“Rent seeking” describes the search and battle for opportunities to collect economic
rents.
a. True
b. False
In 2010, many politicians argued that the deficit should be reduced at all costs but many
economists countered that deficit reduction would be problematic given the state of the
economy.
a. True
b. False
It is true in monopoly pricing that the
a. sky is not the limit.
b. market cannot impose a price on a monopolist.
c. monopolist is a price maker.
d. All of the above are correct.
The slope of a curved line differs from that of a straight line in that
a. the numerical value of the slope of a straight line is different at every point, but is the
same at every point for a curved line.
b. the numerical value of the slope of a straight line is always higher than the numerical
value of the slope of a curved line.
c. the numerical value of the slope of a curved line is different at every point, but is the
same at every point for a straight line.
d. the numerical value of the slope of a curved line is an irrational number, but the
numerical value of the slope of a straight line is always a rational number.
e. straight lines are more realistic, but curved lines are not descriptively accurate for the
real world.
Based on the evidence, most economists believe that the self-correcting mechanism
operates
a. slowly with prices, but quickly with wages.
b. slowly with wages, but quickly with prices.
c. very slowly with wages.
d. efficiently, so that stabilization policy is not necessary.
The cost of production on the “bottom forty” is $100,000 for a given size crop. On the
“north forty,” due to erosion of the soil, the cost is $150,000. If both are being farmed
by tenants, we would expect the rent on the “bottom forty” to be
a. $50,000 below the rent on the north forty.
b. $50,000 above the rent on the north forty.
c. different from that on the north forty by an indeterminable amount.
d. $50,000, and the rent on the north forty is $50,000.
SouthState Chemical Co. produces pine oil cleaners in a process that produces
emissions that discolor the paint on nearby houses, although the emissions have been
declared nontoxic to humans.
a. Is the price for the cleaner likely to be allocatively efficient? Use a graphic
illustration in your answer.
b. If your answer to (a) is no, what is an appropriate government policy to correct the
problem?
Figure 6-9
In 1983, government price supports raised the price of sugar above its equilibrium
value. Which graph in Figure 6-9 illustrates the impact of sugar price supports on the
sugar substitute fructose?
a. 1
b. 2
c. 3
d. 4
The invention of machinery that can double the amount of gold extracted from raw ore
will likely lead mining companies to
a. raise the world price of gold to pay for the new machinery.
b. lower the world price of gold because any amount can now be produced more
cheaply.
c. raise the world price of gold because miners’ wages must double as their productivity
doubles.
d. lower the world price of gold only if new mining companies are not allowed to enter
the industry.
The elimination of the federal budget deficit in the 1990s put downward pressure on
real interest rates.
a. True
b. False
Suppose that deposit insurance were reduced to a maximum of $50,000 per account
(instead of $250,000). This would address the specific market imperfection of
a. externalities.
b. imperfect information.
c. rent seeking.
d. moral hazard.
If your cumulative Grade Point Average (GPA) after two years of college is 3.0, and
your grades for the current semester average 3.5, what will happen to your cumulative
GPA? Explain the similarity of this example to the case of marginal cost and average
cost.
If you fit a line through a scatter diagram of points that represent coordinates of
consumer spending and disposable income, the slope of this line will equal the
a. propensity to consume
b. variable propensity to consume.
c. marginal propensity to consume.
d. average propensity to consume.
Which of the following encourage(s) entrepreneurs to innovate?
a. the patent system
b. the enforcement of contracts by the courts
c. private property rights
d. All of the above are correct.
Slope is measured as run/rise.
a. True
b. False
Some form of financial distress can become a full-blown recession if risk lead to ____
interest rates and ____ aggregate demand.
a. higher; increased
b. higher; decreased
c. lower; increased
d. lower; decreased
Marginal social costs are the sum of marginal private costs and incidental costs.
a. True
b. False
The primary effect of OPEC actions in the period from 1973 to 1980 was to increase
a. wage rates.
b. interest rates.
c. employment and output.
d. energy prices.
Nominal GDP is proportional to money stock when
a. velocity of money is volatile.
b. velocity of money is constant.
c. there are major changes in the value of velocity of money.
d. velocity of money is zero.
Perfect competition forms one extreme of the market structure spectrum.
a. True
b. False
Over the past century, the main factor responsible for rising living standards in the
United States has been productivity growth.
a. True
b. False
Which of the following will shift the aggregate demand curve outward?
a. tax cuts and government spending cuts
b. tax increases and government spending increases
c. tax cuts and government spending increases
d. tax increases and government spending increases
Invention cannot be successful financially if price is
a. greater than marginal cost because invention is based largely on social costs.
b. greater than marginal cost because invention is based solely on external costs.
c. equal to marginal cost because invention is based largely on variable costs.
d. equal to marginal cost because invention is based largely on fixed costs.
Most business people calculate marginal cost and marginal revenue to decide how much
to produce.
a. True
b. False
If goods X and Y are complements, the
a. quantities demanded of X and Y tend to move in opposite directions.
b. quantities demanded of X and Y tend to move in the same direction.
c. prices of X and Y tend to move in the same direction.
d. supply curves for X and Y tend to move in the same direction.
The marginal physical product of an input is the
a. addition to output from using one more unit of an input.
b. extra amount of an input needed to produce one additional unit of output.
c. change in average physical product, given a change in the quantity of an input.
d. slope of the production indifference curve for an output made using the input.
Total fixed cost
a. varies with the level of output.
b. has a downward-sloping curve.
c. has an upward-sloping curve.
d. is constant at all levels of output.
Which of the following policies would a Keynesian expect to produce the largest
decrease in income?
a. a reduction in government spending of $100 billion
b. a decrease in transfer payments of $100 billion
c. an increase in government spending of $100 billion
d. a tax increase of $100 billion
A decrease in the price level will most likely have what effect on the consumption
function?
a. It will shift upward.
b. It will shift downward.
c. It will cause movement downward along the function.
d. It will cause movement upward along the function.
Figure 4-14
Frustrated by the cost and ineffectiveness of the war on drugs, the U.S. government
could consider “decriminalization” of the use and sale of cocaine. Critics contend that
lower prices will expand drug use and that decriminalization will remove the stigma
and danger from arrest associated with drug use, thus further increasing the demand and
number of addicts. Which graph in Figure 4-14 best illustrates the critics’ case?
a. 1
b. 2
c. 3
d. 4
Large sport utility vehicles (SUVs) add significantly to air pollution because they do
not have to meet passenger auto emission standards. The purchase of an SUV
a. adds less to GDP since the pollution costs are subtracted from GDP.
b. adds to nominal but not real GDP because of the pollution costs.
c. is a net loss to GDP because the pollution costs are so large.
d. increases GDP.
We expect the demand curve in the perfectly competitive industry to be
a. negatively sloped.
b. vertical.
c. horizontal.
d. perfectly elastic.
Economic theory is a necessity, not a luxury. This statement is true because theory
a. always leads to practical and useful policy.
b. can prevent depressions in the economy.
c. substitutes for vast amounts of data.
d. provides a structure for organizing and analyzing data.
e. always leads to accurate predictions.
The kinked demand curve model is based on the assumption that rival firms will match
a price cut but ignore a price increase.
a. True
b. False