All large firms have monopoly power.
a. True
b. False
The growth rate of productivity is the most important determinant of material
well-being in the short run.
a. True
b. False
Land on both sides of the border of Brazil and Venezuela has long been occupied by the
Yanomamo people. These “fierce people” are the last Stone Age tribe left in South
America. Following discovery of gold, approximately 45,000 garimperios (gold miners)
invaded the Yanomamo territory. The mining process pollutes the rivers and scares
away game, so traditional Yanomamo sources of food, are almost impossible to find
now. The Yanomamo are starving. Economists call this problem
a. the cost disease.
b. an externality.
c. specialization.
d. rent seeking.
The income effect is thought to offset the substitution effect among very high wage
earners.
a. True
b. False
Central planning is an efficient method for making coordination decisions.
a. True
b. False
When aggregate demand exceeds current production
a. both output and the price level are in equilibrium.
b. output is not in equilibrium, but the price level is.
c. prices are not in equilibrium, but output is.
d. neither output nor the price level is in equilibrium.
China is the world’s largest wheat producer. If China’s domestic product grew by eleven
percent in the previous year, it implies that
a. production of wheat grew by more than eleven percent.
b. products other than wheat grew by less than eleven percent.
c. China’s overall output grew by eleven percent.
d. production of wheat is declining in China.
If a firm’s marginal profit is negative, it should reduce its output level.
a. True
b. False
The 1981 tax reform act reduced taxes on high-income individuals. Many economists
believed that high tax rates would deter high-income individuals from working and
investing, thus slowing the growth of income. This illustrates the issue of
a. the equality-efficiency trade-off.
b. usury.
c. the effects of budget deficits on future generations.
d. the cost disease of the public sector.
e. the importance of externalities.
Table 20-2
From Table 20-2, what can you conclude about net exports as GDP rises?
a. Net exports rise and then fall as GDP rises.
b. Net exports are constant as GDP rises.
c. Net exports rise as GDP rises.
d. Net exports fall as GDP rises.
Monetarists believe that the aggregate supply curve is relatively steep in the short and
long runs. This means they expect
a. inflation with no change in output.
b. increases in output to bring much inflation.
c. increases in output to bring little inflation.
d. decreases in output to bring much inflation.
When factor markets are competitive, it always pays a profit-maximizing firm to
a. use more of the factor.
b. bid very low prices for inputs.
c. reduce the use of all inputs.
d. use that quantity of input that makes MRP equal to the price of the input.
Rising prices help control the process of resource depletion by
a. discouraging consumption and waste.
b. stimulating more efficient use of the depletable resource.
c. encouraging resource-saving innovation.
d. doing all of the above.
Labor is defined as cheap only if its productivity is very low.
a. True
b. False
The short-run supply curve of the perfectly competitive firm is the firm’s
a. MC curve.
b. AVC curve.
c. MC curve above the minimum point on the AVC curve.
d. MC curve above the minimum point on the ATC curve.
Direct controls are generally much more costly than emissions taxes because
a. under direct controls emissions cutbacks are usually not apportioned among the firms
on the basis of their ability to reduce pollution cheaply and efficiently.
b. emissions tax per unit of output is higher than the per-unit direct control program
cost.
c. government cannot legally levy emissions taxes that are as high.
d. firms disregard emissions taxes.
A main reason why the U.S. trade deficit grew so large from 1997 to 2000 was that
a. Congress removed all tariffs and trade restrictions on imports.
b. NAFTA was introduced and Mexican exports flooded the United States.
c. the international value of the dollar fell during the 1990s, which encouraged U.S.
exports.
d. the international value of the dollar rose in the last half of the 1990s, which
encouraged U.S. imports and damaged U.S. exports.
Due to the distortionary effects of inflation, capital investment may be reduced due to
higher price levels.
a. True
b. False
If Kobe, an NBA star athlete, earns $10 million per year but has no money in the bank,
he has a
a. high income and high wealth.
b. low income and high wealth.
c. high income and low wealth.
d. low income and low wealth.
The main instrument of control of public monopolies is the regulatory agency.
a. True
b. False
What would the Herfindahl-Hirschman Index equal for an industry consisting of six
firms with market shares of 40%, 30%, 20%, 5%, 3%, and 2%?
a. 0.95
b. 2.934
c. 2,938
d. 10,000
To find a firm’s total revenue at every quantity, all you need to know is
a. the demand curve for its product.
b. the demand curve for its product and its total cost.
c. its profit-maximizing price and quantity.
d. its total profit curve.
When government spending is added to the basic macroeconomic model, the multiplier
for G would
a. be higher than the multiplier for autonomous spending.
b. be lower than the multiplier for autonomous spending.
c. be equal to the multiplier for autonomous spending.
d. have no relationship to the autonomous spending multiplier.
A.B. Denson Company had been employing 6 workers and 8 tons of raw materials,
using 2,000 square feet of plant space. The firm increased its work force to 12 workers
utilizing 16 tons of raw materials in a plant space increased to 4,000 square feet. Total
number of units of output increased from 78 to 160. What kind of returns to scale is the
firm experiencing? Defend your answer.
Asymmetric information will lead to
a. higher prices for some used cars, lower prices for others.
b. “lemon” prices for good used cars.
c. new cars selling for prices lower than good used cars.
d. old cars selling for more than new cars.
Mitsubishi Corporation of America builds a car in Normal, Illinois, and ships it to Japan
for sale. In which country’s GDP is this production included?
a. Japan
b. both Japan and the United States
c. in Japan as retail value and the United States as wholesale value
d. half the value in Japan and half in the United States
e. the United States
A diversified portfolio only makes sense for large institutional investors, not for small
investors.
a. True
b. False
When a patent is awarded, no one but the patent owner may produce the invention
without his permission.
a. True
b. False
The U.S. government has accumulated a net national debt of almost 60% of GDP.
Compared to other countries, this is:
a. smaller than that of many fiscally healthy countries
b. larger than that of many fiscally healthy countries
c. about the same as that of troubled debtor nations
d. larger than that of troubled debtor nations
A common error of business managers is to blame inflation on
a. consumer spending.
b. rising wages.
c. rising prices.
d. rising interest rates.
e. rising unemployment.
Which of the following are not valid arguments against the effectiveness of the fiscal
stimulus bill?
a. Employment continued to fall into early 2010.
b. Without stimulus recessions come to an end naturally.
c. State and local government spending increased.
d. Monetary policy played a large role in stimulating the economy.
Rent controls are designed to protect consumers from high rents.
a. True
b. False