EXAM 3

Of the five transcontinental rail lines, the last one was completed during which decade?

1880's

The U.S. trade deficit represents about what percentage of U.S. gross domestic product?

3%

Suppose that the market supply curve can be described by the equation QS = 2P - 9 and market demand can be described by the equation QD = 26 - 3P, where P is the market price. Then, in equilibrium, the price in this market is closest to:

7

On the PPC, the point farthest from the origin represents (mark all that apply):

A point where the opportunity cost of wheat equals the opportunity cost of cotton

In a competitive market, which situation allows sellers to discriminate arbitrarily among buyers in certain groups, at little or no cost to themselves?

A rent control law that holds rents down

The Nash Bargaining Solution is:

A rule for calculating a fair outcome, in a bargaining situation

. For the purpose of building economic models, economists may assume that consumers seek to maximize (mark all that apply):

All of the above

The best time to buy bonds is when you expect __________________.

Bond yields to fall in the near future

Someone who sells a bond is a ________________.

Borrower

President ______ fought successfully to obtain Congress's approval of NAFTA, where it passed with mostly ______ votes. (Mark two answers.)

Clinton Republican

Many corporations earn (approximately) zero economic profits, but they claim to earn substantial positive profits in their reports to shareholders. In most cases, these reported profits:

Compensate shareholders for the opportunity costs of their investment

Economists generally assume that:

Consumers act rationally to attain their selfish objectives.

In the long run, in a competitive market with free entry, which statements are true (mark all that apply)?

Firms earn zero economic profits Firms produce in the way that minimizes their long run average costs

The market that comes closest to satisfying the assumptions of a competitive market is the market for:

Google stock

In the area where the instructor grew up, which crop has replaced other crops because it became the most valuable use of the land?

Grapes

When can the yield curve become inverted?

Interest rates are expected to fall.

Economics ____ a science because ____:

Is; it makes predictions and tests them.

______ sometimes appear to violate the Law of Supply.

Labor markets

Someone who buys a bond is a _________________.

Lender

If a business activity would generate a negative economic profit, then this means that:

More money can be made by investing the same resources elsewhere

Suppose that regulatory changes reduce the supply of coal. The resulting change in the quantity of coal purchased reflects a:

Movement along the demand curve for coal

In the market for widgets, suppose that the Law of Demand is violated, and the Demand curve is flatter than the Supply curve. If the equilibrium price in the market is P*, and P represents the current market price, then there will be excess demand in the market when:

P > P*

Assume that the supply of raft trips through the Grand Canyon is vertical (depending on the number of permits which the Park Service issues each year), and the demand for trips satisfies the Law of Demand. If the supply decreases, then (mark two answers) the:

Price of a trip increases Quantity of trips sold does not change

The question concerns the rental market for soccer fields. In the short run, assume that the supply is vertical (because it takes time to create a soccer field), and demand satisfies the Law of Demand. If demand increases, then the:

Price to rent a soccer field increases and Quantity of soccer fields rented does not change

We have so far studied three versions of the supply and demand model. In those models, what is always endogenous (mark all that apply)?

Quantity

Which statement is an example of positive ("scientific") economics?

Raising the minimum wage will increase unemployement

Which statement is an example of positive ("scientific") economics?

Raising the top marginal tax rate will reduce long run differences in personal wealth.

What is required for free entry (mark all that apply)?

Sellers and potential entrants have similar long run costs Sellers and potential entrants have similar long run access to markets

Considering the ratings from all three major ratings firms, which country has the highest overall credit rating?

Singapore

In a competitive market, which situation allows buyers to discriminate arbitrarily among sellers in certain groups at little or no coast to themselves?

Supply curve is a vertical line Demand curve is a vertical line

If the price of copper falls, then in the market for copper wire:

Supply decreases

The position of the PPC depends on the (mark all that apply):

Technology for making cotton Resources available for making cotton and wheat

Long term U.S. treasury bonds usually offer higher yields than short term U.S. treasury bonds. The main reason is:

The holder of a long-term bond faces greater risk in the case of early liquidation

Exports are divided into two broad categories, merchandise and services. About what share of U.S. exports are in merchandise?

Two thirds

Whether it is appropriate to use the supply and demand model to study a particular market depends on:

Whether the model makes reasonable accurate predictions in that market.

If a firm earns "normal" profits, then its economic profits:

are zero

If the demand for copper wire falls, then in the market for copper:

demand decreases

In principle, what can be measured objectively? (Mark all that apply.)

efficiency

In a competitive market, suppose that the government has the legal authority to control the market price. If the government wants to maximize the quantity produced and consumed, then it should set a market price:

equal to the equilibrium price "maximize" = most efficient

An economic model generally uses variables that are ______ in the model to predict variables that are ______ in the model.

exogenous; endogenous

Assume that, in the recent recession, incomes fell. Then, in the market for airline tickets, we would expect the price to ______ and the quantity traded to ______.

fall; fall

If the price of copper falls, then we expect the price of aluminum (a substitute for copper for the production of electrical wire) to ______ and the quantity produced to ______.

fall; fall

If regulations on strip mining are relaxed, then we expect the price of copper to ______ and the quantity traded to ______.

fall; rise

Consider four firms, producing four different products. Any firm could produce any of the four products (after making appropriate investments), because it is easy to learn how to make these products. The four firms have different advantages. Firm A sells in the largest market Firm B has the largest share of its market. Firm C produces in the market that is growing most rapidly. Firm D has a secret process that cuts production costs, which others cannot duplicate. Which firm is most likely to earn positive economic profits in the very long run?

firm d

The NAFTA negotiations include provisions to redistribute some of the benefits by:

giving payments or training to persons who lost their jobs

The Money Leaves the Table principle advises:

if it looks too good to be true, it probably is

In 2015 bad weather in Europe ruined a significant fraction of the international hops crop, and no more hops would be quickly available, because there is only one crop per year. In response, the market price of hops rose sharply to a new equilibrium, and some brewers had to scale back their production of beer. Some journalists described the situation as a "shortage" of (i.e., excess demand for) hops; this was:

inaccurate, because the price increase had eliminated the excess demand

Points inside the Production Possibilities Curve (PPC) are ______; points outside the PPC are ______.

inefficient; impossible

____________________ often appear to be out of equilibrium (showing excess supply or demand) for extended periods of time.

labor markets

Based on the discussion in class, which science has the most similarities to Economics?

meteorology

In merchandise, the U.S. imports ______ than it exports; in tourism, travel, financial, and other services, U.S. imports ______ than it exports.

more; less

During the approximately 170 years of the current two-party structure in the U.S., ______ has consistently been a stronger supporter of free trade.

neither party; the parties have been inconsistent, with occasional reversals of which party is more supportive of free trade

Which of the following markets has a well-organized cartel, with more than a dozen countries as members, which sometimes attempts to control price on the world market?

oil

Which kind of barrier to entry, as discussed in lecture, is most important for protecting the pharmaceutical industry's profits?

patents

If there is excess supply in a market, then which things do we normally expect to happen, to bring the market into equilibrium? (Mark all that apply.)

price will fall

If there is excess demand in a market, then which things do we normally expect to happen, to bring the market into equilibrium? (Mark all that apply.)

price will rise

If the price of apples (a substitute for oranges) rises, while new government regulations ban a cost-effective pesticide that has been widely used in the orange industry. then we can be fairly confident that the equilibrium _____ of oranges will _____ (mark all that apply).

price; rise

In the long run, in a competitive free entry market: equilibrium ______ is determined by the ______ side of the market.

price; supply

If a hurricane disables a large fraction of oil refinery capacity (refineries produce gasoline), while the end of the summer driving season slightly reduces the demand for gasoline, then the equilibrium _____ of gasoline will probably _____ (mark all that apply).

prise; rise

If the demand for iron and the supply of iron both increase, then we can be fairly confident that the equilibrium _____ of iron will _____ (mark all that apply).

quantity; rise

An asset is liquid if it can be sold:

quickly without a price penalty with low commission on the transaction

Assume that older persons tend to live in larger houses and apartments than do younger persons moving into their first house or apartment. Also assume that the total size of the population is stable, but health care is improving and fertility is falling. Then, over time, ceteris paribus, we expect the price of copper to ______ and the quantity produced to ______.

rise; rise

An asset will tend to have a higher rate of return if it is:

risky not liquid

Maersk is a:

shipping line

Economic costs ______ include opportunity costs and ______ include sunk costs.

should; should not

The exchange rate between the euro and the dollar is set by:

supply and demand in the foreign exchange markets

Last year, dairy farmers produced and sold 100,000 eggs, at a market price of $2/dozen. This year, they produced and sold 80,000 eggs, at a market price of $2.50/dozen. The best explanation for these changes is that the _____ of eggs ______.

supply of; demand

Economists mostly support free trade, because:

the trading parties mutually benefit

Considering the markets for three commodities (oil, copper, and tungsten): ______ has the largest share of worldwide production concentrated in a single country; and ______ has the smallest share of worldwide production concentrated in a single country.

tungsten; oil

Assume that cotton farmers use pesticide to grow cotton, and cotton may be used instead of wool in many applications. Then the demand for cotton decreases if the price of (mark all that apply):

wool decreases