Macro Exam 1

What are the unexploited gains from trade at the free market equilibrium? (a) $250 (b) $1,000 (c) $500 (d) $0

$0

What are the total gains from trade at the free market equilibrium? (a) $1,000 (b) $250 (c) $0 (d) $1,500

$1,000

The market price of a good is $5 and 40 units of the good sell at this price. Its demand curve intersects the vertical axis at a price of $10 and has a constant slope. What is the approximate value of consumer surplus in the market? (a) $200 (b) $75 (c) $100 (d) $50

$100

The market price of a good is $10 and 40 units of the good sell at this price. Its supply curve intersects the vertical axis at a price of $8 and has a constant slope. What is the approximate value of producer surplus in this market? (a) $3 (b) $40 (c) $20 (d) $50

$40

Nigeria receives $53 of producer surplus from each barrel of oil sold at $60. At that level of production, Nigeria's cost to produce a barrel of oil is: (a) $1.13. (b) $53. (c) $113. (d) $7.

$7

Calculate the amount of producer surplus earned in this market if the price is $60. (a) $1600 (b) $2400 (c) $1200 (d) $800

$800

At a quantity of 80 units in the figure, it cost sellers ________________ buyers value this last unit at _____________________ . (a) $50; $20 (b) $80; $50 (c) $80; $20 (d) $20; $80

$80; $20

Refer to the table below. What is the total amount of producer surplus (per barrel of oil) earned if the market price per barrel of oil is $51? (a) $87.75 (b) $93.74 (c) $65.25 (d) $81.76 Country Minimum Willingness to Sell Country A $32.00 Country B $16.00 Country C $17.25 Country D $56.99

$87.75

The value of wasted resources at a quantity of 80 units in the diagram is: (a) $600. (b) $200. (c) $900. (d) $800.

$900.

Linen Pasta Italy. 4 10 Belgium 20 5 The opportunity cost of 1 linen for Belgium is: (a) 5 pastas (b) 4 pastas (c) .25 pastas (d) 20 pastas

.25 pastas

Linen Pasta Italy. 4 10 Belgium 20 5 The opportunity cost of 1 pasta for Italy is: (a) .4 linens (b) 4 linens (c) .25 linens (d) 2 linens

.4 linens

Linen Pasta Italy. 4 10 Belgium 20 5 What is a possible rate of trade between Italy and Belgium? (a) .25 linens < 1 pasta < 2.5 linens (b) 4 pastas < 1 linen < 20 pastas (c) .4 linens < 1 pasta < 4 linens (d) 5 linens < 1 pasta < 10 linens

.4 linens < 1 pasta < 4 linens

The Wonderful Widget Company is trying to increase the market price. What is one strategy it can use? (a) Advertise or change the product to make it more desirable. (b) Lobby the government to cut taxes on businesses. (c) Increase the amount of resources devoted to the production of the good. (d) Lower production costs.

Advertise or change the produce to make it more desirable.

In Colombia, it takes three workers to produce two pounds of coffee. In Mexico, it takes four workers to produce one pound of coffee. Therefore: (a) Colombia has a comparative advantage in the production of coffee. (b) Mexico has a comparative advantage in the production of coffee. (c) in Colombia, the opportunity cost of producing one pound of coffee is two-thirds. (d) Colombia has an absolute advantage in the production of coffee.

Colombia has an absolute advantage in the production of coffee.

The United Nations estimates that Earth's population growth rate will slow down by the year 2050 at which time population may start to decrease. If technological change allows the supply of oil to increase at a constant rate, and nothing else changes, what effect will a slowdown in population growth have on the price of oil? (a) Demand will increase more slowly during this period but since supply is growing at a constant rate, the rate of price increase will fall, and ultimately the price of oil may begin to fall. (b) Demand will increase, raising the quantity supplied. Since the quantity supplied will increase, the price must go down. (c) The supply of oil will fall and prices will rise. (d) Demand will increase during this period, and the price of oil will continue to increase beyond 2050.

Demand will increase more slowly during this period but since supply is growing at a constant rate, the rate of price increase will fall, and ultimately the price of oil may begin to fall.

Two persons each produce two identical goods. Which of the following is true about their absolute and comparative advantages in the production of these two good? (a) One person can have a comparative advantage in both goods but not an absolute advan- tage in both goods. (b) One person can have an absolute advantage in both goods but not a comparative advan- tage in both goods. (c) One person can have neither an absolute nor a comparative advantage in either good. (d) Both persons can always have both an absolute and comparative advantage in both goods.

One person can have an absolute advantage in both goods but not a comparative advantage in both goods.

Assume that the United States could produce 80 million loaves of bread if all its resources were devoted to bread production. If it used all its resources to produce milk, suppose it could produce 80 million gallons of milk. If Germany used all its resources to produce bread, suppose it could produce 40 million loaves of bread. Alternatively, if all its resources were used to produce milk, Germany could produce 20 million gallons of milk. Which of the following statements is true? (a) The United States has a comparative advantage in producing both goods. (b) The United States has an absolute advantage in producing both goods. (c) Germany has a comparative advantage in producing milk. (d) The United States has a comparative advantage in producing bread.

The United States has an absolute advantage in producing both goods.

The September 11 terrorist attacks turned many people away from flying. The demand and supply model would predict which of the following events in the airline travel market? (a) The supply of airline travel would increase, resulting in a lower equilibrium price and higher equilibrium quantity. (b) The supply of airline travel would decrease, resulting in a higher equilibrium price and lower equilibrium quantity. (c) The demand for airline travel would decrease, resulting in a lower equilibrium price and lower equilibrium quantity. (d) The supply and demand for airline travel would decrease, resulting in a higher equilibrium price and higher equilibrium quantity.

The demand for airline travel would decrease, resulting in a lower equilibrium price and lower equilibrium quantity.

Suppose it is widely believed that the price of flat-screen, high-definition televisions will be lower next year. What will happen as a result of such beliefs? (a) The demand for flat-screen TVs will decrease now. (b) The demand for flat-screen TVs will not change now. (c) The demand for flat-screens TVs will increase now. (d) The demand for flat-screen TVs will decrease next year.

The demand for flat-screen TVs will decrease now.

Which statement most accurately explains the upward trend in the market price of oil from 2000-2008? (a) Both the demand for and the supply of oil has decreased. (b) The demand for oil has increased faster than the supply of oil has increased. (c) The demand for oil has decreased while the supply of oil has increased. (d) The supply of oil has increased faster than the demand for oil has increased.

The demand for oil has increased faster that the supply of oil has increased.

Which statement most accurately explains the upward trend in the market price of oil in the 2000's? (a) The demand for oil decreased while the supply of oil increased.(b) The supply of oil increased faster than the demand for oil increased. (c) Both the demand for and the supply of oil has decreased. (d) The demand for oil increased faster than the supply of oil increased.

The demand for oil increased faster than the supply of oil increased.

An increase in supply and a decrease in demand occur in a market. What happens to the equilibrium price and quantity? (a) The equilibrium price decreases; the equilibrium quantity increases. (b) The equilibrium price increases; the equilibrium quantity decreases. (c) The equilibrium price increases; the change in the equilibrium quantity is uncertain. (d) The equilibrium price decreases; the change in the equilibrium quantity is uncertain.

The equilibrium price decreases; the change in the equilibrium quantity is uncertain.

Which choice explains how the OPEC crisis of 1973 affected oil prices? (a) The demand for oil decreased, leading to a fall in oil prices. (b) The supply of oil was increased, leading to a fall in oil prices. (c) The supply of oil was reduced, leading to a rise in oil prices. (d) The demand for oil increased, leading to a rise in oil prices.

The supply of oil was reduced, leading to a rise in oil prices.

Which explains how the OPEC crisis of 1973 affected oil prices? (a) The supply of oil was reduced, leading to a rise in oil prices. (b) The supply of oil was increased, leading to a fall in oil prices (c) The demand of oil increased, leading to a rise in oil prices. (d) The demand of oil decreased, leading to a fall in oil prices.

The supply of oil was reduced, leading to a rise in oil prices.

A decrease in demand refers to: (a) a rightward shift of the demand curve. (b) a leftward shift of the demand curve. (c) a downward movement along the demand curve. (d) an upward movement along the demand curve.

a leftward shift of the demand curve.

Which of the following choices contains only factors that cause the supply curve to shift to the right? (a) a rise in technology, a fall in the costs of production, a fall in taxes on output (b) a fall in production costs, a rise in technology, an increase in taxes on output (c) an increase in tastes and preferences for the product, economic growth, and a rise in technology (d) a decrease in taxes on production, a fall in subsidies on production, a rise in costs of production

a rise in technology, a fall in the costs of production, a fall in taxes on output

When the price of a good increases, demand for the good will: (a) be unaffected. (b) increase. (c) decrease. (d) depend on the corresponding change in supply.

be unaffected.

The yearly shortage of Super Bowl tickets implies that the price of Super Bowl tickets is: (a) below the equilibrium price. (b) above the equilibrium price. (c) not set by supply and demand, but instead set by the NFL. (d) set at the equilibrium price since they always sell out.

below the equilibrium price.

If labor in China is less productive than labor in the United States in all areas of production, then: (a) both the United States and China can benefit from trade. (b) neither nation can benefit from trade. (c) China can benefit from trade but not the United States. (d) the United States can benefit from trade but not China.

both the United States and China can benefit from trade.

Suppose that the equilibrium price in the market is $10. If the current market price is $7.50: (a) the equilibrium price will fall to $7.50. (b) competition among buyers will increase the current price. (c) the current price will fall below $7.50 as sellers compete for market share. (d) There is not enough information provided to answer the question.

competition among buyers will increase the current price.

What can cause both equilibrium price and quantity to increase? (a) an increase in the number of sellers (b) consumer tastes becoming more favorable toward the good (c) a decrease in the population (d) an increase in the price of a complement good

consumer tastes becoming more favorable toward the good

Demand slopes down because: (a) consumers will choose to use goods only in their most valuable uses when prices are high. (b) consumers focus too much on the price of goods when they choose the quantity to de- mand. (c) supply slopes up, and supply and demand must intersect. (d) goods usually only have a single use.

consumers will choose to use goods only in their most valuable uses when prices are high.

What would lead to a decrease in supply? (a) price of the product has decreased. (b) costs of producing output have increased. (c) technology for producing output has improved. (d) costs of producing output have decreased.

costs of producing output have increased.

Imagine that millions of refugees move out of country A and into country X. This would cause the demand for housing in country A to ________________ and the demand for housing in country X to ________________. (a) decrease; decrease (b) decrease; increase (c) increase;increase (d) increase; decrease

decrease; increase

The supply curve: (a) shows the relationship between the number of units purchased and the number of units produced. (b) gives the maximum price that sellers may charge for a good and the quantity supplied. (c) shows a negative relationship between price and output. (d) illustrates the quantity supplied at different prices.

illustrates the quantity supplied at different prices.

If the price of computers , the price for printers will . (a) decreases; not change (b) increases; decrease (c) increases; increase (d) decreases; decrease

increases; decrease

If Germany used all its resources to produce bread, suppose it could produce 40 million loaves of bread. If it used all its resources to produce milk, it could produce 20 million gallons of milk. Then Germany's opportunity cost of producing a ___________________is _____________________. (a) loaf of bread; 1/2 gallon of milk (b) loaf of bread; 2 gallons of milk (c) gallon of milk; 1/2 loaf of bread (d) gallon of milk; 1 loaf of bread

loaf of bread; 1/2 gallon of milk

Consider the (world) market supply for oil. Saudi oil production inhabits the _________________ , and the Canadian oil production inhabits the________________ part of the curve. (a) upper; lower (b) lower; upper (c) upper; upper (d) lower; lower

lower; upper

Each point along a production possibilities curve represents: (a) a combination of goods produced that can never be produced.(b) maximum output given the state of technology and resource availability. (c) an economically inefficient combination of goods being produced. (d) a combination of goods that meets the equity criteria.

maximum output given the state of technology and resource availability

The law of demand suggests a _______________ relationship between price and _____________________ (a) positive; quantity supplied (b) negative; quantity demanded (c) negative; quantity supplied (d) positive; quantity demanded

negative; quantity demanded

You normally stay at home on Wednesday nights and study. However, next Wednesday night the college is having a free concert on the main campus. You have to make a choice. This is an example of: (a) opportunity costs. (b) incentives. (c) thinking on the margin. (d) rational decisions.

opportunity costs

Linen Pasta Italy. 4 10 Belgium 20 5 Italy has a comparative advantage in: (a) both goods, while Belgium has a comparative advantage in neither good. (b) linen, while Belgium has a comparative advantage in pasta. (c) pasta, while Belgium has a comparative advantage in linen. (d) neither good, while Belgium has a comparative advantage in both goods.

pasta, while Belgium has a comparative advantage in linen.

Trade creates value because (a) people get what they want. (b) raw materials are transformed into finished products. (c) people exchange things they do not want for things they do. (d) idle resources are put to use.

people exchange things they do not want for things they do.

Which variable is NOT a demand shifter? (a) tastes and preferences (b) price of raw materials (c) price of substitutes (d) price of complements

price of raw materials

The key condition for equilibrium to occur in a market is: (a) the demand curve equals the supply curve. (b) quantity demanded equals quantity supplied. (c) demand for one good equals demand for all other goods. (d) price equals quantity.

quantity demanded equals quantity supplied.

The quantity supplied is the quantity that: (a) sellers are willing and able to sell at a given price. (b) sellers are willing to sell but they cannot produce enough. (c) sellers are willing to sell at a given cost. (d) sellers are able to sell at a given cost but they are not willing to sell.

sellers are willing and able to sell at a given price.

Opportunity cost is shown on a PPF by the: (a) vertical intercept of the PPF minus the horizontal intercept. (b) horizontal intercept of the PPF minus the vertical intercept. (c) ratio of the vertical intercept to the slope. (d) slope of the PPF at any point.

slope of the PPF at any point

The enormous variety of goods and services that we consume each day can be attributed mainly to (a) government regulations. (b) home production. (c) specialization and trade. (d) early craftsmen handing down their knowledge.

specialization and trade.

The equilibrium price is: (a) unstable because at this price the quantity demanded is less than quantity supplied. (b) unstable because at this price the quantity demanded exceeds the quantity supplied. (c) stable because at this price all buyers are willing and able to pay.(d) stable because at this price quantity demanded equals quantity supplied.

stable because at this price quantity demanded equals quantity supplied

Traders should specialize in the good that: (a) that they can produce with the lowest opportunity cost. (b) in which they have an absolute advantage. (c) in which their trading partner has a comparative advantage. (d) in which they do not have an absolute advantage.

that they can produce with the lowest opportunity cost.

On a graph of a demand curve, total consumer surplus equals: (a) the area beneath the demand curve and above the market price. (b) the market price. (c) the demand curve. (d) the area above the demand curve and beneath the market price.

the area beneath the demand curve and above the market price

The production possibility frontier shows: (a) how society can produce more of one good without giving up the production of another good. (b) what people can consume given different combinations of goods produced. (c) the combinations of output that an economy can produce given its productivity and supply of inputs. (d) the types of goods and services that society should produce to satisfy social interest.

the combinations of output that an economy can produce given its productivity and supply of inputs.

If sellers want to sell more products than buyers are willing to purchase, we know that: (a) the current price is less than the equilibrium price. (b) the current price is greater than the equilibrium price. (c) the demand curve will likely increase. (d) quantity demanded exceeds quantity supplied.

the current price is greater than the equilibrium price.

When nations specialize according to their comparative advantage: (a) total world production rises but total consumption in the world declines. (b) total production and consumption in the world increase. (c) consumption rises in one country but must fall in all others. (d) None of the answers is correct.

total production and consumption in the world increase.

The table below shows the number of hours Paul spends either reading books or watching movies. Paul only has 10 hours to use on the activities. If Paul decides to go from spending two hours reading books to four hours, what is his opportunity cost for watching movies? Books Movies 0 10 2 8 4 6 6 4 8 2 10 0 (a) four hours of movie watching (b) two hours of movie watching (c) eight hours of movie watching (d) six hours of movie watching

two hours of movie watching