ECO 201 EXAM 1
The equilibrium price and quantity in the above diagram for a good/service, under perfect competition, occur at a price of:
$150 and a quantity of 300 units.
If the real GDP of a country, for example, Malaysia, has increased from $100 Billion last year to $105 Billion this year, then this country's economic growth is:
5 percent.
If buyers expect the price of baseballs to fall in the future, then right now (currently) there should be:
A decrease in the demand for baseballs.
Ceteris paribus, which of the following is most likely to cause an increase in the quantity demanded of candles?
A decrease in the price of candles.
Ceteris paribus, if the price of a digital camera rises, then we can expect: HINT: a change (rise or fall) in the current price of "X" is the only variable that, when changes, will not shift the demand curve or supply curve. The demand curve or the supply curve will remain the same. Any variable, other than the current price of "X" will shift the demand curve or supply cure, either to the right (increase) or left (decrease).
A decrease in the quantity demanded of digital cameras (movement along the same curve).
Decreasing the level of a subsidy (a supply curve shifter!) to an industry by the government would result in:
A leftward shift of the supply curve.
Imposing a tax on an industry by the government would result in:
A leftward shift of the supply curve.
Ceteris paribus, if the price of basketballs rises, then we will see:
A movement to the left along the same demand curve for basketballs.
A legally mandated minimum wage is an example of:
A price floor.
Assuming Coca-Cola & Pepsi-Cola are substitute goods, the effect of an increase in the price of Coca-Cola would cause which of the following:
A rightward shift in the demand curve for Pepsi-Cola.
Decreasing a tax on an industry by the government would result in:
A rightward shift of the supply curve.
If a price ceiling of $100 was in effect in the above figure (chapter 4!):
A shortage of 200 units would occur.
Which of the following events would cause a rightward shift in the market supply curve for automobiles?
A technological improvement which reduces the cost of production.
Suppose a hurricane hits Florida causing widespread damage to houses and businesses. The governor of Florida places a price ceiling on all building materials to keep the prices reasonable. Which of the following is the most likely result?
All of the above would probably result.. shortage of building materials, a slower recovery from the storm, and long lines at lumber stores.
Many student government candidates at colleges and universities propose "rent controls" on local rental housing as a way to help students afford rental housing. Economic theory suggests that this policy would harm students as a whole despite the fact that some students who are able to find housing at the reduced price would benefit. Which of the following are some of the offsetting secondary effects of the rent controls that would work to the disadvantage of students?
All of these would be secondary effects of the rent controls.
Which of the following would generally cause an increase in the demand for automobiles (outward shift in the demand curve or a shift to the right in the demand curve)? HINT, once again!! for the remaining questions: any variable other than the current price of "X" will shift the demand curve AND the supply curve either to the right (increase) OR to the left (decrease). The demand curve or the supply curve will not remain the same!!
An increase in consumers' income.
Assume Pepsi and Coke are substitutes. An increase in the price of one will result in:
An increase in the demand for the other (the demand curve shifts to the right).
Peanut butter & jelly are complements. A decrease in the price of one will result in:
An increase in the demand for the other.
Which of the following is most likely to cause an increase in the quantity supplied of candles (movement along the same curve)?
An increase in the price of candles.
Ceteris paribus, if the price of Swiss cheese falls, then we will see:
An increase in the quantity demanded of Swiss cheese (downward movement along the same demand curve).
Externalities:
Are the external costs and/or external benefits of market activities that "spill over" onto third parties.
Which of the following would be included in the government expenditures component "G"?. Remember, G excludes "transfer payments"
Construction costs of a new public school building.
When an individual makes repairs to her own home (ignore the purchase of construction materials!) instead of hiring a company to make the repairs, the activity is:
Excluded from GDP because it is a nonmarket activity.
T/F A decrease in the price of personal computers would shift the demand curve for personal computers to the right (increase in demand).
F
After a major snowstorm last winter, some college students earned extra money by clearing driveways of snow for $25. Town officials determined that $25 was too high and set a "price ceiling" of $15 for this service. Which of the following was the most likely result?
Fewer driveways were cleared (a shortage of the service because of a price ceiling policy).
All final goods and services that make up the GDP of a country, for example, India, can be expressed in the form:
GDP = C + I + G + (X - M)
Assuming the demand curve for new automobiles in the U.S. shifts outward (because of a change in one of the demand curve shifters, say, an increase in consumers' income). And the supply curve remains the same (doesn't shift). Which of the following would be the correct outcome?
Higher equilibrium price and higher equilibrium quantity.
Assuming the global demand curve for air travel shifts to the right because of one of the demand curve shifters, say, an increase in consumers' income in the less developed countries. And the supply curve shifts outward too (because of a change in one of the supply curve shifters, for instance, the commercial aircraft industry has become more efficient). Assume further that the shift in the demand curve is wider than the shift in the supply curve (or the shift in the supply curve is narrower than the shift in the demand curve). Which of the following would be the correct outcome?
Higher equilibrium price and higher equilibrium quantity.
Assuming there is an increase in the demand for housing (the demand curve shifts to the right or outward shift). Also, assuming there is a decrease in the supply of housing (the supply curve shifts to the left or inward shift). Assume further that the shifts in both curves are not determined (which means the shift in the demand curve could be wider than the shift in the supply curve, vice versa, or both shifts could be the same). Which of the following would be a certain outcome in the housing market? See answer on the following page!!
Higher equilibrium price.
Assuming the demand curve for orange juice shifts to the right (increase in demand), also, assuming the supply curve for orange juice shifts to the right (increase in supply). Assume further that the shifts in both curves are not determined (which means the shift in the demand curve could be wider than the shift in the supply curve, vice versa, or both shifts could be the same). Which of the following would be a certain outcome in the market for orange juice?
Higher equilibrium quantity.
If Good X is a public good, then:
If it is consumed by one person, it can also be consumed by another person.
According to the law of demand, the quantity of a good demanded in a given time period:
Increases as its price falls, ceteris paribus.
Net exports (X-M) of a country, say, Germany:
Is equal to total exports minus total imports.
Leather sold to a furniture manufacturer is excluded from the calculation of GDP because:
It is an intermediate good. It is an input in the production of the final product. Its value will be included in the price of the final good (the furniture).
Assuming the demand curve for orange juice in the U.S. remains the same (doesn't shift) and the supply curve shifts to the right (an outward shift or an increase in supply) due to the use of advanced technology (which is one of the supply curve shifters, right!!) by the orange growers in Florida & California. Which of the following would be the correct outcome?
Lower equilibrium price and higher equilibrium quantity.
An increase in the price of a good causes a:
Movement up along the same supply curve.
On a supply-and-demand diagram, quantity demanded equals quantity supplied:
Only at the single (one) equilibrium point.
Disposable personal income equals:
Personal income minus personal income/property taxes.
If the quantity demanded of a good is greater than the quantity supplied of the good at the current price, then, in the long run (remember! without govt. intervention/interference in this market),
Price will increase until it reaches the equilibrium price.
Which of the following activities would be calculated as part of GDP accounts?
Purchasing plastic surgery.
Assume that a computer is a normal good. An increase in consumer income would:
Shift the demand curve for computers to the right.
GDP does count:
State and local government spending. Spending for new homes.
There are two universities, A and B, in Michigan. Tuition rises at University A and, as a result, the demand for attending University B rises. It follows that educational services at the two universities are:
Substitutes.
T/F There are never shortages or surpluses when the price in a market is equal to the equilibrium price for the market.
T
T/F As one moves down the demand curve for carrots, the quantity demanded for carrots increases and the price of carrots decreases.
T
T/F When the number of buyers in a market changes, the market-demand curve for goods and services shifts.
T
If there is a surplus at a given price, then:
That price is greater than the equilibrium price.
If there are only two airlines that fly between Dallas and New Orleans, what will happen in the market for one airline if the other one goes out of business?
The demand curve will shift to the right (an increase in demand)
Assuming the global demand curve for gas shifts to the left (decease in demand). Also, assuming the global supply curve for gas shifts to the right (increase in supply). Assume further that the shifts in both curves are not determined (which means the shift in the demand curve could be wider than the shift in the supply curve, vice versa, or both shifts could be the same). Which of the following would be a certain outcome in the world market for gas? See answer on the following page!!
The price decreases but the change in the quantity cannot be determined (which means the quantity could increase, decrease, or remain the same).
Which of the following can change without shifting either demand or supply curves,
The price of the good itself.
If corn and wheat are alternative pursuits for a farmer, a change in the supply of corn will take place when:
The price of wheat changes.
The market will overproduce goods that have external costs (negative externality) because:
The producers experience lower costs of production.
Assuming the demand curve for the U.S. automobiles shifts to the left (decease in demand). Also, assuming the supply curve for automobiles shifts to the left (decrease in supply). Assume further that the shifts in both curves are not determined (which means the shift in the demand curve could be wider than the shift in the supply curve, vice versa, or both shifts could be the same). Which of the following would be a certain outcome in the market for automobiles in the U.S.? Again, this is a three-diagram scenario!! See ans on the following page!!
The quantity decreases but the change in the price cannot be determined (which means the price may increase, decrease, or remain the same).
Suppose both the demand and supply of peaches in a local/national/global market decrease (although not necessarily by the same amount). What can we conclude about changes in the price and quantity of peaches?
The quantity decreases but the change in the price cannot be determined.
Given a downward-sloping market demand curve for web design services, if the price of web design services is decreased from $12 per hour to $9 per hour, then:
The quantity demanded of web design services will increase.
Assuming the demand curve for orange juice shifts to the right (increase in demand). Also, assuming the supply curve for orange juice shifts to the right (increase in supply). Assume further that the shifts in both curves are not determined (which means the shift in the demand curve could be wider than the shift in the supply curve, vice versa, or both shifts could be the same). Which of the following would be a certain outcome in the market for orange juice? It's a three-diagram scenario when both curves shift and the shifts are not determined!! See answer on the following page!!
The quantity increases but the change in the price cannot be determined (which means the price could increase, decrease, or remain the same).
Suppose both the demand and supply of crude oil, in the world oil market/industry increase (although not necessarily by the same amount...a three-diagram scenario!!). What can we conclude about changes in the price and quantity of this commodity?
The quantity increases but the change in the price cannot be determined.
Using the above diagram, at a price of $50:
The quantity supplied is 100 units.
In the above graph for a commodity, say, corn, under a perfectly competitive market structure, at a price of $250:
The quantity supplied is greater than the quantity demanded.
In most markets, the equilibrium price is achieved:
Through trial and error.
The law of supply states that when the price of a commodity rises, the quantity supplied of that commodity rises too and vice versa, ceteris paribus, which means that:
Two variables are changing and everything else is being held constant.
If the economy relies entirely on the market mechanism, then, it tends to:
Underproduce goods that yield external benefits and overproduce those that generate external costs.
A decrease in quantity demanded (not shifting the demand curve) is given as a (n):
Upward movement along the demand curve.
person who has given up searching for work is called:
a discouraged worker.
Which one of the following persons in the U.S. would be considered frictionally unemployed?
a person who has left one job & is expected to be reemployed within the next two/three weeks.
Which of the following represents a positive economics statement?
a very higher income tax rate will reduce the amount of time that people spend working. It will also lead to a higher level of underground economy.
When economists use the term Ceteris paribus, they are indicating that:
all other variables except the ones specified for analysis are assumed to remain unchanged.
Human wants:
are unlimited
A tractor is an example of which of the following factors of production?
capital.
Which of the following is the best example of a nonrenewable resource?
crude oil or natural gas.
Disposable personal income:
excludes personal income taxes.
Sarah, a new Ph.D. in economics, has turned down many job offers because she hopes eventually (within the next three/four weeks) to teach at a college of her choice in the field. The type of unemployment she is experiencing is:
frictional
Unemployment that is of a short duration to allow time to find a new job is:
frictional unemployment.
If Good X has a social supply curve that is less than the market supply curve, then Good X must be a:
good with an external cost
GDP excludes:
government transfer payments/public transfer payments such as unemployment compensation checks (cash payments) and food stamps (in-kind payments). private transfer payments such as buying/selling bonds/stocks. underground economy
When the net exports (X-M) of a country, say, the U.S., are negative (deficit in international trade),
imports are greater than exports.
Statistics show that an increase in the federal minimum wage causes an increase in unemployment among teenagers:
is a positive economics statement
Scarcity:
is a problem that exists in every economy.
Which of the following is a resource or factor of production?
land, labor, entrepreneurship and capital
The lower portion of the simple circular flow model/diagram of a country, say, Spain, contains factor markets/resource markets in which households provide businesses/business firms with:
land, labor, entrepreneurship, and capital.
The branch of economics that focuses on decision making for the economy as a whole is called:
macroeconomics
In an economy, for example, Argentina, with persistent high-inflation over a longer period of time,
nominal GDP will grow faster than real GDP.
Gross domestic product (GDP) of a country, say, Mexico, includes:
only final goods and services.
An economic theory claims that a rise in gasoline prices will cause gasoline purchases to fall, Ceteris paribus. The phrase "Ceteris paribus" means that:
other relevant factors like consumer incomes, population, etc. must be held constant.
Which of the following groups of people in the U.S. are members of the labor force?
people over 16 years of age who are employed or seeking employment.
The statement, "Violent crime (statistics show) has decreased in the last five years," is:
positive because it is testable
The U.S. gross domestic product (GDP), during a specified period of time, is equal to the market value of all final goods and services:
produced within America by the resources owned by Americans as well as foreigners.
Based on the simple circular flow model/diagram, money (payments for final goods/services) flows from households to businesses in:
product markets.
Retained earnings of a company/corporation, for example, Sony Electronics, are the:
profits of the company reinvested (invested back) in the company.
Economic growth of a country, say, China, is measured by the annual percentage increase in a nation's level of:
real GDP.
The period of declining growth in the real GDP of a country between the peak of a business cycle and the trough is called a(n):
recessionary phase.
The period of growth in real GDP between the trough of the business cycle and the next peak is called the:
recovery or expansionary phase.
An indirect business tax is a(n):
sales tax, excise tax, and license fee
In a dynamic economy, such as the U.S. economy, under ideal conditions:
some unemployment would be present due to workers temporarily being out of work, for example, while changing jobs.
Which of the following is the best example of a microeconomic topic?
the analysis of Ford Motors' competitiveness in the automobile industry.
Which of the following would NOT be included in the government expenditures (G) category of GDP?
the payments made to Social Security recipients.
Which of the following expenditures would be included in the GDP of a country, for example, Australia, for this year?
the purchase of a new car.
Net exports (X-M) of a country, for instance, Brazil:
total exports minus total imports.
Payments by a government (such as unemployment compensation or social security) to individuals/ households NOT in exchange for goods and services currently produced are:
transfer payments.
The unemployment rate in a country, say, South Africa, equals the number of persons:
unemployed divided by the number in the labor force.