Figure 11-21
In Figure 11-21, the increase in consumer surplus that occurs when price is set equal to
marginal cost rather than at the profit-maximizing level, as it would be in an
unregulated monopoly, is shown by area
a. abc
b. adf
c. cef
d. dfeg
e. bcfd
If banks move a substantial portion of depositors’ money from interest-earning checking
accounts into money-market deposit accounts, how will the money supply measures be
affected?
a. M1 will become smaller, and M2 will become larger.
b. Both M1 and M2 will increase in size.
c. Both M1 and M2 will decrease in size.
d. The size of M1 will be reduced, but M2 will be unchanged.
An increase in the number of students attending college would tend to
a. reduce the demand for college professors.
b. decrease the number of college professors employed.
c. increase the demand for college professors.
d. reduce the wage for college professors.
When the tax to fund a government project is allocated among voters in proportion to
the benefits they receive from the project,
a. productive (efficient) projects will tend to be opposed by a majority of voters.
b. counterproductive (inefficient) projects will often be favored by a majority of voters.
c. projects that are productive (efficient) will tend to be favored by an overwhelming
majority of voters.
d. democratic political decision making can be expected to work poorly.
Which of the following is a current account transaction?
a. the purchase of a foreign engineering firm by a domestic investor
b. the import of shoes by a domestic retailer
c. a loan by a domestic bank to a foreigner
d. a loan by a foreign bank to a domestic manufacturer
Which of the following is true?
a. In recent decades, the volume of U.S. international trade has been increasing as a
share of the economy.
b. As transportation costs decline, the volume of international trade will also tend to
decline.
c. Most international trade is between the governments of different nations.
d. If one party to an international exchange gains, the other party must lose a similar
amount.
Compared to high-income developed countries, the per person income levels of poorer
less developed countries are somewhat understated because
a. the GDP figures omit the production within the household sector, which is generally
larger in the high-income countries.
b. the GDP figures omit the production within the household sector, which is generally
larger in the poorer countries.
c. the GDP figures omit net exports, which are generally larger in the high income
countries.
d. the GDP figures omit net exports, which are generally larger in the poorer countries.
Which of the following will most likely increase aggregate demand?
a. a decrease in stock market prices
b. a lower real interest rate
c. a decrease in the expected inflation rate
d. a decrease in real GDP
Figure 8-12
In Figure 8-12, which of the following would most likely cause the average total cost
curve of a firm producing molded plastic chairs to shift from ATC1to ATC2?
a. an increase in demand for plastic chairs
b. an increase in the market price of plastic chairs
c. an increase in the price of the plastic used to produce the chairs
d. a reduction in corporate income taxes
Which of the following would be most likely to shift the long-run aggregate supply
curve (LRAS) to the right?
a. favorable weather conditions that increased the size of this year’s grain harvest
b. an increase in resource prices relative to product prices
c. an increase in labor productivity as the result of improved computer technology and
expansion of the Internet
d. an increase in the cost of security as the result of terrorist activities
In a typical college town, when students go home for the summer, the demand for many
items such as pizza and textbooks
a. decreases, which is a shift to the left of the demand curves for these goods.
b. decreases, which is a shift to the right of the demand curves for these goods.
c. increases, which is a shift to the left of the demand curves for these goods.
d. increases, which is a shift to the right of the demand curves for these goods.
The Laffer Curve indicates that
a. when tax rates are high, a rate reduction may lead to an increase in tax revenue.
b. when tax rates are low, an increase in tax rates will generally lead to a reduction in
tax revenues.
c. an increase in tax rates will always lead to an increase in tax revenues.
d. the deadweight losses resulting from taxation are small at the tax rate that maximizes
the revenues derived by the government.
As new firms enter a competitive price-searcher market, profits of existing firms
a. rise and product diversity in the market increases.
b. rise and product diversity in the market decreases.
c. decline and product diversity in the market increases.
d. decline and product diversity in the market decreases.
Use the table of expected cost and revenue data for the Tuckers Tomato Farm below to
answer the following question(s). The Tuckers produce tomatoes in a greenhouse and
sell them wholesale in a competitive price-taker market.
Table 9-1
Refer to Table 9-1. If the market price of tomatoes rose to $570 per ton, how many tons
per month would the Tuckers produce if they were maximizing profit?
a. 6
b. 7
c. 8
d. 9
If a price-searcher firm can sell nine units at a price of $6, or it can sell ten units at a
price of $5.75, what is the marginal revenue of the tenth unit?
a. $1
b. $3.50
c. $5.75
d. $6
When profits occur in a competitive market, this indicates that
a. consumers value the goods more than the resources used to produce them.
b. producers value the goods more than the resources used to produce them.
c. producers value the goods more than consumers value the goods.
d. consumers value the goods less than the resources used to produce them.
Which of the following statements is correct?
a. If the inflation rate is steady at 5 percent, for example, the real and nominal interest
rates will be equal.
b. An increase in the demand for goods now compared with goods in the future would
cause the real interest rate to rise.
c. A “positive rate of time preference” means that an individual would rather save than
consume.
d. During an extended inflationary period, the money (or nominal) interest rate will
usually be lower than the real rate of interest.
The difference between the earnings of construction workers who work on bridges and
skyscrapers and those who work on highways is most likely due to
a. differences in education requirements.
b. differences in unionization rates.
c. a compensating differential.
d. apprenticeship requirements.
The real interest rate is
a. the premium that borrowers must pay in order to acquire more purchasing power.
b. the reward lenders receive in exchange for their willingness to delay consumption
into the future.
c. equal to the money interest rate minus the inflationary premium.
d. all of the above.
Economic analysis indicates that
a. unorganized groups of taxpayers and consumers will be better able to secure
redistribution through the political process than well-organized interest groups.
b. rent-seeking activities are beneficial to a nation’s prosperity because they alter public
policy.
c. most income transfers in the United States are directed toward the poor.
d. market adjustments and competition for transfers will erode much of the gain of
transfer recipients.
Figure 9-10
In Figure 9-10, the movement from points Ato Bto Ccan best be explained by which of
the following factors?
a. a decrease in demand, followed by the entry of new firms and an expansion in supply
in a constant cost industry.
b. an increase in demand, followed by the entry of new firms and an expansion in
supply in an increasing cost industry.
c. a decrease in demand, followed by the exit of firms and a decline in supply in an
increasing cost industry.
d. an increase in demand, followed by the exit of firms and a decline in supply in a
constant cost industry.
Assume that between 1998 and 2008, nominal GDP increased from $7 trillion to $12
trillion and that the price index rose from 100 to 133.3. Which of the following
expresses GDP for 2008 in terms of 1998 prices?
a. $7.5 trillion
b. $9.0 trillion
c. $9.5 trillion
d. $16.0 trillion
Which of the following was the result of Fannie Mae and Freddie Mac being both
privately-owned and government-sponsored enterprises?
a. Their government sponsorship increased their cost of acquiring loanable funds.
b. They were unable to earn profits and pay dividends to their shareholders.
c. Congressional regulations exerted little or no impact on their business operations.
d. Their activities were more susceptible to political influence and favoritism.
A student bought a used car for $10,000 and resold it one year later for $6,500.
Insurance, license, and operating costs for the year were $1,500. What was his
economic cost of owning and operating the car for the year if the market rate of interest
was 10 percent?
a. $3,500
b. $5,000
c. $6,000
d. $8,500
Figure 4-22
Refer to Figure 4-22. The effective price sellers receive after the tax is imposed is
a. $1.00.
b. $3.50.
c. $5.00.
d. $6.00.
Which of the following explains why elected representatives will find borrowing to be
an attractive method of financing current government programs?
a. the shortsightedness effect
b. pork-barrel politics
c. the invisible hand principle
d. the public goods argument for government spending programs
When the U.S. dollar appreciates,
a. U.S. exports rise.
b. U.S. imports decline.
c. aggregate demand shifts leftward.
d. aggregate demand shifts rightward.
Which of the following is the most likely effect of higher chicken prices on the price
and quantity purchased of beef, a substitute product?
a. The price of beef will increase, and the quantity purchased will fall.
b. The price of beef will fall, and the quantity purchased will increase.
c. The price of beef will increase, and the quantity purchased will increase.
d. The price of beef will fall, and the quantity purchased will fall.
Your father tells you he earned $3.00 per hour when he was 16 in 1977; you remember
making $6.00 per hour when you were 16 in 1999. Given that the CPI was 36.7 in 1977
and 166.1 in 1999, which of the following is the 1999 real equivalent of your father’s
hourly earnings when he was 16?
a. $4.48
b. $6.78
c. $13.58
d. $15.01
Which of the following is most likely to result in a temporary spurt in the growth of real
output that cannot be maintained in the long run?
a. an anticipated increase in aggregate demand
b. an unanticipated increase in aggregate demand
c. an increase in long-run aggregate supply (LRAS)
d. an increase in resource prices relative to product prices
The difference between a firm’s total revenues and total costs when all explicit and
implicit costs are included is the firm’s
a. economic profit.
b. accounting profit.
c. opportunity cost of capital.
d. long-run average total cost.