Two goods are considered substitutes if
a. a decrease in the demand for one leads to a decrease in the supply of the other.
b. an increase in the demand for one leads to a decrease in the supply of the other.
c. an increase in the price of one leads to an increase in the demand for the other.
d. a decrease in the price of one leads to an increase in the demand for the other.
e. a decrease in the supply of one leads producers to switch to production of the other.
Laws that prohibit collective bargaining agreements requiring a worker to join a union
as a condition of employment are called
a. collective bargaining agreements.
b. minimum wage laws.
c. union shop laws.
d. right-to-work laws.
Ashley is an attorney and also an excellent typist. She can type 120 words per minute,
but she charges attorney fees at $100 per hour. Benjamin would like some typing work
but can only type 60 words per minute. According to the law of comparative advantage,
Ashley should hire Benjamin to do her typing if and only if his wage rate is less than
a. $10 per hour.
b. $50 per hour.
c. $60 per hour.
d. $100 per hour.
Refer to Table 13-2. If the reserve requirement is 20 percent, this bank
a. has $10,000 of excess reserves.
b. needs $10,000 more reserves to meet its reserve requirements.
c. needs $5,000 more reserves to meet its reserve requirements.
d. just meets its reserve requirement.
Assume that Burger King employees work in an air-conditioned environment while
McDonalds employees do not. Other things equal, you would expect wages to be ____
in Burger King because ____.
a. higher; Burger King employees are more productive
b. lower; McDonald’s employees are more productive
c. higher; Burger King is a more prestigious place to work
d. lower; Burger King has more favorable working conditions
Which of the following about Social Security is true?
a. All of the current revenues flowing into the Social Security system are needed for
benefit payments to current retirees.
b. If the Social Security surplus was used to pay down the privately held federal debt,
this would reduce future taxes and, thereby, make it easier to deal with the retirement of
the baby boomers.
c. During the 1980s and 1990s, most of the social security surplus was used to reduce
the national debt.
d. When the Social Security surplus is used to cover the current operating expenses of
the federal government, it will make it easier for future taxpayers to provide promised
Social Security benefits to baby boomers.
If Georgia experiences a late frost that damages the peach crop, we should expect the
a. supply curve for peaches to shift to the right and the price of peaches to fall.
b. supply curve for peaches to shift to the left and the price of peaches to rise.
c. demand curve for peaches to shift to the left and the price of peaches to fall.
d. demand curve for peaches to shift to the right and the price of peaches to rise.
If the Internet makes it easier for sellers to find buyers and makes it easier for buyers to
learn about the products that are available for sale, we would expect that
a. the volume of trade will decline.
b. transaction costs will rise.
c. the gains from trade will increase.
d. buyers and sellers will be worse off.
Suppose demand increases and supply decreases. Which of the following will happen?
a. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will
decrease.
b. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will
increase.
c. Equilibrium quantity will rise, fall, or stay the same and equilibrium price will
increase.
d. Equilibrium quantity will rise, fall, or stay the same while equilibrium price will
decrease.
e. The change in equilibrium price and quantity cannot be determined.
In a competitive market economy, a resource in short supply will be allocated
a. so that each firm gets enough to keep producing some portion of its output.
b. according to how much each firm purchased before the shortage.
c. to those firms that can make the most profitable use of it.
d. by government regulation.
The fallacy of composition is the incorrect view that
a. everything else is always held constant when a change occurs.
b. a small change in an economic variable will have unrecognizable but significant
consequences on the economy.
c. when two events are associated, the one observed first must have caused the second.
d. if something is true for an individual, then it must also be true for the group.
If Microsoft stock has a constant net return each year, then the value of a share of
Microsoft stock is determined by
a. subtracting Microsoft’s total costs from its total revenue.
b. multiplying the annual net income by the number of shares.
c. dividing the annual net income from the asset by the interest rate.
d. both a and b above.
When policymakers impose price controls, they
a. are usually following the advice of mainstream economists.
b. usually improve the efficiency of economic activity.
c. distort the signals that normally guide the allocation of resources.
d. demonstrate a willingness to sacrifice equity in order to improve efficiency.
Figure 3-19
Refer to Figure 3-19. Sellers whose costs are greater than price are represented by
segment
a. AC
b. CE
c. BC
d. CD
If demand price elasticity measures 2, this implies that consumers would
a. buy twice as much of the product if the price drops 10 percent.
b. require a 2 percent drop in price to increase their purchases by 1 percent.
c. buy 2 percent more of the product in response to a 1 percent drop in price.
d. require at least a $2 increase in price before showing any response to the price
increase.
e. buy twice as much of the product if the price drops 1 percent.
Suppose the velocity of money is 6, the amount of money in circulation is $600 billion,
the index of prices is 180, and real GDP is $20 billion. According to the strict quantity
theory of money, if the money supply decreased to $300 billion,
a. the velocity of money would rise to 12.
b. the index of prices would fall to 90.
c. real GDP would decrease to $10 billion.
d. the velocity of money would decline to 3.
Use the figure below to answer the following question(s).
Figure 4-9
Refer to Figure 4-9. The market for gasoline was initially in equilibrium at point b and a
$.40 excise tax is illustrated. What does the triangular area abc represent?
a. the revenue the government derives from the tax
b. the tax paid by consumers
c. the tax paid by producers
d. the deadweight loss (or excess burden) created by the tax
When the nation of Roma allows trade and as a result becomes an importer of scooters,
a. residents who produce scooters become worse off; residents who buy scooters
become better off; and the economic well-being of Roma rises.
b. residents who produce scooters become worse off; residents who buy scooters
become better off; and the economic well-being of Roma falls.
c. residents who produce scooters become better off; residents who buy scooters
become worse off; and the economic well-being of Roma rises.
d. residents who produce scooters become better off; residents who buy scooters
become worse off; and the economic well-being of Roma falls.
As firms exit a competitive price-searcher market, profits of remaining firms
a. decline and product diversity in the market decreases.
b. decline and product diversity in the market increases.
c. rise and product diversity in the market decreases.
d. rise and product diversity in the market increases.
In which one of the following situations is the political process most likely to result in
both the acceptance of efficient (productive) programs and the rejection of inefficient
(counterproductive) political activities?
a. The people who benefit from a government program pay the costs of the program
roughly in proportion to the benefits that each receives.
b. The benefits are highly concentrated, and the costs are widespread among voters.
c. The costs are highly concentrated, and the benefits are widespread among voters.
d. The benefits accrue primarily in the future, while the costs are more visible during
the current period.
Which of the following is a true statement?
a. Unanticipated inflation is a change in the general level of prices that catches most
decision makers by surprise.
b. High and variable rates of inflation are easy for decision makers to forecast
accurately.
c. High and variable rates of inflation can increase GDP by reducing investment.
d. When decision-makers are able to anticipate slow, steady rates of inflation, prices
become more unstable and there is a negative impact on the level of prosperity.
Figure 15-3
As shown in Figure 15-3, if people behave according to adaptive expectations theory,
an increase in the aggregate demand curve from AD1 to AD2 will cause
a. labor to adjust nominal wages sluggishly.
b. the aggregate supply curve to shift from SRAS1 to SRAS2
c. the price level to eventually rise from 100 to 110.
d. All of the above.
The opportunity cost of an action is
a. the monetary payment the action required.
b. the total time spent by all parties in carrying out the action.
c. the value of the best opportunity that must be sacrificed in order to take the action.
d. the cost of all alternative actions that could have been taken, added together.
Use the figure below to answer the following question(s).
Figure 11-2
Refer to Figure 11-2. If an economy operates in the short run at point a, Keynesian
analysis indicates that restrictive fiscal policy will
a. increase AD and move the economy toward point c.
b. decrease AD and move the economy toward point b.
c. increase SRAS and move the economy toward point b.
d. decrease SRAS and move the economy toward point c.
The rational expectations hypothesis implies that discretionary macropolicy may be
a. relatively effective in both the short run and long run.
b. relatively effective in the short run but ineffective in the long run.
c. relatively ineffective both in the short run and long run.
d. effective in the long run since decision makers will continually make predictable,
systematic errors.
What can be said about the demand and supply of natural resources?
a. The quantity demanded of a natural resource will generally be less responsive to a
change in price in the long run than in the short run.
b. The supply of a natural resource will generally be more responsive to a price change
in the long run than in the short run.
c. The supply of a natural resource is fixed by nature; it cannot be responsive to a price
change in the long run.
d. None of the above is correct.
Which of the following about demand is true?
a. The height of the demand curve for a product at a given quantity represents the
marginal value derived by the consumption of that unit.
b. The height of the demand curve for a product at a given quantity reflects the total
value consumers derive from all units of the good consumed.
c. The total area above the demand curve for a product is equal to consumer surplus.
d. At every quantity, the height of the demand curve for a product represents the cost of
producing that unit.
If Sean sells Tom a tennis racket for $50, we would expect
a. both parties to gain from this transaction.
b. Sean to gain from the transaction, while Tom loses.
c. Tom to gain from the transaction, while Sean loses.
d. the well-being of both parties to be unchanged.
A car sells at different prices at different dealerships in a local market. If a consumer
has imperfect information about the price of a car at each dealership, he should
a. always gather all available information about prices.
b. gather information about prices until the expected marginal benefit of more
information equals the marginal cost of gathering it.
c. gather information about prices only if it can be gathered without cost.
d. ignore information about prices because it is irrelevant to making an “optimally
imperfect” decision.
If the dollar appreciates relative to the Yen, it can be said that
a. Japanese citizens respect the United States more.
b. the dollar increases in value within the United States.
c. the Yen depreciates relative to the dollar.
d. it takes more dollars to buy Yen.
Measured as a share of GDP, the borrowing of the federal government from foreigners
a. is zero; the federal government does not borrow from foreigners.
b. is 100 percent; the federal government borrows only from foreigners.
c. has been approximately 50 percent of GDP since the early 1990s.
d. was approximately 10 percent of GDP in 2000, but it soared to 35 percent of GDP in
2012.
Table 12-2
Refer to Table 12-2. This table describes the number of baseballs a manufacturer can
produce per day with different quantities of labor. Each baseball sells for $5 in a
competitive market. If the firm is maximizing the marginal product of labor, what is the
firm’s marginal revenue product?
a. 140 baseballs.
b. $300.
c. $400.
d. $700.
Real expenditures on Medicare and Medicaid
a. rose during the 1970s and 1980s, but they have been declining since 1990.
b. fell during the 1970s and 1980s, but they have been increasing since 1990.
c. increased at about the same rate as real GDP during the last three decades.
d. have approximately doubled during each of the last three decades.
Which of the following statements regarding poverty in the United States is correct?
a. There are as many poor African Americans as there are poor whites.
b. The incidence of poverty is lower among females than among males.
c. The incidence of poverty is higher among African Americans than among whites.
d. Most of the poor people in the United States are elderly (over age 65).