1. Opportunity costs is
a. The money a business loses in a bad investment
b. The value of the best foregone opportunity
c. The price an individual pays for making a mistake
d. Opportunity knocks but once; if you miss your chance will never come again
2. Which of the following is an example of diminishing marginal utility.
a. You give up donuts on your diet.
b. You like one donut with your coffee, but not two.
c. You buy more donuts when the price of coffee rises
d. You cut back on donut after your pay cut.
3. Suppose there is a drought in California damaging orange groves
a. price will increase quantity will increase
b. price will decrease quantity will decrease
c. price will decrease quantity will increase
d. price will increase quantity will decrease
4. Which is an example of the substitution effect in demand?
a. The price of coffee rises, so you buy less coffee
b. The price of coffee rises, so you buy more coffee
c. The price of coffee rises, so you buy more tea and less coffee
d. The price of coffee rises, so you buy less tea and more coffee
5. All of these influences supply except
a. Prices of inputs
b. Expected future prices
c. Extent of competition in the market
d. Use of fiat money
6. Markets are inefficient when
a. Buyers and sellers have perfect information
b. Buyers and sellers are free to enter and exit
c. A small number of sellers coordinate products and prices
d. Buyers and sellers act independently to pursue their own self- interests
7. Of the following examples which is not an example of a principle-agent incentive problem
a. Banks bundle mortgage loans and offer collateralized debt obligations to pension funds
b. A company's chief executive officer takes action to merge with another firm so stock prices can rise in the short run
c. A cashier purposely forgets to ring up a sale and does not give the customer a receipt
d. A baseball player who does not pay his sports agent
8. Price discrimination is a situation where a producer
a. Charges different prices in a different market
b. Charges the same price in different market
c. Colludes with other companies on setting prices I all markets
d. All of the above
9. Which of the following situations is NOT an example of how imperfect information affects a market?
a. A healthy person with a know family history of a disease takes out a large life insurance policy.
b. A used-car buyer looks up the free history report on an auto before purchasing it.
c. A doctor orders a series of medical tests at his clinic to rule out alternative diagnoses.
d. Travelers choose to stop at McDonalds for a Big Mac and milkshakes, rather than Bob's real home cooking.
10. Which of the following products is least likely to be sold in a monopolistic competitive market?
a. Video games
b. Internet service
c. Beer
d. Cotton
11. Which of the following is an example of the rule of law
a. Jane Ramos invents a new smart phone and is able to patent it
b. An American farmer contracts with a landowner to rent additional land to grow corn and wheat.
c. A foreign investor buys an American beer company and renovates one of three U.S. plants
d. A government official wants compensation to allow an immigrant to stay in the United States
12. Which of the following would be excluded from 2014 GDP? The sale of
a. 2014 Honda made in Tennessee
b. Haircut
c. A realtor's services in selling a house
d. A home built in 2012 and first sold in 2013
13. The price of bonds and the interest rate are
a. Not related
b. Positively related
c. Negatively related
d. Sometimes positively related and other times negatively related depending on the bond payments.
14. As the interest rate falls, people hold ____ money instead of bonds because the opportunity cost of holding money has
a. More; fallen
b. More ; risen
c. Less; fallen
d. Less; risen
15. Which of these situations describes a foreign (non-$) currency that is overvalued?
a. A Big Mac in Mexico costs 6 pesos and a big Mac in the U.S. costs $3.00. the exchange rate is 3 pesos per dollar.
b. A cheese pizza in Rome costs 18.2 euros, and $14 dollars in the U.S. the exchange rate is 1.30 euros per dollar
c. A cheese pizza in Rome costs 14 euros and $14 dollars in the U.S. the exchange rate is 1.30 euros per dollar
d. Nike basketballs shoes cost 45 remnimbi in China and $7 in the U.S. The exchange rate is 6 remnimbi per dollar.
16. In a market economy, the ideal solution to the problem of externalities would be to:
a. Prohibit all production involving spillover costs.
b. Regulate both the amount people may consume and the price they pay for goods whose production involves spillover
c. Charge or tax producers so that the price of a good reflects the true social cost of the externality generated in
d. Allow producers to produce the output level where both the marginal private benefit and the marginal private cost equal the price.
17. Expansionary monetary or fiscal policy would most likely be effective in reducing which type of unemployment?
a. Frictional unemployment
b. Cyclical unemployment
c. Structural employment
d. Discouraged workers
18. Which of the following describes the inflation unemployment trade off?
a. Monetary policies that expand the money supply and lower interest rates will raise inflation
b. Monetary policies that expand the money supply and raise interest rates will lower inflation
c. Fiscal policies that increase government spending and lower unemployment will cause deflation
d. Fiscal policies that increase government spending will increase unemployment and lower inflation
19. Given the information in Exhibit 7-2, at what point do negative marginal returns set in?
A) before the first unit of labor
B) between the first and second units of labor
C) between the second and third units of labor
D) between the third and fourth units of labor
E) between the fourth and fifth units of labor
20. Monopolistically competitive firms do not achieve allocative efficiency in the long run because
A) marginal cost equals marginal revenue
B) marginal cost is greater than marginal revenue
C) marginal cost is less than marginal revenue
D) price is less than marginal cost
E) price is greater than marginal cost