Archives: Quiz

A college must decide if it wants to offer more evening and weekend classes. This decision involves answering the economic question of “for whom to produce.” According to the benefits-received principle, those who receive the benefits from a government program […]

One reason why firms would choose a salary system rather than a commission compensation system is that their employees might become less concerned about the quality of their work. Joe Santos owns the only pizza parlor in a small town […]

A successful trademark is one that becomes a generic name for a product, for example, “Kleenex” has become a generic term for tissues. If inflation is unanticipated, no redistribution of income can occur. Answer: FALSE An increase in government spending […]

When a business is set up as a sole proprietorship, the owner of the business faces limited liability. An inferior good is a good for which the quantity demanded decreases as the price increases, holding everything else constant. Answer: FALSE […]

A decrease in the unemployment rate may be represented as a movement from a point on the production possibilities frontier to a point outside the frontier. If consumers believe the price of iPads will decrease in the future, this will […]

Economists have shown that when the ultimatum game experiment is carried out, both allocators and recipients act as if fairness is important. A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost. Answer: TRUE […]

It is possible to have a comparative advantage in producing a good or service without having an absolute advantage. Firms are more likely to find themselves in a prisoner’s dilemma in sequential games as opposed to simultaneous games. Answer: FALSE […]

The Fed can directly lower the inflation rate. Those who favor changes in the market for health care that would make it more like the markets for other goods and services are generally in favor of universal health care coverage. […]

The model of purchasing power parity is the only way to determine whether a country’s currency is undervalued or overvalued. If the demand for a product increases and the supply of the same product decreases, the equilibrium price will increase. […]

A monopolist currently sells 18 units of a good. If marginal revenue on the last unit sold is $117, then the price of the good must be less than $117. Economist Robert Higgs showed that World War II brought great […]

The Japanese system of universal health insurance requires no co-payments from residents for health services. The principal-agent problem that exists between shareholders and managers also exists between managers and workers. Answer: TRUE High-income countries such as the United States spend […]

Accounting costs exclude implicit costs. A university must decide if it should stop offering foreign language classes. This decision involves answering the economic question of “how to produce.” Answer: FALSE The division of the burden of a tax between buyers […]

Protectionism refers to the use of trade barriers to shield domestic firms from foreign competition. In the United States, imports and exports make up more than half of GDP. Answer: FALSE Price leadership is a form of explicit collusion where […]

All else equal, as the price of a product falls, the quantity supplied increases. Market equilibrium occurs where the quantity supplied is equal to the quantity demanded. Answer: TRUE The additional output a firm produces by hiring one more worker […]

In March 2008, the Fed announced that primary dealers would be eligible to receive discount loans. In a decreasing-cost industry, the entry of new firms lowers average cost at each level of output. Answer: TRUE In the long-run equilibrium, a […]

The unemployment rate in the United States is typically lower than in Western Europe because the United States has tougher requirements for the unemployed to receive government payments. In economics, the optimal level of pollution is the level for which […]

In 1995, the General Agreement on Tariffs and Trade (GATT) was replaced by the World Trade Organization (WTO). A downward sloping marginal product of labor curve demonstrates the law of diminishing marginal returns. Answer: TRUE Competition in the form of […]

The price elasticity of supply is calculated as the change in supply divided by the change in price. The GDP deflator is the best measure that reflects the prices of goods and services purchased by the typical household. Answer: FALSE […]

Expansionary fiscal policy crowds out both domestic investment and net exports. Economists assume people’s tastes are identical. Answer: FALSE An increase in the tax wedge associated with a given economic activity will decrease the level of that activity. Answer: TRUE […]

In an increasing-cost industry the long-run supply curve is upward sloping. If aggregate expenditure is less than GDP, then inventories rise and GDP falls. Answer: TRUE A country which incurs a current account deficit will most likely have a financial […]

Foreign currency prices of the U.S. dollar are currently determined by a managed float exchange rate system. The question of whether economic growth is desirable is a positive question, easily settled by economic analysis. Answer: FALSE As the number of […]

If a country produces only two goods, then it is not possible to have a comparative advantage in the production of both those goods. The United States has a closed economy. Answer: FALSE Contractionary fiscal policy involves decreasing government purchases […]

According to Nobel laureate Douglass North, one reason why the Industrial Revolution occurred in England before many other countries was because the king in England consistently maintained control over the court system and the government. In the market for factors […]

If transactions costs are low, private bargaining will always result in an efficient solution to the problem of externalities. “The distribution of income should be left to the market” is an example of a positive economic statement. Answer: FALSE[/cpmembership] A […]

The marginal cost curve is U-shaped because of the law of increasing opportunity costs. The Sarbanes-Oxley Act of 2002 requires that each member of the board of directors personally certify the accuracy of financial reports. Answer: FALSE If demand is […]

Monetary policy is conducted by the U.S. Treasury Department. In the United States in 2011, over 90 percent of people without health insurance were below the age of 34. Answer: FALSE Positive analysis is concerned with “what ought to be,” […]

One result of a tax is an increase in economic efficiency. In most circumstances, employees pay taxes on the value of health insurance their employers provide them. Answer: FALSE In the short run, a firm might choose to produce rather […]

An entry barrier exists when firms in an industry charge the lowest price possible for their products. If Gladys sells her 1998 Jeep Cherokee for $3,500 in 2013, the sale of her car contributes $3,500 to 2013 GDP. Answer: FALSE […]

In the United States, health care spending as a percentage of GDP has declined since 1965. If planned investment is equal to actual investment, then aggregate expenditure is equal to GDP. Answer: TRUE By the 2000s, investment banks had become […]

Buying a house during a recession may be a good idea if your job seems secure because the Federal Reserve often lowers interest rates during a recession. Consumers in monopolistically competitive markets face a tradeoff between paying prices greater than […]

If the cross-price elasticity of demand for goods A and B is zero, this means the two goods are unrelated. The additional cost to a producer of hiring an additional unit of labor is called the marginal cost. Answer: TRUE […]

Total utility is constant along a given indifference curve. Purchasing a firm’s stock in an IPO can be risky because financial information may not be fully disclosed. Answer: TRUE An increase in disposable income will shift the aggregate demand curve […]

If the price of a product is expected to increase in the future, the supply today will increase. In monopolistic competition, if a firm produces a highly desirable product relative to its competitors, the firm will be able to raise […]

As spending on government purchases increases, income rises and money demand falls. An increase in wages raises the opportunity cost of leisure and leads to an increase in the quantity supplied of labor. Answer: TRUE The income effect of a […]

If Tanisha can audit more tax returns in one hour than Libby, then Tanisha has an absolute advantage in auditing tax returns. When products that create positive externalities are produced, at the market equilibrium output, the social benefit generated by […]

If prices rise on average in the U.S. economy, the purchasing power of a dollar declines. A decrease in population shifts the production possibility frontier outwards over time. Answer: FALSE A monopolist’s demand curve is the same as the marginal […]

Even if the population declines, scarcity will still exist. The minimum wage is an example of a price ceiling. Answer: FALSE Ceteris paribus, an increase in the money supply will lower short-term interest rates. Answer: TRUE The U.S. economy would […]

If it costs Danitra $225 to create 4 necklaces and $275 to create 5 necklaces, then $50 is the marginal cost of producing the 5th necklace. The basis for trade is comparative advantage, not absolute advantage. Answer: TRUE Consider a […]

Deadweight loss refers to the reduction in economic surplus resulting from a market not being in competitive equilibrium. When net exports equal zero, the economy is in macroeconomic equilibrium. Answer: FALSE An increase in liabilities will reduce a firm’s net […]

Marginal cost is the additional cost to a firm of producing one more unit of a good or service. The dynamic aggregate demand and aggregate supply model assumes that potential GDP increases over time. Answer: TRUE When net exports equal […]

Suppose the extra cost for a doctor to keep his office open for one extra hour is $200. Then, the doctor should stay open for the extra hour even if he can generate additional revenue of $200 for that hour. […]

Exchange rates under the Bretton Woods system were determined by relative supplies of gold held by countries within the system. Technological change allows the economy to produce more output with the same amount of capital and labor. Answer: TRUE The […]

The United Kingdom has a health care system under which the government owns most of the hospitals and employs most of the doctors. The slope of an isoquant is equal to the ratio of the price of the input on […]

With the Troubled Asset Relief Program (TARP), the Treasury provided funds to banks in exchange for stock. If the marginal tax rate is greater than the average tax rate, the tax structure is described as regressive. Answer: FALSE[/cpmembership] In a […]

All else equal, as the price of a product falls, the quantity supplied increases. As the number of firms in a market increases, the supply curve will shift to the right and the equilibrium quantity will rise. Answer: TRUE Increasing […]

Market power in the United States causes a huge loss of economic efficiency. Expansionary fiscal policy involves increasing government purchases or increasing taxes. Answer: FALSE If inflationary expectations are increasing, we would expect that the nominal interest rate would also […]

An argument in favor of the Federal Reserve adopting inflation targeting is that in the long run, the Fed can have an impact on inflation but not on real GDP. In reality, the Fed is unable to use monetary policy […]

Imports are goods and services bought domestically but produced in other countries. Policies based on positive economic ideas tend to decrease economic efficiency and reduce equity. Answer: FALSE The incidence of a tax depends on whether the government collects the […]

A monopolistically competitive firm should lower its price if its marginal revenue exceeds its marginal cost. If the demand for a product decreases and the supply of the product does not change, equilibrium price and equilibrium quantity will both increase. […]

One reason purchasing power parity does not exactly hold is that many goods are not traded internationally. In face of rational expectations regarding changes in monetary policy, the short-run Phillips Curve may be vertical. Answer: TRUE For a person to […]