1) The “principal-agent problem” often arises in public choice when politicians pursue
the best interests of their constituents.
2) Behavioral economists avoid dealing with fairness concerns because the concept is
too subjective.
3) In 2011, approximately 5 percent of all work time lost was due to work stoppages.
4) In thinking about the “principal-agent problem” in a democratic government, we
assign the role of “principal” to the government.
5) All price discrimination is deemed illegal in antitrust legislation.
6) The Economist’s Commodity Price Index reveals that the supply of productive
resources has increased faster than the demand for decades.
7) Creative destruction is something that our society should try to avoid, through
government regulation of business.
8) A purely competitive firm does not try to sell more of its product by lowering its
price below the market price because:
A.Its competitors would not permit it
B.It can sell all it wants to at the market price
C.This would be considered unethical price chiseling
D.Its demand curve is inelastic, so total revenue will decline
9) Some economists contend that government agencies are generally less efficient than
private businesses due to the following reasons, except:
A.Government bureaucracies do not face the profit motive, which is a major incentive
that guides private firms
B.Government bureaucrats tend to deal with failing programs by putting more resources
into the programs
C.Incompetent workers gravitate towards government, while motivated workers
gravitate towards the private sector
D.Bureaucrats, along with the special-interest groups they serve often have enough
political clout to keep their agencies going regardless of performance
10) Assume that Switzerland and Britain have floating exchange rates. Other things
unchanged, if a tight money policy raises interest rates in Britain as compared to
Switzerland:
A.gold bullion will flow into Switzerland.
B.the Swiss franc will depreciate.
C.the pound will depreciate.
D.the Swiss franc will appreciate.
11) Which of the following findings would be the most likely to lead the U.S. Justice
Department to block a corporate merger under terms of the Clayton Act?
A.A buyer-seller relationship between the two firms.
B.A high premerger Herfindahl index in the industry and a large boost in the index
because of the merger.
C.A low pre- and post-merger concentration ratio in the industry.
D.Evidence that one of the firms is highly unprofitable.
12)
Given the indifference curves for an individual as shown above, if the price of good Y =
$1, it can be determined that two points on his or her demand curve for good X are:
A.(PX = $1, QdX = 10); (PX = $2, QdX = 14)
B.(PX = $1, QdX = 7); (PX = $.50, QdX = 14)
C.(PX = $.50, QdX = 7); (PX = $1, QdX = 10)
D.(PX = $2, QdX = 20); (PX = $1, QdX = 10)
13) Government passes a law requiring all domestic clothing factories to pay workers at
least $20 per hour. As a result, domestic clothing companies move their operations
overseas, leaving domestic workers unemployed. This situation illustrates the problem
of:
A.political corruption.
B.unintended consequences.
C.misdirection of stabilization policy.
D.principal-agent.
14)
A firm faces the labor productivity and cost schedule in the table above. What is the
marginal resource cost of the seventh worker?
A.$11
B.$13
C.$15
D.$17
15) It is estimated that the price elasticity coefficient for farm products is 0.2.
Therefore, in order for consumers to increase their purchases of farm products by 10
percent, the prices of these products would have to fall:
A.20 percent
B.40 percent
C.50 percent
D.80 percent
16) Which of the following would cause the present optimal extraction level of a
nonrenewable resource to fall?
A.An increase in the present value of expected future profits.
B.A decrease in extraction costs.
C.A decrease in user costs.
D.An increase in the current price of the resource.
17) Some economists are suggesting that we should use the insights of behavioral
economics to:
A.Coerce people to make decisions towards improving their happiness
B.Design elaborate rules to restrict individuals’ chances of hurting themselves
C.Nudge people toward choices that improve their welfare or that of others
D.Provide huge monetary incentives to people to move them to action
18) Answer the question on the basis of the following 2008 balance of payments
statement for Transylvania. All figures are in billions of dollars.
Refer to the given data. Foreigners made a larger volume of asset purchases in
Transylvania in 2008 than Transylvanians made asset purchases abroad.
19) If the market is defined more narrowly to only include a more restricted range of
products, then the Herfindahl index will:
A.Increase
B.Decrease
C.Not be affected
D.Either increase or decrease
20) The table below shows four different currencies and how much of each currency
can be purchased with a U.S. dollar.
Among which nations has the U.S. dollar appreciated (A) or depreciated (D) from year
1 to year 2? Explain the appreciation or depreciation using the nations and numbers in
the table.
21) If a firm in a purely competitive industry is confronted with an equilibrium price of
$5, its marginal revenue:
A.may be either greater or less than $5.
B.will also be $5.
C.will be less than $5.
D.will be greater than $5.
22) Currency speculators aid international trade by:
A.absorbing exchange rate risk that others do not want to bear.
B.increasing the volatility of exchange rates.
C.making the demand for imports less elastic.
D.promoting barter.
23)
Curve (1) in the diagram is a purely competitive firm’s:
A.total cost curve.
B.total revenue curve.
C.marginal revenue curve.
D.total economic profit curve.
24)
Refer to the above graph for a representative firm in monopolistic competition in a
constant-cost industry. This firm is:
A.In short-run equilibrium, but not long-run equilibrium
B.In long-run equilibrium, but not short-run equilibrium
C.In both short-run and long-run equilibrium
D.Not in either short-run or long-run equilibrium
25) The coordination problem in the centrally planned economies refers to the idea that:
A.planners had to direct required inputs to each enterprise.
B.the price level and the level of employment were inversely related.
C.the immediate effect of more investment was less consumption.
D.exports had to be equal to imports for a central plan to work.
26) What is the argument for income inequality?
27) Explain the long-run relationship between real hourly earning and productivity.
28) What is the official reserves account? How is it used in the balance of payments?
29) A firm combines two resources, X and Y, to produce an output level Q in a purely
competitive market. The cost of a unit of X is $20 and the cost of a unit of Y is $4. The
marginal product of X is 100 units and the marginal product of Y is currently 16 units at
output level Q. What would you recommend that the firm do given this resource
combination?
30) What does it mean when someone says that the U.S. dollar has depreciated or the
U.S. dollar has appreciated? Give an example of each case using the euro and the U.S.
dollar.
31) What attributes make the health care market different than the normal product
market?
32) Suppose a new process innovation occurs. On the graphs below, show graphically
the effect this innovation has on the Total Product and Average Total Cost curves.
33) Why does competition force firms to use the least-cost, most efficient, productive
techniques?
34) How does pure competition differ from other basic market models?