1.when renting a car, the rental company will sell you a waiver that releases you from any monetary liability for damage to the car from collisions. compared to other types of car insurance, these waivers seem quite expensive. a possible explanation is:

a.the moral hazard problem is more severe

b.the adverse selection problem is more severe

c.it is more expensive to repair rental cars

d.choices a and b

e.choices b and c

2.A consumer budget line shows

a.The utility that an individual would receive from consuming various combinations of two goods

b.B: the combinations of two goods that an individual is able to purchase, given prices and income

c.How income is influenced by prices of goods

d.How changes in income affect utility

e.The relationship[p between prices and income

3.Suppose there are only two goods, food and clothing, with food measured on the vertical axis. If the price of clothing changes, holding all else constant,

a. the budget line undergoes a parallel shift to the right

b. the budget line undergoes a parallel shift to the left

c. a new point of utility maximization will be reached

d. the budget line becomes flatter

e. the slope of the budget line remains constant

4.in the short run, perfectly competitive firms

a.always earn an economic profit

b.never earn an economic profit

c.always invest more in order to earn more

d.never suffer an economic loss

e.can ear an economic profit

5.in a cost industry constant, the elasticity of long-run industry supply curve equals

a.Infinity

b.1

c.0

d.The elasticity of long-run firm supply curve

6.a profit maximizing competitive firm making positive economic profits will produce in the short run up to the point at which

a.Total revenue is maximized

b.Marginal cost is maximized

c.Marginal revenue is maximized

d.Average revenue equals average total cost

e.Marginal revenue equals marginal cost

7.According to Coase theorem

a.Government intervention is necessary in order to solve an externality problem

b.An externality is a form of market failure

c.Under certain conditions, the private market will solve externality problems efficiently

d.The private market will usually solve externality problems, except when side payments are necessary

e.Negative externalities are less efficient that positive externalities.

8.Which assumption about preferences tells us that a consumer's most preferred market basket will lie on the budget line, rather than below the budget line

a.Completeness

b.Transitivity

c.More is better

d.Diminishing marginal rate of substitution

e.None of these assumptions guarantees this

9.When negative externalities are present, the private market output level will be:

a.Too low

b.Too high

c.Socially optimal

d.At the intersection of demand and marginal social cost

e.At the point that minimizes the marginal external cost

10.The price of a good A goes up, as a result the demand for good B shifts to the left. From this we can infer that:

a.goods A and B are complements

11.John is a 55-yesr-old male smoker, about 50 pounds overweight, who has high blood sugar and drinks to excess a couple of times each month. Because of adverse selection in health insurance

a.John is less likely to buy health insurance than the average person, because the average persons policy premiums will be based on his risk, not the average risk.

b.John is more likely to buy health insurance than the average person, because his policy premiums will be based on the average risk, not his personal risk.

c.when John gets health insurance, he will be less likely to take care of himself.

d.when John gets health insurance, he will be more likely to take care of himself.

e.if John doesnt have health insurance already, he will not be able to get it.

12.How do the income and substitution effects work when the price of an inferior good decreases?

a.Both the income effect and the substitution effect cause an increase in the quantity demanded of good

b.Both the income effect and the substitution effect cause a decrease in the quantity demanded for the good

c.The income effect causes an increase in the quantity demanded and the substitution effect cases a decrease in the quantity demanded

d.The income effect causes a decrease in the quantity demanded and the substitution effect causes an increase in the quantity demanded

e.None of the above

13.A manufacturer is likely to offer warranties for its products if:

a.Consumer misuse is a likely source of failure and difficult to detect

b.Its products are of higher quality than its competitors

c.Its products are of lower quality than its competitors

d.A and C

14.When a nation begins to export a good

a.The domestic price of that good falls

b.Less of that good is produced domestically

c.The domestic producers are made better off

d.The domestic consumers are made better off

e.Both domestic and foreign consumers will purchase more of it

15.A nation should only import those goods for which it has

a.Lower opportunity cost than its trading partner

b.Zero transaction cost

c.Lower costs of production than its trading partner

d.Absolute advantage in production compared to its trading partner

16.If an individual's labor supply curve is backward bending, then:

a.The income effect associated with a higher wage is greater than the substitution effect

b.The substitution effect associated with a higher wage is greater than the income effect

c.The substitution effect associated with a higher wage encourages more leisure

d.Choices a and c

e.Choices b and c

17.Because of the free rider problem

a.Private solutions to externality problems are often needed

b.Side payments are needed in order to achieve Pareto improvements

c.Governmental solutions to externality problems are often needed

d.Side payments are needed in order to solve externality problems

e.Private solutions to externality problems are common

18.Which of the following is the best example of adverse selection?

a.A consumer buys a lawn mower that doesn't perform as advertised

b.A restaurant owner who has a fire insurance policy sets fire to the restaurant

c.Risk-adverse individuals always buy more insurance than they need

d.Less healthy people are more likely to purchase insurance

e.Only manufacturers of high-quality products choose to offer warranties.

19.Which of the following is a characteristic of a perfect competition?

a.Easy entry or exit from the market

b.A small number of buyers

c.A high degree of government regulation

d.A differentiated product

20.When a freeze in Florida increased the price of oranges in a recent year. Total revenue earned by orange producers increased. We can infer from these facts that the demand for oranges:

a.Inelastic

b. Unit elastic

c.Elastic

d.Upward sloping

e.Infinitely elastic

21.An individual consumes only two goods, X and Y. which of the following expressions represents the utility maximizing market basket?

a.MRSxy is at a maximum

b.Px/Py=money income

c.MRSxy=money income

d.MRSxy=Px/Py

e.All of the above

22.A competitive firm earning zero economic profit should

a.Exit the industry and find a more lucrative use for the resources employed.

b.Expand production to try to earn a positive profit

c.Continue doing what it is doing

d.Raise its price

e.Choice b or d

23.Under the total revenue and total cost approach to profit maximization

a.Firms equate total cost and total revenue in order to maximize profit

b.The profit-maximization output level is equivalent to the total revenue-maximizing output level

c.When total costs are minimized, profits are maximized

d.Forms choose the output level where TR-TC is the greatest

e.Total cost must always exceed total revenue in the long run

24.The substitution effect measures how

a.The quantity demanded of one good is influenced by a change in income, with prices constant

b.The quantity demanded of one good is influenced by a change in price of another good

c.Marginal utility per dollar spent is affected by income changes

d.An increase in the price of a good is effectively the same as a reduction in income

e.The quantity demanded of one good is influenced by a change in the price of that good with income constant

25.The price elasticity of the demand curve faced by a perfectly competitive firm is?

26.Mutually beneficial international trade between two countries depends on

a.Each country having an absolute advantage in the production of a different good

b.One country being worse (requiring more resources) than the other in the production of every good

c.At least one country having a zero opportunity cost in the production of at least one good

d.One country being relatively better at producing a good (which makes the other country relatively worse at it)

e.One country being relatively better at producing all goods

27.If one person's consumption of a good means that no one else can consume it

a.That good is called a pure public good

b.Production of that good creates a negative externality

c.Consumption of that good creates a positive externality

d.The good is said to be rivalrous

28.An externality is defined as

a.A revenue generated by a firm in the external market

b.A byproduct of a good or activity that affects someone not immediately involved in the transaction

c.An additional cost of consumption that is borne by a third party

d.A cost or benefit arising from price changes

e.The value of a good or service to a consumer

29.Which of the following pairs of goods a NOT complements?

a.Holey sticks and hokey pucks

b.Computer CPUs and computer monitor

c.On-campus student housing and off-campus rental apartments

d.All of the above

e.None of the above.

30.When a firm incurs losses in the short run, the most important consideration is determining whether to continue producing is whether

a.A marginal cost equals marginal revenue

b.Average total cost is at its minimum

c.Average variable cost is at its minimum

d.Revenues cover some of its fixed costs and all of its variable costs

e.Total revenue exceeds total cost

31.The change in total utility arising from a one-unit increase in consumption of a good is referred to as

a.Average utility

b.The principle of diminishing marginal utility

c.Real income

d.Marginal utility

e.Price

32.As we move downward along a demand curve for apples

a.Consumer well-being decreases

b.The marginal utility of apples decreases

c.The marginal utility of apples increases

d.Both a and b are true

e.Both a and c are true

33.Comparative advantage is determined by the ___

34.If marginal utility is negative, what must be true about total utility?

a.Total utility increases with additional consumption

b.Total utility decreases with additional consumption

c.Total utility remains constant regardless of the number of units consumed

d.Total utility equals zero

e.None of the above

35.Which of the following pairs of goods are substitutes?

a.Baseball hats and baseballs

b.Hot dogs and mustard

c.Computer hardware and software

d.Gasoline and motor oil

e.Owner-occupied housing and rental housing

36.A utility maximizing consumer will choose a collection of goods

37.According to the law of diminishing marginal utility as the consumption of a particular good increases

a.Total utility decreases

b.Marginal utility decreases

c.Both a and b