The invention of machinery that can double the amount of gold extracted from raw ore
will likely lead mining companies to
a. raise the world price of gold to pay for the new machinery.
b. lower the world price of gold because any amount can now be produced more
cheaply.
c. raise the world price of gold because miners’ wages must double as their productivity
doubles.
d. lower the world price of gold only if new mining companies are not allowed to enter
the industry.
An increase in rent will ordinarily lead to
a. an increase in usage of land that was formerly idle.
b. a decrease in total land employed.
c. less-intensive usage of land.
d. a decrease in the income of landlords.
An indifference curve is a line showing
a. combinations of goods that can be produced if all resources are fully employed.
b. all combinations of two commodities that are equally desirable to the consumer.
c. all combinations of goods over which the consumer has no choice.
d. how decisions are made in a nonmarket economy.
Firms may reasonably make a decision to cut prices if
a. profits are not likely to decline.
b. marginal profit is not negative.
c. MR > MC.
d. All of the above are correct.
Figure 7-4
Following a rash of airplane bombs, the airlines have been forced to increase security at
a cost of $30 million per year. The number of inspectors and machines does not vary
with the number of passengers-the airlines must have sufficient staff available to handle
the full-capacity load. Which graph in Figure 7-4 best illustrates the impact of the
security expenditures?
a. 1
b. 2
c. 3
d. 4
There are several reasons why incomes are unequal, including differences in luck,
experience, and schooling.
a. True
b. False
The government redistributes income to the poor, primarily through
a. progressive taxes.
b. transfer payments.
c. government purchases.
d. both a and b.
Which of the following have been suggested as sources of economic profit?
a. exercise of monopoly power by firms
b. accepting a large degree of risk
c. successful innovation
d. All of the above are correct.
A corporation is the most preferable type of firm if the investor wants to limit liability.
a. True
b. False
Enacting a law controlling rents near a major university will increase the affordable
housing for college students.
a. True
b. False
Whether or not a production process shows economies of scale depends on
a. the number of inputs used.
b. technology.
c. technology and input prices.
d. technology and output prices.
Mr. Calhoun owned a worn-out piece of farmland for growing cotton, which he had
been unable to rent for years. Suddenly he was getting offers from cotton farmers to
lease his land. What is the most likely explanation of this?
a. The price of cotton went down.
b. The physical productivity of the land went up.
c. Taxes on land went up.
d. The price of cotton went up.
Emissions permits might be called a “license to pollute.”
a. True
b. False
During the American Revolution, the Pennsylvania legislature enacted price controls on
essential commodities. The result of this legislation was
a. a large increase in the availability of those items, ending shortages.
b. a severe shortage of those essential commodities.
c. an increase in the price of those items, thus alleviating shortages.
d. new efforts to increase production of those commodities.
e. a minor inconvenience as persons adjusted to the new law.
Because of the book, The Other America, Michael Harrington was important in
beginning the
a. Peace Corps.
b. “War on Poverty.”
c. regulation of industry.
d. Environmental Protection Agency.
The economic burden of an excise tax
a. can usually be partially shifted from buyers onto sellers.
b. equals the revenue from the tax.
c. is less than the burden of an income tax that would raise the same revenue.
d. is shared equally by buyers and sellers.
If Linda’ annual income is $160,000 and she pays $35,000 in taxes and Paul’s annual
income is $100,000 and he pays $25,000 in taxes, the tax system is
a. regressive.
b. progressive.
c. proportional.
d. degressive.
Interest is the payment for the use of
a. borrowed funds.
b. natural resources.
c. labor.
d. any factor of production.
In Poland’s free market, Felix Siemienas is making a fortune in cold cuts. Prices are
much higher than formerly. Siemienas says, “Yes, my prices are high. If nobody buys, I
bring my prices down. That is the market rule.” This “rule” best describes
a. the law of diminishing returns.
b. opportunity cost.
c. the law of increasing costs.
d. the law of demand.
Under what conditions is it most likely that a corporation will issue new stock as a form
of finance?
a. when the interest rate is rising
b. when the interest rate is falling
c. when the firm’s stock prices is falling
d. when bond prices are very high
What matters most in determining efficient distribution of production over the world is
a. absolute advantage.
b. efficiency.
c. the stock of resources.
d. comparative advantage.
It is efficient to increase the output of computers if
a. society considers the extra computers more valuable than other goods foregone to
produce the computers.
b. the opportunity cost of more computers is greater than their marginal utility.
c. computer production can be increased only if production of other goods is decreased.
d. the price of the computers is equal to their average cost.
Economies of scale and scope encourage free competition.
a. True
b. False
Progressive income taxes are designed to
a. make the distribution of income less equal.
b. leave unchanged the distribution of income.
c. let the market determine the distribution of income after taxes.
d. make the distribution of income more equal.