The present discounted value of a stream of future income increases as the interest rate
decreases.
When wages fall, the employment of capital always decreases.
Positive economics looks at outcomes of economic behavior and evaluates them as
good or bad.
The total of consumer plus producer surplus is largest at the market equilibrium.
Government payments to individuals who do not supply goods or services in exchange
are called transfer payments.
Nearly one in four Hispanic persons lives in poverty.
Very little uncertainty is involved in making investment decisions.
The Heckscher-Ohlin theorem says that a country is likely to have a comparative
advantage in a capital intensive product if it has a large supply of capital.
Wealth is a flow measure.
In general, for any two countries, there are very few exchange rates that will lead to
gains from trade, based on comparative advantage.
If exchange rates end up in the right ranges, the free market will drive each country to
shift resources into those sectors in which it enjoys an absolute advantage.
Average fixed costs rise continuously as quantity of output rises.
Annie, a high school student, baby sits to earn extra cash. In order to differentiate
herself from other baby sitters, Annie took a babysitting course from the Red Cross.
This is an example of a market signal.
When all markets are in simultaneous equilibrium, the general equilibrium condition
has been satisfied.
Markets exist in a command economy.
Demand determined means that price is set by buyers’ demand and a fixed supply. ʺ ʺ
Total income is more evenly distributed than labor income.
Wealth is a stock measure.
With nonprice rationing, those who are both able and willing to pay for a product
necessarily get the product.
In the long run, firms can enter an industry but not exit it.
For economic analysis, the short run is considered less than one year.
Disaggregating the distribution of income by race shows that the mean household
income for the bottom 20% of African-American households was greater than that of
the bottom 20% of Hispanic households.
Social overhead capital is basic infrastructure projects such as roads, power generation
and irrigation systems.
Monopolistically competitive firms fail to fully realize their economies of scale.
Mechanism design can be used to provide employers or employees, but not both, with
the right incentives in labor markets.
The long-run equilibrium for a monopolistically competitive firm is efficient because its
profits equal zero in the long run.
A very small percentage of GDP tends to come from the service sectors in poor
countries.
American workers in Afghanistan earn hazard pay. This is an example of a
compensating differential.
Households are paid income for the resources they supply in an output market.
Marginal damage costs are often difficult to measure.
General equilibrium exists when any one market in an economy is in equilibrium.
Industries that lobby public officials for favorable treatment, softer regulation, and or
antitrust exemption are engaged in rent-seeking.
The price elasticity of demand is generally positive to reflect the direct relationship
between the quantity demanded of a good and its price.
Investors put up $1,040,000 to construct a building and purchase all equipment for a
new restaurant. The investors expect to earn a minimum return of 10 per cent on their
investment. The restaurant is open 52 weeks per year and serves 900 meals per week.
The fixed costs are spread over the 52 weeks (i.e. prorated weekly). Included in the
fixed costs is the 10% return to the investors and $2,000 in other fixed costs. Variable
costs include $2,000 in weekly wages, and $600 per week in materials, electricity, etc.
The restaurant charges $8 on average per meal.
The restaurant is making ________ economic profits per week.
A) positive
B) zero
C) negative
D) break-even
The expected cost of an investment
A) is zero if a firm uses its own funds.
B) equals the market rate of interest plus the normal rate of return on an investment.
C) depends on the market interest rate.
D) equals the market rate of interest plus the inflation rate.
Figure 6.2
Refer to Figure 6.2. Assume Mr. Lingle is on budget constraint AC. If the price of a beer
is $4, Mr. Lingle’s monthly income is
A) $10.
B) $40.
C) $160.
D) $200.
If no one can be excluded from consuming its benefits and there is no rivalry in
consumption, then the good is a ________ good.
A) private
B) Pareto
C) public
D) free
Which of the following would an economist classify as capital?
A) a new deposit of natural gas
B) a government savings bond
C) a police car
D) a $100 traveller’s check
Figure 2.4
According to Figure 2.4, the optimal point for the economy is
A) A.
B) B.
C) F.
D) indeterminate from the information given.
Any society bound by a contract calling for an income distribution that would
________ the well-being of the worst-off member of society would allow for inequality
if that inequality had the effect of ________ the lot of the very poor.
A) minimize; improving
B) maximize; improving
C) maximize; worsening
D) minimize; worsening
Figure 4.5
Refer to Figure 4.5. The United States imports 9 million CD-Rom drives at a world
price of ________ per CD-Rom drive.
A) $15
B) $25
C) between $15 and $25
D) >$25
If the price of a truck in the United States is $18,000, and the exchange rate between the
dollar and the Argentine peso falls from 10 pesos to 8 pesos per dollar, then the price of
the American truck in Argentina will
A) rise.
B) fall.
C) remain the same.
D) be irrelevant, because the Argentine government will impose restrictions on imports
from the United States.
In the short run, ________ costs exceed ________ costs.
A) total fixed; total
B) average variable; average total
C) total variable; total
D) average total; average variable
Figure 14.7
Refer to Figure 14.7. Six chewing gum producing firms form a cartel. The firms have
identical cost structures. If the cartel produces the profit maximizing output level, each
firm should produce
A) 2,000 packs of chewing gum.
B) 6,000 packs of chewing gum.
C) 12,000 packs of chewing gum.
D) indeterminate output levels from this information.
Figure 4.3
Refer to Figure 4.3. An example of an effective price ceiling would be government
setting the price of pencils at
A) $0.40.
B) $0.45.
C) $0.50.
D) $0.55.
Capital flight refers to the fact that both human and financial capital
A) flow into developing countries to build much needed infrastructure.
B) leave developing countries in search of a higher rate of return.
C) leave developed countries in search of a higher rate of return.
D) flow into developing countries to invest in risk free investments.
Figure 13.4
Refer to Figure 13.4. This firm’s marginal revenue will be positive at
A) $6.
B) $14.
C) all prices.
D) prices between $8 and $12.
The transition to a market-oriented economy characterized by rising unemployment and
higher prices suggests that
A) government must continue to centrally plan all resource allocations to production.
B) a social safety net including unemployment compensation, and food, clothing, and
housing subsidies for those in need will be politically popular.
C) government must set wages, prices, and interest rates.
D) government must continue to centrally plan the distribution of all output into
consumption.
Figure 6.10
Refer to Figure 6.10. The current price of a turkey sandwich is $4. If Kyle is currently
buying seven turkey sandwiches a week, he ________ maximizing utility because the
marginal utility ________ than its price.
A) is; from the seventh sandwich is greater
B) is; from the seventh sandwich is less
C) is not; gained from the seventh sandwich is less
D) is not; gained from the seventh sandwich is greater
Figure 2.5
Refer to Figure 2.5. For this economy to move from Point B to Point C so that an
additional 20 plasma televisions could be produced, production of LCD televisions
would have to be reduced by
A) exactly 30.
B) fewer than 30.
C) more than 30.
D) exactly 60.
Figure 2.2
Refer to Figure 2.2. Point B represents a situation of
A) full employment but production inefficiency.
B) less than full employment but production efficiency.
C) both full resource employment and production efficiency.
D) less than full employment and production inefficiency.
Figure 4.5
Refer to Figure 4.5. The United States will import 3 million CD-Rom drives if
________ tax per CD-Rom drive is levied on imported CD-Rom drives.
A) no
B) a $10
C) a $15
D) a $25
Macroeconomics is best described as the study of
A) very large issues.
B) the choices made by individual households, firms, and governments.
C) the nation’s economy as a whole.
D) the relationship between inflation and wage inequality.
A monopolistically competitive firm that is incurring a loss will shut down if
A) marginal revenue is less than marginal cost.
B) revenues are less than variable costs.
C) price is less than average total cost.
D) price is less than marginal cost.
Related to the Economics in Practice on page 236: In 2010, Tesla Motors decided to
become a public company by offering shares of stock to the public on a stock exchange.
The process of doing this is called
A) a stock split.
B) capital gains.
C) an intangible capital investment.
D) an initial public offering.
Table 7.1
Inputs Required to Produce a Product Using Alternative Technologies
Refer to Table 7.1. If the hourly wage rate is $10 and the hourly price of capital is $25,
which production technology should be selected?
A) A
B) B
C) C
D) D
Short-run costs that depend on the level of output are
A) total fixed cost only.
B) total variable costs only.
C) total costs only.
D) both total variable costs and total costs.
Table 10.1
Refer to Table 10.1. The marginal revenue product of the fourth worker is
A) $5.
B) $20.
C) $100.
D) $475.
Economists ________ because even firms in highly concentrated industries can be
pushed to produce efficiently under certain market circumstances.
A) no longer attack industry concentration with the same fervor they once did
B) attack industry concentration with much more fervor than they once did
C) no longer attack industry concentration at all
D) continually attack industry concentration
An oligopoly with a dominant price leader will produce an output level that is
________ than the output level that would prevail if the industry were a monopoly and
sells it at a price that is ________ than the price that would prevail if the industry were
a monopoly.
A) higher; higher
B) higher; lower
C) lower; lower
D) lower; higher
Saving is an example of
A) exchanging capital for cash.
B) exchanging scarce resources for unlimited resources.
C) trading present benefits for future benefits.
D) trading future benefits for present benefits.
Life insurance companies require that prospective policy holders have a medical
check-up before the companies will sell the policy because of ________ problem in
which the insured could be ________.
A) a moral hazard problem; healthy and live longer than expected.
B) a moral hazard problem; unhealthy and die sooner than expected.
C) an adverse selection problem; healthy and live longer than expected.
D) an adverse selection problem; unhealthy and die sooner than expected.
Sponsors invest $100,000 in a new deli on the promise that they will earn a return of
10% per year on their investment. The deli sells 52,000 sandwiches per year. The deli’s
fixed costs include the return to investors and $42,000 in other fixed costs. Variable
costs consist of wages ($1,000 per week) plus materials, electricity, etc. ($2,000 per
week). The deli is open 52 weeks per year.
What must the average price per sandwich be for the deli to earn a normal return?
A) $1
B) $3
C) $4
D) $5.92
In June 2007 Monsanto acquired Delta & Pine Land Company, a company that had
patented a seed technology nicknamed Terminator. This technology produces plants that
have sterile seeds so they do not flower or grow fruit after the initial planting. Even
though Monsanto has not used this technology commercially why might this be
controversial if it decided to do so? What would be the purpose of the company
employing such a technology?
Even though household have wide-ranging preferences, discuss some of the things
that all households have in common including their constraints.
The table below represents potential investment projects for ABC Corporation, based
on forecasts of future profits attributable to the investment:
If the market rate of interest is 8 percent, how much will ABC Corporation spend on
investment projects? What happens if the market rate of interest rises to 10 percent?
Explain.
If General Motors cuts back production on the Hummer because of high gasoline prices
what should you expect to happen to the average fixed cost of production? What about
the average total cost?
What is technological change?
In contrast to a traditional IRA, contributions to a Roth IRA are not tax-deductible.
However, withdrawals are tax-free. Can you think of any reason why someone might
wish to use this type of IRA over a traditional IRA that allows tax deductible
contributions? Compare and contrast the motivations that would lead to people to invest
in either of them.
A free good is a good whose existence requires no opportunity cost to produce. How
is this different from a good that is offered for a price of zero?
Under which circumstances could the marginal cost and average variable cost curves be
one and the same?
What functions does capital income serve in the economy?
Discuss the Smoot-Hawley tariff and its economic repercussions.
What assumptions do economists make about the time period known as the short run?
What determines how much market power a firm has?
How is it possible for marginal cost to equal to the slope of either the total variable cost
function or the total cost function?
What is the opportunity cost of producing capital goods such as a new road?
Explain why any firm must generate enough revenue to cover its variable costs in the
short run.
How does the selling of pollution rights lead to a more efficient outcome?