After a natural disaster, such as a hurricane, the increased demand for certain items (like
lumber, electric generators, and chainsaws) causes their prices to rise. These higher
prices
a. discourage the flow of these items into the area.
b. encourage consumers to purchase the items even if they do not plan to use them.
c. help to direct the items toward their highest valued uses.
d. do all of the above.
“There is no such thing as a free lunch.” This statement best reflects the fact that
a. consumers are unwilling to pay for a good unless it provides them with value.
b. an opportunity cost is always present when scarce resources are used to produce a
good.
c. it generally requires enormous effort to search out the best place to eat lunch.
d. the value of a good to consumers will decrease as they have more of it.
In economics, the term for a person who reduces transaction costs by arranging trades
for buyers and sellers is
a. an exchange broker.
b. a middleman.
c. a transactions specialist.
d. an opportunity finder.
Which of the following represents why private production tends to be more efficient
then government production?
a. Politicians have a strong incentive to support projects that have immediate and easily
recognized benefits and distant and unidentifiable costs, even if the total costs outweigh
the total benefits.
b. Politicians have a strong incentive to support programs where the benefits are highly
concentrated on special interest groups and the costs are widely dispersed among
voters, even if the total costs outweigh the benefits.
c. Private companies face a profit motive that keeps them operating efficiently,
government bureaucracies use taxpayer money and, therefore, do not face this profit
motive.
d. All of the above are reasons why private production tends to be more efficient then
government production.
Double counting in the resource cost-income approach to GDP refers to
a. corporate income being taxed twice
b. the amount of income taxes paid to states that is taxable by the federal government
c. calculating GDP twice using the income and expenditures methods
d. adding the value of exports to GDP and subtracting the value of imports
e. counting the total value of a final output in addition to the value of the inputs used to
make it
The aggregate demand curve slopes downward indicating that
a. an increase in the general price level will reduce the aggregate quantity of goods and
services demanded.
b. an increase in the general price level will increase the aggregate quantity of goods
and services demanded.
c. a change in the interest rate will alter the aggregate quantity of goods and services
demanded.
d. consumers substitute between domestic-made and foreign-made goods as their
relative prices change.
Which of the following is necessary for the invisible hand of market prices to work
properly?
a. buyers and sellers who generally tend to disregard their own self-interest
b. democratic political procedures and highly regulated markets
c. price controls that restrict the movement of market prices
d. competition and property rights that are well-defined and enforced
Which of the following is an effort to establish property rights and promote more
efficient allocation of ocean fisheries?
a. Regulations limiting the length of the fishing season.
b. Regulations reducing the size of fishing boats and other equipment used in the
industry.
c. Establishment of transferable individual fishing quotas.
d. Complete open access of ocean fishing to anyone who would like to enter the
business.
Figure 4-22
Refer to Figure 4-22. Suppose the same Sand Dcurves apply, and a tax of the same
amount per unit as shown here is imposed. Now, however, the buyers of the good,
rather than the sellers, are required to pay the tax to the government. Now,
a. the burden on buyers will be larger than in the case illustrated in Figure 4-22.
b. the burden on sellers will be smaller than in the case illustrated in Figure 4-22.
c. a downward shift of the demand curve replaces the upward shift of the supply curve.
d. All of the above are correct.
Which of the following is an area of substantial agreement among macroeconomists?
a. Expansionary policies that lead to inflation can keep the actual rate of unemployment
below the natural rate.
b. It is relatively easy to time shifts in monetary policy in a manner that will promote
economic stability.
c. Price stability is a proper goal of monetary policy.
d. It is relatively easy to time shifts in fiscal policy in a manner that will promote
economic stability.
Opportunity costs differ among nations primarily because
a. nations employ different currencies.
b. nations have different amounts of land, labor skills, capital, and technology.
c. nations have different religious, political, and economic institutions.
d. the work-leisure preferences of people vary considerably from one nation to another.
Use the figure to answer the following question(s).
Figure 8-11
Which of the following is true for a firm with the costs illustrated in Figure 8-11?
a. Marginal costs exceed average total cost when output is 15.
b. Marginal costs exceed average total cost when output is 20.
c. Marginal costs exceed average total cost when output is 25.
d. The firm’s total fixed cost exceeds 40.
Which of the following is true concerning the distribution of income?
a. Various measures of income inequality can be used to objectively determine the
fairness of an income distribution.
b. When the political process is democratic, income transfer programs will redistribute
income from the rich to the poor.
c. The fairness of an income distribution is a normative concept; it cannot be
determined objectively by economic criteria.
d. Income inequality is the fairest method to allocate income.
Which one of the following decisions most clearly reflects a lack of understanding of
the concept of sunk costs?
a. You pay to have your car towed back to the repair shop because it was not fixed
properly the first time.
b. You decide to get a master’s degree because you cannot find a job in the field in
which you majored.
c. You decide to purchase a piece of machinery for your business that will eliminate
three employees’ positions.
d. You study eight hours for a final exam even though there is no way now that you can
pass the course.
In an economy in which real output grows at an average rate of 3 percent per year, a 7
percent average rate of growth in the money supply would result in
a. an inflation rate of 4 percent, if velocity were constant.
b. an inflation rate of 4 percent, if velocity were constant.
c. a $4 increase in the price level per year.
d. a $4 decrease in the price level per year.
Assume that skilled labor costs twice as much as unskilled labor, a profit-maximizing
firm will
a. always hire more skilled labor because it is more productive.
b. always hire more unskilled labor because it is cheaper.
c. hire until it equalizes the two marginal products.
d. hire until the marginal product of unskilled labor is one-half that of skilled labor.
e. hire until the marginal product of unskilled labor is two times that of skilled labor.
If consumer purchases of a good are not very sensitive to the price of the good,
economists say the demand for the good is relatively
a. inelastic.
b. elastic.
c. robust.
d. inverse.
Which of the following is most likely to increase the incentive to invest, produce, and
employ others?
a. an increase in government expenditures to provide subsidies for large banks that
made bad investment decisions
b. an increase in government expenditures that changes the composition of aggregate
demand
c. a reduction in tax rates
d. an increase in payments to unemployed workers financed by borrowing
If the money rate of interest is 15 percent and the real rate of interest is 5 percent, the
inflationary premium is
a. zero.
b. 5 percent.
c. 10 percent.
d. 15 percent.
Which of the following is most central to the understanding of the economic crisis of
2008?
a. the decline of the stock market in late 2007
b. the housing boom (2001-2005) and bust (2007-2008)
c. the sharp rise in oil prices in 2008
d. unethical investment practices beginning in 2000
The market for labor services is included in the
a. loanable funds market.
b. goods and services market.
c. resource market.
d. financial market.
Use the production possibilities data below to answer the following question(s).
Table 2-3
Refer to Table 2-3. The rancher has a comparative advantage in
a. neither good, and the farmer has a comparative advantage in both goods.
b. both goods, and the farmer has a comparative advantage in neither good.
c. potatoes, and the farmer has a comparative advantage in meat.
d. meat, and the farmer has a comparative advantage in potatoes.
Three basic decisions must be made by all economies. What are they?
a. how much will be produced, when it will be produced, and how much it will cost
b. what the price of each good will be, who will produce each good, and who will
consume each good
c. what will be produced, how goods will be produced, and for whom goods will be
produced
d. how the opportunity cost principle will be applied, if and how the law of comparative
advantage will be utilized, and whether the production possibilities constraint will apply
Which of the following is the most accurate statement about nominal and real interest
rates?
a. Nominal and real interest rates always move together.
b. Nominal and real interest rates never move together.
c. Nominal and real interest rates often do not move together.
d. Nominal and real interest rates always move in opposite directions.
Does it make any difference whether health-care expenditures are paid for by the
consumer or by a third party (the government or an insurance company, for example)?
a. No; the quantity of health-care service demanded is not influenced by either the price
of health care or who is paying for it.
b. Yes; consumers of health care will have a stronger incentive to economize when they
are buying the service with their own money.
c. Yes; consumers of health-care services will have a stronger incentive to economize
when the services are paid for by a third party.
d. No; health care is an essential service, and therefore, the incentive to economize on it
is unaffected by who is paying for the service.
The F/M earnings ratio for full-time workers
a. has been steadily declining.
b. has been roughly constant since 1980.
c. has increased significantly since 1980.
d. increased until 1980, but it has declined steadily during the last two decades.
Proved reserves of petroleum are
a. the verified quantity of petroleum that can be recovered at current prices and levels of
technology.
b. the only reserves likely to be available in the future.
c. refined products awaiting shipment to the market.
d. the total amount of the resource in existence, regardless of the productive effort
undertaken to expand the future availability of the resource.
Use the figure to answer the following question(s).
Figure 8-3
Using Figure 8-3, calculate the total cost of producing four units.
a. $10
b. $15
c. $60
d. $75
Economic theory and history indicate that open elections and democratically elected
governments
a. are unique in their ability to produce good economic institutions.
b. must be accompanied by economic institutions that will allocate resources efficiently,
or otherwise democratic institutions will not survive.
c. reflect only transactions that are based on mutual agreement and voluntary exchange.
d. are unable to guarantee either the emergence or continuation of economic institutions
and policies that will encourage productive behavior.
Which of the following most accurately reflects the pattern of changes in the earth’s
temperature?
a. The earth’s temperature has risen by approximately 3 degrees Fahrenheit during the
past century and most of the increase has occurred since 2000.
b. The earth’s temperature has fallen by approximately 1.4 degrees Fahrenheit during
the past century.
c. The earth’s temperature rose during the last third of the 20th century, but there was
little temperature change between 1998 and 2013.
d. There has been virtually no change in the earth’s temperature for at least the past
1000 years.