It is spring, and several graduates of State U are seeking employment. State U graduates
have evenly distributed GPAs, from 2.0 to 4.0, with an average GPA of 3.0. The largest
employer in town, Acme Dynamite, is interviewing candidates, hoping to hire a few
hard workers. While Acme does not require students to submit a transcript with their
applications, the hiring officer believes that high GPAs signal a willingness to work
hard. Acme has received applications from 10 graduates of State U. Five included
transcripts, all of which indicated GPAs of 3.0 or better. Acme will most likely infer that
the five graduates who did not include transcripts:
A. had GPAs of less than 3.0.
B. had GPAs of more than 3.0.
C. had GPAs evenly distributed between 2.0 and 4.0.
D. did not carefully read the application instructions.
An Internet site that maintains a database of product reviews that anyone can access and
that has advertisement banners is:
A. a private good.
B. a privately provided public good.
C. a government provided public good.
D. a privately provided collective good.
Suppose that the EPA has proposed strict controls on the amount of sulfur that diesel
fuel contains. These controls were designed to fully offset the cost of pollution
generated by diesel fuel vehicles. The effect of the regulation is estimated to increase
the equilibrium price of a gallon of diesel fuel by 10 cents. Assuming that the supply of
diesel fuel has a positive slope and demand has a negative slope, the quantity of diesel
fuel sold after imposition of the regulation will:
A. remain the same.
B. increase.
C. decrease.
D. decrease only if diesel fuel is a normal good.
When the inflation rate decreases, PAE ______, which in turn causes Y to ______
because of ______.
A. rises; rise; the income-expenditure multiplier
B. rises; fall; the income-expenditure multiplier
C. falls; rise; the wealth effect
D. falls; fall; the wealth effect
Refer to the figure below. If P = $6, then the price elasticity of supply is:
A. less than zero
B. positive, but less than one
C. one
D. greater than one
In an open-market sale the Federal Reserve ______ government bonds and the supply
of bank reserves ____.
A. buys; increases
B. buys; decreases
C. sells; increases
D. sells; decreases
When actual investment is less than planned investment:
A. firms sold less output than expected.
B. firms sold more output than expected.
C. the quantity of output sold is the amount the firm expected to sell.
D. the economy produces short-run equilibrium output.
According to the law of diminishing returns, when some factors of production are fixed,
in order to increase production by a given amount, a firm will eventually need to add
successively:
A. smaller and smaller quantities of the variable factors of production.
B. constant quantities of the variable factors of production.
C. larger and larger quantities of the variable factors of production.
D. larger and larger quantities of the fixed factor of production.
Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood
that anyone will get this flu decreases as more people receive the vaccine. One of the
demand curves below represents the private demand for the vaccine and the other
represents the social demand for the vaccine.
At the private market equilibrium, the price of each dose is:
A. $50.
B. $60.
C. $70.
D. $80.
The major difficulty with using a tax on pollution instead of a fixed percentage
reduction regulation is:
A. that firms would not pay the tax.
B. that it would cause prices to rise.
C. that it only works in theory.
D. establishing the optimal size of the tax.
A perfectly price discriminating monopolist charges each buyer:
A. exactly his or her marginal cost.
B. more than his or her reservation price.
C. exactly his or her reservation price.
D. the perfectly competitive equilibrium price.
The foreign exchange market is the market on which the ______ of various nations are
traded for one another.
A. goods and services
B. stocks and bonds
C. currencies
D. international financial securities
When a slice of pizza at the student union sold for $2, Moe did not purchase any. When
the price fell to $1.75, Moe purchased a slice each day for lunch. Moe’s reservation
price for a slice of pizza must be:
A. less than $1.75.
B. at least $1.75 but less than $2.
C. exactly $1.75.
D. exactly $2.00.
The figure below shows the production possibilities curve for the island of Genovia:
If 500 cars are produced in Genovia, a maximum of ______ tons of agricultural
products can be produced.
A. 50,000
B. 25,000
C. 45,000
D. 40,000
Refer to the table below. The marginal cost of the 4th unit of activity is:
A. $5
B. $6
C. $8
D. $10
The consumer price index measures the cost of:
A. a fixed basket of goods and services.
B. a changing basket of goods and services.
C. all goods and services purchased by consumers.
D. goods and services required to live above the poverty level.
Capital gains are ______, and capital losses are ______.
A. increases in the flow of investment; decreases in the flow of investment
B. increases in the flow of saving; decreases in the flow of saving
C. additions to plant and equipment; the destruction of plant and equipment
D. increases in the value of existing assets; decreases in the value of existing assets
Tracy and Amy are playing a game in which Tracy has the first move at X in the
decision tree shown below. Once Tracy has chosen either the top or bottom branch at X,
Amy, who can see what Tracy has chosen, must choose the top or bottom branch at Y or
Z. Both players know the payoffs at the end of each branch.
In the equilibrium this game, Tracy chooses the ______ branch, and then Amy chooses
the ______ branch.
A. top; top
B. top; bottom
C. bottom; top
D. bottom; bottom
Globalization can increase wage inequality in the United States if international
competition is primarily in industries requiring ______ workers.
A. many
B. few
C. highly-skilled
D. low-skilled
Taylor’s marginal utility from watching movies and from eating out (in utils) is shown
below. Taylor spends exactly $100 every month on these two forms of entertainment,
and the price of each movie is $10 and the price of each dinner is $20.
If Taylor watches 2 movies a month, Taylor will eat out ______ times per month, and
have marginal utility per dollar of ______ from movies and a marginal utility per dollar
of ______ from eating out.
A. 3; 5; 6
B. 2; 5; 7
C. 4; 5; 5
D. 4; 4; 6
The combination of pork barrel spending and logrolling leads to:
A. inefficiently large government spending.
B. the largest net benefit for society.
C. the quick termination of projects that are wasteful.
D. under provision of public goods.
Suppose that the price of doughnuts decreases and that doughnut-holes are a by-product
of producing doughnuts. One would expect:
A. the supply of doughnut holes to decrease.
B. the supply of doughnuts to decrease.
C. the supply of doughnut holes to increase.
D. the supply of doughnuts to increase.
Refer to the figure below. Suppose this demand curve shows the demand for lattes at a
single coffee shop that charges $2.00 for a latte. If the manager wants to increase total
revenue, what should the manager do?
A. Increase the price from $2.00 to $3.00.
B. Increase the price from $2.00 to $2.50.
C. Reduce the price from $2.00 to $1.00.
D. Reduce the price from $2.00 to $1.75.
If the Citrus Growers Association grows $1 million worth of oranges, sells $500,000
worth of oranges to consumers, uses the rest to make orange juice that is sold to
consumers for $3 million, Citrus Grower’s contribution to GDP is:
A. $500,000.
B. $1,000,000.
C. $3,500,000.
D. $4,000,000.
During the 1960s and 1970s, the U.S. trade balance was close to zero, but during the
1980s, the trade deficit ballooned to unprecedented levels due to:
A. an inability of U.S. companies to compete in the international market.
B. a decline in private saving that resulted from an upsurge in consumption.
C. a decline in national saving caused largely by rapidly rising government budget
deficits.
D. a worldwide recession that made it difficult for American companies to sell their
products abroad.
The price of a gallon of gasoline at the pump increased by 10 percent at the same time
that the inflation rate was 15 percent. The nominal price of gasoline _____, and the real
price of gasoline _____.
A. increased; also increased
B. increased; decreased
C. increased; did not change
D. decreased; increased
Suppose a study that finds that the income elasticity of demand for a public good is
greater than 1. This implies that the public good should be financed through a ______
income tax system.
A. collective
B. regressive
C. proportional
D. progressive
The socially unproductive efforts of people or firms to win a prize is called:
A. rent-seeking.
B. the winner’s curse.
C. logrolling.
D. crowding out.
At the time it collapsed in 1991, the Soviet Union possessed all of the factors that
promote increases in economic growth except:
A. a highly educated worker force.
B. a large stock of capital.
C. abundant natural resources.
D. a political and legal environment that promoted economic productivity.
Typically, the unemployment rate ______ during a recession and ______ during an
expansion.
A. rises; rises even more
B. rises; falls
C. rises; does not change
D. falls; rises
Refer to the figure below. The marginal utility of the 5th apple is:
A. -5
B. 0
C. 5
D. 45
When Joe’s Gas raises its price for regular unleaded gasoline, total revenue from regular
unleaded gas falls to zero. It must be the case that
A. the demand for Joe’s regular unleaded gasoline is perfectly elastic.
B. the demand for Joe’s regular unleaded is inelastic.
C. there are not many good substitutes for Joe’s regular unleaded gasoline.
D. consumers are switching to premium grades of gasoline.
Refer to the table above. Relative to column C, it appears that column D represents
______.
A. an increase in quantity supplied.
B. an increase in demand.
C. a decrease in quantity demanded.
D. a decrease in supply.