Which of the following is an example of a normative economic statement?
a. The inflation rate in the United States decreased from 4 percent last year to 3 percent
this year as a result of lower energy prices.
b. The economy grew at an annual rate of 5 percent during the first quarter of this year.
c. If two automobile companies merge, it is likely that the price of automobiles will rise.
d. An increase in international trade benefits some workers but hurts others.
e. The minimum wage should be increased so that low income workers can afford to
keep up with the cost of living.
Use the figure below to answer the following question(s).
Figure 9-2
Figure 9-2 indicates that the output of the economy, y1, is
a. greater than the economy’s long-run capacity.
b. equal to the economy’s long-run capacity.
c. less than the economy’s long-run capacity.
d. in short-run equilibrium but not long-run equilibrium.
According to the law of comparative advantage, a particular task is performed most
efficiently by the individual with the lowest
a. wage rate.
b. tax liability.
c. net worth.
d. opportunity cost.
A positive real interest rate indicates
a. how fast the number of dollars in your savings account is rising over time.
b. how fast the purchasing power of your savings account is rising over time.
c. the number of dollars in your savings account today.
d. the purchasing power of your savings account today.
If skilled labor is three times the cost of unskilled labor, a profit-maximizing firm will
vary the quantity of each type of labor until the
a. marginal product of each is the same.
b. amount of unskilled labor used is three times the quantity of skilled labor used.
c. amount of unskilled labor used is one-third the quantity of skilled labor used.
d. marginal product of unskilled labor is one-third that of skilled labor.
If cable TV service and satellite TV service are substitutes,
a. a decrease in the price of cable will decrease the demand for satellite TV.
b. an increase in the price of cable will decrease the demand for satellite TV.
c. an increase in the price of cable will generally have no effect on the demand for
satellite TV.
d. an increase in the price of cable will shift the demand curve for satellite TV to the
left.
During the last two or three decades, the educational and career choices of women have
become
a. more like those of men, and the earnings of women have declined relative to those of
men.
b. more like those of men, and the earnings of women have increased relative to those
of men.
c. less like those of men, and the earnings of women have increased relative to those of
men.
d. less like those of men, and the earnings of women have declined relative to those of
men.
A U.S. trade policy that restricts the sale of foreign goods in the U.S. market will
a. reduce the demand for U.S. export goods since foreigners will be less able to buy our
goods if they cannot sell to us.
b. benefit producers in industries that export goods.
c. increase the nation’s income since it protects domestic jobs.
d. enhance economic efficiency by allocating more resources to the areas of their
greatest comparative advantage.
Which of the following reduced the demand stimulus effects of the Fed’s low interest
rate policy pursued during, and after, the financial crisis of 2008-2009?
a. Declining stock prices during 2010-2012.
b. An increase in the velocity of money.
c. A reduction in earnings derived from money market accounts, saving deposits, and
similar saving instruments.
d. A sharp increase in the rate of inflation during 2009-2012.
If a government imposed price ceiling legally sets the price of beef below market
equilibrium, which of the following will most likely happen?
a. The quantity of beef demanded will decrease.
b. The quantity of beef supplied will increase.
c. There will be a surplus of beef.
d. There will be a shortage of beef.
Which of the following is true of saving and investment?
a. There is no relationship between saving and investment; people can invest without
having to save.
b. Saving and investment can never be undertaken together by the same person.
c. Saving and investment must always be undertaken by the same person.
d. If investment is going to be undertaken, someone must save.
During a major war between two oil producing nations, there would likely be
a. an increase in the price of oil because the supply of oil would decrease.
b. an increase in the price of oil because the supply of oil would increase.
c. a decrease in the price of oil because the supply of oil would decrease.
d. a decrease in the price of oil because the supply of oil would increase.
Figure 3-20
Refer to Figure 3-20. At the equilibrium price, consumer surplus is
a. $480.
b. $640.
c. $1,120.
d. $1,280.
If the number of consumers in a market increases, the market demand curve will
a. decrease, which is a shift to the left of the demand curve.
b. increase, which is a shift to the right of the demand curve.
c. not shift, but rather this will just cause a movement along the demand curve.
d. do none of the above.
When price is greater than marginal cost for a firm in a competitive market,
a. marginal cost must be falling.
b. the firm must be minimizing its losses.
c. there are opportunities to increase profit by increasing production.
d. the firm should decrease output to maximize profit.
The GDP figures fail to count labor services and other household production. Once this
omission is taken into account,
a. the income differences between the high and low income countries are small.
b. the differences in living standards between the high and low income countries are
small.
c. the income differences between the high and low income countries are still huge.
d. the life expectancy in the high and low income countries is approximately the same.
If the U.S. dollar depreciates, it means that
a. the value of the U.S. dollar has increased.
b. the value of foreign exchange has decreased.
c. fewer U.S. dollars are required to purchase foreign exchange.
d. more U.S. dollars are required to purchase foreign exchange.
e. exports will immediately fall.
From the viewpoint of economic efficiency, when competitive forces in an industry are
weak, market allocation will often lead to
a. an output of the product that exceeds the amount consistent with ideal economic
efficiency.
b. an output of the product that is less than the amount consistent with ideal economic
efficiency.
c. an output of the product that equals the amount consistent with ideal economic
efficiency.
d. product prices that are below the cost of production.
The Smoot-Hawley trade bill of 1930, designed to save jobs and increase revenue for
the federal government, resulted in
a. an increase in both employment and federal tax revenue.
b. a sharp reduction in trade and a decline in federal tax revenue.
c. the protection of jobs while maintaining the level of trade, but it did not increase
federal tax revenue.
d. a decline in the volume of trade, but an increase in revenue from tariffs, which made
it possible for the federal government to balance its budget.
Which of the following examples illustrates a regressive income tax?
a. I earn $500 and pay $50 in taxes; you earn $1,000 and pay $90 in taxes.
b. I earn $500 and pay $50 in taxes; you earn $1,000 and pay $100 in taxes.
c. I earn $500 and pay $50 in taxes; you earn $1,000 and pay $110 in taxes.
d. I earn $500 and pay $50 in taxes; you earn $1,000 and pay $125 in taxes.
When oligopolistic firms collude to maximize their joint profits, in comparison with the
situation in competitive markets, their actions generally lead to
a. a larger output and lower prices.
b. a smaller output and higher prices.
c. a smaller output and lower prices.
d. the same output and higher prices.
Which of the following is true?
a. Due to anti-employment discrimination legislation that was passed in the early 1960s,
there was a large increase in the earnings of women relative to men in the 1960s and
1970s.
b. The female/male earnings ratio for full-time workers rose substantially between 1980
and 2010.
c. The number of women preparing for careers as professionals has declined during the
last two decades.
d. In 2010, only about 42 percent of those completing college degrees were women.
When there is excess demand for a product in a market,
a. price will tend to fall.
b. price must be below the equilibrium price.
c. price must be above the equilibrium price.
d. producers will reduce output and sales will fall.
When it comes to macro-policy, most economists now agree that
a. policy should be constantly changing in response to business cycle conditions.
b. policy changes should exert stimulus during inflationary booms and restraint during
downturns.
c. given our ability to forecast economic conditions, policy changes easily can be
implemented in a timely manner.
d. policy changes are difficult to time correctly, and therefore constant shifts in policy
are likely to be a source of economic instability.
Which of the following explains most accurately why the firm’s short-run marginal cost
curve will eventually rise?
a. As more of the variable factor is used, its price will rise.
b. When diminishing marginal returns set in, it will take ever-larger quantities of the
variable resources to produce an additional unit of output.
c. As the variable factor is used more intensely, its marginal product will rise, causing
an increase in marginal costs.
d. As the size of the firm increases, the operational efficiency of the firm declines,
causing an increase in marginal costs.
Which of the following is true?
a. Competitive forces are present even in markets with high barriers to entry.
b. Quality competition is an unimportant element of the competitive process.
c. Profitability and high prices discourage technological change and the development of
substitute products.
d. Government regulations have substantially increased the quality of American
manufacturing products in recent years.
“Government failure” is present when
a. constitutional restrictions block government action that is favored by the majority of
voters.
b. political decision-makers try to serve the general public rather than their personal
interest.
c. the structure of incentives encourages political decision-makers to undertake actions
that conflict with the efficient allocation of resources.
d. the political decision-makers are motivated by something other than good intentions;
if they have good intentions, political action will allocate resources efficiently.
Data shows that countries that invest more and channel more of those investments into
productive projects will generally have
a. higher rates of current consumption.
b. higher future incomes.
c. lower rates of economic growth.
d. lower real interest rates.
Suppose that during a period of inflation, the Fed reduced its holdings of U.S. securities
from $600 billion to $580 billion. This indicates that the Fed was
a. seeking to reduce the money supply to decrease inflation.
b. trying to force Congress to decrease taxes.
c. expanding the money supply and stimulating employment.
d. expanding the money supply, even though the existing inflation suggested a
restrictive policy would be more appropriate.
The unintended consequences of an economic change that are not immediately
identifiable but are felt only with time are known in economics as
a. opportunity costs.
b. marginal effects.
c. secondary effects.
d. scarcity constraints.
Figure 11-20
The firm in Figure 11-20 will have an economic
a. profit of $85
b. loss of $48
c. profit of $132
d. loss of $96
e. loss of $34
If the price of a good is $0, a consumer will
a. consume an infinite quantity.
b. consume all units with positive marginal utility.
c. consume the entire amount supplied.
d. consume until total utility becomes 0.
Graphically, the area that represents the difference between the maximum price
consumers were willing to pay for a good and the market price is called
a. consumer surplus.
b. producer surplus.
c. marginal cost.
d. triangular arbitrage.
If a firm increases its output and finds that its average total cost decreases as a result,
this implies that
a. marginal cost exceeds average total cost.
b. the cost of producing an additional unit of output is more than the average total cost.
c. average fixed cost is increasing.
d. average total cost exceeds marginal cost.