When does a price searcher’s marginal revenue curve lie below its demand curve?
A) At all times, since this is the definition of a price searcher
B) When it cannot confine price reductions to the new sales it’s trying to attract by
lowering its price
C) When it is producing more than the net revenue maximizing quantity
D) When its marginal cost curve is rising
E) When the demand curve slopes downward to the right
If you pay $35 for a sticker that entitles you to park on campus for 35 weeks of the
academic year, the marginal dollar cost to you of parking your car on campus on any
given weekday will be
A) $35.
B) $1.
C) $.20.
D) zero.
E) negative.
Economists assume people’s choices
A) are inherently random.
B) are the result of greed.
C) cannot be predicted.
D) conflict with the actions or interests of everyone else.
E) create options for other people.
What would be the direct effect of a reduction in the U.S. selling price of
Japanese-made cars on the U.S. demand for Japanese-made cars?
A) No effect, because price changes affect quantity demanded, not demand.
B) The demand would decrease.
C) The demand would increase.
D) We cannot tell unless we know the elasticities of demand for Japanese-made and
American-made cars.
E) We cannot tell unless we know whether more cars can be imported from Japan.
Medical service by physicians
A) could be made a free good through universal health insurance.
B) is a good for which the demand is completely inelastic.
C) is a good for which there is no satisfactory substitute.
D) would become a free good if physicians did not charge monetary fees.
E) would cost some patients more in non-monetary terms than they now pay if
physicians did not charge monetary fees.
If the government were to remove rent controls from the New York City rental market,
then
A) all would be harmony.
B) the price paid by buyers would decrease and the quantity of rental units will
decrease.
C) the price received by sellers would increase and the quantity of rental units will
increase.
D) the price received by sellers would decrease and the quantity of rental units will
decrease.
Which is an example of expansionary fiscal policy?
A) A lowering of tax rates
B) A lowering of government spending
C) An increase in the discount rate
D) An increase in the federal funds rate
E) An increase in reserve requirements
What effect on the price of hiring a lawyer to draw up a will would the opportunity-cost
theory predict as a consequence of legislation requiring the use of a lawyer in all real
estate transactions?
A) A higher price as the market becomes flooded with lawyers.
B) A higher price as lawyers find it costs them more to draw up wills
C) No effect because prices are determined by demand, not by cost.
D) A lower price as the market becomes flooded with lawyers
E) A lower price as lawyers find they can now obtain their desired income level with
lower fees
The property rights people actually possess
A) are limited to the rights sanctioned by law.
B) are the rights they can exercise regardless of what others do.
C) are the similar rights they grant other because all rights in a society must be mutual.
D) depend heavily on the cooperation of other people.
Suppose you find $1000 in your attic and decide to deposit it all into your local bank,
which must hold 20% as required reserves. The deposit expansion multiplier suggests
that this $1,000 “injection” of new money will, in reality, most likely
A) increase the money supply by more than $1,000.
B) increase the money supply by less than $1,000.
C) increase the money supply by exactly $1,000.
D) increase the money supply by exactly $5,000.
Suppose you find $1000 in your attic and decide to deposit it all into your local bank,
which must hold 10% as required reserves. The deposit expansion multiplier suggests
that this $1,000 “injection” of new money will, in reality, most likely
A) increase the money supply by more than $1,000.
B) increase the money supply by less than $1,000.
C) increase the money supply by exactly $1,000.
D) increase the money supply by exactly $10,000.
If a city suddenly and unexpectedly abolishes all property taxes on residential property,
which consequence is most likely to be observed first?
A) Higher rents for residential space
B) Higher sale prices for residential property
C) Lower rents for residential space
D) Lower sale prices for residential property
E) More conversion of apartments to condominiums
According to the text, “congestion” is another word for
A) confusion.
B) cost.
C) inconsiderate behavior.
D) shortage.
If losses are unavoidable in an uncertain world, then
A) profits are too.
B) profits are only the result of good luck.
C) profits are avoidable.
D) profits are the result of people acting with perfect information.
Ron regularly deposits $200 each week into a savings account, which earns 3% interest
per year. This month he decides instead to invest $200 into the stock market. What is
the opportunity cost of Ron’s decision to invest rather than save?
A) $200
B) The 3% interest he could have earned by depositing another $200 into his savings
account
C) The difference between the rate of return he enjoys in the stock market and the 3%
interest return he could have earned by depositing that $200 into his savings account
D) Zero, because Ron already had the $200
Negative externalities might be reduced through a process of deciding or discovering
who has which rights, which might also be described as ________.
A) adjudication
B) remuneration
C) legislation
D) substantiation
E) identification
Suppose the market-clearing price of milk is $3.00 per gallon, but the dairy industry
persuades the government to establish a legally-mandated price support at $4.00 per
gallon. The newly legislated price tends to
A) increase the supply of milk.
B) reduce the demand for milk.
C) increase the quantity supplied of milk.
D) increase the quantity demanded of milk.
Rank the following goods from most elastic to least elastic: fruit, apples, Granny Smith
apples.
A) Fruit, apples, Granny Smith apples
B) Apples, Granny Smith apples, fruit
C) Granny Smith apples, apples, fruit
D) The goods cannot be ranked by elasticity because it ultimately involves the problem
of comparing apples to oranges.
How long is it worthwhile to continue searching for a $20 bill that you lost if you value
your time at $5 an hour?
A) About 2 hours if there is a fifty percent chance of finding it.
B) About 4 hours, regardless of the probability of finding it.
C) Only so long as you expect to find it within the next four hours, which could mean
far more than four hours of searching.
D) You cannot make a rational decision without first knowing whether you will find it.
E) You should not search at all because the lost bill is a sunk cost.
A price searcher faces the following demand function: At $7, 6, 5, 4, and $3, the
quantity demanded is 300, 400, 500, 600, and 700 units respectively. If the firm’s
marginal cost is $300 at any level of output, it would maximize net revenues by
A) producing 400 units and charging $6.
B) producing 500 units and charging $5.
C) producing 600 units and charging $4.
D) producing 700 units and charging $3.
To ask “what causes a recession” is the same as asking
A) “why does supply meet demand?”
B) “what is the link between price elasticity of demand and price elasticity of supply?”
C) “why have so many individuals made errors all at once?”
D) “why have price controls failed us?”
A local bar provides free pretzels and peanuts and cheap drinks on a Monday night. But
soon a fight breaks out in the parking lot between two quarreling patrons. Neighboring
homeowners awaken as a result, and call the police. What can we clearly conclude?
A) The bar’s free pretzels and peanuts generate a positive externality.
B) Each fighter imposes a negative externality on the other fighter.
C) The fighters impose a negative externality on the neighboring homeowners.
D) The neighboring homeowners impose a negative externality on the police.
E) All of the above are true.
What would be the most likely effect in the market for OPEC oil if the U.S. were to
impose a legal ceiling price on crude petroleum produced domestically? Assume their
price is far below the current world price?
A) The demand would decrease.
B) The demand would increase.
C) The supply would decrease.
D) The supply would increase.
E) Only the quantity would change, not the demand or the supply.
The most accurate procedure for finding out whether it is more efficient for a
commercial airline to use 727s or 757s for its domestic flights is to
A) compare the fuel efficiency of 727s and 757s.
B) compare the fuel efficiency and operating cost of 727s and 757s.
C) compare the acquisition cost, operating cost, and fuel efficiency of 727s and 757s.
D) compare the acquisition cost, operating cost, and fuel efficiency per passenger seat
of 727s and 757s.
E) see whether the airline has chosen to use 727s or 757s.
What happens when the Federal Reserve purchases U.S. government bonds?
A) Interest rates rise because bonds become scarcer.
B) Commercial bank reserves increase.
C) The national debt declines in size.
D) The growth rate of the money stock falls.
E) All of the above occur.
U.S. census data suggests that
A) income inequality has been increasing since 1980.
B) income inequality has been decreasing since 1980.
C) income inequality was nonexistent in the 1990s.
D) the percentage of families living below the poverty line has surged since the 1980s.
If the Palace Cinema can sell 200 tickets at $4 and 300 tickets at $3, the demand for
Palace Cinema tickets between the two prices is
A) elastic.
B) inelastic.
C) marginal.
D) unit elastic.
Which activity of the Fed would tend to increase the nation’s money supply?
A) Sales of government bonds
B) Lowering the discount rate
C) Raising the required reserve ratio
D) None of the above.
What is required for a negative externality to occur?
A) The intention or plan to directly impose costs on others
B) The full costs of an action aren’t taken into account
C) A total lack of concern for other people’s welfare
D) Greed
The ability of employers to increase their net revenue by paying low wages is limited
primarily by
A) federal and state legislation.
B) the fact that net revenue is maximized when marginal revenue equals marginal cost.
C) the other opportunities available to employees.
D) the right of labor unions to strike.