Examination 2
Questions from Previous Versions of Exam 2
1. The least likely of the following events to be classified as an external macroeconomic shock would
be: (a) the Stock Market Crash of 1929. (b) the terrorist attack of September 11, 2001. (c) nuclear
storms on the surface of the sun that altered weather on Earth. (d) the black plague that killed
millions of Europeans in the 14th century. (e) severe hurricanes that decimated the southeastern
United States.
2. This rightward shift of the Aggregate Supply curve could
not have been caused by: (a) increases in the labor force.
(b) an increased preference for work. (c) reductions in the
government spending and the availability of welfare
payments. (d) increases in the cost of imported oil.
3. If improved labor productivity shifted the Aggregate
Supply curve rightward, a likely result would be that: (a)
prices would fall faster than wages, if wages fell at all. (b)
the rate of unemployment would be increasing. (c) a
demand-pull inflationary cycle has started. (d) real per
capita income would be falling. (e) political incumbents
would be more likely to lose in the next election.
4. The rightward shift of the Aggregate Supply curve in the figure above is most compatible with the
U.S. experience of: (a) stagflation during the 1970s. (b) deflationary growth from the 1870s into the
1890s. (c) high unemployment during the Great Depression. (d) sustained prosperity during the
1960s. (e) hyperinflation during the 1930s.
5. Consider a firm operating as a pure competitor in both output and resource markets. There is an
inflection point on the total revenue curve derived from the firm’s total output curve where
diminishing returns overwhelm gains from the division of specialized labor. From the firm’s vantage
point: (a) the value of the marginal product of labor equals the marginal revenue product of labor. (b)
labor’s marginal physical product is at its maximum. (c) the marginal cost of output is at its
minimum. (d) labor’s marginal revenue product is at its maximum. (e) All of the above.
6. John Maynard Keynes argued that classical macroeconomics could not explain the Great Depression
because it largely ignored the forces that change: (a) government budget surpluses into deficits. (b)
Aggregate Supply. (c) production technology. (d) Aggregate Demand. (e) expectations about
inflation.
7. Iran asserts that it will abandon its nuclear weapons program and disarm only after the United States
begins disarming. Iran’s policy reflects belief in: (a) single play strategy. (b) second mover
advantage. (c) predatory behavior. (d) pacific accommodation. (e) mutually assured destruction.
8. After “pork barrel” projects were increasingly blamed for huge federal budget deficits and high tax
rates, members of Congress began to refer to this form of spending as: (a) earmarks. (b) logrolling.
(c) enterprise zones. (d) revenue sharing. (e) public investment.
9. All output markets that are less than purely competitive are characterized by: (a) domination of the
market by a few large firms. (b) firms that are individually too small, relative to the market, to alter
market prices. (c) firms with sufficient market power to individually adjust both prices and outputs
in the short run. (d) freedom of entry and exit in the long run. (e) none of these characteristics is
common to all forms of imperfect competition.
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10. Collective decisionmaking through government is most likely to be relatively more efficient than
private decisionmaking through markets when: (a) goods are nonrival and nonexclusive. (b) new
technology is being introduced. (c) an organization’s functions are obsolete. (d) diseconomies of
scale are present. (e) goods are rival and exclusive.
11. A potential employee’s accumulation of degrees and certificates as a mechanism to stimulate interest
from a potential employer is known by economists as: (a) specific training. (b) signaling. (c) general
training. (d) screening. (e) ticket-punching.
12. If this figure is reasonably accurate then people would
find life relatively the most prosperous and pleasant, on
average, at: (a) point a. (b) point b. (c) point c. (d) point
d. (e) point e.
13. The relationship in this figure is most consistent with the
theory of: (a) classical macroeconomics that developed
late in the Nineteenth Century. (b) population dynamics
described by Thomas Robert Malthus. (c) John Maynard
Keynes about the behavioral cycles. (d) creative
destruction described by Joseph Schumpeter. (e) class
conflict described by Karl Marx.
14. In the figure above, on average life would tend to be relatively most “nasty, brutish, and short,” at:
(a) point a. (b) point b. (c) point c. (d) point d. (e) point e.
15. If the substitution effect of an increase in the wage rate is more powerful than the income effect, the:
(a) supply curve of labor will be positively sloped. (b) demand for leisure increases as income rises.
(c) human capital effect is stronger than the wealth effect. (d) supply curve of labor will be
negatively sloped. (e) overtime wage effect is 50% more powerful than the income effect.
16. Bond prices would fall automatically if there was an increase in: (a) levels of optimism among
investors in economic capital. (b) rates of real estate speculation. (c) present values estimated for
future income from the bonds. (d) growth rates of national income. (e) interest rates.
17. If economies of scale in producing a product persist across the full range of market demand: (a) pure
competition is the most efficient market structure. (b) competition will prevent monopolization of
the industry. (c) competition will eventually succumb to monopolization of the market. (d) average
cost will steadily rise.
18. Of the following possible characteristics of taxes, the one least likely to be uniformly favored by
most economists would be: (a) certainty. (b) horizontal equity. (c) neutrality. (d) forward shifted. (e)
vertical equity.
19. Relative to firms that are price takers in both product markets and labor markets, firms with market
power in both product markets and labor markets tend to: (a) hire fewer workers and pay them less.
(b) rely more heavily on screening and signaling during hiring processes. (c) be less vulnerable to
employees’ efforts to organize unions. (d) pay lower wages but hire more workers. (e) require higher
levels of human capital before employing a worker.
20. In the short run, no profit-oriented firm ever knowingly produces any output unless: (a) an economic
profit is assured. (b) total revenues are expected to equal or exceed its total variable costs. (c) the
average wage rate exceeds the value of the marginal product of labor. (d) normal accounting profit
can be expected. (e) consumer surpluses are generated for its customers.
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21. Private market decisions tend to be most economically efficient when: (a) markets are monopolized
by a few giant firms. (b) producers totally avoid areas of diminishing returns. (c) production
generates only positive externalities. (d) information is symmetric and goods are rival, exclusive, and
produced in highly competitive markets. (e) government guides business decisions.
22. Perpetually Perplexed is considering a bond issued by the US Treasury that pays $2500 every year
forever beginning one year from today. The market interest rate for bonds with similar risk is 5%.
The current price of this bond is: (a) $25,000. (b) $30,000. (c) $40,000. (d) $50,000. (e) $125,000.
23. MACRONOMICS manufactures DVDs for independent game
programmers. Microsym makes organic ant farms. Both
companies hire Lo labor per period, and both can: (a) earn
pure economic profits in the long run. (b) earn only
normal profits in the short run. (c) hire as much labor as
they choose to without affecting the wage rate. (d) exploit
employees by paying less than the workers’ average
revenue products. (e) have considerable monopoly power
in the output market.
24. From the perspectives of Microsym employees, the
difference between point a and point b represents: (a) pure
economic surplus. (b) marginal revenue. (c) monopolistic
exploitation. (d) excessive profits. (e) average fixed costs.
25. Microsym, Inc. sells its organic ant farms on E-Bay. This
firm hires L0 employees and does NOT: (a) have
monopoly power as a seller of output. (b) hire workers
from a competitive labor market. (c) act as a price-maker
in the output market. (d) monopolistically exploit workers
at the rate ab per worker. (e) possess monopsony power as
an employer.
26. Advocates of aggressive antitrust enforcement tend to favor more vigorous prosecution of firms
engaged in: (a) pure competition. (b) monopolistic competition. (c) oligopoly. (d) regulated
monopoly, such as electric utilities. (e) contestable markets.
27. Employers that wage discriminate often discourage the spread of wage information because they fear
that: (a) lower-salaried workers may use the information to try to negotiate raises. (b) firms honor
employees' privacy only if secrecy is reciprocated. (c) unions try to organize whenever a firm's
wages are relatively high. (d) this constitutes legal grounds for dismissal. (e) unemployed
job-seekers may try to replace high-salaried workers.
28. Joseph Schumpeter’s view that capitalism is a process of creative destruction suggests that major
technological innovations stimulate: (a) high unemployment because of automation. (b)
hyperinflation following World War I, and stagflation during the 1970s. (c) monopolization of trade
by multinational corporations. (d) extended periods of progress and prosperity. (e) a rapid transition
from socialism to capitalism.
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29. The burden [i.e., loss of purchasing power] associated with Social Security and other payroll taxes is
primarily borne by: (a) pensioners who have retired. (b). corporate stockholders. (c) buyers of the
goods labor produces. (d) entrepreneurs. (e) workers.
30. Individuals who expect the marginal costs of acquiring more information about some decision to
exceed the marginal benefits from the extra information will choose to be: (a) victims of adverse
selection. (b) rationally ignorant. (c) empire builders. (d) free riders. (e) overeducated.
31. Most economists would classify the bulk of the funds spent on your college education as: (a) an
investment in human capital. (b) capitalization. (c) specific training. (d) consumption. (e) personal
saving.
32. This figure depicts short run equilibrium for a
firm: (a) that experiences zero accounting profit.
(b) with fixed cost equal to 0bcq1. (c) in a purely
competitive industry experiencing a long run
equilibrium. (d) experiencing the minimum
possible economic losses.
33. For this profit-maximizing firm, area aPed
equals: (a) maximum economic profit. (b) total
variable costs [TVC]. (c) the maximum possible
rate of return on investment. (d) total fixed cost
[TFC]. (e) minimum possible economic losses.
34. The functions of economic profits in a market economy do NOT include: (a) stimulation for firms to
be efficient and innovative. (b) compensating savers for delays of consumption. (c) signaling
changes in business conditions. (d) inducing mimicry of successful firms by competitors. (e)
incentives to bear uncertainty.
35. In the past four decades, wage-income differentials between Caucasian males and comparably
educated and experienced female and/or non-Caucasian workers have decreased most markedly for:
(a) Caucasian women. (b) African-American women. (c) African-American men. (d) Hispanic
women (e) Hispanic men.
36. The long run market supply curve is certain to be negatively sloped if: (a) production processes yield
economies of scale. (b) purely competitive firms are operating in an increasing cost industry. (c)
market demand is significant relative to output across the full range for which a firm’s marginal cost
curve is below its average cost curve. (d) diseconomies of scale are significant relative to market
demand. (e) purely competitive firms are operating in a decreasing cost industry.
37. The short-run supply curve for a competitive firm is the upward –sloping part of the: (a) marginal
cost curve that is above the average total cost curve. (b) average total cost curve. (c) marginal cost
curve that is above the average variable cost curve. (d) average variable cost curve, which lies
beyond its minimum point. (e) total cost curve.
38. Between 1750 and 1950, the industrial revolution shifted the United States from being primarily an
agrarian society into one based on manufacturing. More recently, the shift from industrial jobs into
high-tech “post-industrial” and service employment has been traumatic for many. Such disruptions
are a part of the process that Joseph Schumpeter referred to as: (a) obsolescence. (b) dynamic
restructuring. (c) creative destruction. (d) automation. (e) economic “survival of the fittest.”
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39. The long run market supply curve is certain to be positively sloped if: (a) production processes yield
economies of scale. (b) purely competitive firms are operating in an increasing cost industry. (c)
market demand is significant relative to output across the full range for which a firm’s marginal cost
curve is below its average cost curve. (d) diseconomies of scale are significant relative to market
demand. (e) purely competitive firms are operating in a decreasing cost industry.
40. Aggregate Demand and Aggregate Supply would both be reduced by increases in: (a) investment.
(b) population growth rates. (c) tax rates. (d) consumer confidence. (e) illegal immigration.
41. When the marginal social benefit (MSB)of an activity equals its marginal social cost (MSC): (a) no
harmful pollutants are being pumped into the environment. (b) consumers enjoy more surplus than
do producers. (c) producers surplus is minimized. (d) social welfare from the activity is maximized.
(e) everyone receives an adequate income.
42. The three major normative macroeconomic goals about which there is a reasonable consensus do not
include: (a) high levels of employment and low levels of unemployment. (b) a reasonably stable
price level. (c) balanced international trade. (d) sustained and vigorous economic growth.
43. Carlos and Ivana are roommates and friends. They eat together regardless of who cooks. If this
cooking game is repeated almost every evening, across time the likely result would be that: (a)
neither Carlos nor Ivana cook, nor do they eat. (b) Carlos alone cooks for both of them every night.
(c) Ivana alone cooks for both of them every night. (d) Carlos and Ivana share the cooking chores
every night, and then they eat together. (e) some nights Carlos cooks alone, some nights Ivana cooks
alone, and some nights, they share the cooking chores.
44. This leftward movement of the Aggregate Supply curve
is most compatible with the experience of the United
States during the: (a) stagflation of the 1970s. (b)
deflationary growth between 1870 and 1890 or so. (c)
rising employment as baby boomers began to enter the
labor market. (d) surge in unemployment rates of the
Great Depression. (e) mild demand-pull inflation of the
1990s.
45. This shift of Aggregate Supply from AS0 to AS1 would
be most likely to be accompanied by increases in the rate
of: (a) economic growth. (b) unemployment. (c) profits
on the stock market. (d) corporate mergers and
acquisitions.
46. It is untrue that a monopoly firm: (a) often engages in extensive advertising to differentiate its
products. (b) produces a level of output that is closer to socially optimal if it price discriminates. (c)
is the sole producer of a good with no close substitutes. (d) can generate economic profit only if the
demand curve it faces is greater than its average costs across some range of production. (e) may be
able to survive in the long run even if its managers operate the firm inefficiently.
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47. Consider a monopolist that cannot price discriminate but which maximizes profit. If this firm
produces the level of output where average cost is at its minimum, it will charge a price: (a) equal to
marginal cost and generate zero economic profit. (b) equal to marginal cost and generate a positive
economic profit. (c) above marginal cost and minimize the losses it cannot avoid. (d) above marginal
cost and generate a positive economic profit.
48. High unemployment during the Great Depression was viewed as largely voluntary and would be
cured quickly by automatic wage and price adjustments according to: (a) New Dealers. (b) Marxist
theory. (c) classical macroeconomic theory. (d) institutionalism. (e) Keynesian theory.
49. If the interest rate and expected rate of return are both around 12% annually, rough calculation
suggests that a financial investor’s offer for a house expected to rent perpetually for $1,000 per
month would be about: (a) $240,000. (b) $144,000. (c) $100,000. (d) $72,000. (e) $12,000.
50. Members of the US Congress have increasingly used “earmarks” in recent years to ensure that their
states and districts receive federal funding for local projects. These expenditures are also known as:
(a) pork barrel projects. (b) logrolling. (c) enterprise zones. (d) empire building.
51. If a 70 million ton meteor splashes into the Caribbean, loosing a devastating tsunami from Florida to
Texas, this external shock is most likely to cause a: (a) triple-witching turning point in the business
cycle. (b) leftward shift of the Aggregate Supply curve. (c) rightward shift in the demand for billion
dollar yachts. (d) nuclear war between the United States and Mexico.
52. The value of the marginal product of a variable resource is the marginal physical product of the
resource multiplied by the: (a) price of the product. (b) marginal revenue from the sale of the
resource’s addition to output. (c) average cost of the resource. (d) marginal factor cost of the
resource. (e) quantity of the resource.
53. As individuals, people tend to suffer LEAST because of their personal rational ignorance when they
make decisions about: (a) buying stocks or bonds. (b) which occupation to pursue. (c) voting. (d)
whether to marry and have a family. (e) diet and exercise.
54. Total revenue (TR) for this profit-maximizing
pure competitor equals area: (a) 0Phq2. (b)
0bgq2. (c) Pbgh. (d) 0aeq1. (e) daef.
55. This profit-maximizing pure competitor’s total
cost (TC) equals area: (a) 0Phq2. (b) dbjq3. (c)
0aeq1. (d) daef. (e) 0bgq2.
56. Area Pbgh represents this profit-maximizing
firm’s: (a) maximum positive economic profits.
(b) average fixed cost [AFC]. (c) losses, but the
minimum possible economic losses. (d) rate of
return on investment. (e) total fixed cost [TFC].
57. When all else about two occupations is relatively equal, wages tend to be lower for jobs that: (a)
require significant education and training. (b) expose the worker to bad weather. (c) require extended
periods away from home. (d) pose health and safety hazards to the worker. (e) offer greater job
security.
58. At the quantity where the demand curve facing a firm that possesses market power but which cannot
price discriminate is unitarily elastic, marginal revenue is: (a) positive. (b) negative. (c) one. (d) zero.
(e) infinite.
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59. A decrease in Aggregate Demand in the United States would be most likely to be caused by an
increase in: (a) exports of US wheat to countries threatened by famine. (b) optimism that the prices
of common stocks in major US corporations are about to increase rapidly. (c) imports of Saabs,
BMWs, and Rolls-Royces. (d) the price of gold. (e) technological advances in computer software.
60. Imperfectly competitive firms protected by significant barriers to entry are: (a) assured of positive
accounting profits in the short run. (b) almost certain to succeed in collusively fixing prices at high
levels. (c) assured of positive economic profits in the long run. (d) able to maximize positive
economic profit at every possible price. (e) able to maintain some degree of market power in the
long run.
61. Market failures seldom arise when: (a) external production diseconomies are ignored by decision
makers. (b) noncompetitive industries dominate economic activity. (c) resources are equitably
distributed, externalities are absent, information is symmetric, and markets are both vigorously
competitive and relatively stable. (d) external production economies are common. (e) decreasing
production costs characterize most industries.
62. Between roughly 1870 and 1890, persistent declines in the price level and the average nominal wage
rate accompanied substantial real growth in the United States. This is evidence that: (a) Aggregate
Supply increased significantly relative to Aggregate Demand. (b) stagflation occurs when Aggregate
Supply grows faster than Aggregate Demand. (c) federal government budget deficits reduce
Aggregate Demand. (d) Aggregate Demand expanded faster than Aggregate Supply because of
significant immigration into the United States. (e) the gold standard prevented deflation of the dollar.
63. That children may be an inferior consumption good is reflected in the fact that: (a) infant mortality
rates are higher in less developed countries. (b) contraception is more commonly used by poor
people. (c) welfare payments depend on the size of the family. (d) college education is increasingly
costly. (e) poor people tend to have more children than rich people do.
64. A rising market demand for generic puffy cheese chips generates economic profits and induces a
new firm to build a huge modern factory to bake puffy cheese chips. This is an example of: (a)
monopoly power. (b) adjustments in the market period. (c) long-run adjustment in a competitive
market. (d) increased supply due to decreased costs. (e) predatory entry in an oligopoly.
65. Hourly wages as reflected in take-home pay are likely to be less than the values of a worker’s
marginal product [VMP] in part because of: (a) monopsonistic exploitation that causes MRC [also
known as MFC] to exceed the wage rate. (b) wage discrimination. (c) Social Security and other
payroll taxes. (d) monopolistic exploitation that causes VMP > MRP. (e) All of the above.
66. A system of taxes that imposes only an income effect on taxpayers, with no separate substitution
effects, is described as: (a) neutral. (b) revenue enhancing. (c) horizontally optimal. (d) loophole
free. (e) vertically equitable.
67. Empire building occurs if: (a) big city skylines are dominated by sky-scrapers. (b) bureaucrats
extend their power by exaggerating the difficulty of their agency’s task. (c) projects with primarily
local benefits are nationally funded. (d) industries gain favorable regulation through extensive
lobbying. (e) large firms are merged through by aggressive corporate raiders.
68. For the purposes of macroeconomic analysis, wars that destroy factories and production, stimulate
investment in destructive technologies, and kill workers are categorized as: (a) stagflation. (b)
cyclical political relations. (c) destabilizing externalities. (d) external shocks. (e) economic troughs.
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69. Entry of new firms into a monopolistically competitive market: (a) makes the demands for
successful existing firms’ products more price elastic and shrinks the demands existing firms face.
(b) tend to decrease established firms’ production costs. (c) increases profits for the established
firms. (d) is prevented by natural barriers to entry.
70. If cost structures and market demands were identical for each of the following firms, structure-
conduct-performance models predict the greatest profits for a/an: (a) pure monopolist. (b) price-
discriminating monopolist. (c) purely competitive firm. (d) oligopoly firm. (e) monopolistically
competitive firm.
71. Karl Marx's prediction that competitive processes eventually lead to monopoly is most likely to be
valid for an industry if: (a) economies of scale are significant relative to market demand. (b)
diseconomies of scale discourage competition. (c) the customer base grows faster than technological
advances. (d) firms cannot costlessly differentiate their products. (e) all firms experience constant
returns to scale.
72. The three major normative macroeconomic goals about which there is a reasonable consensus are:
(a) high wages, low imports, and price level stability. (b) balanced economic growth, a balanced
federal budget, and a surplus in the balance of payments. (c) price stability, economic growth, and
high exports. (d) global security, low taxes, and high levels of environmental quality. (e) “maximum
employment, purchasing power, and economic growth.”
73. Rapid increases in the price level are most likely to result from: (a) a severe recession that causes
huge deficits in the federal budget. (b) growth of the money supply at rates that significantly exceed
the rate of growth of our production possibilities frontier. (c) cutthroat competition that results in the
failure of many small business firms. (d) rapid automation that results in many industrial workers
losing their jobs. (e) an enormous influx of illegal immigrants who work as unskilled laborers.
74. Hybrid Roses is the only florist within 60 miles of
Presidio, Texas. If total fixed costs (ex., rent and
utilities) are $9 per hour, this profit-maximizing
monopolist will produce and sell: (a) two dozen
bouquets of roses per hour. (b) four dozen bouquets per
hour. (c) six dozen bouquets per hour. (d) eight dozen
bouquets per hour. (e) ten dozen bouquets per hour.
75. If Presidio, Texas boomed and Hybrid Roses learned
that its rent and utilities were soaring upward from $9
per hour so that a new five-year lease would now cost
$60 per hour, this monopolist will: (a) continue to
realize positive economic profits. (b) realize zero
economic profits. (c) operate in the short run but close
in the long run, when the current lease expired. (d) shut
down production operations immediately.
76. In the long run no profit-maximizing firm would ever produce a level of output at which: (a) demand
is relatively price inelastic. (b) marginal revenue is below the price charged consumers. (c) total
revenue would exceed total variable costs but not total fixed cost. (d) accounting profit is negative.
77. If a perpetuity promises to pay income of $100 per year, forever, at an interest rate or rate of return
of 4 percent its price is: (a) $400. (b) $1000. (c) $2000. (d) $2500. (e) $4000.
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78. Since roughly 1975, the proportion of the U.S. population in the Bureau of the Census category
“middle relative income” [the “middle class’] has: (a) stagnated, primarily because so many baby
boomers entered the labor force. (b) increased because middle class people have been the primary
beneficiaries of tax cuts. (c) grown because many former upper-class people lost lucrative jobs due
to outsourcing. (d) decreased, while the proportions of people in both low relative income and high
relative income categories have increased. (e) increased because jobs in the service sector pay much
better than jobs in manufacturing.
79. An established firm with significant market power that builds an additional plant to increase its
excess capacity may be trying to: (a) avoid a depletion of inventory. (b) erect natural barriers to
entry. (c) deter entry by potential competitors. (d) increase demand and thus raise price and profit.
80. When the few firms in an industry cooperatively attempt to set prices and output so that their total
profits equal those that would be realized by a monopoly, the industry is operating as: (a) a
multinational corporation. (b) a financial trust. (c) an integrated conglomerate. (d) a cartel.
81. The social value of the extra output generated when a monopoly firm employs more units of labor is
the: (a) value of the marginal product [VMP] of labor. (b) wage rate, or price of labor. (c) average
revenue product [ARP] of labor. (d) marginal factor cost of labor. (e) marginal revenue product
[MRP] of labor.
82. If after being betrayed by Adrian, Karla holds a grudge forever and is nasty to Adrian no matter what
Adrian does later to try to make amends, Karla would be pursuing a: (a) tit-for-tat strategy. (b)
scorched earth strategy. (c) grim strategy. (d) burned bridges strategy. (e) cut-throat strategy.
83. The structures of prices and costs in this figure
indicate that this profit-maximizing lumber mill
is in an industry that is: (a) purely competitive.
(b) monopolistically competitive. (c)
oligopolistic. (d) monopolistic.
84. Profit is maximized if this lumber mill produces
at: (a) point a. (b) point b. (c) point c. (d) point d.
(e) point e.
85. Total revenue for this lumber mill equals
roughly: (a) $1700 per day. (b) $2500 per day.
(c) $3500 per day. (d) $4590 per day. (e) $6000
per day.
86. This lumber mill incurs total costs of roughly: (a)
$2200 daily. (b) $3300 daily. (c) $4200 daily. (d)
$5200 daily (e) $6200 daily.
87. The price a firm receives from selling an extra unit of output, minus any revenue lost if price must be
reduced on all other units the firm sells, is the firm’s: (a) average revenue. (b) marginal profit. (c)
mark-up price. (d) marginal revenue. (e) total revenue.
88. The short-run supply curve for a purely competitive firm is the: (a) marginal cost curve that is above
the average total cost curve. (b) marginal cost curve that is above the average variable cost curve. (c)
upward sloping part of the marginal cost curve. (d) upward sloping part of the average fixed cost
curve.
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89. Equity [fairness] is an ambiguous concept, in part because people’s personal qualities can vary
greatly. However, that policymakers should treat people equally if they are roughly identical in the
characteristics thought relevant for government policies is widely accepted. This notion of fairness is
called the principle of: (a) equality. (b) proportionality. (c) horizontal equity. (d) progressiveness. (e)
vertical equity.
90. If voters’ opinions are distributed normally across a “bell-shaped” probability function, political
candidates will tend to maximize their votes in a majority rules system by: (a) appealing to the
“silent majority.” (b) empire building and log rolling. (c) taking “middle-of-the-road” positions. (d)
rent-seeking and bureaucratization.
91. Capitalization is a process that converts: (a) natural resources into economic capital. (b) predictable
income flows into wealth. (c) the opportunity cost of capital into the market interest rate. (d)
financial capital into economic investment. (e) fixed costs into variable costs.
92. The short-run demand for labor would be LEAST influenced by the: (a) productivity of the resource.
(b) prices of substitute resources. (c) demand for goods produced by the resource. (d) fixed costs of a
firm.
93. Suppose sales of generic beds are highly competitive, and
DeLuxe Beds is the only significant employer in Nowhere,
Nevada. To maximize profit, DeLuxe will hire: (a) 400
workers at an hourly wage of $24. (b) 500 workers at an
hourly wage of $21. (c) 700 workers at an hourly wage of
$15. (d) 500 workers at an hourly wage of $11. (e) 400
workers at an hourly wage of $7.50.
94. In equilibrium, the value of the marginal product of DeLuxe
Beds’ workers is: (a) $24 per hour. (b) $21 per hour. (c) $15
per hour. (d) $11 per hour.
95. In equilibrium, DeLuxe Beds’ rate of monopsonistic
exploitation per worker averages roughly: (a) $10 per hour.
(b) $11 per hour. (c) $15 per hour. (d) $21 per hour.
96. If the income effect of a wage increase is more powerful than the substitution effect, the: (a) labor
supply curve will be “backward bending.” (b) unemployment rate will rise because more people will
be available for work. (c) value of the marginal product will exceed the wage rate. (d) labor force
participation rate will rise. (e) firm will hire more workers at higher wages.
97. An example of nonrivalness but exclusiveness in a good occurs when: (a) price ceilings cause
gasoline shortages. (b) theaters have excess capacity because a featured film is a flop. (c) you and
your neighbor want the same Picasso painting. (d) you are indifferent about whether someone else
buys the same brand of designer jeans. (e) congestion creates traffic jams on a freeway.
98. Decreases in derived demands are best illustrated when: (a) illegal aliens reduce equilibrium wage
rates for unskilled workers. (b) swim suit sales plummet at the ends of summer vacations. (c)
unemployment rates increase during a recession. (d) determined dieters eat less high carbohydrate
food. (e) baby boomers begin getting Social Security when they retire.
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99. If you lease a building for five years to open a restaurant and quickly achieve economic profits
because it is located conveniently for potential customers: (a) your rent would almost certainly be
raised when the lease ran out. (b) other restaurants would probably soon open up near you. (c) you
could capitalize some of these pure profits if you sold your restaurant with a sublease at the end of
the second year. (d) the building’s owner evidently underestimated the building’s location rents. (e)
All of the above.
100. A reasonable personal benefit derived from voting in a national election is a feeling that you have:
(a) done your duty as a citizen in a democracy. (b) maximized the chances of election by the best
candidates. (c) never been on the winning side of an election. (d) probably affected the outcome of
the election.
101. Firms in monopolistic and oligopolistic markets tend to produce: (a) socially exploitative amounts of
public goods. (b) more than socially optimal amounts of labor unions. (c) less than the socially
optimal amounts of most outputs. (d) political stability because workers are treated equitably.
102. That expectations accentuate swings in business activity is the basis for: (a) psychological theories of
the business cycle. (b) classical macroeconomics. (c) external shock theories of the business cycle.
(e) Marxist theories of the business cycle.
103. Unemployment will increase along with the price level in the figure below if the economy moves from:
(a) AS0 to AS1. (b) AD0 to AD1. (c) AS1 to AS0. (d) AD1 to AD0.
104. Significantly increased distastes for work and stronger preferences for channel surfing and
sunbathing could cause a movement in the figure below from: (a) AD1 to AD0. (b) point d to point b.
(c) AS1 to AS0. (d) point b to point a. (e) AD0 to AD1.
105. Employment will rise and prices will fall if the
economy moves from: (a) AS0 to AS1. (b) AD0 to
AD1. (c) AS1 to AS0. (d) AD1 to AD0.
106. The Great Depression of the 1930s was most consistent
with a shift of the Aggregate: (a) Supply curve from AS0
to AS1. (b) Demand curve from AD0 to AD1. (c) Supply
curve from AS1 to AS0. (d) Demand curve from AD1 to
AD0.
107. Between 1870 and 1890, relatively rapid real GDP
growth was accompanied by falling prices. This would
be shown as a relative movement from: (a) AS0 to AS1.
(b) AD0 to AD1. (c) AS1 to AS0. (d) AD1 to AD0.
108. Stagflation is illustrated by a movement from: (a) AS0 to AS1. (b) AD0 to AD1. (c) AS1 to AS0. (d) AD1
to AD0.
109. A shift from AS0 to AS1 would be most likely to result from: (a) forest fires that destroyed half of our
harvestable timber. (b) rising labor force participation rates among women. (c) fears among investors
that inflation is about to erupt. (d) increasing tax rates sufficiently to cure the federal budget deficit.. (e)
stiffer penalties on employers who hire illegal immigrants.
110. An incumbent president’s odds for reelection would be harmed most by a shift of the Aggregate: (a)
Supply curve from AS0 to AS1. (b) Demand curve from AD0 to AD1. (c) Supply curve from AS1 to
AS0. (d) Demand curve from AD1 to AD0.
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111. The “real” [inflation-adjusted] level of national income will rise but nominal [monetary] national
income could be stable if the economy shifts from: (a) AS0 to AS1. (b) AD0 to AD1. (c) AS1 to AS0.
(d) AD1 to AD0.
112. Inflationary growth in the figure above is illustrated by a movement from: (a) AS0 to AS1. (b) AD0 to
AD1. (c) AS1 to AS0. (d) AD1 to AD0.
113. The notion that market adjustments automatically cure swings in business cycles is supported by the
assumptions that underpin: (a) classical macroeconomics. (b) Schumpeter and his population S-
curves. (c) Malthus and his long waves. (d) Marxist cycles of exploitation. (e) modern business
psychology.
114. No profit-maximizing entrepreneur would knowingly launch a new firm, regardless of whether it
would be a pure competitor or possess market power, if: (a) cut-throat competition precludes making
an economic profit. (b) the product’s long run average cost curve is consistently above the market
demand curve. (c) potential employees could be expected to unionize. (d) the demand for the product
is relatively price elastic at every point on the market demand curve.
115. The benefit approach to allocating public goods has been the foundation for: (a) all government
expenditures on national defense. (b) such user charges as gasoline taxes, which relate taxes to
expected benefits. (c) the progressive income tax. (d) dealing effectively to reduce problems
generated by people who try to avoid being “free riders.” (e) sales and excise taxes on liquor.
116. A cartel tends to be more successful primarily if it can prevent: (a) cheating among its members. (b)
increases in the demand for its product. (c) joint-profit maximization. (d) international trade. (e) an
increase in the price of its product.
117. Babble-On holds world-wide patents for software that translates 314 spoken languages into text,
with automatic audio and text translations into the other 313 languages. The figure below shows that
Babble-On: (a) is a quantity-adjusting price gouger firm. (b) will be precisely compensated for its
opportunity costs. (c) faces a perfectly price inelastic market demand curve. (d) has profit equal to
area dcP1P3 only if it price discriminates perfectly. (e) has market power as a price maker.
118. Babble-On’s profit-maximizing decision would
be to operate at: (a) output q1 and price P2. (b)
output q2 and price P5. (c) output q3 and price
P1. (d) output q4 and price P3. (e) output q5 and
price P2.
119. In the long run, after Babble-On’s patents
lapsed so that entry and exit became possible
in this market, Babble-On would be expected
to: (a) continue to reap economic profits. (b)
break even and experience zero economic
profit. (c) have zero accounting profit. (d)
operate at inefficiently low levels of output. (e)
increase the price of its software.
120. Job applicants use supportive letters of recommendation and polished resumes describing skills,
education, and work experience, as tools in a process economists call: (a) positive-bias selection. (b)
signaling. (c) human capitalization. (d) screening. (e) networking.
121. Advocates of the public interest theory of regulation believe that regulatory agencies: (a) are
completely corrupt. (b) are incompetent. (c) help limit harmful business activities. (d) aid business
more than the public.
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122. All else equal, average wage rates in an occupation tend to be negatively related to: (a) the human
capital required to do the work. (b) the likelihood of being injured or killed on the job. (c) the
probability that a worker will be able to find a job. (d) exposure to bad weather or unpleasant
working conditions.
123. Government projects funded nationally despite benefits that are primarily local are examples of: (a)
pure public goods. (b) empire building. (c) reciprocal trade. (d) pork-barrel legislation.
124. Boosting minimum legal wages in the United States to $11 per hour would be least likely to: (a)
reduce opportunities for workers at the bottom of the income spectrum to acquire human capital
through on-the-job training. (b) make race or favoritism [e.g., the hiring of relatives] a more
important determinant of who gets low-skill jobs. (c) reduce worker incomes in non-covered
employment, such as mowing grass or selling newspapers on busy corners in big cities. (d) shift the
country’s Aggregate Supply curve to the left. (e) increase the level of per capita national income,
after adjusting for any changes in the price level.
125. Relative to firms that do not practice wage discrimination, firms that wage-discriminate tend to: (a)
forego maximum profits by hiring less productive workers. (b) discourage workers from sharing
information about wages and salaries. (c) rely on more capital intensive forms of production. (d) hire
fewer workers. (e) build demands for their products through extensive advertising.
126. Firms with market power that cannot price discriminate: (a) are usually forced to shut down in the
long run. (b) find it impossible to bar entry by new competitors in the long run. (c) produce lower
quality outputs than monopolies that can price discriminate. (d) produce less than the allocatively-
efficient level of output from the vantage point of society. (e) maximize profit by producing where
average total costs equal marginal costs [ATC = MC].
127. Theories that fail to predict turning points in business cycles but which posit that pessimistic
expectations intensify recessions or depressions, and that optimism fosters prosperity are known as
the: (a) classical macroeconomic theories of business cycles. (b) Marxist theories of business cycles.
(c) psychological theories of business cycles. (d) Keynesian theories of business cycles. (e) external
shock theories of business cycles.
128. The District Attorney has Car Jacker and Cat Burglar nailed for possession of stolen goods after a
lengthy crime spree. The DA now separately offers them the options in this pay-off matrix. If these
offers operate only once and both of them follow their dominant strategies: (a) Car Jacker and Cat
Burglar each serve four years. (b) Car Jacker and Cat Burglar each serve 6 years. (c) Car Jacker
serves two years and Cat Burglar serves ten years. (d) Car Jacker serves ten years and Cat Burglar
serves two years.
129. Even if these offers from the District Attorney operate only once, if Car Jacker and Cat Burglar are
brothers who truly love and trust each other, the most likely result would be that: (a) Car Jacker and
Cat Burglar would both stay silent and each would serve four years. (b) Car Jacker serves two years
and Cat Burglar serves ten years. (c) Car Jacker and Cat Burglar would each rat out the other and
serve 6 years. (d) Car Jacker serves ten years and Cat Burglar serves two years.
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130. Relative to equally strong, smart, and hard-working people with less education, the people who
invest most heavily in formal education are likely to experience lower: (a) wages upon first entering
the work force. (b) income over their lifetimes. (c) life spans. (d) levels of job satisfaction. (e)
percentage rates of return from additional education.
131. The theory of monopolistic competition was increasingly discounted as game theory began to
dominate the theory of industrial organization, but beginning in the 1970s it regained credibility as a
foundation for: (a) the “new” theory of international trade that developed as the rate of globalization
accelerated. (b) public choice theories of political behavior. (c) modern theories of price setting in
auctions. (d) explanations of how firms compete by attempting to create a “brand image” through
advertising. (e) theories of how firms compete for government contracts.
132. An official of the American Spice Trade Association once asserted that if McDonald's stopped using
sesame seeds on its buns, the "sesame market would collapse," which suggests that McDonald's: (a)
is a price taker in the purchase of sesame seeds. (b) has monopoly power in producing and selling
sesame seeds. (c) must deal with seed producers that exercise monopoly power. (d) possesses
elements of monopsony in buying sesame seeds.
133. Business cycles tend to be relatively minor and are quickly and automatically cured so that the
economy will return to its original full employment equilibrium according to: (a) the population
dynamics theory. (b) psychological theories of the business cycle. (c) Joseph Schumpeter’s theory of
creative destruction. (d) classical macroeconomic theory. (e) external shock theory.
134. Wars, major new inventions, and catastrophic harvest failures are examples of: (a) external shocks to
Aggregate Supply. (b) cyclical fluctuations. (c) increases to Aggregate Demand. (d) stagflation.
135. The basic economic question for which answers tend to be most controversial and most heavily
based on value judgments is: (a) what goods will society produce? (b) how will resources be used to
yield the goods society chooses to produce? (c) to whom will the goods produced be distributed? (d)
when will nonrenewable productive resources be used, and when will goods be consumed? (e) who
will make decisions about production and consumption?
136. According to the Structure Conduct Performance paradigm: (a) monopolistically competitive
markets will produce where P = MC. (b) market structure determines firms’ pricing and output
decisions, which in turn determines industry efficiency and has implications for equity. (c) pure
competitors are the firms most likely to use wage discrimination to exploit workers. (d) contestable
markets tend to become monopolized across time. (e) diseconomies of scale tend to generate market
power for firms that survive
137. The personal losses caused by rational ignorance tend to be lowest when an individual makes a
decision about: (a) buying an item that is purchased frequently. (b) voting. (c) whom to marry. (d) a
major financial investment. (e) career paths and occupations.
138. The marginal cost curve above the minimum average variable cost curve is not the supply curve of a
monopoly because, unlike purely competitive firms, firms with market power: (a) attempt to
maximize economic profit in the long run. (b) simultaneously choose both prices and the quantities
they will produce based on demand. (c) can invariably prevent entry by potential rivals in the long
run. (d) are able to operate in international markets, and need to take global factors into account.
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139. If all US Treasury bonds are perpetuities that annually
pay $1000, at 4% annual interest, the price of this bond
would be: (a) $1400. (b) $4000. (c) $14,000. (d)
$25,000. (e) $40,000.
140. If all US Treasury bonds are perpetuities that annually
pay $1000, and if the current market price of a bond
were $10,000, this bond would be generating an annual
interest rate of: (a) one percent. (b) five percent. (c) ten
percent. (d) twenty percent. (e) one hundred percent.
141. Making a friendly wager in an office pool on this year’s Kentucky Derby winner is an example of a:
(a) positive-sum game. (b) negative-sum game. (c) zero-sum game. (d) tit-for-tat game.
142. A monopolist that does not price discriminate cannot simultaneously maximize profit and: (a) charge
a price that exceeds marginal cost. (b) minimize average cost. (c) charge a price equal to minimum
average cost. (d) generate only zero economic profit.
143. Profit-maximizing firms with market power as sellers or with monopsony power as employers
exploit labor because: (a) workers are paid less than the value of their average physical products. (b)
owners of capital and land have more clout when negotiating with a monopoly. (c) workers have no
bargaining power when negotiating with a monopoly. (d) monopolistic employers have tremendous
political power. (e) the wage paid is less than the value of labor's marginal product.
144. During the Great Depression the majority of workers who found themselves jobless for long periods
were suffering from: (a) severe structural unemployment. (b) governmentally-induced
unemployment. (c) involuntary cyclical unemployment. (d) voluntary frictional unemployment. (e)
normal seasonal unemployment.
145. A market failure is least likely to arise as a consequence of: (a) nonexclusive and nonrival public
goods. (b) monopoly power or monopsony power. (c) asymmetric information. (d) externalities. (e)
cut-throat competition.
146. An investment in human capital is best illustrated when: (a) Biff Biceps lifts weights before going to
the beach. (b) Cary Coffee drinks four cups of latte before going to work. (c) Klyde Kewl douses
himself with Asphyxia deodorant before going on a blind date. (d) Pollyanna reads Harlequin
Romance novels in her spare time. (e) Sally Scholar studies software design in an evening class.
147. Economists conclude that, from the vantage point of society as a whole, competitive advertising: (a)
enables consumers to make more efficient economic choices. (b) is a waste of resources. (c)
significantly decreases transaction costs. (d) facilitates consumer quests for valuable information.
148. The public-interest theory of regulation would not support strict government regulation to force
adjustments for such activities as: (a) externalities. (b) imperfect information. (c) informative
advertising. (d) monopoly power. (e) adverse selection.
149. The best example of an oligopolistic industry is: (a) guaranteed next-day delivery of packages and
mail. (b) all the local electric utility companies in a region. (c) cranberry production. (d) all the
restaurants in a major city, such as New York or Buenos Aires or Tokyo. (e) Wal-Mart.
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150. Prohibition Inc.’s St. Valentine’s Day software
is now in version 6.0. The output level at
which demand has unitary price elasticity is
roughly: (a) 4 million copies. (b) 6 million
copies. (c) 9 million copies. (d) 11 million
copies. (e) 13 million copies.
151. If Prohibition Inc. maximizes its profit from St.
Valentine’s Day software, its average cost per
unit produced will be approximately: (a) $4 per
copy. (b) $10 per copy. (c) $18 per copy. (d)
$24 per copy. (e) $32 per copy.
152. If Prohibition Inc. cannot price discriminate and maximizes its profit, society’s “dead weight loss” is
roughly reflected in a welfare loss: (a) triangle of abh. (b) of roughly $140 million. (c) triangle of
ach. (d) triangle of dfh.
153. A firm with extreme managerial slack (X-inefficiency) can best survive if it: (a) maximizes its
economic profits. (b) spends large amounts on marketing and advertising. (c) operates in a market
with high demand relative to costs, and is protected from potential competition by significant
barriers to entry. (d) is politically “connected” because of lobbying and generous campaign
contributions. (e) engages in extreme nepotism by hiring managers’ friends and relatives.
154. An influx of illegal immigrant workers would be most likely to increase the: (a) price level. (b)
expected rate of inflation. (c) balance of trade deficit (imports – exports = M – X). (d) demand for
luxury automobiles. (e) Aggregate Supply curve.
155. Although the US population has increased significantly since 2000, total employment has not
increased proportionally. The measured unemployment rate in April 2006 was roughly 5%, and was
also roughly unchanged. This suggests that: (a) the measured rate of unemployment rate is upwardly
biased. (b) the discouraged worker effect during the 2001-2003 recession significantly reduced
measured labor force participation. (c) baby boomers are retiring much earlier than expected. (d) the
jobs traditionally available to young Americans are being outsourced.
156. Goods that are non-rival in consumption and from which exclusion of benefits is prohibitively costly
are known as: (a) joint externalities. (b) merit wants. (c) public goods. (d) non-exhaustive goods. (e)
investment goods.
157. When a firm cannot price discriminate, successful product differentiation causes: (a) the demand
curve to shrink and become more elastic. (b) the demand curve to become perfectly inelastic. (c)
prices for close substitutes to equalize. (d) the marginal revenue curve to be below the demand curve
facing the firm.
158. Consider the argument that scarcity is the basic economic problem, and that wise macroeconomic
policy should therefore emphasize Aggregate Supply, not Aggregate Demand. This idea would be
most strongly advocated by modern followers of the teachings of: (a) conservative economic theory.
(b) classical macroeconomic theory. (c) Karl Marx. (d) liberal economic theory. (e) John Maynard
Keynes.
159. The total fixed cost [TFC] per day of the brickyard in this figure is roughly: (a) $200. (b) $150. (c)
$100 (d) $2,000. [Note that prices and outputs are measured in thousands of bricks.]
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160. This brickyard is operating as a: (a) sole
proprietorship. (b) pure monopoly. (c) pure
competitor. (d) monopolistic competitor.
161. The bricks this firm makes will sell for: (a) $.07
each. (b) $.10 each. (c) $.09 each. (d) more than
$100 per thousand.
162. This brick maker maximizes profit when it
operates at point: (a) a. (b) b. (c) c. (d) d. (e) e.
(f) f. (g) g.
163. On average, this profit-maximizing brickyard:
(a) makes an economic profit of a bit less than
$170 per day. (b) incurs variable costs of $.08
per brick. (c) loses roughly $.02 per brick. (d)
operates at a profit of $.05 per brick.
164. Between 1929 and 1933, the average real wage rate [adjusted for changes in the Consumer Price
Index] of employed Americans: (a) increased by more than 10%. (b) declined by roughly 25%. (c)
was stable. (d) increased by more than 25%.
165. Suppose your great-grandparents earned less money income over their lifetimes than your
grandparents have in their lifetimes. Your great-grandparents are most likely to have experienced
more prosperity than your grandparents if: (a) nominal values measure monetary prices inaccurately.
(b) the ratio of the price levels for these periods exceeds the relative incomes of your grandparents
compared to their parents. (c) your great-grandparents were farmers and your grandparents were city
dwellers. (d) your great-grandparents left large estates to be enjoyed by their children. (e) your great-
grandparents immigrated into the United States.
166. According to classical macroeconomic reasoning, the high cyclical unemployment that characterizes
a deep depression is a symptom indicating that: (a) nominal wages rates have fallen faster than
nominal prices. (b) real wage rates exceed equilibrium wage rates. (c) government spending is
excessive. (d) monetary growth is slower than the growth of economic capacity. (e) the federal
budget is running a surplus.
167. The category of induced unemployment is LEAST relevant for a: (a) machinist laid off by automation.
(b) person drawing unemployment compensation to help pay the costs of looking for a perfect job. (c)
teenager who could work but whose worth would not to cover the minimum wage. (d) welfare recipient
who would lose all benefits by accepting a minimum wage job.
168. According to classical macroeconomic reasoning, excessive unemployment occurs because: (a)
many workers are unqualified for the positions available. (b) commodity gluts force companies to
lay off workers (c) wage rates are above equilibrium. (d) people are just plain lazy. (e) business
cycles are unavoidable.
169. Strong inflationary expectations tend to discourage: (a) imports and increase exports. (b) and harm
collectors of gold coins. (c) saving and enhance inflationary pressure. (d) borrowing and encourage
saving. (e) consumption and encourage investment.
170. Monopolists are more likely to generate economic profits in the long run than are pure competitors
because: (a) monopolists are crooks. (b) monopolists are more interested in profits. (c) barriers to
entry by new firms protect the monopoly from competition. (d) perfect competitors are more
interested in social welfare.
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171. Unless it chooses to shut down because demand never exceeds average variable costs, a profit-
maximizing firm with market power produces output where: (a) marginal revenue equals marginal
costs [MR = MC]. (b) marginal revenue minus marginal costs [MR – MC] is maximized. (c) price
minus average cost is maximized. (d) managers' salaries are maximized. (e) price equals marginal
costs [P = MC].
172. Cost-of-living "escalator" clauses in financial contracts and wage contracts: (a) keep workers from
earning higher money incomes. (b) prevent money wages from rising as rapidly as prices. (c) adjust
real income for cyclical unemployment. (d) adjust money payments for price level changes. (e) cause
real wages to decline.
173. If this prisoners’ dilemma operates on a one-time basis, the result is most likely to be in the quadrant
for: (a) confess; confess. (b) hold out; hold out. (c) Ack-Ack confess; Bongo holdout. (d) Bongo
confess; Ack-Ack holdout. (e) there is no Nash Equilibrium in this prisoner’s dilemma.
174. If Ack-Ack knows that Bongo has connections in prison and will have him killed if he implicates
Bongo, the likely result is that: (a) neither prisoner confesses. (b) Bongo pursues a grim strategy. (c)
Bongo will do less prison time than Ack-Ack. (d) both prisoners confess. (e) Ack-Ack confesses but
Bongo does not.
175. A cartel is more likely to succeed if: (a) members respond to incentives to cheat. (b) fringe producers
are not members. (c) total market demand is less elastic. (d) close substitute goods are easily
developed.
176. The potential range of negotiable price (or wage) solutions when both the buyer and seller have
substantial economic clout is determined in the: (a) bargaining model devised by John Hicks. (b)
bilateral monopoly model. (c) agency shop model. (d) truncated buffer negotiation model. (e) union
conflict resolution matrix.
177. A nation experiencing an annual inflation rate of 50% has a case of: (a) creeping inflation. (b)
galloping inflation. (c) hyperinflation. (d) sneaking inflation. (e) deflation.
178. Clauses in labor contracts to continue employment of workers whose jobs are obsolete require: (a)
moth-balling. (b) sinecuring. (c) featherbedding. (d) goldbricking. (e) yellow dog contracts.
179. The economic inefficiencies caused when firms are in monopolistically competitive markets are: (a)
due to their inability to ever price discriminate. (b) a price that consumers pay to have a greater
range of slightly differentiated goods available. (c) reflected primarily in higher transaction costs and
advertising costs. (d) totally offset by their track record of technological innovation.
180. Happy marriages are examples of: (a) mutual independence. (b) specialization according to
comparative advantage. (c) positive sum games. (d) the prisoners’ dilemma. (d) first mover
advantages.
181. The present value of an asset from the future income generated by the asset is: (a) higher, the higher
the interest rate. (b) lower, the higher the interest rate. (c) unaffected by the interest rate. (d) purely
objective, and not subjective at all.
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182. A monopsony is a: (a) market with only one seller. (b) sole buyer of a particular good or resource.
(c) market with only one product. (d) firm that employs only one resource.
183. An example of predatory behavior would be an oligopoly firm: (a) building excess capacity to deter
entry. (b) lowering prices when production cost decrease. (c) adopting a cost reducing technological
innovation. (d) lowering prices to eliminate excessive inventories.
184. Derived demand refers to: (a) consumer demand for products, based on expected utility. (b)
government demand for social goods, based on tax revenue. (c) business demand for resources,
based on consumer demand for products. (d) supplier demand for goods, based on expectations.
185. If no close substitutes exist for Perpetual Motion Corporation’s newly-invented teleporter buttons,
then Perpetual Motion operates: (a) with absolute certainty of realizing a pure economic profit. (b) in
violation of the laws of demand and supply. (c) as a monopoly in the teleporter market. (d) behind
the wall of an illegal barrier to entry. (e) efficiently but inequitably from the vantage of the rest of
society.
186. Tactics such as [1] lowering prices, [2] expanding output beyond a short run profit maximizing level,
and [3] aggressively advertising or redesigning existing products to make them incompatible with
rivals' products are most likely to be interpreted as examples of: (a) limit pricing strategies. (b)
increasing sunk costs to discourage entry. (c) predatory behavior. (d) contestable markets.
187. Natural barriers to entry into a market arise primarily from: (a) strategies by existing firms to
discourage the entry of new firms. (b) perfectly inelastic demands for products. (c) the continuously
declining cost structure inherent in producing certain goods. (d) outright legal prohibitions of
production.
188. The change in total revenue when a monopolist produces an additional unit of output is: (a) a
downward-sloping curve below the demand curve. (b) zero if demand is price elastic. (c) a
downward-sloping curve above the demand curve. (d) the same as for a perfectly competitive firm.
(e) a horizontal line.
189. The process by which predictable income flows are translated into wealth is known as: (a)
capitalization. (b).liquidity preference. (c) financial optimization. (d) asset liquidation. (e) economic
investment.
190. A mugging is most clearly an example of a: (a) positive-sum game. (b) negative-sum game. (c) zero-
sum game. (d) tit-for-tat sum game.
191. An accusation of predatory pricing is difficult to prove in a court of law because: (a) firms generally
have too much power. (b) consumers and juries like the low prices and are less likely to fine a firm
for lowering price. (c) predatory behavior can be difficult to distinguish from normal competition.
(d) rivals are afraid to bring the matter to court.
192. The present value of an annual income stream that goes on forever equals the annual income: (a)
times infinity. (b) divided by the wage rate. (c) multiplied by the interest rate. (d) divided by the
interest rate.
193. The discouraged worker effect is likely to be strongest in: (a) periods of low unemployment rates.
(b) regions of the country that have been economically depressed for extended periods. (c) periods
when high unemployment tends to be of short duration. (d) the services sector of the economy.
194. In an oligopoly each firm: (a) ignores the pricing strategies of rival firms. (b) faces a horizontal
demand curve. (c) must make decisions on price and output based on expected or actual reactions of
its rivals. (d) has little control over the market.
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195. When resources must be hired away from other industries, the resource supply curves facing a very
large and rapidly expanding purely competitive industry are typically: (a) horizontal. (b) U-shaped.
(c) upward-sloping. (d) downward-sloping. (e) vertical.
196. The terms marginal factor costs or marginal resource costs refer to the: (a) cost incurred in producing
an additional unit of capital. (b) cost to the resource owner of securing employment for the resource.
(c) extra cost involved in hiring an additional unit of a resource. (d) change in total cost associated
with the production of one more unit of output.
197. When a principal examines the qualifications of a potential agent before offering the agent a
contract, the principal is engaging in the process of: (a) signaling. (b) determining an efficiency
wage. (c) predatory behavior. (d) screening. (e) discrimination.
198. The term market failure refers to: (a) the failure of market economies to deal with social problems.
(b) the Stock Market Crash of 1929. (c) cases where supplies and demands in private markets yield
inefficiency or inequity. (d) composite stock decreases of 50% or more.
199. People classified as discouraged workers would include a: (a) homemaker who has reluctantly taken
a part-time job. (b) college economics graduate working for the minimum wage. (c) patient who
cannot work because of hospitalization. (d) chiropractor who marries an heiress because he can't find
work and has stopped looking.
200. The value-added approach to measuring GDP entails summing all: (a) sales revenues of all firms. (b)
payments for the intermediate goods used by all firms. (c) sales of all firms, minus all their
purchases of intermediate goods. (d) values of final goods minus their production costs.
201. Seasonal unemployment generally results from: (a) regular patterns in such things as weather,
holidays, and school attendance. (b) fluctuations in Aggregate Demand. (c) general business
recessions. (d) inadequate macroeconomic policies.
202. A cyclical downturn would probably have the LEAST impact on workers in: (a) construction. (b)
manufacturing. (c) medical services. (d) sales.
203. A part time worker who desires to work full time causes unemployment figures to be understated
because he: (a) is not officially considered employed unless he is working full time. (b) is officially
considered employed but would like more work. (c) is officially considered employed but still is
eligible for unemployment. (d) has a job but nobody knows he has a job.
204. The demands for productive resources are "derived" from the: (a) marginal utility they directly
generate. (b) demands for goods and services produced by the resources. (c) disutility incurred in
supplying labor. (d) equity of resource owners as judged by employers.
205. Extra revenue from the extra output produced by an additional unit of a resource is the resource's
marginal: (a) profit to the firm. (b) revenue product. (c) iso-utility curve. (d) factor cost. (e)
productive value.
206. Improved investor optimism about future economic conditions tends to raise the: (a) expected return
on investment. (b) amount of money people hoard. (c) risks of corporate bond defaults. (d) level of
national debt.
207. The quantity and quality of the resources with which labor works most directly affects: (a) rates of
capitalistic exploitation. (b) the values of the marginal productivity of labor. (c) population growth
rates. (d) infrastructural development. (e) capital accumulation rates.
208. Creeping inflation refers to: (a) short inflationary episodes. (b) periods of slowly rising prices. (c)
periods of extremely rapid rates of inflation. (d) the rate at which inflation slows down.
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209. In measuring the value of government services in GDP, national income accountants use: (a) the cost
of producing government services. (b) the market value of government services. (c) estimates on
willingness to pay for government services. (d) a throw of the Yahtzee dice.
210. The largest share of US GDP is absorbed by: (a) consumer spending. (b) business investment. (c)
exports. (d) government spending.
211. Likely causes of supply-side inflation would NOT include: (a) increases in costs of production
materials. (b) retirement of a significant part of the work force. (c) hikes in business taxes. (d) a
change in tastes towards higher quality items.
212. In an inflationary period, you would be most likely to gain by: (a) owing large debts. (b) having
large debts owed to you. (c) living on a fixed money income. (d) making mortgage loans to
homeowners. (e) working for a giant corporation.
213. Classical economists inferred that the Aggregate Supply curve is relatively: (a) horizontal. (b) flat.
(c) vertical at the full-employment aggregate output. (d) diagonal along a 45o line.
214. Higher levels of unemployment are least likely to be a consequence of: (a) increases in minimum
wage laws. (b) increases in the numbers of firms that use efficiency wage policies to reduce shirking
by employees. (c) a downturn in the level of economic activity in a country. (d) increases in exports
from a country. (e) outsourcing of production to other countries by domestic firms.
215. If the CPI is now 175, then the real value of a current nominal income of $15,000 (converted to the
base year) would be: (a) $26,250.00. (b) $12,393.00. (c) $9,000.33. (d) $8,571.43.
216. Adam Smith defined wealth as the "annual produce" of the nation, by which he meant that "wealth"
is: (a) the aggregate inventory of goods and services. (b) a stock. (c) what we now measure as GDP.
(d) produced by machinery.
217. If a worker's money wage rises from $300 per week to $330 per week, while prices have fallen, the
worker's real wage has: (a) increased by $30 per week. (b) increased by more than $30 per week. (c)
increased by less than $30 per week. (d) not changed.
218. Most periods of extraordinarily high U.S. unemployment have been characterized by: (a) voluntary
poverty for virtually all unemployed workers. (b) induced unemployment because of welfare
programs. (c) substantial cyclical unemployment. (d) structural unemployment caused by wartime
dislocations of workers from jobs. (e) unusually high seasonal unemployment.
219. Legal and illegal activities that are not recorded in GDP are part of the: (a) underground economy.
(b) faceless society. (c) above-ground economy. (d) great society.
220. The Aggregate Demand curve declines (shifts leftward) in response to higher: (a) levels of consumer
optimism. (b) investment spending. (c) government spending. (d) net exports. (e) tax rates.
221. Severe cyclical unemployment would probably hit hardest on: (a) corporate managers. (b) new
entrants into the labor force. (c) long-term welfare recipients. (d) service workers.
222. Printers who are unemployed because their skills are obsolete because of technological changes in
typesetting and printing are examples of: (a) demand-deficiency unemployment. (b) frictional
unemployment. (c) structural unemployment. (d) discouraged workers.
223. Unemployment arising because transaction costs are incurred when people enter the work force or
switch jobs is called: (a) frictional unemployment. (b) structural unemployment. (c) induced
unemployment. (d) cyclical unemployment. (e) seasonal unemployment.
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224. Reasons for sticky wages would NOT include: (a) seniority rules. (b) union exclusion agreements.
(c) increases in labor supply. (d) minimum wage laws. (e) efficiency wages.
225. Aggregate Supply is likely to increase in response to: (a) higher levels of saving and investment. (b)
higher tax rates. (c) increased tariffs and quotas against foreign goods. (d) rising inflationary
expectations. (e) growing investor pessimism.
226. The largest share of national income is absorbed by: (a) wages to labor. (b) profits to entrepreneurs
and corporations. (c) rent to landlords. (d) interest and profit to financial investors.
227. The firm in this figure is undoubtedly a/an: (a) pure competitor. (b) monopolistic competitor. (c)
pure monopoly. (d) oligopolist. (e) price-maker.
228. Total Revenue (TR) for this profit-maximizing firm
equals area: (a) 0edqo. (b) 0caqo. (c) 0pbqo. (d) epbd.
(e) 0paQ.
229. The profit-maximizing firm in the figure will set a price
where: (a) P > MR = MC. (b) MR > MC = P. (c) MR =
P > MC. (d) MR = P > MC. (e) P ATC, so
MSB MC, so MSB > MSC. (e) too much is
charged for too much production.
300. When total revenue is at a maximum: (a) marginal revenue is positive. (b) marginal revenue is
negative. (c) marginal revenue is zero. (d) demand is relatively inelastic.
301. Natural barriers to entry would include: (a) long established brand loyalty. (b) enforcement of
existing antitrust laws. (c) technology that generates economies of scale and large plant size relative
to market demand. (d) patents and copyright laws.
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