If oranges and grapefruit are close substitutes, an increase in the price of oranges will
shift the demand curve of
a. both products to the right.
b. both products to the left.
c. grapefruit to the right.
d. oranges to the left.
If a person owns 2,000 shares in a corporation which has issued 200,000 shares of
stock, that person owns ____ of the company and is entitled to ____ of the dividends.
a. 1 percent; 1 percent
b. 2 percent; 2 percent
c. 10 percent; 10 percent
d. 20 percent; 20 percent
Two economists from Ohio University estimated that the demand curve for kerosene in
Indonesia was such that a 10 percent increase in the price reduced the quantity
demanded by 2,2 percent and that a 10 percent increase in the price of electricity
increased the demand for kerosene by 1.6 percent. This indicates that (i) the demand for
kerosene is price inelastic and (ii) kerosene and electricity are substitutes. Which of
these two statements is correct?
a. i and ii
b. i not ii
c. ii not i
d. neither i nor ii
An individual’s demand schedule
a. provides information about what quantity a consumer is willing and able to buy at
each price.
b. tells a buyer how many other buyers will try to purchase an item.
c. is a schedule that regulates monthly sales of scarce goods and services.
d. is of no use without its accompanying supply schedule.
Investment is the amount by which ____ grows.
a. portfolio
b. income
c. earnings
d. capital
Falling below a minimum standard of living illustrates the concept of absolute poverty.
a. True
b. False
The demand for borrowed funds is
a. directly related to the interest rate.
b. inversely related to the growth in gross domestic product.
c. a derived demand.
d. leads to derived demand for capital goods.
Which of the following is usually a durable good?
a. a unit of labor
b. the interest rate
c. a depletable resource
d. a capital good
A change in the price of hamburgers will change the supply of hot dogs.
a. True
b. False
The effectiveness of direct controls on pollution depends on: (i) the budgets and
enthusiasm of the regulatory bodies; (ii) sufficiently strong statutory penalties.
a. i and ii
b. i but not ii
c. ii but not i
d. neither i nor ii
Product indifference curves bow inward toward the origin because of diminishing
returns to substitution of inputs.
a. True
b. False
If production of a good creates beneficial externalities, a perfectly competitive market
will produce
a. less output than would maximize profit.
b. more output than would maximize profit.
c. less output than is socially efficient.
d. more output than is socially efficient.
Market demand curves may slope downward even if some individual demand curves do
not because
a. the law of demand requires that this is true.
b. lower prices may bring more purchasers into the market.
c. merchants try to sell more at lower prices.
d. people believe expensive goods are better goods.
Economists would describe a labor union as a
a. trade organization.
b. necessity for competitive labor markets.
c. labor monopoly.
d. pure monopsony.
The supply curve is believed to bend backward at high wage rates because
a. income effects outweigh substitution effects.
b. substitution effects outweigh income effects.
c. the income and substitution effects work together to create the backward bend.
d. leisure time is less attractive.
Sally leaves her $24,000 secretarial position with a company and invests her savings of
$15,000 (on which she was earning 6 percent interest) in her own Ready Sec agency.
After expenses, her net income was $28,900. Her economic profit was
a. $4,900.
b. $4,000.
c. $28,900.
d. −$10,100.
The optimal degree of abstraction depends on the objective of the analysis.
a. True
b. False
Which of the following is an example of a fiscal policy initiative?
a. Lowering of interest rates.
b. Increase in reserve requirements.
c. Reduction in taxes.
d. Decrease in money supply.
The price elasticity of a vertical demand curve is always
a. infinitely large.
b. zero.
c. one.
d. increasing as price increases.
Which of the following characteristics of perfect competition does not apply in
monopolistic competition?
a. free entry and exit
b. homogeneous products
c. numerous participants
d. perfect information
Monetary costs and opportunity costs are always identical.
a. True
b. False
Total revenue is equal to quantity multiplied by average revenue.
a. True
b. False
In comparison to the U.S., Germany has a relatively low percentage of union
membership.
a. True
b. False
Labor is available at a wage of $10 The last worker hired by Cal’s Corn Farm added 20
ears of corn, which Cal has priced at four ears for $1 What advice would you give Cal?
Explain why movie theaters charge more for evening performances than for matinees.
Under what conditions is it likely that the labor supply curve may become backward
bending? What roles do the income and substitution effects play?
P = MC is a recipe for financial loss in an innovative firm established by an innovative
entrepreneur. Explain.
Explain why environmental damage would be classified as an externality.
How will price, output, and profit compare if firms maximize sales rather than profit?
What are the tools available to governments to mitigate cycles of boom and bust? Why
do these tools fail?