Assume that in Canada the opportunity cost of producing one television set is two
bushels of wheat. Assume that in the United States the opportunity cost of producing
one bushel of wheat is two television sets. If these two countries specialize according to
comparative advantage and then trade with each other:
A. Canada will export both televisions and wheat.
B. Canada will export wheat and import televisions.
C. the United States will export wheat and import televisions.
D. the United States will export both televisions and wheat.
Answer:
If people start to buy more expensive fuel-efficient cars rather than cheaper SUVs, even
though the additional cost of fuel-efficient cars is greater than the savings in gas over
the life of the car, this would be explained by which of the following types of models?
A. Heuristic models using traditional building blocks
B. Heuristic models using behavioral building blocks
C. Empirical models using regression analysis
D. Path-dependent models
Answer:
Refer to the following graph.
Which of the following pairs of equations describes the supply and demand curves?
A. Qs = 10; Qd = 12 – 0.25P, respectively
B. Qs = 10; Qd = 48 – 2P, respectively
C. Qs = P; Qd = 0.25P + 22, respectively
D. Qs = P; Qd = 48 + 2P, respectively
Answer:
Social forces:
A. affect the price mechanism through cultural norms.
B. affect the price mechanism but not the legal system.
C. affect the price mechanism through scarcity.
D. do not affect the price mechanism.
Answer:
If quantity demanded does not change when the price changes, the demand:
A. is elastic.
B. is inelastic.
C. has unit elasticity.
D. is perfectly inelastic.
Answer:
The art of economics is:
A. the application of the knowledge gained by positive economics to the goals set in
normative economics.
B. purely technical and therefore more objective than positive or normative economics.
C. purely subjective so that the economist as artist does not have to strive for the same
level of objectivity that positive or normative economists do.
D. the branch of economics farthest removed from practical application, since its goal is
to create the most elegant mathematical models.
Answer:
The distinction between demand and the quantity demanded is best made by saying
that:
A. demand is represented graphically by a curve and quantity demanded as a point on
that curve.
B. the quantity demanded is represented graphically by a curve and demand as a point
on that curve.
C. the quantity demanded is in a direct relation with prices, whereas demand is in an
inverse relation.
D. the quantity demanded is in an inverse relation with prices, whereas demand is in a
direct relation.
Answer:
European Union subsidizes its farmers. How do these subsidies make it difficult for
farmers in developing economies to compete in the world farm market?
A. The subsidies set a price ceiling for EU farm goods, keeping prices below the market
equilibrium, and lowering the price developing country farmers can receive for their
produce.
B. The subsidies shift the supply of EU farm goods to the right, lowering world prices
of farm goods and the price developing country farmers can receive for their produce.
C. The subsidies function as a tariff, causing imports from developing countries to
become artificially expensive, thus denying European consumers the benefits of cheap
imported food
D. The subsidies create ethical problems for Europeans who want to buy farm products
from developing countries since the subsidies are raising the price of developing
country produce.
Answer:
Most economists agree that the best way to evaluate policy is to:
A. learn if the policy can be determined through a democratic political process, not
simply imposed by a bureaucracy.
B. determine whether the public thought that the government had done all it could do to
solve the problem.
C. know whether the intentions behind the policy were good intentions.
D. compare the actual benefits of the policy with the actual costs.
Answer:
Suppose a single firm gains control of an industry by preventing other firms from
entering the industry. As a result, the price charged by the single firm is much higher
than the price that would be charged by many different firms producing this product in a
competitive market. This situation can best be described as:
A. a market failure.
B. a government failure.
C. an efficient outcome.
D. a competitive outcome.
Answer:
Economic policy in the real world reflects:
A. special interest desires only.
B. cost/benefit analysis only.
C. a balancing of cost/benefit analysis and special interest desires.
D. a complete lack of understanding of the principles of economics.
Answer:
If the benefit of a public good is small to each individual in a society of millions of
individuals:
A. it will never be efficient for government to provide the public good.
B. the total benefit will be large since social benefit is the sum of all individual benefits.
C. the total benefit will be small since individuals cannot share the benefits of public
goods.
D. it cannot really be a public good since the benefit of public goods is always large.
Answer:
Refer to the graph shown. If labor costs $10 per unit and machines cost $15 per unit, the
economically efficient cost of producing 1,000 units of output is:
A. $100.
B. $150.
C. $300.
D. impossible to determine using the information given.
Answer:
Refer to the following graph.
The additional profit that might be achieved by monitoring a lazy monopolist with ATC
(X-inefficient) is equal to the area of rectangle:
A. A minus the cost of monitoring.
B. B minus the cost of monitoring.
C. A plus rectangle B minus the cost of monitoring.
D. A minus rectangle B minus the cost of monitoring.
Answer:
Which of the following is one of the necessary conditions for perfect competition?
A. Diminishing utility
B. No barriers to entry
C. Differentiated products
D. Indivisible setup costs
Answer:
“I recognize that the market is effective at getting resources to their most valued uses,
but I also recognize that the market can produce results that are grossly unfair.” This
speaker is implying:
A. both market failure and failure of market outcome.
B. market failure but not failure of market outcome.
C. failure of market outcome but not market failure.
D. neither market failure nor failure of market outcome.
Answer:
An economist who is most likely to believe that people will never find $200 lying on
the street is referred to as:
A. a modern economist.
B. a mathematical economist.
C. an engineering economist.
D. a traditional economist.
Answer:
Beginning in 1913 and until the 1980s, AT&T was:
A. a competitive monopoly.
B. an illegal monopoly.
C. an unregulated monopoly.
D. a regulated monopoly.
Answer:
When Coca Cola introduced a new, low-calorie version of Coca Cola called C2, despite
a major marketing effort, sales of C2 were weak and many doubted that the product
would last. Coke’s experience with C2 illustrates the economic concept of:
A. producer sovereignty.
B. consumer sovereignty.
C. limited liability.
D. market failure.
Answer:
A significant difference between monopoly and perfect competition is that:
A. free entry and exit is possible in a monopolized industry but impossible in a
competitive industry.
B. competitive firms control market supply, but monopolies do not.
C. the monopolist’s demand curve is the industry demand curve, whereas the
competitive firm’s demand curve is perfectly elastic.
D. profits are driven to zero in a monopolized industry but may be positive in a
competitive industry.
Answer:
Which of the following will move the supply curve for housing in Florida, a popular
retirement state, to the left?
A. Increasing the number of people who are retiring
B. Increase in the cost of insurance
C. Higher real-estate prices
D. Higher construction costs
Answer:
The following table shows four firms, the amount each pollutes, the marginal cost for
each firm to clean up pollution, and the total cost to each firm of eliminating all
pollution.
The total discharge of these four companies is 300 tons. Assume there is no one else
who pollutes.
Refer to the table shown. If the government establishes an effluent fee of $7.00, how
much would the firms spend on reducing pollution?
A. $660
B. $1,710
C. $1,820
D. $2,100
Answer:
The graph below indicates that the economy can produce both:
A. 20 units of eggs and 5 units of rye, although this would not be production efficient.
B. 10 units of eggs and 20 units of rye, although this would not be production efficient.
C. 20 units of eggs and 5 units of rye, and this would be production efficient.
D. 10 units of eggs and 20 units of rye, and this would be production efficient.
Answer:
The Honolulu tourism commission recently proposed a 7 percent tax on hotel rooms to
pay for an outdoor amphitheater. A Purdue University economist estimates that the tax
would result in a 4 percent increase in price and an 8 percent drop in the quantity of
hotel rooms demanded. As a result of the tax, the total spent on hotels will:
A. rise because demand is elastic.
B. decline because demand is elastic.
C. rise because demand is inelastic.
D. decline because demand is inelastic.
Answer:
A price war:
A. is one possible consequence of oligopolistic rivalry.
B. never occurs in oligopolistic markets.
C. results in higher profits for sellers.
D. occurs only under perfect competition.
Answer:
If the demand for a newly released novel is less price-elastic than the demand for an
older novel, which of the following pricing strategies would a price-discriminating
publishing firm follow?
A. Sell newly released novels and older novels for the same price
B. Set price according to the marginal cost of printing the novels
C. Charge a higher price for newly released novels
D. Charge a higher price for older novels
Answer:
Refer to the graph above. If product demand increases from D1 to D2, causing the
product price to increase, the MRP curve of firm A (a supplier of this product) will:
A. remain the same, but there will be a movement upward and to the left along MRP1.
B. remain the same, but there will be a movement downward and to the right along
MRP2.
C. shift to the right.
D. shift to the left.
Answer:
Real income will fall whenever:
A. prices and wages increase at the same rate.
B. wages increase faster than prices.
C. prices increase faster than wages.
D. wages increase and prices stay the same.
Answer:
Refer to the graph shown. If this monopolist sets price to maximize profit, it will:
A. produce the product at minimum possible average total cost.
B. produce the product at minimum possible marginal cost.
C. produce the product at an average total cost that is greater than the minimum
possible average total cost, where marginal revenue equals marginal cost.
D. incur economic losses.
Answer:
Countries gain from trade by producing:
A. the goods they produce at the highest opportunity cost.
B. the goods they can produce at the lowest opportunity cost.
C. where the production possibility curve has a slope of -1.
D. all goods in equal amounts.
Answer:
The contestable market model of oligopoly bases pricing and output decisions on:
A. the threat of new entrants into the market.
B. market structure.
C. the degree of product differentiation.
D. market share.
Answer:
A partnership is a business:
A. with two or more owners, with each owner liable for every other owner’s actions.
B. that has only one owner.
C. legally treated as a person and owned by stockholders who are not liable for the
actions of the corporate “person.”
D. in which each owner is liable only to the extent of his or her own investment.
Answer: