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___ 10. The Fed’s most important tool for controlling the money supply is: a. printing more currency b. changing the discount rate c. open market operations d. changing the required-reserve ratio ___ 11. During the recession caused by the bursting of the housing bubble: a. Real GDP decreased by over 5% for the year 2008 b. the unemployment rate more than doubled from November of 2007 to October of 2009 c. Both of the above d. Neither of the above ___ 12. From July of 1996 to July of 2012: a. home prices increased by a steady 5% per year b. home prices increased by over 121% and then decreased by over 27% c. home prices increased by about 60% d. Both b. and c. above ___ 13. During the housing bubble, mortgage interest rates were low: a. because of the high savings rate in the U.S. b. because of an influx of savings entering the U.S. from other countries c. Both of the above d. Neither of the above ___ 14. The low short-term interest rates from 2002 to 2004: a. encouraged the use of adjustable rate mortgages b. forced mortgage lenders to deleverage, thus triggering the bursting of the housing bubble c. Both of the above d. Neither of the above ___ 15. Leveraging: a. increased the financing available for mortgage lending and thus contributed to rising home prices b. increased the impact of the bursting of the housing bubble because the deleveraging contributed to falling home prices c. Both of the above d. Neither of the above ___ 16. Beginning in 1996, Fannie Mae and Freddie Mac: a. were required to hold an increasing percentage of mortgage loans to lower-income households in their portfolios b. began to relax the standards that mortgages had to meet to be classified as “conforming” c. Both of the above d. Neither of the above ___ 17. The greater competition in the mortgage market caused by the internet: a. meant that home buyers were no longer limited to borrowing locally b. led to an increase in the average fee on a mortgage loan c. forced all mortgage lenders to adopt stricter standards for their loans d. All of the above FOR REVIEW ONLY - NOT FOR DISTRIBUTION 11 - 15 The Federal Reserve System
___ 18. Subprime mortgages: a. are home loans given to persons who are considered a poor credit risk b. historically, have had a foreclosure rate almost twice as high as prime mortgages c. charge a lower interest rate than conventional mortgages in order to encourage home ownership by lower-income borrowers d. All of the above ___ 19. The term “irrational exuberance” was first used by Alan Greenspan as he: a. hinted in 1991 that a little irrational exuberance might help the economy recover from the recession of 1991 b. hinted in 1996 that stock prices might be unduly escalated due to irrational exuberance c. hinted in 1999 that irrational exuberance would carry the economy to continued rapid growth d. described in 1997 how he felt about marrying the much-younger Andrea Mitchell ___ 20. If a homeowner could have foreseen the bursting of the housing bubble and had sold their home in 2003: a. they would have been better off than if they had sold their home in 2007, one year after the bubble burst b. they would have been worse off than if they had sold their home in 2007, one year after the bubble burst c. they would have been about as well off as they would have been if they sold their home in 2007, one year after the bubble burst ___ 21. After Alan Greenspan made his “irrational exuberance” comment, the Dow Jones Industrial Average: a. fell 2% at the opening of trading the next day b. went into a long-term decline c. increased by another 75% over the next three years d. Both a. and c. above ___ 22. When the housing bubble burst and home prices began to fall: a. the increase in foreclosures brought new buyers into the market, helping to slow the fall in home prices b. the increase in foreclosures decreased the value of mortgage-backed securities, making it difficult for investment banks to issue new mortgage-backed securities c. Both of the above d. Neither of the above ___ 23. The bursting of any housing bubble would be expected to have an impact on the economy because: a. the decrease in home prices would free up more discretionary income leading to an increase in consumption b. the decline in home construction would reduce GDP c. Both of the above d. Neither of the above ___ 24. The increased perceived credit risk caused by the bursting of the housing bubble: a. caused the TED spread to increase to a record level of over 10% in October of 2008 b. caused real investment spending to decrease by over 80% from the third quarter of 2007 to the third quarter of 2009 c. Both of the above d. Neither of the above FOR REVIEW ONLY - NOT FOR DISTRIBUTION The Federal Reserve System 11 - 16
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PRINCIPLES OF ECONOMICS JEFF HOLT S
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Principles of Economics, 6th Editio
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16. Study Guide for Chapter 7 17. C
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11. Appendix: Book Review - “The
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20. Appendix: The NCAA Cartel 21. S
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Introduction: A Brief History of U.
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In the twentieth century, per capit
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Appendix: The 35 Largest National E
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Multiple Choice: ___ 1. The Jamesto
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2. Describe the economic cost of th
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Chapter 1 Scarcity and Choices The
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Example 5B: At the end of 1982, the
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Example 11: When Cindy quits her jo
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consequences may result in failure
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An upward sloping curve (as in Exam
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In making decisions, humans tend to
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5. ______________________ _________
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___ 13. If the value of one variabl
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Y Point X Y A 0 1 B 3 3 C 6 5 D 9 7
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Chapter 2 Trade and Economic System
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Example 4B: The following quantitie
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1. An increase in the quantity of r
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3. For whom to produce? This is det
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The graph below illustrates the shi
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The two primary economic systems ar
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___ 12. The capitalist vision sees
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___ 25. According to the book “Ca
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Chapter 3 Demand, Supply, and Equil
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. For inferior goods, income and de
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The same information can be placed
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Not only does a free market elimina
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$7 - 6 - 5 - S 3 S1 S 2 Price 4 - 3
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Example 17: The graph below illustr
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Questions for Chapter 3 Fill-in-the
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___ 12. Assuming a market originall
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$8 - 7 - 6 - 5 - Price 4 - 3 - 2 -
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Chapter 4 Inflation and Unemploymen
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Computing the Rate of Inflation The
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Full Employment Though unemployment
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3. Cyclical unemployment - due to d
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During the Great Depression, the ec
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Appendix: Think Like an Economist -
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Answer questions 8. and 9. based on
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___ 25. The extension of unemployme
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Chapter 5 Measuring Total Output: G
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5. Leisure. Leisure time is by defi
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The U.S. is a high per capita GDP c
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Example 17: In “An International
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The simple circular flow diagram be
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___ 3. Which of the following would
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2. Explain what nonproduction trans
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Chapter 6 The Aggregate Market The
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Example 2C: Assume the same facts a
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Example 5B: The price of crude oil
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Price Level Real GDP SRAS AD 2 AD 1
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Appendix: Why the Aggregate Demand
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___ 3. DEF Company can invest in ne
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2. List and explain the two factors
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Chapter 7 Classical Economic Theory
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Notice that the investment demand c
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Long-Run Equilibrium If Real GDP is
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Example 6B: When the economy is in
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Laissez-faire If the economy is sel
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___ 5. According to Say’s Law: a.
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3. On the graph below, draw an aggr
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Chapter 8 Keynesian Economic Theory
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Example 2B: The graph below illustr
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Example 5: Assume that the table be
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Notice on the graph on the previous
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According to Keynesian theory, a ch
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“The General Theory” also inclu
Page 144 and 145: ___ 8. If the consumption function
Page 146 and 147: 3. If the MPC is .667, and investme
Page 148 and 149: Chapter 9 Fiscal Policy The basic e
Page 150 and 151: Keynesian Fiscal Policy Theory and
Page 152 and 153: Example 5A: The federal government
Page 154 and 155: The Laffer Curve What will happen t
Page 156 and 157: Appendix: The Importance of Incenti
Page 158 and 159: ___ 4. A decrease in government exp
Page 160 and 161: 2. Explain what automatic stabilize
Page 162 and 163: Chapter 10 Money, Money Creation, a
Page 164 and 165: Example 4B: The castaways on Gillig
Page 166 and 167: Looking at the balance sheet below,
Page 168 and 169: Demand-side One-shot Inflation Exam
Page 170 and 171: 4. Inflation increases uncertainty
Page 172 and 173: life; it came into existence not by
Page 174 and 175: calculated by using the potential d
Page 176 and 177: ___ 12. If the required-reserve rat
Page 178 and 179: 4. Referring to the balance sheet f
Page 180 and 181: Chapter 11 The Federal Reserve Syst
Page 182 and 183: 5. After Bank X sells the $300,000
Page 184 and 185: Low Mortgage Interest Rates Mortgag
Page 186 and 187: Relaxed Standards for Mortgage Loan
Page 188 and 189: The Bursting of the Housing Bubble
Page 190 and 191: On February 17, 2009, the federal g
Page 192 and 193: Fed policies caused short-term inte
Page 196 and 197: ___ 25. In response to the recessio
Page 198 and 199: Chapter 12 Monetary Policy The basi
Page 200 and 201: 2. A change in aggregate demand (AD
Page 202 and 203: Monetarist Transmission Mechanism C
Page 204 and 205: 3. Borrowers do not have to seek ou
Page 206 and 207: Appendix: Book Review - “The Age
Page 208 and 209: Questions for Chapter 12 Fill-in-th
Page 210 and 211: ___ 16. The primary source of incom
Page 212 and 213: 7. According to Alan Greenspan, wha
Page 214 and 215: Chapter 13 Taxes, Deficits, and the
Page 216 and 217: Example 5: In 2015, Taxpayer A had
Page 218 and 219: of $5 and a quantity of 10 units. T
Page 220 and 221: The complexity of the tax law also
Page 222 and 223: the current government spending and
Page 224 and 225: cut of 1964. The top rate was lower
Page 226 and 227: ___ 6. Federal excise taxes: a. are
Page 228 and 229: 3. How would eliminating the loopho
Page 230 and 231: Chapter 14 Economic Growth The basi
Page 232 and 233: 2. Labor. Labor can contribute to e
Page 234 and 235: estricting international trade (e.g
Page 236 and 237: An improvement in technology (e.g.
Page 238 and 239: The table below shows the economic
Page 240 and 241: will increase both Real GDP and per
Page 242 and 243: ___ 8. Which of the following is co
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___ 26. The opinion that economic g
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Chapter 15 Less Developed Countries
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Example 8: Countries A, B, C, and D
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Obstacles to Economic Development f
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c. Restrictions on international tr
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Appendix: Book Review - “The Powe
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Example 25: In Brazil, about half t
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Study Guide for Chapter 15 Chapter
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___ 13. Among the counterproductive
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4. List four ways that governments
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Chapter 16 International Trade The
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Other Benefits of Free Internationa
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Example 6: The graph below illustra
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competitive disadvantage. But dumpi
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is only 25% as productive as before
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Smith was skeptical of government a
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___ 4. For Country X, what is the o
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___ 18. Frédéric Bastiat’s “P
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4. On the graph below: (1) What is
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Chapter 17 Elasticity We are often
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Example 4A: What is price elasticit
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Example 5A: Gertie’s Gas and Go i
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Example 10A: When the price of Good
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Example 13B: On the graph below, su
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$7 - 6 - 5 - Price 4 - 3 - 2 - 1 -
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In the long run, would the deadweig
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___ 7. The factors that determine w
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3. a. Which price (or prices) from
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Chapter 18 Utility The basic econom
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Nonetheless, society generally assu
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Example 9: Capital City operates a
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Marginal rate of substitution - the
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The diamond-water paradox is the ob
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Complete the table below to answer
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4. The graph below shows indifferen
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Chapter 19 The Firm The basic econo
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than contributing to team productio
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1. Difficulty in raising large amou
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Corporations also use self-financin
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Example 24: A blacksmith who produc
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For financing needs, proprietorship
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___ 13. Corporations: a. are comple
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5. List two things that the absence
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Chapter 20 Production and Costs The
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In Example 5B, Birdwell finds that
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variable cost initially decreases,
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Quantity TC MC AFC AVC ATC 0 240 X
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If the scale of operation is increa
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average total cost. Average fixed c
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___ 11. Concerning the cost curves:
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5. Complete the following cost tabl
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Chapter 21 Perfect Competition The
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Even though a perfect competitor ca
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Example 6C: This example builds on
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At what price will there be neither
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Appendix: Perfect Competition in th
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Multiple Choice: ___ 1. A perfect c
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___ 17. Perfect competition: a. req
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Answers for Chapter 21 Fill-in-the-
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Chapter 22 Monopoly Of the four mar
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3. Exclusive ownership of an essent
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maximizing quantity (4 units) creat
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$22 - 20 - 18 - 16 - 14 - Deadweigh
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2. Negotiating, beginning at a high
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Legal barriers are created by gover
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___ 8. The slope of the demand curv
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Price Quantity 3. List some of the
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Chapter 23 Monopolistic Competition
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For Percomp (the perfect competitor
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Example 7A: The graph below represe
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Example 9: The Organization of the
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Example 12 illustrates the dilemma
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its current price and quantity. The
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___ 14. Game theory: a. is a method
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Answers for Chapter 23 Fill-in-the-
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Chapter 24 Factor Markets The basic
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$ $240 - 200 - 160 - 120 - 80 - 40
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Since producers will attempt to equ
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2. Differences in nonmoney aspects
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were his strikeouts, walks, and hom
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___ 3. To maximize profits, a produ
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___ 19. According to the book, “M
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Multiple Choice: 1. a. 8. c. 15. d.
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Chapter 25 Labor Unions The primary
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The elasticity of demand for union
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Example 4A: Assume that the graph b
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Notice from the graph in Example 6
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Wage Factory A Quantity of Labor S
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As a cartel, a labor union faces a
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___ 10. For a monopsony: a. there i
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3. The graph below represents a lab
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Chapter 26 Interest, Present Value,
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An increase in expected rates of re
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An asset is valuable because we exp
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Example 13B: General Ordnance prove
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Appendix: Present Value Table One f
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___ 4. An increase in expected rate
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Problems: 1. List and explain the t
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Chapter 27 Market Failure The basic
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External Benefit If a market genera
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Example 2: To encourage the consump
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$100 - 90 - 80 - MSC 70 - $ 60 - 50
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A common good is nonexcludable. Non
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___ 5. What government policy would
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4. Based on the information on the
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Chapter 28 Public Choice and Govern
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Candidates and the Median Voter Mod
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Example 8: According to State and F
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Example 10: When Elvis Presley was
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4. Pessimistic bias. This is the te
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___ 5. An elected official will: a.
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2. If a certain policy will yield s
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Chapter 29 Government Regulation of
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underproduction is the amount that
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micromanagement results in business
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market. They may agree with their c
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Questions for Chapter 29 Fill-in-th
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___ 10. The public interest theory
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4. List the four types of costs imp
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Chapter 30 Agriculture and Health C
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weather may cause bumper crops. Bad
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Security and Rural Investment Act o
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Example 12: From 1960 to 2013, the
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1. NHI would provide universal heal
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d. Insurance providers are not allo
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Answer questions 7. through 10. by
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___ 21. If there were no individual
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Chapter 31 Income Distribution and
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Income is more equally distributed
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over a typical career is the accumu
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Ideal Income Redistribution The ide
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Poverty - a family whose income fal
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Appendix: Income Inequality around
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How is this story an analogy for th
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___ 2. In 2013, the Lowest Income 6
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Problems: 1. Explain the two primar
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Absolute advantage - when one natio
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Fiat money - money by government de
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Nonrivalrous good - a good for whic
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Absolute advantage, 16-9 Absolute e
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“Company town”, 25-6 Comparativ
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Eli Lilly and Company, 22-1 Emergen
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Houston, Texas, 15-10 Human capital
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Market, 3-1, 3-8-9 Market basket, 4
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Political bias, 9-4, 12-7 Political
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Short run production, 20-2-3 Short-
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Upturns, 9-4 USDA, 27-9, 30-1-2, 30
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