ECON 202 Exam 1
Why is the supply curve referred to as a marginal cost curve?
It shows the willingness of firms to supply a product at different prices.
What is absolute advantage?
The ability to produce more of a good or service than competitors using the same amount of resources.
On the diagram to the right, movement along the curve from points A to B to C illustrates
increasing marginal opportunity costs
These estimates influence the normative analysis of the minimum wage because they
influence the judgement of policymakers and members of the general republic regarding this issue.
Economic efficiency
is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production. is a market outcome in which the sum of consumer surplus and producer surplus is at a maximum.
The minimum wage might raise some people out of poverty because
it would increase the incomes of people who had minimum wage jobs previously.
A fundamental difficulty in empirical economics is distinguishing causation from correlation.
True
The minimum wage might reduce employment because
employer costs might increase
Scarcity is central to the study of economics because it implies that
every choice involves an oppurtunity cost
Economic surplus is the sum of consumer surplus and producer surplus.
True
When trying to infer causality, economists define bias as any source of difference between treatment and control groups that is correlated with the treatment but is not due to the treatment.
True
If San Francisco were to repeal its rent control law, the prices for short rentals in the city listed on Airbnb and other peer-to-peer sites would likely
fall because more housing units would become available as the average rent increased
The production possibilities frontiers depicted in the diagram to the right illustrate
technological advances in the tank industry.
What is comparative advantage?
the ability to produce a good at a lower opportunity cost than another producer
Tax incidence indicates
the actual division of the burden of a tax
Tax incidence refers to
the actual division of the burden of a tax on between buyers and sellers in a market
Marginal cost is
the additional cost of producing one more unit
Macroeconomics primarily explains
the economy as a whole, such as how quickly the economy grows
Producer surplus is
the difference between the lowest price a firm would be willing to accept and the price it actually receives.
Equity is
the fair distribution of economic benefits.
Opportunity cost is
the highest valued alternative that must be given up to engage in an activity.
Economists assume that people are rational in the sense that
they use all avaliable information as they take actions intended to achieve their goal
Which of the following statements is true?
All individuals face a scarcity of time and need to make choices how to allocate it.
According to Adam Smith, which of the following is necessary for the proper functioning of the market system?
For markets to work, people must be free to pursue their self-interest.
Which of the following is a correct statement about a mixed economy?
In a mixed economy, most economic decisions are made in markets but the government plays a significant role in the allocation of resources.
Why is the demand curve referred to as a marginal benefit curve?
It shows the willingness of consumers to purchase a product at different prices.
Every society faces trade-offs because we live in a world of scarcity. Suppose a student-athlete has the opportunity to earn 400,000 next year playing for a minor league baseball team, 300,000 next year playing for a European professional football team, or $0 returning to college for another year
The opportunity cost of the student-athlete returning to college next year is $400000.
When the government imposes price floors or price ceilings, which of the following occurs?
all of the above occurr
According to a news story, Pennsylvania's liquor tax is "paid by the seller long dash —the restaurant or bar owner long dash —when the seller buys liquor from state-run wine and spirit stores." Source: Matt Assad, "How Booze Brings Heady Development," (Allentown, PA) Morning Call, February 22, 2015. The way in which liquor taxes in Pennsylvania are collected influences the price of a glass of wine purchased by a consumer in a restaurant by
decreasing supply and increasing the price of wine and other liquor drinks in stores
"If only one poor person is helped with this method, then all our time and money would have been worth it." If you were a member of the organization, what reply best represents clear economic thinking? This attitude
ignores the fact that the cost of helping that one person has an opportunity cost of what those funds could have been used for to help other people.
Consumer surplus is the difference between
the highest price a consumer is willing to pay, and the price the consumer actually pays
Property rights are
the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.
West Virginia University wants to test whether a job training program can reduce the duration of unemployment for West Virginians who need jobs. The University offers the training to a randomly selected group of unemployed West Virginians across the state. Unemployed individuals who were offered the training form the _______; unemployed individuals who were not offered the training form the _______.
treatment group: control group
Someone who will be moving to Lowell next year and who intends to rent an apartment
will be better off if they are able to find an apartment to rent because rent is lower due to the price ceiling. will be worse off if they are unable to find an apartment to rent.
The competitive equilibrium rent in the city of Lowell is currently $1,000 per month. The government decides to enact rent control and to establish a price ceiling for apartments of $750 per month. Briefly explain whether rent control is likely to make each of the following people better or worse off. Someone currently renting an apartment in Lowell
will be better off if they keep their apartment because rent is lower due to the price ceiling. will be worse off if they lose their apartment.
A hypothesis is another name for a model.
A hypothesis is a statement that could in principle turn out to be incorrect.
Question: → When variables A and B are correlated, it is possible that
All of the above
What is the role of an entrepreneur?
All of the above
How does consumer surplus change as the equilibrium price of a good rises or falls?
As the price of a good rises, consumer surplus decreases, and as the price of a good falls, consumer surplus increases
How does producer surplus change as the equilibrium price of a good rises or falls?
As the price of a good rises, producer surplus increases, and as the price of a good falls, producer surplus decreases
Economic models are not useful because they are much simpler than real life
False
If you and your neighbor both grow oranges and grapefruits and you are better than your neighbor at picking both oranges and grapefruits, there can be no advantage to you in specializing in growing only one type of fruit and trading with your neighbor for the other.
False
A large corporation that runs nursing homes estimates that changes to Medicare will result in lower payments by Medicare to nursing homes for short-term stays by patients that require therapy or care upon leaving hospitals. Assume the corporation is considering expanding the number of "beds" it offers at its nursing homes. Given the changes to Medicare, if the marginal benefit of offering an additional bed is
Given the changes to Medicare, if the marginal benefit of offering an additional bed is $8,000 and the marginal cost is $ 3,000 per bed, then the corporation should offer additional beds.
Juan notices healthy people tend to have higher incomes than less healthy people. Health and income are
Positively correlated
According to Adam Smith, which of the following is the instrument the invisible hand uses to direct economic activity?
Prices
If a market system functions well, which of the following is necessary for the enforcement of contracts and property rights?
an independent court system
What is the basis for trade?
comparative advantage
If copyrights are a 'tax' on readers, governments provide a legal framework to enforce them because
copyrights provide needed protection for authors and creators of movies or other artistic works.
After Russia seized what had formerly been the Ukrainian territory of Crimea in February 2014, the United States and many other countries imposed economic sanctions that reduced the ability of Russia to engage in international trade. A columnist writing in the New York Times noted that, "If sanctions push Russia onto a path of greater self-reliance, its manufacturing and service industries will surely grow faster...." Source: Anatole Kaletsky, "Reasons to Welcome a Ukraine Deal," New York Times, September 18, 2014. If the columnist is correct about the effect of the sanctions, then, in the long run, the sanctions will
decrease the economic well-being of the average Russian because Russia will have to produce some goods and services at a higher cost than its trading partners.
Efficiency means that goods are distributed in a way that Equity means that goods are distributed in a way that
maximizes benefits to society is fair
Consumer surplus is
the difference between the highest price a consumer is willing to pay and the price the consumer actually pays.
Economic data is used
to test models.
How can a country gain from specialization and trade?
A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services.
Economists define economic efficiency in this way
All of the above
Which of the following statements about an economic variable is correct?
An economic variable is something measurable that can have different values.
The diagram to the right represents a demand curve for apples. The original demand curve is D1. If a factor other than price which affects demand changes, causing demand to decrease, the resultant demand curve is represented by
D3
In the 1950s, the economist Bela Balassa compared 28 manufacturing industries in the United States and Britain. In every one of the 28 industries, Balassa found that the United States had an absolute advantage In these circumstances, would there have been any gain to the United States from importing any of these products from Britain? Explain.
Even with an absolute advantage, the United States would have benefited from importing those products for which Britain had a comparative advantage.
In the production possibilities frontier below, movement along the curve from points A to B to C illustrates
Increasing marginal opportunity cost
What does increasing marginal opportunity costs mean?
Increasing the production of a good requires larger and larger decreases in the production of another good.
A hypothesis is a statement that could in principle turn out to be incorrect.
Microeconomics examines individual markets while macroeconomics examines the economy as a whole.
What type of economic analysis is concerned with the way things ought to be?
Normative Analysis
Because economists usually cannot implement randomized control trials, they frequently look for ________ to identify situations where artificial treatment and control groups arise by chance.
Quasi- experiments
Question: → Which of the following is considered the "gold standard" for inferring causality?
Randomized control trials
Which of the following are examples of intellectual property? (Check all that apply.)
Software Books and films Ideas for new products or new production techniques
Refer to the graph below. After the government imposes a price of 3.50$ in the market, area A represents
The consumer surplus transferred to producers
Economists have historically distrusted survey data because
The incentive for respondents to report accurate information is weak
What are the implications of this idea for the shape of the production possibilities frontier?
The production possibilities frontier will be bowed outward.
During the 1928 presidential election campaign, Herbert Hoover, the Republican candidate, argued that the United States should only import those products that could not be produced here. Do you believe that this would be a good policy? Explain
This is not a good policy because it does not necessarily result in countries producing those goods for which they have a comparative advantage.
Does Bill Gates face scarcity?
Yes, because even though billionaires' financial resources enable them to afford a much greater array of goods and services than those less wealthy, their financial resources are not infinite.
A production possibilities frontier (PPF) is
a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology
Indicate which of the following statements represent positive analysis and which represent normative analysis
a. A 50-cent-per-pack tax on cigarettes will reduce smoking by teenagers by 12 percent. This represents positive analysis b. The federal government should spend more on AIDS research. This represents normative analysis c. Rising paper prices will increase textbook prices. This represents positive analysis. d. The price of coffee at Starbucks is too high. This represents normative analysis
Indicate whether each of the following is primarily a microeconomic issue or a macroeconomic issue.
a.) The effect of higher cigarette taxes on the quantity of cigarettes sold. This is a microeconomic issue. b.) The effect of higher income taxes on the total amount of consumer spending. This is a macroeconomic issue. c.) . The reasons for the economies of East Asian countries growing faster than the economies of sub-Saharan African countries. This is a macroeconomic issue. d.) . The reasons for the economies of East Asian countries growing faster than the economies of sub-Saharan African countries. This is a macroeconomic issue.
The primary difference between absolute and comparative advantage is
absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost.
Suppose Chicago decides to impose a price ceiling on the rent tenants can pay to landlords. Which of the following market inefficiences might result from the price control?
all of the above
You and your neighbor pick apples and cherries. If you can pick apples at a lower opportunity cost than your neighbor can, which of the following is true?
all of the above
The British historian Thomas Macaulay once remarked that copyrights are "a tax on readers." Copyrights are a 'tax' on readers in the sense that
copyrights limit of the supply of related creative work which results in higher prices.
What is the outcome of enforcing contracts and property rights in a market system?
increased economic activity
Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when
marginal benefit equals marginal cost
Consumer and producer surplus measure the _____ benefit rather than the _____ benefit.
net: total
Do the people who are legally required to pay a tax always bear the burden of the tax? Briefly explain.
no. whoever bears the burden of the tax is not affected by who legally is required to pay the tax to the government.
What type of economic analysis is concerned with the way things ought to be
normative analysis
"Rent controls, government farm programs, and other price ceilings and price floors are bad." This is an example of a
normative statement. The statement is concerned with what should be.
The government seeks to protect intellectual property rights by granting
patents and copyrights
When the government imposes price floors or price ceilings,
some people win, some people lose, and there is a loss of economic efficiency.
Refer to the graph to the right. After the government imposes a price of $3.50 in this market, area A represents
the consumer surplus transferred to producers
Refer to the graph to the right. After rent control is imposed, area A represents
the producer surplus transferred from landlord to renters
Economists use models
to answer questions and analyze issues.
Which of the following best describes scarcity?
unlimited wants exceed the limited resources available
A landlord who intends to ignore the law and illegally charge the highest rent possible for his apartments
will be better off if he does not get caught because that amount will be above the equilibrium. will be worse off if he gets caught.
A landlord who intends to abide by the rent control law
will be worse off because he will be receiving less rent.
Is it possible for a country to have a comparative advantage in producing a good without also having an absolute advantage? A country without an absolute advantage in producing a good
will have a comparative advantage if it has a lower opportunity cost of producing that good.
Trade-offs force society to make choices, particularly when answering the following three fundamental questions:
One, what goods and services will be produced? Two, how will the goods and services be produced? Three, who will receive the goods and services produced?