Crony capitalism is present when
a. businesses are either implicitly or explicitly prohibited from making donations to
political candidates.
b. businesses either implicitly or explicitly provide political decision-makers with
contributions and other forms of political support in “exchange” for government favors
that will improve their profitability.
c. rule of law is present and government officials treat all citizens alike.
d. government officials spend taxpayer funds only on productive projects.
Economic theory
a. is a set of definitions, postulates, and principles assembled in a manner that helps
make cause-and-effect relationships clear in economics.
b. is like a guidebook in that it points out what to look for.
c. provides economists with a common language and way of thinking about how the
world works.
d. is all of the above.
Sophia has a business using no owned capital and makes an accounting profit of
$52,000 a year. Sophia could have worked for Verizon Wireless with a pay of $35,000 a
year, but she would not have had time to run her business. The economic profit from
Sophia’s business per year is
a. $87,000.
b. $35,000.
c. $17,000.
d. $17,000.
Figure 3-15
Refer to Figure 3-15. Which area represents producer surplus when the price is P1?
a. BCE
b. ACF
c. ABED
d. DEF
The economizing problem is essentially one of deciding how to make the best use of
a. limited resources to satisfy limited wants.
b. unlimited resources to satisfy limited wants.
c. limited resources to satisfy virtually unlimited wants.
d. unlimited resources to satisfy unlimited wants.
Figure 11-20
At the profit-maximizing level of production, the monopoly in Figure 11-20 will have a
a. profit per unit of output of $2.
b. loss per unit of output of $2.
c. loss per unit of output of $5.
d. profit per unit of output of $5.
e. loss per unit of output of $4.
Changes in government spending and/or taxes as the result of legislation, is called
a. open market operations of the Federal Reserve.
b. discretionary fiscal policy.
c. balanced budget operations.
d. discretionary monetary policy.
Which of the following is true?
a. Most stockholders own stock because they want to run the business.
b. The shareholders of a large well-established firm can be reasonably sure that they
will earn a real rate of return of about 7 percent in the future.
c. Ownership of a corporate bond provides the bondholder with an ownership right to a
fraction of the firm’s future profits.
d. Stock ownership makes it possible for investors to own a fractional share of a firm’s
future profits even if they do not participate in the operation of the firm.
When entry barriers are low, firms in a competitive price-searcher market
a. can expect many new rivals to enter regardless of current profitability.
b. can expect competing firms to enter the market if the activity is profitable.
c. can never earn economic profit.
d. will always be able to earn economic profit.
If a decision maker uses marginal analysis, then the relevant costs are the
a. full costs of a particular activity or product.
b. fixed costs which do not vary with the extra activity or output.
c. profits obtained on the activity or product.
d. average costs for a particular activity or product.
e. additional costs of a particular activity or product.
In a competitive price-taker market, the actions of any single buyer or seller will
a. have a negligible impact on the market price.
b. have little effect on overall production but will ultimately change final product price.
c. cause a noticeable change in overall production and a change in final product price.
d. adversely affect the profitability of more than one firm in the market.
When the monetary authorities expand the supply of money rapidly,
a. its purchasing power tends to increase.
b. holding money is a poor method of storing value.
c. the long-run sustainable real growth rate of the economy will tend to increase.
d. the prices of goods and services will generally decline.
A competitive price-searcher firm is currently producing 10 units of output. At this level
of output the firm is charging a price equal to $10, has marginal revenue equal to $6,
has marginal cost equal to $6, and has average total cost equal to $12. From this
information we can conclude that
a. the firm is currently earning zero profit.
b. the profits of the firm are negative.
c. firms are likely to enter this market in the long run.
d. the firm would earn more profit by reducing output.
When the government imposes a barrier to entry in a market,
a. more resources will be wasted by firms attempting to secure and maintain market
power.
b. the options available to consumers will increase in the protected market.
c. allocative efficiency will be improved by the reduction of wasteful competition.
d. consumers will be better able to direct the smaller number of producers to serve their
interests.
Because information is costly to acquire,
a. people will rationally choose not to become fully informed when making decisions.
b. people will generally choose to become as fully informed as possible when making
decisions.
c. people will generally choose to acquire no information that would be relevant to their
decisions.
d. none of the above are true.
Assume a certain competitive price-taker firm is producing Q = 1,000 units of output.
At Q = 1,000, the firm’s marginal cost equals $15 and its average total cost equals $11.
The firm sells its output for $12 per unit. At Q = 999, the firm’s total cost amounts to
a. $10,985.
b. $10,990.
c. $10,995.
d. $10,999.
Use the table below to choose the correct answer.
Table 7-7
Refer to Table 7-7. Gross domestic product equals
a. $3,700.
b. $3,900.
c. $4,080.
d. $4,480.
If the price level in the current period is lower than what buyers and sellers anticipated,
a. profit margins will be unattractive, and firms will expand output.
b. profit margins will be unattractive, and firms will reduce output.
c. profit margins will be attractive, and firms will expand output.
d. profit margins will be attractive, and firms will reduce output.
When the money supply is expanding and prices rise rapidly, economic growth
a. is slowed by the resulting unpredictability of the future level of prices.
b. is enhanced as economic activity grows more rapidly.
c. is enhanced because profits are higher so that capital investment is greater.
d. is enhanced because existing debt is reduced in value, so people are willing to buy
more goods.
Figure 4-25
Refer to Figure 4-25. After the tax is levied, consumer surplus is represented by area
a. A.
b. A + B + C.
c. D + E + F.
d. F.
If the resources of an economy are being used inefficiently, it would be
a. possible to increase production of all goods simultaneously.
b. possible to increase production of one good only if production decreased for the other
goods.
c. not possible to increase production of any good.
d. not possible to increase economic growth.
e. possible to increase production with no effort.
Use the figure below to answer the following question(s).
Figure 18-2
Figure 18-2 illustrates supply and demand for U.S. dollars and British pounds in the
foreign exchange market. Which of the following would cause the demand for foreign
exchange (pounds) to shift from D1 to D2?
a. an increase in the real interest rate in Britain relative to the United States
b. higher inflation in Britain than in the United States
c. higher income growth in Britain than in the United States
d. an increase in the number of British citizens vacationing in the United States
Which of the following will most likely result from an unanticipated decrease in
aggregate supply due to unfavorable weather conditions in agricultural areas?
a. a decrease in inflation
b. a decrease in unemployment
c. an increase in the general level of prices
d. an increase in the natural rate of unemployment
Physical and human capital investments are
a. different in that the opportunity for economic profit is present for physical capital but
not human capital decisions.
b. different in that human capital decisions do not involve future income considerations
while physical capital investments do.
c. similar in that non-pecuniary considerations do not influence the choices of
utility-maximizing decision makers in either case.
d. similar in that both involve forgoing current income (and consumption) with the
objective of increasing one’s future income (and consumption).
Figure 4-21
Refer to Figure 4-21. The per-unit burden of the tax is
a. $4 on buyers and $4 on sellers.
b. $5 on buyers and $5 on sellers.
c. $4 on buyers and $6 on sellers.
d. $6 on buyers and $4 on sellers.
If equilibrium is present in a market,
a. there is generally either a shortage or a surplus.
b. quantity demanded equals quantity supplied.
c. quantity demanded exceeds quantity supplied.
d. quantity supplied exceeds quantity demanded.
For a college student who wishes to calculate the true costs of going to college, the
costs of room and board
a. should be counted in full, regardless of the costs of eating and sleeping elsewhere.
b. should be counted only to the extent that they are more expensive at college than
elsewhere.
c. usually exceed the opportunity cost of going to college.
d. plus the cost of tuition, equals the opportunity cost of going to college.
According to the Austrian view of the business cycle, if expansionary monetary policy
pushes the interest rate to an artificially low level, the result will be
a. a long-term increase in output and employment.
b. malinvestment and an unsustainable economic boom, followed by a recession.
c. an increase in demand stimulus, that will expand employment and lead to a rapid
increase in long-term economic growth.
d. a temporary increase in the inflation rate, followed by a sustainable expansion in
output and employment.
Which of the following is true?
a. Human choice is generally not influenced by changes in incentives.
b. What is true for the individual must be true for the group as a whole.
c. Using scarce resources to meet one need reduces our ability to meet needs in other
areas.
d. The economic way of thinking stresses that good intentions usually lead to sound
economic policy.
In the context of aggregate supply, the short run is defined as the period during which
a. some prices are set by contracts and cannot be adjusted.
b. prices can change, but neither aggregate supply nor aggregate demand can shift.
c. individuals have sufficient time to modify their behavior in response to price
changes.
d. quantity changes cannot occur in response to changes in relative prices.