econ 224 homework review

T/F: The United States government should provide basic needs such as roads, water, and electricity to the people because it can supply them for free whereas a private firm would not be able to supply them for free.

false, Whether or not the federal government *should* provide goods or services is up for debate. But, if they do provide them, they face all of the same costs a private firm would (they still have to buy all of the same inputs and use up all of the same resources). So the rationale for having the federal government provide these types of goods and services cannot be because they can do so for free or for a lower cost than a private firm.

A rent ceiling below the equilibrium rent will result in

increased search time for an available apartment

A company could produce 99 units of a good for $316 or produce 100 units of the same good for $320. The marginal cost of the 100th unit

is $4.00

s the price of a good increases:

it becomes profitable to produce more of the good even with higher costs of production.

When the Fed conducts open market operations to decrease the money supply:

it sells government bonds

When Sidney's Sweaters makes exactly zero economic profit, Sidney, the owner,

makes an income equal to her best foregone alternative income.

A firm's goal is to

maximize total profits

on what kind of income is our tax system based?

nominal

for the purpose of statistically reporting the unemployment rate, "discouraged workers" are

not counted

economist define the unemployed as individuals who are..

not currently working but are actively looking for work

Which of the following is NOT considered a barrier to entry in a market?

one firm producing a good with several close substitutes

A rancher raises alpaca. Once a year, he shears them and sells the raw wool to a processor who spins it into yarn. The yarn is then sold to a mill which produces and sells alpaca sweaters. In calculating GDP we would count

only the sweaters

In our economy we have three laborers; a butcher, a baker, and a candlestick maker. Our benevolent economic planner has mandated that the butcher have a job at the wax factory so that he can appreciate the art of candle making. A likely result of this will be

our total production being a combination of goods inside our production possibilities frontier. decreased economic growth because we will not have as much production and our ability to save will be diminished. less meat being produced than people have value for.

If real GDP in 2016 using 2015 prices is lower than nominal GDP of 2016, then

prices in 2016 are higher than prices in 2015

A key characteristic of a competitive market is that

producers sell identical products.

a monopoly can only exist when a firm...

produces a product with no close substitutes

Which is NOT a function of the Federal Reserve?

providing loans to small businesses

Price controls cause resources to be misallocated by distorting the

signals of consumers' willingness to pay and eliminating the incentives for suppliers to supply.

The price paid by buyers minus the price paid by sellers equals the:

tax whether it is imposed on buyers or on sellers.

In the long-run in a perfectly competitive market, if a firm is earning negative economic profit,

that firm will exit the market.

Suppose you are spending two hours a day studying economics, and your grade is 85 percent. You want a higher grade and decide to study for one extra hour a day. As a result, your grade rises to 90 percent. Your marginal benefit of the hour studying is

the 5 point increase to your grade

which of the following would be counted in 2016's GDP?

the bonus check a stockbroker gets from his/her company in 2016

A firm's marginal cost of production is

the change in total cost when output is increased by one unit

Bananas and apples are substitutes. When the price of bananas falls, and a technological advance in apple production occurs at the same time

the equilibrium price of apples falls and the equilibrium quantity of apples might rise or fall.

an economy is allocating its resources efficiently when...

the marginal benefit of producing each good is equal to the marginal cost of producing the good

What will happen when banks decide to increase their reserve ratios?

the money supply will contract

Suppose that the quantity of cars demanded exceeds the quantity of cars supplied. We would expect

the price of cars will increase.

gross domestic product measures....

the total spending of everyone in the economy. the total income of everyone in the economy. the market value of all output in the economy.

Which of the following best describes a firm's implicit costs of production?

the value of the owner's time and labor

T/F: A change in quantity supplied is reflected by a movement along the same supply curve, while a change in supply refers to a shift in the entire supply curve.

true

T/F:U.S currency has the words "federal reserve note" on it

true

The Fed can fight the inflationary effects of an overall decrease in production by decreasing money growth.

true

The amount of money banks could create is not fixed, but instead depends on how much of their assets banks wish to hold as reserves.

true

to be considered money, an asset must be:

widely accepted as a means of payment

Under rent control, landlords are not responsive to tenants' concerns about the quality of housing because

with shortages and waiting lists, they have no incentive to maintain and improve their property.

If you negotiated a salary based on an anticipated inflation rate of 4 percent, and the actual inflation rate turned out to be 6 percent

your employer would have gained at your expense

Caroline sharpens knives in her spare time for extra income. Buyers of her service are willing to pay $2.95 per knife for as many knives as Caroline is willing to sharpen. On a particular day, she is willing to sharpen the first knife for $2.00, the second knife for $2.25, the third knife for $2.75, and the fourth knife for $3.50. Her producer surplus from sharpening knives is

$1.85

suppose a monopoly firm faces a constant marginal cost of $15.00, what will its marginal revenue be at the profit maximizing level of output

$15.00

If, in 2016, an economy's total production was 50 bushels of soybeans at $20 each and 40 gallons of honey at $15 per gallon, its gross domestic product would be

$1600

Steve is currently working as manager at a grocery store and earning $500/week. He knows that he could do several other things with his time, including working as a office assistant earning $450/week, a farmhand earning $350/week, or a substitute teacher earning $400/week. His only other option is to not work, which would give him $375/week in happiness. Given this, what is Steve's opportunity cost of working as a manager at a grocery store?

$450/week

Heidi quit her job as a chef making $40,000 a year to start her own restaurant. The first year Heidi's restaurant earns $100,000 in revenue. Heidi pays $50,000 a year in wages and spends $20,000 per year to buy food, etc. What is Heidi's economic profit for the year?

-$10,000

If you take out a bank loan prior to unanticipated inflation

. you will gain at the expense of your bank

Suppose an economy consists of 500,000 individuals 16 years and older, 260,000 are employed, and 21,000 are not employed but actively seeking work. In this example the labor force is

281,000

In June 2012, the U.S. labor force consisted of 142,415,000 employed and 12,749,000 unemployed. The U.S. unemployment rate for June 2012 was about

8.2 percent

Which of the following situations involves a trade-off?

A university decides to add seats to the football stadium. Congress votes to increase the national defense budget. A farmer decides to increase the amount of acreage devoted to growing wheat.

Demand for coffee worldwide has been increasing over the last several years. Back in October 2015, the Huffington Post reported, "If the world doesn't find a way to produce more coffee, and fast, it's very possible that we could see a shortage." Which of the following responses exhibits to sound economic reasoning?

Actually, no, it's not possible. As long as prices are allowed to adjust to equilibrium there can be no shortage, or surplus, of coffee.

You have responsibility for economic policy in the country of Freedonia. Recently, the neighboring country of Sylvania has cut off all exports of oranges to Freedonia. George, who is one of your advisors, says that the best way to avoid a shortage of oranges is to take no action at all. Charles, another one of your advisors, argues that without a binding price floor, a shortage will certainly develop. Otto, a third advisor, suggests that you should impose a binding price ceiling in order to avoid a shortage of oranges. Which of your three advisors is most likely correct?

George

On June 23, 2011, Honduras announced new taxes on various industries, including the telephone industry. If local consumers have access to the Internet independent of telephones and the local phone industry's main consumer base is in Honduras, who will bear most of the burden of this tax and why?

Producers will bear most of the burden; their supply curve for phones is more inelastic because of the difficulty in moving their operations to another country.

T/F: Subsidies must ultimately be paid for through taxes.

True

which of the following is an example of a final good or service?

a new tire you buy for your personal car

Which of the following is not a factor of production?

a share of stock issued by a firm.

Fender Bender Auto Shop faces the following yearly costs: $120,000 in wages to employees, $36,000 in rent on the building it leases, $12,000 in utilities, $60,000 in tools and equipment. Bubba, the owner of Fender Bender, owns several machines that would earn him $60,000 a year if he were to rent them out. Bubba is also currently receiving job offers from several other auto shops in town, the best of which is $70,000/year at Dent-O-Rama. The shop currently has a yearly revenue of $400,000. What are the shop's accounting and economic profits?

accounting profits = $172,000 and economic profits = $42,000

The production possibilities frontier illustrates

all the combinations of goods and services that can be produced by an economy

Which of the following could cause an increase in the demand for gasoline?

an approaching hurricane that threatens a major oil refinery in Texas

money is:

anything that is widely accepted as a means of payment

one cost of unanticipated inflation is...

arbitrary redistributions of income

There are two key requirements for forming a monopoly;

barriers to entry and a product with no close substitutes

Using all of his resources Andy can produce either 24 loaves of bread or 12 pounds of butter. Using all of his resources Bob can produce either 8 loaves of bread or 8 pounds of butter. Andy has a comparative advantage in the production of

bread, while bob has a comparative advantage in the production of butter

When firms are said to be price takers, it implies that if a firm raises its price,

buyers will go elsewhere.

Price ceilings and price floors

cause surpluses and shortages because price cannot adjust to the market equilibrium price.

When supply is more elastic than demand:

consumers carry the majority of the tax burden.

gross domestic product calculations only count final goods and services because...

counting all goods and services would lead to double-counting of many activities

M1 (the volume of money) refers to:

currency, checking deposits, savings deposits, and traveler's checks.

Commodity taxes impose a _____ upon society.

deadweight loss

An increase in the reserve ratio will _____ banks' ability to make loans.

decrease

deflation is...

decrease in prices, that is, a negative inflation rate

An increase in production costs at any given quantity:

decrease supply

People who are only working part-time, but want to be working full-time, are classified officially as

employed and in the labor force

When a payroll tax is enacted or a mandate requires firms to provide health insurance, the wage paid to workers _____ and the wage paid by firms _____.

falls, rises

T/F: Unlike with taxes, who gets the subsidy depends on who gets the check from the government.

false

The interest rate that the Fed charges to commercial banks when they borrow money from the Fed is called the Federal Funds rate.

false

T/F:self interested people will never voluntarily give money to charity

false, Self-interested people frequently give money to charity. In fact, everyone who gives money to charities is self-interested. They make the decision to give away money because it fulfills some goal for them. Whether that goal is to help the less fortunate or get a tax write-off, the behavior is still self-interested (you are attempting to make your world better).