What is the error in the following argument? “An increased sales tax on gasoline won’t
reduce consumption, because while the higher price will at first reduce demand, the
reduced demand will eventually bring the price back down again, and consumption will
return to its former level.”
A) A higher price doesn’t reduce demand.
B) A reduced demand does not cause lower prices.
C) The tax-induced price increase may be greater than the price reduction due to the
lower demand.
D) the tax-induced price increase will necessarily be greater than the price reduction
due to the lower demand, because demand is never perfectly inelastic.
E) The ultimate effect on consumption may be to increase it beyond its original level.
When ticket scalpers buy up hundreds of Chicago Cubs tickets the day tickets go on
sale, they are
A) behaving unethically.
B) hoping to buy high and sell low.
C) hoping to buy low and sell high.
D) ruining it for everyone else.
There are many excellent substitutes for water in almost all American cities because
A) the demand for water is elastic.
B) the demand for water is inelastic.
C) the supply of water is limited.
D) there are so many alternative drinks readily available in the marketplace.
E) water is cheap, and people therefore use it for many different purposes.
How did Adam Smith explain the cause of the wealth of nations?
A) The growth of the middle class
B) The growth in the average level of prices
C) The growth of the division of labor
D) People’s unending urge to consume
An effective agreement to divide up the market among firms selling products that are
close substitutes
A) allows each firm to earn positive net revenue even though its marginal cost is greater
than its marginal revenue.
B) allows each firm to earn positive net revenue by preventing cooperation from
reducing each firm’s marginal revenue below its marginal cost.
C) tends to keep each firm’s price and marginal revenue above its marginal cost.
D) tends to result in both higher prices and larger output.
The relative quickness with which the Open Market Committee can respond to changes
in economic indicators leads the Fed to
A) control precisely the growth rate of the money stock.
B) control precisely the growth rate of total spending.
C) make more frequent mistakes in monetary policy than Congress makes in executing
fiscal policy.
D) use the discount rate to control bank lending and hence aggregate demand.
You hear that the price of gasoline will fall 20 cents overnight. This will tend to
A) increase your demand today.
B) decrease your demand tomorrow.
C) increase your demand tomorrow.
D) leave your demand unchanged both today and tomorrow, especially if it is highly
elastic to changes in prices.
Inflation is
A) a decline in the total purchasing power of an economy.
B) a decrease in the amount of other goods that a unit of money will purchase.
C) a fall in people’s real incomes.
D) an increase in the cost of living.
E) all of the above.
Suppose the quantity demanded of cigarette cartons falls by 5% when prices are
increased by 100%. The price elasticity of demand for cigarettes is
A) elastic and equal to 0.05.
B) inelastic and equal to 0.05.
C) elastic and equal to 20.
D) inelastic and equal to 20.
According to economic theory, a politician
A) expands activities whose marginal benefit exceeds marginal cost.
B) contracts activities whose marginal cost exceeds marginal benefit.
C) does not necessarily act on narrow or selfish interests.
D) does all of the above.
E) does none of the above.
Which of the following will likely increase the demand for downtown parking in a large
city?
A) Improved bus service to the downtown area
B) Lower downtown parking fees
C) More downtown parking lots
D) More freeways leading to the downtown area
E) Much higher gasoline prices
If the price of gasoline rose 50% during a period in which the general price level rose
100%, economic theory would predict
A) a decline in the quantity of gasoline demanded.
B) an increase in the quantity of gasoline demanded.
C) a decrease in the demand for gasoline.
D) an increase in the supply of gasoline.
E) less driving by motorists.
When a 13-year-old girl consents to babysit John’s children for $5 per hour, economists
assume
A) the girl was made worse off while John was made better off.
B) the girl was made better off while John was made worse off.
C) both parties were made worse off.
D) both parties were made better off.
Real GDP is
A) the most reliable measure of the overall welfare of the citizens in the domestic
economy.
B) nominal GDP plus inflation.
C) always equal to national income, but not necessarily equal to national output.
D) all of the above.
E) none of the above.
Which Fed policy would be part of an expansionary monetary policy?
A) Selling government bonds.
B) Reducing the discount rate.
C) Increasing the required reserve ratio.
D) All of the above.
E) None of the above.
Fill in the blank: Economics is the study of ________ and its ________.
A) greed; desirable consequences
B) choice; unintended consequences
C) money; financial consequences
D) competition; legal consequences
Suppose it costs a farmer $1.00 to produce 1 unit of corn, $2.10 to produce 2 units of
corn, and $3.30 to produce 3 units of corn. What’s the marginal cost of producing 2
units of corn?
A) 0
B) 10 cents
C) $1.10
D) $2.00
E) $2.10
Is the stock of a corporation with an excellent earnings record likely to be a better buy
than the stock of a corporation doing very badly?
A) No, because the price of each stock will reflect differing situations.
B) Only if their different earnings records have persisted for several years.
C) Yes, because stocks with large dividend returns to owners are always good buys.
D) Yes, because the future is more likely to resemble the past than to differ from it in
any systematic way.
Other things constant, if the population decreases and GDP remains unchanged,
A) real GDP necessarily decreases.
B) per capita GDP necessarily increases.
C) per capita GDP necessarily decreases.
D) real GDP necessarily increases.
The owner of a productive resource is most usefully thought of as the person who
A) can appropriate the income from its use.
B) can use it most efficiently.
C) is willing to pay the most to obtain it.
D) possesses legal title.
Comparable worth advocates have proposed that employers be required by law to pay
wage rates equal to the value of the job. The most telling objection to this proposal is
that
A) employers will probably resist strenuously and successfully.
B) it is in the interest of employers to adjust their hiring so as to make the value of the
job equal to the wage rate that must be paid.
C) the government has no legal authority to set wage rates in the private sector.
D) this would leave little or nothing for profits.
Fill in the blank: The U.S. had ________ throughout the past 10 years.
A) balanced budgets
B) budget deficits
C) budget surpluses
D) no budget policy
Roughly how large is the difference between U.S. GDP and U.S. GNP?
A) Less than 0.1%
B) About 10%
C) About 20%
D) About 25%
E) About 55%
Gomer can make either 200 gallons of corn liquor (L) or 200 gallons of strawberry wine
(W) every six months. Goober can make only 100 gallons of corn liquor (L) or 50
gallons of strawberry wine (W) every six months. Which statement below is true?
A) It costs Gomer 1 W to make 1/2 L.
B) It costs Gomer 1 L to make 1 W.
C) It costs Gomer 2 L to make 1 W.
D) It costs Goober 2 W to make 1 L.
Let’s assume producers in Canada can make 200 units of beef or 50 units of oranges,
and U.S. producers can make 50 units of beef or 200 units of oranges per time period.
Producers in which nation have an incentive to specialize in orange production?
A) The U.S.
B) Canada
C) Both of the above have an incentive to specialize in orange production.
D) Neither of the above have an incentive to specialize in orange production.
Which of the following would shift the supply curve to the left?
A) A fall in the expected future price of the good
B) A rise in the expected future price of the good
C) A rise in technology that lowers the cost of producing the good
D) A positive supply shock that brings more output onto the market
Suppose we observe people buying more of a good even though its price has risen.
What would an economist conclude?
A) Impossible! We will never observe prices and quantity simultaneously rising in the
real world.
B) The demand curve for the good must be upward-sloping.
C) The law of demand doesn’t hold.
D) The demand curve has shifted to the right.
E) Consumption increasing as prices increase only occurs when a good is needed for
survival.
People obtain their money incomes basically by
A) chance.
B) hard work.
C) inheritance.
D) supplying something for which others are willing to pay.
Members of a cartel who refrain from selling at prices below the prices established by
the cartel will usually
A) continue indefinitely to receive a high net revenue.
B) discover other ways to attract additional customers.
C) have no incentive to improve the quality of their products.
D) not compete against one another.
E) want to attract additional firms into the industry to increase the size of the cartel.
If Bonnie can produce either 10 hats or 20 scarves in a month, and Phil can produce
either 10 hats or 5 scarves in a month, then
A) Bonnie is equally efficient at producing hats, compared to Phil.
B) Bonnie is more efficient at producing hats, compared to Phil.
C) Bonnie is more efficient at producing scarves, compared to Phil.
D) Phil is more efficient at producing scarves, compared to Bonnie.
GDP divided by the population gives us
A) the price level.
B) the GDP deflator.
C) per capita GDP.
D) real GDP.
E) none of the above.