Refer to the figure above. The profit-maximizing level of output for the monopolist is
____ and the profit-maximizing price is _______.
A. 50; $20
B. 33.33; $13.33
C. 33.33; $26.67
D. 50; $26.67
When actual output equals potential output there is ____ output gap and the rate of
inflation will tend to ____.
A. an expansionary; increase
B. an expansionary; decrease
C. no; remain the same
D. a recessionary; increase
Refer to the figure above. Point t is an __________ point in relation to the production
possibilities curve.
A. attainable
B. efficient
C. unattainable
D. inefficient
GDP equals the value added by producers of:
A. intermediate goods and services only.
B. final goods and services only.
C. intermediate goods and services, as well as final goods and services.
D. intermediate and final goods only.
For firms that use crude oil as an input, an increase in the price of crude oil will cause
the firm’s:
A. supply curve to shift left.
B. quantity supplied to increase.
C. supply curve to shift right.
D. quantity supplied to decrease.
Economic surplus is:
A. the benefit gained by taking an action.
B. the price paid to take an action.
C. the difference between the benefit gained and the cost incurred of taking an action.
D. the wage someone would have to earn in order to take an action.
Suppose that a disease that affects people who consume beef has been discovered in the
United States. One likely result is:
A. an increase in buyers’ reservation prices for beef.
B. a decrease in demand for chicken.
C. a decrease in demand for beef.
D. a decrease in the quantity demanded of beef.
A flow is a measure defined:
A. per unit of time.
B. at a point in time.
C. in real terms.
D. in nominal terms.
A rational person is one who:
A. is reasonable.
B. makes choices that are easily understood.
C. possesses well-defined goals and seeks to achieve them.
D. is highly cynical.
You are the Minister of Trade for a small island country in the South Pacific with the
following annual production possibilities curve:
You are negotiating a deal with a neighboring island that has the following annual PPC:
Refer to the figure above. If you offer to give the other island 400 coconuts in exchange
for 1,500 fish:
A. they will refuse your offer because it makes them worse off than producing on their
own.
B. they will accept your offer because it keeps them on their original PPC, and so is
efficient.
C. they will accept your offer because it gives them 800 coconuts, which is more than
they can make on their own.
D. they will accept your offer because it allows them to consume a combination of fish
and coconuts that would be unattainable on their own.
Refer to the figure above. The marginal utility of consuming the 5th apple is
A. -5
B. 0
C. 5
D. 45
An example of a government policy to enhance technological progress is:
A. the construction of an interstate highway system.
B. government support for basic research.
C. maintaining a well-functioning legal system.
D. the provision of publicly-funded education.
Pat has 4 hours to spend either studying for a test or playing a new video game. If Pat
spends all of that time studying, Pat can score a 92 on the test. If Pat plays for 1 hour,
Pat’s test score falls 5 points. For playing a second hour, Pat’s score falls by another 7
points. Playing for a third hour will lower Pat’s score by another 10 points.
Refer to the information above. The opportunity cost of playing video games:
A. decreases the longer Pat plays.
B. increases the longer Pat plays.
C. is greater than the value of earning a higher grade on the test.
D. is equal to the value of earning a higher grade on the test.
Leo is a welfare recipient who qualifies for two means-tested cash benefits. If he does
not earn any income, he receives $225 from each benefit. For each dollar he earns
(which his employer is required to report to the welfare agency), each benefit is reduced
by 75 cents until the benefit equals zero.
When Leo’s earnings are less than $300, each extra dollar he earns causes his total
income (earnings plus benefits) to
A. fall by 25 cents.
B. rise by 50 cents.
C. fall by 50 cents.
D. rise by 75 cents.
Food stamps and Medicaid are examples of
A. cash transfers.
B. in-kind transfers.
C. welfare programs that have been eliminated.
D. programs created by the Personal Responsibility Act.
When the demand for a good is inelastic, that good is likely to have:
A. many close complements.
B. few close complements.
C. many close substitutes.
D. few close substitutes.
As the U.S. dollar appreciates relative to other currencies, the dollar price of goods
imported to the U.S. _____, causing net exports and GDP to ______.
A. rises; rise
B. rises; fall
C. falls; rise
D. falls; fall
In Macroland, potential output equals $100 trillion and the natural rate of
unemployment is 4 percent. If the actual unemployment rate is 5 percent, then the
output gap equals:
A. -1 percent.
B. -2 percent.
C. 1 percent.
D. 2 percent.
All of the following are ways to enhance central bank credibility EXCEPT to:
A. announce inflation targets.
B. appoint inflation hawks as central bankers.
C. put no obligation on the central bank to finance the national deficit.
D. make central bank actions subject to frequent review and veto by the executive and
legislative branches of government.
Suppose there are ten people playing cards in a room. One of them wants to smoke a
cigar; nine of them dislike the smell of cigar smoke. The smoker values the privilege of
smoking at $5, and each of the other nine occupants of the room would be willing to
pay fifty cents for clean air in the room. The rules governing use of the room state that
smoking is not allowed unless everyone agrees to allow smoking.
Refer to the information given above. If the cigar smoker paid each other occupant fifty
cents for the right to smoke, the cigar smoker would be ______ and the other occupants
would be _______.
A. better off; worse off
B. better off; just as well off as before the payment
C. better off; better off
D. worse off; just as well off as before the payment
In the short run with predetermined prices, when output is less than planned aggregate
expenditure:
A. potential output is greater than short-run equilibrium output.
B. potential output is less than short-run equilibrium output.
C. planned investment is less than actual investment.
D. planned investment is greater than actual investment.
Suppose last year Moe faced a 25% marginal tax rate. This year tax rates increased and
now Moe faces a 30% marginal tax rate. Moe chooses to work more hours this year
because
A. working hours tend to increase over a worker’s life in the U.S.
B. the opportunity cost of leisure – not working – has increased.
C. the opportunity cost of leisure – not working – has fallen.
D. Moe must work more hours to have the same after-tax income this year.
Suppose that the production of oranges reduces global warming. The equilibrium price
of oranges is _______ because not all of the _________ are accounted for in the
marketplace.
A. too high; benefits
B. too low; benefits
C. too low; costs
D. optimal; costs
If the external cost of an activity is added to the private costs, then the:
A. supply curve shifts right.
B. quantity supplied rises.
C. supply curve shifts left.
D. demand curve shifts right.
U.S. households wishing to purchase shares of stock in a European company are
______ the foreign exchange market.
A. suppliers of U.S. dollars in
B. suppliers of Euros in
C. supplied Euros by the Fed for use in
D. demanders of U.S. dollars in
A perfectly competitive firm’s output price is $8 and the firm is producing 77 units with
a marginal cost of $11. The firm should:
A. lower its price.
B. decrease production.
C. increase production.
D. raise its price.
If the price elasticity of demand for pineapple is 0.75, a 4% increase in the price of
pineapple will lead to a:
A. 3% decrease in the quantity demanded of pineapple.
B. 3% increase in the quantity demanded of pineapple.
C. 4% decrease in the quantity demanded of pineapple.
D. 0.1875% increase in the quantity demanded of pineapple.
Market power refers to the firm’s ability to:
A. undercut its competitors.
B. force consumers to pay prices higher than their reservation prices.
C. raise its price without losing all of its sales.
D. influence the price its competitors charge.
For a given domestic and foreign price level, a decrease in the nominal exchange rate
______ the real exchange rate.
A. increases
B. decreases
C. may either increase or decrease
D. offsets any change in
The idea that insurance is purchased more frequently by those who are more costly for
companies to insure is
A. adverse selection.
B. statistical discrimination.
C. risk aversion.
D. a costly-to-fake signal
Providing a constant number of workers with additional capital with which to work will
______ average labor productivity at a ______ rate.
A. increase; increasing
B. increase; constant
C. increase; decreasing
D. decrease; decreasing