Use the figure to answer the following question(s).
Figure 10-2
What is the maximum economic profit this firm depicted in Figure 10-2 will be able to
earn?
a. zero
b. $20
c. $30
d. $100
Which of the following is a true statement about the difference between a price-taker
firm and a competitive price-searcher firm in the long run?
a. Both will sell their products at a price equal to average total cost, but only the price
taker will produce at minimum average total cost.
b. Both will sell their products at a price equal to average total cost, but only the
competitive price searcher will produce at minimum average total cost.
c. Only the price taker will sell its product at a price equal to average total cost.
d. Only the competitive price searcher will sell its product at a price equal to average
total cost.
A profit-maximizing firm will continue to expand output
a. as long as the revenues from the production and sale of an additional unit exceeds the
average costs of the unit.
b. until the average cost of producing the good or service is at a minimum.
c. as long as the revenues from the production and sale of an additional unit exceeds the
marginal cost of the unit.
d. until the marginal cost of producing a good or service is at a minimum.
Countries that fix the foreign exchange value of their currencies, while following a
highly expansionary monetary policy, will
a. be unable to maintain both the fixed-exchange rate and the full convertibility of their
currency.
b. generally experience rapid rates of economic growth.
c. make it easier for their citizens to engage in international trade.
d. have relatively low rates of domestic inflation.
As the Fed maintained interest rates at near zero during 2008-2012,
a. the economy recovered and the unemployment rate fell to normal levels.
b. households and businesses held larger money balances and the velocity of money fell
substantially.
c. stock prices declined during 2010-2012, causing the economy to remain weak.
d. the earnings senior citizens derived from saving deposits and other forms of savings
rose substantially, leading to higher incomes and a strong increase in aggregate demand.
When the federal government is running a budget deficit,
a. government revenues exceed government expenditures.
b. government expenditures exceed government revenues.
c. the economy must be in an economic recession.
d. the size of the national debt will decline.
A homeowner will be away from her house for six months. The monthly mortgage
payment on the house is $1,000. The owner’s cost of utilities is $100 if the house is
unoccupied but $300 if the owner rents it out. If the owner wishes to minimize her
losses from the house while away, she should rent the house for as much as the market
will bear, as long as monthly rent is greater than which of the following? (Assume wear
and tear to be zero regardless of whether the house is occupied.)
a. $200
b. $300
c. $1,100
d. $1,300
Which of the following will most likely accompany an unanticipated increase in
aggregate demand?
a. a decrease in prices
b. a decrease in resource prices
c. a decrease in real GDP
d. an increase in real GDP
In economics, the term “scarcity” refers to the fact that
a. everything really worthwhile costs money.
b. even in wealthy countries like the United States, some people are poor.
c. no society can produce enough to satisfy fully the desires of people for goods and
services.
d. sometimes shortages of a good arise when its price is set below the market
equilibrium.
Which of the following is the best example of an investment in human capital?
a. on-the-job training received by an apprentice electrician
b. an increase in the number of hours worked per week by a worker in an unskilled
laboring job
c. the purchase of company stock by a worker
d. payments into a retirement pension plan by a skilled laborer
A price ceiling that sets the price of a good below market equilibrium will cause
a. an increase in quantity demanded of the good.
b. a decrease in quantity supplied of the good.
c. a shortage of the good.
d. all of the above.
If price falls, what happens to the quantity demanded for a product?
a. It increases.
b. It decreases.
c. It does not change.
d. Uncertain–economic theory has no answer to this question.
Under a system of flexible exchange rates, which of the following will cause the
nation’s currency to depreciate in the exchange market?
a. an increase in foreign incomes
b. a domestic inflation rate of 10 percent while the nation’s trading partners are
experiencing stable prices
c. an increase in domestic interest rates
d. a reduction in interest rates abroad
Suppose the population (age 16 and over) of Angola is 100 million; 5 million are
unemployed, and 70 million hold jobs. The labor force participation rate in Angola is
a. 5 percent.
b. 65 percent.
c. 70 percent.
d. 75 percent.
Which of the following is most likely to result from an increase in the demand for
computer technicians?
a. an increase in the wages of computer technicians, which will attract additional
technicians in the long run
b. an increase in the employment of computer technicians, which will depress current
wage rates but eventually lead to higher wage rates for technicians
c. a decline in the number of persons preparing themselves for careers as computer
technicians
d. lower wage rates and a shortage of computer technicians
Long-run equilibrium in a competitive price-searcher market requires that
a. the demand curve intersect the average cost curve.
b. the demand curve be tangent to the average cost curve.
c. price be equal to marginal cost.
d. quantity produced be at the point where average cost is at a minimum.
Sophia is an architect and she is trying to decide whether to hire Jacob, a draftsman, to
assist with her work. Sophia could hire Jacob at $20 per hour but it would take him
three times as long to complete a task as it takes Sophia. Sophia is able to earn $90 per
hour and has more architectural jobs than she is able to handle. Which of the following
is true?
a. Sophia should not hire Jacob because it would be faster for her to do the work
herself.
b. Sophia should do the drafting work herself because she has the lower opportunity
cost.
c. Jacob should be hired at the $20 per hour wage rate.
d. Jacob should be hired, but only if he is paid more than $30 per hour.
Suppose the United States exports cars to France and imports cheese from Switzerland.
This situation suggests that
a. the United States has a comparative advantage relative to Switzerland in producing
cheese, and France has a comparative advantage relative to the United States in
producing cars.
b. the United States has a comparative advantage relative to France in producing cars,
and Switzerland has a comparative advantage relative to the United States in producing
cheese.
c. the United States has an absolute advantage relative to Switzerland in producing
cheese, and France has an absolute advantage relative to the United States in producing
cars.
d. the United States has an absolute advantage relative to France in producing cars, and
Switzerland has an absolute advantage relative to the United States in producing cheese.
Given the strict quantity theory of money, if the quantity of money were decreased by
50 percent, prices would
a. fall by 50 percent.
b. rise by 50 percent.
c. increase by 100 percent.
d. decrease by 100 percent.
In a democratic setting, debt financing is attractive to elected political officials because
a. it makes it possible for them to spend on current projects favored by their
constituents without having to levy current taxes.
b. it drives up interest rates, which encourages saving.
c. it leads to higher taxes in the future, which will tend to slow economic growth.
d. it makes the cost of government more visible, which will help voters allocate
government spending more efficiently.
Which of the following restricts the volume of international trade?
a. stable prices
b. tariffs
c. the law of comparative advantage
d. a stable international monetary system.
Which of the following would be counted in the calculation of GDP?
a. the sale of a rare, old coin to a coin collector
b. the damage to a house caused by a hurricane
c. the brokerage commission from the sale of 100 shares of Microsoft stock
d. the sale of cocaine in the black market
Which of the following is true of the chained consumer price index?
a. It will generally result in a slightly lower figure for the measured annual rate of
inflation than the regular consumer price index.
b. It makes no allowance for shifts away from goods and services as they become more
expensive.
c. It considers only changes in the prices of household necessities such as food and
clothing.
d. It holds the quantities of the goods and services used to calculate the index constant
over lengthy time periods.
If a nation is going to achieve and sustain a high rate of economic growth, it must
a. prohibit low-wage foreign producers from supplying goods to the domestic market.
b. have an abundant domestic supply of low cost energy resources.
c. have a mechanism capable of attracting savings and channeling them into
wealth-creating projects.
d. impose regulations that will limit the intensity of competition among domestic firms.
Figure 8-13
Movement from point b to point c in Figure 8-13 indicates that the firm is experiencing
a. economies of scale.
b. increasing average cost.
c. economies of cost.
d. a decrease in average plant size.
e. diseconomies of scale.
If policy makers wanted to use both monetary and fiscal policy to stimulate demand and
reduce a high rate of unemployment, which of the following would be most
appropriate?
a. a larger budget deficit and the purchase of securities in the open market
b. a government surplus and the sale of securities in the open market
c. a larger government deficit and an increase in the discount rate
d. a government surplus and a reduction in the discount rate
“When a third party (for example, an insurance company or the government) pays all or
most of the cost of a good or service, the incentive of consumers to shop for the best
value per dollar spent and of producers to offer the item at an economical price is
substantially reduced.” This statement is
a. essentially true.
b. false; consumers will still have a strong incentive to search for the most economical
price even if someone else is paying the bill.
c. false; producers will still have a strong incentive to keep prices low even if
consumers are non-responsive to price differences among suppliers.
d. false; the party paying for the good will not influence the incentive of either
consumers or producers to economize.
The sharp reduction in marginal tax rates during the 1980s
a. reduced the incentive of high-income Americans to work.
b. increased the incentive of high-income Americans to utilize tax shelters.
c. increased the unemployment rate of high-income Americans.
d. increased the visible income of high-income Americans.
Because of the rise of global competition and free trade,
a. antitrust policy may be less necessary than previously thought.
b. U.S. industrial concentration poses more of a threat to consumers.
c. U.S. markets are becoming less competitive.
d. U.S. manufacturers are seeking fewer trade barriers.
If a firm competing in a price-taker market seeks to maximize profit, the firm should
a. increase output whenever marginal cost is less than average total cost.
b. increase output whenever marginal revenue is less than marginal cost.
c. choose the output where per-unit profit is greatest.
d. increase output whenever price exceeds marginal cost.
Refer to Table 12-5. At which number of workers does diminishing marginal product
begin?
a. 2
b. 3
c. 4
d. 5