Macroeconomics Test 1

When there is a shortage of 1,00 units of a particular good:

the price of the good will rise

Recall Chapter 1's opening story about the British sea captains and the convicted felons. In what way were incentives used to solve the problem of the high mortality rate on board the ships?

Payment (to ship captains) was made dependent on the survival rate of prisoners.

Gains from trade are maximized when:

the market price is equal to the equilibrium price

The value of a car produced and sold in 2000 and sold again to a second owner in 2008 would be included in GDP for:

2000 only

Trade barriers like the Berlin Wall:

decreased innovation and global cooperation

When a price celing is in effect:

demanders cannot signal their needs to suppliers

Quantity supplied:

is the amount that sellers are willing and able to sell and a particular price

Based on the ideas of Adam Smith, it is ______ dentists clean and repair teeth, but _____

not out of benevolence that; from their regard for their own self-interest

Each of 100 people receives a random item from a grocery store and assigns it a value between 1 (low) and 10 (high). They trade those items among themselves for items they prefer rather than those they randomly received and then assign a second value (again, 1 to 10) to the item that they end up with after the trading concludes. How would the sum of those values before trading compare with the sum after trading?

After trading, value would be higher because preferences are diverse.

Adam Smith's metaphor of the "invisible hand" refers to the notion that:

behavior based on self-interest can lead to an overall benefit to society

The basic postulate of economics indicates that changes in incentives influence the:

choices of individuals with regard to a wide range of activities, including those generally perceived as social or political.

Gross domestic product is the market value of all:

finished goods and services produced within a year

When markets don't align self-interest with social interest:

governments may improve the situation by changing incentives.

Which of the following would increase the demand for beef?

higher consumer income

Fourteenth-century potters in the Chinese city of Jingdezhen developed the technology to heat a kiln at 1,300 degrees Celsius and produce porcelain, or "china," which was particularly popular in Persia, where the Koran forbade serving food on gold or silver and wealthy families were anxious for a legal way to impress their dinner guests. The potters also imported Persian cobalt to create the blue dye for the porcelain (local cobalt was not as bold in color). Which advantage(s) from trade is (are) illustrated in this passage?

passage illustrates all of these advantages

Trade creates value because:

people exchange things they do not want for things they do

The minimum wage is an example of a:

price floor

Knowledge increases ____________ and specialization __________ total output.

productivity; increases

How can sellers increase profits when they face a price ceiling?

reduce the quality of the product and provide less customer service

When a price floor is in effect:

suppliers cannot signal their product availability to demanders

Total producer surplus equals:

the area above the supply curve and beneath the market price