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| 1.
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Which of the following would be an example of the allocative function of price? |
| | A) | A consumer deciding the price of steak is more than she wishes to pay. |
| | B) | Losing $50 at a roadside rest stop. |
| | C) | Switching from a Ph.D. in economics to finance because finance salaries are higher. |
| | D) | Getting a 'nSync front row ticket for free. |
| | E) | Finding $50 that somebody lost at a rest stop. |
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| 2.
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Barriers to entry |
| | A) | will be established by firms earning economic losses. |
| | B) | are forces that limit new firms from joining an industry. |
| | C) | have little impact on the ability of the invisible hand to allocate resources efficiently. |
| | D) | are always illegal. |
| | E) | are uncommon today due to antitrust enforcement. |
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| 3.
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e-commerce and an Internet presence are important projects to many firms, requiring employees with specialized skills that are in short supply. The invisible hand solves the employment problem by |
| | A) | having the government announce the shortage. |
| | B) | giving selfish workers the incentive to acquire the skills in order to receive high wages. |
| | C) | allowing the few employees with the skills to exploit the firms. |
| | D) | moving slowly until the e-commerce craze ends. |
| | E) | encouraging the government to set up new training programs. |
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| 4.
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If all firms in a perfectly competitive industry are experiencing economic losses, firms will |
| | A) | enter the industry, seeking new opportunities. |
| | B) | exit the industry, stopping when accounting profits equal zero. |
| | C) | continue in the industry, hoping for better times. |
| | D) | exit the industry, stopping when economic profits equal zero. |
| | E) | exit the industry, stopping when economic profits are positive. |
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| 5.
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The rationing and allocative functions of price |
| | A) | work in opposition to each other. |
| | B) | are mutually exclusive. |
| | C) | work together to guide resources to their highest value. |
| | D) | produce disequilibrium in the market. |
| | E) | work together to guide resources to their average value. |
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| 6.
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If a single firm, belonging to a perfectly competitive industry in long run equilibrium, discovers and patents a significant cost saving methodology, then |
| | A) | all firms will enjoy economic profits for a short period of time. |
| | B) | the rest of the industry will quickly adopt the new methodology. |
| | C) | the firm will enjoy economic profits for a period of time. |
| | D) | their firm will lower price to drive the rest of the industry out of business. |
| | E) | the firm won't implement the new method fearing a price war with the rest of the industry. |
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| 7.
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Suppose the government grants grain subsidies to poor farmers to raise farm family incomes. |
| | A) | Poor farm families are made permanently better off. |
| | B) | As the profits of farming increase, new farmers will emerge from other sectors and drive down the recent profits to zero. |
| | C) | As new farmers enter, government will lessen the size of the subsidy. |
| | D) | The quality of grains will fall. |
| | E) | The quality of grains will rise. |
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| 8.
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In regulated markets, the invisible hand |
| | A) | is irrelevant. |
| | B) | will guide resources on some basis other than the price that is regulated. |
| | C) | serves to allocate resources on the basis of price as in unregulated markets. |
| | D) | becomes truly invisible. |
| | E) | may or may not influence the market outcome. |
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| 9.
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The present value of $13,000 paid 3 years from today with an interest rate of 5% is |
| | A) | $13,000. |
| | B) | $11,230. |
| | C) | $8,667. |
| | D) | $4,127. |
| | E) | $3,852. |
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| 10.
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Applying the no cash on the table principle to the stock market means new information |
| | A) | provides opportunities to the first few who act on it. |
| | B) | provides opportunities to all investors. |
| | C) | was already contained in the stock price. |
| | D) | provides opportunities to the last few who act on it. |
| | E) | fails to affect the market. |
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