The government of Silverado raises revenue to operate the city’s hospital, open to all
residents, through a general income tax paid by its residents. This method of raising
revenue is consistent with the benefits-received principle.
Answer:
If a perfectly competitive firm maximizes short-run profits, its marginal revenue will be
positive and less than its price.
Answer:
A key insight of the public choice model is that public policymakers are likely to pursue
the public’s interest, even if their self-interests conflict with the public interest.
Answer:
Any output combination along a production possibility frontier is associated with fully
utilized resources.
Answer:
The lengths of the recession and expansion phases and which sectors of the economy
are most affected will rarely be the same in any two business cycles.
Answer:
If planned investment is greater than actual investment, then aggregate expenditure is
less than GDP.
Answer:
Issuing marketable emission allowance permits to polluting firms will result in those
firms polluting more than is socially desirable.
Answer:
In a free market there are significant restrictions on how a good or service can be
produced or sold.
Answer:
Centrally-planned economies tend to grow more quickly than market economies.
Answer:
Which of the following equations is correct?
A) AVC – ATC = AFC
B) AVC + ATC = AFC
C) AFC + AVC = ATC
D) ATC + AVC = AFC
Answer:
During what period of time did the United States most consistently adhere to the gold
standard?
A) from the nineteenth century until the 1930s
B) from the eighteenth century until the nineteenth century
C) from 1914 until 1929
D) from 1944 until 1980
Answer:
Toot Sweets Bakery sells freshly baked muffins from 6.30 am at $1.20 per muffins. By
4 pm, the remaining muffins are marked down to $0.60 each. Which of the following
statements is true?
A) Toot Sweets engages in price discrimination; a higher price for those who cannot
wait and a lower price for those willing to wait until 4 pm.
B) Toot Sweets is trying to prevent the opportunity to make arbitrage profit.
C) Toot Sweets is trying to minimize its loss.
D) Toot Sweets has underestimated the demand for its muffins.
Answer:
Which of the following would increase the natural rate of unemployment?
A) an increase in the number of younger, less skilled workers in the economy
B) a reduction in the generosity of unemployment insurance programs
C) restrictions on the ability of unions to negotiate wage changes with companies
D) an increase in government-sponsored programs that train unemployed workers so
they can find new jobs quickly
Answer:
If the price of steel increases drastically, the quantity of steel demanded by the building
industry will fall significantly over the long run because
A) buyers of steel are more sensitive to a price change if they have more time to adjust
to the price change.
B) buyers of steel are less sensitive to a price change if they have more time to adjust to
the price change.
C) sales revenue in the building industry will fall sharply.
D) profits will fall by a greater amount in the long run than in the short run.
Answer:
An HMO hires radiology services from India to cut costs. If all else remains equal, this
will
A) decrease net exports.
B) decrease the balance of trade.
C) increase the current account balance.
D) decrease the financial account.
Answer:
Distinguish between a voluntary export restraint and a quota.
Answer:
If price discrimination occurs in a market,
A) the law of one price does not hold.
B) the firm earns arbitrage profits.
C) consumers whose demand for the product sold is more elastic pay higher prices than
consumers whose demand is less elastic.
D) the marginal cost of production is constant.
Answer:
Which of the following statements about an entrepreneur is false?
A) organizes the other factors of production into a working unit
B) develops the vision for the firm and funds the producing unit
C) sells his entrepreneurial services in the output market
D) risks the personal funds provided
Answer:
Full employment is not considered to be zero unemployment, because
A) some cyclical unemployment always exists.
B) some people do not want a job.
C) there are not enough jobs for everyone who wants one.
D) people do not find jobs instantaneously.
Answer:
Which of the following policies would reduce structural unemployment?
A) an increase in the minimum wage
B) a job retraining program
C) implementing an unemployment insurance policy
D) building an online job database that helps workers find jobs
Answer:
Figure 5-11
Coal burning utilities release sulfur
dioxide and nitric acid which react with water to produce acid rain. Acid rain damages
trees and crops and kills fish. Because the utilities do not bear the cost of the acid rain
they overproduce the quantity of electricity. This is illustrated in Figure 5-11.
S1 represents the supply curve that reflects the private cost of production and S2
represents the supply curve that reflects the social cost of production. One way to
internalize the external cost generated by utilities is to impose a Pigovian tax on the
production of electricity. What is the size of the Pigovian tax that will internalize the
cost of the externality?
A) P0
B) P2–P0
C) P1–P0
D) P2–P1
Answer:
Table 2-6
Table 2-6 shows the output per week of two people, James and Lucy. They can either
devote their time to making bracelets or making necklaces. What is James’s opportunity
cost of making a tricycle?
A) 2 tricycles
B) 1/2 of a wagon
C) 1/2 of a tricycle
D) 3/4 of a wagon
Answer:
What would happen in the market for knee replacement surgery if insurance companies
started to cover a smaller portion of the cost of the surgery?
A) Demand will decrease, but this will not shift the supply curve.
B) Supply will decrease, but this will not shift the demand curve.
C) Demand and supply will both decrease.
D) Demand will decrease and supply will increase.
Answer:
Table 2-7
Table 2-7 shows the output per month of two people, Fred and Barney. They can either
devote their time to making pogo sticks or making unicycles. What is Barney’s
opportunity cost of making a unicycle?
A) 1/2 pogo stick
B) 2 pogo sticks
C) 1.75 unicycles
D) 2.8 pogo sticks
Answer:
Figure 16-3
In the graph above, suppose the economy is initially at point A. The movement of the
economy to point B as shown in the graph illustrates the effect of which of the
following policy actions by the Congress and the president?
A) a decrease in income taxes
B) a decrease in interest rates
C) a decrease in government purchases
D) an increase in the money supply
Answer:
a. Draw a production possibilities frontier for a country that produces two goods, wine
and cheese. Assume that resources are not equally suited to both tasks.
b. Define opportunity costs.
c. Use your production possibilities frontier graph to demonstrate the principle of
opportunity costs.
Answer:
Give an example of a monetary policy target. Explain why the Fed uses policy targets.
Answer:
Use the rule of 70 to illustrate how small differences in growth rates can have a large
impact on how rapidly the standard of living in a country increases.
Answer:
Given Table 12-8 below, fill in the values for saving. Assume there are no taxes. Table
12-8
Answer:
Why do we subtract import spending from total expenditures?
Answer:
What is a private benefit from consumption? What is a social benefit from
consumption? When is the private benefit from consumption equal to the social benefit
from consumption?
Answer: