Macro Midterm

Chuck would be willing to pay $20 to attend a dog show, but he buys a ticket for $15. Chuck values the dog show at

$20

If a consumer is willing and able to pay $20 for a particular good and if he pays $16 for the good, then for that consumer, consumer surplus amounts to

$4

You quit your $40,000 a year job and go to college for four years. Tuition and books cost $10,000 a year. What is your opportunity cost of going to college for four years?

$50,000

Price of coke increases 10% and quantity demanded declines 20%. The absolute value of

Ep= 2

Equity means distributing society's resources in the most efficient manner.

False

The supply curve is downward sloping.

False

There are two sectors in the circular-flow diagram: the household sector and the business sector.

False

Choosing not to attend a concert so that you can study for your exam is an example of a trade-off.

True

Prices allocate a market economy's scarce resources.

True

The production possibilities frontier shows the trade-offs that the producer/society faces.

True

Trade allows a country to consume outside (to the right of) its production possibilities frontier.

True

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

a decrease in the demand for the good

price elasticity of demand is

a measure of how much buyers respond to changes in prices of goods

Minimum-wage laws dictate

a minimum wage that firms must pay workers

A market includes

both buyers and sellers

When a tax on a good is enacted

buyers and sellers share the burden of the tax regardless of whether the tax is levied on buyers or on sellers

A legal maximum on the price at which a good can be sold is called a price

ceiling

Positive statements are

claims about how the world is (relationships proven by historical data)

Normative statements are

claims about how the world should be

Trade among nations is ultimately based on

comparative advantage

The most obvious benefit of specialization and trade is that they allow us to

consume for goods than we otherwise would be able to consume if we didn't trade

Total surplus in a market is equal to

consumer surplus + producer surplus

The absolute value for the price elasticity of demand for Caribbean cruises is 4.4. If the price increases 10% then the quantity demanded for cruises will

decrease by 44%

A tax on sellers of coffee mugs

decreases the size of the coffee mug market

Q=10-2P+3Y, where P=price of the good and the Y=consumers income. This is a:

demand function

If the number of buyers in a market decreases, then

demand will decrease

If preferences or tastes for a good increase, then

demand will increase

The property of society getting the most it can from its scarce resources is called

efficiency or productivity

The absolute value for the price elasticity of demand for good X is 1.5. That indicates that the good has

elastic demand

If consumption of a good affects other people than the person that is consuming it then that is called

externalitites

Hot dogs are an inferior good if the demand

for hot dogs declines when income rises

Economics is the study of

how society manages its scarce resources

Welfare economics is the study of

how the allocation of resources affects economic well-being

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

increase in the demand for the good

If hamburgers patties and hamburger buns are complements, then an increase in the price of hamburger patties will result in

less of hamburger buns being sold

The factors of production that we talked about in class are

money, labor, and capital

Coke and Pepsi are substitutes. If the price of coke increases, then

more Pepsi will be sold

Pollution from smoking is an example of a good that has _____ with consumption.

negative externalities

"Allowing all individuals access to Medicare and Medicaid for health insurance is the fair thing to do" is an example of a

normative economic statement

Beef has an inelastic demand. If prices increase the total revenue will

not change

What you give up to obtain an item is called your

opportunity cost

The phrase "no such thing as a free lunch" means

people must face trade-offs

"Prices rise when the quantity of money rises rapidly" is an example of a

positive economic statement

A vaccine is an example of a good that has ______ with consumption.

positive externalities

For economists, statements about the world are of two types:

positive statements and normative statements

In a free, competitive market, what is the rationing mechanism?

price

The primary determinant of a country's standard of living is

productivity, ie the country's ability to produce goods and services

The price elasticity of demand measures how much

quantity demanded responds to a change in price

The dead weight loss due to a tax is the result of

reduction in sales due to the tax, ie loss of welfare in the market

The phenomenon of scarcity stems from the fact that

resources are limited

The law of supply states that, other things equal, when the price of a good

rises, the quantity supplied of the good rises

The price elasticity of supply measures how responsive

sellers are to a change in price

A improvement in the production technology will shift the

supply curve to the right

Wheat is the main input in the production of flour. If the price of wheat decreases, then we would expect the

supply of flour to decrease

The benefit that government receives from a tax is measured by

tax revenue

Producer surplus is

the amount a seller is paid minus the cost of production

The higher the elasticity of demand/supply the

the higher the burden of the tax for consumers/producers

A downward-sloping demand curve illustrates

the law of demand

Assuming that demand=supply initially. A tax drives a wedge between the price buyers pay and the price sellers receive because

the price consumers pay is now higher and the price sellers receive is now lower

A production possibilities frontier is a straight line when

the rate of trade-off between the two goods being produced is constant

Efficiency in a market is achieved when

the sum of producer surplus and consumer surplus is maximized

Producer surplus directly measures

the well-being of sellers

The demand for a good or service is determined by

those who buy the good or service (consumers)

The supply of a good or service is determined by

those who sell the good or service (suppliers)

A sellers opportunity cost measures the

value of everything she must give up to produce a good

Consumer surplus is equal to

value to buyers - amount paid by buyers