ECON 210 Exam Study Questions

(Figure: Foreign Trade with a Tariff) Refer to the figure. A $1 tariff generates increased domestic production by: A) $40 million units. B) $90 million units. C) $140 million units. D) $180 million units.

A) $40 million units.

Economic growth in China has led to more Chinese people owning cars which: A) increased demand for oil, causing oil prices to rise. B) decreased demand for oil, causing oil prices to rise. C) increased demand for oil but decreased supply, causing oil prices to increase rapidly. D) increased demand and supply of oil, causing oil prices to increase rapidly.

increased demand for oil, causing oil prices to rise.

Increased trade has led to: A) increased globalization of world economies. B) a more equal distribution of wealth across countries. C) a decline in human cooperation. D) more specialization and less globalization.

increased globalization of world economies.

The concept of comparative advantage implies that: A) there are winners and losers when people trade without specializing. B) people have to be self-sufficient. C) people can benefit from specializing and trading with each other. D) only those people who are productive benefit from trade.

people can benefit from specializing and trading with each other.

Which of the following has NOT played a significant role in recent developments leading to increased trade and globalization? A) lower transportations costs B) theory of absolute advantage C) integration of world markets D) increased communication speed

theory of absolute advantage

If Maria is willing to pay $50 for a sweatshirt, how much consumer surplus does she earn if the market price for sweatshirts is $27.50 each? A) $27.50 B) $50.00 C) $77.50 D) $22.50

$22.50

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

$265

If the university president valued a parking space close to the administration building at $500 and paid $30 for a parking permit, he would receive consumer surplus equal to: A) $30. B) $470. C) $500. D) $530.

$470

GDP calculations account for A) final goods and services. B) leisure. C) pollution. D) distribution of income.

A) final goods and services.

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 farmer produces corn and wheat. The price of wheat rises; so he shifts his resources towards wheat and the supply of wheat rises.

Which of the following is least likely a consequence of the division of knowledge? A) The development of the computer tablet. B) A totally self-sufficient family farm. C) A new delivery method for cancer-fighting drugs. D) The provision of a new bike path in your community.

A totally self-sufficient family farm.

(Figure: Tax on Sellers) Refer to the figure. Suppose the imposition of a per-unit tax on sellers shifts the supply curve from S0 to S1. With the tax, buyers pay ________ and sellers receive ________. A) $6; $3 B) $6; $6 C) $3; $6 D) $3; $4

A) $6; $3

(Table: iPhones) This table shows a country producing only iPhones. Using 2000 as the base year, real GDP in 2010 is A) $9,000. B) $10,000. C) $10,800. D) $9,900.

A) $9,000.

With labor held constant, Y = F(K) = sqrt(k), 400 units of capital, the fraction of output invested in new capital at g = 0.2, and a depreciation rate of d = .05, what is the steady-state amount of capital? A) 16 B) 64 C) 100 D) 225

A) 16

The elasticity of demand for a good is -0.75. A 4 percent increase in price will cause a: A) 3 percent decrease in quantity demanded. B) 5.33 percent increase in quantity demanded. C) 5.33 percent decrease in quantity demanded. D) 0.19 percent decrease in quantity demanded.

A) 3 percent decrease in quantity demanded.

The elasticity of demand for a good is -0.75. A 4 percent increase in price will cause a: A) 3 percent decrease in quantity demanded. B) 5.33 percent increase in quantity demanded. C) 5.33 percent decrease in quantity demanded. D) 0.19 percent decrease in quantity demanded.

A) 3 percent decrease in quantity demanded.

(Figure: Unskilled Labor Market) Based on the figure, what is the number of unemployed workers if a minimum wage of $6 is set in this market for unskilled labor? A) 40 B) 55 C) 20 D) 95

A) 40

Which of the following explains why the supply of savings is upward sloping? A) An increase in the interest rate leads to an increase in the quantity of saving. B) A decrease in the interest rate leads to an increase in the opportunity cost of saving. C) An increase in investment leads to an increase in the level of saving. D) An increase in time preference leads to an increase in the quantity of saving.

A) An increase in the interest rate leads to an increase in the quantity of saving.

Which of the following explains why the supply of savings is upward sloping? A) An increase in the interest rate leads to an increase in the quantity of saving. B) A decrease in the interest rate leads to an increase in the opportunity cost of saving. C) An increase in investment leads to an increase in the level of saving. D) An increase in time preference leads to an increase in the quantity of saving.

A) An increase in the interest rate leads to an increase in the quantity of saving.

Which is the largest of the national spending components: C, I, G, or NX? A) Consumption B) Investment C) Government spending D) Net exports

A) Consumption

Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D1 and the initial supply curve is S1. Suppose this depicts the market for corn. How does the market change when flooding in Iowa destroys a significant amount of the corn crop. A) S1 will shift to S2. B) D1 will shift to D2. C) S1 will shift to S3. D) There will be no change in supply or demand in the market for corn.

A) S1 will shift to S2.

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) The equilibrium price decreases; the change in the equilibrium quantity is ambiguous.

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) The equilibrium price is $50 and the equilibrium quantity is 50 units.

Which of the following would be included in GDP for the United States? A) Toyota, a Japanese car company, producing cars in the United States B) a U. S. professor taking a year off to teach at the London School of Economics C)a tire manufacturer making and selling tires to Ford to be used in their new cars D) Jane's car being stolen so she is forced to purchase a used car as a replacement

A) Toyota, a Japanese car company, producing cars in the United States

Recent rapid growth in China is mostly due to A) a high marginal product of capital that will eventually decrease as the country grows. B) a high marginal product of capital that will continue to grow as the country grows. C) increases in technology that have led to an exponential increase in output. D) increases in human capital that have significantly increased the marginal product of labor.

A) a high marginal product of capital that will eventually decrease as the country grows

If the income elasticity of demand of a good is positive, we can conclude that the good is: A) a normal good. B) an inferior good. C) a substitute. D) a complement.

A) a normal good.

The Solow model is based on A) a production function. B) supply and demand curves. C) the GDP accounts. D) consumer preferences.

A) a production function.

A binding interest rate ceiling creates ______ savings. A) a shortage of B) a surplus of C) an equilibrium quantity of D) increase in

A) a shortage of

In the Solow model an increase in investment leads to A) an increase in growth rates in the short run but a return to zero growth in the long run as the economy converges to a new, higher steady state. B) an increase in growth rates in both the short run and the long run, as new investment will lead to permanently higher levels of the capital stock. C) higher growth rates in the short run, but only if depreciation is higher than investment in the current period. D) an increase in both the capital stock and the level of technology, hence to a permanent increase in the level of growth in the economy.

A) an increase in growth rates in the short run but a return to zero growth in the long run as the economy converges to a new, higher steady state.

If the demand curve is inelastic a price ________ causes a(n) ________ in revenues A) decrease; decrease B) decrease; increase C) increase; decrease D) There is not enough information to answer.

A) decrease; decrease

To avoid double accounting, the value of A) final goods only are included in GDP. B) intermediate goods only are included in GDP. C) both final good and intermediate goods are included in GDP. D) neither final goods nor intermediate goods are included in GDP.

A) final goods only are included in GDP.

The level of capital stock increases when investment in capital is A) greater than depreciation. B) less than depreciation. C) greater than personal consumption. D) greater than investment in human capital.

A) greater than depreciation.

Countries with more human capital tend to have A) higher GDP per capita than countries with low human capital. B) lower GDP per capita than countries with low human capital. C) the same level of GDP per capita as countries with low human capital. D) falling GDP per capita.

A) higher GDP per capita than countries with low human capital.

Since the demand curve for computer chips is elastic, a decrease in the price of computer chips caused by an increase in productivity will: A) increase revenue for the computer chip industry and make computers a larger share of the American economy. B) increase revenue for the computer chip industry and make computers a smaller share of the American economy. C) decrease revenue for the computer chip industry and make computers a larger share of the American economy. D) decrease revenue for the computer chip industry and make computers a smaller share of the American economy.

A) increase revenue for the computer chip industry and make computers a larger share of the American economy.

Imposing a restrictive quota on the import of sugar will likely: A) increase the price of sugar and decrease the quantity consumed. B) increase the price of sugar and increase the quantity consumed. C) leave the price of sugar unchanged and decrease the quantity consumed. D) leave the price of sugar unchanged and increase the quantity consumed.

A) increase the price of sugar and decrease the quantity consumed.

An increase in life expectancy should cause saving in the United States to A) increase. B) decrease. C) remain unchanged. D) become more volatile.

A) increase.

When a family's income becomes more uncertain, we expect its saving to A) increase. B) decrease. C) remain unchanged. D) become more uncertain.

A) increase.

The demand curve for physician office visits is quite inelastic; therefore, a: A) large increase in price causes quantity demanded to decrease by very little. B) large decrease in price causes quantity demanded to decrease by a lot. C) small increase in price causes quantity demanded to decrease by a lot. D) small decrease in price causes quantity demanded to decrease by very little.

A) large increase in price causes quantity demanded to decrease by very little.

In free markets, surpluses lead to: A) lower prices. B) higher prices. C) surpluses. D) unexploited gains from trade.

A) lower prices.

Trade restrictions based on national security concerns: A) might be beneficial in certain cases, like vaccinations. B) have never been granted in the United States. C) have no merit and are always unwise. D) give little incentive for industry lobbyists to declare their product vital for national security purposes.

A) might be beneficial in certain cases, like vaccinations.

In macroeconomics, investment refers to the A) purchase of new capital goods. B) purchase of stocks and bonds. C) amount of personal savings in a bank. D) fund used to settle a debt.

A) purchase of new capital goods.

Protectionism refers to government policies that: A) restrict imports of foreign products. B) give foreign producers tax credits in an effort to increase their exports. C) stimulate trade between countries and increase domestic producers profit. D) restrict the output of domestic producers to keep their prices high.

A) restrict imports of foreign products.

When a tax is imposed on consumers the demand curve will A) shift downward by the amount of the tax. B) shift upward by the amount of the tax. C) shift downward by less than the amount of the tax. D) not shift since sellers collect per unit taxes.

A) shift downward by the amount of the tax.

Price ceilings create five significant effects. What are they? A) shortages, reductions in product quality, wasteful lineups, a loss from gains to trade, and a misallocation of resources. B) surpluses, increases in product quality, search costs, gains from trade, and resource attrition. C) excess demand, long lines, poor service, efficiency, and arbitrage. D) shortages, reduced time costs, low vacancy rates, blat, and deadweight loss.

A) shortages, reductions in product quality, wasteful lineups, a loss from gains to trade, and a misallocation of resources.

Which of the following is NOT an effect of a price ceiling? A) surpluses B) misallocation of resources C) loss of gains from trade D) wasteful lineups

A) surpluses

A tariff is a: A) tax on imports. B) subsidy on exports. C) restriction on the quantity of domestic goods consumed by foreigners. D) restriction on the quantity of imports from foreign producers.

A) tax on imports.

An initial public offering is A) the first time a corporation sells stock to the public in order to raise capital. B) a sophisticated IOU that documents who owes how much and when payment must be made. C) something of value that by agreement becomes the property of the lender if the borrower defaults. D) the decrease in private consumption and investment that occurs when government borrows more.

A) the first time a corporation sells stock to the public in order to raise capital.

The price of wheat increases, but few people cut back on their consumption of bread because: A) the price of bread is a small portion of the budget, and thus the demand for bread is inelastic. B) the price of bread is a large portion of the budget, and thus the demand for bread is elastic. C) change in the price of wheat does not affect the price of bread. D) None of the answers is correct.

A) the price of bread is a small portion of the budget, and thus the demand for bread is inelastic.

Individual savings contributes to A) the supply of loanable funds. B) the demand for loanable funds. C) both the supply of loanable funds and the demand for loanable funds. D) neither the supply of loanable funds nor the demand for loanable funds.

A) the supply of loanable funds.

The paradox of trade restrictions on countries with child labor is that: A) these restrictions aim to reduce child labor, but they actually make the countries poorer. B) children from those countries are actually more efficient than the adults. C) children can be hired at lower wages than adults. D) restrictions on trade cause losses in consumer surplus.

A) these restrictions aim to reduce child labor, but they actually make the countries poorer.

The U.S. government restricting the quantity of sugar imports into the country is an example of a(n): A) trade quota. B) embargo. C) trade settlement. D) market hanger.

A) trade quota.

If income and consumption are equal, saving must be A) zero. B) positive and rising. C) positive and remaining relatively constant. D) negative.

A) zero.

Anita is a wonderful baker and can bake 10 cakes in a day, but then has no time left to make cookies. If she bakes only cookies, she can make 200 cookies in a day. John can make equally delicious cakes and cookies but can only make seven cakes or 100 cookies in a day. Based on this information, which of the following statements is true?

Anita and John should split their time equally between cakes and cookies.

What does the law of demand state? A) As incomes increase, people consume more of all goods. B) The demand for a good increases with the number of consumers in the market. C) As the price of a good declines, consumers purchase more of that good. D) The supply of a good increases in proportion to the demand for it.

As the price of a good declines, consumers purchase more of that good.

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) $0.40

U.S. GDP was $14.3 trillion in 2008 and $13.9 trillion in 2009. In 2005 dollars, U.S. real GDP was $13.2 trillion in 2008 and $12.7 trillion in 2009. What was the growth rate of real GDP from 2008 to 2009? A) 3.8 percent B) -3.8 percent C) 3.9 percent D) -3.9 percent

B) -3.8 percent

Tonya consumes 10 boxes of Ramen Noodles a year when her yearly income is $40,000. After her income falls to $30,000 a year, she consumes 40 boxes of Ramen Noodles a year. Calculate her income elasticity of demand for Ramen Noodles. A) 4.2 B) -4.2 C) -2.25 D) 2.25

B) -4.2

Tonya consumes 40 steaks a year when her yearly income is $40,000. After her income falls to $35,000 a year, she consumes only 35 steaks a year. Calculate her income elasticity of demand for steaks. A) -1 B) 1 C) -12.5 D) 12.5

B) 1

(Figure: Tax on Sellers) Refer to the figure. Suppose the imposition of a per-unit tax on sellers shifts the supply curve from S0 to S1. The equilibrium quantity sold under the tax is: A) 4. B) 12. C) 16. D) 10.

B) 12.

(Figure: Minimum Wage) Refer to the figure. How many workers are unemployed at a minimum wage of $8? A) 10 B) 20 C) 25 D) 35

B) 20

People consume whatever part of output they don't save and invest. If the depreciation rate of capital is d = .05 and the Solow model is Y = sqrt(K), will people consume more in the steady state if the saving rate is 20 percent (g = 0.2) or 50 percent (g = 0.5)? A) 20 percent. B) 50 percent. C) They will consume the same amount under either savings rate. D) It is impossible to say.

B) 50 percent.

People consume whatever part of output they don't save and invest. If the depreciation rate of capital is δ = .05 and the Solow model is Y = sqrt(K) , will people consume more in the steady state if the saving rate is 20 percent (γ = 0.2) or 50 percent (γ = 0.5)? A) 20 percent. B) 50 percent. C) They will consume the same amount under either savings rate. D) It is impossible to say.

B) 50 percent.

Which of the following statements is TRUE about the removal of trade barriers? A) Consumers are harmed while some suppliers benefit. B) Consumers benefit while some suppliers are harmed. C) Everyone benefits. D) Everyone is harmed.

B) Consumers benefit while some suppliers are harmed.

(Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D1 and the initial supply curve is S1. If this depicts the equilibrium in the market for computer printers, what will happen when the price of computers increases? A) There is not enough information to determine what will happen. B) D1 will shift to D2. C) D1 will shift to D3. D) S1 will shift to S3.

B) D1 will shift to D2.

Marge tutors English students—if she raises rates, her revenues increase. Brad tutors biology students—if he lowers rates, his revenues increase. Which of the following is TRUE? A) Marge's demand is elastic, and Brad's demand is inelastic. B) Marge's demand is inelastic, and Brad's demand is elastic. C) Marge's demand is elastic, and Brad's demand is elastic. D) Marge's demand is inelastic, and Brad's demand is inelastic.

B) Marge's demand is inelastic, and Brad's demand is elastic.

Which of the following statements about the effects of patents is correct? A) Patents increase the incentive to research and develop new products and also increase competition on the market. B) Patents increase the incentive to research and develop new products but also increase monopoly power once the products are created. C) Patents reduce the incentive to research and develop new products but also reduce competition on the market. D) Patents reduce the incentive to research and develop new products but increase monopoly power once the products are created.

B) Patents increase the incentive to research and develop new products but also increase monopoly power once the products are created.

What happens to revenues when the demand curve is unit elastic and the price changes? A) Revenues increase when the price increases. B) Revenues remain unchanged. C) Revenues decrease when the price increases. D) The change in revenues cannot be estimated.

B) Revenues remain unchanged.

______ first developed the model that explains economic growth with a production function. A) Milton Friedman B) Robert Solow C) John Maynard Keynes D) Ben Bernanke

B) Robert Solow

If a bond for Alexcorp has a 10 percent rate of return and an otherwise identical bond for Tylercorp has a 15 percent rate of return, which bond carries greater risk? A) The Alexcorp bond is riskier. B) The Tylercorp bond is riskier. C) The two bonds are equally risky. D) Nothing can be concluded about the bonds' riskiness.

B) The Tylercorp bond is riskier.

Real GDP per capita is equal to real GDP divided by A) The number of people employed. B) The population. C) The inflation rate. D) The price level.

B) The population.

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) The price of Coke decreases.

If the elasticity of demand is 2 in absolute value, and the elasticity of supply is 1 in absolute value, how much of a tax burden will the buyer bear relative to the seller? A) The buyer will bear more of the tax burden than will the seller. B) The seller will bear more of the tax burden than will the buyer. C) The buyer and seller will share the tax burden equally. D) The buyer will not bear none of the tax burden since demand curve is twice as elastic as supply.

B) The seller will bear more of the tax burden than will the buyer.

Which of the following statements is correct for a specific good or service? A) Whoever pays for a subsidy also pays the entire commodity tax on an item. B) Whoever bears the burden of a tax also receives the benefit of the subsidy. C) Whoever bears the burden of a tax also bears the cost of the subsidy. D) Governments bear the burdens of both taxes and subsidies.

B) Whoever bears the burden of a tax also receives the benefit of the subsidy.

(Figure: Foreign Trade with a Tariff) Refer to the figure. A $1 tariff results in: A) an increase in imports of 80 million units. B) a decrease in imports of 80 million units. C) an increase in imports of 100 million units. D) a decrease in imports of 100 million units.

B) a decrease in imports of 80 million units.

One of the costs of protectionism is: A) increases in total national output. B) a reduction in the variety of goods in domestic markets. C) greater competition. D) lower opportunity costs of domestic production.

B) a reduction in the variety of goods in domestic markets.

Suppose that the equilibrium price in the market is $10. If the current market price is $7.50: A) the equilibrium price will fall to $7.50. B) competition among buyers will increase the current price. C) the current price will fall below $7.50 as sellers compete for market share. D) There is not enough information provided to answer the question.

B) competition among buyers will increase the current price.

According to the life cycle theory of savings, a typical person's A) saving is smooth over her entire lifetime. B) consumption is smooth over her entire lifetime. C) consumption in a given year is related to her income in that year. D) saving is the highest when she dies.

B) consumption is smooth over her entire lifetime.

When the government increases borrowing by issuing bonds, then bond prices ______ and interest rates ______. A) increase; decrease. B) decrease; increase. C) increase; increase. D) decrease; decrease.

B) decrease; increase.

In terms of economics, international trade is very similar to trade between two people in a small local neighborhood, except: A) for the impact of specialization that does not occur in local trade. B) for political considerations such as country borders. C) that international trade is based on the concept of comparative advantage whereas local trade is not. D) for the impact of division of knowledge that does not exist in local trade.

B) for political considerations such as country borders.

The Solow model predicts that a country will grow more rapidly the A) further its capital stock is above its steady-state value. B) further its capital stock is below its steady-state value. C) closer its capital stock is above its steady-state value. D) closer its capital stock is below its steady-state value.

B) further its capital stock is below its steady-state value.

In free markets, shortages lead to: A) lower prices. B) higher prices. C) surpluses. D) unexploited gains from trade.

B) higher prices.

The Solow model predicts that at current savings rates an increase in savings today A) immediately reduces consumption, and both output and consumption will be also lower in the steady state. B) immediately reduces consumption, but both output and consumption will be higher in the steady state. C) increases consumption and output today and in the steady state. D) has no effect on consumption and output today or in the steady state.

B) immediately reduces consumption, but both output and consumption will be higher in the steady state.

Studies show that more openness to trade __________ income and _______ child labor. A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases

B) increases; decreases

Farmers can produce more milk at low marginal cost, but Americans want to drink only so much milk. This suggests that the demand curve for milk is: A) elastic. B) inelastic. C) unit elastic. D) unaffected by elasticity.

B) inelastic.

Capital growth is the difference between A) investment and economic growth. B) investment and depreciation. C) depreciation and economic growth. D) investment and economic growth.

B) investment and depreciation.

Banks do all of the following EXCEPT A) evaluate business ideas. B) issue government bonds. C) spread risk. D) facilitate the payment system.

B) issue government bonds.

A person who buys a bond is a A) borrower. B) lender. C) stockholder. D) banker.

B) lender.

Under rent control tenants can expect: A) lower rent and higher quality housing. B) lower rent and lower quality housing. C) higher rent and a shortage of housing. D) higher rent and a surplus of housing.

B) lower rent and lower quality housing.

Ideas are A) rivalrous. B) not rivalrous. C) partly rivalrous. D) sometimes rivalrous and sometimes not rivalrous.

B) not rivalrous.

The formula that represents the generation of ideas (A) is A) population - incentives - ideas per hour. B) population * incentives * ideas per hour. C) capital * (population ÷ ideas per hour). D) capital ÷ population - ideas per hour.

B) population * incentives * ideas per hour.

GNP measures A) the same things as GDP. B) production by U.S. citizens wherever they work in the world. C) the production of both intermediate and final goods. D) goods produced outside of U.S. borders.

B) production by U.S. citizens wherever they work in the world.

The key condition for equilibrium to occur in a market is: A) the demand curve equals the supply curve. B) quantity demanded equals quantity supplied. C) price equals quantity. D) demand for one good equals demand for all other goods.

B) quantity demanded equals quantity supplied.

(Figure: Price Ceiling) Refer to the figure. A price ceiling of $10 results in a: A) shortage of 270 units. B) shortage of 40 units. C) surplus of 270 units. D) surplus of 40 units.

B) shortage of 40 units.

Businesses will take out additional loans only if A)they have no other way to obtain funds. B) the interest rate is less than the expected rate of return on their investment. C) the demand for investment is equal to the supply of savings. D) the interest rate is less than the cost of borrowing.

B) the interest rate is less than the expected rate of return on their investment.

When you get a haircut, A) the haircut is not included in GDP at all. B) the price of the haircut gets counted as part of GDP. C) only the value of the hair produced since your last haircut gets counted as part of GDP. D) only the profits made by the haircutter get counted as part of GDP.

B) the price of the haircut gets counted as part of GDP.

If the price elasticity of demand is 2 in absolute value, then when the price of Good X rises by 25 percent: A) the quantity demanded of Good X rises by 50 percent. B) the quantity demanded of Good X falls by 50 percent. C) the quantity demanded of Good X rises by 12.5 percent. D) the quantity demanded of Good X falls by 12.5 percent.

B) the quantity demanded of Good X falls by 50 percent.

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 responsiveness of quantity demanded to changes in the price of the product.

The demand curve for Froot Loops breakfast cereal is very elastic because: A) most breakfast cereals are not considered a luxury good. B) there are many good substitutes for Froot Loops. C) the demand curve is negatively sloped. D) it is one of the most advertised cereals in the world.

B) there are many good substitutes for Froot Loops.

The presence of illegal and off the-books activities causes measured GDP to be A) overstated. B) understated. C) correctly stated. D) more volatile.

B) understated.

In a competitive labor market, a Federal minimum wage causes unemployment mostly among: A) middle-class workers. B) young unskilled workers. C) college graduates. D) highly skilled workers.

B) young unskilled workers.

(Figure: Foreign Trade) Refer to the figure. What is the dollar value of wasted resources as a result of prohibiting trade in this market? A) $30,000 B) $5,000 C) $2,500 D) $22,500

C) $2,500

(Figure: Tax on Sellers) Suppose the imposition of a per-unit tax on sellers shifts the supply curve from S0 to S1. Using the figure, calculate the amount of the tax. A) $1 B) $2 C) $3 D) $4

C) $3

If a country has 5 percent real GDP growth and 5 percent population growth, how much per capita real GDP growth does it have? A) 5 percent B) 10 percent C) 0 percent D) 2.5 percent

C) 0 percent

If the price of Good Y falls from $10 to $8, and the quantity supplied of Good Y falls from 1,000 units to 600 units, the price elasticity of supply is: A) 2.67. B) -2.67. C) 2.25. D) -2.25.

C) 2.25

If businesses become less optimistic about the economy, which of the following best describes behavior in the loanable funds market? A) An increase in supply results in an increase in the interest rate. B) A decrease in supply results in a decrease in the interest rate. C) A decrease in demand results in a decrease in the interest rate. D) An increase in demand results in an increase in the interest rate.

C) A decrease in demand results in a decrease in the interest rate.

Which of the following best describes the role of banks in the loanable funds market? A) Banks own the supply of loanable funds and distribute them to borrowers. B) Banks act as a nonprofit middleman whose primary goal is to facilitate trade in the loanable funds market. C) Banks act as profit-seeking institutions, taking the supply of loanable funds from households and distributing them to borrowers. D) Banks are the primary demanders of loanable funds and thus have an important role in setting interest rates.

C) Banks act as profit-seeking institutions, taking the supply of loanable funds from households and distributing them to borrowers.

A price ceiling is a(n): A) legally established minimum price that can be charged for a good. B) illegally established minimum price that can be charged for a good. C) legally established maximum price that can be charged for a good. D) illegally established maximum price that can be charged for a good.

C) legally established maximum price that can be charged for a good.

(Table: iPhone and iPod Production) According to the table on iPhone and iPod Production, which of the following is TRUE about Canadian and U.S. comparative advantages? A) Canada has a comparative advantage in producing both iPhones and iPods. B) The United States has a comparative advantage in producing both iPhones and iPods. C) Canada has a comparative advantage in producing iPhones, and the United States has a comparative advantage in producing iPods. D) Canada has a comparative advantage in producing iPods, and the United States has a comparative advantage in producing iPhones.

C) Canada has a comparative advantage in producing iPhones, and the United States has a comparative advantage in producing iPods.

Twenty-two U.S. states prohibit the sale of raw (unpasteurized) milk. Consequently A) no raw milk is sold in those states. B) raw milk is unhealthy. C) GDP statistics understate true production because some people break the law and sell raw milk anyway. D) raw milk gets counted in GDP as part of government purchases.

C) GDP statistics understate true production because some people break the law and sell raw milk anyway.

Why do many consumers and politicians advocate for price controls? A) Price controls are the only way for the poor to obtain certain goods when prices rise. B) Most consumers and politicians do not advocate for price controls, as they understand their negative consequences. C) Price controls appear to be a straightforward response to the problem of price increases. D) The gains in consumer surplus typically outweigh the loss in producer profits.

C) Price controls appear to be a straightforward response to the problem of price increases.

Suppose a country without any international trade opens its borders to international trade. How will its location on its production possibility frontier change? A) The country moves from inside the PPF to on the PPF. B) The country moves from on the PPF to beyond the PPF. C) The country moves along the PPF toward its comparative advantage. D) The country moves along the PPF away from its comparative advantage.

C) The country moves along the PPF toward its comparative advantage.

Akemi, who is a Japanese citizen, works in the United States as a computer programmer. The value of her output is included in A) both U.S. and Japan's GDP. B) both U.S. and Japan's GNP. C) U.S. GDP and Japan's GNP. D) U.S. GNP and Japan's GDP.

C) U.S. GDP and Japan's GNP.

An increase in the investment rate results in A) a lower steady-state capital stock and a lower steady-state output. B) a lower steady-state capital stock but a higher steady-state output. C) a higher steady-state capital stock and a higher steady-state output. D) a higher steady-state capital stock but a lower steady-state output.

C) a higher steady-state capital stock and a higher steady-state output.

The consumption-smoothing theory implies that a country with a very low life expectancy has A) low consumption. B) high investment. C) a low savings rate. D) a high borrowing rate.

C) a low savings rate.

Rent controls are: A) an efficient and equitable way to help the poor. B) inefficient, but a pretty good way to solve a serious social problem. C) an inefficient way to help the poor in raising their standard of living. D) an efficient way to allocate housing.

C) an inefficient way to help the poor in raising their standard of living.

Mario buys eight units of good X when his income is $2,000 a month. When his income increases to $2,700 per month, he buys only six units of good X. For Mario, good X is: A) a normal good. B) an expensive good. C) an inferior good. D) a useless good.

C) an inferior good.

Financial intermediation can breakdown as a result of A) the government's granting property rights. B) free adjustments in the loanable funds market. C) bank panics. D) a high saving rate.

C) bank panics.

Which one of the following products would tend to have inelastic demand? A) luxury sedans B) candy C) crude oil

C) crude oil

GDP is the market value of all A) final goods and services produced by the permanent residents of a nation. B) final and intermediate goods and services produced in a nation. C) final goods and services produced within a country in a year. D) final and household goods produced within a country in a year.

C) final goods and services produced within a country in a year.

History has shown that one of the most effective tools against child labor is: A) regulations. B) laws. C) growth of adults' incomes. D) quotas.

C) growth of adults' incomes.

Countries that have greater levels of corruption and higher tax rates usually have A) no underground transactions. B) lower levels of underground transactions. C) higher levels of underground transactions. D) no formal economy at all.

C) higher levels of underground transactions.

As a city begins to rebuild after a hurricane destroys most of its physical capital, we would expect growth in this locale to be A) higher than average in both the short run and long run. B) lower than average in both the short run and long run. C) higher than average in the short run but return to normal levels in the long run. D) lower than average in the short run but eventually rise above average in the long run.

C) higher than average in the short run but return to normal levels in the long run.

If an economy follows a production function of the form Y = K^1/3 and the size of the capital stock doubles, then the level of output will A) also double. B) rise by a factor of one-third. C) increase by less than a factor of two. D) increase by a factor of three.

C) increase by less than a factor of two.

A wage subsidy will: A) reduce the wages received by workers. B) reduce the number of workers employed. C) increase the number of workers employed. D) increase the unemployment rate, especially among low-skilled workers.

C) increase the number of workers employed.

Taxes and quotas on imports can ______ jobs in the import industry and ________ jobs in export industries. A) decrease; increase B) increase; increase C) increase; decrease D) decrease; decrease

C) increase; decrease

Over the past 10,000 years, growth in per capita GDP has been A) decreasing. B) steady. C) increasing. D) changing indeterminately.

C) increasing.

Trade restrictions: A) help to save jobs in the protected industry, which causes these workers to spend more money in other industries, netting increased output and job opportunities throughout the economy. B) are a very inexpensive way of saving jobs, cheaper than job retraining programs. C) may save jobs in one industry but at a cost of less job growth in other industries. D) often have little support by politicians, media, and the public.

C) may save jobs in one industry but at a cost of less job growth in other industries.

Since the death of Chairman Mao in 1976, China has moved toward A) a more communist society. B) more communal manufacturing. C) more market-based production. D) a more closed economy.

C) more market-based production.

Which of the following is a final good and should be included in GDP? A) antivirus software preloaded on computers B) computer chips C) notebook computers D) monitors packaged with new desktops

C) notebook computers

Patents ______ spillovers. A) increase B) maintain C) reduce D) eliminate

C) reduce

For savers, the role of financial intermediaries is to A) earn more returns on their investments. B) ensure that all borrowers can fund their investments. C) reduce the default risk on money they save and lend. D) avoid taxes from income earned on investments.

C) reduce the default risk on money they save and lend.

(Figure: Price Ceiling) Refer to the figure. If a price ceiling were set at $12, there would be a: A) shortage of 50 units. B) surplus of 40 units. C) shortage of 0 units. D) surplus of 20 units.

C) shortage of 0 units.

Collateral is A) the first time a corporation sells stock to the public in order to raise capital. B) a sophisticated IOU that documents who owes how much and when payment must be made. C) something of value that by agreement becomes the property of the lender if the borrower defaults. D) the decrease in private consumption and investment that occurs when government borrows more.

C) something of value that by agreement becomes the property of the lender if the borrower defaults.

All of the following conditions would cause the demand curve for a good to be more elastic EXCEPT: A) a longer time horizon. B) the good is considered a luxury good. C) the price of the good falls. D) the good has many substitutes.

C) the price of the good falls.

If the price elasticity of supply is 0.75, then when the price of Good Y falls by 10 percent: A) the quantity supplied of Good X rises by 7.5 percent. B) the quantity supplied of Good X rises by 133 percent. C) the quantity supplied of Good X falls by 7.5 percent. D) the quantity supplied of Good X falls by 133 percent.

C) the quantity supplied of Good X falls by 7.5 percent.

Transfer payments are not included in GDP A) to show that they are money wasted by the government. B) because transfer payments are not taxed. C) to avoid double counting. D) because transfer payments do not affect the economy.

C) to avoid double counting.

Depreciation refers to the A) loss of capital because of technological change. B) underuse of capital because of a reduced workforce. C) wear and tear on capital through normal use. D) underuse of capital because jobs are lost to other countries.

C) wear and tear on capital through normal use.

In Colombia, it takes three workers to produce two pounds of coffee. In Mexico, it takes four workers to produce one pound of coffee. Therefore: A) Colombia has a comparative advantage in the production of coffee. B) Mexico has a comparative advantage in the production of coffee. C) in Colombia, the opportunity cost of producing one pound of coffee is two-thirds. D) Colombia has an absolute advantage in the production of coffee.

Colombia has an absolute advantage in the production of coffee.

(Figure: Foreign Trade) Refer to the figure. What is the dollar value of the producer surplus gained as a result of prohibiting trade in this market? A) $15,000 B) $30,000 C) $12,500 D) $22,500

D) $22,500

(Figure: Foreign Trade) Refer to the figure. What is the dollar value of the deadweight loss created as a result of prohibiting trade in this market? A) $2,500 B) $10,000 C) $7,500 D) $5,000

D) $5,000

(Table: iPhones) This table shows a country producing only iPhones. Its nominal GDP in 2010 is A) $9,000. B) $10,000. C) $10,800. D) $9,900.

D) $9,900.

With labor held constant, Y = F(K) = sqrt(K), 400 units of capital, and a depreciation rate of d = .05, how much capital will deteriorate in the next period? A) 4 B) 8 C) 16 D) 20

D) 20

Which of the following is TRUE about the economic policy of "protectionism"? A) It raises prices of foreign goods in domestic markets. B) It restricts competitive forces in domestic markets. C) It can be achieved through quotas and tariffs. D) All of these statements are correct.

D) All of these statements are correct.

Which of the following would NOT be included in GDP for the United States? A) Toyota, a Japanese car company, producing cars in the United States. B) an immigrant from Mexico working legally in the United States as a nanny for a U.S. family C) Chrysler manufacturing cars in the United States that are not sold during the production year D) Matt purchasing an antique desk for his new home office

D) Matt purchasing an antique desk for his new home office

(Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D1 and the initial supply curve is S1. If technological innovations lower the costs of production, what will happen? A) D1 will shift to D3 and equilibrium price and equilibrium quantity will increase. B) S1 will shift to S2 and equilibrium price will increase but equilibrium quantity will decrease. C) D1 will shift to D2 and equilibrium price and equilibrium quantity will decrease. D) S1 will shift to S3 and equilibrium price will decrease but equilibrium quantity will increase.

D) S1 will shift to S3 and equilibrium price will decrease but equilibrium quantity will increase.

Which of the following statements is TRUE regarding subsidies? A) A subsidy causes the value of goods to exceed the cost of producing the goods. B) A subsidy reduces deadweight loss of non-beneficial trade. C) A subsidy means that the sellers receive less than buyers pay. D) Suppliers receive more benefit of a subsidy if the elasticity of supply is less than the elasticity of demand.

D) Suppliers receive more benefit of a subsidy if the elasticity of supply is less than the elasticity of demand.

Suppose a doctor spends half of the year in the United States and the other half in Canada and works in both places. How does his production get allocated between U.S. and Canadian GDP? A) Half of the doctor's income counts toward U.S. GDP and half toward Canadian GDP. B) It depends on whether the doctor is a permanent resident of the United States or Canada. C) The full income gets counted in both U.S. and Canadian GDP. D) The value of the services produced in the United States gets counted in U.S. GDP, and the value of the services produced in Canada gets counted in Canadian GDP.

D) The value of the services produced in the United States gets counted in U.S. GDP, and the value of the services produced in Canada gets counted in Canadian GDP.

At a price $4 for Good X, a firm is willing to supply 1,400 units of X. For a price of $5 for Good X, the firm is willing to supply 1,500 units X. The change in revenue for the firm when the price of the good rises from $4 to $5 is a: A) $100 increase in total revenue. B) $1,500 increase in total revenue. C) $7,500 increase in total revenue. D) There is not enough information to answer the question.

D) There is not enough information to answer the question.

Which of the following would NOT be included in the calculation of GDP as an investment expenditure? A) A contractor purchases a new circular saw. B) Ford Motor Company builds a new manufacturing plant. C) A community college spends $200,000 to upgrade its computer labs. D) You purchase $5,000 in shares of Apple stock.

D) You purchase $5,000 in shares of Apple stock.

For a price floor to prevent market forces from finding the equilibrium price it must be set: A) above the equilibrium price, causing a market shortage. B) below the equilibrium price, causing a market shortage. C) below the equilibrium price, causing a market surplus. D) above the equilibrium price, causing a market surplus.

D) above the equilibrium price, causing a market surplus

The cost of negative externalities that harm the environment, such as pollution costs, A) negatively affect the level of GDP in an economy. B) include only the cost of cleanup in GDP. C)help to underestimate overall GDP. D) are not included in GDP.

D) are not included in GDP.

If gamma remains constant in the Solow model, then capital growth A) decreases. B) remains constant. C) increases. D) changes indeterminately depending on the behavior of delta.

D) changes indeterminately depending on the behavior of delta.

Among countries with similar steady-state levels of output, the tendency for poorer countries to grow faster than richer countries is called A) Solow growth. B) steady-state growth. C) dynamic growth. D) conditional convergence.

D) conditional convergence.

A perfectly elastic supply curve is: A) never feasible in reality. B) vertical. C) upward sloped. D) horizontal.

D) horizontal.

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) misallocated; uses

Trade A) decreases the number of jobs. B) increases the number of jobs. C) moves jobs from export industries to import-competing industries. D) moves jobs from import-competing industries to export industries.

D) moves jobs from import-competing industries to export industries.

The Bureau of Economic Analysis reports U.S. GDP A) once every 10 years. B) once a quarter only. C) once a year only. D) once a quarter and once a year.

D) once a quarter and once a year.

In the Solow growth model, human capital is the ______ education and (to) labor. A) difference between B) sum of C) ratio of D) product of

D) product of

In the market for loanable funds A) banks supply loanable funds and the government demands loanable funds. B) both savers and borrowers supply and demand loanable funds. C) savers demand loanable funds and borrowers supply loanable funds. D) savers supply loanable funds and borrowers demand loanable funds.

D) savers supply loanable funds and borrowers demand loanable funds.

Crowding-out is A) the first time a corporation sells stock to the public in order to raise capital. B) a sophisticated IOU that documents who owes how much and when payment must be made. C) something of value that by agreement becomes the property of the lender if the borrower defaults. D) the decrease in private consumption and investment that occurs when government borrows more.

D) the decrease in private consumption and investment that occurs when government borrows more.

The demand to borrow shows the relationship between borrowing and A) income. B) investment. C) age D) the interest rate.

D) the interest rate.

A profit-maximizing firm will invest in research and development as long as A) the social marginal benefit is greater than the marginal cost. B) it continues to increase revenues. C) it is subsidized by the government. D) the private marginal benefit is greater than the marginal cost.

D) the private marginal benefit is greater than the marginal cost.

Which of the following is NOT a reason individuals typically choose to save? A) to smooth their consumption over the life cycle B) to offset fluctuations in income C) as a way to transfer income from good times to bad times D) to increase investment

D) to increase investment

After adjusting for inflation, a comparison of the price of leg warmers reveals that the price of leg warmers was significantly higher in the 1980s than it is today. Which of the following can explain this? A) Jeans become preferable to leg warmers, decreasing the demand for leg warmers. B) Leg warmers were fashionable in the 1980s (fact), and hence the high demand drove prices up in the 1980s. C) An increase in the price of cotton used to make leg warmers has led to a decrease in the price of leg warmers today. D) The expected increase in the price of leg warmers has led to a decrease in the price of leg warmers today.

Jeans become preferable to leg warmers, decreasing the demand for leg warmers.

Which of the following best describes the principle of comparative advantage? A) Some people can produce the same good better than other producers can. B) Someone has the ability to produce the same good using fewer inputs than another producer. C) Someone has the ability to produce the same good for the lowest opportunity cost. D) To produce more of one good, people have to produce less of another good.

Someone has the ability to produce the same good for the lowest opportunity cost.

Which of the following best explains the term specialization with respect to trade? A) Specialization occurs when a people concentrate their productive resources on the goods and services they can produce most efficiently. B) Specialization occurs when one person can produce more of a particular good than another person. C) Specialization refers to the absolute advantage that a person enjoys in the production of goods and services. D) Specialization refers to the ability of a person to produce more of a good than his or her trading partners.

Specialization occurs when a people concentrate their productive resources on the goods and services they can produce most efficiently.

Which of the following is NOT true regarding the production possibilities frontier (PPF)? A) The PPF shows the combination of goods that a country can produce given its current productivity and supply of resources. B) The PPF illustrates the trade-offs that exist in the production of goods. C) The PPF shows that gains from trade are maximized when countries produce those goods for which they have the absolute advantage in production. D) The PPF illustrates the fundamental ideas of scarcity and opportunity cost.

The PPF shows that gains from trade are maximized when countries produce those goods for which they have the absolute advantage in production.

Suppose it is widely believed that the price of flat-screen, high-definition televisions will be lower next year. What will happen as a result of such beliefs? A) The demand for flat-screen TVs will increase now. B) The demand for flat-screen TVs will increase next year when the prices fall. C) The demand for flat-screen TVs will decrease now. D) The demand for flat-screen TVs will not change.

The demand for flat-screen TVs will decrease now.

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.

The equilibrium price decreases; the change in the equilibrium quantity is ambiguous.

A market can be described by the equations Qd = 50 - 3P and Qs = 2P. What are the equilibrium price and quantity in this market? A) The equilibrium price is $20 and the equilibrium quantity is 10 units. B) The equilibrium price is $50 and the equilibrium quantity is 100 units. C) The equilibrium price is $30 and the equilibrium quantity is 10 units. D) The equilibrium price is $10 and the equilibrium quantity is 20 units.

The equilibrium price is $10 and the equilibrium quantity is 20 units.

Suppose a famous baseball player, Giancarlo Stanton, 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 Giancarlo Stanton than for the high school student. B) The opportunity cost of painting a house is lower for Giancarlo Stanton than for the high school student. C) The opportunity cost of painting a house is the same for Giancarlo Stanton as for the high school student. D) The opportunity cost of painting a house is zero for Giancarlo Stanton and is negative for the high school student

The opportunity cost of painting a house is higher for Giancarlo Stanton than for the high school student.

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.

The price of Coke decreases.

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.

The supply curve will shift to the right, the equilibrium P will fall, and the equilibrium Q will rise.

What does the law of supply state? A) There is a positive relationship between price and quantity supplied. B) There is a negative relationship between price and quantity supplied. C) When prices rise, suppliers sell more. D) When prices rise, buyers buy less of the product.

There is a positive relationship between price and quantity supplied.

Which of the following is NOT a commonly recognized benefit of trade? A) Trade makes people better off when preferences differ. B) Trade creates the need for institutions such as the World Trade Organization. C) Trade increases productivity through specialization and the division of knowledge. D) Trade increases productivity through comparative advantage.

Trade creates the need for institutions such as the World Trade Organization.

Weather forecasters predict that a major winter storm will strike your town within the next few days. Which of the following would NOT occur based upon the expected storm? A) an increase in the demand for groceries B) a decrease in the supply of winter clothing C) an increase in the demand for gasoline and tire chains D) an increase in the supply of electric generators to the area

a decrease in the supply of winter clothing

Which of the following choices contains only factors that would cause a demand curve for a normal good to shift to the right? A) a rise in population, economic growth, a fall in the price of a substitute good B) a rise in preferences for the good, economic growth, and a rise in the price of a complementary good C) positive expectations for the economy, economic growth, a fall in the price of a complementary good D) a fall in population, economic growth, a rise in tastes and preferences for the product

a rise in preferences for the good, economic growth, and a rise in the price of a complementary good

When a surplus exists in a market, we know that the realized price is: A) above equilibrium price and quantity supplied is greater than quantity demanded. B) above equilibrium price and quantity demanded is greater than quantity supplied. C) below equilibrium price and quantity demanded is greater than quantity supplied. D) below equilibrium price and quantity supplied is greater than quantity demanded.

above equilibrium price and quantity supplied is greater than quantity demanded.

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.

absolute advantage

Which of the following would NOT lead to a decrease in the price of domestic automobiles? A) an increase in the price of foreign-made automobiles B) an economic recession, which decreases consumer income C) a decrease in the wages paid to union auto workers D) an increase in the number of domestic automakers

an increase in the price of foreign-made automobiles

The development of shipping containers enabled companies to move freight quickly between ships, trucks, and trains by loading a single large container with many different goods and then moving the container. Before the container, freight had to be loaded and unloaded one pallet, barrel, or box at a time. What impact did the shipping container have on globalization? Why? A) an increase, because it allowed faster spread of communication B) an increase, because it decreased transportation costs C) a decrease, because it caused many dock workers to lose their job D) a decrease, because it caused the amount of human cooperation to fall

an increase, because it decreased transportation costs

Mario buys eight units of good X when his income is $2,000 a month. When his income increases to $2,700 per month, he buys only six units of good X. For Mario, good X is: A) a normal good. B) an expensive good. C) an inferior good. D) a useless good.

an inferior good

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.

both the price and the quantity of the good

Which of the following does NOT shift the demand curve? A) changes in the product's price B) changes in income C) changes in population D) changes in tastes and preferences

changes in the product's price

If each of us had to grow our own food: A) civilization as we know it would collapse and billions of people would have much less food to eat. B) we would have more time for other pursuits. C) people would be richer since they would no longer have to spend money on groceries. D) the total amount of knowledge in society would increase since everyone would have to learn about farming.

civilization as we know it would collapse and billions of people would have much less food to eat

Adam Smith said, "It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor." Which of the following concepts best illustrates what Smith wanted to convey in this statement? A) comparative advantage B) incentives matter C) Scarcity D) production possibilities frontier

comparative advantage

Suppose that the equilibrium price in the market is $10. If the current market price is $7.50: A) the equilibrium price will fall to $7.50. B) competition among buyers will increase the current price. C) the current price will fall below $7.50 as sellers compete for market share. D) There is not enough information provided to answer the question.

competition among buyers will increase the current price

An early frost in the vineyards of Napa Valley would cause a(n): A) increase in the demand for wine, increasing price. B) increase in the supply of wine, decreasing price. C) decrease in the demand for wine, decreasing price. D) decrease in the supply of wine, increasing price.

decrease in the supply of wine, increasing price.

A decrease in income causes demand for a normal good to ________, and an increase in income causes demand for an inferior good to ________. A) decrease; decrease B) increase; increase C) decrease; increase D) increase; decrease

decrease; decrease

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.

demand for spaghetti will decrease shifting the demand curve to the left.

According to the theory of comparative advantage: A) every country can produce some good with a lower opportunity cost. B) every country should produce goods that involve high opportunity costs. C) some countries have a comparative advantage in producing every good. D) some countries should import every good from other countries.

every country can produce some good with a lower opportunity cost.

Immediately after a hurricane, it is likely that the quantity demanded for tree cutting/removal services will ______ the quantity supplied, causing the price of tree cutting/removal services to ______. A) equal; remain unchanged B) be less than; rise C) exceed; rise D) decrease; fall

exceed; rise

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.

increase if each country produces the good for which it has the lowest opportunity cost.

New research indicates that running marathons is actually bad for the heart (it increases inflammatory markers associated with heart attacks). This news will: A) lead to a decrease in the demand for running shoes. B) have no effect on the demand or supply of running shoes. C) increase the supply of running shoes. D) lead to an increase in the demand for running shoes.

lead to a decrease in the demand for running shoes.

According to the theory of comparative advantage, the reason wages and consumption are lower in China than in the United States is:

lower productivity in China

Division of knowledge refers to: A) dividing tasks into different subtasks and having one person perform all these subtasks. B) people learning different tasks for which they each have a comparative advantage. C) assigning one person to learn all the different ways to perform the same task. D) limiting what each person knows about another person.

people learning different tasks for which they each have a comparative advantage.

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

price of substitutes, tastes, price of complements

In the oil market, an increase in the wage of oil workers will: A) shift the supply curve of oil to the right. B) shift the supply curve of oil to the left. C) shift the demand curve for oil to the left. D) shift the demand curve for oil to the right.

shift the supply curve of oil to the left.

A government subsidy causes the: A) supply of the product to increase. B) supply of the product to decrease. C) supply curve to change slope. D) supply curve to shift up and to the left.

supply of the product to increase.

The production possibilities frontier shows: A) the combinations of outputs a country can produce given its resources and productivity. B) the combinations of inputs that a country has given its outputs and productivity. C) the combinations of outputs and resources that a country possesses given its productivity. D) the maximum level of a country's productivity given its resources and outputs.

the combinations of outputs a country can produce given its resources and productivity

In the early 1980s, movie rentals averaged $5 a night; by the early 1990s that average was $1 per night. This is an example of a supply curve shifter based on: A) a change in tastes and preferences. B) a decrease in the wages of workers in the video rental stores. C) an increase in the number of VRCs owned by consumers. D) the entry of new suppliers into the market.

the entry of new suppliers into the market.

Suppose that Country X is a high-cost producer of oil and Country Y is a low-cost producer of oil. The citizens of Country X use both oil produced in their own country as well as oil produced in Country Y. If the market price of oil decreases, oil production in Country X will _______, and the citizens of Country X will _________________. A) decrease; purchase a larger fraction of their oil from Country Y B) increase; purchase a larger fraction of their oil from Country X C) decrease; not change their consumption mix between imported and domestic oil D) increase; purchase a smaller fraction of their oil from Country Y

the entry of new suppliers into the market.

Gains from trade are maximized when: A) the market price is higher than the equilibrium price. B) the market price is less than the equilibrium price. C) the market price is equal to the equilibrium price. D) there are additional potential trades available that have not been completed.

the market price is equal to the equilibrium price.

The real cost of producing a good is: A) the dollar cost of inputs used to make the item. B) the opportunity cost of producing the good. C) the resources that were used to make the good. D) the dollar amount it costs to sell the good.

the opportunity cost of inputs into producing the good

The supply curve illustrates: A) that limited resources are available for society to use. B) the relationship between the quantity supplied and the price of a good. C) the total cost of producing a good. D) the willingness to produce a good if the technology to produce it becomes available.

the relationship between the quantity supplied and the price of a good.