Psychological factors that may influence the saving rate are ______ and _______.
A. the real interest rate; the demonstration effect
B. self-control problems; the demonstration effect
C. capital gains; the real interest rate
D. the desire to leave a bequest; capital gains
The situation described in the book as “Smart for One, Dumb for All” occurs when:
A. individuals, when acting rationally, benefit society as a whole.
B. individuals make better decisions when acting alone than when in groups.
C. individuals, when acting rationally, fail to take advantage of all opportunities for
social benefit.
D. a market is in equilibrium.
Refer to the figure above. In this market, equilibrium price is ____ and quantity is
_______.
A. $10, 25
B. $25, 10
C. $50, 20
D. $20, 50
Refer to the figure above. The slope of the demand curve D1 is _____, and the slope of
demand curve D2 is ______.
A. 1/2; 2
B. 2; 1/2
C. 5/4; 4/5
D. 4/5; 5/4
An example of an negative inflation shock is:
A. an increase in interest rates.
B. an increase in government purchases.
C. a significant rise in oil prices.
D. a tax increase.
Janie must either mow the lawn or wash clothes, earning her a benefit of $30 or $45,
respectively. She dislikes both equally and they both take the same amount of time.
Janie will therefore choose to _________ because the economic surplus is ________.
A. mow the lawn; greater
B. wash clothes; greater
C. mow the law; smaller
D. wash clothes; smaller
Holding other factors constant, if food prices decline relative to the prices of other
products, then the real wages of agricultural workers will ______ and employment of
agricultural workers will _____.
A. increase; increase
B. increase; decrease
C. decrease; not change
D. decrease; decrease
One reason that variable factors of production tend to show diminishing returns in the
short run is that:
A. too much capital equipment is idle.
B. there are more and more workers using a fixed amount of productive resources.
C. the firm has become too large to effectively manage workers.
D. the cost of hiring additional workers increases as firms seek to hire more.
The labor force equals the number of people:
A. employed.
B. aged 16 years and older.
C. both employed and unemployed.
D. employed, unemployed and discouraged.
A market equilibrium is only efficient when:
A. buyers and sellers each earn equal surplus from the transaction.
B. consumer surplus and producer surplus are both zero.
C. all relevant costs, including those imposed on others, are accounted for.
D. income is distributed equitably.
Taylor lives in a residential neighborhood that prides itself on well-groomed lawns.
Taylor’s neighbors find that the collective marginal benefit of someone else’s
well-groomed lawn is $10. Taylor, however, dislikes yard work and receives zero net
benefit from an unkempt lawn and a net benefit of -$1 for a well-groomed lawn; the
cost of maintaining the lawn is a dollar more than the benefit of having a well-groomed
lawn.
Refer to the information given above. If Taylor’s lawn is unkempt, the situation is
__________ because the total economic surplus is __________.
A. efficient; nonnegative
B. inefficient; larger than it could have been
C. efficient; as large as possible
D. inefficient; smaller than it could have been
Refer to the figure above. Suppose that the economy is initially in equilibrium with
output Y2 and inflation rate of π3. An increase in military spending will generate:
A. a recessionary gap.
B. an expansionary gap.
C. disinflation.
D. hyperinflation.
Starting from potential output, if firms become less optimistic about the future and
decide to decrease their investment in new capital, then this will generate a(n) _____
gap and inflation will _____.
A. recessionary; increase
B. recessionary; decrease
C. expansionary; decrease
D. expansionary; increase
Two types of existing houses are for sale: ones with a cracked foundation and ones
without. In all other respects, they are identical. Houses without cracked foundations
are worth $200,000 while those with cracked foundations are worth $200,000 minus the
$20,000 to fix the crack or $180,000. The frequency of solid foundations is 80%.
Sellers know which type of house they have but buyers cannot detect a crack. No seller
“must” sell his house in order to move and thus no one accepts anything less than its
value.
If potential buyers offer their reservation price, owners of houses with solid foundations
will find that
A. buyers are offering more than $200,000.
B. buyers are offering exactly $200,000.
C. buyers are offering exactly $180,000.
D. it is not worth it to sell their house.
The following data show the relationship between the number of drivers who leave for
work at 8:00 am, their average commute times, and their marginal benefit associated
with the commute times.
Refer to the information given above. Suppose a toll is imposed in the following way:
leaving between 8 a.m. and 9 a.m. costs $5 per driver, after 9 a.m., the toll is zero. One
can predict that __________ drivers would be on the road between 8:00 and 9:00 a.m.
A. 100
B. 200
C. 300
D. 400
Suppose there are ten people playing cards in a room. One of them wants to smoke a
cigar; nine of them dislike the smell of cigar smoke. The smoker values the privilege of
smoking at $5, and each of the other nine occupants of the room would be willing to
pay fifty cents for clean air in the room. The rules governing use of the room state that
smoking is not allowed unless everyone agrees to allow smoking.
Refer to the information given above. The Coase Theorem would predict that if the
property right to smoke belongs to the cigar smoker, then there ________ smoking in
the room. If the property right to clean indoor air belongs to the room occupants, then
there ________ smoking in the room.
A. will be; will be
B. will be; will not be
C. will not be; will not be
D. will not be; will be
Suppose that the salary range for recent college graduates with a bachelor’s degree in
economics is $30,000 to $50,000, with 25% of jobs offering $30,000 per year, 50%
offering $40,000 per year and 25% offering $50,000 per year and that in all other
respects, the jobs are equally satisfying. Assume that in this market, a job offer remains
open for only a short time so that continuing to search requires an applicant to reject
any current job offer.
Who is most likely to have a job that pays $50,000?
A. Risk-averse graduates.
B. Graduates who don’t mind taking risks.
C. Risk-neutral graduates.
D. Graduates who are either risk-neutral or risk-averse.
Sam owns a candy factory and hires workers in a competitive labor market to pack
cases of candy. The company’s weekly output of cases of candy varies with the number
of workers hired, as shown in the table:
If each case sells for $5 more than the cost of the materials used in producing it and the
competitive market wage is $650/week, how many workers should Sam hire?
A. 5
B. 4
C. 3
D. 2
If a given production combination is efficient, then it must be:
A. beyond the production possibilities curve.
B. on the production possibilities curve.
C. either an attainable or an unattainable point.
D. the best combination out of all possible combinations.
Changes in taxes and transfers affect planned spending:
A. only when there is an expansionary gap.
B. autonomously.
C. directly, by changing induced expenditures.
D. indirectly, by changing disposable income and, consequently, consumption.
A pure public good is one that is
A. highlynonrival and nonexcludable.
B. slightlynonrival and nonexcludable.
C. nonexcludable.
D. highlynonrival but only slightly nonexcludable.
The current price of a stock increases when:
A. expected future dividends decrease.
B. the expected future price of the stock decreases.
C. interest rates decrease.
D. the perceived riskiness of the stock increases.
Refer to the figure above. What is the marginal cost of one extra visit to the doctor’s
office?
A. $50
B. $100
C. $150
D. $200
An expansion is:
A. a period in which the economy is growing at a rate significantly below normal.
B. a period in which the economy is growing at a rate significantly above normal.
C. the high point of economic activity prior to a downturn.
D. the low point of economic activity prior to a recovery.
Refer to the figure above. Suppose the economy is in a short-run equilibrium at output
Y1 and inflation rate π2. The economy is currently experiencing ______, and the correct
monetary policy response to this situation, to return the economy to potential GDP, is to
______.
A. a recessionary gap; raise taxes
B. an expansionary gap; cut taxes
C. a recessionary gap; increase the money supply
D. an expansionary gap; decrease the money supply
Firms that extend credit to borrowers using funds from savers are called:
A. bond dealers.
B. stock brokers.
C. central banks.
D. financial intermediaries.
Suppose the local slaughterhouse gives off an unpleasant stench. The price of meat
would then be _______ because not all of the _________ are accounted for in the
marketplace.
A. too high; benefits
B. too low; benefits
C. too high; costs
D. too low; costs
The change in wealth during a period equals:
A. saving + capital gains – capital losses.
B. saving – capital gains + capital losses.
C. saving – investment + capital gains – capital losses.
D. public saving + private saving – transfers.
Clean air is an example of a good that is
A. neithernonrival nor nonexcludable.
B. largelynonrival and nonexcludable.
C. onlynonexcludable.
D. onlynonrival.
If real GDP per person was equal to $2,000 in 1900 and grew at a 1 percent annual rate,
what would be the value of real GDP per person 100 years later?
A. $2,210
B. $4,000
C. $5,410
D. $20,000
Alex received a four-year scholarship to State U. that covered tuition and fees, room
and board, and books and supplies. As a result:
A. attending State U. for four years is costless for Alex.
B. Alex has no incentive to work hard while at State U.
C. the cost of attending State U. is the amount of money Alex could have earned
working for four years.
D. the cost of attending State U. is the sum of the benefits Alex would have had
attending each of the four other schools to which Alex had been admitted.
Refer to the figure above. This graph describes a production process that:
A. generates positive externalities.
B. is used by a perfectly competitive industry.
C. generates negative externalities.
D. has been negotiated using the Coase Theorem approach.