If transactions costs are low, private bargaining will always result in an efficient
solution to the problem of externalities.
“The distribution of income should be left to the market” is an example of a positive
economic statement.
A consumer’s indifference curves can never cross.
To maximize profit, a monopolist will produce and sell a quantity such that for the last
unit sold, marginal revenue equals marginal cost, and charges a price given by the
demand curve at that output level.
The iPod is a product without any significant network externalities.
To complement actions by the Fed to reduce inflation, Congress and the President can
cut spending and/or raise taxes.
If it costs Hobie $900 to produce 5 lamps and $1,200 to produce 6 lamps, then the
difference of $300 is the marginal cost of producing the 5th lamp.
In the market for factors of production, firms earn income by selling goods and services
to households.
There is no evidence that odd pricing succeeds in convincing consumers that prices are
lower than they really are.
A firm’s short-run average total cost curve is parallel to its short-run average variable
cost curve.
Countries without well-developed financial systems are able to sustain high levels of
economic growth.
Deadweight loss refers to a loss in revenue resulting from producers having to reduce
their selling price to remain competitive.
The process of countries becoming more open to foreign trade and investment is known
as outsourcing.
In recent years, the prices of new domestically produced cars have been falling.
Suppose consumers respond by reducing their demand for used cars and mass transport
services such as bus travel. This information suggests that the cross-price elasticity
between new cars and used cars, and the cross-price elasticity between new cars and
bus travel are negative.
Rent seeking behavior, unlike profit maximizing behavior in competitive markets,
wastes society’s scarce resources.
To increase the money supply, the Federal Reserve could
A) lower the discount rate.
B) decrease income taxes.
C) raise the required reserve ratio.
D) conduct an open market sale of Treasury securities.
Table 16-2
Neem Products sells its Ayurvedic Neem toothpaste in two completely isolated markets
with demand schedules as shown in Table 16-2. The average cost of production is
constant at $2 per tube. How many tubes of toothpaste will Neem sell in Middle Fall
and at what price?
A) Q = 2 units; P = $7
B) Q = 3 units; P = $6
C) Q = 4 units; P = $5
D) Q = 5 units; P = $4
In economics, the term “equity” means
A) everyone has an equal standard of living.
B) the hardest working individuals consume all they want.
C) only elected officials have high standards of living.
D) economic benefits are distributed fairly.
Robert Shiller posed the following question to workers: “Imagine that next year the
inflation rate unexpectedly doubles. How long would it probably take, in these times,
before your income is increased enough so that you can afford the same things as you
do today?” Shiller found that ________ percent of the workers he interviewed reported
that it would take several years to restore the purchasing power of their wages or that
this power would never be restored.
A) 25
B) 42
C) 64
D) 81
Figure 2-12
Figure 2-12 shows the production possibilities frontiers for Pakistan and Indonesia.
Each country produces two goods, cotton and cashews.
Which country has a comparative advantage in the production of cashews?
A) Indonesia
B) They have equal productive abilities.
C) Pakistan
D) neither country
Which of the following is not a requirement for a successful price discrimination
strategy?
A) A firm must have market power.
B) The firm must be able to prevent consumers who buy a product at a low price from
reselling it to other consumers at a high price.
C) Managers must practice yield management.
D) Some consumers must have greater willingness to pay for the product than other
consumers, and the firm must be able to know what prices consumers are willing to pay.
If national income increases by $20 million and consumption increases by $5 million,
the marginal propensity to consume is
A) 4.
B) 0.75.
C) 0.5.
D) 0.25.
A franchise is
A) a firm that buys and operates a brand name business in a new market.
B) a firm with the legal right to sell a good or service in a particular area.
C) a firm with no competitors.
D) a branch of a national company.
Suppose that at the beginning of a loan contract, the real interest rate is 4% and
expected inflation is currently 6%. If actual inflation turns out to be 7% over the loan
contract period, then
A) borrowers gain 1% of the loan value.
B) lenders gain 1% of the loan value.
C) borrowers lose 3% of the loan value.
D) lenders gain 3% of the loan value.
Figure 4-5 Figure 4-5 shows the
market for apartments in Bay City. Recently, the government imposed a rent ceiling at
R0. Suppose that instead of a price ceiling, the government imposed a price floor of R1.
What is the quantity of apartments demanded at the new price?
A) 0
B) Q1
C) Q*
D) Q0
What do the highest stock price and the lowest stock price over the previous year
indicate?
A) Add them together and divide by two to get the stock’s current market price.
B) What the stock’s price-earnings ratio is
C) How volatile the stock’s market price has been
D) They generate the dividend yield.
Damian owns a tattoo parlor and has hired three tattoo artists to work for him. The
marginal product of labor is 8 for the first artist, 12 for the second artist, and 7 for the
third artist. What is Damian’s average product of labor for these three tattoo artists?
In the dynamic aggregate demand and aggregate supply model, what is the result of
aggregate demand increasing faster than potential real GDP?
Fill in the missing values in the following table. Draw one graph showing how total
output increases with the quantity of workers hired, and another graph showing the
marginal product of labor and the average product of labor.
From a supply perspective, what impact would an increase in the price of motorcycles
have on the market for motorcycles?
Define a corporation.
What is a centrally planned economy?
Your friend does not understand the benefits of globalization. Outline for your friend
the positive economic aspects of globalization.
Table 18-4
The table above outlines the rankings of three members of the U.S. House of
Representatives on three spending alternatives. Assume that Congress can spend
additional revenue on only one of the three spending alternatives and that Tom, Dick
and Harriet, all members of the House of Representatives, participate in a series of
votes in which they are to determine which of the spending alternatives should receive
funding. Three votes will be taken: (1) Foreign Aid and Post-Secondary Education (2)
Foreign Aid and Roads and Bridges and (3) Post-Secondary Education and Roads and
Bridges. Determine whether the voting paradox will occur as a result of these votes.
