As one moves down along a linear demand curve (i.e., from high price, low quantity
pairs to low price, high quantity pairs), the demand:
A. becomes more price elastic.
B. increases.
C. decreases.
D. becomes less price elastic.
A crowded beach without any entrance fee is a ______ good.
A. public
B. private
C. pure public
D. commons
The bursting of the housing bubble in 2006 caused ______ to cut back on their
spending, thereby shifting the PAE line _____.
A. businesses and households; upward
B. businesses and households; downward
C. government and businesses; downward
D. government and businesses; upward
Refer to the figure above. When the market price of a doughnut is 25 cents, this firm
will
A. shut down
B. produce 90 doughnuts
C. produce 80 doughnuts
D. produce 50 doughnuts
Suppose that a new drug has been approved to treat a life-threatening disease. Demand
for that drug is shown on the graph below. Prior to approval of this drug, the only
treatment for this condition was non-prescription pain relief. Demand for one brand of
non-prescription pain reliever is also shown on the graph below.
Refer to the figure above. If the manufacturer of the new drug chose to increase its price
from $90 to $100, consumers would acquire ______ doses, and have _____ total
expenditures.
A. more; higher
B. fewer; lower
C. more; lower
D. fewer; higher
According to the law of demand, when the price of shoes ______ you will consume
________ shoes.
A. rises, more
B. falls, more
C. rises, the same amount
D. falls, the same amount
The construction of the interstate highway system in the United States is an example of
a government policy to promote economic growth by:
A. increasing human capital.
B. increasing physical capital.
C. improving technology.
D. improving the social and legal environment.
Rice requires extensive irrigation, therefore water for rice farmers in California is
A. not as important as for farmers in Pennsylvania, where they grow little rice
B. a necessity
C. a need
D. a want
Taylor lives in a residential neighborhood that prides itself on well-groomed lawns.
Taylor’s neighbors find that the collective marginal benefit of someone else’s
well-groomed lawn is $10. Taylor, however, dislikes yard work and receives zero net
benefit from an unkempt lawn and a net benefit of -$1 for a well-groomed lawn; the
cost of maintaining the lawn is a dollar more than the benefit of having a well-groomed
lawn.
Refer to the information given above. Taylor’s neighbors would be willing to pay Taylor
______ to keep a well groomed lawn.
A. $1
B. more than $1 but less than $5
C. more than $10
D. no more than $10
A country may have a comparative advantage in the production of cars if:
A. it imports most of the raw materials necessary to produce cars.
B. its citizens prefer driving cars to other forms of transportation.
C. it has strict environmental protection laws governing automobile emissions.
D. it has the natural resources needed to produce steel.
Starting from potential output, if consumer confidence decreases and consumers decide
to spend less, then this will shift the ______ curve to the left and generate ______.
A. aggregate demand; a recessionary output gap
B. aggregate supply; a recessionary output gap
C. aggregate demand; an expansionary output gap
D. aggregate supply; an expansionary output gap
Suppose a treacherous stretch of road winds through Deadman’s Canyon for 5 miles. A
highway department study estimates that better lighting would reduce the traffic fatality
rates as follows:
Applying economic analysis to determine expenditures on safety improvements that
save lives
A. is impossible because it is impossible to place a dollar value on human life.
B. assures that the most lives are saved at the lowest opportunity cost.
C. biases life-saving expenditures in favor of high-technology safety improvements.
D. would require that all resources be reallocated away from entertainment, education,
and other non-safety uses to public safety agencies.
Firms suddenly becoming pessimistic about future business prospects is an example of
a ______ demand shock, which would shift the AD curve to the ______.
A. negative; left
B. positive; left
C. negative; right
D. positive; right
A monopolist sets its price at $100 and offers a 10% rebate. For this to be a perfect
hurdle, it must be the case that:
A. those with a reservation price of $100 or more purchase and ignore the rebate while
those with a reservation price between $99 and $90 purchase and use the rebate.
B. those with a reservation price of $90 don’t make a purchase.
C. no one takes advantage of the rebate.
D. those with a reservation price of $100 make the purchase and claim the rebate.
Mike and Tom debone chicken breasts for Ted’s Chicken Co. Mike is new and can only
debone 60 chicken breasts per hour by hand, while Tom’s experience allows him to
debone 120 chicken breasts per hour by hand. Ted buys one new machine that can
debone 100 chicken breasts per hour. Both Mike and Tom work the same 40 hours per
week, but one of them is assigned to operate the machine instead of deboning the
chicken breasts by hand. To obtain maximum average hourly productivity, ______ is
assigned to use the machine and their combined average hourly productivity as a team
is ______ chicken breasts.
A. Mike; 80
B. Mike; 110
C. Tom; 80
D. Tom; 110
Consumers know that some fraction X of all new cars produced and sold in the market
are defective. The defective ones cannot be identified except by those who own them.
Assume for this problem that cars do not depreciate with use.
Suppose that good used cars are worth $10,000 and lemon used cars are worth $5,000
to their owners. If X = 20%, how much a risk-neutral consumer would be willing to pay
for a used car?
A. $10,000
B. $9,000
C. $8,000
D. $7,000
In order to maximize profits or minimize losses, a firm facing a perfectly competitive
labor market must hire workers until
A. the extra revenue from the last worker equals the extra profit.
B. the extra revenue from the last worker equals the extra cost.
C. the marginal wage rate equals marginal product.
D. the marginal product of workers begin to decline.
If a one percent increase in the price of oranges leads to a five percent increase in the
quantity supplied, the price elasticity of supply for oranges is ______.
A. 1/5
B. 1/2
C. 5
D. 2
A strategy that limits defection in a repeated prisoner’s dilemma game is:
A. a Nash equilibrium.
B. tit-for-tat.
C. a cartel.
D. an ultimatum bargaining game.
Last summer, Casey took fresh vegetables to sell at the Farmer’s Market, but this year,
Casey did not plant any vegetables and went to work at the local bank.
Refer to the information above. If you observed Casey’s career change, you might guess
that:
A. Casey’s opportunity costs of gardening exceeded Casey’s benefits from working at
the bank.
B. Casey’s opportunity costs of working at the bank exceeded Casey’s benefits from
gardening.
C. Casey’s opportunity costs of working at the bank exceeded Casey’s opportunity costs
of gardening.
D. Casey’s opportunity costs of gardening exceeded Casey’s opportunity costs of
working at the bank.
Last summer, real estate prices in your town soared. You started noticing more “For
Sale” signs in your neighbors’ yards. You conclude that:
A. people don’t like to live in your neighborhood anymore.
B. when housing prices rose, they started to exceed some of your neighbors’ reservation
prices.
C. the demand curve for housing in your town has shifted to the left while supply
remained constant.
D. the supply curve for housing in your town has shifted to the right while demand has
remained constant.
HMO’s might provide lower levels of medical treatment because they
A. have legal protection from malpractice lawsuits.
B. employ lower quality doctors.
C. receive a fixed payment for medical services regardless of the amount of services
provided.
D. save costs by purchasing lower quality medical equipment.
If potential output equals 3,000 and short-run equilibrium output equals 3,500, there is
a(n) ______ gap and the Federal Reserve must ______ real interest rates in order to
close the gap.
A. recessionary; raise
B. recessionary reduce
C. recessionary; not change
D. expansionary; raise
According to the law of diminishing marginal utility,
A. if you consume less of something, your total utility from that consumption increases.
B. if you consume less of something, your marginal utility from that consumption
increases.
C. you should never consume any more of something after marginal utility has begun to
diminish.
D. if total utility is increasing as you consumer more, then marginal utility must be
increasing as well.
Refer to the figure above. If the price of Good A is $1 and the price of Good B is $3,
then the rational spending rule predicts _____ units of Good A and ______ units of
Good B will be purchased.
A. 4; 3
B. 3; 4
C. 4; 4
D. 3; 3
Real GDP per person in Richland is $20,000, while real GDP per person in Poorland is
$10,000. However, Richland’s real GDP per person is growing at 1 percent per year, and
Poorland’s real GDP per person is growing at 3 percent per year. After 50 years, real
GDP per person in Richland minus real GDP in Poorland is:
A. positive and greater than $10,000.
B. positive but less than $10,000.
C. zero.
D. negative.
Indicators of economic activity that move at the same time as the overall movement of
the economy are called ______ indicators.
A. short-term
B. long-term
C. real
D. coincident
As consumers’ incomes increase, the demand for ground beef decreases. Ground beef is
called a(n):
A. normal good.
B. complement good.
C. substitute good.
D. inferior good.
Starting from long-run equilibrium, a large decrease in government purchases will
result in a(n) ______ gap in the short-run and ____ inflation and ____ output in the
long-run
A. expansionary; higher; potential
B. recessionary; lower; potential
C. expansionary; higher; higher
D. recessionary; higher; potential
Chris was the business manager for a real estate firm earning an annual salary of
$40,000. Then Chris decided to become a consultant. Chris hired an administrative
assistant at $15,000 per year and rents office space (utilities included) for $3,000 per
month. Chris earned $100,000 in total revenue the first year as a consultant.
Chris’s opportunity cost of running her own business is ______ which is the _______.
A. $15,000; implicit cost
B. $51,000; explicit cost
C. $40,000; implicit cost
D. $51,000; economic cost
Refer to the figure above. An output level of 25 units results in accounting profits of
_____ and economic profits of ________.
A. zero; $8
B. $125; $113
C. $125; zero
D. zero; -$8
Jordan has the following assets and liabilities:
Jordan’s wealth is _____, the value of Jordan’s assets is _____, and the value of Jordan’s
liability is _____.
A. $107,000; $213,000; $100,000
B. $109,000; $213,000; $104,000
C. $111,000; $213,000; $100,000
D. $213,000; $317,000; $104,000