Introduction to Economics
Pre-Test Questions
Course Introduction
Introduction to Economics provides students with a foundational understanding of the principles that guide how individuals, businesses, and governments make choices about allocating limited resources. The course covers basic concepts such as supply and demand, opportunity cost, market structures, and the role of incentives. Students will explore the distinction between microeconomics and macroeconomics, examine how economic agents interact in various types of markets, and consider the impact of government policies on economic outcomes. Through real-world examples and analytical frameworks, the course aims to develop critical thinking skills and an appreciation of how economic forces shape society and everyday life.
Recommended Textbook
Economics 11th Edition by Roger A. Arnold
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Chapter 1: What Economics Is About
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Sample Questions
Q1) Minerals,animals,water and forests are all considered to be the resource known as A) capital
B) entrepreneurship
C) labor
D) land
E) none of the above
Answer: D
Q2) A mandatory seatbelt law ends up raising the number of traffic fatalities if it lowers fatalities per accident from 0.10 to 0.07 while raising the number of accidents per period from 35,000 to any more than
A) 35,000.
B) 38,500.
C) 37,450.
D) 50,000.
Answer: D
Q3) A rationing device is a method used to resolve who gets what.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Production Possibilities Frontier Framework
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Sample Questions
Q1) Refer to Exhibit 2-9.For Adam,the opportunity cost of producing one unit of good A is ____________ unit(s)of good B.
A) 3.00
B) 0.33
C) 0.75
D) 1.33
Answer: D
Q2) Refer to Exhibit 2-7.For which of the following is the statement "In order to get more civilian goods,we have to forfeit some military goods" true?
A) a movement from A to C
B) a movement from B to D
C) a movement from C to D
D) a movement from F to D
E) none of the above
Answer: C
Q3) Production possibilities curves can shift outward but they do not shift inward.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Supply and Demand: Theory
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Sample Questions
Q1) At a price of $9.99,Danielle buys 3 digital books per month.When the price decreases to $7.99,Danielle buys 4 digital books per month.Jason says that Danielle's demand for digital books has increased.Is Jason correct?
A) Yes, Jason is correct.
B) No, Jason is incorrect. Danielle's demand has decreased.
C) No, Jason is incorrect. Danielle's quantity demanded has decreased, but her demand has stayed the same.
D) No, Jason is incorrect. Danielle's quantity demanded has increased, but her demand has stayed the same.
E) No, Jason is incorrect. Danielle's quantity demanded has increased and her demand has decreased.
Answer: D
Q2) One reason that helps to explain the law of demand is the law of A) diminishing marginal utility.
B) diminishing marginal returns.
C) increasing opportunity costs.
D) supply.
Answer: A
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Chapter 4: Prices: Free, Controlled, and Relative
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Sample Questions
Q1) A price floor (set above the equilibrium price)on rice will
A) force otherwise profitable farmers out of business.
B) result in a shortage of rice.
C) result in a surplus of rice.
D) clear the market for rice.
E) both a and b
Q2) If the price of good X is $90 and the price of good Y is $30,it follows that the relative price of one unit of good Y is ___________ unit(s)of good X.
A) 0.33
B) 1.33
C) 3.00
D) 2.00
E) There is not enough information to answer the question.
Q3) A price ceiling is a government-mandated
A) minimum price below which legal trades cannot be made.
B) maximum price above which legal trades cannot be made.
C) minimum price above which legal trades cannot be made.
D) maximum price below which legal trades cannot be made.
Q4) List and describe the two major jobs performed by price.
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Chapter 5: Supply, Demand, and Price: Applications
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Sample Questions
Q1) As the price of good Z falls,the quantity demanded of good Z rises,but the quantity supplied of good Z does not change. Based upon this information we can conclude that the demand curve for good Z is ________________ and the supply curve for good Z is ________________.
A) downward sloping; upward sloping
B) upward sloping; downward sloping
C) upward sloping; vertical
D) downward sloping; vertical
E) vertical; downward sloping
Q2) When universities charge students less than the equilibrium tuition for admission,they have to impose some nonprice-rationing device.
A)True
B)False
Q3) In a given community,if the government builds more freeways,then the supply curve for freeway space shifts rightward and the demand curve for freeway space shifts leftward.
A)True
B)False
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Chapter 6: Macroeconomic Measurements: Prices and Unemployment
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Sample Questions
Q1) In year 1 the CPI is 181,and in year 2 the CPI is 195.If Dennis's salary was $95,000 in year 1,what is the minimum salary he must earn in year 2 to "keep up with inflation"?
A) $112,500
B) $102,348
C) $105,750
D) $88,180
Q2) According to the text,the top grossing movie in the US for all time,in today's dollars,is
A) Star Wars
B) Titanic
C) Avatar
D) Gone With the Wind
E) Snow White and the Seven Dwarfs
Q3) When making historical comparison's of one's income,is it better to use real income or nominal income for the basis of your comparison? Explain why one makes a better comparison than the other.
Q4) The base year is always the year in which prices were the lowest.
A)True
B)False
Page 8
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Chapter 7: Macroeconomic Measurements: GDP and Real GDP
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Sample Questions
Q1) An example of income received but not earned is
A) government transfer payments.
B) undistributed profits.
C) compensation of employees.
D) rental income.
E) a and c
Q2) Which of the following would not be included in the measurement of GDP?
A) a bill from a car mechanic
B) wages of a card dealer working in a Las Vegas casino
C) commissions of a stockbroker
D) the increased value of shares of stock
E) c and d
Q3) In the definition of GDP,the words "total market value" refer to total
A) dollar value at base prices.
B) dollar value at current prices.
C) subjective value.
D) objective value.
E) a and d
Q4) List and explain the two different approaches used to measure GDP.
Q5) Explain why GDP figures do not necessarily measure happiness or well-being.
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Chapter 8: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) After an adverse supply shock occurs,the ____________ curve shifts _____________ resulting in a(n)_________________ in the U.S.price level and a(n)________________ in Real GDP.
A) AD; leftward; decrease; decrease
B) AD; rightward; increase; increase
C) SRAS; rightward; decrease; increase
D) SRAS; leftward; increase; decrease
Q2) Refer to Exhibit 8-1. If we assume that the unemployment rate and Real GDP are inversely related,which of the points on this graph is most likely representative of the lowest unemployment rate?
A) A
B) B
C) C
D) D
Q3) The expectation of lower future prices is a
A) rightward shifter of the AD curve.
B) leftward shifter of the AD curve.
C) reason for moving up along a given AD curve.
D) reason for moving down along a given AD curve.
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Page 10
Chapter 9: Classical Macroeconomics and the Self Regulating Economy
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Sample Questions
Q1) Classical economics refers to an era in the history of economic thought that stretched from about
A) 1750 to the early 1900s.
B) 1935 to the 1970s.
C) 1800 to the mid 1900s.
D) 1600 to the mid 1800s.
Q2) A necessary condition for the economy to be self-regulating is that
A) wages must be relatively high.
B) the labor market must always be in equilibrium.
C) the interest rate must be above its equilibrium level.
D) wages must be flexible in both an upward and downward direction.
E) none of the above
Q3) In a self-regulating economy,wages will fall and prices will rise when there is an inflationary gap.
A)True
B)False
Q4) Explain how it is possible for the economy to produce at a point beyond its institutional production possibilities frontier (PPF),but not beyond its physical PPF.
Q5) Explain the policy implications of the classical economists' beliefs.
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Chapter 10: Keynesian Macroeconomics and Economic
Instability: A Critique of the Self-Regulating Economy
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Sample Questions
Q1) Inventory levels unexpectedly fall and firms increase the quantity of goods and services they produce.Which of the following is consistent with these two occurrences?
A) TP is greater than TE.
B) TP is less than TE.
C) TE is equal to TP minus the rise in inventories above the optimum inventory level.
D) TP is equal to TE.
E) b and c
Q2) Keynes's major work,The General Theory of Employment,Interest and Money,was published during the
A) late 1800s.
B) mid-1700s.
C) 1930s.
D) Panic of 1907.
Q3) Refer to Exhibit 10-1.At Q<sub>1</sub>,
A) TE > TP, and there are decreases in inventory.
B) TP > TE, and there are increases in inventory.
C) TE = TP, and there are no changes in inventory.
D) TE > TP, and there are increases in inventory.
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Chapter 11: Fiscal Policy and the Federal Budget
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Sample Questions
Q1) Fiscal policy is implemented primarily by
A) local governments alone.
B) the defense department.
C) state governments alone.
D) the federal government.
E) state and local governments.
Q2) Suppose the government increases spending on public education by $700 million and individual spending on private education drops by $500 million.This is an example of
A) incomplete crowding out.
B) complete crowding out.
C) zero crowding out.
D) a and c
E) none of the above
Q3) Complete crowding out occurs when an increase in government spending is completely offset by an equal increase in tax revenues.
A)True
B)False
Q4) Explain how tax cuts can impact both aggregate demand and aggregate supply.Give an example of each.
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Chapter 12: Money, Banking,and the Financial System
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Sample Questions
Q1) Your neighbor has knowledge of economics and you would like her to share it with you.You own a car,a CD player and a new pair of running shoes.You wish to make a trade,but the neighbor does not want what you have.The problem can be stated as follows: You are not satisfying the
A) rule of transaction costs.
B) double coincidence of wants.
C) law of marketability.
D) terms of a common denominator.
Q2) List and describe the three functions of money.
Q3) If excess reserves are $10 million,(total)reserves are $14 million,and the required reserve ratio is 10%,then required reserves equal ________________ and checkable deposits equal ____________________.
A) $4 million; $40 million
B) $40 million; $4 million
C) $24 million; $240 million
D) $7 million; $70 million
Q4) Bank capital equals assets minus liabilities.
A)True
B)False
Q5) Describe the differences between M1 and M2.
Page 14
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Chapter 13: The Federal Reserve System
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Sample Questions
Q1) To decrease the money supply,the Fed may sell government securities or lower taxes.
A)True
B)False
Q2) Lowering the required reserve ratio __________ the simple deposit multiplier which will __________ the economy's money supply.
A) raises; increase
B) raises; decrease C) lowers; increase D) lowers; decrease
Q3) Here is how an open market sale works: A commercial bank __________ government securities to (from)the Fed,which lowers the bank's deposits at the __________ and __________ the bank's __________.
A) buys; Fed; lowers; reserves
B) sells; Treasury; raises; reserves
C) sells; Fed; raises; reserves
D) buys; Treasury; lowers; liabilities
E) none of the above
Q4) Summarize the history of how the Federal Reserve came to have twelve districts.
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Chapter 14: Money and the Economy
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Sample Questions
Q1) If the money supply is $6,000,velocity is 5,and Real GDP is 10,000 units of output,then the price level is _____________.If the money supply doubled over a short time period to $12,000,the simple quantity theory of money would predict that
A) $3; the price level would double
B) $3; Real GDP would double
C) $3; the price level would be cut in half
D) $2; the price level would double
Q2) If Real GDP is $8,000,the money supply is $4,000,and the price level is 3,then velocity is
A) 2.00.
B) 3.33.
C) 6.00.
D) 7.50.
E) none of the above
Q3) "The money supply multiplied by velocity must equal GDP" is a statement of the A) simple quantity theory of money.
B) equation of exchange.
C) modern quantity theory of money.
D) all of the above
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Chapter 15: Monetary Policy
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Sample Questions
Q1) Which scenario best explains the Keynesian transmission mechanism when the investment demand curve is vertical?
A) The interest rate falls, investment falls even more, the AD curve shifts rightward, but total expenditures do not change.
B) The interest rate falls, investment rises, total expenditures rise, and the AD curve shifts rightward.
C) The interest rate falls, investment falls instead of rising, and the AD curve ends up shifting leftward.
D) The interest rate falls, but investment does not respond; there is no change in total expenditures and no shift in the AD curve.
Q2) Which of the following may block the Keynesian transmission mechanism?
A) the loanable funds market
B) aggregate demand
C) interest-insensitive investment
D) the liquidity trap
E) c and d
Q3) Describe the monetary policy known as inflation targeting. What are the three major issues that surround this practice?
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Chapter 16: Expectations Theory and the Economy
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Sample Questions
Q1) As the price level falls,real wage ____________and people choose to work
A) rises; more B) rises; less
C) falls; more
D) falls; less
Q2) An increase in the actual inflation rate is represented by a A) movement up and along a given Phillips curve.
B) movement down and along a given Phillips curve.
C) leftward shift in the Phillips curve.
D) rightward shift in the Phillips curve.
Q3) As incorrectly low inflation expectations catch up with the higher actual inflation rate,the SRAS curve shifts __________ and the short-run Phillips curve shifts
A) leftward; downward
B) rightward; upward
C) leftward; upward
D) rightward; downward
Q4) Explain why there is an inverse relationship between wage inflation and unemployment as aggregate demand changes.
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Chapter 17: Economic Growth: Resources, Technology, Ideas,
and
Institutions
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Sample Questions
Q1) Refer to Exhibit 17-2. Assume that the starting point is always point 1. Which of the production function graphs shown,(a)or (b),represents an increase in the quantity of labor,and which represents an increase in the quantity of capital,respectively?
A) (a); (a)
B) (b); (a)
C) (a); (b)
D) (b); (b)
Q2) An economy growing at a steady rate of 2 percent per year doubles in size approximately every __________ years.
A) 50.0
B) 35.0
C) 23.3
D) 12.0
Q3) Real GDP in a small country is worth $8 billion.The population of the country is 200,000.What is per capita Real GDP?
A) $30,000
B) $40,000
C) $60,000
D) $300,000
Page 19
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Chapter 18: The Financial Crisis of 2007-2009
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Sample Questions
Q1) A bank initially has $250 million in assets and $200 million in liabilities. The banks net worth (capital)is _____________ million. If the bank's assets decline by 10% and its liabilities do not change,its capital decreases by ____________ .
A) $50; 50%
B) $50; 100%
C) $50; 10%
D) $450; 10%
Q2) The ability of banks to get insurance from ______________ encourages banks to take on a little bit _________ risk than they would in the absence of deposit insurance.
A) the FDIC; less
B) Fannie Mae (FNMA); more
C) the FDIC; more
D) Fannie Mae (FNMA); less
Q3) A bank with a leverage ratio of 6.5 to 1 has
A) $6.50 in assets for every $1 in liabilities.
B) $6.50 in assets for every $1 in capital.
C) $1 in assets for every $6.50 in capital.
D) $1 in assets for every $6.50 in liabilities.
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Chapter 19: Debates in Macroeconomics Over the Role and Effects
of Government
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Sample Questions
Q1) Which of the statements is false?
A) Not all economists are agreed as to whether government should bail out companies in financial trouble.
B) Not all economists prefer a rule-based monetary policy to discretionary monetary policy.
C) Rule-based monetary policy advocates often assert that discretionary monetary policy can be motivated by politics.
D) The tax multiplier is necessarily larger than the government spending multiplier.
Q2) According to the standard textbook Keynesian analysis,which is greater: the tax multiplier or the government spending multiplier? Explain the reasoning behind this relationship.
Q3) If wages are flexible,it is very likely that government intervention will be needed to push the economy out of a recessionary gap.
A)True
B)False
Q4) The Taylor rule is an example of a rule-based monetary policy system.
A)True
B)False
21
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Chapter 20: Elasticity
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Sample Questions
Q1) The shorter the period of time consumers have to adjust to price changes,the __________ the __________ elasticity of demand.
A) lower; income
B) lower; price
C) higher; income
D) higher; price
Q2) The quantity demanded of good A changes from 100 to 111 when the price of good A changes from $9 to $8.The cross elasticity of demand is
A) 1.20.
B) -1.13.
C) 2.20.
D) -0.89.
E) There is not enough information to answer the question.
Q3) Refer to Exhibit 20-7.Which of the graphs shows a perfectly inelastic demand curve?
A) (1)
B) (2)
C) (3) and (4)
D) none of the above
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Chapter 21: Consumer Choice: Maximizing Utility and Behavioral Economics
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Sample Questions
Q1) Refer to Exhibit 21-3.Assume that the price of oranges increases to $2,while the price of apples remains at $1,and Linda allocates $5 of the weekly food budget to purchasing apples and oranges.If Linda wants to maximize her utility,her new consumption bundle will consist of
A) 1 apple and 2 oranges.
B) 3 apples and 1 orange.
C) 5 apples and no oranges.
D) none of the above
Q2) Suppose that the total utility from consuming one unit of good Z is 220 utils,the total utility from consuming two units of good Z is 320 utils,and the total utility from consuming three units of good Z is 400 utils. The marginal utility received from consuming the third unit of good Z is
A) 313.33 utils.
B) 80 utils.
C) 100 utils.
D) 50 utils.
Q3) Economists assume that the goal of consumers is to maximize total utility.
A)True
B)False
Page 23
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Chapter 22: Production and Costs
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Sample Questions
Q1) Economists Alchian and Demsetz suggest that firms are formed when A) the sum of what individuals can produce alone is greater than what they can produce as a team.
B) someone wants to earn profits.
C) someone comes up with the idea that customers will buy a new product.
D) the sum of what individuals can produce as a team is greater than the sum of what they can produce alone.
Q2) In the long run,
A) all costs are variable costs.
B) all costs are fixed costs.
C) there are no variable costs.
D) b and c
Q3) Describe the difference between market coordination and managerial coordination.Give an example of each to support your answer.
Q4) Refer to Exhibit 22-11.Marginal cost of the sixth unit of output is A) $100.
B) $150.
C) $90.
D) $90.83.
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Chapter 23: Perfect Competition
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Q1) Refer to Exhibit 23-7.At the profit-maximizing output level,average fixed cost is
A) $2.00.
B) $4.00.
C) $5.00.
D) $6.00.
E) This cannot be determined based on the information provided.
Q2) Why must profits be zero in long-run competitive equilibrium?
A) If profits are not zero, firms will enter or exit the industry.
B) If profits are not zero, firms will produce higher-quality goods.
C) If profits are not zero, marginal revenue will rise.
D) If profits are not zero, marginal cost will rise.
Q3) Refer to Exhibit 23-10. What quantity of output should the profit-maximizing firm produce?
A) 0
B) 4
C) 6
D) 7
E) 8
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Chapter 24: Monopoly
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Sample Questions
Q1) Which of the following is the best example of a monopoly?
A) a local public utility
B) a fast-food restaurant
C) a department store
D) a wheat farmer
Q2) Which of the following is not a condition of price discrimination?
A) The seller must be a price searcher.
B) The seller must be able to distinguish among customers who would be willing to pay different prices.
C) The possibility of arbitrage must not exist.
D) The seller must have zero fixed costs.
E) The seller must exercise some control over price.
Q3) Describe the similarities between why sellers want to price discriminate and why district attorneys want to plea-bargain. In addition,discuss the conditions that must be satisfied before district attorneys (DAs)can plea-bargain successfully and how they relate to the three conditions necessary for successful price discrimination.
Q4) Define price discrimination.What three conditions must exist before a firm can use it successfully?
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Chapter 25: Monopolistic Competition, Oligopoly, and Game Theory
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Sample Questions
Q1) Refer to Exhibit 25-10. If George studies for two hours and Gina studies for four hours,George's letter grade on the test will be a ___________ and Gina's letter grade on the test will be a __________________.
A) C; A
B) C; C
C) B; B
D) A; C
Q2) Suppose that all countries in the world agree that it is important to undertake policies to reduce global warming and its associated negative economic effects. If the countries agree to undertake these policies,the prisoner's dilemma setting that this situation places the countries in would lead one to conclude that A) each country will have an incentive not to implement the agreed upon policies. B) smaller countries will implement the agreed upon policies, but larger countries will not.
C) each country will have an incentive to implement the agreed upon policies. D) larger countries will implement the agreed upon policies, but smaller countries will not.
Q3) List and describe the three assumptions upon which oligopoly behavior are based.
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Chapter 26: Government and Product Markets: Antitrust and Regulation
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Q1) Suppose a regulatory agency makes decisions that seem to require an ever-growing agency budget and staff of regulators to monitor firms and enforce the decisions.This would be evidence in support of the __________ theory of regulation.
A) public choice
B) public interest
C) capture
D) Stigler
Q2) The act that made exclusive dealing illegal was the
A) Sherman Act.
B) Federal Trade Commission Act.
C) Robinson-Patman Act.
D) Clayton Act.
E) none of the above
Q3) Which of the following is usually considered a natural monopoly?
A) a major car manufacturer
B) a car stereo installer
C) overnight mail services
D) state universities
E) none of the above
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Chapter 27: Factor Markets: With Emphasis on the Labor Market
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Sample Questions
Q1) The lower the elasticity of demand for a product,
A) the higher the ratio of labor costs to total costs.
B) the lower the ratio of labor costs to total costs.
C) the lower the elasticity of demand for the labor that produces the product.
D) the higher the elasticity of demand for the labor that produces the product.
E) none of the above
Q2) Refer to Exhibit 27-4.The marginal factor cost of labor
A) is $14.
B) is $7.
C) is $3.
D) is $10.
E) depends on the amount of labor employed.
Q3) The value of marginal product (VMP)is
A) equal to the product price multiplied by the marginal physical product of the factor.
B) equal to marginal revenue product for a product price taker.
C) the firm's factor demand curve if the firm is a product price taker.
D) a measure of the value that each factor unit adds to the firm's product.
E) all of the above
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Chapter 28: Wages,Unions,and Labor
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Q1) Suppose the marginal revenue product of individuals who work in the union sector is greater than that of individuals who work in the nonunion sector.Normally,we would expect labor to move from the nonunionized sector to the unionized sector-from where it is worth less to where it is worth more.But if this cannot happen,owing to the supply-restraining efforts of the union,then
A) wages in the nonunion sector will rise.
B) wages in the union sector will fall.
C) there will be a misallocation of labor---not all labor will be employed where it is most valuable.
D) workers in the union sector will move to the nonunion sector.
Q2) Union training programs are meant to shift the __________ labor to the
A) demand curve for; left
B) demand curve for; right
C) supply curve of; left
D) supply curve of; right
Q3) What is the difference between a union shop and a closed shop? Are either (or both)legal in the United States?
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Chapter 29: The Distribution of Income and Poverty
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Q1) The Gini coefficient is computed by dividing the A) area between the line of perfect income equality and the actual Lorenz curve by the area below the Lorenz curve.
B) area below the Lorenz curve by the total area below the line of perfect equality.
C) area between the line of perfect income equality and the actual Lorenz curve by the total triangular area below the line of perfect income equality.
D) either a or b
E) any of the above
Q2) Some economists contend that in-kind transfers should be included in the calculation of an individual's income because
A) in-kind items do not cost anything.
B) simple money income is not a complete measure of one's command over goods and services.
C) in-kind items make a person "better off" than the person's actual money income would lead us to believe.
D) b and c
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Chapter 30: Interest, Rent, and Profit
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Q1) The two ways in which the word "interest" is used in economics are as the price for
A) loanable funds and the return earned by entrepreneurship.
B) loanable funds and the return earned by capital as an input in the production process.
C) money and the return for risk taking.
D) loanable funds and the return for risk taking.
Q2) As interest rates decrease,present values decrease and firms will purchase more capital goods.
A)True
B)False
Q3) Pure economic rent is
A) the payment to factors owned by entrepreneurs.
B) economic profits.
C) the payment to factors whose supply is perfectly elastic.
D) a payment made to land.
E) the payment to factors whose supply is perfectly inelastic.
Q4) An artificial rent is an economic rent that would not exist without government.
A)True
B)False
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Chapter 31: Market Failure: Externalities, Public Goods, and
Asymmetric Information
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Q1) Some racing horse breeders keep a few of their foals and sell the others.Generally,they put the poorest quality foals up for sale early in the season.Buyers have limited information about the foals up for sale,but they know that the first foals from some breeders will not be good racers.Other breeders sell all their foals.Since buyers cannot know which breeders are keeping back their good foals,they are suspicious of all foals offered for sale early in the season,lowering the sale prices.Breeders who sell all their foals are therefore forced to hold back their better foals until later in the season,to get true market prices for them.The market for foals is therefore subject to the A) adverse selection problem.
B) moral hazard problem.
C) free-rider effect.
D) none of the above
Q2) The buyer of a good has less information than the seller of the good.This is a case of A) externality information.
B) free ridership.
C) asymmetric information.
D) biased information.
E) a public good not being a private good.
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Chapter 32: Public Choice and Special-Interest-Group
Politics
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Q1) Suppose candidate A is conservative and candidate B is liberal and both are currently positioned away from the "middle ground" toward their respective ends of the political spectrum.We would expect that as the campaign draws closer to election day,
A) candidate A will move to the right (more conservative) and candidate B will move to the left (more liberal).
B) both candidates A and B will move to the other's position in an attempt to capture the other's supporters.
C) candidate A will move closer to the middle, and candidate B will stay where he or she is because he or she realizes that Americans are basically liberal.
D) candidate B will move closer to the middle, and candidate A will stay where he or she is because he or she realizes that Americans are basically conservative.
E) both candidates will move toward the middle.
Q2) It has been suggested by some economists that rent seeking activity often occurs within families,particularly when an inheritance is involved.
A)True
B)False
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Chapter 33: Building Theories to Explain Everyday Life: From
Observations to Questions to Theories to Predictions
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Q1) It often appears as if there are "too few" workers at the Department of Motor Vehicles (DMV)to service all their customers at a given point in time. Based on one of theories discussed in the text,this is probably because
A) the equilibrium "price" to be served by the DMV is lower than the "price" charged customers.
B) the equilibrium "price" to be served by the DMV is higher than the "price" charged customers.
C) the equilibrium "price" to be served by the DMV minus the "price" charged to customers is zero.
D) b and c
E) none of the above
Q2) "The theory's predictions are consistent with what I believe,so now I have good reason to believe what the theory says." This statement is likely to have been made by a person who believes that
A) theories should be tested by gathering and analyzing data.
B) theories are descriptive of reality.
C) theories should be falsifiable or refutable.
D) b and c
E) none of the above
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Chapter 34: International Trade
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Questions
Q1) Which of the following conditions makes it most likely for a quota to be imposed?
A) The benefits of the quota are spread over many and the costs are concentrated on a few.
B) The benefits of the quota are spread over many and the costs are spread over many.
C) The benefits of the quota are spread over few and the costs are spread over many.
D) The benefits of the quota are spread over few and the costs are spread over few.
E) There is not enough information to answer the question.
Q2) Countries that engage in specialization and trade can consume at a level beyond their production possibilities frontier.
A)True
B)False
Q3) Refer to Exhibit 34-1.The Country B is the lower opportunity cost producer of
A) good Y.
B) both goods.
C) neither good.
D) good X.
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Chapter 35: International Finance
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Q1) Suppose the current exchange rate between the U.S.dollar and the Mexican peso is $0.12 = 1 peso.Furthermore,suppose the price level in the United States rises 25 percent at a time when the Mexican price level is stable.According to the purchasing power parity theory,what will be the new equilibrium exchange rate?
A) $0.15 = 1 peso
B) $0.09 = 1 peso
C) $0.13 = 1 peso
D) $0.08 = 1 peso
Q2) An American computer is priced at $1,500.If the exchange rate between the U.S.dollar and the Mexican peso is $0.089 = 1 peso,approximately how many pesos would a Mexican buyer pay for the computer?
A) 16,854 pesos
B) 93 pesos
C) 133.50 pesos
D) 15,075 pesos
Q3) Assume that there are only two countries in the world,the United States and Japan.What creates the demand for and supply of Japanese yen on the foreign exchange market? Name three different things that could cause the yen to appreciate in value.
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Chapter 36: Globalization and International Impacts on the Economy
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Q1) In 2000,the top 100 transnational companies produced about _____________ percent of the entire world's output,which was approximately as much as what ________________ produced that year.
A) 4.1; Japan
B) 4.3; the United Kingdom
C) 10.9; China
D) 25.1; the United States
Q2) _______________ is the practice of hiring people in other countries to do a job that was once done domestically.
A) Offshoring
B) Onshoring
C) Insourcing
D) Megasourcing
Q3) With a decrease in the budget deficit,the open-economy outcome,compared to the closed-economy outcome,features a ___________ in Real GDP.
A) larger rise
B) smaller rise
C) larger fall
D) smaller fall
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Chapter 37: The Economic Case For and Against
Government: Five Topics Considered
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Q1) If the government grants tax credits to first-time homebuyers,the supply of houses would increase and the price of housing would fall.
A)True
B)False
Q2) Which of the following is false?
A) Government can remove individuals from a prisoner's dilemma setting and make them better off.
B) In a prisoner's dilemma setting, it is impossible for the government to define and enforce property rights that the individuals involved in the setting want to have defined and enforced.
C) As long as government charges each individual in a prisoner's dilemma setting a tax that is less than the gain received by being removed from the setting, then government has made the individuals better off.
D) Depending upon the amount of the tax charged to each individual in a prisoner's dilemma setting, the government can make both persons better off, both persons worse off, or one person better off and the other person worse off.
Q3) In making the case against government,discuss the two main points about special interest groups.
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Chapter 38: Stocks, Bonds, Futures, and Options
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Q1) The yield on a bond is the
A) annual coupon payment divided by the price paid for the bond.
B) coupon rate divided by the price paid for the bond.
C) annual coupon payment divided by the face value of the bond.
D) same as the interest rate on the bond.
E) a and d
Q2) A call option is a contract
A) that gives the owner the right, but not the obligation, to buy shares of a stock at a specified price within the time limits of the contract.
B) that gives the owner the right, but not the obligation, to sell shares of a stock at a specified price within the time limits of the contract.
C) in which the seller agrees to provide a particular good to the buyer on a specified future date at an agreed-upon price.
D) that gives the owner the right, but not the obligation, to buy or sell shares of a stock at a specified price within the time limits of the contract.
Q3) What is the Dow Jones Industrial Average (DJIA)? Give a description of why the DJIA was first created,how it is computed,and how it has evolved over time.
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Chapter 39: Agriculture: Problems, Policies, and Unintended Effects
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Q1) Suppose the government decides that milk producers are not earning a high enough price for their milk to maintain an adequate standard of living and that the solution to the problem is to guarantee the milk producers a minimum price.We would expect that
A) consumers will have to pay a higher price per gallon of milk and will not be able to consume as much as they did before.
B) the government will have to purchase the surplus milk on the market and then find a means of storing this milk.
C) the dairy farmers will enjoy a higher standard of living at the expense of taxpayers and consumers.
D) all of the above
Q2) A farmer has 1,000 acres on which he has previously grown corn.His yield per acre is 100 bushels of corn.If the corn payment rate is $0.43 a bushel,his production flexibility contract payment equals
A) $39,600.
B) $43,000.
C) $36,550.
D) $12,345.
E) none of the above
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