chapter 2 micro economics

Any point outside a country's production possibilities frontier represents a combination of two goods that an economy

cannot currently produce.

Which of the following steps does an economist not take when studying the economy?

create data in a laboratory

Which of the following is an example of a normative, as opposed to positive, statement?

Gasoline prices ought to be lower than they are now.

Which of the following is an example of a positive, as opposed to normative, statement?

Inflation occurs when the government prints too much money.

Which of the following statements about the Council of Economic Advisers is NOT true?

It implements the president's tax policies.

Which of the following statements about the circular-flow diagram is NOT correct?

It incorporates all aspects of the real economy.

Refer to the Figure. Efficient production is represented by which point(s)?

L,M (on the ppf)

Which of the following statements about economic models is correct?

Models assume away irrelevant details, allowing us to see what is truly important.

Economists from which administrative department help the president formulate spending plans and regulatory policies?

Office of Management and Budget

Sometimes economists disagree because their values differ. Which of the following instances best reflects this source of disagreement?

One economist advises against a consumption tax because she thinks it's unfair for low-income people; another economist argues that what's fair isn't relevant.

Almost all economists agree that government subsidies on ethanol in the United States should be

reduced

In the circular-flow diagram, which of the following is NOT a factor of production?

revenue

In the markets for factors of production in the circular-flow diagram, households are _________ and firms are __________.

sellers, buyers

Some, but not all, government economists are employed within the administrative branch of government. Which of the following government agencies employs economists outside of the administrative branch?

the Federal Reserve

Which of the following would likely be studied by a microeconomist rather than a macroeconomist?

the effect of gas prices on the profitability of snowplow companies in New England

Which of the following would likely be studied by a macroeconomist rather than a microeconomist?

the effects of borrowing by the federal government

Economists who are primarily responsible for advising Congress on economic matters work in which agency?

The Congressional Budget Office

Refer to the Figure. Consider the production possibilities frontier for an economy that produces only sofas and cars. The opportunity cost of each sofa is

2/3 of a car.

Refer to the Figure. If this economy devotes all of its resources to the production of washers, then it will produce

0 dryers and 100 washers

The table above shows one set of production possibilities. What is the opportunity cost of increasing the production of corn from 800 bushels to 1200 bushels?

500 bushels of wheat

Refer to the Figure. Max works as a CPA for a corporation and is paid a salary in exchange for the accounting services he performs. Jim owns land and rents his land to companies in exchange for rent payments. If Max's income is represented by a flow of dollars from Box D to Box B of this circular-flow diagram, then Jim's income is represented by a flow of dollars from

Box D to Box B markets to households

Refer to the Figure. Which arrow represents the flow of factors of production?

C (households to markets

Refer to the Figure. Jeff receives his first paycheck for working as a waiter. To which of the arrows does this transaction directly contribute?

C and D

Which of the following statements about economic models is NOT correct?

Economic models are not useful because they oversimplify the real world.

Suppose an economist develops a theory that higher gas prices lead people to take more local vacations. According to the scientific method, which of the following is the economist's next step?

Collect and analyze data.

Economists from which administrative department help design tax policy?

Department of the Treasury

A survey of professional economists revealed that more than three-fourths of them agreed with a number of statements. Which of the following statement is NOT one of those propositions?

Flexible and floating exchange rates are not an effective international monetary arrangement.

Some economists disagree because their scientific judgment differs. Which of the following instances best reflects this source of disagreement?

One economist believes that the level of household saving would not be affected by a change in the tax laws; another economist believes that taxing a household's consumption would change a household's saving behavior.

In the circular-flow diagram, which of the following do firms NOT do?

Produce factors of production

In the circular-flow diagram, which of the following do households NOT do?

Produce goods and services.

A survey of professional economists revealed that more than three-fourths of them agreed with a number of statements. Which of the following statement is NOT one of those propositions?

The United States should restrict employers from outsourcing work to foreign countries.

Suppose an economy produces two goods, food and clothing. This economy always operates on its production possibilities frontier. Last year, it produced 2000 units of food and 500 articles of clothing. This year it experienced a technological advance in its clothing-making industry. As a result, this year the society wants to produce 2200 units of food and 500 articles of clothing. Which of the following statements is correct?

The technological advance reduced the amount of resources needed to produce 500 articles of clothing, so these resources could be used to produce more food.

Suppose an economist advises a state's governor to raise the tax on cigarettes. The governor does not implement the policy because it would not be popular with voters. Which of the following statements best describes the scenario?

This is a common occurrence. The policymaker knows the best policy but chooses not to institute it for other reasons.

Suppose an economy only produces two goods, pizza and tables. Last month, the economy produced 100 pizzas and 10 tables. This month, the same economy produced 125 pizzas and 15 tables. Which of the following statements could NOT explain this change?

This month, the economy experienced a change in the opportunity cost of producing pizza.

Which of the following events would cause a production possibilities frontier to shift outward?

a technological improvement

In the markets for goods and services in the circular-flow diagram, households are _________ and firms are __________.

buyers, sellers

Refer to the Figure. The economy cannot currently produce at point C because

it does not have the resources and technology to produce that level of output.

Economists from which administrative department help enforce the nation's antitrust laws?

department of justice

What are the two basic reasons why economists often appear to give conflicting advice to policymakers?

differences in scientific judgment and values

According to the circular-flow diagram, if Molly is an employee who delivers packages for Deliver Dynomite, she participates in the markets for

factors of production exchanging labor for income

Economists always agree on which public policy is the best.

false

In order to understand how the real world works, economists try to capture every aspect of the real world in their models that they construct

false

Policies such as rent control and trade barriers persist because almost all economists agree that those policies are desirable.

false

The Council of Economic Advisers was created in 1946 and consists of two members and a staff of several dozen economists.

false

The advice of economists is the only thing a policymaker has to consider when implementing a proposed policy.

false

The production possibilities frontier is a graph that shows the various combinations of output that an economy should produce.

false

The scientific method is only applicable to studying the natural sciences.

false

There is only one explanation for why economists give conflicting advice on policy issues, and it is that they have different scientific judgments about the validity of alternative theories.

false

When economists are trying to explain the world, they are policy advisers, but when economists are trying to help improve the world they are scientists.

false

Economists make assumptions to

focus their thinking

In the circular-flow diagram, which of the following items does NOT flow from households to firms?

goods and services

Almost all economists agree that a large federal budget deficit

has an adverse effect on the economy.

Carol and Sharon are economists. Carol thinks that the wealthiest 5% of the US population should pay higher health insurance premiums so that those who are unemployed can still receive basic health care. Sharon thinks that the wealthiest should not be punished for their success and that the unemployed simply shouldn't receive health care if they cannot afford to pay for it themselves. In this example, Carol and Sharon

have differences in values.

In the simple circular-flow diagrams, the participants in the economy are

households and firms

When a production possibilities frontier is bowed outward, the opportunity cost of producing an additional unit of a good _________ as more of the good is produced.

increases

Almost all economists agree that a minimum wage

increases unemployment among young and unskilled workers.

When an economy is operating _______ its production possibilities frontier, we know that there are unused resources of inefficiencies in the economy.

inside

Refer to the Figure. If this society moves from point R to point U,

it gives up 80 sweaters to get 60 bushels of apples.

In the circular-flow diagram, which of the following items does NOT flow from firms to households?

labor

"Total revenue rises when the quantity sold increases and prices remain constant" is an example of a

positive economic statement.

Positive statements are NOT

prescriptive

Almost all economists agree that a legitimate role for the government is

the redistribution of income.

Different values are a reason for disagreement among economists.

true

Normative statements are prescriptive, whereas positive statements are descriptive.

true

Points on the production possibilities frontier represent efficient levels of production.

true

Refer to the Figure. Consider the production possibilities frontier for an economy that produces only sofas and cars. The opportunity cost of each car is the slope of the production possibilities frontier.

true

Differences in scientific judgment between economists are similar to all of the following except

two biologists arguing about the fairness of health insurance premiums