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If a third party pays a larger and larger share of the purchasing price of a good,
economic theory indicates that
a. the total expenditures (including those made by the third party) on the good will
decline.
b. the demand for the good will decrease.
c. consumers will have a stronger incentive to economize on their use of the good.
d. suppliers will have less incentive to provide the good at low prices.
According to Adam Smith, individual self-interest
a. is a powerful force for economic progress when it is directed by competitive markets.
b. is a powerful force for economic progress when individuals are wisely directed by a
strong central government.
c. is a major factor in retarding the economic progress of humankind.
d. could be either a positive or negative force for economic progress, depending on the
moral influences of political leaders.
Suppose that in a country people gain more confidence in the banking system and so
hold relatively less currency and more deposits, then bank reserves will
a. decrease and the money supply will eventually decrease.
b. decrease and the money supply will eventually increase.
c. increase and the money supply will eventually decrease.
d. increase and the money supply will eventually increase.
Frictional unemployment is the result of
a. not enough jobs for everyone to be employed.
b. unemployed workers' skills not matching those needed for the available jobs.
c. a decline in the demand for labor, such as during a recession.
d. imperfect information and temporary periods of unemployment while workers are
changing jobs.
Economic growth is likely to be faster when
a. higher tax rates are imposed on high income individuals in order to provide greater
cash payments to the poor.
b. domestic markets are opened to foreign sellers and foreign investors.
c. the supply of money is increased rapidly so individuals have more money to spend.
d. dramatic changes in political and legal institutions occur often.
Figure 2-10
Refer to Figure 2-10. If this economy put all available resources into the production of
bananas, it could produce
a. 200 bananas and also 150 baseballs.
b. 300 bananas and also 100 baseballs.
c. 400 bananas and no baseballs.
d. It is impossible to know unless we know the quantity of resources available.
Suppose the United States reduced the tariff on a major imported item. Under a system
of flexible rates of exchange, this would tend to
a. cause the dollar to appreciate.
b. cause the dollar to depreciate.
c. decrease the U.S. balance of trade deficit.
d. increase the current account surplus.
Suppose that an MBA degree creates no externality because the benefits of an MBA are
captured by the student in the form of higher wages. If the government offers subsidies
for MBAs, then which of the following statements is correct?
a. The equilibrium quantity of MBAs will equal the efficient quantity of MBAs.
b. The equilibrium quantity of MBAs will be greater than the efficient quantity of
MBAs.
c. The equilibrium quantity of MBAs will be less than the efficient quantity of MBAs.
d. The tuition paid by the student would be exceed the efficient amount.
Suppose a company sells its product for $5.00. It's industrial engineers have informed
management that hiring one additional worker will increase output by five units per
hour. The company should hire the additional worker only if the wage rate is
a. $5.00 or less per hour.
b. $1.00 or more per hour.
c. $25.00 or less per hour.
d. none of the above.
Production possibilities curve are usually bowed outward. This is because
a. the more resources a society uses to produce one good, the fewer resources it has
available to produce another good.
b. it reflects the fact that the opportunity cost of producing a good decreases as more
and more of that good is produced.
c. of the effects of technological change.
d. resources are specialized, that is, some are better at producing particular goods rather
than other goods.
The U.S. experience during the 1980s and 1990s illustrates that
a. fiscal policy is substantially more potent than monetary policy.
b. a balanced budget is essential for the achievement of price stability.
c. a monetary policy that keeps the inflation rate low and steady will help promote
economic stability.
d. there is a trade-off between inflation and unemployment-the unemployment rate can
be reduced if we are willing to tolerate higher rates of inflation.
Countries with lower levels of economic freedom tend to have
a. lower levels of economic growth
b. higher levels of per person income
c. higher levels of investment
d. all of the above
As a general rule, technological progress
a. shifts the production possibilities curve outward, away from the origin.
b. reduces the slope of the production possibilities curve, making it flatter.
c. increases the slope of the production possibilities curve, making it steeper.
d. shifts the production possibilities curve inward, toward the origin.
As the general price level in an economy rises, the aggregate quantity demanded of
goods and services falls because
a. the prices of domestic goods have risen relative to foreign goods, causing exports to
fall and imports to rise.
b. higher interest rates caused by an increase in the demand for money balances causes
a reduction in current investment and consumption.
c. the value of money will fall, reducing the real wealth and, thus, the consumption of
persons holding money balances.
d. all of the above are correct.
According to the adaptive expectations hypothesis, people will
a. anticipate that what has happened in the immediate past will continue.
b. systematically overestimate inflation when inflation is increasing.
c. use all available information, including information on the expected impact of
economic policy, when they formulate expectations about economic events.
d. systematically underestimate inflation when inflation is declining.
The three major categories of resources are
a. human resources, physical resources, and natural resources.
b. scarce resources, capital resources, and abundant resources.
c. financial resources, global resources, and local resources.
d. common resources, private resources, and capital resources.
According to the shortsightedness effect, politicians tend to favor projects with
a. short-run benefits and short-run costs.
b. short-run benefits and long-run costs.
c. long-run benefits and short-run costs.
d. long-run benefits and long-run costs.
As a group, oligopolists would always earn the highest profit if they would
a. produce the competitive quantity of output.
b. produce more than the competitive quantity of output.
c. charge the same price that a monopolist would charge if the market were a monopoly.
d. operate according to their own individual self-interests.
The difference between the money interest rate and the real interest rate is the
a. prime interest rate.
b. nominal interest rate.
c. exchange rate.
d. inflationary premium.
Which of the following is the primary source of cross-country differences in the real
earnings of workers?
a. differences in natural resource endowments
b. differences in output per worker
c. differences in the average number of hours worked
d. differences in the share of workers that are members of a labor union
e. access to modern technology
Figure 3-20
Refer to Figure 3-20. If 110 units of the good are being bought and sold, then
a. the cost to sellers is equal to the value to buyers.
b. the value to buyers is greater than the cost to sellers.
c. the cost to sellers is greater than the value to buyers.
d. producer surplus is greater than consumer surplus.
A new hormone will increase the amount of milk each cow produces. If this hormone is
adopted by many dairies, what will be the effect on the milk market?
a. An increase in supply, higher equilibrium price, and lower equilibrium quantity.
b. A decrease in supply, lower equilibrium price, and lower equilibrium quantity.
c. An increase in supply, lower equilibrium price, and higher equilibrium quantity.
d. An increase in supply, higher equilibrium price, and higher equilibrium quantity.
e. A decrease in supply, lower equilibrium price, and higher equilibrium quantity.
In the area of business, rent-seeking often involves
a. the use of resources to construct high-priced rental housing.
b. the use of resources to secure and maintain a grant of monopoly power from the
government.
c. an agreement between firms to raise prices and limit entry.
d. an agreement between a firm and a customer that makes both parties better off.
During the Great Depression of 1929"1933,
a. the Fed allowed the money supply to contract substantially.
b. the Fed increased the money supply sharply.
c. Congress cut tax rates sharply.
d. Congress cut tariffs substantially.
Which of the following is the best explanation of why a lack of information is a
problem when the government wants to impose price regulation on a monopolist?
a. the government does not have information about which firms are monopolies.
b. firms that are monopolies do not have information about their level of profit or about
potential competition.
c. consumers do not have information about which firms are competitive and which
firms are monopolies.
d. regulators do not have information about the demand and marginal costs of the firms
that they regulate.
The share of Americans who pay no personal income tax
a. has been relatively constant at approximately 33 percent throughout 1975-2010.
b. was relatively constant near 33 percent between 1975 and 2000, but it has increased
during the past decade, reaching nearly half of adult Americans in 2010.
c. was relatively constant near 33 percent between 1975 and 2000, but it has fallen
during the past decade, receding to only 18 percent in 2010.
d. rose steadily from 18 percent in 1975 to nearly 50 percent of adult Americans in
2000, but it receded to less than 40 percent in 2010.
Which of the following is a partially valid economic argument for restricting free trade?
a. Restrictions on foreign trade will increase employment and permanently reduce
unemployment.
b. Removal of restrictions that have existed for years will initially cause inflation.
c. Infant industries need permanent protection to develop and gain productive
efficiency.
d. A nation needs to protect industries that are vital to national defense in case of future
international conflict.
In the case where a natural monopoly exists in an industry,
a. a competitive market structure will be costly and difficult to maintain.
b. a competitive market structure will be more efficient and more equitable.
c. government regulations will always improve efficiency in this industry.
d. economies of scale will not be a consideration when analyzing the proper structure of
the industry.
Suppose that an employer hires workers with blue eyes and workers with brown eyes.
Each type of worker has the same productivity. Which of the following is correct if the
employer discriminates by offering blue-eyed workers lower wages than brown-eyed
workers?
a. The employer will be just as cost efficient as a nondiscriminating employer.
b. The employer will face higher costs than a nondiscriminating employer.
c. The employer will have lower costs.
d. The employer will have higher profits.
e. Both a and c are correct.
Suppose external costs are present in a market which results in the actual market price
of $70 and market output of 150 units. How does this outcome compare to the efficient,
ideal equilibrium?
a. The efficient price would be higher than $70.
b. The efficient price would be lower than $70.
c. The efficient price would also be $70.
d. The efficient output would be greater than 150 units.
Use the figure to answer the following question(s).
Figure 8-10
Using Figure 8-10, calculate the firm's approximate average total cost when it produces
12 units.
a. $5
b. $10
c. $15
d. $20
Under the current structure of Medicare, the movement of the baby boom generation
into the retirement phase of life will
a. reduce the overall demand for medical services because the elderly will not have to
pay for hospitalization in the future.
b. place downward pressure on healthcare prices.
c. cause Medicare expenditures to increase and necessitate the need for higher taxes to
finance the program.
d. do all of the above.
In recent years, wireless cellular telephones have been replacing land-line phone
service. This is an example of
a. economies of scale.
b. division of labor.
c. creative destruction.
d. entry barriers into a market.
Are funds available on a credit card included in a definition of the money supply?
a. Yes, because these funds can be used to pay for goods and services.
b. Yes, because these funds are included in M2.
c. No, because these funds are hard to measure total credit card spending.
d. No, because these funds are not a store of value.
