Test Bank y y
Principles of Microeco y y
nomics FOURTH EDITION y y y
N. Gregory Mankiw
y y y
Harvard University y y
Prepared by y y
Daniel K.Biederman
y y
University of North Dakota
y y y y
Kenneth H.Brown y y
University of Northern Iowa
y y y y
Lisa K. Jepsen
y y y
University of Northern Iowa
y y y y
Bryce Kanago y y
University of Northern Iowa
y y y y
Ken McCormick
y y
University of Northern Iowa
y y y
TestyBankyy
PrinciplesyofyMicroeconomics,y4thyEditionyy
N.yGregoryyMankiwyy
Preparedybyy
DanielyK.yBiederman,yKennethyH.yBrown,yLisayK.yJepsen,yBryceyKanago,yandyKenyMcCormick.yy
MikeyWorlsyy
Assoc.yMarketingyCommunicationsyy
VP/EditorialyDirector:yy DevelopmentalyEditor:yy Manager:yy
JackyW.yCalhounyy JaneyTuftsyy SarahyGrebery
Editor-in-Chief:yy ContributingyEditors:yy
AlexyvonyRosenbergyy SarahyK.yDorgeryy
JenniferyE.yBakeryy
Publisher:yy
SteveyMomperyy Sr.yMarketingyManager:yy
BrianyJoyneryy COPYRIGHTy©y2007yy
Sr.yAcquisitionsyEditor:yy ThomsonySouth-
, yy
Western,yaypartyofyTheyyThomsonyCorp InternalyIllustrator:yy
oration.yThomson,ytheyyStarylogo,yandyS WilliamyLow/CobaltyIllustrationyServicesyy
outh-
Westernyareyytrademarksyusedyhereinyu ALLyRIGHTSyRESERVED.yNoypartyofy
ythisyworkycoveredybyytheycopyrightyyh
nderylicense.yy
ereonymayybeyreproducedyoryusedyinyy
PrintedyinytheyUnitedyStatesyofyAmerica anyyformyorybyyanyymeans—
yy1y2y3y4y5y09y08y07y06yy
graphic,yyelectronic,yorymechanical,yin
cludingyyphotocopying,yrecording,ytapi
ng,yWebyydistribution,yinformationystor
ISBNy0-324-31895-2yy
Sr.yProductionyProjectyManager:yy
ageyandyyretrievalysystems,yoryinyanyyo Forypermissionytoyuseymaterialyfromythis
EmilyyS.yGrossy theryymanner— textyoryproduct,ysubmityayrequestyonlin
yy
exceptyasymayybeypermittedyybyytheylic eyyatyhttp://www.thomsonrights.com.yy
ManageryofyTechnology,yEditorial:yy enseytermsyherein.yy
VickyyTrueyy AssistantyEditor:yy Forymoreyinformationyaboutyouryy
ErinyBergeryy products,ycontactyusyat:yy
TechnologyyProjectyEditor:y
DanayCowdenyy ThomsonyLearningyAcademicyResour
AncillaryyCoordinator:yy
ErinyM.yDonohoeyy ceyyCenteryy
WebyCoordinator:yy
KarenySchafferyy ArtyDirector:yy
1-800-423-0563y
MichelleyKunkleryy
Sr.yManufacturingyCoordinator:yy
SandeeyMilewskiyy ProductionyArtist:yy
PattiyHudepohly
ProductionyHouse:yy
OffCenteryConceptyHouseyy InternalyandyCoveryDesigner:yy ThomsonyHigheryEducationyy
StrattonyDesigny 5191yNatorpyBoulevardyy
Printer:y
GlobusyPrintingyy CoveryIllustration:yy Mason,yOHy45040yy
Minster,yOHyy TateyGallery,yLondon/ArtyResource,yNYyy USAy
Contents yy
PrefaceyvyyChaptery1yTenyPrinciplesyofyEconomicsy1yyChaptery2yThinkingyLikeyanyEconomist
y35yyChaptery3yInterdependenceyandytheyGainsyfromyTradey80yyChaptery4yTheyMarketyForcesy
ofySupplyyandyDemandy117yyChaptery5yElasticityyandyItsyApplicationsy169yyChaptery6ySuppl
y,yDemand,yandyGovernmentyPoliciesy217yyChaptery7yConsumers,yProducers,yandytheyEffici
encyyofyMarketsy261yyChaptery8yApplication:yTheyCostsyofyTaxationy305yyChaptery9yApplica
tion:yInternationalyTradey345yyChaptery10yExternalitiesy389yyChaptery11yPublicyGoodsyandyC
ommonyResourcesy435yyChaptery12yTheyDesignyofytheyTaxySystemy474yyChaptery13yTheyCos
tsyofyProductiony522yyChaptery14yFirmsyinyCompetitiveyMarketsy574yyChaptery15yMonopolyy
621yyChaptery16yOligopolyy674yyChaptery17yMonopolisticyCompetitiony726yyChaptery18yThe
yMarketsyforytheyFactorsyofyProductiony769yyChaptery19yEarningsyandyDiscriminationy814yyC
haptery20yIncomeyInequalityyandyPovertyy858yyChaptery21yTheyTheoryyofyConsumeryChoicey
898yyChaptery22yFrontiersyofyMicroeconomicsy946yyy
iiiy
Preface yy
TheyMankiwyEditorialyandyDevelopmentyteamyunderstandsythatyforytheyprinciplesyinstructor,yayhighyy
qualityyTestyBankyisyofyparamountyimportance.yGreatycareyhasybeenytakenyinythisytestybank,yayysupple
mentytoyMankiw’syPrinciplesyofyMicroeconomics,yFourthyEdition,ytoyensureythatyitynotyonlyyyincludes
yquestionsyofytheyhighest yqualityyandyconsistency,ybutyalso yisyeasyytoyuse.yy
TheyMankiwy4thyeditionyMicroeconomicsyTestyBankynowyincludesymoreythany9,000ymultiple-
, choice,yytrue/false,yandyshortyansweryquestions.yFiftyynewyquestionsyperychapteryhaveybeenyaddedyforyt
hey4thyedition.yButymoreyimportantly,yeachyandyeveryyquestionyinytheyTestyBank—oldyandynew—
hasybeenyycarefullyyreviewedyandyevaluatedyforyaccuracyyandyrelevance.yy
Thisytestybankyprovidesygreatyflexibilityytoytheyinstructor.yYouymayychooseyquestionsybyytopic,yydifficult
y,ysection,ycognitiveydomain,yorychooseywhileysimplyyviewingytheylistyofyquestions.y(Aykeyytoyyquestionyl
abelsyisyincludedybelow.)yForytheyinstructorywhoycarefullyyselectsyquestions,yweyprovideytheyyabilityytoyc
hooseyfromymanyydifferentyquestionsyonytheysameytopicyandywithytheysameylevelyofyydifficulty.yThisyvari
etyyisyidealyforyprofessorsywhoygiveycumulativeyfinalsybecauseythereyareyycomparableybutynotyidenticalyq
uestionsyonyallytheymainytopics.yy
Forytheyinstructorywhoyneedsytoygenerateymanyydifferentyexamsyinyayshortyperiodyofytime,yityisyeasyytoyyu
seytheysoftwareytoypickyayrandomysetyofyquestions.yAlso,ywithytheyMankiwytestybank,yayrandomlyyygener
atedytestywillyreflectytheyemphasisyofytheytextycontent,yallowingyyouytoyaskyquestionsyoverytheyymainypoi
ntsywithoutytheyfearyofycreatingyaytestycomposedyofytrivialyquestionsyoveryminorytopics.yy
TheyMankiwyTestyBankyteam,ycomprisedyofyeconomistsywhoyeachywriteyquestionsyinytheiryrespectiveyy
areasyofyexpertise,yhasyworkedyconscientiouslyytoycreateyaytestybankythatyreducesytheyinstructor’syyburde
nyofytestywriting.yy
NewyandyRetainedyFeaturesyy
③TheyTestybankycontainsyapproximatelyy50ynewyquestionsyperychapter,yplusyayrevisionyofymanyyofythe
yyexistingyquestions. yy
③Theynewyquestionsyareymoreyrigorousyandychallengingyandytheyvarietyyofydifficultyylevelsyhasybeen
yyincreased.yMoreyquestions yareynumerical. yy
③Allyquestionsyhaveybeenycheckedymultipleytimesyforyaccuracy.yy
③Questionsyhaveybeenycarefullyyupdatedytoyreflectychangesyinytheytext.yy
③TheyproportionyofyquestionsyacrossytopicsyrepresentsyMankiw’sycontentyemphasis
.yy③Testybankyauthorsywriteyquestionsyinytheiryareayofyexpertise.y
vy
viyYyPrefaceyy
③Questionsyareywrittenytoyavoidymakingytestsyeasyyfory“test-
smart”ystudents.yThatyis,ytheyquestionsyyhaveyrealisticyandysensibleyfoils.yy
③TheyExamView®ysoftwareyisynowymoreyuser-
friendly,yallowingyinstructorsytoyeasilyyedityquestionsyyandyaddytheiryownyquestions.yy
Codesyy
Eachytestyquestionyisycodedytoyreflectytheytypeyofyquestion,ytheylevelyofydifficulty,yandytheychapteryys
ectionythatytheyquestionytests.yTheyansweryfollowsyeachyquestion.yy
, yQuestionyTypey
yMy=ymultiple-choiceyquestionyy
yTy=ytrue/falseyy
yS y= yshortyansweryy
ySectiony
y#y=ytheychapterysectionytheyquestion yisytesting.ySection yheadings yareyinyredytypeyyandyset yi
nycapitalyletters.yy
Difficultyy
1y=ylittleyy
2y=ymoderateyy
3y=ygreateryy
TestyBankyOptionsyy
ThisytestybankyisyavailableyinyExamView®yComputerizedyTestingySoftwareyandyMicrosoftyWord®yyfiles
.yTheyExamViewysoftwareyandyWordyfilesyareyincludedyonytheyInstructor’syResourceyCD-
ROMyasyywellyasyonytheyProductySupportyWebysitey(http://mankiw.swlearning.com).y
ForyuseywithyayversionyofyMankiw’sytextbookyotherythanytheymicroconomicsysplit,ycompareytheyy“micro
”ycolumnyofytheyComparativeyTableyofyContentsybelowytoytheyversionyofytheytextyyouyareyusingyytoydeter
mineyhowychaptersyareysharedyamongytheyfiveyversionyofytheytext.yy
Acknowledgementsyy
SpecialythanksytoyKenyMcCormickyandyDavidyHakesyofytheyUniversityyofyNorthernyIowayforytheiryyr
eviewyofytheytestybankyforyaccuracyyandycompleteness.yy
Forytheiryhelpfulycommentsyprovidedyinyaysurvey,ythanksyalsoytoyJosiahyBaker,yJ.yUlyssesyBalderas,yyKin
gyBanaian,yBruceyBrown,yMargaretyChapman,yByronyChapman,yBasantayChaudhuri,yBarbarayyCraig,yS
usanneyCurrier,ySusanyDadres,yStratfordyDouglas,yDavidyEaton,yCanyErbil,yPatriciayEuzent,yyFredyFoldv
ary,yLynnyGillette,yPhilyHolleran,yJamesyHvidding,yLeoyKahane,yBrianyKench,yFionayC.yyMaclachlan,yT
homasyMakemson,yTomyMeans,yJeffreyyMichael,yPeteryOlson,yDrewyParkes,yJodiyyPelkowski,yMichaely
Pisani,yMarleneyReed,yThomasyRhoads,yRaymondyRobertson,yUdayanyRoy,yJuhay
PrefaceyYyviiyy
Seppala,yWilliamySeyfried,yJoggindaryUppal,yJohnyVolpe,yDavidyWihry,yVirginiayWilcox-
Gok,yandyySheng-PingyYang.yy
Finally,ythanksytoySherylyNelsonyandyOffCenteryConceptyHouseyforytheiryremarkableyeditingyandyyl
ayoutywork.yy
Weyhopeyyou’llyenjoyyyouryMankiwy4eyAssessmentyExperience.y
Comparative Table of Contents
y y y y
Corey Microy Macro Essentialsy Briefyy
y
Macro
y
Party1:yIntroductiony Party1y Party1y Party1y Party1y
1yTenyPrinciplesyofyEconomicsy 1y 1y 1y 1y
2yThinkingyLikeyanyEconomisty 2y 2y 2y 2y
Principles of Microeco y y
nomics FOURTH EDITION y y y
N. Gregory Mankiw
y y y
Harvard University y y
Prepared by y y
Daniel K.Biederman
y y
University of North Dakota
y y y y
Kenneth H.Brown y y
University of Northern Iowa
y y y y
Lisa K. Jepsen
y y y
University of Northern Iowa
y y y y
Bryce Kanago y y
University of Northern Iowa
y y y y
Ken McCormick
y y
University of Northern Iowa
y y y
TestyBankyy
PrinciplesyofyMicroeconomics,y4thyEditionyy
N.yGregoryyMankiwyy
Preparedybyy
DanielyK.yBiederman,yKennethyH.yBrown,yLisayK.yJepsen,yBryceyKanago,yandyKenyMcCormick.yy
MikeyWorlsyy
Assoc.yMarketingyCommunicationsyy
VP/EditorialyDirector:yy DevelopmentalyEditor:yy Manager:yy
JackyW.yCalhounyy JaneyTuftsyy SarahyGrebery
Editor-in-Chief:yy ContributingyEditors:yy
AlexyvonyRosenbergyy SarahyK.yDorgeryy
JenniferyE.yBakeryy
Publisher:yy
SteveyMomperyy Sr.yMarketingyManager:yy
BrianyJoyneryy COPYRIGHTy©y2007yy
Sr.yAcquisitionsyEditor:yy ThomsonySouth-
, yy
Western,yaypartyofyTheyyThomsonyCorp InternalyIllustrator:yy
oration.yThomson,ytheyyStarylogo,yandyS WilliamyLow/CobaltyIllustrationyServicesyy
outh-
Westernyareyytrademarksyusedyhereinyu ALLyRIGHTSyRESERVED.yNoypartyofy
ythisyworkycoveredybyytheycopyrightyyh
nderylicense.yy
ereonymayybeyreproducedyoryusedyinyy
PrintedyinytheyUnitedyStatesyofyAmerica anyyformyorybyyanyymeans—
yy1y2y3y4y5y09y08y07y06yy
graphic,yyelectronic,yorymechanical,yin
cludingyyphotocopying,yrecording,ytapi
ng,yWebyydistribution,yinformationystor
ISBNy0-324-31895-2yy
Sr.yProductionyProjectyManager:yy
ageyandyyretrievalysystems,yoryinyanyyo Forypermissionytoyuseymaterialyfromythis
EmilyyS.yGrossy theryymanner— textyoryproduct,ysubmityayrequestyonlin
yy
exceptyasymayybeypermittedyybyytheylic eyyatyhttp://www.thomsonrights.com.yy
ManageryofyTechnology,yEditorial:yy enseytermsyherein.yy
VickyyTrueyy AssistantyEditor:yy Forymoreyinformationyaboutyouryy
ErinyBergeryy products,ycontactyusyat:yy
TechnologyyProjectyEditor:y
DanayCowdenyy ThomsonyLearningyAcademicyResour
AncillaryyCoordinator:yy
ErinyM.yDonohoeyy ceyyCenteryy
WebyCoordinator:yy
KarenySchafferyy ArtyDirector:yy
1-800-423-0563y
MichelleyKunkleryy
Sr.yManufacturingyCoordinator:yy
SandeeyMilewskiyy ProductionyArtist:yy
PattiyHudepohly
ProductionyHouse:yy
OffCenteryConceptyHouseyy InternalyandyCoveryDesigner:yy ThomsonyHigheryEducationyy
StrattonyDesigny 5191yNatorpyBoulevardyy
Printer:y
GlobusyPrintingyy CoveryIllustration:yy Mason,yOHy45040yy
Minster,yOHyy TateyGallery,yLondon/ArtyResource,yNYyy USAy
Contents yy
PrefaceyvyyChaptery1yTenyPrinciplesyofyEconomicsy1yyChaptery2yThinkingyLikeyanyEconomist
y35yyChaptery3yInterdependenceyandytheyGainsyfromyTradey80yyChaptery4yTheyMarketyForcesy
ofySupplyyandyDemandy117yyChaptery5yElasticityyandyItsyApplicationsy169yyChaptery6ySuppl
y,yDemand,yandyGovernmentyPoliciesy217yyChaptery7yConsumers,yProducers,yandytheyEffici
encyyofyMarketsy261yyChaptery8yApplication:yTheyCostsyofyTaxationy305yyChaptery9yApplica
tion:yInternationalyTradey345yyChaptery10yExternalitiesy389yyChaptery11yPublicyGoodsyandyC
ommonyResourcesy435yyChaptery12yTheyDesignyofytheyTaxySystemy474yyChaptery13yTheyCos
tsyofyProductiony522yyChaptery14yFirmsyinyCompetitiveyMarketsy574yyChaptery15yMonopolyy
621yyChaptery16yOligopolyy674yyChaptery17yMonopolisticyCompetitiony726yyChaptery18yThe
yMarketsyforytheyFactorsyofyProductiony769yyChaptery19yEarningsyandyDiscriminationy814yyC
haptery20yIncomeyInequalityyandyPovertyy858yyChaptery21yTheyTheoryyofyConsumeryChoicey
898yyChaptery22yFrontiersyofyMicroeconomicsy946yyy
iiiy
Preface yy
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qualityyTestyBankyisyofyparamountyimportance.yGreatycareyhasybeenytakenyinythisytestybank,yayysupple
mentytoyMankiw’syPrinciplesyofyMicroeconomics,yFourthyEdition,ytoyensureythatyitynotyonlyyyincludes
yquestionsyofytheyhighest yqualityyandyconsistency,ybutyalso yisyeasyytoyuse.yy
TheyMankiwy4thyeditionyMicroeconomicsyTestyBankynowyincludesymoreythany9,000ymultiple-
, choice,yytrue/false,yandyshortyansweryquestions.yFiftyynewyquestionsyperychapteryhaveybeenyaddedyforyt
hey4thyedition.yButymoreyimportantly,yeachyandyeveryyquestionyinytheyTestyBank—oldyandynew—
hasybeenyycarefullyyreviewedyandyevaluatedyforyaccuracyyandyrelevance.yy
Thisytestybankyprovidesygreatyflexibilityytoytheyinstructor.yYouymayychooseyquestionsybyytopic,yydifficult
y,ysection,ycognitiveydomain,yorychooseywhileysimplyyviewingytheylistyofyquestions.y(Aykeyytoyyquestionyl
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etyyisyidealyforyprofessorsywhoygiveycumulativeyfinalsybecauseythereyareyycomparableybutynotyidenticalyq
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Forytheyinstructorywhoyneedsytoygenerateymanyydifferentyexamsyinyayshortyperiodyofytime,yityisyeasyytoyyu
seytheysoftwareytoypickyayrandomysetyofyquestions.yAlso,ywithytheyMankiwytestybank,yayrandomlyyygener
atedytestywillyreflectytheyemphasisyofytheytextycontent,yallowingyyouytoyaskyquestionsyoverytheyymainypoi
ntsywithoutytheyfearyofycreatingyaytestycomposedyofytrivialyquestionsyoveryminorytopics.yy
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areasyofyexpertise,yhasyworkedyconscientiouslyytoycreateyaytestybankythatyreducesytheyinstructor’syyburde
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NewyandyRetainedyFeaturesyy
③TheyTestybankycontainsyapproximatelyy50ynewyquestionsyperychapter,yplusyayrevisionyofymanyyofythe
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③Theynewyquestionsyareymoreyrigorousyandychallengingyandytheyvarietyyofydifficultyylevelsyhasybeen
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③Allyquestionsyhaveybeenycheckedymultipleytimesyforyaccuracy.yy
③Questionsyhaveybeenycarefullyyupdatedytoyreflectychangesyinytheytext.yy
③TheyproportionyofyquestionsyacrossytopicsyrepresentsyMankiw’sycontentyemphasis
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vy
viyYyPrefaceyy
③Questionsyareywrittenytoyavoidymakingytestsyeasyyfory“test-
smart”ystudents.yThatyis,ytheyquestionsyyhaveyrealisticyandysensibleyfoils.yy
③TheyExamView®ysoftwareyisynowymoreyuser-
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Eachytestyquestionyisycodedytoyreflectytheytypeyofyquestion,ytheylevelyofydifficulty,yandytheychapteryys
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yMy=ymultiple-choiceyquestionyy
yTy=ytrue/falseyy
yS y= yshortyansweryy
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1y=ylittleyy
2y=ymoderateyy
3y=ygreateryy
TestyBankyOptionsyy
ThisytestybankyisyavailableyinyExamView®yComputerizedyTestingySoftwareyandyMicrosoftyWord®yyfiles
.yTheyExamViewysoftwareyandyWordyfilesyareyincludedyonytheyInstructor’syResourceyCD-
ROMyasyywellyasyonytheyProductySupportyWebysitey(http://mankiw.swlearning.com).y
ForyuseywithyayversionyofyMankiw’sytextbookyotherythanytheymicroconomicsysplit,ycompareytheyy“micro
”ycolumnyofytheyComparativeyTableyofyContentsybelowytoytheyversionyofytheytextyyouyareyusingyytoydeter
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Acknowledgementsyy
SpecialythanksytoyKenyMcCormickyandyDavidyHakesyofytheyUniversityyofyNorthernyIowayforytheiryyr
eviewyofytheytestybankyforyaccuracyyandycompleteness.yy
Forytheiryhelpfulycommentsyprovidedyinyaysurvey,ythanksyalsoytoyJosiahyBaker,yJ.yUlyssesyBalderas,yyKin
gyBanaian,yBruceyBrown,yMargaretyChapman,yByronyChapman,yBasantayChaudhuri,yBarbarayyCraig,yS
usanneyCurrier,ySusanyDadres,yStratfordyDouglas,yDavidyEaton,yCanyErbil,yPatriciayEuzent,yyFredyFoldv
ary,yLynnyGillette,yPhilyHolleran,yJamesyHvidding,yLeoyKahane,yBrianyKench,yFionayC.yyMaclachlan,yT
homasyMakemson,yTomyMeans,yJeffreyyMichael,yPeteryOlson,yDrewyParkes,yJodiyyPelkowski,yMichaely
Pisani,yMarleneyReed,yThomasyRhoads,yRaymondyRobertson,yUdayanyRoy,yJuhay
PrefaceyYyviiyy
Seppala,yWilliamySeyfried,yJoggindaryUppal,yJohnyVolpe,yDavidyWihry,yVirginiayWilcox-
Gok,yandyySheng-PingyYang.yy
Finally,ythanksytoySherylyNelsonyandyOffCenteryConceptyHouseyforytheiryremarkableyeditingyandyyl
ayoutywork.yy
Weyhopeyyou’llyenjoyyyouryMankiwy4eyAssessmentyExperience.y
Comparative Table of Contents
y y y y
Corey Microy Macro Essentialsy Briefyy
y
Macro
y
Party1:yIntroductiony Party1y Party1y Party1y Party1y
1yTenyPrinciplesyofyEconomicsy 1y 1y 1y 1y
2yThinkingyLikeyanyEconomisty 2y 2y 2y 2y
