China began pegging its currency, the yuan, to the dollar in 1994. Because the yuan has
been ________ at the pegged exchange rate, the Chinese government ________ its
reserves of dollars as the government purchased more ________ to maintain the pegged
exchange rate.
A) undervalued; increased; dollars
B) undervalued; decreased; yuan
C) overvalued; decreased; yuan
D) overvalued; increased; yuan
Studies have shown that drinking one glass of red wine per day may help prevent heart
disease. Assume this is true, and favorable weather has increased the grape harvest of
California vineyards. In the market for red wine, these two developments would
A) increase demand and decrease supply, resulting in an increase in the equilibrium
quantity and a decrease in the equilibrium price of red wine.
B) increase demand and increase supply resulting in an increase in the equilibrium
quantity and an uncertain effect on the equilibrium price of red wine.
C) increase demand and increase supply, resulting in an increase in the equilibrium
price and an uncertain effect on the equilibrium quantity of red wine.
D) increase demand and increase supply, resulting in an increase in both the equilibrium
price and the equilibrium quantity of red wine.
Figure 14-5 A
few years ago Netflix (N) pioneered an online DVD rental service. Blockbuster (B), a
brick and mortar DVD/video rental company, waited until Netflix had been in business
for over a year before deciding whether to establish its own online rental service. At this
point, Netflix had to decide whether or not to lower its subscription price in order to
deter Blockbuster’s entry into the market. Figure 14-5 shows the decision tree for the
Netflix-Blockbuster entry game.
If Netflix lowers its price will this deter Blockbuster from setting up an online DVD
rental service?
A) Yes, because Blockbuster stands to lose $1 million if it competes with Netflix.
B) Yes, because Blockbuster will make a smaller profit than Netflix if it chooses to
compete.
C) No, because Blockbuster will make a profit if it competes with Netflix.
D) No, because Blockbuster will make a larger profit than Netflix if it chooses to
compete.
When the price level in the United States rises relative to the price level of other
countries, ________ will rise, ________ will fall, and ________ will fall.
A) imports; exports; net exports
B) exports; imports; net exports
C) net exports; exports; imports
D) net exports; imports; exports
Which of the following is a characteristic of stock?
A) Stock represents a promise to repay a fixed amount of funds.
B) The face value or principal plus interest is repaid at a specified period of time.
C) The length of coupon payments is fixed by the stated maturity period.
D) Stock represents ownership in a firm
When you buy previously-issued shares of Facebook stock, this transaction takes place
in the
A) primary market.
B) bond market.
C) secondary market.
D) bear market.
Some policymakers have argue that products like cigarettes, alcohol, and sweetened
soda generate negative externalities in consumption. If the government decided to
impose a tax on soda, the government will cause
A) consumers to internalize the externality.
B) producers to internalize the externality.
C) the external cost to drinking soda to become a private cost paid by the government.
D) the external cost to drinking soda to become a private cost paid by producers.
If a 5 percent increase in income leads to a 10 percent decrease in quantity demanded
for a product this product is
A) an income elastic good.
B) an inferior good.
C) a necessity.
D) a luxury good.
Figure 2-4 Figure 2-4 shows
various points on three different production possibilities frontiers for a nation. Consider
the following events:
a. a reduction in the patent protection period to no more than 2 years
b. a war that destroys a substantial portion of a nation’s capital stock
c. the lack of secure and enforceable property rights system Which of the events listed
above could cause a movement from W to V?
A) a only
B) a and b only
C) a and c only
D) b and c only
E) a, b, and c
Figure 3-7
Assume that the graphs in this figure represent the demand and supply curves for
potatoes and that steak and potatoes are complements. What panel describes what
happens in this market when the price of steak rises?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)
Which of the following is one explanation as to why the aggregate demand curve slopes
downward?
A) Decreases in the price level raise the interest rate and increase consumption
spending.
B) Decreases in the price level raise the interest rate and increase investment spending.
C) Decreases in the U.S. price level relative to the price level in other countries lower
net exports.
D) Decreases in the price level raise real wealth and increase consumption spending.
Table 2-4
The Fruit Farm produces only apples and pears. The table aboveshows the maximum
possible output combinations of the two fruits using all resources and currently
available technology. a. Graph The Fruit Farm’s production possibilities frontier. Put
apples on the horizontal axis and pears on the vertical axis. Be sure to identify the
output combination points on your diagram.
b. Suppose The Fruit Farm is currently producing at point D. What is the opportunity
cost of producing an additional 8,000 pounds of pears?
c. Suppose The Fruit Farm is currently producing at point D. What happens to the
opportunity cost of producing more and more pears? Does it increase, decrease or
remain constant? Explain your answer.
d. Suppose The Fruit Farm is currently producing at point G. What happens to the
opportunity cost of producing more and more apples? Does it increase, decrease or
remain constant? Explain your answer.
e. Suppose The Fruit Farm is plagued by the apple maggot infestation which destroys
apple trees but not pears. Show in a graph what happens to its PPF.
Figure 3-8
The graph in this figure illustrates an initial competitive equilibrium in the market for
apples at the intersection of D1 and S1 (point A). If there is a shortage of apples how
will the equilibrium point change?
A) The equilibrium point will move from A to B.
B) The equilibrium point will move from A to C.
C) There will be no change in the equilibrium point.
D) The equilibrium point will move from A to E.
The branch of economics which studies how households and firms interact in markets is
called
A) macroeconomics.
B) microeconomics.
C) positive economics.
D) normative economics.
Table 11-7
Table 11-7 shows cost data for Lotus Lanterns, a producer of whimsical night lights.
What is the variable cost of production when the firm produces 115 lanterns?
A) $1,556
B) $1,157
C) $956
D) $10.05
Table 9-7
Suppose that the data in the table above reflect price levels in the economy. What is the
inflation rate between 2012 and 2013?
A) 2.9%
B) 3.5%
C) 4.6%
D) 5%
E) 7.5%
Excess capacity is a characteristic of monopolistically competitive firms. What does
excess capacity mean?
A) It means that firms do not produce the output level that corresponds to the minimum
point on their average total cost curves.
B) It means that firms hire more than the minimum number of workers needed to
produce the profit-maximizing level of output.
C) It means that firms produce with inefficient combinations of resources.
D) It means that firms build plants that are not large enough to achieve minimum
efficient scale.