Retained earnings are sufficient to finance a firm’s rapid expansion in a high-growth
economy.
A monopolistically competitive industry that earns economic profits in the short run
will be able to expand its market share even if the market size remains constant.
In the highly competitive fast-food restaurant market, brand name restaurants have a
strong profit incentive to maintain high sanitary conditions and avoid any negative
consequences.
The Sarbanes-Oxley Act of 2002 requires that CEOs personally certify the accuracy of
financial reports.
Adoption of the euro as both a medium of exchange and unit of account in the EU
countries serves to increase competition among European firms and decrease individual
countries’ monetary policy options when confronted by recessions and booms.
The Fed has complete control over the money supply.
One effect of adverse selection in a market is that the equilibrium quantity of the
product may be smaller than it would have been if there were no information problems.
If the market wage rate increases, a firm’s labor demand curve does not shift but the
labor supply curve shifts to the right.
The marginal cost curve is U-shaped because of the law of increasing opportunity costs.
The additional benefit to a consumer from consuming one more unit of a good or
service is the marginal benefit.
If the market price is at equilibrium, the deadweight loss is maximized.
The income effect of a wage decrease examines the effect of the decrease in wage
income on a worker’s ability to purchase goods and services.
If the population increases and input prices decrease, the equilibrium quantity of a
product will definitely increase.
A vertical merger is one that takes place between two companies producing different
goods or services for one specific finished product.
Figure 3-4
At a price of $20, how many units will be supplied?
A) 400
B) 500
C) 600
D) 800
If the Fed raises its target for the federal fund rate, this indicates that
A) the Fed is pursuing an expansionary monetary policy.
B) the Fed is pursuing a contractionary monetary policy.
C) the Fed is attempting to combat deflation.
D) The Fed is concerned that the growth in aggregate demand is too slow to keep up
with potential GDP.
Table 4-5
The table above lists the highest prices five consumers are willing to pay for a concert
ticket. If the price of one of the tickets is $20,
A) everyone will buy a ticket except for Zachary.
B) only Violet and Walter will buy tickets.
C) Xavier’s consumer surplus is $50.
D) the total consumer surplus from the purchase of tickets will be $122.
If the government implements a price ceiling on insulin, this will
A) increase the price consumers will pay for insulin.
B) decrease the quantity of insulin the manufacturers will be willing to supply.
C) have to be set above the market equilibrium price to be effective.
D) encourage manufacturers to produce and sell more of insulin to increase their
profits.
Which of the following is not a reason why firms experience economies of scale?
A) Technology can make it possible to increase production with a smaller increase in at
least one input.
B) Workers and managers can become more specialized, enabling them to be more
productive.
C) Larger firms may be able to purchase inputs at lower costs than smaller competitors.
D) As output increases, the managers can begin to have difficulty coordinating the
operations of their firms.
The ratio at which a country can trade its exports for imports from other countries is
called
A) a trade barrier.
B) the terms of trade.
C) autarky.
D) a free trade agreement.
How does an increase in government spending affect the aggregate expenditure line?
A) It shifts the aggregate expenditure line upward.
B) It shifts the aggregate expenditure line downward.
C) It increases the slope of the aggregate expenditure line.
D) It decreases the slope of the aggregate expenditure line.
Figure 27-1
Suppose the economy is in short-run equilibrium above potential GDP and no policy is
pursued. Using the static AD–AS model in the figure above, this would be depicted as a
movement from
A) D to C.
B) A to E.
C) C to D.
D) C to B.
E) E to A.
The 1994 agreement that eliminated most tariffs among the United States, Canada, and
Mexico is known as
A) the Pacific Trade Association.
B) Trade Without Borders.
C) NAFTA.
D) the Western Trade Union.
Figure 13-4
Given the economy is at point A in year 1, what is the inflation rate between year 1 and
year 2?
A) 0.9%
B) 1.8%
C) 2.7%
D) 3.0%
A government budget surplus from reduced government spending (no change in net
taxes) will ________ the level of investment in the economy and ________ the level of
saving (private plus public) in the economy.
A) increase; decrease
B) increase; increase
C) decrease; increase
D) decrease; decrease
Economists James Buchanan and Gordon Tullock are well-known for developing
A) the impossibility theorem.
B) the voting paradox.
C) the public choice model.
D) the concept of government failure.
Figure 5-14
Figure 5-14 shows the market for aviation
security. Aviation security generates a positive externality because people who are not
airline passengers benefit from aviation security.
Answer the following questions.
a. In the absence of any government intervention what is the equilibrium level of
security that airlines will supply? Denote this level, Q*. Briefly explain why this
quantity is not the economically efficient level of aviation security.
b. In the diagram, illustrate the presence of positive externalities in the aviation security
market. Label any new curve that you draw.
c. On your diagram identify the economically efficient level of aviation security. Denote
this level Qe.
d. Explain how a government subsidy for the airlines can bring about the economically
efficient aviation security level. Be sure to identify the size of the subsidy.
Scenario 1-1
Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and
makes a profit of $5,000 per week. A manager at the plant observes, “Although the last
3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs
by $6,700, we are still making an overall profit of $5,000 per week so I think we’re on
the right track. We are producing the optimal number of cell phones.”
Using marginal analysis terminology, what is another economic term for the
incremental cost of producing the last 3,000 cell phones?
A) marginal cost
B) operating cost
C) explicit cost
D) Any of the above terms are correct.
Which of the following is not a reason why the wages of workers and the prices of
inputs rise more slowly than the prices of final goods and services?
A) Contracts make prices and wages ‘sticky.”
B) Firms are often slow to adjust wages.
C) Menu costs make some prices sticky.
D) Unions are successful in pushing up wages.
To evaluate the size of the federal budget deficit or surplus over time, it would be best
to look at the
A) absolute size of the budget deficit or surplus.
B) budget deficit or surplus as a percentage of GDP.
C) budget deficit or surplus as a percentage of tax revenues.
D) budget deficit or surplus as a percentage of government spending.
A perfectly competitive apple farm produces 1,000 bushels of apples at a total cost of
$36,000. The price of each bushel is $50. Calculate the firm’s short-run profit or loss.
A) loss of $14,000
B) profit of $14,000
C) profit of $50,000
D) There is insufficient information to answer the question.
In which types of business do owners have unlimited personal liability and in which do
owners have limited personal liability?
Explain two different ways to determine the profit-maximizing level of output for a
firm in a perfectly competitive market.
Explain how it would be possible for the equilibrium price and equilibrium quantity to
both increase in the market for motorcycles if consumer preference for motorcycles
increases and the number of motorcycle manufacturers decreases.
What is the difference between the terms “marketing” and “advertising”?
Figure 5-2 Figure 5-2 shows the
effect of a positive externality on the market for vaccinations. On the above graph,
identify the market equilibrium price and quantity, the efficient equilibrium price and
quantity, and the value of the deadweight loss resulting from too few people receiving
vaccinations.
When the actual inflation rate turns out to be greater than the expected inflation rate,
who gains – the borrower or the lender – and who loses? Explain why.
What factors would make you more sensitive or less sensitive to price when purchasing
gasoline?