Allison’s Auto Art is a company that applies pinstripes to vehicles. Allison’s cost for a
basic 1-color pinstriping job is $35, and she charges $95 for this service. For a total
price of $175, Allison will apply a fancier 3-color pinstripe application to an
automobile, a service that adds an additional $40 to the total cost of the package.
Should Allison continue to offer the 3-color pinstripe application?
A) yes, she still makes a profit by selling the 3-color application.
B) yes, but only if she lowers the price of the 1-color application
C) no, her marginal benefit is less than her marginal cost
D) More information is needed for Allison to make this decision.
Anyone can purchase sulfur dioxide emissions allowances on the Chicago Mercantile
Exchange. Several environmental groups have raised money to buy allowances (which
they subsequently destroy). As part of their fund-raising, these groups have urged
contributors to buy the allowances as gifts. As one newspaper story put it, “For the
environmentalist in your life, here’s a gift that is sold by the ton, fits in an envelope and
will last forever.”
Source for quote: Randall Edwards, “Dear Santa: Please Bring Me Sulfur Dioxide for
Christmas,” Columbus Dispatch, December 19, 1999. What would be the impact on the
price of the emission allowances in the market?
A) The price rises.
B) The price falls to zero.
C) The price falls, but not to zero.
D) The price remains unchanged because the allowances purchased by the
environmental groups are destroyed.
Article Summary. For only the second time in the previous 10 quarters, China’s
GDP grew at a faster rate than from the same period a year earlier. From July
through September 2013, China’s GDP increased 7.8 percent, but a decline in
exports, growing inflation, and slowing growth in factory production all suggest
that growth will be slowing down. China has recently been attempting to
restructure its economy by moving toward increasing consumption and relying
less on exports and investments as a means to achieving more sustainable
economic growth. In the first nine months of 2013, 46 percent of growth was due to
consumption, 56 percent was due to investment, and exports accounted for
negative 1.7 percent.
Source: Aileen Wang and Kevin Yao, “China’s third-quarter GDP growth fastest
this year, but outlook dim,” Reuters, October 18, 2013.
The decline in export growth will hurt China’s GDP because
A) a decrease in exports will decrease net exports, assuming no change in imports.
B) a decline in export growth indicates an increase in import growth.
C) exports are added to imports when calculating GDP.
D) exports are subtracted from imports when calculating GDP.
Major League Baseball teams are similar to other firms in that they use factors of
production to produce a product (baseball games). An example of capital used by teams
to produce their products is
A) the money teams earn from television contracts and ticket sales.
B) the land on which baseball games are played.
C) the labor of baseball players.
D) the ballparks where the games are played.
Measures of poverty (for example, the poverty line) and the distribution of income (for
example, the Lorenz curve and the Gini coefficient) are misleading for which of the
following two reasons?
A) First, these measures do not take into account income mobility over time. Second,
these measures ignore the effects of government programs meant to reduce poverty.
B) First, none of these measures are adjusted for inflation. Second, they do not measure
income on a per capita basis.
C) First, these measures fail to include the income U.S. citizens earn working for
foreign firms that have operations located in the United States. Second, these measures
fail to include income foreign citizens earn working for U.S. firms that have operations
in foreign countries.
D) First, these measures fail to include dividend and interest income earned on stocks
and bonds. Second, these measures fail to include the value of goods and services
citizens make for their own consumption that are not sold in markets.
Policies that mandate the installation of specific pollution control devices are called
A) command and control policies.
B) benefit policies.
C) welfare policies.
D) incentive policies.
Table 12-1
The firm will not produce in the short run if the output price falls below
A) $8.
B) $4.
C) $3.20.
D) $2.80.
The ________ curve has a positive slope because as prices of final goods and services
rise, prices of inputs rise more slowly.
A) short-run aggregate supply
B) long-run aggregate supply
C) short-run aggregate demand
D) long-run aggregate demand
Suppose a bank has $100 million in checking account deposits with no excess reserves
and the required reserve ratio is 10 percent. If the Federal Reserve reduces the required
reserve ratio to 8 percent, then the bank can make a maximum loan of
A) $0.
B) $2 million.
C) $8 million.
D) $10 million.
When the United States sends money to the Philippines to help typhoon survivors, the
transaction is recorded in
A) the capital account.
B) the current account.
C) the financial account.
D) the foreign exchange account.
The Mass Rapid Transit (MRT) System in Hong Kong has been running significant
losses. Transport Ministry officials have argued over whether to raise fares to combat
the losses. One argument against a fare increase is that it will aggravate traffic
congestion on the streets during peak commuter hours. Suppose that the current fare is
$4 and the government is considering raising it to $6. Officials estimate that this
reduces the number of rides purchased from 10,000 to 8,000 per day. a. What is the
estimated elasticity of demand for MRT rides?
b. What does this elasticity of demand suggest to you about what will happen to total
revenue earned by the transit system?
c. Last year, the MRT system incurred a loss of $50,000 per day. Do you think the fare
increase will resolve the deficit problem as well as Ministry officials anticipate?
Explain.
If actual inflation is greater than expected inflation, what is the relationship between the
actual real wage and the expected real wage?
A) The actual real wage will be lower than the expected real wage.
B) The actual real wage will be higher than the expected real wage.
C) The actual real wage will be equal to the expected real wage.
D) The relationship between the actual real wage and the expected real wage cannot be
predicted.
The economic growth model predicts that
A) the level of real GDP per capita in poor countries will grow faster than in rich
countries.
B) the per-worker production function of poor countries will be flatter than the
per-worker production function of rich countries.
C) lower-income industrial countries will forever be unable to catch up to
higher-income industrial countries.
D) economic growth in rich countries can only be accomplished at the expense of slow
or even negative growth in poor countries.