1) That government that has the smallest budget is the most efficient in the economic
sense.
2) U.S. immigrants (legal and illegal combined) have lower prison rates than the
native-born population.
3) When the government is doing “deficit spending,” it will be increasing its total debt.
4) Venture capital is another name for retained earnings.
5) Human beings consume more both in absolute terms and on a per capita basis than
they did 200 years ago.
6) The time-value of money refers to the idea that a given amount of money is more
valuable to a person the sooner it is received.
7) Improved economic growth in the major trading partners of the United States would
reduce its trade deficit.
8) The overconfidence effect exists when people underestimate their chances of being
wrong.
9) If a country’s replacement rate is two births per woman and its total fertility rate is
four births per woman, the country’s population will decline.
10) If a nation starts exporting a product to the rest of the world, then the price of that
product in the exporting nation will rise.
11) The payment earned for taking uninsurable risks in owning and running a business
is called profit.
12) As long as an additional unit of output yields a marginal revenue larger than its
marginal cost it will be adding to total profits of the firm.
13) A firm’s optimal amount of R&D occurs where the marginal benefit of this activity
exceeds marginal cost by the greatest amount.
14) African Americans have higher unionization rates than whites.
15) The supply curve of loanable funds is upsloping because:
A.businesses find more investments to be profitable at low interest rates than at high
interest rates.
B.government budget deficits vary inversely with the equilibrium interest rate.
C.households are willing to save more at high interest rates than they are at low interest
rates.
D.banks lend more at low interest rates than they do at high interest rates.
16) Use the following graph to answer question about the labor resource market faced
by producers of good X:
Refer to the above graph. What will shift D1 to D2?
A.An increase in the price of a substitute input (if the output effect > substitution effect)
B.A decrease in the price of a substitute input (if the substitution effect > output effect)
C.A decrease in the price of a substitute input (if the output effect > substitution effect)
D.An increase in the price of a complementary resource
17) “Government failure” is a prominent topic in:
A.public choice theory.
B.Keynesian economics.
C.socialist theory.
D.behavioral economics.
18) Answer the question on the basis of the following production possibilities tables for
two countries, Latalia and Trombonia:
Refer to the tables. Assume that before specialization and trade, Latalia produced
combination C and Trombonia produced combination B. If these two nations now
specialize completely based on comparative advantage, the total gains from
specialization and trade will be:
A.4 tons of beans.
B.1 ton of pork and 2 tons of beans.
C.4 tons of pork.
D.2 tons of pork and 4 tons of beans.
19) Government lotteries are:
A.used by a large number of states to supplement their tax revenues.
B.illegal in the United States but are a common source of revenue in other countries.
C.used by local governments, but not by state governments.
D.a form of progressive taxation.
20) An institutional change that is needed in most developing nations is:
A.The will to develop
B.Reduced foreign aid
C.Birth control
D.Land reform
21) The Gini ratio of income inequality ranges between:
A.0 and 10,000
B.1 and 10
C. 1 and +1
D.0 and 1
22) The term dollarvotes in a market system means:
A.Inflation will occur if consumers don’t spend wisely
B.Voters may be offered dollars to help elect certain political candidates
C.Government is responsible for determining what will be considered legal tender
D.Consumers “vote” for certain products to be produced by how they spend their
incomes
23) Which of the following best describes the main problem faced by farms in the long
run?
A.Lagging technology has decreased the productivity of farmers and therefore resulted
in low farm prices and incomes.
B.The highly inelastic nature of agricultural demand has caused small year-to-year
fluctuations in farm output to result in highly unstable farm incomes.
C.The supply of farm products has increased relative to the demand for them, and,
because demand is inelastic, farm prices and incomes have therefore declined.
D.The demand for farm products has increased relative to their supply, but the highly
elastic nature of agricultural demand has caused these shifts to result in declining farm
incomes.
24) Answer the question on the basis of the following domestic supply and demand
schedules for a product. Suppose that the world price of the product is $1.
Refer to the given data. With free trade, that is, assuming no tariff, the outputs produced
by domestic and foreign producers respectively would be:
A.1 unit and 15 units.
B.4 units and 7 units.
C.7 units and 0 units.
D.4 units and 6 units.
25)
Refer to the diagram for a monopolistically competitive producer. This firm is
experiencing:
A.a shortage of production capacity.
B.excess capacity of CD.
C.excess capacity of DE.
D.diseconomies of scale.
26) The study of public choice theory involves the economic analysis of the following,
except:
A.Government decision-making
B.Actions by elected officials
C.Impact of budget deficits on the public debt
D.Voting and elections
27) If there is a decrease in the demand for union electrical workers and at the same
time there is a drastic cutback in the numbers of electricians trained by the union, then
the:
A.Wages of electricians are likely to increase and the quantity employed will decrease
B.Wages of electricians are likely to increase and the quantity employed will increase
C.Quantity employed will increase, but the effect on wages is indeterminate
D.Quantity employed will decrease, but the effect on wages is indeterminate
28) Price elasticity of demand is generally:
A.greater in the long run than in the short run.
B.greater in the short run than in the long run.
C.the same in both the short run and the long run.
D.greater for “necessities” than it is for “luxuries.”
29) Prospect theory is based on behavioral economists understanding of how people:
A.React to good things (or gains) and bad (or losses)
B.Make predictions about their future income
C.Search for job-prospects or business prospects
D.Behave under stressful conditions
30) Singapore encourages competition in its health care market by:
A.requiring hospitals to post prices for services and by government publishing hospital
performance records.
B.avoiding any government involvement in the health care market.
C.operating government-run hospitals to compete directly with private hospitals.
D.outsourcing all of its health care services to foreign providers.
31) Neoclassical economists generally believe which of the following about human
behavior?
A.While individuals attempt to make rational decisions, poor computational skills often
lead to systematic errors.
B.People care a lot about fairness and are often willing to sacrifice some of their own
well-being to treat others fairly.
C.When individuals make mistakes in decision making, they adjust to these errors and
rarely repeat them.
D.When individuals are selfless and act for the good of others, the invisible hand guides
the collective behaviors to promote the good of society.
32) At the current price there is a shortage of a product. We would expect price to:
A.increase, quantity demanded to increase, and quantity supplied to decrease.
B.increase, quantity demanded to decrease, and quantity supplied to increase.
C.increase, quantity demanded to increase, and quantity supplied to increase.
D.decrease, quantity demanded to increase, and quantity supplied to decrease.
33)
Refer to the graphs. These production possibilities curves:
A.demonstrate that there can be gains from specialization and trade between the two
nations.
B.reflect the law of increasing opportunity costs.
C.reflect the law of diminishing marginal utility.
D.imply that specialization will be incomplete.
34) If products A and B are complements and the price of B decreases, the:
A.demand curves for both A and B will shift to the left.
B.amount of B purchased will increase, but the demand curve for A will not shift.
C.demand for A will increase and the quantity of B demanded will increase.
D.demand for A will decline and the demand for B will increase.
35) If monopolistically competitive firms have some control over their prices, why dont
they set price above average total cost so they will realize an economic profit in the
long run?
36) What conclusions can be drawn from the game theory view of oligopoly?
37) Explain how individuals fight self-control problems and give a couple examples.
38) Explain: Whenever a number which is less than the previous average of a total is
added to that total, the average will necessarily fall. Conversely, whenever a number
which is greater than the previous average of a total is added to that total, the average
will necessarily rise. How does this help explain the relationship between the various
short-run cost curves? Between the various productivity curves?
39) How did the Clayton Act of 1914 strengthen and clarify the intent of the Sherman
Act of 1890?
40) Examine how the invention of the seatbelt may have created a moral hazard
problem.
41) Explain why the market system is an organizing mechanism.
42) In monopolistically competitive markets neither allocative nor productive efficiency
is realized. Explain.
43) How does profit ration entrepreneurship?
44) Explain the collusive pricing model of oligopoly behavior.