Managerial Economics Study Guide
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Course Introduction
Managerial Economics bridges economic theory and business practice, equipping students with analytical tools to make informed managerial decisions. The course explores concepts such as demand analysis, production and cost functions, pricing strategies, market structures, and competitive dynamics, all within the context of real-world business challenges. Emphasis is placed on applying economic principles to optimize resource allocation, manage risk, and forecast the impact of market forces on firm performance, thereby enhancing students ability to contribute to effective strategic planning and problem-solving in managerial roles.
Recommended Textbook
Microeconomics Private and Public Choice 14th Edition by James D. Gwartney
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Page 2
Chapter 1: The Economic Approach
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Sample Questions
Q1) Which of the following is consistent with the implications of the economic guidepost that information is costly to acquire?
A)Most people do not know the names of their legislators in the U.S. Congress, but those same individuals are likely to know the names of all the cast members on a popular TV show.
B)In considering purchases, people are more likely to purchase a consumer ratings magazine that reviews new automobiles before buying a car, but are unlikely to purchase a consumer ratings magazine that reviews pens and pencils before buying a pen or pencil.
C)When shopping for something like a new calculator, people will generally not spend the time to do price comparisons at all of the stores in town that sell calculators.
D)All of the above are consistent with the economic way of thinking.
Answer: D
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3
Chapter 2: A: Some Tools of the Economist
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Q1) Which of the following statements about exchange is true?
A)If everyone starts off with the same quantities of each good, it would be impossible to realize gains from trade.
B)Exchange tends to move each good toward those individuals who value the good more highly.
C)Exchange always results in one party being made better off and the other being made worse off.
D)For trade to occur, everyone must start off with the same value of the good that is traded.
Answer: B
Q2) The economic principle that states that individuals or nations can gain by specializing in the production of goods that they produce cheaply and exchanging for other desired goods that they could only produce at a higher cost is
A)the law of absolute advantage.
B)the law of comparative advantage.
C)the law of production possibilities.
D)the exchange maximum principle.
Answer: B
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4
Chapter 2: B: Some Tools of the Economist
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Sample Questions
Q1) Which of the following is NOT true of opportunity cost?
A)Opportunity costs are subjective because they depend upon how the decision-maker values his or her options.
B)Opportunity costs are only the monetary costs of lost options.
C)Opportunity costs are the highest-valued alternative sacrificed in order to choose an option.
D)Only the decision-maker can determine his or her opportunity costs for any particular action.
Answer: B
Q2) (I) When individuals engage in a voluntary exchange, both parties are made better off. (II) By channeling goods and resources to those who value them most, trade creates value and increases the wealth created by a society's resources.
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.
Answer: C
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5
Chapter 3: A: Supply, Demand, and the Market Process
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Sample Questions
Q1) An increase in the price of plastic raises the cost of manufacturing VCRs. As a result, the market changes to a new equilibrium because of A)a surplus of VCRs.
B)an increase in the demand for VCRs.
C)a leftward shift in the demand curve for VCRs.
D)a leftward shift in the supply curve for VCRs.
Q2) How will a reduction in the price of cotton influence the market for blue jeans?
A)The cost of producing blue jeans will fall, and the supply curve for blue jeans will shift to the left.
B)The cost of producing blue jeans will fall, and the supply curve for blue jeans will shift to the right.
C)The cost of producing blue jeans will rise, and the supply curve for blue jeans will shift to the left.
D)The cost of producing blue jeans will rise, and the supply curve for blue jeans will shift to the right.
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6
Chapter 3: B: Supply, Demand, and the Market Process
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Q1) Refer to Figure 3-15. Which area represents the increase in producer surplus when the price rises from P to P due to new producers entering the market?
A)BCE
B)ACF
C)DEF
D)AFEB
Q2) How would a decrease in the price of the feed grains used to feed cattle affect the market for beef?
A)The demand for beef would increase, increasing beef prices.
B)The demand for beef would decrease, decreasing beef prices.
C)The supply of beef would increase, decreasing beef prices.
D)The supply of beef would decrease, increasing beef prices.
Q3) Which of the following would most likely cause the price of wheat to decline?
A)an increase in the production costs of corn, a substitute for wheat
B)a decrease in the price of soybeans, a substitute for wheat
C)an increase in the price of fertilizer, a resource used to produce wheat
D)a sandwich craze among Americans, causing increased demand for whole-wheat bread
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Chapter 4: A: Supply and Demand: Applications and Extensions
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Sample Questions
Q1) Refer to Figure 4-8. The supply curve S and the demand curve D indicate initial conditions in the market for soft coal. A $40-per-ton tax on soft coal is levied, shifting the supply curve from S to S . Imposing the tax increases the equilibrium price of soft coal from
A)$20 to $60 per ton.
B)$20 to $50 per ton.
C)$50 to $60 per ton.
D)$50 to $90 per ton.
Q2) How would a decrease in lumber prices influence the home construction market?
A)The demand for newly constructed homes will increase.
B)The demand for newly constructed homes will decrease.
C)The supply of newly constructed homes will increase.
D)The supply of newly constructed homes will decrease.
Q3) A new law requiring plumbers to pass strict certification tests that reduce the number of plumbers would
A)increase the wage rate of plumbers.
B)decrease the wage rate of plumbers.
C)increase the employment of plumbers.
D)cause no change in the labor market for plumbers.
Page 8
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Chapter 4: B: Supply and Demand: Applications and Extensions
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Sample Questions
Q1) Government programs such as Medicare substantially subsidize health care purchases by some consumers in the U.S. economy. Who benefits from these subsidies? How do they affect the price of health care? If you are not a recipient of this program, are you made better or worse off by the subsidy? Explain.
Q2) Suppose there is an increase in the excise tax imposed on cigarettes, a good for which the demand is relatively inelastic. The short-run burden of the tax increase will be borne primarily by
A)consumers, because the increase in market price will be large relative to the increase in the excise tax.
B)firms, because the increase in market price will be large relative to the increase in the excise tax.
C)consumers, because the increase in market price will be small relative to the increase in the excise tax.
D)firms, because the increase in market price will be small relative to the increase in the excise tax.
Q3) Joanne states, "If raising the minimum wage to $10 an hour is good, like Senator Largess suggests, then raising it to $20 an hour would be twice as good." Is Joanne correct? Why or why not?
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Chapter 5: Difficult Cases for the Market and the Role of Government
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Sample Questions
Q1) The standard economists use to assess whether an activity should be undertaken is A)majority vote
B)the marginal benefit assessment.
C)the gold standard
D)economic efficiency.
Q2) Consider two goods--one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce too
A)much of both goods.
B)little of both goods.
C)much of the good that generates external benefits and too little of the good that generates external cost.
D)little of the good that generates external benefits and too much of the good that generates the external cost.
Q3) The key explanation for the prevalence of waterway pollution is
A)the inclusion in production of all costs involving use of the waterway.
B)that there are private costs but no costs to society.
C)that waterways are often an open access, commonly owned resource.
D)that waterways are subject to the market's normal control procedures.
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Chapter 6: The Economics of Collective Decision-Making
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Sample Questions
Q1) Combined federal, state, and local government expenditures in the United States were approximately 9 percent of the gross domestic product (GDP) in 1930. How large were government expenditures as a share of GDP in 2010?
A)approximately 10 percent
B)approximately 20 percent
C)approximately 30 percent
D)approximately 40 percent
Q2) Government decisions tend to be biased against actions that have A)current costs and future benefits that are both easily observable.
B)future costs that are difficult to identify and current benefits that are easily observable. C)future costs and future benefits that are both difficult to identify.
D)current costs that are easily observable and future benefits that are difficult to identify.
Q3) Is calling a voter rationally ignorant the same as calling her irrational? Explain.
Q4) A survey of income by county revealed that four of the five wealthiest counties were located in the suburbs surrounding Washington, D.C. Why?
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Chapter 7: Consumer Choice and Elasticity
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Q1) If a 10 percent rise in price leads to a reduction in quantity demanded of more than 10 percent,
A)demand is elastic.
B)demand is inelastic.
C)elasticity of demand is unitary.
D)None of the above is correct.
Q2) As people have more time to adjust to a price change,
A)demand becomes more elastic, and supply becomes less elastic.
B)demand becomes less elastic, and supply becomes more elastic.
C)both supply and demand become less elastic.
D)both supply and demand become more elastic.
E)elasticity of both demand and supply tends toward unity.
Q3) Goods that consumers regard as luxuries generally have
A)an income elasticity equal to 1.
B)an income elasticity less than 1.
C)an income elasticity greater than 1.
D)a negative income elasticity.
Q4) A question on an economics exam asks: What happens in the market for margarine when income rises? Allison, an excellent student, shows the demand for margarine decreasing. Is she necessarily wrong? Why or why not?
Page 12
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Chapter 8: A: Costs and the Supply of Goods
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Sample Questions
Q1) Ron works for Betty at Betty's Pizza Palace. Betty has many work rules, and Ron believes if there were fewer rules and more flexibility, he could do a better job. Betty probably has the rules because
A)Ron, like her other employees, is a residual claimant.
B)due to the principal-agent problem, some employees are likely to shirk when the owner is absent.
C)she is maximizing sales rather than profits.
D)with regard to their jobs, employees seldom know what is best.
Q2) As output rises, marginal product eventually diminishes and
A)marginal cost increases.
B)total cost falls.
C)fixed cost increases.
D)average product becomes negative.
Q3) Which of the following reflects diseconomies of scale?
A)Marginal product decreases as output increases.
B)Short-run marginal cost increases as output increases.
C)Long-run marginal cost increases as output increases.
D)Short-run average cost increases as output increases.
E)As output doubles, long-run total cost more than doubles.
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Page 13
Chapter 8: B: Costs and the Supply of Goods
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Sample Questions
Q1) 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.
Q2) The AB Manufacturing Company has hired an economist to evaluate its financial situation. She explains to the board of directors that the company is making zero economic profit. Should the company go out of business?
Q3) James opened a baseball manufacturing operation, and initially the more balls he made, the lower the per-unit cost. Now, as output expands, his per-unit costs are rising. He concludes that diseconomies of scale have set in. Is he correct? Why?
Q4) 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?
Q5) 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?
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Page 14
Chapter 9: A: Price Takers and the Competitive Process
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Q1) Suppose the minimum average total cost (ATC) of a firm competing in a competitive price-taker market was $1.00 per unit and that the firm's minimum average variable cost (AVC) was $.80 per unit. If the market price was $.75 per unit, a profit-seeking firm would
A)shut down immediately.
B)produce where MR = MC in the short run.
C)shut down in the long run but remain in business in the short run.
D)do both b andc.
Q2) Figure 9-4 indicates the cost conditions for a firm operating in a price-taker market. If the market price of the firm's product is $6, what action will maximize the firm's profit?
A)go out of business since it cannot make a profit
B)produce an output of 3 million
C)produce an output of 5 million
D)produce an output of 6 million
Q3) The exit of existing firms from a competitive market will
A)increase market supply and increase market prices.
B)increase market supply and decrease market prices.
C)decrease market supply and increase market prices.
D)decrease market supply and decrease market prices.
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Chapter 9: B: Price Takers and the Competitive Process
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Q1) In a competitive market, profit can be considered a reward to businesses that
A)produce a good that consumers value more highly than its component resources.
B)reduce the value of resources used as inputs in production.
C)prohibit rival firms from entering the market and competing.
D)control costs, rather than following the wishes of consumers when deciding what products to produce.
Q2) Which of the following products would most closely fit the competitive price-taker model?
A)stereo systems-there are many reputable brands.
B)beer-it has many consumers.
C)eggs-there are many producers of this relatively homogeneous product.
D)automobiles-there are substantial economies of scale in production.
Q3) When a firm is operating in a price-taker market, marginal revenue is
A)equal to price.
B)always less than price.
C)equal to zero when the market is in long-run equilibrium.
D)equal to the change in output divided by the change in total revenue.
Q4) Why is it considered "ideal" for price to just equal marginal cost?
Q5) When the demand for a product falls, why do costs of production go down in an increasing cost industry?
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Chapter 10: Price-Searcher Markets With Low Entry Barriers
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Q1) For the competitive price searcher,
A)price will exceed marginal cost at the profit-maximizing level of output.
B)price will equal average total cost in the long run.
C)economic profit will be driven to zero in the long run by the entry and exit of firms.
D)all of the above are correct.
Q2) The fact that barriers to entry are low in competitive price-searcher markets means that if current firms are making economic losses,
A)these losses will remain in the long run because no firms can exit the market.
B)current firms will exit the market, causing the demand curves that face the remaining firms to increase.
C)new firms will enter the market, causing the demand curves that face the existing firms to decrease.
D)new firms will enter the market, causing no change in the demand curves that face the existing firms in the market.
Q3) What type of industry is the market for grocery products? Is over-capacity present?
Q4) What type of model would be best if we wanted to analyze the market for fast food? Why?
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17
Chapter 11: A: Price-Searcher Markets With High Entry
Barriers
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Q1) (I) Oligopolistic firms have an incentive to collude to increase profits. (II) Oligopolistic firms have an incentive to cheat on collusive agreements to increase profits.
A)I is true; II is false.
B)I is false; II is true.
C)Both I and II are false.
D)Both I and II are true.
Q2) The demand and cost conditions in an industry are as depicted in Figure 11-6. In the viewpoint of economic efficiency, what would the ideal price and output be?
A)price, P ; quantity produced, Q
B)price, P ; quantity produced, Q
C)price, P ; quantity produced, Q
D)price, P ; quantity produced, Q
Q3) In the short run, the monopolist depicted in Figure 11-19 should
A)shut down because P < AVC at some output levels.
B)shut down because P < ATC at all output levels.
C)continue producing because P > AVC at some output levels.
D)continue producing because P > ATC at all output levels.
E)continue producing because monopolists never shut down.
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Chapter 11: B: Price-Searcher Markets With High Entry
Barriers
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Sample Questions
Q1) 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?
Q2) One answer to the problem of natural monopoly is provision of the good by a government-owned and operated firm. Why is that option not used very often?
Q3) Under what conditions can a monopolist have potentially lower costs and possibly charge a lower price than would exist if the market were competitive?
A)when the monopolist operates on the inelastic portion of the demand curve
B)when the monopolist is a profit maximizer rather than a revenue maximizer
C)when substantial diseconomies of scale are present
D)when substantial economies of scale are present
Q4) Mr. Stewart owns the only hardware store in a small Midwestern town. His nearest competition is more than 50 miles away, yet he does not earn any economic profit. Does someone need to explain the economic concept of monopoly to him?
Q5) Suppose all automobile manufacturers have collusively agreed to sell their cars at a uniform price. If a firm wanted to break this agreement and not be detected, what would be one way to do this?
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Chapter 12: The Supply of and Demand for Productive Resources
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Q1) A decrease in the marginal product of labor would be represented by
A)increase in labor demand.
B)decrease in labor demand.
C)increase in the quantity demanded of labor.
D)decrease in the quantity demanded of labor.
E)an increase in wages.
Q2) When a resource price is below equilibrium,
A)excess supply will be present.
B)excess demand will be present.
C)the supply of the resource will be inelastic.
D)the demand for the resource will be inelastic.
Q3) For a price searcher, marginal revenue product (MRP) differs from the value of marginal product (VMP) because
A)MRP equals MP times product price (P), while VMP equals MP times marginal revenue (MR).
B)VMP equals MP times product price (P), while MRP equals MP times marginal revenue (MR).
C)VMP equals MP times marginal cost (MC), while MRP equals MP times marginal revenue (MR).
Page 20
D)They do not differ; they are the same for every firm.
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Chapter 13: Earnings, Productivity, and the Job Market
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Q1) Compensation where the top performer receives much higher rewards than other competitors, even if the others perform at only slightly lower levels, is called
A)a compensating differential.
B)round-robin pay.
C)tournament pay.
D)base pay.
Q2) Other things constant, when the work opportunities in an occupation are unstable (that is, layoffs are common), the hourly wages of workers in the occupation will tend to be
A)higher than the wages of workers with otherwise similar jobs.
B)lower than the wages of workers with otherwise similar jobs.
C)below market equilibrium.
D)above market equilibrium.
Q3) Firms will only adopt more automated methods of production when A)they reduce the need for workers.
B)they lower production costs.
C)they lengthen the production process.
D)other firms in the industry are doing it.
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Chapter 14: Investment, the Capital Market, and the Wealth of Nations
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Q1) When investment funds are allocated by government rather than by markets, A)profitable investments are more likely to take place.
B)political influence replaces market return as the basis for allocating funds.
C)funds will consistently be channeled into wealth-creating projects.
D)projects that are political boondoggles will be unlikely to be undertaken.
Q2) Which of the following is true of saving and investment?
A)There is no relationship between saving and investment; people can invest without having to save.
B)Saving and investment can never be undertaken together by the same person.
C)Saving and investment must always be undertaken by the same person.
D)If investment is going to be undertaken, someone must save.
Q3) If the interest rate is 8 percent and an investment undertaken and paid for today is expected to yield $3,000 per year (to be received at year end) for each of the next three years, a profit-maximizing decision maker would undertake the investment only as long as the cost remained less than approximately
A)$5,350.
B)$7,731.
C)$8,109.
D)$9,000.
Page 22
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Chapter 15: Income Inequality and Poverty
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Q1) In 2007, the poorest 20 percent of families in the United States population earned approximately ____ percent of the before-tax total income. (Fill in the blank.)
A)1
B)4
C)9
D)12
Q2) Use the following two statements to answer this question. (I) In a market system, resource prices both provide incentives for the efficient allocation of resources and determine income distribution.
(II) Income and wealth are neither created nor destroyed, they are just fixed-sized pies to be allocated among individuals.
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.
Q3) Some people inherit money and wealth that they did nothing to earn. Why don't we tax inheritance at 100 percent?
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23
Chapter 16: Appendix: Government Spending and Taxation
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Q1) In 1960, spending on income transfers and health care accounted for 21.5 percent of the federal budget. In 2010, these two items accounted for
A)less than 15 percent of the federal budget.
B)approximately 25 percent of the federal budget.
C)approximately 32 percent of the federal budget.
D)approximately 62 percent of the federal budget.
Q2) The overall federal tax structure is
A)regressive because the average tax rate of those with low incomes is higher than the rate imposed on those with higher incomes.
B)progressive because the average tax rate of those with high incomes is greater than the rate imposed on those with lower incomes.
C)flat because the average tax rate is approximately constant across all income brackets.
D)progressive for income levels up to approximately $100,000 but regressive for income levels above this figure.
Q3) As real incomes grow, what happens to federal tax revenues as a share of the economy?
Q4) Discuss how size of government can negatively affect economic growth.
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Page 24
Chapter 17: Appendix: the Economics of Social Security
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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 Social Security system of the United States is based on the pay-as-you-go principle. This indicates that funding of the benefits paid to current retirees comes primarily from
A)the income generated by the system's ownership of stock.
B)the tax payments of current workers.
C)the funds that current retirees paid into their personal savings accounts during their working years.
D)money created by the Federal Reserve system.
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Q1) If Apple Computer Corporation constitutes a sizeable share of your current stock holdings, the purchase of which of the following stocks would provide you with the greatest reduction in risk?
A)Hewlett-Packard
B)IBM
C)Dell Computer Corporation
D)Wal-Mart
Q2) Which of the following is true?
A)Investment in the stock market is a relatively foolproof method for an investor to earn a high rate of return during the next five years.
B)Current stock prices already reflect information that is known with a high degree of certainty.
C)Experts are able to predict changes in the direction of the broad stock market indexes with a high degree of accuracy.
D)While changes in the prices of specific stocks are difficult to predict, it is relatively easy to predict the future direction of the broad stock market.
E)Both c and d are true.
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Chapter 19: Appendix: Great Debates in Economics: Keynes Versus Hayek
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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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Chapter 20: Appendix: the Crisis of 2008: Causes and Lessons for the Future
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Q1) The Fed's low short-term interest rate policy of 2002 to 2004 made it highly attractive for buyers to purchase a house
A)with a large down payment and a 30-year, fixed rate mortgage.
B)with a large down payment and an adjustable rate mortgage.
C)with a small down payment and an adjustable rate mortgage.
D)quickly before housing prices began to decline in 2006.
Q2) 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.
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Chapter 21: Appendix: Lessons From the Great Depression
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Q1) Did the fiscal policy of the 1930s bring an end to the Great Depression?
A)No, government spending and budget deficits as a share of GDP were relatively small during the 1930s, and there is little evidence that fiscal policy did much to stimulate output.
B)No, even though budget deficits steadily rose from 2 percent of GDP in the early 1930s to more than 10 percent of GDP in 1939, this expansionary fiscal policy had little effect on output.
C)Yes, even though the spending programs of the New Deal led to budget deficits, they also led to a steady reduction in the rate of unemployment during the latter half of the 1930s.
D)Yes, the fiscal policy that kept the federal budget balanced throughout the 1930s created a stable business climate and eventually stimulated investment.
Q2) Monetary policy from 1929 to 1933, and again in 1937 to 1938, was characterized by
A)monetary expansion, which led to deflation.
B)monetary contraction, which led to deflation.
C)monetary expansion, which led to inflation.
D)monetary contraction, which led to inflation.
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Page 29
Chapter 22: Appendix: the Economics of Healthcare
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Q1) As third-party payments and government expenditures on healthcare increased following the passage of Medicare and Medicaid,
A)total expenditures on healthcare declined.
B)the incentive of consumers to economize on their use of healthcare services increased.
C)the incentive of suppliers to provide healthcare services at a low cost increased.
D)both the prices of healthcare services and total expenditures on those services increased rapidly.
Q2) When a third party pays a larger and larger share of the purchasing price of a good, economic theory indicates that the A)demand for the good will decline.
B)consumers of the good will have less and less incentive to economize on its use.
C)suppliers of the good will have a stronger incentive to provide the good at low prices.
D)prices of the good will tend to decline with the passage of time.
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Chapter 23: Appendix:education: Problems and Performance
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Q1) In the U.S. higher educational system, students and parents have choices as to which college or university the student attends and generally must finance part of it from personal funds. As a result of this different incentive structure, the U.S. higher educational system is
A)one of the best in the world.
B)one of the worst in the world.
C)about average when compared to other higher educational systems.
D)relatively worse in international rankings than U.S. elementary and secondary education.
Q2) "Increasing competition between schools will tend to lower both the cost and quality of education." Is this statement true or false?
Q3) A school voucher program targeted towards low- and middle-income families would cause
A)racial and economic segregation among schools to fall.
B)per-pupil funding in the public schools to fall.
C)salaries for outstanding teachers to fall.
D)competition among schools to fall.
Q4) What are charter schools? How do they differ from voucher programs?
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Q5) What does the evidence suggest regarding the effects of school choice programs?
Chapter 24: Appendix: Earnings Differences Between Men and Women
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Q1) When female/male earnings differentials are adjusted for age, education, language, and locational characteristics, the A)differential between the earnings of males and those of females increases substantially.
B)differential between the earnings of males and those of females does not change much.
C)corrected earnings of males are equal to those of similar females.
D)corrected earnings of females are greater than those of similar males.
Q2) Since the 1970s, the percentage of women preparing for careers in professions has been ____, while the female/male earnings ratio has been ____ during this same period.
A)rising; declining
B)rising; increasing
C)falling; increasing
D)falling; declining
Q3) In 1961, ____ percent of college degrees were earned by women.
A)19
B)29
C)39
D)51
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Chapter 26: Appendix: the Question of Resource Exhaustion
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Q1) Resource markets are like any other market in that
A)the increase in quantity supplied in response to a higher price will generally be greater in the long run than in the short run.
B)the amount demanded of a resource is inversely related to its price.
C)higher prices encourage people to search for substitutes.
D)all of the above are correct.
Q2) Predictions that natural resources such as oil will be essentially used up in the next few decades have
A)been frequently made for the past century, but have always proven to be false.
B)usually been based on the quantity of proved reserves.
C)ignored the role of price in governing the quantities demanded and supplied.
D)All of the above.
Q3) Renewable resources are those that
A)can be renewed, but only with the use of energy resources.
B)are constantly being renewed by nature.
C)will inevitably run out over time, like all other resources.
D)are not really scarce, because they are constantly renewed naturally.
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Chapter 25: Appendix: Do Labor Unions Increase the Wages of Workers
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Q1) When a union successfully raises the wages of its members, it will also
A)increase total productivity, which will generally increase in proportion to the wage rate.
B)encourage employers to purchase more of the union labor.
C)increase the share of income allocated to labor as opposed to capital.
D)increase the employer's incentive to find substitutes for union labor.
Q2) The experience of the Teamsters in the late 1970s and early 1980s suggests that A)there are few restraints on the ability of a strong union to increase the wages of its members.
B)product market competition with goods made from (or services provided by) nonunion labor significantly limits the ability of a union to get increased wages for its members.
C)higher wages tend to stimulate aggregate demand, which makes it easier for a union to gain still higher wages.
D)wages are established by the relative skill of union and management negotiators, independent of market conditions.
Q3) List some factors that might make the threat of a strike more effective.
Q4) In a strike, what does the union have to lose? What does management lose?
Q5) What common goals, if any, do labor and management share?
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Chapter 27: Appendix: Difficult Environmental Cases and the
Role of Government
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Q1) Which of the following is the most efficient way to reduce pollution emissions?
A)emission standards that cap allowable pollution
B)government pollution charges or taxes
C)legislated regulations limiting the quantity of emissions allowed by each firm
D)enforcement of property rights, when those rights are well-defined and transaction costs are low
Q2) When the federal government owns land resources, such as parks, that are funded by tax dollars,
A)park mangers receive full information about visitor desires simply by asking visitors.
B)public park managers have the same incentives as private park managers, where visitors pay at least the actual costs of use.
C)park managers devote much time and effort to satisfying congressional desires instead of visitor desires.
D)park managers will be well-informed of visitor demands regardless of the funding mechanism.
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