According to Porter’s Five Competitive Forces Model, similar products produced by
different firms within the industry affects a firm’s ability to raise prices far more than
substitutable products produced outside the industry.
Increasing a fixed exchange rate is called a revaluation.
Economists believe that consumers would be better off if markets were perfectly
competitive rather than monopolistically competitive.
Included in government expenditures are government purchases and transfer payments.
If consumers believe the price of hybrid vehicles will decrease in the future, this will
cause the demand for hybrid vehicles to decrease now.
Increases in real GDP wouldoverstatethe increase in the well-being of a country over
time if, over that time period, the
A) average hours worked per week increased.
B) amount of pollution decreased.
C) price level increased.
D) crime rate decreased.
Public goods are distinguished by two primary characteristics. What are they?
A) nonrivalry and nonexcludability
B) government intervention and low prices
C) market failure and high prices
D) rivalry and exclusivity
During the expansion phase of the business cycle,
A) production increases.
B) employment decreases.
C) income decreases.
D) unemployment increases.
Suppose China decides to sell a vast majority of their large holdings of U.S. Treasury
bonds. If you are thinking of refinancing your house, how would China’s action affect
your decision to refinance?
A) You would want to refinance as soon as possible as interest rates should rise.
B) You would want to wait to refinance as interest rates should rise.
C) You would want to wait to refinance as interest rates should fall.
D) China’s actions should not affect your decision to refinance in any way.
“Because chips and salsa are complements, an increase in the price of chips will cause
the demand for salsa to decrease. This initial shift in demand for chips results in a
higher price for chips; this higher price will cause the demand curve for chips to shift to
the right.” Which of the following correctly comments on this statement?
A) The statement will be true if consumer tastes for chips and salsa do not change.
B) The statement is false because a change in the price of chips would not change the
demand for chips.
C) The statement is false because salsa is an inferior good; chips are normal goods.
D) The statement is false because one cannot assume that chips and salsa are
complements for all consumers.
Figure 27-7
Given that the economy has moved from A to B in the graph above, which of the
following would be the appropriate fiscal policy to achieve potential GDP?
A) increase taxes
B) increase government spending
C) contractionary fiscal policy
D) decrease interest rates
The aging of the U.S. population has tended to ________ spending on health care, and
the development of new drugs and medical equipment has tended to ________
spending on health care.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Table 14-3
Consider the following simplified balance sheet for a bank: If the required reserve ratio
is 10 percent, the bank can make a maximum loan of
A) $2,000.
B) $5,000.
C) $6,300.
D) $45,000.
Vipsana’s Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to
make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed
cost of $120 per day. What is Vipsana’s total cost per day when she does not produce
any gyros and does not hire any workers?
A) $0
B) $2
C) $60
D) $120
Figure 29-1
Europe suffers a recession. Assuming all else remains constant, this would be
represented as a movement from
A) D to A.
B) C to D.
C) B to C.
D) A to D.
E) A to B.
Figure 14-5
A few years
ago Netflix (N) pioneered an online DVD rental service. Blockbuster (B), a brick and
mortar DVD/video rental company, waited until Netflix had been in business for over a
year before deciding whether to establish its own online rental service. At this point,
Netflix had to decide whether or not to lower its subscription price in order to deter
Blockbuster’s entry into the market. Figure 14-5 shows the decision tree for the
Netflix-Blockbuster entry game. If Netflix lowers its price will this deter Blockbuster
from setting up an online DVD rental service?
A) Yes, because Blockbuster stands to lose $1 million if it competes with Netflix.
B) Yes, because Blockbuster will make a smaller profit than Netflix if it chooses to
compete.
C) No, because Blockbuster will make a profit if it competes with Netflix.
D) No, because Blockbuster will make a larger profit than Netflix if it chooses to
compete.
Let MP = marginal product, P = output price, and W = wage; then the equation that
represents the condition where a competitive firm would hire another worker is
A) P MP = W.
B) P MP < W.
C) P MP > W.
D) P W > MP.
If the quantity of fishing poles demanded is represented by the equation QD = 60 – P,
then the corresponding price of fishing poles is represented by the equation
A) P = 0.6QD + 10.
B) P = 60 – QD.
C) P = -60 + QD.
D) P = QD + 60.
Increases in the marginal product of labor result from
A) the use of new technology.
B) hiring more efficient workers.
C) the division of labor and specialization.
D) increasing the usage of all inputs.
Figure 12-14
Consider a typical firm in a perfectly competitive industry which is incurring short-run
losses. Which of the diagrams in the figure shows the effect on the industry as it
transitions to a long-run equilibrium?
A) Panel A
B) Panel B
C) Panel C
D) Panel D
Which of the following is a normative economic statement?
A) Rising global demand for coal has led to increases in the price of coal.
B) With rising mortgage rates and rising unemployment rates, the number of unsold
homes has increased.
C) The state of Texas is considering increasing funds for light-rail development to
promote the use of public transportation.
D) Pharmaceutical manufacturers should not be allowed to patent their products so
prescription drugs would be more affordable.
Figure 19-2
Which of the following would cause the change depicted in the figure above?
A) Lack of investment in infrastructure causes U.S. productivity to fall relative to
Chinese productivity.
B) Tainted cat food from China causes U.S. consumers to decrease their preferences for
Chinese goods relative to U.S. goods.
C) A new trade agreement with China results in the United States removing all tariffs on
clothing imported from China.
D) An expansionary monetary policy causes an increase in the price level of U.S. goods
relative to Chinese goods.
The advice to “keep searching, there are plenty of jobs around here for which you are
qualified,” would be most appropriate for which of the following types of
unemployment?
A) frictional unemployment
B) structural unemployment
C) cyclical unemployment
D) seasonal unemployment
Which of the following statements about economic resources is true?
A) Economic resources include financial capital and money.
B) Economic resources are also called factors of production.
C) Economic resources are used only by businesses.
D) All economic resources are man-made.
What is a black market?
Some environmentalists have criticized tradable emissions allowances on the grounds
that they give permit holders a license to pollute. Furthermore, environmentalists argue
that those who sell their permits receive a monetary benefit from their contribution to
polluting the environment. Use economic reasoning to evaluate this criticism.
Assume the market price for lemon grass is $4.00 per pound, but most buyers are
willing to pay more than the market price. At the market price of $4.00, the quantity of
lemon grass demanded is 1,500 pounds per month, and quantity demanded does not
reach zero until the price reaches $30.00 per pound. Construct a graph showing this
data, calculate the total consumer surplus in the market for lemon grass, and show the
consumer surplus on the graph.
Would the maximum loan that a bank can make be different when receiving a discount
loan from the Federal Reserve of $1 million versus receiving a checking account
deposit of $1 million? Explain why or why not.
How are unemployment, inflation, and the business cycle related?
Draw a graph that shows the impact on a firm’s profit when it increases spending on
advertising and the increased advertising has no effect on the demand for a firm’s
product.