Economic Systems
Exam Answer Key
Course Introduction
This course offers a comprehensive examination of the primary economic systems that have shaped societies throughout history, including capitalism, socialism, and mixed economies. Students will explore the theoretical foundations, institutional structures, and practical implications of each system, analyzing how different societies allocate resources, distribute income, and manage production. Through comparative analysis, the course investigates the strengths and limitations of various economic models in addressing issues such as efficiency, equity, and growth. Emphasis is placed on contemporary global examples, providing students with the analytical tools needed to critically assess economic systems both historically and in the modern world.
Recommended Textbook
Economics Private and Public Choice 14th Edition by
David A. Macpherson
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6847 Verified Questions
6847 Flashcards
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Chapter 1: The Economic Approach
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Sample Questions
Q1) Which of the following is most clearly consistent with the basic postulate of economics regarding the reaction of people to a change in incentives.
A) Farmers produce fewer bushels of wheat in response to an increase in the price of wheat.
B) People will buy more milk at a price of $2 per gallon than at $1 per gallon.
C) People will buy less gas if the price of gas increases by $.20 per gallon.
D) People will consume more beef if the price increases from $1 to $2 per pound.
Answer: C
Q2) The value of a good
A) depends on many factors, including who uses it and under what circumstances.
B) is determined by the cost of producing it.
C) depends on the labor necessary to supply the good.
D) can be measured objectively by a survey of manufacturers of the good.
Answer: A
Q3) Economic choice and competitive behavior are the result of A) scarcity.
B) poverty.
C) public ownership of resources.
D) private ownership of resources.
Answer: A
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Chapter 2: A : Some Tools of the Economist
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Sample Questions
Q1) In an informed and voluntary exchange,
A) both parties receive something they value more than what they gave up.
B) both parties place an equal value on what they received and what they gave up.
C) neither party can gain more than the other.
D) one trader can gain only at the expense of the other.
Answer: A
Q2) Which of the following is true of the production possibilities curve?
A) It assumes a fixed quantity of resources.
B) It assumes the prices of the products considered are equal.
C) A point inside the curve is efficient.
D) All of the above are correct.
Answer: A
Q3) The successful introduction and adoption of a new product or process is known as A) invention.
B) innovation.
C) origination.
D) adaptation.
Answer: B
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Chapter 2: B : Some Tools of the Economist
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Sample Questions
Q1) The president of a large public university proclaims, "If we can get the state government to fund our new football stadium, it will not cost us anything." Evaluate this view from an economic perspective.
Answer: While it may not directly affect the university's budget, the cost will be borne by taxpayers. Also, there will be opportunity costs brought about by diverting stadium funding from roads, hospitals, or primary schools. We also should not ignore the fact that the state may reduce its funding of the university in other areas, such as student financial aid, to compensate for the cost of the football stadium.
Q2) When private ownership rights are well-defined and enforced, owners
A) can ignore the wishes of others, without bearing the cost.
B) have little incentive to take care of things.
C) can do anything they want with their property.
D) can be held accountable for damage to others through misuse of their property. Answer: D
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Chapter 3: A : Supply, Demand, and the Market Process
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Sample Questions
Q1) Producers are willing to offer greater quantities for sale at higher prices because
A) they have the incentive to pay the increasing opportunity cost of resources necessary to attract them from alternative uses
B) they will decrease their profits by expanding production at higher prices
C) the government orders them to do so
D) lower prices attract new firms, which have higher costs of production
E) they hire superior quality, higher-priced resources as production expands
Q2) An increase in supply will cause
A) an increase in demand.
B) a decrease in demand.
C) an increase in quantity demanded.
D) a decrease in quantity demanded.
E) an increase in equilibrium price.
Q3) If the supply of a good is relatively elastic, this means that the quantity supplied of the good is
A) not very sensitive to the price of the good.
B) highly sensitive to the price of the good.
C) unrelated to the price of the good.
D) none of the above.
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Chapter 3: B : Supply, Demand, and the Market Process
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Sample Questions
Q1) Which of the following would most likely cause the current demand for DVD players to fall?
A) an increase in consumer income
B) an increase in the price of DVD players
C) an increase in the price of Blu-ray players, a substitute good
D) the expectation that the price of DVD players will decrease sharply during the next six months
Q2) Which of the following would decrease the price of packaged hot dogs?
A) an increase in the price of hot dog buns, a complement to packaged hot dogs
B) a decrease in the price of hamburger meat, a substitute for packaged hot dogs
C) a technological advance that lowers the cost of producing packaged hot dogs
D) all of the above
Q3) A recent study suggested that moderate wine drinking may actually benefit one's health. If this information leads to an increased demand for wine, we would expect
A) both the price and quantity of wine sold to increase.
B) both the price and quantity of wine sold to decrease.
C) the price to decrease and the quantity of wine sold to increase.
D) the price to increase and the quantity of wine sold to decrease.
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Chapter 4: A : Supply and Demand: Applications and Extensions
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Sample Questions
Q1) When a tax is levied on the sale of an item,
A) consumers will generally buy more of it.
B) producers will generally supply more of it.
C) the price (including the tax) of the product will generally decline.
D) less of the item will generally be bought and sold.
Q2) When a shortage of a good is present due to a price ceiling,
A) the amount supplied will be greater than the amount demanded.
B) the quality of the good will generally improve.
C) non-price factors, such as discrimination or waiting in line, will play a greater role in the allocation of the good.
D) the demand for the product will increase and, thereby, eliminate the shortage.
Q3) If Sally were to get a $3,000 bonus from her employer, which of the following tax rates would most accurately reflect the percent of this additional income that she would owe in taxes?
A) her marginal tax rate
B) her average tax rate
C) her progressive tax coefficient
D) the rate of excess burden
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Chapter 4: B : Supply and Demand: Applications and Extensions
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Sample Questions
Q1) If Susan's income increases from $40,000 to $50,000 and her tax liability increases from $6,000 to $9,000, which of the following is true?
A) Her marginal tax rate is 18 percent in this range.
B) Her marginal tax rate is 30 percent in this range.
C) Her average tax rate was 22.5 percent when her income was $40,000.
D) The tax structure must be regressive in the range between $40,000 and $50,000.
Q2) Refer to Figure 4-19. When the price ceiling applies in this market and the supply curve for gasoline shifts from S to S , the resulting quantity of gasoline that is bought and sold is
A) less than Q .
B) Q
C) between Q and Q .
D) at least Q .
Q3) The state of Florida is considering putting an excise tax on either good X or good Y. An economist discovers the supply of good X is more elastic than the supply of good Y, while the demand elasticities are identical. Which good should Florida tax in order to minimize the deadweight loss of the tax?
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Chapter 5: Difficult Cases for the Market and the Role of Government
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Sample Questions
Q1) Externalities are due to which of the following?
A) poorly defined or enforced private property rights
B) individuals not caring sufficiently about the welfare of others
C) the choice of a capitalist, rather than socialist, economy
D) poor information on the part of buyers and sellers
Q2) Compared to ideal economic efficiency, when the production of a good generates external costs, competitive markets will likely result in an output that is too
A) large and a price that is too high.
B) large and a price that is too low.
C) small and a price that is too high.
D) small and a price that is too low.
Q3) A sound legal system that protects individuals and their property,
A) cannot be expected until markets are already working well.
B) is vital to the smooth operation of markets.
C) is normally found in most economies of the world.
D) is helpful for the rich, but harmful to the economic well-being of others.
Q4) How does the text define economic efficiency? Is this an absolute or a relative definition? Would another type of definition be preferable? Why or why not?
Page 10
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Chapter 6: The Economics of Collective Decision-Making
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Sample Questions
Q1) Which of the following is accurate regarding government expenditures in the United States?
A) The federal government spends considerably more than state and local governments combined.
B) The federal government spends more than local governments but less than state governments.
C) Local governments spend more than state governments, which in turn, spend more than the federal government.
D) Since 1930, total government expenditures as a share of GDP have declined.
Q2) Legislation that contains a number of projects benefiting local interests at the expense of the general taxpayer is called
A) balanced-budget legislation.
B) pork-barrel legislation.
C) voucher legislation.
D) public-goods legislation.
Q3) Suppose domestic automobiles were allocated in the United States the way public education is allocated. Describe how this system might work.
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Chapter 7: A : Taking the Nations Economic Pulse
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Sample Questions
Q1) An American-owned McDonald's opens in Russia. How would the net revenue earned by this restaurant affect the GDP and GNP of the United States?
A) It would increase GNP and GDP.
B) It would increase GNP and leave GDP unchanged.
C) It would increase GDP and leave GNP unchanged.
D) It would leave both GDP and GNP unchanged.
Q2) Suppose the CPI was 104 in 1967, and suppose currently the CPI is 390. According to the CPI, $10 in 1967 purchased the same number of goods and services as
A) $28.88 purchases today.
B) $37.50 purchases today.
C) $42.64 purchases today.
D) $104.00 purchases today.
Q3) Which of the following is true of inflation?
A) It is an increase in the general price level of goods and services.
B) The purchasing power of money increases as the result of inflation.
C) Inflation is similar to interest payments on future money income, such as pensions and receipts from outstanding loans.
D) Inflation has no effect on real resources.
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Chapter 7: B : Taking the Nations Economic Pulse
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Sample Questions
Q1) Assume that between 1999 and 2009 nominal GDP increased from $7 trillion to $12 trillion and that the GDP deflator rose from 100 to 150. Which of the following expresses GDP for 2009 in terms of 1999 prices?
A) $7.5 trillion
B) $8.0 trillion
C) $9.0 trillion
D) $18.0 trillion
Q2) Your grandfather tells you that he earned $.50 per hour at his job when he was a boy in 1929.
a.Given that the CPI was 17.1 in 1929 and 184.0 in 2003, how much would you have to make in 2003 to have the same real hourly wage?
b.You made $5.50 an hour working during 2003. Were you better off than your grandfather in terms of purchasing power? Explain.
c.Your grandfather also tells you that a soda cost $.05 in 1929, and you know a soda cost $.55 in 2003. You decide to use the price of a soda as the price index. How much would the 2003 "soda equivalent" of $.50 per hour in 1929 be?
Q3) Discuss the problems with GDP as a measure of a country's current production and income.
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Chapter 8: Economic Fluctuations, Unemployment, and Inflation
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Sample Questions
Q1) Each month, the Bureau of Labor Statistics calculates unemployment by
A) surveying all workers in the economy.
B) surveying a random sample of households.
C) making projections based on census data.
D) surveying large business and government employers.
Q2) Shawn is on a two-week layoff as the result of a model change at the auto plant where he works. According to employment statistics, Shawn is classified as A) not in the labor force.
B) unemployed.
C) employed.
D) both employed and unemployed.
Q3) The current U.S. unemployment insurance program tends to A) increase the incentive to switch occupations.
B) reduce the time workers stay unemployed.
C) make it more costly for unemployed workers to turn down available jobs.
D) raise the unemployment rate.
Q4) Discuss the dangers of inflation; that is, why may it hurt an economy?
Q5) Describe two ways that public policy could reduce the natural rate of unemployment.
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Chapter 9: A : an Introduction to Basic Macroeconomic Markets
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Sample Questions
Q1) If the actual price level is lower than the expected price level reflected in long-term contracts,
A) many firms will find production more profitable than they had expected and will increase the quantity of output supplied
B) many firms will find production less profitable than they had expected and will decrease the quantity of output supplied
C) many firms will find production more profitable than they had expected and will decrease the quantity of output supplied
D) many firms will find production less profitable than they had expected and will increase the quantity of output supplied
Q2) If expected inflation is constant and the nominal interest rate increased 3 percentage points, the real interest rate would
A) increase 3 percentage points.
B) increase, but by less than 3 percentage points.
C) decrease, but by less than 3 percentage points.
D) decrease by 3 percentage points.
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Chapter 9: B : an Introduction to Basic Macroeconomic Markets
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Q1) As the real interest rate in the domestic loanable funds market increases, A) the cost of purchasing goods and services during the current period will decrease. B) the net inflow of capital from abroad will increase.
C) the inflationary premium will rise and the money rate of interest will decline. D) a trade surplus will occur.
Q2) In the short run, if prices were above equilibrium,
A) excess aggregate demand for goods and services would place downward pressure on prices.
B) excess aggregate supply of goods and services would place upward pressure on prices.
C) excess aggregate demand for goods and services would place upward pressure on prices.
D) excess aggregate supply of goods and services would place downward pressure on prices.
Q3) How does the aggregate goods and services market differ from the regular supply and demand graph in Chapter 3? Address the measures of price, quantity, and the demand and supply curve(s).
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Chapter 10: Dynamic Change, Economic Fluctuations, and the Ad-As Model
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Q1) In the aggregate demand/aggregate supply model, an increase in a country's sustainable potential output is represented by an increase in A) prices.
B) aggregate demand.
C) long-run aggregate supply.
D) an increase in the general level of prices.
Q2) Which of the following will lead to a decrease in aggregate demand in the United States?
A) a higher price level
B) a decrease in the real interest rate
C) rapid growth in real income in Japan and Western Europe
D) an increase in the exchange rate value of the dollar
Q3) If an economy was initially in long-run equilibrium, an unanticipated increase in aggregate demand will tend to cause
A) an increase in unemployment.
B) a decrease in the price of resources.
C) a reduction in real output that will spiral downward into a prolonged recession.
D) a temporarily high level of output and employment that cannot be maintained.
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Chapter 11: Fiscal Policy: the Keynesian View and Historical Perspective
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Sample Questions
Q1) If the federal government runs a budget deficit in order to finance an increase in spending, where do the funds to finance the spending come from?
A) increased personal income taxes
B) additional money printed by the Federal Reserve
C) additional bonds issued by the U.S. Treasury
D) the financial assets of the members of Congress who are legally responsible for the deficit
Q2) If consumption equals 800 when disposable income is 1,000, and then consumption increases to 1,000 when disposable income increases to 1,300, the marginal propensity to consume is
A) 8/10.
B) 10/13.
C) 2/3.
D) 3/4.
Q3) In the Keynesian model, the primary determinant of consumer spending is
A) the interest rate.
B) disposable income.
C) expectations of inflation.
D) the stage of the business cycle.
18
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Chapter 12: Fiscal Policy, Incentives, and Secondary Effects
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Q1) Why might an expansion in government spending increase the severity of the coordination problem during a recession?
A) Increases in government spending will not affect the composition of aggregate demand.
B) Congress is unlikely to approve increases in government spending during a recession.
C) Spending increases will be driven by political considerations and will often flow into areas where resources are already fully employed.
D) Government spending can be counted on to flow toward high productivity projects.
Q2) Refer to Figure 12-1. If the output of the economy is Y , which of the following would a new classical economist be most likely to favor?
A) a reduction in government expenditures
B) a reduction in taxes
C) an increase in taxes
D) continuation of the current tax and expenditure policies
Q3) What is supply-side economics, and how does it differ from the Keynesian emphasis on fiscal policy?
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Chapter 13: A : Money and the Banking System
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Sample Questions
Q1) The demand for money varies
A) directly with both the price level and the level of real GDP.
B) inversely with both the price level and the level of real GDP.
C) inversely with the price level and directly with the level of real GDP.
D) directly with the price level and inversely with the level of real GDP.
E) inversely with the level of nominal GDP.
Q2) When the Fed lowers the discount rate, it makes it
A) cheaper for banks to borrow from each other.
B) cheaper for banks to obtain additional reserves by borrowing from the Fed.
C) more difficult for banks to accept deposits.
D) more difficult for banks to extend loans.
Q3) Which of the following items are counted in M2?
A) stock mutual funds
B) money-market mutual funds
C) bond mutual funds
D) all of the above
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Chapter 13: B : Money and the Banking System
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Q1) Does the Federal Reserve operate like an ordinary commercial bank? What is the Fed's job?
Q2) What is the difference between the Treasury and the Federal Reserve? Is there any difference in the effect on the money supply between the sale of bonds by the Treasury and the sale of bonds by the Fed?
Q3) What are the advantages of a fractional reserve banking system compared to a system that requires 100 percent of deposits to be kept on reserve?
Q4) Explain how the Fed would use its four tools to decrease and to increase the money supply.
Q5) Why is there more than one definition of the money supply? What is the difference between them?
Q6) How do changes in open market operations alter the monetary base, and how do changes in the monetary base translate to changes in the money supply?
Q7) What advantages does a money economy have over a barter economy?
Q8) Discuss the changes that have and will in the future affect the usefulness of the M1 and M2 money supply figures as indicators of monetary policy.
Q9) Briefly explain the three functions of money.
Page 21
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Chapter 14: Modern Macroeconomics and Monetary Policy
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Q1) When the Fed unexpectedly reduces the money supply, it will cause a decrease in aggregate demand because
A) real interest rates will rise, lowering business investment and consumer spending.
B) the dollar will depreciate on the foreign exchange market, leading to an increase in net exports.
C) lower interest rates will cause the value of assets (for example, stocks) to rise.
D) the national debt will increase, causing consumers to reduce their spending.
Q2) In an economy in which real output grows at an average rate of 3 percent per year, a 7 percent average rate of growth in the money supply would result in
A) an inflation rate of 4 percent, if velocity were constant.
B) an inflation rate of -4 percent, if velocity were constant.
C) a $4 increase in the price level per year.
D) a $4 decrease in the price level per year.
Q3) According to the monetarists, what is the primary cause of a recession? Explain the steps by which reductions in the money supply lead to reductions in real output.
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Chapter 15: Stabilization Policy, Output, and Employment
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Q1) An individual who had rational expectations would be most likely to A) ignore information about all current policies of both the government and the Fed. B) always disagree with the expectations of someone who believed in adaptive expectations.
C) use all pertinent information when formulating views about the future.
D) never anticipate stable prices because monetary authorities continually expand the supply of money rapidly.
Q2) The view that decision-maker expectations are based on actual outcomes observed during the recent past is called the
A) rational expectations hypothesis.
B) adaptive expectations hypothesis.
C) permanent income theory.
D) recognition lag.
Q3) What will actual unemployment be (in relation to the natural rate) in each of the following cases? Use a graph of the modern Phillips curve in your answer.
a.Decision makers underestimate inflation.
b.Decision makers overestimate inflation.
c.Decision makers correctly forecast inflation.
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Chapter 16: Creating an Environment for Growth and Prosperity
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Q1) Which of the following is a driving force underlying economic growth?
A) trade restrictions that protect domestic businesses from competition with foreign producers
B) regulations that require businesses to obtain permission from the government before starting a new business
C) tax increases that expand the revenues of the government
D) entrepreneurial discovery and production of improved products
Q2) Stable money and prices are a key source of economic growth because
A) they allow activist policymakers to fine tune the economy.
B) uncertainty and instability in prices will attract investors and business decision makers.
C) price instability increases capital formation.
D) price stability reduces the risks that accompany investment and other long-term commitments.
Q3) High income countries with larger governments as a share of GDP have generally
A) grown less rapidly than their counterparts with smaller governments.
B) experienced less deadweight losses resulting from taxes and/or government borrowing.
C) seen the government decrease in size as real GDP rises.
D) been able to be more economically efficient.
Page 24
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Chapter 17: Institutions, Policies, and Cross-Country
Differences in Income and Growth
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Q1) (I) Countries with more economic freedom during the past quarter of a century had a lower average per capita GDP. (II) Countries with more economic freedom during the past quarter of a century generally achieved higher rates of economic growth.
A) Both I and II are true.
B) Both I and II are false.
C) I is true; II is false.
D) I is false; II is true.
Q2) Which of the following countries began economic liberalization in the 1970s and have achieved an impressive record of economic growth since that time?
A) Venezuela and Zimbabwe
B) China and Chile
C) Mexico and Canada
D) United States and Norway
Q3) Which of the following has contributed to China's economic growth since 1980?
A) the rapid growth of foreign aid from European countries
B) nationalization of many private industries
C) increased restrictions on international trade
D) increased privatization of the agricultural and small-business sectors
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Chapter 18: Gaining From International Trade
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Q1) In Figure 17-13, if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in the United States, which area represents the amount of tariff revenue the United States government collects?
A) a
B) b
C) c
D) f
E) e
Q2) In 1993 the negotiations over the North American Free Trade Agreement and the General Agreement on Tariffs and Trade were frequently characterized by comments such as, "Free trade with low-wage countries will cause the wages of U.S. workers to fall."
Identify the errors in statements such as this.
Q3) If tariffs are decreased, the long-run effect is most likely to be
A) a decrease in both U.S. imports and exports.
B) an increase in both U.S. imports and exports.
C) a decrease in U.S. imports and an increase in U.S. exports.
D) an increase in U.S. imports and a decrease in U.S. exports.
Q4) What is the difference between a tariff and a quota?
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Chapter 19: International Finance and the Foreign Exchange Market
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Q1) A Japanese automobile manufacturer building an auto plant in the United States creates a
A) supply of dollars and demand for yen in the foreign exchange market.
B) demand for dollars and a supply of yen in the foreign exchange market.
C) demand for both dollars and yen in the foreign exchange market.
D) supply of both dollars and yen in the foreign exchange market.
Q2) If real interest rates in the United States are higher than those of our trading partners, what will tend to happen to the foreign exchange value of the dollar and the U.S. current account deficit or surplus?
A) The dollar will depreciate; the current account will move toward a deficit.
B) The dollar will depreciate; the current account will move toward a surplus.
C) The dollar will appreciate; the current account will move toward a deficit.
D) The dollar will appreciate; the current account will move toward a surplus.
Q3) Which one of the following would supply dollars to the foreign exchange market?
A) the spending of U.S. tourists in Europe
B) the purchase of U.S. automobiles by Japanese consumers
C) the sale of U.S. automobiles to European consumers
D) the purchase of an American electronics factory by a Japanese investor
Q4) What are the three categories of transactions in the balance of payments? Give an example of each.
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Chapter 20: Consumer Choice and Elasticity
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Sample Questions
Q1) If the quantity demanded of a product rose from 900 to 1,200 when the price of the product fell from $11 to $9, the price elasticity of demand coefficient is equal to
A) -0.20.
B) -0.70.
C) -1.00.
D) -1.42.
Q2) When the price of a product increases, the passage of time usually causes the price elasticity of demand for the product to become
A) less elastic.
B) more elastic.
C) smaller and smaller in an absolute value.
D) approximately equal to zero in the long run because of scarcity.
Q3) "After eating nothing but fast-food hamburgers on spring break, I was anxious to return home and eat something different." This statement most clearly reflects the law of A) the budget constraint.
B) consumer irrationality.
C) greater demand elasticity with time.
D) diminishing marginal utility.
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Chapter 21: A : Costs and the Supply of Goods
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223 Verified Questions
223 Flashcards
Source URL: https://quizplus.com/quiz/34272
Sample Questions
Q1) A foreign exchange student bought a used car for $10,000 and resold it one year later for $6,500. Insurance, license, and operating costs for the year were $1,500. What was his economic cost of owning and operating the car for the year if the market rate of interest was 10 percent?
A) $3,500
B) $5,000
C) $6,000
D) $8,500
Q2) A downward-sloping portion of a long-run average total cost curve is the result of
A) economies of scale.
B) diseconomies of scale.
C) diminishing returns.
D) the existence of fixed resources.
Q3) Approximately three-fourths of all U.S. firms are
A) corporations.
B) proprietorships.
C) partnerships.
D) consumer cooperatives.
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Chapter 21: B : Costs and the Supply of Goods
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Sample Questions
Q1) If the ABC Company decides to take over the XYZ Corporation by purchasing all of the stock of XYZ, what does this tell us about the view ABC holds of XYZ?
Q2) The boss observes that her 10 workers produce 1,000 widgets a day. She concludes that she can employ 20 workers and make 2,000 widgets, 30 to make 3,000, or 40 to make 4,000. Explain why this observation is either correct or incorrect.
Q3) Andy wants to maximize his grade-point average. Having spent six hours studying for his final exam in economics, Andy calculates his grade and discovers that even with a perfect score on the final, he will not pass the course. He decides to study two more hours so he will not have wasted the first six hours. Is this a good decision? Why or why not?
Q4) Suppose you are planning to open a lemonade stand. List separately all the explicit and implicit costs that might be involved.
Q5) Mr. Jones pays his employees by the hour. He believes they purposely work slowly to maximize their personal satisfaction. What can he do to provide them with a stronger incentive to work efficiently?
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Chapter 22: A : Price Takers and the Competitive Process
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237 Verified Questions
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Sample Questions
Q1) If consumers suddenly began desiring more apples and fewer oranges, A) the market price of apples would rise, creating short-run economic profits in the apple industry. Current firms will expand output and new firms will enter the industry. B) the market price of oranges would fall, creating short-run economic losses in the orange industry. Current firms will reduce output and some will go out of business in the long run.
C) neither a nor b are correct.
D) both a and b are correct.
Q2) Figure 9-1 shows the marginal and average total cost curves for a firm producing product A. What would be the minimum price this firm could charge and still continue to supply A to the market in the long run?
A) $4
B) $5
C) $6
D) $8
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Chapter 22: B : Price Takers and the Competitive Process
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Sample Questions
Q1) Amy runs a business in a market where all firms are price takers. Bill suggests that she lower her price to attract even more business. Should Amy follow Bill's suggestion, or should she even consider raising her price?
Q2) In some industries, like insurance, both small and very large firms coexist and compete quite effectively in the market. This indicates that the long-run average total cost curve in these industries
A) is "U" shaped.
B) is downward sloping over all levels of output.
C) exhibits constant returns to scale over a wide range of output.
D) exhibits diseconomies of scale beginning at a low rate of output.
Q3) When a competitive price-taker market is in long-run equilibrium
A) the firms in the market will earn zero economic profit.
B) the average total cost of the firms in the market will be minimized.
C) every unit of the relevant good that is valued more than its opportunity costs will be produced and sold.
D) all of the above are correct.
Q4) When the demand for a product falls, why do costs of production go down in an increasing cost industry?
Q5) Why is it considered "ideal" for price to just equal marginal cost?
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Chapter 23: Price-Searcher Markets With Low Entry Barriers
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Sample Questions
Q1) Refer to Figure 10-11. Which of the graphs shown would be consistent with a firm in a competitive price-searcher market that is maximizing profit but profit is still negative?
A) Panel a
B) Panel b
C) Panel c
D) Panel d
Q2) A firm in a competitive price-searcher market can raise its price without losing all of its customers. This is a result of
A) low entry barriers.
B) a perfectly elastic market demand.
C) the small number of firms in the market.
D) product differentiation.
Q3) What is the maximum economic profit this firm depicted in Figure 10-4 will be able to earn?
A) $200 loss
B) zero profit
C) $250 profit
D) $700 profit
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33
Chapter 24: A : Price-Searcher Markets With High Entry
Barriers
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229 Verified Questions
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Sample Questions
Q1) The demand and cost schedules of a monopolist are presented in Table 11-5. What price should a profit-maximizing monopolist charge?
A) $10
B) $9
C) $8
D) $7
Q2) Under which one of the following market structures are firms most likely to enter into a price-fixing agreement designed to maximize their joint profit?
A) price-taker markets with low entry barriers
B) pure monopoly
C) price-searcher markets with low entry barriers
D) oligopoly
Q3) Other things constant, production of an identical product in an oligopolistic industry
A) makes it likely that a cartel will disintegrate.
B) makes secret price cuts easier to detect.
C) makes collusion more difficult.
D) causes irrational pricing policies in the long run.
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Page 34
Chapter 24: B : Price-Searcher Markets With High Entry
Barriers
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Sample Questions
Q1) Even though a cartel is often profitable for its members, cartel arrangements contain the seeds of their own disintegration because
A) a price maintained above each cartel member's marginal cost provides each member with an incentive to offer secret price reductions to attract additional customers.
B) the profits earned by cartel members will induce others to enter the industry.
C) cartel members will attempt to garner more of the total profit for themselves by cheating on their agreement with other members.
D) all of the above are correct.
Q2) Monopoly is a word derived from Greek origins that means, roughly, single seller. Why is the definition of monopoly as single seller inadequate in economic terms?
Q3) Which of the following is true under natural monopoly?
A) the monopolist will ignore consumers' desires.
B) the marginal cost curve will lie below the average total cost curve.
C) the monopolist will set price equal to marginal cost and will earn economic profits.
D) output is produced under conditions of constant cost.
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Chapter 25: The Supply of and Demand for Productive Resources
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200 Verified Questions
200 Flashcards
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Sample Questions
Q1) The short-run supply of a human resource will be more elastic the A) more elastic the demand for the product to be produced.
B) more inelastic the demand for the product to be produced.
C) lower the skill level necessary to perform the job.
D) harder it is to acquire the skill and knowledge necessary to provide the resource.
Q2) If unskilled labor is relatively plentiful and cheap in many foreign countries, then as the United States expands its trade with these foreign countries, the domestic demand for
A) unskilled labor will rise and skilled labor will fall.
B) skilled labor will rise and unskilled labor will fall.
C) both skilled and unskilled labor will rise proportionately.
D) both skilled and unskilled labor will be unaffected, assuming no barriers to free trade.
Q3) Why is it more expensive to acquire a new house in an urban area than in a rural area if the costs of labor and building materials are the same?
Q4) Why is a college graduate more likely to get a job in management than is someone with only a high school diploma, even when the job has nothing to do with a specific type of education?
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Chapter 26: Earnings, Productivity, and the Job Market
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109 Verified Questions
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Sample Questions
Q1) Window cleaners that work the top floors of high-rise office buildings are, on average, paid approximately 30 percent more an hour than those that clean windows on the bottom floor. This is an example of
A) employment discrimination.
B) non-pecuniary job benefits.
C) irrational wage compensation.
D) compensating wage differentials.
Q2) Which of the following is the primary source of rapid growth in the real earnings of workers?
A) strong unions
B) government regulation of labor markets
C) rapid growth in worker productivity
D) increases in the minimum wage
Q3) Everything else equal, wages are likely to be higher when
A) the location of the job is more desirable.
B) the work environment is more prestigious.
C) more skill is required to perform well on the job.
D) the work is safer.
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Chapter 27: Investment, the Capital Market, and the Wealth of Nations
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129 Flashcards
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Sample Questions
Q1) The additional amount a person is willing to pay to obtain a good or resource now rather than later is called the A) interest rate.
B) nominal price of future goods.
C) inflationary premium.
D) risk premium.
Q2) You are considering buying a business that currently earns $15,000 per year in after-tax profit. If these conditions are expected to continue into the future, and the interest rate is currently 10 percent, the current market value of this business is
A) $1,500.
B) $15,000.
C) $150,000.
D) $1,500,000.
Q3) If the interest rate is 7 percent, what is the current value of $80 to be received one year from now?
A) $47.05
B) $74.77
C) $85.60
D) $136
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Chapter 28: Income Inequality and Poverty
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Sample Questions
Q1) Which one of the following groups has a below-average incidence of poverty?
A) divorced or separated persons
B) African Americans and other minorities
C) families headed by a female
D) persons between the ages of 35 and 54
Q2) Assume that Jill is a single parent who is in poverty. She receives food stamps and Medicaid. For every $100 that she earns, Jill loses $20 of her food stamp benefits and $15 in her Medicaid benefits. Jill's implicit marginal tax rate from these two programs is
A) 20 percent.
B) 30 percent.
C) 35 percent.
D) 45 percent.
Q3) (I) High implicit marginal tax rates reduce the incentive of the poor to earn. (II) The Samaritan's dilemma is that transfer programs lower the opportunity cost of activities that lead to poverty.
A) Both I and II are true.
B) Both I and II are false.
C) I is true; II is false.
D) II is true; I is false.
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Page 39
Special Topic 1 : Government Spending and Taxation
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Sample Questions
Q1) Which of the following is true regarding U.S. federal government expenditures?
A) National defense has fallen from 52.2 percent of the federal budget in 1960 to 21 percent in 2008.
B) Federal expenditures on income transfers and health care have risen from 21.5 percent of the budget in 1960 to 57.7 percent in 2008.
C) Corrected for inflation, the average person today pays more federal taxes in one week than the average person in 1900 paid in an entire year.
D) All of the above are true.
Q2) Discuss how size of government can negatively affect economic growth.
Q3) Government expenditures as a share of the U.S. economy are
A) the largest in the world.
B) the smallest in the world.
C) smaller than most Western European countries but larger than a number of high-growth Asian economies.
D) larger than Canada, France, and the United Kingdom but slightly smaller than Germany and Italy.
Q4) As real incomes grow, what happens to federal tax revenues as a share of the economy?
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Page 40
Special Topic 2 : The Economics of Social Security
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Sample Questions
Q1) Will a large quantity of bonds held in the Social Security Trust Fund make it easier to deal with the retirement of the baby boomers?
A) Yes; the federal government will be able to redeem these bonds in the future without raising taxes or increasing its borrowing.
B) Yes; the interest on these bonds will provide the federal government with a stream of net revenue in the future.
C) Yes, but only if the federal government holds these bonds until they mature.
D) No; the federal government cannot redeem the bonds without raising revenues for their redemption from other sources.
Q2) The structure of the Social Security system is particularly advantageous to A) blacks.
B) those with life shortening diseases such as diabetes.
C) groups with below average earnings and above average life expectancy.
D) groups with above average earnings and below average life expectancy.
Q3) Jane states that "Social Security is an unfair program. It discriminates against married women in the workforce and middle-income recipients." Evaluate this view.
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Special Topic 3 : The Stock Market: Its Function,
Performance, and Potential as an Investment Opportunity
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Sample Questions
Q1) (I) The market for new issues of stock is called the primary market. (II) The New York Stock Exchange is an example of a secondary market in which previously issued shares are traded between investors.
A) I is true; II is false.
B) I is false; II is true.
C) Both I and II are true.
D) Both I and II are false.
Q2) Does it ever make sense to purchase a stock that has never paid a dividend? Explain.
Q3) Which of the following has enhanced the ability of investors, without any special business skills, to benefit from the ownership of corporate America?
A) the increased availability of mutual funds that make it possible for even small investors to purchase a diverse stock portfolio at a low cost
B) an increased tendency of small investors to buy and sell stock frequently, using stock tips from investment experts
C) the virtual disappearance of business failures among corporations with publicly traded stock shares
D) all of the above
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Page 42
Special Topic 4 : Great Debates in Economics: Keynes
Versus Hayek
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Sample Questions
Q1) Adam Smith stated, "The man of system is apt to be very wise in his own conceit. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board." Which is true of this statement?
A) Keynes would tend to agree with the statement; Heyek would disagree with it.
B) Keynes would tend to disagree with the statement; Hayek would agree with it.
C) As the rap video indicates, both Keynes and Hayek strongly agree with this statement.
D) As the rap video indicates, both Keynes and Hayek strongly disagree with this statement.
Q2) According to Friedrich Hayek and his followers, the booms and busts of the business cycle are primarily the result of
A) fluctuations in aggregate demand.
B) the "animal spirits" of private investors.
C) excessive credit expansion and artificially low interest rates that trigger malinvestment.
D) the unwillingness of political decision-makers to follow the advice of macroeconomists who know how to alter fiscal policy in a manner that would virtually eliminate the ups and downs of the business cycle.
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Special Topic 5 : The Crisis of 2008: Causes and Lessons for the Future
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Sample Questions
Q1) Fannie Mae and Freddie Mac's rapid increase in the percentage of all mortgages held encouraged mortgage lenders to
A) tighten credit standards and decrease the number of sub-prime loans extended to borrowers.
B) offer lower rates than what Fannie Mae and Freddie Mac could offer.
C) lower credit standards and offer terms acceptable to Fannie Mae and Freddie Mac.
D) scrutinize the credit-worthiness of borrowers and require higher down payments on mortgages.
Q2) The increase in the share of loans extended to borrowers with little or no down payment contributed to the financial crisis of 2008 because these loans
A) initially depressed housing prices.
B) were extended only to borrowers with prime credit status.
C) had much higher default rates than loans to borrowers making larger down payments.
D) were unavailable to low-income borrowers, who would have profited the most from such loans.
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44
Special Topic 6 : Lessons from the Great Depression
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Sample Questions
Q1) As a result of the Smoot-Hawley trade bill of 1930,
A) both the volume of U.S. trade and the tariff revenues derived from trade increased substantially.
B) the volume of U.S. trade decreased, but the tariff revenues derived from trade increased.
C) the volume of U.S. trade increased, but the tariff revenues derived from trade decreased.
D) both the volume of U.S. trade and the tariff revenues derived from trade decreased substantially.
Q2) Which of the following contributed to the severity of the Great Depression?
A) the substantial budget surpluses run during the Hoover administration
B) a sharp increase in tariff rates in 1930
C) the large reduction in tax rates under the Hoover administration
D) a highly expansionary monetary policy followed by the Fed in the late 1920s and early 1930s
Q3) The Agricultural Adjustment Act, passed in 1933, was an effort to
A) keep agricultural prices high by increasing supply.
B) keep agricultural prices low by increasing supply.
C) keep agricultural prices high by decreasing supply.
D) keep agricultural prices low by decreasing supply.
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Special Topic 7 : Lessons from Japan and Canada
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Sample Questions
Q1) Based on the Japanese experience of the 1990s, in the aftermath of the 2008-2009 recession, Americans can expect that
A) asset prices will quickly return to their pre-recession levels.
B) fiscal stimulus will promote a quick, sustainable recovery.
C) housing and stock market prices are unlikely to rebound quickly.
D) expansionary monetary policy will result in a period of deflation.
Q2) Like the U.S. during 2002-2004, Japan increased the money supply significantly and pushed interest rates to low levels during the late 1980s. This policy contributed to
A) deflation during the late 1980s.
B) a high rate of unemployment.
C) upward pressure on asset prices, such as real estate.
D) a decline in stock prices during the late 1980s.
Q3) Which of the following is evidence of Japan's expansionary fiscal policy during the 1990s?
A) persistent budget surpluses throughout the decade
B) persistently large budget deficits throughout the decade
C) a gradual decrease in Japan's national debt during the 1990s
D) a gradual decrease in Japan's government expenditures as a share of GDP during the 1990s
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Page 46
Special Topic 8 : The Federal Budget and the National Debt
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Sample Questions
Q1) Inclusion of the Social Security Trust Fund in the overall budget calculation
A) reduces the reported size of the budget deficit because the Social Security system is currently running a surplus.
B) increases the size of the reported budget deficit because the Social Security system is currently running a deficit.
C) decreases the size of the reported budget deficit because the Social Security system is currently running a deficit.
D) increases the size of the reported budget deficit because the Social Security system is currently running a surplus.
Q2) Deficit spending and a large national debt can have important effects on future generations because they
A) make it possible for those living in the present to pass the opportunity costs of current government spending on to future generations.
B) can significantly impact spending on capital formation.
C) will pass interest obligations on to future generations with no corresponding benefits.
D) will cause the government to go bankrupt.
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Special Topic 9 : The Economics of Healthcare
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Sample Questions
Q1) During the 1965-2009 period, the price index of healthcare services
A) declined slightly relative to the overall consumer price index.
B) fell by approximately 50 percent compared to the overall consumer price index.
C) increased at twice the rate of the overall consumer price index.
D) rose during a brief period following the passage of Medicare and Medicaid but has been relatively stable since that time.
Q2) The growth of third-party payments has resulted in higher prices for health-care services because
A) the lower out-of-pocket cost for consumers has increased the demand for health-care services.
B) consumers have less of an incentive to economize and shop for low-cost services when they pay a lower share of their bill.
C) producers have less of an incentive to provide health-care services at a low price when consumers are not as cost conscious.
D) All of the above are true.
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Special Topic 10 : Education: Problems and Performance
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Sample Questions
Q1) Which of the following is true regarding the average achievement (SAT) scores of high school graduates in the United States?
A) The average achievement (SAT) scores of high school graduates fell during the 1970s.
B) The average achievement (SAT) scores of high school graduates is lower today than it was 35 years ago.
C) The average achievement (SAT) scores of high school graduates rose slightly during the 1990s.
D) All of the above are true.
Q2) When compared to the achievement scores of students in other nations, U.S. students are
A) well-below average.
B) well-above average.
C) about average.
D) above average in mathematics, but below average in science.
Q3) What does the evidence suggest regarding the effects of school choice programs?
Q4) What are charter schools? How do they differ from voucher programs?
Q5) What are some of the criticisms of voucher programs? How would a voucher program be modified to address these concerns?
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Special Topic 11 : Earnings Differences Between Men and Women
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Sample Questions
Q1) Why is it NOT surprising that men make up the minority of college graduates?
A) Because of discrimination against women, men are able to get good jobs with only a high school degree.
B) Men are smarter than women and they do not need a higher education to be attractive to employers.
C) Given their greater physical strength, many men accept high-paying but physically demanding jobs instead of going to college.
D) Many men decide to pursue jobs in professional sports and this significantly reduces the number of males who go to college.
Q2) Which of the following is true about those graduating with college degrees?
A) The proportion of college degrees earned by women has been declining in recent decades.
B) The proportion of college degrees earned by women has been virtually constant during the last four decades.
C) In 2008, only about 42 percent of those graduating from college were women.
D) In 2008, only about 42 percent of those graduating from college were men.
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Special Topic 12 : Do Labor Unions Increase the Wages of Workers?
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Sample Questions
Q1) As the football season approaches, the threat of a player strike would give
A) both players and management an incentive to bargain seriously.
B) only the players an incentive to bargain seriously.
C) only management an incentive to bargain seriously.
D) neither party much incentive to bargain seriously.
Q2) Union membership as a percent of the nonagricultural labor force ____ in 1970 to approximately ____ in 2010.
A) fell from approximately 30 percent; 12 percent
B) rose from approximately 15 percent; 22 percent
C) fell from more than 40 percent; 10 percent
D) rose from approximately 8 percent; 40 percent
Q3) Which of the following is not one of the channels through which a union may raise wages?
A) supply restrictions
B) increasing the demand for union labor
C) more competitive product pricing
D) bargaining power
Q4) List some factors that might make the threat of a strike more effective.
Page 51
Q5) In a strike, what does the union have to lose? What does management lose?
Q6) What common goals, if any, do labor and management share?
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Special Topic 13 : The Question of Resource Exhaustion
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Sample Questions
Q1) Suppose that new demands greatly reduce the proved reserves of titanium to unexpectedly low levels, and it appears that the new demands will continue. If the market price is unregulated, we should expect that the price will rise and
A) increase exploration and encourage more effective recovery methods, resulting in additional new supplies of titanium.
B) encourage consumers and manufacturers to conserve titanium.
C) increase the incentive to find and use substitutes for titanium.
D) All of the above.
Q2) While the price of a resource may increase sharply during some periods, the structure of ____ accompanying the price increase makes depletion highly unlikely and provides the seeds for future reversal.
A) government programs
B) foreign competition
C) incentives
D) taxation
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53
Special Topic 14 : Difficult Environmental Cases and the
Role of Government
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Sample Questions
Q1) Which of the following is true?
A) All types of environmental problems can be solved merely by the enforcement of individual property rights.
B) Environmental regulation cannot improve environmental quality.
C) Income levels exert little impact on the demand for environmental quality.
D) Markets often result in outcomes that are inefficient when it is difficult to assign and enforce property rights.
Q2) Economic analysis implies that one of the most effective ways to deal with potential damages from environmental pollution is to
A) declare the relevant resources to be public goods, owned by the public.
B) establish and enforce property rights for the resources that are being damaged, if possible.
C) allow the government to take over and control all natural resources.
D) enact legislation that makes all environmental pollution illegal.
Q3) Pollution charges will be efficient if
A) the charge is just equal to the cost borne by others from the pollution.
B) the charge is greater than the cost borne by others from the pollution.
C) the charge is less than the cost borne by others from the pollution.
D) none of the above.
Page 54
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