Econ Test 1
Susan quits her administrative job, which pays $40,000 a year, to finish her 4-year college degree. Her annual college expenses are $8,000 for tuition; $900 for books; and $2,500 for food. The opportunity cost of attending college for the year is:
$48,900.
Darla has earned an average of $7 per hour so far this year. Currently, her marginal pay is $7.50. By definition, if she works another hour, she will receive:
$7.50. Darla's pay for another hour of work is her marginal pay: $7.50. As her average pay is $7 per hour, she must have worked at lower wages earlier this year.
Which demonstrates a scenario with no opportunity cost?
-It's Friday night and you stay up late talking and hanging out with your friends. -The chemistry club is giving out free pizza for lunch to all who come to their table to get it. -Naomi, age 8, is at a bookstore and chooses to buy a book about a young wizard instead of buying a math textbook. -Chez Moi and Chez Nous, two premiere French restaurants with three Michelin stars, both offer you a full time sous chef job at the same salary. You are ecstatic because you know it is a win-win scenario and choose to work for Chez Nous. -All of these scenarios have an opportunity cost.
A farmer produces both beans and corn on her farm. If she must give up 1616 bushels of corn to be able to get 66 bushels of beans, then her opportunity cost of 11 bushel of beans is
2.672.67 bushels of corn.
Suppose that in Mexico, it takes 3 labor hours to produce 1 shirt and 9 labor hours to produce 1 computer. Suppose that in the United States, it takes 2 labor hours to produce 1 shirt and 5 labor hours to produce 1 computer. In terms of shirts, what is the opportunity cost of a computer produced in Mexico?
3 Because Mexico is giving up 3 shirts to produce one computer.
Suppose that in Mexico, it takes 4 labor hours to produce 1 shirt and 12 labor hours to produce 1 computer. Suppose that in the United States, it takes 4 labor hours to produce 1 shirt and 3 labor hours to produce 1 computer. If both countries have 60 labor hours available, completely specialize according to comparative advantage, and trade 7.5 shirts for 7.5 computers, how many labor hours would it have taken the United States to produce on its own the goods it consumes as a result of trade?
67.5 Given a trading ratio of 7.5 shirts for 7.5 computers, with trade, the United States produces 0 shirts and 20 computers and consumers 7.5 shirts and 12.5 computers. To make 7.5 shirts and 12.5 computers on its own, the United States would have needed 7.5×4+12.5×3 = 67.5 hours. This means that people in the United States are consuming 12.5% more than they can produce.
Which of the following choices best illustrates the concept of Adam Smith's "invisible hand"?
A Vietnamese farmer grows rice, an exporter ships it to the United States, and a grocer in New York sells it to a customer.
Which of the following scenarios provides the best evidence that inflation has occurred?
A person whose salary has increased can purchase fewer goods and services.
Which of the following statements about inflation is NOT true?
Inflation does not make it more difficult for people to judge the real value of investments. Inflation does cause this kind of confusion.
Which of the following statements about inflation is NOT true?
Inflation refers to rising input prices. Inflation refers to an increase in the overall price level, not just in some prices.
Which of the following correctly describes the appearance of a demand curve?
It is a line or curve that slopes down and to the right.
If Chaz sells his house to Janet for $300,000, then we know for sure that:
Janet must value the house at least at $300,000. Janet presumably wouldn't pay $300,000 for something she felt was worth less than $300,000.
If Carl voluntarily sells a set of skis to Lathika for $200, it must be that:
Lathika values the skis more than Carl does. Lathika values the skis more than or equal to $200, but Carl values the skis less than or equal to $200.
What is thinking at the margin?
Making choices by comparing the additional benefits and additional costs from doing a little bit more of some activity.
Which of the following statements about monetary and fiscal policy is true?
Monetary and fiscal policy can affect the length and severity of recessions. Economic booms and busts can be moderated through monetary and fiscal policy.
Which of the following is NOT among the demand shifters discussed by Professor Cowen?
Technology
Which of the following statements about Federal Reserve actions is NOT true?
The Federal Reserve determines the income tax rate. The Federal Reserve does not determine tax rates.
In a market where a good has one price for all consumers, which consumer gets the most consumer surplus from the good?
The consumer who values the good the most
Which of the following explains why economic booms and busts cannot be avoided?
The economy is always being struck by unavoidable shocks.
With a linear, or straight line, demand curve, total consumer surplus can be calculated using what formula from geometry?
The formula for the area of a triangle
Which of the following does NOT happen if the central bank prints too much money?
The general level of prices falls. Prices do not fall.
In economics, what is meant by "optimal decisions are made at the margin?"
The idea of the margin is related to making decisions while thinking about the benefits and costs of small changes in behavior.
What is shown by the height of the demand curve?
The maximum willingness to pay for a particular unit of a good
If the central bank creates too much money, _____ is the result. If the central bank doesn't create enough money, an economic _____ is the result.
inflation; slowdown
Absolute advantage can be determined by comparing different producers'
input requirements per unit of output.
When trading with more developed countries,
less developed countries have a comparative advantage in the production of some goods or services.
Mobs on Black Friday are primarily caused by:
lower prices.
According to the theory of comparative advantage, the reason wages are lower in China than in the United States is:
lower productivity in China.
A policymaker wants to reduce inflation. In order to make an intelligent decision about how to do so, the policymaker:
needs to know the causes of inflation, for example, the government's printing of too much money.
Division of knowledge refers to:
people learning different tasks in which they specialize.
On the graph of a demand curve, ________ is shown on the vertical axis, and ________ is shown on the horizontal axis.
price; quantity demanded
Inflation is an increase in the general level of _____.
prices Inflation is an increase in the general level of prices.
The main incentive for business activity is:
profit.
Institutions that support economic growth are the ones that:
provide incentives for entrepreneurs to take risks and innovate.
Select the correct definition of the term "comparative advantage."
the ability to produce a good or service at a lower opportunity cost than another
Globalization is:
the advance of human cooperation across national boundaries.
The total amount of knowledge in a society that has no trade or specialization is largely limited by:
the capacity of any one person's memory. Because every person knows the same set of facts necessary for survival.
The production possibilities frontier shows:
the combinations of outputs a country can produce given its resources and productivity.
Consumer surplus is defined as:
the consumer's gain from exchange.
Most goods are normal goods, which means that when income rises:
the demand for the good increases.
The Great Depression could have been shorter and less deep if only:
the government, especially the U.S. Federal Reserve, had acted more quickly and more appropriately. At the time, however, the tools at the government's disposal—monetary and fiscal policy—were not well understood.
The better Martha Stewart is at running her business:
the higher her opportunity cost of ironing her own shirts.
The leftmost points on the demand curve for oil represent:
the highest-value uses of oil.
The opportunity cost of a choice is:
the value of the opportunities lost.
A very low price for oil sends the signal to consumers that:
there is enough oil available even for low-value uses of oil, like making rubber duckies.
What is the great economic problem?
to satisfy as many wants as possible with our limited resources
As a result of trade-induced changes in conditions, where will workers in sectors with falling wages move?
to sectors with rising wages Workers will be incentivized to move to sectors with rising wages.
The decisions made by the Federal Reserve Bank sometimes result in negative effects on the economy because
too much money or too little money might induce inflation or unemployment due to bad timing of decisions.
The statement, "for the five millionth barrel of oil, the most that consumers are willing to pay is $55", is an example of reading a demand curve:
vertically.
Suppose a famous baseball player, Alex Rodriguez, hires a high school student to paint his house. Which of the following is most likely TRUE?
The opportunity cost of painting a house is higher for Alex Rodriguez than for the high school student.
What will happen to workers' wages in sector B, which has experienced decreased demand due to trade?
Their wages will fall. Lower demand for a product pushes down the demand for labor in that industry, which pushes down wages.
Suppose that the 100 people in society J all know the same 10 facts, while the 100 people in society K specialize, with each person knowing 8 unique facts as well as 2 facts also known by the other 99 people in the society. Which of the following is true?
There are 792 more facts known in society K than in society J. There are 802 facts known in society K and only 10 facts known in society J.
Which of the following is true about demand curves for inferior goods?
They will shift inward during an economic boom.
Which of the following shows the calculation that Professor Cowen did in order to determine the total consumer surplus in the market for oil?
½ × ($80 - $20) × 90 million = $2,700 million
The Zimbabwean government printed money as fast as it could for years. As a result:
Zimbabwe experienced inflation at a rate of billions of percent per month.
What are the institutions that help foster the appropriate incentives for economic growth?
a dependable legal system, property rights, and competitive and open markets
What is inflation?
a general increase in prices and fall in the purchasing value of money.
Adam Smith coined the term "invisible hand" to mean:
a metaphorical hand that leads individuals to promote social interest by pursuing self-interest.
Another way to describe a "high value" use of oil is as:
a use of oil for which oil has few substitutes.
One benefit of trade is that it:
allows for increased specialization and mass-production techniques that lower per unit costs of production.
Because of specialization and trade, we can assume that:
almost nobody in society knows the full details of how a simple product, such as a pencil, is produced. Everybody knows a lot about his or her specific part in the production process but does not need to know about other parts.
f, at a certain price, buyers suddenly demand a greater quantity of a good than they did previously, there has been:
an increase in demand.
a. The process of specialization and trade has positive net benefits and is, therefore, beneficial to everyone.
f
Booms and busts refer to the:
fluctuations in economic activity over time.
A grocery store is running a "buy-one-get-another-at-one-half-off" promotion on a dozen doughnuts. So the first dozen is $6, and the second would be $3. A person would buy the second dozen if their marginal benefit from the second dozen doughnuts is:
greater than $3.
Every different good in the world:
has its own unique demand curve.
The Federal Reserve is a(n) _____ institution that faces a very difficult job.
highly fallible The Fed is highly fallible.
The statement, "at $55 per barrel, consumers are willing and able to purchase 5 million barrels of oil per day", is an example of reading a demand curve:
horizontally.
A demand curve shows:
how much of a good people will want at different prices.
Which of the following are macroeconomists most interested in encouraging in order to increase the standard of living?
ideas
When might mutually beneficial trades be difficult to find?
if two individuals have identical preferences In the long run, it will be impossible for these individuals to create gains from trade simply through exchange.
David sells his car, which he considers worthless, to Cameron for $200. Which of the following statements is TRUE?
David and Cameron must have different preferences for the car.
Jasmine is considering taking a job as a hostess at the Forty Thieves restaurant that pays $8 per hour. She was also offered a hostess position at Ali Baba's restaurant, where she would be paid $7.25 per hour. Which of the following will decrease Jasmine's opportunity cost of taking the job at Forty Thieves?
Ali Baba's changes its offer to $6.75 per hour. If Ali Baba's decreases its offer, the opportunity cost of accepting the job at Forty Thieves will decrease.
Which of the following sounds the most like a horizontal reading of a decrease in demand?
At every price, buyers are willing to buy less at that price."
How do we show an increase in demand graphically?
By a shifting out of the demand curve, to the northeast
If Clarence uses AutoTrader (a magazine where people buy and sell cars) to sell a used minivan to Yvette, who benefits?
Clarence, Yvette, and Autotrader
A nation will not have a comparative advantage in a product if it does not also have an absolute advantage in the production of that good.
F
Absolute advantage is the source of the potential gains from specialization and trade.
F
Suppose France can produce four phones or three computers with one unit of labor, and Sweden can produce one phone or two computers with one unit of labor. If France can trade only with Sweden, then the theory of comparative advantage suggests that:
France should specialize in producing phones and import computers from Sweden.
Jan works in the steel industry, which has experienced decreased demand. What will happen to her wages?
Her wages will fall. Lower demand for a product pushes down the demand for labor in that industry, which pushes down wages.
Two countries that specialize where they have a comparative advantage and then trade with each other will experience increases in:I. wages in both countries.II. total output in both countries.III. living standards in both countries.
I, II, and III
Which scenario would least likely change an individual's behavior?
In an effort to make people eat healthier, the city of Bakersville tells its residents to eat wheat bread instead of white bread.
Which of the following statements is true? -Trade makes workers in high-productivity countries less productive. -Specialization and trade raise wages in both countries that are party to the trade. -Trade causes workers in low-wage countries to receive an even lower wage. -Specialization and trade raise productivity but not wages.
Specialization and trade raise wages in both countries that are party to the trade.
Countries specialize in the production of goods for which they have a comparative advantage.
T
It can be mutually beneficial for two nations to specialize in goods for which they have a comparative advantage and then trade with one another.
T
The ability of one producer to produce one good or service using fewer inputs than another producer is:
absolute advantage.
Why do people all around the world engage in trade with one another?
because it is beneficial to do so If trade is voluntary and honest, it must be mutually beneficial.
Graphically, total consumer surplus is shown as the area _______ the demand curve and _______ the price.
below; above
The average starting salary of economics majors is just behind that of:
chemical and nuclear engineering majors.
Two goods are _______ if an increase in the price of one good leads to a decrease in the demand for the other good.
complements
The reason the fewer barrels of oil are demanded at higher prices is that:
consumers would rather forgo some low value uses for oil rather than pay high prices.
Specialization and trade can _____ the per unit cost of production because _____ .
decrease; it creates economies of scale associated with large-scale production
A demand shifter is anything that can cause buyers to:
demand a greater or lower quantity of a good at a given price.
Many economists think that effective institutions are essential for economic growth. In this context, what are institutions?
the laws, social norms, and conventions of a culture
Adam is deciding which of two universities in Boston to attend. One university is offering him a full-tuition scholarship. The other is ranked higher but is offering him only a partial-tuition scholarship. What will increase Adam's opportunity cost of attending the higher-ranking university?
the lower-ranking university's increasing the offer to include fees and books The better the offer, the greater the opportunity cost of passing it up.
For a particular consumer, consumer surplus can be calculated as the difference between:
the maximum price a consumer is willing to pay and the market price.
The historical rise in living standards of American workers is primarily a result of
the rise in American productivity.
If person A voluntarily gives one unit of good X to person B in exchange for one unit of good Y, then it can be concluded that:
the value of good X to person B is greater than the value of good Y to person B. This is known because person B gives up Y in order to gain X.
In the 2 hours between classes a student can do one of three things, ranking them from most to least desirable as: (1) chat with friends, (2) study economics, or (3) eat lunch. This student's opportunity cost of chatting with friends is:
the value of studying economics. always the cost of the loss of the next best option