29. Productivity is defined as the quantity of goods and services produced from each unit of labor input.

ANS: T

47. Pete receives $50 as a birthday gift. In deciding how to spend the money, he narrows his options down to four
choices: Option A, Option B, Option C, and Option D. Each option costs $50. Finally he decides on Option B.
The opportunity cost of this decision is
a. the value to Pete of the option he would have chosen had Option B not been available.
b. the value to Pete of Options A, C and D combined.
c. $50.
d. $100.
55. People are willing to pay more for a diamond than for a bottle of water because
a. the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of
water.
b the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
.
c. producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have
to manipulate water prices.
d water prices are held artificially low by governments, since water is necessary for life.
.
76. People are likely to respond to a policy change
a. only if they think the policy is a good one.
b. only if the policy change changes the costs of their behavior.
c. only if the policy change changes the benefits of their behavior.
d. if the policy changes either the costs or benefits of their
behavior.
24. Prior to the collapse of communism, communist countries worked on the premise that economic well-being
could be best attained by
a. a market economy.
b a strong reliance on prices and individuals’ self-interests.
.
c. a system of large privately-owned firms.
d the actions of government central planners.
.
45. Prices usually reflect
a. only the value of a good to society.
b only the cost to society of making a good.
.
c. both the value of a good to society and the cost to society of making the good.
d neither the value of a good to society nor the cost to society of making the good.
.
46. Prices direct economic activity in a market economy by
a. influencing the actions of buyers and sellers.
b reducing scarcity of the goods and services produced.
.
c. eliminating the need for government intervention.
d allocating goods and services in the most equitable way.
.
55. Public policies
a. may be able to improve either economic efficiency or equality.
b may be able to improve economic efficiency but cannot improve equality.
.
c. may be able to improve equality but cannot improve economic efficiency.
d cannot improve either equality or economic efficiency.
.
5. Productivity is defined as the
a. amount of goods and services produced from each unit of labor input.
 b. number of workers required to produce a given amount of goods and
services.
c. amount of labor that can be saved by replacing workers with machines.
d. actual amount of effort workers put into an hour of working time.
34. President Gerald Ford referred to inflation as
a. a blight on our nation's economy.
b. a necessary evil to combat high unemployment.
c. public enemy number one.
d. a fly in the ointment.
51.Points inside the production possibilities frontier represent feasible levels of production.
ANS:T
52.Points outside the production possibilities frontier represent infeasible levels of production.
ANS:T

57.Points on the production possibilities frontier represent efficient levels of production.

ANS:T
58.Points inside the production possibilities frontier represent inefficient levels of production.
ANS:T
75.Production possibilities frontiers can be used to illustrate scarcity, trade-offs, opportunity cost, efficiency,
unemployment, technological advances, and economic growth.
ANS:T
84.Positive statements are descriptive, while normative statements are prescriptive.
ANS:T
85.Positive statements can be evaluated using data alone, but normative statements cannot.
ANS:T
114.Production is efficient if the economy is producing at a point
a. on the production possibilities frontier.
b outside the production possibilities frontier.
c. on or inside the production possibilities frontier.
d inside the production possibilities frontier.
131.Production possibilities frontiers are usually bowed outward. This is because
a. the more resources a society uses to produce one good, the fewer resources it has available to
produce another good.
b it reflects the fact that the opportunity cost of producing a good decreases as more and more of
. that good is produced.
c. of the effects of technological change.
d resources are specialized; that is, some are better at producing particular goods rather than other
. goods.
6.Positive statements are
a. prescriptive.
b claims about how the world should be.
c. claims about how the world is.
d made by economists speaking as policy advisers.
8.Positive statements are not
a. descriptive.
b prescriptive.
c. claims about how the world is.
d made by economists speaking as scientists.
2.President Ronald Reagan once joked that a Trivial Pursuit game designed for economists would
a. have no questions but hundreds of answers.
b have 100 questions and 3,000 answers.
c. have 1,000 questions but no answers.
d never produce a winner.
14.Policies such as rent control and trade barriers persist
a. because economists are about evenly divided as to the merits of those policies.
b because almost all economists agree that those policies have no discernible economic effects.
c. because almost all economists agree that those policies are desirable.
d despite the fact that almost all economists agree that those policies are undesirable.
 31.“Prices rise when the quantity of money rises rapidly” is an example of a

a. negative economic statement.

B positive economic statement.
c. normative economic statement.
d statement that contradicts one of the basic principles of economics.
119. Pens are normal goods. What will happen to the equilibrium price of pens if the price of pencils
rises, consumers experience an increase in income, writing in ink becomes fashionable, people expect the
price of pens to rise in the near future, the population increases, fewer firms manufacture pens, and the
wages of pen-makers increase?
a. Price will rise.
b Price will fall.
c. Price will stay exactly the same.
d The price change will be ambiguous.
1. Prices allocate a market economy’s scarce resources.
ANS: T
37. Public service announcements, mandatory health warnings on cigarette packages, and the
prohibition of cigarette advertising on television are all policies aimed at shifting the demand curve for
cigarettes to the right.
ANS: F

42. Price cannot fall so low that some sellers choose to supply a quantity of zero.
ANS: F

70. Price will rise to eliminate a surplus.

ANS: F

76. Price will rise to eliminate a shortage.

ANS: T

63. Pizza is a normal good if

a. the demand for pizza rises when income rises.
b the demand for pizza rises when the price of pizza falls.
c. the demand curve for pizza slopes downward.
d the demand curve for pizza shifts to the right when the price of burritos rises, assuming pizza and
burritos are substitutes.
19. Price elasticity of demand along a linear, downward-sloping demand curve increases as price falls.
ANS: F

42. Price elasticity of supply measures how much the quantity supplied responds to changes in the price.
ANS: T

CHAPTER 6

4. Price controls are usually enacted when policymakers believe that the market price of a good or service is
unfair to buyers or sellers.
ANS: T
5. Price controls can generate inequities.
ANS: T
6. Policymakers use taxes to raise revenue for public purposes and to influence market outcomes.
ANS: T

22. Price ceilings are typically imposed to benefit buyers.

ANS: T
28. Price is the rationing mechanism in a free, competitive market.
ANS: T
29. Prices are inefficient rationing devices.
ANS: F

57. Price floors are typically imposed to benefit buyers.

ANS: F

90. Price controls often hurt those they are trying to help.
ANS: T

4. Price controls are usually enacted

a.as a means of raising revenue for public purposes.
b when policymakers believe that the market price of a good or service is unfair to buyers or sellers.
c.when policymakers detect inefficiencies in a market.
d All of the above are correct.
6. Price controls
a. always produce a fair outcome.
b always produce an efficient outcome.
c. can generate inequities of their own.
d Both (a) and (b) are correct.
7. Policymakers use taxes
a. to raise revenue for public purposes, but not to influence market outcomes.
b both to raise revenue for public purposes and to influence market outcomes.
c. when they realize that price controls alone are insufficient to correct market inequities.
d only in those markets in which the burden of the tax falls clearly on the sellers.
104. Price ceilings and price floors that are binding
a. are desirable because they make markets more efficient and more fair.
b cause surpluses and shortages to persist since price cannot adjust to the market equilibrium price.
c. can have the effect of restoring a market to equilibrium.
d are imposed because they can make the poor in the economy better off without causing adverse
effects.
CHAPTER 7
6. Producer surplus is
a. measured using the demand curve for a good.
b always a negative number for sellers in a competitive market.
c. the amount a seller is paid minus the cost of production.
d the opportunity cost of production minus the cost of producing goods that go unsold.
7. Producer surplus measures the
a. benefits to sellers of participating in a market.
b costs to sellers of participating in a market.
c. price that buyers are willing to pay for sellers’ output of a good or service.
d benefit to sellers of producing a greater quantity of a good or service than buyers demand.
66. Producer surplus equals
a. Value to buyers - Amount paid by buyers.
b Amount received by sellers - Costs of sellers.
c. Value to buyers - Costs of sellers.
d Value to buyers - Amount paid by buyers + Amount received by sellers - Costs of sellers.
67. 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.
68. Producer surplus is the area
a. under the supply curve.
b between the supply and demand curves.
c. below the price and above the supply curve.
d under the demand curve and above the price.
69. Producer surplus is
a. represented on a graph by the area below the demand curve and above the supply curve.
b the amount a seller is paid minus the cost of production.
c. also referred to as excess supply.
d All of the above are correct.
70. Producer surplus directly measures
a. the well-being of society as a whole.
b the well-being of buyers and sellers.
c. the well-being of sellers.
d sellers’ willingness to sell.
71. Producer surplus directly measures
a. the well-being of sellers.
b production costs.
c. excess demand.
d unsold inventories.
4. Producer 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.
104. PlayStations and PlaySation games are complementary goods. A technological advance in the production
of PlayStations will
a. increase consumer surplus in the market for PlayStations and decrease producer surplus in the
market for PlayStation games.
b increase consumer surplus in the market for PlayStations and increase producer surplus in the
. market for PlayStation games.
c. decrease consumer surplus in the market for PlayStations and increase producer surplus in the
market for PlayStation games.
d decrease consumer surplus in the market for PlayStations and decrease producer surplus in the
. market for PlayStation games.
20. Producer surplus is the amount a seller is paid minus the cost of production.
ANS: T
21. Producer surplus is the cost of production minus the amount a seller is paid.
ANS: F

35. Producing a soccer ball costs Jake $5. He sells it to Darby for $35. Darby values the soccer ball at $50.
For this transaction, the total surplus in the market is $40.
ANS: F

CHAPTER 13

2. Profit equals marginal revenue minus marginal cost.

ANS: F
3. Profit equals total revenue minus total cost.
ANS: T
12. Profit is defined as
a. net revenue minus depreciation.
b total revenue minus total cost.
c. average revenue minus average total cost.
d marginal revenue minus marginal cost.

13. Profit is defined as total revenue

a. plus total cost.
b times total cost.
c. minus total cost.
d divided by total cost.
CHAPTER 21

93. Pepsi and pizza are normal goods. When the price of pizza falls, the substitution effect causes a
a. shift to a lower indifference curve and the consumer buys less Pepsi.
b shift to a higher indifference curve and the consumer buys more Pepsi.
c. movement along the indifference curve and the consumer buys more Pepsi.
d movement along the indifference curve and the consumer buys less Pepsi.
95. Pepsi and pizza are normal goods. When the price of pizza rises, the substitution effect causes Pepsi to be
relatively
a. more expensive, so the consumer buys more Pepsi.
b more expensive, so the consumer buys less Pepsi.
c. less expensive, so the consumer buys more Pepsi.
d less expensive, so the consumer buys less Pepsi.
CHAPTER 14
57. Profit-maximizing firms in a competitive market produce an output level where
a. marginal cost equals marginal revenue.
b marginal cost equals average total cost.
c. marginal revenue is increasing.
d price is less than marginal revenue.
60. Profit-maximizing firms enter a competitive market when existing firms in that market have
a. total revenues that exceed fixed costs.
b total revenues that exceed total variable costs.
c. average total costs that exceed average revenue.
d average total costs less than market price.
2. Profit maximizing firms in competitive industries with free entry and exit face a price equal to the lowest
possible
a. marginal cost of production.
b fixed cost of production.
c. total cost of production.
d average total cost of production.

CHAPTER 15
7 Price discrimination requires the firm to
a separate customers according to their willingness to pay
b differentiate between different units of its product
c engage in arbitrage
d use coupons
1 Price discrimination
a is illegal in the United States and Europe
b can occur in both perfectly competitive and monopoly markets
c is illogical because it does not maximize profits
d can maximize profits if the seller can prevent the resale of goods between customers

2 Price discrimination is the business practice of

a bundling related products to increase total sales
b selling the same good at different prices to different customers
c pricing above marginal cost
d hiring marketing experts to increase consumers’ brand loyalty
26 Patent and copyright laws encourage
a creative activity
b research and development
c competition among firms
d Both a and b are correct
27 Patent and copyright laws encourage
a creative activity
b lower prices due to decreasing average total costs
c competition among firms
d Both a and b are correct
20 Patent and copyright laws are major sources of
 a natural monopolies
b government-created monopolies
c resource monopolies
d antitrust regulation
33 Price discrimination is prohibited by antitrust laws
ANS: F
11 Price discrimination adds to social welfare in the form of
(i) increased total surplus
(ii) reduced costs of production
(iii) increased consumer surplus

a (i) only
b (i) and (ii) only
c (i) and (iii) only
d (i), (ii), and (iii)

13 Price discrimination
a forces monopolies to charge a lower price as a result of government regulation
b is an attempt by a monopoly to prevent some customers from purchasing its product by charging a
high price
c is an attempt by a monopoly to increases its profit by selling the same good to different customers
at different prices
d increases the consumer surplus associated with a monopolistic market