Figure 2-1
Point B is
A) technically efficient.
B) unattainable with current resources.
C) inefficient in that not all resources are being used.
D) the equilibrium output combination.
When firms benefit from the results of research and development they didn’t pay for, we
say firms
A) are litigious.
B) free ride.
C) invest in knowledge capital.
D) maintain a level playing field.
Which of the following products allows the seller to identify different groups of
consumers (segment the market) at virtually no cost?
A) early bird dinner specials
B) books sold online
C) a pair of Bose speakers
D) iPhones
Table 2-14
Table 2-14 shows the number of labor hours required to produce a motorcycle and a
guitar in Ireland and Scotland.
What is Ireland’s opportunity cost of producing one guitar?
A) 0.2 motorcycle
B) 5 motorcycles
C) 8 motorcycles
D) 32 motorcycles
Suppose that some investors have decided that economic and financial uncertainty have
made the prospect of investing in domestic stock markets more risky than investing in
foreign stock markets, and therefore choose to invest in foreign markets. By using all
available information as they act to achieve their goals, these investors are exemplifying
the economic idea that
A) people are rational.
B) people respond to economic incentives.
C) optimal decisions are made at the margin.
D) equity is more important than efficiency.
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)
Which of the following would be a consequence of substitution bias in the CPI?
A) Social Security payments would not adequately compensate retired workers for
inflation.
B) Businesses would overcompensate employees for inflation when giving the cost of
living rises.
C) The inflation rate based on the CPI would underestimate the true level of inflation.
D) Judges would award child support payments that would not adequately keep up with
the true cost of inflation.
________ behavioral assumption about humans was that people usually act in a
rational, self-interested way.
A) Thomas Malthus’s
B) Adam Smith’s
C) Karl Marx’s
D) Ben Bernanke’s
Employers withhold several taxes from employees’ paychecks, one of which is FICA.
Congress requires employers to pay half of the FICA tax and workers to pay the other
half. Does this mean that the burden of the FICA tax falls evenly on employers and
employees? Briefly explain.
The income effect of a price change results in a
A) shift of the demand curve when income changes.
B) movement along the demand curve due to a change in relative prices.
C) shift of the demand curve due to a change in purchasing power brought about by the
price change.
D) movement along the demand curve due to a change in purchasing power brought
about by the price change.
The total amount of physical capital available in a country is know as the country’s
A) labor productivity.
B) savings.
C) investment.
D) capital stock.
Figure 23-1
According to the figure above, at what point is aggregate expenditure greater than
GDP?
A) J
B) K
C) L
D) none of the above
The “interest rate effect” can be described as an increase in the price level that raises the
interest rate and chokes off
A) government spending.
B) government spending and unplanned investment.
C) investment and consumption spending.
D) net exports.
Explain why international trade is less important to the United States than it is to many
other countries.
What is expansionary fiscal policy? What is contractionary fiscal policy?
Describe briefly how the final value of an iPhone must be equal to the sum of incomes
generated by the production of the iPhone.
In the following table, fill in the columns for your return on investment if the price of
your house increased or decreased by 20 percent, based on the down payments
specified in the first column. Return on Your Investment From
Explain how both renters and landlords could be either winners or losers with the
imposition of rent control.
Assume the market price for lemon grass is $4.00 per pound, but most buyers are
willing to pay more than the market price. At the market price of $4.00, the quantity of
lemon grass demanded is 1,500 pounds per month, and quantity demanded does not
reach zero until the price reaches $30.00 per pound. Construct a graph showing this
data, calculate the total consumer surplus in the market for lemon grass, and show the
consumer surplus on the graph.
What is yield management? How is yield management being used in the airline
industry?
Your text refers to airlines as “The Kings of Price Discrimination.” Why is price
discrimination common in the airline industry?
Use the following information to draw a graph showing the short-run and long-run
Phillips curves, and be sure your graph shows the point where the short-run and
long-run Phillips curves intersect. Natural rate of unemployment = 4 percent
Current rate of unemployment = 5 percent
Expected inflation rate = 3 percent
Current inflation rate = 2 percent
What type of business has the potential for double taxation of profits and why?