Economic Theory
Test Bank
Course Introduction
Economic Theory explores the foundational principles and models that underpin the analysis of economic behavior, market mechanisms, and resource allocation. The course covers key topics such as consumer and producer theory, market equilibrium, efficiency, and welfare analysis. Emphasis is placed on both microeconomic and macroeconomic frameworks, equipping students with the analytical tools necessary to understand decision-making processes, the interplay of supply and demand, and the broader implications of government intervention. Through theoretical concepts and practical applications, students gain a comprehensive understanding of how economies function at both individual and systemic levels.
Recommended Textbook
Economics 11th Edition by Roger A. Arnold
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39 Chapters
5781 Verified Questions
5781 Flashcards
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Page 2
Chapter 1: What Economics Is About
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168 Verified Questions
168 Flashcards
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Sample Questions
Q1) The author of the text defines economics as the A) science of efficiency.
B) science of scarcity.
C) study of markets.
D) study of human activity.
Answer: B
Q2) The need to make choices is most closely related to the concept of A) opportunity cost.
B) efficiency.
C) inefficiency.
D) utility.
E) disutility.
Answer: A
Q3) If variable X goes down as variable Y goes down,then X and Y are A) directly related.
B) negatively related.
C) inversely related.
D) independent.
Answer: A
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Page 3
Chapter 2: Production Possibilities Frontier Framework
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152 Flashcards
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Sample Questions
Q1) Explain what productive efficiency means. Describe how productive efficiency is represented by a PPF.
Answer: An economy is producing efficiently if it is producing the maximum amount of output with a set amount of resources and technology.Efficiency is represented by all of the points that lie along the PPF.
Q2) Productive inefficiency implies that
A) it is possible to obtain gains in one area without losses in another.
B) it is impossible to obtain gains in one area without losses in another.
C) there are too many resources.
D) there are too few resources.
E) none of the above
Answer: A
Q3) A society is productive inefficient when
A) it produces at a point inside or below its PPF.
B) it does not produce the maximum output with its given resources and technology.
C) it can produce more of one good without giving up some of another good.
D) both a and b
E) all of the above
Answer: E
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Page 4
Chapter 3: Supply and Demand: Theory
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Sample Questions
Q1) An increase in the number of sellers will,ceteris paribus,
A) increase equilibrium price and quantity.
B) increase equilibrium price and decrease equilibrium quantity.
C) decrease equilibrium price and increase equilibrium quantity.
D) decrease equilibrium price and quantity.
E) increase demand.
Answer: C
Q2) If hot dogs are an inferior good,a decrease in income will cause the equilibrium price of hot dogs to rise.
A)True
B)False
Answer: True
Q3) Refer to Exhibit 3-13. Fill in blanks (E)and (F)respectively with the market quantity demanded at each given price.
A) 12; 6.75
B) 25; 19
C) 75; 64
D) 48; 27
E) none of the above
Answer: D
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Chapter 4: Prices: Free, Controlled, and Relative
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Sample Questions
Q1) Refer to Exhibit 4-9. Suppose that the government imposes a price ceiling at a price of $11. How many fewer units would be exchanged with the price ceiling than in a free market?
A) 50
B) 30
C) 40
D) 70
Q2) Refer to Situation 4-1.Before the oil embargo,the price ceiling on gasoline had no noticeable effect on the market.What is the most likely explanation for this?
A) The equilibrium price of gasoline was close to the ceiling price and probably below it.
B) The demand curve for gasoline in the 1970s was quite different from today's.
C) The supply curve for gasoline in the 1970s was quite different from today's.
D) The effects of price ceilings are dependent upon the benevolence of the government imposing them.
Q3) In order for a price floor to have an impact on a market it must be set above the equilibrium price.
A)True
B)False
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6
Chapter 5: Supply, Demand, and Price: Applications
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Sample Questions
Q1) A toll of $1 per car is imposed on a road regardless of time of day.If the toll creates equilibrium travel flows at the busiest time of day,it will create a __________ at all other times.
A) surplus of space
B) shortage of space
C) zero money price for space
D) zero opportunity cost for space
Q2) Explain in detail how the legalization of marijuana would be expected to impact the equilibrium price and quantity for marijuana.
Q3) If the price of a good ____________,the demand for its complements will __________.
A) rises; fall
B) falls; rise
C) falls; fall
D) rises; rise
E) a and b
Q4) The objective of speculators is to buy at one price and sell at a lower price.
A)True
B)False
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Chapter 6: Macroeconomic Measurements: Prices and Unemployment
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Sample Questions
Q1) One measure of the inflation rate is the
A) sum of the CPIs of adjacent years.
B) percentage change in the CPI of adjacent years.
C) percentage change in the Real GDP of adjacent years.
D) GDP minus the Real GDP in a year.
Q2) Refer to Exhibit 6-1.Prices rose by approximately __________ percent from Year 1 to Year 5.
A) 10.6
B) 9.6
C) 14.3
D) 4.5
Q3) Refer to Exhibit 6-2.How many people are not in the labor force in year 4?
A) 80 million
B) 100 million
C) 150 million
D) 350 million
E) 200 million
Q4) Describe the difference between the employment rate and the labor force participation rate (LFPR). Under what circumstance would the two be equal to one another?
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Chapter 7: Macroeconomic Measurements: GDP and Real GDP
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Sample Questions
Q1) Look at the following data: GDP = $11,920 billion; investment = $2,100 billion; exports = $500 billion; government purchases = $1,450 billion; consumption = $8,500 billion.What does import spending equal?
A) $630 billion
B) $370 billion
C) $1,320 billion
D) $430 billion
E) $474 billion
Q2) Refer to Exhibit 7-2.Assuming that 1990 is the base year,Real GDP in 2012 is
A) $49.
B) $51.
C) $86.
D) $92.
E) not possible to calculate without the CPI.
Q3) The expenditure approach to measuring GDP sums
A) consumption, investment, government purchases, and net exports.
B) sales, revenues, income, and wages.
C) profits, compensation of employees, consumption, and investment.
D) net exports, consumption, wages, and salaries.
Page 9
E) consumption, interest, net exports, and federal government purchases
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Chapter 8: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) If velocity and the money supply are __________________,then when one component of spending rises another component of spending ________________.
A) constant; must fall
B) constant; must rise
C) rising; may not necessarily fall
D) rising; must rise
Q2) The expectation of higher future income is a
A) rightward shifter of the AD curve.
B) leftward shifter of the AD curve.
C) reason for moving up along a given AD curve.
D) reason for moving down along a given AD curve.
Q3) If businesses buy fewer capital goods,and nothing else changes,then total expenditures on U.S.goods and services will decrease.And if total expenditures decrease,then __________ will decrease; consequently,the __________ curve will shift __________.
A) aggregate demand (AD); AD; rightward
B) short-run aggregate supply (SRAS); SRAS; leftward
C) aggregate demand (AD); AD; leftward
D) interest rates; AD; leftward
E) prices; AD; rightward
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Chapter 9: Classical Macroeconomics and the Self Regulating Economy
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Sample Questions
Q1) Refer to Exhibit 9-7. Which point is representative of the economy experiencing labor market surpluses?
A) A
B) B
C) C
D) D
E) E
Q2) Refer to Exhibit 9-5.Assume that the economy starts off at point A on graph (2)with an effective minimum wage law in place.After inflation erodes the purchasing power of the minimum wage,the economy is likely to move to a point such as
A) B.
B) G.
C) F.
D) C.
E) None of the above, because the minimum wage has no influence on the amount of goods produced.
Q3) Describe the difference between business-cycle macroeconomics and economic-growth macroeconomics.
Q4) Explain the policy implications of the classical economists' beliefs.
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Chapter 10: Keynesian Macroeconomics and Economic
Instability: A Critique of the Self-Regulating Economy
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198 Verified Questions
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Sample Questions
Q1) Describe Keynes' criticism of Say's law in a money economy.
Q2) Refer to Exhibit 10-9.What is the value of the marginal propensity to save (MPS)that would correctly fill in blank (A)and the multiplier that would correctly fill in blank (B)?
A) 0.20; 5
B) 0.08; 8
C) 0.08; 12.5
D) 0.05; 0.95
Q3) Here is a consumption function: C = C<sub>0</sub> + MPC(Y<sub>d</sub>).The C<sub>0</sub> term is usually defined as
A) autonomous consumption.
B) point-zero consumption.
C) mandatory consumption.
D) propensitory consumption.
E) none of the above
Q4) Using the concept of the multiplier,explain in detail how college students flocking to beach towns for spring break can positively impact the beach towns' economies.
Q5) Discuss how the Great Depression contributed to the development of Keynesian economics.
Page 12
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Chapter 11: Fiscal Policy and the Federal Budget
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164 Flashcards
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Sample Questions
Q1) Suppose the government attempts to stimulate the economy by increasing spending without increasing taxes.Which of the following statements is most likely to be accepted by someone who believes in crowding out?
A) The government's actions will have their intended effect.
B) The government's actions will cause businesses to become more optimistic about the economy, and they will increase their output even more than the government had intended.
C) The government's actions will raise interest rates, causing decreased investment and consumption, and the economy will not expand as much as the government had intended.
D) This is a trick question, because the federal government is required by law to increase taxes by the same amount as it increases expenditures.
Q2) The AD curve shifts to the left with a __________ in government purchases (G)or a __________ in taxes.
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
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Chapter 12: Money, Banking,and the Financial System
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124 Flashcards
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Sample Questions
Q1) Moral hazard occurs when the parties on once side of the market,who have information not known to others,self select in a way that adversely affects the parties on the other side of the market.
A)True
B)False
Q2) Money is defined by economists as
A) the market value of an asset.
B) the funds one receives during a specified period of time.
C) any good that is widely accepted in exchange and for the repayment of debts.
D) both b and c
E) all of the above
Q3) Excess reserves are the amount by which total reserves exceed required reserves.
A)True
B)False
Q4) Which of the following is not included in M1?
A) retail money market mutual funds
B) checkable deposits
C) traveler's checks
D) all of the above
Q5) Describe the differences between M1 and M2.
Page 14
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Chapter 13: The Federal Reserve System
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Sample Questions
Q1) Suppose that the current federal funds rate is above the federal funds target rate. In order to lower the federal funds rate the Fed will ________________ securities on the open market which will ________________ the supply of reserves in the market for reserves,pushing the rate closer to the target rate.
A) sell; increase B) purchase; increase C) purchase; decrease D) sell; decrease
Q2) Refer to Exhibit 13-1. Suppose that the Federal Reserve conducts open market operations by purchasing $1,000 worth of government securities from Bank A. As a result,Bank A finds itself with $1,000 in excess reserves that it lends out and those funds end up in Bank B.The loan made by Bank B ends up in Bank C. What dollar value goes in blanks (C)and (D),respectively?.
A) $900; $810
B) $90; $810
C) $110; $700
D) $700; $110
Q3) Summarize the history of how the Federal Reserve came to have twelve districts.
Q4) Explain the major differences between the Federal Reserve and the U.S.Treasury.
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Chapter 14: Money and the Economy
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Sample Questions
Q1) One example of one-shot inflation occurs when the SRAS curve shifts leftward.
A)True
B)False
Q2) Describe the expectations (or Fisher)effect.
Q3) The aggregate supply curve is depicted as vertical in the simple quantity theory of money.
A)True
B)False
Q4) The increase in the interest rate due to a higher expected inflation rate is called the __________ effect.
A) expectations
B) Fisher
C) liquidity
D) income
E) a or b
Q5) Monetarists believe that an increase in the money supply will raise both Real GDP and the price level in the short run,and will only raise Real GDP in the long run.
A)True
B)False
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Chapter 15: Monetary Policy
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Sample Questions
Q1) Explain how,according to the theory of PSST (patterns of specialization and sustainable trade),economic activity can decline in the face of unchanged aggregate demand. Give a hypothetical example to help support your answer.
Q2) Assume the Keynesian transmission mechanism is operational and the economy is currently operating in the horizontal portion of the AS curve. If the money supply increases and the demand for money curve is downward sloping and investment is interest ____________,then Real GDP will ___________________.
A) sensitive; rise
B) insensitive; remain unchanged
C) sensitive; remain unchanged
D) insensitive; rise
E) a and b
Q3) Activists believe that
A) monetary policy should not be used to smooth out the business cycle.
B) fiscal policy should not be used to smooth out the business cycle.
C) the frequent use of fiscal or monetary policy is called for to smooth out the business cycle.
D) rules should be established for the conduct of both monetary and fiscal policy.
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17
Chapter 16: Expectations Theory and the Economy
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Sample Questions
Q1) Which of the following changes would not be considered a likely source of changes in Real GDP according to real business cycle theory?
A) a natural disaster
B) a technological change
C) a change in the price of an important input
D) a change in the money supply
E) none of the above
Q2) Suppose that in a new classical model the public anticipates that policymakers will increase aggregate demand.However,aggregate demand increases by less than what the public anticipated.The result in the short run is that Real GDP ____________ and the price level ____________.
A) decreases; decreases
B) increases; increases
C) increases; decreases
D) decreases; increases
Q3) Although the possibility exists for an economy to experience stagflation,it has never actually happened in the United States.
A)True
B)False
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Page 18
Chapter 17: Economic Growth: Resources, Technology,
Ideas, and
Institutions
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Sample Questions
Q1) When a production function is graphed with Real GDP on the vertical axis and labor on the horizontal axis,a rise in capital________________________,and a rise in the technology coefficient __________________.
A) shifts the production function upward; also shifts the production function upward
B) shifts the production function downward; shifts the production function upward
C) moves us up along a given production function; shifts the production function upward
D) shifts the production function upward; moves us up along a given production function
Q2) Compare a property rights system in which people are allowed to keep one-third of the monetary rewards of their labor with a system in which they keep two-thirds.We should expect more entrepreneurship under the __________ system and faster real economic growth under the __________ system.
A) former; former
B) former; latter
C) latter; former
D) latter; latter
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19
Chapter 18: The Financial Crisis of 2007-2009
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Sample Questions
Q1) The Community Reinvestment Act (CRA)was passed in 1977 to encourage financial institutions to_________________________. It was revised in 1995 to ____________ the percentage of mortgage loans going to low- and moderate-income borrowers.
A) lend to only the most qualified borrowers; increase B) meet the needs of borrowers in all segments of their communities; decrease C) meet the needs of borrowers in all segments of their communities; increase D) lend to only the most qualified borrowers; decrease
Q2) All other things being equal among the banks below,which bank is the least likely to become insolvent?
A) Bank A with assets of $100 million and liabilities of $80 million.
B) Bank B with assets of $100 million and liabilities of $70 million.
C) Bank C with assets of $200 million and liabilities of $120 million.
D) Bank D with assets of $400 million and liabilities of $310 million.
E) Bank E with assets of $100 million and liabilities of $60 million.
Q3) For financial institutions,securitization is the means by which regulatory capital arbitrage lowers capital requirements.
A)True
B)False
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Page 20
Chapter 19: Debates in Macroeconomics Over the Role and Effects
of Government
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Sample Questions
Q1) Which of the following is false?
A) Economists who believe that the AS curve is vertical assert that changes in Real GDP originate only on the supply side of the economy.
B) Economists who believe that the AS curve is upward-sloping assert that changes in Real GDP originate only on the supply side of the economy.
C) For economists who believe that the AS curve is upward-sloping, government policy that aims to impact either side of the economy (supply or demand) will change both prices and Real GDP.
D) Compared to the economists who believe that the AS curve is upward-sloping, the economists who believe that the AS curve is upward-sloping assert that the government has fewer tools with which to change Real GDP.
Q2) The Taylor rule is an example of a rule-based monetary policy system.
A)True
B)False
Q3) The stimulus bill passed by the U.S.Congress in February 2009 is an example of expansionary monetary policy.
A)True
B)False
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Chapter 20: Elasticity
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Sample Questions
Q1) If for good Z income elasticity is greater than 1,then demand for good Z is income __________,and good Z is a(n)__________ good.
A) inelastic; normal
B) inelastic; inferior
C) elastic; normal
D) elastic; inferior
E) unit elastic; normal
Q2) For a certain good,when the good's price falls from $12 to $10,its quantity demanded rises from 10 to 12 units.The price elasticity of demand here is
A) 2.55.
B) 0.66.
C) 0.39.
D) 0.20.
E) 1.00
Q3) A Ford Mustang would tend to be more elastic in demand than cars as a whole. A)True B)False
Q4) How does price elasticity of demand vary along a straight-line downward-sloping demand curve? Why does this occur?
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Chapter 21: Consumer Choice: Maximizing Utility and Behavioral Economics
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Sample Questions
Q1) Suppose that there are two cities that are alike in every way except that one city has significantly better weather than the other city. Call the city with good weather Good-Weather City (GWC)and the other Bad-Weather City (BWC). Assume that the median price of a home in the two cities is originally the same. If the marginal utility of living in GWC is 500 and the marginal utility of living in BWC is 300,to make themselves better off economic theory tells us that
A) at least some people will move from BWC to GWC, which will make housing prices rise in GWC and BWC.
B) at least some people will move from GWC to BWC, which make housing prices rise in BWC and GWC.
C) at least some people will move from BWC to GWC, which will make housing prices rise in GWC and fall in BWC.
D) at least some people will move from GWC to BWC, which will make housing prices rise in BWC and fall in GWC.
Q2) The absolute value of the slope of the budget constraint is also known as the marginal rate of substitution.
A)True B)False
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Chapter 22: Production and Costs
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Sample Questions
Q1) Using the concept of marginal cost,explain how a parent could structure a teenager's punishment for misbehavior so as to achieve the parent's goal (for example,having the teen home by a certain time).
Q2) In the long run,only variable costs exist.
A)True
B)False
Q3) Suppose that minimum efficient scale as a percentage of U.S.consumption is 5 percent in industry X and it is 10 percent in industry Y.It follows that we would expect to find
A) fewer firms in industry Y than X.
B) fewer firms in industry X than Y.
C) bigger firms in industry Y than X.
D) bigger firms in industry X than Y.
E) none of the above
Q4) Economic profit is
A) total revenue minus total cost (including both explicit and implicit costs).
B) the same as accounting profit.
C) accounting profit plus implicit costs.
D) accounting profit minus implicit costs.
E) a and d
Page 24
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Chapter 23: Perfect Competition
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Sample Questions
Q1) Firm X is producing the quantity of output at which marginal revenue equals marginal cost.It is
A) receiving a positive economic profit.
B) taking a loss.
C) earning a normal profit.
D) There is not enough information to answer the question.
Q2) In long-run competitive equilibrium,the market equilibrium price equals
A) marginal cost.
B) short-run average total cost.
C) long-run average total cost.
D) a and c
E) a, b, and c
Q3) Which of the following is not an assumption of the theory of perfect competition?
A) There are many sellers and many buyers, none of which is large in relation to total sales or purchases.
B) Each firm produces and sells a differentiated product.
C) Buyers and sellers have all relevant information with respect to prices, product quality, and sources of supply.
D) There is easy entry and exit.
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Chapter 24: Monopoly
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Sample Questions
Q1) Refer to Exhibit 24-9.Total fixed costs are equal to.
A) $0.
B) $10.
C) $25.
D) $59.
E) There is not enough information to answer the question.
Q2) Perfect price discrimination is discrimination among A) units.
B) quantities.
C) buyers.
D) prices.
Q3) Refer to Exhibit 24-3.The profit of the single-price monopolist is A) positive.
B) zero.
C) negative.
D) uncertain without more information.
Q4) Describe the circumstance under which profit maximization is the same as revenue maximization. Use a hypothetical numerical example to help explain why this is so.
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Chapter 25: Monopolistic Competition, Oligopoly, and Game Theory
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Sample Questions
Q1) The theory of monopolistic competition assumes
A) the production of a slightly differentiated product.
B) significant barriers to entry.
C) many buyers and sellers.
D) a and c
E) all of the above
Q2) Which of the following statements is false?
A) The monopolistic competitor, like the perfectly competitive firm, is resource-allocative efficient.
B) The monopolistic competitor produces that quantity of output at which price equals marginal cost.
C) The monopolistic competitor produces the quantity of output with the lowest per-unit costs.
D) a, b, and c
Q3) What does the demand curve faced by a monopolistic competitive firm look like? Explain why it is sloped this way,and what this implies about the relationship that exists between price and marginal revenue under monopolistic competition.
Q4) List and describe the three assumptions upon which oligopoly behavior are based.
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Chapter 26: Government and Product Markets: Antitrust and Regulation
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Sample Questions
Q1) Suppose a regulatory agency makes decisions that seem to require an ever-growing agency budget and staff of regulators to monitor firms and enforce the decisions.This would be evidence in support of the __________ theory of regulation.
A) public choice
B) public interest
C) capture
D) Stigler
Q2) A firm defending itself in an antitrust suit would prefer to have the market it operates in defined broadly,rather than narrowly.
A)True
B)False
Q3) Refer to Exhibit 26- 1.If average-cost pricing is imposed on the natural monopoly firm,what price is charged?
A) P<sub>1</sub>
B) P<sub>2</sub>
C) P<sub>3</sub>
D) any of the three prices
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Page 28
Chapter 27: Factor Markets: With Emphasis on the Labor Market
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Sample Questions
Q1) Refer to Exhibit 27-8.The dollar amounts that go in blanks (E)and (F)are,respectively,
A) $6 and $6.
B) $70 and $60.
C) $84 and $72.
D) $72 and $24.
E) There is not enough information to answer the question.
Q2) According to the substitution effect,as the wage rate rises the monetary reward from working increases and workers will want to work more.
A)True
B)False
Q3) Refer to Exhibit 27-8.The marginal physical product of the second and third units of factor X,respectively [blanks (A)and (B)],are,
A) 19 and 20.
B) 4.58 and 4.07.
C) 10 and 11.
D) 6 and 3.
E) none of the above
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Chapter 28: Wages,Unions,and Labor
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Sample Questions
Q1) An economist states,"In the case of monopsony,a minimum wage can increase the number of persons working,but in the case of perfect competition,a minimum wage decreases the number of persons working." This economist
A) has stated something that is untrue.
B) is trying to hedge his or her bets.
C) is trying to be as precise as possible by stating the conditions under which certain things are predicted to occur.
D) is offering a normative judgment on labor markets.
E) a and d
Q2) Sometimes labor unions try to increase the demand for the product they produce.They do so because the demand for labor is derived; and the __________ the demand for the product labor produces,the __________labor and the __________ wages will be,ceteris paribus.
A) higher; greater the supply of; lower
B) higher; lower the demand for; higher
C) higher; higher the demand for; higher
D) lower; higher the demand for; higher
Q3) What relationship exists between marginal factor cost (MFC)and wage for a monopsony firm? Explain why this is so.
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Chapter 29: The Distribution of Income and Poverty
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Sample Questions
Q1) A winner-take-all market
A) is one in which the top producer or performer in the market earns significantly more than others in the same market.
B) applies to the sports market and the entertainment market, exclusively.
C) the top producer earns all of the profits in that market.
D) a and b
E) b and c
Q2) Individual income is equal to labor income less income taxes.
A)True
B)False
Q3) The closer the Gini coefficient is to zero,the
A) greater the degree of income inequality.
B) less the degree of income inequality.
C) greater the degree of discrimination.
D) less the degree of discrimination.
Q4) Transfer payments are payments that are
A) made in return for goods and services currently supplied.
B) made in return for goods and services to be supplied in the future.
C) made in return for goods and services that were supplied in the past.
D) not made in return for goods and services currently supplied.
Page 31
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Chapter 30: Interest, Rent, and Profit
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Sample
Questions
Q1) Many years ago someone developed an item that was simply a small rock inside a box with holes.The person earned large profits from selling "pet rocks." Which of the following theories on the source of profits best describes the reason behind this success?
A) Uncertainty is a source of profits.
B) Profit is the reward for alertness to arbitrage opportunities.
C) Profit is the return to the entrepreneur as innovator.
D) There's a sucker born every minute.
E) Sometimes all that it takes is to be in the right place at the right time.
Q2) What is the approximate value of a future income stream of three $1,000 payments to be received one,two,and three years from today if the interest rate is 5 percent?
A) $864
B) $1,633
C) $2,723
D) $5,062
Q3) Describe the two major ways that entrepreneurs increase trade. Give your own unique example of each to help support your answer.
Q4) Describe the three theories of where profit comes from.
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Chapter 31: Market Failure: Externalities, Public Goods, and
Asymmetric
Information
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Sample Questions
Q1) Refer to Exhibit 31-5. If a positive externality exists,then the external benefits associated with the positive externality equal the distance between points ____________ and the socially optimal output is
A) C and A; Q<sub>1</sub>.
B) D and B; Q<sub>1</sub>.
C) D and B; Q<sub>2</sub>.
D) A and B; Q<sub>2</sub>.
Q2) The __________ problem in the market for used cars is capable of collapsing the market for __________.
A) adverse selection; good used cars
B) adverse selection; lemons
C) moral hazard; good used cars
D) moral hazard; lemons
Q3) When a negative externality exists,the market is said to underproduce the good connected with the negative externality.
A)True
B)False
Q4) Describe the Coase theorem and explain why it is significant in the analysis of externatility problems.
Page 33
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Chapter 32: Public Choice and Special-Interest-Group
Politics
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Sample Questions
Q1) The answer is: "rational ignorance." What is the question?
A) Why do special interest groups lobby politicians?
B) What causes a candidate in a two-person political race to take polls?
C) What explains why voters often know very little about the candidates and the issues?
D) What motivates the free rider?
Q2) Congressperson A: "If you approve that new water treatment plant in my district,I'll vote to keep the Air Force base open in your district." Congressperson B: "It's a deal." This is an example of
A) logrolling.
B) lobbying.
C) median voting.
D) logtumbling.
Q3) Public choice theory assumes that those involved in the public sector are generally motivated by
A) public spirit.
B) altruism.
C) the desire to achieve allocative efficiency.
D) the same factors involved in the private sector.
E) a and b
Page 34
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Chapter 33: Building Theories to Explain Everyday Life: From
Observations to Questions to Theories to Predictions
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Sample Questions
Q1) A gift-giver's efficient number of gifts (to give to a gift-recipient)has fallen from 10 to 8. This could be because
A) the gift-giver's marginal benefit curve for giving gifts shifted down and left.
B) the gift-giver's marginal cost curve of giving gifts shifted up and left.
C) the gift-recipient "fell out" of the gift-giver's utility function.
D) a and b
E) none of the above
Q2) A theory predicts that the more a student studies,the higher his or her grades will be. This theory is
A) not falsifiable.
B) falsifiable.
C) too difficult a theory to test.
D) inconsistent with the fact that some students study less than other students, yet receive higher grades.
E) b and d
Q3) There is no difference between building a theory and evaluating a theory.
A)True
B)False
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Chapter 34: International Trade
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Sample Questions
Q1) Refer to Exhibit 34-9.For country Y,the opportunity cost of producing one unit of good A is __________ unit(s)of good B.
A) 1.5
B) 2
C) 1/2
D) 2/3
E) 10
Q2) Refer to Exhibit 34-9.In the no specialization-no trade case,suppose country X produces and consumes 100 units of good A and 20 units of good B.Country Y produces and consumes 20 units of good A and 60 units of good B.If the two countries specialize and trade,and the actual amounts traded are 125 units of good A for 25 units of good B,how many more units of good A will country Y consume by specializing and trading?
A) 125
B) 20
C) 15
D) 105
E) 50
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Page 36
Chapter 35: International Finance
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Sample Questions
Q1) A "devaluation" occurs when
A) the official price of a currency is raised.
B) the official price of a currency is lowered.
C) a nation's currency depreciates under a flexible exchange rate system.
D) a nation's currency appreciates under a flexible exchange rate system.
E) none of the above
Q2) Suppose that the exchange rate between the U.S.dollar and the Mexican peso is 1 peso = $0.11. If the U.S.dollar price per Mexican peso changes to 1 peso =$0.10,the peso is said to have __________ and the dollar to have __________.
A) depreciated; appreciated
B) appreciated; appreciated
C) appreciated; depreciated
D) depreciated; depreciated
Q3) The U.S.real interest rate rises relative to Japan's.As a result,
A) the yen will depreciate and the dollar will appreciate.
B) the yen will appreciate and the dollar will depreciate.
C) both the dollar and the yen will depreciate.
D) both the dollar and the yen will appreciate.
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Chapter 36: Globalization and International Impacts on the Economy
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Sample Questions
Q1) Which of the following will lead to a rightward shift in the U.S.SRAS curve?
A) an increase in foreign input prices
B) an appreciation of the dollar
C) a depreciation of the dollar
D) a and b
E) none of the above
Q2) In 2000,the top 100 transnational companies produced about _____________ percent of the entire world's output.
A) 2.1
B) 4.3
C) 10.5
D) 22.1
Q3) Suppose a British camera has a price of 200 British pounds. To a United States camera importer,its price rises from $360 to $380. This might happen when the dollar ________________ against the British pound,which means the British pound has a __________ dollar price.
A) depreciates; higher B) depreciates; lower C) appreciates; higher D) appreciates; lower
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Chapter 37: The Economic Case For and Against
Government: Five Topics Considered
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Sample Questions
Q1) An unintended effect of a tax credit given to first-time home buyers would be a _____________ shift in the ______________ curve for housing,which would result in a(n)_____________ in the price of housing.
A) leftward; supply; increase
B) leftward; demand; decrease
C) rightward; supply; decrease
D) rightward; demand; increase
E) none of the above
Q2) In the prisoner's dilemma setting for producing and stealing,a tax imposed on participants could end up changing the payoff matrix so that
A) one participant is better off, and one participant is worse off.
B) both participants are worse off.
C) both participants are better off.
D) all of the above are possible
Q3) Involuntary transfers are the type of transfers used in the case against government.
A)True
B)False
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Chapter 38: Stocks, Bonds, Futures, and Options
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Sample Questions
Q1) The yield of a stock is the
A) dividend divided by the closing price per share.
B) dividend divided by the average daily price of the stock.
C) closing price divided by the 52-week low price.
D) dividend divided by the opening price per share.
Q2) If you thought the share price of a stock was going to rise,would you be more likely to buy a call option or a put option?
A) a call option
B) a put option
C) a call option and a put option
D) There is not enough information given to answer this question.
Q3) Suppose that the annual dividend per share of stock is $1.40 and the closing price of the stock is $22.00,the yield on the stock would be approximately
A) 6.36%
B) 15.71%
C) 21.60%
D) 9.70%
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Chapter 39: Agriculture: Problems, Policies, and Unintended Effects
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Sample Questions
Q1) A decrease in the supply of an agricultural product will increase the total revenue of farmers if the demand for the agricultural product is
A) income elastic.
B) income inelastic.
C) price elastic.
D) price inelastic.
E) none of the above
Q2) In 2000,farmers in the United States represented approximately what percentage of the population?
A) 8 percent
B) 25 percent
C) 1 percent
D) 5 percent
Q3) A government agricultural policy in which a mandated minimum price is set is the
A) marketing quota system.
B) acreage allotment program.
C) price support program.
D) target price system.
E) paying farmers not to produce system.
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Q4) Explain how nonrecourse loans operate and how they help to support crop prices.