When a government increases the cost of international trade, it is:
A. helping domestic consumers.
B. hurting all domestic producers.
C. reducing the total amount of output available to domestic consumers.
D. keeping all domestic prices artificially low.
Firms that produce goods with many substitutes will find that:
A. lowering price increases total revenues.
B. lowering price decreases total revenues.
C. raising price increases total revenues.
D. lowering price leaves total revenues unchanged.
To reduce the social loss due to first-dollar insurance coverage of the medical treatment,
A. the marginal cost should be reduced.
B. the marginal cost should be increased.
C. the marginal benefit should be reduced.
D. the consumer must bear some of the marginal cost.
When plotting marginal and average cost curves, the _________ cost curve always
crosses the ___________ cost curve at its _______________.
A. average fixed; marginal; minimum
B. marginal; average total; minimum
C. marginal; average variable; maximum
D. average variable; marginal; maximum
Refer to the figure above. Total producer surplus received by the seller is
A. $100
B. $125
C. $200
D. $625
The existence of long term leases in apartment markets
A. benefits landlords by keeping occupancy rates high and harms tenants by reducing
their mobility.
B. harms landlords and benefits tenants by preventing landlords from raising the rent
each month.
C. creates an informational advantage for landlords.
D. solves a commitment problem that is inherent in markets with imperfect information.
The marginal benefit of additional information
A. rises as more information is collected.
B. is independent of the size of the expenditure.
C. tends to be smaller for big ticket items, e.g., a car.
D. falls as more information is collected.
For OutBack Steakhouse, seating capacity is limited in the short run. In the long run
they can add as many seats as they want. Therefore, the price elasticity of supply for the
meals in OutBack would be _____ in the short run than in the long run.
A. higher
B. lower
C. the same
D. more variable
Suppose that two recent studies conclude that increased fiber in the diet does not reduce
the risk of developing colon cancer as was previously thought. The likely result will be
that the:
A. quantity demanded of high-fiber foods will fall.
B. demand for high-fiber foods will decrease.
C. supply of high-fiber foods will increase.
D. price of high-fiber foods will rise.
Private market incentives will tend to ____ provide immunization against contagious
disease because
A. efficiently; price will serve as a signal of marginal benefit and marginal cost.
B. over; external costs will not be taken into account by decision makers.
C. under; external benefits will not be taken into account by decision makers.
D. inequitably; health care services should not be provided based on ability to pay.
The Fisher effect is the tendency for ______ interest rates to be ______ when inflation
is high.
A. real; high
B. real; low
C. market; low
D. nominal; high
Suppose that a new drug has been approved to treat a life-threatening disease. Demand
for that drug is shown on the graph below. Prior to approval of this drug, the only
treatment for this condition was non-prescription pain relief. Demand for one brand of
non-prescription pain reliever is also shown on the graph below.
Refer to the figure above. Demand for the new drug is ____ while demand for the pain
reliever is _____
A. the line labeled A; the line labeled B.
B. the line labeled B; the line labeled A.
C. the horizontal line at $90; the line labeled B.
D. the vertical line at 100; the line labeled A.
At a price of $25, what is the consumer surplus each day?
A. 0
B. 5
C. 15
D. 30
The time between when income taxes are cut and consumption spending increases is an
example of:
A. the outside lag in macroeconomic policy.
B. the inside lag in macroeconomic policy.
C. the outside lag in fiscal policy.
D. the inside lag in fiscal policy.
Which of the following is NOT true of a perfectly competitive firm?
A. It faces a perfectly elastic demand curve.
B. It is unable to influence the market price of the good it sells.
C. It seeks to maximize revenue.
D. Relative to the size of the market, the firm is small.
A Luddite is:
A. someone who opposes the introduction of new technologies.
B. a worker whose real wage rises as a result of globalization.
C. a fictional character from American folk history.
D. a consumer who refuses to buy imported goods, even if they are cheaper.
When U.S. companies open offices in Asia and hire workers there, it is evidence that:
A. workers in Asian countries have an absolute advantage over American workers.
B. workers in Asian countries have a comparative advantage over American workers.
C. American workers have already picked all of the low-hanging fruit in the US, forcing
companies to look elsewhere.
D. all of the resources with low opportunity costs have been depleted.
Money serves as a basic yardstick for measuring economic value (a unit of account),
allowing:
A. people to hold their wealth in a liquid form.
B. governments to restrict the issuance of private monies.
C. easy comparison of the relative prices of goods and services.
D. goods and services to be exchanged with a double coincidence of wants.
It is always true that:
A. accounting profits are positive.
B. economic profits are zero.
C. economic profits are greater than or equal to accounting profits.
D. accounting profits greater than or equal to economic profits.
Consider an industry with two firms producing similar products.
Mega Corp’s total costs are TC = $5,000 + 100 × Quantity.
Big Inc’s total costs are TC = $4,000 + 200 × Quantity.
Refer to the information given above. If each firm starts out producing 15 units you
would expect that:
A. both firms will continue producing 15 units.
B. Big Inc will be able to charge a lower price than Mega Corp and will produce more
than 15 units.
C. Mega Corp will be able to charge a lower price than Big Inc and will produce more
than 15 units.
D. Both Mega Corp and Big Inc will reduce the quantities produced and charge higher
prices.
If the workers’ compensation premium accurately reflected the social costs of
workplace injuries, then
A. many firms would be forced out of business.
B. the premium would function like a tax on injuries.
C. injury rates would rise.
D. firms would become less capital intensive.
Refer to the figure above. Assume the market is originally at point W. Movement to
point Z is a combination of:
A. an increase in quantity supplied and an increase in demand.
B. an increase in supply and an increase in demand.
C. an increase in supply and an increase in quantity demanded.
D. a decrease in supply and an increase in quantity demanded.
Refer to the figure above. Suppose MC1 is the marginal cost and MB1 is the marginal
benefit curve for information about a flat screen TV. Should a rational consumer pay
$20 to get 8 units of information?
A. Yes, since at this price the marginal benefit of acquiring information exceeds its
marginal cost.
B. No, since at this price the marginal cost of acquiring information exceeds its
marginal benefit.
C. Yes, since at this price the marginal benefit of acquiring information equals its
marginal cost.
D. No, since at this price the marginal benefit of acquiring information exceeds its
marginal cost.
The relationship between labor usage and output at the local coffee shop is summarized
in the table below. The price of a cup of espresso is $1.25 and no other inputs are
required.
The benefit to the coffee shop of hiring the fifth worker is
A. 70 cups of espresso.
B. 75 cups of espresso.
C. $93.75.
D. $6.25.
Refer to the figure above. The opportunity cost of making an additional salad:
A. remains constant regardless of how many salads are made.
B. increases as the number of salads increases.
C. decreases as the number of pizzas decreases.
D. decreases as the number of salads increases.
The market for bagels contains two firms: BagelWorld (BW) and Bagels’R’Us (BRU).
The owners of the two firms decide to fix the price of bagels. The table shows the total
profits the firms will earn if they abide by the price setting agreement or if they cheat on
the agreement.
Refer to the figure above. For Bagel World, __________ is its __________.
A. abiding by the agreement; dominant strategy
B. cheating on the agreement; dominated strategy
C. cheating on the agreement; dominant strategy
D. abiding by the agreement; dominant strategy when Bagels’R’Us also abides
The term “natural monopoly” refers to:
A. government ownership of parks.
B. industries with constant returns to scale.
C. the desire of all firms to be monopolists.
D. industries with economies of scale.
A large increase in oil prices is an example of:
A. a positive inflation shock.
B. a negative inflation shock.
C. inflation inertia.
D. excessive aggregate spending.
Suppose that there are two employers in Tinytown. CareCo offers a generous health
insurance package to all employees while ApathyInc pays slightly higher wages, just
sufficient to pay for health coverage for a person in average health.
What is likely to be true of the employees at each firm?
A. Employees of CareCo will be healthier.
B. Nobody will work for ApathyInc.
C. Everyone will prefer working for ApathyInc.
D. Less healthy people will work for CareCo, and healthy ones will work for
ApathyInc.
One implication of the results of the Manning study is that the demand for
non-catastrophic health care is
A. perfectly inelastic
B. somewhat elastic
C. driven by the media
D. not subject to standard economic theory
If an individual consumer is willing to pay $11 for one unit of a good but finds he can
purchase it for $7, he has a consumer surplus of:
A. $18.00.
B. $11.00.
C. $7.00.
D. $4.00.
The money demand curve will shift to the right if:
A. the nominal interest rate increases.
B. real income increases.
C. ATM machines are introduced.
D. the price level decreases.
Matt is offered a job driving the campus shuttle bus from 4 P.M. to 6 P.M. each
Monday. His reservation wage for this job is $7/hour.
Suppose the campus transportation director offers Matt $50/hour, and Matt doesn’t have
to share his income with anyone else. Will Matt accept this job?
A. Yes, accepting the job means a positive surplus for Matt.
B. No, accepting the job means a negative surplus for Matt.
C. Yes, although accepting the job means a negative surplus for Matt, still it’s better
than having no job.
D. No, although accepting the job means a positive surplus for Matt, still it’s not the
best option for him.
Sam owns a candy factory and hires workers in a competitive labor market to pack
cases of candy. The company’s weekly output of cases of candy varies with the number
of workers hired, as shown in the table:
The marginal product of the fourth worker is _______.
A. 110
B. 130
C. 140
D. 145