The success of Walt Disney’s animated film The Lion King in 1994, increased
production of animated films, increasing the demand for animators much faster than the
supply of animators was increasing. As a result, in the market for animators, the
equilibrium wage fell and the equilibrium quantity increased.
A profit-maximizing monopolistically competitive firm produces and sells an
allocatively efficient quantity of output.
High-income countries such as the United States spend a greater amount on services as
compared to goods.
The Fed can simultaneously reduce the inflation rate and stimulate growth through
lowering interest rates.
The situation in which one party to a transaction takes advantage of knowing more than
the other party to the transaction is known as asymmetric information.
The quantity equation becomes the basis for a theory when we assume that velocity of
money is constant.
Price floors are illegal in the United States.
Marginal benefit refers to the additional benefit that your activity provides to you.
Investment (I) in the United States may increase with either an increase in national
saving or an increase in net foreign investment.
A firm might prefer to choose a salary system rather than a commission or piece-rate
system of compensation when there are concerns about output quality.
Roderick received a $100 savings bond for his graduation. The bond pays $100 at
maturity, which is in five years. If the interest rate is 6%, the bond has a present value
of $90.09.
In reality, because few markets are perfectly competitive, some loss of economic
efficiency occurs in the market for nearly every good or service.
Figure 4-1 Figure 4-1 shows Arnold’s demand curve for
burritos.
If the market price is $2.00, what is the consumer surplus on the first burrito?
A) $0.50
B) $1.00
C) $2.00
D) $7.50
Models that focus on factors such as technology shocks rather than “monetary”
explanations of fluctuations in real GDP are called
A) nonmonetary business cycle models.
B) real business cycle models.
C) rational expectations models.
D) short-run macroeconomic models.
The price elasticity of demand for beef is estimated to be 0.60 (in absolute value). This
means that a 20 percent increase in the price of beef, holding everything else constant,
will cause the quantity of beef demanded to
A) decrease by 12 percent.
B) decrease by 26 percent.
C) decrease by 32 percent.
D) decrease by 60 percent.
If a significant number of smokers switch from smoking tobacco cigarettes to
e-cigarettes, a company like NJOY will likely find its demand curve shifting to the
________ and its marginal revenue curve shifting to the ________ as more competitors
enter the market.
A) right; right
B) right; left
C) left; right
D) left; left
Table 14-2
Suppose a transaction changes a bank’s balance sheet as indicated in the following
T-account, and the required reserve ratio is 10 percent. As a result of the transaction, the
bank can make a maximum loan of
A) $0.
B) $800.
C) $7,200.
D) $8,000.
The production possibilities frontier model assumes which of the following?
A) Labor, capital, land and natural resources are unlimited in quantity.
B) The economy produces only two products.
C) Any level of the two products that the economy produces is currently possible.
D) The level of technology is variable.
Figure 11-14
Figure 11-14 shows the
optimal input combinations for the production of a given quantity of cotton in the
United States and in China. Consider the following statements:
a. For each country, the marginal product per dollar spent on labor equals to the
marginal product per dollar spent on capital.
b. The price of labor is relatively higher in the United States than in China and the price
of capital is relatively lower in the United States than in China.
c. The price of labor and the price of capital are relatively higher in the United States
than in China. Based on the figure, which of the statements above is true?
A) All of the statements are true.
B) statements a and c only
C) statements a and b only
D) statements b and c only
At the beginning of 2013, with the tariff on Chinese tires having expired, Goodyear’s
profits ________ compared to the previous year, and Chinese tire imports ________.
A) rose; increased
B) rose; decreased
C) fell; increased
D) fell; decreased
A monopolistically competitive firm faces a downward-sloping demand curve because
A) it is able to control price and quantity demanded.
B) there are few substitutes for its product.
C) of product differentiation.
D) its market decisions are affected by the decisions of its rivals.
If the consumption function is defined as C = 7,250 + 0.8Y, what is the marginal
propensity to save?
A) 0.2
B) 0.8
C) 5.8
D) 7.25
Figure 13-13
If the diagram represents a typical firm in the market, what is likely to happen to its
average cost of production in the long run?
A) It will probably fall since the firm must be cost efficient to remain competitive.
B) It will probably fall since the firm will be selling less than its current amount.
C) It will probably rise since the firm will be producing less than its current amount.
D) It will probably rise since its long-run demand is likely to be higher.
A study conducted by economists at the University of Chicago found that when
Southwest Airlines begins flying a new route, ticket prices on other airlines for that
route ________, indicating that airlines ________.
A) stay relatively unchanged; may begin practicing implicit price collusion when
Southwest enters a market
B) drop by an average of 29 percent; may have been practicing implicit price collusion
before Southwest’s entry into the market
C) rise by an average of 65 percent; know they can practice implicit price collusion
once Southwest announces it is entering a market
D) first drop and then rise back to their original levels; temporarily stop practicing
implicit price collusion until Southwest becomes established, then return to their
collusive pricing strategies
Harvey Miller owns a baseball that was hit for a home run by Ted Williams. Harvey, a
long-time Boston Red Sox fan, recently refused to sell his baseball for $75,000 even
though he would not have paid someone more than $10,000 for the baseball if he did
not already own it. Harvey explained his decision not to sell the baseball by noting that:
“Ted Williams was my hero. This baseball has a great deal of sentimental value for me.”
Which of the following can explain Harvey’s behavior?
A) the difference between implicit and explicit costs
B) the scarcity of home run baseballs hit by Ted Williams
C) the endowment effect
D) how social influences can affect consumption choices
A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000.
The price of each good is $10. Calculate the firm’s short-run profit or loss.
A) loss of $6,000
B) profit of $6,000
C) profit of $30,000
D) There is insufficient information to answer the question.
The effect of a recession on a company like Whirlpool Corporation is such that
A) sales decline more sharply for Whirlpool as compared to firms that do not produce
durable goods.
B) profits fall less sharply as compared to firms that do not produce durable goods.
C) the decline in sales is more short-lived as compared to firms that do not produce
durable goods.
D) there is no difference in the impact of the recession on its profits as compared to
firms that do not produce durable goods.
What are the five main determinants of consumption spending? Which of these is the
most important?
Economists think that the marginal propensity to consume for the U.S. economy is
somewhere around 0.9. Based on our simple multiplier formula, this would imply that
the multiplier for the United States should be around 10. However, economists agree
that the spending multiplier is closer to 2. What might explain this supposed anomaly?
Explain the concept of network externalities.
If real GDP is $300 billion below potential GDP and the tax multiplier equals -1.5, then
how much would the government need to change taxes to bring the economy to
equilibrium at potential?
What causes a production possibilities frontier to shift inward?
Table 7-5
Table 7-5 shows the output per week for pens and pencils by Tran and Farah. Fill in the
following table with the opportunity costs of producing bows and arrows for Tran and
Farah.
What three real-world complications keep purchasing power parity from being a
complete explanation of exchange rate fluctuations in the long run? Explain.
How are efficiency and inefficiency represented on a production possibilities frontier?
Many state governments use lotteries to raise revenue. If a lottery is viewed as a tax, is
it most likely a progressive tax or a regressive tax? What information would you need
to determine whether the burden of a lottery is progressive or regressive?
Who decides who controls a corporation?