Econ Test # 3

  1. Suppose the bank pays savers 4% and charges borrowers 7%. Assume that there are 1% administration expenses associated with operating the bank. If the quantity of loanable funds is $2 million, what are the bank's total profits?
  2. Which of the following is true?
    Advertising lowers search costs for consumers
  3. Suppose workers in Sri Lanka earn 12 cents per hour on average while workers in the USA earn $15 per hour on average. What is the an economic reason for this situation?
    Sri Lankan workers are less productive than American workers.
  4. If an economic good has a price elasticity coefficient of +.75, we can infer:
  5. The "Law of Supply" states:
    An inverse relationship exists between the relative price of the good and the quantity supplied
  6. Which of the following is true?
    When a monopoly firm sets price equal to marginal cost, no dead-weight loss is created
  7. Which of the following is not true concerning cartels in a free market?
    Cartel members have an incentive to expand output to lower price.
  8. Suppose ACME Corporation earns a bottom line profit of $1 million last year. Suppose the general rate of return on investments is 5%. If ACME is leaving the industry we can infer:
    The investor equity in ACME is more than $20 million
  9. What is true about financial intermediaries?
    They have a comparative advantage in the production of free information.
  10. Suppose the inflation rate in the USA is 6%. On day two, the inflation rate in Britain decreases to 3% while it remains at 6% in the USA. Before the exchange rate adjusts, what will occur?
    A surplus of dollars in Britain relative to Pounds
  11. Which of the following is not true with the respect to relative price?
    The price of the good reflects human values relative to scarcity for the good
  12. Which of the following is true?
    In the perfect price competition model the marginal revenue curve is below the demand curve.
  13. Which of the following is true?
    The trade-off between leisure and other economic goods and the "income effect" determine where the labor supply curve sits in the x-y space.
  14. Which economist formulated the "contestability hypothesis"?
    William Buamol
  15. Which of the following is not true with regard to environmental economics?
    The "tragedy of the commons" refers to a lack of private property rights which results in overuse of natural resources.
  16. Which of the following is true with the respect to the Food and Drug Administration's (FDA's) drug testing guidelines?
  17. Which of the following if true with respect to the following anti-trust cases?
  18. Which of the following is not true?
    If the real interest rate decreases, the discounted present value of a stream of fixed income payments falls.
  19. Which of the following is a result of profit-seeking speculators?
    Destabilizes prices over time.
  20. A.C. Pigou claims the market price system can fail to reach allocative efficiency because:
    Of positive externalities
  21. Suppose a drought hits the pineapple growing regions of Hawaii. Diagram the role of successful profit making speculators over two time periods. Be sure to label everything. Finally, list and explain the 4 economic functions of speculators.
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    • 1) Produce stability over time, by supplying a constant supply of goods they make market stable.
    • 2) Have a known knowledge of future economic events
  22. Diagram the bank. Be sure to label everything including both X and Y axes, what both curves represent, and the area defining the saver's, borrower's, and bank's gain.
Card Set
Econ Test # 3
Economics Test #3