Econ final
Last year the imaginary country of Basova had a population of 10,000, 6,000 people worked 8 hours a day, and produced a real GDP of $30,000,000. The imaginary country of Andovia had a population of 12,000, 8,000 people worked 8 hours a day, and produced a real GDP of $38,000,000. Which of the following is correct?
Basova had the higher productivity while Andovia had the higher real GDP per person.
Hannah and Chris each like jewelry and music by the Rolling Stones. If we were to graph an indifference curve with jewelry on the horizontal axis and CDs by the Rolling Stones on the vertical axis, then
Because we do not know the intensity of each woman's preferences, we do not have enough information to compare their indifference curves
When two goods are perfect substitutes, the
Both a and b are correct.
Explicit costs
Both b and c are correct
Karen's cat causes Danny to sneeze. Karen values her cat's companionship at $300 per year. The cost to Danny of tissues and her allergy medication is $350 per year. Based on the Coase theorem,
Danny should pay Karen $325 to give away her cat
Congresswoman Gaga represents a state in which several firms manufacture furniture. She wants to impose tariffs on all imported furniture. Which of the following is the least likely consequence of such tariffs?
Domestic furniture producers will have a higher rate of technological advance
Which of the following statements is not correct?
Economists typically prefer regulations to corrective taxes because regulations provide more incentives for firms to seek continued reductions in pollution
Suppose that policymakers are doing cost-benefit analysis on a proposal to add traffic barriers to divide the flow of traffic in an effort to increase safety on a given highway. Which of the following statements is correct?
Estimating the value of a human life is difficult but necessary to evaluate the proposal.
Two firms, A and B, each currently dump 50 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. The government will sell 40 pollution permits for $75 each. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river. Neither firm produces any less output, but they both conform to the law. It is likely that between the cost of permits and the cost of additional pollution abatement,
Firm A will spend $4,000
Which of the following is not correct?
For the last 40 or so years, U.S. inflation hasn't shown much variation from its average rate of about 2 percent
Two economists found empirical evidence that when the price of rice decreased in the Hunan province of China, local residents consumed less rice than before the price decrease. The study provides a real-world example of a(n)
Giffen good.
Suppose the price of good X increases and consumers purchase more of good Y. Which of the following statements is necessarily true about good Y?
Good Y could be a normal or inferior good.
A $1.50 tax levied on the buyers of pomegranate juice will shift the demand curve
downward by exactly $1.50
A $2 tax per gallon of paint placed on the buyers of paint will shift the demand curve
downward by exactly $2
As the size of a tax rises, the deadweight loss
rises, and tax revenue first rises, then falls.
Liquidity refers to
the ease with which an asset is converted to the medium of exchange.
Refer to figure 9-26. Prior to opening the U.S. baseball market to trade, the equilibrium price of a baseball is
$10
Refer to Figure 9-24. Suppose the government imposes a tariff of $10 per unit. The amount of revenue collected by the government from the tariff is
$100
Suppose a tax is imposed on each new hearing aid that is sold. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. As a result of the tax, the equilibrium quantity of hearing aids decreases from 10,000 to 9,000, and the deadweight loss of the tax is $60,000. We can conclude that the tax on each hearing aid is
$120
In the economy of Talikastan in 2015, consumption was two-thirds of GDP, government purchases were $1000 more than investment, investment was one-ninth of GDP, and the value of exports exceeded the value of imports by $500. What was Talikastan's GDP in 2015?
$13,500
Refer to Table 7-15. If each producer has one unit available for sale, and if the market equilibrium price is $80 per unit, how much is the total producer surplus in this market?
$140
Cameron visits a sporting goods store to buy a new set of golf clubs. He is willing to pay $750 for the clubs but buys them on sale for $575. Cameron's consumer surplus from the purchase is
$175.
Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The per-unit burden of the tax on sellers is
$3
Bill created a new software program he is willing to sell for $200. He sells his first copy and enjoys a producer surplus of $150. What is the price paid for the software?
$350.
Refer to Table 13-16. What is the marginal cost of the 4th unit of output?
$52
Refer to Figure 9-1. In the absence of trade, the equilibrium price of coffee in Guatemala is
$90
Refer to Figure 7-23. If the price were P3, consumer surplus would be represented by the area
. A
If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 4 times per year, then according to the quantity equation, the average price level is
1.20
Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. Without the tax, the producer surplus is
1/2 x (P5-0) x Q5
Refer to Figure 8-2. The amount of the tax on each unit of the good is
$5
Educational attainment tends to be
low in countries with high population growth
Which of the following is included in the consumption component of GDP?
All of the above are included in the consumption component of GDP
A consumer's willingness to pay directly measures
how much a buyer values a good
Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart buys its goods in large quantities and, therefore, at cheaper prices. Wal-Mart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Wal-Mart because of low prices. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that
there are economies of scale in retail sales
The primary reason people hold money is
to use it as a medium of exchange.
Electronics firms may be able to get patents on their ideas. Doing so makes their ideas
vate goods rather than public goods. This gives people more incentive to engage in research
One of the basic principles of economics is that markets are usually a good way to organize economic activity. This principle is explained by the study of
welfare economics.
The president of a poor country has announced that he will implement the following measures that he claims are designed to increase growth: 1. Reduce corruption in the legal system; 2. Reduce reliance on market forces because they allocate goods and services in an unfair manner; 3. Restrict investment in domestic industries by foreigners because they take some of the profits out of the country; 4. Encourage trade with neighboring countries; and 5. Increase the fraction of GDP devoted to consumption. How many of these measures will have a positive effect on growth?
2
Which of the following bundles could not lie on the same indifference curve with A and B and satisfy the four properties of indifference curves?
3 movies and 3 books
Based on the quantity equation, if M = 8,000, P = 3, and Y = 12,000, then V =
4.5
Refer to Table 10-2. What is the socially-optimal level of output in this market?
5 units
Refer to Table 11-3. If the marginal cost of police protection is constant at $36 per person-hour, what is the efficient level of police protection to provide?
66 units
Refer to Figure 9-11. Consumer surplus in this market before trade is
A
Average total cost (ATC) is calculated as follows:
ATC = (total cost)/(quantity of output)
A double coincidence of wants
All of the above are correct
A person who is counted as "unemployed" by the Bureau of Labor Statistics
All of the above are correct
Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is tripled, the
All of the above are correct
Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?
All of the above are correct
"When workers already have a large quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity only slightly." This statement
All of the above are correct.
Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed,
All of the above are correct.
Taxes cause deadweight losses because they
All of the above are correct.
Transfer payments
All of the above are correct.
Which of the following statements is not correct?
If Miguel experiences a wage decrease and works less, the income effect is greater than the substitution effect for him
Suppose that over the last twenty-five years a country's nominal GDP grew to three times its former size. In the meantime, population grew by 40 percent and prices rose by 100 percent. What happened to real GDP per person?
It increased, but it less than doubled.
Consider two items that might be included in GDP: (1) the estimated rental value of owner-occupied housing and (2) purchases of newly-constructed homes. How are these two items accounted for when GDP is calculated?
Item (1) is included in the consumption component of GDP, while item (2) is included in the investment component of GDP.
Which of the following is an example of a positive externality?
Mary not catching the flu from Sue because Sue got a flu vaccine
Denmark is an importer of computer chips, taking the world price of $12 per chip as given. Suppose Denmark imposes a $5 tariff on chips. Which of the following outcomes is possible?
More Danish-produced chips are sold in Denmark
An optimizing consumer will select the consumption bundle in which the marginal rate of substitution
None of the above is correct.
The theory of consumer choice most closely examines which of the following Ten Principles of Economics?
People face trade-offs.
Refer to Figure 21-2. Which of the following statements is correct?
Points W, X, and Y all cost the consumer the same amount of money
Refer to Figure 9-15. With the tariff, the quantity of saddles imported is
Q3 - Q2
Assume the nation of Teeveeland does not trade with the rest of the world. By comparing the world price of televisions to the price of televisions in Teeveeland, we can determine whether
Teeveeland has a comparative advantage in producing televisions.
Refer to Figure 10-4. This market
would benefit from a tax on the product.
On a Sunday morning, Tom sold 300 cups of coffee for a total of $750.
The $750 is a nominal variable. The 300 cups of coffee is a real variable.
Which parable describes the problem of wild animals that are hunted to the point of extinction?
The Tragedy of the Commons
Which of the following events always would increase the size of the deadweight loss that arises from the tax on gasoline?
The amount of the tax per gallon of gasoline increases.
Refer to Figure 21-12. Which of the following statements is not correct?
The consumer is indifference between bundle X and bundle V.
A dentist shares an office building with a radio station. The electrical current from the dentist's drill causes static in the radio broadcast, causing the radio station to lose $10,000 in profits. The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. What is the economically efficient outcome?
The dentist gets a new drill; it does not matter who pays for it.
Which of the following is not correct?
The gains from specialization and trade are based not on comparative advantage but on absolute advantage.
Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods.
The nominal interest rate was 6 percent and the inflation rate was 2 percent
Suppose that candy producers create a positive externality equal to $1 per pound of candy. Further suppose that the government offers a $1-per-pound subsidy to the producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of candy?
They are equal.
Refer to Table 23-7. Which of the following is not correct?
This economy experienced growth from 1975 to 1976
A U.S. grocery chain purchases olive oil from Tunisia and sells it to U.S. consumers. In which of the following is this transaction included?
U.S. consumption and U.S. imports
A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards. This decision provides an example of
a direct regulation of an externality.
The best remedy for market failure is often
a market-based solution
If only a few people are affected by an externality, then it is likely that
a private solution to the inefficiency will occur.
An example of a private good would be
a sleeping bag
Which of the following goods is not excludable and not rival in consumption?
a tornado siren
A lighthouse is typically considered to be a public good because
all passing ships are able to enjoy the benefits of the lighthouse without paying.
Marginal cost tells us the
amount by which total cost rises when output is increased by one unit
Refer to Figure 10-12. Suppose, on the figure, Q represents the quantity of education and P represents the price of education. Then the quantity represents
an inefficiency
Consumer surplus in a market can be represented by the
area below the demand curve and above the price.
At Bert's Bootery, the total cost of producing twenty pairs of boots is $400. The marginal cost of producing the twenty-first pair of boots is $83. We can conclude that the
average total cost of 21 pairs of boots is $23
Constant returns to scale occur when the firm's long-run
average total costs are constant as output increases
A firm produces 300 units of output at a total cost of $1,000. If fixed costs are $100,
b. average variable cost is $3
Refer to Figure 6-19. Suppose a tax of $2 per unit is imposed on this market. How much will sellers receive per unit after the tax is imposed?
between $3 and $5
Refer to Figure 7-15. Suppose producer surplus is larger than C but smaller than A+B+C. The price of the good must be
between P1 and P2.
Dawn's bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of the lower prices to
both existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices.
Suppose that the market price for pizzas increases. The increase in producer surplus comes from the benefit of the higher prices to
both existing sellers who now receive higher prices on the pizzas they were already selling and new sellers who enter the market because of the higher prices.
Minimum-wage laws, unions, and efficiency wages contribute to
both structural unemployment and the natural rate of unemployment.
A tax affects
buyers, sellers, and the government
Frictional unemployment
can be created both by workers quitting to find more suitable jobs and changes in a country's comparative advantages
Which of the following is a store of value?
cash and stocks
Consider a consumer who purchases two goods, X and Y. If the price of good Y falls, then the substitution effect by itself will
cause the consumer to buy more of good Y and less of good X.
According to the quantity theory of money, a 3 percent increase in the money supply
causes the price level to rise by 3 percent.
A macroeconomist - as opposed to a microeconomist - might study the effect of
changes in the money supply on the inflation rate
When prisoners use cigarettes or some other good as money, cigarettes become
commodity money and function as a unit of account
When describing the opportunity cost of two producers, economists use the term
comparative advantage
When the nation of Mooseland first permitted trade with other nations, domestic producers of sugar experienced a decrease in producer surplus of $5 million and total surplus in Mooseland's sugar market increased by $2 million. We can conclude that
consumer surplus in Mooseland increased by $7 million
The commercial value of ivory is a threat to the elephant, but the commercial value of beef is a guardian of the cow. This is because
cows are private goods, while elephants tend to roam freely without owners
Deadweight loss is the
decline in total surplus that results from a tax.
In a fractional-reserve banking system, an increase in reserve requirements
decreases both the money multiplier and the money supply
Other things the same, an increase in population growth
decreases capital per worker. However, there is some evidence that a higher population growth rate may increase the pace of technological progress
A tax levied on the buyers of a good shifts the
demand curve downward (or to the left)
A decrease in the money supply creates an excess
demand for money that is eliminated by falling prices.
As Bubba's Bubble Gum Company adds workers while using the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Bubba's Bubble Gum Company encounters
diminishing marginal product
In the actual economy, households
divide their income among spending, taxes, and saving
A tariff on a product makes
domestic sellers better off and domestic buyers worse off
A toll collected from each car traveling during rush hour on a congested road is an effective correction to the Tragedy of the Commons for all of the following reasons except the toll provides an incentive for commuters to
drive more fuel-efficient cars
Over the last ten years productivity grew faster in Mapoli than in Romeria while the population and total hours worked remained the same in both countries. It follows that
eal GDP per person grew faster in Mapoli than in Romeria
When prices rise,
eal estate is a better store of value than money.
Josh is a full-time college student who is not working or looking for a job. The Bureau of Labor Statistics counts Josh as
either in the labor force nor unemployed
A cable television broadcast of a movie is
excludable and not rival in consumption
A pizza is
excludable and rival in consumption
A macroeconomist is interested in
explaining why the unemployment rate is higher
Productivity
explains most of the differences in the standard of living across countries.
Net exports equal
exports minus imports
If V and M are constant and Y doubles, the quantity equation implies that the price level
falls to half its original level
Which of the following are human capital and physical capital, respectively?
for an accounting firm: the accountants' knowledge of tax laws and computer software
High and unexpected inflation has a greater cost
for savers in high income tax brackets than for savers in low income tax brackets
Economists generally support
free international trade
The invention of the telegraph led to the loss of jobs for those who had delivered mail by horse but created jobs for telegraph operators and delivery persons. This is an example of
frictional unemployment created by sectoral shifts
When goods do not have a price, which of the following primarily ensures that the good is produced?
government
A good will have a more elastic demand, the
greater the availability of close substitutes.
The primary cause of inflation is
growth in the quantity of money.
Countries that restrict foreign trade are likely to
have more firms with domestic market power.
An example of an opportunity cost that is also an implicit cost is
he value of the business owner's time
Gross domestic product measures
income and expenditures.
A rightward shift of a demand curve is called a(n)
increase in demand.
Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture
increases the value of other properties in the neighborhood.
If two bundles of goods give a consumer the same satisfaction, the consumer must be
indifferent between the bundles
Frictional unemployment is
inevitable, because at any given time, jobs are being created in some firms and destroyed in other firms.
A positive externality
is a benefit to a market bystander
Consumer surplus
is measured using the demand curve for a product
National defense is a classic example of a public good because
it is difficult to exclude people from receiving the benefits from national defense once it is provided
Which of the following causes of unemployment is not associated with a wage rate above the market equilibrium level?
job search
Productivity is the
key determinant of living standards, and growth in productivity is the key determinant of growth in living standards
Economists differ in their views of the role of the government in promoting economic growth. At the very least, the government should
lend support to the invisible hand by maintaining property rights and political stability
A consumer consumes two normal goods, coffee and chocolate. The price of coffee rises. The income effect, by itself, suggests that the consumer will consume
less coffee and less chocolate
Refer to Figure 6-12. When the price ceiling applies in this market, and the supply curve for gasoline shifts from S1 to S2, the resulting quantity of gasoline that is bought and sold is
less than Q3
Economists make assumptions to
make a complex world easier to understand
The existence of money
makes trade easier.
Average total cost is increasing whenever
marginal cost is greater than average total cost
Commodity money is
money with intrinsic value.
When the Consumer Price Index increases from 100 to 120
more money is needed to buy the same amount of goods, so the value of money falls
Suppose the only two goods that Charlie consumes are wine and cheese. When wine sells for $10 a bottle and cheese sell for $10 a pound, he buys 6 bottles of wine and 4 pounds of cheese - spending his entire income of $100. One day the price of wine falls to $5 a bottle and the price of cheese increases to $20 a pound, while his income does not change. The bundle of wine and cheese that he purchased at the old prices now costs
more than Charlie's income at the new prices
A negative externality will cause a private market to produce
more than is socially desirable
A cost imposed on someone who is neither the consumer nor the producer is called a
negative externality.
According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then
nominal GDP would fall by 7 percent; real GDP would be unchanged
The price level is a
nominal variable
Economic variables whose values are measured in monetary units are called
nominal variables
Unemployment compensation is
not part of GDP because it is a transfer payment
The labor force equals the
number of people employed plus the number of people unemployed
The higher a country's tax rates, the more likely that country will be
on the negatively sloped part of the Laffer curve.
The things that must be forgone to acquire a good are called
opportunity costs
Assume, for England, that the domestic price of wine without international trade is higher than the world price of wine. This suggests that, in the production of wine,
other countries have a comparative advantage over England and England will import wine.
Assume, for Mexico, that the domestic price of beets without international trade is higher than the world price of beets. This suggests that, in the production of beets,
other countries have a comparative advantage over Mexico and Mexico will import beets.
Assume, for Vietnam, that the domestic price of textiles without international trade is higher than the world price of textiles. This suggests that, in the production of textiles,
other countries have a comparative advantage over Vietnam and Vietnam will import textiles
Assume that your roommate is very messy. According to campus policy, you have a right to live in an uncluttered apartment. Suppose she gets an $80 benefit from being messy but imposes a $60 cost on you. The Coase theorem would suggest that an efficient solution would be for your roommate to
pay you at least $60 but less than $80 to live with the clutter
When economists talk about growth in the economy, they measure that growth as the
percentage change in real GDP from one period to another.
"Left" gloves and "right" gloves provide a good example of
perfect complements
Sandra uses her sewing machine, thread, and yards of denim to produce jean skirts. The sewing machine is an example of
physical capital.
Country A and country B both increase their capital stock by one unit. Output in country A increases by 10 while output in country B increases by 8. Other things the same, diminishing returns implies that country A is
poorer than Country B. If Country A adds another unit of capital, output will increase by less than 10 units.
The provision of public goods gives rise to
positive externalities, whereas the use of common resources gives rise to negative externalities.
Nominal GDP will definitely increase when
prices increase and output increases.
Inventors often obtain patents on new products and processes, thereby turning new ideas into
private goods and increasing the incentive to engage in research
Because of the free-rider problem,
private markets tend to undersupply public goods
According to the Coase theorem, in the presence of externalities
private parties can bargain to reach an efficient outcome
When a country abandons a no-trade policy, adopts a free-trade policy, and becomes an exporter of a particular good,
producer surplus increases and total surplus increases in the market for that good.
Diminishing marginal product suggests that the marginal
product of an extra worker is less than the previous worker's marginal produc
Refer to Figure 13-2. The graph illustrates a typical
production function
The Federal Deposit Insurance Corporation
protects depositors in the event of bank failures.
Refer to Figure 11-1. The box labeled D represents
public goods
If the tax on a good is doubled, the deadweight loss of the tax
quadruples
More generous unemployment insurance would
raise frictional unemployment.
A nation's standard of living is best measured by its
real GDP per person
Which of the following is always measured in prices from a base-year?
real but not nominal GDP
Which of the following is not an advantage to congestion charges for motorists who wish to drive on busy streets?
reduced need for public transportation
The North American Free Trade Agreement
reduced trade restrictions among Canada, Mexico and the United States
When a tax is levied on a good, the buyers and sellers of the good share the burden,
regardless of how the tax is levied.
Accumulating capital
requires that society sacrifice consumption goods in the present.
A seller is willing to sell a product only if the seller receives a price that is at least as great as the
seller's cost of production.
In the case of a technology spillover, internalizing a positive externality through a government subsidy will cause the industry's supply curve to
shift down by an amount equal to the subsidy
When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve sells bonds, then the money supply curve
shifts left, causing the price level to fall
Cyclical unemployment refers to
short-run fluctuations around the natural rate of unemployment.
A model can be accurately described as a
simplification of reality
The Tragedy of the Commons for sheep grazing on common land can be eliminated by the government doing each of the following except
subsidizing sheep flocks
The amount of unemployment varies
substantially over time and across countries
A minimum wage that is set above a market's equilibrium wage will result in an excess
supply of labor, that is, unemployment.
A major difference between tariffs and import quotas is that
tariffs raise revenue for the government, but import quotas create surplus for those who get the licenses to import
Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by K+L represents
tax revenue
The Laffer curve illustrates that
tax revenue first rises, then falls as a tax increases.
If everyone benefits from helping the poor,
taxing the wealthy to raise living standards of the poor can potentially make everyone better off
Domestic producers of a good become worse off, and domestic consumers of a good become better off, when a country begins allowing international trade in that good and
the country becomes an importer of the good as a result
Refer to Figure 10-20. Without government intervention,
the equilibrium quantity is larger than the socially optimal quantity.
Disposable personal income is
the income that households and businesses have remaining after satisfying their obligations to the government.
Assuming diminishing returns,
the increase in output growth from an increase in the saving rate falls over time, and that, other things the same, poor countries should grow faster than rich ones.
A downward-sloping demand curve illustrates
the law of demand.
Which of the following is not included in U.S. GDP?
the market value of an oil change that Ben performs on his own car.
According to the classical dichotomy, which of the following is influenced by monetary factors?
the nominal interest rate
In which case below does a person's purchasing power from saving increase the most?
the nominal interest rate = 7% and inflation = 2%
One of the least regulated common resources today is
the ocean
When calculating a firm's profit, an economist will subtract only
the opportunity costs from total revenue because these include both the implicit and explicit costs of the firm. Correct
The amount of deadweight loss that results from a tax of a given size is determined by
the price elasticities of demand and supply
Which of the following will cause an increase in producer surplus?
the price of a substitute increases
when deflation exists
the real interest rate is greater than the nominal interest rate.
Efficiency in a market is achieved when
the sum of producer surplus and consumer surplus is maximized.
f a country is an exporter of a good, then it must be the case that
the world price is greater than its domestic price.
A cost-benefit analysis of a highway is difficult to conduct because analysts
will have difficulty estimating the value of the highway
A normative economic statement such as "The minimum wage should be abolished"
would require values and data to be evaluated
Suppose that the U.S. has a comparative advantage in the production of spreadsheet software. As a result of opening up the market to international trade,
U.S. producers benefit from higher software prices, increasing producer surplus in the market.
Which of these terms are used interchangeably?
"inputs" and "factors of production"
Refer to Figure 5-5. At a price of $50 per unit, sellers' total revenue equals
$1250
Consider Mandy's decision to go to college. If she goes to college, she will spend $20,000 on tuition, $10,000 on room and board, and $2,000 on books. If she does not go to college, she will earn $18,000 working in a store and spend $8,000 on room and board. Mandy's cost of going to college is
$42,000
A nonbinding price ceiling (i) causes a surplus. (ii) causes a shortage. (iii) is set at a price above the equilibrium price. (iv) is set at a price below the equilibrium price.
(iii) only
At price of $1.30 per pound, a local apple orchard is willing to supply 150 pounds of apples per day. At a price of $1.50 per pound, the orchard is willing to supply 170 pounds of apples per day. Using the midpoint method, the price elasticity of supply is about
0.875.
Charles purchases 20 basketball tickets per year when his annual income is $50,000 and 25 basketball tickets when his annual income is $60,000. Charles's income elasticity of demand for basketball ticket is
1.22, and basketball tickets are a normal good
A bakery would be willing to supply 500 bagels per day at a price of $0.50 each. At a price of $0.80, the bakery would be willing to supply 1,100 bagels. Using the midpoint method, the price elasticity of supply for bagels is about
1.63
A movement downward and to the left along a supply curve is called a(n)
A movement downward and to the left along a supply curve is called a(n)
Which of the following statements is not correct?
Absolute advantage is the driving force of specialization.
A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies
All of the above are correct
Assume that Greece has a comparative advantage in fish and Germany has a comparative advantage in cars. Also assume that Germany has an absolute advantage in both fish and cars. If these two countries specialize and trade so as to maximize the benefits of specialization and trade, then
All of the above are correct
Which of the following steps does an economist take when studying the economy?
All of the above are correct
"Other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises." This relationship between price and quantity demanded
All of the above are correct.
Which of the following is not an example of the principle that trade can make everyone better off?
All of the above are examples of the principle that trade can make everyone better off.
An assumption an economist might make while studying international trade is
All of the above are possible assumptions.
Which of the following statements about comparative advantage is not true?
Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources.
All else equal, what happens to consumer surplus if the price of a good increases?
Consumer surplus decreases.
Which of the following would not result from all countries specializing according to the principle of comparative advantage?
Each country's production possibilities frontier would shift inward.
Consider two individuals - Howard and Mai - each of whom would like to wear sweaters and eat tasty food. The gains from trade between Howard and Mai are least obvious in which of the following cases?
Howard is very good at knitting sweaters and at cooking tasty food, but Mai's skills in both of these activities are very poor
A barber currently cuts hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand?
It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients
Which of the following is a principle concerning how people interact?
Markets are usually a good way to organize economic activity
Assume Leo buys coffee beans in a competitive market. It follows that
None of the above is correct.
A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which principle of economics does this illustrate?
People respond to incentives.
A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct?
The answer depends on the price elasticity of demand.
For a particular good, an 8 percent increase in price causes a 4 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
The market for the good is broadly defined
Refer to Figure 5-12. Which of the following price changes would result in no change in sellers' total revenue?
The price decreases from $24 to $18
Suppose the United States had a short-term shortage of farmers. Which mechanisms would adjust to remove the shortage?
The prices of food and the wages of farmers would adjust
When can two countries gain from trading two goods?
Two countries could gain from trading two goods under all of the above conditions
Elasticity is
a measure of how much buyers and sellers respond to changes in market conditions
Refer to Figure 6-8. If the government imposes a price floor of $5 on this market, then there will be
a surplus of 15 units of the good
A binding minimum wage
alters both the quantity demanded and quantity supplied of labor
Economic models
are simplifications of reality, and in this respect economic models are no different from other scientific models
A shortage results when a
binding price ceiling is imposed on a market.
In a competitive market, the quantity of a product produced and the price of the product are determined by
both buyers and sellers.
Ashley eats two bananas during a particular day. The marginal benefit she enjoys from eating the second banana
can be thought of as the total benefit Ashley enjoys by eating two bananas minus the total benefit she would have enjoyed by eating just the first banana
Any point on a country's production possibilities frontier represents a combination of two goods that an economy
can produce using all available resources and technology
A decrease in input costs to firms in a market will result in a(n)
decrease in equilibrium price and an increase in equilibrium quantity.
Equilibrium quantity must decrease when demand
decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply decrease.
Refer to Figure 6-2. The price ceiling causes quantity
demanded to exceed quantity supplied by 85 units
Which of the following is one of the basic reasons why economists often appear to give conflicting advice to policymakers?
differences in personal values
A market demand curve shows
how much of a good all buyers are willing and able to buy at each possible price
According to the circular-flow diagram, if Suzy is a worker who delivers flowers for Happy Day Flower Company, she participates
in the markets for factors of production exchanging labor for income
Refer to Figure 4-1. The movement from point A to point B on the graph shows a(n)
increase in quantity demanded.
A decrease in the price of a good will
increase quantity demanded
An increase in the number of college scholarships issued by private foundations would
increase the demand for education
Refer to Figure 6-31. Suppose that a price ceiling is imposed in this market at a price of $30 and market demand for the good subsequently increases. This would
increase the size of the shortage
Equilibrium price must increase when demand
increases and supply does not change, when demand does not change and supply decreases, and when demand increases and supply decreases simultaneously.
According to Adam Smith, the success of decentralized market economies is primarily due to
individuals' pursuit of self-interest.
As a rationing mechanism, discrimination according to seller bias is
inefficient and potentially unfair
A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is
inelastic
Absolute advantage is found by comparing different producers'
input requirements per unit of output
Another term for factors of production is
inputs
A statement describing how the world is
is a positive statement
A tax burden falls more heavily on the side of the market that
is more inelastic
The tax burden will fall most heavily on sellers of the good when the demand curve
is relatively flat, and the supply curve is relatively steep
Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is
negative, and the good is an inferior good.
As a result of a decrease in price,
new buyers enter the market, increasing consumer surplus
A competitive market is a market in which
no individual buyer or seller has any significant impact on the market price
Refer to Figure 6-14. If the horizontal line on the graph represents a price floor, then the price floor is
not binding, and there will be no surplus or shortage of the good
A country that currently does not trade with other countries could benefit by
not restricting trade.
The minimum wage, if it is binding, lowers the incomes of
only those workers who become unemployed
Comparative advantage is related most closely to which of the following?
opportunity cost
What must be given up to obtain an item is called
opportunity cost.
Economists compute the price elasticity of demand as the
percentage change in quantity demanded divided by the percentage change in price.
The signals that guide the allocation of resources in a market economy are
prices
Almost all variation in living standards is attributable to differences in countries'
productivity
A perfectly inelastic demand implies that buyers
purchase the same amount as before when the price rises or falls
Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, the
quantity demanded of physicals increases, and the quantity supplied of physicals decreases
A drug interdiction program that successfully reduces the supply of illegal drugs in the United States likely will
raise the price, reduce the quantity, increase total revenues, and increase crime.
Rent control policies tend to cause
relatively smaller shortages in the short run than in the long run because supply and demand tends to be more inelastic in the short run than in the long run
When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy
rises
A survey of professional economists revealed that more than three-fourths of them agreed with fourteen economic propositions. Which of the following is not one of those propositions?
the United States should withdraw from the North American Free Trade Agreement (NAFTA)
A key determinant of the price elasticity of supply is
the ability of sellers to change the amount of the good they produce.
Although lawmakers legislated a fifty-fifty division of the payment of the FICA tax,
the actual tax incidence is unaffected by the legislated tax incidence
A surplus exists in a market if
the current price is above its equilibrium price.
Which of the following would likely be studied by a macroeconomist rather than a microeconomist?
the effect of an increase in the minimum wage on an economy's overall rate of unemployment
A rational decision maker takes an action if and only if
the marginal benefit of the action exceeds the marginal cost
Demand is said to be inelastic if
the quantity demanded changes only slightly when the price of the good changes.
Cross-price elasticity of demand measures how
the quantity demanded of one good changes in response to a change in the price of another good
When two countries trade with one another, it is most likely because
the two countries wish to take advantage of the principle of comparative advantage.
In the simple circular flow diagram, the flow of money from the firms to the markets for factors of production is called
wages, rent, and profit
An economy's production possibilities frontier is also its consumption possibilities frontier
when the economy is self-sufficient.
A manufacturer produces 1,000 units, regardless of the market price. For this firm, the price elasticity of supply is
zero
Suppose that a binding rent control law is repealed in San Francisco. As a result, we would expect the total number of units rented in the city to
increase