Which of the following transactions would increase GDP?
a. a new tricycle purchased at a department store sale by the parents of a three-year-old
child
b. the retirement check your uncle received for spending 25 years in the Marine Corps
c. the five shares of Microsoft stock your grandparents gave you for making an A in
economics
d. the $200 you lost when your wallet was stolen
A cold spell in Florida extensively reduced the orange crop, and as a result, California
oranges commanded a higher price. Which of the following statements best explains the
situation?
a. The supply of Florida oranges fell, causing the supply of California oranges to
increase as well as their price.
b. The supply of Florida oranges fell, causing the supply of California oranges to
decrease and their price to increase.
c. The supply of Florida oranges fell, causing their price to increase and the demand for
California oranges to increase.
d. The demand for Florida oranges was reduced by the freeze, causing an increase in the
price of California oranges and a greater demand for them.
Figure 17-9
Refer to Figure 17-9. The imposition of a tariff on carnations
a. increases the number of carnations imported by 100.
b. increases the number of carnations imported by 200.
c. decreases the number of carnations imported by 200.
d. decreases the number of carnations imported by 400.
An abnormally large grain crop due to highly favorable weather conditions in the
Midwest is an example of
a. a technological improvement that will increase long-run aggregate supply.
b. a supply shock that will increase short-run aggregate supply.
c. an unexpected development that will reduce the natural rate of unemployment.
d. an unexpected development that will lead to excess supply and widespread
unemployment.
If a firm in a competitive price-searcher market finds that its marginal revenue exceeds
its marginal cost at the current rate of output, it should
a. raise the price of the product and expand its output.
b. raise the price of the product and reduce its output.
c. lower the price of the product and expand its output.
d. lower the price of the product and reduce its output.
Which one of the following persons would be considered unemployed?
a. a person not working who has given up searching for a job
b. a part-time worker looking for a full-time job
c. a construction worker who was laid off due to cold weather
d. a full-time college student who is not a member of the labor force
Figure 11-11
According to the graph of an oligopolistic industry in Figure 11-11 (points Aand Clie on
the MCcurve), which of the following statements is correct?
a. With perfect collusion, price and outputs are indicated by point A.
b. Without collusion, price and outputs are indicated by point B.
c. With perfect collusion, price and outputs are indicated by point C.
d. With perfect collusion, price and outputs are indicated by point B.
Figure 2-3
Points A and B in Figure 2-3 indicate consumption and investment for two economies.
Other things constant, which of the economies is likely to grow more rapidly in the
future?
a. economy A
b. economy B
c. They can be expected to grow at the same rate.
d. This is uncertain since growth is not influenced by the factors indicated in this
example.
Restrictions that limit sugar imports, subsidies for the construction of sports stadiums,
and federal spending on programs like the construction of an indoor rain forest in Iowa
all provide examples of government programs
a. based on careful analysis of benefits relative to cost.
b. designed to redistribute income from the rich to the poor.
c. that reflect the political attractiveness of special-interest issues.
d. that promote the general welfare.
If the value of a country’s merchandise exports is less than the value of its merchandise
imports, it is said to have a
a. trade surplus.
b. trade deficit.
c. current account surplus.
d. capital account deficit.
The Earned Income Tax Credit
a. tends to increase income inequality.
b. is a program that provides additional income to workers with above-average
incomes.
c. tends to reduce income inequality.
d. is both a and b.
Use the figure below to answer the following question(s).
Figure 12-1
Refer to Figure 12-1. If the output of the economy is Y1, which of the following would a
Keynesian economist be most likely to favor?
a. a reduction in government expenditures
b. an increase in government expenditures
c. an increase in taxes
d. continuation of the current tax and expenditure policies
According to the law of supply, as the price of a good falls,
a. buyers will buy more of the good.
b. buyers will buy less of the good.
c. sellers will produce more of the good.
d. sellers will produce less of the good.
Todd owns a truck that he values at $2,000. Susan, who does a lot of hauling, values the
truck at $6,000. If these two are allowed to negotiate, which of the following will most
likely occur?
a. Todd will sell the truck for $1,500.
b. Susan will buy the truck for $7,000.
c. The truck will be sold at a price greater than $2,000 but less than $6,000, and both
parties will benefit.
d. Susan will benefit more than Todd if the truck is sold.
Suppose the demand curve for a good is highly elastic and the supply curve is highly
inelastic. If the government taxes this good,
a. buyers and sellers will each share 50 percent of the burden, regardless of the
elasticities of the demand and supply curves.
b. sellers will bear a larger share of the tax burden.
c. the distribution of the burden will depend upon whether the buyers or the sellers are
required to send the tax to the government.
d. buyers will bear a larger share of the tax burden.
Economic analysis suggest that in a competitive market economy, when an entrepreneur
has made a large profit,
a. consumer benefits must have been reduced by at least the amount of the profit.
b. other producers have lost profits of the same size.
c. economic progress for society as a whole has normally been enhanced.
d. luck or chance, rather than productive activity, has nearly always been the largest
factor.
The “free rider problem” occurs in connection with
a. private goods.
b. both public and private goods.
c. goods that are not scarce.
d. public goods.
Suppose a U.S. automotive manufacturer was considering moving to Mexico to take
advantage of the lower wage rates for unskilled Mexican labor. The typical Mexican
worker could produce 20 cars per day, while the firm’s typical U.S. worker can produce
50 cars per day. If the firm currently pays its U.S. workers an hourly wage of $25,
economic theory suggests that the firm should
a. move to Mexico if the Mexican hourly wage is less than $25.
b. move to Mexico if the Mexican hourly wage is $15.
c. move to Mexico if the Mexican hourly wage is $12.
d. only move to Mexico if the Mexican hourly wage is less than $10.
The spillover effects of actions that affect the well-being of nonconsenting third parties
are called
a. side components.
b. externalities.
c. free riders.
d. internalizations.
Which of the following will most likely occur during the expansionary phase of a
business cycle?
a. Real GDP declines, and the rate of unemployment increases.
b. Real GDP declines, and the rate of inflation is unchanged.
c. Real GDP increases, and rate of unemployment falls.
d. Real GDP is unchanged, and the rate of inflation is unchanged.
If a firm has a U-shaped long-run average cost curve,
a. its fixed cost rises as output rises.
b. it must have increasing returns to scale at low levels of production and decreasing
returns to scale at high levels of production.
c. it must have increasing returns to each input at low levels of production and
decreasing returns to each input at high levels of production.
d. the firm can maximize its output by operating at the point of minimum long-run
average cost.
Rent control applies to about two-thirds of the private rental housing in New York City.
Economic theory suggests that the below-equilibrium prices established by rent controls
would
a. create a surplus of rental housing.
b. promote a rapid increase in the future supply of housing.
c. result in poor service and quality deterioration of many rental units.
d. lead to a reduction in housing discrimination against minorities.
Use the production possibilities data below to answer the following question(s).
Table 2-3
Refer to Table 2-3. The opportunity cost of 1 pound of potatoes for the rancher is
a. 5 hours of labor.
b. 4 hours of labor.
c. 5/4 pounds of meat.
d. 4/5 pound of meat.
In the midst of the Great Depression in 1932, Congress and the Hoover administration
increased tax rates substantially. According to the Keynesian view, this tax increase was
a. inappropriate because it would depress economic activity and lead to further
increases in unemployment.
b. appropriate because it would lead to a significant increase in the money supply and,
thereby, increase employment.
c. inappropriate because it would decrease the money supply and, thereby, prolong the
Depression.
d. appropriate because it would stimulate economic activity and help end the
Depression.
Laqueta buys a new GPS device for her car for $135. She receives consumer surplus of
$25 on her purchase if her willingness to pay is
a. $25.
b. $110.
c. $135.
d. $160.
The stability of consumption over the business cycle and the ability of changes in the
real interest rate to redirect aggregate demand indicate that
a. government policy can improve the performance of the economy.
b. market economies are inherently unstable.
c. a market economy has a self-correcting mechanism that will help guide it toward full
employment.
d. recessions will be lengthy, and high rates of unemployment will persist for a period
of time even after the economy recovers.
Compared to other investments such as bonds, historically a diverse set of stocks held
over a lengthy time period (for example, 30 or 40 years) has yielded a
a. low average real rate of return, and the variation in that return has been extremely
high.
b. high average real rate of return, and the variation in that return has been relatively
small.
c. low average real rate of return, and the variation in that return has been relatively
small.
d. high average real rate of return, and the variation in that return has been extremely
high.
The major determinant of an individual’s income is
a. whether or not her family is wealthy.
b. how well she gets along with her co-workers and boss.
c. how productive she is combined with demand for what she produces.
d. how much she enjoys the work.
The classic resource study of Barnett and Morse found that
a. resource costs have been rising at such a rate that, within fifty years, the prices of
most natural resources will be exorbitant.
b. the current proved reserves of most minerals are becoming perilously low.
c. resource prices declined between 1870 and 1920, but since 1920 the relative price of
natural resources has been increasing at an annual rate of approximately 3.5 percent.
d. technology and developing substitutes outran our use of scarce natural resources
during the last century, so that relative resource prices have declined.
The basic ingredients in any economic decision are
a. scarcity and choice.
b. surpluses and shortages.
c. market prices and the use of efficient production methods.
d. needs and wants.
The only two options to control the growth of healthcare spending are
a. price controls and political rationing or competition and market prices.
b. taxation or political mandates.
c. subsidizing of healthcare insurance or government provision of healthcare.
d. free healthcare or subsidized healthcare.
The graph below depicts the cost structure for a firm in a competitive market.
Figure 9-13
Refer to Figure 9-13. When price falls from P3to P1, the firm finds that
a. fixed cost is higher at a production level of Q1 than it is at Q3.
b. it should produce Q1 units of output.
c. it should produce Q3 units of output.
d. it should shut down immediately.
A local restaurant offers an “all you can eat” buffet for $15. Mia eats four servings but
leaves half of a fifth helping uneaten. Why?
a. Her marginal value of a serving of brunch has fallen below $15.
b. Her marginal value of a serving has fallen below $3 ($15 divided by 5 servings).
c. Her marginal value of food has fallen to zero.
d. The total value she places on the buffet exactly equals $15.
Which of the following is a key characteristic of economic freedom?
a. subsidies and regulations that favor business
b. central planning
c. reliance on open markets
d. import quotas that protect domestic businesses from rivals