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39 Cards in this Set

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46. What price and output in Figure 4 would an unregulated profit-maximizing monopolist choose?
a. price A and output T
b. price B and output S
c. price B and output R
d. price C and output R
d. price C and output R
47. If a regulatory agency were using the “normal return” (zero economic profit) criteria to impose a price on a monopolist with the cost and demand conditions depicted in Figure 4, what price would the regulators set, and what output would the monopolist produce?
a. price A and output T
b. price B and output S
c. price B and output R
d. price C and output R
b. price B and output S
48. (I) The marginal product of a resource will fall as employment of the resource expands.
(II) The marginal revenue product of a resource will fall as employment of the resource expands.
a. Both I and II are true.
b. I is true; II is false.
c. I is false; II is true.
d. Both I and II are false.
a. Both I and II are true.
49. The following schedule shows how many jars of Jaynie’s Jam can be produced daily with various amounts of labor (assume that the jam is sold in a competitive price-taker market).
Workers per Day 1 2 3 4 5 6 7 8
Total Output per Day 11 23 36 47 56 63 69 74
If Jaynie must pay each worker $65 per day and she can sell her jam for $10 per jar, how many workers should she hire if she wants to maximize profits?
a. 3
b. 4
c. 5
d. 6
d. 6
50. Use the table to answer the following question.
Number of Marginal Product Product
Workers of Labor (per week) Price
1 60 4
2 54 4
3 48 4
4 42 4
5 37 4
6 32 4
If the market wage rate is $130 per week, how many workers should be employed if the firm wants to maximize profit?
a. 3
b. 4
c. 5
d. 6 or more
c. 5
51. A high-rise construction worker will make _____ money than a typical construction worker, assuming that _____.
a. less; location matters
b. more; location matters
c. less; all else is equal
d. more; all else is equal
d. more; all else is equal
52. If Susan has a positive rate of time preference, she will
a. value the receipt of $10,000 twenty years from now just as much as she would value receipt of the $10,000 now.
b. value the receipt of $10,000 twenty years from now more than she would value receipt of the $10,000 now.
c. value the receipt of $10,000 twenty years from now less than she would value receipt of the $10,000 now.
d. prefer to receive any amount of money now to the $10,000 twenty years from now.
c. value the receipt of $10,000 twenty years from now less than she would value receipt of the $10,000 now.
53. In a world of imperfect knowledge and uncertainty, the return to investors who undertake projects that increase the value of resources is called
a. economic profit.
b. accounting profit.
c. the inflationary premium.
d. the real interest rate.
a. economic profit.
54. In order to fully realize the gains from entrepreneurial innovation,
a. the government should subsidize potential entrepreneurs.
b. it must be relatively easy for people to put their ideas in motion.
c. it must be relatively difficult to continue implementing a bad idea.
d. both a and b must be true.
e. both b and c must be true.
e. both b and c must be true.
55. Which of the following contributed to the increase in income inequality among families in the United States during the 1980s and 1990s?
a. an increase in the highest marginal tax rates that forced high income earners to work more in order to maintain their income
b. an increase in the proportion of both single-parent and dual-earner families
c. a decrease in the size of the earnings differential between college graduates and high school graduates
d. all of the above
b. an increase in the proportion of both single-parent and dual-earner families
56. Compared to the no-trade situation, when a country exports a good,
a. domestic consumers gain, domestic producers lose, and the gains outweigh the losses.
b. domestic producers gain, domestic consumers lose, and the gains outweigh the losses.
c. domestic consumers gain, domestic producers lose, and the losses outweigh the gains.
d. domestic producers gain, but domestic consumers lose an equal amount.
b. domestic producers gain, domestic consumers lose, and the gains outweigh the losses.
57. A decrease in the tariff on foreign-produced automobiles would be most likely to harm
a. steel producers, who supply steel to the domestic automobile industry.
b. foreign producers of automobiles.
c. importers of automobiles.
d. domestic distributors of foreign automobiles.
a. steel producers, who supply steel to the domestic automobile industry.
58. A major difference between a tariff and a quota is that a tariff
a. will reduce imports, but a quota generally will not.
b. can easily be rescinded, but a quota cannot.
c. will reduce the ability of foreigners to obtain the purchasing power to buy a nation’s export goods, but a quota will not affect the foreign demand for the nation’s exports.
d. typically generates tax revenue, while a quota does not.
d. typically generates tax revenue, while a quota does not.
59. A downfall of the infant-industry argument is that
a. most industries need protection when they are mature, not when they are first established.
b. the amount of the tariff is unlikely to have much impact on the success of an infant industry.
c. once a tariff is granted, political pressure will likely force withdrawal of the tariff before the industry matures.
d. once established, a tariff is politically difficult to remove.
d. once established, a tariff is politically difficult to remove.
60. Which of the following is a partially valid economic argument for restricting free trade?
a. Restrictions on foreign trade will increase employment and permanently reduce unemployment.
b. Infant industries may need temporary protection to develop and gain productive efficiency.
c. A nation needs to protect its national defense; hence, it should restrict some products that threaten an industry considered vital to its defense.
d. Both b and c are correct.
d. Both b and c are correct
61. (I) Free trade with low-wage countries will cause the wages of U.S. workers to fall because high hourly wages mean higher per-unit labor costs.
(II) Trade restrictions on the importation of goods produced by cheap foreign labor are a major contributor to the high standard of living for U.S. workers.
a. I is true; II is false.
b. I is false; II is true.
c. Both I and II are true.
d. Both I and II are false.
d. Both I and II are false.
62. In Figure 5, in the absence of trade, the domestic price of soybeans is Pn. If the world price of soybeans is Pw, which of the following will occur when the United States begins to trade internationally?
a. The domestic price of soybeans will rise, and domestic consumption will fall.
b. Both the domestic price of soybeans and domestic consumption will rise.
c. Both the domestic price of soybeans and domestic consumption will fall.
d. The domestic price of soybeans will fall, and domestic consumption will rise.
. The domestic price of soybeans will rise, and domestic consumption will fall.
Special Topic: Social Security

63. Social Security, officially known as Old Age and Survivors Insurance (OASI),
a. collects funds from current workers and invests them in order to provide these workers with a stream of income during the retirement phase of life.
b. is based on the same principles as private insurance programs.
c. is an intergenerational income transfer program.
d. is a voluntary savings program run by the government.
c. is an intergenerational income transfer program.
64. The Social Security system of the United States is based on the pay-as-you-go principle. This indicates that funding of the benefits paid to current retirees comes primarily from
a. the income generated by the system’s ownership of stock.
b. the tax payments of current workers.
c. the funds that current retirees paid into their personal savings accounts during their working years.
d. money created by the Federal Reserve system.
b. the tax payments of current workers.
65. The current surplus of the Social Security system is expected to become a deficit sometime around 2018 because the
a. payroll tax rate is scheduled to decline at that time.
b. number of workers relative to the number of Social Security recipients will decline as the baby boom generation moves into the retirement phase of life.
c. stock market is not expected to perform nearly as well during the next two decades as was the case during the 1980s and 1990s.
d. growth rate of the U.S. economy is expected to slow during the next two decades.
b. number of workers relative to the number of Social Security recipients will decline as the baby boom generation moves into the retirement phase of life.
66. (I) The surplus in the Social Security retirement system is currently invested in U.S. stocks.
(II) In the 1980s and most of the 1990s, the Social Security surplus was used to finance current government operations.
a. I is true; II is false.
b. I is false; II is true.
c. Both I and II are true.
d. Both I and II are false.
b. I is false; II is true.
67. The Social Security system is currently generating tax revenues that exceed the benefits paid to recipients. This surplus is
a. being invested in foreign bonds, which will provide Americans with a source of income when the baby boom generation retires.
b. separated from other government revenue so politicians will not spend the money during the current period.
c. being channeled into earmarked private savings accounts.
d. invested in government bonds, the redemption of which will require an increase in taxes (or additional Treasury borrowing).
d. invested in government bonds, the redemption of which will require an increase in taxes (or additional Treasury borrowing).
68. What was the net value to the federal government of the bonds held in the Social Security Trust Fund as of 2002?
a. zero
b. approximately $1 trillion
c. approximately $3 trillion
d. almost $6 trillion
a. zero
Special Topic: Government Regulation

69. Suppose the local government of Bozeman, Montana, imposes a barrier to entry into the construction industry (it allows only licensed contractors to provide construction services), while the local government of Des Moines, Iowa, allows free competition in the provision of construction services. It is to be expected that
a. the construction companies in Bozeman will be less able to collude, so the construction companies in Bozeman will make lower profits.
b. the construction companies in Bozeman will be more responsive to consumer desires than the construction companies in Des Moines.
c. other things the same, the price of building a home will be lower in Des Moines than it is in Bozeman.
d. firms wishing to provide construction services in Bozeman will waste a smaller amount of resources lobbying the local government than the firms in Des Moines.
c. other things the same, the price of building a home will be lower in Des Moines than it is in Bozeman.
70. Public choice analysis indicates that
a. the demand for economic regulation often stems from the pursuit of economic efficiency.
b. regulation is quite flexible, and regulators are quick to react to dynamic change.
c. with the passage of time, regulatory agencies will often adopt the views of the business interests they regulate.
d. all of the above are true.
c. with the passage of time, regulatory agencies will often adopt the views of the business interests they regulate
71. When regulatory approval is required before a new product can be introduced, economic analysis indicates that the regulatory agency will
a. quickly approve products that improve the welfare of consumers.
b. come under severe scrutiny if they inadvertently permit a dangerous product on the market.
c. predictably apply tests that are too restrictive from the viewpoint of economic efficiency.
d. do both b and c above but not a.
d. do both b and c above but not a.
72. Which of the following best explains why regulatory costs will be passed on to consumers in the form of higher prices?
a. Regardless of the reasons, higher per-unit costs will reduce supply, which will push price upward.
b. Higher regulatory costs will increase the demand for the product, which will increase the price.
c. Higher regulatory costs will make consumers more aware of how valuable the product is to them, which will push price upward.
d. This is a trick question. Higher costs stemming from regulation generally do not lead to increases in product prices.
a. Regardless of the reasons, higher per-unit costs will reduce supply, which will push price upward.
73. Congress recently enacted legislation requiring commercial bus companies to make their vehicles accessible to handicapped persons, including those in wheelchairs. This legislation will
a. increase the long-run economic profits of bus companies.
b. reduce the long-run economic profits of bus companies.
c. increase the cost of travel by bus and lead to higher bus fares.
d. increase the cost of busses, reducing demand for bus travel and causing lower bus fares.
c. increase the cost of travel by bus and lead to higher bus fares.
Special Topic: Labor Unions

74. Which of the following factors will make it easier for a labor union to increase the wages of its members?
a. a highly inelastic demand for the products produced by the union labor
b. a readily available supply of similar products produced by nonunion labor
c. low tariffs and strong competition from foreign firms producing the products supplied by the union labor
d. a reduction in the demand for the products produced by the union labor
a. a highly inelastic demand for the products produced by the union labor
75. Which of the following groups is most highly unionized?
a. private wage and salary workers
b. government employees
c. technical, sales, and service workers
d. women
b. government employees
76. Which of the following will tend to increase the ability of a union to increase the wages of its members?
a. Almost all of the firms in the industry are unionized.
b. Foreign competition for the product produced by the union labor is intense.
c. There is a reduction in the demand for union labor.
d. The demand for the product produced by the union labor is highly elastic.
a. Almost all of the firms in the industry are unionized.
77. Which of the following will limit the ability of a union to push the wages of its members much above competitive levels?
a. the presence of nonunion firms that produce the same product as the unionized labor
b. foreign competition in the market for the product produced by the unionized labor
c. a highly elastic demand for the product supplied by the unionized labor
d. all of the above
d. all of the above
78. (I) When price plays a secondary role, alternative methods must be utilized to allocate health-care services.
(II) Countries with socialized medicine are characterized by waiting lists for basic medical procedures and widespread use of political rules and regulations to determine who will receive various types of health care.
a. I is true; II is false.
b. I is false; II is true.
c. Both I and II are true.
d. Both I and II are false.
c. Both I and II are true.
79. (I) The current tax system makes it more costly for individuals and families to purchase health insurance through their employer rather than purchasing it directly with their own funds.
(II) The current tax system encourages the use of third-party payments for the finance of health-care expenditures.
a. I is true; II is false.
b. I is false; II is true.
c. Both I and II are true.
d. Both I and II are false.
b. I is false; II is true.
80. As third-party payments and government expenditures on health-care increased following the passage of Medicare and Medicaid,
a. total expenditures on health care declined.
b. the incentive of consumers to economize on their use of health-care services increased.
c. the incentive of suppliers to provide health-care services at a low cost increased.
d. both the prices of health-care services and total expenditures on those services increased rapidly.
d. both the prices of health-care services and total expenditures on those services increased rapidly.
81. If a third party pays a larger and larger share of the purchasing price of a good, economic theory indicates that
a. the total expenditures (including those made by the third party) on the good will decline.
b. the demand for the good will decrease.
c. consumers will have a stronger incentive to economize on their use of the good.
d. suppliers will have less incentive to provide the good at low prices.
d. suppliers will have less incentive to provide the good at low prices.
82. As the share of health-care expenditures paid for by third parties has grown, both health-care prices and total expenditures have increased rapidly. Is this surprising?
a. Yes; third-party payments provide health-care consumers with a strong incentive to economize, and therefore, the growth of expenditures is particularly surprising.
b. No; third-party payments weaken the incentive of health-care consumers to economize, and therefore, the rapid growth of expenditures is an expected result.
c. Yes; the price increases are surprising because health-care suppliers have a strong incentive to provide the services at a low price when they are paid for by a third party.
d. No; the growth of third-party payments will reduce the demand for health care, which will lead to both higher prices and expenditure levels.
b. No; third-party payments weaken the incentive of health-care consumers to economize, and therefore, the rapid growth of expenditures is an expected result.
The expression, “There’s no such thing as a free lunch,” implies that
a. everyone has to pay for his own lunch.
b. the person consuming a good must always pay for it.
c. opportunity costs are incurred when resources are used to produce goods and services.
d.no one has time for a good lunch anymore.
c. opportunity costs are incurred when resources are used to produce goods and services.
Opportunity cost: The highest valued activity sacrificed in making a choice. The opportunity cost of an action is the value of the best opportunity that must be sacrificed in order to take the action.
•Opportunity costs are incurred when a
choice is made.
They are subjective and vary across persons.
•If an option becomes more costly, an individual will be less likely to choose it.