Hotelling’s model has been used to describe differentiation in the political “market.”
Suppose that 100 voters are evenly distributed between the extreme left and the extreme
right on the political spectrum, and that all voters vote, and they always vote for the
candidate closest to them on this spectrum. The numbers on this spectrum represent the
number of voters lying to the left of the number. So, at the midpoint, fifty voters lie to
the left and fifty to the right. At the extreme right end, all 100 voters lie to the left.
If Candidate X is running against Candidate Z, by moving to the right Candidate X
would:
A. lose some votes from voters on the far left but gain approximately the same number
of votes from Z.
B. not lose any votes from voters on the left and gain some votes from Z.
C. force Z to move farther to the right in order to keep the same number of votes.
D. win the election if the move placed X anywhere to the right of 25 on the spectrum.
You are the Minister of Trade for a small island country with the following annual PPC:
You are negotiating a trade agreement with a neighboring island with the following
annual PPC:
If the other island’s delegate offers to give you 2 fish for every 1 coconut you give
them, you will:
A. accept their offer because you do not have the comparative advantage in fish.
B. refuse their offer because the opportunity cost to you of a coconut is more than 2
fish.
C. accept their offer because you do not have an absolute advantage in fish.
D. refuse their offer because the opportunity cost to you of a coconut is less than 2 fish.
The Board of Governors consists of ______ governors appointed for staggered ______
terms.
A. 5; 12-year
B. 5; 14-year
C. 7; 12-year
D. 7; 14-year
The introduction of an overnight delivery service that guarantees the delivery of
packages anywhere in the world overnight would increase:
A. average labor productivity.
B. the share of population employed.
C. the labor force participation rate.
D. the unemployment rate.
If a boxing fight is shown on pay-per-view television every Saturday at 4pm, the
demand curve for each fight is given below.
If the regulated pay-per-view charge to watch a fight were $15 per household, then
______ households would watch the fight, and the loss is total economic surplus would
be ______ relative to when there is no charge to watch the fight.
A. 10 million; $25 million
B. 20 million; $225 million
C. 20 million; $25 million
D. 10 million; $225 million
Assume point A on a linear production possibilities curve represents the combination of
12 coffees and 3 cappuccinos, and point B represents 3 coffees and 6 cappuccinos.
Suppose coffees are on the vertical axis and cappuccinos are on the horizontal axis. The
opportunity cost of a cup of coffee is:
A. 3 cappuccinos.
B. 9 cappuccinos.
C. 1/3 of a cappuccino.
D. 6 cappuccinos.
GDP excludes important factors that affect people’s well-being, such as the value of:
A. leisure time.
B. government purchases of goods and services.
C. services purchased by households.
D. goods produced domestically but sold to foreigners.
Every time you go to the grocery store, you try to wait in the shortest line. But the lines
always seem to be roughly the same length. Why?
A. Random chance equalizes the length of the lines.
B. Other people are trying to choose the shortest line too.
C. The cashiers work at the same speed.
D. The cashiers do not have an incentive to work faster.
Mike and Tom debone chicken breasts for Ted’s Chicken Co. Mike is new and can only
debone 60 chicken breasts per hour, while Tom’s experience allows him to debone 120
chicken breasts per hour. Both Mike and Tom work 40 hours per week. Their average
hourly productivity as a team is ______ chicken breasts.
A. 60
B. 75
C. 90
D. 100
Refer to the figure below. For the nation whose PPC is shown, it must be true that:
A. the nation’s productive resources are better-suited to making milk than to making
movies.
B. the nation’s productive resources are better-suited to making movies than to making
milk.
C. some of the nation’s productive resources are better-suited to making milk, and some
are better-suited to making movies.
D. the nation has a comparative advantage in making milk.
If you put a $20 bill in the pocket of your winter coat at the beginning of spring so that
you will be surprised when you find it again next winter, you are using money as:
A. bank reserves.
B. a medium of exchange.
C. a unit of account.
D. a store of value.
The field of economics that would be most concerned with a recent fall in interest rates
is:
A. microeconomics.
B. macroeconomics.
C. economic naturalism.
D. marginal economics.
The real rate of interest measures the ______ of capital investment.
A. value of the marginal product
B. opportunity cost
C. marginal benefit
D. relative price
Which of the following would not be studied in microeconomics?
A. How individual firms decide how much to produce.
B. Whether to study or watch TV tonight.
C. How an early freeze in California will affect the price of fruit.
D. Whether the federal budget should be balanced.
Refer to the figure above. Assume that column A and column B are the initial demand
and supply curves. At a price of $30, the market would experience:
A. an equilibrium.
B. excess demand of 95 units.
C. excess supply of 45 units.
D. excess demand of 45 units.
All of the following are real quantities except the:
A. number of new cars produced in one year.
B. tons of steel shipped to South America.
C. millions of computer chips shipped to computer makers.
D. billions of dollars invested in stocks.
Holding constant risk and the real returns available abroad, higher domestic real interest
rates ______ capital inflows, ______ capital outflows, and ______ net capital inflows.
A. increase; increase; increase
B. increase; increase; decrease
C. increase; decrease; increase
D. decrease; decrease; decrease
Mexico and the members of OPEC produce crude oil. Realizing that it would be in their
best interests to form an agreement on production goals, a meeting is arranged and an
informal, verbal agreement is reached. If both Mexico and OPEC abide by the
agreement, then OPEC’s profit will be $200 million and Mexico’s profit will be $100
million. If both Mexico and OPEC cheat on the agreement, then OPEC’s profit will be
$175 million and Mexico’s profit will be $80 million. If only OPEC cheats, then
OPEC’s profit will be $185 million, and Mexico’s profit will be $60 million. If only
Mexico cheats, then Mexico’s profit will be $110 million, and OPEC’s profit will be
$150 million. You may find it helpful to fill in the payoff matrix below.
Which of the following statements is correct?
A. OPEC does not have dominant strategy.
B. OPEC’s dominant strategy is to abide by the agreement.
C. OPEC’s dominated strategy is to cheat on the agreement.
D. OPEC’s dominant strategy is to cheat on the agreement.
Jamie’s marginal utility from muffins and from doughnuts (in utils) is shown below.
Jamie spends a total of $8 on muffins and/or doughnuts every morning. The price of
each muffin is $2 and the price of each doughnut is $1.
If Jamie consumes 2 doughnuts a day, then what is her marginal utility per dollar spent
on the second doughnut?
A. 10
B. 15
C. 20
D. 40
If coal mining produces a negative externality because it leads to environmental
damage, then, at the market equilibrium, the:
A. price of coal will be higher than the socially optimal price.
B. quantity of coal produced will be less than the socially optimal quantity.
C. quantity of coal produced will be greater than the socially optimal quantity.
D. supply curve will lie to the left of the regulated supply curve.
If one state is suffering from acid rain as a result of sulfur dioxide emissions from the
industries in a neighboring state, then:
A. the individual states can easily reach a solution to the problem.
B. the problem is best addressed through federal regulation.
C. state courts can provide adequate remedies.
D. the acid rain ceases to be an externality.
If the consumption of good generates an external benefit, then the market equilibrium
quantity:
A. will be socially optimal.
B. will be less than the socially optimal quantity.
C. will be greater than the socially optimal quantity.
D. could be either less than or greater than the socially optimal quantity.
One way to avoid counting the prices of intermediate goods multiple times in
computing the value of GDP is to:
A. sum the value added of only producers of final goods and services.
B. sum the value added of only producers of intermediate goods and services.
C. sum the value added of producers of both intermediate and final goods and services.
D. subtract the value added of producers of intermediate goods and services from the
value added of producers of final goods and services.
The productivity slowdown of the 1970’s occurred:
A. only in the U.S.
B. only in the U.S. and the United Kingdom.
C. only in the U.S, the United Kingdom, and Japan.
D. around the world.
This graph shows the marginal cost and marginal benefit associated with roadside litter
clean up. Assume that the marginal benefit curve and marginal cost curve each have
their usual slope.
Suppose the state highway department has picked up 15 bags of litter. Protesters have
staged a demonstration demanding that the highway department return to pick up the
remaining litter. From an economic efficiency perspective, the protesters have a ______
claim because ______.
A. legitimate; litter generates a negative externality
B. faulty; the additional resources needed to remove more litter could be better used
elsewhere
C. faulty; the government is not responsible for taking care of private property
D. legitimate; the government has a responsibility to take action when private market
incentives do not yield the socially optimal outcome
All else being equal, if Asian restaurants switch from serving French champagne to
serving California wines, then the market equilibrium value of the exchange rate for the
U.S. dollar will:
A. rise.
B. fall.
C. become fixed.
D. either rise or fall depending on whether the supply or demand for dollars changes
more.
An increase in the price of the output produced by labor will:
A. increase the supply of labor.
B. decrease the supply of labor.
C. increase the demand for labor.
D. decrease the demand for labor.
The CPI in year one equaled 1.45. The CPI in year two equaled 1.51. The rate of
inflation between years one and two was ______ percent.
A. 4.0
B. 4.1
C. 4.5
D. 6.0
Why does your grocery store sell day-old bakery goods but not day-old canned goods?
A. Canned goods are priced at the market equilibrium.
B. An excess supply of bakery goods will quickly spoil, but excess canned goods will
not.
C. There is excess demand for canned goods.
D. Demand for canned goods is easier to predict.
If net taxes paid by households increase:
A. private saving will decrease.
B. private saving will increase.
C. public saving will decrease.
D. transfer payments to households will decrease.
The following table provides data for an economy in a certain year._
Given the data in the table, compute the value of GDP.
A. 2,400
B. 2,500
C. 2,600
D. 2,700