In a small town of 100 people, there are 10 children under 16, 10 retired people, 60
people with full-time jobs, 3 people with part-time jobs, 3 full-time students over 16,
and 4 full-time homemakers. The remaining people did not have jobs, but wanted them.
All but one of these had actively looked for a job in the previous four weeks. What is
the participation rate in this town?
A. 63.0%
B. 72.0%
C. 80.0%
D. 87.5%
The marginal propensity to consume (mpc) is the:
A. amount by which disposable income increases when consumption increases by $1.
B. amount by which consumption increases when disposable income increases by $1.
C. percentage by which consumption increases when disposable income increases by
1%.
D. percentage by which disposable income increases when consumption increases by
1%.
As the price of flour (an input into the cookie production process) increases, firms that
produce cookies will:
A. increase the supply of cookies.
B. increase the quantity of cookies supplied.
C. decrease the supply of cookies.
D. decrease the quantity of cookies supplied.
Investment spending includes spending on:
A. consumer durable goods.
B. new capital goods.
C. services.
D. stocks and bonds.
Fred runs a fishing lodge, and has a very successful business during the summer. In the
fall, the number of guests at the lodge starts to decline, and by November, very few
people stay at Fred’s Lodge. Fred should:
A. keep the lodge open all year because his summer profits offset any losses he has in
the winter.
B. keep the lodge open only during those months in which revenues exceed total costs.
C. keep the lodge open only during those months in which revenues exceed the fixed
costs of the lodge.
D. keep the lodge open only during those months in which revenues exceed the variable
costs of serving guests.
Quick Buck and Pushy Sales produce and sell identical products and face zero marginal
and average cost. Below is the market demand and marginal revenue curves for the
product.
Refer to the figure above. Quick Buck and Pushy Sales have agreed to each produce
half the profit-maximizing monopolist quantity, set the monopoly price and split the
profits evenly. Suppose Quick Buck cheats on Pushy Sales and reduces its price to
$1.00 each while Pushy Sales continues to comply with the collusive agreement. Quick
Buck would then sell _____ units and Pushy Sales would sell ______ units.
A. 0; 3,000
B. 1,500; 1,500
C. 2,000; 1,000
D. 3,000; 0
A recession occurs when either ______ or _______, or both.
A. potential output grows slowly; actual output falls below potential output
B. potential output grows slowly; actual output rises above potential output
C. potential output grows rapidly; actual output equals potential output
D. potential output grows rapidly; actual output falls below potential output
Suppose that there are three power-generating plants, all of which generate emissions.
The table summarizes the cost of emission reduction for each firm given five different
levels of pollution:
What tax, in whole dollars per ton, would have to be charged to reduce smoke to 5 tons
per day?
A. $21
B. $26
C. $36
D. $41
The following data show the relationship between the number of drivers who leave for
work at 8:00 am, their average commute times, and their marginal benefit associated
with the commute times.
Refer to the information given above. The reason drivers would prefer building new
roads to a $5 toll to reduce commute times is because:
A. building roads is the only cost-effective solution.
B. they know a toll would not alter commuting behavior.
C. a tax solves the commitment problem.
D. the cost of new roads falls on all taxpayers; the toll only falls on those who use the
existing road.
Campus Bookstore is the only textbook supplier in the town, a profit-maximizing
business. The table below represents the reservation prices for the eight students
enrolled in the class for which this book is required.
Assume that the marginal and average total cost for each book is $12.
Refer to the information above. If the bookstore can charge two different prices for this
book, how many books will the bookstore sell?
A. More than 8.
B. Less than 5.
C. Exactly 5.
D. More than 5.
Initially, workers in the shoe industry and the computer industry earn the same wage.
Reductions in trade barriers give domestic consumers access to cheaper shoes produced
abroad, so domestic shoe prices fall. At the same time, foreign consumers purchase
more computers, raising the relative price of computers. As a result of these changes,
the demand for labor in the shoe industry ______ and the demand for labor in the
computer industry ______.
A. increases; increases
B. increases; decreases
C. decreases; increases
D. decreases; decreases
Refer to the figure above. The law of diminishing marginal utility
A. applies to Good A but not Good B.
B. does not apply to either Good A or Good B.
C. applies to Good B but not Good A.
D. applies to both Good A and Good B.
An economy produces only 500,000 tables valued at $100 each. Of these, 100,000 are
sold to consumers, 200,000 are sold to businesses, 100,000 are sold to the government,
and 50,000 are sold abroad. No tables are imported. The unsold tables at the end of the
year are held in inventory by the table manufacturers. What is the value of GDP?
A. $5 million
B. $40 million
C. $45 million
D. $50 million
The nominal exchange rate, e, is defined as the number of units of:
A. domestic goods relative to the number of units foreign goods.
B. foreign goods relative to the number of units of domestic goods.
C. the foreign currency that one unit of domestic currency will buy.
D. the domestic currency that one unit of foreign currency will buy.
The value of the marginal product of labor equals the marginal product of labor times
the:
A. real wage.
B. nominal wage.
C. price of output.
D. quantity of labor.
The tragedy of the commons is an example of:
A. efficiency gained through operation of the invisible hand.
B. a smart-for-one, dumb-for-all situation.
C. increasing marginal costs.
D. comparative advantage and specialization.
To close a recessionary gap, the Federal Reserve must ______ real interest rates by
______ the money supply.
A. increase; increasing
B. increase; decreasing
C. decrease; decreasing
D. decrease; increasing
GDP excludes important factors that affect people’s well being, such as the value of:
A. leisure time.
B. government purchases of goods and services.
C. services purchased by households.
D. goods produced domestically but sold to foreigners.
The fundamental reason the production possibilities curve has a downward slope is:
A. workers are inefficient.
B. resources are of low quality.
C. resources are fixed and therefore tradeoffs must be made.
D. it has empirical support but why it is so is still a mystery.
When buyers and sellers are not equally informed about some or all characteristics of
the good they seek to exchange, information is
A. not credible.
B. asymmetric.
C. of less value than if the information was equal.
D. symmetric.
Assume that the share of population employed in all countries is 50 percent. Based on
the information in the table, which country has the highest real GDP per capita?
A. Country A
B. Country B
C. Country D
D. Country E
An economy produces 500,000 tables valued at $100 each. Households purchase
100,000 tables, of which 50,000 are imported. Businesses purchase 200,000
domestically produced tables, the government purchases 100,000 domestically
produced tables, and 50,000 domestically produced tables are sold abroad. The unsold
tables at the end of the year are held in inventory by the table manufacturers. What is
value of GDP?
A. $5 million
B. $40 million
C. $45 million
D. $50 million
Mexico and the members of OPEC produce crude oil. Realizing that it would be in their
best interests to form an agreement on production goals, a meeting is arranged and an
informal, verbal agreement is reached. If both Mexico and OPEC stick to the
agreement, OPEC will earn profits of $200 million and Mexico will earn profits of $100
million. If both Mexico and OPEC cheat, then OPEC will earn $175 million and
Mexico will earn $80 million. If only OPEC cheats, then OPEC earns $185 million and
Mexico $60 million. If only Mexico cheats, then Mexico earns $110 million and OPEC
$150 million. You may find it helpful to fill in the following payoff matrix in order to
answer the question below.
Refer to the information given above. OPEC has:
A. a dominant strategy of cheating.
B. a dominated strategy of cheating.
C. a dominant strategy of not cheating.
D. no dominant strategy.
The demand curve illustrates the fact that consumers:
A. tend to purchase more of a good as its price rises.
B. purchase name brand products more frequently than generic products.
C. tend to purchase more of a good as its price falls.
D. purchase more of a good as their incomes rise.
Data for an economy shows that the unemployment rate is 6 percent, the participation
rate 60 percent, and 200 million people 16 years or older are not in the labor force. How
many people are in the working-age population in this economy?
A. 333 million
B. 500 million
C. 800 million
D. 1.20 billion
Using conspicuous consumption as an ability signal would work
A. better in large cities.
B. less well for those who charge fees for their services, e.g., lawyers.
C. better for those who work for a flat salary.
D. better in small towns and cities.
Bob has heard rumors that his employer will be merging with another firm and many
employees may lose their jobs, and he wants to be prepared in case he loses his job. If
he begins to save more in response to this rumor, it is a ______ reason for saving.
A. life-cycle
B. public
C. private
D. precautionary
A graph that illustrates the maximum amount of one good that can be produced for
every possible level of production of the other good is called a(n):
A. production possibilities curve.
B. consumption possibilities curve.
C. production function.
D. supply curve.
When the price of an item increases, buyers tend to purchase less of that item:
A. solely because of the substitution effect.
B. solely because of the income effect.
C. because of both the substitution and the income effects.
D. only if the substitution effect and the income effect do not cancel out each other.
Depression and lost self-esteem are examples of the ______ costs of unemployment,
while the lost income and tax revenue are examples of the ______ costs of
unemployment.
A. social; psychological
B. economic; social
C. economic; psychological
D. psychological; economic