Ch. 1-4 Macroeconomics
If the economy is currently producing at point Y, what is the gain in production if the economy moves to point X?
5 million tons of steel
Your consumption point before trade is illustrated by point ____.
A
Which of the following may have caused the shift you have drawn? (Check all that apply.) A. Advances in technology. B. An increase in the capital stock. C. The achievement of full employment. D. A larger labor force. E. Balanced production between ships and food.
A, B and D
Assume Dina's Diner only produces sliders and hot wings. A combination of 40 sliders and 50 hot wings would appear
Along Dina's production possibilities frontier
The ___________ production points on a production possibilities frontier are the points along and inside the production possibilities frontier.
Attainable
Which of the following covers the study of topics such as inflation or unemployment? A. Microeconomics B. Macroeconomics C. Both microeconomics and macroeconomics give equal emphasis to these problems. D. None of the above.
B
A hypothesis in an economic model is A. a statement that may be either correct or incorrect about an economic variable. B. tested before it can be accepted (or not rejected). C. usually about a causal relationship. D. all of the above.
D
Economics is a social science because A. it applies the scientific method to the study of the interactions among individuals. B. It considers human behavior—particularly decision-making behavior. C. it is based on studying the actions of individuals. D. all of the above.
D
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
If teachers put too much weight in the grading scale on a certain part of the course, like reading outside the textbook, students might respond by __________ other parts of the course.
Deemphasizing
In 18th century Europe, governments gave guilds legal authority to limit production of goods. This authority obstructed the market mechanism because the guild's actions prevented the forces of ________ from coordinating the self−interested decisions of producers and consumers.
Demand and supply
______________is the study of the choices people make to attain their goals, given their scarce resources.
Economics
What do economists mean by scarcity? Which of the following is not scarce according to the economic definition? A. Workers B. Time C. Gas D. Healthcare services E. None of the above
Economists mean that unlimited wants exceed limited resources. None of the above
Consider a production possibilities frontier that shows the trade-off between the production of cotton (on the y-axis) and the production of soybeans (on the x-axis). What effect would a prolonged drought have on the initial production possibilities frontier? If there is a prolonged drought, then the PPF will _______. This will indicate that less _____________ can be produced.
Shift in along both axes Of both goods
What is the circular-flow diagram and what does it illustrate?
The circular-flow diagram shows how households and firms are linked through product and factor markets
T/F: If Abigail can make more candles in one day than Pierre, then Abigail has an absolute advantage in making candles.
True
Which of the following shows a negative nonlinear relationship?
Y = 83/x
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.
Alberto Chong of Georgia State University and several colleagues conducted an experiment to test the efficiency of government postal services around the world. They mailed letters to nonexistent businesses in 159 countries and kept track of how many of the letters were returned. Was this test most relevant to evaluating the productive efficiency or the allocative efficiency of these postal services? Source: Alberto Chong, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer, "Letter Grading Government Efficiency," Journal of the European Economic Association, Vol. 12, No. 2, April 2014, pp. 277-299. This test that Albert Chong and his colleagues carried out was most relevant for evaluating the
allocative efficiency of these postal services because the test was designed to measure how often and how quickly the letters sent were returned.
The diagram to the right is an example of
a time-series graph.
The basis for trade is __________ advantage
comparative
A(n) ____________ is someone who operates a business, bringing together the factors of production—labor, capital, and natural resources—to produce goods and services.
entrepreneurs
If country ABC can produce a unit of good 1 by sacrificing fewer units of good 2 than can country XYZ, it is correct to say that country ABC
has a comparative advantage in producing good 1.
In the diagram to the right, point F indicates an
inefficient result
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.
A free market exists
when the government places few restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed.
The diagram to the right shows a hypothetical demand curve for apples. The slope of this curve is
-1.75
______________________ decide(s) what goods and services will be produced.
Consumers, firms, and government
What is an entrepreneur? Why do entrepreneurs play a key role in a market system?
Entrepreneurs operate businesses that produce goods and services. They bring together factors of production.
Microeconomics is the study of
how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices
The production possibilities frontiers depicted in the diagram to the right illustrate
technological advances in the tank industry.
One of the great benefits of trade is
that it makes it possible for society to become better off by increasing its consumption.
Comparative advantage means
the ability to produce a good or service at a lower opportunity cost than any other producer.
In colonial America, the population was spread thinly over a large area, and transportation costs were very high because it was difficult to ship products by road for more than short distances. As a result, most of the free population lived on small farms where they not only grew their own food but also usually made their own clothes and very rarely bought or sold anything for money. Why were the incomes of these farmers likely to rise as transportation costs fell? As transportation costs fell,
the farmers gained access to new markets and customers. Using comparative advantage, the farmers specialized, producing those goods for which they had lower opportunity cost. As they traded for other goods, their incomes and living standards increased.
The diagram to the right illustrates a hypothetical demand curve representing the relationship between price (in dollars per unit) and quantity (in 1,000s of units per unit of time). Total revenue is _________
$1, 125
The diagram to the right illustrates a hypothetical demand curve representing the relationship between price (in dollars per unit) and quantity (in 1,000s of units per unit of time). The area of the triangle shown on the diagram is $_______
$512, 000
Refer to the graph on the right What percentage of the marbles are blue? What fraction of the marbles are yellow? What fraction of the marbles are red?
10% 17/10 .13
The table above shows the number of labor hours required to produce a wristwatch and a pound of rice in Japan and Thailand. What is Thailand's opportunity cost of producing one wristwatch?
20 pounds of rice
Economists often are interested in percentage change from one period to the next. The percentage rate of change of gross domestic product (GDP) is an important macroeconomic variable. If in 2010 GDP was $11,150 billion dollars, and GDP increased to $11,685 billion in 2011, what is the growth rate of the U.S. economy in 2011?
4.8%
The figure above shows the production possibilities frontiers for Greenland and Iceland. Each country produces two goods, snow cones and popsicles. What is the opportunity cost of producing 1 snow cone in Greenland?
5/6 of a popsicle
The bar graph to the right illustrates hypothetical data for the market share for the United States automobile market. The percentage of the U.S. market that U.S. auto firms control is ____%.
50%
Complete the following table: Initial Value: 74, New Value: 120, Percentage Change: ______ Initial Value: 191, New Value: 117, Percentage Change: ______ Initial Value: 197, New Value: _____, Percentage Change: 8.63% Initial Value: 7,944, New Value: 10,731, Percentage Change: ______
62.16%, -38.74%, 214, 35.08%
The pie chart illustrates hypothetical data for the market share for the United States automobile market. The percentage of the U.S. market that U.S. auto firms control is______
65%
In your economics class, you scored a 64 on the first quiz, a 90 on the second quiz, and an 77 on the third quiz. Your average quiz grade is ____ On the fourth quiz, you scored an 82. Did the fourth quiz raise your average?
77; yes
Which of the following events would create economic growth, that is, shift the production possibilities frontier outward? A. An increase in technology that affects the production of both goods. B. An increase in the available natural resources. C.An increase in the available labor. D. All of the above.
D
Which of the following is not a step that economists use in developing a useful economic model? A. Revise the model if it does not explain the data well. B. Use economic data to test the hypothesis. C. Decide on the assumptions to be used in developing the model. D. Make a value judgement about the merits of the hypothesis. E. Formulate a testable hypothesis
D
Which of the following are the two key groups of participants in the circular flow of income? A. savers and borrowers B. domestic residents and foreign residents C. government and financial institutions D. households and firms In a simple circular-flow model, there are flows of _________ and flows of _________. A. funds received from the sale of factors of production; spending on final goods and services B. factors of production; goods and services C. Both (a) and (b) are correct. D. None of the above; there are no flows in the circular flow of income
D C
The table above shows the number of labor hours required to produce a cell phone and a board foot of lumber in Estonia and Finland. Does either Estonia or Finland have an absolute advantage and if so, in what product?
Finland has an absolute advantage in both products.
Centrally planned economies allocate resources based on decisions by _____________, , while market economies answer these questions through decisions made by _____________.
Government; households and firms
Teachers often wish that students came to class prepared having read the upcoming material. A teacher could design the grading system to motivate students to come to class prepared by _____________ the grade weight assigned to being prepared.
Increasing
XYZ firm, the leading producer of leather goods in its country is planning to expand its business. Industry experts identify Asia as a potential target market. They report that substitute products, particularly in India, are highly priced. Darren, the operational head, feels that exporting their product to India is a good idea. According to him, their price advantage alone will ensure good sales. However, his colleague, Mark, who is also the head of product development, feels that Darren is too optimistic, and that this venture may not turn out to be as profitable as Darren expects it to be. Which of the following, if true, will strengthen Darren's point of view?
Indian producers do not have access to the technology that XYZ uses for producing leather goods.
Which two arrows in the diagram depict the following transaction: Stanley purchases the novel, "Night of Sorrows" for his summer reading pleasure.
K and G
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?
What is absolute advantage? What is comparative advantage? 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
The ability to produce more of a good or service than competitors using the same amount of resources. The ability to produce a good or service at a lower opportunity cost than other producers. will have a comparative advantage if it has a lower opportunity cost of producing that good.
Suppose the president is attempting to decide whether the federal government should spend more on research to find a cure for heart disease. -What is the opportunity cost of spending more money to find a cure for heart disease? -How should policymakers determine the amount of money that should be allocated for research curing heart disease? They should base their decision on
The reduction in funding for research to cure other diseases. whether the last dollar devoted to research on heart disease results in more benefit than the last dollar spent on research for curing other diseases.
Suppose economists develop an economic model and find that "it works great in theory, but it fails in practice." Which of the following should the economists do next?
They should revise the model in light of its failure to explain or predict real world events.
The three economic questions that every society must answer are ______________.
What goods will be produced, how will they be produced, and who will receive the goods?
Microsoft charges a price of $599 for a copy of Windows 7. Is this pricing decision rational?
When we assume the managers at Microsoft have used all available information and have weighed all known benefits and costs, we are assuming rationality.
In an opinion column in the Wall Street Journal, economist Richard McKenzie of the University of California, Irvine wrote: "If countries import goods that can be made more cheaply abroad than at home, and produce goods that can be made more cheaply at home than abroad, then all trading nations will end up with more income and wealth than if they tried to produce everything themselves." Source: Richard B. McKenzie, "People Aren't Rational, and That's Why We Need Free Trade," Wall Street Journal, June 15, 2018. Briefly explain his reasoning. When countries specialize in producing goods in which they have___________advantage and trade for goods in which other countries have___________advantage, the incomes of all countries increase.
a comparative; a comparative
The production possibilities frontiers depicted in the diagram to the right illustrate
both the labor force and capital stock increasing.
A market is a group of _________________ of a good or service and the institution or arrangement by which they come together to trade.
buyers and sellers
On the diagram to the right, movement along the curve from points A to B to C illustrates
increasing marginal opportunity costs
Using the same amount of resources, suppose that Nicaragua can produce twice as much wheat as Colombia. Nevertheless, Colombia could still have the comparative advantage in producing wheat if
it is even less efficient than Nicaragua in the production of goods other than wheat.
The diagram to the right illustrates a common economic relationship. Economists know this relationship as marginal cost (MC). The diagram illustrates the relationship between the change in total cost and quantity produced. There are three lines (A, B, and C) drawn tangent to the MC curve. At line A, the MC curve has a _____ slope. Where lines B and C touch the MC curve, the slope is _____ and _____.
negative; positive; increasing
In the diagram to the right, the curve labeled "S" is apparently _____, while the curve labeled "D" is apparently _____.
nonlinear, linear
_______________ occurs when a good or service is produced at the lowest possible cost. ________________ occurs when production is in accordance with consumer preferences.
productive efficiency and allocative efficiency
When the federal government crafts environmental policies that make it less expensive for firms to follow green initiatives,
the policies are consistent with economic incentives.
Property rights are
the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.
The figure to the right shows the production possibilities frontier for Vidalia, a nation that produces two goods, roses and orchids. What is the opportunity cost of one dozen roses?
0.4 dozen orchids
George buys a Tesla Model S. This takes place in the ________ market. The household ________ the good and the firm ________ the good. Tesla increases employment at its Fremont plant. This takes place in the ________ market. The household ________ the good and the firm ________ the good. George works 20 hours per week at McDonald's. This takes place in the ________ market. The household ________ the good and the firm ________ the good. George sells land he owns to McDonald's so it can build a new restaurant. This takes place in the ________ market. The household ________ the good and the firm ________ the good.
1. Product; demands; supplies 2. Factor; supply; demands 3. Factor; supplies; demands 4. Factor; supplies; demands
Which of the following are represented by the same flow in the circular flow model? A. the flow of income earned from the sale of resources and the flow of expenditures on goods and services B. the flow of costs and the flow of revenue C. the flow of income received by households and the flow of tax revenues paid by firms D. the flow of goods and the flow of factors of production
B
Which of the following are examples of intellectual property? (Check all that apply.) A. Pure air and water B. Ideas for new products or new production techniques C. Software D. Books and films E. All non-natural resources The government seeks to protect intellectual property rights by granting A. copyrights. B. patents. C. franchises. D. All of the above. E. A and B only.
B, C and D E
Any model is based on making assumptions because A. we cannot analyze an economic issue unless we reduce its complexity. B. models have to be simplified to be useful. C. both a and b. D. neither a nor b.
C
When we graph the relationship between two variables, we often want to draw conclusions about whether changes in one variable are causing changes in the other variable. Doing so, however, can lead to incorrect conclusions. Reasons for drawing incorrect conclusions about cause and effect include A. reverse causality. B. an omitted variable. C. both a and b. D. none of the above
C
Societies organize their economies in two main ways to answer the three questions of what, how, and who. A society can have a ___________ economy in which the government decides how economic resources will be allocated. Or a society can have a ___________ economy in which the decisions of households and firms interacting in markets allocate economic resources.
Centrally planned Market
A _________ economy is an economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.
Mixed
Porsche is developing all-electric and hybrid electric vehicles, and has announced that by 2025, they expect more than 50 percent of their worldwide sales will be all-electric or hybrid models. The figure shows changes to Porsche's production possibilities frontier at its manufacturing facilities in response to new developments and different strategic production decisions. Suppose worker productivity increases so that the total number of vehicles produced increases as Porsche adds more machinery and workers, and changes the layout of the factory. This is best represented by the
Movement from G to H in Graph B
The diagram to the right illustrates a supply curve. As with all supply curves, this curve's slope is
Positive
____________ is concerned with what is, and ____________ is concerned with what ought to be. Economics is about __________, which measures the costs and benefits of different courses of action.
Positive analysis, normative analysis, positive analysis
The figure to the right shows various points on three different production possibilities frontiers for a nation. A movement from ________ is the result of advancements in plastic production technology.
Y to Z
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
To compete in the automobile market, Tesla must make many strategic decisions such as whether to introduce a new car model like the Model 3, how to sell and service its cars, and where to advertise. At Tesla's Fremont, California plant, managers must decide on the monthly production quantities of their S, X, and 3 models. In making this decision, the managers
face a trade-off, because producing more of one model means producing less of the others.
Two key groups participate in markets. A ___ consists of all the individuals in a home. ___ are suppliers of goods and services. We can use a simple economic model called the _____ to see how participants in markets are linked.
household, firms, circular-flow diagram
In the United States, who receives the goods and services produced depends largely on _____________.
how income is distributed
Consider an organization dedicated to helping low-income people. The members of the organization are discussing alternative methods of aiding the poor, when a proponent of one particular method asserts: "If even 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.
Firms choose how to produce the goods and services they sell. In many cases, firms face a trade-off between using more workers or using more machines. For example,
many times in the past several decades, firms may have chosen between a production method in the United States that uses fewer workers and more machines and a production method in China that uses more workers and fewer machines.
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
In economics, the term capital refers to
physical capital, such as machinery, that is used to produce other goods
The Scottish philosopher Adam Smith argued in 1776 that
prices would do a better job of coordinating the activities of buyers and sellers than guilds could.
The diagram to the right illustrates a very important relationship in economics between two variables: the price of a good and the quantity demanded of that good. The two variables in this diagram are:
price (dollars per bushel) on the vertical axis and quantity (bushels per week) on the horizontal axis.
Absolute advantage is the ability of an individual, a firm, or a country to ________. If a country has a comparative advantage in the production of a good, then that country ______________.
produce more of a good or service than competitors using the same amount of resources. has a lower opportunity cost in the production of that good.
The primary difference between product markets and factor markets is that
product markets are markets for goods, while factor markets are markets for factors of production—labor, capital, natural resources, and entrepreneurial ability.
One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls
scarcity
Two neighbors, countries A and B, produce books and blankets, among other goods and services. However, Country A produces more of both goods than country B. A student of economics, Maya, also notes that in both countries, these industries individually employ 30 percent of the population. She concludes that country A has an absolute advantage in the production of books and blankets over country B. Maya's conclusion is flawed because
she assumes that country A's population is no larger than country B's.
Macroeconomics is
the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
Economists assume that people are rational in the sense that
they use all available information as they take actions intended to achieve their goals.
According to an article in the Wall Street Journal in early 2019, "United States Steel Corp. said it plans to add 1.6 million tons of steelmaking capacity next year by resuming the construction of a new furnace in Alabama as tariffs on foreign metal raise profits on domestic steel." Source: Bob Tita, "U.S. Steel to Expand Under Tariffs," Wall Street Journal, February 11, 2019. a. How does a tariff on imported steel make a U.S. steel company more profitable? b. People who had invested in U.S steel firms are likely to be _____ by a tariff on imported steel. c. Would people in the United States helped by the steel tariffs necessarily support the tariffs? Would people who were hurt by the tariffs necessarily oppose the tariffs? Which of the following statements is true? A. People who benefitted from the tariff are likely to support them. We can't say those people will necessarily support the tariffs, though, because their support for free trade unrestricted by tariffs may supersede their monetary gains from this particular tariff. B. Some of the people who lose from the tariffs may not understand that the tariffs have inflicted losses on them. For example, a consumer who pays more for a washing machine may not understand that the price of the washing machine has increased because of the steel tariffs. C. Some people who are hurt by the tariffs may still support them because, for example, they believe it is a good idea, on normative grounds, to protect jobs in the steel industry. D. All of the above.
A tariff on imported steel will raise the prices of those imports, making it likely that some U.S. consumers of steel will shift from buying imported steel to buying domestically-produced steel. B. Helped C. D
In a paper written by Bentley College economists Patricia M. Flynn and Michael A. Quinn, the authors state: "We find evidence that Economics LOADING... is a good choice of major for those aspiring to become a CEO [chief executive officer]. When adjusting for size of the pool of graduates, those with undergraduate degrees in Economics are shown to have had a greater likelihood of becoming an S&P 500 CEO than any other major." A list of famous economics majors published by Marietta College includes business leaders Warren Buffet, Donald Trump, Ted Turner, and Sam Walton, as well as former presidents George H.W. Bush, Gerald Ford, and Ronald Reagan. Why might studying economics be particularly good preparation for being the top manager of a corporation or a leader in government?
Economics teaches us how to look at the tradeoffs involved in every decision.
The grading system plays an important role in student learning. In their book Effective Grading: A Tool for Learning and Assessment in College, Barbara Walvoord and Virginia Anderson state that "grading infuses everything that happens in the classroom." They also argue that grading "needs to be acknowledged and managed from the first moment that an instructor begins planning a class." Source: Barbara E. Walvoord and Virginia Johnson Anderson, Effective Grading: A Tool for Learning and Assessment in College, 2nd edition, San Francisco: Jossey-Bass, 2010, p. 1. The grading system used by a teacher can affect the incentives of students to learn the course material by
altering the payoffs to achieving success on the various components of the course.
