Survey of Economics Final
Exam
Course Introduction
Survey of Economics provides an introduction to the fundamental principles of both microeconomics and macroeconomics, examining the ways individuals, businesses, and governments make decisions regarding the allocation of scarce resources. The course covers essential concepts such as supply and demand, market structures, price determination, national income, inflation, unemployment, fiscal policy, and monetary policy. Emphasis is placed on real-world applications, enabling students to analyze economic issues, understand economic terminology, and recognize the role of economic forces in shaping society and policy-making. This course is designed for students seeking a broad overview of economic theory and practice, regardless of their intended major.
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) The Taco Hut charges the same price for everything on its menu: $3 will buy a taco, a burrito, or nachos. You buy the taco and think that if you had not purchased the taco, you would have purchased the burrito. The opportunity cost of the taco is:
A) $3.
B) your enjoyment of the burrito.
C) $3 and your enjoyment of the burrito.
D) $3, your enjoyment of the burrito, and your enjoyment of the nachos.
Answer: B
Q2) Owen had a typewriter shop, but he went out of business because no one buys typewriters anymore. This statement best represents this economic concept:
A) Resources are scarce.
B) People usually exploit opportunities to make themselves better off.
C) Markets move toward equilibrium.
D) One person's spending is another person's income.
Answer: D
Q3) Market equilibrium will always be efficient even if it is not equitable.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Economic Models- Trade-Offs and Trade
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Sample Questions
Q1) Which of the following offices of the U.S. government is a major employer of economists?
A) International Monetary Fund
B) United Nations
C) World Bank
D) Bureau of Labor Statistics
Answer: D
Q2) Statements that make value judgments are:
A) pecuniary.
B) positive.
C) nominal.
D) normative.
Answer: D
Q3) In a single day, Sarah can produce 10 hamburgers, and Abe can produce 5 hamburgers. Therefore, _____ has a(n) _____ advantage in making hamburgers.
A) Sarah; comparative
B) Sarah; absolute
C) Abe; comparative
D) Abe; absolute
Answer: B
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Chapter 3: Supply and Demand
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Sample Questions
Q1) Consider two competing motorcycle manufacturers, Harley-Davidson and Honda. If Harley-Davidson raises the price of its motorcycles, we can expect:
A) a shift to the right in the supply curve of Hondas and lower prices for Hondas.
B) a shift to the left in the supply curve of Hondas and higher prices for Hondas.
C) a shift to the right in the demand curve for Hondas and higher prices for Hondas.
D) a shift to the left in the demand curve for Hondas and lower prices for Hondas.
Q2) A negative relationship between quantity demanded and price is called the law of: A) demand.
B) increasing returns.
C) market clearing.
D) supply.
Q3) In the Midwestern United States, the price of an ear of corn is always lowest in the summer. This seems odd, because consumers really enjoy eating ears of corn in the summer. Can you explain this?
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Chapter 4: Consumer and Producer Surplus
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Sample Questions
Q1) (Table: Consumer Surplus) Look at the table Consumer Surplus. Assume that each student wants to buy one ticket. If the tickets to The Nutty Nutcracker are free and there is no other market for tickets, the total consumer surplus for the five students is:
A) $0.
B) $100.
C) $150.
D) $320.
Q2) Along a given downward-sloping demand curve, an increase in the price of a good will:
A) increase consumer surplus.
B) decrease consumer surplus.
C) have no effect on consumer surplus.
D) decrease producer surplus.
Q3) Consumer surplus is represented by the area _____ the demand curve and _____ the market price.
A) above; below
B) above; above
C) below; above
D) below; below
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Page 6
Chapter 5: Price Controls and Quotas- Meddling With Markets
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Sample Questions
Q1) If a quota is set above the equilibrium quantity, there will be:
A) incentives for illegal activities.
B) missed opportunities in the form of mutually beneficial transactions that don't occur.
C) a supply price for the quantity transacted that will exceed the demand price of the quantity transacted.
D) no effect.
Q2) (Table: Market for Apartments) Look at the table Market for Apartments. If a price ceiling of $900 is imposed on this market, the result will be an inefficiency in the form of a _____ million apartments.
A) surplus of 0.6
B) shortage of 0.6
C) surplus of 0.2
D) shortage of 0.2
Q3) If the minimum wage is a binding price floor:
A) those who want to work will outnumber the jobs available.
B) the equilibrium wage will increase.
C) there will be a job for everyone who is willing to work.
D) business owners will hire more workers.
Q4) How could a minimum wage cause an incentive for illegal hiring practices?
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Chapter 6: Elasticity
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Sample Questions
Q1) You are the manager of a supermarket, and you know that the cross-price elasticity of peanut butter to jelly is exactly -2.0.Because of a bad grape harvest, grape jelly prices are expected to rise by 10% next year. To account for the change in demand, you should stock 10% more peanut butter.
A)True
B)False
Q2) (Figure: The Linear Demand Curve II) Look at the figure Linear Demand Curve II. If price was initially set at $8 and then increased to $10, total revenue would:
A) decrease, as the price effect is dominated by the quantity effect.
B) increase, as the price effect dominates the quantity effect.
C) stay the same, as both the price and quantity effects remain unchanged.
D) stay the same, but the price effect is dominated by the quantity effect.
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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Chapter 7: Taxes
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Q1) Suppose the government decides to fight obesity in America by imposing an excise tax based on the saturated fat content of food. The most likely effect of this tax would be to:
A) lower the profits of ice cream suppliers.
B) decrease revenue for the government.
C) decrease black market activity.
D) raise the profits of ice cream suppliers.
Q2) A tax leads to a(n) _____ in consumer surplus and a(n) _____ in producer surplus.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Q3) The benefits principle of taxation means individuals pay according to:
A) whether and how much they use a good or service.
B) benefits gained by society as a whole.
C) benefits to government from having taxpayers.
D) ability to pay.
Q4) Explain how an excise tax levied on suppliers affects the supply curve.
Q5) How does an excise tax impose a cost on society?
Page 9
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Chapter 9: The Rational Consumer
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Sample Questions
Q1) Suppose bad weather and pollution dramatically reduce the supply of crawfish in Louisiana next year. This would most likely lead to _____ in the marginal utility of crawfish consumption.
A) an increase
B) a decrease
C) no change
D) substitution and income effects
Q2) The amount by which an additional unit of a good or service changes a consumer's total satisfaction, all other things unchanged, is _____ utility.
A) marginal
B) maximum
C) average
D) required
Q3) Economists describe the satisfaction consumers receive from consuming goods and services as:
A) utility.
B) income effects.
C) budget constraints.
D) substitution effects.
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Page 10
Chapter 8: International Trade
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Sample Questions
Q1) (Table: The Production Possibilities for Tractors and Crude Oil) Look at the table The Production Possibilities for Tractors and Crude Oil. The United States has a comparative advantage in _____ and Mexico has a comparative advantage in _____.
A) both goods; neither good
B) neither good; both goods
C) tractors; crude oil
D) crude oil; tractors
Q2) Japan must give up the production of 75 computers to produce 25 additional cellular telephones. The opportunity cost of producing 3 computers is _____ cell phone(s).
A) 1
B) 3
C) 22
D) 28
Q3) Comparative advantage arises from:
A) differences in climate, factor endowments, and technology.
B) absolute advantage.
C) countries engaging in autarkic behavior.
D) an emphasis on export production.
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Page 11
Chapter 10: Decision Making by Individuals and Firms
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Q1) If the marginal cost curve is upward-sloping, as output increases, marginal costs will: A) increase. B) decrease.
C) stay constant.
D) become downward-sloping.
Q2) Total profit is maximized when marginal benefit _____ marginal cost. A) is more than B) is less than C) is equal to D) approaches
Q3) (Scenario: Accounting and Economic Profit) Look at the scenario Accounting and Economic Profit. The accounting profit of Wang's Wicker Furniture Store is:
A) $200,000.
B) $60,000.
C) $30,000.
D) $0.
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Chapter 11: Perfect Competition and the Supply Curve
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Q1) (Figure: Total Revenue and Total Cost) Look at the figure Total Revenue and Total Cost. The most profitable level of output occurs at quantity:
A) F.
B) K.
C) L.
D) M.
Q2) If firms are making positive economic profits in the short run, then in the long run: A) the short-run industry supply curve will shift leftward.
B) firms will enter the industry.
C) industry output will rise and the price will rise.
D) firms will leave the industry.
Q3) (Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm. O is the _____ curve.
A) ATC
B) MR
C) MC
D) AVC
Q4) Explain how the long-run perfectly competitive equilibrium is efficient.
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Page 13
Chapter 12: Monopoly
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Sample
Questions
Q1) Suppose the price elasticity of demand for coffee at the CoffeeBarn equals 1.71 for women and 0.55 for men. A successful price discrimination strategy would lead to _____ prices for men and _____ prices for women _____.
A) lower; lower; in any circumstances
B) lower; higher; in any circumstances
C) lower; higher; as long as men can't resell drinks to women
D) higher; lower; as long as women can't resell drinks to men
Q2) A natural monopoly has increasing returns to scale, so that a large producer has a relatively low average total cost.
A)True
B)False
Q3) A monopolist or an imperfectly competitive firm practices price discrimination primarily to:
A) increase profits.
B) expand plant size.
C) lower total costs.
D) reduce marginal costs.
Q4) What makes a natural monopoly a distinct form of monopoly? Use an example of a natural monopoly in your explanation.
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Chapter 13: Oligopoly
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Sample Questions
Q1) In an oligopoly:
A) there are many sellers.
B) there are no barriers to entry.
C) firms recognize their interdependence.
D) total surplus is maximized.
Q2) An analytical approach through which strategic choices can be assessed is called:
A) cost-benefit analysis.
B) econometric theory.
C) game theory.
D) monopolistic competition.
Q3) The market structure characterized by a few interdependent firms and barriers to entry is called:
A) monopolistic competition.
B) perfect competition.
C) oligopoly.
D) monopoly.
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Chapter 14: Monopolistic Competition and Product
Differentiation
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Q1) Toby operates a small deli downtown. The deli industry is monopolistically competitive. In the long run, Toby will produce where:
A) marginal revenue equals marginal cost.
B) price equals minimum average total cost.
C) price equals marginal cost.
D) price equals marginal revenue.
Q2) Suppose Susan owns a business that operates in a market characterized by monopolistic competition. Susan's profit-maximizing price is $12, her profit-maximizing output is 900 units per week, and her profits are $1,800 per week. Susan decides that she needs more profits and therefore raises her price to $15. At the new price of $15:
A) profits will increase.
B) profits will remain at $1,800.
C) marginal revenue will be greater than marginal cost.
D) marginal revenue will be less than marginal cost.
Q3) 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.
Page 16
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Chapter 15: Externalities
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Q1) (Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social benefit and cost of various amounts of pollution from a coal mine. The efficient quantity of pollution is _____ tons.
A) 0
B) 2
C) 4
D) 8
Q2) (Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social benefit and cost of various amounts of pollution from a coal mine. If 2 tons of pollution is produced, the outcome is _____ because _____.
A) efficient; MSB = MSC
B) efficient; MSB > MSC
C) inefficient; MSB > MSC
D) inefficient; MSB < MSC
Q3) Which of the following generates a positive externality?
A) You buy a new car and find $5,000 in the door panel.
B) Your next-door neighbor mows the lawn at 6 A.M.
C) Your next-door neighbor installs a bat house and the bats eat mosquitoes.
D) Joe buys health insurance but decides not to take the time to get a flu shot.
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Page 17
Chapter 16: Public Goods and Common Resources
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Sample Questions
Q1) Which of the following goods is most likely an artificially scarce good?
A) tickets to a boxing match
B) pay-per-view of a boxing match
C) health care
D) the police department
Q2) For a good to be efficiently provided by the private market, it must be:
A) rival in consumption.
B) excludable.
C) a common resource.
D) rival in consumption and excludable.
Q3) The free-rider problem refers to:
A) the situation in the Old West when land was largely unfenced and riders had unfettered access to private range land.
B) qualifications, or riders, that clients do not request, but which lawyers tend to include in contracts anyway.
C) a variation on the phrase "There's no such thing as a free lunch," which is replaced by "There's no such thing as a free ride."
D) lack of incentive for consumers to pay for a nonexcludable good.
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18
Chapter 17: The Economics of the Welfare State
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Sample Questions
Q1) Which of the following transactions is a transfer payment?
A) The government pays an employee by making a direct transfer to the employee's bank account.
B) An army officer transfers part of her pay to the government to pay her taxes.
C) A senior citizen receives a Social Security payment.
D) All of these are transfer payments.
Q2) In the United States, the government pays _____ of medical costs.
A) 100%
B) between 70% and 80%
C) approximately 50%
D) less than 20%
Q3) Community rating is a regulation that requires:
A) cities to give ratings to movies shown in local theaters.
B) insurance companies to offer the same policies for the same premium to everyone, regardless of medical history.
C) insurance companies to charge higher premiums to healthy people.
D) insurance companies to charge higher premiums to the sickest people in the community.
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Chapter 18: Factor Markets and the Distribution of Income
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Q1) (Table: Value of the Marginal Product of Labor and Demand) In the figure Value of the Marginal Product of Labor and Demand, the total product of labor is shown for the hourly production of power cords. Assume that the market for power cords is perfectly competitive. If the price of a power cord is $2 and the market wage rate is $60 per hour, the profit-maximizing quantity of labor is _____ workers.
A) zero
B) two
C) four
D) six
Q2) Efficiency wages reduce unemployment.
A)True
B)False
Q3) Which of the following groups has the HIGHEST median earnings in the U.S. labor market?
A) White men
B) women, regardless of ethnicity
C) African Americans
D) Hispanics
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Chapter 19: Uncertainty, Risk, and Private Information
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Sample Questions
Q1) (Table: Total Utility of Income After College Expenses) Look at the table Total Utility of Income After College Expenses. The Smith family's expected income after tuition is:
A) $32,500.
B) $38,000.
C) $40,000.
D) $45,000.
Q2) Investors in agricultural corporations face many correlated financial risks. Which of the following are NOT correlated risks for the agricultural industry?
A) losses due to drought and changes in the exchange rate with the euro
B) political events that can lead to fewer crop subsidies and fewer milk supports
C) recessions and changes in availability of credit
D) the spread of genetically modified crops and the presence of locusts
Q3) In an efficient allocation of risk:
A) all risk is eliminated.
B) those who are most willing to bear risk bear it.
C) all risk is diversified.
D) all insurance premiums are equal to the expected value of the claims.
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Chapter 20: Macroeconomics- the Big Picture
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Q1) The economy is in a recession and Congress passes legislation to reduce income taxes. Tom, seeing an increase in his take-home pay, goes to Best Buy and purchases a new television. Why is the tax cut a macroeconomic issue, while Tom's new TV is a microeconomic issue?
Q2) If macroeconomic policy has been successful over time, it is likely that the economy has not seen:
A) any inflation.
B) any severe recessions.
C) any unemployment.
D) a business cycle.
Q3) Use of fiscal policy involves changes in:
A) interest rates.
B) government spending.
C) the quantity of money.
D) the quantity of money and interest rates.
Q4) Following a trough, real GDP increases.
A)True
B)False
Q5) What are Keynesian policies?
Q6) Explain what is meant by the paradox of thrift.
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Chapter 21: Gdp and the Consumer Price Index
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Q1) Which of the following would accurately characterize the portion of a firm's profit paid to the owner of one share of its stock?
A) interest
B) dividend
C) stock
D) bond
Q2) According to the circular-flow diagram, which of the following economic agents engage in consumer spending?
A) firms
B) households
C) factor markets
D) financial markets
Q3) Net exports are calculated by subtracting:
A) imports from exports.
B) exports from imports.
C) out all intermediate goods.
D) I, G, and value added from GDP.
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Chapter 22: Unemployment and Inflation
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Q1) During times of high inflation people hold less cash and make more withdrawals, so banks often open new branches.
A)True
B)False
Q2) Internet employment agencies have simplified the job search for the applicants. They have also led to a(n) _____ unemployment.
A) increase in frictional
B) increase in cyclical
C) decrease in frictional
D) decrease in structural
Q3) Which of the following is an example of cyclical unemployment?
A) An autoworker is laid off because a recession has caused a decline in sales.
B) A geologist is permanently laid off from an oil company because of a technological advance.
C) A worker at a fast-food restaurant quits work and attends college.
D) A real estate agent leaves a job in Texas and searches for a similar higher-paying job in California.
Q4) How is it possible for the unemployment rate to overstate the true level of unemployment?
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Chapter 23: Long-Run Economic Growth
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Q1) Workers today are more productive than workers in the past because:
A) they now are physically stronger on average.
B) they now have more physical capital embodying better technology.
C) more of them use the same number of machines as in the past.
D) they are paid more.
Q2) Diminishing returns to physical capital means that as more and more physical capital is added to fixed amounts of human capital with a fixed technology, eventually real GDP per worker declines.
A)True
B)False
Q3) A country's growth rate strongly depends on how it has invested in its physical capital. Generally, countries that have used _____ as a source of their capital investment have exhibited the highest growth rate.
A) foreign direct investment
B) domestic saving
C) foreign portfolio investment
D) contracted globalization
Q4) Many impoverished nations struggle with diseases like malaria. How would reduction or elimination of malaria contribute to long-run economic growth?
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Chapter 24: Savings, Investment Spending
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Q1) Given an annual interest rate of 3%, the present value of a future payment of $2,080 to be paid in one year is:
A) $1,904.76.
B) $2,000.00.
C) $2,019.42.
D) $2,080.00.
Q2) Samantha asks her employer for a 5% raise for the coming year. If the inflation rate during the next year is 5.5%, then her real wage will:
A) increase by 5%.
B) decrease by 0.5%.
C) decrease by 5%.
D) increase by 0.5%.
Q3) In lending to Vanessa, Alison expects the inflation rate to be 8% over the next year. Vanessa agrees to pay Alison a 10% interest rate on the loan, but Vanessa expects inflation to be 9%. If the actual inflation rate is 9%:
A) the real rate of interest is 1%.
B) the real rate of interest is 9%.
C) Vanessa ends up paying a lower real interest rate than she had expected.
D) Alison ends up receiving a higher real interest rate than she had expected.
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Chapter 25: Fiscal Policy
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Q1) Taxes increase as GDP rises. This is an example of an automatic stabilizer.
A)True
B)False
Q2) If the actual output lies below potential output, then an appropriate fiscal policy would be to _____, which will shift the _____ curve to the _____.
A) increase government purchases; AD; left
B) increase transfer payments; AS; right
C) increase tax rates; AD; right
D) increase government purchases; AD; right
Q3) The Works Progress Administration, a government program that put millions of unemployed Americans to work building bridges, roads, and parks in the 1930s, was an automatic stabilizer.
A)True
B)False
Q4) Changes in the budget balance:
A) can be the result of fluctuations in the economy.
B) can cause fluctuations in the economy.
C) can be both the result of and the cause of changes in the economy.
D) are always bad idea.
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Chapter 26: Money, Banking, and the Federal Reserve System
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Q1) In the United States, the institution that is charged with determining the size of the monetary base and with regulating the banking system is the:
A) Treasury Department.
B) Commerce Department.
C) U.S. Senate Banking Committee.
D) Federal Reserve.
Q2) (Scenario: Money Supply Changes II) Look at the scenario Money Supply Changes II.
After the withdrawal, reserves _____, and checkable deposits _____.
A) increase by $8,000; increase by $8,000
B) increase by $1,600; decrease by $1,600
C) decrease by $8,000; decrease by $8,000
D) decrease by $1,600; decrease by $1,600
Q3) Commodity money is:
A) whatever the government has decreed is money.
B) a good used as a medium of exchange that has other uses.
C) money used for commodity futures trading.
D) whatever people accept as money.
Q4) What caused the savings and loan crisis of the 1980s?
Q5) How does an open-market sale of Treasury bills affect the economy?
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Chapter 27: Monetary Policy
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Q1) If during 2007 the interest rate on one-month Treasury bills was 2.5% and during 2008 it was 2%, the opportunity cost of holding money:
A) decreased. B) became negative. C) increased.
D) did not change.
Q2) The slope of the demand curve for money is:
A) vertical.
B) horizontal.
C) positive.
D) negative.
Q3) If the economy is at potential output and the Fed increases the money supply, in the short run interest rates will likely increase.
A)True
B)False
Q4) If the economy is operating at potential output, how does a contractionary monetary policy affect short-run and long-run prices and real output?
Q5) What is the opportunity cost of holding money?
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Chapter 28: Inflation, Disinflation, and Deflation
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Q1) What distinction did Zimbabwe achieve in June 2008?
A) It was the first African nation to become a democracy.
B) It ended apartheid.
C) It had the world's highest inflation rate.
D) It had the world's highest unemployment rate.
Q2) An increase in expected inflation will affect the short-run Phillips curve:
A) by shifting it downward; the actual rate of inflation at any given unemployment rate will fall by the same amount.
B) by shifting it upward; the actual rate of inflation at any given unemployment rate will also be higher when the expected inflation rate is higher.
C) by moving along the same curve, where it equals the actual rate of inflation.
D) only if the economy is at the nonaccelerating inflation rate of unemployment.
Q3) To avoid falling into a liquidity trap, most central banks:
A) seek a positive but small inflation rate rather than zero inflation.
B) target inflation rather than the money supply.
C) conduct open-market operations to change the money supply instead of changing the discount rate.
D) aim at a target of zero inflation so that inflation expectations are zero too.
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Chapter 29: Crises and Consequences
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Q1) Financial problems began in Greece in late 2009, when:
A) the Greek government revealed that it had understated its budget deficits and debt.
B) the European Union forced Greece to give up its membership.
C) Greece adopted the euro.
D) the United Nations imposed trade sanctions on Greece.
Q2) In a banking crisis, banks usually:
A) see an increase in the value of their assets.
B) lend out all of their excess reserves.
C) hold more excess reserves than usual.
D) offer discounts to customers to give them the incentive to borrow money.
Q3) The Dodd-Frank bill affected derivatives by:
A) prohibiting them.
B) requiring that the issuer guarantee 50% of the purchaser's investment.
C) allowing them to be purchased and sold only by the Federal Reserve.
D) requiring that they be traded in transparent markets.
Q4) Maturity transformation must always begin with the financial institution accepting deposits.
A)True
B)False
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Chapter 30: Macroeconomics- Events and Ideas
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Q1) A fundamental feature of early classical macroeconomics is that:
A) aggregate demand and aggregate income are usually unequal.
B) prices of inputs and outputs are usually relatively rigid.
C) the economy's level of employment can remain substantially below its natural level over a long period.
D) the economy can achieve full employment on its own, though there may be short periods in which employment falls below the natural level.
Q2) According to monetarism:
A) Congress and the president should be responsible for controlling the money supply.
B) output will grow steadily if the money supply grows at a steady rate.
C) the Fed should vary the growth rate of the money supply on a monthly basis.
D) changes in the money supply affect the real output only in the long run.
Q3) Monetary and fiscal policy can be used to reduce the natural rate of unemployment.
A)True
B)False
Q4) Explain the rational expectations theory and how it predicts the usefulness of fiscal and monetary policy.
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Chapter 31: Open-Economy Macroeconomics
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Q1) Donald owns several hotels in U.S. tourism destinations. Much of Donald's hotel revenue comes from Europeans. Suppose the U.S. dollar depreciates against the euro. Explain how this will affect Donald's hotel business.
Q2) If the target exchange rate of a fixed currency is above the equilibrium exchange rate, to reach the target rate, the government should raise interest rates.
A)True
B)False
Q3) Suppose the yen falls from ¥800 to ¥1,200 to the dollar and the price level in Japan increases by 50% but there is no change in the price level in the United States. Which of the following is TRUE?
A) The nominal exchange rate of the yen has appreciated against the dollar.
B) The nominal exchange rate of the dollar has depreciated against the yen.
C) The real exchange rate has decreased.
D) The real exchange rate has remained unchanged.
Q4) A revaluation can help reduce shortages of domestic currency.
A)True
B)False
Q5) What are the costs of fixing the exchange rate?
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Chapter 32: Graphs in Economics
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Q1) (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 relation is nonlinear, and there is a negative relation between the number of tacos and pizza slices that Matt can eat in a day.
A)True
B)False
Q2) The ratio of the change in the variable on the vertical axis to the change in the variable on the horizontal axis, measured between two points on the curve, is the:
A) axis.
B) slope.
C) dependent variable.
D) independent variable.
Q3) The fact that two variables always move together over time:
A) does not prove that one of the variables is dependent on the other.
B) proves that one of the variables is dependent on the other.
C) proves that changes in one variable cause changes in the other.
D) is often illustrated or depicted using either a pie chart or a bar chart.
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Chapter 33: Toward a Fuller Understanding
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Q1) To finance your education, you borrow $10,000 from a relative at an annual interest rate of 5%. You promise to pay her back in eight years. Which formula will provide the correct formula for calculating the value of your payment in eight years?
A) $10,000(1 + 0.05)
B) $10,000(1 + 5)
C) $10,000(1 + 0.05)<sup>8</sup>
D) $10,000(1 + 0.5)<sup>8</sup>
Q2) Your grandmother has promised you $1,000 when you graduate in two years. At a 6% annual interest rate, you can borrow $890 and pay it all back with your grandmother's gift at graduation.
A)True
B)False
Q3) 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
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Chapter 34: Consumer Preferences and Consumer Choice
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Q1) (Figure: Consumer Equilibrium I) Look at the figure Consumer Equilibrium I. If in equilibrium Owen receives marginal utility of 10 utils from the last pizza he consumes, his marginal utility from the last soda must be _____ utils.
A) 0.50
B) 0.75
C) 1.5
D) 13.3
Q2) Joseph chooses a combination of apples and oranges along his budget line. The marginal rate of substitution of apples for oranges is 2, the price of an apple is $0.50, and the price of an orange is $0.25. Joseph:
A) is maximizing total utility.
B) should consume more apples and fewer oranges to maximize total utility.
C) should consume fewer apples and more oranges to maximize total utility.
D) may or may not be maximizing total utility.
Q3) For most goods, indifference curves:
A) may intersect.
B) slope upward.
C) are concave from the origin.
D) slope downward.
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Page 36
Chapter 35: Indifference Curve Analysis of Labor Supply
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Q1) (Figure: Joanna's Time Allocation Budget Line) The figure Joanna's Time Allocation Budget Line depicts what happens when she can choose how to spend 40 hours. If Joanna's wage increases and as a result she consumes LESS leisure, her supply curve of labor is:
A) horizontal.
B) upward-sloping.
C) downward-sloping.
D) vertical.
Q2) If an individual's labor supply curve is upward-sloping at low wage rates and downward-sloping at high wage rates, then at higher wage rates:
A) there is no substitution effect as wages change.
B) there is no income effect as wages change.
C) the income effect dominates the substitution effect.
D) the substitution effect dominates the income effect.
Q3) If leisure is a normal good for Randy, then both the substitution effect and the income effect of a decrease in the wage rate will cause Randy to work fewer hours.
A)True
B)False
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