California voters and legislators frequently debate about the true cost of water in the
course of trying to establish state policy to govern the use of water. The issue is
confusing because
A) all water is ultimately a free gift of nature.
B) the cost of water is infinite.
C) water in itself, considered simply as a chemical compound, cannot be assigned any
specific cost.
D) we cannot settle a question that is entirely a matter of opinion.
In May, Jones thinks the upcoming summer’s corn crop will be much lower, and the
November corn price will be much higher than most people expect. To act on his belief,
Jones would
A) sell November corn futures.
B) buy November corn futures.
C) simultaneously buy and sell November corn futures.
D) profit only by waiting to see if his original conclusion was correct.
Suppose drug companies come out with new wonder-drugs capable of curing the
common cold. What is the most likely effect on the demand for physicians’ services?
A) The demand will become more elastic.
B) The demand will become more inelastic.
C) The demand will decrease if government or private insurance pays all or most of the
physicians’ fees.
D) The demand will increase if the drugs can only be obtained with a physician’s
prescription.
E) The demand will not change, though the quantity demanded almost certainly will.
Bill Gates wants billions of dollars, and has them. Buddha wanted nothing, and had
nothing. What can an economist conclude?
A) Gates is wealthy, Buddha wasn’t.
B) Buddha was wealthy, Gates isn’t.
C) Gates is wealthy, and so was Buddha.
D) Nothing
According to the text, which of the following consequences could we predict most
confidently if the federal government was effectively required, by a constitutional
amendment, to match expenditures and tax revenues (balance the budget) in each fiscal
year?
A) An end to discretionary fiscal policy
B) An end to efforts to manipulate the economy for partisan political purposes
C) Frequent and sudden changes in previously legislated tax rates and expenditure
commitments
D) Less unemployment but more inflation
Suppose Factory A emits 15,000 units of “Yuck” monthly, Factory B emits 30,000 units,
and Factory C emits 45,000 units. Also suppose A’s cost of reducing the emission is $1
per unit, B’s cost is $2 per unit, and C’s cost is $3 per unit. If the EPA orders each
factory to reduce emissions by 15,000 units, what would be the total cleanup cost?
A) $75,000
B) $90,000
C) $105,000
D) $127,000
A negative externality
A) occurs under any undesirable event.
B) occurs when an action doesn’t take into account the costs it imposes on others.
C) can be a natural phenomenon, such as being struck dead by a bolt of lightening.
D) cannot occur at the same time as a positive externality.
When shortages or surpluses persist for any extended period of time, they
A) are a consequence of failure to allow prices to perform their rationing function.
B) are evidence of an underlying imbalance between demand and supply.
C) are evidence of goods being scarce.
D) indicate that there is no price that will clear the market in the case of some goods.
When the price of a good spikes dramatically, the information conveyed in the market
demonstrates that
A) greed has increased among the suppliers.
B) greed has increased among the demanders.
C) the good has become more scarce than before.
D) the good has become less scarce than before.
Middlemen have a comparative advantage in
A) lowering transaction costs.
B) raising transaction costs.
C) robbery and theft.
D) tax evasion.
E) buying products at a high price and selling them at a lower price.
GDP is used in an attempt to
A) calculate the profitability of a country.
B) measure the economic performance of a country.
C) determine the overall well-being of a country.
D) figure out the prices of all goods and services exchanged in the legal economy.
E) guide entrepreneurs toward more profitable investment decisions.
According to your textbook authors, pollution is
A) an imaginary problem invented by fanatical environmentalists.
B) a major social and political concern because people disagree about rights.
C) a less important problem than inefficiency.
D) always increasing and never capable of being reduced.
Is it possible for the total market demand for a good at the prevailing price to be
inelastic while the demand facing any one seller of the good is highly elastic?
A) No, because each seller’s demand is a part of the total demand.
B) No, because if this were the case the price would fall until the market demand
became elastic.
C) No, because if this were the case the price would rise until the market demand
became elastic.
D) Yes, and it’s actually quite common.
According to economic theory, state governments
A) will be biased toward chronic budget deficits.
B) will act in the public interest.
C) will act in the national interest.
D) will do all of the above.
E) will do none of the above.
A “free rider” is someone who
A) pursues his or her own selfish interests.
B) generates negative externalities for everyone else.
C) accepts benefits without paying his or her share for receiving the benefits.
D) actually improves the efficiency of market processes by buying low and selling high.
Suppose the quantity demanded of milk increases by 15% when milk prices are
decreased by 3%. The price elasticity of demand for milk is
A) elastic and equal to 0.2.
B) inelastic and equal to 0.2.
C) elastic and equal to 5.
D) inelastic and equal to 5.
A merger between a firm extracting petroleum and a firm refining petroleum is a
A) conglomerate merger.
B) diagonal merger.
C) horizontal merger.
D) vertical merger.
Members of the Food and Drug Administration (FDA) will tend to require more testing
of proposed new drugs than is best from the point of view of people who use the drugs,
because FDA members
A) identify themselves with the drug industry.
B) have the technical knowledge to decide what is best for the users of drugs.
C) are blamed if new drugs turn out to have damaging side effects but are not blamed
for the lives lost or discomfort suffered because new drugs were not available sooner.
D) pay for the testing from their own budget and consequently can do as they please.
Suppose a university refunds students 75% of their tuition if they drop out before the
third week of class, 50% if they drop out between their third and fifth week, 25% if they
drop out between their sixth and eighth week, and 0% after the eighth week. Flint paid
$1,000 tuition, and is in his seventh week of class. What’s his sunk cost?
A) $0
B) $250
C) $500
D) $750
E) $1,000
Your friend steals towels from hotels. She then tells you she steals because “many
people steal, so hotels already figure the cost of the stolen towels into the hotel bill of
all customers.” From the economic point of view, your friend’s logic is
A) correct, because what’s fair is fair.
B) correct, because economics champions such selfish behavior.
C) impeccable.
D) incorrect, because it suggests that cost determines price.
E) incorrect, because it suggests that ethical positions can be derived from economic
facts.
Relative prices are an effective way of informing producers of
A) their marginal benefits of production.
B) their marginal costs of production.
C) both A and B.
D) none of the above.
The cost-plus-markup theory of price setting
A) explains why firms can’t raise their prices until their costs rise.
B) explains why percentage markups vary.
C) is consistent with what many sellers say about how they set their prices.
D) takes demand into account in explaining relative prices.
Would the services supplied by prostitutes and brothels be included in calculating GDP
in the United States?
A) Yes, because those are final services.
B) Yes, but only in those states where brothels are legal.
C) No, because those services are immoral.
D) No, because those are not truly economic services.
Promoters for the Rolling Stones were clearly “short selling” when
A) they distributed their latest CD to radio stations free of charge.
B) they sold their latest CD to retailers at wholesale prices.
C) they sold the world-tour concert tickets weeks in advance.
D) they promoted the band without Bill Wyman, the original bass player.
Which of the following might be a final good?
A) A box of Kellogg’s corn flakes
B) An iMac computer
C) A U-Haul rental vehicle
D) An economics textbook
E) Any of the above might be, depending upon who is purchasing it.
In trying to control the size of the money stock from day to day, the Fed relies
principally on
A) adjustments in legal reserve requirements.
B) changes in the central bank discount rate.
C) purchases and sales of U.S. government bonds.
D) the issue and withdrawal of currency from commercial banks.
Economists study
A) the choices people make, but not the consequences of their choices.
B) the consequences of peoples’ choices, but not the choices themselves.
C) the choices people make in a world where resources are scarce.
D) theories and ignore all the facts.
E) data rather than people.
The quantity demanded of a good reflects
A) the number of units of a good people actually purchase.
B) the number of units of a good suppliers will provide.
C) the number of units of a good people plan to purchase at different prices.
D) the number of units of a good people need to purchase.
Tourists in foreign countries are often charged more for hand-made items at tourist
shops compared to the local customers. Why?
A) The tourists are typically less informed than the local customers.
B) The tourists typically have fewer available alternatives compared to the local
customers.
C) The shop owners can usually identify tourists.
D) For all of the above reasons.
If there are 1000 different sellers of a particular good, and they are all charging exactly
the same price, that the sellers are probably
A) colluding.
B) making a profit.
C) oligopolists.
D) price takers.
E) securing government assistance.
A seller who succeeds in getting his various customers to pay different prices for the
same good
A) is keeping his marginal revenue closer to his demand curve than it would otherwise
be.
B) is not using the marginal cost-marginal revenue formula to set prices.
C) must be paying attention to overhead or sunk costs in setting prices.
D) thereby misallocates resources because sales will be less than if a single price is
charged.
In the economic way of thinking, a productive service is
A) a meritorious service.
B) something of clear value to anybody in society.
C) an activity that enables people to obtain something for which they are willing to pay.
D) all of the above.
E) none of the above.