HON 313 ECON

What source of rapid (1950-1975) growth is not duplicatable?

Electrification of lighting

If you add exports and imports, America's most significant trading partner is

Europe

The World Trade Organization governs the provisions of

GATT.

The Increase in graduation rates is occurring as a result of

General Equivalency Degrees (GEDs) being included in the data.

Unequal treatment of classes of people that is based on sound statistical evidence and is consistent with profit maximization.

Rational or statistical discrimination

A revolution in Iran results in a significant reduction in the world's supply of oil

Supply decreases

A cyclone destroys manufacturing plants.

Supply decreases.

The Affordable Care Act is amended to require employers to provide health insurance to part-time as well as full-time employees.

Supply decreases.

A new computer chip is developed that is faster and cheaper than previous chips

Supply increases

Manufacturing firms expect steel prices to decrease significantly.

Supply increases.

Technological changes enable workers to be more productive.

Supply increases.

Which of the following was not likely a contributing factor to the recession of 2007-2009?

The 2008 tax rebates

Suppose the interest rate is 2 percent. What is the future value of $500 five years from now?

552.05

Which concept from Chapter 1 can be used to explain how it is possible for it to be in the individual interest of each nation to engage in protectionist policies but for everyone to be worse off if they all engage in protectionist policies?

The fallacy of composition

Which of the following had the effect of increasing income inequality?

The increase in globalization of trade in steel, autos, and consumer durables

Which of the following had the effect of decreasing income inequality?

The increase in the female labor force participation rate

Which advantage does a typical developing country have in attempting to draw foreign investment?

Very low wages

There is _____ degree of racial and ethnic distinction in U.S. rates of poverty.

a significant

Suppose an establishment has absolutely no overt history of employment discrimination but has a goal of reducing race or gender gaps in its employment. To reduce that gap, it can

make sure that all potentially qualified employees know about a particular job. favor a minority candidate over an equally qualified non-minority candidate. establish a minority quota guideline that employers should try to meet.

When a firm chooses to shut down, it is

making a good decision as long as the price it is getting is less than its average variable cost. If a firm cannot cover its variable costs, then it will lose more than the fixed costs by continuing to operate.

Assign the following programs to each type of spending. a. interest payments on the debt b. national defense c. social security d. food stamps e. international policy and foreign aid

mandatory spending, discretionary spending, mandatory spending, mandatory spending, discretionary spending

In the market for loanable (borrowed/saved) dollars, an increase in the profitability of investments overall will be revealed in

an increase in the demand for loanable dollars. If investments are more profitable, firms will want to get more funds to invest, so the demand for loanable (borrowed/saved) dollars will increase.

In the long run, rent control has ________ impact because, over time, supply and demand become ________ elastic.

an increasing; more In the short run, supply and demand for apartments is inelastic. Rent control lowers rent without much displacement of renters. In the long run, supply and demand for apartments gets more elastic and the negative consequences become more pronounced.

Farm price supports are typically for

basic commodities like raw milk and grain. Highly variable commodity prices create an unstable income for farmers, reducing their interest in farming. Until quite recently, prices for most farm commodities like raw milk and grain have risen far more slowly than overall consumer prices. As such, farm incomes would be depressed without price supports.

If the United States were to eliminate the drinking age, then in terms of externalities you might predict the outcome to be

more drunk driving accidents and driving-related incarcerations. If the United States were to eliminate the drinking age, then in terms of externalities an expected outcome might be more driving-related accidents and death. If young people were able to drink freely, it would affect their brain development and influence their ability to learn and become productive members of society.

The cost of educating a college student is

much greater than the cost of educating a high school student because college professors make more money and teach fewer hours per week.

Compared to a recreational user of a drug, an addicted user's elasticity of demand is

much less elastic. When someone is addicted to a product, as smokers are to cigarettes, the demand curve for the good is highly inelastic.

Orphan drug laws were created because the motivation to invent drugs for these diseases was

much less than normal because firms anticipated few sales. An orphan drug is a drug that treats someone with a disease that afflicts few people. Therapies that benefit small numbers of patients cannot hope to generate sufficient profits during normal patent lives for companies to justify research. For this reason drugs that are labeled orphan drugs are granted very long patent lives so that profits, though small, can be expected to last well into the future.

Per capita real economic growth during the Industrial Revolution through the mid-1970s was

nearly 2 percent.

To compare benefits received in the distant future with taxes paid in the past, currently, and in the near future, we use the concept of

net present value.

The major difference between nominal GDP and real GDP is

nominal GDP measures the value of output in current-year prices, while real GDP measures output using constant prices. Nominal GDP is the value of goods and services (output) produced in an economy measured at current prices. Real GDP is the value of goods and services (output) produced in an economy measured using constant prices.

The existence of the federal income tax and the welfare system serve as the primary elements of

nondiscretionary fiscal policy.

According to the law of diminishing marginal utility, as more of a product is consumed,

the amount of extra happiness decreases. Each time you consume another unit of a good, the value you place on the next unit falls. This means that the value you place on a good depends on how many you have already had. Economists refer to the amount of extra happiness that people get from an additional unit of consumption as marginal utility and say that it decreases as you consume more. This law of diminishing marginal utility suggests that the amount of additional happiness that you get from an additional unit of consumption falls with each additional unit. Stated more simply, because each additional unit increases your happiness less than the previous unit, the most you would be willing to pay for each additional unit is less than before. One reason why a demand curve is downward sloping, then, is that for most goods there is diminishing marginal utility.

Decriminalizing a drug is likely to lead to a price decrease if

the anticipated supply effect is greater than the anticipated demand effect. The net result of legalizing a previously illegal activity would be a movement in the demand curve to the right and a movement in the supply curve to the right. If the rightward shift of supply is greater than the rightward shift of demand, the price will fall.

When justifying the wisdom of tobacco taxes, economists focus almost entirely on

the costs to nonsmokers (like secondhand smoke) The externalities that result from the use of tobacco are the illnesses and deaths associated with secondhand smoke and the increased health care expenditures incurred by people who do not smoke but must pay increased premiums for health insurance to cover the expenses of smokers. It is not the concern of most economists that (knowledgeable) smokers hurt themselves by smoking. It is the concern of economists that those smokers tend to pass on costs to others.

An increase in the income of consumers will cause the

the demand for some goods to rise and for others to fall. A rise in income can either increase demand if the good is a normal good, or decrease demand if the good is an inferior good.

Absent sexism or bigotry on the part of business owners, greed can lead to the reduction in wage gaps between men and women and between whites and nonwhites because

the desire for profit drives business owners to hire a productive individual regardless of their gender or skin color.

When firms add workers and become more efficient, they are benefiting from

the division of labor Division of labor enables a small increase in labor to result in a dramatic increase in output.

An example of an externality that we see every day is

the emissions from a car's tailpipe.

Income gaps between men and women and whites and nonwhites may persist even in the absence of sexism or racism by business owners because

the gap has not had time to close. there are skill differences between workers.

The argument that employers would actually not lose money if the minimum wage were raised is based on

the idea that workers would be more productive if they felt they were adequately compensated. If higher pay translates into workers who are happier and who do more work per hour, it may be the case that some if not all of the impact of forcing wages to rise will be mitigated. In this way the minimum-wage increase may pay for itself.

The decrease in SAT scores is occurring as a result of

the increasing proportion of students from low socioeconomic groups taking the SAT.

Using linear production possibilities frontiers in a simple two-good, two-country model, comparative advantage is evident when

the slopes of the two production possibilities frontiers are different.

Suppose the United States were to legalize marijuana production. The current negative externalities that might be lessened by legalizing marijuana are

the social costs of law enforcement and incarceration. Enforcing a marijuana prohibition strategy creates problems such as drug violence, robbery, drive-by shootings to protect turf, and hundreds of thousands of prison beds devoted to drug offenders. It is for this reason that you find a significant number of economists, even very conservative economists, favoring drug legalization.

Those who argue that the slow-growth predicament reflects the "new normal" claim that

the sources of economic growth of the post-Civil War period have all but evaporated.

The popular press measure of inequality looks at the percentage of

total income going to the top 1 percent of earners.

If the equilibrium rent is ________ the controlled level, then rent control laws are ________.

below; irrelevant For a price ceiling to be relevant it must be lower than the equilibrium price. Imagine what would happen if the ceiling were, in fact, above the equilibrium price. If landlords charged more than equilibrium, their renters would move to other landlords' buildings. Since landlords do not find it in their best interest to do this, setting rents by law at a rate lower than equilibrium has the effect of telling landlords that they cannot do something that is not in their best interests anyway.

In terms of whether there is a degree of underfunding of your pension plan, a defined contribution plan is

better than a defined benefit plan because the employee controls the investment and the amount.

Federal spending is typically _______ percent of GDP.

between 18 and 22

Since 1950, the trends in U.S. international trade are such that

both imports and exports are increasing One of the more important economic developments of the last 35 years is the increased globalization of our economy. Whereas the world used to be made up of more than 150 countries whose economies were mostly independent of one another, nearly all of the economies of the nations of the world now depend heavily on one another.

When discussing an addictive drug, an economist is likely to focus on

both the external costs and the "information problem" associated with addiction. When discussing an addictive drug, an economist is likely to focus on the external costs and the "information problem" associated with addiction. For illegal goods, advertising is not an issue; the real "information" problem is the degree to which people do not adequately weigh the likelihood or impact of addiction.

The elasticity of demand is related to the slope of the demand curve

but also the (price, quantity) position on the demand curve. The flatter the demand curve, the greater the elasticity. The steeper the demand curve, the smaller the elasticity. This is not to say that slope and elasticity are the same thing; it just means that slope matters.

Trade agreements are enforced

by the consent of the parties to abide by the judgment of the arbitrators.

A price support mechanism

can involve government manipulation of the supply or demand of the good. All of the many forms of support that government can give to farmers can be modeled with our supply and demand model.

Affirmative action

can take many forms.

The "creation" of money is

formally the purview of the Federal Reserve, constitutionally the purview of Congress, but banks have a practical means of creating money

The Medicare Trust Fund is necessary because

future expenses will be greater than future revenues. One of the greatest concerns today is the fiscal health of the Medicare program that provides for our elderly's physical health. The Medicare Trust Fund enjoyed assets of $266 billion in 2014. This trust fund was set up to handle the anticipated medical expenses of the baby boom generation.

To whom a country owes its money matters because

future generations will be responsible for paying the debt with interest to people in other countries rather than to American citizens.

The problem of the "third-party payer" arises in health care in the form of

government and/or private insurance paying a significant part of the costs. A situation of a "third-party payer" arises where someone other than the consumer is paying the bill. When this happens, the usual role of keeping costs down is taken out of the hands of the consumer. In the case of health care, the problem of a "third-party payer" arises when government and/or private insurance pay a significant part of the costs.

Total federal spending on health care, after adjusting for inflation, has been

growing

The dependency ratio in the United States is

growing.

For developed economies, sustained increases in aggregate demand, absent increases in aggregate supply, will result in

growth for a while, but ultimately, they will result in only inflation

Suppose someone who earned $100,000 per year had a marginal tax rate of 25%, but were only required to pay $10,000 in taxes. This could be true if the person:

had several children and a grandparent living in the household. Exemptions are the amount by which adjusted gross income (AGI) is reduced. It is determined by the size of your family; each person in the household counts as one. Each person over 65 counts as one more, as does each blind person. Thus, the more exemptions a household has, the lower the AGI is, so even with a 25% marginal tax rate, the household could pay significantly less than 25% on total income.

The evidence on most environmental pollutants (lead in the air and water, sulfur in the air, etc.) is that they

have decreased substantially in the last 40 years.

Of course, all individual students are better off if they get better grades. If you were to conclude that all students would be better off if everyone received an A, you would

have fallen victim to the fallacy of composition The fallacy of composition is the mistake in logic that suggests that the total economic impact of something is always and simply equal to the sum of the individual parts.

The prescription drug industry is characterized by products that have

high fixed costs and low marginal costs. Initial drug development involves a lot of funds devoted to research and development, which results in high fixed costs. Once the drug is approved, the manufacture and sale of the drug involve relatively low marginal costs.

Social discord resulting from income inequality can be lessened if there is (are)

high levels of intergenerational income mobility. high levels of income mobility of individuals.

The textbook publishing industry has a great deal in common with the pharmaceutical industry in that there are __________ fixed costs and ____________ marginal costs.

high; low The publisher's costs include very high fixed costs for such things as supplements (recent textbooks have all needed to have expensively produced testbanks, instructor's manuals, website materials, study guides, PowerPoints, etc.) as well as costs associated with editorial staff and marketing. The variable costs also include the cost of the paper, ink, and printing of the book itself. In all, the marginal production cost of a textbook is less than $10, sometimes as little as $5. When all is said and done, the $126-$131 margin that the publisher makes must cover all the fixed costs of production.

It might be easier to see a job lost because of NAFTA than to see a job created by it because

if workers lose their jobs when a factory moves, they are vocal, but a job created from trade is not likely to be noticed.

Suppose the United States were to legalize marijuana production. The negative externalities that might occur from legalizing marijuana are

impaired driving and family problems. Legalization would not eliminate externalities associated with marijuana use. There are harmful effects to innocent third parties from secondhand smoke, impaired driving, and the exposure to children and the negative affects on spouses and children.

Federal Reserve independence is

important to its effectiveness.

In order to grow economically Mexico needs to

improve social, political, financial, legal, and economic institutions to foster growth.

The problem of time lags in enacting and applying fiscal policy is

in the time it takes to identify the situation, enact a policy, and allow it to work, economic circumstances may have changed.

The opportunity cost for you to attend college might best be described as

income you could have earned at a full-time job Opportunity cost is the next best alternative that is sacrificed when a choice is made. Note that this cost is not necessarily expressed in terms of money but rather in terms of whatever is sacrificed or given up.

When engaging in monetary policy, the impact of expansionary policy is modeled by a(n)

increase aggregate demand.

When a program like Medicaid is introduced, the market demand curve for health care will

increase and become more steep. The demand curve for the non-poor is farther to the right than the demand curve for the poor. This horizontal adding of demand curves gives us the market demand curve. The demand curve will get more steep because there are fewer substitutes, especially for the poor.

If Congress wants to use $100 billion on tax cuts, the version that would help a family of four making $40,000 a year would

increase the Child Tax Credit by $1,000.

The earnings of African Americans relative to whites has

increased from 50 percent in the 1950s to around 60 percent in the 1970s, rising only slightly. The ratio of white family income to black family income remains significantly less than 1.0 (its value if perfect equality existed), but it has grown from 0.52 in 1950 to 0.614 in 2014.

Since its inception, the portion of earnings that has been subject to the Social Security tax has

increased substantially.

Demand-pull inflation

increases prices and raises output.

Cost-push inflation

increases prices but decreases output.

The consumer price index (CPI) is a heavily criticized measure of inflation because

it consistently overstates the increase in the cost of living. Economists have argued for many years that the CPI overstates the cost of living. The degree of that overstatement has been the subject for significant economic research. Part of the problem in resolving the agreed-upon problems is that any correction has the effect of reducing Social Security checks and increasing taxes.

One problem with using real gross domestic product (RGDP) as a measure of social welfare is that

it fails to count home production. One reason that real gross domestic product is not synonymous with social welfare is because it does not count do-it-yourself production. Second, real GDP does not see that leisure is valuable. Third, what people buy is not considered important in the computation of GDP. Fourth, growth in the population can change the per capita real GDP, and fifth, although we can sacrifice environmental quality of life for economic gain, we would not necessarily be better off.

Free-trade agreements would be easier to negotiate between similar countries than with ones that had very different methods of production, safety standards, and wages because

it is easier to agree to terms with a negotiating partner that shares similar conditions.

A change in immigration policy could positively affect the projected solvency of the Social Security system if

it would allow more workers to enter over the next 20 years and pay into the system

Even if it is in the best interests of every other country to limit prescription drug prices, it might not be in the best interests of the United States to limit those prices because

it would discourage drug innovation and development. The world's drug inventors eye the profit that they get in the United States when they pour billions into their scientists and laboratories. If they could not make a profit in the United States, there would be no place to make one and they would not put the money into innovation. To mix metaphors, the United States is the drug industry's cash cow; by controlling prices, we would be killing the golden goose just as she is producing some very important life-improving and life-saving eggs.

One unsettling consequence of setting a tax on tobacco sufficiently high to reduce consumption would be that

it would make Social Security's financial outlook worse. A tax on tobacco sufficiently high to reduce consumption would make Social Security's financial outlook worse. When smokers over the age of 60 become ill, their lifetime of smoking has so depressed their immune systems that they die of illnesses that nonsmokers are more likely to survive. They also succumb to those illnesses much faster and less is spent attempting to save them. Even though the money is spent sooner, it is much less. It is grimly ironic then that by dying more quickly than nonsmokers, smokers sometimes cost the health system less than do nonsmokers. By dying early and quickly, smokers avoid expenses that nonsmokers eventually need to pay. Because more than one-quarter of Medicare expenses are incurred during the last year of elderly people's lives, hastening their deaths saves money.

Suppose a firm has $1,000,000 in fixed costs and variable costs equal to $100; for every unit it produces,

its average costs are decreasing. The fixed costs are fixed and do not change. The marginal cost is constant ($100). The average cost would be decreasing as output increases.

One of the biggest problems for developing countries is that they all too often

lack the financial, physical, and social infrastructure to grow.

The principal argument in favor of rent control is that

landlords have the ability to raise rents because they know is it costly for tenants to move. Unless prevented from doing so, landlords can increase rents and tenants must compare the benefits of moving against the cost of moving. This gives landlords a considerable power to raise rents. It is cited as a significant reason for not allowing landlords to raise rents (or at least limit the amount by which they can be raised).

Imagine an economist ordering donuts one-by-one. When deciding how many donuts to order she would pick that number where the enjoyment of the ________ equals the enjoyment she could get from using the money on another good.

last/marginal donut The enjoyment of the last slice is the marginal benefit of that slice. if this enjoyment is more than the enjoyment from some alternative, more will be consumed.

If the system is progressive and someone is in the 25 percent tax bracket, this means that ________ is owed in taxes.

less than 25 percent of his or her taxable income

The ability of the Federal Reserve to control interest rates using its traditional tools is

limited almost entirely to short-term rates.

Trade agreements are often necessary because

limiting trade helps those doing the limiting but typically by less than it hurts those who are limited.

Any event that creates a "crisis in confidence" is likely to lead to

lower aggregate prices.

One typical response to a recession for those engaged in discretionary fiscal policy is to

lower taxes and increase spending.

The present value of extracting a $50 barrel of oil in five years is

lower, the greater the discount rate

Some believe that slowing growth is a cause of a declining middle class because

lower-middle-income households have fallen below the middle-class category.

Using a higher rate of discount (or interest rate)

lowers the present value of future liabilities.

If China wants to continue to grow, it will need to

maintain political and financial stability while creating infrastructures that continue to build investor confidence.

In order for the minimum wage to reach its 1968 high in real terms (1999 dollars), it would have to rise to slightly more than ________ per hour.

$12 In 1968 the minimum wage was $1.60. With a base year of 1999, the 1968 CPI was 20.9 and the 2019 CPI was 153.3. In order for the minimum wage to reach its 1968 high in real terms (1999 dollars), it would have to have been about $12 per hour in 2019 (= (($1.60 ÷ 20.9) × 153.3) = $11.74).

In a simple 300 million-person world of all four-person families, if the poverty line is $20,000 and half of the 10 million families (with 40 million poor people) earn $17,500 and the other half earn $15,000, then the poverty gap is

$37.5 billion (= 5 million * $2,500 + 5 million * $5,000). The poverty gap is the total amount of money that would have to be transferred to households below the poverty line for them to get out of poverty. In a simple 300 million-person world of all four-person families, if the poverty line is $20,000 and half of the 10 million families, or 5 million families, (with 40 million poor people) earn $17,500 and the other 5 million families earn $15,000, then the poverty gap is $37.5 billion (= 5 million * ($20,000 - $17,500) + 5 million * ($20,000 - $15,000)).

The FY 2020 federal budget was around

$5 trillion.

Suppose you save $25 per month at an interest rate of 10 percent. After 6 years, which of the following is the closest approximation to the interest you would have earned?

$653 When you save $25 per month at 10 percent interest, the future value (using Excel) is (FV(10%/12,6*12,-25) ) = $2,453. Since you would have saved $25 × 6 × 12 = $1,800, the difference is interest = $653.

If you have a $2000 covered health expense, a deductible of $500, and a 20% co-pay, then you pay ________ and the insurance company pays ________.

$800; $1200 A deductible is the amount of health spending a year that you have to pay before the insurance company pays anything. A co-payment is either a set amount or the percentage of the bill, after the deductible has been taken out, that you have to pay. So, in this case, if you have a $2,000 covered health expense, a deductible of $500, and a 20 percent co-pay, then you pay $800 (= $500 (deductible) + $300 (co-pay = $2,000 − $500 × 20 percent). The insurance company pays $1,200 (= $2,000 − $800).

Suppose you knew that there was going to be 25 percent inflation between now and five years from now, and suppose you knew that the current minimum wage of $7.50 was only enough to get a family of three to 80 percent of the poverty line.In order to make the minimum wage earn enough to be at that poverty line in five years, the minimum wage in five years would have to be

11.73 ± 0.2 If the current minimum wage of $7.50 is only enough to get a family of three to 80 percent of the poverty line, the current minimum wage would have to be $9.38 (= $7.50/(80/100)) to be high enough to bring the family to the poverty line. Since inflation is expected to be 25 percent in the next five years, in order to make the minimum wage earn enough to be at that poverty line in five years, the minimum wage in five years would need to be $11.73 (= $9.38 × (1 + (25/100)).

In a simple 300 million-person world of all four-person families, if the poverty line is $20,000 and half of the 10 million families (with 40 million poor people) earn $17,500 and the other half earn $15,000, then the poverty rate is

13.33% (40 million/300 million). The poverty rate is the percentage of people in households whose incomes are under the poverty line. In a simple 300 million-person world of all four-person families, if the poverty line is $20,000 and half of the 10 million families (with 40 million poor people) earn $10,000 and the other half earn $15,000, then the poverty rate is 13.33% (= (40 million/300 million) × 100).

Income inequality, when measured as the percentage of total income going to the top 1 percent, increased most rapidly during the

1980s and 1990s.

The last time the minimum wage alone was sufficient to keep a family of three above the poverty line was

1985. As you can see in the figure below, the minimum wage was always sufficient to keep an individual above the poverty line. It has been less successful for families. Since 1985 the minimum wage has been insufficient to maintain a one-earner, minimum-wage family (constituting more than an individual) above the poverty line.

Suppose the nominal interest rate is 6 percent and the expected inflation rate is 2 percent. The real interest rate is

4% The nominal interest rate is equal to the sum of inflation expectations and the real interest rate. The real interest rate is equal to the nominal interest rate minus the rate of inflation expectations. The rate of inflation expectations is equal to the nominal interest rate minus the real interest rate.

The data on wealth concentrations come from

4,500 individuals who are selected to accurately represent the U.S. population's demographics.

Angela puts $5,000 in a savings account that pays 5 percent interest per year. What is the future value of her money two years from now?

5,512.50

Using a poverty line of $20,000, under the current system of calculating the poverty rate, which of the following people are not considered to be in poverty and probably ought to be?

A New York City family whose combined income is $21,000 Because it is much more expensive to live in New York City than in Appleton, Wisconsin, for example, families of four in New York City with incomes that are a single dollar over the poverty line are significantly worse off than families of four in Appleton with incomes one dollar under the poverty line. In this way the poverty rate underestimates both urban poverty and poverty on the coasts. It overestimates the incidence of poverty in rural areas, small cities, in the South, and in the Midwest.

Use the aggregate supply-aggregate demand model to determine which of the following will lead to higher aggregate output.

A cut in interest rates

Which of the following is likely to occur after several years of relevant rent control?

A decrease in available housing The final obvious consequence of rent control, which happens regardless of whether we are talking about the short run or long run, is that people will seek apartments in the rent-controlled community who had not sought to rent there before. The consequence of rent control is that the number of apartments that would ordinarily be rented is decreased because the quantity demanded is more than the quantity supplied.

An environmental economist would likely recommend which of the following policies?

A tax on gasoline equal to the environmental damage caused by one gallon of gasoline

Doing something that is not necessarily discriminatory on its face but that impacts some groups more negatively than others.

Adverse impact discrimination

Which of the following forms of private insurance is likely to have the lowest premiums and least doctor choice flexibility?

An HMO HMOs require that people see specific doctors at the beginning of any problem. Patients can see specialists only after their primary care physician makes a referral, and the primary care physician has the job of making sure that his or her patients get the appropriate care as inexpensively as possible. Usually HMO PCPs receive a fixed fee for every patient assigned, and specialists are either salaried or also have fixed fees for every referral. Because of this structure, HMOs are likely to provide the least doctor choice flexibility. However, by exercising maximum control over specialist referrals and limiting expensive and unnecessary procedures, HMOs serve to keep premiums, deductibles, and co-payment rates low.

Use the aggregate supply-aggregate demand model to determine which of the following will lead to higher prices.

An increase in government spending

Which of the following groups of people comprise a majority of those Americans living below the poverty line?

Blacks and Hispanics

It is more likely that health expenses will rise faster in the United States than in Canada or the United Kingdom because

Canada and the United Kingdom have a single-payer system financed by taxpayers, but the United States does not. Having a single-payer system, where the government collects significantly high taxes to pay for everyone's health care, benefits those who could not afford health care any other way. It creates serious shortages as well. In Canada, England, and much of Europe, being a citizen of the country grants you unlimited rights to necessary health care that is either free or close to it. While the financial arrangements in these countries differ, the citizenry need not worry about access to basic health care regardless of their ability to pay. This helps explain the very low occurrences of infant mortality and relatively long life spans in these countries. However, single-payer systems constrain usage of health care (something the United States doesn't). For instance, knee replacement surgery is done routinely and in a relatively unconstrained way in the U.S. system but is throttled/rationed in both the United Kingdom and Canada so as to constrain elective surgery costs.

If all K-12 schools were privately owned with a constant subsidy paid by the government to the school for each student enrolled, what would be one potential and likely negative consequence?

Cherry picking

What are the key reasons why college costs are higher than high school costs?

College faculty salaries are higher than K-12 faculty salaries Subsidies to education cause increased demand for college Research expenses

Amounts by which AGI is reduced; the greater of either the standard deduction or itemized deductions

Deductions

A stock market crash reduces people's wealth.

Demand decreases

Consumers become more pessimistic about the economy.

Demand decreases.

The United States enters into an arms race with China, resulting in a significant increase in military spending

Demand increases

The spread of democracy around the world increases consumer confidence in the United States

Demand increases

Government spending increases.

Demand increases.

Consumer confidence falls

Demand-side shock

Which of the following statements is true?

Democrats favor a current-services budgeting approach to ensure that government services are available to everyone who is eligible to receive them.

Treating two otherwise equal people differently on the basis of race.

Disparate treatment discrimination

Deductions for particular expenses on which the government does not want taxes paid

Itemized deductions

In terms of when fiscal shortfalls are likely to require significant changes to budgets or program rules, which of the following is likely to occur first?

Medicare

The answers are different because

Mexico is at an earlier stage of development than Germany.

Which of the following groups of people are poor in numbers vastly out of proportion to their numbers in the general population?

Minorities, women, and children

Which of the following policy changes could you make now that would have a delayed impact on crime several years from now?

More equal distribution of income and better education for everyone If rational criminal theory is accurate, raising a middle-, upper-middle-, or high-income person's economic prospects should have little to no effect on crime. Even without a growth in income, such a person would have virtually no incentive to turn to crime. An increase in income would simply lessen a trivially small temptation and would have no appreciable impact on crime. On the other hand, if the economic prospects changed at the low end of the economic scale, the effect on crime would likely be substantial.

Which lag described in Chapter 9 did the concept of "shovel-ready" intend to combat?

Operational lag

Suppose your grandmother told you (today) that she had set aside an amount of money in a savings account bearing 3 percent interest that was sufficient to give you a $5,000 graduation present in exactly four years. How much would she have had to set aside? • Option a: $5,000 • Option b: $5,000 × (1.03)4 • Option c: $5,000/(1.03)4 • Option d: $5,000/(1 + 0.034)

Option c

Which of the following college costs has experienced the slowest increase?

Overall prices

When a 65-year-old goes to the hospital, the part of Medicare that pays for the hospital bill is

Part A. Medicare comprises two programs: Medicare Part A, a mandatory program that covers expenses derived from hospital stays, and Medicare Part B, a voluntary program that covers doctor visits.

In terms of magnitude, which of the following has the greatest fiscal shortfall?

Social Security

The largest single item in federal spending is

Social Security.

What measures do economists rely on most to evaluate the national debt?

The absolute size of the debt and the ratio of national debt to GDP.

The real-balances effect is illustrated by which of the following examples?

Your favorite pizza place offers a two-for-one pizza sale. According to the real-balances effect, when a price increases your buying power is decreased, causing you to buy less, and when a price decreases your buying power is increased, causing you to buy more.

The Obama administration's stimulus package was

a balance between tax cuts, spending on projects, and shoring up the unemployment and welfare systems.

"Cap-and-trade" would be more aligned with those who wish to use private market innovations to solve environmental problems than a regulatory-based environmental system because

a cap-and-trade approach allows firms to trade permits so that firms with the lowest pollution cleanup costs will clean up.

The tool you identified above is the best choice in most circumstances because it is done on

a daily basis, doesn't inconvenience bank managers, and doesn't require banks to take loans from the Fed. Open-market operations are done on a daily basis, which makes them good for everyday transactions and allows policy to change direction or magnitude without it looking like the Federal Reserve made a mistake. This serves to enhance the Fed's credibility. Open-market operations don't inconvenience bank managers the way that changing reserve requirements would and they don't require banks to make loans from the Fed like changing the discount rate for policy does.

A school teacher would be a better candidate for a defined benefit pension than a computer programmer because

a defined benefit plan presumes long-term service to one employer and a teacher is more likely to have one employer for their lifetime than a computer programmer.

The real-balances effect indicates that

a higher price level will decrease the real value of many financial assets and therefore reduce spending.

The advocate for education who claimed that you have to pay teachers more in order to get more qualified teachers might be correct because

a more qualified teacher has other alternatives and would need higher pay to choose teaching.

Part of the Patient Protection and Affordable Care Act involved a tax on indoor tanning that tanning salons are required to collect from tanners and send to the federal government. Which of the following would be the predicted result?

a movement to the left in the demand for tanning Since the tax is collected from tanners, it would affect the demand side of the market. Tanning is now more costly, so demand shifts to the left (decreases). *think about who it affects

The evidence is that welfare reform in 1996 resulted in ________ the number of people on welfare.

a substantial decrease in In the 1996 reforms, the problem of welfare dependency was tackled by simply ordering people to leave welfare. The institution of time limits was an acknowledgment of the concern that dependency was wrong and that monetary incentives for relinquishing benefits were too expensive. Instead of being offered incentives to leave the program, people are now told how long their benefits will be provided. By 1999, welfare caseloads had fallen to their lowest point in three decades.

If the supply and demand curves cross at a price of $5, at any price above that, there will be

a surplus. At any price above the equilibrium price, where demand and supply intersect, there will be a surplus of the good or service.

When choosing to limit trade, a country can impose a tax on imported goods. This is called

a tariff.

Suppose $100 billion was going to be devoted to tax cuts to promote energy-saving changes to behavior. Someone who cared about the poor and energy savings would advocate for

a tax credit, because it is better than a tax deduction for the poor.

Suppose an investment costs $200 the first year and $100 the second year, but earns $200 in the third year and $150 in the fourth year. a. What is the internal rate of return (IRR) for the investment? Suppose the firm can borrow funds at an interest rate of 6 percent. b. In this case, you can expect the present value of benefits

a. 8% b. exceeds the present value of costs, and the investment should be undertaken. The internal rate of return is the interest rate where the present value of costs and benefits is equal. a. Using Excel: IRR(cell range of costs and benefits), where the costs are entered as negative numbers and the benefits are entered as positive numbers. IRR = 8 percent. b. When the interest rate that must be paid (6 percent) is less than the internal rate of return (8 percent), then the present value of benefits exceeds the present value of costs, and the investment should be undertaken.

Some species would be worth the cost of saving them while another species might not be because

for that species, the marginal costs of saving it exceeds the marginal benefits of saving it.

Starting at point A on demand curve D1, determine whether the indicated event will cause demand to increase to D2, decrease to D3, or whether there will be a movement along D1. For each of the following events, indicate where the new point will be after the event occurs. a. sweaters fall out of fashion b. there is a shortage of wool c. the winter is particularly long and cold this year d. sweater vendors offer a sale

a. D; This is a change in a non-price determinant. The demand curve will shift to the left. b. B; A shortage of wool will increase the price of sweaters, causing a movement up along the demand curve. c. E; This is a change in a non-price determinant. The demand curve will shift to the right. d. C; The price of sweaters decreases, causing a movement down along the demand curve.

Classify the following as fixed or variable costs: fuel shipping charges payments for raw materials real estate taxes salaries insurance premiums wage payments sales taxes rental payments on leased office machinery

a. Fuel: Variable costs b. Shipping charges: Variable costs c. Payments for raw materials: Variable costs d. Real estate taxes: Fixed costs e. Salaries: Fixed costs f. Insurance premiums: Fixed costs g. Wage payments: Variable costs h. Sales taxes: Variable costs i. Rental payments on leased office machinery: Fixed costs

Given what you know about the relationship between corn and beef and corn and soybeans and corn and gasoline, determine the impact of an increase in the price of corn (due to a new insect that eats the roots out of corn) on soybeans, beef, and gasoline. Hint: Corn and soybeans are alternative inputs to livestock feed. They are frequently used as animal feed, thus the relationship between corn, soybeans, and beef prices. Corn is used as an input in the production of ethanol. a. If corn prices rise, it would ____ the _______ of soybeans, causing the price of soybeans to ______ . b. If corn prices rise, it would _______ the ______ of beef, causing the price of beef to ______. c. If corn prices rise, it would ________ the ______ of ethanol, causing the price of gasoline to ______ .

a. If corn prices rise, this would decrease the supply of soybeans, causing the price of soybeans to increase. b. If corn prices rise, this would decrease the supply of beef, causing the price of beef to increase. c. If corn prices rise, this would decrease the supply of ethanol, causing the price of gasoline to increase.

If the supply and demand curves cross at a quantity of 10, then the price necessary to get firms to sell more than that will have to be _______ equilibrium.

above Since the supply curve is upsloping, firms will sell more as the price rises. So in order for firms to sell more than a quantity of 100, the price would have to be above the equilibrium price.

The increase in real spending per pupil has occurred as a result of

an increase in noninstructional spending.

The average index of monthly earnings is indexed

for wage inflation.

It is important to use marginal analysis in examining crime policies rather than "average" (cost and benefit) analysis because

additional spending is only effective when the marginal or added benefit exceeds the marginal or added cost. The problem is exactly the same as the profit-maximizing problem for a business firm. The mere fact that a firm's revenues exceed its costs does not mean that profit is as high as it could be. For this reason we are less interested in the costs and benefits of capturing, trying, and incarcerating the "average" criminal than we are in incarcerating the "marginal" criminal. The allocation among police, justice, and incarceration should depend on how effective the marginal dollar is in combating crime in each category. If the optimal distribution is accomplished, the marginal benefit of a dollar should be equal in all areas.

Some people have argued that mandatory health insurance could reduce health care costs because it would address the problem of

adverse selection. Mandatory insurance can address the problem of adverse selection. By preventing people from opting out, the pool of people paying premiums will increase. Making health insurance mandatory would mean that low-risk people who are most likely to opt out if possible are also paying premiums, which would reduce overall costs. However, mandatory health insurance would not address the problem of moral hazard. Once people pay their premium, they are more likely to overconsume health care because they are not paying the full cost of an office visit.

Congress and the president have control of the tax system and government spending. As a result, their policies will directly impact

aggregate demand.

The Federal Reserve has indirect control over short-term interest rates, and, as a result, their ability to control economic activity is through

aggregate demand.

The aggregate demand-aggregate supply model examines the impact of discretionary fiscal policy and nondiscretionary fiscal policy by focusing on movements of

aggregate demand.

A production possibilities frontier is a simple model of

allocating scarce inputs to the production of alternative outputs The production possibilities frontier shows the quantity of two goods that can be produced. it implies that scarcity requires that choices be made as to how to use resources

The evidence on the impact of spending on K-12 education outcomes suggests that, ceteris paribus, the

amount of money a school district spends has no consistent positive or negative impact on outcome.

If a woman does not get an interview for a job requiring heavy lifting because the manager has noted that the average woman can lift less than the average man, this is

an illegal example of statistical discrimination.

Suppose budget analysts are projecting that a particular program's costs will increase faster than overall inflation (primarily) because there will be an increase in the number of people eligible for it (e.g. Social Security and an aging population). If there is an increase in the budget by only the amount necessary to cover inflationary increases, this would be considered

an increase if you were using baseline budgeting but a cut if you were using current-services budgeting.

The large increase in the labor force participation rate is ________ source of growth.

an unduplicatable

There is a "moral hazard" with having health insurance affecting decisions about whether or not to exercise because

any medical issue is covered even if exercising could have reduced or eliminated the outcome. Another area of inefficiency with health care insurance in particular comes in the form of moral hazard. People who have insurance consume more health care. This is a problem with all forms of insurance, and the clearest example is in automobile insurance. If you drive more recklessly when you have insurance than when you do not, having insurance makes you more likely to need insurance. In the field of health care, if having insurance makes you more likely to get tested for certain diseases, or even worse, fail to exercise or eat right, then moral hazard is a problem.

The notion of "clean enough" is

appealing to an economist thinking about marginal benefit and marginal cost.

Free-trade agreements

are about making trade freer than it was before and rarely about making it completely free.

The underlying reason that there are unattainable points on a production possibilities frontier is that there

are scarce resources within a fixed level of technology The points outside the production possibilities frontier are unattainable. this means that currently available resources and technology are insufficient to produce amounts greater than those illustrated on the frontier. on a graph, everything beyond the frontier is unattainable

Combined the consumer surplus and producer surplus at equilibrium is

as big as it can be. Economists say that demand is elastic when the percentage change in quantity is larger than the percentage change in price and inelastic when the percentage change in quantity is smaller than the percentage change in price.

Recently, the amount of time men devote to housework has been increasing while the amount of time women devote to housework has been decreasing. An economic explanation for this trend could be

as women have more employment opportunities, their opportunity cost of doing housework relative to men has risen The opportunity cost of any activity is the highest-valued alternative that must be given up to engage in that activity. If women have more employment opportunities, then their opportunity cost of doing housework relative to men will rise.

The question of whether Social Security increases or decreases savings depends mostly on whether the ________ effect outweighs the ________ effect or vice versa.

asset substitution; induced retirement

The benefits of income inequality are

associated with rewarding hard work and work that society values.

In the years prior to the recession the economy was growing

at about its typical rate.

The method of detecting sex discrimination most likely to maximize it would be to use

auditing techniques.

Authors are typically paid for their work

based on a percentage of the sales from publishers to bookstores.

The Constitution of the United States grants to Congress the power of monetary policy in Article 1, Section 8. Since 1913, Congress has

delegated this power to the Federal Reserve.

The notion that the United States is the "land of opportunity" where who your parents are and how much they earn is unrelated to your income is (relative to other industrial powers)

clearly shown in the data to be inaccurate.

The present value of a $1,000 payment received two years from now at 5 percent annual interest will be less than $900 because of

compounding Compounding is the process where the value of an investment increases because the earnings on an investment earn interest as time passes.

The use of a backward L-shaped aggregate supply curve allows us to ________ in a way that other shapes would not.

consider different macroeconomic points of view

Discretionary fiscal policy as a tool managing an economy is

considered by many to be effective but subject to several concerns over timing and motive.

The argument that spending more money on teachers has little impact on educational outcomes in K-12 is

consistent with the flat part of the production function.

To counter the slowing rate of economic growth, conservative economists would recommend

corporate and personal income tax policies that increase aggregate supply.

A patent is necessary to motivate innovation in areas where the innovation is

costly to figure out and easily copied. A patent is a right granted by government to an inventor to be the exclusive seller of that invention for a limited period of time. As with any invention, the fundamental economic problem is how to reward the inventor. Unless the inventor is given exclusive rights to his or her idea, once the item has been invented, copycats can steal it. Knowing this, inventors will have little economic incentive to innovate. For this reason, a patent is necessary to motivate innovation in areas where the innovation is costly to figure out and easily copied.

In measuring gross domestic product (GDP), goods produced by foreign firms in the United States are

counted, but goods produced by American firms in foreign countries are not counted. This means that Ford automobiles produced in Mexico are not counted in the U.S. GDP, but Honda automobiles produced in Ohio are counted in the U.S. GDP.

The introduction of e-cigarettes provides a substitute for regular cigarettes. The result is likely that the elasticity of

demand increases. When there are more substitutes for a good, the demand for that good becomes more elastic.

Nondiscretionary fiscal policy has its impact by

dampening the economic ups and downs already occurring Nondiscretionary fiscal policy consists of policies that are built into the system so that an expansionary or contractionary stimulus can be given automatically. The welfare system and the progressive income tax serve as the built-in policies. If the economy is in recession, those who lose their jobs are granted unemployment and welfare benefits and they owe less in taxes. If the economy is growing at an unsustainable rate, people are making a lot of money and are faced with higher tax rates and there are fewer people eligible for government benefits.

The optimization assumption suggests that people make

decisions to make themselves as well off as possible The optimization assumption suggests that the person in question is trying to maximize some objective. consumers are assumed to be making decisions that maximize their happiness subject to a scarce amount of money

One issue that some call a consequence and others call a cause of slowing growth is a(n)

declining middle class.

The asset substitution effect implies that Social Security will _______ from where it would have been without it.

decrease savings

Suppose the United States is experiencing a recession and Congress decides to adopt an expansionary fiscal policy to stimulate the economy. In this case, the crowding-out effect suggests that investment spending would

decrease, thus partially offsetting the use of the fiscal policy. If the United States is experiencing a recession and Congress decides to adopt an expansionary fiscal policy to stimulate the economy, this would involve government borrowing to increase spending. In this case, the crowding-out effect suggests that investment spending would decrease as interest rates rise, thus partially offsetting the fiscal policy.

Approved types of expenses for income tax purposes

deductible

Because there are _______, adjusted gross income is always ______ taxable income.

deductions; greater than The tax you owe is, of course, influenced by how much you earn. The adjusted gross income (AGI) is the total net income from all sources. To figure out how much of that adjusted gross income is taxable, you have to adjust that number by exemptions and deductions.

Social Security is closer to a

defined benefit plan, because if you participate for the required period of time, you get a benefit according to a set of rules and a formula

State and local pensions for government employees are usually structured as

defined benefit plans

Deficits cannot occur in

defined contribution plans

For developing economies, sustained increases in aggregate supply, absent increases in aggregate demand, will result in

deflationary risks

If a firm cannot determine the demand for the good it sells is elastic or inelastic but discovers that every time it raises its price, its total revenue declines, it can conclude its

demand is elastic. If the price and the amount you spend both go in the same direction, then demand is inelastic, whereas if they go in opposite directions, demand is elastic. If demand for a good is elastic (the absolute value of the price elasticity of demand is greater than 1), an increase in price reduces total revenue. If demand for a good is inelastic (the absolute value of the price elasticity of demand is less than 1), an increase in price increases total revenue. If the demand for the good is unit elastic (the absolute value of the price elasticity of demand is 1), an increase in price does not change total revenue.

Suppose you observe that minor changes in supply seem to cause dramatic changes in price, you would conclude that

demand is inelastic. Economists say that demand is elastic when the percentage change in quantity is larger than the percentage change in price and inelastic when the percentage change in quantity is smaller than the percentage change in price.

government spending increasese

demand-side shock

taxes increase

demand-side shock

Of these, economists consider this the worst:

depression. A depression is a severe recession typically resulting in a financial panic and bank closures, unemployment rates exceeding 20 percent, prolonged retrenchment in real GDP on the magnitude of 10 percent or more, and significant deflation.

If a crime prevention mechanism works initially, but increasing it further has no additional impact that is an example of

diminishing returns. When the addition of another unit of input results in less additional output, the marginal (additional) return is diminishing. This is the description of diminishing marginal returns. If a crime prevention mechanism works initially, but increasing it further has no additional (marginal) impact that is an example of diminishing returns.

When firms add workers and find that the additional workers add less to output than their predecessors did, they are experiencing

diminishing returns. Although it is usually the case that having more workers increases output, workers find that the existing plant and equipment are too limiting for them to get the most out of new employees. As a result, output increases but not as fast as it had before. This phenomenon is referred to by economists as diminishing returns.

Adjustments to tax and spending policies serve as primary elements of

discretionary fiscal policy.

When an existing prescription drug goes over the counter

drug companies likely win because of the increase in sales, and consumers may win depending on whether prescriptions are covered by insurance. When a new drug shows that it is sufficiently safe that it can be used by consumers with little or no consultation with a doctor, the FDA will approve it for use over the counter. When that occurs, the price of the drugs falls precipitously because it can be more easily mass-marketed. Whether that translates into consumers saving money is another story. It is ironic that when Claritin went over the counter in 2003, consumers without prescription drug coverage on their health insurance saw the price fall from more than $100 per month to around $35 per month, while those with insurance saw the cost to them rise because no insurance companies cover over-the-counter drugs. Former Claritin users with insurance were then motivated to seek more expensive prescription solutions such as Allegra. Insurance companies have since responded to this trend by requiring over-the-counter options to be tried before prescription options are tried.

Gross domestic product (GDP) is counted using two methods: one which counts all the ways people _____ money and another which counts all the ways people _____ money.

earn, spend The computation of the GDP is done in two distinct ways. One way is to count all those things for which people pay money. This is called the expenditures approach. The expenditures approach adds up all of the following: consumption, investment, government spending on goods and services, and net exports (net exports = exports - imports). The other approach, which counts all those ways in which people earn money, is called the income approach.

Whether a firm stays in business or shuts down depends heavily on the concept of

economic profit. Normal profit is the level of profit that business owners could get in their next best alternative investment. The next best alternative would be whatever investment an owner would choose if he or she decided to go out of business. Any profit above normal profit is called economic profit. If business owners do not make their normal profit, they will quit the business and move into another. This means that we might think of normal profit as the salary the business owners pay themselves and, as such, part of the "cost of doing business." If they make less than normal profit, then the salary they can pay themselves is too low to keep them in the industry. On the other hand, if profits are routinely more than that, others will want to enter the industry. This means that in the long run profit will shrink to normal levels.

The portion of the national debt owed to citizens of other countries is

economically important, and it has been rising in recent years.

Having an education system that lags behind that of other countries has a long-term consequence to U.S. economic growth because

education is a key component of productivity, which is key to economic growth.

The argument that the minimum wage does not significantly increase unemployment is based on

elasticity. A minimum wage that has been set above the equilibrium wage has several effects. First, it raises the wage from the equilibrium wage to the imposed minimum wage. Second, it reduces the amount of labor sold. Third, as long as the money gained from raising the wage to workers is greater than the money lost as a result of having fewer people working, workers in general have more money than they had before. From your earlier study of the concept of elasticity, you will recognize the condition for this is that the demand for labor has to be inelastic.

In 2019, in a Medicaid expansion state, a member of a family earning less than 133 percent of the poverty line is

eligible for Medicaid. Under the rules prior to 2014, adults who did not have children under the age of 19 could have very little income and not be covered by Medicaid because their wealth made them ineligible for TANF or SSI. The PPACA, as originally passed, required states to expand Medicaid eligibility to include anyone in the household if the household income was less than 133 percent of the poverty line unless the states were willing to forgo all federal money for Medicaid. The Supreme Court decision that validated many parts of the act invalidated this provision. This meant that states could decide whether or not to participate. This also meant that although Medicaid enrolled more than 61 million, and CHIP enrolled another 7.9 million, only half of those whose incomes were below 150 percent of the poverty line received its benefits. Approximately half of states had formally declined the Medicaid expansion or were leaning that way in 2013, despite the provision that the federal government would pick up the vast majority of the extra costs. Whether this was rationally or politically motivated, the impact on Medicaid eligibility remained cloudy through 2013.

A Pension Guaranty Trust or something like it would be necessary in defined benefit plans to

ensure that employers do not spend too much of the pension fund and leave too little to pay benefits.

The institution of teacher tenure is meant to

ensure that teachers do not get fired for political reasons.

In order to grow economically Germany needs to

ensure that worker productivity continues to improve.

When a satellite television company gains a subscriber, there is no impact on existing subscribers. That is, there is no rivalry in the consumption for their service. This is an example of a(n)

excludable public good. Exclusivity is the degree to which the consumption of the good can be restricted by a seller to only those who pay for it. Rivalry is the degree to which one person's consumption reduces the value of the good for the next consumer. A purely private good is a good with the characteristics of both exclusivity and rivalry. A purely public good is a good with neither of the characteristics of exclusivity or rivalry. An excludable public good is a good with the characteristic of exclusivity but not of rivalry. A congestible public good is a good with the characteristic of rivalry but not of exclusivity.

A cut in the rate of growth from 2 percent to 1 percent would have more than a 10 percent impact if it lasted 10 years because growth is

exponential.

Between 1998 and 2007, the real minimum wage

fell steadily. Although the minimum wage itself has been increased several times over the last 78 years, its real value, that is, the value adjusted for inflation in 1999 dollars, rose for the first 30 years of its existence and has steadily fallen since.

A 22 percent decrease in price results in an 18 percent increase in quantity demanded. In this case, demand is The demand curve for this good would be relatively

inelastic. Economists say that demand is elastic when the percentage change in quantity is larger than the percentage change in price and inelastic when the percentage change in quantity is smaller than the percentage change in price. If the computed elasticity is greater than 1, then demand is elastic; when it is less than 1, then demand is inelastic. When the percentage change in quantity is the same as the percentage change in price (the computed elasticity is exactly 1), demand is unitary elastic. steep The greater the absolute value of the price elasticity of demand, the flatter the demand curve. The smaller the absolute value of the price elasticity of demand, the steeper the demand curve. The demand curve for a good you need is going to be rather steep. If the good is a luxury item, you are more likely to eliminate it from your budget if it becomes overly expensive. In this case, there is a substantial reaction of quantity to a change in price. The demand curve for a luxury is likely to be flatter.

A retailer noticed that by decreasing its price, its total revenue decreased. In this case, demand is

inelastic. If the price and the amount you spend both go in the same direction, then demand is inelastic, whereas if they go in opposite directions, demand is elastic. If demand for a good is elastic (the absolute value of the price elasticity of demand is greater than 1), an increase in price reduces total revenue. If demand for a good is inelastic (the absolute value of the price elasticity of demand is less than 1), an increase in price increases total revenue. If the demand for the good is unit elastic (the absolute value of the price elasticity of demand is 1), an increase in price does not change total revenue.

Economic theory would suggest that the profitability of an industry would be

inversely related to the number of firms competing in the industry. When a firm faces a large number of competitors, such that no one firm can influence the price (the case of perfect competition), the entry and exit will drive profits to a normal level. When a firm faces few competitors, such that the firm can influence the price (the case of monopoly), profits can be above the normal level.

Maintaining pfloor as the target minimum price (rather than equilibrium) would

involve creating deadweight loss. If the government sets a price floor of Pfloor, it will have to enforce it somehow. Assume for the moment that it is possible for government to enforce a price floor. The consumer surplus will shrink while firms' producer surplus will grow, but the combined surpluses are less than without the floor. Economists label this deadweight loss.

You might distinguish between borrowing to rebuild roads and bridges and borrowing to increase food stamp allocations because borrowing to rebuild roads and bridges

is an investment in the infrastructure that allows for more economic activity, whereas borrowing to increase food stamp allocations is adding disposable income that will not improve future production.

The off-budget-on-budget distinction

is important because two large programs, Social Security and Medicare, largely run off-budget.

The U.S. budget

is never truly balanced, but historically surpluses are less common than deficits.

The number of people in poverty

is roughly the same as it was in 1959 Although the number of people in poverty is roughly the same as it was in 1959, the poverty rate has fallen dramatically.

For the ruler of a developing country, the opportunity cost of a choice to invest in universal education

is the reduction in health care spending.

If judges had to be trained as economists before taking their position, they might use ________ analysis when deciding on the right sentence.

marginal Of key concern to economists is not necessarily whether the total amount spent on crime control exceeds the total amount saved from preventing crime, but whether we are spending the correct amount. At its heart, the problem is exactly the same as the profit-maximizing problem for a business firm. The mere fact that a firm's revenues exceed its costs does not mean that profit is as high as it could be. That means we are less interested in the costs and benefits of capturing, trying, and incarcerating the "average" criminal than we are in incarcerating the "marginal" criminal. If we spend $265 billion per year on the system, the allocation between police, justice, and incarceration should depend on how effective the marginal dollar is in combating crime in each category. If the optimal distribution is accomplished, the marginal benefit of a dollar should be equal in the three areas.

The optimal level of police protection would compare the ________ with the ________.

marginal cost of hiring an additional officer; marginal benefit of crime reduction Of key concern to economists is not necessarily whether the total amount spent on crime control exceeds the total amount saved from preventing crime, but whether we are spending the correct amount. At its heart, the problem is exactly the same as the profit-maximizing problem for a business firm. The mere fact that a firm's revenues exceed its costs does not mean that profit is as high as it could be. That means we are less interested in the costs and benefits of capturing, trying, and incarcerating the "average" criminal than we are in incarcerating the "marginal" criminal.

The approval process for new drugs, if governed by economic thinking, should set stringency standards so that the __________ equals the ___________.

marginal cost; marginal benefit The marginal cost of greater scrutiny is the suffering from disease that could have been prevented by earlier approval and/or lesser scrutiny. The marginal benefit of greater scrutiny is the reduction in drug-associated complications or interactions that are discovered with greater scrutiny that would not be discovered until they adversely impacted patients. The optimal degree of FDA stringency is where the marginal cost equals the marginal benefit. Economists evaluate the marginal cost of increasing stringency against its marginal benefit.

The marginal cost curve will intersect the average total cost curve at the latter's minimum as long as

marginal costs eventually increase Average total cost and average variable cost are both U-shaped because they start high and decrease. The difference between the two curves is average fixed costs. Because average fixed cost diminishes as production increases, the gap between the two curves diminishes. They are both cut from below by the marginal cost curve at their respective minimums because marginal costs eventually increase. This happens when, because of diminishing returns, marginal costs increase to the point where, first, average variable cost, then average total cost, starts to rise as well.

The consensus among economists is that NAFTA's impact on the U.S. economy was/is

marginal in net though it has increased both imports and exports.

If a consumer purchases more of a good as the price falls, we can assume that the consumer's

marginal utility has also fallen. the consumer's demand curve reflects marginal utility. As the price falls, consumers purchase more since their marginal utility is also falling.

The result that a firm should produce where MC = MR (except when the shutdown condition is met) is based on the assumption that it is attempting to

maximize profit. The business of business is making money, and the money business makes is called profit. Marginal revenue (MR) is the amount the firm brings in from selling one more, and the marginal cost (MC) is the amount of money that it costs to produce one more. To maximize profits, MR should be equal to MC.

A modest percentage change in the wealth of the very rich will change the

mean wealth significantly but may have no effect on median wealth.

One measure of wealth inequality is the ratio of

mean wealth to median wealth.

Besides the decline in state appropriations, another reason for the increase in the cost of higher education is

modernized dorm rooms and recreation centers.

Others believe that a declining middle class is the cause of slowing growth because

money in the hands of the highest-income individuals is spent or invested much more slowly than money in the hands of those in the lower-income strata.

The market form for a new drug in an area where there are no competitors is

monopoly. Monopoly power is particularly important in the so-called orphan drug industry, an industry that deals with diseases that afflict few people. Monopoly means that there is one seller and that there are no other companies producing the particular drug.

Insurers need to be required to accept those with pre-existing medical conditions rather than making acceptance optional otherwise they would

not want to insure those with conditions that are expensive to treat. Adverse selection occurs when those in most need of insurance are the most willing to pay for insurance and drive up the price of insurance with their illnesses to such a degree that those people who are not as sick leave the market altogether. Doing so will raise the average costs to everyone else left in the insurance pool. It may raise it so much that the somewhat healthy people drop their insurance. This has been labeled by some as the "insurance death spiral." Therefore, the provisions affecting insurance that present the greatest challenge to the health insurance industry itself are the provisions that prevent insurance companies from denying coverage to the people based on pre-existing conditions. Mandation is the requirement that everyone buy insurance if insurance is not provided to them. Requiring the healthy to buy insurance and forcing them to pay a tax or fine if they do not makes the problem of adverse selection disappear.

An industry in which there are two competitors with specific marketing niches is likely to be characterized by

oligopoly. When a firm faces a large number of competitors, such that no one firm can influence the price, when the good a firm sells is indistinguishable from those its competitor sells, when firms have good sales and cost forecasts, and when there is no legal or economic barrier to its entry into or exit from the market, then we have what economists call perfect competition. Oligopoly refers to a situation in which there are few firms producing similar but not identical goods.

Using linear production possibilities frontiers in a simple two-good, two-country model, absolute advantage is evident when

one country can make more of a good than the country other can.

The monetary policy used most frequently by the Federal Reserve System is

open-market operations.

Match the following scenarios in which there are problems enacting and applying fiscal policy with the correct type of problem. To fight a recession, Congress has passed a bill to increase infrastructure spending but the planning time for each new project will take at least two years to complete before any building can begin: Distracted by political infighting, inflation reaches 8 percent before politicians take notice: A sudden recession is recognized by politicians, but it takes many months of political deal making before a stimulus bill is finally approved: To fight a sluggish economy the president issues an executive order requiring federal agencies to design a simpler tax system:

operational lag, recognition lag, administrative lag, operational lag

Crowding out is an example of

opportunity cost.

Economists ________ farm price supports.

oppose Economists are generally opposed to farm price supports because the gain to the farmers who benefit are smaller than the costs to consumers.

If the government could force firms to add any external cost to their private cost, the result would be that

output will decrease and price will increase. When negative externalities are present, the equilibrium output will be greater than the efficient output. This is because the producer, who is not bearing the full cost of production, will be able to produce more at a lower price than the efficient level that would exist if true costs were reflected in the production decision.Government might tax the producer of the externality, which shifts the supply curve to the left as costs of production rise, and the new equilibrium output will be lower and closer to the efficient level.

Income inequality, as conventionally measured is, ________ when you ignore the decreases in the capital gains tax rate.

overstated

Income inequality, as conventionally measured, is ________ when you ignore the fact that a higher percentage of the population is filing tax forms.

overstated When filings increase faster than the population increases, and when nearly all of those extra filings are in the lower 99 percent, that expands the 1 percent group to cover more people than it otherwise would.

Those who argue that "we can do better" than slow growth claim that

productivity enhancements are only a few years away.

Those who believe that wages paid to minorities will rise without government intervention believe that bosses are primarily motivated by

profit.

The DRG system controls Medicare expenses by

paying hospitals on the basis of a disease or injury rather than expenses. From the hospital's position, Medicare is paying amounts that it has settled on for specific diagnoses. These payments, and they are prospective payments, are determined by where the patients' ailments put them on a list of more than 500 diagnosis-related groups (DRGs). All Medicare patients who enter the hospital are placed in a DRG, and rather than paying for specific expenses that are incurred, Medicare pays the hospital a predetermined amount that is considered appropriate for that DRG.

Social Security's revenue emanates from taxes on

payrolls.

Joseph Schumpeter coined the phrase "creative destruction." The idea of creative destruction is that

people need to be forced from their comfort zone in order to make crucial decisions that enhance their economic prospects.

One of the reasons a government-run annuity system such as Social Security may be better for society than simply relying on private savings is that

people, having imperfect foresight, will save too little.

If you were to conclude, after carefully examining data and using proper evaluation techniques, that a tax credit for attending college benefits the poor more than a tax deduction (of equal total cost to the government) would, you would have engaged in _________ analysis to reach that conclusion.

positive Economists, and social scientists in general, distinguish views of "the way things are" from "the way things should be," calling the former positive analysis and the latter normative analysis. Positive analysis is a form of analysis that seeks to understand the way things are and why they are that way. Normative analysis is a form of analysis that seeks to understand the way things should be.

indicate whether the following statements are positive or normative raising interest rates encourages people to save the government ought to be more concerned with reducing unemployment the government should raise the tax on tobacco to discourage people from smoking the government should limit immigration increasing gasoline taxes results in less disposable income the government should raise gasoline taxes and fix bridges

positive normative normative normative positive normative *if it says should or ought, it's probably normative

The oil price decreases from 2014 to 2016 are an example of a

positive aggregate supply shock. Recent supply shocks have all involved the price of oil. Oil price decreases lower the price of oil and shift the aggregate supply curve to the right.

The fact that education benefits not just the person being educated but society as a whole, suggests that there is a

positive externality.

Wealth inequality is ________ related to the ratio of mean to median wealth.

positively

The economic tool that proves the value of an expensive college education is

present value. If the interest-adjusted amount of money you spend on your education—the present value of the costs—is less than the interest-adjusted amount of the extra money you earn as a result of your education—the present value of the benefits—then your college education is worth the money you pay for it.

Rent control is an example of a _________.

price ceiling. Rent control is a form of price ceiling where the price is not allowed to rise above a specified level. Once rent control is in place, the market for rental apartments is no longer governed by supply and demand alone, but also by the often obscure rules that politicians have written into the legislation.

The rational criminal model explains crimes of

profit. The rational criminal model of criminal behavior explains crime in terms of a simple investment decision. The decision to commit a crime is one of risk versus return. The low-return investment, work at a legal job, has a low return, but the worker carries no risk of being arrested. On the other hand, the high-return investment, stealing or selling illegal goods, has a high return, but it puts the thief or drug dealer at risk of being caught and punished. In this context, a criminal is no different from an investment banker who has a portfolio that contains a mix of risky and safe assets.

The tax brackets have higher tax rates for more taxable income. This makes the federal income tax

progressive.

The Federal Reserve's response to the recession of 2007-2008 was

quick but not obviously effective in shortening the recession.

Suppose the economy is experiencing inflation such that prices are too high. One policy to correct this is to

raise taxes.

Which of the following would help a government reduce an overheated economy?

raising taxes, decreasing government spending

The most obvious pattern in poverty rates is the degree to which they are higher during

recessions The poverty rate increases during recessions and decreases during periods of growth.

The method of detecting sex discrimination most likely to minimize it would be to use

regression techniques.

The way in which discrimination in hiring translates into differential wages is

related to both the restriction on supply for the favored group and the excessive supply for the discriminated-against group. The model of discrimination restricts unfavored groups into one type of job (thereby increasing supply) and only allows the favored group in the other type of job (thereby decreasing supply).

Poverty is a(n) _______ concept in that a person with a particular level of income in the United States may be considered in poverty, while a person with that same income in Somalia may be in the upper quarter of income earners.

relative What does being "poor" really mean? Are you poor only if you are on the verge of starvation? Poverty is a relative concept in that a person with that income in the United States may be considered in poverty, while a person with that same income in Somalia may be in the upper quarter of income earners.

When one country objects to the trade restrictions of another, the provisions of trade treaties typically

require that it submit its objections to a recognized, decision-making body to determine whether the practice is allowed.

Mandatory spending implies spending that is

required by a previously passed set of laws.

Suppose the market price of corn is $3.00 per bushel. If the price floor for corn is $4.50 per bushel and it is raised to $5.50 per bushel, it will

result in a surplus. If the price is above the market equilibrium price, there will be a surplus of product in the market. If the price is below the market equilibrium price, there will be no effect on the market.

The primary motivation for the purchase of any insurance is grounded in the fact that most people are

risk averse. The primary motivation for the purchase of any insurance lies in the fact that most people are risk averse: They prefer to be guaranteed a particular outcome, even when the odds are that for the average person, over an average lifetime, insurance is more expensive than the problem they are insuring themselves against. For risk-averse people, it is perfectly rational to buy insurance even when the average expense they would face is less than the cost of the insurance.

Which of the following would most likely have an inelastic demand? The demand curve for this good would be relatively

salt steep The demand curve for a good you need is going to be rather steep. If the good is a luxury item, you are more likely to eliminate it from your budget if it becomes overly expensive. When there are many substitutes that all serve nearly as well as the good in question, demand is likely to be more elastic (flatter), because price increases induce changes to other goods.

If a chemical does environmental damage but is used in the production of a good that provides satisfaction to the consumer and profit to the producer an economist will

seek to impose a tax on either the chemical of the good.

To an economist, the correct distribution of money among police, the justice system, and prisons is one that

sets the amount each gets so that no other element could better use (in terms of crime reduction) the marginal dollar. Marginal analysis is used to determine that the right amount of money is spent in an effective way to deter or reduce crime rates. The allocation between police, justice, and incarceration should depend on how effective the marginal dollar is in combating crime in each category. If the optimal distribution is accomplished, the marginal benefit of a dollar should be equal in the three areas.

The job losses during this recession were

significant and rapid.

The government, in the form of Medicare, Medicaid, and the Children's Health Insurance Program, pays for ________ of health care costs.

slightly less than half In 2014 one-sixth of the gross domestic product ($3.03 trillion of $17.35 trillion) was spent on health-related goods and services; the government's portion was slightly less than half (45 percent, or $1.4 trillion) of health care expenditures. Of the $1.4 trillion that government spent on health care in the United States in 2014, some $619 billion was spent on Medicare and $496 billion was spent on Medicaid. The remainder was spent by all levels of government on local, state, and veterans' hospitals and in support of medical research.

The evidence on charter schools is that they have had

some impact in some locations, but there is no generally obvious positive impact.

If, in the cause of safety, a drug or medical device has its approval delayed by a year or two, societal welfare is lost because

some people will die or become worse off while waiting for the drug or medical device to be approved. The problem of overly stringent FDA regulation is that people die when they could be saved with a less stringent process. The marginal benefit of increasing FDA stringency is the decrease in the health problems accruing to those who take approved drugs that later are found to be unsafe. The marginal cost of increasing FDA stringency is the forgone increase in the health of people who could have been treated but were not. The optimal degree of FDA stringency is where the marginal cost equals the marginal benefit.

Medicaid spending per recipient is

somewhat greater than the average citizen's use of health care. In the real world Medicaid recipients consume slightly more health care than those who have private insurance.

The decrease in class sizes is occurring as a result of

special education students.

Gasoline prices _______ in late 2007 through mid-2008.

spiked

The minimum level of deduction

standard deduction

In 2019, General Motors announced the closure of its Lordstown, Ohio assembly plant. Those laid off as a result would likely be classified as

structurally unemployed. If people lose their jobs because of a change in the economy that makes their particular skill obsolete (either because the industry ceases to exist or because it moves to another country), they are referred to as structurally unemployed.

The impact of slowing economic growth over a long period of time is

substantial because of the exponential aspect of growth.

By way of international comparison, recent U.S. deficits have increased the ratio of debt to GDP

such that only Japan's ratio is worse.

a cyclone destroys manufacturing plants

supply-side shock

the price of oil increases

supply-side shock

To counter the slowing rate of economic growth, liberal economists would recommend

taxation and spending policies that increase aggregate demand.

History suggests that rent control laws

tend to become a permanent fixture of a community. The people hurt by rent control are (1) landlords and (2) people who can no longer find an apartment in the city. The first group is a minuscule number whose plight is not treated that seriously by candidates. The second group has to move out of town to find a place to live. Either way the majority of the people left in the community are simply better off than they would be were rent control to be discontinued. And these are the people who continue to support rent control through the ballet box. You do not get to vote in a community unless you live there. People who live in a suburb cannot vote in a city's election, even though the result of the election directly affects them. Add the fact that many of the people who live in the rent-controlled city benefit from rent control almost by definition.

In determining whether the distribution of federal spending among various agencies was correct, an economist would want to make sure

that the last/marginal dollar spent in each area produced the same amount of social good.

Suppose you use marginal benefit and marginal cost analysis to determine whether money would be better spent keeping prisoners incarcerated or on employing more police. You determine that more police should be employed if

the marginal benefit of another dollar spent on police activity exceeds the marginal benefit of another dollar spent on increased incarceration. The allocation between police and incarceration should depend on how effective the marginal dollar is in combating crime in each category. If the optimal distribution is accomplished, the marginal benefit of a dollar should be equal in the two areas. In this case, you should employ more police if the marginal benefit of an additional dollar spent on police activity exceeds the marginal benefit of an additional dollar spent on incarceration.

Under perfect competition, the supply curve is

the marginal cost curve, but only that portion that is above the minimum of average variable cost. Under perfect competition, an upward-sloping supply curve stems from the check-shaped marginal cost curve. The firm's supply curve is its marginal cost curve above the minimum of its average variable cost.

The argument that the minimum wage is worse than the Earned Income Tax Credit is based on the idea that

the minimum wage applies to all workers, not just the working poor. In the eyes of many economists a better alternative to the minimum wage is the Earned Income Tax Credit (EITC). Low-income working families with three or more children are eligible for up to a predetermined amount that arrives in the form of a tax refund. The benefits of the EITC are concentrated on the people who actually need the money to feed their families. More than 70 percent of the money goes to households that are or would otherwise be in poverty. This contrasts dramatically with the minimum wage, where upward of 70 percent of the benefits accrue to households not in poverty.

Inflation is measured using _________ in a price index.

the percentage year-to-year increase The inflation rate is the percentage increase in the consumer price index.

Those who mistakenly thought an increase in the minimum wage was in their best interests include

the poor and uneducated. The losers of a higher minimum-wage are the people who lose their jobs. Economists find that they are disproportionately black, Hispanic, and uneducated. That is, they are among the very people that an increase is trying to help. This point must not be missed. An increase in the minimum wage may very well hurt the poor more than it helps them.

Income inequality does not challenge the social order when

the poor believe that their poverty is a result of choices they made.

The underlying reason for the upward-sloping nature of the supply curve is that

the production of most goods comes with increasing marginal costs. As more of a good is produced, the added, or marginal cost, increases. The firm needs to have a higher price to produce more. Therefore, the supply curve is upsloping.

According to the production function "flat of the curve" explanation, more money spent on education may not have a significant impact because

the proportionate increase in spending on teachers no longer has the impact it had when we were spending less in absolute terms.

"Quantitative easing" was different from what the Federal Reserve normally does because with quantitative easing the Fed makes more money available to the economy through

the purchase of 20- and 30-year United States treasuries and mortgage-backed securities.

Declining average SAT scores might be consistent with the assertion that more people are planning to attend college than ever before because

the quality of the students who would not have attended college now plan to go to college and they take the SAT.

A change in the price of lumber will impact

the quantity demanded and the quantity supplied of lumber but the supply nor the demand for lumber. Demand shows how much consumers want to buy at all prices. Demand is a relationship, whereas quantity demanded is a particular point in that relationship. Quantity supplied is how much firms are willing and able to sell at a particular price during a particular period of time, whereas supply alone shows how much firms want to sell at all prices.

From the perspective of the United States, a major accomplishment of the 1999 round of GATT was

the recognition of copyright protection for software, music, and movies.

Public universities are justifying their rapid increases in tuition based on

the relative decline in state appropriations.

An across-the-board tax cut would benefit

the rich, because they pay the vast majority of income taxes.

If policy makers were to attempt to set a tax equal to the external costs of alcohol, one would have to evaluate

the value of innocent lives lost to drunk driving. A policy short of prohibition implies that there are an economically acceptable number of expected drunk driving deaths and of childhood secondhand-smoke-induced illnesses. The idea is that as long as we have an adequate sum of money available to compensate the people who are affected, it is acceptable for smokers to smoke, for drinkers to drink, and for people to be influenced in negative ways by their behavior. We must weigh what is to be gained with what is to be lost and judge the risk of injury or even death to be tolerable.

Rent control laws, like minimum-wage laws apply to everyone, not simply the poor. Some argue that there should be provisions to limit rent control eligibility based on income or wealth or age. Supporters of this argument would say

the wealthy can afford to pay market prices and do not need a subsidy, and rent control is an indirect subsidy. Rent control, which is effectively a subsidy, should be restricted to renters that cannot afford to rent a home at the market price.

When looking at the impact of a change in trade policy, economists use consumer and producer surplus to look at the winners and losers. Free-trade economists insist that

there are winners and losers but that the gain to the winners is greater than the loss to the losers. Economists favor market outcomes because they make the calculation that the gain to the winners outweighs the loss to the losers.

Consider prescription drugs that have already been invented. The price, or at least the increase in the price, of existing prescription drugs should not be limited because

there is a long period of time between innovation and revenues as well as an opportunity cost of time. The world's drug inventors eye the profit that they get in the United States when they pour billions into their scientists and laboratories. If they could not make a profit in the United States, there would be no place to make one and they would not put the money into innovation. The profit motive is what brings private investment money to drug invention. It is highly risky, and profits and revenues are time-distant from invention and testing costs.

When tackling local environmental problems, taxes and regulations can be useful. The reason that global problems (like global warming) are more difficult to control is that

there is no ability to enforce those taxes or regulations.

The advocate for education reform who claimed that paying the same teachers more money won't help might be correct because

there is no reason for a teacher to improve if they get more pay no matter what.

When purchasing power parity is used to estimate gross national income, it shows that

there is no relationship between growth and PPP-adjusted national income.

Those most likely to lose from an increase in the minimum wage include

those people who lose their jobs. anyone who buys goods or services produced by minimum-wage workers. small business owners who have to pay the higher wage. The losers are the people who lose their jobs, small business owners who have to pay the higher wage with perhaps a very small profit margin to do so, and anyone who buys goods or services produced by minimum-wage workers, because part of the increase is passed on to them in the form of higher prices.

Those most likely to benefit from an increase in the minimum wage are

those workers who get a higher wage due to the minimum wage and who are still able to keep their jobs. The winners with a minimum wage are the more than 4 million people who work for the minimum wage and get a pay increase because they keep their jobs.

Scarcity implies that the allocation decision by society can

typically make more of one good but at the expense of making less of another Scarcity implies that choices have trade offs

Disagreements about the shape of the aggregate supply curve focus on the degree of _________ in the economy.

unemployment

A 6 percent decrease in price results in a 6 percent increase in quantity demanded. In this case, demand is

unitary elastic. Economists say that demand is elastic when the percentage change in quantity is larger than the percentage change in price and inelastic when the percentage change in quantity is smaller than the percentage change in price. Looking at the formula, if the computed elasticity is greater than 1, then demand is elastic; when it is less than 1, then demand is inelastic. When the percentage change in quantity is the same as the percentage change in price (the computed elasticity is exactly 1), demand is unitary elastic.

During the Great Recession, the Federal Reserve

used tools it had never used before.

Price supports in the United States have

utilized a wide variety of means to raise prices and reduce output. Price supports for agriculture grew out of the depression of the 1930s, when prices fell rapidly, leaving many farmers bankrupt. Politicians put price floors on many products, mostly dairy. The government stored a lot of products and in the middle of the 1982 recession, there was enough dairy and cheese to give to many poor people. In the middle 1980s, the Reagan administration tried to reduce the cost of subsidies by limiting supply and giving away government excess stocks of grain and dairy products. Farmers were offered payments not to farm. The 1996 Freedom to Farm Act began the long phase of practices leading away from agricultural supports. Current policy restricts output instead of buying up excess produce. Many thousands of farmers are paid billions of dollars not to farm many millions of acres. By 2002, the United States was supposed to exist without supports for milk or grain, but supports continued in 2005.

The economic rationale for farm price supports is generally

weak, but relies on price variability. The most compelling of the reasons for government intervention in this market is that price variability makes farming a necessarily economically risky occupation.

The distribution of aid to the poor between in kind and in cash is

weighted heavily toward in-kind benefits. The programs available to the poor are many and complicated. They are better understood as varying from state to state rather than being one consistent program across the country. Further, these programs are best understood as being divided between cash payments and provisions of goods and services in forms other than cash. According to the data in the textbook, billions more are spent on goods and services than are spent in cash benefits. The government generally prefers to distribute aid through in-kind programs because the services are more likely to be used appropriately.

The "tragedy of the commons" occurs primarily

where property rights are lacking.

For a particular crime, the correct sentence length occurs

where the marginal benefit of incarceration equals the marginal cost of incarceration. Economists would suggest using marginal benefit-marginal cost analysis to determine the correct sentence length of a crime. The cost-benefit trade-off is important in establishing sentence length. For example, it is not hard to figure that, as time goes on, a person violent enough to kill at age 18 is not as likely to commit murder at 50 and is even less likely to at 70. This point may not be worth considering since the life expectancy in prison is such that few inmates sentenced to life live long enough to outlive their own violent tendencies. Prison life is hard, and the food and medical care are not geared to keeping people healthy in their "golden years." This makes the death penalty less economically sensible since the "lifer's" life is not going to be that long.

How academics look at the evidence on how much women make relative to men is an issue that very much depends on

whether you consider some variables as "choices" or as "further evidence of discrimination."

The large increase in the Labor Force Participation Rate that occurred between 1950 and 2000 was because

women's participation in the labor force doubled.

In order to sustain economic growth in a developed economy, it is important for

worker productivity to increase.

Relative to the alternative, a mini-med health insurance policy would be a good policy for

young, healthy individuals because the premiums are low; however, there is no maximum out-of-pocket amount. Some companies offer what are called mini-meds. Mini-med insurance policies are usually only offered to young people, have fairly low premiums, and, as one of the features, have low (usually no more than $10,000) annual maximum amounts that the insurance company will pay. These limits are illegal, in general, but these policies serve a niche market that the Obama administration did not want to harm when they banned the general practice of capping health insurance company liability. The fear was that by outlawing all mini-meds, they would reduce health insurance coverage for many young people in their first jobs.

Per capita real economic growth during the pre-Revolutionary War era was

zero.