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Suppose that the marginal benefit of having a security camera in the library is given by
MB, at the supermarket is given by MB1 and at the museum is given by MB2. All
values are per week.
Marginal Cost is given as MC. Suppose the only variable cost of a security camera is
the wage of the person monitoring it. Suppose further that camera monitors demand
equal wages, regardless of their location. If wages for all camera monitors are set at $T,
A. all three locations will be served efficiently.
B. the museum will hire more monitors than the efficient number and the supermarket
will hire fewer monitors than the efficient number.
C. only the supermarket will hire the efficient number of monitors.
D. the library will hire too many monitors.
The allocative function of price works well under conditions of:
A. free entry and difficult exit.
B. free entry and free exit.
C. free entry only.
D. free exit only.
Under a first-dollar medical insurance plan, the marginal cost of treating a covered
illness is
A. positive.
B. zero.
C. negative.
D. a percentage of the total cost.
One of the serious drawbacks of the deposit insurance system instituted in the United
States is that:
A. bank failures continue to occur regularly.
B. the system took away the Federal Reserve's ability to conduct open-market
operations.
C. the system took away the Federal Reserve's ability to change reserve requirements.
D. if insured intermediaries make bad loans, the taxpayers may be responsible for
covering the losses.
Max is considering the following offer: a 50% chance of winning $10 and a 50%
chance of losing $9. The expected value of this gamble is
A. $10.
B. $5.
C. 50 cents.
D. $1.
P-TV and QRS-TV are planning their fall line-up. Suppose that sit-coms are more
popular than reality shows, and so generate more advertising revenue than do reality
shows, but they are more expensive to produce since real actors must be hired. In the
following decision tree, QRS-TV announces its decision first and P-TV observes that
choice before it decides whether to air a sit-com in the same time slot or a reality show.
Both stations know all of the information shown in this diagram when they make their
decisions.
Refer to the information above. Given the information in this decision tree, if QRS-TV
announces that it will air a sit-com, it can expect to:
A. lose $5 million.
B. earn $5 million.
C. earn $10 million.
D. earn $20 million.
Suppose workers and employers agree to a three-year wage contract under the
expectation of 3% inflation, but inflation turns out to be 1%. In this case, ______ lost
purchasing power, and ______ gained purchasing power.
A. employers; workers
B. no one; employers
C. workers; employers
D. employers; no one
Big-ticket items such as refrigerators have a(n) _____ price elasticity of demand
compared to low budget items such as paper towels.
A. higher
B. lower
C. very low
D. equal
The market interest rate in Alpha is 7%, and the market interest rate in Beta is 10%; the
inflation rate in Alpha is 3%, and inflation rate in Beta is 8%. Which of the following
statements is true?
A. The real interest rate is higher in Alpha, but the nominal interest rate is higher in
Beta.
B. The real interest rate is higher in Beta, but the nominal interest rate is higher in
Alpha.
C. Both the real and nominal interest rates are higher in Alpha.
D. Both the real and nominal interest rates are higher in Beta.
If the borrower and lender agree to a loan at 8% when the inflation rate is 3%, then 8%
is the ______ interest rates and 5% is the ______ interest rate.
A. real; nominal
B. nominal; real
C. relative; nominal
D. real; relative
To sell an extra unit of output, a perfect competitor __________ while an imperfect
competitor __________.
A. does not alter price; must lower price
B. must hope the market price falls; must lower price
C. does not alter price; does not alter price either
D. must lower price; must lower price
Starting from potential output, if firms become more optimistic about the future and
decide to increase their investment in new capital, then this will generate a(n) _____
gap and inflation will _____.
A. recessionary; increase
B. recessionary; decrease
C. expansionary; decrease
D. expansionary; increase
In Econland autonomous consumption equals 700, the marginal propensity to consume
equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government
purchases are fixed at 100, and net exports are fixed at 40. Induced expenditure equals:
A. 0.20Y.
B. 990 + 0.20Y.
C. 0.80Y.
D. 900 + 0.80Y.
Normal profits occur when:
A. accounting profits are positive.
B. economic profits are positive.
C. economic profits are zero.
D. total revenues are greater than explicit and implicit costs.
The following payoff matrix shows the outcomes for the US and the USSR from relying
on conventional weapons or atomic weapons. The percentages refer to the fraction of
the population that would die if a war occurred under the two weapons strategies.
Assume the payoff matrix is for 1945, shortly after the US had demonstrated the
effectiveness of the atomic bomb in World War II, i.e., the example begins in the upper
right cell where USA has atomic weapons and the USSR has only conventional
weapons.
Refer to the information given above. After both the USA and USSR have access to
atomic weapons, the dominant strategy for the US is to employ __________, and for
the USSR, the dominant strategy is to employ __________.
A. atomic weapons; conventional weapons
B. conventional weapons; atomic weapons
C. conventional weapons; conventional weapons
D. atomic weapons; atomic weapons
Earth Movers & Shakers operates 3 iron ore mines. This table shows their daily
production rates and the current number of miners at each mine. All of the miners work
for the same wage and each miner in any given mine produces the same number of tons
as each other miner in that mine.
Refer to the table above. Earth Movers & Shakers has just received an order for 60 tons
of ore, to be filled in a single day. It has no other orders for that day. It should:
A. take it all from Mother Lode.
B. take it all from Middle Drift.
C. take 30 tons from Scraping Bottom and 30 tons from Middle Drift.
D. take 20 tons from each of the three mines.
If the price elasticity of demand for a good equals one, then the demand for that good
with respect to price, is:
A. elastic.
B. inelastic.
C. unitary elastic.
D. perfectly elastic.
During the Christmas shopping season, the demand for money increases significantly. If
the Fed takes no actions to offset the increase in money demand, then nominal interest
rates will ____.
A. increase
B. decrease
C. remain constant
D. equal the real interest rates
Suppose that a government agency is trying to decide between two pollution reduction
policy options. Under the permit option, 100 pollution permits would be sold, each
allowing emission of one unit of pollution. Firms would be forced to shut down if they
produced any units of pollution for which they did not hold a permit. Under the
pollution tax option, firms would be taxed $250 for each unit of pollution produced.
The regulated firms all currently pollute and face varying costs of pollution reduction,
though all face increasing marginal costs of pollution reduction.
Suppose the tax policy is adopted. A firm will be willing to pay the tax if $250 is less
than or equal to
A. the cost of reducing its existing pollution by one unit.
B. its marginal revenue.
C. its average total cost of production.
D. the average cost of eliminating one unit of pollution.
If a nation has the lowest opportunity cost of producing a good, that nation has a(n):
A. comparative advantage.
B. absolute advantage.
C. comparative advantage and an absolute advantage.
D. absolute advantage and possibly a comparative advantage.
Assume that average labor productivity is the same in each country. Based on the
information in the table, which country has the smallest real GDP per capita?
A. Country A
B. Country B
C. Country D
D. Country E
Real wages can be cut without cutting nominal wages if:
A. the rate of inflation is positive.
B. the rate of inflation is zero.
C. the rate of inflation is negative.
D. there is deflation.
In the short run, if a firm chooses to operate and produce output, it must be the case
that:
A. it earns a profit.
B. it avoids a loss.
C. total revenues are greater than or equal to the cost of fixed factors of production.
D. total revenues are greater than or equal to the cost of variable factors of production.
In Econland, 500,000 of the 2 million people in the country are employed. Average
labor productivity in Econland is $15,000 per worker. Real GDP per person in Econland
totals:
A. $1,250.
B. $3,750.
C. $11,250.
D. $60,000.
Which of the following factors of production is likely to be fixed in the short run?
A. The location of the firm.
B. The number of employee-hours.
C. The amount of electricity consumed.
D. The amount of paper used.
Lower real income ______ the demand for money and a lower price level ______ the
demand for money.
A. increases; increases
B. increases; decreases
C. increases; does not change
D. decreases; decreases
Based on the table below and the principle of diminishing returns to capital, then total
packages wrapped when a fourth machine is installed must be less than ______
packages.
A. 2,000
B. 15,000
C. 16,000
D. 17,000
The basic Keynesian model is built on the key assumption that:
A. menu costs are not significant.
B. firms meet the demand for their products at preset prices.
C. firms price their products so as to see a preset quantity of output.
D. prices are prevented from changing frequently by government regulations.
It was expected that consumers in _____ would benefit from reduced prices of goods
that will be freely traded under the NAFTA.
A. Canada
B. the United States
C. China
D. Mexico
In Macroland autonomous consumption equals 100, the marginal propensity to
consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50,
government purchases are fixed at 150, and net exports are fixed at 20. The slope of the
Expenditure Line is:
A. 0.25.
B. 0.75.
C. 290.
D. 320.
Jean places a high value on a loaf of bread with which to feed his family, but can only
afford to pay $1. Val regularly pays $2 for a loaf of bread, but often the bread molds
before Val can finish the loaf. Total economic surplus is maximized when
A. Jean receives a loaf of bread.
B. Val gives Jean leftover bread.
C. Val purchases the bread.
D. Val and Jean purchase equal quantities of bread.
A firm is unlikely to hire a worker if
A. the worker's contribution to the firm's revenue is less than his or her wage.
B. the worker's contribution to the firm's profit is less than his or her wage.
C. by hiring that last worker the firm begins to experience diminishing marginal
productivity of labor.
D. the minimum wage set by law is less than the equilibrium wage in the market.
