A positive economic statement such as “Pollution taxes decrease the quantity of
pollution generated by firms”
a. would likely be made by an economist acting as a policy advisor.
b. would require values and data in order to be evaluated.
c. would require data but not values in order to be evaluated.
d. could not be evaluated by economists acting as scientists.
Economists disagree on whether labor taxes cause small or large deadweight losses.
This disagreement arises primarily because economists hold different views about
a. the size of labor taxes.
b. the importance of labor taxes imposed by the federal government relative to the
importance of labor taxes imposed by the various states.
c. the elasticity of labor supply.
d. the elasticity of labor demand.
Suppose that Juan Carlos is filling out a survey that he received in the mail. The survey
asks him what he would do if the price of his favorite toothpaste increased. Juan Carlos
reports that he would switch to a different brand. The survey asks what he would do if
the price of all toothpastes increased. Juan Carlos reports that he must use toothpaste, so
he would have to adjust his spending elsewhere. These examples illustrate the
importance of
a. changes in total revenue in determining the price elasticity of demand.
b. a necessity versus a luxury in determining the price elasticity of demand.
c. the definition of a market in determining the price elasticity of demand.
d. the time horizon in determining the price elasticity of demand.
President Bigego is running for re-election against Senator Pander. Bigego proclaims
that more people are working now than when he took office. Pander says that the
unemployment rate is higher now than when Bigego took office. You conclude that
a. one of them must be lying.
b. both of them could be telling the truth if the labor force and employment grew at the
exact same rate.
c. both of them could be telling the truth if the labor force grew slower than
employment.
d. both of them could be telling the truth if the labor force grew faster than
employment.
Figure 4-22
Panel (a) Panel (b)
Panel (c) Panel (d)
Refer to Figure 4-22. Which of the four panels represents the market for pizza delivery
in a college town as we go from summer to the beginning of the fall semester?
a. Panel (a)
b. Panel (b)
c. Panel (c)
d. Panel (d)
Assume Diana buys computers in a competitive market. It follows that
a. Diana has a limited number of sellers to turn to when she buys a computer.
b. Diana will find herself negotiating with sellers whenever she buys a computer.
c. if Diana buys a large number of computers, the price of computers will rise
noticeably.
d. None of the above is correct.
A decrease in demand is represented by a
a. movement downward and to the right along a demand curve.
b. movement upward and to the left along a demand curve.
c. rightward shift of a demand curve.
d. leftward shift of a demand curve.
If the price of oak lumber increases, what happens to consumer surplus in the market
for oak cabinets?
a. Consumer surplus increases.
b. Consumer surplus decreases.
c. Consumer surplus will not change consumer surplus; only producer surplus changes.
d. Consumer surplus depends on what event led to the increase in the price of oak
lumber.
Table 5-5
The following table shows a portion of the demand schedule for a particular good at
various levels of income.
Refer to Table 5-5. Using the midpoint method, at a price of $16, what is the income
elasticity of demand when income rises from $5,000 to $10,000?
a. 0.00
b. 0.50
c. 1.00
d. 1.50
The country of Bienmundo does not trade with any other country. Its GDP is $30
billion. Its government purchases $5 billion worth of goods and services each year,
collects $7 billion in taxes, and provides $3 billion in transfer payments to households.
Private saving in Bienmundo amounts to $5 billion. What are consumption and
investment in Bienmundo?
a. $18 billion and $5 billion, respectively
b. $21 billion and $4 billion, respectively
c. $13 billion and $7 billion, respectively
d. There is not enough information to answer the question.
An increase in the money supply might indicate that the Fed had
a. purchased bonds in an attempt to increase the federal funds rate.
b. purchased bonds in an attempt to reduce the federal funds rate.
c. sold bonds in an attempt to increase the federal funds rate.
d. sold bonds in an attempt to reduce the federal funds rate.
Renee is the CEO of a corporation that hires nonunion labor. According to the theory of
efficiency wages, if she decides to pay her workers more than the competitive
equilibrium wage, then
a. the profits of her firm might increase.
b. the higher wages will induce her workers to shirk.
c. the turnover of her workers may increase.
d. she will face a shortage of labor.
Which of the following items is included in U.S. GDP?
a. goods produced by foreign citizens working in the United States
b. the difference in the price of the sale of an existing home and its original purchase
price
c. known illegal activities
d. None of the above is included in U.S. GDP.
Figure 7-10
Refer to Figure 7-10. If the equilibrium price is $200, what is the producer surplus?
a. $625
b. $3,750
c. $10,000
d. $20,000
Figure 6-12
Refer to Figure 6-12. When the price ceiling applies in this market, and the supply
curve for gasoline shifts from S1 to S2,
a. the market price will increase to P3.
b. a surplus will occur at the new market price of P2.
c. the market price will stay at P1.
d. a shortage will occur at the new market price of P2.
If a price ceiling is not binding, then
a. the equilibrium price is above the price ceiling.
b. the equilibrium price is below the price ceiling.
c. it has no legal enforcement mechanism.
d. None of the above is correct because all price ceilings must be binding.
If the Fed conducts open-market purchases, then which of the following quantities
increase(s)?
a. interest rates and investment spending
b. interest rates, but not investment spending
c. investment spending, but not interest rates
d. neither interest rates nor investment spending
Which of the following was not a reason OPEC failed to keep the price of oil high?
a. Over the long run, producers of oil outside of OPEC responded to higher prices by
increasing oil exploration and by building new extraction capacity.
b. Consumers responded to higher prices with greater conservation.
c. Consumers replaced old inefficient cars with newer efficient ones.
d. The agreement OPEC members signed allowed each country to produce as much oil
as each wanted.
Supply-side economics is a term associated with the views of
a. Ronald Reagan and Arthur Laffer.
b. Karl Marx.
c. Bill Clinton and Greg Mankiw.
d. Milton Friedman.
When a tax is levied on a good, the buyers and sellers of the good share the burden,
a. provided the tax is levied on the sellers.
b. provided the tax is levied on the buyers.
c. provided a portion of the tax is levied on the buyers, with the remaining portion
levied on the sellers.
d. regardless of how the tax is levied.
Which of the following shifts short-run aggregate supply left?
a. an increase in the actual price level
b. an increase in the expected price level
c. an increase in the capital stock
d. None of the above is correct.
Which famous economist developed the principle of comparative advantage as we
know it today?
a. Adam Smith
b. David Ricardo
c. John Maynard Keynes
d. Milton Friedman
A firm has three different investment options. Option A will give the firm $10 million at
the end of one year, $10 million at the end of two years, and $10 million at the end of
three years. Option B will give the firm $15 million at the end of one year, $10 million
at the end of two years, and $5 million at the end of three years. Option C will give the
firm $30 million at the end of one year, and nothing thereafter. Which of these options
has the highest present value?
a. Option A
b. Option B
c. Option C
d. The answer depends on the rate of interest, which is not specified here.
Which of the following is not a widely acknowledged problem with using the CPI as a
measure of the cost of living?
a. substitution bias
b. introduction of new goods
c. unmeasured quality change
d. unmeasured price change
Figure 8-19. The figure represents the relationship between the size of a tax and the tax
revenue raised by that tax.
Refer to Figure 8-19. If the economy is at point B on the curve, then an increase in the
tax rate will
a. increase the deadweight loss of the tax and increase tax revenue.
b. increase the deadweight loss of the tax and decrease tax revenue.
c. decrease the deadweight loss of the tax and increase tax revenue.
d. decrease the deadweight loss of the tax and decrease tax revenue.
The Bureau of Labor Statistics counts a member of a surveyed household as an adult if
that person is at least
a. 14 years old.
b. 16 years old.
c. 18 years old.
d. 21 years old.
The president of each regional Federal Reserve Bank is appointed by
a. the U.S. president with the approval of the Senate.
b. the Board of Governors.
c. the voting members of the Federal Open Market Committee.
d. the board of directors of that regional Federal Reserve Bank.
Malthus predicted that the power of population
a. was greater than the power of the earth to produce subsistence. His forecast was on
the mark.
b. was greater than the power of the earth to produce subsistence. His forecast was off
the mark.
c. was less than the power of the earth to produce subsistence. His forecast was on the
mark.
d. was less than the power of the earth to produce subsistence. His forecast was off the
mark.
When markets fail, public policy can
a. do nothing to improve the situation.
b. potentially remedy the problem and increase economic efficiency.
c. always remedy the problem and increase economic efficiency.
d. in theory, remedy the problem, but in practice, public policy has proven to be
ineffective.
Suppose that during the Great Depression long-run aggregate supply shifted left. To be
consistent with what happened to the price level and output, what would have had to
happen to aggregate demand?
a. It would have to have shifted left by less than aggregate supply.
b. It would have to have shifted left by more than aggregate supply.
c. It would have to have shifted right by less than aggregate supply.
d. It would have to have shifted right by more than aggregate supply.
When a U.S. citizen buys $500 of Chinese-made parts for a motorcycle,
a. U.S. consumption falls by $500, U.S. net exports decline by $500, and U.S. GDP
declines by $1000.
b. U.S. consumption does not change, U.S. net exports decline by $500, and U.S. GDP
declines by $500.
c. U.S. consumption increases by $500, U.S. net exports remain the same, and U.S.
GDP increases by $500.
d. U.S. consumption increases by $500, U.S. net exports decline by $500, and U.S.
GDP remains the same.