Introduction to Microeconomics Pre-Test Questions
Course Introduction
Introduction to Microeconomics explores the fundamental principles that govern individual and business decision-making within the economy. This course covers topics such as supply and demand, market equilibrium, consumer behavior, production costs, and the various structures of markets, including perfect competition, monopoly, and oligopoly. Students will analyze how prices are determined, how resources are allocated, and the effects of government intervention in markets. By the end of the course, students will understand the microeconomic concepts that underpin real-world economic issues and be able to apply these tools to everyday economic decisions.
Recommended Textbook
Economics Today 17th Edition by Roger LeRoy Miller
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Chapter 1: The Nature of Economics
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Q1) Normative economics
A) is never studied at the undergraduate level.
B) involves value judgments.
C) is always objective.
D) cannot be applied to all economic problems.
Answer: B
Q2) Wants are
A) another term for needs.
B) the things people would consume if they had unlimited incomes.
C) the things people consume with their income.
D) all the things people really need in order to live comfortably.
Answer: B
Q3) Which one of the following is an example of a normative statement?
A) A vacation in Colorado is better than a vacation in Hawaii.
B) Hotels in Colorado are more expensive than are hotels in Hawaii.
C) The hotel vacancy rate in Hawaii will increase as airfares to Hawaii increase.
D) The busiest tourist month in Colorado is July.
Answer: A
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Chapter 2: Scarcity and the World of Trade-Offs
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Q1) In economics, the term physical capital
A) refers to funds used by businesses to acquire goods and services.
B) refers to all manufactured resources used for production.
C) refers to the process of raising funds through the stock market.
D) defines the stock of merchandise already produced.
Answer: B
Q2) In the above figure, the production of 25 guitars and 25 ukuleles is
A) efficient production.
B) inefficient production.
C) impossible production.
D) not possible since production always occurs along the PPC.
Answer: B
Q3) When deriving the production possibilities curve, it is assumed that
A) the amount of each good that is to be produced is fixed.
B) the prices of resources are fixed along the curve.
C) most resources can be used to produce only one good.
D) resources are efficiently used.
Answer: D
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Chapter 3: Demand and Supply
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Q1) Jane has noticed that she used to pay $2 for coffee and now she pays $2.50. Which of the following statements is true?
A) The relative price of coffee has increased compared to tea.
B) The money price of coffee has increased.
C) The law of supply explains why the price of coffee has increased.
D) Jane will stop consuming coffee.
Answer: B
Q2) If two goods are substitutes, then
A) an increase in the price of one causes the demand for the other to fall.
B) there is an inverse relationship between changes in the price of one good and changes in the demand for the other.
C) if the price of one good falls, the demand for the other good falls also.
D) changes in the quantity demanded of one good will not affect the demand for the other.
Answer: C
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Chapter 4: Extensions of Demand and Supply Analysis
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Q1) Goods X and Y are complementary goods. A decrease in price of good X has occurred. In the market for good Y, this will lead to
A) an increase in price and a decrease in quantity.
B) an increase in price and an increase in quantity.
C) a decrease in price and a decrease in quantity.
D) a decrease in price and an increase in quantity.
Q2) Refer to the above figure. At a price of $2 per gallon, the quantity demanded of gasoline is
A) 80,000 gallons per month.
B) 100,000 gallons per month.
C) 60,000 gallons per month.
D) 140,000 gallons per month.
Q3) In the above figure, a shortage could be caused by a government price ceiling set at A) $1.00.
B) $2.00.
C) $2.50.
D) $3.00.
Q4) What are the effects of an increase in the minimum wage? Who would be most affected?
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Chapter 5: Public Spending and Public Choice
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Q1) Which of the following is NOT an economic function of the U.S. government?
A) Promoting competition
B) Providing public goods
C) Promoting price stability
D) Encouraging production of government-inhibited goods
Q2) List and explain the four key assumptions in the theory of public choice.
Q3) When misallocation of resources for production of a good results in spillover effects on third parties, there is a
A) market failure.
B) government failure.
C) legislative failure.
D) productive failure.
Q4) When there is an external benefit, the unregulated market
A) overproduces the good or service.
B) underproduces the good or service.
C) reaches the most efficient solution.
D) maximizes public welfare.
Q5) Explain why an external cost leads to an over-allocation of resources to the production of a good.
Page 7
Q6) How does a government-sponsored good differ from a public good?
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Chapter 6: Funding the Public Sector
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Q1) The imposition of a tax on a product
A) shifts the supply curve to the right.
B) shifts the demand curve to the right.
C) shifts both the supply and the demand curve to the right.
D) shifts the supply curve to the left.
Q2) Some economists argue that corporate income taxes are typically not paid by firms, but by
A) stockholders, employees, and consumers.
B) the government.
C) bond holders.
D) the board of directors of the firm.
Q3) A local government currently has a tax base of $4 billion and a tax rate of 5 percent. If the tax rate is increased to 6 percent, the tax base will decrease to $3.2 billion. If the goal is to maximize tax revenues the tax rate should be A) raised above 6 percent.
B) kept at 5 percent.
C) raised to 6 percent.
D) abolished.
Q4) Explain how corporate profits are taxed twice.
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Chapter 7: The Macroeconomy: Unemployment, Inflation, and Deflation
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Q1) Refer the above figure. Stage "1" of the economy is called
A) the top.
B) the peak.
C) the trend.
D) the climax.
Q2) The unemployment rate will rise when
A) people get discouraged and quit looking for a job.
B) the average work week falls from 40 hours to 39 hours.
C) the duration of unemployment increases.
D) the size of the labor force increases without an increase in employment.
Q3) Refer to the above figure. Point B is known as
A) a peak.
B) a trough.
C) an expansion.
D) a contraction.
Q4) Refer to the above figure. A recession is best described as A) the upward linear line.
B) the period between Point B and Point C.
C) the period between Point A and Point B.
D) none of the above.
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Chapter 8: Measuring the Economys Performance
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Sample Questions
Q1) If imports are $100 million less than exports, government spending is $500 million, consumer expenditures are $1 billion, and investment spending is $500 million, then GDP is
A) $1 billion.
B) $1.9 billion.
C) $2 billion.
D) $2.1 billion.
Q2) Why must total income be identical to the dollar value of total output?
Q3) If you take national income and add transfer payments, then subtract income earned but not received, the result will be
A) net national product.
B) disposable personal income.
C) personal income.
D) wages.
Q4) The amount earned by owners of the nation's factors of production is
A) the wages and fringe benefits received by the nation's workers.
B) all profits received by businesses.
C) total income.
D) private and government transfer payments.
Q5) What constitutes investment when measuring gross private domestic investment?
Page 10
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Chapter 9: Global Economic Growth and Development
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Sample Questions
Q1) Refer to the above table. You have a choice among four alternatives. Choice A lets you invest $250,000 at 4 percent; B lets you invest $125,000 at 6 percent; C lets you invest $62,500 at 8 percent, and D lets you invest $31,250 at 10 percent. Which choice will get you to $1 million faster?
A) A
B) B
C) C
D) D
Q2) Refer to the above table. Which country had the highest growth rate of real Gross Domestic Product (GDP) from 2012 to 2013?
A) A
B) B
C) C
D) D
Q3) Entrepreneurship functions better when
A) the government performs the entrepreneurial function. B) there is a well-defined property rights system.
C) saving is relatively low.
D) most of the population has low levels of education.
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Chapter 10: Real GDP and the Price Level in the Long Run
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Sample Questions
Q1) Total planned real expenditures measured along the aggregate demand curve are made up of
A) consumption spending, investment spending, government spending, and net export spending.
B) consumption spending, income, government spending, and net export spending.
C) consumption spending, saving, investment spending, and government spending.
D) consumption spending, factor payments, investment spending, and net export spending.
Q2) The real output of the economy under conditions of full employment
A) is long-run aggregate supply.
B) is long-run aggregate demand.
C) happens only when there is no inflation.
D) is determined by the real-balance effect.
Q3) The intersection of aggregate demand and long-run aggregate supply identify the price level at which total planned
A) real expenditures equal actual nominal GDP.
B) real expenditures equal total planned production.
C) export spending equals total planned import spending.
D) government spending equals total planned tax revenues.
Q4) What causes the aggregate demand curve to shift?
Page 12
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Chapter 11: Classical and Keynesian Macro Analyses
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Q1) Refer to the above figure. The classical aggregate supply curve is represented by ________ and the Keynesian short-run aggregate supply curve is represented by
A) curve 2; curve 1
B) curve 2; curve 3
C) curve 3; curve 4
D) curve 2; curve 4
Q2) Leakages in the circular flow model are
A) caused by people not acting rational.
B) possible when unemployment exists.
C) reflected in the vertical long-run aggregate supply curve.
D) caused by people saving instead of spending.
Q3) Which of the following is NOT an assumption of the classical model?
A) Wages and prices are flexible.
B) People are motivated by self-interest.
C) Money illusion exists.
D) Pure competition exists.
Q4) What shape did the short-run aggregate supply curve have during the 1930s, according to Keynes? Explain.
Q5) What is the shape of the modern short-run aggregate supply (SRAS) curve? Why?
Page 13
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Chapter 12: Consumption, Real GDP, and the Multiplier
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Q1) In the simple Keynesian model, why does actual investment spending have to equal saving in the absence of the government and foreign sectors? Is this true only for the equilibrium? Explain.
Q2) If the multiplier is 4, the marginal propensity to consume (MPC) must be
A) 0.25.
B) 0.5.
C) 0.75.
D) 1.
Q3) The average propensity to consume is the
A) percentage of total disposable income consumed.
B) rate at which real disposable income changes as planned consumption changes.
C) ratio of changes in planned consumption to changes in real disposable income.
D) slope of the consumption function.
Q4) The consumption function shows the relationship between planned real consumption spending and A) real disposable income.
B) planned real saving.
C) the average propensity to consume.
D) the marginal propensity to consume.
Q5) Explain how the aggregate demand curve is related to the C + I + G + X curve.
Page 14
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Chapter 13: Fiscal Policy
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Q1) During normal times, discretionary fiscal policy
A) is more effective in influencing real GDP than at times of a recession.
B) is probably not very effective in influencing real GDP due to time lags.
C) is more effective in influencing real GDP than automatic stabilizers.
D) works well because there are no lag problems in influencing real GDP.
Q2) Discretionary fiscal policy
A) may not have desired effects on real GDP because of the time lags.
B) may not have desired effects on real GDP because it leads to increases in aggregate demand.
C) may not have desired effects on real GDP because it leads to decreases in aggregate demand.
D) would have a larger effect on real GDP if the multiplier was smaller.
Q3) The crowding out effect is often associated with
A) a temporary increase in taxes.
B) an increase in the interest rate caused by government borrowing.
C) the reinforcing impact of state and local tax changes on federal tax changes.
D) the impact of a tax rate increase when the aggregate supply function is horizontal.
Q4) Explain how indirect crowding out can offset expansionary fiscal policy.
Q5) What is discretionary fiscal policy and what is its purpose?
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Chapter 14: Deficit Spending and the Public Debt
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Q1) Which of the following statements is false?
A) The federal budget deficit in 2004 was about 4 percent of the GDP.
B) A budget deficit of $25 billion in a given year increases the public debt by $25 billion.
C) The public debt of $25 billion is the accumulated debt of all U.S. individuals, firms, and institutions.
D) During the past five years, the U.S. public debt has been increasing.
Q2) Suppose that the government of Summerfield spends $2 trillion in 2013 and receives tax revenues of $1.5 trillion. Which of the following is true?
A) Summerfield has a budget surplus of $0.5 trillion.
B) Summerfield has a budget deficit of $0.5 trillion.
C) Summerfield has a trade deficit of $0.5 trillion.
D) Summerfield has a trade surplus of $0.5 trillion.
Q3) Which of the following is a stock variable?
A) public debt
B) wealth
C) money supply
D) all of the above
Q4) Explain how deficit spending can benefit future generations.
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Chapter 15: Money, Banking, and Central Banking
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Q1) Banks do not need to keep all of their deposits on hand as reserves because
A) only a fraction of deposits are withdrawn at any one time.
B) FDIC protects banks from excessive withdrawal demands.
C) there is too much risk of bank robberies.
D) they can always generate new reserves through the money creation process.
Q2) Which of the following is NOT a function of the Federal Reserve System?
A) Regulating the money supply
B) Making loans to households and businesses
C) Acting as the fiscal agent of the federal government
D) Supervising member banks
Q3) What would cause a bank run?
A) Depositors feel that the bank does not have sufficient assets to cover their deposits.
B) Depositors feel that they are earning too low of a return on their deposits.
C) Borrowers feel that they are being charged too high of an interest rate on their loans.
D) Bank managers choose to hold more excess reserves.
Q4) Why might people in a country refuse to accept the fiduciary money in the country?
Q5) What are the functions of money?
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Chapter 16: Domestic and International Dimensions of Monetary Policy
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Q1) As global financial markets become more intertwined, the Fed has A) less control over monetary policy.
B) more control over monetary policy.
C) more control over fiscal policy.
D) less control over fiscal policy.
Q2) As interest rates rise, the quantity of money demanded A) falls.
B) rises.
C) stays the same.
D) does not react to interest rate changes.
Q3) The hypothesis that changes in the money supply lead to an equiproportional change in the price level is called A) the quantity theory of money.
B) the classical theory of money.
C) the Keynesian theory of money.
D) the fractional theory of money.
Q4) What is meant by the demand for money?
Q5) "The demand for money is infinite since everyone wants more money." Do you agree or disagree with this statement? Why?
Q6) What are three reasons people want to hold money balances? Page 18
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Chapter 17: Stabilization in an Integrated World Economy
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Q1) Deviations of the actual unemployment rate away from the natural rate are
A) cyclical unemployment.
B) frictional unemployment.
C) structural unemployment.
D) the monetary rule.
Q2) Costs of renewing contracts or printing new price lists are known as
A) small business costs.
B) small menu costs.
C) small operating costs.
D) small production costs.
Q3) If the average interval between firms' price adjustments is relatively long,
A) an increase in aggregate demand will cause a relatively short-lived increase in real GDP.
B) an increase in aggregate demand will cause a relatively long-lived increase in real GDP.
C) a reduction in aggregate demand will cause a relatively short-lived reduction in real GDP.
D) none of the above
Q4) What is the modern view of the Phillips curve?
Q5) Compare and contrast the arguments favoring active versus passive policy making.
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Chapter 18: Policies and Prospects for Global Economic Growth
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Q1) Which statement is true about a comparison of economic freedom with political freedom?
A) Economic freedom cannot exist without political freedom.
B) Economic freedom leads to positive economic growth while political freedom leads to negative economic growth.
C) Political freedom is more important than economic freedom when considering positive economic growth.
D) Economic freedom is more important than political freedom when considering positive economic growth.
Q2) A nation's account with the International Monetary Fund is known as
A) a quota subscription.
B) monetary deposits.
C) monetary rights.
D) international reserves.
Q3) When government inefficiencies exist,
A) a country tends to grow at a slower rate.
B) a country tends to grow at a faster rate.
C) economic growth is not influenced.
D) dead capital is usually not a problem.
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Chapter 19: Demand and Supply Elasticity
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Q1) The absolute price elasticity of demand would be the lowest for A) automobiles.
B) Pizza Hut pizza.
C) salt.
D) movie tickets.
Q2) Suppose 1000 units of a good are sold at $10 a unit. If price increases to $15 and total revenue increases to $15,000 and increases by $1000 for every dollar increase in price after that, we know that
A) demand is perfectly elastic.
B) the demand curve is vertical.
C) the demand curve is downward sloping and the firm is on the inelastic portion of the demand curve.
D) the demand curve is a rectangular hyperbola.
Q3) A vertical supply curve may be described as being A) relatively elastic.
B) perfectly inelastic.
C) relatively inelastic.
D) perfectly elastic.
Q4) Which has a more elastic demand: hamburger or beef?
Q5) Explain the three possible ranges for price elasticity of demand.
Page 22
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Chapter 20: Consumer Choice
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Q1) Use the above figure. When the budget line rotates from "b" to "c"
A) the price of product J increases and the quantity demanded of product J decreases.
B) the price of product J decreases and the quantity demanded of product J increases.
C) the price of product K increases and the quantity demanded of product K decreases.
D) the price of product K decreases and the quantity demanded of product K increases .
Q2) If an individual's utility from consuming two goods increases, then there must be
A) a downward rotation of the individual's indifference curve.
B) an inward rotation of the individual's indifference curve.
C) an outward shift of the individual's indifference curve.
D) in inward shift of the individual's indifference curve.
Q3) Refer to the above table. The marginal utility of the 5th movie for Michelle is
A) 40 units of utility.
B) 50 units of utility.
C) 60 units of utility.
D) 390 units of utility.
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Chapter 21: Rents, Profits, and the Financial Environment of Business
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Q1) World-class models receive significant economic rents because
A) their talents and abilities are in fixed supply.
B) there is a shortage of world-class models.
C) there is a surplus of world-class models.
D) there is no equilibrium quantity of world-class models.
Q2) Which of the following modern methods of financing a corporation was not available to corporations four hundred years ago?
A) Selling stock.
B) Selling bonds.
C) Reinvestment.
D) All of these methods were used then as well as now.
Q3) A person starts his own business after quitting his job in which he made $75,000. Expenses include $100,000 for wages and salaries, which includes a wage for the owner of $75,000, utilities of $5000, equipment of $50,000, and materials of $40,000. If revenues are $200,000, his accounting and economic profits are respectively
A) $80,000 and $5000.
B) -$70,000 and -$70,000.
C) -$70,000 and $5000.
D) $5000 and $5000.
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Chapter 22: The Firm: Cost and Output Determination
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Q1) In the above figure, if this firm produces output level Q<sub>2</sub>, it has average variable costs of
A) OF.
B) OE.
C) OC.
D) OD.
Q2) The law of diminishing marginal product is a statement
A) that concerns changes in variable input and changes in output.
B) that concerns the long run.
C) that concerns changes in profits.
D) that relates to plant size.
Q3) In a map showing short-run cost functions, one curve begins at the origin and rises as output expands. It is called the
A) the marginal cost curve.
B) the total fixed cost curve.
C) the total cost curve.
D) the total variable cost curve.
Q4) For an industry in which average costs continue to decline as output rises, what would you expect the minimum efficient scale to be? Explain your answer.
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Chapter 23: Perfect Competition
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Q1) In a perfectly competitive industry
A) each firm is a price maker.
B) no buyer or seller can influence the market price.
C) there is apt to be a shortage of sellers of output.
D) firms can never make an economic profit.
Q2) For a perfectly competitive firm, which of the following is NOT true?
A) The average revenue curve, the demand and the marginal revenue curves are identical.
B) The total revenue curve begins at the origin and slopes upward as output increases.
C) The slope of the total revenue curve is equal to the product price.
D) The total revenue curve is horizontal.
Q3) In the short run, the price at which a firm's total revenues equal its total costs is
A) a point of positive profits.
B) a no return price.
C) the short-run shutdown point.
D) the short-run break-even point.
Q4) What is marginal cost pricing? Why is marginal cost pricing important?
Q5) Why is the demand curve horizontal for a perfectly competitive firm?
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Chapter 24: Monopoly
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Q1) In maximizing economic profit, the monopolist will
A) choose the highest price that still permits some output sales.
B) equate marginal cost to minimum average total cost.
C) equate price to marginal cost.
D) equate marginal revenue to marginal cost.
Q2) If a monopolist were to produce in the inelastic segment of its demand curve, A) total revenue would be at a maximum.
B) total revenue would be at a minimum.
C) the firm would maximize profits.
D) a further drop in the price will change quantity demanded less than proportionately.
Q3) For a firm to be able to engage in price discrimination, it must A) face a downward sloping demand curve.
B) produce more than one product.
C) have customers of different levels of wealth and age.
D) have economies of scale.
Q4) "Unlike a perfect competitor, a profit-maximizing monopolist produces at an output rate at which marginal revenue exceeds marginal cost." Do you agree or disagree? Why
Q5) What does the demand curve facing a monopoly look like? Why?
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Chapter 25: Monopolistic Competition
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Q1) The long-run equilibrium of a monopolistic competitor differs from the long-run equilibrium of a perfect competitor in that
A) the monopolistic competitor makes economic profits.
B) the monopolistic competitor sets price equal to marginal cost.
C) the monopolistic competitor produces at the minimum point of its average total cost curve.
D) the monopolistic competitor charges a price that exceeds marginal cost.
Q2) In the long run, if some monopolistically competitive firms are earning economic losses then
A) firms will leave the industry.
B) raise prices until they earn economic profits.
C) they will increase production until marginal costs fall.
D) new firms will enter the industry.
Q3) In a long-run monopolistically competitive equilibrium,
A) P = ATC, and ATC is not at its minimum value.
B) P = ATC, and ATC is at its minimum value.
C) P > ATC, and ATC is at its minimum value.
D) P > ATC, and ATC is not at its minimum value.
Q4) Explain how information products are "special."
Q5) Explain how advertising can act as a signal.
Page 28
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Chapter 26: Oligopoly and Strategic Behavior
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Q1) An association of producers such as OPEC that agrees to set common pricing or output goals is referred to as a A) cartel.
B) conglomerate.
C) monopoly.
D) partnership.
Q2) A network effect exists whenever
A) a firm's willingness to produce a particular good or service is influenced by the costs of inputs it must utilize in order to manufacture the item.
B) a consumer s willingness to purchase a particular good or service is influenced by how many others also buy or have bought the item.
C) a firm's willingness to purchase a particular factor of production depends on the other types of inputs it utilizes to manufacture an item.
D) a consumer's willingness to purchase a particular good or service is influenced by the prices of other complementary or substitute items.
Q3) What is a cartel? Can cartels generate long-term profits without the existence of barriers to entry?
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Chapter 27: Regulation and Antitrust Policy in a Globalized Economy
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Q1) When consumers have less information about a product than do sellers, then this is the situation of
A) asymmetric information.
B) symmetric information.
C) caveat emptor.
D) a market failure.
Q2) Suppose a dangerous workplace is made safer through the installation of guards and other equipment that reduce the physical hazards of the work environment. If we observe no reduction in injuries, we might conclude that
A) the safety equipment isn't adequate and better equipment should be installed.
B) the firm has responded by lowering wages and hiring less capable people who are more likely to be injured.
C) the injury rate before installation of the safety equipment had been underreported.
D) workers responded to the safer environment by not exercising as much care themselves, generating more injuries than if they had not changed their behavior.
Q3) What is the difference between holding a monopoly and monopolization? Which is illegal? Explain.
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Page 30
Chapter 28: The Labor Market: Demand, Supply and Outsourcing
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Q1) Suppose there are four industries. Labor costs are 20 percent of total costs in A, 40 percent in B, 60 percent in C, and 80 percent in D. A ten percent increase in the price of labor will cause industry ________ to reduce quantity demanded of labor by the largest proportion.
A) A
B) B
C) C
D) D
Q2) The marginal physical product of labor is
A) the output of the firm divided by the number of workers.
B) the change in total revenues resulting from the addition of one more worker, while increasing one other factor of production.
C) the change in output resulting from the addition of one more worker, holding other factors of production constant.
D) the change in output resulting from the addition of one more worker, adjusting the level of the capital stock accordingly.
Q3) "The market demand curve for labor is the horizontal summation of the labor demand curves of all firms." Do you agree or disagree? Why?
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Chapter 29: Unions and Labor Market Monopoly Power
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Q1) Since the 1960s, the share of the labor force that is unionized in the United States has A) increased except for the government sector.
B) increased.
C) declined.
D) declined except in the private sector.
Q2) The main difference between a monopsonist and a competitive buyer of labor is that
A) the monopsonist can hire as many workers as it wants at the going wage while the competitive firm must raise wages to hire additional workers.
B) the competitive firm can hire as many workers as it wants at the going wage while the monopsonist can hire more workers at lower wages.
C) the competitor can hire as many workers as it wants at the going wage while the monopsonist must raise wages to hire additional workers.
D) the monopsonist can force wages down and still hire as many workers as it wants while the competitive firm must increase the wage rate to hire additional workers.
Q3) Discuss the benefits of unions.
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Chapter 30: Income, Poverty, and Health Care
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Q1) All of the following are criticisms of the Lorenz curve analysis EXCEPT
A) income-in-kind is not figured in.
B) the inequality gap is not an issue that economists study.
C) different sizes of households are ignored.
D) it does not take into consideration lifetime earnings.
Q2) "To each exactly the same" refers to
A) the productivity standard.
B) the free market doctrine.
C) the egalitarian principle.
D) the Lorenz curve.
Q3) A Lorenz curve measures the ________ on the vertical axis.
A) cumulative percentage of money income
B) cumulative percentage of family wealth
C) cumulative percentage of families
D) demand of families on welfare
Q4) Which country has the highest per capita health care expenditures in the world?
A) Canada
B) France
C) United States
D) Japan
Page 33
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Chapter 31: Environmental Economics
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Q1) When social and private costs differ, economists state that
A) there will be economic profit in the society.
B) the society will produce inside the production possibilities frontier.
C) there is an externality.
D) there is not an efficiency problem but an equity problem.
Q2) The optimal quantity of pollution in the above figure
A) is defined as the level where the marginal benefit is at a maximum.
B) is where the optimal degree of air cleanliness is 100 percent.
C) is the level of pollution at which the marginal benefit equals the marginal cost.
D) cannot be determined.
Q3) When social costs for using a scarce resource are included, then there is
A) a decrease in the production of the good.
B) a negative externality.
C) a decrease in the price of the good.
D) a positive externality.
Q4) Explain how the optimal quantity of air pollution is determined.
Q5) "Creating a free market for carbon-dioxide emission permits would only encourage firms to pollute more." Do you agree or disagree? Why?
Q6) What is an externality?
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Chapter 32: Comparative Advantage and the Open Economy
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Q1) Using the data in the above table, and assuming constant opportunity costs, it is likely that
A) the United States will import food.
B) Mexico will export cloth.
C) the United States will export both cloth and food.
D) Mexico will export both cloth and food.
Q2) Comparative advantage is defined as
A) the ability to produce more output of one good relative to another good than another country can.
B) the ability to produce more output from given inputs of resources than others can.
C) the ability to use more input of resources than others can.
D) having a lower average fixed cost in the production of a good than does someone else.
Q3) Refer to the above table. It may be concluded that
A) The United States will exports computers and import bicycles.
B) Mexico will exports computers and import bicycles.
C) The United States will export both goods.
D) The United States will import both goods.
Q4) How can comparative advantage yield gains from trade?
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Chapter 33: Exchange Rates and the Balance of Payments
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Q1) If the United States looks more economically and politically stable relative to the rest of the world, this will
A) decrease the demand for dollars.
B) increase the demand for dollars.
C) have no effect on the demand for dollars.
D) stop all trading between the currencies of the United States and other countries.
Q2) Which of the following is an example of a surplus item on the balance of payments?
A) Private gifts to foreign residents
B) Public gifts to foreign residents
C) Interest receipts from foreign residents
D) Purchases of gold from foreign residents
Q3) Refer to the above table. Nation "A" has a current account
A) deficit of 15.
B) surplus of 15.
C) deficit of 60.
D) surplus of 60.
Q4) Why does the supply curve of Japanese yen slope up?
Q5) In foreign exchange markets, who demands dollars and who supplies dollars?
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