In general, the optimal amount of medical care to receive is
A. as much as one can afford.
B. enough to get well.
C. that quantity for which the total costs of the care equal the total benefits.
D. that quantity for which the marginal costs of the care equal the marginal benefits.
Suppose that two types of indistinguishable coffee beans are imported to the U.S.: those
grown in the mountains of South America and those grown in greenhouses in Canada.
Mountain grown coffee produces a better tasting coffee, but buyers cannot distinguish
the beans by sight or smell. Only the importers know the source of the beans. Buyers
value mountain grown beans at $10 a pound and greenhouse grown beans at $3 a
pound. Assume that 70% of imported beans are mountain grown, and 30% are
greenhouse grown.
Suppose that no mountain-grown beans are imported because buyers are worried that
they might end up with Canadian beans. To counteract this problem, bean importers
allow buyers to taste a cup before purchasing their beans. As a result,
A. Canadian beans will not sell at all.
B. mountain grown beans will not sell at all.
C. both kinds of beans will sell for the same price.
D. mountain grown beans will sell for a higher price than Canadian beans.
Refer to the figure above. After the subsidy, consumer surplus ______ by ______ per
day.
A. decreased; $500
B. decreased; $1,000
C. increased; $1,000
D. increased; $6,500
An informal definition of a recession is at least ______ consecutive quarters of
declining real GDP.
A. 2
B. 4
C. 6
D. 8
Refer to the figure above. Based on the diagram, if potential output equals 5,000 and
the real interest rate is 1%, then there is ______ gap and the Fed must ______ the real
interest rate so that output will equal potential output.
A. a recessionary; raise
B. a recessionary; reduce
C. an expansionary; reduce
D. an expansionary; raise
The total market value of production in an economy must equal total:
A. profits.
B. revenues from all transactions.
C. consumption.
D. spending on final goods and services.
If a borrower and lender agree to an interest rate on a loan when inflation is expected to
be 7% and inflation turns out to be 10% over the life of the loan, then the borrower
______ and the lender ______.
A. gains; gains
B. gains; loses
C. is not affected; gains
D. loses; gains
Chris has a one-hour break between classes every Wednesday. Chris can either stay at
the library and study or go to the gym and work out. The decision Chris must make is:
A. not an economic problem because neither one costs money.
B. not an economic problem because it’s an hour that is wasted no matter what Chris
does.
C. an economic problem because the tuition Chris pays covers both the gym and the
library.
D. an economic problem because Chris has only one hour during which he can study or
work out.
“As the price of personal computers continues to fall, demand increases.” This headline
is inaccurate because:
A. a change in the price of personal computers shifts the demand curve.
B. a change in the price of personal computers shifts the supply curve.
C. the statement is backwards: increased demand leads to lower prices.
D. a falling price for personal computers increases quantity demanded, not demand.
All of the following are real quantities EXCEPT the:
A. number of new cars produced in one year.
B. tons of steel shipped to South America.
C. millions of computer chips shipped to computer makers.
D. billions of dollars invested in stocks.
Ten years ago you had never even heard of wireless internet. Now you complete
assignments for class on a laptop that accesses the Internet using wireless technology.
This is evidence that
A. things that were once wants can become needs.
B. needs remain the same, but wants change.
C. needs and wants both increase with increases in technology.
D. needs decrease with technology, but wants increase.
To achieve long-run equilibrium in an economy with a recessionary gap, without the
use of stabilization policy, the inflation rate must:
A. increase.
B. decrease.
C. not change.
D. either increase or decrease depending on the relative shifts of AD and AS.
Refer to the figure above. When the demand is P1 = $30, what is the total revenue?
A. $900
B. $1350
C. $800
D. $2400
Some states have started giving tax credits to homeowners who install solar panels. This
is an example of:
A. A decision pitfall because homeowners will not properly account for the costs and
benefits of installing solar panels.
B. Using the incentive principle to encourage homeowners to switch to solar energy.
C. Normative economics, because people should use clean sources of energy.
D. Macroeconomic policy because it involves government tax policy.
A political system that promotes the free and open exchange of ideas:
A. will not have well-defined property rights.
B. slows the development of new technologies and products.
C. increases average labor productivity.
D. is detrimental to economic growth.
The money supply will increase by a multiple of the increase in bank reserves created
by the central bank unless:
A. there is fractional reserve banking.
B. thereis 100 percent reserve banking.
C. the public holds no currency.
D. banks’ desired reserve/deposit ratio is 0.20.
When a consumer must take some sort of additional action to receive a lower price, the
consumer is being subjected to:
A. “bait and switch” sales tactics.
B. perfect price discrimination.
C. the “hurdle” method of price discrimination.
D. the “rebate and wait” method of price discrimination.
Planned aggregate expenditure is total:
A. value added in the economy.
B. planned spending on final goods and services.
C. income of households, businesses, governments, and foreigners.
D. revenue from the sale of goods and services.
According to the text, at a party everyone shouts in order to be heard. If instead
everyone spoke at a normal volume people would still be heard. The likely reason that
people continue to shout is that the:
A. individual incentive to be heard is smaller than group incentive for everyone to be
heard.
B. individual incentive to be heard is greater than group incentive for everyone to be
heard.
C. individuals will never do better by speaking more loudly.
D. prisoner’s dilemma does not work in a party.
The core rate of inflation excludes food and energy prices because:
A. these prices don’t change very frequently.
B. these prices are most frequently responsible for short-run fluctuations in the inflation
rate.
C. consumers do not directly face these prices.
D. these prices do not matter to policymakers.
The AS curve slopes upward because:
A. all firms will increase their prices in response to an increase in aggregate demand,
but some will increase their output and others will decrease their output.
B. all firms will increase their prices, but not their output in response to an increase in
aggregate demand.
C. some firms will increase their prices and their output in response to an increase in
aggregate demand.
D. all firms will increase their prices and their output in response to an increase in
aggregate demand.
The profit maximizing rule P = MC applies to:
A. all firms.
B. monopolists only.
C. monopolists and perfect competitors.
D. perfect competitors only.
The change in quantity supplied that results from a change in price is known as the:
A. cross-price elasticity of supply.
B. slope of the supply curve.
C. price elasticity of supply.
D. cross-price elasticity of demand.
You own a pizza shop called “Pizzas’R’ Us”. Currently you are paying your cooks an
hourly wage of $20. You sell a medium pizza for $10. By hiring more cooks, you can
increase your pizza production as shown in the following table.
How many cooks should you hire to maximize your net benefit?
A. 1
B. 3
C. 4
D. 5
Larry was accepted at three different graduate schools, and must choose one. Elite U
costs $50,000 per year and did not offer Larry any financial aid. Larry values attending
Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an
annual $10,000 scholarship. Larry values attending State College at $40,000 per year.
NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship.
Larry values attending NoName at $15,000 per year.
Larry has decided to go to Elite U. Assuming that all of the values described are correct,
for Larry to decide on Elite U, he must have:
A. calculated his surplus from each choice and picked the one with the highest surplus.
B. underestimated the benefits of attending No Name.
C. miscalculated the surplus of attending Elite U.
D. determined the opportunity cost of each choice and picked the one with the lowest
opportunity cost.
If short-run equilibrium output equals 20,000 and potential output (Y*) equals 25,000,
then this economy has a(n) ______ gap that can be closed by _________.
A. recessionary; increasing taxes
B. expansionary; increasing transfer payments
C. expansionary; increasing government purchases
D. recessionary; increasing government purchases
Ingrid has been waiting for the show “Mamma Mia!” to come to town. When it finally
does come, ticket prices are $60. Ingrid’s reservation price is $75. But when Ingrid tries
to buy a ticket, they are sold out.
Refer to the information above. The fact that Ingrid cannot buy a ticket to “Mamma
Mia!” is evidence of:
A. Pareto efficiency in this market.
B. A price ceiling above the equilibrium price.
C. A situation that is not Pareto efficient.
D. The benefits of allocating resources on the first-come, first-served basis.
You own shares in a well-managed and diversified company. If a booming economy
decreases investors’ concerns about market risk, then the price of your shares will
_____, holding other factors constant.
A. increase.
B. decrease.
C. not change.
D. either increase or decrease.
Suppose that the equilibrium price of rice falls and the equilibrium quantity falls. Which
of the following best fits the observed data?
A. An increase in demand with supply constant.
B. An increase in demand coupled with a decrease in supply.
C. An increase in demand coupled with an increase in supply.
D. A decrease in demand with supply constant.
Your classmates from the University of Chicago are planning to go to Miami for spring
break, and you are undecided about whether you should go with them. The round-trip
airfares are $600, but you have a frequent-flyer coupon worth $500 that you could use
to pay part of the airfare. All other costs for the vacation are exactly $900. The most
you would be willing to pay for the trip is $1400. Your only alternative use for your
frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your
sister’s graduation, which your parents are forcing you to attend. The Chicago-Atlanta
round-trip airfares are $450.
What is the opportunity cost of using the coupon for the Miami trip?
A. $100
B. $450
C. $500
D. $550
Dent n’ Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last
month are shown in this table:
For Ralph, the opportunity cost of selling a truck is:
A. 9 fewer cars sold.
B. 1/3 car not sold.
C. 3 fewer cars sold.
D. 1/4 car not sold.