If federal, state, and local governments were unable to raise any revenue, then
government’s role as:
A. only a referee would be unaffected.
B. only an actor would be unaffected.
C. both an actor and a referee would be eliminated.
D. both an actor and a referee would be unaffected.
Answer:
The price of apples is currently $1 per pound. If apples are sold in a competitive market
and the price of apples increases to $2 per pound, the marginal revenue product (MRP)
of labor used to produce apples would:
A. not change.
B. change in a manner that cannot be determined without additional information.
C. be cut in half.
D. double.
Answer:
Supposed each of the following rows represents the choice faced by policy makers
given the current set of U.S. institutions and technology. What is the opportunity cost of
reducing unemployment from 8 percent to 4 percent?
A. 4 percentage points of unemployment
B. 6 percentage points of unemployment
C. 6 percentage points of inflation
D. 4 percentage points of inflation
Answer:
Refer to the graphs shown, which depict a perfectly competitive market and firm. If
market demand decreases from D0 to D1, the firm will:
A. raise the price it charges.
B. earn negative economic profit in the short run.
C. earn positive economic profit in the short run.
D. earn positive economic profit in the long run.
Answer:
Which of the following statements best illustrates “Luddite reasoning”?
A. Technology makes it possible to replace workers with machines, and so it will
decrease the overall demand for labor.
B. New technology changes the type of labor demanded.
C. Technology increases total output, and so it will increase the demand for labor.
D. Labor is necessary for building and maintaining machines, and so increased demand
for machines increases the demand for labor.
Answer:
The minimum point of the average total cost curve always occurs at a larger output
level than the minimum point of the average variable cost curve because:
A. marginal cost is falling.
B. average fixed costs are rising.
C. average fixed costs are falling.
D. marginal cost is rising.
Answer:
Refer to the graph shown. If the price of shekels is $0.90, the quantity of shekels
supplied is:
A. greater than the quantity demanded. This causes the shekel to gain value.
B. less than the quantity demanded. This causes the shekel to gain value.
C. greater than the quantity demanded. This causes the shekel to lose value.
D. less than the quantity demanded. This causes the shekel to lose value.
Answer:
Refer to the graph below.
In the 1980s, desktop publishing reduced the cost of producing books. Assuming no
change in the cost of producing CDs, which of the shifts reflects this change in
technology?
A. I
B. II
C. III
D. IV
Answer:
The fact that airlines offer off-peak airline discounts rather than peak-time surcharges is
an example of:
A. loss aversion.
B. framing effects.
C. non-zero sum game.
D. irrational behavior.
Answer:
Which of the following best exemplifies a failure of market outcome?
A. Secondhand smoke can put the health of children at risk.
B. Consumers often don’t know as much about the car they are buying than the person
selling the car does.
C. Adults with emphysema find it difficult to quit smoking even though they know that
smoking worsens their health and they want a long life.
D. Some people can enjoy the use of a public park without paying for it.
Answer:
In a natural monopoly, the average cost:
A. decreases with additional production.
B. increases with additional production.
C. remains constant with additional production.
D. vacillates up and down with additional production.
Answer:
Economies of scale occur when a firm’s long-run average total cost curve is:
A. upward-sloping.
B. vertical.
C. downward-sloping.
D. horizontal.
Answer:
Consider the following payoff matrix facing Harry and Sally when each chooses to go
to the coffee shop listed. Both Harry and Sally would like to meet each other but are shy
about asking the other out on a date.
What is Harry’s best strategy?
A. Harry has no best strategy.
B. Go to Dunkin’ Donuts.
C. Go to Starbucks.
D. Stay at home.
Answer:
Which of the following would be the most likely effect of a 75 percent tax on punitive
awards by juries?
A. An increase in the number of lawsuits asking for punitive damages
B. A decrease in the number of cases settled out of court
C. An increase in the incentive for plaintiffs to pursue legal action against individuals or
businesses who have caused injury due to gross negligence
D. An increase in pre-trial settlements since plaintiffs are willing to accept lower
settlement amounts that are not taxed
Answer:
The elasticity of labor supply:
A. should be greater for a state than for a town because people can travel more easily
between states than between towns.
B. should be greater for a town than for a state because people are more likely to
consider work in a neighboring town than in another state.
C. for a town should equal the elasticity of labor supply for a state.
D. for a town is not related to the elasticity of labor supply for a state.
Answer:
If a $100 drop in the price of a $10,000 car resulted in an increase in the quantity of
cars purchased from 100 to 110 and a $100 drop in the price of a $1,000 vacation rental
resulted in an increase in the quantity of weekly vacation homes rented from 100 to
110, the price elasticity of demand is:
A. greater for the car.
B. less for the car.
C. the same for both the car and the vacation rental.
D. not comparable.
Answer:
The short run is a period during which:
A. some inputs are variable and no inputs are fixed.
B. some inputs are variable and some inputs are fixed.
C. no inputs are variable and all inputs are fixed.
D. no inputs are variable and some inputs are fixed.
Answer:
Which of the following situations best demonstrates the law of demand?
A. Movie-goers react to an increase in the price of a theater ticket by seeing fewer
movies per year.
B. Movie-goers see fewer movies per year due to an overall decrease in the quality of
newly released motion pictures.
C. A drought causes a decrease in the availability of pumpkins, resulting in fewer
jack-o-lanterns displayed on Halloween.
D. An increase in the number of people writing Economics textbooks results in a
decrease in average textbook prices.
Answer:
An economist who looks at the data that suggest that people are making decisions that
are based on rules of thumb and looks for reasons why this might be explained by the
economic decision rule is most likely to be a(n):
A. traditional economist.
B. behavioral economist.
C. irrational economist.
D. engineering economist.
Answer:
The relationship between long-run and short-run average total costs is known as the:
A. efficiency relationship.
B. technical relationship.
C. economic relationship.
D. envelope relationship.
Answer:
An effluent fee is an example of:
A. a voluntary approach to pollution.
B. a direct regulation of pollution.
C. a tax incentive policy.
D. a market incentive policy.
Answer:
The following table shows four firms, the amount each pollutes, the marginal cost for
each firm to clean up pollution, and the total cost to each firm of eliminating all
pollution.
The total discharge of these four companies is 300 tons. Assume there is no one else
who pollutes.
Refer to the table shown. If the goal of the government is to reduce pollution by 50
percent, the cheapest way would be to have:
A. all four firms cut their discharge by 50 percent
B. have each firm reduce discharge by 37.5 tons.
C. have firms A and D stop discharging and allow B and C to continue.
D. have firms B and C stop discharging and allow A and D to continue.
Answer:
If a person would buy equipment with safety features that cost $100 extra and those
features reduce the chance of having a fatal accident by 1/500, the person is implicitly
valuing his or her life at a minimum of:
A. $5.
B. $5,000.
C. $50,000.
D. $500,000.
Answer:
If there were no income inequality in a nation, its Lorenz curve would be:
A. convex.
B. concave.
C. an upward-sloping straight line with slope of 1.
D. a horizontal line.
Answer:
To guide a person through complicated decisions such as whether to get a particular
credit card, behavioral economists advocate electronic disclosure in which
characteristics such as late fees and APRs would be explained clearly. They call this
type of nudge a(n):
A. pricing nudge.
B. encouragement nudge.
C. information nudge.
D. advantageous default option nudge.
Answer:
A natural monopoly:
A. has an average total cost curve that reaches minimum possible average total cost at a
low level of output.
B. is usually subject to antitrust suits.
C. is usually allowed to choose its price so as to maximize profits in the United States.
D. occurs when a single firm can supply the entire market demand for a product at a
lower average total cost than would be possible if two or more firms supplied the
market.
Answer:
Refer to the graph shown. The figure shows the demand and supply curves for eggs and
shows two equilibrium points, E1 and E2. Suppose the prevailing price of a dozen eggs
is $1.25 and the demand curve is given by D1. Which of the following would result?
A. A surplus of 2,000 dozen eggs per week
B. A shortage of 2,000 dozen eggs per week
C. A surplus of 3,000 dozen eggs per week
D. A tendency for the price of eggs to increase
Answer:
A natural experiment is:
A. a naturally occurring event that approximates a controlled experiment.
B. not possible given that economists study real-world events.
C. a branch of economics that studies the economy through controlled lab experiments.
D. what all economists do when they develop their models.
Answer:
The increase in the availability of organic foods likely:
A. lowers equilibrium quantity and raises equilibrium price for organic foods.
B. raises equilibrium quantity and price for organic foods.
C. raises equilibrium quantity and lowers equilibrium price for organic foods.
D. lowers equilibrium quantity and price for organic foods.
Answer:
If a negative externality is to be internalized to the decision maker, the:
A. producers’ marginal costs should be increased by an amount equal to the marginal
cost to those outside the trade that results from production of the good.
B. producers’ marginal costs should be reduced by an amount equal to the marginal cost
to those outside the trade that results from production of the good.
C. consumer of the good should receive a subsidy equal to the marginal cost to those
outside the trade that results from production of the good.
D. consumer of the good should pay a tax equal to the marginal benefit to those outside
the trade that results from consuming the good.
Answer:
More than 10,000 visitors waited up to two hours in line to see the rare flower titan
arum at the Cambridge Botanical Gardens. What does this situation illustrate to an
economist about rationing?
A. Goods don’t have to be rationed by lottery or first-come, first-served. Goods can be
rationed by price.
B. When goods are not fully rationed by price, other rationing mechanisms such as
waiting arise.
C. When goods are not rationed by price, other rationing mechanisms such as lottery
must be introduced.
D. There is no need for rationing if anyone who waits long enough can see the flower.
Answer: