1. Which of the following statements is correct?
A. In a perfectly competitive market, changes in demand cause short-term changes in
price, and no changes in quantity supplied to the market.
B. In a perfectly competitive market, changes in demand cause no long-term changes in
price, and permanent changes in quantity supplied to the market.
C. In a perfectly competitive market, changes in demand cause no changes in price, and
long-term changes in quantity supplied to the market.
D. In a perfectly competitive market, changes in demand cause no changes in price, and permanent changes in quantity supplied to the market.

2. Which of the following statements about fixed cost is correct?
A. Fixed cost is always large in the long run.
B. Fixed cost is seldom larger than variable cost.
C. Fixed cost is a short-run phenomenon.
D. Fixed cost can never exceed variable cost in a profitable firm.

3. A perfectly competitive firm realizes an average revenue of $11 and an average total cost of $10. Its marginal-cost curve crosses the marginal-revenue curve at an output level of 100 units. The current profit is $100. What is likely to occur in this market?

A. The price will go down. C. Costs will go up.
B. Firms will leave the market. D. Costs will go down.

4. Which of the following statements about marginal and average tax rates is correct?
A. Marginal tax rates are a better measure of taxpayer sacrifice.
B. Average tax rates are a better measure of tax effects on incentives.
C. Marginal tax rates are a better measure of tax effects on incentives.
D. Average tax rates

5. Which of the following would be considered a nonrival but excludable good?
A. A viewing of a movie in a crowded theater
B. An ice-cream cone
C. A visit to a noncrowded museum
D. A fish in the ocean

6. Environmentalists argue that we should protect the environment as much as possible,
regardless of the cost involved. Which of the following is one of these costs?
A. Lower levels of nutrition and inadequate health care
B. A higher standard of living, but less available housing
C. Increasing technological advancement
D. More expensive utilities, but lower taxes

7. Which of the following statements about lump-sum taxes is correct?
A. Lump-sum taxes are most frequently used to tax real property.
B. Lump-sum taxes aren't distortionary.
C. Lump-sum taxes are the most distortionary tax.
D. Lump-sum taxes are used in taxing sales.

8. One reason that markets fail to allocate common resources efficiently is that
A. prices change in irregular ways.
B. social optimum doesn't occur at market equilibrium.
C. property rights aren't well established.
D. social welfare isn't maximized at market equilibrium.

9. Imagine that Steve owns a lion whose roaring annoys Steve's neighbor Terri. Suppose that the benefit of owning the lion is worth $500 to Steve and that Terri bears a cost of $700 from the roaring. Which of the following is a possible private solution to this problem?
A. Terri pays Steve $450 to get rid of the lion.
B. Steve pays Terri $650 for her inconvenience.
C. Terri pays Steve $650 to get rid of the lion.
D. There's no private solution that will improve this situation.

10. Markets are inefficient when negative externalities are present because
A. social costs equal private costs at the private market solution.
B. social costs exceed private costs at the private market solution.
C. private benefits exceed social costs at the private market solution.
D. externalities prevent the market from reaching equilibrium.