Most economists believe that the biases in the consumer price index cause the CPI to
overstate the true inflation rate by about
A) one-half to one percentage point.
B) one to two percentage points.
C) one quarter percentage point.
D) one and one-half percentage points.
During the Great Depression, cyclical unemployment increased as the recession
continued. This increase in cyclical unemployment
A) increased the natural rate of unemployment.
B) decreased the natural rate of unemployment.
C) had no effect on the natural rate of unemployment.
D) could have increased or decreased the natural rate of unemployment.
Figure 2-1
________ is (are) inefficient in that not all resources are being used.
A) Point A
B) Point B
C) Point C
D) Points A and C
Which of the following activities create a negative externality?
A) cleaning up the sidewalk on your block
B) graduating from college
C) repainting the house you live in to improve its appearance
D) keeping a junked car parked on your front lawn
Suppose your expenses for this term are as follows: tuition: $10,000, room and board:
$6,000, books and other educational supplies: $1,000. Further, during the term, you can
only work part-time and earn $8,000 instead of your full-time salary of $20,000. What
is the opportunity cost of going to college this term, assuming that your room and board
expenses would be the same even if you did not go to college?
A) $11,000
B) $17,000
C) $23,000
D) $29,000
Figure 12-6 Figure 12-6 shows the
demand, marginal cost (MC) and average total cost (ATC) curves for Jason’s House of
Apples. If Jason maximizes his profit he will produce the output rate indicated by point
________ and his average profit will equal ________.
A) d; $3 minus ATC at point d
B) ; $3 minus ATC at point
C) e; $3 minus ATC at point e
D) a; $3
A wheat farmer and a firm in a perfectly competitive market are similar in that
A) both face vertical demand curves.
B) both have to lower their prices if a rival firm lowers its price.
C) both face horizontal demand curves.
D) both will earn an economic profit if their total revenue equals their total cost.
Figure 13-3
Which of the points in the above graph are possible short-run equilibria?
A) A and B
B) A and C
C) A and D
D) A, B, C, and D
Figure 4-9
Figure 4-9 shows the demand and
supply curves for the almond market. The government believes that the equilibrium
price is too low and tries to help almond growers by setting a price floor at Pf. What is
the area that represents producer surplus after the imposition of the price floor?
A) A + B + E
B) B + E
C) B + E + F
D) B + C + D + E
The supply curve of a public goods shows
A) the total quantities that all producers are willing and able to supply at each price.
B) the maximum amount suppliers require to produce each quantity of the good.
C) the total cost of producing each unit of the good.
D) the marginal cost of producing each unit of the good.
Figure 9-1 Figure 9-1 shows the U.S. demand
and supply for leather footwear.
Suppose the government allows imports of leather footwear into the United States.
What will the market price be?
A) $10
B) $18
C) $24
D) >$24
Many people sell goods through eBay at prices that are higher than the prices they paid
for these goods. Economists consider these transactions as
A) examples of zero sum games, since the value of the goods sold is exactly equal to
the prices paid for them.
B) unproductive since the goods sold have been produced in the past.
C) examples of exploitation of buyers of the goods by the sellers.
D) examples of arbitrage.
Expansionary monetary policy will result in
A) lower interest rates.
B) decreased rates of inflation.
C) a decrease in aggregate demand.
D) All of the above are correct.
Which of the following is not an advantage cost-plus pricing?
A) It leads to profit maximization.
B) It is an easy method to implement if a firm produces multiple products and has
overhead costs that are difficult to allocate to a particular good.
C) It could lead to price stability if the industry is made up of identical firms all using
the same method of pricing.
D) It is easy to justify price increases when total costs of production increase.
What is voluntary exchange?
What is the difference between explicit and implicit costs?
Japan has a fairly high saving rate and the level of saving in Japan is above domestic
investment. Use the saving and investment equation to explain what Japan is doing with
this excess of saving above domestic investment.
Suppose Veronica sells teapots in the perfectly competitive teapot market. Her output
per day and her costs are as follows:
Suppose the current equilibrium price in the teapot market is $20. To maximize profit,
how many teapots will Veronica produce, what price will she charge, and how much
profit (or loss) will she make? Draw a graph to illustrate your answer. Your graph
should include Veronica’s demand, ATC, AVC, MC, and MR curves, the price she is
charging, the quantity she is producing, and the area representing her profit (or loss).
Why is the credibility of the Fed’s policy announcements particularly important?
Define allocative efficiency. Explain the significance of this concept in economics?