Two goods are substitutes if a decrease in the price of one raises the quantity demanded
of the other.
a. True
b. False
The concept of poverty is culturally determined, and hence people are defined as “poor”
in relation to others.
a. True
b. False
Mercantilist policy is to do everything it can to promote exports and to discourage
imports.
a. True
b. False
If a commodity’s price is above its marginal cost, the market will tend to produce too
much of the good.
a. True
b. False
Cost-reducing technological advancements allow suppliers to earn more profits but
have no noticeable effect on the supply curve.
a. True
b. False
An oligopoly is a market dominated by a few sellers.
a. True
b. False
Economic models
a. are always based on realistic assumptions.
b. usually predict perfectly.
c. can never be tested with real world data.
d. are used to describe cause-and-effect relationships.
e. are too simple to be of much use.
The courts in some states have declared the financing of public schools by local
property taxes unconstitutional because
a. housing should never be the basis for taxation of any kind.
b. taxes on real estate generate too much tax revenue.
c. disparity in property values means some communities have more in tax revenues to
spend on education than do communities containing less valuable property.
d. the funds for public education should come from federal revenues, not from local
property taxes.
In retaliation for U.S. support for Israel during the Arab-Israeli War, OPEC countries
stopped selling oil to the United States. For the United States, this embargo caused the
a. demand curve for oil to shift out.
b. demand curve for oil to shift in.
c. supply curve of oil to shift out.
d. supply curve of oil to shift in.
If suppliers of garbage collection services charged the full costs of providing the
service, the supply curve would
a. change to a positive slope.
b. change to a negative slope.
c. shift to the left.
d. shift to the right.
As one moves down a straight-line demand curve, the elasticity increases.
a. True
b. False
Briefly and concisely define the following terms:
a. fiscal federalism
b. horizontal equity
c. vertical equity
d. benefits principle of taxation
A tax has an excess burden whenever
a. people are unable to alter their behavior to avoid paying it.
b. government seeks to raise it.
c. it raises a great deal of revenue.
d. it induces people to change their behavior.
Firms often seek to borrow money to expand their capital stock, and the price they pay
for the money is the interest rate. What happens to supply of money if the interest rate
increases?
a. It increases.
b. It decreases.
c. It does not change.
d. Uncertain-economic theory has no answer to this question.
One of the clear effects of deregulation was
a. lower prices of many services.
b. increased entry of new firms into regulated industries.
c. lower income to unions working in regulated industries.
d. all of the above.
A severe freeze has once again damaged the Florida orange crop. The impact on the
market for oranges will be a leftward shift in
a. demand as consumers try to economize because of the shortage.
b. both the supply and demand curves.
c. the supply curve.
d. the supply curve and a rightward shift in the demand curve, which will result in a
higher price.
For an efficient outcome, MR must exceed MC.
a. True
b. False
A production possibilities frontier indicates the most efficient combinations of goods.
a. True
b. False
The main shortcoming of the market, in the view of many,
a. lies in the arena of justice and injustice.
b. lies in the area of consumer goods production.
c. is its inability to stimulate the creation of new products.
d. is its drag on growth in productivity.
Briefly and concisely define the following concepts and terms.
a. marginal social cost
b. detrimental externalities
c. free-rider problem
d. cost disease
e. “defective telescopic faculty”
The desirable level of output in a perfectly competitive market if there exists a
detrimental externality is
a. the point at which MSC curve intersects the marginal revenue curve.
b. the point at which MSC intersects the MPC.
c. the point at which MSC intersects MPC.
d. the point at which marginal revenue curve intersects the MPC.
America’s antitrust laws are used to protect competition against possible encroachment
by monopoly. This is an example of government as
a. regulator of businesses.
b. buyer of goods and services.
c. tax collector.
d. redistributor.
Slope will vary along a curve (as opposed to a straight line).
a. True
b. False
The United Auto Workers union is largely responsible for the historically high pay of
American auto workers by negotiating pay raises above those obtained by workers in
other industries. In addition to increasing the pay of auto workers, what other long-run
effect would this high pay have on the use of auto workers?
In many cities, the price of summer pops concerts has risen. In Charlotte, North
Carolina, and Columbus, Ohio, for example, concerts that were once free now cost $5.
If there are only fixed costs and no variable costs nor marginal costs in an orchestra
concert, what is the efficient price? Explain the reason why some people will find the
efficient price unfair.
How does the monopolist calculate profit per unit, and total profit?
Suppose that one can read a graph that shows information about price and quantity of
some product. Relying solely on the graph, is it possible to explain the relationship
between the two variables?
Describe the U.S. Social Security system and explain how it is funded.
Suppose that on a Saturday night at 10pm a large hotel has 300 vacant rooms, with little
expectation of renting them at such a late hour on a weekend. A traveler comes in the
door, looking a bit down on his luck, and asks how much a room will cost. Since he
can’t afford the normal rate of $150, the night manager decides to let him stay in the
room for only $40. Is it likely that this decision reduced, or increased, the hotel’s
profits? Explain your answer.