6. The demand facing a perfectly competitive firm is
(A) perfectly elastic.
(B) perfectly inelastic.
(C) unitary elastic.
(D) downward-sloping.

7. If an economy is producing efficiently, then (A) there is no way to produce more of one good without producing less of another good. (B) it is possible to produce more of both goods without increasing the quantities of inputs that are being used. (C) it is possible to produce more of one good without producing less of the other. (D) it is not possible to produce more of any good at any cost.

8. To construct the market demand for a private good, we should sum the quantity each consumer demands (A) at a given price. (B) at all prices and then sum this amount across all consumers. (C) All of the above. (D) None of the above.

9. In the labor market, if the government imposes a minimum wage that is below the equilibrium wage, then (A) workers who wish to work at the minimum wage will have a difficult time finding jobs. (B) firms will hire fewer workers than without the minimum wage law. (C) some workers may lose their jobs as a result. (D) nothing will happen to the wage rate or employment.

10. Mike was selling his used car. He asked for a price of $220,000, and he decided he would take no less than $200,000. After some negotiation, Smith purchased the car for $205,000. Smith's consumer surplus is (A) $5,000. (B) $15,000. (C) $20,000. (D) not able to be calculated from the information given.

11. Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has (A) caused GDP to fall. (B) not caused any change in GDP. (C) caused GDP to rise. (D) probably changed GDP, but in an uncertain direction; the direction of the change depends on the difference in the quality of the cleaning that has resulted.

12. Suppose the price of gasoline increases rapidly, and that consumers respond by buying a smaller quantity of gasoline. The consumer price index (A) reflects this price increase accurately. (B) understates the price increase due to the so-called income bias. (C) overstates the price increase due to the so-called income bias. (D) overstates the price increase due to the so-called substitution bias.

13. If there are diminishing returns to capital, then (A) capital produces fewer goods as it ages. (B) old ideas are not as useful as new ones. (C) increases in the capital stock eventually decrease output. (D) increases in the capital stock increase output by ever smaller amounts.

14. Suppose that in a closed economy GDP is $11 trillion, consumption is $7 trillion, taxes are $3 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving? (A) $4 trillion and $1 trillion (B) $4 trillion and $5 trillion (C) $1 trillion and $2 trillion (D) $1 trillion and $1 trillion

15. Suppose some country had an adult population of about 25 million, the labor-force participation rate was 60 percent, and the unemployment rate was 6 percent. What were the number of people employed and the number of people in the labor force? (A) 11.75 million and 12.5 million (B) 13.5 million and 15 million (C) 14 million and 12.5 million (D) 14.1 million and 15 million

16. Suppose that banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the (A) money supply to fall. To reduce the impact of this, the Central Bank could lower the discount rate. (B) money supply to fall. To reduce the impact of this, the Central Bank could raise the discount rate. (C) money supply to rise. To reduce the impact of this, the Central Bank could lower the discount rate. (D) money supply to rise. To reduce the impact of this, the Central Bank could raise the discount rate.

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