Macroeconomics

A binding minimum wage creates a shortage of labor. True or False?

False

A binding price ceiling may not help all consumers, but it does not hurt any consumers. True or False?

False

A binding price floor may not help all sellers, but it does not hurt any sellers. True or False?

False

A price ceiling set below the equilibrium price is nonbinding. True or False?

False

Buyers and sellers always share the burden of a tax equally. True or False?

False

If the world price of a good is greater than the domestic price in a country that can engage in international trade, then that country becomes an importer of that good. True or False?

False

Long lines and gasoline shortages during the 1970's can be attributed completely to the decision by OPEC to raise crude oil prices. True or False?

False

Most economists support the infant-industry argument because it is so easy to implement in practice. True or False?

False

Most labor economists believe that the supply of labor is much more elastic than the demand. True or False?

False

Opportunity cost refers to how many inputs a producer requires to produce a good. True or False?

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. True or False?

False

The gains from specialization and trade are based on absolute advantage. True or False?

False

When two variables move in opposite directions, the curve relating them is upward sloping, and we say the variables are positively related. True or False?

False

A price ceiling caused the gasoline shortage of 1973 in the United States. True or False?

True

A price ceiling set below the equilibrium price is binding. True or False?

True

A tax of $1 on sellers shifts the supply curve upward by exactly $1. True or False?

True

As long as two people have different opportunity costs, each can gain from trade with the other, since trade allows each person to obtain a good at a price lower than his or her opportunity cost. True or False?

True

Economic models omit many details to allow us to see what is truly important. True or False?

True

Ellie and Brendan both produce apple pies and vanilla ice cream. If Ellie's opportunity cost of one apple pie is 1/2 gallon of ice cream and Brendan's opportunity cost of one apple pie is 1/4 gallon of ice cream, Ellie has a comparative advantage in the production of ice cream. True or False?

True

Even though federal law mandates that workers and firms each pay half of the total FICA tax, the tax burden may not fall equally on workers and firms. True or False?

True

For a country producing two goods, the opportunity cost of one good will be the inverse of the opportunity cost of the other good. True or False?

True

Goods with close substitutes tend to have more elastic demands than do goods without close substitutes. True or False?

True

If we observe that when the price of chocolate candy bars increases by 10%, quantity demanded decreases total by 10%, then the demand for chocolate candy bars is unit price elastic. True or False?

True

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

True

Lawmakers can decide whether the buyers or the sellers must send a tax to the government, but they cannot legislate the true burden of a tax. True or False?

True

Taxes affect market participants by increasing the price paid by the buyer and decreasing the price received by the seller. True or False?

True

The burden of a luxury tax most likely falls more heavily on sellers because demand is more elastic and supply is more inelastic. True or False?

True

The primary effect of rent control in the short run is to reduce rents. True or False?

True

The wedge between the buyers' price and the sellers' price is the same, regardless of whether the tax is levied on buyers or sellers. True or False?

True

Two countries can achieve gains from trade even if one country has an absolute advantage in the production of both goods. True or False?

True

Whenever a nation is producing on its PPF, that nation will be using all of its available resources. True or False?

True

Refer to Table 7-4. If tickets sell for $25 each, then what is the total consumer surplus in the market? a. $60 b. $35 c. $110 d. $25

a. $60

In which of these instances is demand said to be perfectly inelastic? a. A decrease in price of 2% causes an increase in quantity demanded of 0% b. A decrease in price of 2% causes a decrease in total revenue of 0% c. An increase in price of 2% causes a decrease in quantity demanded of 2% d. An increase in price of 2% causes a decrease in quantity demanded of 1/2%

a. A decrease in price of 2% causes an increase in quantity demanded of 0%

Refer to Figure 7-23. At equilibrium, total surplus is represented by the area a. A+B+C+D+H+F. b. A+B+C. c. A+B+D+F. d. A+B+C+D+H+F+G+I.

a. A+B+C+D+H+F

Suppose Japan exports televisions to the United States and imports sugar from Argentina. This situation suggests a. Japan has a comparative advantage relative to the United States in producing televisions, and Argentina has a comparative advantage relative to Japan in producing sugar. b. Japan has an absolute advantage relative to Argentina in producing sugar, and the United States has an absolute advantage relative to Japan in producing televisions. c. Japan has a comparative advantage relative to the United States in producing sugar, and Argentina has a comparative advantage relative to Japan in producing televisions. d. Japan has an absolute advantage relative to the United States in producing televisions, and Argentina has an absolute advantage relative to Japan in producing sugar.

a. Japan has a comparative advantage relative to the United States in producing televisions, and Argentina has a comparative advantage relative to Japan in producing sugar.

Refer to Figure 2-13. One difference between points F and G is that a. all resources are fully employed at point F but there is unemployment at point G b. point G is unattainable with current resources, but point F is attainable c. this economy produces more cookies at point G than at point F d. more output can be produced at point F but no additional output can be produced at point G

a. all resources are fully employed at point F but there is unemployment at point G

Normative conclusions a. involve value judgements b. come from positive analysis alone c. are based on ignorance of positive analysis d. reflect the economist's role as scientist

a. involve value judgements

Assume for Guatemala that the domestic price of coffee without international trade is higher than the world price of coffee. This suggests that a. other countries have a comparative advantage over Guatemala in the production of coffee, and Guatemala will import coffee. b. Guatemala has a comparative advantage over other countries in the production of coffee, and Guatemala will import coffee. c. Guatemala has a comparative advantage over other countries in the production of coffee, and Guatemala will export coffee. d. other countries have a comparative advantage over Guatemala in the production of coffee, and Guatemala will export coffee.

a. other countries have a comparative advantage over Guatemala in the production of coffee, and Guatemala will import coffee.

There is no shortage of scarce resources in a market economy because a. prices adjust to eliminate shortages b. resources are abundant in market economies c. the government makes shortages illegal d. quantity supplied is always greater than quantity demanded in market economies

a. prices adjust to eliminate shortages

Refer to Figure 2-21. Your friend John created the graph above to illustrate that snowstorms are caused by more snowblowers being sold. You inform him that his interpretation is incorrect due to a. reverse causality b. shifting versus moving along a curve c. omitted variable bias d. slope mismatch

a. reverse causality

Food and clothing tend to have a. small income elasticities because consumers, regardless of their incomes, choose to buy relatively constant quantities of these goods b. large income elasticities because they are relatively inexpensive c. large income elasticities because they are necessities d. small income elasticities because consumers buy proportionately more of both goods at higher income levels than they buy at low income levels

a. small income elasticities because consumers, regardless of their incomes, choose to buy relatively constant quantities of these goods

If something happens to alter the quantity supplied at any given price, then a. the supply curve shifts b. we move along the supply curve c. the supply curve becomes steeper d. the supply curve becomes flatter

a. the supply curve shifts

Dee is an accomplished actress and a homeowner who pays a landscaper to maintain her lawn rather than do it herself. Dee has determined that she can earn more in the hour it would take her to work on her lawn than she must pay her landscaper. This scenario is an example of which principle of economics? a. trade can make everyone better off b. markets are usually a good way to organize economic activity c. prices rise when the government prints too much money d. governments can sometimes improve market outcomes

a. trade can make everyone better off

Knowing that the demand for wheat is inelastic, if all farmers voluntarily did not plant wheat on 10 percent of their land, then a. wheat farmers would experience an increase in their total revenue b. consumers of wheat would buy more wheat c. wheat farmers would suffer a reduction in their total revenue d. the demand for wheat would decrease

a. wheat farmers would experience an increase in their total revenue

Refer to Figure 5-14. Over which range is the supply curve in this figure the least elastic? a. $40 to $100 b. $220 to $430 c. $16 to $40 d. $100 to $220

b. $220 to $430

Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the loss in total surplus? a. $25 b. $30 c. $0 d. $50

b. $30

Refer to Figure 9-6. Without trade, the equilibrium price of roses is a. $2 and the equilibrium quantity is 500. b. $4 and the equilibrium quantity is 300. c. $3 and the equilibrium quantity is 400. d. $3 and the equilibrium quantity is 200.

b. $4 and the equilibrium quantity is 300

Which of the following could be the cross-price elasticity of demand for two goods that are complements? a. 0 b. -1.3 c. 1.4 d. 0.2

b. -1.3

Refer to Figure 2-1. Raymond buys a refrigerator for his new home. To which of the arrows does this transaction directly contribute? a. C and D b. A and B c. A only d. C only

b. A and B

Refer to Figure 7-27. Buyers who value this good more than the equilibrium price are represented by which line segment? a. BC. b. AC. c. CH. d. CK.

b. AC.

Which of the following arguments for trade restrictions is often advanced? a. Trade restrictions make all Americans better off. b. Trade restrictions are sometimes necessary for national security. c. Trade restrictions are necessary for economic growth. d. Trade restrictions increase economic efficiency.

b. Trade restrictions are sometimes necessary for national security

On a graph, consumer surplus is represented by the area a. below the price and above the supply curve. b. below the demand curve and above price. c. below the demand curve and to the right of equilibrium price. d. between the demand and supply curves.

b. below the demand curve and above price

The price elasticities of supply and demand affect a. the size of the deadweight loss from a tax but not the tax incidence. b. both the size of the deadweight loss from a tax and the tax incidence. c. neither the size of the deadweight loss from a tax nor the tax incidence. d. the tax incidence but not the size of the deadweight loss from a tax.

b. both the size of the deadweight loss from a tax and the tax incidence

Scenario 5-3 The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%. Refer to Scenario 5-3. The equilibrium quantity will a. increase in the aged cheddar cheese market and decrease in the bread market b. decrease in both the aged cheddar cheese and bread markets c. increase in both the aged cheddar cheese and bread markets d. decrease in the aged cheddar cheese market and increase in the bread market

b. decrease in both the aged cheddar cheese and bread markets

Which of the following is likely to have the most price elastic demand? a. salt b. diamond earrings c. milk d. dental floss

b. diamond earrings

While in college, John and Bethany each buy five packages of mac-n-cheese per week. After they graduate and have full-time jobs, John buys six packages per week, but Bethany buys only two packages per week. When looking at income elasticity of demand for mac-n-cheese, John's a. is zero, and Bethany's approaches infinity b. is positive, and Bethany's is negative c. is negative, and Bethany's is positive d. approaches infinity, and Bethany's is zero

b. is positive, and Bethany's is negative

Refer to Table 4-5. Suppose the four families listed in the table are the only demanders of Mt. Dew in the market. If the price of a case of Mt. Dew decreases by $1, the a. Adams family increases its quantity demanded by more than the Smith family b. market quantity demanded increases by 10 c. Jones family increases its quantity demanded by more than the Williams family d. market quantity demanded decreases by 10

b. market quantity demanded increases by 10

For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is a a. triangle. b. rectangle. c. trapezoid. d. None of the above is correct; government's tax revenue is the area between the supply and demand curves, above the horizontal axis, and below the effective price to buyers.

b. rectangle

Refer to Figure 8-8. One effect of the tax is to a. reduce consumer surplus from $180 to $72. b. reduce producer surplus from $96 to $24. c. create a deadweight loss of $72. d. All of the above are correct.

b. reduce producer surplus from $96 to $24

The two words most often used by economists are a. efficiency and equity b. supply and demand c. prices and quantities d. resources and allocation

b. supply and demand

Income elasticity of demand measures how a. consumer purchasing power is affected by a change in the price of a good b. the quantity demanded changes as consumer income changes c. the price of a good is affected when there is a change in consumer income d. many units of a good a consumer can buy given a certain income level

b. the quantity demanded changes as consumer income changes

Refer to Figure 7-19. If the government imposes a price floor of $55 in this market, then total surplus will be a. $50.00 lower than it would be without the price floor. b. $125.00 lower than it would be without the price floor. c. $62.50 lower than it would be without the price floor. d. $100.00 higher than it would be without the price floor.

c. $62.50 lower than it would be without the price floor.

If the demand curve is linear and downward sloping, which of the following statements is not correct? a. Different pairs of points on the demand curve can result in different values of the price elasticity of demand b. Different pairs of points on the demand curve result in identical values of the slope of the demand curve c. Demand is more elastic on the lower part of the demand curve than on the upper part d. Starting from a point on the upper part of the demand curve, an increase in price leads to a decrease in total revenue

c. Demand is more elastic on the lower part of the demand curve than on the upper part

The design of tax policy is one of the responsibilities of economists who work at the a. Congressional Budget Office b. Federal Reserve c. Department of the Treasury d. Council of Economic Advisors

c. Department of the Treasury

How did the farm population in the United States change between 1950 and today? a. It dropped from 20 million to fewer than 5 million people b. It increased from 10 million to almost 13 million people c. It dropped from 10 million to fewer than 3 million people d. It dropped from 30 million to just over 6 million people

c. It dropped from 10 million to fewer than 3 million people

Suppose Japan exports cars to Russia and imports wine from France. This situation suggests a. Japan has an absolute advantage relative to Russia in producing cars, and France has an absolute advantage relative to Japan in producing wine. b. Japan has an absolute advantage relative to France in producing wine, and Russia has an absolute advantage relative to Japan in producing cars. c. Japan has a comparative advantage relative to Russia in producing cars, and France has a comparative advantage relative to Japan in producing wine. d. Japan has a comparative advantage relative to France in producing wine, and Russia has a comparative advantage to Japan in producing cars.

c. Japan has a comparative advantage relative to Russia in producing cars, and France has a comparative advantage relative to Japan in producing wine.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The producer surplus after the tax is measured by the area a. L+M+Y. b. L+M+N+Y+B. c. M. d. J.

c. M.

Refer to Figure 5-20. Which supply curve is most likely relevant over a very long period of time? a. S1 b. S2 c. S3 d. All of the above are equally likely to be relevant over a very long period of time

c. S3

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 a. consumer surplus exceeds producer surplus in Teeveeland. b. Teeveeland has an absolute advantage in producing televisions. c. Teeveeland has a comparative advantage in producing televisions. d. All of the above are correct.

c. Teeveeland has a comparative advantage in producing televisions

Which of the following is the most accurate statement? a. The protection-as-a-bargaining-chip argument for restricting trade is also known as the infant-industry argument. b. Almost all economists insist that it is never appropriate to protect "key" industries, even when there are legitimate concerns about national security. c. The idea that one nation might want to threaten another nation with a trade restriction is associated with the protection-as-a-bargaining-chip argument for restricting trade. d. The one argument for restricting trade that almost all economists accept as valid is the infant-industry argument.

c. The idea that one nation might want to threaten another nation with a trade restriction is associated with the protection-as-a-bargaining-chip argument for restricting trade.

Japan imposes a $300 per ton tariff on imported steel, raising the price charged in Japan to $1,000. Using only this information, which of the following statements is correct? a. The world price for steel is $1,000. b. The world price for steel is $300. c. The world price for steel is $700. d. The world price for steel is $1,300.

c. The world price for steel is $700

A recent news report lamented the plight of corn farmers in Wisconsin due to a severe drought. Which of the following best describes the effect on corn farmers in Minnesota, where sufficient rainfall occurred? a. Their revenue increases because price increases and demand is elastic b. Their revenue decreases because price increases and demand is elastic c. Their revenue increases because price increases and demand is inelastic d. Their revenue decreases because price decreases and demand is inelastic

c. Their revenue increases because price increases and demand is elastic

In a competitive market, the quantity of a product produced and the price of the product are determined by a. one buyer and one seller working together b. a single buyer c. all buyers and all sellers d. a single seller

c. all buyers and all sellers

Laissez-faire is a French expression which literally means a. to make do. b. whatever works. c. allow them to do. d. to get involved.

c. allow them to do

Demand is said to be price elastic if a. demand shifts substantially when income or the expected future price of the good changes b. buyers do not respond much to changes in the price of the good c. buyers respond substantially to changes in the price of the good d. the price of the good responds substantially to changes in demand

c. buyers respond substantially to changes in the price of the good

When, in our analysis of the gains and losses from international trade, we assume that a country is small, we are in effect assuming that the country a. cannot experience significant gains or losses by trading with other countries. b. cannot have a significant comparative advantage over other countries. c. cannot affect world prices by trading with other countries. d. All of the above are correct.

c. cannot affect world prices by trading with other countries

When a country that imported a particular good abandons a free-trade policy and adopts a no-trade policy, a. consumer surplus increases and total surplus decreases in the market for that good. b. consumer surplus decreases and total surplus increases in the market for that good. c. consumer surplus decreases and total surplus decreases in the market for that good. d. consumer surplus increases and total surplus increases in the market for that good.

c. consumer surplus decreases and total surplus decreases in the market for that good

If Freedonia changes its laws to allow international trade in software and the world price is lower than its domestic price, then it must be the case that a. both consumer surplus and producer surplus decrease. b. both consumer surplus and producer surplus increase. c. consumer surplus increases and producer surplus decreases. d. consumer surplus decreases and producer surplus increases.

c. consumer surplus increases and producer surplus decreases

Deadweight loss measures the loss a. of total revenue to business firms due to the price wedge caused by the tax. b. in revenue to the government when buyers choose to buy less of the product because of the tax. c. in a market to buyers and sellers that is not offset by an increase in government revenue. d. of equality in a market due to government intervention.

c. in a market to buyers and sellers that is not offset by an increase in government revenue

Within a country, the domestic price of a product will equal the world price if a. the country chooses to import, but not export, the product. b. the country chooses to export, but not import, the product. c. the country allows free trade. d. trade restrictions are imposed on the product.

c. the country allows free trade

Which of the following is a determinant of the market supply curve but not a determinant of an individual seller's supply? a. expectations b. production technology c. the number of sellers d. input prices

c. the number of sellers

In an economy in which decisions are guided by prices and individual self-interest, there is a. less efficiency than would be observed in a centrally-planned economy b. a strong need for government intervention in the market c. the potential to achieve efficiency in production d. more need for a strong legal system to control individual greed than would be needed in a centrally-planned economy

c. the potential to achieve efficiency in production

Refer to Figure 9-2. With free trade, producer surplus is a. $845. b. $1,690. c. $3,240. d. $1,620.

d. $1,620

Refer to Table 7-5. If the market price of an orange is $0.65, then consumer surplus amounts to a. $3.90. b. $7.50. c. $6.75. d. $3.60.

d. $3.60

Refer to Figure 5-8. When the price is $15, total revenue is a. $1,500 b. $3,500 c. $2,500 d. $4,500

d. $4,500

In which of the following situations will total revenue increase? a. Price elasticity of demand is 1.2, and the price of the good decreases b. Price elasticity of demand is 0.5, and the price of the good increases c. Price elasticity of demand is 3.0, and the price of the good decreases d. All of the above are correct

d. All of the above are correct

Refer to Figure 4-17. At a price of a. $8, there is a surplus of 6 units b. $5, there is neither a shortage nor a surplus c. $2, there is a shortage of 6 units d. All of the above are correct

d. All of the above are correct

Which of the following should be held constant when calculating an income elasticity of demand? a. the price of the good b. prices of related goods c. tastes d. All of the above should be held constant

d. All of the above should be held constant

After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events would prompt you to reverse this decision? a. The marginal cost of going to Ireland decreases b. The marginal cost of going to Spain decreases c. The marginal benefit of going to Ireland increases d. The marginal benefit of going to Spain increases

d. The marginal benefit of going to Spain increases

For a particular good, a 10 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. The market for the good is narrowly defined b. There are many close substitutes for this good c. The good is a luxury d. The relevant time horizon is short

d. The relevant time horizon is short

A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies a. enhance equality b. reduce efficiency c. reduce the reward for working hard d. all of the above

d. all of the above

In response to the deep economic downturn in the US in 2008 and 2009, the US a. reduced taxes b. increased government spending c. increased the supply of money d. all of the above

d. all of the above

On a bowed production possibilities frontier, as you move down along the curve a. more of one good must be given up to receive one unit of the other good b. the available production technology does not change c. the opportunity cost increases d. all of the above

d. all of the above

When demand is inelastic, an increase in price will cause a. no change in total revenue but a decrease in quantity demanded b. no change in total revenue but an increase in quantity demanded c. a decrease in total revenue d. an increase in total revenue

d. an increase in total revenue

Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The tax causes the price received by sellers to a. increase by $2. b. increase by $6. c. decrease by $3. d. decrease by $1.

d. decrease by $1

Market failure can be cause by a. low consumer demand b. equilibrium prices c. high prices and foreign competition d. externalities and market power

d. externalities and market power

Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is $40, the hotel manager should rent one of the empty rooms only if a customer is willing to pay a. more than $80, as the marginal benefit will outweigh the marginal cost b. more than $40, as the average benefit will outweigh the marginal cost c. more than $80, as the average benefit will outweigh the marginal cost d. more than $40, as the marginal benefit will outweigh the marginal cost

d. more than $40, as the marginal benefit will outweigh the marginal cost

Resources are a. plentiful for households and plentiful for economies b. plentiful for households and scarce for economies c. scarce for households and plentiful for economies d. scarce for households and scarce for economies

d. scarce for households and scarce for economies

The market for diamond rings is closely linked to the market for high-quality diamonds. If a large quantity of high-quality diamonds enters the market, then the a. supply curve for diamond rings will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity b. demand curve for diamond rings will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity c. demand curve for diamond rings will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity d. supply curve for diamond rings will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity

d. supply curve for diamond rings will shift right, which will create a surplus at the current price. Price will decrease, which will increase the quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity