1) The process by which new firms and new products replace existing dominant firms
and products is called:
A.monopolistic competition.
B.mergers and acquisitions.
C.process innovation.
D.creative destruction.
2) Some economists have criticized standard government figures on income inequality,
arguing that these data:
A.exclude households whose earnings arise in the public sector.
B.conceal the strong trend toward greater equality in household sizes.
C.conceal the growth of poverty due to a growing number of discouraged workers.
D.overstate the degree of income inequality by failing to include noncash transfers as
income.
3) The discovery of a product or process through the use of imagination, ingenious
thinking, and experimentation is:
A.Process innovation
B.Product innovation
C.Invention
D.Imitation
4) The distribution of wealth in the United States is such that it:
A.is randomly distributed among income classes.
B.has no perceptible impact on the distribution of income.
C.reduces income inequality.
D.contributes to income inequality.
5) Domestic price supports on, say, sugar:
A.generate trade barriers to reduce imports of foreign sugar.
B.increase world sugar prices.
C.keep the domestic price of sugar artificially low.
D.increase the earnings of foreign sugar producers.
6)
Refer to the payoff matrix. Suppose that Speedy Bike and Power Bike are the only two
bicycle manufacturing firms serving the market. Both can choose large or small
advertising budgets. If this is a repeated game and the firms cooperate to maximize
profits, which of the following outcomes would we expect to occur?
A.In repeated playing, the outcomes would alternate between cells A and D
B.In repeated playing, the outcomes would alternate between cells B and C
C.The two firms will agree to keep their advertising budgets small over time.
D.The game will reach a Nash equilibrium at cell A
7) How does human specialization contribute towards increasing an economy’s output?
A.It exploits the differences in abilities
B.It is a process of creative destruction
C.It pushes each worker to master the whole product
D.It encourages people to be “jacks-of-all-trades”
8) Which of the following statements is correct?
A.The demand curve for a purely competitive firm is perfectly elastic, but the demand
curve for a purely competitive industry is downsloping.
B.The demand curve for a purely competitive firm is downsloping, but the demand
curve for a purely competitive industry is perfectly elastic.
C.The demand curves are downsloping for both a purely competitive firm and a purely
competitive industry.
D.The demand curves are perfectly elastic for both a purely competitive firm and a
purely competitive industry.
9) In a market economy a significant change in consumers’ desire for product X will:
A.alter the profits or losses received by suppliers of product X.
B.cause a reallocation of scarce resources.
C.cause some industries to expand and others to contract.
D.do all of these.
10) Which of the following has to do with the problem of distinguishing cause and
effect in economic reasoning?
A.The law of large numbers.
B.The law of averages.
C.The post hoc, ergo propter hoc fallacy.
D.The fallacy of composition.