Name: 
 

Econ 201.03 Fall 2007 Final Exam



Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

 1. 

The opportunity cost of obtaining more of one good is shown on the production possibilities frontier as the
a.
amount of the other good that must be given up.
b.
market price of the additional amount produced.
c.
amount of resources that must be devoted to its production.
d.
number of dollars that must be spent to produce it.
 

 2. 

When a country allows trade and becomes an importer of a good,
a.
everyone in the country benefits.
b.
the gains of the winners exceed the losses of the losers.
c.
the losses of the losers exceed the gains of the winners.
d.
everyone in the country loses.
 

 3. 

Consumer surplus is
a.
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.
b.
the amount a buyer is willing to pay for a good minus the cost of producing the good.
c.
the amount by which the quantity supplied of a good exceeds the quantity demanded of the good.
d.
a buyer's willingness to pay for a good plus the price of the good.
 

 4. 

Inefficiency exists in an economy when a good is
a.
being produced with less than all available resources.
b.
not distributed fairly among buyers.
c.
not being produced by the lowest-cost producers.
d.
being consumed by buyers who value it most highly.
 

 5. 

The difference between social cost and private cost is a measure of the
a.
loss in profit to the seller as the result of a negative externality.
b.
cost of an externality.
c.
cost reduction when the negative externality is eliminated.
d.
cost incurred by the government when it intervenes in the market.
 
 
Figure 3-1
final_exam_practice_files/i0070000.jpg
 

 6. 

Refer to Figure 3-1. If Paul divides his time equally between corn and wheat, he will be able to produce
a.
2 bushels of wheat and 2 bushels of corn.
b.
3 bushels of wheat and 3 bushels of corn.
c.
4 bushels of wheat and 5 bushels of corn.
d.
4 bushels of wheat and 6 bushels of corn.
 

 7. 

Refer to Figure 3-1. The opportunity cost of 1 bushel of wheat for Cliff is
a.
1/3 bushel of corn.
b.
2/3 bushel of corn.
c.
1 bushel of corn.
d.
3/2 bushels of corn.
 

 8. 

Refer to Figure 3-1. Assume Cliff and Paul were both producing wheat and corn, and each person was dividing his time equally between the two. Then each decides to specialize in the product in which he has a comparative advantage. As a result of this change, total production of corn would
a.
increase by 1 bushel.
b.
increase by 3 bushels.
c.
increase by 5 bushels.
d.
decrease by 2 bushels.
 

 9. 

What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?
a.
Price will fall and the effect on quantity is ambiguous.
b.
Price will rise and the effect on quantity is ambiguous.
c.
Quantity will fall and the effect on price is ambiguous.
d.
Quantity will rise and the effect on price is ambiguous.
 

 10. 

Brock is willing to pay $400 for a new suit, but he is able to buy the suit for $350. His consumer surplus is
a.
$50.
b.
$150.
c.
$350.
d.
$400.
 

 11. 

National defense is provided by the government because
a.
it is impossible for private markets to produce public goods.
b.
products provided by the government are produced more efficiently.
c.
free-riders make it difficult for private markets to supply the socially optimal quantity.
d.
public goods increase government revenues.
 

 12. 

Which of the following is an example of an externality?
a.
cigarette smoke that permeates an entire restaurant
b.
a flu shot that prevents a student from transmitting the virus to her roommate
c.
a beautiful flower garden outside of the local post office
d.
All of the above are correct.
 

 13. 

When labor is the only input a firm uses, the marginal cost of a unit of output can be defined as
a.
marginal revenue multiplied by wage.
b.
marginal product of labor multiplied by wage.
c.
wage divided by marginal product of labor.
d.
marginal product of labor divided by wage.
 

 14. 

When a nation first begins to trade with other countries and the nation becomes an exporter of corn,
a.
this is an indication that the world price of corn exceeds the nation’s domestic price of corn in the absence of trade.
b.
this is an indication that the nation has a comparative advantage in producing corn.
c.
the nation’s consumers of corn become worse off and the nation’s producers of corn become better off.
d.
All of the above are correct.
 

 15. 

The U.S. market for locomotives is divided between two producers: General Electric has 70 percent of the market and General Motors has 30 percent. This market is an example of
a.
monopolistic competition.
b.
a collusive monopoly.
c.
a duopoly.
d.
a cartel.
 

 16. 

An externality is the impact of
a.
society's decisions on the well-being of society.
b.
a person's actions on that person's well-being.
c.
one person's actions on the well-being of a bystander.
d.
society's decisions on the poorest person in the society.
 

 17. 

Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is elastic, what is your advice to her?
a.
Leave the price at 25 cents and be patient.
b.
Raise the price to increase total revenue.
c.
Lower the price to increase total revenue.
d.
There isn't enough information given to answer this question.
 

 18. 

Moving production from a high-cost producer to a low-cost producer will
a.
lower total surplus.
b.
raise total surplus.
c.
lower producer surplus.
d.
raise producer surplus but lower consumer surplus.
 

 19. 

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

 20. 

Suppose that everyone prefers to live in a society without poverty. Further suppose that some private charities are successful in reducing poverty. People who do not contribute to the charities
a.
receive no external benefit from private antipoverty programs.
b.
decrease the reliance of individuals on antipoverty programs.
c.
can free ride on the generosity of others.
d.
are most likely to be in favor of government-sponsored programs.
 

 21. 

If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a
a.
0.4 percent decrease in the quantity demanded.
b.
2.5 percent decrease in the quantity demanded.
c.
4 percent decrease in the quantity demanded.
d.
40 percent decrease in the quantity demanded.
 

 22. 

A price ceiling will be binding only if it is set
a.
equal to equilibrium price.
b.
above equilibrium price.
c.
below equilibrium price.
d.
none of the above; a price ceiling is never binding.
 
 
Figure 6-2
final_exam_practice_files/i0250000.jpg
 

 23. 

Refer to Figure 6-2. If the government imposes a price floor of $14 in this market, the result would be a
a.
surplus of 20.
b.
surplus of 40.
c.
shortage of 20.
d.
shortage of 40.
 

 24. 

Refer to Figure 6-2. Which of the following statements is correct?
a.
A price ceiling set at $12 would be binding, but a price ceiling set at $8 would not be binding.
b.
A price floor set at $8 would be binding, but a price ceiling set at $8 would not be binding.
c.
A price ceiling set at $9 would result in an excess supply.
d.
A price floor set at $11 would result in a surplus.
 

 25. 

A model can be accurately described as a
a.
theoretical abstraction with very little value.
b.
device that is useful only to the persons who created it.
c.
realistic and carefully constructed theory.
d.
simplification of reality.
 

 26. 

When cigarettes are taxed and sellers of cigarettes are required to pay the tax to the government,
a.
the size of the cigarette market is reduced.
b.
the price paid by buyers of cigarettes decreases.
c.
the demand for cigarettes decreases.
d.
there is a movement downward and to the right along the demand curve for cigarettes.
 

 27. 

If an economy is producing efficiently, then
a.
there is no way to produce more of one good without producing less of another good.
b.
it is possible to produce more of both goods without increasing the quantities of inputs that are being used.
c.
it is possible to produce more of one good without producing less of the other.
d.
it is not possible to produce more of any good at any cost.
 

 28. 

Diminishing marginal product suggests that
a.
additional units of output become less costly as more output is produced.
b.
marginal cost is upward sloping.
c.
the firm is at full capacity.
d.
adding additional workers will lower total cost.
 

 29. 

Suppose that in a competitive market the market price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market?
a.
Less than $2.50.
b.
More than $2.50.
c.
$2.50.
d.
The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm.
 

 30. 

If a consumer places a value of $15 on a particular good and if the price of the good is $17, then
a.
the consumer has consumer surplus of $2 if he or she buys the good.
b.
the consumer does not purchase the good.
c.
the market is not a competitive market.
d.
there is going to be downward pressure on the price of the good.
 

 31. 

In markets characterized by oligopoly,
a.
the oligopolists earn the highest profit when they cooperate and behave like a monopolist.
b.
collusive agreements will always prevail.
c.
collective profits are always lower with cartel arrangements than they are without cartel arrangements.
d.
pursuit of self-interest by profit-maximizing firms always maximizes collective profits in the market.
 

 32. 

One of the defining characteristics of a perfectly competitive market is
a.
a small number of sellers.
b.
a large number of buyers and a small number of sellers.
c.
a standardized product.
d.
significant advertising by firms to promote their products.
 

 33. 

Suppose Scotland goes from being an isolated country to being an exporter of wool. As a result,
a.
consumer surplus of Scottish consumers of wool increases.
b.
producer surplus of Scottish producers of wool increases.
c.
total surplus of Scottish wool consumers and producers remains constant.
d.
it is reasonable to infer that other countries have a comparative advantage over Scotland in wool production.
 
 
Figure 2-3
final_exam_practice_files/i0370000.jpg
 

 34. 

Refer to Figure 2-3. Inefficient production is represented by which point or points?
a.
D
b.
D, E
c.
A, C
d.
A, B
 

 35. 

In a market, the marginal buyer is the buyer
a.
whose willingness to pay is higher than that of all other buyers and potential buyers.
b.
whose willingness to pay is lower than that of all other buyers and potential buyers.
c.
who is willing to buy exactly one unit of the good.
d.
who would be the first to leave the market if the price were any higher.
 

 36. 

Which of the following would not be a determinant of the demand for a particular good?
a.
prices of related goods
b.
income
c.
tastes
d.
the prices of the inputs used to produce the good
 

 37. 

In which of these cases will the tax burden fall most heavily on buyers of the good?
a.
The demand curve is relatively steep and the supply curve is relatively flat.
b.
The demand curve is relatively flat and the supply curve is relatively steep.
c.
The demand curve and the supply curve are both relatively flat.
d.
The demand curve and the supply curve are both relatively steep.
 
 
Table 16-16

Consider a small town that has two grocery stores from which residents can choose to buy a gallon of milk. The store owners each must make a decision to set a high milk price or a low milk price. The payoff table, showing profit per week, is provided below. The profit in each cell is shown as (Store 1, Store 2).

  
Store 2
  
Low Price
High Price
Store 1
Low Price
(500, 500)
(800, 100)
High Price
(100, 800)
(650, 650)
 

 38. 

Refer to Table 16-16. If grocery store 2 sets a low price, what price should grocery store 1 set? And what will grocery store 1's payoff equal?
a.
Low price, $500
b.
High price, $800
c.
Low price, $100
d.
High price, $100
 

 39. 

Economic models
a.
cannot be useful if they are based on false assumptions.
b.
were once thought to be useful, but that is no longer true.
c.
must incorporate all aspects of the economy if those models are to be useful.
d.
can be useful, even if they are not particularly realistic.
 

 40. 

Suppose a tax of $4 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 2,000 units to 1,700 units. The tax decreases consumer surplus by $3,000 and it decreases producer surplus by $4,400. The deadweight loss of the tax is
a.
$200.
b.
$400.
c.
$600.
d.
$1,200.
 

 41. 

Suppose Jan started up a small lemonade stand business last month. Variable costs for Jan's lemonade stand now include the cost of
a.
building the lemonade stand.
b.
hiring an artist to design a logo for her sign.
c.
lemonade mix.
d.
All of the above are correct.
 

 42. 

A shortage results when
a.
a binding price ceiling is imposed.
b.
a binding price floor is imposed.
c.
a price ceiling is imposed but it is not binding.
d.
a price floor is imposed but it is not binding.
 

 43. 

Which of the following is not a characteristic of a perfectly competitive market?
a.
Different sellers sell identical products.
b.
There are many sellers.
c.
Sellers must accept the price the market determines.
d.
All of the above are characteristics of a perfectly competitive market.
 

 44. 

When a tax is placed on the buyers of a product, a result is that
a.
buyers effectively pay less than before and sellers effectively receive less than before.
b.
buyers effectively pay less than before and sellers effectively receive more than before.
c.
buyers effectively pay more than before and sellers effectively receive less than before.
d.
buyers effectively pay more than before and sellers effectively receive more than before.
 

 45. 

In the long run, when marginal cost is above average total cost, the average total cost curve exhibits
a.
economies of scale.
b.
diseconomies of scale.
c.
constant returns to scale.
d.
efficient scale.
 

 46. 

You are the mayor of a small town with 2,000 residents. The head of your economic development agency recently conducted a survey in which the 2,000 residents said that a public concert in the center of town would be worth $20 to each of them. Since the concert cost only $5,000 to hold, you organized and held the concert, which everyone in town enjoyed. But when you asked for donations to pay for the concert, you only collected $300. You are convinced that
a.
the survey must have overstated how much the concert was worth to each resident; otherwise, you would have collected $40,000 in donations.
b.
the cost of the concert exceeded the social benefits.
c.
the concert was an example of the Tragedy of the Commons.
d.
residents of the town were probably free-riders at the concert.
 
 
Scenario 13-6
Farmer Jack is a watermelon farmer. If Jack plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 30 watermelons. If he plants 2 bags of seeds, he gets 50 watermelons. If he plants 3 bags of seeds he gets 60 watermelons. A bag of seeds costs $100, and the costs of seeds are his only costs.
 

 47. 

Refer to Scenario 13-6. Which of the following statements is(are) true of Jack's marginal cost?
(i)
His marginal cost curve is U-shaped.
(ii)
His marginal cost decreases with increased watermelon output.
(iii)
His marginal cost reflects diminishing marginal product.
a.
(ii) only
b.
(iii) only
c.
(i) and (iii)
d.
(i) and (ii)
 

 48. 

During the last few decades in the United States, health officials have argued that eating too much beef might be harmful to human health. As a result, there has been a significant decrease in the amount of beef produced. Which of the following best explains the decrease in production?
a.
Beef producers, concerned about the health of their customers, decided to produce relatively less beef.
b.
Government officials, concerned about consumer health, ordered beef producers to produce relatively less beef.
c.
Individual consumers, concerned about their own health, decreased their demand for beef, which lowered the relative price of beef, making it less attractive to produce.
d.
Anti-beef protesters have made it difficult for both buyers and sellers of beef to meet in the marketplace.
 

 49. 

Suppose that when the price of corn is $2 per bushel, farmers can sell 10 million bushels. When the price of corn is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true?
a.
The demand for corn is income inelastic, and so an increase in the price of corn will increase the total revenue of corn farmers.
b.
The demand for corn is income elastic, and so an increase in the price of corn will increase the total revenue of corn farmers.
c.
The demand for corn is price inelastic, and so an increase in the price of corn will increase the total revenue of corn farmers.
d.
The demand for corn is price elastic, and so an increase in the price of corn will increase the total revenue of corn farmers.
 

 50. 

Consider a shoemaker and a vegetable farmer. Potentially, trade could benefit both individuals if
a.
the shoemaker can produce only shoes and the vegetable farmer can produce only vegetables.
b.
the shoemaker is capable of growing vegetables, but he is not very good at it.
c.
the vegetable farmer is better at growing vegetables and better at making shoes than the shoemaker.
d.
All of the above are correct.
 

 51. 

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,
a.
buyers of the good will bear most of the burden of the tax.
b.
sellers of the good will bear most of the burden of the tax.
c.
the effective price paid by buyers of the good will decrease.
d.
the size of the market for the good will expand.
 

 52. 

Basic research is a public good partly because it
a.
is difficult to exclude those who might benefit from it.
b.
is used to develop public goods.
c.
always benefits developed countries at the expense of developing countries.
d.
is a good that is rival in consumption.
 

 53. 

Which of the following is not a function of prices in a market system?
a.
Prices have the crucial job of balancing supply and demand.
b.
Prices send signals to buyers and sellers to help them make rational economic decisions.
c.
Prices coordinate economic activity.
d.
Prices ensure an equitable distribution of goods and services among consumers.
 
 
Table 18-3
Number of
Workers

Output
Marginal Product
of Labor
Value of Marginal
Product of Labor

Wage
Marginal
Profit
0
0
    
1
100
 
$1,000
$500
$500
2
 
80
$ 800
$500
 
3
 
60
 
$500
$100
4
280
 
$ 400
$500
 
5
 
20
 
$500
 
 

 54. 

Refer to Table 18-3. To maximize its profit, the firm will hire workers as long as the value of the marginal product of labor equals or exceeds
a.
$100.
b.
$200.
c.
$400.
d.
$500.
 

 55. 

Refer to Table 18-3. To maximize its profit, how many workers will the firm hire?
a.
2
b.
3
c.
4
d.
5
 

 56. 

Refer to Table 18-3. If the firm hires two workers, the two workers together produce
a.
80 units.
b.
100 units.
c.
180 units.
d.
200 units.
 

 57. 

Suppose a tax of $1 per unit is imposed on a good. The more elastic the demand for the good, other things equal,
a.
the larger is the decrease in quantity demanded as a result of the tax.
b.
the smaller is the tax burden on buyers relative to the tax burden on sellers.
c.
the larger is the deadweight loss of the tax.
d.
All of the above are correct.
 

 58. 

A demand curve reflects each of the following except the
a.
willingness to pay of all buyers in the market.
b.
value each buyer in the market places on the good.
c.
highest price buyers are willing to pay for each quantity.
d.
ability of buyers to obtain the quantity they desire.
 

 59. 

Suppose the price of Twinkies decreases from $1.45 to $1.25 and, as a result, the quantity of Twinkies demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for Twinkies in the given price range is
a.
2.00.
b.
1.55.
c.
1.00.
d.
0.64.
 
 
Table 18-2
Consider the following daily production data for Davis Golf Balls, Inc. Davis Golf Balls, Inc. sells golf balls for 50 cents each and pays the workers a wage of $30 a day.

Labor (number of workers)
Quantity (golf balls per day)
Marginal Product of Labor (golf balls per day)
Value of the Marginal Product of Labor
Wage
(per day)
Marginal
Profit
 0
 0
    
 1
 100
    
 2
 250
    
 3
 375
    
 4
 475
    
 5
 550
    
 6
 600
    
 

 60. 

Refer to Table 18-2. What is the third worker's marginal product of labor?
a.
75 golf balls
b.
100 golf balls
c.
125 golf balls
d.
150 golf balls
 

 61. 

When a price ceiling is imposed in a market and the ceiling is binding,
a.
price no longer serves as a rationing device.
b.
the quantity supplied at the price ceiling exceeds the quantity that would have been supplied without the price ceiling.
c.
buyers and sellers both benefit in equal measure.
d.
buyers and sellers both are harmed in equal measure.
 

 62. 

To say that the quantity demanded of a good is negatively related to the price of the good is to say that
a.
an increase in the quantity demanded of the good leads to a decrease in the price of the good.
b.
an increase in the price of the good leads to a decrease in the quantity demanded of the good.
c.
there is a weak relationship between the quantity demanded of a good and the price of the good.
d.
there is no relationship between the quantity demanded of a good and the price of the good.
 

 63. 

Any point on a country's production possibilities frontier represents a combination of two goods that an economy
a.
will never be able to produce.
b.
can produce using all available resources and technology.
c.
can produce using some portion, but not all, of its resources and technology.
d.
may be able to produce in the future with more resources and/or superior technology.
 

 64. 

For which of the following goods is demand probably most inelastic?
a.
camcorders
b.
insulin
c.
apples
d.
devices that remove cores from apples
 

 65. 

If a tax is levied on the sellers of a product, the demand curve
a.
will shift downward.
b.
will shift upward.
c.
will shift either upward or downward, depending on the amount of the tax.
d.
will not shift.
 

 66. 

An example of a price floor is
a.
the regulation of gasoline prices in the U.S. in the 1970s.
b.
rent control.
c.
the minimum wage.
d.
any restriction on price that leads to a shortage.
 

 67. 

Which of the following explains why long-run average cost at first decreases as output increases?
a.
diseconomies of scale
b.
less-efficient use of inputs
c.
fixed costs becoming spread out over more units of output
d.
gains from specialization of inputs
 

 68. 

The following table gives information on the price, quantity, and total cost of production for a monopolist. How much profit will the firm earn at the profit-maximizing price?

P
Q
TC
5
  0
  3
4
  5
  8
3
10
18
2
15
33
1
20
53
0
25
78
a.
$9
b.
$12
c.
$15
d.
$18
 

 69. 

The particular price that results in quantity supplied being equal to quantity demanded is the best price because it
a.
maximizes costs of the seller.
b.
maximizes tax revenue for the government.
c.
maximizes the combined welfare of buyers and sellers.
d.
minimizes the expenditure of buyers.
 

 70. 

Which of the following goods is not rival and not excludable?
a.
an uncongested toll road
b.
an uncongested nontoll road
c.
a congested nontoll road
d.
a congested toll road
 

 71. 

The average fixed cost curve
a.
always declines with increased levels of output.
b.
always rises with increased levels of output.
c.
declines as long as it is above marginal cost.
d.
declines as long as it is below marginal cost.
 

 72. 

Susan used to work as a telemarketer, earning $25,000 per year. She gave up that job to start a catering business. In calculating the economic profit of her catering business, the $25,000 income that she gave up is counted as part of the catering firm's
a.
total revenue.
b.
opportunity costs.
c.
explicit costs.
d.
marginal costs.
 

 73. 

Dioxin emission that results from the production of paper is a good example of a negative externality because
a.
self-interested paper firms are generally unaware of environmental regulations.
b.
there are fines for producing too much dioxin.
c.
self-interested paper producers will not consider the full cost of the dioxin pollution they create.
d.
toxic emissions are the best example of an externality.
 

 74. 

The price elasticity of demand measures
a.
buyers’ responsiveness to a change in the price of a good.
b.
the extent to which demand increases as additional buyers enter the market.
c.
how much more of a good consumers will demand when incomes rise.
d.
the movement along a supply curve when there is a change in demand.
 

 75. 

In analyzing the gains and losses from international trade, to say that Moldova is a small country is to say that
a.
Moldova can only import goods; it cannot export goods.
b.
Moldova’s choice of which goods to export and which goods to import is not based on the principle of comparative advantage.
c.
only the domestic price of a good is relevant for Moldova; the world price of a good is irrelevant.
d.
Moldova is a price taker.
 

 76. 

A cheeseburger is
a.
excludable and rival in consumption.
b.
excludable and nonrival in consumption.
c.
nonexcludable and rival in consumption.
d.
nonexcludable and nonrival in consumption.
 

 77. 

Suppose there is an early freeze in California that reduces the size of the lemon crop. What happens to consumer surplus in the market for lemons?
a.
It increases.
b.
It decreases.
c.
It is not affected by this change in market forces.
d.
We would have to know whether the demand for lemons is elastic or inelastic to make this determination.
 

 78. 

The marginal product of any input
a.
is the increase in total cost associated with a one-unit increase in production.
b.
is the change in total output associated with a $1.00 increase in total cost.
c.
is the increase in total cost resulting from the hiring of an additional worker.
d.
is the increase in total output obtained from one additional unit of that input.
 

 79. 

Turkey is an importer of goose-down pillows. The world price of these pillows is $50. Turkey imposes a $7 tariff on pillows. Turkey is a price-taker in the pillow market. As a result of the tariff,
a.
Turkish consumers of pillows become worse off and Turkish producers of pillows become worse off.
b.
Turkish consumers of pillows become worse off and Turkish producers of pillows become better off.
c.
Turkish consumers of pillows become better off and Turkish producers of pillows become worse off.
d.
Turkish consumers of pillows become better off and Turkish producers of pillows become better off.
 

 80. 

The difference between production possibilities frontiers that are bowed out and those that are straight lines is that
a.
bowed-out production possibilities frontiers apply to economies that face tradeoffs, whereas straight-line production possibilities frontiers apply to economies that do not face tradeoffs.
b.
bowed-out production possibilities frontiers apply to economies in which resources are not specialized, whereas straight-line production possibilities frontiers apply to economies in which resources are specialized.
c.
bowed-out production possibilities frontiers illustrate increasing opportunity cost, whereas straight-line production possibilities frontiers illustrate constant opportunity cost.
d.
straight-line production possibilities frontiers illustrate real-world conditions, whereas bowed-out production possibilities frontiers illustrate more simplistic assumptions.
 

 81. 

Rationing by long lines is
a.
inefficient, because it wastes buyers' time.
b.
efficient, because those who are willing to wait the longest get the goods.
c.
the only way scarce goods can be rationed.
d.
only necessary if price ceilings are not binding.
 

 82. 

A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as
a.
average revenue is greater than average total cost.
b.
average revenue is equal to marginal cost.
c.
marginal cost is greater than average total cost.
d.
price is above or below marginal cost.
 

 83. 

A fertilizer plant emits a very foul odor during the production process. If the government forces the plant to internalize the negative externality, then the
a.
supply curve for fertilizer would shift down.
b.
supply curve for fertilizer would shift up.
c.
demand curve for fertilizer would shift down.
d.
demand curve for fertilizer would shift up.
 

 84. 

When one person uses a common resource, such as fish in the ocean, which of the following would not be correct?
a.
Other people are likely to be worse off.
b.
Other people will not be compensated for their loss.
c.
The person does not account for external effects.
d.
There will still be enough left for other people, since one person cannot make a major impact.
 

 85. 

Belarus has a comparative advantage in the production of linen, but Russia has an absolute advantage in the production of linen. If these two countries decide to trade,
a.
Belarus should export linen to Russia.
b.
Russia should export linen to Belarus.
c.
trading linen would provide no net advantage to either country.
d.
Without additional information about opportunity costs, this question cannot be answered.
 

 86. 

Demand is inelastic if elasticity is
a.
less than 1.
b.
equal to 1.
c.
greater than 1.
d.
equal to 0.
 

 87. 

Assume, for Canada, that the domestic price of steel without international trade is higher than the world price of steel. This suggests that, in the production of steel,
a.
Canada has a comparative advantage over other countries and Canada will import steel.
b.
Canada has a comparative advantage over other countries and Canada will export steel.
c.
other countries have a comparative advantage over Canada and Canada will import steel.
d.
other countries have a comparative advantage over Canada and Canada will export steel.
 

 88. 

Which of the following represents a way that a government can help the private market to internalize an externality?
a.
taxing goods that have negative externalities
b.
subsidizing goods that have positive externalities
c.
The government cannot improve upon the outcomes of private markets.
d.
Both a and b are correct.
 

 89. 

What will happen to the equilibrium price and quantity of traditional camera film if traditional cameras become more expensive, digital cameras become cheaper, the cost of the resources needed to manufacture traditional film falls and more firms decide to manufacture traditional film?
a.
Price will fall and the effect on quantity is ambiguous.
b.
Price will rise and the effect on quantity is ambiguous.
c.
Quantity will fall and the effect on price is ambiguous.
d.
The effect on both price and quantity is ambiguous.
 

 90. 

Which of the following is not a positive statement?
a.
Higher gasoline prices will reduce gasoline consumption.
b.
Equity is more important than efficiency.
c.
Trade restrictions lower our standard of living.
d.
If a nation wants to avoid inflation, it will restrict the growth rate of the quantity of money.
 
 
Table 13-2

Number of Workers
Output
0
    0
1
  50
2
110
3
180
4
260
5
330
 

 91. 

Refer to Table 13-2. At which number of workers does diminishing marginal product begin?
a.
2
b.
3
c.
4
d.
5
 

 92. 

Refer to Table 13-2. What is the marginal product of the fourth worker?
a.
65
b.
70
c.
75
d.
80
 
 
Figure 10-6
final_exam_practice_files/i1020000.jpg
 

 93. 

Refer to Figure 10-6. Which quantity represents the social optimum for this market?
a.
Q1.
b.
Q2.
c.
Q3.
d.
Q4.
 

 94. 

If the labor supply curve is nearly vertical, a tax on labor
a.
has a large deadweight loss.
b.
raises a small amount of tax revenue.
c.
has little impact on the amount of work that workers are willing to do.
d.
results in a large tax burden on the firms that hire labor.
 

 95. 

Which of the following statements is false?
a.
The competitive firm produces where P = MC.
b.
The monopolist produces where P = MC.
c.
The competitive firm produces where MR = MC.
d.
The monopolist produces where MR = MC.
 

 96. 

When a country allows trade and becomes an importer of bottled water, which of the following is not a consequence?
a.
The gains of domestic consumers of bottled water exceed the losses of domestic producers of bottled water.
b.
The losses of domestic producers of bottled water exceed the gains of domestic consumers of bottled water.
c.
The price paid by domestic consumers of bottled water decreases.
d.
The price received by domestic producers of bottled water decreases.
 

 97. 

When a tax is imposed on the sellers of a good,
a.
the demand curve shifts downward by less than the amount of the tax.
b.
the demand curve shifts downward by the amount of the tax.
c.
the supply curve shifts upward by less than the amount of the tax.
d.
the supply curve shifts upward by the amount of the tax.
 

 98. 

The United States has imposed taxes on some imported goods that have been sold here by foreign countries at below their cost of production. These taxes
a.
benefit the United States as a whole, because they generate revenue for the government. In addition, because the goods are priced below cost, the taxes do not harm domestic consumers.
b.
benefit the United States as a whole, because they generate revenue for the government and increase producer surplus.
c.
harm the United States as a whole, because they reduce consumer surplus by an amount that exceeds the gain in producer surplus and government revenue.
d.
harm the United States as a whole, because they reduce the sum of consumer and producer surplus by an amount that exceeds the increase in government revenue.
 

 99. 

When two variables have a negative correlation,
a.
they tend to move in opposite directions.
b.
they tend to move in the same direction.
c.
one variable will move while the other remains constant.
d.
the movement of the two variables is unpredictable.
 

 100. 

Assume, for the U.S., that the domestic price of beef without international trade is lower than the world price of beef. This suggests that, in the production of beef,
a.
the U.S. has a comparative advantage over other countries and the U.S. will export beef.
b.
the U.S. has a comparative advantage over other countries and the U.S. will import beef.
c.
other countries have a comparative advantage over the U.S. and the U.S. will export beef.
d.
other countries have a comparative advantage over the U.S. and the U.S. will import beef.
 



 
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