Question Details

1) In a competitive market economy firms will select the least-cost production technique because: 
	A.
 	such choices will result in the full employment of available resources.
	B.
 	this will prevent new firms from entering the industry.
	C.
 	to do so will maximize the firms' profits.
	D.
 	"dollar voting" by consumers mandates such a choice.


2) Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers changes from $16 to $14 billion. Thus: 
	A.
 	the demand curve for peanuts has shifted to the right.
	B.
 	the demand for peanuts is elastic.
	C.
 	the demand for peanuts is inelastic.
	D.
 	no inference can be made as to the elasticity of demand for peanuts.


3) A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the: 
	A.
 	more elastic the demand for the product.
	B.
 	more elastic the supply curve.
	C.
 	larger the elasticity of demand coefficient.
	D.
 	more inelastic the demand for the product.


4) Camille's Creations and Julia's Jewels both sell beads in a competitive market. If at the market price of $5, both are running out of beads to sell (they can't keep up with the quantity demanded at that price), then we would expect both Camille's and Julia's to: 
	A.
 	lower their price and reduce their quantity supplied.
	B.
 	raise their price and reduce their quantity supplied.
	C.
 	raise their price and increase their quantity supplied.
	D.
 	lower their price and increase their quantity supplied.


5) Suppose that in the clothing market, production costs have fallen, but the equilibrium price and quantity purchased have both increased. Based on this information we can conclude that: 
	A.
 	The supply of and demand for clothing have grown by the same proportion.
	B.
 	The supply of clothing has grown faster than the demand for clothing.
	C.
 	Demand for clothing has grown faster than the supply of clothing.
	D.
 	There is no way to determine what has happened to supply and demand with this information.




6) If price is above the equilibrium level, competition among sellers to reduce the resulting: 
	A.
 	surplus will decrease quantity demanded and increase quantity supplied.
	B.
 	surplus will increase quantity demanded and decrease quantity supplied.
	C.
 	shortage will decrease quantity demanded and increase quantity supplied.
	D.
 	shortage will increase quantity demanded and decrease quantity supplied.

7) If a profit-seeking competitive firm is producing its profit-maximizing output and its total fixed costs fall by 25 percent, the firm should: 
	A.
 	reduce its output.
	B.
 	use more labor and less capital to produce a larger output.
	C.
 	not change its output.
	D.
 	increase its output.


8) If technology dictates that labor and capital must be used in fixed proportions, an increase in the price of capital will cause a firm to use: 
	A.
 	less labor as a consequence of the substitution effect.
	B.
 	more labor as a consequence of the substitution effect.
	C.
 	more labor as a consequence of the output effect.
	D.
 	less labor as a consequence of the output effect.


9) If a firm is selling in an imperfectly competitive product market, then: 
	A.
 	the marginal products of successive workers can be sold at higher prices.
	B.
 	A. average product will be less than marginal product for any number of workers hired.
	C.
 	the marginal products of successive workers must be sold at lower prices.
	D.
 	the marginal products of successive workers can be sold at a constant price.


10) In the short run the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm's total costs: 
	A.
 	are $750.
	B.
 	are $2.50.
	C.
 	are $1,250.
	D.
 	are $1,100.


11) Which of the following represents a long-run adjustment? 
	A.
 	a steel manufacturer cuts back on its purchases of coke and iron ore
	B.
 	a farmer uses an extra dose of fertilizer on his corn crop
	C.
 	unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants
	D.
 	a supermarket hires four additional clerks


12) If a firm decides to produce no output in the short run, its costs will be: 
	A.
 	its fixed costs.
	B.
 	its marginal costs.
	C.
 	its fixed plus its variable costs.
	D.
 	zero.


13) Construction workers frequently sponsor political lobbying in support of greater public spending on highways and public buildings. One reason they do this is to: 
	A.
 	restrict the supply of construction workers.
	B.
 	increase the price of substitute inputs.
	C.
 	increase the elasticity of demand for construction workers.
	D.
 	increase the demand for construction workers.


14) A firm can hire six workers at a wage rate of $8 per hour but must pay $9 per hour to all of its employees to attract a seventh worker. The marginal wage cost of the seventh worker is: 
	A.
 	$9.
	B.
 	$21.
	C.
 	$10.
	D.
 	$15.


15) The real wage will rise if the nominal wage: 
	A.
 	falls more rapidly than the general price level.
	B.
 	falls at the same rate as the general price level.
	C.
 	increases at the same rate as labor productivity.
	D.
 	increases more rapidly than the general price level.


16) Oligopoly is difficult to analyze primarily because: 
	A.
 	the number of firms is too large to make collusion understandable.
	B.
 	neither allocative nor productive efficiency is achieved.
	C.
 	the price and output decisions of any one firm depend on the reactions of its rivals.
	D.
 	output may be either homogenous or differentiated.


17) Price exceeds marginal revenue for the pure monopolist because the: 
	A.
 	law of diminishing returns is inapplicable.
	B.
 	demand curve lies below the marginal revenue curve.
	C.
 	demand curve is downsloping.
	D.
 	monopolist produces a smaller output than would a purely competitive firm.


18) In the long-run, a profit-maximizing monopolistically competitive firm sets it price: 
	A.
 	above marginal cost.
	B.
 	equal to marginal cost.
	C.
 	below marginal cost.
	D.
 	equal to marginal revenue.


19) Nonprice competition refers to: 
	A.
 	competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts.
	B.
 	reductions in production costs that are not reflected in price reductions.
	C.
 	price increases by a firm that are ignored by its rivals.
	D.
 	advertising, product promotion, and changes in the real or perceived characteristics of a product.


20) The practice of price discrimination is associated with pure monopoly because: 
	A.
 	it can be practiced whenever a firm's demand curve is downsloping.
	B.
 	most monopolists sell differentiated products.
	C.
 	monopolists have considerable ability to control output and price.
	D.
 	monopolists usually realize economies of scale.


21) One would expect that collusion among oligopolistic producers would be easiest to achieve in which of the following cases? 
	A.
 	a rather large number of firms producing a differentiated product
	B.
 	a very small number of firms producing a homogeneous product
	C.
 	a very small number of firms producing a differentiated product
	D.
 	a rather large number of firms producing a homogeneous product


22) Monopolistic competition means: 
	A.
 	a market situation where competition is based entirely on product differentiation and advertising.
	B.
 	a few firms producing a standardized or homogeneous product.
	C.
 	a large number of firms producing a standardized or homogeneous product.
	D.
 	many firms producing differentiated products.


23) The term oligopoly indicates: 
	A.
 	a one-firm industry.
	B.
 	an industry whose four-firm concentration ratio is low.
	C.
 	many producers of a differentiated product.
	D.
 	a few firms producing either a differentiated or a homogeneous product.


24) A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from: 
	A.
 	product differentiation.
	B.
 	high entry barriers.
	C.
 	mutual interdependence in decision making.
	D.
 	the likelihood of collusion.


25) Other things equal, a price discriminating monopolist will: 
	A.
 	produce the same output as a nondiscriminating monopolist.
	B.
 	produce a larger output than a nondiscriminating monopolist.
	C.
 	produce a smaller output than a nondiscriminating monopolist.
	D.
 	realize a smaller economic profit than a nondiscriminating monopolist.


26) Those who contend that oligopolists are less likely than more competitive firms to engage in R&D say that: 
	A.
 	entry barriers enable oligopolists to sustain the profits they gain from innovation.
	B.
 	the undistributed profits of oligopolists give them a source of readily available, relatively low cost funds for financing R & D.
	C.
 	the large size of oligopolists' R&D departments allow them to use very specialized, expensive R&D equipment and employ teams of specialized researchers.
	D.
 	Oligopolists have little incentive to introduce costly new technology and produce new products when they currently are earning large economic profit using existing technology and selling existing products.


27) Firm X develops a new product and gets a head start in its production. Other firms try to produce a similar product but discover they have higher average total costs than the existing firm. This situation illustrates: 
	A.
 	learning-by-doing.
	B.
 	diminishing marginal returns.
	C.
 	spillover costs.
	D.
 	diseconomies of scale.


28) Inflation is undesirable because it: 
	A.
 	usually is accompanied by declining real GDP.
	B.
 	invariably leads to hyperinflation.
	C.
 	reduces everyone's standard of living.
	D.
 	arbitrarily redistributes real income and wealth.


29) If the U.S. unemployment rate is 9 percent, we can infer that: 
	A.
 	actual GDP is in excess of potential GDP.
	B.
 	potential GDP is in excess of actual GDP.
	C.
 	actual GDP is equal to potential GDP.
	D.
 	the economy is in the expansion phase of the business cycle.


30) The industries or sectors of the economy in which business cycle fluctuations tend to affect output the most are: 
	A.
 	clothing and education.
	B.
 	services and nondurable consumer goods.
	C.
 	capital goods and durable consumer goods.
	D.
 	military goods and capital goods.


31) Kara voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA degree. With degree in hand she is now searching for a position in management. Kara presently is: 
	A.
 	frictionally unemployed.
	B.
 	structurally unemployed.
	C.
 	not a member of the labor force.
	D.
 	cyclically unemployed.






32) Expansionary fiscal policy is so named because it: 
	A.
 	is aimed at achieving greater price stability.
	B.
 	necessarily expands the size of government.
	C.
 	is designed to expand real GDP.
	D.
 	involves an expansion of the nation's money supply.


33) Suppose the price level is fixed, the MPC is .5, and the GDP gap is a negative $100 billion. To achieve full-employment output (exactly), government should: 
	A.
 	reduce taxes by $50 billion.
	B.
 	increase government expenditures by $50 billion.
	C.
 	reduce taxes by $200 billion.
	D.
 	increase government expenditures by $100 billion.

34) Other things equal, a decrease in the real interest rate will: 
	A.
 	move the economy upward along its existing investment demand curve.
	B.
 	shift the investment demand curve to the left.
	C.
 	move the economy downward along its existing investment demand curve.
	D.
 	shift the investment demand curve to the right.


35) Assume the Standard Internet Company negotiates a loan for $5,000 from the Metro National Bank and receives a checkable deposit for that amount in exchange for its promissory note (IOU). As a result of this transaction: 
	A.
 	the supply of money declines by the amount of the loan.
	B.
 	the supply of money is increased by $5,000.
	C.
 	the Metro Bank acquires reserves from other banks.
	D.
 	a claim has been "demonetized."


36) If the Fed were to purchase government securities in the open market, we would anticipate: 
	A.
 	lower interest rates, an expanded GDP, and appreciation of the dollar.
	B.
 	lower interest rates, an expanded GDP, and depreciation of the dollar.
	C.
 	lower interest rates, a contracted GDP, and appreciation of the dollar.
	D.
 	higher interest rates, a contracted GDP, and depreciation of the dollar.









37) The quantity theory of the demand for money states that a country- money supply is proportional to: 
	A.
 	The real level of gross domestic product.
	B.
 	The domestic interest rate.
	C.
 	The money value of gross domestic product.
	D.
 	The exchange rate.


38) An unexpected increase in the money supply of 10% will cause the short-run exchange rate to: 
	A.
 	Depreciate by less than 10%.
	B.
 	Depreciate by more than 10%.
	C.
 	Appreciate by less than 10%.
	D.
 	Appreciate by more than 10%.


39) Suppose that US prices rise 4 percent over the next year while prices in Mexico rise 6%. According to the purchasing power parity theory of exchange rates, what should happen to the exchange rate between the dollar and the peso? 
	A.
 	The peso should appreciate.
	B.
 	The dollar should depreciate.
	C.
 	The dollar will be revalued.
	D.
 	The peso should depreciate.