Suppose the United Automobile Workers union agrees to accept lower wages for
members if the automobile manufacturers lower their prices to buyers. Will the UAW’s
measures usually result in a larger number of cars being sold and hence more jobs for
UAW members?
A) No, because people only buy new cars when they need them.
B) Not if the price elasticity of demand for new cars turns out to be less than one.
C) Only in the unlikely event the demand for new cars is unit elastic.
D) Probably not, because new car sales depend on advertising.
E) Yes.
Assuming everyone wants to advance their interests in an effective way is an
assumption of
A) capitalism.
B) economic theory.
C) government.
D) selfishness.
The schedule of tolls capable of maximizing the net revenue of a bridge owner
A) has no relationship to the cost of constructing the bridge.
B) is the highest anyone will pay rather than forgo the opportunity to cross the bridge.
C) varies proportionately to the cost of constructing the bridge.
D) will be higher than the corresponding tolls for a tunnel, because tunnel construction
costs must be sunk rather than elevated.
Fill in the blank: A producer in a ________ market environment would enjoy total
market power.
A) perfectly competitive
B) oligopolistic
C) pure monopoly
D) price-taking
If Bonnie can produce either 20 hats or 10 scarves in a month, and Phil can produce
either 5 hats or 10 scarves in a month, then
A) Bonnie is more efficient at producing hats, compared to Phil.
B) Bonnie is equally efficient at producing scarves, compared to Phil.
C) both A and B above are true.
D) none of the above are true.
Suppose attendance is required for a passing grade at Ultimatum University, and the
professor repeatedly reminds students of the need to attend every day to survive the
class. Nevertheless, we observe many students choosing to stop attending. The students
who stop attending include some who even enjoy the class. Using the economic way of
thinking, the choice to stop attending generally occurs because
A) the students secretly despise the professor.
B) the professor secretly despises the students.
C) the students value other goods in addition to passing the class.
D) the students feel the university has no right to impose such restrictions on their
personal freedom.
If a university expects $160,000 in ticket revenue from five home football games and
$180,000 in ticket revenue if it adds a sixth game, the
A) marginal revenue of the sixth game is $20,000,
B) marginal revenue of the sixth game is $30,000.
C) sixth game will cost more than each of the previous five games.
D) university should add a sixth game only if the average cost of a game is less than
$30,000.
The Fed controls bank lending and thus the process of money creation through its
power to
A) alter legal reserve requirements and the dollar amount of reserves.
B) establish maximum and minimum interest rates on bank loans and deposits made
with banks.
C) oversee the lending criteria banks use.
D) suspend the charter of banks whose lending activities contribute to an excessive rate
of increase in the money supply.
A “normal good” is defined as any good in which
A) a rise in its price will reduce quantity demanded.
B) a fall in its price will increase quantity demanded.
C) a rise in income will increase overall demand.
D) a fall in income will increase overall demand.
If the Palace Cinema can sell 200 tickets at $4 and 300 tickets at $3, our best estimate
of the marginal revenue from sale of the 250th ticket is
A) $4.
B) $3.50.
C) $3.
D) $1.
Who wrote the following criticism of European colonial expansion into poorer
non-European nations? “The superiority of force happened to be so great on the side of
the Europeans, that they were enabled to commit with impunity every sort of injustice
in those remote countries.”
A) Adam Smith
B) Karl Marx
C) Alfred Marshall
D) John Maynard Keynes
E) John Kenneth Galbraith
The opportunity costs perceived by decision makers determine
A) both demand and supply curves.
B) demand curves.
C) either demand or supply curves, but not both in the same case.
D) supply curves.
Legislators are not likely to substitute money transfers to low-income people for in-kind
benefits (e.g., food stamps, health care) because
A) low-income people generally do not know how to manage money effectively.
B) low-income people prefer in-kind transfers.
C) special interest groups benefit from the system of in-kind transfers.
D) giving cash to the poor would necessitate a tax increase.
Which of the following is most likely to occur if a cartel does not find an acceptable
way to allocate sales among its members?
A) Output will decrease.
B) Prices will rise.
C) Selling costs will increase.
D) The marginal costs of individual members will rise above their marginal revenue.
A health club requires six-months advanced payment. A commuter railroad offers
discounted monthly tickets. What do they clearly have in common?
A) They are earning profits.
B) They are selling short.
C) They are exploiting customers.
D) They are facing financial problems.
Did Mother Teresa create positive externalities when she helped the poor of Calcutta?
A) No, because the poor continued to exist and her efforts were largely unsuccessful.
B) No, because she fully calculated all the benefits of her activities.
C) Yes, because her activities have inspired and benefited countless others whom
Mother Teresa could not have known about or taken into account.
D) Yes, because her activities had nothing to do with the search for economic profit.
According to the text, the beneficiaries of economic growth in poor nations are often
the privileged government officials rather than the working masses. Why?
A) The officials deserve it.
B) The working masses can afford to get by with less, but the government can’t.
C) The officials are often willing to grant foreign investors special deals as long as the
investors share some of their investment returns with them and their cronies.
D) For all of the above reasons.
The economic way of thinking assumes people, including Mother Teresa, Jack the
Ripper, Henry VIII, and Hilary Rodham Clinton, act on the basis of
A) greed.
B) altruism.
C) terror.
D) the projects they are interested in.
The free rider problem causes goods not to be produced when
A) the opportunity cost of providing them is low.
B) the quantity supplied is greater than the quantity demanded.
C) they can’t be produced by government.
D) they can’t be provided exclusively to the people who pay for them.
Which statement below is true for a price taker?
A) Marginal revenue can only be positive.
B) Marginal revenue can only be negative.
C) Marginal revenue can only zero.
D) Marginal revenue can be positive, negative, or zero.
If a price floor on coffee is set above the market-clearing price, then
A) the quantity of coffee demanded will decrease.
B) the quantity of coffee supplied will increase.
C) the quantity demanded for coffee will increase.
D) Both A and B will occur
E) none of the above will occur.
Suppose the price of water rose sharply. Other things constant, what is the least likely to
occur?
A) People will consume less water.
B) Fewer swimming pools will be filled with water.
C) More high-pressure showerheads will be sold.
D) The demand for water will fall.
What’s a direct long-run effect of imposing rent controls on apartments?
A) A rise in demand for rent controlled apartments
B) A fall in demand for rent controlled apartments
C) A fall in the supply of rent controlled apartments
D) A rise in the supply of rent controlled apartments
Which is the most likely effect upon the market for cotton of a significant improvement
in the quality of synthetic textiles?
A) A decrease in demand and hence a decrease in both the price of cotton and the
quantity exchanged.
B) A decrease in demand and hence a decrease in the price of cotton and an increase in
the quantity exchanged.
C) A decrease in demand and hence an increase in the price of cotton and a decrease in
the quantity exchanged.
D) A decrease in both demand and supply and hence a decline in the quantity
exchanged but no predictable change in the price of cotton.
Can nominal GDP increase even when real GDP decreases?
A) No, it is not possible.
B) Yes, but only if the price level decreases.
C) Yes, but only if the price level increases.
D) Yes, but only if the price level remains unchanged.
Suppose coffee prices, gasoline prices, and concert ticket prices are all sharply higher
this year compared to last year. The economy is experiencing
A) disinflation.
B) deflation.
C) inflation.
D) possibly A, B, or C above.
Speculators who expect a corn harvest next fall much larger than anyone now
anticipates will
A) lower current corn prices and raise September prices above what they would be in
the absence of the speculators.
B) lower current corn prices and lower September prices below what they would be in
the absence of the speculators.
C) raise current corn prices and lower September prices below what they would be in
the absence of the speculators.
D) raise current corn prices and raise September prices above what they would be in the
absence of the speculators.
E) raise the expected September price of corn.
We all behave as speculators in our economic transactions
A) because everyone likes to gamble.
B) because we all act in the hope of benefits from a correct anticipation of future
events.
C) unless we never buy on credit.
D) unless we use the services of middlemen.
In the economic way of thinking, a tropical rainforest is a scarce good. Thus,
A) there is no substitute for a tropical rain forest.
B) there is a substitute for a tropical rain forest.
C) tropical rains forests should be preserved at any cost.
D) tropical rain forests can be preserved at no cost.
E) economists don’t like tropical rainforests.
Which Fed policy would be part of a restrictive monetary policy?
A) Lowering the discount rate.
B) Buying government bonds.
C) Both of the above.
D) None of the above.
Which of the following economists rejected the notion that economic growth was
caused by the evolution of commercial society?
A) Adam Smith
B) Paul Heyne
C) Karl Marx
D) All of the above.
E) None of the above.
Suppose the market for guitars “clears” at a price of $500 per guitar. What does the
above statement mean?
A) Nothing, if an economist made the statement.
B) Guitars are no longer a scarce good.
C) The plans of guitar buyers and sellers are coordinated.
D) There is no longer a demand for guitars.
The economic way of thinking claims there are substitutes for
A) any good.
B) most goods except non-renewable resources.
C) most goods except clean air and clean water.
D) most goods except wetlands and tropical rain forests.