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Poverty is defined in two ways: the absolute concept of poverty and the relative concept
of poverty.
a. True
b. False
The assignment of inputs to specific industries by central planners is made difficult by
a. the interdependency among industries.
b. lack of data for decision making.
c. the danger of a chain reaction among industries if an error is made at any point.
d. All of the above are correct.
Economists use a model that is a literal description of business' behavior.
a. True
b. False
A demand curve is described as perfectly elastic if
a. any quantity can be sold at a given price.
b. the same quantity is sold regardless of price.
c. neither price nor quantity demanded ever change.
d. only price can change.
A diagram is a good example of a(n)
a. hypothesis.
b. abstraction.
c. theory.
d. concept.
e. instrumentation.
Figure 5-13
In Figure 5-13, the consumer can afford any combination of X and Y represented by a
point
a. on line AB only.
b. on or below line AB.
c. on or above line AB.
d. anywhere on the graph.
The value of an investment in an index fund depends on
a. the earnings estimate for the major index constituent.
b. the average performance of all mutual funds.
c. what happens to the prices of all stocks in that index.
d. the specific stock selection practices employed by the fund manager.
In the short-run if TR < TC, a perfectly competitive firm will always shut down.
a. True
b. False
In general, an increase in wages will lead to some reaction in line with
a. the income effect but not the substitution effect.
b. the substitution effect but not the income effect.
c. both the income and substitution effect.
d. neither the income effect nor the substitution effect.
Unemployment insurance is often criticized because workers can extend the amount of
time they are unemployed and thus increase the cost of the program. This phenomenon
is best described as
a. rent-seeking behavior.
b. moral hazard.
c. free riding.
Economists place cartels among the least-desirable forms of market organization.
a. True
b. False
David Ricardo discovered that two countries can still gain by trading even if one
country is more efficient in the production of every commodity. Ricardo's discovery is
called the law of
a. comparative advantage.
b. absolute advantage.
c. compensating balances.
d. increasing returns.
An essential point, among many, in the refutation of the "cheap foreign labor" argument
is that
a. foreign workers have a lower standard of living.
b. foreign workers are less productive.
c. low foreign wages mean fewer exports for the United States.
d. the United States does not benefit from cheap foreign labor so the goods should be
kept out.
A unit-elastic demand curve will be concave toward the origin.
a. True
b. False
When prices of products are set below equilibrium,
a. society's resources are inefficiently allocated.
b. firms expand output to increase profits.
c. firms earn excessively high profits.
d. consumers benefit from surpluses of cheap goods.
Private goods are not excludable.
a. True
b. False
Which of the following conditions distinguishes monopolistic competition from perfect
competition?
a. number of sellers
b. freedom of entry and exit
c. perfect information
d. homogeneity of the product
The use of tax penalties to control pollution represents a
a. price-based market approach to the pollution problem.
b. non-market approach to the pollution problem.
c. major source of current federal revenues.
d. pollution-rights solution to the pollution problem.
Production indifference curves bow inward toward the graph's origin because of
a. the law of diminishing returns to a single input.
b. the law of diminishing marginal returns to scale.
c. constant returns to scale.
d. minimizing costs in the short run.
Why doesn't a perfectly competitive firm charge a price slightly higher than the industry
price in order to earn extra profit?
What are the reasons for unequal distribution of income? List at least six reasons.
What is personal income tax? On which principle does the federal government levy this
tax?
What are the arguments for and against federal government grants to states?
Table 5-3
Using Table 5-3, graph the marginal utility curve.
How does a firm that is losing money in the short run decide whether to shut down or
continue to produce to minimize its losses?
Is it likely that oligopolistic firms will be in both a kinked demand curve situation and
also engage in price leadership? Why or why not?
A separate average revenue curve is not required when you have the demand curve for a
firm. Explain.
