3. There is an inverse relationship between inflation and unemployment in the short run and this can be seen as an

a. example of the equality-efficiency trade-off.

b. example of the impact of comparative advantage.

c. example of macroeconomic policy choices.

d. example of an externality.

e. example of the use of abstraction in economic analysis.

12. A point lying inside (under) a production possibilities frontier indicates that a. the economy is saving money.

b. there are no associated opportunity costs.

c. more output could be produced with existing resources.

d. technology limits production.

23- Demand is said to be elastic when percentage changes in quantity demanded are

a. less than the percentage changes in price.

b. higher than the percentage changes in price.

c. equal to the percentage changes in price.

d. zero when price changes.

24- If demand is unit elastic, revenue

a. and price rise and fall together.

b. rises as price falls.

c. falls as price rises.

d. remains constant as price rises or falls.

26- Compared to the demand for coffee, the market demand for French Roast coffee is likely to be

a. more elastic.

b. more inelastic.

c. perfectly elastic.

d. perfectly inelastic.

40 A profit-maximizing firm always

a. sells its output at P = MC.

b. produces at the output at which MR is maximized.

c. hires labor until the MRP of labor < 0.

d. finds the output where marginal profit is zero.

41 When interest rates in the economy fall, the prices of previously issued bonds

a. must fall.

b. must change but may either rise or fall. c. must rise.

d. may remain unchanged.

42 If stock exchanges did not exist,

a. the risk to the investor of buying stocks would be much greater.

b. the economy's resources could be more efficiently allocated among firms. c. there would be no organized way for firms to issue stock.

d. investment banks would no longer play a role in handling stocks.

45. An individual who acquires a bond from a corporation a. lends money to the corporation.

b. borrows money from the corporation.

c. buys part of the corporation.

d. promises to pay part of any debts of the corporation.

46- Stockholders normally receive higher expected returns, compared to bondholders, since

a. the government mandates higher payments to stockholders.

b. stock prices go up and down while bond prices do not.

c. profits may only be retained by the corporation and not paid out to stockholders.

d. stockholders could be left with nothing if the corporation fails, and bondholders will receive interest payments even if the corporation suffers losses.

50. A corporation's income is taxed

a. on a quarterly basis.

b. when the returns are distributed to its owners.

c. at very low rates to compensate for its unlimited liability.

d. at the corporate level and at the level of its stockholders.

55- If a corporation is sued and loses the lawsuit, its liability to pay

a. is imposed on all stockholders, personally.

b. is imposed only on the corporate CEO and the board of directors. c. is limited to the assets held in the corporation's name.

d. is imposed on the bondholders of the corporation.

57- A perfectly competitive firm is a price a. giver.

b. taker.

c. maker.

d. leader.

62 - The long run for the industry is defined by economists as a period of time long enough for

a. any new firm that desires to enter the industry.

b. any old firm that desires to leave the industry.

c. all aspects of production to vary and there are no fixed costs.

d. All of the responses are correct.

63 - In long-run equilibrium, the perfectly competitive firm produces

a. where P = MC = AC.

b. at the lowest point on its long-run average cost curve.

c. where its long-run average cost curve is tangent to its horizontal demand curve.

d. All of the responses are correct.

70- The difference between zero accounting profit and zero economic profit is that

a. an economic profit of zero indicates a fair rate of return because it includes the opportunity cost of a firm's capital.

b. an economic profit of zero indicates an unacceptable rate of return because it does not include the opportunity cost of a firm's capital.

c. an economic profit of zero indicates more than a fair rate of return because it includes opportunity cost and explicit cost.

d. an accounting profit of zero indicates a fair rate of return because it includes the opportunity cost of a firm's capital.

71- To promote economic efficiency, government should

a. keep all prices as low as possible.

b. keep all prices high so that people will save more money.

c. allow the market to set low prices for abundant goods and high prices for scarce goods.

d. never interfere with firms' price setting powers.

72- To achieve efficient use of highways in congested urban areas, a pricing arrangement called "peak, off-peak pricing" would most likely be proposed by

a. economists.

b. politicians.

c. regulators.

d. the general public.

79- Economics can decide

a. the appropriate trade-off between fairness and efficiency.

b. which pricing arrangements are fair and which are unfair.

c. whether a pricing decision will impose heavy inefficiency costs on society.

d. All of the responses are correct.

80 In 1984, British Prime Minister Margaret Thatcher decided to shut down so-called uneconomic coal mines owned by the government. The National Union of Mineworkers protested, asserting that there was enough coal in the mines to continue current levels of production for years. Thatcher implicitly argued that her decision was economically sound because, at any practical level of output, for each "uneconomic" mine,

a. MC > AC.

b. for every input, MPP > APP. c. MC > MR.

d. AC > MC.