Economic Literacy Test
Bank
Course Introduction
Economic Literacy is designed to equip students with a foundational understanding of economic principles and concepts, enabling them to make informed decisions in personal, professional, and civic life. The course covers key topics such as supply and demand, market structures, fiscal and monetary policy, and the role of government in the economy. Through real-world examples and practical applications, students learn how economic factors influence everyday choices, public policy, and global events.
Emphasis is placed on developing critical thinking skills, analyzing current economic issues, and fostering responsible citizenship in an increasingly interconnected world.
Recommended Textbook Issues in Economics Today 8th Edition by Robert Guell
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48 Chapters
3693 Verified Questions
3693 Flashcards
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Page 2
Chapter 1: Economics: the Study of Opportunity Cost
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Sample Questions
Q1) Referring to Figure 1.4, the opportunity cost of producing the third unit of pizza is
A)one unit of soda.
B)three units of soda.
C)six units of soda.
D)the same as the opportunity cost of producing the first unit of pizza.
Answer: D
Q2) A resource
A)must come from the earth.
B)only includes physical things.
C)is anything that we consume directly or use to make things we will ultimately consume.
D)A and C
Answer: C
Q3) In Figure 1.2, which labeled points are attainable?
A)only A
B)only B and C
C)only D
D)A, B and C
Answer: D
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Page 3
Chapter 2: Supply and Demand
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Sample Questions
Q1) An increase in the excise tax imposed upon consumers of gasoline
A)increases the demand for gasoline.
B)decreases the demand for gasoline.
C)increases the supply of gasoline.
D)lowers the market price of gasoline.
Answer: B
Q2) The supply curve slopes upward because producers' cost per unit eventually
A)decreases as more units are sold.
B)remains unchanged as more units are sold.
C)increases as more units are sold.
D)will be subsidized by the government.
Answer: C
Q3) If a firm has two production alternatives and the price of one decreases this will cause the other good's
A)demand curve to shift to the right.
B)supply curve to shift to the right.
C)demand curve to shift to the left.
D)supply curve to shift to the left.
Answer: B
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Page 4
Chapter 3: The Concept of Elasticity and Consumer and Producer Surplus
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Sample Questions
Q1) If there is no change in demand that will cause a change in the price then the supply for the good is
A)perfectly elastic.
B)inelastic.
C)perfectly unit elastic.
D)perfectly inelastic.
Answer: A
Q2) The formula for elasticity of demand (in words)is
A)the change in price divided by the change in quantity.
B)the percentage change in price divided by the percentage change in quantity.
C)the change in quantity divided by the change in price.
D)the percentage change in quantity divided by the percentage change in price.
Answer: D
Q3) For a given decrease in supply, the condition of demand that will result in the most significant change in quantity is when demand is A)elastic.
B)inelastic.
C)perfectly elastic.
D)perfectly inelastic.
Answer: C
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Chapter 4: Firm Production, Cost, and Revenue
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Sample Questions
Q1) When a firm has no competitors, in order to sell more of the good
A)it only need produce more of the good.
B)it must, ironically, increase prices.
C)it must reduce the price it charges.
D)it must keep prices steady.
Q2) Which type of firm has no control over its price
A)price taker.
B)price maker.
C)price setter.
D)zero price setter.
Q3) The shutdown condition for a firm is to
A)shutdown if losses are made.
B)shutdown if price is less than Average Total Cost.
C)shutdown if price is less than marginal revenue.
D)shutdown if price is less than Average Variable Cost.
Q4) Marginal Cost is
A)the addition to cost associated with one additional unit of output.
B)the per unit cost of production.
C)the per unit variable cost of production.
D)the per unit fixed cost of production.
Page 6
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Chapter 5: Perfect Competition, Monopoly, and Economic
Versus Normal Profit
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Sample Questions
Q1) There will be long-run pressure on the price to fall whenever
A)P>ATC
B)P=ATC
C)P<ATC
D)P<AVC
Q2) In Figure 5.8, if the supply curve moves from S3 to S4
A)The firm will make a smaller economic profit than they used to
B)The firm will go from making an economic profit to a normal profit
C)The firm will go from making a normal profit to a loss but one that is not big enough to make it want to shutdown.
D)The firm will go from making a normal profit to a loss that is big enough to make it want to shutdown.
Q3) Suppose you can get broadband only from your cable company or your phone company. This market would be described by
A)perfect competition.
B)monopolistic competition.
C)oligopoly.
D)monopoly.
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Chapter
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Sample Questions
Q1) DVD writers allow people to record TV shows in a high quality format. They entered the market in 2002 at a price of $1000. By 2003 they were under $500. By the time they had become part of the CPI market basket they are likely to be less than $250. Economists will argue that this type of issue
A)leads to the CPI overstating the rate of inflation.
B)leads to the CPI understating the rate of inflation.
C)is well handled the by the BLS as they determine the CPI.
D)is irrelevant to CPI calculations.
Q2) The magnitude of the annual overstatement of the CPI is approximately
A)one-tenth of one percentage point.
B)one-half of one percentage point.
C)one percentage point.
D)five percentage point.
Q3) The political problems associated with fixing the CPI are that
A)personal income taxes would fall.
B)benefits to the poor would fall.
C)Social Security taxes would rise.
D)Social Security benefits would rise.
Page 8
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Chapter 7: Interest Rates and Present Value
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Sample Questions
Q1) Using the Rule of 72, how long will it take something growing at 2% per year to double A)100 years.
B)50 years.
C)36 years.
D)144 years.
Q2) The reward investors receive for accepting the probability that they will not be fully paid as agreed or as anticipated is called the A)risk adjustment.
B)risk premium.
C)interest rate.
D)real interest rate.
Q3) If the inflation rate is 3% and the nominal interest rate is 4%, then the real interest rate is around
A)1%.
B)3%.
C)7%.
D)12%.
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Page 9
Chapter 8: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) A strengthening of the U.S. dollar relative to the euro can cause problems for
A)American exporters.
B)American importers.
C)European manufacturers.
D)American banks.
Q2) In the Aggregate Demand - Aggregate Supply diagram in Figure 8.1, Box 3 should be filled with
A)PI for Price Index.
B)RGDP for Real Gross Domestic Product.
C)AS for Aggregate Supply.
D)AD for Aggregate Demand.
Q3) Which of the following policies might create demand-pull inflation
A)A decrease government spending
B)A decrease in interest rates
C)An increase in taxes
D)All of these policies could create demand-pull inflation
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10
Chapter 9: Fiscal Policy
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Sample Questions
Q1) The portion of the Obama stimulus package that cut taxes is best thought of as
A)nondiscretionary fiscal policy.
B)discretionary (and expansionary)fiscal policy.
C)discretionary (and contractionary)fiscal policy.
D)monetary policy.
Q2) A political problem with discretionary fiscal policy is the
A)contractionary bias.
B)expansionary bias.
C)big-state bias.
D)overreaction bias.
Q3) Real economic growth during the first two years of President George W. Bush's second term was
A)approximately 8.7% per year.
B)lower than real economic growth during the first two years of President Bill Clinton's second term.
C)approximately 6.4% per year.
D)negative because of the 2001 recession.
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Chapter 10: Monetary Policy
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104 Flashcards
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Sample Questions
Q1) The monetary base includes
A)cash held by banks and by the public plus deposits at the Federal Reserve.
B)currency plus checkable accounts and traveler's checks.
C)currency plus checkable accounts plus traveler's checks plus small CDs and money market accounts.
D)just cash held by the public.
Q2) The Federal Reserve's long standing tools include
A)open market operations.
B)changing the level of the targeted interest rate.
C)changing the reserve ratio.
D)all of these options are correct.
Q3) If the Fed wants banks to have more money to lend, it can
A)raise its discount rate.
B)sell government securities.
C)raise the reserve ratio.
D)lower the reserve ratio.
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12
Chapter 11: Federal Spending
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Sample Questions
Q1) In 2016, the largest item in the Federal Budget was
A)Social Security.
B)Medicaid.
C)welfare.
D)international aid.
Q2) Suppose there was a debate regarding how to spend $1 billion in newly found revenues in the budget. Suppose the centrist Democrat suggests an increase to infrastructure spending. Suppose the centrist Republican suggests an increase in cyber-defense spending. The Democrat says that the extra infrastructure spending will decrease travel times and be the most valuable. The Republican is arguing that, on average, cyber-security is worth the money so more is better. What is going on here?
A)Both are employing marginal analysis, just from different perspectives
B)Only the Democrat is using marginal analysis.
C)Only the Republican is using marginal analysis.
D)Neither are using marginal analysis.
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Chapter 12: Federal Deficits, Surpluses, and the National Debt
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Sample Questions
Q1) Which of the following events occurred during the 2000 to 2005 time-frame and had an important impact on the deficit/surplus projections?
A)The tax cuts of 2001 and 2003.
B)The increase in interest rates from 2001 to 2003.
C)The increase in inflation rates from 2000 to 2002.
D)The decrease in unemployment rates from 2002 to 2003.
Q2) Which of the following events occurred during the 2000 to 2005 time-frame and had an important impact on the deficit/surplus projections?
A)The steep decline in taxable capital gains that resulted from declines in the Stock Market from March 2000 to the end of 2002.
B)The increase in interest rates from 2001 to 2003.
C)The increase in inflation rates from 2000 to 2002.
D)The decrease in unemployment rates from 2002 to 2003.
Q3) Many economists look at the Federal Budget and see that it should be broken into
A)an operating budget and a defense budget.
B)a capital budget and an everyday budget.
C)an operating budget and a capital budget.
D)a defense budget and a non-defense budget.
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Chapter 13: The Housing Bubble
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Sample Questions
Q1) "Exotic" mortgages became popular in part because they allow someone of A)means to get into a home they would easily have been able to afford.
B)modest means to get into a home they might otherwise not have been able to afford.
C)modest means to build more equity in their home than a traditional mortgage would allow.
D)modest means to build their credit score by proving they could make challenging payments.
Q2) Homeowner with good credit history usually will be A)wise enough never to borrow any of their home equity for any purpose.
B)wise enough to borrow part of their home equity only for sensible goals, like a big new SUV.
C)able to borrow part of the equity in their home to achieve reasonable financial goals. D)unaware that borrowing part of the equity in their home will increase their monthly payments.
Q3) Monthly payments on "exotic" mortgages are constant over the life of the mortgage.
A)True
B)False
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Page 15
Chapter 14: The Recession of 2007-2009: Causes and Policy
Responses
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Sample Questions
Q1) The efforts to revive the economy in 2009 through 2011 were drawn from
A)the traditional tools of monetary policy.
B)new tools of monetary policy.
C)discretionary fiscal policy.
D)all of the options are correct.
Q2) A factor that might have contributed to the weakening of the U.S. economy in 2007-2009 was
A)historically low interest rates.
B)rapid growth of the money stock.
C)the impending expiration of the Bush Tax Cuts of 2003.
D)rising levels of federal government spending.
Q3) Discretionary fiscal policies that increase aggregate demand tend to result in
A)lower Real GDP ("RGDP")and a higher price level ("PI").
B)higher Real GDP ("RGDP")and a higher price level ("PI").
C)lower Real GDP ("RGDP")and a lower price level ("PI").
D)higher Real GDP ("RGDP")and a lower price level ("PI").
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Page 16
Chapter 15: Is Economic Stagnation the New Normal
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Sample Questions
Q1) The percentage of the population in the two higher income classes (defined by Pew as having more than 200% of median family income) declined from more than 60% in the 1970s to 50% in 2015. Economists see the decline in the middle class as a
A)cause of the decline in growth, not a consequence of it.
B)consequence of the decline in growth, not a cause of it.
C)Unrelated to the decline in growth.
D)Both a cause and a consequence of the decline in growth.
Q2) World economic growth, as measured by increases in real per-capita GDP, exceeded 2% during the period
A)1300-1750
B)1750-1860
C)1865-1929
D)1946-1980
Q3) World economic growth, as measured by increases in real per-capita GDP, exceeded 2% during the period
A)1865-1929
B)1946-1980
C)1946-2015
D)2009-2015
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Page 17
Chapter 16: Is the Fiscalsky Falling: An Examination of
Unfunded Social Security, Medicare, and State and Local Pension Liabilities
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Sample Questions
Q1) Which of the following entities is compelled to pay premiums to the Pension Guaranty Trust Corporation?
A)Defined benefit pension programs
B)Defined contribution programs
C)Ponzi schemes
D)Social Security
Q2) Economists Novy-Marx and Rauh contend that
A)states are in fine shape with regard to their pension liabilities but that cities are not.
B)states and cities are in fine shape with regard to their pension liabilities.
C)states and cities are in poor shape with regard to their pension liabilities.
D)cities are in fine shape with regard to their pension liabilities but that states are not.
Q3) Which of the following are entitlements?
A)Medicare
B)Social Security
C)defined contribution programs
D)Medicare and Social Security
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Chapter 17: International Trade: Does It Jeopardize
American Jobs
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Sample Questions
Q1) If it takes one country one unit of labor to produce either a computer or a TV but it takes the other country two units of labor to produce a computer and only one to produce a TV, then the first country has
A)a comparative advantage in both goods.
B)an absolute advantage in both goods.
C)both a comparative and absolute advantage in both goods.
D)an absolute and comparative advantage in production of computers.
Q2) A quota that limits U.S. imports of cane sugar
A)harms U.S. sugar consumers.
B)helps U.S. cane sugar producers.
C)helps U.S. corn syrup (sweetener)producers.
D)all of the options are correct.
Q3) If with one unit of labor the U.S. can produce 20 units of computer software and 10 units of computer hardware and China can produce 6 units of software and 6 units of hardware then trade can make
A)the U.S. better off but not China.
B)China better off but not the U.S.
C)neither better off.
D)both better off.
Page 19
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Chapter 18: International Finance and Exchange Rates
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Sample Questions
Q1) The massive deficit in the U.S. current account primarily reflects the
A)excess of foreign investment in the U.S. over domestic private investment.
B)excess of U.S. exports over U.S. imports.
C)excess of U.S. imports over U.S. exports.
D)transfers of money home by U.S. citizens working in other countries.
Q2) Between 2000 and mid-2005, the value of the U.S. dollar expressed in Chinese yuan
A)increased sharply.
B)decreased precipitously.
C)remained essentially constant.
D)was zero because it was illegal to sell yuan.
Q3) What balances in balance of payment calculations
A)exports and imports.
B)exports and short term income balances.
C)the capital and current accounts.
D)exports minus imports (plus a statistical discrepancy)with short term income movements.
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Chapter 19: The European Debt Crisis
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Sample Questions
Q1) The euro, as a common currency, was in use in the financial market only between
A)1999 and 2001
B)2000 and 2010
C)1999 and 2010
D)2000 and 2005
Q2) As a result of the austerity policy
A)the AD curve shifts to AD''.
B)the AD curve shifts to AD'.
C)the AS curve shifts to AS'.
D)the AS curve shifts to AS''.
Q3) Which of the following resulted due to the budget reforms undertaken by the weaker economies to receive assistance?
A)Unemployment rose dramatically in the weaker economies.
B)Taxes decreased dramatically in the weaker economies.
C)Economic activity increased in the weaker economies.
D)Inflation rates decreased in the weaker economies.
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21
Chapter 20: Economic Growth and Development
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Sample Questions
Q1) Increases in worker productivity usually reflect policies that encourage A)population growth.
B)consumption.
C)investment in physical and human capital.
D)extensive government regulation of business.
Q2) The ultimate source of long-term growth in already developed countries is
A)increased worker productivity.
B)larger and more powerful government.
C)a workforce that always works harder.
D)unrestricted immigration.
Q3) Among countries with per capita GDP in 2006 less than $2,000, A)rates of basic literacy tend to be low.
B)central banks tend not to be independent.
C)the government tends to be relatively corrupt.
D)all of the options are correct.
Q4) Aggregate Supply increases when A)raw materials prices rise.
B)government regulations proliferate.
C)wages rise.
D)wages fall.
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Chapter
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Sample Questions
Q1) Production of a catheter in the U.S. requires either one skilled worker-day or two unskilled worker-days, while production of the same device in Guatemala, because of its relative lack of transportation and communications infrastructure, requires either three skilled worker-days or four unskilled worker-days. Production of a hammock in the U.S. requires one-fourth skilled worker-day or one-third unskilled worker-day, while production of a hammock in Guatemala requires one-third skilled worker-day or one unskilled worker day. If eighty unskilled worker-days are moved from producing hammocks to producing catheters in the U.S., while ninety skilled worker-days are moved from producing catheters to producing hammocks in Guatemala, combined production of the two goods in the two countries will change by
A)ten additional catheters and thirty additional hammocks.
B)thirty additional catheters and five additional hammocks.
C)ten additional catheters and sixty fewer hammocks.
D)no net change in production of the two goods would occur.
Q2) Which of the following trade agreements includes Costa Rica?
A)NAFTA
B)CAFTA
C)AFL-CIO
D)All of these include Costa Rica.
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Chapter 22: The Line Between Legal and Illegal Goods
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Sample Questions
Q1) The reason cigarette taxes would impact kids more than adults is that adult demand is _____ elastic than demand by kids.
A)more
B)less
C)as
D)neither more or less
Q2) In Figure 22.1, which area represents total expenditure by the drug addict?
A)ABC
B)BP*C
C)0ACQ*
D)0P*CQ*
Q3) The 1998 tobacco settlement requires that tobacco companies pay ___ to the states in the settlement over a period of twenty years.
A)$2.5 million
B)$250 million
C)$2.5 billion
D)$250 billion
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Chapter 23: Natural Resources, the Environment, and Climate Change
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Sample Questions
Q1) The concept of "clean enough" to an economist means the A)perfect state of cleanliness.
B)state of cleanliness where the average cost of cleaning more equals the average benefit of cleaning more.
C)state of cleanliness where the marginal cost of cleaning equals the marginal benefit of cleaning.
D)state of cleanliness where the total cost of cleaning equals the total benefit of cleaning.
Q2) Applying the concept of "clean enough" to clean water an economist means the A)perfectly clean water.
B)state of cleanliness where the average cost of cleaning more equals the average benefit of cleaning more.
C)state of cleanliness where the marginal cost of cleaning equals the marginal benefit of cleaning.
D)state of cleanliness where the total cost of cleaning equals the total benefit of cleaning.
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25
Chapter 24: Health Care
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Sample Questions
Q1) Relative to the U.K., Japan, Germany and France, life expectancy in the U.S. is
A)higher by more than ten years.
B)higher by one to five years.
C)lower by more than ten years.
D)lower by one to five years.
Q2) On health care issues, the U.S. generally spends
A)much more as a percentage of GDP than other nations.
B)almost exactly the same percentage of GDP as other nations.
C)much less as a percentage of GDP as other nations.
D)a more rapidly decreasing percentage of GDP than other nations.
Q3) In terms of who employs physicians, who owns hospitals and clinics, and the role of insurance
A)single payer systems are all alike.
B)single payer systems are no different than private systems.
C)single payer systems are all private.
D)single payer systems are very different depending on the country.
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Chapter
Medicaid, Medicare, and the Child Health Insurance Program
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Sample Questions
Q1) Medicare covers all those
A)over 65.
B)eligible for Social Security benefits.
C)unable to pay its premiums.
D)who are both young and poor.
Q2) The Medicare Trustees created a report with predictions about the future based on
A)only optimistic assumptions.
B)only pessimistic assumptions.
C)only realistic assumptions.
D)varied assumptions from optimistic to pessimistic.
Q3) Families are automatically eligible for Medicaid if they are on A)TANF.
B)SSI.
C)Social Security.
D)TANF and SSI.
Q4) Hospitals can refuse to treat non-emergency cases for Medicaid recipients.
A)True
B)False
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Chapter 26: The Economics of Prescription Drugs
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Sample Questions
Q1) In Figure 26.1, the price under monopoly is A)A
B)P<sub>1</sub>
C)P<sub>2</sub>
D)F
Q2) In Figure 26.1, producer surplus under perfect competition is
A)FP<sub>2</sub>C
B)FABE
C)EBC
D)P<sub>2</sub>AC
Q3) Relative to a cure for AIDS, the demand for an AIDS vaccine would be A)more elastic.
B)more inelastic.
C)equal in elasticity.
D)not as elastic.
Q4) Drugs that are labeled "orphan drugs" are
A)made available at no cost to children who have lost their parents.
B)granted very short-lived patents.
C)granted very long-lived patents.
D)denied patent protection entirely.
28
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Sample Questions
Q1) Student loans are
A)usually discharged (forgiven)in bankruptcy.
B)only rarely discharged (forgiven)in bankruptcy.
C)collected first in bankruptcy proceedings.
D)treated no differently than other obligations in bankruptcy.
Q2) Politically, contingency attorneys in the U.S. overwhelmingly favor A)Democrats.
B)Republicans.
C)Libertarians.
D)Independents.
Q3) Estimation of the present value of lost current and future income must consider A)the expected length of working life.
B)any possible future raises.
C)any risk of unemployment.
D)all of the options are correct.
Q4) Enforcement of private property rights is ordinarily entrusted to the A)military.
B)government.
C)individual property owners.
D)social conscience of buyers and sellers.
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Chapter 28: The Economics of Crime
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Sample Questions
Q1) Among the simplest costs of crime to evaluate are typically the A)psychological trauma suffered by victims of sexual assault.
B)deterioration in quality of life due to physical injury.
C)risk that future productivity at work might be compromised by an injury.
D)wages lost due to missed work days following an assault.
Q2) If the poverty rate declines because of a general increase in the economic standing of lower income people, the rational criminal model would predict A)increased crime.
B)have no effect on crime.
C)decreased crime.
D)increased social worker caseloads.
Q3) Of the people arrested in 2014 in the U.S., _______ got some jail time.
A)36,000
B)626,644
C)3,600,000
D)36,000,000
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Chapter 29: Antitrust
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Q1) If two airlines wish to merge they must seek permission of the A)Federal Trade Commission.
B)Federal Communications Commission.
C)Federal Anti-Trust Agency.
D)Agency for International Air Traffic.
Q2) The 1969 IBM case ended when
A)mainframe computers gradually replaced PCs in economic importance.
B)Apple and Microsoft dropped their complaints against IBM.
C)the U.S. Justice Department dropped the case in 1982.
D)IBM won an injunction against Apple's production of PCs.
Q3) In Figure 29.1 the area that represents the consumer surplus under monopoly is
A)P<sub>PC</sub>AC
B)P<sub>monopoly</sub>AB
C)FP<sub>PC</sub>C
D)FP<sub>monopoly</sub>BE
Q4) In Figure 29.1 the area that represents the producer surplus under monopoly is
A)P<sub>PC</sub>AC
B)P<sub>monopoly</sub>AB
C)FP<sub>PC</sub>C
D)FP<sub>monopoly</sub>BE
Page 31
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Chapter 30: The Economics of Race and Discrimination
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Q1) The unemployment rate for African-Americans is, across age categories,
A)about the same as that for whites.
B)one percentage points lower than that of whites.
C)several percentage points higher than that of whites.
D)less than half that of whites.
Q2) Suppose a shipping company required all applicants to lift fifty pound boxes on and off a truck for an hour to test their strength and endurance and suppose that resulted in 50 out of 100 black applicants being hired and 10 out of 100 white applicants being hired. If this test measured the performance required on the job then this would be an example of
A)statistical discrimination.
B)disparate treatment discrimination.
C)rational discrimination.
D)adverse impact discrimination.
Q3) In terms of wages for full-time employment, men make ___ more than what women make.
A)1%
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Chapter 31: Income and Wealth Inequality
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Q1) Which of the following is true of the relationship between income inequality and public policy in the U.S. since the 1980s?
A)Public policy has been more favorable to those at the high end of the income distribution resulting in an increase in income inequalities.
B)Public policy has been more favorable to those at the low end of the income distribution resulting in an increase in income inequalities.
C)Public policy has been less favorable to those at the high end of the income distribution resulting in a decrease in income inequalities.
D)Public policy has been less favorable to those at the low end of the income distribution resulting in a decrease in income inequalities.
Q2) Alex, a resident of the United States, has accrued capital gains and she dies prior to the realization of her gains. Which of the following is true of Alex's capital gains?
A)Her capital gains are tax free.
B)Her heirs cannot sell her asset immediately.
C)Her heirs cannot hold her assets.
D)Her capital gains are transferred to government revenue.
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Chapter 32: Farm Policy
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Q1) In Figure 32.1, at the supported price-quantity combination where production is unlimited, and government buys the excess, the money consumers pay producers is\
A)0ABQ<sub>D</sub>
B)0P*CQ*
C)0P<sub>floor</sub>BQ<sub>D</sub>
D)0HCQ*
Q2) If order to be relevant the price floor must be A)at equilibrium.
B)above equilibrium.
C)within 10% of equilibrium (either way).
D)below equilibrium.
Q3) In Figure 32.1, at the market price-quantity combination, the consumer surplus is A)AP<sub>floor</sub>B
B)P*AC
C)HP*C
D)HP<sub>floor</sub>BG
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Chapter 33: Minimum Wage
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Q1) To achieve its goal of keeping a family of four with one wage earner out of poverty, the minimum wage would have to be
A)$5.15 per hour
B)$7.25 per hour
C)nearly $9.00 per hour
D)more $11.00 per hour
Q2) If a fast food restaurant was one of many hiring workers, the minimum wage was $7.25 an hour and it was paying $7.25 an hour to new employees. Suppose a worker earns a $0.75 raise to $8 an hour. Now suppose the minimum wage rises to $8.25 an hour. The government requires this worker to be paid
A)$8.00 an hour.
B)$8.25 an hour.
C)$9.00 an hour.
D)somewhere between $8.25 and $9.00 an hour depending on the policies of the restaurant.
Q3) Increases in the minimum wage are in every worker's best interest.
A)True
B)False
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Chapter 34: Ticket Brokers and Ticket Scalping
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Q1) The basic reason that your college's women's basketball tickets are rarely if ever scalped is because
A)sellouts are required for scalping to work and these games rarely sell out.
B)brokers/scalpers just have not yet hit your city.
C)no one would ever pay more than the face value for such a ticket.
D)women's basketball is exempt from the laws of supply and demand.
Q2) Suppose one of baseball's most controversial records - the Bonds' career home run record - were on the line. Tickets to the games leading up to breaking of the record might command three times the face-value price for tickets. Economists would suggest that a scalping market would appear and it
A)would make all ticket holders and potential buys worse off.
B)would make all ticket holders and potential buys better off (or at least no worse off).
C)cause the price to fall below the face value.
D)cause the price to fall back to the face value.
Q3) For a promoter to maximize profit, he will have to sell out the venue.
A)True
B)False
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Page 36
Chapter 35: Rent Control
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Q1) One result of rent control is the desire by landlords for tenants to leave, so tenants A)simply leave.
B)have an incentive report all infractions, no matter how minor to the authorities, C)have an incentive to perform many repairs for themselves.
D)have an incentive to offer more rent.
Q2) If the rent controlled rent is above the equilibrium the result will be
A)that landlords will charge more than the equilibrium rent.
B)a shortage of rental apartments.
C)a surplus of rental apartments.
D)nothing different than if there were no rent control.
Q3) The argument that supply for apartments is more elastic in the long run is based on the idea that
A)it is costly to move to a different location.
B)it takes time to refurbish existing apartments or build new ones.
C)people will change apartments quickly when there are small changes in rent.
D)landlords will rent only what they have.
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Chapter 36: Economics of K-12 Education
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Q1) Examine Figure 36.1, which shows the market for K-12 education in an economy. If K-12 education is completely subsidized, _____ students will be educated.
A)10,340.
B)20,000.
C)40,000.
D)40,640.
Q2) Economists Lochner and Moretti have identified external benefits to education in the form of
A)improved melodies produced by better-educated musicians.
B)the higher quality of elected officials chosen by better-educated voters.
C)higher salaries earned by better-educated engineers.
D)education-related crime reductions.
Q3) A public teacher's pension is likely to be
A)defined benefit.
B)defined contribution.
C)whatever they saved for themselves because they are not eligible for a pension or for Social Security.
D)Social Security only.
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Chapter 37: Economics of College and University Education
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Q1) The profit a publisher makes on the sale of a used college textbook is
A)the same as when they sell it new.
B)half of the amount they made when it sold for the first time.
C)$2 per book.
D)zero.
Q2) Since the 1980s federal spending on higher education has taken the form of
A)direct payments to faculty.
B)a substantial shift toward grants rather than loans.
C)a substantial shift toward subsidized loans rather than grants.
D)direct payments to universities.
Q3) The strategy of faculty choosing to stay with an old edition of a book is
A)in the best interests of publishers.
B)in the best interests of authors.
C)likely to reduce the costs to students.
D)likely to be replicated by everyone.
Q4) Between 1992 and 2012, the percentage of students borrowing to pay for college
A)decreased from 18% to 13%.
B)remained constant at 30%.
C)increased from 34% to 57%.
D)decreased from 73% to 58%.
Page 39
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Chapter 38: Poverty and Welfare
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Q1) The percentage of people in households with income under that which is sufficient to provide a family with a minimally adequate standard of living is the
A)poverty line.
B)poverty rate.
C)poverty gap.
D)poverty state.
Q2) Which of the following groups has the lowest poverty rate?
A)Whites.
B)The elderly.
C)Children.
D)People with bachelor's degrees.
Q3) Which of the following is a goal of a welfare system?
A)To make recipients happy.
B)To reduce the number of children born.
C)To provide an incentive to leave the system.
D)To stimulate economic growth.
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Chapter 39: Head Start
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Q1) The opportunity cost of the $8 billion spent on Head Start is
A)the other programs that could have better used the money.
B)the other programs that are not piloted to see if other approaches would work.
C)the fact that the Head Start program is underfunded.
D)A and B .
Q2) The academic studies that were the intellectual justification for Head Start suggested that for every dollar spent on the program ___ would be returned to society in the form of higher taxes and lower welfare and incarceration costs.
A)$1
B)$5
C)$50
D)$100
Q3) The racial makeup of the children enrolled in Head Start
A)is in rough proportion to those in the general population.
B)is in rough proportion to those in poverty.
C)is disproportionately Hispanic.
D)is disproportionately white non-Hispanic.
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Chapter 40: Social Security
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Q1) The solvency of Social Security can be extended if
A)the retirement age is reduced.
B)the cap on taxable earnings is lowered.
C)the trust fund invests in private corporate securities.
D)the tax rate is reduced.
Q2) If you overhear a group of people talking about their plans to save for their retirement and one of them says that it causes them to save more because, as they reason it, "if there wasn't Social Security I could never retire; there is, so I will and I need to save for that." You would attribute this to the
A)slovenly effect.
B)bequest effect.
C)induced retirement effect.
D)asset substitution effect.
Q3) The demographic bulge that is at the heart of Social Security's long-term problems is attributable to a baby boom that occurred
A)after World War I.
B)after World War II.
C)in the 1960's.
D)in the 1980's.
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Page 42
Chapter 41: Personal Income Taxes
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Q1) Which of the following elements of the federal income tax code are not indexed for inflation?
A)The brackets
B)The standard deduction
C)The personal exemption
D)All of these elements are indexed.
Q2) Exemptions are reductions of adjusted gross income that depend on
A)family structure (i.e. filing status).
B)family size.
C)how money is spent (e.g. on state and local taxes or home mortgage interest).
D)how much money is saved.
Q3) Economists generally believe that tax credits and deductions that are used to create an incentive for individuals to go to college
A)perversely, cause fewer people to go to college.
B)cause dramatically more people to go to college, working precisely as was intended.
C)cause a few more people to go to college, working somewhat as was intended.
D)cause no more people to go to college, amounting to a special break for people who would have gone to college anyway.
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Chapter 42: Energy Prices
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Q1) If the expected price of oil rises then
A)the current equilibrium price and quantity will both rise.
B)the current equilibrium price will rise and the current equilibrium quantity will fall.
C)the equilibrium price and quantity will not change.
D)the equilibrium price will rise but the change in the equilibrium quantity will depend on whether the demand change outweighs the supply change.
Q2) Energy prices rose during 2005 largely because of
A)increased demand in Central America.
B)increased demand in China.
C)weather related (hurricanes)in the Gulf of Mexico.
D)increased demand in China and weather related (hurricanes)in the Gulf of Mexico.
Q3) In Figure 42.1, what is the price an unregulated monopolist will charge?
A)P<sub>1</sub>
B)P<sub>2</sub>
C)P<sub>3</sub>
D)P<sub>4</sub>
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Chapter
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Q1) The smallest metropolitan area in the United States that has at least one major league baseball, basketball, football, or hockey franchise is
A)Green Bay, Wisconsin.
B)Indianapolis, Indiana.
C)Oklahoma City, Oklahoma.
D)Fargo, North Dakota.
Q2) The era of free agency dawned in major sports in A)1946.
B)1977.
C)1985.
D)1998.
Q3) The extra revenue to a team associated with a player is called the player's A)reservation wage.
B)marginal revenue product.
C)average compensation.
D)minimum wage.
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Chapter 44: The Stock Market Crashes
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Q1) From 1982 until 2000, stock prices rose dramatically. As measured by the Standard and Poor's 500 composite, stocks went from under _____ to above _______ during this period.
A)1,000; 11,000.
B)200; 1,400
C)400; 5,000
D)10,000; 200,000
Q2) The 2006-2007 recovery of stock prices from their 2000-2001 collapse was largely a reflection of
A)the Democrat sweep of Congress.
B)the Enron scandals.
C)increased earnings forecasts and low long-term interest rates.
D)reduced earnings forecasts and high long-term interest rates.
Q3) During 1999, the NASDAQ increased
A)84 fold.
B)84%.
C)8%.
D)4%.
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Chapter 45: Unions
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Q1) In Figure 45.5, where one union is bargaining against one employer, the lowest possible negotiated wage paid to workers will be A)W*.
B)W<sub>1</sub><sub>.</sub>
C)W<sub>2</sub><sub>.</sub>
D)an undetermined point between W<sub>1</sub> and W<sub>2</sub><sub>.</sub>
Q2) Private employees (more frequently than public employees)tend to have their private retirements in
A)defined benefit pension programs.
B)defined contribution programs.
C)Ponzi schemes.
D)Social Security.
Q3) A union model changes the market form from that of perfect competition to that of a A)monopoly.
B)monopsony.
C)oligopoly.
D)monopolistic competition.
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Q1) If you got a new job and moved to Indianapolis, Indiana (population 800,000)you would expect to find more than 100 grocery stores (several Walmart Supercenters and Super Targets, several Krogers, Marshes and dozens of IGA affiliates and dozens more independent grocery stores), the market form is A)monopoly.
B)oligopoly.
C)monopolistic competition.
D)perfect competition.
Q2) Walmart's "pull-factor" can be beneficial to a community by encouraging A)labor union activists to move permanently into the area.
B)dissatisfied employees to apply for work at other local "Mom and Pop" retailers.
C)suppliers to offer their employees higher wages and more attractive fringe benefits.
D)other "big box" retailers to locate nearby.
Q3) In small towns where there are two grocery stores, the market form is A)monopoly.
B)oligopoly.
C)monopolistic competition.
D)perfect competition.
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Chapter 47: The Economic Impact of Casino Gambling
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Q1) The degree to which a new casino will have an economic impact reflects the potential
A)local substitution.
B)the addictiveness of gambling.
C)positive externalities.
D)legislation.
Q2) The city in which a new casino is likely to have the greatest economic impact would be
A)Las Vegas (where many already exist).
B)St. Louis (where three already exist).
C)Kansas City (where two already exist).
D)Denton, TX (north of Dallas, where no casinos already exist).
Q3) U.S. casinos employ about _____ people.
A)37,000
B)340,000
C)1 million
D)10 million
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Chapter 48: The Economics of Terrorism
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Q1) In the context of terrorism, increasing airport security has the
A)positive externality of making all aspects of life safer.
B)negative externality of making other potential targets relatively more attractive to future terrorists.
C)positive externality of making other potential targets relatively more attractive to future terrorists.
D)negative externality of making all aspects of life safer.
Q2) Al-Qaeda operatives claimed that the September 11th terrorist attacks inflicted damage upon the U.S. of
A)almost $1 million.
B)between $1 billion and $10 billion.
C)between $10 billion and $100 billion.
D)more than $1 trillion.
Q3) Which of the following terrorist acts makes the most sense from the perspective of the "rational terrorist"
A)quietly killing a CIA agent.
B)attempting to attack a well defended target.
C)attacking a lightly defended target in a media center.
D)attacking a lightly defended target in a remote area.
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Page 50