Economics is an art because it:
A. is not scientific.
B. relies entirely on value judgments.
C. blends objective and subjective analyses.
D. blends positive and objective analyses.
Answer:
If a nation has a comparative advantage in the production of good X then:
A. It can produce good X at the lowest opportunity cost.
B. It will import good X.
C. It can produce more of good X than any other nation.
D. The opportunity cost of producing an additional unit of good X is greater than for
any other nation.
Answer:
Refer to the graph shown. The country with the most unequal distribution of income is:
A. Sweden.
B. Taiwan.
C. the United States.
D. Brazil.
Answer:
Refer to the table shown to answer the question. Between $2 and $2.20, demand is:
A. elastic.
B. unit elastic.
C. inelastic.
D. perfectly elastic.
Answer:
Two members of the Kenyan parliament from coffee-growing areas said that no firm
should have a monopoly to market Kenyan coffee. The retail coffee company Tetu
Coffee has sparked a storm in the industry by promising to earn the country Sh400
billion annually if given exclusive licenses to market Kenyan coffee. The members of
parliament said the coffee bean farmers should be free to sell their beans to the highest
bidder.
Read the text above to answer this question. What would create a market with one
buyer in the situation described?
A. The government prohibits other buyers.
B. There are economies of scale in purchasing coffee.
C. Tetu Coffee has the ability to outcompete other coffee buyers.
D. There are economies of scope.
Answer:
Both opponents of and proponents of government intervention most likely would agree
with which of the following?
A. Government can and does create proper incentives to correct for externalities.
B. Property rights eliminate the need for government.
C. The market is inherently fair.
D. Property rights must exist for a market to operate.
Answer:
If market supply increases, equilibrium price will:
A. fall and demand will shift to the right.
B. fall, causing a movement along the demand curve.
C. rise and demand will shift to the left.
D. rise, causing a movement along the demand curve.
Answer:
When the price of a good increases, we would expect to see _______________ in the
markets for its complements.
A. higher prices and increased sales
B. higher prices and decreased sales
C. lower prices and decreased sales
D. lower prices and increased sales
Answer:
Technological advance is more likely to take place in a(n):
A. tradition-based economy where each person’s occupation is determined at birth.
B. command economy where central planners can control the efforts of research and
development.
C. market economy where individuals have a monetary incentive to improve
productivity.
D. authoritarian economy where leaders can appropriate the fruits of research.
Answer:
Quantity restrictions become more valuable to those holding the rights to sell the good
when:
A. supply increases.
B. supply decreases.
C. demand increases.
D. demand decreases.
Answer:
Alex is playing his music at full volume in his dorm room. The other people living on
his floor find this to be nuisance, but Alex does not care. Alex’s music playing is an
example of a:
A. negative externality.
B. positive externality.
C. normative externality.
D. Pareto externality.
Answer:
In 2009 the electronics retailer Circuit City closed its stores. If we assume this was a
short-run decision, the most likely explanation for it is that the price of a typical product
sold at Circuit City stores was:
A. greater than the average total cost of producing the toy.
B. equal to the average total cost of producing the toy.
C. less than the average total cost of producing the toy but greater than the average
variable cost.
D. less than the average variable cost of producing the toy.
Answer:
If a nation’s Lorenz curve lies on the 45-degree line of income equality:
A. proportionately more of the nation’s income is received by the lowest 20 percent of
families than by the highest 20 percent.
B. income is unequally distributed.
C. proportionately more of the nation’s income is received by the highest 20 percent of
families than by the lowest 20 percent.
D. the income received by each 20 percent of families is 20 percent of the total income.
Answer:
A Gini coefficient of 1 denotes:
A. zero income.
B. infinite income.
C. perfect inequality of income distribution.
D. perfect equality of income distribution.
Answer:
The demand for euros on foreign exchange markets slopes:
A. upward because foreign consumers buy fewer European goods when the value of the
euro increases.
B. upward because foreign consumers buy more European goods when the value of the
euro increases.
C. downward because foreign consumers buy fewer European goods when the value of
the euro increases.
D. downward because foreign consumers buy more European goods when the value of
the euro increases.
Answer:
The theory of bounded rationality suggests that as price rises:
A. MU/P may not decline.
B. MU/P will always decline.
C. the opportunity cost of the good will decline.
D. marginal utility will decline.
Answer:
The Environment Ministry in Japan proposed a new carbon tax to meet Japan’s
obligations to reduce carbon dioxide emissions under the Kyoto Treaty. The tax would
be levied on producers and importers of fossil fuels and raise the cost of using fossil
fuels. How do most economists view a tax such as this?
A. They prefer direct regulation to taxes because taxes create deadweight loss.
B. They prefer voluntary programs to taxes because they reduce the role of compulsion.
C. They do not believe any government intervention is necessary because the invisible
hand of the market will correct the problem.
D. They support taxes on pollution as a way of making decision makers consider all
costs.
Answer:
Refer to the following table. If Jane’s hourly wage rose from $2 an hour to $4 an hour
and Jane had 6 hours to work or play, Jane would:
A. work 4 hours and play 2 hours when her wage is $2/hour but then work 3 hours and
play 3 hours when her wage is $4 an hour.
B. work 4 hours and play 2 hours when her wage is $2/hour but then work 6 hours
when her wage is $4 an hour.
C. not work at $2 an hour and not play at $6 an hour.
D. not play at either wage.
Answer:
Which of the following is the best example of a normative question?
A. How does the market for corn work?
B. How do prices affect the market for coffee?
C. How does the money market work?
D. Will the redistribution of income make society better off?
Answer:
One advantage of a partnership over a corporation is:
A. greater accountability.
B. limited liability.
C. increased ability to get funds.
D. the ability to share the work and risks of business.
Answer:
Suppose the cafeteria at a university puts healthy foods such as fruit and yogurt in an
easily accessible location but places junk foods somewhere slightly less prominent. This
would be an example of:
A. a push.
B. an irrational behavior.
C. a nudge.
D. an incentive compatibility problem.
Answer:
On the forms to open a checking account, automatic bill paying is often the default
option, with a box to check if one wants to opt out. This is an example of a:
A. push.
B. nudge.
C. shadow price.
D. flawed assumption.
Answer:
Refer to the graph shown. The approximate elasticity of segment AD is:
A. 3/4.
B. 3.
C. 4/3.
D. 4.
Answer:
If the law requires apartment building owners to lower rent, the law of supply predicts
that, other things constant, the:
A. supply of apartment units will shift leftward.
B. supply of apartment units will shift rightward.
C. quantity of apartment units supplied will rise.
D. quantity of apartment units supplied will fall.
Answer:
Market failures:
A. can always be corrected through government action.
B. can never be corrected through government action.
C. are sometimes made worse by government failures.
D. lead to a desired allocation of resources.
Answer:
Suppose the government reduces marginal income tax rates and increases welfare
payments. This policy combination will:
A. increase the incentive to work.
B. reduce the incentive to work.
C. have no effect on the incentive to work.
D. have an ambiguous effect on the incentive to work.
Answer:
A necessary assumption behind the invisible hand theorem is that:
A. market forces are determined by cultural norms.
B. market forces produce inefficient outcomes.
C. the price mechanism is not constrained by political or social forces.
D. people behave rationally.
Answer:
A business is likely a sole proprietorship if:
A. it has two or more owners, with each owner liable for every other owner’s actions.
B. it has only one owner who has unlimited liability.
C. it is legally treated as a person and owned by stockholders who are liable for the
actions of the corporate “person.”
D. multiple owners are liable only to the extent of their own investment.
Answer:
If the price elasticity of demand for a good is inelastic, a price change causes:
A. a zero change in quantity demanded.
B. an infinite change in quantity demanded.
C. a more than proportionate change in quantity demanded.
D. a less than proportionate change in quantity demanded.
Answer:
Suppose a company wanted to try to improve the health of its workers as part of its
health initiative program. When constructing a new building, it decides to put the
elevators significantly farther than the stairs from the main entrance. This would be
considered as an example of:
A. a push.
B. a nudge.
C. an irrational behavior.
D. a laissez-faire policy.
Answer:
An entrepreneur is willing to bring a supply of goods to the market if expected:
A. price and expected average total cost are equal.
B. price is greater than expected average total cost.
C. average total cost is greater than expected price.
D. average revenue is equal to expected price.
Answer:
Refer to the graph shown. If a firm expected to produce 300 units when it built its plant
but now desires to expand its output to 500 units in the short run, it will use the plant
size represented by:
A. SATC1.
B. SATC2.
C. SATC3.
D. SATC4.
Answer:
The supply of Russian caviar from the Caspian Sea has diminished since the collapse of
Soviet Communism. The price of caviar rose from $395 a pound to $595 a pound. Still,
revenue from the sale of caviar rose 30 percent. You can conclude that:
A. an elastic supply curve for caviar has shifted to the left.
B. an inelastic supply curve for caviar has shifted to the left.
C. the supply curve for caviar has shifted to the left along an inelastic demand curve.
D. the supply curve for caviar has shifted to the left along an elastic demand curve.
Answer:
Monopolistic competition is:
A. more conducive to technological change than perfect competition because firms
have some market power.
B. more conducive to technological change than perfect competition because firms have
no market power.
C. less conducive to technological change than perfect competition because firms have
some market power.
D. less conducive to technological change than perfect competition because firms have
no market power.
Answer:
Refer to the following graph.
If the price of bagels falls, the budget constraint in the graph will rotate:
A. out and become flatter.
B. out and have the same slope.
C. in and become flatter.
D. in and become steeper.
Answer: