If firms sell more output than expected, planned investment:
A. is greater than actual investment.
B. is less than actual investment.
C. equals actual investment.
D. equals zero.
Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the
price of a jar of peanut butter is $3.
Suppose that at the original income of $30 the price of a loaf of bread decreased to
$1.00 and the price of a jar of peanut butter increased to $5. Dusty can buy a maximum
of _____ loaves of bread or a maximum of _____ jars of peanut butter.
A. 20, 5
B. 5, 20
C. 30, 6
D. 6, 30
Pat has 4 hours to spend either studying for a test or playing a new video game. If Pat
spends all of that time studying, Pat can score a 92 on the test. If Pat plays for 1 hour,
Pat’s test score falls 5 points. For playing a second hour, Pat’s score falls by another 7
points. Playing for a third hour will lower Pat’s score by another 10 points.
Refer to the information above. The opportunity cost of the 2nd hour of playing the
video game is:
A. 10 points on the test.
B. 5 points on the test.
C. 7 points on the test.
D. 2.5 points on the test.
A good or service which is both rival and excludable is a
A. public good.
B. private good.
C. collective good.
D. commons good.
Which ordering best describes how a perfectly competitive industry would respond to a
sudden increase in popularity of the product? The market demand function will shift to
the right, causing the market:
A. price to increase, and a new stable equilibrium to be established at a higher price and
higher quantity.
B. price to increase, and all firms in the industry will earn higher profits for the
foreseeable future.
C. price to increase. Increased profits will encourage new firms to enter, shifting the
market supply function to the right. Long-run market equilibrium will be at a higher
quantity than before the surge in popularity.
D. price and quantity supplied to increase. Increased profits will encourage new firms to
enter shifting the market supply function upward. Long-run market equilibrium will be
at a lower quantity and higher price than before the surge in popularity.
Refer to the table above. The marginal cost of the 4th unit of activity is:
A. $1
B. $2
C. $3
D. $4
A war destroys much of the capital stock in the country of Omega. As a result, holding
other factors constant, the real wage in Omega will ______ and employment in Omega
will ______.
A. increase; increase
B. increase; decrease
C. increase; not change
D. decrease; decrease
You own a pizza shop called “Pizzas’R’ Us”. Currently you are paying your cooks an
hourly wage of $20. You sell a medium pizza for $10. By hiring more cooks, you can
increase your pizza production as shown in the following table.
What is the average benefit per cook if you hire 2 cooks for one hour?
A. 2 pizzas
B. 2.5 pizzas
C. 3 pizzas
D. 3.5 pizzas
Suppose a jar of orange marmalade that is ultimately sold to a customer at The Corner
Store is produced by the following production process:
If the oranges were grown and the jam produced in the year 2009, but the marmalade
was sold at The Corner Store in the year 2010, what is the contribution of these
transactions to GDP in the year 2009?
A. $1.25
B. $2.00
C. $2.50
D. $2.75
Economists use abstract models because:
A. every economic situation is unique, so it is impossible to make generalizations.
B. every economic situation is essentially the same, so specific details are unnecessary.
C. they are useful for describing general patterns of behavior.
D. computers have allowed economists to develop abstract models.
As U.S. real GDP falls, poorer households may decide to buy ______ foreign goods and
assets, which would cause a(n) ______ of the U.S. dollar.
A. more; appreciation
B. more; depreciation
C. fewer; appreciation
D. fewer; depreciation
The delay between the date a policy change is implemented and the date when most of
its effects have occurred in the economy is called the:
A. recessionary gap.
B. expansionary gap.
C. outside lag.
D. inside lag.
Mel is thinking of going on a cruise. Mel values a cruise in nice weather at $2,000 and
values a cruise in bad weather at $50. According to a very reliable source, the
probability of nice weather is 60% and the probability of bad weather is 40%. Trip
insurance is sometimes available. If purchased, it allows travelers to delay the cruise
until the weather is nice.
A gamble that offers a 1% chance of winning $699.93 and a 99% chance of losing
$7.07 would be classified as a(n)
A. better than fair gamble.
B. gamble that only a risk-seeker would take.
C. fair gamble.
D. unfair gamble.
Which of the following events will decrease the domestic real interest rate in an open
economy?
A. An increase in domestic saving.
B. A decrease in the domestic saving.
C. An increase in the perceived riskiness of investing in the domestic economy.
D. An decrease in net capital inflow.
The value of the marginal product of new capital increases when the:
A. price of new capital goods increases.
B. real interest rate increases.
C. the price of the good the firm produces decreases.
D. productivity of new capital increases.
Suppose that you have noticed that almost all of the car dealers in your city are located
along a 3-block stretch of the same street. A likely reason for this clustering of car
dealers is that:
A. the dealers are better able to form a cartel.
B. each dealer is attempting to locate closest to the customers.
C. there is a social norm in that city that dealers follow in choosing location.
D. each dealer sells a different brand of car, so they are not competitors and do not have
to be concerned about the other dealers’ locations.
The U.S. Congress instituted a system of deposit insurance for banks in:
A. 1934.
B. 1789.
C. 1865.
D. 1913.
Refer to the figure above. In the long run equilibrium price is _____ and an individual
firm’s profit maximizing quantity is _______.
A. $20; 4 million
B. $15; 6 million
C. $15; 3 thousand
D. $10; 8 million
The figure above shows a supplier’s opportunity costs. If the market price for this good
is $6, how many units would this supplier produce?
A. 50
B. 150
C. 250
D. 300
Over time, the core rate of inflation should be ______ than the general rate of inflation.
A. more stable
B. less stable
C. higher
D. less meaningful
Holding other factors constant, a decline in the price of new capital goods will:
A. increase national saving.
B. decrease national saving.
C. increase investment.
D. decrease investment.
Refer to the figure above. Which of the following is true given the production
possibilities shown?
A. Point C is more efficient than Point B because at Point C the opportunity cost of
another warhead is lower than at Point B.
B. Point B is the most efficient feasible point because it represents specialization in
warheads.
C. Point F is the most efficient feasible point because it represents specialization in
medical care.
D. Points B, C, and E are equally efficient.
Suppose that a new drug has been approved to treat a life-threatening disease. Demand
for that drug is shown on the graph below. Prior to approval of this drug, the only
treatment for this condition was non-prescription pain relief. Demand for one brand of
non-prescription pain reliever is also shown on the graph below.
Refer to the figure above. If the manufacturer of the new drug chose to increase its price
from $30 to $40, consumers would acquire ______ doses, and have _____ total
expenditures.
A. more; higher
B. fewer; lower
C. more; lower
D. fewer; higher
Refer to the figure above. The welfare loss due to a first-dollar insurance plan for the
routine visit is ________.
A. $100
B. $200
C. $300
D. $400
The typical family on the Planet Econ consumes 10 pizzas, 7 pairs of jeans, and 20
gallons of milk. In 2004, pizzas cost $10 each, jeans cost $40 per pair, and milk cost $3
per gallon. In 2005, the price of pizzas went down to $8 each, while the prices of jeans
and milk remained the same. Between 2004 and 2005, a typical family’s cost of living:
A. increased by 4.5 percent.
B. decreased by 4.5 percent.
C. remained the same.
D. decreased by 20 percent.
Smith and Jones comprise a two-person economy. Their hourly rates of production are
shown below.
Refer to the table above. Suppose Smith and Jones begin by producing 0 computers and
220 calculators per hour. If they wish to produce 2 computers and 200 calculators per
hour, then Smith will spend __________ and Jones will spend __________.
A. 30 minutes on each; 30 minutes on each
B. 48 minutes on computers and 12 minutes on calculators; 1 hour on calculators
C. 1 hour on calculators; 10 minutes on computers and 50 minutes on calculators
D. 12 minutes on computers and 48 minutes on calculators; 1 hour on calculators
The three broad reasons for saving, as identified by economists, are reasons relating to:
A. consumption, investment, and exports.
B. national, public, and private production.
C. the life-cycle, precaution, and bequests.
D. capital gains, capital losses, and deficits.
The increasing availability of temporary job placement agencies and online job services
has ______ the efficiency of matching workers and jobs and ______ the natural rate of
unemployment in the United States.
A. increased; increased
B. increased; reduced
C. had no impact on; reduced
D. decreased; increased
The economy of Omega operates according to Okun’s law. In Omega, potential GDP
and real GDP equal $7 trillion, and the natural rate of unemployment equals 6 percent.
What is the actual rate of unemployment in Omega?
A. 4.2 percent
B. 6.0 percent
C. 7.0 percent
D. 13.0 percent
Real GDP per person in Northland is $30,000, while real GDP in Southland is $10,000,
However, Northland’s real GDP per person is growing at 1 percent per year, and
Southland’s real GDP per person is growing at 3 percent per year. If these growth rates
persist indefinitely, then:
A. Northland’s real GDP per person will decline until it equals Southland’s.
B. Northland’s real GDP per person will always be between 1 and 2 percent greater than
Southland’s.
C. Southland’s real GDP per person will always be exactly 2 percent less than
Northland’s.
D. Southland’s real GDP per person will eventually be greater than Northland’s.
Which of the following would be expected to increase the demand for U.S. currency?
A. Competition among brokers forces down the commission charge for selling bonds or
stocks.
B. The economy enters a recession.
C. Political instability increases dramatically in developing nations.
D. On-line banking allows customers to transfer funds between checking and stock
mutual funds 24 hours a day.
The value of marginal product for the last worker hired is $20 and the wage rate is $25.
The firm
A. should reduce its labor usage.
B. should increase its labor usage.
C. should keep the last worker it hired.
D. is cost minimizing.
The relationship between labor usage and output at the local coffee shop is summarized
in the table below. The price of a cup of espresso is $1.25 and no other inputs are
required.
The value of marginal product for the first worker is _______.
A. 25 cups of espresso
B. $31.25
C. $25
D. $20