This graph shows the cost functions of Moe’s mushroom gathering business, which is
perfectly competitive.
Moe’s short run supply curve is
A. Curve C to the right of curve A
B. Curve B to the right of curve A
C. Curve A above curve B
D. Curve A above curve C
Every time you go to the grocery store, you try to choose the shortest line. But all of the
lines always seem to be the same length. Why?
A. The store manager tells the cashiers to speed up or slow down to maintain equal line
lengths.
B. Everyone else is trying to choose the shortest line too.
C. The cashiers all work at the same speed.
D. Cashiers do not have an incentive to work faster.
If the demand curve fails to capture all of the benefits of consumption, then the:
A. equilibrium price is efficient but the quantity will be too large.
B. the equilibrium price is inefficiently low.
C. government needs to impose regulations that require more consumption.
D. the equilibrium price is inefficiently high.
Supply curves are generally _______ sloping because _______________.
A. downward; more consumers will buy the good if the price falls.
B. upward; of the principle of increasing opportunity costs.
C. downward; it is less expensive to mass-produce goods.
D. upward; of inflation.
Suppose a firm is collecting $1,999 in total revenues and the total cost of its fixed
factors of production falls from $500 to $400. One can speculate that the firm will:
A. expand output.
B. lower price.
C. earn greater profits or smaller losses.
D. contract output.
Products have network economies if they:
A. can be used by more than one person at a time.
B. are cheaper to produce as more people buy them.
C. are more valuable to own as more people own them.
D. have many complements.
Holding other factors constant, an increase in the capital stock ______ the real wage
and ______ employment.
A. increases; increases
B. increases; decreases
C. increases; does not change
D. decreases; increases
Curly just graduated from State U and has three job offers: teaching at a prestigious
private high school nine months a year with summers off, working forty hours a week at
a bank in a small city, and working more than sixty hours a week for a high-powered
investment firm on Wall Street (in New York City).
Suppose all of the jobs currently offer exactly the same annual salary, and that most
people prefer leisure to work, all else equal. In order to attract workers,
A. the private high school will have to offer a higher salary than the others.
B. the bank will have to offer a higher salary than the Wall Street firm.
C. the Wall Street firm will be able to offer a lower salary than the others.
D. the Wall Street firm will have to offer a higher salary than the others.
As U.S. real GDP rises, wealthier households may decide to buy ______ foreign goods
and assets, which would cause a(n) ______ of the U.S. dollar.
A. more; appreciation
B. more; depreciation
C. fewer; appreciation
D. fewer; depreciation
The average tax rate is:
A. total taxes divided by total before-tax income.
B. the average tax rate divided by the total tax rate.
C. the amount by which taxes increase when before-tax income rises by an additional
dollar.
D. the tax rate at which the benefit of an extra dollar of taxes equals the cost of an extra
dollar of taxes.
Suppose a treacherous stretch of road winds through Deadman’s Canyon for 5 miles. A
highway department study estimates that better lighting would reduce the traffic fatality
rates as follows:
Suppose that experts have estimated the statistical value of a life saved to be $8m. The
highway department has a limited budget, and can save, on average, 1 additional life
per year for each $2 million dollars it spends on guardrails. If this is the case, the
highway department should install ___ lights in Deadman’s Canyon.
A. 0
B. 1
C. 2
D. 3
Miniville is an isolated town located on the southern shore of Lake Condescending, a
very large lake. The western edge of Miniville is adjacent to impassable mountains and
there are no towns or businesses for many miles to the east. The 300 residents of
Miniville are evenly distributed along 3 miles of shoreline on the lake, east of the
mountains. Lake Shore Drive, the only street in town, provides access to Miniville’s
homes and businesses. All residents live between the lake and the street; businesses
locate on the other side of the street. Lake Shore Drive is 3 miles long, and the points
labeled A, B, and C are 1, 2, and 3 miles from the western end of Lake Shore Drive,
respectively. All residents of Miniville shop at the store located closest to their homes.
Refer to the information given above. If one store is located at A and the other store is
located at C:
A. 150 people will shop at each store.
B. 200 people will shop at the store at A, and 100 people will shop at the store at C.
C. 100 people will shop at the store at A, and 200 people will shop at the store at C.
D. 100 people will certainly shop at each store, but where the other 100 will shop is
indeterminant.
Refer to the figure above. Increasing the quantity of medical care provided from 100
units to 300 units costs ______ increasing the quantity of medical care provided from
400 units to 600 units.
A. more than
B. less than
C. exactly the same as
D. twice as much as
In order to increase the capital stock, society must divert ______ that could be
otherwise used to increase the supply of _____.
A. money; consumer goods
B. credit; labor
C. money; labor
D. resources; consumer goods
Refer to the figure above. If the price is $4 today, and if there are no other changes in
this market, one would expect the price in the future to be:
A. $4.
B. less than $4.
C. greater than $6.
D. greater than $4.
A higher real interest rate ______ investment spending and ______ consumption
spending.
A. increases; increases
B. increases; decreases
C. decreases; decreases
D. decreases; increases
When economists use market values to aggregate output, they sum the:
A. number of items produced.
B. quantity of items produced.
C. price times the quantity of each item produced.
D. amount of each item produced.
A proportional tax results in
A. a larger percentage of income going to taxes as income rises.
B. a smaller percentage of income going to taxes as income rises.
C. the same amount of income going to taxes as income rises.
D. the same percentage of income going to taxes as income rises.
If Bountiful Orchard grows $100,000 worth of peaches, sells $50,000 worth of peaches
to consumers and uses to rest to make jam that is sold to consumers for $100,000,
Bountiful Orchard’s contribution to GDP is:
A. $50,000.
B. $100,000.
C. $150,000.
D. $200,000.
According to the principle of increasing opportunity cost, expanding production
requires using resources in which order?
A. In random order.
B. Starting with the resource with the highest opportunity cost and progressing to the
lower opportunity cost resources.
C. Starting with the resource closest to the average opportunity cost, then progressing to
higher opportunity cost resources.
D. Starting with the resource with the lowest opportunity cost and proceeding to the
higher opportunity cost resources.
An increase in the demand for GM automobiles results in:
A. a lower equilibrium price for GM automobiles.
B. an increase in the quantity supplied of GM automobiles.
C. an increase in the supply of GM automobiles.
D. a lower equilibrium quantity of GM automobiles.
Planned aggregate expenditure (PAE) equals:
A. C + Ip + G + NX.
B. Cp + I + G + NX.
C. C + I + Gp + NX.
D. C + I + G + NXp.
For an economy starting at potential output, a decrease in autonomous expenditure in
the short run results in a(n):
A. expansionary output gap.
B. recessionary output gap.
C. increase in potential output.
D. decrease in potential output.
Jenny sells lemonade by the street during the summer time. Several other kids also sell
lemonade in Jenny’s neighborhood.
Refer to the information above. The lemonade market in Jenny’s neighborhood is more
likely to be perfectly competitive if:
A. all of the kids advertise heavily.
B. each stand tries to get more customers by offering a different variety of lemonades
and snacks.
C. each lemonade stand sells the same kind of lemonade.
D. some of the neighborhood parents build elaborate booths for their kids’ stands while
some kids sell from makeshift tables.
Suppose one could either rent a car or take a train to travel to Chicago from
Washington, D.C. If the price of train tickets increases:
A. the demand for train tickets will increase.
B. the demand for rental cars will increase.
C. the demand for train tickets will decrease.
D. the demand for rental cars will decrease.
Acme Dynamite has $2000 of variable costs and $500 of fixed costs when its output is
250 units. It sells each unit for $25.
If the price of the product drops to $6 each, should this firm continue operation during
the short run?
A. No, because Price is less than Average Total Cost.
B. Yes, because Price is greater than Average Variable Cost.
C. No, because Price is less than Average Variable Cost.
D. No, because Price is not greater than Average Total Cost.
The impact of monetary policy through exchange rates tends to ______ the impact of
monetary policy through real interest rates.
A. reinforce
B. contradict
C. totally negate
D. be exactly the same as
To close a recessionary gap, the Fed ______ interest rates which ______ planned
aggregate spending and ______ short-run equilibrium output.
A. reduces; increases; increases
B. raises; decreases; increases
C. raises; decreases; decreases
D. reduces; increases; decreases
John is trying to decide how to divide his time between his job as a stocker in the local
grocery store, which pays $7 per hour for as many hours as he chooses to work, and
cleaning windows for the businesses downtown. He makes $2 for every window he
cleans. John is indifferent between the two tasks, and the number of windows he can
clean depends on how many hours he spends cleaning in a day, as shown in the table
below:
Refer to the information above. What is the smallest amount of money per window
cleaned that would induce John to spend at least one hour per day cleaning windows?
A. $7
B. $1
C. $3
D. $2
Refer to the figure above. When the firm uses 9 employee-hours, it will experience
_______ in labor costs.
A. $30
B. $56
C. $84
D. $126
The degree to which the public believes the central bank’s promises to keep inflation
low, even if doing so may impose short-run economic costs is the _____ of monetary
policy.
A. power
B. opportunity cost
C. credibility
D. expectation
In the above decision tree, Tracy picks first, and Amy picks second. Tracy knows Amy’s
payoffs to each choice, and Amy knows Tracy’s payoffs.
Refer to the figure above. Given the information in this decision tree, the equilibrium
outcome of this game will be for Amy to choose the ______ after Tracy has made the
decision that gives Amy the choice at ________.
A. lower branch; Y
B. upper branch; Y
C. lower branch; Z
D. upper branch; Z
It is difficult to engage in long-term financial planning when inflation is:
A. high and erratic.
B. low and stable.
C. accounted for through indexing.
D. predictable.
If the marginal propensity to consume equals 0.75, then a $100 increase in after-tax
disposable income leads to a ______ increase in consumption.
A. $13.33
B. $25
C. $75
D. $133
There are two employers in Bucolic that hire people who do not have a high school
degree: a grocery store and a hardware store. The grocery store pays $5.00 per hour and
the hardware store pays $6.00 per hour. People who work at either store can work as
many hours as they want at those wages. Assume that it takes two hours to interview for
a job. Lee works at the grocery store, but would like to work at the hardware store. If
Lee interviews at the hardware store, there is a 10% probability of being hired. Assume
that Lee is risk-neutral.
What does it cost Lee to interview at the hardware store?
A. 0
B. $1
C. $5
D. $10