Matt has decided to purchase his textbooks for the semester. His options are to purchase
the books via the Internet with next day delivery to his home at a cost of $175, or to
drive to campus tomorrow to buy the books at the university bookstore at a cost of
$170. Last week he drove to campus to buy a concert ticket because they offered 25
percent off the regular price of $16.
The benefit to Matt was ____ from driving to campus to buy the concert ticket last
week.
A. $2
B. $4
C. $9
D. $16
Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the
price of a jar of peanut butter is $3.
Dusty can buy a maximum of _____ loaves of bread or a maximum of _____ jars of
peanut butter.
A. 20; 10
B. 15; 15
C. 10; 20
D. 10; 5
In the market for coffee, for many consumers:
A. tea is a substitute.
B. non-dairy creamer is a substitute.
C. cola beverages are complements.
D. coffee mugs are substitutes.
Suppose that the share of population employed in Country B is 50 percent, and that
Countries B and C have the same real GDP per capita. Based on the information in the
table, what share of Country C’s population must be employed?
A. 5.0 percent
B. 20.0 percent
C. 40.0 percent
D. 50.0 percent
Suppose that the total production of an economy consists of 10 oranges and 5 candy
bars, each orange sells for $0.20, and each candy bar sells for $1.00. Which expression
of the output of this economy is most consistent with the concept of GDP?
A. This economy produces two-thirds oranges and one-third candy bars.
B. This economy produces food valued at $1.20.
C. This economy produces 15 food items.
D. This economy produces $7.00 worth of food.
Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the
price of a jar of peanut butter is $3.
If Dusty’s income falls to $20, the rational spending rule would predict that Dusty will
buy
A. more bread and less peanut butter.
B. less bread and more peanut butter.
C. less bread and less peanut butter.
D. more bread and the same amount of peanut butter.
This graph illustrates the marginal costs and marginal benefits of acquiring information
before making a major purchase.
Suppose this graph describes a town in which the only way to gather any information
about the good is through Consumer Reports. If the subscription price of Consumer
Reports increases
A. the marginal benefit curve will shift from MB to MB1.
B. the marginal cost curve will shift from MC2 to MC.
C. the marginal benefit curve will shift from MB1 to MB.
D. the marginal cost curve will shift from MC to MC2.
If both the lender and borrower agree on an 8% interest rate, both expect a 4% inflation
rate, and inflation turns out to be 4%, then ______ by the inflation.
A. the borrower is hurt and the lender gains
B. the borrower gains and the lender is hurt
C. neither the borrower nor the lender are hurt
D. both the borrower and lender are hurt
Suppose that two types of indistinguishable coffee beans are imported to the U.S.: those
grown in the mountains of South America and those grown in greenhouses in Canada.
Mountain grown coffee produces a better tasting coffee, but buyers cannot distinguish
the beans by sight or smell. Only the importers know the source of the beans. Buyers
value mountain grown beans at $10 a pound and greenhouse grown beans at $3 a
pound. Assume that 70% of imported beans are mountain grown, and 30% are
greenhouse grown.
Mountain grown beans will ________ unless importers can _______
A. disappear from the market; trick buyers.
B. dominate the market; increase imports from Canada.
C. dominate the market; reduce the price of Canadian beans.
D. disappear from the market; credibly signal their source.
Suppose a jar of DeLux popcorn that is ultimately sold to a customer at Friendly
Groceries is produced by the following production process:
What is the sum of the value added of all of the firms?
A. $3.00
B. $4.00
C. $6.50
D. $7.00
Changes in government purchases affect planned spending:
A. only when there is an expansionary gap.
B. autonomously.
C. directly, by changing autonomous expenditures.
D. indirectly, by changing induced expenditures.
Additional economic growth should be pursued when:
A. new technologies are discovered.
B. scarcity exists.
C. the marginal costs of growth exceed the marginal benefits.
D. the marginal costs of growth are less than the marginal benefits.
Because the minimum wage is not indexed to inflation, when there is inflation, the
nominal minimum wage _____, and the real minimum wage _____.
A. remains constant; decreases
B. remains constant; remains constant
C. decreases; remains constant
D. increases; decreases
Short-term economic fluctuations are ______ in length and severity and ______ to
predict.
A. regular; difficult
B. regular; easy
C. irregular; easy
D. irregular; difficult
Suppose the elasticity of labor demand is less than 1 in absolute value. Imposing a
minimum wage in the labor market will
A. increase the incomes of all current workers.
B. result in no unemployment.
C. increase the size of the firms’ total wage bill.
D. make few workers better off.
Campus Bookstore is the only textbook supplier in the town, a profit-maximizing
business. The table below represents the reservation prices for the eight students
enrolled in the class for which this book is required.
Assume that the marginal and average total cost for each book is $12.
Refer to the information above. How much should the bookstore charge for this book if
it must charge a single price to all customers?
A. $36
B. $18
C. $24
D. $12
Refer to the figure above. If you were to draw the marginal revenue curve in this figure
it would:
A. lie on top of the demand curve.
B. intersect the demand curve at a price of $35.
C. intersect the horizontal axis at a quantity of 35.
D. have a slope equal to the reciprocal of the slope of the demand curve.
Refer to the figure above. The economy pictured in the figure has a(n) ______ gap with
a short-run equilibrium combination of the price level and output indicated by point
___.
A. recessionary; A
B. recessionary; B
C. expansionary; C
D. expansionary; A
Three different voters demand curves for a public park are shown on the graphs below.
The market reservation price is $14 per acre for a(n) ___ public park
A. 2-acre
B. 4-acre
C. 6-acre
D. 8-acre
Suppose that firms that had high rates of injury had to pay more for workers’
compensation than firms with lower rates of injury. This change would
A. unfairly penalize innovative firms.
B. provide an incentive for firms to reduce risk of injury.
C. provide an incentive for firms to reduce expenditures on safety equipment.
D. reduce efficiency in labor markets.
A drawback of using market values to aggregate the quantities of goods and services
produced in an economy is that:
A. higher-priced items count more.
B. GDP increases when not all goods are produced in greater quantities.
C. market prices generally reflect the economic benefit consumers expect to receive
from an item.
D. not all economically valuable goods and services are bought and sold in markets.
A tax increase that affects both aggregate demand and potential output is predicted to
_____ the long-run equilibrium level of output, while inflation _____.
A. decrease; increases
B. increase; decreases
C. decrease; may increase, decrease, or remain unchanged
D. decrease; decrease
Starting from potential output, if consumer confidence decreases and consumers decide
to spend less, then this will generate a(n) _____ gap and inflation will _____.
A. recessionary; increase
B. recessionary; decrease
C. expansionary; decrease
D. expansionary; increase
Suppose that the share of population employed in Country C is 50 percent, and that
Countries C and D have the same real GDP per capita. Based on the information in the
table, what share of Country D’s population must be employed?
A. 12.5 percent
B. 25.0 percent
C. 75.0 percent
D. 100.0 percent
Pat works for a landscape contractor, generating gross revenues of $50 per hour.
Non-labor variable costs total $10 per hour. Pat loves to garden, and would be willing to
work for $15 per hour. Assume that the labor market is perfectly competitive.
For each hour that Pat works, the landscape company’s net benefits are
A. equal to Pat’s reservation price.
B. $50 minus Pat’s wage.
C. $40 minus Pat’s wage.
D. zero, because non-labor variable costs and Pat’s wage completely consume revenues.
Which of the following expenditures would increase the investment component of U.S.
GDP?
A. You purchase a new house.
B. You purchase a new car.
C. You purchase 1,000 shares of stock.
D. You pay a commission to your stock broker for selling some stocks that you owned.
Suppose the following information describes the economy:
Private saving equals ____; public saving equals ______; national saving equals ____.
A. 100; 200; 100
B. 100; 100; 200
C. 200; 100; 300
D. 200; 100; 500
Which of the following is correct?
A. National saving equals private saving plus public saving.
B. Public saving equals national saving plus private saving.
C. Private saving equals national saving plus public saving.
D. National saving equals public saving minus private saving.
Suppose there are three kinds of people living in Midtown: people who do not have a
lot of money, and so cannot afford to conspicuously consume; people who come from
old money, all of whom believe that conspicuous consumption is in exceedingly poor
taste; and the newly rich, all of whom engage in conspicuous consumption.
In Midtown, if you observe someone driving a flashy new car you can assume that he or
she
A. is either from an old money family or newly rich.
B. is deeply in debt.
C. does not from an old money family.
D. does not care what other people think of them.
Refer to the figure above. The equilibrium price in this market is $_____ and the
equilibrium quantity is approximately ____
A. 35; 30
B. 25; 20
C. 35; 17
D. 45; 7
Hotelling’s model has been used to describe differentiation in the political “market”.
Suppose that 100 voters are evenly arrayed between the extreme left and the extreme
right on the political spectrum, and that all voters vote, and they always vote for the
candidate closest to them on this spectrum. The numbers on this spectrum represent the
number of voters lying to the left of the number. So, at the midpoint, fifty voters lie to
the left and fifty to the right. At the extreme right end, all 100 voters lie to the left.
Refer to the information given above. If Candidate X is running against Candidate Z, by
moving to the right Candidate X would:
A. lose some votes from voters on the far left but gain approximately the same number
of votes from Z.
B. not lose any votes from voters on the left and gain some from Z.
C. force Z to move farther to the right in order to keep the same number of votes.
D. win the election if the move placed X anywhere to the right of the 25 mark on the
spectrum.
Positive economic principles are those that:
A. are always correct.
B. are influenced by political ideology.
C. predict how people should behave.
D. predict how people will behave.
The market for bagels contains two firms: BagelWorld (BW) and Bagels’R’Us (BRU).
The owners of the two firms decide to fix the price of bagels. The table shows the total
profits the firms will earn if they abide by the price setting agreement or if they cheat on
the agreement.
Refer to the figure above. For Bagels ‘R’ Us, __________ is its __________.
A. abiding by the agreement; dominant strategy
B. cheating on the agreement; dominated strategy
C. cheating on the agreement; dominant strategy
D. abiding by the agreement; dominant strategy when Bagel World also abides
Hotelling’s model has been used to describe differentiation in the political “market”.
Suppose that 100 voters are evenly arrayed between the extreme left and the extreme
right on the political spectrum, and that all voters vote, and they always vote for the
candidate closest to them on this spectrum. The numbers on this spectrum represent the
number of voters lying to the left of the number. So, at the midpoint, fifty voters lie to
the left and fifty to the right. At the extreme right end, all 100 voters lie to the left.
Refer to the information given above. If Candidate X is running for office against
Candidate Z, the result will be that:
A. all voters to the left of Z will vote for X, and all voters to the right of Z will vote for
Z.
B. all voters who would have voted for Candidate Y will vote for Candidate X.
C. Candidate Z will certainly win.
D. Candidate X might win, but the result is uncertain.
Countries with small amounts of capital per worker tend to have ______ levels of real
GDP per person and ______ levels of average labor productivity.
A. high; high
B. high; low
C. low; low
D. low; average