Supply
and
Demand
Economic
Measurem
ent
Market
Failure
Financial
Sector
Market
Structures
Inflation,
Unemploy
ment,
GDP
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500
The price of an airline ticket is typically lower if a traveler buys
the ticket several weeks before the flight’s departure date
rather than on the day of departure. This pricing strategy is
based on the assumption that
a.travelers are not aware of how airline prices change across
time
b.travelers do not have alternative modes of transportation
c.travelers will pay any price to travel as the departure date
approaches
d.the marginal cost of the last few seats on an airplane is
higher than that for the first few seats
e.travelers’ demand becomes less elastic as the departure
date approaches
E
100
200
If the demand for good Y increases as the price of
good X decreases, it can be concluded that
a. X and Y are substitute goods
b. X and Y are complementary goods
c. X is an inferior good and Y is a superior good
d. X is a superior good and Y is an inferior good
e. both X and Y are inferior goods
B
300
If the market demand for a good is inelastic and the supply is
elastic, which of the following is true when there is an
increase in sales tax?
a.
Consumers will bear most of the burden of the tax.
b.
Producers will bear all of the burden of the tax.
c.
Producers will bear most of the burden of the tax or risk
losing sales.
d.
Both consumers and producers will share the burden of
the tax equally.
e.
The price of the good will not change.
A
400
Leather and beef are jointly produced such that an
increase in the production of one results in an equal
increase in the production of the other. An increase in
the demand for leather will most likely cause
a. a decrease in the price of leather
b. a decrease in the price of beef
c. a decrease in the equilibrium quantity of beef sold
d. an increase in the demand for beef in the short run
e. an increase in the supply of leather
B
500
Which is an important factor to make the
demand for a good inelastic?
a.It is a necessity.
b.There are many substitutes.
c.It is a luxury item.
d.There are many cross-price substitutes.
e.A significant portion of consumers’ budgets
goes to purchasing the good.
A
100
Which of the following is included in the computation
of gross domestic product?
a. Government transfer payments, such as
unemployment benefits
b. Purchases of used goods, such as used cars
c. Child care tasks performed by househusbands.
d. Total value of business inventories
e. Additions to business inventories
E
200
Which of the following best explains why transfer payments are not
included in the calculation of gross domestic product?
a.
Transfer payments are used to pay for intermediate goods, and
intermediate goods are excluded from gross domestic product.
b.
Transfer payments are a government expenditure, and government
expenditures are excluded from gross domestic product.
c.
Recipients of transfer payments have not produced or supplied
goods and services in exchange for these payments.
d.
Recipients of transfer payments are usually children, and income
earned by children is excluded in gross domestic product.
e.
Recipients of transfer payments are sometimes not citizens of the
United States.
C
Commodity Quantity 1993 Price 1994 Price
Food
5
$6.00
$5.00
Clothing
2
7.00
9.00
Shelter
3
12.00
19.00
Which of the following can be concluded about the
consumer price index (CPI) for this individual from
1993 to 1994?
a. It remains unchanged.
b. It decreased by 25%.
c. It decreased by 20%.
d. It increased by 20%.
300
e. It increased by 25%.
E
Personal consumption
$1,000
Personal taxes
$10
U.S. exports
$150
U.S. imports
$175
Contributions to Social Security
$200
Private domestic investments
$350
Government investments
$600
Corporate income tax
$35
Based on the information in the preceding chart, the GDP
would be calculated as
a.
$1,975 billion
b.
$2,150 billion
c.
$2,500 billion
d.
$1,675 billion
e.
$1,950 billion
A
400
500
Elaine quit her job as a teaching assistant and went
back to school to be a guidance counselor. Last
year she received her master’s degree and is
currently looking for a job. Elaine is considered.
a.cyclically unemployed
b.frictionally unemployed
c.structurally unemployed
d.seasonally unemployed
e.not part of the labor force
B
100
A Lorenz curve can be used be economists to do
which of the following?
a. Show the distribution of personal income
b. Show the amount of wealth in a nation
c. Show the amount of consumption in a nation
d. Explain why different households have different
incomes
e. Explain why income is equally distributed in
socialist countries
A
The surgeon general has determined that smoking causes
cancer and heart disease for both smokers and passive
smokers, nonsmokers who breathe smoke-filled air. If
cigarette prices are determined in a free market, which of the
following will be true?
a.
The price of cigarettes will be too low and the quantity
sold will be too high.
b.
The price of cigarettes will be efficient but the quantity
sold will be too high.
c.
The market will be efficient because markets always
equate marginal benefits and marginal costs.
d.
The price of cigarettes will reflect the marginal social
benefit received by nonsmokers.
e.
The price of cigarettes will overstate the true social cost
imposed on nonsmokers.
A
200
300
An increase in the marginal social benefit of
consuming a public good should result in
a. a decrease in public production of the good
b. an increase in the optimal quantity of the good
c. a decreases in the optimal quantity of the good
d. a decrease in the social costs associated with
producing the good
e. a decrease in the social costs associated with
consuming the good
B
400
An industry will produce more than the socially
efficient level of output under which of the following
conditions?
a. The production or consumption of a good
generates a positive externality.
b. The production or consumption of a good
generates a negative externality.
c. The industry is a monopoly.
d. The industry produces a public good.
e. The industry produces a private good.
B
500
A positive externality will exist when
a.
all consumers receive an equal share of economic
resources
b.
spillover costs are given to others not directly involved
in the consumption or production of a good or service
c.
the production of a good or service creates a spillover
benefit
d.
when members of a community pay for a good or
service while others do not yet benefit
e.
there is an equal distribution of income in a society
C
100
In the country of Agronomia, banks charge 10
percent interest on all loans. If the general price
level has been increasing at the rate of 4 percent per
year, the real rate of interest in Agronomia is
a. 14%
b. 10%
c. 6%
d. 4%
e. 2.5%
C
200
Assets
Liabilities
Total Reserves: $15,000
Demand Deposits: $100,000
Securities: $70,000
Loan: $15,000
A commercial bank is facing the conditions given above. If the reserve
requirement is 12 percent and the bank dos not sell any of its securities,
the maximum amount of additional lending this bank can undertake is
a. $15,000
b. $12,000
c. $3,000
d. $1,800
e. $0
C
300
If investors feel that business conditions will deteriorate in the
future, the demand for loans and real interest rate in the
loanable funds market will change in which of the following
ways in the short run?
Demand for Loans
Real Interest Rate
a. Increase
Increase
b. Increase
Decrease
c. Decrease
Increase
d. Decrease
Decrease
e. Decrease
Not change
D
400
Assume that the reserve requirement is 20 percent,
but banks voluntarily keep some excess reserves. A
$1 million increase in new reserves will result in
a. an increase in the money supply of $5 million.
b. an increase in the money supply of less than $5
million
c. a decrease in the money supply of $1 million
d. a decrease in the money supply of $5 million
e. a decrease in the money supply of more than
$5 million
B
500
Assume that a perfectly competitive financial market for
loanable funds is in equilibrium. Which of the following is
most likely to occur to the quantity demanded and quantity
supplied of loanable funds if the government imposes an
effective interest rate ceiling?
Quantity demanded Quantity supplied
a.Increase
Increase
b.Increase
Decrease
c.No change
No change
d.Decrease
Increase
e.Decrease
Decrease
B
100
If a perfectly competitive firm increases its price
above the market equilibrium price, which of the
following will be true for this firm?
a. Its total revenue will increase.
b. Its profit will increase.
c. Its sales will decrease but profit will not be
affected.
d. Its demand curve will become downward
sloping.
e. It will not be able to sell any output.
E
200
Which of the following is true if a monopolist’s
marginal revenue is negative at the current
level of output?
a.Demand for its product is unit elastic.
b.Demand for its product is price elastic.
c.Demand for its product is price inelastic.
d.Marginal cost is equal to price.
e.Marginal revenue is equal to price.
C
300
A merger of two firms may increase economic efficiency by
a.
decreasing average total cost through an increase in
economies of scale
b.
decreasing output to reduce marginal cost and equalize
price
c.
increasing economic profits but decreasing consumer
surplus
d.
increasing consumer surplus by decreasing economic
profits
e.
increasing consumer surplus by shifting the demand
curve for the product to the right
A
400
In perfect competition, if P > ATC, which of the
following will take place in the long run?
a. Price decreases as more firms exit the market.
b. Price decreases as more firms enter the market.
c. Price increases as more firms enter the market.
d. Profits decrease as price increases.
e. None of the above.
B
500
Which of the following would a monopolist
support?
a. Output should be MR = MC and P > MC.
b. Output should be MR = MC and P = MC.
c. Output should be MR > MC and P > MC.
d. Output should be MR < MC and P > MC.
e. Output should be MR = MC and P < TRC.
A
100
If an economy’s aggregate supply curve is
upward sloping, an increase in government
spending will most likely result in a decrease
in the
a.real level of output
b.price level
c.interest rate
d.unemployment rate
e.government’s budget deficit
D
200
An increase in which of the following will lead
to lower inflation and lower unemployment?
a. Exports
b. Aggregate demand
c. Labor productivity
d. Government spending
e. The international value of domestic
currency
C
300
Which of the following would be true if the actual rate of
inflation were less than the expected rate of inflation?
a. Inflation had been underpredicted.
b. The real nominal interest rate had exceeded the
nominal interest rate.
c. The real interest rate had been negative.
d. People who borrowed funds at the nominal interest
rate during this time period would lose.
e. The economy would expand because of the
increased investment and spending.
D
400
If the Federal Reserve institutes a policy to
reduce inflation, which of the following is most
likely to increase?
a. Tax rates
b. Investment
c. Government spending
d. Interest rates
e. Gross domestic product
D
500
To stimulate investment in new plant and equipment without
increasing the level of real output, the best policy mix is to
a.
decrease the money supply and increase government
spending
b.
increase the money supply and decrease government
spending
c.
decrease the money supply and increase income taxes
d.
increase the money supply and decrease income taxes
e.
decrease income taxes and increase government
spending
B