Points that lie below the production possibilities curve are inefficient because:
A. more of one or both goods could be produced using currently available resources
without giving up production of another good.
B. producers are not specializing.
C. producers face scarcity.
D. too many goods are being produced.
If a given production combination is known to be attainable, then it must be:
A. on the production possibilities curve.
B. an inefficient point.
C. an efficient point.
D. either an inefficient or efficient point.
The following graphs depict a perfectly competitive firm and its market.
Assume that all firms in this industry have identical cost functions.
Assume that the market is currently as shown in the graph on the left (i.e., price of $8).
What is true of the number of firms?
A. There are currently 30 firms in the industry, and that number will remain stable until
there is a change in demand or in technology.
B. There are currently ten firms in this industry, and that number will remain stable
until there is a change in demand or in technology.
C. It is impossible to tell how many firms currently exist in this industry, but you can
tell that the number of firms is likely to increase in the near future.
D. There are currently ten firms in this industry, and that number is likely to increase in
the near future.
Pizzas sell for $10 each.
Refer to the figure above. When the pizza shop employs 3 workers per day, it will have
________ fixed cost and ____ total cost.
A. $950; $450
B. $850; $500
C. $500; $950
D. $450; $850
Assume that all firms in this industry have identical cost functions.
In the long run, there will be ______ firms in this market.
A. 10
B. 15
C. 25
D. 50
According to Okun’s Law, each extra percentage point of ______ unemployment is
associated with a ______ percentage point increase in the output gap.
A. frictional; 2
B. frictional; 4
C. cyclical; 2
D. cyclical; 4
Public saving is negative when:
A. there is a government budget surplus.
B. there is a government budget deficit.
C. the government’s budget is balanced.
D. after-tax income of households and businesses is greater than consumption
expenditures.
Refer to the figure above. A corrective _____ would result in consumers paying a price
of ____ and producers receiving a price of _____.
A. tax; Q; Q
B. subsidy; R; P
C. subsidy; S; Q
D. tax; Q; S
A real interest rate that causes the supply of saving to be equal to the demand for saving
is an example of the:
A. scarcity principle.
B. principle of comparative advantage.
C. equilibrium principle.
D. principle of increasing opportunity cost.
All of the following tend to make economic policymaking difficult and inexact
EXCEPT the:
A. lack of precise knowledge about the state of the economy.
B. inability to develop statistical models of the economy.
C. lack of knowledge about the future course of the economy if no policy changes are
implemented.
D. imprecise knowledge of the level of potential output.
A firm’s revenue is determined by:
A. its production technology.
B. its implicit costs.
C. its profit.
D. the demand curve that the firm faces.
Daily Supply and Demand: Oranges in Hurricane Alley
Refer to the figure above. The marginal buyer values the tenth pound of oranges at
____.
A. $0
B. $4
C. $8
D. $12
Your state is considering enacting a law requiring that all motorcycle operators and their
passengers wear a helmet. Motorcyclists vary in the degree to which they value being
able to ride helmet-less and in the extent to which they value the safety provided by a
helmet.
The regulation requiring helmets is more likely to enhance efficiency when
A. motorcycle accidents impose external costs.
B. motorcycle accidents do not impose external costs.
C. motorcyclists as a group are more risk averse than average.
D. motorcyclists as a group are less risk averse than average.
A firm’s revenue from selling its product minus the cost of inputs purchased from other
firms is called:
A. profits.
B. investment.
C. value added.
D. production costs.
In 2009, Pete Rich purchases a painting done by Rembrandt in 1642 for $20 million. He
also pays a one percent commission to the auction house that sold the painting. What is
the contribution of these transactions to GDP in the year 2009?
A. $0
B. $200,000
C. $2 million
D. $20.2 million
If planned aggregate expenditure (PAE) in an economy equals 1,000 + 0.9Y and
potential output (Y*) equals 9,000, then this economy has:
A. an expansionary gap.
B. a recessionary gap.
C. no output gap.
D. no autonomous expenditure.
This graph shows one consumer’s demand for ice cream at the student union:
During the summer, there are only 300 ice cream consuming students on campus, each
with demand as shown above. At $2.00 per scoop, those 300 students purchase ____
scoops of ice cream per week.
A. 1,200
B. 1,500
C. 1,800
D. 3,000
Which of the following items is an example of a nonrival but excludable good?
A. Pay-per-view movies.
B. Corn.
C. National defense.
D. Broadcast TV.
Several Internet web sites, like Pricewatch.com, allow the consumer to input the name
of a product. The site searches for the product and returns a list of suppliers with their
price for the product displayed. This
A. increases the benefits of searching.
B. increases the free rider problem.
C. harms the Internet sellers.
D. reduces the costs of searching.
All else being equal, if Asian restaurants switch from serving French champagne to
serving California wines, then the market equilibrium value of the exchange rate for the
U.S. dollar will:
A. rise.
B. fall.
C. become fixed.
D. either rise or fall depending on whether the supply or demand for dollars changes
more.
Which of the following is an example of the life-cycle motive for saving?
A. Pat puts $400 per month in his 401(k) retirement account.
B. Jordan sets aside $200 per month in case she has to pay for a new roof for her house.
C. Gerry and Terry put $2,000,000 in a trust fund that will go to their children when
they die.
D. Chris keeps $15,000 in a money market account to pay expenses in case he loses his
job.
If potential output equals $8 billion and actual output equals $7 billion, then this
economy has a(n):
A. budget deficit.
B. trade deficit.
C. expansionary gap.
D. recessionary gap.
Technological improvements:
A. decrease aggregate demand.
B. increase aggregate demand.
C. decrease aggregate supply.
D. increase aggregate supply.
Refer to the figure above. This doughnut shop will always produce
A. 50 doughnuts
B. 90 doughnuts
C. the quantity at which price equals marginal cost
D. a quantity less than 50 doughnuts
Sven likes to water ski, but can only water ski during the one week that he is on
vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven
skied for eight hours and enjoyed every hour. The second day, Sven slept in and then
skied for seven hours, which was fun but not as much fun as the first day. The third day,
Sven skied for six hours, but was starting to get a bit bored by the end. The fourth day,
Sven skied for four hours and then took a nap. On the fifth day of Sven’s vacation, Sven
went blueberry picking all day.
Sven’s total utility _______ with each hour that he skied.
A. increased
B. decreased
C. remained constant
D. first increased than decreased
In a repeated prisoner’s dilemma players:
A. never learn to play their dominant strategies.
B. can sustain cooperation by employing the tit-for-tat strategy.
C. can increase the incidence of dominant strategy play by employing the tit-for-tat
strategy.
D. always play their dominant strategy.
Assuming the perfectly competitive firm is experiencing diminishing marginal returns
to its variable factors of production, as output price rises, the firm will:
A. produce more.
B. earn profits.
C. produce less.
D. earn losses.
A higher real interest rate ______ saving and ______ consumption spending.
A. increases; increases
B. increases; decreases
C. does not change; does not change
D. decreases; increases
Refer to the figure above. The total revenue of selling 3 units is ______, and the
marginal revenue of selling the third unit is ______.
A. $28; 8
B. $24; 6
C. $52; 1
D. $24; 8
When the central bank buys $1,000,000 worth of government bonds from the public,
the money supply:
A. increases by more than $1,000,000.
B. increases by $1,000,000.
C. increases by less than $1,000,000.
D. decreases by $1,000,000.
According to the principle of diminishing returns to labor, if the amount of capital and
other inputs are held constant, employing additional workers:
A. increases output at an increasing rate.
B. increases output at a constant rate.
C. increases output at a decreasing rate.
D. decreases output at an increasing rate.