Public choice economists focus on:
A. how the invisible hand achieves harmony and equilibrium through the market.
B. the tensions among social classes.
C. economic incentives faced by politicians.
D. cultural and historical aspects of the market.
Answer:
Investment in capital goods is one way to increase the standard of living in the future.
Investment in capital goods, however, means that we must forgo consumption today.
One of the trade-offs facing an economy is consumption today and consumption in the
future. The following table presents such a trade-off. With this information we know
that the opportunity cost of which of the following is the greatest?
A. Increasing current consumption from 750 to 800
B. Increasing current consumption from 650 to 750
C. Increasing current consumption from 600 to 650
D. Increasing current consumption from 550 to 600
Answer:
Refer to the graphs shown, which show indifference curve analysis with the associated
demand curves. The effect of a decrease in the price of X is shown by the movements
from:
A. A to B, D to E, or F to G.
B. A to B, D to F, or E to G.
C. B to C, D to F, or E to G.
D. B to C, D to E, or F to G.
Answer:
Refer to the graph shown. If the firm seeks to maximize profit, it should set a price
equal to:
A. $10.
B. $8.
C. $6.
D. $4.
Answer:
In a perfectly competitive long-run constant-cost industry, an increase in market
demand causes:
A. an increase in quantity, a decrease in price, and no change in profit in the long run.
B. an increase in price, quantity, and profit in the long run.
C. an increase in quantity, no change in price, and no change in profit in the long run.
D. a decrease in price, a decrease in quantity, and a decrease in profit in the long run.
Answer:
Socialists saw state socialism as:
A. the final stage of socialism.
B. a preliminary state leading to capitalism.
C. a transition stage to pure socialism.
D. a state following pure socialism.
Answer:
Refer to the graph shown. If the government’s goal is to eliminate the welfare costs of
monopoly, it will:
A. establish a price ceiling at P3.
B. establish a price ceiling at P2.
C. establish a price floor at P1.
D. not attempt to control price.
Answer:
Refer to the graph shown. If the firm increases output from 50 to 60, total revenue will
increase:
A. more than total cost, and so profit will increase.
B. more than total cost, and so profit will decrease.
C. less than total cost, and so profit will increase.
D. less than total cost, and so profit will decrease.
Answer:
The forgone income that the owner of a business could have made by spending time
working in another job is called:
A. explicit cost.
B. marginal cost.
C. total cost.
D. opportunity cost.
Answer:
The law of supply states that, other things constant, there is:
A. an inverse relation between price and the quantity supplied.
B. an inverse relation between price and supply.
C. a direct relation between price and the quantity supplied.
D. a direct relation between price and supply.
Answer:
Refer to the graph shown. If this monopolist were allowed to choose the
profit-maximizing level of output, it would charge a price of:
A. $2.
B. $3.
C. $8.
D. $12.
Answer:
Refer to the graph shown. A consumer would be expected to change consumption from
point A to point B in response to:
A. a decrease in the price of carnival games.
B. a decrease in the price of Ferris wheel rides.
C. an increase in income.
D. a decrease in income.
Answer:
Economists’ work generally does not use heuristic models because:
A. they quickly become too complicated.
B. they are not precise enough to give meaningful insights.
C. they are too simple.
D. they do not include both deduction and induction.
Answer:
During World War II, the price of rubber went up considerably. The rise in price
stimulated research for alternatives. For example, today’s automobile tires are made
almost entirely from synthetic materials. As a result, the increase in the price of rubber
eventually led to a very large drop in quantity demanded. This is an example of how the
price elasticity of demand:
A. falls the less specifically the good is defined.
B. rises the less specifically the good is defined.
C. falls the greater the time frame considered.
D. rises the greater the time frame considered.
Answer:
Traditional economists tend to believe that the laissez-faire approach will solve
economic problems. However, if they discover that people are predictably irrational,
they could capture that effect without changing their theorem by:
A. increasing the use of mathematics in the model.
B. switching from deductive reasoning to inductive reasoning.
C. modifying the precept of the model.
D. building a new model with different assumptions.
Answer:
Owen runs a delivery business and currently employs three drivers. He owns three vans
that employees use to make deliveries, but he is considering hiring a fourth driver. If he
hires a fourth driver, he can schedule breaks and lunch hours so that all three vans are in
constant use, allowing him to increase deliveries per day from 60 to 75. It will cost an
additional $75 per day to hire the fourth driver. The marginal cost per delivery of
increasing output beyond 60 deliveries per day:
A. is $0 since Owen does not have to purchase another van.
B. is $5.
C. is $75.
D. cannot be calculated without knowing Owen’s total fixed costs.
Answer:
Refer to the following graph.
Suppose this graph represents the market for cheese. In order to keep the price of
cheese at Pf, government must:
A. devise a mechanism to ration cheese to consumers.
B. cause the supply of cheese to increase.
C. cause the demand for cheese to decrease.
D. prevent the excess supply from reaching the market.
Answer:
The U.S. official poverty threshold is:
A. three times the U.S. Department of Agriculture’s minimum food budget.
B. three times the U.S. Department of Housing’s minimum housing allowance.
C. the level of income earned by a person receiving minimum wage.
D. the level of welfare benefits received by an eligible family.
Answer:
Which of the following statements is true?
A. People regard human life as priceless when making choices involving risk.
B. Only economists behave as if life has a finite value.
C. Economists calculate the value of life on the basis of the cost of dying.
D. People make decisions every day that reflect the valuations they place on their own
lives.
Answer:
Trade based on comparative advantage benefits:
A. consumers in all countries.
B. consumers in some countries but hurts consumers in other countries.
C. neither producers nor consumers.
D. producers in all countries but not consumers.
Answer:
The fact that the price of a gallon of milk is likely to be more expensive at a
convenience store than at a supermarket is an example of:
A. market forces.
B. political forces.
C. social forces.
D. normative economics.
Answer:
iTunes charges British customers 20 percent more than customers in France and
Germany. Apple defended the price differential, saying that the “underlying economic
model in each country has an impact on how we price our track downloads.” An
economist would say that Apple is engaged in:
A. collusion.
B. monopolistic competition.
C. price discrimination.
D. reverse engineering.
Answer:
If supply is highly elastic and demand shifts to the right:
A. price will rise significantly; quantity hardly changes at all.
B. price will hardly change at all; quantity will rise significantly.
C. price will rise significantly as will quantity.
D. price and quantity will hardly change at all.
Answer:
Refer to the graph shown. If Countries X and Y face the production possibility curves A
and B, respectively, Country Y has a comparative advantage in the production of:
A. neither agricultural goods nor industrial goods.
B. both agricultural goods and industrial goods.
C. agricultural goods only.
D. industrial goods only.
Answer:
To calculate the total utility of consuming N quantity of a product:
A. add the additional satisfaction of consuming each product up to N and multiply by its
price.
B. add the total satisfaction of consuming each product up to N.
C. multiply the additional satisfaction from consuming the Nth product by its price.
D. multiply total satisfaction from consuming N products by N.
Answer:
Production Possibility Schedules for Two South Pacific Island Nations
Refer to the table shown. In Kiribati, the opportunity cost of producing one mango (in
terms of coconuts) is:
A. 0.
B. 1/4.
C. 4.
D. 400.
Answer:
When labor is the variable input, the average product equals the:
A. marginal product divided by the number of workers.
B. marginal product multiplied by the number of workers.
C. number of workers divided by the quantity of output.
D. quantity of output divided by the number of workers.
Answer:
For luxuries, income elasticity is:
A. greater than 0.
B. greater than 1.
C. less than 0.
D. equal to 1.
Answer:
Refer to the graph shown. Marginal product is negative at point:
A. A.
B. B.
C. C.
D. D.
Answer:
The statement “government should provide affordable health care coverage for every
member of society” is:
A. a statement that everyone agrees with.
B. a statement that everyone disagrees with.
C. a positive statement.
D. a normative statement.
Answer: