ECON 203 Midterm Hayes

Refer to the accompanying data (all figures in billions of dollars). GDP is

$417

In a market system, the distribution of goods and services largely depends on the distribution of income and people's preferences.

True

Most market economies, such as the U.S. and the U.K., allow government policies and actions aimed at promoting economic growth and stability.

True

Personal income usually exceeds disposable income.

True

The term "other things equal" means that

a number of relevant variables are assumed to be constant

Unemployment describes the condition where

a person cannot get a job but is willing to work and is actively seeking work.

In a market system, self-interest is the motivating force that

coordinates and creates consistency in the operations of various parts of the economy.

GDP does not include which of the following activities?

couples remodeling their own homes

Private property

encourages owners to maintain or improve their property so as to preserve or enhance value.

Transfer payments are

excluded when calculating GDP because they do not reflect current production.

The National Income and Product Accounts (NIPA) help economists and policymakers to

follow the long-run course of the economy to determine whether it has grown or stagnated.

Which of the following is not a typical characteristic of a market system?

government ownership of most property resources

Market failure is said to occur whenever:

private markets do not allocate resources in the most economically desirable way.

Other things equal, if the price of a key resource used to produce product X falls, the

supply curve of product X will shift to the right.

Supply-side market failures occur when

supply curves don't reflect the full cost of producing a good or service.

According to the concept of diminishing marginal utility, consumers will purchase more of a good when the price falls because

the marginal benefit of additional units of the good now outweigh the marginal cost.

Because of the free-rider problem,

the market demand for a public good is nonexistent or understated.

According to the marginal-cost-marginal-benefit rule,

the optimal project size is the one for which MB = MC.

Refer to the graphs. Which of the following best represents a positive demand shock when prices are flexible?

the shift from D2 to D3 in graph B

When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively lower. This statement describes

the substitution effect.

The production possibilities curve shows

the various combinations of two goods that can be produced when society employs all of its scarce resources.

A nation that wants to invest in more newly created capital in the present must be willing to forgo present consumption.

true

Higher unemployment rates are linked with higher crime rates and higher rates of physical and mental illness.

true

Shocks occur when actual events do not match expectations.

true

The guiding function of prices tends to keep resources flowing toward their most highly valued uses.

true

A large underground economy results in an

understated GDP

Real GDP measures the

value of final goods and services produced within the borders of a country, corrected for price changes.

Refer to the diagram. The equilibrium price and quantity in this market will be

$1.00 and 200.

Refer to the diagram. A surplus of 160 units would be encountered if the price was

$1.60.

Which statement best illustrates the concept of diminishing marginal utility?

A typical consumer will receive less satisfaction from consuming the fourth hamburger than from the third hamburger in a week.

Which of the diagrams illustrates the effect of an increase in automobile worker wages on the market for automobiles?

D only.

A price floor in a competitive market will result in persistent shortages of a product.

False

Allocative efficiency occurs where (for the last unit) maximum willingness to pay exceeds minimum acceptable price by the greatest amount.

False

Economists and policymakers are generally more concerned about nominal GDP than real GDP.

False

In determining GDP by the expenditures method, it is appropriate to use net investment rather than gross investment as a measure of investment spending.

False

What two conditions must hold for a competitive market to produce efficient outcomes?

Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.

A sometimes short, sometimes extended period of declining output and living standards is referred to as a recession.

True

All expenditures on new construction are included as investment in calculating GDP.

True

Banks and other financial institutions provide the link between savers and economic investors in the macroeconomy.

True

Which of the following will not cause the demand for product K to change?

a change in the price of product K

If two goods are complements,

a decrease in the price of one will increase the demand for the other.

Assume that the demand curve for product C is downsloping. If the price of C falls from $2.00 to $1.75,

a larger quantity of C will be demanded.

Which of the following is an example of market failure?

all of these (negative externalities, positive externalities, public goods)

Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity?

an increase in supply

Economic profits and losses

are essential to the reallocation of resources from less desired to more desired goods.

The rationing function of prices refers to the

capacity of a competitive market to equalize quantity demanded and quantity supplied.

A shift to the right in the demand curve for product A can be most reasonably explained by saying that

consumer preferences have changed in favor of A so that they now want to buy more at each possible price.

Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. A shift in the demand curve from D0 to D1 might be caused by a(n)

increase in the price of complementary good Y.

For an economy to increase investment, it must

increase saving.

A demand curve

indicates the quantity demanded at each price in a series of prices.

Which of the following is most closely related to recessions?

negative real growth in output

Environmental pollution is accounted for in

none of these. (GDP, PI, DI)

The two main characteristics of a public good are

nonrivalry and nonexcludability.

The law of supply indicates that, other things equal,

producers will offer more of a product at high prices than at low prices.

Which of the following is not included in personal consumption expenditures?

purchases of mutual funds by consumers

Refer to the diagram. An improvement in technology will

shift the production possibilities curve from PP1 to PP2.

Which of the following is not a determinant of demand for laptop computers?

the cost of inputs for producing laptop computers

Opportunity costs exist because

the decision to engage in one activity means forgoing some other activity.

Macroeconomics is mostly focused on

the economy as a whole.

Graphically, the market demand curve is

the horizontal sum of individual demand curves.