ECN-125 Final Exam Study Guide
In the national income accounts, depreciation is called: A. "consumption of fixed capital." B. "negative investment." C. "diminished value." D. "loss due to wear."
A. "consumption of fixed capital."
*Homework 5 - Q22* Figure 5-14 Refer to Figure 5-14. Over which range is the supply curve in this figure the most elastic? A. $16 to $40 B. $40 to $100 C. $100 to $220 D. $220 to $430
A. $16 to $40
*Homework 6 - Q21* Figure 6-13 This figure shows the market demand and market supply curves for good X. Refer to Figure 6-13. Which of the following price ceilings would be binding in this market? A. $4 B. $5 C. $6 D $7
A. $4
*Homework 6 - Q30* Figure 6-18 The vertical distance between points A and B represents the tax in the market. Refer to Figure 6-18. The per-unit burden of the tax on sellers is: A. $6 B. $8 C. $10 D. $14
A. $6
*Homework 6 - Q15* Figure 6-10 Refer to Figure 6-10. A price ceiling set at: A. $6 will be binding and will result in a shortage of 10 units. B. $6 will be binding and will result in a shortage of 6 units. C. $16 will be binding and will result in a shortage of 10 units. D. $16 will be binding and will result in a shortage of 4 units.
A. $6 will be binding and will result in a shortage of 10 units.
*Homework 5 - Q23* Figure 5-14 Refer to Figure 5-14. Using the midpoint method, what is the price elasticity of supply between $100 and $220? A. 0.58 B. 0.67 C. 1.00 D. 1.73
A. 0.58
Scenario 5-1 Suppose that when the average college student's income is $10,000 per year, the annual quantity demanded of Patty's Pizza is 50 and the annual quantity demanded of Sue's Subs is 80. Suppose that when the price of Patty's Pizza increases from $8 to $10 per pie, the quantity demanded of Sue's Subs increases from 80 to 100. Suppose also that when the average student's income increases to $12,000 per year, the annual quantity demanded of Patty's Pizza increases from 50 to 60. Refer to Scenario 5-1. What can you deduce about the type of good Patty's Pizza is and about the relationship between Patty's Pizza and Sue's Subs? A. Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are substitutes. B. Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are complements. C. Patty's Pizza is an inferior good and Patty's Pizza and Sue's Subs are substitutes. D. Patty's Pizza is an inferior good and Patty's Pizza and Sue's Subs are complements.
A. Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are substitutes.
Elasticity is: A. a measure of how much buyers and sellers respond to changes in market conditions. B. the study of how the allocation of resources affects economic well-being. C. the maximum amount that a buyer will pay for a good. D. the value of everything a seller must give up to produce a good.
A. a measure of how much buyers and sellers respond to changes in market conditions.
A binding minimum wage: A. alters both the quantity demanded and quantity supplied of labor. B. affects only the quantity of labor demanded; it does not affect the quantity of labor supplied. C. has no effect on the quantity of labor demanded or the quantity of labor supplied. D. causes only temporary unemployment because the market will adjust and eliminate any temporary surplus of workers.
A. alters both the quantity demanded and quantity supplied of labor.
According to the circular-flow diagram GDP: A. can be computed as either the revenue firms receive from the sales of goods and services or the payments they make to factors of production. B. can be computed as the revenue firms receive from the sales of goods and services but not as the payments they make to factors of production. C. can be computed as payments firms make to factors of production but not as revenues they receive from the sales of goods and services. D. cannot be computed as either the revenue firms receive or the payments they make to factors of production.
A. can be computed as either the revenue firms receive from the sales of goods and services or the payments they make to factors of production.
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 change in equilibrium price will be: A. greater in the aged cheddar cheese market than in the bread market. B. greater in the bread market than in the aged cheddar cheese market. C. the same in the aged cheddar cheese and bread markets. D. Any of the above could be correct.
A. greater in the aged cheddar cheese market than in the bread market.
To determine whether a good is considered normal or inferior, one could examine the value of the: A. income elasticity of demand for that good. B. price elasticity of demand for that good. C. price elasticity of supply for that good. D. cross-price elasticity of demand for that good.
A. income elasticity of demand for that good.
*Homework 5 - Q11* Refer to Figure 5-11. If price increases from $10 to $20, total revenue will: A. increase by $120, so demand must be inelastic in this price range. B. increase by $320, so demand must be inelastic in this price range. C. decrease by $120, so demand must be elastic in this price range. D. decrease by $320, so demand must be elastic in this price range.
A. increase by $120, so demand must be inelastic in this price range.
*Homework 6 - Q18* Figure 6-13 This figure shows the market demand and market supply curves for good X. Refer to Figure 6-13. If the government imposes a price ceiling of $6 on this market, then there will be: A. no shortage. B. a shortage of 5 units. C. a shortage of 10 units. D. a shortage of 20 units.
A. no shortage.
*Homework 6 - Q19* Figure 6-13 This figure shows the market demand and market supply curves for good X. Refer to Figure 6-13. If the government imposes a price floor of $3 on this market, then there will be: A. no surplus. B. a surplus of 10 units. C. a surplus of 15 units. D. a surplus of 20 units.
A. no surplus.
Suppose an economy produces only cheese and fish. In 2010, 20 units of cheese are sold at $5 each and 8 units of fish are sold at $50 each. In 2009, the base year, the price of cheese was $10 per unit and the price of fish was $75 per unit. For 2010,: A. nominal GDP is $500, real GDP is $800, and the GDP deflator is 62.5. B. nominal GDP is $500, real GDP is $800, and the GDP deflator is 160. C. nominal GDP is $800, real GDP is $500, and the GDP deflator is 62.5. D. nominal GDP is $800, real GDP is $500, and the GDP deflator is 160.
A. nominal GDP is $500, real GDP is $800, and the GDP deflator is 62.5.
If two goods are substitutes, their cross-price elasticity will be: A. positive. B. negative. C. zero. D. equal to the difference between the income elasticities of demand for the two goods.
A. positive.
In a simple circular-flow diagram, firms: A. purchase resources from households. B. purchase the output produced by households. C. receive income by selling resources to households. D. All of the above are correct.
A. purchase resources from households.
A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move: A. raises GDP. B. decreases GDP. C. doesn't change GDP because gambling is never included in GDP. D. doesn't change GDP because in either case his income is included.
A. raises GDP.
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. small income elasticities because consumers buy proportionately more of both goods at higher income levels than they buy at low income levels. C. large income elasticities because they are necessities. D. large income elasticities because they are relatively inexpensive.
A. small income elasticities because consumers, regardless of their incomes, choose to buy relatively constant quantities of these goods.
A key determinant of the price elasticity of supply is the: A. time horizon. B. income of consumers. C. price elasticity of demand. D. importance of the good in a consumer's budget.
A. time horizon.
For which of the following goods is the income elasticity of demand likely lowest? A. water B. sapphire pendant necklaces C. filet mignon steaks D. fresh fruit
A. water
*Homework 6 - Q28* Figure 6-18 The vertical distance between points A and B represents the tax in the market. Refer to Figure 6-18. The effective price that sellers receive after the tax is imposed is: A. $6 B. $10 C. $16 D. $24
B. $10
In the economy of Talikastan in 2015, consumption was $700, exports were $200, government purchases were $300, imports were $150, and investment was $400. What was Talikastan's GDP in 2015? A. $1350 B. $1450 C. $1050 D. $1750
B. $1450
*Homework 6 - Q29* Figure 6-18 The vertical distance between points A and B represents the tax in the market. Refer to Figure 6-18. The per-unit burden of the tax on buyers is: A. $6 B. $8 C. $14 D. $24
B. $8
*Homework 5 - Q16* Table 5-8 Refer to Table 5-8. Using the midpoint method, the income elasticity of demand for good Y is: A. 2.33, and good Y is a normal good. B. -2.33, and good Y is an inferior good. C. -0.43, and good Y is a normal good. D. -0.43, and good Y is an inferior good.
B. -2.33, and good Y is an inferior good.
How does U.S. gross domestic product (GDP) differ from U.S. gross national product (GNP)? A. GNP = GDP - losses from depreciation B. GNP = GDP + income earned by U.S. citizens abroad - income that foreign citizens earned in the U.S. C. GNP = GDP + transfer payments to households + - indirect sales taxes D. GNP = GDP - depreciation - retained earnings
B. GNP = GDP + income earned by U.S. citizens abroad - income that foreign citizens earned in the U.S.
Which of the following is not a correct statement about the growth of real GDP in the U.S. economy? A. Real GDP in 2009 was almost four times its 1965 level. B. Growth was steady between 1965 and 2009. C. Continued growth in real GDP enables the typical American to enjoy greater economic prosperity than his or her parents and grandparents did. D. The output of goods and services produced grew on average about 3 percent per year between 1965 and 2009.
B. Growth was steady between 1965 and 2009.
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 increases because price increases and demand is inelastic. C. Their revenue decreases because price decreases and demand is inelastic. D. Their revenue decreases because price increases and demand is elastic.
B. Their revenue increases because price increases and demand is inelastic.
If foreign citizens earn less income in the U.S. than U.S. citizens earn in foreign countries,: A. U.S. net factor payments from abroad are positive, and its GDP is larger than its GNP. B. U.S. net factor payments from abroad are positive, and its GNP is larger than its GDP. C. U.S. net factor payments from abroad are negative, and its GDP is larger than its GNP. D. U.S. net factor payments from abroad are negative, and its GNP is larger than its GDP.
B. U.S. net factor payments from abroad are positive, and its GNP is larger than its GDP.
A price ceiling is: A. often imposed on markets in which "cutthroat competition" would prevail without a price ceiling. B. a legal maximum on the price at which a good can be sold. C. often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price ceiling. D. All of the above are correct.
B. a legal maximum on the price at which a good can be sold.
An advance in farm technology that results in an increased market supply is: A. good for farmers because it raises prices for their products but bad for consumers because it raises prices consumers pay for food. B. bad for farmers because total revenue will fall but good for consumers because prices for food will fall. C. good for farmers because it raises prices for their products and also good for consumers because more output is available for consumption. D. bad for farmers because total revenue will fall and bad for consumers because farmers will raise the price of food to increase their total revenue.
B. bad for farmers because total revenue will fall but good for consumers because prices for food will fall.
Because every transaction has a buyer and a seller,: A. GDP is more closely associated with an economy's income than it is with an economy's expenditure. B. every transaction contributes equally to an economy's income and to its expenditure. C. the number of firms must be equal to the number of households in a simple circular-flow diagram. D. firms' profits are necessarily zero in a simple circular-flow diagram.
B. every transaction contributes equally to an economy's income and to its expenditure.
Net exports equal: A. exports plus imports. B. exports minus imports. C. imports minus exports. D. GDP minus imports.
B. exports minus imports.
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 change in equilibrium quantity will be: A. greater in the aged cheddar cheese market than in the bread market. B. greater in the bread market than in the aged cheddar cheese market. C. the same in the aged cheddar cheese and bread markets. D. Any of the above could be correct.
B. greater in the bread market than in the aged cheddar cheese market.
Sheri, a U.S. citizen, works only in Germany. The value she adds to production in Germany is included: A. in both German GDP and U.S. GDP. B. in German GDP, but is not included in U.S. GDP. C. in U.S. GDP, but is not included in German GDP. D. in neither German GDP nor U.S. GDP.
B. in German GDP, but is not included in U.S. GDP.
U.S. GDP: A. includes production of foreigners working in the U.S. and production by U.S. residents working in foreign countries. B. includes production of foreigners working in the U.S. but excludes production by U.S. residents working in foreign countries. C. excludes production of foreigners working in the U.S. but includes production by U.S. residents working in foreign countries. D. excludes production of foreigners working in the U.S. and production by U.S. residents working in foreign countries.
B. includes production of foreigners working in the U.S. but excludes production by U.S. residents working in foreign countries.
Over time, housing shortages caused by rent control: A. increase, because the demand for and supply of housing are less elastic in the long run. B. increase, because the demand for and supply of housing are more elastic in the long run. C. decrease, because the demand for and supply of housing are less elastic in the long run. D. decrease, because the demand for and supply of housing are more elastic in the long run.
B. increase, because the demand for and supply of housing are more elastic in the long run.
If two goods are complements, their cross-price elasticity will be: A. positive. B. negative. C. zero. D. equal to the difference between the income elasticities of demand for the two goods.
B. negative
National income differs from net national because: A. it includes profits of corporations. B. of a statistical discrepancy. C. it includes transfer payments. D. it excludes depreciation.
B. of a statistical discrepancy.
A legal minimum on the price at which a good can be sold is called a: A. price subsidy. B. price floor. C. tax. D. price ceiling.
B. price floor.
If a nonbinding price ceiling is imposed on a market, then the: A. quantity sold in the market will decrease. B. quantity sold in the market will stay the same. C. price in the market will increase. D. price in the market will decrease.
B. quantity sold in the market will stay the same.
If the cross-price elasticity of demand for two goods is -4.5, then: A. the two goods are substitutes. B. the two goods are complements. C. one of the goods is normal while the other good is inferior. D. one of the goods is a luxury while the other good is a necessity.
B. the two goods are complements.
A binding price floor will reduce a firm's total revenue: A. always. B. when demand is elastic. C. when demand is inelastic. D. never.
B. when demand is elastic.
Price controls are usually enacted: A. as a means of raising revenue for public purposes. B. when policymakers believe that the market price of a good or service is unfair to buyers or sellers. C. when policymakers tax a good. D. All of the above are correct.
B. when policymakers believe that the market price of a good or service is unfair to buyers or sellers.
*Homework 6 - Q27* Figure 6-18 The vertical distance between points A and B represents the tax in the market. Refer to Figure 6-18. The amount of the tax per unit is: A. $6 B. $8 C. $14 D. $18
C. $14
Suppose a country has government expenditures of $3,500, taxes of $2,200, consumption of $9,000, exports of $2,500, imports of $2,700, transfer payments of $750, capital depreciation of $800, and investment of $3,000. GDP equals: A. $24,450. B. $11,550. C. $15,300. D. $20,700.
C. $15,300.
*Homework 6 - Q16* Figure 6-10 Refer to Figure 6-10. A price floor set at: A. $6 will be binding and will result in a surplus of 10 units. B. $6 will be binding and will result in a surplus of 6 units. C. $16 will be binding and will result in a surplus of 10 units. D. $16 will be binding and will result in a surplus of 4 units.
C. $16 will be binding and will result in a surplus of 10 units.
Quality Motors is a Japanese-owned company that produces automobiles; all of its automobiles are produced in American plants. In 2008, Quality Motors produced $25 million worth of automobiles and sold $12 million in the U.S. and $13 million in Mexico. In addition, it sold $2 million from the previous year's inventory in the U.S. The transactions just described contribute how much to U.S. GDP for 2008? A. $12 million B. $14 million C. $25 million D. $27 million
C. $25 million
Suppose there are only two firms in an economy: Rolling Rawhide produces rawhide and sells it to Chewy Chomp, Inc., which uses the rawhide to produce and sell dog chews. With each $1 worth of rawhide that it buys from Rolling Rawhide, Chewy Chomp, Inc. produces a dog chew and sells it for $2.50. Neither firm had any inventory at the beginning of 2014. During that year, Rolling Rawhide produced enough rawhide for 2000 dog chews. Chewy Chomp, Inc. bought 90% of that rawhide for $1800 and promised to buy the remaining 10% for $200 in 2015. Chewy Chomp, Inc. produced 1800 dog chews during 2014 and sold each one during that year for $2.50. What was the economy's GDP for 2014? A. $3,800 B. $4,500 C. $4,700 D. $5,000
C. $4,700
Scenario 5-1 Suppose that when the average college student's income is $10,000 per year, the annual quantity demanded of Patty's Pizza is 50 and the annual quantity demanded of Sue's Subs is 80. Suppose that when the price of Patty's Pizza increases from $8 to $10 per pie, the quantity demanded of Sue's Subs increases from 80 to 100. Suppose also that when the average student's income increases to $12,000 per year, the annual quantity demanded of Patty's Pizza increases from 50 to 60. Refer to Scenario 5-1. Using the midpoint method, the cross price elasticity of demand is: A. about 0.22, and the two goods are substitutes. B. about -0.005, and the two goods are complements. C. 1, and the two goods are substitutes. D. 1, and the two goods are unitary elastic.
C. 1, and the two goods are substitutes.
*Homework 5 - Q24* Figure 5-14 Refer to Figure 5-14. Using the midpoint method, what is the price elasticity of supply between $16 and $40? A. 0.125 B. 0.86 C. 1.0 D. 2.5
C. 1.0
In which of the following situations would supply be the most elastic? A. An auto parts manufacturer is operating at capacity. B. A real estate developer in Boston is looking to build condos on the waterfront. C. A furniture manufacturer is operating its factory 8 hours per day. D. A hotel has all of its rooms booked for each night of the next 3 months.
C. A furniture manufacturer is operating its factory 8 hours per day.
*Homework 6 - Q24* Figure 6-13 This figure shows the market demand and market supply curves for good X. Refer to Figure 6-13. Which of the following statements is not correct? A. A price ceiling set at $4 would be binding, but a price ceiling set at $6 would not be binding. B. A price floor set at $7 would be binding, but a price floor set at $4 would not be binding. C. A price ceiling set at $3.50 would result in a surplus. D. A price floor set at $6.50 would result in a surplus.
C. A price ceiling set at $3.50 would result in a surplus.
Which of the following is not correct? A. GNP equals net national product plus losses from depreciation. B. For most countries, including the United States, GDP and GNP are nearly the same. C. GDP and GNP typically move in opposite directions. D. Personal income equals disposable personal income plus personal taxes plus certain nontax payments.
C. GDP and GNP typically move in opposite directions.
A Mexican oil field service company works on oil rigs in the U.S. The value of the company's services produced by Mexican citizens and the equipment they own is included in: A. Mexican GNP and U.S. GNP. B. Mexican GDP and U.S. GNP. C. Mexican GNP and U.S. GDP. D. Mexican GDP and U.S. GDP.
C. Mexican GNP and U.S. GDP.
*Homework 5 - Q12* Refer to Figure 5-11. Suppose this demand curve is a straight, downward-sloping line all the way from the horizontal intercept to the vertical intercept. We choose two prices, P1 and P2, and the corresponding quantities demanded, Q1 and Q2, for the purpose of calculating the price elasticity of demand. Also suppose P2 > P1. In which of the following cases could we possibly find that (i) demand is elastic and (ii) an increase in price from P1 to P2 causes a decrease in total revenue? A. 0 < P1 < P2 < $10. B. $10 < P1 < P2 < $20. C. P1 > $20. D. None of the above is correct.
C. P1 > $20.
Which of the following statements about recessions is true? A. An old rule of thumb defining recession is two consecutive quarters of falling nominal GDP. B. Recessions occur at regular intervals and last standard amounts of time. C. There is no ironclad rule for the declaration of recessions. D. Recessions are associated with low unemployment and high income.
C. There is no ironclad rule for the declaration of recessions.
Which of the following is not a question addressed by macroeconomists? A. Why is average income high in some nations but low in others? B. What, if anything, can the government do to promote growth in incomes, low inflation, and stable employment? C. What is the impact of foreign competition on the U.S. auto industry? D. Why do production and employment expand in some years and contract in others?
C. What is the impact of foreign competition on the U.S. auto industry?
Minimum wage laws dictate: A. the exact wage that firms must pay workers. B. a maximum wage that firms may pay workers. C. a minimum wage that firms may pay workers. D. both a minimum wage and a maximum wage that firms may pay workers.
C. a minimum wage that firms may pay workers.
*Homework 6 - Q17* Figure 6-13 This figure shows the market demand and market supply curves for good X. Refer to Figure 6-13. If the government imposes a price ceiling of $4 on this market, then there will be: A. no shortage. B. a shortage of 5 units. C. a shortage of 10 units. D. a shortage of 20 units.
C. a shortage of 10 units.
Long lines: A. and discrimination according to seller bias are both inefficient rationing mechanisms because they both waste buyers' time. B. and discrimination according to seller bias are both inefficient rationing mechanisms because the good does not necessarily go to the buyer who values it most highly. C. are an inefficient rationing mechanism because they waste buyers' time, and discrimination according to seller bias is an inefficient rationing mechanism because the good does not necessarily go to the buyer who values it most highly. D. are an inefficient rationing mechanism because the good does not necessarily go to the buyer who values it most highly, and discrimination according to seller bias is an inefficient rationing mechanism because it wastes buyers' time.
C. are an inefficient rationing mechanism because they waste buyers' time, and discrimination according to seller bias is an inefficient rationing mechanism because the good does not necessarily go to the buyer who values it most highly.
A shortage results when a: A. nonbinding price ceiling is imposed on a market. B. nonbinding price ceiling is removed from a market. C. binding price ceiling is imposed on a market. D. binding price ceiling is removed from a market.
C. binding price ceiling is imposed on a market.
A surplus results when a: A. nonbinding price floor is imposed on a market. B. nonbinding price floor is removed from a market. C. binding price floor is imposed on a market. D. binding price floor is removed from a market.
C. binding price floor is imposed on a market.
For the purpose of calculating GDP, investment is spending on: A. stocks, bonds, and other financial assets. B. real estate and financial assets such as stocks and bonds. C. capital equipment, inventories, and structures, including household purchases of new housing. D. capital equipment, inventories, and structures, excluding household purchases of new housing.
C. capital equipment, inventories, and structures, including household purchases of new housing.
*Homework 5 - Q10* Refer to Figure 5-11. A decrease in price from $20 to $10 leads to a: A. decrease in total revenue of $200, so the price elasticity of demand is greater than 1 in this price range. B. decrease in total revenue of $200, so the price elasticity of demand is less than 1 in this price range. C. decrease in total revenue of $120, so the price elasticity of demand is less than 1 in this price range. D. decrease in total revenue of $120, so demand is elastic in this price range.
C. decrease in total revenue of $120, so the price elasticity of demand is less than 1 in this price range.
If the government removes a binding price floor from a market, then the price paid by buyers will: A. increase, and the quantity sold in the market will increase. B. increase, and the quantity sold in the market will decrease. C. decrease, and the quantity sold in the market will increase. D. decrease, and the quantity sold in the market will decrease.
C. decrease, and the quantity sold in the market will increase.
Good news for farming can be bad news for farmers because the: A. supply curve for an individual farmer is usually perfectly elastic. B. supply curve for an individual farmer is usually perfectly inelastic. C. demand for basic foodstuffs is usually inelastic, meaning that factors that shift supply to the right decrease total revenues to sellers. D. demand for basic foodstuffs is usually elastic, meaning that factors that shift supply to the right increase total revenues to sellers.
C. demand for basic foodstuffs is usually inelastic, meaning that factors that shift supply to the right decrease total revenues to sellers.
Macroeconomists study: A. the decisions of individual households and firms. B. the interaction between households and firms. C. economy-wide phenomena. D. regulations imposed on firms and unions.
C. economy-wide phenomena.
For an economy as a whole,: A. wages must equal profit. B. consumption must equal income. C. income must equal expenditure. D. consumption must equal saving.
C. income must equal expenditure.
If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would: A. increase by more than $1,000. B. increase by exactly $1,000. C. increase by less than $1,000. D. decrease by an indeterminate amount.
C. increase by less than $1,000.
If the government levies a $5 tax per MP3 player on buyers of MP3 players, then the price paid by buyers of MP3 players would likely: A. increase by more than $5. B. increase by exactly $5. C. increase by less than $5. D. decrease.
C. increase by less than $5.
Unemployment compensation is: A. part of GDP because it represents income. B. part of GDP because the recipients must have worked in the past to qualify. C. not part of GDP because it is a transfer payment. D. not part of GDP because the payments reduce business profits.
C. not part of GDP because it is a transfer payment.
Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is: A. negative, and the good is an inferior good. B. negative, and the good is a normal good. C. positive, and the good is a normal good. D. positive, and the good is an inferior good.
C. positive, and the good is a normal good.
Consumption consists of spending by households on goods and services, with the exception of: A. purchases of intangible services. B. purchases of durable goods. C. purchases of new houses. D. spending on education.
C. purchases of new houses.
An example of a price floor is: A. the regulation of gasoline prices in the U.S. in the 1970s. B. rent control. C. the minimum wage. D. any restriction on price that leads to a shortage.
C. the minimum wage.
Cross-price elasticity of demand measures how: A. the price of one good changes in response to a change in the price of another good. B. the quantity demanded of one good changes in response to a change in the quantity demanded of another good. C. the quantity demanded of one good changes in response to a change in the price of another good. D. strongly normal or inferior a good is.
C. the quantity demanded of one good changes in response to a change in the price of another good.
GDP is defined as the: A. value of all goods and services produced within a country in a given period of time. B. value of all goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time. C. value of all final goods and services produced within a country in a given period of time. D. value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time.
C. value of all final goods and services produced within a country in a given period of time.
*Homework 5 - Q21* Figure 5-14 Refer to Figure 5-14. Over which range is the supply curve in this figure the least elastic? A. $16 to $40 B. $40 to $100 C. $100 to $220 D. $220 to $430
D. $220 to $430
*Homework 6 - Q31* Figure 6-18 The vertical distance between points A and B represents the tax in the market. Refer to Figure 6-18. The price that buyers pay after the tax is imposed is: A. $8 B. $10 C. $16 D. $24
D. $24
*Homework 6 - Q22* Figure 6-13 This figure shows the market demand and market supply curves for good X. Refer to Figure 6-13. Which of the following price floors would be binding in this market? A. $3 B. $4 C. $5 D. $6
D. $6
*Homework 5 - Q17* Table 5-8 Refer to Table 5-8. Using the midpoint method, what is the income elasticity of demand for good X? A. -3.5 B. -0.29 C. 0.29 D. 3.5
D. 3.5
*Homework 6 - Q23* Figure 6-13 This figure shows the market demand and market supply curves for good X. Refer to Figure 6-13. Which of the following statements is correct? A. A price ceiling set at $6 would be binding, but a price ceiling set at $4 would not be binding. B. A price floor set at $4 would be binding, but a price ceiling set at $4 would not be binding. C. A price ceiling set at $3.50 would result in a surplus. D. A price floor set at $6.50 would result in a surplus.
D. A price floor set at $6.50 would result in a surplus.
Which of the following is a way to compute GDP? A. total income earned. B. total expenditures on final goods. C. add up the market values of all final goods and services. D. All of the above are correct.
D. All of the above are correct.
Which of the following items is included in U.S. GDP? A. final goods and services that are purchased by the U.S. federal government B. intermediate goods that are produced in the U.S. but that are unsold at the end of the GDP accounting period C. goods and services produced by foreign citizens working in the U.S. D. All of the above are included in U.S. GDP.
D. All of the above are included in U.S. GDP.
Scenario 5-1 Suppose that when the average college student's income is $10,000 per year, the annual quantity demanded of Patty's Pizza is 50 and the annual quantity demanded of Sue's Subs is 80. Suppose that when the price of Patty's Pizza increases from $8 to $10 per pie, the quantity demanded of Sue's Subs increases from 80 to 100. Suppose also that when the average student's income increases to $12,000 per year, the annual quantity demanded of Patty's Pizza increases from 50 to 60. Refer to Scenario 5-1. Using the midpoint method, what is the income elasticity of demand for pizza and what does the value indicate about the demand for pizza? A. The income elasticity is 0.18 so pizza is a normal good. B. The income elasticity is -1 so pizza is an inferior good. C. The income elasticity is 1 so pizza is unitary elastic. D. The income elasticity is 1 so pizza is a normal good.
D. The income elasticity is 1 so pizza is a normal good.
Which of the following headlines is more closely related to what microeconomists study than to what macroeconomists study? A. Unemployment rate falls from 7.5 percent to 7.3 percent. B. Real GDP falls by 0.4 percent in the third quarter. C. Inflation was 2.4 percent last year. D. The price of gasoline rises due to rising oil prices.
D. The price of gasoline rises due to rising oil prices.
When a U.S. citizen buys $500 of Chinese-made parts for a motorcycle,: A. U.S. consumption falls by $500, U.S. net exports decline by $500, and U.S. GDP declines by $1000. B. U.S. consumption does not change, U.S. net exports decline by $500, and U.S. GDP declines by $500. C. U.S. consumption increases by $500, U.S. net exports remain the same, and U.S. GDP increases by $500. D. U.S. consumption increases by $500, U.S. net exports decline by $500, and U.S. GDP remains the same.
D. U.S. consumption increases by $500, U.S. net exports decline by $500, and U.S. GDP remains the same.
*Homework 6 - Q20* Figure 6-13 This figure shows the market demand and market supply curves for good X. Refer to Figure 6-13. If the government imposes a price floor of $7 on this market, then there will be: A. no surplus. B. a surplus of 10 units. C. a surplus of 15 units. D. a surplus of 20 units.
D. a surplus of 20 units.
The basic tools of supply and demand are: A. useful only in the analysis of economic behavior in individual markets. B. useful in analyzing the overall economy, but not in analyzing individual markets. C. central to microeconomic analysis, but seldom used in macroeconomic analysis. D. central to macroeconomic analysis as well as to microeconomic analysis.
D. central to macroeconomic analysis as well as to microeconomic analysis.
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 price will: A. increase in both the aged cheddar cheese and bread markets. B. increase in the aged cheddar cheese market and decrease in the bread market. C. decrease in the aged cheddar cheese market and increase in the bread market. D. decrease in both the aged cheddar cheese and bread markets.
D. decrease in both the aged cheddar cheese and bread markets.
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 both the aged cheddar cheese and bread markets. B. increase in the aged cheddar cheese market and decrease in the bread market. C. decrease in the aged cheddar cheese market and increase in the bread market. D. decrease in both the aged cheddar cheese and bread markets.
D. decrease in both the aged cheddar cheese and bread markets.
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. Total consumer spending on aged cheddar cheese will: A. increase, and total consumer spending on bread will increase. B. increase, and total consumer spending on bread will decrease. C. decrease, and total consumer spending on bread will increase. D. decrease, and total consumer spending on bread will decrease.
D. decrease, and total consumer spending on bread will decrease.
If marijuana were legalized, it is likely that there would be an increase in the supply of marijuana. Advocates of marijuana legalization argue that this would significantly reduce the amount of revenue going to the criminal organizations that currently supply marijuana. These advocates believe that the: A. supply for marijuana is elastic. B. demand for marijuana is elastic. C. supply for marijuana is inelastic. D. demand for marijuana is inelastic.
D. demand for marijuana is inelastic.
A transfer payment is a payment made by: A. consumers, but not in exchange for a tangible product. B. firms, but not in exchange for capital equipment. C. foreigners, but not in exchange for a domestically-produced good or service. D. government, but not in exchange for a currently produced good or service.
D. government, but not in exchange for a currently produced good or service.
If the government removes a binding price ceiling from a market, then the price received by sellers will: A. decrease, and the quantity sold in the market will decrease. B. decrease, and the quantity sold in the market will increase. C. increase, and the quantity sold in the market will decrease. D. increase, and the quantity sold in the market will increase.
D. increase, and the quantity sold in the market will increase.
Necessities such as food and clothing tend to have: A. high price elasticities of demand and high income elasticities of demand. B. high price elasticities of demand and low income elasticities of demand. C. low price elasticities of demand and high income elasticities of demand. D. low price elasticities of demand and low income elasticities of demand.
D. low price elasticities of demand and low income elasticities of demand.
Consider the following three items of spending by the government: (i) the federal government pays a $500 unemployment benefit to an unemployed person; (ii) the federal government makes a $2,000 salary payment to a Navy lieutenant; (iii) the city of Bozeman, Montana makes a $10,000 payment to ABC Lighting Company for street lights in Bozeman. Which of these payments contributes directly to government purchases in the national income accounts? A. only item (i) B. only item (ii) C. only items (i) and (ii) D. only items (ii) and (iii)
D. only items (ii) and (iii)
When economists talk about growth in the economy, they measure that growth as the: A. absolute change in nominal GDP from one period to another. B. percentage change in nominal GDP from one period to another. C. absolute change in real GDP from one period to another. D. percentage change in real GDP from one period to another.
D. percentage change in real GDP from one period to another.
A drug interdiction program that successfully reduces the supply of illegal drugs in the United States likely will: A. raise the price, reduce the quantity, decrease total revenues, and decrease crime. B. lower the price, increase the quantity, increase total revenues, and increase crime. C. raise the price, increase the quantity, decrease total revenues, and increase crime. D. raise the price, reduce the quantity, increase total revenues, and increase crime.
D. raise the price, reduce the quantity, increase total revenues, and increase crime.
