Economics
Mid-Term Exam
January 25, 2011
1. Macroeconomics approaches the study of economics from the viewpoint of:
A. the entire economy.
B. governmental units.
C. the operation of specific product and resource markets.
D. individual firms.
2. Which of the following terms implies the greatest degree of confidence in an economic
generalization?
A. a hypothesis
B. a theory
C. a principle
D. an anomaly
3. Answer the next question on the basis of the following five data sets wherein it is assumed that the
variable shown on the left is the independent variable and the one on the right is the dependent
variable. Assume in graphing these data that the independent variable is shown on the horizontal axis
and the dependent variable on the vertical axis.
Refer to the above data sets. The vertical intercept is negative for:
A. none of the data sets.
B. data sets 1 and 3 only.
C. data sets 2 and 4 only.
D. data sets 1 and 5 only.
4. Microeconomics:
A. is the basis for the "after this, therefore because of this" fallacy.
B. is not concerned with details, but only with the overall "big picture" of the economy.
C. is concerned with individual economic units and specific markets.
D. describes the aggregate flows of output and income.
5. According to Emerson, "Want is a growing giant whom the coat of Have was never large enough to
cover." According to economists, "Want" exceeds "Have" because:
A. people are greedy.
B. productive resources are limited.
C. human beings are inherently insecure.
D. people are irrational.
6. True or false: An economic model is an ideal or utopian type of economy for which society should
strive to achieve through the use of economic policy.
True
False
7. Economists:
A. use both the economic perspective and the scientific method.
B. use the economic perspective but not the scientific method.
C. make positive economic statements, but not normative economic statements.
D. reject theorizing as being impractical.
8. Refer to the following:
The variables X and Y are:
A. inversely related.
B. directly related.
C. unrelated.
D. negatively related.
9. The "economic perspective" entails:
A. irrational behavior by individuals and institutions.
B. a comparison of marginal benefits and marginal costs in decision making.
C. short-term but not long-term thinking.
D. rejection of the scientific method.
10. True or false: Rational individuals may make different choices because their preferences and
circumstances differ.
True
False
11. Economics is primarily the study of:
A. why resources are scarce.
B. how advertising and sales promotion shape consumer wants.
C. how to make profitable financial investments.
D. how to use scarce resources efficiently.
12. The production possibilities curve:
A. shows all of those levels of production that are consistent with a stable price level.
B. indicates that any combination of goods lying outside the curve is economically inefficient.
C. is a frontier between all combinations of two goods that can be produced and those
combinations that cannot be produced.
D. shows all of those combinations of two goods that are most preferred by society.
13. The production possibilities curve has:
A. a positive slope that increases as we move along it from left to right.
B. a negative slope that increases as we move along it from left to right.
C. a negative slope that decreases as we move along it from left to right.
D. a negative slope that is constant as we move along it from left to right.
14. Refer to the following:
The above is a circular flow model of the economy. In the diagram flow (4) represents:
A. wage, rent, interest, and profit income.
B. land, labor, capital, and entrepreneurial ability.
C. goods and services.
D. consumer expenditures.
15. Which of the following is assumed in constructing a typical production possibilities curve?
A. the economy is using its resources inefficiently.
B. resources are perfectly shiftable among alternative uses.
C. production technology is fixed.
D. the economy is engaging in international trade.
16. Answer the next question on the basis of the data given in the following production possibilities
table:
Refer to the above table. For these data the law of increasing opportunity costs is reflected in the fact
that:
A. the amount of consumer goods that must be sacrificed to get more capital goods diminishes
beyond a point.
B. larger and larger amounts of capital goods must be sacrificed to get additional units of
consumer goods.
C. the production possibilities data would graph as a straight downsloping line.
D. the economy's resources are presumed to be scarce.
17. A nation's production possibilities curve is "bowed out" from the origin because:
A. resources are not equally efficient in producing every good.
B. the originator of the idea drew it this way and modern economists follow this convention.
C. resources are scarce.
D. wants are virtually unlimited.
18. The negative slope of the production possibilities curve is a graphical way of indicating that:
A. any economy "can have its cake and eat it too."
B. to produce more of one product we must do with less of another.
C. the principle of increasing opportunity costs applies to only parts of the economy.
D. consumers buy more when prices are low than when prices are high.
19. Of the following countries, the one that best exhibits the characteristics of a market economy is:
A. Canada.
B. Cuba.
C. North Korea.
D. China.
20. The scarcity problem:
A. persists only because countries have failed to achieve continuous full employment.
B. persists because economic wants exceed available productive resources.
C. has been solved in all industrialized nations.
D. has been eliminated in affluent societies such as the United States and Canada.
21. If the supply of a product decreases and the demand for that product simultaneously increases, then
equilibrium:
A. price must rise, but equilibrium quantity may either rise, fall, or remain unchanged.
B. price must rise and equilibrium quantity must fall.
C. price and equilibrium quantity must both increase.
D. price and equilibrium quantity must both decline.
22. Refer to the following:
S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this
market:
A. supply has decreased and equilibrium price has increased.
B. demand has increased and equilibrium price has decreased.
C. demand has decreased and equilibrium price has decreased.
D. demand has increased and equilibrium price has increased.
23. When an economist says that the demand for a product has increased, this means that:
A. consumers are now willing to purchase more of this product at each possible price.
B. the product has become particularly scarce for some reason.
C. product price has fallen and as a consequence consumers are buying a larger quantity of the
product.
D. the demand curve has shifted to the left.
24. An inferior good is:
A. one whose demand curve will shift rightward as incomes rise.
B. one whose price and quantity demanded vary directly.
C. one which has not been approved by the Federal Food and Drug Administration.
D. not accurately defined by any of the above statements.
25. A rightward shift in the demand curve for product C might be caused by:
A. an increase in income if C is an inferior good.
B. a decrease in income if C is a normal good.
C. a decrease in the price of a product that is a close substitute for C.
D. a decrease in the price of a product that is complementary to C.
26. At the equilibrium price:
A. quantity supplied may exceed quantity demanded or vice versa.
B. there are no pressures on price to either rise or fall.
C. there are forces that cause price to rise.
D. there are forces that cause price to fall.
27. True or false: Toothpaste and toothbrushes are substitute goods.
True
False
28. A market:
A. reflects upsloping demand and downsloping supply curves.
B. entails the exchange of goods, but not services.
C. is an institution that brings together buyers and sellers.
D. always entails face-to-face contact between buyer and seller.
29. One reason that the quantity of a good demanded increases when its price falls is that the:
A. price decline shifts the supply curve to the left.
B. lower price shifts the demand curve to the left.
C. lower price shifts the demand curve to the right.
D. lower price increases the real incomes of buyers, enabling them to buy more.
30. If consumer incomes increase, the demand for product X:
A. will necessarily remain unchanged.
B. may shift either to the right or left.
C. will necessarily shift to the right.
D. will necessarily shift to the left.
31. True or false: Programs by state governments to keep milk prices higher than market-determined
prices to protect family dairy farms from bankruptcy promote the efficient allocation of resources.
True
False
32. Which of the following is an example of a capital good.
A. a Federal government bond.
B. a share of General Motors stock
C. a bag of potato chips
D. a Boeing 757 airplane
33. In a competitive economy prices:
A. influence consumers in their purchases of goods and services.
B. influence businesses in their purchases of economic resources.
C. influence workers in making occupational choices.
D. do all of the above.
34. Economic profit is:
A. a cost because it is really a part of wage costs.
B. a cost because it accrues to the entrepreneur.
C. not a cost because it cannot be calculated.
D. not an economic cost because it need not be realized for a business to acquire and retain
entrepreneurial ability.
35. An industry is in equilibrium when:
A. normal profits are zero.
B. total revenue exceeds total economic costs.
C. total economic costs exceed total revenue.
D. economic profits are zero.
36. Well-defined property rights:
A. discourage investment and growth.
B. discourage hard work.
C. impede exchange.
D. encourage owners to maintain or improve their property.
37. If competitive industry Y is incurring substantial losses, output will:
A. expand, product price will rise, and losses will disappear.
B. contract, product price will fall, and losses will increase.
C. contract, product price will rise, and losses will disappear.
D. expand, product price will fall, and losses will disappear.
38. Which of the following best describes the "guiding function" of competitive prices?
A. Profitable industries contract and unprofitable industries expand.
B. The market system will always generate economic profits for firms that use the least costly
production technology.
C. The market system can negotiate reallocations of resources that are appropriate to changes in
consumer tastes, technology, and resource supplies.
D. When prices are in equilibrium, product shortages or surpluses cannot occur.
39. Copyrights and trademarks are examples of:
A. capital goods.
B. human capital.
C. property rights.
D. public goods.
40. Normal profit is:
A. a cost because any excess of total receipts over total costs will go to the businessperson.
B. a cost because they represent payments made for the resources which the businessperson
owns and supplies in his or her own enterprise.
C. not a cost because a firm can avoid this payment by temporarily closing down.
D. not a cost of production because it need not be realized for a firm to retain entrepreneurial
ability.
41. Which of the following is a positive statement?
A. The humidity is too high today.
B. It is too hot to jog today.
C. The temperature is 92 degrees today.
D. I enjoy summer evenings when it cools off.
42. Theoretical economics:
A. is also known as "policy economics."
B. is the process of deriving principles of economics.
C. is highly impractical since it does not deal with the real world.
D. rejects the scientific method as being inappropriate for the social sciences.
43. You should decide to go to a movie:
A. if the marginal cost of the movie exceeds its marginal benefit.
B. if the marginal benefit of the movie exceeds its marginal cost.
C. if your income will allow you to buy a ticket.
D. because movies are inherently good products.
44. If you leave a football game at the end of the third quarter, you will avoid traffic and get home more
quickly. Therefore, everyone should leave the game early. This illustrates the:
A. moral hazard problem.
B. adverse selection problem.
C. fallacy of limited decisions.
D. fallacy of composition.
45. Refer to the following diagram:
The equation that shows the relationship between Y and X is:
A. Y = 50 + 1/4 X .
B. X = 1/4 Y .
C. Y = .4X .
D. Y = 1/4 X - 50.
46. Refer to the following diagram:
Refer to the diagram in question five. The slope of the line:
A. is - 1/4.
B. is + 1/4.
C. is .40.
D. cannot be determined from the information given.
47. Refer to the following diagram:
The slope of curve ZZ at point C is:
A. -4.
B. -2.
C. -2 2/5.
D. +3.
48. A normative statement is one which:
A. is based on the law of averages.
B. pertains only to microeconomics.
C. pertains only to macroeconomics.
D. is based on value judgments.
49. Answer the next question(s) on the basis of the following five data sets wherein it is assumed that
the variable shown on the left is the independent variable and the one on the right is the dependent
variable. Assume in graphing these data that the independent variable is shown on the horizontal axis
and the dependent variable on the vertical axis.
Refer to the above data sets. The vertical intercept is positive for:
A. all five data sets.
B. data sets 1 and 3 only.
C. data sets 1, 3, and 5 only.
D. data set 2 only.
50. Ben says that "An increase in the tax on beer will raise its price." Holly argues that "Taxes should
be increased on beer because college students drink too much." We can conclude that:
A. Ben's statement is normative, but Holly's is positive.
B. Holly's statement is normative, but Ben's is positive.
C. Both statements are normative.
D. Both statements are positive.
51. Refer to the following diagram:
Curve C
A. reflects increasing opportunity costs because the slope of the curve becomes less steep as one
moves down along the curve.
B. is a less desirable production possibilities curve for an economy than curve B.
C. is a more desirable production possibilities curve for an economy than curve A.
D. has a steeper slope throughout than curve B.
52. In terms of the circular flow diagram households make expenditures in the _____ market and
receive income through the _____ market.
A. product; financial
B. resource; product
C. product; resource
D. capital; product
53. Any point inside the production possibilities curve indicates:
A. the realization of allocative efficiency.
B. that resources are imperfectly shiftable among alternative uses.
C. the presence of inflationary pressures.
D. that more output could be produced with available resources.
54. All of the following could immediately or eventually lead to an inward shift of a nation's production
possibilities curve, except:
A. emigration of skilled workers from the nation.
B. a decline in the birth rate.
C. an increase in the average skill level of all occupational groups.
D. depletion and reduced availability of major energy resources.
55. If the production possibilities curve is a straight line:
A. the two products will sell at the same market prices.
B. economic resources are perfectly shiftable between the production of the two products.
C. the two products are equally important to consumers.
D. equal quantities of the two products will be produced at each possible point on the curve.
56. A country can achieve some combination of goods outside its production possibilities curve by:
A. idling some of its resources.
B. specializing and engaging in international trade.
C. buying the debt (bonds and stocks) of foreign nations.
D. producing more capital goods and fewer consumer goods.
57. Over the past several decades, the percentage of women in the paid U.S. workforce has:
A. increased in spite of declining wages for women.
B. decreased because relatively more women are staying home to raise their children.
C. increased due to higher wages, expanded job accessibility, changing preferences and
attitudes, and other factors.
D. increased for unmarried women, but decreased for married women.
58. If all discrimination in the United States were eliminated, the economy would:
A. have a less concave production possibilities curve.
B. produce at some point closer to its production possibilities curve.
C. be able to produce at some point outside of its production possibilities curve.
D. produce more consumer goods and fewer investment goods.
59. The fact that the slope of the production possibilities curve becomes steeper as we move down
along the curve indicates that:
A. the principle of increasing opportunity costs is relevant.
B. society's resources are limited.
C. the opportunity cost of producing each product is constant.
D. resources are perfectly shiftable between alternative uses.
60. The slope of the typical production possibilities curve:
A. is positive.
B. increases as one moves southeast along the curve.
C. is constant as one moves down the curve.
D. decreases as one moves southeast along the curve.
61. When an economist says that the demand for a product has increased, this means that:
A. consumers are now willing to purchase more of this product at each possible price.
B. the product has become particularly scarce for some reason.
C. product price has fallen and as a consequence consumers are buying a larger quantity of the
product.
D. the demand curve has shifted to the left.
62. An increase in consumer incomes will:
A. increase the demand for an inferior good.
B. increase the supply of an inferior good.
C. increase the demand for a normal good.
D. decrease the supply of a normal good.
63. The construction of demand and supply curves assumes that the primary variable influencing
decisions to produce and purchase goods is:
A. price.
B. expectations.
C. preferences.
D. incomes.
64. Refer to the following diagrams:
Which of the above diagrams illustrate(s) the effect of an increase in automobile worker wages on the
market for automobiles?
A. A only
B. B only
C. C only
D. D only
65. Which of the following will cause the demand curve for product A to shift to the left?
A. population growth that causes an expansion in the number of persons consuming A
B. an increase in money income if A is a normal good
C. a decrease in the price of complementary product C
D. an increase in money income if A is an inferior good
66. Refer to the following diagram:
S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this
market:
A. supply has decreased and equilibrium price has increased.
B. demand has increased and equilibrium price has decreased.
C. demand has decreased and equilibrium price has decreased.
D. demand has increased and equilibrium price has increased.
67. Refer to the following diagram:
S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this
market:
A. the equilibrium position has shifted from M to K.
B. an increase in demand has been more than offset by an increase in supply.
C. the new equilibrium price and quantity are both greater than originally.
D. point M shows the new equilibrium position.
68. An increase in the price of a product will reduce the amount of it purchased because:
A. supply curves are upsloping.
B. the higher price means that real incomes have risen.
C. consumers will substitute other products for the one whose price has risen.
D. consumers substitute relatively high-priced for relatively low-priced products.
69. The term "quantity demanded":
A. refers to the entire series of prices and quantities that comprise the demand schedule.
B. refers to a situation in which the income and substitution effects do not apply.
C. refers to the amount of a product that will be purchased at some specific price.
D. means the same thing as "demand."
70. Because of unseasonably cold weather, the supply of oranges has substantially decreased. -- This
statement indicates that:
A. the demand for oranges will necessarily rise.
B. the equilibrium quantity of oranges will rise.
C. the amount of oranges that will be available at various prices has declined.
D. the price of oranges will fall.
71. Broadly defined, competition involves:
A. private property and freedom of expression.
B. independently acting buyers and sellers and freedom to enter or leave markets.
C. increasing opportunity costs and diminishing marginal utility.
D. capital goods and division of labor.
72. In a competitive market economy firms will select the least-cost production technique because:
A. such choices will result in the full employment of available resources.
B. to do so will maximize the firms' profits.
C. this will prevent new firms from entering the industry.
D. "dollar voting" by consumers mandates such a choice.
73. Economic profits and losses:
A. are both considered by economists to be a part of production costs.
B. are essential to the reallocation of resources from less desired goods to more desired goods.
C. have no influence on the composition of the domestic output.
D. equalize the distribution of income in the long run.
74. The competitive market system:
A. encourages innovation because government provides tax breaks and subsidies to those who
develop new products or new productive techniques.
B. discourages innovation because it is difficult to acquire additional capital in the form of new
machinery and equipment.
C. discourages innovation because firms want to get all the profits possible from existing
machinery and equipment.
D. encourages innovation because successful innovators are rewarded with economic profits.
75. The basic reason for the production of capital goods is to:
A. promote the concentration of economic power in the business sector.
B. facilitate exchange where a coincidence of wants does not exist.
C. better synchronize the operation of resource and product markets.
D. enhance future productive efficiency.
76. The term "roundabout production" refers to the:
A. use of capital goods in the production process.
B. double exchange of money for goods and goods for money.
C. use of money as a medium of exchange.
D. fact that barter impedes specialization.
77. Which of the following best reflects the idea of "derived demand"?
A. Product demand is determined by the demand for resources.
B. The demand for automobiles will decline if the price of gasoline goes up.
C. Economic resources are demanded because there is a demand for the goods they produce.
D. The "dollar votes" of consumers determine the composition of output.
78. The market system's answer to the fundamental question "How will the system accommodate
change?" is essentially:
A. "Through government leadership and direction."
B. "Through the guiding function of prices and the incentive function of profits."
C. "Through training and retraining programs."
D. "Through random trial and error."
79. If competitive industry Z is making substantial economic profit, output will:
A. fall, product price will fall, and economic profit will disappear.
B. fall, product price will rise, and economic profit will disappear.
C. expand, product price will fall, and economic profit will disappear.
D. expand, product price will fall, and economic profit will rise.
80. The market system's answer to the fundamental question "What will be produced?" is essentially:
A. "Goods and services that are profitable."
B. "Low cost goods and services."
C. "Goods and service that can be produced using round-about production."
D. "Goods and services that possess lasting value."
81 The two major features of the economic perspective are:
A) purposeful behavior and marginal analysis
B) normative and positive analysis
C) benefit and cost
D) consumers and producers
82 A nation's production possibilities curve is "bowed out" from the origin because:
A) resources are not perfectly adaptable to production of alternative goods
B) capital goods and consumer goods utilize the same production technology
C) resources are scarce relative to human wants
D) opportunity costs are decreasing
83 A microeconomist would most likely study:
A) how consumers respond to a change in gasoline prices
B) the effects of an income tax reduction on the size of the national budget deficit
C) the effects of aggregate consumer debt on overall consumption spending
D) the relationship between the size of the money supply and the rate of inflation
84 Refer to the following:
Which of the points on the production possibilities curve in the diagram is currently unattainable given
the economy's resources?
A) Point A
B) Point B
C) Point C
D) Point D
85 The fundamental problem of economics implies that:
A) governments must be relied upon to supply essential goods and services
B) inflation and unemployment are unavoidable
C) growing populations will deplete natural resources
D) individuals and communities must make choices among competing alternatives
86 "Rational self-interest is the same as selfishness."
A) True
B) False
87 When an economist concludes that there is not enough of some activity, the economist is suggesting
that:
A) the marginal benefit of the activity exceeds its marginal cost
B) the cost of the activity has increased
C) the benefit of the activity has decreased
D) the marginal cost of the activity exceeds its marginal benefit
88 In the equation y = a + bx, where y is the dependent variable and x is the independent variable, the
slope of line is given by:
A) a
B) b
C) y/x
D) a/b
89 Suppose you can purchase milk for $3 a gallon or eggs for $1.50 per dozen. Your opportunity cost
of a gallon of milk is:
A) one dozen eggs
B) two dozen eggs
C) one half dozen eggs
D) $1.50
90 Margaret decides to stay home and study for her exam rather than going out with her friends to a
movie. Her dilemma is an example of:
A) the economic perspective
B) marginal analysis
C) allocative efficiency
D) opportunity cost
91 The market system is characterized by:
A) widespread use of government price controls
B) centralized decision-making
C) limited use of capital goods
D) private property rights
92 Barter:
A) requires money to overcome the problem of coincidence of wants
B) is the direct exchange of goods for goods
C) is a fundamental characteristic of the market system
D) is generally a more efficient system than a monetary exchange system
93 Firms will tend to exit an industry if:
A) they fail to earn an economic profit
B) the economic resources used by the industry decline in cost
C) they fail to form strategic alliances with other firms in the industry
D) demand for the good or service fails to increase
94 A firm will earn an economic profit if:
A) its total sales revenue equals the cost of labor and raw materials
B) it produces its output utilizing the least-cost production method
C) it is regulated by government
D) its total sales revenue exceeds the sum of all its economic costs
95 A firm can produce a single unit of output by combining labor and capital in any of the
combinations shown in the following table. Labor costs $10 per unit and capital costs $5 per unit.
Refer to the table. Which technique is the most efficient way of producing the output?
A) A
B) B
C) C
D) D
96 A firm can produce a single unit of output by combining labor and capital in any of the
combinations shown in the following table. Labor costs $2 per unit and capital costs $4 per unit.
Refer to the table. Which technique is the most efficient way of producing the output?
A) A
B) B
C) C
D) D
97 The term "consumer sovereignty" means:
A) there are many independently acting consumers in society
B) firms' choices are constrained by the government through consumer voting blocs
C) consumer choices ultimately determine which goods and services are produced
D) consumers have freedom of choice
98 "The pursuit of self-interest automatically promotes the social interest." This concept is known
as:
A) consumer sovereignty
B) the rationing function of prices
C) the invisible hand
D) the guiding function of prices
99 In the circular flow diagram, firms:
A) receive revenue and supply resources in the resource market
B) receive revenue and demand resources in the product market
C) incur costs and demand resources in the resource market
D) incur costs and supply goods and services in the product market
100. Compared to a command system, economists typically favor a competitive market system because
it promotes:
A) efficiency
B) an active government
C) limited use of capital goods
D) high economic profits
101 In a market system, economic profits:
A) create an "incentive problem"
B) respond inversely to changes in demand
C) direct resources to their most highly valued use
D) are in direct conflict with the goal of consumer sovereignty
102 Which best expresses the law of demand?
A) A higher price reduces demand
B) A lower price reduces demand
C) A higher price reduces quantity demanded
D) A lower price shifts the demand curve to the right
103 Goods X and Y are complements while goods X and Z are substitutes. If the supply of good X
increases:
A) the demand for both Y and Z will increase
B) the demand for Y will increase while the demand for Z will decrease
C) the demand for Y will decrease while the demand for Z will increase
D) the demand for both Y and Z will decrease
104 Which will not cause supply to increase?
A) An increase in demand
B) A reduction in input prices
C) An improvement in technology
D) A lower price expected in the future
105 If the quantity supplied of oranges exceeds the quantity demanded:
A) there is a shortage of oranges
B) market forces will cause the price to fall unless there is an effective price floor
C) market forces will cause the price to rise unless there is an effective price ceiling
D) the market is in equilibrium
106 The following data show the supply and demand schedule for a competitively produced good.
Refer to the above data. At the equilibrium price, the quantity exchanged in this market will be:
A) 190
B) 220
C) 245
D) 250
107 The following data show the supply and demand schedule for a competitively produced good.
Refer to the above data. Suppose government were to fix the price at $14 As a result:
A) there would be a surplus of 65 units
B) there would be a shortage of 65 units
C) demand would increase
D) Supply would increase
108 Over the last several months, the price of a particular good has fallen while its quantity exchanged
has increased. This could have been caused by:
A) a simultaneous increase in demand and decrease in supply
B) an increase in supply
C) an increase in demand
D) a decrease in demand
109 Consider the market for good X. A simultaneous drop in the price of a production input and an
increase in the price of substitute good Y will necessarily:
A) increase the equilibrium price of X
B) decrease the equilibrium price of X
C) increase the equilibrium quantity of X
D) decrease the equilibrium quantity of X
110 An improvement in production technology for a specific good will cause a(n):
A) increase in demand and an increase in price
B) increase in demand and a drop in price
C) drop in price and increase in quantity demanded
D) increase in supply and an increase in price
111 When movie ticket prices increase, families tend to spend less time watching movies and more
time at home watching videos instead. This best reflects:
A) diminishing marginal utility
B) the income effect
C) the rationing function of markets
D) the substitution effect
112 Regarding the functional distribution of income in the U.S., which of the following constitutes
about 70% of total income?
A) The top 20% of households
B) Consumption spending
C) Business profits
D) Wages and salaries
113 Among all types of business forms, sole proprietorships account for approximately:
A) 75% of businesses but account for only 5% of total sales
B) 55% of businesses but account for only 20% of total sales
C) 20% of businesses but account for 55% of total sales
D) 5% of businesses but account for 20% of total sales
114 Jeri owns $300,000 of stock in ABC Corporation and has a personal net worth of $2,000,000. The
company goes bankrupt with debts totaling over $50,000,000. The most Jeri can lose as a result is:
A) Zero
B) $300,000
C) $2,000,000
D) $2,300,000
115 Free markets will tend to underallocate resources to the production of goods that:
A) are public goods
B) are characterized by rivalry and excludability
C) generate external costs
D) are subject to the principal-agent problem
116 The most important source of local tax revenue is:
A) sales and excise taxes
B) personal and corporate income taxes
C) estate and inheritance taxes
D) property taxes
117. If your income increases from $40,000 per year to $41,000 per year and your tax increases from
$1000 to $1050, the marginal tax rate is:
A) $50
B) 2.5%
C) 5%
D) 10%
118 For the U.S. income tax, the average tax rate increases as income increases. We can therefore
conclude the tax is:
A) equitable
B) regressive
C) proportional
D) progressive
119. When asked what a particular government program is worth to them, individuals have an incentive
to underreport the true value. This is known as the:
A) nonrivalry problem
B) spillover principle
C) free-rider problem
D) principal-agent problem
120 Bees from a keeper's hive can pollinate fruit trees for many surrounding orchards. Therefore, the
production of honey:
A) generates external benefits and should be encouraged through subsidies
B) generates external benefits, however resources are correctly allocated in this market
C) generates external costs and should be discouraged through taxes
D) needs no government interaction. Beekeepers reap all private benefits
121 In the circular flow diagram expanded to include government:
A) only households receive government-produced goods and services while paying net
taxes
B) only businesses receive government-produced goods and services while paying net
taxes
C) both households and business receive government-produced goods and services
while paying net taxes
D) only households pay net taxes while only businesses receive government-produced goods
and services