Entrepreneurs are people who:
A. engage exclusively in business travel.
B. entertain the workers.
C. run businesses on a day-to-day basis.
D. create new economic enterprises.
Early settlers in the town of Dry Gulch drilled wells to pump as much water as they
wanted from the single aquifer beneath the town. (An aquifer is an underground body of
water.) As more people settled in Dry Gulch, the aquifer level fell and new wells had to
be drilled deeper at higher cost. In Dry Gulch, the supply of water is:
A. perfectly inelastic.
B. perfectly elastic.
C. upward sloping.
D. downward sloping.
Consumer discrimination exists when consumers are willing to pay ______ for a good
or service produced by the favored group, even though the quality of the good or
service is ______.
A. more; better
B. less; the same
C. more; worse
D. more; the same
In order to promote growth through increased quantities of physical capital,
governments must promote:
A. a better educational system.
B. job training programs.
C. high rates of saving and investing.
D. funding for basic science.
Lunch in Jamie’s dorm is an all-you-can-eat buffet, served from 11 a.m. until 1 p.m. By
noon, the buffet is picked over, and by 12:30, there are very few popular items left. The
garbage bins, though, are full of food. If the cafeteria changed its policy so that students
had to pay for each item chosen, students would:
A. make the same selections as before, but eat more of what they select.
B. select only the most expensive items in the buffet.
C. encounter shortages earlier in the day.
D. only select an item if its marginal benefit is greater than or equal to its price.
Dent ‘n’ Scratch Used Cars and Trucks employs 3 salesmen. Data for their sales last
month are shown in this table:
Based on last month’s data, Joe’s opportunity cost of selling a car is ______ than
Ralph’s, and Joe’s opportunity cost of selling a car is ______ than Larry’s.
A. less; greater
B. greater; less
C. less; less
D. greater; greater
Any target value of the nominal interest rate chosen by the Federal Reserve implies a
specific value for ______.
A. potential output
B. the money supply
C. government purchases
D. the budget deficit
A banking panic is an episode in which:
A. depositors, spurred by news or rumors of possible bankruptcy of one bank, rush to
withdraw deposits from the banking system.
B. commercial banks, fearing Federal Reserve sanctions, unwillingly participate in
open-market operations.
C. commercial banks, concerned about high interest rates, rush to borrow at the Federal
Reserve discount rate.
D. depositors, afraid of increasing interest rates, attempt to engage in discount-window
borrowing at the Federal Reserve.
Earth Movers & Shakers operates 3 iron ore mines. The table below shows each mine’s
total daily production and the current number of miners at each mine. All miners work
for the same wage, and each miner in any given mine produces the same number of tons
per day as every other miner in that mine.
The opportunity cost of moving one miner from Middle Drift to another mine is:
A. 1 ton per day.
B. 3 tons per day.
C. 4 tons per day.
D. 5 tons per day.
Suppose the following information describes the economy:
Private saving equals ____; public saving equals ______; national saving equals ____.
A. 800; 200; 600
B. 800; 200; 1,000
C. 1,000; 800; 1,000
D. 1,500; 700; 2,700
This graph shows the marginal cost and marginal benefit associated with roadside litter
clean up. Assume that the marginal benefit curve and marginal cost curve each have
their usual slope.
The marginal cost of litter removal ______ due to ______.
A. decreases; gains from specialization
B. increases; the Coase Theorem
C. increases; increasing opportunity costs
D. decreases; diminishing returns to inputs
Working efficiently, Jordan can write 3 essays and outline 4 chapters each week. It must
be true that:
A. 6 essays and 0 chapter outlines would be unattainable.
B. 2 essays and 3 chapter outlines would be efficient.
C. 3 essays and 5 chapter outlines would be unattainable.
D. 4 essays and 3 chapter outlines would be both attainable and efficient.
Price discrimination means charging:
A. higher prices to women and minorities.
B. different prices for different products because production costs are different.
C. the same price to all buyers even if production costs are different.
D. different prices to different buyers for essentially the same good or service.
Suppose a firm uses workers and office space to produce output. The firm is locked into
a year-long lease on its office space, but it can easily vary the number of
employee-hours it uses each day. The table below describes the relationship between
the number of employee-hours the firm uses each day and the firm’s daily output. Each
unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space
is $50 per day.
When the firm uses 9 employee-hours, its total cost each day is:
A. $126
B. $64
C. $56
D. $176
If potential output for an economy equals $8 billion and actual output equals $7 billion,
then this economy’s output gap should be expressed as:
A. -$1 billion.
B. $1 billion.
C. 12.5 percent.
D. -12.5 percent.
The CPI in 1931 equaled 0.15. The CPI in 1932 equaled 0.14. The rate of inflation
between 1931 and 1932 was ______ percent.
A. -7.1
B. -6.7
C. 1.4
D. 6.7
The development of pay-per-view technology:
A. converted a collective good into a private good.
B. allows consumers to see movies that were previously unavailable for several years.
C. converted a pure public good into a collective good.
D. has made all consumers worse off.
The average tax rate is:
A. total taxes divided by total before-tax income.
B. the average tax rate divided by the total tax rate.
C. the amount taxes increase when before-tax income rises by an additional dollar.
D. the tax rate at which the benefit of an extra dollar of taxes equals the cost of an extra
dollar of taxes.
Suppose there are three power-generating plants, each of which has access to 5 different
production processes. The table below summarizes the cost of each production process
and the corresponding number of tons of smoke emitted each.
process
The least costly way of lowering smoke emissions from 12 tons to 9 tons per day would
be for:
A. each firm to reduce emissions by 1 ton, emitting 3 tons each.
B. Firm X to emit 2 tons, Firm Y to emit 3 tons and Firm Z to emit 4 tons.
C. Firm X to emit 4 tons, Firm Y to emit 3 tons and Firm Z to emit 2 tons.
D. Firm X to emit 1 ton, Firm Y to emit 4 tons and Firm Z to emit 4 tons.
A decrease in the capital gains tax on income made from new capital investment will:
A. shift the demand for investment curve to the left.
B. shift the demand for investment curve to the right.
C. shift the supply of saving curve to the left.
D. shift the supply of saving curve to the right.
There are 20 residents in the village of Towneburg. The size of the village’s annual
fireworks display depends upon the number of shells that are fired off. Each resident’s
demand for fireworks is shown below. The total cost of the fireworks display is $1,000
plus $10 per shell.
Collectively, the residents of Towneburg would be willing to pay ______ for the 24th
shell, and the marginal cost of the 24th shell is ______.
A. $20; $200
B. $20; $10
C. $40; $200
D. $40; $10
In a certain economy, the components of planned spending are given by:
C = 500 + 0.8(Y – T) – 300r
Ip = 200 – 400r
G = 200
NX = 10
T = 150
Given the information about the economy above, what would be the impact on
short-run equilibrium output of a one-percentage-point increase in the real interest rate,
assuming the income-expenditure multiplier equals 5?
A. Short-run equilibrium output would increase by 35 units.
B. Short-run equilibrium output would decrease by 700 units.
C. Short-run equilibrium output would decrease by 35 units.
D. Short-run equilibrium output would decrease by 7 units.
The following graph depicts demand.
The price elasticity of demand at point D is:
A. 5/2.
B. 1/2.
C. 2/5.
D. 2.
Earth Movers & Shakers operates 3 iron ore mines. The table below shows each mine’s
total daily production and the current number of miners at each mine. All miners work
for the same wage, and each miner in any given mine produces the same number of tons
per day as every other miner in that mine.
Suppose Earth Movers & Shakers needs to fill an order for 100 tons of ore in a single
day. If it has no other orders to fill that day, and it’s not possible to transfer miners from
one mine to another, it should:
A. take it all from Mother Lode.
B. take 75 tons from Middle Drift and 25 tons from Mother Lode.
C. take 75 tons from Middle Drift and 25 tons from Scraping Bottom.
D. take 30 tons from Scraping Bottom and 70 tons from Mother Lode.
Consider a police department trying to decide how to allocate its crime prevention
resources between motor vehicle thefts and burglaries. The marginal benefit of one less
motor vehicle theft is $20,000, and the marginal benefit of one less burglary is $1,000.
Suppose the annual number of motor vehicle thefts and the annual number of burglaries
depends on the number of detectives assigned to each type of crime, as shown in the
table below. Each detective costs $35,000 each per year, regardless of whether the
detective is assigned to motor vehicle thefts or burglaries.
Suppose the police department hires 4 detectives and assigns all of them to motor
vehicle theft. The marginal benefit of the fourth detective assigned to motor vehicle
theft is ______, and the marginal benefit that would have been gained had the detective
instead been assigned to burglary is ______.
A. $20,000; $40,000
B. $40,000; $40,000
C. $20,000; $20,000
D. $40,000; $20,000
Suppose that the equilibrium price of French fries rises while the equilibrium quantity
falls. The most consistent explanation for these observations is:
A. a decrease in demand for French fries with no change in supply.
B. an increase in demand for French fries with no change in supply.
C. an increase in the supply of French fries and an increase in the demand for French
fries.
D. a decrease in the supply of French fries with no change in demand.
When the price of hot dogs is $1.50 each, 500 hot dogs are sold every day. After the
price falls to $1.35 each, 510 hot dogs are sold every day. At the original price, what is
the price elasticity of demand for hot dogs?
A. 66.67
B. 5
C. 2
D. 0.2
Holding other factors constant, if Congress passes a 5% investment tax credit under
which a firm receives $5 in tax refunds from the government for every $100 it spends
on new capital equipment, then the real interest rate will ______ and the equilibrium
quantity of national saving and investment will _____.
A. increase; increase
B. increase; decrease
C. increase; not change
D. decrease; increase
Each of the following would decrease the supply of U.S. dollars, shifting the supply
curve for dollars to the left, except:
A. a decreased preference for foreign-made goods.
B. a decrease in U.S. real GDP.
C. a decrease in the real interest rate on foreign assets.
D. a depreciation of the U.S. dollar relative to other currencies.
If an automobile manufacturer pays $200 for a car windshield, $400 for four car tires,
$100 for a car CD player, and sells cars made with these parts for $20,000, then each
car the automobile manufacturer sells contributes how much to GDP?
A. $19,300
B. $20,000
C. $20,200
D. $20,700
Investment spending includes spending on:
A. consumer durable goods.
B. new capital goods.
C. services.
D. stocks and bonds.
Consider a town with three residents. The residents’ demand curves for various acres of
a public park are shown below.
The public’s willingness to pay for the 4th acre of parkland is:
A. $6.
B. $8.
C. $14.
D. $20.
Refer to the figure above. Demand for coffee last Monday is shown in bold and labeled
D(Monday). On Tuesday, the news featured a story about a storm that wiped out the
entire coffee crop in Brazil. On Wednesday:
A. the demand function remained at D(Monday), but the quantity demanded increased.
B. demand shifted to D(A) in anticipation of future price increases.
C. demand shifted to D(B) in anticipation of future price increases.
D. there would be no change in either the demand function or the quantity demanded
because not enough time had passed for the storm’s effects to be felt.