If inflation is anticipated, some effects of inflation on the redistribution of income can
be avoided.
If marginal product is equal to average product, then total product is at a maximum.
The basis for trade is absolute advantage, not comparative advantage.
Perfectly competitive industries tend to produce low-priced, low-technology products.
If the population increases and input prices decrease, the equilibrium quantity of a
product will definitely increase.
Technological change is the key to sustaining economic growth.
The level of crowding out associated with a tax cut will be smaller if the tax change has
a supply-side effect than it will be if it only has a demand-side effect.
If unemployment persists for a long period of time, the natural rate of unemployment
rises.
A period of economic expansion ends with a business cycle trough.
Due to adverse selection, very few lemons will be sold in the market for used cars.
Firms in perfect competition produce the allocatively efficient output in the short run
and in the long run.
Your roommate Hansen argues that American producers cannot compete with foreign
producers because wages are lower in foreign countries than in the United States.
Hansen
A) is incorrect. Free trade raises living standards by increasing economic efficiency.
B) is right in asserting the need to protect high wages if the United States wishes to
maintain its high standard of living.
C) is correct in arguing that the high wages of U.S. workers make it impossible to
compete with workers in low-wage countries.
D) is advancing the anti-dumping argument for protectionism.
Ceteris paribus, in the long run, a negative supply shock causes
A) the long-run aggregate supply curve to shift to the left.
B) the price level to rise initially, and then return to its lower level.
C) unemployment to fall below its short-run level.
D) equilibrium real GDP to fall.
Table 2-1
Production choices for Tomaso’s Trattoria
Assume Tomaso’s Trattoria only produces pizzas and calzones. A combination of 24
pizzas and 15 calzones would appear
A) along Tomaso’s production possibilities frontier.
B) inside Tomaso’s production possibilities frontier.
C) outside Tomaso’s production possibilities frontier.
D) at the horizontal intercept of Tomaso’s production possibilities frontier.
In the United States, doctors and hospitals that provide most health care are
A) primarily private firms.
B) primarily employed by the government.
C) split evenly between private firms and employed by the government.
D) 100 percent employed by the government.
If there is currently a shortage of dollars, which of the following would you expect to
see in the foreign exchange market?
A) The dollar will appreciate.
B) The dollar will depreciate.
C) There will be an increase in the demand for dollars.
D) There will be an increase in the supply of dollars.
Long-run equilibrium under monopolistic competition is similar to that under perfect
competition in that
A) firms produce at the minimum point of their average cost curves.
B) price equals marginal cost.
C) firms earn normal profits.
D) price equals marginal revenue.
The level of aggregate supply in the long run is not affected by
A) changes in technology.
B) changes in the capital stock.
C) changes in the price level.
D) changes in the number of workers.
Basic supply and demand analysis indicates that having firms rather than the
government provide health insurance to workers
A) changes both the composition of the compensation that firms pay and its level.
B) changes the composition of the compensation that firms pay, but does not change its
level.
C) does not change the composition of the compensation that firms pay, but does
change its level.
D) changes neither the composition of the compensation that firms pay nor its level.
A firm should hire more workers to increase its profits if
A) the marginal product of labor is greater than the wage the firm will pay these
workers.
B) the wage rate is less than the marginal revenue product of labor.
C) there is enough capital and other resources for the workers to use.
D) the demand for labor is elastic.
Juicy Couture has been successful in selling women’s clothing using an unusual
strategy.
According to an article in the Wall Street Journal, the key to the firm’s strategy is to
“limit distribution to maintain the brand’s exclusive cachet, even if that means
sacrificing sales, a brand-management technique once used only for high-end luxury
brands.” In 2006, Juicy clothes were sold in only four department stores: Neiman
Marcus, Saks, Bloomingdale’s, and Nordstrom. In 2006, its sales have more than
quadrupled since 2002.
Source: Rachel Dodes, “From Track Suits to Fast Track,” Wall Street Journal,
September 13, 2006. How does limiting the number of stores in which Juicy’s products
are sold contribute to its success?
A) By sacrificing sales, the company was able to focus on producing high quality
products.
B) It enables Juicy to price its products at a premium and differentiate them from lower
priced products.
C) It helps establish Juicy’s products as luxury items favored by the very wealthy.
D) Maintaining the exclusivity of a product increases the demand for the product.
The largest government-run health care system in the world, with 1.7 million
employees, is in
A) Canada.
B) Japan.
C) the United Kingdom.
D) the United States.
If planned aggregate expenditure is below potential GDP and planned aggregate
expenditure equals GDP, then
A) actual inventory investment will be less than planned inventory investment.
B) actual inventory investment will be greater than planned inventory investment.
C) the economy is in a recession.
D) the economy is at full employment.
Figure 15-10
What is the area that represents producer surplus under a monopoly?
A) the triangle 0P2E
B) the triangle 0P3H
C) the trapezium 0P1FH
D) the rectangle P1P3HF
The income effect of a decrease in the price of macaroni and cheese (assume this is an
inferior good) results in
A) a decrease in the demand for macaroni and cheese.
B) an increase in the quantity demanded of macaroni and cheese.
C) a decrease in the quantity demanded of macaroni and cheese.
D) an increase in the demand for macaroni and cheese.
Figure 6-12
The diagram shows two supply curves, SA and SB. As price rises from P0 to P1, which
supply curve is more elastic?
A) SA
B) SB
C) They are equally inelastic.
D) They are equally elastic.
Table 11-6
Alicia Gregory owns a foot massage business. She leases 4 computer-controlled
massage booths, for which she pays $125 per day. She cannot increase the number
machines she leases without giving the manufacturer 3 months’ notice. She can hire as
many workers as she wants at a cost of $75 per day per worker. These are the only two
inputs she uses in her business. Use this information to fill in the columns in the above
table.
Suppose you transfer $2,000 from your mutual fund account to your checking account.
What is the immediate impact of this transfer on M1 and M2?
How does expansionary monetary policy increase spending in the economy compared
to how expansionary fiscal policy increases spending in the economy?
Draw a supply and demand graph showing an equilibrium price of $50 and an
equilibrium quantity of 200 units. Explain what would happen if the selling price was
$75, and illustrate this on the graph. Explain what would happen if the selling price was
$25, and illustrate this on the graph. Be sure to label each axis and curve on the graph.
Explain the significance of brand management to a firm that has differentiated its
product. Comment specifically on the importance of obtaining a trademark.
What is the Difference between a demand schedule and a demand curve?
Explain the similarities and differences between the long-run equilibrium for a perfectly
competitive firm and a monopolistically competitive firm. Illustrate your answer with a
graph demonstrating the long run equilibrium for the two types of firms.