20. A disadvantage of a foating exchange rate is that
(A) trade may worsen due to a nation's depreciation of its currency.
(B) tariffs cease to be effective.
(C) exports decrease.
(D) imports decrease.

1. When a country allows trade and becomes an exporter of a good, (A) everyone in the country benefits. (B) everyone in the country loses. (C) the gains of the winners exceed the losses of the losers. (D) the losses of the losers exceed the gains of the winners.

2. Inefficiency in monopolistically competitive markets can be identified with (A) their similarities to perfectly competitive markets. (B) not having the ideal number of firms in the industry. (C) a first-best equilibrium, where price is equal to marginal cost. (D) government programs that effectively regulate price.

3. When a farmer is making a long-run decision of whether or not to exit an industry, the cost of land (A) will be considered as part of the farm's fixed cost. (B) is treated differently than the cost of machinery. (C) is not considered a sunk cost. (D) is irrelevant to the strategic decision.

4. Economists compute the price elasticity of demand as (A) the percentage change in the price divided by the percentage change in quantity demand. (B) the percentage change in the quantity demanded divided by the percentage change in price. (C) the change in quantity demanded divided by the change in the price. (D) the percentage change in the quantity demanded divided by the percentage change in income.

5. Suppose you like banana cream pie made with vanilla pudding. Assuming all other things are constant, you notice that the price of bananas is higher. How would your demand for vanilla pudding be affected by this? (A) It would decrease. (B) It would increase. (C) It would be unaffected. (D) There is insuffcient information given to answer the question.

6. Jack's Hotdogs is a small street vendor business. The owner is trying to get a better under- standing of his costs by categorizing thern as fixed or variable. Which of the following costs are most likely to be considered fixed costs? (A)the cost of ketchup (B) the cost of hotdog buns (C) wages paid to workers who sell hot dogs (D) the cost of bookkeeping services

7. After watching a movie, Alan chooses not to watch a second and goes for a walk instead. Economists could explain his choices using the concept of (A) budget constraints. (B) diminishing marginal utility. (C) income effect. (D) substitution effect.

8. The tragedy of the commons is the (A) undersupply of a public good due to people not wanting to pay for a publicly common good. (B) disappearance of certain markets due to the lack of willingness to pay by individuals, leading to collective misfortune. (C) depletion of a common resource due to individually rational but collectively inefficient over- consumption. (D) notion that common resources are generally under consumed and therefore not produced by suppliers due to artificially low demand.

9. The more firms there are in a market, the (A) larger will be the price efiect of one firm's output decision. (B) smaller will be the price effect of one frm's output decision. (C) more collusion is likely to happen. (D) price effect must outweight the output effect.

10. Ethan enjoys buying books and going to the movies. He has income of $150 to spend on these two goods each month. The price of a book is S15 and the price of going to the movies is also 815. He currently consumes four books and six movies a month. If the price of a book increases to $20, then, (A) the substitution and income effects would both predict Ethan would consume more of both goods. goods. (B) the substitution and income effects would both predict Ethan would consume less of both (C) the substitution effect would predict Ethan would consume more books and less movies, and the income effect would predict he would consume less of both. (D) the substitution effect would predict Ethan would consume less books and more movies and the income effect would predict he would consume less of both.

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