If average labor productivity in two countries is the same, average living standards will
be lower in the country with:
A. the smaller population.
B. the larger population.
C. the higher share of population employed.
D. the lower share of population employed.
The marginal product of new capital depends on ______ and _____.
A. productivity of capital; relative price of the firm’s output
B. price of new capital goods; real interest rate
C. relative price of the firm’s output; real interest rate
D. productivity of new capital; real interest rate
Most economists generally argue ______ trying to block technological advances
because these technological advances ______.
A. in favor of; cause the economy to grow to rapidly
B. in favor of; increase wage inequality
C. against; are necessary for improved standards of living
D. against; promote wage equality
Suppose a treacherous stretch of road winds through Deadman’s Canyon for 5 miles. A
highway department study estimates that better lighting would reduce the traffic fatality
rates as follows:
Highway engineers have identified one level area in which one light could be located,
but due to the rough terrain installation in additional locations is increasingly costly as
more light locations are added. The highway department
A. should put the first light in a difficult-to-access location while they still have
sufficient budget to cover installation.
B. should apply the low-hanging-fruit principle.
C. must install the maximum number of lights because they have been shown to save
lives.
D. should use non-monetary criteria to decide on light location.
Shifts in ______ can push the economy out of long-run equilibrium.
A. the AD curve only
B. the AS curve only
C. either the AD curve or the AS curve
D. the PAE line only
Inflation-protected bonds guarantee investors:
A. no real wealth loss in the event of unexpectedly high inflation.
B. above average real returns.
C. a fixed nominal rate of return.
D. an above average rate of inflation.
Suppose a monopolist sells one version of its output to consumers and another version
to businesses. The marginal cost of the consumer version is $5 per unit while the
business version has marginal costs of $5.75. If resale is impossible, one can infer that:
A. the monopolist will charge two different prices and is not necessarily practicing price
discrimination.
B. the monopolist will charge a uniform price to both consumers and businesses.
C. the monopolist will charge two different prices and is perfectly price discriminating.
D. the monopolist will charge two different prices and is imperfectly price
discriminating.
This graph shows the marginal costs and marginal benefits associated with roadside
litter clean up. Assume that the marginal cost and marginal benefit curves slope in the
usual directions.
Refer to the information given above. The socially optimal number of bags of litter
removed from the roadside is:
A. 10.
B. 15.
C. 20.
D. 30.
Adam Smith’s invisible hand leads to an efficient outcome when
A. buyers are fully informed about all relevant aspects of the product and the market in
which it is traded.
B. buyers have collected information only up to the point at which the marginal cost of
acquiring more information equals the marginal benefit of having more information.
C. buyers have more information about the product being traded than do sellers.
D. buyers have less information about the product being traded than do sellers.
A few years ago Stan and his kids were the only people who fished in Stan’s personal
pond. Then Stan started to sell tickets to the public. Stan left the pond and the land it
was on to the state in his will, stipulating that the land be used as a public fishing area.
When Stan started to sell tickets to the public to fish in his pond it became a ____ good.
A. private
B. commons
C. collective
D. public
In Macroland there is $1,000,000 in currency that can either be held by the public as
currency or deposited into banks. Banks’ desired reserve/deposit ratio is 10%. If the
public of Macroland decides to hold more currency, increasing the proportion they hold
from 50% to 75%, the money supply in Macroland will ______.
A. increase.
B. decrease.
C. remain the same.
D. either increase or decrease.
The incentive principle states that a person is more likely to do something if:
A. the opportunity costs are high.
B. the benefits from doing it increase.
C. everyone else is doing the same thing.
D. he is paid to do it.
A firm employs Pam to assemble personal computers. Pam can assemble 1 computer if
she works 1 hour, 4 computers in 2 hours, 8 computers in 3 hours, 10 computers in 4
hours, and 11 computers in 5 hours. Each computer consists of a motherboard that costs
$200, a hard drive that costs $100, a case that costs $20, a monitor that costs $200, a
keyboard that costs $60 and a mouse that costs $20. The cost of employing Pam is $40
per hour.
What is the marginal cost of producing the computers Pam assembles during her 4th
hour of work?
A. $1,200
B. $1,240
C. $2,400
D. $2,440
The introduction of an overnight delivery service that guarantees the delivery of
packages anywhere in the world overnight would increase:
A. average labor productivity.
B. the share of population employed.
C. the labor force participation rate.
D. the unemployment rate.
Suppose a firm is collecting $1,250 in total revenues and the total costs of its variable
factors of production are $1,000 at its current level of output. The firm has $500 in
fixed costs. In the short run, one can predict that the firm will ____ and in the long run
the firm will _____.
A. shut down; reopen for business
B. earn a profit; earn a loss
C. earn a loss; earn a profit
D. continue to operate; exit the industry
According to the textbook, the most important and enduring source of market power is:
A. government franchise.
B. patents.
C. copyright.
D. economies of scale.
The specialized information-gathering activities that banks use to evaluate borrowers
are an example of the:
A. cost-benefit principle.
B. principle of comparative advantage.
C. scarcity principle.
D. principle of increasing opportunity cost.
If the United States has a $300 billion net capital inflow, then there must be a:
A. trade surplus of $300 billion.
B. trade deficit of $300 billion.
C. trade surplus of $600 billion.
D. net capital outflow of $300 billion.
If the consumers can easily switch to a close substitute when the price of a good
increases, demand for that good is likely to be:
A. elastic.
B. inelastic.
C. unitary elastic.
D. perfectly inelastic.
Joe is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini
Mart and together they are the only gas stations in town. At the current price of $3 per
gallon, both receive total revenues of $1,000. Joe is considering cutting his price to
$2.90, which would increase his total revenue to $1,350 if Sam continues to charge $3.
If Sam’s price remains $3 after Joe cuts his price, Sam will collect $500 in revenues. If
Sam cuts his price to $2.90, his total revenues would also rise to $1,350 if Joe continues
to charge $3. Joe will collect $500 in revenues if he keeps his price at $3 while Sam
lowers his to $2.90. Joe and Sam will receive $900 each in total revenue if they both
lower their price to $2.90. You may find it easier to answer the following question if
you fill in the payoff matrix below.
Refer to the information given above. To both Joe and Sam, __________ is a
__________.
A. cutting price to $2.90; disequilibrium
B. leaving price at $3; Nash equilibrium
C. leaving price at $3; dominant strategy
D. cutting price to $2.90; dominant strategy
According to the textbook, individual incentives have led to:
A. the optimal number of stock market analysts because it is a competitive market with
no entry barriers.
B. too many stock market analysts because market analysis does not produce social
benefits.
C. too many stock market analysts because the individual incentive to forecast faster
exceeds the social benefit of a faster forecast.
D. too few stock market analysts because the efficient market hypothesis predicts that
no analyst will do better than random chance in the long run.
Assets are:
A. current income minus spending on current needs.
B. stocks, bonds, and credit card balances.
C. saving minus investment.
D. anything of value one owns.
If the public switches from using cash for most transactions to using checks instead,
then all else equal, the money supply will:
A. increase.
B. decrease.
C. not change.
D. either increase or decrease.
The nominal return on an inflation-protected bond equals a fixed real return:
A. plus the actual rate of inflation.
B. minus the actual rate of inflation.
C. divided by the price level.
D. plus the expected rate of inflation.
Suppose that a government agency is trying to decide between two pollution reduction
policy options. Under the permit option, 100 pollution permits would be sold, each
allowing emission of one unit of pollution. Firms would be forced to shut down if they
produced any units of pollution for which they did not hold a permit. Under the
pollution tax option, firms would be taxed $250 for each unit of pollution produced.
The regulated firms all currently pollute and face varying costs of pollution reduction,
though all face increasing marginal costs of pollution reduction.
Suppose the permit policy is adopted. A firm will wish to purchase its first permit if the
price of that permit is less than or equal to
A. the cost of reducing its existing pollution by one unit.
B. the lowest cost of eliminating one unit of pollution.
C. the marginal cost of eliminating its last unit of pollution and operating completely
pollution free.
D. the average cost of eliminating one unit of pollution.
Saving equals:
A. current spending minus current income.
B. wealth minus assets.
C. assets minus liabilities.
D. current income minus spending on current needs.
A quantity measured in terms of current dollar value is called a(n) ______ quantity.
A. nominal
B. real
C. deflated
D. indexed
If real GDP is greater than potential GDP, then:
A. the actual unemployment rate is greater than the natural unemployment rate.
B. the actual unemployment rate equals zero.
C. the output gap is negative.
D. the actual unemployment rate is lower than the natural unemployment rate.
This graph shows one consumer’s demand for ice cream at the student union:
During the semester, the student union charges $3.00 per scoop. If every student who
buys ice cream has the demand curve shown, when there are 1,000 students _____
scoops are sold per week.
A. 400
B. 1,000
C. 2,000
D. 4,000
You have noticed that your next-door neighbor, Mary, always works in the garden and
her husband, Joe, always walks the dog. Based on this observation, you conclude that:
A. Mary has an absolute advantage in gardening.
B. Joe has a comparative advantage in walking the dog.
C. Mary does not understand the principle of low-hanging fruit.
D. Joe experiences increasing opportunity costs when he gardens, but not when he
walks the dog.