1) A decrease in the price of gasoline will increase the amount of income consumers spend on gasoline because gasoline is a normal good.

• A - True
• B - False

2)In the article Jerome Powell, the Chairman of the Federal Reserve, explained that supply chains that have recently been disrupted would "clear over time... the market will clear. It just may take some time." If there is a shortage in the market for a product the market will clear when:

• A - the product is no longer scarce.
• B - the market price has risen to equal the equilibrium price.
• C - the price has increased to the level where the demand for the product is equal to the supply of the product.
• D - the equilibrium price is greater than the market price.
• E - the price of the product has risen to the level at which the amount of consumer surplus is equal to the amount of producer surplus.

3)From the article: "The merger partners said they expect the proposed deal would make annual savings of about $780 million over three years, partly from improving on-time performance and running more efficient service." A merger between Canadian Pacific Railway and. Kansas City Southern would lower costs and increase efficiency if:

• A - the merger would eliminate the possibility of collusion between the two firms.
• B - the merger would allow the merged firm to engage in perfect price discrimination.
• C - the merger would result in economies of scale.
• D - the merger would allow its customers to be free riders.
• E - the merger would result in the demand for rail freight to be perfectly inelastic.

4)Comparative advantage is used by economists to prove that international trade is a zero-sum game.

• A - True
• B - False

5)The market-clearing price for a product is the equilibrium price.

• A - True
• B - False

6)An increase in the price of gasoline will increase the amount of income consumers spend on gasoline if the demand for gasoline is inelastic.

• A - True
• B - False

7)In the article the chief executive of Summit Plastics states: "'We've been scrambling to get enough raw material,'...Summit Plastics... makes plastic sheeting for...hospital gowns... 'The costs have absolutely been passed on...We, as consumers, are feeling that crunch.'" If the price of plastic sheeting used to make hospital gowns increases and, as a result, the price of hospital gowns increases, the quantity demanded of hospital gowns will not change if:

• A - there is a shortage of hospital gowns.
• B - the supply of hospital gowns is perfectly inelastic.
• C - the demand for hospital gowns is perfectly elastic.
• D - the demand for hospital gowns is perfectly inelastic.
• E - the cross-price elasticity of demand between plastic sheeting and hospital gowns has a positive value.

8)A horizontal merger is merger between firms at different stages in the production of a product.

• A - True
• B - False

9)Which of the following arguments is made by economists who favor a free trade policy; that is, international trade among countries without tariffs or other government-imposed restrictions?

• A - Free trade allows a country to achieve full employment of its labor force.
• B - Free trade allows a country to allocate its resources more efficiently than if it places restrictions on trade.
• C - Free trade allows a country to produce outside of its production possibilities frontier.
• D - Free trade eliminates irrational consumer behavior.
• E - Free trade allows a country to benefit from autarky.

10)From the article: "...massive oil-supply cuts by large producers like Saudi Arabia have buoyed prices..." Which of the following would result from a decrease in the supply of crude oil?

• A - The price of crude oil would rise and the quantity demanded of crude oil would decrease.
• B - The price of crude oil would rise, which would cause the demand for crude oil to decrease.
• C - There would be a surplus of crude oil because the supply would be greater than the demand for crude oil.
• D - The price of crude oil would rise and the income elasticity of demand for crude oil would decrease.
• E - The government would impose a ceiling on the price of crude oil.