Suppose an economist claims there are substitutes for wetlands. The person is saying
A) wetlands are of no value.
B) wetlands are worth less than their substitutes.
C) there is a cost to maintaining a wetland.
D) there is a cost to maintaining a wetland, and it is necessarily too high.
E) economists don’t like wetlands.
Most businesses probably claim they use cost-plus-markup pricing because
A) they are price takers.
B) they are maximizing net revenue.
C) they have no better way to explain their price-setting behavior.
D) they are responsible for long-run inflation.
If the U.S. government can run chronic budget deficits, why can’t state governments do
the same?
A) Conservatives have more power in state legislatures than in the U.S. Congress.
B) Voters do not believe in budget deficits and they control state governments.
C) Most states have no income tax.
D) State constitutions require balanced budgets.
E) States must rely on taxation for the funds to repay creditors.
Colleges offer tuition scholarships even when they are running budget deficits because
colleges
A) are public service institutions.
B) can often earn additional net income by offering tuition scholarships.
C) hope to receive contributions later from the recipients of scholarships.
D) set tuition levels and establish scholarship policies without considering the monetary
advantages.
When firms in an industry are selling similar products, and they agree to share the
market,
A) each firm earns a profit even though marginal cost is greater than marginal revenue.
B) each firm secures a net revenue about as large as it would have received if it were
the only seller.
C) they try to keep each firm’s price above its marginal cost.
D) they tend to produce higher prices and larger output.
E) the agreement will enforce itself because none of the firms will have an interest in
triggering a competitive struggle.
An increased demand for the services of tax accountants
A) may raise their fees but cannot affect their costs.
B) may raise their fees by making it more costly for them to provide services to any
client.
C) will lead to fewer people using the services of tax accountants because higher prices
mean a smaller quantity demanded.
D) will lower their fees in the long run by producing more tax accountants.
The official decision in the U.S. as to whether and when a slowdown in the rate of
economic growth has become a recession is made by the
A) Bureau of Economic Analysis in the Department of Commerce.
B) Bureau of Labor Statistics.
C) Federal Reserve Board of Governors.
D) National Bureau of Economic Research, a private research organization.
The basic federal “antitrust” law prohibiting combinations in restraint of trade and
attempts to monopolize is the
A) Clayton Act.
B) Miller-Tydings Act.
C) Robinson-Patman Act.
D) Sherman Act.
E) Taft-Hartley Act.
If people expect to have the profits from correct decisions confiscated but do not expect
to be compensated for the losses from incorrect decisions, they will
A) attempt to maximize risk.
B) only make choices when the outcomes are absolutely certain.
C) try to do what most others are doing.
D) undertake longer-range projects more frequently.
Fill in the blanks: Hundreds of speculators conclude in May that the coming summer’s
corn crop will be much lower and that the November corn price will be consequently
much higher than most people expect. When they act on their beliefs in the futures
market, they would strive to ________ corn futures, which would tend to ________ the
price of corn futures.
A) sell; reduce
B) sell; raise
C) buy, reduce
D) buy; raise
According to the textbook, price discrimination is
A) illegal.
B) morally justified.
C) net-revenue maximizing.
D) unfair to the different groups of customers.
Because everybody lives under uncertainty, everybody is
A) less than perfectly informed.
B) ignorant of something.
C) a speculator.
D) all of the above.
E) none of the above.
The systemic costs and burdens that inflation imposes upon a society are almost entirely
the result of
A) government price controls.
B) inability to predict its rate and timing.
C) the fact that no one can ultimately gain from higher prices because everyone is a
consumer.
D) the lag between the rise of wage costs and the subsequent rise of prices.
E) the lag between the rise of prices and the subsequent rise of wages.
The opportunity cost of an action is
A) everything that makes an action possible.
B) the monetary payments that make an action possible.
C) the sum of the human efforts that contribute to an action.
D) the value of the next-best alternative that must be sacrificed to take the action.
Suppose firms in Hong Kong can produce 40,000 plastic dolls or 80,000 squirt guns
each week, while firms in Taiwan can produce 40,000 plastic dolls or 40,000 squirt
guns each week. Therefore
A) nobody has an incentive to specialize and exchange.
B) people in both countries have an incentive to specialize and exchange.
C) only people in Hong Kong have an incentive to specialize and exchange.
D) only people in Taiwan have an incentive to specialize and exchange.
A teenager plays his radio loudly at the beach. What can we conclude?
A) He creates a negative externality if it unintentionally annoys or upsets others.
B) He creates a positive externality if it unintentionally benefits others who enjoy the
same music.
C) He creates no externality, if others remain unaffected by the music.
D) All of the above.
A downward-sloping demand curve suggests that consumers
A) buy less at lower prices.
B) buy more at higher prices.
C) plan to buy more at a given, lower price.
D) ignore marginal benefits and only focus on the supply of a product.
Per capita GDP is simply GDP divided by
A) the population.
B) the price level.
C) the inflation rate.
D) the consumer price index.
E) none of the above.
Laura purchased a brand new Pontiac for $20,000. The moment she assumed
ownership, and drove it off the lot, its market value immediately fell to $17,500. Is the
$2,500 difference in value a sunk cost?
A) No.
B) Yes it is, but only if Laura regrets her decision to have purchased the new Pontiac.
C) Yes it is, but only if Laura receives no compensating benefit from the new Pontiac.
D) Yes it is, but only if Laura decided to immediately resell the car.
E) Yes it is, period.
Recalling from Chapter 5, fill in the blanks: Other things constant, when households
decide to save more, the supply of credit rises, interest rates ________ and business
investment ________.
A) rise; rises
B) rise; falls
C) fall; rises
D) fall; falls
The textbook authors claim
A) diabetics don’t need insulin.
B) diabetics don’t want insulin.
C) diabetics face no substitutes for insulin.
D) diabetics can’t find insulin at a fair price.
E) none of the above.
A mother of three who receives $600 a month in total welfare benefits if she is not
working, but who loses all those benefits and also pays 10 percent of her earnings to the
tax collector if she takes a job paying $1000 a month, is being taxed on her earnings at
an effective marginal rate of
A) 10 percent.
B) 30 percent.
C) 50 percent.
D) 70 percent.
According to your textbook authors, monetary calculation would improve if
A) the government subsidizes business production.
B) the Fed sought to establish monetary equilibrium.
C) Congress seeks to establish a budget surplus.
D) domestic producers are protected from foreign competition.
Anti-competitive policies are often enforced by government because the public seems
to think price cutting by large sellers
A) creates monopolies by reducing competition.
B) increases competition among sellers.
C) raises prices at the wholesale but not at the retail level.
D) reduces the elasticity of margins.
Copyrights, which grant special privileges to artists, musicians, and writers
A) destroy property rights.
B) expand property rights.
C) neither destroy nor expand property rights because they are part of the Bill of Rights.
D) both destroy and expand property rights.
Are the owners of taxicabs in New York City earning large profits because the city
severely restricts the number of licenses?
A) No, because the city also regulates fares.
B) No, because the cost of owning a license absorbs the potential profit.
C) Yes, because the number of licenses has not been increased for 50 years.
D) Yes, because if they were not the number of taxicabs would decline and profits
would rise.
E) We cannot tell because profit arises from uncertainty.
According to your textbook, what is the general rule to follow in order to maximize net
revenue?
A) Take any action if, but only if, the expected marginal revenue exceeds the expected
marginal cost.
B) Take any action you expect will not be copied by your competitors.
C) Take as many innovative actions as you can, and leave the copying up to smaller
firms in the market because they are least likely to increase their market share.
D) Charge the lowest possible price.
Suppose the price of coffee falls. Other things constant, what willnot happen?
A) People will consume more coffee.
B) People will consume more cream.
C) The demand for coffee will rise.
D) The demand for cream will fall.
E) More people will now consider drinking bottled water.
Suppose a whiskey maker advertises its whiskey as follows: “Whiskey that tastes
expensive and is expensive.” The manufacturer is assuming some customers who buy
whiskey
A) have a perfectly inelastic demand for whiskey.
B) have a relatively inelastic demand for whiskey.
C) want to impress their friends or associates.
D) will ignore the law of demand.
E) will purchase more at higher than at lower prices.
It is impossible to figure out the “true” or “final” cost of getting an education at public
schools because
A) no one has an incentive to keep accurate figures.
B) an education at any public school is in most, if not all cases, a free good.
C) an education is necessary.
D) things in themselves have no cost.
Citizen voters are typically ignorant of many political issues because
A) information is not a good.
B) information is only a free good.
C) information is a scarce good.
D) politicians have always conspired to keep voters misinformed.
Who among the following is the most likely to invest in human capital?
A) A person with a low rate of time preference
B) A person with a high rate of time preference
C) A person with no time preference
D) None of the above.
If the demand for a good is increasing while the supply curve remains unchanged, then
we will observe
A) more purchases at a higher price.
B) more purchases at a lower price.
C) fewer purchases at a higher price.
D) fewer purchases at a lower price.
Under the right circumstances, what resource can be used in the production of the skills
of a talented gymnast?
A) Baseball bats
B) Wheaties
C) Poetry books
D) Cigarettes
E) All of the above.