1. Opportunity cost is best defined as

a. marginal cost minus marginal benefit.
b. the time spent on an economic activity.
c. the value of the best forgone alternative.
d. the money cost of an economic decision.

2. Which of the following is considered to be an entrepreneur?

a. Self-employed person
b. MBA graduate hired by a firm to be its CEO
c. Production-line worker
d. Customer of a firm

3. A point outside the production possibilities curve is

a. attainable, but there is not full employment.
b. attainable, but there is not optimal allocation.
c. unattainable because the economy is inefficient.
d. unattainable because of limited resources.

4. A basic characteristic of a command system is that

a. wages paid to labor are higher.
b. government owns most economic resources.
c. free markets are never permitted in a command economy.
d. government planners play a limited role in deciding what goods will be produced.

5. Which is consistent with the law of demand?

a. A decrease in the price of tacos causes no change in the quantity of tacos demanded.
b. An increase in the price of pizza causes an increase in the quantity of pizza demanded.
c. An increase in the price of hamburgers causes a decrease in the quantity of hamburgers demanded.
d. A decrease in the price of turkey sandwiches causes a decrease in the quantity of turkey sandwiches demanded.

6. What combination of changes would most likely decrease the equilibrium price?

a. When supply decreases and demand increases
b. When demand increases and supply increases
c. When demand decreases and supply decreases
d. When supply increases and demand decreases

7. Chuck Grim has a price elasticity of demand for beer of 1.2. Suppose that the price of beer is increased by 10 percent. What will happen to the total amount Chuck spends on beer?

a. It will not change.
b. It will decrease.
c. It will increase.
d. It is impossible to tell.

8. Which of the following factors will make the demand for a product relatively elastic?

a. There are few substitutes.
b. The time interval considered is long.
c. The good is considered a necessity.
d. Purchases of the good require a small portion of consumers' budgets.

9. Which is true for a purely competitive firm in short-run equilibrium?

a. The firm is making only normal profits.
b. The firm's marginal cost is greater than its marginal revenue.
c. The firm's marginal revenue is equal to its marginal cost.
d. A decrease in output would lead to a rise in profits.

10. Which would definitely not be an example of price discrimination?

a. A theater charges children less than adults for a movie.
b. Universities charge higher tuition for out-of-state residents.
c. A doctor charges for services according to the income of patients.
d. An electric power company charges less for electricity used during off-peak hours when production costs are lower.

11. A major reason that firms form a cartel is to

a. reduce the elasticity of demand for the product.
b. enlarge the market share for each producer.
c. minimize the costs of production.
d. maximize joint profits.

12. In the short run, output

a. is absolutely fixed.
b. can vary as the result of using a fixed amount of plant and equipment more or less intensively.
c. may be altered by varying the size of plant and equipment which now exist in the industry.
d. can vary as the result of changing the size of existing plants and by new firms entering or leaving the industry.

13. Which phase of the business cycle would be most closely associated with an economic contraction?

a. Peak
b. Recession
c. Trough
d. Recovery

14. In calculating the unemployment rate, part-time workers are

a. counted as unemployed because they are not working full-time.
b. counted as employed because they are receiving payment for work.
c. used to determine the size of the labor force, but not the unemployment rate.
d. treated the same as "discouraged" workers who are not actively seeking employment.

15. To avoid multiple counting in national income accounts

a. only final goods and services should be counted.
b. intermediate goods and services should be counted.
c. both final and intermediate goods and services should be counted.
d. primary, intermediate, and final goods an

16. An increase in expected future income will

a. increase aggregate demand and aggregate supply.
b. decrease aggregate demand and aggregate supply.
c. increase aggregate supply.
d. increase aggregate demand.

17. The upward slope of the short-run aggregate supply curve is based on the assumption that

a. wages and other resource prices do not respond to price level changes.
b. wages and other resource prices do respond to price level changes.
c. prices of output do not respond to price level changes.
d. prices of inputs are flexible while prices of outputs are fixed.

18. If the price of crude oil decreases, then this event would most likely

a. decrease aggregate supply in the U.S.
b. increase aggregate supply in the U.S.
c. increase aggregate demand in the U.S.
d. decrease aggregate demand in the U.S.

19. Deflation refers to a situation where

a. price level falls.
b. price level rises.
c. the rate of inflation falls.
d. the rate of inflation rises.

20. Dissaving occurs when

a. income is greater than saving.
b. income is less than consumption.
c. saving is greater than consumption.
d. saving is greater than the interest rate.

21. The M1 money supply is composed of

a. all coins and paper money held by the general public and the banks.
b. bank deposits of households and business firms.
c. bank deposits and mutual funds.
d. checkable deposits and currency in circulation.

22. The basic requirement of money is that it be

a. backed by precious metals--gold or silver.
b. authorized as legal tender by the central government.
c. generally accepted as a medium of exchange.
d. some form of debt or credit.

23. The Federal Reserve System consists of which of the following?

a. Federal Open Market Committee and Office of Thrift Supervision
b. Federal Deposit Insurance Corporation and Controller of the Currency
c. U.S. Treasury Department and Bureau of Engraving and Printing
d. Board of Governors and the 12 Federal Reserve Banks

24. Which group is responsible for the policy of changing the money supply?

a. Federal Open Market Committee
b. Office of Management and Budget
c. Thrift Advisory Council
d. Federal Advisory Council

25. The Federal funds rate is the rate that banks pay for loans from

a. the Fed.
b. the U.S. Treasury.
c. other banks.
d. large corporations.

26. The difference between Fed behavior during the Bank Panics of 1930-1933 and the Financial Crisis of 2007-2008 is that the Fed

a. was very active during the former crisis, while it was basically passive during the latter crisis.
b. stood idly by during the former crisis, but took dramatic actions during the latter crisis.
c. was not yet in existence during the 1930s.
d. was a much bigger institution in the 1930s than it is today.

27. Which one of the following is a tool of monetary policy for altering the reserves of commercial banks?

a. Issuing currency
b. Check collection
c. Open-market operations
d. Acting as the fiscal agent for the federal government

28. The Federal Reserve could reduce the money supply by

a. selling government bonds in the open market.
b. buying government bonds in the open market.
c. operating the term auction facility.
d. reducing the discount rate.

29. Which nation has greatly increased its role in international trade in recent years?

a. Japan
b. Iran
c. Peru
d. China

30. In a two-nation world, comparative advantage means that one nation can produce

a. a product with fewer inputs than the other nation.
b. a product at lower average cost than the other nation.
c. a product at a lower domestic opportunity cost than the other nation.
d. more of a product than the other nation.

31. If a nation imposes a tariff on an imported product, then the nation will experience a(n)

a. decrease in total supply and an increase in the price of the product.
b. decrease in demand and a decrease in the price of the product.
c. decrease in supply of, and an increase in demand for, the product.
d. increase in supply of, and a decrease in demand for, the product.

32. Tariffs and quotas are costly to consumers because

a. the price of the imported good falls.
b. the supply of the imported good increases.
c. import competition increases for domestic go
d. consumers shift purchases to domestically-produced goods.