2. Refer to Figure 1. Without trade, Braavos produced and consumed 12 bolts and 36 nails and Valyria produced and consumed 14 bolts and 24 nails. Then, each country agreed to specialize in the production of the good in which it has a comparative advantage and trade 16 bolts for 38 nails. As a result, Braavos gained
(A) 2 bolts and 2 nails and Valyria gained 2 bolts and 18 nails.
(B) 4 bolts and 2 nails and Valyria gained 2 bolts and 14 nails.
(C) 14 bolts and 38 nails and Valyria gained 16 bolts and 42 nails.
(D) 16 bolts and 38 nails and Valyria gained 16 bolts and 38 nails.

3. The discovery of a new hybrid wheat would increase the supply of wheat. As a result, wheat farmers would realize an increase in total revenue if (A) the supply of wheat is elasti(C) (B) the supply of wheat is inelasti(C) (C) the demand for wheat is inelasti(C) (D) the demand for wheat is elasti(C)

4. One economist has argued that rent control is "the best way to destroy a city, other than bombing." Why would an economist say this? (A) He fears that low rents will cause lowincome people to move into the city, reducing the quality of life for other people. (B) He fears that rent control will benefit landlords at the expense of tenants, increasing inequality in the city. (C) He fears that rent control will cause a construction boom, which will make the city crowded and more pollute(D) (D) He fears that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city.

5. Refer to Figure 2. In which market will the majority of the tax burden fall on buyers? (A) market (a) (B) market (b) (C) market (c) (D) All of the above are correct.

6. Suppose that policymakers are considering placing a tax on either of two markets. In Market A, the tax will have a significant effect on the price consumers pay, but it will not affect equilibrium quantity very much. In Market B, the same tax will have only a small effect on the price consumers pay, but it will have a large effect on the equilibrium quantity. Other factors are held constant. In which market will the tax have a larger deadweight loss? (A) Market A (B) Market B (C) The deadweight loss will be the same in both markets. (D) There is not enough information to answer the question.

7. Other things equal, the deadweight loss of a tax (A) decreases as the size of the tax increases. (B) 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. (C) 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. (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.

8. Which of the following statements is correct? (A) Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and decrease the price of the good produce(D) (B) Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produce(D) (C) Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and decrease the price of the good produce(D) (D) Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and increase the price of the good produce(D)

9. Assume that your roommate is very messy. Suppose she gets a $50 benefit from being messy but imposes a $100 cost on you. The Coase theorem would suggest that an efficient solution would be for you to (A) pay your roommate at least $50 but no more than $100 to clean up after herself. (B) pay your roommate at least $101 to clean up after herself. (C) charge your roommate at least $50 to have you clean up after her. (D) charge your roommate at least $100 but no more than $200 to keep you from complaining about the mess.

10. Some goods can be either common resources or public goods depending on (A) whether the good is rival in consumption. (B) whether the good is excludable. (C) the marginal cost of the goo(D) (D) None of the above is correct. Table 1 The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown. Amount of Tax Due | Income | Tax Schedule A | Tax Schedule B | Tax Schedule C | Tax Schedule D | | | | | | | | $50,000 | $10,000 | $20,000 | $17,500 | $15,000 | | $100,000 | $30,000 | $30,000 | $25,000 | $30,000 | | $200,000 | $80,000 | $40,000 | $30,000 | $60,000 |

11. Refer to Table 1. Which tax schedules are progressive? (A) Tax Schedule A only (B) Tax Schedule A and Tax Schedule B (C) Tax Schedule A, Tax Schedule B, and Tax Schedule C (D) All four Tax Schedules are progressive.

12. Since the 1980s, WalMart stores have appeared in almost every community in Americ(A) WalMart buys its goods in large quantities and, therefore, at cheaper prices. WalMart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at WalMart because of low prices. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that (A) consumers do not react to changing prices. (B) there are diseconomies of scale in retail sales. (C) there are economies of scale in retail sales. (D) there are diminishing returns to producing and selling retail goods.

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