Survey of Economics
Exam Answer Key
Course Introduction
Survey of Economics offers an accessible overview of the fundamental principles and concepts in both microeconomics and macroeconomics. The course explores how individuals, businesses, and governments make choices regarding the allocation of scarce resources, and examines topics such as supply and demand, market structures, consumer behavior, production costs, fiscal and monetary policy, and global trade.
Emphasizing real-world applications, it provides students with a broad understanding of economic systems and introduces analytical tools to help interpret current economic issues and trends, preparing them for informed decision-making in their personal and professional lives.
Recommended Textbook
Economics 4th Edition by Paul Krugman
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Page 2
Chapter 1: First Principles
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Sample Questions
Q1) Using marginal analysis to decide whether to consume an additional slice of pizza requires making a comparison of the benefits and costs associated with the consumption of an additional slice of pizza.
A)True
B)False
Answer: True
Q2) The most efficient way to dispose of industrial waste is to dump it in a nearby river or parcel of land. Why is this illegal?
Answer: Because while it may be quite efficient, it is not fair, equitable, or just. If a factory dumps barrels of waste into the river, everyone downstream from the factory is exposed to the waste. The many species that rely upon the water bear the cost of that dumping. The government has decided that equity trumps efficiency.
Q3) The opportunity cost of something is:
A) greater during periods of rising prices.
B) equal to the money cost.
C) less during periods of falling prices.
D) what is given up to acquire it.
Answer: D
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Chapter 2: Economic Models- Trade-Offs and Trade
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Sample Questions
Q1) (Scenario: Linear Production Possibility Frontier) Look at the scenario Linear Production Possibility Frontier. If Largetown's labor resource decreases by 40 hours, the opportunity cost of producing shirts:
A) increases.
B) decreases.
C) does not change.
D) may or may not change depending upon the number of pairs of socks it wishes to produce.
Answer: C
Q2) Nations can gain from trade with other nations even if they are less productive in all industries than the nations they trade with.
A)True
B)False
Answer: True
Q3) If Mary accepts a job as a nurse, she has sold a factor of production in the factor market.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Supply and Demand
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Sample Questions
Q1) (Table: Supply of Lemonade) Look at the table Supply of Lemonade. When the price of lemonade is $1 per cup, the quantity of lemonade supplied by Eli will be:
A) 40 cups.
B) 90 cups.
C) 10 cups.
D) 25 cups.
Q2) (Table: Supply of Lemonade) Look at the table Supply of Lemonade. If the price of lemonade is $1 per cup, the total quantity of lemonade supplied will be:
A) 50 cups.
B) 80 cups.
C) 25 cups.
D) 90 cups.
Q3) Why do many clothing stores have big after-Christmas sales on their merchandise?
Q4) The _____ tomatoes will decrease if fertilizer prices rise.
A) demand for B) quantity demanded of C) supply of
D) equilibrium price of
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5
Chapter 4: Consumer and Producer Surplus
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Sample Questions
Q1) (Figure: Producer Surplus III) Look at the figure Producer Surplus III. If the price of the good increases from $3 to $4, producer surplus will increase by:
A) $5.
B) $15.
C) $25.
D) $35.
Q2) Mountain River Adventures offers whitewater rafting trips down the Colorado River. It costs the firm $100 for the first raft trip per day, $120 for the second, $140 for the third, and $160 for the fourth. If the market price for a raft trip is $150, Mountain River Adventures will offer _____ trips per day and will have producer surplus equal to _____.
A) three; $90
B) three; $10
C) two; $220
D) four; $80
Q3) Property rights benefit sellers of goods much more than they benefit consumers.
A)True
B)False
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Chapter 5: Price Controls and Quotas- Meddling With Markets
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Sample Questions
Q1) (Figure: Market I) Look at the figure Market I. A surplus of the good will result if the price is:
A) $15.
B) $9.
C) $6.
D) $0.
Q2) Quantity controls are usually in the form of price ceilings or price floors established by the government.
A)True
B)False
Q3) How could a minimum wage cause an incentive for illegal hiring practices?
Q4) Typically the government limits the quantity of a good that can be bought and sold by:
A) licensing the suppliers.
B) setting a price floor below the equilibrium price.
C) maintaining the equilibrium price regardless of changes in demand and supply.
D) setting a price ceiling above the equilibrium price.
Q5) How does a price ceiling cause deadweight loss in the market?
Q7) How do price ceilings cause black markets? Page 7
Q6) How is a quota limit different from or similar to a price control?
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Page 8
Chapter 6: Elasticity
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Sample Questions
Q1) Suppose the price of e-books is initially $20 but decreases to $15. The absolute value of the percentage change in price (by the midpoint method) is approximately:
A) 28%.
B) 10%.
C) 5%.
D) 15%.
Q2) (Figure: The Demand for e-Books) Look at the figure The Demand for e-Books. What is the price elasticity of demand (by the midpoint method) when the price decreases from $6 to $4?
A) 0.55
B) 0.5
C) 1
D) 0.67
Q3) A price ceiling below equilibrium will cause a larger shortage when demand is _____ and supply is _____.
A) elastic; inelastic
B) inelastic; inelastic
C) elastic; elastic
D) perfectly inelastic; elastic
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Page 9
Chapter 7: Taxes
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Sample Questions
Q1) The evidence suggests that taken collectively, taxes in the U.S. economy are:
A) extremely regressive.
B) extremely progressive.
C) somewhat progressive.
D) proportional.
Q2) Prior to any taxes, the equilibrium price of gasoline is $3 per gallon. Then a $1-per-gallon tax is levied. As a result, the price of gasoline rises to $3.75 per gallon. The incidence of the $1 tax is _____ paid by consumers and _____ paid by producers.
A) $0.25; $0.75
B) $0.50; $0.50
C) $0; $1.00
D) $0.75; $0.25
Q3) The FICA tax falls most heavily on workers because the price elasticity of demand for labor is greater than the price elasticity of supply of labor.
A)True
B)False
Q4) What supply and demand conditions cause zero deadweight loss when an excise tax is imposed?
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Page 10
Chapter 9: The Rational Consumer
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Sample Questions
Q1) Joe's budget line reflects the _____ available to Joe if he spends _____ of his income.
A) consumption bundles; all
B) consumption bundles; part
C) utility; all
D) utility; part
Q2) (Scenario: Tom's Budget Constraint) Read the scenario Tom's Budget Constraint. The combination _____ music downloads and _____ movies lies OUTSIDE Tom's budget line. (Tom cannot afford this combination.)
A) 50; 10
B) 50; no
C) no; 5
D) 20; 5
Q3) Utility is the:
A) difference between a firm's total revenue and its total economic cost.
B) good not adequately provided by a free market and usually provided by the government.
C) satisfaction consumers derive from their consumption of goods and services.
D) lowest price that buyers are willing to pay for a given quantity of a good.
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Chapter 8: International Trade
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Sample Questions
Q1) Assume an economy moves from autarky to free international trade. In the export sector, consumer surplus _____, producer surplus _____, and the economy as a whole
A) rises; rises; gains B) rises; falls; gains C) falls; rises; gains D) falls; rises; loses
Q2) (Figure: The Domestic Supply and Demand for SUVs in the United States) Look at the figure The Domestic Supply and Demand for SUVs in the United States. Suppose the world price equals $50,000 and there is free trade. Calculate the loss of consumer surplus.
A) $41,250 million
B) $30,000 million
C) $52,500 million
D) $22,250 million
Q3) (Table: Production Possibilities in the United States and Colombia) Look at the table Production Possibilities in the United States and Colombia. Which country should export coffee and which country should export computers? Justify your answer.
Q4) Explain the difference between comparative advantage and absolute advantage.
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Chapter 10: Decision Making by Individuals and Firms
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Sample Questions
Q1) Jacquelyn is a student at a major state university. Which of the following is NOT an explicit cost of her attending college?
A) tuition
B) textbooks
C) the salary that she could have earned working full-time
D) computer lab fees
Q2) (Table: TC's Pizza Parlor) Look at the table TC's Pizza Parlor. Assume that the marginal benefit is constant in intervals of production. Suppose five slices of pizza are being produced. What is the marginal benefit of producing one more slice of pizza?
A) $3
B) $2
C) $15
D) $55
Q3) Economic profits are calculated by:
A) taking the difference between total revenue and the sum of explicit and implicit costs.
B) taking the difference between total revenue and explicit costs only.
C) taking the difference between the total revenue and implicit costs only.
D) summing total revenue, explicit costs, and implicit costs.
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Chapter 11: Perfect Competition and the Supply Curve
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Sample Questions
Q1) Zoe's Bakery operates in a perfectly competitive industry. When the market price of iced cupcakes is $5, the profit-maximizing output level is 150 cupcakes. Her average total cost is $4, and her average variable cost is $3. Zoe's marginal cost is _____, and her short-run profits are _____.
A) $5; $150
B) $5; $300
C) $1; $150
D) $1; $300
Q2) (Figure: A Perfectly Competitive Firm in the Short Run) Look at the figure A Perfectly Competitive Firm in the Short Run. The firm will produce in the short run if the price is at least as high as point:
A) F.
B) E.
C) N.
D) P.
Q3) Why are perfectly competitive firms described as price takers?
Q4) Why does it make sense for a firm to shut down in the short run if the price falls below minimum average variable cost?
Q5) Explain how the long-run perfectly competitive equilibrium is efficient.
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Chapter 12: Monopoly
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Sample Questions
Q1) An oligopoly that engages in price discrimination will charge higher prices to customers with the most inelastic demand.
A)True
B)False
Q2) A monopoly increases price by limiting the quantity supplied to a market.
A)True
B)False
Q3) (Figure: A Profit-Maximizing Monopoly Firm) Look at the figure A Profit-Maximizing Monopoly Firm. This firm's profit per unit is:
A) $5.
B) $12.
C) $15.
D) $20.
Q4) Price discrimination can never occur in perfect competition.
A)True
B)False
Q5) Consumer surplus in monopoly is smaller than in perfect competition. A)True
B)False
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Chapter 13: Oligopoly
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Sample Questions
Q1) In the classic prisoners' dilemma with two accomplices in crime, the Nash equilibrium is for:
A) neither to confess.
B) both to confess.
C) one to confess and the other not to confess.
D) This game does not have a Nash equilibrium.
Q2) To be called an oligopoly, an industry must have:
A) independence in decision making.
B) a horizontal demand curve.
C) a small number of interdependent firms.
D) relatively easy entry and exit.
Q3) (Table: Demand for Crude Oil) Look at the table Demand for Crude Oil. Assume that the crude oil industry is a duopoly and the marginal cost of producing crude oil is zero. Suppose that the two firms are maximizing industry profit and splitting the profit evenly. If firm 1 decides to cheat and increase production by 10 more barrels, total industry output will be _____ barrels.
A) 160
B) 100
C) 90
D) 80
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Chapter 14: Monopolistic Competition and Product
Differentiation
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Sample Questions
Q1) An industry with a single firm producing a product for which there are no close substitutes and which is protected by barriers to entry is an example of:
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
Q2) In the long run, monopolistically competitive firms tend to have:
A) high economic profits.
B) zero economic profits.
C) negative economic profits.
D) substantial economic losses.
Q3) Which of the following is NOT a characteristic of monopolistic competition?
A) product differentiation
B) lack of barriers to entry and exit in the long run
C) many competing producers
D) tacit collusion
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Chapter 15: Externalities
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Sample Questions
Q1) (Figure: Three Firms that Pollute) In the figure Three Firms That Pollute, at what tax rate would firm C produce zero tons of pollution?
A) $400
B) $500
C) $700
D) $400, $500, or $700
Q2) The additional cost imposed on society as a whole by an additional unit of pollution is:
A) the marginal social benefit of pollution.
B) the marginal social cost of pollution.
C) the optimal Pigouvian tax.
D) a technology spillover.
Q3) External benefits are associated with the production of batteries. Without government regulation, the market will:
A) produce too many batteries.
B) price batteries at less than the marginal social cost.
C) price batteries at less than the marginal social benefit.
D) price batteries above the marginal social cost.
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18
Chapter 16: Public Goods and Common Resources
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Sample Questions
Q1) Volunteer fire departments are good examples of the _____ provision of _____.
A) private; private goods
B) public; common resources
C) private; public goods
D) public; artificially scarce goods
Q2) Which of the following goods BEST fits the characteristics of a private good?
A) a professor giving a lecture in a large classroom
B) an ice-cream cone
C) fire protection
D) disease prevention
Q3) Public goods should be produced up to the point at which the marginal cost of production equals:
A) the maximum price any individual is willing to pay for that unit.
B) the sum of the individual marginal benefits from all consumers of that unit.
C) zero, which is the marginal cost of allowing another individual to consume the good.
D) the highest marginal benefit from any individual consumer of the good.
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19
Chapter 17: The Economics of the Welfare State
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Sample Questions
Q1) The U.S. government health insurance program for people aged 65 years and older is:
A) Medicare.
B) Medicaid.
C) the Veterans Administration.
D) health savings accounts.
Q2) The largest _____ program in the United States is _____.
A) social insurance; Medicaid
B) social insurance; Social Security payments to retired persons
C) means-tested; farmers' aid
D) means-tested; Social Security payments to retired persons
Q3) The problem with community rating is that it:
A) causes moral hazard.
B) results in poor-quality health care.
C) is very unpopular with health care providers.
D) may cause adverse selection.
Q4) The poverty threshold is the same regardless of the number of members in a household.
A)True
B)False
Page 20
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Chapter 18: Factor Markets and the Distribution of Income
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Sample Questions
Q1) (Figure: Equilibrium in the Labor Market) In the figure Equilibrium in the Labor Market, a decrease in population that decreases the number of workers, when everything else stays the same, will lead to a(n) _____ in the equilibrium quantity of labor and a(n) _____ in the equilibrium price of labor.
A) increase; increase
B) decrease; increase
C) increase; decrease
D) decrease; decrease
Q2) (Figure: The Value of the Marginal Product Curve) In the figure The Value of the Marginal Product Curve, the VMPL curve will shift to the right if:
A) the wage rate increases.
B) a technological advance makes labor more productive.
C) the price of the good that the labor produces decreases.
D) the wage rate decreases.
Q3) When interferences in the labor market raise the wage above the equilibrium level, employers may discriminate because there are more job applicants than jobs.
A)True
B)False
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Chapter 19: Uncertainty, Risk, and Private Information
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Q1) The opportunity to engage in pooling shifts the _____ curve of insurance to the right; insurance companies will take on _____ risk and charge a _____ premium than without pooling.
A) supply; more; lower B) demand; more; lower C) supply; less; higher D) demand; less; higher
Q2) A fair insurance policy is one whose premium: A) is zero.
B) allows the insurance company to profit.
C) equals the expected value of the claims.
D) is higher as the probability of a claim decreases.
Q3) In a particular insurance market, there is a decrease in the degree of risk aversion among suppliers. Holding everything else constant, the equilibrium premium will _____ and the equilibrium quantity of insurance will _____.
A) increase; increase B) decrease; decrease C) increase; decrease
D) decrease; increase
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Page 22
Chapter 20: Macroeconomics- the Big Picture
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Sample Questions
Q1) If an economy is open:
A) anyone can immigrate to the country.
B) trading with other countries makes up a portion of its economy.
C) it does not trade with other countries.
D) Its real GDP will drop.
Q2) If wages grew at 5% last year and average prices grew at 3%, then the average worker:
A) is better off.
B) is worse off.
C) has lost purchasing power.
D) is unaffected.
Q3) During inflation the _____ price level _____.
A) average; falls
B) average; increases
C) average; remains constant
D) real; falls
Q4) The additional profit earned by Microsoft Corporation by marketing and using a proprietary method of coding software is a microeconomic issue.
A)True
B)False
Page 23
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Chapter 21: Gdp and the Consumer Price Index
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Sample Questions
Q1) Included in GDP is the dollar value of:
A) a used car sold during the period.
B) a new car imported during the period.
C) a new car exported during the period.
D) 100 shares of General Motors stock bought by a retiree.
Q2) Consider an economy that produces only DVDs and DVD players. Last year, 10 DVDs were sold at $20 each and 5 DVD players were sold at $100 each, while this year 15 DVDs were sold at $10 each and 10 DVD players were sold at $50 each. Real GDP this year using last year as the base year is:
A) $100.
B) $700.
C) $1,300.
D) $300
Q3) Nominal GDP:
A) has not been adjusted for changes in prices over time.
B) has been adjusted for changes in prices over time.
C) is a small or nominal amount of output.
D) excludes the international sector.
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Chapter 22: Unemployment and Inflation
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Q1) A person who is not working and is not looking for work is:
A) included in the unemployment rate.
B) underemployed.
C) a member of the labor force who is not working.
D) not counted in the unemployment statistics.
Q2) A binding minimum wage in a labor market is set _____ the equilibrium wage and causes a _____ of labor.
A) below; surplus
B) below; shortage
C) above; surplus
D) above; shortage
Q3) Between 1921 and 1923 Germany underwent:
A) deflation.
B) disinflation.
C) an increase in the purchasing power of its currency.
D) hyperinflation.
Q4) The inflation rate for the current year is the price level in the current year minus the price level in the previous year.
A)True
B)False
Page 25
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Chapter 23: Long-Run Economic Growth
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Q1) Ireland's recent economic growth and improving living standard are due primarily to:
A) its refusal to join the European Union and abandon its own currency for the euro.
B) the capture and imprisonment of Sinn Fein leader Gerry Adams.
C) the large number of immigrants from Eastern Europe.
D) an excellent physical and human infrastructure, including a good education system, airports, telecommunications, and shipping facilities.
Q2) The _____in an economy whose aggregate real output is growing faster than the total population.
A) real GDP per capita is rising
B) standard of living is declining
C) national income is falling
D) nominal GDP per capita is decreasing
Q3) Sustainable long-run economic growth can continue in the face of the limited supplies of natural resources and the impact of growth on the environment.
A)True
B)False
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26
Chapter 24: Savings, Investment Spending
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Q1) (Table: Investment Spending, Private Spending, and Capital Inflows) What is the budget balance as a percentage of GDP in Southlandia?
A) -10%
B) 0%
C) 10%
D) 20%
Q2) Investment spending in a closed economy must equal GDP minus consumption minus government spending.
A)True
B)False
Q3) Changes in the prices of stock are the result of changes in the supply and demand for stocks of investors.
A)True
B)False
Q4) Owners of stock may receive income in the form of:
A) interest.
B) dividends and profit from selling the stock for more than its purchase price.
C) transfer payments.
D) rent.
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Chapter 25: Fiscal Policy
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Q1) Discretionary fiscal policy may fail to stabilize the economy or may even make the economy less stable because of:
A) its ineffectiveness.
B) government waste.
C) lags in deciding on and implementing a policy change.
D) the business cycle.
Q2) The tax and government transfer payment multiplier is smaller than the government purchases multiplier because all of an increase in government purchases is spent, only some of tax cuts or increases in government transfers is spent.
A)True
B)False
Q3) If policy makers want to increase real GDP by $100 billion and the marginal propensity to consume is 0.75, they should increase government transfers by $75 billion.
A)True
B)False
Q4) The budget deficit usually decreases when the unemployment rate increases.
A)True
B)False
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Chapter 26: Money, Banking, and the Federal Reserve System
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Q1) Beginning in 1913, when the Federal Reserve was established, it had the power to make loans to commercial banks.
A)True
B)False
Q2) The reserve ratio is defined as the ratio of:
A) bank assets to bank liabilities.
B) bank assets to bank reserves.
C) customers' bank deposits to bank assets.
D) bank reserves to customers' checkable bank deposits.
Q3) An asset is liquid if it can be converted to cash quickly with little or no loss of value.
A)True
B)False
Q4) Holding everything else constant, if the required reserve ratio falls:
A) the money multiplier increases.
B) a $1 loan can lead to a smaller change in the money supply than before the change in the required reserve ratio.
C) the amount of excess reserves falls also.
D) the money multiplier decreases.
Q5) What caused the savings and loan crisis of the 1980s?
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Chapter 27: Monetary Policy
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Q1) The interest rate is determined in the money market in the short run.
A)True B)False
Q2) Suppose the annual inflation rate is at 2% and 8.5% of the labor force is unemployed. If you were on the Federal Open Market Committee, what action would you prescribe? How would this affect the economy, the inflation rate, and the unemployment rate?
Q3) If the economy is in a recessionary gap, the Federal Reserve should conduct _____ monetary policy by _____ the money supply.
A) expansionary; decreasing
B) expansionary; increasing C) contractionary; decreasing D) contractionary; increasing
Q4) If the economy is in a recession and real GDP decreases, the demand for money will shift to the left.
A)True B)False
Q5) The interest rate is determined in the loanable funds market in the short run. A)True B)False
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Chapter 28: Inflation, Disinflation, and Deflation
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Q1) If the real money supply is $500 billion and the money supply grows by 2%, then real seignorage is:
A) $25 trillion.
B) $1 trillion.
C) $10 billion.
D) $1 billion.
Q2) In June 2008 Zimbabwe had the world's highest unemployment rate.
A)True
B)False
Q3) Expecting the inflation rate to be 3%, Adrianna decides to put her savings in bonds yielding a fixed 5% interest rate over a year. If the actual inflation rate is _____, it can be argued that _____ is (are) better off.
A) below 3%; Adrianna
B) exactly 5%; both the bond issuer and Adrianna
C) above 3%; Adrianna
D) below 3%; the bond issuer
Q4) Suppose that the natural rate of unemployment is 5% and that the economy is operating at 97.5% of potential output. Use Okun's law to determine the unemployment rate.
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Chapter 29: Crises and Consequences
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Sample Questions
Q1) The purpose of open market purchases is to:
A) decrease the government budget deficit.
B) increase the government budget deficit.
C) increase consumer and investment spending.
D) decrease consumer and investment spending.
Q2) The Dodd-Frank bill addressed all of the following issues EXCEPT:
A) consumer protection.
B) regulation of shadow banks.
C) election of members of the Federal Reserve Board of Governors.
D) regulation of derivatives.
Q3) Which of the following countries was known as the Celtic Tiger during much of the 1990s and 2000s?
A) China
B) France
C) India
D) Ireland
Q4) Following the banking crises of the 1930s, both real GDP and the price level increased immediately.
A)True
B)False
Page 32
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Chapter 30: Macroeconomics- Events and Ideas
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Sample Questions
Q1) Nancy believes that the best way to grow the economy is through tax cuts to increase the incentive to work and invest. Though these tax cuts might initially increase the budget deficit, Nancy is convinced that the economic growth that results will actually increase government tax revenue. Nancy is best described as a:
A) monetarist.
B) classical economist.
C) new Keynesian.
D) supply-sider.
Q2) Classical macroeconomists focused on the long-run effects of monetary policy on the aggregate price level and argued that it had no short-run or long-run effects on aggregate output.
A)True
B)False
Q3) The Great Moderation consensus is that the policy makers of the central bank should be elected so that they are responsible to the voters.
A)True
B)False
Q4) Why did the adoption of Keynesian economics come out of the Great Depression?
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Chapter 31: Open-Economy Macroeconomics
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Sample Questions
Q1) An appreciated dollar will cause aggregate demand to:
A) increase.
B) decrease.
C) remain constant.
D) fluctuate randomly.
Q2) A floating exchange rate:
A) retains the ability of monetary policy to help stabilize the economy.
B) reduces the ability of monetary policy to stabilize the economy.
C) reduces the uncertainty faced by business firms.
D) makes foreign goods easier to price.
Q3) Economists summarize a country's transactions with other countries with a(n) _____ account.
A) circular flow
B) balance of payments
C) exchange rate
D) purchasing power parity
Q4) Real exchange rates are those that are recognized by the International Monetary Fund.
A)True
B)False
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Chapter 32: Graphs in Economics
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Sample Questions
Q1) (Figure: Labor Force Participation Rate) Look at the figure Labor Force Participation Rate. Using the figure, the labor force participation rate for women was ______ during 1970-1985 and ______ during 1998-2006.
A) increasing; slightly decreasing
B) increasing; increasing
C) decreasing; increasing
D) decreasing; constant
Q2) (Figure: Consumption of Pizza and Tacos) Look at the figure Consumption of Pizza and Tacos. The figure shows the number of tacos and pizza slices Matt can eat in a day. The best estimate of the slope between point A and point B is -4.
A)True
B)False
Q3) (Figure: Slope) Look at the figure Slope. In the graph, the slope of the line between points A and B is:
A) +8.
B) -8.
C) -2.
D) +2.
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Chapter 33: Toward a Fuller Understanding
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Sample Questions
Q1) If a firm finds that the net present value of a project is _____ for a given interest rate, it will _____ the project.
A) positive; undertake
B) positive; not undertake
C) negative; undertake
D) positive or negative; undertake
Answer Key
Q2) The present value of a future payment _____if the _____.
A) increases; wait period increases.
B) decreases; future payment increases.
C) increases; interest rate decreases.
D) decreases; stock market rises.
Q3) You have recently graduated from high school and are debating whether to attend college or get a job. Assume that you can spend $50,000 today for tuition and receive your college degree in only one year. When you graduate, you will receive a job that pays you $100,000 immediately and $100,000 the following year. If you begin working immediately, you can earn $35,000 today and each of the next two years. If the annual interest rate is 10%, should you go to college?
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Chapter 34: Consumer Preferences and Consumer Choice
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Sample Questions
Q1) For most goods, indifference curves:
A) may intersect.
B) slope upward.
C) are concave from the origin.
D) slope downward.
Q2) (Table: Bundles of X and Y) Look at the table Bundles of X and Y. Bundle(s):
A) A and B are on the same indifference curve.
B) A and C are on the same indifference curve.
C) D is on the highest indifference curve.
D) C is on the highest indifference curve, and bundles A and B are on the lowest indifference curve.
Q3) According to the relative price rule, the optimal consumption bundle between hot dogs and beer takes place when the _____ rate of substitution is _____ their relative price.
A) total; equal to B) marginal; equal to C) marginal; higher than D) total; lower than
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Chapter 35: Indifference Curve Analysis of Labor Supply
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Sample Questions
Q1) (Figure: Rita's Time Allocation Budget Line) Look at the figure Rita's Time Allocation Budget Line. It is based on 80 hours available for labor and leisure. If her hourly wage doubles, the new time allocation budget line will have a point at _____ hours of leisure and _____ in income.
A) 30; $1,000
B) 40; $400
C) 50; $700
D) 60; $280
Q2) (Figure: The Time Allocation Budget Line) Look at the figure The Time Allocation Budget Line. If the wage rate rises, then the time allocation budget line will rotate _____ along the _____ axis.
A) left; leisure
B) up; income
C) right; leisure
D) down; income
Q3) If an individual's wage rate decreases, the substitution effect will cause the individual to work fewer hours.
A)True
B)False
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