Economics may best be defined as the:
A. interaction between macro and micro considerations.
B. social science concerned with how individuals, institutions, and society make optimal
choices under conditions of scarcity.
C. empirical testing of value judgments through the use of logic.
D. study of why people are rational.
Answer: B
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Use the figure below to answer the following question. The equilibrium point in the market is the point at which the S and D curves intersect.
Assuming equilibrium price P1, consumer surplus is represented by areas
A. a + c. B. a + b + c + d. C. c + d. D. a + b.
The owners of a firm are earning economic profit if
a. return on their capital is lower than the opportunity cost of employing that capital in their industry. b. their total revenues exceed the monetary payments to labor and other resources in the long run after all plant size adjustments are made. c. price exceeds average variable costs at the shutdown point. d. they are earning a return on their capital that is higher than what can generally be earned in other markets.
Assume the government decides to reduce spending in order to reduce the budget deficit, which it financed by borrowing in the real credit market. What is the first round effect on the value of the domestic currency, if there is low mobility in the international capital markets?
a. The value of the currency rises. b. The value of the currency falls. c. The value of the currency is unaffected. d. The change in the value of the currency is ambiguous.
When actual output equals potential output and the inflation rate is equal to the expected rate of inflation, the economy is said to be in ________ equilibrium.
A. long-run B. recessionary C. short-run D. expansionary