Let’s assume Ben can produce 3 units of a material good (M) or 3 units of a spiritual
good (S) in a day, while Cal can produce 1 M or 2 Ss in a day. Both Ben and Cal can
potentially produce a larger combination of M and S
A) if Ben specializes in S and Cal in M and they exchange with one another.
B) if Ben specializes in M and Cal in S and they exchange with one another.
C) if Ben specializes in both goods and doesn’t exchange with Cal.
D) only if Cal finds a way to also produce 3 M and 3 S per day.
Fill in the blank: If a rent control were set at $200 below the market clearing rent on
apartments, a ________ would tend to occur.
A) fall in demand
B) surplus
C) rise in demand
D) shortage
The rules of the National Collegiate Athletic Association (NCAA) limit the amount of
money colleges can offer to athletes to
A) assure balanced competition on collegiate athletic fields.
B) maintain high ethical standards in college sports.
C) preserve the spirit of amateurism in an age of professionalism.
D) prevent competition for star athletes from raising the price of enrolling them.
E) prevent the schools with the most profitable athletic programs from attracting more
than their share of the best athletes.
Economics studies the consequences of
A) choices made by individuals.
B) choices made by businesses.
C) choices made by governments.
D) choices made by society.
E) choices made by the entire planet earth.
Strictly speaking, which has a cost?
A) Land
B) Electricity
C) Business inventory
D) Any human action
E) All of the above.
According to your textbook, it is best to view “the market” as
A) a person.
B) a place.
C) a thing.
D) a process of plan coordination among buyers and sellers.
E) a highly complicated series of exchanges, which can only be coordinated by the
efforts of economists and other experts in government.
Are sellers always able to produce a surplus of the goods they sell?
A) No, because almost all goods are scarce.
B) Only if they can increase supply faster than demand increases
C) Only if they can prevent new uses for the good from being developed.
D) Yes, if they insist upon receiving a sufficiently high price that is above the market
clearing level.
Why do multinational corporations typically pay vastly different wage rates for the
same work in different countries?
A) Prospective employees have much better alternative opportunities in some countries
than in others.
B) The cost of living is much lower in some countries than in others.
C) The demand for labor is much more elastic in some countries than in others.
D) Supply and demand determine wage rates in some countries but not in others.
E) Unions exist in some countries but not in others.
There is a potential for banks to create money when they
A) lend out their excess reserves.
B) fail to lend out their excess reserves.
C) hold more of their customer deposits as vault cash.
D) hold all of their customer deposits as vault cash.
In setting their prices, price searcher firms ignore
A) demand.
B) marginal cost.
C) the prices of competitors.
D) all of the above.
E) none of the above.
One major consequence of the federal government’s deregulation of the trucking
industry was
A) a sudden and large financial loss for owners of trucking firms.
B) fewer jobs for truck drivers.
C) higher prices paid by shippers.
D) less competition for railroads and barge lines.
E) predatory pricing in the trucking industry.
Suppose an economy has the following characteristics: 100 people in the
noninstitutional population; 40 people employed; 50 people not in the labor force.
What’s the unemployment rate?
A) 10 percent
B) 15 percent
C) 20 percent
D) 40 percent
E) 50 percent
Sunk costs are irrelevant to economic decisions because
A) they are merely opportunity costs rather than monetary expenditures.
B) they cannot affect a firm’s net revenue.
C) they do not appear on financial statements.
D) they represent no opportunity for choice.
The economic way of thinking is
A) a biased perspective at the present time, and we should eliminate bias from
economics.
B) a biased perspective, but the existence of bias does not mean the discipline should be
condemned.
C) biased only when it is used to argue for particular policies.
D) unbiased because economics is a science.
E) unbiased insofar as its conclusions are drawn exclusively from actual facts.
If the nominal interest rate is held constant, a higher inflation rate tends to
A) reduce the real interest rate.
B) increase the real interest rate.
C) leave the real interest rate unchanged.
D) have no effect on the savings decisions of households.
Changes in market prices tend to
A) change the plans of suppliers.
B) change the plans of demanders.
C) change the plans of suppliers and demanders.
D) have no predictable effect on anybody’s plans.
The amount by which people will increase or decrease their purchases when prices
change
A) is typically greater in the case of luxuries than in the case of necessities.
B) is typically less for business firms than for households because business firms can
more easily borrow to maintain purchasing patterns.
C) is typically less for business firms than for households because business firms must
have certain goods to remain in operation.
D) tends to be greater over longer periods of time because it takes time to invent and to
discover substitutes.
E) will be approximately zero unless the demand also changes.
When someone says positive externalities coming from education justify subsidization
of education, they are saying
A) education must be uniform in a democratic society.
B) government ought to be the exclusive provider of at least elementary education.
C) many people cannot afford to educate their children.
D) private schools tend to be inefficient.
E) students capture only part of the benefits from attending school.
According to your textbook, markets tend to “clear” due to
A) the use of threat and coercion.
B) the competitive bidding process.
C) the intervention of expert economists.
D) a well-managed national economic plan.
From the economic point of view, what does a professor who posts her syllabus on the
Internet and a restaurant that posts its menu outside have in common?
A) They are attempting to exploit others.
B) They are reducing competition.
C) They are expanding the range of opportunities available to others.
D) They are solely in it for the money.
Which of the following is a prerequisite for sustainable economic growth?
A) Private foreign investment
B) A literate populace
C) Aid provided by international agencies
D) An easy monetary policy
E) An abundance of natural resources
According to the textbook, why didn’t the U.S. government mount chronic budget
deficits before 1970?
A) Elected officials didn’t know how to use the federal budget as a policy tool.
B) Deficits were viewed as an irresponsible moral failure on the part of government.
C) The U.S. had a constitutional balanced budget amendment.
D) For all of the above reasons.
E) For none of the above reasons.
Fill in the blank: A productive service is a ________ service.
A) supplied
B) demanded
C) technically efficient
D) marketed
Insecure property rights induce owners of productive assets to
A) discount expected income from their ownership at a very low rate.
B) place a higher value on those assets if they want to sell them.
C) use those assets more cautiously to reduce depreciation.
D) do all of the above.
E) do none of the above.
Economic theory assumes people will not do what is in the interest of all unless it is in
the interest of
A) each.
B) humanity.
C) the government.
D) the public.
E) their own pocketbooks.
GDP divided by the population gives us
A) the price level.
B) the GDP deflator.
C) per capita GDP.
D) real GDP.
E) none of the above.
In an economy that did not use money, but in which barter was exclusively employed
for the exchange of goods, inflation
A) could not occur.
B) would be almost entirely the result of speculation.
C) would benefit buyers more than sellers.
D) would redistribute real income rather than money income.
E) would strike hardest at those on fixed incomes.
Doctor Hugh R. Sick recommends his patient take 2 units of insulin per day to
successfully manage her diabetes condition. In a different office across town, Doctor I.
M. Dismal, an economics professor, tells his student to read every assigned textbook
chapter to successfully pass economics. In spite of the sage advice of the doctor and
professor, the economic way of thinking recognizes
A) patients don’t always follow their doctor’s orders.
B) students don’t always follow their professor’s pleas.
C) substitutes for prescriptions and textbook assignments exist; patients and students
demonstrate their desire for substitutes through their actions.
D) all of the above are true.
Which of the following clearly restricts the competitive market process?
A) Predatory pricing tactics
B) Legal restrictions on entry
C) Hostile takeovers
D) Selling below cost
E) All of the above.
According to the textbook, when a foreign government provides aid to a poor nation, it
A) interferes in the domestic affairs of the poor nation.
B) behaves in the interest of the poor nation.
C) pursues the global interest.
D) does all of the above.
E) does none of the above.
Which is an example of restrictive fiscal policy?
A) An increase in the discount rate
B) An increase in the federal funds rate
C) An increase in reserve requirements
D) A lowering of tax rates
E) A lowering of government spending
Suppose water rates in Podunk rise by 100%. The water consumption in Podunk will
tend to
A) remain unchanged, because water is a necessity of life.
B) decrease substantially overnight.
C) decrease more substantially over time, as residents discover substitutes for water.
D) decrease, and therefore lead to a lower price of water.
A decrease in nominal gross domestic product necessarily entails a decrease in
A) both real output and the price level.
B) either real output or the price level (or both).
C) real output and employment.
D) the price level and employment.
When the price of apples is $3 per bushel, and the quantity demanded is 1,000 bushels,
A) consumers need 1,000 bushels.
B) consumers plan to purchase a total of 1,000 bushels.
C) both A and B are true.
D) none of the above is true.