Archives

Refer to the figure below. What is the price elasticity of demand when the price of rice is $6 per pound? A. 0.5 B. 0.67 C. 2 D. 3 Refer to the figure below. If this firm is a price […]

If a boxing fight is shown on pay-per-view television every Saturday at 4pm, the demand curve for each fight is given below. If viewing a fight were free to anyone who tuned in, total economic surplus would be ______. A. […]

Based on the figure, if a union contract requires that the wage workers are paid be raised from $25 to $30 per hour, the number of unemployed workers will increase by ______ workers. A. 8 B. 10 C. 17 D. […]

You are the Minister of Trade for a small island country with the following annual PPC: You are negotiating a trade agreement with a neighboring island with the following annual PPC: What’s the minimum number of fish you would be […]

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. In the long run, the equilibrium price will be _____ per gallon, and each firm’s profit-maximizing quantity will be ______ gallons per […]

Recessions in the United States typically are: A. limited to a few industries. B. limited to specific regions of the country. C. widely felt outside the United States. D. confined to the domestic economy. A group of physicians that provides […]

During Thanksgiving you participated in a pumpkin-pie eating contest. You really enjoyed the first two pies, the third one was okay, but as soon as you ate the fourth one you became ill and lost the contest. You got ______ […]

Entrepreneurs are people who: A. engage exclusively in business travel. B. entertain the workers. C. run businesses on a day-to-day basis. D. create new economic enterprises. Early settlers in the town of Dry Gulch drilled wells to pump as much […]

When consumers substitute a cheaper good for a more expensive one, the CPI will ______ the change in the cost of living. A. equal B. understate C. precisely measure D. overstate Suppose that all workers value a 1 percent reduction […]

Suppose two companies, Macrosoft and Apricot, and considering whether to develop a new product, a touch-screen t-shirt. The payoffs to each of developing a touch-screen t-shirt depend upon the actions of the other, as shown in the payoff matrix below […]

Refer to the figure below. The economy pictured in the figure has a(n) ______ gap with a short-run equilibrium indicated by point ___. A. recessionary; A B. recessionary; B C. recessionary; C D. expansionary; A The percentage change in quantity […]

The consumption function is relationship between consumption and: A. planned aggregate expenditure. B. total spending. C. investment. D. disposable income. Refer to the figure above. Assume demand remains unchanged at D1. If supply shifts from S1 to S2, then the […]

The unemployment rate for younger workers is usually ________ the unemployment rate for older workers. A. lower than B. approximately equal to C. higher than D. more predictable than A price setter is a firm that: A. attempts but fails […]

The small city of Pleasantville is considering building a public swimming pool that costs $1,000. Each resident’s marginal benefit of the swimming pool is shown below.It takes a 4/5 majority to pass any tax measure, and all residents must vote. […]

Holding other factors constant, technological progress ______ the real wage and ______ employment. A. increases; increases B. increases; decreases C. increases; does not change D. decreases; increases If planned aggregate expenditure (PAE) in an economy equals 1,000 + 0.9Y and […]

In the United States from 1960 to 2010, the largest positive contribution to national saving was from: A. the public sector. B. the government budget deficit. C. business saving. D. household saving. Refer to the figure below. This economy would […]

Economic theory assumes that a firm’s goal is to: A. earn an accounting profit. B. earn an economic profit. C. maximize its accounting profit. D. maximize its economic profit. Positive economic principles are those that: A. are always correct. B. […]

The marginal tax rate is: A. total taxes divided by total before-tax income. B. the average tax rate divided by the total tax rate. C. the amount by which taxes increase when before-tax income rises by one dollar. D. the […]

As Lynn eats more pizza, we would typically expect her marginal utility from eating pizza to: A. increase. B. decrease. C. stay the same. D. equal the price of pizza. Skill-biased technological has different effects on the marginal products of […]

Based on the theory of purchasing power parity, in the long run, currencies of countries with significant inflation will tend to: A. be flexible. B. have nominal exchange rates. C. depreciate. D. appreciate. When real output increases, planned aggregate expenditures […]

Which of the following is consistent with a political and legal framework that discourages economic growth? A. The allocation of bank credit by the government rather than by markets B. A speedy approval process for new businesses C. Agricultural prices […]

If a borrower and lender agree to an interest rate on a loan when inflation is expected to be 7% and inflation turns out to be 10% over the life of the loan, then the borrower ______ and the lender […]

Suppose that the salary range for recent college graduates with a bachelor’s degree in economics is $30,000 to $50,000, with 25 percent of jobs offering $30,000 per year, 50 percent offering $40,000 per year and 25 percent offering $50,000 per […]

A demand shock is a change in planned spending that is: A. caused by changes in output. B. caused by changes in the inflation rate. C. caused by changes in output and changes in the real interest rate. D. not […]

A game involving two players with two possible strategies is a prisoner’s dilemma if each player has a dominant strategy and: A. neither player plays their dominant strategy. B. each player’s payoff is higher when both play their dominated strategy […]

By international standards, the household saving rate of the United States: A. has not ever really been high. B. was extremely high until the 1980s. C. has always been very high. D. was low through the 1970s and 1980s, but […]

Data for an economy show that the unemployment rate is 6 percent, the participation rate is 60 percent, and 200 million people 16 years or older are not in the labor force. How many people are in the working-age population […]

The situation described in the book as “Smart for One, Dumb for All” occurs when: A. individuals, when acting rationally, benefit society as a whole. B. individuals make better decisions when acting alone than when in groups. C. individuals, when […]

Which one of the following government actions is intended to generate positive externalities? A. Taxing polluting industries B. Speed limits on the highways C. Requiring autos to meet minimum emissions regulations D. Subsidies for planting trees on hillsides For Outback […]

The marginal product of new capital depends on ______ and _____. A. productivity of capital; relative price of the firm’s output B. price of new capital goods; real interest rate C. relative price of the firm’s output; real interest rate […]

Assets of the commercial banking system include: A. reserves and loans. B. deposits. C. reserves and deposits. D. loans and deposits. If the exchange rate moves from 10 Mexican pesos per U.S. dollar to 8 Mexican pesos per U.S. dollar, […]

Subsidies are most likely to: A. reduce consumer surplus. B. increase total economic surplus. C. reduce total economic surplus. D. leave total economic surplus unchanged, but transfer surplus from producers to consumers. Suppose the figure below shows Annie’s demand curve […]

Refer to the figure below. The marginal utility of apples is: A. constant. B. first increasing, but decreasing after the fourth apple. C. decreasing after the first apple. D. constantly increasing. Player 1 and Player 2 are playing a game […]

In the short run with predetermined prices, when output is less than planned aggregate expenditure, firms will: A. reduce production. B. increase production. C. increase planned aggregate expenditure. D. decrease planned aggregate expenditure. Refer to the figure below. At quantities […]

The Hatfields and the McCoys both earn $50,000 per year in real terms in the labor market, and both families are able to earn a 5% real interest rate on their savings. In the year 2010, both families began to […]

An imperfectly competitive firm is one that: A. has at least some influence over the market price. B. charges any price it wants. C. seeks to maximize revenue. D. faces a perfectly inelastic demand curve. Among the most important indicators […]

The figure below shows the demand curve for a product that can be sold only in whole-number amounts. At a price of $15 per unit, what would be the total consumer surplus in this market each day? A. $0 B. […]

The lemons problem gives the owners of above-average-quality used cars an incentive to: A. exaggerate the quality of their cars when selling them. B. offer a warranty when selling their cars. C. understate the true quality of their cars when […]

Because an increase in the nominal interest rate raises the opportunity costs of holding money, the money demand curve: A. shifts to the right. B. shifts to the left. C. slopes upward. D. slopes downward. One of the serious drawbacks […]

Fred and Wilma just had a baby girl and want to make sure they save enough in the future to send her to college. They begin to save in response to this ______ reason for saving. A. life-cycle B. bequest […]

Workers whose spells of unemployment are broken up by brief periods of employment or withdrawal from the labor force are referred to as ______ workers A. short-term unemployed B. discouraged C. long-term unemployed D. chronically unemployed In the base year, […]

A decrease in the price of pizza will cause a(n): A. increase in demand. B. increase in quantity demanded. C. decrease in quantity demanded. D. decrease in the number of consumers. Beyond the provision of public goods, government exists to […]

Sven likes to water ski, but can only water ski during the one week each year when he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight […]

Jen is offered a job answering the phone in the State U economics department during lunchtime, from noon to 1 p.m., Tuesdays and Thursdays. Her reservation wage for this job is $15 per hour. If the department chair offers Jen […]

Which of the following investments is part of a positional arms race? A. Watching your friend train for a soccer game B. Renting movies for the weekend C. Studying hard for your economics exam because your professor grades on a […]

The price level is: A. the rate of inflation. B. a measure of overall prices at a particular point in time. C. the percentage change in a price index such as the CPI. D. the price of a specific good […]

Joe is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a […]

A currency depreciation is a(n): A. increase in the value of a currency relative to other currencies. B. decrease in the value of a currency relative to other currencies. C. reduction in the official value of a currency in a […]

It is spring, and several graduates of State U are seeking employment. State U graduates have evenly distributed GPAs, from 2.0 to 4.0, with an average GPA of 3.0. The largest employer in town, Acme Dynamite, is interviewing candidates, hoping […]

A labor contract provides for a first-year wage of $10 per hour, and specifies that the real wage will rise by 3 percent in the second year of the contract and by another 3 percent in the third year. The […]

Suppose the figure below illustrates the demand curve facing a monopolist. Suppose this firm maximizes its profits by charging a price of $8 per unit. This implies that the firm’s: A. marginal cost is $8. B. marginal cost is $0. […]

A drawback of using market values to aggregate the quantities of goods and services produced in an economy is that: A. higher-priced items count more. B. GDP increases when not all goods are produced in greater quantities. C. market prices […]

Prior to January 2000, the demand for money increased as people anticipated Y2K problems. If the Fed had taken no action to offset this increase in money demand, then nominal interest rates would have: A. increased. B. decreased. C. remained […]

The economy is in long-run equilibrium: A. when the AD and AS curves intersect at potential output, Y*. B. when the AD and AS curves intersect, regardless of the level of output. C. when the AD and AS curves become […]

The extra costs incurred to avoid holding cash when there is inflation are called the: A. average costs of inflation. B. consumer price index costs. C. external costs. D. shoe leather costs. Suppose farmers in a given market can either […]

Quick Buck and Pushy Sales produce and sell identical products and face zero marginal and average cost. Below is the market demand curve for their product. Suppose Quick Buck and Pushy Sales decide to collude and work together as a […]

Which of the following transactions would be included in the GDP of the United States? A. Coca Cola produces soft drinks in England. B. Honda produces cars in Ohio. C. McDonalds sells hamburgers in Russia. D. Ford Motor Company produces […]

The economy is in short-run equilibrium: A. when the AD and AS curves intersect at potential output Y*. B. when the AD and AS curves intersect at a level of real GDP that is above or below Y*. C. when […]

What is Taylor’s wealth? Taylor has the following assets and liabilities: A. $105,000 B. $107,000 C. $111,000 D. $419,000 Logrolling refers to: A. legislation that affects the timber industry. B. the practice whereby legislators support each other’s pork barrel spending. […]

The following graph depicts demand. At point A, demand is: A. inelastic. B. elastic. C. unit elastic. D. perfectly elastic. Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did […]

The price of a gallon of gasoline was $0.35 in 1972 when the CPI equaled 0.418. The cost of a gallon of gasoline was $2.25 in 2005 when the CPI equaled 1.68. The real cost of a gallon of gasoline […]

If the CPI equaled 1.43 in 2008and 1.56 in 2009, then between 2008 and 2009 there was: A. inflation. B. deflation C. a recession D. an expansion Last year Christine worked as a consultant. She hired an administrative assistant for […]

Suppose Sarah owns a small company that makes wedding cakes. The table below shows how Sarah’s total cost varies depending on the number of wedding cakes she makes each day. If Sarah’s fixed costs double, then in the short run, […]

Suppose Ginger is going to buy a house and a dishwasher. Assuming the marginal cost of searching for both is the same, one can predict that Ginger will: A. spend more time searching for the house than the dishwasher. B. […]

Hotelling’s model has been used to describe differentiation in the political “market.” Suppose that 100 voters are evenly distributed between the extreme left and the extreme right on the political spectrum, and that all voters vote, and they always vote […]

Fred runs a fishing lodge, and has a very profitable business during the summer. In the fall, the number of guests at the lodge starts to decline. Fred should keep the lodge open: A. all year because his summer profits […]

The table below shows a pizzeria’s fixed cost and variable cost at different levels of output. Pizza’s sell for $20 each. When the pizzeria makes 50 pizzas a day, its average total cost is ______. A. $5 B. $10 C. […]

Cyclical unemployment is equal to zero when: A. there is no recessionary gap. B. there is no expansionary gap. C. actual GDP and potential GDP are equal. D. frictional unemployment equals structural unemployment. Which of the expenditure components of GDP […]

Both a perfectly competitive firm and a monopolist find that: A. price and marginal revenue are the same. B. they can sell as many units of output as they want at the market price. C. it is best to expand […]

Suppose the figure below shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. The profit-maximizing level of output for this monopolist is ______ units per day. A. F B. G C. H D. I Suppose […]

When players cannot achieve their goals because they are unable to make credible threats or promises, the situation is called a: A. prisoner’s dilemma. B. Nash equilibrium. C. failure of dominant strategies. D. commitment problem. The money demand curve relates […]

Refer to the figure below. For Chris, the opportunity cost of removing one bag of trash is planting: A. 25 bulbs. B. 1/25 of a bulb. C. 3 bulbs. D. 1/3 of a bulb. The demand curve for a public […]

A risk-averse individual will: A. never accept any gamble. B. accept a fair gamble. C. only choose certain events. D. accept only better-than-fair gambles. The AD curve ______ because, holding all else constant, an increase in ______ causes C, IP […]

An increase in an economy’s productive resources will lead the production possibilities curve to: A. shift inward. B. shift outward. C. become flatter. D. stay the same. Suppose you have $200 with which you can buy shares of stock from […]

Assume that Joe is willing to produce another hamburger that costs $1 to make. Mary is hungry and is willing to buy a hamburger for $3. According to the No Cash on the Table Principle, Joe and Mary: A. will […]

Starting from potential output, if firms become less optimistic and decide to decrease their investment in new capital, then this will shift the ______ curve to the left and generate ______. A. aggregate demand; a recessionary output gap B. aggregate […]

As a result of a war in the country of Omega, refugees flee to the country of Alpha to seek employment. Holding other factors constant, the influx of refugees will ______ the real wage in Alpha and ______ employment in […]

To counteract relative price changes, the government would implement: A. monetary policy. B. fiscal policy. C. polices that affect the supply and demand for a specific good. D. policies that affect the supply and demand for all goods and services. […]

The inside lag of macroeconomic policy is the: A. time between a shift in aggregate demand and a shift in aggregate supply. B. delay between when a policy change is needed and the policy is implemented. C. difference between actual […]

Smith and Jones comprise a two-person economy. Their hourly rates of production are shown below. Suppose Smith and Jones begin by producing 100 calculators per hour; as Smith and Jones choose to efficiently produce fewer computers and more calculators, ______ […]

Refer to the figure below. The total utility of consuming two dinners out per week is: A. less than 100. B. 75. C. 175. D. 160. An example of a government policy to increase physical capital formation is: A. the […]

Joe is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a […]

The deadweight loss from taxing a good will be smaller for goods: A. whose supply and demand curves are more inelastic. B. whose supply and demand curves are more elastic. C. that are relatively expensive. D. that are consumed by […]

The difference between the economy’s potential output and its actual output relative to its potential output at a point in time is called the: A. budget deficit. B. trade deficit. C. output gap. D. full-employment rate. Real GDP per person […]

Frictional unemployment may be economically beneficial if: A. its psychological costs are borne only by the unemployed worker. B. losses in economic output are small. C. it leads to a better match between worker and job. D. the social costs […]

If the demand curve fails to capture all of the benefits of consumption, then the: A. equilibrium price will be efficient but the equilibrium quantity will be inefficiently large. B. equilibrium price will be inefficiently low. C. government needs to […]

Holding other factors constant, a higher relative price of a firm’s output will: A. increase national saving. B. decrease national saving. C. increase investment. D. decrease investment. Indicators of economic activity that move at the same time as the overall […]

The table below gives the quantities and prices for 2000 and 2010 for an economy that produces just two goods: sailboats and coconuts. For this economy that produces just sailboats and coconuts, and with 2000 is the base year, real […]

Suppose the price of gasoline increases and that sport utility vehicles get poor gas mileage compared to other available cars. One would expect: A. the demand for gasoline to decrease. B. the demand for sport utility vehicles to decrease. C. […]

Most economists agree that ______ are the single most important source of productivity improvements. A. increases in human capital B. increases in physical capital C. technological advances D. discoveries of natural resources What might cause a demand function to shift […]

Accounting profit minus implicit costs equals: A. total revenues. B. economic profit. C. explicit costs. D. fixed costs. The market value of a particular bond at any given point in time is called the bond’s: A. coupon rate. B. principal […]

A period in which the economy is growing at a rate significantly below normal is called a(n): A. expansion. B. boom. C. peak. D. recession. Refer to the figure below. If Laura and Chris are the only two consumers in […]

Holding other factors constant, if oil prices rise relative to the prices of other products, then the real wages of oil workers will ______ and employment of oil workers will _____. A. increase; increase B. increase; decrease C. decrease; not […]

Consider the labor market below. The imposition of a $12 per hour minimum wage causes total economic surplus in this labor market to ______ by ______. A. rise; $800 B. fall; $800 C. rise; $400 D. fall; $1,600 All else […]

Real GDP is not a perfect measure of economic well-being because it excludes the value of all of the following except: A. leisure time. B. goods and services available in the market economy. C. nonmarket economic activity. D. goods and […]

Suppose two companies, Macrosoft and Apricot, are considering whether to develop a new product, a touch-screen t-shirt. The payoffs to each of developing a touch-screen t-shirt depend upon the actions of the other, as shown in the payoff matrix below […]

In response to the 2007-2009 recession, the Economic Stimulus Act of 2008, under President Bush, was composed of approximately _____; the American Recovery and Reinvestment Act, under President Obama, was composed of approximately ______. A. one-fourth tax cuts and three-fourths […]

The economy of Omega operates according to Okun’s law. In Omega, the actual and the natural rates of unemployment equal 5 percent, and real GDP equals $10 trillion. What is potential GDP in Omega? A. $9.0 trillion B. $9.5 trillion […]

All else equal, compared to the case of a closed economy, monetary policy is ______ effective in an open economy with a ______ exchange rate. A. more; fixed B. more; flexible C. less; real D. less; nominal The tendency of […]

The percentage change in quantity supplied that results from a 1 percent change in price is known as the: A. cross-price elasticity of supply. B. slope of the supply curve. C. price elasticity of supply. D. cross-price elasticity of demand. […]

For a given nominal exchange rate and foreign price level, a decrease in the domestic price level ______ the real exchange rate. A. increases B. decreases C. may either increase or decrease D. offsets any change in The absolute price […]

The study of individual choice and its implications for the behavior of prices and quantities in individual markets is: A. microeconomics. B. a normative economic principle. C. the Scarcity Principle. D. macroeconomics. Suppose Matt and Gabe must both choose between […]

There are 20 residents in the village of Towneburg. The size of the village’s annual fireworks display depends upon the number of shells that are fired off. Each resident’s demand for fireworks is shown below. The total cost of the […]

Morgan lives in San Francisco and likes to dine out. Morgan has noticed that prices at restaurants near popular tourist destinations in the city tend to be higher than at restaurants of the same quality in other neighborhoods. One reason […]

Assume that the graph below describes the current labor market for nurses in a mid-sized city and that the labor market is perfectly competitive. Suppose that several years ago the supply of nurses in this city was S0. What might […]

______ is an increase in the price level, while ______ is an increase in the price of one good in comparison to other goods and services. A. Inflation; hyperinflation B. A relative price increase; inflation C. Hyperinflation; inflation D. Inflation; […]

The total income of capital and labor must equal the value of total: A. production. B. profits. C. revenue. D. investment. Two companies, Dirty Inc. and Filthy Inc., each of which has access to 5 different production processes, each of […]

A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10% interest per year or to buy a year-old goat, send it onto […]

Since the year2000, the share of the populationholding or actively looking forjobs have _______ in the United States: A. been record high. B. increased. C. remained approximately constant. D. decreased. The increase in the unemployment rate during a recession is […]