ECO Final Study Gudie

Internal market forces include all of the following except a. trade disruptions. b. pending behavior. c. innovation. d. population growth.

a. trade disruptions.

Explicit costs a. include the market value of all resources used to produce a good. b. are the sum of actual monetary payments made for the use of resources. c. include only payments to entrepreneurship. d. are the total opportunity costs of resources used to produce a good.

b. are the sum of actual monetary payments made for the use of resources.

Most goods can yield a. only negative marginal utility. b. both positive and negative marginal utility. c. only zero marginal utility. d. only positive marginal utility.

b. both positive and negative marginal utility.

The risk premium is the a. interest rate paid to savers. b. difference in rates of return on safe and risky investments. c. interest rate divided by the expected value. d. interest rate charged to borrowers.

b. difference in rates of return on safe and risky investments.

When an economy enters a recession, the a. cost of unemployment falls. b. duration of unemployment rises. c. number of discouraged workers falls. d. number of unemployed falls.

b. duration of unemployment rises.

Total revenue is a. equal to costs of production. b. quantity sold times price. c. price times income. d. equal to total profit.

b. quantity sold times price.

A motivation for holding stock is a. to own a low-risk, illiquid asset. b. the anticipation of capital gains. c. to receive interest payments on the firm's debt. d. to have a direct role in the operation of the corporation.

b. the anticipation of capital gains.

The market demand for a product is a. the sum of all of the marginal utilities among consumers. b. the sum of all of the individual demands for that product. c. the sum of all of the markets in the area. d. the total utility received for a good by all consumers in the market.

b. the sum of all of the individual demands for that product.

A bond is a. a coupon used to collect a dividend. b. an insurance policy investor's purchase to protect against the possibility of falling stock prices. c. a certificate acknowledging a debt and the amount of interest to be paid each year until repayment. d. a share in a corporation.

c. a certificate acknowledging a debt and the amount of interest to be paid each year until repayment.

Fixed costs a. can be altered in the short run but not in the long run. b. increase with the level of production in the short run. c. are constant in the short run. d. increase as we move from the short run to the long run.

c. are constant in the short run.

A payroll tax a. shifts the labor supply curve to the right. b. shifts the labor demand curve to the right. c. causes the net wage to increase. d. increases the nominal cost of labor.

d. increases the nominal cost of labor.

Price discrimination a. is illegal. b. rarely occurs in the airline industry. c. is a method used by sellers to pit one buyer against the other. d. is a way for sellers to elicit the maximum willingness to pay from buyers.

d. is a way for sellers to elicit the maximum willingness to pay from buyers.

A perfectly competitive firm will maximize profits by choosing an output level where the a. price equals total cost. b. price is greater than total cost. c. price is greater than marginal cost. d. price equals marginal cost.

d. price equals marginal cost.

The demand for normal goods a. falls when incomes rise. b. rises when incomes fall. c. shifts to the right when incomes fall. d. rises when incomes rise.

d. rises when incomes rise.

A U.S. worker who loses his or her job in an import industry because the good is no longer produced would be classified as, ceteris paribus, a. cyclically unemployed. b. seasonally unemployed. c. frictionally unemployed. d. structurally unemployed.

d. structurally unemployed.

Economic profit is the difference between a. total costs and total economic costs. b. accounting profits and external costs. c. accounting profit and explicit costs. d. total revenues and total economic costs.

d. total revenues and total economic costs.

Each of the following is a detrimental macro consequence of inflation except a. COLAs. b. speculation. c. bracket creep. d. uncertainty.

a. COLAs.

If a product has a high marginal utility, then a. consumers will not purchase any more of the good. b. a consumer is willing to pay a high price for it. c. the demand curve will be upward-sloping. d. consumers will also have a low total utility.

b. a consumer is willing to pay a high price for it.

If the cross-price elasticity of demand for SUVs with respect to the price of gasoline is -0.10 and gasoline prices rise by 18 percent, then SUV sales should, ceteris paribus, a. fall by 18 percent. b. fall by 1.8 percent. c. rise by 1.8 percent. d. rise by 18 percent.

b. fall by 1.8 percent.

A consumer maximizes total utility from a given amount of income when the a. marginal utility of the last unit of each good is the same. b. marginal utility per dollar obtained from the last unit of each good is the same. c. amount spent for each product is the same. d. total utility obtained from each product is the same.

b. marginal utility per dollar obtained from the last unit of each good is the same.

Someone 18 years old who is not employed and is not actively seeking work is considered a. unemployed. b. not in the labor force. c. employed. d. in the labor force.

b. not in the labor force.

How income is distributed is typically measured using a. wealth. b. personal income. c. the production of goods and services. d. in-kind income.

b. personal income.

Wealth is measured as a. a stock only. b. neither a flow nor a stock. c. both a flow and a stock. d. a flow only.

a. a stock only.

According to the classical view, if consumer demand slowed down, a. aggregate prices would decrease and the economy would return to its long-term growth trend. b. wages would increase and the economy would return to its long-term growth trend. c. investment and government demand would increase so that the economy would return to its long-term growth trend. d. aggregate prices would increase and the economy would return to its long-term growth trend.

a. aggregate prices would decrease and the economy would return to its long-term growth trend.

Government attempts to create a more equitable income distribution by increasing marginal tax rates will most likely do all of the following except a. decrease unemployment. b. reduce government tax receipts. c. increase unemployment. d. reduce output.

a. decrease unemployment.

A corporation can elect to allocate corporate profits into either a. dividends or retained earnings. b. bonds or stocks. c. capital gains or dividends. d. interest payments or dividends.

a. dividends or retained earnings.

According to Keynes, which of the following should the government do when the economy overheats? a. raise taxes b. employ more people c. practice laissez faire policies d. increase spending

a. raise taxes

If workers do not have the skills that are required in the job market, which of the following will occur? a. structural unemployment b. cyclical unemployment c. seasonal unemployment d. frictional unemployment

a. structural unemployment

Supply is very inelastic when a. the quantity supplied does not change at all when price increases. b. the quantity supplied changes only when demand changes. c. the quantity supplied changes little when the price increases. d. the quantity supplied changes a lot when price increases.

c. the quantity supplied changes little when the price increases.

A demand curve that is perfectly inelastic is a. downward-sloping. b. upward-sloping. c. vertical. d. horizontal.

c. vertical

If price is greater than marginal cost, a perfectly competitive firm should increase output because a. the price it receives for its product is increasing. b. marginal costs are increasing. c. additional units of output will add to the firm's profits (or reduce losses). d. total revenues would increase.

c. additional units of output will add to the firm's profits (or reduce losses).

Capital gains are a. the only motive for purchasing stock. b. profits used for investment in new plants and equipment. c. an increase in the market value of an asset. d. the amount of corporate profit paid out for each share of stock.

c. an increase in the market value of an asset.

A price change will have no effect on total revenue if the demand is a. perfectly elastic. b. inelastic. c. unitary elastic. d. elastic.

c. unitary elastic.

A mathematical summary of inequality based on the Lorenz curve is known as the a. income distribution share. b. Lorenz coefficient. c. Okun coefficient. d. Gini coefficient.

d. Gini coefficient.

If income is distributed equally, the a. line of equality sags below the Lorenz curve. b. Lorenz curve sags below the line of equality. c. Gini coefficient is greater than zero. d. Lorenz curve is a straight line.

d. Lorenz curve is a straight line.

A competitive firm should always continue to operate in the short run as long as a. P < AVC. b. P < ATC. c. MR > MC. d. MR > AVC.

d. MR > AVC

An increase in the value of an asset, such as a stock, is called a. profit. b. interest. c. a dividend. d. a capital gain.

d. a capital gain.

A price decrease will cause total revenue to fall if the a. price elasticity of demand is less than zero. b. demand is unitary elastic. c. demand is elastic. d. demand is inelastic.

d. demand is inelastic.

If the Gini coefficient is greater for the United Kingdom than for Japan, we can conclude that the a. distribution of income in the United Kingdom is less equal than in Japan. b. distribution of income in the United Kingdom is as equal as it is in Japan. c. distribution of income in the United Kingdom is closer to being equal than in Japan. d. relative distributions of income in the two countries are the same.

a. distribution of income in the United Kingdom is less equal than in Japan.

If a good is inferior, its a. income elasticity of demand is negative. b. cross-price elasticity is negative. c. income elasticity of demand is positive. d. price elasticity of demand is negative.

a. income elasticity of demand is negative.

Flat tax critics a. object to the elimination of tax deductions and credits. b. object to the government control over the mix of output that it would cause. c. believe flat tax rates would reduce horizontal inequities. d. believe flat tax rates would reduce vertical inequities.

a. object to the elimination of tax deductions and credits.

Interest rates are the _____ cost of money. a. opportunity b. inverse c. multiplicative d. additive

a. opportunity

A short-run supply determinant includes a. technology. b. income. c. consumer preferences. d. a number of buyers.

a. technology

To find the percentage change in price, a. the change in price is divided by the average price. b. the change in quantity is divided by the average quantity. c. the percentage change in quantity demanded is divided by the percentage change in price. d. the change in quantity is divided by the change in price.

a. the change in price is divided by the average price.

If two goods are complementary goods, then a. the cross-price elasticity sign will be negative. b. the cross-price elasticity sign is not important. c. the cross-price elasticity will be greater than 1. d. the cross-price elasticity sign will be positive.

a. the cross-price elasticity sign will be negative.

Total revenue is equal to a. the income from sales. b. cost of production. c. total revenue minus total cost. d. profit.

a. the income from sales.

If two goods are substitute goods, a. the percentage change in quantity demanded for good X will fall if there is a reduction in price of good Y. b. the demand for good Y falls if the price of good X increases. c. the percentage change in quantity demanded for good X will stay the same if there is an increase in the price of good Y. d. the percentage change in quantity demanded for good X will rise if there is a reduction in the price of good Y.

a. the percentage change in quantity demanded for good X will fall if there is a reduction in price of good Y.

A monopoly occurs when a. there is only one buyer of a good or service. b. companies become greedy and raise the price of a good or service. c. owners take on additional risk and earn huge profits. d. there is only one producer of a good or service.

a. there is only one producer of a good or service.

If the population of a country is 250,000 people, its labor force consists of 145,000 people, 35,000 people are unemployed, 10,000 are unable to work, and 5,000 are unwilling to work, the unemployment rate is a. 24.1 percent. b. 22.1 percent. c. 14.0 percent. d. 19.4 percent.

a. 24.1 percent.

A grocery store put salt on sale but found that total revenues fell. This can be explained by which of the following? a. The demand for salt is inelastic. b. The demand for salt is very elastic. c. The demand curve for salt is vertical. d. The demand for salt is unitary elastic.

a. The demand for salt is inelastic.

Unemployment was lowest during a. World War II. b. the recession of 1981. c. The Great Depression. d. the 1930s.

a. World War II.

The long run is a. a period longer than one year. b. the period required to produce a unit of the firm's output. c. approximately one year. d. a period long enough for all inputs to be variable.

d. a period long enough for all inputs to be variable.

Cost-of-living adjustments a. maintain constant real interest rates. b. cause individuals to shorten their time horizons. c. reduce the price effect of inflation. d. allow individuals to maintain their purchasing power during inflation.

d. allow individuals to maintain their purchasing power during inflation.

Each of the following pushes a country inside its production possibilities curve except a. a sudden burst of deflation that has not been anticipated. b. the withholding of resources from the production process because of speculation. c. a sudden burst of inflation that has not been anticipated. d. an increase in labor force participation.

d. an increase in labor force participation.

Entrepreneurship a. cannot earn an economic profit. b. occurs in small businesses but not large corporations. c. always involves greater rewards than risks. d. can result in economic losses.

d. can result in economic losses.

Airline companies engage in price discrimination by a. engaging in price-fixing. b. charging unrestricted fares. c. giving a temporary price cut. d. charging higher prices to customers who must travel on short notice.

d. charging higher prices to customers who must travel on short notice.

Each of the following tends to coincide with an increase in unemployment except a. admissions to mental institutions. b. fatal heart attacks. c. lost income. d. decreased stress levels.

d. decreased stress levels.

Elasticity of supply looks at a. how responsive producers are to a change in quantity demanded. b. the responsiveness of sellers to a change in consumer's incomes. c. how much quantity demanded changes with a change in price. d. how responsive sellers are to a change in price.

d. how responsive sellers are to a change in price.

If advertising is successful, a. the demand curve shifts to the left. b. the demand curve shifts to the left and demand becomes more price-elastic. c. the demand becomes more elastic. d. the demand curve shifts to the right and becomes steeper.

d. the demand curve shifts to the right and becomes steeper.

Income elasticity measures the a. way in which consumers switch from one product to another when price rises. b. responsiveness of quantity demanded to a percentage change in income. c. responsiveness of quantity demanded for one good to a percentage change in price of another good. d. percentage change in quantity demanded given a percentage change in wealth.

b. responsiveness of quantity demanded to a percentage change in income.

A tax is progressive if it takes a a. larger number of dollars as income falls. b. smaller fraction of income as income falls. c. smaller number of dollars as income rises. d. smaller fraction of income as income rises.

b. smaller fraction of income as income falls.

According to the profit effect, a. the aggregate supply curve has a negative slope. b. some costs do not rise when average prices rise. c. all costs rise when average prices rise. d. the aggregate supply curve is vertical in the short run.

b. some costs do not rise when average prices rise.

A teenager without a high school diploma is unable to find work because all the available jobs require a certain minimum reading skill level that the teenager is not proficient in. Which of the following best characterizes the teenager's circumstances? a. a discouraged worker b. structurally unemployed c. underemployed d. phantom unemployed

b. structurally unemployed

The nominal tax rate is a. taxes paid divided by total economic income. b. taxes paid divided by taxable income. c. equal to the marginal tax rate. d. lower than the effective tax rate.

b. taxes paid divided by taxable income.

Unemployment was low during all of the following periods except a. the late 1990s. b. the Great Depression. c. the Korean War. d. World War II.

b. the Great Depression.

Liquidity is a. the opportunity cost of purchasing a bond. b. the ability of an asset to be converted to cash. c. not important for bondholders. d. low for cash.

b. the ability of an asset to be converted to cash.

Treasury bonds typically have lower coupon rates than corporate bonds because a. government regulations keep interest rates on Treasury bonds below market rates. b. there is a lower risk that the U.S. Treasury will default. c. the opportunity cost of purchasing Treasury bonds is lower than the opportunity cost of buying corporate bonds. d. the U.S. Treasury does not earn profits.

b. there is a lower risk that the U.S. Treasury will default.

A sudden increase in inflation, ceteris paribus, a. raises the real income of lenders relative to borrowers. b. reduces the nominal income of those who have constant real incomes. c. raises the CPI and reduces real income. d. makes everyone worse off.

c. raises the CPI and reduces real income.

If peanut butter and jelly are complementary goods, an increase in the price of peanut butter will, ceteris paribus, a. increase the quantity demanded of jelly. b. increase the quantity demanded of peanut butter. c. reduce the demand for jelly. d. increase the demand for jelly.

c. reduce the demand for jelly.

Outsourcing is the a. unemployment that is inevitable when jobs leave a country. b. loss of output because of an increase in unemployment. c. relocation of production from domestic companies to foreign countries. d. movement of workers to foreign countries where there are more jobs.

c. relocation of production from domestic companies to foreign countries.

Financial intermediaries a. increase search and information costs for savers and investors. b. transfer purchasing power from spenders to savers. c. spread the risk of investment failure over many individuals. d. always allocate funds to the least productive investments.

c. spread the risk of investment failure over many individuals.

If there is a prolonged recession and, at the same time, technological advances change the skill sets of some jobs and eliminate others, what type of unemployment gets larger? a. seasonal b. all types of unemployment c. structural d. frictional

c. structual

Dividends are a. an increase in the market value of an asset. b. the only motive for purchasing stock. c. the amount of corporate profit paid out for each share of stock. d. the profits used for investment in new plants and equipment.

c. the amount of corporate profit paid out for each share of stock.

According to the law of demand, ceteris paribus, a. price and quantity supplied are directly related. b. a consumer will purchase more of a good at higher prices than at lower prices. c. the quantity demanded increases at lower prices. d. the responsiveness of consumer demand to a change in the price of a good is measured by the price elasticity of demand.

c. the quantity demanded increases at lower prices.

Supply is very elastic when a. the quantity supply does not respond to an increase in price. b. the quantity supplied does not change much when price rises. c. the quantity supplied has a large increase in response to an increase in price. d. the quantity demanded causes the quantity supplied to increase.

c. the quantity supplied has a large increase in response to an increase in price.

The _________ of the demand curve corresponds to the idea that the marginal utility for the first few goods is _____________________. a. bottom; lower b. top; lower c. top; higher d. bottom; higher

c. top; higher

Part-time workers who desire full-time employment are a. discouraged workers and contribute to the unemployment statistic. b. not part of the labor force and do not contribute to the unemployment statistic. c. underemployed but do not contribute to the unemployment statistic. d. underemployed and contribute to the unemployment statistic.

c. underemployed but do not contribute to the unemployment statistic.

If price is less than marginal cost, a perfectly competitive firm should decrease output because a. total revenues are decreasing. b. marginal costs are increasing. c. marginal revenue is decreasing. d. the firm is producing units that cost more to produce than the firm receives in revenue, thus reducing its profits (or increasing its losses).

d. the firm is producing units that cost more to produce than the firm receives in revenue, thus reducing its profits (or increasing its losses).

Wealth refers to a. the purchasing power this year. b. a flow of money over time. c. the way personal income is divided among households. d. the market value of assets people own.

d. the market value of assets people own.

A firm maximizes profit when a. total revenues are maximized. b. total costs exceed total revenue by the largest amount. c. marginal costs are greater than marginal revenues. d. total revenue exceeds total cost by the greatest amount.

d. total revenue exceeds total cost by the greatest amount.

Horizontal equity can be determined by comparing the a. marginal tax rates for two taxpayers with the same nominal incomes. b. effective tax rates for two taxpayers with the same nominal incomes. c. effective tax rate of the taxpayer with the highest nominal income to the effective tax rates of taxpayers with lower nominal incomes. d. marginal tax rate of the taxpayer with the highest nominal income to the marginal tax rates of taxpayers with lower nominal incomes.

b. effective tax rates for two taxpayers with the same nominal incomes.

A demand curve that is perfectly elastic is a. downward-sloping. b. horizontal. c. upward-sloping. d. vertical.

b. horizontal.

Price elasticity looks at a. why the law of supply and the law of demand are untrue. b. how much the quantity demanded or quantity supplied changes after as a result of a change in price. c. the degree to which price changes with a change in the quantity demanded or supplied. d. the law of demand and the law of supply.

b. how much the quantity demanded or quantity supplied changes after as a result of a change in price.

Studies have shown that unemployment causes a. less crime. b. increased health problems. c. little impact since most people receive unemployment benefits. d. increased life expectancy.

b. increased health problems.

A competitive firm a. has the market power to compete effectively. b. is a price taker. c. confronts a downward-sloping firm demand curve. d. is large enough relative to the market to be taken into account by competitors.

b. is a price taker.

The marginal cost curve a. is not affected by changes in the price of variable inputs. b. is the short-run supply curve for a competitive firm at prices above the AVC curve. c. slopes downward to the right as output increases. d. is the long-run supply curve for a competitive firm at prices below the AVC curve.

b. is the short-run supply curve for a competitive firm at prices above the AVC curve.

Additional loopholes in the personal income tax law tend to a. increase vertical equity. b. make the system less progressive. c. increase horizontal equity. d. increase the tax base.

b. make the system less progressive.

An initial public offering a. allows a company to borrow funds for investment and growth. b. increases the percentage of the company owned by the management and original entrepreneurs. c. allows a company to raise money without increasing debt. d. indicates the demand for a company's new product.

c. allows a company to raise money without increasing debt.

The law of diminishing marginal utility states that a. marginal utility always falls to zero after two or three units of a good consumed. b. the total utility of a good rises at a fast rate as more units of a good are consumed. c. as a consumer enjoys successive units of a good, eventually marginal utility will fall. d. the total utility of consuming the next unit of a good falls.

c. as a consumer enjoys successive units of a good, eventually marginal utility will fall.

Inflation affects production decisions because it a. decreases input costs. b. reduces speculation. c. causes businesses to be more cautious since the future appears more uncertain. d. causes businesses to focus more on the future.

c. causes businesses to be more cautious since the future appears more uncertain.

According to Keynes, which of the following can be used to slow down an overheated economy? a. decrease taxes b. employ more people in the public sector c. decrease government purchases d. make more money available

c. decrease government purchases

Elasticity of supply tells us a. how much supply responds to a change in quantity demanded. b. how much sellers will change their price as their quantity supplied changes. c. how much sellers will increase production in response to a change in price. d. how much producers will increase production with changes in consumers' income.

c. how much sellers will increase production in response to a change in price.

If a good is normal, its a. income elasticity of demand is negative. b. cross-price elasticity is positive. c. income elasticity of demand is positive. d. price elasticity of demand is positive.

c. income elasticity of demand is positive.

Assume the CPI increases from 106 to 125, and an individual's nominal income increases from $100,000 to $125,000 over the same period. This person's real income has a. remained the same. b. increased by approximately 17.9 percent. c. increased by approximately 6.0 percent. d. increased by approximately 4.8 percent.

c. increased by approximately 6.0 percent.

Economic profit is a. less than accounting profit by the amount of explicit cost. b. greater than accounting profit by the amount of implicit cost. c. less than accounting profit by the amount of implicit cost. d. greater than accounting profit by the amount of explicit cost.

c. less than accounting profit by the amount of implicit cost.

Maximum utility is achieved when a. total revenue is the greatest. b. total utility equals marginal utility. c. marginal utility is zero. d. the price elasticity of demand is 1.0.

c. marginal utility is zero.

The effective tax rate is a. the percentage of tax payable on the last dollar of income received. b. equal to the taxes paid divided by taxable income. c. never higher than the nominal tax rate. d. always equal to the marginal tax rate.

c. never higher than the nominal tax rate.

Market structure is determined by the a. amount of compensation given to the CEOs. b. annual revenue, costs, and profits for an industry. c. number and relative size of the firms in an industry. d. price charged for the good or service produced.

c. number and relative size of the firms in an industry.

Consumer surplus measures a. the difference between the amounts of a good a consumer is willing to buy at that price and how much of the good is available for sale. b. the difference between the amount of a good consumers desire and how much they are willing to pay. c. the difference between the minimum price a consumer can pay and the price actually paid. d. the difference between the maximum price a consumer is willing to pay and the price actually paid.

d. the difference between the maximum price a consumer is willing to pay and the price actually paid.

The law of diminishing marginal utility gives us a deeper understanding of the downward-sloping demand curve because a. consumers are willing to pay a higher price for a greater quantity. b. consumer tastes change due to advertising. c. consumers do not respond to a change in price. d. when marginal utility is high, we are willing to pay a higher price.

d. when marginal utility is high, we are willing to pay a higher price.