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 pollutec.
(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 produced. (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 produced. (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 produced.(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 produced.

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 good. (D) None of the above is correct. 

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 America. 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.

13. When a competitive firm doubles the amount of output it sells, its (A) total revenue doubles. (B) average revenue doubles. (C) marginal revenue doubles. (D) profits must increase.

14. When a restaurant stays open for lunch service even though few customers patronize the restaurant for lunch, which of the following principles is (are) best demonstrated? (i) Fixed costs are sunk in the short run. (ii) In the short run, only fixed costs are important to the decision to stay open for lunch. (iii) If revenue exceeds variable cost, the restaurant owner is making a smart decision to remain open for lunch. (A) (i) and (ii) only (B) (ii) and (iii) only (C) (i) and (iii) only (D) All are demonstrated.

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