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Vineyards can grow either red wine grapes or white wine grapes on their land. Which of
the following would cause the supply of red wine grapes to decrease?
A) an increase in the price of white wine grapes
B) a decrease in the price of white wine grapes
C) an increase in the demand for red wine grapes
D) an increase in the price of red wine
Assume that air pollution from a copper smelter imposes external costs on people who
live near the smelter. If the victims of the pollution could not legally enforce the right of
their property not to be damaged, the amount of pollution reduction
A) would be significantly less than if the owners of the smelter were legally liable for
damages.
B) would be less than the amount at which the marginal benefit of pollution reduction
equaled the marginal cost.
C) would be the same as if it would be if the owners of the smelter were legally liable.
D) would be too small; the government would have to intervene to bring about an
efficient outcome.
There has been a decrease in investment. As a result, real GDP will ________ in the
short run, and ________ in the long run.
A) increase; increase further
B) increase; decrease to its initial value
C) decrease; decrease further
D) decrease; increase to its initial level
According to economists Robert Lucas and Thomas Sargent, when are the gains to
accurately forecasting inflation highest?
A) when inflation is high and unstable
B) when inflation is low
C) when inflation is moderate but stable
D) when inflation is high and stable
What is the government purchases multiplier if the tax rate is 0.1 and the marginal
propensity to consume is 0.9? Assume the economy is closed.
A) 5.3
B) 10
C) 11.1
D) 100
When the coupon rate on newly issued bonds increases relative to older, outstanding
bonds, what happens?
A) The market price of the older bond falls in the secondary market.
B) The market price of the older bond rises in the secondary market.
C) Older bonds can still be sold at their face value.
D) Older bonds will sell for less than their face value.
Table 2-10
Table 2-10 shows the output per day of two pet groomers, Tammi and Horace. They can
either devote their time to grooming dogs or bathing cats.
What is Horace's opportunity cost of bathing a cat?
A) half a groomed dog
B) two groomed dogs
C) two-thirds of a groomed dog
D) one and a half groomed dogs
A demand curve shows
A) the willingness of consumers to buy a product at Different prices.
B) the willingness of consumers to substitute one product for another product.
C) the relationship between the price of a product and the demand for the product.
D) the relationship between the price of a product and the total benefit consumers
receive from the product.
Figure 2-18
One segment of the circular flow diagram in the figure shows the flow of funds from
economic agents E to market F. Who are economic agents E and what is market F?
A) E = households; F = product markets
B) E = firms; F = product markets
C) E = households; F = factor markets
D) E = firms; F = factor markets
Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in
the industry charges $21. Which of the following will happen?
A) The firm's profits will increase.
B) The firm's revenue will increase.
C) The firm will not sell any output.
D) The firm will sell more output than its competitors.
