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Which of the following is NOT listed in the book as a reason to study economics?
A) to learn a way of thinking
B) to understand society and global affairs
C) to be an informed voter
D) to learn how to make lots of money
 
A higher minimum wage (above the equilibrium wage)
A. Primarily harms those with less experience such as minority teenagers
B. Makes union members (who are paid more than the minimum wage ) better off, because minimum-wage labor is a substitute for union labor
C. Primarily benefits upper-class, well-educated white people, because they are least likely to those their jobs
D. Reduces the gains from trade in labor markets
E. All of the above
 
If climate change is caused by automobile emissions, and if such change harms humans, then it is efficient to
A. Ban automobiles
B. Reduce automobile emissions
C. Do nothing
D. Reduce automobile emissions if the costs of doing so are less than the benefits
E. Raise automobile emissions
 
The optimal (or efficient) amount of air pollution occurs where
A. There is no air pollution, because pollution violates rights
B. The marginal costs of obtaining cleaner air equals the marginal benefits of cleaner air
C. No one is harmed by the air pollution
D. Both b and c are correct
E. Both a and c are correct
 
Among the fundamental concepts in economics are
A) opportunity cost.
B) marginalism.
C) efficient markets.
D) all of the above
 
Which of the following is the best definition of economics?
A) the study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided
B) the study of how consumers spend their income
C) the study of how business firms decide what inputs to hire and what outputs to produce
D) the study of how the federal government allocates tax dollars
 
The rise of the modern factory system in England during the late eighteenth and early nineteenth centuries is known as the
A) Great Migration.
B) Industrial Revolution.
C) Wealth of Nations.
D) Dark Ages.
 
Assume that widgets are a normal good. Which of the following could cause an increase in the demand for widgets?
A. An increase in income
B. A decrease in the price of widgets
C. An increase in the price of gadgets, complement for widgets
D. Only a & b are correct
E. None of the above
 
Rent controls (in the form of legal maximum monthly rents)
A. Reduce the gains from trade in the market for rental apartments
B. Increase the extent of non-price discrimination. such as racial discrimination
C. Reduce maintenance of those properties subject to rent controls
D. All of the above
E. Only b and c are correct
 
Price controls on health care (in the form of legal maximum prices)
A. Make all parties better off by reducing the full cost to them of obtaining health care
B. Make doctors better off by freeing them from competition
C. Raise gains from in the health care market by increasing the availability of health care
D. Both a and c are correct
E. None of the above
 
Which of the following statements is NOT correct?
A) Economics is a behavioral science.
B) In large measure, economics is the study of how people make choices.
C) If poverty was eliminated there would be no reason to study economics.
D) Economic analysis can be used to explain how both individuals and societies make decisions.
 
Sunk costs are
A) costs that cannot be avoided, because they have already been incurred.
B) the costs of what we give up when we make a choice or a decision.
C) the additional costs of producing an additional unit of a product.
D) the additional costs of consuming an additional unit of a product.
 
Suppose that  you purchased a ticket to a jazz festival for $100 a month ago. Last week someone invited you to a hockey game on the same
night as the jazz festival.  You would much rather go to the hockey game than the jazz festival. You have tried unsuccessfully to sell the jazz
festival ticket.  Which of the following statements regarding this situation is correct?
A) The $100 you paid for the jazz festival ticket is relevant to the decision, as this represents the opportunity cost of attending the hockey game.
B) You should base your decision on whether or not the hockey game will provide you with more than $100 in satisfaction.
C) The $100 you paid for the jazz festival ticket should be irrelevant in your decision making, because it is a sunk cost.
D) The $100 jazz festival ticket should be irrelevant in your decision making, because it represents the marginal cost of attending the hockey game.
 
You have decided that you want to attend a costume party as Ironman. You estimate that it will cost $40 to assemble your costume.
After spending $40 on the costume, you realize that the additional pieces you need will cost you $25 more.
The marginal cost of completing the costume is
A) $15.
B) $25.
C) $40.
D) $65.
 
The concept of opportunity cost
A) is relevant only to economics.
B) can be applied to the analysis of any decision-making process.
C) applies to consumers but not to firms.
D) refers only to actual payments and incomes.
 
Opportunity cost is
A) that which we forgo, or give up, when we make a choice or a decision.
B) a cost that cannot be avoided, regardless of what is done in the future.
C) the additional cost of producing an additional unit of output.
D) the additional cost of buying an additional unit of a product.
 
The reason that opportunity costs arise is that
A) an economy relies on money to facilitate exchange of goods and services.
B) resources are scarce.
C) there are no alternative decisions that could be made.
D) people have limited wants.
 
Which of the following is NOT an opportunity cost of attending college?
A) the tuition you pay
B) the income you could have earned if you didnʹt attend college
C) the alternative uses of the time you spend studying
D) the cost of the food that you consume while you are attending college
 
If your tuition is $5,000 this semester, your books cost $600, you can only work 20 rather than 40 hours per week during the
15 weeks you are taking classes and you make $15 per hour, and your room and board is $3000 this semester, then your
opportunity cost of attending college this semester is
A) $5,600.
B) $5,900.
C) $10,100.
D) $11,600.
 
If your tuition is $25,000 this semester, your books cost $1,500, you can only work 20 rather than 40 hours per week during the
15 weeks you are taking classes and you make $15 per hour, and your room and board is $7,500 this semester, then your
opportunity cost of attending college this semester is
A) $26,500.
B) $26,800.
C) $31,000.
D) $38,500.
 
If you own a building and you decide to use that building to open a book store,
A) there is no opportunity cost of using this building for a book store because you own it.
B) there is an opportunity cost of using this building for a book store because it could have been used in other ways.
C) there are no sunk costs involved in this decision.
D) the only cost relevant to this decision is the price you paid for the building.
 
You own the Star Wars six DVD set. The opportunity cost of watching these DVDs for the second time
A) is zero.
B) is one-half the cost of the DVDs, as this is the second time you have watched it.
C) is the value of the alternative use of the time you spend watching the DVDs.
D) cannot be calculated.
 
That which we forgo, or give up, when we make a choice or decision is called
A) sunk cost.
B) marginal cost.
C) real cost.
D) opportunity cost.
 
Costs that cannot be avoided, regardless of what is done in the future, because they have already been incurred are
A) total costs.
B) sunk costs.
C) marginal costs.
D) allocative costs.
 
If you can buy 9 DVDs for $126 or you could buy 10 DVDs for $130, then the marginal cost of the tenth DVD is:
A) $4.
B) $13.
C) $14.
D) $130.
 
If you eat at  a sushi restaurant that charges $20 for its all you can eat sushi special, then the marginal cost of your 10th piece of sushi is
A) zero.
B) $2.
C) $200.
D) $2,000.
 
A market in which profit opportunities are eliminated almost instantaneously is
A) a laissez-faire market.
B) a capitalist market.
C) a socialist market.
D) an efficient market.
 
If information is less costly and more easily available, then usually this
A) makes markets more efficient.
B) makes markets less efficient.
C) increases profit opportunities.
D) increases the opportunity cost of acquiring more information.
 
An efficient market is a market
A) in which everyone always gets what they want.
B) in which profit opportunities are eliminated almost instantaneously.
C) in which profits are always very high and persistent.
D) in which opportunity costs are zero.
 
Which one of the following best supports the argument that most of the value of Appleʹs iPod is in its conception and design?
A) Appleʹs history of innovative product design includes the earliest use of a Graphic User Interface (GUI) in the home computer market.
B) The iPod would not have been as successful without the development of Web sites that allow users to purchase and download music.
C) Companies that assemble the iPod and those that manufacture iPod components together capture only a small fraction of the iPodʹs retail value.
D) Increases in the costs of components will reduce the profitability of the iPod, although price increases can be passed on to consumers.
 
Which one of the following best explains why Appleʹs iPod is neither a pure import nor a pure export?
A) The iPod has earned a large share of the market for portable music players in both the United States and other industrialized nations.
B) Intellectual property laws protect the iPod in both domestic and international markets, although enforcement of those laws varies widely between countries.
C) Apple stock is publicly traded, and so citizens of any country can own Apple stock.
D) The iPod was designed and is sold by a U.S. company, but it is assembled in China from parts made in the United States and other countries.
 
The branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units is
A) positive economics.
B) normative economics.
C) macroeconomics.
D) microeconomics.
 
Studying how the management of Hewlett Packard decides how many computers to produce and the price to charge for
its computers would be considered
A) descriptive economics.
B) empirical economics.
C) microeconomics.
D) macroeconomics.
 
Studying how Joshua allocates his time between school and video games is an example of
A) macroeconomics.
B) microeconomics.
C) industrial organization.
D) descriptive economics.
 
The study of how benefits are determined for city employees would be considered
A) microeconomics.
B) macroeconomics.
C) descriptive economics.
D) institutional economics.
 
Inflation and unemployment
A) are the focus of normative economics.
B) are a focus of microeconomics.
C) are a focus of positive economics.
D) are a focus of macroeconomics.
 
In baseball, there has been an increase in the number of hitters who wears protection on their wrists and shins.
Because players are less likely to get injured if they are hit by a pitch, we will observe
A. A greater number of players being hit by pitches, because they are more likely to stand closer to the plate
B. An increase in batting averages, because hitters can crowd the plate and get good looks at pitches on the outside of the plate
C. A decrease in the number of batters getting hit by pitches, because players are more worried about getting hit by pitches
D. Only a & b are correct
E. Only b & c are correct
 
An "increase in the quantity supplied" for a good refers to
A. A movement along the supply curve for that good
B. An increase in the desired rate of production, due to a higher price for that good
C. A shift to the left of the supply curve for that good
D. A shift to the right of the supply curve for that good
E. Both a & b are correct
 
Better insurance benefits increase the incentive of some individuals to work. This statement is best described as a
A) positive statement.
B) Marxist ideology.
C) normative statement.
D) descriptive economics statement.
 
The Bureau of Labor Statistics announced that the unemployment rate fell by one percentage point. This is best described as
A) an economic model.
B) Marxist ideology.
C) a normative statement.
D) descriptive economics.
 
In 2011, U.S. GDP totaled approximately:
a. $2.8 trillion
b. $10.7 trillion
c. $2.1 trillion
d. $15.0 trillion
 
Estimates of the size of the underground economy in the U.S. range from:
a. 45 to 60 percent.
b. 4 to 20 percent.
c. 7 to 10 percent.
d. 2 to 5 percent.
 
Which of the following is not considered part of the services category under the expenditure approach to GDP accounting?
a. sporting events
b. haircuts
c. commercial airline transportation
d. privately owned jets
 
Which of the following would not be counted as a final good for inclusion in GDP?
a. a piece of glass bought by a consumer to fix a broken window
b. a sheet of glass purchased by General Motors for the side window of a new car
c. a sheet of glass produced this year and ending up in the inventory of
a retail hardware store
d. All of the above are counted.
 
National income:
a. is a measure of the income received by persons after taxes.
b. is a measure of the income earned by owners of resources used in making final goods and services.
c. equals GDP minus depreciation.
d. equals aggregate income minus the statistical discrepancy.
 
Consumption is the purchase of goods and services by:
a. foreign buyers.
b. government.
c. households.
d. business firms.
 
The most volatile GDP category under the expenditure approach is:
a. wages and salaries.
b. consumption.
c. government purchases.
d. investment.
 
GDP minus the net income of foreigners is:
a. personal income.
b. national income.
c. net national income.
d. GNP.
 
Which of the following is included in the calculated gross domestic product?
a. A local ice cream store sells $17,000 worth of cones and sundaes on July 4th.
b. Farmer Fred sells his second tractor to his son.
c. Suzanne buys a love seat and chair for $85 at the yard sale on the corner.
d. Mr. Kelly buys a used lawn mower from his neighbor Mr. Templeton.
 
​If individuals were paid for their household production, GDP would:
a. increase.
b. decrease.
c. not change, but GNP would decrease.
d. not change, but GNP would increase.
 
Why has nominal GDP increased historically more rapidly than real GDP in
the United States?
a. because of statistical discrepancies
b. because of deflation
c. because of inflation
d. because of high interest rates
 
Residential construction is generally included in which category of GDP?
a. government expenditures
b. consumption
c. net exports
d. investment
 
GDP equals $8 trillion. If consumption equals $5.5 trillion, investment equals $500 billion,  and government spending
equals $1.5 trillion, then:
a. net exports equal zero.
b. imports exceed exports by $500 billion.
c. exports exceed imports by $500 billion.
d. exports exceed imports by $1 trillion.
 
Transfer payments are included in which category under the expenditure approach to GDP accounting?
a. consumption
b. net exports
c. Transfer payments are not directly included in GDP calculations.
d. government purchases
 
If real GDP increases and the price index also increases:
a. nominal GDP must also have risen.
b. the percentage increase in nominal GDP must have been greater than
the percentage increase in the price level.
c. nominal GDP could have either risen or fallen.
d. nominal GDP must have fallen.
 
If the GDP deflator decreases from one year to the next, it can be concluded that the economy has experienced:
a. stagflation.
b. deflation.
c. inflation.
d. stagnation.
 
Personal income includes:
a. income received in the form of transfer payments.
b. wages and salaries.
c. interest earnings on bonds.
d. all of the above.
 
The largest single expenditure component of GDP is:
a. net exports.
b. consumption.
c. investment.
d. government purchases.
 
All of the following are examples of producer goods except:
a. tools.
b. appliances.
c. machinery.
d. factory buildings.
 
Using the expenditure approach to GDP accounting, which of the following are included in the investment category?
a. the purchase of government bonds
b. the purchase of corporate bonds
c. the purchase of corporate stocks
d. none of the above
 
What is the measure of the income earned by owners of resources used in making final goods and services?
a. national income
b. gross domestic income
c. retained earnings
d. personal income
 
If nominal GDP increased from $4,500 billion in 2010 to $5,000 billion in 2011 and the GDP deflator increased
from 100 to 105 over the same time period, what would the 2011 real GDP equal expressed in terms of 2010 dollars?
a. $4,285 billion
b. $4,725 billion
c. $4,762 billion
d. $4,500 billion
 
If Jim pays $1000 to John:
a. we need more information in order to determine whether or how much GDP will change.
b. GDP will increase by $1000.
c. nominal GDP will increase, but we cannot be sure if real GDP will increase or decrease.
d. GDP will increase, but we cannot determine by what amount.
 
The amount of education that one has is an important factor in the determination of his or her wage rate. This is best described as
A) a positive statement.
B) Marxist ideology.
C) a normative statement.
D) descriptive economics.
 
The cost involved when choosing between alternatives is known as the
A) marginal cost.
B) sunk cost.
C) opportunity cost.
D) normative cost.
 
Positive economics is an approach to economics that
A) seeks to understand behavior and the operation of systems while making judgments about their usefulness to society.
B) analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe preferred courses of action.
C) applies statistical techniques and data to economic problems.
D) examines the role of government in the economy.
 
Normative economics is an approach to economics that
A) seeks to understand behavior and the operation of systems without making judgments.
B) analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe preferred courses of action.
C) applies statistical techniques and data to economic problems.
D) examines the role of government in the economy.
 
Which of the following is a normative question?
A) Why do gasoline prices increase between Memorial Day and Labor Day?
B) What will happen to gasoline consumption if the federal tax on gasoline is eliminated?
C) To reduce the regressive nature of the gasoline excise tax, should the portion of the gasoline excise tax paid by
high-income individuals be increased?
D) How will oil exploration be affected if the government subsidizes oil producers?
 
Which of the following is a positive question?
A) Will the level of teenage unemployment increase if the minimum wage is increased?
B) Should the minimum wage be set at one-half the individuals a decent standard of living?
C) Wouldnʹt it be more equitable if the minimum wage increased automatically with the cost of living?
D) Wouldnʹt it be better to try to increase peopleʹs wages by requiring employers to pay minimum wages?
Answer: A
 
Health insurance should  be provided to every citizen in a wealthy nation such as the United States. This statement is best described as
A) a positive statement.
B) a normative statement.
C) a descriptive economics statement.
D) an implication of an efficient market.
 
Descriptive economics
A) identifies actions and reactions.
B) requires model building.
C) looks at the outcomes of economic behavior and asks if they are good or bad.
D) mainly involves the compilation of data that describe phenomena and facts.
 
An example of descriptive economics is when an economist
A) collects data on the wage rates and employment levels in the farming industry.
B) tries to develop a model to explain the changes in employment and wages in the farming industry.
C) tries to understand the relationship between the price of imported agricultural products.
D) tries to determine if there are any regular patterns in the employment from these patterns.
 
Refer to Scenario 1.1. The statement that a 1% increase in the minimum wage causes a 0.2% increase in teenage unemployment
is an example of
A) descriptive economics.
B) normative economics.
C) positive economics.
D) Marxist economics.
 
Refer to Scenario 1.1. The statement, ʺthe minimum wage is harmful to teenagers and should be reduced or eliminated
to increase employment among teenagers,ʺ  is an example of
A) descriptive economics.
B) normative economics.
C) positive economics.
D) Marxist economics.
 
Refer to Scenario 1.1. The process of collecting data on minimum wage and teenage unemployment levels is an example of
A) law and economics.
B) economic history.
C) econometrics.
D) descriptive economics.
 
Refer to Scenario 1.1. The statement that an increase in the minimum wage causes an increase in teenage unemployment
is an example of
A) descriptive reasoning.
B) an economic theory.
C) normative economics.
D) deductive reasoning.
 
Refer to Scenario 1.1. A graph of the value of the minimum wage on one axis and the level of teenage unemployment
on the other axis is an example of
A) an economic theory.
B) an economic model.
C) inductive reasoning.
D) a variable theory.
 
To isolate the impact of one single factor, economists invoke the assumption of
A) inductive reasoning.
B) Ockhamʹs razor.
C) ceteris paribus.
D) post hoc, ergo prompter hoc.
 
The principle that irrelevant detail should not be included in a model is known as
A) Sayʹs Identity.
B) ceteris paribus.
C) Ockhamʹs razor.
D) Hobsonʹs choice.
 
Economists use the phrase ʺceteris paribusʺ to express the assumption
A) ʺall else equal.ʺ
B) ʺeverything affects everything else.ʺ
C) ʺscarcity is a fact of life.ʺ
D) ʺthere is no such thing as a free lunch.ʺ
 
The Latin phrase economists use that means all else equal is:
A) ʺceteris paribus.ʺ
B) ʺcogito ergo sum.ʺ
C) ʺcarpe diem.ʺ
D) ʺcaveat emptor.ʺ
 
Stanley Jevons, an economist in the nineteenth century, noted a high correlation between economic prosperity and sunspots.
Based on this observation he developed a ʺsunspot theoryʺ of how the economy operated. We now know that Jevons
A) committed the fallacy of composition.
B) committed the ceteris paribus error.
C) was too quick to conclude that correlation implies causation.
D) showed good reasoning for the nineteenth but not the twentieth century.
 
Whenever the Democrats gain control of the Congress, spending on social programs increases; whenever Republicans gain control
of the Congress, spending on defense increases. Hence, we know what the next party in control will do. This statement is an example of
A) fallacy of inductive reasoning.
B) post hoc, ergo prompter hoc fallacy.
C) fallacy of composition.
D) ceteris paribus fallacy.
 
I have lived in a house on the Mississippi River for many years and have never seen a flood. Therefore, there is no reason for anyone
to buy flood insurance. This statement is an example of
A) fallacy of composition.
B) post hoc, ergo prompter hoc fallacy.
C) fallacy of inductive reasoning.
D) ceteris paribus fallacy.
 
25) The economy was expanding during all of the years that I was a student, but as soon as I graduated, the economy
contracted. Therefore, the labor market was waiting until I started looking for a job to contract.
This statement is an example of
A) ceteris paribus fallacy.
B) post hoc, ergo prompter hoc fallacy.
C) fallacy of composition.
D) fallacy of inductive reasoning.
 
Experimental research in small cities suggests that mandating work for welfare recipients increases their income.
Therefore, we should mandate work requirements for all welfare recipients. This statement is an example of
A) fallacy of inductive reasoning.
B) ceteris paribus fallacy.
C) fallacy of composition.
D) post hoc, ergo prompter hoc fallacy.
 
Rent control laws are imposed when city officials believe landlords have been exploiting tenants.
Which of the following criteria are they using to guide their actions?
A) efficiency
B) equity
C) growth
D) stability
 
A government policy that tries to minimize inflation and unemployment can best be described as trying to achieve economic
A) efficiency.
B) equity.
C) profitability.
D) stability.
 
Redistribution of income from the rich to the poor is achieved from a tax system that requires taxes to rise with income.
Which of the following criteria best explains the goal of this tax system?
A) efficiency
B) equity
C) growth
D) stability
 
Ideally all models will be
Simple in structure
General in application
Useful in prediction
All of the above
 
When we say that the U.S> has a comparative advantage in producing kumquats, we mean that the U.S.
Is the low cost producer of kumquats
 
When we use the term gains from trade, we are referring to the fact that
Voluntary exchange raises our feasible options (and thus our wealth)
 
Suppose Italy can produce only two goods: olive oil and pasta, and that the marginal cost of production for each good is constant.
If the maximum amount of pasta Italy can produce in a year decreases at the same time its maximum annual olive oil production increases,
then we would say that in Italy
The marginal cost of producing both goods could be higher or lower than before, depending on the relative magnitude of the shifts.
 
Which of the following is (are) true?
Every combination of goods that is feasible when nations are self-sufficient is feasible if they trade with one another
 
What will happen to the price level and the unemployment rate, if Bozeman is flooded destroying 30% of the capital,
but no individuals are injured or killed
Increase, increase
 
The Gini coefficient is a single statistic that allows one to measure how equal incomes are in a society. According to the United Nation's Human
Development Index, the Gini coefficient value for Somalia is 0.30 while the value for New Zealand is 0.36. Given this information we can say that,
The variation of income within New Zealand is greater than the variation of income within Somalia
The poor in New Zealand experience greater relative income mobility than the poor in Somalia
 
The situation in which markets fail to provide efficiently is called:
market failure
 
To say that economics is a way of thinking about how people make rational decisions means that people:
respond to incentives
 
_________ people are forced to make tradeoffs
All
 
A basic supposition of economics is that:
in general, people respond to economic incentives
 
In the United States, measured increases in income inequality is due to
The high rate of increase in real incomes in the top one percent
 
The probability that children out earn their parents is
Largest for children born in the bottom quintile
 
_____ is the fairness of various issues and policies
Equity
 
Resources are:
limited but wants are unlimited
 
With the use of specialization:
there are greater gains in material well-being
 
Efficiency within economics focuses on:
how well resources are used and allocated
 
It must be recognized that private markets:
can fail
 
Scarcity is BEST defined as when:
unlimited wants exceed limited resources
 
One of the key ingredients in making rational choices is access to:
information
 
The core problem in economics is:
scarcity
 
Economists refer to the payment to labor as:
wages
 
A market economy is also known as a _____ economy, and decisions are made by _____
capitalist; private individuals
 
The process of converting factors of production into goods and services is called:
production
 
International trade:
increases consumption possibilities
 
In economics, the term “land” includes:
all natural resources
 
Entrepreneurs receive profits for their efforts primarily because they:
combine land, labor, and capital to produce goods and services and assume the risks associated with business
 
Investment in human capital refers to:
education, on-the-job training, and professional training activities
 
Most trade is based on specialization according to:
comparative advantage
 
The “what” question primarily refers to:
the set of goods and services that are produced
 
Capital, which includes all manufactured products that are used to produce other goods and services, earns:
interest
 
When the mix of goods and services produced is just what the society desires, then we have:
allocative efficiency
 
Planned economies rely heavily on ________ to make most economic decisions
the central government
 
According to the law of supply, producers will supply more of their products when:
the price rises
 
What are the primary functions of money?
unit of account, medium of exchange, store of value
 
M1 includes:
cash, demand deposits, and other checkable deposits.
 
M2 is ____ in dollar value than M1; it also contains ____ assets
larger; less liquid
 
Fiat money:
does not necessarily have any intrinsic value but has been declared by a government to be money.
 
Thelma grew some carrots in her garden. She needs a winter coat. John has an extra coat he doesn't need but would like
to bake some carrot cake. The two find each other and make an exchange. This situation is called the:
double coincidence of wants
 
Liquidity refers to:
how quickly, easily, and reliably an asset can be converted into a medium of exchange
 
Which of the following assets is MOST liquid?
money
 
Near money includes:
some of M2 but none of M1.
 
The supply curve for loanable funds is:
positively sloped
 
Institutions that serve as the bridge between savers and borrowers are known as:
financial intermediaries
 
The demand for loanable funds is downward-sloping because: as interest rates fall, business find more projects to be profitable and
want to borrow more.
 
The supply of loanable funds slopes ______ because an increase in the interest rate induces __________.
upward; more saving
 
Which agency does NOT regulate financial markets?
Council of Economic Advisers
 
As the real interest rate falls:
the quantity demanded of loanable funds rises.
 
When a financial institution accepts funds from savers and pools this money into a portfolio of diversified financial instruments, it is:
spreading risk
 
Which is NOT a primary role of financial intermediaries in the market for funds?
collecting taxes on financial transactions
 
Which of the following is a teaser rate?
an interest rate for a credit card that is temporarily low
 
_____ are a higher-risk investment than _____.
Growth stocks; blue-chip stocks
 
Traditional Individual Retirement Accounts (IRAs) are taxed:
only when you make withdrawals.
 
The price that results when quantity demanded is just equal to quantity supplied is known as:
equilibrium price
 
A market exists when:
people exchange money for goods and services
 
On a demand curve:
price is on the vertical axis and quantity demanded is on the horizontal axis
 
When the supply curve shifts out (to the right) and the demand curve shifts in (to the left) the equilibrium quantity will:
be indeterminate
 
Prices allow sellers to determine what goods to sell:
help buyers find possible substitute goods, and contain information useful for all people involved in a transaction
 
Which of the following should shift the demand curve for gasoline to the right?
an increase in national income
 
According to the law of demand, people buy more of a good when:
the price falls
 
The law of demand states that:
the lower a product's price, the more of that product consumers will purchase during a given period
 
The father of modern demand and supply analysis is:
Adam Smith
 
The reason that the law of demand exists is that:
people substitute cheaper products for more expensive products
 
If a consumer buys a set of headphones at the same time as she buys an MP3 player, these two products are MOST likely:
complementary goods
 
The market-clearing price:
is the price at which quantity demanded equals quantity supplied
 
Sunk costs do not affect marginal decision making.
True
 
Marginal costs are those that can not be recaptured.
False
 
The rate of economic growth is a topic of microeconomics.
False
 
The aggregate price level is a topic of macroeconomics.
True
 
The economic theory of regulation holds that regulation is a response by government to cases in which markets
cannot efficiently allocate resources.
False.  
 
Resources are unlimited in a wealthy society.
False
 
The value of the best alternative foregone is the opportunity cost of making a decision.
True
 
Opportunity costs arise due to scarce resources.
True
 
Licenses and patents are examples of regulations that act as barriers to entry and thereby limit competition.
True.
 
The public interest theory of regulation holds that government regulation is intended to correct problems due to monopoly power
and externalities.
True.
 
Price collusion among firms is clearly and unequivocally prohibited by antitrust laws.
True.
 
The Justice Department will generally challenge a horizontal merger if the postmerger Herfindahl index is less than 1,000.
False.
 
Conscious parallelism refers to the adoption of similar policies by oligopolists as a response to their recognized interdependence.
True.
 
Predatory pricing refers to the case in which a firm produces a level of output where marginal cost is equal to marginal revenue and
charges a price such that demand exceeds supply.
False.
 
Externalities refer to the side effects of production or consumption that cause private and social costs to differ.
True.
 
If the production of a good gives rise to external diseconomies, then less of the good is being produced than is socially optimal.
False.
 
If the consumption of a good gives rise to external economies, then less of the good is being consumed than is socially optimal.
True.
 
According to the public interest theory of regulation, the presence of external effects justifies government intervention.
True.
 
Government can correct for external diseconomies of production by subsidizing production.
False.
 
Government can correct for external diseconomies of consumption by taxing consumption.
True.
 
Government regulation of an activity that produces an externality can be expected to yield a socially optimal result only if the private
and social benefits and costs of the activity can be accurately determined.
True.
 
Natural monopolies exist because of government regulation.
False.
 
A firm with an average total cost curve that has a negative slope at the level of output required to supply the entire
market is a natural monopoly.
True.
 
Regulation that guarantees a normal rate of return on investment gives public utilities a strong incentive to keep costs down.
False.
 
If regulators set rates too high, then public utilities will tend to underinvest in fixed assets.
False.
 
Political pressure on appointees to public utility regulatory commissions tend to result in rate changes that are larger
than necessary to obtain the socially optimal results.
False.
 
The two basic statutes of antitrust legislation are the Sherman and Clayton Acts.
True.
 
The two basic statutes of antitrust legislation prohibit monopolization, restraints of trade, and unfair competition.
True.
 
The first federal antitrust law enacted was the Clayton Act.
False.
 
A trust is an organizational structure that allows firms in an oligopolistic industry to operate as a cartel.
True.
 
A tying contract requires that sellers charge a price that is tied to the quantity of output produced.
False.
 
Interlocking directorates refers to a situation in which the same individual is on the board of directors of two or more competing corporations.
True.
 
Most antitrust suits filed in the United States are initiated by either the Department of Justice or the Federal Trade Commission (FTC).
False.
 
The purpose of deregulation is to increase competition and efficiency.
True.
 
An import tariff is a direct restriction on the quantity of a particular good that can be imported during a given time period.
False.
 
An import tariff and an import quota both have the effect of protecting domestic producers from foreign competition.
True.
 
Voluntary export restraints have the same effects as import tariffs, except that the positive revenue effects are realized by the exporting
country rather than the importing country.
True.
 
Taxes on consumption, such as those used in European countries, encourage saving and investment.
True.
 
The U.S. taxes labor income and capital income, which discourages work and investment.
True.
 
Taxes and subsidies have no effect on business decisions.
False.
 
Taxes and subsidies have an adverse effect on economic efficiency.
True.
 
Businesses can reduce their tax liabilities by shifting production from low tax countries to high tax countries.
False.