The law of diminishing marginal utility is consistent with the consumer behavior that
produces a negatively sloped demand curve.
a. True
b. False
Increasing scarcity of a resource causes new supplies to become more and more costly.
a. True
b. False
Economists emphasize the importance of ____ in analyzing demand.
a. quantity
b. market potential
c. wants and needs
d. price
e. sales opportunities
The budget line represents a consumer’s preferences for a commodity.
a. True
b. False
All industrialized countries have become “service economies.” Which factor helps
explain this shift?
a. Trade unionism and failure of the manufacturing sector to grow.
b. Information age and labor saving innovation in manufacturing.
c. Non availability of industrial labor with required skills.
d. Absence of competition in the service sector.
How are Treasury bond prices affected when the interest rate falls?
a. The purchaser of the bond needs to spend less money to obtain a given number of
dollars of interest per year, so the price of the bond must decrease.
b. The purchaser of the bond needs to spend more money to obtain a given number of
dollars of interest per year, so the price of the bond must increase.
c. The purchaser of the bond needs to spend more money to obtain a given number of
dollars of interest per year, so the price of the bond must decrease.
d. The purchaser of the bond needs to spend less money to obtain a given number of
dollars of interest per year, so the price of the bond must increase.
Figure 8-2
In Figure 8-2, which of the following moves can be explained by a decrease in the price
level?
a. A to B
b. A to C
c. A to D
d. A to E
Which of the following will most likely cause movement along the consumption
function?
a. a change in disposable income
b. a change in interest rates
c. a change in tastes
d. a change in consumers’ expectations
An increase in a family’s income will cause its budget line to
a. become steeper.
b. become flatter (less steep).
c. move closer to the origin.
d. move away from the origin.
e. become more convex toward the origin.
Nominal GDP is another term for
a. current dollar GDP.
b. constant dollar GDP.
c. adjusted dollar GDP.
d. relative value GDP.
When an economy operates efficiently,
a. the MRPs of every input into the production of a good are equal.
b. marginal utility equals marginal cost for every good.
c. the price of a good equals the sum of the marginal physical products of its inputs.
d. All of the above are correct.
If the MPC is .80, then a change in disposable income of $60 billion will lead to an
initial change in consumption of
a. $30 billion.
b. $42 billion.
c. $48 billion.
d. $60 billion.
e. $70 billion.
During the 2000 to 2006 time period, housing prices increased but only to a limited
degree.
a. True
b. False
Cross-elasticity of demand measures the responsiveness of the quantity demanded of
one good to a change in the price of another good.
a. True
b. False
The slope of the budget line
a. always equals 1.
b. equals income divided by price.
c. equals the ratio of the prices.
d. decreases as we move from left to right.
In a market system, ____ distributes goods among consumers in accord with their tastes
and preferences, using voluntary exchange to determine who gets what.
a. a price system
b. a regulatory framework
c. a democratic government
d. a closed system
Most economists and policy makers decided in 2007-2010 that reducing unemployment
was the main national priority.
a. True
b. False
If firms meet together to decide on prices and outputs there is
a. overt collusion.
b. tacit collusion.
c. price leadership.
d. None of the above are correct.
In the short run, tax cuts that are intended to increase aggregate supply have
a. almost no effect on aggregate demand, and a small effect on aggregate supply.
b. about an equal effect on both aggregate demand and aggregate supply.
c. a much greater effect on aggregate demand than on aggregate supply.
d. almost no effect on aggregate supply, and a negative effect on aggregate demand.
A market system is not considered an effective way of controlling self-interest.
a. True
b. False
The production function has ____ on the horizontal axis.
a. real GDP
b. capital stock
c. technology
d. labor input
Figure 3-4
In Figure 3-4, for which of the following would this statement be true: “To get more
apples we have to give up wheat.” A movement from
a. A to E
b. C to D
c. D to C
d. D to E
e. B to C
Total expenditure equals price times quantity.
a. True
b. False
Economists place cartels among the least-desirable forms of market organization.
a. True
b. False
What are the major problems that will tend to arise if there are legal limits on the
movement of prices?
a. favoritism and corruption of officials and market participants
b. unenforceability of laws and higher costs of transactions
c. increasing restrictions to enforce the laws
d. misallocation of resources as prices no longer correspond to costs
e. All of the above are correct.
From the mid-1980s until late 2007, many world economies became less volatile
because of:
a. sound macroeconomic policies
b. several structural change that made the economies more flexible
c. good luck
d. All of the above.
e. a through c only
If inventories are being depleted, firms may respond by cutting prices.
a. True
b. False
During the stock market crash of October 1987, the Fed
a. raised the discount rate.
b. raised reserve requirements.
c. increased lending to member banks.
d. sold government securities.
Which of the following would be an asset to a bank?
a. cash in the vault
b. a loan to a university student
c. a government security
d. All of the above are correct.
To maximize its profit, a monopolistically competitive firm produces at the output level
at which
a. its price elasticity of demand equals one.
b. MR = MC.
c. its D curve is tangent to its ATC curve.
d. MR = AVC.
In 2010 President Obama proposed more generous tax write-offs for businesses that
invest in additional equipment in order to stimulate investment spending.
a. True
b. False
Are funds available on a credit card included in a definition of the money supply?
a. Yes, because these funds can be used to pay for goods and services.
b. Yes, because these funds are included in M2.
c. No, because these funds are hard to measure total credit card spending.
d. No, because these funds are not a store of value.
Who tends to benefit from the sugar price supports?
a. users of sugar in other products
b. individual users of sugar
c. producers of other agricultural products
d. producers of sugar
e. All of the above are correct.
Monopolistic competition in long-run equilibrium is characterized by
a. excess capacity.
b. higher cost per unit of output than under perfect competition.
c. inefficiency in use of resources.
d. All of the above are correct.
How does a free-market system address the output selection task?
Explain whether or not the ability-to-pay principle of tax equity is consistent with the
benefits received principle of taxation.
Give some possible explanations of the productivity slowdown in the United States that
occurred in the 1973-1995 period.
In the United States the distribution of income is relatively unequal, and output is
relatively high, while in the former Soviet Union the distribution of income was more
equal and output per worker was much lower. Give one possible explanation for this
phenomenon.
Is education the swiftest method to eliminate poverty. Explain.
Suppose that a tariff is imposed on imports of minivans. Show graphically what the
effect is in terms of price and quantity of imports. Be sure that your graph is completely
and correctly labeled. What determines how much of the tariff is paid by the buyers of
the minivans?
An investor is trying to decide whether to put his funds into stocks or bonds. He expects
rising interest rates over the next year and higher inflation. Your advice?
Explain the ways in which the government can persuade private businesses to invest
more in order to speed up the process of capital formation?
What are the advantages and disadvantages of resource allocation under monopolistic
competition compared to perfect competition?
Detrimental externalities like pollution are a shortcoming of the market mechanism. Do
they occur in free market economies alone? Explain with examples.
Why doesn’t a competitive firm reduce its price below the industry price to increase
sales?
Firms in a perfectly contestable market will be forced to operate as efficiently as
possible and to charge prices as low as long-run financial survival permits. Why?
What are some of the suggested remedies for the U.S. trade deficits? What remedies
have been attempted? What remedies are left to try?
If Japan and the United States engage in trade, and Japan gains as a result of the trade,
does that mean the United States has lost in some manner?
The current price of concert t-shirts is $20 each, and the company has been selling 400
per week. If price elasticity is 2.5 and the price changes to $21, how many t-shirts will
be sold per week?
Some hotels in Myrtle Beach, South Carolina charge over $200 a night in the summer
but sometimes as little as $99 a night in the winter. Use supply and demand analysis,
including graphical and verbal explanation, for these winter “sales.”
Table 8-3
Explain how much the firm shown in Table 8-3 should produce, first using total profit
and then using marginal analysis.
Explain the concept of ‘lender of last resort’. What is discount rate?
What may limit the size of the money supply expansion to an amount less than
indicated by the oversimplified deposit creation formula?