If a candy bar sells for 50 cents and video games are 25 cents each, the horizontal
(candy) intercept of Ann’s budget line is 12 and the vertical (video game) intercept of
Ann’s budget line is 24. Giving up one candy bar makes it possible for Ann to afford
a. 2 fewer video games
b. half an additional video game
c. 2 more video games
d. 12 more video games
e. 24 more video games
Moral hazard occurs when a person’s behavior changes in a way that
a. is immoral
b. is inherently dangerous
c. increases the chances of an unfavorable outcome
d. increases the likelihood of profit
e. raises the net welfare of society
Exhibit 12-1
Along which part of the labor supply curve in Exhibit 12-1 does the substitution effect
of a wage change outweigh the income effect?
a. between points a and b
b. between points a and c
c. between points b and c
d. between points b and d
e. between points c and d
The market labor supply curve is the sum of
a. individual labor supply curves at each wage rate
b. the upward-sloping portions of individual labor supply curves
c. the downward-sloping portions of individual labor supply curves
d. the average of all individual labor supply curves
e. individual labor supply curves at each net utility for market work
The production of capital is a form of roundabout production.
a. True
b. False
The present value of receiving $200 one year from now when the prevailing rate of
interest is 8 percent is
a. $192
b. $185.19
c. $200
d. $208
e. $160
As output expands, the slope of the average total cost curve
a. stays negative throughout
b. stays positive throughout
c. is first negative and then positive
d. is first positive and then negative
e. is constant
In one week, Tetah can knit 15 sweaters or bake 480 cookies. The opportunity cost per
cookie for Tetah is
a. $15
b. 15 sweaters
c. 32 sweaters
d. 1/32 of a sweater
e. 480 sweaters
The difference in land prices between Washington, D.C., and Tulsa, Oklahoma, is an
example of a permanent resource price differential.
a. True
b. False
One of the main tools used by economists to measure the actual distribution of income
is
a. the Lorenz curve
b. the Golden Rule
c. the MR = MC rule
d. the MRP = MRC rule
e. the capital / labor ratio
Rational ignorance suggests that voters may not spend much time examining candidates
before an election because
a. politics is boring
b. each voter has virtually no chance of deciding the election
c. public choices are not important to society
d. candidates are chosen by the electoral college
e. candidates are usually so different that it is easy to determine which is better
The opportunity cost of an activity is
a. zero if you choose the activity voluntarily
b. the amount of money spent on the activity
c. the value of the best alternative not chosen
d. the sum of benefits from all of the sacrificed alternatives
e. the difference between the benefits and the costs of that activity
If a decrease in the price of good A causes an increase in the demand for good B, then A
and B must be complements.
a. True
b. False
Which of the following represents the best example of a transfer payment?
a. the paycheck that Freeda brings home from her job as a computer programer
b. the interest that Hans earns from the savings account he has with USA Bank
c. the revenue that Janet has left over after she pays all the expenses associated with
running her software development business
d. the check that Hunter receives each month for leasing his land to the natural gas
company that is drilling on his land
e. the check that Trisha gets each month from the Social Security Administration
Exhibit 10-8
Assume the firm in Exhibit 10-8 is currently charging price P and producing output
level Q. In order to maximize profit (or minimize loss), the firm should
a. charge more and sell less
b. charge less and sell more
c. charge less and sell less
d. charge more and sell more
e. continue to charge P and sell Q
Exhibit 2-2
According to Exhibit 2-2, Hans’ opportunity cost of doing a load of laundry is
a. 12 papers
b. 8 papers
c. 1 1/2 pages
d. 2/3 of a page
e. impossible to compute
Which of the following is not a goal of government programs?
a. to enforce private property rights
b. to prohibit natural monopolies
c. to reduce pollution
d. to transfer money from higher-income households to the poorest households
e. to maintain price stability
A new hormone will increase the amount of milk each cow produces. If this hormone is
adopted by many dairies, what will be the effect on the milk market?
a. an increase in supply, higher equilibrium price, and lower equilibrium quantity
b. a decrease in supply, lower equilibrium price, and lower equilibrium quantity
c. an increase in supply, lower equilibrium price, and higher equilibrium quantity
d. an increase in supply, higher equilibrium price, and higher equilibrium quantity
e. a decrease in supply, lower equilibrium price, and higher equilibrium quantity
Transfer programs that do not tie benefits to contributions are called
a. social insurance programs
b. income assistance programs
c. health aid programs
d. bonus programs
e. compensation programs
A major U.S. motive for negotiating a free-trade agreement with Mexico was to
a. help foster the study of the Spanish language as a means to trading with all
Spanish-speaking countries
b. increase immigration into the United States
c. gain increased access to Mexican consumers
d. keep Mexico from going Communist
e. achieve, ultimately, political union with Mexico
Exhibit 10-3
At the profit-maximizing output, the monopolistically competitive firm in Exhibit 10-3
is in
a. long-run equilibrium because price equals average total cost
b. long-run equilibrium because price is less than average total cost
c. short-run equilibrium because price is greater than average total cost
d. short-run equilibrium because there is an economic loss
e. short-run equilibrium because there is zero economic profit
Exhibit 7-15 Long and Short-Run cost of Producing Color Printers
The firm represented in Exhibit 7-15 experiences economies of scale from
a. Q1 to Q3 only
b. Q2 to Q3 only
c. Q2 to Q4 only
d. Q3 to Q5 only
e. the question cannot be answered with the information given
A production possibilities frontier will be bowed out if
a. there is scarcity
b. resources are used efficiently
c. production of one good involves an opportunity cost
d. resources are not perfectly adaptable to making each good
e. technology is improving
A surplus occurs whenever
a. current price is greater than equilibrium price
b. quantity supplied exceeds quantity demanded at the equilibrium price
c. quantity demanded is greater than quantity supplied
d. the problem of scarcity of a good is solved
e. some buyers would be willing and able to pay even more for it than they have to at
equilibrium
Exhibit 8-14
In Exhibit 8-14, what area represents totalrevenue at the loss-minimizing output?
a. 0cda
b. 0jka
c. 0efa
d. 0hib
e. 0egb
Which of the following is not a form of nonmarket work?
a. working on your car at home
b. doing your laundry in a laundromat
c. making bread for a dinner at your sister’s house
d. caring for your sister’s children as a favor
e. babysitting for a fee
Exhibit 1-4
Which of the following must be true of line D in Exhibit 1-4?
a. A decrease in P is associated with a decrease in Q.
b. An increase in P is associated with an increase in Q.
c. There is no relation between P and Q.
d. There is an inverse relationship between P and Q.
e. There is a direct relationship between P and Q.
Which of the following is not true of the statistical discrepancy in the balance of
payments?
a. It is residual.
b. It is a measure of net error in the balance of payments data.
c. It is necessary because some transactions go unreported.
d. An excess of credits in all other accounts must be offset by equivalent debits in the
statistical discrepancy account.
e. A difference between credits and debits is taken care of by changes in the official
reserve transaction account.
Which of the following is not a characteristic of pure capitalism?
a. private property rights
b. competitive markets
c. laissez-faire policies
d. central planning
e. a reliance on prices to direct resources to their best uses
One reason for international specialization in production is
a. differing national tastes
b. diseconomies of scale in production
c. a high world price for a good
d. resources are plentiful in all nations
e. people have limited wants for domestically produced goods and services
Which of the following varies along a given demand curve?
a. consumer preferences
b. prices of substitutes
c. prices of complements
d. the price of the good itself
e. income
Which economic concept explains why a large drugstore chain can produce at a lower
average cost than Whoville Pharmacy, an individually owned drugstore?
a. increasing marginal returns
b. diminishing marginal returns
c. economies of scale
d. diseconomies of scale
e. constant returns to scale
Education makes people more receptive to new ideas and methods, which leads to
economic development.
a. True
b. False
Exhibit 1-9
Using the values in Exhibit 1-9, calculate the slope of a line graphed with x on the
horizontal axis and y on the vertical axis.
a. 0.5
b. 2
c. 1.5
d. 100
e. the slope cannot be determined without additional information