Supply and Demand Economic Measurem ent Market Failure

Supply and Demand Economic Measurem ent Market Failure Financial Sector Market Structures Inflation, Unemploy ment, GDP 100 100 100 200 200 200 300 300 300 400 400 400 500 500 500

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 b. Increase Decrease c. Decrease. Increase d. 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 b. Increase Decrease c. No change d. Decrease Increase e. 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