Assume a certain competitive price-taker firm is producing Q = 1,000 units of output.
At Q = 1,000, the firm’s marginal cost equals $15 and its average total cost equals $11.
The firm sells its output for $12 per unit. At Q = 1,000, the firm’s profit amounts to
a. $200.
b. $1,000.
c. $3,000.
d. $4,000.
A competitive price-searcher market is best described as
a. many firms with some control over price, and some product differentiation.
b. many firms with no control over price, producing identical products.
c. a few firms with some control over price, producing highly differentiated products.
d. a few firms with no control over price, producing similar products.
e. a single firm producing all of the output for the industry, with strong control over
price.
A shortage occurs whenever
a. quantity demanded exceeds quantity supplied at the equilibrium price.
b. price is less than equilibrium price.
c. quantity demanded is less than quantity supplied.
d. goods are scarce.
e. some of the people who need the product are not willing and able to buy it at the
equilibrium price.
The increase in total output that results from a unit increase in the employment of a
variable input is equal to the input’s
a. total product.
b. marginal product.
c. average product.
d. marginal cost.
By 2030, the number of workers per Social Security beneficiary will be approximately
a. two.
b. three.
c. four.
d. six.
During a period of persistent inflation,
a. borrowers will systematically gain at the expense of lenders.
b. nominal interest rates will rise and eventually reflect the expected rate of inflation.
c. once borrowers and lenders fully anticipate the inflation rate, there is no reason to
expect that either will systematically gain relative to the other.
d. both b and c are correct.
Suppose the Fed purchases $100 million of U.S. securities from the public. If the
reserve requirement is 20 percent, the currency holdings of the public are unchanged,
and banks have zero excess reserves both before and after the transaction, the total
impact on the money supply will be a
a. $100 million decrease in the money supply.
b. $100 million increase in the money supply.
c. $200 million increase in the money supply.
d. $500 million increase in the money supply.
If the expected inflation rate is 3 percent and banks charge a 10 percent money rate of
interest, the real rate of interest is
a. 3 percent.
b. 7 percent.
c. 10 percent.
d. 17 percent.
These two countries adopted reforms that liberalized their economies during the 1960s
and they eventually became two of the world’s freest economies. The two economies
are
a. Russia and India.
b. Nigeria and Zimbabwe
c. Hong Kong and Singapore
d. Brazil and Venezuela
The market for a competitive price-taker market clears at a price of $3, and the
minimum average cost for all firms is $2.50. In the long run, we would expect an
increase in
a. each firm’s output.
b. the number of firms.
c. each firm’s profit.
d. each firm’s average cost.
When the output of an economy exceeds the economy’s full-employment capacity,
a. aggregate supply will increase until the economy can produce the output at the
existing price level.
b. the actual rate of unemployment will be less than the natural rate.
c. wage rates and resource prices will tend to fall.
d. interest rates will decline and help direct the economy back to full employment.
If Olivia’s income increases from $40,000 to $50,000 and her tax liability increases
from $6,000 to $9,000, which of the following is true?
a. Her marginal tax rate is 18 percent in this range.
b. Her marginal tax rate is 30 percent in this range.
c. Her average tax rate was 22.5 percent when her income was $40,000.
d. The tax structure must be regressive in the range between $40,000 and $50,000.
Figure 3-17
Refer to Figure 3-17. When the price is P1, consumer surplus is
a. A.
b. A + B.
c. A + B + C.
d. A + B + D.
Activists and nonactivists both believe that
a. the self-corrective mechanism of a market economy works quite well.
b. macro-policy should seek to minimize economic fluctuations, keep the inflation rate
low, and establish an environment consistent with strong economic growth.
c. discretionary monetary and fiscal policy can be used successfully to speed the
adjustment process and reduce the swings of the business cycle.
d. policies that stimulate aggregate demand can reduce the long-term rate of
unemployment.
When the spending of consumers, businesses, government, and foreigners (net exports)
is less than the current level of output, Keynesian analysis indicates that
a. the economy’s output will fall short of its potential.
b. prices will rise.
c. equilibrium real GDP will increase.
d. inventories will decline.
People living in different countries can benefit from international trade because
a. different countries use different currencies.
b. trade makes it possible for the residents of different countries to specialize in the
production of those things they do best.
c. trade makes it possible for people to acquire goods from foreigners cheaper than they
could be produced domestically.
d. both b and c are correct.
e. all of the above are correct.
The difference between the amount consumers would be willing to pay and the amount
they actually pay for a good is called
a. price elasticity of demand.
b. consumer surplus.
c. the substitution effect.
d. income elasticity of demand.
The fraction that banks must, by law, hold as reserves against the checking deposits of
their customers is called the
a. federal deposit insurance premium.
b. vault cash quota.
c. excess reserve requirement.
d. required reserve ratio.
Use the figure to answer the following question(s).
Figure 9-7
When the market price in Figure 9-7 is $4, the firm’s maximum weekly profit will be
approximately
a. zero.
b. $40.
c. $6,000.
d. $40,000.
Which of the following accurately indicates how the recent outbreaks of terrorism have
influenced the GDP of western nations?
a. Additional expenditures on security designed to protect individuals from terrorist
attacks are subtracted from GDP.
b. Additional expenditures on security designed to protect individuals from terrorist
attacks are added to GDP as part of output.
c. Since expenditures on the prevention of terrorism do not contribute to the well-being
of individuals, they exert no impact on GDP.
d. Since terrorism is merely a redistribution of output, expenditures on the prevention of
terrorism do not contribute to GDP.
As the present value of the future earnings from owning an asset ____, the market value
of the asset ____.
a. decreases; increases
b. increases; decreases
c. increases; increases
d. increases; is uncertain
Which of the following is part of the synthesis view of fiscal policy?
a. Automatic stabilizers offset some of the fluctuations in aggregate demand without
any government action.
b. Fiscal policy is much less potent than the early Keynesian view implied.
c. The effectiveness of discretionary fiscal policy as a stabilization tool is highly
questionable given the difficulties in proper timing.
d. All of the above are correct.
e. None of the above is correct.
Which of the following is true?
a. Taxes and transfers generally increase the income share of the bottom quintile of
income recipients, while reducing the share of the top group of earners.
b. In a market economy, the distribution of income is determined by the quantity and
value of the resources supplied by the various individuals, and nearly half the value of
resources owned by the rich was inherited.
c. Between 1980 and 2009, the income share received by the highest quintile of earners
fell, while the share received by the bottom quintile of earners rose.
d. All of the above are true.
Analysis of the Great Depression indicates that
a. even though monetary and fiscal policies were highly expansionary, they were unable
to offset the economic plunge.
b. even though monetary policy was expansionary, restrictive fiscal policy dominated
during the 1930s.
c. a reduction in tax rates could not prevent the economic downturn from spiraling into
a depression.
d. the severity of the economic decline, if not its onset, was the result of perverse
monetary, fiscal and regulatory policies.
The term pork-barrel legislation refers to
a. government spending programs financed with user charges.
b. the exchange between legislators of their votes on issues.
c. legislation that bundles together a number of projects, each benefiting local interests
at the expense of general taxpayers.
d. the actions of legislators who are willing to trade their political votes for campaign
contributions from special interest groups.
Open-market purchases by the Fed make the money supply
a. increase, which tends to increase the value of money.
b. increase, which tends to decrease the value of money.
c. decrease, which tends to decrease the value of money.
d. decrease, which tends to increase the value of money.
In competitive price-taker markets, if one firm raises its price,
a. others will follow
b. that firm will increase its revenues
c. that firm will lose revenues because other firms will not follow
d. all consumers will be adversely affected
e. the market demand curve will shift
Suppose a country attempts to be self-sufficient and doesn”t trade with any other
countries. From an economic perspective, citizens of this nation can be expected to
a. gain materially from this policy because they can consume more goods over time
than if they engaged in trade with foreigners.
b. produce less total value than they could if they specialized and engaged in trade with
other nations.
c. gain from more rapid growth since home markets are reserved for home producers.
d. be just as well off without trade since the value of what is sent to other nations in
trade just equals the value of what is received in trade.
The motivating force behind an increase in supply in a long-run adjustment to
equilibrium is
a. lower prices.
b. economic profits that are present in the short run.
c. higher profit expectations among owners of firms in the industry, triggered by
increased prices.
d. normal profits witnessed by individuals outside the industry that trigger entry.
e. the decreases in average cost that can be obtained through economies of scale.
The market where firms purchase factors of production is referred to as the
a. product market.
b. resource market.
c. capital market.
d. foreign exchange market.
An important variable that is left out of economic models is
a. implicit costs.
b. excess profits.
c. entrepreneurship.
d. the opportunity cost of resources.
When resources are allocated politically, rent-seeking will
a. channel resources toward government programs that generate large benefits relative
to costs.
b. reduce GDP because it results in the wasteful use of resources.
c. lead to wasteful, rather than productive, use of resources.
d. improve the efficiency of resource use.
Relative to a competitive situation, if a market lacks competition, economic theory
suggests that
a. output will be lower and price higher.
b. output will be higher and price lower.
c. both output and price will be higher.
d. both output and price will be lower.
How will an unanticipated decrease in aggregate demand influence equilibrium output
in the goods and services market?
a. Output will increase, and the general level of prices will fall.
b. Output will increase, and the general level of prices will rise.
c. Output will decrease, and the general level of prices will rise.
d. Output will decrease, and the general level of prices will fall.
Which of the following would increase the incentive of healthcare consumers to
economize and help reduce the future growth of healthcare prices in the United States?
a. an increase in the share of healthcare costs paid for either directly or from personal
medical savings accounts
b. subsidies that would encourage consumers to purchase low co-payment insurance
plans
c. a new government program that would cover the cost of prescription drugs purchased
by all healthcare consumers
d. a reduction in the eligibility age for the coverage of Medicare from 65 to 55 years of
age