Archives: Quiz

If a country has a comparative advantage in producing a product, it may not have an absolute advantage in producing that product. Economies cannot function without money. Answer: FALSE The basis for trade is absolute advantage, not comparative advantage. Answer: […]

A change in quantity supplied is represented by a movement along the supply curve. A perfectly competitive firm’s marginal revenue curve is downward sloping. Answer: FALSE Market equilibrium occurs where the quantity supplied is equal to the quantity demanded. Answer: […]

If a firm can produce a product at a lower average cost than its competitors, it stands a better chance of earning economic profit. All else equal, a decrease in the supply of labor will shift the labor supply curve […]

The term “trust” in antitrust refers to a board of trustees that has collusive control over different companies. Costs that change as output changes are called incremental costs. Answer: FALSE The most important factor contributing to wage differences in the […]

In the short run, if price falls below a firm’s minimum average total cost, the firm should shut down. Expansionary fiscal policy crowds out both domestic investment and net exports. Answer: TRUE Monetarists believe that the quantity of money should […]

If inflationary expectations on the part of the public increase, the trade-off between inflation and unemployment becomes worse. The purchase of foreign stocks and bonds by a U.S. brokerage firm is an example of capital inflows to the United States. […]

A voluntary export restraint is an agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from the other country. Consider the following T-account for a bank: […]

Eliminating frictional unemployment would be good for the economy. The demand for gasoline is perfectly inelastic because most people need gasoline to drive their cars. Answer: FALSE[/cpmembership] An increase in the purchasing power of money need not lead to an […]

In the alcohol industry, both wine and spirits are considered to be substitutes for beer. A decrease in the number of firms in a market will cause supply to increase. Answer: TRUE Assume that price is greater than average variable […]

The payment received by suppliers of entrepreneurial skills is called profit. If, when price changes by 35 percent, the quantity demanded changes by 7 percent, then the absolute value of the price elasticity of demand is 5. Answer: FALSE The […]

A perfectly competitive firm’s horizontal demand curve implies that the firm does not have to lower its price to sell more output. Corporations are legally owned by their shareholders. Answer: TRUE A normal good is a good for which the […]

The supply curve of a uniquely talented actor or superstar athlete will be perfectly inelastic. The only type of business that faces unlimited liability is a sole proprietorship. Answer: FALSE An equilibrium in which each player chooses its best strategy […]

If marginal benefit is less than marginal cost, output is inefficiently high. A decrease in liabilities will reduce a firm’s net worth. Answer: FALSE Holding all else constant, an economic expansion in Mexico should decrease the demand for U.S. dollars. […]

Policies based on normative economic ideas tend to increase economic efficiency and improve equity. Entrepreneurs bring together the factors of production to produce goods and services. Answer: TRUE The slope of an isoquant is equal to the ratio of the […]

Marginal benefit is the benefit that your activity provides to someone else. The purchase of stocks and bonds issued in another country is known as foreign direct investment. Answer: FALSE One possible reason as to why consumers respond to sales […]

If you purchase a share of stock from your friend who initially purchased the stock three years ago, your purchase of the stock represents a transaction in the secondary financial market. An increase in disposable income will shift the aggregate […]

Suppose the supply curve for digital cameras shifts to the right. This will cause a relatively large decrease in the price of digital cameras if both demand and supply are inelastic. GDP is not a complete measure of well-being. Answer: […]

When voluntary exchange takes place, neither party usually gains from the exchange. If the price elasticity of demand is unit-elastic, a 10 percent increase in price will result in a 10 percent increase in revenue. Answer: FALSE Any output combination […]

When a tax on output is imposed to internalize the external costs of pollution, the supply curve shifts down by the amount of the tax. In the market for factors of production, firms earn income by selling factors of production […]

Local or state offices of the Department of Justice usually set prices for natural monopolies in their jurisdictions. The quantity equation becomes the basis for a theory when we assume that velocity of money is constant. Answer: TRUE If speculators […]

If the demand for a product decreases and the supply of the same product increases, the equilibrium quantity will increase. Answer: Expanding, contracting, and managing the money supply is easier for a central bank under the gold standard. Answer: FALSE […]

In response to a shortage the market price of a good will rise; as the price rises, the demand will decrease and supply will increase until equilibrium is reached. Answer: A surplus is defined as the situation that exists when […]

If consumption is defined as C = 1,350 + 0.6Y, then the marginal propensity to consume is 0.6. Answer: Unlike a perfectly competitive firm, a monopolistic competitor does not have a short-run shut-down point. Answer: FALSE If a monopolist engages […]

The size of the underground economy as a percent of GDP is larger in the United States as compared to poorer countries such as Zimbabwe. Answer: Results of the ultimatum game indicate that most people value fairness enough that they […]

In recent years, the prices of new domestically produced cars have been falling. Suppose consumers respond by reducing their demand for used cars and mass transport services such as bus travel. This information suggests that the cross-price elasticity between new […]

If the long-run average total cost curve is downward sloping, then the firm is experiencing decreasing returns to scale. Answer: In a decreasing-cost industry, the entry of new firms lowers average cost at each level of output. Answer: TRUE The […]

Normative analysis is concerned with “what ought to be,” while positive analysis is concerned with “what is.” Answer: One desirable outcome of a market economy is that it leads to a more equitable distribution of income. Answer: FALSE Each year, […]

In a closed economy with fixed or autonomous (non-income dependent) taxes, the balanced budget government purchases multiplier is negative. Answer: For a given quantity, the total profit of a perfectly competitive firm is equal to the vertical distance between the […]

A tax is efficient if it imposes a small excess burden relative to the tax revenue it raises. Answer: Merger guidelines developed by the Antitrust Division of the U.S. Department of Justice use four-firm concentration ratios as measures of concentration. […]

Suppose the supply curve for digital cameras shifts to the right. This will cause a relatively large decrease in the price of digital cameras if both demand and supply are inelastic. Answer: The U.S. government would never approve a proposed […]

A rise in the dollar price of the Chinese yuan signals an appreciation of the yuan and a depreciation of the dollar. Answer: To increase gas mileage, automobile manufacturers make cars small and light. Large cars absorb more of the […]

A monopsony restricts the quantity of a factor demanded to force down the price of the factor and increase profits. Answer: The natural rate of unemployment consists of frictional unemployment plus cyclical unemployment. Answer: FALSE The rising cost of malpractice […]

When a monopolistically competitive firm breaks even in the long run, this is equivalent to earning a zero accounting profit. Answer: The private cost of a good or service is the cost borne by the producer. Answer: TRUE Accounting profit […]

A perfectly competitive firm breaks even at a price equal to its minimum average total cost. Answer: Peanut butter and jelly are complements. If the price of peanut butter increases, the demand for jelly will increase. Answer: FALSE Suppose at […]

Differentiating products to suit customers’ tastes is a form of price discrimination. Answer: Producer surplus is the difference between the highest price someone is willing to pay and the price he actually pays. Answer: FALSE A monopolistically competitive industry that […]

If the number of firms producing mouthwash increases and consumer preference for mouthwash increases, the equilibrium price of mouthwash will definitely increase. Answer: When the government imposes a tax equal to the external cost of producing a product that causes […]

If the substitution effect of a wage increase dominates the income effect, the labor supply curve has a positive slope. Answer: Expansionary monetary policy lowers interest rates and forces a real appreciation of the dollar in international currency markets. Answer: […]

In the short run, if price falls below a firm’s minimum average total cost, the firm should shut down. Answer: Members of management serving on the board of directors of a corporation are referred to as outside directors. Answer: FALSE […]

The law of one price states that identical products should sell for the same price everywhere as long as transactions costs are zero. Answer: The process of countries becoming more open to foreign trade and investment is known as outsourcing. […]

On a diagram of a production possibility frontier, economic growth is represented by the slope of the production possibility frontier. Answer: The Coase Theorem asserts that government intervention is a prerequisite for addressing externality problems. Answer: FALSE Optimal decisions are […]

Because each customer pays according to her willingness to pay, a consumer maximizes her consumer surplus under first-degree price discrimination. Answer: The demand for heating oil in the short run is more elastic than the long run demand for heating […]

Political stability is not a prerequisite to economic growth. Answer: College education tends to result in a negative externality because the recipient does not receive the full benefit of the education. Answer: FALSE If additional units of a good are […]

If a firm in Thailand borrows dollars from a U.S. bank, its interest payments on the loan in bahts will decrease if the baht appreciates against the dollar. Answer: If the demand for a product increases and the supply of […]

The natural rate of unemployment consists of frictional unemployment plus cyclical unemployment. Answer: All economic questions arise from the fact that resources are unlimited. Answer: FALSE A subgame-perfect equilibrium is a Nash equilibrium in which no player can make himself […]

The Walt Disney Company uses cost-plus pricing to determine the prices it charges for admission and rides at Disneyland and Walt Disney World. Answer: A successful trademark is one that becomes a generic name for a product, for example, “Kleenex” […]

Collusion would be common in an oligopoly and a monopolistically competitive industry. Answer: Technological advancements that increase labor’s productivity shift the labor supply curve to the right. Answer: FALSE The natural rate of unemployment consists of frictional unemployment plus structural […]

In a fixed exchange rate system, speculation regarding an expected revaluation or devaluation of a currency makes it more difficult to maintain the existing exchange rate. Answer: The CPI in 2010 was 218, while the CPI in 1980 was 82. […]

Goodwill is listed as an asset on a firm’s balance sheet. Answer: Consider the following T-account for a bank: If the required reserve ratio is 20 percent and the bank is holding no excess reserves, the bank at this point […]

“The distribution of income should be determined by the government” is an example of a positive economic statement. Answer: In monopolistic competition, if a firm produces a highly desirable product relative to its competitors, the firm will be able to […]

The labor force participation rates of men have gradually increased since 1948. Answer: The difference between consumer surplus and producer surplus in a market is equal to the deadweight loss. Answer: FALSE All consumption bundles along a given indifference curve […]