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Deadweight loss refers to A) the opportunity cost to firms from producing the equilibrium quantity in a competitive market. B) the sum of consumer and producer surplus. C) the loss of economic surplus when the marginal benefit equals the marginal […]

A commercial bank like Comerica creates money by A) printing paper money. B) earning profits. C) selling corporate bonds. D) making loans. Assuming the United States is the “domestic” country, if the real exchange rate between the United States and […]

Table 2-13 Table 2-13 shows the output per day of two pet groomers, Tammi and Horace. They can either devote their time to grooming dogs or bathing cats. Which of the following statements istrue? A) Horace has an absolute advantage […]

Figure 2-2 Figure 2-2 above shows the production possibilities frontier for Vidalia, a nation that produces two goods, roses and orchids. What is the opportunity cost of one dozen orchids? A) 0.4 dozen roses B) 2.5 dozen roses C) 7.25 […]

In August 2011, Standard & Poor’s (S&P) changed its rating on U.S. Treasury bonds from ________ based on the state of the federal government’s budget deficit. A) “A” to “D” B) “A” to “AAA” C) “A+” to “B+” D) “AAA” […]

Figure 2-16 One segment of the circular flow diagram in the figure shows the flow of wages and salaries from market K to economic agents M. What is market K and who are economic agents M? A) K = factor […]

What is the term that explains why voters often lack knowledge of pending legislation, and lack knowledge of the views of candidates for office on a range of issues that affect their own (the voters’) welfare? A) the voting paradox […]

Figure 15-6 Figure 15-6 shows the cost and demand curves for a monopolist. The profit-maximizing output and price for the monopolist are A) output = 62; price = $24. B) output = 62; price = $18. C) output = 83; […]

A decrease in the wage rate causes A) an increase in the quantity of labor demanded. B) a rightward shift of the firm’s labor demand curve. C) a leftward shift of the firm’s labor demand curve. D) a decrease in […]

Suppose thatAmerican firms claim that protectionism in Canada is on the rise as the Canadian government attempts to protect its infant industries. This protectionism will cause the greatest harm to A) Canadian manufacturers. B) the Canadian government. C) manufacturers who […]

Nominal GDP measures the value of all final goods and services at base-year prices. The unemployment rate is higher with a minimum wage law than it would be without a minimum wage law. Answer: TRUE In the circular flow diagram, […]

Which of the following would contribute to a sustained high rate of economic growth in the long run in an economy? A) growth in capital per hour accompanied by technological change B) increases in labor force participation rates as workers […]

Market equilibrium occurs where supply equals demand. Inflation targeting, typically, has been accompanied by lower inflation. Answer: TRUE In order to maintain an undervalued yuan to encourage a trade surplus, the Chinese government must buy dollars and increase the supply […]

If technological change increases the profitability of new investments for firms, then the ________ curve for loanable funds will shift to the ________. A) supply; right B) supply; left C) demand; right D) demand; left Tanesha sells homemade candles over […]

Table 9-6 Production and Consumption Production Without Trade With Trade Denmark and Belize can produce both clocks and hats. Table 9-6 shows the production and consumption quantities without trade, and the production numbers with trade. Which country has an absolute […]

In market economies, income distribution is always going to be completely equitable. Answer: The median voter theorem states that the outcome of a majority vote is likely to represent the preferences of the voter who is in the political middle. […]

If the substitution effect of a wage increase dominates the income effect, the labor supply curve has a positive slope. Answer: Expansionary monetary policy lowers interest rates and forces a real appreciation of the dollar in international currency markets. Answer: […]

Figure 16-5 Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the monopoly price. What is the revenue collected from the fixed […]

A decrease in the demand for soft drinks due to changes in consumer tastes, accompanied by an increase in the supply of soft drinks as a result of reductions in input prices, will result in A) a decrease in the […]

Increases in real GDP would understate the well-being of a country over time if, over that time period, the A) crime rate increased. B) percentage of people addicted to illegal drugs increased. C) amount of pollution decreased. D) average hours […]

If the Fed lowers the reserve requirement, then this A) increases excess reserves, encourages banks to make more loans, and increases the money supply. B) decreases excess reserves, causes banks to reduce their loans, and decreases the money supply. C) […]

Which of the following characteristics iscommon to monopolistic competition and perfect competition? A) Firms produce identical products. B) Entry barriers into the industry are low. C) Each firm faces a downward -sloping demand curve. D) Firms take market prices as […]

Figure 17-4 Which of the following is true at W2? A) The income effect is larger than the substitution effect. B) The substitution effect is larger than the income effect. C) The income effect and the substitution effect are equal. […]

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market? A) Allocative efficiency is achieved only in the long run. Productive efficiency is achieved only in the short run. B) Allocative efficiency […]

A successful market economy requires well defined property rights and A) balanced supplies of all factors of production. B) an independent court system to adjudicate disputes based on the law. C) detailed government regulations. D) a safety net to ensure […]

Which of the following will result in an increase in labor productivity? A) a decrease in the number of people attending institutions of higher education B) a decline in the amount of human capital per worker C) an increase in […]

DeShawn’s Detailing is a service that details cars at the customers’ homes or places of work. DeShawn’s cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will […]

All of the following are ways in which health insurance companies can potentially reduce adverse selection except A) by insuring only large groups of people. B) by lowering the co-payments and deductibles on the policies they issue. C) by refusing […]

Assume that the personal computer industry is perfectly competitive. The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry. Stagflation occurs when aggregate supply […]

Exchange rates under the Bretton Woods system were determined by relative supplies of gold held by countries within the system. Technological change allows the economy to produce more output with the same amount of capital and labor. Answer: TRUE The […]

A firm using a two-part tariff can produce the economically efficient outcome by A) making the fixed-fee portion of the price as low as possible. B) setting the per-unit portion of the price equal to the marginal cost of production. […]

Article Summary. Seeking ways to improve education, Garrett Johnson has organized technology competitions called hackathons where participants such as students, teachers, and engineers build applications designed to improve secondary and higher education systems. These applications can include ways for teachers […]

Money market mutual funds sell shares to investors and use the money to buy A) mortgage-backed securities. B) foreign currency. C) short-term securities. D) overseas assets through foreign direct investment. Arnold Harberger was the first economist to estimate the loss […]

When firms exit a perfectly competitive industry, the market supply curve shifts to the left. Answer: The total amount of consumer surplus in a market is equal to the area below the demand curve. Answer: FALSE When a firm experiences […]

If consumers believe the price of LCD televisions will decrease in the future, this will cause the demand for LCD televisions to increase now. Members of management serving on the board of directors of a corporation are referred to as […]

If the demand for a product decreases and the supply of the same product increases, the equilibrium quantity will increase. Answer: Expanding, contracting, and managing the money supply is easier for a central bank under the gold standard. Answer: FALSE […]

Which of the following is one reason why the income of small family farms has decreased over time? A) Technology has increase farm productivity and market supply. B) The demand for farm products is price elastic. C) The demand for […]

If inflation is anticipated, some effects of inflation on the redistribution of income can be avoided. If marginal product is equal to average product, then total product is at a maximum. Answer: FALSE The basis for trade is absolute advantage, […]

Figure 16-3 Chantal owns a hairdressing salon which caters to two main groups of customers: residents of “The Chateau,” a retirement community, and other residents in the neighborhood. Figure 16-3 shows the demand curves for the residents of the retirement […]

The ________ model focuses on the relationship between total spending and real GDP in the short run, assuming the price level is constant. A) supply and demand B) national income C) aggregate expenditure D) business cycle If a decrease in […]

Which of the following characterizes the market that Starbucks competes in? A) All coffeehouses face horizontal demand curves. B) Coffeehouses sell identical products. C) Barriers to entry are low. D) There are a small number of firms. The demand curve […]

A sharp increase in the divorce rate increases the number of lawyers hired to determine divorce settlements. This will A) increase GDP and increase well-being in the economy. B) increase GDP and decrease well-being in the economy. C) decrease GDP […]

What is the dominant strategy in the prisoner’s dilemma? A) Each prisoner confesses because this is the rational action to pursue. B) Do nothing in the hope that the other prisoner will also do nothing. C) Do not confess because […]

In making decisions about what to consume, a person’s goal is to A) allocate her limited income among all the products she wishes to buy so that she receives the highest total utility. B) buy low-priced goods rather than high-priced […]

If there is currently a shortage of dollars, which of the following would you expect to see in the foreign exchange market? A) The dollar will appreciate. B) The dollar will depreciate. C) There will be an increase in the […]

The most important barrier to entry is economies of scale. A cash withdrawal reduces deposits, reserves and excess reserves in the banking system. Answer: TRUE For a perfectly competitive firm, at the profit-maximizing output average revenue equals marginal cost. Answer: […]

The demand for labor depends primarily on the additional output produced as a result of hiring an additional worker and A) the additional revenue received from selling the output produced as a result of hiring an additional worker. B) the […]

Table 11-3 The table above refers to the relationship between the quantity of workers employed and the number of cardboard boxes produced per day by Manny’s House of Boxes. The capital used to produce the boxes is fixed. Diminishing returns […]

Consumption is $5 million, planned investment spending is $8 million, government purchases are $10 million, and net exports are equal to $2 million. If GDP during that same time period is equal to $27 million, what unplanned changes in inventories […]

Table 7-6 Production and Consumption Production Without Trade With Trade Estonia and Morocco can produce both swords and belts. Table 7-6 shows the production and consumption quantities without trade, and the production numbers with trade. Which country has a comparative […]

Figure 3-1 An increase in the price of the product would be represented by a movement from A) A to B. B) B to A. C) D1 to D2. D) D2 to D1. Households ________ final goods and services in […]

Figure 2-2 Figure 2-2 above shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods, meat and vegetables. If Mendonca chooses to produce 120 pounds of meat, how much vegetables can it produce to maximize production? […]

Economists Kenneth Chay and Michael Greenstone find that in the two years following the passage of the Clean Air Act of 1970, the sharp reduction in air pollution also led to a decline in infant deaths. Although this and other […]

A college must decide if it wants to offer more evening and weekend classes. This decision involves answering the economic question of “for whom to produce.” According to the benefits-received principle, those who receive the benefits from a government program […]

Figure 4-5 Figure 4-5 shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month. Suppose that instead of a rent ceiling, the government imposed a price floor of $2,000 per month for […]

Assume that the four-firm concentration ratio in an industry is 85 percent. Which of the following statements uses one of the five competitive forces to argue that this industry may be more competitive than its concentration ratio suggests? A) The […]

Figure 6-7 Between points a and on the demand curve, demand is A) perfectly inelastic. B) unit-elastic. C) perfectly elastic. D) elastic. Table 9-6 Production and Consumption Production Without Trade With Trade Denmark and Belize can produce both clocks and […]

China began pegging its currency, the yuan, to the dollar in 1994. Because the yuan has been ________ at the pegged exchange rate, the Chinese government ________ its reserves of dollars as the government purchased more ________ to maintain the […]

In which of the following situations might you expect expansionary monetary policy to reduce the unemployment rate? A) if expectations are rational B) if changes in monetary policy are unanticipated C) if actual inflation is higher than expected D) if […]

Figure 28-4 Consider the shift in the short-run Phillips curves shown in the above graph. This shift may be explained by A) an increase in the natural rate of unemployment from 5.0 to 6.2 percent. B) an increase in the […]

Long-run macroeconomic equilibrium occurs when aggregate demand ________ short-run aggregate supply and they ________ the long-run supply curve. A) equals; intersect at a point to the right of B) equals; intersect at a point on C) is greater than; intersect […]

Which of the following is not an advantage to an insurance company of insuring a large group of people for health insurance? A) The characteristics of a large group are likely to reflect those of the entire population. B) It […]

Retained earnings are sufficient to finance a firm’s rapid expansion in a high-growth economy. A monopolistically competitive industry that earns economic profits in the short run will be able to expand its market share even if the market size remains […]

One reason why firms would choose a salary system rather than a commission compensation system is that their employees might become less concerned about the quality of their work. If the price of peaches, a substitute for plums, decreases, the […]

When a firm faces a downward-sloping demand curve, marginal revenue A) must exceed price because the price effect outweighs the output effect. B) is less than price because a firm must lower its price to sell more. C) equals price […]

Producer surplus is the Difference between the highest price someone is willing to pay and the price he actually pays. In the case of an upward-sloping aggregate supply curve, the change in real GDP brought about by a change in […]

If the demand for a product decreases and the supply of the product does not change, equilibrium price and equilibrium quantity will both increase. Assume that price is greater than average variable cost. If a perfectly competitive firm is producing […]

If a supply curve is a horizontal line, supply is said to be A) perfectly inelastic. B) unit-elastic. C) inelastic. D) perfectly elastic. If, for the last bushel of apples produced and sold by an apple farm marginal revenue exceeds […]

Because each customer pays according to her willingness to pay, a consumer maximizes her consumer surplus under first-degree price discrimination. Answer: The demand for heating oil in the short run is more elastic than the long run demand for heating […]

Figure 2-6 If the economy is currently producing at point E, what is the opportunity cost of moving to point B? A) 13 thousand hammers B) 10 thousand hammers C) 30 thousand wrenches D) 0 wrenches Figure 4-15 Figure 4-15 […]

Firms in perfect competition are price takers because A) one firm determines the price that all other firms in the industry will charge. B) consumers have enough market power to set prices. C) firms accept the price determined by the […]

Figure 9-2 Suppose the U.S. government imposes a $0.40 per pound tariff on rice imports. Figure 9-2 shows the impact of this tariff. Without the tariff in place, the United States consumes A) 9 million pounds of rice. B) 15 […]

The public choice model can be used to examine voting models that contrast the manner in which collective decisions are made by governments (state, local and federal) and the manner in which individual choices are made in markets. Which of […]

A monopsony is a term used to refer to a firm that is the sole seller of a good or service. The sales revenue a seller receives from the sale of an additional unit of goods is called the marginal […]

Table 7-6 Production and Consumption Production Without Trade With Trade Estonia and Morocco can produce both swords and belts. Table 7-6 shows the production and consumption quantities without trade, and the production numbers with trade. If the actual terms of […]

The marginal rate of technical substitution is measured by A) the slope of the isoquant. B) the relative input prices. C) the slope of the isocost line. D) the ratio of the product’s price to the product’s cost of production. […]

Thailand’s experience with pegging the baht to the dollar failed because the baht was ________ relative to the dollar, and China’s experience with pegging the yuan to the dollar has run into difficulties because the yuan has been ________ relative […]

Jack was unemployed two weeks ago but just started a new job. As a result of this increase in the number of employed workers, which of the following occurred? A) The labor force participation rate increased. B) The unemployment rate […]

Article Summary. Over the past two years, the Indian rupee has fallen 26 percent in value against the U.S. dollar, reaching a record low of 61.80 rupees per dollar in August 2013. The decline reflects increasing capital outflows and pessimism […]

Goodyear’s sales are now greater outside the United States than inside the United States. The value of the price elasticity of supply depends primarily on how quickly firms can acquire inputs to increase quantity supplied when price increases. Answer: TRUE […]

Assume that a 50 percent gasoline tax led to a large increase in its price and only a small decrease in the quantity of gasoline demanded. Economic analysis would lead one to conclude that A) gasoline should be taxed because […]

Table 4-1 The table above lists the highest prices three consumers, Curly, Moe, and Larry, are willing to pay for a bottle of champagne. If the price of one of the bottles is $95 dollars, total consumer surplus will be […]

From 1983-2013, net exports for the United States A) grew and then declined. B) were negative. C) were positive. D) increased as exports rose above imports. Table 2-17 Table 2-17 shows the output per week of two people, James and […]

According to Nobel laureate Douglass North, one reason why the Industrial Revolution occurred in England before many other countries was because the king in England consistently maintained control over the court system and the government. In the market for factors […]

Figure 29-1 Currency speculators believe that the value of the euro will decrease relative to the dollar. Assuming all else remains constant, how would this be represented? A) Supply would decrease, demand would decrease and the economy moves from B […]

Holding everything else constant, a decrease in the price of GPS systems will result in A) a decrease in the quantity of GPS systems demanded. B) an increase in the demand for GPS systems. C) a decrease in the supply […]

Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product decreases. Which of the following statements accurately predicts the resulting decrease in price? A) The more elastic the supply […]

A change in quantity supplied is represented by a movement along the supply curve. A perfectly competitive firm’s marginal revenue curve is downward sloping. Answer: FALSE Market equilibrium occurs where the quantity supplied is equal to the quantity demanded. Answer: […]

Figure 9-5 Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. Figure 9-5 shows the impact of this tariff. The loss in domestic consumer surplus as a result of the tariff is equal to A) $5 […]

Figure 5-1 Figure 5-1 represents the market for vaccinations. Vaccinations are considered a benefit to society, and the figure shows both the marginal private benefit and the marginal social benefit from vaccinations. At the market equilibrium, A) the marginal cost […]

Society faces a trade-off in all of the following situations except A) when deciding who will receive the goods and services produced. B) when deciding what goods and services will be produced. C) when deciding how goods and services will […]

If the long-run average total cost curve is downward sloping, then the firm is experiencing decreasing returns to scale. Answer: In a decreasing-cost industry, the entry of new firms lowers average cost at each level of output. Answer: TRUE The […]

If the marginal benefit of reducing emissions of some air pollutant is less than the marginal cost, A) further reductions will make society better off. B) further reduction will make society worse off. C) pollution taxes should be imposed on […]

It is possible to have a comparative advantage in producing a good or service without having an absolute advantage. Firms are more likely to find themselves in a prisoner’s dilemma in sequential games as opposed to simultaneous games. Answer: FALSE […]

The demand for all carbonated beverages is likely to be ________ the demand for Dr. Pepper. A) more elastic than B) perfectly elastic compared to C) less elastic than D) perfectly inelastic compared to The phrase “demand has decreased” means […]

When a monopolistically competitive firm breaks even in the long run, this is equivalent to earning a zero accounting profit. Answer: The private cost of a good or service is the cost borne by the producer. Answer: TRUE Accounting profit […]

What impact might a decrease in the U.S. federal budget deficit have on interest rates and exchange rates in the market for the U.S. dollar? (Assume the exchange rate is stated in terms of foreign currency per U.S. dollar.) A) […]

Changes in the health of the average person are relatively unimportant as an indicator of changes in the standard of living. International flows of capital increase both efficiency and growth in countries around the world. Answer: TRUE Transfer payments are […]

Once a country has lost its comparative advantage in producing a good, its income will be ________ and its economy will be ________ if it switches from producing the good to importing it. A) higher; less efficient B) higher; more […]

The principal-agent problem that exists between shareholders and managers also exists between managers and workers. An decrease in the price level in the United States will shift the aggregate expenditure line downward. Answer: FALSE If economies of scale are significant, […]

Figure 5-5 Figure 5-5 shows a market with an externality. The current market equilibrium output of Q1 is not the economically efficient output. The economically efficient output is Q2. If, because of an externality, the economically efficient output is Q2 […]

What is the name of the organization that defines business cycle peaks and troughs in the United States? A) the Bureau of Labor Statistics B) the Federal Reserve C) the National Bureau of Economic Research D) the National Peak and […]

Figure 24-4 Given the economy is at point A in year 1, what is the inflation rate between year 1 and year 2? A) 0.9% B) 1.8% C) 2.7% D) 3.0% Figure 2-7 Mercedes Benz recently decided to introduce its […]

The price elasticity of an upward-sloping supply curve is always A) positive. B) negative. C) greater than one. D) impossible to determine. To affect the market outcome, a price floor A) must be set above the black market price. B) […]

In the short run, if price falls below a firm’s minimum average total cost, the firm should shut down. Expansionary fiscal policy crowds out both domestic investment and net exports. Answer: TRUE Monetarists believe that the quantity of money should […]

Contractionary monetary policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________. A) higher; higher B) higher; lower C) lower; higher D) lower; lower Growth […]

A monopolistically competitive firm can increase its profits beyond the long-run equilibrium break-even level by deliberately lowering its price to force some of its competitors out of the market. The aggregate demand curve shows the relationship between the price level […]

Suppose there has been an increase in investment. As a result, real GDP will ________ in the short run, and ________ in the long run. A) increase; increase further B) increase; decrease to its initial value C) decrease; decrease further […]

If workers and firms ignore inflation or form their inflation expectations adaptively, expansionary monetary policy will lower unemployment permanently. According to Nobel laureate Douglass North, one reason why the Industrial Revolution occurred in England before many other countries was because […]

Consumption is $5 million, planned investment spending is $8 million, government purchases are $10 million, and net exports are equal to $2 million. If GDP during that same time period is equal to $27 million, what unplanned changes in inventories […]

Marginal analysis involves undertaking an activity A) until its marginal costs start declining. B) only when its marginal benefits are positive. C) until its marginal benefits equal marginal costs. D) only if its marginal costs are greater than its marginal […]

Table 3-2 The table above shows the demand schedules for cashews of two individuals (Jordy and Amy) and the rest of the market. If the price of cashews falls from $4 to $2, the market quantity demanded would A) decrease […]

Those who favor changes in the market for health care that would make it more like the markets for other goods and services are generally in favor of universal health care coverage. A normal good is a good for which […]

Inflation targeting refers to conducting ________ policy so as to commit the central bank to achieving a ________. A) fiscal; publicly announced level of inflation B) fiscal; zero inflation rate C) monetary; publicly announced level of inflation D) monetary; zero […]

The income effect of a price change refers to the change in the quantity demanded of a good that results from a change in the price of a complementary product. In the short run, if a firm shuts down, its […]

Table 7-6 Production and Consumption Production Without Trade With Trade Estonia and Morocco can produce both swords and belts. Table 7-6 shows the production and consumption quantities without trade, and the production numbers with trade. If the actual terms of […]

When the economy enters a recessionary phase of the business cycle, unemployment tends to A) decrease. B) increase. C) be unchanged. D) change in the same direction as the rate of inflation. Some economists argue that the federal government should […]

Why does the short-run aggregate supply curve shift to the right in the long run, following a decrease in aggregate demand? A) Workers and firms adjust their expectations of wages and prices downward and they accept lower wages and prices. […]

The more excess reserves banks choose to keep, A) the larger the deposit multiplier. B) the smaller the deposit multiplier. C) the higher the required reserve ratio. D) the lower the required reserve ratio. Countries that engage in trade will […]

When the demand for a product is less elastic than the supply, A) consumers pay the majority of the tax on the product. B) firms pay the majority of the tax on the product. C) firms pay the entire tax […]

Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20, the quantity sold increased to 60 pairs. Calculate the absolute value of the price elasticity of demand. Use the midpoint formula. […]

The National Football League has long-term leases with the stadiums in major cities. Control of these stadiums is an entry barrier to a potential new football league. When a business is set up as partnership, the owner of the business […]

________ consumption is consumption that depends upon the level of GDP and ________ consumption is consumption that does not depend upon the level of GDP. A) Autonomous; induced B) Induced; autonomous C) Voluntary; autonomous D) Autonomous; voluntary The popularity of […]

The price elasticity of an upward-sloping supply curve is always A) positive. B) negative. C) greater than one. D) impossible to determine. Hovnanain Enterprises, a residential home builder based in New Jersey, did well during the mid-2000s but did not […]

For the purchasing power of money to increase, the price level has to fall. Answer: If income is unequally distributed in an economy, increases in GDP may not raise well-being in an economy. Answer: TRUE A tariff is a tax […]

Which of the following is not a consequence of minimum wage laws? A) Low skilled workers are hurt because minimum wage reduces the number of jobs providing low skilled workers with training. B) Employers will be reluctant to offer low-skill […]

Which of the following is not part of the “taxes” provision of the Patient Protection and Affordable Care Act (ACA)? A) Pharmaceutical firms and health insurance firms will pay new taxes. B) Investors earning more than $200,000 will pay a […]

Figure 7-1 Figure 7-1 shows the U.S. demand and supply for leather footwear. Suppose the government allows imports of leather footwear into the United States. What will be the quantity of imports? A) Q0 B) Q1 C) Q2 D) Q2 […]

The FOMC no longer sets targets for M1 and M2 to meet its goals of price stability and high employment. Answer: Increases in population shift the market supply curve for labor to the right. Answer: TRUE A law requiring the […]

Marginal revenue product of labor for a competitive seller is A) the change in total product from hiring one more worker. B) equal to the marginal product of labor multiplied by the output price. C) the output price multiplied by […]

Michael Spence proposed the signaling hypothesis. According to this hypothesis, A) workers signal their desire to work for a particular firm by the way they answer questions in job interviews. B) employers signal their preferences for the type of employee […]

Market power in the United States causes a huge loss of economic efficiency. Answer: Examining the conditions that could lead to inflation in an economy is an example of microeconomics topic. Answer: FALSE An increase in the inflation rate increases […]

An increase in government spending may expedite recovery from a recession in the short run, but in the long run this policy may A) reduce investment in new capital. B) make domestic businesses less competitive in international markets as the […]

If, in response to a decrease in the price of grapes, the quantity of grapes demanded increases, economists would describe this as A) an increase in demand. B) an increase in quantity demanded. C) a change in consumer income. D) […]

Figure 12-6 Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason’s House of Apples. To maximize his profit, Jason should produce the rate of output indicated by point A) a. B) b. C) […]

An argument in favor of the Federal Reserve adopting inflation targeting is that in the long run, the Fed can have an impact on inflation but not on real GDP. In reality, the Fed is unable to use monetary policy […]

For each of the following pairs of products state which are complements, which are substitutes, and which are unrelated. a. Blu-ray discs and video-on-demand b. Fiat 500 and Mini Cooper S c. Toothpaste and toothbrush d. Popcorn and snowboards e. […]

Figure 19-3 Which of the following is not true? A) U.S imports are cheaper at exchange rates greater than $.03/baht than at the equilibrium exchange rate. B) The baht is overvalued at exchange rates greater than $.03/baht. C) To achieve […]

Which of the following is not a characteristic of a monopolistically competitive firm in long-run equilibrium? A) Marginal revenue is equal to marginal cost. B) Price is equal to average revenue. C) The firm has excess capacity. D) Price is […]

If an 8 percent decrease in the price of lobster leads to a 15 percent decrease in the quantity supplied of lobster, then the supply of lobster is A) unit-elastic. B) unitarily elastic. C) elastic. D) perfectly inelastic. Fiscal policy […]

Which of the following is a factor of production that generally is fixed in the short run? A) raw materials B) labor C) a factory building D) water As a form of business, a partnership A) has limited liability. B) […]

Which of the following countries had the lowest GDP per capita in 2012? A) France B) Mexico C) Democratic Republic of the Congo D) Argentina Jeremy is thinking of starting up a small business selling NASCAR memorabilia. He is considering […]

A nonmonetary opportunity cost is called a(n) ________, while a cost that involves spending money is called a(n) ________. A) accounting cost; explicit cost B) implicit cost; explicit cost C) accounting profit; economic profit D) normal rate of return; asset […]

Fluctuating exchange rates can alter a multinational firm’s profits and losses. The U.S. corporation, Motorola, produces cell phones and sells cell phones in Mexico. If the dollar appreciates against the peso, then Motorola’s revenues from these operations should ________ and […]

Table 2-10 Table 2-10 shows the output per month of two people, Fred and Barney. They can either devote their time to making pogo sticks or making unicycles. Which of the following statements istrue? A) Fred has a comparative advantage […]

Figure 30-6 Which of the following would cause the change depicted in the figure above? A) An increase in investment in infrastructure causes U.S. productivity to rise relative to Mexican productivity. B) A growing preference for Margaritas causes U.S. consumers […]

Monopolistic competition differs from oligopoly in that in monopolistic competition firms act independently while in oligopoly firms act interdependently. Answer: A decrease in the price of inputs will cause the supply curve for a product to shift to the right. […]

Suppose that the federal budget is balanced when GDP is at potential GDP. If equilibrium GDP falls below potential, A) this will result in a current budget deficit. B) the cyclically adjusted budget will be balanced. C) government transfer payments […]

In the circular flow model, households supply resources such as labor services in the product market. Some researchers have been unable to find evidence of increasing returns to human capital. Answer: TRUE If net exports are positive for China, it […]

The basic activity of a firm is A) to set the prices of its products as high as possible. B) to compete with other firms that produce similar products. C) to provide jobs for its employees. D) to use inputs […]

Figure 7-1 Figure 7-1 represents the market for vaccinations. Vaccinations are considered a benefit to society, and the figure shows both the marginal private benefit and the marginal social benefit from vaccinations. Marginal social benefit is represented by which curve? […]

How will an interest rate increase in the United States affect equilibrium in the market for dollars against foreign currencies? (Assume the exchange rate is stated in terms of foreign currency per U.S. dollar.) A) The equilibrium exchange rate will […]

In a competitive market equilibrium, A) total consumer surplus equals total producer surplus. B) marginal benefit and marginal cost are maximized. C) consumers and producers benefit equally. D) the marginal benefit equals the marginal cost of the last unit sold. […]

If Tanisha can audit more tax returns in one hour than Libby, then Tanisha has an absolute advantage in auditing tax returns. When products that create positive externalities are produced, at the market equilibrium output, the social benefit generated by […]

Why does a prisoner’s dilemma lead to a noncooperative equilibrium? A) because each player had agreed before the game started to minimize the harm that he can inflict on the other players B) because each player is uncertain how other […]

An increase in the purchasing power of money need not lead to an increase in the purchasing power of income because the falling price level would likely mean falling wages and salaries. Net foreign investment is a measure of net […]

In the past two decades the United States lost its comparative advantage in automobiles to Japan. What factor was most responsible for the development of Japan’s comparative advantage in automobiles? A) Japanese firms excelled in process technology. B) Japan has […]

If the Gini coefficient for Cartland is 1, it means that income distribution is perfectly equal in this society. Rent control is an example of a price ceiling. Answer: TRUE Entrepreneurs who earn arbitrage profit are able to do so […]

In an increasing-cost industry the long-run supply curve is upward sloping. If aggregate expenditure is less than GDP, then inventories rise and GDP falls. Answer: TRUE A country which incurs a current account deficit will most likely have a financial […]

The federal budget deficit acts as an automatic stabilizer because A) government tax revenues decrease during a recession. B) unemployment insurance payments decrease during a recession. C) food stamp payments increase during expansionary periods. D) Medicaid payments increase during expansionary […]

________ means the supply curve has shifted to the right, while ________ refers to a movement along a given supply curve in response to an increase in price. A) An increase in supply; a decrease in supply B) A decrease […]

What is an inside director? A) a movie director who also appears in the movie B) a member of a corporate board of directors that is also a manager of the business C) the CEO that is selected by the […]

A voluntary export restraint is an agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from the other country. Consider the following T-account for a bank: […]

The intention of the U.S. tariff on Chinese tries was to A) protect jobs in the U. S. tire industry. B) protect infant industries in tire U.S. tire market. C) insure that Chinese tires meet U.S. quality and safety standards. […]

Table 23-3 Given the consumption schedule in the table above, the marginal propensity to consume is A) 0.1. B) 0.3. C) 0.6. D) 0.9. In economics, choices must be made because we live in a world of A) unemployment. B) […]

Canada has a single-payer health care system in which the government provides national health insurance to all Canadian residents. If buyers of a monopolistically competitive product feel the products of different sellers have little differences between them, then the demand […]

If the nominal exchange rate between the American dollar and the New Zealand dollar is 1.36 New Zealand dollars per American dollar, how many American dollars are required to buy a product that costs 3.50 New Zealand dollars? A) $2.14 […]

The study of how people make decisions in situations in which attaining their goals depends on their interactions with others is called A) game theory. B) oligopoly. C) competitive analysis. D) strategic analysis. If firms and workers have rational expectations, […]

If the number of firms producing mouthwash increases and consumer preference for mouthwash increases, the equilibrium price of mouthwash will definitely increase. Answer: When the government imposes a tax equal to the external cost of producing a product that causes […]

If you exhibit the endowment effect as a decision maker, then you are A) deciding on the basis of sunk costs. B) buying something you can’t really afford because you expect to save in the future. C) ignoring non-monetary opportunity […]

A monopolistically competitive firm should lower its price if its marginal revenue exceeds its marginal cost. If the demand for a product decreases and the supply of the product does not change, equilibrium price and equilibrium quantity will both increase. […]

The GDP deflator is the best measure that reflects the prices of goods and services purchased by the typical household. Answer: The signaling hypothesis of education states that education is a costly activity that enhances a worker’s productivity. Answer: FALSE […]

If a decrease in income leads to in a decrease in the demand for mac and cheese, then mac and cheese is A) a normal good. B) a neutral good. C) a complement. D) a necessity. The aggregate demand curve […]

Which of the following is a positive economic statement? A) People should not buy imported fruits and vegetables. B) The government should subsidize solar power for homeowners. C) The minimum wage law causes unemployment. D) The number of work visas […]

Article Summary. For only the second time in the previous 10 quarters, China’s GDP grew at a faster rate than from the same period a year earlier. From July through September 2013, China’s GDP increased 7.8 percent, but a decline […]

In San Francisco there are many restaurants that specialize in a wide variety of cuisines. Patronage at these restaurants is influenced by factors such as tastes, price and location. This market is A) perfectly competitive. B) monopolistically competitive. C) oligopolistic. […]

Suppose that the economy is producing above potential GDP and the Fed implements the correct change in monetary policy, but not until after the economy has passed the peak of the boom. Then A) the Fed’s contractionary policy will result […]

Which of the following best describes how banks create money? A) Banks charge higher interest rates on loans than they pay on deposits. B) Banks charge fees for providing financial advice. C) Banks create checking account deposits when making loans […]

Which of the following would increase gross private domestic investment in an economy? A) an increase in the shares of Apple stock households own B) an increase in the number of workers Apple hires C) an increase in the level […]

Figure 13-2 Ceteris paribus, an increase in the expected price of an important natural resource would be represented by a movement from A) SRAS1 to SRAS2. B) SRAS2 to SRAS1. C) point A to point B. D) point B to […]

Which of the following is “crowded out” by higher interest rates that can be the result of expansionary fiscal policy? A) consumption B) private investment C) net exports D) All of the above are crowded out by higher interest rates. […]

In general, the supply curve for a natural resource A) is vertical. B) is horizontal. C) slopes downward to reflect decreasing available quantities over time. D) slopes upward. Table 4-7 Table 4-7 shows the demand and supply schedules for labor […]

Expansionary monetary policy enacted during a recession will cause the inflation rate to increase. Answer: Early adopters are consumers who will pay a high price to be among the first to own new products. Answer: TRUE An increase in the […]

A decrease in the demand for incandescent light bulbs due to changes in consumer tastes, accompanied by a decrease in the supply of incandescent light bulbs as a result of government restrictions, will result in A) a decrease in the […]

The government proposes a tax on imported champagne. Buyers will bear the entire burden of the tax if the A) supply curve for imported champagne is vertical. B) demand curve for imported champagne is vertical. C) demand curve for imported […]

Table 12-1 Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units. If the market price of each camera case is […]

The goals of monetary policy tend to be interrelated. For example, when the Fed pursues the goal of ________, it also can achieve the goal of ________ simultaneously. A) high employment; economic growth B) high employment; lowering government spending C) […]

Figure 24-1 Ceteris paribus, an increase in the growth rate of domestic GDP relative to the growth rate of foreign GDP would be represented by a movement from A) AD1 to AD2. B) AD2 to AD1. C) point A to […]

Consumers benefit from monopolistic competition by A) being able to choose from products more closely suited to their tastes. B) paying the lowest possible price for the product. C) paying the same price as everyone else. D) being able to […]

When an economy faces diminishing returns, A) the slope of the per-worker production function becomes steeper as capital per hour worked increases. B) the slope of the per-worker production function becomes flatter as capital per hour worked increases. C) the […]

Figure 27-9 Given that the economy has moved from A to B in the graph above, which of the following would the appropriate fiscal policy to achieve potential GDP? A) increase taxes B) increase government spending C) decrease the money […]

Table 14-2 Table 14-2 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 3. At the start of the game each firm charges a low price and each earns a profit […]

If a graph has a line that shows the amount of outsourcing in the last ten years, it is known as A) a pie chart. B) a time-series graph. C) a demand curve for outsourcing. D) a supply curve of […]

If marginal benefit is less than marginal cost, output is inefficiently high. A decrease in liabilities will reduce a firm’s net worth. Answer: FALSE Holding all else constant, an economic expansion in Mexico should decrease the demand for U.S. dollars. […]

Figure 6-4 Which of the following statements is true about the price elasticity of demand? A) The elasticity coefficient is constant along the demand curve. B) The elastic portion of a straight-line downward sloping demand curve corresponds to the segment […]

Of the following high-income countries, which has the highest mortality ratio for cancer? A) Canada B) Japan C) the United Kingdom D) the United States Consider the following pricing strategies: a. perfect price discrimination b. charging different prices to different […]

As a percentage of GDP, imports are greater than exports for which of the following countries? A) Germany B) Japan C) the Netherlands D) the United States If people assume that future rates of inflation will follow the pattern of […]

Local or state offices of the Department of Justice usually set prices for natural monopolies in their jurisdictions. The quantity equation becomes the basis for a theory when we assume that velocity of money is constant. Answer: TRUE If speculators […]

Figure 12-4 Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. If the market price is $30 and the firm is producing output, what is the amount of the firm’s profit or […]

Allison’s Auto Art is a company that applies pinstripes to vehicles. Allison’s cost for a basic 1-color pinstriping job is $35, and she charges $95 for this service. For a total price of $175, Allison will apply a fancier 3-color […]

Table 17-1 Suppose the output price is $3. If the wage rate is $90, what is the profit-maximizing quantity of labor that the firm should hire? A) 7 units B) 5 units C) 4 units D) 3 units If the […]

Net foreign investment is a measure of net capital outflows, equal to capital outflows minus capital inflows in a given period of accounting. If you purchase a share of stock from your friend who initially purchased the stock three years […]

Marginal benefit is the benefit that your activity provides to someone else. The purchase of stocks and bonds issued in another country is known as foreign direct investment. Answer: FALSE One possible reason as to why consumers respond to sales […]

If the nominal exchange rate between the American dollar and the Canadian dollar is 0.89 Canadian dollars per American dollar, how many American dollars are required to buy a product that costs 2.5 Canadian dollars? A) $1.32 B) $2.23 C) […]

The discount rate is A) the interest rate banks charge each other for overnight loans. B) the interest rate banks charge their best customers. C) the interest rate the Fed charges to banks for loans from the Fed. D) the […]

By tying the salaries of top corporate managers to the price of the corporation’s stock, corporations hope to avoid A) corporate governance. B) conflict between the CFO and the CEO. C) the principal-agent problem. D) paying high salaries to their […]

Declines in spending on residential construction are often due to increases in interest rates. The collapse in residential construction prior to and during the recession of 2007-2009 was due more to ________ than to higher interest rates. A) the financial […]

Marginal cost is the additional cost to a firm of producing one more unit of a good or service. The dynamic aggregate demand and aggregate supply model assumes that potential GDP increases over time. Answer: TRUE When net exports equal […]

If policy makers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply, the appropriate fiscal policy response is to A) increase taxes. B) increase government spending. C) use expansionary […]

In the short run, marginal product of labor increases at first and then falls because A) as more labor is hired, they are not as skilled as the first ones hired. B) there are fewer opportunities for division of labor […]

Assume that the demand curve for DVD players shifts to the left and the supply curve for DVD players shifts to the right, but the supply curve shifts more than the demand curve. As a result A) both the equilibrium […]

The area ________ the market supply curve and ________ the market price is equal to the total amount of producer surplus in a market. A) above; above B) above; below C) below; above D) below; below Health Clubs typically experience […]

A decrease in supply is caused by a decrease in the price of the product. If in the long run a firm makes zero profit, it should exit the industry. Answer: FALSE The actual division of a tax between buyers […]

Marginal utility can be A) negative. B) zero. C) positive. D) positive, negative or zero. Figure 4-5 The figure above represents the market for pecans. Assume that this is a competitive market. If the price of pecans is $9, A) […]

In a closed economy, which of the following components of GDP is not included? A) investment B) government spending C) net exports D) consumption Suppose a decrease in the supply of paper results in an increase in revenue. This indicates […]

What does the PPI measure? A) the average change in the prices paid for all goods produced in the economy over a given year B) the average of the prices received by producers of goods and services at all stages […]

Figure 15-10 The deadweight loss due to a monopoly is represented by the area A) FHE. B) FGE. C) GEH. D) FQ1Q2E. The following equations represent the demand and supply for kumquats. QD = 60 – 3P QS = -20 […]

If the opportunity cost of producing more of one good remains the same as more of that good is produced, then the production method is inefficient. The problem with inflation is that as prices rise, consumers can no longer afford […]

The recession of 2007-2009 made many consumers pessimistic about their future incomes. How does this increased pessimism affect the aggregate demand curve? A) This will move the economy up along a stationary aggregate demand curve. B) This will move the […]

If net exports are positive, A) net foreign investment is also positive. B) capital inflows must be greater than capital outflows. C) net foreign investment is negative. D) Both A and B are correct. A period of expansion in the […]

Cassie’s Quilts alters, reconstructs and restores heirloom quilts. Cassie has just spent $800 purchasing, cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished. After having spent $800, Cassie discovers that she would […]

How does the construction of a market demand curve for a private good differ from that for a public good? A) There is no difference; in both cases the demand curve is determined by adding up the price each consumer […]

The level of real GDP in the long run is A) potential GDP. B) affected by changes in the price level. C) determined solely by aggregate demand. D) the same as the level of nominal GDP in the long run. […]

Table 19-11 Consider the following data for Tyrovia, a country that produces only two products: guns and butter. Real GDP for Tyrovia for 2013 using 2005 as the base year equals A) $1,140. B) $880. C) $690. D) $560. Toot […]

If the average variable cost curve is above the marginal cost curve, then A) marginal costs must be decreasing. B) average variable costs must be increasing. C) marginal costs must be increasing. D) marginal costs can be either increasing or […]

Which of the following is the best example of a perfectly competitive industry? A) wheat production B) steel production C) electricity production D) airplane production The rules of accounting generally require that ________ costs be used for purposes of keeping […]

If the United States has a net export surplus, which of the following must be true? A) The balance on the financial account must equal the balance on the current account. B) Net foreign investment must be positive as well. […]

Figure 7-4 Figure 7-4 represents the market for medical services with and without insurance, and the effect of a third-party payer system on the demand for medical services. With insurance and a third-party payer system, what is the amount of […]

Figure 5-13 Figure 5-13 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production. The market equilibrium quantity of gasoline is ________ million gallons per month. A) 20 […]

If it costs Danitra $225 to create 4 necklaces and $275 to create 5 necklaces, then $50 is the marginal cost of producing the 5th necklace. In the short-run, changes in output can only be brought about by a change […]

In international exchange markets, a rise in interest rates in the United States will cause the demand for dollars to ________ and the supply of dollars to ________. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease […]

Figure 5-6 Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities.What is the market equilibrium output level? A) Q1 B) Q2 C) Q1 + Q2 D) Q2 – Q1 Let D = demand, S […]

Werner & Sons is a manufacturer of three-ring binders operating in a perfectly competitive industry. Table 12-5 shows the firm’s cost schedule. Table 12-5 Use the table to answer the following questions. a. Complete Table 12-5 by filling in the […]

When a celebrity has the desire to have his image protected following his death, this is best described as an example of the protection of A) an invention. B) a patent. C) a trademark. D) intellectual property. One important difference […]

Figure 4-3 Figure 4-3 shows Kendra’s demand curve for ice-cream cones. What is the total amount that Kendra is willing to pay for 1 ice cream cone? A) $0.50 B) $3.50 C) $9.00 D) $13.50 Figure 19-6 Which of the […]

If, in the market for oranges, the supply has increased then A) the supply curve for oranges has shifted to the right. B) the supply curve for oranges has shifted to the left. C) there has been a movement upwards […]

The branch of economics which studies how households and firms make choices, interact in markets and how government attempts to influence their choices is called A) macroeconomics. B) microeconomics. C) positive economics. D) normative economics. During what period of time […]

If a country is producing efficiently and is on the production possibilities frontier, the country can produce more of one good without producing less of the other good. A monopolistically competitive firm can increase its profits beyond the long-run equilibrium […]

Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. At price P2, the firm would produce A) Q2 units. B) Q3 units. C) Q4 units. D) zero units. Which of the following describes a […]

A general formula for the multiplier is A) . B) . C) . D) . “Because chips and salsa are complements, an increase in the price of chips will cause the demand for salsa to decrease. This initial shift in […]

The marginal revenue of a monopolistically competitive firm A) cannot be negative because the price the firm charges will always be greater than zero. B) can be negative if the firm charges a high price. C) can be negative if […]

A tax is efficient if it imposes a small excess burden relative to the tax revenue it raises. Answer: Merger guidelines developed by the Antitrust Division of the U.S. Department of Justice use four-firm concentration ratios as measures of concentration. […]

Prior to the 1930s, the majority of dollars spent by government was spent at the state and local levels. Retained earnings are sufficient to finance a firm’s rapid expansion in a high-growth economy. Answer: FALSE The tax multiplier is calculated […]

Table 9-6 Mateo and Celeste produce custom saddles and spurs. Table 9-6 lists the number of saddles and pairs of spurs Mateo and Celeste can each produce in one month. Select the statement that accurately interprets the data in the […]

If people assume that future rates of inflation will ________, they are said to have adaptive expectations. A) be higher than inflation rates of the past B) follow the pattern of inflation rates in the past C) be lower than […]

According to the production possibility model, if more resources are allocated to the production of physical and human capital, then which of the following is likely to happen? A) Fewer goods will be produced for consumption today. B) The production […]

Consider the following items: a. the album “21” by Adele b. a Dutch horticulturalist’s new method for cultivating hybrid tulips c. Rolls Royce’s “Spirit of Ecstasy” hood ornament design d. the sale of Tumi luggage at a Macy’s department store […]

The production function shows A) the total cost of producing a given quantity of output. B) the maximum output that can be produced from each possible quantity of inputs. C) the technology used to produce output. D) the incremental output […]

Table 9-12 Production and Consumption Production Without Trade With Trade Estonia and Morocco can produce both swords and belts. Table 9-12 shows the production and consumption quantities without trade, and the production numbers with trade. If the actual terms of […]

You explain to your roommate Surya, who makes beaded headbands, about an economic theory which asserts that consumers will purchase more of a product at lower prices than they will at higher prices. She contends that the theory is incorrect […]

The production possibilities frontier model assumes all of the following except A) labor, capital, land and natural resources are fixed in quantity. B) the economy produces only two products. C) any level of the two products that the economy produces […]

Figure 16-1 Suppose the economy is in short-run equilibrium below potential GDP and no fiscal or monetary policy is pursued. Using the static AD–AS model in the figure above, this would be depicted as a movement from A) A to […]

There is public dissaving if A) G + TR > T. B) G + TR < T. C) TR > G + T. D) TR < G + T. Figure 2-13 Figure 2-13 shows the production possibilities frontiers for Tahiti […]

Which of the following must a firm in a market economy do today to succeed? A) Produce the goods and services that consumers want at a lower cost than consumers themselves can produce. B) Organize the factors of production into […]

The substitution effect of a wage increase is observed when A) the higher wage income causes workers to take more leisure and work less. B) leisure’s higher opportunity cost causes workers to take less leisure and work more. C) the […]

Which of the following has a tendency to raise the unemployment rate? A) implementing a minimum wage in an economy B) reducing unemployment insurance in an economy C) offering wages at the market-clearing rate D) reducing labor unions membership in […]

The perfectly competitive market structure benefits consumers because A) firms do not produce goods at the lowest possible price in the long run. B) firms are forced by competitive pressure to be as efficient as possible. C) firms add a […]

Exempting food purchases from sales tax is consistent with the ability-to-pay principle, although not necessarily consistent with vertical equity. Answer: An increase in expected inflation will shift the short-run Phillips Curve. Answer: TRUE An inferior good is a good for […]

How does the owner of a sole proprietorship relate to the business? A) The owner and the business are separate legal entities. B) The owner and the business are not separate legal entities. C) The assets of the owner are […]

Where do economic agents such as individuals, firms and nations, interact with each other? A) in public locations monitored by the government B) in any arena that brings together buyers and sellers C) in any physical location people where people […]

You have a bond that pays $60 per year in coupon payments. Which of the following would result in a decrease in the price of your bond? A) Coupon payments on newly-issued bonds fall to $40 per year. B) The […]

The unemployment rate in the United States is typically lower than in Western Europe because the United States has tougher requirements for the unemployed to receive government payments. In economics, the optimal level of pollution is the level for which […]

A decrease in the unemployment rate may be represented as a movement from a point on the production possibilities frontier to a point outside the frontier. If consumers believe the price of iPads will decrease in the future, this will […]

Changes in the federal funds rate usually result in A) changes in both short-term and long-term interest rates with more of an effect on short-term interest rates. B) changes in both short-term and long-term interest rates with more of an […]

Allison’s Auto Art is a company that applies pinstripes to vehicles. Allison’s cost for a basic 1-color pinstriping job is $35, and she charges $95 for this service. For a total price of $175, Allison will apply a fancier 3-color […]

Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a pollution generating good. All of the following will result from the tax except A) an increase in the equilibrium market […]

Which of the following is an example of a “how much” decision? A) The Pleasantville movie theatre is open only in the evenings. The theatre’s manager is debating whether to add daily matinee shows. B) The Zhous have demolished their […]

One result of a tax is an increase in economic efficiency. In most circumstances, employees pay taxes on the value of health insurance their employers provide them. Answer: FALSE In the short run, a firm might choose to produce rather […]

Discouraged workers are classified by the BLS as A) part of the labor force. B) out of the labor force. C) unemployed. D) employed. E) part-time employees. The town of Harmonia gives away all 500 tickets to its annual Founder’s […]

A final good is one that A) is used in the production of another good. B) is a natural resource used to produce a good. C) is purchased as an input in the production process. D) is purchased by its […]

Which of the following would shift the supply curve for smartphones to the right? A) an increase in the price of a substitute in production B) an increase in consumer income (assuming that all smartphones are normal goods) C) a […]

Table 9-11 Production and Consumption Production Without Trade With Trade Denmark and Belize can produce both clocks and hats. Table 9-11 shows the production and consumption quantities without trade, and the production numbers with trade. Which country has an absolute […]

If the long-run aggregate supply curve is vertical, A) the economy stays at the natural rate of inflation in the long run. B) the short-run Phillips curve must be vertical. C) unemployment and inflation are positively related in the long […]

Table 8-17 A very simple economy produces three goods: movies, burgers, and bikes. The quantities produced and their corresponding prices for 2006 and 2013 are shown in the table above. What is nominal GDP in 2013? A) $3,320 B) $3,690 […]

The public choice model asserts that the self-interest of policymakers is likely to cause them to take actions that are inconsistent with the preferences of voters, even where those preferences are clear. Your checking account balance is included in your […]

The excess burden of a tax is also a deadweight loss. In the United States, corporate profits are taxed at the corporate level and then are taxed again as personal income in the form of dividend payments. Answer: TRUE A […]

The Federal Reserve’s performance in the mid-to-late 1980s, 1990s, and early 2000s has received high marks from economists, even without inflation targeting. The airline industry routinely engages in price discrimination across time. Answer: FALSE On a diagram of a production […]

The currency adopted by most countries in Western Europe is referred to as the A) euro. B) Eurodollar. C) yen. D) pound. The expenses you encounter when you buy in one market and sell in a distant market are known […]

Table 9-12 Production and Consumption Production Without Trade With Trade Estonia and Morocco can produce both swords and belts. Table 9-12 shows the production and consumption quantities without trade, and the production numbers with trade. Prior to trade, what was […]

The portion of ________ that a bank does not loan out or spend on securities is known as ________. A) loans; reserves B) deposits; reserves C) deposits; securities D) loans; securities A monopoly differs from monopolistic competition in that A) […]

If the average productivity of American firms is rising more quickly than the average productivity of Indian firms, which of the following would you expect to see? (India’s currency is the rupee.) A) an increase in the value of the […]

When banks gain ________, they can ________ their loans; and the money supply ________. A) reserves; increase; contracts B) withdrawals; increase; expands C) withdrawals; decrease; expands D) reserves; increase; expands The quantity theory of money was derived from the quantity […]

Psychologists Daniel Kahneman and Amos Tversky conducted the following experiments by asking a sample of people the following questions: Scenario A: “Imagine that you have decided to see a play and paid the admission price of $10 per ticket. As […]

As a firm hires more labor in the short run, the A) level of total product stays constant. B) output per worker rises. C) extra output of another worker may rise at first, but eventually must fall. D) costs of […]

Which of the following is a positive economic statement? A) U.S. citizens should only buy products which are produced in the United States. B) The government should ban the production and sale of incandescent light bulbs. C) Raising the tax […]

If a firm expects that the price of its product will be higher in the future than it is today A) the firm will go out of business. B) the firm has an incentive to increase supply now and decrease […]

Long-run equilibrium in a monopolistically competitive market is similar to long-run equilibrium in a perfectly competitive market in that in both markets, firms A) produce at the minimum point of their average total cost curves. B) produce where price equals […]

Figure 6-1 The demand curve on which elasticity changes at every point is given in A) Panel A. B) Panel B. C) Panel C. D) none of the above graphs. A perfectly competitive firm faces a demand curve that is […]

All of the following cost curves are U-shaped except one. Which curve is not U-shaped? A) the marginal cost curve B) the average fixed cost curve C) the average total cost curve D) the average variable cost curve Article Summary. […]

If Blake can pick more cherries in one hour than Cody, then Blake has a comparative advantage in cherry picking. A decrease in the amount of human capital acquired by workers will lead to decrease in the supply of labor. […]

________ is maximized in a competitive market when marginal benefit equals marginal cost. A) Deadweight loss B) Marginal profit C) Economic surplus D) Selling price According to the saving and investment equation, if net foreign investment falls by $35 million, […]

If it costs Sinclair $300 to produce 3 suede jackets and $420 to produce 4 suede jackets, then the difference of $120 is the marginal cost of producing the 4th suede jacket. The multiplier effect following an increase in expenditure […]

If the Fed attempts to reach and maintain very low rates of unemployment, we would expect the rate of inflation to rise. A supply shock causes the long-run aggregate supply curve to shift left, decreasing the price level. Answer: FALSE […]

An implicit cost is A) a nonmonetary opportunity cost. B) a cost unique to sole proprietorships. C) a cost that involves spending money. D) a cost unique to corporations. ________ increases economic efficiency because it forces firms to produce and […]

Figure 19-6 Which of the following would cause the change depicted in the figure above? A) Lack of investment in infrastructure causes Mexican productivity to fall relative to American productivity. B) A possibility of diseased poultry in Mexico causes U.S. […]

Joss is a marketing consultant. Iris and Daphne are potential customers interested in commissioning Joss to undertake a market survey and compile the findings in a report. Iris is willing to pay $500 for the service while Daphne is willing […]

An increase in population shifts the production possibility frontier inwards over time. Ceteris paribus, an increase in the government budget deficit increases interest rates in the United States and causes a real appreciation of the dollar. Answer: FALSE If the […]

Figure 9-3 Since 1953 the United States has imposed a quota to limit the imports of peanuts. Figure 9-3 illustrates the impact of the quota. What is the area of domestic producer surplus without a quota? A) C B) C […]

The model of purchasing power parity is the only way to determine whether a country’s currency is undervalued or overvalued. If the demand for a product increases and the supply of the same product decreases, the equilibrium price will increase. […]

What is Different about buying stocks and buying bonds? A) A stock can possibly pay dividends forever, but bonds have a fixed number of payments. B) Differences of opinion about a stock’s future may vary considerably but there is less […]

“The distribution of income should be determined by the government” is an example of a positive economic statement. Answer: In monopolistic competition, if a firm produces a highly desirable product relative to its competitors, the firm will be able to […]

When a credit card company offers different services with its card, like travel insurance for air travel tickets purchased with the credit card or product insurance for items purchased with the card, the credit card company is trying to A) […]

Figure 4-8 Figure 4-8 shows the market for taxi rides. The following question(s) are based on this figure. To legally drive a taxicab in New York City, you must have a medallion issued by the city government. Assume that only […]

Figure 5-1 Figure 5-1 shows a market with an externality. The current market equilibrium output of Q1 is not the economically efficient output. The economically efficient output is Q2. If, because of an externality, the economically efficient output is Q2 […]

If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is A) unit-elastic. B) perfectly elastic. C) relatively inelastic. D) relatively elastic. If a perfectly competitive firm’s total revenue is less than […]

All else equal, as the price of a product falls, the quantity supplied increases. As the number of firms in a market increases, the supply curve will shift to the right and the equilibrium quantity will rise. Answer: TRUE Increasing […]

What is the poverty rate? A) the rate at which the number of people relative to the size of the population fall below the poverty line B) the percentage of the population earning an annual income below the poverty line, […]

A perfectly competitive firm breaks even at a price equal to its minimum average total cost. Answer: Peanut butter and jelly are complements. If the price of peanut butter increases, the demand for jelly will increase. Answer: FALSE Suppose at […]

Bubba’s Hula Shack bar and bistro has begun giving customers who can show proof that they arrived at the establishment by public transportation a 10 percent discount on their total bill. This is an example of A) arbitrage. B) two-part […]

The long-run supply curve for a perfectly competitive, constant-cost industry A) is upward sloping. B) is horizontal. C) is downward sloping. D) is found by adding up the marginal cost curves for all firms in the industry. The following appeared […]

Table 15-1 A monopoly producer of foreign language translation software faces a demand and cost structure as given in Table 15-1. What is the marginal revenue from the sale of the 12th unit? A) $75 B) $50 C) $20 D) […]

Figure 2-1 Point B is A) technically efficient. B) unattainable with current resources. C) inefficient in that not all resources are being used. D) the equilibrium output combination. When firms benefit from the results of research and development they didn’t […]

Consider two single-malt whiskey distillers, Laphroaig and Knockando. If they advertise, they can both sell more whiskey and increase their revenue. However, the cost of advertising more than offsets the increased revenue so that each distiller ends up with a […]

Assume that the hourly price for the services of tarot card readers has risen and sales of these services have also risen. One can conclude that A) the law of demand has been violated. B) the number of tarot card […]

Market power in the United States causes a huge loss of economic efficiency. Expansionary fiscal policy involves increasing government purchases or increasing taxes. Answer: FALSE If inflationary expectations are increasing, we would expect that the nominal interest rate would also […]

Deadweight loss refers to the reduction in economic surplus resulting from a market not being in competitive equilibrium. When net exports equal zero, the economy is in macroeconomic equilibrium. Answer: FALSE An increase in liabilities will reduce a firm’s net […]

A monopolistically competitive firm should lower its price if its marginal revenue exceeds its marginal cost. A rising price level decreases consumption by decreasing the real value of household wealth. Answer: TRUE The question of whether economic growth is desirable […]

Table 10-3 The table above shows Lee’s marginal utility per dollar from consuming ice cream cones and cans of Lime Fizz Soda. The price of an ice cream cone is $2 and the price of Lime Fizz Soda is $1. […]

Inflation is measured A) using the level of the consumer price index. B) as the percentage change in the consumer price index. C) using the level of real GDP. D) as the percentage change in real GDP. Figure 5-3 The […]

Figure 16-7 The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails. The owners of the Lizard Lounge are considering the following four pricing options: a. A single price scheme where […]

Voluntary exchange ________ economic efficiency because neither the buyer nor the seller would agree to a trade unless ________. A) increases; they both benefit B) increases; only one party benefits C) decreases; neither benefit D) decreases; they both benefit Which […]

Table 12-2 Table 12-2 lists the various pounds (lbs.) of apples that Margie Stattler can sell. Assume that Margie operates in a perfectly competitive market. What is Margie’s total revenue if she sells 250 pounds of apples? A) $250 B) […]

In response to accounting scandals in 2002, the federal government passed legislation requiring that corporate directors have a certain level of expertise with financial information and mandating that chief executive officers personally certify the accuracy of financial statements. What is […]

Figure 11-7 Figure 11-7 shows the cost structure for a firm. When output level is 100, what is the total cost of production? A) $20 B) $1,000 C) $1,200 D) $2,000 The level of real GDP in the long run […]

Producer surplus is the Difference between the lowest price a firm is willing to accept for a product and the price it actually receives for the product. A depreciation of a country’s currency always lowers the domestic firm’s profits. Answer: […]

Expansionary fiscal policy crowds out both domestic investment and net exports. Economists assume people’s tastes are identical. Answer: FALSE An increase in the tax wedge associated with a given economic activity will decrease the level of that activity. Answer: TRUE […]

As output increases A) average variable cost becomes smaller and smaller. B) the difference between average total cost and average variable cost decreases. C) marginal cost increases continuously. D) the difference between average total cost and average variable cost becomes […]

Disposable personal income is defined as A) personal income less personal taxes plus indirect sales taxes. B) personal income less transfer payments plus personal taxes. C) personal income less personal taxes. D) personal income less depreciation. On a two-dimensional graph, […]

Which of the following would be classified as fiscal policy? A) The federal government passes tax cuts to encourage firms to reduce air pollution. B) The Federal Reserve cuts interest rates to stimulate the economy. C) A state government cuts […]

Some economists argue that the short-run Phillips curve is not vertical, and that monetary policy can be effective in the short run. Which one of the following is not one of the reasons for this skepticism? A) Empirical evidence shows […]

Sole proprietorships are ________ type of business. A) the most profitable B) the least common C) the most common D) the least risky Golda Rush quit her job as a manager for Home Depot to start her own hair dressing […]

What is the United States government’s formal definition of the poverty line? A) It is a level of annual income equal to total income in society divided by the population, adjusted for a family of four. B) It is a […]

An inward shift of the production possibilities frontier represents A) positive economic growth. B) negative economic growth. C) a rise in the unemployment rate. D) technological improvement. The poverty rate is defined as the percentage of the A) labor force […]

The demand for most farm products is relatively inelastic. All else constant, what is the effect on farm revenues as a result of the introduction of new and better farm equipment which increases in productivity? A) Farm revenues increase. B) […]

If people speculate that a run on one bank will cause a run on all banks in the financial system, and this speculation proves accurate, then the financial system would experience what is known as a A) commodity crisis. B) […]

One reason why McDonald’s charges a single price for its products is that it is difficult and costly for the company to determine each individual consumer’s willingness to pay. A real appreciation of the dollar is caused by either a […]

Suppose the required reserve ratio is 20 percent. If banks are conservative and choose not to loan all of their excess reserves, the real-world deposit multiplier is A) less than 5. B) equal to 5. C) greater than 5. D) […]

On a diagram of a production possibility frontier, economic growth is represented by the slope of the production possibility frontier. Answer: The Coase Theorem asserts that government intervention is a prerequisite for addressing externality problems. Answer: FALSE Optimal decisions are […]

If inventories decline by more than analysts predict they will decline, this implies that A) actual investment spending was greater than planned investment spending. B) actual investment spending was less than planned investment spending. C) actual investment spending was equal […]

Economists use game theory to analyze oligopolies because A) real markets are too complicated to analyze without using games. B) it is more enjoyable for economists and students to learn by playing games. C) game theory helps us to understand […]

The poverty rate is defined as the percentage of the A) labor force that is poor according to the federal government’s definition of poverty. B) population that is exempt from paying federal income taxes. C) population who qualify to receive […]

A subgame is a simultaneous game embedded in a sequential game. Marketing refers to all the activities necessary for a firm to sell a product to a consumer. Answer: TRUE If nominal GDP is less than real GDP, then the […]

Marla is an architect who is designing a home for Chuck. Chuck is paying Marla $150 per hour to design his new home. When Chuck and Marla get married, Marla continues to work on designing the home, but she no […]

When unemployment is above its natural rate, the inflation rate will eventually A) increase. B) decrease. C) move to its natural rate. D) become equal to the natural rate of unemployment. The ability of a firm to charge a price […]

In order to be binding, a price floor A) must lie above the free market equilibrium price. B) must lie below the free market equilibrium price. C) must coincide with the free market equilibrium price. D) must be high enough […]

David Card and Alan Kruger conducted a study of fast-food restaurants in New Jersey and Pennsylvania. The study found that A) there was a large reduction in employment of low-skilled workers when the minimum wage was raised in these states. […]

With an optimal two-part tariff, A) consumer surplus equals producer surplus. B) all consumer surplus is transformed into profit. C) consumers maximize consumer surplus. D) the firm earns zero profit. Economists played a key role in the development of merger […]

In the United States, health care spending as a percentage of GDP has declined since 1965. If planned investment is equal to actual investment, then aggregate expenditure is equal to GDP. Answer: TRUE By the 2000s, investment banks had become […]

During what period of time did the United States most consistently adhere to the gold standard? A) from the nineteenth century until the 1930s B) from the eighteenth century until the nineteenth century C) from 1914 until 1929 D) from […]

Which of the following is motivated by an efficiency concern? A) In 2009, the Obama administration increased unemployment benefits. B) As part of an economic stimulus package, each taxpayer received a $3,000 tax rebate check. C) Following a six-month drought, […]

Crowding out refers to a decline in ________ as a result of an increase in ________. A) tax revenues; unemployment B) government purchases; tax rates C) government purchases; private expenditures D) private expenditures; government purchases You have a bond that […]

Beginning in 1965, the head of the Antitrust Division of the U.S. Department of Justice began to change antitrust policy. How did antitrust policy change? A) For the first time horizontal mergers were allowed – with government approval – and […]

Figure 5-10 Chicken pox vaccinations for toddlers benefit society by protecting young children and by preventing an epidemic of the disease. Thus, the social benefits of chicken pox vaccinations exceed the private benefit for any quantity of vaccinations as illustrated […]

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. Which of the following statements regarding economic surplus in each market structure is true? A) Under perfectly competitive conditions, economic surplus in this industry […]

With the Troubled Asset Relief Program (TARP), the Treasury provided funds to banks in exchange for stock. If the marginal tax rate is greater than the average tax rate, the tax structure is described as regressive. Answer: FALSE[/cpmembership] In a […]

Currency traders expect the dollar to depreciate. What impact will this have on equilibrium in the foreign exchange market? A) The dollar will appreciate, and the equilibrium quantity of dollars will decrease. B) The dollar will depreciate, and the equilibrium […]

The marginal cost curve is U-shaped because of the law of increasing opportunity costs. The Sarbanes-Oxley Act of 2002 requires that each member of the board of directors personally certify the accuracy of financial reports. Answer: FALSE If demand is […]

Figure 12-13 Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity. If the firm represented in the diagram continues to stay in business, in the long-run equilibrium A) it will reduce its output to […]

Suppose the price of capital and labor remain constant but that the average educational level of workers has increased and therefore, productivity of labor increases. This would lead a firm A) to adopt a more capital-intensive production technology. B) to […]

Gold is an example of A) commodity money. B) fiat money. C) barter money. D) M1. If a stock’s dividend is expected to grow at a constant rate of eight percent in the future and it has just paid a […]

Increases in population shift the market supply curve for labor to the right. Answer: Transfer payments are subtracted from national income to get to personal income. Answer: FALSE The GDP deflator is a measure of the price level which is […]

Figure 2-2 Figure 2-2 above shows the production possibilities frontier for Vidalia, a nation that produces two goods, roses and orchids. If Vidalia chooses to produce 40 dozen orchids, how many roses can it produce to maximize production? A) 30 […]

A decrease in quantity supplied is represented by a leftward shift of the supply curve. The dynamic aggregate demand and aggregate supply model accounts for the price level rising every year. Answer: TRUE A network externality causes firms to sacrifice […]

Suppliers will be willing to supply a product only if A) the price received is less than the additional cost of producing the product. B) the price received is at least equal to the additional cost of producing the product. […]

If prices rise on average in the U.S. economy, the purchasing power of a dollar declines. A decrease in population shifts the production possibility frontier outwards over time. Answer: FALSE A monopolist’s demand curve is the same as the marginal […]

Ceteris paribus, a decrease in the government’s budget deficit will increase domestic investment and net foreign investment. As the number of firms in a market decreases, the supply curve will shift to the left and the equilibrium price will rise. […]

The labor supply for an industry would decrease if A) the wage rate falls. B) the percentage of the population from age 16 to 65 decreases. C) the government welcomes foreign workers into the country. D) a greater percentage of […]

Consumption spending is $5 million, planned investment spending is $8 million, unplanned investment spending is $2 million, government purchases are $10 million, and net export spending is $2 million. What is aggregate expenditure? A) $15 million B) $23 million C) […]

Which is the least common type of business? A) corporation B) partnership C) sole proprietorship D) impossible to determine without further information Which of the following causes the unemployment rate to understate the true extent of joblessness? A) Many full […]

Monetarists think that the Fed should use ________ as a target when conducting monetary policy. A) the money supply B) the federal funds rate C) the Treasury bill rate D) the inflation rate E) the unemployment rate Table 23-4 Given […]

Figure 4-11 Figure 4-11 shows the demand and supply curves for the coffee market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at $7.00. What is the […]

When aggregate expenditure = GDP, A) macroeconomic equilibrium occurs. B) the federal budget is balanced. C) net exports equal zero. D) saving equals zero. Adhira buys chocolates and almonds. She has 3 bars of chocolates and 4 bags of almonds. […]

In September 2012, the average price of gasoline in the United States was $3.91 per gallon, and consumers purchased nearly 5 percent less gasoline than they had during September 2011, when the average price of gasoline was $3.66 per gallon. […]

In ________, health care spending per person based on income per person is significantly higher than the average for most other countries. A) Austria B) Canada C) Norway D) the United States Table 13-4 Table 13-4 lists estimated revenues and […]

In evaluating the degree of economic efficiency in a market, we can state that the size of the deadweight loss in a market will be smaller A) the greater the difference between marginal cost and price. B) the smaller the […]

The change in consumption divided by the change in disposable income is equal to A) the slope of the consumption function. B) aggregate expenditure. C) household saving. D) real GDP. How does the owner of a sole proprietorship relate to […]

When a business is set up as a sole proprietorship, the owner of the business faces limited liability. An inferior good is a good for which the quantity demanded decreases as the price increases, holding everything else constant. Answer: FALSE […]

An increase in liabilities will reduce a firm’s net worth. Suppose a monopoly is producing its profit-maximizing output level. Now suppose the government imposes a lump-sum tax on the monopoly, independent of its output. As a result the monopolist will […]

Which of the following is not a flow in the circular flow model? A) the flow of goods and services and the flow of resources to produce goods and services B) the flow of profit and the flow of revenue […]

Protectionism refers to the use of trade barriers to shield domestic firms from foreign competition. In the United States, imports and exports make up more than half of GDP. Answer: FALSE Price leadership is a form of explicit collusion where […]

In order to support an undervalued euro, the European Central Bank must ________ dollars. Over time, this action will cause the rate of inflation in the EU to ________. A) buy; decrease B) buy; increase C) sell; increase D) sell; […]

Many economists are critical of proposals to pass comparable worth legislation. Which of the following is the best explanation for this criticism? A) Comparable worth legislation will only lead to efficient market outcomes if women in low-paying jobs suffer from […]

Figure 2-14 Figure 2-14 shows the production possibilities frontiers for Costa Rica and Guatemala. Each country produces two goods, pineapples and coconuts. What is the opportunity cost of producing 1 ton of coconuts in Guatemala? A) 1/2 of a ton […]

Growth in potential GDP in the United States is estimated to be about A) 8.25% per year. B) 5.0% per year. C) 3.2% per year. D) 1.5% per year. Figure 7-2 Figure 7-2 represents the market for vaccinations. Vaccinations are […]

Figure 4-1 Figure 4-1 shows Kendra’s demand curve for ice-cream cones. If the market price is $2.50, what is the maximum number of ice cream cones that Kendra will buy? A) 1 B) 2 C) 3 D) 4 Scenario 1-2 […]

You have just opened a new Italian restaurant in your hometown where there are three other Italian restaurants. Your restaurant is doing a brisk business and you attribute your success to your distinctive northern Italian cuisine using locally grown organic […]

The ABC Company manufactures routers that are used to provide high-speed Internet service. ABC sells an average of 1,000 routers each month, but to exhaust economies of scale in its industry ABC would have to sell 3,000 routers each month. […]

The ________ curve is vertical. A) short-run aggregate supply B) short-run aggregate demand C) long-run aggregate supply D) long-run aggregate demand What is the principal-agent problem? A) It is a problem caused by a person (principal) who hires an agent […]

You borrow $10,000 from a bank for one year at a nominal interest rate of 5%. The CPI over that year rises from 180 to 200. What is the real interest rate you are paying? A) 15% B) 5% C) […]

When there is a positive externality A) the private benefit received by consumers is greater than the external benefit. B) the social benefit received by consumers is greater than the private benefit. C) the private benefit received by consumers is […]

Zane’s Vanes is a service that restores old weather vanes. Zane has just spent $125 purchasing a 1920s era weather vane which he expects to restore and sell for $500 once the work is completed. After having spent $125, Zane […]

Figure 10-7 Manuri has $300 to spend on Pilates classes and Yoga classes. The price of a group Pilates class is $20 and the price of a group Yoga class is $10. Manuri’s optimal bundle is given by “A” in […]

Yield management is the practice of A) determining production functions to minimize production costs. B) forecasting competitors’ responses to price changes. C) using buyer data to rapidly adjust prices. D) using information technology to find the best interest rate. Linesha, […]

Figure 7-2 Figure 7-2 represents the market for vaccinations. Vaccinations are considered a benefit to society, and the figure shows both the marginal private benefit and the marginal social benefit from vaccinations. The efficient equilibrium price is A) $60. B) […]

When production reflects consumer preferences, ________ occurs. A) allocative efficiency B) productive efficiency C) equity D) efficient central planning Table 8-14 Consider the following data on nominal GDP and real GDP (values are in billions of dollars): The GDP deflator […]

Figure 19-5 The Chinese government pegs the yuan to the dollar, at one of the specified exchange rates on the graph, such that it overvalues its currency. Using the figure above, this would generate A) a shortage of yuan equal […]

Which of the following is a reason why increases in the price level result in a decline in aggregate expenditure? A) Price level increases raise real wealth, which causes consumption spending and aggregate expenditure to decline. B) Price level increases […]

Scenario 1-1 Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes, “Although the last 400 t-shirts we produced and sold increased our revenue by $4,000 […]

The payment received by suppliers of entrepreneurial skills is called profit. If, when price changes by 35 percent, the quantity demanded changes by 7 percent, then the absolute value of the price elasticity of demand is 5. Answer: FALSE The […]

To what do economists attribute the rapid growth of labor productivity in the United States relative to other countries? A) the flexibility of U.S. labor markets and the efficiency of the U.S. financial system B) the strict government rules in […]

Figure 4-10 Figure 4-10 shows the market for apartments in Bay City. Recently, the government imposed a rent ceiling at R0. Suppose that instead of a price ceiling, the government imposed a price floor of R1. What is the quantity […]

Congress has divided the authority to police mergers between the Antitrust Division of the U.S. Department of Justice (AD) and the Federal Trade Commission (FTC). How is this authority divided? A) The AD decides whether proposed horizontal mergers will be […]

Unemployment insurance is usually available to workers in ________ for a shorter period of time than it is in ________. A) the United States; Canada B) Canada and some Western European countries; the United States C) Canada; some Western European […]

The long-run aggregate supply curve is ________, while the long-run Phillips curve is ________. A) positively sloped; negatively sloped B) vertical; negatively sloped C) vertical; also vertical D) positively sloped; positively sloped Figure 12-9 Figure 12-9 shows cost and demand […]

Economists have shown that when the ultimatum game experiment is carried out, both allocators and recipients act as if fairness is important. A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost. Answer: TRUE […]

Figure 13-3 The marginal revenue from one additional unit sold is the sum of the gain in revenue from selling the additional unit and the loss in revenue from having to charge a lower price to sell the additional unit. […]

If your total satisfaction increases when you consume another unit, your marginal utility must be A) increasing. B) decreasing. C) negative. D) positive. In 1995, the General Agreement on Tariffs and Trade (GATT), which was established in 1948, was replaced […]

Jack was unemployed two weeks ago but just started a new job. As a result of this increase in the number of employed workers, which of the following occurred? A) The labor force participation rate increased. B) The unemployment rate […]

A monopolist currently sells 18 units of a good. If marginal revenue on the last unit sold is $117, then the price of the good must be less than $117. Economist Robert Higgs showed that World War II brought great […]

How does the decreasing use of DVD players affect the market for prerecorded DVDs? A) The demand curve for prerecorded DVDs shifts to the right. B) The quantity of prerecorded DVDs demanded decreases. C) The quantity of prerecorded DVDs demanded […]

Suppose your grandfather earned a salary of $12,000 in 1964. If the CPI is 31 in 1964 and 219 in 2013, then the value of your grandfather’s salary in 2013 dollars is approximately A) $84,775. B) $63,830. C) $37,200. D) […]

If the probability of losing your job remains ________, a recession would be a good time to purchase a home because the Fed usually ________ interest rates during this time. A) low; lowers B) low; raises C) high; lowers D) […]

Suppose there is a bank panic. Which of the following would not be a consequence of this bank panic? A) Bank total reserves would decrease. B) Required reserves would increase. C) Bank checking account balances would decrease. D) Individual banks […]

Which of the following is not an example of a government-imposed entry barrier? A) patents B) occupational licensing C) barriers to international trade D) antitrust legislation In the long run, if price is less than average cost A) there is […]

The cyclically adjusted budget deficit or surplus measures what the deficit or surplus would be if the economy was A) in a recession. B) in an expansion. C) at potential GDP. D) at potential tax revenue. When you buy at […]

During a business cycle expansion, total production ________ and total employment ________. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases The Brooks Appliance Store and the Lefingwell Appliance Store (both are located in the same city) […]

An implicit cost is A) a nonmonetary opportunity cost. B) a cost unique to sole proprietorships. C) a cost that involves spending money. D) a cost unique to corporations. Economics does not study correct or incorrect behaviors, but rather it […]

One reason purchasing power parity does not exactly hold is that many goods are not traded internationally. In face of rational expectations regarding changes in monetary policy, the short-run Phillips Curve may be vertical. Answer: TRUE For a person to […]

Suppose the extra cost for a doctor to keep his office open for one extra hour is $200. Then, the doctor should stay open for the extra hour even if he can generate additional revenue of $200 for that hour. […]

Money’s most narrow definition is based on its function as a A) store of value. B) unit of account. C) standard of deferred payment. D) medium of exchange. E) standard of barter. The real business cycle model focuses on how […]

Which of the following has not contributed to the overall decline in death rates in the United States since 1981? A) a decline in smoking B) the decline in the population C) the availability of new prescription drugs D) new […]

If the dollar appreciates against the Mexican peso, A) Mexican imports to the U.S. become more expensive. B) U.S. exports to Mexico become less expensive. C) U.S. exports to Mexico become more expensive. D) The value of Mexican imports to […]

Figure 13-13 What is the output price? A) P4 B) P3 C) P2 D) P1 If demand is taken into account, firms that use cost-plus pricing can adjust price by A) letting sales fall, but hold the markup constant if […]

Figure 3-1 A decrease in the price of the product would be represented by a movement from A) A to B. B) B to A. C) D1 to D2. D) D2 to D1. U.S. taxpayers spend many hours during the […]

If the best lawyer in town is also the best at operating a word processor, then according to economic reasoning, this person should A) split her time evenly between being a lawyer and a word processor. B) specialize in being […]

The government purchases multiplier is defined as A) . B) . C) . D) . If the U.S. government removes tariffs it had placed on imports from countries that have been accused of deliberately undervaluing their currencies, the price of […]

Gross domestic product understates the total production of final goods and services because of the omission of A) exports. B) inflation. C) intermediate goods. D) household production. Figure 17-6 Figure 17-6 shows two different compensation schemes for the Safelite Glass […]

Figure 3-2 A decrease in productivity would be represented by a movement from A) A to B. B) B to A. C) S1 to S2. D) S2 to S1. The reason that the coffeehouse market is monopolistically competitive rather than […]

Monetary policy is conducted by the U.S. Treasury Department. In the United States in 2011, over 90 percent of people without health insurance were below the age of 34. Answer: FALSE Positive analysis is concerned with “what ought to be,” […]

When an investor buys a corporate bond, A) the investor becomes part owner of the corporation. B) the principal of the bond is a loan to the corporation. C) the interest made on the bond represents the bondholders limited liability […]

The quantity theory of money implies that the price level will be stable (no inflation or deflation) when the growth rate of the money supply equals A) 0. B) the growth rate of the price level. C) the growth rate […]

Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant? A) Demand is likely to be […]

A reason why there is more competition among restaurants than among large discount department stores is that restaurants A) have to cater to a variety of consumer tastes while department stores do not. B) unlike department stores, have to abide […]

Figure 13-2 The marginal revenue from selling the additional unit Qinstead of Qa equals A) the area (G + H). B) the area (H – E). C) the area (E + F) – (G + H). D) the area G. […]

The success of Walt Disney’s animated film The Lion King in 1994, increased production of animated films, increasing the demand for animators much faster than the supply of animators was increasing. As a result, in the market for animators, the […]

If the government finances an increase in government purchases with an increase in taxes, which of the following would you expect to see? A) an increase in the exchange rate B) a decrease in the interest rate C) a decrease […]

If a country has a comparative advantage in producing a product, it may not have an absolute advantage in producing that product. Economies cannot function without money. Answer: FALSE The basis for trade is absolute advantage, not comparative advantage. Answer: […]

Which of the following models advocate that the quantity of money should be increased at a constant rate? A) the monetarist model B) the new classical model C) the real business cycle model D) the new Keynesian model A sequential […]

Figure 24-1 Ceteris paribus, a decrease in personal income taxes would be represented by a movement from A) AD1 to AD2. B) AD2 to AD1. C) point A to point B. D) point B to point A. A student comments […]

If the cross-price elasticity of demand for computers and software is negative, this means the two goods are A) substitutes. B) complements. C) inferior. D) normal. One way investment banks differ from commercial banks is that investment banks A) lend […]

Private costs A) are borne by producers of a good while social costs are borne by government. B) are borne by consumers of a good while social costs are borne by government. C) are borne by producers of a good […]

Figure 17-1 Figure 17-1 shows the marginal revenue product for Dale’s Hand-Sewn Doilies, a producer of linen doilies. If Dale can sell her doilies at $2 each, what is the marginal product of the 5th worker? A) $28 B) 28 […]

Collusion between two firms occurs when A) the firms independently pursue strategies that could hurt each other. B) firms explicitly or implicitly agree to adopt a uniform business strategy. C) announce that each will match its rival’s market price. D) […]

Frieda is at her local florist to buy a dozen roses. She is willing to pay $75 for the roses, and buys them for $75. Frieda’s consumer surplus from the purchase is A) $150. B) $75. C) $37.50. D) $0. […]

Horatio can produce either a combination of 15 bird houses and 25 wind chimes or a combination of 30 bird houses and 15 wind chimes. If he now produces 30 bird houses and 15 wind chimes, what is the opportunity […]

Figure 16-5 In the dynamic model of AD–AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, Congress and the president would most likely […]

Suppose the supply curve for digital cameras shifts to the right. This will cause a relatively large decrease in the price of digital cameras if both demand and supply are inelastic. Answer: The U.S. government would never approve a proposed […]

Even if the population declines, scarcity will still exist. The minimum wage is an example of a price ceiling. Answer: FALSE Ceteris paribus, an increase in the money supply will lower short-term interest rates. Answer: TRUE The U.S. economy would […]

Collusion would be common in an oligopoly and a monopolistically competitive industry. Answer: Technological advancements that increase labor’s productivity shift the labor supply curve to the right. Answer: FALSE The natural rate of unemployment consists of frictional unemployment plus structural […]

Which of the following is a factor of production? A) a necklace produced by a jewelry manufacturer B) 50 shares of Google stock C) the security guard at the local bank D) $1,000 in casino chips Figure 5-10 Chicken pox […]

If a producer is not able to expand its plant capacity immediately, it is A) bankrupt. B) operating in the long run. C) operating in the short run. D) losing money. For a perfectly competitive firm, which of the following […]

At macroeconomic equilibrium, total ________ equals total ________. A) spending; production B) investment; inventories C) consumption; production D) taxes; transfers The law of demand implies, holding everything else constant, that as the price of gelato A) increases, the demand for […]

DeShawn’s Detailing is a service that details cars at the customers’ homes or places of work. DeShawn’s cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will […]

To compete in the automobile market, Tesla must make many strategic decisions such as whether to introduce a new car model, how to sell and service its cars, and where to advertise. At Tesla’s Fremont, California plant, managers must decide […]

Which of the following information about fiat money is false? Fiat money A) is backed by gold. B) serves as a medium of exchange. C) has little to no value except as money. D) is authorized by a central bank […]

Foreign direct investment occurs when a Chinese corporation A) purchases stock issued in China. B) opens a new Chinese factory. C) purchases 1,000 shares of stock issued by an American company. D) opens a new factory in France. If the […]

Article Summary. A growing number of U.S. citizens are going to other countries for elective surgery procedures. Improved quality and significant cost savings abroad have attracted an increasing number of what are being referred to as American medical tourists, especially […]

The General Agreement on Tariffs and Trade (GATT) was formed to replace the World Trade Organization (WTO) because the WTO was empowered only to reduce barriers to trade in goods. The GATT is an agreement to reduce barriers to trade […]

In an open economy, the current account balance equals ________. (Assume that the capital account is zero and net transfers are zero.) A) net foreign investment + domestic investment B) net capital outflows C) the financial account balance + net […]

An increase in a fixed exchange rate from $2.00 per pound to $2.10 per pound is called a(n) ________ of the pound. A) devaluation B) depreciation C) appreciation D) revaluation A quota is A) a limit placed on the quantity […]

The ________ is a measure of the price level and is calculated by dividing ________ by ________ and multiplying by 100. A) CPI; real GDP; nominal GDP B) GDP deflator; real GDP; nominal GDP C) GDP deflator; nominal GDP; real […]

How much is a bond that pays $50 in coupon payments for 3 years and $1,000 at the end of the third year worth if the interest rate is 10%? A) $876 B) $952 C) $1,045 D) $1,150 Which of […]

Which of the following describes a situation in which a good or service is produced at the lowest possible cost? A) productive efficiency B) allocative efficiency C) marginal efficiency D) profit maximization Increasing the growth rate of GDP per capita […]

Under autarky, consumer surplus is represented by the area A) above the supply curve and below the equilibrium price. B) above the supply curve and below the demand curve. C) below the demand curve and above the equilibrium price. D) […]

a. Define the term “globalization.” b. Describe the benefits of globalization. c. Who is likely to oppose globalization and why? Which of the following items is likely to have the highest income elasticity of demand? A) a luxury cruise to […]

If the purchasing power of a dollar is greater than the purchasing power of the yen, purchasing power parity would predict that A) in the short run, exchange rates will move to equalize the purchasing power of the dollar and […]

An increase in the supply of capital, which is a complement to labor, will lead to A) a decrease in the quantity of labor demanded. B) an increase in the demand for labor. C) a decrease in the demand for […]

Consider the following statements: a. Consumers rent more DVDs from a video store that rents DVDs at a lower price than other rival video stores in the area. b. Department stores take steps to increase security since they believe it […]

The Organization of Petroleum Exporting Countries (OPEC) controls about 75 percent of the world’s proven oil reserves. Economists refer to OPEC as a cartel because A) OPEC is a monopoly, but it is located outside of the boundaries of any […]

Shrimp is an increasingly popular part of the American diet. Louisiana shrimpers, who represent the bulk of the U.S. industry, were almost all put out of business by Hurricane Katrina. How did this affect the equilibrium price and quantity of […]

Goods can be classified on the basis of whether their consumption is A) internal and excludable. B) rival and competitive. C) includable and cooperative. D) rival and excludable. If 11 workers can produce 53 units of output while 12 workers […]

The price elasticity of supply is equal to A) the value of the slope of the supply curve. B) the change in quantity supplied divided by the change in price. C) the percentage change in price divided by the percentage […]

In perfect competition A) the market demand curve and the individual’s demand are identical. B) the market demand curve is perfectly inelastic while demand for an individual seller’s product is perfectly elastic. C) the market demand curve is perfectly elastic […]

The Federal Reserve responded to the 2008 financial crisis in several ways. Which of the following is not one of the ways the Fed responded? A) The Fed made investment banks eligible for discount loans. B) The Fed lent investment […]

Political stability is not a prerequisite to economic growth. Answer: College education tends to result in a negative externality because the recipient does not receive the full benefit of the education. Answer: FALSE If additional units of a good are […]

Productive efficiency is achieved when firms produce goods and services A) most desired by society. B) at the highest profit margin. C) at the lowest cost. D) of the highest quality. Table 19-17 A very simple economy produces three goods: […]

Total utility is constant along a given indifference curve. Purchasing a firm’s stock in an IPO can be risky because financial information may not be fully disclosed. Answer: TRUE An increase in disposable income will shift the aggregate demand curve […]

An increase in the supply of capital, which is a substitute to labor, will lead to a decrease in the demand for labor. The demand for most farm products is relatively inelastic. A drought that reduces the supply of farm […]

On an isoquant/isocost graph, the least cost input combination of producing a given output is A) any point on the isoquant curve. B) any point on the isocost curve. C) given by the tangency between the isoquant curve and the […]

The Fed can directly lower the inflation rate. Those who favor changes in the market for health care that would make it more like the markets for other goods and services are generally in favor of universal health care coverage. […]

According to a recent study, “Stricter college alcohol policies, such as raising the price of alcohol, or banning alcohol on campus, decrease the number of students who use marijuana.” On the basis of this information, how would you describe alcohol […]

When a tax on output is imposed to internalize the external costs of pollution, the supply curve shifts down by the amount of the tax. In the market for factors of production, firms earn income by selling factors of production […]

Suppose that in 2014, all prices in the economy double and that all wages and salaries also double. In 2014 you A) are worse off than you were in 2013 as you can no longer afford to buy as many […]

Accounting costs exclude implicit costs. A university must decide if it should stop offering foreign language classes. This decision involves answering the economic question of “how to produce.” Answer: FALSE The division of the burden of a tax between buyers […]

Monetarism is a school of thought put forth by ________, who argued that the economy would most likely be at potential GDP. A) Karl Marx B) Milton Friedman C) Finn Kydland and Edward Prescott D) Robert Lucas and Thomas Sargent […]

Recent rapid economic growth in India and China has reduced the amount of “brain drain” in those countries. A monopolist currently sells 18 units of a good. If marginal revenue on the last unit sold is $117, then the price […]

Which of the following countries does not come close to the free market benchmark? A) the United States B) Japan C) Cuba D) France Consumers usually pay less than the total cost of medical treatment because A) a third party, […]

Table 4-4 Table 4-4 shows the demand and supply schedules for the low-skilled labor market in the city of Westover. What is the equilibrium hourly wage (W*) and the equilibrium quantity of labor (Q*)? A) W* = $9.00; Q* = […]

One of your classmates asserts that advertising, marketing research, and brand management are redundant expenditures because a firm can obtain the same information by simply looking at what customers are already buying. Which of the following is not a response […]

Which of the following is a normative economic statement? A) The price of gasoline is too high. B) The current high price of gasoline is the result of strong worldwide demand. C) When the price of gasoline rises, the quantity […]

Figure 4-6 Figure 4-6 shows the market for granola. The market is initially in equilibrium at a price of P1 and a quantity of Q1. Now suppose producers decide to cut output to Q2 in order to raise the price […]

When Disneyland opened in 1955, what prices were charged for admission and rides? A) Admission was free; customers paid for rides. B) All customers paid the same price for admission; rides were free. C) Admission prices varied by your age, […]

Table 6-3 Over what range of prices is the demand elastic? A) over the entire range of prices B) between $14 and $16 C) between $8 and $16 D) between $2 and $8 Table 2-11 Table 2-11 shows the number […]

Which of the following is an implicit cost of production? A) the loss in the value of capital equipment due to wear and tear B) the salary you pay yourself for running your business C) the utility bill paid to […]

Table 2-15 Table 2-15 shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns or cultivating gardens. What is George’s opportunity cost of mowing a lawn? A) half a garden […]

The tax multiplier equals the change in ________ divided by the change in ________. A) taxes; equilibrium real GDP B) equilibrium real GDP; taxes C) taxes; consumption spending D) consumption spending; taxes Figure 2-5 If the economy is currently producing […]

________ tended to increase spending on health care in the United States. A) The aging of the U.S. population, rather than advances in medical technology, has B) Advances in medical technology, rather than the aging of the U.S. population, has […]

Payments by a corporation to its shareholders are known as A) stocks. B) bonds. C) coupons. D) dividends. Some economists and lawmakers believe the Fed lost some of its independence when it A) began printing money at the directive of […]

Cassie’s Quilts alters, reconstructs and restores heirloom quilts. Cassie has just spent $800 purchasing, cleaning and reconstructing an antique quilt which she expects to sell for $1,500 once she is finished. After having spent $800, Cassie discovers that she would […]

Figure 16-5 In the dynamic model of AD–AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and no fiscal or monetary policy is […]

Mortgages issued to borrowers whose credit histories include failures to make payments on bills are known as ________ mortgages. A) catastrophic B) variable rate C) subprime D) Alt-A If the price of train tickets decreases, what will be the impact […]

Figure 11-10 Suppose for the past 8 years the firm has been producing Qdunits per period using plant size ATC4. Now, following a permanent change in demand, it plans to cut production to Qc units. What will happen to its […]

What happens in the primary market? A) primary inputs like electricity are sold B) a corporate financial manager will resell previously issued shares of stock C) newly issued claims are sold by the borrowing firm to the initial buyer D) […]

Suppose your marginal utility from consuming the 3rd slice of cake is zero, then your total utility from consuming cake is A) maximized. B) decreasing. C) negative. D) increasing. The profits a corporation keeps to finance future expansion are known […]

Figure 16-6 In the dynamic model of AD–AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, Congress and the president would most likely […]

Figure 13-2 The marginal revenue from selling the additional unit Qinstead of Qa equals A) the area (G + H). B) the area (H – E). C) the area (E + F) – (G + H). D) the area G. […]

If real GDP per capita in Ireland is estimated to be $7,400 in 2014, what will real GDP per capita be in 2019 if real GDP per capita grows at an annual rate of 2.8%? A) $7,607 B) $8,496 C) […]

Tabitha shares a flea market booth with her sister. Her share of the rent is $150 per month. She is considering moving to her own, larger booth which she will not have to share with anyone. The larger booth rents […]

One difference between stocks and bonds is that A) stocks are financial securities, while bonds are labor market securities. B) stocks are usually issued in electronic form, while bonds are usually issued in paper form. C) stocks represent ownership in […]

The supply of loanable funds has a ________ slope because the greater the interest rate, the ________ the reward to saving, and the ________ the quantity of loanable funds supplied. A) positive; lesser; lesser B) positive; greater; lesser C) negative; […]

Potential GDP in the United States A) does not change over time. B) grows as the economy grows. C) changes over a given business cycle. D) declines over time. Figure 2-4 Figure 2-4 shows various points on three different production […]

A decrease in aggregate demand causes a decrease in ________ only in the short run, but causes a decrease in ________ in both the short run and the long run. A) the price level; real GDP B) real GDP; real […]

Vineyards can grow either red wine grapes or white wine grapes on their land. Which of the following would cause the supply of red wine grapes to decrease? A) an increase in the price of white wine grapes B) a […]

Figure 10-5 Which of the following statements is true? A) The consumer gets more utility from bundle than from bundle v. B) The consumer gets less utility from bundle w than from bundle v. C) Bundles r, s, t and […]

Which of the following statements is true about profit? A) Profit refers to the revenue received from the sale of a quantity of goods. B) Profit is calculated by multiplying price and quantity sold. C) The terms “accounting profit” and […]

An individual’s labor supply curve shows A) the maximum wage rates offered to that individual by various potential employers. B) the relationship between wages and the quantity of labor that she is willing to supply. C) the relationship between wages […]

Figure 5-1 Figure 5-1 shows a market with an externality. The current market equilibrium output of Q1 is not the economically efficient output. The economically efficient output is Q2. Suppose the current market equilibrium output of Q1 is not the […]

Firms disclose financial statements in ________ and in ________. A) periodic filings to the federal government; annual reports to shareholders B) daily filings to the federal government; daily reports to shareholders C) monthly reports to shareholders; 5-year balance statements to […]

Under autarky, domestic producer surplus is represented by the area A) above the supply curve and below the equilibrium price. B) above the supply curve and below the demand curve. C) below the demand curve and above the equilibrium price. […]

Two stores€Lazy Guy’s and Ralph’s Recliners€are located in the same city. Both stores buy recliner chairs from the same manufacturer at the same price and both stores are about the same size, so that the fixed costs of production for […]

Consider the market for blackjack dealers in Las Vegas. In each of the following cases, explain what happens to the equilibrium wage rate and the quantity of blackjack dealers hired. a. Three new large resort casinos open in Las Vegas. […]

The producer price index tracks the prices firms receive for goods and services at all stages of production. If you purchase a share of stock from your friend who initially purchased the stock three years ago, your purchase of the […]

Which of the following statements about the economic decisions consumers, firms, and the government have to make is false? A) Governments face the problem of scarcity in making economic decisions. B) Only individuals face scarcity; firms and the government do […]

When plasma television sets were first introduced prices were high and few firms were in the market. Later, economic profits attracted new firms and the price of plasma televisions fell. This example illustrates A) a decreasing-cost industry. B) that consumers […]

Employees at the university have negotiated a 5 percent increase in wages for the next year, based on their inflation expectations. If inflation is actually 4 percent over the next year, which of the following will occur? A) Unemployment of […]

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. Which of the following statements comparing the conditions in the industry under both market structures is true? A) A monopoly will produce more and […]

Figure 9-5 Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. Figure 9-5 shows the impact of this tariff. If the tariff was replaced by a quota which limited coffee imports to 20 million pounds, the […]

As spending on government purchases increases, income rises and money demand falls. An increase in wages raises the opportunity cost of leisure and leads to an increase in the quantity supplied of labor. Answer: TRUE The income effect of a […]

In the United States, the typical person who has lost his or her job finds another one in a few months except during severe recessions. A commission system of compensation reduces the risk to workers during seasonal periods when business […]

Tax cuts on business income increase aggregate demand by increasing A) business investment spending. B) consumption spending. C) government spending. D) wage rates. Table 7-3 Mateo and Celeste produce custom saddles and spurs. Table 7-3 lists the number of saddles […]

Logrolling refers to attempts by individuals to use government action to make themselves better off at the expense of others. The total amount of producer surplus in a market is equal to the area above the market supply curve and […]

Foreign direct investment declined worldwide during the recession of 2007-2009. The decline in foreign direct investment in developing countries can make it more difficult for these countries to break out of the vicious cycle of low economic growth and A) […]

All else equal, as the price of a product falls, the quantity supplied increases. Market equilibrium occurs where the quantity supplied is equal to the quantity demanded. Answer: TRUE The additional output a firm produces by hiring one more worker […]

Assume that the hourly price for the services of personal trainers has risen and sales of these services have also risen. One can conclude that A) the law of demand has been violated. B) the number of personal trainers has […]

The key idea of the aggregate expenditure model is that in any particular year, the level of GDP is determined mainly by A) investment spending. B) export spending. C) government spending. D) the level of aggregate expenditure. A firm’s net […]

Imports are goods and services bought domestically but produced in other countries. Policies based on positive economic ideas tend to decrease economic efficiency and reduce equity. Answer: FALSE The incidence of a tax depends on whether the government collects the […]

If the current unemployment rate is 5%, under which of the following circumstances would you expect the Fed to use contractionary monetary policy? A) if the natural rate of unemployment is below 5% B) if the natural rate of unemployment […]

The Clayton Act is an antitrust law that was passed to A) outlaw monopolization. B) address loopholes in the Sherman Act. C) prohibit charging buyers different prices if the result would reduce competition. D) toughen restrictions on mergers by prohibiting […]

In the principal-agent relationship, the agent is A) the owner of a resource that has hired another party to act on his behalf. B) the person who is placed in control over resources that are not his own, with a […]

Buying a house during a recession may be a good idea if your job seems secure because the Federal Reserve often lowers interest rates during a recession. Consumers in monopolistically competitive markets face a tradeoff between paying prices greater than […]

Suppose the U.S. government encouraged new medical school graduates to take over existing practices from doctors wishing to retire by paying both the new and retiring doctors $100,000. These doctors would be exemplifying the economic idea that A) people are […]

Assume that the price for swimming pool maintenance services has risen and sales of these services have fallen. One can conclude that A) the law of supply has been violated. B) the demand for swimming pool maintenance services has increased. […]

Figure 4-4 Figure 4-4 shows the market for tiger shrimp. The market is initially in equilibrium at a price of $15 and a quantity of 80. Now suppose producers decide to cut output to 40in order to raise the price […]

For years economists believed that market structure explained the ability of some firms to earn economic profits. For example, firms in industries with little competition and high barriers to entry would earn higher profits than firms in competitive industries with […]

Marginal revenue is A) total revenue divided by the total quantity of output. B) the change in profit divided by the change in the quantity of output. C) the change in total revenue divided by the change in total cost. […]

If inflationary expectations on the part of the public increase, the trade-off between inflation and unemployment becomes worse. The purchase of foreign stocks and bonds by a U.S. brokerage firm is an example of capital inflows to the United States. […]

In labor economics, the term “customer discrimination” refers to a situation where customers are charged different prices for services rendered by a firm. If production displays constant returns to scale, then all economies of scale have been exhausted. Answer: TRUE […]

If a firm’s fixed cost exceeds its total revenue, the firm should stop production by shutting down temporarily. In March 2008, the Fed announced that primary dealers would be eligible to receive discount loans. Answer: TRUE In economics, the term […]

If the government finances an increase in government purchases with an increase in taxes, which of the following would you not expect to see? A) an increase in the exchange rate B) a decrease in the interest rate C) an […]

Figure 2-2 Figure 2-2 above shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods, meat and vegetables. If Mendonca chooses to produce 120 pounds of meat, how much vegetables can it produce to maximize production? […]

The value of the four-firm concentration ratio that many economists consider indicative of the existence of an oligopoly in a particular industry is A) anything greater than 10 percent. B) anything greater than 20 percent. C) anything greater than 30 […]

Using a broader measure of the unemployment rate where discouraged workers and part-time workers who wished to work full time were counted as unemployed, the BLS estimates the unemployment rate in September 2011 would have ________ compared to the measured […]

Table 20-15 Looking at the table above, real average hourly earnings were equal to ________ in 2012. A) $9 B) $9.52 C) $10 D) $12 ) Figure 24-2 Ceteris paribus, a decrease in the capital stock would be represented by […]

An income tax system is ________ if marginal tax rates increase as income increases. A) progressive B) regressive C) efficient D) equitable Which of the following statements is correct? A) Economic profit takes into account all costs involved in producing […]

For a person to have a comparative advantage in producing a product, he must be able to produce that product at a higher opportunity cost than his competitors. One example of physical capital is the amount of savings that you […]

An increase in government spending lowers interest rates and increases the rate of investment in new capital. By the 2000s, investment banks had become significant participants in the secondary market for mortgages. Answer: TRUE A decrease in the marginal income […]

The Clayton Act of 1936 outlawed price discrimination that reduced competition. Answer: The “rational expectations” school of economists, including Robert Lucas and Thomas Sargent, argue that changes in monetary policy cannot affect unemployment rates in the short run or long […]

An advantage of Microsoft windows is its compatibility with the widest range of hardware and software. The dominance of Windows is self-reinforcing: hardware and software manufacturers ensure that their products are compatible with Windows in order to have access to […]

As a percentage of GDP, federal expenditures ________ from 1950 to the early 1990s, ________ from 1992 to 2001, and have ________ since 2001. A) rose; fell; risen B) fell; fell; risen C) rose; rose; fallen D) fell; rose; fallen […]

The purchase by a household in China of a CD produced in the United States is included in U.S. A) consumption expenditures. B) investment expenditures. C) government purchases. D) net exports. Consumption is $5 million, planned investment spending is $8 […]

Which of the following are positive economic statements and which are normative economic statements? a. An increase in the price of gasoline will decrease the quantity of gasoline purchased. b. The government should eliminate the minimum wage. c. All states […]

The law of one price states that identical products should sell for the same price everywhere as long as transactions costs are zero. Answer: The process of countries becoming more open to foreign trade and investment is known as outsourcing. […]

Figure 7-1 Figure 7-1 represents the market for vaccinations. Vaccinations are considered a benefit to society, and the figure shows both the marginal private benefit and the marginal social benefit from vaccinations. At the efficient equilibrium A) economic surplus is […]

If the United States is a “net borrower” from abroad, A) the United States must be exporting more than it is importing. B) net capital flows must be negative. C) domestic saving is less than domestic investment. D) net foreign […]

An increase in the unemployment rate may be represented as a movement from a point on the production possibilities frontier to a point inside the frontier. Nominal GDP measures the value of all final goods and services at base-year prices. […]

A persistent shortage or surplus of a currency under the Bretton Woods system was evidence of A) failure to support the existing fixed exchange rate by central banks. B) fundamental disequilibrium in the country’s exchange rate. C) speculation against the […]

Figure 18-7 Figure 18-7 shows the Lorenz curve for a hypothetical country. The second lowest 20 percent of households A) earn 12 percent of the society’s total income. B) earn 16 percent of the society’s total income. C) earn 28 […]

All economic questions arise from the fact that resources are unlimited. If consumption is defined as C = 1,350 + 0.6Y, then the marginal propensity to consume is 0.6. Answer: TRUE When the majority of voters have preferences very different […]

If purchasing power parity tells us that if the exchange rate is a pound for a dollar, then price of a haircut in London should cost the same as a haircut in New York. Answer: A decrease in disposable income […]

Figure 5-3 In the absence of any government intervention, the private market A) underproduces by Qo– Qm units. B) overproduces by Qo– Qm units. C) overproduces by Q– Qm units. D) underproduces by Q– Qm units. If the Federal Reserve […]

Figure 26-10 In the figure above, suppose the economy is initially at point A. The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Federal […]

Table 9-6 Production and Consumption Production Without Trade With Trade Denmark and Belize can produce both clocks and hats. Table 9-6 shows the production and consumption quantities without trade, and the production numbers with trade. If the actual terms of […]

The Internet has created a new category in the book selling market, namely, the “barely used” book. How does the availability of barely used books affect the market for new books? A) The demand curve for new books shifts to […]

One problem with deflation is that it can raise the real value of debt. The GDP deflator is a measure of the price level which is calculated as nominal GDP divided by real GDP and multiplied by 100. Answer: TRUE […]

An increase in the price level causes a movement down the aggregate demand curve. An increase in the price of inputs will cause the supply curve for a product to shift to the right. Answer: FALSE The supply of money […]

If inflation is higher than expected, this helps borrowers (by reducing the real interest rate they pay) and hurts lenders (by reducing the real interest rate they receive). Stagflation occurs when short-run aggregate supply decreases. Answer: TRUE A tariff is […]

In the short run, changes in output can only be brought about by a change in the quantity of variable inputs. A prisoner’s dilemma leads to a noncooperative equilibrium. Answer: TRUE Increases in capital per hour worked cannot sustain high […]

Short-run macroeconomic equilibrium occurs when A) aggregate demand and short-run aggregate supply intersect. B) the equilibrium lies on the long-run aggregate supply curve. C) structural and frictional unemployment equal zero. D) A and B Suppose we want to use game […]

If the price of a product is expected to increase in the future, the supply today will increase. In monopolistic competition, if a firm produces a highly desirable product relative to its competitors, the firm will be able to raise […]

Which type of business is the most difficult to set up? A) sole proprietorship B) partnership C) corporation D) There is no difference in the difficulty of establishment. Workers in industries protected by tariffs and quotas are likely to support […]

Figure 2-4 Figure 2-4 shows various points on three Different production possibilities frontiers for a nation. A movement from ________ could occur because of an influx of immigrant labor. A) W to V B) X to W C) W to […]

One goal a firm tries to achieve when it advertises a product is to A) make the demand curve for the product more elastic. B) shift the demand curve for the product to the left. C) make the demand curve […]

The 10-year protection period from generic competition for drug manufacturers is a form of A) copyright. B) trademark. C) hallmark. D) patent. Commodity money A) has value independent of its use as money. B) has little to no value independent […]

Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of $30,000 (which was earning 5 percent interest) and […]

The machines workers have to work with are considered A) human capital. B) physical capital. C) entrepreneurship. D) financial capital. To evaluate the size of the federal budget deficit or surplus over time, it would be best to look at […]

Figure 5-3 The efficient output level is A) Qm. B) Q. C) Qo. D) Qo– Qm. High-income countries have ________ and ________ as compared to developing countries. A) low rates of savings; high rates of growth B) low rates of […]

Consider the following actions undertaken by a firm: a. charging the same price for products of different quality b. charging different prices to different consumers for the same product when the variation cannot be explained by cost differences c. charging […]

When Toyota introduced its 2010 Prius, it announced that the average retail price of the 2010 model would be lower than the average retail price was for the equivalent 2009 model. Which of the following would explain the price Differential? […]

Table 4-4 Table 4-4 shows the demand and supply schedules for the low-skilled labor market in the city of Westover. If a minimum wage of $9.50 is mandated there will be a A) shortage of 10,000 units of labor. B) […]

Perfect competition is characterized by all of the following except A) heavy advertising by individual sellers. B) homogeneous products. C) sellers are price takers. D) a horizontal demand curve for individual sellers. In the United States, health care spending on […]

The term “trust” in antitrust refers to a board of trustees that has collusive control over different companies. Costs that change as output changes are called incremental costs. Answer: FALSE The most important factor contributing to wage differences in the […]

What happens in the secondary market? A) secondary inputs like electricity are sold B) a corporate financial manager will raise funds for expansion of the firm C) newly issued claims are sold by the borrowing firm to the initial buyer […]

Dividing the current market price of a stock by the firm’s earnings per share gives the firm’s A) price-earnings ratio. B) year-to-date percentage change. C) dividend yield. D) stock coupon maturity yield. Table 2-10 Table 2-10 shows the output per […]

Except for recessions, the duration of unemployment for the typical person lasts A) less than six months. B) six to nine months. C) over nine months. D) over one year. E) over five years. Tabitha shares a flea market booth […]

In a market economy, those who are willing and able to buy what is produced A) receives what the government allows them to receive. B) receive the most of what is produced. C) receive no more than everyone else in […]

Figure 2-9 Carlos Vanya grows tomatoes and strawberries on his land. His land is equally suited for growing either fruit. Which of the graphs in Figure 2-3 represents his production possibilities frontier? A) Graph A B) Graph B C) Graph […]

Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets to the game for $325 or $400. Krueger found that (a) 94 percent of those surveyed would not have paid $3,000 for their tickets, and […]

Most food products have low income and price elasticities of demand. Monopolistically competitive firms achieve allocative efficiency but not productive efficiency. Answer: FALSE In face of a negative supply shock, the Fed may avoid a rise in unemployment only if […]

Firms in perfect competition produce the productively efficient output level in the short run and in the long run. An increase in the real interest rate will decrease consumption and investment. Answer: TRUE A two-part tariff refers to a pricing […]

If a firm can produce a product at a lower average cost than its competitors, it stands a better chance of earning economic profit. All else equal, a decrease in the supply of labor will shift the labor supply curve […]

High-income countries have ________ and ________ as compared to developing countries. A) low rates of savings; high rates of growth B) low rates of savings; low rates of growth C) high rates of savings; high rates of growth D) high […]

Policies based on normative economic ideas tend to increase economic efficiency and improve equity. Entrepreneurs bring together the factors of production to produce goods and services. Answer: TRUE The slope of an isoquant is equal to the ratio of the […]

Scenario 1-1 Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and makes a profit of $5,000 per week. A manager at the plant observes, “Although the last 3,000 cell phones we produced and sold increased our […]

Suppose the supply curve for digital cameras shifts to the right. This will cause a relatively large decrease in the price of digital cameras if both demand and supply are inelastic. GDP is not a complete measure of well-being. Answer: […]

Which of the following is not an example of an efficiency-equity trade-off faced by economic agents? A) According to an article by in the American Journal of Public Health by Edward Kaplan and Michael Merson of Yale University School of […]

You are given the following market data for Venus automobiles in Saturnia. Demand: P = 200 – 0.25Q Supply: P = 130 + 0.10Q where P = Price and Q = Quantity. a. Calculate the equilibrium price and quantity. b. […]

Figure 16-6 Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity, assume that consumers have identical demand curves and that Sensei knows what this demand curve is. Figure 16-6 shows this demand curve. With this pricing scheme€a […]

Figure 15-15 Figure 15-15 shows the cost and demand curves for the Erickson Power Company. The profit-maximizing price is A) P1. B) P2. C) P3. D) P4. Table 14-7 Answer: C The payoff matrix shown above assumes that Perfect Plants […]

Article Summary. In a September 2013 speech to the Independent Bankers Association of Texas, Federal Reserve Bank of Dallas president Richard Fisher stated that the Fed’s credibility was harmed when it announced the previous week that it would continue its […]

In 2013, the dividend yield on Abercrombie & Fitch (ANF) stock rose from a low of 1.33% in May to 2.24% in October. Which of the following would have generated that result? A) The closing price of ANF stock rose. […]

The size of the underground economy as a percent of GDP is larger in the United States as compared to poorer countries such as Zimbabwe. Answer: Results of the ultimatum game indicate that most people value fairness enough that they […]

Firms A) have no influence on the circular flow in a market economy. B) purchase resources in the product market. C) sell goods in the product market. D) sell resources in the factor market. Personal income is defined as A) […]

Table 9-11 Production and Consumption Production Without Trade With Trade Denmark and Belize can produce both clocks and hats. Table 9-11 shows the production and consumption quantities without trade, and the production numbers with trade. Prior to trade, what was […]

If the cross-price elasticity of demand for goods A and B is zero, this means the two goods are unrelated. The additional cost to a producer of hiring an additional unit of labor is called the marginal cost. Answer: TRUE […]

If the economy is currently in equilibrium at a level of GDP that is below potential GDP, which of the following would move the economy back to potential GDP? A) an increase in wealth B) an increase in interest rates […]

In the United States in 2012, the percentage of people without any form of health insurance was about A) 16%. B) 29%. C) 64%. D) 83%. ________ occurs when actions taken by one party to a transaction are Different from […]

Ceteris paribus, a rise in interest rates in the United States will cause the yen price of the dollar in international exchange markets to ________. I.e., the dollar ________ in value against the yen. A) increase; appreciates B) increase; depreciates […]

Which of the following can a firm use to defend a successful product’s brand name? A) The firm can obtain a patent on the brand name. B) The firm can apply for a trademark to ban other firm’s from using […]

The FOMC no longer sets targets for M1 and M2 to meet its goals of price stability and high employment. If a country produces only two goods, then it is not possible to have an absolute advantage in the production […]

If income is unequally distributed in an economy, increases in GDP may not raise well-being in an economy. A perfectly competitive firm’s marginal revenue curve is downward sloping. Answer: FALSE If you purchase a share of stock from your friend […]

From an initial long-run equilibrium, if aggregate demand grows more slowly than long-run and short-run aggregate supply, then Congress and the president would most likely A) increase the required reserve ratio and decrease government spending. B) decrease government spending. C) […]

Jamal, Lawson and Kyle have been standing in line for almost an hour waiting to be served at Kirala, a popular new Japanese restaurant. It is possible that some of the people in line won’t be served at all before […]

The labor force participation rates of men have gradually increased since 1948. Answer: The difference between consumer surplus and producer surplus in a market is equal to the deadweight loss. Answer: FALSE All consumption bundles along a given indifference curve […]

Suppose the extra cost for a plumber to keep her shop open for one extra hour is $145. Then, the plumber should not stay open for the extra hour if she can only generate additional revenue of $145 for that […]

Baxter International, a manufacturer of hospital supplies, acquired American Hospital Supply, a distributor of hospital supplies. This is an example of A) a conglomerate merger. B) a horizontal merger. C) a vertical merger. D) a two-dimensional merger. Proponents of the […]

Figure 15-7 Suppose the Fed lowers its target for the federal funds rate. Using the static AD–AS model in the figure above, this situation would be depicted as a movement from A) A to B. B) B to A. C) […]

If, in the market for oranges, the supply has increased then A) the supply curve for oranges has shifted to the right. B) the supply curve for oranges has shifted to the left. C) there has been a movement upwards […]

Tax incidence is the actual division of the A) burden of the tax between buyers and sellers in a market. B) tax revenues between government agencies. C) tax revenues between the federal government and state governments. D) population into different […]

How would the elimination of a sales tax affect the market for a product that had been subject to the tax? A) The demand for the product would rise and the equilibrium price would fall by the amount of the […]

An example of a seasonally unemployed worker would be A) a software engineer who is laid off because of declining demand for the software he writes. B) a day care provider who quits his job to go back to school. […]

Suppliers will be willing to supply a product in all of the following situations except A) the price received is greater than the additional cost of producing the product. B) the price received is at least equal to the additional […]

The U.S. Bureau of Labor Statistics predicts that 9 of the 20 fastest growing occupations over the next ten years will be in A) the medical field. B) the travel and leisure industry. C) education. D) construction. Why do some […]

Which of the following would cause the dollar to depreciate? A) an increase in the demand for dollars B) a decrease in the demand for dollars C) a decrease in the supply of dollars D) a decrease in the demand […]

Actions taken by investors who sell a country’s currency in anticipation of buying it back later at a lower price is known as A) purchasing power parity. B) currency arbitrage. C) destabilizing speculation. D) exchange rate manipulation. If aggregate expenditure […]

The size of a deadweight loss in a market is reduced by A) government legislating a ceiling price. B) government legislating a price floor. C) market price being close to marginal cost. D) creative destruction. Figure 16-5 Suppose the firm […]

If the price level in the United States is 110, the price level is 135 in Mexico, and the nominal exchange rate is 12.5 pesos per dollar, what is the real exchange rate from the U.S. perspective? A) 8.8 B) […]

A monopolistically competitive market is described as one in which there are A) a few firms producing an identical product. B) a large number of firms selling similar, but not identical, products. C) a few firms producing differentiated products. D) […]

Suppose the government wants to finance housing for low-income families by placing a tax on the purchase of luxury homes. Assume the government defines a luxury home as a home that is purchased for at least $1 million. This tax […]

Productive efficiency does not hold for a profit-maximizing, monopolistically competitive firm in the long-run equilibrium because the firm operates along the diseconomies-of-scale region of its average total cost curve. Answer: Increases in capital per hour worked cannot sustain high rates […]

Figure 7-1 Figure 7-1 represents the market for vaccinations. Vaccinations are considered a benefit to society, and the figure shows both the marginal private benefit and the marginal social benefit from vaccinations. The efficient equilibrium price is A) $30. B) […]

In which of the following countries does health insurance not pay for most preventive care procedures? A) Canada B) Japan C) the United Kingdom D) the United States Table 10-2 Using the table above, what is the approximate growth rate […]

Scenario 25-2 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. As a result of Kristy’s deposit, Bank A’s reserves immediately increase by A) $2,000. B) […]

A monopoly is a seller of a product A) with many substitutes. B) without a close substitute. C) with a perfectly inelastic demand. D) without a well-defined demand curve. Consumption spending is $5 million, planned investment spending is $8 million, […]

“A decrease in the price of digital cameras will decrease the demand for camera film.” This statement is an example of a positive economic statement. Japan has a single-payer health care systemin which the government provides national health insuranceto all […]

In 2013, ________ of Goodyear’s sales were outside North America. A) only 11 percent B) more than 60 percent C) less than half D) 95 percent Table 2-4 Production Choices for Dina’s Diner Assume Dina’s Diner only produces sliders and […]

If interest rates in the United States fall, A) the value of the dollar will fall as foreign investors decrease their holdings of U.S. investments. B) the value of the dollar will rise as foreign investors increase their holdings of […]

Figure 5-4 Suppose there are several paper mills producing paper for a market. These mills, located upstream from a fishing village, discharge a large amount of wastewater into the river. The waste material affects the number of fish in the […]

Which of the following leads to an increase in real GDP? A) a decrease in government spending B) a decrease in the inflation rate in other countries, relative to the inflation in the United States C) a decrease in interest […]

Table 11-1 Table 11-1 shows the technology of production at the Matsuko’s Mushroom Farm for the month of May. Diminishing marginal returns sets in when the ________ worker is hired. A) 2nd B) 3rd C) 4th D) None of the […]

Under autarky, domestic producer surplus is represented by the area A) above the supply curve and below the equilibrium price. B) above the supply curve and below the demand curve. C) below the demand curve and above the equilibrium price. […]

A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil. If the exchange rate is 2 reals per dollar, purchasing power parity predicts that A) the dollar is undervalued. B) the dollar is overvalued. C) the […]

Suppose a price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia. What will be the likely effect on the market for sparkling wine in Vinyardia? A) Quantity demanded will decrease, quantity supplied will […]

Given the equations for C, I, G, and NX below, what is the marginal propensity to consume? C = 2,000 + 0.9Y I = 2,500 G = 3,000 NX = 400 A) -0.1 B) 0.1 C) 0.9 D) 2000 Which […]

Table 4-4 Table 4-4 shows the demand and supply schedules for labor market in the city of Pixley. Suppose that the quantity of labor supplied increases by 40,000 at each wage level. What are the new free market equilibrium hourly […]

To offset the effect of households and firms deciding to hold more of their money in checking account deposits and less in currency, the Federal Reserve could A) raise bank taxes. B) sell Treasury securities. C) raise government spending. D) […]

Which of the following is part of an economic model? A) preferences of economic agents B) data C) norms D) opinions Figure 11-11 Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph […]

The Difference between the ________ and the ________ from the sale of a product is called producer surplus. A) lowest price a firm would have been willing to accept; price it actually receives B) highest price a firm would have […]

Figure 2-5 If the economy is currently producing at point X, what is the opportunity cost of moving to point Y? A) 5 million tons of steel B) 9 million tons of paper C) 5 million tons of paper D) […]

Figure 26-11 In the dynamic model of AD–AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, the Federal Reserve would most likely A) […]

Scenario 14-2 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. As a result of Kristy’s deposit, Bank A can make a maximum loan of A) […]

Table 9-1 Linda and Sandy own The Preppy Puppy, a dog grooming business. Table 9-1 lists the number of dogs Linda and Sandy can each bathe and groom in one week. Select the statement that accurately interprets the data in […]

Table 11-7 Table 11-7 shows cost data for Lotus Lanterns, a producer of whimsical night lights. What is the variable cost of production when the firm produces 115 lanterns? A) $1,556 B) $1,157 C) $956 D) $10.05 The current exchange […]

If the GDP deflator is less than 100, then for that year nominal GDP ________ real GDP. A) equals B) is greater than C) is less than D) may be greater than or less than The process of rapidly adjusting […]

You agree to lend $1,000 for one year at a nominal interest rate of 10%. You anticipate that inflation will be 4% over that year. If inflation is instead 3% over that year, which of the following is true? A) […]

Which of the following accurately describes the impact of the rule of law on a country’s economic growth rate? A) Countries with a strong rule of law have faster economic growth. B) Countries with a weak rule of law have […]

Bubba’s Hula Shack bar and bistro has begun giving customers who can show proof that they arrived at the establishment by public transportation a 10 percent discount on their total bill. All else equal, customers who arrive by public transportation […]

Consider a country that produces only two goods: bird feeders and binoculars. Suppose it is possible for this country to increase its production of bird feeders without producing fewer binoculars. In this case, its current output combination is inefficient. The […]

What characteristic of a competitive market has made the “long run pretty short” in the market for iPhone applications? A) few firms in the market B) identical products C) ease of entry D) blocked entry Figure 28-6 If firms and […]

Figure 3-8 The graph in this figure illustrates an initial competitive equilibrium in the market for sugar at the intersection of D1 and S2 (point B). If there is an decrease in the price of fertilizer used on sugar cane […]

Assume that a perfectly competitive market is in long-run equilibrium. Suppose as a result of a health hazard associated with the industry’s product, demand decreases drastically. What is the immediate result of this event? A) The market price falls and […]

What does the phrase “internalizing an external cost” mean? A) limiting the extent to which domestic firms can outsource production B) prohibiting economic activities that create externalities C) forcing producers to factor into their production costs the cost of the […]

Which of the following would explain why accounting profit might be greater than economic profit? A) A firm has implicit costs as well as explicit costs. B) A firm has only explicit costs. C) A firm’s net income is greater […]

Suppose the supply of bicycles is price elastic. This means that A) consumers will respond significantly to an increase in the quantity supplied of bicycles. B) suppliers will increase the quantity supplied of bicycles, but not immediately. C) suppliers face […]

What impact does expansionary monetary policy have on the short-run Phillips curve if consumers and firms expect the expansionary monetary policy to increase inflation? A) The short-run Phillips curve shifts down. B) The short-run Phillips curve shifts up. C) The […]

An industry’s long-run supply curve shows A) the relationship in the long run between market price and quantity supplied. B) how the government determines the price of the product. C) how average productivity is changing. D) greater than normal profit. […]

The Soviet Union consistently increased the amount of capital available to its workers, but found that increases in capital resulted in progressively smaller and smaller increases in GDP per worker. This phenomenon is referred to as A) a rising standard […]

If the consumption function is defined as C = 7,250 + 0.8Y, what is the value of the multiplier? A) 0.2 B) 0.8 C) 1.25 D) 5 Figure 1-2 Calculate the area of the triangle A. A) $1.3 million B) […]

The proposition that the outcome of a majority vote is likely to represent the preferences of the voter who is in the political middle is called A) the mean (or average) voter theorem. B) the voting paradox. C) the Arrow […]

In 2004, hurricanes destroyed a large portion of Florida’s orange and grapefruit crops. In the market for citrus fruit, A) the supply curve shifted to the right resulting in an increase in the equilibrium price. B) the supply curve shifted […]

Table 20-7 Suppose that the data in the table above reflect price levels in the economy. What is the inflation rate between 2012 and 2013? A) 2.9% B) 3.5% C) 4.6% D) 5% E) 7.5% The minimum wage is an […]

The government proposes a tax on halogen light bulbs. Sellers will bear the entire burden of the tax if the A) supply curve of halogen bulbs is horizontal. B) demand curve for halogen bulbs is vertical. C) demand curve for […]

Figure 4-3 Figure 4-3 shows Kendra’s demand curve for ice-cream cones. If the market price is $3.00, what is Kendra’s consumer surplus? A) $6.50 B) $5.50 C) $2.50 D) $0.50 Sefronia and Bella share an apartment and they are deciding […]

Which of the following is not a consequence of the Fed changing the reserve requirement? A) Changes in the ratio are easily incorporated into banks’ routine management. B) Decreasing the ratio will increase excess reserves. C) Increasing the ratio will […]

In March 2008, the Fed announced that primary dealers would be eligible to receive discount loans. In a decreasing-cost industry, the entry of new firms lowers average cost at each level of output. Answer: TRUE In the long-run equilibrium, a […]

When the price level rises from 110 to 115, the aggregate level of GDP supplied rises from $80 billion to $120 billion. This ________ relationship represents the ________ relationship between the quantity of real GDP firms are willing to supply […]

Deflation occurs when A) there is a sustained increase in the price level. B) there is a one-time increase in the price level. C) there is a decline in the price level. D) there is a decrease in the expected […]

Insurance companies use deductibles and coinsurance to reduce moral hazard. After an increase in demand in a constant-cost industry, firms will find themselves with higher average cost curves. Answer: FALSE The economic model of consumer behavior explains how consumers’ tastes […]

How will the exchange rate (foreign currency per dollar) respond to an increase in preference for imported goods in the United States in the long run? A) Exchange rates will rise. B) Exchange rates will fall. C) Exchange rates will […]

Which of the following is not a reason why the wages of workers and the prices of inputs rise more slowly than the prices of final goods and services? A) Contracts make prices and wages ‘sticky.” B) Firms are often […]

One reason a country does not specialize completely in production is that production of most goods involves increasing opportunity costs. Answer: Empirical evidence shows that the short-run Phillips curve was vertical during the 1950s and 1960s. Answer: FALSE Paying efficiency […]

In the United States, partnership profits are taxed at the business level and then are taxed again as personal income in the form of dividend payments. A tax is efficient if it imposes a small excess burden relative to the […]

Article Summary. In 2012, Colorado and Washington legalized marijuana for recreational use, and one of the major selling points in each state’s pro-marijuana campaign was the possibility of generating millions of dollars in tax revenue from sales which could be […]

In a fixed exchange rate system, speculation regarding an expected revaluation or devaluation of a currency makes it more difficult to maintain the existing exchange rate. Answer: The CPI in 2010 was 218, while the CPI in 1980 was 82. […]

When a business is set up as a sole proprietorship, the owner of the business faces limited liability. If inflation is higher than expected, this helps borrowers (by reducing the real interest rate they pay) and hurts lenders (by reducing […]

Which of the following would shift a nation’s production possibilities frontier inward? A) discovering a cheap way to convert sunshine into electricity B) producing more capital equipment C) an increase in the unemployment rate D) a law requiring workers to […]

Which of the following is true of a typical firm in a monopolistically competitive industry? A) Product differentiation allows a successful firm to emerge as a market leader in the industry. B) All firms have identical cost structures. C) The […]

In a closed economy with fixed or autonomous (non-income dependent) taxes, the balanced budget government purchases multiplier is negative. Answer: For a given quantity, the total profit of a perfectly competitive firm is equal to the vertical distance between the […]

The government of Silverado raises revenue to operate the city’s hospital, open to all residents, through a general income tax paid by its residents. This method of raising revenue is consistent with the benefits-received principle. Answer: If a perfectly competitive […]

A series of bank runs in a country should have no effect on M1 as money simply moves from checking deposits to currency. A price ceiling is a legally determined maximum price that sellers may charge. Answer: TRUE An increase […]

In 1995, the General Agreement on Tariffs and Trade (GATT) was replaced by the World Trade Organization (WTO). A downward sloping marginal product of labor curve demonstrates the law of diminishing marginal returns. Answer: TRUE Competition in the form of […]

In the 1960s, many economists and policymakers believed the trade-off between inflation and unemployment was permanent. If banks receive a greater amount of reserves and do not hold all of these reserves as excess reserves, the money supply expands. Answer: […]

Suppose that real GDP for 2012 was $10,000 billion and real GDP for 2013 was $11,000 billion. What is the rate of growth of real GDP between 2012 and 2013? A) 1% B) 2% C) 5% D) 10% Consider the […]

Foreign currency prices of the U.S. dollar are currently determined by a managed float exchange rate system. The question of whether economic growth is desirable is a positive question, easily settled by economic analysis. Answer: FALSE As the number of […]

Which aggregate supply curve has a positive slope? A) long-run only B) short-run only C) both long-run and short-run D) neither long-run nor short-run When a negative externality exists, the private market produces A) more than the economically efficient output […]

The Walt Disney Company uses cost-plus pricing to determine the prices it charges for admission and rides at Disneyland and Walt Disney World. Answer: A successful trademark is one that becomes a generic name for a product, for example, “Kleenex” […]

Of the following high-income countries, which has the highest infant mortality rate? A) Canada B) Japan C) the United Kingdom D) the United States If a firm has an incentive to increase supply now and decrease supply in the future, […]

Gross domestic product is generally ________ national income. A) greater than B) less than C) equal to D) unrelated to The level of long-run aggregate supply is affected by all of the following except A) changes in the price level. […]

The long-run adjustment to a negative supply shock results in A) the short-run aggregate supply curve shifting to the right. B) the price level rising. C) unemployment rising. D) workers being willing to accept higher wages. Article Summary. Arguing that […]

When the government makes a firm the exclusive legal provider of a good or service, it grants the firm A) a copyright. B) a network externality. C) a quota. D) a public franchise. Some firms practice odd pricing because A) […]

Figure 4-1 Figure 4-1 shows Arnold’s demand curve for burritos. If the market price is $2.00, what is the consumer surplus on the second burrito? A) $0 B) $1.00 C) $2.00 D) $4.50 Table 2-11 Table 2-11 shows the number […]

Table 18-2 The table above lists three policy alternatives that the U.S. Senate will vote on, along with the ranking of these alternates. The Senate must decide which of these alternatives should receive an additional $1 billion of funding, and […]

Which of the following is not an example of an economic trade-off that a firm has to make? A) whether it is cheaper to produce with more machines or with more workers B) whether it is to outsource the production […]

Most economists believe that the biases in the consumer price index cause the CPI to overstate the true inflation rate by about A) one-half to one percentage point. B) one to two percentage points. C) one quarter percentage point. D) […]

If wages and prices adjust rapidly, we would expect expansionary monetary policy to be A) more likely to reduce the natural rate of unemployment. B) more likely to affect the unemployment rate. C) less likely to affect the unemployment rate. […]

If society decides it wants more of one good and all resources are fully utilized, then A) it is unable to do this unless technology advances. B) additional resource supplies will have to be found. C) it has to give […]

Figure 4-9 Figure 4-9 shows the demand and supply curves for the almond market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at Pf. What area represents […]

In a competitive market equilibrium A) total consumer surplus equals total producer surplus. B) marginal benefit and marginal cost are maximized. C) consumers and producers benefit equally. D) the marginal benefit equals the marginal cost of the last unit sold. […]

From an initial long-run equilibrium, if aggregate demand grows faster than long-run and short-run aggregate supply, then Congress and the president would most likely A) decrease the required reserve ratio. B) decrease government spending. C) decrease oil prices. D) decrease […]

Figure 4-10 Figure 4-10 shows the market for apartments in Bay City. Recently, the government imposed a rent ceiling at R0. What is the area that represents consumer surplus after the imposition of the ceiling? A) A + B+ D […]

Proponents of the ________ model argue that the short-run supply curve is vertical. A) the monetarist model B) the new classical model C) the real business cycle model D) the new Keynesian model All of the following are examples of […]

If the market price is $40 in a perfectly competitive market, the marginal revenue from selling the fifth unit is A) $8. B) $20. C) $40. D) $200. Figure 30-4 The equilibrium exchange rate is originally at A, $3/pound. Suppose […]

A corporation is A) the easiest type of business to set up. B) the least expensive type of business to set up. C) the most difficult type of business to set up. D) the least profitable type of business to […]

If real GDP increases we know for sure that A) output has risen. B) prices have risen. C) prices have risen but output has remained constant. D) prices have remained constant. The short-term unemployment arising from the process of matching […]

A decrease in the marginal income tax rate is a fiscal policy which will increase aggregate demand. The Congressional Budget Office estimates that the additional taxes and fees enacted under the ACA will be enough to pay for the plan […]

If the number of firms producing electric cars increases and consumer preference for electric cars increases, the equilibrium quantity of electric cars will definitely increase. An important reason why diseconomies of scale arise is because firms may have to hire […]

Figure 5-15 Figure 5-15 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of Q1 is not the economically efficient output. The economically efficient output is Q2. The current market equilibrium output is partly the […]

Table 3-3 The table above shows the demand schedules for Kona coffee of two individuals (Luke and Ravi) and the rest of the market. At a price of $4, the quantity demanded in the market would be A) 40 lb. […]

Scenario 1-3 Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes, “Although the last 400 t-shirts we produced and sold increased our revenue by $4,000 […]

Figure 6-3 Using the midpoint formula, calculate the absolute value of the price elasticity of demand between e and f. A) 0.32 B) 0.4 C) 2.5 D) 3.125 A decrease in ________ can put your job at risk if aggregate […]

In 1935, the U.S. Patent and Trademark Office issued Parker Brothers a trademark on the use of the name Monopoly for a board game. Hasbro bought Parker Brothers in 1991. Which of the following statements is true regarding the trademark […]

Between 1981 and 2011, deaths from cancer have increased in the United States. Selling a product at a price below its cost is known as dumping. Answer: TRUE Market economies tend to grow more quickly than centrally-planned economies. Answer: TRUE […]

If the production possibilities frontier is linear, then A) opportunity costs are decreasing as more of one good is produced. B) it is easy to efficiently produce output. C) opportunity costs are increasing as more of one good is produced. […]

The labor productivity slowdown in the United States in the 1970s was due to declining quality of education in the United States, because no other industrialized country experienced the same labor productivity slowdown at the same time. The idea underlying […]

A product is considered to be nonexcludable if A) you can keep those who did not pay for the item from enjoying its benefits. B) you cannot keep those who did not pay for the item from enjoying its benefits. […]

Table 25-3 Consider the following simplified balance sheet for a bank: If the required reserve ratio is 10 percent, the bank can make a maximum loan of A) $2,000. B) $5,000. C) $6,300. D) $45,000. Suppose when the price of […]

The market for smart phones has grown rapidly over the past few years, due in part to the overwhelming success of the Apple iPhone. Following the successful launch of the iPhone in 2007, companies such as Samsung, HTC, and LG […]

A rise in the dollar price of the Chinese yuan signals an appreciation of the yuan and a depreciation of the dollar. Answer: To increase gas mileage, automobile manufacturers make cars small and light. Large cars absorb more of the […]

A perfectly competitive apple farm produces 1,000 bushels of apples at a total cost of $36,000. The price of each bushel is $50. Calculate the firm’s short-run profit or loss. A) loss of $14,000 B) profit of $14,000 C) profit […]

Rent-seeking behavior, unlike profit-maximizing behavior in competitive markets, wastes society’s scarce resources. The marginal propensity to consume measures the average amount of wealth that a consumer spends in a given period of time. Answer: FALSE With the Troubled Asset Relief […]

What is the present value of $888 in a one year if the current rate of interest is five percent? A) $4,440 B) $845.71 C) $177.60 D) none of these Macroeconomics, as opposed to microeconomics, includes the study of what […]

Some individuals seek to use government action to make themselves better off at the expense of others. The actions of these individuals A) are examples of fraud; but these individuals usually avoid prosecution because of logrolling and rational ignorance. B) […]

The CPI in 2010 was 218, while the CPI in 1980 was 82. If you had $5,000 in 1980, its equivalent purchasing power in 2008 would be $10,850. Holding all else constant, an economic expansion in Mexico should decrease the […]

Article Summary. A growing number of U.S. citizens are going to other countries for elective surgery procedures. Improved quality and significant cost savings abroad have attracted an increasing number of what are being referred to as American medical tourists, especially […]

DeShawn’s Detailing is a service that details cars at the customers’ homes or places of work. DeShawn’s cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will […]

The term “trust” in antitrust refers to a board of trustees that has collusive control over different companies. Economists believe that cost-plus pricing may be the best way for a firm to determine its optimal product price when the firm’s […]

Suppose that in a market for used cars, there are good used cars and bad used cars (lemons). Consumers are willing to pay as much as $6,000 for a good used car but only $1,000 for a lemon. Sellers of […]

In the short run, if price falls below a firm’s minimum average total cost, the firm should shut down. Answer: Members of management serving on the board of directors of a corporation are referred to as outside directors. Answer: FALSE […]

Tax cuts on business income ________ aggregate demand. A) would decrease B) would increase C) would not change D) may increase or decrease Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the […]

For a given quantity, the total profit of a perfectly competitive firm is equal to the vertical distance between the firm’s total revenue curve and its total cost curve. A real appreciation of the dollar is caused by either a […]

Mortgages issued to borrowers who fail to document that their incomes are high enough to afford their mortgage payments are known as ________ mortgages. A) subprime B) Alt-A C) gray market D) reciprocal Table 9-8 Suppose that the data in […]

Figure 13-17 What is the productively efficient output for the firm represented in the diagram? A) Qf units B) Qg units C) Qh units D) Qj units Table 9-19 Looking at the table above, what is the rate of growth […]

If the long-run average total cost curve is downward-sloping, then the firm is experiencing decreasing returns to scale. Answer: If consumers paid the full price of medical services instead of using health insurance and third-party payers to cover part of […]

In the alcohol industry, both wine and spirits are considered to be substitutes for beer. A decrease in the number of firms in a market will cause supply to increase. Answer: TRUE Assume that price is greater than average variable […]

Linesha, a college student working part-time receives a wage increase. An avid movie buff, she increased her purchases of Blu-ray discs and reduced her purchases of DVDs. Based on this information A) DVDs and Blu-ray discs are substitutes. B) Blu-ray […]

In the long run the relevant cost is total cost. If it costs Vijay $150 to design 5 websites and $175 to design 6 websites, then $175 is the marginal cost of producing the 6th website. Answer: FALSE Marginal benefit […]

An entry barrier exists when firms in an industry charge the lowest price possible for their products. An economic model is a complex version of reality used to analyze real-world economic situations. Answer: FALSE The productivity slowdown experience in the […]

A successful trademark is one that becomes a generic name for a product, for example, “Kleenex” has become a generic term for tissues. If inflation is unanticipated, no redistribution of income can occur. Answer: FALSE An increase in government spending […]

An entry barrier exists when firms in an industry charge the lowest price possible for their products. If Gladys sells her 1998 Jeep Cherokee for $3,500 in 2013, the sale of her car contributes $3,500 to 2013 GDP. Answer: FALSE […]

Which of the following is an example of a way in which a firm in oligopoly can escape the prisoner’s dilemma? A) producing more of its product B) advertising that it will match its rival’s price C) reneging on a […]

The ________ shows the relationship between the price level and quantity of real GDP demanded. A) consumer price index B) aggregate expenditure line C) 45-degree line D) aggregate demand curve Suppose the demand for milk is relatively inelastic. What happens […]

During a business cycle expansion, total production ________ and total employment ________. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases Classifying a good as excludable means A) that someone can be barred from consuming the good […]

The interest payment on a bond is called A) the coupon payment. B) principal. C) the interest rate. D) the face value. Because of the slope(s) of the ________, we can say that a decrease in the price level leads […]

Figure 18-2 Figure 18-2 shows a demand curve and two sets of supply curves, one set more elastic than the other. If the government imposes an excise tax of $1.00 on every unit sold, the consumer’s burden of the tax […]

Which of the following explains why two firms, Apex and Bongo, would engage in implicit collusion, rather than explicit collusion? A) Implicit collusion allows Apex to increase its profits at the expense of Bongo without Bongo knowing that collusion has […]

The aggregate demand curve will shift to the right ________ the initial increase in government purchases. A) by less than B) by more than C) by the same amount as D) sometimes by more than and other times by less […]

In explaining consumer behavior economists explain how consumer tastes and preferences are formed. The Federal Reserve’s performance in the mid-to-late 1980s, 1990s, and early 2000s has received high marks from economists, even without inflation targeting. Answer: TRUE Even if expectations […]

If a firm has excess capacity, it means A) that the firm expends too much of its resources on advertising its product without seeing an appreciable increase in sales. B) that the firm is not producing its minimum efficient scale […]

Net foreign investment is equal to A) capital inflows minus capital outflows. B) foreign direct investment. C) the balance of trade. D) net foreign portfolio investment plus net foreign direct investment. Table 2-1 Production choices for Tomaso’s Trattoria Assume Tomaso’s […]

Tesla Motors manufacturers its cars at a plant in Fremont, California. At this plant, Tesla is able to take advantage of the high level of technical training possessed by its American workers, but it also sacrifices the ability to pay […]

Most employees ________ pay taxes on the value of health insurance provided by employers, and most people ________ get a tax break when buying individual health insurance policies. A) do; do B) do; do not C) do not; do D) […]

In reference to the federal income tax system, a tax bracket is A) the estimated amount of federal income tax firms withhold from their employees’ paychecks. B) the formula the federal government uses to determine the dollar amount of the […]

Marginal revenue product for a perfectly competitive seller is equal to A) the output price multiplied by the total product of labor. B) the output price multiplied by the number workers hired. C) the change in total revenue that results […]

Table 4-1 The table above lists the highest prices three consumers, Tom, Dick and Harriet, are willing to pay for a short-sleeved polo shirt. If the price of one of the shirts is $28 dollars A) Tom will buy two […]

Which of the following is not an example of inflation causing a redistribution of income because the inflation was unanticipated? A) A firm signs a 3-year contract with a union based on a 2 percent anticipated rate of inflation per […]

Foreign investment can give a low-income country A) access to funds for investment and access to technology. B) the means to slow down growth. C) a path to dependency and low growth. D) no hope to break the vicious cycle […]

You own a business that answers telephone calls for physicians after their offices close. You have an incentive to substitute capital for labor if the A) price of capital increases. B) price of labor decreases. C) price of labor increases. […]

Differentiating products to suit customers’ tastes is a form of price discrimination. Answer: Producer surplus is the difference between the highest price someone is willing to pay and the price he actually pays. Answer: FALSE A monopolistically competitive industry that […]

Automatic stabilizers refer to A) the money supply and interest rates that automatically increase or decrease along with the business cycle. B) government spending and taxes that automatically increase or decrease along with the business cycle. C) changes in the […]

Bank reserves include A) vault cash and deposits with the Federal Reserve. B) loans to bank customers and deposits with the Federal Reserve. C) vault cash and loans to bank customers. D) customer checking accounts and vault cash. E) deposits […]

Figure 11-3 Fancy Footwear manufactures shoes. Figure 11-3 shows Fancy Footwear’s marginal product of labor and average product of labor curves in the short run. For what quantity of labor does production display diminishing returns? A) for more than 1 […]

Table 1-1 Eva runs a small bakery in the village of Roggerli. She is debating whether she should extend her hours of operation. Eva figures that her sales revenue will depend on the number of hours the bakery is open […]

Macroeconomics is the study of A) how households make choices. B) how firms make choices. C) how households and firms make choices. D) the economy as a whole. Classifying a good as rival means A) that the good is produced […]

Health insurance plans which typically reimburse doctors and hospitals with payment for each service they provide are known as A) fee-for-service plans. B) preferred provider organizations. C) single-health-payer systems. D) health maintenance organizations. When demand is unit-elastic, a change in […]

A period of economic expansion ends with a business cycle trough. If inflation is anticipated, some effects of inflation on the redistribution of income can be avoided. Answer: TRUE Government spending on transfer payments is included in government purchases when […]

Foreign portfolio investment in the United States has continually declined since 1995. Answer: Expansionary monetary policy enacted during a recession will cause the inflation rate to increase. Answer: TRUE If the rate of growth in real GDP exceeds the rate […]

Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant? A) Demand is likely to be […]

Figure 4-5 Figure 4-5 shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1,000 per month. Suppose that instead of a rent ceiling, the government imposed a price floor of $2,000 per month for […]

Active changes in tax and spending by government intended to smooth out the business cycle are called ________, and changes in taxes and spending that occur passively over the business cycle are called ________. A) automatic stabilizers; discretionary fiscal policy […]

If real GDP grows by 3% in 2011, 3.2% in 2012, and 2.5% in 2013, what is the average annual growth rate of real GDP? A) 2.6% B) 2.9% C) 3.1% D) 4.2% Table 9-5 Consider the following values of […]

A demand curve that is horizontal indicates that the commodity A) has few substitutes. B) must be very cheap. C) is a necessity. D) has a large number of substitutes. Figure 12-7 Figure 12-7 illustrates the cost curves of a […]

What is “brain drain”? A) the tendency for highly educated workers in high-income countries to move to low-income countries to volunteer their services B) increased recruiting efforts that attempt to raise the average level of education in developed nations C) […]

Figure 3-3 The figure above shows the supply and demand curves for two markets: the market for original Michelangelo sculptures and the market for Ray Ban sunglasses. Which graph most likely represents which market? A) Graph B represents the market […]

Prisoner’s dilemma games imply that cooperative behavior between two people or two firms always breaks down. But reality teaches us that people and firms often cooperate successfully to achieve their goals. Why do the results from prisoner’s dilemma games fail […]

The study of economics arises due to A) money. B) scarcity. C) greed. D) resources. Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly? A) Each must lower its price to sell more […]

If consumption is defined as C = 1,350 + 0.6Y, then the marginal propensity to consume is 0.6. Answer: Unlike a perfectly competitive firm, a monopolistic competitor does not have a short-run shut-down point. Answer: FALSE If a monopolist engages […]

If the price level in the United States is 110, the price level is 135 in Mexico, and the nominal exchange rate is 12.5 pesos per dollar, what is the real exchange rate from the U.S. perspective? A) 8.8 B) […]

When Sophie, a French citizen, purchases a Dell computer in Paris that was produced in Texas, the purchase is A) both a U.S. and an French import. B) a U.S. import and an French export. C) a U.S. export and […]

All centrally planned economies A) have been political dictatorships. B) started out as market economies. C) began as mixed economies. D) have become mixed economies. The Pre-Existing Condition Insurance Plan is a federally administered part of the Affordable Care Act, […]

Which of the following statements is false? A) When marginal cost equals average total cost, average total cost is at its highest value. B) The marginal cost curve intersects the average variable cost curve and the average total cost curve […]

An increase in individual income taxes ________ disposable income, which ________ consumption spending. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases Figure 5-5 Figure 5-5 shows a market with an externality. The current market equilibrium output […]

All of the following questions or statements regarding medical school are positive except: A) How do changes in expected future incomes affect the decisions of medical students about which specialty to choose? B) Medical students who enter specialized fields make […]

Firms do not have market power in which of the following market structures? A) perfect competition only B) perfect competition and monopolistic competition C) oligopoly D) monopoly If a firm produces 20 units of output and incurs a total cost […]

There is a federal budget deficit when A) the government spends less that it collects in taxes. B) the government spends more that it collects in taxes. C) the government spends the same amount it collects in taxes. D) taxes […]

Economic costs of production differ from accounting costs in that A) economic costs include expenditures for hired resources while accounting costs do not. B) economic costs add the opportunity costs of a firm using its own resources while accounting costs […]

If the demand for iPods is price elastic, then A) the percentage change in quantity demanded is greater than the percentage change in price (in absolute value). B) the percentage change in quantity demanded is less than the percentage change […]

Baxter International, a manufacturer of hospital supplies, acquired American Hospital Supply, a distributor of hospital supplies. This is an example of A) a conglomerate merger. B) a horizontal merger. C) a vertical merger. D) a two-dimensional merger. Table 2-11 Table […]

What do economists call the situation where a hired manager does not have the same interests as the owners of the business? A) conquest and control B) a financial problem C) a principal-agent problem D) a financial intermediary problem The […]

An average tax rate is calculated as A) total taxable income taxes paid. B) total taxable income · taxes paid. C) taxes paid · total taxable income. D) (total taxable income – taxes paid) · taxable income. Dr. Goldfinger decides […]

Suppose a developing country experiences a reduction in machinery and capital equipment as foreign entrepreneurs decrease the amount of investment in the economy. As a result, A) the long-run aggregate supply curve will shift to the right. B) the long-run […]

If a country has a comparative advantage in producing a product, it may not have an absolute advantage in producing that product. The U.S. economy would gain from the elimination of tariffs and quotas even if other countries do not […]

Which of the following is not a flow in the circular flow model? A) the flow of goods and services and the flow of resources to produce goods and services B) the flow of profit and the flow of revenue […]

In most circumstances, employees do not pay taxes on the value of health insurance their employers provide them. One of the main sources of comparative advantage is natural resources. Answer: TRUE Firms are more likely to find themselves in a […]

An increase in a perfectly competitive firm’s demand for labor could be caused by A) a decrease in the market wage rate. B) an increase in the amount of human capital among the labor force. C) an increase in the […]

By drawing a demand curve with price on the vertical axis and quantity on the horizontal axis, economists assume that the most important determinant of the demand for a good is A) consumer income. B) consumer tastes and preferences. C) […]

Which of the following describes how output changes in the short run? Because of specialization and the division of labor, as more workers are hired A) output will first increase at an increasing rate, then output will increase at a […]

The basic cause of deadweight losses from the existence of common resources and externalities is A) a lack of clearly defined and enforceable property rights. B) the self-interested rationality of human beings. C) the use of a market system to […]

The price elasticity of supply is calculated as the change in supply divided by the change in price. The GDP deflator is the best measure that reflects the prices of goods and services purchased by the typical household. Answer: FALSE […]

Suppose your expenses for this term are as follows: tuition: $28,000, room and board: $9,000, books and other educational supplies: $2,500. Further, during the term, you can only work part-time and earn $16,000 instead of your full-time salary of $42,000. […]

What is the Congressional act, enacted in 1933 and repealed in 1999, which prevented financial firms from being both commercial banks and investment banks? A) the Sarbanes-Oxley Act B) the Glass-Steagall Act C) the Taft-Hartley Act D) the Cellar-Kefauver Act […]

In response to a shortage the market price of a good will rise; as the price rises, the demand will decrease and supply will increase until equilibrium is reached. Answer: A surplus is defined as the situation that exists when […]

All of the following would be considered explicit costs of operating a business except A) rent paid to a landlord. B) bonuses paid to employees. C) a normal rate of return for investors. D) corporate income taxes. Workers laid off […]

The typical shape of an isoquant is A) convex towards the origin. B) concave towards the origin. C) linear and downward sloping. D) linear and upward sloping. Table 2-11 Table 2-11 shows the number of labor hours required to produce […]

The relationship between sales and revenue is A) an inverse relationship. B) a direct relationship. C) a negative relationship. D) independent. We should never assume that an inelastic demand curve is a perfectly inelastic demand curve because A) there has […]

Table 9-10 Table 9-10 shows the output per week for pens and pencils by Tran and Farah. a. Which person has an absolute advantage in the production of pens? pencils? b. Which person has a comparative advantage in the production […]

The United Kingdom has a health care system under which the government owns most of the hospitals and employs most of the doctors. The slope of an isoquant is equal to the ratio of the price of the input on […]

Table 2-9 Table 2-9 shows the number of labor hours required to produce a wristwatch and a pound of rice in Japan and Thailand. What is Japan’s opportunity cost of producing one pound of rice? A) 0.04 units of a […]

The natural rate of unemployment consists of frictional unemployment plus cyclical unemployment. Answer: All economic questions arise from the fact that resources are unlimited. Answer: FALSE A subgame-perfect equilibrium is a Nash equilibrium in which no player can make himself […]

Suppose you have just opened a store to sell espresso machines. Both you and a competing store buy this machine from a manufacturer for $130 each. Your competitor who has a store of the same size as yours is currently […]

Table 14-3 Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in Table 14-3 shows the profits earned per day […]

In recent years, the prices of new domestically produced cars have been falling. Suppose consumers respond by reducing their demand for used cars and mass transport services such as bus travel. This information suggests that the cross-price elasticity between new […]

India’s rapid growth can be explained by A) reduced regulations and market-based reforms. B) investment in human capital from 1947 through 2013. C) the movement of workers from the agricultural sector to the manufacturing sector. D) an increase in labor […]

Which of the following would you expect to increase the equilibrium interest rate? A) an increase in the percentage of income after net taxes that households save B) an increase in the budget deficit C) a decrease in the profitability […]

Managed float exchange systems were abandoned with the implementation of the gold standard. The marginal product of labor curve is the demand curve for labor. Answer: FALSE If Tanisha can audit more tax returns in one hour than Libby, then […]

Consider a used car market in which half the cars are good and half are bad (lemons). A rational buyer in this market should A) offer to pay a price equal to the most she would pay for a good […]

GDP in a country grew from $10 billion to $14 billion over the span of 5 years. The average annual growth rate of GDP was A) 4%. B) 7%. C) 10%. D) 40%. If an economy experiences deflation, the real […]

If planned aggregate expenditure is less than real GDP, some firms will experience unplanned increases in inventories. Expansionary fiscal policy is used to increase aggregate demand in an attempt to fight rising inflation. Answer: FALSE The values of real GDP […]

One reason Zimbabwe suffered from hyperinflation is that the government had decided to pay for all of its expenses by A) selling Treasury bonds to foreign governments. B) selling its government-run oil company to a private company, which then defaulted […]

On a diagram of a production possibility frontier, economic growth is represented by the slope of the production possibility frontier. The slope of an isocost line determines the marginal rate of substitution. Answer: FALSE An increase in income results in […]

In recent decades the United States has incurred overall balance of payments deficits. Corporate managers and shareholders always have the same goals. Answer: FALSE The amount of national income in an economy equals the money supply in an economy. Answer: […]

With the increased usage of cell phone services, what has happened to the price elasticity of demand for land-line telephone services? A) It has become more price inelastic. B) It has become more price elastic. C) It has become more […]

Currency traders expect the value of the dollar to rise. What effect will this have on the demand for dollars and the supply of dollars in the foreign exchange market? A) Demand for dollars will increase, and supply of dollars […]

Table 19-18 A very simple economy produces three goods: cameras, legal services, and books. The quantities produced and their corresponding prices for 2008 and 2013 are shown in the table above. What is the GDP deflator in 2013 if 2013 […]

The endowment effect is the tendency of people to be unwilling to sell a good they already own even if they are offered a price greater than they would be willing to pay to buy the good if they did […]

Consider a downward-sloping demand curve. When the price of a normal good decreases, the income and substitution effects A) work in the same direction to increase quantity demanded. B) work in the same direction to decrease quantity demanded. C) work […]

A partnership is ________ type of business. A) the most common. B) the least common C) the least risky D) the most profitable Figure 7-3 Since 1953 the United States has imposed a quota to limit the imports of peanuts. […]

The CPI in 1990 was 131, and the CPI in 2010 was 218. If you earned a salary of $40,000 in 1990, what would be a salary with equivalent purchasing power in 2010? A) $45,977 B) $66,565 C) $87,200 D) […]

Table 2-6 Table 2-6 shows the output per week of two jewelers, Serena and Haley. They can either devote their time to making bracelets or making necklaces. What is Serena’s opportunity cost of making a bracelet? A) 2 necklaces B) […]

If you put $100 into a bank account that earns five percent interest per year, what is the formula you should use to determine the account’s future value in one year? A) Future value equals the present value divided by […]

The Japanese system of universal health insurance requires no co-payments from residents for health services. The principal-agent problem that exists between shareholders and managers also exists between managers and workers. Answer: TRUE High-income countries such as the United States spend […]

Who receives the goods and services produced in the United States depends largely on A) how income is distributed. B) how the goods and services are produced. C) what goods and services are produced. D) government redistribution. If the U.S. […]

Which of the following is a reason why it is difficult to estimate the extent of economic discrimination in the labor market? A) Employers who discriminate are likely to do so in overt ways such as awarding some workers with […]

Table 4-7 Table 4-7 shows the demand and supply schedules for labor market in the city of Pixley. Suppose that the quantity of labor demanded decreases by 80,000 at each wage level. What are the new free market equilibrium hourly […]

According to economists Robert Lucas and Thomas Sargent, the apparent short-run trade-off between unemployment and inflation in the 1950s and 1960s was the result of A) unexpected changes in monetary policy. B) expected changes in monetary policy. C) unexpected changes […]

How is a stock’s price-earnings ratio found? A) by dividing the dividend by the closing price of the stock B) by dividing the dividend by the firm’s earnings per share C) by dividing current market price of the stock by […]

Figure 13-18 The diagram demonstrates that A) in the short run, the monopolistic competitor produces an output Q but in the long run after it adjusts its capacity, it will produce the allocatively efficient output, Qa. B) it is not […]

Who operates and controls a corporation in its day-to-day activities? A) the board of directors B) stockholders C) employees D) management Economist Jerry Hausman estimated the price elasticity of demand for “Post Raisin Bran” and “All types of breakfast cereals.” […]

In the short-run, even if a monopoly’s total revenue does not cover its variable costs, it should continue to produce because ultimately in the long run, the monopoly will start earning profits. Today, the United States charges an average tariff […]

A reduction in the rate of inflation is referred to as A) unemployment. B) recession. C) disinflation. D) deflation. A standard which came to the market first, such as the QWERTY letter layout in typewriters, can become entrenched (this layout […]

In a perfectly competitive market the term “price taker” applies to A) sellers and buyers. B) firms but not buyers. C) buyers but not sellers. D) only the smallest sellers and buyers. A firm’s net worth is calculated as A) […]

The tax multiplier is smaller in absolute value than the government purchases multiplier because some portion of the A) decrease in taxes will be saved by households and not spent, and some portion will be spent on imported goods. B) […]

What are the three main kinds of unemployment? A) frictional, seasonal, and cyclical B) temporary, permanent, and volunteer C) cyclical, structural, and temporary D) structural, frictional, and cyclical Brand management refers to A) picking a brand name for a new […]

A marginal tax rate is A) the fraction of income that must be paid in taxes. B) the fraction of each additional dollar of income that must be paid in taxes. C) the incremental income one must earn to offset […]

Table 11-1 Table 11-1 shows the technology of production at the Matsuko’s Mushroom Farm for the month of May. What is the marginal product of the 4th worker? A) 137 pounds B) 50 pounds C) 12.5 pounds D) 5 pounds […]

A tax is efficient if A) individuals with the lowest incomes pay proportionately lower taxes than individuals with the highest incomes. B) it is based on profits earned and not on wages. C) it encourages saving and investment. D) it […]

The ratio of the increase in equilibrium real GDP to the increase in autonomous expenditure is called the A) MPC. B) multiplier. C) MPS. D) consumption function. For a monopolistically competitive firm, marginal revenue A) equals the price. B) is […]

The marginal product of labor is calculated using the formula A) L/Q. B) L/Q. C) Q/L. D) Q/L. Figure 12-2 If the U.S. economy is currently at point K, which of the following could cause it to move to point […]

An increase in the price of off-road vehicles will result in A) a smaller quantity of off-road vehicles supplied. B) a larger quantity of off-road vehicles supplied. C) an increase in the demand for off-road vehicles. D) a decrease in […]

Consumers have to make tradeoffs in deciding what to consume because A) not all goods give them the same amount of satisfaction. B) the prices of goods vary. C) they are limited by a budget constraint. D) there are not […]

Ariel is a Canadian citizen who works in Montreal, Canada and owns a winter home in Palm Beach, Florida. When Ariel spends the winters in Palm Beach, an increase in the value of the Canadian dollar relative to the U.S. […]

Table 8-11 Consider the following data for Tyrovia, a country that produces only two products: guns and butter. Real GDP for Tyrovia for 2013 using 2005 as the base year equals A) $1,140. B) $880. C) $690. D) $560. In […]

Ceteris paribus, an increase in the government budget deficit increases interest rates in the United States and causes a real appreciation of the dollar. To successfully price discriminate, a firm must ensure that there are no opportunities for arbitrage. Answer: […]

One reason why firms would choose a salary system rather than a commission compensation system is that their employees might become less concerned about the quality of their work. Joe Santos owns the only pizza parlor in a small town […]

An example of a transfer payment is A) a teacher’s paycheck. B) a paycheck for a member of the National Guard. C) a welfare payment. D) a purchase of a new bridge in Alaska. Suppose electronic cigarette manufacturer NJOY is […]

All else being equal, if the rate of growth in productivity in Spain is greater than the rate of growth in productivity in the United States, the euro A) will decrease in value relative the U.S. dollar. B) will increase […]

An isocost line shows A) all the possible combinations of two inputs that a firm can use to produce its output. B) all the possible combinations of two inputs a firm can use that have the same total cost. C) […]

How does contractionary monetary policy affect net exports in the short run? A) Contractionary monetary policy increases exports and reduces imports. B) Contractionary monetary policy reduces exports and increases imports. C) Contractionary monetary policy increases exports and increases imports. D) […]

The unemployment rate is A) the percentage of the labor force that is employed. B) the percentage of the number employed that is unemployed. C) the percentage of the working-age population that is unemployed. D) the percentage of the labor […]

Figure 6-1 A perfectly inelastic demand curve is shown in A) Panel A. B) Panel B. C) Panel C. D) Panel D. If, for the last unit of a good produced by a perfectly competitive firm, MR > MC, then […]

Of the following high-income countries, which has the lowest number of MRI units per 1 million population? A) Canada B) Japan C) the United Kingdom D) the United States Figure 3-6 The figure above represents the market for coffee grinders. […]

Goodwill is listed as an asset on a firm’s balance sheet. Answer: Consider the following T-account for a bank: If the required reserve ratio is 20 percent and the bank is holding no excess reserves, the bank at this point […]

Economists believe the most persuasive argument for protectionism is to A) save jobs. B) protect high wages. C) protect national security. D) protect infant industries. Which of the following willshift the demand curve for a good? A) a change in […]

________ involves undertaking an activity until its marginal benefits equal marginal costs. A) Scarcity reduction B) Central planning C) Marginal analysis D) Market intervention Scarcity A) stems from the incompatibility between limited resources and unlimited wants. B) can be overcome […]

In 2012, GDP per capita was ________ in the United States than in China, and since 1980, the growth rate of real GDP per capita has been ________ in the United States than in China. A) higher; higher B) higher; […]

If the U.S. government places tariffs on imports from countries that have been accused of deliberately undervaluing their currencies, the price of these imports will ________ and the demand for the undervalued currency will ________. A) rise; rise B) rise; […]

The justification for occupational licensing laws is that they protect the public from incompetent practitioners (for example, lawyers and medical doctors), but the laws also result in A) higher prices and restrictions on the number of people who can enter […]

A perfectly competitive firm’s horizontal demand curve implies that the firm does not have to lower its price to sell more output. Corporations are legally owned by their shareholders. Answer: TRUE A normal good is a good for which the […]

Of the following countries, which had the highest level of GDP per capita in 2012? A) Japan B) France C) Italy D) the United States According to the short-run Phillips curve, which of the following would result in high rates […]

Suppose you lend $1,000 at an interest rate of 10 percent over the next year. If the expected real interest rate at the beginning of the loan contract is 4 percent, then what rate of inflation over the upcoming year […]

As a result of the tariff on Chinese tires, U.S. consumers are estimated to have spent ________ on imported tires and ________ on U.S.-produced tires. A) more; more B) more; less C) less; more D) less; less When Mr. Peabody […]

Figure 16-1 What is the economically efficient output level? A) Q1 units B) Q2 units C) Q3 units D) Q4 units When net capital flows are positive, A) capital inflows are greater than capital outflows. B) net foreign investment is […]

A supply curve A) is a table that shows the relationship between the price of a product and the quantity of the product supplied. B) is a curve that shows the relationship between the price of a product and the […]

If the government implements a price ceiling on insulin, this will have all of the following effects on the market for insulin except A) an increase in consumer surplus. B) an increase in producer surplus. C) an increase in deadweight […]

If aggregate expenditure is less than GDP, how will the economy reach macroeconomic equilibrium? A) Inventories will decline, and GDP and employment will decline. B) Inventories will rise, and GDP and employment will decline. C) Inventories will decline, and GDP […]

Hewlett-Packard will not raise the prices of its personal computers without first considering how Dell might respond. This is evidence of A) interdependence. B) collusion. C) cutthroat competition. D) price fixing. Figure 2-15 Figure 2-15 shows the production possibilities frontiers […]

Using the quantity equation, if the velocity of money grows at 5 percent, the money supply grows at 10 percent, and real GDP grows at 4 percent, then the inflation rate will be A) 19 percent. B) 15 percent. C) […]

Free trade refers to trade between countries without government restrictions. If prices rise on average in the U.S. economy, the purchasing power of a dollar declines. Answer: TRUE The saving and investment equation holds only when the federal budget is […]

Figure 15-4 Figure 15-4 shows the demand and cost curves for a monopolist. What is the amount of the monopoly’s total revenue? A) $21,600 B) $20,400 C) $19,740 D) $7,800 Suppose Dublin Electronics charges regular customers $90 for a Blu-ray […]

Examining the conditions that could lead to economic growth is an example of macroeconomic topic. A characteristic of the long run that is not available in the short run is that a firm is free to vary its output. Answer: […]

Economists have not found a way to predict when recessions will begin and end. An increase in net foreign investment is possible through a decrease in national saving or a decrease in domestic investment. Answer: FALSE When a firm experiences […]

An increase in the demand for green tea raises the price of apples from $16 a pound to $20 a pound. As a result, quantity supplied increases by 30 percent. Using the midpoint formula, calculate the value of the price […]

If a firm in Thailand borrows dollars from a U.S. bank, its interest payments on the loan in bahts will decrease if the baht appreciates against the dollar. Answer: If the demand for a product increases and the supply of […]

Figure 4-9 Figure 4-9 shows the market for cigarettes. The government plans to impose a unit tax in this market. The price buyers pay after the tax is A) $12. B) $8. C) $5. D) $3. A curve that shows […]

Investment spending ________ during a recession, and ________ during an expansion. A) declines; increases B) increases; declines C) increases; increases D) declines; declines If Molly Bee increases her work hours when her wage increases, then A) the income effect of […]

Assume that production from an electric utility caused acid rain. If the government imposed a tax on the utility equal to the cost of the acid rain, the government’s action would A) externalize the externality. B) result in a marginal […]

The economic model of consumer behavior predicts that A) consumers will try to earn as much income as they can over their lifetimes. B) consumers will choose to buy the combination of goods and services that make them as well […]

When a firm has been granted a trademark, which grants legal protection against other firms using the name of the product that has been granted the trademark, the firm A) still faces the possibility that the name will become widely […]

When President Obama took office in January 2009, he pledged to pursue an expansionary fiscal policy to try to pull the economy out of the recession. The next month, Congress passed the American Recovery and Reinvestment Act of 2009, an […]

If transactions costs are low, private bargaining will always result in an efficient solution to the problem of externalities. “The distribution of income should be left to the market” is an example of a positive economic statement. Answer: FALSE[/cpmembership] A […]

If a country produces only two goods, then it is not possible to have a comparative advantage in the production of both those goods. The United States has a closed economy. Answer: FALSE Contractionary fiscal policy involves decreasing government purchases […]

The Athenian Theatre sells play tickets for the same play at different prices: a lower price to those who opt for the seats at the back of the theatre and a higher price for those who purchase seats in the […]

How does the increasing use of MP3 players affect the market for compact discs? A) The demand curve for compact discs shifts to the right. B) The supply curve for compact discs shifts to the left. C) The supply curve […]

If nominal GDP rises we can say that A) production has risen and prices remain constant. B) prices have risen and production remains constant. C) production has risen or prices have risen or both have risen. D) production has fallen […]

The marginal revenue of a monopolistically competitive firm A) cannot be negative because the price the firm charges will always be greater than zero. B) can be negative if the firm charges a high price. C) can be negative if […]

Which of the following is a positive economic statement? A) The standard of living in the United States should be higher. B) If the price of iPhones falls, a larger quantity of iPhones will be purchased. C) The government should […]

Technological advancements that increase labor’s productivity shift the labor supply curve to the right. Contractionary fiscal policy is used to decrease aggregate demand in an attempt to fight rising inflation. Answer: TRUE When colleges use yield management techniques, they increase […]

A relationship that depends on the basic behavior of consumers and firms and remains unchanged over long periods is called a ________ relationship. A) frictional B) structural C) cyclical D) dynamic When a firm produces more output using the same […]

Figure 5-2 Figure 5-2 shows a market with a negative externality. The marginal benefit of the last unit produced is represented by the price A) Pa. B) P. C) Pc. D) Pf. If an airport decides to expand by building […]

Figure 13-11 The firm represented in the diagram A) makes zero economic profit. B) makes zero accounting profit. C) should exit the industry. D) should expand its output to take advantage of economies of scale. The decision to make the […]

Table 7-1 Rob Crusoe and Bill Friday spent their week-long vacation on a desert island where they had to find and make their own food. Rob and Bill spent one day each fishing and picking berries. The table lists the […]

If it costs Danitra $225 to create 4 necklaces and $275 to create 5 necklaces, then $50 is the marginal cost of producing the 5th necklace. The basis for trade is comparative advantage, not absolute advantage. Answer: TRUE Consider a […]

Figure 3-2 A decrease in the number of firms in the market would be represented by a movement from A) A to B. B) B to A. C) S1 to S2. D) S2 to S1. ________ involves undertaking an activity […]

Deadweight loss refers to the reduction in economic surplus resulting from a market not being in competitive equilibrium. Answer: A decrease in disposable income will shift the aggregate demand curve to the left. Answer: TRUE If the multiplier is 10, […]

If wages and prices adjust slowly, we would expect expansionary monetary policy to be A) less likely to reduce the natural unemployment rate. B) more likely to reduce inflation. C) more likely to affect the unemployment rate. D) more likely […]

Figure 3-8 The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D1 and S2 (point B). If there is an increase in number of companies producing motorcycles and a decrease […]

Table 2-8 Table 2-8 shows the number of labor hours required to produce a digital camera and a pound of wheat in China and South Korea. What is China’s opportunity cost of producing one digital camera? A) 0.04 pounds of […]

Suppose your expenses for this term are as follows: tuition: $9,000, room and board: $1,500, books and other educational supplies: $1,000. Further, during the term, you can only work part-time and earn $3,000 instead of your full-time salary of $8,000. […]

Sparkle, one of many firms in the market for toothpaste, is in long-run equilibrium. Sparkle has a small market share and has been in business for a long time. a. Identify the market structure in which Sparkle operates. Explain your […]

The cyclically adjusted budget deficit calculates the budget surplus or deficit at A) real GDP. B) potential GDP. C) nominal GDP. D) average GDP. In September 2012, the average price of gasoline in the United States was $3.91 per gallon […]

If you purchase a share of stock from your friend who initially purchased the stock three years ago, your purchase of the stock represents a transaction in the secondary financial market. An increase in disposable income will shift the aggregate […]

Normative analysis is concerned with “what ought to be,” while positive analysis is concerned with “what is.” Answer: One desirable outcome of a market economy is that it leads to a more equitable distribution of income. Answer: FALSE Each year, […]

You’re traveling in Japan and are thinking about buying a new kimono. You’ve decided you’d be willing to pay $175 for a new kimono, but kimonos in Japan are all priced in yen. If the kimono you’re looking at costs […]

The horizontal-equity principle of taxation is not easy to use in practice because A) some people engage in rent seeking to reduce their taxes below the level other people pay. B) people can use tax loopholes to reduce their incomes […]

Figure 4-1 Figure 4-1 shows Arnold’s demand curve for burritos. If the market price is $2.00, what is the consumer surplus on the second burrito? A) $0 B) $1.00 C) $2.00 D) $4.50 Indicate whether each of the following situations […]

Table 4-13 The equations above describe the demand and supply for Aunt Maud’s Premium Hand Lotion. What are the equilibrium price and quantity (in thousands) for Aunt Maud’s Lotion? A) $20 and 30 thousand B) $30 and 20 thousand C) […]

If the exchange rate changes from $2.00 = 1 euro to $1.98 = 1 euro then A) the dollar has depreciated. B) the dollar has appreciated. C) the euro has appreciated. D) the euro has stayed constant in value. Which […]

When voluntary exchange takes place, neither party usually gains from the exchange. If the price elasticity of demand is unit-elastic, a 10 percent increase in price will result in a 10 percent increase in revenue. Answer: FALSE Any output combination […]

Which of the following statements is consistent with the views of Joseph Schumpeter? A) Research and development by competitive firms is responsible for most technological changes. B) An economy benefits from firms having market power because these firms are more […]

Figure 12-15 Assume that the medical screening industry is perfectly competitive and that some firms are making short-run losses. Suppose the medical screening industry runs an effective advertising campaign which convinces a large number of people that yearly CT scans […]

Identify each of the following as (i) part of an expansionary fiscal policy, (ii) part of a contractionary fiscal policy, or (iii) not part of fiscal policy. a. The personal income tax rate is lowered. b. Congress cuts spending on […]

The present value of $300 received 5 years in the future would be calculated as which of the following when the interest rate is 5%? A) 300/(1.5)5 B) 300/(1.05)5 C) 300 1.5 5 D) 5.05/300 If the consumption function is […]

Both monopolistically competitive firms and perfectly competitive firms maximize profits A) by producing where price equals average total cost. B) by producing where marginal revenue equals average revenue. C) by producing where marginal revenue is equal to marginal cost. D) […]

Table 7-2 Madison and Austin own Cafe Ole’. Table 7-2 lists the number of empanadas and tacos Madison and Austin can each make in one hour. Select the statement that accurately interprets the data in the table. A) Madison has […]

Which of the following correctly describes what the Fed used as monetary targets in the past? A) The Fed used M1 and M2 as targets after 1993. B) The Fed focused on M1 as a target after deregulation of the […]

Which of the following is an example of human capital? A) a computer B) a factory building C) a college education D) a software program Figure 6-12 Suppose the diagram shows the supply curves for a product in the short […]

Which of the following is an advantage of starting a new business as a proprietorship? A) The owner has limited personal liability. B) A proprietorship has few government rules and regulations to comply with. C) Business profits are not taxed. […]

What is human capital? A) a slang term for the underground labor market B) manufactured goods that are used to produce other goods C) accumulated knowledge and skills acquired by a worker D) the manager or owner of a business […]

Mrs. Lovejoy decides to invest in companies which she believes can produce its goods at the lowest possible cost. Mrs. Lovejoy is investing in companies that are A) productively efficient. B) allocatively efficient. C) both productively and allocatively efficient. D) […]

The existence of the principal-agent problem A) increases the risk of buying stock in a corporation. B) increases the risk of becoming the sole proprietor of a business. C) implies that managers that have the same incentives as the board […]

The proponents of ________ and ________ think that the Federal Reserve should adopt a constant monetary growth rule. A) new Keynesianism; the new classical model B) the real business cycle model; Marxism C) rational expectations; monetarism D) the monetarist model; […]

Arnold Kim began blogging about Apple products during his fourth year of medical school. Kim’s Website, MacRumors.com, became so successful that he decided to give up his medical career and work full time on his Website, despite the nearly $200,000 […]

The total amount of producer surplus in a market is equal to the area below the supply curve. If the number of firms producing mouthwash increases and consumer preference for mouthwash increases, the equilibrium price of mouthwash will definitely increase. […]

Table 14-4 Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito. Each firm must decide on whether to increase its advertising spending to compete for customers. If one firm increases its advertising […]

Suppose that when the price of strawberries decreases, Simone increases her purchase of whipped cream. To Simone A) strawberries and whipped cream are complements. B) strawberries and whipped cream and substitutes. C) strawberries and whipped cream are normal goods. D) […]

If a country has a fixed exchange rate, A) the equilibrium exchange rate in that market does not respond to changes in supply and demand for currency. B) central banks have more control over real GDP in the economy. C) […]

Table 9-6 Mateo and Celeste produce custom saddles and spurs. Table 9-6 lists the number of saddles and pairs of spurs Mateo and Celeste can each produce in one month. Select the statement that accurately interprets the data in the […]

Prices of commercial airline tickets (assume that this is a normal good) have fallen in recent months. Over this same period, the price of jet fuel has risen and consumer incomes have fallen. Which of the following best explains the […]

Figure 6-10 A unit-elastic supply curve is shown in A) Panel A. B) Panel B. C) Panel C. D) Panel D. Figure 1-1 Answer: C Using the information in the figure above, calculate the percentage change in sales of alcoholic […]

A perfectly competitive wheat farmer in a constant-cost industry produces 1,000 bushels of wheat at a total cost of $50,000. The prevailing market price is $48. What will happen to the market price of wheat in the long run? A) […]

Which of the following goods would have the most inelastic demand? A) ski vacations B) bread C) luxury cars D) big screen TVs Suppose a chain of convenience stores reorganized its system of supplying its stores with food. This led […]

The substitution effect explains why there is an inverse relationship between the price of a product and the quantity of the product demanded. For a perfectly competitive firm, at the profit-maximizing output average revenue equals marginal cost. Answer: TRUE Horizontal […]

Why are laws aimed at regulating monopolies called “antitrust” laws? A) The rise of large firms (e.g., Standard Oil) in the late 1800s in the United States caused consumers to lose trust in private business. B) “Trust” was a word […]

A monopsony restricts the quantity of a factor demanded to force down the price of the factor and increase profits. Answer: The natural rate of unemployment consists of frictional unemployment plus cyclical unemployment. Answer: FALSE The rising cost of malpractice […]

The supply curve of a uniquely talented actor or superstar athlete will be perfectly inelastic. The only type of business that faces unlimited liability is a sole proprietorship. Answer: FALSE An equilibrium in which each player chooses its best strategy […]

Table 17-7 Dante owns a pencil factory and faces the situation shown in the table and the cost of renting a machine is $240 per week. a. Fill in the blanks in the table and determine the profit-maximizing number of […]

The Sarbanes-Oxley Act of 2002 requires that each member of the board of directors personally certify the accuracy of financial reports. Assume that price exceeds average variable cost over the relevant range of demand. If a monopolistically competitive firm is […]

Figure 5-9 Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market. The efficient output is […]

Which of the following is a disadvantage of trademarking a firm’s product? A) A trademark differentiates a firm’s product. B) A trademark conveys information about the product to the public. C) A trademark may become so widely used to denote […]

According to Porter’s Five Competitive Forces Model, similar products produced by different firms within the industry affects a firm’s ability to raise prices far more than substitutable products produced outside the industry. Increasing a fixed exchange rate is called a […]

Eliminating frictional unemployment would be good for the economy. The demand for gasoline is perfectly inelastic because most people need gasoline to drive their cars. Answer: FALSE[/cpmembership] An increase in the purchasing power of money need not lead to an […]

If people assume that future rates of inflation will follow the pattern of inflation rates in the past, they are said to have A) rational expectations. B) adaptive expectations. C) unstable expectations. D) accommodative expectations. In the long run, A) […]

Which of the following activities create a negative externality? A) cleaning up the sidewalk on your block B) graduating from college C) repainting the house you live in to improve its appearance D) keeping a junked car parked on your […]