In the case of either a positive or negative externality, it will always be true that, relative
to the social optimum:
A. the market price will be too low.
B. the market price will be too high.
C. the market price will send an inaccurate signal of true cost or benefit.
D. the quantity provided by the market will be too large.
If the rate of inflation equals zero then the real rate of interest:
A. equals zero.
B. equals the nominal rate of interest.
C. can be negative.
D. equals the target real interest rate.
Suppose that the marginal benefit of having a security guard at the airport is MB1, at the
bank is MB2, and at the mall is MB3. The marginal cost of assigning security guard is
the same for all three places, and it is represented by MC2.
Suppose all three locations hire the efficient number of guards, and that the marginal
cost of having a security guard equals his or her wage. Efficiency would also require
that
A. all security guards be paid the same wage regardless of where they work.
B. more security guards be hired at the location at which marginal cost is lowest.
C. more security guards would be hired at the location at which marginal cost is
greatest.
D. security guards at the airport be subsidized because private markets will
under-provide them.
If a market is in equilibrium and demand increases while supply decreases, the change
in the equilibrium price is ________ and the change in the equilibrium quantity is
_________.
A. positive; positive
B. positive; negative
C. positive; indeterminate
D. indeterminate; positive
To obtain a given real rate of return, lenders must charge a ______ nominal interest rate
in the face of increasing inflation.
A. deflated
B. higher
C. lower
D. constant
Based on the information in the table, the total amount of bank deposits decreased from
______ to ______ over the course of 1932.
A. $37.3 billion; $32.7 billion
B. $32.7 billion; $29.2 billion
C. $34.2 billion; $30.8 billion
D. $37.3 billion; $34.0 billion
Assume that larger firms can reduce pollution emissions more cheaply than smaller
firms. A fixed percent reduction in pollution emissions would therefore
A. penalize large and small firms equally.
B. penalize large firms more.
C. ensure the reduction in pollution was achieved at the lowest cost.
D. penalize smaller firms more.
Sally earned $25,000 per year before she became a mother. After she became a mother,
she told her employer that her opportunity cost of working is now $50,000, and so she
is not willing to work for anything less. Her decision is based on:
A. the high cost of raising a child.
B. her desire to save for her child’s college expenses.
C. her increased value to her employer.
D. the value she places on spending time with her child.
In the market for labor, the price of labor is the:
A. same as price of the product produced by the labor.
B. real wage.
C. marginal product of labor.
D. number of hours employed per year.
Suppose that the equilibrium price of DVD players increases and the equilibrium
quantity increases. Which of the following best fits the observed data?
A. An increase in demand with supply constant.
B. An increase in demand coupled with a decrease in supply.
C. An increase in demand coupled with an increase in supply.
D. A decrease in demand with supply constant.
If the price elasticity of demand for tickets to a football game is 2 then, when the price
increases by 1%, quantity demanded decreases by:
A. ½%.
B. 1%.
C. 2%.
D. 4%.
Economic rent:
A. equals economic profit minus accounting profit.
B. is driven towards zero by free entry.
C. can be positive, zero, or negative.
D. can never be negative.
Campus Bookstore is the only textbook supplier in the town, a profit-maximizing
business. The table below represents the reservation prices for the eight students
enrolled in the class for which this book is required.
Assume that the marginal and average total cost for each book is $12.
Refer to the information above. If the bookstore is selling the socially efficient number
of books, how many will it sell?
A. 8
B. 5
C. 6
D. 7
A good or service that is rival but is to some extent nonexcludable is called a _____,
and a good or service that is nonrival but is excludable is referred to as a _______
A. public good; private good.
B. commons good; public good.
C. commons good; collective good.
D. public good; collective good.
The absence of which of the following leads to constant shortages and shoddy goods
under communism?
A. Private property rights
B. Free markets
C. Central planning
D. Structural policy
You are the Minister of Trade for a small island country in the South Pacific with the
following annual production possibilities curve:
You are negotiating a deal with a neighboring island that has the following annual PPC:
Refer to the figure above. As soon as you see the other island’s PPC, you realize:
A. there will be no trade because the other island has the same comparative advantage
as yours.
B. there will be no trade because there is no difference in your ability to harvest
coconuts.
C. there will be no trade because the other island has an absolute advantage.
D. your island will have to specialize in coconuts if it wants to gain from trade.
To derive the labor demand curve for a particular market, one
A. adds up the value of marginal product curves at all labor usage levels.
B. adds up the marginal product curves at the various wage rates.
C. adds up the value of marginal product curves at the various wage rates.
D. adds up the available workers at the various wage rates.
A negative demand shock will shift the ______ curve to the ______.
A. AD; left
B. AD; right
C. AS; left
D. AS; right
Refer to the figure above. The current level of GDP in this economy is ______; the
potential level of GDP is ______.
A. Y1;Y1
B. Y2;Y2
C. Y1;Y2
D. Y2;Y1
Refer to the figure above. If Pat and Chris each spend half their time on each task the
outcome will consist of:
A. the greatest possible combined production.
B. greater combined production than if each had specialized.
C. less combined production than if each had specialized.
D. an unattainable level of combined production.
Suppose that Chris had been charging $1.00 per pound for potatoes. When Chris
lowered the price to $0.90 per pound, total revenue fell. When Chris raised the price to
$1.10, total revenue also fell. Why?
A. $1.00 is the equilibrium price for potatoes.
B. At 90 cents, there is excess demand for potatoes.
C. $1.10 is more than Chris’s customers’ reservation prices.
D. Price elasticity of demand is unitary at $1.00.
Mexico and the members of OPEC produce crude oil. Realizing that it would be in their
best interests to form an agreement on production goals, a meeting is arranged and an
informal, verbal agreement is reached. If both Mexico and OPEC stick to the
agreement, OPEC will earn profits of $200 million and Mexico will earn profits of $100
million. If both Mexico and OPEC cheat, then OPEC will earn $175 million and
Mexico will earn $80 million. If only OPEC cheats, then OPEC earns $185 million and
Mexico $60 million. If only Mexico cheats, then Mexico earns $110 million and OPEC
$150 million. You may find it helpful to fill in the following payoff matrix in order to
answer the question below.
Refer to the information given above. To OPEC, the payoff to not cheating is either:
A. $150 million or $200 million.
B. $200 million or $185 million.
C. $60 million or $100 million.
D. $175 million or $185 million.
In order to promote growth, the poorest countriesin contrast to the richer countriesneed
most to:
A. invest in human capital.
B. improve their infrastructure.
C. improve their legal and political environments.
D. increase their capital stock.
Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the
price of a jar of peanut butter is $3.
If Dusty’s income rises to $45, the rational spending rule would predict that Dusty will
buy
A. more bread and less peanut butter.
B. more bread and more peanut butter.
C. less bread and more peanut butter.
D. more bread and the same amount of peanut butter.
Planned investment may differ from actual investment because of:
A. changes in government purchases and net exports.
B. the marginal propensity to consume.
C. unplanned changes in inventories.
D. fluctuations in preset prices.
Taylor has the following assets and liabilities:
What is Taylor’s wealth?
A. $105,000
B. $107,000
C. $111,000
D. $419,000
A monopolistically competitive firm:
A. sells products that are perfect substitutes for its competitors’ products, so must
compete on the basis of location.
B. sells products that are close substitutes for its competitors’ products, so will locate as
far away from its competitors as possible.
C. sometimes distinguishes its output from that of its competitors by locating in a more
convenient place.
D. will be more successful the more similar its output is to its competitors’ output.
This graph shows one consumer’s demand for ice cream at the student union:
During the semester, the student union sells a total of 7,200 scoops of ice cream at a
price of $2.00 per scoop. If every student who buys ice cream has the demand curve
shown, there must be _________ students purchasing ice cream.
A. 800
B. 1,200
C. 1,500
D. 2,000
The application of new technologies to the production process will increase:
A. average labor productivity.
B. the share of the population employed.
C. the unemployment rate.
D. the quantity of human capital.
The smaller the mpc, the ______ the income-expenditure multiplier and the ______ the
effect of a change in autonomous spending on short-run equilibrium output.
A. larger; larger
B. larger; smaller
C. smaller; smaller
D. smaller; larger
If the demand curve for a good is the line defined by Q = 1, then a decrease in the price
of that good will:
A. decrease the quantity demanded.
B. increase the quantity demanded.
C. result in a quantity of zero being demanded.
D. not change the quantity demanded.
The situation in which central bankers are insulated from short-term political
considerations and are allowed to take a long-term view of the economy is called:
A. being an inflation dove.
B. being an inflation hawk.
C. central bank independence.
D. the inside lag of monetary policy.
Evan gets twice as much marginal utility from an additional bottle of water than from
an additional bottle of soda. If the price of soda is $1.00 per bottle, then Evan is
maximizing utility if the price of a bottle of water is
A. $1.00
B. $1.50
C. $2.00
D. $.50