Macro Exam 1

Causes of market failure include

externalities and market power.

If Max experiences a decrease in his income, then we would expect Max's demand for

normal goods to decrease.

What must be given up to obtain an item is called

opportunity cost.

Assume for Brazil that the opportunity cost of each cashew is 100 peanuts. Which of these pairs of points could be on Brazil's production possibilities frontier?

(200 cashews, 30,000 peanuts) and (150 cashews, 35,000 peanuts)

Suppose a gardener produces both tomatoes and squash in his garden. If he must give up 8 bushels of squash to get 5 bushels of tomatoes, then his opportunity cost of 1 bushel of tomatoes is

1.6 bushels of squash.

Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs. Given this, we know that the opportunity cost of 1 chair is

1/6 table for Ken and 1/3 table for Traci

Both Dave and Caroline produce sweaters and socks. If Dave's opportunity cost of 1 sweater is 3 socks and Caroline's opportunity cost of 1 sweater is 5 socks, then

Dave has a comparative advantage in the production of sweaters.

Suppose Jim and Tom can both produce baseball bats. If Jim's opportunity cost of producing baseball bats is lower than Tom's opportunity cost of producing baseball bats, then

Jim has a comparative advantage in the production of baseball bats.

A worker in Thailand can earn $2 per day making cotton cloth on a hand loom. A worker in the United States can earn $80 per day making cotton cloth with a mechanical loom. What accounts for the difference in wages?

Labor is more productive making cotton cloth with a mechanical loom than with a hand loom.

Which of the following statements about markets is most accurate?

Markets are usually a good way to organize economic activity.

Ken and Traci are two woodworkers who both make tables and chairs. In one month, Ken can make 3 tables or 18 chairs, whereas Traci can make 8 tables or 24 chairs.. Given this, we know that

Traci has an absolute advantage in chairs.

Most economists believe that an increase in the quantity of money results in

an increase in the demand for goods and services, lower unemployment in the short run, and higher inflation in the long run.

A market includes

both buyers and sellers.

A likely example of complementary goods for most people would be

chips and salsa.

Holding all other things constant, a higher price for ski lift tickets would

decrease the number of skis sold.

Soup is an inferior good if the demand

for soup falls when income rises.

The producer that requires a smaller quantity of inputs to produce a certain amount of a good, relative to the quantities of inputs required by other producers to produce the same amount of that good,

has an absolute advantage in the production of that good.

If a increase in income decreases the demand for a good, then the good is a(n)

inferior good.

Absolute advantage is found by comparing different producers'

input requirements per unit of output.

In the short run, an increase in the money supply is likely to lead to

lower unemployment and higher inflation.

When a single person (or small group) has the ability to influence market prices, there is

market power.

Market power refers to the

power of a single person or small group to influence market prices.

Almost all variation in living standards is attributable to differences in countries'

productivity.

For markets to work well, there must be

property rights

The term "market failure"

refers to the failure of a market to produce an efficient allocation of resources.

The term "productivity"

refers to the quantity of goods and services produced from each unit of labor input.

When a society cannot produce all the goods and services people wish to have, it is said that the economy is experiencing

scarcity

Wheat is the main input in the production of flour. If the price of wheat decreases, then we would expect the

supply of flour to increase.

Mallory decides to spend three hours working overtime rather than watching a video with her friends. She earns $8 an hour. Her opportunity cost of working is

the enjoyment she would have received had she watched the video.

Today's supply curve for gasoline could shift in response to a change in

the expected future price of gasoline.

When computing the opportunity cost of attending a concert you should include

the price you pay for the ticket and the value of your time.

Moira decides to spend two hours taking a nap rather than attending her classes. Her opportunity cost of napping is

the value of the knowledge she would have received had she attended class.