If price changes by one firm induce rival firms selling close substitutes to alter their
prices,
A) firms will be able to raise their prices without fear of losing sales.
B) the demand curve will shift in response to a change in price.
C) the original firm faces an elastic demand curve.
D) the original firm faces an inelastic demand curve.
E) there is no competition between the rival firms.
From the economic point of view, why will an avid downhill skier devote many hours
to reading, comparing, and testing a new pair of ski boots but only a few hours to
deciding who to vote for in the state senator race?
A) Ski boots are ultimately more important to society than state senators.
B) He needs new ski boots; he does not need a new state senator.
C) In his estimation, being highly informed about ski boots is a better use of his time
compared to being highly informed about potential state senators.
D) He is selfish.
Government licensing of occupations or trades
A) has usually been created over the objections of sellers in the licensed industry.
B) is more often supported than opposed by the persons and firms to be regulated.
C) is usually supported by legislators because they want to protect consumers against
inferior-quality products.
D) will not reduce competition if it merely imposes higher costs on potential entrants
into the occupation or trade.
If the university administration plans to hike tuition charges in the hope of increasing
tuition revenues, we know
A) they are assuming an elastic demand.
B) they are assuming an inelastic demand.
C) they cannot succeed because of the law of demand.
D) they must be running in the red.
E) they will only succeed if more students can be enrolled at no cost.
Jones and Smith are teaching assistants. Jones can grade 20 essays or 50 problem sets a
day, while Smith can grade 20 essays or 10 problem sets a day. Therefore
A) Smith is more efficient than Jones at grading essays.
B) Jones has a comparative advantage in grading problem sets.
C) a larger combination of essays and problem sets can be graded in a day if Jones
specializes in problem sets and Smith specializes in essays.
D) all of the above are true.
We observe evidence of a shortage when we see
A) the quantity purchased is greater than the quantity supplied.
B) the quantity purchased is less than the quantity supplied.
C) nonmonetary costs of acquisition have risen.
D) goods have becomes more scarce.
E) prices have increased suddenly and substantially.
Other things constant, a rise in which of the following would tend to increase the
nominal interest rate?
A) The rate of time preference
B) The risk premium
C) The expected rate of inflation
D) Any of the above.
Which of the following isa component of the M1 money supply?
A) Mutual funds
B) Stock investments
C) Three month T-bills
D) All of the above are part of M1.
E) None of the above is part of M1.
Demand curves for the services of productive resources
A) have no meaning, because people must have income in order to live.
B) obey the law of demand.
C) tend to be perfectly elastic in the long run because any resource can ultimately
function as a substitute for any other.
D) tend to be perfectly inelastic in the short run as long as production processes are
determined by technology.
In markets free from intervention, prices tend to move towards equilibrium because of
A) the “helping hand” of government.
B) increased demand from buyers.
C) increased supply by sellers.
D) the unintended consequences of choices among buyers and sellers pursuing their
own plans.
Which seller is “selling short”?
A) Colleges that require the entire term’s tuition prior to the first day of class
B) A magazine that sells you a two-year subscription
C) A major league baseball team that sells you a season ticket
D) They are all selling short.
E) None is selling short because all are reducing their risks.
The stabilization policies of government are most likely to promote
A) high employment.
B) price stability.
C) reduced aggregate fluctuations.
D) the interests of those who plan and execute them.
E) the interests of the majority of voters.
Harry and Gus fish the same lake together from the same boat. Each morning Harry
typically catches either 20 bluegills or 5 walleyes (depending on how deep he fishes)
while Gus typically catches either 20 bluegills or 2 walleyes (depending on how deep
he fishes). Which statement below is true?
A) Gus has a comparative advantage in bluegills and in walleyes.
B) Harry has a comparative advantage in bluegills and in walleyes.
C) Harry has a comparative advantage in walleyes, not bluegills.
D) Because they fish from the same boat, neither one of them has a comparative
advantage.
Which is an example of “short selling”?
A) The public high school that offers a before-school breakfast program for twenty
dollars a month, paid the first of each month
B) The public high school theater group that sells out their rendition of Grease three
days before opening night
C) The for-profit high school ring company that requires payment in full from
graduating seniors before producing the rings of their choice
D) All of the above.
According to economic theory, elected government officials will favor
A) federal budget surpluses.
B) balanced federal budgets.
C) federal budget deficits.
D) shrinking federal budgets.
Which is an example of a negative externality?
A) A beautiful sunset
B) A cool summer breeze
C) A clear blue sky
D) A deadly bolt of lightening
E) None of the above.
Mr. Jones, an elderly man living on his retirement, pulls $100,000 from certificates of
deposit (CDs), which were returning an annual rate of return of 5%. He thinks the credit
freeze is over and stock markets are headed up, but ends up losing 40% in his first year
of investing. What was Mr. Jones’s rate of economic profit?
A) 5%
B) 35%
C) -35%
D) -40%
E) -45%
“Price gouging,” or significant price spikes, are typical caused by
A) a significant increase in consumer demand.
B) a significant increase in supplier greed.
C) government attempts to impose price caps.
D) no systematic relationship between supply and demand.
Foreign investment in poor nations often requires
A) low rates of return to ensure the poor have a fair deal.
B) high rates of return to justify the high risk of such investment.
C) a constantly changing political structure to enhance profit opportunities.
D) the total elimination of uncertainty in order to guarantee economic profit.
Pursuing comparative advantage means
A) adding up the plusses and minuses after a transaction.
B) doing it to the other person first.
C) making equal, fair exchanges for equally valued goods or services.
D) sacrificing something less valuable for the sake of something more valuable.
E) seeking relative status rather than absolute welfare.
Suppose a new textbook sells for $100 at the college bookstore. The bookstore will buy
it back at the end of the semester for $35, and sell then it used to somebody else for
$75. Christina agrees to the deal, and pays $100. Once she buys the book, her sunk cost
is
A) $25.
B) $35.
C) $40
D) $65
E) $100.
Fill in the blanks. According to your textbook, when humanitarian efforts to free
Sudanese slaves were introduced, ________ increased initially, which led to ________
prices. Over time, the slave trade became ________ profitable and the supply of slaves
________.
A) supply; lower; less; decreased
B) demand; lower; more; decreased
C) demand; higher; more; increased
D) supply; higher; more; increased
Total employment tends to decrease in response to any increase in the legal minimum
wage because
A) employers can usually find substitutes for unskilled workers.
B) higher wages mean fewer family members will be forced to take jobs.
C) wages must be paid out of profits and profits are limited.
D) workers are often willing to trade jobs for income.
Economists speak of price elasticity of demand. Which word below is synonymous with
“elasticity”?
A) Futility
B) Sensitivity
C) Relativity
D) Serendipity
If the Fed were to raise the required reserve ratio,
A) excess reserves would decrease.
B) excess reserves would increase.
C) there would be no effect on the level of excess reserves.
D) there would tend to be no effect on the nation’s money supply.
What will be the effects of a severe Florida freeze on the price of
orange-juice-concentrate futures and what will occur as a result?
A) The futures price will fall and less orange juice will be consumed currently.
B) The futures price will fall and more orange juice will be consumed currently.
C) The futures price will rise and less orange juice will be consumed currently.
D) The futures price will rise and more orange juice will be consumed currently.
Marginal revenue is less than price for price searchers
A) because they are monopolists.
B) because they necessarily have some costs.
C) if they enjoy grants of legal privilege.
D) when they cannot charge all customers the maximum they are willing to pay for
each unit purchased.
E) when they have the ability to practice price discrimination.
Harry and Gus fish the same lake together from the same boat. Each morning Harry
typically catches either 20 bluegills or 5 walleyes (depending on how deep he fishes)
while Gus typically catches either 20 bluegills or 2 walleyes (depending on how deep
he fishes). If they wish to fill their boat with the largest combination of bluegills and
walleyes tomorrow morning,
A) Harry should try to catch both bluegills and walleyes, and Gus ought to row.
B) Harry should fish only for walleyes and Gus should fish only for bluegills.
C) Harry should fish only for bluegills and Gus should fish only for walleyes.
D) they best not bother trying.
Legal reserve requirements on banks in the United States today are primarily
A) a limitation on banks’ ability to make loans.
B) a protection for bank depositors against runs.
C) a protection for bank shareholders against capital loss.
D) an attempt to restrain the market power of banks.
E) designed to control competition among banks.
Your textbook authors argue that, other things constant, entrepreneurs respond to a fall
in interest rates by
A) paying less attention to long term profitability.
B) engaging in irrational business behavior.
C) investing in capital goods.
D) making all of the above choices.
The only way to eliminate all competition from social life would be through
A) abolishing money.
B) eliminating all scarcity.
C) eliminating all selfishness.
D) giving government the power to control everything.
E) making everyone as concerned about others as they are about themselves.