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EXAM 2

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...

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The total social costs of production are:

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private costs plus external costs

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Negative externalities are:

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costs incurred by individuals other than buyers and sellers.

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The presence of negative externalities leads to a misallocation of societal resources because:

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there are some costs associated with production that the producer fails to take into consideration.

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If the costs of producing of a good, like a university education, that produces positive externalities, are mostly paid by students and their families, then society will:

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produce too little of the good since the marginal private benefit to students is less than the marginal social benefit.

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The reason why national defense is commonly provided by the government, while food is not, is that food:

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can easily be withheld from those who refuse to pay for it.

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Public goods are:

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goods which cannot be easily financed through the market system.

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Which of the following best illustrates the free-rider problem?

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Some homeowners in a mountain resort area refuse to contribute toward paving the area's only access road.

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Which of the following is a rival good that is non-excludable?

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common resource

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Which of the following is an example of moral hazard?

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An individual drives less cautiously after obtaining automobile insurance.

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People will gather information on consumption alternatives:

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as long as the marginal benefit to them of acquiring additional information exceeds the marginal cost to them.

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A special interest issue is best described as:

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one in which a large number will each suffer small costs and a small number will each receive large benefits.

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In the production possibilities frontier shown above, what is the opportunity cost to society of the movement from point A to point C?

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100 baseballs

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In the production possibilities frontier shown above, a movement from point C to point D could most likely be caused by

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unemployment

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Production possibilities frontiers can shift outward if

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there is an increase in technology.

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Which of the following is NOT correct? A. Trade is good for nations. B. Trade is based on absolute advantage. C. Trade allows for specialization. D. Trade allows individuals to consume outside of their individual production possibilities curve.

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Trade is based on absolute advantage.

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Belarus has a comparative advantage in the production of linen, but Russia has an absolute advantage in the production of linen. If these two countries decide to trade,

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Belarus should export linen to Russia.

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The real core of most economic problem is to:

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allocate limited resources among competing uses.

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The long-run production period:

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A.is a time when all inputs are variable. B. varies in length according to how capital goods are specialized. C. is likely longer for a steel manufacturer than for a retailer who sells watches off a cart at the local mall. D. is characterized by all of the above. D. is characterized by all of the above.

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The marginal cost of a good is:

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the addition to total cost from producing one more unit of output.

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Which of the following is most likely to be a fixed cost for a business?

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interest payments on a loan used to finance the construction of a building

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When economies of scale exist:

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per unit production costs decline as output expands.

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The perfectly competitive model assumes that:

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firms can enter and exit the industry with relative ease.

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A competitive firm facing a perfectly elastic demand curve can:

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sell all of its output at the market price.

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A profit-maximizing firm in a perfectly competitive market will always produce a quantity of output that:

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maximizes the amount by which total revenue exceeds total cost.

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There are two types of costs associated with production: ____ costs that require monetary payments, and ____ costs that do not.

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explicit; implicit

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Economists assume that the goal of a firm is to:

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maximize profits.

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An important and often ignored opportunity cost is the:

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cost of missed market opportunities when funds are invested in a firm.

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The long run:

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is a period in which there are no fixed costs.

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If average fixed cost and average variable cost are summed together, the result is:

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average total cost.

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Which of the following is characteristic of a perfectly competitive market?

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There is free entry into and exit from the market.

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Marginal revenue is:

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the addition to total revenue from selling one more unit of output.

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When perfectly competitive firms are earning zero accounting profits,

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we would expect exit from the industry.

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When would you expect economic profits in an industry to be zero?

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When firms have no incentives to enter or exit.

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Perfect competition implies that

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A. there are many firms in the industry. B. all firms are producing the same identical product. C. all firms are price takers. D. All of the above answers are correct. D. All of the above answers are correct.

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In the long-run equilibrium, perfectly competitive firms earn zero economic profit because of

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the ability of firms to enter and exit.

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Comparative advantage reflects

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relative opportunity cost.

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If the United States exports cars to France and imports cheese from Switzerland, then:

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the United States has a comparative advantage in producing cars, and Switzerland has a comparative advantage in producing cheese.

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Demand is said to be ____ when the quantity demanded changes by a bigger percent than the percent change in price.

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elastic

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The area between the market price and the demand curve provides a measure of:

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consumer surplus.

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In free market economies,

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most market exchanges will result in all parties "winning."

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EXAM 1

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...

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In a market system, decisions about how to allocate resources are made:

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by individuals and firms interacting in markets coordinated by market prices.

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The branch of economics that focuses on the conduct of affairs within narrowly defined units, such as households or business firms, is called:

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microeconomics

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An example of physical capital is:

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A chainsaw

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Additions to human capital can be made through:

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improved education and on-the-job training.

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If the government imposed a tax on each child born, you would expect that:

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fewer children would be born.

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Prices communicate information about relative availability of products. For example, a decrease in the price of corn signals to consumers and producers that:

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corn is relatively more abundant than before.

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Say you enroll in an 8 A.M. economics class, and you only come to campus to attend your economics class. The cost of coming to the economics class that day would then include:

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The value of the time it took to drive to campus. The cost of the gasoline it took to get to campus. (Both A and B)

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Opportunity costs:

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may or may not involve costs paid out-of-pocket.

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The opportunity cost of an action is equal to:

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the highest valued alternative sacrificed as a result of the action.

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Economics is a social science that primarily explores how:

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goods and services are produced and distributed in a world with limited resources.

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Fundamentally, economics is concerned with:

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how limited resources are allocated to satisfy unlimited wants.

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The rule of rational choice suggests that you will engage in more of an activity if:

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the additional benefit received as a result of the activity exceeds the additional cost incurred.

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Rational choices:

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are made based on expectations of the additional benefits and additional costs involved.

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The additional benefit received as a result of undertaking an action is:

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the marginal benefit.

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Which of the following explains why people tend to dedicate their resources to one primary activity, that is, to specialize rather than generalize?

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Opportunity costs

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Specialization

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can lead to an increase in overall production.

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The ability to produce at a lower opportunity cost than someone else is referred to as:

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comparative advantage.

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Tom is a castaway who washes up on a remote island. He can catch eight birds per day or catch ten fish per day. The natives on the island can catch ten birds per day or catch twenty fish per day. The natives have a comparative advantage in:

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fishing.

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If a country wanted to maximize the value of its output, each job should be carried out by the person who:

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has a comparative advantage in that activity.

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Economics is primarily the study of:

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how choices are made because of scarcity.

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Which of the following is not an example of a factor of production?

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a product's price

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Positive incentives do not:

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discourage consumption.

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Identify the chain of events in creating a theory:

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formulate a hypothesis, gather data, evaluate the results, support or refute the hypothesis, tentatively accept theory.

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An economic hypothesis:

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can be tested using empirical analysis.

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Economics

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is a science concerned with reaching generalizations about human behavior, like sociology or psychology.

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The ceteris paribus assumption is used in economic analyses in order to:

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simplify the analysis of a complex world.

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Which of the following statements is true?

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The opportunity cost of a decision is the value of the best foregone alternative.

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The price of a ticket to the latest Broadway musical is $80. You will purchase a ticket only if:

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your expected marginal benefit from viewing the musical exceeds $80.

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The rule of rational choice:

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involves "marginal thinking."

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The marginal benefit of a slice of pizza is the:

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maximum amount that a consumer is willing to pay for the slice.

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In free market economies,

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most market exchanges will result in all parties "winning."

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A market economy without any ethics would have:

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no value.

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EXAM 3 VERSIONS 1 & 2

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...

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A natural monopoly is likely to arise when:

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economies of scale exist over the relevant range of demand.

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Which of the following is NOT potentially a barrier to entry into a product market?

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the absence of economies of scale in the product market

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The demand curve of a monopolist is:

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downward sloping and above the marginal revenue curve.

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Interdependence among firms is characteristic of:

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oligopoly markets.

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If a profit-maximizing monopolist finds that marginal cost is increasing and exceeds marginal revenue, it will:

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increase price and decrease output.

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Monopoly results in a welfare loss because:

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the monopolist restricts output below the socially efficient level.

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A market situation where a small number of sellers compose the entire industry is called:

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oligopoly

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In a typical cartel agreement, the cartel maximizes profit when it:

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behaves as a monopolist.

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As the number of firms in an oligopoly ____, the oligopoly becomes more ____.

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Decreases; like a monopoly Increases; like perfect competition (Both B and D)

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For a time, either R. J. Reynolds or Phillip Morris raised prices of cigarettes twice a year by about 50 cents per carton. The other firms in the industry later raised their prices by the same amount. Economists call this:

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price leadership.

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The relationship between the wage rate and the quantity of labor that workers wish to supply is called:

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the market supply curve for labor.

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Lower wages will

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increase the quantity of labor demanded.

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If the demand for the output produced by a firm's laborers increased, it would

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increase the firm's demand for labor.

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The marginal product of labor measures:

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the amount of output an individual worker contributes to a firm's total output.

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A worker's contribution to the firm's revenue is measured directly by the worker's:

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Value of marginal product.

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If the price of a good decreases, then, in the market for the type of labor that is used to produce it:

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employment will decrease.

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Since 1980, the proportion of income received by the top 5 percent of Americans has:

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increased substantially.

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Real gross domestic product is the total value of all:

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Final goods and services adjusted for inflation.

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The unemployment rate is calculated as:

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the number of unemployed persons divided by the number of employed plus unemployed persons.

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The total labor force consists of:

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the number of employed persons plus the number of unemployed persons.

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Which of the following groups of people would be included in the official unemployment rate?

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workers temporarily laid off from jobs to which they expect to return

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An individual who voluntarily leaves one job and spends a period of time seeking another is considered:

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frictionally unemployed.

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Fred has lost his factory job, replaced by welding robots, and soon plans to go to technical school to learn computer repair because he cannot find a similar job to the one he lost. The type of unemployment facing Fred is:.

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structural.

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A forestry worker who is out of work because of the temporarily low demand for wood products associated with a recession is defined as:

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cyclically unemployed.

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Deflation exists whenever:

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the overall price level falls.

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Given a fixed nominal interest rate on a loan, unanticipated inflation:

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decreases the burden of paying off the loan.

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The index of leading economic indicators usually turns downward:

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prior to economic contractions.

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The prosperity of a nation today is typically measured by its:

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output per capita.

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Given a constant rate of growth of real GDP, what would cause a fall in real GDP per capita?

answer

a rate of population growth that is greater than the rate of growth of real GDP

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A country will roughly double its GDP in twenty years if its annual growth rate is:

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3.5 percent.

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In a fully employed economy, invention and discovery:

answer

are achieved through sacrifices in current consumption.

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Which of the following would not be counted as a final good for inclusion in GDP?

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A sheet of glass purchased by General Motors for the side window of a new car

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Which of the following products are not included in current U.S. GDP?

answer

a Ford Mustang produced last year and sold this year

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The largest single expenditure component of GDP is:

answer

consumption.

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The "law of demand" states that, other things remaining the same, the quantity demanded of any good is:

answer

inversely related to its price.

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Which of the following shifts the demand curve for oranges?

answer

A decrease in the price of a pound of bananas, a substitute in consumption for oranges

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The "law of supply" states that, other things remaining the same, firms produce

answer

more of a good the higher its price.

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Relative to a perfectly competitive industry with the same cost and demand, a single-price monopolist produces ________ output and has a ________ price.

answer

less; higher

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The key feature of an oligopoly is that there

answer

are only a few sellers.

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The amount of poverty in the United States ____ in the 1960s and ____ from 2000 to 2010.

answer

decreased; increased

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The demand curve of a monopolist is:

answer

downward sloping and above the marginal revenue curve.

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