In 1995, the General Agreement on Tariffs and Trade (GATT) was replaced by the
World Trade Organization (WTO).
A downward sloping marginal product of labor curve demonstrates the law of
diminishing marginal returns.
Competition in the form of advertising, better customer service, or longer warranties
can also reduce profits by raising costs.
The overall mortality rate in the United States has declined for the past 30 years.
On average, people in the United States spend a smaller percentage of their income on
health care than do people in most other countries.
In the short run, a firm that incurs losses might choose to produce rather than shut down
if the amount of its revenue is less than its fixed cost.
Increasing the federal budget deficit will contribute to increasing the federal
government debt.
Assume that the personal computer industry is perfectly competitive. The fact that the
price of personal computers over the last decade has fallen despite increases in demand
signifies that the industry is a decreasing-cost industry.
Selling a product at a price below its cost is known as dumping.
Suppose there are economies of scale in the production of a specialized memory chip
that is used in manufacturing microwaves. This suggests that the microwave industry is
a decreasing-cost industry.
One reason purchasing power parity does not exactly hold is that many goods are not
traded internationally.
A firm’s technology may depend on which of the following factors?
A) the skill of its managers
B) the training of its workers
C) the speed and efficiency of its equipment
D) all of the above
Table 9-11 Production and
Consumption Production
Without Trade With Trade
Denmark and Belize can produce both clocks and hats. Table 9-11 shows the production
and consumption quantities without trade, and the production numbers with trade.
If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded, how many
hats will Denmark consume?
A) 150
B) 180
C) 270
D) 400
Which of the following could be evidence of a market failure?
A) Resources in an economy are not fully utilized.
B) The market price of a product is above the average cost of production.
C) There are only a handful of firms competing against each other in an industry.
D) Market prices do not reflect true production costs.
If the paint on your house was eaten away by the fumes from a factory nearby and you
hired a lawyer to sue the polluting firm, your legal fees would be considered
A) external costs.
B) transaction costs.
C) marginal benefits.
D) social costs of the pollution.
Figure 15-10
Compared to a perfectly competitive market, consumer surplus is lower in a monopoly
by an amount equal to the
A) area FHE.
B) area FGE.
C) area P1P2EF.
D) area P1P2GF.
Average fixed cost can be calculated using any of the formulas below except
A) TFC/Q.
B) (TC – VC)/Q.
C) (TC – VC)/Q.
D) (TC/Q) – AVC.
The Arrow impossibility theoremstates that
A) no system of voting can be devised that will always consistently represent the
underlying preferences of voters.
B) it is impossible for a majority voting system not to consistently represent the
preferences of voters.
C) it is impossible to separate corporate desires from public bureaucracy.
D) no system of voting can be devised that will ensure a 100 percent voter turnout.
The relationship between sales and revenue is
A) an inverse relationship.
B) a direct relationship.
C) a negative relationship.
D) independent.
Table 9-2
Sarita and Gabriel own S&G Bakery. Table 9-2 lists the number of pies and cakes Sarita
and Gabriel can each bake in one day. Select the statement that accurately interprets the
data in the table.
A) Sarita has a comparative advantage in baking pies.
B) Gabriel has a comparative advantage in baking cakes.
C) Sarita has a comparative advantage in baking pies and baking cakes.
D) Sarita has a comparative advantage in baking cakes.
Which of the following causes the unemployment rate to understate the true extent of
joblessness?
A) Many full time workers really want to be part time workers.
B) Persons who collect unemployment benefits report themselves to be searching for a
job.
C) Discouraged workers are not counted as unemployed.
D) A drug dealer reports herself as unemployed.
E) Discouraged workers are counted as unemployed.
If the quantity demanded for a product exceeds the quantity supplied, the market price
will rise until
A) the quantity demanded equals the quantity supplied. The product will then no longer
be scarce.
B) quantity demanded equals quantity supplied. The equilibrium price will then be
greater than the market price.
C) only wealthy consumers will be able to afford the product.
D) quantity demanded equals quantity supplied. The market price will then equal the
equilibrium price.
Which of the following Nobel laureates became known for the study of asymmetric
information?
A) Gary Becker
B) Michael Spence
C) George Ackerlof
D) Ronald Coase
In 2011, a number of Canadians purchased homes in Arizona. Which of the following
would not be a logical explanation for this?
A) The value of the Canadian dollar relative to the U.S. dollar increased during this
time.
B) The U.S. dollar depreciated during this time.
C) The Canadian dollar appreciated during this time.
D) The U.S. dollar appreciated relative to the Canadian dollar during this time.
The justification for occupational licensing laws is that they protect the public from
incompetent practitioners (for example, lawyers and medical doctors), but the laws also
result in
A) higher prices and restrictions on the number of people who can enter the professions
affected by the laws.
B) economies of scale.
C) ownership of a key input.
D) an increase in the amount of output required to achieve minimum efficient scale.
What is a market failure?
A) It refers to the inability of the market to allocate resources efficiently up to the point
where marginal social benefit equals marginal social cost.
B) It refers to the inability of the market to allocate resources efficiently up to the point
where marginal social benefit equals marginal private cost.
C) It refers to a situation where an entire sector of the economy (for example, the airline
industry) collapses because of some unforeseen event.
D) It refers to a breakdown in a market economy because of widespread corruption in
government.
Under the Patient Protection and Affordable Care Act (ACA), individuals who do not
have health insurance will be subject to a fine.
Which of the following products comes closest to having a perfectly inelastic demand?
A) gasoline
B) cholesterol medication in general
C) iPhones
D) bus rides
Suppose in the United States, the opportunity cost of producing a motor engine is 4 auto
bodies. In Canada, the opportunity cost of producing a motor engine is 2 auto bodies.
a. What is the opportunity cost of producing an auto body for the United States?
b. What is the opportunity cost of producing an auto body for Canada?
c. Which country has a comparative advantage in the production of auto bodies?
d. Which country has a comparative advantage in the production of motor engines?
Someone who is available for work but has not actively looked for work in the previous
four weeks would be classified as
A) employed.
B) unemployed.
C) not in the labor force.
D) not in the working-age population.
In 2008, the Fed and the Treasury began attempting to stabilize the commercial banking
system through the Troubled Asset Relief Program (TARP) by
A) allowing domestic banks to be taken over by foreign banks.
B) permitting banks to sell commercial bonds to the Federal Reserve Bank.
C) allowing banks to double any outstanding claims for federal deposit insurance
reimbursements.
D) providing funds to banks in exchange for stock.
Explain why the rates of death due to kidney disease and diabetes has slightly increased
in the United States since 1981.
Explain and show graphically how an increase in government spending affects the
equilibrium interest rate in the market for loanable funds.
Why do professional basketball players earn more than police officers? Illustrate this
situation graphically.
The Equal Pay Act of 1963 requires that men and women be given equal pay for equal
work in the same establishment. Most people agree that gender discrimination in the
workplace is unfair, but many economists have criticized advocates of comparable
worth. Is paying the same wages for jobs that have comparable worth mandated by the
Equal Pay Act? Why don’t most economists support proposals to force employers to pay
their male and female employees based on comparable worth rules?
State the Coase theorem.
What is the “tax wedge”?
In the long run, perfectly competitive firms earn zero economic profit. Why do firms
enter an industry when they know that in the long-run they will not earn any profit?
If firms and workers have adaptive expectations, what impact will contractionary
monetary policy have on inflation, unemployment, and the Phillips curve?
Is it possible for average total cost to be decreasing over a range of output where
marginal cost is increasing? Briefly explain.