Micro Econ Old Test Questions Plus Practice Exam Questions

Karl values Word at $100 and Excel at $40, and Adam values Word at $20 and Excel at $90. Assume MC=0. How much more does the seller make if it bundles than if it sells the products individually? $10 $20 $30 $40

$30

If the price of cabbage falls by 2 percent and quantity supplied falls by 6 percent, the elasticity of supply is ______ , so supply is ______. 1)3.0, elastic 2)0.33; inelastic 3)0.33; elastic 4)3.0; inelastic

1) 3.0, elastic

How is the unemployment rate related to the opportunity cost of college? 1) As the unemployment rate increases, the opportunity cost of attending college falls because fewer opportunities for employment exist. 2) As the unemployment rate decreases, the opportunity cost of attending college falls as it becomes easier to pay for tuition when employed. 3) As the unemployment rate increases, the opportunity cost of attending college increases because fewer people are giving up the opportunity of working to attend college. 4) As the unemployment rate increases, the opportunity cost of attending college increases because more people are giving up the opportunity of working to attend college.

1) As the unemployment rate increases, the opportunity cost of attending college falls because fewer opportunities for employment exist.

Which of the following increases the contestability of a market? I. low fixed costs of entry II. no legal barriers to entry III. consumers are willing to try substitute goods 1)I, II, and III 2)II and III only 3)I only 4)II only

1) I, II, and III

In March 2002, President George W. Bush placed a tariff on imported steel. Assuming the domestic demand for steel did not change, did this tariff affect the domestic market for steel in the short run? Choose the best answer. 1) If domestic supply was inelastic, the price of steel increased by more than the quantity of domestic steel produced. 2) If domestic supply was elastic, the price of steel increased by more than the quantity of domestic steel produced. 3) If domestic supply was elastic, the price of steel increased by more than the quantity of foreign steel sold domestically. 4) If domestic supply was unit elastic, there was no change in price or quantity after the tariff was put in place.

1) If domestic supply was inelastic, the price of steel increased by more than the quantity of domestic steel produced.

For the better part of a decade, Sony and Toshiba were engaged in a standards war over whether Blu-Ray or HD-DVD standards would dominate the market digital home entertainment. Recently, Warner Brothers announced it would only produce movies for Blu-Ray, prompting Toshiba to end production of HD-DVD machines. What happens to the markets for Blu-Ray discs and machines if many consumers subscribe to online movie streaming services from Netflix and Amazon which increasingly offer consumers a greater abundance of choices? 1) Online streaming represents a new standard for delivering HD digital movies to consumers. Demand for Blu-Ray discs and machines will fall. 2) It is impossible to tell whether demand for Blu-Ray discs and machines will change because of this phenomenon. 3) People will forego purchasing new machines, but those that have machines will still buy Blu-Ray discs at the same rates as before. 4) Online streaming represents a new standard for delivering HD digital movies to consumers. Demand for Blu-Ray discs will be unchanged and demand for machines will fall.

1) Online streaming represents a new standard for delivering HD digital movies to consumers. Demand for Blu- Ray discs and machines will fall

During World War II, natural rubber (from rubber trees) became extremely scarce. Some even feared its complete exhaustion. The development of synthetic rubber staved off this doomsday scenario. Explain why, just when the Allies needed it most, this turn in good fortune was likely not a coincidence. 1)Scarcity raised the price of natural rubber, creating the incentive to invent a substitute. 2)The opportunity cost of planting more rubber trees was high. 3)They lacked the incentive to create higher-producing natural rubber trees. 4)Natural rubber went out of fashion because of the superior quality of synthetic rubber.

1) Scarcity raised the price of natural rubber, creating the incentive to invent a substitute

What economic consequences do tariffs and import quotas have on the domestic economy? Choose the best answer. 1) When trade is restricted, prices increase because domestic producers with higher marginal costs increase production, so resources that could have been used to produce other goods are inefficiently allocated. 2) When trade is restricted, prices increase because domestic producers with higher marginal costs employ more domestic workers. Since domestic workers are consumers, domestic consumers are better off. 3) When trade is restricted, prices increase because domestic producers must employ domestic workers who command higher wages than foreign workers. This results in a loss to domestic producer surplus, but a greater gain to domestic consumer surplus since domestic workers are consumers. 4) B and C

1) When trade is restricted, prices increase because domestic producers with higher marginal costs increase production, so resources that could have been used to produce other goods are inefficiently allocated.

Is it possible for a tax to raise no revenue and still produce a deadweight loss? Why? 1) Yes. If the quantity traded after tax is 0, then the tax will produce a deadweight loss and raise no revenue. 2) No. All taxes raise government revenue. 3) No. If a tax raises no revenue then a deadweight loss to the market is mathematically impossible. 4) Yes. When supply or demand is perfectly inelastic, Tax Revenue = 0, while DWL > 0.

1) Yes. If the quantity traded after tax is 0, then the tax will produce a deadweight loss and raise no revenue

Suppose all students received the average grade on exams, regardless of how well each person did. What is the most likely grade each student will get? (Assume a very large class and that students are aware of this policy prior to taking the exam.) 1)a much lower grade than they would get under conventional grading 2)about what they would get under conventional grading 3)a higher grade than what they would get under conventional grading 4)a slightly lower grade than what they would get under conventional grading

1) a much lower grade than they would get under conventional grading

The major difference between active and passive mutual funds is that: 1) active funds involve stock picks by managers, while passive funds simply attempt to match the movements of a broad market index. 2) active funds involve stock picks by managers, while passive funds involve stock picks by the investors themselves. 3) active funds are more risky than passive funds. 4) active funds are classed as mutual funds, but passive funds are not.

1) active funds involve stock picks by managers, while passive funds simply attempt to match the movements of a broad market index

The efficient market hypothesis is the idea that 1)asset prices represent all publically available information. 2)stock values revert to their historical mean values. 3)the prices of assets are systemically biased, allowing savvy investors to make above-market returns by exploiting the efficiency losses. 4) stock buyers are more likely to assess financial information more efficiently than the sellers of stocks.

1) asset prices represent all publicly available information

Ignorance is irrational when the benefits of being informed are: 1)greater than the costs of becoming informed. 2)less than the costs of becoming informed. 3)equal to the costs of becoming informed. 4)likely to be quite large but information is costless.

1) greater than the cost of being informed

If antibiotic users get all the benefits of antibiotics but do not bear all of the costs, the social marginal cost of antibiotic use at the market equilibrium will be: 1)higher than the marginal cost to antibiotic sellers. 2)less than the marginal cost to antibiotic sellers. 3)lower than the marginal benefit to the antibiotic buyers. 4)less than the marginal benefit to the antibiotic buyers.

1) higher than the marginal cost to the antibiotic sellers

If the demand curve for Pfizer's Norvasc, a blood pressure medication, is more elastic in Mexico than it is in the United States, how could Pfizer use this information to maximize their profits? 1) They could divide the markets and charge a lower price for Norvasc in Mexico than in the United States. 2) They could divide the markets and charge a higher price for Norvasc in Mexico than in the United States. 3) Since Mexico is a poorer country than the United States, in this situation it makes more sense for Pfizer to charge only one price in both countries. 4) They could choose to sell Norvasc only in the United States.

1) they could divide the markets and change a lower price for Norvasc in Mexico than in the United States

When price clears the market and quantity supplied equals quantity demanded, gains from trade are maximized. This is because: 1) Willingness to pay equals marginal cost on the last unit produced. 2) Total costs equal total willingness to pay. 3) Consumer surplus equals producer surplus. 4) Average willingness to pay equals average cost.

1) willingness to pay equals marginal cost on the last unit produced.

Suppose you invest $1,000 in a mutual fund. If the annual return of that fund is 5 percent, what is the minimum number of years it will take for your fund to be worth at least $2,000? 1)10 years 2)15 years 3)20 years 4)never

15 years

Suppose the elasticity of demand for water is 0, and the elasticity of supply is 1.2. The equilibrium price of water is $4 per thousand gallons, and the equilibrium quantity is 100 thousand gallons. If the government imposes a $1 per thousand gallon tax on water, what is the after-tax market quantity and the value of the deadweight loss? 1) 80 thousand; $10 2) 100 thousand; $0 3) 90 thousand; $5 4) Not enough information because we don't know the shape of the supply and demand curves.

2) 100 thousand; $0

Which of the following best describes how changes in gas prices affect supply and demand for electric cars? 1) Both supply and demand will change 2) Demand will change, and the effect on supply is indeterminate. 3) Supply will change, and the effect on demand is indeterminate. 4) Supply will change only if demand changes first.

2) Demand will change, and the effect on supply is indeterminate.

Which of the following statements are examples of positive economics? I. The government should subsidize cell phones in order to give people access to 911 emergency services. II. As a result of the dissolution of OPEC, oil production will increase and oil prices will fall. III. They keystone XL pipeline is bad for the environment, so alternative energy sources should be pursued. IV. Demand for Ramen noodles probably decreases as income increases, so Ramen is an inferior good. 1) II only 2) II and IV only 3) III and IV 4) I, II, III, IV

2) II and IV only

Joe is a janitor at a local office park. He used to get paid $15/hour, and was always working overtime. Then one day Joe received a raise to $28/hour. Now Joe works less. Which of the following best describes this phenomenon? 1) Joe is irrational. 2) Joe has a backward-bending labor supply curve. 3) Joe is an investment in human capital. Paying him more makes him better off. 4) The principle of compensating differentials.

2) Joe has a backward bending labor supply curve

Which of the following individuals is using information outside the efficient markets hypothesis? 1) Gaylord has information about the aging population of the United States and thus expects stock for companies that sell goods for senior citizens to increase in value. 2) Martina, discovering that the company she is auditing has not been honest in its profit estimations, realizes that once this information becomes public the stock will nose-dive and so she sells her stock in the company. 3) Alex hears a rumor that a top bank may be in trouble, and decides to sell his stock in that company. 4) Mufasa reads in the newspaper that there will be a merger between two profitable newspapers and expects the stock prices for these companies to rise.

2) Martina, discovering that the company she is auditing has not been honest in its profits estimations, realizing that once this information has become public the stock will nose-dive and so she sells her stocks in the company

If your economics class was graded on a curve and everyone agrees to study only half as much, everyone would get the same grade that they otherwise would earn. You, however, will earn an A if you study more than the others, a C if you study the same amount as others, and an F if everyone else studies more than you. You don't like studying, but you'd rather study and get an A than get a C without studying, or study and get a C than get an F without studying. All the students in your class get together and agree not to study, but have no way of verifying if anyone does study. Do you think that this cartel will succeed? 1)Yes, everyone will probably cut back on their studying. 2)No, some (and maybe all) participants will cheat on the agreement. 3)It depends on the professor. 4)This situation is not like a cartel.

2) No, some ( and maybe all) participants will cheat on the agreement

If consumers pay 100 percent of a commodity tax, what could one conclude? 1)Suppliers have more effective lobbying in Washington than consumers. 2)The commodity in question has a perfectly elastic supply curve. 3)The commodity in question has a perfectly elastic demand curve. 4)Neither side has a perfectly elastic curve but the supply side is more elastic than the demand side.

2) The commodity in question has a perfectly elastic simply curve

The typical average cost curve in a competitive market is: 1)an upward sloping straight line because fixed costs are constant, and variable costs are increasing with the level of output. 2) U-shaped because the firm's fixed costs are first spread over greater quantities, but then increasingly greater quantities will create production capacity constraints. 3) downward sloping until fixed costs are eliminated and then it becomes a horizontal line. 4) U-shaped because increasing quantities of output cause a decrease in fixed costs but an offsetting increase in variable costs.

2) U-shaped because the firm's fixed costs are first spread over greater quantities, but then increasing with the level of output

Schools are rewarded for how well their students perform on standardized test scores but allowed to exclude test scores for learning disabled students when submitting results to the state. What incentive does this policy provide? 1)work with low-performing students to increase their test scores 2)channel low-performing students into learning disability programs 3) increase vigilance in testing for learning disabilities 4)hire more special needs educators for the public school system

2) channel low- preforming students into learning disability programs

A firm practices price discrimination by selling at a high price in its larger market, Market A, and a lower price in its smaller market, Market B. If this firm is forced to sell at a single-price in both markets and opts for the original price in Market A, the new single-pricing strategy makes: 1)consumers in both Market A and Market B worse off. 2)consumers in Market A no worse off, but consumers in Market B worse off. 3)consumers in Market B no worse off, but consumers in Market A worse off. 4)consumers in both markets better off, as single pricing is always better for consumers than price discrimination.

2) consumers in Market A no worse no worse off, but consumers in Market B worse off

When the supply of good X increases, total expenditure on good X decreases. When the demand for good X increases, the quantity sold increases by a larger percentage than price. Which of the following is true? 1) demand is inelastic; supply is inelastic 2) demand is inelastic; supply is elastic 3) demand is elastic; supply is inelastic 4) demand is elastic; supply is elastic

2) demand is inelastic; supply is elastic

Which one of the following would NOT directly cause the demand for gasoline- powered automobiles to shift? 1) Analysts expect future prices of gasoline to fall. 2) Engineers discover new ways to make cars from recycled materials. 3) A trade agreement with German automakers causes the expected future price of cars to fall. 4) Commuting by motorcycle becomes more fashionable.

2) engineers discover new ways to make cars from recycled materials.

Markets tend to be inefficient when it comes to public goods because 1)the government tends to overproduce the good. 2)free riders lead to an underproduction of the good. 3)the rival nature of the good makes it hard to collect payment from consumers. 4)consumers tend to value these goods less than private goods.

2) free riders lead to an underproduction of the good

Suppose that there are three methods of financing the transportation of prisoners from Point A to Point B: I. The boat's captain is paid $100 by the government for every live prisoner this is loaded on board at Point A II. The boat's captain is paid $17 by the government for every live prisoner this is unloaded at Point B. III. This boat's captain is paid $800 by the government for every live prisoner that is loaded on board at Point A. Which financing method will result in the greatest number of prisoners surviving the trip? 1) I 2) II 3) III 4) I and III

2. II

Tuna fish are being driven to extinction because of overfishing. If all the fishermen know about this, why don't they fish less to slow down the extinction? 1)The kind of fishing equipment that is used does not allow for smaller catches. 2)A lack of well-defined property rights over the stock of tuna fish in the sea. 3)The fishermen do not realize that their way of life will also become extinct. 4)Their governments have not considered tradable allowances as a solution.

2. The lack of well- defined property rights over the stock of tuna fish in the sea.

Which of these statements is an example of normative economics? 1. If the price of peanut butter rises, then the price of jelly will fall. 2. Trade between countries should be regulated to protect low-skilled workers from competition. 3. Workers pay the majority of corporate taxes in the form of lower wages. 4. All else equal, a drought will cause wheat prices to increase.

2. Trade between countries should be regulated to protect low-skilled workers from competition

Immediately before a hurricane, it is likely that the quantity demanded for seaside resort hotel rooms will ______ the quantity supplied, causing the price of seaside resort hotel rooms to ______. 1. equal; remain unchanged be less 2. than; fall 3. exceed; rise 4. decrease; fall

2. be less than; fall

For the better part of a decade, Sony and Toshiba were engaged in a standards war over whether Blu-Ray or HD-DVD standards would dominate the market digital home entertainment. Recently, Warner Brothers announced it would only produce movies for Blu-Ray, prompting Toshiba to end production of HD-DVD machines. If most consumers own HD-DVD machines, how will Warner Brothers' decision affect the market for movies and Blu-Ray machines? 1) Because most consumers use HD-DVD machines, they will not buy movies produced by Warner Brothers, and the market for Blu-Ray machines will be unaffected. 2) Because most consumers use HD-DVD machines, Warner Brothers will go out of business because there will be nobody to buy their movies, and the market for Blu-Ray machines will be unaffected. 3) Consumers who really prefer Warner Brothers' movies will buy Blu-Ray machines which will increase the value of Blu-Ray machines to other consumers, since the Blu-Ray standard is a network good, and other movie producers will sell more Blu-Rays. 4) There is not enough information.

3) Consumers who really prefer Warner Brothers' movies will buy Blu- Ray machines which will increase the value of Blu-Ray machines to other consumers, since the Blu- Ray standard is a network good, and other movie producers will sell more Blu- Rays.

Which of the following best illustrates how resources move from low-value industries to high-value industries in competitive markets? 1) Entrepreneurs will always find the market in which price is the highest and increase production in it. 2)The invisible hand will always equate prices in the long run. 3)Entrepreneurs will move production from low-profit industries to high-profit industries. 4) Firms will always be able to recognize high- and low-value industries simply by looking at their costs of production.

3) Entrepreneurs will move production from low- profit inducted to high- profit industries.

If job A and job B are identical in all aspects, except that job B pays higher wages, what will happen over time? 1) An increase in the demand for workers in job A will cause the wages of job A workers to equal the wages of job B workers. 2) A decrease in the demand for workers in job B will cause the wages of job B workers to fall to the level of wages in job A. 3) Job A workers will become job B workers, decreasing the supply of labor to Job A and increasing the supply of labor to job B until wages are equal. 4) Job A workers will become job B workers, increasing the supply of labor to Job A and decreasing the supply of labor to job B until wages are even higher in job B.

3) Job A workers will become job B workers, decreasing the supply of labor to Job A and increasing the supply of labor to job B until wages are equal

Which one of the following would NOT directly cause the supply for gasoline- powered automobiles to shift? 1) Robots at Detroit automotive plants become more efficient. 2) Engineers discover new ways to make cars from recycled materials. 3) Saudi Arabia decides to continue pumping oil despite excess supply. 4) Speculators expect the future price of automobiles to increase.

3) Saudi Arabia decides to continue pumping oil despite excess supply

The paper industry and beer industry each emit 60 tons of particulates into the air. It costs the paper industry $1,000 to remove 1 ton of particulates and it costs the beer industry $1,400 to remove 1 ton of particulates. In an effort to reduce particulate pollution, the government gives each industry tradeable allowances worth 50 tons of particulates. We would expect that: 1) The paper industry will buy tradable allowances from the beer industry at a cost between $1,000 and $1,400 per allowance. 2) The paper industry will buy tradeable allowances from the beer industry at a cost greater than $1,400 per allowance. 3) The beer industry will buy tradeable allowances from the paper industry at a cost between $1,000 and $1,400 per allowance. 4) The beer industry will buy tradeable allowances from the paper industry at a cost greater than $1,400 per allowance.

3) The beer industry will buy testable allowances from the paper industry at a cost between $1,000 and $1,400 per allowances

A Senator stated that, "It is time to put people before profits; that is why I am sponsoring legislation that requires all businesses to purchase health insurance for their workers." Given that the demand for labor is more elastic than the supply of labor, what will be the result of this proposed legislation? 1)The demand for labor will increase causing businesses to pay workers higher wages. 2)The supply of labor will decrease causing businesses to pay workers higher wages. 3)Workers will pay most of the cost for their employer-provided health insurance in the form of lower wages. 4) Firms will pay for the majority of their workers' health insurance because it is their legal obligation.

3) Workers will pay most of the cost for their employer-provided health insurance in the form of lower wages

7. Economists often say that prices are a "rationing mechanism." If the supply of a good decreases, how do prices "ration" these now-scarce goods in a competitive market? 1) Because price and quantity demanded are negatively related, only consumers willing to pay a lower price will buy the good. 2) Because price and quantity demanded are positively related, only consumers willing to pay a higher price will buy the good. 3) Because price and quantity demanded are negatively related, only consumers willing to pay a higher price will buy the good. 4) The government will ration scarce goods when prices get too high so that everyone

3) because price and quantity demanded are negatively related, only consumers willing to pay a higher price will buy the good

The King Fishing Lure Co. ordered $100,000 worth of stainless steel to use in the production of fishing lures. The $100,000 expenditure represents the: 1)value of the stainless steel in its lowest 2)valued use. profits of selling fishing lures. 3)value of the stainless steel in its next highest valued use. 4)revenues of producing fishing lures minus the costs.

3) value of the stainless steel in its next highest valued use.

A firm earning zero economic profits.... 1)is also earning zero "accounting profits," which are "normal profits." 2)will only continue to operate in the "short run" if total revenue is less than fixed cost. 3)is earning "normal profits." 4)is earning negative "accounting profits," which is not enough to cover all payments to capital and labor so this firm will shut down in the long run.

3)is earning "normal profits"

Which of the following best describes the opportunity cost of attending a St. Louis Cardinals baseball game the night before an economics exam? 1) The value of tickets, money spent on hot dogs and popcorn, plus the cost of gas to drive to STL 2) The value of other purchases you could have made with the money spent on tickets, hot dogs, popcorn, and gas 3) The value of other purchases you could have made, plus the time you could have been studying for the economics exam 4) Since attending a Cardinals game is a priceless experience, there is no opportunity cost.

3. The value of other purchases you could have made, plus the time you could have been studying for the economics exam.

Which of the following best describes the financial difference between a corporate bond and a share of stock? 1) A bond represents a fraction of ownership in a company, while a share of stock is a share of debt (I.O.U's) in the firm. 2) Both bonds and stocks represent fractions of ownership in a company. They differ in that bondholders receive interest on their investment while stockholders only receive dividend payments. 3) Stocks are associated with fixed-interest "coupon rates," while bonds are debt instruments. 4) Bonds are debt instruments that the firm agrees to pay back plus interest, while stocks represent a fraction of ownership in a firm.

4) Bonds are debt instruments that the firm agrees to pay back plus interest, while stocks represent a fraction of ownership in a firm

Consider two home-office devices: a MacBook and a Brother Printer. Which of the following best describes an economic relationship between these two devices? Assume that there are no other Printers or Laptops being sold in this market. I. They are substitutes. II. They are complements. III. If the price of the Brother Printer rises, demand for the MacBook will also rise. IV. If the price of the MacBook falls, demand for the Brother Printer will rise. 1) I only 2) II only 3) II, III, and IV 4) II and IV

4) II and IV If the price of the MacBook falls, demand for the Brother Printer will rise.

Which of the following is an example of preference-based discrimination? 1)People assume Marcus likes Barack Obama because Marcus is African-American. 2)The basketball coach recruits only the tall, African-American children to be on his basketball team because he assumes they will be the best players. 3)You assume that since Marcus is African-American he is good at basketball. 4) Marcus is fired from his job because he is African-American.

4) Marcus is fired from his job because he is African- American

Consider the market for peanut butter. What happens to the equilibrium price and quantity of peanut butter if an outbreak of mold causes damage to the peanut harvest and import quotas raise the price of jelly? 1) The equilibrium price and quantity of peanut butter fall 2) The equilibrium price of peanut butter rises and the equilibrium quantity falls 3) The equilibrium price of peanut butter rises but the effect on quantity is indeterminate. 4) The equilibrium quantity falls but the effect on price is indeterminate.

4) The equilibrium quantity falls but the effect on price is indeterminate.

In the eighteenth century, the British Crown instituted a Stamp Tax: a commodity tax on, among other things, newspapers. During this period, newspapers were one of the few ways people could learn about world events, and entering the newspaper industry was relatively easy. With this in mind, who likely paid more of the tax: consumers or producers? 1)producers, because the supply of newspapers was more elastic than the demand 2) producers, because the supply of newspapers was more inelastic than the demand 3)consumers, because the demand for newspapers was more elastic than the supply 4)consumers, because the demand for newspapers was more inelastic than the supply

4) consumers, because the demand for newspapers was more inelastic than the supply

If a pharmaceutical company discovering a new drug is not granted a patent to retain its monopoly power on the drug: 1) innovation in the pharmaceutical industry will increase. 2)the number of new drugs is likely to increase. 3)more pharmaceutical companies will engage in discovering new drugs. 4)research and development in discovering new drugs will decrease.

4) research and development in discovering new drugs will decrease

You have all your wealth invested in government and corporate bonds. If interest rates go up: 1) The payments from your bonds will go up and you are better off 2) It has no effect on your wealth because you already bought your bonds 3) The price of the government bonds will fall but the private bonds will be unaffected 4) The market price of your bonds will fall

4) the market price of your bonds will fall

If the price of electronic readers falls 6 percent and quantity demanded rises by 9 percent, the elasticity of demand is ______ in absolute value, so demand is ______. A. 1.5; elastic B. 0.67; inelastic C. 15; inelastic D. 3.0, elastic

A. 1.5; elastic

David sells his car, which he considers worthless, to Cameron for $200. Which of the following statements is true? A. David and Cameron must have different preferences for the car. B. This trade did not create value because Cameron is buying a car that David considers worthless. C. Cameron is the only one made better off by the trade. D. David is made better off by the trade, but Cameron is made worse off.

A. David and Cameron must have different preferences for the car

Which of the following statements is TRUE? A. Few cartels move an industry from competition to pure monopoly. B. Cartels generally persist and are quite common. C. Cartels persist because the cartel members enforce their agreements. D. Cartels work better when there are more firms involved.

A. Few Cartels move an industry from competition to pure monopoly

In The Distinguished Gentleman, Eddie Murphy plays a con man with a similar name as a long-running Congressman. When the politician dies, Murphy runs for office using the politician's name: Jeff Johnson. He's careful not to go on camera but uses taglines in commercials such as "Johnson: The name you trust." He eventually achieves a slim victory. How does Murphy's character use voter ignorance to win the election? (HINT: The answer is only slightly different than the way most politicians use voter ignorance to win elections.) A. He's expecting most voters to neither investigate him too much, or to know that their congressman died. B. He's expecting most voters not to know their congressman died. C. He's expecting that most people won't remember his campaign promises. D. He's expecting most voters not to investigate him too much.

A. He's expecting most voters to neither investigate him too much, or to know that their congressman died

Consider two cars: a Ford Focus and a Chevy Malibu. The Focus has the best safety ratings in the industry, while the Malibu is known for being unsafe with a faulty ignition switch. Which of the following best describes an economic relationship between these two cars? I. They are substitutes. II. They are complements. III. If the price of the Focus rises, demand for the Malibu will also rise. A. I and III B. I only C. II and III D. II only

A. I and III only

As part of the American Recovery and Reinvestment Act, $7 million was earmarked to build a bridge over a railroad crossing so that 168 Nebraska town residents wouldn't have to wait for the trains to pass. Which of the following best explains why this proposal was passed? A. The costs were highly diffused while the benefits were very concentrated. B. The costs were external while the benefits were internal. C. The total benefit to the bridge was greater than the total cost. D. The benefits were highly diffused while the costs were very concentrated.

A. The costs were highly diffused while the benefits were very concentrated

The Environmental Protection Agency has imposed new, higher fuel efficiency standards on cars sold in the United States. Which of the following best describes how such standards will affect the equilibrium price and quantity in the market for oil? A. The demand for gasoline will decrease, the price of gasoline will fall, and the equilibrium price and quantity demanded of oil will decrease because oil is an input into the production of gasoline. B. The demand for gasoline will decrease, the price of gasoline will fall, and the demand for oil will be unaffected. C. The demand for gasoline will decrease, the price of gasoline will fall, and the equilibrium price and quantity demanded of oil will decrease because gasoline and oil are complements. D. The demand for gasoline will decrease, the price of gasoline will fall, and the demand for oil will increase because gasoline and oil are substitutes.

A. The demand for gasoline will decrease, the price of gasoline will fall, and the equilibrium price and quantity demanded of oil will decrease because oil is an input into the production of gasoline

Why do you think researchers sometimes find a positive relationship between the unemployment rate and college enrollment rates? A. The opportunity cost of attending college falls during recessions, leading to higher college enrollment rates. B. The opportunity cost of attending college falls during economic booms, leading to higher college enrollment rates. C. The opportunity cost of attending college rises during economic booms, leading to higher college enrollment rates. D. The opportunity cost of attending college rises during recessions, leading to higher college enrollment rates.

A. The opportunity cost of attending college falls during recessions, leading to higher college enrollment rates

Many universities employ graduate students to teach introductory undergraduate courses, even though full professors at these universities have more experience and could potentially teach these courses better. Which of the following best explains why universities choose to utilize graduate students instead of full professors to teach their introductory courses? A. The opportunity cost of teaching an introductory course is higher for full professors than for graduate students. B. The opportunity cost of teaching an introductory course is higher for graduate students than for full professors. C. Graduate students are cheaper. D. Introductory classes are the best place for graduate students to build their teaching skills.

A. The opportunity cost of teaching an introductory course is higher for full professors than for graduate students

When inside information becomes public information, profit opportunities A. evaporate. B. change in an indeterminate direction. C. grow. D. remain the same.

A. evaporate

One important "secret" to picking stocks is to A. pick a lot of them. B. find a highly respected fund manager to pick them for you. C. choose the best-performing stock and put the majority of your investments in that one stock. D. only invest in no-fee funds.

A. pick a lot of them

Use the midpoint method to answer this question. When a good's price increases from $20 to $30 and its quantity demanded decreases from 100 to 90, using the midpoint method, the elasticity of demand for that good is A. -0.2; inelastic B. -0.26; inelastic C. -0.26; elastic D. -0.2; elastic

B. -0.26; inelastic

Nineteenth century economist Alfred Marshall wrote, "when an industry has thus chosen a locality for itself ... the mysteries of the trade become no mysteries; but are as it were in the air." To which economic phenomenon is Marshall referring? A. Marshall is not referring to business clustering. B. A business cluster, or decreasing cost industry, is one type of positive externality. C. A business cluster, or increasing cost industry, is one type of positive externality. D. A business cluster, or decreasing cost industry, is one type of negative externality

B. A business cluster, or decreasing cost industry, is one type of positive externality.

Three people are running for mayor in the town of Herbeyville -- Herbert, his son Jimmy, and his grandson, Jimmy Junior. Use this information to answer the following questions: If Jimmy Junior doesn't run, Herbert wins, but if Herbert doesn't run, Jimmy wins. Under transitive preferences, who do we expect to win in an election between Herbert and Jimmy Junior? A. Jimmy Junior B. Herbert C. Jimmy D. Not enough information.

B. Herbert

The locovore movement encourages eating locally produced food to reduce the greenhouse gases emitted from transporting food long distances, placing upward pressure on local land prices as farmland becomes more valuable. Which of the following likely occurs as a result? A. In the short term, the price of lumber rises. B. Local forests become less common. C. The price of beef falls as more people eat beef. D. Hunting animals becomes more common.

B. Local forests become less common.

Between the years 1993 to 1998, U.S. Senators' stock portfolio outperformed the market by an average of 12 percent a year. Does this overturn the efficient market hypothesis? A. No, because Senators are unusually smart people. B. No, because Senators are probably trading using nonpublic information. C. Yes, because it is inefficient to channel money this way. D. Yes, because all the relevant information is clearly not embodied in the price.

B. No, because Senators are probably trading using nonpublic information.

Which of the following is an example of a normative economic statement? A. Consumer spending is nearly two-thirds of total GDP. B. The government should increase spending on education. C. Increased government spending might lead to higher interest rates. D. Increased education spending could lead to higher test scores.

B. The government should increase spending on education

Halliburton manufactures Gizmos that are used to drill for oil. Recently, the government prohibitted oil companies from using this Gizmo. As a result, the amount of oil drilled has decreased. However, researchers at Halliburton have discovered how to use the Gizmo to drill for natural gas. As a result, natural gas drillers have begun implementing the Gizmo into their operations. Consider how the above example affects the markets for gasoline and natural gas. Which curves are shifting and why? A. Both the demand curves for gasoline and natural gas shift as a direct result of technological changes. B. The supply curve for gasoline shifts because the price of an input changes, while the supply curve for natural gas shifts as a result of technological changes. C. The demand curve for gasoline shifts because the price of an input changes, while the supply curve for natural gas shifts as a result of technological changes. D. The demand curve for gasoline shifts because of government regulation, while the supply curve for natural gas shifts because of beneficial consequences of government regulation.

B. The supply curve for gasoline shifts because the price if an input changes, while the supply curve for natural gas shifts as a result of technological changes

In 1808, when slavery in the United States was still legal, Congress banned the importation of new slaves. Under these circumstances, would a slave redemption campaign have worked well? Why? A. Yes, because the supply of slaves was elastic. B. Yes, because the supply of slaves was inelastic. C. No, because the supply of slaves was inelastic. D. No, because the supply of slaves was elastic.

B. Yes, because the supply of slaves was inelastic.

When demand is relatively elastic, monopolists will charge A. the same markup as when demand is relatively inelastic. B. a lower markup. C. a price equal to marginal cost. D. a higher markup.

B. a lower markup

Which of the following industries would find it easier to establish a cartel? A. retail clothing B. automobile manufacturing C. book publishing D. agricultural products

B. automobile manufacturing

When labor demand decreases, the wage is expected to A. change in an indeterminate direction. B. decrease. C. remain the same. D. increase.

B. decreases

When the supply of good X increases, total expenditure on good X increases. When the demand for good X decreases, the quantity sold decreases by a larger percentage than price. Which of the following is true? A. demand is inelastic; supply is inelastic B. demand is elastic; supply is elastic C. demand is elastic; supply is inelastic D. demand is inelastic; supply is elastic

B. demand is elastic; supply is elastic

Clark starts a coffee shop and begins hiring employees. The first employee's marginal product of labor (MPL) is $128 an hour and the MPL for each employee beyond the first adds half what the previous employee's ($64 for the second, $32 for the third, etc.). If the market wage for employees is $7 an hour, how many employees should Clark hire? A. 6 B. 7 C. 5 D. 4

C. 5

Assume that the money in your investment account grew from $30,000 to $60,000 in 9 years. What was your approximate annual rate of return? A. 11.8 percent B. 6.5 percent C. 7.8 percent D. 5 percent

C. 7.8 percent

Consider how different phenomena might affect the oil market and markets that are related to it.( automobiles, gasoline, and oil) Which one of the following would NOT directly cause the supply for gasoline-powered automobiles to shift? A. Robots at Detroit automotive plants become more efficient. B. Researchers discover a way to make new cars from recycled steel. C. An earthquake in North Dakota disrupts oil drilling for three months. D. Chrysler goes bankrupt and liquidates its assets.

C. An earthquake in North Dakota disrupts oil drilling for three months

Which of the following is an example of a positive economic statement? A. It would be more efficient, and therefore preferable, to legalize drugs. B. The minimum wage should be higher. C. Higher interest rates will lead to lower rates of inflation. D. The government should restrict deficit spending and balance the budget.

C. Higher interest rates will lead to lower rates of inflation

At a price ceiling of $6 per sheet of drywall, quantity demanded is 100 and quantity supplied is 75. What will happen in the drywall market if there is an increased demand for drywall in the construction industry? A. The shortage of drywall will fall below 25 units. B. Equilibrium will be restored. C. The shortage of drywall will increase above 25 units. D. The surplus of drywall will increase above 25 units.

C. The shortage of drywall will increase above 25 units.

Suppose that a town with too many snakes decides to pay people a bounty for each dead snake. What is the likely outcome of this policy? A. The town's snake population remains stagnant since people really do not like dealing with them. B. The demand curve for snakes will shift left and down. C. Townspeople might get into the business of breeding snakes and selling their dead bodies to the town's officials. D. The price of snakes will decrease, as they are no longer valued alive.

C. Townspeople might get into the business of breeding snakes and selling their dead bodies to the town's officials.

Consider how different phenomena might affect the oil market and markets that are related to it. ( Automobiles, Gasoline, and oil) Which one of the following would NOT directly cause the demand for gasoline-powered automobiles to shift? A. A trade agreement with German automakers causes the expected future price of cars to fall. B. Commuting by motorcycle becomes more fashionable. C. A warm summer or a cold winter. D. The price of oil falls.

C. a warm summer or cold winter

Economists often say that prices are a "rationing mechanism." If the supply of a good falls, how do prices "ration" these now-scarce goods in a competitive market? A. The government will ration scarce goods when prices get too high so that everyone can have an equal amount. B. Because price and quantity demanded are positively related, only consumers willing to pay a higher price will buy the good. C. Because price and quantity demanded are negatively related, only consumers willing to pay a higher price will buy the good. D. The government issues ration coupons redeemable only for a predetermined price.

C. because price and quantity demanded are negatively related, only consumers willing to pay a higher price will buy the good

Evidence from an important study of media ownership concludes that: A. there is little correlation between media ownership and the efficiency of government. B. private ownership of the press restricts information flows to the public, which reduces the quality of the government. C. government ownership of the press restricts information flows to the public, which reduces the quality of the government. D. public ownership of the press increases information flows to the public, which increases the quality of the government.

C. government ownership of the press restricts information flows to the public, which reduces the quality of the governemnt

A cell phone is a ______ because it is ______. A. public good; rival and nonexcludable B. common good; rival and nonrival C. private good; rival and excludable D. private good; nonrival and excludable

C. private good; rival and excludable

Which of the following would cause the current supply of iPods to increase? A. an increase in the wages offered to manufacturers of iPods B. an economic boom, which increases the amount that people are willing to spend on personal electronics C. the expectation that the future price of iPods will decrease D. a decrease in the price of songs on iTunes

C. the expectation that the future price of iPods will decrease

Antitrust authorities have a difficult time with network goods because: A. profits tend to be higher in network markets, and thus firms are willing to fight harder. B. when monopolies exist, there is no competition to help lower prices. C. they know that with network goods, only a few firms will always dominate the market. D. increased competition can easily lead to corruption in network markets.

C. they know that with network goods, only a few firms will always dominate the market.

Jonathan values Word at $100 and Excel at $90, and Ashley values Word at $80 and Excel at $60. If the programs are sold as a bundle, what is the profit-maximizing price? A. $90 B. $110 C. $190 D. $140

D. $ 140

If you are willing to pay $8 for a $6 burrito, what is your consumer surplus if you buy it? A. $0 B. $6 C. $8 D. $2

D. $2

Which of the following statements is TRUE? I. The demand for labor is downward sloping. II. The marginal product of labor declines as a firm hires more labor. III. The marginal product of labor is the demand curve for labor. A. III only B. I only C. I and II only D. I, II, and III

D. I, II, III

Which of the following is the correct answer to the question: Why do smokers pay almost all the taxes assessed on cigarettes? I. Because they are addictive, the demand for cigarettes is relatively elastic when compared to the supply curve of cigarettes. II. Because they are addictive, the demand for cigarettes is relatively inelastic when compared to the supply of cigarettes. III. Cigarette manufacturers can very easily escape a state tax by selling in a different state. A. II only B. I and III only C. I only D. II and III only

D. II and III only

Job X pays a yearly salary of $55,000, regardless of the state of the economy. Job Y pays a yearly salary of $10,000 in a bad economy and $70,000 in a good economy. The probability of a bad economy is 0.30. Which job would most people prefer? A. Job X because $55,000 exceeds the expected payoff of Job Y by $6,000. B. Job Y because the expected payoff of $80,000 is greater than $55,000. C. Job Y because the expected payoff of $70,000 is greater than $55,000. D. Job X because $55,000 exceeds the expected payoff of Job Y of $52,000.

D. Job X because $55,000 exceeds the expected payoff of Job Y of $52,000.

Why do expectations of future price increases cause the supply curve for a normal good to shift? A. Suppliers deliberately lower the price of their goods today to "balance out" future price increases. B. Suppliers will try to sell as much as they can today because if prices increase for a normal good and consumer income remains flat, consumers will purchase less of the good. C. Suppliers will try to sell as much as they can today because if prices go up consumers may not want to buy their goods. D. Suppliers who expect that prices will increase have an incentive to sell less today, so they save goods and sell them when prices are higher.

D. Suppliers who expect that prices will increase have an incentive to sell less today, so they save goods and sell them when prices are higher

A profit-maximizing monopolist's total profit can be found by calculating: A. MR - MC. B. AR - AC. C. MC - MR. D. TR - TC.

D. TR - TC.

The Edict on Maximum Prices, established by the Roman Emperor Diocletian, created price ceilings on various jobs and goods in a failed effort to curb inflation. For example, legal pay for a farm laborer could be no more than 10.8¢ a day (payment set in modern currency). If the market rate of farm labor was 12¢ a day, which of the following would be a direct consequence of this law? Choose the best answer. A. nothing unusual B. an increase in unemployment for farm hands C. a laborer would work harder than he otherwise would D. a decline in employment of farm laborers

D. a decline in employment of the farm laborers

Compared with imperfect price discrimination, deadweight loss under a nondiscriminating monopoly is A. impossible to determine. B. lower. C. the same. D. higher.

D. higher

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

D. increase the price of sugar and decrease the quantity consumed

According to public choice theory, people do not always make informed choices because A. they believe making informed choices are the tasks only for the government. B. they are ignorant by nature. C. they are irrational, so their decisions are not predictable. D. the incentives to become informed are low as compared with the costs of being informed.

D. the incentives to become informed are low as compared with the costs of being informed.

Ability risk is a factor prevalent in A. wage rate pay. B. effort-based pay. C. piece rate pay. D. tournament pay.

D. tournament pay

If the monopolist's demand is given by P = 100 - Q, marginal revenue is given by A. MR = 100 - 2Q. B. MR = 100Q. C. MR = 100 - Q. D. MR = 100Q - Q2.

MR= 100-2Q

Some Americans argue for protectionism by pointing out that other countries with whom we trade engage in "unfair trade practices." For example, India subsidizes domestic steel producers who then export that steel to the United States. Given this unfair trade practice, should the U.S. place a tariff on steel imported from India? Why? A. Yes. The producer surplus of U.S. steel manufacturers is adversely affected by India's steel subsidy. B. No. Neither U.S. producers nor U.S. consumers are adversely affected by the Indian steel subsidy. C. No. The producer surplus of U.S. steel manufacturers is adversely affected by India's steel subsidy, but the benefits of free trade to U.S. consumers outweighs the adverse effects to U.S. producers. D. Yes. The producer surplus of U.S. steel manufacturers and the wages of U.S. steel workers are adversely affected by India's steel subsidy.

No. The producer surplus of U.S. steel manufacturers is adversely affected by India's steel subsidy, but the benefits of free trade to U.S. consumers outweighs the adverse effects to U.S. producers.