The elasticity of supply is measured by:
A) the quantity supplied divided by price.
B) the change in quantity supplied divided by the change in price.
C) the percentage change in quantity supplied divided by the percentage change in
quantity demanded.
D) the percentage in quantity supplied divided by the percentage change in price.
Which of the following is an example of an “implicit cost”?
A) Interest that could have been earned on retained earnings used by the firm to finance
expansion.
B) The payment of rent by the firm for the building in which it is housed.
C) The interest payment made by the firm for funds borrowed from a bank.
D) The payment of wages by the firm.
Decrease in the real interest rate will ________ the expenditure curve:
A) decrease.
B) increase.
C) not change.
D) none of the above.
Refer to Table 11.1. What is the value of GDP?
A) $7,450.
B) $7,250.
C) $7,150.
D) $7,350.
The ________ book provides information of current economic conditions and is used
by the Federal Reserve in formulating monetary policy.
A) Red
B) Blue
C) Beige
D) Green
Generally speaking, the inclusion of transportation costs in the total costs of production
has the effect of causing the LRAC curve to:
A) shift down.
B) flatten out.
C) shift up.
D) become steeper over the range on economies of scale.
Consumer debt increases. What is the impact on aggregate expenditures and income?
A) Both increase.
B) Both decrease.
C) Aggregate expenditure increases and income decreases.
D) Aggregate expenditure decreases and income increases.
Open market purchase of government securities results in:
A) an increase in bank reserves.
B) a decrease in bank reserves.
C) an increase in interest rates.
D) none of the above.
Which of the following statements is correct?
A) To maximize profit, a firm should apply a uniform markup to each product it sells.
B) The profit-maximizing firm’s ability to mark up price over average cost is limited by
the price elasticity of demand for the product in question.
C) It is not possible to maximize profits by using a markup pricing strategy.
D) Using markup pricing is more complicated than simply setting price equal to
marginal cost.
Potential GDP focuses on the:
A) long-run supply side of the economy.
B) long-run demand side of the economy.
C) short-run supply side of the economy.
D) short-run demand side of the economy.
Assume an auto firm’s factories are capable of producing both large and small cars and
are operating at full capacity. Assume the price of large cars increases due to a shift in
consumers’ preferences toward large cars and away from smaller cars. What would
reasonably be expected to happen to the equilibrium price and quantity of the firm’s
small cars?
A) Equilibrium price would increase and equilibrium quantity would decrease.
B) Equilibrium price and quantity would both decrease.
C) Equilibrium price would decrease and equilibrium quantity would increase.
D) Equilibrium price and quantity would both increase.
Which of the following is not true when a monopoly market is in equilibrium?
A) Consumer well being would be improved if less resources were allocated to the
industry in which the monopoly operates.
B) Price > MC.
C) Price > MR.
D) Price = Average Revenue.
In which of the following situations would consideration of the minimum efficient scale
of operation suggest that the market should be served by a single firm to minimize
production costs?
A) When the LRAC curve slopes downward over the relevant range of output.
B) When the LRAC curve hits its minimum point at a relatively low level of output and
then increases and the demand for output is quite large.
C) When the LRAC curve hits its minimum point at a relatively low level of output but
then remains constant as the scale of operation is increased and the demand for output is
quite large.
D) When the LRAC curve initially increases and then decreases beyond some point.
The equilibrium price in the money market is the:
A) inflation rate.
B) exchange rate.
C) interest rate.
D) none of the above.
In game theory, the strategy that results in the highest payoff to a player regardless of
what the other player decides to do is called the:
A) Stackleberg equilibrium.
B) equilibrium strategy.
C) min-max strategy.
D) dominant strategy.
Which of the following is true of the relationship between the marginal cost function
and the average total cost and average variable cost functions?
A) If MC is greater than ATC and AVC, then ATC and AVC will increase.
B) The ATC and AVC curves intersect the MC curve at minimum MC.
C) The MC curve, ATC curve, and AVC curve all intersect at the same point.
D) At each level of output, MC is equal to difference between AVC and ATC.
The list of the major factors that create economies of scale includes all of the following
except:
A) specialization and division of labor.
B) quantity discounts.
C) an increase in demand for the firm’s output.
D) the use of automation devices.
Suppose a consumer’s income increases from $30,000 to $36,000. As a result, the
consumer increases her purchases of compact disks (CDs) from 25 CDs to 30 CDs.
What is the consumer’s income elasticity of demand for CDs?
A) 0.5
B) 1.0
C) 1.5
D) 2.0
The reserve requirement is 0.20. What is the simple deposit multiplier?
A) 1
B) 5
C) 0.10
D) 100
“Supply” is best defined as the relationship between:
A) the current price of a good and the quantity supplied at that price.
B) the price of a good or service and the quantity supplied by producers at each price
during a period of time.
C) the cost of producing a good and the price consumers are willing to pay for it.
D) the quantity supplied and the price people are willing to pay for a good.
The number of observations minus the number of estimated coefficients in a regression
equation is called:
A) degrees of freedom.
B) variance.
C) standard error fo the regression.
D) none of the above.
Which of the following statements regarding cartels is not correct?
A) Cartels are sometimes difficult to maintain because a member can cheat by raising
its price above the agreed price.
B) Cartels restrict industry output in order to raise price.
C) Cartels are inherently stable, because oligopolistic firms rarely change price.
D) are easier to establish and maintain when the cost functions of the individual
members are more similar to one another.
Assume a perfectly competitive firm is producing 300 units of output, P = $10, ATC of
the 300th unit is $8, marginal cost of the 300th unit = $10, and AVC of the 300th unit =
$6. Based on this information, the firm is:
A) earning an economic profit of $600.
B) earning an economic profit of $1,200.
C) incurring a loss of $600.
D) incurring a loss of $1,200.
The curve that shows alternative combinations of the price level and real income that
result in equilibrium in both the real goods and the money markets is called the:
A) aggregate demand curve.
B) short-run aggregate supply curve.
C) long-run aggregate supply curve.
D) none of the above.
Assuming the demand curve is downward sloping, as price increases, the price
elasticity of demand for a good (in absolute value) and marginal revenue:
A) increase.
B) stay the same.
C) decrease.
D) cannot be determined.
There are ________ voting members on the FOMC.
A) 4
B) 7
C) 12
D) 15
The difference between export spending on domestically produced goods and services
by individuals in other countries and import spending on foreign produced goods and
services by domestic residents is called:
A) net export expenditure.
B) personal consumption expenditure.
C) government expenditure.
D) investment expenditure.
When calculating the price elasticity of demand, which of the following conditions
must be satisfied?
A) All other factors that influence demand must be held constant.
B) Prices of related goods must be held constant but all other factors must be allowed to
vary.
C) Prices of related goods must be allowed to vary but all other factors must be held
constant.
D) All other factors than influence demand must be allowed to vary.
McDonald’s partnership with Beijing’s Department of Agriculture provided:
A) McDonald’s with subsidies , suppliers, and distributional channels.
B) McDonald’s with just subsidies.
C) McDonald’s with just distributional channels.
D) all of the above.
All else constant, as more firms substitute alternative materials, e.g., plastic, for copper,
the market price of copper would be expected to:
A) increase.
B) stay the same.
C) decrease.
D) cannot be determined with the information given.
The open economy multiplier is calculated as follows:
A) 1/[1-(marginal propensity to consume + marginal propensity to invest)]
B) 1/[1-(marginal propensity to consume + marginal propensity to import)]
C) 1/[1-(marginal propensity to consume + marginal propensity to invest + marginal
propensity to import)]
D) 1/[1-(marginal propensity to consume + marginal propensity to invest – marginal
propensity to import)]
Which of the following statements about barriers to entry is false?
A) They restrict entry into industries in which positive economic profits are being
made.
B) They are somewhat lessened by the existence of patents.
C) They may be due to legal impediments such as licenses.
D) They may be due to a single firm controlling access to a natural resource or
production process.
Transfer payments are:
A) included in GDP.
B) not included in GDP.
C) included in both GDP and GNP.
D) none of the above.
Within the Keynesian cross, the adjustment towards equilibrium occurs through:
A) inflation.
B) inventories.
C) interest rates.
D) none of the above.
Which of the following is cited as a problem with the kinked demand curve model?
A) It assumes that firms do not attempt to maximize profits.
B) It assumes that firms determine the profit-maximizing level of output by equating
marginal cost and average variable cost.
C) It does not explain how the equilibrium market price is determined.
D) It does not explain the price stickiness that is routinely observed in oligopolistic
markets.