If a boxing fight is shown on pay-per-view television every Saturday at 4pm, the
demand curve for each fight is given below.
If viewing a fight were free to anyone who tuned in, total economic surplus would be
______.
A. $25 million
B. $50 million
C. $225 million
D. $625 million
Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny’s
neighborhood also run lemonade stands in the summer. If the lemonade market is
perfectly competitive and price is already at the equilibrium level, Jenny can increase
her revenue if she:
A. decreases the price of her lemonade and doesn’t change her output.
B. increases the price of her lemonade and decreases her output.
C. increases the price of her lemonade and doesn’t change her output.
D. keeps the price of her lemonade the same and increases the output.
In Econland, 500,000 of the 2 million people in the country are employed. Average
labor productivity in Econland is $15,000 per worker. Real GDP per person in Econland
totals:
A. $1,250.
B. $3,750.
C. $11,250.
D. $60,000.
Refer to the table below. According to the table, Martha has the absolute advantage in:
A. pies.
B. neither pies nor cakes.
C. cakes.
D. both pies and cakes.
An increase in the government’s budget deficit ______ the real interest rate and ______
the equilibrium quantity of national saving.
A. increases; increases
B. increases; decreases
C. decreases; decreases
D. decreases; increases
All else equal, the jobs that are the least likely to be outsourced are those that:
A. do not involve face-to-face contact.
B. can be done by a computer.
C. require face-to-face communication.
D. can be broken down into series of well-defined steps.
This graph shows the cost curves for Moe’s mushroom gathering business, which is
perfectly competitive.
If mushrooms sell for $40 per bushel, and Moe chooses the profit-maximizing quantity,
he will:
A. earn zero profit.
B. earn negative profit (a loss).
C. earn positive profit.
D. shut down.
Consider an industry with two firms producing similar products. Each firm’s total cost
(in dollars) is given below.
Acme Manufacturing: TC = 100 + 3Q.
Generic Industries: TC = 500 + 3Q.
Suppose that Acme and Generic face the same demand curve. If each firm produces its
profit-maximizing level of output and earns a positive economic profit, then which of
the following statements is true?
A. Acme will produce more output than Generic.
B. Generic will produce more output than Acme.
C. Acme and Generic will produce the same quantity and will have the same profits.
D. Acme and Generic will produce the same quantity, but Acme will have higher
profits.
If real GDP is greater than potential GDP, then:
A. the actual unemployment rate is greater than the natural rate of unemployment.
B. the actual unemployment rate equals zero.
C. the output gap is negative.
D. the actual unemployment rate is lower than the natural rate of unemployment.
Suppose that a government agency is trying to decide between two pollution reduction
policy options. Under the permit option, 100 pollution permits would be sold, each
allowing emission of one unit of pollution. Firms would be forced to shut down if they
produced any units of pollution for which they did not hold a permit. Under the
pollution tax option, firms would be taxed $250 for each unit of pollution emitted. The
regulated firms all currently pollute and face varying costs of pollution reduction,
though all face increasing marginal costs of pollution reduction. Suppose the permit
policy is adopted. A firm will wish to purchase its first permit if the price of that permit
is less than or equal to:
A. the increase in costs associated with reducing its existing emissions by one unit.
B. the lowest cost of eliminating one unit of pollution.
C. the reduction in costs associated with increasing its emissions from zero to one unit.
D. the average cost of eliminating one unit of pollution.
Payments by the government to the public for which the government receives no
current goods or services in return are called:
A. public saving.
B. net taxes.
C. transfer payments.
D. capital losses.
The table below shows how total donations, average donations, total labor costs and
average labor costs vary depending on the number of employees State U hires for its
fundraising activities.
The marginal cost of the 4th employee is:
A. $9,500.
B. $10,750.
C. $11,000.
D. $13,000.
If actual output equals potential output, unusually slow potential output growth would
tend to result in:
A. a recession.
B. an expansion.
C. an output gap.
D. a recessionary gap.
Two countries, Alpha and Beta, have the same levels of nominal and real GDP. Each
dollar in Alpha is used more frequently than each dollar in Beta. Therefore, it must be
the case that ______ in Alpha than in Beta.
A. the rate of inflation is greater
B. the money stock is smaller
C. the price level is greater
D. the velocity is lower
In order to achieve a socially optimal level of output, goods that entail negative
externalities should be:
A. banned.
B. subsidized.
C. taxed.
D. provided by the government.
As the price of flour (an input into the cookie production process) increases, firms that
produce cookies will:
A. increase the supply of cookies.
B. increase the quantity of cookies supplied.
C. decrease the supply of cookies.
D. decrease the quantity of cookies supplied.
Liabilities of the commercial banking system include:
A. reserves and loans.
B. deposits.
C. reserves and deposits.
D. loans and deposits.
If M stands for the money stock, P for the price level, and Y for real GDP, then velocity,
V, equals:
A. (P×Y) ÷ M.
B. (P ×M) ÷ Y.
C. (M ×Y) ÷ P.
D. (M ×P) ÷ Y.
According to the quantity equation, if velocity and output are constant, then an increase
in the money supply leads to ______ in inflation.
A. a less than proportional increase
B. a less than proportional decreases
C. the same percentage increase
D. a greater than proportional increase
The tendency of changes in asset prices to affect spending on consumption goods is
called the ______ effect.
A. income
B. substitution
C. wealth
D. multiplier
According to the textbook, the owners of restaurants encourage tipping in order to:
A. insure that their waiters earn enough money.
B. solve a commitment problem with their wait staff.
C. sustain cooperation in a repeated prisoner’s dilemma.
D. avoid playing a dominated strategy.
The law of one price states that if transportation costs are relatively small, then the:
A. nominal exchange rates for every country’s currency must be equal.
B. nominal exchange rate for a currency must equal the real exchange rate for that
currency.
C. price of an internationally traded commodity must be the same in all locations.
D. producer with the lowest opportunity cost should be the only producer any
commodity.
Refer to the figure below. In this game, how many dominant strategies does Player A
have?
A. 0
B. 1
C. 2
D. 4
Financial markets pay close attention to changes in the federal funds rate because these
changes:
A. directly affect a large volume of loans.
B. indicate the Fed’s plans for monetary policy.
C. indicate commercial bank lending policies.
D. directly affect the interest payments on the national debt.
The economy of Omega operates according to Okun’s law. In Omega, the actual and the
natural rates of unemployment both equal 5 percent, and potential GDP equals $10
trillion. What is real GDP in Omega?
A. $9.0 trillion
B. $9.5 trillion
C. $10.0 trillion
D. $10.5 trillion
The downward slope of the production possibilities curve illustrates the:
A. Scarcity Principle.
B. Cost-Benefit Principle.
C. Incentive Principle.
D. Principle of Comparative Advantage.
John is trying to decide how to divide his time between his job as a stocker in the local
grocery store, which pays $7 per hour for as many hours as he chooses to work, and
cleaning windows for the businesses downtown. He makes $2 for every window he
cleans. John is indifferent between the two tasks, and the number of windows he can
clean depends on how many hours he spends cleaning in a day, as shown in the table
below:
John’s benefit from his first hour cleaning windows is:
A. $14
B. $18
C. $7
D. $2
Inflation-protected bonds guarantee investors:
A. no real wealth loss in the event of unexpectedly high inflation.
B. above average real returns.
C. a fixed nominal rate of return.
D. an above average rate of inflation.
The following table provides information about production at the XYZ-TV Company.
How many workers will XYZ-TV Company hire if the going wage for TV production
workers is $28,000?
A. 1
B. 2
C. 3
D. 4
A demand curve is ________ sloping because __________________.
A. downward; of increasing opportunity costs
B. upward; people prefer to purchase high-quality consumer goods
C. downward; reservation prices tend to fall over time
D. downward; fewer people are willing to buy an item at higher prices
Countries with high real GDP tend to have ______ infant mortality rates and ______
literacy rates than countries with low real GDP.
A. higher; higher
B. higher; lower
C. lower; higher
D. lower; lower
Holding other factors constant, an increase in the capital stock ______ the real wage
and ______ employment.
A. increases; increases
B. increases; decreases
C. increases; does not change
D. decreases; increases
Production possibilities curves for large economies are generally bow-shaped because:
A. specialization gives some producers a comparative advantage.
B. opportunity costs tend to decrease with increases in production.
C. opportunity costs tend to increase with increases in production.
D. as more resources are used to produce a good, those resources become less
expensive.
If the natural rate of unemployment equals 5 percent and the actual rate of
unemployment equals 6 percent, then cyclical unemployment equals:
A. 11 percent.
B. 1.2 percent.
C. 1 percent.
D. -1 percent.
Dean should play golf instead of preparing for tomorrow’s exam in economics if:
A. he is irrational.
B. the benefit of golfing is greater than the benefit of studying.
C. the economic surplus from playing golf is greater than the economic surplus from
studying.
D. Dean can play golf for free.