If the CEO of a large corporation uses the corporate jet to fly friends to the Super Bowl
at company expense, this is most clearly an example of
a. the duality problem.
b. the violation of ceteris paribus conditions.
c. a negative externality.
d. the principal-agent problem.
Which of the following basic economic concepts most clearly provides the foundation
for the long-run aggregate supply curve?
a. the law of demand
b. the production possibilities curve
c. the law of comparative advantage
d. the law of diminishing marginal utility
According to the modern expectational Phillips curve, unemployment will equal the
natural rate of unemployment when
a. any inflation is present.
b. inflation turns out to be lower than what people expected.
c. inflation turns out to be higher than what people expected.
d. inflation turns out to be equal to what people expected.
Suppose that country A produces mostly consumption goods and few investment goods,
while country B produces mostly investment goods with few consumption goods. Other
things constant, which of the following is most likely to happen in the future?
a. The per capita income of country A will grow more rapidly than country B.
b. The population of country B will grow more rapidly than country A.
c. The production possibilities curve (PPC) of country B will shift out more rapidly than
the PPC of country A.
d. The production possibilities curve (PPC) of country A will shift out more rapidly than
the PPC of country B.
Which of the following would be most likely to maintain that spending increases and
larger budget deficits would help promote recovery from the recession of 2008-2009?
a. supply-side economists
b. new classical economists
c. Keynesian economists
d. proponents of the crowding-out theory
Which of the following most accurately reflects the opportunity cost to a pharmacist
who drives a taxi?
a. the dollars spent on his previously acquired education in pharmacy
b. the revenue derived from operating the cab
c. zero if the pharmacist received his education on a scholarship that paid his full tuition
d. the value of the pharmacist’s time in its highest valued use other than driving a cab
Use the figure to answer the following question(s).
Figure 10-3
What is the maximum economic profit this firm depicted in Figure 10-3 will be able to
earn?
a. zero
b. $200
c. $400
d. $600
During and following the recession of 2008-2009, private investment was
a. strong, and this should increase the future productivity of workers.
b. strong, and this will tend to weaken the future productivity of workers.
c. weak, and this will tend to reduce the future productivity of workers.
d. weak, and this will tend to increase the future productivity of workers.
In order for barter trades to occur, there must be a
a. singularity of interests.
b. bargaining intermediary.
c. double coincidence of wants.
d. sufficient supply of cash.
Which of the following about unemployment is true?
a. The unemployment rates of the major European economies have been lower than that
of the United States during the last decade.
b. Compared to the U.S., European labor markets are characterized by less extensive
regulation and less generous unemployment benefits.
c. High unemployment rates over lengthy time periods are indicative of structural
factors that are adversely affecting the natural rate of unemployment.
d. The natural rate of unemployment decreases when youthful workers expand as a
proportion of the workforce.
In which of the following occupations is union membership the highest?
a. sales
b. transportation
c. construction
d. government
Use the figure below illustrating the impact of an excise tax to answer the following
question(s).
Figure 4-6
Refer to Figure 4-6. The amount of the excise tax I is
a. $.50.
b. $1.50.
c. $1.00.
d. $2.00.
The price of an airline ticket rises as the amount of time between purchase and flight
departure gets smaller. The airlines base the policy on the assumption that
a. consumers are not aware of airline prices.
b. consumer demand is unrelated to prices.
c. consumer demand becomes more elastic as departure time approaches.
d. consumer demand becomes more inelastic as departure time approaches.
When oil prices increased to record levels in the 1970s, salaries dramatically increased
for petroleum geologists skilled in finding oil. Those geologists who moved from other
areas to the higher paying jobs were
a. seeking to profit from society’s needs rather than following the guidance of the
invisible hand, which would have led them to seek jobs serving society rather than jobs
with higher pay.
b. following the guidance of the invisible hand and probably serving society’s best
interests as well as their own.
c. causing oil prices to rise even more by moving to jobs with higher salaries.
d. helping themselves but hurting the economy.
According to public choice theory, tariffs, quotas, and other trade restrictions are
primarily the result of the
a. political clout of foreigners.
b. political clout of domestic consumers.
c. political power of special interest groups.
d. political desire for economic efficiency.
During 2008-2013, the Fed initiated several rounds of “quantitative easing.” Under this
policy, the Fed
a. increased its purchases of financial assets and thereby injected additional reserves
into the banking system.
b. increased its purchases of financial assets, which reduced the reserves available to the
banking system.
c. reduced its purchases of financial assets and thereby injected additional reserves into
the banking system.
d. reduced its purchases of financial assets and thereby reduced the quantity of reserves
available to the banking system.
Figure 4-20
Refer to Figure 4-20. Suppose the same Sand Dcurves apply, and a tax of the same
amount per unit as shown here is imposed. Now, however, the sellers of the good, rather
than the buyers, are required to pay the tax to the government. Now, relative to the case
depicted in the figure,
a. the burden on buyers will be larger and the burden on sellers will be smaller.
b. the burden on buyers will be smaller and the burden on sellers will be larger.
c. the burden on buyers will be the same and the burden on sellers will be the same.
d. The relative burdens in the two cases cannot be determined without further
information.
If profit-seeking entrepreneurs are going to be successful, they must
a. produce a product that the consumers value more than the resources required for its
production.
b. produce the product more cheaply than their rivals regardless of quality.
c. maximize the salaries of high-level management so they will be able to attract people
who will work hard.
d. charge a higher price than their competitors so they can make economic profits in the
long run.
Figure 4-24
Refer to Figure 4-24. The price that buyers pay after the tax is imposed is
a. P1.
b. P2.
c. P3.
d. impossible to determine from the figure.
In an oligopolistic market, if rival sellers act independently, each will have a strong
incentive to
a. reduce price in order to increase sales and gain a larger share of the total market.
b. increase price in order to get a larger share of the market and make larger profits.
c. restrict output and raise price in order to achieve higher profits.
d. maintain agreements to lower price and decrease product quality in order to earn
higher profits.
Which of the following is a key characteristic of economic freedom?
a. institutions and policies supportive of voluntary exchange
b. freedom to compete
c. protection of people and their property from aggressors
d. all of the above
When a price ceiling is imposed below the equilibrium price of a commodity,
a. quantity supplied will be greater than quantity demanded for the good.
b. the problem of scarcity will be solved.
c. a shortage of the good will develop.
d. a surplus of the good will develop.
Which of the following is a risk that investors undertake when purchasing stocks?
a. An individual stock can rise and fall unpredictably.
b. Nearly all stocks in the stock market may rise or fall together, when expectations
about the entire economy change.
c. Both a and b are true.
d. Neither a nor b is true.
Researcher Terry Anderson claims that with respect to the supply of water, trading it
would be
a. wrong and counter-productive.
b. essentially impossible due to lack of technologies to move the water.
c. highly productive and bring cooperation among the traders.
d. a problem, since monopolists would come to own too much.
Suppose you withdraw $1,000 from your checking account. If the reserve requirement
is 20 percent, how does this transaction affect the supply of money and the excess
reserves of your bank?
a. There is no change in the supply of money; your bank’s excess reserves are reduced
by $800.
b. There is no change in the supply of money; your bank’s excess reserves are reduced
by $200.
c. The money supply increases by $1,000, and the excess reserves of your bank are
reduced by $800.
d. The money supply increases by $1,000, and the excess reserves of your bank are
reduced by $200.
Use the figure to answer the following question(s).
Figure 10-5
Given the cost and demand conditions shown in Figure 10-5 for the competitive
price-searcher firm, what is the level of output it should produce to maximize its profit?
a. 1
b. 2
c. 3
d. 4
The Secretary of Labor states that wage rates in the country have risen by 2 percent this
past year. The head of a local labor union states that wage gains should have been
higher. The Secretary’s statement is a(n) ____ economic statement, and the labor head’s
statement is a(n) ____ economic statement.
a. normative; normative
b. normative; positive
c. positive; normative
d. positive; positive
e. proper; improper
Use the figure below illustrating the impact of an excise tax to answer the following
question(s).
Figure 4-6
The deadweight loss of the tax illustrated in Figure 4-6 is given by the area
a. ABEH.
b. DFE.
c. EKG.
d. EFG.
Which of the following will be most likely to cause the production possibilities curve
for a country to shift inward?
a. an increase in the labor force
b. an increase in unemployment
c. development of an improved technological method of production
d. a decrease in the stock of physical capital
The Great Depression provided support for Keynes’ view that
a. government action was necessary to ensure interest rates remained at the equilibrium
level.
b. prolonged periods of unemployment would be present when demand is deficient.
c. falling resource prices would bring the economy out of a recession.
d. lower interest rates would quickly restore the full employment equilibrium of an
economy.
Public choice theory indicates competitive forces provide a politician with a strong
incentive to offer voters a bundle of political goods that she believes
a. is best for the economic and political situations the country faces.
b. will most likely clear the legislative process.
c. will increase the welfare of society.
d. will increase her chances of winning elections.
A special-interest issue is one that
a. allocates the cost of the activity in accordance with the benefits received.
b. benefits a small, well-organized interest group at the expense of taxpayers or
consumers.
c. benefits everyone and imposes a cost on everyone.
d. benefits a small, well-organized interest group but makes that group pay for the cost
of the program.
In the years ahead we can expect the F/M earnings ratio to
a. remain constant.
b. continue to increase.
c. continue to increase until 2020, when the ‘baby boom” generation retires” and then
level off.
d. decline.
If the U.S. put an import quota on clothes dryers, it would
a. raise U.S. net exports of clothes dryers and raise net exports of other U.S. goods.
b. raise U.S. net exports of clothes dryers and lower net exports of other U.S. goods.
c. lower U.S. net exports of clothes dryers and raise net exports of other U.S. goods.
d. lower U.S. net exports of clothes dryers and lower net exports of other U.S. goods.
For most less-developed countries, the proven technologies of the high-income
countries are readily available. Why hasn’t this always led to economic growth for these
low-income countries?
Why do individuals choose to hold part of their wealth in money rather than in other
types of assets? Discuss the benefits and costs of holding money.
Evaluate the following: “Employers who discriminate against women will have lower
costs than rival firms that hire employees strictly on the basis of merit (productivity).”
What are the advantages of a fractional reserve banking system compared to a system
that requires 100 percent of deposits to be kept on reserve?
When Mother Theresa won the Nobel Peace Prize, the monetary award was well in
excess of $100,000. Did she accept the money? If so, what did she do with it?
Jane is a 22-year-old college graduate. She has just started working at a job that pays
her $75,000 per year. Since you have had an economics course, Jane asks you for
advice on where to invest the money she is saving for her retirement. What do you
recommend?
Virtually all economists and policy makers agree that, within limits, higher employment
is better. If this is true, couldn’t the government create more employment by hiring
people to dig holes and fill them in again? Is this good economic policy?
Many people assert that the national debt is not a problem because “we owe it to
ourselves.” Is this true?
How do high marginal tax rates influence the growth and prosperity of countries? What
type of tax policy is needed to foster economic efficiency and growth?
Explain two reasons why economic forecasting can only be of limited use.
Jane states that “Social Security is an unfair program. It discriminates against married
women in the workforce and middle-income recipients.” Evaluate this view.
A question on an economics exam asks, “What happens in the market for jelly when the
price of peanut butter increases?” Allison, an excellent student, shows the demand for
jelly increasing. Is she necessarily wrong? Why or why not?
Beginning in the latter part of 1999, the Federal Reserve raised interest rates. What do
you predict happened to the prices of bonds already in the market? How can you
explain this behavior?
Bill the butcher is upset because the government plans to tax beef $.10 a pound. “I hate
paying taxes,” he says. “Because of this, I’m raising all my beef prices by $.10 a pound.
The consumers will bear this burden, not me.” Do you see anything wrong with this
way of thinking? Explain.
Suppose that in the absence of trade, the U.S. price for bicycles was higher than the
world price for bicycles. Would allowing international trade mean that the United States
would import or export bicycles? Who in the United States would benefit and who
would lose with a free trade policy, and would the gains be greater than the losses?
The state of Florida is considering putting an excise tax on either good X or good Y. An
economist discovers the supply of good X is more elastic than the supply of good Y,
while the demand elasticities are identical. Which good should Florida tax in order to
minimize the deadweight loss of the tax?
A new government study reveals that daily consumption of peanut butter increases life
expectancy by 10 years. What will this do to the input markets for peanuts and peanut
butter factory workers? Assuming bologna is a substitute for peanut butter, what will
happen in the market for bologna factory workers?
Anne has just purchased a new house in a lovely neighborhood. Her neighbors are
friendly and even brought her house-warming gifts. Anne, however, has a problem. Her
neighbors have cats, and Anne hates cats. Even though the city has a law requiring all
outdoor pets to be on a leash, her neighbors ignore it, and the cats roam all over Anne’s
property. How would an economist describe this situation? Is there anything Anne can
do?
What advantages does a money economy have over a barter economy?