Economic theory

1. When economic choice involves an adjustment to an existing situation, marginal analysis (Points: 1)
has no practical applications or real-world uses
eliminates incorrect decisions and bad choices
involves comparing the additional costs and additional benefits of an activity before deciding
involves examining only the total costs and total benefits of an activity before deciding

2. Macroeconomics is the study of (Points: 1)
the behavior of large firms in the marketplace
the economic behavior of individual decision makers
the behavior of the economy as a whole
how to use the fewest natural resources to produce goods and services

3. Economic theory (Points: 1)
expresses normative values
invents imaginative and interesting stories
predicts the behavior of a specific economic decision maker after an economic change
predicts the average behavior of a group of similar economic decision makers after an economic change

4. One might commit the fallacy of composition by concluding that (Points: 1)
statements that are true during prosperity are necessarily true during depression
what is good for the individual is necessarily good for the group
an event that precedes another is necessarily the cause of the latter
intentions need not coincide with actions

5. Someone who commits the fallacy of composition is likely to assume that (Points: 1)
the simplest model is the best predictor
event B, which follows event A, was caused by event A
event B, which follows event A, was not necessarily caused by event A
what is true for the individual is also true for the group

6. The opportunity cost of an activity is (Points: 1)
zero if you choose the activity voluntarily
the amount of money spent on the activity
the value of the best alternative not chosen
the sum of benefits from all of the sacrificed alternatives
the difference between the benefits and the costs of that activity

7. Division of labor increases productivity because (Points: 1)
tasks can be assigned according to individual tastes and abilities
workers who repeatedly perform the same tasks become bored
each worker must learn each of the numerous tasks in the total production process
specialization of labor allows for the introduction of cheaper, less sophisticated production techniques
managers can force workers to produce goods that are valued more highly than the costs of producing them.

8. When drawing a production possibilities frontier, all of the following are usually assumed except one. Which is the exception? (Points: 1)
The quantity of resources is rapidly growing.
Technology is fixed.
Resources can be shifted between production of the two goods.
The production possibilities frontier is drawn for a particular time period.
Resources are fully and efficiently employed.

9. The production possibilities frontier can be used to show all of the following except one. Which is the exception? (Points: 1)
scarcity
opportunity cost
the law of increasing opportunity cost
efficiency
the best combination of goods and services for an economy

10. The economic question of what will be produced is (Points: 1)
primarily answered by the government in a system of pure capitalism
primarily answered by markets in a command economy
faced by all economies regardless of their wealth
does not have to be answered by economies possessing great wealth
cannot be illustrated by the economic concept of the production possibilities frontier

11. Households act as demanders when they demand (Points: 1)
that corporate executives and government officials be held accountable for their actions
dividends from the stocks they hold
interest and capital gains from the bonds they hold
goods and services from firms and the government

12. Which component of U.S. household spending has grown the most over the past ten years? (Points: 1)
taxes
savings
spending on services
spending on nondurable goods

13. Owners of corporations are referred to most frequently as (Points: 1)
entrepreneurs
limited partners
managers
stockholders

14. Externalities are defined as (Points: 1)
any transaction external to the firm
costs or benefits that fall on third parties
policies that firms undertake to sell products outside the country
managers' dealings with stockholders outside the firm

15. Market activity differs from government activity because (Points: 1)
markets generally force prices to below-cost levels
governments never charge for the services they provide
markets do not use voluntary exchange mechanisms
markets provide a direct link between benefits and costs

16. The effect of a decrease in the price of personal computers, other things constant, is likely to be best represented by which of the following? (Points: 1)
a leftward shift of the demand curve
a movement leftward along the demand curve
a rightward shift of the demand curve
a movement rightward along the demand curve

17. A decrease in demand for a good could mean that (Points: 1)
consumers are willing to buy larger quantities of the good at each price
the demand curve has shifted to the left
consumers are willing to pay a higher price for each quantity of the good
the demand curve has undergone a parallel shift to the right

18. Which of the following will cause the demand curve for a good to shift to the left? (Points: 1)
an increase in the price of the good
a decrease in the price of the good
a decrease in the price of a complementary good
an expectation of a future price decline

19. If a certain type of clothing becomes more fashionable, we would expect that its price (Points: 1)
will increase and quantity will decrease
will decrease and quantity will remain constant
and quantity will both decrease
and quantity will both increase

20. A surplus occurs whenever (Points: 1)
current price is greater than equilibrium price
quantity supplied exceeds quantity demanded at the equilibrium price
quantity demanded is greater than quantity supplied
the problem of scarcity of a good is solved
some buyers would be willing and able to pay even more for it than they have to at equilibrium

21. Economists (Points: 1)
believe that tastes are the major influence on consumers' income expectations
have observed that tastes vary with changes in the number of consumers
recognize that tastes have an important impact on demand
can say a great deal about the origin of tastes

22. Elasticity measures (Points: 1)
whether a price increase causes quantity demanded to increase or decrease
the strength of an economy's tendency to recover from recession
the responsiveness of decision makers to changes in prices, income, or other variables
the profitability of investment in an industry

23. Demand is unit elastic whenever (Points: 1)
price elasticity has an absolute value of 1
price elasticity has an absolute value greater than 1
price elasticity has an absolute value less than 1
price elasticity is negative

24. If the demand for swordfish is price elastic and the price of swordfish increases, then (Points: 1)
the quantity of swordfish demanded will increase
the total revenue from swordfish sales will decrease
the total revenue from swordfish sales will increase
the total revenue from swordfish sales will not change

25. The more broadly a good is defined, (Points: 1)
the more substitutes it has so the more elastic is its demand
the fewer substitutes it has so the more elastic is its demand
the more substitutes it has so the less elastic is its demand
the fewer substitutes it has so the less elastic is its demand

26. Which of the following tends to make demand for a good more elastic? (Points: 1)
A reduction in the number of substitutes for the good.
Consumers have a long time to adjust to a price change.
The amount spent on the good is a small proportion of the consumer's budget.
The good is broadly defined.

27. For which of the following goods is the value of income elasticity most likely to be negative? (Points: 1)
macaroni and cheese
champagne
airline tickets
clothes

28. When a firm is experiencing diminishing marginal returns, marginal cost is (Points: 1)
rising
falling
constant
rising at first, then falling

29. If labor is a firm's only variable input, marginal cost ultimately depends on (Points: 1)
fixed cost
how much profit is made
the price of the good produced
how much output each worker produces

30. If a firm shuts down in the short run and produces no output, its total cost will be (Points: 1)
zero
equal to total variable cost
equal to total fixed cost
equal to explicit costs only

31. The short-run average variable cost curve (Points: 1)
is always downward-sloping
is a horizontal line intersecting the vertical axis
slopes downward at low rates of output, then slopes upward at higher rates of output
starts above the origin and always slopes upward

32. Economies of scale occur where (Points: 1)
long-run average cost falls as new firms enter the industry
short-run average cost falls as new firms enter the industry
long-run average cost falls as one firm expands plant size
short-run average cost falls as one firm expands plant size

33. Which of the following is not characteristic of perfect competition? (Points: 1)
many buyers and sellers
brand name advertising
standardized products
fully informed buyers and sellers

34. For a perfectly competitive firm operating at the profit-maximizing output level in the short run, (Points: 1)
MR = TR
MC = price
MC = ATC
MC = AVC

35. The short-run supply curve of a perfectly competitive firm is (Points: 1)
its average fixed cost curve
the part of its marginal cost curve rising above the average variable cost curve
the part of its marginal cost curve below the average variable cost curve
marginal product curve

36. The entry of new firms into a competitive industry in the long run has the effect of (Points: 1)
driving up long-run equilibrium price
eliminating economic profits
reducing equilibrium quantity
making the demand curve facing each firm more inelastic

37. Long-run equilibrium for a perfectly competitive firm occurs when (Points: 1)
P = MC = MR = ATC
MC = MR = AFC = ATC
MC = MR = P > ATC
P > MC > MR > ATC

38. A constant-cost industry is one (Points: 1)
that faces constant average costs in the short run
that experiences economies of scale
that experiences stable demand
whose cost curves do not change as new firms enter

39. As a monopolist increases the quantity of output produced, what happens to price (P) and marginal revenue (MR)? (Points: 1)
P decreases, but MR is constant
both P and MR decrease, but P falls faster than MR
both P and MR decrease, but MR falls faster than P
P is constant, but MR decreases

40. A monopolist (Points: 1)
can charge whatever price it wants
charges more than almost any consumer is willing to pay
is constrained by marginal cost in setting price
is constrained by demand in setting price

41. For a monopolist that produces in the short run and does not price discriminate, price always has to be (Points: 1)
equal to marginal cost at the profit-maximizing quantity
equal to marginal revenue at the profit-maximizing quantity
greater than marginal cost at the profit-maximizing quantity
less than marginal cost at the profit-maximizing quantity

42. An important difference between a perfectly competitive firm and a monopolist is that (Points: 1)
the perfectly competitive firm tends to be larger
only the monopolist attempts to maximize profit
only the perfectly competitive firm maximizes profit
the perfectly competitive firm faces a horizontal demand curve and the monopolist faces a downward-sloping demand curve

43. Unlike firms in a perfectly competitive industry, monopolists have control over (Points: 1)
the price they charge for the product
the quantity of output they produce
the prices they pay for resources
the quantities of various resources which are used
improvements in technology

44. A monopolist is (Points: 1)
a single seller of a product with no close substitutes
a single seller of a product with many close substitutes
one of a large number of small firms that produce a homogeneous good
one of a small number of large firms that produce a differentiated good

45. The term monopolistic competition (Points: 1)
denotes an industry with one seller of many differentiated products
is an alternate expression for monopoly
denotes an industry with many sellers of homogeneous products
denotes an industry with many sellers of differentiated products

46. Which of the following characteristics distinguishes oligopoly from other market structures? (Points: 1)
production of differentiated outputs
interdependence among firms in the industry
a downward-sloping demand curve
production of homogeneous outputs

47. Interdependent decision making on price, quality, or advertising is characteristic of (Points: 1)
perfect competition
monopolies
oligopolies
monopolistic competition

48. Collusion occurs when (Points: 1)
a firm chooses a level of output to maximize its own profit
firms get together to maximize joint profits
firms refuse to follow their price leaders
firms petition their U.S. senators for favors

49. The term strategy in terms of game theory refers to (Points: 1)
the relationship between price and marginal cost
the relationship between individual firm demand curves and the market demand curve
each firm's game plan in making decisions
the interrelationship between price and marginal revenue

50. Which oligopoly model was developed to explain price wars in an industry? (Points: 1)
natural oligopolies
cartels
price leadership by a dominant firm
game theory

51. Resource owners will supply additional units of a resource as long as doing so (Points: 1)
decreases their opportunity cost
increases their income
increases their utility
decreases their income taxes

52. Resource price differentials that do not trigger the reallocation of resources are known as (Points: 1)
temporary differentials
market differentials
conditional differentials
permanent differentials

53. If a firm is experiencing diminishing marginal returns, (Points: 1)
total output decreases as all resources are increased
total output decreases as all resources are decreased
total output decreases as one variable resource is increased, other things constant
additional increments of output diminish as one variable resource is increased, other things constant

54. If the wage is below the marginal revenue product, then a profit-maximizing firm will (Points: 1)
employ more workers
employ fewer workers
see an increase in its demand for labor
see an increase in its supply of labor

55. The difference between the average earnings of eye surgeons and those of janitors is an example of (Points: 1)
a temporary differential
a permanent differential
a resource price difference that will cause a reallocation of resources to different uses
a temporary difference that will be eliminated through the reallocation of resources to different uses

56. Market work includes activities such as (Points: 1)
practicing your golf game
studying for an economics exam
teaching a college economics course
picking up empty cans for the bottle deposit

57. Which of the following suggests that people have no control over the number of hours they work? (Points: 1)
Most workdays last from 8 a.m. to 5 p.m.
People make use of the opportunity for overtime.
People make use of the opportunity to moonlight.
People make use of early retirement options.

58. Other things equal, the supply of labor will be greater to a job that (Points: 1)
requires advanced education and training
requires most working hours be on weekends
requires hard physical labor
allows the employee greater discretion in the use of time

59. A labor union is a group of (Points: 1)
employees who join together to improve their working conditions
firms that join together to hire workers
firms that work together to negotiate better prices in the market
farmers who work together to receive better prices for their agricultural products

60. An appeal to consumers to purchase union-made products represents an attempt to (Points: 1)
increase the supply of union labor
increase the demand for union labor
decrease the supply of union labor
decrease the quantity demanded of union labor

61. If a regulator sets the price equal to the natural monopolist's marginal cost, (Points: 1)
the monopoly will experience a loss
the monopoly will earn a profit
the monopoly will earn zero profit
consumers will be worse off than they would be if the firm's profit maximization activities were unregulated

62. Which act of Congress declared tying contracts, exclusive dealing, and price discrimination illegal? (Points: 1)
the Wheeler-Kefauver Act
the Sherman Antitrust Act
the Clayton Act
the Wheeler-Lea Act

63. Which of the following most accurately describes the type of mergers that the antitrust laws are intended to prohibit? (Points: 1)
mergers that tend to reduce competition
horizontal mergers
both vertical and horizontal mergers
conglomerate mergers

64. Because of the rise of global competition and free trade, (Points: 1)
antitrust policy serves no purpose
antitrust policy may be less necessary than previously thought
U.S. industrial concentration poses more of a threat to consumers
U.S. markets are becoming less contestable

65. A good that is nonrival but exclusive is called (Points: 1)
a private good
a public good
a quasi-private good
an external good

66. Competing-interest legislation involves (Points: 1)
concentrated costs and widespread benefits
both widespread costs and widespread benefits
both concentrated costs and concentrated benefits
widespread costs and concentrated benefits

67. Attempts by special-interest groups to gain favorable treatment from government are called (Points: 1)
utility maximizing
profit seeking
rent seeking
profit maximizing

68. Rent seeking (Points: 1)
is the attempt to find apartments in a rent-controlled city
only makes sense in a monopolistically competitive industry
is a zero-sum game because the public's loss is the rent seeker's gain
is the expenditure of resources to obtain favorable treatment from government

69. When consumption of a good or service produces benefits or costs that are not reflected in the market price for the good, this is known as a(n) (Points: 1)
externality
common pool problem
nonexcludable resource
public good

70. Pollution and other negative externalities arise because (Points: 1)
there are no enforceable property rights to open-access resources
legislators cannot agree on what to do about them
they are the price consumers are willing to pay for production of goods and services
private property rights to pollute are controlled by businesses

71. In the U.S., people tend to discard items rather than repair them because (Points: 1)
Americans are lazy
of the high opportunity cost of time
it is costly to use land for waste disposal
high wages in the waste disposal industry discourages repairs

72. If education creates positive externalities, (Points: 1)
private markets provide less than the socially optimal quantity of education
private markets provide more than the socially optimal quantity of education
the marginal private benefit curve is higher than the marginal social benefit curve
the marginal private cost curve is higher than the marginal social cost curve

73. If firms expect greater demand for their products, invest in more capital and hire more labor, (Points: 1)
there will likely be an increase in inflation and a rise in taxation
the business cycle is likely to be moving from peak to trough
their behavior may encourage the very prosperity that they expect
government will probably have to spend more and tax less to offset the economic impacts of these business decisions

74. The aggregate supply curve has (Points: 1)
a negative slope
a positive slope
a zero slope (a horizontal line)
an infinite slope (a vertical line)

75. An increase in government spending, other things constant, would cause a (Points: 1)
leftward shift of the aggregate supply curve
rightward shift of the aggregate supply curve
leftward shift of the aggregate demand curve
rightward shift of the aggregate demand curve

76. Stagflation refers to (Points: 1)
a simultaneous reduction in output and the price level
a simultaneous increase in output and the price level
a decline in the price level accompanied by increases in real output and employment
an increase in the price level accompanied by decreases in real output and employment

77. Supply-side economists argue that a cut in personal income tax rates would (Points: 1)
decrease government revenues
increase government revenues
have no impact on government revenues
increase unemployment

78. Which of the following does not contribute to an improved standard of living? (Points: 1)
increases in the amount and quality of available resources
better technology
lower prices for the necessities of life
improvements in the "rules of the game"

79. Long-term growth in production can be explained by (Points: 1)
an improvement in the quality of resources available
a gradual but consistent rise in the price level
a rapid and accelerating increase in the price level
a trade surplus that leads to the accumulation of gold

80. Which of the following would increase labor productivity? (Points: 1)
a decrease in amount of capital per unit of labor
technological change
a decrease in the unemployment rate
an increase in the number of inexperienced workers entering the labor force

81. Applied research (Points: 1)
is designed to answer particular questions
is more open-ended than basic research
contributes less to visible output changes than does basic research
is research done by a firm to market a good

82. In GDP measurement, consumer spending includes (Points: 1)
spending by businesses on labor resources
spending by government on office buildings
spending by individual households on automobiles and durables
exchanges in business inventories

83. Which of the following statements about exports and imports is true? (Points: 1)
Both imports and exports are added to a nation's GDP.
Both imports and exports are subtracted from a nation's GDP.
Imports are added to a nation's GDP; exports are subtracted.
Exports are added to a nation's GDP; imports are subtracted.

84. Aggregate income is defined as (Points: 1)
the sum of income earned by all laborers in the world economy
the sum of income earned by all workers in the private sector
the total income of all individuals who contribute resources to the market production of output
total income after all income taxes but before paying other payroll taxes

85. Which of the following is a leakage from the circular flow? (Points: 1)
investment
imports
government purchases
government borrowing

86. To accurately measure the growth rate of output between two years, one should use (Points: 1)
gross domestic product
net domestic product
real net investment
real gross domestic product

87. The labor force consists of all (Points: 1)
the people in the economy who are not retired
people in the economy over 16 years of age
the adults in the economy between 18 and 65 years old who are able to work
the noninstitutionalized population over 16 in the economy who hold jobs or are looking for them

88. People who are not currently employed, but say they want a job, are counted as unemployed only if they (Points: 1)
have previously held a job
are actively seeking employment
are willing to accept a reasonable offer
are between 16 and 65 years of age

89. Suppose U = the number of adults who are unemployed; E = the number of adults who are employed; and NLF = the number of adults not in the labor force. Which expression would equal the unemployment rate? (Points: 1)
U/(E + NLF)
U/E
U/(U + E)
U/(E + NLF)

90. Which of the following is true regarding labor force participation rates in the United States since the 1950s? (Points: 1)
The rates for both men and women have risen.
The rate for women has fallen; that for men has risen.
The rate for men has fallen; that for women has increased.
The rates for both men and women have fallen.

91. When workers are over-qualified for their current jobs or can find only part-time work, we say they are (Points: 1)
discouraged workers
not in the labor force
overemployed
underemployed

92. Federal spending (including transfer payments), as a percent of GDP, (Points: 1)
has remained largely unchanged over the last 50 years
has exceeded 10 percent only in wartime periods
is less than half of state and local government spending
has increased since 1921

93. Because of automatic stabilizers, government budget deficits are (Points: 1)
positive during both expansions and contractions
negative during both expansions and contractions
smaller during expansions and larger during contractions
zero if averaged out over the entire business cycle

94. One explanation for persistent federal budget deficits is that officials are not required to (Points: 1)
honor the Constitution
balance the budget
raise taxes
run for reelection

95. The equilibrium interest rate is determined by (Points: 1)
the supply of money alone
both the supply of and demand for money
the demand for money alone
Congress

96. If there is a decrease in the supply of money, which one of the following is most likely to happen? (Points: 1)
the demand for money will increase
planned investment spending will increase
interest rates will rise
aggregate expenditure will increase

97. If the Fed sells government securities to banks, eventually we expect (Points: 1)
short-run aggregate supply to increase
interest rates to increase
the price level to increase
aggregate demand to increase

98. International trade is most likely to occur whenever (Points: 1)
one of the trading nations is self-sufficient
all of the trading nations are self-sufficient
one of the trading nations gains from trade
each of the trading nations gains from trade

99. Which of the following factors is the most significant in determining the pattern of international trade? (Points: 1)
absolute advantage
diplomatic expertise
comparative advantage
overpowering military strength

100. The world price of a good is (Points: 1)
the price paid by consumers in all nations
the price at which it is traded internationally
the price paid in U.S. dollars
the price paid in foreign currency