ECON 2020 Chapters
Suppose there is only one electric scooter compnay in Adriana's hometown. Currently, the company charges $0.20 per minute, and there is no fee to unlock a scooter. The scooter company is considering changing its pricing plan so that it would charge $1 to unlock a scooter and $0.10 per minute. If Adriana never takes a ride that lasts less than 10 minutes, then what would happen to the average length of her rides if the scooter company switches to the new pricing plan?
She is likely to take longer rides
After the price of Revlon nail polish increased, Jen stopped buying Revlon nail polish and started buying a cheaper brand of nail polish instead. This is called
the substitution effect of a price change
A tornado sweeps through Iowa
the supply curve would shift to the left
The price of fertilizer falls
the supply curve would shift to the right (a decrease in input prices)
The government offers new tax breaks to farmers
the supply curve would shift to the right (new tax breaks make farming more profitable than before)
A new and improved crop rotation technique is discovered
the supply curve would shift to the right (technological improvement)
If the price of rubber (an input to the production of tires) increases
the supply of tires will decrease
Economists recognize that because people have limited resources
they have to make trade-offs
Which of the following correctly ranks the amounts from largest to smallest?
total output, average labor productivity, output per person
If a person takes an action if, and only if, the extra benefits from taking that action are at least as great as the extra costs, then that person is
following the Cost-Benefit Principle
A government is running a budget deficit if
government revenue is less than government spending
A key indicator of the hardship experienced during the Great Depression is the
high rate of unemployment
Economics is best defined as the study of
how people make choices in the face of scarcity and the implications of those choices for society as a whole.
Macroeconomics first developed as a new subfield of economics
in response to the severe economic hardships of the Great Depression
The Federal Reserve makes decisions regarding _____ policy while Congress makes decisions regarding _____ policy.
monetary;fiscal
The demand curve illustrates the fact that consumers tend to purchase
more of a good as its price falls
Congress should not reduce capital gains taxes without also providing tax breaks for lower-income people.
normative statement
The Federal Reserve should raise interest rates to keep inflation at an acceptably low level
normative statement
In a free market, if the price of a good is above the equilibrium price, then
sellers, dissatisfied with growing inventories, will lower their prices
The Great Depression
was a period of low production and high unemployment
Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $30, and if she washes clothes, she will earn $45. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose to ______ because it generates a ______ economic surplus.
wash clothes; bigger
Sam earns $25,000 per year (after taxes), and Sam's spouse, Ryan, earns $35,000 (after taxes). They have two pre-school-aged children. Childcare for their children costs $12,000 per year. Given that Ryan doesn't want to stay home with the kids, regardless of what Sam does, Sam should stay home with the kids if, and only if, the value of Sam spending more time with the kids is greater than
$13,000 per year.
Kenya is a mushroom farmer. She invests all her spare cash in additional mushrooms, which grow on otherwise useless land behind her barn. The mushrooms double in weight during their first year, after which time they are harvested and sold at a constant price per pound. Kenya's friend Fatima asks Kenya for a loan of $200, which she promises to repay after 1 year.; How much interest will Fatima have to pay Kenya in order for Kenya to recover her opportunity cost of making the loan?
$200 If Kenya kept the $200 and invested it in additional mushrooms, at the end of a year's time she would have $400 worth of mushrooms to sell. Therefore, Fatima must give Kenya $200 in interest in order for Kenya not to lose money on the loan
The country of Northland produced $1,000 billion of output in one year. The population of Northland was 50 million, of whom 30 million were employed. What was average labor productivity in Northland?
$33,333
Kenya is a mushroom farmer. She invests all her spare cash in additional mushrooms, which grow on otherwise useless land behind her barn. The mushrooms triple in weight during their first year, after which time they are harvested and sold at a constant price per pound. Kenya's friend Fatima asks Kenya for a loan of $200, which she promises to repay after 1 year. How much interest will Fatima have to pay Kenya in order for Kenya to recover her opportunity cost of making the loan?
$400 If Kenya kept the $200 and invested it in additional mushrooms, at the end of a year's time she would have $600 worth of mushrooms to sell. Therefore, Fatima must give Kenya $400 in interest in order for Kenya not to lose money on the loan
Inflation was a major problem in the United States during the
1970s
A study finds that a daily glass of orange juice reduces the risk of heart disease. What will happen to the equilibrium price and quantity of oranges?
Both equilibrium price and equilibrium quantity will increase
What will happen to the equilibrium price and quantity of beef, if the price of chicken feed increases? (Assume that chicken and beef are substitutes.)
Both will increase
Which of the following statement is normative?
Higher taxes are needed to support education
Monica and Rachel have the same preferences and incomes. Just as Monica arrived at the theater to see a play, she discovered that she had lost the $10 ticket she had purchased earlier. Rachel also just arrived at the theater planning to buy a ticket to see the same play when she discovered that she had lost a $10 bill from her wallet. If both Monica and Rachel are rational and both still have enough money to pay for a ticket, is one of them more likely than the other to go ahead and see the play anyway?
Monica and Rachel would make the same decision
Birthday cake and birthday candles
complements
Suppose that in the last few seconds you devoted to question 1 on your physics exam you earned 4 extra points, while in the last few seconds you devoted to question 2 you earned 10 extra points. You earned a total of 48 and 12 points, respectively, on the two questions, and the total time you spent on each was the same. If you could take the exam again, how—if at all—should you reallocate your time between these questions?
Spend more time on question 2. You'll get more extra points on question 2 than you'll lose on question 1
An Arizona student claims to have spotted a UFO over the desert outside of Tucson. How will this claim affect the supply (not the quantity supplied) of binoculars in Tucson stores?
Supply will not change. The demand for binoculars is likely to increase, leading to an increase in price and quantity supplied (but no change in supply)
Tennis rackets and tennis balls
complements
How will an increase in the birth rate affect the equilibrium price of land? (Assume the supply of land is fixed.)
The equilibrium price of land will increase because demand for land shifts to the right
Suppose that when milk sells for $4.50 per gallon, the quantity of milk demanded is 3,250 gallons per day and the quantity of milk supplied is 3,860 gallons per day. Will the equilibrium price of milk be greater than, less than, or equal to $4.50 per gallon?
The equilibrium price of milk will be less than $4.50
Washing machines and dryers
complements
Residents of your city are charged a fixed weekly fee of $6 for garbage collection. They are allowed to put out as many cans as they wish. The average household disposes of three cans of garbage per week under this plan. Now suppose that your city changes to a "tag" system. Each can of garbage to be collected must have a tag affixed to it. The tags cost $2 each and are not reusable. What effect do you think the introduction of the tag system will have on the total quantity of garbage collected in your city?
Under the "tag" system, the total quantity of garbage collected in the city will decrease
You and your friend Jamal have identical tastes. At 2 p.m., you go to the Ticketmaster outlet and buy a $30 nonrefundable ticket to a basketball game to be played that night in Syracuse, 50 miles north of your home in Ithaca. Jamal plans to attend the same game, but because he cannot get to the Ticketmaster outlet, he plans to buy his ticket at the game. Tickets sold at the game cost only $25 because they carry no Ticketmaster surcharge. (Many people nonetheless pay the higher price at Ticketmaster, to be sure of getting good seats.) At 4 p.m., an unexpected snowstorm begins, making the prospect of the drive to Syracuse much less attractive than before (but ensuring the availability of good seats.)
You are more likely to go to the game
Suppose you observe a decrease in the equilibrium price and quantity of corn. Of the options listed below, this is best explained by
a fall in consumer income assuming corn is a normal good
If the demand for computers increases as consumers' incomes rise, then computers are
a normal good
Suppose that the technology used to manufacture laptops has improved. The likely result would be
an increase in supply of laptops
Output per employed worker is called
average labor productivity
If a country's economic decisions are made by an individual or small number of individuals, then it has a
centralized economy
As the price of flour (an input in the production of cookies) increases, firms that produce cookies will
decrease the supply of cookies
If average labor productivity decreases while population and the number of employed workers remain constant, then output per person
decreases
If total output increases from $1 trillion to $2 trillion as population increases from 100 million to 250 million, then output per person
decreases
A particularly severe recession is called a
depression
A trade deficit occurs when
exports are less than imports
The supply curve illustrates that firms
increase the quantity supplied of a good when its price rises
If the demand curve for bologna shifts to the right as income falls then bologna is a(n)
inferior good
The Cost-Benefit Principle indicates that an action should be taken if
its extra benefit is greater than or equal to its extra cost.
Average labor productivity equals
output per employed worker
The standard of living in an economy is best measured by
output per person
The unemployment rate is the
percentage of the labor force that is out of work
If Country A and Country B have the same total output, then the standard of living in these two countries can be different depending on
population size
A reduction in the capital gains tax (the tax on profits made in the stock market) would lead to a 10 to 20 percent increase in stock prices.
positive statement
If the Federal Reserve raises interest rates, demand for housing is likely to fall
positive statement
Stock prices are likely to fall over the next year as the economy slows.
positive statement
Suppose your school is considering whether to spend $20 million building a new state-of-the-art recreation facility. All of the students agree that the existing facility is in disrepair and that a new facility would be much nicer. Despite this, however, when students are asked to vote on whether they would like the school to build a new recreation facility, over 78 percent vote "no." Why might such a large fraction of students vote "no" even though they all agree that a new recreation facility would be much nicer than the existing one?
prefer the $20 million be spent in another way
If the price of doughnuts decreases, then one would expect the
quantity of doughnuts supplied to decrease
If the unemployment rate increases from 4 percent to 10 percent, then the economy is mostly likely in a(n)
recession
A decision to join a free trade association, such as NAFTA, is an example of _____ policy.
structural
Deregulation of the airline, trucking, telephone, and electric utility industries are examples of _______ policy
structural
Government policies aimed at changing the underlying structure or institutions of the nation's economy are called
structural policy
Cloth diapers and disposable diapers
substitutes
If the demand for olives falls when the price of cheese falls, then we know that cheese and olives are
substitutes
"All else constant, consumers will purchase more of a good as the price falls." This statement reflects the behavior underlying
the demand curve
Buyers in the market for electric cars learn of an increase in the price of electric cars
the demand curve would remain unchanged (increase in the price decreases the quantity demanded which causes a movement along the demand curve)
Buyers in the market for pizza read a study linking pepperoni consumption to heart disease
the demand curve would shift to the left
The income of buyers in the market for Adirondack vacations increase
the demand curve would shift to the right (buyer income has risen so this increases the quantity demanded)
Buyers in the market for gas-powered cars learn of an increase in the price of electric cars (a substitute for gas-powered cars)
the demand curve would shift to the right (these goods are substitues)
Suppose the residents of Metropolis travel to work either by bus or train. If the price of train tickets increases, then
the demand for bus tickets will increase
Monetary policy refers to
the determination of the nation's money supply
The economic surplus of an action is
the difference between the benefit and the cost of taking an action
If pencils and paper are complements for most consumers, then if the price of paper increases, you would expect
the equilibrium price and quantity of pencils to fall
Inflation is the increase in
the general level of prices
The opportunity cost of an activity includes the value of
the next best alternative that must be forgone
Alex received a four-year scholarship to State U that covered tuition and fees, room and board, and books and supplies. If Alex becomes a full-time student, then
the opportunity cost of attending State U includes the money Alex could have earned working for four years.
Which of the following statements is positive?
when the federal reserve increases the money supply, interest rates decrease
