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1) The moral hazard problem is the tendency of some parties to a contract to alter their
behavior as a result of the contract in ways that are costly to the other party.
2) The "hedonic treadmill" of prospect theory suggests that if people's incomes rise and
stay at the new higher level, then their feelings of satisfaction also rise and stay at the
new higher level.
3) Under freely flexible (floating) exchange rates, a U.S. trade deficit with Japan will
eventually cause the dollar price of yen to rise.
4) If people became thriftier and saved more, the loanable funds theory predicts that the
equilibrium interest rate would decrease.
5) If you received a 4% increase in your nominal wage and the price level increased by
6%, then your real wage has increased by 2%.
6) A firm's optimal amount of R&D occurs where the interest-rate cost of funds and the
expected rate of return are equal.
7) The crowding model of occupational segregation predicts that domestic output will
increase if occupational segregation is ended.
8) Economists widely fear that the world will run out of energy in the next century.
9) Higher user costs imply that a resource should be extracted more quickly.
10) The rising general level of real wages in the United States has occurred because
growing population has increased the supply of labor relative to the demand for it.
11) The larger the number of firms in an industry and the less the extent of product
differentiation, the greater will be the elasticity of the individual seller's demand curve.
12)
Refer to the diagram. The initial demand for and supply of pesos are shown by D1 and
S1. Suppose the United States reduces its imports of Mexican goods, shifting its
demand for pesos from D1 to D2. Under a system of freely floating exchange rates:
A.gold would flow from Mexico to the United States.
B.the peso price of dollars would rise from B pesos equals $1 to A pesos equals $1.
C.a problem of rationing a shortage of pesos would arise in the United States.
D.the dollar price of pesos would increase to C dollars equals 1 peso.
13)
Refer to the diagram for a pure monopolist. Monopoly output will be:
A.between f and g.
B.h.
C.g.
D.f.
14) Because of the free-rider problem:
A.the market demand for a public good is overstated.
B.the market demand for a public good is nonexistent or understated.
C.government has increasingly yielded to the private sector in producing public goods.
D.public goods often create serious negative externalities.
15) (Consider This) The story about economist Irving Fisher's conversation with his
masseuse illustrates that interest payments arise because of:
A.the possibility of inflation.
B.the reality of credit risk.
C.imperfect information about the future.
D.the time-value of money.
16) A nation can produce two products: tanks and autos. The table below is the nation's
production possibilities:
Refer to the above table. The marginal opportunity cost of the fourth unit of tanks is:
A.4 units of tanks
B.300 units of autos
C.350 units of autos
D.1000 units of autos
17) Suppose you go to a doctor, but your health insurance plan reimburses you for only
80 percent of the bill. This is an example of:
A.a copayment.
B.a deductible.
C.monopsony power.
D.a deferred benefit plan.
18) At each point on an indifference curve:
A.money income is the same.
B.the prices of the two products are the same.
C.total utility is the same.
D.marginal utility is the same.
19)
Refer to the diagram. A decrease in demand is depicted by a:
A.move from point x to point y.
B.shift from D1 to D2.
C.shift from D2 to D1.
D.move from point y to point x.
20) A usury law is a law that sets the:
A.Federal funds rate
B.Maximum interest rate at which loans can be made
C.Spread between the prime rate of interest and credit card rates
D.Interest paid on 90-day Treasury bills and 30-year bonds of the U.S. government
21)
Refer to the table. Which of the following might reduce the per capita income gap
between countries A and E?
A.Faster population growth in country A than in country E.
B.Greater investment relative to GDP in country E than in country A.
C.More rapid improvement in literacy and education in country A than in country E.
D.Increased capital flight from country A relative to that from country E.
22) Suppose that an individual sees a tremendous opportunity to produce and sell a new
product but dismisses the idea because there is no way to exploit this opportunity for
personal gain. This situation best identifies the:
A.coordination problem under communist central planning.
B.self-sufficiency dilemma under communism.
C.asymmetric information problem under communism.
D.incentive problem under communist central planning.
23) The equation MPL/PL = MPC/PC:
A.designates the MR = MC level of output.
B.assumes imperfect competition in the hiring of labor and capital.
C.is a sufficient condition for the maximization of profits.
D.is a necessary, but not sufficient, condition for the maximization of profits.
24) If a 10 percent wage increase in a particular labor market results in a 5 percent
decline in employment in that market, labor demand is:
A.unit-elastic.
B.elastic.
C.inelastic.
D.perfectly elastic.
25) What will happen to the U.S. dollar price of a euro and the quantity of euros
exchanged when the demand for the euro decreases, but the supply does not change?
Has the U.S. dollar appreciated or depreciated?
26) Explain how monopoly causes an inefficient allocation of resources when the
competitive firm does not, even when both seek to maximize profits.
27) What explains differences in the economic rent charged for two plots of 500 acres
of land that are used for growing corn and located in the same county of a state?
28) Explain the problems with exchange rate controls.
29) Why do developing nations often have low labor productivity? Are the workers just
lazy?
30) Explain in detail how a decrease in consumer demand for a product will result in
less of the product being produced and in fewer resources being allocated to its
production.
31) More research should be devoted to projects which will reduce rather than increase
agricultural surpluses. Is this a sound approach? Explain.
