A business can be operated profitably at a loss for an indefinite period of time
A) if it is unable to meet all their obligations but able to cover operating costs.
B) if we neglect the social costs of discriminatory pricing.
C) for firms that enjoy special legal privileges.
D) if costs are calculated as marginal opportunity costs.
Supply curves slope upward to the right because
A) higher prices compensate producers for their higher marginal costs of production.
B) producers are in business only for the money.
C) producers can consistently pass on their higher costs of production to consumers in
the form of higher prices.
D) producers ignore costs and focus primarily on benefits to themselves.
In the economic way of thinking, a rise in the real output of final goods and services
can be associated with
A) a fall in the price level.
B) a rise in nominal GDP.
C) a rise in the price level.
D) a fall in nominal GDP.
E) any of the above.
Which organization possesses a generally conceded and exclusive right to coerce
adults?
A) The capitalist enterprise
B) The modern church
C) The government
D) The family
Why do prices have to be based on supply and demand, rather than cost?
A) Costs, unlike supply and demand, are based on subjective factors.
B) People cannot be compelled to base prices on costs
C) People should be free to set whatever prices they prefer.
D) Supply and demand determine costs.
E) Because basing prices on costs is less efficient than basing prices on supply and
demand.
Interest is ultimately
A) any return on investment.
B) the price of money.
C) unearned income.
D) the difference between the subjective value of a good now and a good later.
According to the textbook, government supplies police protection because
A) it is difficult to supply police protection exclusively to people who pay for it.
B) police protection is every citizen’s right.
C) police use force, violence, and coercion.
D) the supply of police protection is in the public interest.
E) the value of police protection is greater than its marginal cost.
Who can determine the true cost of a tin whistle?
A) A good accountant
B) A good economist
C) A good tin whistle collector
D) Nobody
A business cost is always
A) a sunk cost.
B) a marginal cost.
C) a consequence of managerial decisions.
D) measurable if we use sophisticated accounting techniques.
Entrepreneurs obtain control over the resources employed in the projects they undertake
by
A) acquiring ownership through investment of their own funds.
B) borrowing funds with which to purchase the resources.
C) floating new issues of stock or bonds.
D) offering credible guarantees to owners of resources.
E) reinvesting the profits from previous successful projects.
Other things constant, which case would tend to reflect the highest elasticity of demand
for eggs?
A) A restaurant that spends 1% of their budget on eggs
B) A restaurant that spends 2% of their budget on eggs
C) A restaurant that spends 5% of their budget on eggs
D) The question can’t be answered without information on the price of eggs.
In the real world, how many people does it take to make a light bulb?
A) About five. One person will make the bulb, and four will watch over the person
doing the work.
B) Between ten and twenty
C) Less than forty
D) Millions
A newspaper headline asserts: “Rising demand pulls up copper prices.” The headline
A) is claiming demand determines price (rather than price determining demand).
B) is claiming more copper would be demanded at higher prices.
C) is claiming prices will fluctuate indefinitely.
D) is guilty of all three errors mentioned above.
E) makes perfectly good sense from the standpoint of economic theory.
Samantha is at a friend’s house for dinner. Her friend says “I can re-heat either the
lasagna or the fried rice.” Samantha likes them both, but chooses the fried rice. Does
Samantha’s choice entail a cost?
A) Noas long as her friend didn’t charge Samantha for the meal.
B) YesSamantha sacrificed the opportunity to eat lasagna.
C) Yesas long as Samantha reimburses her friend for the cost of re-heating the meal.
D) Both A and C above.
The most important function of money is to
A) allow for positive interest rates.
B) enable people to measure their own personal worth.
C) facilitate the collection of taxes.
D) encourage greed among people.
E) serve as a medium of exchange.
A speculator who incorrectly anticipates a major decline in next year’s harvest of some
agricultural commodity
A) profits at the expense of consumers.
B) profits at the expense of producers.
C) sustains losses and increase price variation from this year to next.
D) sustains losses but reduce price variation from this year to next.
The cost to a physician of tending a patient is
A) dependent on the number of years over which the physician practices.
B) higher for a recent medical-school graduate than for a physician with a
well-established practice.
C) the value of the time when spent in its next best use.
D) zero under a system of complete and comprehensive medical insurance.
The most immediate and direct effect of minimum price laws designed to prevent
predatory pricing is to
A) guarantee profits to all sellers, large or small.
B) guarantee profits to large sellers exclusively.
C) guarantee profits to small sellers exclusively.
D) preserve competition without guaranteeing profits.
E) prevent competition without guaranteeing profits.
An economy that experiences a rise in the price level over two consecutive quarters
necessarily experiences
A) a recession.
B) deflation.
C) disinflation.
D) none of the above.
Positive externalities tend to create free-rider problems because positive externalities
A) appeal more to extroverts than to people who are reflective.
B) are spill over benefits to people who don’t pay for them.
C) are concentrated in the hands of people living on unearned income.
D) arise primarily from government programs.
Which statement best describes the relationship between scarcity and shortage?
A) Neither scarcity nor shortages will exist if money prices are allowed to determine
who gets what.
B) Scarcity and shortages are unavoidable as long as money prices are allowed to
determine who gets what.
C) Scarcity is an inescapable fact of life but shortages are avoidable.
D) Shortages are an inescapable fact of life but scarcity can be eliminated.
According to your textbook, expansionary monetary policy
A) encourages entrepreneurs to invest in projects that only appear profitable.
B) creates a temporary “boom,” or economic expansion.
C) will ultimately be followed by a “bust,” as entrepreneurs learn of their forecasting
errors.
D) tends to generate all of the above.
The term “predatory pricing” is usually used by people who are objecting to
A) extremely unpredictable prices.
B) low prices.
C) prices unrelated to costs of production.
D) speculative pricing policies.
E) very high prices.
When federal regulations protect birds, such as the spotted owl, lumber prices rise
because
A) there is less supply of available timber.
B) there is less demand for available timber.
C) there is more supply of available timber.
D) there is more demand for available timber.
Should I buy a new or a used copy of the textbook? According to the economic way of
thinking, the person is asking about
A) economic efficiency.
B) educational efficiency.
C) scholastic efficiency.
D) motivational efficiency.
E) academic efficiency.
Could an increase in urban bus fares eventually lead to an increase in the demand for
bus service?
A) It could not do so, though it could lead to a reduction in the demand for bus service.
B) It could not do so, though it would probably lead to a reduction in the quantity of bus
service demanded.
C) It might do so if increasing the demand for and price of downtown parking increased
even more.
D) It might do so by making the demand for bus service unit elastic.
E) Only in cities where the demand for bus service slopes upward to the right.
Suppose the Fed buys $1 billion worth of bonds and the required reserve ratio is 20%.
In the theoretical limit, the money supply could
A) decrease by $1 billion.
B) increase by $1 billion.
C) increase by $5 billion.
D) decrease by $5 billion.
Economic growth means people produce
A) money.
B) material things.
C) whatever people value.
D) only durable and high-quality goods.
Suppose Acme County Bank and Trust has $1 million in total deposits and the required
reserve ratio is 10%. How many dollars is Acme allowed to use to seek profits?
A) 0
B) $100,000
C) $900,000
D) $1 million
E) $10 million
The most important function of middlemen is to
A) act as marketing agents for producers.
B) expand the number of jobs in the economy.
C) produce valuable information and lower transaction costs.
D) protect consumers from exploitation.
E) stand between buyers and sellers to control markups.
Today’s U.S. dollar bills are “backed” by
A) nothing.
B) Warren Buffet.
C) barrels of oil.
D) precious metals.
E) U.S. Treasury Bonds.
According to physicians, people should drink eight full glasses of water per day to
maintain optimal health; it is now common knowledge. But people don’t necessarily
follow doctor’s orders because
A) only they know what they need.
B) people value other goods in addition to optimal health.
C) we only really need a few ounces of water each day.
D) nobody considers optimal health to be desirable.
When the price of a good changes, other things constant, what occurs?
A) The supply curve shifts to the right.
B) The supply curve shifts to the left.
C) The supply curve becomes flatter.
D) The supply curve becomes steeper.
E) Only quantity supplied changes.
A typical wheat farmer would never consider cost-plus-markup pricing because
A) he cannot clearly estimate his costs.
B) the most profitable price he can ask for is the prevailing market price.
C) the government won’t allow it.
D) he is a price searcher.
Why might private investment in poor countries, rather than aid by foreign governments
and international agencies, contribute more effectively to economic growth?
A) Private investment is more consistent with central economic planning.
B) Technical assistance is often part of the private investment package.
C) Private investment is always selfish.
D) Private investors are smarter and more street-wise than public authorities.