95) What will be the principal and most immediate effect on the supply or demand for raw
cotton grown in the United States if an extensive, efficient cotton-growing industry in Africa
develops?
A) Decrease in demand
B) Decrease in supply
C) Increase in demand
D) Increase in supply
96) What will be the principal and most immediate effect on the supply or demand for raw
cotton grown in the United States if the demand for peanuts (which can be grown on cotton land)
increases?
A) Decrease in demand
B) Decrease in supply
C) Increase in demand
D) Increase in supply
97) What will be the principal and most immediate effect on the supply or demand for raw
cotton grown in the United States if cotton-growing states experience rapid industrialization?
A) Decrease in demand
B) Decrease in supply
C) Increase in demand
D) Increase in supply
98) What will be the principal and most immediate effect on the supply or demand of raw cotton
grown in the United States if a low-cost process for making cotton cloth wrinkle-free is
developed?
A) Decrease in demand
B) Decrease in supply
C) Increase in demand
D) Increase in supply
99) What will be the principal and most immediate effect on the supply or demand of raw cotton
grown in the United States if beef demand rises and ranchers are induced to reduce their flocks
of sheep (for wool) in order to grow more cattle?
A) Decrease in demand.
B) Decrease in supply.
C) Increase in demand.
D) Increase in supply
100) If there are 200 physicians per 100,000 population in the United States generally, but over
500 per 100,000 population in San Francisco,
A) physicians are not scarce in San Francisco.
B) physicians particularly enjoy living and working in San Francisco, for financial and other
reasons.
C) residents of San Francisco necessarily need more medical services than the average
American.
D) there is a shortage of patients in San Francisco.
E) there is a surplus of physicians in San Francisco.
101) You would be more likely to find a motel room than a camping site if you were traveling
through the West during the height of the tourist season and had no advance reservation if
A) camping sites are expensive to maintain.
B) camping sites are less numerous.
C) most camping sites were managed by government agencies.
D) most motels do not accept advance reservations.
E) motels more often accept credit cards.
102) If you travel through the western United States in the summer, you are much more likely to
encounter a shortage of camping spaces than a shortage of motel rooms because
A) camping sites are usually less expensive than motel rooms.
B) motels are more often privately owned.
C) the government has not provided as many camping spaces as the public wants.
D) there are more motel rooms than camping spaces.
E) vacationers in the summer display a greater demand for outdoor than for indoor sleeping sites.
103) If the NCAA prohibits colleges and universities from offering more than room, board, and
tuition to outstanding high school football and basketball players, the recruitment practices of
athletic departments will
A) adhere more closely to high ethical standards.
B) become constantly more complex and costly.
C) make the athletes better off in the long run.
D) make the athletes better off in the short run.
E) shift to favoring academic ability over athletic ability.
104) Which is the most likely effect upon the market for cotton of a significant improvement in
the quality of synthetic textiles?
A) A decrease in demand and hence a decrease in both the price of cotton and the quantity
exchanged.
B) A decrease in demand and hence a decrease in the price of cotton and an increase in the
quantity exchanged.
C) A decrease in demand and hence an increase in the price of cotton and a decrease in the
quantity exchanged.
D) A decrease in both demand and supply and hence a decline in the quantity exchanged but no
predictable change in the price of cotton.
105) Which is the most likely effect upon the market for cotton of an increase in production costs
due to higher oil prices?
A) A decrease in demand and hence a decrease in both the price of cotton and the quantity
exchanged.
B) A decrease in supply and hence a decrease in both the price of cotton and the quantity
exchanged.
C) A decrease in supply and hence an increase in the price of cotton and a decrease in the
quantity exchanged.
D) A decrease in both supply and demand and hence a decrease in the quantity exchanged but no
predictable change in the price of cotton.
106) Which is the most likely effect upon the market for cotton of a greatly increased price for
corn, which can usually be grown on land suitable for cotton cultivation?
A) The demand for cotton will decrease and the quantity exchanged will fall.
B) The demand for cotton will increase and the quantity exchanged will rise.
C) The supply of cotton will increase and the quantity exchanged will rise.
D) The supply of cotton will decrease and the quantity exchanged will fall.
E) The supply of cotton will increase and the quantity exchanged will fall.
107) If political unrest abroad substantially reduces the supply of copper to the United States, the
price of copper will rise by a larger amount
A) the more elastic the demand for copper.
B) the more inelastic the demand for copper.
C) the more elastic the supply of copper.
D) the more inelastic the supply of copper.
108) Will a large increase in the demand for a good cause a large increase in its price?
A) No; an increased demand is associated with lower prices.
B) Not if the demand for the good is highly elastic.
C) Not if the demand for the good is highly inelastic.
D) Not if the supply of the good is highly elastic.
E) Not if the supply of the good is highly inelastic.
109) A particular good is not scarce when
A) everyone is able to purchase as much of the good as they wish to purchase.
B) it is available in large enough quantities to meet everyone’s needs.
C) no one must sacrifice anything to obtain more of the good.
D) there is a surplus of the good.
110) Which of the following is not an effective technique for alleviating scarcity?
A) Developing additional resources
B) Reducing prices
C) Reducing wants
D) Substituting intelligently among available goods
111) Something will be rare but not scarce if very little of it exists and
A) its price is high enough that only a few wish to purchase it.
B) its price is high enough that no one can afford it.
C) no one wants any.
D) the quantity supplied is greater than the quantity demanded.
112) When scarce goods are allocated according to some generally known criteria,
A) no one is discriminated against as long as the criteria are socially and legally accepted.
B) people will compete to satisfy the criteria.
C) rationing of scarce goods becomes unnecessary.
D) surpluses almost inevitably appear.
113) Which of the statements below best captures the meaning of competition as discussed in
Chapter 5?
A) Competition is a process; it makes everyone in the society better off even though there can
only be one winner.
B) Competition is an individualist system in which people do not concern themselves with the
welfare of others.
C) Competition is the law of the jungle producing social wealth.
D) Competition is the process of trying to outdo others.
E) Competition occurs when people strive to satisfy the criteria others are using to allocate
valued goods.
114) We see evidence of shortages when we see scarce goods beginning to be acquired by
A) price decreases.
B) rising nonmoney costs.
C) the money price.
D) unfair means.
115) The only way to eliminate all competition from social life would be through
A) abolishing money.
B) eliminating all scarcity.
C) eliminating all selfishness.
D) giving government the power to control everything.
E) making everyone as concerned about others as they are about themselves.
116) If a good is scarce
A) some criteria must be established to determine who gets what.
B) its price is above the market-clearing level.
C) its price is below the market-clearing level.
D) the quantity demanded is greater than the quantity supplied.
E) the supply is less than the demand.
117) Rationing when goods have suddenly become more scarce, by asking people to make
sacrifices voluntarily for the sake of others, discriminates against people who are
A) considerate.
B) poor.
C) unethical.
D) unwilling to sacrifice.
E) wealthy.
118) What is the relationship between scarcity and shortage, as economists use the terms?
A) Scarcity and shortage cannot exist simultaneously.
B) Shortages are the basic cause of scarcity.
C) Scarcity creates shortages in the long run.
D) Scarcity is relative while shortages are absolute.
E) Scarcity is unavoidable but shortages are not.
119) We observe evidence of a shortage when we see
A) the quantity purchased is greater than the quantity supplied.
B) the quantity purchased is less than the quantity supplied.
C) nonmonetary costs of acquisition have risen.
D) goods have becomes more scarce.
E) prices have increased suddenly and substantially.
120) We observe a shortage in real life when we see
A) nonmoney costs of acquiring a good increasing.
B) people unable to purchase as much as their situation requires.
C) prices falling.
D) the amount purchased is less than the amount supplied.
121) Competition
A) cannot be eliminated unless scarcity is eliminated.
B) causes people to hope others will fail.
C) compels people to do only what is in the public interest.
D) only exists in capitalist societies.
E) only exists in societies with fiat currency.
122) Which statement best describes the relationship between scarcity and shortage?
A) Neither scarcity nor shortages will exist if money prices are allowed to determine who gets
what.
B) Scarcity and shortages are unavoidable as long as money prices are allowed to determine who
gets what.
C) Scarcity is an inescapable fact of life but shortages are avoidable.
D) Shortages are an inescapable fact of life but scarcity can be eliminated.
123) When a shortage of a goods leads to a price increase, its price usually rises because
A) Americans are committed to capitalism.
B) most people are better off if it does.
C) sellers can benefit by raising their prices.
D) higher prices lead to scarce goods being allocated most efficiently.
124) Popular criticism of determining who gets what by means of money prices increases in
periods of inflation because
A) inflation hits poor people the hardest.
B) people mistakenly assume an increase in money prices makes them worse off.
C) the wealthy will eventually acquire everything if inflation continues long enough.
D) there is no one who benefits from rising prices.
125) From the perspective of economic theory, prices are basically
A) constant.
B) information signals
C) rising.
D) rates of exploitation.
126) The money prices attached to goods in the economy
A) conceal the fact of their scarcity.
B) make the goods artificially scarce.
C) provide information about their scarcity.
D) reflect the level of greed prevailing in particular markets.
127) Money prices are an extremely effective device for promoting social cooperation because
A) most people want money more than they want anything else.
B) people are basically selfish.
C) scarcity can be eliminated through appropriate changes in money prices.
D) they don’t change rapidly when circumstances change.
E) they help to clarify the options available to people.
128) High money prices for scarce goods
A) are one among many possible causes of their scarcity.
B) are the basic cause of their scarcity.
C) are the effect of their scarcity.
D) have nothing to do with their scarcity, because almost all goods are scarce.
129) If, by law, we suppress free market prices to determine who gets what,
A) other criteria will come into play to ration scarce goods.
B) scarcity will be reduced or eliminated.
C) shortages will be reduced or eliminated.
D) there will be no alternative way to make the quantity demanded conform to the quantity
supplied.
130) The existence of a shortage means
A) people are buying more than is available.
B) people cannot buy as much as they plan to buy at the prevailing money price.
C) prices are too high.
D) there is not enough to satisfy everyone’s needs.
131) Suppose all tickets to the World Series have already been sold. Will any further sales occur
if the going price rises?
A) No, and therefore a higher price will have no effect.
B) No, but a smaller quantity will be demanded.
C) Not unless more tickets are printed.
D) Yes, as some ticket-holders sell to others.
E) Yes, but the further sales will reduce the price to the original level.
132) If 80,000 people want tickets to the World Series at the current price, and there are only
55,000 tickets available,
A) the cost of obtaining a ticket for someone who doesn’t yet have one will be greater than the
price stamped on its face.
B) the demand for tickets is highly elastic.
C) the price is too low.
D) the quantity purchased will be greater than the quantity supplied.
133) Systematic efforts to extend vaccination throughout the world have produced a situation
today in which the smallpox virus is
A) in short supply (a shortage exists).
B) rare.
C) scarce.
D) all of the above.
134) Which of the following best exemplifies a deadweight cost?
A) Eating something in a restaurant you don’t really want because you have already paid for it.
B) Paying for something in a restaurant but not eating it.
C) Refusing dessert in a restaurant although it is included in the price of the meal.
D) Tipping the waiter even though he gave slow, surly, and inattentive service.
E) Waiting twenty minutes for a table to become available in a restaurant.
135) Deadweight costs in an exchange are costs
A) charged for free goods.
B) imposed by government, such as taxes or safety requirements.
C) that have no effect on either the quantity demanded or the quantity supplied.
D) that have nothing to do with the sacrifice of valuable opportunities.
E) to the buyer that are not simultaneously benefits to the seller.
136) Socialism seeks to abolish the market-price system. In the economic way of thinking,
socialism would therefore
A) generate tremendous economic growth.
B) overcome scarcity.
C) lead to a greater coordination among peoples’ production and consumption plans.
D) allow everybody the opportunity to seek their comparative advantage.
E) accomplish none of the above.
137) If market prices help inform individuals about the relative scarcities of goods and services,
then abolishing market prices would
A) finally allow people to overcome scarcity.
B) eliminate important information.
C) abolish the dog-eat-dog mentality of market competition.
D) tend to create permanent surpluses of most goods.
E) accomplish all of the above.
138) In a free market economy, people are free to manufacture buses out of gold, rather than
steel. So why aren’t buses made out of gold?
A) Although it meets all economic laws, gold buses would violate the laws of physics and
mechanical engineering.
B) It is ridiculously unprofitable to make gold buses.
C) The AFL-CIO wouldn’t allow buses to be made from gold.
D) There’s only one individual with a patent on gold buses, and he refuses to sell it to other
potential manufacturers.
139) Transaction costs are
A) all unnecessary and wasteful costs.
B) any nonmonetary costs associated with a transaction.
C) not real costs because they make no positive contribution to economic transactions.
D) the costs of arranging agreements between demanders and suppliers.
E) the opposite of opportunity costs.
140) Which of the following is the most important advantage of using money rather than relying
exclusively on barter?
A) The use of money encourages people to diversify and learn to do more things for themselves.
B) The use of money encourages people who want to exchange to become more closely
acquainted.
C) The use of money lowers the cost of locating people with whom to exchange.
D) The use of money reduces opportunities for fraud and theft.
E) The use of money reduces selfishness because money in itself has no value.
141) The market process will likely fail to fully coordinate supply and demand if transaction
costs are
A) non-existent.
B) significant.
C) locally perverse.
D) inconsequential.
142) Fill in the blanks: Transaction costs are likely to be ________ when property rights are
________ clearly defined.
A) lower ; less
B) higher; more
C) lower; more
D) Trick question: there is no causal relationship between transaction costs and property rights.
143) Hurricane victims in the United States are likely to receive emergency relief aid and embark
upon reconstruction more rapidly than similar victims in India because
A) U.S. victims typically need the resources more than the victims in India.
B) the U.S. economy has a more clearly defined set of property rights compared to the Indian
economy.
C) people in the U.S. are typically more charitable than people in India.
D) the global economy is too dependent on the U.S. to let it falter.
144) Fact: Churches and charities work hard to acquire more money to advance their projects.
They happily accept money because
A) they are clearly selfish and materialistic.
B) the transaction costs of donating money are generally lower than the costs of donating other
goods and services.
C) they tend to see money as the root of all evil, and by collecting it they can more effectively
destroy it and change the system for the better.
D) none of the above.
145) Effective cooperation among the members of a commercial society is more likely when
A) economic decisions are placed in the hands of democratically-elected committees.
B) everyone’s income is approximately the same.
C) people produce for use rather than for profit.
D) prices do not change in response to temporary changes in circumstances.
E) property rights are clearly defined.
146) The members of a society can assign tasks according to ability and distribute benefits in
accordance with need only
A) if the government controls the economy.
B) if they have a workable procedure for assessing abilities and needs.
C) in a socialist or, more likely, a communist society.
D) when there are enough of them to assure competent performance of all necessary tasks.
E) when they are committed to equity as well as efficiency.
147) When nations attempt to move quickly from central planning to a market system, they face
the obstacle of high transaction costs in large part because
A) market systems are unnatural and require careful design.
B) people who have lived under socialism lack the basic skills a market system requires.
C) people who have long lived under socialism are not sufficiently individualistic.
D) the experience of socialism makes people distrustful of one another.
E) they lack many of the institutions that develop over time in a market system.
148) In the United States the assignment of tasks and distribution of benefits
A) is determined by business firms.
B) is determined democratically.
C) is negotiated among potential buyers and potential sellers.
D) leaves all parties free to do as they prefer.
E) rests upon the principle of consumer sovereignty.
149) In the United States the system most generally used for assigning tasks and distributing
benefits
A) employs continuing bids and offers among individuals.
B) operates without the use of money prices.
C) presupposes shifting and uncertain property rights or “rules of the game.”
D) takes the place of the supply-and-demand process.
E) was designed by the authors of the Federal Constitution.
150) In the economic way of thinking, money is
A) the root of all evil.
B) what makes the world go round.
C) a general medium of exchange.
D) an institution, which tends to increase transaction costs.
E) the source of scarcity in commercial society.
151) A barter exchange
A) always takes place without greed on behalf of the trading parties.
B) takes place without money.
C) tends to have lower transaction costs compared to exchanges using money.
D) is characterized by all of the above.
152) Which institution tends to increase specialization in society?
A) Barter
B) Government planning bureaus
C) Money
D) Price regulation
153) In the economic way of thinking, money
A) allows people to behave completely morally.
B) allows people to behave completely competitively.
C) allows people to make goods exchanges without concern for the true costs of their actions.
D) allows people to make a wide range of negotiations.
154) A general medium of exchange tends to
A) reduce transaction costs.
B) make bartering more effective.
C) reduce the incentive to specialize and pursue one’s comparative advantage.
D) accomplish all of the above.
E) accomplish none of the above.
155) Consider the market for credit. When the demand for credit increases while the supply of
credit remains unchanged,
A) the interest rate will decrease and the amount of credit provided in the market will increase.
B) the interest rate will increase and the amount of credit provided in the market will increase.
C) the interest rate will decrease and the amount of credit provided in the market will decrease.
D) the interest rate will increase and the amount of credit provided in the market will decrease.
156) Consider the market for credit. When the demand for credit decreases while the supply of
credit remains unchanged,
A) the interest rate will decrease and the amount of credit provided in the market will increase.
B) the interest rate will increase and the amount of credit provided in the market will increase.
C) the interest rate will decrease and the amount of credit provided in the market will decrease.
D) the interest rate will increase and the amount of credit provided in the market will decrease.
157) Consider the market for credit. When the supply of credit increases while the demand for
credit remains unchanged,
A) the interest rate will decrease and the amount of credit provided in the market will increase.
B) the interest rate will increase and the amount of credit provided in the market will increase.
C) the interest rate will decrease and the amount of credit provided in the market will decrease.
D) the interest rate will increase and the amount of credit provided in the market will decrease.
158) When people reduce their rate of time preference
A) savings increase and the supply of credit decreases.
B) savings increase and the supply of credit increases.
C) savings decrease and the supply of credit increases.
D) savings decrease and the supply of credit decreases.
159) When people reduce their rate of time preference
A) more credit is made available in the banking system.
B) less credit is made available in the banking system.
C) the demand for credit shifts right.
D) the supply of credit shifts left.
160) If people increase their rate of time preference
A) more credit is made available in the banking system.
B) less credit is made available in the banking system.
C) the demand for credit shifts left.
D) the supply of credit shifts right.
161) To say that an individual displays a positive rate of time preference mean
A) She prefers to have more time rather than less time in her day.
B) She prefers to have less time rather than more time in her day.
C) She prefers goods sooner rather than later in the future.
D) She prefers goods later rather than earlier in the future.
162) “I’d rather have $100 now than wait for $100 six months from now.” This person
A) displays a negative rate of time preference.
B) displays a positive rate of time preference.
C) displays a zero rate of time preference.
D) displays irrational behavior because the money will be more valuable later.
163) Other things constant, if a person prefers to have a good sooner rather than later
A) she is acting like a child.
B) she has a negative rate of time preference.
C) she has a zero rate of time preference.
D) she has a positive rate of time preference.
164) Jones is hungry, but is willing to postpone lunch as long as he can have a much larger meal
at dinner. The compensation of the larger meal at dinner time suggests that Jones
A) is a glutton.
B) acts irrationally because it is best to have three meals a day.
C) has a positive rate of time preference with regard to today’s meals.
D) does not consider lunch to be a scarce good.
165) Interest is most fundamentally a measure of
A) the cost of money.
B) the scarcity of money.
C) the greater subjective value of present over future goods.
D) all of the above.
E) none of the above.
166) Interest is ultimately
A) any return on investment.
B) the price of money.
C) unearned income.
D) the difference between the subjective value of a good now and a good later.
167) Other things constant, which person is willing to save more?
A) One that has a higher rate of time preference
B) One that has a lower rate of time preference
C) One that has no rate of time preference
D) One that has no consideration about the value of goods now and in the future
168) A rise in the rate of people’s time preference in general tends to
A) increase interest rates.
B) decrease interest rates.
C) have no effect on interest rates.
D) have no effect at all in the market for credit.
169) A fall in the rate of people’s time preference in general tends to
A) increase interest rates.
B) decrease interest rates.
C) have no effect on interest rates.
D) have no effect at all in the market for credit.
170) The real rate of interest is
A) the rate of inflation minus the nominal rate of interest.
B) the nominal rate of interest minus the risk premium.
C) the nominal rate of interest minus the rate of inflation.
D) the rate of inflation minus the risk premium.
171) If the nominal interest rate is held constant, a higher inflation rate tends to
A) reduce the real interest rate.
B) increase the real interest rate.
C) leave the real interest rate unchanged.
D) have no effect on the savings decisions of households.
172) Fill in the blanks: Holding the nominal interest rate constant, a ________ in the expected
rate of inflation tends to ________ the real interest rate.
A) rise; increase.
B) fall, decrease.
C) fall; increase.
D) rise; improve.
173) Other things constant, a rise in which of the following would tend to increase the nominal
interest rate?
A) The rate of time preference
B) The risk premium
C) The expected rate of inflation
D) Any of the above.
174) The “real” interest rate charged on a loan is the
A) prime rate.
B) prime rate plus the risk premium.
C) the rate charged minus the costs of supplying credit.
D) the rate charged minus the expected rate of inflation.
175) Suppose the nominal interest rate is 15% and the rate of inflation is 3%. The real interest
rate is therefore
A) 3%.
B) 5%.
C) 12%.
D) 18%.
176) Suppose the nominal interest rate is 5% and the rate of inflation is 5%. The real interest rate
is therefore
A) 0%.
B) 1%.
C) 5%.
D) 6%.
177) Suppose the nominal interest rate is 1% and the rate of inflation is 3%. The real interest rate
is therefore
A) -2%.
B) 2%.
C) 4%.
D) 5%.
178) Suppose the nominal interest rate is 4% and the rate of inflation is 3%. The real interest rate
is therefore
A) 7%.
B) 1%.
C) 0%.
D) -1%.
E) none of the above.
179) Suppose the nominal interest rate is 5% and the real interest rate is 2%. We can deduce that
the rate of inflation is
A) 7%.
B) 3%.
C) 2%.
D) 0%.
180) Suppose the nominal interest rate is 2% and the real interest rate is -3%. We can deduce that
the rate of inflation is
A) 0%.
B) 2%.
C) 3%.
D) 5%.