MBA 720 Econ Final

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There are ________ voting members on the FOMC. A) 4 B) 7 C) 12 D) 15

Increases in resources and efficiency would increase potential GDP.

Industrial production is an example of a coincident indicator.

Intermediate goods and services are excluded in the calculation of GDP.

A decrease in taxes would shift the: A) aggregate demand curve rightward. B) aggregate demand curve leftward. C) aggregate supply curve rightward. D) aggregate supply curve leftward.

A decrease in the costs of resources or inputs of production would shift the: A) short-run aggregate supply curve rightward. B) short-run aggregate supply curve leftward. C) long-run aggregate supply curve rightward. D) long-run aggregate supply curve leftward.

A depreciation of the U.S. dollar would shift the: A) aggregate demand curve rightward. B) aggregate demand curve leftward. C) aggregate supply curve rightward. D) aggregate supply curve leftward.

A firm could gain from cheating on a cartel agreement by doing all of the following except: A) raising its price above the agreed level. B) lowering its price below the agreed level. C) selling more than its agreed quota. D) increasing production.

A firm's profits will be greatest when it practices: A) first-degree price discrimination. B) second-degree price discrimination. C) third-degree price discrimination. D) no price discrimination.

A goal of contractionary monetary policy is to: A) decrease the rate of growth of real GDP. B) increase the rate of growth of real GDP. C) increase inflation. D) none of the above.

A lower real interest rate, amount of consumer debt, and personal taxes ________ personal consumption expenditures. A) increase B) decrease C) have no effect on D) none of the above

A perfectly competitive firm will minimize its losses by shutting down when: A) P < AVC at the profit-maximizing level of output. B) P < ATC at the profit-maximizing level of output. C) P < MC at the profit-maximizing level of output. D) P < TFC at the profit-maximizing level of output.

A trade balance where exports exceed imports is called: A) trade surplus. B) trade deficit. C) budget deficit. D) none of the above.

All of the following are characteristics of long-run equilibrium for firms in a monopolistically competitive market except: A) price equals marginal cost. B) price equals average total cost. C) marginal cost equals marginal revenue. D) price exceeds the minimum of average total cost.

An adverse oil price increase will shift the short-run aggregate supply curve: A) leftward. B) rightward. C) will not shift. D) none of the above.

An aggregate supply curve that is either horizontal or upward sloping, depending on whether the absolute price level increases as firms produce more output is called: A) short-run aggregate supply curve. B) long-run aggregate supply curve. C) potential GDP. D) NAIRU.

An economy with both a private and public sector is called: A) a mixed economy. B) a private economy. C) a command economy. D) none of the above.

An increase in consumer confidence would shift the: A) aggregate demand curve rightward. B) aggregate demand curve leftward. C) aggregate supply curve rightward. D) aggregate supply curve leftward.

An increase in foreign real income would shift the: A) aggregate demand curve rightward. B) aggregate demand curve leftward. C) aggregate supply curve rightward. D) aggregate supply curve leftward.

An increase in government expenditure would shift the: A) aggregate demand curve rightward. B) aggregate demand curve leftward. C) aggregate supply curve rightward. D) aggregate supply curve leftward.

An increase in the amount of resources would shift the long-run aggregate supply curve: A) rightward. B) leftward. C) no shift. D) none of the above.

An increase in the nominal money supply would shift the: A) aggregate demand curve rightward. B) aggregate demand curve leftward. C) aggregate supply curve rightward. D) aggregate supply curve leftward.

An increase in wealth would shift the: A) aggregate demand curve rightward. B) aggregate demand curve leftward. C) aggregate supply curve rightward. D) aggregate supply curve leftward.

An index, based on a telephone survey of 500 households conducted by the University of Michigan, that measures households' attitudes regarding expected business conditions, personal financial conditions, an consumer confidence about purchasing furniture and major household appliances is called the: A) Consumer Sentiment Index. B) Consumer Confidence Index. C) Consumer Satisfaction Index. D) Consumer Consumption Index.

As described in the text, which of the following statements best describes the strategy of many potato growers since 2005? A) Growers have worked together to reduce supply and stabilize demand. As a result, equilibrium price has been propped up and allowed farmers to earn what they consider a decent profit. B) Growers have continued to compete vigorously with each other, causing prices and profits to decrease. C) Growers have restricted supply so much that there is now a severe shortage of potatoes in the United States. D) because efforts by potato growers to restrict supply are illegal in the United States, they have focused exclusively on increasing demand to increase their profits.

As macroeconomic conditions improve and consumers' incomes and wealth increase, their demand for many products tends to become ________ price inelastic. As such, the ability of firms to mark up price above cost will ________. A) more; increase B) more; decrease C) less; increase D) less; decrease

As the level of competition in an industry increases, the price-cost margin approaches: A) 0. B) 1. C) 10. D) infinity.

Assume a perfectly competitive firm is producing 300 units of output, P = $10, ATC of the 300th unit is $8, marginal cost of the 300th unit = $10, and AVC of the 300th unit = $6. Based on this information, the firm is: A) earning an economic profit of $600. B) earning an economic profit of $1,200. C) incurring a loss of $600. D) incurring a loss of $1,200.

Assume a perfectly competitive firm is producing 500 units of output, P = $7, ATC of the 500th unit is $6, marginal cost of the 500th unit = $7, and AVC of the 500th unit = $5. Based on this information, the firm is: A) earning an economic profit of $500. B) earning an economic profit of $1,000. C) incurring a loss of $500. D) incurring a loss of $1,000.

Assume that the U.S. dollar depreciates against the Japanese yen. What is the impact on aggregate expenditures and income? A) Both increase. B) Both decrease. C) Aggregate expenditure increases and income decreases. D) Aggregate expenditure decreases and income increases.

Assume that there is an improvement in the technology used by firms in a perfectly competitive industry that is initially in long-run equilibrium. In the short run this would cause: A) an increase in the firm's economic profit. B) a decrease in the firm's economic profit. C) no change in the firm's economic profit. D) cannot be determined with the information given.

Assume that when price is $20, quantity demanded is 9 units, and when price is $19, quantity demanded is 10 units. Based on this information, we can conclude that over the price range from $19 to $20, demand is price: A) elastic. B) unit elastic. C) inelastic. D) cannot be determined.

Assume the firms in a perfectly competitive industry are initially in long-run equilibrium and the cost of labor increases. In the short run, this will cause firms in the industry to: A) reduce output and incur a loss. B) reduce output and earn a positive economic profit. C) increase output and incur a loss. D) increase output and earn a positive economic profit.

Assume the four major grocery stores in a large metropolitan area decide to meet secretly to fix prices for meat. It would be easiest to maintain this arrangement when: A) the number of additional competitors is very small. B) the cost conditions for the four firms differ substantially. C) individual firms are able to offer secret price discounts to selected buyers. D) demand for meat and fresh vegetables is falling.

Assume the managers of the two major firms in an industry agree to set the price of their output at a fixed level so as to discourage new entrants into the market. This would be considered a violation of the: A) Sherman Act of 1890. B) Clayton Act of 1914. C) Federal Trade Commission Act of 1914. D) Celler-Kefauver Act of 1950.

Assume there is a decrease in the market demand for a good sold by price-taking firms that are initially producing the profit-maximizing level of output. For the individual firm, this would result in: A) a decrease in both price and the profit-maximizing quantity of output. B) a decrease in price and increase in the profit-maximizing quantity of output. C) an increase in both price and the profit-maximizing quantity of output. D) an increase in price and decrease in the profit-maximizing quantity of output.

Assume there is a decrease in the market demand for a good sold by price-taking firms that are initially producing the profit-maximizing level of output. How will the market adjust over time? A) Firms will enter the market, causing price to rise until losses are eliminated. B) Firms will enter the market, causing price to fall until positive profits are eliminated. C) Firms will exit the market, causing price to rise until losses are eliminated. D) Firms will exit the market, causing price to fall until positive profits are eliminated.

Assuming the demand curve is downward sloping, as price increases, the price elasticity of demand for a good (in absolute value) and marginal revenue: A) increase. B) stay the same. C) decrease. D) cannot be determined.

At a given price level, an increase in expected profits and business confidence will shift the aggregate demand curve: A) rightward. B) leftward. C) both. D) none of the above.

At a given price level, an increase in stock market wealth will shift the aggregate demand curve: A) rightward. B) leftward. C) both. D) none of the above.

At the profit-maximizing level of output, the amount by which the firm can mark up price is: A) inversely related to the price elasticity of demand for item in question. B) directly related to the price elasticity of demand for item in question. C) totally unrelated to the price elasticity of demand for item in question. D) equal to the ratio of the marginal and average costs of production.

Average weekly hours in manufacturing is an example of a: A) leading indicator. B) coincident indicator. C) lagging indicator. D) none of the above.

Business cycles are officially dated by: A) National Bureau of Economic Research, NBER. B) Bureau of Economic Analysis, BEA. C) Bureau of Labor Statistics, BLS. D) none of the above.

Capacity utilization increases. What is the impact on aggregate expenditures and income? A) Both increase. B) Both decrease. C) Aggregate expenditure increases and income decreases. D) Aggregate expenditure decreases and income increases.

Changes in the amount of goods produced, but not sold in a given year is called: A) inventory investment B) business fixed investment C) residential fixed investment D) consumption

Commodities that typically last three years or more are called: A) durable goods. B) nondurable goods. C) services. D) none of the above.

Comparing the situation of a nominal interest rate of 10 percent and an inflation rate of 9 percent with a nominal interest rate of 6 percent and inflation rate of 2 percent, consumers would borrow more in which situation? A) Nominal interest rate of 10 percent since real interest rate is 1 percent. B) Nominal interest rate of 6 percent since the real interest rate is 4 percent. C) Nominal interest rate of 10 percent since the real interest rate is 9 percent. D) Nominal interest rate of 6 percent since the real interest rate is 2 percent.

Consumers don't care which supplier they buy from in a perfectly competitive market because: A) the outputs of the firms in a perfectly competitive market are all the same. B) the consumers have no choice regarding who they buy from. C) price is always low enough that the choice of supplier doesn't matter. D) all of the above.

Decrease in government spending will ________ the expenditure curve: A) decrease. B) increase. C) not change. D) none of the above.

Decrease in stock market wealth will ________ the expenditure curve: A) decrease. B) increase. C) not change. D) none of the above.

Decreases in autonomous spending have a contractionary effect and make ________ levels of real income consistent with a given interest rate. A) lower B) higher C) constant D) none of the above.

Economic variables that generally turn down before a recession begins and turn back up before the recovery starts are called: A) leading indicators. B) coincident indicators. C) lagging indicators. D) none of the above.

Expansionary fiscal policy should be used if: A) aggregate demand-aggregate supply equilibrium is below potential output. B) aggregate demand-aggregate supply equilibrium is above potential output. C) aggregate demand-aggregate supply equilibrium is equal to potential output. D) none of the above.

Expansionary monetary policy should be used if: A) aggregate demand-aggregate supply equilibrium is below potential output. B) aggregate demand-aggregate supply equilibrium is above potential output. C) aggregate demand-aggregate supply equilibrium is equal to potential output. D) none of the above.

Greater consumer confidence, wealth, available consumer credit, and disposable income ________ personal consumption expenditures. A) increase B) decrease C) have no effect on D) none of the above

Household consumption primarily depends on: A) disposable income. B) the interest rate. C) marginal propensity to import. D) credit card debt.

If $1000 was deposited in a bank and the reserve requirement is 0.10, how much is available for loans? A) $900 B) $910 C) $920 D) $930

If GDP falls: A) income and production must both fall. B) income and production must both rise. C) income must rise, but production may rise or fall. D) none of the above.

If desired spending is less than output, then firms: A) accumulate their inventories and cut production. B) deplete their inventories and cut production. C) deplete their inventories and increase production. D) accumulate their inventories and increase production.

If there is an autonomous increase in spending (a rightward shift in the aggregate demand curve) and the Fed wishes to hold real income constant, then the Fed would: A) decrease the money supply yielding a leftward shift in the aggregate demand curve. B) increase the money supply yielding a rightward shift in the aggregate demand curve. C) hold the money supply constant. D) none of the above.

In an open economy firms sell goods and services to: A) households, government, and foreigners. B) just households. C) just the government. D) none of the above.

In order for "limit pricing" to be effective, the firm practicing such a strategy must be able to charge a price that is: A) lower than the potential entrant's ATC but greater than the firm's own ATC. B) greater than the potential entrant's ATC but lower than the firm's own ATC. C) lower than the potential entrant's ATC but greater than the firm's own AVC. D) greater than the potential entrant's ATC but lower than the firm's own AVC.

In the case of the perfectly competitive firm: A) marginal revenue equals the market price. B) marginal revenue is greater than the market price. C) marginal revenue is less than the market price. D) marginal revenue is equal to, less than, or greater than market price depending on the level of output.

In the long-run, an increase in the budget deficit and an expansionary monetary policy would: A) increase the price level only. B) increase both the price level and real income. C) increase real income only. D) none of the above.

In the money market, an excess supply of money will: A) increase the demand for bonds, increase bond prices, and decrease interest rates. B) increase the demand for bonds, decrease bond prices, and decrease interest rates. C) decrease the demand for bonds, increase bonds prices, and increase interest rates. D) decrease the demand for bonds, decrease bond prices, and increase interest rates.

In the money market, an increase in money demand will: A) result in a rightward shift in the money demand curve increasing interest rates. B) result in a rightward shift in the money demand curve decreasing interest rates. C) result in a leftward shift in the money demand curve increasing interest rates. D) result in a leftward shift in the money demand curve decreasing interest rates.

Increase in business taxes will ________ the expenditure curve: A) decrease. B) increase. C) not change. D) none of the above.

Increase in capacity utilization will ________ the expenditure curve: A) decrease. B) increase. C) not change. D) none of the above.

Increase in the real interest rate will ________ the expenditure curve: A) decrease. B) increase. C) not change. D) none of the above.

Institutions that accept deposits from individuals and organizations, against which depositors can write checks on demand for their market transactions and that use these deposits to make loans are called: A) depository institutions. B) financial market institutions. C) insurance companies. D) none of the above.

Limit pricing is used primarily to: A) discourage new firms from entering a market. B) reduce (limit) the profits of all of the firms in the industry. C) drive other firms out of a market. D) establish a minimum price all of the firms in the market will charge.

Macroeconomics studies the following topics: A) national output, the inflation rate, and the trade deficit. B) the price of Cisco stock and wage differences. C) differences in market structure. D) all of the above.

Measuring expenditures and income with the price level allowed to vary, so that changes in these values represent changes in either the actual amount of goods, services, and income or changes in the price level or a combination of both factors is denoted in ________ terms. A) nominal B) real C) constant dollar D) all of the above

Open market purchase of government securities results in: A) an increase in bank reserves. B) a decrease in bank reserves. C) an increase in interest rates. D) none of the above.

Open market purchase will result in: A) increase in bank reserves and a decrease in the federal funds rate. B) increase in bank reserves and an increase in the federal funds rate. C) decrease in bank reserves and a decrease in the federal funds rate. D) decrease in bank reserves and an increase in the federal funds rate.

Over time Americans have chosen to cook less at home and dine out more. This change in behavior: A) increases GDP. B) reduces GDP. C) does not affect GDP. D) none of the above

Personal income less personal taxes is called: A) personal disposable income. B) national income. C) compensation of employees. D) savings.

Personal income taxes are reduced as part of an expansionary fiscal policy. What is the impact on aggregate expenditures and income? A) Both increase. B) Both decrease. C) Aggregate expenditure increases and income decreases. D) Aggregate expenditure decreases and income increases.

Policies adopted by a country's central bank that influence interest rates and credit conditions, which in turn influence consumer and business spending are called: A) monetary policy. B) fiscal policy. C) foreign policy. D) exchange rate policy.

Prostitution is made legal in the United States, what is the impact on GDP? A) GDP increases. B) GDP decreases. C) GDP is unchanged. D) None of the above.

Suppose a perfectly competitive firm is in long-run equilibrium and there is a decrease in demand. Suppose also that the firm operates in an industry in which the prices of productive inputs vary with the level of output, increasing when output increases and decreasing when output decreases. Which of the following will occur at the new long-run equilibrium? A) Price will be lower than it was at the initial long-run equilibrium. B) Price will be the same as it was at the initial long-run equilibrium. C) Price will be higher than it was at the initial long-run equilibrium. D) The industry supply function will shift to the right.

Suppose an oligopolistic firm raises the price of its output. Demand for the firm's output will be relatively price ________ if the other dominant firms in the market ________. A) elastic; do not raise price B) unit elastic; do not raise price C) inelastic; also raise price D) cannot be determined

The Sherman Antitrust Act: A) prohibits conspiracies in restraint of trade. B) allows the formation of trusts so long as they are public enterprises. C) allows a group of firms to form a trust only if it is done to take advantage of economies of scale. D) prevents the military from using armored vehicles on the public streets.

The function that shows the inverse relationship between planned consumption and investment spending and the real interest rate, all else constant, is called the: A) interest-related expenditure function. B) aggregate expenditure function. C) consumption function. D) investment function.

The airline industry is best classified as: A) an oligopoly. B) a monopoly. C) perfectly competitive. D) monopolistically competitive

The capacity utilization rate is the ratio of ________ to ________. A) production; capacity B) capacity; production C) capacity; potential GDP D) none of the above

The circular-flow diagram illustrates that: A) production generates income so that income and production are the same. B) the economy's income is less than its production. C) the economy's income is exceeds its production. D) none of the above are necessarily correct.

The curve that shows alternative combinations of the price level and real income that result in equilibrium in both the real goods and the money markets is called the: A) aggregate demand curve. B) short-run aggregate supply curve. C) long-run aggregate supply curve. D) none of the above.

The demand curve faced by the individual perfectly competitive firm is: A) perfectly elastic. B) perfectly inelastic. C) unit elastic. D) elastic or inelastic depending on price.

The difference between export spending on domestically produced goods and services by individuals in other countries and import spending on foreign produced goods and services by domestic residents is called: A) net export expenditure. B) personal consumption expenditure. C) government expenditure. D) investment expenditure.

The fact that the firms in an oligopoly are mutually interdependent means that each firm: A) must consider the reactions of its competitors when it sets the price for its output. B) produces a product that is similar, but not identical, to the products of its competitors. C) produces a product that is identical to the products of its competitors. D) faces a perfectly elastic demand curve for its product.

The federal law that prohibits, among other things, conspiracies in restraint of trade, monopolization, or combinations or conspiracies to monopolize is the: A) Sherman Act of 1890. B) Clayton Act of 1914. C) Federal Trade Commission Act of 1914. D) Celler-Kefauver Act of 1950.

The function of money that enables individuals to exchange goods and services in a common unit of account is called: A) medium of exchange. B) store of value. C) unit of account. D) measure of power.

The largest component of national income is: A) compensation of employees B) proprietor's income C) rental income D) corporate profits

The manager of a perfectly competitive firm has to decide: A) the quantity of output the firm should produce. B) the price the firm should charge for its output. C) the quantity of output the firm should produce and the price it should charge. D) neither the quantity of output the firm should produce nor the price it should charge because the market makes both of these decisions.

The marginal propensity to consume is 0.75, marginal propensity to invest is 0.3, and the marginal propensity to import is 0.2. What is the size of the multiplier? A) 6.67 B) 5.67 C) 4.67 D) 1.67

The marginal propensity to consume is defined as: A) ΔC/ΔYd. B) ΔS/ΔYd. C) ΔYd/ΔC. D) ΔYd/ΔS.

The monetary base consists of: A) currency plus reserves. B) currency plus required reserves. C) currency plus excess reserves. D) currency plus demand deposits.

The money multiplier is computed as follows: A) (c + 1)/(c + rr + e). B) (c + 1)/(c + rr). C) 1/rr. D) (c + 1)/(c + e).

The natural rate of unemployment is also called: A) non-accelerating inflation rate of unemployment. B) accelerating inflation rate of unemployment. C) accelerating deflation rate of unemployment. D) none of the above.

The opportunity cost of hold real money balances is the: A) interest rate. B) price level. C) all of the above. D) none of the above.

The opportunity costs of the firm using its own funds are measured by the: A) market interest rate. B) inflation rate. C) price level. D) menu costs.

The perfectly competitive firm: A) makes its profit-maximizing decision only on the basis of output. B) faces a downward-sloping demand function. C) can influence market price only in a downward direction. D) cannot earn any economic profits because it faces a horizontal demand curve.

The private financial market where banks borrow and loan reserves to meet the minimum research requirements is called: A) federal funds market. B) loanable funds market. C) discount loans market. D) repo market.

The requirement that certain professionals possess a license in order to work in a particular market has the effect of reducing the supply of those services, which in turn causes: A) price and the profits of firms in the market to increase. B) price and the profits of firms in the market to decrease. C) price to increase and the profits of firms in the market to decrease. D) price to decrease and the profits of firms in the market to increase.

The role of the currency exchange rate is embedded in the import expenditure equation as: A) autonomous import spending. B) marginal propensity to import. C) autonomous export spending. D) none of the above.

The situation in which a firm is able to charge the maximum price consumers are willing to pay for each unit of output the firm sells is referred to as: A) first-degree price discrimination. B) second-degree price discrimination. C) third-degree price discrimination. D) fourth-degree price discrimination.

The soft drink industry can best be described as: A) an oligopoly. B) a monopoly. C) perfectly competitive. D) monopolistically competitive.

The success of a predatory pricing strategy in an oligopolistic market depends on all of the following except: A) the number of firms operating in the industry prior to enactment of the policy. B) how far the predatory price is below cost. C) the period of time for which the predatory price is in effect. D) the length of time over which recoupment of profits occurs.

The term "network externality" refers to a barrier to entry that exists because: A) the value of the product to a consumer depends on the number of consumers using the product. B) a group of firms has divided the market into interconnected shares controlled by each firm. C) several firms are able to network with each other and control the market. D) consumers are unable to network, i.e., cooperate, with each other to control market price.

The value of currently produced final goods and services measured in constant prices is called: A) real GDP. B) nominal GDP. C) imputed values. D) inflation.

Those individuals 16 years of age and over who are working in a job or actively seeking employment are called: A) the labor force. B) the employed. C) the unemployed. D) none of the above.

Unemployment compensation is an example of: A) non-discretionary expenditures. B) discretionary expenditures. C) taxes. D) none of the above.

What is the "most efficient capacity" for the perfectly competitive firm? A) The plant size at which LRAC is at its minimum. B) The plant size at which any of the SRATC curves are tangent to the LRAC curve. C) The plant size at which MR = MC. D) The plant size for which Price = AR.

When demand is elastic, the marginal revenue resulting from a decrease in price is: A) positive. B) zero. C) negative. D) cannot be determined without more information.

When price is greater than average variable cost but less than average total cost at the profit-maximizing level of output, a firm should: A) continue to produce the level of output at which marginal revenue equals marginal cost. B) increase output to minimize its losses. C) reduce output to the level at which price equals average variable cost to minimize its losses. D) shutdown to minimize its losses.

Which of the following barriers to entry into a market is most beneficial from society's perspective? A) Economies of scale. B) Ownership of an essential productive resource. C) Brand loyalties. D) Consumer lock-in and switching costs.

Which of the following barriers to entry is is most likely to result in the creation of of new products and production processes? A) Patents. B) Licenses. C) Ownership of an essential raw material. D) Significant economies of scale.

Which of the following best describes the basic characteristics of noncooperative oligopoly models? A) Managers make decisions based on the strategy they think their rivals will pursue. B) Managers attempt to deliberately mislead their rivals regarding the strategy they will pursue. C) When making decisions, managers basically ignore the mutual interdependence that exists among rivals. D) Managers refuse to negotiate with their rivals when it comes to such decisions as what price to charge.

Which of the following best illustrates the mutual interdependence among firms in the airline industry? A) The considerable efforts made by the various competitors to coordinate fare increases. B) The unwillingness of individual firms to match increased amenities offered by other firms. C) The substantial profits airlines have earned over the past several years. D) The virtual absence of control over costs by any of the firms operating in the industry.

Which of the following is not a barrier to entry that is created by government? A) Economies of scale. B) Licenses. C) Regulatory restrictions. D) Patents.

Which of the following is not a type of "lock-in" that acts as a barrier to entry into a particular market? A) Pricing at or below the average cost of production. B) Purchases of durable goods. C) Loyalty programs. D) Specialized suppliers.

Which of the following is not an example of a two-part pricing scheme in the context of price discrimination? A) A customer pays full price for the first 10 copies of a software program and then receives a 10 percent discount on each additional copy it buys. B) A firm, e.g., Sam's Club or Costco, charges a membership fee that is separate from the price paid for items purchased from the firm. C) A customer pays a $10 cover charge to enter a bar and then pays $5 for each beverage. D) An amusement park charges an admission fee and then charges a per unit price for each of the rides offered by the park.

Which of the following is not cited as a reason for a firm to pursue a group pricing strategy? A) To minimize its total costs of production. B) To increase its total profit. C) To attract and lock in additional customers. D) To create network externalities.

Which of the following is not included in GDP? A) Unpaid maintenance of your house by your spouse. B) Services such as those provided by lawyers and dentists. C) The estimated rental (imputed) value of owner-occupied housing. D) Production by foreign citizens in the U.S.

Which of the following is not true when a monopoly market is in equilibrium? A) Consumer well being would be improved if less resources were allocated to the industry in which the monopoly operates. B) Price > MC. C) Price > MR. D) Price = Average Revenue.

Which of the following statements is correct? A) A firm with high fixed costs tends to decrease prices more and output less in the face of declining demand than a firm with relatively low fixed costs. B) A firm with high fixed costs tends to decrease prices less and output more in the face of declining demand than a firm with relatively low fixed costs. C) A firm with high fixed costs tends to decrease prices and output more in the face of declining demand than a firm with relatively low fixed costs. D) A firm with high fixed costs tends to decrease prices and output less in the face of declining demand than a firm with relatively low fixed costs.

Which of the following statements is correct? A) Economic profit is the difference between total revenue and the full opportunity cost of all the resources used in production. B) Economic profit is the difference between total revenue and explicit costs. C) Economic profit is generally greater than accounting profit. D) Economic profit is the difference between total revenue and implicit costs.

Which of the following statements regarding OPEC is false? A) Because it sells a homogeneous product, since its formation in 1960 OPEC has been the clear leader when it comes to determining the price of crude oil. B) OPEC's membership includes countries from the Middle East, Africa, and South America. C) Over time, OPEC's ability to control the price of oil has been constrained by changes in consumer demand and increased production of oil by non-member countries. D) The cartel has not always been successful when it comes to preventing individual members from cheating on the agreed upon production quotas.

Which of the following statements regarding the trucking industry is correct? A) The recession of 2007 -2009 caused many trucking firms to exit with many firms filing for bankruptcy. B) The trucking industry most closely resembles an oligopoly. C) Even though there is a high degree of competition, firms in the trucking industry are able to sustain positive economic profits as a result of a substantial degree of product differentiation. D) The trucking industry was largely unaffected by the recession of 2007-2009 mainly because the industry is comprised by large firms with significant market power.

Widgets R Us, which is a price-taking firm, is currently producing 250 units of output. The market price is $3 per unit, the marginal cost of the 250th unit is $2.75, average total cost is $3.50 per unit, and average variable cost is $2.50 per unit. What advice should you give Widgets R Us? A) Increase output to reduce losses. B) Continue to produce 250 units in the short run. C) Shut down to minimize losses. D) Decrease output to 200 units.

A curve that shows the price level at which firms in the economy are willing to produce different levels of goods and services and the resulting level of real income is called: A) aggregate demand. B) aggregate supply. C) potential output. D) natural rate of unemployment.

A decrease in consumer confidence would shift the: A) aggregate demand curve rightward. B) aggregate demand curve leftward. C) aggregate supply curve rightward. D) aggregate supply curve leftward.

A decrease in efficiency would shift the long-run aggregate supply curve: A) rightward. B) leftward. C) no shift. D) none of the above.

A decrease in foreign real income would shift the: A) aggregate demand curve rightward. B) aggregate demand curve leftward. C) aggregate supply curve rightward. D) aggregate supply curve leftward.

A decrease in government expenditure would shift the: A) aggregate demand curve rightward. B) aggregate demand curve leftward. C) aggregate supply curve rightward. D) aggregate supply curve leftward.

A decrease in the nominal money supply would shift the: A) aggregate demand curve rightward. B) aggregate demand curve leftward. C) aggregate supply curve rightward. D) aggregate supply curve leftward.

A decrease in wealth would shift the: A) aggregate demand curve rightward. B) aggregate demand curve leftward. C) aggregate supply curve rightward. D) aggregate supply curve leftward.

A firm encounters its "shutdown point" when: A) average total cost equals price at the profit-maximizing level of output. B) average variable cost equals price at the profit-maximizing level of output. C) average fixed cost equals price at the profit-maximizing level of output. D) marginal cost equals price at the profit-maximizing level of output.

A goal of expansionary monetary policy is to: A) decrease the rate of growth of real GDP. B) increase the rate of growth of real GDP. C) increase inflation. D) none of the above.

A measure of absolute price changes that excludes changes in energy and food prices is called: A) fringe rate of inflation. B) core rate of inflation. C) overall inflation. D) none of the above.

A vertical curve that defines the level of full-employment or potential output based on a given amount of resources, efficiency, and technology in the economy is called: A) the short-run aggregate supply curve. B) the long-run aggregate supply curve. C) the aggregate demand curve. D) none of the above.

All of the following are measures of market power except the: A) Lerner Index. B) Minimum-Efficient Scale Index. C) four-firm concentration ratio for an industry. D) Herfindahl-Hirschman Index.

All of the following are possible characteristics of a monopoly except: A) there is a single firm. B) the firm is a price taker. C) the firm produces a unique product. D) the existence of some advertising.

An appreciation of the U.S. dollar would shift the: A) aggregate demand curve rightward. B) aggregate demand curve leftward. C) aggregate supply curve rightward. D) aggregate supply curve leftward.

An economy that has a domestic and a foreign sector is called: A) a mixed economy. B) an open economy. C) a closed economy. D) a command economy.

An economy with only the household and firm sectors is called: A) a mixed economy. B) a private economy. C) a command economy. D) none of the above.

An increase in production costs will shift the: A) aggregate demand curve. B) short-run aggregate supply curve. C) long-run aggregate supply curve. D) none of the above.

An increase in taxes would shift the: A) aggregate demand curve rightward. B) aggregate demand curve leftward. C) aggregate supply curve rightward. D) aggregate supply curve leftward.

An increase in the costs of resources or inputs of production would shift the: A) short-run aggregate supply curve rightward. B) short-run aggregate supply curve leftward. C) long-run aggregate supply curve rightward. D) long-run aggregate supply curve leftward.

An increase in the discount rate would: A) decrease bank borrowing of reserves and reflect an expansionary monetary policy. B) decrease bank borrowing of reserves and reflect a contractionary monetary policy. C) increase bank borrowing of reserves and reflect an expansionary monetary policy. D) increase bank borrowing of reserves and reflect a contractionary monetary policy.

An increase in the real money supply can result from: A) increase in the nominal money supply or an increase in the price level. B) increase in the nominal money supply or a decrease in the price level. C) decrease in the nominal money supply or an increase in the price level. D) decrease in the nominal money supply or a decrease in the price level.

An increase in the reserve requirement would: A) decrease excess reserves and reflect an expansionary monetary policy. B) decrease excess reserves and reflect a contractionary monetary policy. C) increase excess reserves and reflect an expansionary monetary policy. D) increase excess reserves and reflect a contractionary monetary policy.

An index based on a mail survey of 5,000 households by the Conference Board that measures households' perceptions of general business conditions, available jobs in the households' local area, and expected personal family income in the coming six months is called the: A) Consumer Sentiment Index. B) Consumer Confidence Index. C) Consumer Satisfaction Index. D) Consumer Consumption Index.

Assume a group of firms has formed a cartel and the cartel is in engaged in joint profit maximization. As such, each firm, acting in its own interests, has an incentive to expand production up to the point at which: A) its marginal cost equals the marginal revenue earned by the cartel. B) its marginal cost equals the cartel-determined price of the product being sold. C) its marginal revenue equals the cartel's marginal costs of production. D) its marginal cost equals the cartel-determined marginal revenue from the good being sold.

Assume a perfectly competitive firm is producing a level of output at which MR < MC. What should the firm do to maximize its profits? A) The firm should do nothing — it wants to maximize the difference between MR and MC in order to maximize its profits. B) The firm should decrease output. C) The firm should increase price. D) The firm should increase output.

Assume goods X and Y are complements and are produced in perfectly competitive markets. All else constant, an increase in demand for good X would cause: A) a decrease in the number of firms that produce good X. B) an increase in the number of firms that produce good Y. C) a decrease in the number of firms that produce good Y. D) no effect on the number of firms that produce either good.

Assume that goods X and Y are substitutes and are produced in perfectly competitive markets. If there is a decrease in the supply of good X, which of the following will happen in the market for good Y in the long run? A) Firms will exit, causing market price to rise. B) Firms will enter, causing market price to fall. C) Price will be higher at the new long-run equilibrium as a result of entry into the market. D) The firms that were already in the industry will continue to earn positive economic profit.

Assume the firms operating in an oligopolistic market experience a relatively small change in marginal costs. According to the kinked demand curve model this would: A) cause a large change in the profit-maximizing level of output. B) leave the equilibrium price unchanged. C) cause the profit-maximizing level of output to change by the same amount and in the same direction. D) cause the profit-maximizing price to change by the same amount but in the opposite direction.

Assume the inverse demand function for a good can be written as: P = 30 - 2Q. Assuming P = $10, the resulting consumer surplus would be equal to: A) $50. B) $100. C) $200. D) $225.

Assume there is an increase in demand in a perfectly competitive market that was initially in long-run equilibrium. Which of the following statements is false? A) Consumers have shown that they now consider the good to be more valuable. B) In the short run, profits will be lower than normal. C) Resources from other industries will be attracted into the market. D) Over time, the market supply curve will shift right.

At a given price level, a decrease in consumer credit will shift the aggregate demand curve: A) rightward. B) leftward. C) both. D) none of the above.

Business taxes increase. What is the impact on aggregate expenditures and income? A) Both increase. B) Both decrease. C) Aggregate expenditure increases and income decreases. D) Aggregate expenditure decreases and income increases.

Capital flows deal with: A) buying and selling of newly produced final goods and services among countries. B) buying and selling of existing real and financial assets among countries. C) buying and selling of only domestic final goods and services. D) none of the above.

Changes in taxes and spending by the executive and legislative branches of a country's government that can be used to either stimulate or restrain the economy are called: A) monetary policy. B) fiscal policy. C) foreign policy. D) exchange rate policy.

Commodities that last less than three years and may be consumed very quickly are called: A) durable goods B) nondurable goods C) services D) none of the above

Compared to the GDP deflator, the consumer price index measures: A) the price of all the goods and services produced in the economy. B) the price of a fixed market basket of goods and services. C) the price of exported goods and services. D) the price of wholesale goods and services.

Consumer debt increases. What is the impact on aggregate expenditures and income? A) Both increase. B) Both decrease. C) Aggregate expenditure increases and income decreases. D) Aggregate expenditure decreases and income increases.

Contractionary fiscal policy should be used if: A) aggregate demand-aggregate supply equilibrium is below potential output. B) aggregate demand-aggregate supply equilibrium is above potential output. C) aggregate demand-aggregate supply equilibrium is equal to potential output. D) none of the above.

Contractionary monetary policy is achieved by: A) decreasing the amount of bank reserves and lowering the federal funds rate. B) decreasing the amount of bank reserves and raising the federal funds rate. C) increasing the amount of bank reserves and lowering the federal funds rate. D) increasing the amount of bank reserves and raising the federal funds rate.

Contractionary monetary policy should be used if: A) aggregate demand-aggregate supply equilibrium is below potential output. B) aggregate demand-aggregate supply equilibrium is above potential output. C) aggregate demand-aggregate supply equilibrium is equal to potential output. D) none of the above.

Decrease in personal income taxes will ________ the expenditure curve: A) decrease. B) increase. C) not change. D) none of the above.

Decrease in the real interest rate will ________ the expenditure curve: A) decrease. B) increase. C) not change. D) none of the above.

Deposits held by commercial banks are insured by the: A) Federal Trade Commission. B) Federal Deposit Insurance Corporation. C) Federal Communications Commission. D) Resolution Trust Corporation.

Economic variables that generally move in tandem with the overall phases of the business cycle are called: A) leading indicators. B) coincident indicators. C) lagging indicators. D) none of the above.

Features of the U.S. federal government expenditure and taxation programs that tend to automatically slow the economy during times of high economic activity and boost the economy during periods of recession are called: A) discretionary expenditures. B) automatic stabilizers. C) non-automatic stabilizers. D) none of the above.

Higher expected profits and business confidence ________ investment spending. A) decrease B) increase C) do not affect D) none of the above.

If GDP rises: A) income and production must both fall. B) income and production must both rise. C) income must rise, but production may rise or fall. D) none of the above.

If farmers operating in the competitive wheat industry are incurring losses, and are not kept in business with government subsidies, which of the following will result? A) Price and quantity produced will both increase in the long run. B) Resources will be reallocated out of the wheat industry into more productive uses. C) Farmers will run economic losses indefinitely, if they are rational. D) The supply of wheat will fall to near zero and the U.S. will become dependent on foreign suppliers of food.

If marginal propensity to save equals 0.50, then the marginal propensity to consume is: A) 1.25. B) 0.50. C) 0.70. D) 1.00.

If there is an autonomous decrease in spending (a leftward shift in the aggregate demand curve) and the Fed wishes to hold real income constant, then the Fed would: A) decrease the money supply yielding a leftward shift in the aggregate demand curve. B) increase the money supply yielding a rightward shift in the aggregate demand curve. C) hold the money supply constant. D) none of the above.

In a closed economy firms sell goods and services to: A) households and foreigners. B) households and the government. C) just the government. D) none of the above.

In an open economy, injections and leakages are related as: A) I + G = S + T. B) I + G + X = S + T + M. C) X + G = T + M. D) none of the above

In game theory, a Nash equilibrium is defined as: A) the dominant strategy of each player. B) a set of strategies for which all players are choosing their best strategy, given the actions of the other players. C) the set of strategies that result in the maximum payoff to each player. D) the set of strategies chosen when the players in a game can cooperate with each other.

In order to use lock-in as a competitive strategy, firm managers should be prepared to do all of the following except: A) invest in a given base of customers by giving concessions initially. B) avoid selling complementary products and access to the customer base. C) be the first to bring a new type of product to market. D) use loyalty programs as part of an entrenchment strategy.

Increase in consumer confidence will ________ the expenditure curve: A) decrease. B) increase. C) down. D) none of the above.

Increases in autonomous spending have an expansionary effect and make ________ levels of real income consistent with a given interest rate. A) lower B) higher C) constant D) none of the above.

Industrial production is an example of a: A) leading indicator. B) coincident indicator. C) lagging indicator. D) none of the above.

Leading, coincident, and lagging indicators are based on the concept that: A) expectations of future inflation is the driving force of the economy. B) expectations of future profits are the driving force of the economy. C) expectations of future unemployment is the driving force of the economy. D) none of the above.

Measuring expenditures and income with the price level held constant, so that any changes in these values represent changes in the actual amount of goods, services, and income is denoted in ________ terms. A) nominal B) real C) constant dollar D) all of the above

Open market purchases and sales are conducted at the: A) Federal Reserve Bank of Kansas City. B) Federal Reserve Bank of New York. C) Federal Reserve Bank of Chicago. D) Federal Reserve Bank of St. Louis.

Open market sale of government securities results in: A) an increase in bank reserves. B) a decrease in bank reserves. C) a decrease in interest rates. D) none of the above.

Spending on the structures, equipment, and software that provide the industrial capacity to produce goods and services for all sectors of the economy is called: A) inventory investment B) business fixed investment C) residential fixed investment D) consumption

Stock market wealth decreases. What is the impact on aggregate expenditures and income? A) Both increase. B) Both decrease. C) Aggregate expenditure increases and income decreases. D) Aggregate expenditure decreases and income increases.

Suppose an oligopoly consists of two firms. Firm A lowers price and Firm B responds by lowering its price by the same amount. If average costs and industry output remain the same, which of the following will occur? A) The profits of the two firms will increase. B) The profits of the two firms will decrease. C) The profits of the two firms will remain the same. D) Barriers to entry will come tumbling down and new firms will enter.

Taxes levied on a firm's earnings ________ the effective cost of funds. A) lower B) raise C) have no effect D) none of the above

The GDP deflator: A) measures the price changes of a fixed basket of goods and services. B) measures the price changes of all final goods and services produced. C) measures the price changes of just goods consumed by the household sector. D) none of the above.

The U.S. dollar appreciates against the euro. What is the impact on aggregate expenditures and income? A) Both increase. B) Both decrease. C) Aggregate expenditure increases and income decreases. D) Aggregate expenditure decreases and income increases.

The ________ book provides information of current economic conditions and is used by the Federal Reserve in formulating monetary policy. A) Red B) Blue C) Beige D) Green

The aggregate supply curve that defines the level of full employment or potential output based on a given amount of resources, efficiency, and technology in the economy is called: A) short-aggregate supply curve. B) long-run aggregate supply curve. C) intermediate aggregate supply curve. D) none of the above.

The assumption that rival firms will match a firm's price decreases but not its price increases is a basic feature of: A) model of limit pricing. B) the kinked demand curve model. C) the predatory pricing model. D) cartel theory.

The banking system in the U.S. is based on: A) 100 percent reserve banking. B) fractional reserve banking. C) 0 percent reserve banking. D) none of the above.

The central bank of the United States is the: A) First American Bank. B) Federal Reserve. C) Federal Deposit Insurance Corporation. D) U.S. Treasury.

The currency deposit ratio, c, is 0.10. The reserve requirement, rr, is 0.07. The excess reserve ratio, e, is 0.10. What is the size of the money multiplier? A) 4.70 B) 4.07 C) 4.75 D) 4.00

The currency deposit ratio, c, is 0.10. The reserve requirement, rr, is 0.08. The excess reserve ratio, e, is 0.05. What is the size of the money multiplier? A) 4.70 B) 4.78 C) 4.75 D) 4.00

The decrease in consumption and investment interest-related spending that occurs when the interest rate rises as government spending increases is called: A) crowding in. B) crowding out. C) neutral. D) none of the above.

The difference between personal income and disposable income is: A) corporate taxes B) personal taxes C) savings D) none of the above

The federal law that prohibits, among other things, price discrimination that lessens competition, the use of tie-in sales, and mergers between firms that reduce competition is the: A) Sherman Act of 1890. B) Clayton Act of 1914. C) Federal Trade Commission Act of 1914. D) Celler-Kefauver Act of 1950.

The fraction of deposits banks are required to keep as reserves is called the: A) deposit requirement. B) reserve requirement. C) excess reserve requirement. D) none of the above.

The function of money that enables money to be used for future purchases is called: A) medium of exchange. B) store of value. C) unit of account. D) measure of power.

The intercept term of the linear investment function measures: A) induced investment expenditures. B) autonomous investment expenditures. C) income. D) none of the above.

The interest rate that commercial banks charge each other for loans of reserves to meet their minimum reserve requirements is called: A) treasury bill rate. B) federal funds rate. C) prime interest rate. D) none of the above.

The interest rate the Federal Reserve charges banks which borrow reserves at the Federal Reserve's discount window is called the: A) federal funds rate. B) discount rate. C) prime interest rate. D) mortgage interest rate.

The level of aggregate output and income where there is a balance between spending and production decisions and where the economy moves toward is called: A) disequilibrium level of output and income. B) equilibrium level of output and income. C) disequilibrium level of employment. D) none of the above.

The marginal propensity to consume is 0.50, marginal propensity to invest is 0.20, and the marginal propensity to import is 0.05. What is the size of the multiplier? A) 1.00 B) 2.86 C) 3.00 D) 0.50

The marginal propensity to save is defined as: A) ΔC/ΔYd. B) ΔS/ΔYd. C) ΔYd/ΔC. D) ΔYd/ΔS.

The market value of all currently produced final goods and services within a county in a given period of time by domestic and foreign supplied resources is called: A) GNP. B) GDP. C) NNP. D) none of the above.

The portion of the short-run aggregate supply that reflects the economy's resources are not fully employed is the: A) vertical portion. B) horizontal portion. C) upward sloping portion. D) none of the above.

The primary objective of a cartel is to: A) maximize the amount of profit received by each member of the organization. B) maximize the joint profits of the members of the organization. C) ensure each member of the organization some minimum amount of profit. D) maximize the average profits of the members of the organization.

The primary responsibility of conducting monetary policy rests with the: A) Board of Governors. B) Federal Open Market Committee. C) Federal Deposit Insurance Corporation. D) U.S. Treasury.

The producer price index measures: A) the prices consumers pay for final goods and services. B) the prices firms pay for crude and intermediate materials as well as finished goods. C) the prices the government pays for final goods and services. D) none of the above.

The reserve requirement is 0.20. What is the simple deposit multiplier? A) 1 B) 5 C) 0.10 D) 100

The rising phase of a business cycle measured by an increase in real GDP is called: A) trough. B) expansion. C) recession. D) contraction.

The simple deposit multiplier is: A) 1/excess reserves. B) 1/reserve requirement. C) 1/deposit requirement. D) none of the above.

The situation in which a firm charges different prices for different blocks of output is referred to as: A) first-degree price discrimination. B) second-degree price discrimination. C) third-degree price discrimination. D) fourth-degree price discrimination.

The suggestion that a seller will try to set price based on "what the market will bear" is explicit recognition of the constraint imposed by: A) the firm's marginal cost of production. B) the price elasticity of demand for that item. C) the firm's competitors. D) the need for most firms to earn positive economic profits over time if they are to remain in business.

The sum of personal consumption expenditure, investment expenditure, government expenditure, and net export expenditure on the total amount of real output in the economy in a given period of time is called: A) potential GDP. B) aggregate expenditure. C) real money balances. D) none of the above.

The system of accounts for each country, based on the circular flow, whose purpose is to measure the level of economic activity is called: A) the underground economy. B) national income accounting. C) bookkeeping. D) none of the above.

The term "industry concentration": A) refers to the degree of product differentiation in an industry. B) is a measure of how many firms produce the total output of an industry. C) refers to how capital or labor intensive a particular industry is. D) is a measure of how many customers purchase the total output of an industry.

The value of currently produced final goods and services measured in current year prices is called: A) real GDP. B) nominal GDP. C) imputed values. D) inflation.

The vital link between the real and monetary sectors of the economy is the: A) price level. B) interest rate. C) balance of payments. D) budget deficit.

Third-degree price discrimination refers to situation in which: A) a firm charges different prices for different blocks of output. B) a firm separates markets according to the price elasticity of demand. C) a firm is able to charge the maximum price consumers are willing to pay for each unit of output. D) a firm divides a market into thirds and charges each segment a different price.

To maximize joint profits, a cartel must determine the level of output at which: A) joint marginal revenue equals the marginal cost of the largest member of the cartel. B) marginal revenue equals joint marginal cost. C) the horizontally sum of the members marginal cost curves is at a minimum. D) joint marginal revenue equals the marginal cost of the smallest member of the cartel.

Transfer payments are: A) included in GDP. B) not included in GDP. C) included in both GDP and GNP. D) none of the above.

What is the difference between inflation and deflation? A) Inflation is a sustained decrease in the price level whereas deflation is a sustained increase in the price level. B) Inflation is a sustained increase in the price level whereas deflation is a sustained decrease in the price level. C) Inflation is a measure of relative prices whereas deflation is a sustained increase in the price level. D) None of the above.

Which of the following is an example of strategic entry deterrence? A) Marginal cost pricing. B) Limit pricing. C) Price leadership. D) Mark-up pricing.

Which of the following is characteristics is common to both monopoly and monopolistic competition? A) Ease of entry into the industry. B) Firms are price setters. C) A relatively large number of sellers. D) Long-run economic profit equals 0.

Which of the following is considered a necessary condition for successful price discrimination? A) A firm's customers must all have the same price elasticity of demand. B) Firms are able to prevent resale among different groups of customers. C) Firms must be able to determine each customer's maximum willingness to pay for the product in question. D) Firms must operate in a perfectly competitive market.

Which of the following is the best example of tacit collusion? A) The formation of a cartel. B) Price leadership. C) Predatory pricing. D) Noncooperative pricing behavior.

Which of the following statements about barriers to entry is false? A) They restrict entry into industries in which positive economic profits are being made. B) They are somewhat lessened by the existence of patents. C) They may be due to legal impediments such as licenses. D) They may be due to a single firm controlling access to a natural resource or production process.

Which of the following statements is correct? A) The markup pricing rule that is derived from the rule for profit maximization can be used as a substitute for determining the profit-maximizing level of output by equating marginal revenue and marginal cost. B) It is reasonable to assume that a profit-maximizing firm will never operate in the inelastic portion of its demand curve. C) The ability of a profit-maximizing firm to mark up price above average cost is unaffected by the price elasticity of demand for the firm's output. D) The markup factor and the price elasticity of demand are positively related, i.e., as the price elasticity of demand increases, the markup factor that the profit-maximizing firm can apply to its marginal cost in setting price increases as well.

Which of the following statements is correct? A) To maximize profit, a firm should apply a uniform markup to each product it sells. B) The profit-maximizing firm's ability to mark up price over average cost is limited by the price elasticity of demand for the product in question. C) It is not possible to maximize profits by using a markup pricing strategy. D) Using markup pricing is more complicated than simply setting price equal to marginal cost.

Which of the following would make it easier to maintain an effective collusive agreement in a cartel? A) An increase in the number of potential entrants into the industry. B) A decrease in the elasticity of demand for the cartel's product. C) An increase in the number of substitutes for the product produced by the cartel. D) A new method of pricing that makes it more difficult for each firm to monitor the prices that the other firms in the cartel are charging.

Why is the prisoner's dilemma game useful in studying oligopoly behavior? A) Because oligopolies make out like bandits. B) To illustrate the problems encountered when making decisions under uncertainty. C) To show that oligopolies behave as monopolists in the long run and earn positive economic profits. D) To illustrate how barriers to entry lead to economic profits.

Within the Keynesian cross, the adjustment towards equilibrium occurs through: A) inflation. B) inventories. C) interest rates. D) none of the above.

Zoran, a Croatian citizen, only works in the United States. The value added to production from his employment is: A) included in Croatian GDP. B) included only in U.S. GDP. C) included only in U.S. GNP. D) not included in either U.S. GDP or U.S. GNP.

________ investment is more volatile than other forms of investment spending because this type of investment can be changed relatively quickly. A) Business fixed B) Inventory C) Residential D) Capital

A common theme in the discussions of the airline, soft drink, doughnut, and express delivery industries is that oligopolistic firms tend to compete: A) strictly on the basis of price and nothing else. B) strictly on the basis of cost minimization. C) primarily on the basis of product differentiation and price. D) primarily by erecting barriers into the market.

A decrease in the discount rate would: A) decrease bank borrowing of reserves and reflect an expansionary monetary policy. B) decrease bank borrowing of reserves and reflect a contractionary monetary policy. C) increase bank borrowing of reserves and reflect an expansionary monetary policy. D) increase bank borrowing of reserves and reflect a contractionary monetary policy.

A decrease in the real money supply can result from: A) increase in the nominal money supply or an increase in the price level. B) increase in the nominal money supply or a decrease in the price level. C) decrease in the nominal money supply or an increase in the price level. D) decrease in the nominal money supply or a decrease in the price level.

A decrease in the reserve requirement would: A) decrease excess reserves and reflect an expansionary monetary policy. B) decrease excess reserves and reflect a contractionary monetary policy. C) increase excess reserves and reflect an expansionary monetary policy. D) increase excess reserves and reflect a contractionary monetary policy.

A system where goods and services are exchanged directly without a common unit of account is called the: A) commodity system. B) fiat system. C) barter system. D) none of the above.

According to the information presented in the text the parcel and express delivery industry could best be characterized as: A) a perfectly competitive market. B) a monopolistically competitive market. C) an oligopoly. D) a monopoly.

According to the kinked demand curve model, if an oligopolistic firm lowers its price, it should expect to see its total revenue: A) increase. B) stay the same. C) decrease D) cannot be determined without more information.

All of the following are cited as potential explanations for the decrease in demand for Kleenex-brand facial tissues except: A) consumers switching to substitute products. B) market entry by lower-priced private brands. C) the failure of the producer of Kleenex tissues to develop any new and innovative products.

All of the following are considered input barriers to entry except: A) control of a key raw material by a single firm. B) the ability to obtain financing for capital projects at more favorable rates than potential competitors. C) the fact that workers in a particular industry belong to a union. D) a patent on a specialized type of capital that is needed to produce a particular product.

All of the following are considered to be problems associated with the use of concentration ratios to measure market power except: A) the market definitions used in their construction may be arbitrary. B) two different markets with the same concentration ratio may have very different distributions of market share among firms used to calculate the concentration ratio. C) consideration of exports and imports generally causes concentration ratios to be overstated. D) concentration ratios are often based on national statistics and may not reflect substantial concentration in a market at a more localized level.

All of the following are strategies a firm with market power can adopt to increase it profits over time except: A) mergers with, and acquisitions of, competing firms. B) erecting barriers to entry. C) setting price equal to the marginal costs of production. D) influencing the regulatory process.

An economy with only a domestic sector is called: A) a mixed economy. B) an open economy. C) a closed economy. D) a command economy.

An income tax system where higher tax rates are applied to increased amounts of income is called a: A) regressive tax system. B) proportional tax system. C) progressive tax system. D) flat tax system.

An income tax system where higher tax rates are applied to increased amounts of income is called: A) a regressive tax system. B) a proportional tax system. C) a progressive tax system. D) a flat rate tax system.

An increase in resources, efficiency, or technology will shift the: A) short-run aggregate supply curve rightward. B) short-run aggregate supply curve leftward. C) long-run aggregate supply curve rightward. D) long-run aggregate supply curve leftward.

An industry characterized by a small number of dominant firms that face downward-sloping demand curves is best described as: A) a monopoly. B) monopolistically competitive. C) an oligopoly. D) perfectly competitive.

Assume a change in price causes the price elasticity of demand for a good (in absolute value) and marginal revenue to decrease. In this case we can conclude that the price of the good was: A) increased. B) held constant. C) decreased. D) cannot be determined.

Assume a perfectly competitive firm is in long-run equilibrium and there is a decrease in market demand for the firm's output. Which of the following will occur? A) Existing firms will maintain the original level of output, but they will shift their cost functions down in the short run. B) Existing firms will raise price to cover the reduction in quantity demanded and maintain total revenue in the short run. C) Existing firms will reduce output in the short run. D) Market price will be above its original level.

Assume an automobile manufacturer can sell its sport utility vehicle (SUV) with or without a trailer towing package. One group of customers, group A, is willing to pay a maximum of $30,000 for the SUV and $1,100 for the towing package. A second group, B, is willing to pay $29,000 for the SUV and $1,000 for the towing package. Assuming the manufacturer cannot price discriminate, to maximize its revenues the manufacturer should: A) sell the components separately, charging $30,000 for the SUV and $1,000 for the towing package. B) sell the components separately, charging $29,000 for the SUV and $1,100 for the towing package. C) sell the components separately, charging $29,000 for the SUV and $1,000 for the towing package. D) sell the components as a bundle for $30,500.

Assume at the firm's profit-maximizing level of output P = AVC. In this case, the firm will be: A) earning a positive economic profit. B) earning economic profit = 0. C) incurring an economic loss. D) breaking even.

Assume it is announced that a large number of new competitors have entered the market for mountain bikes, each offering a different model. Based on this information, this industry is best characterized as: A) perfectly competitive. B) a monopoly. C) monopolistically competitive. D) an oligopoly.

Assume that at the current market price, a perfectly competitive firm's profit-maximizing level of output yields total revenues that are just equal to total costs. Which of the following statements applies to this firm? A) The firm should shut down right now. B) The firm should continue to operate in the short run to minimize losses, but shut down if things don't improve over the long run. C) The firm is earning zero economic profit and should continue to operate. D) The firm should increase its explicit costs to reduce its tax burden.

Assume that for a particular firm's output price = $80, marginal cost = $30, average total cost = $25. This information suggests that the firm in question has: A) no market power. B) very little market power. C) a fair degree of market power. D) absolute market power.

Assume that when price is $20, quantity demanded is 9 units, and when price is $19, quantity demanded is 10 units. Based on this information, what is the marginal revenue resulting from an increase in output from 9 units to 10 units? A) $20 B) $19 C) $10 D) $1

Assume the firms in a monopolistically competitive industry initially are earning positive economic profits. Which of the following will not occur over time? A) The firms' economic profits will be reduced. B) New firms will enter. C) Demand for the existing firms' output will become more inelastic. D) The number of substitutes available in the industry will increase.

Assume the price elasticity of demand for a product is -4. In this case, the firm's optimal markup is (approximately): A) 400 percent. B) 100 percent. C) 33 percent. D) 25 percent.

Assume there is a decrease in the number of substitutes for a good produced by a profit-maximizing price-setting firm. All else constant, this would cause the firm's ability to markup price above average cost to: A) decrease. B) stay the same. C) increase. D) cannot be determined with the information given

Assume there is an increase in the number of consumers in the market for a good sold by perfectly competitive firms that are initially producing the profit-maximizing level of output. For the individual firm, this would result in: A) a decrease in both price and the profit-maximizing quantity of output. B) a decrease in price and increase in the profit-maximizing quantity of output. C) an increase in both price and the profit-maximizing quantity of output. D) an increase in price and decrease in profit-maximizing quantity of output.

Average duration of unemployment is an example of a: A) leading indicator. B) coincident indicator. C) lagging indicator. D) none of the above.

Because firms produce a differentiated product, each of the firms in a monopolistically competitive market faces a demand curve that is: A) perfectly elastic. B) perfectly inelastic. C) downward sloping. D) perfectly elastic or perfectly inelastic depending on whether the firm's output is a luxury or a necessity.

By and large, the price of each item on a restaurant menu is: A) an accurate reflection of the item's marginal cost. B) based strictly on consumer demand. C) a function of cost and the price elasticity of demand for the item. D) a fixed multiple of the item's total cost.

By continuing to operate when price is greater than average variable cost but less than average total cost, a firm limits its losses to: A) $0. B) its total fixed costs. C) the difference between its total fixed cost and the amount by which total revenue exceeds total variable costs. D) its total variable costs.

By shutting down when price is less than average variable cost at the profit-maximizing level of output, a perfectly competitive firm will limit its losses to its: A) total variable costs. B) total costs. C) total fixed costs. D) marginal costs.

Decreases in the NAIRU represent a: A) leftward shift in the aggregate demand curve. B) leftward shift of the long-run aggregate supply curve. C) rightward shift of the long-run aggregate supply curve. D) rightward shift in the aggregate demand curve.

Economic variables that generally turn down after a recession begins and turn back up after the recovery starts are called: A) leading indicators. B) coincident indicators. C) lagging indicators. D) none of the above.

Expansionary monetary policy is achieved by: A) decreasing the amount of bank reserves and lowering the federal funds rate. B) decreasing the amount of bank reserves and raising the federal funds rate. C) increasing the amount of bank reserves and lowering the federal funds rate. D) increasing the amount of bank reserves and raising the federal funds rate.

Firms in an oligopoly market will have a more difficult time maintaining price coordination when: A) demand for the firms' products remains stable. B) the firms' cost structures are similar. C) the firms' products are highly differentiated. D) each firm controls the same share of the market.

For the U.S. economy, the largest expenditure category is: A) government expenditures. B) net export expenditures. C) personal consumption expenditures. D) investment expenditures.

Higher prices and price increases combined with lower real output and income, resulting from a major increase in input prices in the economy is called: A) deflation. B) inflation. C) stagflation. D) none of the above.

How many Federal Reserve District Banks are there? A) 5 B) 7 C) 12 D) 1

If $1000 was deposited in a bank and the reserve requirement is 0.20, how much is available for loans? A) $900 B) $910 C) $800 D) $930

If desired spending exceeds output, then firms: A) accumulate their inventories and cut production. B) deplete their inventories and cut production. C) deplete their inventories and increase production. D) accumulate their inventories and increase production.

If there are barriers to entry into a market, it is possible for the existing firm(s) to earn positive economic profits. All of the following explain this except: A) new firms cannot enter to take advantage of the profits. B) resource immobility. C) it is possible for a firm in this situation to charge any price it wants and thus preclude anyone else from entering. D) competition does not erode profits the way it would under perfect competition.

In a circular-flow diagram, total income and total expenditures in an economy are: A) equal because firms are ultimately owned by households. B) equal only if there is no saving. C) equal because every transaction has a buyer and a seller. D) always equal because some people's income is not for production.

In a closed economy the marginal propensity to consume is 0.60 and the marginal propensity to invest is 0.10. What is the size of the multiplier? A) 1.33 B) 2.33 C) 3.33 D) 0.70

In its effort to maximize economic profit, a firm characterized as a price setter must determine: A) only the price it should charge. B) only the quantity it should produce. C) both the price it should charge and the quantity it should produce. D) neither the price it should charge and the quantity it should produce as these are both determined by forces beyond the firm's control.

In the short-run along the horizontal portion of the aggregate supply curve, an increase in the budget deficit and an expansionary monetary policy would: A) increase the price level only. B) increase both the price level and real income. C) increase real income only. D) none of the above.

In year one, the GDP deflator is 100 and in year two 110. If nominal GDP in year two is $300 billion, what is real GDP for year two? A) $200 billion. B) $100 billion. C) $272.73 billion. D) $220 billion.

Industry X, which is perfectly competitive, is in long-run equilibrium. Assume a new law is passed that requires employers in industry X to provide health insurance to previously uninsured employees. As a result of this new requirement we would expect to observe: A) a decrease in price and an increase in total output in industry X. B) a decrease in price and total output in industry X. C) an increase in price and a decrease in total output in industry X. D) an increase in price and total output in industry X.

It has been observed that whenever one imported beer distributor raises its price, other imported beer distributors quickly raise their price as well. Such behavior is characteristic of: A) the barometric-firm model of price leadership. B) explicit collusion. C) price leadership. D) the kinked-demand curve model of oligopoly.

It is frequently observed that when a city is located next to a major highway, gas stations located close to the highway charge higher prices than gas stations located farther away. This is an example of: A) first-degree price discrimination. B) second-degree price discrimination. C) third-degree price discrimination. D) illegal price discrimination.

Jim, a U.S. citizen, works only in Croatia. The value added to production from his employment is: A) included in only Croatian GNP. B) included only in U.S. GDP. C) included only in U.S. GNP. D) not included in either U.S. GDP or U.S. GNP.

Large denomination time deposits are included in: A) M1. B) M2. C) M3. D) L.

Long-run macroeconomic policies concentrate on: A) minimizing fluctuations around potential GDP. B) maximizing fluctuations around potential GDP. C) incentives for increasing productivity and the potential output of the economy. D) none of the above.

Marginal revenue is equal to: A) the change in price divided by the change in output. B) the change in quantity divided by the change in price. C) the change in P x Q due to a one unit change in output. D) price, but only if the firm is a price searcher.

Microsoft enjoyed the benefit of several barriers to entry, including all of the following except: A) lock in and switching costs. B) patents and copyright protection. C) input barriers. D) network externalities.

Predatory pricing is used primarily to: A) discourage new firms from entering a market. B) reduce (limit) the profits of all of the firms in the industry. C) drive other firms out of a market. D) establish a minimum price all of the firms in the market will charge.

Price leadership: A) has rarely occurred in U.S. history. B) is always illegal in the United States. C) is usually the result of a dominant firm in the industry. D) usually results in the smaller firms in the industry incurring economic losses.

Promotional pricing would best be categorized as a form of: A) first-degree price discrimination. B) second-degree price discrimination. C) third-degree price discrimination. D) no price discrimination.

Suppose a monopolist is producing a level of output such that MR > MC. Which of the following best describes what will happen as the firm moves to its profit-maximizing equilibrium? A) Marginal revenue will rise and marginal cost will fall. B) Marginal cost and marginal revenue will both rise. C) Marginal revenue will fall and marginal cost will rise. D) Marginal cost and marginal revenue will both fall.

Suppose a perfectly competitive firm, which is initially in long-run equilibrium experiences a decrease in the wages it must pay its employees. In the short run, which of the following will occur? A) ATC will shift up and MC will shift down, causing the firm to incur a loss. B) ATC will shift down and MC will shift up, causing the firm to earn a positive economic profit. C) ATC and MC will shift down, causing the firm to earn a positive economic profit. D) ATC and MC will shift up, causing the firm to incur a loss.

Suppose the firms in a monopolistically competitive market are earning positive economic profits. What will happen to move the market to its long-run equilibrium? A) The firms' demand curves will become less elastic. B) The demand curves faced by firms in the market will shift to the right. C) More close substitutes will appear in the market. D) Some firms will exit the market if they can't cover all of their fixed and variable costs.

Suppose the firms in a monopolistically competitive market are incurring economic losses. What will happen to move the market to its long-run equilibrium? A) More close substitutes will appear in the market until economic profits are zero. B) The firms that dropped out of the market will reenter once the level of economic losses is zero. C) Firms will continue to exit the market until economic losses are equal to zero. D) The demand functions of all the firms remaining in the market will become relatively more elastic.

The Herfindahl-Hirschman Index is a measure of market power that focuses on: A) the ratio of the price of a firm's product to the price elasticity of demand for the product. B) the share of the market controlled by the X largest firms in the market. C) the sum of the squares of the market share of each firm in an industry. D) the difference between a firm's product price and its marginal costs of production.

The change in import spending due to a change in domestic real income is called: A) marginal propensity to save. B) marginal propensity to consume. C) marginal propensity to import. D) none of the above.

The combination of rising inflation and higher unemployment is called: A) recession. B) expansion. C) stagflation. D) deflation.

The demand curve faced by the individual perfectly competitive firm is: A) downward sloping. B) upward sloping. C) horizontal. D) vertical.

The dominant strategy for each of the players in the prisoner's dilemma game does not yield the optimal outcome for each player because: A) each player is misinformed about the decision that has been made by the other player. B) the players do not understand the consequences of each of the choices they can make. C) the two players are not allowed to communicate or otherwise cooperate with each other. D) each player fails to consider how the other player might act.

The equilibrium price in the money market is the: A) inflation rate. B) exchange rate. C) interest rate. D) none of the above.

The falling phase of a business cycle measured by a decrease in real GDP is called: A) hyperinflation. B) expansion. C) recession. D) peak.

The federal law that prohibits, among other things, "unfair" competition and created the Federal Trade Commission is the: A) Sherman Act of 1890. B) Clayton Act of 1914. C) Federal Trade Commission Act of 1914. D) Celler-Kefauver Act of 1950.

The full-employment level of output is called: A) aggregate demand. B) aggregate supply. C) potential output. D) none of the above.

The function of money that enables prices of goods and services to be quoted is called: A) medium of exchange. B) store of value. C) unit of account. D) measure of power.

The income generated from the sale of the goods and services produced in the economy and paid to the individuals and businesses who supply the factors of production is called: A) GDP. B) GNP. C) national income. D) NNP.

The key distinguishing characteristic of an oligopoly is the: A) presence of long-run economic profits. B) fact that in all cases firms produce a standardized product. C) mutual interdependence of the firms in the market. D) near total absence of advertising.

The legislation passed in 1946 that requires governmental institutions to promote "maximum employment, production, and purchasing power" is called: A) Full Employment and Balanced Growth Act. B) Federal Reserve Act. C) Employment Act. D) Unemployment Act.

The legislation that made all depository institutions regardless of Federal Reserve membership subject to the reserve requirements established by the Fed is called the: A) Glass-Steagall Act. B) McFadden Act. C) Monetary Control Act of 1980. D) none of the above

The monopolistically competitive seller's demand curve will tend to become more elastic the: A) smaller the number of sellers. B) greater the degree of product differentiation. C) larger the number of close competitors. D) more significant the barriers to entering an industry.

The nominal interest rate is 7 percent and the expected inflation rate is 4 percent. The real interest rate is: A) 10 percent. B) -2 percent. C) 3 percent. D) 4 percent.

The perfectly competitive firm's supply curve: A) coincides with its perfectly elastic demand curve. B) is perfectly inelastic at the market price. C) is the firm's marginal cost curve above the minimum point on the AVC curve. D) is the firm's average total cost curve above the shutdown point.

The price of one good in relation to the price of another good is called: A) absolute prices B) exchange rate C) relative prices D) none of the above

The total amount of spending on nonresidential structures, equipment, software, residential structures, and business inventories in a given period of time is called: A) net exports. B) government consumption and investment. C) gross private domestic investment. D) personal consumption.

The unemployment rate is calculated as follows: A) labor force/number of unemployed. B) labor force participation rate/number of unemployed. C) number of unemployed/labor force. D) number of employed/labor force.

When a firm is producing at the profit maximizing level of out put and P > ATC, the firm is: A) breaking even. B) incurring an economic loss. C) earning an economic profit. D) earning a profit or incurring a loss depending on the level of total fixed costs.

When the cross price elasticity between good X and other related goods is positive and very low, firm X can be assumed to have: A) minimal market power. B) moderate market power. C) a significant amount of market power. D) virtually no market power.

When the marginal revenue resulting from a decrease in price is negative, demand for the product is: A) elastic. B) unit elastic. C) inelastic. D) cannot be determined without more information.

Which of following is not a condition that must be met for a cartel to maximize its joint profits? A) Total output by the cartel must be allocated among the member firms such that the individual firm's marginal costs are equal. B) The cartel must produce the level of output at which its marginal revenues and marginal costs are equal. C) The cartel must be operating in the inelastic portion of its demand curve. D) Each member firm must employ the least-cost method of production.

Which of the arguments Staples and Office Depot made in defense of their proposed merger would be least defensible on economic grounds? A) There would be substantial economies of scale. B) The two firms were in competition with all other office supply stores, not just office supply superstores. C) The history of low pricing by the two stores meant that they would not raise prices in the future after they merged. D) Entry into the office supply market is relatively easy

Which of the following barriers to entry can best explain the continued success of a product that has been shown to be, in some way, harmful to the health of consumers? A) Patent. B) Consumer lock-in. C) Brand loyalty. D) Ownership of an essential resource.

Which of the following conditions holds for a monopolist, but not for a perfect competitor, at the profit-maximizing level of output? A) Price = average revenue. B) Marginal revenue = marginal cost. C) Price > marginal cost. D) Profit = (AR-ATC) x Q.

Which of the following is an example of price discrimination? A) Increasing the price of a product when demand for the product increases. B) Charging different prices for a product in different regions of the country due to differences in transportation costs. C) Bundling complementary products to attract additional sales. D) Reducing the price of a product to reduce excess inventory.

Which of the following is cited as a problem with the kinked demand curve model? A) It assumes that firms do not attempt to maximize profits. B) It assumes that firms determine the profit-maximizing level of output by equating marginal cost and average variable cost. C) It does not explain how the equilibrium market price is determined. D) It does not explain the price stickiness that is routinely observed in oligopolistic markets.

Which of the following is not a characteristic of perfect competition? A) Large number of firms in the industry. B) Outputs of the firms are perfect substitutes for one another. C) Firms face downward-sloping demand functions. D) No barriers to entry or exit.

Which of the following is not a characteristic of the broiler chicken industry? A) A significant degree of industry concentration, with the four largest firms producing 40 percent of the industry's output. B) A significant degree of real and subjective product differentiation. C) An inability of individual firms to have any influence market price. D) A significant amount of advertising.

Which of the following is the best example of a monopolistically competitive market? A) The wheat market. B) The electricity market. C) The restaurant market. D) The market for automobiles.

Which of the following statements regarding a monopolist is false? A) The marginal revenue curve lies below the demand curve for the monopolist's output. B) Unlike a perfectly competitive firm, a monopolist faces little or no competition. C) The monopolist sets price equal to marginal cost to maximize profits. D) The monopolist may or may not earn positive economic profits.

Which of the following statements regarding a price-taking firm is correct? A) Demand = average revenue > marginal revenue. B) Demand = marginal revenue > average revenue. C) Demand = price = average revenue = marginal revenue. D) Demand = price > average revenue > marginal revenue.

Which of the following statements regarding cartels is not correct? A) Cartels are sometimes difficult to maintain because a member can cheat by raising its price above the agreed price. B) Cartels restrict industry output in order to raise price. C) Cartels are inherently stable, because oligopolistic firms rarely change price. D) are easier to establish and maintain when the cost functions of the individual members are more similar to one another.

Which of the following statements regarding the requirement that a firm be granted a license to operate in a particular market is false? A) Advocates of licensing maintain that the practice is necessary to maintain quality of service. B) One of the economic effects of a license requirement is to constrain the available supply of the affected good or service. C) The requirement that they be licensed ensures that the affected firms will be able to earn a positive economic profit. D) Relaxing certain licensing requirements should increase the supply of the affected good or service.

Which of the following statistics is the best single measure of overall economic activity? A) The labor force participation rate. B) The inflation rate. C) GDP. D) The trade surplus.

"Personalized pricing" and "group pricing" are examples of: A) first-degree and second-degree price discrimination, respectively. B) second-degree and third-degree price discrimination, respectively. C) first-degree price discrimination. D) first-degree and third-degree price discrimination, respectively.

A decrease in resources, efficiency, or technology will shift the: A) short-run aggregate supply curve rightward. B) short-run aggregate supply curve leftward. C) long-run aggregate supply curve rightward. D) long-run aggregate supply curve leftward.

A perfectly competitive firm will maximize profits (or minimize losses) so long as price (marginal revenue) is: A) greater than marginal cost. B) greater than average fixed cost. C) greater than average total cost. D) greater than average variable cost.

All of the following are characteristics of a perfectly competitive market except: A) a large number of sellers. B) perfectly elastic demand. C) a homogeneous product. D) barriers to entry.

An increase in the discount rate will result in: A) increase in bank reserves and a decrease in the federal funds rate. B) increase in bank reserves and an increase in the federal funds rate. C) decrease in bank reserves and a decrease in the federal funds rate. D) decrease in bank reserves and an increase in the federal funds rate.

An increase in the price level will shift the aggregate demand curve: A) rightward. B) leftward. C) both. D) none of the above.

Appreciation of the U.S. dollar will ________ exports and ________ imports, other things equal. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase

The elasticity of supply is measured by: A) the quantity supplied divided by price. B) the change in quantity supplied divided by the change in price. C) the percentage change in quantity supplied divided by the percentage change in quantity demanded. D) the percentage in quantity supplied divided by the percentage change in price.

Assume a perfectly competitive firm is producing 300 units of output, P = $10, ATC of the 300th unit is $11, marginal cost of the 300th unit = $10, and AVC of the 300th unit = $9. Based on this information, the firm is: A) earning an economic profit of $300. B) earning an economic profit of $600. C) incurring a loss of $300 and should shut down. D) incurring a loss of $300, but should continue to operate in the short run.

Assume a perfectly competitive firm is producing a level of output at which MR < MC. What will happen as the firm moves to its profit-maximizing equilibrium? A) Marginal revenue will rise. B) Marginal revenue will fall. C) Marginal cost will rise. D) Marginal cost will fall.

Assume firm X is one of the three largest firms in an oligopolistic industry. Firm X is currently considering a vertical merger with another firm that is the sole supplier of an input used by all of the firms that compete with firm X. If the merger goes through, firm X would be able to operate much like: A) a perfectly competitive firm. B) a monopolistically competitive firm. C) an oligopolist. D) a monopolist.

Assume that as the firms in a perfectly competitive industry expand output, the prices of productive inputs increase. All else constant, this would cause the individual firms' marginal cost curves to ________ and the market supply curve to become ________. A) shift down; flatter B) shift down; steeper C) shift up; flatter D) shift up; steeper

Assume that for a particular firm's output price = $80, marginal cost = $30, average total cost = $25. Based on this information, the firm's Lerner Index is equal to: A) 0.313. B) 0.375. C) 0.6. D) 0.625.

Assume the elasticity of of supply for a particular good has been estimated to equal 1.8. In this case, a 10 percent increase in product price would cause the quantity supplied to: A) decrease by 1.8 percent. B) increase by 1.8 percent. C) decrease by 18 percent. D) increase by 18 percent.

Assume the firms in an oligopoly produce a differentiated product and are initially colluding. If each firm begins to cheat (to increase sales) by underpricing the other firms, as the amount of cheating increases, the resulting industry price and output will approach the outcome for: A) perfect competition. B) monopolistic competition. C) noncooperative monopoly. D) noncooperative oligopoly.

Assume the four-firm concentration ratio in industry X is 75 percent and that the firms in the industry produce a differentiated product. Industry X most likely would be characterized as: A) perfectly competitive. B) a monopoly. C) monopolistically competitive. D) an oligopoly.

Assume the production of a particular good is characterized by significant economies of scale. In addition, three different versions of the good can be produced, and large segments of the population prefer different versions of the good. In this case, the preferred market structure for this good would be: A) perfect competition. B) monopoly. C) monopolistic competition. D) oligopoly.

Balance of payments issues are related to the relative value of different countries' currencies and the flow of goods, services, and financial assets among countries. The rate at which one country's currency can be traded for another is called: A) the trade balance. B) capital inflows. C) capital outflows. D) the exchange rate.

Firms have tried a number of different strategies to reduce the negative effects of competition on their ability to earn economic profits. Which of the following strategies is most desirable from the viewpoint of economic efficiency and consumer well being? A) Collusion. B) Price leadership. C) Formation of cartels. D) Investment in research and development.

GDP can increase from one year to the next by: A) increases in prices while quantities of goods and services are constant. B) increases in the quantities of goods and services produced while prices remain constant. C) both prices and quantities of goods and services increase. D) all of the above.

Government expenditures are considered autonomous in the model meaning that changes are the result of: A) changes in real income. B) changes in inflation. C) changes in unemployment. D) changes in policy decisions.

If a market is perfectly competitive and is in long-run equilibrium, which of the following conditions does not hold? A) Price is equal to the minimum long-run average cost of production. B) Economic profit equals zero. C) The value of the last unit of output produced is equal to the value of the resources used to produce it. D) There is an incentive for additional firms to enter the market because existing firms are earning revenues in excess of the explicit costs of production.

If an industry is characterized by economies of scale: A) barriers to entry are usually not very large. B) long-run average costs of production increase as the quantity the firm produces increases. C) capital requirements are small due to the efficiency of the large-scale operations. D) the costs of entry into the market are likely to be substantial.

In comparing monopoly to a perfectly competitive market, which of the following is false? A) Market price will be higher under monopoly. B) Equilibrium quantity will be higher under perfect competition. C) Consumers will be worse off with the monopoly. D) Employment will be higher under monopoly.

In game theory, the strategy that results in the highest payoff to a player regardless of what the other player decides to do is called the: A) Stackleberg equilibrium. B) equilibrium strategy. C) min-max strategy. D) dominant strategy.

In order for the first player to move in a sequential game to be able to gain an advantage from making the first move, the player must: A) possess a dominant strategy that is better than the other player's dominant strategy. B) be able to achieve a higher maximum payoff than the other player. C) follow the same strategy he would pursue in a Nash equilibrium. D) be able to make a credible commitment to the strategy.

In order to maximize its profits, a price-taking firm should produce the level of output at which: A) total revenue = total cost. B) average revenue = average cost. C) variable revenue = variable cost. D) marginal revenue = marginal cost.

In the money market, a decrease in money demand will: A) result in a rightward shift in the money demand curve increasing interest rates. B) result in a rightward shift in the money demand curve decreasing interest rates. C) result in a leftward shift in the money demand curve increasing interest rates. D) result in a leftward shift in the money demand curve decreasing interest rates.

In the money market, an excess demand of money will: A) increase the supply of bonds, increase bond prices, and decrease interest rates. B) increase the supply of bonds, decrease bond prices, and decrease interest rates. C) increase the supply of bonds, increase bonds prices, and increase interest rates. D) increase the supply of bonds, decrease bond prices, and increase interest rates.

In which of the following scenarios would a predatory pricing scheme have the greatest chance of success, all else constant? A) The predatory price is set well below cost, many rivals are likely to enter after the strategy ends, and profits can be recouped only over a relatively long period of time. B) The predatory price is set well below cost, relatively few rivals are likely to enter after the strategy ends, and profits can be recouped in a relatively long period of time. C) The predatory price is set just below cost, many rivals are likely to enter after the strategy ends, and profits can be recouped in a moderate period of time. D) The predatory price is set just below cost, relatively few rivals are likely to enter after the strategy ends, and profits can be recouped in a very short period of time.

In which of the following situations would each of the members be responsible for producing an equal share of the total amount of output sold by the cartel engaged in joint profit maximization? A) When the amount of revenue generated by each member of the cartel is the same. B) When there are no economies of scale in production. C) When each member of the cartel is using the same scale of production. D) When marginal costs of production are the same for each of the members of the cartel.

Industry Y is a perfectly competitive industry. Assume that as a result of changes in other markets there is a twenty percent increase in the price of variable inputs used by firms in industry Y. After all adjustments have taken place, we would expect the equilibrium price in industry Y to: A) decrease and the number of firms to increase. B) decrease and the number of firms to decrease. C) increase and the number of firms to increase. D) increase and the number of firms to decrease.

Money serves all of the following functions except: A) medium of exchange. B) store of value. C) unit of account. D) measure of power.

Open market sale will result in: A) increase in bank reserves and a decrease in the federal funds rate. B) increase in bank reserves and an increase in the federal funds rate. C) decrease in bank reserves and a decrease in the federal funds rate. D) decrease in bank reserves and an increase in the federal funds rate.

Over the past few years, airlines have tended to compete in the market for intercontinental business class travelers on the basis of: A) price. B) cost. C) timeliness of their flight schedules. D) amenities.

Perfectly competitive firms are said to be "small." Which of the following best describes this smallness? A) The individual firm must have fewer than 10 employees. B) The individual firm faces a downward-sloping demand curve. C) The individual firm has assets of less than $2 million. D) The individual firm is unable to affect market price through its output decisions.

Suppose a monopolist is producing a level of output such that MR > MC. What should the firm do to maximize its profits? A) The firm should do nothing — it wants to maximize the difference between MR and MC in order to maximize its profits. B) The firm should hire less labor. C) The firm should increase price. D) The firm should increase output.

Suppose an apartment complex is converted to an owner occupied condominium. Suppose that the estimated value of the condominium owners' housing services is now the same as their former rent. A) GDP increases. B) GDP decreases. C) GDP is unaffected because neither the rent nor the estimate of the value of housing services is included in GDP. D) None of the above.

The Clayton Act: A) was passed in 1985 over the objections of then President Reagan. B) outlaws racial discrimination in the practice of business. C) outlaws the ownership of stock by the U.S. government unless it is in public enterprises. D) outlaws price discrimination unless based on cost differences.

The Justice Department is most likely to oppose a proposed merger on the basis of the Herfindahl-Hirschman Index when the post-merger HHI is: A) less than 100. B) less than 1000. C) between 1000 and 1800. D) greater than 1800.

The Lerner Index is a measure of market power that focuses on: A) the ratio of the price of a firm's product to the price elasticity of demand for the product. B) the share of the market controlled by the X largest firms in the market. C) the sum of the squares of the market share of each firm in an industry. D) the difference between a firm's product price and its marginal costs of production.

The OPEC oil shocks in 1973-1974 are an example of: A) favorable supply shock, shifting the short-run aggregate supply curve rightward. B) favorable supply shock, shifting the short-run aggregate supply curve leftward. C) adverse supply shock, shifting the short-run aggregate supply curve rightward. D) adverse supply shock, shifting the short-run aggregate supply curve leftward.

The ability of a financial asset to be used to immediately make transactions is called: A) store of value. B) medium of exchange. C) illiquidity. D) liquidity.

The aggregate expenditure in an open economy is defined as: A) E = C + I + G. B) E = C + I + G + X. C) E = C × I × G × X - M. D) E = C + I + G + X - M.

The difference between the total willingness to pay for a good and the amount actually spent measures: A) the total benefits from consuming the good. B) the net gain from the production and consumption of the good. C) the amount by which producers are better off, i.e., producers' surplus. D) the amount by which consumers are better off, i.e., consumers' surplus.

The extent to which investment spending changes with changes to income is called the: A) marginal propensity to consume. B) marginal propensity to save. C) marginal propensity to import. D) marginal propensity to invest.

The interest rate that banks charge on loans to their best customers is called the: A) federal funds rate. B) discount rate. C) mortgage interest rate. D) prime rate.

The labor force is 100 million and the unemployment rate is 5 percent. One million people quit looking for a job. What is it called when an individual leaves the labor force, and in this case what is the new unemployment rate? A) Encouraged worker, 5 percent. B) Discouraged worker, 5.05 percent. C) Discouraged worker, 3 percent. D) Discouraged worker, 4.04 percent.

The long-run aggregate supply curve is influenced by: A) resources available. B) efficiency levels. C) level of technology. D) all of the above.

The market structure that is most different from the model of perfect competition is: A) monopolistic competition. B) monopsony C) oligopoly. D) monopoly.

The measure of market power that focuses on the share of the market controlled by the X largest firms in the market is known as: A) the Lerner Index. B) the Herfindahl-Hirschman Index. C) the Minimum-Efficient Scale Index. D) a concentration ratio.

The money supply consists of: A) currency plus reserves. B) currency plus required reserves. C) currency plus excess reserves. D) currency plus demand deposits.

The open economy multiplier is calculated as follows: A) 1/[1-(marginal propensity to consume + marginal propensity to invest)] B) 1/[1-(marginal propensity to consume + marginal propensity to import)] C) 1/[1-(marginal propensity to consume + marginal propensity to invest + marginal propensity to import)] D) 1/[1-(marginal propensity to consume + marginal propensity to invest - marginal propensity to import)]

The payments to the factors of production are: A) wages. B) rent. C) rent and interest. D) wages, rent, interest, and profits.

The practice of charging different prices to various groups of customers that are not based on differences in the costs of production is referred to as: A) predatory pricing. B) markup pricing. C) discretionary pricing. D) price discrimination.

The practice of setting price by increasing the average costs of production by some percentage is referred to as: A) average cost pricing. B) percentage pricing. C) rate-of-return pricing. D) markup pricing.

The reserve requirement is 0.10. What is the simple deposit multiplier? A) 2 B) 20 C) 0.2 D) 10

The slope of the aggregate expenditure function is the sum of the: A) marginal propensity to consume and marginal propensity to save. B) marginal propensity to consume and marginal propensity to invest. C) marginal propensity to consume, marginal propensity to save, and marginal propensity to import. D) marginal propensity to consume, marginal propensity to invest, and marginal propensity to import.

To compute GDP: A) simply sum the number of final goods and services. B) sum the cost of producing final goods and services. C) use a weighted average by a survey regarding how much people value different goods and services. D) sum the market values of final goods and services.

When a perfectly competitive firm is in long-run equilibrium: A) its total revenues equal the sum of its total explicit and implicit costs costs. B) the firm is operating at the minimum of its LRAC curve. C) the firm is earning zero economic profit. D) All of the above.

When a perfectly competitive market has fully adjusted to demand and supply conditions, all of the following are true except: A) P = MC. B) P = the minimum of SRATC. C) P = the minimum of LRAC. D) P = the minimum of AVC.

When price is less than average variable cost at the profit-maximizing level of output, a firm should: A) continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the short run. B) continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the long run. C) shutdown, because it will lose nothing in that case. D) shutdown, because it cannot even cover all of its variable costs let alone its fixed costs if it stays in business.

Which of the following is not a characteristic of an oligopolistic industry? A) Substantial barriers to entry. B) The output produced by the firms in the industry may be homogeneous or differentiated. C) A small number of large firms. D) One dominant firm and low entry barriers.

Which of the following is not an example of a noncooperative oligopoly model? A) The kinked demand curve model. B) The model of limit pricing. C) The prisoner's dilemma game. D) The cartel model.

Which of the following is not an example of a practice that facilitates "tacit collusion"? A) Uniform prices charged by the firms in a particular industry. B) Advance notice of price changes by one or more of the firms in an industry. C) The use of most-favored-customer clauses. D) The formation of a cartel.

Which of the following is not an option for a perfectly competitive firm in the short run? A) Increase its level of production. B) Decrease its level of production. C) Shut down. D) Exit the market altogether.

Which of the following measures is used by the Justice Department to evaluate the competitive effects of proposed mergers? A) The Lerner Index. B) The eight-firm concentration ratio for an industry. C) The four-firm concentration ratio for an industry. D) The Herfindahl-Hirschman Index.

Which of the following statements is correct? A) The monopolist's supply curve is its MC curve. B) The monopolist's supply curve is that section of its MC curve that lies above its AVC curve. C) The monopolist's supply curve is that section of its MC curve that lies above its MR curve. D) The monopolist does not have a supply curve.

Which of the following statements is definitely true when price is less than average total cost for a firm producing the profit-maximizing level of output in the short run? A) The firm is running a loss in an accounting sense, so that total revenue is less than total explicit costs. B) The firm will minimize its losses by shutting down. C) The firm will be earning negative total revenue. D) The firm is incurring an economic loss.

Which of the following statements is not correct? A) First-degree and third-degree price discrimination work to increase a firm's profits by converting consumer surplus into revenue for the firm. B) First-degree and third-degree price discrimination work to increase a firm's profits by more accurately matching willingness to pay to the marginal costs of production. C) First-degree price discrimination works to increase a firm's profits by converting consumer surplus into revenue for the firm, while third-degree price discrimination increases a firm's profits by more accurately assessing the willingness to pay of different groups of consumers. D) Because it focuses on more accurately assessing the willingness to pay of different groups of consumers, third-degree price discrimination will increase a firm's profits more than will first-degree price discrimination.

Which of the following statements regarding generic drugs and name-brand pharmaceuticals is false? A) Pharmaceutical companies have spent large amounts of time and money in their attempts to reduce competition from generic drugs. B) Generic drugs have the same chemical content as the corresponding branded drug. C) On average, a generic drug can reduce U.S. sales of a branded drug by as much as 50 percent in the first six months. D) Pharmaceutical companies need only to renew the patents they have on certain drugs to protect them from competition by generic drugs.

Which of the following statements regarding patents is false? A) Patents can help firms gain market power through innovation and then act as a barrier to entry. B) A firm that has market power as a result of a patent may be more likely to innovate than a perfectly competitive firm. C) Patents encourage the production of information, which might otherwise be under supplied. D) Patents can last for an indefinite time period.

Which of the following statements regarding the agricultural industry is correct? A) Economies of scale and consolidation have significantly reduced the degree of competition in the industry. B) Corporate farms now control more than 50 percent of the market for each of the major crops. C) The largest 5 percent of growers of any particular product are characterized by a small number of interdependent producers. D) Although farming has become increasingly concentrated over the last 70 years, it is still a highly competitive industry.

Which of the following statements regarding the creation of brand loyalty to create and maintain market power is false? A) Brand loyalty efforts often focus on creating perceived, as opposed to real, differences among products. B) Brand loyalty can be enhanced by improving the level of service associated with a particular product. C) One study showed that, in the case of competing beers, brand loyalty has relatively little to do with price. D) Brand loyalty is determined primarily by real differences in competing products.

Which of the following values of the Lerner Index indicates the greatest amount of market power? A) 0.313. B) 0.375. C) 0.6. D) 0.625.

Which of the following would be least likely to lead the Justice Department and the FTC to block a proposed horizontal merger? A) A finding that the resulting firm might be able to unilaterally affect price and output. B) A finding that the potential for entry into the market by new firms would be adversely affected. C) A finding that the potential for coordination among sellers in the market would be enhanced. D) A finding that resulting cost savings and efficiencies would offset any increase in market power.

Which of the following would not be categorized as a form of third-degree price discrimination? A) Group pricing. B) Promotional pricing. C) Versioning. D) Personalized pricing.

Which of the following would not be classified as an oligopolistic industry? A) Defense contractors. B) The recorded music industry. C) The tobacco industry. D) The women's clothing industry.

You are given the following consumption function C = 50 + .80YD. What is the amount of autonomous consumption expenditures? A) 75 B) 100 C) 5 D) 50

A French citizen lives in Detroit, but works in Windsor, Canada; his income is counted in U.S. GDP.

A decrease in consumer confidence would shift the aggregate demand curve rightward.

A decrease in the currency exchange rate would shift the aggregate demand curve rightward, resulting in a higher equilibrium income and price level in the long-run.

A decrease in the number of competitors in a monopolistically competitive market causes an increase in the price elasticity of demand for the output of each of the remaining firms in the market.

A firm acting as a price leader would never reduce market price because this would clearly make all of the firms in the market worse off and defeat the purpose of having a firm act as the price leader.

A firm has reached its shutdown point when price is equal to minimum average total cost.

A firm's investment expenditures are positively related to market interest rates.

A perfectly competitive market is characterized by a large number of small firms that produce a differentiated product.

A price-setting firm prefers to operate in the inelastic portion of its demand curve because total revenue increases when price is increased.

A subway token does not fulfill the three functions of money.

Aggregate supply changes much faster than aggregate demand.

All else constant, so long as it is negative, as the cross price elasticity of demand between a firm's product and those of its competitors increases, so does the market power possessed by the firm.

All else constant, there is an inverse relationship between the price elasticity of demand and the marginal revenue resulting from a decrease in price.

Although Coca-Cola and PepsiCo are major players in the soft drink industry, the large number of other competing firms means that the industry is most accurately characterized as monopolistically competitive.

Although monopoly and perfect competition result in different market outcomes, the fact that firms in both market structures work to maximize their profits ensures that resources are allocated efficiently in both situations.

An increase in nominal GDP implies that the country is producing a greater quantity of goods and services.

An increase in resources available would decrease potential GDP and the long-run aggregate supply curve.

An open market purchase of government securities by the Fed would shift the aggregate demand curve leftward.

Any supplement to consumer spending that increases domestic aggregate output and income is called a leakage.

Any uses of current income for purposes other than purchasing currently produced domestic goods and services are called an injection.

Applying a uniform markup to set the price of the various products sold by a firm is more profitable than varying the markup based on differences in the price elasticity of demand for the firm's products.

As practiced by book publishers, versioning involves first selling the hardcover edition of a book and then switching to a paperback edition to sell additional copies. As such, this is an application of second-degree price discrimination.

As the case study in the text illustrates, individual firms in the potato industry have a great deal of market power.

As the price elasticity of demand for a particular good decreases, the corresponding Lerner Index, and hence the amount of market power attributed to the firm that produces the product in question, decreases as well.

As the price elasticity of demand for an item increases, so does the firm's ability to mark up the price of the item above average cost.

As their respective names imply, monopoly and monopolistic competition are the most similar of the four market structures.

Assume a cartel that consists of two firms has determined its profit-maximizing level of output and must now decide how to allocate total output between the two firms. Assuming firm A's marginal costs are less than firm B's marginal costs, firm A should produce a smaller share of total output than firm B.

Assume a firm has decided to undertake a limit pricing strategy. For the strategy to be successful, the firm does not need to actually possess a cost advantage over potential entrants. Rather, the firm simply has to be able to convince potential entrants that it does, in fact, possess an advantage.

Assume that in an effort to discourage competitors, firm X has lowered its price below its average total costs of production. This is an illustration of the limit pricing form of strategic entry deterrence.

Assume the firms in a monopolistically competitive market are currently incurring economic losses. Because they are price searchers, existing firms will raise their prices until the losses are eliminated and each firm is once again earning zero economic profit.

Assume the firms in a perfectly competitive market are initially incurring economic losses. An increase in supply would cause existing firms' economic losses to decrease.

Assume the players in a game have reached a Nash equilibrium. It is then reasonable to assume that each player has chosen its dominant strategy.

Assume the price elasticity of supply for grade wheat has been estimated to be +0.82. This means that when the price of wheat increases by 10 percent, the quantity of wheat supplied to the market increases by 82 percent.

BOGOs, i.e., buy-one, get-one-free offers, are an example of third-degree price discrimination.

Barriers to entry serve to limit the number of firms that operate in a particular market and, as such, reduce the amount of total profit earned in the market.

Because a price setter has control over both the level of output it produces and the price it charges, it can select from a number of different combinations of output and price levels that will maximize its profits.

Because barriers to entry limit the amount of competition in various markets, government policy should be designed to reduce or eliminate such barriers wherever possible.

Because cooperation dominates noncooperation as a strategy for maximizing profits, cheating is rarely if ever an issue that cartels have to contend with.

Because each firm has a relatively large share of the market, the actions of one firm do not have much effect on the decision making of other firms in an oligopolistic market.

Because it is based on differences in the price elasticity of demand among different groups of consumers, third-degree price discrimination is a more profitable price discrimination strategy than is first-degree price discrimination.

Because of the large number of firms that operate in the agricultural industry, the supply of agricultural products is inelastic over the entire range of output.

Because there is no formal agreement among the participating firms, firms that engage in tacit collusion are exempt from prosecution under the anti-trust laws.

Because two percent of the largest farms grow half of all of the grain in the United States, the grain industry is technically classified as an oligopoly.

Certain hotels offer promotional strategies in which kids under 12 eat free at the hotel's restaurant. This is an example of second-degree price discrimination.

Certain vendors that market their goods via mail order have been known to send out catalogs to different regions of the country with items priced differently across regions. Assuming prices are matched to regions on a random basis, this practice would be considered an example of group pricing, or third-degree price discrimination.

Changes in business inventories are not considered part of gross private domestic investment spending.

Contractionary monetary policy will shift the AD curve rightward.

Decreases in autonomous spending cause rightward shifts of the aggregate demand and supply curves.

Depreciation of the U.S. dollar will shift the AD curve leftward.

Economic variables that tend to move in tandem with the overall phases of the business cycle are called leading indicators.

Effective price discrimination will enable a perfectly competitive firm to earn positive economic profits in both the short run and the long run.

Efforts by firms to secure patents increase the amount of competition in the affected markets.

Even if production of a good is characterized by economies of scale, consumers of the good would be best served by having a large number of small firms produce the good because of the effects of increased competition.

Expansionary fiscal policy will shift the AD curve leftward.

Financial innovations such as ATMs and electronic banking have caused an increase in the demand for money.

Fiscal policy is determined by the Federal Reserve System.

For lock-in to be an effective competitive strategy, a firm must successfully raid the customer base of competing firms on a regular basis.

High fuel prices and losses by smaller firms have resulted in a considerable amount of consolidation in the trucking industry, which now most closely resembles the oligopoly market structure.

Holding the real money supply constant, an increase in real money demand will reduce interest rates.

If firms in a perfectly competitive industry produce an undifferentiated product, it is not possible to increase profits of the individual firms in the industry by increasing market demand for the product because of the large number of available substitutes.

If nominal GDP is 100,000 and real GDP is 80,000, the GDP deflator is 115.

In comparing an oligopolistic firm to a perfectly competitive firm it is generally assumed that the price charged by the competitive firm will be higher than the price charged by the oligopolistic firm.

In game theory, a Nash equilibrium is the set of strategies each of the players chooses by selecting the strategy that maximizes her payoff independent of what the other players might choose.

In recent years, U.S. exports have exceeded U.S. imports.

In the case of Matsushita v. Zenith, the fact that the foreign television manufacturers were able to charge lower prices than their domestic competitors in the U.S. market for televisions was sufficient evidence to conclude that the Japanese firms were engaged in predatory pricing.

In the model of the perfectly competitive firm, the firm's fixed costs are equal to its implicit costs of production.

In the money market, an excess demand for money is equivalent to an excess demand for bonds.

In the money market, an excess supply of money is equivalent to an excess supply of bonds.

In the prisoner's dilemma game, each player's dominant strategy leaves her with a larger payoff than she could receive by cooperating with the other player; however, the "prisoner's dilemma" is that as a result of noncooperation she cannot chose her dominant strategy.

In the value added approach to calculating GDP, counting both the intermediate good and the final product would understate the contribution to GDP.

Increases in autonomous spending cause leftward shifts of the aggregate demand and supply curves.

Inflation was a problem during the Great Depression.

It is reasonable to expect that if one firm in an oligopolistic market raises price, its competitors will do the same so that all firms can earn increased revenues.

Licensing requirements for doctors, which are intended primarily to maintain the quality of persons who work in the profession, have no the effect on the profits of those individuals because the number of competitors is so large.

Lower interest rates are generally charged on more risky investments and on securities that have longer maturities.

Manufacturing, employment, monetary, and consumer expectations statistics are examples of lagging indicators.

Monetary policy is controlled by the U.S. Congress.

OPEC has had a sustained effect on the price of oil since it was first founded in 1960.

One of the surprising conclusions of many of the noncooperative models of oligopoly is that firms end up better off with the noncooperative outcome than they would by cooperating with one another.

Open market purchase of government securities by the Fed increases the federal funds rate.

Open market sale of government securities by the Fed decreases the federal funds rate.

Patents have become less important than such factors as secrecy, lead time, and increased sales and service efforts as a means to maintain a competitive advantage in the pharmaceutical industry.

Predatory pricing will be most effective when the costs structures of the firms in an industry, including potential entrants into the market, are identical or at least very similar.

Promotional pricing is designed to take advantage of differences in the price elasticity of demand among customers. As such, it is an application of first-degree price discrimination.

Proprietor's income is not considered part of national income.

So long as a monopolist finds itself in the situation where price is greater than average fixed cost at the profit-maximizing (loss-minimizing) level of output, the firm should continue to operate to minimize its losses.

So long as the absolute value of the price elasticity of demand for a firm's output is greater than 0, the firm's optimal markup factor will be positive as well.

Stabilization of business cycle fluctuations focuses on the long run

Studies suggest that brand loyalty is based primarily on real differences among competing products, suggesting that persuasive advertising is an ineffective means to maintain or increase market share.

Temporary tax cuts will have a greater influence on consumption expenditures than temporary tax cuts.

The Full Employment and Balanced Growth Act of 1978 is also called the Humphrey-Hawkins Act and requires the President to appear before Congress twice a year to present his forecast for the economy.

The Lerner Index is preferred to the Herfindahl-Hirschman Index as a measure of market power due to the former's simplicity and straightforward interpretation.

The Resolution Trust Corporation insures bank deposits.

The characteristic of ease of entry and exit ensures that perfectly competitive firms will be able to earn positive economic profits over the long run.

The core rate of inflation is a measure of the relative price changes that excludes changes in energy and food prices.

The discount rate is influenced by Fed actions whereas the Fed sets the federal funds rate.

The elasticity of demand for a particular perfectly competitive firm's output is positively related to the number of firms supplying the market.

The expenditure approach to calculating GDP for an open economy entails adding consumption, investment, and government purchases.

The fixed fee a firm is able to charge as part of a two-part pricing strategy is inversely related to the amount of consumer surplus the customer realizes at the profit-maximizing level of output.

The increase in income generated by the additional government expenditure decreases the demand for money.

The individual firm maximizes its total profit by producing the level of output at which the difference between marginal revenue and marginal cost is as large as possible.

The kinked demand curve model is based on the assumption that firms' pricing decisions are independent of one another because demand is determined by non-market forces.

The labor force includes discouraged workers.

The largest expenditure component in the U.S. is investment expenditures

The long-run aggregate supply curve is influenced by the price level.

The managerial technique of markup pricing is consistent with the economic theory of profit maximization when the markup is positively related to the price elasticity of demand.

The marginal propensity to consume plus the marginal propensity to invest equal one.

The monopoly characteristic of monopolistically competitive firms ensures that such firms will earn positive economic profits over the long run.

The most liquid form of money is M3.

The overriding objective of a cartel is to maximize the amount of profit each of its members can earn through cooperation with the other members.

The perfectly competitive firm's supply curve is that portion of the marginal cost curve that lies above the firm's average total cost curve.

The primary monetary policy tool is reserve requirements.

The producer price index focuses on price changes of domestically produced goods and includes services, construction, and imported goods.

The quantity of money demanded is positively related to the interest rate.

The real interest rate, business taxes, expected profits and business confidence, and capacity utilization are embedded in the slope of the investment function.

The slope of the linear consumption function represents autonomous consumption expenditures.

The store of value does not require that money hold its value of time in terms of its purchasing power.

The total willingness to pay for a given number of units of a good or service is determined by multiplying the equilibrium price of the good by the number of units purchased.

The various antitrust laws are written in very specific terms. Thus, there is little or no question as to when a firm has run afoul of one or more of these laws.

There are 15 Federal Reserve District Banks.

U.S. import spending is not affected by U.S. real income but is influenced by the economic activity of its major trading partners and the exchange rate, hence import spending is taken as autonomous.

Unlike markup pricing, the strategy of price discrimination is totally independent of the price elasticity of demand for the good in question.

When measuring the actual output produced in an economy, one should focus on GDP measured in nominal terms.

When shopping the consumer is interested in absolute prices.

A decrease in personal taxes would shift the aggregate demand curve rightward.

A German tourist visits Disney World in Orlando; the expenditures made by the German tourist are included in U.S. GDP.

A closer relationship exists between GDP and nonresidential investment than between business profits and investment spending.

A larger marginal propensity to import will make the slope of the aggregate expenditure function flatter.

A major weakness of the kinked demand curve model is that it does not explain how the equilibrium price, i.e., the price at the kink in the demand curve, is determined.

A perfectly competitive firm will earn a positive economic profit so long as price is greater than average total cost at the profit-maximizing level of output.

A predatory pricing strategy will have the greatest chance of success when the predatory price is set below the cost of the firm's competitors, new rivals are unlikely to enter after the strategy ends, and profits can be recouped in a relatively short period of time.

A problem with the CPI is the presence of a substitution bias on the behalf of consumers.

According to the kinked demand curve model, regardless of whether a firm increases or decreases price, its total revenues will decrease as a result of the price change.

All else constant, a cartel agreement will become more difficult to enforce as the number of firms competing the market increases and the members of the cartel produce a differentiated product.

All else constant, as the price elasticity of demand decreases, so does the marginal revenue resulting from a decrease in price.

All else constant, as the price elasticity of demand for a good at the equilibrium price decreases, the amount of consumer surplus derived from purchasing the equilibrium quantity of the good increases.

Although an improvement in technology enables perfectly competitive firms to earn a positive economic profit in the short run, entry by new firms will ensure that those profits are eliminated over time.

Although tacit collusion can enhance the price-setting power of the participating firms, it can also result in greater efficiency in production, which also benefits society. Thus, it is not immediately clear, a priori, when tacit collusion actually hurts or helps consumers.

An increase in consumer wealth would shift the aggregate demand curve rightward.

An open market purchase, a decrease in the discount rate, and a decrease in the reserve requirement would shift the aggregate demand curve rightward.

An open market sale, an increase in the discount rate, and an increase in the reserve requirement would shift the aggregate demand curve leftward.

Any firm that operates in an imperfectly competitive market faces a downward-sloping demand curve for its product.

Applying a uniform markup to each of a firm's products is less profitable than varying the markup based on the elasticity of demand because the latter is able to exploit the sensitivity of quantity demanded to a change price.

Assume a firm is currently producing 800 units of output, P = $10, MC = $10, ATC = $8, and AVC = $6. In this case, the firm is maximizing its profit, which equals $1,600.

Assume a firm is facing the following situation: At Q = 1,000, P = $10, MC = $10, ATC = $18, and AVC = $16. This firm should shut down and, in so doing, limit its losses to $2,000.

Assume a firm sells two complementary products. Bundling is more likely to be a successful price discrimination strategy when one group of customers is willing to pay a higher price for one of the items in the bundle and another group is willing to pay a higher price for the other item.

Assume a monopolist regularly posts price increases three months in advance of when they will take effect. After a small number of new firms enter the market, the original firm continues the practice of announcing price increases in advance. Following the court's logic in the Ethyl case, the firms in this market would not be guilty of price fixing behavior.

Assume that at the current level of output produced by a perfectly competitive firm, MR = $7.50 and MC = $6. In order to maximize its profit, the firm should increase output.

Assume that at the current level of output, price equals marginal revenue, but is less than average total cost. So long as price is greater than average variable cost, the firm should continue to operate in the short run to minimize its losses.

Assume the market price is greater than average total cost at the perfectly competitive firm's profit-maximizing level of output. In this case, the firm is earning positive economic profits, which act as an incentive for new firms to enter the market

Assume the market shares of the six largest firms in an industry are 15 percent each. The six-firm concentration ratio would indicate that the industry is highly concentrated, while the Herfindahl- Hirschman Index would not.

Assume the price elasticity of demand for a good is -3. In this case, a decrease in price would result in marginal revenue of (2/3)P.

Assume there is a decrease in the supply of a product produced in a perfectly competitive market. All else constant, in the short run this will cause the profits of firms that produce substitutes for the good in question to increase.

Banks with excess reserves will supply more reserves to the federal funds market as the interest rate increases.

Barriers to entry reduce the likelihood that price-setter firms will see their positive economic profits competed away over time.

Because it is more extensive, first-degree price discrimination is more profitable for the firm than is third-degree price discrimination.

Between 1999 and 2007, the behavior of firms in the trucking industry closely matched the outcome predicted by the model of perfect competition.

Business debt is an example of a lagging indicator.

Business investment is usually more volatile than overall economic growth.

Changes in the natural rate of unemployment are related to changes in the composition of the labor force and to the changes in the productivity of the economy over time.

Consumer confidence is measured by two indices: the Consumer Sentiment Index and the Consumer Confidence Index.

Consumers lose when a market is served by a monopolist to the extent that units of output for which the price consumers are willing to pay exceeds the marginal costs of production are not produced.

Contractionary monetary policy increases the federal funds rate.

Credit cards do not fulfill the three functions of money.

Declining real GDP for two quarters in a row is often called a recession.

Discretionary expenditures are federal government expenditures for programs whose funds are authorized and appropriated by Congress and signed by the President, where explicit decisions are made on the size of the programs.

During the 1920s, the discount rate was the major policy tool of the Federal Reserve.

Economies of scale can benefit consumers to the extent that the costs of production incurred by the firms in the industry are lower than they would otherwise be. At the same time, the price-setting power of those firms is increased, which could hurt consumers.

Expansionary monetary policy decreases the federal funds rate.

Federal spending and taxation both affect and are influenced by the overall level of economic activity.

For a monopolist to earn a positive economic profit, price has to exceed average total cost at the level of output at which marginal revenue equals marginal cost.

From the airlines' perspective, amenities competition is preferable to price competition because revenues are not adversely affected and it is easier to determine the strategies of one's competitors.

GDP may be computed using the expenditure or value-added approaches

Government expenditure does not include transfer payments.

Higher marginal propensities to consume and invest will make the slope of the aggregate expenditure function steeper.

If a firm is successful in its efforts to reduce the price elasticity of demand for its product, all else constant, the optimal markup that can be used in setting price will increase.

If banks operated under a 100 percent reserve system, commercial banks would not be able to create any further money.

If the cross-price elasticity of demand between two products is positive, we can conclude that the two products are substitutes.

If the government spending increases without an equal increase in taxes, the government must borrow funds in the financial markets.

If the level of output produced by the firms in a perfectly competitive market has no effect on the prices of the inputs used by the firms, the market supply curve will be flatter than the supply curve for an individual firm in the market.

In a open economy, aggregate expenditures are the sum of personal consumption, investment, government, and net export expenditures.

In many areas of the country, electricity customers pay a set per unit price for each of the first X kilowatts and a lower per unit price for any additional kilowatts of electricity consumed in a month. This is an illustration of second-degree price discrimination.

In the Airline Pricing Strategies case discussed in the text, a product with fewer rules and restrictions can command a higher price.

In the case of a perfectly competitive firm, the optimal markup over marginal cost is 0 percent.

In the consumption function, the real interest rate, consumer confidence, wealth, available consumer credit, and consumer debt are captured in the autonomous consumption term of the consumption function.

In the prisoner's dilemma game, each player's dominant strategy is also the Nash equilibrium.

In the short run, a perfectly competitive firm can earn positive, zero, or negative profit depending on the market price of the firm's output.

Increased profits provide more internal funds to finance capital investments and a major factor in lenders' and investors' decisions to provide external funds to the firm.

Microsoft was charged with violating the antitrust laws not because it had a virtual monopoly in the form of its Windows operating system, but because it acted like a monopolist in trying to control the market for certain software applications.

Mutual interdependence among firms is one of the key characteristics of an oligopoly market that distinguishes it from the other three major market structures.

Once households pay taxes, they have two options with their disposable income: consume or save.

One could argue that price competition among oligopolistic firms is highly likely to cause the revenues of individual firms to decline, while competition on the basis of product differentiation could cause demand, and total revenues, of individual firms to increase.

One of the implications of the kinked demand curve model is that even if a firm's costs change by a measurable amount, market price is unlikely to change. This helps explain the price rigidity observed in many oligopolistic markets.

Open market operations are an appropriate tool for day-to-day changes in monetary policy.

Patents and copyrights create incentives for individuals to create information that might not be produced otherwise.

Pepsi and Coke have competed in the market for bottled water primarily on the basis of convenience and product differentiation as a means to avoid the negative effects on revenue that result from price competition.

Perfectly competitive firms are referred to as price takers because the individual firm is so small relative to the market that its output decisions will not have any effect on the market-determined price.

Policymakers often use the natural rate of unemployment as a basis in policy formulations.

Potential GDP measures the capacity of the economy in terms of the actual goods and services to be produced.

Price coordination among firms will be more difficult when there are substantial differences among the cost structures of the competing firms and the technologies they employ.

Price discrimination strategies that cause considerable consumer resentment or a negative reaction from competitors can reduce or eliminate the effectiveness of such strategies.

Price will always exceed marginal cost for the profit-maximizing monopolist, or any price-setter firm for that matter.

Price will be higher and output will be lower under monopoly than under perfect competition with the same demand and cost conditions.

Real demand for money is positively related to the level of real income in the economy.

Real money supply expresses the money supply in terms of real goods and services.

The BLS obtains employment information from a monthly survey of a sample of approximately 60,000 households.

The Federal Reserve looks at the threshold of capital utilization rates as an indicator of inflationary pressures.

The ability to make a credible commitment is necessary for the first mover to gain an advantage in a sequential game.

The addition of gasoline pumps at a grocery store is a good example of a network externality.

The aggregate demand curve shows the alternative combinations of the price level and real income that result in simultaneous equilibrium in both the goods and money markets.

The aggregate production function shows the quantity and quality of resources used in production given the efficiency with which resources are utilized and the prevailing technology.

The barter system requires the double coincidence of wants to be fulfilled.

The currency exchange rate is the rate at which one nation's currency can be exchanged for another.

The decision by the federal government to prohibit cigarette companies from advertising on television actually caused the companies' profits to increase, an outcome that is consistent with the prediction of the prisoner's dilemma game.

The equilibrium level of income and output is that level of income where the desired spending by all sectors of the economy equals the value of output produced and the income received from production.

The estimated price-cost margin of 11.9 percent in the market for broiler chickens in 1992 suggested that there was a high degree of competition in that industry.

The fact that a firm is a price-setter does not ensure it will make a positive economic profit in the short run and over time.

The goal of "personalized pricing" is to determine how much each individual customer is willing to pay for a product. As such, it is an application of first-degree price discrimination.

The horizontal portion of the short-run aggregate supply curve reflects the Keynesian assumption of "sticky" prices.

The larger firms in the red-meat industry have blunted the effects of competition by relying on product differentiation, which in effect, creates a downward-sloping demand curve for each firm's product.

The level of potential GDP does not change because the factors determining potential output are fixed in the short run.

The level toward which the economy is moving and where it will stay unless spending patterns of the economy will change is called the equilibrium level of output and income.

The liquidity-money (LM) curve shows the alternative combinations of interest rates and real income that clears the money market.

The markups restaurants apply to various items are heavily influenced by the price elasticity of the demand for each item.

The monetary base is smaller than the money supply.

The multiple changes in income and output that results from a change in autonomous expenditure is called the multiplier.

The price of one currency in terms of another is called an exchange rate.

The proposed merger between Staples and Office Depot and the FTC's opposition to it underscore the importance of how a market is defined when assessing the amount of market power possessed by an individual firm.

The purchase of a Boeing airplane by the U.S. government is considered part of government consumption expenditures and gross investment.

The purpose of the Horizontal Merger Guidelines developed by the Department of Justice and the FTC is to prevent customers from being harmed by the increased market power that might result from a merger of two or more firms.

The role of the costs of capital is influenced by the degree to which firms can substitute capital for other inputs of production known as relative prices.

The simple deposit multiplier is larger than the money multiplier.

The slope of the linear consumption function represents induced consumption expenditures.

The term "price setter" refers to a firm that faces a downward-sloping demand curve and must therefore set the combination of output and price that will maximize the firm's profits.

There is an inverse relationship between the price-cost margin and the level of competition in a particular industry.

To maximize joint profits, the members of a cartel have to determine the level of industry output by setting marginal revenue equal to the cartel's joint marginal costs of production.

To the extent that customers can resell products to each other, the effectiveness of a price discrimination strategy will be undermined.

U.S. GDP excludes underground activities.

U.S. export spending is not affected by U.S. real income but is influenced by the economic activity of its major trading partners and the exchange rate, hence export spending is taken as autonomous.

When a firm decides to shut down in the short run, its losses are limited to its fixed costs

When a perfectly competitive market is in long-run equilibrium, price is equal to marginal cost, the individual firm is operating at the minimum of its short-run and long-run average cost curves, and economic profit equals zero.

When the firms in a perfectly competitive market are incurring economic losses, some of the firms will exit the market, causing the supply curve to shift left and market price to rise until losses incurred by the remaining firms are eliminated.

When the macro economy is doing poorly (as it was in 2009), profits of existing firms decrease, creating an incentive for existing firms to exit unprofitable markets. This in turn makes it more difficult for the remaining firms to mark up price over average or marginal cost.

When the percentage change in quantity supplied is greater than the percentage change in price, supply is said to be elastic.

Assume that goods X and Y are substitutes and are produced in perfectly competitive markets. All else constant, in the short run, a decrease in the supply of good X would cause: A) an increase in the demand for good Y. B) a decrease in the demand for good Y. C) an increase in the supply of good Y. D) a decrease in supply of good Y.

Potential GDP focuses on the: A) long-run supply side of the economy. B) long-run demand side of the economy. C) short-run supply side of the economy. D) short-run demand side of the economy.

Short-run macroeconomic policies concentrate on: A) minimizing fluctuations around potential GDP. B) maximizing fluctuations around potential GDP. C) incentives for increasing productivity and the potential output of the economy. D) none of the above.

Determine whether each of the following outputs is considered an intermediate good, a final good, or neither for purposes of calculating GDP in the current year. a. New tires put on a new Corvette at Big O Tire store b. The net sales price of a home built in 1990 when it is resold in 1997 c. The commission earned by a stock broker on the sale of stock d. The net price that is paid for 1000 shares of stock in Dell

a. Final b. Neither c. Final d. Neither

Potential GDP is: A) minimum amount of output that can be produced given the labor force, capital stock, and technology. B) maximum amount of output that can be produced given the labor force, capital stock, and technology. C) varies over the business cycle. D) none of the above.

Assume the firms in a perfectly competitive industry are initially in long-run equilibrium and the cost of labor increases. How will the market adjust over time? A) Firms will enter the market, causing price to rise until losses are eliminated. B) Firms will enter the market, causing price to fall until positive profits are eliminated. C) Firms will exit the market, causing price to rise until losses are eliminated. D) Firms will exit the market, causing price to fall until positive profits are eliminated.

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