Managerial Economics Exam Solutions
Course Introduction
Managerial Economics blends economic theory with business practice to facilitate decision-making and future planning by management. The course covers key microeconomic concepts such as demand and supply analysis, production and cost functions, market structures, and the pricing of goods and services. Emphasizing real-world application, students learn how to use econometric tools and quantitative methods to interpret market dynamics, forecast trends, and solve complex business problems. The course also explores the impact of government regulation, global economic forces, and strategic behavior among firms, equipping students with analytical frameworks to make informed managerial decisions.
Recommended Textbook
Microeconomics Private and Public Choice 14th Edition by James D. Gwartney
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Chapter 1: The Economic Approach
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Sample Questions
Q1) If economics is correct in its assumption that people are rational, why then would anyone choose to smoke cigarettes?
Answer: Even though the harmful effects of cigarette smoking are documented, more than 20 percent of the U.S. adult population continues to smoke. The economic model of rational choice suggests that individuals weigh the marginal benefit of smoking an additional cigarette (the pleasure obtained) against the marginal costs (the pecuniary cost, the price of the cigarette, and the risk of being afflicted by smoking-related diseases, discounted by the probability). Since the likelihood of getting a smoking-related disease increases with age, it is not surprising that more people elect to give up the habit as they get older.
Q2) If a college enforces a new policy where anyone caught cheating is immediately expelled, the basic postulate of economics suggests that
A)cheating will be completely eliminated.
B)fewer students will attempt to cheat.
C)the amount of cheating will be unaffected.
D)any of the above is possible because student behavior is unpredictable.
Answer: B
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Chapter 2: A: Some Tools of the Economist
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Sample Questions
Q1) The opportunity cost of an option
A)measures the undesirable aspects of the option.
B)includes only the monetary cost of the option.
C)is the highest-valued alternative that must be given up as the result of choosing the option.
D)is objective, and it will be the same for all individuals.
Answer: C
Q2) Because of a late night out with friends, Libby decided to sleep in rather than attend her 8a.m. economics class. According to economic analysis, her choice was
A)irrational, because economic analysis suggests you should always attend classes that you have already paid for.
B)irrational, because oversleeping is not in Libby's self-interest.
C)rational only if Libby has not missed any other classes.
D)rational if Libby values sleep more highly than the benefit she expects to receive from attending the class.
Answer: D
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Chapter 2: B: Some Tools of the Economist
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Sample Questions
Q1) Which of the following is NOT true of opportunity cost?
A)Opportunity costs are subjective because they depend upon how the decision-maker values his or her options.
B)Opportunity costs are only the monetary costs of lost options.
C)Opportunity costs are the highest-valued alternative sacrificed in order to choose an option.
D)Only the decision-maker can determine his or her opportunity costs for any particular action.
Answer: B
Q2) An economics professor points to a student in the front row and announces that "sitting in class is the thing you value most during this time period." Is the professor correct? Why or why not?
Answer: If the student is rational (and this is an assumption made in economics), he allocates time to its highest valued use. By attending class, the student has revealed that this activity was valued most during that time period. If this were not True, the student wouldn't be there.
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Chapter 3: A: Supply, Demand, and the Market Process
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Q1) If price rises, what happens to the demand for a product?
A)It increases.
B)It decreases.
C)It does not change.
D)Uncertain--economic theory has no answer to this question.
Q2) In a typical college town, when students go home for the summer, the demand for many items such as pizza and textbooks
A)decreases, which is a shift to the left of the demand curves for these goods.
B)decreases, which is a shift to the right of the demand curves for these goods.
C)increases, which is a shift to the left of the demand curves for these goods.
D)increases, which is a shift to the right of the demand curves for these goods.
Q3) If a small percentage increase in the price of a good results in a rather large percentage reduction in the quantity demanded of the good, demand is said to be A)vertical.
B)relatively inelastic.
C)relatively elastic.
D)robust.
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Chapter 3: B: Supply, Demand, and the Market Process
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Q1) Refer to Figure 3-18. When the price falls from P to P , which area represents the increase in consumer surplus to existing buyers?
A)ABD
B)ACF
C)BCED
D)DEF
Q2) Figure 3-4 shows conditions in the market for beef. A reduction in the price of the grain used to feed cattle results in
A)the supply curve for beef shifting to the left resulting in higher beef prices and a lower quantity sold.
B)the supply curve for beef shifting to the right resulting in lower beef prices and a higher quantity sold.
C)the demand curve for beef shifting to the left resulting in lower beef prices and a lower quantity sold.
D)the demand curve for beef shifting to the right resulting in higher beef prices and a higher quantity sold.
Q3) Economists maintain that the price of a product has no effect on demand. How can this be true?
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Chapter 4: A: Supply and Demand: Applications and Extensions
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Sample Questions
Q1) A tax for which the average tax rate remains constant at all levels of income is defined as a
A)regressive tax.
B)proportional tax.
C)neutral tax.
D)progressive tax.
Q2) Which of the following is true?
A)An increase in the minimum wage will reduce the training opportunities available to inexperienced workers.
B)The minimum wage is an example of a price floor.
C)Most minimum wage workers are employed part-time, and they are generally either a spouse or a teenage member of a household with an income well above the poverty level.
D)All of the above are true.
Q3) Deadweight losses are associated with A)taxes that distort the incentives that people face.
B)taxes that target expenditures on survivor's benefits for Social Security.
C)taxes that have no efficiency losses.
D)lump-sum taxes.
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Chapter 4: B: Supply and Demand: Applications and Extensions
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Sample Questions
Q1) Refer to Figure 4-24. The amount of deadweight loss associated with the tax is equal to
A)P A C P .
B)A B C.
C)P A D P .
D)P D C P .
Q2) When a government subsidy is granted to the buyers of a product, sellers can end up capturing some of the benefit because
A)the market price of the product will fall in response to the subsidy.
B)the market price of the product will rise in response to the subsidy.
C)the market price of the product will not change in response to the subsidy. D)producers will reduce the supply of the product.
Q3) Suppose the United Auto Workers union obtains a substantial wage increase for auto workers. How will this affect the market for automobiles?
Q4) Refer to Figure 4-24. The price that buyers pay after the tax is imposed is A)P .
B)P .
C)P .
D)impossible to determine from the figure.
Page 9
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Chapter 5: Difficult Cases for the Market and the Role of Government
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Sample Questions
Q1) Suppose that the producers of copper are permitted to emit harmful pollutants, free of charge, into the air. How will the price and output of copper products in a competitive market compare with their values under conditions of ideal economic efficiency?
A)The price will be too high, and the output will be too large.
B)The price will be too low, and the output will be too large.
C)The price will be too low, and the output will be too small.
D)The price will be too high, and the output will be too small.
Q2) A good is considered nonrival-in-consumption if
A)many individuals can share in the consumption of the same unit of the good.
B)the consumption of the good by one individual lowers the amount available for others.
C)even nonpaying customers can receive the full benefit from the good.
D)its production is financed through tax revenue rather than market prices.
Q3) The standard economists use to assess whether an activity should be undertaken is
A)majority vote
B)the marginal benefit assessment.
C)the gold standard
D)economic efficiency.
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Page 10
Chapter 6: The Economics of Collective Decision-Making
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Q1) When the tax to fund a government project is allocated among voters in proportion to the benefits they receive from the project,
A)productive (efficient) projects will tend to be opposed by a majority of voters.
B)counterproductive (inefficient) projects will often be favored by a majority of voters.
C)projects that are productive (efficient) will tend to be favored by an overwhelming majority of voters.
D)democratic political decision making can be expected to work poorly.
Q2) Public choice theory suggests that politicians will be most likely to favor redistribution of income from
A)the rich to the poor.
B)unorganized taxpayers to well-organized interest groups.
C)well-organized business groups to consumers.
D)none of the above.
Q3) With a strong and active federal government, why do we need state and local governments?
Q4) Is calling a voter rationally ignorant the same as calling her irrational? Explain.
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Chapter 7: Consumer Choice and Elasticity
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Sample Questions
Q1) Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a result, the quantity sold per day increased from 350 to 450. Over this price range, the absolute value of the price elasticity of demand for Starbucks coffee is
A)0.40.
B)0.80.
C)1.25.
D)2.50.
E)4.
Q2) Consider a consumer who purchases two goods, X and Y. If the price of good Y falls, then the substitution effect by itself will
A)cause the consumer to buy more of good Y and less of good X.
B)cause the consumer to buy more of good X and less of good Y.
C)not affect the amount of goods X and Y that the consumer buys.
D)result in an upward-sloping demand for good Y because of the substitution effect.
Q3) Mark complains: "I can't believe they raised the price of comic books, and because of this, I'm going to reduce my demand for comic books." Is Mark stating the concept of demand correctly?
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Chapter 8: A: Costs and the Supply of Goods
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Sample Questions
Q1) Libby has a business using no owned capital and makes an accounting profit of $52,000 a year. Libby could have worked for Verizon Wireless with a pay of $35,000 a year, but she would not have had time to run her business. The economic profit from Libby's business per year is
A)$87,000.
B)$35,000.
C)$17,000.
D)-$17,000.
Q2) Long-run economies of scale exist when the long-run average cost curve
A)rises.
B)remains constant.
C)falls.
D)does not exist.
Q3) The implicit rate of return that must be paid to induce investors to continue to supply the funds necessary to maintain a firm's capital assets is called
A)the investors' rate of return.
B)the opportunity cost of labor.
C)the opportunity cost of capital.
D)equity capital.
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Page 13
Chapter 8: B: Costs and the Supply of Goods
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Sample Questions
Q1) Andy wants to maximize his grade-point average. Having spent six hours studying for his final exam in economics, Andy calculates his grade and discovers that even with a perfect score on the final, he will not pass the course. He decides to study two more hours so he will not have wasted the first six hours. Is this a good decision? Why or why not?
Q2) Suppose you are planning to open a lemonade stand. List separately all the explicit and implicit costs that might be involved.
Q3) If the ABC Company decides to take over the XYZ Corporation by purchasing all of the stock of XYZ, what does this tell us about the view ABC holds of XYZ?
Q4) The boss observes that her 10 workers produce 1,000 widgets a day. She concludes that she can employ 20 workers and make 2,000 widgets, 30 to make 3,000, or 40 to make 4,000. Explain why this observation is either correct or incorrect.
Q5) Mr. Jones pays his employees by the hour. He believes they purposely work slowly to maximize their personal satisfaction. What can he do to provide them with a stronger incentive to work efficiently?
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Chapter 9: A: Price Takers and the Competitive Process
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Sample Questions
Q1) Which of the following is the best example of a business firm operating in a competitive price-taker market?
A)TGIFriday's, a restaurant chain that operates in numerous locations
B)a bookstore located a few blocks from a major university
C)Ford Motor company, a major manufacturer of automobiles that operates in numerous markets throughout the world
D)an Indiana hog farmer that raises pigs
Q2) FYI Sanitation is currently eight months into a year-long lease contract on a garbage truck at a cost that averages $500 per month. Other variable costs (fuel, workers, etc.) for operating the truck amount to $300 per month. If the monthly revenue from operating the truck is $400, and these conditions are expected to continue into the future, to maximize its profit, FYI Sanitation should
A)stop operating the truck immediately and not renew the lease for next year.
B)continue operating the truck indefinitely.
C)continue operating the truck until the lease expires, then not renew the lease for next year.
D)stop operating the truck now but renew the lease and begin operating the truck again next year.
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Chapter 9: B: Price Takers and the Competitive Process
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Q1) Even if a firm is optimistic about the future, why should it shut down if it cannot cover its variable cost? If it does shut down, are there ramifications not mentioned in the textbook?
Q2) Tom, a math major, examines Jane's economics class notes and observes that when price-taking firms earn economic profit, they do not seem to produce a quantity that minimizes their costs. Is he correct? Is there significance to this observation?
Q3) When a competitive price-taker market is in long-run equilibrium
A)the firms in the market will earn zero economic profit.
B)the average total cost of the firms in the market will be minimized.
C)every unit of the relevant good that is valued more than its opportunity costs will be produced and sold.
D)all of the above are correct.
Q4) If a technological advance lowers a firm's production costs, why do prices typically fall? Shouldn't the firm maintain the same price and earn economic profit?
Q5) When the demand for a product falls, why do costs of production go down in an increasing cost industry?
Q6) Why is it considered "ideal" for price to just equal marginal cost?
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Page 16
Chapter 10: Price-Searcher Markets With Low Entry Barriers
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Q1) Losses are important to a competitive price-searcher market (industry) because they send a message to the market participants that
A)more resources should be devoted to a particular industry.
B)resources can rise in value if diverted away from that particular industry.
C)resources are allocated exactly as they should be.
D)the firms should charge lower prices.
Q2) As firms exit a competitive price-searcher market, profits of remaining firms
A)decline and product diversity in the market decreases.
B)decline and product diversity in the market increases.
C)rise and product diversity in the market decreases.
D)rise and product diversity in the market increases.
Q3) What type of industry is the market for grocery products? Is over-capacity present?
Q4) Sellers in competitive price-searcher markets
A)face competition both from existing firms and potential new entrants.
B)face competition from existing firms but not from potential new entrants.
C)face competition only from potential new entrants and only in the long run.
D)can compete only by product quality since product prices are set by market forces.
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Chapter 11: A: Price-Searcher Markets With High Entry
Barriers
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Q1) The demand curve facing a monopolist
A)is perfectly elastic.
B)lies above its marginal revenue curve.
C)lies below its marginal revenue curve.
D)is the same as its marginal revenue curve.
Q2) The U.S. Postal Service has a monopoly on the delivery of first-class mail due to A)economies of scale.
B)a lack of initiative on the part of competing firms.
C)legal barriers limiting entry.
D)control over an essential resource.
Q3) In the short run, how will a profit-maximizing monopolist react if its marginal cost suddenly increases? It will
A)lower price to expand revenue possibilities.
B)reduce output and raise price.
C)maintain the current price if profit is still positive.
D)increase plant size to lower marginal cost.
E)decrease plant size to lower marginal cost.
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Chapter 11: B: Price-Searcher Markets With High Entry
Barriers
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Q1) Licensing is a process in which a firm wanting to enter a market must
A)require all potential customers to obtain government permission to purchase the product.
B)notify the government within a certain period after it has entered the market.
C)pay all overdue taxes before entering the market.
D)obtain permission from the government to enter the market.
Q2) Which of the following is true for a firm that is a monopolist?
A)the firm will make an economic profit in the short run.
B)the firm will produce a smaller quantity of output than what would be best from the viewpoint of ideal economic efficiency.
C)the additional revenue that can be generated from an increase in output will exceed the firm's price.
D)the firm can charge whatever it wants for its product since consumers have no alternatives.
Q3) Monopoly is a word derived from Greek origins that means, roughly, single seller. Why is the definition of monopoly as single seller inadequate in economic terms?
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Page 19
Chapter 12: The Supply of and Demand for Productive Resources
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Q1) Why is it more expensive to acquire a new house in an urban area than in a rural area if the costs of labor and building materials are the same?
Q2) Physical and human capital investments are
A)different in that the opportunity for economic profit is present for physical capital but not for human capital investments.
B)different in that human capital decisions do not involve future income considerations, while physical capital investments do.
C)similar in that nonmonetary considerations play an equally important role in both.
D)similar in that both involve forgoing current income (and consumption) in an effort to achieve higher future income (and consumption).
Q3) If the demand for computer scientists increases relative to their supply,
A)the wages of computer scientists will decline.
B)a computer science major will be more attractive to college students.
C)the employment of computer scientists will fall.
D)there will be a surplus of computer scientists.
Q4) There is an Italian soccer player who makes more than $10 million a year. Why?
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Page 20
Chapter 13: Earnings, Productivity, and the Job Market
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Q1) In an environment of tournament pay, it is quite likely that marginally more productive employees will receive
A)less than their marginal revenue product, while less productive employees receive more than theirs.
B)more than their marginal revenue product, while less productive employees receive less than theirs.
C)more than their marginal revenue product, as do less productive employees.
D)less than their marginal revenue product, as do less productive employees.
Q2) Other things the same, the wages in an occupation are likely to be higher the more
A)dangerous the job.
B)prestigious the work environment of the occupation.
C)desirable the location of the job.
D)pleasant the working conditions.
Q3) The earnings of all employees in a competitive economy would be equal if A)all individuals were homogeneous.
B)all jobs were equally attractive.
C)workers were perfectly mobile among jobs.
D)all of the above are true.
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Chapter 14: Investment, the Capital Market, and the Wealth of Nations
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Q1) Economic profit
A)does not exist in competitive markets.
B)provides an incentive for investors to undertake risky projects.
C)motivates entrepreneurial innovation.
D)does all of the above.
E) is both b and c.
Q2) (I) Discounting procedures apply to decisions to invest in physical capital but are not relevant to human capital investment decisions. (II) Nonmonetary considerations are usually more important in human capital investment decisions than in nonhuman capital investment decisions.
A)I is true; II is false.
B)I is false; II is true.
C)Both I and II are true.
D)Both I and II are false.
Q3) Economists refer to consumers' desire for goods now rather than in the future as A)a positive rate of time preference.
B)the rational expectations hypothesis.
C)roundabout methods of production.
D)the inflationary premium.
Q4) In a barter economy that had no form of currency, how could interest exist?
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Chapter 15: Income Inequality and Poverty
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Q1) If the marginal productivity of labor was the sole determinant of household income in the U.S., then
A)no households would be poor according to the official government definition of poverty.
B)no households would be poor according to a relative definition of poverty.
C)the distribution of income would be unequal.
D)every household would have sufficient income to meet biological needs.
Q2) Which of the following groups are overrepresented among those with low incomes?
A)youthful inexperienced workers
B)college students working on graduate degrees
C)single-parent families
D)all of the above
Q3) Even if lifetime incomes were equal, there still might be substantial inequality in annual income data because
A)wage rates might differ substantially.
B)some might have inherited their wealth.
C)some might have retired, whereas others are prime-age earners.
D)educational levels might differ substantially.
Q4) Why not designate the poorest 10 percent of the population as the official measure of poverty?
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Chapter 16: Appendix: Government Spending and Taxation
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Q1) In recent years, what percentage of American families have derived income transfers from at least one government transfer program?
A)less than 20 percent
B)approximately 53 percent
C)approximately 62 percent
D)nearly 75 percent
Q2) During the quarter of a century prior to 2000, between 66 percent and 71 percent of Americans age 18 and older paid personal income taxes. What happened to the share of adult Americans with a personal income tax liability between 2000 and 2009?
A)It rose to nearly 90 percent.
B)It rose to approximately 80 percent.
C)It was virtually constant at approximately 70 percent.
D)It fell to 51 percent.
Q3) Compared to 1980, the top marginal federal income tax rate today is
A)substantially lower and the rate structure is less progressive than in 1980.
B)substantially lower and the rate structure is more progressive than in 1980.
C)substantially higher and the rate structure is less progressive than in 1980.
D)substantially higher and the rate structure is more progressive than in 1980.
Q4) Discuss how size of government can negatively affect economic growth.
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Chapter 17: Appendix: the Economics of Social Security
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Q1) Which of the following is true?
A)Labor participation tends to increase as spousal earnings increase.
B)Social Security works to the disadvantage of low-wage workers due to their shorter life expectancy.
C)Low-wage workers derive a higher rate of return from their Social Security taxes than high-wage workers.
D)High-wage workers generally begin full-time work at younger ages than low-wage workers.
Q2) Which of the following countries has not taken steps to privatize its Social Security system?
A)United States
B)Mexico
C)United Kingdom
D)Chile
Q3) By 2030, the number of workers per Social Security beneficiary will be approximately A)two.
B)three.
C)four.
D)six.
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Q1) Which of the following has enhanced the ability of investors, without any special business skills, to benefit from the ownership of corporate America?
A)the increased availability of mutual funds that make it possible for even small investors to purchase a diverse stock portfolio at a low cost
B)an increased tendency of small investors to buy and sell stock frequently, using stock tips from investment experts
C)the virtual disappearance of business failures among corporations with publicly traded stock shares
D)all of the above
Q2) The market for new issues of stock is called the
A)primary market.
B)secondary market.
C)The New York Stock Exchange (NYSE).
D)The Chicago Board of Trade.
Q3) Does it ever make sense to purchase a stock that has never paid a dividend? Explain.
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Chapter 19: Appendix: Great Debates in Economics: Keynes Versus
Hayek
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Q1) John Maynard Keynes and Friedrich Hayek
A)had similar views with regard to the cause of the Great Depression and what might be done to prevent it from happening again.
B)both believed that perverse monetary policy was the primary cause of the ups and downs of the business cycle.
C)both believed that budget deficits and surpluses could be used to smooth the ups and downs of the business cycle.
D)had polar opposite views with regard to the underlying causes of economic booms and bust, but nonetheless their scholarly work commanded widespread respect among economists.
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Chapter 20: Appendix: the Crisis of 2008: Causes and Lessons for the Future
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Q1) The substantial increase in household debt relative to income since the mid 1980s meant that in 2008 many households
A)had little savings or other reserve assets for use to deal with unexpected expenditures.
B)could safely afford to purchase larger homes because housing is always a good investment.
C)could spend everything they earned because their interest obligations on outstanding credit were low.
D)would be able to easily adjust their current spending if their monthly payments on adjustable rate mortgages rose.
Q2) What was the original stated purpose of Fannie Mae and Freddie Mac?
A)to allow the government to extend loans directly to low-income and minority households
B)to help provide liquidity in the secondary mortgage markets
C)to operate as non-profit entities that would provide competition for for-profit mortgage companies
D)to take on mortgages going into default in order to prevent them from going into foreclosure
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Chapter 21: Appendix: Lessons From the Great Depression
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Q1) Analysis of the Great Depression indicates that
A)even though monetary and fiscal policies were highly expansionary, they were unable to offset the economic downturn.
B)even though monetary policy was expansionary, restrictive fiscal policy dominated during the 1930s.
C)a reduction in tax rates could not prevent the economic downturn from spiraling into a depression.
D)the depth of the economic plunge, if not its onset, was the result of monetary, fiscal, and regulatory policies.
Q2) Which of the following did not contribute to the severity of the Great Depression?
A)a sharp reduction in the money supply during the early 1930s
B)a large tax increase (to balance the budget) in the early 1930s
C)substantial increases in the tariff rates on imported goods
D)a reduction in government expenditures and a substantial cut in personal income tax rates during 1932 and again in 1936
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Chapter 22: Appendix: the Economics of Healthcare
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Q1) Which of the following contributes to the poor performance of the healthcare industry?
A)An increasing share of healthcare costs is paid for directly by consumers.
B)The tax system discourages the purchase of healthcare through employers, while offering advantages to those who purchase healthcare plans directly.
C)State regulations often force insurers to cover items such as in-vitro fertilization, drug rehabilitation, and marriage counseling, which drive up insurance costs.
D)State regulations make it attractive for health insurers to provide only low-cost, catastrophic health insurance.
Q2) During the last three decades, the real (adjusted for inflation) expenditures
A)on Medicare have grown rapidly, but the real expenditures on Medicaid have been virtually constant.
B)on the Medicare program have been virtually constant but the real expenditures on Medicaid have increased substantially.
C)on both Medicare and Medicaid have increased substantially.
D)on both Medicare and Medicaid have been virtually constant.
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Chapter 23: Appendix:education: Problems and Performance
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Q1) The incentive of schools to provide a high quality education at a low cost and the incentive of parents and students to shop around for the best schools will be weakest when education is produced
A)privately but paid for by taxpayers and provided free of charge.
B)by public schools and the cost of education is covered by taxes.
C)privately and parents must purchase it with their own money.
D)by public schools and parents purchase it with their own money.
Q2) Which of the following is true with regard to the lower achievement scores of American students compared to students in most developed countries?
A)Teacher salaries in the United States are not as high as in most other developed countries.
B)Spending per elementary student in the U.S. is less than that of most developed countries.
C)There is no obvious link between expenditures on education and student performance on standardized tests.
D)American students are not as smart as they were a generation ago.
Q3) What are charter schools? How do they differ from voucher programs?
Q4) What does the evidence suggest regarding the effects of school choice programs?
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Chapter 24: Appendix: Earnings Differences Between Men and Women
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Q1) The proportion of degrees earned by women in which of the following fields has increased since 1970?
A)economics
B)engineering
C)architecture
D)all of the above
Q2) In the future, the earnings differential between women and men is expected to
A)widen.
B)become smaller.
C)remain about the same as it is now.
D)become smaller over the next five years then begin to widen again.
Q3) Women earn less on average than men. Which of the following would be the logical conclusion?
A)Women must be the victim of employment discrimination.
B)Women must be less productive.
C)Men must be more highly motivated and materialistic.
D)Without consideration of preferences and productivity factors, differences in unadjusted mean earnings do not necessarily reflect employment discrimination.
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Chapter 26: Appendix: the Question of Resource Exhaustion
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Q1) Compared with 1920, the United States today has
A)far less forest land.
B)far more forest land.
C)about the same amount of forest land.
D)far fewer trees growing per acre of forest land.
Q2) Suppose that new demands greatly reduce the proved reserves of titanium to unexpectedly low levels, and it appears that the new demands will continue. If the market price is unregulated, we should expect that the price will
A)rise sharply, calling forth added exploration and more effective (and more costly) recovery methods, resulting in additional new supplies of titanium.
B)rise sharply, calling forth new ways for manufacturers to conserve titanium and to find substitutes for it.
C)over time, bring the quantity supplied of titanium into balance with the quantity demanded.
D)do all of the above.
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Chapter 25: Appendix: Do Labor Unions Increase the Wages of Workers
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Q1) Which of the following statements is true for the U.S. economy?
A)Higher wages in the unionized sectors of the economy push up wages in the nonunion sectors as well.
B)Inflation tends to accelerate when the proportion of the labor force that is unionized increases.
C)Union workers currently receive wages that are 21 percent higher, on average, than similar nonunion workers.
D)When we compare similar union and nonunion workers, we find virtually no difference in the wages they receive.
Q2) By raising their wages, unions typically
A)increase total productivity, which must rise proportionally with the wage rate.
B)encourage employers to find substitutes for union labor.
C)raise the wages of nonunion workers as well.
D)lower the prices consumers pay for the products produced by union firms.
Q3) In a strike, what does the union have to lose? What does management lose?
Q4) List some factors that might make the threat of a strike more effective.
Q5) What common goals, if any, do labor and management share?
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Chapter 27: Appendix: Difficult Environmental Cases and the
Role of Government
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Q1) The Endangered Species Act
A)weakened the property rights of landowners.
B)encourages landowners to find new ways to provide habitat for listed species.
C)provides compensation to landowners affected by the law.
D)has not benefited any of the species protected under the act.
Q2) Which of the following would illustrate an example that leads to high transaction costs when dealing with pollution?
A)air quality in New York City
B)water pollution caused by a large number of firms at a location near the same river
C)noise pollution from aircraft near a busy airport
D)all of the above
Q3) Higher levels of carbon dioxide may have led, over the past century, to approximately a
A)1 degree (F) warming of the earth.
B)10 degree (F) warming of the earth.
C)1 degree (F) cooling of the earth.
D)10 degree (F) cooling of the earth.
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