6. Diminishing marginal product suggests that the marginal
(A) product of an extra worker is less than the previous worker's marginal product.
(B) cost of an extra worker is less than the previous worker’s marginal cost.
(C) product of an extra worker is greater than the previous worker's marginal product.
(D) cost of an extra worker is unchanged.

2. Suppose the price of product X is reduced from $].4S to $1.25 and, as a result, the quantity of X demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for X in the given price range (A) 2.00. (B) 1:55. (C) 1.00’ (D) 0.64.

3. Which of the following is NOT true about the multilateral approach to free trade? (A) The multilateral approach has the potential to result in freer trade than does the unilateral approach. (B) The multilateral approach may have a political advantage over the unilateral approach. (C) The multilateral approach is simpler than the unilateral approach. (D) NAFTA and GAIT are both multilateral approaches to free trade.

4. When leisure is a normal good, the income effect from an increase in wages is manifest in (A) a desire to consume more leisure. (B) a desire to consume less leisure. (C) an upward sloping labor supply curve. (D) a shift in labor demand.

5. According to the Coase theorem, private solutions to externalities can occur when (i) bargaining costs are small. (ii) property ownership/rights cannot be defined. (iii) the number of parties involved is small. (A) All of the above (B) (i) and (ii) only (C) (iii) only (D) (i) and (iii) only

7. A U-shaped long-run average total cost curve can be explained by firms increasing their size (i) to take advantage of greater specialization. (ii) to avoid coordination problems. (iii) to avoid fixed costs. (A) (i) and (ii) (B) (ii) and (iii) (C) (i) only (D) all of the above

8. Competitive firms differ from monopolies in which of the following ways? (i) Competitive firms do not have to worry about the price effect lowering their total revenue. (ii) Marginal revenue for a competitive firm equals price, while marginal revenue for a monopoly is greater than the price it is able to charge. (iii) Monopolies must lower their price in order to sell more of their product, while competitive firms do not. (A) (i) and (ii) (B) (ii) and (iii) (C) (i) and (iii) (D) all of the above

9. In the long run, a firm in a perfectly competitive market operates at (A) efficient scale and a monopolistically competitive firm operates at excess capacity. (B) efficient scale and a monopolistically competitive firm operates at efficient scale. (C) excess capacity and a monopolistically competitive firm operates at excess capacity, (D) excess capacity and a monopolistically competitive firm operates at efficient scale.

10. According to liquidity preference theory, the price level and interest rate are (A) positively related as are the interest rate and aggregate demand. (B) inversely related as are tlie interest rate and aggregate demand. (C) positively related while the interest rate and aggregate demand are inversely related. (D) inversely related wliile the interest rate and aggregate demand are positively related.

11 • Assuming that only the multiplier effect matters, a decrease in government purchases of $10 billion will shift the aggregate demand curve (A) left by $13.5 billion. (B) left by $40 billion. (C) right by $75 billion. (D) None of the above are correct.

12. The logic behind the catch-up effect is that (A) workers in counti ies with low income will work harder than workers in countries with high incomes. (B) the capital stock in rich countries deteriorates more rapidly tlian the capital stock in poor countries. (C) new capital adds more to production in a country that doesn’t have much capital than in a country that already has much capital. (D) None of the above are correct.