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1) Government transfer programs result in a U.S. Lorenz curve that is closer to the
diagonal line than would be the case without the programs.
2) When total utility is at a maximum, marginal utility is zero.
3) Macroeconomics explains the behavior of individual households and business firms;
microeconomics is concerned with the behavior of aggregates or the economy as a
whole.
4) The law of supply indicates that the price-elasticity of supply coefficient would have
a negative sign.
5) The costs of competition's creative destruction are often widespread, while the
benefits often accrue to only a few.
6) Most market economies, such as the U.S. and the U.K., allow government policies
and actions aimed at promoting economic growth and stability.
7) Illegal immigrants displace domestic-born workers on a one-for-one basis.
8) If the average product of labor equals 4 at all levels of output, the marginal product
of labor is also equal to 4 at all levels of output.
9) Employers will hire more units of a resource if the:
A.price of the resource increases.
B.productivity of the resource increases.
C.price of the good being produced declines.
D.price of a complementary resource rises.
10) Subsidies to encourage hospitals and physicians to adopt electronic medical records
have resulted in which of the following?
A.Improved care for a greater number of patients because of the efficiency gains.
B.Reduced health care costs because of the efficiency gains in record-keeping.
C.More patients seen but at a higher cost because of the high fixed cost of the recording
devices.
D.Less care at higher costs as the extensive record-keeping process reduces efficiency.
11) The conjecture that R&D expenditures as a percentage of firms' sales first rise,
reach a peak, and then fall as industry concentration rises is known as the:
A.inverted-U theory of R&D.
B.average product of R&D theory.
C.bell-shaped-curve theory of product innovation.
D.theory of increasing and diminishing returns.
12)
Refer to the above graph for a purely competitive firm operating at a loss in the short
run. Which area in the graph represents the amount of economic loss for the firm?
A.0beg
B.bcde
C.acdf
D.abef
13) Which of the following statements concerning a monopolistically competitive
industry is correct?
A.If there are short-run losses, firms will leave the industry and the demand curves of
the remaining firms will shift to the right.
B.If there are short-run economic profits, firms will enter the industry and the demand
curves of existing firms will shift to the right.
C.If there are short-run losses, firms will leave the industry and the demand curves of
the remaining firms will shift to the left.
D.If there are short-run economic profits, firms will leave the industry and the demand
curves of the remaining firms will shift to the right.
14) Which of the following problems will most likely occur with a system of flexible
exchange rates?
A.Macroeconomic instability as exports and imports fluctuate with the exchange rates.
B.Government favoritism toward selected importers of goods and services.
C.The emergence of black markets for foreign currency.
D.Distortions in trade patterns away from the pattern suggested by comparative
advantage.
15) If the nominal wage rises by 4 percent, and the price level rises by 7 percent, the
real wage will:
A.be unaffected.
B.rise by 3 percent.
C.fall by 3 percent.
D.rise by 11 percent.
16) In the table below, assume a monopsonist has the marginal-revenue-product
schedule for a particular type of labor given in columns 1 and 2 and that the supply
schedule for labor is that given in columns 1 and 3.
(a)Compute the firms total labor costs at each level of employment and the marginal
labor cost of each unit of labor, and enter these figures in columns 4 and 5.
(b)How many units of labor will the firm hire? What will be the wage rate?
(c)If this firm hired labor in a competitive labor market, what would be the wage rate
and number of workers hired?
17)
Refer to the diagram. The slope of the line:
A.is -1/4.
B.is +1/4.
C.is .40.
D.cannot be determined from the information given.
18) If consumer incomes increase, the demand for product X:
A.will necessarily remain unchanged.
B.may shift either to the right or left.
C.will necessarily shift to the right.
D.will necessarily shift to the left.
19)
In the graph above LRTC = long-run total cost. The firm is experiencing:
A.Economies of scale
B.Diseconomies of scale
C.Constant returns to scale
D.Minimum efficient scale
20) Suppose that the production of wheat requires two inputs, labor and fertilizer. The
price of labor is $4.50 and the price of fertilizer is $3.00. A farmer is currently
employing the inputs such that the marginal product of labor is 11 and the marginal
product of fertilizer is 8. If the farmer is a cost-minimizer, he should:
A.Use more labor and less fertilizer
B.Use more fertilizer and less labor
C.Use more labor and more fertilizer
D.Continue using the same amounts of each input
21) The real rate of interest is the interest rate:
A.charged on long-term government bonds.
B.associated with a riskless loan.
C.that large commercial banks charge their best customers.
D.after adjustment has been made for inflation.
22) (Last Word) Suppose you borrow $500 for a year and the lender discounts $75 of
interest at the time the loan is made (giving the borrower only $425). The interest rate
on this loan is about:
A.12.5 percent.
B.14.5 percent.
C.17.6 percent.
D.10 percent.
23)
Refer to the diagram for the corn market. As a consequence of a price support of B,
consumers will:
A.increase their purchases of the product.
B.pay a lower price, M rather than A, for the product.
C.pay a higher price, B rather than A, for the product.
D.pay a higher price, A rather than M, for the product.
24) The table shows an indifference schedule for several combinations of X and Y.
Refer to the above table. In moving from combination a to e, the marginal rate of
substitution of X for Y:
A.Increases
B.Decreases
C.Stays the same
D.Decreases and then increases
25) Other things equal, a price discriminating monopolist will:
A.realize a smaller economic profit than a nondiscriminating monopolist.
B.produce a larger output than a nondiscriminating monopolist.
C.produce the same output as a nondiscriminating monopolist.
D.produce a smaller output than a nondiscriminating monopolist.
26) At any level of output:
A.Average variable cost will exceed average total cost in the short run
B.Marginal cost will exceed average variable cost by the level of average fixed cost
C.Average variable cost will exceed average fixed cost by the level of average total cost
D.Average total cost will exceed average variable cost by the level of average fixed cost
27) Perfect income equality would yield a Gini ratio of:
A.2
B.1
C.0
D.0.5
28)
Refer to the diagram in which S is the market supply curve and S1 is a supply curve
comprising all costs of production, including external costs. Assume that the number of
people affected by these external costs is large. If the government wishes to establish an
optimal allocation of resources in this market, it should:
A.not intervene because the market outcome is optimal.
B.subsidize consumers so that the market demand curve shifts leftward.
C.subsidize producers so that the market supply curve shifts leftward (upward).
D.tax producers so that the market supply curve shifts leftward (upward).
29) Suppose the price of beef fell dramatically as the price of feed grain decreased. Use
the income effect and the substitution effect to explain why there was an increase in the
quantity of beef purchased.
30) Discuss the problems with policies to limit catch size and the use of the total
allowable catch (TAC) policy.
31) What is an individual transferable quota (ITQ)? How can it be used with the total
allowable catch (TAC) for making fishing more efficient and sustainable?
32) Describe the economic case against monopoly.
33) Contrast the public interest theory of regulation with the legal cartel theory of
regulation.
34) Explain the economic effects of farm programs on the European Union and in the
United States on world trade.
35) Sues Shoe Shop is having a sale on shoes. The first pair of shoes is full price, the
second is 25% off, and the third is 50% off. Describe how this sale relates to individual
demand and marginal utility.
36) A person has a basic choice between eating meals at home and eating meals in a
restaurant. The cost of the food that is eaten at home is $10 per meal. The cost of a
restaurant meal is $20. It takes two hours to eat a meal at home (including preparation
time and cleanup time). It takes one hour of time to eat a meal in a restaurant. The
marginal utilities of the home meal and the restaurant meal are the same. The person
values time at $12 per hour. What does the theory of consumer behavior suggest the
rational consumer will decide to do: eat at home or in a restaurant? Answer by first
excluding the value of time from the decision. Then include the value of time in the
decision.
