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Two firms can choose from five different technologies to reduce their pollution: A, B,
C, D and E. The amount of pollution emitted by each technology and the cost of the
technologies are shown in the table. Both firms have adopted technology A and
currently emit 4 tons apiece. The government is considering two plans to reduce
pollution: a 50% reduction by both firms or selling pollution permits. One permit
entitles the owner to emit one ton of pollution. Without a permit, no pollution can be
emitted.
Suppose the government decides to sell 6 permits and an environmental group is
determined to only allow 5 tons of pollution to be emitted. To accomplish its goal, the
environmental group should bid __________ for the permit.
A. $301
B. $201
C. $111
D. $51
The use of pollution permits by the government to reduce pollution is
A. theoretically interesting, but untried in the United States.
B. unworkable.
C. common in several parts of the United States.
D. common in the third world.
There are two employers in Bucolic that hire people who do not have a high school
degree: a grocery store and a hardware store. The grocery store pays $5.00 per hour and
the hardware store pays $6.00 per hour. People who work at either store can work as
many hours as they want at those wages. Assume that it takes two hours to interview for
a job. Lee works at the grocery store, but would like to work at the hardware store. If
Lee interviews at the hardware store, there is a 10% probability of being hired. Assume
that Lee is risk-neutral.
How many hours must Lee anticipate working at the hardware store to justify
interviewing for the job?
A. 1 hour
B. 10 hours
C. 100 hours
D. 60 hours
To compare the purchasing power of nominal wages in two different years, one must:
A. compare the nominal values.
B. deflate both quantities by a common price index.
C. increase both quantities by the same percentage increase in a price index.
D. adjust both quantities by the real interest rate.
The numbers in each cell are each firm's profits.
Refer to the figure above. If Row Restaurant decides to publish coupons, Column Cafe
would make the most profit if it:
A. did not offer coupons.
B. also offered coupons.
C. it doesn't matter which strategy is chosen because Column Cafe will have the same
payoff in either case.
D. offered coupons half of the time and did not offer coupons the rest of the time.
The rate of return that financial investors require to hold a risky asset minus the rate of
return on a safe asset is called the:
A. real interest rate.
B. nominal interest rate.
C. risk premium.
D. discountrate.
During the Great Depression in the United States between 1929 and 1933, banks'
reserve/deposit ratio ______ and the amount of currency held by the public ____, while
the money supply ______.
A. increased; increased; increased
B. decreased; decreased; decreased
C. increased; increased; decreased
D. decreased; decreased; increased
Suppose there are ten people playing cards in a room. One of them wants to smoke a
cigar; nine of them dislike the smell of cigar smoke. The smoker values the privilege of
smoking at $5, and each of the other nine occupants of the room would be willing to
pay fifty cents for clean air in the room. The rules governing use of the room state that
smoking is not allowed unless everyone agrees to allow smoking.
Refer to the information given above. What is the total economic surplus if the cigar
smoker refrains from smoking?
A. -$4.50
B. -$.50
C. $4.50
D. $9.50
In the basic Keynesian model, an increase in government purchases:
A. reduces short-run equilibrium output.
B. increases short-run equilibrium output.
C. reduces potential output.
D. increases potential output.
Refer to the figure above. To increase output from 99 to 132 units requires ______ extra
employee-hours; to increase output from 132 to 165 units requires _____ extra
employee-hours.
A. 11; 18
B. 7; 11
C. 4; 3
D. 3; 4
An arbitrary preference by an employer for one group of workers over another is
termed
A. customer discrimination.
B. statistical discrimination.
C. employer discrimination.
D. employee discrimination.
Average variable cost is defined as
A. Total cost divided by output.
B. Total cost divided by number of workers.
C. Variable cost divided by output.
D. Variable cost divided by price.
Jim and Fred are the only two cashiers employed at a retail store. Each of them works
the same 40 hours per week and each can check out 30 customers per hour by manually
entering the price of each product purchased into the cash register. The store owner
replaces the old cash registers with new ones that automatically scan product prices into
the register. With the new cash register, Jim and Fred can each check out 60 customers
per hour. Their average labor productivity as a team before the new cash registers were
introduced was ______ customers per hour and ______ customers per hour after the
new machines were installed.
A. 30; 60
B. 30; 120
C. 60; 120
D. 1,200; 2,400
Suppose that the demand for electricity has been found to be inelastic. The most likely
explanation for this finding is that:
A. electricity is a luxury commodity.
B. the fraction of income spent on electricity is large.
C. few substitutes exist for electricity.
D. electricity is a monopoly market.
When the price of NBA ticket is $25 each, 30,000 tickets are sold every game. After the
price rises to $30 each, 20,000 tickets are sold every game. At the original price, the
demand for NBA ticket is:
A. elastic.
B. inelastic.
C. unitary elastic.
D. perfectly elastic.
If the Federal Reserve wants to increase the money supply, it should:
A. increase reserve requirements.
B. increase the discount rate.
C. conduct open-market purchases.
D. increase the interest that it pays on reserves.
JoJo is shopping for a new computer. A mail-order computer can be delivered to JoJo's
home for $1,200. JoJo could pick up the same computer at the warehouse for $1,000.
How should JoJo decide?
A. JoJo should definitely drive to the warehouse because the monetary cost is $200
lower.
B. JoJo should drive to the warehouse if the value of his travel time plus wear and tear
on his car is less than $200.
C. JoJo should definitely have the computer delivered, because the $200 saving is less
than 20% of the purchase price.
D. JoJo should definitely drive to the warehouse because the $200 saving is more than
10% of the purchase price.
When actual output exceeds potential output, there is ______ output gap and the
inflation rate will ____.
A. an expansionary; exceed the expected rate of inflation
B. an expansionary; be lower than the expected rate of inflation
C. no; be equal to the expected rate of inflation
D. a recessionary; exceed the expected rate of inflation
Suppose that all workers value a 1% reduction in the workplace injury rate at $1,000.
The cost of reducing the injury rate by 1% is $200 per worker. Firms currently pay
$20,000 per year to workers, without any effort to improve safety.
Suppose new firms began to offer workers $19,500 and a 1% reduction in the injury
rate. The total benefit to workers of the existing firms' offer is __________ and the
benefit of the new firms' offer is __________.
A. $20,000; $19,500
B. $20,000; $20,500
C. $19,800; $19,700
D. $20,000; $20,000
If the principal amount of a bond is $10,000,000, the coupon rate is 7%, and the
inflation rate is 4%, then the annual coupon payment made to the holder of the bond is:
A. $70,000.
B. $300,000.
C. $400,000.
D. $700,000.
Reduced macroeconomic variability in the U.S. since the 1981 has all of the following
benefits EXCEPT:
A. improving market functioning.
B. making business planning easier.
C. reducing resources devoted to managing inflation risks.
D. allowing the Fed to pursue accommodating policy.
Refer to the figure above. The market demand curve indicates that 90 cans of soda will
be demanded at a price of
A. $1.50
B. $1.25
C. $0.75
D. $0.50
If one fails to account for implicit costs in decision making, then applying the
cost-benefit rule will be flawed because:
A. the benefits will be overstated.
B. the costs will be understated.
C. the benefits will be understated.
D. the costs will be overstated.
Gasoline prices tend to be higher at stations that are just off the freeway than they are at
stations in the middle of town. One reason for this is that
A. freeway exit stations sell a higher quality product.
B. people who buy gas at freeway exit stations tend to have higher search costs.
C. freeway exit stations are more likely to have an attached convenience store.
D. demand for gas at freeway exits is lower than it is in the middle of town.
Industries in which the firms have large fixed costs and small, constant marginal costs
will, over time:
A. have more and more small firms.
B. see an increase in the average size of firms.
C. see no change in the average size of firms.
D. see no change in the average number of firms.
In an open economy, an increase in the government's budget deficit will ______ the
domestic real interest rate and ______ the level of capital investment in the country,
holding other factors constant.
A. increase; increase
B. increase; decrease
C. decrease; decrease
D. decrease; increase
Suppose a firm is collecting $1,345 in total revenues and the total cost of its fixed
factors of production rises from $200 to $300. One can speculate that the firm will:
A. expand output.
B. raise price.
C. earn greater profits or smaller losses.
D. earn smaller profits or greater losses.
During recessions, the change in real GDP is:
A. always positive.
B. always negative.
C. usually positive, but can be negative.
D. usually negative, but can be positive.
If the nominal interest rate is 8% and the real interest rate is 3%, then the inflation rate
equals:
A. 3%
B. 5%
C. 8%
D. 11%
The saving rate equals saving divided by:
A. wealth.
B. assets.
C. liabilities.
D. income.
Refer to the figure above. What is the price elasticity of supply when P = 6?
A. less than zero
B. positive, but less than one
C. 1
D. greater than 1
