Intro to Macro Midterm #1

The seaport town of New Monopoly has become extremely popular with shipping companies due to its superior location. The port has become so congested that ships must wait hours every day just to dock. The mayor of New Monopoly realizes that the congestion at the port costs the shipping companies and his town money. This is an example of

market failure.

Which is NOT an example of a resource?

money

A decrease in the price of eggs will result in a(n):

movement along the demand curve for eggs.

A statement that the minimum wage should be increased is a:

normative statement.

Recessions are periods in which:

output and employment fall in many industries.

The ____ index is likely to respond more quickly to price changes than are the other indexes, so it is regarded as a warning sign of inflation.

producer price index

If the United States removed all tariffs and quotas on lumber imports into the United States:

producer surplus would decrease.

When a market begins to engage in international trade:

producers in the exporting industry may be better off.

In a competitive market, all of the choices along the production possibility frontier display ________________ efficiency, while the specific choice on the frontier that society picks is the one with _______________ efficiency.

productive; allocative

Restrictions on free international trade in lumber, designed to insulate domestic lumber producers from competitive market forces, are _____ policies.

protectionist

In the importing country, the most likely effect of a tariff is to:

raise the price and decrease the quantity demanded.

A tariff or quota will _____ prices and _____ the consumption of the protected goods in the importing country.

raise; decrease

Kate and Sarah own a bakery together. The two figures illustrate the production possibilities available to them if they work at their bakery for 8 h a day. Answer the question using these figures. Kate: 4 bread, 8 cakes Sarah: 12 breads, 9 cakes If Kate and Sarah both specialize in the good in which they have a comparative advantage, the

total production of bread will be 12 loaves, and the total production of cake will be 8 units.

Choose the economic term that is best described by the statement "Everything you do requires giving up something (time, money, etc.)."

tradeoffs

Which is the best definition of efficiency?

when nobody can be made better off without making someone worse off

Intermediate goods are not counted in the expenditures approach to computing GDP because

doing so would result in double counting.

If nominal GDP increases from one year to the next, _____ must have risen.

real GDP or prices or both

Refer to the table of demand and supply of salt and vinegar chips. There is an excess demand of 210 bags of salt and vinegar chips per month if the price is _____ per bag.

$0.30

The table contains information on the price per month and the monthly demand and supply of online music streaming subscriptions. What are the equilibrium price and quantity? Price - Quantity demanded - Quantity supplied $10 - 390 - 240 $10.20 - 330 - 260 $10.40 - 290 - 290 $10.60 - 240 - 360

$10.40 ; 290

Consider an economy that produces only smartphones and laptops. If 10 smartphones are sold at $800 each, and 5 laptops are sold at $1,000 each, then nominal GDP is

$13,000

Refer to the table below. Assuming year 3 is the base year, real output in year 4 is year - units of output - price per unit 1 - 40 - $1 2 - 30 - $2 3 - 50 - $2 4 - 70 - $4 5 - 60 - $6 6 - 60 - $8

$140

Refer to the graph below of a country's domestic market for headphones. Assume that Sd represents the domestic supply curve and that Dd represents the domestic demand curve. If the world price equals $100, and there is free trade, what is the gain in consumer surplus?

$2.25 million

What is total surplus in the market for beds at a youth hostel depicted in this graph? (Graph)

$2000

According to the information presented in the table below, GDP is

$24,400

Refer to the table below. Real GDP in year 5 is year - output - price per unit 1 - 2 - $2 2 - 3 - $4 3 (base period) - 4 - $5 4 - 6 - $6 5 - 7 - $9

$35

Suppose consumer spending was $15,000, investment spending was $4,000, and net exports were -$500. GDP in 2019 was $22,000, government purchases of goods and services were _____.

$3500

Suppose peanut butter and jelly are the only goods produced in an economy according to the table below. Nominal GDP in 2018 was

$400

Refer to the graph below of the domestic market for recreational vehicles (RVs). Suppose the world price equals $50,000, and there is free trade. Calculate the loss of consumer surplus. (Graph)

$41,250 million

Shobha has a linear production possibility frontier in bracelets and necklaces. In one hour, she can produce 5 bracelets or 10 necklaces. What is the opportunity cost to make 1 necklace?

0.5 bracelet

Refer to the graph of production possibilities frontiers for Taiwan and Japan. Both nations will gain from trade when 1 pair of rain boots trades for _____ microchip(s). Taiwan: 600 microchips, 1200 boots Japan: 1600 microchips, 800 boots

1.5

Consumer surplus in the market for corn depicted in this graph is equal to ____ . (Graph)

12500

A farmer produces both beans and corn on her farm. If she must give up 16 bushels of corn to be able to get 6 bushels of beans, then her opportunity cost of 1 bushel of beans is

2.67 bushels of corn

Refer to the data shown in the table below of a country's production of two goods and their prices over three years. With 2017 as the base year, real GDP was greatest in

2019

Approximately how many prices are used to calculate the consumer price index each month?

80,000

Refer to the graph below of the domestic market for a good. Assume that S and D are the domestic supply and demand curves and that the world price is PW. Identify the area of consumer surplus when a tariff raises the domestic price from the world price to PT. (Graph)

A + B

Refer to the graph below of a country's domestic market for computers. Assume that PA is the autarky price and that PW is the world price. Total surplus before international trade is equal to the area: (Graph)

A + B + C

Which transaction is included in the expenditures approach to calculating a nation's gross domestic product?

A college student buys a pizza and has it delivered to her dorm room.

Which of the following statements is true?

A country highly specialized in the production of one product will see its trade balance fluctuate with the international price of that product.

Which statement describes the equity-efficiency trade‑off?

Actions intended to make economic outcomes fairer may cause efficiency to decrease.

A price index such as the CPI: I. is used to measure the cost of a market basket across different years. II. is normalized so that it equals 100 in the base year. III. always includes a base year.

All three statements are true.

The figure shows how supply and demand might shift in response to specific events. Suppose a wet and sunny year increases the nation's strawberry crop by 20%. Which panel best illustrates how this event will affect the market for strawberries?

B (S1 a bit higher on D than S2)

The consumer price index is calculated by the ____.

Bureau of Labor Statistics

The graph shows how supply and demand might shift in response to specific events. Suppose excessive rainfall destroys one-third of the nation's radish crop. Which panel best illustrates how this will affect the market for radishes?

C (S2 a bit higher on D than S1)

Assume Italy and Egypt can both produce grain and dates, and that the only limited resource is the farming labor force, meaning that land, water, and all other resources are plentiful in both countries. Each farmer in Italy can produce 10 t of grain or 5 t of dates in a season. Each farmer in Egypt can also produce 10 t of grain or 25 t of dates. Which country has the comparative advantage in producing dates?

Egypt

Why is there no such thing as a completely "free" market?

Every market is subject to restrictions imposed by those who have the authority to do so and who may do so.

Regarding GDP for the US over the past seventy years, which statement is false?

GDP has grown at a consistent annual rate.

According to the ______ theory, a country has a comparative advantage in a good whose production is intensive in the factors that are abundantly available in that country.

Heckscher-Ohlin

With respect to the US experience of inflation over the past seventy years, which statement is correct?

Inflation usually falls during recessions but there have been exceptions to this.

Vincent and Jean are two cooks who work in a village. Each of them can either bake cakes or make pizzas. Every ingredient is readily available to them, and the only scarce resource is the cooks' time. Vincent can bake 10 cakes or make 5 pizzas in an hour. Jean can bake 12 cakes or make 8 pizzas in an hour. Which cook has the absolute advantage in baking cakes?

Jean

You and other college students are deciding whether to major in music or engineering. You learn that there is a shortage of engineers, making it easy for engineering graduates to find employment, while there is a glut of musicians for whom finding a job is difficult. As a result, you and many other college students decide to major in engineering. Which economic principle does this illustrate?

Markets tend to move towards equilibrium as individuals respond to incentives.

Mexico exports clothing to the United States, and the United States exports heavy equipment to Mexico. Proponents of the Heckscher-Ohlin model would explain this pattern of trade by noting that:

Mexico has a relatively large endowment of factors of production used in making clothing, while the United States has a relatively large endowment of factors of production used in making heavy equipment.

The United States can produce whiskey domestically, but it can also export whiskey if the world price is higher than the domestic price. If the United States exports whiskey, consumer surplus will _____, producer surplus will _____, and total surplus will ________.

decrease; increase; increase

The market price of cruise ship vacations has increased recently. Some economists suggest that the price increased because of an increase in the number of retirees. In other words, they believe that:

demand increased.

Why is the shape of the production possibilities frontier (PPF) often curved instead of straight?

Typically, some resources are better suited for producing one good than another, which means that there are diminishing returns when moving such resources away from producing what they are best suited for.

Andrew, a college student, loves drinking coffee late at night to study for exams. Having no income, he is used to buying cheap, bad-tasting coffee, such as Beanlightened, that he needs to grind and brew himself. The coffee tastes putrid but, with enough cream and sugar, Andrew is able to tolerate it. Occasionally, he does go out to Starbucks when he has spare money. After graduation, Andrew gets a job working at a database firm as a programmer. His income is now a healthy $75,000 a year, and he decides he has had enough bad-tasting coffee. He ends up buying coffee daily from Starbucks, even though it costs significantly more than Beanlightened. Andrew's demand for Starbucks coffee changed as a result of

a change in income.

A shift in the demand curve can be caused by

a change in one of the determinants of demand.

A shift in the supply curve can be caused by

a change in one of the determinants of supply.

An increase in the cost of paper would likely lead to which of the following?

a decrease in the supply of printed books

Which of the following could cause a country's production possibilities frontier to shift inward?

a natural disaster

Which of the following illustrates consumption?

a new car purchased for personal use

An increase in price and an ambiguous change in quantity are most likely caused by:

a shift to the left of the supply curve and a shift to the right of the demand curve.

Which factor is most likely to shift the supply curve for milk to the left?

a tax on each gallon of milk produced

According to the graph of the production possibilities frontier, what is the opportunity cost of the sixth widget? Graph of gizmos to widgets, 8 gizmos, 9 widgets

about 0.5 gizmos

In a business cycle, a peak represents the end of ________ and a trough represents the end of ________.

an expansion; a recession

The demand curve for running shoes has shifted to the right. What could have caused it?

an increase in the income of buyers of running shoes

Goods that are sold in 2020 but produced in 2018

are included in investment in 2018.

The basic proposition of the law of demand is that

as the price of a good increases, buyers tend to buy less.

An economic transaction in which one party trades a good or service for another good or services is called

barter.

In the circular-flow diagram, the value of household income (the sum of wages, dividends, interest, rental income, and transfer payments) equals the sum of

consumer spending, private saving, and household tax payments.

The consumer price index measures the cost of the _____ of a family of ____ living in a typical U.S. city.

consumption; four

For which of the following decisions is marginal analysis LEAST beneficial?

deciding which college to attend

Determine how the equilibrium price and equilibrium quantity in the market for coffee changes if the following two occur: - the price of tea, a substitute for coffee, decreases - due to better weather, the price of coffee beans used to make coffee decreases Equilibrium price will ____ while equilibrium quantity ____ .

decrease ; might increase, decrease or stay the same

If a demand curve is downward sloping, a decrease in supply with no change in demand will lead to a(n) _____ in the equilibrium quantity and a(n) _____ in the equilibrium price.

decrease; increase

Unfortunately, you only have a few hours after work to do whatever you want this weekend. You would enjoy hanging out with friends at a concert they want to see, but you are not a fan of the band. You enjoy doing well in school and usually enjoy your studies, and so would rather study than go to the concert. There is a movie coming out this weekend that you would prefer to see instead of studying. The benefit of going to the concert is ____ and the opportunity cost is ____ .

enjoying the activity; missing the movie

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

factors of production; goods and services

Rice and potatoes are substitutes in consumption. If the price of rice rises and there is a bumper crop of potatoes, in the market for potatoes one would expect the equilibrium price to _____ and the equilibrium quantity to _____.

fall, rise, or stay the same; rise

Refer to the graph below of a country's domestic market for grapes. In autarky, the price of grapes is PA. When the economy is opened to trade, the price falls to PW, and producer surplus will _____ to area _____. (Graph)

fall; Q

If real GDP rises while nominal GDP falls, then prices on average have

fallen.

The total value of all ____ goods and services produced in the economy in a given year, calculated using the prices current in the year in which the output is produced, is ____ GDP.

final; nominal

Unfortunately, you only have a few hours after work to do whatever you want this weekend. You would enjoy hanging out with friends at a concert they want to see, but you are not a fan of the band. You enjoy doing well in school and usually enjoy your studies, and so would rather study than go to the concert. There is a movie coming out this weekend that you would prefer to see instead of studying. The benefit of studying is ____ and the opportunity cost is ____ .

getting better grades; missing the movie

China is relatively labor-abundant compared with European Union member nations. Therefore, China has a comparative advantage in _____ compared with European Union member nations.

goods that are labor-intensive in production

The local river has so much pollution that three-eyed fish are forming. Regulations are therefore enacted to limit the amount of chemicals dumped into the river. This scenario illustrates which economic principle?

government intervention

Suppose the United States places a tariff on imported Brazilian ethanol. The impact of this tariff on the domestic ethanol market in the US is a _____ domestic price, _____ consumer surplus, and _____ producer surplus.

higher; less; more

Spending on ____ is the largest portion of the consumer price index.

housing

Stone and brick are substitutes in home construction. Suppose the price of stone increases due to new regulations for the stone quarrying industry. Equilibrium price for bricks

increases.

The demand curve

is a graphical representation of the relationship between price and quantity demanded.

The World Trade Organization:

resolves disputes between member nations arising from alleged violations of previous agreements dealing with international trade.

What would happen if the price of kayaks increased?

sellers would offer more kayaks for sale.

Livia starts using a new baking technique, and she can now do twice as much of everything. In a single day, Livia can now make 10 cakes or 8 pies, rather than the 5 cakes and 4 pies she could previously bake. Livia's production possibility frontier has _____, and her opportunity cost of making pies _____.

shifted right; is unchanged

According to the theory of comparative advantage, a country should

specialize and export goods with the lowest opportunity cost.

Economics is the

study of the consumption, production, and distribution of goods and services.

Suppose that Paulie and Vinny each can produce ice cream or t-shirts. The table shows the quantity of each good that Paulie and Vinny each can produce in 1 hour, respectively, if they devote all of their time and effort into making the good. Paulie has a comparative advantage in ____ and Vinny has a comparative advantage in ____.

t-shirts; ice cream

A shift of the demand curve for fried chicken would not be caused by a change in:

the price of fried chicken.

The demand for a good will increase if:

there is an increase in the number of consumers in this market.

Market equilibrium occurs when:

there is no incentive for prices to change in the market, quantity demanded equals quantity supplied, and the market clears.