The owner of a garage makes large contributions to a politician who is seeking the
office of state governor. If his candidate wins, he will get the contract, which now
resides with a competitor, to repair State Police vehicles. This is an example of
a. moral hazard.
b. externality.
c. rent seeking.
d. investment.
Under laissez faire, society’s decisions about how much of every product to produce
depend on
a. consumer preferences only.
b. production costs only.
c. consumer preferences and production costs.
d. neither consumer preferences nor production costs.
In the early 1800s, there was a smallpox outbreak in a remote part of Russia. The
government sent in a large group of army doctors, but they were too late to stop the
epidemic. Thirty years later, there was another smallpox scare. A local statistician
cautioned the government against a similar response, noting the increased mortality and
high number of army doctors during the earlier epidemic. Was the statistician providing
good advice?
In Table 10-1 are the short-run cost schedules of a perfectly competitive firm. If the
market price of output is $50, the firm will produce ____ units and earn a profit of
____.
a. 6; $187.02
b. 6; $48
c. 8; $154.96
d. 8; $245.04
Figure 8-5
In Figure 8-5, profits are maximized at output of
a. 10.
b. 35.
c. 50.
d. 60.
Market economies produce only a few relatively minor defects.
a. True
b. False
Zero profit in the economic sense means that firms are earning a normal rate of return.
a. True
b. False
Two reasons why the Social Security system nearly went bankrupt in the early 1980s
are: (i) wages were indexed but benefits were not; (ii) the percentage of elderly people
in the country declined.
a. i and ii
b. i but not ii
c. ii but not i
d. neither i nor ii
Slope is measured as run/rise.
a. True
b. False
The U.S. income tax system is progressive.
a. True
b. False
A society which is inside its production possibilities frontier is efficient.
a. True
b. False
Successful advertising by a monopolist will
a. reduce the gap between the monopoly and competitive output.
b. increase the gap between the monopoly and competitive output.
c. cause the monopolist to overproduce.
d. cause the monopolist to decrease output.
Economic growth solves the problem of scarcity.
a. True
b. False
The government uses fiscal and monetary policy to mitigate the effects of economic
fluctuations.
a. True
b. False
Even though international trade is more complicated, supply and demand are still at the
center of the price determination mechanism.
a. True
b. False
A 2% wage increase for teachers or police officers is:
a. usually offset by higher output per worker.
b. leads to increases in municipal budgets.
c. indicates that teachers and police have became more selfish.
d. leads to more personalized service.
The activities of speculators often reduce the risk borne by other stock market
participants.
a. True
b. False
In William Safire’s 1983 essay, “Smoot-Hawley Lives,” he argues that the United States
should
a. threaten retaliation if trading partners practice protectionism.
b. pursue a unilateral free trade policy regardless of what others do.
c. limit government’s role in the economy.
The process of adjustment to a new long-run equilibrium in a perfectly competitive
industry is complete when
a. no firms want to enter or exit the industry.
b. every firm has adjusted its production process to make the most efficient use of its
resources.
c. investors in the industry receive the standard economy-wide rate of return on their
investments.
d. All of the above are correct.
Karl Marx was critical of markets on the grounds that they are not efficient.
a. True
b. False