ECO 101 Exam 2 Study guide
ECO 101 Exam 2 Study guide
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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 14 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 demandpull 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. 1 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. 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) ticketpunching. 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. 2 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 profitoriented 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. 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. M ACRONOMICS manufactures DVDs for independent game programmers. Microsym makes organic ant farms. Both companies hire L oabor 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 EBay. This firm hires L 0 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 pricemaker 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. 3 27. Employers that wage discriminate often discourage the spread of wage information because they fear that: (a) lowersalaried 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 jobseekers may try to replace highsalaried 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. 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 0bcq 1. (c) in a purely competitive industry experiencing a long run equilibrium. (d) experiencing the minimum possible economic losses. 33. For this profitmaximizing 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, wageincome differentials between Caucasian males and comparably educated and experienced female and/or nonCaucasian workers have decreased most markedly for: (a) Caucasian women. (b) AfricanAmerican women. (c) AfricanAmerican 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. 4 37. The shortrun supply curve for a competitive firm is the upwardsloping 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 hightech “postindustrial” 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.” 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. 5 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 demandpull 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. 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) triplewitching 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. 6 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 profitmaximizing pure competitor equals area: (a) 0Phq 2. (b) 0bgq 2. (c) Pbgh. (d) 0aeq 1. (e) daef. 55. This profitmaximizing pure competitor’s total cost (TC) equals area: (a) 0Phq 2. (b) dbjq3. (c) 0aeq 1. (d) daef. (e) 0bgq2. 56. Area Pbgh represents this profitmaximizing 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. 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 RollsRoyces. (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. 7 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) longrun adjustment in a competitive market. (d) increased supply due to decreased costs. (e) predatory entry in an oligopoly. 65. Hourly wages as reflected in takehome 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 skyscrapers. (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. 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 conductperformance 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.” 8 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 profitmaximizing 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 fiveyear 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 profitmaximizing 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. 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 upperclass 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. 9 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) titfortat strategy. (b) scorched earth strategy. (c) grim strategy. (d) burned bridges strategy. (e) cutthroat strategy. 83. The structures of prices and costs in this figure indicate that this profitmaximizing 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) markup price. (d) marginal revenue. (e) total revenue. 88. 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. 89. If voters’ opinions are distributed normally across a “bellshaped” 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 “middleoftheroad” positions. (d) rentseeking and bureaucratization. 90. 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. 91. The shortrun 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. 10 92. 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. 93. 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. 94. 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. 95. 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. 96. 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. 97. 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. 98. 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. 99. 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. 100. 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. 101. 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. 11 102. Unemployment will increase along with the price level in the figure below if the economy moves from: (a) AS 0o AS . 1b) AD to 0D . (c) 1S to AS 1 (d) AD0 to AD . 1 0 103. Significantly increased distastes for work and stronger preferences for channel surfing and sunbathing could cause a movement in the figure below from: (a) AD to AD . (b) poi1t d to p0int b. (c) AS 1o AS . (0) point b to point a. (e) AD to AD 0 1 104. Employment will rise and prices will fall if the economy moves from: (a) AS to AS . (b) AD to AD . 0 1 0 1 (c) AS 1o AS . (0) AD to A1 . 0 105. The Great Depression of the 1930s was most consistent with a shift of the Aggregate: (a) Supply curve from AS 0 to AS 1. (b) Demand curve from AD 0 to AD 1. (c) Supply curve from AS 1 to AS 0. (d) Demand curve from AD 1 to AD 0. 106. Between 1870 and 1890, relatively rapid real GDP growth was accompanied by falling prices. This would be shown as a relative movement from: (a) AS to AS . 0 1 (b) AD to AD . (c) AS to AS . (d) AD to AD . 0 1 1 0 1 0 107. Stagflation is illustrated by a movement from: (a) AS to AS . 0b) AD 1o AD . (c)0AS to A1 . (d) AD1 0 1 to AD .0 108. A shift from AS to 0S woul1 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. 109. An incumbent president’s odds for reelection would be harmed most by a shift of the Aggregate: (a) Supply curve from AS 0 to AS 1. (b) Demand curve from AD 0 to AD 1. (c) Supply curve from AS 1 to AS 0. (d) Demand curve from AD 1 to AD 0. 110. The “real” [inflationadjusted] level of national income will rise but nominal [monetary] national income could be stable if the economy shifts from: (a) AS to AS . (b) AD to AD . (c) AS to AS . 0 1 0 1 1 0 (d) AD t1 AD . 0 111. Inflationary growth in the figure above is illustrated by a movement from: (a) AS to AS . (b) AD to 0 1 0 AD . 1c) AS to1AS . (d0 AD to AD1. 0 112. 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. 113. No profitmaximizing entrepreneur would knowingly launch a new firm, regardless of whether it would be a pure competitor or possess market power, if: (a) cutthroat 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. 12 114. 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. 115. 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) jointprofit maximization. (d) international trade. (e) an increase in the price of its product. 116. BabbleOn holds worldwide 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 BabbleOn: (a) is a quantityadjusting 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 dcP 1P3 only if it price discriminates perfectly. (e) has market power as a price maker. 117. BabbleOn’s profitmaximizing decision would be to operate at: (a) output q1and price P 2. (b) output q2 and price P 5. (c) output q3 and price P1. (d) output q4 and price P 3. (e) output 5 and price P2. 118. In the long run, after BabbleOn’s patents lapsed so that entry and exit became possible in this market, BabbleOn 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. 119. Job applicants use supportive letters of recommendation and polished resumes describing skills, education, and work experience, as tools in a process economists call: (a) positivebias selection. (b) signaling. (c) human capitalization. (d) screening. (e) networking. 120. 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. 121. 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. 122. Government projects funded nationally despite benefits that are primarily local are examples of: (a) pure public goods. (b) empire building. (c) reciprocal trade. (d) porkbarrel legislation. 13 123. 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 onthejob training. (b) make race or favoritism [e.g., the hiring of relatives] a more important determinant of who gets lowskill jobs. (c) reduce worker incomes in noncovered 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. 124. Relative to firms that do not practice wage discrimination, firms that wagediscriminate 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. 125. 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]. 126. 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. 127. 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 payoff 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. 128. 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. 129. Relative to equally strong, smart, and hardworking 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. 14 130. 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. 131. 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. 132. 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. 133. 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. 134. 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? 135. According to the Structure à Conduct à 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 136. 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. 137. 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. 138. 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. 15 139. Making a friendly wager in an office pool on this year’s Kentucky Derby winner is an example of a: (a) positivesum game. (b) negativesum game. (c) zerosum game. (d) titfortat game. 140. 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. 141. Profitmaximizing 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. 142. During the Great Depression the majority of workers who found themselves jobless for long periods were suffering from: (a) severe structural unemployment. (b) governmentallyinduced unemployment. (c) involuntary cyclical unemployment. (d) voluntary frictional unemployment. (e) normal seasonal unemployment. 143. 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) cutthroat competition. 144. 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. 145. 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. 146. The publicinterest 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. 147. The best example of an oligopolistic industry is: (a) guaranteed nextday 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) WalMart. 148. 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. 149. 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. 16 150. 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. 151. A firm with extreme managerial slack (Xinefficiency) 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. 152. 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. 153. 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 20012003 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. 154. Goods that are nonrival in consumption and from which exclusion of benefits is prohibitively costly are known as: (a) joint externalities. (b) merit wants. (c) public goods. (d) nonexhaustive goods. (e) investment goods. 155. 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. 156. 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)
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