A price support on milk is not in the interest of milk drinkers, so why do elected public
officials successfully implement milk price supports?
A) Milk price supports are in the public interest.
B) A small number of households (dairy farmers) gain a great deal, while the costs of
the support program is spread among millions of other (milk drinking) households.
C) Dairy farmers are selfish.
D) Milk drinkers are generally unselfish.
Social cooperation by means of voluntary contracts and exchanges
A) cannot occur in a socialist economic system.
B) cannot occur where government sets rules that restrict behavior.
C) is easier to achieve when the laws of the society are clear and unchanging.
D) is harder to achieve when the members of the society own very little material
property in common.
According to the economic way of thinking,
A) the private sector is more important than the public sector.
B) the public sector is more important than the private sector.
C) the public sector cannot be adequately studied using economic theory.
D) people in society strive to advance the projects they are interested in, and they will
advance their interests through market institutions or the institutions of government.
Fill in the blank: According to the authors of your text, traffic congestion can be
reduced by ________ the spillover costs associated with driving.
A) modernizing
B) estimating
C) externalizing
D) internalizing
Why are prices for groceries and household items typically higher at a 24-hour
convenience store compared to stores open from 6 am to 11 pm?
A) Shoppers’ options are generally fewer in the middle of the night.
B) The elasticity of demand of the middle-of-the-night shopper is typically higher than
the mid-day shopper’s elasticity.
C) The owners of the 24-hour stores are typically more selfish than the others.
D) The owners of the 24-hour stores are more interested in maximizing net revenue
compared to the others.
A negative externality clearly occurs when
A) a person’s action unintentionally benefits other people.
B) a person behaves in the public interest.
C) a person’s action unintentionally imposes costs on other people.
D) a person couldn’t care less about anybody else.
Firms are not likely to include their sunk costs when calculating their true cost of
supplying goods if they
A) are calculating their income for tax purposes.
B) have been accused by competitors of “dumping.”
C) have been accused by customers of “price gouging.”
D) must request price increases from a regulatory commission.
E) want subsidies from the government.
Complete the sentence. An entrepreneur advances a project only if the expected
marginal benefit exceeds the expected marginal cost,
A) and so does a government bureaucrat.
B) but a government bureaucrat advances a project only if the marginal cost exceeds the
marginal benefit.
C) but a government bureaucrat is in no position to determine the cost of his own
action.
D) but a government bureaucrat has no concern about the benefit of his own action.
Market specialization and the rise of the division of labor
A) create important conditions for economic growth.
B) help explain why some nations are wealthier than others.
C) do both of the above.
D) do neither of the above.
When a commercial bank lends $1000 to a customer
A) M1 and M2 decline by $1000.
B) M1 and M2 rise by $1000.
C) M1 rises but M2 does not change.
D) there is no change in M1 or M2 until the loan proceeds are spent.
Who among the following provides a productive service?
A) Typewriter repairmen
B) Sellers of old 78-rpm jazz records
C) Organizers of a demolition derby
D) Mob hitmen
E) All of the above, if their services are demanded.
The term oligopoly is highly ambiguous in the absence of
A) a clear and defensible definition of the product.
B) a clear price structure.
C) a definition of marginal cost.
D) accounting rules adequately defining net revenue.
E) clear distinctions between competitive and noncompetitive industries.
If wheat farmers would receive a larger gross income from wheat sales when half the
total wheat crop was destroyed, the demand for their wheat is
A) elastic.
B) inelastic.
C) larger at higher prices.
D) smaller at higher prices.
E) unit elastic.
Which statement is true?
A) For a price taker, marginal revenue is always less than price.
B) For a price searcher, marginal revenue is always less than price.
C) For a price searcher, marginal revenue always equals price.
D) For a price taker, marginal revenue is always greater than price.
According to opportunity-cost theory, if more people learned how to repair their own
automobiles, the wages of automotive mechanics would
A) decline as the highest-cost mechanics left the business.
B) decline, because the marginal quality of the services provided would go down.
C) not change because no change has occurred in demand or supply.
D) rise, because mechanics would have to obtain more per hour to maintain their
incomes.
E) rise in order to compensate for the smaller demand.
The ability of a commercial bank to increase the money supply is limited by the
A) availability of eligible borrowers and the bank’s reserves in relation to legal reserve
requirements.
B) demand of the public for liquidity.
C) eligibility of the bank for currency drafts and its ratio of M2 to M1.
D) willingness of customers to withdraw currency for circulation.
According to your textbook, which of the following best explains the fact that income
inequality has increased in the U.S. since 1980?
A) The weakening of the labor union movement
B) A reduction in economic growth
C) A growing distrust of the efficacy of federal government spending programs
combined with a rising concern over federal budget deficits
D) A rise in the number of single-parent families at low income levels and a rise in
two-parent two-earner families at higher income levels
Inequality in the distribution of income in the United States today arises primarily from
A) the collapse of the government’s income support system.
B) the highly unequal distribution of corporate wealth.
C) the tax system.
D) the weakness of labor unions.
E) unequal abilities to supply valuable human services.
“I’d rather have $100 now than wait for $100 six months from now.” This person
A) displays a negative rate of time preference.
B) displays a positive rate of time preference.
C) displays a zero rate of time preference.
D) displays irrational behavior because the money will be more valuable later.
Fill in the blank: According to your textbook authors, ________ is a key condition for
competition to occur.
A) government regulation of price
B) government regulation of output
C) preservation of profit
D) freedom of entry
The economic way of thinking
A) studies facts without using theories.
B) explains how social order and cooperation emerge from the actions of individuals.
C) is free of biases and assumptions.
D) includes all of the above features.
In trying to determine the “true cost” of some debated proposal,
A) actions have no true cost, only benefits.
B) actions will entail different costs for different people.
C) the costs of actions must ultimately be the same for everyone.
D) there is no difference between costs and benefits.
Economic theory assumes people’s actions generally follow
A) from comparisons of expected costs and benefits.
B) no predictable pattern.
C) considerations of material self-interest.
D) the Golden Rule.
Jack swapped his basketball for Jim’s glove. Even if national income accountants were
aware of this trade, they wouldn’t include it in their GDP measure because
A) it was an unproductive exchange.
B) the basketball and glove were not final goods.
C) this was not a market transaction.
D) it failed to increase the wealth of both traders.
E) there is no satisfactory way to determine market values for bartered goods, new or
used.
Dividing the number of people unemployed by the civilian labor force gives us
A) the employment rate.
B) the unemployment rate.
C) the labor force participation rate.
D) none of the above.
If the Department of Defense hires only volunteers, the armed forces will be staffed
predominantly by people who
A) are incompetent.
B) are patriotic.
C) care principally about money.
D) see the armed forces as their best opportunity.
E) want to serve more than they want to make money.
Which among the following is an example of “economizing” behavior?
A) A giant retail store franchise lowers its prices to attract more customers
B) A monopolist raises its price in an attempt to increase its profits
C) The country lawyer who agrees to receive his payment from a down-and-out client
in the form of cut, split, and delivered firewood instead of money
D) All of the above.
The textbook rejects the cost-plus-markup theory of price setting because
A) business firms do not describe their price-setting procedures as cost-plus procedures.
B) competitors and monopolists set prices in different ways.
C) it cannot explain the prices we actually observe.
D) it ignores the role of government in regulating prices.
E) no single theory can explain all price-setting.
In the economy of Euphoria, 400 people have jobs, 200 people are not working but are
searching for work, and 100 people don’t work and don’t seek work. The unemployment
rate is
A) 20 percent.
B) 25 percent.
C) 40 percent.
D) 45 percent.
E) none of the above.
Your authors argue that unsustainable booms, followed by recessionary busts, are
primarily caused by the Fed’s expansionary monetary policies. Which of the following
serves as an exception to their claim?
A) The Great Depression of the 1930s
B) The Great Recession of the late 2000s
C) The authors admit that both of the above are exceptions.
D) The authors argue that neither of the above are exceptions, but rather strong
examples.