Question

1. According to economic theory, the efficient amount of pollution in the economy is the point at which:

a. All your enemies have been vanquished by the amount of pollution you have produced

b. The marginal benefit of reducing pollution further is zero

c. The total benefits of eliminating pollution are equal to the total costs of eliminating pollution

d. The marginal benefits of reducing pollution further are equal to the marginal costs of reducing pollution further

e. There is no pollution in the economy

2. According to our discussion of positive and normative statements in Economics, which of the following would be considered a positive statement?

a. The percentage of income earned by the top 1% of earners in the U.S. has been increasing over time

b. The amount of money earned by those in the bottom and middle of the U.S. income distribution should be higher

c. Reducing the level of economic inequality should be one of the main goals of policymakers in the U.S.

d. None of the above are positive statements

e. All of the above (a, b, and c) are positive statements

3. If the government decides to increase the monetary amount of disability insurance payments to those that have been permanently disabled, it will make life easier for those who have been disabled. According to our discussion in class, the fact that it could cause some individuals to falsely claim to be disabled would be considered:

a. A direct response to an incentive

b. An indirect response to an incentive

c. A normative response to an incentive

d. An opportunity cost

e. A marginal cost

4. Which of the following best describes the idea of an opportunity cost?

a. The marginal cost of a decision

b. The total cost of a decision

c. The total value of all alternative options not taken when a decision is made

d. The value of the best alternative option not taken when a decision is made

5. Which of the following would cause the supply curve to shift to the left in the market for Hot Pockets?

a. A decrease in the price of Hot Pockets

b. An decrease in consumer income in the area

c. An increase in the wages of workers in the production facilities where Hot Pockets are produced

d. A decrease in the price of the “meat” used to produce Hot Pockets

e. Any of the above would shift the supply curve to the left  

6. Holding everything else constant, an increase in the price of a good leads to

a. A leftward shift of the demand curve

b. A rightward shift of the demand curve

c. A movement to the left along a given demand curve

d. A movement to the right along a given demand curve

7. Suppose a market is in equilibrium. Then a change occurs and the equilibrium price increases while the equilibrium quantity decreases. What change occurred in the market to cause these changes to price and quantity?

a. Increase in supply

b. Decrease in supply

c. Increase in demand

d. Decrease in demand

8. Suppose that when the price of a good is $6 the quantity demanded in the market is 22, and when the price is $8, the quantity demanded in the market is 21. If we use this information to create a linear demand equation, what will that equation be?

a. P = 50 – 2 Q

b. P = 17 – ½ Q

c. P = -38 + 2 Q

d. P = -5 + ½ Q

9. Suppose that college tuition is higher this year than last year and that more students are enrolled in college this year than last year. Based on this information, we can best conclude that:

a. The law of demand is invalid

b. Despite the increase in price, enrollment increased due to some other factor(s) changing in the market

c. The demand for a college education is positively sloped

d. Everything you have ever believed in has been a lie

FOR QUESTIONS 10 and 11, USE THE FOLLOWING TABLE: Price Quantity Demanded Per Month Quantity Supplied Per Month $5 500 1200 $4 700 1000 $3 850 850 $2 1000 700 $1 1200 500

10. What is the equilibrium quantity that will be bought and sold in this market?

a. 1700

b. 1000

c. 850

d. Not enough information provided to determine

11. If the price in the market is initially set at $4, what is the result in the market, and what will eventually have to happen to move the market to equilibrium?

a. Shortage, price increase

b. Shortage, price decrease

c. Surplus, price increase

d. Surplus, price decrease

Answer 1

1. Option D. d. The marginal benefits of reducing pollution further are equal to the marginal costs of reducing pollution further

Explanation: The marginal cost of reducing pollution keeps increasing as more and more efforts are put into reducing pollution. Also, the marginal benefits of reducing pollution keep decreasing. Efficient amount of pollution takes place when the marginal cost of reducing pollution and marginal benefits of reducing pollution becomes equal. Beyond this point, the marginal benefits of reducing pollution are less than the marginal cost.

2. Answer: Option A. The percentage of income earned by the top 1% of earners in the U.S. has been increasing over time

Explanation: A positive statement states an economic fact or explains an economic phenomenon. Option A gives a statement which states an economic fact. Normative statements relate to opinions or value judgments. Option b and Option c are normative statements.