ECON 103 Final

The CPI does not reflect the change in the purchasing power of a dollar when new goods are introduced because

the CPI is based on a fixed consumer basket of goods and services....Incorrect. The introduction of new goods creates a problem when measuring the CPI. Because the CPI is based on a fixed basket of goods and services, it does not reflect increased value as a result of a larger variety of goods. It is difficult to measure the increased value as a result of new and improved goods.

In the market for cars, demand is determined by:

the buyers of car....Incorrect. Demand is determined by the buyers of a good or service.

Assume the price elasticity of supply is the same between Good A and Good B and the demand for Good A is relatively inelastic while the demand for Good B is relatively elastic. If a $2.00 per unit tax is imposed on both markets,

the deadweight loss in the market for Good B will be larger than the deadweight loss in the market for Good A... When demand is relatively elastic, the deadweight loss of a tax is large; and when demand is relatively inelastic, the deadweight loss of a tax is small. The tax burden falls more heavily on the inelastic side of the market, and both tax burden and deadweight loss are independent of tax collection.

Suppose the government in champaign imposes a price ceiling of $200 on apartments when the equilibrium price of apartments is $100. what happens to the equilibrium quantity?

remains unchanged...Price ceiling means prices cannot rise beyond that level. A price ceiling above the equilibrium price is non-binding. Price ceiling only makes sense if it is imposed below the equilibrium/free market price. Hence, equilibrium price and quantity remains unchanged at the initial level.

A gallon of milk cost $3.00 in 2019. The value for the CPI in 1965 is 60.2 and the value of the CPI for 2019 is 236.2, what is the price of a gallon of milk in 1965 dollars?

$0.76.....Incorrect. $3.00*(60.2/236.2) = $0.75.

Suppose the consumer price index is 80 in 2012, 90 in 2014, 100 in 2016, and 105 in 2018. If Social Security benefits were $1,000 in 2012 and we indexed them for inflation, the Social Security benefits would have been ________ in 2014.

$1125....Incorrect. To index a value from year x to year y, you multiply the value by the ratio of CPIy/CPIx. In this case, you multiply $1,000 by 90/80 to obtain the value of $1125.

The effective price sellers receive after tax is imposed is:

$12...initial equilibrium price is $15. after the tax, sellers' price decreases to $12 (read off from the supply curve).

Refer to the attached figurefigure2_1_.pdf . How much revenue does the government collect from the tax on this good?

$150...Government's tax revenue is tax per unit of the good times the number of units traded on the market. 6*25=$150. 25 is the quantity traded on the market post tax.

Refer to the attached figure figure2_1_.pdf . The effective price buyers pay after tax is imposed is

$18....Initial equilibrium price is $15. After tax, buyer's price increases to $18 (read off from the demand curve).

Suppose, before you started college, you had a part-time job in a ice-cream place. The owner offered you a full-time position with an annual salary of $30,000. However, you decided to go to college. The annual costs including housing, tuition etc. is $20,000. What are your opportunity costs? What is your personal value of going to college?

$50,000, >$50,000...Recall that opportunity cost includes all the options that are given up at the moment of choosing.

Which individual is most likely to invoke the "unfair-competition" argument?

An individual who believes free trade is desirable only if all countries abide by the same rules and regulations.

Suppose free market equilibrium price is $500 and equilibrium quantity is 1500 units. Government imposes a price ceiling at $200, because of which new quantity demanded is 2500 and new quantity supplied is 700. the surplus in the market is :

-1800...because of the price ceiling at $200, quantity demanded exceeds quantity supplied and there is an excess demand/shortage in the market of the amount 2500-700=1800. Since surplus is shortage with a negative sign, surplus in the market is -1800

Toni and Mike are toymakers. Toni can either produce 500 units of shoes or 600 units of cars while Mike can produce 300 units of shoes and 600 units of cars. Before specialization, both of them were dividing their time equally between the production of shoes and cars. If both of them decide to specialize in the good in which they have a comparative advantage, total production will increase by

0 Cars and 100 shoes.... Incorrect. When both of them divide their time equally between the production of shoes and cars, Toni makes 250 shoes and 300 cars while Mike makes 150 shoes and 300 cars. So, we have a total of 250+150=400 shoes and a total of 300+300=600 cars. When they specialize, Toni makes 500 shoes and Mike makes 600 cars. So, the total unit of shoes increases by 500-400=100 units while the total unit of cars increase by 600-600=0 units.

Which of the elements of this scenario represent a flow from a household to a firm? This could be a flow of dollars, inputs, or outputs. The $400 Harry spends to purchase software Webex from Cisco systems Jake's labor The $200 per week Harry earns working for McDonald The hamburger Jake receives

1, 2...When the hamburger is provided to Jake (a household), the hamburger is an output that flows from a firm to a household. McDonald (a firm) pays Harry (a household) $200 for his labor. Therefore, the $200 is a payment that flows from a firm to a household.

Suppose price of shirts increases from 90 to 120. the producer of shirts increases quantity supplied from 5 to 7. then the price elasticity of supply for shirts is

1.17...use the midpoint formula for price elasticity of supply. Plug in Q1=5, Q2=7, P1=90, P2=120 in the formula:

Now calculate the opportunity cost of balls between points C and D.

1/3 trains...Be aware that the question is now asking the opportunity cost of 'balls', not trains. (You should be careful with the axis!!)

The CPI value in 2018 is 100 and the annual inflation rate is 6%. The CPI value in 2019 is

106...Incorrect. Given a CPI value of 100 in 2018 with an annual inflation rate of 6%, the CPI value in 2019 is 100*(1.06) = 106.

Suppose the US real GDP in 2019 is 19,222 billions of dollars, and the nominal GDP in 2019 is 21,729 billions of dollars. The base year is 2012. What is the GDP deflator in year 2019?

113.04

Suppose the followings are your recent activities in April, 2020 a. Purchase 10 units of N95 face mask from amazon with $100. b. Make 100 regular face masks by yourself at home, and sell 50 of them to your local community with $1 per mask. c. Produce a ventilator by yourself and donate it to the local hospital, you think it can help the hospital save $1000. Then, what is your contribution to the domestic GDP for those activities ?

150

Later, the teaching assistant in Jake's math course gives him some advice. "Based on past experience," the teaching assistant says, "working on 15 problems raises a student's exam score by about the same amount as reading the textbook for 1 hour." For simplicity, assume students always cover the same number of pages during each hour they spend reading. Given this information, in order to use his 4 hours of study time to get the best exam score possible, how many hours should he have spent working on problems, and how many should he have spent reading? Time Total Problems Answered 8:00 AM 0 9:00 AM 40 10:00 AM 60 11:00 AM 74 Noon 80

2 hours problem solving, 2 hours reading...Note that the gain from reading books is 15 and the key is to find the point where the marginal gain is less than 15.

Economists make assumptions to make models easier for students to understand. focus their thinking. better match the complexity of the real world. represent their political bias.

2...Economic models are generally abstract, which makes it harder to let people understand. Also, since economists can't take into account all the variables in the real world, their models are simpler than reality. Finally, economists are mostly interested in positive statements topics, while policy makers are interested in normative topics. That is, most economists do not reflect their political bias into the analysis.

Which of the following is the most commonly reported measure of inflation by the media.

CPI...Incorrect. The CPI measures the overall cost of goods and services bought by a representative consumer, that is why it is the most commonly reported measure of inflation by the media.

Susan sells a house built several years ago. The house sells for $300,000, but $20,000 of this is her real estate agents' commission fee. How much does this transaction add to GDP?

20000

If the consumer price index was 100 in 2012, 102 in 2014, 101 in 2016, and 104 in 2018, then the base year must be

2012...Incorrect. The consumer price index is always 100 in the base year. Therefore, 2012 is the base year.

suppose coke has price elastic demand. a 15% decrease in price of coke causes:

24% increase in demand for coke...Price elasticity of demand is generally negative. so options a and c are ruled out. Price elastic demand means absolute value of price elasticity is greater than 1. from the price elasticity of demand formula, % change in quantity should be greater than % change in price. only option b satisfies this condition.

If the nominal interest rate is 3 percent and the real interest rate is 0 percent, then the inflation rate is

3 percent....Correct. The inflation rate is equal to the nominal interest rate minus the real interest rate. 3 - 0 = 3 percent.

Consider the following production possibility frontier. How much is the opportunity cost of trains between points B and C?

3/2 balls...Recall that the slope of the production possibility frontier represents the opportunity cost.

Consider two countries Benin and Nigeria. Benin can either produce 300 units of cashew nuts or 400 units of corn while Nigeria can produce 200 units of cashew nuts or 400 units of corn. Benin's opportunity cost for one unit of corn is

3/4 unit of cashew nut and Nigeria opportunity cost of one unit of corn is 1/2 unit of cashew nut....Inorrect. Opportunity cost is whatever must be given up to obtain some item. According to Benin's production possibilities frontier, Benin gives up 300 units of cashew nuts in order to produce 400 units of corn or give up 400 units of corn to produce 300 units of cashew nuts. Therefore, the opportunity cost of one unit of corn is (300 units of cashew nuts)/(400 units of corn) = 3/4 units of cashew nuts per unit of corn. Similarly, Nigeria's opportunity cost of one unit of corn is (200 units of cashew nuts)/(400 units of corns) = 1/2 units of cashew nuts per unit of corn.

refer to the attached figure figure3.pdf Consider the market for luxury cars. The government imposes a tax of $300 per unit. what is the proportion of total tax per unit paid by buyers?

33.3%...Total tax per unit is $300. buyer's tax burden is (buyer's price -equilibrium price) i.e. 1600-1500=$100 . share of total tax per unit paid by buyers is 100/300=33.3%

In the market for cigarettes, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $4.50 per pack is imposed on cigarettes. The tax reduces the equilibrium quantity in the market by 3,000 packs. The deadweight loss from the tax is:

6,750.... The deadweight loss is the triangle between the demand and supply curves up to the quantity sold after the tax. The base of the triangle is the reduction in the equilibrium quantity due to the tax and the height of the triangle is the amount of the tax per unit. The deadweight loss is ½ × 3,000 × 4.50 = 6,750.

Suppose that a worker in Lago can produce either 5 units of oats or 20 pounds of tuna per year, and a worker in Abuta can produce either 20 units of oats or 5 pounds of tuna per year. There are 20 workers in each country. No trade occurs between the two countries. Lago produces and consumes 50 units of oats and 200 pounds of tuna per year while Abuta produces and consumes 200 units of oats and 50 pound of tuna per year. If trade were to occur, Lago would trade 60 pounds of tuna for 60 units of oats. If Lago now completely specializes in tuna production, how many pounds of tuna could it now consume along with the 60 units of imported oats?

340 units...Incorrect. If Lago completely specializes in tuna production, then it will use 20 workers to produce tuna which would result in 20 workers x 20 pounds of tuna per worker per year = 400 pounds of tuna per year. If it trades 60 pounds of tuna for 60 units of oats, this means can consume 400 - 60 = 340 pounds of tuna and 60 units of oats

In the circular-flow diagram, which of the following is NOT a factor of production? 1.capital 2.land 3.labor 4.profit

4....profit is the outcome or output of production. Factors are inputs to produce a good

The table below contains the quantity of Beer or Wine that each country can produce in a day. If Germany specializes in Beer and Spain in Wine, then the total production is

40 units of cheese and 20 units of wine....Incorrect. If Germany specializes in producing Beer, then Germany will produce 40 units of Beer and 0 unit of wine. If Spain specializes in producing Wine, then Spain will produce 20 units of wine and 0 units of Beer. So, the total production will be 40 unit of Beer and 20 units of wine

Jake is a hard-working college sophomore. One Saturday, he decides to work for his math course. He starts work at 8:00 AM and uses a table to keep track of his progress throughout the day. He notices that as he gets tired, it takes him longer to solve each problem. Time Total Problems Answered 8:00 AM 0 9:00 AM 40 10:00 AM 60 11:00 AM 74 Noon 80 Use the table to answer the following questions. The marginal, or additional, gain from Jake's first hour of work, from 8:00 AM to 9:00 AM, is ______. The marginal gain from Jake's third hour of work, from 10:00 AM to 11:00 AM, is ______.

40, 14...At 8:00 AM, Jake has yet to answer any problems. By 9:00 AM, Jake has answered 40 problems. So the marginal, or additional, gain from his work between 8:00 AM and 9:00 AM is 40−0=40 problems. By 10:00 AM, Jake has answered 60 problems. By 11:00 AM, Jake has answered 74 problems. So the marginal gain from the third hour, 10:00 AM to 11:00 AM, is 74-60=14 problems.

Given an economy with the following production in Econland in 2019: a. $1,000 of wheat sold to food processors b. Processors sell $4,000 of flour to bakers c. Bakers sell $5,000 of bread to consumers d. $15,000 of steel sold to auto makers e. $20,000 of vehicles sold to Uber (self-driving cars) f. $25,000 of vehicles sold to consumers What is the Econland's GDP in 2019 ?

50000

Jenny earned a salary of $55,000 in 2015 and a salary of $70,000 in 2019. The consumer price index in 2015 was 220. The consumer price index was 236 in 2019. Jenny's 2015 salary in 2019 dollars is

59,000...Incorrect. $55,000*(236/220) = $59,000

refer to the attached figure figure3.pdf . what is the proportion of total tax per unit paid by sellers?

66.67%....total tax per unit is $300. Sellers' burden of the tax is equilibrium price-seller's price i.e. 1500-1300=$200 . hence share of total tax per unit paid by sellers is 200/300=66.67%.

If the nominal interest rate is 10 percent and the inflation rate is 3 percent, then the real interest rate is

7 percent....Incorrect. The real interest rate is equal to the nominal rate minus the inflation rate. 10 - 3 = 7 percent.

Suppose coke has price inelastic demand. A 15% increase in price of coke causes:

8% fall in demand for coke...Price elasticity of demand is generally negative. options b and d are ruled out. if demand is price inelastic, absolute value of price elasticity is less than 1. from the formula for price elasticity of demand, % change in quantity must be less than % change in price. only option a satisfies this condition.

Suppose Germany produces only two goods: corn and tablets. The following graph shows Germany's current production possibilities frontier, along with six output combinations represented by black points (plus symbols) labeled A to F. Find the correct pairs of efficient, inefficient, and infeasible points.

A, B; C, D; E, F...'Efficiency' means that the economy fully uses its resources to produce maximum quantity of goods. 'Feasibility' means that the economy can make the combination of products

Benin has a comparative advantage in the production of silk, but Nigeria has an absolute advantage in the production of cotton. If these two countries decide to trade,

Benin should export silk to Nigeria...Incorrect. In the presence of two goods, if a country has a comparative advantage in producing one good, then the second country will have the comparative advantage in producing the second good independently of which country has the absolute advantage. Given that each country has to specialize in the good for which it has a comparative advantage, Benin should export silk to Nigeria and Nigeria should export cotton to Benin.

Suppose you make two purchases for yourself. Which of them is included in GDP ?

Both a bottle of hand sanitizer and a haircut

Marlyne and Claudia are two toymakers who both produce dogs and cats. In one month, Marlyne can produce 5 dogs or 20 cats, whereas Claudia can produce 8 dogs or 24 cats. Given this, we know that

Claudia has an absolute advantage in cats....Incorrect. Absolute advantage is the ability to produce a good using fewer inputs than another producer. Because Claudia can produce more cats in a month than Marlyne can produce, Claudia has an absolute advantage in cats. Similarly, Claudia can produce more dogs in a month than Marlyne can produce, so she also has an absolute advantage in dogs. Comparative advantage is the ability to produce a good at a lower opportunity cost than another producer. In this case, Marlyne has a comparative advantage in cats, and Claudia has a comparative advantage in dogs.

If a consumer is willing to pay $100 for a book and if the price of the book increases from $100 to $ 120, then:

Consumer does not purchase the good...When the price of the book was $100, the consumer was going to buy the book. Now, at a price of $120, the consumer does not buy the book.

If Enthony can solve more Econ 103 questions in one day than Mahounan can solve in one day, then

Enthony has an absolute advantage in solving Econ 103 questions...incorrect. Absolute advantage is the ability to produce a good using fewer inputs than another producer. Because Enthony can solve more Econ 103 questions in one day than Mahounan can solve, Enthony has an absolute advantage in solving Econ 103 questions. Comparative advantage is the ability to produce a good at a lower opportunity cost than another producer. Since we have no information about the opportunity cost of solving Econ 103 questions for either individual, we cannot conclude who has the comparative advantage in solving Econ 103 questions.

Which of the following answer choices lists 4 benefits of international trade?

Increased variety of goods; lower costs through economies of scale; increased competition; and enhanced flow of ideas.

Which of the following is true:

GDP = C + I + G + NX

A farmer produces potatoes, and sells them to a company which uses them all to make potato chips. The potatoes produced by the farmer are called

Intermediate goods

Suppose the demand for tea decreases. What will happen to producer surplus in the market for tea?

It decreases....B When demand decreases, price decreases and producer surplus decreases.

A teaching assistant in Jake's math course gives him some advice. "Based on past experience," the teaching assistant says, "working on 15 problems raises a student's exam score by about the same amount as reading the textbook for 1 hour." For simplicity, assume students always cover the same number of pages during each hour they spend reading. Time Total Problems Answered 8:00 AM 0 9:00 AM 40 10:00 AM 60 11:00 AM 74 Noon 80 In order to use his 4 hours of study time to get the best exam score possible, Jake spent 2 hours on problem solving and 2 hours on reading. From Jake's decision, which principle of individual choice could be recalled?

Many decisions are made on the margin...Remember that the main topic in this is how to make a decision

Paul can solve 20 Econ 103 conceptual question in an hour or 10 Econ 103 factual questions in an hour while Peter can solve 15 Econ 103 conceptual question in an hour or 5 Econ 103 factual questions in an hour.

Paul has a comparative advantage in solving factual questions...Incorrect. Let's see who has the lowest opportunity cost. For Paul, the opportunity cost of solving one factual question is 2= 20/10 and for Peter it is 3=15/5. So, Paul has a lower opportunity cost. As a consequence, Paul has a comparative advantage in solving factual questions and Peter has a comparative advantage in solving conceptual questions.

Paul can solve 20 Econ 103 conceptual question in an hour or 10 Econ 103 factual questions in an hour while Peter can solve 15 Econ 103 conceptual question in an hour or 5 Econ 103 factual questions in an hour. Based on this information we can say that,

Paul has an absolute advantage in solving both conceptual and factual questions....Incorrect. Absolute advantage is the ability to produce a good using fewer inputs than another producer. Because Paul can solve more conceptual questions within an hour, Paul has an absolute advantage in solving conceptual questions. Similarly, Paul can solve more factual question in an hour, so Paul has an absolute advantage in solving factual questions.

The following table contains statements that provide some analysis of policies that address income inequality. Categorize each of these statements as either positive or normative. Income inequality has been severe for decades. Income inequality should be resolved to enlarge the portion of middle class. Income inequality seems involved with gender. The government ought to increase tax from the rich as a resolution for income inequality.

Positive, Normative, Positive, Normative...A positive statement is one that seeks to describe the world as it is. The first and third statements fall into this category. A normative statement is one that offers an opinion as to the way the world should be. The second and fourth statements fall into this category.

Suppose Jake earns $2,000 per week working as a programmer for Cisco systems. He uses $10 to order a hamburger at McDonald. McDonald pays Harry $200 per week to wait tables. Harry uses $400 to purchase software Webex from Cisco systems

Product market, Factor market, Product market...Product market is for the final good whereas factor market is more about the inputs to make the product. For example, labor and capital are the main inputs or equivalently goods in the factor market.

Toni and Mike are toymakers. Toni can either produce 500 units of shoes or 600 units of cars while Mike can produce 300 units of shoes and 600 units of cars. Before specialization, both of them were dividing their time equally between the production of shoes and cars. If both of them decide to specialize in the good in which they have a comparative advantage, total production of

Shoes will increase and cars will remain unchanged ....Incorrect. When both of them divide their time equally between the production of shoes and cars, Toni makes 250 shoes and 300 cars while Mike makes 150 shoes and 300 cars. So, we have a total of 250+150=400 shoes and a total of 300+300=600 cars. When they specialize, Toni makes 500 shoes and Mike makes 600 cars. So, the total unit of shoes increases by 500-400=100 units while the total unit of cars increase by 600-600=0 units.

Suppose you want to buy new sneakers. However, the stores are only open during your work hours. Therefore, you need to take off early to purchase your sneakers. You earn $50 an hour. Assume there are no other costs. Where would you buy your shoes & how much is your opportunity cost there? Distance Price of Sneakers Store 1 12 minutes $100 Store 2 54 minutes $30 Store 3 36 minutes $55

Store 2, $75...The first thing you should do is rescaling the wage from hourly basis (60 minutes) to per minute basis.

Suppose you want to buy new sneakers. However, the stores are only open during your work hours. Therefore, you need to take off early to purchase your sneakers.You earn $50 an hour. Assume there are no other costs. Based on the information below, where would you buy your sneakers

Store 2...Incorrect. This exercise requires you to determine your opportunity costs. If you go to the first store, you only lose $5 in wages but you pay $100 for the sneakers. So, your opportunity costs are $105. If you go to the second store, you lose $25 in wage, but you only pay $70 for the sneakers. Your opportunity costs are $95. Finally, if you go to the third store, you lose $50 in wage, but you pay just $60 for the sneakers. Your opportunity costs are $110. Therefore, you choose the second store

Which of the following statements is true?

The CPI is computed using a fixed basket of goods, whereas the GDP deflator allows the basket of goods to change over time as the composition of GDP changes....The CPI is better than the GDP deflator at reflecting the prices of goods and services bought by consumers. The CPI measures the overall cost of goods and services bought by a representative consumer. The CPI assigns fixed weights to the prices of different goods, whereas the GDP deflator assigns changing weights. In other words, the CPI is computed using a fixed basket of goods, whereas the GDP deflator allows the basket of goods to change over time as the composition of GDP changes. Inflation rate is the percentage change in the price index from the preceding period. The consumer price index (CPI)and the GDP deflator both can be used to measure inflation.

Can government's intervention into the market improve market outcomes?

Yes, sometimes...market is achieving the maximum efficiency if it's perfect competitive market. The farther the market is far from the perfect competitive market, the worse efficiency it gets. Sometimes, market is trapped in inefficiency and is not able to escape by itself. The government's intervention is justified at this point.

Which of the following Scenarios would cause a surplus in a market?

The actual price is higher than the equilibrium price, the quantity supplied is higher than the quantity demanded....Incorrect. A surplus is a situation in which the actual price exceeds the equilibrium price and the quantity supplied is greater than quantity demanded.

Which of the following Scenarios would cause a shortage in a market?

The actual price is lower than the equilibrium price, the quantity demanded is higher than the quantity supplied....Incorrect. A shortage is a situation in which the actual price is below the equilibrium price and the quantity demanded is greater than quantity supplied.

The quantity of the blender bought at the price of $35 is 300. After a sales tax of $5 is introduced, only 200 people purchase it. Is there a deadweight loss?

Yes. It is the sum of the consumer and producer surplus of the 100 trades that do not happen.....Deadweight loss is the decrease in total surplus that results from a market distortion, such as a tax.

US is an importer of cups, taking the world price of $10 per cup as given. Suppose US imposes a $5 tariff on cups. Which of the following outcomes is possible?

The price of cups in US remains at $10; the quantity of US-produced cups increases; and the quantity of cups imported by US decreases.

We all (or may) hear about the US-China trade war. Which of the following statement is absolutely false about the trade war.

The worldwide total social welfare will increase

We have two countries A and B producing coffee and cocoa. Country A has an absolute in producing both goods. So, we can say that

We cannot say anything regarding which country has a comparative advantage...Incorrect. To know which country has a comparative advantage, we need to compute the opportunity for each country for each good. But, here we do not have enough information to compute the opportunity costs.

refer to the attached figure.figure1.pdf . A government imposed price of $12 in this market is an example of :

binding price ceiling that creates a shortage...since price ceiling is below the equilibrium price, it is binding. since at $12, quantity demanded exceeds quantity supplied, there is a shortage in the market

Which of the following points is infeasible?

c...The set of combinations on and below the production possibility frontier is feasible in that it represents the pairs of goods that an economy can afford to make, while the point beyond of it is therefore infeasible.

Milk is weighted more than soymilk in the calculation of the CPI if

consumers buy more milk than soymilk....Incorrect. Milk is weighted more than soymilk in the calculation of the CPI if consumers buy more milk than soymilk. Weights in the CPI are determined by the importance of the good to the representative consumer.

The decrease in the sum of consumer and producer surplus that results from a tax, is called

deadweight loss....Deadweight loss is the decrease in total surplus (consumer surplus plus producer surplus) that results from a market distortion, such as a tax.

Choose the right pair for the following statement: If the United States government heightens the income taxes on the wealthiest Americans, while increasing welfare payments to the poorest Americans, the result will likely be a(n) ________ in efficiency and a(n) _______ in equality in the United States.

decrease, increase...Recall the definitions of equality and efficiency and that they are in trade off relation.

Suppose in the attached figure figure4.pdf , government imposes minimum wage at $20. what happens to the quantity of labour hired legally?

decrease....When government imposes minimum wage at $20 which is above the equilibrium price and hence binding, quantity of labour demanded falls from 3000. Hence quantity of labour hired legally which is the quantity of labour demanded, falls.

Suppose US imports crude oil. The government of US has decided to place a tariff on the import of oil. We know from supply and demand analysis that

domestic producer surplus will increase, however a deadweight loss will result in the US market for oil.

Assuming tea and coffee are substitutes, as coffee becomes cheaper, people will consume more tea. true or false?

false...As coffee becomes cheaper, people consume more coffee. since tea and coffee are substitutes, they consume less tea. so the statement is false.

Refer to the attached figurefigure2_1_.pdf . The tax per unit of the good is $3. True or false?

false...The tax per unit of the good is the difference between price paid by buyers and price received by sellers. It is $18-$12=$6. so the statement is false.

If supply of wheat is perfectly price elastic at $15, quantity supplied above $15 is zero. true or false?

false...if supply is perfectly price elastic, any small change in price will result in infinite amount of change in quantity. quantity supplied above $15 is infinity. hence the statement is false

If demand for jeans is perfectly price inelastic, increase in price of jeans will cause quantity demanded of jeans to fall less than proportionately. True or False?

false...perfectly inelastic demand means demand curve for jeans is vertical in price-quantity graph. hence an increase in price of jeans will leave quantity demanded of jeans unchanged. the statement is false.

If the Federal Reserve announces that it will be increasing the money supply through its monetary policy tools, it tells us the Federal Reserve is

hoping to stimulate demand for goods and services...Recall the trade-off relation between inflation and unemployment rate.

A movement upward and to the right along the supply curve for computers is caused by a(n)

increase in the price of computers....Incorrect. According to the Law of Supply, the quantity supplied of a good rises when the price of the good rises. Non-price determinants cause shifts in the supply curve rather than movement along the curve.

Assuming bread and peanut butter are complements, decrease in price of bread will :

increase quantity demanded of peanut butter....as bread becomes cheaper, quantity demanded of bread will increase, quantity demanded of peanut butter will also increase as they are consumed together.

If supply of wheat is price elastic, a 10% increase in price of wheat will:

increase quantity supplied of wheat by 25%...price elasticity of supply is always positive. hence options a and d are ruled out. price elastic means elasticity of supply is greater than 1. hence % change in quantity is greater than % change in price. only option b satisfies the condition.

If the cost of producing computers decreases, then consumer surplus in the computer market will

increase...When the cost of production decreases, supply shifts to the right and the equilibrium price decreases. When the price decreases, consumer surplus increases.

Ice cream is a normal good if the demand

increases when income increases....incorrect. Demand for normal goods increases when income increases. An increase in demand is a shift to the right.

Which of the concepts below does a general increase in the price level of goods and services in an economy describe?

inflation....Incorrect. Inflation refers to the general increase in the price level of goods and services in an economy, while deflation refers to the general decrease in the price level of an economy. Economic growth is the change in GDP over time. Stagflation occurs when the inflation rate is high, but economic growth is slow with higher unemployment.

An increase in quantity supplied is different from shifting the supply curve to the right because an increase in quantity supplied

is caused by a price increase while a shift to the right is caused by a change in a nonprice determinant of supply...Incorrect. Movements along the supply curve are due to a change in price while a shift in supply is due to a change non-price determinants of supply.

suppose that, in an attempt to combat severe inflation, the government decides to decrease the amount of money in circulation in the economy. This monetary policy decreases the economy's demand for goods and services, leading to ________ product prices. In the short run, the change in prices induces firms to produce ________ goods and services. This, in turn, leads to a _________ level of unemployment. In other words, the economy faces a trade-off between inflation and unemployment: Lower inflation leads to __________ unemployment.

lower, fewer, higher, higher...Imagine the next scenarios if the households try to keep their money and are not willing to use them to buy goods

The standard of living in a country is most closely tied to its

productivity...This candidate is rather about quality of life or irrelevant to living standards.

The GDP deflator equals

nominal GDP divided by real GDP multiplied by 100

All other factors constant, suppose the price of widgets decreases from $200 to $150 and its demand increases from 3 to 5. Demand for widgets is :

price elastic...Use the midpoint formula for price elasticity of demand. the general formula is Plug in Q1=3, Q2=5, P1=200, P2=150 in that formula since the absolute value of price elasticity is greater than 1, demand is price elastic

Refer to the attached figure figure3.pdf . Who bears the larger incidence of tax?

sellers...A minimum wage is a price floor below which price cannot fall. The minimum wage is binding only if it is above the equilibrium price. In this case, minimum wage is below the equilibrium price of $15, so it is not binding. quantity of labor hired stays same at initial equilibrium level of 3000. hence option a is correct.

GDP equals:

the market value of all final goods and services produced within a country in a given period of time.

If demand for jeans is perfectly price elastic at $10, consumers will demand no jeans at a price above $10. true or false?

true...perfectly elastic demand means demand curve is horizontal at $10 in price-quantity graph. buyers are extremely sensitive to changes in price. when price increases above $10, no buyer would want to buy the expensive jeans and hence quantity demanded is 0.

Consider the original Production Possibility Frontier on the left. Suppose there is a deteriorating situation that raises the production cost of good B. Is the Production Possibility Frontier on the right correct after the cost increase in good B?

true...Because of the deteriorating situation in production for good B, less amount of good B can be produced using the same amount of resources; however, there is no reason to think that the maximum amount of good A that can be produced would change.

If demand for apples is price elastic, increase in price of apples will cause total revenue from apples to fall. true or false?

true...If demand is price elastic i.e. absolute value of elasticity is greater than 1, increase in price of apples by 1% will cause quantity demanded of apples to fall more than proportionately i.e. more than 1%. Hence total revenue which is price times quantity falls. the statement is true.

All other factors constant, suppose the price of widgets increases from $100 to $200 and its demand falls from 18 to 9. demand for widgets is:

unitary price elastic...use the midpoint formula for price elasticity of demand. the general formula is . plug in Q1=18, Q2=9,P1=100,P2=200 in the above formula since the absolute value of price elasticity of demand is 1, demand is unitary elastic