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1) In a market economy the distribution of output will be determined primarily by:

A. a social consensus as to what distribution of income is most equitable. 
B. government regulations that provide a minimum income for all. 
C. the quantities and prices of the resources that households supply. 
D. consumer needs and preferences 

2) In a competitive market economy firms will select the least-cost production technique because:

A. "dollar voting" by consumers mandates such a choice.
B. this will prevent new firms from entering the industry.
C. to do so will maximize the firms' profits.
D. such choices will result in the full employment of available resources.

3) The advent of DVDs has virtually demolished the market for videocassettes. This is an example of:

A. the difference between normal and economic profits.
B. capital accumulation.
C. derived demand.
D. creative destruction.

4) Which of the following statements is true about productive and allocative efficiency?

A. Productive efficiency and allocative efficiency can only occur together; neither can occur without the other.
B. Productive efficiency can only occur if there is also allocative efficiency.
C. Society can achieve either productive efficiency or allocative efficiency, but not both simultaneously.
D. Realizing allocative efficiency implies that productive efficiency has been realized.

5) If price is above the equilibrium level, competition among sellers to reduce the resulting:

A. shortage will increase quantity demanded and decrease quantity supplied.
B. shortage will decrease quantity demanded and increase quantity supplied.
C. surplus will decrease quantity demanded and increase quantity supplied.
D. surplus will increase quantity demanded and decrease quantity supplied.

6) Since their introduction, prices of DVD players have fallen and the quantity purchased has increased. This statement:

A. constitutes an exception to the law of supply in that they suggest a downward sloping supply curve.
B. suggests that the demand for DVD players has increased.
C. constitutes an exception to the law of demand in that they suggest an upward sloping demand curve.
D. suggests that the supply of DVD players has increased

7) If a profit-seeking competitive firm is producing its profit-maximizing output and its total fixed costs fall by 25 percent, the firm should:

A. increase its output.
B. not change its output.
C. reduce its output.
D. use more labor and less capital to produce a larger output.

8) If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue:

A. will be greater than $5.
B. will also be $5.
C. will be less than $5.
D. may be either greater or less than $5.

9) If technology dictates that labor and capital must be used in fixed proportions, an increase in the price of capital will cause a firm to use:

A. less labor as a consequence of the output effect.
B. more labor as a consequence of the output effect.
C. less labor as a consequence of the substitution effect.
D. more labor as a consequence of the substitution effect.

10) If a firm decides to produce no output in the short run, its costs will be:

A. zero.
B. its fixed plus its variable costs.
C. its fixed costs.
D. its marginal costs.

11) What do wages paid to blue-collar workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?

A. None are either implicit or explicit costs.
B. All are opportunity costs.
C. All are implicit costs.
D. All are explicit costs.

12) 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 $1,100.
B. are $1,250.
C. are $750.
D. are $2.50.

13) Paying an above-equilibrium wage rate might reduce unit labor costs by:

A. increasing the supply of labor.
B. permitting the firm to attract lower-quality labor.
C. increasing the cost to workers of being fired for shirking.
D. increasing voluntary worker turnover.

14) If the wage rate increases:

A. an imperfectly competitive producer may find it profitable to hire either more or less labor.
B. a purely competitive producer will hire less labor, but an imperfectly competitive producer will not.
C. an imperfectly competitive producer will hire less labor, but a purely competitive producer will not.
D. a purely competitive and an imperfectly competitive producer will both hire less labor.

15) Construction workers frequently sponsor political lobbying in support of greater public spending on highways and public buildings. One reason they do this is to:

A. increase the price of substitute inputs.
B. restrict the supply of construction workers.
C. increase the elasticity of demand for construction workers.
D. increase the demand for construction workers.

16) A competitive firm will maximize profits at that output at which:

A. the difference between marginal revenue and price is at a maximum.
B. total revenue exceeds total cost by the greatest amount.
C. total revenue and total cost are equal.
D. price exceeds average total cost by the largest amount.

17) In the long-run, a profit-maximizing monopolistically competitive firm sets it price:

A. equal to marginal cost.
B. above marginal cost.
C. below marginal cost.
D. equal to marginal revenue.

18) Price exceeds marginal revenue for the pure monopolist because the:

A. demand curve lies below the marginal revenue curve.
B. law of diminishing returns is inapplicable.
C. demand curve is downsloping.
D. monopolist produces a smaller output than would a purely competitive firm.

19) Which of the following is not a possible source of natural monopoly?

A. rent-seeking behavior
B. large-scale network effects
C. simultaneous consumption
D. greater use of specialized inputs

20) One would expect that collusion among oligopolistic producers would be easiest to achieve in which of the following cases?

A. a very small number of firms producing a homogeneous product
B. a rather large number of firms producing a differentiated product
C. a very small number of firms producing a differentiated product
D. a rather large number of firms producing a homogeneous product

21) Advertising can impede economic efficiency when it:

A. increases consumer awareness of substitute products.
B. enables firms to achieve substantial economies of scale.
C. increases entry barriers.
D. reduces brand loyalty.

22) A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from:

A. mutual interdependence in decision making.
B. product differentiation.
C. the likelihood of collusion.
D. high entry barriers.

23) 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. price leadership.
B. an informal understanding.
C. multiproduct pricing.
D. a cartel.

24) In an oligopolistic market:

A. the industry is monopolistically competitive.
B. the four largest firms account for 20 percent or less of total sales.
C. one firm is always dominant.
D. products may be standardized or differentiated.

25) Firm X develops a new product and gets a head start in its production. Other firms try to produce a similar product but discover they have higher average total costs than the existing firm. This situation illustrates:

A. spillover costs.
B. learning-by-doing.
C. diseconomies of scale.
D. diminishing marginal returns.

26) When economists view technological change as internal to the economy, they mean that it:

A. arises mainly from government subsidies.
B. arises deliberately from the profit motive and competition.
C. occurs randomly.
D. occurs accidentally.

27) In the long run a pure monopolist will maximize profits by producing that output at which marginal cost is equal to:

A. average cost.
B. average variable cost.
C. average total cost.
D. marginal revenue.

28) Inflation is undesirable because it:

A. reduces everyone's standard of living.
B. usually is accompanied by declining real GDP.
C. arbitrarily redistributes real income and wealth.
D. invariably leads to hyperinflation.

29) Suppose that nominal wages fall and productivity rises in a particular economy. Other things equal, the aggregate:

A. expenditures curve will shift downward.
B. supply curve will shift leftward.
C. supply curve will shift rightward.
D. demand curve will shift leftward.

30) An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the:

A. multiplier effect.
B. real-balances effect.
C. wealth effect.
D. net export effect.

31) Expansionary fiscal policy is so named because it:

A. is designed to expand real GDP.
B. is aimed at achieving greater price stability.
C. necessarily expands the size of government.
D. involves an expansion of the nation's money supply.

32) Given the annual rate of inflation, the "rule of 70" allows one to:

A. calculate the number of years required for the price level to double.
B. determine when the value of a real asset will approach zero.
C. calculate the accompanying rate of unemployment.
D. determine whether the inflation is demand-pull or cost-push.

33) Suppose the price level is fixed, the MPC is .5, and the GDP gap is a negative $100 billion. To achieve full-employment output (exactly), government should:

A. reduce taxes by $200 billion.
B. reduce taxes by $50 billion.
C. increase government expenditures by $50 billion.
D. increase government expenditures by $100 billion.

34) Other things equal, a 10 percent decrease in corporate income taxes will:

A. shift the investment-demand curve to the left.
B. shift the investment-demand curve to the right.
C. have no effect on the location of the investment-demand curve.
D. decrease the market price of real capital goods.

35) Stabilizing a nation's price level and the purchasing power of its money can be achieved:

A. with neither fiscal nor monetary policy.
B. with both fiscal and monetary policy.
C. only with monetary policy.
D. only with fiscal policy.

36) If the Fed were to purchase government securities in the open market, we would anticipate:

A. lower interest rates, a contracted GDP, and appreciation of the dollar.
B. higher interest rates, a contracted GDP, and depreciation of the dollar.
C. lower interest rates, an expanded GDP, and appreciation of the dollar.
D. lower interest rates, an expanded GDP, and depreciation of the dollar.

37) An increase in interest rates in the United States will lead to:

A. A decrease in the demand for dollar-denominated financial assets.
B. Outflows of capital from the United States.
C. Capital inflows into the United States.
D. Depreciation of the dollar.

38) The quantity theory of the demand for money states that a country's money supply is proportional to:

A. The money value of gross domestic product.
B. The real level of gross domestic product.
C. The exchange rate.
D. The domestic interest rate.

39) Exchange rates are determined in the long-run by:

A. Financial asset pricing.
B. Real growth rates.
C. Purchasing power parity.
D. Interest rate differentials.


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ECO 561 Final Exam.doc
ECO 561 Final E...