Adding an independent variable to a regression model will always reduce the
coefficient of determination.
The typical short-run production function is incapable of distinguishing among the
different types of labor that might be hired by the firm.
Certain hotels offer promotional strategies in which kids under 12 eat free at the hotel’s
restaurant. This is an example of second-degree price discrimination.
The marginal product of a variable input is calculated by dividing total product by the
change in the variable input.
Depreciation of the U.S. dollar will shift the AD curve leftward.
Patents and copyrights create incentives for individuals to create information that might
not be produced otherwise.
OPEC has had a sustained effect on the price of oil since it was first founded in 1960.
The supply of a good is a function of price and the demand for the good.
If nominal GDP is 100,000 and real GDP is 80,000, the GDP deflator is 115.
To maximize joint profits, the members of a cartel have to determine the level of
industry output by setting marginal revenue qual to the cartel’s joint marginal costs of
production.
Monetary policy is controlled by the U.S. Congress.
If we ranked the four market structures on the basis of degree of competition, perfect
competition and monopolistic competition would be at opposite ends of the spectrum.
Assume a firm is facing the following situation: At Q = 1,000, P = $10, MC = $10, ATC
= $18, and AVC = $16. This firm should shut down and, in so doing, limit its losses to
$2,000.
Assume the market shares of the six largest firms in an industry are 15 percent each.
The six-firm concentration ratio would indicate that the industry is highly concentrated,
while the Herfindahl- Hirschman Index would not.
In game theory, a Nash equilibrium is the set of strategies each of the players chooses
by selecting the strategy that maximizes her payoff independent of what the other
players might choose.
The Full Employment and Balanced Growth Act of 1978 is also called the
Humphrey-Hawkins Act and requires the President to appear before Congress twice a
year to present his forecast for the economy.
Between 1999 and 2007, the behavior of firms in the trucking industry closely matched
the outcome predicted by the model of perfect competition.
Changes in business inventories are not considered part of gross private domestic
investment spending.
One of the surprising conclusions of many of the noncooperative models of oligopoly is
that firms end up better off with the noncooperative outcome than they would by
cooperating with one another.
Any supplement to consumer spending that increases domestic aggregate output and
income is called a leakage.
After the former CEO of the Coca-Cola Company began requiring employees to treat
the rate of return on shareholder equity as an explicit cost, Coke’s profits increased
considerably.
The larger firms in the red-meat industry have blunted the effects of competition by
relying on product differentiation, which in effect, creates a downward-sloping demand
curve for each firm’s product.
Regarding the production of health care, more recent studies suggest that economies of
scale exist up to a hospital size of approximately 200 beds.
A larger marginal propensity to import will make the slope of the aggregate expenditure
function flatter.
The overriding objective of a cartel is to maximize the amount of profit each of its
members can earn through cooperation with the other members.
The total revenue from the sale of a good or service is calculated by multiplying the
price paid by the number of units sold.
Assume a bottled water company is trying to decide on a new pricing strategy. Sound
decision making would require the firm’s managers to consider not only how consumers
will respond to the product’s own price, but how they will react to the price for the
firm’s product relative to the prices of similar products offered by the firm’s
competitors.
Least squares regression minimizes the sum of the absolute errors.
One of the implications of the kinked demand curve model is that even if a firm’s costs
change by a measurable amount, market price is unlikely to change. This helps explain
the price rigidity observed in many oligopolistic markets.
Consumer confidence is measured by two indices: the Consumer Sentiment Index and
the Consumer Confidence Index.
With respect to prices, at the macroeconomic level attention is focused on relative
prices, while at the microeconomic level attention is focused on absolute prices.
Certain vendors that market their goods via mail order have been known to send out
catalogues to different regions of the country with items priced differently across
regions. Assuming prices are matched to regions on a random basis, this practice would
be considered an example of group pricing, or third-degree price discrimination.
Inflation was a problem during the Great Depression.
Real demand for money is positively related to the level of real income in the economy.
Assume that when the price of good X is $12, quantity demanded is 32. When price is
decreased to $9, quantity demanded increases to 45. Over this range, the arc elasticity
of demand is 1.182.
When calculating the price elasticity of demand, it is assumed that all of the other
determinants of demand are to be held constant.
So long as the absolute value of the price elasticity of demand for a firm’s output is
greater than 0, the firm’s optimal markup factor will be positive as well.
The full-employment level of output is called:
A) aggregate demand.
B) aggregate supply.
C) potential output.
D) none of the above.
The type of policy that involves changes in taxes or spending by the federal government
is known as:
A) fiscal policy.
B) monetary policy.
C) strategic financial policy.
D) federal policy.
Which of the following would be an illustration of a microeconomic issue affecting
U.S. auto manufacturers?
A) An introduction of new, more fuel efficient models by Japanese competitors.
B) A recession in Europe that causes U.S. auto exports to Europe to decline.
C) A decline in the demand for new cars in the U.S. due to an economic downturn.
D) An appreciation of the U.S. dollar relative to the Japanese yen.
At a given price level, a decrease in consumer credit will shift the aggregate demand
curve:
A) rightward.
B) leftward.
C) both.
D) none of the above.
In the short-run along the horizontal portion of the aggregate supply curve, an increase
in the budget deficit and an expansionary monetary policy would:
A) increase the price level only.
B) increase both the price level and real income.
C) increase real income only.
D) none of the above.
Refer to Scenario 1. What is the marginal product of the third hour of labor?
A) 60
B) 80
C) 100
D) 240
Refer to Scenario 1. What is the coefficient of determination?
A) 1.000
B) 0.000
C) 0.037
D) 0.324
Widgets R Us, which is a price-taking firm, is currently producing 250 units of output.
The market price is $3 per unit, the marginal cost of the 250th unit is $2.75, average
total cost is $3.50 per unit, and average variable cost is $2.50 per unit. What advice
should you give Widgets R Us?
A) Increase output to reduce losses.
B) Continue to produce 250 units in the short run.
C) Shut down to minimize losses.
D) Decrease output to 200 units.
If the local pizzeria raises the price of a medium pizza from $6 to $10 and quantity
demanded falls from 700 pizzas a night to 100 pizzas a night, the arc price elasticity of
demand for pizzas is:
A) 0.67.
B) 1.5.
C) 2.0.
D) 3.0.
Assume it is announced that a large number of new competitors have entered the market
for mountain bikes, each offering a different model. Based on this information, this
industry is best characterized as:
A) perfectly competitive.
B) a monopoly.
C) monopolistically competitive.
D) an oligopoly.
The aggregate supply curve that defines the level of full employment or potential output
based on a given amount of resources, efficiency, and technology in the economy is
called:
A) short-aggregate supply curve.
B) long-run aggregate supply curve.
C) intermediate aggregate supply curve.
D) none of the above.
DSL and broadband internet service would be considered an example of:
A) substitute goods.
B) giffen goods.
C) inferior goods.
D) complementary goods.
The interest rate the Federal Reserve charges banks which borrow reserves at the
Federal Reserve’s discount window is called the:
A) federal funds rate.
B) discount rate.
C) prime interest rate.
D) mortgage interest rate.
The currency deposit ratio, c, is 0.10. The reserve requirement, rr, is 0.07. The excess
reserve ratio, e, is 0.10. What is the size of the money multiplier?
A) 4.70
B) 4.07
C) 4.75
D) 4.00
A decrease in the nominal money supply would shift the:
A) aggregate demand curve rightward.
B) aggregate demand curve leftward.
C) aggregate supply curve rightward.
D) aggregate supply curve leftward.
A firm’s production function is the relationship between:
A) the inputs employed by the firm and the resulting costs of production.
B) the factors of production and the resulting outputs of the production process.
C) the demand for a firm’s output and the quantity it is able to produce with available
resources.
D) the firm’s production costs and the amount of revenue it receives from the sale of its
output.
Firms have tried a number of different strategies to reduce the negative effects of
competition on their ability to earn economic profits. Which of the following strategies
is most desirable from the viewpoint of economic efficiency and consumer well being?
A) Collusion.
B) Price leadership.
C) Formation of cartels.
D) Investment in research and development.
Leading, coincident, and lagging indicators are based on the concept that:
A) expectations of future inflation is the driving force of the economy.
B) expectations of future profits are the driving force of the economy.
C) expectations of future unemployment is the driving force of the economy.
D) none of the above.
Stock market wealth decreases. What is the impact on aggregate expenditures and
income?
A) Both increase.
B) Both decrease.
C) Aggregate expenditure increases and income decreases.
D) Aggregate expenditure decreases and income increases.
Economic variables that generally move in tandem with the overall phases of the
business cycle are called:
A) leading indicators.
B) coincident indicators.
C) lagging indicators.
D) none of the above.
Assume there is an increase in the number of consumers in the market for a good sold
by perfectly competitive firms that are initially producing the profit-maximizing level
of output. For the individual firm, this would result in:
A) a decrease in both price and the profit-maximizing quantity of output.
B) a decrease in price and increase in the profit-maximizing quantity of output.
C) an increase in both price and the profit-maximizing quantity of output.
D) an increase in price and decrease in profit-maximizing quantity of output.
When a perfectly competitive firm is in long-run equilibrium:
A) its total revenues equal the sum of its total explicit and implicit costs costs.
B) the firm is operating at the minimum of its LRAC curve.
C) the firm is earning zero economic profit.
D) All of the above.
Assume there is an improvement in technology that increases the marginal product of
each unit of labor. This would have the effect of:
A) reducing the average total cost, average variable cost, and marginal cost of
production.
B) increasing the average total cost, average variable cost, and marginal cost of
production.
C) reducing the average variable cost and marginal cost of production, but average total
cost would be unchanged.
D) reducing the average total cost and average variable cost of production, but marginal
cost would be unchanged.
If the cross-price elasticity of demand between two goods is positive, we can assume
that the two goods in question are:
A) complements.
B) substitutes.
C) inferior goods.
D) totally unrelated to one another.
Graphically, all else constant, a decrease in the price of labor would be illustrated by:
A) a parallel shift of the isocost line in toward the origin.
B) rotating the isocost line away from the origin along the labor axis.
C) a parallel shift of the isocost line away from the origin.
D) rotating the isocost line in toward the origin along the capital axis.
Assume the managers of the two major firms in an industry agree to set the price of
their output at a fixed level so as to discourage new entrants into the market. This would
be considered a violation of the:
A) Sherman Act of 1890.
B) Clayton Act of 1914.
C) Federal Trade Commission Act of 1914.
D) Celler-Kefauver Act of 1950.
The positively-sloped part of the long-run average total cost curve is due to which of
the following?
A) Diseconomies of scale.
B) Diminishing returns.
C) The firm being able to take advantage of large-scale production techniques as it
expands its output.
D) The increase in productivity that results from specialization.
Which of the following statements is correct?
A) Economic profit is the difference between total revenue and the full opportunity cost
of all the resources used in production.
B) Economic profit is the difference between total revenue and explicit costs.
C) Economic profit is generally greater than accounting profit.
D) Economic profit is the difference between total revenue and implicit costs.
Increases in autonomous spending have an expansionary effect and make ________
levels of real income consistent with a given interest rate.
A) lower
B) higher
C) constant
D) none of the above.
An economy with both a private and public sector is called:
A) a mixed economy.
B) a private economy.
C) a command economy.
D) none of the above.