Principles of Economics Test
Bank
Course Introduction
Principles of Economics introduces students to the foundational concepts and analytical tools used in economic thinking. The course explores how individuals, firms, and governments make choices about the allocation of resources under conditions of scarcity. Topics include supply and demand, market equilibrium, elasticity, consumer choice, production and costs, market structures, the role of government, and key macroeconomic indicators such as GDP, inflation, and unemployment. By the end of the course, students will understand how economic principles apply to real-world issues and will be equipped to analyze economic behavior at both the micro and macro levels.
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) Let X be the number of hours you spend studying for an exam on Wednesday afternoon and Y be your chances of winning the Wednesday night state lottery.What kind of a relationship do you most likely expect between X and Y?
A) direct
B) inverse
C) linear
D) 45-degree line
E) independent
Answer: E
Q2) Which statement uses the term ceteris paribus correctly?
A) If you exercise regularly, you will be healthier, ceteris paribus.
B) Blue is to green, ceteris paribus, as red is to purple.
C) Most people consider Sunday to be the first day of the week, ceteris paribus.
D) Interest rates usually rise in October, ceteris paribus.
E) a and d
Answer: A
Q3) Scarcity occurs in both wealthy societies and poor societies.
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) Refer to Exhibit 2-4.The opportunity cost of moving from point A to point B is
A) 60,000 copiers.
B) 40,000 copiers.
C) 20,000 copiers.
D) 20,000 fax machines.
E) 40,000 fax machines.
Answer: C
Q2) Assume that two products are being produced: benches and chairs. Create a table that illustrates constant opportunity costs in the production of these two goods. Draw a production possibilities frontier (PPF)based on the data in your table and explain the condition necessary for a PPF to exhibit constant opportunity costs.
Answer: The following table illustrates constant opportunity costs: 11ea21bf_35d7_64ae_8bc0_fdd924a42229_TB2061_00 The PPF associated with this table would be a downward-sloping straight line with one axis labeled "Benches" and the other axis labeled "Chairs". The opportunity cost in this example is a constant rate of 4 chairs forfeited for every one bench produced. In order for a PPF to exhibit constant opportunity costs,the resources used to produce the products must be equally well-suited to the production of both products.
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Chapter 3: Supply and Demand: Theory
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Sample Questions
Q1) One reads in the newspaper: "Today the president and Congress enacted a law which adds new requirements that child care providers must meet before they can offer their services for sale." As a result,an economist would predict that
A) the supply of child care services will increase, thus lowering the price of child care services.
B) the supply of child care services will be unaffected by the stiffer requirements and therefore the price of child care services will not change.
C) the demand for child care services will fall because people who buy child care services do not want stiffer requirements placed on child care providers.
D) the supply of child care services will decrease, thus raising the price of child care services.
E) none of the above
Answer: D
Q2) Economists use the terms neutral good and normal good interchangeably.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Prices: Free, Controlled, and Relative
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Sample Questions
Q1) There are two goods in the economy,apples and bread.The relative price of apples has increased.This could be due to
A) an increase in the absolute price of apples, ceteris paribus.
B) a decrease in the absolute price of bread, ceteris paribus.
C) a decrease in the absolute price of apples, ceteris paribus.
D) an increase in the absolute price of bread, ceteris paribus.
E) a and b
Q2) Price ceilings sometimes result in some buyers and sellers purchasing the good under the table at prohibited prices.
A)True
B)False
Q3) Refer to Exhibit 4-1.Some buyers will offer sellers $7 per unit instead of the $6 price ceiling because
A) $7 is closer to the equilibrium price and buyers prefer equilibrium prices to all others.
B) they think it is only fair for sellers to receive higher prices.
C) they want to increase their chances of buying a good for which there is a shortage.
D) it is customary to pay more than the price ceiling.
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Chapter 5: Supply, Demand, and Price: Applications
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Sample Questions
Q1) If the supply of aisle seats equals the supply of middle seats on an airplane,and the demand for aisle seats is _____________ than the demand for middle seats,then the equilibrium price of aisle seats will be ______________ the equilibrium price of middle seats.
A) greater; higher than B) less; higher than C) greater; lower than D) less; the same as
Q2) When congestion occurs on the freeway (because of a shortage of freeway space),the economist would most likely explain this by saying that it is because A) the freeway has too few miles of roadway.
B) there are too many cars.
C) the price of driving on the freeway is below the equilibrium price.
D) a and c
Q3) If new legislation allowed patients to sue their health-maintenance organization (HMO),we would expect the supply curve for HMO-provided health care to shift to the left and the price of such coverage to rise.
A)True
B)False
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Page 7
Chapter 6: Macroeconomic Measurements: Prices and Unemployment
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129 Verified Questions
129 Flashcards
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Sample Questions
Q1) Refer to Exhibit 6-2.The unemployment rate in year 1 is
A) 12 1/2 percent.
B) 70 percent.
C) 87 1/2 percent.
D) 30 percent.
E) 10 percent.
Q2) Refer to Exhibit 6-2.The labor force participation rate in year 1 is
A) 12 1/2 percent.
B) 80 percent.
C) 87 1/2 percent.
D) 70 percent.
E) 10 percent.
Q3) If the Bureau of Labor Statistics considers Jessica to be a discouraged worker,then she is counted as unemployed for purposes of computing the official unemployment rate.
A)True
B)False
Q4) Describe what the term "full employment" means to an economist.
Page 8
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Chapter 7: Macroeconomic Measurements: GDP and Real GDP
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Sample Questions
Q1) Gross Domestic Product (GDP)is the total market value of all A) final goods and services produced annually within a country's borders.
B) final and intermediate goods and services produced annually within a country's borders.
C) intermediate goods and services produced annually within a country's borders.
D) final goods and services produced every month within a country's borders.
Q2) The largest component of national income in the United States is
A) rental income.
B) proprietors' income.
C) compensation of employees.
D) corporate profits.
E) net interest.
Q3) If a business firm in Country A produces a good but does not sell it in that same year,that good will not be counted in Country A's GDP.
A)True
B)False
Q4) List and describe four of the six categories of economic exchanges that are omitted from GDP calculations. Explain why these transactions are not included in GDP and give an example of each to help support your answer.
Page 9
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Chapter 8: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) As the U.S.dollar appreciates and the Japanese yen depreciates,
A) U.S.-produced goods become more expensive for the Japanese and Japanese-produced goods become cheaper for Americans.
B) U.S.-produced goods become cheaper for the Japanese and Japanese-produced goods become more expensive for Americans.
C) U.S.-produced goods become cheaper for both the Japanese and Americans.
D) Japanese-produced goods become more expensive for both the Japanese and Americans.
E) none of the above
Q2) Which of the following factors can shift the AD curve?
A) net exports
B) government purchases
C) the money supply
D) b and c
E) a, b, and c
Q3) When the dollar appreciates,U.S.net exports fall and aggregate demand decreases.
A)True
B)False
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Chapter 9: Classical Macroeconomics and the Self
Regulating Economy
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167 Flashcards
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Sample Questions
Q1) If Real GDP is greater than Natural Real GDP,the economy is in a(n)
A) frictional gap.
B) structural gap.
C) recessionary gap.
D) inflationary gap.
Q2) Describe the difference between business-cycle macroeconomics and economic-growth macroeconomics.
Q3) If the natural unemployment rate is 5.5 percent,then the economy is in a recessionary gap when the actual unemployment rate is
A) more than 5.5 percent.
B) between 0 and 5.5 percent.
C) 0 percent.
D) 5.5 percent.
Q4) When the economy is in a recessionary gap,the labor market is experiencing a surplus.
A)True
B)False
Q5) Describe how Say's law can hold in a money economy,according to the classical economists.
Q6) Explain the policy implications of the classical economists' beliefs. Page 11
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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) Refer to Exhibit 10-1.At Q<sub>3</sub>,
A) TE > TP, and there are decreases in inventory.
B) TE = TP, and there are no changes in inventory.
C) TP > TE, and there are increases in inventory.
D) TE > TP, and there are increases in inventory.
Q2) Suppose the MPC = 0.60 and government purchases increase by $40 billion.In Keynesian theory,which of the following is true?
A) The TE curve shifts downward by $40 billion and Real GDP decreases by $40 billion.
B) The TE curve shifts upward by $40 billion, and Real GDP increases by $40 billion.
C) The TE curve shifts downward by $40 billion, and Real GDP decreases by $100 billion.
D) The TE curve shifts upward by $40 billion, and Real GDP increases by $100 billion.
Q3) In the real world,we should expect the multiplier process to work itself out
A) almost instantaneously.
B) within a few days.
C) within about one month.
D) only over many months, perhaps even years.
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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) An example of expansionary fiscal policy is
A) an increase in government spending, or an increase in taxes, or both.
B) a decrease in government spending, or a decrease in taxes, or both.
C) an increase in government spending, or a decrease in taxes, or both.
D) a decrease in government spending, or an increase in taxes, or both.
E) holding government spending constant while increasing taxes.
Q2) In 2009,the top 25 percent of income earners in the U.S.(by the size of their taxable incomes)paid about __________ percent of the total federal income taxes.
A) 25
B) 30
C) 54
D) 65
E) 87
Q3) The Laffer curve illustrates that
A) there are two tax rates at which zero tax revenues are raised.
B) a decrease in tax rates can cause an increase in tax revenues.
C) an increase in tax rates can cause an increase in tax revenues.
D) an increase in tax rates can cause a decrease in tax revenues.
E) all of the above
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Page 14
Chapter 12: Money, Banking,and the Financial System
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Sample Questions
Q1) In the Yap civilization of the South Pacific prior to 1920,large,heavy stones in the shape of a wheel were used as money.Which function of money was probably least served by this form of money?
A) medium of exchange
B) store of value
C) unit of account
D) store of wealth
Q2) In a barter economy,people are _________ to specialize in the production of one good or service,compared to in a money economy.
A) more likely
B) less likely
C) equally likely
D) almost always going
Q3) A financial system is a means of bringing together savers and borrowers.
A)True
B)False
Q4) To an economist,the terms "money" and "wealth" are synonyms.
A)True
B)False
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Chapter 13: The Federal Reserve System
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184 Flashcards
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Sample Questions
Q1) If the Fed ______________________,the money supply will ultimately __________.
A) raises the required reserve ratio from 8 percent to 10 percent; decrease B) lowers the required reserve ratio from 10 percent to 8 percent; increase
C) lowers the required reserve ratio from 10 percent to 8 percent; decrease
D) raises the required reserve ratio from 8 percent to 10 percent; increase E) a and b
Q2) Which of the following is not a major responsibility of the Fed?
A) supplying the economy with paper money
B) providing check-clearing services
C) supervising member banks
D) serving as fiscal agent for the Treasury
E) All of the above are major responsibilities of the Fed.
Q3) The Federal Reserve System came into existence with the Federal Reserve Act of A) 1877.
B) 1933.
C) 1965.
D) 1913.
E) 1922.
Q4) List and describe five of the eight major functions or responsibilities of the Fed.
Page 16
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Chapter 14: Money and the Economy
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Sample Questions
Q1) In the equation of exchange,"Q" stands for
A) the interest rate.
B) quality.
C) GDP.
D) Real GDP.
Q2) Monetarists believe that
A) velocity changes in a predictable way.
B) aggregate supply depends on the money supply and velocity.
C) the SRAS curve is upward sloping.
D) a and c
E) a, b and c
Q3) Refer to Exhibit 14-1.A continued increase in the money supply by the Fed is likely to take the economy along which of the following paths?
A) A-E-B-H-C
B) A-D-B-I-C
C) A-D-F-H-C
D) A-D-B-H-C
E) A-E-B-I-C
Q4) Explain in detail how the California gold rush contributed to rising prices in the early 1850's.
Page 17
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Chapter 15: Monetary Policy
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176 Flashcards
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Sample Questions
Q1) If the economy is in the liquidity trap,people think that
A) the money supply will soon rise.
B) bond prices have nowhere to go but up.
C) bond prices will not change.
D) bond prices have nowhere to go but down.
E) none of the above
Q2) As the interest rate increases,the opportunity cost of holding money __________ and individuals choose to hold __________ money.
A) rises; more
B) falls; less
C) rises; less
D) falls; more
Q3) Activists hold that
A) activist monetary policy is flexible.
B) nonactivist monetary policy is inflexible.
C) the economy does not always return quickly enough to full-employment output.
D) a and b
E) all of the above
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Chapter 16: Expectations Theory and the Economy
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Sample Questions
Q1) 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.
Q2) According to the original Phillips curve,the cost of reducing the unemployment rate in the short run is a
A) fall in Real GDP.
B) fall in nominal GDP.
C) lower rate of price inflation.
D) higher rate of wage inflation.
Q3) Refer to Exhibit 16-5.If the economy is at point 3,and the natural unemployment rate exists at points 1,4,and 5,it follows that
A) Real GDP is greater than Natural Real GDP.
B) Real GDP is less than Natural Real GDP.
C) Real GDP is the same as Natural Real GDP.
D) the economy is in a recessionary gap.
E) b and d
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Chapter 17: Economic Growth: Resources, Technology, Ideas, and Institutions
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Sample Questions
Q1) In the production function Real GDP = T (L,K),the T represents the _____________ coefficient,the L represents ________________ and the K represents _______________.
A) tax; labor; capital
B) technology; labor; capital
C) technology; labor; knowledge
D) technology; livestock; knowledge
Q2) A production function specifies the relation between ____________ and the ___________ to ____________________.
A) technology; output; Real GDP
B) technology; the factor inputs; Real GDP
C) price; quantity; Real GDP
D) Real GDP; the factor inputs; the price level
Q3) A useful rule of thumb called the "Rule of 70" states that if something grows at a constant rate of Z percent per year,it doubles in size approximately every __________ years.
A) 70 - Z
B) 70/Z
C) Z/70
D) 70 * (Z/100)
Page 20
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Chapter 18: The Financial Crisis of 2007-2009
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Sample Questions
Q1) Which of the following bank assets declined in value in the mid-2000s?
A) subprime loans
B) mortgage-backed securities
C) collateralized debt obligations
D) nontraditional loans
E) all of the above
Q2) A bank has $200 million in assets and $150 million in liabilities. The banks net worth is _____________ million and its leverage ratio is __________________.
A) $350; 0.56 to 1
B) $175; 1.14 to 1
C) $50; 4 to 1
D) $25; 8 to 1
Q3) If the value of a bank's assets is rising,a high leverage ratio increases the percentage rise in its capital.
A)True
B)False
Q4) Describe the differences between traditional and nontraditional lending practices. Under which category do subprime loans belong?
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21
Chapter 19: Debates in Macroeconomics Over the Role and
Effects of Government
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Sample Questions
Q1) If the (average)tax rate falls by 20% and as a result the tax base rises by 20%,tax revenues will
A) rise.
B) decline.
C) remain unchanged.
D) There is not enough information given to answer this question.
Q2) Suppose that a $4 billion increase in government spending increases Real GDP by $60 billion,and that a $3 billion tax reduction increases Real GDP by $39 million. In this situation,the tax multiplier is _______________ the government spending multiplier.
A) less than B) greater than C) equal to
D) none of the above
Q3) The government spending multiplier is the number that,when multiplied by the A) budget deficit, gives us the change in total spending.
B) budget deficit, gives us the change in the public debt.
C) change in taxes, gives us the change in total spending.
D) change in government spending, gives us the change in total spending.
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Chapter 20: Elasticity
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Sample Questions
Q1) When the price of diamond rings rises by 30 percent,the quantity demanded falls by 10 percent.The price elasticity of demand for diamond rings is ____________,making diamond rings an _______________ good (in this example).
A) 0.33; inelastic
B) 3.0; elastic
C) 1.0; unit elastic
D) 0.33; elastic
Q2) An inferior good is
A) any good that consumers think is of low quality.
B) a good for which the quantity demanded increases as its price decreases.
C) a good for which the demand rises as income falls.
D) a good for which the demand rises as income rises.
E) any good that a producer cannot sell a large quantity of, even at a low price.
Q3) Income elasticity of demand for a normal good is always
A) less than zero.
B) greater than zero.
C) equal to zero.
D) less than one.
Q4) Describe what cross elasticity of demand measures.Be specific in your response.
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Chapter 21: Consumer Choice: Maximizing Utility and Behavioral Economics
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Sample Questions
Q1) Rich has $100,000 and Poore has $1,000.Which of these statements is most strongly supported by the theory of consumer choice?
A) An extra dollar given to Rich is worth less to him than his 100,000th dollar.
B) An extra dollar is worth less to Rich than it is to Poore.
C) An extra dollar is worth less to Poore than it is to Rich.
D) Rich's 1,000th dollar is worth more to Rich than Poore's 1,000th dollar is worth to Poore.
E) Rich's 100,000th dollar is worth to Rich exactly what Poore's 1,000th dollar is worth to Poore.
Q2) Refer to Exhibit 21-2.Total utility for the first four oranges is
A) 11 utils.
B) 60 utils.
C) 52 utils.
D) 15 utils.
E) 40 utils.
Q3) For the consumer,a point on an indifference curve that lies farther from the origin is preferable compared to those points that are closer to the origin.
A)True
B)False
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Chapter 22: Production and Costs
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Sample Questions
Q1) Refer to Situation 22-2.How many widgets is Alejandro producing?
A) 10
B) 15
C) 20
D) 25
E) There is not enough information to answer the question.
Q2) For ABC,Inc.,250,000 units of output per year represent minimum efficient scale.If ABC,Inc.decides to produce 200,000 units this year,it will be operating in the region of
A) decreasing returns to scale.
B) economies of scale.
C) diseconomies of scale.
D) constant returns to scale.
E) none of the above
Q3) Which of the following is probably not an acceptable solution to the problem of diseconomies of scale?
A) reorganization
B) building a larger plant
C) dividing operations
D) hiring new managers
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Page 25
Chapter 23: Perfect Competition
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Sample Questions
Q1) A constant-cost industry is characterized by
A) an upward-sloping long-run supply curve.
B) a downward-sloping long-run supply curve.
C) a perfectly elastic long-run supply curve.
D) perfectly elastic short-run and long-run supply curves.
E) a perfectly elastic short-run supply curve and an upward-sloping long-run supply curve.
Q2) Resources are allocated efficiently when
A) the exchange value of the resources to demanders equals the opportunity cost of the resources.
B) the marginal benefit to demanders of the resources in the goods they purchase is equal to the marginal cost to suppliers of the resources they use in producing the goods.
C) firms produce the quantity of output at which price is equal to marginal cost.
D) a and b
E) a, b, and c
Q3) A decreasing-cost industry has a long-run supply curve that is upward sloping.
A)True
B)False
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Chapter 24: Monopoly
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Sample Questions
Q1) If economies of scale are so pronounced in an industry that only one firm can survive in the industry,this firm is called a(n)__________ monopoly.
A) financial
B) natural
C) structured
D) independent
Q2) Refer to Exhibit 24-8.The maximum profits earned by a single-price monopolist will be
A) $127.
B) $50.
C) $95.
D) $32.
Q3) Refer to Exhibit 24-1.According to economist Gordon Tullock,what area is subject to rent seeking activity?
A) area Q<sub>1</sub>BAQ<sub>2</sub>
B) area BCA
C) area P<sub>1</sub>P<sub>2</sub>CB
D) area 0P<sub>1</sub>BQ<sub>1</sub>
E) none of the above
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Chapter 25: Monopolistic Competition, Oligopoly, and Game Theory
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Sample Questions
Q1) In the prisoner's dilemma,each prisoner would be better off if neither one confesses.
A)True
B)False
Q2) Does the monopolistic competitive firm exhibit resource-allocative efficiency?
A) No, because at its chosen quantity of output, price does not equal the lowest possible average total cost.
B) Yes, because at its chosen quantity of output, price equals marginal cost.
C) No, because at its chosen quantity of output, price is greater than marginal cost.
D) Yes, because at its chosen quantity of output, price is less than marginal cost.
Q3) If a market is contestable,then
A) a cartel will form in the industry.
B) economic profits are small or zero.
C) firms face a vertical demand curve.
D) there is a dominant firm in the market.
E) none of the above
Q4) Compare and contrast the following market structures: monopolistic competition and monopoly.
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Chapter 26: Government and Product Markets: Antitrust and Regulation
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Sample Questions
Q1) The Justice Department began using the Herfindahl index (rather than the four- and eight-firm concentration ratios)in 1982.
A)True
B)False
Q2) The hotel industry contains some aspects that economists consider to be part of the "hidden fee" economy.
A)True
B)False
Q3) 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
Q4) The primary intent of antitrust legislation is to
A) ensure that product safety standards are met.
B) eliminate positive economic profits.
C) eliminate price discrimination.
D) control monopoly power and preserve and promote competition.
E) all of the above
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Chapter 27: Factor Markets: With Emphasis on the Labor Market
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Q1) The addition to total cost that results from employing one additional unit of a resource is called
A) average factor cost.
B) marginal factor cost.
C) average total cost.
D) marginal cost.
Q2) If all the individuals had the same innate and learned skills and abilities,applied the same degree of effort on the job,and worked with the same amount and quality of other factors of production,
A) all labor supply curves would be horizontal.
B) all labor demand curves would be horizontal.
C) wages in different markets would differ less than they currently do.
D) the quantity of labor supplied would decrease in all markets.
E) the demand curve for capital would be upward sloping.
Q3) Which of the following does not affect wages?
A) number of persons who can do a particular job
B) degree of effort employees exert while on the job
C) own abilities and skills
D) product price
E) none of the above; i.e., all of the factors affect wages
Page 30
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Chapter 28: Wages,Unions,and Labor
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Q1) Refer to Exhibit 28-12.As the firm increases employment from 2 to 3 workers,its marginal factor cost (MFC)is
A) $24.
B) $11.
C) $33.
D) $8.
Q2) Sometimes labor unions try to increase the demand for the product they produce.They do so because the demand for labor is derived; and the __________ the demand for the product labor produces,the __________labor and the __________ wages will be,ceteris paribus.
A) higher; greater the supply of; lower
B) higher; lower the demand for; higher
C) higher; higher the demand for; higher
D) lower; higher the demand for; higher
Q3) All economists assert that the National Collegiate Athletic Association (NCAA)is a type of cartel that enforces the monopsony behavior of universities and colleges in the market for college athletes.
A)True
B)False
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Chapter 29: The Distribution of Income and Poverty
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Q1) In 2009,the lowest 20 percent of households in the United States earned approximately what percent of the total income of all households?
A) 1%
B) 3%
C) 8%
D) 16%
E) 20%
Q2) The closer the Gini coefficient is to zero,the
A) greater the degree of income inequality.
B) less the degree of income inequality.
C) greater the degree of discrimination.
D) less the degree of discrimination.
Q3) There are more white persons in the United States living below the poverty line than African- American persons living below the poverty line.
A)True
B)False
Q4) Describe the relationship between income and education in the United States. Cite evidence that supports and explains this relationship.
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Chapter 30: Interest, Rent, and Profit
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Q1) If there is an increase in the expected inflation rate,then,
A) the supply and demand for loanable funds will decrease.
B) the supply and demand for loanable funds will increase.
C) the supply of loanable funds will decrease, and the demand for loanable funds will increase.
D) the supply of loanable funds will increase, and the demand for loanable funds will decrease.
Q2) The people most likely to save are those with a
A) low rate of time preference since they only slightly prefer present consumption to future consumption.
B) high rate of time preference since they greatly prefer present consumption to future consumption.
C) low rate of time preference since they greatly prefer present consumption to future consumption.
D) efficient rate of time preference since they do not prefer consuming luxury goods to necessities.
E) roundabout rate of time preference since they don't really care about consuming.
Q3) Describe the three theories of where profit comes from.
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Chapter 31: Market Failure: Externalities, Public Goods, and
Asymmetric
Information
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Q1) If a negative externality exists,then there is a __________ when society produces the market output instead of the socially optimal output.This exists because the __________ to sellers and third parties are __________ the __________ derived by buyers.
A) net social benefit; costs; greater than; benefits
B) net social cost; benefits; less than; costs
C) net social cost; costs; greater than; benefits
D) net social cost; costs; less than; benefits
E) none of the above
Q2) Refer to Exhibit 31-2.If the exhibit represents a positive externality situation,the social benefit of expanding output from Q<sub>1</sub> to Q<sub>2</sub> is the area of
A) Q<sub>1</sub>ABQ<sub>2</sub>.
B) Q<sub>1</sub>AEQ<sub>2</sub>.
C) Q<sub>1</sub>CBQ<sub>2</sub>.
D) ABE.
Q3) The free rider problem is the main source of market failure in the provision of nonexcludable public goods.
A)True
B)False
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Chapter 32: Public Choice and Special-Interest-Group
Politics
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Q1) According to the median voter model,a candidate (in a two-person race)is more likely to label himself or herself a "middle-of-the-roader" than a conservative or liberal because
A) the terms "conservative" and "liberal" are offensive to many people in today's world.
B) the terms "conservative" and "liberal" are considered terms used of people who are in the "wings" or "extremes" of the political distribution, and a candidate can only win an election by being perceived as closer to the center of the political distribution than his or her opponent.
C) they receive better treatment by the press.
D) it is customary and it has become a tradition in American politics.
E) none of the above
Q2) Public choice theorists say that the greater the number of potential voters in an election,the __________ the perceived benefits of voting held by each voter,and so the __________ the likely percentage turnout of voters.
A) greater; lower
B) greater; higher
C) smaller; lower
D) smaller; higher
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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) The instructors at College A are regularly late for their office hours. Based on a theory presented in the text,we would predict that the gap between the ______________student tuition and ___________equilibrium tuition is ___________ at College A.
A) lower; higher; small
B) higher; lower; small
C) lower; higher; large
D) higher; lower; large
Q2) Which of the following theories is not falsifiable or refutable?
A) Everything that has happened to Jane throughout her life happened to her specifically because she was born on June 23, 1993.
B) People with blue eyes tend to be more sensitive to light than people with brown eyes.
C) Women who are electrical engineers tend to have fewer children than women who are retail cashiers.
D) People who watch more than six hours of television per day tend to weigh more than people who watch fewer hours of television daily.
E) all of the above
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Chapter 34: International Trade
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Q1) Refer to Exhibit 34-9.In the no specialization-no trade case,suppose country X produces and consumes 100 units of good A and 20 units of good B.Country Y produces and consumes 20 units of good A and 60 units of good B.If the two countries specialize and trade,and the actual amounts traded are 125 units of good A for 25 units of good B,how many more units of good B will country Y consume by specializing and trading?
A) 75
B) 5
C) 15
D) 10
E) 50
Q2) Refer to Exhibit 34-6.The opportunity cost of 1 unit of cheese in terms of units of wine is __________ for country B.
A) 1
B) 5
C) 10
D) 15
Q3) Major U.S.exports include automobiles and aircraft.
A)True
B)False
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Chapter 35: International Finance
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Q1) According to the text,the _______________ is currently the primary reserve currency.
A) Chinese yuan
B) euro
C) U.S. dollar
D) Japanese yen
E) British pound
Q2) The more dollars that must be given up to buy one British pound,the __________ American goods are for the British and the __________ American goods the British will buy; thus __________ dollars will be demanded.
A) more expensive; fewer, more
B) less expensive; more, more
C) more expensive; fewer, fewer
D) less expensive; fewer, more
E) none of the above
Q3) In the foreign exchange market between dollars and pesos,the demand for dollars by Mexicans creates the supply of pesos.
A)True
B)False
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Chapter 36: Globalization and International Impacts on the Economy
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Q1) Fifteen years ago,China _________________ with the countries of Europe.Today,China ______________________ most European countries.
A) traded a great deal; is not a trading partner with B) traded a great deal; is rarely a trading partner for C) did not trade much; is one of their top five trading partners for D) did not trade much; is rarely a trading partner for
Q2) Can a change in the Japanese price level cause the United States to move downward along its J-curve?
A) Yes, if the Japanese price level falls and the United States does not buy more Japanese goods.
B) Yes, if the Japanese price level falls and the United States buys more Japanese goods.
C) Yes, if the Japanese price level rises and the United States does not buy significantly fewer Japanese goods.
D) No, a change in relative price levels cannot initiate the J-curve phenomenon.
Q3) Capitalism is the economic system that best describes what is currently happening in the world economy.
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) When the government imposes a tariff on imported goods,it _____________ prices for domestic consumers,________________ consumers' surplus and _________________ the producers' surplus for domestic producers. A) raises; lowers; raises B) lowers; raises; raises C) lowers; raises; lowers D) raises; lowers; lowers E) none of the above
Q2) A divisive society is one in which members of society work together for the common good.
A)True
B)False
Q3) In the case of externalities,government can use taxes and subsidies to turn an inefficient outcome into an efficient outcome.
A)True
B)False
Q4) List and describe the three different types of transfers discussed in this chapter. Give a hypothetical example of each to help support your answer.
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Chapter 38: Stocks, Bonds, Futures, and Options
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Q1) The three major components of a bond are the bond price,maturity date,and coupon rate.
A)True
B)False
Q2) Which of the following is false?
A) Private equity firms often need to borrow the money needed to buy a public corporation.
B) Once a private equity firm owns a formerly publicly held corporation, they tend to cut costs and enhance efficiency.
C) Critics of private equity firms say that companies that have too much cash and too little debt become targets for private equity firms to buy.
D) A private equity firm is a group of investors that takes a privately held corporation and uses an investment banker to turn it into a publicly held corporation.
Q3) The major components of a bond include all of the following except its A) maturity date.
B) face value.
C) price.
D) coupon rate.
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Chapter 39: Agriculture: Problems, Policies, and Unintended Effects
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Q1) An increase in productivity in the agricultural sector when the demand curve is inelastic results in __________ prices for consumers and __________ revenues for farmers
A) higher; lower
B) higher; higher
C) lower; lower
D) lower; higher
E) no change in; no change in
Q2) A government agricultural policy that sets a limit on the quantity of a product that a farmer is allowed to bring to market is the
A) marketing quota system.
B) acreage allotment program.
C) price support program.
D) target price system.
E) paying farmers not to produce system.
Q3) Explain how the combination of major changes in the weather and price inelasticity of demand for a food item can lead to wide fluctuations in a farmer's income from year to year.
Q4) Explain how nonrecourse loans operate and how they help to support crop prices.
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