In models of labor supply, the opportunity cost of spending an hour enjoying leisure
activities is
A. the price paid to engage in those activities.
B. the hourly wage that could have been earned during that hour.
C. zero.
D. one-and-a-half times a person’s regular wage.
The amount of waste caused by full insurance coverage depends on
A. the individual who is covered by the insurance plan.
B. the price elasticity of demand for medical service.
C. the price elasticity of supply of medical service.
D. whether people care about the equitable distribution of care.
Several years ago there were two systems for viewing movies at home: Sony’s BetaMax
machines and VCR machines that played VHS tapes. Despite the higher quality of
BetaMax video, VHS became the dominant format. Once VHS tapes were the dominant
format, BetaMax virtually disappeared from consumer markets. Why?
A. Movie producers preferred VHS to BetaMax.
B. Consumers gained more benefit by using the same system that others used, allowing
them to share movies.
C. Movie rental stores boycotted all Sony products.
D. BetaMax technology was obsolete.
An increase in the price of golf clubs from $75 to $125 led to an increase in quantity
supplied from 200 units to 300 units. The price elasticity of supply for golf club is
_____ so the supply curve is _______.
A. 2; elastic
B. 2; inelastic
C. 4/3; elastic
D. 3/4; inelastic
After the Federal Reserve increases reserves in the banking system through
open-market purchases, banks create new deposits through multiple rounds of lending
and accepting deposits until the:
A. Federal Reserve requires them to stop.
B. deposit insurance limit is reached.
C. actual reserve/deposit ratio is greater than the desired reserve/deposit ratio.
D. actual reserve/deposit ratio is equal to the desired reserve/deposit ratio.
Oil and oil products remain the main fuel for cars, planes, ships, and power plants. The
amount of oil still in the earth is finite. According to this information, the supply of
gasoline is relatively _______.
A. elastic
B. inelastic
C. unitary elastic
D. perfectly inelastic
As the market price of a service increases, more people will decide to perform that
service because:
A. higher prices always result in higher revenue.
B. more people will find that the market price exceeds their reservation price.
C. higher-priced services are more prestigious.
D. service jobs are in higher demand than manufacturing jobs.
The championship game will be held next weekend in your college’s 40,000-seat
stadium. The supply of tickets:
A. will increase because the price charged will be higher.
B. is price elastic.
C. is perfectly inelastic.
D. depends on which teams make it to the championship game.
Leo is a welfare recipient who qualifies for two means-tested cash benefits. If he does
not earn any income, he receives $225 from each benefit. For each dollar he earns
(which his employer is required to report to the welfare agency), each benefit is reduced
by 75 cents until the benefit equals zero.
If Leo earns $150 he will receive total benefits in the amount of
A. $75.
B. $325.
C. $225.
D. 0.
Central banks that practice flexible inflation targeting are ____ than central banks that
practice strict inflation targeting.
A. more likely to adjust policy in response to output gaps
B. less likely to adjust policy in response to output gaps
C. more concerned with inside lags in macroeconomic policy
D. less concerned with inside lags macroeconomic policy
Home football games at your college are free for students and most of the students like
to go to the game. What is the non-monetary cost for you to go to the game?
A. Gas that you will need for your car.
B. Money you paid for body painting and artificial hair.
C. The outrageous price you had to pay for hot dog and soda.
D. The 5 hours you waited in the line to get ticket.
Assume that all firms in this industry have identical cost functions.
The long-run equilibrium supply in this industry is
A. Supply A.
B. Supply B.
C. Supply C.
D. A Supply function that lies between Supply A and Supply B.
Structural unemployment is increased when the wage is kept above the market-clearing
wage by:
A. unemployment insurance.
B. worker mobility.
C. skill-biased technological change.
D. labor unions.
Lou and Toby both live in a little town and are trying to sell their cars. Both of their cars
have a blue book value of $10,000. Lou has an American car like most of the people in
town. Toby owns a Bulgarian car, the only one in town. Who will get closest to the blue
book value for her car?
A. Lou will since American cars are better than foreign cars.
B. Toby will since Bulgarian cars are more scarce than American cars.
C. Lou will, since people have more information about Lou’s car.
D. Both should get the same price for their cars.
Following an adverse inflation shock the economy will return to potential more rapidly
if:
A. inflationary expectations are anchored.
B. inflationary expectations change quickly in response to the shock.
C. the Fed has frequently accommodated higher inflation in the past.
D. the Fed has frequently raised its target inflation rate in the past.
Refer to the figure above. To increase output from 33 to 66 units requires ______ extra
employee-hours; to increase output from 66 to 99 units requires _____ extra
employee-hours.
A. 1; 1
B. 1; 2
C. 2; 1
D. 2; 4
Refer to the figure above. Long-run equilibrium in this economy:
A. will be impossible to achieve.
B. could occur if AD shifts upward to the right.
C. could occur if AS shifts upward and to the left.
D. will occur only if AD shifts downward to the left.
As the price of a good rises:
A. firms earn larger profits.
B. more firms can cover their opportunity costs of producing the good.
C. firms find they can raise price by even more.
D. government regulation becomes more justified.
Savers may prefer to use financial intermediaries rather than lending directly to
borrowers because financial intermediaries:
A. reduce the cost of gathering information about borrowers.
B. have a monopoly on lending.
C. increase the risk of lending.
D. offer higher rates of return than available elsewhere.
Miniville is an isolated town located on the southern shore of Lake Condescending, a
very large lake. The western edge of Miniville is adjacent to impassable mountains and
there are no towns or businesses for many miles to the east. The 300 residents of
Miniville are evenly distributed along 3 miles of shoreline on the lake, east of the
mountains. Lake Shore Drive, the only street in town, provides access to Miniville’s
homes and businesses. All residents live between the lake and the street; businesses
locate on the other side of the street. Lake Shore Drive is 3 miles long, and the points
labeled A, B, and C are 1, 2, and 3 miles from the western end of Lake Shore Drive,
respectively. All residents of Miniville shop at the store located closest to their homes.
Refer to the information given above. If three stores were to open sequentially, you
would expect that those stores would be located:
A. at points A, B, and C.
B. halfway between the mountains and A, halfway between A and B, and halfway
between B and C.
C. in a cluster, nearest the mountains.
D. in a cluster, near the location chosen by the first store to locate.
Government regulations that increase the cost to the employer of hiring workers will:
A. increase the demand for labor.
B. decrease the demand for labor.
C. increase the supply of labor.
D. decrease the supply of labor.
This graph illustrates the demand faced by a firm.
Refer to the figure above. If the monopolist decreases price from $14 to $12, its total
revenue will ______.
A. increase by $2
B. decrease by $2
C. increase by $8
D. decrease by $8
You expect a share of EconNews.Com to sell for $65 a year from now. If you are
willing to pay $61.06 for one share of the stock today, you expect a dividend payment
of $4, and the rate of return on safe assets is 5%, how much is your risk premium?
A. 1.5%
B. 6.5%
C. 8.0%
D. 13.0%
The textbook cites a study comparing a group of consumers with first-dollar coverage
and a group with a $1000 deductible. The study results indicate that those with the
deductible used __________ amount of medical services and had __________ health
outcomes.
A. a smaller; the same
B. a larger; better
C. a larger; the same
D. a smaller; worse
Any combination of goods that can be produced with currently available resources
defines a(n):
A. attainable point on a production possibilities curve.
B. efficient point on a production possibilities curve.
C. inefficient point on a production possibilities curve.
D. attainable and efficient point on a production possibilities curve.
In exchange for a share in the revenues earned on campus, State U has granted
CheapFizz the exclusive right to sell soft drinks in the student union and in vending
machines on campus. Prior to the deal, three soft drink companies sold beverages on
campus; now no other soft drink company is allowed to sell its products on campus or
at university events.
Refer to the information above. Prior to the deal, a 12-ounce can of CheapFizz sold for
75 cents. After the deal you would expect a 12-ounce can of CheapFizz to sell for:
A. 75 cents because that is the market price.
B. less than 75 cents because CheapFizz will have greater volume and so can sell for a
lower price.
C. more than 75 cents because demand for CheapFizz will shift to the left.
D. more than 75 cents because other firms must exit the market.
Shocks to _____ require the Fed to choose between inflation and output stability, while
shocks to _____ do not require the Fed to choose between inflation and output stability.
A. the stock market; aggregate demand
B. the stock market; aggregate supply
C. aggregate demand; aggregate supply
D. aggregate supply; aggregate demand
Jessica’s marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25
can also be called her:
A. marginal revenue.
B. equilibrium price.
C. reservation price.
D. producers surplus.
Suppose that a further increase in specialization allows a country to increase total
output by 10%, but afterward it was discovered that work absenteeism increased by
30%. This is likely an example of:
A. modern production.
B. too much specialization.
C. too little specialization.
D. inefficiencies caused by labor unions.
The demand for a good is inelastic with respect to price, if the price elasticity of
demand is:
A. equals one.
B. is greater than one.
C. is less than one.
D. equals negative one.
When the interest rate in the U.S. falls, U.S. financial assets:
A. become more attractive to foreign buyers.
B. become less attractive to both foreign and domestic buyers.
C. become more attractive to both foreign and domestic buyers.
D. become less attractive to domestic buyers and more attractive to foreign buyers.