Contemporary Economic Issues
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Course Introduction
Contemporary Economic Issues explores the most pressing economic challenges and debates currently shaping the global and national landscapes. Students will examine topics such as income inequality, globalization, environmental sustainability, labor market disruptions due to technology, monetary and fiscal policy responses to crises, and the impact of emerging markets. The course emphasizes critical analysis of recent economic trends, the role of institutions, and policy implications, using real-world case studies and current data to foster informed discussion and problem-solving skills.
Recommended Textbook Economics Today 17th Edition by Roger LeRoy Miller
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Chapter 1: The Nature of Economics
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Q1) Economics can be described as the study of how people use ________ resources to satisfy ________ wants.
A) unlimited; unlimited
B) unlimited; limited
C) limited; unlimited
D) limited; limited
Answer: C
Q2) Which of the following terms identifies something that macroeconomists would study but that microeconomists would NOT?
A) incentives
B) resources
C) rationality
D) aggregates
Answer: D
Q3) The "paired observation" of (-14, -6) means
A) x = -14, y = -6
B) x = -6, y = -14
C) that the distance between the two points will be 8.
D) the origin is at -14 and -6.
Answer: A
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Chapter 2: Scarcity and the World of Trade-Offs
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Q1) Efficiency can correctly be defined as
A) producing outside the production possibilities boundary.
B) minimizing opportunity cost.
C) producing the maximum output with given technology and resources.
D) providing for the immediate needs of the greatest proportion of the population.
Answer: C
Q2) Why do most people specialize in their work?
Answer: Most people specialize because specializing in what they have a comparative advantage increases their productivity.
Q3) Human capital is
A) what people get from physical capital.
B) the accumulation of skills, training and education of workers.
C) the value obtained from selling stocks and bonds.
D) the human resources that perform the function of raising capital.
Answer: B
Q4) "Economics deals with human needs." Do you agree or disagree? Why?
Answer: Disagree. The concept of needs is difficult to define objectively for each person, so that economists consider people's unlimited wants instead of their needs.
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Chapter 3: Demand and Supply
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Q1) A demand schedule
A) holds all prices constant.
B) is only for a given time period.
C) holds quantity constant.
D) is for a given variety of goods.
Answer: B
Q2) Refer to the above figure. Which panel shows the effect of an increase in the price of a good on the demand curve of that good?
A) Panel A.
B) Panel B.
C) Both panels.
D) Neither panel.
Answer: D
Q3) Using the above table, at a price of $70, there is
A) a surplus of 150 units.
B) a shortage of 120 units.
C) a surplus of 270 units.
D) a shortage of 150 units.
Answer: C
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Chapter 4: Extensions of Demand and Supply Analysis
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Q1) Buyers and sellers receive signals from markets
A) by listening to the TV news programs.
B) through the price system.
C) from the gossip columns in the newspapers.
D) from their friends and acquaintances.
Q2) An increase in the minimum wage will tend to cause which of the following to occur?
A) an increase in the size of the surplus of labor
B) a leftward shift in the demand for labor
C) a rightward shift in the supply of labor
D) a reduction in the unemployment rate
Q3) The market system is also called the price system because
A) rising prices are the signal to producers to offer more of a particular good.
B) people pay money in markets.
C) everything has a price tag.
D) inflation is a significant problem.
Q4) Suppose that the current equilibrium price of gasoline is $5.50 per gallon and that the government passes a law that requires the price to be no more than $5 per gallon. What will be the effects?
Q5) What are the terms of exchange and how are these terms related to the price?
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Chapter 5: Public Spending and Public Choice
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Q1) A political function of government is to
A) encourage the consumption of government-sponsored goods.
B) provide public goods.
C) correct for externalities.
D) encourage the workings of the price system.
Q2) The goal of Medicare is to
A) help the poor and indigent pay their hospital bills.
B) prevent poverty in urban cities.
C) subsidize medical expenses for the elderly.
D) subsidize costs incurred by doctors.
Q3) Market failure occurs when
A) the price system fails to generate an efficient allocation of resources.
B) the price system fails to generate an equal distribution of income.
C) the price system fails to generate an equal distribution of wealth.
D) the price system allows consumers to make their own decisions.
Q4) Which of the following is best characterized as a public good?
A) A public library
B) A church
C) Primary education
D) Police protection
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Chapter 6: Funding the Public Sector
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Q1) The sum of public spending on goods and services and transfer payments during a given period cannot exceed tax revenues plus borrowed funds. This is the statement for
A) ad valorem taxation.
B) an excise tax.
C) a sales tax.
D) the government budget constraint.
Q2) A ad valorem sales tax can be thought of as
A) a proportional tax.
B) not part of the tax base.
C) a revenue source for county governments only.
D) none of the above.
Q3) The imposition of a unit excise tax on beer will
A) lower equilibrium price and quantity in the market.
B) increase equilibrium quantity and price in the market.
C) lower equilibrium quantity and raise equilibrium price in the market.
D) raise equilibrium quantity and lower equilibrium price in the market.
Q4) What is a government's budget constraint in the long run as opposed to a given time period?
Q5) In what way is corporate income subject to double taxation?
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Chapter 7: The Macroeconomy: Unemployment, Inflation, and Deflation
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Q1) By definition, the purchasing power of money always drops when A) inflation occurs.
B) deflation occurs.
C) the economy is experiencing full employment.
D) there is a presidential election year.
Q2) A recession may be defined as
A) a period during which the rate of growth of business activity is consistently less than its long-term trend.
B) an increase in real economic output from one period to the next.
C) no change in real economic output over a period of time.
D) no change in the dollar (money) value of economic output over a period of time.
Q3) In a small country, the adult population equals 10,000. There are 3,000 people unemployed and 4,000 people are employed. The labor force participation rate equals A) 70 percent.
B) 57 percent.
C) 40 percent.
D) an undetermined amount given the lack of information.
Q4) How are inflation and the purchasing power of money related?
Page 9
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Chapter 8: Measuring the Economys Performance
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Q1) Durable consumer goods are goods that
A) last for more than three years.
B) last for more than one year.
C) are used up within three years.
D) are used up within one year.
Q2) All of the following statements are correct EXCEPT
A) NDP = Gross Domestic Product (GDP) - depreciation (capital consumption allowance).
B) NI = NDP + indirect business taxes.
C) Net exports = total exports - total imports.
D) Gross Domestic Product (GDP) = NDP + capital consumption allowance (depreciation).
Q3) In the factor market, households
A) sell resources.
B) buy resources.
C) are neither buyers nor sellers of resources.
D) are both buyers and sellers of resources.
Q4) Define and explain gross domestic product.
Q5) How do GDP and NDP differ? What does it mean if net investment is negative?
Page 10
Q6) What constitutes investment when measuring gross private domestic investment?
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Chapter 9: Global Economic Growth and Development
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Q1) The growth rate of per capita real Gross Domestic Product (GDP) is a reasonable measure of
A) inflation.
B) productive activity.
C) personal well-being.
D) quality of life.
Q2) All of the following unambiguously contribute to economic growth EXCEPT A) increase in human capital.
B) increase in technology.
C) increase in labor productivity.
D) increase in government spending.
Q3) The reason that differences in economic growth rates are important in the long run is that
A) growth compounds over time.
B) population naturally shrinks in most countries.
C) real GDP usually drops when adjusted for inflation.
D) nominal GDP typically increases faster than real GDP.
Q4) Would one expect economic growth to be higher or lower in a country that had poorly defined property rights? Why?
Q5) What is economic growth and why are growth rates so important?
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Chapter 10: Real GDP and the Price Level in the Long Run
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Q1) The aggregate demand curve is usually
A) vertical.
B) upward sloping.
C) downward sloping.
D) horizontal.
Q2) The long run aggregate supply curve (LRAS) also represents
A) the full-information level of output.
B) the full-employment level of output.
C) the full-adjustment level of output.
D) all of the above.
Q3) Aggregate demand reflects
A) planned total spending in the economy.
B) planned total production in the economy.
C) both spending and production in the economy.
D) planned demand for consumer goods only.
Q4) What is the aggregate demand curve and what does it represent?
Q5) What are the three forces that cause the aggregate demand curve to slope down? Explain.
Q6) How can a country experience economic growth and stable prices?
Q7) What is the interest rate effect of an increase in the price level?
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Chapter 11: Classical and Keynesian Macro Analyses
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Q1) In the simple Keynesian portion of the upward sloping short-run aggregate supply curve,
A) equilibrium real GDP is demand-determined.
B) equilibrium real GDP is supply-determined.
C) equilibrium real GDP is neither determined by aggregate supply nor by aggregate demand.
D) equilibrium real GDP is determined by both aggregate supply and aggregate demand.
Q2) Economic growth will NOT result in deflation if aggregate demand shifts
A) outward to the right at the same speed as aggregate supply.
B) inward to the left at the same speed as aggregate supply.
C) outward to the right as aggregate supply shifts inward to the left.
D) inward to the left as aggregate supply shifts outward to the right.
Q3) Classical economists argued that
A) there would always be an excess of saving over investment.
B) workers had money illusion.
C) excess savings would create unemployment.
D) a flexible interest rate would make saving equal to investment.
Q4) Using a graph, show the effects of a weaker dollar on the economy. Explain.
Q5) What effect does a stronger dollar have on aggregate supply? Why?
Page 13
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Q1) A decrease in autonomous investment of $100 that occurs when the marginal propensity to save (MPS) equals 0.25 will lead to a decrease in real Gross Domestic Product (GDP) of
A) $25.
B) $100.
C) $400.
D) $800.
Q2) When real Gross Domestic Product (GDP) exceeds total planned real expenditures, A) there will be unplanned decreases in inventories.
B) the circular flow will increase.
C) a lower level of equilibrium real Gross Domestic Product (GDP) will result.
D) a higher level of equilibrium real Gross Domestic Product (GDP) will prevail.
Q3) If real disposable income increases, the average propensity to save will A) initially increase, and then decrease.
B) remain constant.
C) increase.
D) decrease.
Q4) Distinguish between saving and savings. How does investment relate to this distinction, if at all?
Q5) Explain how the aggregate demand curve is related to the C + I + G + X curve.
Page 14
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Chapter 13: Fiscal Policy
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Q1) Suppose policy makers pass a budget that results in a reduction in government spending and no change in taxes. This reduction in government spending will likely
A) increase government borrowing and increase interest rates.
B) generate extra tax revenues to cover the extra spending.
C) reduce interest rates and increase planned investment.
D) reduce interest rates, increase in planned investment, and increase real GDP.
Q2) The proposition that decreases in taxes that raise the government budget deficit has no effect on aggregate demand is called the
A) open-economy effect.
B) federalism effect.
C) Ricardian equivalence theorem.
D) interest-rate effect.
Q3) The idea that creating incentives for individuals and firms to increase productivity leading to an increase in long-run aggregate supply is
A) supply-side economics.
B) demand-side economics.
C) the Ricardian equivalence theorem.
D) consistent with crowding out.
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Chapter 14: Deficit Spending and the Public Debt
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Q1) Net public debt is
A) all federal public debt irrespective of who owns it.
B) gross public debt minus all government interagency borrowing.
C) all public debt minus all money owed on the federal income tax.
D) all public debt plus all government interagency borrowing.
Q2) Which of the following is the best statement about how the amount of the net public debt that a typical individual owes to the holders of the debt has varied in the recent past?
A) The amount has not varied much over time.
B) The amount has varied a lot over time.
C) The amount has steadily increased over time.
D) The amount has steadily decreased over time.
Q3) When government spending exceeds government revenues during a given period of time,
A) a budget deficit exists.
B) a budget surplus exists.
C) the national debt must be decreasing.
D) Congress is obliged to raise taxes.
Q4) Explain how deficit spending can benefit future generations.
Q5) Explain how deficit spending could be a burden to future generations.
Page 16
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Chapter 15: Money, Banking, and Central Banking
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Q1) The reserve ratio is 20 percent. If the Fed buys $1 million of U.S. government securities from a bond dealer by transmitting the funds to the dealer's deposit account at Bank ABC, then
A) Bank ABC can make no additional loans.
B) Bank ABC can make additional loans up to $800,000.
C) Bank ABC can make additional loans up to $1 million.
D) Bank ABC cannot make any additional loans, but the system as a whole can make additional loans up to $1 million.
Q2) If the Federal Reserve buys $500 of government securities when the required reserve ratio is 20 percent, the maximum potential change in the money supply is a(n)
A) increase by $100.
B) increase by $2,500.
C) decrease by $100.
D) decrease by $2,500.
Q3) The FDIC fee system encourages depository institutions to
A) make riskier loans than they would otherwise.
B) reject loans that probably would have been profitable.
C) seek only a modest rate of return.
D) operate their institutions in too conservative a fashion.
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Chapter 16: Domestic and International Dimensions of Monetary Policy
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Q1) Refer to the above figure. Which panels could represent the situation if the Fed had engaged in open market operations?
A) Panels A and B
B) Panels A and C
C) Panels B and C
D) Panels C and D
Q2) The appropriate monetary policy in the event of a recessionary gap would be to
A) increase the difference between the discount rate and the federal funds rate.
B) engage in an open market purchase of U.S. government securities.
C) increase the difference between the federal funds rate and the required reserve ratio.
D) raise the required reserve ratio.
Q3) The hypothesis that changes in the money supply lead to proportional changes in the price level is called
A) the equation of exchange.
B) the Keynesian multiplier.
C) the theory of empirical relativity.
D) the quantity theory of money and prices.
Q4) What is meant by the demand for money?
Q5) What does the demand curve for money look like? Why?
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Chapter 17: Stabilization in an Integrated World Economy
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Q1) Refer to the above figure. Government policy that moved the economy from A to B would be accomplished by
A) an expansionary fiscal policy combined with a contractionary monetary policy.
B) a contractionary fiscal policy combined with an expansionary monetary policy.
C) a contractionary policy that would reduce the rate of inflation and would cause workers to remain unemployed longer than they were before.
D) raising the minimum wage.
Q2) Suppose there is an oil supply shock to the U.S. economy due to an embargo by major oil producing nations. According to the real business cycle theory, the supply shock will, other things being equal,
A) push real Gross Domestic Product (GDP) upward in the short run but downward in the long run.
B) push the economy into an expansionary phase of the business cycle.
C) cause real Gross Domestic Product (GDP) to decline both in the short run and in the long run.
D) cause economy-wide deflation.
Q3) Describe new Keynesian economics and the arguments used to support the ideas.
Q4) Explain the rational expectations hypothesis.
Q5) Compare and contrast the arguments favoring active versus passive policy making.
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Chapter 18: Policies and Prospects for Global Economic Growth
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Q1) When a nation joins the IMF, it deposits funds into an account. These funds have a value based on a weighted average of
A) the euro, the British pound sterling, the Japanese yen, and the U.S. dollar.
B) the euro, the British pound sterling, the Chinese yuan, and the U.S. dollar.
C) the Russian ruble, the British pound sterling, the Japanese yen, and the U.S. dollar.
D) the Russian ruble, the British pound sterling, the Chinese yuan, and the U.S. dollar.
Q2) What are the sources of private investments in foreign nations?
Q3) The possibility for recipients of funds in foreign countries to engage in riskier behavior after receiving financing is called
A) inequitable financing.
B) moral hazard.
C) adverse selection.
D) asymmetric information.
Q4) Define what dead capital is and why economists are concerned with its existence.
Q5) What is the mission of the World Bank?
Q6) What is the mission of the International Monetary Fund (IMF)?
Q7) Explain the role of economic freedom in economic development.
Page 20
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Chapter 19: Demand and Supply Elasticity
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Q1) If the government places a $0.50 tax on an item for which demand is perfectly elastic
A) the entire tax will be paid by the consumer.
B) the tax will be split equally between the consumer and producer, with each paying exactly $0.25.
C) most of the tax will be paid by the consumer.
D) the entire tax will be paid by the producer.
Q2) In the above figure, through which range would the demand for this good be most inelastic?
A) A-B
B) B-E
C) E-F
D) G-H
Q3) Refer to the above figure. Demand will be unit-elastic when quantity is between
A) 0 and A.
B) 0 and B.
C) A and B.
D) B and C.
Q4) Explain the three possible ranges for price elasticity of demand.
Q5) "Higher prices always yield higher revenues." Do you agree or disagree? Why?
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Chapter 20: Consumer Choice
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Q1) Regretting a last unit of consumption of cake implies that A) the total utility from eating cake was negative.
B) cake is an inferior good.
C) the marginal utility of the last unit of cake consumed was negative.
D) the demand curve for cake is horizontal.
Q2) An increase in income will
A) shift the budget constraint to the right.
B) make the budget constraint steeper.
C) make the budget constraint flatter.
D) make the budget constraint more bowed.
Q3) If your dinner guest said, "Every bite, including the last bite, tasted as good as the first," then the marginal utility for him
A) is decreasing.
B) is increasing.
C) is constant.
D) is positive.
Q4) What are the key properties of indifference curves?
Q5) What is consumer optimum according to utility theory?
Q6) What is the principle of diminishing marginal utility?
Q7) Discuss the substitution and real-income effects of a price decrease.
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Chapter 21: Rents, Profits, and the Financial Environment of Business
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Q1) A famous opera star made $2 million per year. He said he would rather sell insurance if he couldn't make more than $100,000 per year. If he is telling the truth, what's his opportunity cost as an opera star?
A) $2.0 million
B) $100,000
C) $1.9 million
D) $2.1 million
Q2) Pure economic rent involves situations where
A) the supply curve is perfectly inelastic.
B) the supply curve is perfectly elastic.
C) the uses to which a resource can be used can be varied but the quality of the resource cannot be varied.
D) the quality of a resource can be varied but the price cannot be varied.
Q3) In economics we assume that the goal of a firm is to
A) minimize costs.
B) maximize revenue.
C) maximize economic profits.
D) maximize total sales.
Q4) If the random walk theory is correct, then is there any way to "beat the market"?
Page 23
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Chapter 22: The Firm: Cost and Output Determination
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Q1) When the marginal physical product is falling,
A) marginal cost is rising.
B) average fixed costs are rising.
C) total costs are falling.
D) average variable costs are falling.
Q2) How is the long-run average cost curve found? What is its importance to the firm?
Q3) Using the above table, the average physical product and marginal product when 4 workers are employed are
A) 13 and 13, respectively.
B) 13 and 14, respectively.
C) 13 and 9, respectively.
D) 14 and 13, respectively.
Q4) Which of the following would be a fixed input to an automobile firm?
A) Steel
B) A factory in Detroit
C) Car batteries
D) Engineers
Q5) What are the relationships between the marginal cost curve and the average cost curves? Explain in words.
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Chapter 23: Perfect Competition
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Q1) Which of the following is always true in the short run for a perfectly competitive firm that is maximizing economic profits?
A) P = d = MR = MC = AVC
B) P = d = MR = MC
C) P = d = MR = Q
D) MR = MC = Q
Q2) Suppose a perfectly competitive firm faces the following short-run cost and revenue conditions: ATC = $6.00; AVC = $4.00; MC = $3.50; MR = $3.50. The firm should
A) increase output.
B) increase price.
C) remain at the same position.
D) shut down.
Q3) If a firm is producing an output rate at which marginal cost is equal price, the firm
A) is maximizing profits.
B) should increase its output level.
C) should reduce its output level.
D) will not be covering its fixed cost.
Q4) Why is the demand curve horizontal for a perfectly competitive firm?
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Chapter 24: Monopoly
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Questions
Q1) A monopolist can earn economic profits in the long run because
A) a monopoly is by definition large, and this gives it the ability to make large profits.
B) a monopoly makes the good or service better than anyone else.
C) barriers to entry prevent new firms from entering the industry.
D) monopolies can legally force people to buy their products and to pay more for them than they are worth.
Q2) The demand curve a monopoly faces is
A) horizontal.
B) vertical.
C) upward sloping.
D) downward sloping.
Q3) A monopoly sells 10 units of output at $10. If the MR of the 11th unit is $4.50, then the price of the 11th unit is A) also $10.
B) $9.50.
C) greater than $10.
D) $7.25.
Q4) "All monopolies operate with positive economic profits." Do you agree or disagree? Why?
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Chapter 25: Monopolistic Competition
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Q1) The monopolistically competitive firm maximizes profit by producing to the point at which
A) ATC = AVC.
B) MC = MR.
C) MR = AR.
D) MC = AR.
Q2) The theory of monopolistic competition was developed in two separate models by
A) Adam Smith and David Ricardo.
B) John Kenneth Galbraith and John Maynard Keynes.
C) Edward Chamberlin and Joan Robinson.
D) Roger Leroy Miller and Paul Samuelson.
Q3) Which of the following statements is generally TRUE about information products?
A) High fixed costs and low marginal costs
B) High fixed costs and high marginal costs
C) Low fixed costs and low marginal costs
D) Low fixed costs and high marginal costs
Q4) Explain why the amount that firms spend on advertising depends on the characteristics of their products.
Q5) Explain how advertising can act as a signal.
Q6) How does an information product differ from a product such as a desk?
Page 27
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Chapter 26: Oligopoly and Strategic Behavior
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Q1) Which of the following is NOT a condition that helps enforce a cartel agreement?
A) a small number of firms
B) nearly homogeneous products
C) easily observable prices
D) large variation in input prices
Q2) The most competitive industry of those presented in the above table is likely to be industry
A) W.
B) X.
C) Y.
D) Z.
Q3) Suppose a ten firm industry has total sales of $35 million per year. The largest firm have sales of $10 million, the third largest firm has sales of $4 million, and the fourth largest firm has sales of $2 million. If the rest of the industry has annual sales of $12 million, the second largest firm has sales of
A) $8 million.
B) $7 million.
C) $4 million.
D) none of the above.
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Chapter 27: Regulation and Antitrust Policy in a Globalized Economy
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Q1) Which of the following is NOT an objective of economic regulation?
A) to regulate the prices enterprises are allowed to charge
B) to fix prices so that they are never allowed to rise
C) to keep rates of return in an industry at a competitive level
D) to prevent monopoly profits
Q2) If antitrust legislation is successful, then
A) firms will produce the quantity at which marginal cost equals marginal revenue.
B) most firms will be earning a positive economic profit.
C) the price of each item will equal its marginal social opportunity costs.
D) natural monopoly will be eliminated.
Q3) Which of the following organizations is exempt from prosecution under the Sherman Antitrust Act (1890)?
A) retailers
B) book publishers
C) labor unions
D) television stations
Q4) How does social regulation differ from economic regulation?
Q5) Distinguish between cost-of-service regulation and rate-of return regulation. What problem is inherent in both types of regulation?
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Chapter 28: The Labor Market: Demand, Supply and Outsourcing
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Q1) In the perfectly competitive market, the labor supply curve faced by the individual firm is ________, while that of the market is ________.
A) perfectly elastic; perfectly inelastic
B) perfectly inelastic; perfectly elastic
C) perfectly elastic; upward sloping
D) perfectly inelastic; upward sloping
Q2) The demand curve for labor of a monopolist
A) is horizontal even though the demand curve for labor for a competitive firm is downward sloping.
B) slopes down for the same reason as the demand curve for labor of a perfectly competitive firm.
C) slopes down because of the law of diminishing marginal product and because the monopolist must lower prices to sell additional units of the good.
D) slopes upward because monopolists use more capital than do perfectly competitive firms.
Q3) What is the general rule for hiring for a perfectly competitive firm? Show it on a graph. What is the demand curve for labor on the graph? Explain.
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Chapter 29: Unions and Labor Market Monopoly Power
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Q1) Supposed you are hired to be a checker at a local grocery store. After ninety days of probation you become a member of the union. As a result you feel more secure about your job and work harder to be part of the team. This is a benefit of union membership that
A) increases demand for union-made goods.
B) decreases the demand for nonunion-made goods.
C) increases worker productivity of union members.
D) increases union dues.
Q2) In recent decades, the union-nonunion hourly wage differential has
A) increased substantially.
B) increased slightly.
C) stayed the same.
D) fallen significantly.
Q3) At the profit-maximizing level of employment, the monopsonist
A) pays a wage equal to MRP.
B) pays a wage greater than MRP.
C) pays a wage less than MRP.
D) pays a wage equal to MFC.
Q4) Distinguish between a closed shop and a union shop. Are either or both shops legal? Explain.
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Chapter 30: Income, Poverty, and Health Care
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Q1) The opportunity cost of going to college for a student receiving a scholarship
A) is the income that she would have earned if she did not go to college.
B) is the risk of dropping out.
C) is the food and living expenses that she has to purchase while in college.
D) is zero because she does not have to pay tuition.
Q2) Social Security is a pure transfer program because
A) it transfers funds from current workers to the poor.
B) the government transfers funds from middle-income workers to welfare recipients.
C) current payroll taxes are used to pay the eligible retirees.
D) the government subsidizes the medical bill of the poor.
Q3) In calculating income for the Lorenz curve, one factor that is omitted, is A) capital gains income.
B) dividend payments.
C) in-kind transfer payments from the government.
D) pure economic rent.
Q4) Compare and contrast the two normative standards to income distribution discussed in the text: The productivity standard and the egalitarian principle.
Q5) Draw and explain a Lorenz curve.
Q6) What are the major criticisms of the Lorenz curve?
Page 32
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Chapter 31: Environmental Economics
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Q1) Generally, as levels of pollution are reduced,
A) marginal benefits from the reduction increase.
B) marginal costs from the reduction increase.
C) marginal costs from the reduction stay the same.
D) marginal costs from the reduction decrease.
Q2) A good which has social costs that exceed private costs has a price
A) equal to marginal social cost.
B) that is too low.
C) that is too high.
D) that is inefficient because price exceeds marginal social cost.
Q3) There is "too much" steel production if the
A) social costs of steel production are significantly lower than the private costs.
B) social benefits of steel production are declining.
C) social costs of steel production are significantly higher than the private costs.
D) social costs of steel production are declining.
Q4) What is common property? What does common property have to do with externalities?
Q5) Why are most endangered species belong to common property?
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Chapter 32: Comparative Advantage and the Open Economy
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Q1) According to the above table, if these two countries trade, A) Mexico should export computers and the United States export bicycles.
B) the United States should import computers and Mexico should import bicycles.
C) the United States should export computers and Mexico should export bicycles.
D) we cannot tell which country should export which good without knowing the amount of labor utilized in each country.
Q2) Specialization in trade will be economically efficient if it is based upon
A) national security needs.
B) absolute advantage.
C) comparative advantage.
D) government regulations.
Q3) Consider the opportunity costs of producing goods X and Y that are listed for the four individuals above. Which person has a comparative advantage in producing good X?
A) Pramilla
B) Sam
C) George
D) Lucas
Q4) Why is trade based on comparative advantage?
Q5) What is the relationship between imports and employment?
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Chapter 33: Exchange Rates and the Balance of Payments
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Q1) "When the balance of payments sums to zero is the only situation in which there is an equilibrium." Do you agree or disagree? Why?
Q2) Explain the three categories of balance of payments transactions.
Q3) According to the text, over 40 percent of member nations of the International Monetary Fund have
A) a fixed exchange rate.
B) no separate legal currency.
C) an independently floating exchange rate.
D) a managed floating exchange rate.
Q4) Distinguish between the balance of payments and the balance of trade.
Q5) When a Japanese resident buys a good or service from a U.S. producer, there is a(n)
A) increase in the supply of yen in the foreign exchange market.
B) decrease in the supply of yen in the foreign exchange market.
C) increase in the demand for yen in the foreign exchange market.
D) decrease in the demand for yen in the foreign exchange market.
Q6) Suppose the U.S. inflation rate falls while the inflation rate among the members of the European Monetary Union (EMU) holds constant. Other things equal, what will happen in the balance of payments accounts?
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