Complete this sentence: in a market system income is generally earned
A) independently of acts of exchange and production.
B) arbitrarily and randomly.
C) unproductively.
D) in the process of its creation.
If total consumer expenditures (in dollars) for bus transportation were to increase when
the price of bus transportation was raised, the demand for bus transportation probably
A) had decreased.
B) had increased.
C) violated the law of demand.
D) was elastic.
E) was inelastic.
A clear effect of deregulating the airline industry has been to
A) eliminate price competition between airlines.
B) make fewer flights available at popular times.
C) raise average fares.
D) reduce airline safety.
E) reduce the average wage of pilots.
If property taxes were increased in a city, what would be the most likely effect on
residential rents after two or three months? They would probably
A) fall.
B) rise in proportion to taxes.
C) rise more than in proportion to taxes.
D) stay roughly unchanged.
Which confers a set of property rights?
A) A driver’s license
B) A land contract
C) A passing score on a C.P.A. exam
D) A successful election campaign
E) All of the above.
What is the more efficient choice: sending one’s child to John Q. Public High School at
zero dollar tuition or to Purebred Prep School at several thousand dollars a year?
A) High school, because it’s much cheaper.
B) Prep school, because it’s much higher in quality of instruction.
C) Prep school, because what matters most is not what you know, but who you know.
D) It depends on the decision makers’ own evaluations of cost and benefit.
Your authors say economists tend to
A) think outside the box.
B) think outside the bun.
C) think outside the mind.
D) think outside the theory.
E) think outside the facts.
Fill in the blanks: Holding the nominal interest rate constant, a ________ in the
expected rate of inflation tends to ________ the real interest rate.
A) rise; increase.
B) fall, decrease.
C) fall; increase.
D) rise; improve.
In the economic way of thinking, “scarcity” is another way of saying
A) “regret.”
B) “responsibility.”
C) “unsustainable.”
D) “sacrifice.”
E) “waste.”
People who are not employed and are not actively looking for work, because they are
fairly certain they could not find a satisfactory job, are counted by the BLS as
A) involuntarily employed.
B) neither employed nor unemployed.
C) unemployed members of the labor force.
D) voluntarily unemployed.
The supply of a good will tend to be highly elastic if
A) additional resources to produce the good can be obtained quickly and with no
increase in cost.
B) its price rises quickly and sharply when the demand increases.
C) the good has few close substitutes.
D) the good is generally classified as a luxury.
E) the good is generally classified as a necessity.
Recall from Chapter 5: Other things constant, when households lower their time
preferences, and demonstrate a willingness to postpone some present consumption for
future consumption,
A) their savings increase and interest rates rise.
B) their savings increase and interest rates fall.
C) the budget deficit increases and interest rates rise.
D) the budget deficit decreases and interest rates fall.
Which is the most likely effect upon the market for cotton of an increase in production
costs due to higher oil prices?
A) A decrease in demand and hence a decrease in both the price of cotton and the
quantity exchanged.
B) A decrease in supply and hence a decrease in both the price of cotton and the
quantity exchanged.
C) A decrease in supply and hence an increase in the price of cotton and a decrease in
the quantity exchanged.
D) A decrease in both supply and demand and hence a decrease in the quantity
exchanged but no predictable change in the price of cotton.
Pollution is a cost because it entails the sacrifice of valued opportunities
A) and because the process of creating it confers no benefits on the members of society.
B) for some people.
C) and reduces the net welfare of society.
D) which makes everyone worse off in the long run.
Sustained economic growth generally occurs when a nation
A) abandons the market system in favor of central economic planning.
B) abandons the rule of law in favor of a series of licenses, regulations, and tariffs to
control and protect the domestic economy.
C) subsidizes loss-generating enterprises and thereby preserves jobs and incomes.
D) creates conditions where people are free to specialize and exchange.
Fill in the blanks: Other things constant, a ________ in price will ________ the
________ for a good.
A) decrease; decrease; demand
B) decrease; increase; demand
C) decrease; increase; quantity demanded
D) decrease; decrease; quantity demanded
You and your roommate go to a Sunday brunch at the local restaurant. All you can eat
for $4.95. You enjoyed your meal. Your roommate didn’t care for it at all. Each of you
paid your bill in full. Who incurred a sunk cost?
A) Both you and your roommate
B) Only you
C) Only your roommate
D) Neither of you
Mrs. Wallace and Mrs. Jackson both signed up for 6 months (each incurred a $200 total
payment required in advance, and nonrefundable) at the local workout club. Wallace
enjoyed all 6 months. Jackson dropped out after three months due to other unexpected
commitments. Which of the following is true?
A) Wallace’s sunk cost was zero.
B) Jackson’s sunk cost was $100.
C) Jackson’s sunk cost was $200, and so was Wallace’s.
D) Wallace’s sunk cost was $100.
E) None of the above.
Which economy managed to eliminate economic profits and losses?
A) Socialist Cuba
B) Socialist China
C) Fascist Italy
D) Nazi Germany
E) None of the above.
From the perspective of the employer, which of the following might be a substitute for
unskilled labor?
A) Computers
B) Skilled labor
C) Tools
D) Electricity
E) All of the above.
Which of the following people came close to abolishing scarcity in their regions some
years ago?
A) Major Kwame Kilpatrick in Detroit
B) President Bill Clinton in the U.S
C) Governor Sarah Palin in Alaska
D) All of the above.
E) None of the above.
Fill in the blanks: Other things constant, ________ people will seek medical care when
the price of a doctor’s visit ________.
A) fewer; falls
B) more; falls
C) more; rises
D) no; rises.
Movie theaters usually set lower prices for children than for adults because
A) children can be served at lower costs.
B) they expect to make up the loss on the sale of refreshments.
C) they think the price elasticity of demand for movie tickets is quite elastic for children
at the regular or adult price.
D) they want to get young people into the habit of attending movies.
“Gasoline purchases were up 10% last week, even though gasoline prices were 6 cents
higher than the week before! You see, the law of demand does not hold for gasoline!”
What is being misunderstood in the above statement?
A) Nothing at all.
B) It implies the demand curve for gasoline is vertical.
C) It fails to recognize that the demand curve has shifted to the right.
D) It fails to hold constant all the other factors that influence demand.
Compared with price searchers’ markets, price takers’ markets are likely to result in
A) less advertising.
B) less competition.
C) lower output.
D) more profit.
Who gains from a law requiring people who want to enter the taxicab business to prove
they are thoroughly competent, honest, and reliable before they can obtain a license?
A) Local people who use taxicabs frequently and regularly
B) Local people who use taxicabs only occasionally
C) Out-of-town visitors who use taxicabs
D) Owners of taxicab licenses
E) Potential owners and operators of taxicabs who are members of minority races
What’s another word for “marginal”?
A) Inelastic
B) Sentimental
C) Incremental
D) Fundamental
E) Really mental
Consider the following simplified sequence of exchanges. A farmer sells wheat to a
miller, for 25 cents. The miller grinds the wheat into flour, and sells that to a baker, for
35 cents. The baker turns the flour into a loaf of bread, which she sells to a grocer for
60 cents. The grocer then sells you the loaf of bread for 85 cents. What can we
conclude?
A) Your purchase of the bread avoided the use of a middleman.
B) The grocer’s profit means you lost on the deal.
C) GDP increases by 25 cents.
D) GDP increases by 85 cents.
E) GDP increases by $2.05.
Assume foreign beer is a normal good. If the incomes of demanders decreases,
A) the demand for foreign beer will increase.
B) the quantity supplied of foreign beer will increase.
C) the market output of foreign beer will increase.
D) all of the above will occur.
E) none of the above will occur.
Land used for commercial Christmas trees can also produce pulpwood. Therefore, an
increase in the expected market price of Christmas trees tends to
A) reduce the demand for Christmas trees.
B) increase the supply of Christmas trees.
C) increase the cost of producing pulpwood.
D) decrease the cost of producing pulpwood.
When a good suddenly becomes more scarce in a free market, caused by a significant
increase in consumer demand, then
A) it is a clear sign that households have become more greedy.
B) the price will tend to rise rapidly in light of the greater scarcity.
C) suppliers will gain in the exchange and buyers will lose.
D) the law of demand will be contradicted because people will be buying more, not
less, at a higher price.
E) all of the above are true.
The cost-plus-markup theory is an inadequate explanation of relative prices because
A) it does not explain why there is a standard percentage markup in most industries.
B) it is too simple, and simple theories are rarely as useful as more complex theories.
C) the theory is inconsistent with observable relationships between marginal costs and
prices.
D) people who actually set prices do not describe the process as cost-plus.
If a producer can sell each and every unit he can possibly produce for $10 each, then
A) he is a price taker.
B) the demand for his product is infinitely elastic.
C) his marginal revenue curve is a horizontal line at $10.
D) all of the above are true.
A commercial bakery makes white bread and wheat bread. Therefore, a decrease in the
market price of white bread tends to
A) increase the demand for wheat bread.
B) increase the demand for white bread.
C) increase the baker’s cost of making wheat bread.
D) decrease the baker’s cost of making wheat bread.
Suppose the Fed buys $1 billion worth of bonds and the required reserve ratio is 10%.
In the theoretical limit, the money supply could
A) decrease by $1 billion.
B) increase by $1 billion.
C) decrease by $10 billion.
D) increase by $10 billion.