An empirical study determines that price exceeds marginal cost at the levels of output
of firms in long-run equilibrium in the widget industry. The widget industry may
therefore
a. be monopolistically competitive.
b. have firms whose goal is sales maximization.
c. have firms that act as price leaders.
d. All of the above are correct.
Government plays a role in which type of economy?
a. only free market economies like the United States
b. only socialist economies
c. only mixed economies
d. all economies
If households decrease the amount of bank account withdrawals, the consumption
function may shift upward.
a. True
b. False
Regarding the financial crisis of 2008-2009, and Americans’ spending habits, it is
correct to say that:
a. After 2000, the ratio of consumer debt to GDP dropped steadily.
b. After the financial crisis of 2008-2009, many U.S. consumers incurred more debt.
c. Since 2009, the ratio of consumer debt to GDP has come down notably.
d. None of these is correct.
From Figure 8-5 one can deduce
a. TR = TC at outputs 10 and 60.
b. MR = MC at output 35.
c. TFC = 100.
d. All of the above are correct.
Productivity levels are higher in rich countries compared to poor countries.
a. True
b. False
When the economy has substantial additional saving, deficit spending will have a large
“crowding out” effect.
a. True
b. False
Define the following terms and explain their importance to the study of economics.
a. marginal cost
b. marginal revenue
c. short-run equilibrium
d. supply curve of the firm
e. economic profit
The rational expectations theory claims that workers and firms will not make systematic
errors when they forecast inflation.
a. True
b. False
A production possibilities frontier indicates the most efficient combinations of goods.
a. True
b. False
Figure 9-3
In Figure 9-3, investment plus net exports equals
a. $200 billion.
b. $400 billion.
c. $600 billion.
d. $800 billion.
e. $1,200 billion.
Scatter diagrams of money growth rates and inflation rates between 1982 and 2010
show a clear relationship of cause and effect.
a. True
b. False
Figure 19-1
Mr. Paque is a bear hunter for timber companies that want to diminish damage to trees
done by bears in the spring. Due to a reduction in the bear population between 1995 and
2005, Mr. Paque finds fewer bears each year and additional hours spent hunting
produce fewer additional bears. The change in Mr. Paque’s MPP curve between 1995
and 2005 is best illustrated by which panel in Figure 19-1?
a. 1
b. 2
c. 3
d. 4
Figure 6-3
In Figure 6-3(a), demand is
a. perfectly elastic.
b. perfectly inelastic.
c. unit elastic.
d. fixed at one particular quantity.
Where interdependence is especially pronounced, competition among oligopolists will
a. resemble military tactics and strategies.
b. disappear.
c. lead to large increases in product output.
d. entice more firms to enter the market.
Equilibrium GDP on the demand side occurs when total spending
a. equals total production, and inventories are zero.
b. equals total production, and firms are unable to adjust inventories.
c. exceeds total production, and inventories are rising.
d. equals total production, and inventories remain at desired levels.
e. is less than total production, and inventories are falling.
The three noteworthy features of corporations’ legal status include all of these except:
a. they are taxed
b. special limits are placed on the losses that may be incurred by those who invest
incorporations
c. the corporation is a distinct entity separate from its owners
d. they may invest in the stock market and acquire financing
If a borrower arbitrarily gains purchasing power as the result of a particular loan
agreement, then
a. actual inflation was greater than expected inflation.
b. actual inflation was equal to expected inflation.
c. actual inflation was less than expected inflation.
d. the real interest rate was greater than the nominal interest rate.
Every year from 1954 to 1984, the U.S. economy was characterized by higher output
and lower prices.
a. True
b. False
If the multiplier is 4, a decrease in spending equal to $80 billion will be accompanied
by a decrease in GDP of
a. $480 billion.
b. $320 billion.
c. $240 billion.
d. $84 billion.
e. $48 billion.
Some oligopolies may try to maximize sales revenue rather than maximize profits.
a. True
b. False
Believers in fixed rules maintain that
a. with accurate forecasts, we can see inflation coming at least one year ahead of time.
b. the length of stabilization lags is not important because fiscal policy actions are taken
quickly and the economy feels the effect on aggregate demand quickly.
c. we should forget about discretionary policy and put the economy on autopilot,
relying instead on automatic stabilizers and the economy’s self-correcting mechanism.
d. the economy’s self-correcting mechanism is slow and not very reliable, even with
automatic stabilizers.
The U.S. remains the world’s economic leader in all respects.
a. True
b. False
The process of adjustment to a new long-run equilibrium in a perfectly competitive
industry is complete when
a. no firms want to enter or exit the industry.
b. every firm has adjusted its production process to make the most efficient use of its
resources.
c. investors in the industry receive the standard economy-wide rate of return on their
investments.
d. All of the above are correct.
Which of the following is a fixed cost to farmer McDonald?
a. gasoline
b. fertilizer
c. insurance
d. seed
A new technological innovation would increase
a. the labor force.
b. labor hours worked.
c. labor productivity.
d. population growth.
The wage premium in the United States represents a
a. cost of higher education.
b. decreasing return to higher education.
c. higher return to college education.
d. result of declining college attendance since 1973.
In discussing trade, it is ____ that matters rather than ____.
a. absolute advantage: elastic advantage
b. comparative advantage; absolute advantage
c. entire advantage; comparative advantage
d. elastic advantage; entire advantage
e. declarative advantage; absolute advantage
Which of the following is most sensitive to monetary policy?
a. Government expenditure
b. Consumption spending
c. Utility spending
d. Investment spending
When a firm or economy is operating efficiently, it is operating
a. outside its production possibilities frontier.
b. inside its production possibilities frontier.
c. on its production possibilities frontier.
d. at the intersection of the production possibilities frontier and the vertical axis.
e. at the intersection of the production possibilities frontier and the horizontal axis.
Most economists think that the economy’s self-correcting mechanism is
a. relatively rapid.
b. rapid in the short run and sluggish in the long run.
c. sluggish in the short run and rapid in the long run.
d. relatively sluggish.
An import quota will ordinarily raise the price of the good in the importing country.
a. True
b. False
Voluntary exchange results in mutual gains.
a. True
b. False
A fiscal policy that reduces taxes or increases government spending will cause a(n)
a. increase in real GDP and a decrease in the price level.
b. increase in real GDP and an increase in the price level.
c. decrease in real GDP and a decrease in the price level.
d. decrease in real GDP and an increase in the price level.
Explain why environmentally minded firms in a competitive industry will find it
difficult to take environmental action.
Graphically show why one electric company can operate more cheaply than two.
How do transfer payments function as negative taxes?
If I use 1,000 gallons of water a month at a price of $.01 a gallon, is my consumer
surplus likely to be large or small? Explain.
Why has the free market system produced the most rapid rates of growth of any
economic system?
Some college students have claimed that because their incomes will be higher as a
result of attending college, there is no opportunity cost of attending college. Do you
agree? Explain.
Why is the personal income tax considered to be one of the main features of our
modern economy that helps ensure against a repeat performance of the Great
Depression?
Why does perfect competition shun advertising? Does advertising benefit a monopoly?
Some years ago New York City imposed rent controls in an effort to provide housing at
“fair” prices for as many people as possible. The result was a serious shortage of
housing and deterioration of existing rental properties. How would an economist have
described the result in terms of economic efficiency?
If a firm has short-run losses, will it stay open? Under what conditions will a firm close
in the short run? Explain.
All industrialized countries have become “service economies” in recent decades.
Explain the reasons behind this shift.
Describe the role of business inventory change in determining the equilibrium level of
GDP and changes in the level of GDP.
List three primary ways in which profits above “normal” interest rate levels can be
earned.
Economists say that voluntary exchange makes both parties better off. What is the
explanation that they offer to back up this conclusion?
A separate average revenue curve is not required when you have the demand curve for a
firm. Explain.
The United Auto Workers union is largely responsible for the historically high pay of
American auto workers by negotiating pay raises above those obtained by workers in
other industries. In addition to increasing the pay of auto workers, what other long-run
effect would this high pay have on the use of auto workers?
The demand for a textbook written by Schwarz and Mobley is Q = 20,000 − 50P;
supply is Q = 2,000 + 100P. Students complain about the high price of textbooks,
resulting in a price ceiling and, unfortunately, a shortage of texts. Below what price will
shortages occur?
Table 5-3
Using Table 5-3, graph the marginal utility curve.