Fixed exchange rates are determined in free markets by the forces of demand and
supply.
a. True
b. False
Figure 18-2
Figure 18-2 shows the widget market before and after an excise tax is imposed. The tax
per widget equals ____.
a. $5
b. $20
c. $25
d. $30
The slope of a typical production possibilities frontier reflects the fact that
a. some systems of market organization are more efficient than others.
b. the invisible hand always functions smoothly in a market system without government
intervention.
c. when resources are allocated efficiently, it’s impossible to produce more of anything
without producing less of something else.
d. production is only possible when resources are allocated efficiently.
When every country does what it is best at,
a. every other nation will lose because of the inability to compete.
b. all other nations can benefit because more of every commodity can be produced.
c. some nations will gain at the expense of other nations.
d. rich nations will gain at the expense of poor nations.
Marginal revenue is the addition to total revenue resulting from the addition of one unit
to total output.
a. True
b. False
An inferior good is one that consumers buy in smaller quantities when incomes rise.
a. True
b. False
When prices of products are set below equilibrium,
a. society’s resources are inefficiently allocated.
b. firms expand output to increase profits.
c. firms earn excessively high profits.
d. consumers benefit from surpluses of cheap goods.
A firm should keep producing output as long as the marginal profit is greater than zero,
no matter how small it is.
a. True
b. False
The optimal degree of abstraction depends on the objective of the analysis.
a. True
b. False
When real GDP grows more slowly than potential GDP,
a. nominal GDP rises.
b. the unemployment rate falls.
c. labor productivity falls.
d. the unemployment rate rises.
The productivity slowdown in the U.S. can be explained by geographic limitations and
instability in the government.
a. True
b. False
Figure 17-7
In Figure 17-7, the case for restrictive monetary and fiscal policy is strongest at point
a. A.
b. B.
c. C.
d. D.
If a tax is proportional, the average tax rate
a. remains the same as income rises.
b. rises as income rises.
c. falls as income rises.
d. falls as income falls.
Money spent on college tuition is considered human capital by economists.
a. True
b. False
All business firms should consider their fixed costs in determining the prices they set.
a. True
b. False
College graduates now earn nearly twice as much as their high school-educated peers
and that gap is increasing.
a. True
b. False
Which of the following experiments will yield observations that would allow one to
calculate the marginal physical product of labor?
a. increase the number of lumberjacks with chain saws and observe the change in output
of cut trees
b. increase the number of workers on an assembly line and record the change in output
c. Both a and b are correct.
d. Neither a nor b are correct.
The short-run supply curve of a perfectly competitive firm
a. intersects the minimum point of its short-run average total cost curve but not its
short-run average variable cost curve.
b. intersects the minimum point of its short-run average variable cost curve but not its
short-run average total cost curve.
c. intersects the minimum point of both its short-run average variable cost and its
short-run average total cost curves.
d. intersects the minimum point of its short-run average total cost curve and may or
may not intersect the minimum point of its short-run average variable cost curve.
Prices serve the public interest by
a. making resource owners wealthy.
b. rationing scarce resources.
c. keeping poor people from purchasing more than they can afford.
d. forcing the government to participate in the market.
Governments can most effectively encourage a firm to produce the efficient level of
output of a good whose production causes a beneficial externality by
a. increasing the demand at every price for the good.
b. subsidizing the production of the good.
c. taxing the production of the good.
d. imposing a price ceiling on the good.
One of the consequences of preventing wages from falling in the European Union has
been growing unemployment.
a. True
b. False
Since a monopolist firm will lose some customers when the price is increased, it will
make every effort to keep the price as low as possible.
a. True
b. False
Fiscal policy is the use of taxes and spending by the government to affect aggregate
demand.
a. True
b. False
In long-run equilibrium, the perfectly competitive firm produces
a. where P = MC = AC.
b. at the lowest point on its long-run average cost curve.
c. where its long-run average cost curve is tangent to its horizontal demand curve.
d. All of the above are correct.
As a rule, as a consumer acquires more and more of a good, the marginal utility
declines.
a. True
b. False
In the standard 45-degree line expenditure model, the C + I line and the C line are
parallel because,
a. all I is assumed to be autonomous.
b. all I is assumed to be induced.
c. consumption depends on disposable income.
d. I rises with GDP at the same rate as C.
If the MU of half gallon of milk is $3.50 and the MU of gallon of milk is $3.25, and
they both sell for the same price, we would expect consumers to
a. increase their purchases of gallons of milk.
b. increase their purchases of half gallons of milk.
c. not change their purchasing habits.
d. buy only gallons of milk.
Increases in productivity are caused by
a. better education and training of the labor force.
b. higher levels of literacy.
c. improvements in technology.
d. All of the above are correct.
Explain whether a firm’s decisions are optimal if economic profit is (a) positive, (b)
zero, or (c) negative.
MRP represents what the marginal physical product is worth.
a. True
b. False
A decrease in autonomous consumption would have the same effect on the expenditures
schedule as a(n)
a. decrease in investment.
b. increase in government purchases.
c. increase in net exports.
d. decrease in taxes
The central bank of the United States is known as the
a. Internal Revenue Service.
b. Federal Reserve System.
c. Federal Deposit Insurance Corporation.
d. Department of Commerce.
How can one tell from cross elasticity what kind of relationship exists between any two
goods?
Compare the effectiveness of monetary policy in an open economy with mobile
international capital to monetary policy in a closed economy. Why is it different? Use
an appropriate diagram to illustrate your answer.
What is the equilibrium condition for price discriminating monopoly firm? Give some
examples for price discrimination.
When the housing price bubble burst, there were some obvious effects on the economy,
and some that were not so obvious. Explain these.
Draw a graph of a market in equilibrium. Describe what might cause a change in
demand or supply and how this would affect the diagram. Indicate how the equilibrium
price and quantity will change.
How will price, output, and profit compare if firms maximize sales rather than profit?
The functioning of a market economy is very dependent upon investment for provision
of capital and future growth. Describe the process of investment and employment of the
created capital in production.
Price floors are typically accompanied by a standard series of symptoms. What are
they?
The demand for home computers has increased, yet the price has fallen. Explain this
apparent paradox.
How can tariffs lead to a situation in which all parties to a trade lose?
Economists often say that trade is a win-win situation. How do you justify this?
Assume that an economic boom occurs in the United States, so that the United States
has a much higher growth rate than other nations. What will happen to the exchange
rate of the U.S. dollar?
Hostile takeovers of corporations have been in the business news for some time now.
Several states have passed laws making it harder for out-of-state corporations to acquire
firms headquartered in their states. Several corporations have established “golden
parachutes” to give executives high payoffs in case of hostile takeover. What market
imperfection is likely to be worsened by these actions? Explain.
Figure 14-5
Figure 14-5 contains a production possibilities frontier for wheat and milk production.
Explain why Point C is not a point where resources are being used efficiently.
How did the gold standard help countries rectify the balance of payment problem?
What were the problems associated with the gold standard?