If a surplus exists in a market we know that the actual price is
a. above equilibrium price and quantity supplied is greater than quantity demanded.
b. above equilibrium price and quantity demanded is greater than quantity supplied.
c. below equilibrium price and quantity demanded is greater than quantity supplied.
d. below equilibrium price and quantity supplied is greater than quantity demanded.
Standby passengers on airlines who pay low rates for seats benefit from the low price.
How are the airlines affected?
a. They lose, because the standby passengers do not cover the full cost of the seats.
b. They gain, because the additional revenue covers the “fixed costs” of the flight.
c. They lose, because the gain of the passengers must necessarily come at the expense
of the airline.
d. They benefit as long as the additional revenue from the passengers exceeds the
marginal cost.
According to the Laffer curve,
a. an increase in tax rates will always cause tax revenues to increase.
b. when marginal tax rates are high, an increase in tax rates is likely to cause tax
revenues to increase.
c. when marginal taxes are low, an increase in tax rates will probably cause tax
revenues to decline.
d. when marginal tax rates are high, a reduction in tax rates may increase tax revenue.
Data on income inequality in the United States indicate that
a. rich families stay rich and poor families stay poor.
b. most poor families never significantly rise above the poverty level, but rich families
tend to become less wealthy over time.
c. there is substantial movement among income groupings in the United States.
d. the inequality between the rich and poor in annual consumption expenditures is
greater than the parallel inequality in annual income.
The presence of price controls in a market usually is an indication that
a. an insufficient quantity of a good or service was being produced in that market to
meet the public’s need.
b. the usual forces of supply and demand were not able to establish an equilibrium price
in that market.
c. policymakers believed that the price that prevailed in that market in the absence of
price controls was unfair to buyers or sellers.
d. policymakers correctly believed that, in that market, price controls would generate no
inequities of their own.
Which one of the following is a positive economic statement?
a. An increase in the minimum wage will reduce employment.
b. The minimum wage should be increased.
c. Social justice will be served by increasing the minimum wage.
d. Thoughtful people oppose an increase in the minimum wage.
Which of the following is the most likely result of an increase in the minimum wage?
a. an increase in the employment of unskilled workers
b. a decrease in the number of workers seeking minimum wage jobs
c. an increase in the demand for unskilled workers
d. a decrease in the employment of unskilled workers
Test pilots are paid high wages by airplane makers primarily because
a. the demand for labor in this area is very high relative to the demand for labor in other
areas of employment.
b. the demand for labor in this area is very low relative to the demand for labor in other
areas of employment.
c. the demand for labor in this category is highly elastic.
d. few people possess the required skills and the occupation is very risky.
Which of the following actions of the Fed would increase the money supply?
a. The purchase of U.S. government securities.
b. A reduction in the discount rate.
c. A reduction in the required reserve ratio.
d. All of the above are correct.
If a $50 subsidy is legally (statutorily) granted to the sellers of weed eaters and as a
result the price of weed eaters to consumers falls by $30, the actual benefit of the
subsidy
a. goes completely to buyers of weed eaters.
b. goes completely to sellers of weed eaters.
c. is $30 to buyers and $20 to sellers.
d. is $20 to buyers and $30 to sellers.
If the marginal physical product of more labor is twice as high as the marginal physical
product of more machinery, a profit-maximizing firm will
a. reduce the labor used and increase the machinery used if labor costs half as much as
machinery.
b. reduce the labor used and increase the machinery used if labor and machinery cost
the same amount.
c. reduce the labor used and increase the machinery used only if labor costs more than
twice as much as machinery.
d. reduce the labor used and increase the machinery used only if labor costs exactly
twice as much as machinery.
Figure 3-19
Refer to Figure 3-19. If the government mandated a price increase from Pe to a higher
price, then
a. total surplus would decrease.
b. consumer surplus would increase.
c. total surplus would increase, since producer surplus would increase.
d. total surplus would remain unchanged.
When a third party pays a larger and larger share of the purchasing price of a good,
economic theory indicates that the
a. demand for the good will decline.
b. consumers of the good will have less and less incentive to economize on its use.
c. suppliers of the good will have a stronger incentive to provide the good at low prices.
d. prices of the good will tend to decline with the passage of time.
Which of the following is correct?
a. The Federal Reserve is responsible for conducting monetary policy.
b. The U.S. Treasury controls the money supply through its buying and selling of U.S.
securities.
c. The Treasury is a monetary agency with responsibilities very similar to those of the
Fed.
d. The Federal Reserve System issues U.S. securities.
Which of the following would be most likely to cause an increase in current aggregate
demand in the United States?
a. increased fear that the U.S. economy was going into a recession
b. an increase in the real interest rate
c. sharp increase in the value of stocks owned by Americans
d. a recession in Canada, Mexico, and Western Europe
If new regulations make it illegal to sell older model electrical appliances, then
a. producers of new models that meet the regulations will see demand for their output
rise.
b. consumers who might have purchased to older appliances are clearly made better off.
c. consumers are helped, but the profits of appliance producers are not affected.
d. consumers will certainly gain from the change.
If Trevon voluntarily quits one job, possesses marketable skills, and expects to find a
new job in a few weeks, then Trevon is considered
a. frictionally unemployed.
b. cyclically unemployed.
c. seasonally unemployed.
d. structurally unemployed.
e. unwise to quit his job without already having another one.
A $10 per unit government subsidy paid directly to sellers of heaters will result in
a. a downward shift in the demand curve for heaters by $10.
b. an upward shift in the demand curve for heaters by $10.
c. a downward shift in the supply curve for heaters by $10.
d. an upward shift in the supply curve for heaters by $10.
With voluntary exchange,
a. both the buyer and seller will be made better off.
b. the buyer will be made better off, while the seller will be made worse off.
c. the seller will be made better off, while the buyer will be made worse off.
d. both the buyer and the seller will be made worse off.
The experience of the former Soviet bloc countries illustrates that high rates of
investment may fail to promote rapid economic growth when a country
a. uses central government planning rather than capital markets to allocate investment
funds.
b. has a strong education system.
c. has secure property rights.
d. has a tax system that encourages savings.
The reason that the production possibilities curve is usually a bow-shaped curve instead
of a straight line is that
a. it makes it easier to illustrate the concepts of scarcity and prices with a bow-shaped
curve than it is with a straight line
b. early economists began drawing them in this way and the convention has continued
throughout the years
c. output eventually reaches a maximum and then declines
d. resources are not perfectly adaptable to the production of all goods
A law establishing a minimum legal price for a good or service (the minimum wage for
example) is known as
a. an equilibrium price.
b. a price floor.
c. a price ceiling.
d. a price wall.
If the firms in a competitive price-searcher market are suffering short-run losses, which
of the following will occur in the long run?
a. New firms will enter the industry.
b. Customers of firms that leave the industry will switch to remaining firms.
c. Firms that remain in the industry will face reduced demand.
d. Firms will continue to incur losses.
Which of the following is true?
a. The Great Depression re-enforces the view that raising taxes in the midst of a severe
recession is a bad idea.
b. The Great Depression clearly indicates that a prolonged period of monetary
contraction will keep inflation low and promote monetary stability.
c. The Great Depression illustrates that trade restrictions will protect domestic industry
and save jobs.
d. The Great Depression demonstrates that the political incentive structure during a
severe downturn will encourage politicians to avoid frequent policy changes.
The long-run average total cost curve
a. is an envelope-shaped curve mapped out by the short-run average total cost curves
for alternative plant sizes.
b. intersects the minimum point of each short-run average total cost curve for
alternative plant sizes.
c. rises throughout its entire range when increasing returns are present.
d. falls throughout its entire range due to the law of diminishing returns.
When the unemployment rate is low, the impact of additional spending on real output
will
a. be larger than when the unemployment rate is high.
b. be smaller than when the unemployment rate is high.
c. be the same as when the unemployment rate is high.
d. place downward pressure on the general level of prices, leading to deflation.
Which of the following is most likely to occur if a union can transfer profits from a
unionized employer to union workers?
a. The investment expenditures of the unionized employer will tend to fall.
b. Employment in the nonunion sector will tend to fall.
c. The costs of the unionized employer will tend to fall.
d. The output of the unionized employer will tend to increase.
Because many resource prices are set by long-term contracts, in the short run
a. costs will increase by more than product prices when demand increases.
b. costs will decrease when the demand for products increases.
c. costs will increase by less than product prices when demand increases.
d. costs will decrease by more than product prices when demand decreases.
In the United States, the money supply (M1) consists of
a. paper currency, coins and traveler’s checks.
b. government bonds, currency, demand deposits, other checkable deposits, and
traveler’s checks.
c. paper currency, coins, demand deposits, and savings deposits.
d. coins, paper currency, demand deposits, other checkable deposits, and traveler’s
checks.
“Mediocre economists often consider only the immediate apparent effects of a change,
whereas a good economist will also consider effects that may only become observable
over time.” This statement most clearly emphasizes
a. the fallacy of composition.
b. economizing behavior.
c. the importance of secondary effects.
d. the fact that association is not causation.
This year Terrance earned $3,000 more than last year. As a result, he received $2,500
less in government transfers. Therefore, Terrance’s implicit marginal tax rate is about
a. 16 percent
b. 25 percent
c. 66 percent
d. 83 percent
The primary cause of frictional unemployment is
a. discouraged workers who give up looking for work.
b. fluctuations in aggregate demand.
c. the lack of training and marketable qualifications in job seekers.
d. inaccurate and costly information about job opportunities.
For a typical product, an increase in consumer income will cause the market demand for
the product to
a. decrease, which is a shift to the left of the demand curve.
b. decrease, which is a shift to the right of the demand curve.
c. increase, which is a shift to the left of the demand curve.
d. increase, which is a shift to the right of the demand curve.