1) If the demand for agricultural products is inelastic, a relatively small increase in
supply will cause farm prices and incomes to decline.
2) Because economic generalizations are simplifications from reality, they are
impractical and useless.
3) When people often blame “act of nature” or their colleagues for their plans going
awry, they are illustrating the cognitive bias known as the overconfidence effect.
4) Low birthrates in industrialized countries are a major concern for governments,
reducing the number of potential soldiers and taxpayers to support social programs.
5) Marginal utility is total utility divided by the number of units consumed.
6) One of the most important economic resources is money.
7) The short-run marginal-cost curve is upward-sloping because of the law of
diminishing marginal returns.
8) Asymmetric information occurs when the two parties in a market transaction do not
have the same amount of information regarding the product or process involved in the
transaction.
9) An under-allocation of resources is occurring in a purely competitive industry
whenever the price of the product is greater than marginal cost.
10) In a two-nation two-good world, it is possible for one nation to have the
comparative advantage in both goods.
11) Pork-barrel politics is a very good illustration of the “clear benefits, hidden costs”
perspective of politicians.
12) If the substitution effect outweighs the output effect, an increase in the price of a
substitute resource will increase the demand for labor.
13) Because better technology means that more output can be produced with the same
amount of energy input, rising living standards in the future will not necessarily depend
on using more energy.
14) In repeated games, players may be willing to accept lower payoffs in the short run
in exchange for greater net payoffs over the long run.
15) Answer the question on the basis of the following data:
Refer to the given data. If the prices of labor and capital are $9 and $15 respectively, the
profit-maximizing firm will hire:
A.5 units of labor and 3 of capital.
B.5 units of labor and 2 of capital.
C.4 units of labor and 4 of capital.
D.3 units of labor and 4 of capital.
16)
Refer to the diagram for a monopolistically competitive firm. Long-run equilibrium
output will be:
A.greater than E
B.E
C.D
D.C
17) If the demand and supply curves for product X are stable, a government-mandated
increase in the price of X will:
A.increase the supply of X and decrease the demand for X.
B.increase the demand for X and decrease the supply of X.
C.increase the quantity supplied of X and decrease the quantity demanded of X.
D.decrease the quantity supplied of X and increase the quantity demanded of X.
18) Which of the following is a recommended policy for industrially advanced
countries to adopt to foster economic growth in DVCs?
A.Admitting more temporary workers from DVCs
B.Reducing the amount of debt relief for DVCs to make them less dependent
C.Eliminating loans from the World Bank because it encourages bureaucracy
D.Eliminating financial control of central banks where they have been established
19) The fact that high-income earners tend to earn a higher percentage of their incomes
from rent and dividends, in contrast to low-income earners, make the payroll taxes:
A.More progressive
B.Proportional
C.More regressive
D.A flat tax
20) The countries of East Wakovia and West Wakovia have the production possibilities
tables for tobacco and corn shown below. Without trade East would produce at
alternative C and West would produce alternative D. Note that the costs of producing
tobacco and corn are constant in both countries.
(a)In East Wakovia, the cost of producing:
4 units of tobacco is ______ corn units.
1 unit of tobacco is ______ corn units.
(b)In West Wakovia, the cost of producing:
3 units of tobacco is ______ corn units.
1 unit of tobacco is ______ corn units.
(c)Which country has the comparative advantage in corn production and which country
has the comparative advantage in tobacco production?
(d)If each nation specializes in the product where it has a comparative advantage and
trades with the other, what will be the limits to the terms of trade for each tobacco unit?
(e)If the nations do not specialize and trade but remain at alternative C in East and D in
West, the combined production of East and West Wakovia will be how much tobacco
and how much corn?
(f)However, if the two nations specialize, the combined production of East and West
Wakovia will be how much tobacco and how much corn?
(g)What will be the total gain of tobacco and corn if the countries specialize and trade?
21)
Refer to the diagram, which shows demand and supply conditions in the competitive
market for product X. Given D0, if the supply curve moved from S0 to S1, then:
A.supply has increased and equilibrium quantity has decreased.
B.supply has decreased and equilibrium quantity has decreased.
C.there has been an increase in the quantity supplied.
D.supply has increased and price has risen to 0G.
22)
Refer to the graph above for the health care market. A health insurance plan that pays
four-fifths of the cost of a consumer’s health care leads to:
A.Overconsumption of health care by 300 units
B.Overconsumption of health care by 600 units
C.Overconsumption of health care by 150 units
D.A socially efficient consumption level of health care
23) Approximately what percentage of the federal government’s tax revenues are
generated from personal income taxes (in 2012)?
A.85 percent.
B.18 percent.
C.35 percent.
D.46 percent.
24) Assume MUc and MUd represent the marginal utility that a consumer gets from
products C and D, the respective prices of which are Pc and Pd. The consumer will
increase his total utility from a specific money outlay by spending more on C and less
on D if initially:
A.
B.
C.
D.
25) When students end up doing “all-nighters” just to finish a term paper, it illustrates
the:
A.Planning fallacy
B.Framing effect
C.Hindsight bias
D.Availability heuristic
26) If the price of labor falls relative to the price of capital, and as a result the quantity
of capital employed decreases, then it can be concluded that:
A.The substitution effect is greater than the output effect
B.The output effect is greater than the substitution effect
C.The income effect is greater than the output effect
D.Labor cannot be easily substituted for capital
27)
Refer to the above graphs. (Assume that the pre-migration labor force in Country A is 100
and that it is 150 in country B.) Domestic output in country A will, after immigration:
A.Decrease by $50M
B.Decrease by $150M
C.Increase by $50M
D.Increase by $150M
28) A firm should increase the amount of R&D expenditures to:
A.The maximum amount of funding that is available to the firm
B.The point where the expected return equals the cost of funds
C.A critical minimum level so that the firm can remain competitive
D.A point where the difference between the expected return and the cost of funds is at a
maximum
29) The graphs below illustrate the market for a product on which an excise tax has
been imposed by government.
Refer to the above graph. What is the area that represents the total amount of tax
revenue going to the government?
A.WXTV
B.WXZU
C.VTZU
D.WXYZU
30) What is the difference between economic profit and normal profit?
31) What are the major differences between industrial regulation and social regulation?
Cite examples of Federal commissions that address the two types of regulation.
32) Explain the effects of the migration of labor from a poorer nation to a richer nation.
Give your answer in terms of the effects on wage rate, domestic output, and business
incomes in the two nations.
33) Explain the income and substitution effects and use the concepts to describe what
happens when the price of a product decreases.
34) Explain the perspective that tougher enforcement of drug laws for cocaine or other
drug laws may actually increase the crime rate. Use the concepts of demand, supply,
and elasticity in your explanation.
35) How can the degree of income inequality be shown by a Lorenz curve?
36) What is the difference between a change in demand and a change in quantity
demanded?
37) What are the human realities of poverty in DVCs?
38) Why are payroll taxes regressive?
39) What are four criticisms of the single tax on land?