In most circumstances, employees do not pay taxes on the value of health insurance
their employers provide them.
One of the main sources of comparative advantage is natural resources.
Firms are more likely to find themselves in a prisoner’s dilemma in sequential games as
opposed to simultaneous games.
A commission system of compensation reduces the risk to workers during seasonal
periods when business is sluggish.
For the purchasing power of money to increase, the price level has to fall.
If additional units of a good could be produced at an increasing opportunity cost, the
production possibility frontier would be linear.
A price ceiling is a legally determined maximum price that sellers may charge.
Paper currency is a
A) commodity money.
B) fiat money.
C) barter money.
D) bond.
Table 12-2
Table 12-2 lists the various pounds (lbs.) of apples that Margie Stattler can sell. Assume
that Margie operates in a perfectly competitive market.
How many pounds of apples should Margie sell to maximize her profit?
A) 300 pounds
B) 400 pounds
C) This cannot be determined without knowing Margie’s total or marginal production
costs.
D) This can be determined only when all of the values for market price, total revenue,
average revenue and marginal revenue are given.
Which of the following statements is true?
A) A decrease in demand causes a decrease in equilibrium price; the decrease in price
causes supply to decrease.
B) A decrease in demand causes equilibrium price to fall; the decrease in price then
results in a decrease in quantity supplied.
C) If both demand and supply increase, there must be an increase in equilibrium price;
equilibrium quantity may either increase or decrease.
D) If demand decreases and supply increases one cannot determine if equilibrium price
will increase or decrease without knowing which change is greater.
Which of the following would cause the equilibrium price of white bread to decrease
and the equilibrium quantity of white bread to increase?
A) a decrease in the price of flour
B) an increase in the price of flour
C) an increase in the price of rye bread, a substitute for white bread
D) an increase in the price of butter, a complement for white bread
A tax rebate by the government would
A) increase your pretax income, but not your disposable income.
B) increase your disposable income, but not your pretax income.
C) decrease your pretax income, but not your disposable income.
D) decrease your disposable income, but not your pretax income.
Figure 15-3
Figure 15-3 above shows the demand
and cost curves facing a monopolist.
Suppose the monopolist represented in the diagram above produces positive output.
What is the profit/loss per unit?
A) loss of $7 per unit
B) profit of $30 per unit
C) loss of $21 per unit
D) profit of $14 per unit
Figure 3-4
At a price of $25, how many units will be supplied?
A) 400
B) 500
C) 600
D) 800
Corporate governance involves the way in which
A) the government nationalizes corporations.
B) the government licenses corporations.
C) a corporation is subject to government regulations.
D) a corporation is structured.
Table 2-2
Production choices for Billie’s Bedroom Shop
Assume Billie’s Bedroom Shop only produces pillows and blankets. A combination of 9
pillows and 14 blankets would appear
A) along Billie’s production possibilities frontier.
B) inside Billie’s production possibilities frontier.
C) outside Billie’s production possibilities frontier.
D) at the vertical intercept of Billie’s production possibilities frontier.
Article Summary. In a September 2013 speech to the Independent Bankers
Association of Texas, Federal Reserve Bank of Dallas president Richard Fisher
stated that the Fed’s credibility was harmed when it announced the previous week
that it would continue its large bond purchasing program. In June, Fed Chairman
Ben Bernanke had stated that that the program could begin to be cut back later in
the year, and several other Fed officials expressed being open to the announced
timing of this policy. Bernanke’s change in his announced timeline of the Fed’s
intentions regarding the bond purchasing program brought criticism that the Fed
had misled investors. In his speech, Fisher stated “I disagreed with the decision of
the committee and argued against it. Doing nothing at this meeting would increase
uncertainty about the future conduct of policy and call the credibility of our
communications into question. I believe that is exactly what has occurred, though I
take no pleasure in saying so.” Fisher has been a long-time opponent of the Fed’s
bond purchasing program, claiming it is ineffective and may well lead to future
inflation, and had been calling for the Fed to begin phasing out this program in
September.
Source: “Fisher: Standing pat on policy hurt Fed’s credibility,” Reuters,
September 23, 2013.
Richard Fisher brought the Fed’s credibility into question when it decided to continue
with its bond purchasing program despite leading many to believe that the program
would begin to be phased out. Prior to this, over the past two decades whenever a
change in Fed policy had been announced, the change has ________ taken place,
leading to ________ credibility.
A) rarely; greater
B) actually; greater
C) rarely; less
D) actually; less
Because the monopolistically competitive firm faces a ________ demand curve for its
product, it ________ the price of its output.
A) downward-sloping; cannot influence
B) horizontal; can influence
C) horizontal; cannot influence
D) downward-sloping; can influence
Figure 2-13 Figure 2-13
shows the production possibilities frontiers for Tahiti and Bora Bora. Each country
produces two goods, milk and honey.
What is the opportunity cost of producing one gallon of milk in Bora Bora?
A) 2/3 gallon of honey
B) 0.8 gallon of honey
C) 1.125 gallons of honey
D) 1.5 gallons of honey
Figure 11-13
The lines shown in the diagram are isocost lines. Which of the following shows an
increase in the firm’s total cost while the price of labor and capital remain unchanged?
A) the movement from CE to BF
B) the movement from CE to AF
C) the movement from BD to AF
D) the movement from BD to CE
Which of the following explains the ability of the U.S. economy to avoid diminishing
marginal returns and experience accelerating growth in the early to mid-20th century?
A) continuing technological change
B) immigration
C) additions of a greater amount of capital of the same quality
D) a decrease in the quality of labor
Which of the following will increase investment spending in the economy, holding
everything else constant?
A) an increase in the federal government surplus
B) an increase in the budget deficit
C) an increase in consumer dissavings
D) an increase in transfer payments
Table 9-6
Production and
Consumption Production
Without Trade With Trade
Denmark and Belize can produce both clocks and hats. Table 9-6 shows the production
and consumption quantities without trade, and the production numbers with trade. If the
actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded, how many clocks
will Belize gain compared to the “without trade” numbers?
A) -100
B) 100
C) 120
D) 250
A goal of ________ is to give patients an incentive to pay more attention to the prices
of medical services. This would tend to increase economic efficiency by decreasing the
costs of medical services
A) the Patient Protection and Affordable Care Act (ACA)
B) market-based reforms of the health care system
C) government-provided health care
D) socialized medicine
In the United States, consumers usually pay less than the true cost of medical treatment
because of
A) adverse selection.
B) rising insurance premiums.
C) third-party payers.
D) rising insurance deductibles.
Interest rates in the economy have fallen. How will this affect aggregate demand and
equilibrium in the short run?
A) Aggregate demand will rise, the equilibrium price level will rise, and the equilibrium
level of GDP will rise.
B) Aggregate demand will rise, the equilibrium price level will fall, and the equilibrium
level of GDP will rise.
C) Aggregate demand will fall, the equilibrium price level will fall, and the equilibrium
level of GDP will fall.
D) Aggregate demand will fall, the equilibrium price level will rise, and the equilibrium
level of GDP will fall.
Suppose the demand curve for a product is downward sloping and the supply curve is
upward sloping. If a unit tax is imposed in the market for this product,
A) sellers bear the entire burden of the tax.
B) the tax burden will be shared among the government, buyers and sellers.
C) buyers bear the entire burden of the tax.
D) the tax burden will be shared by buyers and sellers.
Health care is generally considered a normal good. Briefly explain what you would
expect to see happen to spending on health care over time, with health care being
considered as a normal good.
Adam Smith, the father of modern economics wrote in his book, An Inquiry into the
Nature and Causes of the Wealth of Nations, “It is not from the benevolence of the
butcher, the brewer, or the baker, that we expect our dinner but from their regard to their
own interest.” Explain what he meant by that statement and how such behavior
promotes the wealth of a nation.
Suppose a bank has the following balance sheet:
If the required reserve ratio is 10 percent, how much excess reserves does the bank
have? What is the maximum amount that the bank can expand its loans?
How does Adam Smith’s idea of the “invisible hand” apply to the various parts, made
by many different manufacturers in many different countries, that are used by Apple to
produce an iPad?
Use the information below to explain adjustments that move the economy to a long-run
equilibrium. Assume that firms and workers have adaptive expectations. The current
unemployment rate = 7%.
The natural rate of unemployment = 5.5%.
Last year’s inflation rate = 5%.
This year’s inflation rate = 4%.
What is a Lorenz curve and what is a Gini coefficient?
If you own the only bookstore in a small town, do you have a monopoly?