econ 131 final study guide

Economics deals primarily with the concept of

Scarcity

law makers designed the burden of the FICA payroll tax to be split evenly between workers and firms. Labor economists believe that

Workers bear most of the burden of the tax

When society requires that firms reduce pollution, there is

a trade off because of income to firms' owners and workers

why was Opec unable to maintain high oil prices in the long run?

demand and supply are both elastic in the long run compared to the short run

which of the following events must cause equilibrium quantity to fall

demand decrease and supply increases

good news for farming can be bad news for farmers because the

demand for basic foodstuffs is usually inelastic, meaning that shift in supply to the right decrease total revenue to sellers

tax incidence

depends on the elasticities of supply and demand

Which of the following statements help to explain why government drug interdiction increase drug related crime?

drug addicts will have an even greater need for quick cash to support their habits

opponents of cigarette taxes often argue that tobacco and marijuana are substitute so that high cigarette prices

encourage marijuana use, but the evidence does not support this argument

when the government redistributes income the wealthy to the poor,

equality is improved, but efficiency is not

If an externalize is present in a market, economic efficiency may be enhanced by

government intervention

Disposable income is

he income that households and businesses have remaining after satisfying their obligations to the government

in the simple circular flow diagram, the participants in the economy are

household and firms

By far the largest category of goods and services in the CPI basket is

housing

the principle of comparative advantage does not provide answers to certain questions. one of those questions is

how are gains from trade shared among the parties to a trade

In the GDP accounts production equals

income

Gross domestic product measures

income and expenditures

if the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would.

increase by less than $1000

two goods are complements when a decrease in the price of one good

increase the demand for the other good

if the government removes a binding price ceiling from a market, then the price paid by buyers will

increase, and the quantity sold in the market will increase

overtime, housing shortage caused by rent trol

increase, because the demand for supply of housing are more elastic in the long run

when a production possibilities frontier is bowed outward, the opportunity cost of producing an additional unit of a good

increases as more of the good is produced

If a state made a previously-illegal activity, such as gambling or prostitution, legal, then, other things equal, GDP

increases.

an increase in price causes an increase in total revenue when demand is

inelastic

The inflation rate is defined as the

percentage change in the price level from the previous period.

the signals that guide the allocation of resources in a market economy are

prices

Which of the following is not included in U.S. GDP

production of U.S citizens working in foreign countries.

what is the most important factory that explains differences in living standards across countries?

productivity

explain what is comparative advantage

the ability to produce a good at a lower opportunity cost than another producer, or greater absolute advantage or smaller absolute disadvantage.

Economists use the term inflation to describe a situation in which

the economy's overall price level is rising

The CPI is a measure of the overall cost of

the goods and services purchased by a typical consumer.

what is tax incidence

the manner in which the burden of a tax is shared among participants in a market

a city wants to raise revenue to build a new municipal swimming pool next year. the mayor suggests that the city raises the price of admission to the current municipal pools this year to raise revenue. The city manager suggests that the city lower the price of admission to raise revenue. who is correct?

the mayor would be correct if the demand were price inelastic; the city manage would be correct if demand were price elastic.

suppose a nation is currently producing at a point inside its production possibilities frontier. we know that

the nation is not using all available resources or is using inferior technology or both

if an economy is producing efficiently, then

there is no way to produce more of one good without producing less of another good

GDP is defined as the

value of all final goods and services produced within a country.

Which of the following is included in Singapore's GDP

. The value of production by an American working in Singapore

A manufacture produces 400 units when the market price is $10 per unit and produces 600 unit for the market price for $12 per unit. using the midpoint method, for this range of prices, the price elasticity of supply is about

2.2

Suppose the price of a bag of frozen chicken nuggets decrease from 6.50 to 5.75 and, as a result the quantity of bags demanded increase from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range

2.33

if the price elasticity of demand for a good is 2.0, then 10 percent increase in price results in a

20 percent decrease in the quantity demanded

suppose that a country that has a high level of output per person agrees to trade with a country that has a low level of output per person. Which country can benefit?

Both

how to calculate GDP

GDP = Consumptions + investment+ Government investment + government spending + (exports - imports)

Many things that society values, such as good health, high-quality education, enjoyable recreation opportunities, and desirable moral attributes of the population, are not measured as part of GDP. It follows that

GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce the things that contribute to welfare.

Adam smith suggested that an invisible hand guide economies. In this analogy, what is the baton that the invisible hand uses to conduct the economic orchestra

Prices

Which of the following is a way to compute GDP

Total income, totaly expenditures on final goods, add up the market values of all final goods and services.

in a competitive market, the quantity of a product produced and the price of the product are determined by

all buyers and all sellers

the opportunity cost of obtaining more of one good is shown on the production possibilities frontier as the

amount of the other good that must be given up

the willingness of citizens to pay for vaccinations does not include the benefit society receives from having vaccinated citizen who cannot transmit an illness to others. This extra benefit society gets from vaccinating its citizens is known as

an externality

suppose good X has a negative income elasticity of demand. This implies that good X is

an inferior good

expenditures on a nation's domestic production

are equal to its domestic producctions

a price ceiling will be binding if it is set

below the equilibrium price

a decrease in supply will cause the largest increase in price when

both supply and demand are inelastic

Which of the following is included in GDP?

both the market value of rental housing services and the market value of owner-occupied housing services

in a market economy, supply and demand determine

both the quantity of each good produced and the price at which it is sold

The producer price index measures the cost of a basket of goods and services

bought by firms.

demand is said to be price elastic if

buyers respond substantially to changes in the price of the good

When the consumer price index falls, the typical family

can spend fewer dollars to maintain the same standard of living

Over time, people have come to rely more on market-produced goods and services and less on goods and services they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has a. caused measured GDP to fall.

caused measured GDP to rise

the cross price elasticity of demand can tell us whether goods are

complements or substitutes

Which of the following is an example of depreciation

computers becoming obsolete

suppose an airline determines that its customers traveling for business have inelastic demand and its customers traveling for vacations have an elastic demand. If the airline's objective is to increase total revenue, it should

decrease the price charged to vacationers and increase the price charged to business travelers.

if the government removes a tax on a good, then the price paid by buyers will

decrease, and the price received by sellers will increase

two goods are substitutes when a decrease in the price of one good

decreases the demand for the other good

in the circular flow diagram, which of the following from households to firms through the markets for the factors of production

land, labor, and capital

which markets are represented in the simple circular flow diagram

markets for goods and services and markets for factors of production

minimum wage laws

may encourage some teenagers to drop out and take jobs

in the circular flow diagram, which of the following is not a factor of production

money

Goods with many close substitute tend to have

more elastic demand

assume the demand for cigarettes is relatively inelastic, and the supply of cigarettes is relatively elastic. When cigarettes are taxed, we should expect

most of the burden of the tax to fall on buyers of cigarettes, regardless of whether buyers or sellers of cigarettes are required to pay the tax to the government.

a competitive market is a market in which

no individual buyer or seller has any significant impact on the market price

production is efficient if the economy is producing at a point

on the production possibilities frontier

If the quality of a good improves while its price remains the same, then the value of a dollar

rises and the cost of living decreases

a monopoly is a market with one

seller, and that seller sets the price

efficiency means that

society is getting the maximum benefits from its scarce resource

Which of the following is included in the investment component of GDP

spending on new residential construction but not spending on stocks and bonds

the minimum wage has its greatest impact on the market for

teenage labor

. The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

the CPI better reflects the goods and services bought by consumers.

A decrease in the price of domestically produced industrial robots will be reflected in

the GDP deflator but not in the consumer price index

in the circular flow diagram, which of the following items flows from firms to households through the markets for the factors of production

wages, rent, and profit

what is opportunity cost

whatever must be given up to obtain some item