Prices of commercial airline tickets (assume that this is a normal good) have fallen in
recent months. Over this same period, the price of jet fuel has risen and consumer
incomes have fallen. Which of the following best explains the falling prices of airline
tickets?
A) The supply curve for airline tickets has shifted to the left while the demand curve for
airline tickets has shifted to the left.
B) The demand curve for airline tickets has shifted to the left more than the supply
curve has shifted to the left.
C) The demand curve and the supply curve for airline tickets have both shifted to the
right.
D) The supply curve for airline tickets has shifted to the left more than the demand
curve has shifted to the left.
The sales tax
A) is consistent with the benefits-received principle because low-income individuals
spend less on goods and services than do high-income people.
B) is not consistent with the ability-to-pay principle because low-income individuals
tend to spend a larger fraction of their income than do high-income individuals.
C) is not consistent with the ability-to-pay principle because low-income individuals
tend to purchase a smaller bundle of goods and services compared to high-income
individuals.
D) is not consistent with the benefits-received principle because low-income individuals
spend less on goods and services than do high-income individuals, yet pay the same
sales tax rate.
Total utility
A) cannot decrease as a person consumes more and more of a good.
B) has a constant rate of increase as a person consumes more and more of a good.
C) is equal to the sum of the marginal utilities of all units consumed.
D) is negative when marginal utility is declining.
Economists assume that rational people do all of the following except
A) use all available information as they act to achieve their goals.
B) undertake activities that benefit others and hurt themselves.
C) weigh the benefits and costs of all possible alternative actions.
D) respond to economic incentives.
What is the term that describes a situation in which one party to an economic
transaction has less information than the other party?
A) inefficient market hypothesis
B) asymmetric information
C) unequal market structure
D) monopsony
If you pay $2,000 in taxes on an income of $20,000, and a tax of $3,000 on an income
of $30,000, then over this range of income the tax is
A) regressive.
B) proportional.
C) progressive.
D) There is insufficient information to answer the question.
Book publishers often use a cost-plus pricing strategy. One reason for this is
A) most publishers do not hire economists who can determine the number of books they
must sell to equate marginal cost and marginal revenue.
B) publishers do not want to incur the expense of determining the profit-maximizing
strategy. They prefer cost-plus pricing because of its lower cost.
C) much of the cost of publishing textbooks is difficult to assign to any particular book.
D) bookstores, not publishers, ultimately determine how many books will be produced.
Suppose that the Federal Reserve Open Market Committee adheres to the ideas
expressed by ________. If the economy moves into a recession, the Fed would
recommend that the federal funds target rate decrease as long as the inflation rate did
not rise above the publicly announced goal for inflation.
A) the gold standard
B) the monetarist school of thought
C) inflation targeting
D) the Taylor Rule
In 18th century Europe, governments gave guilds legal authority to limit production of
goods. Did this authority obstruct or improve the market mechanism and how?
A) It improved the market mechanism by making it more efficient because the guilds
were able to quickly identify and rectify any market shortages and surpluses.
B) It improved the market mechanism because the government’s actions provided the
correct set of signals to the market so that producers can adjust their output to better
meet the needs of consumers.
C) It obstructed the market mechanism because the guild’s actions prevented the forces
of demand and supply from coordinating the self-interested decisions of producers and
consumers.
D) It obstructed the market mechanism because with one more party having to
coordinate activities (the guilds) there were delays in getting the products to consumers.
Figure 4-1 Figure 4-1 shows Kendra’s
demand curve for ice-cream cones.
What is the total amount that Kendra is willing to pay for 1 ice cream cone?
A) $0.50
B) $3.50
C) $9.00
D) $13.50
Figure 2-6
If the economy is currently producing at point A, what is the opportunity cost of moving
to point B?
A) 16 thousand spoons
B) 12 thousand forks
C) 60 thousand spoons
D) 46 thousand forks
Suppose that an increase in capital per hour worked from $15,000 to $20,000 increases
real GDP per hour worked by $500. If capital per hour worked increases further to
$25,000, by how much would you expect real GDP per hour worked to increase if there
are diminishing returns?
A) by less than $500
B) by exactly $500
C) by more than $500 but less than $5,000
D) by more than $5,000 but less than $20,000
If you put $100 into a bank account that earns five percent interest per year, what is the
formula you should use to determine the account’s future value in one year?
A) Future value equals the present value divided by the rate of interest.
B) Future value equals the present value multiplied by the rate of interest.
C) Future value equals the present value multiplied by one plus the rate of interest in
decimals.
D) All of these yield the same answer.
Figure 6-8
Identify the two goods which are complements.
A) Good X and Good Y
B) Good Y and Good Z
C) Good X and Good Z
D) It is not possible to distinguish any relationship among the goods.
Crowding out will be greater
A) the less sensitive consumption spending is to changes in the interest rate.
B) the further equilibrium GDP is below potential GDP.
C) the more sensitive investment spending is to changes in the interest rate.
D) if the economy is in recession, rather than at full employment.
Figure 27-2
In the graph above, if the economy is at point A, an appropriate fiscal policy by the
Congress and the president would be to
A) lower the discount rate of interest.
B) execute an open market sale of government securities.
C) increase government transfer payments.
D) increase marginal income tax rates.
Which of the following is likely to increase measured GDP?
A) A greater number of women decide to stay at home and provide day care for their
children under age 5.
B) Marijuana becomes legal to grow and sell.
C) Tax rates increase and more people attempt to underreport their income for tax
purposes.
D) More people decide to do their own lawn maintenance and give up using a
professional service.
Figure 15-15 Figure 15-15 shows the
cost and demand curves for the Erickson Power Company.
Why won’t regulators require that Erickson Power produce the economically efficient
output level?
A) because there is insufficient demand at that output level
B) because at the economically efficient output level, the marginal cost of producing the
last unit sold exceeds the consumers’ marginal value for that last unit
C) because Erickson Power will earn zero profit
D) because Erickson Power will sustain persistent losses and will not continue in
business in the long run
Investment spending increases during ________, and decreases during ________.
A) an expansion; a recession
B) a recession; an expansion
C) a recession; a depression
D) a deflation; an inflation
Figure 10-6
The loanable funds market is in equilibrium, as shown in the figure above. As a result
of an increase in the government budget deficit, the ________ for loanable funds will
________, thereby ________ the equilibrium real interest rate and ________ the
equilibrium quantity of loanable funds.
A) demand; rise; increasing; decreasing
B) supply; rise; decreasing; increasing
C) demand; fall; decreasing; decreasing
D) supply; fall; increasing; decreasing