1. When private ownership rights are well-defined and enforced, owners

a. can ignore the wishes of others, without bearing the cost.

b. have little incentive to take care of things.

c. can do anything they want with their property.

d. can be held accountable for damage to others through misuse of their property.

2. Criteria for rationing goods and resources must be established because of

a. the law of comparative advantage.

b. the use of capitalism as a form of economic organization.

c. the inability of politicians to develop efficient forms of economic organization.

d. scarcity imposed by nature.

3. When we say the cost of production is $50, what is meant according to economic principles?

a. A firm had to spend $50 in order to purchase the resources required to make the good or service.

b. A value to society of this good or service was $50, so its cost is said to be $50.

c. A firm could have made something else with the resources that was worth $50 in the market.

d. $50 represents the maximum willingness to pay from market participants.

4. For markets to be efficient in production, what must be true?

e. All profitable opportunities must be exhausted

f. No firm is doing something where MC>MB

g. All of the above

h. None of the aboveUse the production possibilities data below for Honduras and Nicaragua to answer the following question(s).

5. Refer to Table 2-2. Which of the following is correct?
a. Honduras has the comparative advantage in both goods.
b. Nicaragua has the comparative advantage in oranges.
c. Honduras has the comparative advantage in oranges.
d. It would be impossible for Honduras and Nicaragua to gain from trade.

6 . Which of the following would most likely cause the production possibilities curve for breadfruit and fish to shift outward from AA to BB in Figure 2-2?

a. a decrease in the labor force of the country
b. a sudden change in consumer preferences for more fish and less breadfruit
c. a major technological advance
d. a decrease in the capital stock

7. Refer to Figure 2-10. A movement from point C to point D could be caused by
a. unemployment.
b. a decrease in society's preference for bananas.
c. fewer resources available for production of bananas.
d. All of the above are correct.

8. Which of the following results in more elastic demand?

a. Fewer substitutes

b. Less time in which to respond to a price spike

c. A higher proportion of income spent on the good

d. Good considered a luxury good rather than a necessity

9. Two points on a demand curve are P=60,Q=10 and P=30,Q=30. What is the elasticity of

demand?

i. Elastic

j. Inelastic

k. Unit Elastic

l. Need more information

10. What good would have a more inelastic supply in the short run?

a. Housing

b. Toothpick

11. If the price of gasoline increases and we observe that demanders purchase less gasoline,

then we would say that

a. Demand decreased

b. Quantity demanded decreased

c. Supply decreased

12. If the price of substitute increased the result would be __________ prices, and we would

say__________

a. an increase in prices, quantity demanded increased

b. an increase in prices, demand increased

c. a decrease in prices, demand decreased

d. a decrease in prices, supply increased

13. Select the scenarios that result in lower prices if they were to occur in isolation?

a. Higher technology, fall in the price of a substitute, decrease in the price of a

complement

b. Higher productivity, lower taxes on corporations, lower expected future prices

c. Higher income for inferior goods, higher subsidies for firms, increase in tastes and

preferences

d. Lower costs of production, fall in the price of substitute, reduction in consumer

subsidies

14. Which of the following is an indication that resources are allocated efficiently in an

industry?

a. High profits

b. Long lines

c. Qs = Qd

d. Consumer surplus = producer surplus

15. When lanlords are prevented from charging market rates, which of the following is a

predictable consequence?

a. Deterioration of the quality of housing over time

b. Lower prices in the black market

c. The future supply of rental units will increase

d. Rents in neighboring cities without rent controls will fall

16. Demand elasticity tends to be larger in the long run than in the short run. We would expect that shortages caused by price ceilings to be ________________ in the short run than in the long run.

a. Larger

b. Smaller

17. A new tax is placed on a good that results in the equilibrium price rising from $5 to $6. Sellers receive $3.50 after paying the tax. The market quantity shrinks from 12 billion units to 10 billion units. Which side of the market bears more burden of the tax?

a. Buyers

b. Sellers

18. In the question above, the effect of the tax on the quantity sold would have been larger if the tax was placed on the buyer instead of the seller.

a. True

b. False

19. If a government wants to tax a good so that there is maximum revenue generated and the least dead weight loss, it should tax a good with relatively _______________ demand and it should tax ___________ side of the market to achieve the most efficient results.

a. Inelastic, the demand

b. Inelastic, either

c. Elastic, the demand

d. Elastic, the supply

20. When a negative externality is present in a market

a. Marginal social cost is greater than marginal social benefit

b. Marginal social cost is less than marginal social benefit

c. The market will push prices up to the efficient level

d. There is too little produced from an efficiency standpoint

21. What is the main reason why a tiger is near extinction but chickens are nowhere near extinction?

a. Chickens are a source of food and tigers are not

b. Tigers are larger and require more resources to keep alive

c. Tigers and tiger habitat are non-excludable but chickens and chicken habitat are excludable

d. Consuming chickens is non-rival but consuming tigers is not

22. Consumers can make costly mistakes when not enough information is available. Which of the following represents a market solution to obtaining costly information?

a. Franchises

b. Advertising

c. Third party verification

d. All of the above

23. Comic villans have many tasks to perform. Suppose Soloman Grundy can smash 10 buildings per hour and destroy 20 planes per hour. Lex Luthor can smash 20 buildings per hour and destroy 20 planes per hour. If Soloman Grundy and Lex Luthor team up, who should specialize in smashing buildings?

a. Soloman Grundy

b. Lex Luthor

24. In the previous example, what is the opportunity cost of smashing a building for Soloman Grundy?

a. 1.2 plane

b. 2 planes

c. 1/2 building

d. 2 buildings

25. An efficient provision of public goods is difficult for the market to achieve because

m. the presence of free-riders

n. lack of enough information

o. lack of competition for public goods

p. externalities associated with public goods