ECON 202 Midterm Study Review
final goods
goods sold to final users
intermediate goods
goods that firms repackage or bundle with other goods for sale at a later stage
circular flow
how resources and final goods and services flow through the economy
menu costs
the costs of changing prices
inflation
the growth in the overall level of prices in an economy
the law of demand
the idea that all other things being equal, quantity demanded falls when the price rises, and rises when the price falls
law of supply
the idea that all other things being equal, the quantity supplied of a good rises when the price of the good rises, and falls when the price of the good falls
the law of supply and demand
the idea that the market price of any good will adjust to bring the quantity supplied and the quantity demanded into balance
gross domestic product (GDP)
the market value of all final goods and services produced within a country during a specific period (typically a year)
real wage
the nominal wage adjusted for change in the price level
full-employment output
the output level produced in an economy when the unemployment rate is equal to the natural rate (also known as potential output or potential GDP)
gross national product (GNP)
the output produced by workers and resources owned by residents of the nation
economic growth
the percentage change in real per capita GDP
unemployment rate
the percentage of the labor force that is unemployed
labor force participation rate
the percentage of the work-eligible population that is in the labor force
equilibrium
the point where the demand curve and the supply curve intersect
equilibrium price
the price ay which the quantity supplied is equal to the quantity demanded (also know as the market-clearing price)
output
the product that the firms creates
consumption
the purchase of final goods and services by households, excluding new housing
shoe-leather cost
the resources that are wasted when people change their behavior to avoid holding money
comparative advantage
the situation where an individual, business, or country can produce at a lower opportunity cost than a competitor can
economics
the study of how individuals and societies allocate their limited resources to satisfy their practically unlimited wants
macroeconomics
the study of the overall aspects and workings of an economy, such as inflation, growth, employment, interest rates, and the productivity of the economy as a whole
market demand
the sum of all the individual quantities demanded by each buyer in the market at each price
natural rate of unemployment
the typical unemployment rate that occurs when the economy is growing normally
purchasing power
the value of you income expressed in terms of how much you can afford
trade
the voluntary exchange of goods and services between two or more parties
discouraged workers
those who are not working, have looked for a job in the past12 months and are willing to work, but have not sought employment in the past 4 weeks
underemployed workers
those who have part-time jobs but who would prefer to work full time
net exports
total exports of final goods and services minus total imports of final goods and services
substitutes
two goods that are used in place of each other. When the price of substitute good rises, the quantity demanded of that good falls and the demand for the related good goes up
complements
two goods that are used together. When the price of a complementary good rises, the demand for the related good goes down
frictional unemployment
unemployment cause by delays in matching available jobs and workers
structural unemployment
unemployment caused by changes in the industrial makeup (structure) of the economy
Opportunity cost for: Taking a week long trip to Italy
using the funds for something else
Opportunity cost for: Starting an easy store
using the money spent on supplies and shipping to buy other things
Opportunity cost for: taking this class
watching tv sleeping playing video games
monopoly
when a single company supplies the entire market for a particular good or service
unemployment
when a worker who is not currently employed is searching for a job without success
double coincidence of wants
when each party in an exchange transaction has what the other party desires
deflation
when overall prices fall
money illusion
when people interpret nominal changes in wages or prices as real changes
creative destruction
when the introduction of new products and technologies leads to the end of the other industries and jobs
surplus
when the quantity supplied is greater than the quantity demanded (a surplus is also called excess supply)
shortage
when the quantity supplied is less than the quantity demanded (a shortage is also called excess demand)
What are some examples of the trade-offs associated with attending college?
- Having a paying job waiting for you directly after graduating high school -Taking over a family business
Which of the following would be included in U.S. GDP? a.the sale of a song written by a Californian to a customer in Kansas b.the sale of bolts to Ford that are used on the wheels of the vehicles they sell c.the sale of 1,000 shares of IBM stock d.the sale of an antique car at an auction
A: A song that is sold is considered a sale of a good. It is included in the U.S. GDP. Bolts to be used in wheels would be considered an intermediate good, so they are not included in GDP, since the value of the wheel assemblies will be included in the final market value of the vehicle. The sale of financial assets is not included in GDP either. Finally, the sale of a used good such as an antique car is not counted, because the good's value was already counted when the good was sold as new.
Scarcity refers to the __________ nature of society's resources. a.limited b.unlimited c.sometimes limited and sometimes unlimited d.destructive
A: Even the most abundant physical resources, like the water we drink and the air we breathe, are finite. A cup of water or breath of air can only be putto one use, such as farming or washing, at a time. Scarcity refers to the limited nature of society's resources.
Which of the following can lower the level of frictional unemployment over time? a.an increase in the number of online job search engines b.stringent government labor market regulations c.an increase in the level of unemployment benefits
A: Frictional unemployment occurs because of delays in matching workers to jobs. With more online job search engines, workers and employers will find each other more quickly. This will lower the level of frictional unemployment.
Gross Domestic Product (GDP) is the total market value of all a.final goods and services produced annually within a country's borders. b.final and intermediate goods and services produced annually within a country's borders. c.intermediate goods and services produced annually within a country's borders. d.final goods and services produced every month within a country's borders.
A: Gross domestic product (GDP) is the market value of all final goods and services produced within a nation during a specific period of time--typically a year. GDP is the primary measureof a nation's output: it is the sum of all the output from coffee shops, doctors' offices, software firms, fast-food restaurants, and all other firms that produce goods and services within a nation's borders.
Which of these statements about GDP is NOT true? a.GDP is the output produced by workers and resources owned by residents of a nation. b.Money received for services is included in GDP. c.GDP is calculated using market values. d.GDP does not include all goods, just final ones.
A: It is Gross National Product and not Gross Domestic Product that measures the output produced by workers and resources owned by residents of a nation. Services are included in GDP, GDP is indeed calculated using market values, and only final goods are counted.
McDonald's charged $5.30 for its Big Mac burger in 2018. If the CPI in 2018 was 252 and the CPI in 2012 was 229, what was the 2018 price of a Big Mac in 2012 dollars? a.$4.82 b.$5.83 c.$3.84 d.$4.18
A: Price in earlier dollars = new price × (earlier price level ÷ new price level). Thus the price of the Big Mac in 2012 dollars can be calculated as $5.30 × (229 ÷ 252) = $4.82.
Which of the following is the largest component of GDP? a.consumer spending b.investment spending c.government spending d.net exports
A: Spending by households and firms on consumable goods and services far exceeds spending by the government or spending by firms on tools, plants, and equipment.
Technological advancements in online banking have led to its widespread use. As a result, many bank tellers have become unemployed. This is an example of ________ unemployment. a.structural b.frictional c.cyclical d.normal
A: Structural unemployment is caused by changes in the industrial make-up or structure of the economy. Technological advancements in online banking have made the jobs of many bank tellers obsolete.
Refer to the following graph. The demand curve slopes downward because a.prices and quantity demanded move in opposite directions. b.prices and quantity demanded move in the same direction. c.prices and quantity demanded have no relationship. d.prices and quantity demanded remain unchanged.
A: The demand curve is a graph of the relationship between the prices on the demand schedule and the quantity demanded at those prices. Because prices and quantity demanded move in opposite directions, the demand curve slopes downward.
A person is unemployed if he a.is a member of the civilian labor force, out of work, and actively seeking work. b.is 15 years old and seeking his first job. c.is out of work, available for work, but not actively seeking work.
A: The government counts somebody in the official statistics as unemployed if they are work eligible and not working but actively seeking work. Children under the age of 16 would not be counted as unemployed, because they are not work eligible.
According to the law of supply, what is the relationship between price and quantity supplied? a.direct b.no relationship c.inverse d.It depends on the change in price.
A: The law of supply states that, all other things being equal, quantity supplied rises when prices rise, and quantity supplied falls when prices fall.
Gas prices typically rise every summer as more people travel during the summer months. If the economy is in a recession and your friend tells you that gas prices will still rise during the summer months, which of the following is true? a.Your friend may be correct, since gas prices can be increasing owing to inflation. b.Your friend is probably wrong, since gas prices on average are stable. c.Your friend is definitely wrong, since demand for gas and its price will decrease duringa recession. d.Your friend needs to provide more information for the analysis.
A: The price confusion problem of inflation occurs when it is hard to determine whether price changes are due to demand shifts or to inflation. Thus, the price of gas can fall during a recession as a result of a fall in demand, but at the same time it can rise as a result of general inflation.
What does a market do, by definition? a.It brings buyers and sellers together to exchange goods and services. b.It enables households to exchange funds for goods and services. c.It allows firms to produce what they have an absolute advantage at producing. d.It gives firms a means of expanding their pool of consumers.
A: What makes a market a market is trade: the change of goods and services, with or without a medium of exchange. A modern market does provide a means for households to exchange funds for goods and services, but funds are not an essential element. Whether firms can expand their pool of customers depends on whether the market is growing or not. Firms normally produce what they have a comparative advantage at producing, not what they have an absolute advantage at.
Your bank offers to pay you a 3% interest rate on a one-year fixed-deposit savings account. The inflation rate is expected to be 2% by the end of the year. Which of the following will be true if you decide to keep the money in the bank and the inflation rate turns out to be 4% by the end of the year? a.I will be worse off. b.The bank will be worse off. c.Both the bank and I will be worse off. d.Neither the bank nor I will be worse off.
A: You plan to deposit $100 in the saving account. If the bank pays you 3% interest, you will make $103 by the end of the year. But because of the inflation rate of 4%, now you will need $104 to buy things that you could have bought a year before for $100. Since your bank compensates you less than what you need to keep up with the inflation rate, you will be worse off in this case.
Which of the following is NOT a characteristic of a market economy? a.significant government intervention b.little or no government intervention c.buyers and sellers motivated by self-interest d.prices determined by demand and supply
A:A market economy allocates resources among households and firms with little or no government intervention.
Flour is a factor of the production of cupcakes. How will an increase in the price of flour affect the market for cupcakes? a.Overall supply will increase. b.Overall supply will decrease. c.Quantity supplied will increase, but the supply curve will not shift. d.Quantity supplied will decrease, but the supply curve will not shift.
B: A change in the cost of inputs is one determinant of supply that will cause supply to shift. If the prices of inputs increase, a firm's profit margins fall. Lower profit margins make the firm less willing to supply the good; therefore, supply will decrease.
Suppose that burgers and fries are complements in consumption. If the price of fries increases, a.overall demand for burgers will increase. b.overall demand for burgers will decrease. c.the quantity of burgers demanded will increase, but the demand curve will not shift. d.the quantity of burgers demanded will decrease, but the demand curve will not shift
B: A change in the price of a related good causes a shift of the demand curve for the other good. Complements are two goods used together.
Refer to the figure in Question 16.At a price of $5, this market is experiencing a.equilibrium. b.a shortage. c.a surplus. d.None of the other options are correct.
B: A shortage occurs whenever the quantity supplied is less than the quantity demanded. At a price of $5, this market experiences a shortage, since quantity supplied is less than quantity demanded for all prices below $10.
Which of the following is true when the economy is at full employment? a.The unemployment rate is equal to 0%. b.The unemployment rate is equal to the natural rate of unemployment. c.The unemployment rate is equal to the cyclical rate of unemployment. d.The natural unemployment rate is equal to 0%. e.The employment rate is equal to 100%.
B: At any given time, the unemployment rate is equal to the natural rate plus the cyclical rate. Since a healthy economy will always have natural unemployment (part frictional, part structural), the unemployment rate will never equal 0%. When the macroeconomic conditions are healthy--when gross domestic product (GDP) is growing normally--cyclical unemployment will be zero. During those times, the economy will produce its full employment output and all unemployment will be natural unemployment.
Mariana earns $50,000 in her first job today, while her mom used to make $15,000 in her first job in 1975. Mariana is of the opinion that, after adjusting for inflation, she makesmore than her mom did in 1975, while her mom thinks Mariana earns less. If the CPI today is 212 and the CPI in 1975 was 82, then, rounded to the nearest dollar, a.Mariana's mom is correct because her mom's salary in today's dollarswould be $65,000. b.Mariana is correct because her mom's salary in today's dollars would be $38,780. c.Mariana's mom is correct because Mariana's salary in 1975 dollars would have been $5,802. d.Mariana is correct because Mariana's salary in 1975 dollars would have been $19,661
B: Given that theCPI in 1975 was 82, the CPI today is 212, and Mariana's mom's salary in 1975 was $15,000, Mariana's mom's salary in today's dollars would be ($15,000 ÷ 82) × 212 = $38,780.
Suppose that Country A has the levels of consumption, investment, government spending, imports, and exports shown in the table. Calculate country A's GDP. a.$190 b.$210 c.$220 d.$250
B: Gross Domestic Product is the sum of consumption, investment, government spending, and net exports (exports minus imports). In this problem, that means we sum $140 + $50 + 30 + $10 -$20 = $210.
For a firm to have market power, it must a.be a monopoly. b.have some control over price. c.be the sole producer of a product. d.rely on the government to protect its price
B: If a firm produces a specialized product, such as a particular type of burger or computer game, it affords the firm the opportunity to charge a higher price than what other producers charge for their similar (but not identical) goods.
Which of the following is a type of incentive?a.scarce b.direct c.limited d.unconditional
B: Incentives can be classified as positive or negative, and as direct or indirect. All incentives encourage action. Positive incentives are rewards for taking actions, while negative incentives are unpleasant consequences that lead to avoiding certain actions. Direct incentives are often easier to see than indirect incentives.
Refer to the table. This mountainous country produces only two goods: walking sticks and backpacks, sold mainly to tourists. You are told that the CPI for this country in 2019 was 141. If the base year is 2018, how many backpacks should be present in the basket of goods and services that was used to calculate the CPI, rounded to the nearest whole backpack? The number of walking sticks is 100. a.84 b.78 c.68 d.60
B: Let us say the unknown number of backpacks in the basket isx. Then basket price in 2019 = 1500 + 20x, while the basket price in 2018 = 1000 + 15x. Then the CPI in 2019 = (basket price in 2019 ÷ basket price in 2018) × 100, which is given as 141.Plugging the information into the formula we can write the following:[(1500 + 20x) ÷ (1000 + 15x)] × 100 = 141Solving the above equation, we get x= 78.
Which of the following firms operates as a monopoly? a.a car manufacturer b.a local cable company c.a corn farmer d.a fish vendor at a neighborhood market
B: Monopolies exist when a single company supplies the entire market for a particular good or service. A local cable company functions like a monopoly, since it supplies cable service for the entire local market.
Suppose that government officials want to promote national population growth, so they offer a $1,000 payment to the parents of each child born. Which of the five foundations of economics best describes the thinking of these government officials? a.opportunity cost b.incentives c.trade creates value d.marginal thinking
B: The government payment is an incentive. These government officials understand that by offering a payment for having a child, they are giving parents an incentive to have children.
Refer to the following graph. The supply curve is upward sloping because a.prices and quantity supplied move in opposite directions. b.prices and quantity supplied move in the same direction. c.prices and quantity supplied have no relationship. d.prices and quantity supplied remain unchanged.
B: The supply curve is a graph of the relationship between the prices on the supply schedule and the quantity supplied at those prices. Because prices and quantity supplied move in the same direction, the supply curve slopes upward.
If the real GDP in a country is at a higher output level than full-employment output, which of the following is true? a.The unemployment rate is greater than the natural rate. b.The unemployment rate is lower than the natural rate. c.The cyclical unemployment rate is positive.
B: The unemployment rate equals the natural rate plus thecyclical rate. An economy can produce more than its full-employment output only when resources, especially labor, are overemployed. Then the unemployment rate must be lower than the natural rate of unemployment, and so cyclical unemployment will be negative, not positive.
Suppose there is a country where factory production creates a lot of the air pollution. What could be a possible trade-off if the country wanted to lower the levels of pollution? a.higher national income b.lower national income c.more factory jobs d.heavily polluted air
B: To decrease pollution, the factories could cut production, which would lower income. The country might instead be able to change the production process to reduce pollution, but that would likely come at a higher production cost, again decreasing incomes.
Suppose the country Inflatistanhad a nominal GDP of $48 billion in 2013 and a nominal GDP of $114 billion in 2019. If the price level was 100 in 2019 and 190 in 2013, what was the real GDP in 2019 (using 2013 dollars)? a.$31.6 billion b.$60.0 billion c.$91.2 billion d.$216.6 billion
B: To find real GDP, we need to adjust nominal GDP for the increase in the price level. We divide $114 billion by 190 (price level in 2019) and then multiply by the 2013 price level of 100, as follows: ($114 billion ÷ 190) × 100 = $60 billion.
Say consumers buy two kinds of meat, beef and pork. If the price of pork doesn't change and the price of beef rises over time, then consumers will typically buy more pork and less beef. If the Bureau of Labor Statistics fails to capture such substitution between goods in the CPI calculation, then this will result in a.an overestimation of the inflation rate. b.anoverestimation of both the CPI and the inflation rate. c.an underestimation of the CPI. d.an underestimation of the inflation rate.
B: When beef becomes more expensive, people will use pork instead. So the pork price should get more weight and the beef price should get less weight in the CPI basket. If the CPI fails to adjust the weights following such a substitution, then the CPI would exaggerate the price of meat because of the higher price of beef. Thus, the CPI will get overestimated, and the inflation rate calculated using the CPI will also get overestimated.
In an imperfect market, individual firms a.are always able to set the price of their product. b.are able to influence the price of their product. c.have no influence over the price of their product. d.take the market price as given.
B: When sellers produce goods and services that are different from their competitors, they gain some control over the price they charge.
What must happen to the market price in order for a shortage to be eliminated? a.The price must fall. b.The price must rise. c.The price must stay the same. d.The price may need to rise or fall, depending on the size of the shortage.
B: Whenever the quantity demanded exceeds the quantity supplied, the market price experiences upward pressure. As the price rises, suppliers continue to increase the quantity that they supply and buyers demand an increasingly smaller quantity, until the market clears and quantity supplied is equal to quantity demanded.
Which of the following would be studied by a macroeconomist? a.whether a local business decides to hire another worker b.the unemployment rate c.whether Microsoft will choose to expand its business into a new country d.whether airline companies are colluding to keep their prices high
B: Whether a local business decides to hire another worker is a microeconomic decision, as it involves just one business. Microsoft's decision, even though it's considering expanding its business into a new country, is also related only to Microsoft; this would be considered by a microeconomist. Whether airline companies are colluding, while the issue involves multiple companies, is also studied by a microeconomist: it involves just one sector of the economy, the airline industry. It doesn't involve multiple markets.
Economics is the study of how people allocate their __________ resources to satisfy their practically __________ wants. a.limited; limited b.limited; unlimited c.unlimited; unlimited d.unlimited; limited
B:The basic question economists seek to answer is how individuals and societies make decisions about scarce resources, given that their wants are practically unlimited.
Bonnie Austin, age 30, used to work part-time in a local restaurant. This year she quit her job to take care of her five-month-olddaughter. She is currently not looking for a job. The survey conducted by the Bureau of Labor Statistics today will count Bonnie as a.unemployed. b.employed. c.not in the labor force. d.not in the working-age population.
C: A person will be counted as unemployed only if he or she is part of the labor force, which requires actively seeking work. Stay-at-home parents are not counted as unemployed, because they are not looking for work. Bonnie will not be counted a part of the official labor force until she decides to go back to work.
Refer to the figure in Question 16. At a price of $15, this market is experiencing a.equilibrium. b.a shortage. c.a surplus. d.Noneof the other options are correct.
C: A surplus occurs whenever the quantity supplied is greater than the quantity demanded. At a price of $15, this market experiences a surplus, since quantity supplied is greater than the quantity demanded for all prices above $10.
What is the name for the situation that's occurring when economic activity is declining (or is growing at a negative rate)? a.the peak b.an economic expansion c.an economic contraction d.the trough
C: An economy is said to be going through an economic contraction when it is shrinking. An economic expansion occurs when the economy is growing at a strong pace. The business cycle describes how there are economic expansions and contractions in an economy.
The cyclical unemployment rate is defined as the ________ unemployment rates. a.sum of the structural and frictional b.difference between the structural and frictional c.difference between the existing (actual) and natural d.sum of the natural and frictional
C: Both structural and frictional unemployment are consistent with a growing, evolving economy. The root cause of cyclical unemployment is an unhealthy economy. Unlike structural unemployment and frictional unemployment, cyclical unemployment is not considered a natural type of unemployment. It is the difference between the existing unemployment rate and the natural rate.
Suppose that Country B has the levels of consumption, investment, government spending, imports, and exports shown in the table. Calculate country B's GDP. a.$140 b.$170 c.$200 d.$240
C: Gross Domestic Product is the sum of consumption, investment, government spending, and net exports (exports minus imports). In this problem, that means we sum $90 + $50 + 30 + $50 -$20 = $200.
Suppose you watch a show about flowers on televison. If you went out and bought a greenhouse in order to grow and sell flowers, then the greenhouse would be counted as what when measuring GDP? a.consumer spending b.government spending c.investment spending d.transfer payments
C: Investment is private spending on the tools, plant, and equipment used to produce future output. Investment can be something as simple as the purchase of a shovel, a tractor, or a personal computer to help a small business produce goods and services for its customers. But investment also includes more complex endeavors, such as the construction of large factories. The greenhouse would be considered investment spending.
Jenny works as a nanny. She gets paid once a month by the family she works for. Since she finds caring for children exhausting, she's looking for another job. Given what we know, we can say that a.Jenny is not work eligible and so is not counted as part of the labor force. b.Jenny counts as unemployed because she is looking for another job. c.Jenny counts as employed because she is still working as a nanny. d.Jenny is not counted as part of the labor force because she is a member of the family.
C: Jenny is employed because she is working and getting paid. If she weren't getting paid to do the same work (for example, if she were a family member doing all of the same work for free while looking for her first job), she would be counted as unemployed.
The field of economics that studies the decisions of individuals and firms is called a.macroeconomics. b.macroeconomics or microeconomics, depending on the economist you ask. c.microeconomics. d.normative economics.
C: Microeconomics deals with decisions on an individual level, such as how high a firm should price a certain product, or the behavior of a particular market segment. Macroeconomics deals with aggregate economies and studies economy-wide phenomena, such as the unemployment rate.
Your friend currently works as an accountant in a public accounting firm in a small town called Stillwater in Minnesota. He is offered a job in New York City with a salary of $95,000. Your friend calls you and tells you that he is excited about the new job offer, which gives him a raise from his current salary of $50,000. Based on your knowledge of economics, you think that your friend has a.reason to be excited, since he will get paid almost twice as much in his new job. b.no reason to be excited, since a higher pay would imply more job responsibilities and hence more working hours. c.no reason to be excited unless his real salary in New York City is higher than that in Stillwater. d.reason to be excited, since in a bigger city he will have more things to do and his higher salary will allow him to spend in these activities.
C: More money doesn't mean a better standard of living unless we calculate the real wage. In this case, your friend is experiencing money illusion, since he is irrationally interpreting nominal change in his salary as a real change.
Opportunity cost is the __________ alternative that must be sacrificed in order to get something else. a.lowest-valued b.middle-valued c.highest-valued d.median-valued
C: No matter what choice you make, there is an opportunity cost, or next-best alternative option, that must be sacrificed. Every time we make a choice, we experience an opportunity cost. An example of an opportunity cost is the income you give up when you choose to spend time in school that you could have spent working.
Refer to the following table. Calculate the unemployment rate for this economy based on the data provided. a. 11% b. 4.5% c. 9.1% d. 8.8%
C: The formula for the unemployment rate:𝑢=number unemployed/labor force×100. To solve this problem, you need to know the number of people employed and the number of people unemployed. The table provides the number of part-time and full-time workers. The number employed is equal to part-time workers plus full-time workers, or (in millions) 27 + 113 = 140. The table also tells us that 14 million people are looking for work; this group should be counted as unemployed. The total labor force equals employed + unemployed, or (in millions) 140 + 14 = 154. Based on the equation for the unemployment rate we see that unemployment rate = (14 ÷ 154) × 100 = 9.1%.
If the CPI today is 230, then what is the total inflation since the base year?a.57% b.23% c.130% d.We need to know the CPI of the base year to calculate the total inflation.
C: The inflation since the base year can be calculated as [(230 -100) ÷ 100] × 100 = 130%. Note that the CPI for the base year is always 100.
According to the law of demand, what is the relationship between price and quantity demanded? a.direct b.no relationship c.inverse d.It depends on the change in price.
C: The law of demand states that, all other things being equal, quantity demanded falls when prices rise, and quantity demanded rises when prices fall.
Which of the following firms participates in a competitive market? a.a motorcycle manufacturer, such as Honda or Harley-Davidson b.a software producer, such as Microsoft c.a farmer selling corn at a farmer's market d.a local electric utility company
C: The market for corn best fits the description of a competitive market, because every seller's corn is similar and there are many sellers and buyers in the market for corn.
Which of the following statements refers to a macroeconomic issue? a.John was recently hired at a new job and starts next week. b.H&M decides to open 50 new stores. c.The national unemployment rate is currently 7.7%. d.Sears and Kmart are closing stores nationwide.
C: The national unemployment rate is a statistic based on the number of unemployed workers in the United States and the total number of people in the U.S. labor force. This is a broad measure of employment, which is one of the major concerns of macroeconomics. Information about specific companies, even if they are large, does not give us a picture of the state of the macroeconomy, because we do not knowall the relevant information.
The business cycle consists of several stages or phases. Which is the correct sequence? a.peak, contraction, expansion, trough b.peak, trough, contraction, expansion c.peak, contraction, trough, expansion d.contraction, peak, trough, expansion
C: The peaks and troughs divide the business cycle into two phases: expansions and contractions. An economic expansion occurs from the bottom of a trough to the next peak, when economic activity is increasing. After a certain period, the economy enters a recession, or an economic contraction--the period extending from the peak downward to the trough. During this phase, economic activity is declining. During expansions, jobs are relatively easy to find and average income levels climb. During contractions, more people lose their jobs and income levels often fall.
The circular flow diagram shows how resources and final goods and services flow through the economy. There are two groups of entities exchanging goods and services in the circular flow. Which of the following make up the two groups? a.government and households b.government and firms c.households and firms d.households and the rest of the world
C: There are two groups in the circular flow model, households and firms, that want to trade with each other. Households are consumers. Firms are businesses. Households want the goods and services produced by the firms, and firms want the resources owned by the households in order to make goods and provide services.
Refer to the following graph. When a market is in equilibrium, which of the following is true? a.Quantity supplied exceeds quantity demanded. b.Quantity supplied is less than quantity demanded. c.Quantity supplied is equal to quantity demanded. d.There is no relationship between quantity supplied and quantity demanded.
C: When a market is in equilibrium, supply and demand are balanced. This is represented graphically by the point at which the demand curve and supply curve intersect. According to the law of supply and demand, market prices adjust to bring the quantity supplied and the quantity demanded into balance, or equilibrium.
Even when inflation rates are high, you don't see vending machines on your school campus adjusting prices frequently. This is an example of a.future price-level uncertainty due to inflation. b.the price confusion problem of inflation. c.the menu costs of inflation. d.the money illusion problem of inflation.
C: When overall prices change due to inflation, it becomes expensive for some businesses to print new menus, post new prices in their vending machines, etc. Thus, inflation imposes a direct cost on these firms. On the other hand, if these firms don't change their prices following inflation, then they have to continue to charge the lower prices and thus accept an indirect cost of inflation.
Suppose your friend can obtain concert tickets for $100 each, but you can't get one for less than $300. Your friend sells a ticket to you for $200. Which of the five foundations of economics best describes this activity? a.opportunity cost b.incentives c.trade creates value d.marginal thinking
C: Your friend receives $200 for the ticket when the cost to him for the ticket was $100, so he gains $100 in value. You would have paid $300 for the ticket, but you obtain the ticket for $200 so you also gain $100 in value. This is anexample of how trade creates value.
Negative incentives examples
Cavities Carbon Tax Hangovers
Which items are consequences of globalized trade for a developed nation that begins to import more goods and services from less-developed countries?
Correct: Lower labor costs and lower prices for customers Incorrect: Lower unemployment and lower economic growth
Which of the following will cause a shift rightward in the supply curve for tobacco? a.a fall in the number of tobacco farmers in the market b.an increase in taxes on tobacco c.removal of government subsidies to tobacco farmers d.an improvement in the technology used in the production of tobacco
D: A rightward shift of the tobacco supply curve means there is an increase in the supply of tobacco. An improvement in technology allows a producer to increase output with the same resources or to produce a given level of output with fewer resources.
Which of the following would NOT be included in the U.S. GDP? a.commissions paid to E-Trade because they facilitated a stock trade b.money earned by Las Vegas casinos for providing services to gamblers c.money paid to a local pharmacy for a flu shot d.clothes sold by a family on eBay
D: Commissions paid to financial companies for their services are included in GDP, although the value of the stock itself would not be included. Similarly, revenues earned from services by Las Vegas casinos are also included. A flu shot would be considered a good, so that's included in GDP as well. The clothes have already been produced and sold at an earlier time, so they are not included in GDP.
Which of the following represents frictional unemployment?• The demand for refrigerators falls when the economy enters a recession, and refrigerator manufacturers lay off some of their workers, one of which is Anton.• John is working for General Motors (GM) when GM decides to close its U.S. factories and relocate its car manufacturing division to Mexico.• After quitting his job in Ohio to be closer to his family in California, Jake is now looking for a new job. a.Antononly b.Anton and Jake c.John only d.Jake only
D: Frictional unemployment occurs when there is a delay matching employers and employees. Jake falls into this category. Anton is an example of cyclical unemployment, and John is an example of structural unemployment.
Which of the following would NOT be a use for GDP data? a.measuring economic growth b.measuring living standards c.measuring business cycles d.measuring inflation
D: GDP data is often used to measure economic growth, living standards, and business cycles. Even though real GDP is adjusted for inflation, this is a use of inflation as part of measuring GDP--not the other way around.
In a competitive market, the price of the product is a.independently set by each competing seller. b.set by the market leader and then copied by other sellers. c.jointly set after a meeting of all sellers in the market. d.set by market supply and demand.
D: In a competitive market, the goods and services sold are similar and there are many buyers and sellers. Where there are many buyers and sellers of a similar good or service, the price and quantity sold are determined by the market rather than any one person or business.
Residents of several European countries spend less time working and more time on leisure activities than do people in the United States. How is this leisure time accounted for in Gross Domestic Product measurements? a.Leisure time is added to GDP using the average market wage for labor in that country. b.A value for leisure time is added to a country's GDP using a market wage that is a weighted average of the country's average hourly wage rate and that of the rest of the world. c.Leisure time is a value-added element in the calculation of the total value of labor. d.Leisure time doesn't factor in a country's GDP.
D: Leisure time, while valuable, doesn't get accounted for in GDP. This could be considered a shortcoming of GDP as a measurement of a country's standard of living.
Suppose that Marie is buying bananas. She decides she would like to purchase three bananas at the price of $0.25/banana, but not a fourth banana. Which of the five foundations of economics best describes Marie's thinking? a.opportunity cost b.incentives c.trade creates value d.marginal thinking
D: Marie is thinking about the extra benefit and cost of purchasing each additional banana. This is what economists would describe as "thinking on the margin," or marginal thinking.
We pay higher prices for TVs today than people used to pay 10 years ago. This is owing to a.inflation. b.a premium that we have to pay for the improved quality of the TVs we buy today. c.a monopoly in the TV industry. d.both inflation and a premium that we have to pay for the improved quality of the TVs we buy today. e.both inflation and a monopoly in the TV industry.
D: The higher prices that we pay for goods over time is partly because of general inflation. But at the same time, the TVs that we buy today are of improved quality, such as high-definition picture, flat screen, etc. These improved TVs are expensive to produce. So we do end up paying a premium for the better quality as well.
A change in which of the following will cause a change in the quantity supplied of coffee, without shifting the supply curve? a.the technology or the production process of making coffee b.anticipation of a change in the price of coffee c.the wages of coffee-bean pickers d.the price of coffee
D: The law of supply states that, all other things being equal,the quantity supplied increases when the price rises, and the quantity supplied falls when the price falls. Therefore, the price of coffee will cause a change in the quantity supplied of coffee.
The opportunity cost of attending college is likelyto be highest for a high school graduate a.who has access to student loans. b.whose family is extremely wealthy. c.who is very intelligent. d.who is capable of playing a well-paid professional sport.
D: The opportunity cost of going to college is highest for the person who can make the most money without a college education. Opportunity cost is the highest-valued alternative that must be sacrificed in order to get something else, such as the sacrifice of passing up a full-time job to go to college full time.
Which of the following is NOT a component of Gross Domestic Product? a.investment b.consumption c.net exports d.transfer payments
D: Using the expenditure method, GDP is the sum of consumption, investment, government spending, and net exports. Transfer payments are payments the government makes to households--including as welfare payments, social security, and unemployment insurance--that do not count as GDP, since they are not direct purchases of new goods and services.
A change in which of the following will cause a change in the quantity demanded of coffee, without shifting the demand curve? a.consumer income b.the price of green tea, a substitute for coffee c.the number of coffee consumers d.the price of coffee
D:A change in the price of coffee will cause a change in the quantity demanded of coffee but will not shift the demand curve. A change in any of the non-price determinants of demand will cause a shift of the demand curve.
Which of the following would NOT be studied by a macroeconomist? a.a country's gross domestic product b.a country's inflation rate c.why exchange rates fluctuate d.why the price of lemonade decreased
D:Macroeconomists study the big picture created by all markets, so they would study inflation (the overall increase in all prices), the gross domestic product (total output for an economy), and the exchange rates, which show the prices of currencies in other countries. The price of lemonade changing concerns just one market.
Universal Healthcare direct and indirect incentives
Direct: everyone has access to proper healthcare Indirect: healthier cardiovascular system from heart surgery provided by access to proper healthcare
Sales Commissions direct and indirect incentives
Direct: sell more items Indirect: increased demand of wood to match demand for wooden furniture/goods -> deforestation
Positive incentive examples
End-of-year bonus Punch Car for Free Coffee
Fill in the blanks to complete the passage about our needs and wants and the resources available to satisfy them.
Even though RESOURCES are almost always limited, whereas on the other hand, OUR WANTS AND/OR NEEDS are practically unlimited. We describe this situation by saying that a condition of SCARCITY exists, which forces us to MAKE CHOICES.
real GDP
GDP adjusted for changes in prices
nominal GDP
GDP measured in current prices and not adjusted for inflation
per capita GDP
GDP per person
What is an example of a monopoly other than Comcast Cable?
HYBE Labels (owns a quite a bit of the entertainment/music industry)
Circular flow diagram
Product markets -> households -> resource markets -> firms -> product markets (continues in a circular flow and is all connected by money flowing the opposite way)
What is an example of an imperfect market other than the Empire State Building?
Tesco (major food company)
How do patents and copyright laws serve as an incentive to innovate?
They force people to be more creative with their work and put out newer more originals works
market power
a firm's ability to influence the price of a good or service by exercising control over its demand, supply, or both
normal goods
a good which consumers buy ore of as income rises holding all other factors constant
inferior good
a good which consumers purchase out of necessity rather than choice
unemployment insurance
a government program that reduces the hardship of joblessness by guaranteeing that unemployed workers receive a percentage of their former income while unemployed
demand curve
a graph of the relationship between the prices in the demand schedule and the quantity demanded at those prices
supply curve
a graph of the relationship between the prices in the supply schedule and the quantity supplied at those prices
imperfect market
a market in which either the buyer or the seller can influence the market price
competitive market
a market in which there are so many buyers and seekers that each has only a small (negligible) impact on the market price and output
chained CPI
a measure of the CPI in which the typical consumer's "basket" of goods and services considered is updated monthly
consumer price index (CPI)
a measure of the price level based on the consumption patterns of a typical consumer
subsidy
a payment made by the government to encourage the consumption or production of a good or service
economic expansion
a phase of the business cycle during which economic activity is increasing
economic contraction
a phase of the business cycle during which the economic activity is decreasing
invisible hand
a phrase coined by Adam Smith to refer to the unobservable market force that guide resources to their highest-valued use
economic thinking
a purposeful evaluation of the available opportunities to make the best decision possible
business cycle
a short-run fluctuation in economic activity
recession
a short-term economic depression
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
nominal wage
a worker's wage expressed in current dollars
market economy
an economy in which resources are allocated among households and firms with little or no government interference
GDP deflator
an index of the average prices of goods and services throughout the economy
markets
brings buyers and sellers together to exchange goods and services
marginal thinking
evaluating whether the benefit of one more unit of something is greater than it cost
barter
individuals trading a good they already have or providing a service in exchange for something they want
services
outputs that provide benefits without producing a tangible product
labor force
people who are already employed or actively seeking work and are part of the work-eligible population (civilian, non-institutional, and age 16+)
investment
private spending on tools, plants, and equipment used to produce future output
scarcity
refers to the inherently limited nature of society's resources, given society's unlimited wants and needs.
inputs
resources used in the production process
government spending
spending by all levels of government on final goods and services
the great recession
the U.S. recession lasting from December 2007 to June 2009
equilibrium quantity
the amount at which the quantity supplied is equal to the quantity demanded
Quantity demanded
the amount of a good or service that buyers are willing and able to purchase at the current price
quantity supplied
the amount of a good or service that producers are willing and able to sell at the current price
