ECON 203 Midterm Hayes
Refer to the accompanying data (all figures in billions of dollars). GDP is
$417
In a market system, the distribution of goods and services largely depends on the distribution of income and people's preferences.
True
Most market economies, such as the U.S. and the U.K., allow government policies and actions aimed at promoting economic growth and stability.
True
Personal income usually exceeds disposable income.
True
The term "other things equal" means that
a number of relevant variables are assumed to be constant
Unemployment describes the condition where
a person cannot get a job but is willing to work and is actively seeking work.
In a market system, self-interest is the motivating force that
coordinates and creates consistency in the operations of various parts of the economy.
GDP does not include which of the following activities?
couples remodeling their own homes
Private property
encourages owners to maintain or improve their property so as to preserve or enhance value.
Transfer payments are
excluded when calculating GDP because they do not reflect current production.
The National Income and Product Accounts (NIPA) help economists and policymakers to
follow the long-run course of the economy to determine whether it has grown or stagnated.
Which of the following is not a typical characteristic of a market system?
government ownership of most property resources
Market failure is said to occur whenever:
private markets do not allocate resources in the most economically desirable way.
Other things equal, if the price of a key resource used to produce product X falls, the
supply curve of product X will shift to the right.
Supply-side market failures occur when
supply curves don't reflect the full cost of producing a good or service.
According to the concept of diminishing marginal utility, consumers will purchase more of a good when the price falls because
the marginal benefit of additional units of the good now outweigh the marginal cost.
Because of the free-rider problem,
the market demand for a public good is nonexistent or understated.
According to the marginal-cost-marginal-benefit rule,
the optimal project size is the one for which MB = MC.
Refer to the graphs. Which of the following best represents a positive demand shock when prices are flexible?
the shift from D2 to D3 in graph B
When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively lower. This statement describes
the substitution effect.
The production possibilities curve shows
the various combinations of two goods that can be produced when society employs all of its scarce resources.
A nation that wants to invest in more newly created capital in the present must be willing to forgo present consumption.
true
Higher unemployment rates are linked with higher crime rates and higher rates of physical and mental illness.
true
Shocks occur when actual events do not match expectations.
true
The guiding function of prices tends to keep resources flowing toward their most highly valued uses.
true
A large underground economy results in an
understated GDP
Real GDP measures the
value of final goods and services produced within the borders of a country, corrected for price changes.
Refer to the diagram. The equilibrium price and quantity in this market will be
$1.00 and 200.
Refer to the diagram. A surplus of 160 units would be encountered if the price was
$1.60.
Which statement best illustrates the concept of diminishing marginal utility?
A typical consumer will receive less satisfaction from consuming the fourth hamburger than from the third hamburger in a week.
Which of the diagrams illustrates the effect of an increase in automobile worker wages on the market for automobiles?
D only.
A price floor in a competitive market will result in persistent shortages of a product.
False
Allocative efficiency occurs where (for the last unit) maximum willingness to pay exceeds minimum acceptable price by the greatest amount.
False
Economists and policymakers are generally more concerned about nominal GDP than real GDP.
False
In determining GDP by the expenditures method, it is appropriate to use net investment rather than gross investment as a measure of investment spending.
False
What two conditions must hold for a competitive market to produce efficient outcomes?
Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.
A sometimes short, sometimes extended period of declining output and living standards is referred to as a recession.
True
All expenditures on new construction are included as investment in calculating GDP.
True
Banks and other financial institutions provide the link between savers and economic investors in the macroeconomy.
True
Which of the following will not cause the demand for product K to change?
a change in the price of product K
If two goods are complements,
a decrease in the price of one will increase the demand for the other.
Assume that the demand curve for product C is downsloping. If the price of C falls from $2.00 to $1.75,
a larger quantity of C will be demanded.
Which of the following is an example of market failure?
all of these (negative externalities, positive externalities, public goods)
Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity?
an increase in supply
Economic profits and losses
are essential to the reallocation of resources from less desired to more desired goods.
The rationing function of prices refers to the
capacity of a competitive market to equalize quantity demanded and quantity supplied.
A shift to the right in the demand curve for product A can be most reasonably explained by saying that
consumer preferences have changed in favor of A so that they now want to buy more at each possible price.
Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. A shift in the demand curve from D0 to D1 might be caused by a(n)
increase in the price of complementary good Y.
For an economy to increase investment, it must
increase saving.
A demand curve
indicates the quantity demanded at each price in a series of prices.
Which of the following is most closely related to recessions?
negative real growth in output
Environmental pollution is accounted for in
none of these. (GDP, PI, DI)
The two main characteristics of a public good are
nonrivalry and nonexcludability.
The law of supply indicates that, other things equal,
producers will offer more of a product at high prices than at low prices.
Which of the following is not included in personal consumption expenditures?
purchases of mutual funds by consumers
Refer to the diagram. An improvement in technology will
shift the production possibilities curve from PP1 to PP2.
Which of the following is not a determinant of demand for laptop computers?
the cost of inputs for producing laptop computers
Opportunity costs exist because
the decision to engage in one activity means forgoing some other activity.
Macroeconomics is mostly focused on
the economy as a whole.
Graphically, the market demand curve is
the horizontal sum of individual demand curves.
