Econ Exam
"The national debt is too large. The government must stop spending so much money." This statement is a. a normative statement. b. a positive statement. c. a testable hypothesis. d. both b and c.
A
All things constant, a decrease in bus, train, and airplane fares will a. shift the demand curve for automobiles to the left. b. cause a movement along the demand curve for automobiles. c. shift the demand curve for automobiles to the right. d. have no impact on the demand curve for automobiles.
A
An airline ticket from Seattle to Miami costs $525. A bus ticket is $325. Traveling by plane will take 5 hours, compared with 25 hours by bus. Thus, the plane costs $200 more but saves 20 hours of time. (Hint: Note how we are "thinking at the margin" here by looking at the changes.) Other things constant, an individual will gain by choosing air travel if, and only if, each hour of her time is valued at more than a. $10 per hour. b. $13 per hour. c. $20 per hour. d. $105 per hour.
A
An increase in the demand for a product will cause output to a. increase and both the demand for and prices of the resources used to produce the product to increase. b. increase and both the demand for and prices of the resources used to produce the product to decrease. c. decrease; the demand for the resources used to produce the product will remain constant. d. decrease; the price of resources used to produce the product will decrease.
A
Competitive behavior a. occurs as a reaction to scarcity. b. occurs only in a market system. c. occurs only when the government allocates goods and services. d. always generates waste.
A
Criteria of ideal economic efficiency requires that (I) all actions generating more social benefit than cost be undertaken and (II) no actions generating more social cost than social benefit be undertaken. a. Both I and II are true. b. Both I and II are false. c. I is true; II is false. d. II is true; I is false.
A
Driving your automobile in Los Angeles during the rush hour causes externalities because a. it adds congestion and pollution from auto exhaust, reducing the welfare of others. b. gasoline is scarce and you must pay for it. c. gasoline is a public good. d. your actions will benefit others even though you will be unable to charge them for the service.
A
During the imposition of price controls in the 1970s, long gasoline lines were common. In the absence of price controls, markets would have eliminated such excess demand by a. allowing the price to rise, so gas was rationed to those willing to pay the most for it. b. increasing the gap between supply and demand. c. allowing price to decline, so the poor could afford to buy more gas. d. mandating a 50-mile-per-hour speed limit to reduce consumption.
A
Economics is the study of how a. individuals make choices because of scarcity. b. to succeed in business. c. to make money in the stock market. d. the morals and values of people are formed.
A
If cigars and cigarettes are substitute goods, an increase in the price of cigars would result in a. an increase in the demand for cigarettes. b. a decrease in the price of cigarettes. c. a decrease in the demand for cigarettes. d. a decrease in the demand for cigars.
A
If there was an increase in the excise tax on beer, what would be the effect on the equilibrium price and quantity of beer? a. price increases, quantity decreases b. price decreases, quantity decreases c. price increases, quantity increases d. price decreases, quantity increases
A
In the mid-1940s, the marginal income tax rate in the top income tax bracket was 94 percent. In the 1960s, the top rate was lowered to 70 percent, and in the 1980s, the top rate was again lowered to 28 percent. The data show that as a result of these tax rate reductions, tax revenue (particularly from the rich) increased. This is consistent with the idea illustrated with the a. Laffer curve. b. production possibilities curve. c. supply of loanable funds curve. d. demand for unskilled labor curve.
A
Ken values his boat at $5,000, and Monica values it at $8,000. If Monica buys it from Ken for $7,000, which of the following is true? a. Ken gains $2,000 of value, and Monica gains $1,000 of value. b. Ken gains $7,000 of value, and Monica loses $7,000 of value. c. Ken gains $7,000 of value, and Monica gains $3,000 of value. d. Ken and Monica both gain $7,000 of value.
A
Middlemen, such as grocers, stockbrokers, and Realtors, a. specialize in reducing transactions costs. b. provide nothing of value to either the buyer or the seller. c. have no effect on economic output in society. d. do not exist in capitalist economies.
A
Suppose there is an increase in the excise tax imposed on cigarettes, a good for which the demand is relatively inelastic. The short-run burden of the tax increase will be borne primarily by a. consumers, because the increase in market price will be large relative to the increase in the excise tax. b. firms, because the increase in market price will be large relative to the increase in the excise tax. c. consumers, because the increase in market price will be small relative to the increase in the excise tax. d. firms, because the increase in market price will be small relative to the increase in the excise tax.
A
The Laffer curve illustrates the principle that a. when tax rates are quite high, reducing tax rates will increase tax revenue. b. when tax rates are quite low, reducing tax rates will increase tax revenue. c. when tax rates are quite high, reducing tax rates will decrease tax revenue. d. increasing tax rates always increases tax revenue.
A
The highest valued alternative that must be given up in order to choose an action is called its a. opportunity cost. b. utility. c. scarcity. d. ceteris paribus.
A
The law of comparative advantage suggests that a. individuals, states, and nations can all benefit if they trade with others. b. free trade among nations is harmful to an economy. c. each economy should strive to be self-sufficient. d. each country should attempt to produce roughly equal amounts of all goods.
A
The opportunity cost of choosing an alternative a. is the value of the highest valued alternative forgone as the result of the choice. b. includes only the amount of time spent on whatever is chosen. c. includes only the money cost of the option. d. is irrelevant for most choices individuals face.
A
Which of the following best describes the implications of the law of comparative advantage? If each person sells goods for which he or she has the greatest comparative advantage in production and buys those for which his or her comparative advantage is least, the a. total output available to each person can be expanded by specialization and exchange. b. total output will fall. c. buyers of goods will gain at the expense of sellers. d. sellers of goods will gain at the expense of buyers.
A
Which of the following would be a protective function of government? a. providing national defense b. welfare programs and income redistribution c. mail delivery d. all of the above
A
Which of the following would be most likely to cause the demand for Miller beer to increase? a. an increase in the price of Budweiser beer b. a decrease in consumer income c. a decrease in the price of barley used to make Miller beer d. a decrease in the price of Miller beer
A
Which of the following would be the best example of consumer surplus? a. Jane pays $30 a month for phone service even though it is worth $70 to her. b. Sam refuses to pay $10 for a haircut because it is only worth $8 to him. c. Fred buys a car for $4,000, the maximum amount that he would be willing to pay for it. d. When Sue purchases a candy bar for $.50, she uses a $20 bill to pay for it.
A
Which of the following would most likely decrease the price of beef? a. lower prices of grains used to produce cattle feed b. higher prices for chicken, a substitute for beef c. a cow disease that destroys millions of cattle (and makes their meat unfit for consumption) before they are ready for market d. an increase in consumer income
A
A legal minimum wage is an example of a. the invisible hand principle. b. a price floor. c. a price ceiling. d. a fringe benefit.
B
Falling consumer income from the recent recession has hurt automakers in more ways than one. Not only have sales of new cars fallen, but car prices have fallen as well. As a result, the major automakers have announced cutbacks in production and layoffs of workers." Which of the following places these statements in the proper economic terminology within the context of the supply and demand model? [Note: It may help to graph this first.] a. a decrease in demand and a decrease in supply b. a decrease in demand and a decrease in quantity supplied c. a decrease in quantity demanded and a decrease in quantity supplied d. a decrease in quantity demanded and a decrease in supply
B
If I didn't have a date tonight, I would save $10 and spend the evening playing tennis." The opportunity cost of the date is a. the other things that could be purchased with the $10. b. the other things that could be purchased with the $10 plus the forgone value of a night of tennis. c. dependent upon how pleasant a time one has on the date. d. the forgone value of a night of tennis.
B
If Susan bought nine gallons of gasoline at $1.50 per gallon, the car wash cost $1, but if she bought 10 gallons of gasoline, the car wash was free. Given that Susan is going to get the car wash, the marginal cost of the tenth gallon of gasoline is a. zero. b. $.50. c. $1.00.
B
If coffee and cream are complements, a decrease in the price of coffee will cause a. the demand for cream to decrease. b. the demand for cream to increase. c. the demand for coffee to increase. d. no change in the demand for cream; only quantity demanded would be affected.
B
If the market price is above the equilibrium price, there will be a tendency for price to decrease, causing a. the quantity demanded to decrease and the quantity supplied to increase until they are equal. b. the quantity demanded to increase and the quantity supplied to decrease until they are equal. c. both quantity demanded and quantity supplied to decrease until they are equal. d. both quantity demanded and quantity supplied to increase until they are equal.
B
In economics, the benefit (or satisfaction) that an individual gets from an activity is called a. scarcity. b. utility. c. opportunity cost. d. ceteris paribus.
B
In economics, the statement, "There is no such thing as a free lunch," refers to which of the following? a. Individuals must always pay personally for the lunch they consume. b. Production of a good requires the use of scarce resources regardless of whether it is supplied free to the consumers. c. Restaurant owners would never give away free lunches.
B
It is difficult for the market process to provide public goods because a. private firms generally cannot undertake large-scale projects. b. it will be difficult to get potential consumers to pay for such goods because there is not a direct link between payment for and receipt of the good. c. consumers do not really want public goods, even though such goods are best for them. d. individuals are generally made worse off by the production of public goods.
B
Positive economics differs from normative economics in that a. positive economics deals with how people react to changes in benefits, and normative economics deals with how people react to changes in costs. b. positive economic statements are testable, and normative statements are not. c. positive economic statements tell us what we should be doing, and normative economics tells us what we should have done. d. positive economic statements focus on the application of the theory, and normative economic statements are theoretical.
B
The deadweight loss resulting from levying a tax on an economic activity is a. the tax revenue directed to the government as the result of the tax. b. the loss of potential gains from trade from activities forgone because of the tax. c. the increase in the price of an activity as the result of the tax levied on it. d. the marginal benefits derived from the expansion in government activities made possible by the increase in tax revenues.
B
The market pricing system corrects an excess supply by a. raising the product price and increasing producer profits. b. lowering the product price and decreasing producer profits. c. raising the product price and decreasing producer profits. d. lowering the product price and increasing producer profits.
B
The more elastic the supply of a product, the more likely it is that the burden of a tax will a. fall on sellers. b. fall on buyers. c. fall equally on both buyers and sellers. d. be borne by the public sector, and not by market participants.
B
The owners of private property will a. use their property for selfish ends, taking no account of the impact their behavior has on others. b. use their property in ways that others value because the market will generally reward them with profits (or a higher selling price) if they do so. c. find very little incentive to take care of the property or conserve it for the future. d. lose profits when they take the wishes of others into consideration.
B
The problem created when it is difficult to exclude nonpaying customers is called the a. consumption-payment link problem. b. free-rider problem. c. public sector dilemma. d. asymmetric information problem.
B
When Adam Smith said economic activity was directed by an "invisible hand," he was referring to the fact that a. competitive markets motivate altruistic individuals to pursue productive activities that only serve their private interests. b. when economic activity is directed by competitive markets, the actions of self-interested individuals will generally serve the public interest. c. invisible forces will lead to economic chaos unless wise central planning directs economic activity. d. scarcity is largely the result of invisible forces that would be eliminated if individuals were free to pursue their own self-interests.
B
When an economy is operating efficiently, the production of more of one good will result in the production of less of some other good because a. consumers do not want more of both goods. b. resources are limited (scarce) and efficiency implies that all are already in use. c. the production possibilities curve shifts inward as more of one good is produced. d. technological improvement can only improve the production of a single good.
B
When collective decision making (the political process) is used to resolve economic questions regarding the allocation of resources, a. decentralized decision making is present. b. central planning and political bargaining will replace market forces. c. individual preferences are of no importance. d. economic equality will result.
B
Which of the following "goods" is the best example of a pure public good? a. highways b. national defense c. mail delivery d. welfare programs
B
Which of the following are the four major factors that may undermine the ability of the invisible hand to produce market efficiency? a. externalities, private goods, poorly informed buyers or sellers, lack of competition b. public goods, externalities, lack of competition, poorly informed buyers or sellers c. competition, poorly informed buyers or sellers, externalities, public goods d. public goods, lack of competition, well-informed buyers and sellers, externalities
B
Which of the following is not scarce? a. an individual's time b. air c. pencils d. automobiles
B
Which of the following is true? a. Scarcity and poverty are basically the same thing. b. Poverty implies that some basic level of need has not been attained. c. Scarcity is the result of prices being set too high. d. All of the above are true.
B. Poverty implies that some basic level of need has not been attained.
A decrease in the price of flour will shift the supply curve for donuts a. leftward, causing the equilibrium price to increase and quantity to decrease. b. leftward, causing the equilibrium price and quantity to decrease. c. rightward, causing the equilibrium price to decrease and equilibrium quantity to increase. d. rightward, causing the equilibrium price and quantity to increase.
C
A decrease in the supply of a good will a. decrease the demand for the good. b. cause the price of the good to fall. c. lead to an increase in the price of the good. d. increase the quantity of the good bought and sold.
C
A freeze in Florida devastates the orange crop at the same time a new study is released showing the health benefits of vitamin C (leading consumers to want to buy more orange juice). How will the equilibrium price and quantity of orange juice change in response to the combination of these two events? a. Equilibrium quantity will decrease, equilibrium price will increase. b. Equilibrium price will decrease, the effect on quantity is ambiguous. c. Equilibrium price will increase, the effect on quantity is ambiguous. d. Equilibrium quantity will increase, the effect on price is ambiguous.
C
Currently, federal and state gasoline taxes (imposed statutorily on the sellers of gasoline) amount to about $.45 per gallon. Suppose the current price of gasoline is $1.20 per gallon, and that if the tax was not in place, the price would be only $.80. a. The full incidence of the tax is falling on consumers. b. The full incidence of the tax is falling on suppliers. c. A $.05 burden is being borne by sellers and $.40 by consumers. d. A $.05 burden is being borne by consumers and $.40 by sellers.
C
If gasoline were taxed, the price of gasoline would rise. Consequently, the demand for gasoline would fall, causing the price to fall to the original level." This statement is a. essentially correct. b. incorrect--after the demand falls, the price would fall but to some level higher than the original level. c. incorrect--demand and quantity demanded are confused. The price increase would reduce quantity demanded, not demand. d. incorrect--after the demand falls, the price would fall but to some level lower than the original level.
C
If the demand for a good increases, which of the following will generally occur in a market setting? a. The price of the good will decrease. b. The supply of the good will increase. c. The quantity supplied will increase. d. Producer profits will fall.
C
If the demand for beer increased, what would be the effect on the equilibrium price and quantity of beer? a. price increases, quantity decreases b. price decreases, quantity decreases c. price increases, quantity increases d. price decreases, quantity increases
C
John advertises his used car for $3,000 in the newspaper. He would be willing to sell his used car for as low as $2,000. He is offered $2,600 for it from a buyer and accepts it. In this trade, John receives a. producer surplus of $3,000. b. producer surplus of $2,600. c. producer surplus of $600. d. consumer surplus of $400.
C
Over the past 20 years both the quantity of health care provided and health care prices have been rising rapidly. Economic theory would suggest that the observed data could best be explained as a. an increase in supply, while demand remained relatively constant. b. a decrease in both supply and demand. c. an increase in demand, while supply remained relatively constant. d. a sharp increase in both supply and demand.
C
The English philosopher John Locke argued that a. only when we think about both marginal benefits and marginal costs can we realize there are alternate ways of pursuing objectives. b. there should be a protective function and a productive function of government. c. people own themselves as well as the fruits of their labor and thus the role of government is to protect these natural rights of individuals. d. Competition is vital to the proper operation of the pricing mechanism.
C
The absence of well-defined and enforceable private property rights often a. causes people to work together for the common good. b. improves society because it avoids the selfish actions of private property owners. c. causes difficulties for society due to externalities. d. brings about efficiency by providing incentives to conserve resources.
C
The basic difference between macroeconomics and microeconomics is that a. macroeconomics looks at how people make choices, and microeconomics looks at why they make those choices. b. macroeconomics is concerned with economic policy, and microeconomics is concerned with economic theory. c. macroeconomics focuses on the aggregate economy, and microeconomics focuses on small components of that economy. d. macroeconomics is associated with the fallacy of composition, and microeconomics has little to do with the fallacy of composition.
C
The opportunity cost to the United States of placing a man on the moon was a. the loss of government revenues that were allocated to the mission. b. the cost of all production involved in the space program. c. the loss of utility from the highest valued bundle of products that had to be forgone because of the moon mission. d. less than zero, because the long-run benefit of the project will be greater than the cost.
C
When Benjamin Franklin wrote, "Remember that time is money!" he understood a. the incentives created by property rights. b. the law of comparative advantage. c. the concept of opportunity cost. d. that watches cost money.
C
When an economist states a good is scarce, she means that a. production cannot expand the availability of the good. b. it is rare. c. desire for the good exceeds the amount that is freely available from nature. d. people would want to purchase more of the good at any price.
C
When economists use the term ceteris paribus, they indicate a. the causal relationship between two economic variables cannot be determined. b. the analysis is true for the individual but not for the economy as a whole. c. all other factors are assumed to be constant. d. their conclusions are based on normative economics rather than positive economic analysis.
C
When resources are being used wastefully or inefficiently, the a. production possibilities curve shifts inward. b. production possibilities curve shifts outward. c. economy is operating at a point inside its production possibilities constraint. d. economy is operating at a point outside its production possibilities constraint.
C
Which of the following correctly describes an external benefit resulting from an individual's purchase of a winter flu shot? a. The flu shot is cheaper than the cost of treatment when you get the flu. b. The income of doctors increases when you get the flu shot. c. The flu shot reduces the likelihood of others catching the flu. d. The flu shot reduces the likelihood you will miss work as the result of sickness; therefore, you will earn more income.
C
Which of the following is a guidepost to economic thinking? a. The value of a good can be objectively measured. b. Individuals should never make a decision without having complete information. c. Incentives matter. d. Goods are scarce for the poor but not for the rich.
C
Which of the following is a positive economic statement? a. The federal minimum wage should be raised to $6.50 per hour. b. The United States spends too much on national defense. c. Higher rates of investment lead to higher rates of economic growth. d. Economics is more interesting to study than history.
C
Which of the following is a transaction cost? a. price of a ticket to a concert b. price of food eaten before a concert c. time spent standing in line to buy the ticket d. price of a T-shirt at the concert
C
Which of the following is a true statement regarding the economic impact of a subsidy? a. The distribution of the benefits from a subsidy will depend on whether the subsidy is legally granted to the buyer or seller. b. When demand is relatively inelastic, the benefits of a subsidy will mainly accrue to sellers. c. When supply is relatively elastic, the benefits of a subsidy will mainly accrue to buyers. d. When demand is relatively elastic, the benefits of a subsidy will mainly accrue to buyers.
C
Which of the following represents a normative statement? a. Incentives matter. b. The temperature in this room is 120 degrees. c. It is too hot in this room. d. People will buy less butter at $1.50 per pound than they will at $1.00 per pound.
C
With a price ceiling above the equilibrium price, a. quantity demanded would exceed quantity supplied. b. quantity supplied would exceed quantity demanded. c. the market would be in equilibrium. d. the equilibrium price would be expected to fall over time.
C
"If income were redistributed in favor of the poor, we would eliminate scarcity." The preceding statement is a. essentially correct. b. incorrect because scarcity has already been eliminated among the poor in wealthy countries such as the United States. c. incorrect; it fails to recognize that poverty will be present as long as resources are scarce. d. incorrect; it confuses the elimination of poverty with the elimination of the constraint imposed by scarcity.
D
A form of economic organization that relies primarily on private ownership of productive assets, freedom of exchange, and market prices to allocate goods and resources is often called a. national socialism. b. the welfare state. c. a corporate economy. d. capitalism.
D
A hurricane damaged much of the housing in Miami. Shortly thereafter, the price of plywood rose significantly. The events suggest that a. a decrease in the supply of plywood caused the price of plywood to rise. b. an increase in the supply of plywood caused the price of plywood to rise. c. a decrease in the demand for plywood caused the price of plywood to rise. d. an increase in the demand for plywood caused the price of plywood to rise.
D
According to the law of supply, as the price of a good decreases a. buyers will buy more of the good. b. sellers will produce more of the good. c. buyers will buy less of the good. d. sellers will produce less of the good.
D
An income tax is regressive if a. the tax liability of high-income recipients exceeds the tax liability of those with low incomes. b. the tax liability of high-income recipients is less than the tax liability of those with low incomes. c. high-income recipients pay a higher percentage of their incomes in taxes than those with low incomes. d. high-income recipients pay a lower percentage of their incomes in taxes than those whose incomes are low.
D
Because illegal drug markets operate outside the legal system, a. the quality of these drugs has increased. b. the sellers of illegal drugs earn less money. c. there is less violence in these markets than if they were legal. d. none of the above.
D
Both price floors and price ceilings, when effective, lead to a. shortages. b. surpluses. c. an increase in the quantity traded. d. a reduction in the quantity traded.
D
Consider two goods--one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce too a. much of both goods. b. little of both goods. c. much of the good that generates external benefits and too little of the good that generates external cost. d. little of the good that generates external benefits and too much of the good that generates the external cost.
D
Economic efficiency requires that a. individuals take all actions within their power. b. only long-lasting, high-quality products be produced. c. income be distributed equally among individuals. d. all economic activity generating more benefits than costs to individuals in the economy be undertaken.
D
General agreement exists that the legitimate economic functions of government include a. protection against invasions from a foreign power. b. provision of goods that cannot easily be provided through markets. c. the maintenance of a framework of rules within which people can interact peacefully with one another. d. all of the above.
D
If an economy operates at point A on the production possibilities curve shown in Figure 2-7, a. to produce more food, it would have to reduce its production of clothing. b. to produce more clothing, it would have to reduce the production of food. c. it is operating efficiently. d. all of the above would be correct.
D
If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market? a. an increase in demand for unskilled labor b. a decrease in the supply of unskilled labor c. a shortage of unskilled labor d. a surplus of unskilled labor
D
If the price of tickets to the World Series were set below the equilibrium price, a. the quantity demanded would be smaller than the quantity supplied. b. the demand for World Series tickets would be highly responsive to the price. c. there would be no transactions between buyers and sellers of the tickets. d. the number of persons seeking to obtain tickets to World Series games would be greater than the number of tickets available.
D
Keri decided to sleep in today rather than attend her 9 a.m. economics class. According to economic analysis, her choice was a. irrational, because economic analysis suggests you should always attend classes that you have already paid for. b. irrational, because oversleeping is not in Keri's self-interest. c. rational if Keri has not missed any other classes. d. rational if Keri values sleep more highly than the benefit she expects to receive from attending the class.
D
New products provide a classic case of the consumer information problem. However, in some cases consumers partially solve the problem by trusting the "brand name" of the producer of the new product. Because firms spend millions of dollars advertising and maintaining their brand names, the likelihood of a "brand name" firm intentionally selling a dangerous or shoddy new product is a. high because big firms are always after a quick dollar. b. high because their brand name is a communal property right. c. low because big firms do not make mistakes. d. low because the firm with a brand name has a lot to lose if word spreads about bad consumer experiences.
D
People make decisions at the margin. Thus, when deciding whether to purchase a second car, they would compare a. the total benefits expected from two cars with the costs of the two cars. b. the additional benefits expected from a second car with the total cost of the two cars. c. the dollar cost of the two cars with the potential income that the two cars will generate. d. the additional benefits of the second car with the additional costs of the second car.
D
Private property rights exist when property rights are a. exclusively controlled by the owner or owners. b. transferable to others. c. protected by legal enforcement. d. all of the above.
D
Rent controls generally fix the price of rental housing below market equilibrium. Economic analysis suggests these controls a. are effective in helping the poor find housing. b. improve the quality of housing available to consumers. c. create a surplus of rental housing. d. reduce the future supply of rental housing.
D
The height of the demand curve for a commodity indicates the maximum amount the consumer would be willing to pay for each unit of the good. (II) The height of the supply curve for a commodity indicates the minimum price the seller would accept for each unit of the good. a. I is true; II is false. b. I is false; II is true. c. Both I and II are false. d. Both I and II are true.
D
The major distinction between private and public goods is that a. private goods are goods produced by private firms whereas public goods are goods produced by government--the public sector. b. unlike private goods, public goods are nonexcludable--it is difficult or impossible to prevent nonpaying customers from receiving the good. c. unlike private goods, public goods are nonrival in consumption--the consumption of a unit by one person does not detract from the amount available to others. d. both b and c are correct.
D
When economists say an individual displays economizing behavior, they simply mean that the individual is a. making a lot of money. b. purchasing only those products that are cheap and of low quality. c. learning how to run a business more effectively. d. making choices to gain the maximum benefit at the least possible cost.
D
When the price of a good is legally set below the equilibrium level, a shortage often results. This shortage a. is a temporary failure of the market mechanism. b. is the result of a shift in demand. c. is the result of a shift in supply. d. occurs because the price ceiling prevents the market mechanism from establishing an equilibrium price.
D
Which of the following actions is consistent with the basic economic postulate (the guidepost) that incentives matter? a. Consumers buy fewer potatoes when the price of potatoes increases. b. A politician votes against a pay raise for himself because most of his constituents are strongly opposed to it and would vote against him in the next election. c. Farmers produce less corn because corn prices have declined. d. All of the above.
D
Which of the following activities is least likely to give rise to external costs or benefits? a. spraying to control mosquitos in your backyard b. driving one's car during rush hour c. inoculating your children during a flu epidemic d. buying a hamburger and eating it for lunch
D
Which of the following are ways in which the private market provides consumers with valuable information to help them make better decisions? a. brand names b. franchising c. private sector certification firms and consumer report magazines d. all of the above
D
Which of the following is not one of the basic economic questions that all economies must answer? a. What will be produced? b. To whom will the goods produced be allocated? c. How will goods be produced? d. Which government agency will set the prices of the goods produced?
D
Which of the following would allow the production possibilities curve for an economy to shift outward? a. a better social organization of economic activity, such as conversion from socialism to capitalism b. an increase in the labor force or resource base c. more investment leading to better technology and more innovation d. all of the above
D
Which of the following would cause the price of automobiles to rise? a. a decrease in the wages of autoworkers b. a reduction in the price of bus travel c. an increase in the price of gasoline d. an increase in consumer income
D
Which of the following would most likely cause the current demand for DVD players to fall? a. an increase in consumer income b. an increase in the price of DVD players c. an increase in the price of Blu-ray players, a substitute good d. the expectation that the price of DVD players will decrease sharply during the next six months
D
Which one of the following would reduce the efficiency of the market process? a. promoting competitive markets b. protecting persons from fraud and theft c. providing a stable monetary environment d. protecting consumers by imposing legally mandated price ceilings
D
