Additional Q Ch3 and Ch10

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Additional Q Ch3 and Ch10
Indicate the answer choice that best completes the statement or answers the question.
1. Abby bakes brownies and Liam grows flowers. In which of the following cases is it impossible for both Abby and Liam
to benefit from trade?
a. Abby does not like flowers and Liam does not like brownies.
b. Abby is better than Liam at baking brownies and Liam is better than Abby at growing flowers.
c. Liam is better than Abby at baking brownies and at growing flowers.
d. Both Abby and Liam can benefit from trade in all of the above cases.
2. Which of the following is NOT a way of internalizing technology spillovers?

a. subsidies
b. patent protection
c. industrial policy
d. taxes
Figure 3-23
The graph below represents the various combinations of ham and cheese (in pounds) that the nation of Bonovia could
produce in a given month.
3. Refer to Figure 3-23. In the nation of Cropitia, the opportunity cost of a pound of cheese is 1.5 pounds of ham.
Bonovia and Cropitia both can gain from trading with one another if one pound of cheese trades for
a. 1.0 pound of ham.
b. 1.4 pounds of ham.
c. 2.1 pounds of ham.
d. All of the above are correct.
Figure 10-9
Copyright Cengage Learning. Powered by Cognero. Page 1

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4. Refer to Figure 10-9, Panel (b) and Panel (c). Which of the following is correct?
a. A tax would move the market in Panel (b) and the market in Panel (c) closer to the socially optimal outcome.
b. A subsidy would move the market in Panel (b) and the market in Panel (c) closer to the socially optimal
outcome.
c. A tax would move the market in Panel (b) closer to the socially optimal outcome, but a subsidy would move
the market in Panel (c) closer to the socially optimal outcome.
d. A subsidy would move the market in Panel (b) closer to the socially optimal outcome, but a tax would move
the market in Panel (c) closer to the socially optimal outcome.
Table 3-38
Output produced in one
growing season
Corn Soybeans
Iowa 30 45
Nebraska 40 80

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5. Refer to Table 3-38. Iowa and Nebraska can both produce corn and soybeans, and can switch between the production
of corn and soybeans at a constant rate. The table illustrates the amount of corn or soybeans each state can produce in one
growing season. At which of the following prices would both Iowa and Nebraska be able to gain from trade with each
other?
a. 1 bushel of soybeans for 1.7 bushels of corn.
b. 2.5 bushels of soybeans for 1 bushel of corn,
c. 3 bushels of corn for 1 bushel of soybeans.
d. 1.8 bushels of soybeans for 1 bushel of corn.
Figure 10-8
6. Refer to Figure 10-8. If the government wanted to tax or subsidize this good to achieve the socially-optimal level of
output, it would
a. introduce a subsidy of $2 per unit.
b. impose a tax of $2 per unit.
c. introduce a subsidy of $4 per unit.
d. impose a tax of $4 per unit.
Table 3-31
Labor Hours Needed to Make 1 Pound of: Amount Produced in 40 hours
Meat Potatoes Meat Potatoes

Farmer 8 hours/pound 5 hours/pound 5 pounds 8 pounds
Rancher 4 hours/pound 10 hours/pound 10 pounds 4 pounds
7. Refer to Table 3-31. Relative to the rancher, the farmer has

a. a comparative advantage in the production of meat, because the farmer’s opportunity cost of a pound of meat
is lower than the rancher’s opportunity cost of a pound of meat.
b. a comparative advantage in the production of potatoes, because the rancher requires less time than the farmer

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to produce a pound of potatoes.

c. a comparative advantage in the production of potatoes; relative to the farmer, the rancher has a comparative
advantage in the production of meat.
d. an absolute advantage in the production of both meat and potatoes.
Figure 10-6
8. Refer to Figure 10-6. Which quantity represents the socially-optimal quantity of output in this market?
a. Q
b. Q'
c. Either Q or Q'. It is necessary to know whether the externality is positive or negative to determine the socially-
optimal quantity.
d. Some quantity between Q and Q'. The socially-optimal quantity depends on the negotiating skills of the
interested parties.
Table 3-38
Output produced in one
growing season
Corn Soybeans
Iowa 30 45
Nebraska 40 80
9. Refer to Table 3-38. Iowa and Nebraska can both produce corn and soybeans, and can switch between the production
of corn and soybeans at a constant rate. The table illustrates the amount of corn and soybeans each state can produce in
one growing season. From this table, we can conclude that Iowa should specialize in the production of
a. both goods and Nebraska should specialize in the production of neither good.
b. neither good and Iowa should specialize in the production of both goods.
c. corn and Nebraska should specialize in the production of soybeans.
d. soybeans and Nebraska should specialize in the production of corn.
Figure 3-20
Canada’s Production Possibilities Frontier Mexico’s Production Possibilities Frontier
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10. Refer to Figure 3-20. Canada’s opportunity cost of one unit of Good X is
a. 1/2 unit of Good Y and Mexico’s opportunity cost of one unit of Good X is 1/2 unit of Good Y.
b. 1/2 unit of Good Y and Mexico’s opportunity cost of one unit of Good X is 2 units of Good Y.
c. 2 units of Good Y and Mexico’s opportunity cost of one unit of Good X is 1/2 unit of Good Y.
d. 2 units of Good Y and Mexico’s opportunity cost of one unit of Good X is 2 units of Good Y.
Table 3-6
Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant
rate.
Machine Minutes
Needed to Make 1
Toothbrush Hairbrush
Zimbabwe 3 10
Portugal 5 6
11. Refer to Table 3-6. Assume that Zimbabwe and Portugal each has 180 machine minutes available. If each country
divides its time equally between the production of toothbrushes and hairbrushes, then total production is
a. 24 toothbrushes and 12 hairbrushes.
b. 48 toothbrushes and 24 hairbrushes.
c. 96 toothbrushes and 48 hairbrushes.
d. 720 toothbrushes and 1440 hairbrushes.
12. To economists, good environmental policy begins by acknowledging one of the Ten Principles of Economics:
a. Trade can make everyone better off.
b. People face trade-offs.
c. Markets are usually a good way to organize economic activity.
d. A country’s standard of living depends on its ability to produce goods and services.
13. Ty lives in an apartment building and gets a benefit from playing his stereo. Olivia, who lives next door to Ty and
often loses sleep due to the loud music coming from Ty’s stereo, bears a cost from the noise. Olivia is threatening to call

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the police to force Ty to turn down his stereo. Under which of the following conditions would Ty be able to offer Olivia
some amount of money to keep her from calling the police and to allow him to continue to play his stereo loudly?
a. The cost of the noise to Olivia must exceed the benefit of the music to Ty.
b. The benefit of the music to Ty must exceed the cost of the noise to Olivia.
c. The Coase Theorem guarantees that Olivia and Ty will always be able to come to an agreement that keeps
Olivia from calling the police regardless of the individual benefits and costs.
d. The cost of the noise to Olivia must exceed the benefit of the music to Ty by an amount greater than the
transaction costs associated with the agreement.
Table 3-11
Assume that Max and Min can switch between producing mittens and producing hats at a constant rate.
Labor Hours Needed to Make 1 Quantity Produced in 36 Hours

Mittens Hats Mittens Hats
Max 2 6 18 6
Min 2 4 18 9
14. Refer to Table 3-11. Which of the following points would not be on Max’s production possibilities frontier, based on
a 36-hour production period?
a. (18 mittens, 0 hats)
b. (12 mittens, 2 hats)
c. (6 mittens, 4 hats)
d. (2 mittens, 6 hats)
Figure 10-9

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15. Refer to Figure 10-9, Panel (c). The market equilibrium quantity is
a. Q4, which is the socially optimal quantity.
b. Q5, which is the socially optimal quantity.
c. Q4, and the socially optimal quantity is Q5.
d. Q5, and the socially optimal quantity is Q4.
16. Refer to Figure 10-9, Panel (b) and Panel (c). The installation of a scrubber in a smokestack reduces the emission of
harmful chemicals from the smokestack. Therefore, the external benefit of smokestack scrubber installation is represented
by
a. Q3 - Q2.
b. Q5 - Q4.
c. P3a - P3b.
d. P4a - P4b.
Table 3-39
Assume that Japan and Korea can switch between producing cars and producing airplanes at a constant rate.
Hours Needed to Make 1 Quantity Produced in 2400 Hours

Cars Airplanes Cars Airplanes
Japan 30 150 80 16
Korea 50 150 48 16
17. Refer to Table 3-39. Korea should specialize in the production of

a. cars and import airplanes.
b. airplanes and import cars.
c. both goods and import neither good.
d. neither good and import both goods.
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Table 10-1
The following table shows the private value, private cost, and external cost for various quantities of output in a market.
Quantity Private Value Private Cost External Cost

1 $14 $10 $2
2 13 11 2
3 12 12 2
4 11 13 2
5 10 14 2
6 9 15 2
7 8 16 2
18. Refer to Table 10-1. How large would a corrective tax need to be to move this market from the equilibrium outcome
to the socially-optimal outcome?
a. $2
b. $3
c. $9
d. $10
19. According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as
long as
a. the externalities that are present are positive, not negative.
b. government assigns property rights to the harmed party.
c. private parties can bargain with sufficiently low transaction costs.
d. businesses determine an appropriate level of production.
Figure 3-18
Bintu’s Production Possibilities Frontier Juba’s Production Possibilities Frontier
20. Refer to Figure 3-18. The opportunity cost of 1 cup for Bintu is
a. 1/8 bowl.
b. 1/4 bowl.
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c. 4 bowls.
d. 8 bowls.
21. That some firms are engaged in more than one type of business is explained, in some cases, by
a. moral injunctions such as the Golden Rule.
b. the existence of charitable organizations.
c. government regulations that discourage the internalization of externalities.
d. the fact that the internalization of externalities sometimes coincides with the self-interest of the relevant
parties.
Table 3-27
Assume that Huang and Min can switch between producing parasols and producing porcelain plates at a constant rate.

Parasol Plate Parasol Plate
Huang 2 6 18 6
Min 2 4 18 9
22. Refer to Table 3-27. At which of the following prices would both Huang and Min gain from trade with each other?
a. 15 parasols for 10 plates
b. 15 parasols for 6 plates
c. 15 parasols for 3 plates
d. Huang and Min could not both gain from trade with each other at any price.
Figure 3-14
Arturo’s Production Possibilities Frontier Dina’s Production Possibilities Frontier
23. Refer to Figure 3-14. Without trade, Arturo produced and consumed 240 tacos and 120 burritos and Dina produced
and consumed 100 tacos and 150 burritos. Then, each person agreed to specialize in the production of the good in which
they have a comparative advantage and trade 260 tacos for 156 burritos. As a result, Arturo gained
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a. 20 tacos and 24 burritos and Dina gained 40 tacos and 6 burritos.

b. 20 tacos and 36 burritos and Dina gained 160 tacos and 6 burritos.
c. 260 tacos and 144 burritos and Dina gained 140 tacos and 156 burritos.
d. 260 tacos and 156 burritos and Dina gained 260 tacos and 156 burritos.
Table 3-10
Assume that Japan and Korea can switch between producing cars and producing airplanes at a constant rate.
Hours Needed to Make 1 Quantity Produced in 2400 Hours

Car Airplane Car Airplane
Japan 30 150 80 16
Korea 50 150 48 16
24. Refer to Table 3-10. We could use the information in the table to draw a production possibilities frontier for Japan
and a second production possibilities frontier for Korea. If we were to do this, measuring airplanes along the horizontal
axis, then
a. the slope of Japan’s production possibilities frontier would be -5 and the slope of Korea’s production
possibilities frontier would be -3.
b. the slope of Japan’s production possibilities frontier would be -0.2 and the slope of Korea’s production
possibilities frontier would be -0.33.
c. the slope of Japan’s production possibilities frontier would be 0.2 and the slope of Korea’s production
possibilities frontier would be 0.33.
d. the slope of Japan’s production possibilities frontier would be 5 and the slope of Korea’s production
possibilities frontier would be 3.
This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods.
Figure 10-3
25. Refer to Figure 10-3. At the private market outcome, the equilibrium price will be

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a. P0.
b. P1.
c. P2.
d. None of the above is correct.
26. Corrective taxes are unlike most other taxes because they
a. distort incentives.
b. move the allocation of resources away from the social optimum.
c. raise revenue for the government.
d. move the allocation of resources closer to the social optimum.
Figure 10-4
27. Refer to Figure 10-4. This market is characterized by

a. government intervention.
b. a positive externality.
c. a negative externality.
d. None of the above is correct.
Table 3-11
Assume that Max and Min can switch between producing mittens and producing hats at a constant rate.

Mittens Hats Mittens Hats
Max 2 6 18 6
Min 2 4 18 9
28. Refer to Table 3-11. Which of the following points would be on Min's production possibilities frontier, based on a
36-hour production period?
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a. (3 mittens, 8 hats)
b. (8 mittens, 5 hat)
c. (10 mittens, 4 hats)
d. More than one of the above would be on Min’s production possibilities frontier.
29. With pollution permits, the supply curve for pollution rights is
a. perfectly elastic.
b. perfectly inelastic.
c. upward sloping.
d. downward sloping.
30. Goods produced abroad and sold domestically are called

a. exports.
b. imports.
c. exchange rates.
d. opportunity costs.

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Answer Key
1. a
2. d
3. b
4. c
5. d
6. c
7. c
8. b
9. c
10. c
11. b
12. b
13. b
14. d
15. c
16. d
17. b
18. a
19. c
20. b
21. d
22. b
23. a
24. a
25. b
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26. d
27. c
28. d
29. b
30. b

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