1) As a percentage of GDP, U.S. health care spending is higher than that of any other
major industrial country.
2) The smaller the number of good substitutes for a product, the greater will be the price
elasticity of demand for it.
3) When the total consumer and producer surplus is at a maximum, the deadweight loss
in the market is zero.
4) In the long run, pure competition forces firms to produce at the minimum possible
average total cost and the firms will charge a product price equal to that cost.
5) The anchoring effect suggests that when people are made to think of large abstract
numbers before they go shopping, many of them will subsequently be willing to pay
higher prices for stuff.
6) A tax is progressive if the average tax rate rises as income increases.
7) If the government implements regulations and policies in the economy, it tends to
replace the function of the “invisible hand.”
8) The terms of trade will favor a larger nation over a smaller nation.
9) Most economists conclude that deregulation has reduced prices and led to more
competition in deregulated industries.
10) Answer the question on the basis of the following demand and supply data:
Refer to the data. The supply of this product is inelastic in the $6-$5 price range.
11) The term oligopoly indicates:
A.a one-firm industry.
B.many producers of a differentiated product.
C.a few firms producing either a differentiated or a homogeneous product.
D.an industry whose four-firm concentration ratio is low.
12) The market supply curve indicates the:
A.Minimum acceptable prices that sellers are willing to accept for the product
B.Maximum prices that buyers are willing and able to pay for the product
C.Total revenues that sellers would receive from selling various quantities of the
product
D.Total amount that buyers will pay in buying a given quantity of the product
13) The following table applies to a loan with interest rate of 5% per period:
Refer to the table above. What value goes on the cell labeled Z?
A.$2,200
B.$2,315.25
C.$2,210
D.$2,205
14) Elasticity of resource demand is measured by the:
A.absolute change in resource quantity demanded divided by the absolute change in
resource price.
B.percentage change in resource quantity demanded divided by the percentage change
in resource price.
C.absolute change in resource price divided by the absolute change in resource quantity
demanded.
D.percentage change in resource price divided by the percentage change in resource
quantity demanded.
15) The table below shows the supply and demand schedules for the European euro.
Refer to the table above. Under a flexible exchange rate system, what will be the euro
rate of exchange for one U.S. dollar?
A.0.95 euro
B.1.00 euros
C.1.11 euros
D.1.23 euros
16) Barriers to entry:
A.Usually result in pure competition
B.Can result from government regulation
C.Exist in economic theory but not in the real world
D.Are typically the result of wrongdoing on the part of a firm
17) A budget line shows the:
A.alternative combinations of two goods that a consumer can purchase with a given
money income.
B.alternative combinations of two goods that will yield the same level of total utility to
a consumer.
C.quantities of a particular good that a consumer will buy at various prices.
D.ratio of money income to product price.
18) What is the likely effect on the market for wine of a simultaneous increase in both
consumer incomes and producer taxes on wine?
A.An increase in both price and quantity
B.An increase in price and a decrease in output
C.A decrease in price and an indeterminate effect on quantity
D.An increase in price and an indeterminate effect on quantity
19) In 2011, the portion of the U.S. population that lived in poverty was:
A.About 1%
B.About 5%
C.About 15%
D.About 25%
20) Public goods are those for which there:
A.is no free-rider problem.
B.are no externalities.
C.are nonrivalry and nonexcludability.
D.are rivalry and excludability.
21) Other things equal, the resource demand curve of an imperfectly competitive seller
will:
A.lie below its marginal revenue product curve.
B.be subject to increasing marginal productivity.
C.be less elastic than that of a purely competitive seller.
D.be more elastic than that of a purely competitive seller.
22) Infrastructure is best illustrated by:
A.farm equipment.
B.school buildings and highways.
C.machinery and equipment for the production of consumer goods.
D.government tax revenues.
23) Data on two individuals preferences for a public good are reflected in the table
below. PA and PB represent the prices individuals A and B, the only two people in the
society, are willing to pay for the last unit of a public good, rather than do without.
(a) Complete the table below showing the collective willingness to pay for the public
good in this society.
(b)Given the supply schedule for this public good as shown by the Qs column, what is
the optimal quantity of this public good and what is the optimal price?
(c)What is the perceived marginal benefit and perceived marginal cost when 3 units of
the public good are supplied? What does this indicate about the allocation of resources
to this public good?
24) The unemployed are disproportionately represented among the uninsured because:
A.one must be working to qualify for Medicaid.
B.most workers obtain health insurance through their employers.
C.most are young and in excellent health, so they choose not to purchase health
insurance.
D.a large percentage of the unemployed are heads of single-parent families.
25) Last year the price of corn was $3 a bushel and the quantity of corn demanded was
10 million bushels. This year the price of corn was $4.00 a bushel and the quantity
demanded was 9 million bushels. Is this evidence that law of demand does not apply to
corn?
A.Yes, because there is a direct relationship between the price of corn and the quantity
supplied
B.Yes, because there is an inverse relationship between the price of corn and the
quantity demanded
C.No, because the other-things-equal assumption was violated over the two year period
D.No, because the evidence indicates that there is a shortage of corn
26) Myopia and time-inconsistency are major stumbling blocks that behavioral
economists have found in people’s ability to make decisions that involve trade-offs
between:
A.Importing and exporting
B.Work and leisure
C.The private sector and the government
D.The present and the future
27) Public choice theorists point out that the political process:
A.differs from the marketplace in that voters and congressional representatives often
face limited and bundled choices.
B.is less prone to failure than is the marketplace.
C.is a much fairer way to allocate society’s scarce resources than is the impersonal
marketplace, which is dominated by high-income consumers.
D.involves logrolling, which is always inefficient.
28) Other things equal, the prospect of imitation by others:
A.decreases the expected rate of return on R&D expenditures.
B.increases the expected rate of return on R&D expenditures.
C.increases the interest-rate cost of funds used to finance R&D expenditures.
D.decreases the interest-rate cost of funds used to finance R&D expenditures.
29) Explain the two models/theories of discrimination.
30) What are cognitive biases? Discuss the two general categories.
31) What are heuristics? How are they related to our decision-making processes?
32) What is likely to happen to resource demand in the next few decades?
33) What is the coordination problem in command economics?
34) What is the World Trade Organization and what is it seeking to get adopted?
35) What role does freedom play in capitalism? How important is it to the operation of
a competitive market economy?
36) What are the advantages and disadvantages to the value-added tax (VAT)?