If a firm’s fixed cost exceeds its total revenue, the firm should stop production by
shutting down temporarily.
In March 2008, the Fed announced that primary dealers would be eligible to receive
discount loans.
In economics, the term “free market” refers to a market where products are traded but
not sold.
An economic model is a simplified version of reality used to analyze real-world
economic situations.
GDP is not a complete measure of well-being.
Empirical evidence shows that the impact of government budget deficits and surpluses
on the equilibrium interest rate is quite large.
Foreign portfolio investment occurs when an individual or firm buys stock or bonds
issued in another country.
In reality, the Fed is unable to use monetary policy to keep real GDP exactly at its
potential level.
For the Coase theorem to work, there must be clear assignment of property rights.
If a person withdraws $500 from his/her savings account and puts it in his/her checking
account, then M1 will ________ and M2 will ________.
A) increase; decrease
B) increase; not change
C) not change; increase
D) not change; decrease
E) not change; not change
If workers and firms raise their inflation expectations,
A) unemployment will fall.
B) actual inflation will fall to match expected inflation.
C) the short-run Phillips curve will be vertical.
D) the short-run Phillips curve will shift upward.
Steven Cheung examined the relationship between beekeepers and apple growers.
Cheung noted that: “Pollination contracts usually include stipulations regarding the
number and strength of … [bee] colonies, the rental fee per hive, the time of
delivery…the protection of bees from pesticides, and the strategic placing of hives.”
Cheung’s suggests that the relationship between beekeepers and apple growers is an
example of
A) the Coase Theorem.
B) how excessive legal costs can prevent economic efficiency from being achieved.
C) negative externalities.
D) government intervention improving economic efficiency.
Assume that the price elasticity of demand for gasoline is -0.06. If the government tax
causes the price of gasoline to increase by 50 percent, what will be the decrease in the
quantity of gasoline demanded?
A) 0.5 percent
B) 3.0 percent
C) 8.33 percent
D) 50 percent
Figure 5-6
Figure 5-6 shows the market for measles vaccinations, a product whose use generates
positive externalities. Why is there a deadweight loss?
A) because the marginal private benefit for each additional unit between Q1 and Q2
exceeds the marginal cost
B) because the marginal private cost for each additional unit between Q1 and Q2
exceeds the marginal private benefit
C) because the marginal social cost for each additional unit between Q1 and Q2 exceeds
the marginal social benefit
D) because the marginal social benefit for each additional unit between Q1 and Q2
exceeds the marginal cost
Figure 4-4
The figure above represents the market for pecans. Assume that this is a competitive
market. At a price of $9
A) the marginal cost of pecans is greater than the marginal benefit; therefore, output is
inefficiently low.
B) producers should lower the price to $3 in order to sell the quantity demanded of
4,000.
C) the marginal benefit of pecans is greater than the marginal cost; therefore, output is
inefficiently high.
D) the marginal benefit of pecans is greater than the marginal cost; therefore, output is
inefficiently low.
The income effect of a wage increase is observed when
A) the higher wage income causes workers to take more leisure and work less.
B) leisure’s higher opportunity cost causes workers to take less leisure and work more.
C) the higher wage income causes workers to take less leisure and work more.
D) leisure’s higher opportunity cost causes workers to take more leisure and work less.
Figure 18-2 Figure 18-2 shows a
demand curve and two sets of supply curves, one set more elastic than the other.
If the government imposes an excise tax of $1.00 on every unit sold, the producer’s
burden of the tax
A) is greater under the more elastic supply curve S0.
B) is greater under the less elastic supply curve S0.
C) is greater under the less elastic supply curve S1.
D) is the same under either supply curve because there is a single demand curve that
captures buyers’ market behavior.
The first example used to explain comparative advantage used two countries (England
and Portugal) and two goods (wine and cloth) to show that
A) each country would be better off from trade if it had an absolute advantage in
producing one of the goods.
B) each country would have a comparative advantage in the production of the good for
which it had an absolute advantage.
C) mutually beneficial trade was possible between two countries even if one had an
absolute advantage in the production of both goods.
D) mutually beneficial trade was possible between two countries even if one had a
comparative advantage in the production of both goods.
The parent company of Safelite AutoGlass, the nation’s largest installer of auto glass,
changed the system it used to pay its glass installers in the mid-1990s. How did Safelite
change its compensation system and what was the result?
A) Safelite ended its system of paying workers on the basis of how many windows they
repaired and replaced it with a system that paid workers hourly wages. As a result,
productivity and worker morale improved.
B) Safelite ended its system of paying workers hourly wages and replaced it with a
system that determined wages on the basis of how many windows were repaired. As a
result, productivity and worker morale suffered. Eventually, Safelite returned to its
previous compensation system.
C) The new system has not been in place long enough to determine whether it is an
improvement over the previous compensation system.
D) Safelite ended its system of paying workers hourly wages and replaced it with a
system that determined wages on the basis of how many windows were repaired. As a
result, productivity and worker morale improved.
Suppose the labor market is in equilibrium. Which of the following statements is false?
A) The equilibrium wage rate is equal to the marginal revenue product of labor.
B) At the equilibrium wage, the quantity of labor demanded equals the quantity of labor
supplied.
C) Some workers will earn more than the equilibrium wage.
D) At the equilibrium wage, the demand for labor is equal to the supply of labor.
Consider the market for wheat which is a perfectly competitive market. Is the market
demand curve the same as the demand curve facing an individual producer? If not,
explain how and why they are different? Illustrate your answer graphically.
Table 23-1
Using the table above, compute aggregate expenditure and identify the macroeconomic
equilibrium.
Does the short-run Phillips curve have a positive or negative slope? Explain how this
slope is derived.
Explain why international capital markets have expanded since the 1980s.
The textbook referred to the following quotation from a Federal Reserve publication:
“Trade is a win-win situation for all countries that participate.” But many firms and
workers oppose free trade policies and protests against globalization have become a
regular occurrence at meetings of the World Trade Organization. If trade is a “win-win”
situation, why is there strong opposition to free trade and globalization?
In much of Europe, the legal age to obtain a driver’s license is 18. If the legal driving
age in the United States was changed to 18, how would this affect the market for new
automobiles? The market for automobile insurance?
Consider the following statement, “The Federal Reserve fights recessions by increasing
the money supply so people will have more money to spend.” What is wrong with the
statement and how can it be corrected?
Table 30-1
Source: “The Big Mac Index,” Economist, July 11, 2013.
Fill in the missing values in the above table. Assume the Big Mac is selling for $4.56 in
the United States. Explain whether the U.S. dollar is overvalued or undervalued relative
to each of the other currencies and predict what will happen in the future to each
exchange rate.