In 1989, Hurricane Hugo devastated Charleston, South Carolina, leaving residents with
no electricity for light or refrigeration, and completely cut off from the outside world by
fallen trees and washed-out roads. Consequently, the price of ice rose 1,000 percent and
generators 300 percent. Tree removal firms were charging $4,000 to cut up a single tree.
Outraged, the city government enacted an emergency law prohibiting price “gouging.”
This law is an example of
a. the cost disease of services.
b. a price ceiling.
c. the laissez-faire rule.
d. the indispensable necessity syndrome.
Higher prices may serve the public interest when:
a. there is a shortage of goods or services available
b. there is an uneven distribution of traffic on alternate routes
c. higher prices never serve the public interest
d. both a and b
If both matches and automobile prices increase by 10 percent, consumers will likely
buy
a. fewer matches and approximately the same quantity of automobiles.
b. approximately the same quantity of matches and fewer automobiles.
c. fewer matches and fewer automobiles.
d. approximately the same quantity of both matches and automobiles.
College graduates now earn nearly five times as much as their high school-educated
peers but the gap is falling.
a. True
b. False
Many economists believe that
a. once a negative income tax system was in place, the United States could increase
economic equality indefinitely without reducing economic efficiency.
b. a negative income tax would be less efficient than the current welfare system.
c. replacing the current welfare system with a negative income tax would increase both
economic efficiency and economic equality.
d. None of the above is correct.
All externalities are detrimental.
a. True
b. False
Creative destruction by innovation means
a. destruction of an innovative product once it fails in the market.
b. introduction of an innovative product makes older substitute goods obsolete.
c. substitute goods make innovative goods less competitive in the market.
d. introduction of innovative goods increase the competition in the market
If demand is inelastic, a drop in price will raise total expenditure.
a. True
b. False
Opportunity cost is the combined value of all other alternatives that go unchosen.
a. True
b. False
Economic theory has traditionally focused on optimality in decision-making.
a. True
b. False
For a consumer to maximize utility, he will choose the
a. point where the slope of the budget line equals the slope of the indifference curve.
b. any point where the budget line and indifference curve intersect.
c. point where he gets the most of the good he prefers most.
d. point where the marginal rate of substitution is greatest.
e. the point where marginal utility is zero for both goods
In 2013, about what percentage of goods and services sold in the United States was
imported?
a. 5%
b. 16%
c. 22%
d. 88%
The marginal revenue curve for a monopolist is always below the demand curve.
a. True
b. False
The notion that equally situated individuals should be taxed equally is referred to as
a. horizontal equity.
b. vertical equity.
c. the benefits principle.
d. the Gini principle.
Using graphs to illustrate the concepts, absolute advantage
a. is shown with differences in slope of a production possibilities curve; comparative
advantage is shown with a lower curve.
b. requires a very steep curve; comparative advantage requires a curve with a shallow
slope.
c. on one good requires that the slope of the production possibilities curve be steeper for
that good.
d. is shown with a higher production possibilities curve; comparative advantage is
shown with differences in slope of the curves.
Consumer spending accounts for about 70 percent of GDP.
a. True
b. False