1. A politician was recently quoted as saying, "Our country can only reach full employment by raising the minimum wage, which would cause the demand for products to increase . . . and eventually cause production to expand." His analysis overlooks the fact that

         a.    minimum wage legislation increases costs of production (and thus product prices) and creates an excess supply (unemployment) of unskilled labor.

         b.    automation is the prime cause of unemployment.

         c.    full employment can only be reached by increasing the minimum wage substantially.

         d.    minimum wage legislation may increase the employment of low-skilled workers, but this will be offset by an equal reduction in the employment of skilled workers.

2. If the government wants to generate large revenues from placing a tax on the consumption of a particular good, it should choose a good for which

         a.    the demand is price elastic

         b.    the demand is unitary elastic

         c.    the demand is price inelastic

         d.    there are many good substitutes available for the good

3. Many economists believe a general sales tax (particularly on items such as food) takes a larger proportion of income from low-income households than from high-income households. If this is true, a general sales tax is a

         a.    regressive tax.

         b.    proportional tax.

         c.    neutral tax.

         d.    progressive tax.

4. A progressive tax is defined as a tax for which the

         a.    average tax rate rises as income increases.

         b.    average tax rate falls as income increases.

         c.    average tax rate remains constant at all levels of income.

         d.    dollar tax liability of those with higher income is more than the dollar tax liability of those with lower income.

5. According to the shortsightedness effect, politicians tend to favor projects with

         a.    short-run benefits and short-run costs.

         b.   short-run benefits and long-run costs.

         c.   long-run benefits and short-run costs.

         d.   long-run benefits and long-run costs.

6. A college has found that during every home football game, a group of students sits on a hillside next to the stadium and watches the game without purchasing tickets. In economics, the problem that this college is facing is referred to as a

   a.    common good problem.

   b.    free rider problem.

   c.    onlooker problem.

   d.    deadweight loss problem.

7. Markets fail when externalities are present

   a.    because all of the costs and benefits of producing a good are reflected in the market price.

   b.    because some of the costs and benefits of producing a good are not reflected in the market price

   c.    only if they are negative; positive externalities are not market failures.

   d.    because profits are not maximized.

8. If a group of sellers that can restrict entry into a market, they will often be able to enlarge their total profit by

         a.    raising price and reducing output.

         b.    raising price and expanding output.

         c.    lowering price and expanding output.

         d.    raising price and leaving output unchanged.