1. The market allocates resources

a. efficiently.

b. to those who need them the most.

c. equitably.

d. to those who deserve them.

2 Suppose it has just been discovered that working for long periods of time at a computer terminal causes eye strain, poor posture, and stress. We would expect, ceteris paribus, that the supply curve of computer programmers would shift __________ and the wage rate paid to programmers would _________________.

a. leftward; increase

b. rightward; increase

c. leftward; decrease

d. rightward; decrease

3. Taxes are costly to those who participate in markets because

a. they transfer resources to the government from market participants.

b. alter incentives.

c. distort market outcomes.

d. all of the above.

4. Economics is concerned with how scarcity affects

a. the rich.

b. the poor.

c. the government.

d. all of the above.

5. To fully understand how taxes affect economic well-being, we must compare

a. producer surplus to deadweight loss.

b. the amount of the tax.

c. the elasticity of the demand and supply curves.

d. the reduced welfare of buyers and sellers to the revenue generated for the government.

6 Answer the question on the basis of the following information for four highway programs of increasing scope. All figures are in millions of dollars.

Program Total Cost Total Benefit

A $2 $9

B $6 $16

C $12 $21

D $20 $23

The data indicate that:

a. program D is optimal because it maximizes the total benefit.

b. the marginal cost and marginal benefit of Program C are $12 and $21, respectively.

c. the marginal cost and marginal benefit of Program A are $2 and $9, respectively.

d. there is no highway program that is economically justifiable on the basis cost-benefit analysis.

7 The following data are for a series of increasingly extensive flood-control projects;

Options Total Cost Per Year Total Benefit Per Year

Plan A = Levees $10,000 $16,000

Plan B = Small Reservoir $24,000 $36,000

Plan C = Medium Reservoir $44,000 $52,000

Plan D = Large Reservoir $72,000 $64,000

On the basis of cost-benefit analysis, government should undertake:

Plan A.

Plan B.

Plan C.

Plan D.

8 According to the marginal-cost-marginal-benefit rule:

a. only government projects (as opposed to private projects) should be assessed by comparing marginal costs and marginal benefits.

b. the optimal project size is the one for which MB exceeds MC by the greatest amount.

c. the optimal project size is the one for which MB = MC.

d. project managers should attempt to minimize both MB and MC.

9 Krystal operates a nail salon and needs to decide how many hours to stay open. The table below illustrates her marginal costs for each additional hour.

Hours of Operation Marginal Cost

1 6

2 12

3 18

4 24

5 30

6 36

7 42

Suppose that Krystal's marginal benefit of staying open per hour is $30. If she is following the marginal principle, how many hours should Krystal stay open?

a. 5 hours

b. 6 hours.

c. 4 hours.

d. 7 hours.

10 Cost-benefit analysis attempts to:

a. compare the real worth, rather than the market values, of various goods and services.

b. compare the benefits and costs associated with any economic project or activity.

c. compare the relative worth of alternative distributions of income.

d. determine whether it is better to cut government expenditures or reduce taxes.