econ 2134 study guide (homework 1, 2, 3)

Sebastian decides to open a tree farm. When deciding to open his own business, he turned down two separate job offers of $25,000 and $30,000 and withdrew $20,000 from his savings. Sebastian's savings account paid 3 percent interest. He also borrowed $20,000 from his brother, whom he pays 2 percent interest per year. He spent $15,000 to purchase supplies and earned $50,000 in revenue during his first year. What are Sebastian's implicit costs from running his own business? a. $30,600 b. $55,600 c. $50,000 d. $75,600

a. $30,600

In the economy of Talikastan in 2015, consumption was $1000, GDP was $1950, government purchases were $500, and investment was $700. What were Talikastan's net exports in 2015? a. -$250 b. $250 c. $2200 d. Net exports cannot be calculated from the information given

a. -$250

Eldin is a house painter. He can paint three houses per week. He is considering hiring his friend Murphy. Together, Eldin and Murphy can paint five houses per week. What is Murphy's marginal product? a. 2 houses b. 3 houses c. 5 houses d. 8 houses

a. 2 houses

If M = 2,000, P = 2.25, and Y= 6,000, what is velocity? a. 6.75. b. 3.00. c. 1.33. d. 1.50.

a. 6.75.

Alex is willing to pay $10, and Bella is willing to pay $8, for 1 pound of ribeye steak. When the price of ribeye steak increases from $9 to $11, a. Alex experiences a decrease in consumer surplus, but Bella does not. b. Bella experiences a decrease in consumer surplus, but Alex does not. c. both Bella and Alex experience a decrease in consumer surplus. d. neither Bella nor Alex experiences a decrease in consumer surplus.

a. Alex experiences a decrease in consumer surplus, but Bella does not.

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. It is likely that a. Firm A will buy all of Firm B's pollution permits. Each one will cost between $100 and $200. b. Firm B will buy all of Firm A's pollution permits. Each one will cost between $100 and $200. c. Both firms will use their own pollution permits. d. Firm A will buy some of Firm B's pollution permits. Each one will cost less than $100.

a. Firm A will buy all of Firm B's pollution permits. Each one will cost between $100 and $200.

Beth, an American citizen, travels to Italy on vacation and buys an espresso machine to bring home. Her purchase increases a. Italy's GDP. b. Italy's GDP and U.S. GDP, since Beth spent dollars buying the machine. c. U.S. GDP since she will have the machine with her at home in the U.S. d. Neither U.S. nor Italy's GDP, since the product was bought in one country and used in another

a. Italy's GDP.

Refer to Figure 14-13. If the price is $4.50 in the short run, what will happen in the long run? a. Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. b. Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry. c. Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. d. Because the price is below the firm's average variable costs, the firms will shut down.

a. Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry.

Which of the following policies can the Fed follow to increase the money supply? a. Reduce the interest rate on reserves b. Increase reserve requirements for banks c. Reduce the quantity of funds available through the Term Auction Facility d. Sell government bonds

a. Reduce the interest rate on reserves

For a very long time the country of Zeeland has had an inflation rate of 9%. Suddenly its inflation rate drops to 3%. The drop in the inflation rate a. could be due to slower money supply growth. We would expect unemployment to be higher. b. could be due to slower money supply growth. We would expect unemployment to be lower. c. could be due to higher money supply growth. We would expect unemployment to be higher. d. could be due to higher money supply growth. We would expect unemployment to be lower.

a. could be due to slower money supply growth. We would expect unemployment to be higher.

If the Fed increases the reserve ratio from 5 percent to 12.5 percent, then the money multiplier a. decreases from 20 to 8. b. decreases from 12.5 to 5. c. increases from 8 to 20. d. increases from 5 to 12.5.

a. decreases from 20 to 8.

A $2 tax per gallon of paint placed on the buyers of paint will shift the demand curve a. downward by exactly $2. b. downward by less than $2. c. upward by exactly $2. d. upward by less than $2

a. downward by exactly $2.

Perfect price discrimination describes a situation in which the monopolist a. knows the exact willingness to pay of each of its customers. b. charges exactly two different prices to exactly two different groups of customers. c. maximizes consumer surplus. d. experiences a zero economic profit.

a. knows the exact willingness to pay of each of its customers.

With respect to the consumer price index, the substitution bias arises because a. prices of goods and services do not change in the same proportion from year to year. b. consumers are slow to adjust their buying patterns from year to year in response to price changes. c. 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. d. All of the above are correct.

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

The one variable that stands out as the most significant explanation of large variations in living standards around the world is a. productivity. b. population. c. preferences. d. prices.

a. productivity.

A university's football stadium is never more than half-full during football games. This indicates a. the ticket price is above the equilibrium price. b. the ticket price is below the equilibrium price. c. the ticket price is at the equilibrium price. d. nothing about the equilibrium price.

a. the ticket price is above the equilibrium price.

Refer to Figure 4-25. All else equal, the return of college students to campus in the fall would cause a move from a. x to y. b. y to x. c. SA to SB. d. SB to SA.

a. x to y.

A profit-maximizing monopolist charges a price of $12. The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units and marginal cost is $6. Average total cost for 10 units of output is $5. What is the monopolist's profit? a. $60 b. $70 c. $100 d. $120

b. $70

Refer to Table 24-14. The inflation rate in 2013 was approximately a. 0.8%. b. 1.5%. c. 2.3%. d. 3.4%.

b. 1.5%.

Refer to Table 24-10. If 2008 is the base year, then the consumer price index was a. 100.00 in 2008, 110.03 in 2009, and 117.43 in 2010. b. 100.00 in 2008, 110.03 in 2009, and 129.20 in 2010. c. 100.00 in 2008, 117.00 in 2009, and 132.50 in 2010. d. 169.50 in 2008, 186.50 in 2009, and 219.00 in 2010.

b. 100.00 in 2008, 110.03 in 2009, and 129.20 in 2010.

Refer to Figure 4-2. Suppose Phil and Miss Kay are the only consumers in the market. If the price is $12, then the market quantity demanded is a. 0 units. b. 2 units. c. 4 units. d. 6 units

b. 2 units.

In the short run, a market consists of 100 identical firms. The market price is $6, and the total cost to each firm of producing various levels of output is given in the table below. What will total quantity supplied be in the market? a. 100 units b. 200 units c. 300 units d. 400 units

b. 200 units

Refer to Figure 3-14. Arturo would incur an opportunity cost of 36 burritos if he increased his production of tacos by a. 27. b. 48. c. 108. d. 144.

b. 48.

Economists face an obstacle that many other scientists do not face. What is that obstacle? a. It is often difficult to formulate theories in economics. b. It is often impractical to perform experiments in economics. c. Economics cannot be addressed objectively; it must be addressed subjectively. d. The scientific method cannot be applied to the study of economics.

b. It is often impractical to perform experiments in economics.

Refer to Figure 7-11. If the demand curve is D and the supply curve shifts from S' to S, what is the change in producer surplus? a. Producer surplus increases by $625. b. Producer surplus increases by $1,875. c. Producer surplus decreases by $625. d. Producer surplus decreases by $1,875

b. Producer surplus increases by $1,875.

A risk-averse person has a. a utility function whose slope gets flatter as wealth rises. This means they have increasing marginal utility of wealth. b. a utility function whose slope gets flatter as wealth rises. This means they have diminishing marginal utility of wealth. c. a utility function whose slope gets steeper as wealth rises. This means they have increasing marginal utility of wealth. d. a utility function whose slope gets steeper as wealth rises. This means they have diminishing utility of wealth.

b. a utility function whose slope gets flatter as wealth rises. This means they have diminishing marginal utility of wealth.

College-age athletes who drop out of college to play professional sports a. are not rational decision makers. b. are well aware that their opportunity cost of attending college is very high. c. are concerned more about present circumstances than their future. d. underestimate the value of a college education.

b. are well aware that their opportunity cost of attending college is very high.

Refer to Figure 4-23. In this market for sunscreen, there is a decrease in the price of zinc oxide, an input into sunscreen, and more producers enter the market. The equilibrium price a. increases and the equilibrium quantity decreases. b. decreases and the equilibrium quantity increases. c. is ambiguous and the equilibrium quantity increases. d. decreases and the equilibrium quantity is ambiguous.

b. decreases and the equilibrium quantity increases.

A cable television broadcast of a movie is a. excludable and rival in consumption. b. excludable and not rival in consumption. c. not excludable and rival in consumption. d. not excludable and not rival in consumption.

b. excludable and not rival in consumption.

Efficiency wages a. increase productivity and reduce unemployment. b. increase productivity but increase unemployment. c. decrease productivity but reduce unemployment. d. decrease productivity and increase unemployment.

b. increase productivity but increase unemployment.

Refer to Figure 8-23. If the economy is at point B on the curve, then an increase in the tax rate will a. increase the deadweight loss of the tax and increase tax revenue. b. increase the deadweight loss of the tax and decrease tax revenue. c. decrease the deadweight loss of the tax and increase tax revenue. d. decrease the deadweight loss of the tax and decrease tax revenue.

b. increase the deadweight loss of the tax and decrease tax revenue.

An open-market purchase a. increases the number of dollars and the number of bonds in the hands of the public. b. increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public. c. decreases the number of dollars and the number of bonds in the hands of the public. d. decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.

b. increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public.

A rational decision maker takes an action only if the a. marginal benefit is less than the marginal cost. b. marginal benefit is greater than the marginal cost. c. average benefit is greater than the average cost. d. marginal benefit is greater than both the average cost and the marginal cost.

b. marginal benefit is greater than the marginal cost.

In which case can we be sure aggregate demand shifts left overall? a. people want to save more for retirement and the Fed increases the money supply. b. people want to save more for retirement and the Fed decreases the money supply. c. people want to save less for retirement and the Fed increases the money supply. d. people want to save less for retirement and the Fed decreases the money supply.

b. people want to save more for retirement and the Fed decreases the money supply.

Refer to Figure 3-15. Perry should specialize in the production of a. novels. b. poems. c. both goods. d. neither good.

b. poems.

The Fisher effect a. says the government can generate revenue by printing money. b. says there is a one for one adjustment of the nominal interest rate to the inflation rate. c. explains how higher money supply growth leads to higher inflation. d. explains how prices adjust to obtain equilibrium in the money market.

b. says there is a one for one adjustment of the nominal interest rate to the inflation rate.

Economists use the term inflation to describe a situation in which a. some prices are rising faster than others. b. the economy's overall price level is rising. c. the economy's overall price level is high, but not necessarily rising. d. the economy's overall output of goods and services is rising faster than the economy's overall price level.

b. the economy's overall price level is rising.

Refer to Figure 4-26. Which of the following movements would illustrate the effect in the market for wedding cakes resulting from a decrease in the number of pastry chefs? a. Point A to Point B b. Point C to Point B c. Point C to Point D d. Point A to Point D

c. Point C to Point D

Consider Noah's decision to go to college. If he goes to college, he will spend $80,000 on tuition, $15,000 on room and board, and $4,000 on books. If he does not go to college, he will earn $22,000 working in a store and he will spend $13,000 on room and board. Noah's cost of going to college is a. $99,000. b. $103,000. c. $108,000. d. $121,000.

c. $108,000.

Refer to Table 13-14. What is the total cost of producing 7 units of output? a. $10 b. $143 c. $153 d. $185

c. $153

The monopolist has fixed costs of $1,000 and has a constant marginal cost of $2 per unit. If the monopolist were able to perfectly price discriminate, how many units would it sell? a. 400 b. 500 c. 900 d. 4,200

c. 900

A barber currently cuts hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand? a. Yes, because cutting hair is profitable. b. No, because he may not be able to sell more services. c. It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients. d. It depends on the average cost of serving more clients and the average revenue he will earn from serving more clients.

c. It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients.

Refer to Figure 4-15. Which of the following would cause the supply curve to shift from Supply A to Supply C in the market for beach towels? a. an increase in the price of beach towels b. an expectation by firms that the price of beach towels will increase in the very near future c. a decrease in the price of cotton d. a decrease in the number of firms selling beach towels

c. a decrease in the price of cotton

Which of the following is adverse selection? a. the risk associated with selecting stocks in only a few specific companies b. the risk that a person will become overconfident in his ability to select stocks c. a high-risk person being more likely to apply for insurance d. after obtaining insurance a person having less incentive to be careful

c. a high-risk person being more likely to apply for insurance

Education yields positive externalities. For example, a. colleges and universities have benefited, in recent years, from increases in tuition paid by students. b. as a result of earning a college degree, a person becomes a more productive worker and benefits by earning higher wages. c. a more educated population tends to result in lower crime rates. d. All of the above are correct.

c. a more educated population tends to result in lower crime rates.

Refer to Figure 2-10, Panel (a) and Panel (b). A shift of the economy's production possibilities frontier from Panel (a) to Panel (b) could be caused by a. unemployment. b. an improvement in sofa production technology. c. an improvement in tractor production technology. d. an improvement in both sofa and tractor production technology

c. an improvement in tractor production technology.

Refer to Figure 3-16. Hosne has an absolute advantage in the production of a. purses and Merve has an absolute advantage in the production of wallets. b. wallets and Merve has an absolute advantage in the production of purses. c. both goods and Merve has an absolute advantage in the production of neither good. d. neither good and Merve has an absolute advantage in the production of both goods.

c. both goods and Merve has an absolute advantage in the production of neither good.

Prices usually reflect a. only the value of a good to society. b. only the cost to society of making a good. c. both the value of a good to society and the cost to society of making the good. d. neither the value of a good to society nor the cost to society of making the good

c. both the value of a good to society and the cost to society of making the good.

Equilibrium price must decrease when demand a. increases and supply does not change, when demand does not change and supply decreases, and when demand decreases and supply increases simultaneously. b. increases and supply does not change, when demand does not change and supply decreases, and when demand increases and supply decreases simultaneously. c. decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously. d. decreases and supply does not change, when demand does not change and supply increases, and when demand increases and supply decreases simultaneously.

c. decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously.

Other things equal, relatively poor countries tend to grow a. slower than relatively rich countries; this is called the poverty trap. b. slower than relatively rich countries; this is called the fall-behind effect. c. faster than relatively rich countries; this is called the catch-up effect. d. faster than relatively rich countries; this is called the constant-returns-to-scale effect.

c. faster than relatively rich countries; this is called the catch-up effect.

A consumer's willingness to pay directly measures a. the extent to which advertising and other external forces have influenced the consumer's preferences. b. the cost of a good to the buyer. c. how much a buyer values a good. d. consumer surplus.

c. how much a buyer values a good.

Other things the same, as the price level rises, a. the dollar depreciates. b. the interest rate falls. c. people feel less wealthy. d. All of the above are correct.

c. people feel less wealthy.

Refer to Figure 4-18. At a price of $15, there would be a a. surplus of 400 units. b. shortage of 200 units. c. shortage of 400 units. d. shortage of 600 units.

c. shortage of 400 units.

A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. Rain barrels provide an external benefit to the community through water conservation. If the government offers a per unit subsidy on rain barrels equal to the per-unit externality, then a. the after-subsidy equilibrium quantity of rain barrels will be less than the socially optimal quantity of rain barrels. b. the after-subsidy equilibrium quantity of rain barrels will be more than the socially optimal quantity of rain barrels. c. the after-subsidy equilibrium quantity of rain barrels will equal the socially optimal quantity of rain barrels. d. market incentives will be distorted and move the allocation of resources away from the social optimum

c. the after-subsidy equilibrium quantity of rain barrels will equal the socially optimal quantity of rain barrels.

Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The amount of tax revenue collected by the government is a. $7.50. b. $15.00. c. $22.50. d. $45.00.

d. $45.00.

In June 2009 the Bureau of Labor Statistics reported an adult population of 234.9 million, a labor force of 154 million and employment of 141.6 million. Based on these numbers the unemployment rate was a. 93.3/234.9. b. 12.4/234.9. c. 93.3/154. d. 12.4/154.

d. 12.4/154.

Which of the following actions best illustrates moral hazard? a. A person adds risky stock to his portfolio. b. A person who has narrowly avoided many accidents applies for automobile insurance. c. A person is unwilling to buy a stock when she believes its price has an equal chance of rising or falling $10. d. A person purchases homeowners insurance and then checks his smoke detector batteries less frequently.

d. A person purchases homeowners insurance and then checks his smoke detector batteries less frequently.

In order to promote growth in living standards, policymakers must a. protect property rights. b. maintain political stability. c. encourage the accumulation of factors of production. d. All of the above

d. All of the above

GDP is not a perfect measure of well-being; for example, a. GDP excludes the value of volunteer work. b. GDP does not address the distribution of income. c. GDP does not address environmental quality. d. All of the above are correct

d. All of the above are correct

A certain state legislature is considering an increase in the state gasoline tax. Representative Campbell argues that an increase in the gasoline tax would harm low-income drivers disproportionately. Representative Richards responds by saying that low-income drivers own smaller cars that use less gasoline, and that low-income drivers therefore would not be harmed disproportionately. a. Representative Campbell's argument is based primarily on efficiency, while Representative Richards' argument is based primarily on equality. b. Representative Campbell's argument is based primarily on equality, while Representative Richards' argument is based primarily on efficiency. c. Both representatives' arguments are based primarily on efficiency. d. Both representatives' arguments are based primarily on equality.

d. Both representatives' arguments are based primarily on equality.

Refer to Figure 2-1. Harvey receives his first paycheck for working as an ice cream vendor. To which of the arrows does this transaction directly contribute? a. B only b. A and B c. C only d. C and D

d. C and D

Refer to Figure 7-21. When the price is P1, area A represents a. total benefit. b. producer surplus. c. consumer surplus. d. None of the above is correct

d. None of the above is correct

Assume Diana buys computers in a competitive market. It follows that a. Diana has a limited number of sellers to turn to when she buys a computer. b. Diana will find herself negotiating with sellers whenever she buys a computer. c. if Diana buys a large number of computers, the price of computers will rise noticeably. d. None of the above is correct.

d. None of the above is correct.

Refer to Figure 2-4. Unemployment could cause this economy to produce at which point(s)? a. Q, S b. Q, S, T c. R, U d. T

d. T

Suppose a company is considering the construction of a new facility. The construction will cost $1 million today and will yield a payoff of $1.7 million in 10 years. Assuming a 5% annual interest rate, which of the following statements is correct? a. The company should not construct the new facility because the future value of the construction cost is only $1,628,894.63. b. The company should not construct the new facility because the future value of the construction cost is $1,783,267.42. c. The company should construct the new facility because the present value of the future payoff is $1,092,734.95. d. The company should construct the new facility because the present value of the future payoff is $1,043,652.53.

d. The company should construct the new facility because the present value of the future payoff is $1,043,652.53.

Refer to Figure 13-5. Curve A represents which type of cost curve? a. marginal cost b. average total cost c. average variable cost d. average fixed cost

d. average fixed cost

Marginal cost increases as the quantity of output increases. This reflects the property of a. increasing total cost. b. diminishing total cost. c. increasing marginal product. d. diminishing marginal product.

d. diminishing marginal product.

Some individuals would like to have a job, but they have given up looking for a job after an unsuccessful search. These individuals are called a. detached workers, and they are classified by the Bureau of Labor Statistics as unemployed. b. detached workers, and they are not classified by the Bureau of Labor Statistics as unemployed. c. discouraged workers, and they are classified by the Bureau of Labor Statistics as unemployed. d. discouraged workers, and they are not classified by the Bureau of Labor Statistics as unemployed.

d. discouraged workers, and they are not classified by the Bureau of Labor Statistics as unemployed.

Four friends decide to meet at a Chinese restaurant for dinner. They decide that each person will order an item off the menu, and they will share all dishes. They will split the cost of the final bill evenly among each of the people at the table. A Tragedy of the Commons problem is likely for each of the following reasons except a. each person has an incentive to eat as fast as possible since their individual rate of consumption will not affect their individual cost. b. there is an externality associated with eating the food on the table. c. when one person eats, he may not take into account how his choice affects his friends. d. each dish would be both excludable and rival in consumption

d. each dish would be both excludable and rival in consumption

A free-rider problem exists for any good that is not a. rival in consumption. b. a private good. c. free. d. excludable.

d. excludable.

A cost imposed on someone who is neither the consumer nor the producer is called a a. corrective tax. b. command and control policy. c. positive externality. d. negative externality.

d. negative externality.

Refer to Figure 10-12. Which of the following is an appropriate label for Line 1? a. social cost b. social value c. private cost d. private value

d. private value

The aggregate supply curve is upward sloping in a. the short and long run. b. neither the short nor long run. c. the long run, but not the short run. d. the short run, but not the long run.

d. the short run, but not the long run.

Economics is the study of how society manages its a. limited wants and unlimited resources. b. unlimited wants and unlimited resources. c. limited wants and limited resources. d. unlimited wants and limited resources

d. unlimited wants and limited resources

England can benefit from trade a. only with nations that can produce goods England cannot produce. b. only with less developed nations. c. only with nations outside of Europe. d. with any nation.

d. with any nation.