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145 Cards in this Set
- Front
- Back
The original supply and demand is given by the Demand and Supply1. A Specific Duty tax (a fixed amount per unit) is added, shifting the supply to Supply2. Using the letters assinged in the graph respond to the questions below:
The amount of tax is The original consumer surplus is The total amount collected by the tax is The deadweight loss is |
the amount of the tax is CE
the original consumer surplus is ADP1 the total amount collected by the tax is EFBC the Deadweight Loss is BFD |
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In one hour’s time, Marburgeria is capable of producing either 2 jars of jelly or 1 jar of peanut butter.
The citizens of Marburgia like peanut butter sandwiches and they like jelly sandwiches but they REALLY like peanut butter and jelly sandwiches made with equal amounts of peanut butter and jelly. (Jars are used in their entirety - it takes one jar of jelly to make a jelly sandwich, one jar of peanut butter to make a peanut butter sandwich and one of each to make a peanut butter and jelly sandwich.) Identify the production possibilities for Marburgeria below. If 4 points is assigned for each peanut butter and jelly sandwich, and 1 point is assigned for each leftover peanut butter sandwich and each leftover jelly sandwich, fill in the points associated with each combination. Time spent on pb Time spent on jelly 0 4 1 3 2 2 3 1 4 0 |
0 hours on PB and 4 hours on Jelly yields eight points
2 hours on PB and 2 hours on Jelly yields ten points |
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In Marburgeria, what is the opportunity cost of producing 1 jar of peanut butter?
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2 jars of jelly
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A change in the quantity supplied of a good may be caused by
Select one: a. A change in technology b. A change in the number of firms selling the good c. A change in the price of the good d. A change in the demand for the good e. Either (c) or (d) |
e. Either (c) or (d)
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A country can shift out its production possibilities curve by
Select one: a. Improving its technology b. Shifting its production from one good to another c. Experiencing a population drop d. Using its farmland more productively e. A and D f. None of the above |
e. A and D
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A country has a comparative advantage in the production of any good that it can produce
Select one: a. At a lower absolute cost than can other countries b. With less labor than can other countries c. With a smaller sacrifice of some alternative good or service than can other countries d. For export e. All of the above |
c. With a smaller sacrifice of some alternative good or service than can other countries
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A major objective of firms in all types of market structures is
Select one: a. Output restriction b. Output maximization c. To raise prices d. Profit maximization e. To maximize revenues |
d. Profit maximization
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A maximum allowable price for a good or service is a
Select one: a. Price ceiling b. Price floor c. Minimum wage d. Market equilibrium e. Price support |
a. Price ceiling
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A minimum allowable price for a good or service is known as
Select one: a. A price floor b. A minimum wage c. A price support d. All of the above e. None of the above |
d. All of the above
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A nation that enjoys a lower opportunity cost in the production of goods, relative to another nation, is said to have a(n)
Select one: a. Market advantage b. Absolute advantage c. Comparative advantage d. Relative cost advantage e. Production advantage |
c. Comparative advantage
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A production possibilities curve represents all of an economy's combinations for production that are
Select one: a. Possible b. Efficient c. Attainable d. Inefficient e. Desirable |
b. Efficient
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A publicized report that finds orange juice prevents certain diseases will have what effect on the equilibrium price and quantity of orange juice?
Select one: a. Price will increase, quantity will decrease b. Price will increase, quantity will increase c. Price will decrease, quantity will decrease d. Price will decrease, quantity will increase e. The new equilibrium price and quantity can not be determined |
b. Price will increase, quantity will increase
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An increase in the price of a good will cause which of the following?
Select one: a. Quantity demanded to demand to rise b. Demand to fall c. Quantity supplied to fall d. Supply to rise e. None of the above |
e. None of the above
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An increase in the price of cars will have what effect on the equilibrium price and quantity of gasoline?
Select one: a. Price will increase, quantity will decrease b. Price will increase, quantity will increase c. Price will decrease, quantity will decrease d. Price will decrease, quantity will increase e. The new equilibrium price and quantity can not be determined |
c. Price will decrease, quantity will decrease
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As the price of rental housing falls, which of the following occurs?
Select one: a. The quantity demanded of housing increases b. People take in roommates to share costs c. Individuals move back in with their families d. More rental housing is constructed e. All of the above |
a. The quantity demanded of housing increases
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Assume lettuce and salad dressing are complements in consumption. An increase in the price of lettuce will
Select one: a. Lead to a fall in the demand for salad dressing b. Lead to a fall in the quantity demanded of salad dressing c. Have no impact on the demand for salad dressing d. Lead to a fall in the supply of salad dressing e. Lead to a rise in the supply of salad dressing |
a. Lead to a fall in the demand for salad dressing
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Economic reasoning would not be necessary if
Select one: a. Our wants were limited b. Resources were expansive c. Scarcity were decreased d. We could have everything we wanted e. Politicians were better at running the economy |
d. We could have everything we wanted
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Given a downward-sloping demand curve and an upward-sloping supply curve, an increase in supply together with an increase in demand will cause the
Select one: a. Equilibrium quantity purchased to increase, but the effect on price will be indeterminate b. Equilibrium quantity purchased to decrease, but the effect on price will be indeterminate c. Price to rise, but the effect on the equilibrium quantity purchased will be indeterminate d. Price to fall, but the effect on the quantity bought and sold will be indeterminate e. Equilibrium price to rise and the equilibrium quantity purchased will rise |
a. Equilibrium quantity purchased to increase, but the effect on price will be indeterminate
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If a consumer always eats cheese with macaroni, then for that consumer macaroni and cheese are examples of:
Select one: a. Substitutes b. Complements c. Normal goods d. Inferior goods e. Standardized products |
b. Complements
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If a law is passed making it illegal for unlicensed barbers to cut hair, which of the following will result?
Select one: a. Higher quality haircuts b. Higher priced haircuts c. Cleaner, more sanitary barber shops d. Lower priced haircuts e. More barbers in the trade |
b. Higher priced haircuts
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If demand for a product is perfectly inelastic, an output tax will be shifted
Select one: a. Completely backward b. Completely forward c. Completely to the poor d. Completely to the rich e. Completely to the producer |
b. Completely forward
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If the demand curve for bran muffins has shifted out due to a medical study that indicates that regular consumption of bran lowers cholesterol, then we can conclude that there has been
Select one: a. A response to the increase demand for a complementary good b. A change in consumer tastes c. A reduction in the production costs of bran d. An increase in consumer expectations e. An improvement in the economy, resulting in higher incomes |
b. A change in consumer tastes
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If there is a price ceiling set for milk at $2.50 per gallon and the current equilibrium price is $2.25 per gallon, then we can conclude
Select one: a. That the price ceiling is doing its job, keeping prices low b. That the price ceiling is non-binding and has no effect on the market equilibrium c. That milk imports are reducing the price d. That grocery stores are afraid to raise the price to the ceiling level, for fear of prosecution by the government e. That price ceilings set a minimum price |
b. That the price ceiling is non-binding and has no effect on the market equilibrium
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In a free market, who benefits from voluntary exchange?
Select one: a. Buyers b. Sellers c. Both buyers and sellers d. The government only e. Nobody |
c. Both buyers and sellers
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In a market economy, a shortage of wheat will cause the
Select one: a. Price of bread to rise b. Price of bread to fall c. Price of wheat to fall d. Supply of bread to increase e. Supply of wheat to fall |
a. Price of bread to rise
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In the short-run, who "loses" from rent control laws?
Select one: a. Those who cannot find rental housing b. People who are forced to commute c. Individuals who experience increased search costs for rental housing d. Those who must make under-the-table payments to secure rental housing e. All of the above |
e. All of the above
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Most poor people are poor because they
Select one: a. Are lazy b. Are exploited c. Own resources that are not worth much d. Are old e. Are all of the above |
c. Own resources that are not worth much
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Police officers should be hired up to the point where
Select one: a. The public feels safe in their homes b. The crime rate falls to zero c. The benefit of the last officer hired is just equal to what its cost to hire her d. The benefit of the last officer hired exceeds the cost e. It is not possible to tell without further information |
c. The benefit of the last officer hired is just equal to what its cost to hire her
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Rent control laws may lead to which of the following unintended effects?
Select one: a. Under-the-table payments b. Increased forced commuting c. Higher search costs d. Lost profit incentives to change the supply of rental housing e. All of the above |
e. All of the above
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Suppose that all workers receive a wage reduction. What would the impact on the market for autos be?
Select one: a. The supply of autos would decrease b. The demand for autos would increase c. The supply of autos would increase and the demand for autos would fall d. Both a) and b) e. It can not be determined |
c. The supply of autos would increase and the demand for autos would fall
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The bow shape of the production possibilities curve reflects
Select one: a. The opportunity cost concept b. The concept of increasing opportunity costs c. The concept of diminishing marginal returns d. The marginal social cost/marginal social benefit principle e. B and C f. A and D g. None of the above |
e. B and C
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The Law of Demand states that price and
Select one: a. Demand are positively related b. Quantity demanded are positively related c. Demand are negatively related d. Quantity demanded are negatively related e. None of the above |
d. Quantity demanded are negatively related
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The Law of Demand suggests that
Select one: a. Higher prices automatically result in higher profits b. Demand determines supply c. The lower the price of a product, the more consumers will wish to purchase, other things equal d. Without laws, markets would not reach equilibrium e. Both (a) and (c) |
c. The lower the price of a product, the more consumers will wish to purchase, other things equal
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The marginal cost of a good is
Select one: a. The change in total product associated with the change in resource inputs b. The average cost of the product c. The total cost of the good divided by output d. The change in total cost per unit change in output e. None of the above |
d. The change in total cost per unit change in output
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The means for satisfying wants are
Select one: a. Insatiable b. Unlimited c. Infinite d. Scarce e. Unavailable |
d. Scarce
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The purpose of a price ceiling may be to hold down
Select one: a. Inflation b. Unemployment c. Interest rates d. Wages e. All of the above |
a. Inflation
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To be effective, a price ceiling must be set
Select one: a. By the market b. Above equilibrium c. Below equilibrium d. At equilibrium e. By producers |
c. Below equilibrium
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Two goods are said to be substitutes in consumption if
Select one: a. An increase in the price of one leads to a fall in the demand for the other b. An increase in the price of one leads to an increase in the demand for the other c. An increase in the price of one leads to an increase in the supply of the other d. A fall in the price of one leads to an increase in the demand for the other e. A decrease in the price of one leads to a decrease in the supply of the other |
b. An increase in the price of one leads to an increase in the demand for the other
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Which of the following is true for inferior goods?
Select one: a. The law of demand does not hold b. They are of low quality c. The demand for them falls as consumer income rises d. All of the above e. None of the above |
c. The demand for them falls as consumer income rises
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Which of the following is true of how markets react to government intervention? They react
Select one: a. To provide the intended results b. In ways that offset intended impacts c. Quickly to reverse intended effects d. In completely unpredictable ways e. So slowly that policies never work as they are intended |
d. In completely unpredictable ways
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Why is there "no such thing as a free lunch"?
Select one: a. You end up buying the next time b. You often get stuck with the check c. The time you spend eating lunch could be spent some other way d. "Free" lunches often aren't good and make you sick later on e. You don't always get what you want to eat |
c. The time you spend eating lunch could be spent some other way
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With private property rights, the decision about how to use resources are made by
Select one: a. The government b. Private firms c. Individual resource owners d. Resource committees e. All of the above |
c. Individual resource owners
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A three-year-old learns about the fundamental economic problem when she
Select one: a. Gets presents for her birthday b. Is punished for drawing on the walls c. Has to eat green beans for dinner d. Is told she can't have a toy at the store e. Watches her favorite cartoon |
d. Is told she can't have a toy at the store
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An increase in family income will
Select one: a. Increase the demand for education b. Decrease the demand for education c. Increase the quantity of education supplied d. Increase the quantity of education demanded e. Decrease the equilibrium level of tuition |
b. Decrease the demand for education
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The Law of Diminishing Returns states that, as additional units of a variable input are added to a given amount of a fixed input, increases in output will
Select one: a. Increase b. Decline c. Stay the same d. Accelerate e. Become erratic |
b. Decline
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An increase in the marginal benefit of education will cause which of the following?
Select one: a. The demand curve for education shifts right b. The demand curve for education shifts left c. The supply curve for education shifts right d. The supply curve for education shifts left e. The equilibrium number of years of education will decrease |
a. The demand curve for education shifts right
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A characteristic of a public good or service is
Select one: a. That no individual can identify specifically the part of it that he or she consumes b. Once the good is provided, it is difficult or impossible to exclude anyone from using it c. If it is provided privately, it generates a "free-rider" problem d. One person's use does not decrease the quantity available for others e. All of the above |
e. All of the above
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Which of the following is a likely long-run consequence associated with a monopolized market?
Select one: a. price is greater than marginal cost. b. price is greater than average total cost. c. economic profits are positive. d. all of the above. |
d. all of the above.
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Any change for which MSB>MSC will
Select one: a. Increase social well-being b. Decrease social well-being c. Not change social well-being d. Cost more than it is worth to society e. Increase GDP |
a. Increase social well-being
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A market with only one seller of a product that has no good substitutes is called
Select one: a. A pure monopoly b. A pure command economy c. Purely competitive d. Imperfectly competitive e. An oligopoly |
a. A pure monopoly
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Marginal revenue for a monopolist
Select one: a. increases as price decreases because more people are willing and able to produce the good at a lower price. b. decreases as price decreases because each unit of the good is being sold for a lower price. c. increases as output increases because demand is inelastic. d. is constant and equal to price. |
b. decreases as price decreases because each unit of the good is being sold for a lower price.
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As additional units of pollution control are added, at some point each additional unit adds
Select one: a. Less than the previous unit to total benefits b. More than the previous unit to total benefits c. Less than the previous unit to total costs d. More to total benefits than to total costs e. Less to total costs than total benefits |
a. Less than the previous unit to total benefits
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I benefit because you become more educated. This is an example of a
Select one: a. Negative externality in consumption b. Spillover cost c. Positive externality in production d. Positive externality in consumption e. Negative externality in production |
d. Positive externality in consumption
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If a pollution tax is placed on a firm emitting pollution, the firm will pay the tax, rather than reduce its emissions, as long as the tax is
Select one: a. Above its MPC of pollution control b. Below its MPC of pollution control c. Above the MSC of pollution control d. Below the MSC of pollution control e. Reasonable |
b. Below its MPC of pollution control
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If the MSC of an additional hour of an activity is greater than the MSB, you should
Select one: a. Do more of the activity b. Do less of the activity c. Not change your level of the activity d. Do less of another activity e. Do more of the activity if you like doing it |
b. Do less of the activity
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In a pollution rights market,
Select one: a. Firms buy licenses to pollute b. Firms sell licenses to pollute c. Environmental groups can reduce pollution by buying licenses to pollute d. The government can determine the level of pollution by the number of licenses it issues e. All of the above |
e. All of the above
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People have an incentive to pollute when
Select one: a. There is collective consumption of an environmental service b. No one has property rights to the environment c. It is less expensive to pollute than to clean up d. The MPC of polluting < MPC of cleanup e. All of the above |
e. All of the above
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Pollution rights markets
Select one: a. Have been shown to work in theory, but not in practice b. Have never been used in the real world c. Are used around the world, but not in the United States d. Have been used to reduce sulfur dioxide emissions e. Have not been effective in controlling sulfur dioxide emissions |
d. Have been used to reduce sulfur dioxide emissions
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Public goods and services have characteristics that make them
Select one: a. Possible to exclude people from consuming them b. Less available for one person when another consumes them c. Easy to provide through private markets d. All of the above e. None of the above |
e. None of the above
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Suppose the government imposes a tax on electric companies for each unit of sulfur they emit. Which of the following would NOT occur?
Select one: a. Higher prices for electricity b. Lower prices for electricity c. Electric companies shifting to low sulfur oil d. A decrease in the amount of electricity produced e. A shift to alternative energy resources |
b. Lower prices for electricity
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Suppose the total social benefits of crime protection increase from $800,000 to $900,000 and total social costs increase from $650,000 to $800,000, with the addition of another unit of crime prevention services.
Select one: a. The MSB>MSC and crime prevention activities should be expanded b. The MSB=MSC and the level of crime prevention is optional c. The MSB<MSC and crime prevention activities should not be expanded d. The TSB>TSC and crime prevention should be expanded e. None of the above |
c. The MSB<MSC and crime prevention activities should not be expanded
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The argument for government provision of education hinges on the existence of
Select one: a. spillover costs. b. spillover benefits. c. voucher programs. d. negative externalities in production. e. negative externalities in consumption |
b. spillover benefits.
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The consequences of government intervention
Select one: a. Are generally as planned by policy makers b. Often involve unintended consequences c. Fall on low income individuals d. Are not felt until the next fiscal year e. Serve to increase efficiency in markets |
b. Often involve unintended consequences
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The efficient level of pollution is zero only if the
Select one: a. Marginal cost of pollution control is zero b. Marginal benefit of pollution control is zero c. MPB of pollution control equals MSB d. MPC of pollution control equals MSC e. MPC of pollution control equals MPB |
a. Marginal cost of pollution control is zero
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The government's regulation of pollution
Select one: a. Is justified because of natural monopoly b. Is justified by poorly defined property rights c. Is justified by concentration ratios d. Is not likely to improve on the market outcome e. Cannot be defended on economic grounds |
b. Is justified by poorly defined property rights
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The monopoly power of a firm can be measured by the firm's
Select one: a. Profits relative to other firms in the industry b. Control over the demand for its product c. Revenues as a percent of industry revenues d. Prices compared to average prices in the industry e. Control over the market supply of its product |
e. Control over the market supply of its product
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The supply curve for a monopoly
Select one: a. Is its marginal revenue curve b. Is its total revenue curve c. Is its marginal cost curve d. Is its total cost curve e. Does not exist |
e. Does not exist
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There is the possibility that the sheer size of some firms—their “bigness”—is a problem for an economy because
Select one: a. Big firms possess larger entry barriers b. Bigness implies that the people who run such firms are unethical c. Bigger firms are more inefficient d. The effects that the failure of large firms can have on the US economy e. The number of shares of stock that are traded in large firms |
d. The effects that the failure of large firms can have on the US economy
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Those who suffer from pollution may find it to their advantage to
Select one: a. Have the government enact legislation compelling the polluters to take antipollution measures b. Bribe the polluters to control their pollution c. Have the government tax pollution at a rate that increases with the amount of pollution generated d. Do all of the above e. Do none of the above |
d. Do all of the above
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To maximize profits, a monopolist produces the output level at which
Select one: a. Its total receipts are greatest b. Its total costs are minimum c. Its marginal cost equals its marginal revenue d. Its total costs equal its total receipts e. None of the above |
c. Its marginal cost equals its marginal revenue
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When a benefit of an action falls on other than the person (or persons) responsible for the action, which of the following exists?
Select one: a. Positive externality b. Negative externality c. Externality in consumption d. Externality in production e. External cost |
a. Positive externality
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When MPC is less than MSC,
Select one: a. Firms will tend to produce more than is socially optimal b. The price of the product will be higher than the competitive price c. The firm must be a monopolist d. The firm will produce less than is socially optimal e. There are positive externalities in production |
a. Firms will tend to produce more than is socially optimal
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When pollution is not regulated in the market, polluting firms will
Select one: a. Under-utilize resources and charge high prices b. Under-utilize resources and charge low prices c. Use the appropriate level of resources, but charge high prices d. Be very profitable e. Over-utilize resources and charge low prices |
e. Over-utilize resources and charge low prices
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When the cost of an action falls on other than the person (or persons) responsible for the action, which of the following exists?
Select one: a. Positive externality b. Negative externality c. Externality in consumption d. Externality in production e. External cost |
b. Negative externality
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When there are no externalities, equilibrium in a market
Select one: a. Maximizes social well-being b. Equates quantity supplied and quantity demanded c. Equates MSB and MSC d. Equates MPB and MPC e. Does all of the above |
e. Does all of the above
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Which of the following goods or services is a public good?
Select one: a. Polio immunization b. Stamp collection c. A smoke detector d. National defense e. A burglar alarm |
d. National defense
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Which of the following is a benefit of increased education?
Select one: a. Improved literacy b. Increased earnings c. Improved health d. Greater satisfaction e. All of the above |
e. All of the above
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Which of the following is a factor leading to pollution?
Select one: a. People are inherently dirty b. There are property rights to the environment c. The environment is collectively consumed d. The law of increasing returns e. All of the above |
c. The environment is collectively consumed
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Which of the following is a negative consequence of allowing competition in an industry that is a natural monopoly?
Select one: a. Deadweight welfare loss b. Lower prices c. Restricted output d. Higher average costs e. All of the above |
d. Higher average costs
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Which of the following is a negative consequence of allowing an unregulated natural monopoly?
Select one: a. Deadweight welfare loss b. Higher prices c. Restricted output d. All of the above e. None of the above |
d. All of the above
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Which of the following is an example of a public good or service?
Select one: a. A public highway b. Free cheese offered by the government c. Food stamps d. Social security e. Automobiles |
a. A public highway
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Which of the following is likely to have the most monopoly power?
Select one: a. Ford Motor Corporation b. Your local water company c. Mobil Oil Corporation d. Avon products (cosmetics) e. A fast food restaurant |
b. Your local water company
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Which of the following is likely to be most effective in reducing monopoly power in the United States the most?
Select one: a. Placing an absolute limit on the total assets that any one company can have b. Removing all government-imposed entry barriers to industries and occupations c. Placing a government ban on television advertising d. Placing a special tax on monopolists' outputs e. None of the above |
b. Removing all government-imposed entry barriers to industries and occupations
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Which of the following is most likely a public good?
Select one: a. A college education b. A smoke detector c. Smallpox immunization d. Elementary education e. Space exploration |
c. Smallpox immunization
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Which of the following is not a characteristic of a purely competitive market?
Select one: a. Enough sellers and buyers so that no one of them acting alone can influence the price of this product b. The ability of a single seller to block potential competitors out of the market c. Freedom of the price to move up or down, that is, no price fixing d. Mobility of buyers and sellers e. A standardized product |
b. The ability of a single seller to block potential competitors out of the market
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With a natural monopoly,
Select one: a. The long-run average cost curve of the firm declines over the range of production b. Government regulation ensures that consumer's interests will be served c. Government regulation will fail d. There are no significant economies of scale in producing the good e. None of the above |
a. The long-run average cost curve of the firm declines over the range of production
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With positive externalities in consumption, the market equilibrium quantity will be
Select one: a. Greater than socially optimal b. Less than socially optimal c. Equal to the socially optimal level d. Higher than otherwise e. None of the above |
b. Less than socially optimal
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With tradable pollution licenses to control pollution, reductions in total pollution
Select one: a. Can be achieved by having government buy back some of the licenses b. Can be achieved by having government sell more licenses c. Requires the government to buy back all existing licenses and re-issue new licenses d. Cannot be achieved e. Is never economically optimal |
a. Can be achieved by having government buy back some of the licenses
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Pure monopoly exists when
Select one: a. many firms produce a good with no close substitutes. b. a single firm produces a good with no close substitutes. c. a single firm is present in the market. d. a single firm produces a good with many close substitutes. e. a few firms dominate an industry. |
b. a single firm produces a good with no close substitutes.
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An external benefit of an activity is one that is
Select one: a. not included in the marginal social costs. b. received by those directly involved. c. included in the private marginal benefits. d. never present in the real world. e. received by those not directly involved. |
e. received by those not directly involved.
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The primary objective of a monopolist is to
Select one: a. charge the highest possible price. b. maximize total revenues. c. minimize total costs. d. maximize profits. e. maximize the deadweight loss to society. |
d. maximize profits.
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Which of the following is an example of an activity with an external cost?
Select one: a. Raising honeybees where neighbors on all sides grow apples. b. Keeping the front yard clean. c. Reading a book. d. Having to buy batteries for the new remote that came with a TV. e. Speeding on the Interstate. |
e. Speeding on the Interstate.
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Government certification of the weights and measures used in business can be justified because
Select one: a. no business operated for profit would have any interest in weighing and measuring accurately. b. people cannot be trusted. c. government officials, unlike private parties selling for profit, have no incentive to cheat. d. it reduces total transaction costs below what they would be if all individual buyers or sellers had to check for themselves. |
d. it reduces total transaction costs below what they would be if all individual buyers or sellers had to check for themselves.
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If no beautification projects were undertaken in a city except by private individuals or firms, the city would almost surely be less beautiful than otherwise comparable cities because
Select one: a. aesthetic standards vary so widely. b. it is extremely difficult to induce people to pay on a voluntary basis for the pleasure they receive from urban beautification projects. c. people are too busy to enjoy or appreciate the beauty. d. private individuals and firms generate more external costs than benefits. |
b. it is extremely difficult to induce people to pay on a voluntary basis for the pleasure they receive from urban beautification projects.
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A free rider in economic theory is someone who does not contribute toward covering the cost of goods which he desires because he
Select one: a. has a comparative advantage in defraying the cost of other goods. b. knows his paying or not paying will make no difference in their availability to him. c. regards all such costs as deadweight costs. d. regards all such costs as transaction costs. |
b. knows his paying or not paying will make no difference in their availability to him.
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How does the social problem of positive externalities differ from the problem created by negative externalities?
Select one: a. Positive externalities can create free-rider problems; negative externalities do not. b. Positive externalities are created by altruistic people; negative externalities are not. c. Negative externalities can create free-rider problems; positive externalities do not. d. Negative externalities are created by selfish people; positive externalities are not. e. Trick question: neither positive nor negative externalities create a social problem. |
a. Positive externalities can create free-rider problems; negative externalities do not.
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A government transfer payment is a payment
Select one: a. Made to transfer workers form one area to another b. To a person NOT in return for goods or services c. Made to a person who works for the government d. For roads built by the government e. Made to move troops from one combat area to another |
b. To a person NOT in return for goods or services
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A payment from the government to a federal employee is a
Select one: a. Transfer payment b. Government purchase of a service c. Government purchase of a good d. Transaction payment e. Government receipt |
b. Government purchase of a service
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A person is considered unemployed if the person is
Select one: a. Seeking a job requiring greater qualifications than the person possesses and no one is willing to hire the person for such a job b. Offered a job for which the person is qualified but prefers not to work c. Qualified for a job, willing to work, but unable to find work for over 30 days d. Out of school during Christmas vacation and cannot find work during that period e. All of the above |
c. Qualified for a job, willing to work, but unable to find work for over 30 days
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A progressive tax rate means that the ratio of tax collections to income
Select one: a. Falls as income rises b. Rises as income rises c. Remains the same as income rises d. Either (a) and (b) e. May fall, rise, or remain the same as income rises |
b. Rises as income rises
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An auto factory worker who is unemployed because a robot now has his job is a victim of
Select one: a. Structural unemployment b. Cyclical unemployment c. Underemployment d. Frictional unemployment e. Seasonal unemployment |
a. Structural unemployment
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An efficient level of government expenditures is that level where
Select one: a. Total costs are minimized b. Total benefits are maximized c. Marginal benefits are equal to marginal costs d. Marginal benefits are greater than marginal costs e. Marginal benefits are less than marginal costs |
c. Marginal benefits are equal to marginal costs
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An exceptionally strong and prolonged contraction is known as
Select one: a. A trough b. A recession c. An economic bust d. A super contraction e. A business cycle |
b. A recession
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An increase in the reserve requirement can
Select one: a. Decrease interest rates b. Increase liquidity c. Decrease the money supply d. Increase the money supply e. Decrease the profits of banks |
c. Decrease the money supply
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As originally designed, Social Security was to be financed as a
Select one: a. Private insurance program b. Pure income transfer program c. Pay-as-you-go insurance program d. Fully-funded insurance program e. Means-tested benefits program |
d. Fully-funded insurance program
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Assuming a marginal propensity to consume three-fourths, the spending multiplier is
Select one: a. 1 b. 2 c. 3 d. 4 e. None of the above |
d. 4
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Banks make loans from their
Select one: a. Required reserves b. Excess reserves c. Net worth d. U.S. government securities e. None of the above |
b. Excess reserves
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By how much must investment spending increase to increase output by $500 if the MPC is 0.8?
Select one: a. $100 b. $300 c. $400 d. $500 e. More than $500 |
a. $100
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Commercial banks operate
Select one: a. By attracting deposits and making loans b. Both pay and charge interest c. By engaging in financial intermediation d. All of the above e. Under the control of state governments |
d. All of the above
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Given the way Social Security is financed, which of the following is true?
Select one: a. Social Security results in a transfer of income from the old to the young b. Social Security results in a transfer of income from the young to the old c. Social Security has a neutral effect on the nation's income distribution d. The purchasing power of the elderly has been diminished by Social Security taxes e. (a) and (d) |
b. Social Security results in a transfer of income from the young to the old
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How are Social Security tax revenues allocated today?
Select one: a. They are used to pay today's Social Security beneficiaries, and any extra is placed into the Social Security Trust Fund b. All of today's revenues are placed in the Social Security Trust fund to pay for tomorrow's beneficiaries c. Tax revenues are placed into accounts for each worker who will draw upon the balance when they retire d. The revenues are invested in government securities and in the stock market e. No one really knows |
a. They are used to pay today's Social Security beneficiaries, and any extra is placed into the Social Security Trust Fund
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If a country's GDP increases from $1,000 to $2,000 at the same time prices double, real GDP will
Select one: a. Rise b. Fall c. Stay the same d. Fluctuate e. Be unable to be determined |
c. Stay the same
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If an economy is experiencing unemployment, it is operating at a point
Select one: a. On its PPC b. Below its PPC c. Beyond its PPC d. At the horizontal intercept of its PPC e. At the vertical intercept of its PPC |
b. Below its PPC
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If population in a country falls while GDP stays the same, the country's
Select one: a. Real GDP falls b. Real GDP rises c. Per capita GDP rises d. Per capita GDP falls e. Welfare falls |
c. Per capita GDP rises
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If the MPC is 0.8, the spending multiplier equals
Select one: a. 0.2 b. 0.8 c. 1.25 d. 5.0 e. 8.0 |
d. 5.0
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If the Open Market Committee of the Federal Reserve sells securities, this action will
Select one: a. Decrease the money supply b. Increase the money supply c. Reduce the reserve requirement d. Decrease the discount rate e. Do none of the above |
a. Decrease the money supply
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In response to an economic recession, monetary theories of the business cycle predict that the Federal Reserve would
Select one: a. Increase the supply of money to create an expansion b. Reduce the supply of money to create an expansion c. Raise interest rates to increase real economic growth d. Increase the demand for money to bring about economic growth e. Lower taxes to avoid a full depression |
a. Increase the supply of money to create an expansion
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In the circular flow diagram, economic units are classified as
Select one: a. Imports and exports b. Households and producers c. Taxpayers and governments d. Subsidy receivers and taxpayers e. Producers and sellers |
b. Households and producers
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In year 1, an economy produces 10m cars at a price of $15,000 each. In year 2, the economy produces 10m cars, but the price of each car is $20,000. Which of the following is true?
Select one: a. Real GDP has increased b. Real GDP has decreased c. Current dollar GDP has increased d. Current dollar GDP has decreased e. Productivity has increased |
c. Current dollar GDP has increased
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Injections in the circular flow consist of
Select one: a. Savings, exports, and investments b. Savings, exports, and taxes c. Government spending, savings, and exports d. Government spending, investment, and exports e. None of the above |
d. Government spending, investment, and exports
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Investment spending is sensitive to
Select one: a. Interest rates b. Expectations by producers about the return on investment c. The confidence of investors d. All of the above e. None of the above |
d. All of the above
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Leakages in the circular flow consist of
Select one: a. Savings, taxes, and exports b. Savings, investment, and exports c. Government spending, investment, and exports d. Savings, taxes, and imports e. Investment, taxes, and imports |
d. Savings, taxes, and imports
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M1 includes
Select one: a. Currency and coins in circulation, traveler's checks, demand deposits at commercial banks, and other checkable deposits b. Currency and coins in circulation, all demand deposits, and all time deposits c. All demand deposits and all time deposits d. Just currency and coins in circulation e. None of the above |
a. Currency and coins in circulation, traveler's checks, demand deposits at commercial banks, and other checkable deposits
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Money serves as
Select one: a. A unit of account b. A store of value c. A medium of exchange d. All of the above e. An emblem of personal wealth |
d. All of the above
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Saving in an economy is important for economic growth because
Select one: a. If households don't save, they cannot consume in the future b. Without saving, aggregate demand increases c. One person's saving is another person's consumption d. It is the source of funds for investment e. Of none of the above; saving is not important for economic growth |
d. It is the source of funds for investment
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The federal government stepped in during 2008 to prevent several commercial banks and investment banks from failing based upon the idea that
Select one: a. They were ‚"too big to fail‚" b. Any business failure would hurt shareholders c. These banks made large political contributions and this was a way for politicians to pay them back d. Government would make large profits by doing so e. None of the above |
a. They were ‚"too big to fail‚"
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The federal government uses taxes to
Select one: a. Generate revenue b. Encourage saving for education and retirement c. Discourage certain behaviors d. Promote the purchase of houses e. Do all of the above |
e. Do all of the above
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The Federal Reserve can decrease the supply of money by
Select one: a. Selling U.S. government securities b. Buying U.S. government securities c. Selling goods and services d. Buying goods and services e. Decreasing the reserve requirement |
a. Selling U.S. government securities
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The government's method of calculating the official poverty rate
Select one: a. Does not take into account differences in the cost of living in different parts of the country b. Does not account for the value of in-kind benefits received by poor families c. Is based on pre-tax household income d. Does all of the above e. Does none of the above |
d. Does all of the above
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The incidence of poverty falls most heavily on
Select one: a. Families with a young person as head b. Families with a female as head c. Minority groups d. Children e. All of the above |
e. All of the above
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The incidence of poverty is highest among
Select one: a. Black families b. Families headed by a female c. Young families d. White families e. Small families |
b. Families headed by a female
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The last depression experienced by the U.S. economy occurred
Select one: a. During the 1970s b. In 1982 c. During the 1930s d. Between 1974-1975 e. In 1990 |
c. During the 1930s
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The money multiplier is
Select one: a. 1/r b. Er c. R/E d. E/r e. 1+1/Er |
a. 1/r
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The percentage of the U.S. population living in poverty
Select one: a. Shows a long-term increase b. Is holding steady over the long run c. Is not a serious economic problem d. Decreased significantly in the past decade e. Fluctuates dramatically from year to year |
b. Is holding steady over the long run
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The injections (or spending) multiplier is 3. Government purchases increase $100 billion at the same time government tax collections increase $100 billion. The increase in national income will be
Select one: a. Zero b. Less than $100 billion c. $100 billion d. In excess of $100 billion e. It cannot be determined |
c. $100 billion
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To reduce inflationary pressures, the Federal Reserve authorities should
Select one: a. Sell government securities, raise reserve requirements, and lower the discount rate b. Sell government securities, lower reserve requirements, and lower the discount rate c. Buy the government securities, raise reserve requirements, and raise the discount rate d. Sell government securities, raise reserve requirements, and raise the discount rate e. Buy government securities, decrease reserve requirements, decrease the discount rate |
d. Sell government securities, raise reserve requirements, and raise the discount rate
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Total government expenditures represent approximately what fraction of GDP?
Select one: a. One-fifth b. One-third c. One-half d. One-tenth e. Three-fourths |
b. One-third
c. One-half |
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What is the "crowding out" effect?
Select one: a. Consumption spending is reduced because of spending on capital b. Capital spending is reduced because people purchase great quantities of consumer goods c. Private investment is reduced because government borrowing diverts dollars away d. Government spending creates a larger demand for capital goods e. Savings is insufficient to support the level of capital investment in the economy |
c. Private investment is reduced because government borrowing diverts dollars away
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Which group is responsible for announcing the dates for each phase of a U.S. business cycle?
Select one: a. The Federal Reserve b. The National Bureau of Economic Research c. The Department of Commerce d. The Bureau of Labor Statistics e. The Federal Business Cycle Committee |
b. The National Bureau of Economic Research
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Which of the following best describes when the economy is experiencing inflation? When
Select one: a. The price of an essential good increases dramatically b. The prices of many goods go up c. There is a rise in the general level of prices d. All prices remain the same or increase; no prices fall e. The value of the dollar increases |
c. There is a rise in the general level of prices
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Which of the following statements is true about economic growth?
Select one: a. Economic growth is a short-run process b. Growth of an economy is generally a smooth process that occurs over time c. Economic growth is a long-run process resulting from the compounding of many events d. To measure economic growth, economists analyze changes in the national debt e. The U.S. economy has never experienced a year of negative economic growth |
c. Economic growth is a long-run process resulting from the compounding of many events
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While per capita GDP is a useful measure of economic well-being, it fails to take into account
Select one: a. The population of the economy b. The value of capital goods produced within the economy c. The value of goods produced for export d. The distribution of GDP within the economy e. Whether goods were produced within the country |
d. The distribution of GDP within the economy
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Who controls the aggregate volume of demand deposits in the banking system?
Select one: a. The U.S. Treasury b. The Federal Reserve Board of Governors c. Congress d. Bankers e. The President of the United States |
b. The Federal Reserve Board of Governors
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Why is economic growth an important economic and social issue?
Select one: a. Economic growth leads to improvements in our standard of living b. Lower levels of unemployment and poverty can be achieved through economic growth c. A growing economy provides consumers with more choices and opportunities d. All of the above e. Economic growth is not an important economic issue |
d. All of the above
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A major cause of involuntary unemployment is
Select one: a. A wage rate below equilibrium b. Not enough demand for labor c. Too much supply of labor d. Laziness e. A wage rate above equilibrium |
e. A wage rate above equilibrium
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