Test 1 Practice Q's

Are "normative statements" merely descriptive?

No, they're value judgements.

Is rent control considered a "price floor"?

No, this is a price ceiling.

Does a change in the price of a product cause its demand curve to shift?

No, it causes a movement.

Does a point inside the production possibilities curve indicate full employment?

No, it indicates unemployment.

What are the three main components of the Human Development Index?

-GDP per capita -Education -Life expectancy

Is pollution considered a positive externality?

No, it is a negative externality.

What is the "fallacy of composition"?

A false generalization. You mistakenly assume if something is true for an individual it is true for everyone.

Which of the following is a public good: -a park -a restaurant -a car.

A park.

Corporations may confront the "principal-agent problem" due to the asymmetry of information. Explain.

Agents have more information while shareholders have more power.

Historically, real GDP is smaller than nominal GDP. Why?

Because it factors in inflation.

Why is the production possibilities curve downsloping?

Because of the presence of opportunity cost. You have to sacrifice something.

Carbon tax is considered a Pigovian tax. Why?

Because the activity is still allowed, you're just taxed for doing so.

Assume the supply curve is given and there is a rightward shift of the demand curve. What will be the effect of this shift on equilibrium price and quantity.

Both quantity and price will increase.

Which of the following is NOT a basic characteristic of a capitalist economy: -central planning -private ownership of resources -decentralized decision making?

Central planning.

Why is the typical production possibilities curved assumed to be "bowed out"?

Due to a rise in opportunity cost.

What is "net exports"?

Exports minus Imports.

What is "GDP per capita"?

GDP divided amongst the population.

What is socialism?

Gov't controlling resources and prices; Workers own means of production; Progressive taxation

Is the US economy considered a "command economy"?

No, the US is a mixed economy.

Does a change in the price of a product cause its supply to change?

It causes a change in quantity supply (QS).

Did Adam Smith believe that businesses serve the interests of the public due to altruistic motives?

No, he believed in following selfish interests as long as long as the process is competitive.

Which of the following may cause an outward shift of the production possibilities curve: -rising rates of unemployment -rising productivity -declining volume of trade?

Rising productivity.

What is the 'tragedy of the commons"?

Subject to abuse and overuse of common property.

GDP figures do not count the value of "intermediate goods" separately. Why?

To avoid double counting.

What is "creative destruction"?

When new technologies eliminate old monopolies.

Is it possible for "net investments" to be negative?

Yes, if each depreciation exceeds gross investment.

Suppose quantity supplied exceeds the quantity demanded. Would you conclude that the present price is above the equilibrium price?

Yes, the price would be high.

Are positive externalities usually subsidized?

Yes.

Are private goods excludable?

Yes.

Does an effective "price floor" cause a surplus?

Yes.