Chapter 1 Macroeconomics

Which of the following statements most likely lies within the realm of microeconomics?

An increase in labor costs will increase the additional cost of producing another bus.

In the circular flow diagram model:

Both (a) and (b) are correct. Households receive income from businesses in exchange for providing inputs and use that income to buy goods and services from businesses. and Businesses receive revenues from households in exchange for providing goods and services and use those revenues to buy inputs from households.

Which of the following best characterizes the circular flow of income?

Businesses buy resources from households, and households use their income from the sale of resources to buy goods and services from businesses.

An economy is operating at full employment, and then workers in the bread industry are laid off. This change is portrayed in the movement from:

C to F

Which of the following statements is normative?

Congress gives too many tax breaks to corporations.

Which of the following statements most likely lies within the realm of macroeconomics?

Due to an economic recession, manufacturing firms began implementing layoffs of their workforces

Identify which of the following microeconomic topics can have an impact on macroeconomic topics?

How do people decide how much to save for the future, or whether they should borrow to spend beyond their current means?

A bill was introduced into Congress last year suggesting changes to the income tax code. Congress now passed this new tax reform act in the last session and over the next few years the new laws will begin to impact the nation. This is an example of what type of policy?

Macroeconomic fiscal policy

When creating a graph for your economics course, which axis is most commonly used to represent price (p)?

Price is most commonly represented on the y-axis.

Every day, 500 airplanes in San Francisco incur an additional 30 minutes of airport delays when flying into or out of the airport. In Chicago, the delays amount to 15 minutes for 1,200 airplanes. If the price of time is $30/hour in San Francisco and $20/hour in Chicago, which airport incurs the largest opportunity cost?

San francisco

Identify the normative statement(s) among the following statement(s).

The federal government spends too much.

A restaurant chain sponsors a charity that provides support to the parents of children being treated for cancer. How would the use of company funds for this purpose be justified by a business whose goal is to maximize profit?

The money spent is worth the boost it gives to corporate image.

A local bank sponsors a charity run that raises funds for a non-profit building wells and schools in Mali, Africa. How would the use of the bank's funds for this fundraiser be justified when its goal is to maximize profit?

The money spent is worth the public relations boost it gives to the bank's image.

Which topic below best applies to microeconomics?

The price that a farmer asks for her watermelons.

Which of the following best denotes the reason for the existence of substantial black markets?

a command economy

Which of the following is most likely a topic of discussion in macroeconomics?

a decrease in the unemployment rate

The choice on a production possibilities set that is socially preferred, or the choice on an individual's budget constraint that is personally preferred, will display _____________________.

allocative efficiency

A combination of clothing and cell phones that would meet the allocative efficiency would be:

any combination on the production possibilities frontier that brings the highest level of satisfaction to the people in the economy.

The model that economists use for illustrating the process of individual choice in a situation of scarcity is the _________________, sometimes also called the opportunity set, a diagram which shows what choices are possible.

budget constraint

In a market-oriented economy, the amount of a good that is produced is primarily decided by the interaction of:

buyers and sellers.

Because of our limited money, time, and effort, we are best off when we allocate things

by constantly assessing the opportunity costs of our choices.

a positive statement is

can be shown to be correct or incorrect.

Specialization

can lead to an increase in overall production.

Marginal thinking is best demonstrated by:

choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time.

Land, or natural resources, include(s) the fertility of the land, minerals below it, and

climate

Making an economically rational decision requires

considering the prospective benefits and costs to oneself.

In the first chapter of The Wealth of Nations, Smith introduces the idea of the __________, which means the way in which the work required to produce a good or service is divided into a number of tasks that are performed by different workers.

division of labor

Some highways have commuter or express pass lanes. During rush hour lanes on the highway move slowly or often are stop and go, but the express lanes continue to move at a faster pace. Express pass users pay for a transponder and monthly fees to have express lane access even with no other people in their cars. In this example, the drivers who purchase these express passes are probably

drivers who value speed and convenience more than those in the stop and go lanes and are willing to pay additional express pass fees for the option of avoiding traffic jams.

The circular flow diagram of economic activity is a model of the:

flow of goods, services, and payments between households and firms.

In a command economy, the __________ either makes most economic decisions itself or at least strongly influences how the decisions are made.

government

The two main tools of macroeconomic policy include monetary policy, and fiscal policy, which involves __________ spending.

government

The slope of a budget constraint line is influenced by

how much one product costs compared to the other

Because of their relatively small national economies, which of the following is most likely considered to be the most important factor for Belgium, Korea, and Canada to take full advantage of specialization?

international trade

The opportunity cost of an action

is a subjective valuation that can be determined only by the individual who chooses the action.

The theory of rational behavior

is an assumption that economists make to have a useful model for how decisions are made.

Economists refer to this pattern, the ___________________________________, which means that as a person receives more of a good, the additional or marginal utility from each additional unit of the good declines.

law of diminishing marginal utility

Charlie is researching the relationship between the number of hours he spends on social media and his success in his classes. He sets up an equation to better understand the implications of this relationship. This describes a ________.

mathematical function.

If an economist is trying to predict the outcome from particular causes, what is the best tool(s) for her to use in order to test out her economic model?

mathematical functions

The basic difference between macroeconomics and microeconomics is:

microeconomics concentrates on the behaviour of individual consumers and firms while macroeconomics focuses on the performance of the entire economy.

The basic difference between macroeconomics and microeconomics is that:

microeconomics is concerned with the trees (individual markets) while macroeconomics is concerned with the forest (aggregate markets).

Philosophers draw a distinction between positive statements, which describe the world as it is, and ___________________s, which describe how the world should be.

normative statement

A budget constraint model differs from production possibilities model in that, typically

only the production possibilities model demonstrates diminishing returns.

Attending college is a case where the ________________ exceeds the monetary cost.

opportunity cost

The model that economists use for illustrating the process of individual choice in a situation of scarcity is the budget constraint, sometimes also called the _______________, a diagram which shows what choices are possible.

opportunity set

Darryl is starting a company helping people put up and take down holiday lights on their homes. He determines that the larger the house, the more likely people are to use his company to put up their lights. If Darryl were to plot the relationship between home size and willingness to pay for holiday light installation services, the line on the graph would show a

positive slope.

Philosophers draw a distinction between ___________________, which describe the world as it is, and normative statements, which describe how the world should be.

positive statements

The production possibilities model illustrates an inverse relationship between two goods or services because

production of different types will compete for limited resources

The lesson of __________ is to forget about the money that's irretrievably gone and instead to focus on the marginal costs and benefits of future options.

sunk cost

Marcus is considering which college major to choose. In taking a rational approach, Marcus should consider

the benefit each major would bring and the cost of the degree.

A keynote speaker was known for his many speaking engagements, but now he has limited time and a rational mind. Even he would eventually start to turn down speaking engagement when, by his judgement

the marginal cost is greater than the marginal benefit of the next speaking engagement.

Scarcity is imposed on individual households in the form of income and

the prices of the goods that a person may purchase

As depicted in _________________________________, it is necessary to give up some of one good to gain more of the other good.

the production possibilities frontier

If a data line on a graph slopes upward as it goes to the right, it is depicting that

the relationship between the variables on the axes is positive.

In the case of an negative relationship between two variables, all else remaining constant

the value of the two variables will move in opposite directions from each other.

Hal and Gavin are siblings who own a mattress recycling company. Demand has been increasing for their services and the brothers are contemplating whether to open up an additional mattress drop off site in the downtown area. They estimate it would add $1 million in expenses with their profit increasing by $150 thousand each year for the next 5 years (all other things equal). Hal and Gavin decide

to not open a mattress drop off site downtown because the marginal costs proved to be too high.

Indi and Indrani are sisters who own a software development company. Demand has been increasing for their products and services and the sisters are contemplating whether to open up a satellite office in Austin. They estimate it would add $7 million in expenses and a profit of $12.5 million in total over the next 5 years (all other things equal). Indi and Indrani decide

to open a new office because the expected marginal benefit ($12.5 million over 5 years) is greater than the estimated marginal cost ($7 million).

Economists would say that the decisions we make are influenced by

trade offs

If macroeconomics looks at the economy as a whole, it focuses on which of the following?

unemployed people

In deciding how many hours to work, Beulah will make a choice that maximizes her _______; that is, she will choose according to her preferences for leisure time and income.

utility

The house that Jamalla inherited from her mother can rent for $2000/month, but Jamalla decides to allow her brother to stay there for only half of that. This decision carried with it a

zero monetary cost but a $1000 per month opportunity cost.