Generally, ______ motivate firms to enter an industry while ______ motivate firms to
exit an industry.
A. economic profits; economic losses
B. accounting profits; accounting losses
C. accounting profits; economic losses
D. economic profits; accounting losses
In a certain economy, the components of planned spending are given by:
C = 500 + 0.8(Y – T) – 300r
Ip = 200 – 400r
G = 200
NX = 10
T = 150
Given the information about the economy above, which expression below gives
autonomous expenditures?
A. 0.8Y
B. [790 – 700r]
C. [910 – 700r]
D. [760 – 700r]
Jenny sells lemonade by the street during the summer time. Several other kids also sell
lemonade in Jenny’s neighborhood.
Refer to the information above. Suppose that the first week of summer, Jenny charged
25 cents for an 8-ounce cup of lemonade, her next-door neighbor Sam charged 50 cents
for an 8-ounce cup of lemonade, and Alex across the street charged 15 cents for an
8-ounce cup of lemonade. What is most likely to happen?
A. Everyone will start to charge 50 cents to maximize revenue.
B. A price war will break out, and all of the kids will gradually increase their prices.
C. Each kid will keep his or her price at the original amount, because they had chosen
those prices to maximize profits.
D. Eventually prices will equalize at all three lemonade stands.
The buyer’s reservation price of a particular good or service is the:
A. minimum amount the buyer would be willing to pay for it.
B. same as the market price.
C. maximum amount the buyer would be willing to pay for it.
D. price the buyer must pay to ensure he or she gets it.
Two firms can choose from five different technologies to reduce their pollution: A, B,
C, D and E. The amount of pollution emitted by each technology and the cost of the
technologies are shown in the table. Both firms have adopted technology A and
currently emit 4 tons apiece. The government is considering two plans to reduce
pollution: a 50% reduction by both firms or selling pollution permits. One permit
entitles the owner to emit one ton of pollution. Without a permit, no pollution can be
emitted.
Suppose the government decides to sell 6 permits allowing a total of 6 tons of pollution.
The government starts the bidding with an opening price of $30. What happens next?
A. A total of five permits will be demanded, forcing the government to lower the price.
B. Industrio will purchase all available permits at $30.
C. Industrio will demand 3 permits and Capitalista will demand 3 permits.
D. A total of seven permits will be demanded, forcing the government to raise the price.
Minimum wage laws are an example of:
A. mandated equilibrium wages.
B. a price ceiling.
C. a regulated price.
D. comparative advantage for unskilled workers.
The real rate of return on holding cash is equal to:
A. the nominal interest rate.
B. the real interest rate.
C. the expected inflation rate.
D. zero minus the inflation rate.
Moe has a big exam tomorrow. He considered studying this evening, but decided to go
out with Curly instead. Since Moe always chooses rationally, it must be true that:
A. the opportunity cost of studying tonight is less than the value Moe gets from
spending time with Curly.
B. the opportunity cost of studying tonight is equal to the value Moe gets from spending
time with Curly minus the cost of earning a low grade on the exam.
C. Moe gets more benefit from spending time with Curly than from studying.
D. Moe gets less benefit from spending time with Curly than from studying.
Refer to the table above. The net benefit of hiring fundraisers is largest when
__________ employees are hired.
A. 4
B. 3
C. 2
D. 1
Assume that the production technology required to produce goods X and Y are very
similar. If a firm that is producing good X notices that the market price of good Y is
rising, it will:
A. intensify its production of good X.
B. shift into producing good Y.
C. anticipate a price increase for good X.
D. charge a higher price for good X.
Refer to the figure above. Based on the Keynesian cross diagram, if output equals
5,000, planned aggregate expenditure is ______ output and firms will ______
production.
A. less than; decrease
B. greater than; decrease
C. equal to; not change
D. less than; increase
The Federal Reserve System is:
A. a group of twelve commercial banks.
B. the central bank of the United States.
C. the agency of the U.S. government that insures commercial bank deposits.
D. the branch of the U.S. Treasury that keeps the U.S. gold reserves.
Refer to the figure above. Suppose S2 is the industry supply curve and all firms are
producing at the profit maximizing quantity. What will happen to the supply curve in
the long run?
A. Quantity supplied will increase but stay on the S2 curve.
B. Supply will shift to S1.
C. Supply will shift to S.
D. Quantity supplied will decrease but stay on S2 curve.
Pat works for a landscape contractor, generating gross revenues of $50 per hour.
Non-labor variable costs total $10 per hour. Pat loves to garden, and would be willing to
work for $15 per hour. Assume that the labor market is perfectly competitive.
Pat’s reservation price for an hour of work is _______ per hour.
A. $10
B. $15
C. $50
D. $40
Curly pays $12,000 in taxes and earns $150,000. Moe pays $7,000 in taxes. If the tax
system is proportional, then Moe’s income is
A. $56,000.
B. $125,000.
C. $87,500.
D. $98,000.
Dan owns an autographed copy of a Brittany Spears CD. If he sells it locally, he can get
$100. If he puts it on eBay, he can get $500, of which he will pay $50 to eBay. eBay has
therefore caused total economic surplus to be
A. unchanged.
B. $400 higher.
C. $50 higher.
D. $350 higher.
Acme Market increased wages for their cashiers from $7/hr to $9/hr. Pat, a cashier at
Acme, now works 30hrs/week instead of the 25hrs/week hours Pat used to work before
the wage increase. On the other hand Chris, also a cashier at Acme decreased his work
time by 5hrs/week after the wage increase and started to spend more time watching TV.
Pat’s behavior can be best explained as the ________ of high wage rates.
A. demand effect
B. supply effect
C. income effect
D. substitution effect
Inga and Ron both work for the same firm on the same career ladder. Each has the same
stock of human capital except for one difference: Inga has worked at the firm for 10
continuous years but Ron has had two leaves of absence mixed in with his 10 years of
experience with the firm. One would expect
A. Inga and Ron to earn the same income.
B. Ron to earn more than Inga.
C. Inga to earn twice as much as Ron.
D. Inga to earn more than Ron.
Extremely rapid rates of money growth are usually the result of:
A. rapid population growth.
B. excessively high interest rates.
C. large government budget deficits.
D. sharp increases in productivity.
Chris pays $10,000 for a newly issued two-year government bond with a $10,000 face
value and a 6 percent coupon rate. One year later, after receiving the first coupon
payment, Chris sells the bond. If the current one-year interest rate on government bonds
is 7 percent, then the price Chris receives is:
A. $10,000.
B. $700.
C. greater than $10,000.
D. less than $10,000.
A market comprised of a downward-sloping demand curve that intersects an
upward-sloping supply curve is said to be stable because:
A. price will never change.
B. quantity will never change.
C. demand will never change.
D. at any price other than equilibrium, forces in the market move price towards the
equilibrium.
Refer to the figure above. Becky’s maximum production of clogs per hour is
represented by point:
A. u.
B. t.
C. v.
D. w.
Matt is offered a job driving the campus shuttle bus from 4 P.M. to 6 P.M. each
Monday. His reservation wage for this job is $7/hour.
If the campus transportation director offers Matt $50/hour, how much economic surplus
will he enjoy as a result of accepting the job?
A. $36
B. $43
C. $50
D. $86
The two parts of the Keynesian consumption function are consumption that depends on
______ and consumption that depends on _____.
A. disposable income; factors other than disposable income
B. planned spending; unplanned spending
C. real income; nominal income
D. money; wealth
At the price of 25 cents/each, 500 consumers demand 4 oranges each. At the price of 20
cents/each, 750 consumers demand 5 oranges each. Therefore, the market demand
curve for orange will have a quantity of _______ oranges demanded at the price of 25
cents/each and a quantity of ______ oranges demanded at the price of 20 cents/each.
A. 4, 5
B. 500, 750
C. 1250, 1500
D. 2000, 3750
For a given inflation rate, if a rise in the stock market makes consumers more willing to
spend, then the ______ shifts _____.
A. aggregate demand curve; right
B. aggregate demand curve; left
C. aggregate supply curve; upward
D. aggregate supply curve; downward
Suppose that the marginal benefit of having a security camera in the library is given by
MB, at the supermarket is given by MB1 and at the museum is given by MB2. All
values are per week.
An increase in crime would
A. shift the marginal cost curve from MC to either MC1 or MC2.
B. reduce the differences between each marginal benefit curve.
C. shift marginal benefit curves to the left.
D. shift marginal benefit curves to the right.
Refer to the figure above. If all consumers had first-dollar medical insurance for the
routine visit, they would choose to go to the doctor _____ times a year.
A. 5
B. 2
C. 3
D. 4
Over the period from 1950 to 2008, which country experienced the fastest average
annual growth rate of real GDP per person?
A. United States
B. Japan
C. China
D. Canada
Goods and services provided by state and local governments are:
A. included in GDP at market prices.
B. included in GDP at cost.
C. excluded from GDP because they are not sold in markets.
D. excluded from GDP because they are publicly provided.
Moe divides his time between studying Physics and studying Economics. He has
discovered that he can earn grades as shown on this production possibilities curve.
Refer to the figure above. If Moe moved from Point A to Point C, his grade in Physics
would go down by ______________ his grade in economics.
A. less than the increase in
B. more than the increase in
C. more than the decrease in
D. less than the decrease in
Refer to the figure above. At a price of $2.00, Laura’s quantity demanded is ______ and
Chris’ quantity demanded is _____.
A. 11, 14
B. 9, 16
C. 9, 14
D. 11, 13
Suppose Erie Textiles can dispose of its waste “for free” by dumping it into a nearby
river. While the firm benefits from dumping waste into the river, the waste reduces the
fish and bird reproduction. This causes damage to local fishermen and bird watchers. At
a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird
watchers will not suffer any damage. The relevant gains (in thousands of dollars) and
losses for the three parties are listed below.
Refer to the information given above. If Erie Textiles does not install the filter, there
will be a net social _____ of _____ (in thousands of dollars).
A. loss; $35
B. gain; $75
C. loss; $110
D. gain; $200
Suppose Scott’s demand for a public good is P = 7 – .3Q and Mike’s demand is P = 10 –
1.5Q. The equation for social demand for the public good is
A. P = 20 – 3.0Q.
B. P = 17 – 1.8Q.
C. P = 3 – 1.2Q.
D. P = 14 – .6Q.
Two types of existing houses are for sale: ones with a cracked foundation and ones
without. In all other respects, they are identical. Houses without cracked foundations
are worth $200,000 while those with cracked foundations are worth $200,000 minus the
$20,000 to fix the crack or $180,000. The frequency of solid foundations is 80%.
Sellers know which type of house they have but buyers cannot detect a crack. No seller
“must” sell his house in order to move and thus no one accepts anything less than its
value.
How can owners of a solid foundation home signal high quality credibly?
A. Keep it on the market indefinitely at $200,000 because eventually buyers will catch
on.
B. Advertise in the national TV stating the quality of the house.
C. Lower their price to $196,000.
D. Offer a warranty to fix any slab problems that develop in the next 12 months.