Macroeconomics midterm study questions (chapter 1-5)

The opportunity cost to a consumer who smokes cigarettes consists of the:

Products that the consumer could have bought instead of cigarettes

Making blackmail, extortion, and other forms of private coercion illegal is one way that government:

Reduces private-sector economic risk

Rent-seeking behavior in public choice theory refers to:

Specific groups appealing to government for special benefits at someone else's expense

"Unfunded liability" refers to a government commitment to:

Spend in the future without also committing to collect enough tax money to pay for it

"Regulatory capture" refers to the situation where a government agency charged with supervising and regulating a particular industry is:

Strongly influenced by the firms in that industry

What two conditions must hold for a competitive market to produce efficient outcomes?

Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.

What is a likely explanation for why the budget of a government agency might increase beyond its optimal size?

The power of special-interest groups

Other things being equal, the law of demand suggests that as:

The price of iPads decreases, the quantity demanded will increase

As a result of a decrease in the price of online streaming movies, consumers download more movies online and buy fewer DVDs. This is an illustration of:

The substitution effect

If an economy is being "productively efficient," then that means the economy is:

Using the least costly production techniques

(Last Word) A cap-and-trade program:

assigns a property right to polluting the atmosphere.

Owners of defective used cars have more information about the condition of their vehicles than potential buyers of those used cars. This is an example of:

asymmetric information.

Product reviews help to alleviate problems associated with:

asymmetric information.

Refer to the graph above. At equilibrium, the total amount of spending that consumers would be paying for the product is represented by the area:

b + c

Nonrivalry and nonexcludability are the main characteristics of:

public goods.

Refer to the diagram. Assuming equilibrium price P1, producer surplus is represented by areas:

c + d

An efficiency loss (or deadweight loss):

is measured as the combined loss of consumer surplus and producer surplus.

Consumer surplus:

is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price.

In the corporate world of business, the principal-agent problem arises between:

managers and stockholders

An efficiency loss (or deadweight loss) declines in size when a unit of output is produced for which:

maximum willingness to pay exceeds minimum acceptable price.

Market failure is said to occur whenever:

private markets do not allocate resources in the most economically desirable way.

Money is not considered to be an economic resource because:

As such it is not productive

Specialization and international trade allows a nation to:

Consume a combination of goods that is beyond (or outside) its production possibilities

The graph above shows the production possibilities curve for an economy producing two goods, X and Y. Which of the points on the graph indicate unemployed resources?

E and A only

Cuba is a command economy that suffered a decline in economic growth because of a cut in the aid provided by the former Soviet Union when the latter collapsed. As a consequence, Cuba:

Experienced an inward shift of its production possibilities curve

When producers (say, of roads) are not able to make all consumers pay for enjoying their product (i.e., the roads), they tend to see a:

Marginal benefit of production that is too low, and there is a demand-side market failure

Which of the following statements is an explanation for the law of increasing opportunity costs?

Many economic resources are better at producing one product rather than another

From an economic perspective, when a consumer decides to buy more life insurance, the consumer has most likely concluded that the:

Marginal benefit of more insurance coverage is greater than the marginal cost

In assessing the efficiency of government policy, economic analysis would focus on:

Marginal benefits versus costs of government policy and action

Chronic budget deficits can lead to all of the following, except:

"Smaller government" in the economy

The graph above represents a competitive market for a product where the government has set a price ceiling of 0A. What quantity will buyers be able to buy after the imposition of the price ceiling?

0J

The following graph is the production possibilities curve of a nation: Refer to the above graph. The total opportunity cost of nine drill presses is:

3 units of bread

The following graph is the production possibilities curve of a nation: Refer to the above graph. The marginal opportunity cost of the fourth unit of bread is:

4 units of drill presses

Refer to the above graph. The selection of which point on the production possibilities curve is most like to result in the largest increase in economic growth over time?

A

The economizing problem faced by a society is:

A consequence of the fact that productive resources are scarce relative to economic wants

Refer to the above diagram of three demand curves for coffee. Which of the following would cause a shift in coffee demand from D1 to D3?

A decrease in the price of tea

The economic principle that "unemployment rate will tend to increase as the economy moves into a recession" is an example of:

A generalization

When economists describe "a market," they mean:

A system that allows buyers and sellers to interact with one another

Which statement best illustrates the concept of diminishing marginal utility?

A typical consumer will receive less satisfaction from consuming the fourth hamburger than from the third hamburger in a week

The public (or national) debt refers to the:

Accumulation of all past budget deficits

When central planners in a command economy end up having a huge surplus of shoes and widespread shortages of bread in their economy, they have failed to attain:

Allocative effieciency

Refer to the above diagram of three demand curves for coffee. Which of the following would cause a shift in coffee demand from D1 to D2?

An increase in consumer incomes

A leftward shift of the supply curve for oil in the United States is most likely to result from:

An increase in the costs of exploration and drilling for oil

Refer to the diagram above, which shows three supply curves for corn. Which of the following would cause the supply of corn to shift from S1 to S3?

An increase in the price of soybeans

Which of the following statements is not correct?

An increase in the quantity of a nation's resources will cause economic growth, but an increase in the quality of resources will not

When monetary policy becomes highly politicized, the policy tends to:

Become destabilizing, instead of promoting stability

Government's ability to force people to do things involuntarily is:

Beneficial if it is used to improve economic efficiency

The role of the entrepreneur in society is to:

Bring the factors of production together and take the risks of producing

Political corruption occurs in the following instances, except when:

Businesses pay property taxes and license fees

In a market economy, the government's ability to coerce is beneficial in the following cases, except in:

Fixing resource prices

Which of the following countries had the least corruption, as reported in the Global Corruption Barometer for 2010-11?

Germany

Government in a market system can increase economic efficiency by collecting taxes in order to subsidize the production of:

Goods with positive externalities

Refer to the four graphs above. Select the graph above that best shows the changes in demand and supply in the market specified in the following situation: In the market for corn, if gasoline producers use more ethanol from corn, and good weather during the growing season yields a bumper harvest.

Graph A

Select the graph above that best shows the change in the market specified in the following situation: In the market for leather coats, when leather coats become more fashionable among young consumers.

Graph A

Deregulation can solve the problem of regulatory capture and increase economic efficiency:

If the deregulated industry becomes more competitive

If a nation is operating at a point inside the production possibilities curve, it indicates that the nation could:

Increase its production of both goods X and Y simultaneously

If farmers withhold some of their current corn harvest from the market because they anticipate a higher price of corn in the near future, then this would cause a:

Leftward shift in the current supply of corn

To prevent monetary policy from becoming highly politicized, many countries have:

Made their central banks be politically independent

When the government provides loan guarantees and in effect "socializes losses and privatizes gains" of a project or firm, it can lead to a:

Moral hazard problem among investors

If the unit price of a product is P, then the amount of spending that the buyers would need to pay for a given quantity Q is equal to:

P x Q

Which of the following is an example of market failure?

Positive externalities, negative externalities and public goods

The situation where politicians make decisions that will raise their chances of reelection, even if those decisions are detrimental to the general public, is referred to as the:

Principal-agent problem

Which of the following is a determinant of supply?

Product taxes and subsidies

Attaining "allocative efficiency" means that:

Resources are being devoted to the production of products most desired by society

The government adds to its overall public debt whenever it:

Runs a budget deficit

Refer to the above diagram illustrating the market for corn. If the price in this market is fixed at $2 per bushel, then:

Sellers will quickly run out of corn that they bring to market

If the price of gasoline increases significantly, then we'd expect the demand curve for large trucks and SUVs to:

Shift to the left

Suppose that a consumer purchases just two goods, X and Y. The ratio of the price of good X to the price of good Y is the:

Slope of the budget line

Among the following examples, the one that best illustrates a public good is:

The bike paths around a city or town

Which of the following is not a determinant of demand for laptop computers?

The cost of inputs for producing laptop computers

Which of the following factors is a "demand shifter" for new houses?

The interest rates on mortgage loans

Which of the following is considered an economic resource?

The land that is designated as national parks by the government

All of the following would affect the position and shape of a nation's production possibilities curve, except:

The level of unemployment

Refer to the above graph. Which of the following statements about combination G is true?

The nation may not be able to produce combination G, but it can consume that combination if it specializes and trades

Which of the following is considered a firm's "factor of production"?

The office building occupied by the firm

Refer to the graph above. At equilibrium, consumer surplus would be represented by the area:

a

Refer to the diagram. Assuming equilibrium price P1, consumer surplus is represented by areas:

a + b

Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences:

a consumer surplus of $10 and Tony experiences a producer surplus of $190.

(Last Word) In a cap-and-trade program:

government fixes the maximum amount of a pollutant that firms can discharge and issues permits that firms can buy from and sell to each other.

A producer's minimum acceptable price for a particular unit of a good:

equals the marginal cost of producing that particular unit.