If freezing weather in Florida destroys a large portion of the current orange crop,
A) prices of Florida oranges will rise and quantity demanded will fall.
B) the supply of and the demand for Florida oranges will both fall.
C) the demand for Florida oranges will fall and prices will rise.
D) the supply of Florida oranges will decline but not the quantity demanded.
Suppose each of the following is a highly-paid seller of services. Who provides a
productive service?
A) Dionne, the astrologer
B) Jerry, the comedian
C) Roger, the movie critic
D) Joe, the vice president
E) All of the above.
What effect would a simplification of federal tax law have on the cost of hiring a tax
accountant?
A) It would fall because tax accountants would have fewer valuable opportunities.
B) It would rise because tax accountants would have to raise their prices to maintain
their incomes.
C) It would have no effect because only supply affects costs, not demand.
D) It would have very little effect because most of the costs of becoming an accountant
are sunk costs.
Can economic theory prove national restrictions on international trade will reduce
global welfare?
A) No, but it can demonstrate that they will reduce the welfare of the nations that
impose the restrictions.
B) No, but it can demonstrate that they reduce efficiency.
C) No, but it can predict which groups will be made worse off or better off.
D) Yes, if welfare is defined as economic welfare.
Can phenomena as diverse as pencil production and highway traffic be legitimately
studied by economists?
A) No. One is properly in the field of business, the other in city planning.
B) No. Although production is properly in the field of economics, highway traffic is
only properly studied by planners and environmentalists.
C) Yes. Both phenomena emerge from choices of individuals with limited information.
D) Yes. Both phenomena emerge in the market system without any human intervention.
Fill in the blanks: According to your authors, the prohibition on alcohol in the U.S.
primarily shifted the ________ curve to the ________.
A) supply; right
B) supply; left
C) demand; left
D) demand; right
According to economic theory, social interactions are the result of
A) calculated choices by individuals
B) chance and the laws of probability.
C) genetic and environmental factors.
D) random occurrences.
There is no reason to think poets can’t someday become as rich as professional
basketball players in the market process. It is most likely to happen if
A) the supply of poets increases substantially.
B) the supply of poets decreases substantially.
C) the cost of writing good poetry decreases substantially.
D) poets are able to consistently sell out twenty-thousand-or-larger seat stadiums at
thirty dollars (or more) per ticket.
Sellers who lower their prices and consequently sell a larger quantity earn more
A) gross (or total) revenue as a result.
B) gross revenue only if the demand is elastic.
C) net and gross revenue if the demand is inelastic.
D) net revenue (revenue minus cost) as a result.
In a free market economy, people are free to manufacture buses out of gold, rather than
steel. So why aren’t buses made out of gold?
A) Although it meets all economic laws, gold buses would violate the laws of physics
and mechanical engineering.
B) It is ridiculously unprofitable to make gold buses.
C) The AFL-CIO wouldn’t allow buses to be made from gold.
D) There’s only one individual with a patent on gold buses, and he refuses to sell it to
other potential manufacturers.
Fill in the blank: In the economic way of thinking, ________ are the key to help people
coordinate production and consumption plans
A) abundant levels of natural resources
B) well-meaning and inspired economic planners
C) market-formed prices
D) years of training in economic theory
How is national output related to national income?
A) Income is greater than output during recoveries and booms.
B) Income is greater than output during recessions and depressions.
C) Output exceeds income by the amount of unsold goods.
D) They are always equal.
E) They are only equal when the economy is in equilibrium.
What would an economist assume about Osama Bin Laden and Barack Obama?
A) They pursue plans.
B) Their plans are consistent with the public interest.
C) They don’t understand the economic way of thinking.
D) Their demands for all scarce goods are very inelastic.
Bonnie can produce either 10 hats or 20 scarves in a month. Phil can produce either 10
hats or 5 scarves in a month. Therefore:
A) Phil has a comparative advantage in hats, Bonnie in scarves.
B) Bonnie has a comparative advantage in hats, Phil in scarves.
C) Phil has a comparative advantage in both hats and scarves.
D) Bonnie has a comparative advantage in both hats and scarves.
E) Neither of them has a comparative advantage in hats.
Which of the following is probably producing positive externalities?
A) A citizen who becomes well-informed about community issues
B) A homeowner who maintains a beautiful lawn
C) A person with an engaging smile
D) All of the above.
E) None of the above.
It is a mistake to calculate the cost per mile of owning a car because doing so implies
A) additional driving will lower the cost of owning a car.
B) future fuel and maintenance costs cannot be predicted.
C) marginal costs are the only relevant costs.
D) opportunities will not arise to sell the car.
Suppose the market clearing price for apples rises from $2.00 to $3.00 per pound, and
the overall market clearing output decreases from 1 million to 1/2 million pounds. How
can we explain the increase in price and decrease in market output?
A) Supply decreased and demand remained unchanged.
B) Supply increased and demand remained unchanged.
C) Demand increased and supply remained unchanged.
D) Demand decreased and supply remained unchanged.
When monetary equilibrium occurs,
A) the demand for final goods and services equals the supply of final goods and
services.
B) gross business investment falls to zero.
C) relative prices remain constant.
D) the quantity supplied of money equals the quantity demanded.
Per capita GDP is simply GDP divided by
A) the population.
B) the price level.
C) the inflation rate.
D) the consumer price index.
E) none of the above.
When inflation occurs,
A) everyone (or almost everyone) is made worse off.
B) only wealthy people can maintain their previous consumption levels.
C) the cost of living rises.
D) the prices of all goods rise in equal proportions.
E) the purchasing power of money declines.
If a drought reduced by 20 percent the quantity of wheat available for consumption, by
how much would the price of wheat have to rise to clear the market if the price
elasticity of demand was .25?
A) 4 percent
B) 4.5 percent
C) 5 percent
D) 25 percent
E) 80 percent
Something is an inferior good if
A) the demand for it decreases when its price rises.
B) the demand for it decreases when its price falls.
C) the demand for it increases when income rises.
D) the demand for it increases when income falls.
Something becomes money only if
A) people use it as a general medium of exchange.
B) it is backed by another commodity, typically gold or silver bullion.
C) the central government says it’s money.
D) it promises to pay the bearer a fixed quantity of a scarce metallic good.
Who knows how to measure the true cost of a pint of B-positive blood?
A) An economist
B) A clerk at the blood bank
C) Only the Surgeon General of the United States
D) Any competent medical authority
E) None of the above.
Fill in the blank: Information is a ________ good.
A) free
B) scarce
C) futile
D) non-economic
Think of the interest rate as the “price” of a home loan. Other things constant, if people
expect interest rates to rise significantly over the next couple months, their willingness
to purchase a home financed by a mortgage today will tend to
A) rise.
B) fall.
C) remain unchanged.
D) do any of the above because home purchase decisions are independent of interest
rates on mortgages.
The behavior of people in government
A) can be explained or understood by applying the same principles we use to predict the
behavior of people in business.
B) is different from the behavior of people in business because the former aims at the
general welfare rather than private welfare.
C) is essentially different from market behavior.
D) is not compatible with the existence of a market system.
E) serves to balance private-sector behavior.
Suppose Spam is an inferior good. If the U.S. economy hit bad times, and demanders’
incomes were to fall, which of the following would tend to occur?
A) Spam sales would increase.
B) Spam demand would decrease.
C) The price of Spam would increase.
D) Both A and C above.
E) Both B and C above.
Use the economic way of thinking to answer the following question: Does a diabetic
need insulin?
A) No
B) Yes, and therefore diabetics will always buy all what they need.
C) Probably, but diabetics often find substitutes for insulin in the real world.
D) Probably, but diabetics only care about the expected cost of insulin and ignore the
expected benefits.
How can we separate the cost of the electricity that generates the heat from a light bulb
and the cost of the electricity that generates that same bulb’s light?
A) By comparing the wattage of the bulb with the change in air temperature
B) By distinguishing sunk costs from marginal costs
C) By dividing the total cost in two
D) We cannot do it in any defensible way.
The broadly-defined money supply in the U.S., called M2, differs from M1 primarily in
its inclusion of
A) bonds of all sorts held by the public.
B) outstanding charge-account balances.
C) savings deposits in financial institutions.
D) Treasury bills held by the public.
E) credit cards.
Fill in the blanks: Whenever the Fed ________ excess reserves in the banking system,
they tend to ________ the overall money supply.
A) raises; reduce
B) raises; increase
C) lowers; increase
D) lowers; stabilize
“The percentage change in quantity demanded divided by the percentage change in
price” represents
A) the law of demand.
B) the law of one price.
C) the price elasticity of demand.
D) the responsiveness of consumers to a change in quantity demanded.
E) none of the above.
Which of the statements below best captures the meaning of competition as discussed in
Chapter 5?
A) Competition is a process; it makes everyone in the society better off even though
there can only be one winner.
B) Competition is an individualist system in which people do not concern themselves
with the welfare of others.
C) Competition is the law of the jungle producing social wealth.
D) Competition is the process of trying to outdo others.
E) Competition occurs when people strive to satisfy the criteria others are using to
allocate valued goods.
The high-school dropout rate typically declines during a recession because
A) more money flows into the public sector as the flow declines in the private sector.
B) teachers become more readily available during a recession.
C) the opportunity cost of continuing in school falls in a recession.
D) the demand for education rises in a recession.
E) the legal school-leaving age is a function of the unemployment rate.