NAME: ______________________________________________________

INSTRUCTIONS: Mark on your bubble sheet the letter of the choice that best completes the statement or answers the
question. Please clearly fill in your ID and NAME information on the bubble sheet, and be sure to mark the version of
the exam (this is VERY important). There are 40 questions on the exam (all questions carry equal weight). Please be sure
to sign your exam and hand it in with your bubble sheet (you may use the exam as scrap paper).

Table 7-3
The only four consumers in a market have the following willingness to pay for a good:

Buyer Willingness to Pay

Carlos $15
Quilana $25
Wilbur $35
Ming-la $45

1. Refer to Table 7-3. If the price is $20, then consumer surplus in the market is
a. $20, and Wilbur and Ming-la purchase the good.
b. $45, and Carlos and Quilana purchase the good.
c. $45, and Quilana, Wilbur, and Ming-la purchase the good.
d. $55, and Carlos, Wilbur, and Ming-la purchase the good.

Table 7-5
For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of
the day. Assume Alex, Barb, and Carlos are the only three buyers of oranges, and only three oranges can be
supplied per day.

First Orange Second Orange Third Orange

Allison $2.00 $1.50 $0.75
Bob $1.50 $1.00 $0.80
Charisse $0.75 $0.25 $0

2. Refer to Table 7-5. If the market price of an orange is $1.20, then the market quantity of oranges demanded per
day is
a. 4.
b. 1.
c. 2.
d. 3.
3. Refer to Table 7-5. If the market price of an orange is $0.40, then
a. 6 oranges are demanded per day, and consumer surplus amounts to $5.10.
b. 7 oranges are demanded per day, and consumer surplus amounts to $5.35.
c. 6 oranges are demanded per day, and consumer surplus amounts to $4.45.
d. 7 oranges are demanded per day, and consumer surplus amounts to $5.50.
4. Denise values a stainless steel dishwasher for her new house at $500. The actual price of the dishwasher is $650.
Denise
a. buys the dishwasher, and on her purchase she experiences a consumer surplus of $150.
b. does not buy the dishwasher, and on her purchase she experiences a consumer surplus of
$150.
 c. buys the dishwasher, and on her purchase she experiences a consumer surplus of $-150.
d. does not buy the dishwasher, and on her purchase she experiences a consumer surplus of
$0.

Figure 7-2
Price

A
P2

B
C
P1

D F

Demand
Q2 Q1 Quantity

5. Refer to Figure 7-2. When the price is P2, consumer surplus is

a. B.
b. A.
c. A+B.
d. A+B+C.
6. A supply curve can be used to measure producer surplus because it reflects
a. the actions of sellers.
b. the amount that will be purchased by consumers in the market.
c. sellers' costs.
d. quantity supplied.

Table 7-7
The following table represents the costs of five possible sellers.

Seller Cost
Abby $1,500
Bobby $1,200
Carlos $1,000
Dianne $750
Evalina $500

7. Refer to Table 7-7. Suppose each of the five sellers can supply at most one unit of the good. The market quantity
supplied is exactly 3 if the price is
a. $1,170.
b. $770.
c. $970.
d. $670.
 Figure 7-13

P
700 Supply
600

500

400

300

200

100

1 2 3 4 5 Q

8. Refer to Figure 7-13. Sellers will be unwilling to sell more than

a. 3 units of the good if its price is below $700.
b. 2 units of the good if its price is below $450.
c. 1 unit of the good if its price is below $200.
d. All of the above are correct.

Figure 7-17
Price

Supply

P2

P1

Demand
Q1 Quantity

9. Refer to Figure 7-17. Which area represents total surplus in the market when the price is P1?
a. C+D
b. B+C
c. A+B+C+D
 d. A+B

Figure 7-19
Price
P4
Supply
A
P3

B C

P2
D H

P1
F
I
G
Demand
Q1 Q2 Quantity

10. Refer to Figure 7-19. If the price were P3, consumer surplus would be represented by the area
a. A+B+C+D+H+F.
b. A.
c. A+B+C.
d. D+H+F.
11. If the United States changed its laws to allow for the legal sale of a kidney, which of the following is least likely to
occur?
a. The allocation of kidneys would be fair.
b. The shortage of kidneys would decrease.
c. The supply of kidneys would increase.
d. Many lives would be saved.
12. For good X, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical
downward-sloping straight line. A tax of $15 per unit is imposed on good X. The tax reduces the equilibrium
quantity in the market by 300 units. The deadweight loss from the tax is
a. $1,750.
b. $4,500.
c. $3,000.
d. $2,250.

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.
 Price
P4
Supply
A
P3

B C

P2
D H

P1
F
I
G
Demand
Q2 Q1 Quantity

13. Refer to Figure 8-5. After the tax is levied, consumer surplus is represented by area
a. A+B+C.
b. F.
c. D+H+F.
d. A.

Figure 8-6
The vertical distance between points A and B represents a tax in the market.
Price
22

20

18
A Supply
16

14

12

10

6
B
4
Demand
2

100 200 300 400 500 600 700 800 900 1000 Quantity

14. Refer to Figure 8-6. The tax results in a deadweight loss that amounts to
a. $1,800.
b. $1,500.
c. $600.
d. $900.

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.
 Price
24
22
20 A
18 Supply
16
B
14 C
12
10 D F
H
G
8
J
6
4 K L M Demand
2

3 6 9 12 15 18 21 24 27 30 33 36 39 Quantity

15. Refer to Figure 8-8. The tax causes consumer surplus to decrease by the area
a. A+B+C.
b. B+C.
c. A+B+C+D+F.
d. A.

Figure 8-9

The vertical distance between points A and C represent a tax in the market.

1000 Price Supply

900
A
800
700
B
600 D

500
400
300 C

200
100 Demand

10 20 30 40 50 60 70 80 90 100110 Quantity

16. Refer to Figure 8-9. The amount of tax revenue received by the government is
a. $6,000.
b. $24,000.
c. $10,000.
d. $4,000.
17. Suppose that the government imposes a tax on dairy products. The deadweight loss from this tax will likely be
greater in the
a. fifth year after it is imposed than in the first year after it is imposed because demand and
supply will be less elastic in the first year than in the fifth year.
b. fifth year after it is imposed than in the first year after it is imposed because demand and
supply will be more elastic in the first year than in the fifth year.
c. first year after it is imposed than in the fifth year after it is imposed because demand and
supply will be less elastic in the first year than in the fifth year.
d. first year after it is imposed than in the fifth year after it is imposed because demand and
supply will be more elastic in the first year than in the fifth year.
18. Which of the following scenarios is not consistent with the Laffer curve?
a. The tax rate is moderate (between very high and very low), and tax revenue is relatively
high.
b. The tax rate is very low, and tax revenue is very low.
c. The tax rate is very high, and tax revenue is very low.
d. The tax rate is very high, and tax revenue is very high.
19. When a country allows trade and becomes an importer of a good,
a. consumer surplus increases and producer surplus decreases.
b. consumer surplus decreases and producer surplus increases.
c. consumer surplus and producer surplus both increase.
d. consumer surplus and producer surplus both decrease.

Figure 9-1

The figure illustrates the market for wool in Scotland.

 Price
75

70

65
Domestic supply
60 A

55 World
price
50 B G
D
45 H

40 F

35 C
Domestic demand
30
25

20

15

10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Quantity

20. Refer to Figure 9-1. When trade in wool is allowed, producer surplus in Scotland
a. increases by the area B + D.
b. decreases by the area G.
c. increases by the area B + D + G.
d. decreases by the area C + F.

Figure 9-3. The domestic country is China.

21. Refer to Figure 9-3. The increase in total surplus in China when trade is allowed is
a. $500.
b. $600.
c. $750.
d. $400.

Figure 9-8. On the diagram below, Q represents the quantity of cars and P represents the price of cars.

22. Refer to Figure 9-8. The country for which the figure is drawn
a. has a comparative advantage relative to other countries in the production of cars and it will
export cars.
b. has a comparative disadvantage relative to other countries in the production of cars and it
will import cars.
c. has a comparative disadvantage relative to other countries in the production of cars and it
will export cars.
d. has a comparative advantage relative to other countries in the production of cars and it will
import cars.
23. Refer to Figure 9-8. When the country for which the figure is drawn allows international trade in cars,
a. total surplus increases by the area D.
b. consumer surplus increases by the area B.
c. producer surplus decreases by the area B + D.
d. All of the above are correct.

Figure 9-9
24. Refer to Figure 9-9. Producer surplus in this market before trade is
a. C.
b. A.
c. B + C + D.
d. A + B.

Figure 9-11

25. Refer to Figure 9-11. Producer surplus plus consumer surplus in this market before trade is
a. A + B + C + D.
b. A + B.
c. B + C + D.
d. A + B + C.
26. If the United States imports televisions and the U.S. government imposes a tariff on televisions, then
a. U.S. imports of foreign televisions decrease.
 b. producer surplus in the American television market increases.
c. total surplus in the American television market decreases.
d. All of the above are correct.
27. Denmark is an importer of computer chips and adds a $5 per chip tariff to the world price of $12 per chip. Suppose
Denmark removes the tariff. Which of the following outcomes is not possible?
a. Total surplus in the Danish chip market increases.
b. More foreign-produced chips are sold in Denmark.
c. More Danish-produced chips are sold in Denmark.
d. Danish consumers of chips become better off.

Figure 10-5

28. Refer to Figure 10-5. Which price and quantity combination represents the social optimum?
a. P0 and Q1.
b. P1 and Q0.
c. P2 and Q0.
d. P2 and Q1.
29. Markets are often inefficient when negative externalities are present because
a. production externalities lead to consumption externalities.
b. externalities cannot be corrected without government regulation.
c. social costs exceed private costs at the private market solution.
d. private costs exceed social costs at the private market solution.
30. When an industry is characterized by technology spillover, what should the government do to ensure that the
market equilibrium equals the socially optimal equilibrium?
a. Impose a tax greater than the value of the technology spillover.
b. Provide a subsidy equal to the value of the technology spillover.
c. Require producers to "clean up" any spillover that results from their production process.
d. Not allow production of any product that causes a technology spillover.

Figure 10-15
31. Refer to Figure 10-15. Which graph illustrates a corrective tax?
a. neither graph
b. both graphs
c. the left graph
d. the right graph
32. The business activities of Firm A confer positive externalities on Firm B, and the business activities of Firm B
confer positive externalities on Firm A. If the two firms merged, then
a. their respective markets would move closer to the social optimum.
b. the merger would serve as an example of a misguided public policy toward externalities.
c. their respective markets would move further away from the social optimum.
d. total surplus in their respective markets would decrease.

Figure 7-15
 Price
85

80

75 Supply
70

65

60

55

50

45

40

35

30

25

20

15

10

5 Demand

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Quantity

33. Refer to Figure 7-15. If the government imposes a price floor of $60 in this market, then total surplus will be
a. lower by $45.00 than it would be without the price floor.
b. higher by $57.50 than it would be without the price floor.
c. lower by $62.50 than it would be without the price floor.
d. lower by $20.00 than it would be without the price floor.
34. Other things equal, the deadweight loss of a tax
a. increases as the size of the tax increases, but the increase in the deadweight loss is less
rapid than the increase in the size of the tax.
b. increases as the size of the tax increases, and the increase in the deadweight loss is more
rapid than the increase in the size of the tax.
c. decreases as the size of the tax increases.
d. increases as the price elasticities of demand and/or supply increase, but the deadweight
loss does not change as the size of the tax increases.

Table 10-2

The following table shows the private value, private cost, and social value for a market with a positive externality.

Quantity Private Value Private Cost Social Value

1 27 6 34
2 24 10 31
3 21 14 28
4 18 18 25
5 15 22 22
6 12 26 19
35. Refer to Table 10-2. How large would a subsidy need to be in this market to move the market from the
equilibrium level of output to the socially-optimal level of output?
a. $9
b. $5
c. $3
d. $7
36. Dick owns a dog whose barking annoys Dick's neighbor Jane. Dick receives personal benefit from owning the dog,
and Jane bears a cost of Dick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which
of the following statements is correct?
a. If Dick's benefit exceeds Jane's cost, government intervention is necessary.
b. Dick will pay to keep his dog if his benefit exceeds Jane's cost.
c. If Jane's cost exceeds Dick's benefit, Dick will pay Jane to keep his dog.
d. If Jane has the legal right to peace and quiet, no further transactions will be mutually
beneficial.

Table 11-1

Consider the town of Anywhere with only three residents, Mary, Bill, and Tricia. The three residents are trying to
determine how large, in acres, they should build the public park. The table below shows each resident’s
willingness to pay for each acre of the park.

Acres Mary Bill Tricia

1 $14 $18 $30
2 10 14 26
3 6 10 22
4 4 6 18
5 2 3 14
6 0 1 10
7 0 0 6

37. Refer to Table 11-1. Suppose the cost to build the park is $33 per acre and that the residents have agreed to split
the cost of building the park equally. If the residents decide to build a park with size equal to the number of acres
that maximizes total surplus from the park, how much total surplus will Bill receive?
a. -$2
b. $10
c. $9
d. $2
38. Suppose a human life is worth $10 million. Installing a better lighting system in the city park would reduce the risk
of someone being murdered there from 2.3 to 1.8 percent over the life of the system. The city should install the
new lighting system if its cost does not exceed
a. $500,000.
b. $50,000.
c. $230,000.
d. $180,000.
39. Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce
the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The
government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A
$200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each
ton of pollution that it eliminates before it is emitted into the air. After the two firms buy or sell pollution permits
from each other, we would expect that Firm A will emit
a. 20 more tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution
into the air.
b. 50 fewer tons of pollution into the air, and Firm B will emit 50 fewer tons of pollution into
the air.
c. 20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution
into the air.
d. 100 fewer tons of pollution into the air, and Firm B will emit 20 fewer tons of pollution
into the air.
40. When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will
a. decrease tax revenue and increase the deadweight loss.
b. increase tax revenue and increase the deadweight loss.
c. increase tax revenue and decrease the deadweight loss.
d. decrease tax revenue and decrease the deadweight loss.
NAME: ______________________________________________________
Answer Section

MULTIPLE CHOICE

1. ANS: C PTS: 1 DIF: 2 REF: 7-1

NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Applicative
2. ANS: D PTS: 1 DIF: 2 REF: 7-1
NAT: Analytic LOC: Supply and demand TOP: Market demand
MSC: Analytical
3. ANS: D PTS: 1 DIF: 3 REF: 7-1
NAT: Analytic LOC: Supply and demand TOP: Market demand | Consumer surplus
MSC: Analytical
4. ANS: D PTS: 1 DIF: 2 REF: 7-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Applicative
5. ANS: B PTS: 1 DIF: 2 REF: 7-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Applicative
6. ANS: C PTS: 1 DIF: 2 REF: 7-2
NAT: Analytic LOC: Supply and demand TOP: Producer surplus | Supply curve
MSC: Interpretive
7. ANS: A PTS: 1 DIF: 2 REF: 7-2
NAT: Analytic LOC: Supply and demand TOP: Producer surplus | Supply
MSC: Analytical
8. ANS: C PTS: 1 DIF: 2 REF: 7-2
NAT: Analytic TOP: Producer surplus MSC: Applicative
9. ANS: B PTS: 1 DIF: 2 REF: 7-3
NAT: Analytic LOC: Supply and demand TOP: Total surplus
MSC: Applicative
10. ANS: B PTS: 1 DIF: 2 REF: 7-3
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Applicative
11. ANS: A PTS: 1 DIF: 2 REF: 7-3
NAT: Analytic LOC: Supply and demand TOP: Market failure
MSC: Interpretive
12. ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Applicative
13. ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Applicative
14. ANS: B PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Applicative
15. ANS: B PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
 MSC: Interpretive
16. ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax revenue
MSC: Applicative
17. ANS: A PTS: 1 DIF: 2 REF: 8-2
NAT: Analytic LOC: Elasticity TOP: Elasticity | Tax | Deadweight loss
MSC: Applicative
18. ANS: D PTS: 1 DIF: 2 REF: 8-3
NAT: Analytic LOC: Supply and demand TOP: Laffer curve
MSC: Interpretive
19. ANS: A PTS: 1 DIF: 2 REF: 9-2
NAT: Analytic LOC: Gains from trade, specialization and trade
TOP: Imports | Consumer surplus | Producer surplus MSC: Interpretive
20. ANS: C PTS: 1 DIF: 2 REF: 9-2
NAT: Analytic LOC: Gains from trade, specialization and trade
TOP: Producer surplus MSC: Interpretive
21. ANS: A PTS: 1 DIF: 2 REF: 9-2
NAT: Analytic LOC: Gains from trade, specialization and trade
TOP: Total surplus MSC: Applicative
22. ANS: B PTS: 1 DIF: 2 REF: 9-2
NAT: Analytic LOC: Gains from trade, specialization and trade
TOP: Comparative advantage | Imports MSC: Applicative
23. ANS: A PTS: 1 DIF: 2 REF: 9-2
NAT: Analytic LOC: Gains from trade, specialization and trade
TOP: Imports | Economic welfare MSC: Applicative
24. ANS: A PTS: 1 DIF: 2 REF: 9-2
NAT: Analytic LOC: Gains from trade, specialization and trade
TOP: Producer surplus MSC: Applicative
25. ANS: D PTS: 1 DIF: 2 REF: 9-2
NAT: Analytic LOC: Gains from trade, specialization and trade
TOP: Total surplus MSC: Applicative
26. ANS: D PTS: 1 DIF: 2 REF: 9-2
NAT: Analytic LOC: Gains from trade, specialization and trade
TOP: Tariffs | Economic welfare MSC: Interpretive
27. ANS: C PTS: 1 DIF: 2 REF: 9-2
NAT: Analytic LOC: Gains from trade, specialization and trade
TOP: Tariffs MSC: Applicative
28. ANS: D PTS: 1 DIF: 2 REF: 10-1
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Negative externalities MSC: Interpretive
29. ANS: C PTS: 1 DIF: 2 REF: 10-1
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Negative externalities MSC: Analytical
30. ANS: B PTS: 1 DIF: 2 REF: 10-1
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Technology spillovers MSC: Applicative
31. ANS: C PTS: 1 DIF: 2 REF: 10-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Corrective taxes MSC: Analytical
32. ANS: A PTS: 1 DIF: 2 REF: 10-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Positive externalities | Economic welfare MSC: Interpretive
33. ANS: C PTS: 1 DIF: 3 REF: 7-3
NAT: Analytic LOC: Supply and demand TOP: Total surplus
MSC: Applicative
34. ANS: B PTS: 1 DIF: 3 REF: 8-2
NAT: Analytic LOC: Elasticity TOP: Deadweight loss
MSC: Applicative
35. ANS: D PTS: 1 DIF: 3 REF: 10-1
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Positive externalities MSC: Applicative
36. ANS: B PTS: 1 DIF: 3 REF: 10-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Coase theorem MSC: Analytical
37. ANS: C PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative
38. ANS: B PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Analytical
39. ANS: C PTS: 1 DIF: 3 REF: 10-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Tradable pollution permits MSC: Analytical
40. ANS: C PTS: 1 DIF: 2 REF: 8-3
NAT: Analytic LOC: Supply and demand TOP: Laffer curve
MSC: Applicative