Long-run macroeconomic policies concentrate on:
A) minimizing fluctuations around potential GDP.
B) maximizing fluctuations around potential GDP.
C) incentives for increasing productivity and the potential output of the economy.
D) none of the above.
A decrease in price will result in an increase in total revenue if:
A) the percentage change in quantity demanded is less than the percentage change in
price.
B) the percentage change in quantity demanded is greater than the percentage change in
price.
C) demand is inelastic.
D) the consumer is operating along a linear demand curve at a point at which the price
is very low and the quantity demanded is very high.
If the percentage change in quantity demanded is greater than the percentage change in
price, we would say that over this range, demand is:
A) elastic.
B) unit elastic.
C) inelastic.
D) perfectly inelastic.
Which of the following would not be classified as an oligopolistic industry?
A) Defense contractors.
B) The recorded music industry.
C) The tobacco industry.
D) The women’s clothing industry.
All of the following are characteristics of long-run equilibrium for firms in a
monopolistically competitive market except:
A) price equals marginal cost.
B) price equals average total cost.
C) marginal cost equals marginal revenue.
D) price exceeds the minimum of average total cost.
An index, based on a telephone survey of 500 households conducted by the University
of Michigan, that measures households’ attitudes regarding expected business
conditions, personal financial conditions, an consumer confidence about purchasing
furniture and major household appliances is called the:
A) Consumer Sentiment Index.
B) Consumer Confidence Index.
C) Consumer Satisfaction Index.
D) Consumer Consumption Index.
Assume a change in price causes the price elasticity of demand for a good (in absolute
value) and marginal revenue to decrease. In this case we can conclude that the price of
the good was:
A) increased.
B) held constant.
C) decreased.
D) cannot be determined.
A decrease in efficiency would shift the long-run aggregate supply curve:
A) rightward.
B) leftward.
C) no shift.
D) none of the above.
An implicit cost is defined as:
A) the opportunity cost of using a resource that is not explicitly paid out by the firm.
B) the difference between an input’s explicit cost and its actual cost.
C) the amount by which economic profit exceeds accounting profit.
D) the amount by which the money spent on an input to production exceeds its
opportunity cost.
When a firm is producing at the profit maximizing level of out put and P > ATC, the
firm is:
A) breaking even.
B) incurring an economic loss.
C) earning an economic profit.
D) earning a profit or incurring a loss depending on the level of total fixed costs.
For the firm in Figure 8.1, the profit-maximizing (loss-minimizing) price and level of
output are:
A) P2 and Q2.
B) P1 and Q1.
C) P4 and Q1.
D) P3 and Q1.
Which of the following is not a determinant of a firm’s cost functions?
A) The production function.
B) The price of labor.
C) The productivity of the firm’s capital stock.
D) The price of the firm’s output.
The situation in which a firm is able to charge the maximum price consumers are
willing to pay for each unit of output the firm sells is referred to as:
A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) fourth-degree price discrimination.
Suppose the price of movies seen at a theater rises from $12 per couple to $20 per
couple. The theater manager observes that the rise in price causes attendance at a given
movie to fall from 300 persons to 200 persons. What is the arc price elasticity of
demand for movies?
A) 0.5
B) 0.8
C) 1.0
D) 1.2
The difference between personal income and disposable income is:
A) corporate taxes
B) personal taxes
C) savings
D) none of the above
The “law of diminishing marginal returns” applies to:
A) the short run, but not the long run.
B) the long run, but not the short run.
C) both the short run and the long run.
D) neither the short run nor the long run.
Which of the following is not an option for a perfectly competitive firm in the short
run?
A) Increase its level of production.
B) Decrease its level of production.
C) Shut down.
D) Exit the market altogether.
Which of the following statements regarding OPEC is false?
A) Because it sells a homogeneous product, since its formation in 1960 OPEC has been
the clear leader when it comes to determining the price of crude oil.
B) OPEC’s membership includes countries from the Middle East, Africa, and South
America.
C) Over time, OPEC’s ability to control the price of oil has been constrained by changes
in consumer demand and increased production of oil by non-member countries.
D) The cartel has not always been successful when it comes to preventing individual
members from cheating on the agreed upon production quotas.
Assume the supply function for good X can be written as Qs = -100 + 27Px – 5Py –
1.8W, where Px = the price of X, Py = the price of good Y, and W = Wage index for
workers in industry X. According to this equation:
A) X and Y are substitutes in production.
B) X and Y are complements in production.
C) a decrease in wages would cause a decrease in the quantity supplied at each price.
D) each one unit increase in price causes quantity supplied to increase by 73 units.
Industry X, which is perfectly competitive, is in long-run equilibrium. Assume a new
law is passed that requires employers in industry X to provide health insurance to
previously uninsured employees. As a result of this new requirement we would expect
to observe:
A) a decrease in price and an increase in total output in industry X.
B) a decrease in price and total output in industry X.
C) an increase in price and a decrease in total output in industry X.
D) an increase in price and total output in industry X.
An index based on a mail survey of 5,000 households by the Conference Board that
measures households’ perceptions of general business conditions, available jobs in the
households’ local area, and expected personal family income in the coming six months
is called the:
A) Consumer Sentiment Index.
B) Consumer Confidence Index.
C) Consumer Satisfaction Index.
D) Consumer Consumption Index.
An increase in price will result in no change in total revenue if:
A) the percentage change in price is large enough to cause quantity demanded to fall to
zero.
B) the coefficient of elasticity is equal to zero.
C) the percentage change in quantity demanded is equal to the percentage change in
price (in absolute values).
D) the demand function is perfectly elastic.
Assume the government decides to impose a per-unit tax on a good produced in a
perfectly competitive market.
a. Graphically illustrate the short-run effects of the tax on the cost conditions faced by a
representative firm in the market.
b. Explain the adjustment process to long-run equilibrium in the market. What has
happened to long-run equilibrium price and output as a result of the tax? What has
happened to the number of firms in the market? Why?
A goal of expansionary monetary policy is to:
A) decrease the rate of growth of real GDP.
B) increase the rate of growth of real GDP.
C) increase inflation.
D) none of the above.
Suppose the demand for meals at a medium-priced restaurant is elastic. If the
management of the restaurant is considering raising prices, it can expect a relatively:
A) large decrease in quantity demanded.
B) large decrease in demand.
C) small decrease in quantity demanded.
D) small decrease in demand.
The legislation that made all depository institutions regardless of Federal Reserve
membership subject to the reserve requirements established by the Fed is called the:
A) Glass-Steagall Act.
B) McFadden Act.
C) Monetary Control Act of 1980.
D) none of the above
File-sharing programs such as Napster, Kazaa, and iMesh make it possible for
individuals to exchange music files over the Internet. On September 3, 2003, Universal
Music Group announced plans to reduce the wholesale price of music CDs it distributes
by an average of 25-30 percent. Which of the following statements is correct regarding
the combined effects of the development of file-sharing programs and Universal Music
Group’s price change in the market for new music CDs?
A) The equilibrium quantity of CDs would increase; the effect on equilibrium price is
uncertain.
B) The equilibrium quantity of CDs would decrease; the effect on equilibrium price is
uncertain.
C) The equilibrium price of CDs would increase; the effect on equilibrium quantity is
uncertain.
D) The equilibrium price of CDs would decrease; the effect on equilibrium quantity is
uncertain.
The value of currently produced final goods and services measured in constant prices is
called:
A) real GDP.
B) nominal GDP.
C) imputed values.
D) inflation.
A common theme in the discussions of the airline, soft drink, doughnut, and express
delivery industries is that oligopolistic firms tend to compete:
A) strictly on the basis of price and nothing else.
B) strictly on the basis of cost minimization.
C) primarily on the basis of product differentiation and price.
D) primarily by erecting barriers into the market.
Suppose a monopolist is producing a level of output such that MR > MC. Which of the
following best describes what will happen as the firm moves to its profit-maximizing
equilibrium?
A) Marginal revenue will rise and marginal cost will fall.
B) Marginal cost and marginal revenue will both rise.
C) Marginal revenue will fall and marginal cost will rise.
D) Marginal cost and marginal revenue will both fall.
In order for “limit pricing” to be effective, the firm practicing such a strategy must be
able to charge a price that is:
A) lower than the potential entrant’s ATC but greater than the firm’s own ATC.
B) greater than the potential entrant’s ATC but lower than the firm’s own ATC.
C) lower than the potential entrant’s ATC but greater than the firm’s own AVC.
D) greater than the potential entrant’s ATC but lower than the firm’s own AVC.
Assume the auto market is initially in equilibrium with imports from Japan taking up a
significant share of the market. Now assume a quota on imports of Japanese cars is
established. What will occur at the initial equilibrium price to signal market participants
regarding the change that has taken place?
A) A surplus is created by an increase in supply.
B) A surplus is created by a decrease in demand.
C) A shortage is created by an increase in demand.
D) A shortage is created by a decrease in supply.
In year one, the GDP deflator is 100 and in year two 110. If nominal GDP in year two is
$300 billion, what is real GDP for year two?
A) $200 billion.
B) $100 billion.
C) $272.73 billion.
D) $220 billion.