How will a reduction in the price of cotton influence the market for blue jeans?
a. The cost of producing blue jeans will fall, and the supply curve for blue jeans will
shift to the left.
b. The cost of producing blue jeans will fall, and the supply curve for blue jeans will
shift to the right.
c. The cost of producing blue jeans will rise, and the supply curve for blue jeans will
shift to the left.
d. The cost of producing blue jeans will rise, and the supply curve for blue jeans will
shift to the right.
In both price-taker and competitive price-searcher markets, when an increase in market
demand disrupts a long-run equilibrium, it will lead to
a. higher short-run prices and long-run profits.
b. higher short-run prices, short-run profits, and the entry of additional firms into the
market.
c. higher short-run prices and the exit of firms from the market due to economies of
scale.
d. no change in prices in the short run, but new firms will enter in the long run.
The process by which new products and methods of production are continuously
replacing old ones is known as
a. the invisible hand principle.
b. the production possibilities frontier.
c. creative destruction.
d. the fallacy of composition.
The principle of diminishing marginal utility says that
a. as more of a good or service is consumed, demand will decrease.
b. as more of a good or service is consumed, the price will rise.
c. the marginal utility of additional units consumed will increase.
d. the marginal utility of additional units consumed will decline.
If the Federal Reserve wants to increase the availability of money and credit, it can
a. lower the discount rate.
b. raise the reserve requirements.
c. sell government bonds to the public.
d. encourage banks to increase their prime lending rate.
When production of a good provides external benefits, there will be
a. too few resources devoted to its production.
b. too many resources devoted to its production.
c. the optimal amount of resources devoted to its production.
d. abnormally high profits earned by producers of the good.
The major categories of federal government spending are
a. health care, national defense, Social Security, and other income transfers.
b. law enforcement, environmental protection, and national defense.
c. public education, garbage collection, and public parks.
d. health care, public education, and highways.
About 35,000 general aviation multiengine airplanes are licensed to operate in the
United States. If an additional $1,000-per-year tax was levied on each plane to raise
general revenue, economic thinking suggests the
a. annual revenue from this tax would be less than $35,000,000.
b. annual revenue from this tax would be $35,000,000.
c. annual revenue from this tax would be more than $35,000,000.
d. number of airplanes would increase dramatically.
According to the Keynesian view, if real GDP is slowing and the economy appears to
be headed for a recession, a reduction in tax rates is
a. highly appropriate because it will stimulate aggregate demand and, thereby, help to
strengthen the economy.
b. highly inappropriate because it will either reduce the size of the budget surplus or
increase the size of the deficit.
c. not very important because the “demand stimulus effects” of the tax cut will be
largely offset by additional borrowing.
d. not very important because the “demand stimulus effects” of lower current taxes will
be largely offset by the expectation of higher taxes in the future.
Which of the following is the best definition of money?
a. Anything generally accepted as payment for goods or repayment of debt
b. Anything that can be converted to a liquid asset
c. A national currency that is backed by gold or other precious metals
d. Paper or coin currency that is produced by the Federal Reserve
If the government owes $15.0 trillion and then borrows $900 billion more this year, this
leads to
a. a debt of $900 billion and a deficit of $15.9 trillion.
b. a debt of $15.9 trillion and a deficit of $900 billion.
c. a debt of $14.1 trillion and a deficit of $900 billion.
d. a debt of $15.0 trillion and a deficit of $14.1 trillion.
e. a debt of $15.9 trillion and a deficit of zero.
The current worth of future income after it is discounted, to reflect the fact that future
dollars are worth less than current dollars, is called
a. the net present value of the income.
b. arbitrage.
c. the inflationary premium.
d. the real interest rate.
Which of the following is a danger of inflation?
a. Price changes can affect the people who sign long-term contracts.
b. Rapid price changes reduce uncertainty.
c. Anticipated inflation may be greater than unanticipated inflation.
d. High rates of inflation will reduce interest rates.
Starting from an initial long-run equilibrium, under the rational expectations
hypothesis, an anticipated shift to a more expansionary policy will increase
a. prices but not real output in the short run.
b. real output but not prices in the short run.
c. real output in the long run but not in the short run.
d. real output in both the long run and the short run.
Suppose a typical firm in a particular industry is making positive economic profits.
These economic profits
a. reflect a waste of society’s scarce resources and reflect inefficient production.
b. signal owners of factors of production to move their resources out of that industry.
c. imply that accounting costs are greater than economic costs in this industry.
d. signal owners of factors of production to move resources into this industry.
Public choice theory suggests politicians will be most likely to favor redistribution of
income from
a. the rich to the poor.
b. unorganized taxpayers to well-organized interest groups.
c. middle-income taxpayers to both the rich and the poor.
d. well-organized businesses and labor groups to consumers.
In 1961, ____ percent of college degrees were earned by women.
a. 19
b. 29
c. 39
d. 51
Under current policy, the Fed ties the discount rate to the
a. prime rate.
b. AAA corporate bond rate.
c. federal funds rate.
d. long-term government bond rate.
According to the Keynesian view, the prolonged unemployment of the Great
Depression
a. was surprising because Keynesians believed that wage rates would decline and direct
the economy to full employment.
b. was surprising because Keynesians believed that lower interest rates would direct the
economy to full employment.
c. resulted because the total expenditures on goods and services were less than the
full-employment rate of output.
d. resulted because the federal government ran large budget deficits during the 1930s.
In a world of imperfect knowledge and uncertainty, the return to investors who
undertake projects that increase the value of resources is called
a. economic profit.
b. accounting profit.
c. the inflationary premium.
d. the real interest rate.
The crowding-out effect suggests that
a. restrictive fiscal policy is an effective weapon against inflation.
b. expansionary fiscal policy will be a highly effective weapon for fighting a
recessionary downturn
c. a budget surplus will cause the demand for loanable funds to decline, interest rates to
rise, and aggregate demand to decrease.
d. budget deficits that lead to higher interest rates reduce private investment spending.
If Santiago thinks the last dollar spent on jeans yields less satisfaction than the last
dollar spent on shoes, and Santiago is a utility-maximizing consumer, he should
a. decrease his spending on shoes.
b. decrease his spending on shoes and increase his spending on jeans.
c. increase his spending on jeans.
d. increase his spending on shoes and decrease his spending on jeans.
An important explanation for the current account deficit and capital account surplus in
the United States is that
a. we buy fewer goods from foreigners than they buy from us, and foreigners find the
United States an attractive place to invest.
b. we buy more goods from foreigners than they buy from us, and foreigners find the
United States an attractive place to invest.
c. we buy fewer goods from foreigners than they buy from us, and Americans find
foreign countries an attractive place to invest.
d. we buy more goods from foreigners than they buy from us, and Americans find
foreign countries an attractive place to invest.
Women earn less on average than men. Which of the following would be the logical
conclusion?
a. Women must be the victim of employment discrimination.
b. Women must be less productive.
c. Men must be more highly motivated and materialistic.
d. Without consideration of preferences and productivity factors, differences in
unadjusted mean earnings do not necessarily reflect employment discrimination.
Use the figure to answer the following question(s).
Figure 10-3
What price should a competitive price searcher firm with the cost and demand
conditions depicted in Figure 10-3 charge if it wants to maximize its profit?
a. $6
b. $8
c. $10
d. $12
If salsa and nacho chips are complements, an increase in the price of nacho chips would
a. increase the price of salsa.
b. decrease the demand for salsa.
c. increase the demand for salsa.
d. have no effect on the demand for salsa.
During the past quarter of a century, which of the following has contributed to the
economic growth of China?
a. agricultural reforms adopted in the late 1970s
b. low taxes and deregulation in the special economic zones that were established
during the 1980s
c. the relaxation of restraints on foreign trade and joint ventures
d. all of the above
In order for effective price discrimination to occur, a seller must
a. be a pure monopolist.
b. have large economies of scale and control over a key natural resource.
c. face a horizontal demand curve for its product.
d. have at least two distinguishable groups of consumers.
The supply curve of truck drivers is upward sloping and demand curve is downward
sloping. A reduction in the price of hauling freight by truck relative to the price of
hauling freight by rail will ____ the equilibrium wage of truck drivers and ____ the
number of drivers employed.
a. decrease; decrease
b. decrease; increase
c. increase; decrease
d. increase; increase
During the 1980s and 1990s, the Federal Reserve’s monetary policy focused primarily
on
a. keeping short-term interest rates low in order to stimulate real output and economic
growth.
b. a variety of factors, such as unemployment and real GDP, resulting in variable
inflation rates throughout this period.
c. keeping inflation low and the general price level relatively stable.
d. monetary expansion in order to reduce unemployment.
Given freedom of movement for both goods and resources, if Florida producers
specialize in oranges and Georgia producers specialize in peaches, then it would be
reasonable to conclude that
a. the opportunity cost of growing oranges is higher in Florida than in Georgia.
b. Georgia has a comparative advantage in producing peaches.
c. Florida has a comparative advantage in producing peaches.
d. total output will be expanded when Georgia allocates more resources to producing
oranges and Florida allocates more resources to producing peaches.
As a company adds the first four workers to its production process in the short run, its
output rises from 0 to 12 to 25 to 35 to 43. Addition of the fifth worker will most likely
lead to an output rate
a. greater than 51.
b. equal to 51.
c. less than 51.
d. greater than 51 if the firm experiences diseconomies of scale.
e. none of the above.
The market for new issues of stock is called the
a. primary market.
b. secondary market.
c. The New York Stock Exchange (NYSE).
d. The Chicago Board of Trade.
Suppose Ford, GM, and Dodge make the majority of pick-up trucks sold in the United
States If they all sell for approximately the same price, and Ford offers a $2,000 rebate
on new truck sales, what can Ford expect to see?
a. an unprecedented increase in truck sales
b. an immediate response by GM and Dodge
c. a visit from the antitrust authorities of the government
d. a revolution from Ford stockholders
e. announcements by GM and Dodge that plans are underway to produce a much
cheaper pick-up truck in six years
Which one of the following is the best description of a monopolist?
a. a firm that produces a single product
b. a firm that is the sole producer of a narrowly defined product class, such as yellow,
grade-A butter produced in Wisconsin
c. a firm that is the sole producer of a product for which there are no good substitutes in
a market with high barriers to entry
d. a firm that is large relative to its competitors