Which of the following most accurately states the function of middlemen?
a. Middlemen add to the expense of buyers and sellers without providing any benefit.
b. Our economy would work just as well without middlemen since they do not expand
the availability of physical goods.
c. Middlemen reduce the number of transactions since they increase the buyer’s price
and reduce the seller’s net revenue.
d. Middlemen create value by arranging trades and providing information to buyers and
sellers.
If you have a checking account at a local bank, your bank account there is
a. an asset to the bank and an asset to you.
b. a liability of the bank and a liability of yours.
c. a liability of the bank and an asset to you.
d. an asset to the bank and a liability of yours.
Which of the following is true of exchange?
a. Exchange is a zero sum activity; if one party to an exchange gains, the other must
lose an equal amount.
b. The exchange value of a good is determined by the cost of the resources required to
produce the good.
c. The total output trading partners are able to produce is not influenced by whether the
partners trade with each other.
d. Exchange permits trading partners to expand their total output of goods and services
as the result of greater specialization in areas where each has a comparative advantage.
If the price elasticity of demand is computed for two products, and product A measures
0.65, and product B measures 1.3, then
a. product A is more price elastic than product B.
b. product B is more price elastic than product A.
c. consumers are more sensitive to price changes in product A than in product B.
d. product B is more price inelastic than product A.
e. products A and B must be substitutes.
A monopolist has less to gain from cost-saving measures in the production process
when
a. the monopoly is unregulated.
b. regulators use average cost pricing to set the monopolist’s price.
c. the demand for the product of the monopolist is inelastic.
d. changes in the regulated price occur only after considerable delay.
GDP during a period can be calculated by summing either
a. the purchases of domestically produced final goods and services or the cost incurred
in the production of those goods.
b. the amount received by business firms for consumer goods and services or the
spending of business firms on investment goods and services.
c. all household expenditures on final goods and services or all business purchases of
factors of production.
d. sales of goods and services to foreigners or the purchase of goods and services from
foreigners
Noah values his car at $10,000, and Emily values it at $14,000. If Emily buys it from
Noah for $11,000, which of the following is true?
a. Noah gains $1,000 of value, and Emily gains $3,000 of value.
b. Noah gains $11,000 of value, and Emily loses $11,000 of value.
c. Noah gains $10,000 of value, and Emily loses $14,000 of value.
d. Noah and Emily both gain $11,000 of value.
Deadweight losses are associated with
a. taxes that distort the incentives that people face.
b. taxes that target expenditures on survivor’s benefits for Social Security.
c. taxes that have no efficiency losses.
d. lump-sum taxes.
Suppose the Fed purchases $10 million of U.S. securities from the public. If the reserve
requirement is 10 percent, the currency holdings of the public are unchanged, and banks
have zero excess reserves both before and after the transaction, the total impact on the
money supply will be a
a. $10 million decrease in the money supply.
b. $10 million increase in the money supply.
c. $100 million decrease in the money supply.
d. $100 million increase in the money supply.
When new firms have an incentive to enter a competitive price-taker market, their entry
will
a. increase the price of the product.
b. drive down profits of existing firms in the market.
c. shift the market supply curve to the left.
d. increase demand for the product.
The following figure indicates the reductions in total losses due to theft if a jewelry
store hires additional security guards.
If the security guards can be hired for $45 per day, how many guards should the shop
hire?
a. 2
b. 3
c. 4
d. 5
e. 6
Which one of the following would be classified as employed?
a. a parent who works 50 to 60 hours per week caring for family members
b. an construction worker vacationing in Florida who is on layoff due to bad weather
conditions in his home state
c. a 21-year-old full-time college student
d. a 17-year-old high school student who works a newspaper route six hours per week
A system of economic organization in which the ownership and control of productive
capital assets rests with the state and in which resources are allocated through central
planning and political decision making is called
a. socialism.
b. a market economy.
c. a corporate economy.
d. capitalism.
Use the figure to answer the following question(s).
Figure 11-12
Figure 11-12 indicates the industry cost and demand conditions for a product produced
in an oligopolistic industry. The price of this product is most likely to be
a. greater than P2.
b. P2.
c. P1.
d. in the range between P1 and P2.
If the federal government were to run a budget surplus, this would
a. increase the size of the national debt.
b. reduce the size of the national debt.
c. leave the size of the national debt unchanged.
d. decrease the national debt only if the government also reduces the supply of money.
If a country is going to achieve a high economic freedom rating, it must
a. follow rule of law principles and create a stable monetary environment.
b. be a political democracy.
c. refrain from the imposition of barriers that limit voluntary exchange.
d. rely primarily on government expenditures and regulations (rather than markets) to
allocate goods and resources.
e. both a and c are true.
If the quantity of a good supplied is not very sensitive to the price of the good,
economists say the supply of the good is relatively
a. inelastic.
b. elastic.
c. robust.
d. inverse.
Which of the following is most likely to increase U.S. exports?
a. The government gives subsidies to U.S. firms that export goods or services.
b. The government reduces the size of the budget surplus.
c. The United States unilaterally reduces its restrictions on foreign imports.
d. Taxes on domestic saving rise.
If a person earns an 8 percent nominal rate of interest on his savings account in a year
when inflation is 9 percent, the person’s real rate of interest is
a. 1 percent.
b. 1 percent.
c. 8 percent.
d. 9 percent.
You are considering the purchase of a business that is currently earning $25,000 per
year in after-tax profit. If these conditions are expected to continue year after year into
the future, and the interest rate is currently 10 percent, the current market value of this
business is
a. $2,500.
b. $25,000.
c. $250,000.
d. $2,500,000.
When a good is more narrowly defined (for example, airline travel versus Delta Airlines
travel),
a. it will have fewer available substitutes so demand will be more elastic.
b. it will have fewer available substitutes so demand will be less elastic.
c. it will have more available substitutes so demand will be more elastic.
d. it will have more available substitutes so demand will be less elastic.
Suppose Laqueta deposits $10,000 of cash into a checking account at a commercial
bank. The immediate effect is
a. a $10,000 decrease in the M1 money supply.
b. no change in the M1 money supply, but in the future, the M1 money supply will tend
to decrease because the bank now has excess reserves.
c. no change in the M1 money supply, but in the future, the M1 money supply will tend
to expand because the bank now has excess reserves.
d. a $10,000 increase in the M1 money supply.
If there is a decrease in both the supply and demand for a good, which of the following
will definitely occur?
a. The price of the good will increase.
b. The price of the good will decrease.
c. The equilibrium quantity will increase.
d. The equilibrium quantity will decrease.
If demand is inelastic, an increase in the price of a good will cause total expenditures on
the good to
a. fall.
b. remain constant since the decrease in quantity sold is exactly offset by the price
increase.
c. rise.
d. rise if it is a normal good and fall if it is an inferior good.
Suppose the official unemployment rate is 10 percent. We can conclude without
question that
a. the same 10 percent of the people in the economy were out of work for the entire year
b. one of every ten people in the labor force is currently unemployed
c. the same 10 percent of the people in the labor force were out of work for the entire
year
d. every person in the labor force was out of work for 10 percent of the year
e. 10 percent of the people in the economy were each out of work for 10 percent of the
year
Use the figure to answer the following question(s).
Figure 8-4
According to Figure 8-4, at what output would a properly constructed marginal cost
curve cross the ATC curve?
a. 2
b. 3
c. 4
d. 5
Suppose the population (age 16 and over) of Peru is 400 million; 20 million are
unemployed, and 230 million hold jobs. What are the rates of unemployment and labor
force participation of Peru?
a. Unemployment is 8 percent, and labor force participation is 62.5 percent.
b. Unemployment is 8.7 percent, and labor force participation is 92 percent.
c. Unemployment is 8.7 percent, and labor force participation is 62.5 percent.
d. Unemployment is 5 percent, and labor force participation is 57.5 percent.
Ceteris paribus, an increase in the price of a good will cause the
a. quantity demanded of the good to increase.
b. quantity supplied of the good to decrease.
c. producer surplus derived from the good to increase.
d. supply of the good to decrease.
Countries with more economic freedom during 1980-2010 tended to
a. grow more rapidly, but the 2010 income levels of the freer economies were still lower
than those that were less free.
b. achieve higher levels of income but the growth rates of the less free economies have
been more rapid in recent years.
c. achieve both more rapid growth and higher income levels than those that were less
free.
d. grow less rapidly and the 2010 income levels of the freer economies were lower than
those that were less free.
Which of the following is a necessary condition for price discrimination to be
profitable?
a. All consumers must have identical preferences.
b. It must be easy to distinguish consumer groups with differing responses to higher
prices.
c. The seller must face a horizontal demand curve for its product in at least one part of
the market.
d. Both b and c are correct.
Which of the following is a major disadvantage of setting the price of a good below
equilibrium and using waiting in line rather than price to ration the good?
a. Compared to price rationing, waiting in line is unfair since it is easier for those with
higher incomes to wait in line.
b. Waiting in line imposes a cost on the consumer; paying higher prices does not.
c. Both waiting in line and higher prices are costly to consumers, but unlike the
payment of a higher price, waiting in line does not provide suppliers with an incentive
to expand future output.
d. Waiting in line benefits consumers at the expense of producers.
In a market economy, individuals have a strong incentive to develop their skills and
provide others with resources, goods, and services that they value because these
activities generally
a. improve the overall efficiency of the economy.
b. increase aggregate output.
c. lead to a higher personal income.
d. provide additional tax revenue for the government.