A correct formula (dropping all minus signs) for the calculation of the elasticity of
demand between point Q1, P1 and point Q2, P2 is
a. [(P2 − P1)/(P2 + P1)]/[(Q2 − Q1)/(Q2 + Q1)].
b. [(P2 − P1)/P1]/[(Q2 − Q1)/Q1].
c. [(Q2 − Q1)/(Q2 + Q1)]/[(P2 − P1)/(P2 + P1)].
d. [(Q2 − Q1)/Q2)]/[(P2 − P1)/P2].
The optimal number of units to produce is best expressed when:
a. marginal benefit exceeds marginal cost
b. marginal cost exceeds marginal benefit
c. marginal benefit and marginal cost are close to equal
d. both a and c
Before a market allocation of goods on the production possibilities curve can be judged
efficient, one must evaluate “what” goods the market produced.
a. True
b. False
The multiplier principle is built on the premise that one person’s spending is another
person’s
a. debt.
b. obligation.
c. income.
d. saving.
An expenditure schedule shows the relationship between GDP and total output.
a. True
b. False
During the financial crisis of 2007-2009, the proper policy response was
a. contractionary monetary and fiscal policy.
b. contractionary monetary and expansionary fiscal policy.
c. expansionary monetary and fiscal policy.
d. expansionary monetary and contractionary fiscal policy.
Vertical equity in income taxation refers to the notion that persons with different levels
of income should be taxed differently.
a. True
b. False
Since the Red Cross supplies 95 percent of the blood in the United States, it can be
considered a monopolist. Assume that it, in fact, operates like a monopolist. The Red
Cross currently charges hospitals and other users $21 for a pint of blood. In order to
increase the supply of blood, the government offers the Red Cross a $10 million,
lump-sum subsidy. How much more blood supply will the subsidy generate?
a. about 500,000 pints
b. somewhere between 100,000 and 500,000, depending on demand elasticity
c. somewhere between 100,000 and 500,000, depending on the elasticity of supply
d. zero
Demand for labor is
a. derived demand.
b. highly elastic.
c. dependant on its supply.
d. directly proportional to capital employed.
Figure 12-1
In Figure 12-1, for a monopolistically competitive firm, long-run equilibrium can occur
only at the quantity indicated by which point?
a. A
b. B
c. C
d. D
The optimal combination of goods for a consumer to purchase is shown by
a. any intersection of the indifference curve and the budget line.
b. the point where the budget line touches the vertical axis.
c. a point of tangency between the budget line and the indifference curve.
d. the point at which the indifference curve parallels the horizontal axis.
e. the intersection of two indifference curves.
Quantity demanded is not only affected by price but by variables such as income and
the prices of other goods.
a. True
b. False
Figure 11-7
For the firm in Figure 11-7, an unregulated monopolist, output falls below the efficient
level in the short run by how much?
a. 50
b. 75
c. 35
d. 100
One advantage about an emissions permit system is that
a. it creates a “license to pollute,” sure to be popular with environmentalists.
b. it reduces uncertainty about the quantity of pollution that will be emitted.
c. it is a direct control system and avoids the inefficiencies of a market.
d. permits can be handed out on the basis of need to protect firms from high costs.
A cartel is a group of sellers of a single product who have joined together in order to
enjoy the advantages of perfect competition.
a. True
b. False
Figure 10-4
In Figure 10-4, if full employment occurs at 5,000 and the price level is currently 130,
then we can expect the
a. aggregate supply curve to shift to the left until a new equilibrium is established at an
output level of 4,000.
b. aggregate demand curve to shift to the right until a new equilibrium is established at
an output level of 6,000.
c. the price level to fall to 110.
d. aggregate demand to shift to the left and aggregate supply to shift to the right until
the price level reaches 130.
Employee compensation accounts for about what percentage of national income?
a. 33 percent
b. 42 percent
c. 66 percent
d. 90 percent
The unemployment rate for married men is usually higher than the rate for teenagers.
a. True
b. False
The demand for reserves increases as the price level rises because
a. people want money to buy goods that will appreciate with inflation.
b. people need more money to finance transactions.
c. the opportunity cost of holding money increases.
d. higher prices reduce the value of dollar assets.
The Federal Reserve System is controlled by the
a. U.S. Department of the Treasury.
b. House of Representatives and the Senate.
c. Board of Governors.
d. President of the United States.
Marginal cost
a. is the increase in total cost resulting from production of one additional unit of output.
b. is the cost of the marginal unit of output.
c. and the average cost curve are U-shaped.
d. All of the above are correct.
Leakages from the circular flow include saving and imports.
a. True
b. False
A rightward shift in the aggregate demand curve is most likely to result in
a. inflation.
b. recession.
c. economic growth.
d. an increase in real GDP.
The advantages of emissions permits over taxes is/are:
a. it reduces undertainty about the quantity of pollution that will be emitted.
b. environmental authorities decide on an emissions ceiling in advance of issuing
permits.
c. pollutants can be limited to levels which do not affect health.
d. All of the above are correct.
The correct chain of causation illustrating the changes caused by monetary policy is
a. money, interest rates, C + I + G + (X − IM), I.
b. money, interest rates, I, C + I + G + (X − IM).
c. C + I + G + (X − IM), I, interest rates, money.
d. I, C + I + G + (X − IM), money, interest rates.
The maximin criterion can be defined as which of the following?
a. One seeks the maximum of the minimum payoffs to the various available strategies.
b. One seeks the minimum of the maximum losses among the various available
strategies.
c. One seeks the maximum of the minimum losses to the various available strategies.
d. One seeks the maximum of the maximum gains of the various available strategies.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 required
these to be traded in established, regular markets:
a. equities
b. derivatives
c. credit default swaps
d. both b and c.
Figure 19-2
Of the graphs in Figure 19-2, which one shows the effect of an increase in interest rates
in Japan?
a. 1
b. 2
c. 3
d. 4
Marginal cost
a. equals the slope of the total cost curve.
b. is calculated as DTC/DQ.
c. is the increase in total cost resulting from a one-unit increase in output.
d. All of the above are correct.
Both Social Security expenditures and the payroll tax receipts that finance them are
treated as off-budget items.
a. True
b. False
Two advisors to the president have given their policy recommendations, and they are in
disagreement. Why do these economists disagree?
a. because they do not have all relevant information about the problem
b. because they disagree on the nature of some cause-effect relationship
c. because they have different values and opinions
d. All of the above are reasons for disagreements among economists.
Accounting profit is usually smaller than economic profit.
a. True
b. False