Course Introduction
Principles of Economics
Pre-Test Questions
Principles of Economics introduces students to the foundational concepts of microeconomics and macroeconomics. The course covers topics such as supply and demand, market structures, the behavior of consumers and firms, price determination, and the role of government in the economy. Students will learn how economic agents make decisions, how markets allocate resources, and how economic performance is measured and influenced by fiscal and monetary policy. Emphasis is placed on real-world applications of economic principles to help students develop analytical skills for understanding current economic issues and policies.
Recommended Textbook Economics 11th Edition by Roger A. Arnold
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39 Chapters
5781 Verified Questions
5781 Flashcards
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Page 2
Chapter 1: What Economics Is About
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168 Verified Questions
168 Flashcards
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Sample Questions
Q1) Scarcity means
A) wants are greater than the limited resources available to satisfy these wants.
B) wants are less than the limited resources available to satisfy these wants.
C) resources are infinite.
D) wants are limited.
E) both c and d
Answer: A
Q2) Why do societies need rationing devices?
A) Because people have too many needs and not enough wants.
B) Because price exists.
C) Because scarcity exists.
D) Because people have opportunity costs.
Answer: C
Q3) Some economic studies have shown that mandatory seat belt laws do not lead to a reduction in traffic fatalities.
A)True
B)False
Answer: True
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Chapter 2: Production Possibilities Frontier Framework
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152 Flashcards
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Sample Questions
Q1) Productive efficiency implies
A) the possibility of gains in one area without losses in another.
B) that more output has been produced.
C) the impossibility of gains in one area without losses in another.
D) that prices are stable.
E) c and d
Answer: C
Q2) A PPF is a straight line as a result of
A) constant opportunity costs.
B) increasing opportunity costs.
C) decreasing opportunity costs.
D) scarcity.
E) choice.
Answer: A
Q3) The law of increasing opportunity cost results from the varying ability of resources to adapt to the production of different goods and it helps to explain why production possibilities curves are typically bowed outward.
A)True
B)False
Answer: True
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Chapter 3: Supply and Demand: Theory
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Sample Questions
Q1) A shortage in the bread market can cause the price of bread to rise.
A)True
B)False
Answer: True
Q2) Tobacco production is one of the more heavily subsidized industries in the United States.Suppose that as a result of intense lobbying from health-related concerns,Congress repeals the tobacco firms' subsidies.Which of the following scenarios would likely occur?
A) The tobacco firms' supply curve would shift rightward, as it would now be cheaper to produce each level of output.
B) The tobacco firms' supply curve would shift leftward, since it would now cost more to produce each level of output.
C) The tobacco firms would not experience any shift in their supply curves; subsidies don't affect output.
D) There would be a movement along the supply curve for tobacco, but the supply curve would not shift.
Answer: B
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Chapter 4: Prices: Free, Controlled, and Relative
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Sample Questions
Q1) Refer to Exhibit 4-4.Which of the following is false?
A) Graph (1): A price ceiling set at P<sub>2</sub> would not have an impact on the market.
B) Graph (2): As supply increases, equilibrium price remains constant.
C) Graph (3): As demand increases, equilibrium quantity remains constant.
D) Graph (4): As supply increases, equilibrium quantity increases.
Q2) Refer to Exhibit 4-7.How many unskilled workers are employed at the minimum wage?
A) N<sub>2</sub>
B) N<sub>1</sub>
C) N<sub>3</sub>
D) N<sub>1</sub> + N<sub>3</sub>
Q3) In 1973 and 1979,the U.S.federal government imposed price ceilings on gasoline which resulted in surpluses of gasoline.
A)True
B)False
Q4) What condition is necessary for a price ceiling to have an impact on a market?
Describe at least three of the effects that a price ceiling can have on a market.
Q5) 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) If patients were allowed to sue their HMO,we would expect
A) the demand curve for health care services provided by the HMO to shift to the left and the price of HMO-provided health care coverage to fall.
B) the supply curve for health care services provided by the HMO to shift to the left and the price of HMO-provided health care coverage to rise.
C) the supply curve for health care services provided by the HMO to shift to the right and the price of HMO-provided health care coverage to fall.
D) a and b
E) none of the above
Q2) The demand for seats in 10 a.m.classes at the university is higher than the demand for seats in 8 a.m.classes.The supply of seats is fixed.If the university prices classes at the price required to achieve equilibrium at 10 a.m.,there will be
A) a shortage at 8
B) a surplus at 8 a.m.
C) equilibrium at 8 a.m.
D) disequilibrium at 8 a.m., but we cannot determine which type.
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Chapter 6: Macroeconomic Measurements: Prices and Unemployment
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Sample Questions
Q1) If the unemployment rate drops,then it necessarily follows that some of the people who were once unemployed are now employed.
A)True
B)False
Q2) Refer to Exhibit 6-1.Prices rose by __________ percent from Year 4 to Year 5.
A) 3.90
B) 3.75
C) 4.30
D) 5.90
Q3) Suppose the civilian non-institutional population equals 250,000; there are 132,500 employed persons and 10,000 unemployed persons.How many people are not in the labor force?
A) 122,500
B) 77,500
C) 63,500
D) 107,500
Q4) The cyclical unemployment rate can never be negative.
A)True
B)False
Q5) Describe what the term "full employment" means to an economist.
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Chapter 7: Macroeconomic Measurements: GDP and Real GDP
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Sample Questions
Q1) Suppose the total market value of all final goods and services produced this year in economy X is $4 million.Of the $4 million worth of goods,$3 million is sold and $1 million is held in inventory.For this year,the GDP for economy X is
A) $4 million.
B) $3 million.
C) $1 million.
D) $7 million.
E) none of the above
Q2) Increases in import spending
A) raise GDP.
B) lower GDP.
C) are always balanced off in GDP by changes in exports.
D) may raise or lower GDP.
Q3) Gross Domestic Product is computed by using
A) base-year prices.
B) wholesale prices.
C) previous-year prices.
D) current-year prices.
Q4) Explain why GDP figures do not necessarily measure happiness or well-being.
Page 9
Q5) List and explain the two different approaches used to measure GDP.
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Chapter 8: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) The interest rate effect is one of the
A) reasons why an AD curve is downward-sloping.
B) shifters of an AD curve.
C) reasons why a short-run aggregate supply curve can be derived.
D) shifters of a short-run aggregate supply curve.
Q2) As the U.S.dollar appreciates,the U.S.____________ curve shifts _____________ resulting in a(n)_________________ in the U.S.price level and a(n)_________________ in Real GDP in the United States.
A) AD; leftward; decrease; decrease
B) AD; rightward; increase; increase
C) SRAS; rightward; decrease; increase
D) SRAS; leftward; increase; decrease
Q3) Suppose the real exchange rate of 10 Mexican pesos to the dollar moves to 9 pesos to the dollar.The dollar has __________________,making American goods __________ expensive for Mexicans.
A) appreciated; less
B) appreciated; more
C) depreciated; less
D) depreciated; more
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Page 10
Chapter 9: Classical Macroeconomics and the Self Regulating Economy
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Sample Questions
Q1) According to the classical theorists,it is impossible to have a
A) surplus of a particular product.
B) shortage of a particular product.
C) decrease in the demand for a product.
D) decrease in the supply of a product.
E) general overproduction of products.
Q2) Refer to Exhibit 9-1.The unemployment rate is lower at
A) Q<sub>1</sub> than Q<sub>N</sub>.
B) Q<sub>N</sub> than Q<sub>1</sub>.
C) point A than point B.
D) point B than point A.
Q3) Refer to Exhibit 9-8. If saving increases by $500 billion,the new level of consumption will equal ______________. According to classical economists investment would _______________ and total expenditures would ________________________.
A) $6,500 billion; then decrease by $500 billion; fall by $500 billion
B) $6,500 billion; then increase by $500 billion; fall by $500 billion
C) $7,500 billion; remain constant; fall by $500 billion
D) $6,500 billion; then increase by $500 billion; remain constant
Q4) 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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198 Flashcards
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Sample Questions
Q1) Refer to Exhibit 10-3.The multiplier is A) 4.
B) 5.
C) 10.
D) 1.
E) none of the above
Q2) Refer to Exhibit 10-3.When disposable income equals $2,000,saving equals A) -$20.
B) -$40.
C) 0.
D) $40.
E) $20.
Q3) If consumption is greater than disposable income,it follows that A) interest rates are rising.
B) the budget deficit is shrinking.
C) saving is negative.
D) the multiplier is inoperative.
E) none of the above
Q4) Explain the sequence of events that occurs in the economy once total production (TP)is less than total expenditure (TE).
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Chapter 11: Fiscal Policy and the Federal Budget
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164 Flashcards
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Sample Questions
Q1) Which of the following is an example of crowding out?
A) A decrease in the rate of growth of the money supply which causes a decrease in Real GDP.
B) A deficit causes an increase in interest rates, which causes a decrease in investment spending.
C) An increase in tariffs which causes a decrease in imports.
D) A decrease in government housing subsidies which causes an increase in private spending on housing.
Q2) Refer to Exhibit 11-4. If a person's taxable income is $30,000,how much does he pay in taxes?
A) $4,345
B) $1,400
C) $3,900
D) $4,850
Q3) List and describe three of the five different lags that can occur which may impede the effectiveness of the use of fiscal policy.
Q4) Explain how a value-added tax (VAT)works and how it differs from a sales tax. What impact does a VAT have on government revenue and the price of products paid by consumers?
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Chapter 12: Money, Banking,and the Financial System
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124 Flashcards
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Sample Questions
Q1) Small-denomination time deposits are part of M2,but not part of M1.
A)True
B)False
Q2) Money is defined by economists as
A) the market value of an asset.
B) the funds one receives during a specified period of time.
C) any good that is widely accepted in exchange and for the repayment of debts.
D) both b and c
E) all of the above
Q3) If M1 is $1,200 billion,currency held outside banks is $400 billion,and traveler's checks is $10 billion,then small-denomination time deposits equal
A) $790 billion.
B) $390 billion.
C) $800 billion.
D) $1,190 billion.
E) There is not information to answer the question.
Q4) List and describe the three functions of money.
Q5) The Federal Reserve began paying interest on reserves in 2008.
A)True
B)False
Page 14
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Chapter 13: The Federal Reserve System
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Sample Questions
Q1) Which of the following statements is false?
A) The Fed serves as the lender of last resort for banks.
B) The Fed serves as a fiscal agent for the U.S. Treasury.
C) A major responsibility of the Fed is to control the nation's money supply.
D) The federal government is the Fed's banker.
Q2) William Jennings Bryan,Secretary of State at the time of the passage of the Federal Reserve Act,argued in favor of having ______ district banks.
A) six
B) not less than eight nor more than twelve
C) twelve
D) fifty
Q3) Explain the difference between the discount rate and the federal funds rate. If the Fed wants to lower one of these rates,which one can the Fed change by issuing an order? Describe in detail how the Fed helps to lower the other rate.
Q4) The boundaries of the Federal Reserve districts were determined based on trade patterns between cities.
A)True
B)False
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Chapter 14: Money and the Economy
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Sample Questions
Q1) According to the equation of exchange,if GDP equals $4 trillion and the money supply equals $1 trillion,the velocity of money
A) must be 0.25.
B) must be 4.
C) must be 0.25 trillion.
D) must be 4 trillion.
E) cannot be determined without knowing what the price level is.
Q2) Which of the following statements is false?
A) Monetarists believe that the velocity of money is highly stable.
B) Monetarists believe that the velocity of money is predictable.
C) Monetarists believe that the economy will settle into long-run equilibrium at less than full employment output.
D) Monetarists believe that output can be at less than full employment output in the short run.
Q3) Between 1890 and 1914,the gold stock of the world doubled,but world prices fell during this time.
A)True
B)False
Q4) Describe the expectations (or Fisher)effect.
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Chapter 15: Monetary Policy
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176 Flashcards
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Sample Questions
Q1) Refer to Exhibit 15-4. In the row of this table containing blank (A),people are holding ______________ of their wealth in bonds and ________________ of their wealth in money.
A) too much; too little
B) too little; too much
C) just the right amount; too little
D) just the right amount; too much
E) just the right amount; just the right amount
Q2) According to the monetarist transmission mechanism,a decrease in the supply of money will result in
A) individuals initially holding excess bonds.
B) individuals initially holding excess money.
C) a leftward shift in the aggregate demand curve.
D) a and c
Q3) Which of the following events prompted the birth of market monetarism?
A) the Great Depression
B) the Great Recession
C) the 1907 Bankers' Panic
D) the establishment of the European Union
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Page 17
Chapter 16: Expectations Theory and the Economy
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Sample Questions
Q1) New classical economists believe that there is
A) a short-run tradeoff between inflation and unemployment when policy is unanticipated.
B) a short-run tradeoff between inflation and unemployment when policy is correctly anticipated.
C) no short-run tradeoff between inflation and unemployment when policy is correctly anticipated.
D) a and b
E) a and c
Q2) Describe the policy ineffectiveness proposition (PIP).Be sure to state which economic theory the PIP is associated with and the assumptions that are necessary for this argument to hold.
Q3) In real business cycle theory,business cycle expansions begin as a result of changes in
A) GDP.
B) long-run aggregate supply.
C) aggregate demand.
D) consumption.
E) investment demand.
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Page 18
Chapter 17: Economic Growth: Resources, Technology, Ideas,
and Institutions
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82 Flashcards
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Sample Questions
Q1) In the production function,the variable K represents human capital.
A)True
B)False
Q2) Suppose the population of a country falls,but Real GDP remains constant.There is
__________ economic growth.
A) both absolute and per-capita real
B) absolute, but not per-capita real
C) per-capita real, but not absolute
D) neither absolute nor per-capita real
Q3) __________ rights refer to the range of laws,rules,and regulations that define rights for the use and transfer of resources.
A) Individual
B) Constitutional
C) Property
D) Economic
E) none of the above
Q4) Using the labor market,the production function Real GDP = T (L,K),and the LRAS curve,describe the process by which a decrease in income taxes impacts economic growth.
19
Q5) List and describe four factors that can contribute to economic growth.
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Chapter 18: The Financial Crisis of 2007-2009
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70 Flashcards
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Sample Questions
Q1) In February 2009,Congress passed (and President Obama signed)a $787 billion fiscal stimulus bill in an attempt to improve the economy.
A)True
B)False
Q2) Regulatory capital is the amount of capital financial institutions should hold based on the riskiness of their different assets.
A)True
B)False
Q3) A bank has $390 million in assets and $330 million in liabilities. The bank's net worth is _____________ million and its leverage ratio is __________________.
A) $360; 1.08 to 1
B) $60; 0.15 to 1
C) $40; 3.75 to 1
D) $60; 6.5 to 1
Q4) In the early 2000s,banks lowered lending standards to comply with the Community Reinvestment Act.
A)True
B)False
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Chapter 19: Debates in Macroeconomics Over the Role and
Effects of Government
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Sample Questions
Q1) If the aggregate supply curve is vertical,it follows that a change in
A) Real GDP can originate on the demand side of the economy.
B) Real GDP can originate on the supply side of the economy.
C) Real GDP can originate on either the demand side or the supply side of the economy.
D) price level can originate on the demand side of the economy.
E) b and d
Q2) "Politics is too often the thing that gets in the way of good economic policy being implemented." The economist who said this most likely
A) believes that fiscal policy is preferable to monetary policy when it comes to stabilizing the economy.
B) prefers discretionary monetary policy to rule-based monetary policy.
C) believes that there will be a lot of crowding out if government spending is increased.
D) prefers rule-based monetary policy to discretionary monetary policy.
Q3) Explain how the different views of the shape of the aggregate supply (AS)curve influence economists' perception of the impact that government actions have on Real GDP in the short run.
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Page 21
Chapter 20: Elasticity
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Sample Questions
Q1) The fewer substitutes for a good,
A) the lower its income elasticity of demand.
B) the higher its income elasticity of demand.
C) the lower its price elasticity of demand.
D) the higher its price elasticity of demand.
Q2) If the demand for cocaine is inelastic and people commit crimes to buy drugs,then a drug bust can increase the amount of drug-related crime.
A)True
B)False
Q3) Which of the following statements is true?
A) Lower prices always lower total revenue.
B) Higher prices always raise total revenue.
C) Higher prices always lower total revenue.
D) Lower prices always raise total revenue.
E) none of the above
Q4) The existence of substitutes for a good and the percentage of one's budget spent on the good are among the factors that determine how elastic the demand for the good will be.
A)True
B)False
22
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Chapter 21: Consumer Choice: Maximizing Utility and Behavioral Economics
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Sample Questions
Q1) Which of the following best describes an interpersonal utility comparison?
A) Jones likes computers produced by Dell Computer Corporation and Smith likes computers produced by Apple Computer Inc.
B) Smith gets more utility from working on his computer than Jones gets from working on his computer.
C) Smith got less utility from eating the 30th cookie than eating the 29th cookie, and the same holds for Jones.
D) Usually, Smith seems a lot happier than Jones.
E) Smith usually eats more in a day than Jones eats in a day.
Q2) An indifference curve shows
A) the bundles of two goods that give an individual equal total utility.
B) two bundles of two goods each where one bundle gives greater utility to an individual than the other bundle.
C) two bundles of two goods each where one bundle is preferred to the other.
D) the bundles of two goods that give an individual equal marginal utility.
Q3) Indifference curves are generally downward sloping and concave to the origin.
A)True
B)False
Q4) Describe the diamond-water paradox and its solution.
Page 23
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Chapter 22: Production and Costs
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Sample Questions
Q1) Which of the following statements is true?
A) The short run is always somewhere between six and twelve months.
B) In the short run, changes in output can only be brought about by a change in the quantity of variable inputs.
C) The long run is any period of time over one year.
D) In the short run, there are variable costs but no fixed costs.
E) b and d
Q2) Implicit cost is a
A) cost that is incurred when a monetary payment is made.
B) cost incurred in the past that cannot be changed by current decisions and therefore cannot be recovered.
C) cost that represents the value of resources used in production for which no monetary payment is made.
D) sunk cost.
E) b and d
Q3) If a firm is earning an economic profit,it is necessarily earning an accounting profit,too.
A)True
B)False
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Page 24
Chapter 23: Perfect Competition
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Sample Questions
Q1) A perfectly competitive firm that maximizes profit exhibits resource allocative efficiency because it produces where price
A) equals minimum average total cost.
B) equals marginal revenue.
C) equals marginal cost.
D) is greater than minimum average variable cost.
Q2) A perfectly competitive market is initially in long-run competitive equilibrium.Then,market demand falls.By the time all adjustments have been made,price will be __________ its original level if the industry witnesses __________ costs.
A) above; decreasing B) at; constant
C) at; increasing
D) below; increasing E) a and d
Q3) In the short run,if price (P)is less than average total cost (ATC)will a perfectly competitive firm necessarily shut down? Explain why or why not using a hypothetical example.
Q4) Why is profit maximized at the level of output where marginal revenue equals marginal cost?
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Chapter 24: Monopoly
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Sample Questions
Q1) Refer to Exhibit 24-7.Let D be the demand curve facing a perfectly price-discriminating monopolist.The marginal revenue it receives from selling the 150th unit of good X sold equals
A) $60.
B) $45.
C) $30.
D) $0, since it sells less than 150 units.
Q2) Legal barriers to entry include patents,government licenses and economies of scale. A)True
B)False
Q3) Which of the following is not an example of a legal barrier to entry?
A) a public franchise
B) economies of scale
C) a government license
D) a patent
Q4) Third-degree price discrimination is sometimes called discrimination among buyers.
A)True B)False
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Chapter 25: Monopolistic Competition, Oligopoly, and Game Theory
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Sample Questions
Q1) The monopolistic competitor is a price
A) taker, because of the many buyers and sellers in the market.
B) searcher, because of product differentiation.
C) taker, because of identical products.
D) searcher, because of the few buyers and sellers in the market.
E) searcher, because of the few buyers and sellers in the market and product differentiation.
Q2) One of the ways in which some monopolistic competitors try to become more like monopolists is through the use of designer labels.
A)True
B)False
Q3) In what industry structure is the interdependence of firms a key characteristic?
A) perfect competition
B) monopolistic competition
C) oligopoly
D) monopoly
Q4) List and describe the three defining assumptions of the theory of monopolistic competition.
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Q5) List and describe the three assumptions upon which oligopoly behavior are based.
Chapter 26: Government and Product Markets: Antitrust and Regulation
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Sample Questions
Q1) There are ten firms in an industry.Five of the firms each have a market share of 12 percent and five of the firms each have a market share of 8 percent.The Herfindahl index is
A) 1,000.
B) 1,040.
C) 100.
D) 920.
E) none of the above
Q2) Suppose an industry consists of five equal-sized firms.Two of the firms plan to merge.The merger ______________ raise anti-trust concerns at the Justice Department given that the Herfindahl index before the merger was _____________ and the merger would cause the Herfindahl index to rise by __________.
A) would; between 1,000 and 1,800; more than 100
B) would; greater than 1,800; more than 100
C) would not; less than 1,000; less than 300
D) would not; between 1,000 and 1,800; less than 100
Q3) Natural monopolies arise because of economies of scale.
A)True
B)False
Page 28
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Chapter 27: Factor Markets: With Emphasis on the Labor Market
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Sample Questions
Q1) A firm that is a price taker in a factor market faces a(n)__________ supply curve of factors.
A) upward-sloping
B) horizontal
C) downward-sloping
D) vertical
Q2) For a factor price taker,the demand for labor curve is horizontal at the going market wage.
A)True
B)False
Q3) The firm's factor demand curve is the
A) MRP curve if the firm is a price taker (perfectly competitive firm).
B) MRP curve if the firm is a price searcher (monopolist, monopolistic competitor, oligopolist).
C) VMP curve if the firm is a price taker (perfectly competitive firm).
D) VMP curve if the firm is a price searcher (monopolist, monopolistic competitor, oligopolist).
E) a, b, and c
Q4) List and describe the four conditions necessary for everyone to receive equal pay in the long run.
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Chapter 28: Wages,Unions,and Labor
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Q1) Refer to Exhibit 28-11.The firm in the exhibit is a monopsony.We have deliberately not identified the three curves in the exhibit.They are simply curves 1,2,and 3.If (union)collective bargaining with the monopsony guarantees the wage rate that workers will be paid is W<sub>2</sub>,then the factor supply curve is
A) curve 2.
B) curve 3.
C) the curve that starts at W<sub>2</sub>, goes to point B, then down to point C, then moves up curve 2.
D) the curve that starts at W<sub>2</sub>, goes to point D, and then moves up curve 2.
E) the curve that starts at W<sub>2 </sub>and goes to point D.
Q2) In the United States,the percentage of national income that goes to labor (union plus nonunion)was higher when union membership was relatively high and unions were strong,compared to when union membership was relatively low.
A)True
B)False
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) If the Gini coefficient is equal to 2,we can conclude that
A) 2 percent of the households receive 100 percent of total income.
B) 2 percent of the households receive 50 percent of total income.
C) 50 percent of the households receive only 2 percent of total income.
D) b and c
E) None of the above, because the Gini coefficient cannot exceed 1.
Q2) Luck is more likely to influence incomes in the short run than in the long run.
A)True
B)False
Q3) In 2009,the top 20 percent of households in the United States earned collectively approximately what percent of the total income of all households?
A) 20 percent
B) 30 percent
C) 40 percent
D) 50 percent
E) 60 percent
Q4) Individual income is equal to labor income less income taxes.
A)True
B)False
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Chapter 30: Interest, Rent, and Profit
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Q1) An increase in the anticipated (or expected)rate of inflation will cause the nominal interest rate to
A) increase by less than the change in the anticipated inflation rate.
B) increase by the same amount as the change in the anticipated inflation rate.
C) decrease by more than the change in the anticipated inflation rate.
D) decrease by the same amount as the change in the anticipated inflation rate.
E) stay the same.
Q2) George earns $500,000 playing baseball for team X.His next best alternative to playing baseball is to own a fast-food restaurant,for which he would earn $100,000 a year.His next best alternative to playing baseball for team X is playing baseball for team Y,for which he would earn $400,000 a year.This example best illustrates the economic principle that
A) economic rent is never zero.
B) baseball players earn higher incomes than fast-food restaurateurs.
C) economic rent exists in all situations.
D) economic rent differs depending upon the perspective from which the factor is viewed.
Q3) The only resource that cannot earn economic rent is labor.
A)True B)False
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Chapter 31: Market Failure: Externalities, Public Goods, and
Asymmetric
Information
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Q1) If private property rights were established in the oceans,there would probably be
A) more ocean pollution.
B) less ocean pollution.
C) the same amount of ocean pollution that exists without private property rights in the ocean.
D) more ocean voyages on cruise ships.
Q2) A negative externality exists and government wants to impose a per-unit tax in order to bring about the socially optimal output.To accomplish its objective,government must set the tax equal to marginal
A) private cost.
B) social benefit.
C) external cost.
D) social cost.
E) private benefit.
Q3) A public good can be excludable or nonexcludable.
A)True
B)False
Q4) Explain why the socially optimal output is not always the same as the market output.
Page 33
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Chapter 32: Public Choice and Special-Interest-Group
Politics
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Q1) Logrolling refers to the
A) exchange of political favors by corporations.
B) need for the president to veto an entire bill when only certain parts of the bill are objectionable.
C) exchange of votes to gain support for legislation.
D) a and b
E) none of the above
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
Q3) According to public choice theorists,people in the market sector and people in the public sector have __________,and (but)sometimes act differently because of different __________ arrangements in the two sectors.
A) different motives; institutional
B) the same motives; institutional
C) different views of politics; equilibrium
D) the same motives; equilibrium
E) none of the above
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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) Which of the following is false?
A) A theory should be judged based upon whether or not it tells us the things we want to hear.
B) Scientists are interested in finding out when their theories are wrong or right.
C) Scientists are interested in building theories that can be refuted.
D) If evidence is consistent with a theory's predictions, we state that the evidence fails to reject the theory.
Q2) The efficient number of gifts that a gift-giver wants to give is the number at which the marginal benefits of giving a gift are__________________the marginal costs of giving a gift.
A) greater than B) less than C) equal to
D) less than or equal to
Q3) Theories should be judged based upon how consistently and precisely they predict and how well they explain things.
A)True
B)False
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Chapter 34: International Trade
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Q1) "Dumping" refers to
A) the sale of goods abroad at a price below their cost and below the price charged in the domestic market.
B) unloading of foreign goods on domestic docks.
C) government actions to remedy "unfair" trade practices.
D) buying goods at low prices in foreign countries and selling them at high prices in the United States.
Q2) When countries engage in specialization and international trade,every individual person in those countries will gain.
A)True
B)False
Q3) Refer to Exhibit 34-1.Country A is the lower opportunity cost producer of A) good X.
B) good Y.
C) goods X and Y.
D) neither good X nor good Y.
Q4) Explain why the government is often more responsive to producer interests than to consumer interests when it comes to the imposition of tariffs and quotas.
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Chapter 35: International Finance
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Sample Questions
Q1) When the official dollar price of a foreign currency is set below its equilibrium level,the dollar
A) has been appreciated.
B) is overvalued.
C) is undervalued.
D) is devalued.
E) is revalued.
Q2) If the Japanese yen trades at $1 = 98 yen,a Honda that sells for $29,000 in the U.S.be worth approximately how many yen?
A) 296 yen
B) 28,000 yen
C) 371,000 yen
D) 2,842,000 yen
Q3) Suppose that prices in Japan increase by 15 percent while prices in the United States remain stable.We would expect that
A) the dollar will appreciate and the yen will depreciate.
B) the dollar will depreciate and the yen will appreciate.
C) both the dollar and the yen will appreciate.
D) both the dollar and the yen will depreciate.
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Chapter 36: Globalization and International Impacts on the Economy
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Q1) The problems of physical distance can be _____________ by technology which can serve to ___________ trade.
A) increased; discourage B) reduced; enhance C) increased; enhance D) reduced; discourage
Q2) If a country's currency depreciates,it takes more of that country's currency to buy the other country's currency.
A)True
B)False
Q3) Suppose the price level in Germany rises,ceteris paribus. This ________________ United States net exports,ultimately shifting the United States AD curve
A) stimulates; rightward B) stimulates; leftward C) depresses; rightward D) depresses; leftward.
Q4) Net exports represent the difference between exports and imports. A)True B)False
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Chapter 37: The Economic Case For and Against
Government: Five Topics Considered
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Q1) Which of the following is usually discussed in the case against government?
A) special interest groups and transfers
B) the unintended effects of governments actions
C) removal from the prisoner's dilemma
D) a and b
E) none of the above
Q2) Suppose health-care reform Y makes it unlawful for insurance companies to deny insurance to persons with a preexisting disease and sets a fine for those people who do not buy insurance. It follows that if the fine is
A) larger than the benefits derived from not buying insurance right away, then people will not buy the insurance and pay the fine.
B) smaller than the benefits derived from not buying the insurance right away, then people will not buy the insurance and pay the fine.
C) larger than the benefits derived from not buying insurance right away, then people will buy the insurance right away and not pay the fine.
D) b and c
E) none of the above
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Chapter 38: Stocks, Bonds, Futures, and Options
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Q1) A bond is
A) a claim on the assets of a corporation such that the purchaser has an ownership right in the corporation.
B) anything of value to which the firm has a legal claim.
C) a means of assuring that the business firm will pay its debts or fulfill other legal obligations.
D) a promise to pay for the use of someone else's money.
Q2) Refer to Exhibit 38-1.The coupon rate for bond A is
A) 8.0 percent.
B) 10.0 percent.
C) 7.5 percent.
D) 0.075 percent.
E) none of the above
Q3) If the coupon payment on a bond is $640 and the coupon rate is 6%,then what is the price of the bond?
A) $10,667
B) $10,000
C) $1,067
D) $678.40
E) There is not enough information provided to answer this question.
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Chapter 39: Agriculture: Problems, Policies, and Unintended Effects
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Q1) Farmers as a group generally prefer bad weather to good weather because bad weather shifts the demand curve for their product rightward and raises the price of their product.
A)True
B)False
Q2) At the beginning of the 20th century one farmer in the U.S.produced enough to feed ____________ people,and at the end of the century,one farmer produced enough to feed ____________ people.
A) 20; 40
B) 7; 15
C) 12; 42
D) 8; 35
Q3) In 2000,farmers in the United States represented approximately what percentage of the population?
A) 8 percent
B) 25 percent
C) 1 percent
D) 5 percent
Q4) Explain how nonrecourse loans operate and how they help to support crop prices.
Page 41
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