Government in the United States spends more as a percentage of GDP than in most
other industrialized nations.
a. True
b. False
Payroll tax is a proportional tax.
a. True
b. False
During a war, a government will often draft people, most of whom are presently
employed, into the army. An economist, computing the real cost of the war, would be
sure to include which of the following items?
a. the value of the civilian goods no longer produced by the new soldiers
b. the cost of feeding and clothing the new soldiers
c. the dollar cost of the payroll
d. the higher prices of civilian goods due to wartime shortages
e. the cost of transporting the soldiers to combat
Which person has the highest opportunity cost of obtaining a college degree (assuming
that attending college requires giving up his or her current position)?
a. Bill, who is unemployed.
b. Jane, who is an unwed mother and earns $15,000 a year.
c. Larry, who is a technician in the Navy earning $18,000 a year with free food and
housing.
d. Mary, who has a job earning $60,000 a year as a computer programmer.
e. Unable to determine from the data given.
Firms choose the highest indifference curve they can obtain given the lowest possible
budget line.
a. True
b. False
All of the following are examples of fringe benefits except
a. health insurance.
b. retirement payments.
c. overtime payments.
d. education subsidies.
Unlimited liability is a distinct advantage of the proprietorship.
a. True
b. False
The perfectly competitive widget industry is in long-run equilibrium. A
profit-maximizing manufacturer receives total revenue of $55,000 He uses his labor,
$15,000 worth of wire, and $15,000 worth of steel to make the widgets. The
manufacturer
a. is earning an economic profit of $25,000.
b. must have an opportunity cost of labor of less than $25,000.
c. must have an opportunity cost of labor of exactly $25,000.
d. must have an opportunity cost of labor of more than $25,000.
What would happen to the budget line if income as well as prices of both goods
increase by the same percentage?
a. A rightward parallel shift in the budget line.
b. A leftward parallel shift in the budget line.
c. A rightward shift in the budget line.
d. No shift in the budget line.
The case of production with a single variable input is analogous to
a. changing the use of land, labor, and capital in production by a constant absolute
amount.
b. a controlled laboratory experiment in which the scientist permits one variable to
change at a time.
c. changing the use of land, labor, and capital in production by a constant percentage.
d. specialization in one particular product by a company.
Firms with monopoly power tend to be more efficient than competitive firms.
a. True
b. False
Conscious manipulation of the interest rate causes it to become a less effective tool in
allocating resources among time periods.
a. True
b. False
The share of GDP going to federal taxes
a. has been about 16 to 20 percent for the past 40 years.
b. has been about 35 percent for the past 40 years.
c. was about 40 percent until the early 1980s and has dropped greatly since then.
d. has risen steadily in the past 40 years to about 35 percent.
The models of perfect competition and monopoly are the most realistic.
a. True
b. False
Dunston Military Academy has an annual deficit of $250,000 Its 1,000 students pay
tuition of $10,000 each per year. The economics faculty has recommended solving the
problem by recruiting additional athletes with $5,000 scholarships. Each additional
athlete will cost the school $2,500 (equipment, etc.). Assuming the academy agrees,
how many athletes are needed to eliminate the deficit?
a. Zero, the deficit cannot be eliminated by giving more scholarships.
b. 25
c. 50
d. 100
Which of the following might lead a nation to engage in international trade?
a. Differences in natural endowments such as climate
b. Differences in skills of labor force
c. Differences in endowments of natural resources
d. All of the above are correct.
Marginal profit equals the difference between marginal revenue and average cost.
a. True
b. False
Which of the following is a fixed cost to farmer McDonald?
a. gasoline
b. fertilizer
c. insurance
d. seed
The story of innovation battles among firms is analogous to the story of armaments
races among countries.
a. True
b. False
What is the equilibrium condition for price discriminating monopoly firm? Give some
examples for price discrimination.
Here is an excerpt form an editorial praising capitalism in The Economist: “It is
competition that delivers choice, holds prices down, encourages invention and service,
and (through all these things) delivers economic growth.” To what type of competition
does the writer refer? Is it the sort of competition that economists study? Explain.
Why are bonds risky to a corporation?
Give an example of a price ceiling. Draw a corresponding diagram and explain why
there is a continuing shortage.
Assume that you have taken over management of a small concession stand on a local
beach for the summer. Your main product is iced water, popular on hot days. You’ve
been selling 400 cups per day at 50 cents each. The cups cost 5 cents each. One of your
customers suggests that you cut the price to 40 cents to make more money. For the
customer to be correct, how much must your sales increase?
How do you calculate consumer’s surplus? What happens to consumer’s surplus when
the price of a commodity rises?