In the aggregate demand and aggregate supply model,
a. the factors that cause the individual demand curve to slope downward are the same as
the factors that cause the aggregate demand curve to slope downward.
b. the factors that cause the individual supply curve to slope upward are the same as the
factors that cause the short-run aggregate supply curve to slope upward.
c. the upward-sloping aggregate demand curve intersects the downward-sloping
short-run aggregate supply curve to determine the economy’s price level and GDP.
d. the upward-sloping short-run aggregate supply curve intersects the
downward-sloping aggregate demand curve to determine the economy’s price level and
GDP.
The figure below illustrates a tariff. On the graph, Q represents quantity and P
represents price.
Figure 17-11
Refer to Figure 17-11. Government revenue raised by the tariff is represented by the
area
a. E.
b. B + E.
c. D + E + F.
d. B + D + E + F.
Emma works full time during the day as an economist and faces a 90 percent marginal
tax rate. If Emma were to get an offer to work a second job in the evenings doing
consulting work for a local business for $10,000 per year, how much of this additional
income would she be able to keep as net pay after taxes?
a. $1,000
b. $4,000
c. $6,000
d. $10,000
Which of the following most clearly illustrates the concept of “derived demand”?
a. An increase in the price of steak causes the demand for poultry to increase.
b. As the price of coffee increases, the quantity demanded for coffee declines.
c. A boom in the housing market leads to an increase in the demand for lumber and
electricians.
d. An increase in beer advertising on television leads to an increase in per capita beer
consumption.
Which one of the following economists has played a central role in the development of
the “economics of collective decision making,” better known as public choice analysis?
a. Alfred Marshall
b. John Maynard Keynes
c. James Buchanan
d. Milton Friedman
Public choice analysis indicates
a. politicians under representative democracy are led as if by an invisible hand to adopt
legislation that enhances the wealth of a nation.
b. political structures consistent with economic efficiency tend to emerge naturally from
the ordinary political process.
c. constitutional rules establishing procedures and limiting the ability of the political
process to engage in redistributive activities can improve the economic efficiency of
government.
d. all of the above are correct.
Natural gas prices in real terms have
a. increased sharply since 2008.
b. closely followed the pattern of oil prices since 2008.
c. risen dramatically during the past ten years.
d. fallen sharply since 2008.
Use the figure to answer the following question(s).
Figure 10-5
Given that the short-run cost and demand conditions shown in Figure 10-5 for the
competitive price-searcher firm are representative for all firms in the industry, what will
happen in this industry in the long run?
a. The firm will make long-run economic profits.
b. The firm will face competition from new entrants into the industry, causing this firm’s
demand to decline until zero economic profits are restored.
c. The firm will face competition from new entrants into the industry, but since lower
prices will increase total sales, profit will stay the same as that shown in the figure.
d. The firm will see some of its competitors exit from the industry, causing this firm’s
demand to increase until zero economic profits are restored.
When the Social Security system begins running a deficit, the bonds in the trust fund
will be drawn down. The funds to redeem these bonds will have to come from
a. higher taxes, spending reductions in other programs, or additional government
borrowing.
b. the surplus funds deposited in governmental banking accounts.
c. equity capital being liquidated.
d. the sale of private equities and securities that the government has been purchasing
with the funds.
Cartels are difficult to maintain because
a. antitrust laws are difficult to enforce.
b. cartel agreements are conducive to monopoly outcomes.
c. there is always tension between cooperation and self-interest in a cartel.
d. firms pay little attention to the decision made by other firms.
Which of the following is a major shortcoming of government regulation of business
monopoly?
a. The regulators often estimate production costs incorrectly and thus force firms into
loss positions.
b. The regulators often come to represent the interests of the established firms and use
their power to limit competition.
c. The regulators usually permit firms to make unusually high accounting profits.
d. The regulators, acting in consumers’ interests, often force prices so low that even
with efficient production techniques the regulated firms lose money.
Measured in 1990 dollars, the GDP per person of the world was $667 in 1820. By 2003,
the world’s income per person had risen to
a. nearly $1200, almost twice the level of 1820.
b. $2,422, almost four times the level of 1820.
c. a little more than $3,600, approximately six times the level of 1820.
d. $6,516, nearly ten times the level of 1820.
Which of the following is a driving force underlying economic growth?
a. trade restrictions that protect domestic businesses from competition with foreign
producers
b. regulations that require businesses to obtain permission from the government before
starting a new business
c. tax increases that expand the revenues of the government
d. entrepreneurial discovery and production of improved products
If price rises, what happens to quantity supplied of a product?
a. It increases.
b. It decreases.
c. It does not change.
d. Quantity supplied is constant, but supply increases.
In a constant-cost industry, an increase in output that increases the demand for resources
used by the industry
a. is likely to result in higher prices for at least some resources.
b. causes the firm’s cost curves to shift downward.
c. causes the demand curve for the industry to rise.
d. is not likely to result in higher prices for resources.
Because GDP does notfully account for improvements in the quality of goods, the GDP
calculation
a. tends to overstate the true value of output in the United States.
b. tends to understate the true value of output in the United States.
c. provides an accurate value of output in the United States.
d. measures the value correctly because price changes always capture the value of
quality changes.
In long-run equilibrium, output is expanded to the minimum long-run average total cost
by
a. price takers but not by competitive price searchers.
b. competitive price searchers but not by price takers.
c. both competitive price searchers and price takers.
d. neither price takers nor competitive price searchers.
When external benefits are present in a market,
a. less of the good will be produced than the amount consistent with economic
efficiency.
b. more of the good will be produced than the amount consistent with economic
efficiency.
c. the amount of the good produced will be equal to the amount consistent with
economic efficiency.
d. corresponding external costs are always generated.
Between 1960 and 1980, the labor force participation rate of women ____. Between
1980 and 2011, the labor force participation rate of women ____.
a. fell; fell
b. rose; rose
c. fell; rose
d. rose; fell
The structure of the Social Security system is particularly advantageous to
a. blacks.
b. those with life shortening diseases such as diabetes.
c. groups with below average earnings and above average life expectancy.
d. groups with above average earnings and below average life expectancy.
Realization of gains from trade, entrepreneurial discovery, and investment are largely
dependent on
a. competitive elections and political democracy.
b. the presence of institutions and policies consistent with economic freedom.
c. the use of tariffs and quotas to protect domestic businesses from competition with
foreigners.
d. the use of government planning to direct investments into worthwhile projects.
Figure 11-18
The total revenue for the firm in Figure 11-18, a monopolist that maximizes profit while
charging all customers the same price, is
a. $2,574
b. $2,808
c. $2,100
d. $1,638
e. $3,300
Long lags make discretionary policy less effective because
a. by the time the impact of a policy is felt, the problem may have been corrected by
market forces.
b. it is easier to forecast an expansion than a recession.
c. it is easier to forecast a recession than an expansion.
d. automatic stabilizers are subject to longer lags than are discretionary policies.
In the aggregate demand-aggregate supply model, the short-run effects of an
unanticipated decrease in the money supply will be
a. lower real interest rates and an increase in aggregate demand.
b. higher real interest rates and an increase in aggregate demand.
c. lower real interest rates and a reduction in aggregate demand.
d. higher real interest rates and a reduction in aggregate demand.
The leverage ratio of an investment firm refers to
a. the ratio of its investment holdings relative to its vault cash.
b. the ratio of its investment holdings relative to its capital.
c. the percentage of deposits held by the firm relative to its deposits with Federal
Reserve banks.
d. the percentage of down payments made to the investment firm relative to the size of
mortgages issued by the firm.
Which of the following isnot a characteristic of a competitive price-searcher market?
a. Each firm produces a differentiated product.
b. The entry barriers are high.
c. Each firm faces a downward-sloping demand curve.
d. The number of firms in the market is large.
The maximum price that consumers are willing to pay for the hundredth unit of a good
can be found as
a. the height of the supply curve at a quantity of 100.
b. the height of the demand curve at a quantity of 100.
c. the difference between the height of the supply and demand curves at a quantity of
100.
d. none of the above.
The supply curve of a price-taker firm in the short run is the
a. firm’s average variable cost curve.
b. portion of the firm’s average total cost curve that lies above average variable cost
curve.
c. portion of the firm’s marginal cost curve that lies above average variable cost curve.
d. firm’s marginal revenue curve.
To be economically successful, the entrepreneur must
a. combine resources in a manner that increases their value.
b. produce a good that consumers value less than the resources used to produce it.
c. use only personal financial capital to avoid the interest payments that would have to
be paid if the money is borrowed from the bank.
d. transform or rearrange resources to maximize the entrepreneur’s cost of production.
During a recession, the political incentive structure will encourage politicians to
a. undertake sound economic policies that are consistent with stability and growth.
b. adopt any policies, even bad ones, that give the appearance of taking action.
c. undertake policies that promote long-term economic growth rather than short-term
benefits.
d. do nothing and let the recession run its course.
If the demand for computer scientists increases relative to their supply,
a. the wages of computer scientists will decline.
b. a computer science major will be more attractive to college students.
c. the employment of computer scientists will fall.
d. there will be a surplus of computer scientists.
Figure 4-18
Refer to Figure 4-18. The price of the good would continue to serve as the rationing
mechanism if
a. a price ceiling of $4.00 were imposed.
b. a price ceiling of $5.00 were imposed.
c. a price floor of $3.00 were imposed.
d. All of the above are correct.
An activity known as shirking is least likely to occur when
a. workers are not monitored.
b. all workers are paid the same wage rate.
c. the earnings of workers are closely tied to the worker’s output.
d. the firm is organized as a corporation.
How does Keynesian economic theory recommend that fiscal policy be conducted?
What effect will expansionary fiscal policy have on the economy, according to new
classical economists?
In a barter economy that had no form of currency, how could interest exist?
How can increased investment help a country achieve increased economic growth?
What costs are involved?
National defense is considered a public good because there appears to be no limits to
the nonrivalry-in-consumption characteristic, and exclusion of nonpayers is impossible.
Are there any other goods that so perfectly meet both public goods criteria?
Government programs such as Medicare substantially subsidize health care purchases
by some consumers in the U.S. economy. Who benefits from these subsidies? How do
they affect the price of health care? If you are not a recipient of this program, are you
made better or worse off by the subsidy? Explain.
Suppose that severe floods destroyed farms, homes, and businesses in the Midwest. Use
the aggregate demand/aggregate supply model, to explain the changes you would
expect to take place and the effects you would expect these floods to have on both
output and prices. (Include both short-run and long-run effects.)
Suppose domestic automobiles were allocated in the United States the way public
education is allocated. Describe how this system might work.
The boss observes that her 10 workers produce 1,000 widgets a day. She concludes that
she can employ 20 workers and make 2,000 widgets, 30 to make 3,000, or 40 to make
4,000. Explain why this observation is either correct or incorrect.
Andy observes that the income distribution between the richest and poorest people in
the population has remained fixed for decades. He concludes that the rich stay rich and
the poor stay poor. Is this a valid conclusion, or has Andy missed something?
How does private ownership and a competitive market affect the efficiency of economic
organization?
How does the aggregate goods and services market differ from the regular supply and
demand graph in Chapter 3? Address the measures of price, quantity, and the demand
and supply curve(s).
Is there any way to conduct fiscal policy and avoid the lags involved with discretionary
policy?
The mythical country of Quitar has just established a policy to give very generous
in-kind benefits to the nation’s poor, currently defined as those earning less than
$10,000 a year. Several years later, the poverty rate has not fallen. Why not?
At one time, it was believed that the way for a nation to prosper was to export as much
as possible while importing as little as possible. More money would flow into a country
than out of a country. Is this really a sound economic strategy? What is the relationship
between exports and imports?
Susan says, “If the price of wool coats goes up, suppliers will offer more of the coats for
sale.” Brad replies, “It takes three months to harvest wool and employ all the steps
necessary to produce a wool coat. Quantity supplied cannot possibly increase for three
months.” Is Brad correct? Why or why not?
When you go to a grocery store, most candy bars of a given size sell for virtually the
same price. Can we conclude that this is evidence of collusion on the part of candy bar
manufacturers?
A former union employee states: “We were on strike for two years. I know the eventual
wage increase we received will never make up for the wages I lost, but I think the strike
was worth it. We forced the company to give in to our demands.” Evaluate these
comments.
Explain the idea of capital investment by using the story of Robinson Crusoe. What is
sacrificed, and what is gained?
In a strike, what does the union have to lose? What does management lose?