The income effect of a price change refers to the change in the quantity demanded of a
good that results from a change in the price of a complementary product.
In the short run, if a firm shuts down, its maximum loss equals the amount of its fixed
cost.
Eliminating structural unemployment would be good for the economy.
When the demand for a product is less elastic than the supply, consumers pay the
majority of the tax on the product.
In the long run, the Fed may decrease the unemployment rate only if it is willing to
increase the rate of inflation.
Natural resource cartels such as OPEC are inherently unstable because their members
operate with excess capacity and have an incentive to cheat on their output quotas.
Unlike a perfectly competitive firm, a monopolistic competitor does not have a
short-run shutdown point.
In an open economy, the relationship between GDP (Y) and expenditures is Y = C + I +
G.
In the United States, health care spending as a percentage of GDP has declined since
1965.
Price ceilings result in shortages.
The success of Walt Disney’s animated film The Lion King in 1994, increased
production of animated films, increasing the demand for animators much faster than the
supply of animators was increasing. As a result, in the market for animators, the
equilibrium wage fell and the equilibrium quantity increased.
Table 9-8
Table 9-8 shows the output per week for bows and arrows by Ahmet and MyLinh. a.
Which person has an absolute advantage in the production of bows? arrows?
b. Which person has a comparative advantage in the production of bows?
c. Which person has a comparative advantage in the production of arrows?
Assume price exceeds average variable cost over the relevant range of demand. If a
monopolistically competitive firm is producing at an output where marginal revenue is
$23 and marginal cost is $19, then to maximize profits the firm should
A) continue to produce the same quantity.
B) increase output.
C) decrease output.
D) shut down.
In what year was the Bretton Woods system of currency exchange set up?
A) 1912
B) 1924
C) 1944
D) 1969
Table 8-30
Based on the table above, what is personal income for this economy?
A) $1,950 billion
B) $2,250 billion
C) $2,450 billion
D) $5,130 billion
Buying at a low price in one market and reselling at a higher price in another market
will
A) not generate any profit because of transportation costs.
B) not generate any profit because of transactions costs.
C) eventually eliminate all of the price differences.
D) eventually eliminate most, but not necessarily all, of the price differences.
If the central bank can act as a lender of last resort during a banking panic, banks can
A) call in their loans to their customers and eventually restore the public’s faith in the
banking system.
B) satisfy customer withdrawal needs and eventually restore the public’s faith in the
banking system.
C) borrow more and more money from the central bank, and this will lower its reserves
and decrease the public’s faith in the banking system.
D) encourage the public to borrow directly from the central bank, and this will worsen
the banking panic.
The formula for calculating the CPI is
A) (Expenditures in the current year/Expenditures in the base year) 100.
B) (Expenditures in the current year Expenditures in the base year)/100.
C) (Expenditures in the base year/Expenditures in the current year).
D) (Expenditures in the base year 100)/(Expenditures in the current year).
The federal funds rate is
A) the interest rate the Fed charges commercial banks.
B) the interest rate a bank charges its best customers.
C) the interest rate banks charge each other for overnight loans.
D) the interest rate on a Treasury Bill.
Personnel economics is
A) the study of the factors that determine wage rates.
B) the study of how workers are affected by tax law changes.
C) the application of economic analyses to human resource issues.
D) the application of economic analysis to the hiring decision.
If firms in a monopolistically competitive industry are making profits in the short run,
A) barriers to entry will be erected to keep out rivals.
B) some firms will ultimately exit the industry.
C) they will resort to advertising wars to help sustain these profits.
D) new firms will enter the market.
Figure 19-1
Which of the following would cause the change depicted in the figure above?
A) European productivity rises relative to American productivity.
B) Americans decrease their preferences for goods produced in the EU relative to
American goods.
C) The European Union increases its quotas on German wristwatches.
D) The price level of goods produced in the EU increases relative to the price level of
goods produced in the United States.
Figure 24-2
Ceteris paribus, a decrease in the price level would be represented by a movement from
A) SRAS1 to SRAS2.
B) SRAS2 to SRAS1.
C) point A to point B.
D) point B to point A.
Figure 2-8 Figure 2-8 above shows the production
possibilities frontier for Vidalia, a nation that produces two goods, roses and orchids.
Suppose Vidalia is currently producing 120 dozen roses per period. How many orchids
is it also producing, assuming that resources are fully utilized?
A) 20 dozen orchids
B) 32 dozen orchids
C) 44 dozen orchids
D) 68 dozen orchids
The following equations represent the demand and supply for bird feeders.
QD = 35 – P
QS = -5 + 3P What is the equilibrium price (P) and quantity (Q – in thousands) of bird
feeders?
A) P = $10; Q = 25 thousand
B) P = $35; Q = 20 thousand
C) P = $20; Q = 20 thousand
D) P = $5; Q = 30 thousand
The real power within the Federal Reserve lies with the
A) Federal Reserve District banks.
B) Board of Governors.
C) Council of Economic Advisors.
D) Council of Monetary Advisors.
What factors increase potential GDP? Include a definition of potential GDP in your
answer.
What is the Difference between explicit and implicit costs?
What are the three most important variables that cause the market supply curve of labor
to shift?
Figure 14-8
Use the decision tree to determine whether Microsoft should deter Toshiba from
entering the market for electronic book readers (e-readers). Assume that each firm must
earn a 20% return on investment to break even. Explain Microsoft’s decision process.
Every society faces trade-offs. Explain the concept of trade-offs.
In equilibrium, what determines the price of capital and what determines the price of
natural resources?