According to the theory of rational expectations, the government can influence output
a. with appropriate fiscal and monetary policy.
b. in the short run, but not in the long run.
c. without affecting the price level.
d. only by making unexpected changes that impact aggregate demand.
Which of the following will most likely cause an outward shift in the production
possibilities curve?
a. a reduction in the man-made productive resources available to the economy as the
result of a decline in investment
b. an increase in government payments to farmers for taking land out of production
c. an increase from 40 to 50 hours in the average number of hours worked per week
d. None of the above would cause an outward shift in the production possibilities curve.
The number of people willing to buy tickets to the Super Bowl is invariably greater than
the number of tickets (and seats) available. This is evidence that the price of the tickets
is
a. higher than the equilibrium price.
b. equal to the equilibrium price since the number of tickets bought equals the number
sold.
c. lower than the equilibrium price.
d. higher than the equilibrium price when the demand is inelastic but lower when the
demand is elastic.
Which of the following is the bestdescription of the effects of an increase in the supply
of bread?
a. Consumers will pay more for bread.
b. Bread prices will fall, and bread sales will rise.
c. A permanent surplus of bread will remain on the market.
d. Bakers will have higher marginal costs.
What role do non-monetary considerations play in physical capital investment decisions
as opposed to human capital investment decisions?
a. they play a minor to nonexistent role in both.
b. they play an equally important role in both.
c. they are probably more important in physical capital investment decisions.
d. they are probably more important in human capital investment decisions.
Which of the following contributed to the soaring housing prices during 2002-2004?
a. the Fed’s high-interest rate policy
b. the tightening of loan standards by commercial lenders
c. the increasing popularity of fixed-rate, long-term loans to lock in low interest rates
d. the Fed’s low-interest rate policy
If there is shortage of loanable funds, then
a. the supply for loanable funds shifts right and the demand shifts left.
b. the supply for loanable funds shifts left and the demand shifts right.
c. neither curve shifts, but the quantity of loanable funds supplied increases and the
quantity demanded decreases as the interest rate rises to equilibrium.
d. neither curve shifts, but the quantity of loanable funds supplied decreases and the
quantity demanded increases as the interest rate falls to equilibrium.
A decrease in the interest rate, other things being equal, causes
a. an upward movement along the demand curve for money.
b. a downward movement along the demand curve for money.
c. a rightward shift of the demand curve for money.
d. a leftward shift of the demand curve for money.
The production possibilities curve illustrates the basic principle that
a. an economy’s capacity to produce increases in proportion to its population.
b. if the resources of an economy are being used efficiently, more of one good can be
produced only if less of another is produced.
c. an economy will automatically seek the output at which all of its resources are fully
employed.
d. the distribution of income among households is the major determinant of the
economic welfare of a nation.
Which of the following increases the political power of special interest groups and
makes counterproductive government action more likely?
a. logrolling and pork barrel legislation
b. the rational-ignorance effect
c. public goods
d. both a and b, but not c
A college has found that during every home football game, a group of students sits on a
hillside next to the stadium and watches the game without purchasing tickets. In
economics, the problem that this college is facing is referred to as a
a. common good problem.
b. free rider problem.
c. onlooker problem.
d. deadweight loss problem.
In Atlanta, tickets for professional and college football games are substitutes. An
increase in the ticket price for professional football, other things being equal, will
a. increase the demand for college football tickets.
b. decrease the demand for college football tickets.
c. not change the demand for college football tickets.
d. decrease the demand for professional football games.
In which of the following cases will the total spending on a good decrease?
a. Demand is inelastic, and price increases.
b. Demand is elastic, and price increases.
c. Demand is elastic, and price decreases.
d. Demand is of unit elasticity, and price decreases.
Within the framework of the AS/AD model, which of the following is a true statement
regarding short-run aggregate supply?
a. An increase in prices temporarily improves profit margins because important
components of costs are fixed in the short run.
b. An increase in prices leads to higher interest rates, which temporarily improves profit
margins.
c. An increase in prices leads to an expansion in the money supply, which stimulates
additional output.
d. An increase in prices increases real wage rates and thereby expands the size of the
economy’s resource base.
When the marginal cost of a price-taker firm is more than the market price of its
product, the firm should
a. expand output.
b. reduce output.
c. maintain output.
d. charge more than the market price.
Suppose you are the manager of a local water company, and you are instructed to get
consumers to reduce their water consumption by 10 percent. If the price elasticity of
demand for water is .25, by how much would you have to raise the price of water?
a. 10 percent
b. 25 percent
c. 40 percent
d. 100 percent
How would a decrease in the price of the feed grains used to feed cattle affect the
market for beef?
a. The demand for beef would increase, increasing beef prices.
b. The demand for beef would decrease, decreasing beef prices.
c. The supply of beef would increase, decreasing beef prices.
d. The supply of beef would decrease, increasing beef prices.
Use the figure to answer the following question(s).
Figure 11-13
Using Figure 11-13, determine the maximum joint monthly profit of the firms if they
operate as a cartel.
a. zero
b. $1,500
c. $3,000
d. $4,500
Suppose both the equilibrium price and quantity fall for a particular product. Which of
the following best explains this situation?
a. Supply and demand simultaneously increased and the shift in supply was greater than
the shift in demand.
b. Supply and demand simultaneously increased and the shift in supply was less than
the shift in demand.
c. Supply and demand simultaneously decreased and the shift in supply was greater
than the shift in demand.
d. Supply and demand simultaneously decreased and the shift in supply was less than
the shift in demand.
The opportunity cost of an action is
a. objective and will be the same for all individuals.
b. a measure of the undesirable aspects involved in the action.
c. applicable only to choices involving material goods like commodities.
d. the highest valued alternative forgone as the result of choosing an option.
According to the law of supply,
a. more of a good is desired by consumers as the price falls.
b. less of a good is desired by consumers as the price rises.
c. more of a good will be offered by suppliers as the price rises.
d. less of a good will be offered by suppliers as the price rises.
The Invisible Hand Principle suggests that
a. market prices direct individuals to produce more goods.
b. individuals pursuing their own interests detract from the economic well-being of
society.
c. there should be stronger governmental initiatives to ensure cooperation for the
betterment of society.
d. market forces tend to channel the actions of self-interested individuals into activities
that promote the general betterment of society.
Which of the following is a true statement?
a. A price-taker firm can sell additional units of output without having to lower its price,
while a price-searcher firm must lower its price in order to sell additional units.
b. A price-searcher firm can sell additional units of output without having to lower its
price, while a price-taker firm must lower its price in order to sell additional units.
c. Both price searchers and price takers can sell additional units of output without
having to lower their price.
d. Both price searchers and price takers must lower their price in order to sell additional
units of output.
The actual burden of a tax is determined primarily by
a. the elasticities of demand and supply.
b. the legal (or statutory) assignment of the tax.
c. the number of exchanges that are eliminated from the market as a result of the tax.
d. none of the above.
In a market economy, which of the following is most important if one is going to
achieve high earnings?
a. willingness to do hard physical work.
b. providing goods and/or services that others value highly.
c. performing an important social function, like teaching.
d. having a membership in a labor union.
The strategy underlying price discrimination is to
a. charge higher prices to customers who have better access to substitutes.
b. charge everyone the same price but limit the quantity they are allowed to buy.
c. increase total revenue by charging higher prices to those with the most inelastic
demand for the product and lower prices to those with the most elastic demand.
d. reduce per-unit cost to the firm by charging higher prices to those with the most
inelastic demand and lower prices to those with the most elastic demand.
Which of the following provides the bulk of revenue for the federal government?
a. corporate income taxes and grants from state and local governments
b. personal income and payroll taxes
c. user charges and funds borrowed from the general public
d. corporate income and sales taxes
Within the framework of the AD/AS model, in the long run, output
a. will exceed the economy’s long-run capacity.
b. will be less than the economy’s long-run capacity.
c. will converge toward the economy’s long-run capacity.
d. must equal approximately 95 percent of the economy’s long-run capacity.
The distinction between discretionary fiscal policy and the use of automatic stabilizers
is that
a. only discretionary fiscal policy can stimulate the economy.
b. only automatic stabilizers can stimulate the economy.
c. discretionary fiscal policy, once adopted, is built into the structure of the economy.
d. automatic stabilizers, once adopted, are built into the structure of the economy.
Figure 4-5
Figure 4-5 represents the market for gasoline before and after a per-gallon tax. What
does the triangular area ABC represent?
a. the amount of revenue raised due to imposing the tax
b. the loss in consumer surplus due to imposing the tax
c. the loss in producer surplus due to imposing the tax
d. the deadweight loss (or excess burden) caused by the tax
When an economist says a firm is earning zero economic profit, this implies that the
firm
a. will be forced out of business in the near future unless market conditions change.
b. is earning a zero rate of return on its assets.
c. is earning as high a rate of return now as could be earned in other industries.
d. has an accounting profit of zero.
Which of the following events will increase GDP?
a. losing $500 playing blackjack in your dorm
b. selling an antique writing desk for $500 cash
c. a burglar stealing your CD player
d. the police department hiring an extra detective to track down the burglar who stole
your CD player
The major determinant of an individual’s income is
a. whether or not his family is wealthy.
b. his personality-if the coworkers and the boss like him.
c. how productive he is combined with demand for what he produces.
d. if he earns a salary or if he is paid by the hour.
If the demand for a good is relatively inelastic, this means that consumer purchases of
the good are
a. not very sensitive to the price of the good.
b. highly sensitive to the price of the good.
c. unrelated to the price of the good.
d. unaffected by changes in the income level of consumers.