Econ 110- Exam 3

If the nominal interest rate is 10 percent and the inflation rate is 4 percent, then the real interest rate is

6

Gross Domestic Product (GDP)

A measurement of the total goods and services produced within a country.

Union

A worker association that bargains with employers over wages, benefits, and working conditions

strike

An organized work stoppage intended to force an employer to address union demands.

A good is rival in consumption if one person's use diminishes other peoples' use. True False

True

unemployment insurance

a government program that partially protects workers' incomes when they become unemployed

producer price index

a measure of the cost of a basket of goods and services bought by firms

Core CPI

a measure of the overall cost of consumer goods and services excluding food and energy

Consumer Price Index (CPI)

a measure of the overall cost of the goods and services bought by a typical consumer

GDP deflator

a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100

Tragedy of the Commons

a parable that illustrates why common resources are used more than is desirable from the standpoint of society as a whole

implicit costs

input costs that do not require an outlay of money by the firm

explicit costs

input costs that require an outlay of money by the firm

Senator Gordon argues that the gains from trade are based on comparative advantage, and as such, free trade will not cause a net job loss because workers can find new jobs in the industry in which the United States has a comparative advantage. Which aspect of the job argument is Senator Gordon refuting? a.Everything can be produced at lower cost in other countries, so free trade cannot create jobs domestically. b.There is no evidence that any worker ever lost his or her job because of free trade. c.Unemployment of labor is not a serious problem relative to other economic problems. d.There will be no gains from trade.

Everything can be produced at lower cost in other countries, so free trade cannot create jobs domestically.

Factors of production include only physical capital such as business structures and business equipment. ( True or False)

False

Taxes, subsidies, and the Coase theorem are all examples of private solutions to externalities. True False

False. Although the Coase theorem is an example of a private solution to the problem of externalities, taxes and subsidies are public solutions, not private ones.

public goods

Goods that are neither excludable nor rival in consumption

collective bargaining

Process by which a union representing a group of workers negotiates with management for a contract

Because pollution permits and corrective taxes typically reduce the cost of environmental protection relative to command-and-control policies, the public's desire for a clean environment should increase when permits and taxes replace command-and-control policies. True False

True

If a beekeeper and the owner of an apple orchard enter into a contract, the two firms have internalized a positive externality. True False

True

Quotas and tariffs are similar in that they both decrease the quantity of imports and raise the domestic price of the good. (True or False)

True

The Bureau of Labor Statistics calculates the CPI. True False

True

The difference between the nominal interest rate and the real interest rate is equal to the inflation rate. True False

True

free rider

a person who receives the benefit of a good but avoids paying for it

If a good is excludable, it could be

a private good or a club good

cost-benefit analysis

a study that compares the costs and benefits to society of providing a public good

A tax on an imported good is called

a tariff

Tariff

a tax on goods produced abroad and sold domestically

Which of the following is an example of a private solution to the problem of externalities?(i) Charities(ii) Taxes(iii) Social Norms of moral behavior(iv) Subsidies a.(i) and (iii) only b.(i) and (ii) only c.(i), (ii), and (iii) only d.(ii) and (iv) only

a.(i) and (iii) only

If the consumer price index was 97 in 2012, 100 in 2014, 101 in 2016, and 104 in 2018, then the base year must be a.2014. b.2012. c.2018. d.2016.

a.2014.

Which of the following is an example of general knowledge, as opposed to specific knowledge that can be patented? a.a physics theorem b.the invention of a puncture-resistant soap bubble c.the chemical formula for a breakthrough drug d.a method for making a no-skid tire

a.a physics theorem

Refer to the Table. This market a.creates positive externalities. b.creates no externalities. c.creates negative externalities. d.has no market equilibrium.

a.creates positive externalities.Correct. Positive externalities exist when the social value of the good exceeds the private value.

Which of the following is an example of a club good? a.mobile phone service b.free wifi at an airport c.a pair of shoes d.a public tennis court

a.mobile phone service

Substitution bias is a problem when measuring the consumer price index because a.prices of goods and services do not change in the same proportion from year to year. b.consumers are eager to buy new products as they are introduced, despite their lack of full information about the quality of those products until they buy and use them. c.the introduction of new goods gives consumers access to a greater variety of products. d.consumers are slow to adjust their buying patterns from year to year in response to price changes.

a.prices of goods and services do not change in the same proportion from year to year.

If it were built to protect the whole world, an asteroid collision protection system would be an example of a a.public good. b.global good. c.club good. d.common resource.

a.public good.

A tax on a producer of a polluting product would shift the private cost curve a.upward by the size of the tax and cause the industry to decrease the quantity it supplies to the market. b.downward by the size of the tax and cause the industry to decrease the quantity it supplies to the market. c.upward by the size of the tax and cause the industry to increase the quantity it supplies to the market. d.downward by the size of the tax and cause the industry to increase the quantity it supplies to the market.

a.upward by the size of the tax and cause the industry to decrease the quantity it supplies to the market.

efficiency wages

above-equilibrium wages paid by firms to increase worker productivity

internalizing the externality

altering incentives so that people take into account the external effects of their actions

Suppose the consumer price index is 89 in 2012, 94 in 2014, 100 in 2016, and 103 in 2018. If Social Security Benefits were $1,000 in 2018 and we index them for inflation, the Social Security benefits would have been ________ in 2014. a.$970.87 b.$912.62 c.$765.61 d.$1,000

b.$912.62

Which of the following would most likely endanger cow populations? a.Increased demand for beef b.Not allowing cows to be owned c.Overbreeding d.If cow horn were found to be a good substitute for ivory

b.Not allowing cows to be owned

An ideal corrective tax equals the external ____________ from an activity with a _____________. a.cost; positive externality b.cost; negative externality c.benefit; negative externality d.benefit; positive externality

b.cost; negative externality

Suppose you make two purchases for yourself. Which of them is included in GDP?

both a new textbook and a haircut

Suppose the consumer price index is 89 in 2012, 94 in 2014, 100 in 2016, and 103 in 2018. If Social Security Benefits were $1,000 in 2018 and we index them for inflation, the Social Security benefits would have been ________ in 2012. a.$970.87 b.$886.04 c.$864.08 d.$1,000

c.$864.08

Suppose the fictional country of Meria removes trade restrictions on its own. Meria has decided to use what type of approach to free trade? a.Bilateral approach b.Multilateral approach c.Unilateral approach d.Isolated approach

c.Unilateral approach

Coffee is weighted more than tea in the calculation of the CPI if a.it costs more to produce coffee than it costs to produce tea. b.coffee is more accessible to the typical consumer. c.consumers buy more coffee than tea. d.the price of coffee is greater than the price of tea.

c.consumers buy more coffee than tea.

Private goods and club goods are similar because they are both ____________, but they are different because ____________________. a.rival; club goods are excludable and private goods are not b.excludable; club goods are rival and private goods are not c.excludable; private goods are rival and club goods are not d.rival; private goods are excludable and club goods are not

c.excludable; private goods are rival and club goods are not

Jenny earned a salary of $50,000 in 2015 and a salary of $60,000 in 2019. The consumer price index in 2015 was 220.5. The consumer price index was 236.2 in 2014. Jenny's 2015 salary in 2014 dollars is a.$56,012. b.$50,540. c.$52,660. d.$53,560.

d.$53,560.

If the nominal interest rate is 2 percent and the inflation rate is 1 percent, then the real interest rate is a.2 percent. b.-1 percent. c.0 percent. d.1 percent.

d.1 percent.

If the consumer price index was 100 in 2012, 102 in 2014, 105 in 2016, and 107 in 2018, then the base year must be a.2014. b.2016. c.2018. d.2012.

d.2012.

Which of the following statements is not correct? a.Corrective taxes place a price on the right to pollute. b.Corrective taxes provide incentives for firms to develop cleaner technologies. c.Economists usually prefer corrective taxes to regulations as a way to deal with pollution. d.Corrective taxes allocate pollution to the producers who face the lowest cost of reducing pollution.

d.Corrective taxes allocate pollution to the producers who face the lowest cost of reducing pollution.

Which of the following is not a common argument in favor of restricting trade? a.All countries should play by the same rules. b.Trade restrictions can be effective when bargaining with trade partners. c.Efforts should be made to protect new industries until they mature. d.Free trade increases total surplus in the domestic market for the traded good.

d.Free trade increases total surplus in the domestic market for the traded good.

If a good is excludable, it could be a.a club good or a public good. b.a private good or a common resource. c.a common resource or a public good. d.a private good or a club good.

d.a private good or a club good.

In a market with no externalities, the height of the supply curve at any given quantity shows the a.public cost of the last unit sold. b.benefit to consumers from the last unit sold. c.cost to bystanders of the last unit sold. d.cost to the producer of the last unit sold.

d.cost to the producer of the last unit sold.

Advocates of antipoverty programs believe that fighting poverty a.is best addressed by the market. b.is worthwhile despite the loss of efficiency. c.should be addressed more by charities than by the government. d.is an example of the free-rider problem.

d.is an example of the free-rider problem.

An internet access point without a password that has become slow from overuse is an example of a a.public good. b.private good. c.nonrival but excludable good. d.rival but nonexcludable good.

d.rival but nonexcludable good.

discouraged workers

individuals who would like to work but have given up looking for a job

private goods

goods that are both excludable and rival in consumption

club goods

goods that are excludable but not rival in consumption

common resources

goods that are rival in consumption but not excludable

coase theorm

he proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own

When the government intervenes in a market with negative externalities, it does so in order to

protect the interests of bystanders

National defense is often used as an example of a public good because

providing it to one person does not generally diminish the nation's ability to provide it to another.

consumption

spending by households on goods and services, with the exception of purchases of new housing

investment

spending on capital equipment, inventories, and structures, including household purchases of new housing

net exports

spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports)

government purchases

spending on goods and services by local, state, and federal governments

A tax on an imported good is called a a. quota. b. tariff. c. supply tax. d. trade tax.

tariff

The most commonly reported measure of inflation by the media is

the CPI

Indexation

the automatic correction by law or contract of a dollar amount for the effects of inflation

transaction costs

the costs that parties incur during the process of agreeing to and following through on a bargain

nominal interest rate

the interest rate as usually reported without a correction for the effects of inflation

real interest rate

the interest rate corrected for the effects of inflation

natural rate of unemployment

the normal rate of unemployment around which the unemployment rate fluctuates

inflation rate

the percentage increase in the price level from one year to the next

labor force participation rate

the percentage of the adult population that is in the labor force

unemployment rate

the percentage of the labor force that is unemployed

job search

the process by which workers find appropriate jobs given their tastes and skills

real gdp

the production of goods and services valued at constant prices

Nominal GDP

the production of goods and services valued at current prices

excludability

the property of a good whereby a person can be prevented from using it

rivalry in consumption

the property of a good whereby one person's use diminishes other people's use

production function

the relationship between quantity of inputs used to make a good and the quantity of output of that good

Macroeconomics

the study of economy-wide phenomena, including inflation, unemployment, and economic growth

Microeconomics

the study of how households and firms make decisions and how they interact in markets

labor force

the total number of workers, including both the employed and the unemployed

Externality

the uncompensated impact of of one person's actions on the well-being of a bystander

economic profit

total revenue minus total cost, including both explicit and implicit costs

accounting profit

total revenue minus total explicit cost

frictional unemployment

unemployment that occurs when people take time to find a job

structural unemployment

unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one

cyclical unemployment

unemployment that rises during economic downturns and falls when the economy improves

A tax on a producer of a polluting product would shift the private cost curve

upward by the size of the tax and cause the industry to decrease the quantity it supplies to the market