Econ Final Exam

Refer to Table 13-9. The average total cost of producing 240 units is

$0.32.

If in some year nominal GDP was $18 billion and the GDP deflator was 120, what was real GDP?

$15 billion.

Sally owns the only shoe store in town. She has the following cost and revenue information. Refer to Table 15-7. What is total profit at the profit-maximizing quantity?

$265

At Nick's Bakery, the cost to make a cheese danish is $1.50 per danish. As a result of selling 10 danishes, Nick experiences a producer surplus in the amount of $20. Nick must be selling his danishes for

$3.50 each.

Refer to Figure 8-2. The amount of tax revenue received by the government is

$5.

A competitive firm sells its output for $50 per unit. Assume that labor is the only input that varies for the firm. The marginal product of the 10th worker is 10 units of output per day; the marginal product of the 11th worker is 8 units of output per day. The firm pays its workers a wage of $160 per day. For the 10th worker, the value of the marginal product of labor is

$500.

Cindy's Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units of output (car washes). The firm's total cost is

$500.

Competitive firms hire workers until the additional benefit they receive from the last worker hired is equal to (i) the additional cost of that worker. (ii) the wage paid to that worker. (iii) the marginal product of that worker.

(i) and (ii) only

Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs. Given this, we know that the opportunity cost of 1 chair is

1/6 table for Ken and 1/3 table for Traci.

A manufacturer produces 400 units when the market price is $10 per unit and produces 600 units when the market price is $12 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about

2.2.

If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a

20 percent decrease in the quantity demanded.

The following table contains the demand schedule and supply schedule for a market for a particular good. Suppose sellers of the good successfully lobby Congress to impose a price floor $2 above the equilibrium price in this market. Refer to Table 6-1.How many units of the good are purchased after the imposition of the price floor?

5

A bank has $500,000 in deposits and $475,000 in loans. It has loaned out all it can. It has a reserve ratio of

5 percent.

Approximately how much of the income in the United States is earned by workers in the form of wages and fringe benefits?

67 percent

A concentration ratio

All of the above are correct.

Capital, labor, and land

All of the above are correct.

Critics of advertising argue that advertising

All of the above are correct.

In the simple circular-flow diagram,

All of the above are correct.

An assumption an economist might make while studying international trade is

All of the above are possible assumptions.

The information below for 2008 in millions was reported by the World Bank. On the basis of this information, which list below contains the correct ordering of GDP per person from highest to lowest?

Argentina, Peru, Bolivia

Refer to Figure 7-4. Which area represents producer surplus when the price is P1?

BCG

A circular-flow diagram is a model that

Both (a) and (b) are correct.

Because oligopoly markets have only a few sellers, the actions of any one seller

Both b and c are correct.

Dallas buys strawberries, and he would be willing to pay more than he now pays. Suppose that Dallas has a change in his tastes such that he values strawberries more than before. If the market price is the same as before, then

Dallas's consumer surplus would increase.

For which of the following goods is the income elasticity of demand likely highest?

Diamonds

A debit card is more similar to a credit card than to a check.

False

A tax on insulin is likely to cause a very large deadweight loss to society.

False

According to economists, "money" means the same thing as "wealth".

False

An advantage of using the midpoint method to calculate the price elasticity of demand is that it uses the metric system.

False

By definition, government purchases and taxes are zero for a closed economy.

False

Consumer price index = price of basket of goods and service in base year / price of basket in current year × 100.

False

Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls by a small amount.

False

During periods of deflation, the real interest rate will be lower than the nominal interest rate.​

False

Economic profit is greater than or equal to accounting profit.

False

Economists and accountants both include forgone income as a cost to a small business owner.

False

If US workers can produce everything in less time than Mexican workers, it is not possible for the US to gain from trade with Mexico.

False

In a competitive market, there are so few buyers and so few sellers that each has a significant impact on the market price.

False

Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of demand.

False

Prices are inefficient rationing devices.

False

Supply is said to be inelastic if the quantity supplied responds substantially to changes in the price and elastic if the quantity supplied responds only slightly to price.

False

Suppose you buy an iPod for $100. If your consumer surplus is $30, your willingness to pay is $70.

False

The OPEC oil cartel has difficulty maintaining high prices in the long run because the supply of oil is more inelastic in the long run than in the short run.

False

The demand for gasoline will respond more to a change in price over a period of five weeks than over a period of five years.

False

The flatter the demand curve that passes through a given point, the more inelastic the demand.

False

Total surplus in a market can be measured as the area below the supply curve plus the area above the demand curve, up to the point of equilibrium.

False

When demand is inelastic, a decrease in price increases total revenue.

False

When economists speak of a firm's costs, they are usually excluding the opportunity costs.

False

​The distribution of the burden of a tax depends strictly on the elasticity of supply.

False

Many things that society values, such as good health, high-quality education, enjoyable recreation opportunities, and desirable moral attributes of the population, are not measured as part of GDP. It follows that

GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce the things that contribute to welfare.

Refer to Figure 3-1. The rate of trade-off between producing chairs and producing couches is constant in

Graph (b) only.

Which of the following is not an example of a market?

In the United States, a sick person cannot legally purchase a kidney.

If Iowa's opportunity cost of corn is lower than Oklahoma's opportunity cost of corn, then

Iowa has a comparative advantage in the production of corn.

A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can given the reserve requirement.

It has $800 in reserves and $9,200 in loans.

Demand deposits are included in

M1 and M2.

Derek decides to forego a major appliance purchase and save the money. He transfers $2,100 from his checking account to his money market mutual fund. As a result of this transfer,

M1 decreases by $2,100 and M2 stays the same.

Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen over time. Which of the following explanations would be most consistent with this observation?

New medical evidence has been released that indicates a negative correlation between a person's beef consumption and life expectancy.

Which of the following is not held constant in a demand schedule?

Price

Suppose the price of gas increases by 20%. Will demand be more elastic if consumers have 3 weeks or 3 years to adjust to this price change?

The demand is more elastic if customers have 3 years to adjust to the price due to tastes. Consumers may decide to stop using their car more often in order to pay for gas and will be willing to adjust to the price and be more elastic. But, in a short period of time like 3 weeks, consumers would just be upset at the uptick in prices.

Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct?

The effective price received by sellers is $0.40 per bottle less than it was before the tax

What happens to the total surplus in a market when the government imposes a tax?

Total surplus decreases.

A COLA automatically raises the wage when the CPI rises.

True

A dollar figure from 1908 is converted into 2008 dollars by dividing the 2008 price level by the 1908 price level, then multiplying by the 1908 dollar figure.

True

A government may use deficit financing to smooth tax rates over time.

True

Alberta buys a paint sprayer and a lift for her car customizing shop. A macroeconomist would refer to these purchases as investment.

True

All financial intermediaries are financial institutions, but not all financial institutions are financial intermediaries.

True

Because taxes distort incentives, they cause markets to allocate resources inefficiently.

True

Bottles of very fine wine are less liquid than demand deposits.

True

Corporations receive no proceeds from the resale of their stock.

True

Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.

True

Diminishing marginal product exists when the production function becomes flatter as inputs increase.

True

If a determinant of demand other than price changes, the demand curve shifts.

True

If a good or service has only one seller, then the seller is called a monopoly.

True

In a market, the price of any good adjusts until quantity demanded equals quantity supplied.

True

Individual demand curves are summed horizontally to obtain the market demand curve.

True

Interdependence among individuals and interdependence among nations are both based on the gains from trade.

True

International trade can make some individuals within a country worse off, even as it makes the country as a whole better off.

True

M2 is both larger and less liquid than M1.

True

Policymakers use taxes to raise revenue for public purposes and to influence market outcomes.

True

Price elasticity of demand along a linear, downward-sloping demand curve decreases as price falls.

True

Price will rise to eliminate a shortage.

True

Regardless of whether a tax is levied on sellers or buyers, taxes discourage market activity.

True

The demand for desserts tends to be more inelastic than the demand for red velvet cake.

True

The midpoint method is used to calculate elasticity between two points because it gives the same answer regardless of the direction of the change.

True

When markets fail, public policy can potentially remedy the problem and increase economic efficiency.

True

Workers with high skills and much experience are not typically affected by the minimum wage.

True

A perpetuity is

a bond that pays interest forever.

A special kind of imperfectly competitive market that has only two firms is called

a duopoly.

A price floor is

a legal minimum on the price at which a good can be sold.

The minimum wage was instituted to ensure workers

a minimally adequate standard of living.

A market structure with barriers to entry is

a monopoly.

The gains from trade are

a result of more efficient resource allocation than would be observed in the absence of trade.

A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS basket of goods. BLS attempts to account for this change in the market basket by

adjusting the price of the good to account for the quality change.

To be successful, a cartel must

agree on the total level of production and on the amount produced by each member.

Refer to Figure 5-4. Total revenue when the price is P1 is represented by

areas B + D.

A firm produces 400 units of output at a total cost of $1,200. If total variable costs are $1,000,

average fixed cost is 50 cents.

When marginal cost is less than average total cost,

average total cost is falling.

A surplus results when a

binding price floor is imposed on a market.

A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a

bond.

A monopolistically competitive market has characteristics that are similar to

both a monopoly and a competitive firm.

Changes in nominal GDP reflect

both changes in prices and changes in the amounts being produced.

Consider the labor market for short-order cooks. A labor-augmenting technological change such as a faster food processor will cause

both equilibrium wages and equilibrium employment to increase.

The inflation rate is calculated

by determining the percentage increase in the price index from the preceding period.

According to the circular-flow diagram GDP

can be computed as the total income paid by firms or as expenditures on final goods and services.

Ashley eats two bananas during a particular day. The marginal benefit she enjoys from eating the second banana

can be thought of as the total benefit Ashley enjoys by eating two bananas minus the total benefit she would have enjoyed by eating just the first banana.

The basic tools of supply and demand are

central to macroeconomic analysis as well as to microeconomic analysis.

A bond is a

certificate of indebtedness.

To fully understand how taxes affect economic well-being, we must

compare the reduced welfare of buyers and sellers to the amount of revenue the government raises.

The most obvious benefit of specialization and trade is that they allow us to

consume more goods than we otherwise would be able to consume.

Assume most athletic apparel bought by U.S. consumers is imported from other nations. If all else is constant, an increase in the price of foreign-made athletic apparel will cause the U.S.

consumer price index to increase more than the GDP deflator.

Defenders of advertising

contend that firms use advertising to provide useful information to consumers.

A distinguishing feature of an oligopolistic industry is the tension between

cooperation and self interest.

A recession is always associated with

declining real GDP.

A decrease in the price of a good will

decrease quantity supplied.

Equilibrium quantity must decrease when demand

decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply decrease.

Assume the market for candles is competitive. A decrease in the market price of candles

decreases the demand for workers who make candles and decreases their equilibrium wage.

A national chain of grocery stores wants to finance the construction of several new stores. The firm has limited internal funds, so it likely will

demand the required funds by selling bonds.

A monopolistically competitive market is characterized by

differentiated products, but not long run profits.

In a particular town, Comvision and Veriview are the only two providers of cable TV service. Comvision and Veriview constitute a

duopoly, whether they collude or not.

An agreement between two duopolists to function as a monopolist usually breaks down because

each duopolist wants a larger share of the market to capture more profit.

Total output in an economy increases when each person specializes because

each person spends more time producing that product in which he or she has a comparative advantage.

A benefit to society of the patent and copyright laws is that those laws

encourage creative activity.

When a tax is imposed on a good, the

equilibrium quantity of the good always decreases.

Because every transaction has a buyer and a seller,

every transaction contributes equally to an economy's income and to its expenditure.

For the economy as a whole,

expenditure must equal income.

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the

flatter the demand curve will be.

By definition, exports are

goods produced domestically and sold abroad.

Fiat money

has no intrinsic value, but is declared by a government to be the legal tender of a country

When the consumer price index rises, the typical family

has to spend more dollars to maintain the same standard of living.

The goal of rent control is to

help the poor by making housing more affordable.

Serena Williams should probably not mow her own lawn because

her opportunity cost of mowing her lawn is higher than the cost of paying someone to mow it for her.

Countries with low GDP per person tend to have

higher rates of infant mortality.

Categories of U.S. consumer spending, ranked from largest to smallest, are

housing, transportation, food & beverages, and medical care.

By far the largest category of goods and services in the CPI basket is

housing.

In general, game theory is the study of

how people behave in strategic situations.

Goods produced abroad and sold domestically are called

imports.

A Texas household receives a Social Security check for $1500, which it uses to purchase a $40 pair of shoes made in Thailand by a Thai firm, a $1240 television made by a Korean firm in Korea, and $220 on groceries from a local store. As a result, U.S. GDP

increases by $220.

According to the Clayton Act,

individuals can sue to recover damages from illegal cooperative agreements.

The factors of production are best defined as the

inputs used to produce goods and services.

A downward-sloping demand curve

is a feature of all monopolistically competitive firms.

When there are economies of scale over the relevant range of output for a monopoly, the monopoly

is a natural monopoly.

For a self-sufficient producer, the production possibilities frontier

is the same as the consumption possibilities frontier.

GDP

is used to monitor the performance of the overall economy and is the single best measure of a society's economic well-being.

A municipal bond is

issued by state and local governments.

The Social Security tax is a tax on

labor.

An example of an explicit cost of production would be the

lease payments for the land on which a firm's factory stands.

Refer to Figure 13-1. As the number of workers increases,

marginal product decreases.

Monopolistic competition is a type of

market structure.

Total cost is the

market value of the inputs a firm uses in production.

A central bank's setting (or altering) of the money supply is known as

monetary policy.

Commodity money is

money with intrinsic value.

The consumer price index is used to

monitor changes in the cost of living over time.

The CPI is calculated

monthly by the Bureau of Labor Statistics.

When a single firm can supply a product to an entire market at a lower cost than could two or more firms, the industry is called a

natural monopoly.

Credit card limits are included in

neither M1 nor M2.

A closed economy does not engage in international trade, therefore

net exports (NX) are zero.

As a result of a decrease in price,

new buyers enter the market, increasing consumer surplus.

A competitive market is a market in which

no individual buyer or seller has any significant impact on the market price.

"Ensuring that Social Security is financially sound for future generations is an important use of taxpayer dollars" is an example of a

normative economic statement.

A firm that is a natural monopoly

not likely to be concerned about new entrants eroding its monopoly power.

Game theory is important for understanding which of the following market types?

oligoplistic but not perfectly competitive markets

Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931. However, prices have also risen since 1931. We can conclude that

one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.

A likely example of substitute goods for most people would be

pencils and pens.

The inflation rate is defined as the

percentage change in the price level from the previous period.

A bond that never matures is known as a

perpetuity.

Economists speaking like scientists make

positive statements.

Antitrust laws in general are used to

prevent oligopolists from acting in ways that make markets less competitive.

A demand schedule is a table that shows the relationship between

price and quantity demanded.

A monopolist maximizes profits by

producing an output level where marginal revenue equals marginal cost.

A tax on a good

raises the price that buyers pay and lowers the price that sellers receive.

A budget surplus

reduces the government's debt.

Resources are

scarce for households and scarce for economies.

If the Federal Open Market Committee decides to decrease the money supply, it will

sell government bonds.

Cost is a measure of the

seller's willingness to sell.

A supply curve can be used to measure producer surplus because it reflects

sellers' costs.

A firm can signal the high quality of its product by

spending a large amount of money on advertising.

Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?

store of value

A improvement in production technology will shift the

supply curve to the right.

A tax levied on the sellers of a good shifts the

supply curve upward by the size of the tax.

When a tax is levied on buyers, the

tax creates a wedge between the price buyers pay and the price sellers receive.

For a good that is a luxury, demand

tends to be elastic.

Two alternative measures of the overall level of prices are

the GDP deflator and the consumer price index.

In most societies, resources are allocated by

the combined actions of millions of households and firms.

All cartels are inherently reliant on

the cooperation of their members.

Liquidity refers to

the ease with which an asset is converted to the medium of exchange.

A macroeconomist - as opposed to a microeconomist - would study

the effects of borrowing by the federal government.

A certain production possibilities frontier shows production possibilities for two goods, jewelry and clothing. Which of the following concepts cannot be illustrated by this model?

the flow of dollars between sellers of jewelry and clothing and buyers of jewelry and clothing

A rational decision maker takes an action if and only if

the marginal benefit of the action exceeds the marginal cost.

The rental price of land is

the price paid for the flow of services from land over a specified time period.

Demand is said to be inelastic if

the quantity demanded changes only slightly when the price of the good changes.

Along the horizontal axis of the production function we typically measure

the quantity of input.

A monopolistically competitive firm chooses

the quantity of output to produce and the price at which it will sell its output.

A natural monopoly occurs when

there are economies of scale over the relevant range of output.

A key determinant of the price elasticity of supply is the

time horizon.

Economics is the study of how society manages its

unlimited wants and limited resources.

Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant?

unmeasured quality change

A competitive firm will hire workers up to the point at which the value of the marginal product of labor equals the

wage.

Core CPI is​

​the CPI excluding food and energy.