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WorksheetsMultiple Choice Eco
Total questions: 140
Worksheet time: 5hrs 53mins
For a price ceiling to be a binding constraint on the market, the government must set it
above the equilibrium price.
below the equilibrium price.
precisely at the equilibrium price.
at any price because all price ceilings are binding constraints.
A binding price ceiling creates
a shortage or a surplus depending on whether the price ceiling is set above or below the equilibrium price.
a surplus.
a shortage.
an equilibrium.
Suppose the equilibrium price for apartments is €500 per month and the government imposes rent controls of €250. Which of the following is unlikely to occur as a result of the rent controls?
There may be long lines of buyers waiting for apartments.
Landlords may discriminate among apartment renters.
Landlords may be offered bribes to rent apartments.
There will be a shortage of housing.
The quality of apartments will improve.
A price floor
always determines the price at which a good must be sold.
sets a legal maximum on the price at which a good can be sold.
is not a binding constraint if it is set above the equilibrium price.
sets a legal minimum on the price at which a good can be sold.
Which of the following statements about a binding price ceiling is true?
The shortage created by the price ceiling is greater in the short run than in the long run.
The surplus created by the price ceiling is greater in the short run than in the long run.
The surplus created by the price ceiling is greater in the long run than in the short run.
The shortage created by the price ceiling is greater in the long run than in the short run.
Which side of the market is more likely to lobby government for a price floor?
the buyers
neither buyers nor sellers desire a price floor.
the sellers
both buyers and sellers desire a price floor.
The surplus caused by a binding price floor will be greatest if
demand is inelastic and supply is elastic.
both supply and demand are elastic.
supply is inelastic and demand is elastic.
both supply and demand are inelastic.
Which of the following is an example of a price floor?
the minimum wage
rent controls
restricting petrol prices to €1.00 per litre when the equilibrium price is €1.50 per litre
All of these answers are price floors.
Which of the following statements is true if the government places a price ceiling on petrol at €1.50 per litre and the equilibrium price is €1.00 per litre?
A significant increase in the demand for petrol could cause the price ceiling to become a binding constraint.
A significant increase in the supply of petrol could cause the price ceiling to become a binding constraint.
There will be a shortage of petrol.
There will be a surplus of petrol.
Which of the following would likely cause the greatest deadweight loss?
a tax on salt
a tax on petrol
a tax on cigarettes
a tax on cruise line tickets
A tax on petrol is likely to
generate a deadweight loss that is unaffected by the time period over which it is measured.
cause a greater deadweight loss in the long run when compared to the short run.
not generate any deadweight loss because petrol is a necessity
cause a greater deadweight loss in the short run when compared to the long run.
Deadweight loss is greatest when
supply is elastic and demand is perfectly inelastic.
demand is elastic and supply is perfectly inelastic.
both supply and demand are relatively inelastic.
both supply and demand are relatively elastic.
Since the supply of undeveloped land is relatively inelastic, a tax on undeveloped land would generate
a small deadweight loss and the burden of the tax would fall on the renter.
a large deadweight loss and the burden of the tax would fall on the landlord.
a large deadweight loss and the burden of the tax would fall on the renter.
a small deadweight loss and the burden of the tax would fall on the landlord.
Which of the following is true with regard to a tax on labour income? Taxes on labour income tend to encourage
the unscrupulous to enter the underground economy.
the elderly to retire early.
all of the things described in these answers.
second earners to stay home.
workers to work fewer hours.
When a tax on a good starts small and is gradually increased, tax revenue will
fall.
rise.
first rise and then fall.
first fall and then rise.
not change at all
The graph that shows the relationship between the size of a tax and the tax revenue collected by the government is known as a
Friedman conjecture
Reagan curve.
Keynesian curve.
Laffer curve.
Chicago school curve.
The reduction of a tax
will have no impact on tax revenue.
will always reduce tax revenue regardless of the prior size of the tax.
could increase tax revenue if the tax had been extremely high.
causes a market to become less efficient.
When a tax distorts incentives to buyers and sellers so that fewer goods are produced and sold than otherwise, the tax has
caused a deadweight loss.
generated no tax revenue.
decreased equity.
increased efficiency.
An externality is
the benefit that accrues to the buyer in a market.
the cost that accrues to the seller in a market.
the unanticipated effect on a business of a decision that it makes
the compensation paid to a firm's external consultants.
the uncompensated impact of one person's actions on the well-being of a bystander.
A negative externality generates
a social cost curve that is above the supply curve (private cost curve) for a good.
a value to a consumer that is less than the total consumer surplus
a social cost curve that is below the supply curve (private cost curve) for a good.
a social value curve that is above the demand curve (private value curve) for a good.
A positive externality generates
a social cost curve that is above the supply curve (private cost curve) for a good.
a benefit to suppliers that is greater than the value of producer surplus
a social value curve that is above the demand curve (private value curve) for a good.
a social value curve that is below the demand curve (private value curve) for a good.
A negative externality (that has not been internalized) causes the
a. optimal quantity to exceed the equilibrium quantity.
b. equilibrium quantity to be either above or below the optimal quantity.
c. equilibrium quantity to equal the optimal quantity.
d. equilibrium quantity to exceed the optimal quantity.
A positive externality (that has not been internalized) causes the
equilibrium quantity to exceed the optimal quantity.
equilibrium quantity to equal the optimal quantity.
optimal quantity to exceed the equilibrium quantity.
equilibrium quantity to be either above or below the optimal quantity.
To internalize a negative externality, an appropriate public policy response would be to
have the government take over the production of the good causing the externality.
ban the production of all goods creating negative externalities.
tax the good.
subsidize the good.
The government engages in a technology policy
by allocating tradable technology permits to high technology industry.
to internalize the positive externality associated with technology-enhancing industries.
to help stimulate private solutions to the technology externality.
to internalize the negative externality associated with industrial pollution.
When an individual buys a car in a congested urban area, it generates
a positive externality.
an efficient market outcome.
a positive technology spillover.
a negative externality.
The most efficient pollution control system would ensure that
the regulators decide how much each polluter should reduce its pollution.
no pollution of the environment is tolerated.
each polluter reduce its pollution an equal amount.
the polluters with the lowest cost of reducing pollution reduce their pollution the greatest
According to the Coase theorem, private parties can solve the problem of externalities if
there are no transaction costs.
each affected party has equal power in the negotiations.
the party affected by the externality has the initial property right to be left alone.
there are a large number of affected parties.
the government requires them to negotiate with each other.
To internalize a positive externality, an appropriate public policy response would be to
ban the good creating the externality.
tax the good.
subsidize the good.
have the government produce the good until the value of an additional unit is zero.
If one person's consumption of a good diminishes other people's use of the good, the good is said to be
rival.
a common resource.
a good produced by a natural monopoly.
excludable.
A public good is
neither rival nor excludable.
both rival and excludable.
rival but not excludable.
not rival but excludable.
A private good is
rival but not excludable.
both rival and excludable.
not rival but excludable.
neither rival nor excludable.
A good produced by a natural monopoly is
rival but not excludable.
not rival but excludable.
neither rival nor excludable.
both rival and excludable.
A common resource is
not rival but excludable.
rival but not excludable.
both rival and excludable.
neither rival nor excludable.
Public goods are difficult for a private market to provide due to
the rivalness problem.
the Tragedy of the Commons.
the public goods problem.
the free-rider problem.
Suppose each of 20 neighbours on a street values street repairs at €3,000. The cost of the street repair is €40,000. Which of the following statements is true?
It is efficient for the government to tax the residents €2,000 each and repair the road.
It is efficient for each neighbour to pay €3,000 to repair the section of street in front of his/her home.
None of these answers are true.
It is not efficient to have the street repaired.
A free rider is a person who
receives the benefit of a good but avoids paying for it.
pays for a good but fails to receive any benefit from the good.
fails to produce goods but is allowed to consume goods.
produces a good but fails to receive payment for the good.
Which of the following is an example of a public good?
hot dogs at a picnic
national defence
whales in the ocean
apples on a tree in a public park
A positive externality affects market efficiency in a manner similar to a
rival good.
private good.
public good.
common resource.
Suppose that requiring motorcycle riders to wear helmets reduces the probability of a motorcycle fatality from 0.3 percent to 0.2 percent over the lifetime of a motorcycle rider and that the cost of a lifetime supply of helmets is €500. It is efficient for the government to require riders to wear helmets if human life is valued at
€100 or more.
€150 or more
€500 or more.
€50,000 or more.
€500,000 or more.
An increase in the demand for a firm's output
decreases the prosperity of the firm but increases the prosperity of the factors hired by the firm.
decreases the prosperity of both the firm and the factors hired by the firm.
increases the prosperity of both the firm and the factors hired by the firm.
increases the prosperity of the firm but decreases the prosperity of the factors hired by the firm.
A competitive, profit-maximizing firm should hire workers up to the point where the
wage, the rental price of capital, and the rental price of land are all equal.
marginal product of labour equals zero and the production function is maximized.
value of the marginal product of labour equals the wage.
marginal product of labour equals the wage.
Which of the following is not true with regard to workers who have a high value of marginal product? These workers
have skills that are in relatively scarce supply.
produce output for which there is great demand.
usually have little capital with which to work.
are usually highly paid.
An increase in the price of automobiles shifts the demand for autoworkers to the
right and increases the wage.
left and decreases the wage.
right and decreases the wage.
left and increases the wage.
When capital is owned by the firm as opposed to being directly owned by households, capital income may take any of the following forms except
interest.
retained earnings.
dividends.
increases in stocks of goods.
Suppose that a war is fought with biological weapons. The weapons destroy people but not capital. What is likely to happen to equilibrium wages and rental rates after the war when compared to their values before the war?
Wages rise and rental rates fall.
Wages fall and rental rates rise.
Wages rise and rental rates rise.
Wages fall and rental rates fall.
Rawls’s suggestion that policy should be directed at maximizing the welfare of the least well off person in society is derived from
the idea that people should consider policy as if behind a veil of ignorance as to what their circumstances might be in society, and the idea that as long as there is no theft then there is no need for governments to intervene and redistribute income.
the idea that people should consider policy as if behind a veil of ignorance as to what their circumstances might be in society, and the idea that people will then be particularly concerned about the possibility that they might find themselves at the bottom of the income distribution.
the idea that people should consider policy as if behind a veil of ignorance as to what their circumstances might be in society, and the ignorant people should be looked after.
the idea that everyone in society should have an equal income.
Rawls’s maximin criterion does not mean that there should be redistribution so as to equalise everyone’s incomes in society because
such redistribution would mean that those who worked hard were no better off than those who were lazy and this would be unfair.
such redistribution would not maximize the total income of all members of society.
such redistribution would remove the incentive to work hard, so society’s total income would fall, and so the least well off person would be worse off than they could be under a system in which there was some inequality in income.
such redistribution would amount to confiscation of honestly earned income from higher earners and so would be unjust.
An increase in the minimum wage will cause a relatively large increase in unemployment among
unskilled workers if the demand for labour is relatively inelastic.
unskilled workers if the demand for labour is relatively elastic.
skilled workers if the demand for labour is relatively elastic.
skilled workers if the demand for labour is relatively inelastic.
Current anti-poverty programs discourage work because
benefits are reduced at such a high rate when recipients earn more income that there is little or no incentive to work once one is receiving benefits.
in order to be eligible for benefits, a recipient cannot have a job.
they make recipients more comfortable than most middle-class citizens.
anti-poverty programs attract naturally lazy people to begin with.
The greatest advantage of a negative income tax is that it
generates a smaller disincentive to work than most alternative anti-poverty policies.
reduces the cost to the government of fighting poverty.
would not provide benefits to lazy people.
ensures that the poor actually receive what the government thinks they need.
means no-one is taxed unfairly
The poverty trap refers to
a situation in which those receiving state benefits may be almost no better off if they choose to work more to earn more income for themselves and their families because doing so will mean they have to pay back the benefits they have previously received.
a situation in which workers are unable to find jobs.
a situation in which those receiving state benefits may be almost no better off if they choose to work more to earn more income for themselves and their families because doing so will reduce the amount of benefit income to which they are entitled and increase the amount of tax they must pay.
a situation in which those receiving state benefits are discriminated against by employers and so find it more difficult to find jobs.
Competitive markets tend to
increase labour market discrimination because some workers can charge more for their services than other workers in a competitive market.
have no impact on labour market discrimination.
reduce labour market discrimination because non-discriminating firms will employ cheaper labour, earn more profits, and drive discriminating firms out of the market.
increase labour market discrimination because bigoted employers can charge any price they want in a competitive market to cover the cost of their discrimination.
A wage differential among groups may not by itself be evidence of discrimination in the labour market because different groups have
different preferences for the type of work they are willing to do.
different levels of job experience.
all of these answers are correct.
different levels of education.
Which of the following is not a reason why some workers are paid above the equilibrium wage?
minimum-wage laws
unions
efficiency wages
beauty
Which of the following is likely to generate a compensating differential?
One employee is more attractive than another.
One employee is more educated than another.
All of these answers generate compensating differentials.
One employee works harder than another.
One employee is willing to work the nightshift while another is not.
Which of the following explanations of wage differentials is not likely to be true?
Men have more human capital than women.
Employers in competitive markets are bigots.
Men have more job experience than women.
Minimum wage legislation maintains differences in pay between jobs
Which of the following could result in women being paid less than men?
women obtaining less human capital because they don't plan to work continuously to the age of retirement
women entering and leaving the labour force to care for children
customers preferring to deal with men
women preferring to work in pleasant clean safe work places
all of these answers
Consumer surplus is the area
below the demand curve and above the price.
above the supply curve and below the price.
above the demand curve and below the price.
below the supply curve and above the price.
below the demand curve and above the supply curve.
A buyer's willingness to pay is that buyer's
minimum amount they are willing to pay for a good.
producer surplus.
consumer surplus.
maximum amount they are willing to pay for a good.
none of these answers.
Producer surplus is the area
below the supply curve and above the price.
below the demand curve and above the supply curve.
below the demand curve and above the price.
above the demand curve and below the price.
above the supply curve and below the price.
If a benevolent social planner chooses to produce less than the equilibrium quantity of a good, then
total surplus is maximized.
the value placed on the last unit of production by buyers exceeds the cost of production.
producer surplus is maximized.
the cost of production on the last unit produced exceeds the value placed on it by buyers.
consumer surplus is maximized.
The seller's cost of production is
none of these answers.
the minimum amount the seller is willing to accept for a good.
the seller's producer surplus.
the maximum amount the seller is willing to accept for a good.
the seller's consumer surplus.
Total surplus is the area
above the supply curve and below the price.
below the demand curve and above the price.
below the demand curve and above the supply curve.
below the supply curve and above the price.
above the demand curve and below the price.
An increase in the price of a good along a stationary supply curve
increases producer surplus.
does all of the things described in these answers.
decreases producer surplus.
improves market equity.
Adam Smith's "invisible hand" concept suggests that a competitive market outcome
maximizes total surplus.
generates equality among the members of society.
minimizes total surplus.
both maximizes total surplus and generates equality among the members of society.
In general, if a benevolent social planner wanted to maximize the total benefits received by buyers and sellers in a market, the planner should
choose a price below the market equilibrium price.
allow the market to seek equilibrium on its own.
choose any price the planner wants because the losses to the sellers (buyers) from any change in price are exactly offset by the gains to the buyers (sellers).
choose a price above the market equilibrium price.
If buyers are rational and there is no market failure,
free market solutions are efficient.
free market solutions maximize total surplus.
all of these answers.
free market solutions are equitable. f
free market solutions are efficient and free market solutions maximize total surplus.
If a producer has market power (can influence the price of the product in the market) then free market solutions
are equitable.
are efficient.
maximize consumer surplus.
are inefficient.
If a market is efficient, then
the market allocates buyers to the sellers who can produce the good at least cost.
all of these answers.
none of these answers.
the quantity produced in the market maximizes the sum of consumer and producer surplus.
the market allocates output to the buyers that value it the most.
The law of demand states that an increase in the price of a good
increases the supply of that good.
decreases the quantity demanded for that good.
decreases the demand for that good.
increases the quantity supplied of that good.
is caused by a shift in demand
The law of supply states that an increase in the price of a good
is negatively related to a shift in supply
decreases the quantity demanded for that good.
increases the supply of that good.
decreases the demand for that good.
increases the quantity supplied of that good.
If an increase in consumer incomes leads to a decrease in the demand for camping equipment, then camping equipment is
a normal good.
a Giffen good
an inferior good.
a substitute good.
a complementary good.
If the price of a good is above the equilibrium price,
there is a surplus and the price will rise.
there is a shortage and the price will fall.
there is a shortage and the price will rise.
the quantity demanded is equal to the quantity supplied and the price remains unchanged.
there is a surplus and the price will fall.
If the price of a good is below the equilibrium price,
there is a shortage and the price will rise.
the quantity demanded is equal to the quantity supplied and the price remains unchanged.
there is a shortage and the price will fall.
there is a surplus and the price will rise.
there is a surplus and the price will fall.
If the price of a good is equal to the equilibrium price,
there is a shortage and the price will fall.
the quantity demanded is equal to the quantity supplied and the price remains unchanged.
there is a surplus and the price will rise.
there is a shortage and the price will rise.
there is a surplus and the price will fall.
Suppose there is an increase in both the supply and demand for personal computers. In the market for personal computers, we would expect
the equilibrium quantity to rise and the equilibrium price to rise.
the equilibrium quantity to rise and the equilibrium price to fall.
the equilibrium quantity to rise and the equilibrium price to remain constant.
the change in the equilibrium quantity to be ambiguous and the equilibrium price to rise.
the equilibrium quantity to rise and the change in the equilibrium price to be ambiguous.
Suppose there is an increase in both the supply and demand for personal computers. Further, suppose the supply of personal computers increases more than demand for personal computers. In the market for personal computers, we would expect
the change in the equilibrium quantity to be ambiguous and the equilibrium price to fall.
the equilibrium quantity to rise and the equilibrium price to rise.
the equilibrium quantity to rise and the change in the equilibrium price to be ambiguous.
the equilibrium quantity to rise and the equilibrium price to fall.
the equilibrium quantity to rise and the equilibrium price to remain constant.
Suppose consumer tastes shift toward the consumption of apples. Which of the following statements is an accurate description of the impact of this event on the market for apples?
There is an increase in the quantity demanded of apples and in the supply for apples.
There is an increase in the demand and supply of apples.
There is an increase in the demand for apples and a decrease in the supply of apples..
There is a decrease in the quantity demanded of apples and an increase in the supply for apples.
There is an increase in the demand for apples and an increase in the quantity supplied of apples.
Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future. What would we expect to happen to the equilibrium price and quantity in the market for wheat today?
The impact on both price and quantity is ambiguous.
Price will decrease; quantity is ambiguous.
Price will increase; quantity will decrease.
Price will increase; quantity is ambiguous.
Price will increase; quantity will increase.
An inferior good is one for which an increase in income causes a(n)
decrease in supply.
increase in supply.
increase in supply.
decrease in demand.
If an increase in a consumer's income causes the consumer to increase his quantity demanded of a good, then the good is
a complementary good.
a normal good.
an inferior good.
a substitute good.
If an increase in a consumer's income causes the consumer to decrease her quantity demanded of a good, then the good is
a substitute good.
a complementary good.
a normal good.
an inferior good.
The change in consumption that results when a price change moves the consumer along a given indifference curve is known as the
inferior effect.
normal effect.
substitution effect.
complementary effect.
income effect.
If income were to double and prices were to double, the budget line would
stay the same.
rotate inward.
shift outward in a parallel fashion.
rotate outward.
shift inward in a parallel fashion.
If leisure is a normal good, an increase in the wage will
always increase the quantity of labour supplied.
increase the amount of labour supplied if the substitution effect outweighs the income effect.
increase the amount of labour supplied if the income effect outweighs the substitution effect.
always decrease the amount of labour supplied.
If consumption when young and when old are both normal goods, an increase in the interest rate will
always increase the quantity of saving.
always decrease the quantity of saving.
increase the quantity of saving if the substitution effect outweighs the income effect.
increase the quantity of saving if the income effect outweighs the substitution effect.
Which of the following is not true regarding the outcome of a consumer's optimization process? The:
marginal utility per dollar spent on each good is the same.
marginal rate of substitution between goods is equal to the ratio of the prices between goods.
consumer's indifference curve is tangent to his budget constraint.
consumer has reached his highest indifference curve subject to his budget constraint.
consumer is indifferent between any two points on his budget constraint.
If free trade is allowed, a country will export a good if the world price is
above the before-trade domestic price of the good.
below the before-trade domestic price of the good.
equal to the before-trade domestic price of the good.
equal to the price elasticity of supply of the good
Suppose the world price is below the before-trade domestic price for a good. If a country allows free trade in this good,
both producers and consumers will gain.
both producers and consumers will lose.
producers will gain and consumers will lose.
consumers will gain and producers will lose.
The following table shows the amount of output a worker can produce per hour in Germany and Poland.
Pens Pencils
Germany 8 4
Poland 8 2
Which of the following statements about free trade between Germany and Poland is true?
Germany will export pencils and Poland will export pens.
Germany will export pens and Poland will export pencils.
Germany will export both pens and pencils.
Germany will export pencils but there will be no trade in pens because neither country has a comparative advantage in the production of pens.
If the world price for a good exceeds the before-trade domestic price for a good, then that country must have
a comparative disadvantage in the production of the good.
an absolute disadvantage in the production of the good.
an absolute advantage in the production of the good.
a comparative advantage in the production of the good.
Refer to Exhibit 1. If trade is not allowed, consumer surplus is the
Area A + B + C + D
Area A
Area A + B + C
Area A + B + D
Area A + B
When a country allows trade and exports a good,
domestic consumers are better off, domestic producers are worse off, and the nation is worse off because the losses of the losers exceed the gains of the winners.
domestic consumers are better off, domestic producers are worse off, and the nation is better off because the gains of the winners exceed the losses of the losers.
domestic producers are better off, domestic consumers are worse off, and the nation is worse off because the losses of the losers exceed the gains of the winners.
domestic producers are better off, domestic consumers are worse off, and the nation is better off because the gains of the winners exceed the losses of the losers.
When a country allows trade and imports a good,
domestic producers are worse off, domestic consumers are better off, and the nation is worse off because the losses of the losers exceed the gains of the winners.
domestic consumers are worse off, domestic producers are better off, and the nation is worse off because the losses of the losers exceed the gains of the winners.
domestic producers are worse off, domestic consumers are better off, and the nation is better off because the gains of the winners exceed the losses of the losers.
domestic consumers are worse off, domestic producers are better off, and the nation is better off because the gains of the winners exceed the losses of the losers.
Refer to Exhibit 2. If free trade is allowed, consumer surplus is the
Area A + B + C + D + E + F + G
Area A + B
Area A + B + C + D + E + F
Area A
Area A + B + C
Refer to Exhibit 2. If a tariff is placed on this good, consumer surplus is the
Area A + B + C
Area A + B + C + D + E + F + G
Area A + B
Area A + B + C + D + E + F
Area A
Which of the following statements about a tariff is true?
A tariff increases producer surplus, decreases consumer surplus, increases revenue to the government, and increases total surplus.
A tariff increases consumer surplus, decreases producer surplus, increases revenue to the government, and reduces total surplus.
A tariff increases producer surplus, decreases consumer surplus, increases revenue to the government, and reduces total surplus.
A tariff increases consumer surplus, decreases producer surplus, increases revenue to the government, and increases total surplus.
Which of the following is not employed as an argument in support of trade restrictions?
Free trade harms the national security if vital products are imported.
Free trade is harmful to importing countries if foreign countries subsidize their exporting industries.
Free trade destroys domestic jobs.
Free trade harms both domestic producers and domestic consumers and therefore reduces total surplus.
Free trade harms infant industries in an importing country.
Which one of the following is rightly considered a cost of a single currency?
The loss of the freedom for countries joining the single currency to set their own fiscal policies.
The loss of the freedom for countries joining the single currency to set their own monetary policies.
Higher unemployment.
The loss of jobs involved in currency transactions.
Higher inflation.
Which one of these benefits of a single currency is not correctly explained?
Using a single currency reduces price discrimination because companies will be obliged by law to charge the same prices for their goods in the different countries of the currency union.
None of the benefits of a single currency described in these answers is incorrectly explained.
Using a single currency reduces transaction costs involved in trade between members of a common currency area and the resources that are no longer employed in working on currency transactions can be used more productively to produce other goods and services.
Using a single currency eliminates exchange rate variability for companies trading with other members of the common currency area and so companies may engage in more of this trade, and they can also eliminate the cost of entering into forward foreign exchange
If two countries, A and B, have separate currencies and there is a shift in consumer preferences away from the goods of country A and towards those of country B, then
there will be an increase in inflation in country A.
the foreign exchange value of country A’s currency is likely to rise, thus making country A’s goods relatively more expensive and worsening the reduction in aggregate demand in country A.
the foreign exchange value of country A’s currency is likely to fall, thus making country A’s goods relatively cheaper and offsetting the reduction in aggregate demand in country A.
there will be a fall in aggregate demand in country B.
If two countries, A and B, are members of a currency union and there is a shift in consumer preferences away from the goods of country A and towards those of country B, then which one of the following would help to offset the effect of the resulting changes in aggregate demand in A and B on inflation and unemployment in the two countries?
A high degree of labour mobility between the two countries.
An increase in government spending in country A.
A depreciation in the foreign exchange value of the common currency.
A low degree of capital mobility between the two countries.
A cut in taxes in both countries.
Which of the following could not be described as an asymmetric macroeconomic shock?
None of these answers. All of them are asymmetric macroeconomic shocks.
A sudden and substantial fall in the worldwide demand for French wine.
An epidemic of an animal disease in a country that significantly reduces the country’s agricultural output.
A hurricane that disrupts economic activity in the USA.
A sudden and substantial rise in prices on the world oil market.
A high degree of real wage flexibility will tend to reduce the costs to a country of joining a currency union because
all of the reasons given in these answers are correct.
real wages fall rapidly in a recession and the economy moves quickly back to long-run equilibrium, so limiting the duration of the recession even when exchange rate adjustment is not possible.
workers will move from a country in which aggregate demand falls to other countries of the currency union, and so unemployment remains lower than it otherwise would.
real wages fall and so offset the inflationary effect of switching from the old currency to the new common currency.
Which of the following is a problem for fiscal policy in a currency union?
The central bank controls interest rates on long-term bonds issued by the governments of the member countries of the currency union.
Governments of the member countries of the currency union may run large budget deficits and so crowd out private investment.
Governments of the member countries of the currency union may run large budget deficits and so impose costs on other countries by pushing up interest rates on the bonds these countries’ governments issue.
It is difficult to raise enough tax revenue to pay for the operation of the currency union.
Governments of the member countries of the currency union may run large budget deficits and so force taxes to be increased across all countries of the currency union.
Which of the following is a problem for monetary policy in a currency union?
Money supply is more difficult to control in a currency union.
The inflation-unemployment trade-off is more unstable in a currency union.
All of these answers describe problems for monetary policy in a currency union.
The interest rate may be higher than is appropriate for economic conditions in some countries while it’s lower than is appropriate in some others – monetary policy must be “one size fits all”.
Monetary policy will affect the economy with a longer time lag in a large currency union than in a single country.
Which of the following involve a trade-off?
Taking a nap
All of these answers involve trade-offs.
Watching a football game on Saturday afternoon
Going to university
Buying a new car
Trade-offs are required because wants are unlimited and resources are
economical.
unlimited.
efficient.
marginal.
scarce.
Economics is the study of how
society manages its unlimited resources.
to reduce our wants until we are satisfied.
society manages its scarce resources.
to fully satisfy our unlimited wants.
to avoid having to make trade-offs.
A rational person does not act unless
the action is ethical.
the action produces marginal costs that exceed marginal benefits.
the action produces marginal benefits that exceed marginal costs.
the action makes money for the person.
none of these answers.
Raising taxes and increasing welfare payments
reduces market power.
proves that there is such a thing as a free lunch.
improves efficiency at the expense of equity.
none of these answers
improves equity at the expense of efficiency.
Suppose you find €20. If you choose to use the €20 to go to a football match, your opportunity cost of going to the game is
nothing, because you found the money.
€20 (because you could have used the €20 to buy other things) plus the value of your time spent at the game.
€20 (because you could have used the €20 to buy other things) plus the value of your time spent at the game, plus the cost of the dinner you purchased at the game.
€20 (because you could have used the €20 to buy other things).
none of these answers
Foreign trade:
increases the scarcity of resources.
makes a country more equitable.
allows a country to have a greater variety of products at a lower cost than if it tried to produce everything at home.
allows a country to avoid trade-offs.
Since people respond to incentives, we would expect that, if the average salary of accountants increases by 50% while the average salary of teachers increases by 20%, then
fewer students will take degree courses in accounting and more will take education courses.
fewer students will take degree courses in education and more will take accounting courses.
fewer students will attend university.
none of these answers.
Which of the following activities is most likely to produce an externality? A student:
eats a hamburger in the student union.
reads a novel for pleasure.
sits at home and watches T.V.
has a party in her room in the student hall of residence.
Which of the following products would be least capable of producing an externality?
inoculations against disease
cigarettes
food
education
hi-fi equipment
Which of the following situations describes the greatest market power?
Subaru’s impact on the price of cars
a farmer's impact on the price of corn
Microsoft's impact on the price of desktop operating systems
a student's impact on college tuition
A scientific method requires that
the scientist be objective.
the scientist use precision equipment and technology.
only correct theories are tested.
only incorrect theories are tested.
the scientist use test tubes and have a clean lab.
Which of the following is most likely to produce scientific evidence about a theory?
A lawyer employed by Renault addressing the impact of air bags on passenger safety.
An economist permanently employed at a leading university analysing the impact of bank regulations on lending to small businesses.
An economist employed by the Trades Union Congress doing research on the impact of trade policy on workers' wages.
A radio talk show host collecting data from listeners on how capital markets respond to taxation.
Which of the following statements regarding the circular-flow diagram is true?
If Susan works for BAe Systems and receives a salary payment, the transaction takes place in the market for goods and services.
If BAe Systems sells a military aircraft, the transaction takes place in the market for factors of production.
None of these answers.
The factors of production are owned by households.
The factors of production are owned by firms.
In which of the following cases is the assumption most reasonable?
To address the impact of taxes on income distribution, an economist assumes that everyone earns the same income.
To address the impact of money growth on inflation, an economist assumes that money is strictly coins.
To model the benefits of trade, an economist assumes that there are two people and two goods.
To estimate the effect of tax changes on spending, economists assume that 50 per cent of people are rational and 50 per cent are not.
Economic models are
usually made of wood and plastic.
useless if they are simple.
built with assumptions.
created to duplicate reality.
Which of the following is not a factor of production?
labour
land
money
capital
enterprise.
Points on the production possibilities frontier are
inefficient.
normative.
unattainable.
efficient.
equitable.
Which of the following will not shift a country's production possibilities frontier outward?
an advance in technology
an increase in the capital stock
an increase in the labour force
a reduction in unemployment
Economic growth is depicted by a:
shift in the production possibilities frontier outward.
movement from inside the curve toward the curve.
shift in the production possibilities frontier inward.
movement along a production possibilities frontier toward capital goods.
Positive statements are
macroeconomic.
microeconomic.
statements of description that can be tested.
statements of prescription that involve value judgments.
Which of the following statements is normative?
Large government deficits cause an economy to grow more slowly.
People work harder if the wage is higher.
The unemployment rate should be lower.
Printing too much money causes inflation.
If a nation has an absolute advantage in the production of a good it:
can benefit by restricting imports of that good.
will specialize in the production of that good and export it.
can produce that good using fewer resources than its trading partner.
can produce that good at a lower opportunity cost than its trading partner.
If a nation has a comparative advantage in the production of a good it,
can produce that good at a lower opportunity cost than its trading partner.
can benefit by restricting imports of that good.
can produce that good using fewer resources than its trading partner.
must be the only country with the ability to produce that good.
Which of the following statements about trade is true?
Unrestricted international trade benefits every person in a country equally.
Trade can benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage.
People that are skilled at all activities cannot benefit from trade because they do not have an opportunity cost in production.
Trade can benefit everyone in society because it allows people to specialize in activities in which they have an absolute advantage.
According to the principle of comparative advantage, countries
should specialize in the production of goods that they enjoy consuming.
with a comparative advantage in the production of every good need not specialize.
should specialize in the production of goods for which they have a lower opportunity cost of production than their trading partners.
should specialize in the production of goods for which they use fewer resources in production than their trading partners.
Which of the following statements is true?
A self-sufficient country can, at best, consume on its production possibilities frontier.
Only countries with an absolute advantage in the production of every good should strive to be self-sufficient.
A self-sufficient country consumes outside its production possibilities frontier.
Self-sufficiency is the road to prosperity for most countries.
Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there is no trade, the domestic price of 1 ring is
1/4 of a watch.
3 watches.
1/3 of a watch.
12 watches.
4 watches.
Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there is no trade, the opportunity cost of 1 watch is
1/4 of a ring.
3 rings.
4 rings.
12 rings.
1/3 of a ring.
The following table shows the units of output a worker can produce per month in Australia and Korea.
Which of the following statements about absolute advantage is true?
Australia has an absolute advantage in the production of food while Korea has an absolute advantage in the production of electronics.
Korea has an absolute advantage in the production of food while Australia has an absolute advantage in the production of electronics.
Australia has an absolute advantage in the production of both food and electronics.
Korea has an absolute advantage in the production of both food and electronics.
The following table shows the units of output a worker can produce per month in Australia and Korea.
The opportunity cost of 1 unit of electronics in Australia is
4 units of food.
1/5 of a unit of food.
5 units of food.
1/4 of a unit of food.
The following table shows the units of output a worker can produce per month in Australia and Korea.
The opportunity cost of 1 unit of electronics in Korea is
4 units of food.
2 units of food.
1/4 units of food.
1/2 of a unit of food.
The following table shows the units of output a worker can produce per month in Australia and Korea.
The opportunity cost of 1 unit of food in Australia is
1/5 of a unit of electronics.
4 units of electronics.
5 units of electronics.
1/4 of a unit of electronics.
