1) If the demand for a product produced by an input decreases, the demand for the input
will also decrease.
2) The basic function of profits and losses is to allocate society’s scarce resources to
their highest valued uses.
3) Behavioral economics demonstrates that the threat of rejection makes people less
likely to engage in transactions.
4) According to the circular flow model of the market system, when resource-owners’
money income is rising, then the costs to business firms must be falling.
5) Precommitments are a tool designed to overcome time inconsistency.
6) The monopsonist in a nonunionized labor market pays a wage rate below the MRP of
labor.
7) During the Great Depression, most nations lowered tariffs and abolished import
quotas to encourage the flow of trade.
8) If the XYZ Company can sell 4 units per week at $10 per unit and 5 units per week
at $9 per unit, the marginal revenue of the fifth unit is $5.
9) Logrolling can either increase or diminish economic efficiency.
10) In the short run a pure monopolist will maximize profits by producing at that level
of output where the difference between price and average total cost is at a maximum.
11) The greater the ease of shifting resources from product X to product Y in the
production process, the greater is the elasticity of supply of product Y.
12) If farm state legislators support the food-stamp program to aid the urban poor and
urban state legislators in turn support farm subsidies, this is an example of:
A.the special-interest effect.
B.political logrolling.
C.the paradox of voting.
D.cost-benefit analysis.
13) That people tend to hold on to shares of stock well past the point where it makes
sense to sell those shares can be explained in part by the:
A.Anchoring effect
B.Endowment effect
C.Status quo bias
D.Confirmation bias
14) Long-run equilibrium for a monopolistically competitive firm where economic
profits are zero results from:
A.rising marginal costs.
B.a perfectly elastic product demand curve.
C.relatively easy entry.
D.product differentiation and development.
15) Use the labor demand data on the left and the labor supply data on the right in
answering the following question:
On the basis of the given information, we:
A.can say that the labor supply curve facing the firm is nonexistent.
B.cannot say whether the firm’s product market is purely or imperfectly competitive.
C.can say that the firm is selling its product in a purely competitive market.
D.can say that the firm is selling its product in an imperfectly competitive market.
16) Higher interest rates will, all else equal:
A.increase the extraction cost of a resource.
B.increase the user cost of extracting a resource.
C.reduce the user cost of extracting a resource.
D.have no impact on either the user cost or extraction cost of a resource.
17) An important similarity between a monopolistically competitive firm and a pure
monopolist is that both:
A.realize an economic profit in the long run.
B.achieve allocative efficiency.
C.face demand curves that are less than perfectly elastic.
D.achieve productive efficiency.
18) David Ricardo, a nineteenth-century economist, wrote, “The price of corn is high
not because a rent is paid, but a rent is paid because the price of the corn is high.”
Which of the following correctly explains Ricardo’s assertion?
A.The high rents landowners charge tenant farmers cause high corn prices
B.If landowners weren’t so greedy and lowered the rents they charge tenant farmers, the
price of corn would fall
C.If the price of corn rises because of increased demand for corn, land rents will rise to
absorb most of the extra revenue received by tenant corn farmers
D.If the price of corn rises, all other things being equal, increases in rent will cause
some tenant farmers to stop growing corn
19) An effective price floor will:
A.force some firms in this industry to go out of business.
B.result in a product surplus.
C.result in a product shortage.
D.clear the market.
20) If a firm finds that it can sell $13,000 worth of a product when its price is $5 per
unit and $11,000 worth of it when its price is $6, then:
A.the demand for the product is elastic in the $6-$5 price range.
B.the demand for the product must have increased.
C.elasticity of demand is 0.74.
D.the demand for the product is inelastic in the $6-$5 price range.
21) Use the following graph to answer question about the labor resource market faced
by producers of good X:
Refer to the above graph. What will shift D1 to D2?
A.A decrease in the price of labor
B.A decrease in demand for good X
C.An increase in the price of a complementary input
D.An increase in the price of good X
22) If an American can purchase 40,000 British pounds for $90,000, the dollar rate of
exchange for the pound is:
A.$0.44
B.$0.23
C.$2.25
D.$2.00
23)
Refer to the labor market diagram where D is the labor demand curve, S is the labor
supply curve, and MRC is the marginal resource (labor) cost curve. An inclusive union
could increase the level of employment above that which the monopsonist would
provide if it could get the monopsonist to agree to any wage rate:
A.below $7.
B.between $5 and $8.
C.above $5.
D.above $8.
24) Remittances of Mexican workers in the U.S. to their families in Mexico are
included in the U.S. balance of payments as a debit in the section on:
A.Trade in services
B.Net international transfers
C.Financial accounts
D.Capital accounts
25) Describe the current status of unions in the United States and the major union
organization.
26) Define international trade and international financial transactions. Give an example
of each one.
27) Use prospect theory to explain why a cereal maker faced with a cost increase would
prefer to reduce the size of the box of cereal rather than increase its price to offset the
cost increase.
28) In the short run, a monopolistically competitive firm calculates that marginal cost is
$6.00, average total costs are $4.00, and marginal revenue is $3.00. The firm is
charging a price of $6.00 and producing 200 units of output. How much profit is the
firm making? What output recommendation would you make as the company
economist?
29)
30) When asked what the capital of Illinois is, many people respond Chicago. Use
behavioral economics to explain this response.