Econ 101
. Traders should specialize in the good in which: A) they have the lowest opportunity cost. B) they have an absolute advantage. C) their trading partner has the lowest opportunity cost. D) they do not have an absolute advantage.
A
A decrease in consumption growth will cause aggregate demand to A) shift inward. B) shift outward. C) remain unchanged. D) first shift outward and then shift inward.
A
A market can be described by the equations Qd = 100 - P and Qs = P. What are the equilibrium price and quantity in this market? A) The equilibrium price is $50 and the equilibrium quantity is 50 units. B) The equilibrium price is $100 and the equilibrium quantity is 100 units. C) The equilibrium price is $0 and the equilibrium quantity is 0 units. D) The equilibrium price is $0 and the equilibrium quantity is 100 units.
A
According to the Fisher equation, if the expected inflation rate is less than the actual inflation rate, then the actual interest rate will be A) lower than the equilibrium interest rate. B) higher than the equilibrium interest rate. C) the same as the equilibrium interest rate. D) higher or lower than the equilibrium interest rate, depending on the degree of money illusion.
A
An assumption of the quantity theory of money is that real GDP A) remains relatively constant. B) rises with increases in the money supply. C) rises with increases in the velocity of money. D) rises with increases in the price level.
A
An increase in supply and a decrease in demand occur in a market. What happens to the equilibrium price and quantity? A) The equilibrium price decreases; the change in the equilibrium quantity is ambiguous. B) The equilibrium price decreases; the equilibrium quantity increases. C) The equilibrium price increases; the change in the equilibrium quantity is ambiguous. D) The equilibrium price increases; the equilibrium quantity decreases.
A
An investment tax credit will cause the interest rate to ______ and borrowing to ______. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase
A
Assume that spaghetti is an inferior good for most people. As their incomes increase, all other things held constant, the: A) demand for spaghetti will decrease shifting the demand curve to the left. B) demand for spaghetti will decrease shifting the demand curve to the right. C) demand for spaghetti will increase shifting the demand curve to the left. D) demand for spaghetti will increase shifting the demand curve to the right.
A
David sells his car, which he considers worthless, to Cameron for $200. Which of the following statements is true? A) David and Cameron must have different preferences for the car. B) This trade did not create value because Cameron is buying a car that David considers worthless. C) Cameron is the only one made better off by the trade. D) David is made better off by the trade, but Cameron is made worse off.
A
Due to economies of scale, average costs decline as A) production levels increase. B) physical capital increases. C) human capital increases. D) technology increases.
A
Economists prefer using real GDP because, other things held constant, increases in _____ represent true increases in the standard of living. A) production B) prices C) trade balances D) consumer spending
A
For a small firm in an extremely competitive industry, marginal revenue is always equal to price because: A) the firm has no ability to influence the market price. B) each firm has large economies of scale. C) each firm has large fixed costs. D) if consumers increase their demand for the product, producer surplus falls.
A
If a nation doubles its GDP per capita in 20 years, what is its annual growth rate? A) 3.5 percent B) 4.2 percent C) 6.5 percent D) 7 percent
A
If a tax is imposed on a market with inelastic demand and elastic supply: A) buyers will bear most of the burden of the tax. B) sellers will bear most of the burden of the tax. C) the burden of the tax will be shared equally between buyers and sellers. D) there is no way to determine how the burden of the tax will be shared.
A
If buyers are required to pay a tax on top of the price, buyers' willingness to pay will: A) decrease and the demand curve will shift down. B) decrease and the demand curve will shift up. C) increase and the demand curve will shift down. D) increase and the demand curve will shift up.
A
Imagine that a government starts out with the budget surplus. If in the next period the government temporarily runs a budget deficit, what would you expect to happen to aggregate demand? A) AD would increase. B) AD would lie on the Solow growth rate. C) AD would stay the same. D) AD would decrease.
A
In 1980 when Iraq attacked Iran, the price of oil _______ because of a(n) ______. A) increased; disruption in the supply of oil B) increased; decrease in the demand for oil C) fell; increased demand for oil D) fell; increased quantity of oil supplied
A
In a small country each labor hour has capital stock equal to 900 units. This year it produced 20 units of new capital goods, with a depreciation rate of 10 percent, and a production function of Y = K^1/2. If there is no technological advancement, what will the growth rate in this country be over the next year? A) -3.96 percent B) 10 percent C) 2.4 percent D) -4.13 percent
A
In the AD and SRAS model, a 6 percent increase in the money supply in an economy with a 2 percent Solow growth curve will cause the growth rate to be ____ in the long run. A) 2 percent B) 4 percent C) 6 percent D) 8 percent
A
In the Solow model production function, an increase in capital stock with all other variables held constant will ________ the country's real Gross Domestic Product but at a(n) ________ rate. A) increase; decreasing B) decrease; decreasing C) increase; increasing D) decrease; increasing
A
Increases in farm productivity have lowered the prices of many agricultural products. Farm revenues decreased, which implies the: A) demand for many agricultural products is inelastic. B) costs of production increased. C) demand for many agricultural products is elastic. D) costs of production stayed the same.
A
Long-term unemployment tends to be higher when the government I. raises job security. II. raises hiring and firing costs. III. lowers restrictions for firms to adjust work hours. A) I and II only B) II and III only C) I and III only D) I, II, and III
A
Martin's maximum willingness to pay for an electric boat motor is $250. Because of a tax, the price of the motor increases from $230 to $280. The deadweight loss of the tax attributable to Martin is: A) $20. B) $250. C) $50. D) $30.
A
Private goods can be provided by competitive markets because they are: A) excludable, providing an incentive to pay for and thus to produce these goods. B) excludable, since the market for buying and selling these goods is distinguishable. C) nonexcludable, providing an incentive to pay for and thus to produce these goods. D) nonexcludable, since the market for buying and selling these goods cannot be distinguished.
A
Problems in the banking and financial systems can remove the bridge between lenders and borrowers. Which of the following would be a consequence? A) Banking fees and other costs of intermediation rise. B) Consumers decide to become savers. C) There is decreased insider trading. D) Each of these answers is correct.
A
Quantity demanded is: A) the amount of a good or service that a buyer is able and willing to purchase at a given price. B) the amount of a good or service that a buyer is able and willing to sell at a given price. C) the amount of a good or service that a seller is able and willing to sell at a given price. D) the amount of a good or service that a buyer is able and willing to purchase at various given prices.
A
Suppose a famous baseball player, Alex Rodriguez, hires a high school student to paint his house. Which of the following is most likely TRUE? A) The opportunity cost of painting a house is higher for Alex Rodriguez than for the high school student. B) The opportunity cost of painting a house is lower for Alex Rodriguez than for the high school student. C) The opportunity cost of painting a house is the same for Alex Rodriguez as for the high school student. D) The opportunity cost of painting a house is zero for Alex Rodriguez and is negative for the high school student.
A
The Fisher effect indicates that an increase in the expected inflation rate will cause the real rate of interest to A) remain relatively constant. B) increase by the same amount. C) decrease by the same amount. D) become unpredictable.
A
The Solow model suggests that initially poor countries with steady-state levels of output ______ richer countries will grow ______ richer countries. A) similar to; faster than B) similar to; slower than C) lower than; at the same rate as D) higher than; slower than
A
The common price indexes for measuring inflation include the I. consumer price index. II. GDP deflator. III. commodity price index. A) I and II only B) II and III only C) I and III only D) I, II, and III
A
The short-run aggregate supply curve shows a relationship between the real growth rate and the A) actual inflation rate. B) expected inflation rate. C) long-run inflation rate. D) None of the answers is correct.
A
The supply of loanable funds comes from ______ and the demand for loanable funds comes from ______. A) saving; investment B) investment; saving C) saving; consumption D) investment; consumption
A
What does the law of demand state? I. There is a negative relationship between price and quantity demanded. II. There is an inverse relationship between price and quantity that buyers are willing and able to purchase. III. There is an inverse relationship between price and demand. A) I and II only B) II and III only C) I and III only D) I, II, and III
A
What was one of the federal government policy failures in 1930 that contributed to the Great Depression? A) the Smoot-Hawley Tariff B) the Wilson-Gorman Tariff C) the Payne-Aldrich Tariff D) the Fordney-McCumber Tariff
A
When a monopolist maximizes social surplus, it produces at an optimal Q where: A) AR = MC. B) MR = MC. C) D = AC. D) AR = AC.
A
When marginal cost is rising, the average total costs: A) could be rising or falling. B) must be rising. C) must be falling. D) must be constant.
A
When the Fed set up a Term Auction Facility in 2007-2008, its goal was to A) inject a certain quantity of reserves into banks. B) set the discount rate to a certain percentage. C) tighten control on legal requirements on banks. D) Each of these answers is correct.
A
When the government intervenes in markets with external costs, it does so in order to: A) protect the interests of bystanders. B) ensure all the costs are born by producers. C) ensure all the costs are born by consumers. D) increase the welfare losses of producers.
A
Whether a buyer or a seller pays more of a commodity tax depends on: A) their relative price elasticities. B) the decisions made by Congress. C) whether the demand curve is negatively or positively sloped. D) whether the supply curve is negatively or positively sloped.
A
Which of the following best characterizes the relationship between the parties to a trade and the gains from trade? A) Gains from trade are fueled by differences in preferences and differences in opportunity costs of production. B) Gains from trade are fueled by differences in preferences only. C) Gains from trade are fueled by differences in opportunity costs of production only. D) Gains from trade are greatest when there are no differences between the two parties to trade.
A
Which of the following choices correctly illustrates how changes in opportunity costs affect supply? A) A farmer produces corn and wheat. The price of wheat rises; so he shifts his resources towards wheat and the supply of wheat rises. B) A fisherman fishes for lobsters and oysters. The price of lobsters rises; so he decides to spend more of his time fishing for oysters because he can make the same amount of money with fewer lobsters. C) A textbook for economics becomes cheaper; so more students opt to buy that particular textbook. D) Milk and cereal are complementary goods; so when the price of cereal falls, the quantity supplied of milk rises.
A
Which of the following could explain the figure? Figure: Demand Shifted to the Right A) Consumer income increases in the market for a normal good. B) Consumer income falls in the market for a normal good. C) Consumer income rises in the market for an inferior good. D) Consumer income falls in the market for a luxury good.
A
Which of the following statements about taxes is incorrect? A) Taxes in markets always cause deadweight losses. B) If the good causes an external cost, taxes actually reduce deadweight loss. C) Both taxes and tradeable allowances in a market that has external costs can lead to the efficient quantity. D) Taxes on producers cause the supply curve for the product to shift to the left.
A
Which of the following statements is TRUE? A) If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit. B) If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling fewer units at a higher price per unit. C) When a monopolist produces where MR = MC it always earns a positive economic profit D) A monopolist is guaranteed monopoly profits.
A
Which of the following statements is correct? A) When the marginal cost curve is above the average cost curve, the average cost curve must be rising. B) When the marginal cost curve is below the average cost curve, the average cost curve must be rising. C) When MR = MC, the average cost curve is at its minimum point. D) When MR = P, the average cost curve is at its minimum point.
A
With regard to tax burdens, what does the "elasticity = escape" idea tell you? A) that the curve (between demand and supply) that is relatively more elastic will bear less of the tax burden B) that the curve (between demand and supply) that is relatively more inelastic will bear less of the tax burden C) that the curve (between demand and supply) that is relatively more elastic will escape the tax burden entirely D) that the ratio of the buyers' tax burden to the sellers' tax burden is always greater than 1
A
A baker wants to establish a pie factory. The cost of leasing the factory is $1,000 per day. The profit maximizing quantity of pies is 1,000 pies a day. Each pie sells for $3 and has a variable cost of only $2.10. Which of the following is a correct conclusion based on this data? A) The baker will enjoy profits of $900 per day. B) The baker should not enter the industry. C) At the profit maximizing quantity, the baker's producer surplus is -$200. D) The baker will enjoy profits of $3,000 per day.
B
A country that has enforceable property rights, a non-corrupt political system, abundant factors of production, and a bloody coup every few years, should suspect that economic growth will be ______ because _______. A) slow; of a lack of a dependable legal system B) slow; of uncertainty due to an unstable political system C) high; most of the institutions needed for growth are in place D) high; once a group comes to power all the institutions needed for growth exist
B
A country's GDP (in billions) was $5,690 in 2010 and $5,899 in 2011. What is the nominal growth rate of GDP? A) 3.54 percent B) 3.67 percent C) 9.64 percent D) None of the answers is correct.
B
A firm should exit the industry if which of the following conditions apply? A) TR > TC B) P < AC C) Lifetime expected profit is positive. D) Prices are low now but expected to rise.
B
A natural monopoly occurs when: A) the product is sold in its natural state (such as water or diamonds). B) there are economies of scale over the relevant range of output. C) the firm is characterized by a rising marginal cost curve. D) production requires the use of free natural resources, such as water or air.
B
A profit-maximizing monopolist's total profit can be found by calculating: A) MR - MC. B) TR - TC. C) AR - AC. D) MC - MR
B
A rival good is one where: A) one person's use does not impinge on another person's ability to enjoy the same good. B) one person's use prevents another person's ability to use that good at the same time. C) two people can use the same good at the same time. D) the good is simultaneously nonexcludable and public.
B
A shortage results when: A) a binding price floor is imposed. B) a binding price ceiling is imposed. C) there is excess supply without any price controls. D) a price floor is imposed but it is not binding.
B
According to the quantity theory of money, an increase in the money supply will cause the price level to A) remain relatively constant since money is neutral. B) increase by the same percentage as the money supply. C) increase by a greater percentage than the money supply. D) increase by a smaller percentage than the money supply.
B
According to the textbook, Joseph Schumpeter's "creative destruction" results in A) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) underemployment.
B
An alternative to rent controls that increases the quantity of housing and targets consumers that need low-cost rental property is: A) tax credits. B) vouchers. C) subsidies to landlords D) not available.
B
An increase in government spending growth will cause the AD curve to A) shift inward. B) shift outward. C) remain unchanged. D) first shift outward and then shift inward
B
An increase in the minimum wage would likely increase unemployment among which group of workers? A) An increase in the minimum wage does not lead to an increase in unemployment. B) unskilled workers C) female workers D) older workers
B
Angela and Ed are married. Angela can do $40 worth of household chores per hour, and Ed can do $15 worth of household chores per hour. In the labor market, Ed can earn $30/hour and Angela can earn $40/hour. The theory of comparative advantage suggests that: A) Ed should specialize in household production and Angela should specialize in market work. B) Angela should specialize in household production and Ed should specialize in market work. C) Angela should specialize in both household production and market work. D) Ed should specialize in both household production and market work.
B
As trade becomes more widespread, specialization ______, which in turn ______ productivity. A) decreases; decreases B) increases; increases C) decreases; increases D) increases; decreases
B
Assume that a country's production function changes from Y K = 2 to Y K = 3 . Which of the following could explain the change in this production function? A) the disappearance of diminishing returns from the production function B) the arrival of robotic technology in production C) greater capital accumulation D) less depreciation due to better capital stock maintenance.
B
Assuming the same cost structure, a competitive market produces ________ output at ________ prices than a monopoly market. A) less; lower B) more; lower C) less; higher D) more; higher
B
Coke and Pepsi are substitute soft drinks. Which of the following would cause the demand curve for Pepsi to shift to the left? A) A report emerges that shows that drinking Pepsi helps to promote weight loss. B) The price of Coke decreases. C) The price of Pepsi rises. D) The cost of making Pepsi rises.
B
During recessions the unemployment rate A) decreases. B) increases. C) remains relatively constant. D) fluctuates randomly.
B
Economic theory suggests that a natural monopoly should be: A) eliminated whenever it arises. B) regulated to take advantage of economies of scale. C) left alone to operate with excess capacity. D) taken over by the government.
B
Economists call the maximum legal price a price ceiling because the price: A) cannot legally go lower than the ceiling. B) cannot legally go higher than the ceiling. C) must match the legally established ceiling price. D) All of the answers are correct.
B
Five new sellers enter a market (that previously had seven) and begin producing a good. Which of the following choices explains what happens to the equilibrium Q and P? A) The demand curve will shift to the right, and the equilibrium P and Q will both rise. B) The supply curve will shift to the right, the equilibrium P will fall, and the equilibrium Q will rise. C) The supply curve will shift to the left, the equilibrium P will fall, and the equilibrium Q will rise. D) The supply curve will shift to the right, the equilibrium P will rise, and the equilibrium Q will fall.
B
Frictional unemployment is best defined as A) long-term unemployment caused by changing features of an economy. B) short-term unemployment caused by difficulties of matching employees to employers. C) unemployment caused by cyclical conditions of an economy. D) a normal level of unemployment caused by high wages.
B
If the government raises taxes on investment returns, then A) the demand for loanable funds will increase, and the equilibrium interest rate will increase. B) the demand for loanable funds will decrease, and the equilibrium interest rate will decrease. C) the supply of loanable funds will decrease, and the equilibrium interest rate will increase. D) the supply of loanable funds will increase, and the equilibrium interest rate will decrease.
B
If the government raises the minimum wage by 6 percent, the number of people employed falls by 2%. What is the elasticity of employment with respect to the minimum wage? A) -3.0 B) -0.33 C) -12 D) -0.0012
B
If the income elasticity of demand of a good is negative, we can conclude that the good is: A) a normal good. B) an inferior good. C) a substitute. D) a complement.
B
In a market with external costs, suppose the efficient level of output is 1,000 units. Which of the following statements is TRUE? A) To achieve the efficient level of output, the government should set a subsidy equal to the external cost. B) To achieve the efficient level of output the government could set a tax equal to the external cost or issue enough tradeable allowances to restrict the output to the efficient level. C) With external costs, the government can use only taxes to achieve the efficient level of output. D) With external costs, the government can use only tradeable allowances to achieve the efficient level of output.
B
In free markets, shortages lead to: A) lower prices. B) higher prices. C) surpluses. D) unexploited gains from trade.
B
In which of the cases can you identify the potential for a free-rider problem? A) half-off sales at department stores B) voluntary payments for a smog reduction program C) group projects where all members have clearly assigned tasks and are responsible for presenting their work D) cable Internet service
B
Jim has an old (working) television that he would like to get rid of now that he has purchased a new high-definition, flat-screen television. The old television is no longer worth anything to him now that he has his new flat-screen TV. Veronica on the other hand has an even older television that has just broken down. She would pay up to $50 for any working TV. Which of the following statements is NOT true? A) If Jim trades Veronica his old television for $50, total value in society increases by $50. B) If Jim trades Veronica his old television for $50, both are better off but total value in society does not increase. C) If a middleman facilitates the $50 trade between Jim and Veronica, but takes a $10 finders' fee, Jim and Veronica will still both be better off. D) If Jim and Veronica do not trade, both are worse off than if they did trade.
B
Long waits and expenses in starting a business occur mostly in what countries? A) wealthy countries B) poor countries C) countries with large quantities of natural resources D) countries with just and equitable legal systems
B
Nigeria receives $53 of producer surplus from each barrel of oil sold at $60. At that level of production, Nigeria's cost to produce a barrel of oil is: A) $1.13. B) $7. C) $53. D) $113.
B
Stating that TR = TC is equivalent to stating that: A) MR = MC. B) P = AC. C) P = Average fixed cost. D) MR = P.
B
Suppose that there is a tax of $1 per unit, and the elasticity of supply is 3 and the elasticity of demand is 2 (in absolute value). How much of the $1 tax is paid by sellers? A) $0.60 B) $0.40 C) $0.75 D) $0.67
B
Suppose the United States is more productive than China at producing both T-shirts and cell phones. The theory of comparative advantage suggests that consumption in both countries will: A) increase if the United States produces both goods. B) increase if each country produces the good for which it has the lowest opportunity cost. C) not change if China produces either T-shirts or cell phones. D) remain the same since nothing can be done to increase production in the two countries.
B
Technological advances are generally expected to have ______ spillovers. A) negative B) positive C) no D) both positive and negative
B
The Fed has the greatest influence over ____ interest rates. Investment spending depends on _____ interest rates. A) short-term; short-term B) short-term; long-term C) long-term; short-term D) long-term; long-term
B
The Solow growth curve is represented by a vertical line at the Solow growth rate because I. it does not depend on the rate of inflation. II. there is an underlying assumption of strong money neutrality. III. it does not depend on the stock of factors of production. A) I only B) I and II only C) II and III only D) I and III only
B
The ability of one producer to produce one good or service using fewer inputs than another producer is: A) comparative advantage. B) absolute advantage. C) opportunity cost. D) competition.
B
The average annual rate of growth of real GDP in the United States has fluctuated around ____ for the last 50 years. A) 1 percent B) 3 percent C) 5 percent D) -1 percent
B
The discount rate is the interest rate charged on a(n) A) low interest loan from the Federal Reserve to a bank. B) loan from the Federal Reserve to a bank. C) long-term loan from one bank to another. D) overnight loan from one bank to another.
B
The price elasticity of demand is: A) the responsiveness of price to changes in the quantity demanded of the product. B) the responsiveness of quantity demanded to changes in the price of the product. C) the change in the firm's total revenue when prices change. D) exactly the same as the slope of the demand curve.
B
The quantity theory of money describes the relationship between A) prices, employment, money, and production. B) money velocity, money, real output, and prices. C) GDP, money, consumption, and savings. D) None of the answers is correct.
B
The tragedy of the commons occurs when a good is: A) rival in consumption and excludable. B) rival in consumption and not excludable. C) not rival in consumption and excludable. D) neither rival in consumption nor excludable.
B
The value of volunteer services is A) included in GDP, but should not be because nothing tangible is produced. B) not included in GDP, but should be because a service is produced. C) included in GDP and should be because a service is produced. D) not included in GDP and should not be because nothing tangible is produced.
B
Theoretically, why should the expenditure and income approaches to calculating GDP give us the same results? A) because they have the same components B) because every dollar spent is a dollar earned C) because of accounting errors D) because theoretically consumption equals the sum of all factor incomes
B
Time preference is the desire to A) save for a time when income will be reduced. B) have goods and services sooner rather than later. C) maximize return on investment in the shortest amount of time. D) increase longevity in order to have a greater income.
B
Tradeable allowances: A) are typically hard to pass through the Environmental Protection Agency (EPA) since they allow firms to legally pollute. B) are an efficient way to reduce pollution at lower costs. C) decrease the profitability of firms since now they have to pay for the rights to pollute. D) are equal to the social surplus in the market.
B
Two parties fail to solve an externality problem because reaching an agreement requires highpriced lawyers to negotiate and write up contracts. This illustrates the problem of: A) Pigouvian legal fees. B) transaction costs. C) legal inefficiency. D) punitive-cost agreements.
B
What is meant by the term marginal revolution? A) the public disdain at the institution of marginal tax rates B) the transformation in economic thought that occurred with the discovery of marginal thinking C) the institution of the death penalty for drug dealers D) the effect of policies on crime
B
What is the term for workers who have given up looking for a job but would still like one? A) jobless workers B) discouraged workers C) laid off workers D) discarded workers
B
When a good has relatively few substitutes: A) demand for the good is elastic. B) monopolists will tend to increase their markup for the good. C) monopolists will tend to decrease their markup for the good. D) producers will be able to "steal" all of the consumer surplus from consumers.
B
When banks borrow directly from the Fed, the interest rate on those loans is the A) prime rate. B) discount rate. C) Federal Funds rate. D) required reserve rate.
B
When external benefits are present in a market: A) the market is more efficient than if the externalities were not present. B) the market outcome is inefficient. C) overall social surplus is maximized because others are gaining in addition to the market consumers. D) the external benefit must be offset by an external cost.
B
When production of a good can be expanded without significantly increasing the overall demand for its inputs: A) supply for this good will tend to be more inelastic. B) supply for this good will tend to be more elastic. C) price for the good will be constant. D) the elasticity of supply of the product will equal the elasticity of supply of the inputs.
B
Which of the following are likely to be complements? A) hotdogs and hamburgers B) books and book-lights C) coffee and tea D) cars and vans
B
Which of the following best defines a nation's labor force? A) the total number of persons between the ages of 16 and 65 B) the total number of employed and unemployed persons C) the total number of persons working full time and part time D) the total number of persons who are willing and able to work but cannot find a job
B
Which of the following conditions would turn some people into forced riders? A) People who must contribute to the public good because their benefit from the public good is high. B) People who must contribute to the public good even though they will not benefit from the public good. C) People who are not required to contribute to the public good if they will not receive any benefit from it. D) None of the answers is correct.
B
Which of the following is NOT an automatic stabilizer? A) greater access to credit B) defense spending C) progressive tax system D) welfare program
B
Which of the following is NOT shown in the Solow growth model? A) Growth will be faster the further away a country's capital stock is below its steady state value. B) The reasons that some countries might devote a larger share of output to investment. C) Capital accumulation cannot explain long-run economic growth. D) Countries that devote a larger share of output to investment will be wealthier.
B
Which of the following is TRUE of the structure of the Fed? I. All seven members of the Board of Governors are appointed by the President. II. The Fed is an agency of the federal government. III. The Secretary of the Treasury chairs the Federal Open Market Committee. A) I only B) I and II only C) II and III only D) I, II, and III
B
Which of the following is not an effect of a binding price floor? A) misallocation of resources B) deregulation C) surpluses D) wasteful increases in quality
B
Which of the following is the most correct statement about the impact of rent controls? A) The short-run supply curve for apartments is inelastic, so rent controls create larger shortages in the short run than in the long run. B) The short-run supply curve for apartments is inelastic, so rent controls create smaller shortages in the short run than in the long run. C) The long-run supply curve for apartments is inelastic, so rent controls create larger shortages in the long run than in the short run. D) The long-run supply curve for apartments is inelastic, so rent controls create smaller shortages in the long run than in the short run.
B
Which of the following statements is TRUE? I. It is virtually impossible for a country to be the low-cost producer of all goods and services. II. The benefits of trade depend on absolute advantage, not comparative advantage. III. A country could have a comparative advantage in producing everything. A) I and II only B) I only C) II only D) III only
B
Why do some economists think that GDP may overestimate the actual level of economic activity in an economy? A) There is no positive adjustment for the underground economy. B) There is no negative adjustment for pollution. C) It does not account for the distribution of income in a country. D) There is no positive adjustment for leisure and well-being.
B
Why is national defense a public good? I. because it is expensive to produce II. because people who don't pay for national defense still benefit from having it III. because one person's benefit from national defense doesn't reduce anyone else's benefit from it IV. because it is provided by the government A) I and IV only B) II and III only C) II, III, and IV only D) I, II, and III only
B
. If the price of coffee falls by 10 percent and the quantity supplied of coffee falls by 1.5 percent then the elasticity of supply of coffee is: A) 10. B) 1.5. C) 0.15. D) 6.67.
C
A price ceiling creates a ________ when it is set ________. A) surplus; below the equilibrium price B) surplus; above the equilibrium price C) shortage; below the equilibrium price D) shortage; above the equilibrium price
C
A recession is a significant, widespread decline in A) interest rates and inflation. B) employment and inflation. C) employment and real income. D) inflation and real income.
C
A saver buys a $10,000 zero-coupon government bond for $9,375. When it matures a year from now, what will be the approximate implied interest rate? A) 625 percent B) 6.25 percent C) 6.67 percent D) 12.67 percent
C
A tax on the seller of a product: A) causes the seller's take-home price to rise above that paid by the buyer. B) causes the demand curve for the product to shift to the right. C) causes the supply curve for the product to shift to the left. D) always causes the equilibrium quantity traded in the market to increase.
C
An excludable good is: A) one that is excluded from the common basket of goods consumed by households. B) one that producers will exclude from production. C) one where people can be prevented from using the good. D) not necessary to consume, a luxury.
C
An external benefit in a market will cause the market to produce: A) more than the same market would produce in the presence of a negative externality. B) more than is socially desirable. C) less than is socially desirable. D) the socially optimal equilibrium amount.
C
Common resources are goods that are: A) excludable and rival. B) excludable but nonrival. C) nonexcludable but rival. D) nonexcludable and nonrival.
C
Compared to the United States, unemployment rates in Western Europe tend to be A) lower because of more labor regulations. B) lower because of fewer labor regulations. C) higher because of more labor regulations. D) higher because of fewer labor regulations.
C
Crowding out occurs because the government increases the demand for loanable funds, drives up interest rates, and I. stops private savers from saving. II. causes investment to fall. III. causes consumption to fall. A) I only B) II only C) II and III only D) I and III only
C
Financial intermediation can break down as a result of I. low and stable inflation II. government controls on interest rates III. bank failures A) I and II only B) I and III only C) II and III only D) I, II, and III
C
Firms in a perfectly competitive industry maximize profits by: A) eliminating the competition. B) producing a higher quality good and setting a price higher than the competition. C) setting a price equal to the market price. D) setting a price less than the market price and undercutting the competition.
C
Fiscal policies that help an economy in a recession without additional actions by policy makers are called A) consumption smoothers. B) Ricardian equalizers. C) automatic stabilizers. D) Each of these answers is correct.
C
For each good produced in a free market economy, demand and supply determine: A) the price of the good, but not the quantity. B) the quantity of the good, but not the price. C) both the price and the quantity of the good. D) neither price nor quantity, sellers determine the price.
C
Higher implicit tax rates tend to cause labor force participation rates to A) remain constant. B) increase. C) decrease. D) behave unpredictably.
C
If a tax is imposed on sellers of a product the demand curve will: A) shift upward. B) shift downward. C) not shift. D) shift upward or downward depending on elasticity of demand.
C
If consumption decreases, the existence of the government spending multiplier effect means that in order to counter the recession A) the government cannot use fiscal policy. B) the government is forced to use both tax cuts and increases in G C) fiscal policy needs to raise G by less than the decrease in C D) fiscal policy needs to raise G by more than the decrease in C
C
If nominal GDP rose in 2008, we can conclude that A) production rose in 2008. B) the price level rose in 2008. C) either production or the price level, or both, rose in 2008. D) neither production nor the price level rose in 2008.
C
If the Fed buys government bonds, then all of the following will likely increase EXCEPT A) the monetary base. B) M1. C) the Federal Funds rate. D) bank reserves.
C
If the depreciation rate is .03 and the capital stock is 200, how many units will depreciate? A) 2 B) 3 C) 6 D) 12
C
If wages are not as flexible as prices, an increase in money growth will lead to A) an increase in inflation and a rise in real long-run GDP growth. B) an increase in inflation but no rise in real short-run GDP growth. C) an increase in inflation and in firms' profits. D) no change in inflation, but a fall in firms' profits.
C
Monopoly power is best described as: A) the ability to charge the profit-maximizing price. B) the ability to produce the profit-maximizing output level. C) the ability to earn economic profits without causing new firms to enter the market. D) the ability to produce where marginal revenue intersects halfway between the origin and the demand curve.
C
Not only do both wage subsidies and minimum wages increase wages, but: A) they also increase employment. B) they also reduce employment. C) subsidies increase employment, whereas minimum wages reduce it. D) subsidies reduce employment, whereas minimum wages increase it.
C
Profit can be shown graphically by depicting a firm's costs and revenues, and is determined mathematically by calculating the: A) distance from price to average cost. B) area of the box that is price times quantity. C) area of the box that is (price minus average cost) times the quantity. D) area of the box that is average cost times quantity.
C
Suppose your teacher finishes class 30 minutes early on the day before an exam. She indicates that you may leave, or stay on for an optional study period which will last for the remaining 30 minutes of the scheduled class time. You should: A) always choose to stay for the study period, since you have already paid for the class time. B) only choose to stay if you like the instructor, since the value obtained is higher than if you disliked the instructor. C) only choose to stay if the benefits gained from the extra study session exceed the cost of another 30 minutes in class. D) only choose to stay for the study session if you do not plan to study on your own for the exam.
C
The Chinese land experiments between 1978 and 1983 proved that I. collective farms are a good system of farming. II. farming techniques cannot overcome the free-rider problem. III. establishing property rights leads to growth of per capita GDP. A) I only B) II only C) III only D) I and III only
C
The factor income approach to calculating GDP can be summarized as the summation of A) consumption, investment, government purchases, and exports. B) consumption, investment, government purchases, and net exports. C) wages, interest, rent, and profit. D) wages, investment, rent, and profit.
C
The labor force participation rate is highest among those A) under 16 years of age. B) between 16 and 19 years of age. C) between 25 and 54 years of age. D) over 65 years of age.
C
The main difference between M1 and M2 is that A) M1 includes some less liquid assets in addition to the assets in M2. B) M1 includes more liquid assets in addition to the assets in M2. C) M2 includes some less liquid assets in addition to the assets in M1. D) M2 includes more liquid assets in addition to the assets in M1.
C
The main incentive for business activity is: A) government subsidies. B) technological advancement. C) profit. D) employment.
C
The main reason(s) for the slope of SRAS is A) sticky prices only. B) sticky wages only. C) both sticky prices and sticky wages. D) neither sticky prices nor sticky wages.
C
The paper industry and brewery industry each emit 60 tons of particulates into the air. It costs the paper industry $1,000 to remove 1 ton of particulates and it costs the brewery industry $1,400 to remove 1 ton of particulates. In an effort to reduce particulate pollution, the government gives each industry tradeable allowances worth 50 tons of particulates. We would expect that: A) the paper industry will buy tradeable allowances from the brewery industry at a cost between $1,000 and $1,400 per allowance. B) the paper industry will buy tradeable allowances from the brewery industry at a cost greater than $1,400 per allowance. C) the brewery industry will buy tradeable allowances from the paper industry at a cost between $1,000 and $1,400 per allowance. D) the brewery industry will buy tradeable allowances from the paper industry at a cost greater than $1,400 per allowance.
C
The per-unit cost of producing Tic Tac candy does not change with increases in production, which means the: A) demand for Tic Tac candy is elastic. B) demand for Tic Tac candy is inelastic. C) supply of Tic Tac candy is elastic. D) supply of Tic Tac candy is inelastic.
C
The relationship between bond prices and interest rates is A) neither positive nor negative. B) positive. C) negative. D) sometimes positive and sometimes negative
C
The total amount of money that a firm receives from sales of its output is called: A) gross profit. B) net profit. C) total revenue. D) net revenue.
C
To maximize profit a firm in a competitive market increases output until: A) P = TC. B) P = AR. C) P = MC. D) P = AC.
C
Unemployment correlated with the business cycle is called A) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) seasonal unemployment.
C
What data are used to calculate GDP? A) quantities of goods B) prices of goods C) both quantities and prices of goods D) costs of producing goods
C
What is meant by the steady-state level of capital? A) All of a nation's capital is reinvested back into that country. B) Positive net capital investment continues to drive growth at a steady rate. C) There is no new net investment, or any growth. D) Investment eventually exceeds depreciation.
C
What is the method used for approximating the length of time necessary for GDP per capita to double? A) rule of 50 B) rule of 60 C) rule of 70 D) rule of 80
C
What is the term for GDP when price changes are not included in its calculation? A) annual GDP B) nominal GDP C) real GDP D) aggregate GDP
C
What is true about a recession? A) It can be concentrated only in a single geographic area, but must be widespread across many sectors of the economy. B) It must be a significant decline in economic activity for at least three years in a row. C) It is a significant decline in economic activity lasting more than a few months and must be widespread geographically. D) None of these answers is correct.
C
When deciding whether or not to undertake an activity, economists compare: A) the total cost of the activity against the total benefit received. B) the total benefit of the activity against the total cost of production. C) the additional cost of the activity against the additional benefits received. D) the average cost of the activity versus the total benefits received.
C
When expansionary fiscal policy increases income and consumer spending, the subsequent increase in AD is called the ________ effect. A) expansionary B) secondary C) multiplier D) None of these answers is correct.
C
When the demand curve for the profit-maximizing monopolist's product is relatively inelastic: A) it cannot raise the price of the product above the marginal cost of the product. B) raising the product's price will lower the total revenue for the product. C) the product does not have good substitutes. D) All of these choices are correct.
C
When the government sells bonds, some of the funds that would have gone to private investments go to the government. This situation is called A) overcrowding. B) funneling. C) crowding out. D) under bidding.
C
When you move along a demand curve: A) only price is held constant. B) income and the price of the good are held constant. C) all non-price determinants of demand are held constant. D) all determinants of quantity demanded are held constant.
C
Which of the following combinations contains only goods that can be counted towards consumption? A) steel for use in factories, tar for building roads, and MP3 players B) personal computers, new home purchases by households, and building materials C) video game consoles, MP3 players, your college tuition, and cakes D) national defense equipment, army fatigues, tractors, and building materials
C
Which of the following is NOT considered a private good? A) pizza B) tennis rackets C) cable TV D) French fries
C
Which of the following is TRUE of the difference between a tax cut and a tax rebate? A) A tax cut only increases the incentive to spend, while a tax rebate only increases the incentive to work. B) A tax cut only increases the incentive to work, while a tax rebate only increases spending. C) A tax cut increases the incentive to work and the incentive to spend, while a tax rebate only increases the incentive to spend. D) A tax cut only increases the incentive to spend, but a tax rebate increases the incentive to work and the incentive to spend.
C
Which of the following is a correct statement about tax burdens? A) A tax burden is distributed independently of relative elasticities of supply and demand. B) A tax burden falls most heavily on the side of the market that is closer to unit elastic. C) A tax burden falls most heavily on the side of the market that is less elastic. D) A tax burden falls most heavily on the side of the market that is more elastic.
C
Which of the following scenarios provides an example of a good institution that is conducive to economic growth? A) In Haiti it takes an average of 203 days to start a business. B) In Zimbabwe, nationalization of private property can occur without warning. C) Entrepreneurs can invest more than $200,000 in Indian garment factories. D) In Peru it only takes 72 days and 32.5 percent of income per capita to start a business.
C
Which of the following statements correctly defines a demand curve? A) A demand curve is a function that shows the relationship between prices and the quantity available for sale. B) A demand curve is a function that shows the relationship between prices and their associated quantities supplied. C) A demand curve is a function that shows the relationship between prices and their associated quantities demanded. D) A demand curve is a function that shows the relationship between quantity demanded and quantity supplied.
C
Which of the following statements highlights the difference between the CPI (consumer price index) and the GDP deflator? A) The CPI measures the average prices of inputs in the production process, whereas the GDP deflator measures the average prices of goods purchased by consumers. B) The CPI measures the average prices of retail goods, whereas the GDP deflator measures the average prices of wholesale goods. C) The CPI measures the average prices of typical goods consumed by consumers, whereas the GDP deflator measures the average prices of all goods consumed by all agents in the economy. D) The CPI measures the average prices of all final goods consumed by consumers, whereas the GDP deflator measures the average prices of all inputs used in the economy.
C
Which of the following statements is TRUE? A tax and subsidy are similar in that: I. they both create a deadweight loss. II. the burden of the tax and benefit of the subsidy depend on relative elasticities of demand and supply. III. they both change the equilibrium level of output. A) I only B) I and II only C) I, II, and III D) I and III only
C
Which of the following would cause the current supply of iPods to increase? A) an economic boom, which increases the amount that people are willing to spend on personal electronics B) a decrease in the price of songs on iTunes C) the expectation that the future price of iPods will decrease D) an increase in the wages offered to manufacturers of iPods
C
Which one of the following products would tend to have inelastic demand? A) luxury sedans B) candy C) crude oil D) Black Angus T-bone steak
C
Which price index measures the average price received by producers? A) the consumer price index B) the GDP deflator C) the producer price index D) the wholesale price index
C
Which type of unemployment is likely to be higher when real GDP growth is lower? A) structural unemployment B) frictional unemployment C) cyclical unemployment D) natural unemployment
C
Why did so many Chinese farmers and workers starve under "The Great Leap Forward"? A) The number of workers on communes was reduced. B) The Chinese people did not know how to farm in certain geographic areas. C) The incentive to work hard was low since the rewards were so minimal. D) Each of these explanations is correct.
C
Why is there such a great difference between the GDP per capita of North Korea and South Korea? A) South Korea has greater natural resources. B) North Korea invested heavily in its industries. C) South Korea uses markets to organize production. D) North Korea has a 100% literacy rate.
C
A beekeeper's hives are located in an orchard where the bees gather nectar to produce honey and simultaneously pollinate the orchard, which increases the yield of fruit. This benefits: A) only the owner of the orchard. B) only the beekeeper. C) the beekeeper, but it creates a negative externality because the bees are a hazard to the orchard owner. D) both the beekeeper and the orchard owner.
D
A bond is a(n) A) liability for the issuer. B) asset for the purchaser. C) promise by the issuer to pay. D) Each of these answers is correct.
D
A deadweight loss is the total of: A) consumer and producer surplus when all mutually profitable gains from trade are exploited. B) consumer and producer surplus when all mutually profitable gains from trade are not exploited. C) lost consumer and producer surplus when all mutually profitable gains from trade are exploited. D) lost consumer and producer surplus when all mutually profitable gains from trade are not exploited
D
A major difference between a private good and a public good is that: A) private goods are excludable, public goods are not. B) private goods can be produced in efficient quantities while public goods generally are not. C) private goods are rival in consumption, public goods are not. D) All of the answers are correct.
D
A subsidy is: A) similar to a reverse tax. B) calculated as the price received by sellers minus the price paid by buyers. C) paid for by taxpayers. D) All of the answer choices are correct.
D
According to Robert Solow, better ideas are responsible for about _____ of our standard of living. A) 15 percent B) 25 percent C) 50 percent D) 75 percent
D
According to the AD and SRAS model, if the economy is at the Solow growth rate, then a temporary increase in the growth rate of investment spending will cause I. no increase in real growth rates in the long run. II. no increase in the inflation rate in the long run. III. an increase in both the inflation and real growth rates in the short run. IV. an increase in real growth rates in the long run. A) I and II only B) III and IV only C) I and III only D) I, II, and III only
D
According to the Solow model, a country will grow faster when its capital stock is A) at the steady-state value. B) above the steady-state value. C) just below the steady-state value. D) far below the steady-state value.
D
According to the Solow model, an increase in the fraction of output that is saved will increase ________ in the long run. A) investment. B) output. C) per capita GDP. D) All of the answers are correct.
D
Allocating products with long lines, using a first-come, first-served system, is: A) the only way scarce goods can be allocated. B) necessary when waiting is a costless exercise. C) efficient, since people who are willing to wait the longest get the products. D) inefficient, because waiting wastes time.
D
An external cost is a cost paid by: A) the consumers trading in the market. B) the producers trading in the market. C) the government regulating the market. D) people other than the consumer and the producer trading in the market.
D
Binding price ceilings would create all of the following effects EXCEPT: A) shortages. B) reductions in product quality. C) a misallocation of resources. D) maximum gains from trade.
D
Debt monetization means that a government pays off its debt by A) lowering inflation. B) raising tax revenues. C) borrowing from foreigners. D) increasing the money supply.
D
Economics: A) teaches us how to make the world a better place. B) increases our understanding of historical events. C) can help you better manage your finances. D) All of the answers are correct.
D
Enforced property rights are important to increase which of the following? A) physical capital B) human capital C) technological knowledge D) All of the factors listed are correct.
D
Firms are willing and able to sell 100 guitars per day at a price of $250 per guitar. What price will firms require to sell 100 guitars per day if there is a tax of $15 per guitar? A) $235 B) $250 C) between $235 and $250 D) $265
D
If an increase in the price of oil by 10 percent would cause the quantity demanded for oil to fall by 5 percent, the elasticity of demand for oil in absolute terms is: A) 10. B) 5. C) 2. D) 0.5.
D
If two or more people can use a good at the same time without preventing others from using it, the good is said to be a(n) A) durable good. B) public good. C) investment good. D) nonrivalrous good.
D
In a constant cost industry, the market price and average cost are equal to $23. Therefore, which of the following is correct? A) An increase in demand will cause the short-run price to rise above $23 but, in the long run, the price will return to $23. B) An increase in demand will cause profits to rise and firms to enter the industry until profits return to normal. C) A decrease in demand will cause market price to fall below average cost and thus firms will earn negative profits. D) All of the answers are correct.
D
In a monopoly market: A) the lack of competition causes the price of the product to equal average cost. B) a firm maximizes profits by producing the level of output that minimizes average cost. C) the additional revenue from selling one more unit of output usually is greater than the price. D) the lure of above-normal profits may give a firm an incentive to develop new products and technologies.
D
Price controls cause resources to be ________ not just geographically, but also across different ________ of those resources. A) overutilized; types B) properly allocated; demands C) cheaper; uses D) misallocated; uses
D
Public goods are: I. excludable. II. nonrival. III. free to those who do not pay. A) I only B) II only C) I and II only D) II and III only
D
Ricardian equivalence A) will occur more when consumers practice consumption smoothing. B) does not occur when a political administration is set to change. C) has not occurred in the United States. D) is less significant when consumers deem tax cuts or rebates as permanent.
D
Savings is A) the purchase of new capital goods. B) the purchase of new consumption goods. C) income that is not spent on capital goods. D) income that is not spent on consumption goods.
D
Solving a tragedy of the commons problem could be done through: I. societal expectations. II. tradable allowances. III. government command and control methods. A) II only B) I and II only C) II and III only D) I, II, and III
D
Suppose that a market is characterized as follows: consumers are willing and able to purchase 100 units and sellers are willing and able to sell 70 units. Which of the following statements are true? A) There is a shortage of 30 units. B) The market is not in equilibrium. C) The price in the market will increase. D) All of the answers are correct.
D
Suppose the U.S. government wants to encourage individuals to save more of their income. The easiest way for the government to realize this goal is to: A) pass a law requiring people to save a larger percentage of their income. B) decrease government spending in order to set an example for individuals. C) increase the tax rate on savings in order to encourage more savings. D) develop incentives such as tax breaks on savings in order to encourage more savings.
D
Suppose your city has had an increase in crime and the city government decides that more police are needed to patrol at night. Which of the following funding solutions avoids the freerider problem involved with additional police officers? A) taxation of the city's top 50 percent of income earners B) donation-based police service C) voluntary police officers D) an increase in the city's sales tax
D
The Federal Funds rate is the interest rate charged on a(n) A) low interest loan from the Federal Reserve to a bank. B) loan from the Federal Reserve to a bank. C) long-term loan from one bank to another. D) overnight loan from one bank to another.
D
The financial crisis of 2008 illustrates that A) systemic risk is no longer a serious concern for the U.S. economy. B) the Fed does not concern itself with the actions of investment banks. C) the Fed has the power to control the President's responses to a financial and economic crisis and supervise fiscal policy. D) the Fed has the power to step outside its normal functions and lend to investment banks when it perceives the risk of financial contagion.
D
The institutions of economic growth include A) property rights. B) a dependable legal system. C) competitive and open markets. D) Each of these answers is correct.
D
The price of coffee has increased, yet evidence suggests the demand for coffee has been stable. A possible explanation is that: A) there has been no change in the supply of coffee. B) there has been increased use of subsidies in coffee production. C) wages of workers in coffee production might have decreased. D) wages of workers in coffee production might have increased.
D
The rule of 70 indicates that if the growth rate of a variable is X percent per year, the variable will double in A) 70 + X years. B) 70 - X years. C) 70 × X years. D) 70 ÷ X years.
D
Trading in the market for loanable funds determines the equilibrium A) level of savings. B) amount of borrowing. C) interest rate. D) It determines all three of these.
D
Under which of the following scenarios would expansionary fiscal policy work best? A) when two real shocks have occurred B) when the economy is at equilibrium in the long run C) when the economy has had a large negative supply shock D) when AD is low compared to the long-run equilibrium position of the economy
D
What is the unemployment rate for a nation with 6 million employed and 2 million unemployed? A) 10 percent B) 15 percent C) 20 percent D) 25 percent
D
Which of the curves listed below is part of the dynamic AD-AS model? A) the dynamic aggregate demand curve B) the short-run aggregate supply curve C) the Solow growth curve D) Each of these curves is part of the model.
D
Which of the following are factors that shift the demand curve? A) costs of production, price of the product, and subsidies B) income, population, tastes, and input prices C) expectations, opportunity costs, price of the product D) price of substitutes, tastes, price of complements
D
Which of the following explains why local supply tends to be more elastic than global supply? A) As price increases in a certain locale, it is often costly to transport more goods to that particular area, and hence supply is more elastic. B) Local suppliers are small in relation to the global market. C) The statement is false, local supply tends to be less elastic than global supply. D) As price increases in a certain locale, goods can be brought in from other areas, which is not possible on a global scale.
D
Which of the following is NOT a function of the Federal Reserve? A) serving as the lender of last resort B) regulating the U.S. financial system C) regulating the U.S. money supply D) providing loans to small businesses
D
Which of the following is NOT a lag associated with fiscal policy? A) the time it takes to implement a policy once it's decided B) the time to recognize a recession once the data are collected C) the time it takes to assess whether the policy has worked D) the time it takes to assess whether to use fiscal or monetary policy
D
Which of the following is NOT a reason trade increases wealth? A) to take advantage of differences in productivity B) to take advantage of differences in preferences C) to take advantage of differences in knowledge D) to take advantage of differences in security
D
Which of the following statements about consumer surplus is incorrect? A) Consumer surplus is the net benefit to consumers from the exchange that occurs in a market. B) Consumer surplus is the gains from trade on the part of the consumer that result from a market transaction. C) Total consumer surplus is the area beneath the demand curve and above the market price. D) Consumer surplus is the difference between the minimum price the consumer is willing to pay and the market price.
D
Which of the following statements are TRUE? I. Market prices do not correctly signal the true costs and benefits to society when external costs are present. II. Market prices do not correctly signal the true costs and benefits to society when external benefits are present. III. Taxes and subsidies can adjust prices so that they do send the correct signals. A) I and III only B) II and III only C) I only D) I, II, and III
D
Which of the following statements is TRUE? Economists normally assume that the goal of the firm is to: I. sell as much of their product as possible. II. set the price of their product as high as possible III. maximize profit. A) I and II only B) II and III only C) I and III only D) III only
D
Why do some economists think that economic growth due to ideas will be faster in the future? A) an increasing number of scientists and researchers B) globalization leads to increased market size for firms C) increased economic growth in countries like China and India that translate into more scientists and larger markets D) All of these answers are correct.
D
Why does inflation increase your tax burden, at least in the short run? I. Inflation bloats stock prices, which leads to a capital gains tax burden. II. The market value of financial assets rises with inflation and the U.S. tax system assesses taxes on such gains, even if the "real" value of such assets remains the same. III. Consumers pay higher sales taxes when the prices of goods and services increase due to inflation. A) I and II only B) II and III only C) I and III only D) I, II, and III
D
