Essential Foundations Of Economics 7th Edition By Bade – Test Bank

Multiple Choice Quiz
1. U.S. potential GDP is the value of the goods and services produced in the United States ________.
A. in the reference base year
B. when the U.S. unemployment rate is zero
C. when the U.S. economy is at full employment
D. when the U.S. inflation rate is zero
Answer: C Answer C is correct because it is the definition of potential GDP.
2. The demand for labor curve shows the relationship between _________.
A. the quantity of labor employed and firms’ profits
B. all households’ willingness to work and the real wage rate
C. the quantity of labor businesses are willing to hire and the real wage rate
D. the labor force and the real wage rate
Answer: C Answer C is the definition of the demand for labor curve.
3. The supply of labor is the relationship between __________.
A. the quantity of labor supplied and leisure time forgone
B. the real wage rate and the quantity of labor supplied
C. firms’ willingness to supply jobs and the real wage rate
D. the labor force participation rate and the real wage rate
Answer: B Answer B defines the supply of labor.
4. Households’ labor supply decisions are influenced by all of the follow-ing except _______.
A. the opportunity cost of taking leisure and not working
B. the after-tax wage rate
C. unemployment benefits
D. the number of full-time jobs available
Answer: D The number of full-time jobs available reflects firms’ de-mand for labor not households’ supply of labor.
5. If real GDP increases from $5 billion to $5.25 billion and the popula-tion increases from 2 million to 2.02 million, real GDP per person in-creases by ___ percent.
A. 5.0
B. 1.0
C. 2.5
D. 4.0
Answer: D Real GDP grows by 5 percent and the population grows by 1 percent, so real GDP per person grows by 4 percent.
6. If the population growth rate is 2 percent, real GDP per person will double in 7 years if real GDP grows by ______ percent per year.
A. 7
B. 10
C. 12
D. 14
Answer: C For real GDP per person to double in 7 years, the growth rate of real GDP per person must be 10 percent. If the population growth rate is 2 percent, then real GDP must grow at 12 per-cent.
7. All of the following increase labor productivity except _________.
A. the accumulation of skill and knowledge
B. an increase in capital per hour of labor
C. an increase in consumption
D. the employment of a new technology
Answer: C An increase in consumption has nothing to do with chang-ing labor productivity.
8. An economy can achieve faster economic growth without ______.
A. markets and property rights
B. people being willing to save and invest
C. incentives to encourage the research for new technologies
D. an increase in the population growth rate
Answer: D The other answers are necessary conditions for economic growth.

Multiple Choice Quiz
1. Monopolistic competition differs from ________.
A. monopoly because firms cannot set their own price
B. oligopoly because firms produce differentiated goods or services
C. perfect competition because the goods or services produced are dif-ferentiated
D. monopoly because the good produced by each firm has no close substitute
Answer: C Answer C describes the key difference between perfect com-petition and monopolistic competition.
2. A firm in monopolistic competition maximizes its profit by ________.
A. differentiating its good and producing the quantity at which price equals marginal revenue
B. producing the quantity at which marginal revenue equals marginal cost and then adding a markup
C. raising its price and producing so that it always has excess capacity
D. producing the quantity at which marginal cost equals marginal rev-enue and charging the highest price at which it can sell that quanti-ty
Answer: D Figure 13.1 shows how a monopolistically competitive firm maximizes its profit.
3. A firm in monopolistic competition that is maximizing profit ________.
A. always makes a positive economic profit in the short run
B. never needs to shut down because its price always exceeds mini-mum average variable cost
C. might, in the short run, sell at a price that is less than average total cost
D. shuts down temporarily if it incurs a loss equal to total variable cost
Answer: C In the case of answer C, the firm incurs an economic loss.
4. If one firm advertises and other firms in the market don’t, then ______.
A. the demand for the advertised good becomes more elastic
B. the profit-maximizing quantity of the advertised good decreases because total fixed costs increase
C. the average cost of producing a small quantity of the advertised good rises but the average total cost of producing a large quantity might fall
D. the economic profit made from the advertised good increases
Answer: D If only one firm advertises, the demand for its good increas-es, which raises the economic profit the firm can make.
5. The oligopoly dilemma is whether to ________.
A. act together to restrict output and raise the price
B. raise the price to the monopoly profit-maximizing price
C. cheat on others in the cartel to take advantage of profit opportuni-ties
D. lower the price to the perfectly competitive price
Answer: C Cheating on the others in the cartel will boost the cheater’s profit as long as the other participants also do not cheat.
6. In the prisoners’ dilemma game, each player ________.
A. consults the other player to determine his best action
B. chooses the best outcome for the other player
C. chooses the best outcome for himself
D. chooses the best outcome for both players together
Answer: C Each player maximizes his or her own well-being.
7. A Nash equilibrium ______.
A. is the outcome that delivers maximum economic profit
B. is the outcome in which each player takes the best action given the other player’s action
C. changes each time the game is played
D. is the best possible outcome for the two players
Answer: B Answer B is the definition of a Nash equilibrium.