Andy is offered the following two income scenarios: (1) earn $10,000 the first year,
$12,000 the second year, and $15,000 the third year or (2) earn $15,000 the first year,
$12,000 the second year, and $10,000 the third year. Which is the rational option?
A. Option 1
B. Option 2
C. Neither even though option 2 is better than option 1
D. Neither; the options are the same
Answer:
The primary problem with heuristic models is that:
A. they are too deductive.
B. it is hard to test their validity.
C. they do not include enough mathematics.
D. they are not very convincing.
Answer:
A monopsonist facing many suppliers of labor will employ:
A. fewer workers than a firm operating in a perfectly competitive labor market.
B. the same number of workers as a firm operating in a perfectly competitive labor
market.
C. more workers than a firm operating in a perfectly competitive labor market.
D. an indeterminate number of workers.
Answer:
Why might the economy as a whole conform to the predictions of a model even if not
all people are rational?
A. The standard model doesn’t assume rationality.
B. People who are rational will profit from those who are not.
C. People who are irrational will profit from those who are not.
D. It won’t; for the standard model to work, all people must be rational.
Answer:
Refer to the graph shown, which depicts a perfectly competitive firm. When it is
maximizing profit, the total profit earned by the firm represented is:
A. $220.
B. $275.
C. $330.
D. $605.
Answer:
An import quota:
A. increases both domestic production and domestic prices.
B. increases domestic production and reduces domestic prices.
C. reduces domestic production and increases domestic prices.
D. reduces both domestic production and domestic prices.
Answer:
Two economists are arguing about how to approach a problem. The first economist
says, “Look, I can see in the data that consumption rises when income rises. We need to
build a model with an equation that relates the two.” The second economist responds, “I
can see that is the case, but we have to understand why that is true before we build any
equations, and then we will see what the model says about the relationship between the
two.” What kind of economist is the second one likely to be?
A. A traditional economist
B. A behavioral economist
C. An irrational economist
D. An engineering economist
Answer:
The loss of jobs due to international trade is often:
A. more visible than the decline in consumer prices due to international trade.
B. less visible than the decline in prices due to international trade.
C. greater than the benefit of trade in the form of decline in prices.
D. spread across all sectors while decline in prices is concentrated in one sector.
Answer:
Refer to the graph shown. A perfectly competitive firm would never operate if the price
dropped to which segment of the marginal cost curve?
A. AC
B. CD
C. DE
D. CE
Answer:
“The consumer is sovereign. Businesses produce what people want. The problem today
is that because of externalities, often the decisions of firms do not reflect consumer
preferences.” The speaker is implying:
A. both market failure and failure of market outcome.
B. market failure but not failure of market outcome.
C. failure of market outcome but not market failure.
D. neither market failure nor failure of market outcome.
Answer:
Consider the following payoff matrix facing Harry and Sally when each chooses to go
to the coffee shop listed. Both Harry and Sally would like to meet each other but are shy
about asking the other out on a date.
If Harry and Sally go to the coffee shop every day, what is Harry’s best strategy?
A. Harry has no best strategy.
B. Choose one shop to go to and keep going to it.
C. Randomly choose between the two shops and hope Sally will end up there too.
D. Stay at home.
Answer:
The principle of diminishing marginal utility says that as you consume more of an item,
beyond some point the:
A. additional units of consumption will yield more units of utility than the previous
units.
B. total satisfaction will decrease.
C. additional units of consumption will yield fewer additional units of utility than the
previous unit.
D. price of additional units of consumption will be less than the price of the previous
unit.
Answer:
Refer to the graph shown. Assuming each carnival game costs $1 and each Ferris wheel
ride costs $2, a consumer with $16 to spend will optimally choose to consume at point:
A. A.
B. B.
C. C.
D. D.
Answer:
Which of the following is not one of the side effects economists have found in
programs to redistribute income?
A. The incentive effects of a tax may result in a switch from labor to leisure.
B. The effects of taxes may include attempts to avoid or evade taxes, leading to a
decrease in measured income.
C. The incentive effects of distributing money may cause people to make themselves
look more needy than they really are.
D. The incentive effects of distributing money may cause people to avoid government
assistance programs.
Answer:
Entrepreneurship could best be classified as:
A. creative labor.
B. simple labor.
C. unskilled labor.
D. highly specialized labor.
Answer:
Which of the following is a normative statement?
A. Reducing the budget deficit will also reduce the balance of trade deficit.
B. Tariffs on imported cars result in higher prices for domestic auto consumers.
C. A tax cut will cause higher inflation.
D. The governments should spend more to aid the poor.
Answer:
Researchers have found that the income of obese women is about 17 percent lower than
that of women who are of the recommended weight when both sets of women are
equally productive. This result implies that there:
A. is no discrimination on the basis of “beauty.”
B. may be discrimination on the basis of “beauty.”
C. is definitely discrimination on the basis of “beauty.”
D. is an accidental relationship between obesity and “beauty.”
Answer:
All of the following are good examples of network externalities except:
A. Facebook.
B. cigarettes.
C. computer software.
D. the Internet.
Answer:
Which group has ultimate control over the U.S. economy?
A. business
B. households
C. multinationals
D. government
Answer:
According to the law of demand, an increase in the price of baseball trading cards
causes:
A. people to buy fewer trading cards.
B. people to buy more trading cards.
C. the scarcity of baseball trading cards to increase.
D. baseball trading cards to grow in abundance.
Answer:
In 2011, the Department of Justice sued AT&T to block its merger with the cell phone
service provider T-Mobile. To defend itself against the charge, AT&T argued that the:
A. government had guaranteed it exclusive control of cell phone service.
B. government had no authority to block mergers in the telephone industry.
C. combined company could raise prices, allowing it to survive in a rapidly changing
market.
D. merger would improve and expand cellular service to consumers.
Answer:
If cheating can be identified easily and firms play the same game against one another
repeatedly:
A. cheating is more likely to occur.
B. implicit collusion is more likely to occur.
C. firms have a stronger incentive to cheat than they would if cheating could not be
identified.
D. firms have the same incentive to cheat.
Answer:
The price of a ticket to the Maroon 5 concert is set at $35. All the tickets for the concert
sell out one hour after they go on sale and there are still 1,000 fans who want to buy
tickets. It follows that:
A. the equilibrium price of tickets to the concert is $35.
B. the equilibrium price of tickets to the concert is more than $35.
C. the equilibrium price of tickets to the concert is less than $35.
D. the quantity of tickets demanded is equal to the quantity supplied at the $35 price.
Answer:
To maximize profits, a perfectly competitive firm should do all the following except:
A. produce until economic profits are maximized.
B. produce until marginal cost equals price.
C. produce until marginal revenue equals marginal cost.
D. produce until per-unit profits are maximized.
Answer:
The relationship between the quantity of inputs and the quantity of output is called the:
A. production function.
B. average product.
C. marginal product.
D. law of diminishing returns.
Answer:
New York City has been experiencing a housing emergency for quite some time.
Apartments are difficult to come by. In fact, the vacancy rate has been below 5 percent
since World War II. The most likely cause of the housing emergency is:
A. a price floor on rent higher than equilibrium price.
B. a price ceiling on rent lower than equilibrium price.
C. too high incomes in New York City.
D. a lack of a rationing mechanism to distribute existing apartments.
Answer:
If MC = Q/15 represents marginal cost for a monopolist and market demand is given by
Qd = 500 – 10P, the equation for marginal revenue is:
A. MR = 50Q – (1/5)Q2.
B. MR = 50Q – (1/10)Q2.
C. MR = 50 – (1/5)Q.
D. MR = 50 – (1/10)Q.
Answer:
Jack Sprat could eat no fat, his wife could eat no lean. And so betwixt them both, they
licked the platter clean. Which of the following is true about Jack and his wife?
A. Marginal utility of fat is negative for Jack; marginal utility of lean is negative for his
wife.
B. Marginal utility of fat is falling for Jack; marginal utility of lean is falling for his
wife.
C. Marginal utility of lean is negative for Jack; marginal utility of fat is negative for his
wife.
D. Marginal utility of lean is rising for Jack; marginal utility of fat is rising for his wife.
Answer:
Refer to the graph above. If suppliers can restrict output to L, the price will:
A. fall from PL to PM.
B. fall from PM to PL.
C. rise from PL to PM.
D. rise from PM to PL.
Answer:
Refer to the graph shown of average costs for a typical firm. If there were two firms
each producing 500 units, per-unit costs would be:
A. $6.
B. $8.
C. $10.
D. $800.
Answer: