EC 205 Exam 1

Price ceiling

A legal maximum on the price at which a good can be sold

Price floor

A legal minimum on the price at which a good can be sold

What is the name of our federal agency responsible for enforcing regulations in financial markets? Select one: a. Federal Reserve b. National Economic Council c. Central Intelligence Agency d. Securities and Exchange Commission

Securities and Exchange Commission

What does a high level of investment do to a PPC?

Shift it out

What does an increase in labor force do to PPC?

Shift it out

Consider an economy that produces only chocolate bars. In year 1, the quantity produced is 3 bars and the price is $4. In year 2, the quantity produced is 4 bars and the price is $5. In year 3, the quantity produced is 5 bars and the price is $6. Year 1 is the base year. What is real GDP for year 1, year 2, year 3? Select one: a. $4, $5, $6 b. $12, $20, $30 c. $12, $16, $20 d. $15, $20, $25

$12, $16, $20

Consider an economy that produces only chocolate bars. In year 1, the quantity produced is 3 bars and the price is $4. In year 2, the quantity produced is 4 bars and the price is $5. In year 3, the quantity produced is 5 bars and the price is $6. Year 1 is the base year. What is nominal GDP for year 1, year 2, year 3? Select one: a. $4, $5, $6 b. $12, $20, $30 c. $12, $16, $20 d. $15, $20, $25

$12, $20, $30

Homer sells cupcakes on Saturdays. He spends $50 for ingredients and sells $190 worth of cupcakes. If he didn't sell cupcakes, he could work at the local brewery on Saturday and earn $150. In his cupcake business, Homer has an accounting profit of _________ and an economic profit of ________. Select one: a) $140, $10 b) $140, - $10 c) $40, $50 d) $190, $50

$140, -$10

A firm is producing 50 units of output at a total cost of $200. The firm's average fixed cost is $1 per unit. What is the firm's variable cost? Select one: a) $50 b) $100 c) $150 d) $200

$150

Assume a closed economy (no international trade) has government spending of $200 billion, taxes of $150 billion, and investment spending of $250 billion. Calculate the level of private savings. Select one: a. $100 billion b. $200 billion c. $300 billion d. $400 billion

$300 billion

A profit-maximizing firm in a perfectly competitive market is currently producing 500 units of output, at a price of $40 and total cost of $1000. At this current level of output, marginal cost is _______, and average total cost is_________. Select one: a) $8, $6 b) $2, $2 c) $20, $2 d) $40, $2

$40, $2

If the reserve ratio is 25% and the Federal Reserve increases the quantity of reserves with an open market purchase of $120 million in government securities, the money supply can increase by as much as Select one: a. $90 million b. $150 million c. $160 million d. $480 million

$480 million

In the hammer factory increase production, the average total cost of production is expected to increase. If the current average total cost is $5, what is the most likely the current marginal cost? a) $1 b) $3 c) $4 d) $7

$7

The price of a good rises from $8 to $12, and the quantity demanded falls from 110 to 90 units. Calculated with the midpoint method, the price elasticity of demand is Select one: a) - 1/5 b) - 1/2 c) -2 d) -5

- 1/2

A 20% decrease in price causes the quantity demanded of a good to increase by 40 percent. The value for the price elasticity of demand is _______, and demand is ________. a) -0.5, elastic b) -0.5, inelastic c) -2, inelastic d) -2, elastic

-2, elastic

A 20% decrease in price causes the quantity demanded of a good to increase by 40 percent. The value for the price elasticity of demand is ___________, and demand is ____________. Select one: a) -0.5, elastic b) -0.5, inelastic c) -2, inelastic d) -2, elastic

-2, elastic

Suppose your bank pays you a nominal interest rate of 2% on your savings. If the current rate of inflation is 1%, what is the rate of real interest you earn on your savings? Select one: a. - 1% b. 0% c. 1% d. 2%

1%

The population of the Wolfpack Republic is 100 people: 40 work full time, 20 work half-time but would prefer work full time, 10 are looking for a job, 10 would like to work but are so discouraged they have given up looking, 10 are not interested in working because they are full time students, and 10 are retired. What is the number unemployed? a. 10 b. 20 c. 30 d. 40

10

Assume that the banking system has total reserves of $100 billion. If required reserves are 10 percent of deposits, banks hold no excess reserves and households hold no currency, then the money multiplier is ______, and the money supply is ______. Select one: a. 10, $1 trillion b. 10, $10 billion c. 0, $100 billion d. 0, $10 billion

10, $10 trillion

Consider an economy that produces only chocolate bars. In year 1, the quantity produced is 3 bars and the price is $4. In year 2, the quantity produced is 4 bars and the price is $5. In year 3, the quantity produced is 5 bars and the price is $6. Year 1 is the base year. What is the GDP Deflator for year 1, year 2, year 3? Select one: a. 4, 5, 6 b. 400, 500, 600 c. 100, 125, 150 d. 100, 400, 500

100, 125, 150

A small nation produces and consumes only cookies and milk. In Year 1, the nation consumes 10 units of cookies at $40 apiece, and 30 units of milk at $10 apiece. In Year 2, the nation consumes 12 units of cookies at $60 apiece, and 50 units of milk at $12 apiece. Assume Year 1 is the base year. The value of the GDP deflator in Year 2 is ______, and the annual rate of inflation (annual percentage increase in GDP deflator) in Year 2 according to the GDP deflator is _______. Select one: a. 137.14, 37.14% b. 1320, 132% c. 980, 98% d. 134.69, 34.69%

134.69, 34.69%

A small nation produces and consumes only cookies and milk. Assuming that the average market basket of goods contains 1 box of cookies and 3 containers of milk, calculate the CPI for Year 2. Assume Year 1 is the base year. Year Price of Box of Cookies Price of Container of Milk Year 1 $40 $10 Year 2 $60 $12 The value of the CPI in Year 2 is ______, and the annual rate of inflation (annual percentage increase in CPI) in Year 2 is _______. Select one: a. 137.14, 37.14% b. 188, 88% c. 176, 76% d. 500, 5%

137.14, 37.14%

Suppose the price elasticity of demand for pretzels is -3.0. If the price of pretzels increases by 10%, we would expect sales for pretzels to decrease by ______ percent, as the demand for pretzels is ________. a) 0.333%, inelastic b) 30%, inelastic c) 30%, elastic d) 30%, unit elastic

30%, elastic

The graph below shows the average cost, marginal cost, demand, and marginal revenue curves for a market. If the market is perfectly competitive, the price is ___ and the quantity is ____. If the market is monopolized, the price is ___ and the quantity is ____. Select one: a. 8, 30. 6, 45 b. 8, 30. 4, 30 c. 6, 45, 8, 30 d. 8, 30. 6, 30

6, 45, 8, 30

The population of the Wolfpack Republic is 100 people: 40 work full-time, 20 work half-time but would prefer work full-time, 10 are looking for a job, 10 would like to work but are so discouraged they have given up looking, 10 are not interested in working because they are full-time students, and 10 are retired. What is the the size of the labor force? Select one: a. 50 b. 60 c. 70 d. 80

70

Shortage

A situation in which quantity demanded is greater than quantity supplied

Circular-Flow Diagram

A visual model of the economy that shows how dollars flow through markets among households and firms

Comparative Advantage

the ability to produce a good at a lower opportunity cost than another producer

The table below shows the marginal product of labor for a shoe manufacturer. At what point does the law of diminishing marginal returns set in?Number of Workers Employed Marginal Product of Labor(Per Week) (Pairs of Shoes Per Week)0 -1 302 403 204 -105 -20 Select one: a) After the second worker is hired. b) After the first worker is hired. c) After the third worker is hired. d) After the fourth worker is hired.

After the second worker is hired

Which of the following is correct? Select one: a. Physical capital represents the stock of plant and equipment used to produce goods and services b. Human capital represents the knowledge and skills workers acquire through education, training, and experience c. Students enroll in college to obtain greater human capital d. All of the above

All of the above

Which of the following is true? a) Economies is a social science b) Microeconomics involves the study of choices made by individuals, firms, or markets c) Macroeconomics involves the study of the aggregate market or entire economy d) All of the above

All of the above

Which of the following is the best example of economies of scale? a) As a firm increase its supply, more consumers purchase its product b) As a firm produces of its product, its average cost of production decreases c) As a firm produces more of its product, its average cost of production stays the same d) As a firm produces of its product, its average cost of production increases

As a firm produces of its product, its average cost of production decreases

Suppose Ford, an American automobile producer, opens a plant in Canada. Which of the following is true? Select one: a. The cars Ford produces at the Canadian plant are a part of U.S. GNP b. The cars Ford produces at the Canadian plant are a part of Canadian GDP c. Both of the above are true d. Neither of the above are true

Both of the above are true

In an hour, Sluggo can wash 4 cars or mow 8 lawns, Bruno can wash 3 cars or mow 1 lawn. Who has the comparative advantage in car washing, who has the comparative advantage in lawn mowing? a) Sluggo in washing cars, Bruno in mowing lawns b) Bruno in washing cars, Sluggo in mowing lawns c) Sluggo in washing cars, Sluggo in in mowing lawns d) Bruno in washing cars, Bruno in mowing lawns

Bruno in washing cars, Slug in mowing lawns

Suppose GDP is $8 trillion, taxes (T) is $1.5 trillion, private savings is $0.5 trillion, and public savings is $0.2 trillion. Assuming this economy is closed (no international trade), calculate consumption (C), government purchases (G), national savings (NS), and investment (I). Select one: a. C=$8 trillion, G= $2 trillion, NS= $1 trillion, I= $2 trillion b. C=$8 trillion, G= $2 trillion, NS= $1 trillion, I= $1 trillion c. C=$6.5 trillion, G= $0.3 trillion, NS= $1 trillion, I= $1 trillion d. C=$6 trillion, G= $1.3 trillion, NS= $0.7 trillion, I= $0.7 trillion

C=$6 trillion, G= $1.3 trillion, NS= $0.7 trillion, I= $0.7 trillion

Per unit tax will be paid for entirely by consumer if:

Demand is perfectly inelastic or supply is perfectly elastic

Cross-elasticity of demand

Determines if things will follow each other in demand, such as with multiple brands of VCR's. Positive means they follow

Which economic statistic best measures well-being among nations? Select one: a. CPI b. GDP deflator c. GDP d. GDP per capita

GDP per capita

The wrench factory is producing 1000 wrenches with an average total cost of $4 and a marginal cost of $5. Which of the following is true? Select one: a) If production increases, we would expect average total cost to increase b) If production increases, we would expect average total cost to stay the same c) If production increases, we would expect average total cost to decrease d) If production increases, we would expect marginal cost to decrease

If production increases, we would expect average total cost to increase

Rational Behavior

If rational, a person will buy things until the marginal cost outweighs the marginal benefit.

If a good is perfectly elastic in supply, then what will an increase in demand do?

Increase quantity supplied without effect on the price.

Suppose in an hour's time, Japan can produce either 4 cars or 8 trucks; South Korea can produce either 3 cars or 2 trucks. Which of the following is true? a) Japan has the comparative advantage in cars, South Korea has the comparative advantage in trucks b) Japan has the comparative advantage in trucks, South Korea has the comparative advantage in cars c) Japan has the comparative advantage in cars, Japan has the comparative advantage in trucks d) South Korea has the comparative advantage in cars, South Korea has the comparative advantage in trucks

Japan has the comparative advantage in trucks, South Korea has the comparative advantage in cars

Suppose in an hour's time, Japan can produce either 4 cars or 8 trucks; South Korea can produce either 3 cars or 2 trucks. Which of the following is true for both countries to gain from trade? a) Japan should export cars, South Korea should export trucks b) Japan should export trucks, South Korea should export cars c) Japan should export both cars and trucks d) South Korea export both cars and trucks

Japan should export trucks, South Korea should export cars

Suppose in an hour's time, Japan can produce either 4 cars or 8 trucks; South Korea can produce either 3 cars or 2 trucks. Which of the following is true? a) Japan's opportunity cost of producing cars is 2 trucks per car b) Japan's opportunity cost of producing cars is 1/2 truck per car c) South Korea's opportunity cost of producing cars is 1.5 trucks per car d) South Korea's opportunity cost of producing cars is 3 trucks per car

Japan's opportunity cost of producing cars is 2 trucks per car

Equilibrium price

the price that balances quantity supplied and quantity demanded

Suppose in an hour's time, Canada can produce either 1 snowboard or 2 surfboards; Mexico can produce either 9 snowboards or 3 surfboards. Which of the following is true? a) Canada has the comparative advantage in both snowboards and surfboards b) Mexico has the comparative advantage in both snowboards and surfboards c) Canada has the comparative advantage snowboards, Mexico has the comparative advantage in surfboards d) Mexico has the comparative advantage snowboards, Canada has the comparative advantage in surfboards

Mexico has the comparative advantage snowboards, Canada has the comparative advantage in surfboards

Suppose in an hour's time, Canada can produce either 1 snowboard or 2 surfboards; Mexico can produce either 9 snowboards or 3 surfboards. Which of the following is true? a) Canada's opportunity cost of producing snowboards is 1/2 surfboard per snowboard b) Canada's opportunity cost of producing snowboards is 3 surfboards per snowboard c) Mexico's opportunity cost of producing snowboards is 1/3 surfboards per snowboard d) Mexico's opportunity cost of producing snowboards is 3 surfboards per snowboard

Mexico's opportunity cost of producing snowboards is 1/3 surfboards per snowboard

More substitutes means what for elasticity of demand?

More elastic

Suppose that the price of computer chips, an input used in the production of laptops, decreases. According to our analysis of supply and demand, will this increase the demand for laptops? Select one: a) No, not an increase in demand, a decrease in quantity demanded b) No, not an increase in demand, an increase in quantity demanded c) Yes, the price of laptops will decrease causing the demand for laptops to increase d) No, the price of laptops will increase causing the demand for laptops to decrease

No, not an increase in demand, an increase in quantity demanded

In the long-run equilibrium of a perfectly competitive market with identical firms, what are the relationships among price P, marginal cost MC, and average total cost ATC? Select one: a) P > MC and P > ATC b) P > MC and P = ATC c) P = MC and P > ATC d) P = MC and P = ATC

P = MC and P = ATC

What is the relationship between price P, marginal revenue MR, and marginal cost MC for a profit maximizing monopolist? Select one: a) P = MR and MR = MC b) P > MR and MR = MC c) P = MR and MR > MC d) P > MR and MR > MC

P > MR and MR = MC

The figure below shows the long-run average cost (AC) curve for a firm that produces radios, as well as four short-run average cost curves. Each of the short-run average cost curves corresponds to a different-sized plant--AC1 is associated with Plant 1, AC2 is associated with Plant 2, etc. Which plant is optimal if the firm is going to produce 2,500 radios per week? Select one: a) Plant 3. b) Plant 2. c) Plant 4. d) Plant 1.

Plant 2

Dividends

Portion of Corporate Profits passed to stockholders

What is assumed when constructing a PPC?

Quantity of economic resources available during the year is fixed

In an hour, Sluggo can wash 4 cars or mow 8 lawns, Bruno can wash 3 cars or mow 1 lawn. Who has the absolute advantage in car washing, who has the absolute advantage in lawn mowing? a) Sluggo in washing cars, Bruno in mowing lawns b) Bruno in washing cars, Sluggo in mowing lawns c) Sluggo in washing cars, Sluggo in in mowing lawns d) Bruno in washing cars, Bruno in mowing lawns

Slug is washing cars, Slug in mowing lawns

Scarcity

The limit of goods, requires us to make decisions involving sacrifice

What happens when you approach the edge of a PPC?

The opportunity cost increases, as it is assumed that some resources are specialized in each

Suppose a nation produces food and clothing. In terms of the nation's production possibilities frontier, assume clothing on the x-axis, food on the y-axis. An increase in technology used in the production of clothing would be illustrated by... a) the production possibilities frontier shifting out along both axes b) the production possibilities frontier shifting in along both axes c) the production possibilities frontier shifting out only along the y-axis d) the production possibilities frontier shifting out only along the x-axis

The production possibilities frontier shifting out only along the x-axis

Opportunity Cost

Whatever must be given up to obtain some time

Which most likely has a greater effect on the U.S. CPI: a 10% increase in the price of chicken or a 10% increase in the price of caviar? Why? Select one: a. a 10% increase in the price of chicken since chicken would be a greater component of the average consumer's market basket b. a 10% increase in the price of chicken since chicken has a more inelastic demand c. a 10% increase in the price of chicken since chicken is relatively inexpensive compared to caviar d. a 10% increase in the price of caviar since caviar is relatively expensive compared to chicken

a 10% increase in the price of chicken since chicken would be a greater component of the average consumer's market basket

Suppose Coca Cola creates a new marketing campaign which increases the costs for them to produce Coke. Suppose though that this new marketing campaign is unsuccessful, and increases the demand for Pepsi, while decreasing the demand for Coke. What are the predicted net effects in the market for Coke? a) an increase in the equilibrium price of Coke, while the effect on the equilibrium quantity of Coke is uncertain b) a decrease in the equilibrium price of Coke, while the effect on the equilibrium quantity of Coke is uncertain c) an increase in the equilibrium quantity of Coke, while the effect on the equilibrium price of Coke is uncertain d) a decrease in the equilibrium quantity of Coke, while the effect on the equilibrium price of Coke is uncertain

a decrease in the equilibrium quantity of Coke, while the effect on the equilibrium price of Coke is uncertain

Which of the following would tend to increase the demand for Food Lion Cola? Select one: a) an decrease in the price of Food Lion Cola b) a decrease in sugar, an ingredient used to produce Food Lion Cola c) a decrease in the price of Harris Teeter Cola, a substitute for Food Lion Cola d) a decrease in the income of consumers purchasing Food Lion Cola, assuming it is an inferior good

a decrease in the income of consumers purchasing Food Lion Cola, assuming it is an inferior good

Which of the following would tend to decrease the demand for Pepsi? a) a decrease in the price of Coke, assuming the goods are substitutes b) an increase in the price of sugar, an ingredient used to produce Pepsi c) an increase in the price of Pepsi d) an increase in the income of consumers purchasing Pepsi, assuming it is a normal good

a decrease in the price of Coke, assuming the goods are substitutes

What is the mechanism which causes efficiency in a free market? Select one: a) the president within that economy deciding on the best price b) the central bank within that economy deciding on the best price c) a dictator within that economy deciding the best price d) a free-flowing price within that economy decided by consumers and firms

a free-flowing price within that economy decided by consumers and firms

Deflation

a general decrease in prices

Inflation

a general increase in prices

Inferior Good

a good for which, other things equal, an increase in income leads to a decrease in demand

Normal Good

a good for which, other things equal, an increase in income leads to an increase in demand

Suppose our federal government wants to enact a tax that will cause a greater burden of expense to producers selling that good, than the burden of expense to consumers purchasing that good. Which would be optimal? a) a good with a relatively elastic demand, and relatively inelastic supply b) a good with a relatively inelastic demand, and relatively elastic supply c) both of the above d) neither of the above

a good with a relatively elastic demand, and relatively inelastic supply

Suppose our federal government wants to enact a tax that will cause a greater burden of expense to consumers purchasing that good, than the burden of expense to firms producing that good. Which would be optimal? Select one: a) a good with a relatively elastic demand, and relatively inelastic supply b) a good with a relatively inelastic demand, and relatively elastic supply c) both of the above d) neither of the above

a good with a relatively inelastic demand, and relatively elastic supply

Demand Curve

a graph of the relationship between the price of a good and the quantity demanded

Supply curve

a graph of the relationship between the price of a good and the quantity supplied

Production Possibilities Frontier

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology

Market

a group of buyers and sellers of a particular good or service

Competitive Market

a market in which there are many buyers and many sellers so that each has a negligible impact on the market price

Income elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income

Price elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price

cross-price elasticity of demand

a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good

Price elasticity of supply

a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

Elasticity

a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants

Which of the following is true regarding a monopoly? Select one: a. a monopoly is a socially efficient market structure since prices are maximized where MR=MC b. a monopoly is a socially inefficient market structure since the quantity in the market is too high and price too low c. a monopoly is a socially inefficient market structure since the quantity in the market is too high and price too high d. a monopoly is a socially inefficient market structure since the quantity in the market is too low and price too high

a monopoly is a socially inefficient market structure since the quantity in the market is too low and price too high

Which of the following would cause a shortage to exist in a market? a) a price floor set above the equilibrium price b) a price ceiling set above the equilibrium price c) a price floor set below the equilibrium price d) a price ceiling set below the equilibrium price

a price ceiling set below the equilibrium price

Which of the following would cause a surplus to exist in a market? Select one: a) a price floor set above the equilibrium price b) a price ceiling set above the equilibrium price c) a price floor set below the equilibrium price d) a price ceiling set below the equilibrium price

a price floor set above the equilibrium price

Surplus

a situation in which quantity supplied is greater than quantity demanded

Equilibrium

a situation in which the market price has reached the level at which quantity supplied equals quantity demanded

Demand Schedule

a table that shows the relationship between the price of a good and the quantity demanded

Supply schedule

a table that shows the relationship between the price of a good and the quantity supplied

A powerful hurricane hits the NC coast causing a temporary decrease in the supply of gas. In order to help consumers not experience higher temporary prices for gas, the government imposes a price ceiling. What will be the result? Select one: a) an efficient market where all consumers can purchase the gas they need b) a temporary shortage of gas c) a temporary surplus of gas d) consumers paying significantly higher prices at all gas stations with the temporary decrease in supply

a temporary shortage of gas

A significant long-run difference between monopoly and perfect competition is that Select one: a) there's free entry and exit in a perfectly competitive market, while barriers to entry exist in a monopolized market. b) the monopolist controls market supply, while the perfectly competitive firm's influence on market supply is imperceptible. c) the demand curve for the monopolist is the market demand curve, while the demand curve faced by the perfectly competitive firm is perfectly elastic. d) all of the above.

all of the above

If the economy is at its natural rate of unemployment, Select one: a. only those frictionally and structurally unemployed are without a job b. there is 0% cyclical unemployment c. the economy is at full employment d. all of the above

all of the above

Suppose in an hour's time, Canada can produce either 1 snowboard or 2 surfboards; Mexico can produce either 9 snowboards or 3 surfboards. Which of the following is true for both countries to gain from trade? a) Canada should import snowboards b) Mexico should export snowboards c) Canada should export surfboards d) all of the above

all of the above

Suppose you are a U.S. citizen living in North Carolina, and you purchase a Maserati produced in Italy. How does your purchase affect U.S. GDP? Select one: a. U.S. GDP will increase b. U.S. GDP will decrease c. U.S. GDP will be unchanged d. all of the above

all of the above

Which of the following can cause structural unemployment? Select one: a. programs to promote free trade b. an increase in the minimum wage c. efficiency wages d. all of the above

all of the above

Which of the following is an example of a government price control? Select one: a) price ceiling b) price floor c) price support d) all of the above

all of the above

Which of the following is an international institution devoted to promoting global economic growth? Select one: a. IMF b. World Bank c. GATT/WTO d. all of the above

all of the above

Which of the following is true? Select one: a. GDP = C + I + G + (exports-imports) b. GDP = C + S + T c. GDP is a measure of final goods and services produced within an economy d. all of the above

all of the above

Which of the following is true? Select one: a. The National Bureau of Economic Research is the agency which reports real GDP and when the economy is in an official recession b. The Bureau of Labor Statistics is the agency which reports the CPI and the inflation rate c. a recessionary economy is one where real GDP is declining d. all of the above

all of the above

Which of the following may lead to an increase in interest rates? Select one: a. an increase in the federal budget deficit b. an increase in investment spending c. a decrease in private savings d. all of the above

all of the above

Which of the following will promote economic growth within a nation? Select one: a. a policy to promote an increase in savings b. a policy to promote and protect patents and intellectual property c. a policy to promote general levels of health d. all of the above

all of the above

Why does a policy to promote free trade lead to economic growth? Select one: a. our trading partners use dollars obtained in the purchase of U.S. goods to invest in U.S. physical assets b. our trading partners use dollars obtained in the purchase of U.S. goods to invest in U.S. financial assets c. foreign direct investment and foreign portfolio investment into the U.S. leads to more jobs in the U.S. in addition to lower interest rates to incentivize further investment d. all of the above

all of the above

If the Federal Reserve increases the money supply, we would expect Select one: a. an increase in aggregate demand b. an increase in aggregate supply c. an increase in velocity d. all of the above

an increase in aggregate demand

Suppose that the number of firms in the market selling cookies increases. What effect would we predict in the market for cookies? Select one: a) an increase in demand b) a decrease in demand c) an increase in supply d) a decrease in supply

an increase in supply

Suppose Famous Amos decides to use Godiva brand chocolate chips in their cookies, increasing demand. Assume though that using Godiva brand chocolate chips increases the price to produce Famous Amos cookies. What are the net effects on the equilibrium price and quantity of Famous Amos cookies? Select one: a) an increase in the equilibrium price of cookies, while the effect on the equilibrium quantity of cookies is uncertain b) a decrease in the equilibrium price of cookies, while the effect on the equilibrium quantity of cookies is uncertain c) an increase in the equilibrium quantity of cookies, while the effect on the equilibrium price of cookies is uncertain d) a decrease in the equilibrium quantity of cookies, while the effect on the equilibrium price of cookies is uncertain

an increase in the equilibrium price of cookies, while the effect on the equilibrium quantity of cookies is uncertain

If the number of firms in the market selling cheese increases, we would likely expect a) an increase the price of cheese b) an increase the demand for cheese c) an increase in the quantity demanded for cheese d) all of the above

an increase in the quantity demanded for cheese

A firm is producing 10 units of output at a total cost of $100. The firm's fixed cost is $30. Which of the following is true? a) average total cost is $10 b) average fixed cost is $70 c) average variable cost is $30 d) average variable cost is $10

average total cost is $10

Suppose you operate a factory producing lawn mowers. Your current level of output is 1000 wrenches per week. Your weekly variable cost is $40,000. If your total cost is $100,000 per week, a) average variable cost of production is $80 b) average total cost of production is $60 c) average fixed cost of production is $60 d) average variable cost of production is $60

average variable cost of production is $60

Suppose you operate a factory producing wrenches. Your current level of output is 1000 wrenches per week. Your weekly fixed cost is $40,000. If your weekly total cost is $100,000, Select one: a) average variable cost of production is $80 b) average total cost of production is $60 c) average fixed cost of production is $60 d) average variable cost of production is $60

average variable cost of production is $60

The method used most often by the Federal Reserve to change the money supply is to __________, to influence _________, which is _________. Select one: a. change the discount rate, sales at major retailers, is most effective in increasing consumer spending b. change the reserve ratio, the amount of money available to banks, is most effective in making loans available to consumers c. buy and sell government securities in the open market, the federal funds rate, the interest rate on loans between banks d. lower taxes, consumer spending, effective in creating new jobs

buy and sell government securities in the open market, the federal funds rate, the interest rate on loans between banks

Positive statement

claims that attempt to describe the world as it is

Normative statement

claims that attempt to prescribe how the world should be

A production possibilities frontier that is a straight line indicates... a) constant costs of production b) increasing costs of production c) diminishing costs of production d) decreasing costs of production

constant cost of production

A production possibilities frontier that is a straight line indicates a) constant costs of production b) increasing costs of production c) diminishing costs of production d) decreasing costs of production

constant costs of production

Fixed costs

costs that do not vary with the quantity of output produced

Variable costs

costs that vary with the quantity of output produced

If the Federal Reserve would like to increase the money supply, it can ________ the reserve ratio, _______ the discount rate, or _______ government securities in the open market. Select one: a. increase, increase, sell b. increase, increase, purchase c. decrease, decrease, purchase d. decrease, decrease, sell

decrease, decrease, purchase

Suppose an economy is expanding with an increase of real GDP, while the Federal Reserve is holding the money supply constant. We most likely would expect Select one: a. inflation b. hyperinflation c. deflation d. unanticipated inflation

deflation

Price elasticity of zero on car tags means:

demand curve is vertical

An increase in the supply of a good will increase the total revenue producers receive if Select one: a) demand is inelastic b) demand is elastic c) demand is unit elastic d) demand is perfectly inelastic

demand is elastic

Suppose our federal government decides to reduce air pollution by reducing consumers' use of gas. In order to do this, they impose a tax on each gallon of gas sold. The tax will be more effective in reducing the use of gas by consumers if Select one: a) demand is inelastic b) demand is elastic c) demand is perfectly inelastic d) all of the above

demand is elastic

If a higher level of production allows workers to specialize in particular tasks and be more productive, a firm will likely exhibit __________ of scale, and _________ average total costs, Select one: a) economies, decreasing b) economies, rising c) diseconomies, decreasing d) diseconomies, rising

economies, decreasing

If the value of the price elasticity of supply is greater than 1, supply is ___________. If the elasticity of supply equals zero, supply is __________. Select one: a) elastic, perfectly inelastic b) elastic, perfectly elastic c) inelastic, perfectly inelastic d) inelastic, perfectly elastic

elastic, perfectly inelastic

Suppose the DeBeers company is a monopolist in its market to sell diamonds. Also suppose this year the company earns economic profits. This implies that the price of diamonds will Select one: a) be equal to the marginal cost of producing diamonds. b) be equal to the average cost of producing diamonds. c) exceed the marginal cost of producing diamonds, but be equal to the average cost of producing diamonds. d) exceed both the marginal cost and average cost of producing diamonds

exceed both the marginal cost and average cost of producing diamonds

The existence of economic losses in a perfectly competitive market induces firms to __________ the market, which shifts the market supply curve to the__________ and __________ market price. Select one: a) exit, left, increases b) enter, right, decreases c) enter, left, decreases d) enter, right, increases

exit, left, increases

A point inside the production possibilities frontier is... a) feasible but not efficient b) efficient but not feasible c) both feasible and efficient d) neither feasible nor efficient

feasible but not efficient

According to the theory of efficiency wages, Select one: a. firms may find it profitable to pay above-equilibrium wages b. all workers are unproductive c. sectoral shifts are the main source of frictional unemployment d. the collective bargaining process reduces the bargaining power of unions

firms may find it profitable to pay above-equilibrium wages

Average Fixed Cost (AFC)

fixed cost divided by the quantity of output

In recent decades Americans have increased their purchase of stocks in foreign-based companies. The Americans who bought these stocks were engaged in Select one: a. foreign portfolio investment b. foreign direct investment c. natural resources d. human capital

foreign portfolio investment

Imports

goods produced abroad and sold domestically

Exports

goods produced domestically and sold abroad

Suppose you take a job today in the financial industry earning an annual salary of $90,000. Also suppose your mom had that same job in the year 2000, earning $60,000 per year. If the CPI was 200 in the year 2000, and today's CPI is 300, which of the following is true? Select one: a. in real terms, your salary today is higher than your mom's 2000 salary b. in real terms, your salary today is lower than your mom's 2000 salary c. in real terms, your salary today is equal to your mom's 2000 salary d. none of the above

in real terms, your salary today is equal to your mom's 2000 salary

It is sometimes suggested that the Federal Reserve should try to achieve zero inflation. If we assume velocity is constant, how would the Federal Reserve best achieve a zero percent inflation rate according to the quantity theory of money? Select one: a. increase the money supply by 0% b. increase the money supply equal to the rate of velocity c. increase the money supply equal to the rate of real GDP growth d. increase the money supply equal to the real rate of interest

increase the money supply equal to the rate of real GDP growth

Suppose the government levies a tax on the market for avocados. Assuming a normal upward sloping supply curve and a normal downward sloping demand curve for avocados, the price for buyers will _______, price received by sellers will ______, and quantity sold will ______. Select one: a) increase, decrease, decrease b) increase, increase, decrease c) increase, increase, increase d) increase, decrease, increase

increase, decrease, decrease

Suppose the government decides the equilibrium wage for steel workers is too low, thus sets a minimum wage that is higher than the equilibrium wage. Using our analysis of supply and demand, what will be the result? Select one: a) a decrease in the supply curve for workers b) increased employment of steel workers c) a decrease in the demand curve for workers d) increased unemployment of steel workers

increased unemployment of steel workers

According to the quantity theory of money and the Fisher effect, if the central bank increases the rate of money growth, Select one: a. inflation and the nominal interest rate both increase b. inflation and the real interest rate both increase c. the nominal interest rate and the real interest rate both increase d. inflation, the real interest rate, and the nominal interest rate all increase

inflation and the nominal interest rate both increase

Implicit cost

input costs that do not require an outlay of money by the firm

Explicit cost

inputs costs that require an outlay of money by the firm

When a monopolist practices price discrimination Select one: a. it sets the price and quantity where market MR = MC b. it charges different consumers different prices for the same good c. it does not allow its good to be sold to certain undesirable groups d. it is selling a good at a point where P < MC

it charges different consumers different prices for the same good

Suppose a nation produces food and clothing. In terms of the nation's production possibilities frontier, assume clothing on the x-axis, food on the y-axis. If the production along the nation's production possibilities frontier exhibits increasing costs, a) it will have to give up an increasing amount of clothing in order to produce more food b) it will have to give up a decreasing amount of food in order to produce more clothing c) the production possibilities frontier will be a straight line d) all of the above

it will have to give up an increasing amount of clothing in order to produce more food

A competitive firm maximizes profit by choosing the quantity at which Select one: a) average total cost is at its minimum b) marginal cost equals price c) average total cost equals the price d) marginal cost equals average total cost

marginal cost equals price

A perfectly competitive firm's short-run supply curve is its _________ cost curve above its _________ cost curve. Select one: a) average total, marginal b) average variable, marginal c) marginal, average total d) marginal, average variable

marginal, average variable

Capital

money for investment

A price ceiling set above the equilibrium price causes Select one: a) a shortage b) a surplus c) no effect in the market d) an increase in supply

no effect in the market

A price ceiling set above the equilibrium price causes a) a shortage b) a surplus c) no effect in the market d) an increase in supply

no effect in the market

What do we call a good with an income elasticity that is positive? Select one: a) substitute b) complement c) normal d) inferior

normal

If lettuce and olives have a cross elasticity of -3, and the price of lettuce increases by 10%, we would predict Select one: a) olive sales to increase by 30% as the two goods are complements b) olive sales to decrease by 30% as the two goods are substitutes c) olive sales to increase by 30% as the two goods are substitutes d) olive sales to decrease by 30% as the two goods are complements

olive sales to decrease by 30% as the two goods are complements

If a perfectly competitive market is one of constant costs, this implies the long run market supply curve is Select one: a) upward sloping b) downward sloping c) perfectly elastic d) perfectly inelastic

perfectly elastic

Suppose consumers will buy the same amount of a good no matter what the price, The demand curve is a vertical line. The price elasticity of demand for this particular good would be a) perfectly elastic b) perfectly inelastic c) unit elastic d -1.0

perfectly inelastic

List the four determinants of labor productivity. Select one: a. physical capital per worker, human capital per worker, natural resources per worker, technological knowledge per worker b. physical capital per worker, portfolio investment per worker, natural resources per worker, technological knowledge per worker c. physical capital per worker, human capital per worker, natural resources per worker, direct investment per worker d. physical capital per worker, human capital per worker, natural resources per worker, infrastucture per worker

physical capital per worker, human capital per worker, natural resources per worker, technological knowledge per worker

Free trade between the U.S. and Mexico will allow consumers in both countries to consume more goods. This is a... a) false statement b) normative statement c) positive statement d) all of the above

positive statement

Suppose the pretzel market is perfectly competitive and in its long run equilibrium. If then there is a new process that reduces the costs for each firm in the industry, short run economic profits will be _________, though in the long run economic profit will be _____ as firms _______ the industry. Select one: a) negative, zero, exit b) zero, positive, enter c) positive, positive, neither enter or exit d) positive, zero, enter

positive, zero, enter

If the federal government collects more in tax revenue than it spends, and households consume more than they receive in disposable income, then Select one: a. private and public saving are both positive b. private and public saving are both negative c. private saving is positive, but public saving is negative d. private saving is negative, but public saving is positive

private saving is negative, but public saving is positive

Suppose a nation produces food and clothing. In terms of the nation's production possibilities frontier, assume clothing on the x-axis, food on the y-axis. If part of the labor force becomes unemployed and sits at home instead of producing food and clothings, this will be best illustrated by a) the production possibilities frontier shifting out along both axes b) the production possibilities frontier shifting in along both axes c) production to be at a point inside the production possibilities frontier d) production to be at a point outside the production possibilities frontier

production to be at a point inside the production possibilities frontier

Consider the production possibilities frontier for an economy that produces only cookies and ice cream, and assume production currently occurs at a point somewhere on the economy's production possibilities frontier. If a discovery of the remarkable health benefits of ice cream changes consumers preferences, we would expect, a) production to be at a point inside the production possibilities frontier b) production to move to a different point on the production possibilities frontier c) the production possibilities frontier to shift outward d) the production possibilities frontier to shift inward

production to move to a different point on the production possibilities frontier

Consider the production possibilities frontier for an economy that produces only cookies and ice cream, and assume production currently occurs at a point somewhere on the economy's production possibilities frontier. If a discovery of the remarkable health benefits of ice cream changes consumers preferences, we would expect... a) production to be at a point inside the production possibilities frontier b) production to move to a different point on the production possibilities frontier c) the production possibilities frontier to shift outward d) the production possibilities frontier to shift inward

production to move to a different point on the production possibilities frontier

A minimum wage is likely to cause unemployment if a) set above the equilibrium wage b) set below the equilibrium wage c) set equal to the equilibrium wage d) all of the above

set above the equilibrium wage

Financial markets and financial intermediaries are different types of financial institutions. Two types of financial markets are ______ and ______, two types of financial intermediaries are ______ and _______ Select one: a. stock market and bond market, banks and mutual funds b. banks and mutual funds, stock market and bond market c. securities and exchange, stocks and bonds d. stocks and bonds, securities and exchange

stock market and bond market, banks and mutual funds

If a popular show on personal finance convinces Americans to save more for retirement, the ______ curve for loanable funds would shift, driving the equilibrium interest rate ______. Select one: a. supply, up b. supply, down c. demand, up d. demand, down

supply, down

Because consumers can sometimes substitute cheaper goods for those that have risen in price, Select one: a. the CPI can slightly overvalue inflation b. the CPI can slightly undervalue inflation c. the GDP deflator can slightly overvalue inflation d. the GDP deflator can slightly undervalue deflation

the CPI can slightly overvalue inflation

If the price of imported French wine rises, is the CPI or GDP deflator in the U.S. affected more? Why? Select one: a. the GDP deflator since consumers may not drink imported wine b. the GDP deflator since it is a part of net exports c. the GDP deflator since it is a part of investment spending d. the CPI since it would not be a part of the GDP deflator- imported goods are not included in GDP

the CPI since it would not be a part of the GDP deflator- imported goods are not included in GDP

Absolute Advantages

the ability to produce a good using fewer inputs another producer

Total Revenue (TR)

the amount a firm receives for the sale of its output

Quantity Demand

the amount of a good that buyers are willing and able to purchase

Quantity supplied

the amount of a good that sellers are willing and able to sell

Total Revenue

the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold

If the government attempts to break up a natural monopoly to enforce competition in a market, Select one: a. the average cost of producing the good will increase. b. the smallest firm will have a significant cost advantage over the larger, less efficient firms. c. the average cost of producing the good will decrease. d. the price paid by consumers will be expected to remain the same.

the average cost of producing the good will increase.

Law of supply and demand

the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

Law of Demand

the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises

Law of Supply

the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises

Suppose the cross elasticity of demand between good A and good B is -2.5. If the price of good A rises, what would be expected to happen in the market for good B? a) the equilibrium price for good B would be expected to increase, while its quantity demand increases b) the equilibrium price for good B would be expected to decrease, while its quantity demand increases c) the equilibrium price for good B would be expected to decrease, while its quantity demand decreases d) the equilibrium price for good B would be expected to increase, while its quantity demand decreases

the equilibrium price for good B would be expected to decrease, while its quantity demand decreases

Suppose that hotdogs and hotdog buns are complements. If the price rises for hotdogs, what effect do we predict in the market for hotdog buns? Select one: a) the equilibrium price of hotdog buns will be lower, the equilibrium quantity of hotdog buns will be higher b) the equilibrium price of hotdog buns will be lower, the equilibrium quantity of hotdog buns will be lower c) the equilibrium price of hotdog buns will be higher, the equilibrium quantity of hotdog buns will be higher d) the equilibrium price of hotdog buns will be higher, the equilibrium quantity of hotdog buns will be lower

the equilibrium price of hotdog buns will be lower, the equilibrium quantity of hotdog buns will be lower

marginal product

the increase in output that arises from an additional unit of input

Marginal cost

the increase in total cost that arises from an extra unit of production

Tax incidence

the manner in which the burden of a tax is shared among participants in a market

Total Cost (TC)

the market value of the inputs a firm uses in production

A change in which of the following will NOT shift the demand curve for Coke? Select one: a) the price of Pepsi b) the price of Coke c) the income of consumers purchasing Coke d) the price of snacks purchased along with Coke

the price of Coke

A change in which of the following will NOT shift the demand curve for Coke? a) the price of Pepsi b) the price of Coke c) the income of consumers purchasing Coke d) the price of snacks purchased along with Coke

the price of Coke

Suppose the market for building new homes is perfectly competitive and one of constant costs. If the demand for new homes increases, Select one: a) the price to build a new home will go up in the short run and the long run b) the price to build a new home will go up in the short run, but not in the long run c) the price to build a new home will go up in the short run, but go down in the long run d) the price to build a new home will go down in the short run and the long run

the price to build a new home will go up in the short run, but not in the long run

Suppose a nation produces food and clothing. In terms of the nation's production possibilities frontier, assume clothing on the x-axis, food on the y-axis. If a hurricane destroys a portion of the nation's ability to produce food, but does not affect the production of clothing, this will best be illustrated by a) the production possibilities frontier shifting in only along the y-axis b) the production possibilities frontier shifting in along both axes c) production to be at a point inside the production possibilities frontier d) production to be at a point outside the production possibilities frontier

the production possibilities frontier shifting in only along the y-axis

Suppose a nation produces food and clothing. In terms of the nation's production possibilities frontier, assume clothing on the x-axis, food on the y-axis. An increase in immigration leading to an increase in the labor force would be illustrated by... a) the production possibilities frontier shifting out along both axes b) the production possibilities frontier shifting in along both axes c) the production possibilities frontier shifting out only along the y-axis d) the production possibilities frontier shifting out only along the x-axis

the production possibilities frontier shifting out along both axes

Economies of scale

the property whereby long-run average total cost falls as the quantity of output increases

Diseconomies of scale

the property whereby long-run average total cost rises as the quantity of output increases

Constant returns to scale

the property whereby long-run average total cost stays the same as the quantity of output changes

Diminishing Marginal Product

the property whereby the marginal product of an input declines as the quantity of the input increases

Efficient scale

the quantity of output that minimizes average total cost

Equilibrium quantity

the quantity supplied and the quantity demanded at the equilibrium price

The discount rate is Select one: a. the rate of interest on loans between banks b. the rate of interest on loans from the Federal Reserve to banks c. the rate of interest banks charge their prime customers d. the rate of interest banks charge to customers purchasing multiple loans

the rate of interest on loans from the Federal Reserve to banks

Production Function

the relationship between quantity of inputs used to make a good and the quantity of output of that good

Macroeconomics

the study of economy-wide phenomena, including inflation, unemployment, and economic growth

Microeconomics

the study of how households and firms make decisions and how they interact in markets

Assume the U.S. is considering to spend an additional $10 billion on national defense. Also assume the U.S. is considering to spend additional money hiring new teachers as $10 billion could purchase 2,500 teachers for the next 50 years at a salary of $80,000 per year. If the U.S. decides to spend an additional $10 billion on national defense, what is the opportunity cost of that decision? a) $10 billion b) $80,000 c) the value of new weapons, assuming the $10 billion in national defense spending was spent on new weapons d) the value of 2,500 teachers for the next 50 years at a salary of $80,000 per year

the value of 2,500 teachers for the next 50 years at a salary of $80,000 per year

Suppose that the price of good A increasing causes the demand for good B to increase. What do we know about these goods? Select one: a) these goods are both inferior goods b) these goods are both normal goods c) these goods are complements d) these goods are substitutes

these goods are substitutes

Suppose that the price of good A increasing causes the demand for good B to increase. What do we know about these goods? a) these goods are both inferior goods b) these goods are both normal goods c) these goods are complements d) these goods are substitutes

these goods are substitutes

When two countries produce efficiently and then make a mutually beneficial trade based on comparative advantage... a) each consumes at a point on their own production possibilities frontier b) one consumes inside their production possibilities frontier, while the other consumes outside theirs c) they both consume inside their production possibilities frontier d) they both consume outside their production possibilities frontier

they both consume outside their production possibilities frontier

Suppose a Japanese company opens a factory in South Korea Select one: a. this is an example of foreign direct investment and will lead to increased GDP in South Korea b. this is an example of foreign direct investment and will lead to increased GDP in Japan c. this is an example of foreign portfolio investment and will lead to increased GDP in South Korea d. this is an example of foreign portfolio investment and will lead to increased GDP in Japan

this is an example of foreign direct investment and will lead to increased GDP in South Korea

Which goods will a nation typically import? a) those goods in which the nation has an absolute advantage b) those goods in which the nation has a comparative advantage c) those goods in which other nations have an absolute advantage d) those goods in which other nations have a comparative advantage

those goods in which other nations have a comparative advantage

Which goods will a nation typically import? a) those goods in which the nation has an absolute advantage b) those goods in which the nation has a comparative advantage c) those goods in which other nations have an absolute advantage d) those goods in which other nations have a comparative advantage

those goods in which other nations have a comparative advantage

Average Total Cost (ATC)

total costs divided by quantity of output

Profit

total revenue - total cost

Economic Profit

total revenue minus total cost, including both explicit and implicit costs

Accounting Profit

total revenue minus total explicit cost

Complements

two goods for which an increase in the price of one leads to a decrease in the demand for the other

Substitutes

two goods for which an increase in the price of one leads to an increase in the demand for the other

If the cross elasticity of demand between pencils and laptops is 0, then the two goods are Select one: a) inferior b) substitutes c) unrelated d) complements

unrelated

If the cross elasticity of demand between pencils and laptops is 0, then the two goods are a) inferior b) substitutes c) unrelated d) complements

unrelated

Average Variable Cost (AVC)

variable cost divided by the quantity of output

Does a college education increase productivity? If so, why? Select one: a. no, it is a form of private investment b. no, it is a form of consumer spending c. yes, it leads to an increase in natural resources d. yes, it leads to an increase in human capital

yes, it leads to an increase in human capital