If marginal cost exceeds marginal revenue, a profit-maximizing monopolist will
a. restrict output to increase the price even higher.
b. raise price and expand output to increase profit.
c. lower price and expand output to increase profit.
d. attempt to maintain this position because it is consistent with profit maximization.
The macroeconomy is said to be in long-run equilibrium only if
a. the resource, loanable funds, foreign exchange, and goods and services markets are
all in equilibrium.
b. prices were incorrectly estimated by decision makers.
c. the output of the economy exceeds the full-employment level of output.
d. the economy is operating along its short-run aggregate supply curve.
Which of the following conditions during 2008-2009 most closely paralleled the
economic conditions of the Great Depression?
a. record-high unemployment rates for a period of many years
b. a sharp and prolonged contraction in the money supply
c. significant increases in taxes and trade restrictions in order to counter budget deficits
d. frequent policy changes that generated an unstable and unpredictable economic
climate
This year, Emily earned $2,000 more than last year. As a result, she received $500 less
in government transfers. Therefore, Emily’s implicit marginal tax rate is
a. 15 percent.
b. 25 percent.
c. 40 percent.
d. 75 percent.
Use the figure to answer the following question(s).
Figure 11-1
What price and output in Figure 11-1 would an unregulated profit-maximizing
monopolist choose?
a. price A and output T
b. price B and output S
c. price B and output R
d. price C and output R
If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?
a. It will give the bank new reserves.
b. It will write the bank a check.
c. It will transfer cash to the bank’s vault.
d. It will take reserves from another bank.
When the tax rates imposed on the rich are high, a reduction in these rates
a. will always lead to a reduction in the tax revenue collected from the rich.
b. will not affect the tax revenue collected from the rich.
c. will increase the reported incomes of the rich and it may also lead to an increase in
tax revenue collected from them.
d. will decrease the reported incomes of the rich, and thereby reduce the tax revenue
collected from them.
Tombstones are produced in a competitive price-searcher market. One producer,
Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total
cost is $600. From this information, we can conclude
a. new tombstone firms will want to enter.
b. this producer is losing $2,000 a week.
c. this producer is making an economic profit of $400.
d. this producer is setting MR = MC.
e. this producer should increase production.
As the size of government increases as a share of the economy,
a. the burden of deadweight losses of taxation generally diminishes.
b. the rate of return derived from projects undertaken by the government will tend to
increase.
c. the government generally becomes more heavily involved in unproductive and even
counterproductive activities.
d. the activities of government are generally limited to protective functions such as
public safety , national defense, and provision of a limited set of public goods.
Use the figure below to answer the following question(s).
Figure 5-2
Figure 5-2 illustrates the market for a product that generates an external cost. S1 is the
private market supply curve, while S2 is the supply curve including the external cost.
Which of the following is true?
a. Relative to economic efficiency, output of the good will be too large and the price too
low.
b. Relative to economic efficiency, output of the good will be too large and the price too
high.
c. Relative to economic efficiency, output of the good will be too small and the price
too low.
d. Relative to economic efficiency, output of the good will be too small and the price
too high.
John Maynard Keynes and Friedrich Hayek
a. had similar views with regard to the cause of the Great Depression and what might be
done to prevent it from happening again.
b. both believed that perverse monetary policy was the primary cause of the ups and
downs of the business cycle.
c. both believed that budget deficits and surpluses could be used to smooth the ups and
downs of the business cycle.
d. had polar opposite views with regard to the underlying causes of economic booms
and bust, but nonetheless their scholarly work commanded widespread respect among
economists.
Which of the following is a characteristic of an oligopolistic industry?
a. interdependence of a firm’s price and output decisions
b. low barriers to entry
c. small output of individual firms relative to the total market
d. a large number of competing firms
When analyzing public sector decision making, economic theory assumes voters,
politicians, and government officials will
a. respond to changes in personal benefits and costs when making public sector choices.
b. always pursue the public interest even when it conflicts with their private interests.
c. generally ignore the personal costs and benefits associated with their choices.
d. make decisions that seek to maximize the amount of benefits created for society as a
whole.
Supply and demand analysis suggests that a sharp increase in the price of gasoline will
cause the
a. price of fuel-efficient compact cars to decrease.
b. supply of gasoline to decrease.
c. demand for large luxury cars to increase.
d. demand for fuel-efficient cars to increase.
A competitive price-taker firm’s marginal cost curve is regarded as its supply curve
because
a. the position of the marginal cost curve determines the price for which the firm should
sell its product.
b. among the various cost curves, the marginal cost curve is the only one that slopes
upward.
c. the marginal cost curve determines the quantity of output the firm is willing to supply
at alternative prices.
d. the firm is aware that marginal revenue must exceed marginal cost in order for profit
to be maximized.
Use of real GDP to measure changes in national output from one period to another can
be misleading if
a. the price level is different for the two periods.
b. the share of production carried out in the nonmarket sector is different for the two
periods.
c. the bundle of goods produced during the periods is quite similar.
d. the size of the export-import sector differs for the two periods.
Figure 17-9
Refer to Figure 17-9. Before the tariff is imposed, this country
a. imports 200 carnations.
b. imports 400 carnations.
c. exports 200 carnations.
d. exports 400 carnations.
Which of the following is true?
a. The natural rate of unemployment is present when the economy is operating at full
employment.
b. The natural rate of unemployment is equal to the number of persons unemployed
divided by the number of persons in the labor force.
c. The natural rate of unemployment is primarily the result of the ups and downs of the
business cycle.
d. Public policy cannot influence the natural rate of unemployment.
Why do political instability and insecure property rights retard economic growth?
a. Fear that private property will be confiscated substantially reduces the incentive to
invest and create wealth.
b. When property rights are insecure, foreign investors will be reluctant to invest in the
country.
c. Savings will tend to flow out of a country if individuals fear their property is
insecure.
d. All of the above are correct.
In response to the recession of 2008-2009, the United States
a. increased government spending as a share of the economy and enlarged the size of
the budget deficit.
b. reduced government spending as a share of the economy and shifted the budget
toward a surplus.
c. increased government spending as a share of the economy and shifted the budget
toward a surplus.
d. reduced government spending as a share of the economy and enlarged the size of the
budget deficit.
Which of the following occurred during and following the 2008-2009 recession?
a. Unemployment benefits were extended from their normal 26 weeks to up to 99
weeks.
b. The Federal Reserve more than doubled the size of the monetary base.
c. The federal budget deficit expanded to approximately 10 percent of GDP.
d. All of the above are true.
Which of the following would be most likely to cause an increase in the wage rate for a
particular job?
a. A decrease in the amount of training needed to perform this job.
b. An increase in the danger of this job.
c. A decrease in the danger of this job.
d. An improvement in the working conditions associated with this job.
e. An increase in the number of workers with the skills for this job.
When an individual weighs her options and makes a choice that maximizes her benefit
at the minimum cost, economists refer to this as a process of
a. rational decision making.
b. objective decision making because the value of goods is determined objectively.
c. marginal management analysis.
d. random decision making.
Suppose the actions of the producers of a good generate an external benefit which
results in the actual market price of $30 and market output of 220 units. How does this
outcome compare to the efficient, ideal equilibrium?
a. The efficient price would higher than $30 while the efficient output would be less
than 220 units.
b. The efficient price would be higher than $30 while the efficient output would be
greater than 220 units.
c. The efficient price would be lower than $30 while the efficient output would be less
than 220 units.
d. The efficient price would be lower than $30 while the efficient output would be
greater than 220 units.
Along the inelastic portion of a demand curve,
a. the change in price will always be less than the change in quantity demanded.
b. the percentage change in price will be less than the percentage change in quantity
demanded.
c. the change in price will always be more than the change in quantity demanded.
d. the percentage change in price will be more than the percentage change in quantity
demanded.
The economy’s potential output is
a. the maximum output that could be achieved temporarily during a time of economic
boom.
b. the minimum output that could be achieved during a recession.
c. present when 100 percent of the labor force is employed.
d. the maximum sustainable output of the economy given its resources.
According to the traditional (crowding-out) view, which of the following is most likely
to result if a substantial portion of government expenditures is financed by borrowing
rather than taxation?
a. no change in interest rates and an increase in saving
b. higher interest rates and an outflow of foreign capital
c. higher interest rates and a reduction in private domestic investment
d. lower interest rates and an inflow of foreign investment
Suppose that the consumer price index (CPI) was 160 in 2010 and 166 in 2011,
inflation during 2011 was
a. zero; prices were stable.
b. 3.8 percent.
c. 6 percent.
d. 66 percent.
Assume that black beans and rice are consistently in the diet of one particular family.
How could you tell if these goods were complements, substitutes, or unrelated goods?
a. If the price of black beans rose and the consumption of rice remained the same, they
would be substitutes.
b. If the price of black beans rose and the consumption of rice increased, they would be
substitutes.
c. If the price of black beans rose and the consumption of rice decreased, they would be
substitutes.
d. If the price of black beans rose and the consumption of both goods remained the
same, they would be complements.
Public choice theory assumes each voter will tend to support the political candidate who
offers
a. programs with the largest benefits to society.
b. the highest potential for being a good leader in times of war.
c. programs that create the most equal distribution of income.
d. to provide the voter with the most personal benefits at the least personal cost.
Which of the following about potential GDP is true?
a. During a recession, actual GDP will exceed potential GDP.
b. Actual GDP cannot exceed potential GDP, even for short periods.
c. Actual output may be either above or below potential output depending on how fully
resources are utilized.
d. The economy’s potential output is the maximum output that could be achieved
temporarily during a time of economic boom.
Economics is primarily the study of
a. how to make money in the stock market.
b. how to find lower cost methods of production.
c. the choices we must make among alternatives because of scarcity.
d. the proper form of industrial structure for the United States.
If the quantity demanded increases by 20 percent in response to a 10 percent decrease in
price, demand is classified as
a. unstable.
b. relatively inelastic.
c. relatively elastic.
d. of unitary elasticity.
Economic growth is important because expansion in the output of goods and services
a. necessarily creates more jobs (more work for people).
b. makes it possible for individuals to consume more and achieve higher living
standards.
c. leads to an increase in the general level of prices.
d. generates additional tax revenues for the government.