An agreement in which the incentives of both parties match their goals as closely as
possible is:
A. an X-inefficiency contract.
B. a public good.
C. an incentive-compatible contract.
D. a corporate takeover contract.
Answer:
Refer to the table above. If the price per unit of product is $2 and the wage rate is $25, a
profit-maximizing firm operating in competitive markets would hire:
A. three workers.
B. four workers.
C. five workers.
D. six workers.
Answer:
Households do all of the following except:
A. receive income that is redistributed by the government.
B. demand labor services from businesses in the factor market.
C. demand goods and services from businesses in the goods market.
D. supply labor services to the government in the factor market.
Answer:
A ____ is a simplified representation of a problem that captures the essential issues.
A. precept
B. theorem
C. hypothesis
D. model
Answer:
Refer to the graph shown. When the market is in equilibrium, producer surplus is area:
A. A.
B. F.
C. C plus area D plus area E.
D. A plus area F.
Answer:
Refer to the table shown. If the average product is 8, the number of workers is:
A. 2.
B. 4.
C. 6.
D. 8.
Answer:
According to the law of demand an increase in the price of gasoline will:
A. increase the quantity demanded of gasoline, other things constant.
B. decrease the quantity demanded of gasoline, other things constant.
C. increase the demand for gasoline.
D. decrease the demand for gasoline.
Answer:
In 1990 the UN placed trade sanctions on Iraqi oil. In 1996, Iraq was allowed limited
export of oil to make war reparations. What was the predicted effect of the two events
on equilibrium price and quantity of oil?
A. Price fell initially, then rose (failing to return to its former low level); quantity fell
and then rose
B. Price fell initially, then rose (failing to return to its former low level); quantity rose
and then fell
C. Price rose initially, then fell (failing to regain its former losses); quantity fell and
then rose
D. Price rose initially, then fell (failing to regain its former losses); quantity rose, then
fell
Answer:
The long-run average cost curve is tangent to the short-run average total cost curve at
the minimum point of the short-run average total cost curve when the:
A. long-run average cost curve is downward-sloping.
B. long-run average cost curve is upward-sloping.
C. firm is experiencing constant returns to scale.
D. firm is experiencing economies of scale.
Answer:
Which of the following countries is not a member of The Group of Eight?
A. Germany
B. Japan
C. United States
D. China
Answer:
According to the text, the most important income distribution decisions that the
government makes involve:
A. establishing and protecting property rights.
B. maintaining a progressive income tax structure.
C. redistributing income through transfer payments to the poor.
D. encouraging innovation through direct subsidies.
Answer:
Suppose farmers can use their land to grow either wheat or corn. The law of supply
predicts that an increase in the market price of wheat will cause:
A. farmers to substitute wheat for the production of corn.
B. farmers to substitute corn for the production of wheat.
C. farmers to lower the production of corn and wheat.
D. farmers to raise the production of wheat and corn.
Answer:
Which of the following programs would redistribute consumer surplus in favor of those
with less surplus in an otherwise free market economy?
A. Providing welfare payments to the poor that are paid for by income taxes
B. Enforcing existing property rights
C. Ensuring that the market results in an efficient outcome
D. Eliminating estate taxes
Answer:
An employer’s insurance program is set up so that employees have to opt out rather than
opt in. This is an example of:
A. a pricing nudge.
B. an encouragement nudge.
C. an information nudge.
D. an advantageous default option nudge.
Answer:
Suppose that a consumer has a health insurance program with $10 co-payment per
doctor visit. If the consumer purchases 6 doctor visits and the bill charged by the doctor
for 6 visits is $360, the cost per visit paid by a third party is:
A. $40.
B. $50.
C. $60.
D. $70.
Answer:
The marginal rate of substitution is the rate at which:
A. inputs must be substituted for one another to keep costs constant.
B. inputs are substituted for output.
C. inputs must be substituted for one another to keep output constant.
D. the marginal productivity of a factor declines.
Answer:
Refer to the graph shown. Currently, if this perfectly competitive firm is maximizing
profit, the market price is:
A. $6.50 and marginal revenue for the firm is $5.00.
B. $5.00 and marginal revenue for the firm is $3.00.
C. $5.00 and marginal revenue for the firm is $5.00.
D. $6.50 and marginal revenue for the firm is $6.50.
Answer:
Government may not have an incentive to correct a market failure because:
A. government doesn’t have the information it needs to correct the market failure.
B. government reflects politics, which reflects individuals’ interests in trying to gain
more for themselves.
C. policy makers fear that intervention will lead to a Pareto optimal outcome.
D. the benefit of correcting the market failure might exceed the cost of correcting the
market failure.
Answer:
One reason economists have many different views on social policy is that:
A. economic policy is an exact science.
B. policy proposals must be based on precise evidence.
C. policy proposals are based on various models that focus on different aspects of a
problem.
D. economic policy cannot involve value judgments.
Answer:
If a monopolist increases sales from 10 to 11 by lowering its price from $40 to $38, its
marginal revenue is:
A. $2.
B. $18.
C. $400.
D. $418.
Answer:
On the Lorenz curve, a perfectly equal distribution of income would be represented by
a(n):
A. line with a slope of 1.
B. horizontal line.
C. vertical line.
D. upward-shaped curve.
Answer:
Refer to the graph shown. The least-cost method of producing 1,000 units of output is
shown at point:
A. A.
B. B.
C. C.
D. D.
Answer:
Suppose the average total cost of producing semiconductors in a factory of a particular
size declines over time as more semiconductors are produced. This drop in average total
cost might best be explained by:
A. economies of scale.
B. economies of scope.
C. learning by doing.
D. diminishing marginal productivity.
Answer:
Amartya Sen argues that the goal of economic policy should be to:
A. increase total income regardless of how that income is divided.
B. increase a society’s capabilities.
C. eliminate income inequality.
D. increase utility.
Answer:
The Chicago City Council considered a “living wage” ordinance that would raise the
minimum wage in Chicago to about $10 an hour. How did most economists probably
view this legislation?
A. It is a proposal that is meant to help everyone.
B. The city will benefit because more people will move to Chicago.
C. All people looking for work will be helped, but consumers will be hurt.
D. Workers who can find work will be helped, but some people will lose their jobs.
Answer:
Opportunity cost:
A. includes only monetary outlays.
B. is the net benefit forgone by not undertaking the next best alternative.
C. is nonexistent for some choices.
D. is the same as sunk cost.
Answer:
Given the production possibility tables for First and Second Bakeries shown, we know
that the opportunity cost of producing pies:
A. is higher at First Bakery.
B. is higher at Second Bakery.
C. is the same at both bakeries.
D. cannot be computed without further information.
Answer:
Each firm in perfect competition:
A. sets quantity based on market price.
B. follows the pricing decisions of other firms.
C. follows the output of other firms.
D. follows the reactions of competitors.
Answer:
If the percentage increase in the quantity supplied is greater than the percentage
increase in the price, the supply:
A. is elastic.
B. is inelastic.
C. is unit elastic.
D. is perfectly elastic.
Answer:
Suppose that a critic of market economies proposes three major criticisms: (1) the
market leads people to want the wrong things, (2) the gap between the rich and the poor
that the market generates is obscenely large, and (3) free rider problems are
everywhere, and their presence seriously distorts market production and consumption.
Of these three criticisms, how many can be classified as market failures rather than
failures of market outcome?
A. Zero
B. One
C. Two
D. Three
Answer:
The upward-sloping part of the long-run average cost curve is explained by:
A. indivisible setup costs.
B. diseconomies of scale.
C. output levels that exceed the minimum efficient level of production.
D. decreasing marginal productivity.
Answer:
In a perfectly competitive market, a decrease in market demand in a long-run
constant-cost industry causes:
A. an increase in price, quantity, and profit in the short run.
B. an increase in price, quantity, and profit in the long run.
C. a decrease in price, a decrease in quantity, and a decrease in profit in the short run.
D. a decrease in price, a decrease in quantity, and a decrease in profit in the long run.
Answer: