In the short run, an increase in the money supply is likely to lead to
a. lower unemployment and lower inflation.
b. lower unemployment and higher inflation.
c. higher unemployment and lower inflation.
d. higher unemployment and higher inflation.
Josh mows lawns. If the demand for lawnmowing service is elastic and Josh wants to
increase his total revenue, he should
a. increase the price of his lawnmowing service.
b. decrease the price of his lawnmowing service.
c. reduce the costs of operating his lawnmowing service.
d. More than one of the above is correct.
Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5
empty rooms for tonight. The marginal cost per room per night
a. is $40.
b. is $80.
c. is $120.
d. cannot be determined from the information given.
Table 413
The demand schedule below pertains to sandwiches demanded per week.
PriceHarry’s
Quantity
DemandedDarby’s
Quantity
DemandedJake’s
Quantity
Demanded
$3343
$512x
Refer to Table 413. Suppose Harry, Darby, and Jake are the only demanders of
sandwiches. Also suppose the following:
• x = 2.
• The current price of a sandwich is $3.00.
• The market quantity supplied of sandwiches is 5.
• The slope of the supply curve is 1.
Then there is currently a
a. shortage of 5 sandwiches, and the equilibrium price of a sandwich is between $3.00
and $5.00.
b. shortage of 5 sandwiches, and the equilibrium price of a sandwich is $5.00.
c. surplus of 5 sandwiches, and the equilibrium price of a sandwich is between $3.00
and $5.00.
d. surplus of 5 sandwiches, and the equilibrium price of a sandwich is $5.00.
Figure 97. The figure applies to the nation of Wales and the good is cheese.
Refer to Figure 97. With trade, the Welsh price of cheese and the Welsh quantity of
cheese demanded are
a. P1 and Q2.
b. P1 and Q1.
c. P0 and Q0.
d. P3 and Q1.
Figure 316
Hosne’s Production Possibilities FrontierMerve’s Production Possibilities Frontier
Refer to Figure 316. Hosne should specialize in the production of
a. purses.
b. wallets.
c. both goods.
d. neither good.
Figure 217
Refer to Figure 217. The curves shown are
a. supply curves.
b. demand curves.
c. preference curves.
d. incomeconsumption curves.
Figure 22
Refer to Figure 22. If the flow of goods and services is part of what is represented by
the inner loop of this circularflow diagram, then
a. the flow of factors of production is also part of what is represented by the inner loop.
b. the flow of income paid to households is also part of what is represented by the inner
loop.
c. the flow of revenue to firms is also part of what is represented by the inner loop.
d. households must be sellers of output.
Which of the following is not held constant when looking at an individual’s demand
curve?
a. income
b. price
c. preferences
d. the availability of alternative goods
An example of an externality is the impact of
a. bad weather on the income of farmers.
b. the personal income tax on a person’s ability to purchase goods and services.
c. pollution from a factory on the health of people in the vicinity of the factory.
d. increases in health care costs on the health of individuals in society.
Table 412
A country club usually only allows members to purchase tickets for its celebrity golf
tournament, but the club is considering allowing nonmembers to purchase tickets this
year. The demand and supply schedules are as follows:
PriceQuantity Demanded
by MembersQuantity Demanded
by NonmembersQuantity Supplied
$101000500600
$15800400600
$20600300600
$25400200600
$30200100600
Refer to Table 412. If both members and nonmembers are allowed to purchase tickets
to this year’s celebrity golf tournament, then what will be the equilibrium price?
a. $10
b. $15
c. $20
d. $25
Table 325
Assume that Maya and Miguel can switch between producing mixers and producing
toasters at a constant rate.
Hours Needed to Make 1Amount Produced in 40 Hours
mixertoastermixerstoasters
Maya8558
Miguel201024
Refer to Table 325. The opportunity cost of 1 toaster for Miguel is
a. 1/2 mixer.
b. 2 hours of labor.
c. 2 mixers.
d. 20 hours of labor.
Consumer surplus in a market can be represented by the
a. area below the demand curve and above the price.
b. distance from the demand curve to the horizontal axis.
c. distance from the demand curve to the vertical axis.
d. area below the demand curve and above the horizontal axis.
Consumer surplus is
a. a concept that helps us make normative statements about the desirability of market
outcomes.
b. represented on a graph by the area below the demand curve and above the price.
c. a good measure of economic welfare if buyers’ preferences are the primary concern.
d. All of the above are correct.
Figure 626
Refer to Figure 626. The effective price received by sellers after the tax is imposed is
a. $8.
b. $16.
c. $14.
d. $12.
Which of the following statements about agriculture in the U.S. is not correct?
a. From the 1950s to today, agricultural output has increased about five times.
b. Because technological improvements increase the supply of a product for which
demand is inelastic, an individual farmer would be better off not adopting the new
technology.
c. Increasing the supply of agricultural products typically benefits consumers but harms
farmers.
d. Technological improvements typically increase supply and decrease revenue for
farmers.
Which of the following could be the price elasticity of demand for a good for which an
increase in price would decrease revenue?
a. 0.6
b. 0.9
c. 1
d. 2.6
Pens are normal goods. What will happen to the equilibrium price of pens if the price of
pencils rises, consumers experience an increase in income, writing in ink becomes
fashionable, people expect the price of pens to rise in the near future, the population
increases, fewer firms manufacture pens, and the wages of penmakers increase?
a. Price will rise.
b. Price will fall.
c. Price will stay exactly the same.
d. The price change will be ambiguous.
For any country that allows free trade,
a. domestic quantity demanded is equal to domestic quantity supplied at the world
price.
b. domestic quantity demanded is greater than domestic quantity supplied at the world
price.
c. both producers and consumers in that country gain when domestic products are
exported, but both groups lose when foreign products are imported.
d. the domestic price is equal to the world price.
Efficiency is attained when
a. total surplus is maximized.
b. producer surplus is maximized.
c. all resources are being used.
d. consumer surplus is maximized and producer surplus is minimized.
Economists at which of the following offices help formulate spending plans and
regulatory policies?
a. Office of Management and Budget
b. Department of the Treasury
c. Congressional Budget Office
d. The Federal Reserve
Figure 83
The vertical distance between points A and C represents a tax in the market.
Refer to Figure 83. The amount of tax revenue received by the government is equal to
the area
a. P3ACP1.
b. ABC.
c. P2DAP3.
d. P1CDP2.
Figure 320
Canada’s Production Possibilities FrontierMexico’s Production Possibilities
Frontier
Refer to Figure 320. Canada’s opportunity cost of one unit of Good Y is
a. 1/2 unit of Good X and Mexico’s opportunity cost of one unit of Good Y is 1/2 unit
of Good X.
b. 1/2 unit of Good X and Mexico’s opportunity cost of one unit of Good Y is 2 units of
Good X.
c. 2 units of Good X and Mexico’s opportunity cost of one unit of Good Y is 1/2 unit of
Good X.
d. 2 units of Good X and Mexico’s opportunity cost of one unit of Good Y is 2 units of
Good X.
When a tax is placed on the sellers of a product, the
a. size of the market decreases.
b. effective price received by sellers decreases, and the price paid by buyers increases.
c. supply of the product decreases.
d. All of the above are correct.
The term tax incidence refers to
a. whether buyers or sellers of a good are required to send tax payments to the
government.
b. whether the demand curve or the supply curve shifts when the tax is imposed.
c. the distribution of the tax burden between buyers and sellers.
d. widespread view that taxes (and death) are the only certainties in life.
If Martina’s income increases and, as a result, she chooses to buy more latts per month
at each price, then her demand curve will
a. shift to the right.
b. shift to the left.
c. not shift; instead, Martina will move along her demand curve downward and to the
right.
d. not shift; instead, Martina will move along her demand curve upward and to the left.
When a country allows trade and becomes an importer of a good,
a. everyone in the country benefits.
b. the gains of the winners exceed the losses of the losers.
c. the losses of the losers exceed the gains of the winners.
d. everyone in the country loses.
Which of the following is not a reason perfect competition is a useful simplification,
despite the diversity of market types we find in the world?
a. Perfectly competitive markets are the easiest to analyze because everyone
participating in the market takes the price as given by market conditions.
b. Some degree of competition is present in most markets.
c. There are many buyers and many sellers in all types of markets.
d. Many of the lessons that we learn by studying supply and demand under perfect
competition apply in more complicated markets as well.
For any country, if the world price of copper is lower than the domestic price of copper
without trade, that country should
a. export copper.
b. import copper.
c. neither export nor import copper, since that country cannot gain from trade.
d. neither export nor import copper, since that country already produces copper at a low
cost compared to other countries.
Kelly is willing to pay $5.20 for a gallon of gasoline. The price of gasoline at her local
gas station is $3.80. If she purchases ten gallons of gasoline, then Kelly’s consumer
surplus is
a. $1.40.
b. $14.
c. $3.80.
d. $52.
Which of the following statements is correct regarding a tax on a good and the resulting
deadweight loss?
a. The greater are the price elasticities of supply and demand, the greater is the
deadweight loss.
b. The greater is the price elasticity of supply and the smaller is the price elasticity of
demand, the greater is the deadweight loss.
c. The smaller are the decreases in quantity demanded and quantity supplied, the greater
the deadweight loss.
d. The smaller is the wedge between the effective price to sellers and the effective price
to buyers, the greater is the deadweight loss.
Candice is planning her activities for a hot summer day. She would like to go to the
local swimming pool and see the latest blockbuster movie, but because she can only get
tickets to the movie for the same time that the pool is open she can only choose one
activity. This illustrates the basic principle that
a. people respond to incentives.
b. rational people think at the margin.
c. people face tradeoffs.
d. improvements in efficiency sometimes come at the expense of equality.
The most obvious benefit of specialization and trade is that they allow us to
a. work more hours per week than we otherwise would be able to work.
b. consume more goods than we otherwise would be able to consume.
c. spend more money on goods that are beneficial to society, and less money on goods
that are harmful to society.
d. consume more goods by forcing people in other countries to consume fewer goods.