Answers on Microeconomics Flashcards
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In analyzing human decision and action, economists assume that:
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People's behavior reflects rational self-interest
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Which of the following is considered to be an entrepreneur?
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A self-employed person
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The opportunity cost of constructing a new public highway is the:
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Value of other goods and services that are sacrificed in order to construct the new highway
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From an economic perspective, when a student decides to go to the movies instead of studying for a test, it indicates that in the student's thinking the marginal:
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Cost of going to the movies is less than the marginal benefit of going to the movies
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A reduction in the level of unemployment would have which effect with respect to the nation's production possibilities curve?
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It would not shift the curve; it would be represented by a movement from a point inside the curve toward a point on the curve
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The economic principle that "unemployment rate will tend to increase as the economy moves into a recession" is an example of:
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A generalization
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When a state government chooses to build more roads, the resources used are no longer available for public education programs. This dilemma illustrates the concept of:
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Opportunity cost
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Lauren makes $150 a day as a bank clerk. She takes two days off work without pay, to fly to another city to attend the concert of her favorite band. The cost of transportation and lodging for the trip is $250. The cost of the concert ticket is $50. The opportunity cost of Lauren's decision to attend the concert is:
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600
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If a nation produces more consumer goods and less capital goods, then the nation will have:
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More consumption now, but less consumption later
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When studying human behavior, economists assume rational self-interest. This means that:
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People make decisions based on some desired outcome
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The basic truth that underlies the study of economics is the fact that we all face:
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Scarcity
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After graduating from high school, Adam is thinking about going to college. The college tuition is $15,000 a year. Instead of going to college, Adam could take a full-time job that pays $25,000. What is Adam's opportunity cost of attending college for one year?
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$40,000
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One basic difference between "labor" and "entrepreneur" is that:
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Labor is hired by a firm whereas the entrepreneur owns the firm
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Money is not considered to be an economic resource because:
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As such it is not productive
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The role of the entrepreneur in society is to:
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Bring the factors of production together and take the risks of producing
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What is a major opportunity cost of going to college on a full-time basis?
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The foregone income that could be earned working full-time job
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Laissez-faire capitalism limits the government's economic functions to the following, except:
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Setting prices of individual goods and services
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Specialization is beneficial:
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At the individual, regional, and even international levels
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The government may impose industrial safety regulations and occupational licensing requirements in which of the following economic systems?
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Mixed market economy
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The market system is an economic system that:
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Gives private individuals the right to own resources used in production
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Which of the following would not be emphasized in a capitalist economy?
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Prevention of owners of capital from exposing this resource to risk
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A characteristic of the market system is:
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Reliance on the use of capital goods to expand total output
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Laissez-faire capitalism is characterized by:
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Very limited government role in the economy
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According to the circular flow model, product markets are where:
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Businesses earn their revenues from households
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If the total costs of producing 1,500 units of output is $15,000 and this output sold to consumers for a total of $16,500, then the firm would earn profits of:
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$1,500
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The economies of North Korea and Cuba are:
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Similar in that they are both basically command systems
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How does human specialization contribute towards increasing an economy's output?
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It exploits the differences in abilities
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In a market system, which of the following will eliminate high-cost producers, and allow only the low-cost producers to survive?
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Competition
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In the circular flow model of the market system, households:
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Buy products and sell resources
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Capitalism gets its name from the fact that capital resources are mostly:
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Treated as private property
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The Heritage Foundation in 2012 ranked which of the following economies to have among the highest economic freedom?
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Hong Kong
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In a command system:
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The government makes production and allocation decisions
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Economic systems differ from one another based on who own the factors of production and:
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Who make decisions regarding what to produce and how it is produced
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Which of the following is not a reason why specialization and trade are beneficial to society?
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Firms and workers become less dependent on others for producing goods and services
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A required element for specialization to lead to an increase in the satisfaction of society's wants is:
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The use of money
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Competition is more likely to exist when:
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There is easy entry into and exit out of industries
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The scalping of tickets for an event is a sign that the stated price on the ticket is:
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Below the market clearing price
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The horizontal axis of a graph that shows a market demand curve indicates the:
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Quantities which consumers will be willing and able to buy at various prices
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Which of the following is consistent with the law of demand?
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An increase in the price of hamburgers causes buyers to buy fewer hamburgers
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Which of the following factors is a "demand shifter" for new houses?
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The interest rates on mortgage loans
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All of the following would affect the position of the supply curve for cranberries, except the:
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Popularity of cranberry drinks
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A television station reports that the price of coffee has increased but the quantity traded in the market has decreased. This situation would be caused by a(n):
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Decrease in supply
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The idea of the Law of Demand, as applied to electric cars, assumes which of the following to be constant?
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Price of gasoline cars
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If the price of a product decreases, we would expect:
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Quantity supplied to decrease
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Which of the following goods would most probably be an inferior good?
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Generic beer
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If farmers withhold some of their current corn harvest from the market because they anticipate a higher price of corn in the near future, then this would cause a(n):
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Leftward shift in the current supply of corn
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There is a surplus of tomatoes in the market. This implies that:
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The current price is set above the equilibrium level
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A higher price reduces the quantity demanded for a product because:
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Individuals can afford less of the product and will switch to substitutes
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A result of a fall in the price of gasoline, consumers can afford to buy more gasoline for more driving trips. This is an illustration of:
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The income effect
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As a result of a decrease in the price of online streaming movies, consumers download more movies online and buy fewer DVDs. This is an illustration of:
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The substitution effect
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In order to derive a market demand curve from individuals' demand curves, we add up the:
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Various individuals' quantities demanded at each price level
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Which of the following will not cause a change in the demand for product A?
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A change in the price of A
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When economists speak of "demand" in a particular market, they refer to:
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The whole demand curve or schedule
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A leftward shift of the supply curve for oil in the United States is most likely to result from:
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An increase in the costs of exploration and drilling for oil
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If a price ceiling is set below the equilibrium price in a market:
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The quantity demanded will exceed the quantity supplied
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"Price" in the statement of the Law of Supply refers to:
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The amount that buyers are willing and able to pay for each unit of the product
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When economic efficiency is attained, it implies all of the following, except:
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The gap between marginal benefits and marginal costs of production is at maximum
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The value that consumers get (from consuming a product) over and above that they actually paid for the product is called:
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Consumer surplus
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At equilibrium in a market for a product, the total revenues received by sellers equal the:
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Total amount spent by buyers on the product
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Which of the following is an example of a market failure?
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Successful public schools provide benefits to the students who attend them, as well as to the community as a whole including those who don't go to those public schools
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If the price of a product increases:
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Consumer surplus will decrease
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If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be:
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Subsidized
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In a free-market economy, a product which entails a positive externality will be:
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Underproduced
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When a competitive market achieves allocative efficiency, it implies that:
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The combined consumer and producer surplus is maximized
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When producers do not produce the efficient amount of a product because they are unable to charge consumers what they are willing to pay for it, then we have a:
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Demand-side market failure
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When there is overproduction of a good:
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The marginal cost of the good exceeds its marginal benefit
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By requiring car producers to install emission control devices on cars, the government forces these producers to internalize some of the external costs of auto pollution. This will lead to the equilibrium price of cars:
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Increasing and the quantity decreasing
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If the unit price of a product is P, then the amount of spending that the buyers would need to pay for a given quantity Q is equal to:
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P x Q
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Which of the following statements about market failure is not true:
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Market failure always results from some government action or policy in a market
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When producers (say, of roads) are not able to make all consumers pay for enjoying their product (i.e., the roads), they tend to see a:
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Marginal benefit of production that is too low, and there is a demand-side market failure
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The difference between the actual price that a producer receives and the minimum acceptable price the producer is willing to accept is called the producer:
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Surplus
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Refer to the graph above. At equilibrium, the total maximum amount that consumers would have been willing to pay for the product is represented by the area:
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a + b + c
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Refer to the graph above. At equilibrium, the total amount of spending that consumers would be paying for the product is represented by the area:
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b + c
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If there are external benefits associated with the consumption of a good or service:
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The private demand curve will underestimate the true demand curve
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The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is called:
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Consumer Surplus
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Refer to the graph above. At equilibrium, consumer surplus would be represented by the area:
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a
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The government adds to its overall public debt whenever it:
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Runs a budget deficit
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In the U.S., the Federal government runs a chronic budget deficit, whereas many state and local governments do not, because:
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Many state and local governments have balanced-budget laws that make deficits illegal, while the Federal government does not
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The government's budget deficit refers to the:
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Gap between high government spending and its lower tax revenues
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Assume that Abby, Ben, Clara, Joe, and Matt are the only citizens in a community. A proposed public good has a total cost of $1000. All five citizens will share an equal portion of this cost in taxes. The benefit of the public good is $220 to Abby, $210 to Ben, $210 to Clara, $180 to Joe, and $120 to Matt. Who are likely to vote in favor of this proposal?
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Abby, Ben, and Clara
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"Unfunded liability" refers to a government commitment to:
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Spend in the future without also committing to collect enough tax money to pay for it
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Government's ability to force people to do things involuntarily is:
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Beneficial if it is used to improve economic efficiency
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In a market economy, the government's ability to coerce is beneficial in the following cases, except in:
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Fixing resource prices
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Some economists contend that government agencies are generally less efficient than private businesses due to the following reasons, except:
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Incompetent workers gravitate towards government, while motivated workers gravitate towards the private sector
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Chronic budget deficits can lead to all of the following, except:
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"Smaller government" in the economy
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All of the following are consequences of a government's having to deal with a "debt crisis", except:
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Being forced to drastically raise taxes
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During a period when output and employment is falling, the government will try to:
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Stimulate borrowing and spending
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The study of public choice theory involves the economic analysis of the following, except:
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Impact of budget deficits on the public debt
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The so-called collective action problem is the reason why:
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Taxpayers are not able to effectively counter special interest groups
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In the U.S. market economy, the government performs the following prominent roles, except:
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Set prices for most resources
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When monetary policy becomes highly politicized, the policy tends to:
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Become destabilizing, instead of promoting stability
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The ability to impose fines, revoke licenses, and put people into jail allows the government to:
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Enforce involuntary transactions
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The so-called collective action problem refers to the:
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Greater difficulty in organizing and motivating large groups than small ones
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Many state and local governments in the U.S. have balanced-budget laws in order to prevent politicians from:
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Succumbing to voters' strong preference for budget deficits
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Assume that Matt, Joe, and Teresa are the only citizens in a community. A proposed public good has a total cost of $1000. All three citizens will share an equal portion of this cost in taxes. The benefit of the public good is $500 for Matt, $280 for Joe, and $260 for Teresa. In a majority vote, this proposal will most likely be:
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Defeated; the public good is not produced even though it would have been efficient to do so
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So-called business cycles refer to the multi-year periods:
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During which the economy's overall output and employment expands and contracts
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The price elasticity of demand for beef is about 0.60. Other things equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef demanded to:
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decrease by approximately 12 percent.
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If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then:
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demand is elastic.
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Refer to the given data. What is the marginal product of the sixth worker
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3 units.
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A competitive employer should hire additional labor as long as:
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the MRP exceeds the wage rate.
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The fact that monopoly and monopsony exist in resource markets means that
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resource prices do not always measure contributions to output.
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A firm will find it profitable to hire workers up to the point at which their:
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marginal resource cost is equal to their MRP.
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The purely competitive employer of resource A will maximize the profits from A by equating the
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price of A with the MRP of A.
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We say that the demand for labor is a derived demand because:
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we demand the product that labor helps produce rather than labor service per se.
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The demand for airline pilots results from the demand for air travel. This fact is an example of:
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the derived demand for labor.
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A firm will employ more of an input whose relative price has fallen and, conversely, will use less of an input whose relative price has risen. Thus, a fall in the price of capital will increase the relative price of labor and thereby reduce the demand for labor. This describes the:
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substitution effect.
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The marginal revenue product schedule is:
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the firm's resource demand schedule.
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The marginal productivity theory of income distribution has been criticized because:
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income from inherited property is inconsistent with the theory.
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A change in an input price will alter both production costs and the profit-maximizing output. Thus, a decline in the price of capital will reduce production costs, increase the profit-maximizing output, and thereby increase the demand for labor. This describes the:
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output effect.
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Which of the following occupations is among the ten projected most rapidly declining U.S. occupations in terms of percentage increases?
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Postal service workers.
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Which of the following statements best illustrates the concept of derived demand?
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A decline in the demand for shoes will cause the demand for leather to decline.
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Employers will hire more units of a resource if the:
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productivity of the resource increases.
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In the United States, professional football players earn much higher incomes than professional soccer players. This occurs because:
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consumers have a greater demand for football games than for soccer games.
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If two resources are highly substitutable for one another:
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an increase in the price of one will increase the demand for the other.
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The substitution effect indicates that a profit-seeking firm will use:
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more of an input whose price has fallen and less of other inputs in producing a given output.
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Resource pricing is important because:
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of all of these reasons.
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A competitive employer is using labor in such an amount that labor's MRP is $10 and its wage rate is $8. This firm:
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should hire more labor because this will increase profits.
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Refer to the given data. At what price does each shoe shine sell?
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3
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If an exclusive union is successful in restricting the supply of labor, the:
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wage rate will rise.
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Marginal resource cost refers to the:
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amount by which a firm's total resource cost increases as the result of hiring one more unit of the resource.
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The economic term for a firm that is the sole buyer in a market is:
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monopsonist.
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Which of the following is correct?
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The nominal and the real wage may both fall.
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Labor unions may attempt to raise wage rates by:
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forcing employers, under the threat of a strike, to pay above-equilibrium wage rates.
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A union might increase the demand for the labor services of its members by:
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decreasing the prices of complementary inputs.
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If an industrial union is formed to bargain with a monopsonistic employer, then in this labor market:
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employment may either increase or decrease.
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In monopsony:
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the wage rate paid by the employer varies directly with the number of workers employed.
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A firm can hire six workers at a wage rate of $8 per hour but must pay $9 per hour to all of its employees to attract a seventh worker. The marginal wage cost of the seventh worker is:
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15
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Labor unions are restrained in their wage demands because:
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the labor demand curve is downsloping.
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If the nominal wage rises by 4 percent, and the price level rises by 7 percent, the real wage will:
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fall by 3 percent.
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A profit-maximizing firm will:
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expand employment if marginal revenue product exceeds marginal resource cost.
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A craft union attempts to increase wage rates by:
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shifting the labor supply curve to the left.
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In a monopsonistic labor market, the employer will maximize profits by employing workers up to that point at which:
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marginal revenue product equals marginal resource (labor) cost.
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The productivity and real wages of workers in industrially advanced economies have risen historically partly because:
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workers have been able to use larger quantities of capital equipment.
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A firm that is hiring labor in a purely competitive labor market and selling its product in a purely competitive product market will maximize its profit by hiring labor until:
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marginal revenue product equals marginal resource (labor) cost.
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"Player drafts" of professional athletes:
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promote monopsony in the hire of professional athletes.
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The long-run trend of real wages:
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has been upward.
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Which of the following is most likely to be an example of monopsony?
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The market for Major League Baseball umpires.
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Real wages in the United States are:
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relatively high, but not as high as in some other industrially advanced nations.
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The economist who advocated a single tax on land was:
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Henry George.
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If labor's share of the income paid to American resource suppliers is broadly defined as the sum of wages and salaries and proprietors' income, we can say that labor's relative share has:
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remained approximately constant since 1900.
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Critics of a single tax on land oppose the idea because:
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changes in land ownership would cause the tax burden to fall unfairly on people who did not receive economic rents.
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The total supply of land is:
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perfectly inelastic.
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Economic rent refers to the price paid for land and other natural resources that:
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are fixed in total supply.
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The incentive function of prices:
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indicates that price increases bring forth more of that resource.
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If Kelly deposits $10,000 into an account that pays 8 percent interest, compounded annually, and she makes no further deposits or withdrawals, how much will Kelly have in her account at the end of 5 years?
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$14,693.
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Which of the following represents an uninsurable risk to a business firm?
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The possibility that an adverse change in consumer tastes will decrease the demand for the firm's product.
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The possibility that an adverse change in consumer tastes will decrease the demand for the firm's product.
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The nominal interest rate is the real interest rate less the rate of inflation.
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Currently capitalist income, that is, corporate profits, interest, and rent, accounts for about what percentage of the income paid to American resource suppliers?
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20 percent.
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Landowners will not receive any rent so long as:
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the supply curve lies entirely to the right of the demand curve.
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Capitalist income (corporate profits, interest, and rent) has:
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remained approximately constant since 1900.
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The supply curve of loanable funds is upsloping because:
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households are willing to save more at high interest rates than they are at low interest rates.
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Economic or pure rent is:
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the price paid for the use of land and other nonreproducible resources.
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A normal profit is:
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the "price" required to retain entrepreneurial talent in some particular line of production.
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Effective usury laws:
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keep some low-income people from obtaining credit and loans.
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Refer to the diagram. Land:
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would be a free resource if demand is D4 or less.
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Suppose that interest payments are $140 per year on a $1,000 loan and $1,188 per year on an $8,485 loan. The interest rates on the two loans are:
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14 percent on both loans.
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The rent paid for the pasture land used to graze cattle would increase if:
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any of these occurred.
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Refer to the diagram. If demand is D2, a tax of X per acre will:
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not affect the quantity of land available to society.
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Other things equal, ethanol made from corn becomes economically viable (as or less costly than using oil) when oil prices reach _____ or more per barrel.
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$60
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What is the relationship between living standards and birthrates?
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The relationship is negative (inversely related).
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Which of the following policies has succeeded in reducing fishery catch sizes without creating an "arms race" among fishers?
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Issuing individual transferable quotas (ITQs).
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Which of the following is considered a renewable natural resource?
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Aquifers
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A BTU is the amount of energy needed to:
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raise the temperature of one pound of water by one degree Fahrenheit.
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Since 1950, the energy efficiency of the U.S. economy in terms of producing goods and services has:
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more than doubled.
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Some nations are increasing the amount of land covered by forests, while others are experiencing rapid deforestation. According to economists, this is largely because:
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nations with increasing forest cover treat forests as private property or strictly regulated government property.
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Alex and Ben are both loggers wanting to harvest timber from the same forest. Alex prefers to harvest and replant at a sustainable rate; Ben wants to harvest as many trees as possible to maximize short-run profit, and then move on. They face the same production costs.
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property rights are well-defined and enforced.
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Other things equal, biodiesel becomes economically viable (as or less costly than using oil) when oil prices reach _____ or more per barrel.
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$80
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Which of the following would cause the present optimal extraction level of a nonrenewable resource to fall?
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A reduction in the price of the resource.
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The amount of land covered by forests is:
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increasing in places like the United States and Western Europe, while declining in countries in South and Central America.
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In 2012, the primary sources of U.S. electricity generation, in order from largest to smallest, were:
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coal, natural gas, nuclear, and hydropower.
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Population will necessarily fall if the:
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replacement rate exceeds the birthrate.
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Relative to 1800, the living standard of the average person today in the United States is about _____ times higher.
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12
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A rising standard of living will:
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reduce the birthrate, but population may continue to grow if the death rate falls more quickly.
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The total fertility rate necessary to keep the population constant is approximately equal to:
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2.1.
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Which of the following would cause the present optimal extraction level of a nonrenewable resource to fall?
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An increase in the present value of expected future profits.
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Which of the following statements is true about falling birthrates?
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They tend to lag behind falling death rates, allowing population growth to continue for at least one or two more generations.
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A profit-maximizing company should extract a nonrenewable resource in the present up to the quantity where the:
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selling price of the resource equals the extraction cost plus the user cost of the resource.
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In developing prospect theory, which of the following did behavioral economists not discover about people's reaction to goods and bads?
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People feel equivalent losses and gains in equal measure, supporting the assumption that consumers behave rationally.
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The results of running the dictator game experiments thousands of times have revealed to behavioral economists that:
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individual feelings about fairness and generosity vary widely across the population.
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According to behavioral economists, someone suffering from myopia is most likely to:
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spend too much on present consumption and not save enough for the future.
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Which of the following best explains the difference between neoclassical economics and behavioral economics?
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Neoclassical economics assumes that people are rational in their decision making, while behavioral economics believes people make systematic errors.
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Selfishness is:
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exhibited more strongly in the dictator game than in the ultimatum game.
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In the face of rising costs, some firms reduce the quality of the goods they produce rather than maintain quality and increase prices. How would behavioral economics explain this strategy?
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People have an aversion to losses, and consumers are more likely to feel the loss of a price increase than a quality reduction.
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Which of the following sets of personal characteristics best reflects what behavioral economists assume about how people make decisions?
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People have preferences that depend on context, avoid and are bad at computation, often give in to temptation, and are often selfless in their behavior.
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According to behavioral economists, people's preferences toward a particular outcome:
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depend heavily on the contextual information that defines whether that outcome is a gain or a loss.
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A central focus of prospect theory is:
answer
how people deal with "bads," as well as how they deal with "goods."
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question
Last month Laura saw the value of her stock portfolio rise by $20,000. This month she saw the value of her portfolio decline by $20,000. According to behavioral economics:
answer
the positive utility Laura received from seeing her portfolio value rise was less than the disutility she felt when its value declined.
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question
Junior collects baseball cards. He owns one Felix Hernandez card that sells in most shops for $15. He is interested in buying a different Felix card that also sells for $15. According to behavioral economics:
answer
the endowment effect would suggest that Junior would not be willing to trade the card he has for the card he doesn't have.
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question
A company has designed an alarm clock that "runs and hides" after going off, forcing the person to get up and find the alarm clock if he or she wants to shut off the alarm. According to behavioral economists:
answer
the alarm clock serves as a precommitment device, helping the user to stick to the originally planned wake-up time.
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Al regularly pays the full amount of taxes due, even though he could easily hide some of his income and reduce his tax burden, with no risk of getting caught. According to behavioral economics:
answer
fairness and other moral considerations cause Al to act contrary to his pure self-interest.
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question
Anchoring
answer
can influence decision making with irrelevant information.
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question
Because of "mental accounting:"
answer
people isolate purchases and sometimes make irrational decisions.
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question
Internationally, participation differences in organ donation programs are mostly attributed to:
answer
what default option is set for participation or nonparticipation.
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question
The process by which people isolate purchases and fail to consider all consumption options simultaneously is known as:
answer
mental accounting.
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question
Susie knows that too many sugary treats, while delicious when eaten, have long-term adverse effects on weight and health. Based on this information, a neoclassic economist would expect Susie to:
answer
carefully weigh the short-term benefits against the long-term costs and make a rational decision about how many treats to eat.
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question
The threat of rejection in market transactions:
answer
does all of these.
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Behavioral economists believe that people:
answer
often succumb to temptation.
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question
efer to the information. The average total cost of 3 units of output is
answer
35
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question
For a purely competitive firm, total revenue
answer
has all of these characteristics.
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Advertising can impede economic efficiency when it:
answer
increases entry barriers.
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In competitive markets, a surplus or shortage will:
answer
Cause changes in the quantities demanded and supplied that tend to eliminate the surplus or shortage
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All of the following would affect the position of the supply curve for cranberries, except the:
answer
Popularity of cranberry drinks
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Which of the following is an example of a market failure?
answer
Successful public schools provide benefits to the students who attend them, as well as to the community as a whole including those who don't go to those public schools
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In competitive markets, a surplus or shortage will:
answer
Cause changes in the quantities demanded and supplied that tend to eliminate the surplus or shortage
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A purely monopolistic firm:
answer
faces a downsloping demand curve.
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If technology dictates that labor and capital must be used in fixed proportions, an increase in the price of capital will cause a firm to use:
answer
less labor as a consequence of the output effect.
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The marginal revenue product schedule is:
answer
the firm's resource demand schedule.
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Resource pricing is important because:
answer
of all of these reasons.
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"Income receivers should be paid in accordance with the value of output each produces." This statement is consistent with the:
answer
marginal productivity theory of income distribution.
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For a firm selling its product in an imperfectly competitive market, the marginal revenue product of labor can be found by:
answer
multiplying marginal product by marginal revenue.
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The labor demand curve of a purely competitive seller:
answer
slopes downward because of diminishing marginal productivity.
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We say that the demand for labor is a derived demand because:
answer
we demand the product that labor helps produce rather than labor service per se.
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In the United States, professional football players earn much higher incomes than professional soccer players. This occurs because:
answer
consumers have a greater demand for football games than for soccer games.
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The general rule for hiring any input (say, labor) in the profit-maximizing amount is MRC = MRP. This rule takes the special form W = MRP (where W is the wage rate) when the:
answer
firm is hiring labor under purely competitive conditions.
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Which of the following occupations is projected to be the fastest growing in the U.S. in terms of percentage increases?
answer
Personal care aides.
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Occupational licensing has much the same effect as:
answer
exclusive unionism.
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The electricians' union is a good example of:
answer
exclusive unionism.
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Which of the following is correct?
answer
The nominal and the real wage may both fall.
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The economic term for a firm that is the sole buyer in a market is:
answer
monopsonist.
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Critics of the minimum wage argue that as an antipoverty device it is "poorly targeted." By this they mean that:
answer
many who benefit from the minimum wage are teenagers or not poor.
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Labor unions are restrained in their wage demands because:
answer
the labor demand curve is downsloping.
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Labor unions may attempt to raise wage rates by:
answer
forcing employers, under the threat of a strike, to pay above-equilibrium wage rates.
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A union might increase the demand for the labor services of its members by:
answer
decreasing the prices of complementary inputs.
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Real wages in the United States in the long run:
answer
have increased at about the same rate as increases in output per worker.
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A craft union attempts to increase wage rates by:
answer
shifting the labor supply curve to the left.
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Economic rent refers to the price paid for land and other natural resources that:
answer
are fixed in total supply.
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Landowners will not receive any rent so long as:
answer
the supply curve lies entirely to the right of the demand curve.
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A unique characteristic of taxes on economic rents is that such taxes:
answer
do not lead to a reallocation of the resource.
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Currently capitalist income, that is, corporate profits, interest, and rent, accounts for about what percentage of the income paid to American resource suppliers?
answer
20 percent.
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If labor's share of the income paid to American resource suppliers is broadly defined as the sum of wages and salaries and proprietors' income, we can say that labor's relative share has:
answer
remained approximately constant since 1900.
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The total supply of land is:
answer
perfectly inelastic.
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Interest is the:
answer
price paid for the use of money.
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Which of the following is correct?
answer
Real capital is a resource, but money is not.
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The supply curve of loanable funds is upsloping because:
answer
households are willing to save more at high interest rates than they are at low interest rates.
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Some economists advocate taxes on land because such taxes:
answer
do not affect the supply of land.
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World commodity prices over the past 150 years have:
answer
decreased in the long run despite occasional short-run increases.
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Productive inputs that are actually or virtually fixed in supply are known as:
answer
nonrenewable natural resources.
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Which of the following would cause the present optimal extraction level of a nonrenewable resource to fall?
answer
An increase in the present value of expected future profits.
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Other things equal, ethanol made from corn becomes economically viable (as or less costly than using oil) when oil prices reach _____ or more per barrel.
answer
60
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Rapid population growth since 1800 has occurred primarily because of:
answer
a significant reduction in death rates as living standards have risen.
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Since 1950, the energy efficiency of the U.S. economy in terms of producing goods and services has:
answer
more than doubled.
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Which of the following is considered a renewable natural resource?
answer
Solar power.
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A fishery is typically identified by:
answer
location and species.
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It is generally easier to prevent deforestation than fishery collapse because:
answer
it is easier to establish and enforce property rights on national lands than in international waters.
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What is the relationship between living standards and birthrates?
answer
The relationship is negative (inversely related).
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The price elasticity of demand for beef is about 0.60. Other things equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef demanded to:
answer
decrease by approximately 12 percent.
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If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then:
answer
demand is elastic.
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If the income elasticity of demand for lard is ?3.00, this means that:
answer
lard is an inferior good.
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Which of the following goods will least likely suffer a decline in demand during a recession?
answer
Toothpaste
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If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will:
answer
increase the quantity demanded by about 25 percent.
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A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from $5 to $4. It was also found that total revenue decreased when price was raised from $5 to $6. Thus,
answer
the demand for pizza is elastic above $5 and inelastic below $5.
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The supply of product X is elastic if the price of X rises by:
answer
5 percent and quantity supplied rises by 7 percent.
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A demand curve that is parallel to the horizontal axis is:
answer
perfectly elastic.
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If the demand for product X is inelastic, a 4 percent increase in the price of X will:
answer
decrease the quantity of X demanded by less than 4 percent.
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Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is:
answer
relatively inelastic.
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The narrower the definition of a product:
answer
the larger the number of substitutes and the greater the price elasticity of demand.
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Which of the following goods (with their respective income elasticity coefficients in parentheses) will most likely suffer a decline in demand during a recession?
answer
Plasma screen and LCD TVs (+4.2)
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For an increase in demand, the price effect is smallest and the quantity effect is largest:
answer
in the long run.
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Which of the following is not characteristic of the demand for a commodity that is elastic?
answer
The elasticity coefficient is less than one.
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If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will:
answer
increase the amount demanded by more than 10 percent.
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If demand for a product is elastic, the value of the price elasticity coefficient is:
answer
greater than one.
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Compared to coffee, we would expect the cross elasticity of demand for:
answer
tea to be positive, but negative for cream.
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The supply of product X is inelastic (but not perfectly inelastic) if the price of X rises by:
answer
7 percent and quantity supplied rises by 5 percent.
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Suppose the price of a product rises and the total revenue of sellers increases.
answer
No conclusion can be reached with respect to the elasticity of supply.
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Suppose the price of local cable TV service increased from $16.20 to $19.80 and as a result the number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, price elasticity of demand is:
answer
1.2
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"Essential" water is cheaper than "nonessential" diamonds because:
answer
the supply of water is great relative to demand and the supply of diamonds is small relative to demand.
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The theory of consumer behavior assumes that:
answer
consumers behave rationally, attempting to maximize their satisfaction.
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Marginal utility is the:
answer
change in total utility obtained by consuming one more unit of a good.
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The diamond-water paradox arises because:
answer
essential goods may be cheap while nonessential goods may be expensive.
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Assume you are spending your full budget and purchasing such amounts of X and Y that the marginal utility from the last units consumed is 40 and 20 utils respectively. Assume (a) the prices of X and Y are $8 and $4 respectively; (b) it takes 3 hours to consume a unit of X and 1 hour to consume a unit of Y; and (c) your time is worth $2 per hour. You:
answer
should consume less of X and more of Y.
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Refer to the data. The value for X is:
answer
15
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Which of the following has been a significant factor in the ability of iPads to compete effectively against laptop and desktop computers?
answer
Many consumers perceive that iPads are superior to laptops and desktop computers for the consumption of digital media.
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An increase in the price of product A will:
answer
decrease the marginal utility per dollar spent on A.
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Refer to the data. The value for Z is:
answer
5
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Refer to the data. The value for W is:
answer
20
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A product has utility if it:
answer
satisfies consumer wants.
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Refer to the data. What level of total utility will the utility-maximizing consumer realize?
answer
96 utils.
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Total utility may be determined by:
answer
summing the marginal utilities of each unit consumed.
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According to economists, gift registries, returning gifts for cash refunds, and "recycling gifts":
answer
increase the efficiency of gift-giving because they allow the recipient to consume goods that provide greater utility and transfer away those goods that are less satisfying.
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The fact that most medical care purchases are financed through insurance:
answer
increases the amount of health care consumed by reducing the price of additional units of care.
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Utility refers to the:
answer
satisfaction that a consumer derives from a good or service.
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Refer to the data. The value for Y is:
answer
45
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Susie buys two goods: rounds of golf and massages. Suppose that the price of a round of golf is $20 and the price of a massage is $30. In a typical week, Susie will play two rounds of golf, getting 20 units of satisfaction from the second round. She normally buys three massages each week, with the third giving her 30 units of satisfaction. If she were to buy a fourth massage in a week, it would give her 20 units of satisfaction. If the price of massages is reduced to $15, which of the following outcomes might we expect to occur?
answer
Susie would buy more massages and fewer rounds of golf, as predicted by the substitution effect.
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question
The theory of consumer behavior assumes that consumers attempt to maximize:
answer
total utility.
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In introducing the opportunity cost of time into the theory of consumer behavior, we find that, all else equal:
answer
one should consume less of time-intensive goods.
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question
In developing prospect theory, which of the following did behavioral economists not discover about people's reaction to goods and bads?
answer
People feel equivalent losses and gains in equal measure, supporting the assumption that consumers behave rationally.
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The results of running the dictator game experiments thousands of times have revealed to behavioral economists that:
answer
individual feelings about fairness and generosity vary widely across the population.
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According to behavioral economists, someone suffering from myopia is most likely to:
answer
spend too much on present consumption and not save enough for the future.
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Which of the following best explains the difference between neoclassical economics and behavioral economics?
answer
Neoclassical economics assumes that people are rational in their decision making, while behavioral economics believes people make systematic errors.
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Selfishness is:
answer
exhibited more strongly in the dictator game than in the ultimatum game.
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question
In the face of rising costs, some firms reduce the quality of the goods they produce rather than maintain quality and increase prices. How would behavioral economics explain this strategy?
answer
People have an aversion to losses, and consumers are more likely to feel the loss of a price increase than a quality reduction.
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Which of the following sets of personal characteristics best reflects what behavioral economists assume about how people make decisions?
answer
People have preferences that depend on context, avoid and are bad at computation, often give in to temptation, and are often selfless in their behavior.
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question
According to behavioral economists, people's preferences toward a particular outcome:
answer
depend heavily on the contextual information that defines whether that outcome is a gain or a loss.
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question
A central focus of prospect theory is:
answer
how people deal with "bads," as well as how they deal with "goods."
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question
Last month Laura saw the value of her stock portfolio rise by $20,000. This month she saw the value of her portfolio decline by $20,000. According to behavioral economics:
answer
the positive utility Laura received from seeing her portfolio value rise was less than the disutility she felt when its value declined.
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question
Junior collects baseball cards. He owns one Felix Hernandez card that sells in most shops for $15. He is interested in buying a different Felix card that also sells for $15. According to behavioral economics:
answer
the endowment effect would suggest that Junior would not be willing to trade the card he has for the card he doesn't have.
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question
A company has designed an alarm clock that "runs and hides" after going off, forcing the person to get up and find the alarm clock if he or she wants to shut off the alarm. According to behavioral economists:
answer
the alarm clock serves as a precommitment device, helping the user to stick to the originally planned wake-up time.
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question
Al regularly pays the full amount of taxes due, even though he could easily hide some of his income and reduce his tax burden, with no risk of getting caught. According to behavioral economics:
answer
fairness and other moral considerations cause Al to act contrary to his pure self-interest.
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question
Anchoring
answer
can influence decision making with irrelevant information.
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question
Because of "mental accounting:"
answer
people isolate purchases and sometimes make irrational decisions.
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question
Internationally, participation differences in organ donation programs are mostly attributed to:
answer
what default option is set for participation or nonparticipation.
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question
The process by which people isolate purchases and fail to consider all consumption options simultaneously is known as:
answer
mental accounting.
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question
Susie knows that too many sugary treats, while delicious when eaten, have long-term adverse effects on weight and health. Based on this information, a neoclassic economist would expect Susie to:
answer
carefully weigh the short-term benefits against the long-term costs and make a rational decision about how many treats to eat.
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question
The threat of rejection in market transactions:
answer
does all of these.
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question
Behavioral economists believe that people:
answer
often succumb to temptation.
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question
Refer to the information. The average total cost of 3 units of output is:
answer
35
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question
Which of the following best expresses the law of diminishing returns?
answer
As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline.
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question
Economies and diseconomies of scale explain:
answer
why the firm's long-run average total cost curve is U-shaped.
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The long run is characterized by:
answer
the ability of the firm to change its plant size.
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The short run is characterized by:
answer
fixed plant capacity.
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Refer to the data. Average product is at a maximum when:
answer
two workers are hired.
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To economists, the main difference between the short run and the long run is that:
answer
in the long run all resources are variable, while in the short run at least one resource is fixed.
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Refer to the information. The total cost of producing 3 units of output is:
answer
105
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Refer to the data. The average total cost of producing 3 units of output is:
answer
16
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Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?
answer
Use of savings to pay operating expenses instead of generating interest income.
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If a firm wanted to know how much it would save by producing one less unit of output, it would look to:
answer
MC
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Which of the following statements is correct?
answer
Marginal cost is the price or cost of an extra variable input (for example, an additional worker or machine) divided by its marginal product.
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question
Which of the following holds true?
answer
When AP is rising AVC is falling, and when AP is falling AVC is rising.
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Refer to the data. Creamy Crisp's total economic costs are:
answer
$286,000.
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Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30. This firm's:
answer
total cost is $270.
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Refer to the data. Diminishing marginal returns become evident with the addition of the:
answer
third worker.
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Implicit and explicit costs are different in that:
answer
the former refer to nonexpenditure costs and the latter to monetary payments.
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Refer to the data. The average fixed cost of producing 3 units of output is:
answer
8
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Daily newspapers have been rising in price in recent years because:
answer
the overhead costs have recently been spread over a shrinking number of buyers.
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Which of the following is correct?
answer
When MP is rising MC is falling, and when MP is falling MC is rising.
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question
A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its:
answer
total variable costs.
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If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing:
answer
price and minimum average variable cost.
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An industry comprised of a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions, is called:
answer
oligopoly.
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For a purely competitive firm, total revenue:
answer
has all of these characteristics.
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Economists would describe the U.S. automobile industry as:
answer
an oligopoly.
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Refer to the data. If the market price for this firm's product is $24, it will produce:
answer
4 units at a loss of $138.
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Refer to the diagram. At P1, this firm will produce:
answer
47 units and realize an economic profit.
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In which of the following industry structures is the entry of new firms the most difficult?
answer
Pure monopoly.
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Definite grammatical article that implies necessarily that an entity it articulates is presupposed; something already mentioned, or completely specified later in that same sentence, or assumed already completely specified.
answer
0 units at a loss of $150.
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Refer to the short-run data. The profit-maximizing output for this firm is:
answer
320 units.
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In contrast to American firms, Japanese firms frequently make lifetime employment commitments to their workers and agree not to lay them off when product demand is weak. Other things being equal, we would expect Japanese firms to:
answer
continue to produce in the short run at lower prices than would American firms.
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In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies?
answer
Oligopoly
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question
In the short run, a purely competitive firm will earn a normal profit when:
answer
P = ATC.
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question
The MR = MC rule applies:
answer
to firms in all types of industries.
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When a firm is maximizing profit, it will necessarily be:
answer
maximizing the difference between total revenue and total cost.
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question
Refer to the data. If the market price for this firm's product is $87, it will produce:
answer
9 units at an economic profit of $281.97.
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Which of the following statements applies to a purely competitive producer?
answer
It will not advertise its product.
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Refer to the diagram. At P4, this firm will:
answer
shut down in the short run.
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Firms seek to maximize:
answer
total profit.
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Marginal revenue is the:
answer
change in total revenue associated with the sale of one more unit of output.
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If a monopolist engages in price discrimination, it will:
answer
charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic.
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Pure monopolists may obtain economic profits in the long run because:
answer
of barriers to entry.
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Price discrimination refers to:
answer
the selling of a given product at different prices to different customers that do not reflect cost differences.
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A price discriminating pure monopolist will attempt to charge each buyer (or group of buyers):
answer
the maximum price each would be willing to pay.
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With respect to the pure monopolist's demand curve, it can be said that:
answer
price exceeds marginal revenue at all outputs greater than 1.
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Which of the following is characteristic of a pure monopolist's demand curve?
answer
It is the same as the market demand curve.
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Under which of the following situations would a monopolist increase profits by lowering price (and increasing output):
answer
if it discovered that it was producing where MC < MR.
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Which of the following is correct?
answer
A purely competitive firm is a "price taker," while a monopolist is a "price maker."
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Which of the following statements is correct?
answer
In seeking the profit-maximizing output, the pure monopolist underallocates resources to its production.
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question
A pure monopolist:
answer
will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.
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Which of the following best approximates a pure monopoly?
answer
The only bank in a small town.
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In the short run, a monopolist's economic profits:
answer
may be positive or negative depending on market demand and cost conditions.
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What do economies of scale, the ownership of essential raw materials, and patents have in common?
answer
They are all barriers to entry.
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Which of the following is a characteristic of pure monopoly?
answer
Barriers to entry.
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An important economic problem associated with pure monopoly is that, at the profit-maximizing outputs, resources are:
answer
underallocated because price exceeds marginal cost.
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If profits are maximized (or losses minimized), which of the following conditions is common to both unregulated monopoly and pure competition?
answer
MR = MC.
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Pure monopoly refers to:
answer
a single firm producing a product for which there are no close substitutes.
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A natural monopoly occurs when:
answer
long-run average costs decline continuously through the range of demand.
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If a pure monopolist can price discriminate by separating buyers into two or more groups:
answer
the firm will face multiple marginal revenue curves.
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In which one of the following market models is X-inefficiency most likely to be the greatest?
answer
Pure monopoly.
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Suppose firms in a collusive oligopoly decide to establish their prices at a level that discourages new rivals from entering the industry. This is called:
answer
limit pricing.
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Suppose an oligopolistic producer assumes its rivals will ignore a price increase but match a price cut. In this case the firm perceives its:
answer
demand curve as kinked, being steeper below the going price than above.
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question
Secret conspiracies to fix prices are examples of:
answer
covert collusion.
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Which of the following companies was not fined in 2011 for attempting to run an international cartel and fix prices?
answer
Intel
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Under monopolistic competition, entry to the industry is:
answer
more difficult than under pure competition but not nearly as difficult as under pure monopoly.
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Advertising can impede economic efficiency when it:
answer
increases entry barriers.
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Three major means of collusion by oligopolists are:
answer
cartels, informal understandings, and price leadership.
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A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from:
answer
product differentiation.
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Larry's Lizards and Ronaldo's Reptiles are competing pet store franchises. Both are considering opening a store in the small town of Turtleville. If Ronaldo's opens a profitable store in Turtleville and Larry's management determines that it is not profitable to also open a store, then:
answer
Ronaldo's had a first-mover advantage in this game.
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Suppose the only three existing manufacturers of video game players signed a written contract by which each agreed to charge the same price for products and to distribute their products only in the geographical area assigned them in the contract. This best describes:
answer
a cartel.
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The monopolistically competitive seller's demand curve will become more elastic the:
answer
larger the number of competitors.
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We would expect a cartel to achieve:
answer
neither allocative efficiency nor productive efficiency.
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If the four-firm concentration ratio in an oligopolistic industry is 100 percent and each firm has an equal percentage of sales, the Herfindahl index is:
answer
2,500.
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In the United States cartels are:
answer
in violation of the antitrust laws.
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OPEC provides an example of:
answer
an international cartel.
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Monopolistic competition resembles pure competition because:
answer
barriers to entry are either weak or nonexistent.
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The study of how people (or firms) behave in strategic situations is called:
answer
game theory.
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Monopolistic competition means:
answer
many firms producing differentiated products.
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Monopolistic competition is characterized by a:
answer
large number of firms and low entry barriers.
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Assume six firms comprising an industry have market shares of 30, 30, 10, 10, 10, and 10 percent. The Herfindahl index for this industry is:
answer
2,200.
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If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will:
answer
increase the quantity demanded by about 25 percent.
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A demand curve that is parallel to the horizontal axis is:
answer
perfectly elastic.
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The basic formula for the price elasticity of demand coefficient is:
answer
percentage change in quantity demanded/percentage change in price.
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Which of the following is not characteristic of the demand for a commodity that is elastic?
answer
The elasticity coefficient is less than one.
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The price elasticity of demand of a straight-line demand curve is:
answer
elastic in high-price ranges and inelastic in low-price ranges.
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If demand for a product is elastic, the value of the price elasticity coefficient is:
answer
greater than one.
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Which of the following is correct?
answer
If marginal utility is diminishing and is a positive amount, total utility will increase.
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The theory of consumer behavior assumes that consumers attempt to maximize:
answer
utility
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If total utility is increasing, marginal utility:
answer
is positive but may be either increasing or decreasing.
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The law of diminishing marginal utility states that:
answer
beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.
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beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.
answer
8 units of utility.
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Frank is purchasing products C and D in utility-maximizing amounts. If the price of C is $4 and the price of D is $2, then:
answer
the marginal utility of C is twice that of D.
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Which of the following best explains the difference between neoclassical economics and behavioral economics?
answer
Neoclassical economics assumes that people are rational in their decision making, while behavioral economics believes people make systematic errors.
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In developing prospect theory, which of the following did behavioral economists not discover about people's reaction to goods and bads?
answer
People feel equivalent losses and gains in equal measure, supporting the assumption that consumers behave rationally.
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Behavioral economists believe that people:
answer
often succumb to temptation.
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Fatal automobile accidents occur much more frequently than do fatal airplane crashes, yet airplane crashes receive a disproportionate amount of media coverage. As a result, some people are overly fearful of flying in planes yet have no problem riding in cars. Which of the following cognitive biases best explains this disconnect between these people's fears and the statistical realities?
answer
Availability heuristic.
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Which of the following assumptions about human behavior is most likely to be accepted by behavioral economists?
answer
People have preferences that are unstable and vary by context.
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According to behavioral economics:
answer
each successive unit of loss hurts, but less than the previous unit.
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The short run is characterized by:
answer
fixed plant capacity.
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Refer to the data. Creamy Crisp's total revenues exceed its total costs, including a normal profit, by:
answer
$94,000.
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Economic profits are calculated by subtracting:
answer
explicit and implicit costs from total revenue.
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The long run is characterized by:
answer
the ability of the firm to change its plant size.
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Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting:
answer
profits were zero and its economic losses were $500,000.
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Which of the following is most likely to be an implicit cost for Company X?
answer
Forgone rent from the building owned and used by Company X.
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A purely competitive seller is:
answer
a "price taker."
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Which of the following industries most closely approximates pure competition?
answer
Agriculture.
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In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies?
answer
Oligopoly
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Economists would describe the U.S. automobile industry as:
answer
an oligopoly.
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Economists use the term imperfect competition to describe:
answer
those markets that are not purely competitive.
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A purely monopolistic firm:
answer
faces a downsloping demand curve.
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Which of the following is not a barrier to entry?
answer
X-inefficiency.
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A pure monopolist:
answer
will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.
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Price discrimination refers to:
answer
the selling of a given product at different prices to different customers that do not reflect cost differences.
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Which of the following best approximates a pure monopoly?
answer
The only bank in a small town.
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Cartels are difficult to maintain in the long run because:
answer
individual members may find it profitable to cheat on agreements.
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Monopolistic competition is characterized by a:
answer
large number of firms and low entry barriers.
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OPEC provides an example of:
answer
an international cartel.
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In the United States cartels are:
answer
in violation of the antitrust laws.
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Under monopolistic competition, entry to the industry is:
answer
more difficult than under pure competition but not nearly as difficult as under pure monopoly.
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Which of the following is not a basic characteristic of monopolistic competition?
answer
Recognized mutual interdependence.
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If technology dictates that labor and capital must be used in fixed proportions, an increase in the price of capital will cause a firm to use:
answer
less labor as a consequence of the output effect.
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The marginal revenue product schedule is:
answer
the firm's resource demand schedule.
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Resource pricing is important because:
answer
of all of these reasons.
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"Income receivers should be paid in accordance with the value of output each produces." This statement is consistent with the:
answer
marginal productivity theory of income distribution.
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For a firm selling its product in an imperfectly competitive market, the marginal revenue product of labor can be found by:
answer
multiplying marginal product by marginal revenue.
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The labor demand curve of a purely competitive seller:
answer
slopes downward because of diminishing marginal productivity.
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We say that the demand for labor is a derived demand because:
answer
we demand the product that labor helps produce rather than labor service per se.
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In the United States, professional football players earn much higher incomes than professional soccer players. This occurs because:
answer
consumers have a greater demand for football games than for soccer games.
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The general rule for hiring any input (say, labor) in the profit-maximizing amount is MRC = MRP. This rule takes the special form W = MRP (where W is the wage rate) when the:
answer
firm is hiring labor under purely competitive conditions.
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Which of the following occupations is projected to be the fastest growing in the U.S. in terms of percentage increases?
answer
Personal care aides.
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Occupational licensing has much the same effect as:
answer
exclusive unionism.
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The electricians' union is a good example of:
answer
exclusive unionism.
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Which of the following is correct?
answer
The nominal and the real wage may both fall.
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The economic term for a firm that is the sole buyer in a market is:
answer
monopsonist.
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Critics of the minimum wage argue that as an antipoverty device it is "poorly targeted." By this they mean that:
answer
many who benefit from the minimum wage are teenagers or not poor.
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Labor unions are restrained in their wage demands because:
answer
the labor demand curve is downsloping.
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Labor unions may attempt to raise wage rates by:
answer
forcing employers, under the threat of a strike, to pay above-equilibrium wage rates.
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A union might increase the demand for the labor services of its members by:
answer
decreasing the prices of complementary inputs.
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Real wages in the United States in the long run:
answer
have increased at about the same rate as increases in output per worker.
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A craft union attempts to increase wage rates by:
answer
shifting the labor supply curve to the left.
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Economic rent refers to the price paid for land and other natural resources that:
answer
are fixed in total supply.
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Landowners will not receive any rent so long as:
answer
the supply curve lies entirely to the right of the demand curve.
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A unique characteristic of taxes on economic rents is that such taxes:
answer
do not lead to a reallocation of the resource.
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Currently capitalist income, that is, corporate profits, interest, and rent, accounts for about what percentage of the income paid to American resource suppliers?
answer
20 percent.
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If labor's share of the income paid to American resource suppliers is broadly defined as the sum of wages and salaries and proprietors' income, we can say that labor's relative share has:
answer
remained approximately constant since 1900.
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The total supply of land is:
answer
perfectly inelastic.
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Interest is the:
answer
price paid for the use of money.
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Which of the following is correct?
answer
Real capital is a resource, but money is not.
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The supply curve of loanable funds is upsloping because:
answer
households are willing to save more at high interest rates than they are at low interest rates.
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Some economists advocate taxes on land because such taxes:
answer
do not affect the supply of land.
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World commodity prices over the past 150 years have:
answer
decreased in the long run despite occasional short-run increases.
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Productive inputs that are actually or virtually fixed in supply are known as:
answer
nonrenewable natural resources.
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Which of the following would cause the present optimal extraction level of a nonrenewable resource to fall?
answer
An increase in the present value of expected future profits.
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Other things equal, ethanol made from corn becomes economically viable (as or less costly than using oil) when oil prices reach _____ or more per barrel.
answer
60
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Rapid population growth since 1800 has occurred primarily because of:
answer
a significant reduction in death rates as living standards have risen.
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Since 1950, the energy efficiency of the U.S. economy in terms of producing goods and services has:
answer
more than doubled.
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Which of the following is considered a renewable natural resource?
answer
Solar power.
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Solar power.
answer
location and species.
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It is generally easier to prevent deforestation than fishery collapse because:
answer
it is easier to establish and enforce property rights on national lands than in international waters.
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What is the relationship between living standards and birthrates?
answer
The relationship is negative (inversely related).
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Which of the following is not an important source of revenue for the federal government?
answer
Property taxes.
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The incidence of a tax pertains to:
answer
who actually bears the burden of a tax.
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The ability-to-pay principle of taxation:
answer
suggests that taxes should vary directly with people's income and wealth.
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The U.S. tax-transfer system (as distinct from the tax system alone) is:
answer
progressive
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Which of the following best reflects the ability-to-pay philosophy of taxation?
answer
A progressive income tax.
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The benefits-received principle of taxation is most evident in:
answer
excise taxes on gasoline.
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In 2010, the top 1 percent of all taxpayers in the United States paid what percent of the federal income tax?
answer
37.4 percent.
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Entry fees at national parks and monuments are an example of:
answer
the benefits-received principle of taxation.
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Total governmental purchases—federal, state, and local combined—accounted for about what percentage of domestic output in 2012?
answer
20 percent.
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Government lotteries are:
answer
used by a large number of states to supplement their tax revenues.
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Taxes on commodities or on purchases are known as:
answer
sales and excise taxes.
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The basic tax rate on taxable corporate income is:
answer
35 percent.
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In determining one's personal income tax, taxable income is:
answer
total income less deductions and exemptions.
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Approximately what percentage of the federal government's tax revenues are generated from personal income taxes (in 2012)?
answer
46 percent.
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One difference between sales and excise taxes is that:
answer
sales taxes are calculated as a percentage of the price paid, while excise taxes are levied on a per-unit basis.
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Assume that in year 1 you pay an average tax rate of 20 percent on a taxable income of $20,000. In year 2, you pay an average tax rate of 25 percent on a taxable income of $30,000. Assuming no change in tax rates, the marginal tax rate on your additional $10,000 of income is:
answer
35 percent.
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The three most important sources of federal tax revenue in order of descending importance are:
answer
personal income, payroll, and corporate income taxes.
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Revenues flowing to the government from government-run or government-sponsored businesses, such as public utilities and state lotteries, are known as:
answer
proprietary income.
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As a proportion of domestic output, taxes in the United States:
answer
are lower than in most other industrially advanced countries.
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The efficiency loss of a tax is:
answer
the net value of sacrificed output caused by the tax.
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Overall, economists believe that deregulation of industries formerly subjected to industrial regulation:
answer
has produced large net benefits for consumers and society.
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The antitrust laws are based on the:
answer
idea that competition leads to greater economic efficiency than does a monopoly.
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Critics of social regulation argue that it:
answer
is a relatively greater burden for small firms than for large firms.
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Interlocking directorates are:
answer
illegal under provisions of the Clayton Act of 1914.
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The main purpose of the antitrust laws is:
answer
to prevent the monopolization of industries.
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A vertical merger involves a combining of one or more firms:
answer
operating at different stages of the production process in a particular industry.
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A major criticism of industrial regulation is that:
answer
by allowing a fair return price, it gives natural monopolists little incentive to contain costs.
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Which one of the following acts declared "[e]very contract, combination . . . or conspiracy, in restraint of trade or commerce among the several states . . . to be illegal"?
answer
The Sherman Act.
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Suppose the transportation industry has been regulated for many years. Government now proposes to deregulate the industry, only to find that firms in the industry oppose this action. This is consistent with the:
answer
legal cartel theory of regulation.
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The Celler-Kefauver Act of 1950:
answer
amended the Clayton Act.
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The Clayton Act of 1914:
answer
outlawed price discrimination, tying contracts, acquisition of stocks of competing corporations, and interlocking directorates that lessen competition.
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Using antitrust law to split up an unregulated natural monopoly into several competing firms:
answer
might either increase product price or reduce product price.
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The Federal Trade Commission:
answer
is empowered to hold public hearings to investigate unfair practices.
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Movie producers A, B, and C secretly meet and agree to release their summer blockbuster films in sequence, rather than at the same time. The U.S. Justice Department learns of the agreement and files an antitrust suit. The federal government would most likely file charges under the:
answer
Sherman Act, Section 1.
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Tying contracts are illegal under the:
answer
Clayton Act of 1914.
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Tying agreements:
answer
obligate a purchaser of product X to also buy product Y from the same seller.
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Which of the following is most likely to increase the Herfindahl index of a particular industry?
answer
A horizontal merger between two of the industry's largest firms.
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Price-fixing:
answer
is a per se violation of the antitrust laws.
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Which of the following is least likely to violate the Sherman Act or the Clayton Act?
answer
Competitive firms F and G independently charge lower prices to frequent customers than to occasional customers.
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A merger between a maker of household detergents and a fast-food chain would be an example of:
answer
a conglomerate merger.
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As it relates to international trade, dumping:
answer
is the practice of selling goods in a foreign market at less than cost.
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The World Trade Organization:
answer
was established to resolve disputes arising under world trade rules.
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Which of the U.S. industries below has not seen major shutdowns and layoffs because of free foreign trade?
answer
Financial services.
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Suppose the United States eliminates high tariffs on German bicycles. As a result, we would expect:
answer
employment to decrease in the U.S. bicycle industry.
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In recent years, the United States has:
answer
exported more services abroad than it has imported.
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Which of the following is an example of a capital-intensive commodity?
answer
Chemicals
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Which of the following is an example of a labor-intensive commodity?
answer
Digital cameras.
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Which is an example of a nontariff barrier (NTB)?
answer
Box-by-box inspection requirements for imported fruit.
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Differences in production efficiencies among nations in producing a particular good result from:
answer
all of these.
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Assume that by devoting all of its resources to the production of X, nation Alpha can produce 40 units of X. By devoting all of its resources to Y, Alpha can produce 60Y. Comparable figures for nation Beta are 60X and 40Y. We can conclude that:
answer
Alpha should specialize in Y and Beta in X.
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The primary gain from international trade is:
answer
more goods than would be attainable through domestic production alone.
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In 2012, the United States:
answer
imported more goods than it exported.
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In effect, tariffs on imports are:
answer
subsidies for domestic producers.
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The United States' most important trading partner quantitatively is:
answer
Canada
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Suppose the domestic price (no-international-trade price) of wheat is $3.50 a bushel in the United States while the world price is $4.00 a bushel. Assuming no transportation costs, the United States will:
answer
export wheat.
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Which country has the largest share of total world exports?
answer
China
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If country A can produce both goods X and Y more efficiently, that is, with smaller absolute amounts of resources, than can country B:
answer
mutually advantageous specialization and trade between A and B may still be possible.
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U.S. exports of goods and services (on a national income account basis) are about:
answer
14 percent of U.S. GDP.
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As a percentage of GDP, U.S. exports are:
answer
considerably lower than in several other industrially advanced nations.
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Which of the following arguments contends that certain industries need to be protected in the interest of national security?
answer
The military self-sufficiency argument.
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