1. Price floor;2. Price ceiling;3. PPF;4. Opportunity cost;5. Normative statements;6. Positive statements;7. The income elasticity of demand;8. Consumer surplus;9. Producer surplus; 10. Excludability; 11. oligopoly; 12. Efficiency; 13.Concentration ratio; 14. Prisoner’s dilemma;15.PPF；16. Lump-sum taxes; 17. Externalities;18.Price elasticity of demand; 19. Coase theorem; 20. Welfare economics; 21. Tax incidence; 22. Natural monopoly; 23. Deadweight losses; 24. Tax incidence; 25. Price discrimination; 26. Laffer curve; 27. Collusion1. Suppose that a new invention increases the marginal productivity of labor, shifting labor demand to the right. Such an invention would be an example ofa. labor-saving technology.b. labor-augmenting technology.c. Luddite technology.d. supply-shifting technology.ANS: B2. Consider two goods, books and hamburgers. The slope of the consumer's budget constraint is measured by thea. consumer's income divided by the price of hamburgers.b. relative price of books and hamburgers.c. consumer's marginal rate of substitution.d. number of books purchased divided by the number of hamburgers purchased.ANS: B3. When considering her budget, the highest indifference curve that a consumer can reach is thea. one that is tangent to the budget constraint.b. indifference curve farthest from the originc. indifference curve that intersects the budget constraint in at least two places.d. None of the above is correct; consumer preferences are bounded.ANS: A4. Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 4 tables or 20 chairs, while Sandy can make 6 tables or 18 chairs. Given this, we know thata. Mike has a comparative advantage in tables.b. Sandy has an absolute advantage in chairs.c. Mike has an absolute advantage in tables.d. Sandy has a comparative advantage in tables.ANS: D5. An increase in the overall level of prices in an economy is referred to asa. economic growth.b. inflation.c. the price effect.d. the demand effect.ANS: B6. It is possible for an economy to increase its production of computers and, at the same time, to increase its production of cars if the economya. moves downward and to the right along its production possibilities frontier and the frontieris bowed outward.b. moves upward and to the left along its production possibilities frontier and the frontier isbowed outward.c. moves in either direction along its production possibilities frontier and the frontier is astraight line.d. moves from a situation of inefficient production to a situation of efficient production. ANS: D7. Almost all economists agree that rent controla. has no effect on the rental income of landlords.b. allows the market for housing to work more efficiently.c. adversely affects the availability and quality of housing.d. is a very inexpensive way to help the most needy members of society.ANS: C8. To promote good economic outcomes, policymakers should strive to enact policies thata. enhance productivity.b. enhance individuals' market power.c. result in a rapidly-growing quantity of money.d. All of the above are correct.ANS: A9. For two individuals who engage in the same two productive activities, it is impossible for one of the two individuals toa. have a comparative advantage in both activities.b. have an absolute advantage in both activities.c. be more productive per unit of time in both activities.d. All of the above are correct.ANS: A10. Economists make assumptions in order toa. mimic the methodologies employed by other scientists.b. minimize the number of experiments that yield no useful data.c. minimize the likelihood that some aspect of the problem at hand is being overlooked.d. focus their thinking on the essence of the problem at hand.ANS: D11. Suppose a nation is currently producing at a point inside its production possibilities frontier. We know thata. the nation is producing beyond its capacity, and inflation will occur.b. the nation is not using all available resources or is using inferior technology or both.c. the nation is producing an efficient combination of goods.d. there will be a large opportunity cost if the nation tries to increase production of any good. ANS: B12. When economists make normative statements, they area. speaking as scientists.b. speaking as policy advisers.c. adhering very strictly to basic economic principles.d. revealing that they are very conservative in their views of how the world works.ANS: B13. People generally choose to depend upon others for goods and services. Economists view this interdependence asa. a good thing, since it fosters friendships and bonds that otherwise would never develop.b. a good thing, since it allows people to consume more goods and services than they wouldotherwise be able to consume.c. a bad thing, since self-sufficiency may become necessary in the future.d. a bad thing, since interdependence reduces people’s self-esteem and causes various socialproblems.ANS: B14. For an economist, the idea of making assumptions is regarded generally as aa. bad idea, since doing so leads to the omission of important ideas and variables fromeconomic models.b. bad idea, since doing so invariably leads to data-collection problems.c. good idea, since doing so helps to simplify the complex world and make it easier tounderstand.d. good idea, since economic analysis without assumptions leads to complicated results that thegeneral public finds hard to understand.ANS: C15. A competitive market is a market in whicha. an auctioneer helps set prices and arrange sales.b. there are only a few sellers.c. the forces of supply and demand do not apply.d. no individual buyer or seller has any significant impact on the market price.ANS: D16. The line that relates the price of a good to the quantity demanded of that good is called thea. demand schedule, and it slopes upward only if the good for which the line is drawn fails toconform to the law of demand.b. demand schedule, and it slopes upward only if the demand for the good in question, relativeto the demand for other goods, is increasing over time.c. demand curve, and it slopes upward only if there is a positive relationship between incomeand quantity demanded.d. demand curve, and it slopes downward as long as the good in question conforms to the lawof demand.ANS: D17. Suppose roses are currently selling for $40.00 per dozen, while the equilibrium price of roses is $30.00 per dozen. We would expect aa. shortage to exist and the market price of roses to increase.b. shortage to exist and the market price of roses to decrease.c. surplus to exist and the market price of roses to increase.d. surplus to exist and the market price of roses to decrease.ANS: D18. The difference between production possibilities frontiers that are bowed out and those that are straight lines is thata. bowed-out production possibilities frontiers apply to economies that face tradeoffs, whereasstraight-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 notspecialized, whereas straight-line production possibilities frontiers apply to economies inwhich resources are specialized.c. bowed-out production possibilities frontiers illustrate increasing opportunity cost, whereasstraight-line production possibilities frontiers illustrate constant opportunity cost.d. straight-line production possibilities frontiers illustrate real-world conditions, whereasbowed-out production possibilities frontiers illustrate more simplistic assumptions.ANS: C19. To say that the quantity demanded of a good is negatively related to the price of the good is to say thata. an increase in the quantity demanded of the good leads to a decrease in the price of thegood.b. an increase in the price of the good leads to a decrease in the quantity demanded of thegood.c. there is a weak relationship between the quantity demanded of a good and the price of thegood.d. there is no relationship between the quantity demanded of a good and the price of the good. ANS: B20. How does the concept of elasticity allow us to improve upon our understanding of supply and demand?a. Elasticity allows us to analyze supply and demand with greater precision than would be thecase in the absence of the elasticity concept.b. Ela sticity provides us with a better rationale for statements such as “an increase in x willlead to a decrease in y” than we would have in the absence of the elasticity concept.c. Without elasticity, we would not be able to address the direction in which price is likely tomove in response to a surplus or a shortage.d. Without elasticity, it is very difficult to assess the degree of competition within a market. ANS: A21. Which of the following events will definitely cause equilibrium quantity to fall?a. demand increases and supply decreasesb. demand and supply both decreasec. demand decreases and supply increasesd. demand and supply both increaseANS: B22. Which of the following statements about the price elasticity of demand is correct?a. The price elasticity of demand for a good measures the willingness of buyers of the good tomove away from the good as its price increases.b. Price elasticity of demand reflects the many economic, psychological, and social forces thatshape consumer tastes.c. Other things equal, if good x has close substitutes and good y does not have close substitutes,then the demand for good x will be more elastic than the demand for good y.d. All of the above are correct.ANS: D23. Which of the following events would cause the price of oranges to fall?a. There is a shortage of oranges.b. An article is published in which it is claimed that tangerines cause a serious disease, andoranges and tangerines are substitutes.c. The price of land throughout Florida decreases, and Florida produces a significantproportion of the nation’s oranges.d. All of the above are correct.ANS: C24. A perfectly elastic demand implies thata. buyers will not respond to any change in price.b. any rise in price above that represented by the demand curve will result in a quantitydemanded of zero.c. quantity demanded and price change by the same percent as we move along the demandcurve.d. price will rise by an infinite amount when there is a change in quantity demanded.ANS: B25. A price ceiling will be binding only if it is seta. equal to equilibrium price.b. above equilibrium price.c. below equilibrium price.d. none of the above; a price ceiling is never binding.ANS: C26. A tax on bicycles that buyers of bicycles are required to pay shiftsa. the demand curve downward, causing both the price received by sellers and the equilibriumquantity to fall.b. the demand curve upward, causing both the price received by sellers and the equilibriumquantity to rise.c. the supply curve downward, causing the price received by sellers to fall and the equilibriumquantity to rise.d. the supply curve upward, causing the price received by sellers to rise and the equilibriumquantity to fall.ANS: A27. Other things equal, the deadweight loss of a taxa. decreases as the size of the tax increases.b. increases as the size of the tax increases, but the increase in the deadweight loss is less rapidthan the increase in the size of the tax.c. increases as the size of the tax increases, and the increase in the deadweight loss is morerapid than the increase in the size of the tax.d. increases as the price elasticities of demand and/or supply increase, but the deadweight lossdoes not change as the size of the tax increases.ANS: C28. When demand is inelastic within a certain price range, then within that price range,a. an increase in price would increase total revenue because the decrease in quantity demandedis proportionately less than the increase in price.b. an increase in price would decrease total revenue because the decrease in quantity demandedis proportionately greater than the increase in price.c. a decrease in price would increase total revenue because the increase in quantity demandedis proportionately smaller than the decrease in price.d. a decrease in price would not affect total revenue.ANS: A29. A binding price floor in a market is seta. above equilibrium price and causes a shortage.b. above equilibrium price and causes a surplus.c. below equilibrium price and causes a surplus.d. below equilibrium price and causes a shortage.ANS: B30. Economists generally believe that rent control isa. an efficient and equitable way to help the poor.b. not efficient, but the best available means of solving a serious social problem.c. a highly inefficient way to help the poor raise their standard of living.d. an efficient way to allocate housing, but not a good way to help the poor.ANS: C31. Most labor economists believe that the supply of labor isa. less elastic than demand and, therefore, firms bear most of the burden of the payroll tax.b. less elastic than demand and, therefore, workers bear most of the burden of the payroll tax.c. more elastic than demand and, therefore, workers bear most of the burden of the payroll tax.d. more elastic than demand and, therefore, firms bear most of the burden of the payroll tax. ANS: B32. Which of the following is correct?a. Efficiency deals with the size of the economic pie and equity deals with how fairly the pie issliced.b. Equity can be judged on positive grounds whereas efficiency requires normative judgments.c. Efficiency is more difficult to evaluate than equity.d. Equity and efficiency are both maximized in a society when total surplus is maximized. ANS: A33. Private markets fail to reach a socially optimal equilibrium when positive externalities are present because thea. private benefit equals the social benefit at the private market solution.b. private cost exceeds the private benefit at the private market solution.c. social value exceeds the private value at the private market solution.d. private cost exceeds the social benefit at the private market solution.ANS: C34. The Laffer curve relatesa. the tax rate to tax revenue raised by the tax.b. the tax rate to the deadweight loss of the tax.c. the price elasticity of supply to the deadweight loss of the tax.d. government welfare payments to the birth rate.ANS: A35. The difference between a corrective tax and a tradable pollution permit is thata. a corrective tax sets the price of pollution and a permit sets the quantity of pollution.b. a corrective tax creates a more efficient outcome than a permit.c. a corrective tax sets the quantity of pollution and a permit sets the price of pollution.d. a permit creates a more efficient outcome than a corrective tax.ANS: A36. A Maine legislator wanted to create a deposit on cigarettes butts. If implemented, people would have the incentive to (1) not toss cigarette butts onto public streets and sidewalks, and (2) pick butts up to redeem them for the cash. The degradation of the environment from littered cigarette butts is aa. private goods problem.b. Nash equilibrium.c. Tragedy of the Commons.d. cost-benefit equilibrium.ANS: C37. When an oligopoly market reaches a Nash equilibrium,a. the market price will be different for each firm.b. the firms will not have behaved as profit maximizers.c. a firm will have chosen its best strategy, given the strategies chosen by other firms in themarket.d. a firm will not take into account the strategies of competing firms.ANS: C38. A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?a. Average revenue exceeds marginal revenueb. Marginal revenue exceeds average revenuec. Average revenue is equal to marginal revenued. Revenue is always maximized along with profitANS: A39. Monopolistically competitive firms have excess capacity. To maximize profits, firms willa. increase their output to lower their average total cost of production and eliminate the excesscapacity.b. produce where price equals marginal cost to eliminate the excess capacity.c. produce where average revenue equals marginal cost to eliminate the excess capacity.d. maintain the excess capacity.ANS: D40. A tax system with little deadweight loss and a small administrative burden would be described asa. equitable.b. communistic.c. capitalistic.d. efficient.ANS: D41. Which of the following is true of markets characterized by positive externalities?a. Social value exceeds private value, and market quantity exceeds the socially optimalquantity.b. Social value is less than private value, and market quantity exceeds the socially optimalquantity.c. Social value exceeds private value, and market quantity is less than the socially optimalquantity.d. Social value seldom exceeds private value; therefore, social quantity is less than privatequantity.ANS: CFigure 2The graph below depicts the cost structure for a firm in a competitive market.42. Refer to Figure 2. When price rises from P2 to P3, the firm finds thata. marginal cost exceeds marginal revenue at a production level of Q2.b. if it produces at output level Q3 it will earn a positive profit.c. expanding output to Q4 would leave the firm with losses.d. it could increase profits by lowering output from Q3 to Q2.ANS: C43. Young Johnny inherited the only local cable TV company in town after his father passed away. The company is completely unregulated by the government and is therefore free to operate as it wishes. Assuming that Johnny understands the true power of his new monopoly, he is probably most excited about which of the following statements?(i) He will be able to set the price of cable TV service at whatever level he wishes.(ii) T he customers will be forced to purchase cable TV service at whatever price he wants to set.(iii) He will be able to achieve any profit level that he desires.a. (i) onlyb. (ii) onlyc. (i) and (iii)d. All of the above are correct.ANS: A44. Marginal revenue can become negative fora. both competitive and monopoly firms.b. competitive firms, but not for monopoly firms.c. monopoly firms, but not for competitive firms.d. neither competitive nor monopoly firms.ANS: C45. According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long asa. the externalities that are present are positive, not negative.b. government assigns property rights to the harmed party.c. private parties can bargain with sufficiently low transaction costs.d. businesses determine an appropriate level of production.ANS: C46. Which of the following is a characteristic of a more efficient tax system?a. The system minimizes deadweight loss.b. The system raises the same amount of revenue at a lower cost.c. The system minimizes administrative burdens.d. All of the above are correct.ANS: D47. Which of these assumptions is often realistic for a firm in the short run?a. The firm can vary both the size of its factory and the number of workers it employs.b. The firm can vary the size of its factory, but not the number of workers it employs.c. The firm can vary the number of workers it employs, but not the size of its factory.d. The firm can vary neither the size of its factory nor the number of workers it employs. ANS: C48. In the absence of taxes, Janet would prefer to purchase a large sport utility vehicle (SUV). The government has recently decided to place a $10,000 nuisance tax on SUVs. If Janet decides to purchase a small economy car as a result of the tax, which of the following statements is correct?a. Other people who choose to purchase SUVs will incur the cost of the deadweight loss of thetax.b. There are no deadweight losses as long as some people still choose to purchase SUVs.c. In order to determine the magnitude of the deadweight loss, we must add the revenues fromthe tax to the loss in Janet’s consumer surplus.d. Janet is worse off, and her loss of welfare is part of the deadweight loss of the tax.ANS: DFigure 149. Refer to Figure 1. Which of the figures represents the total cost curve for a firm?a. Figure 1b. Figure 2c. Figure 3d. Figure 4ANS: B50. "A $1,000 tax paid by a poor person may be a larger sacrifice than a $10,000 tax paid by a wealthy person" is an argument based ona. the horizontal equity principle.b. the benefits principle.c. a regressive tax argument.d. the ability-to-pay principle.ANS: DFigure 151. Refer to Figure 1. The firm experiences economies of scale if it changes its level of outputa. from Q1 to Q2.b. from Q2 to Q3.c. from Q3 to Q4.d. from Q4 to Q5.ANS: A52. The total cost curve gets steeper as output increases due toa. diseconomies of scale.b. economies of scale.c. diminishing marginal product.d. increasing returns to scale.ANS: C53. When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate willa. decrease tax revenue and decrease the deadweight loss.b. decrease tax revenue and increase the deadweight loss.c. increase tax revenue and decrease the deadweight loss.d. increase tax revenue and increase the deadweight loss.ANS: C54. Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example ofa. an opportunity cost.b. an implicit cost.c. a sunk cost.d. a transaction cost.ANS: D55. Suppose that Martin owns a lighthouse, and Lewis owns a nearby port. Martin's lighthouse benefits only those ships that enter Lewis's port. Which of the following statements is not correct?a. Martin's lighthouse may be considered a private good.b. Martin can reduce the free-rider problem by charging Lewis a usage fee.c. Martin can exclude Lewis's port from benefiting from the lighthouse by simply turning thepower off.d. Martin's lighthouse would be considered a common resource.ANS: D56. Which of the following statements is correct?a. A price ceiling is not binding when the price ceiling is set above the equilibrium price.b. A price floor is not binding when the price floor is set below the equilibrium price.c. A binding price ceiling causes a shortage and a binding price floor causes a surplus.d. All of the above are correct.ANS: D57. Opponents of the minimum wage point out that the minimum wagea. encourages teenagers to drop out of school.b. prevents some workers from getting needed on-the-job training.c. contributes to the problem of unemployment.d. All of the above are correct.ANS: D58. A tax on the sellers of cell phones willa. reduce the size of the cell phone market.b. place a burden on the sellers of cell phones but not on the buyers of cell phones.c. affect the price paid by buyers of cell phones, but not the size of the market.d. affect the size of the market, but it will have no effect on the effective price received bysellers of cell phones.ANS: A59. Chad is willing to pay $5.00 to get his first cup of morning latté. He buys a cup from a vendor selling latté for $3.75 per cup. Chad's consumer surplus isa. $8.75.b. $5.00.c. $3.75.d. $1.25.ANS: D60. 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 thetypical firm.ANS: CFigure 1The figure below depicts the cost structure of a profit-maximizing firm in a competitive market.61. Refer to Figure 1. Which line segment best reflects the short-run supply curve for this firm?a. ABCEb. CDc. DEd. BCDANS: A62. For a profit-maximizing monopolist,a. P > MR = MC.b. P = MR = MC.c. P > MR > MC.d. MR < MC < P.ANS: A63. The midpoint method is used to compute elasticity because ita. automatically computes a positive number instead of a negative number.b. results in an elasticity that is the same as the slope of the demand curve.c. gives the same answer regardless of the direction of change.d. automatically rounds quantities to the nearest whole unit.ANS: C64. Suppose demand is perfectly elastic and the supply of the good in question decreases. As a result,a. the equilibrium quantity decreases and the equilibrium price is unchanged.b. the equilibrium price increases and the equilibrium quantity is unchanged.c. the equilibrium quantity and the equilibrium price both are unchanged.d. buyers’ total expenditure on the good is unchanged.ANS: A65. Which of the following statements is not correct concerning government attempts to reduce the flow of illegal drugs into the country?a. Drug interdiction raises prices and total revenue in the drug market.b. Drug interdiction can increase drug-related crime.c. Drug interdiction shifts the demand curve for drugs to the left.d. Drug interdiction shifts the supply curve of drugs to the left.ANS: C66. In a competitive market with free entry and exit, if all firms have the same cost structure, thena. all firms will operate at efficient scale in the short run.b. all firms will operate at efficient scale in the long run.c. the price of the product will differ across firms.d. the number of sellers in the market will steadily decrease over time.ANS: B67. The equilibrium quantity in markets characterized by oligopoly isa. higher than in monopoly markets and higher than in perfectly competitive markets.b. higher than in monopoly markets and lower than in perfectly competitive markets.c. lower than in monopoly markets and higher than in perfectly competitive markets.d. lower than in monopoly markets and lower than in perfectly competitive markets.ANS: B68. One way in which monopolistic competition differs from oligopoly is thata. there are no barriers to entry in oligopolies.b. in oligopoly markets there are only a few sellers.c. all firms in an oligopoly eventually earn zero economic profits.d. strategic interactions between firms are rarely evident in oligopolies.ANS: B69. The demand curve for hot dogsa. shifts when the price of hot dogs changes, because the price of hot dogs is measured on thevertical axis of the graph.b. shifts when the price of hot dogs changes, because the quantity demanded of hot dogs ismeasured on the horizontal axis of the graph.c. does not shift when the price of hot dogs changes, because the price of hot dogs is measuredon the vertical axis of the graph.d. does not shift when the price of hot dogs changes, because the quantity demanded of hotdogs is measured on the horizontal axis of the graph.ANS: C70. Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because。