In early 1996, Congress proposed an agriculture bill that would gradually reduce price
supports for many agricultural products. If the bill were to be approved, what would
most likely happen to the number of families employed in agriculture?
a. It would decrease, because agricultural prices would fall.
b. It would decrease, because agricultural prices would rise.
c. It would increase, because agricultural prices would fall.
d. It would increase, because agricultural prices would rise.
Figure 4-14
Frustrated by the cost and ineffectiveness of the war on drugs, the U.S. government
could consider “decriminalization” of the use and sale of cocaine. Critics contend that
lower prices will expand drug use and that decriminalization will remove the stigma
and danger from arrest associated with drug use, thus further increasing the demand and
number of addicts. Which graph in Figure 4-14 best illustrates the critics’ case?
a. 1
b. 2
c. 3
d. 4
Rising prices of resources leads to inefficient resource use by industry.
a. True
b. False
The market mechanism provides a financial incentive for firms to minimize the
pollution they create.
a. True
b. False
The pollution emitted by a power plant is an example of a detrimental externality.
a. True
b. False
Political factors influence international trade because
a. foreign trade always involves at least two governments.
b. foreign governments are much less concerned with the welfare of citizens in other
countries.
c. foreign governments often establish impediments to free international trade.
d. All of the above are correct.
The demand curve for a typical good has
a. a negative slope because some consumers switch to other goods as the price of the
good rises.
b. a negative slope because the supply of the good rises as demand rises.
c. a negative slope because the good has less ‘snob appeal” as its price falls.
d. an inverse slope because as the price goes up, the good has more profitability.
e. a positive slope because price is a clear indicator of need.
Perfect competition forms one extreme of the market structure spectrum.
a. True
b. False
In 1963, the government first adopted an official definition of poverty: families with
incomes below $3,000.
a. True
b. False
Tools used by economists include
a. historical study.
b. mathematical reasoning.
c. statistical inference.
d. All of the above are correct.
In the 19th century, Russian peasants noticed that during cholera epidemics there were
lots of doctors around; in an attempt to eliminate cholera, they killed all the doctors.
This is an example of
a. mistaking correlation with causation.
b. the fallacy of opportunism.
c. excessive abstraction.
d. rationality.
e. marginal analysis.
For a perfectly competitive firm, the long-run supply curve is the long-run average cost
curve.
a. True
b. False
If the supply curve remains constant, an outward shift in the demand curve for a
commodity causes the price of factors used in its production to decline.
a. True
b. False
Trade between nations usually means that
a. one country is richer than another.
b. one country becomes richer while the other becomes poorer.
c. both trading nations show some gains.
d. one trading country is trying to “beggar its neighbor.”
Define the following terms and explain their importance to the study of economics.
a. public good
b. externality
c. irreversible decision
d. moral hazard
e. rent seeking
A firm practices input substitution when it
a. retrains Joe the welder as a painter and Pat the painter as a welder.
b. buys extra machines for its workers to use.
c. allows fixed cost to become variable.
d. replaces unskilled labor with automated machinery.
At $6 per steak, consumers are willing to buy two steaks. At a price of $2, consumers
are willing to buy six steaks. The elasticity of the market demand curve between P = $6
and P = $2 (dropping all minus signs) is
a. 0,33
b. 1
c. 2
d. 4
The existence of a natural monopoly stems from the size of the firm relative to the total
market demand for the product of that firm.
a. True
b. False
A line that rises from left to right has a positive slope.
a. True
b. False
In 2012, what percentage of total income in the U.S. was earned by the richest fifth of
all U.S. households?
a. 20%
b. 30%
c. 40%
d. 50%