A tariff is a limitation on the amount of a good that can be imported.
a. True
b. False
When new farmers enter the wheat industry, the equilibrium price of wheat
a. always falls.
b. falls only if existing firms gang up on the entrant.
c. falls only if existing firms are earning no economic profit.
d. falls only if the new firm is more efficient than existing firms.
When business is profitable, corporate managers will preferplowback to other sources
of funding.
a. True
b. False
Two reasons why the Social Security system nearly went bankrupt in the early 1980s
are: (i) wages were indexed but benefits were not; (ii) the percentage of elderly people
in the country declined.
a. i and ii
b. i but not ii
c. ii but not i
d. neither i nor ii
Money as defined by M1 includes
a. coins.
b. paper money.
c. checking deposits.
d. travelers’ checks.
e. All of the above are correct.
Most people base their current consumption spending at least partially on
a. short-run debt.
b. long-run debt.
c. long-run real interest rates.
d. long-run income.
In a free-market economy, the pricing mechanism always operates to
a. produce an equitable distribution of income.
b. provide an efficient allocation of resources.
c. correct any inequality in distribution of output.
d. equate consumers’ desires with ability to pay.
Unemployment insurance cannot eliminate the national costs of lost output due to
unemployed labor.
a. True
b. False
What happens typically to a budget deficit during an economic recovery?
a. It decreases because of tax changes.
b. It increases because of spending decreases.
c. It decreases automatically.
d. It increases automatically.
The basic concept behind strategic trade policy is that free trade is the best policy to
pursue, but some countries don’t play by those rules. Therefore,
a. it makes no sense to engage in trade at all, and it makes sense to be self-sufficient.
b. it makes sense to restrict imports of items that are of military significance in order to
maintain a strong defense posture.
c. it makes sense to threaten to protect markets unless other nations agree to open theirs.
d. it makes no sense to export items of strategic importance to other nations, because
they should make them on their own.
One of the most famous cartels is OPEC.
a. True
b. False
In England the Thatcher government substituted a “poll tax” for the local property tax.
People took strong exception to the tax, which is basically a head or “lump sum” tax.
The principle of taxation such a tax violates is called
a. the benefits principle.
b. the excess burden principle.
c. the ability-to-pay principle.
d. the constitutional principle.
For those nations who fixed their currencies’ exchange rates to the U.S. dollar, the rise
of the dollar during the 90’s was very good news,
a. True
b. False
Equilibrium GDP occurs when total spending equals total output.
a. True
b. False
Historical demand curves are always suspect because their demand curves are likely to
have shifted over time.
a. True
b. False
The amount of a good sold in a market at a particular price cannot exceed the quantity
a. demanded at that price.
b. supplied at that price.
c. sold when there is a price floor.
d. sold when there is a price ceiling.
A major reason for the existence of inflationary and deflationary gaps is that
a. corporations do most of the nation’s saving.
b. saving and investing are done by people with no social conscience.
c. consumers do most of the nation’s saving.
d. saving and investing are done by different groups.
The most common form of trading goods for goods is
a. bilateral trade.
b. government commodity distribution.
c. status-based trades.
d. barter.
e. payments in kind.
If the Fed decreases the discount rate, what happens to reserves and the money supply?
a. Reserves increase and the money supply decreases.
b. Both increase.
c. Reserves decrease and the money supply increases.
d. Both decrease.
An appropriate government policy toward negative externalities is to
a. subsidize the activity that creates the negative externality.
b. impose a tax or fine on the activity that creates the negative externality.
c. pay money to the party that creates the negative externality.
d. impose a tax on recipients of the negative externality.
A duopoly is a form of oligopoly with two firms.
a. True
b. False
A tax that creates an excess burden may nevertheless improve efficiency if
a. consumption of the good has been generating beneficial externalities.
b. consumption of the good has been generating no externalities.
c. consumption of the good has been generating detrimental externalities.
d. the good has been supplied by a monopolist.
The New York Stock Exchange handles only about 10 percent of all stock market
transactions in the United States.
a. True
b. False
The current deregulatory movement began to change laws to deregulation in the
a. early 1970s.
b. late 1970s.
c. early 1980s.
d. early 1990s.
A vertical line always has a slope of one.
a. True
b. False
During the American Revolution, Washington’s army nearly starved to death after price
controls were enacted to “help” buy food for the army at affordable prices. The
Continental Congress later passed a law which
a. exhorted the public to obey the law and help supply food to the army.
b. passed tax increases to punish those who refused to sell the food.
c. revised the American Law of Supply and Demand.
d. overrode local ordinances and essentially repealed the price controls.
e. called for the repeal of other price control measures.
Firms that engage in price discrimination
a. will earn less profit than those that do not discriminate.
b. will earn more profit than those that do not discriminate.
c. are biased against certain buyers in the market.
d. will always produce less output than firms that do not discriminate.
The long run is a period long enough so that one of the firm’s commitments ends.
a. True
b. False
It is impossible for both nations to gain when trading with one other.
a. True
b. False
Often when consumers enter the used car market to make a purchase,
a. they know little about what they are purchasing.
b. the motto “let the buyer beware” applies.
c. the information they gain may not be perfect, but may be what economists call
“optimally imperfect.”
d. All of the above are correct.
As the international value of the dollar rises, AS shifts outward and AD shifts inward.
a. True
b. False
The burden of the payroll tax falls entirely on the employee regardless of how it is
formally divided between employer and employee if the
a. demand for labor is inelastic.
b. supply of labor curve is horizontal.
c. supply of labor curve is virtually vertical.
d. demand for labor curve is elastic.
The Fed has which of the following as its strongest control over the money supply?
a. interest rate changes
b. the discount rate
c. open market operations
d. the required reserve rate
If the government charged a tax on monopolists equal to, say, 75 percent of their
economic profits, what would happen to the level of output the firm would produce?
What about the price? Explain.
Distinguish the terms price ceiling and price floor.
What is the shape of average cost curve? Provide the reason for that particular shape.
Show what happens to the industry equilibrium when new firms enter a perfectly
competitive market in the long run.
While monopoly power can be abused, it can also be used beneficially. What are the
major pros and cons of largeness in business?
The table below gives data on output for a firm in the short run. The firm is able to hire
labor and its TPP is given. Compute the APP, MPP, and MRP for labor if the price of
the good is fixed at $12 per unit.
Discuss some of the general conclusions arrived at about supply-side tax initiatives.
In an effort to prepare for war, the Defense Department is required by Congress to
stockpile helium, once used to provide lift for blimps (phased out in the 1960s). About
100 years of total U.S. usage of helium is in storage. The Pentagon agrees to buy
helium from producers at a price above what would otherwise prevail in the
marketplace. Is this likely to result in efficiency? Explain.
Why is it that the consumer can maximize total net utility only if the purchase quantity
brings marginal utility as close as possible to equality with price?
Dryden Press can produce 10,000 textbooks using 10 machines and 100 workers or
using five machines and 300 workers. It can produce 20,000 textbooks using 10
machines and 300 workers or five machines and 600 workers. Construct a
two-dimensional contour-type graph to show the relationship between the output of
textbooks and the labor and machinery inputs.
The airline dominating Charlotte, North Carolina, once contended that it could not
overcharge for fear of potential competition, if not at Charlotte, then at Raleigh, a
two-hour drive away. Do you find this argument compelling, given the theory of
contestable markets?
Explain the following statement: “Good decisions typically require marginal analysis,
which weighs added costs against added benefits.”
Use the concept of economic rent to explain how rent controls could have an effect
quite opposite to the intention.
Describe the profit-maximizing firm’s decision about how much to spend on innovation.
Why is diversification recommended for investors?
Define equilibrium as it relates to markets. Describe the process by which a market
reaches a new equilibrium. Include an appropriate diagram.