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There are two separate labor markets in Toontown, illustrated by the graphs below. Both
labor markets currently pay $6.00 per hour, and both require the same skills and
qualifications. The Toontown City Council is considering enacting a $7.50 living wage
ordinance, which would require all Toontown employers to pay wages of at least $7.50
per hour.
At the current wage of $6.00, worker surplus in Market A is ____ and in Market B is
___.
A. 36; 36
B. 9; 18
C. 18; 18
D. 18; 36
Entrepreneurs contribute to increased average labor productivity in each of the
following ways EXCEPT by:
A. introducing new production methods.
B. implementing new technological processes.
C. developing new products.
D. assigning workers to jobs.
Refer to the figure above. The difference between consumer surplus given the
monopoly market structure and consumer surplus with the socially efficient quantity is
the area _______.
A. LEI
B. GCEI
C. 0GI
D. GCEL
A factory worker earned $10 an hour in 1980. The CPI was 0.82 in 1980. The same
factory worker was earning $15 an hour in 1990 when the CPI was 1.31. From 1980 to
1990, the factory worker's hourly real wage:
A. increased from $7.63 to $18.29.
B. decreased from $12.20 to $11.45.
C. remained constant.
D. increased from $10 to $15.
One year before maturity the price of a bond with a principal amount of $1,000 and a
coupon rate of 5% paid annually fell to $981. The one year interest rate must be:
A. 8.5%.
B. 7.0%.
C. 5.0%.
D. 1.9%.
A group of workers who collectively bargain with employers for higher wages and
better working conditions is called a
A. labor monopsony.
B. labor union.
C. labor collective.
D. closed shop.
In sequential games, the player who moves first:
A. always has a first-mover advantage.
B. has a first-mover advantage only when he or she is able to make a credible threat or
promise to choose a dominated strategy.
C. has a first-mover advantage only when the second mover fails to choose the
dominant strategy.
D. sometimes has an advantage and sometimes has a disadvantage.
If the cyclical rate of employment equals 1 percent and the actual rate of unemployment
equals 8 percent, then the natural rate of unemployment must equal:
A. -7 percent.
B. 9 percent.
C. 12.5 percent.
D. 7 percent.
The use of economic models, like the cost-benefit principle, means economists believe
that:
A. this is exactly how people choose between alternatives.
B. this is a reasonable abstraction of how people choose between alternatives.
C. those who explicitly make decisions this way are smarter.
D. with enough education, all people will start to explicitly make decisions this way.
If the CPI equaled 1.00 in 1995 and 1.65 in 2005 and a typical household's income
equaled $35,000 in 1995 and $40,000 in 2005, then between 1995 and 2005, real
household income:
A. increased.
B. decreased.
C. was constant.
D. may have either increased or decreased.
Potential output is:
A. the same as actual output.
B. the same as the output gap.
C. the same as the natural rate of unemployment.
D. the maximum sustainable amount of output.
If resources are currently misallocated in a market with no barriers to entry, then the
presence of opportunities to profit:
A. will inspire a more efficient reallocation of resources.
B. will inspire a less efficient reallocation of resources.
C. will not inspire a reallocation of resources in the absence of government regulation.
D. will not inspire a reallocation of resources unless a firm is subsidized.
Last year Pat was a soybean farmer and Chris was a corn farmer. This year, high
demand for ethanol, an automobile fuel made from corn, causes the price of corn to
increase.
Refer to the information above. Suppose Pat stopped growing soybeans and began
growing corn. What principle would explain that change?
A. The principle of comparative advantage.
B. The scarcity principle.
C. The incentive principle.
D. The equilibrium principle.
An argument against a central bank policy of announcing numerical inflation targets is
that inflation targeting policies:
A. enhance central bank credibility.
B. anchorinflationary expectations.
C. emphasize inflation at the expense of output stabilization.
D. increase uncertainty.
A firm that enjoys economies of scale is said to have:
A. constant returns to scale.
B. increasing returns to scale.
C. decreasing returns to scale.
D. marginal returns to scale.
A government policy of providing free public education is an example of a policy to
promote economic growth by:
A. increasing human capital.
B. increasing physical capital.
C. improving technology.
D. increasing the availability of natural resources.
Suppose that total expenditures for coffee reach a maximum at a price of $5 per pound.
At this price, the demand for coffee is:
A. elastic.
B. inelastic.
C. unitary elastic.
D. perfectly inelastic.
Refer to the figure above. Long-run equilibrium in this economy:
A. will be impossible to achieve.
B. could occur if AD shifts downward to the left.
C. could occur if AS shifts downward and to the right.
D. will occur only if AD shifts upward to the right.
This graph shows the marginal costs and marginal benefits associated with roadside
litter clean up. Assume that the marginal cost and marginal benefit curves slope in the
usual directions.
Refer to the information given above. According to this graph, the marginal benefit of
litter removal is maximized when the ___ bag is removed.
A. first
B. 10th
C. 15th
D. 30th
Refer to the figure above. Based on the figure, if the economy is in short-run
equilibrium with output equal to 24,000, then there is a(n) ______ gap and a ______ in
government spending would return the economy to potential output (Y*).
A. expansionary; decrease of 1,000
B. expansionary; decrease of 4,000
C. recessionary; increase of 1,000
D. recessionary; increase of 4,000
According to the textbook, public concern with under treatment by HMO's has led to
proposals that would
A. outlaw HMO's.
B. grant patients the right of appeal when denied treatment.
C. limit medical malpractice settlements.
D. provide prescription drugs for free.
One costly-to-fake solution to the credibility problem in trading is to
A. not trade.
B. spend a lot of money on advertising.
C. hire an attorney to prove that you are telling the truth.
D. hire more workers than you need then fire the incompetent ones.
At each value of the domestic interest rate, increases in the riskiness of domestic assets
______ capital inflows, ______ capital outflows, and ______ net capital inflows.
A. increase; increase; increase
B. increase; increase; decrease
C. increase; decrease; increase
D. decrease; increase; decrease
The extra costs incurred to avoid holding cash when there is inflation are called the:
A. average costs of inflation.
B. consumer price index costs.
C. external costs.
D. shoe leather costs.
The greater the credibility of monetary policy the ____ likely inflationary expectations
are to be anchored and the _____ the recessions caused by adverse inflation shocks.
A. more; shorter
B. more; longer
C. less; shorter
D. less; longer
The following table provides nominal exchange rates for the U.S. dollar.
Based on these data, the nominal exchange rate equals approximately ______ reals per
Swiss franc or, equivalently, ______ Swiss francs per real.
A. 1.053; 0.950
B. 0.950; 1.053
C. 0.282; 3.551
D. 3.551; 0.282
Once a firm has determined the quantity of output it wishes to sell, the price it can
charge is determined by:
A. the cost of making the product.
B. the demand curve that the firm faces.
C. market demand for the product minus cost.
D. the explicit cost of making the product plus the implicit costs incurred by the firm
owner.
An increase in the real exchange rate will tend to ______ exports and to ______
imports.
A. increase; decrease
B. increase; increase
C. decrease; decrease
D. decrease; increase
Each of the following would increase the supply of U.S. dollars, shifting the supply
curve for dollars to the right, EXCEPT:
A. an increased preference for foreign-made goods.
B. an increase in U.S. real GDP.
C. an increase in the real interest rate on foreign assets.
D. an appreciation of the U.S. dollar relative to other currencies.
Economic questions always deal with:
A. financial matters.
B. political matters.
C. insufficient resources.
D. choice in the face of limited resources.
Acme Market increased wages for their cashiers from $7/hr to $9/hr. Pat, a cashier at
Acme, now works 30hrs/week instead of the 25hrs/week hours Pat used to work before
the wage increase. On the other hand Chris, also a cashier at Acme decreased his work
time by 5hrs/week after the wage increase and started to spend more time watching TV.
Chris's behavior can be best explained as the _______ of high wage rates.
A. demand effect
B. supply effect
C. income effect
D. substitution effect
A cross-price elasticity of -1.2 indicates that the two goods under consideration are:
A. inferior.
B. elastically demanded.
C. complements.
D. substitutes.
Suppose a single-price monopolist is considering becoming a price discriminating
monopolist. If the firm does begin to price discriminate, it can expect to:
A. decrease its output and increase its profit.
B. run into legal trouble with the anti-trust enforcers.
C. increase its output, but decrease its profits.
D. increase both its output and its profit.
Fran runs a doughnut shop in a tiny 3-person town. Fran's rational consumers have the
following demand schedules:
Market demand for doughnuts when the price is 50 cents is
A. 31 doughnuts.
B. 20 doughnuts.
C. 9 doughnuts.
D. 13 doughnuts.
