Exempting food purchases from sales tax is consistent with the ability-to-pay principle,
although not necessarily consistent with vertical equity.
Answer:
An increase in expected inflation will shift the short-run Phillips Curve.
Answer:
An inferior good is a good for which the quantity demanded increases as the price
decreases, holding everything else constant.
Answer:
Optimal decisions are made at the point where marginal cost equals zero.
Answer:
As population declines, scarcity eventually disappears.
Answer:
If firms are protected by substantial barriers to entry, short-run profits can turn into
long-run profits.
Answer:
A profit-maximizing firm should hire workers up to the point where labor’s marginal
revenue product equals the wage rate.
Answer:
In 2014, the average life expectancy at birth in the United Kingdom and other
high-income countries was around ________ years.
A) 60
B) 70
C) 80
D) 90
Answer:
Under the Bretton Woods system, a fixed exchange rate supported by central banks was
known as a(n) ________ exchange rate.
A) par
B) equilibrium
C) fundamental
D) target
Answer:
The government proposes a tax on halogen light bulbs. Sellers will bear the entire
burden of the tax if the
A) supply curve of halogen bulbs is horizontal.
B) demand curve for halogen bulbs is vertical.
C) demand curve for halogen bulbs is horizontal.
D) demand curve is downward sloping and the supply curve is upward sloping.
Answer:
Figure 3-7
Assume that the graphs in this figure represent the demand and supply curves for
potatoes and that steak and potatoes are complements. Which panel describes what
happens in this market when the price of steak rises?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)
Answer:
One reason why the coffeehouse market is competitive is that
A) demand for specialty coffee is very high.
B) it is trendy and therefore is likely to have a customer following.
C) barriers to entry are low.
D) consumption takes place in public.
Answer:
Figure 12-19
The figure above shows the cost curves of a perfectly competitive firm in the coffee
market. Use the graph in Figure 12-19 to answer the following questions. Assume the
market price is $3 per pound.
a. What is the lowest price at which the coffee grower will supply output in the short
run?
b. In the diagram draw the firm’s demand curve (label this “MR” for marginal revenue).
c. What is the firm’s profit-maximizing output?
d. Is the firm earning a profit or a loss? Identify the area in the graph that represents the
firm’s profit or loss.
e. Explain how entry or exit will occur in the market to ensure that firms will break
even in the long run.
Answer:
During a recession, spending on ________ tends to fall more dramatically than
spending on ________.
A) necessities; luxuries
B) durable goods; nondurable goods
C) nondurable goods; durable goods
D) food; cars
Answer:
The amount of income a consumer has to spend on goods and services is known as
A) purchasing power.
B) effective demand.
C) a budget constraint.
D) wealth.
Answer:
Table 2-1 Production Choices for Dina’s Diner
Assume Dina’s Diner only produces sliders and hot wings. A combination of 20 sliders
and 60 hot wings would appear
A) along Dina’s production possibilities frontier.
B) inside Dina’s production possibilities frontier.
C) outside Dina’s production possibilities frontier.
D) at the vertical intercept of Dina’s production possibilities frontier.
Answer:
Natural monopolies in the United States are generally regulated by
A) the Federal Trade Commission.
B) the Department of Justice.
C) local or state regulatory commissions.
D) the Department of Commerce.
Answer:
In the 1950s, Walt Disney began to plan the development of a theme park that would
eventually become Disneyland. Disney hired an economist to help determine whether
the park would be a financial success. This economist surveyed managers of existing
amusement parks for advice. Many of these managers
A) believed that a theme park would be very successful because the Disney name
created a market among children and parents who had watched Disney cartoons and
movies such as Snow White.
B) recommended that the theme park be located in California because population in the
state would increase greatly in the future. Disney followed this advice.
C) recommended that Disney not build the park and leave the amusement park business
to those who knew what they were doing.
D) recommended that Disney first build an audience for his park by offering the ABC
television network a weekly program that would feature Disney movies, cartoons and
original programming. Walt Disney followed this advice. Both the television program
and Disneyland were financial successes.
Answer:
Jake sells Star Wars memorabilia on eBay. His annual revenue is $42,000 per year, and
the explicit costs of his business are $10,000. What is his accounting profit?
A) $10,000
B) $22,000
C) $32,000
D) $42,000
Answer:
With a required reserve ratio of 20 percent, an increase in reserves of $10,000 could
lead to a maximum increase in checking account deposits in the entire banking system
of
A) $2,000.
B) $8,000.
C) $50,000.
D) $100,000.
Answer:
Consider three pricing strategies that the firm can pursue:
a. optimal two-part tariff pricing
b. perfect price discrimination
c. single-price monopoly pricing Of these three strategies, which method gives the firm
the highest profit?
A) optimal two-part tariff pricing
B) perfect price discrimination
C) single-price monopoly pricing
D) The profit is the same under optimal two-part tariff pricing and perfect price
discrimination and the profit is higher than under single-price monopoly pricing.
Answer:
Select the phrase that correctly completes the following statement. “A decrease in the
number of manufacturers caused a decrease in the supply of sailboats. As a result,
A) the price of sailboats increased and the demand for sailboats decreased.”
B) the equilibrium quantity of sailboats increased.”
C) the price of sailboats increased and the quantity demanded of sailboats decreased.”
D) the price of sailboats increased. The higher price caused the supply of sailboats to
increase.”
Answer:
Figure 4-17
Suppose the market is initially in equilibrium at price P1 and then the government
imposes a tax on every unit sold. Which of the following statements best describes the
impact of the tax?
A) The consumer will bear a smaller share of the tax burden if the demand curve is D1.
B) The consumer’s share of the tax burden is the same whether the demand curve is D1
or D2.
C) The consumer will bear a smaller share of the tax burden if the demand curve is D2.
D) The consumer will bear the entire burden of the tax if the demand curve is D2 and
the producer will bear the entire burden of the tax if the demand curve is D1.
Answer:
A car dealer sells you a car today in exchange for money in the future. This illustrates
which function of money?
A) medium of exchange
B) unit of account
C) store of value
D) standard of deferred payment
Answer:
Which of the following best describes an assumption economists make about human
behavior?
A) They assume that individuals act rationally all the time in all circumstances.
B) They assume that rational behavior is useful in explaining choices people make even
though people may not behave rationally all the time.
C) They assume that people take into account the question of fairness in all decisions
they make.
D) They assume that individuals act randomly.
Answer:
________ increases economic efficiency because it forces firms to produce and sell
goods and services as long as the additional benefit to consumers is greater than the
additional cost of production.
A) Competition
B) Voluntary exchange
C) Equity
D) A centrally planned economy
Answer:
Assume that a doctor can earn an additional $20,000 of revenue each year from keeping
his office open for one additional hour per week. What must the additional cost of
keeping the office open this additional hour per week be to make staying open for the
extra hour economically rational?
Answer:
Explain why the long-run aggregate supply curve is vertical.
Answer:
How do adverse selection and moral hazard affect the market for insurance?
Answer:
What is marginal benefit? Which curve is also referred to as a marginal benefit curve?
Answer:
Explain whether FedEx’s sales are likely to fluctuate more or less than the sales of each
of the following firms as the economy moves from recession to expansion and back to
recession.
Whirlpool Corporation (appliance manufacturer)
Taco Bell
The Boeing Company (aircraft manufacturer)
GameStop (video game sales and rentals)
Answer:
Table 19-32
The table above represents hypothetical data from the National Income Accounts for
2013. Use the data to calculate personal income and disposable income.
Answer:
President Bush lowered taxes on capital gains and dividends in 2003. Explain how this
might increase aggregate supply.
Answer:
Real interest rates at times have been negative. Why would anyone lending money
agree to a negative real interest rate?
Answer:
What are three primary reasons for the growth of international trade over the past 50
years?
Answer:
Explain how “net capital flows” are related to “net foreign investment,” “net foreign
direct investment,” and “net foreign portfolio investment.”
Answer: