If a given value of x is associated with a particular value of y,
a. then x causes y
b. then y causes x
c. then x and y must be logically connected
d. there are no other variables that affect the value of y
e. there may be no causal relationship between x and y
Exhibit 1-16
Refer to Exhibit 1-16. Which graph illustrates a positive relationship between variable
X and variable Y initially but then a negative relationship?
a. a
b. b
c. c
d. d
e. e
Collusion is easier to achieve and maintain in oligopoly when
a. there are many firms in the industry
b. the firms’ products are homogeneous
c. the firms’ cost structures are very different
d. there are very weak barriers to entry
e. the industry is located in the United States
Suppose you want to get to Orlando, Florida, for the week-long spring break. You can
get there in two and one-half days by bus, and back in another two and one-half days.
This will cost you $20 round-trip. You can fly there and back in four hours each way.
This will cost $200. Which of the following is not true?
a. It may be economically rational for you to go by plane rather than by bus.
b. Depending on what else you can do that week, it may be economically rational for
you to not go at all rather than to go by bus.
c. The true cost of going to Orlando is either the time or the money you spend traveling,
whichever it is you value more.
d. The more you’d enjoy Orlando, the more economically rational it becomes for you to
fly there instead of taking the bus.
e. It is possible that it is rational for you to fly and rational for others to take the bus.
Exhibit 19-5
At a world price of $1.00 in Exhibit 19-5,
a. 20 units will be exported
b. 20 units will be imported
c. 50 units will be exported
d. 50 units will be imported
e. 10 units will be exported
For which of the following goods is the marginal benefit of search likely to be greatest?
a. a toaster
b. an apple
c. a radio
d. a tube of toothpaste
e. a color TV
If U.S. consumption falls short of U.S. production, the U.S. imports the difference.
a. True
b. False
Adverse selection is more likely when
a. a job requires specific training
b. a job requires intangible or unmeasurable abilities
c. the wage offered is above the average of all wages in the market
d. the wage is based on true marginal revenue products
e. performance can be monitored closely
Exhibit 10-17
Consider the situation depicted for the monopolistically competitive firm in Exhibit
10-17. What would you expect to happen in this market in the long-run?
a. exit of resources will occur and this firm’s demand curve will shift out leading to a
higher price
b. exit of resources will occur and this firm’s demand curve will shift out leading to a
lower price
c. nothing will happen the industry is in long-run equilibrium
d. entry of new resources will occur and this firm’s demand curve will shift in leading to
a lower price
e. entry of new resources will occur and this firm’s demand curve will shift in leading to
a higher price
When diminishing marginal returns set in, total product
a. is negative
b. decreases at an increasing rate
c. decreases at a decreasing rate
d. increases at an increasing rate
e. increases at a decreasing rate
A country’s balance of payments summarizes all economic transactions during a given
period between residents of that country and residents of other countries.
a. True
b. False
Suppose a basket of goods that costs $400 in the United States costs only 200 in Britain
and the current exchange rate is $1/pound. According to the purchasing power parity
theory, the equilibrium exchange rate should be higher than $1/pound. Why?
a. The basket could be purchased in Britain for 200 and sold in the United States for
$400, and the $400 could be used to purchase 400 for a 200 profit.
b. The basket could be purchased in Britain for 200 and sold in the United States for
$200, and the $200 could be used to buy 200, for a 500 profit.
c. The basket could be purchased in the United States for $400 and sold in Britain for
400, and the 400 could be used to buy $1,400, for a 1,000 profit.
d. The basket could be purchased in the United States for $200 and sold in Britain for
400, and the 400 could be used to buy $800, for a $400 profit.
e. The basket could be purchased in the United States for $200 and sold in Britain for
400, and the 400 could be used to buy $900, for a 500 profit.
iOn a graph of production costs, the vertical distance between the fixed cost curve and
the total cost curve at a specific quantity represents
a. variable cost
b. average variable cost
c. average total cost
d. average fixed cost
e. marginal cost
An increase in the price of gasoline will cause a reduction in the amount purchased is
an example of
a. a normative statement
b. an unprovable statement
c. a theorectical statement
d. a positive statement
e. an assumption
A firm’s demand for a resource is a(n)
a. final demand
b. derived demand
c. secondary demand
d. induced demand
e. marginal demand
Government controls of price, output, entry of new firms, and quality of service in
industries where monopoly appears desirable are known as
a. antitrust regulation
b. economic regulation
c. social regulation
d. antimerger regulation
e. consumer advocacy regulation
A perfectly elastic demand curve is
a. a vertical straight line
b. a horizontal straight line
c. a downward-sloping straight line
d. an upward-sloping straight line
e. not a straight line
To maximize profit in the long run, a firm must
a. charge the highest price possible
b. produce where demand is unit elastic
c. sell the most output possible
d. minimize the cost of producing any given amount of output
e. produce at minimum long-run total cost
A perpetuity is an annuity with a fixed term.
a. True
b. False
Many people argue against increasing the minimum wage because they believe the
result would be increased unemployment. Which of the following best summarizes this
argument? A higher minimum wage would
a. increase the supply of labor while decreasing the demand for labor
b. decrease the supply of labor while increasing the demand for labor
c. increase the quantity supplied of labor while decreasing the quantity demanded of
labor
d. decrease the quantity supplied of labor while increasing the quantity demanded of
labor
e. increase the supply of labor while decreasing the quantity demanded of labor
Resources are used only in the production of goods, not services.
a. True
b. False
If a manufacturer shuts down in the short run, it must be true that before the shutdown,
at all positive output levels,
a. average total cost was less than average variable cost
b. fixed cost was greater than total revenue
c. variable cost was greater than total revenue
d. profit was zero
e. total cost plus total revenue was less than profit
Exhibit 2-4
In Exhibit 2-4, if resources are used fully and efficiently, then the economy can produce
at point(s)
a. f
b. h, d, or e
c. a, b, or c
d. d or e
e. g, h, or i
A large number of businesses are organized as sole proprietorships because it is easy for
them to acquire large sums of financing.
a. True
b. False
Exhibit 4-15
Refer to exhibit 4-15. An increase in the price of baby formula will cause which of the
following to occur?
a. a movement from a to b on supply curve S1
b. supply shift from S2 to S1
c. a movement from d to c on supply curve S2
d. supply shift from S1 to S2
e. a movement from b to a on supply curve S1
Assume that a perfectly competitive constant-cost industry is in long-run equilibrium
when market demand suddenly decreases. Which of the following statements is
incorrect?
a. Existing firms will start to suffer short-run losses
b. Existing firms will shut down in the short run if average variable cost exceeds
average revenue at all output levels
c. Some firms will leave the industry in the long run
d. The market supply curve will shift to the right in the long run
e. Any short-run losses will be eliminated in the long run
There is much agreement among policy analysts and researchers that the 1996 welfare
reform has failed.
a. True
b. False
Exhibit 8-9
At the profit-maximizing output level, the firm represented in Exhibit 8-9 experiences
a. a loss of $3,200
b. a profit of $1,600
c. a profit of $1,200
d. zero profit or loss
e. a loss of $800
Which of the following is an example of an actual cartel?
a. the three largest cereal producers in the United States
b. General Motors, Ford, and Chrysler
c. the Organization of Petroleum Exporting Countries (OPEC)
d. the three major U.S. cigarette manufacturers
e. U.S. television networks — ABC, NBC, CBS, and Fox
The exchange rate is the
a. ratio of exports to imports
b. interest rate the U.S. government charges on international transactions
c. pricing policy of goods scheduled for export
d. price of one nation’s currency in terms of another nation’s currency
e. price that central banks charge each other for currency exchanges
The present value of a promise to pay $100 one year from now would be greater if the
interest rate were higher.
a. True
b. False
A country will import a good only if
a. there is excess domestic quantity supplied at the world price
b. domestic quantity supplied is greater than world quantity supplied
c. domestic quantity demanded is less than world quantity demanded
d. domestic quantity demanded is zero at the world price
e. excess quantity demanded is positive at the world price
If producers support proposed regulation of their industry, then
a. it is likely that consumers will benefit from the regulation
b. it is likely that producers are looking out for the interests of the consumers
c. it is likely that both producers and consumers will be adversely affected by the
legislation
d. it is possible that consumers will be adversely affected by the legislation
e. it is likely that prices will fall