1)
Refer to the diagrams. The demand for Firm B’s product is elastic at all prices in excess
of $4.
2) Marginal analysis means that decision makers compare the extra benefits with the
extra costs of a specific choice.
3) Interest represents a cost to the borrower, but an income to the lender.
4) The law of increasing opportunity costs limits international specialization.
5) A firm will undertake investments as long as the expected rate of return is less than
the interest rate.
6) The status quo effect suggests that giving people more options is always good for
them.
7) An excise tax on imported items is known as a(n):
A.Quota
B.Tariff
C.Export restriction
D.Price ceiling
8) Which of the following decreases in labor demand is due to a change in the price of a
related resource?
A.A decline in the demand for computers in Europe reduces the demand for workers in
the domestic computer industry
B.The rise of hair salons for both men and women reduces the demand for barbers
C.A decrease in the educational skills of manufacturing workers decreases the demand
for such workers
D.An increase in the price of chemical equipment increases the cost of producing
fertilizer, thus decreasing the demand for workers who make fertilizer
9) Other things equal, trademarks and brand names:
A.increase the interest-rate cost of funds used to finance R&D expenditures.
B.decrease the interest-rate cost of funds used to finance R&D expenditures.
C.decrease the expected rate of return on R&D expenditures.
D.increase the expected rate of return on R&D expenditures.
10) If Congress were to pass a law exempting interest on saving from taxation, the:
A.supply of loanable funds would decrease and the equilibrium interest rate rise.
B.supply of loanable funds would increase and the equilibrium interest rate fall.
C.demand for loanable funds would increase and the equilibrium interest rate rise.
D.equilibrium interest rate would be unaffected.
11) In analyzing human decision and action, economists assume that:
A.Scarcity is more important than choice
B.Costs are more important than benefits
C.People’s behavior reflects rational self-interest
D.There are scarce resources in the economy
12)
Refer to the above graph with three demand curves. A “decrease in demand” would be
illustrated as a change from:
A.Point 1 to point 4
B.Point 1 to point 3
C.Line C to B
D.Line A to C
13) Which of the following is the best example of a precommitment used to overcome
time inconsistency.
A.Finding a running partner and setting a regular schedule of when you will run
together.
B.Deciding to save a percentage of each month’s paycheck.
C.Signing up for a free trial membership at the local gym.
D.Buying an alarm clock.
14) Under a TAC system, fishing of a particular fishery is halted after:
A.a predetermined time period.
B.a predetermined amount of fish has been caught.
C.a predetermined number of fishing trips have been taken by each registered boat.
D.the market price of the fish falls below a predetermined trigger price.
15) Suppose Billy is determining whether he should steal a movie from Walmart. The
cost of the movie is $25 and the direct cost and the opportunity cost of stealing the
movie is zero. There is a 15 percent chance of getting caught, and caught, a fine of $250
will be charged.
(a)Will Billy steal the movie?
(b)Suppose Billy has a guilt cost of $10. Will Billy steal the movie?
16) Monopolistic competition is characterized by excess capacity because:
A.Firms are always profitable in the long run
B.Firms charge a price that is greater than marginal cost
C.Firms produce at an output level less than the least-cost output
D.The demand for a product is perfectly elastic in this type of industry
17) Which of the following would move the Lorenz curve closer to the diagonal?
A.A 20 percent boost in Social Security retirement benefits.
B.An increase in payroll taxes.
C.A reduction in the progressiveness of the federal personal income tax.
D.The elimination of the TANF program.
18) The U.S. sugar program has:
A.improved the world allocation of agricultural resources.
B.caused the world price of sugar to rise above its domestic price.
C.increased domestic sugar production.
D.lowered the incomes of U.S. sugar growers.
19) Use the graph below to answer the following questions.
(a) Draw in a typical marginal cost and marginal benefit curve of R&D in the graph
below. Suppose the equilibrium interest rate is 5% and the R&D expenditures is 25
million.
(b) Graphically depict the effect of an increase in the interest rate from 5% to 7%. What
happens to the amount of R&D Expenditures?
20) Demand and supply curves for products for which there are negative or positive
externalities are shown in the three graphs below.
(a)On this graph draw in another curve that indicates what might happen after the
producer was prevented from causing a negative externality or was forced to pay a tax
to cover these costs.
(b)On this graph draw in another curve that indicates the situation after the government
subsidizes the producer because there are positive externalities from this product.
(c)On this graph draw in another curve that indicates the situation after the government
subsidizes consumers for this product which has a positive externality.
21) What effect does the increase of the price of gasoline have on the cost curves of
package delivery firms such as Federal Express or United Parcel Service? How might
the effects differ for a software firm such as Symantec that uses the Internet?
22) Is there a trade-off between wage increases for union members and employment?
Explain.
23) What are the major economic effects on output, prices, and farmers income from
government price supports that set minimum prices for farm products?
24) Use supply and demand analysis to explain what is most likely to happen to the
price and quantity of corn when there is an increase in the demand for ethanol, which is
produced using corn. What other effects would such a change in the corn market have
on the price of beef, the price of farmland, and the price of corn syrup?
25) Define behavioral economics and discuss why it was developed.
26) Give two examples of legal actions against price fixing among firms.
27) Describe the law of diminishing marginal utility. On what assumptions is this law
based?
28) Pure monopoly guarantees economic profits. Discuss whether this is a valid
statement.