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The advent of DVDs has virtually demolished the market for videocassettes. This is an example of:
C. creative destruction.
If the demand for farm products is price inelastic, a good harvest will cause farm revenues to: A. decrease
3) In a competitive market economy firms will select the least-cost production technique because: A. to do so will maximize the firms' profits
4) If price is above the equilibrium level, competition among sellers to reduce the resulting: A. shortage will decrease quantity demanded and increase quantity supplied. B. surplus will decrease quantity demanded and increase quantity supplied. C. surplus will increase quantity demanded and decrease quantity supplied. D. shortage will increase quantity demanded and decrease quantity supplied.
5) Which of the following statements is true about productive and allocative efficiency?
Realizing allocative efficiency implies that productive efficiency has been realized
6) Suppose that in 2007 Ford sold 500,000 Mustangs at an average price of $18,800 per car; in 2008, 600,000 Mustangs were sold at an average price of $19,500 per car. These statements: A. suggest that the supply of Mustangs must have increased between 2007 and 2008. B. suggest that the demand for Mustangs increased between 2007 and 2008. C. suggest that the demand for Mustangs decreased between 2007 and 2008. D. constitute an exception to the law of demand in that they suggest an upsloping demand curve.
7) If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue: A. will also be $5.
8) A firm that is motivated by self interest should: A. hire each input so the productivity of each is equal at the margin. B. always use large amounts of cheap inputs and small amounts of expensive inputs in producing its output. C. always use large amounts of the most productive inputs and small amounts of the least productive inputs in producing its output. D. employ the combination of resources that will produce the profit-maximizing output at the minimum cost.
9) A firm is producing an output such that the benefit from one more unit is more than the cost of producing that additional unit. This means the firm is: A. producing less output than allocative efficiency requires. B. producing an inefficient output, but we cannot say whether output should be increased or decreased. C. achieving productive efficiency. D. producing more output than allocative efficiency requires.
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 $1,250. B. are $1,100. C. are $750. D. are $2.50.
11) In which of the following industries are economies of scale exhausted at relatively low levels of output? A. automobile manufacturing B. newspaper printing C. concrete mixing D. aircraft production
12) Which of the following represents a long-run adjustment? A. unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants B. a supermarket hires four additional clerks C. a steel manufacturer cuts back on its purchases of coke and iron ore D. a farmer uses an extra dose of fertilizer on his corn crop
13) Paying an above-equilibrium wage rate might reduce unit labor costs by: A. increasing the cost to workers of being fired for shirking. B. increasing the supply of labor. C. increasing voluntary worker turnover. D. permitting the firm to attract lower-quality labor.
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. $10. B. $21. C. $15. D. $9.
15) A profit-maximizing firm will: A. reduce employment if marginal revenue product exceeds marginal resource cost. B. reduce employment if marginal revenue product equals marginal resource cost. C. expand employment if marginal revenue product equals marginal resource cost. D. expand employment if marginal revenue product exceeds marginal resource cost.
16) Oligopoly is difficult to analyze primarily because: A. the price and output decisions of any one firm depend on the reactions of its rivals. B. neither allocative nor productive efficiency is achieved. C. output may be either homogeneous or differentiated. D. the number of firms is too large to make collusion understandable.
17) In the long-run, a profit-maximizing monopolistically competitive firm sets it price: A. below marginal cost. B. equal to marginal cost. C. above marginal cost. D. equal to marginal revenue.
18) Price is constant or given to the individual firm selling in a purely competitive market because: A. of product differentiation reinforced by extensive advertising. B. there are no good substitutes for its product. C. the firm's demand curve is downs loping. D. each seller supplies a negligible fraction of total supply.
19) Non price competition refers to: XXXXX XXXXX increases by a firm that are ignored by its rivals. B. reductions in production costs that are not reflected in price reductions. C. competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts. D. advertising, product promotion, and changes in the real or perceived characteristics of a product.
20) Which of the following is not a possible source of natural monopoly? A. simultaneous consumption B. rent-seeking behavior C. large-scale network effects D. greater use of specialized inputs
21) The practice of price discrimination is associated with pure monopoly because: A. monopolists have considerable ability to control output and price. B. most monopolists sell differentiated products. C. it can be practiced whenever a firm's demand curve is downs loping. D. monopolists usually realize economies of scale.
22) A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from: A. high entry barriers. B. mutual interdependence in decision making. C. the likelihood of collusion. D. product differentiation.
23) In an oligopolistic market: A. products may be standardized or differentiated. B. the industry is monopolistically competitive. C. one firm is always dominant. D. the four largest firms account for 20 percent or less of total sales.
24) Assume the several manufacturers of ceramic tile in a city reach a verbal agreement to establish the price of their product at 55 cents per tile. This best describes: A. a cartel. B. price leadership. C. multi product pricing. D. an informal understanding.
25) When economists view technological change as internal to the economy, they mean that it: A. occurs accidentally. B. arises mainly from government subsidies. C. occurs randomly. D. arises deliberately from the profit motive and competition.
26) Those who contend that oligopolists are less likely than more competitive firms to engage in R&D say that: A. the undistributed profits of oligopolists give them a source of readily available, relatively low cost funds for financing R & D. B. 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. C. entry barriers enable oligopolists to sustain the profits they gain from innovation. D. the large size of oligopolists' R&D departments allow them to use very specialized, expensive R&D equipment and employ teams of specialized researchers.
27) Other things equal, a price discriminating monopolist will: A. produce a larger output than a non discriminating monopolist. B. realize a smaller economic profit than a non discriminating monopolist. C. produce the same output as a non discriminating monopolist. D. produce a smaller output than a non discriminating monopolist.
28) Inflation is undesirable because it: A. invariably leads to hyperinflation. B. arbitrarily redistributes real income and wealth. C. usually is accompanied by declining real GDP. D. reduces everyone's standard of living.
29) The industries or sectors of the economy in which business cycle fluctuations tend to affect output the most are: A. services and nondurable consumer goods. B. military goods and capital goods. C. clothing and education. D. capital goods and durable consumer goods.
30) Suppose that nominal wages fall and productivity rises in a particular economy. Other things equal, the aggregate: A. supply curve will shift rightward. B. demand curve will shift leftward. C. supply curve will shift leftward. D. expenditures curve will shift downward.
31) Expansionary fiscal policy is so named because it: A. necessarily expands the size of government. B. involves an expansion of the nation's money supply. C. is aimed at achieving greater price stability. D. is designed to expand real GDP.
32) 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. structurally unemployed. B. cyclically unemployed. C. frictionally unemployed. D. not a member of the labor force.
33) Given the annual rate of inflation, the "rule of 70" allows one to: XXXXX XXXXX the accompanying rate of unemployment. B. determine whether the inflation is demand-pull or cost-push. C. determine when the value of a real asset will approach zero. D. calculate the number of years required for the price level to double.
34) Other things equal, a 10 percent decrease in corporate income taxes will: A. have no effect on the location of the investment-demand curve. B. decrease the market price of real capital goods. C. shift the investment-demand curve to the right. D. shift the investment-demand curve to the left.
35) Stabilizing a nation's price level and the purchasing power of its money can be achieved: A. only with monetary policy. B. only with fiscal policy. C. with both fiscal and monetary policy. D. with neither fiscal nor monetary policy.
36) In a fractional reserve banking system: A. the monetary system must be backed by gold. B. bank panics cannot occur. C. banks can create money through the lending process. D. the Federal Reserve has no control over the amount of money in circulation.
37) ___________ purchasing power parity states that the difference between changes over time in product-price levels in two countries will be offset by the change in the exchange rate over this time. A. Partial B. Full C. Relative D. Absolute
38) Exchange rates are determined in the long-run by: A. Real growth rates. B. Interest rate differentials. C. Purchasing power parity. D. Financial asset pricing.
39) The quantity theory of the demand for money states that a country's money supply is proportional to: XXXXX XXXXX real level of gross domestic product. B. The domestic interest rate. C. The exchange rate. D. The money value of gross domestic product.
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