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Ten Principles of Economics 141 25. A worker in Vietnam can earn $6 per day making cotton cloth on a hand loom. A worker in the United States can earn $85 per day making cotton cloth with a mechanical loom. […]

1 WHAT’S NEW IN THE SEVENTH EDITION: There is an additional example about marginal benefits and marginal costs. LEARNING OBJECTIVES: By the end of this chapter, students should understand: ➢ that economics is about the allocation of scarce resources. ➢ […]

192 Ten Principles of Economics Scenario 1-5 Suppose that you have a choice between going to the movies with a friend for three hours or working at your job. If you go to the movies, you will spend $12 on […]

Ten Principles of Economics 161 65. In the short run, which of the following is not correct? a. Increasing the money supply increases the demand for goods and services. b. Increasing the money supply encourages firms to hire more workers. […]

Ten Principles of Economics Multiple Choice – Section 00: Introduction 1. The English word that comes from the Greek word for “one who manages a household” is a. market. b. consumer. c. producer. d. economy. 2. The word “economy” comes […]

Ten Principles of Economics 101 47. According to Adam Smith, the success of decentralized market economies is primarily due to a. the basic benevolence of society. b. society’s legal system. c. individuals‘ pursuit of self-interest. d. partnerships that are forged […]

Ten Principles of Economics 21 19. The terms equality and efficiency are similar in that they both refer to benefits to society. However they are different in that a. equality refers to uniform distribution of those benefits and efficiency refers […]

Ten Principles of Economics 121 88. The willingness of citizens to pay for vaccinations does not include the benefit society receives from having vaccinated citizens who cannot transmit an illness to others. This extra benefit society gets from vaccinating its […]

Measuring a Nation’s Income 5671 6. Consumption consists of spending by households on goods and services, with the exception of a. purchases of intangible services. b. purchases of durable goods. c. purchases of new houses. d. spending on education. 7. […]

Measuring a Nation’s Income 5771 5. GDP does not reflect a. the value of leisure. b. the value of goods and services produced at home. c. the quality of the environment. d. All of the above are correct. 6. Which […]

182 WHAT’S NEW IN THE SEVENTH EDITION: There is a new In the News box on “Measuring Macroeconomic Well-Being” and tables have been updated. LEARNING OBJECTIVES: By the end of this chapter, students should understand: ➢ why an economy’s total […]

Measuring a Nation’s Income 5711 88. In the economy of Talikastan in 2015, consumption was $3000, exports were $400, GDP was $5000, imports were $500, and investment was $1400. What were Talikastan’s government purchases in 2015? a. $60 b. $500 […]

Measuring a Nation’s Income 5791 27. The government computes measures of income other than GDP because these other measures usually tell different stories about overall economic conditions. a. True b. False 28. When an American doctor opens a practice in […]

Measuring a Nation’s Income 5651 84. The government of a country, which has adopted American GDP accounting conventions, reported that seasonally adjusted GDP in quarter 3 was $48 billion at an annual rate. This means that the seasonally-adjusted market value […]

Measuring a Nation’s Income 5691 46. Which of the following items is counted as part of government purchases? a. The federal government pays the salary of a Navy officer. b. The state of Nevada pays a private firm to repair […]

Measuring a Nation’s Income 5611 3. Which of the following is a way to compute GDP? a. total income earned. b. total expenditures on final goods. c. add up the market values of all final goods and services. d. All […]

Measuring a Nation’s Income 5751 57. Refer to Table 23-5. In 2017, this country’s a. real GDP was $900, and the GDP deflator was 138.9. b. real GDP was $1250, and the GDP deflator was 128.0. c. real GDP was […]

Measuring a Nation’s Income 5731 14. Which of the following statements about nominal GDP and real GDP is correct? a. Nominal GDP is a better gauge of economic well-being than real GDP. b. Real GDP is a better gauge of […]

Measuring a Nation’s Income Multiple Choice – Section 00: Introduction 1. Macroeconomists study a. the decisions of individual households and firms. b. the interaction between households and firms. c. economy-wide phenomena. d. regulations imposed on firms and unions. 2. Which […]

Measuring a Nation’s Income 5631 44. Janet bought flour and used it to bake bread she ate. ABC Bakery bought flour which it used to bake bread that customers purchased. In which case will the flour be counted as a […]

5810 Measuring a Nation’s Income 82. You find that your paycheck for the year is higher this year than last. Does that mean that your real income has increased? Explain carefully. 83. U.S. real GDP is substantially higher today than […]

Measuring the Cost of Living 101 200. An important difference between the GDP deflator and the consumer price index is that a. the GDP deflator reflects the prices of goods and services bought by producers, whereas the consumer price index […]

Measuring the Cost of Living Multiple Choice – Section 00: Introduction 1. Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than 400 times as much as Babe Ruth earned in […]

Measuring the Cost of Living 221 71. In the late 1970s, U.S. nominal interest rates were high and real interest rates were low, but in the late 1990s, U.S. nominal interest rates were low and real interest rates were high. […]

Measuring the Cost of Living 161 63. Refer to Table 24–13. Suppose Olivia’s 2009 clothing expenditure in 2010 dollars amounts to $1,440. Then X, the consumer price index for 2009, has a value of a. 120. b. 130. c. 140. […]

Measuring the Cost of Living 141 23. Refer to Scenario 24-1. In 1975 dollars, a 1975 tennis ball cost $0.10 and a 2005 tennis ball cost a. $0.27, so tennis balls were cheaper in 1975. b. $0.27, so tennis balls […]

The purpose of Chapter 11 is twofold: first, to show students how to generate a price index and, second, to teach them how to employ a price index to compare dollar figures from different points in time and to adjust […]

Measuring the Cost of Living 181 105. If the nominal interest rate is 4 percent and the real interest rate is 7 percent, then the inflation rate is a. –3 percent. b. 0.75 percent. c. 3 percent. d. 11 percent. […]

Measuring the Cost of Living 121 10. Which of the following statements is true? a. Even if we know the values of the consumer price index for the years 2009 and 2010, we cannot calculate the inflation rate for 2010 […]

Measuring the Cost of Living 41 69. For an imaginary economy, the value of the consumer price index was 138.75 in 2016, and the inflation rate was 10 percent between 2015 and 2016. The consumer price index in 2015 was […]

Measuring the Cost of Living 21 28. If the consumer price index was 96 in 2012, 100 in 2013, and 102 in 2014, then the base year must be a. 2012. b. 2013. c. 2014. d. The base year cannot […]

Measuring the Cost of Living 201 11. The Bureau of Labor Statistics determines which prices are most important to the typical consumer by surveying consumers. a. True b. False 12. The content of the basket of goods and services used […]

Measuring the Cost of Living 81 158. The consumer price index tries to gauge how much incomes must rise to maintain a. an increasing standard of living. b. a constant standard of living. c. a decreasing standard of living. d. […]

Measuring the Cost of Living 61 116. Refer to Table 24-6. If the base year is 2009, then the economy’s inflation rate in 2010 is a. 20 percent. b. 25 percent. c. 30 percent. d. 120 percent. 117. Refer to […]

232 Measuring the Cost of Living 16. Refer to Scenario 24-6. Using 2011 as the base year, what is the inflation rate in 2011? Table 24–14 The table below lists the per pound prices of meat and potatoes for the […]

Production and Growth Multiple Choice – Section 00: Introduction 1. The average income in a rich country, such as the United States or Japan, is more than a. 3 times, but less than 5 times, the average income in a […]

Production and Growth 6151 121. Amy discovers a way to produce water heaters so they are less expensive and use less natural gas. Amy’s discovery is a. physical capital. If Amy’s discovery leads to lower natural gas prices, it has […]

Production and Growth 6191 57. The catch-up effect refers to the idea that a. saving will always catch–up with investment spending. b. it is easier for a country to grow fast and so catch-up if it starts out relatively poor. […]

Production and Growth 6111 24. In one day Portal Computer Company made 400 laptops with 1200 hours of labor. What was its productivity? a. 1/3 laptop per hour b. 3 hours per laptop c. 1200 laptops d. 400 laptops 25. […]

Production and Growth 6091 34. The United Kingdom is a. an advanced economy, and over the past century its rate of economic growth has been higher than that of the United States. b. an advanced economy, and over the past […]

209 WHAT’S NEW IN THE SEVENTH EDITION: There is a new In the News box on “Does Food Aid Help or Hurt?” LEARNING OBJECTIVES: By the end of this chapter, students should understand: ➢ how much economic growth differs around […]

Production and Growth 6251 49. Economists generally believe that inward–oriented policies are more likely to foster growth than outward-oriented policies. a. True b. False 50. Economists generally believe that policies such as reducing barriers to trade are likely to foster […]

Production and Growth 6211 104. If a newly elected government takes actions that makes its country’s courts more efficient and less corrupt, then a. producers will have greater confidence that they will benefit from their efforts. b. producers are likely […]

Production and Growth 6231 150. The president of a poor country has announced that he will implement the following measures which he claims are designed to increase growth: 1. Reduce corruption in the legal system; 2. Reduce reliance on market […]

Production and Growth 6171 11. The traditional view of the production process is that capital is subject to a. constant returns. b. increasing returns. c. diminishing returns. d. diminishing returns for low levels of capital, and increasing returns for high […]

Production and Growth 6131 72. Megan is a landscaper. Which of the following are included in her physical capital? a. her knowledge of landscaping learned in college and her landscaping equipment b. her knowledge of landscaping learned in college, but […]

220 WHAT’S NEW IN THE SEVENTH EDITION: There is a new In the News feature on “Should College Students Sell Equity in Themselves?” LEARNING OBJECTIVES: By the end of this chapter, students should understand: ➢ some of the important financial […]

Saving, Investment, and the Financial System 6419 6. Other things the same, when the interest rate rises, a. people would want to lend more, making the supply of loanable funds increase. b. people would want to lend less, making the […]

Saving, Investment, and the Financial System 6399 63. A budget surplus a. occurs when the government has debt equal to zero. b. causes government debt to increase. c. exists when government spending is greater than tax revenues. d. reduces the […]

Saving, Investment, and the Financial System 6379 22. Which of the following equations represents GDP for an open economy? a. Y = C + I + G + NX b. NX = I – G c. I = Y – […]

Saving, Investment, and the Financial System 6359 161. Index funds a. buy all the stocks in a given stock index. b. promise to beat the market by a certain percentage known as an index. c. provide a return that is […]

236 WHAT’S NEW IN THE SEVENTH EDITION: There are no major changes to this chapter. LEARNING OBJECTIVES: By the end of this chapter, students should understand: ➢ the relationship between present value and future value. ➢ the effects of compound […]

The Basic Tools of Finance 6621 156. According to the rule of 70, if the interest rate is 5 percent, how long will it take for the value of a savings account to double? a. about 3.5 years b. about […]

The Basic Tools of Finance Multiple Choice – Section 00: Introduction 1. Most financial decisions involve two related elements: a. advice and consent. b. investment and taxes. c. time and risk. d. saving and consumption. 2. The field of finance […]

The Basic Tools of Finance 6661 23. Refer to Figure 27-3. Suppose Paul begins with $900 in wealth. Starting from there, a. Paul would be willing to accept a coin–flip bet that would result in him winning $200 if the […]

The Basic Tools of Finance 6721 25. If stock prices follow a random walk, then stock investors can make large profits by a. buying stocks whose prices have been falling for several days. b. buying stocks whose prices have been […]

The Basic Tools of Finance 6561 38. You put $150 in the bank two years ago and forgot about it. The bank sends you a notice that you now have $169.34 in your account. What interest rate did you earn? […]

Unemployment Multiple Choice – Section 00: Introduction 1. To maintain their standard of living, most people rely on a. government assistance. b. their personal savings. c. their labor earnings. d. rental income. 2. To maintain their standard of living, most […]

70. Data on the unemployment rate in the U.S. since 1960 show that the economy always has some unemployment and that the amount changes from year to year. a. True b. False 71. Data on the unemployment rate in the […]

247 WHAT’S NEW IN THE SEVENTH EDITION: A new In the News feature on “Why Has Employment Declined” has been added and all statistics and tables have been updated. LEARNING OBJECTIVES: By the end of this chapter, students should understand: […]

239. What is the theory of efficiency wages? Provide four reasons that employers might pay efficiency wages. ANSWER: According to the theory of efficiency wages, firms operate more efficiently if wages are above the equilibrium level. Therefore, it may be […]

190. It is only among the least skilled and least experienced members of the labor force that minimum-wage laws cause unemployment. a. True b. False 191. U.S. Department of Labor data show that minimum-wage workers tend to be young, less […]

67. President Bigego is running for re-election against Senator Pander. Bigego proclaims that more people are working now than when he took office. Pander says that the unemployment rate is higher now than when Bigego took office. You conclude that […]

27. Who of the following would be included in the Bureau of Labor Statistics’ “unemployed” category? a. Miguel, who is on temporary layoff b. Reta, who worked only 15 hours last week c. Marisa, who neither has a job nor […]

6. Suppose that efficiency wages become more common in the economy. Imposing efficiency wages a. increases the quantity demanded and decreases the quantity supplied of labor. b. decreases the quantity demanded and increases the quantity supplied of labor. c. increases […]

130. The Bureau of Labor Statistics’ household survey and establishment survey both yield the same results about total employment. a. True b. False 131. The Bureau of Labor Statistics’ household survey and establishment survey both yield information about unemployment. a. […]

111. Refer to Table 28-2. The labor-force participation rate of Aridia in 2012 was a. 50%. b. 53.3%. c. 56.25%. d. 88.9%. 112. Refer to Table 28-2. The labor-force participation rate of Aridia a. increased both from 2010 to 2011 […]

9. The natural rate of unemployment is closely associated with the short-run ups and downs of economic activity. a. True b. False 10. The natural rate of unemployment is the desirable rate of unemployment for an economy. a. True b. […]

152. Which of the following is not a commonly-cited explanation for the dramatically increasing labor-force participation rates for women from 1950 to the present? a. availability of reliable birth control b. invention of household labor-saving devices such as dishwashers and […]

28. Wanda quit her job because she was unhappy at work. Arnold was fired from his landscaping job because his company was downsizing. Who is eligible for unemployment insurance benefits? a. both Wanda and Arnold b. Wanda but not Arnold […]

14. When a union raises the wage above the equilibrium level, it a. reduces both the quantity of labor supplied and the quantity of labor demanded. b. reduces the quantity of labor supplied and raises the quantity of labor demanded. […]

194. Which of the following is not an explanation for the existence of unemployment in the long run? a. it takes time for workers to search for the jobs that are best suited for them b. minimum-wage laws c. unions […]

23. Refer to Figure 28-3. If the government imposes a minimum wage of $4, how many workers will be unemployed? a. 0 b. 3,000 c. 4,000 d. 7,000 24. Refer to Figure 28-3. If the government imposes a minimum wage […]

7310 The Monetary System The Monetary System 7311 70. During the early 1930s there were a number of bank failures in the United States. What did this do to the money supply? The New York Federal Reserve Bank advocated open […]

The Monetary System 7151 Multiple Choice – Section 02: The Federal Reserve System 1. Which of the following institutions is a central bank? a. the Bank of Japan b. the Bank of England c. the Federal Reserve System d. All […]

The Monetary System 7251 60. The Fed increases the reserve requirement, but it wants to offset the effects on the money supply. Which of the following should it do? a. sell bonds to increase reserves b. sell bonds to decrease […]

264 WHAT’S NEW IN THE SEVENTH EDITION: There is a new In the News box on “Why Gold?” LEARNING OBJECTIVES: By the end of this chapter, students should understand: ➢ what money is and what functions money has in the […]

The Monetary System 7211 75. Refer to Table 29-3. If all banks in the economy have the same reserve ratio as this bank, then an increase in reserves of $150 for this bank has the potential to increase deposits for […]

The Monetary System 7271 100. Refer to Scenario 29-2. Suppose that the Bank of Tazi changes the reserve requirement to 3 percent. Assuming that the banks still want to hold the same percentage of excess reserves what is the value […]

The Monetary System 7111 25. Treasury Bonds are a. liquid, but not a store of value. b. a store of value, but not liquid. c. both liquid and a store of value. d. neither liquid nor a store of value. […]

The Monetary System 7231 15. When the Fed purchases $1000 worth of government bonds from the public, the U.S. money supply eventually increases by a. more than $1000. b. exactly $1000. c. less than $1000. d. None of the above […]

The Monetary System 7131 66. Which of the following is not included in M1? a. a $5 bill in your wallet b. $100 in your checking account c. $500 in your savings account d. All of the above are included […]

96. Economic variables whose values are measured in goods are called a. dichotomous variables. b. nominal variables. c. classical variables. d. real variables. 97. The price level is a a. relative variable. b. dichotomous variable c. real variable. d. nominal […]

281 WHAT’S NEW IN THE SEVENTH EDITION: There are no major changes to this chapter. LEARNING OBJECTIVES: By the end of this chapter, students should understand: ➢ why inflation results from rapid growth in the money supply. ➢ the meaning […]

218. If the real interest rate is 6 percent and the price level is falling at a rate of 2 percent, what is the nominal interest rate? a. 4 percent b. 6 percent c. 8 percent d. 10 percent 219. […]

Money Growth and Inflation Multiple Choice – Section 00: Introduction 1. Over the past 80 years, prices in the U.S. have risen on average about a. 2 percent per year. b. 4 percent per year. c. 3.6 percent per year. […]

20. In the long run, money demand and money supply determine a. the value of money and the real interest rate. b. the value of money but not the real interest rate. c. the real interest rate but not the […]

137. The principle of monetary neutrality implies that an increase in the money supply will a. increase real GDP and the price level. b. increase real GDP, but not the price level. c. increase the price level, but not real […]

177. During the 2008 financial crisis velocity decreased. This means that the rate at which money changed hands a. decreased. Other things the same, a decrease in velocity decreases the price level. b. decreased. Other things the same, a decrease […]

5. In the 1990s, U.S. prices rose at about the same rate as in the 1970s. a. True b. False 6. The quantity theory of money can explain hyperinflations but not moderate inflation. a. True b. False ANSWER: False POINTS: […]

60. According to the classical dichotomy, what changes nominal variables? What changes real variables? 61. Suppose that monetary neutrality holds. Of the following variables, which ones do not change when the money supply increases? a. real interest rates b. inflation […]

12. The shoeleather cost of inflation refers to a. the redistributional effects of unexpected inflation. b. the time spent searching for low prices when inflation rises. c. the waste of resources used to maintain lower money holdings. d. the increased […]

19. The quantity equation is expressed as _____. The rate at which money changes hands is known as _____. 20. If velocity is 6, real output is 10,000, and M is 20,000 what would the price level be? If M […]

298 WHAT’S NEW IN THE SEVENTH EDITION: There is a new In the News feature on “The Changing Nature of U.S. Exports” and an updated presentation of the U.S. trade deficit. LEARNING OBJECTIVES: By the end of this chapter, students […]

Open-Economy Macroeconomics: Basic Concepts 7713 71. If the Kenyan nominal exchange rate declines, and prices are unchanged in Kenya and abroad, then the Kenyan real exchange rate a. does not change. b. rises. c. declines d. None of the above […]

Open-Economy Macroeconomics: Basic Concepts 7733 33. To increase domestic investment, a country must increase its saving. a. True b. False 34. The increase in the trade deficit in the 1980’s reflected a decrease in national saving that is associated with […]

Open-Economy Macroeconomics: Basic Concepts Multiple Choice – Section 00: Introduction 1. Which type(s) of economies interact with other economies? a. only closed economies b. only open economies c. closed economies and open economies d. neither closed nor open economies 2. […]

Open-Economy Macroeconomics: Basic Concepts 7593 104. A Japanese bank buys U.S. government bonds, this purchase a. increases U.S. net capital outflow and has no affect on Japanese net capital outflow. b. increases U.S. net capital outflow and increases Japanese net […]

13. A decrease in the budget deficit causes domestic interest rates a. and investment to rise. b. to rise and investment to fall. c. to fall and investment to rise. d. and investment to fall. 14. An increase in the […]

112. A large and sudden movement of funds out of a country is called a. arbitrage. b. capital flight. c. crowding out. d. capital mobility. 113. Capital flight refers to a. the movement of workers across international borders in response […]

63. Refer to Figure 32-5. Starting from 3% and .75, an increase in the government budget surplus can be illustrated as a move to a. 4% and 1 b. 4% and .5 c. 2% and 1 d. 2% and .5 […]

314 WHAT’S NEW IN THE SEVENTH EDITION: A new In the News box on “Is a Strong Currency Always in a Nation’s Interest?” has been added. LEARNING OBJECTIVES: By the end of this chapter, students should understand: ➢ how to […]

Chapter 19/A Macroeconomic Theory of the Open Economy ❖ 325 10. Case Study: Capital Flows from China a. What happens if a country’s government encourages capital to flow to other countries? b. It leads to a weaker currency and a […]

A Macroeconomic Theory of the Open Economy Multiple Choice – Section 00: Introduction 1. Over the past three decades, the United States has a. generally had, or been very near to a trade balance. b. had trade deficits in about […]

42. In the long run import quotas do not affect the size of net exports. a. True b. False 43. An import quota imposed by the U.S. would reduce U.S. imports, but have no impact on U.S. exports. a. True […]

98. In the open-economy macroeconomic model, if net capital outflow increases then a. the demand for dollars in the market for foreign-currency exchange shifts right. b. the demand for dollars in the market for foreign-currency exchange shifts left. c. the […]

16. In the market for foreign-currency exchange, the source of the supply of dollars is _________. The supply curve is _________ because _____________. 17. If the exchange rate rises, domestic goods become relatively ______ expensive. This change in the affordability […]

47. If interest rates rise in the U.S., then other things the same a. foreigners would buy more U.S. bonds which increases the quantity of loanable funds demanded in the U.S. b. foreigners would buy more U.S. bonds which reduces […]

8. In the open-economy macroeconomic model, which of the following increases net capital outflow? a. a fall in the real exchange rate, but not a fall in the real interest rate b. a fall in the real interest rate, but […]

162. Which of the following will decrease U.S. net capital outflow? a. capital flight from the United States b. the government budget deficit increases c. the U.S. imposes import quotas d. None of the above is correct. 163. Which of […]

Thinking Like an Economist 343 10. Normative statements are not a. descriptive. b. prescriptive. c. claims about how the world should be. d. made by economists speaking as policy advisers. 11. A statement describing how the world is a. is […]

15 w WHAT’S NEW IN THE SEVENTH EDITION: There is a new In the News feature on “Actual Economists and Virtual Realities.” Figure A-1 has been updated. LEARNING OBJECTIVES: By the end of this chapter, students should understand: ➢ how […]

Thinking Like an Economist 243 79. In the circular-flow diagram, another name for goods and services produced by firms is a. factors of production. b. output. c. inputs. d. resources. 80. Which markets are represented in the simple circular-flow diagram? […]

Thinking Like an Economist 363 53. The president of the United States receives tax policy advice from economists in the a. Federal Reserve. b. Department of Justice. c. Department of the Treasury. d. Congressional Budget Office. 54. The design of […]

Thinking Like an Economist 383 2. Which of the following is not an example of a graph of a single variable? a. a pie chart b. a bar graph c. a time-series graph d. a scatterplot 3. Graphs such as […]

Thinking Like an Economist 303 194. Refer to Figure 2-7. If this economy devotes all of its resources to the production of engines, then it will produce a. 0 engines and 40 tvs. b. 10 engines and 35 tvs. c. […]

Thinking Like an Economist 323 230. Refer to Figure 2-13. Which of the following combinations of points are both efficient and attainable for this economy? a. G, H b. F, I, L c. F, G, H, I, L d. J, […]

Thinking Like an Economist 223 38. An example of a price that changes only infrequently is the price of a. stocks on the New York Stock Exchange. b. crude oil. c. residential real estate. d. magazines sold at newsstands. 39. […]

Thinking Like an Economist 463 133. Draw a production possibilities frontier showing increasing opportunity cost of hammers in terms of horseshoes. a. On the graph, identify the area of feasible outcomes and the area of infeasible outcomes. b. On the […]

Thinking Like an Economist 475 24. Refer to Figure 2-14. What is the opportunity cost of moving from point R to point Q? Figure 2-15 25. Refer to Figure 2-15. Consider the production possibilities frontier for an economy that produces […]

Aggregate Demand and Aggregate Supply 121 22. A candidate for political office announces the following policies which, he says, economics clearly demonstrates will lead to higher output in the long run: 1. increase immigration from abroad 2. make trade more […]

Aggregate Demand and Aggregate Supply 61 45. Other things the same, when the price level falls, interest rates a. rise, which means consumers will want to spend more on homebuilding. b. rise, which means consumers will want to spend less […]

352 ❖ Chapter 20/Aggregate Demand and Aggregate Supply e. In the late 1980s, OPEC began to lose control over the oil market as members began cheating on the agreement. Oil prices fell, which led to a rightward shift of the […]

337 WHAT’S NEW IN THE SEVENTH EDITION: There is a new In the News box on “What Have We Learned?” LEARNING OBJECTIVES: By the end of this chapter, students should understand: ➢ three key facts about short-run economic fluctuations. ➢ […]

Aggregate Demand and Aggregate Supply 101 131. If countries that imported goods and services from the United States went into recession, we would expect that U.S. net exports would a. rise, making aggregate demand shift right. b. rise, making aggregate […]

Aggregate Demand and Aggregate Supply 221 120. According to the “In the News” article, macroprudential tools a. allow a central bank to alter lending for specific industries. b. allow a central bank to alter taxes. c. limit a central bank’s […]

Aggregate Demand and Aggregate Supply 255 21. Misperceptions theory helps explain what feature of the aggregate demand and aggregate supply model? 22. Identify the variables that could cause shifts in both the short–run and long–run aggregate-supply curves. ANSWER: labor, capital, […]

Aggregate Demand and Aggregate Supply 241 54. Stagflation results from continued decreases in aggregate demand. a. True b. False 55. If the central bank increased the money supply in response to a decrease in short-run aggregate supply, unemployment would return […]

Aggregate Demand and Aggregate Supply 41 40. The model of aggregate demand and aggregate supply a. is different from the model of supply and demand for a particular market, in that we cannot focus on the substitution of resources between […]

Aggregate Demand and Aggregate Supply 21 33. Which of the following is correct concerning recessions? a. They come at fairly regular and predictable intervals. b. They are associated with comparatively large increases in investment spending. c. They are any period […]

Aggregate Demand and Aggregate Supply 181 42. Refer to Optimism. In the long run, the change in price expectations created by optimism shifts a. long–run aggregate supply right. b. long–run aggregate supply left. c. short-run aggregate supply right. d. short-run […]

Aggregate Demand and Aggregate Supply 141 63. Other things the same, if the price level is lower than expected, then some firms believe that the relative price of what they produce has a. decreased, so they increase production. b. decreased, […]

Aggregate Demand and Aggregate Supply 81 91. Suppose a fall in stock prices makes people feel poorer. The decrease in wealth would induce people to a. decrease consumption, shown as a movement to the left along a given aggregate-demand curve. […]

Aggregate Demand and Aggregate Supply Multiple Choice – Section 00: Introduction 1. Which of the following explains why production rises in most years? a. increases in the labor force b. increases in the capital stock c. advances in technological knowledge […]

Aggregate Demand and Aggregate Supply 161 6. Which of the following would cause prices and real GDP to rise in the short run? a. an increase in the expected price level b. an increase in the money supply c. a […]

Aggregate Demand and Aggregate Supply 201 82. Which of the following would cause stagflation? a. aggregate demand shifts right b. aggregate demand shifts left c. aggregate supply shifts right d. aggregate supply shifts left 83. Which of the following would […]

112. If Congress increases taxes to balance the federal budget, then to prevent unemployment and a recession the Fed will a. reduce interest rates by increasing the money supply. b. increase interest rates by decreasing the money supply. c. increase […]

194. The Fed can influence the money supply by a. changing how much it lends to banks. b. changing the interest rate it pays banks on the reserves they are holding. c. using open-market operations. d. All of the above […]

51. Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve. 52. How does a reduction in the money supply by the Fed make owning stocks less attractive? ANSWER: […]

69. According to a 2009 article in The Economist, the multiplier effect and crowding-out effect would exactly offset each other when the economy is a. operating at full capacity. b. in recession. c. experiencing zero inflation. d. experiencing high rates […]

367 WHAT’S NEW IN THE SEVENTH EDITION: There are no major changes to this chapter. LEARNING OBJECTIVES: By the end of this chapter, students should understand: ➢ the theory of liquidity preference as a short-run theory of the interest rate. […]

22. If the Federal Reserve’s goal is to stabilize aggregate demand, then in response to an increase in money demand, the Federal Reserve will _____ the money supply. 23. To stabilize output, the Federal Reserve will the money supply when […]

71. Refer to Figure 34-2. Assume the money market is always in equilibrium, and suppose r1 = 0.08; r2 = 0.12; Y1 = 13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2. Which of the following statements is […]

71. If the MPC is 0, then the multiplier is a. 0. b. 1. c. infinite. d. None of the above is correct. 72. As the MPC gets close to 1, the value of the multiplier approaches a. 0. b. […]

Figure 34-7 31. Refer to Figure 34-7. The aggregate-demand curve could shift from AD1 to AD2 as a result of a. an increase in government purchases. b. a decrease in net exports. c. households saving a smaller fraction of their […]

155. The Fed is concerned about stock market booms because the booms a. increase consumption spending. b. increase investment spending. c. increase both consumption and investment spending. d. None of the above is correct. 156. Which of the following actions […]

Figure 34-6. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs. 31. Refer […]

34. According to liquidity preference theory, the money–supply curve is a. upward sloping. b. downward sloping. c. vertical. d. horizontal. 35. According to liquidity preference theory, the money-supply curve would shift rightward a. if the money demand curve shifted right. […]

113. According to liquidity preference theory, an increase in the price level shifts the a. money demand curve rightward, so the interest rate increases. b. money demand curve rightward, so the interest rate decreases. c. money demand curve leftward, so […]

The Influence of Monetary and Fiscal Policy on Aggregate Demand Multiple Choice – Section 00: Introduction 1. Shifts in the aggregate-demand curve can cause fluctuations in a. neither the level of output nor the level of prices. b. the level […]

The Short-Run Trade-off between Inflation and Unemployment 8665 13. Friedman and Phelps believed that the natural rate of unemployment was constant. a. True b. False 14. The long-run Phillips curve is consistent with monetary neutrality implied by the classical dichotomy. […]

400 ❖ Chapter 22/The Short-Run Trade-off between Inflation and Unemployment d. From 2007 to 2009, as the decline in aggregate demand raised unemployment, it also reduced the inflation rate from about 3 percent to about 1 percent. e. From 2010 […]

389 WHAT’S NEW IN THE SEVENTH EDITION: The section on ”A Financial Crisis Takes Us for a Ride Along the Phillips Curve” has been updated. LEARNING OBJECTIVES: By the end of this chapter, students should understand: ➢ why policymakers face […]

8684 The Short-Run Trade-off between Inflation and Unemployment Problems 1. As the aggregate demand curve shifts to the right, what happens to the price level and output? What do these changes imply happens to the inflation rate and the unemployment […]

The Short-Run Trade-off between Inflation and Unemployment 8545 71. Refer to Figure 35-7. Starting from C and 3, in the long run, an increase in money supply growth moves the economy to a. A and 1. b. back to C […]

The Short-Run Trade-off between Inflation and Unemployment 8645 57. The arguments of Friedman and Phelps would suggest that other things the same, a country that pursues a disinflationary policy that the public does not find completely credible a. should not […]

The Short-Run Trade-off between Inflation and Unemployment 8625 16. Typical estimates of the sacrifice ratio suggest that a one-percentage-point reduction in the inflation rate requires a. a sacrifice of 5 percent of annual output. b. a sacrifice of 5 percent […]

The Short-Run Trade-off between Inflation and Unemployment 8565 114. In the long run, a decrease in the money supply growth rate a. shifts the short-run Phillips curve left so inflation returns to its original rate. b. shifts the short-run Phillips […]

The Short-Run Trade-off between Inflation and Unemployment 8605 33. A favorable supply shock will cause a. unemployment to rise and the short–run Phillips curve to shift right. b. unemployment to rise and the short-run Phillips curve to shift left. c. […]

The Short-Run Trade-off between Inflation and Unemployment 8485 33. In the long run, policy that changes aggregate demand changes a. both unemployment and the price level. b. neither unemployment nor the price level. c. only unemployment. d. only the price […]

The Short-Run Trade-off between Inflation and Unemployment 8585 155. The long–run Phillips curve would shift to the left if a. the money supply growth rate increased or labor markets become more flexible. b. the money supply growth rate increased but […]

The Short–Run Trade-off between Inflation and Unemployment Multiple Choice – Section 00: Introduction 1. Closely watched indicators such as the inflation rate and unemployment are released each month by the a. Bureau of the Budget. b. Bureau of Labor Statistics. […]

8840 Six Debates over Macroeconomic Policy Problems 1. Why is it desirable, if possible, to use policy to offset the effects of a decrease in aggregate demand? 2. Some economists argue that policymakers can use monetary and fiscal policy to […]

Six Debates over Macroeconomic Policy Multiple Choice – Section 01: Should Monetary and Fiscal Policymakers Try to Stabilize the Economy? 1. Fluctuations in employment and output result from changes in a. aggregate demand only. b. aggregate supply only. c. aggregate […]

Six Debates over Macroeconomic Policy 8823 20. Proponents of zero-inflation policies acknowledge that the public is unconcerned about the inflation rate. a. True b. False 21. The cost of inflation reduction is a large, permanent increase in unemployment. a. True […]

412 WHAT’S NEW IN THE SEVENTH EDITION: Two new In the News features have been added on “How long will the Fed keep interest rates at zero?” and “What would an American fiscal crisis look like?” LEARNING OBJECTIVES: By the […]

Six Debates over Macroeconomic Policy 8763 23. Inflation reduction has the highest cost when the efforts are a. credible so that the sacrifice ratio is low. b. credible so that the sacrifice ratio is high. c. unexpected so that the […]

Six Debates over Macroeconomic Policy 8743 25. Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If […]

Six Debates over Macroeconomic Policy 8803 13. Double taxation means that both a. wage income and interest income are taxed, which is currently the case in the United States. b. wage income and interest income are taxed, which is not […]

Six Debates over Macroeconomic Policy 8723 5. Supporters of using government expenditures to respond to recession a. argue that monetary policy should be used first. To respond to a recession the Fed would increase the money supply. b. argue that […]

Six Debates over Macroeconomic Policy 8783 14. Which of the programs below would not transfer wealth from young to old generations? a. Taxes are reduced as a result of cutting expenditures on education. b. Taxes are raised to improve government […]

33 WHAT’S NEW IN THE SEVENTH EDITION: There is a new In The News feature on “Economics within a Marriage.” LEARNING OBJECTIVES: By the end of this chapter, students should understand: ➢ how everyone can benefit when people trade with […]

Interdependence and the Gains from Trade 547 99. Refer to Figure 3-7. If Bintu must work 2 hours to make each cup, then her production possibilities frontier is based on how many hours of work? a. 2 hours b. 4 […]

Interdependence and the Gains from Trade 527 67. Refer to Table 3-17. If the production possibilities frontier is a straight line, then “?” must be a. 180. b. 200. c. 220. d. 240. Table 3-18 The following table contains some […]

Interdependence and the Gains from Trade 687 245. Which of the following is not correct? a. Economists are generally united in their support of free trade. b. The conclusions of Adam Smith and David Ricardo on the gains from trade […]

Interdependence and the Gains from Trade 667 207. Refer to Figure 3-21. Suppose Uzbekistan decides to increase its production of bolts by 10. What is the opportunity cost of this decision? a. 1/2 nail b. 2 nails c. 5 nails […]

Interdependence and the Gains from Trade 627 136. Refer to Table 3-30. Varick has a comparative advantage in the production of a. wheat. b. cloth. c. both goods. d. neither good. Figure 3-13 Peru’s Production Possibilities Frontier ANSWER: b POINTS: […]

Interdependence and the Gains from Trade 647 171. Refer to Figure 3-17. Suppose Maxine decides to increase her production of tarts by 5. What is the opportunity cost of this decision? a. 2/5 pie b. 2 pies c. 5/2 pies […]

Interdependence and the Gains from Trade 507 31. Refer to Table 3-6. Which of the following represents Zimbabwe’s and Portugal’s production possibilities frontiers when each country has 60 minutes of machine time available? a. Zimbabwe Portugal b. Zimbabwe Portugal c. […]

2. In a market economy, supply and demand determine both the quantity of each good produced and the price at which it is sold. a. True b. False 3. A market is a group of buyers and sellers of a […]

8. Holding the nonprice determinants of supply constant, a change in price would a. result in either a decrease in supply or an increase in supply. b. result in a movement along a stationary supply curve. c. result in a […]

Chapter 4/The Market Forces of Supply and Demand ❖ 67 SOLUTIONS TO TEXT PROBLEMS: Quick Quizzes 1. A market is a group of buyers (who determine demand) and a group of sellers (who 2. Here is an example of a […]

51 WHAT’S NEW IN THE SEVENTH EDITION: The In the News feature “Price Increases after Disasters” has been updated with a new article. LEARNING OBJECTIVES: By the end of this chapter, students should understand: ➢ what a competitive market is. […]

62. Individual supply curves are summed vertically to obtain the market supply curve. a. True b. False 63. The market supply curve shows how the total quantity supplied of a good varies as input prices vary, holding constant all the […]

67. Refer to Figure 4-3. If these are the only two consumers in the market, then the market quantity demanded at a price of $15 is a. 0 units. b. 10 units. c. 15 units. d. 25 units. 68. Refer […]

122. If consumers often purchase muffins to eat while they drink their lattés at local coffee shops, what would happen to the equilibrium price and quantity of lattés if the price of muffins falls? a. Both the equilibrium price and […]

21. Refer to Table 4-15. If only Brook Mountain and Cascade Waters operate in this market, what is the market quantity supplied when the price is $3.00 per case? 22. Refer to Table 4-15. Assuming these are the only four […]

106. Two goods are substitutes when a decrease in the price of one good a. decreases the demand for the other good. b. decreases the quantity demanded of the other good. c. increases the demand for the other good. d. […]

83. Refer to Figure 4-20. If price is $25, then quantity demanded and quantity supplied, respectively, are a. 500 units and 500 units. b. 500 units and 800 units. c. 600 units and 600 units. d. 800 units and 500 […]

33. When we move along a given demand curve, a. only price is held constant. b. income and price are held constant. c. all nonprice determinants of demand are held constant. d. all determinants of quantity demanded are held constant. […]

41. Which of the following characteristics is required for a perfectly competitive market? a. The goods offered for sale are exactly the same. b. There are so many buyers and sellers that no single buyer or seller has any influence […]

47. Which of the following events would cause a movement upward and to the right along the supply curve for mangos? a. The number of sellers of mangos increases. b. There is an advance in technology that reduces the cost […]

158. Refer to Figure 4-25. All else equal, the return of college students to campus in the fall would cause a move from a. x to y. b. y to x. c. SA to SB. d. SB to SA. 159. […]

ANSWER: (a) (b) (c) (d) (e) (f) DD’ S Pe’ Pe Qe Qe’ quantity price D’ D S Pe Pe’ Qe’ Qe quantity price D S’S Pe’ Pe Qe Qe’ quantity price DD’ S Pe’ Pe Qe Qe’ quantity price […]

83. Suppose there is a decrease in the price of corn. If corn is an input into the production of ethanol, we would expect the supply curve for ethanol to a. shift rightward. b. shift leftward. c. become flatter. d. […]

54. A t-shirt maker would be willing to supply 75 t-shirts per day at a price of $18.00 each. At a price of $20.00, the t- shirt maker would be willing to supply 100 t-shirts. Using the midpoint method, the […]

7. Suppose the price of natural gas, a typical fuel for heating homes, rises in January in Alaska. Would you expect the price elasticity of demand for natural gas to more inelastic immediately after the price increase or at some […]

Table 5-4 The following table shows the demand schedule for a particular good. Price Quantity $20 0 $16 3 $12 6 $8 9 $4 12 $0 15 113. Refer to Table 5-4. Using the midpoint method, what is the price […]

188. Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU feels that raising tuition would enhance revenue, it is a. ignoring the law of demand. b. assuming that the demand for university education is elastic. […]

33. Suppose that Juan Carlos is filling out a survey that he received in the mail. The survey asks him what he would do if the price of his favorite toothpaste increased. Juan Carlos reports that he would switch to […]

85 WHAT’S NEW IN THE SEVENTH EDITION: There are no major changes to this chapter. LEARNING OBJECTIVES: By the end of this chapter, students should understand: ➢ the meaning of the elasticity of demand. ➢ what determines the elasticity of […]

Figure 5-13 10. Refer to Figure 5-13. Between point A and point B, price elasticity of demand using the midpoint method is equal to a. 0.71. b. 0.85. c. 1.18. d. 1.40. ANSWER: b POINTS: 1 DIFFICULTY: Difficulty: Moderate LEARNING […]

32. In the early 1970s, OPEC’s goal was to a. decrease the world-wide price of oil so that the quantity demanded increased, thus raising total revenues for OPEC members. b. increase the world-wide price of oil by reducing the quantity […]

14. Some firms eventually experience problems with their capacity to produce output as their output levels increase. For these firms, a. market power is substantial. b. supply is perfectly inelastic. c. supply is more elastic at low levels of output […]

Table 5-1 Good Price Elasticity of Demand A 1.9 B 0.8 73. Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1? a. A is a luxury and B is a necessity. b. […]

36. If a firm is facing elastic demand, then the firm should decrease price to increase revenue. a. True b. False 37. If a firm is facing inelastic demand, then the firm should decrease price to increase revenue. a. True […]

226. Refer to Figure 5-5. Using the midpoint method, demand is unit elastic between prices of a. $20 and $40. b. $40 and$50. c. $40 and$60. d. $50 and$70. 227. Refer to Figure 5-5. Using the midpoint method, between prices […]

89. If the price elasticity of supply is zero, then a. supply is more elastic than it is in any other case. b. the supply curve is horizontal. c. the quantity supplied is the same, regardless of price. d. a […]

47. Food and clothing tend to have a. small income elasticities because consumers, regardless of their incomes, choose to buy relatively constant quantities of these goods. b. small income elasticities because consumers buy proportionately more of both goods at higher […]

Elasticity and Its Application Multiple Choice – Section 00: Introduction 1. In general, elasticity is a measure of a. the extent to which advances in technology are adopted by producers. b. the extent to which a market is competitive. c. […]

148. Refer to Figure 5-3. Jenna says she would buy 10 gallons of gas per week regardless of the price. If this is true, then Jenna’s demand for gas is represented by demand curve a. A. b. B. c. C. […]

1636 Supply, Demand, and Government Policies 14. A price ceiling is a legal minimum on the price at which a good or service can be sold. a. True b. False 15. A price ceiling set above the equilibrium price is […]

1536 Supply, Demand, and Government Policies 17. If a tax is levied on the sellers of a product, then there will be a(n) a. downward shift of the demand curve. b. upward shift of the demand curve. c. decrease in […]

1576 Supply, Demand, and Government Policies 94. Refer to Figure 6-22. The price paid by buyers after the tax is imposed is a. $3.00. b. $3.50. c. $5.00. d. $6.00. 95. Refer to Figure 6-22. The effective price sellers receive […]

1556 Supply, Demand, and Government Policies 59. If the government removes a $2 tax on buyers of cigars and imposes the same $2 tax on sellers of cigars, then the price paid by buyers will a. not change, and the […]

104 WHAT’S NEW IN THE SEVENTH EDITION: There is a new In the News feature on “President Chávez versus the Market.” LEARNING OBJECTIVES: By the end of this chapter, students should understand: ➢ the effects of government policies that place […]

1496 Supply, Demand, and Government Policies 168. Refer to Table 6-5. Suppose the government imposes a price ceiling of $3 on this market. What will be the size of the shortage in this market? a. 0 units b. 30 units […]

1516 Supply, Demand, and Government Policies 208. The minimum wage has its greatest impact on the market for a. female labor. b. older labor. c. black labor. d. teenage labor. 209. The minimum wage does not apply to a. jobs […]

1616 Supply, Demand, and Government Policies 170. Suppose that the demand for picture frames is highly inelastic, and the supply of picture frames is highly elastic. A tax of $1 per frame levied on picture frames will decrease the effective […]

1656 Supply, Demand, and Government Policies 74. In an unregulated labor market, the wage adjusts to balance labor supply and labor demand. a. True b. False 75. The economy contains many labor markets for different types of workers. a. True […]

1596 Supply, Demand, and Government Policies 130. Refer to Figure 6-27. Suppose a tax of $3 per unit is imposed on this market. How much will sellers receive per unit after the tax is imposed? a. $16 b. between $16 […]

Supply, Demand, and Government Policies 1695 12. Refer to Figure 6-31. If the government set a price floor at $17, would there be a shortage or surplus, and how large would be the shortage/surplus? Figure 6-32 13. Refer to Figure […]

1416 Supply, Demand, and Government Policies 33. When a binding price ceiling is imposed on a market to benefit buyers, a. every buyer in the market benefits. b. every buyer and seller in the market benefits. c. every buyer who […]

1436 Supply, Demand, and Government Policies 71. When a binding price floor is imposed on a market to benefit sellers, a. every seller in the market benefits. b. all buyers and sellers benefit. c. every seller who wants to sell […]

1456 Supply, Demand, and Government Policies 105. Refer to Figure 6-6. In which of the following cases would sellers have to develop a rationing mechanism? a. a price ceiling set at $8 b. a price ceiling set at $6 c. […]

Supply, Demand, and Government Policies Multiple Choice – Section 00: Introduction 1. Which of the following is not correct? a. Economists have two roles: scientist and policy adviser. b. As scientists, economists develop and test theories to explain the world […]

1676 Supply, Demand, and Government Policies 133. Who bears the majority of a tax burden depends on whether the tax is placed on the buyers or the sellers. a. True b. False Figure 6-36 134. Refer to Figure 6-36. If […]

1476 Supply, Demand, and Government Policies 137. Refer to Figure 6-13. If the government imposes a price floor of $7 on this market, then there will be a. no surplus. b. a surplus of 10 units. c. a surplus of […]

Consumers, Producers, and the Efficiency of Markets 1953 29. All else equal, a decrease in demand will cause an increase in producer surplus. a. True b. False 30. If producing a soccer ball costs Jake $5, and he sells it […]

Consumers, Producers, and the Efficiency of Markets 1933 125. Steak and chicken are substitutes. A sharp reduction in the supply of steak would a. increase consumer surplus in the market for steak and decrease producer surplus in the market for […]

Consumers, Producers, and the Efficiency of Markets 1793 137. Refer to Figure 7-8. If the government imposes a price floor of $100 in this market, then consumer surplus will decrease by a. $150. b. $325. c. $650. d. $675. 138. […]

Consumers, Producers, and the Efficiency of Markets 1913 88. Refer to Figure 7-26. At the equilibrium price, producer surplus is a. $600. b. $900. c. $1,200. d. $1,800. 89. Refer to Figure 7-26. At the equilibrium price, total surplus is […]

121 rkets WHAT’S NEW IN THE SEVENTH EDITION: There is a new In the News feature on “The Invisible Hand Can Park Your Car.” LEARNING OBJECTIVES: By the end of this chapter, students should understand: ➢ the link between buyers’ […]

132 ❖ Chapter 7/Consumers, Producers, and the Efficiency of Markets Quick Check Multiple Choice 1. a 2. a 3. b 4. c 5. b 6. c Problems and Applications 1. a. Consumer surplus is equal to willingness to pay minus […]

Consumers, Producers, and the Efficiency of Markets 1833 64. Refer to Figure 7-11. If the supply curve is S and the demand curve shifts from D to D’, what is the increase in producer surplus due to new producers a. […]

Consumers, Producers, and the Efficiency of Markets 1753 65. You are offered a free ticket to see the Chicago Cubs play the Chicago White Sox at Wrigley Field. Assume the ticket has no resale value. Willie Nelson is performing on […]

Consumers, Producers, and the Efficiency of Markets 1873 14. Total surplus is represented by the area below the a. demand curve and above the price. b. price and up to the point of equilibrium. c. demand curve and above the […]

Consumers, Producers, and the Efficiency of Markets 1853 97. Refer to Figure 7-17. If the supply curve is S and the demand curve is D, what is total producer surplus at the equilibrium price? a. $202.50 b. $405 c. $810 […]

Consumers, Producers, and the Efficiency of Markets Multiple Choice – Section 00: Introduction 1. Which of the following statements is correct? a. Buyers always want to pay less and sellers always want to be paid more. b. Buyers always want […]

1972 Consumers, Producers, and the Efficiency of Markets Problems 1. What do economists call the highest amount a consumer will pay to purchase a good? 2. If John’s willingness to pay for a good is $20 and the price of […]

Consumers, Producers, and the Efficiency of Markets 1773 105. Which of the following will cause a decrease in consumer surplus? a. an increase in the number of sellers of the good b. a decrease in the production cost of the […]

Consumers, Producers, and the Efficiency of Markets 1893 51. Refer to Figure 7-21. When the price is P1, area A represents a. total benefit. b. producer surplus. c. consumer surplus. d. None of the above is correct. 52. Refer to […]

Consumers, Producers, and the Efficiency of Markets 1733 29. Refer to Table 7-2. If the market price is $3.80, a. David’s consumer surplus is $4.70 and total consumer surplus for the five individuals is $9.50. b. Megan’s consumer surplus is […]

Consumers, Producers, and the Efficiency of Markets 1813 30. Refer to Table 7-11. If the price is $1,l50, who would be willing to supply the product? a. Abby and Bobby b. Abby, Bobby, and Dianne c. Carlos, Dianne, and Evaline […]

Application: The Costs of Taxation 2131 26. The deadweight loss from a tax a. does not vary in amount when the price elasticity of demand changes. b. does not vary in amount when the amount of the tax per unit […]

Application: The Costs of Taxation 2191 69. In a 2012 Wall Street Journal column, economists Edward Prescott and Lee Ohanian claimed that, in order to promote faster economic growth, the government should a. increase tax rates on individuals with high […]

The purpose of Chapter 8 is to apply the lessons learned about welfare economics in Chapter 7 to the issue of taxation that was addressed in Chapter 6. Students will learn that the cost of a tax to buyers and […]

Application: The Costs of Taxation 2011 38. If T represents the size of the tax on a good and Q represents the quantity of the good that is sold, total tax revenue received by government can be expressed as a. […]

Application: The Costs of Taxation 2151 63. Refer to Figure 8-17. Suppose the government imposes a $1 tax in each of the four markets represented by demand curves D1, D2, D3, and D4. The deadweight will be the smallest in […]

Application: The Costs of Taxation 2171 35. The Laffer curve relates a. the tax rate to tax revenue raised by the tax. b. the tax rate to the deadweight loss of the tax. c. the price elasticity of supply to […]

Application: The Costs of Taxation 2031 77. Refer to Figure 8-1. Suppose the government imposes a tax of P’ – P”’. The deadweight loss due to the tax is measured by the area a. J+K+L+M. b. J+K+L+M+N. c. I+Y. d. […]

Application: The Costs of Taxation 2211 56. The optimal tax is difficult to determine because although revenues rise and fall as the size of the tax increases, deadweight loss continues to increase. a. True b. False 57. Suppose that a […]

Application: The Costs of Taxation 2091 199. Refer to Figure 8-9. The per-unit burden of the tax on sellers is a. $20. b. $200. c. $300. d. $500. 200. Refer to Figure 8-9. The amount of tax revenue received by […]

Application: The Costs of Taxation 2111 238. Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The amount of deadweight loss resulting from this tax is a. $7.50. b. $15.00. c. $22.50. d. $45.00. 239. […]

Application: The Costs of Taxation Multiple Choice – Section 00: Introduction 1. In 1776, the American Revolution was sparked by anger over a. the extravagant lifestyle of British royalty. b. the crimes of British soldiers stationed in the American colonies. […]

2228 Application: The Costs of Taxation Figure 8-26 26. Refer to Figure 8-26. What are the equilibrium price and equilibrium quantity in this market? 27. Refer to Figure 8-26. How much is consumer surplus at the market equilibrium? ANSWER: Consumer […]

Application: The Costs of Taxation 2051 115. Refer to Figure 8-4. The tax results in a loss of consumer surplus that amounts to a. $105. b. $140. c. $170. d. $210. 116. Refer to Figure 8-4. The tax results in […]

Application: The Costs of Taxation 2071 158. Refer to Figure 8-8. The tax causes consumer surplus to decrease by the area a. A. b. B+C. c. A+B+C. d. A+B+C+D+F. 159. Refer to Figure 8-8. After the tax goes into effect, […]

Application: International Trade Multiple Choice – Section 00: Introduction 1. An important factor in the decline of the U.S. textile industry over the past 100 or so years is a. foreign competitors that can produce quality textile goods at low […]

Application: International Trade 2265 36. Costa Rica allows trade with the rest of the world. We can determine whether Costa Rica has a comparative advantage in producing pharmaceuticals if we a. know whether Costa Rica imports or exports pharmaceuticals. b. […]

Chapter 9/Application: International Trade ❖ 171 Questions for Review 1. If the domestic price that prevails without international trade is above the world price, the 3. Figure 2 illustrates supply and demand for an importing country. Before trade is allowed, […]

WHAT’S NEW IN THE SEVENTH EDITION: A new In the News feature on “Threats to Free Trade” has been added. LEARNING OBJECTIVES: By the end of this chapter, students should understand: ➢ what determines whether a country imports or exports […]

Application: International Trade 2445 16. If Belgium exports chocolate to the rest of the world, then Belgian chocolate producers benefit from higher producer surplus, Belgian chocolate consumers are worse off because of lower consumer surplus, and total surplus in Belgium […]

Application: International Trade 2365 189. The nation of Aquilonia has decided to end its policy of not trading with the rest of the world. When it ends its trade restrictions, it discovers that it is importing incense, exporting steel, and […]

Application: International Trade 2425 11. Countries that restrict foreign trade are likely to a. forgo the additional surplus that trade allows, but will probably enjoy economies of scale. b. forgo the additional surplus that trade allows, but will be compensated […]

Application: International Trade 2325 106. Refer to Figure 9-9. Consumer surplus in this market before trade is a. A. b. A + B. c. A + B + D. d. C. 107. Refer to Figure 9-9. Consumer surplus in this […]

Application: International Trade 2405 Figure 9-22 The following diagram shows the domestic demand and domestic supply in a market. In addition, assume that the world price in this market is $40 per unit. 24. Refer to Figure 9-22. With free […]

Application: International Trade 2305 72. Refer to Figure 9-5. Without trade, consumer surplus amounts to a. $810. b. $1,620. c. $3,240. d. $6,480. 73. Refer to Figure 9-5. Without trade, producer surplus amounts to a. $810. b. $1,620. c. $3,240. […]

Application: International Trade 2285 33. When a country allows international trade and becomes an exporter of a good, a. domestic producers of the good become better off. b. domestic consumers of the good become worse off. c. the gains of […]

Application: International Trade 2385 229. When a country abandons a no-trade policy, adopts a free-trade policy, and becomes an importer of a particular good, a. producer surplus increases and total surplus increases in the market for that good. b. producer […]

Application: International Trade 2345 145. A tariff on a product makes a. domestic sellers better off and domestic buyers worse off. b. domestic sellers worse off and domestic buyers worse off. c. domestic sellers better off and domestic buyers better […]