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According to the textbook, limits on private property rights, e.g., zoning laws, are:
A. market interventions that reduce the size of the economic pie.
B. generally unnecessary, as people have an inherent incentive to use private property
wisely.
C. an attempt to protect or enlarge the total economic surplus.
D. designed to help one group and harm another.
According to the incentive principle:
A. it is irrational to perform volunteer services.
B. people will always take the highest-paying job.
C. benefits are more important than costs in making a decision.
D. people tend to do more of something when the benefits are greater.
Structural unemployment is:
A. the additional unemployment not captured in official statistics resulting from
discouraged workers and involuntary part-time workers.
B. the extra unemployment that occurs during periods of recession.
C. short-term unemployment that is associated with the process of matching workers
with jobs.
D. long-term and chronic unemployment that exists even when the economy is
producing at a normal rate.
If short-run equilibrium output equals 50,000 and potential output (Y*) equals 45,000,
then this economy has a(n) ______ gap that can be closed by _________.
A. expansionary; decreasing taxes
B. expansionary; increasing transfer payments
C. expansionary; decreasing government purchases
D. recessionary; increasing government purchases
Refer to the figure above. The marginal utility of the 4th music CD is
A. 75.
B. 60.
C. 295.
D. 15.
Daily Supply and Demand: Oranges in Hurricane Alley
Refer to the figure above. The price of $4.00 per pound will lead to a(n) _____ of
_____ pounds of oranges per day.
A. excess supply; 20
B. excess demand; 30
C. equilibrium quantity; 20
D. excess demand; 20
Suppose a competitive firm and a monopolist are both charging $5 for their respective
outputs. You can infer that:
A. the marginal benefit from an additional unit sold is $5 for both firms.
B. the marginal benefit from an additional unit sold is $5 for the competitive firm and
less than $5 for the monopolist.
C. the marginal benefit from an additional unit sold is less than $5 for both firms.
D. the competitive firm is charging too much and the monopolist too little.
Dividing the total cost of n units of an activity by n reveals the:
A. average benefit.
B. marginal cost.
C. units per cost.
D. average cost.
When part of the cost of an activity falls on people not pursuing the activity, it is call
a(n):
A. external benefit.
B. prisoner's dilemma.
C. negative externality.
D. positive externality.
Which of the following hypotheses is a plausible explanation for why U.S. households
save so little?
A. Government assistance to the elderly has reduced the need for life-cycling saving.
B. Most American already own homes and, therefore, have less need for life-cycle
saving.
C. The highly developed financial markets in the U.S. have reduced the need for
precautionary saving by Americans.
D. Government assistance to low-income U.S. households has increased the
demonstration effects on spending by the poor.
It is spring, and several graduates of State U are seeking employment. State U graduates
have evenly distributed GPAs, from 2.0 to 4.0, with an average GPA of 3.0. The largest
employer in town, Acme Dynamite, is interviewing candidates, hoping to hire a few
hard workers. While Acme does not require students to submit a transcript with their
applications, the hiring officer believes that high GPAs signal a willingness to work
hard.
Acme has received applications from 10 graduates of State U. Five included transcripts,
all of which indicated GPAs of 3.5 or better. Acme can infer that the five that did not
include transcripts
A. had GPAs of less than 3.0.
B. read the application instructions more carefully.
C. had GPAs evenly distributed between 2.0 and 4.0.
D. had GPAs between 2.0 and 4.0, but can infer nothing else from the lack of
transcripts.
High rates of saving and investing in the private sector promote economic growth by:
A. increasing human capital.
B. improving the social and legal environment.
C. increasing physical capital.
D. improving technology.
Suppose that the total expenditures for a typical household in 2000 equaled $2,500 per
month, while the cost of purchasing exactly the same items in 2005 was $3,000. If 2000
is the base year, the CPI for 2000 equals:
A. 0.83
B. 1.00
C. 1.20
D. 1.25
Refer to the figure above. Point y ___________________________ point v.
A. is more efficient than
B. is less efficient than
C. is equally as efficient as
D. is more attainable than
In an open economy with a given level of real interest rates and risk, a decrease in real
interest rates abroad will ______ capital inflows and ______ the equilibrium domestic
real interest rate.
A. increase; increase
B. increase; decrease
C. decrease; decrease
D. decrease; increase
Pat applies the rational spending rule and purchases 5 units of potato chips and 3 units
of lemonade Suppose the price of lemonade increases. One can predict that Pat will
A. cease purchasing lemonade.
B. reduce purchases of lemonade and increase purchases of potato chips.
C. continue to make the same purchases.
D. reduce purchases of potato chips.
Jack has a ticket to see Bo Bice for which he paid $30 yesterday. He takes an unpaid
day off from work to get ready for the concert. When he arrives at the concert, five
different people offer him $70 for his ticket. Jack decides to keep his ticket. The cost to
Jack of seeing Bo Bice is:
A. $30.
B. $40.
C. $70.
D. $70 plus his forgone earnings.
In general, rational decision making requires one to choose the actions that yield the:
A. largest total benefits.
B. smallest total costs.
C. smallest net benefits.
D. largest economic surpluses.
The time between when Congress decides to cut taxes to stimulate aggregate demand
and when the tax cuts are implemented is an example of:
A. the outside lag in macroeconomic policy.
B. the inside lag in macroeconomic policy.
C. the outside lag in fiscal policy.
D. the inside lag in fiscal policy.
The swing set at a popular and unfenced public park is
A. nonrival.
B. nonexcludable.
C. a collective good.
D. a pure public good.
Three different voters demand curves for a public park are shown on the graphs below.
Suppose the city can purchase land for the park at a cost of $8 per acre. The optimal
park size would be __________ acres.
A. 2
B. 4
C. 6
D. 8
The effect of widespread insurance covering routine medical care is to reduce the
A. equilibrium amount of routine medical care.
B. marginal benefit of routine medical care to the insured.
C. marginal cost of routine medical care to the insured.
D. total cost of routine medical care to the insured.
The marginal benefit of an activity is the:
A. same as the total benefits of the activity.
B. total benefit divided by the level of the activity.
C. extra benefit associated with an extra unit of the activity.
D. total benefit associated with an extra unit of the activity.
One implication of the shape of the demand curve that faces a perfectly competitive
firm is that:
A. If the firm increases its price above the market price, it will earn higher revenue.
B. If the firm decreases its price below the market price, it will earn higher revenue.
C. If the firm increases its price above the market price, it will earn zero revenue.
D. The market is unable to reach a new equilibrium if prices change.
Mary Jane is willing to baby-sit for $6 an hour. Her neighbor called and asked her to
baby-sit for $8 an hour. Mary Jane will earn:
A. consumer surplus of $2 per hour.
B. economic rent of $2 per hour.
C. economic profit of $8 per hour.
D. accounting profit of $8 per hour, but economic profit of $0 per hour.
In the market for saving, the price is the:
A. relative price.
B. real interest rate.
C. nominal interest rate.
D. inflation rate.
Suppose there is only one firm in a region. That single firm is a natural monopoly,
offers a risky work environment, no safety precautions, and low wages. That firm will
A. never install any safety devices.
B. install safety devices in exchange for reduced wages if the cost of providing the
safety devices is less than or equal to the wage reduction agreed to by the workers.
C. only install safety devices if ordered to do so by a regulatory agency.
D. only install safety devices if a competing firm moves to the region.
Refer to the figure above. Based on the figure, which point or points indicate troughs of
the business cycle?
A. A and C and E
B. B and D
C. only A
D. only C
The second round increase in inflation following an adverse supply shock is the result
of:
A. shifts in potential output.
B. increases in the Federal Reserve's target real interest rate.
C. decreases in the Federal Reserve's target real interest rate.
D. increases in long-term inflationary expectations.
According to the textbook, middlemen
A. add no value to economic activity.
B. only add value if the consumer gets a good deal.
C. only add value to themselves.
D. provide value through information and coordination.
