ECON 2301 Midterm Review (Ch. 1-7, 17)

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A three-word synonym for the term ceteris paribus is

"nothing else changes."

Depreciation refers to a decrease in the value of a good caused by

"wear and tear" of capital goods over time.

Suppose that consumption spending is $4,200 billion, spending on durable goods is $1,200 billion, and spending on services is $2,000 billion. What does spending on nondurable goods equal?

$1,000 billion

Refer to Exhibit 4-1. Suppose the good shown is being sold at the $6 price ceiling. At a quantity of 75 units, what is the maximum per-unit price buyers would be willing to pay for a good "tied" to the good shown in the exhibit?

4

Refer to Exhibit 7-1. What is the value of personal income?

4252

Refer to Exhibit 6-2. How many people are not in the labor force in year 1?

50 million

Refer to Exhibit 6-2. The employment rate in year 2 is

50 percent

Refer to Exhibit 6-2. The labor force participation rate in year 1 is

80 percent

In an economy with a population of 100 million persons, 40 million hold civilian jobs and 9 million are not working but are looking for jobs. The number counted as unemployed is

9 million

Refer to Exhibit 2-2. If PPF2 is the relevant production possibilities frontier, then point __________ is unattainable

J

Through war, many of the factories in country 1 are destroyed and many of its people are killed. As a result, the country's

PPF after the war has probably shifted to the left compared to its PPF prior to the war.

The economist credited with pioneering the "new growth theory" is

Paul Romer

Which of the following is an unintended effect of placing safety caps on medicines?

People leave their medicine containers open more often, which ends up making it easier for children to get into the medicine.

"Absolute real economic growth" is defined as an increase in __________ from one period to the next.

Real GDP

Refer to Exhibit 3-9. The production of X is more profitable than it used to be. A number of producers enter the business of producing X. You expect a movement in the market for X from

S1 to S2

A common measure of inflation is the percentage change in the CPI of adjacent years.

TRUE

High demand for a product does not necessarily mean a high quantity demanded for that product if the price is high enough.

TRUE

If the demand curve for tickets to a television show taping intersects the supply curve for tickets to that show at a negative price, then in order to put that market in equilibrium the producers would need to pay people to view the show being taped.

TRUE

Mutually beneficial trade between buyers and sellers drives a market to equilibrium.

TRUE

Some economists argue that the recent relatively high rate of unemployment has resulted in part from the fact that some people have not made the adjustment to modern technologies.

TRUE

The law of increasing opportunity cost helps to explain why PPFs are typically bowed-outward.

TRUE

The minimum wage is a good example of a price floor.

TRUE

The price of a given good is likely to be less variable with speculators than it would be without speculators.

TRUE

The term economic growth can be used in reference to absolute real economic growth or to per- capita real economic growth.

TRUE

When universities charge students less than the equilibrium tuition for admission, they have to impose some nonprice-rationing device.

TRUE

Exhibit 4-2 represents the orange juice market. The horizontal line represents a price ceiling imposed by the government. Which of the following is true?

The quantity supplied at the price ceiling will equal the quantity sold.

Is it possible for the economy to be at full employment and still have some people who are unemployed?

Yes, since full employment exists if the economy is operating at the natural unemployment rate and there is always some natural unemployment.

Which of the following statements is true? To an economist, demand is different from quantity demanded. A demand schedule is the numerical tabulation of the law of demand. A demand curve is the graphical representation of the direct relationship between price and quantity demanded. a and b a, b, and c

a and b

Refer to Exhibit 5-5. If the airline charges a price that is between P1 and P2 for both aisle seats and middle seats, the result will be

a surplus of middle seats and a shortage of aisle seats.

Which of the following statements is true? National income accountants consider the portion of corporate profits that is used to pay corporate profits taxes to be income earned by households but not received. Net domestic product (NDP) is a smaller dollar amount than GDP. Personal income includes transfer payments. b and c a, b, and c

a, b, and c

Net domestic product is the total value of

all final goods and services produced within a country's borders in a year minus capital consumption allowance.

Suppose the government sets a price floor that is above the equilibrium price for a given good. It can be said that at the price floor,

although consumers are purchasing all of the product that they desire at this price, the sellers are not selling all that they desire.

What does annual economic growth refer to?

annual increases in Real GDP

Refer to Exhibit 4-8. If the wheat market is in competitive equilibrium, the consumers surplus will equal

area 1 + 2 + 4

If there is freeway congestion at 8 a.m., we can reduce (or eliminate) the congestion by

building more freeways; raising the price to drive on the freeway at 8 a.m; encouraging workers to carpool. (a, b and c)

If variable X goes down as variable Y goes down, then X and Y are

directly related

An increase in nominal GDP

does not necessarily mean either absolute or per capita real economic growth.

New growth theory holds that technology is __________ and that the more resources that go to develop technology, the __________ technology that is produced.

endogenous; more and better

Government purchases consist of the total dollar amount(s) spent on goods and services by the

federal, state, and local governments.

Investment equals inventory investment added to

fixed investment; business purchases of new capital goods and purchases of new residential housing. (either c or d)

According to new growth theory, technological advances can be promoted

from within the economy

Something that provides utility is called a

good

Refer to Exhibit 1-2. According to the data provided in this table, what is the slope of the line between points A and B, if these data were graphed with X on the horizontal axis and Y on the vertical axis?

1.5

Refer to Exhibit 4-9. Suppose that the government imposes a price ceiling at a price of $13. _________ units would be exchanged in a free market, and ____________ units would be exchanged with the price ceiling in effect.

150; 150

If Real GDP was $8,742 billion in year 2 and it had been $8,509 billion in year 1, what was the approximate economic growth rate during this time period?

2.74 percent

Refer to Exhibit 2-4. The opportunity cost of moving from point A to point B is

20,000 copiers

Refer to Exhibit 2-1. The opportunity cost of moving from point B to A is

20,000 units of butter

Refer to Exhibit 6-2. How many people are not in the labor force in year 4?

200 million

Suppose there are 200 million persons in the population, 120 million persons in the civilian labor force, and 90 million persons are employed. The number of people unemployed is _______ million and the unemployment rate is ___________ percent.

30; 25

Which of the following statements is false? An upward-sloping supply curve graphically represents the law of supply. A vertical supply curve graphically represents the law of supply. If income rises and good X is a normal good, then the demand for good X will rise. If income falls and good Y is an inferior good, then the demand for good Y will rise.

A vertical supply curve graphically represents the law of supply.

Refer to Exhibit 5-4. If television studio executives choose to charge a price of PB to view the taping of all shows, they will find that there is a shortage of tickets to view the taping of show ___________ and a surplus of tickets to view the taping of show ______________.

A; C

If the Bureau of Labor Statistics considers Jessica to be a discouraged worker, then she is counted as unemployed for purposes of computing the official unemployment rate.

FALSE

In a given community, if the government builds more freeways, then the supply curve for freeway space shifts rightward and the demand curve for freeway space shifts leftward.

FALSE

People who buy houses in good-weather locations receive this benefit absolutely for free.

FALSE

Production functions used in economic growth theory are always limited to two inputs: labor and capital.

FALSE

Production possibilities curves can shift outward but they do not shift inward.

FALSE

When a market is in disequilibrium, such as when the quantity supplied of a good is greater than the quantity demanded of that good, the price of the good will rise, ceteris paribus.

FALSE

When the price of Toyota Corollas rises, ceteris paribus, the demand for Corollas falls

FALSE

Refer to Exhibit 3-17. At a price of $16, the quantity demanded of good X is ____________ than the quantity supplied of good X, and economists would use this information to predict that the price of good X would soon ______________. This would push the price __________ the equilibrium price.

greater; rise; toward

Deciding at the margin is __________ an all-or-nothing decision.

inconsistent with

Refer to Situation 4-1. An economist would predict that the oil embargo imposed in 1974 would result in a

leftward shift in the supply (curve) of gasoline.

Which of the following goods is an intermediate good?

lettuce that a restaurant buys to put on sandwiches; tires that a car company buys to put on the cars it produces (a and b)

A price floor is a government-mandated

minimum price below which legal trades cannot be made.

When a production function is graphed with Real GDP on the vertical axis and labor on the horizontal axis, a rise in labor ________________________which shifts the LRAS curve ____________ resulting in ______________________.

moves us up along a given production function; rightward; economic growth

According to the text, farming today in the U.S. is __________ productive compared to a century ago, resulting in there being __________ farmers today than at the turn of the previous century.

much more; fewer

Refer to Exhibit 2-6. Which graph depicts the result of a decrease in the unemployment rate?

none of the above

Refer to Exhibit 17-4 Assume that the starting point in graphs (a) and (b) in Exhibit 17-4 is point 1. After a decrease in income taxes, there would be a ______________________ which would cause a movement along the production function from point 1 to point ______________. The result would be a shift of the LRAS curve from LRAS1 to _______________ resulting in _______________..

rightward shift of the labor supply curve from SL1 to SL2; movement along the production function to point 2; LRAS2; economic growth

To an economist, utility means:

satisfaction

When the price of a good rises, the price is transmitting information indicating that the good is relatively

scarcer

The author of the text defines economics as the

science of scarcity

In the production possibilities framework, economic growth is depicted by the PPF

shifting rightward (away from the origin).

At a price for which the quantity supplied exceeds the quantity demanded, a __________ is experienced, which pushes the price __________ toward its equilibrium value.

surplus; downward

An "increase in demand" means that

the demand curve has shifted to the right.

There is no toll charge to drive on freeway A. If there is freeway congestion at 9 a.m., there will be greater freeway congestion at 11 a.m. if

the demand to drive on the freeway at 11 a.m. is greater than the demand to drive on the freeway at 9 a.m.

Which of the following issues is most unlikely to be addressed by an economist practicing positive economics?

the desirability of a minimum wage increase

If a production possibilities frontier (PPF) is concave outward, it follows that

the opportunity cost (of producing the good on the horizontal axis) rises as more of the good is produced.

Refer to Exhibit 4-3. If price P3 is a price ceiling, then

the price ceiling does not have an effect on the market for good X; the price at which exchange takes place is P2. (both a and c)

Suppose that the production function for an economy is graphed with Real GDP on the vertical axis and labor on the horizontal axis. When the level of capital in this economy rises, it causes ____________________which shifts the LRAS curve ____________ resulting in ______________________.

the production function to shift upward; rightward; economic growth

Refer to Exhibit 3-7. If S1 is the relevant supply curve, a decrease in the price of a resource that is necessary for the production of good X causes

the supply of good X to shift from S1 to S2

A good provides __________ and a bad provides __________.

utility; disutility


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