MICRO ECONOMICS FINAL

It is impossible for a nation to have a comparative advantage in producing everything. Select one: True False

True

The Celler-Kefauver Act made vertical mergers legal, provided each firm does not have more than 30 percent of its relevant market. Select one: True False

False

The Civil Rights Act of 1964 mandated that large businesses implement affirmative action plans. Select one: True False

False

U.S. exports increase and U.S. imports decrease the supplies of foreign monies owned by U.S. banks. Select one: True False

True

The TANF program: Select one: a. is referred to as a negative income tax plan. b. have been found to be unconstitutional by the Supreme Court. c. limited total lifetime welfare benefits to 5 years and required people to work after receiving benefits for 2 years. d. perpetuate the so-called culture of poverty.

c. limited total lifetime welfare benefits to 5 years and required people to work after receiving benefits for 2 years.

Refer to the above diagrams. The firm: Select one: a. is a monopsonist in the hiring of labor. b. must be selling its product in an imperfectly competitive market. c. is a "wage taker." d. must pay a higher marginal resource cost for each successive worker.

c. is a "wage taker."

Public goods are those for which there: Select one: a. is no free-rider problem. b. are no externalities. c. is nonrivalry and nonexcludability. d. is neither an adverse selection nor moral hazard problem.

c. is nonrivalry and nonexcludability.

A current account deficit will reduce U.S. foreign indebtedness. Select one: True False

False

$3,000 tax on a taxable income of $16,000, the tax is progressive. Select one: True False

True

Refer to the above data. The marginal revenue product of the second worker is: Select one: a. $16. b. $32. c. $8. d. $4.

a. $16.

Which of the following Gini ratios indicates the highest degree of income inequality? Select one: a. 0.78 b. 0.65 c. 0.29 d. 0.42

a. 0.78

Answer the next question(s) on the basis of the following marginal product data for resources a and b. The output of these independent resources sells in a purely competitive market at $1 per unit. Refer to the above data. Assume now that the prices of a and b rise to $15 and $20 respectively. To maximize profits what combination of a and b should the employer hire? Select one: a. 3 of a and 5 of b b. 5 of a and 7 of b c. 7 of a and 7 of b d. 6 of a and 2 of b

a. 3 of a and 5 of b

The right to buy and sell emission rights for sulfur-dioxide pollution was granted in the: Select one: a. Clean Air Act of 1990. b. Superfund Law of 1980. c. Market for Externalities Act of 1970. d. Acid-Rain Act of 1995.

a. Clean Air Act of 1990.

Which one of the following is concerned with social regulation? Select one: a. Equal Employment Opportunity Commission b. Federal Communications Commission c. Sherman Commission d. Federal Energy Regulatory Commission

a. Equal Employment Opportunity Commission

Refer to the above diagram. The demand for loanable funds curve D1 slopes downward because: Select one: a. business will borrow more funds at lower interest rates than at higher ones. b. at lower interest rates households will make more funds available for lending. c. at lower interest rates, households will consume more and save less. d. business will borrow more funds at higher interest rates than at lower ones.

a. business will borrow more funds at lower interest rates than at higher ones.

Defenders of social regulation point out that: Select one: a. social regulation is a better alternative than unregulated natural monopoly. b. critics who stress the high administrative and compliance costs of social regulation underestimate the social benefits that the regulations produce. c. the number of regulatory agencies has declined over the past two decades. d. social regulations reduce product prices.

b. critics who stress the high administrative and compliance costs of social regulation underestimate the social benefits that the regulations produce.

As a percentage of GDP, U.S. health care spending is: Select one: a. higher than that for Germany and Japan, but lower than that of the United Kingdom and Sweden. b. higher than for any other major industrial country. c. lower than that for Canada. d. nearly identical to that of the other major industrial nations.

b. higher than for any other major industrial country.

The supply curve of loanable funds is upsloping because: Select one: a. businesses find more investments to be profitable at low interest rates than at high interest rates. b. households are willing to save more at high interest rates than they are at low interest rates. c. government budget deficits vary inversely with the equilibrium interest rate. d. banks lend more at low interest rates than they do at high interest rates.

b. households are willing to save more at high interest rates than they are at low interest rates.

Required payments to parties injured by firms found to have violated the Sherman Act are known as: Select one: a. antitrust fines. b. treble damages. c. economic reparations. d. loss carry-forwards.

b. treble damages.

A merger between an automobile manufacturer and a maker of automobile tires is an example of a: Select one: a. conglomerate merger. b. horizontal merger. c. vertical merger. d. tying contract.

c. vertical merger.

In which of the following U.S. industries is the rate of unionization the lowest? Select one: a. transportation b. mining c. manufacturing d. finance

d. finance

The demand for labor is a derived demand whereas the demand for capital is not. Select one: True False

False

The Consumer Product Safety Commission engages in social regulation, rather than industrial regulation. Select one: True False

True

The U.S. poverty rate was considerably lower in 2004 than in 1960. Select one: True False

True

The basic function of profits and losses is to allocate society's scarce resources to their highest valued uses. Select one: True False

True

The concept of parity has provided a rationale for government price supports for farm products. Select one: True False

True

The demand for a resource depends on its productivity and the market value of the product it is producing. Select one: True False

True

The greater the elasticity of demand and supply, the greater is the efficiency loss of a tax. Select one: True False

True

Rising health care costs have prompted workers to change jobs with greater frequency. Select one: True False

False

Sales taxes are proportional in relation to income because the same tax rate applies regardless of the size of a purchase. Select one: True False

False

Seniority pay is the same as piece rate pay. Select one: True False

False

Tariffs create larger gains to domestic producers than losses to domestic consumers. Select one: True False

False

That government that has the smallest budget is the most efficient in the economic sense. Select one: True False

False

The Americans with Disabilities Act of 1990 is an example of industrial regulation. Select one: True False

False

The Personal Responsibility Act of 1996 required all employees to buy insurance against industrial accidents and diseases. Select one: True False

False

The U.S. poverty rate for the elderly (65 and over) is higher than for the general population. Select one: True False

False

The United States has had significant trade and current account surpluses in recent years. Select one: True False

False

The fact that most of a farmer's costs are variable costs has hastened the movement of resources from agriculture to industry. Select one: True False

False

The labor supply curve facing a purely competitive firm is perfectly inelastic. Select one: True False

False

The more elastic the demand for a product the less elastic will be the demand for the resources employed in producing it. Select one: True False

False

The percentage of the United States' domestic output that is derived from international trade is higher than that for any other industrially advanced nation. Select one: True False

False

U.S. exports of farm products have generally declined as a percentage of U.S. farm output over the past half-century. Select one: True False

False

Under the international gold standard, exchange rates fluctuate without restraint to correct any international disequilibrium by affecting the relative attractiveness of domestic and foreign goods. Select one: True False

False

Union workers have higher rates of job turnover than do nonunion workers. Select one: True False

False

Unlike most demand curves, the demand curve for loanable funds is upsloping. Select one: True False

False

The free-land era of U.S. history reflected a situation in which the quantity of land available at a zero price exceeded the quantity of land demanded. Select one: True False

True

The health care industry currently absorbs about 16 percent of U.S. gross domestic product. Select one: True False

True

The interest rate is the price paid for the use of money. Select one: True False

True

The principle that private negotiation can resolve potential externalities without resort to government intervention is known as the Coase theorem. Select one: True False

True

The rate of unionization is substantially higher for protective service workers than for sales workers. Select one: True False

True

Third-party (insurance) payment of health care costs causes health care to be overconsumed. Select one: True False

True

Under freely flexible (floating) exchange rates, if the dollar price of pounds rises, the pound price of dollars will fall. Select one: True False

True

The marginal revenue product curve of a purely competitive seller declines solely because of the law of diminishing returns. Select one: True False

True

The principal-agent problem in labor markets arises because of the possibility of shirking by workers. Select one: True False

True

The law of increasing opportunity costs limits international specialization. Select one: True False

True

The marginal productivity theory of income distribution holds that all resources are paid according to their marginal contribution to society's output. Select one: True False

True

Suppose a person pays $80 of annual interest on a loan that has a 5 percent annual interest rate. The loan amount is: Select one: a. $400. b. $1,600. c. $160. d. $85.

b. $1,600.

Other things equal, economists would prefer: Select one: a. free trade to tariffs and tariffs to import quotas. b. free trade to import quotas and import quotas to tariffs. c. import quotas to tariffs and tariffs to voluntary export restrictions. d. import quotas to free trade and free trade to tariffs.

a. free trade to tariffs and tariffs to import quotas.

(Consider This) Suppose that the dollar-pound exchange rate is $1 = £2. According to the Big Mac index, the pound is overvalued if the price of a Big Mac sandwich is $2 in the United States and: Select one: a. £4 in the United Kingdom. b. £5 in the United Kingdom. c. £3 in the United Kingdom. d. £2 in the United Kingdom.

b. £5 in the United Kingdom.

What percentage of their spending do U.S. consumers allocate to food purchases? Select one: a. 1 percent b. 7 percent c. 11 percent d. 14 percent

d. 14 percent

all of the following are designed to reduce health care expenses for consumers except: Select one: a. HMOs. b. PPOs. c. the DRG payment system. d. the fee-for-service system.

d. the fee-for-service system.

Society's optimal amount of pollution abatement is where society's marginal benefit of abatement is zero. Select one: True False

False

There is a consensus among economists that the amount of resources allocated to the health care industry is optimal. Select one: True False

False

Tying agreements are contracts by which retailers agree to charge the prices that manufacturers set on branded goods. Select one: True False

False

The MRP of labor curve is the labor demand curve. Select one: True False

True

Refer to the above diagrams in which figures (a) and (b) show demand curves reflecting the prices Alvin and Elmer are willing to pay for a public good, rather than do without it. The collective willingness to pay for the 1st unit of this public good is: Select one: a. $18 b. $14. c. $10. d. $6.

a. $18

Clearly defined property rights and liability rules reduce negative externalities by: Select one: a. threatening the perpetrators with lawsuits. b. shifting the perpetrators' market supply curve rightward. c. shifting the perpetrators' market demand curve leftward. d. creating a market for externality rights.

a. threatening the perpetrators with lawsuits.

The voluntary relocation of employable migrants from low-paying nations to high-paying nations reduces: Select one: a. wage rate disparities among nations. b. business or capitalist income in the world. c. labor productivity in the world. d. total wage income in the world.

a. wage rate disparities among nations.

If a U.S. importer can purchase 10,000 pounds for $20,000, the rate of exchange is: Select one: a. $1 = 2 pounds in the United States. b. $2 = 1 pound in the United States. c. $1 = 2 pounds in Great Britain. d. $.5 = 1 pound in Great Britain.

b. $2 = 1 pound in the United States.

Refer to the above table, in which the values for columns (2) through (5) are in acres. If the relevant columns are (1), (2), and (3), land rent will be: Select one: a. $100 per acre. b. $200 per acre. c. $300 per acre. d. $400 per acre.

b. $200 per acre.

The following table contains hypothetical data for the 2006 U.S. balance of payments. Answer the next question(s) on the basis of this information. All figures are in billions of dollars. Refer to the above data. The U.S. balance on current account is a: Select one: a. $40 billion surplus. b. $25 billion deficit. c. $25 billion surplus. d. $30 billion deficit.

b. $25 billion deficit.

Tying contracts are illegal under the: Select one: a. Wagner Act of 1935. b. Clayton Act of 1914. c. FTC Act of 1914. d. Celler-Kefauver Act of 1950.

b. Clayton Act of 1914.

(Consider This) In "Slicing the Pizza" the shrinkage of the pizza refers to the: Select one: a. fact that poor people are not helped by the income maintenance system. b. efficiency losses-the losses of output and income-associated with the tax-transfer system. c. tendency of rich people in developing nations to hoard their wealth overseas. d. failure of the Internal Revenue Service to collect all the tax revenues owed by taxpayers.

b. efficiency losses-the losses of output and income-associated with the tax-transfer system.

In the U.S. balance of payments account for a certain year, a positive number in the financial account means a: Select one: a. net buildup of assets held by the U.S. b. net reduction in the ownership of assets by U.S. interests. c. buildup of total foreign debt. d. reduction of total foreign debt.

b. net reduction in the ownership of assets by U.S. interests.

The distribution of U.S. income by quintiles: Select one: a. reveals a marked increase in the relative importance of the middle class between 1970 and 2004. b. shows considerably more inequality in the distribution of income immediately after the Second World War than presently. c. shows a movement toward greater inequality since 1970. d. shows a sharp movement toward greater equality since the Second World War.

c. shows a movement toward greater inequality since 1970.

Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of supply of X is unitary (coefficient = 1). If the incidence of the tax is such that the producers of X pay $1.90 of the tax and the consumers pay $.10, we can conclude that the: Select one: a. supply of X is highly inelastic. b. supply of X is highly elastic. c. demand for X is highly inelastic. d. demand for X is highly elastic.

d. demand for X is highly elastic.

Sellers will opt out of markets in which: Select one: a. there are significant negative externalities. b. standardized products exist. c. there are only foreign buyers. d. information about buyers is inadequate, and some buyers can impose high costs on the sellers.

d. information about buyers is inadequate, and some buyers can impose high costs on the sellers.

Supporters of farm subsidies have: Select one: a. argued that farmers are comparatively poor and therefore should receive public help. b. contended that the family farm is an American "way of life" and should be protected. c. argued that farmers are at a disadvantage because they buy inputs in monopolized markets and sell their output in competitive markets. d. made all of these arguments.

d. made all of these arguments.

According to the paradox of voting: Select one: a. public goods that cost more than the total benefits they confer may get produced under majority voting. b. trading of votes may either add to or subtract from economic efficiency. c. the median voter decides what public goods all voters should have. d. majority voting fails under some circumstances to make consistent choices that reflect the community's underlying preferences.

d. majority voting fails under some circumstances to make consistent choices that reflect the community's underlying preferences.

State right-to-work laws: Select one: a. have been enacted by over one-half of the states in the nation. b. make yellow dog contracts illegal. c. allow for union shops while prohibiting closed shops. d. make union and agency shops illegal.

d. make union and agency shops illegal.

For a firm selling its product in an imperfectly competitive market, the marginal revenue product of labor can be found by: Select one: a. adding marginal product to total product as one more unit of labor is employed. b. adding marginal revenue to total product as one more unit of labor is employed. c. multiplying marginal product by product price. d. multiplying marginal product by marginal revenue.

d. multiplying marginal product by marginal revenue.

If a firm is employing quantities of resources J and K so that MRPJ/PJ = MRPK/PK = 1, then: Select one: a. MPJ/PJ may either exceed or be less than MPK/PK. b. MPJ/PJ will be less than MPK/PK. c. MPJ/PJ will exceed MPK/PK. d. MPJ/PJ = MPK/PK.

d. MPJ/PJ = MPK/PK.

Which of the following made monopoly and restraints of trade criminal offenses against the Federal government? Select one: a. Celler-Kefauver Act of 1950 b. Wheeler-Lea Act of 1938 c. Clayton Act of 1914 d. Sherman Act of 1890

d. Sherman Act of 1890

TANF stands for Temporary Assistance for Needy Families. Select one: True False

True

Noncompeting groups of workers are the result of geographic immobilities. Select one: True False

False

Present law forbids all trades or sales of pollution rights. Select one: True False

False

Other things equal, the shorter the loan period and the larger the loan size, the higher is the interest rate charged by the lender. Select one: True False

False

Pollution is a good example of the moral hazard problem. Select one: True False

False

HMO stands for holistic medical organization. Select one: True False

False

Health care costs have risen absolutely but remained constant as a percentage of gross domestic product. Select one: True False

False

If the demand for labor in a country receiving immigrants is inelastic, the immigration will increase the total wages paid in that country. Select one: True False

False

Industrial unions are more likely to increase wage rates by restricting the supply of labor than are craft unions. Select one: True False

False

It is generally agreed that the most promising reform of the health care system is for government to fix doctors' fees below current levels. Select one: True False

False

Majority voting assures that government will provide a public good if it yields total benefits in excess of total costs. Select one: True False

False

Marginal revenue product (MRP) is the change in total product (total output) associated with hiring an additional unit of labor. Select one: True False

False

158. The World Trade Organization (WTO) is an international organization designed to provide short-term advances of foreign monies to those nations faced with trade deficits. Select one: True False

False

A nation's export supply curve is downsloping and its import demand curve is upsloping. Select one: True False

False

Answer the next question(s) on the basis of the following 2004 balance of payments statement for Transylvania. All figures are in billions of dollars. Refer to the above data. Transylvania had a $2 billion balance of trade (goods) surplus in 2004. Select one: True False

False

Changes in the average age of the U.S. population over the past decade have decreased the demand for health care. Select one: True False

False

During the Great Depression most nations lowered tariffs and abolished import quotas to encourage the flow of trade. Select one: True False

False

Elasticity of resource demand is measured by dividing "percentage change in resource price" by "percentage change in resource quantity." Select one: True False

False

Environmentalists generally support price supports because these subsidies motivate additional farm production. Select one: True False

False

Price fixing is illegal under Section 1 of the Sherman Act. Select one: True False

True

Refer to the above data. In 2004 Transylvania realized a $1 billion surplus on goods and services. Select one: True False

True

Shirking refers to the behavior of workers who provide less-than-expected effort on the job. Select one: True False

True

A monopsonistic employer may sell its product in a competitive market. Select one: True False

True

A side benefit of international trade is that it links national interests and increases the opportunity costs of war. Select one: True False

True

A system of fixed exchange rates is more likely to result in exchange controls than is a system of flexible (floating) exchange rates. Select one: True False

True

Answer the next question(s) on the basis of the following 2004 balance of payments statement for Transylvania. All figures are in billions of dollars. Refer to the above data. Transylvania realized a financial and capital account deficit in 2004. Select one: True False

True

Answer the next question(s) on the basis of the following information. Assume that by devoting all its resources to the production of X, nation Alpha can produce 40 units of X. By devoting all its resources to Y, Alpha can produce 60Y. Comparable figures for nation Beta are 60X and 40Y. Refer to the above information. The terms of trade will be at or within the 1X = 11/2Y to 1X = 2/3Y range. Select one: True False

True

As a percentage of GDP, U.S. health care spending is higher than any other major industrial country. Select one: True False

True

Business income will decrease in the nation from which workers emigrate. Select one: True False

True

Currently over 90 percent of all workers in the United States are covered by Social Security. Select one: True False

True

Economists prefer free trade to tariffs and prefer tariffs to import quotas. Select one: True False

True

Farmers typically sell their products in highly competitive markets and buy in imperfectly competitive markets. Select one: True False

True

Given supply, the more inelastic the demand for a product, the larger the portion of an excise tax that is shifted to consumers. Select one: True False

True

Human capital investment refers to spending on education and worker training. Select one: True False

True

If the dollar depreciates, U.S. exports will eventually rise and U.S. imports will eventually fall. Select one: True False

True

If the substitution effect outweighs the output effect, an increase in the price of a substitute resource will increase the demand for labor. Select one: True False

True

In percentage terms, many of the 10 most rapidly declining U.S. occupations include jobs for which capital is readily substitutable for labor. Select one: True False

True

Marginal resource (labor) cost will exceed the wage rate when there is imperfect competition in the hire of labor. Select one: True False

True

Piece-rates may not be appropriate pay in some situations because they might reduce product quality. Select one: True False

True

Preferred provider organizations (PPOs) are a type of managed-care organization. Select one: True False

True

Answer the next question(s) on the basis of the following table showing market shares of firms in hypothetical industries. Assume these are distinct industries with no buyer-seller relationships or competition among them. Refer to the above table. The Herfindahl index for Cappa is: Select one: a. 2,500. b. 100. c. 100,000. d. 5,000.

a. 2,500.

Answer the next question(s) on the basis of the following data for the hypothetical nations of Alpha and Beta. Qs is domestic quantity supplied and Qd is domestic quantity demanded. Refer to the above data. At a world price of $2: Select one: a. Alpha will want to import 20 units of steel. b. Beta will want to export 20 units of steel. c. Alpha will want to export 20 units of steel. d. neither country will want to import steel.

a. Alpha will want to import 20 units of steel.

Answer the next question(s) on the basis of the following information: In 1985, the exchange rate between the U.S. dollar and the Japanese yen was $1 = 262 yen; in 2003, the rate was $1 = 110 yen. Refer to the above information. Which one of the following might be a plausible explanation for the change in the dollar-yen exchange rate cited in the previous question? Select one: a. Japan exported much more to the United States during this period than it imported from the United States. b. Japan greatly increased its purchases of military equipment from the United States during this period. c. Japan's economy grew far faster than the U.S. economy during this period. d. Japan's government devalued the yen during this period.

a. Japan exported much more to the United States during this period than it imported from the United States.

U.S. union membership has declined substantially in recent years. Which of the following is not usually cited as a causal factor? Select one: a. Most nonunion workers are in manufacturing industries. b. Import competition has reduced or restrained the growth of employment in some highly unionized industries. c. Some industries and firms have migrated to the South. d. An unusually large proportion of the increase in employment has been concentrated among young workers and women.

a. Most nonunion workers are in manufacturing industries.

Which of the following is an argument in opposition to affirmative action plans? Select one: a. Preferential treatment is itself a form of discrimination; showing preference for A is to discriminate against B. b. Market wages provide a better indication of female and minority job worth than job evaluations by administrators. c. Affirmative action plans are required to overcome subtle discrimination that otherwise would occur in hiring. d. Discrimination in labor markets is on the rise.

a. Preferential treatment is itself a form of discrimination; showing preference for A is to discriminate against B.

Refer to the above diagram of a market for pollution rights. Without this market for pollution rights, the quantity (tons) of pollution would be: Select one: a. Q3, if demand is D2. b. Q1, if demand is D1. c. Q2, if demand is D2. d. Q1, if demand is D2.

a. Q3, if demand is D2.

Which of the following is correct? Select one: a. Vertical mergers are more likely to be acceptable under antitrust laws than are horizontal mergers. b. A vertical merger entails the merging of two or more competing firms. c. Horizontal mergers are more likely to be acceptable under antitrust laws than are vertical mergers. d. Conglomerate mergers occur when two or more firms at various stages in a good's production are combined.

a. Vertical mergers are more likely to be acceptable under antitrust laws than are horizontal mergers.

The individual firm in a purely competitive labor market faces: Select one: a. a perfectly elastic labor supply curve and a downsloping labor demand curve. b. a perfectly elastic labor demand curve and an upsloping labor supply curve. c. labor demand and labor supply curves both of which are perfectly elastic. d. a downsloping labor demand curve and an upsloping labor supply curve.

a. a perfectly elastic labor supply curve and a downsloping labor demand curve.

In the balance of payments of the United States, inflows of foreign currencies to the United States are recorded as: Select one: a. a positive entry. b. a current account entry. c. a negative entry. d. net investment income.

a. a positive entry.

Which of the following is an example of a public good? Select one: a. a weather warning system b. a television set c. a sofa d. a bottle of soda

a. a weather warning system

The median-voter model implies that a political office seeker will: Select one: a. adopt more extreme views when seeking his or her party's nomination than when running against the other party's opponent. b. adopt less extreme views when seeking his or her party's nomination than when running against the other party's opponent. c. favor extensive government spending because demand curves for public goods are added vertically rather than horizontally. d. favor the private resolution of externality problems rather than governmental intervention.

a. adopt more extreme views when seeking his or her party's nomination than when running against the other party's opponent.

Minimum-wage legislation is less likely to have adverse effects on employment when the: Select one: a. affected labor market is monopsonistic. b. economy has high unemployment. c. derived demand for labor is shifting to the left. d. affected labor market is perfectly competitive.

a. affected labor market is monopsonistic.

Marginal revenue product measures the: Select one: a. amount by which the extra production of one more worker increases a firm's total revenue. b. decline in product price that a firm must accept to sell the extra output of one more worker. c. increase in total resource cost resulting from the hire of one extra unit of a resource. d. increase in total revenue resulting from the production of one more unit of a product.

a. amount by which the extra production of one more worker increases a firm's total revenue.

The XYZ Corporation's collective bargaining agreement indicates that it may hire either union or nonunion workers and that the latter are under no obligation to join the union. This agreement embodies: Select one: a. an open shop. b. a closed shop. c. a union shop. d. an agency shop.

a. an open shop.

Refer to the above diagram. Other things equal, a leftward shift of the supply curve would: Select one: a. appreciate the euro. b. cause a shortage of euros. c. increase the equilibrium quantity of euros. d. appreciate the dollar.

a. appreciate the euro.

Economic rent refers to the price paid for land and other natural resources that: Select one: a. are fixed in total supply. b. vary directly with their market prices. c. vary inversely with their market prices. d. are available in nearly unlimited quantities.

a. are fixed in total supply.

The demand for loanable funds is downsloping: Select one: a. because businesses find that more investments are profitable at low interest rates than at high interest rates. b. because households are willing to save more at high interest rates than at low interest rates. c. only when the nominal interest rate exceeds the real interest rate. d. because the amount of profitable business investment varies directly with the interest rate.

a. because businesses find that more investments are profitable at low interest rates than at high interest rates.

Which of the lines in the above diagram represent(s) a progressive tax? Select one: a. both A and B. b. D only. c. C only. d. B only.

a. both A and B.

Wage differentials can arise from: Select one: a. both the demand-side and supply-side of labor markets. b. the demand-side of labor markets only. c. the supply-side of labor markets only. d. neither the demand-side or supply-side of labor markets.

a. both the demand-side and supply-side of labor markets.

Use the resource demand data shown on the left and the resource supply data on the right in answering the following question(s): Refer to the above data. We can conclude that: Select one: a. both the product and resource markets are imperfectly competitive. b. the resource market is imperfectly competitive but the product market is purely competitive. c. both the resource and product markets are purely competitive. d. the resource market is purely competitive but the product market is imperfectly competitive.

a. both the product and resource markets are imperfectly competitive.

Suppose you go to a doctor but your health insurance plan reimburses you for only 80 percent of the bill. This is an example of: Select one: a. coinsurance. b. a deductible. c. monopsony power. d. a deferred benefit plan.

a. coinsurance.

Antitrust authorities are least likely to take action against: Select one: a. conglomerate mergers. b. horizontal mergers. c. interlocking directorates. d. price fixing.

a. conglomerate mergers.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003: Select one: a. created both a prescription drug benefit for Medicare enrollees and health savings accounts (HSAs). b. authorized the purchase of lower cost prescription medicine from Canada and Europe. c. established limits on malpractice awards for "pain and suffering" cases relating to the elderly. d. provides prescription drugs to those over the age of 65 at no direct cost to the patient.

a. created both a prescription drug benefit for Medicare enrollees and health savings accounts (HSAs).

Other things equal, we would expect the labor demand curve of a monopolistic seller to: Select one: a. decline more rapidly than that of a purely competitive seller. b. decline less rapidly than that of a purely competitive seller. c. decline at the same rate as that of a purely competitive seller. d. be more elastic than that of a purely competitive seller.

a. decline more rapidly than that of a purely competitive seller. Correct

Answer the next question(s) on the basis of the following 2006 balance of payments data (+ and Picture ) for the hypothetical nation of Zabella. All figures are in billions of dollars. Refer to the above data. Zabella's balance on capital and financial account shows a: Select one: a. deficit of $5 billion. b. surplus of $10 billion. c. deficit of $10 billion. d. surplus of $5 billion.

a. deficit of $5 billion.

Travel by U.S. citizens within Europe creates a: Select one: a. demand for euros and a supply of dollars. b. both a supply of dollars and a demand for dollars. c. demand for dollars and a supply of euros. d. supply of euros and a demand for dollars.

a. demand for euros and a supply of dollars.

Some economists advocate taxes on land because such taxes: Select one: a. do not affect the supply of land. b. increase the supply of land. c. improve the allocation of land by shifting it from low-productivity to high-productivity uses. d. have a positive incentive function.

a. do not affect the supply of land.

Farm programs such as those of the United States and the European Union: Select one: a. encourage the United States and the European Union to use tariffs and quotas to restrict agricultural imports. b. cause United States and European Union farmers to produce less than domestic consumers want to purchase. c. increase world market prices for agricultural products. d. raise farm output in developing nations.

a. encourage the United States and the European Union to use tariffs and quotas to restrict agricultural imports.

Domestic price supports on, say, sugar: Select one: a. generate trade barriers to reduce imports of foreign sugar. b. increase world sugar prices. c. keep the domestic price of sugar artificially low. d. increase the earnings of foreign sugar producers.

a. generate trade barriers to reduce imports of foreign sugar.

Assume that you pay $5,000 of tax on a taxable income of $20,000. If your taxable income were $40,000, your tax payment would be $12,000. This suggests the tax is: Select one: a. progressive. b. proportional. c. regressive. d. discriminatory.

a. progressive.

Trade Adjustment Assistance: Select one: a. helps worker dislocated by international trade without erecting barriers that impede foreign trade. b. subsidizes new firms trying to compete in international markets. c. protects domestic jobs by reducing imports. d. establishes a series of gradually loosened import quotas so that domestic firms have time to improve their international competitiveness or transition to new markets.

a. helps worker dislocated by international trade without erecting barriers that impede foreign trade.

Other things equal, increased emphasis on providing the best possible medical care for all, regardless of income, will: Select one: a. increase the demand for health care. b. increase the supply of health care. c. have no effect. d. decrease the demand for health care.

a. increase the demand for health care.

Since 1950, U.S. farm exports have: Select one: a. increased as a percentage of U.S. farm output. b. declined as a percentage of U.S. farm output. c. average about 10 percent of U.S. farm output. d. averaged about 50 percent of U.S. farm output.

a. increased as a percentage of U.S. farm output.

Assume the price of capital doubles and, as a result, firms make no change in the relative quantities of capital and labor they employ. This implies that: Select one: a. labor is not readily substitutable for capital. b. the law of diminishing returns is not applicable. c. the firms are producing an inferior good. d. the demand for capital is highly price elastic.

a. labor is not readily substitutable for capital.

Other things equal, if wage rates increase by 20 percent, the greatest decline in employment will occur when labor costs are a: Select one: a. large proportion of total costs and product demand is elastic. b. small proportion of total costs and product demand is elastic. c. large proportion of total costs and product demand is inelastic. d. small proportion of total costs and product demand is inelastic.

a. large proportion of total costs and product demand is elastic.

A monopsonist pays a wage rate that is: Select one: a. less than the MRP of labor. b. equal to the firm's marginal resource (labor) cost. c. equal to the MRP of labor. d. greater than the MRP of labor.

a. less than the MRP of labor.

Refer to the above diagram. Which one of the following might shift the marginal benefit curve from MB1 to MB2? Select one: a. major new studies strongly linking cancer to pollution b. improved technology for reducing pollution c. a change in consumer tastes from manufacturing goods to services d. a decrease in the price of recycled goods

a. major new studies strongly linking cancer to pollution

The substitution effect indicates that a profit-seeking firm will use: Select one: a. more of an input whose price has fallen and less of other inputs in producing a given output. b. more of all inputs if production costs fall. c. more of those inputs whose marginal productivity is the greatest. d. less of an input whose price has fallen and more of other inputs in producing a given output.

a. more of an input whose price has fallen and less of other inputs in producing a given output.

Refer to the above diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a) and from S to S2 in diagram (b). We can conclude that the government is correcting for: Select one: a. negative externalities in diagram (a) and positive externalities in diagram (b). b. positive externalities in diagram (a) and negative externalities in diagram (b). c. negative externalities in both diagrams. d. positive externalities in both diagrams.

a. negative externalities in diagram (a) and positive externalities in diagram (b).

If the demand for a product is perfectly elastic and supply is upsloping, a $1 excise tax per unit on suppliers will: Select one: a. not raise price at all. b. lower price by $1. c. raise price by more than $1. d. raise price by $1.

a. not raise price at all.

Refer to the above diagrams that show identical marginal utility from income curves for Singer and Catalano. If a given income of $20,000 is initially distributed so that Singer receives $15,000 and Catalano $5,000, the marginal utility: Select one: a. of the last dollar of income will be greater for Catalano than for Singer. b. derived from the last dollar will not be comparable as between the two income receivers. c. of the last dollar of income will be the same for both Singer and Catalano. d. of the last dollar of income will be greater for Singer than for Catalano.

a. of the last dollar of income will be greater for Catalano than for Singer.

The purely competitive employer of resource A will maximize the profits from A by equating the: Select one: a. price of A with the MRP of A. b. marginal productivity of A with the MRC of A. c. marginal productivity of A with the price of A. d. price of A with the MRC of A.

a. price of A with the MRP of A.

Refer to the above graphs. Terryville has a comparative advantage in producing: Select one: a. product A. b. product B. c. both product A and B. d. neither product A nor B.

a. product A.

The main purpose of HMOs and PPOs is to: Select one: a. reduce health care costs for employers and their employees. b. reduce medical malpractice suits. c. enable groups of physicians to increase their fees. d. direct patients to specialists rather than to more expensive primary-care physicians.

a. reduce health care costs for employers and their employees.

The efficiency loss of a tax is: Select one: a. the net value of sacrificed output caused by the tax. b. that portion of the tax paid by producers minus the portion paid by consumers. c. that portion of the tax paid by consumers minus the portion paid by producers. d. the total tax revenue minus the output loss caused by the tax.

a. the net value of sacrificed output caused by the tax.

As it applies to insurance, the adverse selection problem is the tendency for: Select one: a. those most likely to collect on insurance to buy it. b. those who buy insurance to take less precaution in avoiding the insured risk. c. sellers to price discriminate. d. sellers to restrict output and charge high prices.

a. those most likely to collect on insurance to buy it.

The largest single share of all income earned by Americans consists of: Select one: a. wages and salaries. b. interest. c. rents. d. corporate profits.

a. wages and salaries.

Answer the next question(s) on the basis of the following domestic supply and demand schedules for a product. Suppose that the world price of the product is $1. Refer to the above data. If the economy was opened to free trade and the world price of $1 prevailed, the price and quantity sold of this product would be: Select one: a. $1 and 1 unit. b. $1 and 16 units. c. $3 and 7 units. d. $2 and 11 units.

b. $1 and 16 units.

Suppose that interest payments are $140 per year on a $1,000 loan and $1,188 per on a $8,485 loan. The interest rates on the two loans are: Select one: a. 14 percent and 20 percent, respectively. b. 14 percent on both loans. c. 18.8 percent on both loans. d. 1.4 percent and 11.8 percent, respectively.

b. 14 percent on both loans.

Currently capitalist income, that is, corporate profits, interest, and rent, accounts for about what percentage of the income paid to American resource suppliers? Select one: a. 10 percent b. 20 percent c. 50 percent d. 80 percent

b. 20 percent

Which of the following is not correct? Select one: a. Other things equal, a monopsonist will pay a lower wage rate than will a firm hiring labor competitively. b. A monopsonistic employer will pay workers a wage rate equal to their MRP. c. A purely competitive seller will pay workers a wage rate equal to their MRP. d. An imperfectly competitive seller will pay workers a wage rate equal to their MRP.

b. A monopsonistic employer will pay workers a wage rate equal to their MRP.

Refer to the above figure in which S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The total tax collection from this excise tax will be area: Select one: a. ABCE + ECF. b. ABCE. c. ECF. d. 0BCG.

b. ABCE.

Historically, many aspects of U.S. farm policies had their origins in the: Select one: a. Agricultural Extension Service Act. b. Agricultural Adjustment Act. c. Homestead Act. d. Land Grant Act.

b. Agricultural Adjustment Act.

Suppose a court rules that the ABC Corporation is in violation of the antitrust laws because it produces 70 percent of the output of its industry. This decision is consistent with the: Select one: a. U.S. Steel case. b. Alcoa case. c. behavioralist approach to antitrust. d. legal cartel theory of regulation.

b. Alcoa case.

If the exchange rate changes so that more Mexican pesos are required to buy a dollar, then: Select one: a. the peso has appreciated in value. b. Americans will buy more Mexican goods and services. c. more U.S. goods and services will be demanded by the Mexicans. d. the dollar has depreciated in value.

b. Americans will buy more Mexican goods and services.

Refer to the above diagram in which S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The total amount of the tax paid by producers is shown by area(s): Select one: a. A + B + F. b. C only. c. A + B + C. d. E + F.

b. C only.

A person arguing that income inequality is actually less than that described by the standard Census data might say that the: Select one: a. Census data fail to include cash transfers as income. b. Census data fail to include the value of noncash transfers as income. c. lifetime distribution of income is less equal than the annual distribution. d. household distribution of wealth is much more equally distributed than the household distribution of income.

b. Census data fail to include the value of noncash transfers as income.

All of the following are regulatory commissions dealing with social regulation (as distinct from industrial regulation) except the: Select one: a. Food and Drug Administration. b. Federal Energy Regulatory Commission. c. Equal Employment Opportunities Commission. d. Consumer Products Safety Commission.

b. Federal Energy Regulatory Commission.

Refer to the above diagram pertaining to two nations and a specific product. The equilibrium world price occurs at: Select one: a. F. b. I. c. G. d. J.

b. I.

Answer the next question(s) on the basis of the following five schedules, all of which represent income tax schedules for an economy. All figures are in billions of dollars. Which of the above schedules represent(s) a progressive tax? Select one: a. V only b. III and V c. II and III d. III only

b. III and V

In the Microsoft antitrust case, the Federal government said in essence that: Select one: a. the mere presence of monopoly violated the Sherman Act, irrespective of Microsoft's behavior. b. Microsoft was a "bad monopoly." c. Microsoft was generally a "good monopoly," but that its tying contracts involving Internet Explorer violated the Clayton Act. d. the case was similar to the U.S. Steel case of 1920.

b. Microsoft was a "bad monopoly."

Farm groups spend considerable amounts of money to maintain and enlarge political support for farm subsidies. This illustrates: Select one: a. coalitions. b. rent-seeking activity. c. the special-interest effect. d. the voting paradox.

b. rent-seeking activity.

Which of the following statements is correct? Select one: a. Limited access to the health care system is a major cause of rising health care costs. b. Rising health care costs are a major cause of limited access to the health care system. c. Rising health care costs have forced employers to raise real wages above labor productivity. d. The tax subsidy which government provides for health care causes health care to be underconsumed.

b. Rising health care costs are a major cause of limited access to the health care system.

For which of the following income-maintenance programs is aggregate spending the greatest? Select one: a. Medicare b. Social Security c. unemployment compensation d. TANF

b. Social Security

Which of the following is correct? Select one: a. The number of physicians per 100,000 of population has been decreasing. b. The average income of physicians is the highest of all major professions. c. As compared to other major professions, physicians earn the highest rate of return on their educational investments. d. The "target income hypothesis" suggests that an increase in the supply of physicians would reduce patient fees.

b. The average income of physicians is the highest of all major professions.

The organization created to oversee the provisions of multilateral trade agreements, resolve disputes under the international trade rules, and meet periodically to consider further trade liberalization is called the: Select one: a. International Monetary Fund (IMF). b. World Trade Organization (WTO). c. Common Market Organization (CMO). d. International Trade Commission (ITC).

b. World Trade Organization (WTO).

Which of the following creates a supply of Canadian dollars in foreign exchange markets? Select one: a. a Frenchman redeems a bond issued by a Canadian manufacturer b. a Canadian exporter buys insurance from a U.S. firm c. an American student takes a summer trip to Canada d. a U.S. importer buys 500 cases of Canadian maple syrup

b. a Canadian exporter buys insurance from a U.S. firm

A bumper crop of farm products causes: Select one: a. only a slight decline in the price of farm products because the demand for farm products is income inelastic. b. a large decline in the price of farm products because the demand for farm products is price inelastic. c. only a slight decline in the price of farm products because the demand for farm products is income elastic. d. a large decline in the price of farm products because the demand for farm products is price elastic.

b. a large decline in the price of farm products because the demand for farm products is price inelastic.

Which of the following best reflects the ability-to-pay philosophy of taxation? Select one: a. a tax on residential property b. a progressive income tax c. an excise tax on gasoline d. an excise tax on coffee

b. a progressive income tax

A major purpose of usury laws is to make more funds available to low-income borrowers. Economic analysis suggests that usury laws: Select one: a. are effective in achieving this goal. b. allocate available funds to high-income borrowers. c. have no impact on the allocation of funds between high-income and low-income people. d. help low-income people only when the legal interest rate is above the market rate.

b. allocate available funds to high-income borrowers.

(Consider This) The hand-held ultrasound devices that are slowly replacing stethoscopes for physical exams are: Select one: a. considerably less expensive than stethoscopes on a per patient basis. b. considerably more expensive than stethoscopes on a per patient basis. c. an example of a cost-saving medical technology. d. an example of the benefits of government tax subsidies for medical research.

b. considerably more expensive than stethoscopes on a per patient basis.

The marginal productivity theory of income distribution suggests that : Select one: a. government should subsidize the most productive workers through a system of transfer payments. b. each individual should receive income based on his contribution to total output. c. resource owners should receive income based on the idea of "from each according to his ability, to each according to his wants." d. resource owners should receive income based upon their needs.

b. each individual should receive income based on his contribution to total output.

In his Progress and Poverty, Henry George argued that: Select one: a. poverty is associated with the personal characteristics of individuals and therefore cannot be remedied by government antipoverty programs. b. economic rent could be heavily taxed without impairing the supply of land or therefore the production capacity of the economy. c. rents should not be taxed because rental income is the basic source of saving, which ultimately permits a high level of investment and economic growth. d. taxes on rents are undesirable because they have a severe disincentive effect on landlords.

b. economic rent could be heavily taxed without impairing the supply of land or therefore the production capacity of the economy.

The purpose of the Freedom to Farm Act of 1996 was to: Select one: a. immediately end U.S. farm subsidies. b. end 60 years of U.S. price supports for American grain crops. c. eliminate U.S. tariffs and quotas on imported farm goods. d. stabilize short-run crop prices.

b. end 60 years of U.S. price supports for American grain crops.

A union might increase the demand for the labor services of its members by: Select one: a. decreasing the demand for the product it is producing. b. enhancing the productivity of its members. c. decreasing the prices of substitute inputs. d. increasing the prices of complementary inputs.

b. enhancing the productivity of its members.

Usury laws: Select one: a. allocate funds from low-productivity to high-productivity investments. b. establish a legal ceiling on interest rates. c. make more funds available to low-income borrowers. d. create a surplus of loanable funds.

b. establish a legal ceiling on interest rates.

In a labor dispute in which the existing contract has expired, a: Select one: a. firm can legally lock up unruly workers. b. firm can legally lock out union workers. c. union can legally restrict customer physical access to the firm. d. union can legally restrict physical access by management to the firm.

b. firm can legally lock out union workers.

The legal cartel theory of regulation argues that: Select one: a. regulation encourages firms to inflate their production costs. b. firms in certain industries want to be regulated rather than face the rigors of competition. c. social regulation has been carried beyond the point at which marginal benefits and marginal costs are equal. d. the government is the logical agency to protect consumers from natural monopolies.

b. firms in certain industries want to be regulated rather than face the rigors of competition.

In which of the following U.S. industries is the rate of unionization the highest? Select one: a. construction b. government c. retail trade d. agriculture

b. government

The problem of asymmetric information is that: Select one: a. neither health care buyers nor providers are well-informed. b. health care providers are well-informed, but buyers are not. c. the outcomes of many complex medical procedures cannot be predicted. d. insurance companies are well-informed but policy purchasers are not.

b. health care providers are well-informed, but buyers are not.

Answer the next question(s) on the basis of the following table showing market shares of firms in hypothetical industries. Assume these are distinct industries with no buyer-seller relationships or competition among them. Refer to the above table. A merger between Firm 2 and Firm 3 in Alpha would be a: Select one: a. vertical merger. b. horizontal merger. c. diagonal merger. d. conglomerate merger.

b. horizontal merger.

Assumptions: (1) The demand for labor in Alphania and Betania are as shown by DA and DB, respectively; (2) Alphania's native labor force is F and that of Betania is g; and (3) full employment exists in both countries. Refer to the above diagram and assumptions. If migration is costless and unimpeded, business income will: Select one: a. decrease in Betania, but increase in Alphania. b. increase in Betania, but decrease in Alphania. c. decrease in both Alphania and Betania. d. increase in both Alphania and Betania.

b. increase in Betania, but decrease in Alphania.

Other things equal, an increase in the productivity of capital goods will: Select one: a. increase the demand for loanable funds and decrease the equilibrium interest rate. b. increase the demand for loanable funds and increase the equilibrium interest rate. c. increase the supply of loanable funds and decrease the equilibrium interest rate. d. increase the supply of loanable funds and increase the equilibrium interest rate.

b. increase the demand for loanable funds and increase the equilibrium interest rate.

Which of the following helps explain growing income inequality in the United States in recent years? Select one: a. reduced immigration b. increased demand for highly skilled workers c. the falling labor force participation rate of women d. increased power of unions

b. increased demand for highly skilled workers

The demand for most agricultural products: Select one: a. is such that as price falls total revenue will increase. b. is price inelastic. c. declines as population increases. d. is increasing faster in the United States than the supply of these products.

b. is price inelastic.

"Income receivers should be paid in accordance with the value of output each produces." This statement is consistent with the: Select one: a. monopoly theory of income distribution. b. marginal productivity theory of income distribution. c. least-cost, but not profit-maximizing, combination of inputs. d. concept of compensating wage differences.

b. marginal productivity theory of income distribution.

A market in which the entire demand for a good or service can be satisfied at the least cost by a single firm is a: Select one: a. horizontal market. b. natural monopoly. c. contestable market. d. perfect market.

b. natural monopoly.

Tying agreements: Select one: a. are legal in the United States, even though they may reduce competition. b. occur when the purchase of one product obligates the buyer to purchase other products from the same seller. c. refer to any long-term contract between a buyer and a seller. d. were outlawed by the Celler-Kefauver Act.

b. occur when the purchase of one product obligates the buyer to purchase other products from the same seller.

If discrimination based on gender and race was eliminated, we would expect the: Select one: a. personal distribution of income to become less equal. b. personal distribution of income to become more equal. c. personal distribution of income to be unaffected. d. functional distribution of income to change in favor of profits and interest.

b. personal distribution of income to become more equal.

If farm state legislators support the food-stamp program to aid the urban poor and urban state legislators in turn support farm subsidies, this is an example of: Select one: a. the special-interest effect. b. political logrolling. c. the paradox of voting. d. cost-benefit analysis.

b. political logrolling.

As applied to gender discrimination, the crowding model of occupational segregation: Select one: a. helps explain why women earn more than men. b. predicts that men's wages would fall and women's wages would rise if occupational segregation was eliminated. c. predicts that domestic output would decline if occupational segregation was ended. d. predicts that competition will eventually totally end discrimination.

b. predicts that men's wages would fall and women's wages would rise if occupational segregation was eliminated.

Because majority voting fails to incorporate the strength of the preferences of individual voters, it: Select one: a. creates negative externalities. b. produces economically inefficient outcomes under some circumstances. c. leads to market failure. d. leads to politics dominated by special interest groups.

b. produces economically inefficient outcomes under some circumstances.

Refer to the above graphs. Stanville has a comparative advantage in producing: Select one: a. product A. b. product B. c. both product A and B. d. neither product A nor B.

b. product B.

Assume that a restaurant is hiring labor in an amount such that the MRC of the last worker is $16 and her MRP is $12. On the basis of this information we can say that: Select one: a. profits will be increased by hiring additional workers. b. profits will be increased by hiring fewer workers. c. marginal revenue product must exceed average revenue product. d. the restaurant is maximizing profits.

b. profits will be increased by hiring fewer workers.

The Earned Income Tax Credit: Select one: a. increases the personal income tax liability of low-income working families. b. provides a cash payment to low-income working families if their tax credit exceeds their tax liability. c. is designed to make labor force employment less attractive. d. was eliminated as part of welfare reform in 1996.

b. provides a cash payment to low-income working families if their tax credit exceeds their tax liability.

The field of economics that analyzes government decision making, politics, and elections is called: Select one: a. public finance. b. public choice theory. c. collective economics. d. political economy.

b. public choice theory.

In 1994, the world's trading nations agreed to: Select one: a. increase export subsidies to reduce world surpluses of farm products. b. reduce agricultural subsidies and tariffs on agricultural imports. c. eliminate all price supports for farm products. d. create an international farm price support system to replace the price support systems of individual countries.

b. reduce agricultural subsidies and tariffs on agricultural imports.

Insurance companies use deductibles and copayments to: Select one: a. increase access to health care. b. reduce health care costs by discouraging overuse of the health care system. c. prevent small companies from self-insuring their workers. d. keep government out of the health care insurance industry.

b. reduce health care costs by discouraging overuse of the health care system.

Many economists are critical of the minimum wage because they believe that it: Select one: a. hurts the efforts of labor unions. b. reduces the number of available job opportunities. c. conflicts with policies designed to equalize the distribution of income. d. causes labor shortages in affected markets.

b. reduces the number of available job opportunities.

The price elasticity of demand for health care is: Select one: a. perfectly inelastic. b. relatively inelastic. c. relatively elastic. d. perfectly elastic.

b. relatively inelastic.

According to most experts, which of the following factors is most important in causing health care costs to rise? Select one: a. the aging of the population b. rising incomes c. malpractice suits d. fee-for-service health insurance and cost-increasing technology.

b. rising incomes

Sales and excise taxes are levied on retailers, but retailers add these taxes to the prices of their products. This illustrates the: Select one: a. equal sacrifice theory of taxation. b. shifting of taxes to consumers. c. ability-to-pay principle of taxation. d. benefits-received principle of taxation.

b. shifting of taxes to consumers.

Overall, the U.S. tax system (combined Federal, state, and local) is: Select one: a. highly progressive. b. slightly progressive. c. slightly regressive. d. highly regressive.

b. slightly progressive.

The creation of a market for pollution rights would: Select one: a. reduce air and water pollution to zero. b. stimulate the search for pollution-reducing technologies. c. induce an increase in the supply of pollution rights. d. be in conflict with the concept of user charges.

b. stimulate the search for pollution-reducing technologies.

The demand for farmland will increase if: Select one: a. the demand for food decreases. b. technological advances make land more productive. c. the price of farm labor increases and the output effect exceeds the substitution effect. d. the supply of farmland increases.

b. technological advances make land more productive.

Which of the following demographic groups does not bear a disproportionate burden of poverty? Select one: a. households headed by women b. the elderly c. Hispanics d. African-Americans

b. the elderly

Refer to the above diagrams. Assume that only wheat can be grown on the three grades of land shown in Figures a, b, and c. Also assume that identical amounts of labor, capital, and other needed inputs are used in farming each grade of land. On the basis of these three figures we can say that: Select one: a. the land shown in both Figures (a) and (b) is a "free good." b. the land shown in Figure (a) only is a "free good." c. the land shown in all three figures is a "free good." d. land is not a "free good" in any of the three figures.

b. the land shown in Figure (a) only is a "free good."

If a firm is selling in an imperfectly competitive product market, then: Select one: a. average product will be less than marginal product for any number of workers hired. b. the marginal products of successive workers must be sold at lower prices. c. the marginal products of successive workers can be sold at higher prices. d. the marginal products of successive workers can be sold at a constant price.

b. the marginal products of successive workers must be sold at lower prices.

If an individual is less inclined to avoid accidents or illness because she has health insurance, this is an example of: Select one: a. the free-rider problem. b. the moral hazard problem. c. the adverse selection problem. d. the Coase theorem.

b. the moral hazard problem.

If the existence of health insurance increases one's incentive to use the health care system more intensively, this is an illustration of: Select one: a. the adverse selection problem. b. the moral hazard problem. c. the benefits-received principle. d. the Coase theorem.

b. the moral hazard problem.

A situation in which society may not be able to rank its preferences consistently through majority voting refers to: Select one: a. logrolling. b. the paradox of voting. c. the median-voter model. d. the special-interest effect.

b. the paradox of voting.

In comparing a tariff and an import quota we find that: Select one: a. the tariff and quota both generate the same amount of revenue for the United States Treasury. b. the tariff generates revenue for the United States Treasury but the quota does not. c. the quota generates revenue for the United States Treasury but the tariff does not. d. neither the tariff nor the quota generates revenue for the United States Treasury.

b. the tariff generates revenue for the United States Treasury but the quota does not.

The ABC Company can hire either union or nonunion workers. But any nonunion workers who are hired must join the union in thirty days or forfeit their jobs. The ABC Company has a(n): Select one: a. preferential hiring agreement. b. union shop. c. closed shop. d. open shop.

b. union shop.

Refer to the above diagram. If farmers produce a bumper crop of Qb, their gross income: Select one: a. will be 0PpPBQb. b. will be 0PbBQb. c. will be PbPictureQn. d. cannot be determined.

b. will be 0PbBQb.

Suppose the price of the product that labor is producing increases and simultaneously the price of capital, which is substitutable for labor, decreases. Assuming that the substitution effect is greater than the output effect, the demand for labor: Select one: a. will increase. b. will decrease. c. may either increase or decrease. d. will not change.

b. will decrease.

Which of the following prohibited mergers by stock acquisition if the effect was to lessen competition? Select one: a. Celler-Kefauver Act of 1950 b. Wheeler-Lea Act of 1938 c. Clayton Act of 1914 d. Sherman Act of 1890

c. Clayton Act of 1914

Suppose there is a decline in the demand for the product labor is producing. Furthermore, the price of capital, which is complementary to labor, increases. Thus the demand for labor: Select one: a. will increase. b. will decrease. c. may either increase or decrease. d. will not change.

b. will decrease.

The saying "Give a person a fish and he shall eat today; teach a person to fish and he will eat forever" is most consistent with: Select one: a. the food stamp program. b. workfare plans that pay for job training. c. cash transfer programs. d. social insurance plans.

b. workfare plans that pay for job training.

(Last Word) In 2005, chief executive officers (CEOs) pay at U.S. firms with around $500 million in annual sales averaged: Select one: a. $600 thousand. b. $1.2 million. c. $2.2 million. d. $4.5 million.

c. $2.2 million.

Refer to the above data. This firm's product price is: Select one: a. $2. b. $3. c. $4. d. $16.

c. $4.

(Advanced analysis) Answer the next question(s) on the basis of the following information: The equations for the demand and supply curves for a particular product are P = 10 Picture .4Q and P = 2 + .4Q, where P is price and Q is quantity expressed in units of 100. After an excise tax is imposed on the product the supply equation is P = 3 + .4Q. Refer to the above information. Government's revenue from this tax is: Select one: a. $750. b. $1,500. c. $875. d. $800.

c. $875.

In which of the above market situations will the largest portion of an excise tax of a specified amount per unit of output be borne by buyers? Select one: a. 4 b. 3 c. 1 d. 2

c. 1

The following diagram is a flexible exchange market for foreign currency: Refer to the above diagram. At the equilibrium exchange rate: Select one: a. $8 will buy 1 euro. b. .8 euros will buy $1. c. 1.25 euros will buy $1. d. $1 will buy 8 euros.

c. 1.25 euros will buy $1.

Answer the next Question(s) on the basis of the following information. Suppose population A, consisting of Al, Bob, Curt, Doris, and Ellie, receive annual incomes of $5,000, $2,500, $1,250, $750, and $500, respectively. Refer to the above information. What percentage of total income is received by the lowest 60 percent of the income receivers in population A? Select one: a. 60 b. 50 c. 25 d. 18

c. 25

Answer the next question(s) on the basis of the following information for a public good. Pa and Pb are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it. These people are the only two members of society. Refer to the above data. If the marginal cost of this good at the optimal quantity is $4, the optimal quantity must be: Select one: a. 1 unit. b. 2 units. c. 3 units. d. 4 units.

c. 3 units.

Refer to the above labor market diagrams. The tactics of inclusive unionism are shown in Figure(s): Select one: a. 5 only. b. 3 only. c. 4 and 5. d. 1 and 2.

c. 4 and 5.

Refer to the above data. If the market wage rate is $8, this firm will employ: Select one: a. 2 workers. b. 3 workers. c. 4 workers. d. 5 workers.

c. 4 workers.

Answer the next question(s) on the basis of the following marginal product data for resources a and b. The output of these independent resources sells in a purely competitive market at $1 per unit. Refer to the above data. Assuming the prices of resources a and b are $5 and $8 respectively, what is the profit-maximizing combination of resources? Select one: a. 7 of a and 7 of b b. 6 of a and 4 of b c. 5 of a and 7 of b d. 4 of a and 4 of b

c. 5 of a and 7 of b

In 2005, the United States current account deficit was what proportion of GDP? Select one: a. 2.3 percent b. 5.7 percent c. 6.4 percent d. 8.2 percent

c. 6.4 percent

Which of the following is correct? Select one: a. The rapid expansion of foreign incomes will reduce U.S. agricultural exports. b. A decrease in the international value of the dollar will reduce U.S. agricultural exports. c. An increase in the international value of the dollar will reduce U.S. agricultural exports. d. Changes in the international value of the dollar have no effect on U.S. agricultural exports.

c. An increase in the international value of the dollar will reduce U.S. agricultural exports.

In terms of individual nations, the largest U.S. trade deficit is with: Select one: a. Japan. b. Mexico. c. China. d. Canada.

c. China.

(Consider This) Which of the following methods is commonly used by farmers to "smooth" income over time? Select one: a. Producing only one crop to benefit from specialization. b. Renting land from other farmers to increase production. c. Entering contracts with buyers of their farm output to assume themselves of a fixed price. d. All of these risk-management techniques are used to hedge against short-run price and output fluctuations.

c. Entering contracts with buyers of their farm output to assume themselves of a fixed price.

The antitrust laws are enforced by the: Select one: a. Federal Bureau of Investigation. b. Antimonopoly Court of Appeals. c. Federal Justice Department and the Federal Trade Commission. d. Department of Commerce.

c. Federal Justice Department and the Federal Trade Commission.

Answer the next question(s) on the basis of the following information: Suppose a firm hires both labor (L) and capital (C) under purely competitive conditions. The price of labor is PL and that of capital is PC. The marginal product of labor is MPL and that of capital is MPC. The firm sells its product competitively at a price of PX. Refer to the above information. Which of the following must pertain if the firm is to minimize the cost of producing any output? Select one: a. MPC = MPL = PX b. MPC = PC and MPL = PL c. MPC/PC = MPL/PL d. MPC/PX = MPL/PX

c. MPC/PC = MPL/PL

Unions might support a higher minimum wage because: Select one: a. their constitutions obligate them to do so. b. they feel a higher minimum wage will lower labor's tax payments for welfare programs. c. a higher minimum wage makes less-skilled workers less substitutable for union workers. d. the minimum wage is better targeted than are alternative income-maintenance programs.

c. a higher minimum wage makes less-skilled workers less substitutable for union workers.

The marginal cost-marginal benefit approach to migration suggests that: Select one: a. the optimal amount of immigration to the United States is probably zero. b. everyone who wishes to come to the United States should be allowed to do so. c. a particular level of immigration may be too low or too high. d. efforts to reduce the inflow of illegal immigrants should be abandoned.

c. a particular level of immigration may be too low or too high.

The Clean Air Act of 1990: Select one: a. places taxes on utilities emitting sulfur dioxide, the major cause of acid rain. b. sets aside billions of dollars to promote recycling. c. allows utilities to buy and sell sulfur dioxide emission credits provided by government. d. places taxes on producers who emit toxic chemicals.

c. allows utilities to buy and sell sulfur dioxide emission credits provided by government.

In the U.S. Steel case of 1920 the courts held that: Select one: a. the structure of an industry is more important than its behavior in determining violations of the antitrust laws. b. any firm which faces substantial import competition is exempt from the antitrust laws. c. although U.S. Steel possessed monopoly power, it had not violated the Sherman Act because it had not unreasonably used that power. d. the fact that U.S. Steel possessed monopoly power was a violation of the Sherman Act.

c. although U.S. Steel possessed monopoly power, it had not violated the Sherman Act because it had not unreasonably used that power.

The perceived central economic problem associated with the U.S. health care system is: Select one: a. too many frivolous malpractice law suits. b. an overabundance of scanning machines. c. an overallocation of resources to the system. d. that workers lose their insurance when they lose their jobs.

c. an overallocation of resources to the system.

Refer to the above diagram in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs. Assume that the number of people affected by these external costs is large. Without government interference, this market will result in: Select one: a. an optimal allocation of society's resources. b. an underallocation of resources to this product. c. an overallocation of resources to this product. d. a higher price than is consistent with an optimal allocation of resources.

c. an overallocation of resources to this product.

Gomez argues that we need to increase the nation's output. Chang contends that our top priority should be a more equal distribution of income and output. It can be correctly stated that these two goals are: Select one: a. essentially unrelated. b. complementary because the realization of one will promote fulfillment of the other. c. at least partially competing because the redistribution of income might impair incentives to work and produce. d. complementary because a more equal distribution of income always promotes economic growth.

c. at least partially competing because the redistribution of income might impair incentives to work and produce.

Farm share of U.S. GDP has: Select one: a. declined from about 14 percent in 1950 to 1 percent today. b. declined from about 14 percent in 1950 to 7 percent today. c. declined from about 7 percent in 1950 to 1 percent today. d. remained relatively stable over the past fifty years.

c. declined from about 7 percent in 1950 to 1 percent today.

Assume the supply curve for product X is perfectly elastic and that government imposes a $2 per unit excise tax. We can conclude that the resulting: Select one: a. increase in output will be greater the less elastic the demand curve. b. decrease in output will be greater the less elastic the demand curve. c. decrease in output will be greater the more elastic the demand curve. d. increase in output will be greater the more elastic the demand curve.

c. decrease in output will be greater the more elastic the demand curve.

A doubling of Social Security benefits is likely to: Select one: a. decrease the demand for loanable funds and increase the equilibrium interest rate. b. increase the supply of loanable funds and decrease the equilibrium interest rate. c. decrease the supply of loanable funds and increase the equilibrium interest rate. d. increase the real interest rate but not the nominal interest rate.

c. decrease the supply of loanable funds and increase the equilibrium interest rate.

Evidence of a chronic balance of payments deficit is: Select one: a. a decline in amount of the nation's currency held by other nations. b. an excess of exports over imports. c. diminishing reserves of foreign currencies. d. an increase in the international value of the nation's currency.

c. diminishing reserves of foreign currencies.

Refer to the above diagram pertaining to two nations and a specific product. Point G is the: Select one: a. domestic price for the nation represented by lines FA and FC. b. world equilibrium price. c. domestic price for the nation represented by lines GB and GD. d. price above the world equilibrium price.

c. domestic price for the nation represented by lines GB and GD.

In a purely competitive static economy: Select one: a. the demand for loanable funds would disappear. b. uncertainty would increase, causing profit to rise. c. economic profit would be zero. d. economic profit would be maximized.

c. economic profit would be zero.

Suppose the United States eliminates high tariffs on German bicycles. As a result, we would expect: Select one: a. the price of German bicycles to increase in the United States. b. employment to decrease in the German bicycle industry. c. employment to decrease in the U.S. bicycle industry. d. profits to rise in the U.S. bicycle industry.

c. employment to decrease in the U.S. bicycle industry.

Under the managed floating system of exchange rates: Select one: a. all exchange rates vary with changes in the free-market prices of gold. b. industrialized nations meet once each year to negotiate readjustments in their exchange rates. c. exchange rates are essentially flexible, but governments intervene to offset disorderly fluctuations in rates. d. exchange rates are adjusted at the discretion of the IMF.

c. exchange rates are essentially flexible, but governments intervene to offset disorderly fluctuations in rates.

The Bretton Woods system of exchange rates relied on: Select one: a. freely floating exchange rates. b. fixed exchange rates with no mechanism for changing them. c. fixed or pegged exchange rates, with occasional orderly adjustments to the rates. d. the United States to set and periodically review worldwide exchange rates.

c. fixed or pegged exchange rates, with occasional orderly adjustments to the rates.

The long-run trend of real wages: Select one: a. cannot be determined from available data on nominal wages and the price level. b. has been downward because the price level has risen faster than nominal wages. c. has been upward. d. has been downward because labor's share of the domestic income has fallen.

c. has been upward.

Price supports in agriculture have been criticized because they: Select one: a. have hastened the exodus of labor from agriculture. b. subsidize consumers at the expense of farmers. c. help large farmers more than small farmers. d. create product shortages.

c. help large farmers more than small farmers.

In the United States, the rate of unionization is: Select one: a. higher in mining than in government. b. lower in transportation than agriculture. c. higher in transportation than in retail trade. d. lower in government than in finance, insurance, and real estate.

c. higher in transportation than in retail trade.

The basic argument for income inequality is that: Select one: a. the very rich establish consumption patterns that are desirable for the rest of society to emulate. b. the rich buy luxury goods that soon become affordable to everyone else because of economies of scale. c. income inequality is essential to maintain incentives to produce. d. inequality undermines incentives and tends to reduce the size of the national income.

c. income inequality is essential to maintain incentives to produce.

Other things equal, the voluntary relocation of employable migrants from low-paying nations to high-paying nations will: Select one: a. increase business or capitalist incomes in the low-paying nations. b. reduce real output in the world. c. increase business or capitalist incomes in the high-paying nations. d. reduce wage rates in the low-paying nations.

c. increase business or capitalist incomes in the high-paying nations.

The food-stamp program is designed to: Select one: a. increase the supply of farm products. b. decrease the supply of farm products. c. increase the demand for farm products. d. decrease the demand for farm products.

c. increase the demand for farm products.

Critics of social regulation argue that it: Select one: a. causes deflation. b. violates the due process clause of the U.S. constitution. c. is a relatively greater burden for small firms than for large firms. d. improves allocative efficiency.

c. is a relatively greater burden for small firms than for large firms.

Income mobility: Select one: a. contributes to greater wealth inequality in the United States. b. is less in the United States than in most developing nations. c. is the movement of individuals and households from one income quintile to another over time. d. makes lifetime income inequality among income receivers in the United States greater than income inequality in any single year.

c. is the movement of individuals and households from one income quintile to another over time.

Henry George advocated a single tax on: Select one: a. real capital. b. entrepreneurial profits. c. land. d. labor income.

c. land.

The poverty rate in the United States was: Select one: a. 5 percent in 2004. b. higher in 2004 than in 1960. c. lower in 2004 than in 1993. d. 15 percent in 2004.

c. lower in 2004 than in 1993.

The general sales tax is regressive because: Select one: a. the incidence of the tax is on sellers rather than buyers. b. tax rates are constant and incomes are variable. c. lower income families save a smaller percentage of their incomes than do higher income families. d. tax rates decrease as consumer spending increases.

c. lower income families save a smaller percentage of their incomes than do higher income families.

Statistical discrimination refers to: Select one: a. the crowding of women or minorities into low-paying occupations. b. significant differences in average levels of earnings by gender, race, and ethnicity, after accounting for nondiscriminatory factors. c. making individual hiring decisions on the basis of the characteristics of the group to which a person belongs, rather than on his or her personal characteristics and productivity. d. the 50-percent unexplained residual in studies that try to account for wage differences by gender, race, and ethnic origin.

c. making individual hiring decisions on the basis of the characteristics of the group to which a person belongs, rather than on his or her personal characteristics and productivity.

If one worker can pick $30 worth of grapes and two workers together can pick $50 worth of grapes, the: Select one: a. marginal revenue product of each worker is $25. b. marginal revenue product of the first worker is $20. c. marginal revenue product of the second worker is $20. d. data given do not permit the determination of the marginal revenue product of either worker.

c. marginal revenue product of the second worker is $20.

The change in a firm's total revenue that results from the hire of an additional worker is measured by: Select one: a. marginal product. b. marginal revenue. c. marginal revenue product. d. average revenue product.

c. marginal revenue product.

Where there is asymmetric information between buyers and sellers. Select one: a. product shortages will occur at the equilibrium price. b. product surpluses will occur at the equilibrium price. c. markets can produce inefficient outcomes. d. markets will fail due to the "free-rider problem."

c. markets can produce inefficient outcomes.

A particular employer's discrimination coefficient d: Select one: a. will decrease if the employer becomes more prejudiced against African-Americans. b. must equal the actual ratio of African-American to white wage rates. c. measures the amount an employer is willing to pay to hire a white rather than a African-American worker. d. varies inversely with the actual African-American-white wage ratio.

c. measures the amount an employer is willing to pay to hire a white rather than a African-American worker.

In a television advertisement for AFLAC supplemental health insurance, an ice skater says to his skating partner, "Do you want to try a triple jump?" She responds, "Why not, I have AFLAC." This response illustrates the: Select one: a. principal-agent problem. b. Coase theorem. c. moral hazard problem. d. free-rider problem.

c. moral hazard problem.

An implication of the taste-for-discrimination model is that: Select one: a. discrimination can lower a firm's production costs. b. discrimination will move a firm along its declining average total cost curve. c. other things equal, nondiscriminating firms will have lower production costs than discriminating firms. d. other things equal, discriminating firms will have lower production costs than nondiscriminating firms.

c. other things equal, nondiscriminating firms will have lower production costs than discriminating firms.

Refer to the above diagram for the corn market. As a consequence of a price support of B, consumers will: Select one: a. increase their purchases of the product. b. pay a lower price, M rather than A, for the product. c. pay a higher price, B rather than A, for the product. d. pay a higher price, A rather than M, for the product.

c. pay a higher price, B rather than A, for the product.

The total supply of land is: Select one: a. upsloping. b. perfectly elastic. c. perfectly inelastic d. greater in the short run than in the long run.

c. perfectly inelastic

Economic discrimination: Select one: a. affects the distribution of domestic output and income, but not its total size. b. is shown as some point outside of an economy's production possibilities curve. c. places the economy at some point inside of its production possibilities curve. d. affects the total size of domestic output and income, but not its distribution.

c. places the economy at some point inside of its production possibilities curve.

(Consider This) The Consider This box "Of Catfish and Art (and Other Things in Common)" lists examples of recent antitrust cases involving: Select one: a. monopolization. b. tying contracts. c. price fixing. d. horizontal mergers.

c. price fixing.

Which of the following Congressional proposals relating to health care was recently enacted? Select one: a. establishment of health maintenance organizations to reduce health care costs. b. establishment of deductibles and copayments in health insurance policies. c. provision of prescription drug coverage under Medicare. d. establishment of fixed Medicare payment to hospitals based on one of several hundred diagnostic categories.

c. provision of prescription drug coverage under Medicare.

An employer whose discrimination coefficient is zero will: Select one: a. refuse to hire African-Americans at any wage rate. b. hire only whites if African-American and white wages are the same. c. randomly hire African-American and white workers if the actual African-American-white wage differential is also zero. d. refuse to hire whites at any wage rate.

c. randomly hire African-American and white workers if the actual African-American-white wage differential is also zero.

The rationale for ability-to-pay taxation and the contention that those with large incomes should pay more taxes both absolutely and relatively is that: Select one: a. high-income receivers are generally in a better position to shift taxes than are low-income receivers. b. the transfer system is regressive and it is therefore essential to have an offsetting progressive tax structure. c. rational consumers spend their first dollars of income on the most urgently desired goods and successive dollars on less essential goods. d. taxes should be paid for financing public goods in direct proportion to the satisfaction an individual derives from those goods.

c. rational consumers spend their first dollars of income on the most urgently desired goods and successive dollars on less essential goods.

A profit-maximizing firm will: Select one: a. expand employment if marginal revenue product equals marginal resource cost. b. reduce employment if marginal revenue product equals marginal resource cost. c. reduce employment if marginal revenue product is less than marginal resource cost. d. expand employment if marginal revenue product is less than marginal resource cost.

c. reduce employment if marginal revenue product is less than marginal resource cost.

For most nations, per capita spending on health care tends to: Select one: a. remain constant as per capita income increases. b. rise much faster than per capita income. c. rise proportionately with per capita income. d. fall as per capita income increases.

c. rise proportionately with per capita income.

In 2004, a household with an annual income of $20,000 would find itself in the: Select one: a. highest quintile of the household income distribution. b. lowest quintile of the household income distribution. c. second lowest quintile of the household income distribution. d. second highest quintile of the household income distribution.

c. second lowest quintile of the household income distribution.

Suppose Gigantic Health Cooperative doesn't hire Mandy Morrison solely because she is a graduate of a particular foreign medical school, which is not known for the high quality of its graduates. Yet, Mandy is actually more qualified than the average graduate of American medical schools. This is an example of: Select one: a. monopsony exploitation. b. human-capital discrimination. c. statistical discrimination. d. irrational behavior.

c. statistical discrimination.

The ability-to-pay principle of taxation: Select one: a. has been declared unconstitutional because it deprives individuals of property without due process of law. b. suggests that people should pay taxes in proportion to the benefits they derive from public goods and services. c. suggests that taxes should vary directly with people's income and wealth. d. suggests that taxes should vary inversely with people's income and wealth.

c. suggests that taxes should vary directly with people's income and wealth.

Answer the next question(s) on the basis of the following 2006 balance of payments data (+ and -) for the hypothetical nation of Zabella. All figures are in billions of dollars. Refer to the above data. Zabella has a balance of trade (goods): Select one: a. deficit of $10 billion. b. surplus of $5 billion. c. surplus of $10 billion. d. deficit of $5 billion.

c. surplus of $10 billion.

In which of the following pairs of antitrust cases did the firms prevail against the antitrust charges leveled against them? Select one: a. the Alcoa case and the Microsoft case (subject to appeal) b. the U.S. Steel case and the Alcoa case c. the DuPont cellophane case and the U.S. Steel Case d. the U.S. Steel case and the Microsoft Case (subject to appeal)

c. the DuPont cellophane case and the U.S. Steel Case

In a public assistance plan the minimum annual income is: Select one: a. the sum of the income subsidy and earned income. b. earned income less the income subsidy. c. the amount of the income subsidy when earned income is zero. d. the income level at which the income subsidy becomes zero.

c. the amount of the income subsidy when earned income is zero.

Refer to the above diagram. The MRC curve lies above the labor supply curve because: Select one: a. any number of workers can be hired at the going equilibrium wage rate. b. the firm must lower product price to increase its sales. c. the higher wage needed to attract additional workers must also be paid to the workers already employed. d. there is an inverse relationship between wage rate and the amount of labor employed.

c. the higher wage needed to attract additional workers must also be paid to the workers already employed.

Effective usury laws cause: Select one: a. a surplus in the market for loanable funds. b. the quantity of loanable funds demanded to be brought into balance with the quantity supplied. c. the quantity of loanable funds demanded to exceed the quantity supplied. d. the quantity of loanable funds supplied to exceed the quantity demanded.

c. the quantity of loanable funds demanded to exceed the quantity supplied.

A normal profit is: Select one: a. the average profitability of a firm over one complete business cycle. b. calculated by subtracting explicit costs from total revenue. c. the return required to retain entrepreneurial talent in some particular line of production. d. the amount by which total revenue exceeds total costs.

c. the return required to retain entrepreneurial talent in some particular line of production.

A basic problem associated with public assistance plans is that: Select one: a. such plans necessarily are more costly than other income maintenance plans. b. it is extremely difficult to determine which households are eligible for benefits. c. there are conflicts between the goals of eliminating poverty, maintaining work incentives, and restraining program costs. d. the required bureaucracy is necessarily greater than it is for other income maintenance plans.

c. there are conflicts between the goals of eliminating poverty, maintaining work incentives, and restraining program costs.

Buyers will opt out of markets in which: Select one: a. there are significant negative externalities. b. standardized products are being produced. c. there is inadequate information about sellers and their products. d. there are only foreign sellers.

c. there is inadequate information about sellers and their products.

The tendency for society to overuse and therefore abuse common resources is called the: Select one: a. law of conservation of matter and energy. b. law of diminishing returns. c. tragedy of the commons. d. the Coase theorem.

c. tragedy of the commons.

Public choice economists: Select one: a. analyze the incidence of taxes. b. are also known as Keynesian economists. c. use the tools of economics to analyze decision making, politics, and elections in the public sector. d. are, by definition, economists employed by Federal, state, and local governments.

c. use the tools of economics to analyze decision making, politics, and elections in the public sector.

Patent laws are controversial because: Select one: a. they are in legal conflict with the provisions of the Federal Trade Commission Act. b. they are at the core of the problem of whether monopoly is based on industry structure or behavior. c. while patents encourage innovation, they are also a source of monopoly power. d. any firm whose monopoly power is based on patents is automatically exempt from the antitrust laws.

c. while patents encourage innovation, they are also a source of monopoly power.

The crowding of women and minorities into a restricted number of occupations: Select one: a. has no impact on the size of the domestic output or its distribution in the long run. b. will increase the size of the domestic output and make its distribution more equal. c. will decrease the size of the domestic output and make its distribution less equal. d. will increase the size of the domestic output, but make its distribution less equal.

c. will decrease the size of the domestic output and make its distribution less equal.

John Deer exclusively grew corn in each of the past three years. Under the Farm Act of 2002, Deer: Select one: a. must grow corn in the current year in order to receive direct payments from the Federal government. b. can grow whatever crop he wants to in the current year but will only receive direct payments from the Federal government if the price of corn falls below a targeted price. c. will receive countercyclical payments if the price of corn falls below a targeted price, even though he does not grow corn in the current year. d. must grow something other than corn to qualify for direct payments from the Federal government.

c. will receive countercyclical payments if the price of corn falls below a targeted price, even though he does not grow corn in the current year.

Answer the next question(s) on the basis of the following information for a public good. Pa and Pb are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it. These people are the only two members of society. Refer to the above data. Suppose government has already produced 4 units of this public good. The amount individual B is willing voluntarily to pay for the 4th unit is: Select one: a. $14. b. $5. c. $2. d. $0.

d. $0.

According to the standard government definitions, the percentage of the population now considered to be living in poverty is about: Select one: a. 24 percent. b. 20 percent. c. 5 percent. d. 13 percent.

d. 13 percent.

Use the resource demand data shown on the left and the resource supply data on the right in answering the following question(s): Refer to the above data. How many workers will this firm choose to employ? Select one: a. 6 b. 5 c. 4 d. 3

d. 3

Refer to the above tables. Which of the following would be feasible terms for trade between Latalia and Trombonia? Select one: a. 1 ton of beans for 1 ton of pork b. 2 tons of beans for 1 ton of pork c. 6 tons of beans for 1 ton of pork d. 4 tons of beans for 1 ton of pork

d. 4 tons of beans for 1 ton of pork

Answer the next question(s) on the basis of the following information for a public good. Pa and Pb are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it. These people are the only two members of society. Refer to the above data. If this good were a private good instead of a public one, the total quantity demanded at a $3 market price would be: Select one: a. 2 units. b. 3 units. c. 6 units. d. 4 units.

d. 4 units.

Answer the next question(s) on the basis of the following production possibilities data for Gamma and Sigma. All data are in tons. Gamma production possibilities: Sigma production possibilities: Refer to the above data. Assume that before specialization and trade Gamma and Sigma both chose production possibility "C." Now if each specializes according to comparative advantage, the gains from specialization and trade will be: Select one: a. 40 tons of pots. b. 20 tons of tea and 20 tons of pots. c. 20 tons of tea. d. 40 tons of tea.

d. 40 tons of tea.

Refer to the above figure in which S is the before-tax supply curve and St is the supply curve after an excise tax is imposed. The efficiency loss of this tax will be area: Select one: a. ABCE. b. ABCE + ECF. c. 0AEG. d. ECF.

d. ECF.

(Consider This) According to the Consider This box on catfish and art, which of the following firms were recently convicted of price fixing? Select one: a. Dell and Gateway (personal computer makers) b. Boeing and Airbus (aircraft manufacturers) c. Heinz and Del Monte (food product firms) d. Sotheby's and Christy's (art auction houses)

d. Sotheby's and Christy's (art auction houses)

Which of the following statements best describes the parity concept? Select one: a. The prices of farm commodities should vary inversely with changes in the prices-paid index for farmers. b. Because of productivity increases, farmers are entitled to the same real income for a smaller volume of output. c. The money incomes of farmers should always be the same, regardless of increases or decreases in the prices of the products they buy. d. The production of a given real output entitles the producer to the same real income over time.

d. The production of a given real output entitles the producer to the same real income over time.

Which country has the smallest percentage of its labor force employed in agriculture? Select one: a. China b. India c. Brazil d. U.S.

d. U.S.

The Overnight Construction Company has just signed a collective bargaining contract in which it agrees that all workers it hires must be union members in good standing at the time they are hired. This provision reflects: Select one: a. preferential hiring. b. a maintenance-of-membership shop. c. a union shop. d. a closed shop.

d. a closed shop.

The demand for health care in industrially advanced economies is: Select one: a. highly elastic with respect to both price and income. b. highly inelastic with respect to both price and income. c. highly elastic with respect to income, but highly inelastic with respect to price. d. about unit elasticity with respect to income and relatively inelastic with respect to price.

d. about unit elasticity with respect to income and relatively inelastic with respect to price.

Which of the following is not a feature of the Farm Act of 2002? Select one: a. direct payments (direct subsidies) based on crops previously grown b. countercyclical payments c. marketing loans d. acreage allotments (restrictions on the number of acres that can be planted)

d. acreage allotments (restrictions on the number of acres that can be planted)

The view that the antitrust laws need to be strongly enforced to prevent illegal business behaviors, monopolization of markets, and allocative inefficiency is known as the: Select one: a. structuralist view of antitrust. b. behavioralist view of antitrust. c. laissez-faire perspective on antitrust. d. active antitrust perspective.

d. active antitrust perspective.

Stock options as a form of payment are designed to: Select one: a. elude the equal-pay-for-equal work provisions of the Federal anti-discrimination law. b. boost the overall earnings of minimum wage workers. c. offset monopsony. d. address the principal-agent problem.

d. address the principal-agent problem.

Refer to the above competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D2 and S2. If there are substantial external benefits associated with the production of Z, then: Select one: a. efficient resource allocation occurs at output G and price B because the market mechanism does not measure all benefits. b. an output smaller than G would improve resource allocation. c. government should levy a per unit excise tax on Z to shift the demand curve toward D1. d. an output greater than G would result in a more efficient allocation of resources.

d. an output greater than G would result in a more efficient allocation of resources.

Refer to the above diagram for the corn market. Assuming no externalities, a price support of B causes: Select one: a. economies of scale. b. production to be less profitable to farmers. c. an underallocation of resources to this product. d. an overallocation of resources to this product.

d. an overallocation of resources to this product.

The rent paid for the pasture land used to graze cattle would increase if: Select one: a. the productivity of the land increased. b. people decided to consume more beef. c. oil deposits were discovered on the land. d. any of the above occurred.

d. any of the above occurred.

Professional buyers of antiques often have more information about the value of antique objects than do the sellers. This illustrates: Select one: a. the Coase theorem. b. the moral hazard problem. c. the free-rider problem. d. asymmetric information.

d. asymmetric information.

Refer to the above diagram of the market for product X. Curve St embodies all costs (including externalities) and Dt embodies all benefits (including externalities) associated with the production and consumption of X. Assuming the equilibrium output is Q1, we can conclude that the existence of external: Select one: a. costs has resulted in an overallocation of resources to X. b. benefits has resulted in an overallocation of resources to X. c. costs has resulted in an underallocation of resources to X. d. benefits has resulted in an underallocation of resources to X.

d. benefits has resulted in an underallocation of resources to X.

Answer the next question(s) on the basis of the following data for the hypothetical nations of Alpha and Beta. Qs is domestic quantity supplied and Qd is domestic quantity demanded. Refer to the above data. The equilibrium world price must be higher than $1 because at $1: Select one: a. Beta wants to import more than Alpha. b. Alpha wants to export more than Beta. c. both nations want to export steel. d. both nations want to import steel.

d. both nations want to import steel.

Which of the following is an example of a capital-intensive commodity? Select one: a. clothing b. wool c. sunflower seeds d. chemicals

d. chemicals

The distribution of wealth in the United States is such that it: Select one: a. is randomly distributed among income classes. b. has no perceptible impact on the distribution of income. c. reduces income inequality. d. contributes to income inequality.

d. contributes to income inequality.

For which one of the following goods would we need to sum individual demand curves vertically to obtain the total demand curve? Select one: a. frozen yogurt b. bubble gum c. microwave popcorn d. courts of law

d. courts of law

Which of the following combinations is plausible, as it relates to a nation's balance of payments? Select one: a. current account = $+40 billion; capital account = $-10 billion; financial account = $-50 billion. b. current account = $+50 billion; capital account = $-20 billion; financial account = $+30 billion. c. current account = $+10 billion; capital account = $+40 billion; financial account = $+50 billion. d. current account = $+30 billion; capital account = $-20 billion; financial account = $-10 billion.

d. current account = $+30 billion; capital account = $-20 billion; financial account = $-10 billion.

The marginal cost to society of reducing pollution rises with increases in pollution abatement because of the law of: Select one: a. diminishing marginal utility. b. conservation of matter and energy. c. demand. d. diminishing returns.

d. diminishing returns.

(Last Word) Which of the following groups is most likely to support the World Trade Organization (WTO)? Select one: a. anarchists. b. extreme environmentalists. c. labor union leaders in industrially advanced countries. d. economists.

d. economists.

The infant industry argument for tariffs is criticized: Select one: a. because it is difficult to determine which industries merit protection. b. because direct subsidies are probably a better means of stimulating such industries. c. because the tariffs may remain after the industry reaches maturity. d. for all of these reasons.

d. for all of these reasons.

A market in which the money of one nation is exchanged for the money of another nation is a: Select one: a. resource market. b. bond market. c. stock market. d. foreign exchange market.

d. foreign exchange market.

Ward Planter exclusively grew soybeans in each of the past three years and currently participates in the marketing loan program of the Farm Act of 2002. If the "crop price" of soybeans at harvest is less than the pre-harvest "loan price", Planter can: Select one: a. sell his crop in the market and receive the difference between the crop price and loan price as a direct payment from the Federal government. b. take a "crop credit" based on the difference between the crop price and the loan price and use the credit to reduce Federal income taxes owed. c. receive an "emergency loan" that can be paid back over the following five years. d. forfeit the harvest to the lender and be free of the loan, thus receiving a subsidy because the proceeds from the loan exceed the revenues from the sale of the crop in the market.

d. forfeit the harvest to the lender and be free of the loan, thus receiving a subsidy because the proceeds from the loan exceed the revenues from the sale of the crop in the market.

Each of the following contributes to income inequality except: Select one: a. differences in ability and training. b. differences in job tastes. c. differences in wealth ownership. d. government transfers.

d. government transfers.

Which of the following is not a component of the demand for loanable funds? Select one: a. household purchases of housing and durable consumer goods b. business purchases of capital goods c. government financing of the public debt d. household saving

d. household saving

The demand for health care in the United States is price: Select one: a. elastic and, according to some studies, income inelastic. b. elastic and, according to some studies, income elastic. c. inelastic and, according to some studies, income inelastic. d. inelastic and, according to some studies, income elastic.

d. inelastic and, according to some studies, income elastic.

A major function of the National Labor Relations Board is to: Select one: a. monitor potentially inflationary increases in wages. b. provide compulsory arbitration so that strikes and lockouts do not occur. c. set annual wage increases on an industry-by-industry basis. d. investigate and rule on charges of unfair labor practices by either management or unions.

d. investigate and rule on charges of unfair labor practices by either management or unions.

Free trade based on comparative advantage is economically beneficial because: Select one: a. it promotes an efficient allocation of world resources. b. it increases competition. c. it provides consumers with a wider range of products. d. of all of these reasons.

d. of all of these reasons.

The primary purpose of Social Security is to: Select one: a. subsidize families in need. b. offset the progressiveness of the personal income tax. c. provide income for workers who are temporarily unemployed. d. provide income for retired and disabled workers.

d. provide income for retired and disabled workers.

The Trade Adjustment Assistance Act of 2002: Select one: a. enacts temporary tariffs to enable firms hurt by foreign competition to transition to new industries or improve their international competitiveness. b. subsidizes firms for a maximum of 2 years as they try to establish themselves in foreign markets. c. provides price supports on domestically produced goods for up to 52 weeks. d. provides financial help for up to 78 weeks for workers displaced by imports or plant relocations abroad.

d. provides financial help for up to 78 weeks for workers displaced by imports or plant relocations abroad.

Unions may increase productivity by: Select one: a. providing an exit mechanism for workers. b. increasing worker turnover so that younger workers are more likely to be employed. c. reducing the amount of capital used per worker. d. providing a voice mechanism for workers.

d. providing a voice mechanism for workers.

If each taxpayer paid the same lump-sum amount regardless of income level, the tax system would be: Select one: a. disproportionate. b. progressive. c. proportional. d. regressive.

d. regressive.

A particular woman is denied on-the-job training because women on average are more likely to drop out of the workforce than men. This illustrates: Select one: a. wage discrimination. b. the crowding model. c. the taste-for-discrimination model. d. statistical discrimination.

d. statistical discrimination.

The profit-maximizing and the least-cost combination of inputs are: Select one: a. the result of unrelated decisions. b. always identical. c. such that the minimization of costs always results in profit maximization. d. such that the maximization of profits always entails the least-cost combination of inputs.

d. such that the maximization of profits always entails the least-cost combination of inputs.

The pure interest rate is: Select one: a. the nominal rate plus the rate of inflation. b. not used in making investment decisions. c. is the nominal rate of interest less the rate of return on an investment. d. the rate paid on long term, relatively risk-free bonds.

d. the rate paid on long term, relatively risk-free bonds.

The term "growing income inequality" implies that the: Select one: a. poor are getting poorer in both a relative and an absolute sense. b. Lorenz curve is shifting toward the diagonal. c. diagonal is shifting toward the Lorenz curve. d. top quintile of income receivers is getting relatively more of the total income than before and the bottom quintile is getting relatively less.

d. top quintile of income receivers is getting relatively more of the total income than before and the bottom quintile is getting relatively less.

Refer to the above diagram, where Sd and Dd are the domestic supply and demand for a product and Pc is the world price of that product. With a PcPt per unit tariff, the quantities sold by foreign and domestic producers respectively will be: Select one: a. xz and x. b. xv and xz. c. x and xz. d. wy and w.

d. wy and w.