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A profit-maximizing price searcher will expand output to the point where
a. total revenue equals total cost.
b. marginal revenue equals marginal cost.
c. price equals average total cost.
d. price equals marginal cost.
The share of the labor force that was unionized increased from approximately 10
percent in 1930 to more than 30 percent in 1955. During these 25 years, the share of
national income allocated to labor (in contrast to capital)
a. remained virtually constant.
b. increased approximately 10 percent.
c. increased between 15 and 25 percent.
d. increased 17.6 percent.
If a firm is losing money, this implies that
a. consumers do not understand the value of the product.
b. the value of the resources used to make the product is being reduced.
c. the firm must go out of business immediately.
d. this product cannot be produced profitably in the long run.
Widespread acceptance of the Keynesian theory of fiscal policy
a. caused most economists to reject the public choice view of budget deficits.
b. relaxed the political pressure to balance the budget and, hence, paved the way for the
persistent budget deficits of the last five decades.
c. was based on the view that continual budget deficits would help stabilize the
economy.
d. increased the pressure for a constitutional amendment mandating that the federal
government balance its budget.
In a market economy, what determines whether an entrepreneur will continue in
business or terminate the production of a new product?
a. government regulations
b. licensing by industrial development agencies
c. the profit or loss of the business
d. the taxes paid to the government relative to the subsidies received
Losses are important to a competitive price-searcher market (industry) because they
send a message to the market participants that
a. more resources should be devoted to a particular industry.
b. resources can rise in value if diverted away from that particular industry.
c. resources are allocated exactly as they should be.
d. the firms should charge lower prices.
Sound economic policy is policy that is consistent with
a. good intentions.
b. quick action and frequent policy changes until positive results are achieved.
c. monetary stability, free trade, and low tax rates.
d. saving jobs, protecting domestic industry, and increasing tax revenue.
What is the most probable reason why garbage collectors have higher wages than
bookkeepers?
a. Employment discrimination
b. A high unionization rate for bookkeepers
c. A higher educational requirement for garbage collectors than bookkeepers
d. The nonmonetary attractiveness of garbage collection causes fewer people to want to
be garbage collectors.
"A reduction in gasoline prices caused the demand for gasoline to increase. The lower
gas prices also led to an increase in demand for large cars, causing their prices to rise."
These statements
a. are essentially correct.
b. contain one error; the lower gasoline prices would cause an increase in the quantity
demanded of gasoline, not an increase in demand.
c. contain one error; the lower gasoline prices would increase the quantity demanded of
large cars, not the demand.
d. contain two errors; the lower gasoline prices would cause the quantity of gasoline
demanded (rather than the demand) to increase, and the lower gasoline price would
cause an increase in quantity demanded (rather than the demand) for large cars.
Under the adaptive expectations theory, expansionary monetary and fiscal policies
designed to reduce the unemployment rate will be
a. ineffective in the long run.
b. ineffective in the short run.
c. noninflationary.
d. all of the above.
If substantial income mobility is present,
a. there is considerable movement of individuals up and down the income ladder when
income comparisons among the same individuals or households are made at different
points in time.
b. annual income data are an accurate indicator of the long-term economic status of
individuals and families.
c. the rich tend to stay rich and the poor tend to stay poor.
d. individuals and families move quite often among the geographic regions of a country
but not among income groups.
A system that permits banks to hold less than 100 percent of their deposits as reserves is
called a
a. federal reserve system.
b. fractional reserve banking system.
c. partially funded deposit insurance system.
d. gold standard banking system.
If expansionary monetary policy reduces real interest rates in the United States, which
of the following is most likely to occur?
a. Net foreign investment will decline, causing the dollar to depreciate and net exports
to increase.
b. Net foreign investment will decline, causing the dollar to appreciate and net exports
to decrease.
c. Net foreign investment will increase, causing the dollar to appreciate and net exports
to decline.
d. Net foreign investment will increase, causing the dollar to depreciate and net exports
to increase.
On a certain date, the banking system had $40 billion in excess reserves. The legally
required reserve ratio was 20 percent. Potentially, if these funds were loaned and
eventually the entire amount re-deposited with a bank, the banking system as a whole
could increase the money supply by
a. a maximum of $40 billion.
b. a maximum of $160 billion.
c. a maximum of $200 billion.
d. more than $200 billion.
Which of the following will become smaller and smaller as the firm expands output?
a. average total cost
b. average fixed cost
c. marginal cost
d. total fixed cost
In a market economy, which of the following will most likely cause a prolonged milk
shortage?
a. an increase in the demand for milk
b. an increase in the supply of milk
c. imposition of a price floor above the equilibrium price of milk
d. imposition of a price ceiling below the equilibrium price of milk
The benefit of a subsidy will go primarily to sellers when the
a. demand for the product is highly inelastic and supply is relatively elastic.
b. demand for the product is highly elastic and the supply is relatively inelastic.
c. subsidy is legally (statutorily) granted to the seller of the product.
d. subsidy is legally (statutorily) granted to the buyer of the product.
Non-renewable resources are those that
a. are not renewed by nature, but their supply can be easily expanded by humans.
b. are naturally renewed by nature; timber provides an example.
c. are not renewed by nature at a significant rate.
d. cannot be recycled, by their very nature.
Imposing a restrictive quota on imported plasma TVs will likely
a. increase the price of the plasma TVs and decrease the quantity consumed.
b. increase both the price of the plasma TVs and the quantity consumed.
c. leave the price of the plasma TVs unchanged but decrease the quantity consumed.
d. leave the price and the quantity consumed of plasma TVs unchanged, because
domestic producers will expand production to make up for the reduction in imports
If the Fed lends to member banks, what happens to reserves and the money supply?
a. Reserves increase and the money supply decreases.
b. Both increase.
c. Reserves decrease and the money supply increases.
d. Both decrease.
What happens to labor supply in the pear-picking market when the wage paid to apple
pickers increases?
a. The labor supply will stay unchanged until the wages paid to pear pickers change.
b. The labor supply will decrease.
c. The labor supply will increase.
d. The labor supply may fall or rise, depending on the price of pears.
Under competitive conditions, market prices
a. generally convey little information about the value and cost of goods.
b. do not usually have much of an effect on the decisions of individuals.
c. are incapable of coordinating the actions of buyers and sellers.
d. generally bring the self-interest of individuals into harmony with the general welfare.
Competition as a dynamic process implies that the individual firms in an industry
a. face a perfectly elastic demand curve.
b. utilize a variety of techniques, such as product, style, and price, to win the dollar
votes of consumers.
c. produce a homogeneous product.
d. cooperate, attempting to establish a price and output structure so each firm can
survive and continue to serve the consumer.
The GDP deflator is designed to
a. adjust nominal GDP for changes in the unemployment rate.
b. adjust nominal GDP so as to include the problem of externalities.
c. adjust nominal GDP for changes in the price level.
d. calculate changes in the price of food and other consumer goods.
Suppose the total cost for various levels of output for a competitive price-taker firm are
given in the table below:
If the market price is $8, how many units should the firm produce to maximize profit?
a. 5
b. 6
c. 7
d. 8
Figure 17-3
In Figure 17-3, in the absence of trade, the domestic price of soybeans is Pn. If the
world price of soybeans is Pw, which of the following will occur when the United States
begins to trade internationally?
a. The domestic price of soybeans will rise, and domestic consumption will fall.
b. Both the domestic price of soybeans and domestic consumption will rise.
c. Both the domestic price of soybeans and domestic consumption will fall.
d. The domestic price of soybeans will fall, and domestic consumption will rise.
If prices in the United States rose, which of the following could be directly attributed to
the international substitution effect?
a. Americans reduce their purchases of Japanese cars.
b. Australians buy more American surfboards.
c. Europeans purchase fewer American-made personal computers.
d. Americans sell more wheat to India.
Which of the following provides the best explanation of why money is valuable?
a. Money is valuable because it is declared legal tender by the government issuing it.
b. Money is valuable because it is scarce relative to the demand for the services it
provides.
c. Money is valuable because it is backed by precious metals, primarily gold and silver.
d. Money is valuable because it has intrinsic value, independent of its use as a means of
exchange.
Within the framework of the AD/AS model, if consumers and investors become more
pessimistic about the future direction of the economy, this will lead to
a. an increase in aggregate demand.
b. a decrease in aggregate demand.
c. an increase in long-run aggregate supply (LRAS shifts to the right).
d. a reduction in the natural rate of unemployment.
If the United States ran large budget deficits that push the federal debt to dangerously
high levels, which of the following would be most likely to occur?
a. An increase in investor confidence, an inflow of capital, and expansion in the size of
the trade deficit.
b. Loss of investor confidence, a decline in the net inflow of capital, and shrinkage in
the trade deficit.
c. An increase in the attractiveness of investments in the United States, an increase in
the inflow of capital, and a smaller trade deficit.
d. An increase in the long-term growth rate of the U.S. economy.
The marginal revenue of a price taker is
a. equal to price.
b. less than price.
c. more than price.
d. unrelated to price.
For a country to successfully maintain a fixed exchange rate value of its currency
relative to another currency (for example, as is done when currencies are unified or
pegged), it must
a. maintain a relatively high rate of inflation.
b. balance the government budget each year.
c. give up the independence of its monetary policy.
d. run a trade deficit.
When goods are produced privately, but the cost of their purchase is paid for by the
taxpayer or some other third party,
a. consumers have a strong incentive to search out those firms offering them the best
deal.
b. private producers of such goods will have little incentive to control costs and provide
them at low prices.
c. goods and services will only be supplied if consumers are willing to pay an amount
sufficient to cover their production costs.
d. the invisible hand will direct consumers and producers toward an efficient level of
output.
If the government levies a $1 excise tax on each unit of a good sold, what will happen
to the producer's cost curve?
a. The average total cost and marginal cost curves will shift downward by the amount of
the tax.
b. The average total cost and marginal cost curves will shift upward by the amount of
the tax.
c. The marginal cost curve will shift upward by the amount of the tax; the average total
cost curve will remain unchanged.
d. Both the marginal cost and average total costs will remain the same since taxes are
not a cost of production.
