Jason considers a crystal bowl, a silver dish, and a pewter figurine, each priced $45 at
the local gift shop. He chooses the silver dish because, according to economic theory
a. his marginal utility per dollar is greatest.
b. his total utility is minimized.
c. his marginal utility is equal to his total utility.
d. silver costs more per ounce than pewter.
A major problem with a commodity money is that, to be useful, money must be
a. divisible.
b. storable.
c. portable.
d. All of the above are correct.
The trade deficits of the 1980s and 1990s reflects American desire for foreign
a. assets and foreign desire for American goods and services.
b. goods and services and foreign assets.
c. goods and services and foreign desire for American assets.
d. assets now and foreign goods and services in the future.
A tax on polluting emissions will
a. provide incentives for firms to reduce the volume of polluting materials.
b. raise revenue sufficient to eliminate the deficit.
c. necessarily lower the price of the products.
d. require no agency to administer the tax.
An important assumption that is made when constructing a supply schedule is
a. only price and quantity matter in determining supply.
b. firms always want to sell a certain amount of a product.
c. supply is too important to be left to the marketplace.
d. all other determinants of supply are held constant.
e. demand has a positive slope.
The concept of money as a “unit of account” involves the use of money to
a. speed transactions.
b. reduce shopping time.
c. protect against inflation.
d. quote prices.
The Great Depression changed the prevailing thinking about economics.
a. True
b. False
It is often reported by financial news reports that higher interest rates reduce automobile
sales. If this is true, we can expect
a. fiscal policy to be more effective.
b. both fiscal and monetary policy to be more effective.
c. monetary policy to be more effective.
d. neither fiscal nor monetary policy to be more effective.
The perfectly competitive firm’s short-run shutdown rule is to shut down immediately if
a. TR < TC.
b. TR < SRFC.
c. TR < SRVC.
d. TR < MC > Q.
A corporation is the most preferable type of firm if the investor wants to limit liability.
a. True
b. False
The U.S. government attempts to spur research and development activities through
a. monetary policy.
b. interest rate policy.
c. export subsidy policy.
d. tax policy.
The Internet was first developed in the
a. business sector.
b. government sector.
c. corporate sector.
d. college dorm room of Bill Gates.
The value of the deposit multiplier is increased if individuals hold all their money in
cash.
a. True
b. False
Which of the following is an advantage to the pollution-rights approach to
environmental quality?
a. Polluters are compelled to clean up completely.
b. Polluters have appropriate incentives to clean up.
c. This is a method of direct government regulation.
d. Compliance with legal guidelines is discretionary.
Division of labor has caused output to rise dramatically since the industrial revolution.
a. True
b. False
Poor health in developing countries encourages economic growth because working is a
matter of life and death.
a. True
b. False
A worker can always build a chair in four hours. If a chair sells for $40 in a perfectly
competitive market, then the equilibrium wage per hour in a perfectly competitive labor
market is
a. $4.
b. $10.
c. $40.
d. $160.
The entry of new firms into an industry will very likely
a. shift the industry supply curve to the right.
b. cause the market price to fall.
c. reduce the profits of existing firms in the industry.
d. All of the above are correct.
Cartels are relatively rare because
a. they are illegal in some countries, including the United States.
b. members find it difficult to agree on key decisions.
c. members frequently have an incentive to cheat on the cartel.
d. All of the above are correct.
The narrowest definition of the money supply (M1) includes
a. cash and travelers’ checks.
b. cash, travelers’ checks, and savings account balances.
c. cash, checking account balances, and travelers’ checks.
d. cash, bank deposits, and money market accounts.
Affirmative action laws require employers to search for qualified minority applicants,
but not to necessarily give them jobs.
a. True
b. False
Which of the following groups would most likely be harmed by inflation?
a. workers
b. borrowers
c. debtors
d. retirees
Recent research suggests that the federal minimum wage law
a. clearly causes significant unemployment.
b. causes unemployment for teenagers.
c. causes unemployment for high wage workers.
d. may not cause much, if any, unemployment.
Americans viewed the 12 percent mortgage interest rates of the 1980s as exorbitantly
high while they considered the 7 percent mortgage interest rates of the late 1990s as
reasonable. This represents a confusion of
a. actual and expected inflation.
b. real versus nominal inflation.
c. real versus expected mortgage payments.
d. real versus nominal interest rates.
The federal government is most likely to oppose
a. the purchase of a firm in danger of bankruptcy by a successful firm.
b. a merger between two firms in a perfectly competitive industry.
c. the purchase of one oligopolist by another in an industry with contestable markets.
d. a merger between two firms in a three-firm industry.
Efficient resource allocation is defined as MC = AC.
a. True
b. False
The activities of speculators often reduce the risk borne by other stock market
participants.
a. True
b. False
At $6 per steak, consumers are willing to buy two steaks. At a price of $2, consumers
are willing to buy six steaks. The elasticity of the market demand curve between P = $6
and P = $2 (dropping all minus signs) is
a. 0.33.
b. 1.
c. 2.
d. 4.
“Economies of scope” occur when
a. fixed costs are high and marginal costs are low.
b. a monopoly can produce for the entire market.
c. similar production techniques can be applied to several products.
d. costs are fully distributed.
Perfectly competitive firms ____ earn zero economic profit in long-run equilibrium
because ____.
a. always; firms in perfectly competitive industries always maximize output and so
flood the market until the equilibrium price of output is driven to zero
b. sometimes; the demand curve for an individual perfectly competitive firm may or
may not cross the company’s long-run average total cost curve at its lowest point
c. always; firms enter whenever their economic profit is positive and exit whenever it’s
negative, so in long-run equilibrium economic profit must always be zero
d. never; no firm would be willing to produce if it received zero economic profit
Assuming one can derive a correct input-output table, are there still any reasons to
prefer the market to central planning?
Explain how the free-market mechanism adjusts prices so that resource allocation is
economically efficient.
Explain the excess burden of a tax on luxury yachts.
Complete the following table and determine the point of profit maximization.
A firm’s minimum AC is $10, its minimum AVC $7. Show this firm’s short-run supply
curve, explaining how you obtained it.
What are the assumptions of the model of perfect competition? Explain why each is
important for short-run and long-run equilibrium.
Bankers have a reputation for conservatism in politics, dress, and business affairs. Is
there an economic rationale for this conservatism? Explain.
What is “crowding-in” effect? Explain the factors which determine the strength of the
crowding in effect.
What is disposable income? How is it calculated?
Explain why the portion of the national debt owed to foreigners is a serious matter,
whereas the portion owed to U.S. citizens is of less concern. Why does the U.S. national
debt pose less of a problem than the debts of Greece in 2010?
Explain why using leverage to purchase risky securities is so popular.
What is the value of marginal profit at the profit-maximizing output?
List and discuss the importance of the major effects of the deregulation that occurred in
the 1980s.
Discuss the major programs to combat poverty and evaluate them on the basis of work
incentives.
Distinguish between predatory pricing strategy and bundling strategy.