Econ Exam 1
When you get hired for a well-paying job, you will most likely view older used cars as
inferior goods
If instead the growth rate is 7%, the doubling time for the economy is
10 years
If Ireland took 25 years25 years to double its real GDP per capita, what was its average annual GDP per capita growth rate during this period?
2.8
Suppose the growth rate of the economy is 2%. The size of the economy roughly doubles every
35 years
What are in-kind transfers?
A transfer of resources in the form of goods and services rather than cash.
Edith is the owner and manager of a small coffee shop that employs three workers who use the shop's one coffee machine to make and serve coffee to paying customers. Business has begun to pick up; lines are getting longer every day in her shop. On a busy morning, she sees her baristas scrambling to take orders, get cups, fill coffee from the coffee machine, add cream and sugar, and serve customers in a timely manner. She figures if she hires three more baristas she'll be able to sell twice as much coffee. a. Do you think she's likely to be right? Why or why not? b. Adding more and more workers does not constantly increase production because of
A. No, more workers will just create more chaos behind the counter as the additional workers still have to wait to fill from the coffee machine. B. diminishing marginal product of labor.
Ilsia is driving home from work. She needs to buy gas and notices an Exxon-Mobil station on one side of the street and a Shell station on the other side of the street. Although run by different companies, the two stations sell gasoline at the same price. a. The most likely reason that the price is the same is that b. If one station increases its price,
A. consumers view gasoline from different gas stations as perfect substitutes. b. it will lose customers to the cheaper station across the street.
Answer the two questions relating to supply and the law of supply. A. Which would cause a shift in the supply curve? B. What would happen if the price of kayaks increased?
A. one of the determinants of supply changed. b. sellers would offer more kayaks for sale.
Technological advances in recent years have largely bypassed the agricultural sector.
false
Supply shifts so that the equilibrium quantity of the good decreases. This change is consistent with:
An increase in production costs
Demand shifts so that the equilibrium quantity of the good decreases. This change is consistent with:
An increase in the price of a complement good.
the best definition of the opportunity cost of a decision?
Benefits from the best foregone alternative
Which statement describes capital income as it pertains to the capital and labor income measure of gross domestic product (GDP)?
Capital income includes profits from business, rents earned from land and buildings, interest from financial assets such as bonds, and royalties from copyrights and patents but excludes income from the self‑employed.
Demand shifts so that the equilibrium price of the good increases. This change is consistent with:
Increased subsidies for buyers of the good.
Consider the following statement: "Economists always put things into monetary terms; as a result, economics can most appropriately be called the study of money." Is this statement true or false?
False, economists use monetary terms because they can be quantified and compared, but economics is better described as an approach to decision making
The World Bank reports that in 2015 the income share held by the lowest 10% of the U.S. population was 1.7%. The income share held by highest 10% of the population was 30.6%. The limitation in this case is that
GDP ignores distribution of income
Which of these organizations officially determines when the economy is experiencing a recession?
National Bureau of Economic Research
Pamela owns her own babysitting service. She is currently deciding whether to take on another client this week but is unsure if her choice will be beneficial to her. The rational rule for sellers in a competitive market implies that:
She should take on another client only if the price paid is greater than or equal to the marginal cost of the additional service she provides.
What does the price of diesel fuel in Russell, KS have to do with the price of bread in Boulder, CO?
Since farmers in Kansas use diesel fuel‑powered equipment to plant, harvest, and transport grain, an increase in the price of fuel may increase the price of bread.
Which government antipoverty program cannot give federal money to welfare recipients for more than a total of five years over their lifetime?
TANF
The Japanese car maker Honda owns production facilities in Marysville, Ohio. If the cars made there are sold exclusively in the United States, in which category would the cars be counted?
U.S. GDP
Which of the following questions would be studied in the area of microeconomics?
What determines the number of hours an individual works?
Andrew, a college student, loves drinking coffee late at night to study for exams. Having a small income, he is used to buying cheap, bad tasting coffee that he needs to grind and brew himself. The coffee tastes putrid but, with enough cream and sugar, Andrew is able to tolerate it. Occasionally, he does go out to Starbucks when he has spare money. After graduation, Andrew gets a job working at a database firm as a programmer. His income is now a healthy $75,000 a year and he decides he's had enough bad tasting coffee. He ends up buying coffee daily from Starbucks even though it costs significantly more. Andrew's demand for Starbucks coffee changed as a result of
a change in income
In the graph, the movement from point W to point P represents:
a decrease in demand
Based on the graph, a major characteristic of a recession is
a decrease in employment.
If nominal GDP rose, does that mean that production had to increase as well? Why or why not? A. An increase in nominal GDP b. What about if real GDP increased? c. Why is it important to use real GDP when comparing changes over time?
a. may have been due to an increase in the price level. b. means production must have increased because the price level is held constant. c. over time will accurately reflect changes in real production.
If your parents earn about 30% more than the average household, according to studies, how much more or less than the average should you expect to make?
about 15% more than the average household.
Suppose poverty is determined by a specific numerical dollar‑value threshold. That is, if your family's income is below it, everyone in your family is classified as impoverished. What type of poverty measurement is this?
absolute
The U.S. nominal gross domestic product is
all final goods and services
Brendon and Jessica are deciding whether to purchase a second vehicle. The four core principles of economics:
apply because Brendon and Jessica will have to give up something else to purchase the second vehicle.
Lee watches a beautiful sunset from the back porch of his house. The four core principles of economics:
apply because Lee could have been doing something else.
Diane Jacobs is a student studying economics and currently working on her class schedule for next semester. When she considers taking another economics course rather than taking a math class in the same time slot, she is acknowledging that dependencies exist
between her own choices.
Mos Quito works as an exterminator for Bugs B Dead, Inc
compensation of employees
For which of the following decisions is marginal analysis least beneficial?
deciding which college to attend
The law of demand says that, holding everything else constant, when the price of a good increases, the amount buyers buy will decrease, and when the price of a good decreases, the amount buyers buy will increase. To hold everything else constant means to use the ceteris paribus condition. If we change one of these things we were holding constant, which is the most likely result?
demand for the good will either increase or decrease
The U.S. Department of Commerce reports that a "dead zone" of low oxygen that can kill fish and marine life in the Gulf of Mexico has grown as large as the state of New Jersey. It is the result of agricultural and developed land runoff in the Mississippi River watershed. The limitation in this case is that
destruction of the environment is not counted.
Why must total spending be equal to total income in an economy? The two are equal because
every dollar that someone spends is a dollar of income for someone else.
You just took an Uber from home to campus for the first time and were willing to pay $13 for the trip. It was so much easier than driving yourself that you are willing to pay $21 for the same trip tomorrow. Determine if you have violated the law of demand based on your choices, and why or why not that is the case.
do not violate the law of demand because your preference for the product changed after you experienced the good
The price that results when quantity demanded equals quantity supplied is most correctly called the
equilibrium price.
Reversing long-term trends, the number of farm employees has risen with the development of agribusinesses.
false
Milk and cereal are an example of complementary goods. Which definition best describes this relationship?
goods related in such a way that an increase in price of one leads to a decrease in the demand for the other
David, a coworker, just read an article about the "poverty trap" in the U.S. During the lunch break, he mentions that it is unfortunate that everyone in poverty is stuck there forever. David's observation is
incorrect because many people experience poverty at some point in their lives, particularly when they are young
The demand curve
is a graphical representation of the relationship between price and quantity demanded.
A good produced in the current time period but put into a firm's inventory instead of being sold
is considered unsold inventory and counted as a part of investment in current GDP.
Diminishing marginal benefit
is when buying an additional item yields a smaller marginal benefit than the previous item
Economic growth is important to understand because
it is closely tied to standard of living.
A rational buyer will
keep buying a product until marginal benefit equals price
Holding everything else constant, producers are willing to offer more units for sale when the price at which they can sell their product increases. This concept is known as the
law of supply
Megan has a 11 hr gap in her course load for the fall semester. There are two courses available for her to take at that time: reading piano sheet music and beginning rock climbing. She does not have any experience with piano or rock climbing. In the end, she decides to enroll in the rock climbing course, despite her fear of heights. Identify which activity exhibits a potential trade-off with enrolling in rock climbing.
learning to read piano sheet music
U.S. GDP per person is around 15% higher than Netherlands GDP per person. However, in the United States, people work about 26% more hours than people in the Netherlands. The limitation in this case is that
leisure time is not counted in GDP
As a result of a severe recession, the total output, or gross domestic product, of a nation falls by 4 percent
macroeconomics
Increased consumer spending causes the national unemployment rate to fall
macroeconomics
Increased consumer spending causes the rate of inflation to rise.
macroeconomics
A tax on tires increases the price of tires paid by car owners.
microeconomics
Optimism about future car sales leads General Motors to hire more auto workers.
microeconomics
Robotic technology reduces the demand for auto workers.
microeconomics
Noah Count, Inc., collects $2,000 in sales tax every month.
miscellaneous adjustments
If a family's ratio of income to poverty measurement is 1.251.25 , then the family is considered by the Census Bureau as
near poor.
Bugs B Dead, Inc., pays its mortgage promptly every month.
net interest
A measure of an economy's output using current prices.
nominal GDP
A measure of output that is not adjusted for inflation.
nominal GDP
In addition to financial costs or benefits, estimating willingness to pay quantifies _____ costs or benefits associated with a choice.
nonfinancial
Data from the Pew Research Center shows that one in five U.S. parents are stay‑at‑home moms or dads. The limitation in this case is that
nonmarket activities, such as housework, are not counted in GDP.
Which can cause a shift in the demand curve? A change in:
one of the determinants of demand
Harry Watson is an engineering student taking an economics elective in his senior year. He has the option to work as a petroleum engineer or to design rollercoasters after college. He uses concepts learned from his economics course to help with this decision. When he considers the increasing popularity of electronic vehicles and a decrease in demand for petroleum in the future, he is acknowledging the dependencies that exist
over time
When plotting a demand curve
price is on the vertical axis
Exterminators Plus is an owner‑operated business.
proprietor's income
A measure of an economy's output using constant prices.
real GDP
A measure of output that is adjusted for inflation.
real GDP
Economic growth is most accurately measured by changes in which variable?
real GDP
Which is not an aspect of the Temporary Assistance for Needy Families (TANF) program? states are responsible for payments to individuals recipients must have dependent children recipients must be unemployed recipients are only able to participate for a limited amount of time
recipients must be unemployed
Suppose poverty is determined by stating that the poorest 20% of families in a country are in poverty. What type of poverty measurement is this?
relative
Anita House bought a duplex to earn additional income.
rental income
People have limited resources.
scarcity
People have limited resources to satisfy unlimited wants Everything you do requires giving up something (time, money, etc.)
scarcity tradeoffs
What does the investment component of GDP measure?
spending on goods to be used in future production
Consider the maximum amount of a product that sellers are willing and able to provide for sale over a relevant range of prices, holding all other factors constant. Economists call this:
supply
An individual demand curve is a graph
that plots the quantity of an item that someone plans to buy, at each price.
The statements about the Market Basket Measure (MBM) are true, except that the MBM estimates the cost of satisfying basic wants and needs. the MBM is a relative measure. the MBM includes estimates for the cost of entertainment. the MBM is calculated by Human Resources and Skills Development Canada.
the MBM is a relative measure.
Paint and paintbrushes are complements. If the price of paint rises, we can expect
the demand for paintbrushes to decrease
When the market price of a good increases, the amount that sellers are willing to offer for sale increases. Economists call this:
the law of supply.
In 2016, the top-selling pharmaceutical drug in the world was AbbVie's Humira, which is used for the treatment of several common, chronic conditions. The majority of its profits are derived from treatment of the most common diseases, but AbbVie also develops drugs for rare conditions. Why might AbbVie develop drugs for rare diseases instead of investing all of its resources toward drugs for common diseases?
the marginal principle may be guiding AbbVie in determining if it is worth producing drugs for rare diseases. Since it is developing and producing treatments for rare diseases, the marginal benefits must exceed the costs.
When asked to write the definition of the "Law of Demand" on an exam, Chris wrote, "When the price of a good increases, consumers will decrease the amount that they purchase." Chris' professor deducted one point for this response. The professor most likely deducted one point because Chris forgot to include
the phrase "holding everything else constant."
The law of supply explains
the positive relationship between price and quantity supplied.
and valued at
the prices at which the goods or services are sold.
Real GDP per capita is NOT an adequate measure of
the well-being of each person in an economy.
A downward-sloping demand curve implies
there is an inverse relationship between price and quantity demanded
Diana is a student studying economics and currently working on her class schedule for next semester. She decides to enroll in a course on economic data analysis because she knows that data analysis is a highly sought-after skill from employers in her career field. Weighing what may affect her in the future opportunities demonstrated dependency
through time
Diane Jacobs is a student studying economics and currently working on her class schedule for next semester. When she considers taking another economics course and how to meet prerequisites for future economics courses, she is acknowledging dependencies that exist
through time
within a given
time period
Which of the choices illustrates the law of demand?
wants to buy more candy bars at $1 than at $2.
A surplus exists
when quantity supplied exceeds quantity demanded
legally produced
within the territorial boundaries of the United States
Which of the following is NOT an example of a how a market economy is organized?
North Korea decrees that rice must be consumed at all meals in an effort to help domestic rice makers.
What is the difference between real and nominal gross domestic product (GDP)?
Nominal GDP for a given year is measured in dollars of that year, whereas real GDP is measured in dollars of some base year.
Enrique is retired and receives a monthly supplement from the government that is based on the amount he earned while working.
Non-means-tested monetary transfer
Diane is remodeling an apartment that she will rent out to a college student. The renovation is estimated to cost $7,560.$7,560. If Diane decides to install decorative crown molding in the apartment, the renovation is estimated to cost $8,310.$8,310. Assuming Diane chooses to install the crown molding, what is the marginal cost of this choice?
$750
Consider the following statement: "An increase in the cost of oil will cause the price of a plane ticket to increase. This increase in price will cause a decrease in demand for airline travel and a leftward shift in the demand curve." What is the flaw of this reasoning?
An increase in the price of a ticket will not cause a decrease in demand, but rather a decrease in quantity demanded.
If a monsoon destroys the coffee crop in Vietnam, one of the world's largest coffee producers, what will likely occur?
Consumers will try to find alternatives to coffee due to increases in the price of coffee.
Quinn has been laid off from his job. He will receive monthly support from the government for the next 99 weeks or until he finds work, whichever comes first.
Non-means-tested monetary transfer
Which best describes a negative income tax?
Households where the combined income is greater than $25,000 pay an income tax, whereas households earning less than that are paid a tax rebate.
Michael owns a strawberry farm in central California, and is deciding how many strawberries to supply this month. Which question or phrase appropriately applies the opportunity cost principle to the supply decision?
If Michael was not producing strawberries, how else could he use his resources?
Supply shifts so that the equilibrium price of the good decreases. This change is consistent with:
Improvements in production technology
Michael owns a strawberry farm in central California and is deciding how many strawberries to supply this month. Which question or phrase appropriately applies the cost-benefit principle to the supply decision?
Is the price Michael gets for the extra bushel of strawberries at least as large as the marginal cost?
"The market supply for natural gas is the sum of all prices that natural gas producers are willing and able to sell at for every quantity."
It should state that market supply is the sum of the quantities of natural gas that producers are willing and able to sell at every price.
Which of the following scenarios illustrates the law of demand?
Kathleen eats more steak when the price is low, and less when the price is high.
You and other college students are deciding whether to major in music or engineering. You learn that there is a shortage of engineers, making it easy for engineering graduates to find employment, while there is a glut of musicians for whom finding a job is difficult. As a result, you and many other college students decide to major in engineering. Which economic principle does this illustrate?
Markets tend to move towards equilibrium as individuals respond to incentives.
Jenny does not work and receives a monthly government benefit that can only be used to buy food.
Means-tested in-kind benefit
Clement claims a tax deduction for each of his children. This tax deduction increases along with his income, up to a certain point.
Means-tested monetary transfer
Moses receives monthly government support to help him care for his children. His benefit is only for a set period of time and will be discontinued if he finds work.
Means-tested monetary transfer
Economics is characterized by many statistics and measurements. Suppose that an analyst is interested in comparing the economy of today with the economy ten years ago. Which term is least likely to be useful for this purpose?
Nominal GDP
According to the U.S. Bureau of the Census, the poverty rate in the United States during 20082008 was 13.213.2%. What does this mean?
Of the population of the United States, 13.213.2% have an income and family size that places them below the poverty line
For living standards to rise, what must occur?
Output must grow faster than the population.
Which statements connects the expenditure measure of the gross domestic product (GDP) to economic well‑being?
People who live in an economy with a high level of GDP tend to have access to better health and education, which can lead to better economic well‑being.
Which of the following is an example of an in-kind transfer?
Publicly funded health care Subsidized housing Subsidized daycare
Maneet is a general manager of an office supply store, and is currently assessing the effects of various market changes. The current price of ink (per cartridge) is $20. Suppose the price of cartridges increases to $24. Determine how the market for ink cartridges changes in response. What occurs in the market for ink cartridges in response to the increase in price?
Quantity supplied increases, moving up and to the right along the curve
Over time, a continual decrease in autoworkers' wages leads to an increase in the supply of trucks. During this same time, drivers start to prefer compact cars over trucks, leading to a decrease in the demand for trucks. Which of the statements most accurately describes what happens to the equilibrium price and quantity of trucks?
The equilibrium price will decrease and it is unclear how the equilibrium quantity will change.
You purchased a ticket to the musical Hamilton through a verified reseller for $457.00. When your ticket arrives, you see that the face value printed on it is $259.00. Which of the following is correct?
The face value is below the equilibrium price because the rate in the secondary market exceeds the face value.
In economics, what is meant by "optimal decisions are made at the margin?"
The idea of the margin is related to making decisions while thinking about the benefits and costs of small changes in behavior.
You are the manager of Frito-Lay's Cheese Puffs account, and you notice that when the price of Cheetos increases, there is an increase in demand for Cheese Puffs. What is the economic relationship between these goods that explains this behavior?
The increase in the price of Cheetos causes an increase in the demand for Cheese Puffs; therefore, these goods are substitutes.
One day, a local theme park charges $40 per person for admission, and 10,000 people visit the park. On another day, the park charges $60 per person, and 20,000 people pay to enter the park. Which explanation best describes why the park sees an increase in attendance when the price is higher?
The low-attendance day falls on an autumn Wednesday, while the high-attendance day falls on a summer Saturday.
What is the rationale behind the proposal that a perfectly egalitarian, or equal, distribution of income maximizes social welfare?
The marginal utilities from income will be the same for all citizens.
Which is NOT an example of a behavior exhibited in a market economy?
The president of the European country of Semolina decrees that pasta must be consumed at all meals in an effort to help domestic pasta makers.
The $15 Kelly's Big Burger gift card that your friend gave you for your birthday expires today. You can either use the gift card to buy yourself dinner at Kelly's Big Burger, or you can stay home and eat a delicious home-cooked meal. What is the opportunity cost of eating the home-cooked meal?
The value of the ingredients that go into the home-cooked meal, and the value of a $15 meal at Kelly's Big Burger .
Would it have been problematic for the supply and demand model if these sorts of purchases or sales had been more common?
Yes. When a relatively high cost producer sells a product instead of a relatively low cost producer, total surplus is not being maximized. The same holds for the case in which a low value demander makes a purchase instead of a high value one. The supply and demand model predicts total surplus will be maximized.
You have a part time job that pays $8 per hour. Your manager has asked you to work four extra hours on Friday night, but you already have plans for dinner and a movie with a friend on Friday night. Under what conditions will you choose to work on Friday night? Consider the economic way of thinking in answering this question; also assume that you are rational (even if you do not think you are rational) and can afford dinner and a movie.
You value the extra pay more than the Friday night activities (in terms of marginal benefits, marginal costs, and your utility).
Mateo works eight hours per day. Today he has to decide whether to work overtime and stay one more hour in the office, or go back home and spend that hour studying for his economics exam. His company pays him $70$70 per day if he works eight hours, and $100 per day if he works nine hours. If Mateo studies one more hour, his exam score increases from 75 to 80, what is Mateo 's rational decision? Mateo decides to work overtime only if he values getting
a five point increase on his exam score less than $30
A normal good is
a good for which higher income causes an increase in demand
Quantity demanded is on the horizontal axis when you plot a demand curve and shows the
amount of a good that a person is willing to buy at each price
Which of the items, ceteris paribus, would cause an understatement of a nation's living standard by real gross domestic product per capita?
an increase in amount of leisure time
The movement from point M to point N represents
an increase in quantity demanded
Lilia is deciding whether to major in economics or philosophy. The four core principles of economics:
apply because Lilia should choose the major that provides the greatest economic surplus.
Gilberto is deciding whether to vote in the next election. The four core principles of economics:
apply to this decision because Gilberto should consider the costs and benefits associated with voting.
Harry Watson is an engineering student taking an economics elective in his senior year. He has the option after college to work as a petroleum engineer or design rollercoasters. He is using concepts learned in his economics course to help with this decision. By considering that he cannot be both a petroleum engineer and a rollercoaster designer, he is acknowledging the dependencies that exist
between his own choices.
Harry Watson is an engineering student taking an economics elective in his senior year. He has the option after college to work as a petroleum engineer or design rollercoasters. He is using concepts learned in his economics course to help with this decision. By considering the effects that reduced financial investments in petroleum companies will have on his expected salary, he is acknowledging the dependencies that exist
between markets.
Diane Jacobs is a student studying economics and is currently working on her class schedule for next semester. She considers the fact that a popular class may fill up if she does not act quickly, she is acknowledging the dependencies that exist
between people or businesses in the same market.
Harry Watson is an engineering student taking an economics elective in his senior year. He has the option after college to work as a petroleum engineer or to design rollercoasters. He is using concepts he learned in his economics course to help with this decision. He thinks many engineers would prefer to design rollercoasters and expects a lower salary in this field. With this analysis, he is acknowledging the dependencies that exist
between people or businesses in the same market.
Noah Count, Inc., recently paid out dividends to stockholders
corporate profits
The interdependence principle
implies that buyers decisions are affected by many factors other than the price of an item
The depth of poverty measurement that is the difference between the poverty threshold and a family's income is called the
income deficit.
The principle that your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future is known as the _____ principle.
interdependence
In a market economy, individuals' economic lives are said to be
interrelated with many other individuals and firms.
Your friend remarks that longer movies are a better deal than shorter movies because the ticket price is the same in both cases. Therefore, the longer movie provides more benefit for the same cost as a shorter movie. Which of the following is the best argument against your friend's claim that longer movies provide more benefit than shorter movies?
opportunity cost principle, the length of the movie does not matter as long as watching a movie is the best way to spend your time compared to other alternatives.
Your friend Burrell says that the government should hire fewer social workers in order to reduce the cost of federal assistance programs. He says reducing administrative costs will allow people to pay much lower taxes. Consider whether or not his argument is valid. Most of the leakage in federal assistance programs comes from
peoples' responses to financial incentives.
Most internet searches (86.5%) occur via Google, Google Maps, or Google Images, all of which provide search results for free. The limitation in this case is that
prices do not adequately convey the value of internet services like these.
Which item from the federal budget is not considered a social insurance program? protection of persons and property Old Age Security Canada/Quebec Pension Plan (CPP/QPP) Guaranteed Income Supplement
protection of persons and property
Comparing the benefits and costs of engaging in an activity.
trade off
Everything you do requires giving up something (time, money, etc.).
tradeoff
In high-income countries, the income elasticity of demand for agricultural products is relatively low.
true
Private markets provide opportunities for farmers to manage risk.
true
