The elasticity of a straight-line demand curve is the same as its slope.
a. True
b. False
The marginal revenue curve for a monopolist is the same as its demand curve.
a. True
b. False
Table 22-2
Using the data from Table 22-2, suppose England transfers 2 units of labor from wine to
cloth and Portugal transfers 1 unit from cloth to wine. The combined production of
wine and cloth will be increased by
a. 16 wine, 8 cloth.
b. 16 wine, 16 cloth.
c. 12 wine, 12 cloth.
d. 8 wine, 16 cloth.
The host at a party offers Justin a sixth beer. Justin says, “No thanks, man. The marginal
utility of that fifth beer was, like, 20 cents, but the marginal utility of the sixth would be
minus 10 cents.” From his comments, we deduce that Justin
a. is an alcoholic.
b. may think that a sixth beer would make him sick.
c. is irrational.
d. wrongly estimates the marginal utility of the fifth beer.
Fiat money is money
a. backed by land.
b. backed by gold or silver.
c. that can be converted to gold or silver.
d. because a government says it is.
If total spending exceeds total output, then
a. inventory levels will rise.
b. inventory levels will remain constant.
c. inventory levels will fall.
d. output will eventually decrease.
The principal way in which an economy self-corrects from an inflationary gap is
through
a. deflation, which increases purchasing power.
b. inflation, which reduces purchasing power.
c. disinflation, which maintains purchasing power.
d. price level decreases, which stimulate production.
In the U.S. the percentage of the population that directly encounters poverty is
exceedingly high.
a. True
b. False
An oligopoly firm with a differentiated product will generally earn the largest profits
without advertising.
a. True
b. False
Which of the following occurs when party A would like to change his behavior if party
B would change hers, and vice versa, and yet the two changes do not take place because
the decisions of A and B are made independently?
a. Moral hazard
b. Coordination failure
c. Leakage
d. Lemon problem
The simplest economic definition of discrimination is
a. prejudice.
b. unequal pay for equal work.
c. a dislike by one group of associating with another group.
d. unequal pay for unequal work.
The theory of consumer choice is based on the hypothesis that each consumer wants to
a. maximize her total utility.
b. maximize her marginal utility.
c. minimize the rate at which her marginal utility diminishes.
d. minimize the percentage of her consumption diverted to inferior goods.
Both monetary policy and fiscal policy were used in response to the recession of
2007-2009.
a. True
b. False
In 2011, which country had the highest level of GDP per hour of work?
a. Spain
b. the United Kingdom
c. France
d. Japan
Although it is possible to determine the present value of a payment to be received in
one year, it is not possible to determine the present value of a stream of payments over
several years.
a. True
b. False
Marginal land is land on the borderline of
a. producing revenue.
b. being used profitably.
c. producing economic rent.
d. a facility that produces output.
All increases in the level of human capital take place in schools.
a. True
b. False
If total profit is at a maximum, then average profit is zero.
a. True
b. False
Public goods could effectively be provided by private markets, but we choose to
provide them through government.
a. True
b. False
Most state governments finance their budgets through ____, and most local
governments finance their budgets through ____.
a. income taxes; property taxes
b. property taxes; sales taxes
c. sales taxes; property taxes
d. income taxes; sales taxes
Regarding U.S. health care costs, it is correct to say that:
a. Americans pay more for health care than people in other developed countries.
b. U.S. health care costs are growing faster than the growth in other countries.
c. The level of health care costs are the source of fiscal pain that societies around the
globe are experiencing.
d. All of these statements are true.
Figure 22-7
In Figure 22-7, AB represents the production possibilities of Pestoland and CD that of
Pastaland. The graph indicates Pestoland has an absolute
a. advantage in both pesto and pasta.
b. and comparative advantage in both pesto and pasta.
c. advantage in both goods, but a comparative advantage only in pesto.
d. advantage in pesto only and a comparative advantage only in pasta.
Explain whether the market produces too little, too much, or the right amount: (a) of
goods with detrimental externalities; (b) of goods with public good characteristics.
Most older persons regularly spend more than their current disposable income. How is
this possible?
a. They receive government transfer payments.
b. They work to supplement their retirement income.
c. They borrow and increase their debt levels.
d. They withdraw funds from accumulated wealth.
The type of currency in circulation in the modern U.S. economy is almost entirely
a. commodity money.
b. metallic money.
c. fiat money.
d. silver certificates.
Policies that redistribute income
a. reduce the rewards of high-income earners.
b. raise the rewards of low-income earners.
c. reduce the incentive to earn high income.
d. All of the above are correct.
Why do economists think that the structural deficit is a good measure of the direction of
fiscal policy?
a. Because it adjusts over the business cycle, and reflects the fiscal stimulus of policy.
b. Because it changes when policy changes, rather than when the economy changes.
c. Because it changes when monetary policy changes, reflecting the interest rate cost of
debt.
d. Because it adjusts automatically, rather than requiring specific legislation.
While demand shifts have an effect on equilibrium price and quantity, supply shifts
have no such effect.
a. True
b. False
Purchasing power parity explains how the exchange rate will adjust to differences in
price levels between two countries.
a. True
b. False
Unlimited liability is a distinct advantage of the proprietorship.
a. True
b. False
Figure 3-2
In Figure 3-2, a point such as D
a. can be obtained through new technology.
b. can never be obtained.
c. can only be obtained by a capitalist society.
d. represents a misallocation of resources.
The saving rate in the United States fell to nearly zero in the early 2000s. One of the
contributing factors to this development was the
a. decrease in consumer confidence in the late 1990s.
b. declining real incomes of most American households.
c. increased housing wealth.
d. rising real interest rates in the United States.
Using only marginal revenue and marginal cost, we can determine whether a firm is
incurring a profit or a loss.
a. True
b. False
The main reason that the 1975, 2008, and 2009 tax cuts did not have a large effect on
GDP is that they were
a. temporary surcharges rather than permanent surcharges.
b. permanent surcharges rather than temporary surcharges.
c. temporary tax cuts rather than a permanent tax cuts.
d. permanent tax cuts rather than a temporary tax cuts.
The wealthy nations of the world have
a. the largest populations.
b. more supplies of natural resources.
c. more supplies of capital.
d. larger labor forces.
Explain how derivates were used to increase risk making the financial crisis of
2007-2009 more severe.
What is the marginal propensity to consume (MPC) and why is it important in
predicting consumer behavior?
What is the rule for efficient output selection and how does the competitive market
achieve it?
What rule(s) should a firm follow in deciding optimum output for profit maximization?
How might a market research analyst use measures of elasticity-price, cross, and
income-in her work? Explain.
Unscrupulous managers have learned ways to manipulate stock options and undermine
their benefits to stockholders. Discuss some provisions that could be built into the
process to curb such practices.
What is a barter system? What are the drawbacks of this system?
Explain how “herd behavior” affects the stock market, and contributes to recession.
Explain why some argue that income tax loopholes primarily benefit the rich.
How would you interpret (1) an upward sloping curve and (2) a zero slope curve in a
two variable diagram?
Why did President George W. Bush feel the need for a stimulus package for the U.S.
economy after September 11, 2001? As a conservative, what type of fiscal stimulus
would be most appealing to President Bush?
Some would cite the purchase of defective products and the rising cost of health care as
market failures. Argue that these are not true market failures.
What is the impact of expansionary fiscal policy on the exchange rate? Explain the
process through which expansionary fiscal policy affects the exchange rate
How does the monopolist calculate profit per unit, and total profit?
Distinguish between scarcity and shortage.
Explain the three growth-creating properties of innovation.
We don’t need to draw separate curves for demand, average revenue, and marginal
revenue curves for a perfectly competitive firm. Why?
Many Americans believe that taxes have been gobbling up an ever-increasing share of
the U.S. economy. Is this observation correct? Explain.
What makes production-planning a daunting task for central planners?
Suppose the economy is suffering in a recessionary period. Firms are facing increasing
inventories and individual consumers are increasing their saving to prepare for hard
times ahead. What is likely to happen to the economy and can it correct itself and grow
toward full employment in the short run?