One result of a tax is an increase in economic efficiency.
In most circumstances, employees pay taxes on the value of health insurance their
employers provide them.
In the short run, a firm might choose to produce rather than shut down even if its
market price is less than its average total cost of production.
A stand of redwood trees is not an example of a factor of production but the harvested
and processed redwood is a factor of production.
When voluntary exchange takes place, neither party usually gains from the exchange.
The income effect of a price change refers to the change in the quantity demanded of a
good that results from a change in the price of a substitute product.
From 1970 to 2006, the poverty rate in East Asia rose slightly but the level of poverty in
sub-Saharan Africa fell dramatically.
Contractionary fiscal policy is used to decrease aggregate demand in an attempt to fight
rising inflation.
For a given supply curve, the deadweight loss from the imposition of a tax is smaller if
demand is more elastic.
The unemployment rate tends to be higher in the European Union as compared to the
United States.
Firms in different countries that face different input prices may produce the same good
using different combinations of inputs, even though they have access to the same
technology.
Which of the following statements is false?
A) Exports benefit trading countries because exports create jobs. Imports do not benefit
trading countries because they result in a loss of jobs.
B) Each year the United States exports about 50 percent of its wheat crop and 20
percent of its corn crop.
C) Most of the leading exporting countries are large, high-income countries.
D) Not all sectors of the U.S. economy are affected equally by international trade.
Figure 22-1
Within a country, the impact of wars and revolutions and their subsequent destruction of
capital is reflected in the per-worker production function in the figure above by a
movement from
A) A to B.
B) B to C.
C) B to A.
D) C to A.
Because leisure is a normal good, an increase in the wage rate will result in
A) an increase in the quantity of labor supplied because of both the substitution effect
and the income effect.
B) a decrease in the quantity of labor supplied because of the substitution effect and an
increase in the quantity of labor supplied because of the income effect.
C) an increase in the quantity of labor supplied because of the substitution effect and a
decrease in the quantity of labor supplied because of the income effect.
D) an increase in the quantity of labor supplied because of the substitution effect. At
low wages the income effect causes an increase in the quantity of labor supplied, but at
high wages the income effect causes a decrease in the quantity of labor supplied as the
wage rises.
Which of the following is the best example of a perfectly competitive firm?
A) a corn farmer in Illinois
B) a Taco Bell restaurant
C) the Ford Motor Company
D) the United Parcel Service (UPS)
On the 45-degree line diagram, the 45-degree line shows points where real aggregate
expenditure equals
A) unplanned investment.
B) planned investment.
C) real GDP.
D) nominal GDP.
Nominal GDP will increase
A) only if the price level rises.
B) only if the price level falls.
C) only if the quantity of final goods and services produced rises.
D) if either the price level or the quantity of goods and services produced rises.
Which of the following equations is true in an open economy?
A) Private saving = net foreign investment + domestic investment.
B) Domestic saving = net capital flows.
C) Net exports = -Financial account balance.
D) Net exports = net foreign investment.
A decrease in expected inflation will
A) reduce real wages.
B) increase the natural rate of unemployment.
C) shift the long-run Phillips curve to the left.
D) shift the short-run Phillips curve to the left.
Table 4-4
The table above lists the highest prices three consumers, Curly, Moe, and Larry, are
willing to pay for a bottle of champagne. If the price of one of the bottles is $24 dollars
A) Curly will buy two bottles, Moe will buy one bottle and Larry will buy no bottles.
B) Curly will receive $26 of consumer surplus from buying one bottle.
C) Curly and Moe receive a total of $80 of consumer surplus from buying one bottle
each. Larry will buy no bottles.
D) Larry will receive $15 of consumer surplus since he will buy no bottles.
In comparison to a government that runs a balanced budget, when the government runs
a budget deficit,
A) the equilibrium interest rate will fall.
B) business investment will fall.
C) household savings will fall.
D) none of the above
In recent years the cost of producing organic produce in the U.S. has decreased largely
due technological advancement. At the same time, more and more Americans prefer
organic produce over conventional produce. Which of the following best explains the
effect of these events in the organic produce market?
A) The supply curve has shifted to the left and the demand curve has shifted to the
right. As a result there has been an increase in the equilibrium quantity and an uncertain
effect on the equilibrium price.
B) Both the supply and demand curves have shifted to the right. As a result, there has
been an increase in the equilibrium quantity and an uncertain effect on the equilibrium
price.
C) Both the supply and demand curves have shifted to the right. As a result, there has
been an increase in both the equilibrium price and the equilibrium quantity.
D) The supply curve has shifted to the left and the demand curve has shifted to the
right. As a result, there has been an increase in the equilibrium price and an uncertain
effect on the equilibrium quantity.
The consumer price index (CPI), the personal consumption expenditures price index
(PCE), and the core PCE have over the last 10 years
A) moved roughly together with the CPI being the most stable.
B) moved roughly together with the PCE being the most stable.
C) moved roughly together with the core PCE being the most stable.
D) not moved together, with the CPI being the most stable.
Table 16-2
Neem Products sells its Ayurvedic Neem toothpaste in two completely isolated markets
with demand schedules as shown in Table 16-2. The average cost of production is
constant at $2 per tube. How many tubes of toothpaste will Neem sell in West Fall and
at what price?
A) Q = 2 units; P = $4.50
B) Q = 3 units; P = $4
C) Q = 4 units; P = $3.50
D) Q = 5 units; P = $3
Stagflation is often a result of
A) a negative supply shock.
B) a decrease in aggregate demand.
C) an increase in aggregate demand.
D) an increase in aggregate supply.
On the 45-degree line diagram, for points that lie above the 45-degree line,
A) planned aggregate expenditure is greater than GDP.
B) planned aggregate expenditure is less than GDP.
C) planned aggregate expenditure is equal to GDP.
D) planned aggregate expenditure is less than aggregate income.
Assuming a market price of $4, fill in the columns in the following table. What is the
profit-maximizing level of production? What are the two ways to determine the
profit-maximizing level of production?
Why is the credibility of the Fed’s policy announcements particularly important?
Give three reasons why the U.S. economy is more stable since 1950.
What is meant by allocative efficiency? How does a perfectly competitive firm achieve
allocative efficiency?
What is a firm? What other terms do economists use interchangeably with the term
“firm”?
Calculate the value of the government purchases multiplier if the marginal propensity to
consume equals 0.8, the tax rate equals 0.2, and the marginal propensity to import
equals 0.05.
What is meant by the statement that “optimal decisions are made at the margin”?
Explain what potential conflict exists between shareholders in a corporation and the
corporation’s managers.
Use the money demand and money supply model to show graphically and explain the
effect on interest rates of the Federal Reserve’s open market purchase of Treasury
securities.
