risk averse has utility which A. is constant as wealth increases. B. increases with wealth and the addition to utility from an additional dollar increases as wealth increases. C. increases with wealth but the addition to utility from an additional dollar is constant. D. increases with wealth but the addition to utility from an additional dollar decreases as wealth increases.

D. increases with wealth but the addition to utility from an additional dollar decreases as wealth increases.

An American retailer purchased 100 pairs of shoes from a company in Mexico in the second quarter of 2016 but does not sell them to a consumer until the third quarter of 2016. In which quarter(s) does(do) the value of the shoes add to U.S. GDP? A. the second and third quarters B. the second quarter but not the third quarter C. the third but not the second quarter D. neither the second nor the third quarter

D. neither the second nor the third quarter

If economists want to gauge economic well being it is appropriate to look at A. nominal GDP. If they want to look at economic growth it is also appropriate to look at nominal GDP. B. nominal GDP. If they want to look at economic growth it is appropriate to look at real GDP. C. real GDP. If they want to look at economic growth it is appropriate to look at nominal GDP. D. real GDP. If they want to look at economic growth it is also appropriate to look at real GDP.

D. real GDP. If they want to look at economic growth it is also appropriate to look at real GDP.

Rent controls cause A. shortages of apartments in both the short run and long run of similar magnitudes. B. surpluses of apartments in both the short run and long run of similar magnitudes. C. shortages of apartments which are larger in the short run than in the long run. D. shortages of apartments which are larger in the long run than in the short run.

D. shortages of apartments which are larger in the long run than in the short run.

According to the Coase theorem, private parties can A. solve positive externality problems more easily than negative externality problems. B. minimize transactions costs through private bargaining. C. solve externality problems through taxes. D. solve externality problems through private bargaining.

D. solve externality problems through private bargaining.

The deadweight loss from a tax is likely to be smallest when A. supply is elastic and demand is elastic. B. supply is elastic and demand is inelastic. C. supply is inelastic and demand is elastic. D. supply is inelastic and demand is inelastic.

D. supply is inelastic and demand is inelastic.

The market of chocolate cupcakes is in equilibrium at a price of $4 and a quantity of 300 chocolate cupcakes. The government levies a $1 per unit tax, which decreases the quantity bought and sold to 250. Which of the following statements is incorrect? A. the market experiences $25 in deadweight loss. B. buyers have to pay more than $4 for one chocolate cupcake. C. sellers receive less than $4 for one chocolate cupcake sold. D. the tax revenue collected as a result of the new tax is $300.

D. the tax revenue collected as a result of the new tax is $300.

The equilibrium price in the market for gluten-free muffins is $5, and at this price, 300 gluten-free muffins are bought and sold. At a quantity of 200 gluten-free muffins, the market is not efficient because: A. the value to buyers exceeds the cost to sellers. B. the sum of consumer and producer surplus is not maximized. C. consumers would gain additional consumer surplus if they would purchase 100 more gluten-free muffins. D. producers would gain additional producer surplus if they would produce and sell 100 more gluten-free muffins. E. All of the above are correct.

E. All of the above are correct.

14. When the government imposes a binding price ceiling, it causes a surplus of the good. True False

False

As the size of a tax increases, the size of the deadweight loss first increases, then decreases. True False

False

15. A $2 tax levied on the producers of a good has the same effect on buyers and sellers as a $2 tax levied on the consumers of the good. True False

True

A policymaker that wants to raise tax revenue while minimizing the deadweight loss should tax goods with inelastic supply and demand rather than goods with elastic supply and demand. True False

True

Taxes create market inefficiencies that can be measured as deadweight loss. True False

True