Course Introduction
Economic Theory
Test Preparation
Economic Theory explores the foundational principles and models that guide economic analysis and decision-making. The course examines the behavior of individuals, firms, and markets, focusing on concepts such as supply and demand, market equilibrium, consumer choice, production theory, and the allocation of resources. Both microeconomic and macroeconomic perspectives are introduced, enabling students to critically evaluate how economies operate, how prices are determined, and how government policies can influence economic outcomes. Through theoretical frameworks and real-world applications, students develop a robust understanding of the mechanisms underlying economic systems.
Recommended Textbook
Economics 4th Edition by Paul Krugman
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35 Chapters
7902 Verified Questions
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Page 2
Chapter 1: First Principles
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Sample Questions
Q1) Some baseball fans leave the game in the seventh or eighth inning to avoid the postgame traffic. The fans are:
A) not considering that they have already paid for their tickets.
B) making a marginal decision by comparing the cost of leaving early to the benefit of leaving early.
C) thinking only about the benefits of avoiding traffic.
D) underestimating the value of staying for the rest of the game.
Answer: B
Q2) At various times, the nations that constitute the Organization of Petroleum Exporting Countries (OPEC) have restricted the supply of oil to increase their profits. This is an example of:
A) individual actions whose side effects are not properly taken into account by the market.
B) one party preventing mutually beneficial trades in an attempt to capture a greater share of resources for itself.
C) the unsuitability of some goods for efficient management by markets.
D) regulating self-interest.
Answer: B
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3
Chapter 2: Economic Models- Trade-Offs and Trade
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Sample Questions
Q1) Efficient production occurs when the economy is:
A) operating inside its production possibility frontier.
B) operating on its production possibility frontier.
C) operating outside its production possibility frontier.
D) moving beyond its production possibility frontier.
Answer: B
Q2) Economic models often:
A) vary greatly in assumptions and simplifications.
B) are correct.
C) provide similar answers.
D) fail to explain any of the real-life scenarios they are supposed to help solve.
Answer: A
Q3) An economy is said to have a comparative advantage in the production of one good if it:
A) can produce more of all goods than another economy.
B) can produce less of all goods than another economy.
C) has the highest opportunity cost of producing a particular good.
D) has the lowest opportunity cost of producing a particular good.
Answer: D
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Page 4
Chapter 3: Supply and Demand
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Sample Questions
Q1) Researchers find a new strain of genetically modified seeds that results in a higher yield for corn producers. Holding all other things constant, this research will:
A) shift the supply curve for corn left.
B) increase the quantity supplied of corn.
C) decrease the quantity supplied of corn.
D) shift the supply curve for corn to the right.
Q2) (Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of Gasoline. Given the initial equilibrium of S<sub>1</sub> and D, any price lower than _____ will exert pressure for the price to _____.
A) $2.00; fall
B) $2.50; rise
C) $3.00; rise
D) $2.50; fall
Q3) If coffee and tea are viewed as substitutes in consumption, then an increase in the price of coffee will increase the demand for tea.
A)True
B)False
Q4) Why do many clothing stores have big after-Christmas sales on their merchandise?
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Page 5
Chapter 4: Consumer and Producer Surplus
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Sample Questions
Q1) (Figure: Producer Surplus) Look at the figure Producer Surplus. Total producer surplus is _____ when the price is $40.
A) $40
B) $60
C) $80
D) $85
Q2) The total producer surplus for a good can be calculated in all of the following ways EXCEPT as:
A) the sum of the individual producer surpluses for all sellers of the good.
B) the area below the supply curve for the good up to the quantity of the good sold.
C) the area above the supply curve and below the price at which the good is being sold.
D) the sum, for all sellers of the good, of the difference between what each seller receives and the minimum amount he or she is willing to accept for selling the good.
Q3) Total surplus is the excess of consumer surplus over producer surplus.
A)True
B)False
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Chapter 5: Price Controls and Quotas- Meddling With
Markets
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Sample Questions
Q1) (Figure: The Market for Milk) Look at the figure The Market for Milk. With a binding price floor, the price could be equal to _____, consumers would demand _____, and producers would supply _____.
A) P<sub>1</sub>; Q<sub>1</sub>; Q<sub>3</sub>
B) P<sub>2</sub>; Q<sub>2</sub>; Q<sub>2</sub>
C) P<sub>1</sub>; Q<sub>3</sub>; Q<sub>1</sub>
D) P<sub>3</sub>; Q<sub>3</sub>; Q<sub>1</sub>
Q2) Suppose the United States removes the sugar quotas and the market price of sugar drops. Since sugar is an input in candy, in the candy bar market, we would expect consumer surplus to:
A) increase.
B) decrease.
C) not change.
D) Consumer surplus cannot be determined without information about the supply curve.
Q3) A price control is:
A) control of the price of a good by the firm that produces it.
B) a legal restriction on how high or low a price in a market may go.
C) an upper limit on the quantity of some good that can be bought or sold.
D) a tax on the sale of a good that controls the market price.
Page 7
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Chapter 6: Elasticity
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Sample Questions
Q1) (Figure: The Demand for e-Books) If the price of e-Books decreases from $6 to $4, total revenue _____, which means that demand is _____.
A) changes from $60 to $90; elastic B) remains constant; unit-elastic C) changes from $240 to $360; elastic D) changes from $40 to $50; inelastic
Q2) (Figure: The Demand for e-Books) If the price of e-Books increases from $6 to $8, total revenue _____, which means that demand is _____.
A) increases; elastic B) decreases; inelastic C) remains constant; elastic D) decreases; elastic
Q3) (Figure: The Linear Demand Curve II) Look at the figure Linear Demand Curve II. If price was initially set at $8 and then increased to $10, total revenue would: A) decrease, as the price effect is dominated by the quantity effect. B) increase, as the price effect dominates the quantity effect. C) stay the same, as both the price and quantity effects remain unchanged. D) stay the same, but the price effect is dominated by the quantity effect.
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8
Chapter 7: Taxes
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Sample Questions
Q1) (Figure: The Market for Yachts) Look at the figure The Market for Yachts. If the government imposes a $60,000 tax on yachts (collected from the producers), the price of yachts will rise to _____ and the government will collect _____.
A) $100,000; $120 million
B) $120,000; $90 million
C) $140,000; $90 million
D) $160,000; $120 million
Q2) Suppose the government decides to fight obesity in America by imposing an excise tax based on the saturated fat content of food. The most likely effect of this tax would be to:
A) lower the profits of ice cream suppliers.
B) decrease revenue for the government.
C) decrease black market activity.
D) raise the profits of ice cream suppliers.
Q3) If demand is inelastic, then deadweight loss will:
A) be minimized if supply is also inelastic.
B) be maximized if supply is also inelastic.
C) decrease if demand becomes more elastic.
D) increase if supply becomes more inelastic.
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Page 9
Chapter 9: The Rational Consumer
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Sample Questions
Q1) The relation between an individual's consumption bundle and her satisfaction is called a _____ function.
A) demand
B) production
C) consumption
D) utility
Q2) Which of the following goods is MOST likely to display increasing marginal utility over some range?
A) chicken during the 1920s, when it was considered a luxury good
B) paint, because you need enough to paint at least one entire room
C) lobsters, which are so expensive that you must eat two to get your money's worth
D) peanut butter and jelly sandwiches
Q3) (Figure and Table: The Budget Line) Look at the figure and table The Budget Line. A decrease in income would:
A) rotate the budget line along the horizontal axis.
B) shift the budget line to the left.
C) rotate the budget line along the vertical axis.
D) shift the budget line to the right.
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10
Chapter 8: International Trade
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Sample Questions
Q1) The United States and the European Union levy heavy import tariffs on agricultural products, which hurt many poor farmers from the very poorest countries in the world.
A)True
B)False
Q2) (Table: The Production Possibilities for Tractors and Crude Oil) Look at the table The Production Possibilities for Tractors and Crude Oil. The opportunity cost of _____ is _____ in the United States as (than) in Mexico.
A) tractors; higher
B) tractors; the same
C) tractors; lower
D) crude oil; lower
Q3) (Figure: The Production Possibility Frontiers for Jackson and Tahoe) Look at the figure The Production Possibility Frontiers for Jackson and Tahoe. Tahoe has an absolute advantage in producing:
A) wheat only.
B) cattle only.
C) both wheat and cattle.
D) neither wheat nor cattle.
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Chapter 10: Decision Making by Individuals and Firms
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Sample Questions
Q1) The amount by which an additional unit of an activity increases total cost is:
A) net benefit.
B) marginal benefit.
C) negative benefit.
D) marginal cost.
Q2) (Figure: The Marginal Benefit Curve) Look at the figure The Marginal Benefit Curve. The total benefit of mowing four lawns is approximately:
A) $25.
B) $35.
C) $80.
D) $114.
Q3) (Figure: The Marginal Cost Curve) Look at the figure The Marginal Cost Curve. The approximate total cost of mowing seven lawns is:
A) $175.
B) $113.
C) $50.
D) $24.
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Chapter 11: Perfect Competition and the Supply Curve
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Sample Questions
Q1) (Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly Competitive Firm in the Short Run. The firm's total cost of producing its most profitable level of output is:
A) BS.
B) DK.
C) 0FKD.
D) 0ESB.
Q2) (Table: Variable Costs for Lawns) Look at the table Variable Costs for Lawns. During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. Assume that costs are constant in each interval; that is, the variable cost of mowing 1 through 10 lawns is $100. His only fixed cost is $1,000 for the mower. His variable costs include fuel, his time, and mower parts. If the price for mowing a lawn is $40, how much is Alex's profit at the profit-maximizing output?
A) -$10
B) -$300
C) $300
D) -$1,000
Q3) Explain how the long-run perfectly competitive equilibrium is efficient.
Q4) State and explain the price-taking firm's optimal output rule.
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Chapter 12: Monopoly
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Sample
Questions
Q1) The advantage of public ownership of a monopoly is that prices can be based on efficiency rather than profit maximization.
A)True
B)False
Q2) An increase in the fixed costs of a monopoly firm would _____ price and _____ quantity in the short run.
A) increase; decrease
B) increase; increase
C) not change; not change
D) decrease; decrease
Q3) In general, economists are critical of monopoly where there is (are):
A) no natural monopoly.
B) a natural monopoly.
C) only a few firms.
D) persistent economies of scale.
Q4) An oligopoly is characterized as an industry in which:
A) there are few firms, each producing a differentiated or similar product.
B) there are many firms, each producing a similar product.
C) all market participants are price takers.
D) only one firm produces a very differentiated product.
Page 14
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Chapter 13: Oligopoly
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Sample Questions
Q1) (Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. If these two producers formed a cartel, agreed to split production of output evenly, and acted to maximize total industry profits, total industry output would be _____ and the price would be _____.
A) 1,000; $10
B) 100; $9
C) 400; $6
D) 500; $5
Q2) An analytical approach through which strategic choices can be assessed is called: A) cost-benefit analysis.
B) econometric theory.
C) game theory.
D) monopolistic competition.
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Chapter 14: Monopolistic Competition and Product
Differentiation
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Sample Questions
Q1) Because most communities have a large number of similar but not identical substitutes, the market for chiropractors is best considered to be:
A) an oligopoly.
B) perfect competition.
C) monopolistically competitive.
D) a monopoly.
Q2) A common example of monopolistic competition is the market for:
A) oranges.
B) 1-inch nails.
C) automobiles.
D) gas stations.
Q3) In large shopping malls, the retail clothing market is most illustrative of:
A) monopolistic competition.
B) monopoly.
C) perfect competition.
D) perfect oligopoly.
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Page 16
Chapter 15: Externalities
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Sample Questions
Q1) Which of the following is a positive externality?
A) Sam dug a pond so he could go fishing, but the pond has contributed to an explosion of mosquitoes in your neighborhood.
B) Sam has dozens of cats, and they come into your yard to hunt the birds that come to your birdbath.
C) Sam buys a dilapidated house, renovates it, and increases the property values of all houses in the neighborhood.
D) Liquid waste from Sam's chicken farm flows into a neighbor's well water.
Q2) (Figure: City with Two Polluters) Look at the figure City with Two Polluters. If the government wants to limit total pollution to 2,200 tons, it could impose an emissions tax of _____ on both firms.
A) $100
B) $200
C) $300
D) $400
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Chapter 16: Public Goods and Common Resources
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Sample Questions
Q1) Bluefin tuna travel in schools throughout the world's oceans. Fishing boats from many nations harvest bluefin tuna as the schools migrate through their national waters. The schools of bluefin tuna are best described as:
A) a private good.
B) a public good.
C) an artificially scarce resource.
D) a common resource.
Q2) A public good is _____ and _____ in consumption.
A) excludable; rival
B) nonexcludable; nonrival
C) excludable; nonrival
D) nonexcludable; rival
Q3) If left to the private market, the amount of police protection provided in a city would be _____ than it is now, and free riders would pay _____ for police protection.
A) more; more
B) more; nothing
C) less; nothing
D) less; a higher price
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18
Chapter 17: The Economics of the Welfare State
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Sample Questions
Q1) The problem with community rating is that it:
A) causes moral hazard.
B) results in poor-quality health care.
C) is very unpopular with health care providers.
D) may cause adverse selection.
Q2) Poverty can be defined either in absolute terms or in relative terms.
A)True
B)False
Q3) Some nations, including Canada, have adopted a health care system in which the government pays the medical bills. This is known as a(n) _____ system.
A) employment-based
B) private health insurance
C) means-tested
D) single-payer
Q4) The means-tested U.S. government health insurance program is:
A) Medicare.
B) Medicaid.
C) the Veterans Administration.
D) health savings accounts.
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Chapter 18: Factor Markets and the Distribution of Income
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Sample Questions
Q1) A profit-maximizing firm will hire workers up to the quantity of labor where:
A) VMPL > W.
B) VMPL = W.
C) VMPL < W.
D) MP × MR = VMPL.
Q2) Which of the following statements about unions is TRUE?
A) Laws allow unions to discriminate on the basis of gender and ethnicity.
B) Unions bargain for better working conditions at the cost of higher wages.
C) Unions cause a surplus of labor by bargaining for wages that are higher than the value of the marginal product of labor.
D) Unions cause compensating differentials.
Q3) If the extra output that is produced by hiring one more unit of labor adds more to _____ than to _____, the firm will increase its profit by increasing the use of labor.
A) total cost; total revenue
B) total revenue; total cost
C) marginal cost; marginal revenue
D) marginal product; marginal cost
Q4) You overhear an economist refer to the price of leisure. What does this mean? How can leisure have a price?
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Chapter 19: Uncertainty, Risk, and Private Information
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Sample Questions
Q1) Suppose for the coming year a family has calculated its expected value for car repairs to be $3,000. The family decides to buy a car insurance policy that would cover such claims. This insurance policy would cost a total of $3,000 for the household. This insurance policy is:
A) overcharging the family and is not fair.
B) an example of a fair insurance policy.
C) undercharging the family.
D) not appropriate for the family, and they should not buy it.
Q2) (Figure: Risk Aversion) Look at the figure Risk Aversion. Bob and Nancy have the same income and the same total utility. Nancy is _____ risk-averse than Bob because her marginal utility curve is _____ than Bob's.
A) more; flatter
B) more; steeper
C) less; flatter
D) less; steeper
Q3) The future price of one share of General Motors stock is a random variable.
A)True
B)False
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Chapter 20: Macroeconomics- the Big Picture
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Sample Questions
Q1) Changing government spending and taxes to affect overall spending is use of _____ policy.
A) tax-and-spend
B) monetary
C) fiscal
D) free-trade
Q2) Recessions are periods when:
A) output rises.
B) the aggregate price level rises.
C) the unemployment rate is falling.
D) output and employment are falling.
Q3) Keynesian economics promotes ideas:
A) that government intervention can be destabilizing.
B) that the government can help a depressed economy via fiscal and monetary policies.
C) that the private sector is perfectly capable of regulating itself.
D) that the free market system will always prevail.
Q4) Explain what is meant by the paradox of thrift.
Q5) In a typical business cycle recession, the unemployment rate rises and the inflation rate falls. Explain these two trends.
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Chapter 21: Gdp and the Consumer Price Index
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Sample Questions
Q1) (Figure: Expanded Circular-Flow Model) Look at the figure Expanded Circular-Flow Model. How much is total government spending?
A) $20
B) $220
C) $370
D) $200
Q2) (Figure: Expanded Circular-Flow Model) Look at the figure Expanded Circular-Flow Model. The total flow of funds into and out of the rest of the world is:
A) $30.
B) $80.
C) $160.
D) $240.
Q3) (Figure: Expanded Circular-Flow Model) Look at the figure Expanded Circular-Flow Model. The total flow of funds into and out of financial markets is:
A) $70.
B) $110.
C) $170.
D) $300.
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23
Chapter 22: Unemployment and Inflation
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Sample Questions
Q1) A binding minimum wage results in:
A) higher wages for those who were working prior to the minimum wage implementation.
B) an increase in structural unemployment.
C) a decrease in the amount of cyclical unemployment.
D) lower actual unemployment rates, since higher wages encourage more people to enter the labor force.
Q2) Cyclical unemployment is a result of recessions and economic downturns and is not considered a part of the natural rate of unemployment.
A)True
B)False
Q3) Unemployment rates tend to:
A) be the same across geographic areas.
B) vary between age groups and ethnicities.
C) increase when the economy expands.
D) stay the same only when there is cyclical unemployment.
Q4) Explain the difference between shoe-leather costs and menu costs of inflation.
Q5) How is it possible for the unemployment rate to overstate the true level of unemployment?
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Chapter 23: Long-Run Economic Growth
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Sample Questions
Q1) Which country had the lowest growth rate of real GDP per capita between 1980 and 2010?
A) Ireland
B) France
C) Argentina
D) Zimbabwe
Q2) In 2010, the median U.S. household income was approximately:
A) $50,000.
B) $8,000.
C) $16,000.
D) $25,000.
Q3) A nation's real GDP increased from $225 billion to $230 billion in one year. In that same year, the nation's population increased from 125 million to 126 million.
a. Calculate the nation's real GDP per capita growth rate.
b. If this nation maintained this growth rate, how many years would it take for real GDP per capita to double?
Q4) Greenhouse gas emissions are an example of a negative externality.
A)True
B)False
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Chapter 24: Savings, Investment Spending
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Sample Questions
Q1) A firm does NOT want to borrow money for a project when:
A) the interest rate is higher than the rate of return on the project.
B) the interest rate is lower than the rate of return on the project.
C) the interest rate is positive.
D) the rate of return on the project is positive.
Q2) Given an annual interest rate of 3%, the present value of a future payment of $2,080 to be paid in one year is:
A) $1,904.76.
B) $2,000.00.
C) $2,019.42.
D) $2,080.00.
Q3) (Scenario: Open Economy S = I) Look at the scenario Open Economy S = I. How much is investment spending?
A) $2 trillion
B) $3 trillion
C) $3.5 trillion
D) $4 trillion
Q4) Lower interest rates will lead to less investment spending.
A)True
B)False
Page 26
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Chapter 25: Fiscal Policy
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Sample Questions
Q1) Fiscal policy measures of the same dollar amounts will have equal effects on the budget balance but may change real GDP by different amounts.
A)True
B)False
Q2) The government's budget balance is:
A) T - G.
B) G - T - TR.
C) T - G - TR.
D) T + TR - G.
Q3) The 2009 U.S. stimulus was an expansionary fiscal policy that increased aggregate demand.
A)True
B)False
Q4) Expansionary fiscal policy:
A) increases long-run aggregate supply.
B) decreases long-run aggregate supply.
C) increases aggregate demand.
D) decreases aggregate demand.
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Chapter 26: Money, Banking, and the Federal Reserve System
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Sample Questions
Q1) An asset is liquid if it can be converted to cash quickly with little or no loss of value.
A)True
B)False
Q2) The federal funds rate is the interest rate at which:
A) banks borrow funds directly from the Federal Reserve.
B) banks borrow from other banks with excess reserves.
C) the influential companies borrow from banks.
D) households' savings are invested in the Federal Reserve.
Q3) Most of Long-Term Capital Management's funds were:
A) savings of small investors.
B) deposits of state and local governments.
C) borrowed.
D) subject to reserve requirements.
Q4) When we keep part of our wealth in a savings account, money is playing the role mainly of:
A) medium of exchange.
B) unit of account.
C) barter.
D) store of value.
28
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Chapter 27: Monetary Policy
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Sample Questions
Q1) (Figure: Monetary Policy and the AD-SRAS Model) Look at the figure Monetary Policy and the AD-SRAS Model. If the economy is at point h because of an open market purchase by the Federal Reserve and no further monetary policy is implemented, in the LONG run nominal wages will _____, SRAS will shift _____, real GDP will _____, and the price level will _____.
A) increase; to SRAS'; decrease; increase
B) increase; to SRAS'; increase; decrease
C) decrease; farther to the right; decrease; increase
D) decrease; to SRAS'; increase; decrease
Q2) The Federal Reserve affects interest rates by:
A) setting them with regulations.
B) open market operations that shift the money demand curve.
C) open market operations that shift the money supply curve.
D) changing tax rates.
Q3) If the aggregate price level doubles:
A) the money supply will also double.
B) neither money demand nor the money supply will rise.
C) both money demand and the money supply will rise proportionally.
D) money demand at any given interest rate will also double.
Q4) Why does a recession, all else equal, decrease the demand for money?
Page 29
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Chapter 28: Inflation, Disinflation, and Deflation
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Q1) According to the classical model of the price level, an increase in the money supply will cause _____ and _____ increase in real GDP.
A) inflation; no long-run
B) inflation; a long-run
C) no inflation; a long-run
D) deflation; no long-run
Q2) Each point on a Phillips curve is a different combination of:
A) price and quantity.
B) inflation and unemployment.
C) the interest rate and investment.
D) saving and disposable income.
Q3) The difference between real GDP and potential GDP is known as the:
A) price gap.
B) unemployment gap.
C) output gap.
D) budget deficit.
Q4) The central bank of a government can print more money to pay for government deficits. Why do some refer to this practice as imposing an inflation tax?
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Chapter 29: Crises and Consequences
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Q1) In a banking crisis, banks usually:
A) see an increase in the value of their assets.
B) lend out all of their excess reserves.
C) hold more excess reserves than usual.
D) offer discounts to customers to give them the incentive to borrow money.
Q2) Almost all major economies faced high unemployment and low growth following the 2008 financial crisis.
A)True
B)False
Q3) Banks:
A) reduce the opportunity cost of the trade-off between rate of return and liquidity.
B) increase the opportunity cost of the trade-off between rate of return and liquidity.
C) encourage people to hold more cash.
D) reduce the amount of liquidity in the economy.
Q4) In debt overhang consumers' debt level is diminished and the value of their assets has increased.
A)True
B)False
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Chapter 30: Macroeconomics- Events and Ideas
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Q1) Which of the following about new classical macroeconomics is FALSE?
A) It returned to the classical view that shifts in the aggregate demand curve affect only the aggregate price level, not aggregate output.
B) It challenged traditional arguments about the slope of the short-run aggregate supply curve based on the concept of rational expectations.
C) It suggested that changes in productivity cause economic fluctuations.
D) It embraced the Keynesian notion that changes in aggregate demand may affect aggregate output in the short run.
Q2) Those who believe in the classical model suggest that expansionary policies would result in:
A) increases in output and the aggregate price level.
B) increases in output with no change in the aggregate price level.
C) increases in the aggregate price level with no change in output.
D) increases in unemployment and the output level.
Q3) Most economists today agree that the Federal Reserve should remain independent so that it is insulated from political pressure.
A)True
B)False
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Chapter 31: Open-Economy Macroeconomics
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Q1) (Figure: International Capital Flows) Look at the figure International Capital Flows. At an interest rate of 4%, the excess of loanable funds supplied by _____ lenders will be exported to _____ borrowers.
A) U.S.; British
B) British; U.S.
C) U.S. or British; British or U.S.
D) U.S.; worldwide
Q2) China has fixed the exchange rate between the yuan and the U.S. dollar. Therefore, a recession in China _____ U.S. _____ to China more than if the exchange rate floated.
A) raises; exports
B) reduces; imports
C) raises; imports
D) reduces; exports
Q3) An exchange rate regime is a rule governing policy for the exchange rate.
A)True
B)False
Q4) A devaluation can help reduce shortages of domestic currency.
A)True
B)False
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Chapter 32: Graphs in Economics
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Q1) A positive relationship between swimsuits purchased and ice cream purchased could be the result of:
A) reverse causality.
B) a magnified scale on the swimsuit axis.
C) a truncation of the ice cream axis.
D) an omitted variable, such as the external temperature.
Q2) (Figure: Unemployment Rate over Time) Look at the figure Unemployment Rate over Time. In the time-series graph, as we move from 1991 to 1993, we see that the unemployment rate has _____ from approximately _____ to approximately _____.
A) decreased; 5%; 4%
B) increased; 5.5%; 7%
C) decreased; 7.8%; 5%
D) increased; 4%; 6.3%
Q3) The scaling of the axes of a time-series graph:
A) is not a critical element in presenting the intended information.
B) may change the interpretation of the data.
C) generally places the time period on the vertical axis.
D) generally puts values of a variable, such as the unemployment rate, on the vertical axis.
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Chapter 33: Toward a Fuller Understanding
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Q1) Other things equal, the _____ the loan period, the _____ the present value. A) shorter; lower B) longer; higher C) longer; lower D) shorter; more variable
Q2) The net present value (NPV) of an activity or project is equal to the _____ value of all of the revenues minus the _____ value of all of the costs associated with it. A) future; present B) present; present C) present; future D) future; future
Q3) You have recently graduated from high school and are debating whether to attend college or get a job. Assume that you can spend $50,000 today for tuition and receive your college degree in only one year. When you graduate, you will receive a job that pays you $100,000 immediately and $100,000 the following year. If you begin working immediately, you can earn $35,000 today and each of the next two years. If the annual interest rate is 10%, should you go to college?
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Chapter 34: Consumer Preferences and Consumer Choice
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Q1) An indifference curve shows combinations of two goods that yield:
A) equal prices.
B) equal money income.
C) equal satisfaction.
D) increasing prices.
Q2) LaToya sees honey and sugar as perfect substitutes. She is always willing to substitute 1 teaspoon of honey for 2 teaspoons of sugar. If honey is three times as expensive as sugar, LaToya will use:
A) only honey.
B) only sugar.
C) some honey and some sugar.
D) a lot of sugar and a little honey.
Q3) Higher indifference curves represent _____ lower curves.
A) less utility than
B) more utility than
C) the same utility as
D) either more or less utility than
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Chapter 35: Indifference Curve Analysis of Labor Supply
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Q1) Javon has 80 hours per week to allocate between labor and leisure. Graph hours of leisure per week on the horizontal axis and income per week on the vertical axis. If Javon's hourly wage is $8, then the opportunity cost of an hour of leisure is:
A) $8.
B) $10.
C) $640.
D) $800.
Q2) (Figure: Davina's Labor Supply Choice) The figure Davina's Labor Supply Choice shows Davina's time allocation budget line when her hourly wage is $10 or $15 and she has 80 hours to allocate between labor and leisure; it also shows two of her indifference curves for income and leisure. As Davina's hourly wage rises from $10 to $15:
A) the income effect is greater than the substitution effect.
B) the substitution effect is greater than the income effect.
C) the substitution effect is equal to the income effect.
D) It is impossible to compare the income and substitution effect.
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