ECON 50 True / False

Prices, which are determined by all buyers and sellers as they interact in the marketplace, allocate the economy's scarce resources.

True

The shape of the total cost curve is unrelated to the shape of the production function.

false

U.S. GDP includes estimates of things such as unpaid housework and car maintenance..

false

Unemployment due to job search is best classified as structural unemployment.

false

When two goods are strong complements, such as nickels and dimes, the indifference curves are straight lines.

false

As long as two people have different opportunity costs, each can gain from trade, since trade allows each person to obtain a good at a price lower than his or her opportunity cost.

True

Differences in opportunity cost allow for gains from trade.

True

For a country producing two goods, the opportunity cost of one good will be the inverse of the opportunity cost of the other good.

True

Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.

True

If there is an improvement in the technology used to produce a good, the supply curve for that good will shift to the left.

False

A decrease in the price of a product and an increase in the number of buyers in the market affect the demand curve in the same general way.

False

A reduction in an input price will cause a change in quantity supplied, but not a change in supply.

False

An increase in the price of pizza will shift the demand curve for pizza to the left.

False

Baseballs and baseball bats are substitute goods.

False

If a company making frozen orange juice expects the price of their product to be higher next month, it will supply more to the market this month.

False

It takes Russell 6 hours to produce a bushel of corn and 2 hours to wash and polish a car. It takes Wilma 6 hours to produce a bushel of corn and 1 hour to wash and polish a car. Wilma and Russell cannot gain from specialization and trade, since it takes each of them 6 hours to produce 1 bushel of corn.

False

The demand for gasoline will respond more to a change in price over a period of five weeks than over a period of five years.

False

The market demand is the average of all of the individual demands for a particular good or service.

False

When each person specializes in producing the good for which he or she has a comparative advantage, each person can gain from trade but total production in the economy is unchanged.

False

In a market, the price of any good adjusts until quantity demanded equals quantity supplied.

True

Rusty can edit 2 pages in one minute, and he can type 80 words in one minute. Emily can edit 1 page in one minute, and she can type 100 words in one minute. Rusty has an absolute advantage and a comparative advantage in editing, and Emily has an absolute advantage and a comparative advantage in typing.

True

Trade allows a country to consume outside its production possibilities frontier.

True

Trade allows a person to obtain goods at prices that are less than that person's opportunity cost because each person specializes in the activity for which he or she has the lower opportunity cost.

True

Two countries can achieve gains from trade even if one country has an absolute advantage in the production of both goods.

True

Unless two people who are producing two goods have exactly the same opportunity costs, then one person will have a comparative advantage in one good, and the other person will have a comparative advantage in the other good.

True

Whenever a determinant of demand other than price changes, the demand curve shifts.

True

A competitive market will typically experience entry and exit until accounting profits are zero.

false

A miniature golf course is a good example of where fixed costs become relevant to the decision of when to open and when to close for the season.

false

An increase in nominal U.S. GDP necessarily implies that the United States is producing a larger output of goods and services.

false

As banks create money, they create wealth.

false

Drug interdiction, which reduces the supply of drugs, may decrease drug-related crime because the demand for drugs is inelastic.

false

Economists and accountants both include forgone income as a cost to a small business owner.

false

Fixed costs are those costs that remain fixed no matter how long the time horizon is.

false

For a monopoly, marginal revenue is often greater than the price they charge for their good.

false

Full-time students, retirees, and unpaid stay-at-home fathers are counted as unemployed.

false

Government policy can do nothing about the natural rate of unemployment.

false

If a consumer wants more of a good when his income rises, economists call it an inferior good.

false

If a price ceiling of $2 per gallon is imposed on gasoline, and the market equilibrium price is $1.50, the price ceiling is a binding constraint on the market.

false

If a tax is imposed on the buyers of a product, the tax burden will fall entirely on the buyers.

false

If the Fed buys bonds in the open market, the money supply decreases.

false

If the equilibrium wage rate is $4 per hour, and the minimum wage is $5.15 per hour, a shortage of labor will exist.

false

If the marginal cost curve is rising, then so is the average total cost curve

false

If you currently make $25,000 a year and the CPI rises from 110 today to 150 in five years, then you need to be making $37,850 to have kept pace with consumer price inflation.

false

In a closed economy, investment must be equal to private saving.

false

Joan uses some of her income to buy mutual fund shares. A macroeconomist refers to Joan's purchase as investment.

false

Marginal adjustments to production end when firms in competitive markets experience a price equal to marginal revenue.

false

New home construction is included in the consumption component of GDP.

false

Other things the same, if banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall.

false

Supply tends to be more elastic in the short run and more inelastic in the long run

false

The CPI accounts for changes in the prices of imports and the GDP deflator does not. Therefore, the CPI is based on more goods and services than the GDP deflator.

false

The CPI is computed by finding the price of a market basket of goods whose contents vary each year.

false

The marginal rate of substitution is the slope of the budget constraint.

false

A firm in a competitive market will maximize profit when the level of production is such that marginal cost equals price.

true

A second or third worker may have a higher marginal product than the first worker in certain circumstances

true

Although they sometimes diverge, generally the CPI and the GDP deflator move in the same direction.

true

Assume Jack received all A's in his classes last semester. If Jack gets all B's in his classes this semester, his GPA may or may not fall.

true

At the optimum, the consumer chooses consumption of the two goods so that the marginal rate of substitution equals the relative price ratio.

true

Banks could not change the size of the money supply if they were required to hold all deposits in reserve.

true

Declining average total cost with increased production is one of the defining characteristics of a natural monopoly.

true

Diminishing marginal product exists when the production function becomes flatter as inputs increase.

true

During the life of a drug patent, the monopoly pharmaceutical firm maximizes profit by producing the quantity at which marginal revenue equals marginal cost.

true

Efficiency wages create structural unemployment.

true

Fixed costs are incurred even when a firm does not produce anything.

true

Frictional unemployment is different from unemployment arising from minimum-wage laws, unions, and efficiency wages because in the former, workers are searching for the jobs that best suit them, while in the latter, workers are waiting for jobs to open up.

true

If demand is perfectly inelastic, the demand curve is vertical, and elasticity is equal to 0.

true

If someone in the United States buys a surfboard produced in Australia, that purchase is included in both the consumption component of U.S. GDP and the import component of U.S. GDP.

true

In general, a tax burden falls more heavily on the side of the market that is more inelastic.

true

In some cases, specialization allows larger factories to produce goods at a lower average cost than smaller factories

true

It doesn't make sense to talk about a monopolist's supply curve.

true

Mutual funds are a type of financial intermediary.

true

Public saving is equal to national saving minus private saving.

true

Substitution bias in computing the CPI tends to make the CPI overstate the true increase in the cost of living.

true

The Federal Reserve primarily uses open market operations to change the money supply.

true

The amount of power that a monopoly has depends on whether there are close substitutes for its product.

true

The cost of producing an additional unit of a good is not the same as the average cost of the good

true

The government-purchases component of GDP includes salaries paid to Army generals but not Social Security benefits to the elderly.

true

The housing shortages caused by rent controls are larger in the long run than in the short run because both the supply of housing and the demand for housing are more elastic in the long run.

true

The long-run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale.

true

The marginal rate of substitution does not change for perfect substitutes.

true

When the government budget deficit rises, national saving is reduced, interest rates rise, and investment falls.

true