If the demand curve fails to capture all of the benefits of consumption, then the:
A. equilibrium price will be efficient but the equilibrium quantity will be inefficiently
large.
B. equilibrium price will be inefficiently low.
C. government needs to impose regulations that require more consumption.
D. equilibrium price will be inefficiently high.
Recessions begin at ______ and end at _____.
A. the highest unemployment rate; the lowest unemployment rate
B. the lowest unemployment rate; the highest unemployment rate
C. a peak; a trough
D. a trough; a peak
Net taxes equal the amount that the:
A. government pays the private sector plus the amount of private sector pays the
government.
B. government pays the private sector minus the amount the private sector pays the
government.
C. business sector pays the government minus the amount the private sector pays the
government.
D. private sector pays the government minus the amount the private sector receives
from the government.
Refer to the figure below. This graph suggests that the private market provides
incentives to:
A. eliminate the externalities generated by paper production.
B. under-produce paper relative to the social optimum.
C. over-produce paper relative to the social optimum.
D. over-price paper relative to the social optimum.
Larry was accepted at three different graduate schools, and must choose one. Elite U
costs $50,000 per year and did not offer Larry any financial aid. Larry values attending
Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an
annual $10,000 scholarship. Larry values attending State College at $40,000 per year.
NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship.
Larry values attending NoName at $15,000 per year. Larry’s opportunity cost of
attending State NoName U is:
A. $60,000
B. $30,000
C. $20,000
D. $15,000
Public schools require proof that a child has been immunized against several diseases
before enrolling. Why?
A. People don”t realize that becoming vaccinated entails no risk.
B. It is a costly to fake signal that a child is healthy.
C. It is an efficient way to publicize the need for immunizations.
D. People do not adequately account for the external cost of not vaccinating their
children.
Almost every holiday season at least one gift idea achieves fad status. When that
happens, prices tend to increase dramatically. Why?
A. Sellers want to take advantage of people who received a year-end bonus.
B. Quantity demanded exceeds quantity supplied.
C. Too much government regulation in the market.
D. The demand curve for fad items is upward-sloping.
Higher nominal interest rates ______ the amount of money demanded and higher real
income ______ the amount of money demanded.
A. increase; increases
B. increase; decreases
C. decrease; increases
D. decrease; decreases
Your economics professor has announced that he or she will assign final grades as
follows: the top 20 percent of students will get an A, the bottom 20 percent of students
will get an F, and everyone else will get a C. You would expect that, as the semester
progresses, students who really care about getting an A will:
A. study less and less to maintain low standards.
B. try to forget about the grading scheme.
C. engage in a positional arms race, studying more and more.
D. maintain a stable agreement to not study for exams.
Refer to the figure below. Based on the diagram, if potential output equals 8,000 and
the real interest rate is 2%, then there is ______ gap and the Fed must ______ the real
interest rate so that output will equal potential output.
A. a recessionary; raise
B. an expansionary; reduce
C. no output; not change
D. an expansionary; raise
Martha did not like her job as a receptionist, so she quit and is looking for one that
better suits her artistic talents. Ting Pei would like to work, but employers are not
willing to hire him because he does not speak English. Martha is ______ unemployed
and Ting Pei is ______ unemployed.
A. frictionally; structurally
B. structurally; frictionally
C. cyclically; structurally
D. structurally; cyclically
According to the Incentive Principle:
A. it is irrational to perform volunteer services.
B. people will always take the highest-paying job they are offered.
C. benefits are more important than costs in making a decision.
D. people tend to do more of something when its benefits are greater.
National defense services provided by the military are:
A. included in GDP at market prices.
B. included in GDP at cost.
C. excluded from GDP because they are not sold in markets.
D. excluded from GDP because they are intermediate goods.
Based on the information in the table, if the public had not decided to hold more
currency in 1932, but the actions of the Federal Reserve and the banks remained the
same, the money supply at the end of 1932 would have been:
A. $33.8 billion
B. $34.2 billion
C. $35.9 billion
D. $36.1 billion
School districts in which relatively more parents choose to not have their children
immunized:
A. tend to be in poorer neighborhoods.
B. have higher rates of the diseases for which immunization is normally required.
C. have lower rates of the diseases for which immunization is normally required.
D. are in violation of federal health care regulations.
Suppose the table below describes the demand for a good produced by monopolist.
Based on the data in the table, we know the firm should:
A. be able earn an economic profit.
B. produce more than 7 units.
C. not produce the seventh unit.
D. not produce the fifth unit.
Refer to the figure below. What is the price elasticity of demand when the price of rice
is $3 per pound?
A. 0.5
B. 0.67
C. 0.75
D. 2
“As the price of personal computers continues to fall, demand increases.” This headline
is inaccurate because:
A. a change in the price of personal computers shifts the demand curve.
B. a change in the price of personal computers shifts the supply curve.
C. the statement is backwards: increased demand leads to lower prices.
D. a falling price for personal computers increases quantity demanded, not demand.
U.S. households wishing to purchase shares of stock in a European company are
______ the foreign exchange market.
A. suppliers of U.S. dollars in
B. suppliers of Euros in
C. supplied Euros by the Fed for use in
D. demanders of U.S. dollars in
Efficiency occurs when:
A. a market is in equilibrium.
B. the socially optimal quantity of goods and services is being produced.
C. the individually rational quantity of goods and services is being produced.
D. the government does not interfere with market prices.
Refer to the figure below. If the market for doughnuts is perfectly competitive, and the
price of a doughnut is 25 cents, then at this firm’s profit maximizing level of output, the
firm will earn an economic ______ of ______ per day.
A. profit; $80
B. profit; $8
C. loss; $10
D. loss; $80
The major prediction of the lemons model is that:
A. asymmetric information reduces the average quality of goods offered for sale.
B. people will generally choose “low-hanging fruit”.
C. a used car in good condition can be sold for a higher-than-average price.
D. used cars offered for sale are generally in better-than-average condition.
In Macroland there is $12,000,000 in currency. The public holds half of the currency
and banks hold the rest as reserves. If banks’ desired reserve/deposit ratio is 12.5%,
deposits in Macroland equal ______ and the money supply equals _______.
A. $48,000,000; $75,000,000
B. $54,000,000; $54,000,000
C. $48,000,000; $54,000,000
D. $96,000,000; $96,000,000
Consider a town with three residents. The residents’ demand curves for various acres of
a public park are shown below.
Suppose the town can purchase land for the park at a cost of $20 per acre. The optimal
park size would be ______ acres.
A. 2
B. 4
C. 6
D. 8
Suppose that the price of chicken rises sharply compared to the price of turkey. In
response, consumers buy more turkey and less chicken than they did in the CPI base
year. In this situation the CPI will tend to ______ inflation as a result of ______ bias.
A. overstate; substitution
B. understate; substitution
C. accurately measure; substitution
D. overstate; quality adjustment
Human capital is:
A. the factories and machinery used by humans in the production process.
B. the talents, training, and education of workers.
C. the financial resources available to humans for investment.
D. the factories and machinery made by workers.
Jessica’s marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25
can also be called her:
A. marginal revenue.
B. equilibrium price.
C. reservation price.
D. producers surplus.
According to Okun’s law, when cyclical unemployment increases from 1 percent to 2
percent, the recessionary gap increases from ______.
A. -2 percent to -4 percent
B. -1 percent to -2 percent
C. 2 percent to 4 percent
D. 1 percent to 2 percent
The expected benefit of investment equals:
A. private saving.
B. the value of the marginal product of capital.
C. the real interest rate.
D. the price of the capital good.
If the marginal utility of the 3rd cup of coffee is 23 and the marginal utility of the 4th
cup is 15, then:
A. it is optimal for the consumer to have 3 cups of coffee.
B. the price of a cup of coffee must be relatively low.
C. it is optimal for the consumer to have 4 cups of coffee.
D. there is evidence of diminishing marginal utility.
Which of the following would increase the consumption component of U.S. GDP?
A. You purchase a bottle of California wine.
B. A person in Paris purchases a bottle of California wine.
C. A restaurant in Denver purchases a bottle of California wine to include on its wine
list.
D. The U.S. government buys a bottle of California wine to serve at a state dinner in the
White House.