econ 1202 quiz questions/notes

The central mission of modern macroeconomics is to prevent: a deep recession like the Great Depression.surpluses.high gas prices.shortages.

a deep recession like the Great Depression.

Assume that we are looking at the local market for pizza. Assume that the equilibrium price is $20 and the equilibrium quantity is 1000. Which of the following options best describes what would happen to this market if a study was published that proved that pizza caused serious illness? Demand would decrease causing a surplus situation. Prices would then decline and this causes quantity supplied to decrease and quantity demanded to increase until the new equilibrium is reached at a lower price and lower quantities.Supply would decrease causing a surplus situation. Prices would then decline and this causes quantity supplied to increase and quantity demanded to decrease until the new equilibrium is reached at a lower price and lower quantities.Demand would increase causing a surplus situation. Prices would then decline and this causes quantity supplied to increase and quantity demanded to decrease until the new equilibrium is reached at a lower price and higher quantities.Supply would increase causing a surplus situation. Prices would then decline and this causes quantity supplied to increase and quantity demanded to decrease until the new equilibrium is reached at a lower price and lower quantities.

Demand would decrease causing a surplus situation. Prices would then decline and this causes quantity supplied to decrease and quantity demanded to increase until the new equilibrium is reached at a lower price and lower quantities..

Which statement is NOT true? Very talented individuals, who can do most things better than most people, may still benefit greatly from specializing in doing one thing. Resource scarcity is a major economic concern in the rich countries of the world. An economic situation is in equilibrium when no individual would be better off taking a different action. Most opportunity costs are zero.

most opportunity costs are zero

(Figure: The Markets for Melons in Russia) Use Figure: The Market for Melons in Russia. If Russia is trading based on comparative advantage and the world price is D, then Russia has _____ in the production of melons. neither an absolute nor a comparative advantagean absolute advantagea comparative advantagea comparative disadvantage

neither

Expansionary monetary policy will lead to which of the following? A decrease in interest rates and an increase in the unemployment rateA decrease in interest rates and a decrease in the unemployment rateAn increase in interest rates and a decrease in the unemployment rateAn increase in interest rates and an increase in the unemployment rate

A decrease in interest rates and a decrease in the unemployment rate

(Figure: The Market for Laptops) Use Figure: The Market for Laptops. Assume that S and D are the domestic supply and demand curves and the world price is PW. Identify the area of government tax revenue when a tariff raises the domestic price from the world price to PT. ED + E + FD + FB

E

During a recession, one will often observe: zero unemployment rates.rising employment rates.rising aggregate output.rising unemployment rates and falling aggregate output.

rising unemployment rates and falling aggregate output.

Use Table: Wheat and Aluminum. The United States and Germany can produce both wheat and aluminum. The table shows the maximum annual output combinations of wheat and aluminum that can be produced. Based on the table:

the United States has a comparative advantage in wheat and an absolute advantage in wheat.

Assume that we are looking at the world market for oil. Assume that the initial equilibrium price is $50 a barrel and the monthly quantities bought and sold is 10 trillion barrels. How would this market be affected by a world wide economic downturn? Demand would decrease, causing a shortage of oil, price would decrease and this would lead to less barrels bought and sold.Demand would decrease, causing a surplus of oil, price would decrease and this would lead to more barrels bought and sold.Demand would increase, causing a surplus of oil, price would decrease and this would lead to less barrels bought and sold.Demand would decrease, causing a surplus of oil, price would decrease and this would lead to less barrels bought and sold.

Demand would decrease, causing a surplus of oil, price would decrease and this would lead to less barrels bought and sold.

Expansionary fiscal policy can be described by which of the following? Either an increase in taxes or an increase in government spendingEither a decrease in taxes or a decrease in government spendingEither a decrease in taxes or an increase in government spendingEither an increase in taxes or an increase in government spending

Either a decrease in taxes or an increase in government spending

Which one of the following statements is true about fiscal and monetary policy? Both policies are directly controlled by our elected officials.Monetary policy is directly controlled by elected officials and fiscal policy is directly controlled by the Federal Reserve.Both policies are directly controlled by the Federal Reserve.Fiscal policy is directly controlled by elected officials and monetary policy is directly controlled by the Federal Reserve.

Fiscal policy is directly controlled by elected officials and monetary policy is directly controlled by the Federal Reserve.

Trade and domestic employment

Globalization will force some firms to lay off workers Even so, increased trade usually increases jobs in other industries (exporters). BUT for workers who lose their jobs, switching industries can be difficult and time-consuming.

"Unemployment of 5% is too high" is: a normative statement .the circular-flow model. a positive statement. an example of comparative advantage.

normative statement

Increasing returns to scale also play a role in trade:

If an industry gets more efficient as it grows, then there will be a few large producers... and production may take place in only a few countries.

Pay attention to opportunity costs.

If it's cheaper for China to produce phones than it is for the United States, the United States will want to import phones from China.

A tariff has two effects:

Increase in domestic production, reduction in domestic consumption. The good is now produced by the higher-cost country. Less is consumed, leading to lower gains from trade. Can we measure the value of wasted resources? Yes!

Bill MickeyBongos Frisbees Bongos Frisbees1 10 4 142 9 5 123 8 6 10(Table: Bongos and Frisbees) Look at the table Bongos and Frisbees. Bill and Mickey make bongos and Frisbees. Who has the comparative advantage in producing Frisbees?

Mickey

The infant industry argument:

New industries need a temporary period of protection to develop •Critiques: Hard for government to predict the best emerging technologies. Difficult to become competitive when protected from competition. Many times politics determine which industries are granted protection.

Florida schools offered cash bonuses to students who scored high on the state's standardized exams. The cash bonuses are motivated by which economic principle? "How Much" is a decision at the margin. The true cost of something is its opportunity cost. People usually respond to incentives, exploiting opportunities to make themselves better off. Choices are necessary because resources are scarce.

People usually respond to incentives, exploiting opportunities to make themselves better off.

Which of the following measures gives us the best indication of a country's standard of living? The Consumer Price IndexReal GDPNominal GDPReal GDP Per Capita

Real GDP is inflation adjusted measure. So, Real GDP is a better measure of country's income. Real GDP cannot predict the living standard of a citizen which depends upon average income of its citizens. Two country may have same values of real GDP but there may be huge difference in population. So, Correct option is Real GDP per Capita

Trade follows the

Ricardian model.

Differences in technology

Sometimes a country has developed a particular technology that explains its comparative advantage. (Swiss watches, for example)

When a chef prepares a dinner for a customer, which factor is physical capital? the oven the chef the chef's training and experience the food ingredients

The oven

Which statement is a positive economic statement? Government has grown too large and should be reduced.Government should be subject to the same rules as all other institutions.There has been an increase in the rate of inflation.Women should be paid as much as men are for the same work.

There has been an increase in the rate of inflation.

In the short run, the relationship between inflation and unemployment can be most accurately described by saying In half of the last ten recessions the relationship has been positive and the other half it has been negative.There is an inverse relationship between inflation and unemployment almost all of the time.There is a positive relationship between inflation and unemployment almost all of the time.There is no way to determine any relationship at all.

There is an inverse relationship between inflation and unemployment almost all of the time.

Which statement is CORRECT? When the economy is in recession and jobs are hard to find, inflation tends to fall.Inflation affects only the more advanced countries, whereas less advanced countries face deflation.Employment levels remained stable during the Great Depression.Supply and demand cannot explain why a particular good or service becomes more expensive relative to other goods and services.

When the economy is in recession and jobs are hard to find, inflation tends to fall.

EU (European Union)

a customs union among 28 European nations

Which factor will NOT cause an increase in demand for good X? a decrease in the price of good Xan increase in income if good X is a normal gooda decrease in income if good X is an inferior goodan increase in the popularity of good X with consumers

a decrease in the price of good X

Autarky

a situation in which a country does not trade with other countries

Long-run growth is the sustained upward trend in: interest rates over time.aggregate output per person over several decades.the unemployment rate over time.aggregate output per person over the business cycle.

aggregate output per person over several decades

Which of the following is not an argument for Protectionism? Creating a level playing fieldAll of these 3 possible answers are arguments for Protectionism.Protecting domestic employmentNational security

all of them

An economy is efficient when: all opportunities to make some people better off without making other people worse off have been taken. the problem of scarcity is eliminated. all opportunities to make some people worse off without making other people better off have been taken. output is distributed equitably.

all opportunities to make some people better off without making other people worse off have been taken.

If an economy produces the desired mix of goods from its available resources, then this mix of goods is: both productively and allocatively efficient. neither productively nor allocatively efficient. productively efficient. allocatively efficient.

allocatively efficient

differences in climate

bananas grow better in certain climates

Overall, trade between China and the United States will: hurt both countries.benefit both countries.benefit China more than the United States.benefit the United States more than China.

benefit both countries

(Figure: Production Possibility Frontier) Use Figure: Production Possibilities Frontier. This production possibility frontier is:

bowed out because of increasing opportunity costs.

Good X and good Y are related goods. Holding everything else constant, if the price of good X decreases and the demand for good Y increases, good X and good Y are probably: complements.substitutes.normal.inferior.

complements

(Figure: Bicycles and Radishes I) Look at the figure Bicycles and Radishes I. It shows production possibility frontiers for two countries that produce only radishes and bicycles. The axes of the two graphs are measured in equivalent units. Country A is operating at point M, and country B is operating at point N. Suppose country A discovers a new technology that greatly increases its ability to produce bicycles but has no effect on its ability to produce radishes. This would:

country A

(Scenario: The Production of Wheat and Toys) Use Scenario: Production of Wheat and Toys. If each country specializes in the good for which it has the comparative advantage: country A will produce both wheat and toys.country A will produce wheat and country B will produce toys.country A will produce toys and country B will produce wheat.country B will produce both wheat and toys.

country A will produce wheat and country B will produce toys.

Sources of comparitive advantage

differences in climate factor abundance factor intesity differences in technology increasing returns to to scale also play a role in trade

We can use the demand and supply model to determine the effects of free trade on:

domestic equilibrium price and quantity. imports. the effects of trade barriers on: domestic equilibrium price and quantity. imports.

(Figure: A Tariff on Oranges in South Africa) Use Figure: A Tariff on Oranges in South Africa. When the government imposes a tariff on imported oranges, the price of oranges in South Africa rises from PW to PT and domestic consumer surplus _____ to _____. falls; F + Lfalls; F + G + I + J + K + Lrises; F + G + I + J + K + Lrises; F + L

falls; F+L

Offshore outsourcing

hiring people in another country to perform various tasks Still relatively small compared with more traditional trade

Manny is attending college and majoring in economics. By doing so, Manny is improving his: labor. land. human capital. capital.

human captial

An economic expansion in the United States is typically associated with a(n): decrease in corporate profits.increase in the poverty rate.falling inflation rate.increase in output.

increase in output.

An inferior good is one for which a(n) _____ in buyers' incomes causes a(n) _____. increase; decrease in demanddecrease; decrease in demandincrease; increase in demandincrease; increase in quantity demanded

increase; decrease in demand

Inflation affects people adversely because: purchasing power tends to increase.the budget deficit increases.it causes money to lose its value over time.nominal income falls.

it causes money to lose its value over time

If the economy grew at 3% this year and average prices increased _____, people would be better off this year than last year.

less than 3%

One day, Martha wakes up and in frustration yells, "Decisions, decisions, decisions! Why do I have to make decisions about everything?" Martha's frustrations stem from the fact that: she is the only one who faces constraints in life. she really doesn't want anything. like all economic beings, she faces constraints and cannot have everything she wants. she doesn't realize she can have everything she wants.

like all economic beings, she faces constraints and cannot have everything she wants.

Which two goods are most likely substitutes in consumption? loaves of bread and gasolineloaves of bread and sticks of butterloaves of bread and toastersloaves of bread and hamburger buns

loaves of bread and hamburger buns

Trade can be beneficial to an economy because: it eliminates unemployment.more goods and services can be obtained at lower opportunity cost.it prevents specialization in activities in which countries have a comparative advantage.it results in a more efficient use of the combined resources of some of the trading countries, even though it reduces efficiency in others.

more goods and services can be obtained at lower opportunity cost.

arguments for trade protection

national security trade and domestic employment, infant industry argument

(Figure: Comparative Advantage) Use Figure: Comparative Advantage. Westland has a comparative advantage in producing: oranges only.neither oranges nor peaches.peaches only.both oranges and peaches.

oranges only

global trade agreements: WTO (World Trade Organization)

oversees international trade agreements and rules on disputes between countries over those agreements

(Figure: Shifts in Demand and Supply) Use Figure: Shifts in Demand and Supply. The figure shows how supply and demand might shift in response to specific events. Suppose scientists discover that eating a tomato a day prevents aging. Which panel BEST describes how this will affect the market for tomatoes?

panel c

If all of the households and businesses start saving more during economic hard times, then aggregate income will fall, hurting everyone in the economy. This is known as the: quantity theory.crowding-out theory.paradox of thrift.permanent income hypothesis.

paradox of thrift.

Figure: Production Possibilities and Circular-Flow Diagram) Assume the figures represent the same economy. Suppose that in the circular-flow diagram there is a significant increase in the amount of capital that is flowing to the firms that produce fish. Assume that there is a corresponding decrease in the amount of capital that is flowing to the firms that produce coconuts. This adjustment in the economy would be best represented in the production possibilities figure by a move from point A toward:

point B (a decrease in coconut production and an increase in fish production)

In the importing country, the MOST likely effect of a tariff is to: raise the price and increase the quantity demanded.raise the price and decrease the quantity demanded.decrease the quantity supplied.raise the price without affecting the quantity demanded.

raise the price and decrease the quantity demanded.

A tariff or quota will _____ prices and _____ the consumption of the protected goods in the importing country. raise; increaselower; decreaseraise; decreaselower; increase

raise, decreease

Because one person's spending is another person's income, if one group in the economy spends more, the incomes of other groups will increase.

true

In Ventura County, California, strawberry production is limited by the number of acres available for agriculture production. Which economic concept does this statement BEST represent? Opportunity Cost Equilibrium Marginal Analysis Scarcity

scarcity

The job creation argument for protection against free trade is: mostly that we need full employment to defend the security of the nation.that we need full employment to prevent currency depreciation.frequently put forward by economists.that keeping out foreign imports allows the goods and services to be produced by domestic workers.

that keeping out foreign imports allows the goods and services to be produced by domestic workers.

(Figure: Strawberries and Submarines) Use Figure: Strawberries and Submarines. Suppose the economy is operating at point G. This implies that: people in this economy don't really like strawberries or submarines.the economy lacks the resources to achieve a combination such as C.the economy has unemployment and/or inefficiently allocates resources.the economy can move to a point such as C only if it improves its technology.

the economy has unemployment and/or inefficiently allocates resources

A country has a comparative advantage in producing a good or service if the opportunity cost of producing the good or service is lower for that country than for other countries.

the opportunity cost of producing the good or service is lower for that country than for other countries.

The world price of a good is

the price at which that good can be bought or sold abroad.

The domestic demand curve shows how

the quantity of a good demanded by domestic consumers depends on the price of that good.

The government of a small town has decided to ban smoking in all restaurants, stores, and government offices. This is an example of the principle that: there are gains from trade. "How Much" is a decision at the margin. one person's spending is another person's income. when markets fail to achieve efficiency, government intervention can improve society's welfare.

when markets fail to achieve efficiency, government intervention can improve society's welfare.

Inequality

when wealthy countries like the United States export skill-intensive products (like aircraft) while importing labor-intensive products (like clothing), they can expect to see the wage gap between more educated and less educated domestic workers widen

(Figure: Shifts in Demand and Supply II) Use Figure: Shifts in Demand and Supply II. The graph shows how supply and demand might shift in response to specific events. Suppose a fall frost destroys one-third of the nation's grapefruit crop. Which panel BEST describes how this will affect the market for vitamin B12 tablets, which are a substitute in consumption for grapefruit? Panel CPanel APanel BPanel D

Answeroption 1Panel A the demand increases from D1 to D2The supply of grapefruit decreases which increases the price of it and decreases quantity.An increase in the price of substitute good increases demand the good so the demand for B12 tablets increases which shifts the demand curve to the right and increases price and quantity in the equilibrium

Assume that we are looking at the local market for pizza. Assume that the equilibrium price is $20 and the equilibrium quantity is 1000. Which of the following options best describes what would happen to this market if two new pizza restaurants open up for business in this market? Demand would decrease causing a surplus situation. Prices would then decline and this causes quantity supplied to increase and quantity demanded to decrease until the new equilibrium is reached at a lower price and lower quantities.Supply would increase causing a surplus situation. Prices would then decline and this causes quantity supplied to decrease and quantity demanded to increase, this continues until there is a new equilibrium at a lower price and higher quantity.Demand would increase causing a surplus situation. Prices would then decline and this causes quantity supplied to increase and quantity demanded to decrease until the new equilibrium is reached at a lower price and lower quantities.Supply would decrease causing a surplus situation. Prices would then decline and this causes quantity supplied to increase and quantity demanded to decrease until the new equilibrium is reached at a lower price and lower quantities.

Supply would increase causing a surplus situation. Prices would then decline and this causes quantity supplied to decrease and quantity demanded to increase, this continues until there is a new equilibrium at a lower price and higher quantity.

Suppose we are looking at the market for gold. Assume that the equilibrium price is $1,200 per ounce and the quantities bought and sold is 100 billion ounces. If there was a discovery of very large gold deposits in parts of the world, how would this discovery affect this market? Supply would increase, leading to a shortage, causing price to decrease and we would have greater quantities of gold.Supply would increase, leading to a surplus, causing price to decrease and we would have greater quantities of gold.Supply would decrease, leading to a surplus, causing price to decrease and we would have greater quantities of gold.Supply would increase, leading to a surplus, causing price to decrease and we would have less quantities of gold.

Supply would increase, leading to a surplus, causing price to decrease and we would have greater quantities of gold.

(Figure: The Market for Roses) Use Figure: The Market for Roses. Assume that PA is the autarky price and PW is the world price. Producer surplus with international trade would be area: Y.X + Y.W + X + Y.X + Y + Z.

Y

Factor intensity:

a measure of the quantity of a factor used in comparison with other factors How much labor is used compared with natural resources or machines?

Which of the following policies is MOST likely to reduce traffic congestion in a large metropolitan area because people usually exploit opportunities to make themselves better off? a limited number of free early-bird parking passes given only to those who arrive prior to 6 A.M. an increase in the price of subway and bus fare to and from the city a toll road that requires each car to pay a fee to enter the city center asking citizens to carpool

a toll road that requires each car to pay a fee to enter the city center

NAFTA (North American Free Trade Agreement)

a trade agreement between the United States, Canada, and Mexico

Economists use the term equilibrium to describe situation when: all opportunities to make some people worse off without making other people better off have been taken. output is distributed equitably. the problem of scarcity is eliminated. all opportunities to make some people better off without making other people worse off have been taken.

all opportunities to make some people better off without making other people worse off have been taken.

(Figure: The Markets for Melons in Russia II) Use Figure: The Market for Melons in Russia II. If the world price is $10 and a tariff of $5 is imposed on this market, the burden of the tariff will be borne by: both producers and consumers.producers.consumers.the government.

both producers and consumers

Comparative advantage arises from: countries engaging in autarkic behavior.differences in climate, factor endowments, and technology.an emphasis on export production.absolute advantage.

differences in climate, factor endowments and technology The Comparative advantage is based on the opportunity cost which is based on comparatively better yield from one sector of a country to the same sector of another country.

Economists use the term equilibrium to describe situation when:

no individual would be better off taking a different action or no individual has an incentive to change his or her behavior.

Table: The Market for Chocolate-Covered Peanuts) Use Table: The Market for Chocolate-Covered Peanuts. If the price of chocolate-covered peanuts is $0.50, there is a: surplus of 70 bags per month.shortage of 35 bags per month.surplus of 35 bags per month.shortage of 70 bags per month.

shortage of 70 bags per month.

Import-competing industries produce goods and services

that are also imported.

Exporting industries produce goods and services

that are sold abroad.

hyperglobalization

the phenomenon of extremely high levels of international trade

The domestic supply curve shows how

the quantity of a good supplied by domestic producers depends on the price of that good.

Factor abundance:

the supply of a factor of production relative to other factors How many forests does a country have compared with machines or people?

international trade agreements

treaties in which a country promises to reduce import tariffs in return for a promise by the other country to do the same (NAFTA and EU)

Holding all other things constant, and assuming that ramen noodles are an inferior good for Vanessa, then as her income increases, her demand curve for ramen noodles: will not shift at all.may shift left or right, but we're not sure by how much.will shift right.will shift left.

will shift right for inferior good, as income decrease, Quantity Demanded rises

National Security

•In times of national crisis or war, the United States must be able to rely on key domestic industries: Oil Steel Defense Food •Protection is required even during peacetime to ensure their availability.