Glenwood Ross Final Exam

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Based on the readings in "The Pros and Cons of Globalization", approximately ____________ people own as much wealth as 2.5 billion people own together--nearly half the world's population

400

Supply and Demand Together

Determine the prices of the economy's many different goods and services

Cost Push

Inflation resulting from a large increase in the price of a commodity that is used extensively throughout the economy.

Based on the readings in "The Pros and Cons of Globalization", Globalization has

Led to greater inequality

When economists talk about growth in the economy, they measure that growth with the

Percentage change in real GDP

Inflation can be measured by the

Percentage change in the consumer price index

Which of the following can be measured by a country's membership international organizations?

Political Globalization

Economic Growth

the ability of the economy to increase the production of goods and services

Consumer Surplus

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

Market Value

the amount for which something can be sold on a given market.

The adage, "There ain't no such thing as a free lunch," means

to get something we like, we usually have to give up another thing you like

Based on the readings in "The Pros and Cons of Globalization", Sustainability is defined as meeting the needs of present generations

without compromising the ability of future generations to meet their own needs

If real GDP doubles and the GDP deflator doubles, then nominal GDP

quadruples 2GDP=N/2R*100 4(R)(GDPD)=100N 4(R)(GDPD)/100=N

A steel company sells some steel to a bicycle company for $100. The bicycle company uses steel to produce a bicycle, which it sells for $200. Taken together, these two transactions contribute

$200 to GDP

if GDP Deflator is 200 and nominal GDP is $10,000 billion, then real GDP is

$5,000 billion 200/1=10,000/X 200X/200=10,000/200 X=50 50*100=5,000

GDP Limitations

- informal activity not accounted for - errors (data needs to be collected in short space of time) - ignores quality of output - doesn't tell you about income distribution - doesn't tell you what kind of output (capital vs consumer) - doesn't take into account other aspects of living standards (health, education)

Demand-Side Shift Factors

1. Change in income 2. Change in the prices of related goods or services 3. Change in consumer preferences 4. Change in the number of consumers 5. Expectations

The price level rises from 120 to 150. What is the inflation rate

150-120/120=.25 .25*100=25%

Law of Supply

A fundamental principle of economic theory which states that, all else equal, an increase in price results in an increase in quantity supplied

Complements

A good's demand is increased when the price of another good is decreased. Conversely, the demand for a good is decreased when the price of another good is increased.

Change in Quantity Supplied

A movement along a given supply curve caused by a change in supply price. The only factor that can cause a change in quantity supplied is price

Deflation

A situation in which prices are declining

Shortage

A situation in which quantity demanded is greater than quantity supplied

Surplus

A situation in which quantity supplied is greater than quantity demanded

Equilibrium

A state of balance

For which of the following individuals would the opportunity costs of going to college would be the highest

A) A promising young mathematician who will command a high salary once she earns her college degree B) A student with average grades who has never held a job C) A famous, highly-paid actor who wants to take time away from show business to finish college and earn a degree D) A student who is the best player on his college basketball team, but who lacks the skills necessary to play professional basketball Answer is C

Ralph pays a lawn mowing company to mow his lawn, while Mike mows his own lawn. Regarding these two practices, which of the following statements is correct? A) Only Ralph's payments are included in GDP B) Ralph's payments as well as the estimated value of Mike's mowing services are included in GDP C) Neither Ralph's payments nor the estimated value of mikes mowing services is included in GDP D) Ralph's payments are definitely included in GDP, while the estimated value of Mike's mowing services is included in GDP only if Mike voluntarily provides his estimate of that value to the government

A) Only Ralph's payments are included in GDP B) Ralph's payments as well as the estimated value of Mike's mowing services are included in GDP C) Neither Ralph's payments nor the estimated value of mikes mowing services is included in GDP D) Ralph's payments are definitely included in GDP, while the estimated value of Mike's mowing services is included in GDP only if Mike voluntarily provides his estimate of that value to the government Answer is A

Which of the following would not be a determinant of the demand for a particular good A) Prices of related goods B) Income C) Tastes D) The prices of the inputs used to produce the good

A) Prices of related goods B) Income C) Tastes D) The prices of the inputs used to produce the good Answer is D

If labor in Mexico is less productive than labor in the United States in all areas of production. Who can benefit from trade?

Both Mexico and the United States still can benefit from trade

An American company operates a fast food restaurant in Romania. Which of the following statements is accurate A) The value of the goods and services produced by the restaurant is included in both Romanian GDP and U.S. GDP B) One-half of the value of the goods and services produced by the restaurant is included in Romanian GDP, and the other one-half of the value is included in Romanian U.S. GDP C) The value of the goods and services produced by the restaurant is included in Romanian GDP, but not in U.S. GDP. D) The value of the goods and services produced by the restaurant is included in U.S. GDP, but not in Romanian GDP.

A) The value of the goods and services produced by the restaurant is included in both Romanian GDP and U.S. GDP B) One-half of the value of the goods and services produced by the restaurant is included in Romanian GDP, and the other one-half of the value is included in Romanian U.S. GDP C) The value of the goods and services produced by the restaurant is included in Romanian GDP, but not in U.S. GDP. D) The value of the goods and services produced by the restaurant is included in U.S. GDP, but not in Romanian GDP. Answer is C

Which of the following items is not a factor of production A) labor B) land C) capital D) money

A) labor B) land C) capital D) money Answer is D

Law of Demand

All other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa.

marginalism

Analyzing the additional or incremental costs and benefits arising from a choice or decision

Normal Goods

Any goods for which demand increases when income increases, and falls when income decreases but price remains constant

The difference between production possibilities frontiers that are bowed out and those that are straight lines is that

Bowed-out production possibilities frontiers illustrate increasing opportunity cost, whereas straight-line production possibilities frontiers illiterate constant opportunity costs

Buyer Willingness to Pay Mike $50 Sandy $30 Jonathan $20 Haley $10 Refer to table 7-1 (Above). If the table represents the willingness to pay of four buyers and the price of the product is $18, then their total consumer surplus is

Buyer Willingness to Pay Difference Mike $50 $18-50=+32 Sandy $30 $18-30=+12 Jonathan $20 $18-20=+2 Haley $10 $18-10=-8 Since we are looking for surplus we only want to look at the positive numbers which are Mike, Sandy, and Jonathan (+32)+(+12)+(+2)=+46

Calculating GDP

C+I+G+(X-M)

Opportunity Cost

Captures the idea of tradeoffs. The value of the next-best alternative that we forgo, or give up, when we make a decision. This implies that you do not get something for nothing and that everything has a cost.

Supply-Side Shift Factors

Change in the cost of inputs Advances in technology Taxes and producer subsidies Change in the prices of related goods or services Change in the number of producers Expectations

The principle of comparative advantage as we know it today was developed by

David Ricardo

Macroeconomics

Examines the economy in its entirety. Deals with totals sums or aggregates.

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

If the average cost of transporting a passenger on the train from Chicago to St. Louis is $75, it would be irrational for the railroad to allow any passenger to ride for less than $75

False

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 (It will shift to the right)

If the demand for a good falls when income falls, the good is called an inferior good

False (It would be a normal good)

What was the original mission of the World Bank at its establishment?

Finance post war reconstruction of Europe

The ownership of at least 10 percent interest in a company located in a foreign country is referred to as

Foreign Direct Investment

Expenditure Approach

GDP = C + I + G + (EX - IM)..... C is consumer spending, I is business spending, G is government spending, (export - import)

Inferior Goods

Goods for which demand tends to fall when income rises.

Which of the following is NOT a benefit of globalizaton

Growing power of multinational companies

Economic Decision Rule

If benefits exceed costs, do it. If costs exceed benefits, don't. If MB=MC, one would be indifferent to pursue the acitivity.

When the price level rises, the number of dollars needed to buy a representative basket of goods

Increases, and so the value of money falls

The following table represents the costs of five possible sellers Seller Costs Dale $1,500 Jill $1,200 Denise $1,000 Catherine $750 Jackson $500 Refer to table 7-4 (Above). If the market price is $1,000, the producer surplus in the market is

Seller Costs Difference Dale $1,500 $1,000-1,500=-500 Jill $1,200 $1,000-1,200=-200 Denise $1,000 $1,000-1,000=0 Catherine $750 $1,000-750=+250 Jackson $500 $1,000-500=+500 Since we are looking for surplus we only want to look at the positive numbers that we found which would be Catherine and Jackson (+250)+(+500)=+750

Which one of the following international organizations was established to deal with issues related to global trade

The WTO (World Trade Organization)

Supply and Demand

The amount of a commodity, product, or service available and the desire of buyers for it, considered as factors regulating its price.

economics

The branch of knowledge concerned with the production, consumption, and transfer of wealth

Bureau of Labor Statistics

The government organization responsible for regularly gathering data about the economic status of the population and tracking prices.

microeconomics

The part of economics concerned with single factors and the effects of individual decisions

Change in Quantity Demanded

The total amount of goods or services demanded at any given point in time.

Markets

Trade and exchange a good or service

"Society would be better if the welfare system were abolished" is a normative statement, not a positive statement

True

Inflation

a general increase in prices and fall in the purchasing value of money.

Demand Curve

a graph of the relationship between the price of a good and the quantity demanded.

Supply Curve

a graph of the relationship between the price of a good and the quantity supplied

Competitive Market

a market in which there are many buyers and many sellers so that each has a no influence on the market price.

CPI(Consumer Price Index)

a measure of the overall cost of the goods and services bought by a typical consumer

GDP Deflator

a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100

Stagflation

a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation)

Change in Demand

a shift of the demand curve, which changes the quantity demanded at any given price

Change in Supply

a shift of the supply curve, which changes the quantity supplied at any given price

If a good is normal, then an increase in income will result in

an increase in the demand for the good

If a decrease in income increases the demand for a good, then the good is

an inferior good

if excess demand exists in a market we know that the actual price is

below equilibrium price and quantity demanded is greater than quantity supplied

The average cost per seat on the 50-passenger Floating-On Air Bus Company's trip from Kansas City to St. Louis, on which no refreshments are served, is $45. In advance of a particular trip, three seats remain unsold. The bus company could increase profit only if it

charged any ticket price above $0 for the three remaining seats

Rational people make decisions at the margin by

comparing marginal costs and marginal benefits

Two goods are substitutes if a decrease in the price of one good

decreases the demand for the other good

The unique point at which the supply and demand curves intersect is called

equilibrium

Post Hoc Fallacy

false assumption that because one event occurred before another event, it must have caused that event

Substitutes

good that exhibit a negative or inverse relationship between income and demand.

Final Goods and Services

goods and services sold to the final, or end, user

A market is

group of buyers and sellers of a particular good or service

A likely example of complementary goods for most people would be

hamburgers and french fries

Lead is an important input in the production of crystal. If the price of lead decreases (other thing equal), we would expect the supply of crystal to

increase

When price increases, so does the quantity supplied, and vice versa

law of supply

The consumer price index is used to

monitor changes in the cost of living

The price level rises from 120 to 150. What is the inflation rate

new-old/old= inflation rate 150-120/120=.25 .25*100=25% 25%

Demand Pull

relating to or denoting inflation caused by an excess of demand over supply

Hyperinflation

represents an extremely high run-up in prices and a concurrent rapid and continuous decline in the purchasing power of the local currency. Associated with the immediate exchange of the local currency for goods and/or non monetary assets.

Economics deals primarily with the concept of

scarcity

Ford Motor Company announces that they will offer $3,000 rebates on new Mustangs starting next month. As a result of this information, today's demand curve for Mustangs

shifts to the left

Based on the readings in "The Pros and Cons of Globalization", the increased publicity and communication about poor working conditions in other countries is known as

the CNN effect

Economist use the term inflation to describe a situation in which

the economy's overall price level is rising

Fallacy of Composition

the incorrect belief that what is true for the individual, or part, must necessarily be true for the group, or the whole. What is true for the individual may not be for the group.

GDP is defined as

the market value of all final goods and services produced within a country in a given period of time

If, at the current price, there is a shortage of a good

the price is below the equilibrium price

Real GDP

the production of goods and services valued at constant prices

Nominal GDP

the production of goods and services valued at current prices

A decrease in the number of sellers in the market causes

the supply curve to shift to the left

GDP

the total market value of all final goods and services produced annually in an economy

GDP does not reflect

the value of leisure the value of goods and services produced at home the quality of the enviroment


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