Figure 5-1 Figure 5-1 shows a
market with an externality. The current market equilibrium output of Q1 is not the
economically efficient output. The economically efficient output is Q2. Suppose the
current market equilibrium output of Q1 is not the economically efficient output
because of an externality. The economically efficient output is Q2. In that case, the
diagram shows
A) the effect of a positive externality in the production of a good.
B) the effect of a negative externality in the production of a good.
C) the effect of an external cost imposed on a producer.
D) the effect of an external benefit such as a subsidy granted to consumers of a good.
Minimum wage laws cause unemployment because the legal minimum wage is set
A) below the market wage, causing labor demand to be greater than labor supply.
B) below the market wage, causing labor demand to be less than labor supply.
C) above the market wage, causing labor demand to be greater than labor supply.
D) above the market wage, causing labor demand to be less than labor supply.
E) too low.
Knowledge capital is nonrival in the sense that
A) two people can use the same knowledge to develop and produce a product.
B) firms do not compete to be the first to develop new technologies.
C) no single company can be excluded from the benefits of new technologies.
D) firms can benefit from the research and development of rival firms without paying
for that benefit.
Which of the following is a drawback to having a common currency across countries, as
in the European Union?
A) A common currency increases barriers to trade across countries, reducing
opportunities for economic growth.
B) With a common currency, individual countries are no longer able to run independent
monetary policies.
C) Having a common currency implies that the prices of goods across countries must
always be the same, regardless of consumer preferences for goods across countries.
D) None of the above is a drawback to a common currency.
The minimum amount that investors must earn on the funds they invest in a firm,
expressed as a percentage of the amount invested, is referred to as
A) the explicit costs of production.
B) net worth.
C) net income.
D) a normal rate of return.
Lou buys an Iron Man 2 poster at a garage sale for $30 and resells it on eBay to Kyle
for $60. Which of the following statements is true?
A) The transaction has made Lou better off and Kyle worse off.
B) The transaction is economically inefficient.
C) The transaction has made Lou and Kyle better off.
D) It is not possible for Kyle to enjoy any consumer surplus from this transaction.
Which of the following statements is true?
A) A decrease in the crime rate increases GDP as people will spend more on security.
B) Household production is counted in GDP as it amounts to real production.
C) GDP accounting rules do not adjust for production that pollutes the economy.
D) GDP growth distributes income equally to people in the economy.
Studies by the U.S. Census Bureau have shown that
A) families remain below the poverty line for an average of five years.
B) there is significant income mobility in the U.S. over time.
C) income mobility in the U.S. is minimal.
D) over half the people below the poverty line never move out of poverty.
If nominal GDP is $5 trillion and real GDP is $4 trillion, the GDP deflator is
A) 12.5.
B) 80.
C) 125.
D) 800.
If the Fed pursues an expansionary monetary policy, investment in the United States
will ________ and net exports will ________.
A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase