Suppose that the demand for lava lamps is elastic, and the supply of lava lamps is
inelastic. A tax of $2 per lamp levied on lava lamps will increase the price paid by
buyers of lava lamps by
a. less than $1.
b. $1.
c. between $1 and $2.
d. $2.
In a competitive market, the price of a product
a. is determined by buyers, and the quantity of the product produced is determined by
sellers.
b. is determined by sellers, and the quantity of the product produced is determined by
buyers.
c. and the quantity of the product produced are both determined by sellers.
d. None of the above is correct.
Congressman Dearmark justified spending $3 million on a new entertainment complex
in his district because it will create 450 new jobs for his residents. As a student of
economics, you know that
a. this is a case of the “broken window fallacy.”
b. this is a great use of taxpayer dollars.
c. this policy diverts money from spending somewhere else in the economy.
d. Both a and c are correct.
Tax cuts
a. and increases in government expenditures shift aggregate demand right.
b. and increases in government expenditures shift aggregate demand left.
c. shift aggregate demand right while increases in government expenditures shift
aggregate demand left.
d. shift aggregate demand left while increases in government expenditures shift
aggregate demand right.
Figure 5-13
Refer to Figure 5-13. Using the midpoint method, what is the price elasticity of supply
between $100 and $220?
a. 0.58
b. 0.67
c. 1.00
d. 1.73
Scenario 9-1
The before-trade domestic price of peaches in the United States is $40 per bushel. The
world price of peaches is $52 per bushel. The U.S. is a price-taker in the market for
peaches.
Refer to Scenario 9-1. If trade in peaches is allowed, the
a. price paid by American consumers of peaches is unchanged relative to the no-trade
situation.
b. total well-being of American producers of peaches is diminished relative to the
no-trade situation.
c. total well-being of American consumers of peaches is enhanced relative to the
no-trade situation.
d. total well-being of the United States is enhanced relative to the no-trade situation.
U.S. GDP
a. includes production of foreigners working in the U.S. and production by U.S.
residents working in foreign countries.
b. includes production of foreigners working in the U.S. but excludes production by
U.S. residents working in foreign countries.
c. excludes production of foreigners working in the U.S. but includes production by
U.S. residents working in foreign countries.
d. excludes production of foreigners working in the U.S. and production by U.S.
residents working in foreign countries.
Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the
quantity demanded is 2,000 packages per week. When the price is $280, the quantity
demanded is 1,700 packages per week. Using the midpoint method, the price elasticity
of demand is about
a. 1.43, and an increase in the price will cause hotels’ total revenue to decrease.
b. 1.43, and an increase in the price will cause hotels’ total revenue to increase.
c. 0.70, and an increase in the price will cause hotels’ total revenue to decrease.
d. 0.70, and an increase in the price will cause hotels’ total revenue to increase.
Figure 2-14
Refer to Figure 2-14. The movement from point B to point C is a(n)
a. shift of the demand curve.
b. movement along the demand curve.
c. indication that the price of grapes has changed.
d. indication that the costs incurred by firms that produce grapes have changed.
You are better off choosing $100 today rather than $200 in 9 years if the interest rate is
a. lower than about 8 percent.
b. higher than about 8 percent.
c. lower than about 10 percent.
d. higher than about 10 percent.
Table 16-1. The information in the table pertains to an imaginary economy.
Refer to Table 16-1. What is the M1 money supply?
a. $215 billion
b. $216 billion
c. $226 billion
d. $301 billion
Savings deposits are included in
a. M1 but not M2.
b. M2 but not M1.
c. M1 and M2.
d. neither M1 nor M2.
Which of the following statements best describes the economist’s view of finance and
the financial system?
a. The financial system is very important to the functioning of the economy, and the
tools of finance are often helpful to us as individuals when we find ourselves making
certain decisions.
b. The financial system, while interesting, is not very important to the functioning of the
economy; however, the tools of finance are often helpful to us as individuals when we
find ourselves making certain decisions.
c. The financial system is very important to the functioning of the economy; however,
the tools of finance are not particularly helpful to us as individuals since we seldom
make decisions for which those tools are useful.
d. The field of finance is intimately concerned with the financial system and the tools of
finance, and financial economists see great importance in them; however, the
“mainstream” economist sees little value in studying financial markets or the tools of
finance.
Figure 14-1. The figure shows a utility function.
Refer to Figure 14-1. The utility function that is shown exhibits the property of
diminishing
a. wealth.
b. utility.
c. marginal wealth.
d. marginal utility.
If the federal funds rate were below the level the Federal Reserve had targeted, the Fed
could move the rate back towards its target by
a. buying bonds. This buying would reduce reserves.
b. buying bonds. This buying would increase reserves.
c. selling bonds. This selling would reduce reserves.
d. selling bonds. This selling would increase reserves.
If inflation expectations rise, the short-run Phillips curve shifts
a. left. If inflation remains the same, unemployment falls.
b. left. If inflation remains the same, unemployment rises.
c. right. If inflation remains the same, unemployment falls.
d. right. If inflation remains the same, unemployment rises.
Figure 6-24
Suppose the government imposes a $2 on this market.
Refer to Figure 6-24. Suppose D1 represents the demand curve for gasoline in both the
short run and long run, S1 represents the supply curve for gasoline in the short run, and
S2 represents the supply curve for gasoline in the long run. After the imposition of the
$2, the price paid by buyers will be
a. higher in the long run than in the short run.
b. higher in the short run than in the long run.
c. equivalent in the short run and the long run.
d. unable to be determined without additional information.
The agency responsible for regulating the money supply in the United States is
a. the Comptroller of the Currency.
b. the U.S. Treasury.
c. the Federal Reserve.
d. the U.S. Bank.
If the price of apple pies rose to $100 per pie, consumers would purchase fewer pies
than if the price were $5 per pie. If the price of ice cream fell to $0.30 per scoop,
consumers would purchase more ice cream than if the price were $5 per scoop. These
relationships illustrate the
a. law of demand.
b. law of supply.
c. difference between normal and inferior goods.
d. difference between substitute and complement goods.
Belinda knows that she has about $95 in her bank account. She knows she earned an
interest rate of 4 percent, but she doesn’t remember how much she opened the account
with a year ago. How much did she put in?
a. $91.00
b. $91.20
c. $91.27
d. $91.35
Consumer surplus is equal to the
a. Value to buyers – Amount paid by buyers.
b. Amount paid by buyers – Costs of sellers.
c. Value to buyers – Costs of sellers.
d. Value to buyers – Willingness to pay of buyers.
Suppose that a decrease in the price of good X results in fewer units of good Y being
demanded. This implies that X and Y are
a. complementary goods.
b. normal goods.
c. inferior goods.
d. substitute goods.
If the government cuts the tax rate, workers get to keep
a. less of each additional dollar they earn, so work effort increases, and aggregate
supply shifts right.
b. less of each additional dollar they earn, so work effort decreases, and aggregate
supply shifts left.
c. more of each additional dollar they earn, so work effort increases, and aggregate
supply shifts right.
d. more of each additional dollar they earn, so work effort decreases, and aggregate
supply shifts left.
Table 3-12
Labor Hours Needed to
Make 1 Pound of: Amount
Produced in 40 hours
Refer to Table 3-12. Assume that the farmer and the rancher each has 40 labor hours
available. If each person divides his time equally between the production of meat and
potatoes, then total production is
a. 5 pounds of meat and 4 pounds of potatoes.
b. 6 pounds of meat and 7.5 pounds of potatoes.
c. 7.5 pounds of meat and 6 pounds of potatoes.
d. 10 pounds of meat and 8 pounds of potatoes.
Which of the following causes of unemployment is associated with a wage rate above
the market equilibrium level?
a. minimum-wage laws
b. unions
c. efficiency wages
d. All of the above are correct.
Sectoral changes in demand
a. create frictional unemployment, while firms paying wages above equilibrium to
attract a better pool of candidates creates structural unemployment.
b. create structural unemployment, while firms paying wages above equilibrium to
attract a better pool of candidates creates frictional unemployment.
c. and firms paying wages above equilibrium to attract a better pool of candidates both
create structural unemployment.
d. and firms paying wages above equilibrium to attract a better pool of candidates both
create frictional unemployment.
Figure 5-9
Refer to Figure 5-9. A decrease in price from $15 to $10 leads to a
a. decrease in total revenue of $10, so the price elasticity of demand is greater than 1 in
this price range.
b. decrease in total revenue of $10, so the price elasticity of demand is less than 1 in
this price range.
c. decrease in total revenue of $20, so the price elasticity of demand is less than 1 in this
price range.
d. decrease in total revenue of $20, so demand is elastic in this price range.
The tax burden will fall most heavily on buyers of the good when the demand curve
a. is relatively steep, and the supply curve is relatively flat.
b. is relatively flat, and the supply curve is relatively steep.
c. and the supply curve are both relatively flat.
d. and the supply curve are both relatively steep.
The two basic approaches that a country can take as a means to achieve free trade are
the
a. unilateral approach and the multilateral approach.
b. short-run approach and the long-run approach.
c. continental approach and the global approach.
d. industry approach and the security approach.
Which of the following is a cost of inflation?
a. shoeleather costs
b. menu costs
c. relative price variability
d. All of the above are correct.
Figure 9-13
Refer to Figure 9-13. Consumer surplus before trade is
a. $1,600.
b. $2,400.
c. $3,200.
d. $3,600.
Keynes argued that
a. irrational waves of pessimism cause decreases in aggregate demand and increases in
unemployment.
b. irrational waves of optimism cause decreases in aggregate demand and decreases in
aggregate supply.
c. changes in business and consumer expectations generally stabilize the economy.
d. All of the above are correct.