Smith and Jones comprise a two-person economy. Their hourly rates of production are
shown below.
Refer to the table above. If Smith and Jones are dividing their time efficiently and
producing fewer than 10 computers and more than 120 calculators per hour, Smith will
__________ and Jones will __________.
A. split his time between the two; produce only calculators
B. split his time between the two; split his time between the two
C. produce only calculators; produce only computers
D. produce only computers; produce only calculators
An action that makes otherwise empty threats or promises credible is called a:
A. Nash equilibrium.
B. commitment device.
C. strategic device.
D. dominant strategy.
Saving $100 will:
A. increase wealth by $100.
B. increase wealth by $100 only if the $100 is used to purchase an asset.
C. increase wealth by $100 only if the $100 is used to repay a debt.
D. decrease wealth by $100.
Which of the following investments is an example of a positional arms race?
A. Watching your friend training for a Big East football game
B. Renting movies for the weekend
C. Studying hard for the economics test because the professor grades on a curve
D. Playing golf for fun
If the elasticity of demand for the latest American Idol CD is 1.4, this means:
A. few substitutes exist.
B. a 1% increase in the price leads to a 14% reduction in quantity demanded.
C. a 10% decrease in the price leads to a 140% increase in quantity demanded.
D. a 5% increase in the price leads to a 7% decrease in quantity demanded.
Private saving is positive when:
A. there is a government budget surplus.
B. there is a government budget deficit.
C. the government’s budget is balanced.
D. after-tax income of households and businesses is greater than consumption
expenditures.
If household saving decreases by $4 million, business saving increases by $4 million,
and the government budget deficit decreases by $4 million, then private saving ______
and public saving ______.
A. increases; increases
B. increases; decreases
C. does not change; increases
D. does not change; decreases
The Governor of your state has cut the budget for the University and increased
spending on Medicaid. This is an example of:
A. the pitfalls of considering average costs instead of marginal costs.
B. poor normative economic decision making.
C. poor positive economic decision making.
D. choice in the face of limited resources.
The two most important factors contributing to increased productivity in industrialized
countries in the twentieth century were:
A. higher relative prices and a larger labor supply.
B. higher relative prices and technological progress.
C. technological progress and increases in the capital stock.
D. technological progress and increases in the labor supply.
This graph shows the marginal costs and marginal benefits associated with roadside
litter clean up. Assume that the marginal cost and marginal benefit curves slope in the
usual directions.
Refer to the information given above. The marginal cost of removing litter _______ due
to the principle of ____________.
A. decreases; gains from specialization
B. increases; the Coase Theorem
C. increases; low-hanging fruit
D. decreases; diminishing returns to inputs
Refer to the figure above. What is the equilibrium quantity of bananas in this market?
A. 0
B. 3 pounds/day
C. 4 pounds/day
D. 5 pounds/day
At the beginning of the fall semester, college towns experience large increases in their
populations, causing a(n):
A. decrease in the quantity of apartments demanded.
B. increase in the supply of apartments.
C. increase in the demand for apartments.
D. decrease in the quantity of apartments supplied.
When a slice of pizza at the student union sold for $2, Moe did not purchase any. When
the price fell to $1.75, Moe purchased a slice each day for lunch. Moe’s reservation
price for a slice of pizza must be:
A. less than $1.75.
B. at least $1.75 but less than $2.
C. exactly $1.75.
D. exactly $2.00.
This graph shows the marginal costs and marginal benefits associated with roadside
litter clean up. Assume that the marginal cost and marginal benefit curves slope in the
usual directions.
Refer to the information given above. Picking up the 20th bag of litter would:
A. be efficient.
B. increase total economic surplus.
C. create deadweight loss.
D. be socially efficient, but would not be consistent with following self-interest
motives.
Early settlers in the town of Dry Gulch drilled wells to pump as much water as they
wanted from the single aquifer beneath the town. (An aquifer is an underground body of
water.) As more people settled in Dry Gulch, the aquifer level fell and new wells had to
be drilled deeper at higher cost.
Refer to the information given above. The town council has proposed putting a meter
on each household’s pump, and charging residents for each gallon of water used. This
would:
A. not change water use.
B. price an un-priced resource, increasing incentives to avoid wasting water.
C. convert private property to public property.
D. reduce total economic surplus.
A country’s actual output ______ potential output.
A. can never exceed
B. can never be below
C. can temporarily exceed
D. will always be approximately equal to
The optimal amount of workplace safety is the amount
A. that results in zero injuries.
B. that results in a 50% reduction in injuries.
C. at which the total benefits of safety equal the total costs of providing a safe
environment.
D. at which the marginal benefits of increased safety equal the marginal costs.
This phone center uses only equipment and workers to provide service.
Assuming equipment costs $10 per unit and each worker earns $5, Average Variable
Costs are minimized when output is approximately
A. 3 units.
B. 8 units.
C. 11 units.
D. 12 units.
Peg’s Manicure Manor did 4,000 sets of nails in 2010 and 4,500 sets of nails in 2011.
The price of a set of nails was $20 in 2010 and $22 in 2011. If 2010 is the base year,
Peg’s contribution to real GDP in 2010 was ______ and in 2011 was _____.
A. $80,000; $88,000
B. $80,000; $90,000
C. $80,000; $99,000
D. $88,000; $90,000
Lou’s college bookstore carries all of the texts required for every class, organized by
course number. Lou went over to the bookstore to see what was required, added up the
costs of those texts and found that they will cost a total of $500 this semester. Identical
books are available online for a total of $400. Lou decides to order all of the books
online.
When Lou buys books online Lou is
A. generating deadweight loss.
B. violating antitrust laws.
C. free-riding.
D. defrauding the bookstore.
In the presence of free riders, the equilibrium allocation of any good will be
A. more than optimal.
B. zero.
C. optimal.
D. less than optimal.
According to Professor Rawls, if income was given to a group of people and those
people had no idea of their talents, they would likely prefer an income distribution that
rewarded
A. innovation.
B. high I.Q.
C. artistic gifts.
D. everyone with an equal share of income.
Which of the following is most likely to occur in the labor market during a recession?
A. The growth rate of real wages declines.
B. Bonuses and promotions become more frequent.
C. New entrants to the labor market have an easier time finding jobs.
D. The supply of labor increases dramatically.
If the slope of the demand curve is -1.4, price is $5 and quantity demanded is 13 units,
the price elasticity of demand is:
A. 0.27.
B. 0.38.
C. 1.4.
D. 1.8.
Slower growth in labor demand in combination with increases in labor supply explains
____________ accompanied by __________.
A. a slowdown in real wage growth; a decline in employment
B. a slowdown in real wage growth; rapid employment growth
C. a slowdown in real wage growth; increasing wage inequality
D. accelerated real wage growth; a decline in employment
Laura’s total utility from consuming 8, 9, and 10 bonbons is 35, 42, and 45,
respectively. Her marginal utility from the 9th bonbon is
A. 42
B. 77
C. 7
D. 4.67
Aaron’s neighbor Cliff keeps his front yard well-manicured and plants beautiful flowers
which Aaron enjoys. If local law prevents Cliff from fencing his yard, the beauty of
Cliff’s front yard is
A. nonrival.
B. a private good.
C. nonexcludable.
D. bothnonrival and nonexcludable.
In order to promote growth through increased quantities of physical capital,
governments must promote:
A. a better educational system.
B. job training programs.
C. high rates of saving and investing.
D. funding for basic science.
In the Keynesian model, it is assumed that, when demand for a firm’s product changes,
the firm:
A. changes prices to meet the demand.
B. changes production levels to meet the demand.
C. changes prices and production levels to meet demand.
D. changes prices, but hold production levels constant to meet the demand.
Refer to the figure above. At P = 4, the price elasticity of demand measured for:
A. D1 will be equal to the price elasticity of demand for D2.
B. D1 will be greater than the price elasticity of demand for D2.
C. D1 will be less than the price elasticity of demand for D2.
D. both D1 and D2 will be greater than one.
Moe divides his time between studying Physics and studying Economics. He has
discovered that he can earn grades as shown on this production possibilities curve.
Refer to the figure above. Moe’s PPC is bowed out because:
A. he is better at physics than at economics.
B. his studying is subject to the principle of increasing opportunity costs.
C. he is better at economics than at physics.
D. he has failed to take advantage of his comparative advantage.
To produce 150 units of output, the firm must use 3 employee-hours. To produce 300
units of output, the firm must use 8 employee-hours. Apparently, the firm is:
A. in the long run.
B. experiencing diminishing marginal returns.
C. not using any fixed factors of production.
D. failing to profit maximize.
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 marginal product of the third worker is __________ than the marginal product of
the second worker which means __________.
A. greater; diminishing returns are absent
B. less; diminishing returns are present
C. neither greater nor less; the third worker will be hired
D. less; the third worker will never be hired
If commercial banks are maintaining a 5 percent reserve/deposit ratio and the Fed
lowers the required reserve ratio to 3 percent, then banks may ______ their loans and
deposits, and the money supply may _____.
A. increase; increase
B. increase; decrease
C. decrease; increase
D. decrease; decrease
When economists use standard supply and demand theory, they are assuming that the
supply curve describes:
A. all firms.
B. firms that operate in perfectly competitive markets.
C. firms that face perfectly elastic supply.
D. Firms in the short run.