When Cody went to the physician with a sore elbow, after hearing Cody’s symptoms
and examining the elbow manually, Cody’s physician had two options:
(1) prescribe an anti-inflammatory drug and advise Cody to abstain from vigorous
physical activity for a period; or
(2) advise Cody to undergo a magnetic resonance imaging (MRI) exam, a costly
diagnostic procedure.
Which of the following physicians is more likely to go with option (1)?
A. A physician under conventional health insurance.
B. A physician in an HMO plan.
C. A physician who is NOT concerned about the marginal cost of MRI.
D. Any physician will recommend option (1).
Getting a college degree is an example of investing in:
A. human capital.
B. physical capital.
C. technology.
D. research and development.
Refer to the figure above. When the market is unregulated, consumer surplus equals:
A. ½ × (AJ) × (JE).
B. ½ × (AB) × (BC).
C. ½ × (AG) × (GI).
D. ½ × (EH) × (HC).
In a country with 200 million people aged 16 years and older, 120 million in the labor
force, and 114 million employed, what is the participation rate?
A. 40 percent
B. 57 percent
C. 60 percent
D. 95 percent
Early settlers in the town of Dry Gulch drilled wells to pump as much water as they
wanted from the single aquifer beneath the town. (An aquifer is an underground body of
water.) As more people settled in Dry Gulch, the aquifer level fell and new wells had to
be drilled deeper at higher cost.
Refer to the information given above. Each resident of Dry Gulch has a private
incentive to ____ water because _____.
A. over use; external costs aren’t considered
B. under use; it is a scarce resource
C. over use; it is a scarce resource
D. under use; it is characterized by increasing marginal costs
Suppose one knows two facts: first, the market for prescription drugs experiences
chronic shortages and second, government sets the price for prescription drugs. One can
conclude that the:
A. government has set the price too high.
B. government has set the price above the equilibrium price.
C. buyers are hoarding prescription drugs.
D. government has set the price below the equilibrium price.
The maturation date of a bond is the date at which:
A. coupon payments will be made.
B. the principal will be repaid.
C. dividend payments will be made.
D. taxes on the bond are due.
Which of the following is a liability of a family?
A. Checking account balance
B. Share of stock
C. House
D. Mortgage
Suppose that the price of doughnuts decreases and that doughnut-holes are a by-product
of producing doughnuts. One would expect:
A. the supply of doughnuts to decrease.
B. the quantity supplied of doughnuts to decrease.
C. the supply of doughnut-holes to increase.
D. the quantity supplied of doughnut-holes to increase.
When the actual reserve/deposit ratio exceeds the desired reserve/deposit ratio banks:
A. do nothing because this is a profitable situation.
B. stop making loans.
C. send the extra reserves to the central bank.
D. make more loans.
The numbers in each cell are each firm’s profits.
Refer to the figure above. The payoffs of this game are such that:
A. if Row Restaurant expects that Column Cafe will choose its dominant strategy, Row
should choose to not follow its own dominant strategy.
B. profits at both firms would be highest if both firms follow their dominant strategies.
C. both firms would benefit from a law that made publishing coupons illegal.
D. an agreement to not publish coupons would be stable because with these profits
neither firm has an incentive to defect.
Forest is a mountain man living in complete isolation in Montana. He is completely
self-sufficient through hunting, fishing, and farming. He has not been in the city to buy
anything in five years. One can infer:
A. the scarcity principle does not apply to Forest.
B. Forest is not required to make choices.
C. the scarcity principle still applies because more hunting means less fishing and
farming.
D. Forest is very satisfied.
The principal amount of a bond is the amount:
A. originally lent.
B. of interest agreed upon when the bond was originally issued.
C. paid to the bondholders on a regular basis.
D. of interest the bondholder is entitled to when the bond matures.
Mel is thinking of going on a cruise. Mel values a cruise in nice weather at $2,000 and
values a cruise in bad weather at $50. According to a very reliable source, the
probability of nice weather is 60% and the probability of bad weather is 40%. Trip
insurance is sometimes available. If purchased, it allows travelers to delay the cruise
until the weather is nice.
If a gamble has an expected value of $10, then one can predict that
A. only risk-averse persons will take the gamble.
B. no risk-averse person will take the gamble.
C. all risk-neutral persons will take the gamble.
D. the gamble never pays off more than $10.
The profit maximizing rule MR = MC applies to:
A. all firms.
B. monopolists only.
C. perfect competitors only.
D. all firm types except perfect competitors.
If supply decreases while demand increases simultaneously, the new equilibrium price
is ___________ and the new equilibrium quantity is _________________.
A. lower; lower
B. lower; indeterminate
C. indeterminate; higher
D. higher; indeterminate
A change in the average price level is called _____, while a change in the price of a
specific good in comparison with other goods and services is called _______.
A. a quality adjustment; a substitution bias
B. a change in a relative price; inflation
C. inflation; a change in a relative price
D. a price level adjustment; a quality adjustment
The central concern of economics is:
A. poverty.
B. scarcity.
C. wealth accumulation.
D. overconsumption.
This table shows demand for shoes in a 3 consumer market:
The data suggest that
A. Leigh has higher income than Pat or Chris.
B. Leigh does not experience diminishing marginal utility for shoes.
C. Leigh prefers shoes to other items Leigh buys.
D. Pat’s demand for shoes is less than Leigh’s.
The CPI is a measure of the:
A. real wage.
B. price of a specific good or service.
C. rate of inflation.
D. average level of prices relative to prices in the base year.
An external benefit implies that private markets will provide ____ of the good (relative
to the social optimum), and an external cost implies that private markets will provide
_____ of the good.
A. too much; too much
B. too little; too little
C. too much; too little
D. too little; too much
For a given nominal interest rate, an unexpectedly low inflation rate ______ the real
interest rate.
A. increases
B. decreases
C. has no impact on
D. may either increase or decrease
Cartels would be more stable if:
A. firms that cheat on the agreement could be legally punished.
B. firms that cheat on the agreement were better informed about the value of agreement.
C. demand for the output was more variable.
D. the cartel profit were higher than the profit each individual firm could earn without
the cartel.
Imperfect price discrimination occurs when:
A. the monopolist charges a single price to all consumers.
B. some buyers pay less than their reservation price.
C. some buyers pay more than their reservation price.
D. all buyers pay less than their reservation price.
Curly used his frequent flyer miles to fly to visit Moe. Curly told Moe that it didn’t cost
him anything to visit. Is Curly correct?
A. Yes, because Curly’s frequent flyer miles made the trip free.
B. Yes, because Curly could stay at Moe’s house for free.
C. No, because Curly could have used his frequent flyer miles to go somewhere else,
but chose to visit Moe.
D. No, because Curly had to pay for earlier trips in order to earn the frequent flyer
miles.
Unlike economic profits, economic rents:
A. can be less than zero.
B. can’t be easily driven to zero by entry.
C. don’t involve the idea of opportunity costs.
D. only apply to land.
In the long run, countries with higher rates of money growth usually have:
A. higher rates of inflation.
B. lower rates of inflation.
C. faster growth rates of real output.
D. smaller budget deficits.
Hotelling’s model has been used to describe differentiation in the political “market”.
Suppose that 100 voters are evenly arrayed between the extreme left and the extreme
right on the political spectrum, and that all voters vote, and they always vote for the
candidate closest to them on this spectrum. The numbers on this spectrum represent the
number of voters lying to the left of the number. So, at the midpoint, fifty voters lie to
the left and fifty to the right. At the extreme right end, all 100 voters lie to the left.
Refer to the information given above. Suppose Candidate X is running against
Candidate Y. If Candidate Z enters the race:
A. approximately half of the voters who were going to vote for X will now vote for Z.
B. X will certainly win because Y and Z compete for the same voters.
C. all of the voters who were going to vote for Y will now vote for Z.
D. most of the voters who were going to vote for Y will now vote for Z.
The absolute price of a good in dollar terms is the
A. market price
B. equilibrium price
C. nominal price
D. marginal price
Suppose Jordan and Lee are trying to decide what to do on a Friday. Jordan would
prefer to see a comedy while Lee would prefer to see a documentary. One documentary
and one comedy are showing at the local cinema. The benefit they receive from seeing
the films either together or separately are shown in the payoff matrix. Both Jordan and
Lee know the information contained in the payoff matrix. They purchase their tickets
simultaneously, ignorant of the other’s choice.
Refer to the figure above. Suppose Jordan picks first and chooses the comedy, which
Lee observes, and then Lee chooses the comedy. The reason Lee chose the comedy is
that:
A. Lee receives a higher payoff choosing comedy when Jordan has chosen comedy.
B. Lee must establish a reputation for keeping promises even if it is not in Lee’s
immediate self-interest to do so.
C. selecting the comedy is Lee’s dominant strategy regardless of Jordan’s choice.
D. this is a prisoner’s dilemma, and so the players do best when choosing the same
strategy.
The scarcity principle applies to:
A. all decisions.
B. only market decisions, e.g., buying a car.
C. only non-market decisions, e.g., watching a sunset.
D. only the poor.
Each person who is 16 years or older is considered to be in one of the following
categories:
A. employed, unemployed, or discouraged worker.
B. part-time worker, full-time worker, or unemployed.
C. part-time worker, full-time worker, or out of the labor force.
D. employed, unemployed, or out of the labor force.