ECONOMICS

60. Refer to Table 13-13. Which firm’s long-run marginal cost decreases as output increases?

a. Firm 1

b. Firm 2

c. Firm 3

d. Firm 4

61. Refer to Table 13-13. Firm 1’s efficient scale occurs at what quantity?

a. 2

b. 3

c. 4

d. 5

62. Which of the following statements is not correct?

a. In the long run, there are no fixed costs.

b. Marginal cost is independent of fixed costs.

c. Economies of scale is a short-run concept.

d. Diminishing marginal product explains increasing marginal cost.

63. An example of normative analysis is studying

a. how market forces produce equilibrium.

b. surpluses and shortages.

c. whether equilibrium outcomes are socially desirable.

d. income distributions.

Table 7-3

The only four consumers in a market have the following willingness to pay for a good:

Buyer Willingness to Pay

Carlos $15

Quilana $25

Wilbur $35

Ming-la $45

64. Refer to Table 7-3. Who experiences the largest loss of consumer surplus when the price of the good increases

from $20 to $22?

a. Quilana

b. Wilbur

c. Ming-la

d. All three buyers experience the same loss of consumer surplus.

17

Table 7-4

The numbers in Table 7-1 reveal the maximum willingness to pay for a ticket to a Chicago Cubs vs. St. Louis

Cardinal’s baseball game at Wrigley Field.

Buyer Willingness to Pay

Jennifer $10

Bryce $15

Dan $20

David $25

Ken $50

Lisa $60

65. Refer to Table 7-4. If you have a ticket that you sell to the group in an auction, who will buy the ticket?

a. Dan

b. David

c. Ken

d. Lisa

Table 7-5

For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of

the day. Assume Alex, Barb, and Carlos are the only three buyers of oranges, and only three oranges can be

supplied per day.

First Orange Second Orange Third Orange

Alex $2.00 $1.50 $0.75

Barb $1.50 $1.00 $0.80

Carlos $0.75 $0.25 $0

66. Refer to Table 7-5. If the market price of an orange is $1.20, consumer surplus amounts to

a. $0.70.

b. $1.10.

c. $1.40.

d. $5.00.

67. Refer to Table 7-5. Who experiences the largest loss of consumer surplus when the price of an orange increases

from $0.70 to $1.40?

a. Alex

b. Barb

c. Carlos

d. All three individuals experience the same loss of consumer surplus.

68. If a consumer places a value of $20 on a particular good and if the price of the good is $25, then the

a. consumer has consumer surplus of $5 if he buys the good.

b. consumer does not purchase the good.

c. price of the good will rise due to market forces.

d. market is out of equilibrium.

18

Figure 7-1

69. Refer to Figure 7-1. When the price is P1, consumer surplus is

a. A.

b. A+B.

c. A+B+C.

d. A+B+D.

70. Refer to Figure 7-1. When the price is P2, consumer surplus is

a. A.

b. B.

c. A+B.

d. A+B+C.

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Figure 7-2

71. Refer to Figure 7-2. Which area represents consumer surplus at a price of P1?

a. ABD

b. ACG

c. BCDF

d. DFG

Figure 7-7

72. Refer to Figure 7-7. Which area represents the increase in producer surplus when the price rises from P1 to P2

due to new producers entering the market?

a. BCG

b. ACH

c. DGH

d. AHGB

20

Figure 7-10

73. Refer to Figure 7-10. At the equilibrium price, producer surplus is

a. $200.

b. $400.

c. $450.

d. $900.

74. Producer surplus is the

a. area under the supply curve to the left of the amount sold.

b. amount a seller is paid minus the cost of production.

c. area between the supply and demand curves, above the equilibrium price.

d. cost to sellers of participating in a market.

75. Suppose the demand for nachos increases. What will happen to producer surplus in the market for nachos?

a. It increases.

b. It decreases.

c. It remains unchanged.

d. It may increase, decrease, or remain unchanged.

76. Economists typically measure efficiency using

a. the price paid by buyers.

b. the quantity supplied by sellers.

c. total surplus.

d. profits to firms.

21

77. Consumer surplus equals the

a. value to buyers minus the amount paid by buyers.

b. value to buyers minus the cost to sellers.

c. amount received by sellers minus the cost to sellers.

d. amount received by sellers minus the amount paid by buyers.

78. At the equilibrium price of a good, the good will be purchased by those buyers who

a. value the good more than price.

b. value the good less than price.

c. have the money to buy the good.

d. consider the good a necessity.

79. The distinction between efficiency and equality can be described as follows:

a. Efficiency refers to maximizing the number of trades among buyers and sellers; equality

refers to maximizing the gains from trade among buyers and sellers.

b. Efficiency refers to minimizing the price paid by buyers; equality refers to maximizing

the gains from trade among buyers and sellers.

c. Efficiency refers to maximizing the size of the pie; equality refers to producing a pie of a

given size at the least possible cost.

d. Efficiency refers to maximizing the size of the pie; equality refers to distributing the pie

fairly among members of society.

Table 7-9

Price

Quantity

Demanded

Quantity

Supplied

$12.00 0 12

$10.00 4 10

$ 8.00 8 8

$ 6.00 12 6

$ 4.00 16 4

$ 2.00 20 2

$ 0.00 24 0

80. Refer to Table 7-9. At a price of $4.00, total surplus is

a. more than it would be at the equilibrium price.

b. less than it would be at the equilibrium price.

c. the same as it would be at the equilibrium price.

d. There is insufficient information to make this determination.

22

Figure 7-13

81. Refer to Figure 7-13. For quantities less than M, the value to the marginal buyer is

a. greater than the cost to the marginal seller, so increasing the quantity increases total

surplus.

b. less than the cost to the marginal seller, so increasing the quantity increases total surplus.

c. greater than the cost to the marginal seller, so decreasing the quantity increases total

surplus.

d. less than the cost to the marginal seller, so decreasing the quantity increases total surplus.

Figure 7-14

82. Refer to Figure 7-14. Which area represents producer surplus when the price is P1?

a. A

b. B

c. C

d. D

23

Figure 7-15

83. Refer to Figure 7-15. Assume demand increases and as a result, equilibrium price increases to $22 and

equilibrium quantity increases to 110. The increase in producer surplus to producers already in the market would

be

a. $90.

b. $210.

c. $360.

d. $480.

84. Refer to Figure 7-15. The efficient price is

a. $22, and the efficient quantity is 40.

b. $22, and the efficient quantity is 110.

c. $16, and the efficient quantity is 80.

d. $8, and the efficient quantity is 40.

24

Figure 7-17

85. Refer to Figure 7-17. At equilibrium, consumer surplus is

a. $36.

b. $72.

c. $108.

d. $144.

86. The French expression used by free-market advocates, which literally translates as “allow them to do,” is

a. laissez-faire.

b. je ne sais pas.

c. si’l vous plait.

d. tête-à-tête.

87. Which of the following statements is not correct?

a. An invisible hand leads buyers and sellers to an equilibrium that maximizes total surplus.

b. Market power can cause markets to be inefficient.

c. Externalities can cause markets to be inefficient.

d. The invisible hand can remedy most if not all types of market failures.

88. In a free, competitive market, what is the rationing mechanism?

a. seller bias

b. buyer bias

c. government law

d. price

89. When OPEC raised the price of crude oil in the 1970s, it caused the

a. United States’ nonbinding price floor on gasoline to become binding.

b. United States’ binding price floor on gasoline to become nonbinding.

c. United States’ nonbinding price ceiling on gasoline to become binding.

d. United States’ binding price ceiling on gasoline to become nonbinding.

25

90. Which of the following is not a rationing mechanism used by landlords in cities with rent control?

a. waiting lists

b. race

c. price

d. bribes

91. If a binding price floor is imposed on the video game market, then

a. the demand for video games will decrease.

b. the supply of video games will increase.

c. a surplus of video games will develop.

d. All of the above are correct.

Table 6-2

Price Quantity

Demanded

Quantity

Supplied

$0 250 0

$5 200 75

$10 150 150

$15 100 225

$20 50 300

$25 0 375

92. Refer to Table 6-2. Which of the following statements is correct?

a. A price floor set at $5 will be binding and will result in a surplus of 50 units.

b. A price floor set at $5 will be binding and will result in a surplus of 75 units.

c. A price floor set at $5 will be binding and will result in a surplus of 125 units.

d. A price floor set at $5 will not be binding.

26

Table 6-4

The following table contains the demand schedule and supply schedule for a market for a particular good. Suppose

sellers of the good successfully lobby Congress to impose a price floor $3 above the equilibrium price in this

market.

Price Quantity

Demanded

Quantity

Supplied

$0 15 0

$1 13 3

$2 11 6

$3 9 9

$4 7 12

$5 5 15

$6 3 18

93. Refer to Table 6-4. Following the imposition of a price floor $3 above the equilibrium price, irate buyers

convince Congress to repeal the price floor and to impose a price ceiling $1 below the former price floor. The

resulting shortage is

a. 0 units.

b. 4 units.

c. 5 units.

d. 10 units.

Figure 6-3

94. Refer to Figure 6-3. Which of the following price floors would be binding in this market?

a. $6.

b. $8.

c. $10.

d. $12.

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95. Refer to Figure 6-3. 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 a surplus.

d. A price floor set at $11 would result in a surplus.

96. If a tax is levied on the sellers of a product, then there will be a(n)

a. downward shift of the demand curve.

b. upward shift of the demand curve.

c. movement up and to the left along the demand curve.

d. movement down and to the right along the demand curve.

97. A tax on the buyers of TVs

a. leads sellers to supply a smaller quantity at every price.

b. leads buyers to demand a smaller quantity at every price.

c. leads buyers to demand a larger quantity at every price.

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

98. If the government levies a $500 tax per car on buyers of cars, then the price received by sellers of cars would

a. decrease by more than $500.

b. decrease by exactly $500.

c. decrease by less than $500.

d. increase by an indeterminate amount.

Figure 6-9

99. Refer to Figure 6-9. The equilibrium price in the market before the tax is imposed is

a. $1.

b. $2.

c. $5.

d. $6.

28

100. If the government wants to reduce smoking, it should impose a tax on

a. buyers of cigarettes.

b. sellers of cigarettes.

c. either buyers or sellers of cigarettes.

d. whichever side of the market is less elastic.

99. Refer to Figure 6-9. The equilibrium price in the market before the tax is imposed is

a. $1.

b. $2.

c. $5.

d. $6.

28

100. If the government wants to reduce smoking, it should impose a tax on

a. buyers of cigarettes.

b. sellers of cigarettes.

c. either buyers or sellers of cigarettes.

 

d. whichever side of the market is less elastic.

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