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1) Indifference curve analysis:
A.presumes, as does utility analysis, that satisfaction is numerically measurable.
B.presumes, unlike utility analysis, that satisfaction is numerically measurable.
C.presumes only that the consumer can say one combination of two goods yields more
or less utility than some other combination.
D.is in conflict with the idea of a downsloping demand curve.
2) The principal-agent problem arises primarily because:
A.principals and agents share a common interest, leading to free-rider problems.
B.principals and agents are in an adversarial role, sharing no common interests.
C.principals pursue some of their own objectives, which may conflict with the
objectives of the agents.
D.agents pursue some of their own objectives, which may conflict with the objectives
of the principals.
3)
Refer to the above graph. An increase in the price of agricultural products from PB to
PA will:
A.Increase farm incomes by 0PAAQA
B.Decrease farm incomes by 0PBEQA
C.Decrease farm incomes from 0PBBQB to 0PAAQA
D.Increase farm incomes from 0PBBQB to 0PAAQA
4) Which constitutes an obstacle to collusion among oligopolists?
A.A standardized product
B.A large number of firms
C.Prosperous economic conditions
D.Trademarks and copyrights
5) Majority voting fails to incorporate the strength of the preferences of individual
voters, and therefore:
A.Reduces the power of the median voter
B.Is the primary reason for public sector failure
C.May produce economically inefficient outcomes
D.Creates the opportunity for the fallacy of limited decisions
6) The following table contains hypothetical data for the 2012 U.S. balance of
payments. Answer the question on the basis of this information. All figures are in
billions of dollars.
Refer to the given data. Item (5) indicates:
A.that the United States' current account was in surplus.
B.the size of the net inflow of foreign investment to the United States that occurred in
2012.
C.the net amount Americans received as interest and dividends on existing U.S.
investments abroad.
D.the net amount Americans paid as interest and dividends on existing foreign
investments in the United States.
7) The supply curve for a product has infinite elasticity. An excise tax is levied on the
product. The likely effect will be to:
A.Reduce the amount the producer receives for each unit sold by the amount of the tax
B.Increase the price the consumer pays per unit by the amount of the tax
C.Increase the price to consumers by an amount less than the tax
D.Increase the amount received by producers by less than the tax
8) One implication of the phenomenon described by economist Richard Easterlin as the
"hedonic treadmill" is that:
A.People who consume more goods and services are happier than those who consume
less
B.People can only become happier if they are consuming more and more
C.There is a threshold of consumption that one must cross before one can be happy
D.We can combine the happiness of different individuals to get "total happiness"
9)
Refer to the profits-payoff table for a duopoly. If the firms are acting independently and
firm X sets its price at $6, firm Y will achieve the largest profit by selecting:
A.a price higher than $6.
B.a price between $5 and $6.
C.$6.
D.$4.
10) In 2010, the GDP of the United States was approximately:
A.$5 trillion less than the GDP of the 144 DVCs in that year.
B.$5 trillion more than the GDP of the 144 DVCs in that year.
C.twice the GDP of the 144 DVCs in that year.
D.the same as the GDP of 144 DVCs in that year.
11) The greater the elasticity of supply of and demand for a good, the:
A.smaller will be the efficiency loss of an excise tax on the good.
B.more likely the good will be a public good rather than a private good.
C.larger will be the efficiency loss of an excise tax on the good.
D.larger will be the proportion of an excise tax on the good that will be shifted forward
to consumers.
12) The table below shows the marginal utility schedules for old product X and new
product Y for a hypothetical consumer. The price of X is $2 and the price of good Y is
$1. The budget of the consumer is $10.
Refer to the above table. The consumer was originally limited to purchasing old product
X but now can also purchase new product Y. What is the increase in total utility from
the original situation when the consumer purchases the utility-maximizing combination
of both X and Y?
A.10
B.18
C.60
D.78
13) Other things equal, a tariff is:
A.superior to an import quota for Americans because a tariff increases the profits of
foreign producers.
B.inferior to an import quota for Americans because a tariff increases the profits of
domestic producers.
C.superior to an import quota for Americans because a tariff generates revenue for the
U.S. Treasury.
D.inferior to an import quota for Americans because a tariff generates revenue for the
U.S. Treasury.
14) Explain why the following situations would occur in terms of the factors that affect
elasticity.
(a)Demand for cellular service is inelastic in the short run, but more elastic in the long
run.
(b)Demand for a bakerys bread is elastic, while demand for bread is inelastic.
(c)Demand for personal computers is elastic.
15) Which of the following supports the contention that monopolistic competitors have
a strong incentive to engage in R&D?
A.Entry to monopolistic competitive industries is relatively easy and thus profit from
innovation is quickly competed away.
B.Most monopolistic competitive industries are decreasing-cost industries.
C.The desire to differentiate products from competitors may motivate monopolistic
competitors to engage in R&D.
16) What does international trade do to a nations domestic production possibilities?
17) How do quasi-public goods differ from pure public goods? Give examples of both
types. Explain the rationale as to why quasi-public goods are often provided by
government rather than private businesses.
18) Explain the principle of comparative advantage in nontechnical terms.
19) How do you interpret the coefficient of the price elasticity of demand? Explain
when Ed is 1.5, 0.7, and 1.0.
20) How will an increase in income affect the budget line for two goods, all other things
equal? How does an increase in the price of one good affect the budget line for two
goods, all other things equal?
21) What are the advantages and disadvantages of the managed float system of
exchange rates?
22) Why do governments often intervene in international trade to restrict imports and
expand exports?
23) Use the extreme points from a production possibilities schedule below to draw two
straight line production possibilities curves for two nations, A and B using the below
graphs. Assume constant costs.
