The consumption function is relationship between consumption and:
A. planned aggregate expenditure.
B. total spending.
C. investment.
D. disposable income.
Refer to the figure above. Assume demand remains unchanged at D1. If supply shifts
from S1 to S2, then the equilibrium price will ________ and the equilibrium quantity
will __________.
A. rise; fall
B. rise; rise
C. fall; fall
D. fall; rise
You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in
concert on Saturday. Assume that $35 is the most you would have been willing to pay
for a ticket. Your boss called, and she is looking for someone to cover a shift on
Saturday at the same time as the concert. You would have to work 4 hours and she
would pay you $11/hr. The psychic cost to you of working is $2/hr. What is the
opportunity cost of going to the concert?
A. $1
B. $9
C. $35
D. $36
Forest lives in complete isolation in Montana. He is self-sufficient and feeds himself
through hunting, fishing, and farming. Which of the following statements about Forest
is true?
A. Forest has unlimited resources.
B. Forest is not required to make trade-offs because he is self-sufficient.
C. Forest has to make trade-offs.
D. Forest doesn’t have to consider costs and benefits.
The minimum payment you are willing to accept to do a job is your:
A. nominal wage.
B. real wage.
C. reservation price.
D. value of marginal product.
The four categories of final users of GDP are:
A. businesses, firms, governments, and the foreign sector.
B. households, the Federal Reserve, governments, and the foreign sector.
C. businesses, corporations, firms, and farms.
D. households, firms, governments, and the foreign sector.
Money serves as a basic yardstick for measuring economic value (a unit of account),
allowing:
A. people to hold their wealth in a liquid form.
B. governments to restrict the issuance of private monies.
C. easy comparison of the relative prices of goods and services.
D. goods and services to be exchanged with a double coincidence of wants.
Refer to the figure below. 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
When actual output equals potential output there is ____ output gap and the rate of
inflation will tend to ____.
A. an expansionary; increase
B. an expansionary; decrease
C. no; remain the same
D. a recessionary; increase
The three elements of a game are:
A. the firm, the consumers, and the profit.
B. the players, the strategies, and the payoffs.
C. the model, the graph, and the costs.
D. the costs, the revenue, and the profit.
Suppose the economy is currently operating at potential output; an expansionary gap
may be caused by each of the following except:
A. a positive demand shock.
B. a positive inflation shock.
C. an increase in government spending.
D. an increase in the inflation rate.
Refer to the table below. Based on their comparative advantages, Pat should specialize
in _______, and Corey should specialize in _______.
A. delivering pizza; making pizza
B. making pizza; delivering pizza
C. neither making pizza nor delivering pizza; both making pizza and delivering pizza
D. both making pizza and delivering pizza; neither making pizza nor delivering pizza
Initially, workers in the shoe industry and the computer industry earn the same wage.
Reductions in trade barriers give domestic consumers access to cheaper shoes produced
abroad, which causes domestic shoe prices fall. At the same time, foreign consumers
purchase more computers, raising the relative price of computers. As a result of these
changes, the demand for labor in the shoe industry ______ and the demand for labor in
the computer industry ______.
A. increases; increases
B. increases; decreases
C. decreases; increases
D. decreases; decreases
In a market, the demanders are the _______, and the suppliers are the ______.
A. bosses; workers
B. poor; wealthy
C. buyers; sellers
D. sellers; buyers
If the government taxes a good that generates a negative externality, then the
government:
A. will generate tax revenue, but lower economic surplus.
B. can increase total economic surplus, but tax revenue will fall.
C. can increase total economic surplus and generate tax revenue.
D. will neither increase total economic surplus nor generate tax revenue.
Suppose you are planning to sell your house. You value your house at $200,000. If you
do not hire a realtor, you will be able to sell your house to a buyer whose reservation
price is $220,000. If you hire a realtor, you will be able to sell your house to a buyer
whose reservation price is $250,000. Assume that the realtor’s opportunity cost of
negotiating the sale is $5,000. In this case, how much additional economic surplus is
generated by using a realtor to sell your house?
A. None, because you value the house at $200,000 no matter who buys it.
B. $250,000.
C. $200,000.
D. $25,000.
Suppose Firm A and Firm B are considering whether to invest in a new production
technology. For each firm, the payoff to investing (given in thousands of dollars per
day) depends upon whether the other firm invests, as shown in the payoff matrix below.
Which of the following statements is correct?
A. It cannot be determined whether Firm A has a dominated strategy.
B. “Don’t invest” is a dominated strategy for Firm A.
C. Firm A does not have a dominated strategy.
D. “Invest” is a dominated strategy for Firm A.
Refer to the figure below. When the price is equal to 8, the price elasticity of demand
for the demand curve D1 is ______ and for D2 the price elasticity of demand is _____.
A. 4; 1
B. 1; 4
C. 4; 4
D. 2; 4
Mexico and the members of OPEC produce crude oil. Realizing that it would be in their
best interests to form an agreement on production goals, a meeting is arranged and an
informal, verbal agreement is reached. If both Mexico and OPEC abide by the
agreement, then OPEC’s profit will be $200 million and Mexico’s profit will be $100
million. If both Mexico and OPEC cheat on the agreement, then OPEC’s profit will be
$175 million and Mexico’s profit will be $80 million. If only OPEC cheats, then
OPEC’s profit will be $185 million, and Mexico’s profit will be $60 million. If only
Mexico cheats, then Mexico’s profit will be $110 million, and OPEC’s profit will be
$150 million. You may find it helpful to fill in the payoff matrix below.
This game is _______ because ______.
A. a prisoner’s dilemma; not cheating is better for both
B. not a prisoner’s dilemma; cheating is better for both
C. a prisoner’s dilemma; cheating is better for both
D. not a prisoner’s dilemma; OPEC does not have a dominant strategy
According to the Congressional Budget Office, from the 1970s to the 2000s, the natural
rate of unemployment in the United States:
A. increased.
B. remained relatively stable.
C. fell.
D. fell to zero, and has since become negative.
Tight monetary policy will ______ net exports as a result of a ______ currency.
A. increase; stronger
B. increase; weaker
C. decrease; weaker
D. decrease; stronger
Refer to the figure below. The opportunity cost of producing one bushel of wheat is:
A. 2 bushels of corn.
B. ½ of a bushel of corn.
C. 1,000 bushels of corn.
D. 500 bushels of corn.
Suppose the economy is currently operating at potential output; a recessionary gap may
be caused by each of the following except:
A. a negative demand shock.
B. a positive inflation shock.
C. an increase in taxes.
D. a decrease in the money supply.
Bob has heard rumors that his employer will be merging with another firm and many
employees may lose their jobs, and he wants to be prepared in case he loses his job. If
he begins to save more in response to this rumor, it is a ______ reason for saving.
A. life-cycle
B. public
C. private
D. precautionary
If fewer families purchase health insurance because of rising health insurance
premiums, then health insurance premiums are likely to rise further due to:
A. first-dollar coverage.
B. commitment problems.
C. moral hazard.
D. adverse selection.
You are trying to decide how to spend your last lunch dollar. You should use that dollar
to buy more of the item:
A. that costs the least.
B. that gives you the highest average utility per dollar.
C. that gives you the highest marginal utility per dollar.
D. from which you already have gained the greatest total utility.
In competitive labor markets, _____ demand labor and ______ supply labor.
A. firms; labor unions
B. labor unions; firms
C. workers; firms
D. firms, workers
Joe’s Taco Hut can purchase a delivery truck for $20,000 and Joe 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%.
Suppose the table below describes the relationship between price and quantity
demanded for a monopolist.
If the marginal cost of producing each unit of output is $5, then this monopolist’s
profit-maximizing level of output is ______.
A. 5
B. 4
C. 3
D. 2
Lunch in Jamie’s dorm is an all-you-can-eat buffet, served from 11 a.m. until 1 p.m. By
noon, the buffet is picked over, and by 12:30, there are very few popular items left. The
garbage bins, though, are full of food. The buffet in Jamie’s dorm is an example of:
A. an efficient subsidy.
B. the tragedy of the commons.
C. excess supply in the market.
D. a good with positive externalities.
Food stamps and Medicaid are examples of:
A. cash transfer programs.
B. in-kind transfer programs.
C. welfare programs that have been eliminated.
D. programs created by the Personal Responsibility Act.
An economy produces only 1,000,000 computers valued at $2,000 each. Of these,
200,000 are sold to consumers, 300,000 are sold to businesses, 300,000 are sold to the
government, and 100,000 are sold abroad. No computers are imported. At the end of the
year, the computer manufacturers hold the unsold computers in inventory. What is the
value of the investment component of GDP?
A. $0.3 billion
B. $0.4 billion
C. $0.6 billion
D. $0.8 billion
The vertical intercept of the consumption function equals ______ and the slope equals
_____.
A. the mpc; autonomous consumption
B. autonomous consumption; the mpc
C. the unplanned component of consumption; the planned component of consumption
D. the planned component of consumption; the unplanned component of consumption
Refer to the figure below. Moving from point C to point B, the opportunity cost of 25
more salads is:
A. 5 pizzas.
B. 10 pizzas.
C. 15 pizzas.
D. 30 pizzas.