The cost-plus-markup theory is an inadequate explanation of relative prices because
A) it does not explain why there is a standard percentage markup in most industries.
B) it is too simple, and simple theories are rarely as useful as more complex theories.
C) the theory is inconsistent with observable relationships between marginal costs and prices.
D) people who actually set prices do not describe the process as cost-plus.
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The term for the Fed's day-to-day technique for controlling the stock of money is
A) discounting operations.
B) interest-rate operations.
C) liquidity operations.
D) open market operations.
E) treasury operations.
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When a commercial bank lends $1000 to a customer, and the loan proceeds are spent by the customer, the legal reserves of the banking system
A) decline by $1000.
B) do not change unless the loan proceeds are withdrawn in currency.
C) rise by $1000.
D) rise by more than $1000 because spending increases nominal GDP.
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Consider the following simplified sequence of exchanges. A farmer sells wheat to a miller, for 25 cents. The miller grinds the wheat into flour, and sells that to a baker, for 35 cents. The baker turns the flour into a loaf of bread, which she sells to a grocer for 60 cents. The grocer then sells you the loaf of bread for 85 cents. What can we conclude?
A) Your purchase of the bread avoided the use of a middleman.
B) The grocer's profit means you lost on the deal.
C) GDP increases by 25 cents.
D) GDP increases by 85 cents.
E) GDP increases by $2.05.
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In 2010 the family mean income of householders aged 15-24 years was approximately
A) $11,000.
B) $21,000.
C) $31,000.
D) $41,000.
E) $51,000.
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Social cooperation by means of voluntary contracts and exchanges
A) cannot occur in a socialist economic system.
B) cannot occur where government sets rules that restrict behavior.
C) is easier to achieve when the laws of the society are clear and unchanging.
D) is harder to achieve when the members of the society own very little material property in common.
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Which of the following is an important difference between police protection and food and explains why one is commonly provided by government while the other is not?
A) Food can easily be withheld from people who don't pay for it.
B) Food is not a traditional concern of government.
C) Food is too vital to be entrusted to government.
D) Food producers form a powerful political lobby.
E) Food provided through government would be inefficient.
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Freeways in large cities tend to be congested during rush hours to the point where offer little or no advantage over non-freeway routes because
A) drivers generally ignore marginal benefits and costs.
B) drivers usually ignore marginal benefits and costs during rush hours.
C) no monetary fee is charged for the use of freeways during rush hours.
D) not enough freeways have been constructed due to special interests' control of the government.
E) people need to get to work and the demand for freeway travel is consequently inelastic during rush hours.
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Pick the true statement regarding the notion of competition as a process versus the model of perfect competition.
A) The process notion allows for uncertainty and incomplete information; perfect competition doesn't.
B) The process notion allows for price searching activity; perfect competition doesn't.
C) The process notion allows for product differentiation; perfect competition doesn't.
D) The process notion allows for a small number of participants; perfect competition doesn't.
E) All of the above are true.
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Fill in the blanks: A price discriminating firm will tend to charge a ________ price for the category of customer with the ________ elasticity of demand.
A) lower; lower
B) higher; lower
C) lower; higher
D) 100 percent markup; infinite
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