A police department is trying to allocate crime control resources between murder and
burglary. Detectives cost $40,000 each. Suppose that she marginal benefit of one less
murder is $20,000 while the marginal benefit of one less burglary is $1,000. The
number of murders and burglaries that occur at different levels of detective allocation is
shown in the table.
Suppose the police department has $160,000 to spend on detectives. Because of
political pressures all four are assigned to murder prevention and none to burglary
prevention. The marginal benefit gained by assigning the fourth detective to murder
prevention is _____, and the marginal benefit that would have been gained had the
detective been assigned to burglary prevention is ____.
A. $20,000; $40,000
B. $40,000; $40,000
C. $20,000; $20,000
D. $40,000; $20,000
Each of the following increases average labor productivity EXCEPT:
A. more human capital.
B. more physical capital.
C. more central planning.
D. more natural resources.
Refer to the figure above. Now suppose that the government imposes a price ceiling of
$40. What is the most likely result?
A. Many sellers would go out of business because $40 is above the equilibrium.
B. There would be no change in the price.
C. The market would reach a new equilibrium at a price of $40.
D. An underground, or black, market would emerge where this product would be sold at
a price above $40.
Long-term increases in productivity that have increased the demand for labor and the
real wages of labor have resulted primarily from ______ and _____.
A. technological progress; a modernized capital stock
B. technological progress; an increased labor supply
C. a modernized capital stock; skill-biased technological change
D. a modernized capital stock; an increased labor supply
For a given inflation rate, if an increase in threats to domestic security causes the
government to increase military spending, then the ______ shifts _____.
A. aggregate demand curve; right
B. aggregate demand curve; left
C. aggregate supply curve; upward
D. aggregate supply curve; downward
A price ceiling that is below the equilibrium price will cause:
A. producer surplus to fall.
B. total economic surplus to rise.
C. quantity supplied to exceed quantity demanded.
D. demand to increase.
Unemployment insurance contributes to structural unemployment by:
A. keeping wages above the market-clearing level.
B. keeping wages below the market-clearing level.
C. allowing unemployed workers to search longer or less intensively for jobs.
D. forcing unemployed workers to take the first job offered to them.
You had to pay $600 (non-refundable) for your meal plan for the Fall semester, which
gives you up to 150 meals. If you eat all of the meals, your average cost for a meal
equals:
A. $6.
B. $5.
C. $4.
D. $0.25.
Utility maximization means that people try to allocate their ______ to maximize their
___________.
A. utility, spending
B. resources, satisfaction
C. time, work
D. limited resource, desires
Suppose all firms in a perfectly competitive industry are experiencing economic profits.
One would expect that, over time, the number of firms will _______ and the market
price will _____.
A. rise; fall
B. fall; rise
C. rise; rise
D. rise; stay the same
Smith and Jones comprise a two-person economy. Their hourly rates of production are
shown below.
Refer to the table above. Suppose Smith and Jones begin by producing 16 computers
and 0 calculators per hour. If they wish to produce 14 computers and 40 calculators per
hour, then Smith will spend __________ and Jones will spend __________.
A. 1 hour on computers; 40 minutes on computers and 20 minutes on calculators
B. 1 hour on computers; 20 minutes on computers and 40 minutes on calculators
C. 30 minutes on each; 30 minutes on each
D. 45 minutes on computers and 15 on calculators; 1 hour on calculators
Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $3 a
pound and the price of shrimp is $5 a pound.
Casey can buy a maximum of _____ pounds of fish or a maximum of _____ pounds of
shrimp.
A. 30, 50
B. 50, 30
C. 15, 30
D. 30, 15
The primary objective of most private firms is to:
A. maximize revenue.
B. maximize profit.
C. minimize cost.
D. maximize output.
Crowding out is the tendency for increased government deficits to:
A. reduce investment spending.
B. increase investment spending.
C. reduce consumption spending.
D. increase consumption spending.
In a two-person, two-good economy, the benefits of labor specialization will be larger
when:
A. one person has an absolute advantage in both goods.
B. neither person has an absolute advantage.
C. there are small differences in the respective opportunity costs of the two individuals
for both goods.
D. there are large differences in the respective opportunity costs of the two individuals
for both goods.
In the long-run total spending affects ______, and output is determined by _______.
A. inputs and productivity; prices
B. inputs and productivity; total spending
C. prices; inputs and productivity
D. prices; meeting demand at preset prices
Cigarette manufacturers once relied heavily on TV advertising. According to the
textbook, when the government banned TV ads, the cigarette manufacturers:
A. supported the ban due to their concern over health effects of smoking.
B. felt their First Amendment rights were being violated.
C. were made worse off because the ban significantly reduced cigarette sales.
D. benefited because their advertising prisoner’s dilemma was solved.
Pat has just graduated from college and has two job offers. One pays $45,000 and
requires that Pat supervise employees doing construction work on a busy highway. The
other is an office job that pays $40,000. Chris has received the same offers from the
same firms. Pat values the added safety of the office job at $6,000 per year and Chris
values the added safety of the office job at $3,000 per year.
Pat will be better off taking the ____ job and Chris will be better off taking ___ job.
A. office; the office
B. office; the highway
C. highway; the office
D. highway; the highway
Start up costs are:
A. irrelevant in firm decision making because they are sunk costs.
B. inversely related to variable costs.
C. one-time costs of starting production of a new product.
D. always greater than marginal costs.
Chris earns $1,500 per week and spends $1,000 per week on living expenses, puts $200
in a savings account, and buys $300 worth of shares in a stock mutual fund. Chris’s
saving is _____, and Chris’s saving rate is _____.
A. $200; 13.3%
B. $200; 20.0%
C. $300; 20.0%
D. $500; 33.3%
Suppose Erie Textiles can dispose of its waste “for free” by dumping it into a nearby
river. While the firm benefits from dumping waste into the river, the waste reduces the
fish and bird reproduction. This causes damage to local fishermen and bird watchers. At
a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird
watchers will not suffer any damage. The relevant gains (in thousands of dollars) and
losses for the three parties are listed below.
Refer to the information given above. When Erie Textiles operates without a filter, the
total daily gain (in thousands of dollars) by all three parties is _______.
A. $985
B. $325
C. $510
D. $475
Suppose that in most car collisions between cars of unequal size, the smaller car
sustains the most damage and its occupants suffer the most injury. In answering the
following question, assume that, on average, smaller cars generate less air pollution and
that every person in the economy drives at least one car.
Refer to the information given above. Relative to driving an average car, driving a
larger-than-average car generates:
A. an external cost.
B. an external benefit.
C. neither an external benefit nor an external cost.
D. a prisoners dilemma.
Suppose that the market price for hot dogs sold by street vendors has just risen from
$4.50 to $5, and that Curly has now begun operating a hot dog cart. We can assume
that:
A. Curly’s reservation price is $5.00 or more.
B. Curly’s reservation price is exactly $4.50.
C. Curly’s reservation price is greater than $4.50 but no more than $5.
D. Curly’s reservation price is exactly $5.
In some countries, medical care is provided free to citizens and paid for by the
government. In those countries, medical care is
A. not a scarce resource.
B. available at zero opportunity cost.
C. rationed by non-monetary costs.
D. available at no cost to everyone who wants it.
Which branch of economics is most likely to study differences in countries’ growth
rates?
A. microeconomics
B. normative economics
C. macroeconomics
D. experimental economics
Your scholarship depends on your maintaining a 3.5 cumulative GPA. Your GPA for last
semester was 3.6, which brought your cumulative GPA down. What must be true?
A. Your marginal grades (last semester’s grades) were higher than your overall GPA.
B. Your marginal grades (last semester’s grades) were lower than your overall GPA.
C. If this semester’s grades are the same as last semester’s, your overall GPA will stay
the same.
D. If this semester’s grades are the same as last semester’s, you might lose your
scholarship.
High Tech, Inc. produces plastic chairs that sell for $10 each. The following table
provides information about how many plastic chairs can be produced per hour.
For simplicity, assume that labor is the only input. How many workers will be hired if
the hourly wage for workers is $70?
A. 1
B. 2
C. 3
D. 4
The consumption function is relationship between consumption and:
A. planned aggregate expenditure.
B. total spending.
C. investment.
D. its determinants, such as disposable income.
According to Okun’s Law, when the output gap is negative, cyclical unemployment:
A. equals structural unemployment.
B. equals frictional unemployment.
C. is negative.
D. is positive.
As price increases, firms find that it is
A. beneficial to produce more units of output.
B. more difficult to sell their product.
C. beneficial to produce less units of output.
D. less difficult to sell their product.