1. 100
200
300
400
500
Micro Potpourri
Macro Potpourri

2. B 100 A single-price monopolist’s marginal revenue is
equal to its price
less than its price
greater than its price
negative when it maximizes revenues
zero when it maximizes profit B

3. 200
When marginal product exceeds average product, which of the following must be true?
Average product is increasing.
Average product is decreasing.
Marginal product is increasing.
Total product is decreasing.
Total product is at its maximum. A

4. C 300 Marginal revenue product is defined as the
change in income that occurs when an individual works additional hours
change in total revenue that occurs when one additional unit of the good is produced
change in total revenue that occurs when one additional unit of an input is employed
total revenue divided by the quantity of labor employed
change in total cost that occurs when one additional unit of input is employed C

5. 400
The allocation of resources in a market economy is described by which of the following statements?
The government decides which goods will be produced and which consumers will receive them.
Buyers and sellers exchange goods and services on a voluntary basis.
Prices and costs help producers decide whether they are producing too little or too much of a good.
I only
II only
III only
I and III only
II and III only E

6. C The average total cost to the firm of producing 2 units of output is
$35
$85
$95
$100
$130
500 C

7. If the product price is $85, how many units of output must the firm produce in order to maximize profits? 3 4 5 6
100 D

8. 200
Assume that the government implements a deficit-reduction policy that results in changes in aggregate income and output. Then the Federal Reserve engages in monetary policy actions that reverse the changes in income and output caused by fiscal government spending, the required reserve ratio, and the discount rate is most consistent with these policies.
Taxes Gov’t Spending RRR Discount Rate
Increase Increase Decrease Increase
Increase Decrease Decrease No change
Increase Decrease Increase Decrease
Decrease Increase No change Increase
Decrease Decrease Decrease Increase B

9. 300
If the economy is operating at full employment and there is a substantial increase in the money supply, the quantity theory of money predicts an increase in
the velocity of money
real output
interest rates
unemployment
the price level E

10. 400
Which of the following would cause the United States dollar to increase in value to the Japanese yen?
An increase in the money supply in the United States
An increase in interest rates in the United States
An increase in the United States trade deficit with Japan
The United States purchase of good on the open market
The sale of $2 billion dollars worth of Japanese television sets to the United States B

11. 500
Assume that the supply of loanable funds increases in Country X. The international value of Country X’s currency and Country X’s exports will most likely change in which of the following ways?
Int’l Value of X’s Currency X’s Exports
Decrease Decrease
Decrease Increase
Increase Decrease
Increase Increase
Not change Not change B

12. 100
On the basis of the graph above, which of the following statements concerning changes in the demand for and supply of tomatoes is correct?
If both the demand and supply increase, the price of tomateos will definitely increase.
If both the demand and supply decrease, the quantity of tomatoes wold will definitely increase.
If the demand decreases while supply increase, price of tomatoes willdefinitely increase.
If the demand decreases while the supply increases, the quantity of tomatoes sold will definitely decrease.
If the demand increases while the supply decreases, theprcie of tomatoes will definitely increase. E

13. 200
Which of the following best illustrates the concept of consumer surplus?
A thirsty athlete pays $0.85 for a cold drink when she would have gladly paid $1.50 for the drink.
An individual who is willing to accept a job at $7.50 per hour is offered $7.00 per hour.
An individual pays the sale price of $15.00 for the same shirt that the individual refused to purchase earlier at $18.00.
An individual finds that the price of artichokes, a food she dislikes , has been reduced by 50 percent.
A woodcarver has a marginal cost of $5.00 for a unit of output, but sells that unit oat $6.00 A

14. 300
Which of the following factors can cause a firm’s cost curves to shift upward?
An increase in wages.
An increase in the firm’s output.
An increase in the output price.
A decrease in the firm’s output.
A decrease in the price of energy. A

15. The diagram shows a perfectly competitive firm’s short-run cost curves
The diagram shows a perfectly competitive firm’s short-run cost curves. If the price of the output increases from $8 to $10, the profit-maximizing firm will
Continue producing 15 units because ATC is at a minimum
Continue producing 15 units because ATC is equal to marginal cost
Increase output to 20 units because this is the output at which price equals ATC
Increase output to 18 units because this is the output at which price equals MC
Decrease output to 10 units because this is the output at which average variable cost is at a minimum
400 D

16. 500
Which of the following statements is true about a firm that sells its output in a perfectly competitive market?
The demand for its product is a downward-sloping function.
The firm will earn zero economic profits in long-run equilibrium.
Advertising is an important tool of the firm.
The firm will increase its total economic profits if it charges a price that is lower than the market price.
The marginal revenue the firm receives from selling an additional unit of output will be different from the price at which it sells that unit. B

17. 100
Which of the following will most likely occur in an economy if more money is demanded than is supplied?
The amount of investment spending will increase.
Interest rates will decrease.
Interest rates will increase.
The demand curve for money will shift to the left.
The demand curve for money will shift to the right. C

18. Which of the following is true of an economy with the production possibilities frontier shown?
Point Q is attainable but undesirable.
Point R is unattainable but desirable.
A technological improvement in the production of watches would move the economy from point T to point P.
The opportunity cost of moving from point S to point T is the number of watches give up.
There is unemployment at point T because workers in the watch industry are without jobs. D
200

19. A 300 Increases in real income per capita are made possible by
Improved productivity
A high labor/capital ratio
Large trade surpluses
Stable interest rates
High protective tariffs A

20. 400
Which of the following would most likely lead to a decrease in aggregate demand, that is, shift the aggregate demand curve leftward?
A decrease in taxes
A decrease in interest rates
An increase in household savings
An increase in household consumption
An increase in business firms’ purchases of capital equipment from retained earnings C

21. 500
Which of the following measures might be used to reduce a federal budget deficit?
Raising taxes
Reducing federal spending
Lowering interest rates
I only
II only
III only
I and III only
I, II, and III E

22. 100
One justification for government regulation of a monopoly is that the unregulated monopoly
Earns a normal profit
Pays its workers a lower wage than if the market were competitive
Has a very elastic demand curve
Charges a price higher than a competitive market price
Sells too much of the product D

23. 200
Which of the following is most likely to shift the demand for aircraft mechanics to the right?
An increase in the demand for air travel
An increase in the price of a license necessary for aircraft mechanics
A decrease in the price of a license necessary for aircraft mechanics
A decrease in the demand for air travel
A decrease in the marginal productivity of aircraft mechanics A

24. 300
If the production of a good results in a positive externality, the government might be able to improve economic efficiency in this market by
Eliminating private production of the good
Imposing a tax on private producers
Promoting the export of the surplus output
Initiating antitrust action
Granting a subsidy to private producers E

25. 400
All of the following are sources of inequality in the distribution of personal income EXCEPT
Progressive income taxes
Discrimination in employment
Differences in personal motivation
Differences in educational level attained
Differences in abilities A

26. 500
An outward shift in the production possibilities curve of an economy can be caused by an increase in
Unemployment
The labor force
Inflation
Output
Demand B

27. 100
If the nominal interest rate is 6 percent and the expected inflation rate is 4 percent, the real interest rate is
10 percent
6 percent
4 percent
2 percent
-2 percent D

28. B 200 Supply side economists argue that
A cut in high tax rates results in an increased deficit and thus increases aggregate supply
Lower tax rates provide positive work incentives and thus shift the aggregate supply curve to the right.
The aggregate supply of goods can only be increased if the price level falls
Increased government spending should be used to stimulate the economy
The government should regulate the supply of imports B

29. 300
If the dollar cost of the British pound decreases, United States imports from and exports to the United Kingdom will change in which of the following ways?
Imports Exports
Increase Decrease
Increase Increase
Increase No change
Decrease Decrease
Decrease Increase A

30. 400
An economy that is fully employing all its productive resources but allocating less to investment than to consumption will be at which of the following positions on the production possibilities curve? A B C D E C

31. 500
The United States government defines an individual as unemployed if the person
Does not hold a paying job
Has been recently fired
Works part-time but needs full-time work
Is without a job but is looking for work
Wants a job but is not searching because he or she thinks none is available D