Refer to the figure above. With no subsidy, what is the producer surplus?
A. $0
B. $6,000
C. $7,500
D. $17,000
Refer to the figure above. Based on the figure, if autonomous spending increases from
400 to 600, then the new short-run equilibrium output will equal:
A. 1,200.
B. 400.
C. 600.
D. 800.
Summing the value added of all firms yields the value of final goods and services
produced because both measures:
A. exclude the value of capital goods.
B. exclude the value of intermediate goods and services.
C. use constant prices.
D. are adjusted for population growth.
Federal Reserve actions that increase nominal interest rates and decrease the money
supply:
A. close a recessionary gap.
B. close an expansionary gap.
C. raise the rate of inflation.
D. raise bond prices.
Generally, the Coase Theorem implies that the initial allocation of a property right:
A. determines all aspects of the final outcome of the negotiated agreement.
B. does not determine which person will be entitled to engage in the externality
generating activity, but does determine which person will receive compensation.
C. determines which person will be entitled to engage in the externality generating
activity, but does not affect which person will receive compensation.
D. must be assigned to the person with the greatest costs.
Data for an economy shows that the unemployment rate is 10%, the participation rate
80 percent, and 200 million people 16 years or older are not in the labor force. How
many people are in the labor force in this economy?
A. 80 million
B. 200 million
C. 800 million
D. 1.0 billion
Holding other factors constant, an increase in the tax rate on revenue generated by
capital will:
A. increase national saving.
B. decrease national saving.
C. increase investment.
D. decrease investment.
The assumption that firms meet the demand for their products at preset prices is the key
assumption upon which ______ is built.
A. the basic Keynesian model
B. Okun’s Law
C. the supply and demand model
D. quantity equation for money
For two goods X and Y to be classified as substitutes, it must be the case that:
A. X and Y are identical.
B. consumers tend to purchase both items.
C. when the price of X rises, the demand for Y decreases.
D. when the price of X rises, the demand for Y increases.
Your state is considering enacting a law requiring that all motorcycle operators and their
passengers wear a helmet. Motorcyclists vary in the degree to which they value being
able to ride helmet-less and in the extent to which they value the safety provided by a
helmet.
Without the regulation, who would wear a helmet?
A. cyclists and passengers for whom the marginal benefit of increased safety is greater
than or equal to the expected cost of being in a serious accident.
B. cyclists and passengers for whom the marginal benefit of increased safety is greater
than or equal to the purchase price of a helmet.
C. cyclists and passengers for whom the marginal benefit of increased safety is greater
than or equal to the lost value of riding helmet-less.
D. cyclists and passengers for whom the marginal benefit of increased safety is greater
than or equal to the lost value of riding helmet-less plus the purchase price of a helmet.
Explicit costs:
A. measure the opportunity costs of the business owners.
B. are always fixed in the short run.
C. measure the payments made to the firm’s factors of production.
D. are always variable in the short run.
From the point of view of a particular country, capital inflows are:
A. purchases of domestic goods or services by foreigners.
B. purchases of domestic assets by foreigners.
C. purchases of foreign goods or services by domestic households or firms.
D. purchases of foreign assets by domestic households or firms.
Taylor has the following assets and liabilities:
What is the value of Taylor’s liabilities?
A. $300,000
B. $303,000
C. $308,000
D. $311,000
Refer to the figure above. Moving from Point B to Point A, the opportunity cost of 25
more salads is:
A. 5 fewer pizzas.
B. 10 fewer pizzas.
C. 15 fewer pizzas.
D. 20 fewer pizzas.
Pat used to work as an aerobics instructor at the local gym earning $35,000 a year. Pat
quit that job and started working as a personal trainer. Pat makes $50,000 in total annual
revenue. Pat’s only out-of-pocket costs are $12,000 per year for rent and utilities,
$1,000 per year for advertising and $3,000 per year for equipment.
Refer to the information given above. Pat’s explicit cost is _____ and Pat’s implicit cost
is ______.
A. $16,000; $51,000
B. $15,000; $36,000
C. $16,000; $35,000
D. $35,000; $16,000
If the output gap equals -3.2 percent, then
A. cyclical unemployment equals the sum of structural and frictional unemployment.
B. there is a recessionary gap.
C. there is no cyclical unemployment.
D. potential GDP is greater than actual GDP.
In the short-run Keynesian model, if the mpc equals 0.8, then to decrease planned
aggregate spending by $30 billion at any output level, government spending must be
decreased by ______ or net taxes must be increased by _____.
A. $30 billion; $30 billion
B. more than $30 billion; more than $30 billion
C. less than $30 billion; less than $30 billion
D. $30 billion; more than $30 billion
Joe’s Taco Hut can purchase a delivery truck for $20,000 and he estimates it will
generate a net income (after taxes, maintenance and operating costs) of $4,000 per year.
His other option is to go to work for someone else earning net income of $3,000 per
year. He should:
A. purchase the truck if the real interest rate is less than 15%.
B. not purchase the truck if the real interest rate is greater than 1%.
C. purchase the truck if the real interest rate is greater than 5%.
D. purchase the truck if the real interest rate is less than 5%.
The very small city of Pleasantville is considering building a public swimming pool that
costs $1,000. The table shows the five voters in the city and their marginal benefit of a
swimming pool. It takes a 4/5 majority to pass any tax measure and all voters must
vote.
A tax equal to 68% of each taxpayer’s marginal benefits would provide a pool and
_______ citizens would use it, while a private firm would provide a pool and _____
citizens would use it.
A. all of the; all of the
B. four; three
C. all of the; three
D. four; two
In contrast to first-dollar insurance coverage, the efficiency concern for HMO’s is that
A. the price will be too low.
B. acute treatment will be overemphasized.
C. too much medical treatment will be provided.
D. too little medical treatment will be provided.
The incentive principle is an example of:
A. an economic decision-making pitfall.
B. over-estimating the benefits of an action.
C. a positive economic principle.
D. a normative economic principle.
If the price of computers increases and the demand for monitors decreases as a result,
then:
A. computers and monitors are complements.
B. computers are a normal good and monitors are inferior.
C. computers and monitors are substitutes.
D. computers are an inferior good and monitors are normal.
The real interest rate equals the:
A. nominal interest rate plus the inflation rate.
B. nominal interest rate minus the inflation rate.
C. inflation rate minus the nominal interest rate.
D. inflation rate times the nominal interest rate.
When actual investment is greater than planned investment:
A. firms sold less output than expected.
B. firms sold more output than expected.
C. the quantity of output sold is the amount the firm expected to sell.
D. the economy produces short-run equilibrium output.
A public good that would benefit Karen, Tammy, and Max has a one time installation
cost of $900. These three voters must approve any tax plan by simple majority and all
three will cast a vote.
Suppose the government proposes a proportional income tax of 8%. The result of the
referendum will be that
A. all three voters will vote for the tax.
B. Max and Taylor will vote against the tax but Kris will vote for it.
C. Kris and Max will vote for the tax, Taylor will vote against it.
D. all three voters will vote against the tax.
The situation when the price of most goods and services are falling over time is called:
A. inflation.
B. disinflation.
C. a boom.
D. deflation.
An increase in consumer demand for espresso would lead to a(n) ____, while an
increase in the number of firms producing espresso would lead to a(n) _______.
A. increase in quantity supplied; decrease in supply.
B. increase in supply; increase in quantity supplied.
C. increase in quantity supplied; increase in supply.
D. increase in supply; increase in supply.
A firm’s total profit equals:
A. marginal benefit minus marginal cost.
B. (price minus average total cost) times the quantity sold.
C. price times quantity sold.
D. price minus average total cost.
Someone who wants both the U.S. dollar to be ______ compared to other currencies
and the value of U.S. net exports to be ______ wants two things that may be
contradictory.
A. floating; large
B. weak; small
C. strong; small
D. strong; large
Compared with charging a single price, all else equal, imperfect price discrimination:
A. sometimes hurts customers with low ability to pay while benefiting wealthy
customers.
B. always hurts all customers while increasing firm profits.
C. sometimes benefits customers with low ability to pay while reducing firm profits.
D. sometimes benefits customers with low ability to pay while increasing firm profits.
For a given nominal interest rate, an unexpectedly high inflation rate ______ the real
interest rate.
A. increases
B. decreases
C. has no impact on
D. may either increase or decrease
Suppose that two types of indistinguishable coffee beans are imported to the U.S.: those
grown in the mountains of South America and those grown in greenhouses in Canada.
Mountain grown coffee produces a better tasting coffee, but buyers cannot distinguish
the beans by sight or smell. Only the importers know the source of the beans. Buyers
value mountain grown beans at $10 a pound and greenhouse grown beans at $3 a
pound. Assume that 70% of imported beans are mountain grown, and 30% are
greenhouse grown.
Suppose that no mountain-grown beans are imported because buyers are worried that
they might end up with Canadian beans. Importers are considering two possible
approaches to solve this problem: adding a label indicating country of origin to each
bag or serving samples to customers prior to purchase. Which approach will solve the
lemons problem in the coffee market?
A. Either approach will solve the problem equally effectively.
B. The tasting approach will be more effective because it is costly-to-fake.
C. The label will be more effective because it is credible.
D. Importers will need to use both approaches because neither alone will solve it.
Superstar professional athletes can sustain their economic rents because:
A. team owners will pay anything to win the championship.
B. they have excellent union representation.
C. their opportunity costs of playing are high.
D. if their current team does not pay, they can take their unique talents to another team
willing to pay.