One reason investors may prefer bonds over stocks is
a. potential profits are larger
b. bond prices never vary
c. bondholders get paid before stockholders
d. owning bonds implies owning a part of the company
e. interest rates do not affect the value of bonds
What is the effect of a fall in the price of a normal good on the consumer’s choice?
a. She will buy more of the good but reach a lower indifference curve.
b. She will buy less of the good but reach a higher indifference curve.
c. She will buy more of the good and reach a higher indifference curve.
d. She will buy the same quantity of the good and stay on the same indifference curve.
e. She will buy more of the good and stay on the same indifference curve.
If you will receive $5,000 two years from today, what is its present value if the discount
rate is 5 percent?
a. $5,025
b. $4,500
c. $3,429
d. $4,535
e. $4,762
An increase in the wage rate will lead to a reduction in the quantity of labor supplied if
a. the substitution effect outweighs the income effect
b. the income effect outweighs the substitution effect
c. the opportunity costs of leisure do not increase
d. the opportunity costs of working always increase
e. workers are irrational because otherwise they would be violating the law of supply
An increase in U.S. income that increases American demand for all normal goods
(including imports from Britain) will shift
a. the U.S. demand curve for foreign exchange to the right, causing an increase in the
dollar-per-pound exchange rate
b. the U.S. demand curve for foreign exchange to the left, causing a decrease in the
dollar-per-pound exchange rate
c. the U.S. supply curve for foreign exchange to the right, causing a decrease in the
dollar-per-pound exchange rate
d. the U.S. supply curve for foreign exchange to the left, causing an increase in the
dollar-per-pound exchange rate
e. neither the U.S. demand curve for foreign exchange nor the U.S. supply curve for
foreign exchange
Exhibit 16-1
Consider Exhibit 16-1. Triangle abc represents the consumer surplus inthe face of the
price support.
a. True
b. False
A demand curve usually has a
a. negative slope because price and quantity demanded are inversely related
b. negative slope because as price rises, demand falls
c. positive slope because price and quantity demanded are positively related
d. positive slope because price and quantity demanded are inversely related
e. slope of zero because there is no change along a demand curve when everything else
is held constant
Coase argued that the free market should be able to solve the externality problem
without assigning property rights.
a. True
b. False
Exhibit 5-1
Use the information in Exhibit 5-1 to calculate the value of price elasticity of demand
for Good B.
a. -2/3
b. -1/6
c. -1/2
d. -11/17
e. -17/11
The tendency for the poorest risks to buy health insurance and the tendency of the
insured to take more risks with their health are known as moral hazard and adverse
selection, respectively.
a. True
b. False
Which of the following is not a not-for-profit institution?
a. Columbia Broadcasting System (CBS)
b. American Red Cross
c. Salvation Army
d. a public library
e. a typical college or university
The market interest rate
a. typically increases from one year to the next
b. represents the demand for investment
c. represents the opportunity cost of funds
d. represents the supply of loanable funds
e. is not affected by the demand for investment
The present value of $200 to be paid to you at the end of two years, if the market
interest rate is 5 percent, is
a. $181.41
b. $190.00
c. $210.00
d. $225.78
e. cannot be determined from the information given
Exhibit 19-2
In Exhibit 19-2, the opportunity cost of a ton of rice in the United States is
a. 0
b. 1/3 of a t-shirt
c. 1/2 of a t-shirt
d. 1 t-shirt
e. 2 t-shirts
Exhibit 10-11
At the profit-maximizing output level, the firm in Exhibit 10-11 is
a. earning economic profit of $400
b. earning economic profit of $200
c. earning zero economic profit
d. suffering a loss of $200
e. suffering a loss of $400
Exhibit 1-2
In Exhibit 1-2, at x = 12, the
a. value of y is larger on curve A than on curve B
b. value of y is smaller on curve A than on curve B
c. value of y is the same on curve A as on curve B
d. slope of line A is negative
e. slope of line B is positive
Increases in resources or improvements in technology will cause the production
possibilities frontier to
a. shift outward
b. shift inward
c. become a straight line
d. become horizontal
e. become vertical
The capital account keeps track of the amount of
a. foreign-owned machinery in a country
b. domestically owned machinery in foreign countries
c. exports and imports of goods only
d. exports and imports of goods and services
e. assets in one country owned by citizens of another
Which of the following is a short-run adjustment?
a. Toyota builds an automobile plant in Kentucky.
b. Faced with increasing enrollment, a private college builds a new School of Business
building.
c. Because of staggering losses, three insurance companies exit the industry.
d. People’s Bank hires two new tellers to meet increased demand for customer services.
e. Shaveco enters the razor blade market with a new product, produced in the United
States.
Exhibit 6-29
Which graph in Exhibit 6-29 shows a decrease in the price of food?
a. Graph a
b. Graph b
c. Graph c
d. Graph d
e. Graph e
Which of the following will not shift the demand curve for movie tickets?
a. a change in the cost of babysitting services
b. a change in the price of movie tickets
c. a change in the quality of television programs
d. a change in the income of movie-goers
e. a change in the number of consumers
Which of the following taxes is based on the ability-to-pay principle?
a. tolls on a bridge
b. income taxes
c. gasoline excise taxes
d. property taxes
e. user fees that collect the same amount from each person
Exhibit 12-6
If the market in Exhibit 12-6 is allowed to operate freely, total employment by the
typical employer (illustrated in the right-hand panel) will be
a. 10 workers
b. 12 workers
c. 600 workers
d. 720 workers
e. 800 workers
Exhibit 11-11
Exhibit 11-11 shows data on watch production. If the marginal resource cost is constant
at $18 per unit of labor, how many workers should the firm hire to maximize its profit?
a. one
b. two
c. three
d. four
e. five
Theory seeks to
a. simplify a complex reality
b. confront reality in all its complexity by focusing on the unique aspects of each
phenomenon
c. explain phenomena without predicting them
d. predict phenomena without explaining them
e. distort reality in order to improve forecasting ability
A firm is considering the purchase of a piece of equipment that will add $200 per year
to the firm’s revenue forever. If the interest rate is 10 percent, the firm will purchase the
equipment so long as it costs less than
a. $1,000
b. $2,000
c. $4,000
d. $6,000
e. $8,000
As the price of the U.S. dollar increases in terms of foreign currency,
a. U.S. products become cheaper for foreigners
b. foreign goods become cheaper for Americans
c. dollars are worth less
d. the U.S. demand for foreign exchange increases
e. the supply of foreign exchange to U.S. markets decreases
Supply and demand curves both
a. have negative slopes
b. have positive slopes
c. relate quantities to prices
d. reflect the actions of producers
e. reflect the actions of consumers
U.S. auto workers sometimes experience structural unemployment because of the
popularity of foreign cars. Which argument is a labor union most likely to present to
Congress when it lobbies for trade restrictions?
a. national defense argument
b. infant industry argument
c. antidumping argument
d. loss of domestic jobs argument
e. declining industry argument
If an economy is operating at a point inside the production possibilities frontier, then
a. some of the nation’s resources are unemployed
b. the production decisions are made by the government
c. unlimited resources must satisfy scarce desires
d. there is a scarcity of human resources relative to human wants therefore society must
have some mechanism for making choices
e. society is paying too much for wages
Monopolistic competition is similar to
a. perfect competition because the firms face downward-sloping demand curves and can
earn only a normal profit in the long run
b. pure monopoly because the firms face downward-sloping demand curves and can
earn only a normal profit in the long run
c. perfect competition because the firms face downward-sloping demand curves and
similar to pure monopoly in that the firms can earn only a normal profit in the long run
d. pure monopoly because the firms face downward-sloping demand curves and similar
to perfect competition in that the firms can earn only a normal profit in the long run
e. pure monopoly because the firms face downward-sloping demand curves and can
earn an economic profit in the long run
Firm size alone is not the same as market power, as illustrated by
a. a large automaker raising its prices without concern about competition
b. a movie theater in an isolated community facing stiff competition
c. wheat farmers selling their commodity product to farm cooperatives
d. the only newspaper in a metropolitan area facing competition for advertising sales
from TV, radio, and the Internet
e. None of the answers is correct
Exhibit 19-6
In Exhibit 19-6, if the world price of a baseball is $3 and a tariff of $1 per baseball is
imposed in the United States, which area represents the United States’ net loss as a
result of the tariff?
a. a + b + c + e
b. b + c + e
c. b + c
d. c + e
e. b + f