Figure 15-1
As shown in Figure 15-1, 80 percent of families earned a cumulative share of about
____ of income.
a. 5 percent
b. 15 percent
c. 30 percent
d. 50 percent
Which of the following events will leave GDP unchanged?
a. You purchase 100 shares of Wal-Mart stock.
b. You pay $500 to repair the damage done to your car by an uninsured motorist.
c. You decide to work five more hours per week at your job to pay for the repairs
performed on your car.
d. You purchase a new car at an auction.
Just before Valentine’s Day, the price of roses increases dramatically. This is because
a. self-interested individuals try to charge more for a good than consumers are willing
to pay.
b. demand increases while the supply of roses remains relatively constant.
c. the supply curve of roses is highly elastic.
d. the demand for roses is relatively inelastic most of the year, but becomes more elastic
as demand increases.
If an increase in the excise tax imposed on cigarettes pushes the price per pack up by 20
percent, and the quantity sold declines by 8 percent as a result, the price elasticity of
demand for cigarettes is equal to
a. 0.2.
b. 0.4.
c. 0.8.
d. 5.
Suppose a price-searcher firm faces the following demand curve data for its product.
What is the firm’s marginal revenue from selling the sixth unit?
a. $4
b. $9
c. $10
d. $54
In the short run, an unanticipated increase in the money supply will exert its primary
impact on
a. output and employment rather than on prices.
b. prices; output and employment will be largely unaffected.
c. interest rates; rising interest rates will stimulate additional saving.
d. prices, if the economy operates at an output level below its long-run supply
constraint.
Overfishing in the ocean often
a. is easily solved by shortening the fishing season.
b. is not caused by better technologies, which today’s fishers would not use if they
harmed the resource.
c. occurs only when regulators fail to regulate due to corruption.
d. is caused by many boats racing to catch more fish in a very short season.
If consumer purchases of a good are not very sensitive to the price of the good, this is
illustrated by a
a. demand curve that is relatively flat (more horizontal).
b. demand curve that is relatively steep (more vertical).
c. supply curve that is relatively flat (more horizontal).
d. supply curve that is relatively steep (more vertical).
If the government wants a natural monopoly to earn a “fair return” or zero economic
profit, it will set
a. price equal to marginal cost.
b. price equal to average total cost.
c. price equal to average revenue.
d. marginal cost equal to marginal revenue.
e. marginal cost equal to average total cost.
Of the following, who would most likely be hurt by an unanticipated increase in the rate
of inflation?
a. an individual with a 30-year fixed-rate home mortgage loan
b. the U.S. federal government because it has a large quantity of outstanding debt
c. lenders who have made long-term loans at fixed interest rates
d. Social Security recipients whose benefits are adjusted upward as the general level of
prices increases
Last year, 1,000 cases of bottled water were sold at $5; this year, 1,200 cases were sold
at $7. These data could be explained by the
a. supply and demand curves shifting to the right.
b. supply and demand curves shifting to the left.
c. supply curve shifting to the left, with no change in demand.
d. demand curve shifting to the right, with no change in supply.
If education creates external benefits,
a. actual market outcomes provide less than the efficient quantity of education.
b. actual market outcomes provide more than the efficient quantity of education.
c. actual market outcomes provide a higher price than the efficient price of education.
d. the government should impose a depletion tax.
Figure 4-19
Refer to Figure 4-19. When the price ceiling applies in this market and the supply curve
for gasoline shifts from S1to S2,
a. the price will increase to P3.
b. a surplus will occur at the new market price of P2.
c. the market price will stay at P1 due to the price ceiling.
d. a shortage will occur at the price ceiling of P2.
Under the rational expectations hypothesis, which of the following is the most likely
short-run effect of a move to expansionary monetary policy?
a. a higher general level of prices but little or no change in real output
b. a higher general level of prices and an expansion in real output
c. no change in the general level of prices and a reduction in real output
d. no change in either the general level of prices or real output
The rational-ignorance effect refers to the
a. lack of incentive voters have to become well-informed about candidates and issues
because their vote is unlikely to affect the outcome of an election.
b. fact that most people choose to become just as well-informed when making choices
as consumers as they do when making choices as voters.
c. lack of rational analysis on the part of voters when they choose not to become
informed about candidates and issues even though this knowledge would produce great
personal benefit to them.
d. problem of not enough information being supplied to voters because politicians are
not spending enough on campaign adds to inform voters of their positions on issues.
Which of the following is true with regard to the use of countercyclical fiscal policy as
a stabilization tool?
a. Successful fiscal policy would be easy to achieve if Congress had greater access to
forecasting tools.
b. Successful fiscal policy is difficult to achieve because Congress acts slowly and our
ability to predict the future is limited.
c. Successful fiscal policy is easier to achieve today because econometric forecasting
models are highly accurate.
d. Congress and the President have persistently altered fiscal policy in a stabilizing
manner.
The money rate of interest is the
a. real rate of interest minus the inflationary premium.
b. real rate of interest plus the inflationary premium.
c. real rate of interest divided by the inflationary premium.
d. inflationary premium minus the real interest rate.
Competitive price-searcher markets are common in
a. retail selling.
b. farming.
c. basic manufacturing.
d. electric power generation.
Imagine that there are only two nations in the world, the United States and Mexico. If
Americans buy more goods made in Mexico, other things constant, the
a. U.S. demand curve for Mexican pesos will shift rightward
b. U.S. demand curve for Mexican pesos will shift leftward
c. U.S. supply curve of Mexican pesos will shift leftward
d. U.S. supply curve of Mexican pesos will shift rightward
A 20 percent increase in the price of flour reduces flour consumption by about 10
percent. Such a price increase causes households to
a. spend less on flour.
b. spend more on flour.
c. spend the same amount on flour as before.
d. consume more goods like salt and baking powder, which are flour complements.
Which of the following programs is most clearly advantageous to those with lower
levels of income?
a. farm subsidy programs
b. the Social Security retirement program
c. the Earned Income Tax Credit
d. credit subsidies provided by the Import-Export bank to business firms that sell goods
abroad
The law of comparative advantage suggests that
a. curtailing U.S. trade with other countries would make U.S. consumers better off.
b. everyone would be better off if they were self-sufficient.
c. countries will tend to import commodities that they can produce at a relatively low
opportunity cost.
d. countries will tend to import commodities that they can produce at a relatively high
opportunity cost.
A bank receives a demand deposit of $1,000. The bank loans out $600 of this deposit
and increases its excess reserves by $300. What is the legal reserve requirement?
a. 10 percent
b. 20 percent
c. 30 percent
d. 60 percent
Use the figure to answer the following question(s).
Figure 9-11
Which of the following represents the firm’s total cost of producing the
profit-maximizing output in Figure 9-11?
a. OCFK
b. OBGK
c. OAEL
d. OCHI
Figure 17-10
Refer to Figure 17-10. Consumer surplus with trade and without a tariff is
a. A.
b. A + B.
c. A + C + G.
d. A + B + C + D + E + F.
If the Federal government enacts a new excise tax of $1.50 per case of soda. Which of
the following is most likely to occur?
a. Consumers of soda will pay a higher price and buy a larger quantity.
b. Consumers of soda will pay a higher price, which will increase the profits of soda
companies, inducing them to sell a larger quantity.
c. Consumers of soda will pay a higher price and buy a smaller quantity.
d. Consumers of soda will buy less bottled water.
If we observe an increase in the price of a good and an increase in the amount of the
good bought and sold, this could be explained by
a. an increase in the supply of the good.
b. an increase in the demand for the good.
c. a decrease in the demand for the good.
d. a decrease in the supply of the good.
A good that is both nonexcludable and nonrival-in-consumption is called a
a. common good.
b. external good.
c. public good.
d. private good.
Which of the following would a Keynesian economist be most likely to stress?
a. Supply creates its own demand.
b. Businesses will not produce goods and services if they do not think people will buy
them.
c. You cannot spend your way out of a recession.
d. When the unemployment rate is high, wage rates will fall.
e. A dollar saved is a dollar earned; a high rate of saving is the key to prosperity.
A market that operates outside the legal system, either by selling illegal goods or by
selling goods at illegal prices is referred to in economics as a
a. gray market.
b. resource market.
c. black market.
d. criminal market.
Current tax rates are insufficient to finance the benefits promised by both the Social
Security and Medicare programs. Are these unfunded promises surprising according to
economic theory?
a. Yes, political representatives have a strong incentive to levy taxes that are sufficient
to cover the cost of all programs they favor.
b. No, the unfunded promises reflect the shortsighted nature of the political process.
c. Yes, political representatives generally favor balancing the government budget
because this is best for the economy.
d. No, even though debt financing often makes sense, politicians are reluctant to use it
because it will damage their chances of being reelected.
If fixed costs are $200,000 and variable costs are $30 per unit over the relevant range of
output, when 10,000 units are produced, the average total cost will be
a. $20.
b. $30.
c. $50.
d. $70.
Higher standards of living are the result of
a. an increase in the general level of prices.
b. trade restrictions that favor domestic industries over foreign competition.
c. an increase in the availability of goods and services that people value.
d. government subsidies that expand employment.
Figure 17-12
If the country illustrated in Figure 17-12 is initially trading without restrictions at a
world price of $1.00, net welfare loss as a result of a tariff of $0.50 per unit is
represented by area
a. c + i + e + f
b. i + f
c. i
d. f
e. b + d
The short-run effect of a sudden increase in stock prices will be
a. an increase in output and a decrease in prices.
b. an increase in both output and prices.
c. a decrease in both output and prices.
d. a decrease in output and an increase in prices.