Econ 110 Final

Jamaica has a comparative advantage in the production of ______ and Norway has a comparative advantage in the production of _______.

Radios, coolers

Jamaica has an absolute advantage in the production of ______ and Norway has an absolute advantage in the production of _______.

Radios, coolers

Jamaica should specialize in the production of _____ and Norway should specialize in the production of _____.

Radios, coolers

Jennifer lives in a home that was newly constructed in 2011 for which she paid $240,000. In 2014 she sold the house for $260,000. Which of the following statements is correct regarding the sale of the house?

The 2014 sale affected neither 2014 GDP nor 2011 GDP.

Comparative advantage

The ability to produce a good at a lower opportunity cost than another producer

Absolute advantage

The ability to produce a good using fewer inputs than another producer

What will happen in the gasoline market now if buyers expect higher gasoline prices in the near future?

The demand for gasoline will increase.

Opportunity cost

Whatever must be given up to obtain some item

The Components of GDP

Y = C + I + G + NX

When the price of a good rises, the quantity supplied of the good ______

rises

Other things the same, as the price level falls, the real value of a dollar

rises, and interest rates fall.

Matthew bakes apple pies that he sells at the local farmer's market. If the price of apples increases, the

supply curve for Matthew's pies will decrease

According to classical macroeconomic theory, changes in the money supply affect

the price level, but not real GDP.

The farmer has a comparative advantage in the production of

tomatoes

The farmer has an absolute advantage in the production of

tomatoes

The farmer should specialize in the production of _____ and the rancher should specialize in the production of _______.

tomatoes, pork

Assume that the farmer and the rancher each has 24 labor hours available. If each person spends all his time producing the good in which he has a comparative advantage and trade takes place at a price of 1 pound of pork for 2 pounds of tomatoes, then the rancher _____ gain from this trade and the farmer _____.

will, will not

When the price of a good rises, the quantity demanded of the good ______

falls

An automobile factory in Michigan uses $100,000 worth of parts purchased from foreign countries along with U.S. inputs to produce 30 cars worth $20,000 each. Twenty of these cars are sold and 10 are left in inventory. How much did these actions add to GDP?

$500,000

Variables that can shift the demand curve

-Income -Prices of related goods -Tastes -Expectations -Number of buyers

Variables that can shift the supply curve

-Input prices -Technology -Expectations about future -Number of sellers

Jamaica's opportunity cost of one cooler is ________ and Norway's opportunity cost of one cooler is ________.

.05 and .125

The opportunity cost of 1 pound of tomatoes for the rancher is

1 pound of pork

The opportunity cost of 1 pound of pork for the rancher is

1 pound of tomatoes

At which of the following prices would both Jamaica and Norway gain from trade with each other? 1 radio for 1 cooler 1 radio for 4 coolers 1 radio for 10 coolers

1 radio for 4 coolers

The opportunity cost of 1 pound of tomatoes for the farmer is

1/2 pound of pork

Jamaica and Norway would not be able to gain from trade if Norway's opportunity cost of one radio changed to

2 coolers

The opportunity cost of 1 pound of pork for the farmer is

2 pounds of tomatoes

A good is produced by a firm in 2009, added to the firm's inventory in 2010, and sold to a household in 2010. As a result, on net,

2009 GDP increased and 2010 GDP did not change.

Assume that Jamaica and Norway each has 4 days available for production. Originally, each country divided its time equally between the production of coolers and radios. Now, each country spends all its time producing the good in which it has a comparative advantage. As a result, the total output of coolers increased by

24

Suppose Jamaica decides to increase its production of radios by 12. What is the opportunity cost of this decision?

24 coolers

Assume that Jamaica and Norway each has 4 days available for production. Originally, each country divided its time equally between the production of coolers and radios. Now, each country spends all its time producing the good in which it has a comparative advantage. As a result, the total output of radios increased by

6

Assume that the farmer and the rancher each has 24 labor hours available. If each person spends all his time producing the good in which he has a comparative advantage, then total production is

6 pounds of pork and 8 pounds of tomatoes

Quantity supplied

Amount of a good sellers are willing and able to sell

Quantity demanded

Amount of a good that buyers are willing and able to purchase

GDP vs CPI

GDP reflects prices of all goods and services produced in economy CPI reflects prices of goods and services bought by consumers and includes imports

Gross Domestic Product (GDP)

Measures the total income of everyone in the economy and the total expenditure on the economy's output of goods and services FINAL production

Martin, a U.S. citizen, travels to Mexico and buys a newly manufactured motorcycle made there. His purchase is included in

Mexican GDP, but it is not included in U.S. GDP.

The producer price index measures the cost of a basket of goods and services

bought by firms

The consumer price index is used to monitor

changes in the cost of living over time

A U.S. citizen buys a tea kettle manufactured in China by a company that is owned and operated by U.S citizens. In which of the following components of U.S. GDP is this transaction accounted for?

consumption and imports

If the number of buyers in a market decreases, then

demand will decrease

Most economists believe that money neutrality

does not hold in the short run

Most economists believe that classical theory describes the world

in the long run

For an economy as a whole,

income must equal expenditure

If Kindle e-readers and Nook e-readers are substitutes, a higher price for Nooks would result in a(n)

increase in the demand for Kindles

When the overall level of prices in the economy is increasing, economists say that the economy is experiencing

inflation

Other things the same, an increase in the price level makes consumers feel

less wealthy, so the quantity of goods and services demanded falls

When the dollar depreciates, U.S.

net exports rise, which increases the aggregate quantity of goods and services demanded.

If the demand for a good falls when income falls, then the good is called a(n)

normal good

The rancher has a comparative advantage in the production of

pork

The rancher has an absolute advantage in the production of

pork

The law of supply states that, other things equal, an increase in

price causes quantity supplied to increase

CPI=

price of goods in current year/price of goods in base year x 100