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Suppose a treacherous stretch of road winds through Deadman's Canyon for 5 miles. A
highway department study estimates that better lighting would reduce the traffic fatality
rates as follows:
Suppose that experts have estimated the statistical value of a life saved to be $8m. The
highway department should install ___ lights in Deadman's Canyon.
A. 4
B. 1
C. 2
D. 3
Holding all else constant, an increase in Mexican real GDP will ______ the demand for
dollars in the foreign exchange market and ______ the equilibrium Mexican peso/U.S.
dollar exchange rate.
A. increase; increase
B. increase; decrease
C. decrease; decrease
D. decrease; increase
A dilemma in the Prisoner's Dilemma comes from the fact that:
A. the outcome is purely random.
B. no strategy is dominant.
C. if both players play the dominant strategy they each earn a smaller payoff than had
they played the dominated strategy.
D. it was originally devised to explain the behavior of prisoners.
Suppose the price of gold is $300 per ounce in the United States and 2,400 pesos per
ounce in Mexico. If purchasing power parity holds then, if the price of oil is 200 pesos
per barrel in Mexico, the price of oil is ______ per barrel in the United States.
A. $1,600
B. $80
C. $36
D. $25
Two firms can choose from five different technologies to reduce their pollution: A, B,
C, D and E. The amount of pollution emitted by each technology and the cost of the
technologies are shown in the table. Both firms have adopted technology A and
currently emit 4 tons apiece. The government is considering two plans to reduce
pollution: a 50% reduction by both firms or selling pollution permits. One permit
entitles the owner to emit one ton of pollution. Without a permit, no pollution can be
emitted.
If the government decided to use permits instead of regulation, in order to reduce
pollution by 50% it would need to sell _____ permits.
A. 4
B. 2
C. 3
D. 5
If an economy maintains a small rate of growth for a long period of time, then the size
of the economy:
A. can only increase by a small amount.
B. can increase by a large amount.
C. can never double.
D. will stay nearly constant.
Refer to the figure above. The socially optimal quantity in this market is _______.
A. 0T
B. 0U
C. 0V
D. TV
Which of the following is NOT a determinant of demand for gasoline?
A. Consumers' incomes.
B. The price of diesel.
C. The price of automobiles.
D. The quantity of gasoline supplied.
According to the theory of purchasing power parity, the real exchange rate between two
currencies will equal ______ in the long run.
A. the nominal exchange rate
B. the ratio of the rates of inflation of the two currencies
C. 0
D. 1
Data on after-tax income and consumption spending for the Adam Smith family are
given below:
Based on these data, the Adam Smith family has a marginal propensity to consume of:
A. 0.9.
B. 0.8.
C. 0.75.
D. 0.6.
Suppose that in an effort to help single parents, the government has decided to pay part
of the cost of childcare. This measure will
A. increase efficiency in the childcare market.
B. increase consumer surplus in the childcare market.
C. increase total surplus in the childcare market.
D. leave the quantity of childcare unchanged.
Refer to the figure above. As Jeff watches more movies, his marginal utility
A. gets larger
B. gets smaller
C. does not change
D. gets close to one
Developing new products and services as well as introducing new production methods
are among the ways that ______ increases average labor productivity.
A. human capital
B. physical capital
C. an entrepreneur
D. a manager
Compound interest is:
A. the payment of interest on the original deposit.
B. the interest rate adjusted for the rate of inflation.
C. the real rate of interest compounded by the rate of inflation.
D. the payment of interest on the original deposit as well as all accumulated interest.
Refer to the figure above. If the firm were forced to pay the external cost, the firm
would:
A. increase the price of paper by the full amount of the external cost.
B. be unable to increase the price of paper, and so would bear the entire burden of the
increased cost.
C. produce more paper than it does at the private market equilibrium.
D. share the burden of the higher cost with paper consumers.
The following table shows the relationship between the speed of a computer's CPU and
the benefits and costs. Assume that all other features of the computer are the same, i.e.,
CPU speed is the only source of variation.
Application of the cost-benefit principle would lead one to purchase a __________
computer because __________.
A. 900 Mhz; the total benefit exceeds the total cost
B. 700 Mhz; the marginal benefit is $500 and the marginal cost is $100
C. 600 Mhz; it is certainly fast enough
D. 800 Mhz; the marginal benefits and marginal costs are equal
The equilibrium quantity of money in circulation is determined by:
A. the interaction of money supply and money demand.
B. the nominal interest rate, real income, and the price level.
C. the Federal Reserve.
D. individuals, households, and businesses.
Suppose the economy is currently operating at potential output; a recessionary gap may
be caused by each of the following EXCEPT:
A. a negative demand shock.
B. a positive inflation shock.
C. an increase in taxes.
D. a decrease in the money supply.
Saving by households and businesses is called ______ saving.
A. private
B. public
C. national
D. aggregate
The table below gives the quantities and prices for 2000 and 2010 for an economy that
produces just two goods: sailboats and coconuts.
For this economy that produces just sailboats and coconuts, and with 2000 is the base
year, real GDP was approximately ______ times larger in 2010 than it was in 2000.
A. 1.34
B. 1.65
C. 1.77
D. 2.19
The time one spends researching the performance and fuel economy of new cars on the
Internet is an example of a(n)
A. monetary cost.
B. non-monetary cost.
C. information cost.
D. implied cost.
Frictional unemployment may be economically beneficial if:
A. its psychological costs are borne only by the unemployed worker.
B. losses in economic output are small.
C. it leads to a better match between worker and job.
D. the social costs are limited to smaller tax revenues collected.
Refer to the figure above. The equilibrium price in this market is:
A. nonexistent.
B. between $40 and $50.
C. less than $40.
D. greater than $50.
The value of unpaid work by a homemaker ______ included in GDP and the value of
housekeeping services sold in the market ______ included in GDP.
A. is; is not
B. is; is
C. is not; is not
D. is not; is
Miniville is an isolated town located on the southern shore of Lake Condescending, a
very large lake. The western edge of Miniville is adjacent to impassable mountains and
there are no towns or businesses for many miles to the east. The 300 residents of
Miniville are evenly distributed along 3 miles of shoreline on the lake, east of the
mountains. Lake Shore Drive, the only street in town, provides access to Miniville's
homes and businesses. All residents live between the lake and the street; businesses
locate on the other side of the street. Lake Shore Drive is 3 miles long, and the points
labeled A, B, and C are 1, 2, and 3 miles from the western end of Lake Shore Drive,
respectively. All residents of Miniville shop at the store located closest to their homes.
Refer to the information given above. Because all residents of Miniville shop at the
store located closest to their homes, the optimal location for the first store to open in
Miniville is:
A. at the western end of Lake Shore Drive.
B. there is no single optimal location for the first store.
C. Point A.
D. Point C.
If most consumer goods and services are ______, then most income elasticities are
______.
A. normal; negative
B. inferior; positive
C. normal; greater than one
D. normal; positive
Expected value is an important consideration in a consumer's search decision because
A. the outcome of a particular search is certain.
B. the consumer may not be able to purchase the good after it is found.
C. the outcome of a particular search is uncertain.
D. a rational consumer will continue to search if the expected value is positive.
The annual percentage rate of change in the price level is the:
A. relative price.
B. Fisher effect.
C. cost of living.
D. rate of inflation.
Game theory provides tools that are used to model:
A. how perfectly competitive firms behave.
B. cost functions faced by firms.
C. consumer demand.
D. interdependence.
An economy with a trade surplus must also have:
A. a trade deficit.
B. a budget surplus.
C. positive net capital outflows.
D. positive net capital inflows.
A rational seller will sell another unit if:
A. the profit earned from the sale of the next unit is greater than the profit earned on the
sale of the last unit.
B. the cost of making the next unit is less than the revenue gained by selling the next
unit.
C. the quantity demanded of the seller's output is greater than zero.
D. the price that could be charged is greater than the equilibrium price.
