Econ final

Last year the imaginary country of Basova had a population of 10,000, 6,000 people worked 8 hours a day, and produced a real GDP of $30,000,000. The imaginary country of Andovia had a population of 12,000, 8,000 people worked 8 hours a day, and produced a real GDP of $38,000,000. Which of the following is correct?

Basova had the higher productivity while Andovia had the higher real GDP per person.

Hannah and Chris each like jewelry and music by the Rolling Stones. If we were to graph an indifference curve with jewelry on the horizontal axis and CDs by the Rolling Stones on the vertical axis, then

Because we do not know the intensity of each woman's preferences, we do not have enough information to compare their indifference curves

When two goods are perfect substitutes, the

Both a and b are correct.

Explicit costs

Both b and c are correct

Karen's cat causes Danny to sneeze. Karen values her cat's companionship at $300 per year. The cost to Danny of tissues and her allergy medication is $350 per year. Based on the Coase theorem,

Danny should pay Karen $325 to give away her cat

Congresswoman Gaga represents a state in which several firms manufacture furniture. She wants to impose tariffs on all imported furniture. Which of the following is the least likely consequence of such tariffs?

Domestic furniture producers will have a higher rate of technological advance

Which of the following statements is not correct?

Economists typically prefer regulations to corrective taxes because regulations provide more incentives for firms to seek continued reductions in pollution

Suppose that policymakers are doing cost-benefit analysis on a proposal to add traffic barriers to divide the flow of traffic in an effort to increase safety on a given highway. Which of the following statements is correct?

Estimating the value of a human life is difficult but necessary to evaluate the proposal.

Two firms, A and B, each currently dump 50 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. The government will sell 40 pollution permits for $75 each. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river. Neither firm produces any less output, but they both conform to the law. It is likely that between the cost of permits and the cost of additional pollution abatement,

Firm A will spend $4,000

Which of the following is not correct?

For the last 40 or so years, U.S. inflation hasn't shown much variation from its average rate of about 2 percent

Two economists found empirical evidence that when the price of rice decreased in the Hunan province of China, local residents consumed less rice than before the price decrease. The study provides a real-world example of a(n)

Giffen good.

Suppose the price of good X increases and consumers purchase more of good Y. Which of the following statements is necessarily true about good Y?

Good Y could be a normal or inferior good.

A $1.50 tax levied on the buyers of pomegranate juice will shift the demand curve

downward by exactly $1.50

A $2 tax per gallon of paint placed on the buyers of paint will shift the demand curve

downward by exactly $2

As the size of a tax rises, the deadweight loss

rises, and tax revenue first rises, then falls.

Liquidity refers to

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

Refer to figure 9-26. Prior to opening the U.S. baseball market to trade, the equilibrium price of a baseball is​

$10

Refer to Figure 9-24. Suppose the government imposes a tariff of $10 per unit. The amount of revenue collected by the government from the tariff is

$100

Suppose a tax is imposed on each new hearing aid that is sold. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. As a result of the tax, the equilibrium quantity of hearing aids decreases from 10,000 to 9,000, and the deadweight loss of the tax is $60,000. We can conclude that the tax on each hearing aid is

$120

In the economy of Talikastan in 2015, consumption was two-thirds of GDP, government purchases were $1000 more than investment, investment was one-ninth of GDP, and the value of exports exceeded the value of imports by $500. What was Talikastan's GDP in 2015?

$13,500

Refer to Table 7-15. If each producer has one unit available for sale, and if the market equilibrium price is $80 per unit, how much is the total producer surplus in this market?

$140

Cameron visits a sporting goods store to buy a new set of golf clubs. He is willing to pay $750 for the clubs but buys them on sale for $575. Cameron's consumer surplus from the purchase is

$175.

Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The per-unit burden of the tax on sellers is

$3

Bill created a new software program he is willing to sell for $200. He sells his first copy and enjoys a producer surplus of $150. What is the price paid for the software?

$350.

Refer to Table 13-16. What is the marginal cost of the 4th unit of output?

$52

Refer to Figure 9-1. In the absence of trade, the equilibrium price of coffee in Guatemala is

$90

Refer to Figure 7-23. If the price were P3, consumer surplus would be represented by the area

. A

If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 4 times per year, then according to the quantity equation, the average price level is

1.20

Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. Without the tax, the producer surplus is

1/2 x (P5-0) x Q5

Refer to Figure 8-2. The amount of the tax on each unit of the good is

$5

Educational attainment tends to be

low in countries with high population growth

Which of the following is included in the consumption component of GDP?

All of the above are included in the consumption component of GDP

A consumer's willingness to pay directly measures

how much a buyer values a good

Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart buys its goods in large quantities and, therefore, at cheaper prices. Wal-Mart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Wal-Mart because of low prices. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that

there are economies of scale in retail sales

The primary reason people hold money is

to use it as a medium of exchange.

Electronics firms may be able to get patents on their ideas. Doing so makes their ideas

vate goods rather than public goods. This gives people more incentive to engage in research

One of the basic principles of economics is that markets are usually a good way to organize economic activity. This principle is explained by the study of

welfare economics.

The president of a poor country has announced that he will implement the following measures that he claims are designed to increase growth: 1. Reduce corruption in the legal system; 2. Reduce reliance on market forces because they allocate goods and services in an unfair manner; 3. Restrict investment in domestic industries by foreigners because they take some of the profits out of the country; 4. Encourage trade with neighboring countries; and 5. Increase the fraction of GDP devoted to consumption. How many of these measures will have a positive effect on growth?

2

Which of the following bundles could not lie on the same indifference curve with A and B and satisfy the four properties of indifference curves?

3 movies and 3 books

Based on the quantity equation, if M = 8,000, P = 3, and Y = 12,000, then V =

4.5

Refer to Table 10-2. What is the socially-optimal level of output in this market?

5 units

Refer to Table 11-3. If the marginal cost of police protection is constant at $36 per person-hour, what is the efficient level of police protection to provide?

66 units

Refer to Figure 9-11. Consumer surplus in this market before trade is

A

Average total cost (ATC) is calculated as follows:

ATC = (total cost)/(quantity of output)

A double coincidence of wants

All of the above are correct

A person who is counted as "unemployed" by the Bureau of Labor Statistics

All of the above are correct

Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is tripled, the

All of the above are correct

Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?

All of the above are correct

"When workers already have a large quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity only slightly." This statement

All of the above are correct.

Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed,

All of the above are correct.

Taxes cause deadweight losses because they

All of the above are correct.

Transfer payments

All of the above are correct.

Which of the following statements is not correct?

If Miguel experiences a wage decrease and works less, the income effect is greater than the substitution effect for him

Suppose that over the last twenty-five years a country's nominal GDP grew to three times its former size. In the meantime, population grew by 40 percent and prices rose by 100 percent. What happened to real GDP per person?

It increased, but it less than doubled.

Consider two items that might be included in GDP: (1) the estimated rental value of owner-occupied housing and (2) purchases of newly-constructed homes. How are these two items accounted for when GDP is calculated?

Item (1) is included in the consumption component of GDP, while item (2) is included in the investment component of GDP.

Which of the following is an example of a positive externality?

Mary not catching the flu from Sue because Sue got a flu vaccine

Denmark is an importer of computer chips, taking the world price of $12 per chip as given. Suppose Denmark imposes a $5 tariff on chips. Which of the following outcomes is possible?

More Danish-produced chips are sold in Denmark

An optimizing consumer will select the consumption bundle in which the marginal rate of substitution

None of the above is correct.

The theory of consumer choice most closely examines which of the following Ten Principles of Economics?

People face trade-offs.

Refer to Figure 21-2. Which of the following statements is correct?

Points W, X, and Y all cost the consumer the same amount of money

Refer to Figure 9-15. With the tariff, the quantity of saddles imported is

Q3 - Q2

Assume the nation of Teeveeland does not trade with the rest of the world. By comparing the world price of televisions to the price of televisions in Teeveeland, we can determine whether

Teeveeland has a comparative advantage in producing televisions.

Refer to Figure 10-4. This market

would benefit from a tax on the product.

On a Sunday morning, Tom sold 300 cups of coffee for a total of $750.

The $750 is a nominal variable. The 300 cups of coffee is a real variable.

Which parable describes the problem of wild animals that are hunted to the point of extinction?

The Tragedy of the Commons

Which of the following events always would increase the size of the deadweight loss that arises from the tax on gasoline?

The amount of the tax per gallon of gasoline increases.

Refer to Figure 21-12. Which of the following statements is not correct?

The consumer is indifference between bundle X and bundle V.

A dentist shares an office building with a radio station. The electrical current from the dentist's drill causes static in the radio broadcast, causing the radio station to lose $10,000 in profits. The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. What is the economically efficient outcome?

The dentist gets a new drill; it does not matter who pays for it.

Which of the following is not correct?

The gains from specialization and trade are based not on comparative advantage but on absolute advantage.

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods.

The nominal interest rate was 6 percent and the inflation rate was 2 percent

Suppose that candy producers create a positive externality equal to $1 per pound of candy. Further suppose that the government offers a $1-per-pound subsidy to the producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of candy?

They are equal.

Refer to Table 23-7. Which of the following is not correct?

This economy experienced growth from 1975 to 1976

A U.S. grocery chain purchases olive oil from Tunisia and sells it to U.S. consumers. In which of the following is this transaction included?

U.S. consumption and U.S. imports

A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards. This decision provides an example of

a direct regulation of an externality.

The best remedy for market failure is often

a market-based solution

If only a few people are affected by an externality, then it is likely that

a private solution to the inefficiency will occur.

An example of a private good would be

a sleeping bag

Which of the following goods is not excludable and not rival in consumption?

a tornado siren

A lighthouse is typically considered to be a public good because

all passing ships are able to enjoy the benefits of the lighthouse without paying.

Marginal cost tells us the

amount by which total cost rises when output is increased by one unit

Refer to Figure 10-12. Suppose, on the figure, Q represents the quantity of education and P represents the price of education. Then the quantity represents

an inefficiency

Consumer surplus in a market can be represented by the

area below the demand curve and above the price.

At Bert's Bootery, the total cost of producing twenty pairs of boots is $400. The marginal cost of producing the twenty-first pair of boots is $83. We can conclude that the

average total cost of 21 pairs of boots is $23

Constant returns to scale occur when the firm's long-run

average total costs are constant as output increases

A firm produces 300 units of output at a total cost of $1,000. If fixed costs are $100,

b. average variable cost is $3

Refer to Figure 6-19. Suppose a tax of $2 per unit is imposed on this market. How much will sellers receive per unit after the tax is imposed?

between $3 and $5

Refer to Figure 7-15. Suppose producer surplus is larger than C but smaller than A+B+C. The price of the good must be

between P1 and P2.

Dawn's bridal boutique is having a sale on evening dresses. The increase in consumer surplus comes from the benefit of the lower prices to

both existing customers who now get lower prices on the gowns they were already planning to purchase and new customers who enter the market because of the lower prices.

Suppose that the market price for pizzas increases. The increase in producer surplus comes from the benefit of the higher prices to

both existing sellers who now receive higher prices on the pizzas they were already selling and new sellers who enter the market because of the higher prices.

Minimum-wage laws, unions, and efficiency wages contribute to

both structural unemployment and the natural rate of unemployment.

A tax affects

buyers, sellers, and the government

Frictional unemployment

can be created both by workers quitting to find more suitable jobs and changes in a country's comparative advantages

Which of the following is a store of value?

cash and stocks

Consider a consumer who purchases two goods, X and Y. If the price of good Y falls, then the substitution effect by itself will

cause the consumer to buy more of good Y and less of good X.

According to the quantity theory of money, a 3 percent increase in the money supply

causes the price level to rise by 3 percent.

A macroeconomist - as opposed to a microeconomist - might study the effect of

changes in the money supply on the inflation rate

When prisoners use cigarettes or some other good as money, cigarettes become

commodity money and function as a unit of account

When describing the opportunity cost of two producers, economists use the term

comparative advantage

When the nation of Mooseland first permitted trade with other nations, domestic producers of sugar experienced a decrease in producer surplus of $5 million and total surplus in Mooseland's sugar market increased by $2 million. We can conclude that

consumer surplus in Mooseland increased by $7 million

The commercial value of ivory is a threat to the elephant, but the commercial value of beef is a guardian of the cow. This is because

cows are private goods, while elephants tend to roam freely without owners

Deadweight loss is the

decline in total surplus that results from a tax.

In a fractional-reserve banking system, an increase in reserve requirements

decreases both the money multiplier and the money supply

Other things the same, an increase in population growth

decreases capital per worker. However, there is some evidence that a higher population growth rate may increase the pace of technological progress

A tax levied on the buyers of a good shifts the

demand curve downward (or to the left)

A decrease in the money supply creates an excess

demand for money that is eliminated by falling prices.

As Bubba's Bubble Gum Company adds workers while using the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Bubba's Bubble Gum Company encounters

diminishing marginal product

In the actual economy, households

divide their income among spending, taxes, and saving

A tariff on a product makes

domestic sellers better off and domestic buyers worse off

A toll collected from each car traveling during rush hour on a congested road is an effective correction to the Tragedy of the Commons for all of the following reasons except the toll provides an incentive for commuters to

drive more fuel-efficient cars

Over the last ten years productivity grew faster in Mapoli than in Romeria while the population and total hours worked remained the same in both countries. It follows that

eal GDP per person grew faster in Mapoli than in Romeria

When prices rise,

eal estate is a better store of value than money.

Josh is a full-time college student who is not working or looking for a job. The Bureau of Labor Statistics counts Josh as

either in the labor force nor unemployed

A cable television broadcast of a movie is

excludable and not rival in consumption

A pizza is

excludable and rival in consumption

A macroeconomist is interested in

explaining why the unemployment rate is higher

Productivity

explains most of the differences in the standard of living across countries.

Net exports equal

exports minus imports

If V and M are constant and Y doubles, the quantity equation implies that the price level

falls to half its original level

Which of the following are human capital and physical capital, respectively?

for an accounting firm: the accountants' knowledge of tax laws and computer software

High and unexpected inflation has a greater cost

for savers in high income tax brackets than for savers in low income tax brackets

Economists generally support

free international trade

The invention of the telegraph led to the loss of jobs for those who had delivered mail by horse but created jobs for telegraph operators and delivery persons. This is an example of

frictional unemployment created by sectoral shifts

When goods do not have a price, which of the following primarily ensures that the good is produced?

government

A good will have a more elastic demand, the

greater the availability of close substitutes.

​The primary cause of inflation is

growth in the quantity of money.

Countries that restrict foreign trade are likely to

have more firms with domestic market power.

An example of an opportunity cost that is also an implicit cost is

he value of the business owner's time

Gross domestic product measures

income and expenditures.

A rightward shift of a demand curve is called a(n)

increase in demand.

​Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture

increases the value of other properties in the neighborhood.

If two bundles of goods give a consumer the same satisfaction, the consumer must be

indifferent between the bundles

Frictional unemployment is

inevitable, because at any given time, jobs are being created in some firms and destroyed in other firms.

A positive externality

is a benefit to a market bystander

Consumer surplus

is measured using the demand curve for a product

National defense is a classic example of a public good because

it is difficult to exclude people from receiving the benefits from national defense once it is provided

Which of the following causes of unemployment is not associated with a wage rate above the market equilibrium level?

job search

Productivity is the

key determinant of living standards, and growth in productivity is the key determinant of growth in living standards

Economists differ in their views of the role of the government in promoting economic growth. At the very least, the government should

lend support to the invisible hand by maintaining property rights and political stability

A consumer consumes two normal goods, coffee and chocolate. The price of coffee rises. The income effect, by itself, suggests that the consumer will consume

less coffee and less chocolate

Refer to Figure 6-12. When the price ceiling applies in this market, and the supply curve for gasoline shifts from S1 to S2, the resulting quantity of gasoline that is bought and sold is

less than Q3

Economists make assumptions to

make a complex world easier to understand

The existence of money

makes trade easier.

Average total cost is increasing whenever

marginal cost is greater than average total cost

Commodity money is

money with intrinsic value.

When the Consumer Price Index increases from 100 to 120

more money is needed to buy the same amount of goods, so the value of money falls

Suppose the only two goods that Charlie consumes are wine and cheese. When wine sells for $10 a bottle and cheese sell for $10 a pound, he buys 6 bottles of wine and 4 pounds of cheese - spending his entire income of $100. One day the price of wine falls to $5 a bottle and the price of cheese increases to $20 a pound, while his income does not change. The bundle of wine and cheese that he purchased at the old prices now costs

more than Charlie's income at the new prices

A negative externality will cause a private market to produce

more than is socially desirable

A cost imposed on someone who is neither the consumer nor the producer is called a

negative externality.

According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then

nominal GDP would fall by 7 percent; real GDP would be unchanged

The price level is a

nominal variable

Economic variables whose values are measured in monetary units are called

nominal variables

Unemployment compensation is

not part of GDP because it is a transfer payment

The labor force equals the

number of people employed plus the number of people unemployed

The higher a country's tax rates, the more likely that country will be

on the negatively sloped part of the Laffer curve.

The things that must be forgone to acquire a good are called

opportunity costs

Assume, for England, that the domestic price of wine without international trade is higher than the world price of wine. This suggests that, in the production of wine,

other countries have a comparative advantage over England and England will import wine.

Assume, for Mexico, that the domestic price of beets without international trade is higher than the world price of beets. This suggests that, in the production of beets,

other countries have a comparative advantage over Mexico and Mexico will import beets.

Assume, for Vietnam, that the domestic price of textiles without international trade is higher than the world price of textiles. This suggests that, in the production of textiles,

other countries have a comparative advantage over Vietnam and Vietnam will import textiles

Assume that your roommate is very messy. According to campus policy, you have a right to live in an uncluttered apartment. Suppose she gets an $80 benefit from being messy but imposes a $60 cost on you. The Coase theorem would suggest that an efficient solution would be for your roommate to

pay you at least $60 but less than $80 to live with the clutter

When economists talk about growth in the economy, they measure that growth as the

percentage change in real GDP from one period to another.

"Left" gloves and "right" gloves provide a good example of

perfect complements

Sandra uses her sewing machine, thread, and yards of denim to produce jean skirts. The sewing machine is an example of​

physical ​capital.

Country A and country B both increase their capital stock by one unit. Output in country A increases by 10 while output in country B increases by 8. Other things the same, diminishing returns implies that country A is

poorer than Country B. If Country A adds another unit of capital, output will increase by less than 10 units.

The provision of public goods gives rise to

positive externalities, whereas the use of common resources gives rise to negative externalities.

Nominal GDP will definitely increase when

prices increase and output increases.

Inventors often obtain patents on new products and processes, thereby turning new ideas into

private goods and increasing the incentive to engage in research

Because of the free-rider problem,

private markets tend to undersupply public goods

According to the Coase theorem, in the presence of externalities

private parties can bargain to reach an efficient outcome

When a country abandons a no-trade policy, adopts a free-trade policy, and becomes an exporter of a particular good,

producer surplus increases and total surplus increases in the market for that good.

Diminishing marginal product suggests that the marginal

product of an extra worker is less than the previous worker's marginal produc

Refer to Figure 13-2. The graph illustrates a typical

production function

The Federal Deposit Insurance Corporation

protects depositors in the event of bank failures.

Refer to Figure 11-1. The box labeled D represents

public goods

If the tax on a good is doubled, the deadweight loss of the tax

quadruples

More generous unemployment insurance would

raise frictional unemployment.

A nation's standard of living is best measured by its

real GDP per person

Which of the following is always measured in prices from a base-year?

real but not nominal GDP

Which of the following is not an advantage to congestion charges for motorists who wish to drive on busy streets?

reduced need for public transportation

The North American Free Trade Agreement

reduced trade restrictions among Canada, Mexico and the United States

When a tax is levied on a good, the buyers and sellers of the good share the burden,

regardless of how the tax is levied.

Accumulating capital

requires that society sacrifice consumption goods in the present.

A seller is willing to sell a product only if the seller receives a price that is at least as great as the

seller's cost of production.

In the case of a technology spillover, internalizing a positive externality through a government subsidy will cause the industry's supply curve to

shift down by an amount equal to the subsidy

When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve sells bonds, then the money supply curve

shifts left, causing the price level to fall

Cyclical unemployment refers to

short-run fluctuations around the natural rate of unemployment.

A model can be accurately described as a

simplification of reality

The Tragedy of the Commons for sheep grazing on common land can be eliminated by the government doing each of the following except

subsidizing sheep flocks

The amount of unemployment varies

substantially over time and across countries

A minimum wage that is set above a market's equilibrium wage will result in an excess

supply of labor, that is, unemployment.

A major difference between tariffs and import quotas is that

tariffs raise revenue for the government, but import quotas create surplus for those who get the licenses to import

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by K+L represents

tax revenue

The Laffer curve illustrates that

tax revenue first rises, then falls as a tax increases.

If everyone benefits from helping the poor,

taxing the wealthy to raise living standards of the poor can potentially make everyone better off

Domestic producers of a good become worse off, and domestic consumers of a good become better off, when a country begins allowing international trade in that good and

the country becomes an importer of the good as a result

Refer to Figure 10-20. Without government intervention,

the equilibrium quantity is larger than the socially optimal quantity.

Disposable personal income is

the income that households and businesses have remaining after satisfying their obligations to the government.

Assuming diminishing returns,

the increase in output growth from an increase in the saving rate falls over time, and that, other things the same, poor countries should grow faster than rich ones.

A downward-sloping demand curve illustrates

the law of demand.

Which of the following is not included in U.S. GDP?

the market value of an oil change that Ben performs on his own car.

According to the classical dichotomy, which of the following is influenced by monetary factors?

the nominal interest rate

In which case below does a person's purchasing power from saving increase the most?

the nominal interest rate = 7% and inflation = 2%

One of the least regulated common resources today is

the ocean

When calculating a firm's profit, an economist will subtract only

the opportunity costs from total revenue because these include both the implicit and explicit costs of the firm. Correct

The amount of deadweight loss that results from a tax of a given size is determined by

the price elasticities of demand and supply

Which of the following will cause an increase in producer surplus?

the price of a substitute increases

when deflation exists

the real interest rate is greater than the nominal interest rate.

Efficiency in a market is achieved when

the sum of producer surplus and consumer surplus is maximized.

f a country is an exporter of a good, then it must be the case that

the world price is greater than its domestic price.

A cost-benefit analysis of a highway is difficult to conduct because analysts

will have difficulty estimating the value of the highway

A normative economic statement such as "The minimum wage should be abolished"

would require values and data to be evaluated

​Suppose that the U.S. has a comparative advantage in the production of spreadsheet software. As a result of opening up the market to international trade,

​U.S. producers benefit from higher software prices, increasing producer surplus in the market.

Which of these terms are used interchangeably?

"inputs" and "factors of production"

Refer to Figure 5-5. At a price of $50 per unit, sellers' total revenue equals

$1250

Consider Mandy's decision to go to college. If she goes to college, she will spend $20,000 on tuition, $10,000 on room and board, and $2,000 on books. If she does not go to college, she will earn $18,000 working in a store and spend $8,000 on room and board. Mandy's cost of going to college is

$42,000

A nonbinding price ceiling (i) causes a surplus. (ii) causes a shortage. (iii) is set at a price above the equilibrium price. (iv) is set at a price below the equilibrium price.

(iii) only

At price of $1.30 per pound, a local apple orchard is willing to supply 150 pounds of apples per day. At a price of $1.50 per pound, the orchard is willing to supply 170 pounds of apples per day. Using the midpoint method, the price elasticity of supply is about

0.875.

Charles purchases 20 basketball tickets per year when his annual income is $50,000 and 25 basketball tickets when his annual income is $60,000. Charles's income elasticity of demand for basketball ticket is

1.22, and basketball tickets are a normal good

A bakery would be willing to supply 500 bagels per day at a price of $0.50 each. At a price of $0.80, the bakery would be willing to supply 1,100 bagels. Using the midpoint method, the price elasticity of supply for bagels is about

1.63

A movement downward and to the left along a supply curve is called a(n)

A movement downward and to the left along a supply curve is called a(n)

Which of the following statements is not correct?

Absolute advantage is the driving force of specialization.

A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies

All of the above are correct

Assume that Greece has a comparative advantage in fish and Germany has a comparative advantage in cars. Also assume that Germany has an absolute advantage in both fish and cars. If these two countries specialize and trade so as to maximize the benefits of specialization and trade, then

All of the above are correct

Which of the following steps does an economist take when studying the economy?

All of the above are correct

"Other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises." This relationship between price and quantity demanded

All of the above are correct.

Which of the following is not an example of the principle that trade can make everyone better off?

All of the above are examples of the principle that trade can make everyone better off.

An assumption an economist might make while studying international trade is

All of the above are possible assumptions.

Which of the following statements about comparative advantage is not true?

Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources.

All else equal, what happens to consumer surplus if the price of a good increases?

Consumer surplus decreases.

Which of the following would not result from all countries specializing according to the principle of comparative advantage?

Each country's production possibilities frontier would shift inward.

Consider two individuals - Howard and Mai - each of whom would like to wear sweaters and eat tasty food. The gains from trade between Howard and Mai are least obvious in which of the following cases?

Howard is very good at knitting sweaters and at cooking tasty food, but Mai's skills in both of these activities are very poor

A barber currently cuts hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand?

It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients

Which of the following is a principle concerning how people interact?

Markets are usually a good way to organize economic activity

Assume Leo buys coffee beans in a competitive market. It follows that

None of the above is correct.

A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which principle of economics does this illustrate?

People respond to incentives.

A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct?

The answer depends on the price elasticity of demand.

For a particular good, an 8 percent increase in price causes a 4 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The market for the good is broadly defined

Refer to Figure 5-12. Which of the following price changes would result in no change in sellers' total revenue?

The price decreases from $24 to $18

Suppose the United States had a short-term shortage of farmers. Which mechanisms would adjust to remove the shortage?

The prices of food and the wages of farmers would adjust

When can two countries gain from trading two goods?

Two countries could gain from trading two goods under all of the above conditions

Elasticity is

a measure of how much buyers and sellers respond to changes in market conditions

Refer to Figure 6-8. If the government imposes a price floor of $5 on this market, then there will be

a surplus of 15 units of the good

A binding minimum wage

alters both the quantity demanded and quantity supplied of labor

Economic models

are simplifications of reality, and in this respect economic models are no different from other scientific models

A shortage results when a

binding price ceiling is imposed on a market.

In a competitive market, the quantity of a product produced and the price of the product are determined by

both buyers and sellers.

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

Any point on a country's production possibilities frontier represents a combination of two goods that an economy

can produce using all available resources and technology

A decrease in input costs to firms in a market will result in a(n)

decrease in equilibrium price and an increase in equilibrium quantity.

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.

Refer to Figure 6-2. The price ceiling causes quantity

demanded to exceed quantity supplied by 85 units

Which of the following is one of the basic reasons why economists often appear to give conflicting advice to policymakers?

differences in personal values

A market demand curve shows

how much of a good all buyers are willing and able to buy at each possible price

According to the circular-flow diagram, if Suzy is a worker who delivers flowers for Happy Day Flower Company, she participates

in the markets for factors of production exchanging labor for income

Refer to Figure 4-1. The movement from point A to point B on the graph shows a(n)

increase in quantity demanded.

A decrease in the price of a good will

increase quantity demanded

An increase in the number of college scholarships issued by private foundations would

increase the demand for education

Refer to Figure 6-31. Suppose that a price ceiling is imposed in this market at a price of $30 and market demand for the good subsequently increases. This would

increase the size of the shortage

Equilibrium price must increase when demand

increases and supply does not change, when demand does not change and supply decreases, and when demand increases and supply decreases simultaneously.

According to Adam Smith, the success of decentralized market economies is primarily due to

individuals' pursuit of self-interest.

As a rationing mechanism, discrimination according to seller bias is

inefficient and potentially unfair

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

inelastic

Absolute advantage is found by comparing different producers'

input requirements per unit of output

Another term for factors of production is

inputs

A statement describing how the world is

is a positive statement

A tax burden falls more heavily on the side of the market that

is more inelastic

The tax burden will fall most heavily on sellers of the good when the demand curve

is relatively flat, and the supply curve is relatively steep

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

negative, and the good is an inferior good.

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

Refer to Figure 6-14. If the horizontal line on the graph represents a price floor, then the price floor is

not binding, and there will be no surplus or shortage of the good

A country that currently does not trade with other countries could benefit by

not restricting trade.

The minimum wage, if it is binding, lowers the incomes of

only those workers who become unemployed

Comparative advantage is related most closely to which of the following?

opportunity cost

What must be given up to obtain an item is called

opportunity cost.

Economists compute the price elasticity of demand as the

percentage change in quantity demanded divided by the percentage change in price.

The signals that guide the allocation of resources in a market economy are

prices

Almost all variation in living standards is attributable to differences in countries'

productivity

A perfectly inelastic demand implies that buyers

purchase the same amount as before when the price rises or falls

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, the

quantity demanded of physicals increases, and the quantity supplied of physicals decreases

A drug interdiction program that successfully reduces the supply of illegal drugs in the United States likely will

raise the price, reduce the quantity, increase total revenues, and increase crime.

Rent control policies tend to cause

relatively smaller shortages in the short run than in the long run because supply and demand tends to be more inelastic in the short run than in the long run

When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy

rises

A survey of professional economists revealed that more than three-fourths of them agreed with fourteen economic propositions. Which of the following is not one of those propositions?

the United States should withdraw from the North American Free Trade Agreement (NAFTA)

A key determinant of the price elasticity of supply is

the ability of sellers to change the amount of the good they produce.

Although lawmakers legislated a fifty-fifty division of the payment of the FICA tax,

the actual tax incidence is unaffected by the legislated tax incidence

A surplus exists in a market if

the current price is above its equilibrium price.

Which of the following would likely be studied by a macroeconomist rather than a microeconomist?

the effect of an increase in the minimum wage on an economy's overall rate of unemployment

A rational decision maker takes an action if and only if

the marginal benefit of the action exceeds the marginal cost

Demand is said to be inelastic if

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

Cross-price elasticity of demand measures how

the quantity demanded of one good changes in response to a change in the price of another good

When two countries trade with one another, it is most likely because

the two countries wish to take advantage of the principle of comparative advantage.

In the simple circular flow diagram, the flow of money from the firms to the markets for factors of production is called

wages, rent, and profit

An economy's production possibilities frontier is also its consumption possibilities frontier

when the economy is self-sufficient.

A manufacturer produces 1,000 units, regardless of the market price. For this firm, the price elasticity of supply is

zero

​Suppose that a binding rent control law is repealed in San Francisco. As a result, we would expect the total number of units rented in the city to

​increase