The use of a price system eliminates:
A. scarcity.
B. equilibrium.
C. shortages and surpluses.
D. changes in supply and demand.
Answer: C
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Which of the following is NOT a reason why there are gains to specialization?
A. It further improves skills through experience and practice. B. It increases the amount productive resources in the economy. C. It allows individuals to concentrate on the activities in which they have a comparative advantage. D. It eliminates many of the costs of switching from one task to another.
John is trying to decide whether to expand his business or not. If he continues his business as it is, with no expansion, there is a 50 percent chance he will earn $100,000 and a 50 percent chance he will earn $300,000. If he does expand, there is a 30 percent chance he will earn $100,000, a 30 percent chance he will earn $300,000 and a 40 percent chance he will earn $500,000. It will cost him $150,000 to expand. John should:
A. expand, since he expects to earn $320,000 by expanding, and it will only cost him $150,000 to do so. B. not expand, because there is a chance John will earn the same as if he didn't expand and would be out the $150,000 investment. C. not expand, since he expects to earn $120,000 more by expanding than not, and it will cost him $150,000 to do so. D. expand, since he has a 70 percent chance of earning more than the cost of expansion.
The representative agent chooses to consume
a. his endowment point. b. equal amounts of current and future goods. c. more future goods than current goods. d. the basket of goods where the slope of the indifference curve equals -1.
How does monetary policy work in the short run?
A. Fed open market purchases, reserves/money supply increase, interest rates decrease, investment increases, demand increases, price and output increase B. Fed open market purchases, reserves/money supply decrease, disposable income increases, consumption increases, demand increases, price and output increase C. Fed open market sales, reserves/money supply increase, interest rates decrease, investment increases, demand increases, price and output increase D. Fed open market sales, reserves/money supply increase, interest rates decrease, investment increases, demand increases, price and output increases E. Fed open market purchases, government spending increases, demand increases, price and output increase