econ midterm 1

Which statement is normative?

The minimum wage is an important tool in fighting poverty and should be increased.

The problem of scarcity is confronted by:

all societies

Unemployment decreased to its lowest level in 10 years last month. This statement is a(n):

positive economic statement.

Corner offices in high-rise office buildings usually cost more to rent than other offices. This BEST illustrates the economic concept of:

scarcity.

(Figure: The Demand and Supply of Wheat) Use Figure: The Demand and Supply of Wheat. If there is a decrease in supply of 2,000 bushels per period at each price, the equilibrium price and quantity will be _____ and _____ bushels per period, respectively. equilibrium at $6 6000

$7; 5,000

Frances has a linear production possibility frontier when she produces tomatoes and green beans. If she uses all of her resources, she can produce 400 bushels of tomatoes or 800 bushels of green beans. Frances is NOT producing efficiently if she produces _____ bushels of tomatoes and _____ bushels of green beans.

200; 200

You read that college tuition is rising every year, and yet more students attend college every year. Isn't this a violation of the law of demand?

32. Probably not. Rising tuition and rising college attendance can likely be explained by a series of rightward shifts in the demand curve for college education. If the supply curve is steady, shifting demand along the unchanged, upward-sloping supply curve would explain this trend:

Your boss is impressed with your performance over the past year and has decided to give you a 5% increase in your salary. Are you clearly better off with your increased salary? What factors must be considered?

33. A 5% salary increase may or may not make you better off than you were last year. If overall consumer prices have increased by less than 5%, there is a good chance that your purchasing power has increased.

In the following cases, use supply-and-demand model to explain what happens to the market outcome (price and quantity). Why. I. Assuming that tickets to an NFL game are normal goods, what is the effect of an increase in the incomes of NFL fans? II. Assuming that DIRECTV and Dish satellite are substitutes, what happens if the price of a DIRECTV subscription increases? III. Assuming that data plans and cell phones are complements, what happens if the price of data plans decreases?

34. : I. If the fans' incomes increase and tickets are a normal good, the demand for tickets will increase, shown by a shift of the demand curve for tickets to the right. II. If subscriptions to DIRECTV and Dish are substitutes, an increase in the price of a DIRECTV subscription will decrease the quantity demanded of DIRECTV subscriptions, shown by a movement up to the left on the demand schedule for DIRECTV subscriptions. The demand for Dish subscriptions, the substitute, will increase, represented by a shift of the demand curve for Dish subscriptions to the right. III. If the price of data plans decreases, the quantity demanded of data plans will increase, shown by a movement down and to the right on the data plan demand schedule. The demand for cell phones will increase, shown by a shift to the right of the cell phone demand curve.

(Table: Crab and Cake Production in Chesapeake) Use Table: Crab and Cake Production in Chesapeake. What is the opportunity cost of increasing the production of crabs from zero to 100? What is the opportunity cost of increasing the production of crabs from 400 to 500? Explain the difference in your answers. https://bgsu.instructure.com/courses/1318011/files/88470215/preview

35. When the region increased production from zero to 100 crabs, the cost was only 50 cakes. But when Chesapeake increased crab production from 400 to 500, the cost was a much larger 250 cakes. In other words, the opportunity cost of crab production rose as more crabs were produced. The reason is that resources (labor, land, capital, and human capital) are not perfectly substituted between crab production and cake production. A unit of capital, such as a boat, is very good at producing crabs but terrible at producing cakes. A square mile of ocean is very good at producing crabs but useless at producing cakes. At some point, as you seek to produce more and more crabs, you run out of such productive resources for making crabs. So you need to start using some resources that may be less productive at producing crabs. In other words, the opportunity cost of producing a given good rises as you produce more and more of that good (since you are running out of resources that are well-suited to making that good!).

Study the four accompanying diagrams. Consider the following statements and indicate which diagram matches each statement. Which variable would appear on the horizontal and which on the vertical axis? In each of these statements, is the slope positive, negative, zero, or infinity? 1. If the price of movies increases, fewer consumers go to see movies. 2. More experienced workers typically have higher incomes than less experienced workers. 3. Whatever the temperature outside, Americans consume the same number of hot dogs per day. 4. Consumers buy more frozen yogurt when the price of ice cream goes up. 5. Research finds no relationship between the number of diet books purchased and the number of pounds lost by the average dieter. 6. Regardless of its price, Americans buy the same quantity of salt. https://bgsu.instructure.com/courses/1318011/files/88470219/preview

36. 1. a) 2. c) 3. b) 4. c) 5. b) 6. b)

80 hours 4 hrs 1 shirt 2 hrs 1 pair socks (Scenario: Linear Production Possibility Frontier) Use Scenario: Linear Production Possibility Frontier. What is the maximum number of pairs of socks Largetown can produce?

40

(Scenario: Countries A and B) Use Scenario: Countries A and B. Given this information, country _____ has a comparative advantage in the production of wheat, and country _____ has a comparative advantage in the production of steel.

A; B https://bgsu.instructure.com/courses/1318011/files/88470217/preview

Sometimes the government varies its spending, depending on the needs of the country. Which economic principle does this statement BEST represent?

Government policies can change spending.

Which statement is positive? Which statement is normative?I. The federal minimum wage in 2016 was $7.25 an hour.II. The minimum wage should be high enough that families will not live in poverty.

I is positive; II is normative.

In Kessy's old kitchen, he could bake 10 cookies or mix 15 glasses of lemonade in one day. Now Kessy has a larger oven and refrigerator. How does this affect his production possibility frontier?

It shifts his production possibility frontier out.

Which statement is NOT true according to standard economic theory?

Resources are scarce when they can satisfy everyone's wants.

For which decision would marginal analysis be MOST relevant?

Should I eat another doughnut?

A trade-off between equity and efficiency may NOT exist because of the fact that:

allocating resources fairly may increase efficiency.

If people demand more of product A when the price of B falls, then A and B are:

complements

80 hours 4 hrs 1 shirt 2 hrs 1 pair socks (Scenario: Linear Production Possibility Frontier) Use Scenario: Linear Production Possibility Frontier. If Largetown's labor resource decreases by 40 hours, the opportunity cost of producing shirts:

does not change.

The trade balance is the difference between the value of:

exports and imports.

In the simplest circular-flow model, households supply _____ and demand _____.

factors of production; goods and services

The circular-flow diagram represents the market for _____ and the market for _____.

goods and services; factors of production

An inferior good is one for which a(n) _____ in buyers' incomes causes a(n) _____.

increase; decrease in demand

The law of demand states that, other things equal, as the price:

increases, the quantity demanded will decrease.

The topics studied in macroeconomics include:

inflation

Changing interest rates is an example of _____ policy.

monetary

When milk consumption decreased, a survey firm wanted to know what was going on, so they interviewed people and found that people thought that rising milk prices were making it hard to justify their milk purchases. This suggests that what is going on is a:

movement along the demand curve for milk.

The concept of comparative advantage is based on:

relative opportunity costs.

Technological improvements will:

shift the production possibility frontier outward.

The basic concern of microeconomics is to:

study the choices people make.

Keynesian economics promotes ideas that:

the government can help a depressed economy via fiscal and monetary policies.

The economy's factors of production are not equally suitable for producing different types of goods. This principle generates:

the law of increasing opportunity cost.

The point at which a recession ends and the expansion begins is called the:

trough.