If a good has “snob appeal,” consumers may purchases less when the price falls.
a. True
b. False
Net benefit is equal to total benefit minus marginal cost.
a. True
b. False
In the basic 45-degree line model, what is the effect of a decrease in the price level?
a. The expenditure line will shift downward.
b. The expenditure line will shift upward.
c. There will be movement to the left on the expenditure line.
d. There will be movement to the right on the expenditure line.
Define the following terms and explain their importance to the study of economics.
a. principle of marginal productivity
b. marginal physical product
c. marginal revenue product
d. derived demand
e. economic rent
The government enacted minimum wage legislation to protect skilled workers.
a. True
b. False
If the Fed buys $5 million in government bonds, how much will the money supply
change?
a. It will increase by $5 million.
b. It will increase by more than $5 million.
c. It will decrease by $5 million.
d. It will decrease by more than $5 million.
Since its inception in January 1999 until 2011, the dollar has consistently appreciated
against the euro.
a. True
b. False
The gold standard prevented a nation from controlling its domestic economy through
monetary policy.
a. True
b. False
The free-market system coordinates output decisions by pushing
a. up price when there is a shortage.
b. down price when quantity demanded exceeds quantity supplied.
c. up price when there is a surplus.
d. up price when quantity supplied exceeds quantity demanded.
In a free market for rental housing, effective rent control would have which effect?
a. It would cause a reduction in the number of apartments.
b. It would cause an increase in the number of apartments, since landlords would try to
increase their profits through larger scale.
c. It would have no effect on the number of apartments offered in the market.
d. The results are impossible to predict.
Perfect competition is characterized by numerous firms.
a. True
b. False
Marginal revenue is the addition to a firm’s revenue from
a. a $1 change in price.
b. a one-unit change in output.
c. the sale of inferior output.
d. a $1 reduction in marginal cost.
Poor Asian countries may have per-capita GDP’s that may be less than $250. Why is
this somewhat misleading for comparative purposes?
a. Most rich country GDP is nonmarket activity.
b. A significant amount of poor country GDP is nonmarket activity.
c. Poor countries do not use dollars.
d. Poor countries have few resources.
Unlike a perfectly competitive firm, a monopolistically competitive firm
a. faces a perfectly inelastic demand curve.
b. can earn positive economic profit in the short run and in the long run.
c. cannot earn positive economic profit even in the short run.
d. does not have the same marginal revenue at every output level.
Compared to the price of long-distance telephone calls, college tuition in the United
States has
a. fallen.
b. risen.
c. stayed the same.
d. risen at the same rate as the CPI.
When GDP decreases, consumption spending increases.
a. True
b. False
In 1963, the government first adopted an official definition of poverty: families with
incomes below $3,000.
a. True
b. False
Helga owns Viking, Inc., started with her $100,000 inheritance. Helga’s accountant
informs her that her firm earned a profit of $100,000 last year, and that if she chooses to
invest the money she can expect a 10% return. If Helga did not run Viking, she would
not work. What were Helga’s economic profits last year?
a. Zero
b. $100,000
c. $90,000
d. $95,000
The money supply can be increased by decreasing the required reserve ratio.
a. True
b. False
It has been shown that when offered higher wages, women will work more hours. This
is because
a. women tend to work more hours than men at any wage rate.
b. the substitution effect is more dominant for women.
c. the income effect is more dominant for women.
d. women are more productive than men at higher wages.
When the economy experiences a bust, the government knows exactly which policies
will spur an economic recovery.
a. True
b. False
A closed economy is one that
a. uses tariffs.
b. uses quotas to restrict trade.
c. uses exchange controls.
d. does not trade with other nations.
Why does the Fed have imperfect control over the money supply?
a. Because the Fed does not know how much reserves will change when it buys or sells
securities.
b. Because of unpredictable changes in the public’s desire to hold cash and banks’
desires to hold reserves.
c. Because of unpredictable changes in reserve requirements.
d. Because of the secrecy of FOMC meetings, which lead to policy surprises.
Demand for inputs is a derived demand because
a. it is derived from the need for income.
b. it corresponds to the derived supply of the inputs.
c. producers want the input to produce the finished good.
d. it is downward sloping.
A firm’s optimal input proportions may change if
a. input prices change.
b. the relative marginal productivities of the inputs change.
c. the firm’s optimal output level changes.
d. All of the above are correct.
Stockholders normally obtain higher expected payments than bondholders because
a. they are required by law to obtain a higher return.
b. they face higher risk.
c. the profit share declared as stock dividends is not taxable.
d. they vote themselves higher returns.
The lure of ____ directs resources to optimally efficient activities and time periods.
a. future consumption
b. present consumption
c. market share growth
d. profits
Profit maximization occurs when MC = MR.
a. True
b. False
Educational reforms that result in improved reading and math skills of high school
graduates as they enter the labor force would do what to the aggregate supply curve?
a. Shift it outward.
b. Shift it inward.
c. Move the economy up along the curve.
d. Move the economy down along the curve.
Under a balanced budget policy, a sharp decline in GDP will cause
a. no serious budget changes.
b. a tax cut or an increase in expenditures.
c. a tax increase or expenditure cut.
d. tax receipts to exceed government expenditures.
If a firm sells its output at a price greater than AC, it will earn economic profit.
a. True
b. False
A portfolio’s performance is its yield to the holder.
a. True
b. False
The divergence between money costs and opportunity costs is the least in which of the
following situations?
a. China uses millions of otherwise unemployable workers to build roads with picks and
shovels.
b. Wilhelm, an engineer at Exxon, is drafted-his army salary is $2,000 per month.
c. Colleen quits her job to stay at home and raise her children.
d. A university, using a private contractor, builds a field house on land it purchased at
full market value from a local farmer.
GDP in excess of potential GDP will shift the aggregate supply curve to the left and the
price level will increase.
a. True
b. False
Firms entering a perfectly competitive industry will cause the price of the product to
a. fall.
b. rise.
c. remain constant.
d. become more responsive to consumer demand.