Which of the following is NOT an example of an activity with external benefits?
A. Eating a sandwich in the dining hall
B. Planting flowers in your front yard
C. Attending class when you have the flu
D. Having your car’s faulty exhaust system repaired
If the market equilibrium quantity is greater than the socially optimal quantity, one can
infer that:
A. the private supply curve for the activity is to the left of the socially optimal supply
curve.
B. the private demand curve for the activity is below the socially optimal demand.
C. there is a positive externality associated with this good.
D. there is a negative externality associated with this good.
As the real interest rate decreases, the quantity of saving supplied ______ and the
quantity of saving demanded ____.
A. increases; increases
B. increases; decreases
C. does not change; does not change
D. decreases; increases
The CPI in 1931 equaled 0.15. The CPI in 1932 equaled 0.14. The rate of inflation
between 1931 and 1932 was ______ percent.
A. -7.1
B. -6.7
C. 1.4
D. 6.7
The Hatfields and the McCoys both earn $50,000 per year in real terms in the labor
market, and both families are able to earn a 5% real interest rate on their savings. In the
year 2000, both families began to save. The Hatfields saved 8% of their income each
year; the McCoys saved 10%. In 2000, the Hatfields consumed ______ more than the
McCoys; in 2001, the Hatfields consumed ______ than the McCoys.
A. $1,000; $139 more
B. $2,000; $139 more
C. $1,000; $139 less
D. $2,000; $139 less
This graph shows one consumer’s demand for ice cream at the student union:
When price is $2 per scoop, each student’s consumer surplus is determined by
A. the difference between maximum willingness to pay of $4.50 and $2, or $2.50.
B. the area of the triangle of dimension ($4.50 – $2.00) high and 6 long = $7.50.
C. the difference between each student’s maximum price of $4.50 and $2 times the
number of scoops, or $2.50 times 6 = $15.
D. The area of the triangle of dimension $4.50 high and 8 long = $18.
Refer to the figure above. Suppose that the economy is initially in equilibrium with
output Y2 and inflation rate of π3. An increase in military spending will:
A. shift AD from AD2 to AD1.
B. shift AD from AD1 to AD2.
C. shift AS from AS2 to AS1.
D. shift AS from AS1 to AS2.
If a demand curve is the line defined by P = $5, the absolute value of the price elasticity
of demand is:
A. 5.
B. 0.2.
C. 0.
D. infinity.
When actual output exceeds potential output there is ____ output gap and the rate of
inflation will tend to ____.
A. an expansionary; increase
B. an expansionary; decrease
C. no; remain the same
D. a recessionary; increase
First-dollar insurance coverage means that
A. most of the insured’s expenses are covered.
B. some of the insured’s expenses are covered.
C. all of the insured’s expenses are covered.
D. the first 10% of the insured’s expenses are covered.
Compared to older workers, younger workers change jobs more frequently, so they are
more prone to ______ unemployment and have fewer skills, so they are more prone to
______ unemployment.
A. cyclical; frictional
B. frictional; structural
C. structural; frictional
D. frictional; cyclical
The prisoner’s dilemma refers to games in which:
A. neither player has a dominant strategy.
B. one player has a dominant strategy and the other does not.
C. both players have a dominant strategy which results in a lower payoff than they
would earn if they play their dominated strategies.
D. both players have a dominant strategy which results in the largest possible payoff.
U.S. productivity growth has rebounded since 1995 largely as a result of:
A. increases in human capital.
B. discoveries of new natural resources.
C. increased political stability.
D. advances in information and communication technology.
The table below shows the payoff matrix in the form of short term profits for two firms,
A and B, for two different strategies, investing in new capital or not investing in new
capital. Payoffs are in millions of dollars.
Refer to the figure above. An industrial spy comes to firm B and offers to pay B in
exchange for B’s certain and enforceable promise to not invest. How much must the spy
pay B?
A. $0.
B. At least $15 million.
C. At least $35 million.
D. At least $50 million.
Refer to the figure above. In the country whose PPC is shown, it must be true that:
A. the resources are better at herding cattle than at making movies.
B. the resources are better at making movies than at herding cattle.
C. some resources are better at herding cattle and some residents are better at making
movies.
D. this country has a comparative advantage in cattle herding.
Explicit costs:
A. are the only costs that matter to business owners.
B. usually exceed implicit costs.
C. are difficult to measure.
D. appear on the firm’s balance sheet.
Financial markets pay close attention to changes in the federal funds rate because these
changes:
A. directly affect a large volume of loans.
B. indicate the Fed’s plans for monetary policy.
C. indicate commercial bank lending policies.
D. directly affect the interest payments on the national debt.
Refer to the figure above. If this monopolistic firm’s marginal cost is constant at $30, its
profit maximizing output is:
A. 50 units.
B. 40 units.
C. 20 units.
D. 30 units.
When the expected value of searching increases,
A. fewer searches occur.
B. the number of searches does not change.
C. more searches occur.
D. the cost of searching falls.
Suppose that there is not enough parking at an urban university. Sometimes students
come to campus, spend a few minutes searching for a parking spot, and then decide that
going to class isn’t worth the effort of continuing to search for a spot and go home.
Assume that all professors give midterm exams on the same day. You would expect the
optimal time spent searching for a parking space on that day to __________ because
__________.
A. decrease; the marginal costs are higher.
B. increase; the marginal costs are lower.
C. increase; the marginal benefits are higher.
D. decrease; the marginal costs are lower.
An economic naturalist is described as someone who:
A. uses economic arguments to protect forests and wetlands from development.
B. has a natural talent for drawing graphs.
C. applies economic insights to everyday life.
D. studies the process of natural selection in a marginal cost and marginal benefit
framework.
If a product has lots of substitutes:
A. its income elasticity will be high.
B. its price elasticity of demand will be low.
C. the cross-price elasticity among those substitutes will be negative.
D. the cross-price elasticity among those substitutes will be positive.
Which of the following expenditures would increase the consumption component of
U.S. GDP?
A. You buy a new house.
B. You buy a pizza.
C. You buy 1,000 shares of stock.
D. You buy a used book about finance.
The seller of an existing house claims it is in great shape, the major systems (AC,
heating, water) are in good order, and he is offering a 2 year warranty on the house. His
statements about the quality of his house are
A. credible even in the absence of a warranty.
B. overstated.
C. likely to be true because the warranty is costly to fake.
D. likely to be untrue otherwise he would not offer the warranty.
P-TV and QRS-TV are planning their fall line-up. Suppose that sit-coms are more
popular than reality shows, and so generate more advertising revenue than do reality
shows, but they are more expensive to produce since real actors must be hired. In the
following decision tree, QRS-TV announces its decision first and P-TV observes that
choice before it decides whether to air a sit-com in the same time slot or a reality show.
Both stations know all of the information shown in this diagram when they make their
decisions.
Refer to the information above. Given the information in this decision tree, this season
programming in this time slot on QRS-TV and P-TV will be:
A. only reality shows.
B. only sit-coms.
C. a sit-com on QRS-TV and a reality show on P-TV.
D. a reality show on QRS-TV and a sit-com on P-TV.
You have found data that indicates that the income elasticity of demand for generic
(unbranded) shampoo is -0.7. You conclude that generic shampoo:
A. is a normal good.
B. has inelastic demand.
C. is not in equilibrium.
D. is an inferior good.
Curly is offered the following gamble: a 25% chance of winning $1,500 and a 75%
chance of losing $500. This gamble is a(n)
A. fair gamble.
B. unfair gamble.
C. almost fair gamble.
D. better than fair gamble.
The very small city of Pleasantville is considering building a public swimming pool that
costs $1,000. The table shows the five voters in the city and their marginal benefit of a
swimming pool. It takes a 4/5 majority to pass any tax measure and all voters must
vote.
Fran proposes that the city build the pool and finance it with a $200 tax from each
voter. The outcome of this proposal will be __________ votes in favor and __________
votes opposed and the measure will __________.
A. 5; 0; pass
B. 4; 1; pass
C. 2; 3; fail
D. 3; 2; fail
If 50 percent of the population in a country is employed and average labor productivity
equals $30,000, then real GDP per person equals:
A. $15,000.
B. $30,000.
C. $50,000.
D. $60,000.
If the nominal interest rate is below the equilibrium value, then the quantity demanded
of money is ______ than the quantity supplied of money, bond prices will ____, and the
nominal interest rate will ____.
A. greater; fall; increase
B. greater; fall; decrease
C. greater; rise; increase
D. less; fall; increase
Economic models claim to be:
A. reasonable abstractions of how people make choices, highlighting the most
important factors.
B. exact replications of the decision-making process people use.
C. interesting chalkboard exercises with little applicability to the real world.
D. exceptionally accurate methods of predicting nearly all behavior of everyone.