Glenwood Ross Final Exam
Based on the readings in "The Pros and Cons of Globalization", approximately ____________ people own as much wealth as 2.5 billion people own together--nearly half the world's population
400
Supply and Demand Together
Determine the prices of the economy's many different goods and services
Cost Push
Inflation resulting from a large increase in the price of a commodity that is used extensively throughout the economy.
Based on the readings in "The Pros and Cons of Globalization", Globalization has
Led to greater inequality
When economists talk about growth in the economy, they measure that growth with the
Percentage change in real GDP
Inflation can be measured by the
Percentage change in the consumer price index
Which of the following can be measured by a country's membership international organizations?
Political Globalization
Economic Growth
the ability of the economy to increase the production of goods and services
Consumer Surplus
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
Market Value
the amount for which something can be sold on a given market.
The adage, "There ain't no such thing as a free lunch," means
to get something we like, we usually have to give up another thing you like
Based on the readings in "The Pros and Cons of Globalization", Sustainability is defined as meeting the needs of present generations
without compromising the ability of future generations to meet their own needs
If real GDP doubles and the GDP deflator doubles, then nominal GDP
quadruples 2GDP=N/2R*100 4(R)(GDPD)=100N 4(R)(GDPD)/100=N
A steel company sells some steel to a bicycle company for $100. The bicycle company uses steel to produce a bicycle, which it sells for $200. Taken together, these two transactions contribute
$200 to GDP
if GDP Deflator is 200 and nominal GDP is $10,000 billion, then real GDP is
$5,000 billion 200/1=10,000/X 200X/200=10,000/200 X=50 50*100=5,000
GDP Limitations
- informal activity not accounted for - errors (data needs to be collected in short space of time) - ignores quality of output - doesn't tell you about income distribution - doesn't tell you what kind of output (capital vs consumer) - doesn't take into account other aspects of living standards (health, education)
Demand-Side Shift Factors
1. Change in income 2. Change in the prices of related goods or services 3. Change in consumer preferences 4. Change in the number of consumers 5. Expectations
The price level rises from 120 to 150. What is the inflation rate
150-120/120=.25 .25*100=25%
Law of Supply
A fundamental principle of economic theory which states that, all else equal, an increase in price results in an increase in quantity supplied
Complements
A good's demand is increased when the price of another good is decreased. Conversely, the demand for a good is decreased when the price of another good is increased.
Change in Quantity Supplied
A movement along a given supply curve caused by a change in supply price. The only factor that can cause a change in quantity supplied is price
Deflation
A situation in which prices are declining
Shortage
A situation in which quantity demanded is greater than quantity supplied
Surplus
A situation in which quantity supplied is greater than quantity demanded
Equilibrium
A state of balance
For which of the following individuals would the opportunity costs of going to college would be the highest
A) A promising young mathematician who will command a high salary once she earns her college degree B) A student with average grades who has never held a job C) A famous, highly-paid actor who wants to take time away from show business to finish college and earn a degree D) A student who is the best player on his college basketball team, but who lacks the skills necessary to play professional basketball Answer is C
Ralph pays a lawn mowing company to mow his lawn, while Mike mows his own lawn. Regarding these two practices, which of the following statements is correct? A) Only Ralph's payments are included in GDP B) Ralph's payments as well as the estimated value of Mike's mowing services are included in GDP C) Neither Ralph's payments nor the estimated value of mikes mowing services is included in GDP D) Ralph's payments are definitely included in GDP, while the estimated value of Mike's mowing services is included in GDP only if Mike voluntarily provides his estimate of that value to the government
A) Only Ralph's payments are included in GDP B) Ralph's payments as well as the estimated value of Mike's mowing services are included in GDP C) Neither Ralph's payments nor the estimated value of mikes mowing services is included in GDP D) Ralph's payments are definitely included in GDP, while the estimated value of Mike's mowing services is included in GDP only if Mike voluntarily provides his estimate of that value to the government Answer is A
Which of the following would not be a determinant of the demand for a particular good A) Prices of related goods B) Income C) Tastes D) The prices of the inputs used to produce the good
A) Prices of related goods B) Income C) Tastes D) The prices of the inputs used to produce the good Answer is D
If labor in Mexico is less productive than labor in the United States in all areas of production. Who can benefit from trade?
Both Mexico and the United States still can benefit from trade
An American company operates a fast food restaurant in Romania. Which of the following statements is accurate A) The value of the goods and services produced by the restaurant is included in both Romanian GDP and U.S. GDP B) One-half of the value of the goods and services produced by the restaurant is included in Romanian GDP, and the other one-half of the value is included in Romanian U.S. GDP C) The value of the goods and services produced by the restaurant is included in Romanian GDP, but not in U.S. GDP. D) The value of the goods and services produced by the restaurant is included in U.S. GDP, but not in Romanian GDP.
A) The value of the goods and services produced by the restaurant is included in both Romanian GDP and U.S. GDP B) One-half of the value of the goods and services produced by the restaurant is included in Romanian GDP, and the other one-half of the value is included in Romanian U.S. GDP C) The value of the goods and services produced by the restaurant is included in Romanian GDP, but not in U.S. GDP. D) The value of the goods and services produced by the restaurant is included in U.S. GDP, but not in Romanian GDP. Answer is C
Which of the following items is not a factor of production A) labor B) land C) capital D) money
A) labor B) land C) capital D) money Answer is D
Law of Demand
All other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa.
marginalism
Analyzing the additional or incremental costs and benefits arising from a choice or decision
Normal Goods
Any goods for which demand increases when income increases, and falls when income decreases but price remains constant
The difference between production possibilities frontiers that are bowed out and those that are straight lines is that
Bowed-out production possibilities frontiers illustrate increasing opportunity cost, whereas straight-line production possibilities frontiers illiterate constant opportunity costs
Buyer Willingness to Pay Mike $50 Sandy $30 Jonathan $20 Haley $10 Refer to table 7-1 (Above). If the table represents the willingness to pay of four buyers and the price of the product is $18, then their total consumer surplus is
Buyer Willingness to Pay Difference Mike $50 $18-50=+32 Sandy $30 $18-30=+12 Jonathan $20 $18-20=+2 Haley $10 $18-10=-8 Since we are looking for surplus we only want to look at the positive numbers which are Mike, Sandy, and Jonathan (+32)+(+12)+(+2)=+46
Calculating GDP
C+I+G+(X-M)
Opportunity Cost
Captures the idea of tradeoffs. The value of the next-best alternative that we forgo, or give up, when we make a decision. This implies that you do not get something for nothing and that everything has a cost.
Supply-Side Shift Factors
Change in the cost of inputs Advances in technology Taxes and producer subsidies Change in the prices of related goods or services Change in the number of producers Expectations
The principle of comparative advantage as we know it today was developed by
David Ricardo
Macroeconomics
Examines the economy in its entirety. Deals with totals sums or aggregates.
If a company making frozen orange juice expects the price of their product to be higher next month, it will supply more to the market this month
False
If the average cost of transporting a passenger on the train from Chicago to St. Louis is $75, it would be irrational for the railroad to allow any passenger to ride for less than $75
False
if there is an improvement in the technology used to produce a good, the supply curve for that good will shift to the left
False (It will shift to the right)
If the demand for a good falls when income falls, the good is called an inferior good
False (It would be a normal good)
What was the original mission of the World Bank at its establishment?
Finance post war reconstruction of Europe
The ownership of at least 10 percent interest in a company located in a foreign country is referred to as
Foreign Direct Investment
Expenditure Approach
GDP = C + I + G + (EX - IM)..... C is consumer spending, I is business spending, G is government spending, (export - import)
Inferior Goods
Goods for which demand tends to fall when income rises.
Which of the following is NOT a benefit of globalizaton
Growing power of multinational companies
Economic Decision Rule
If benefits exceed costs, do it. If costs exceed benefits, don't. If MB=MC, one would be indifferent to pursue the acitivity.
When the price level rises, the number of dollars needed to buy a representative basket of goods
Increases, and so the value of money falls
The following table represents the costs of five possible sellers Seller Costs Dale $1,500 Jill $1,200 Denise $1,000 Catherine $750 Jackson $500 Refer to table 7-4 (Above). If the market price is $1,000, the producer surplus in the market is
Seller Costs Difference Dale $1,500 $1,000-1,500=-500 Jill $1,200 $1,000-1,200=-200 Denise $1,000 $1,000-1,000=0 Catherine $750 $1,000-750=+250 Jackson $500 $1,000-500=+500 Since we are looking for surplus we only want to look at the positive numbers that we found which would be Catherine and Jackson (+250)+(+500)=+750
Which one of the following international organizations was established to deal with issues related to global trade
The WTO (World Trade Organization)
Supply and Demand
The amount of a commodity, product, or service available and the desire of buyers for it, considered as factors regulating its price.
economics
The branch of knowledge concerned with the production, consumption, and transfer of wealth
Bureau of Labor Statistics
The government organization responsible for regularly gathering data about the economic status of the population and tracking prices.
microeconomics
The part of economics concerned with single factors and the effects of individual decisions
Change in Quantity Demanded
The total amount of goods or services demanded at any given point in time.
Markets
Trade and exchange a good or service
"Society would be better if the welfare system were abolished" is a normative statement, not a positive statement
True
Inflation
a general increase in prices and fall in the purchasing value of money.
Demand Curve
a graph of the relationship between the price of a good and the quantity demanded.
Supply Curve
a graph of the relationship between the price of a good and the quantity supplied
Competitive Market
a market in which there are many buyers and many sellers so that each has a no influence on the market price.
CPI(Consumer Price Index)
a measure of the overall cost of the goods and services bought by a typical consumer
GDP Deflator
a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100
Stagflation
a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation)
Change in Demand
a shift of the demand curve, which changes the quantity demanded at any given price
Change in Supply
a shift of the supply curve, which changes the quantity supplied at any given price
If a good is normal, then an increase in income will result in
an increase in the demand for the good
If a decrease in income increases the demand for a good, then the good is
an inferior good
if excess demand exists in a market we know that the actual price is
below equilibrium price and quantity demanded is greater than quantity supplied
The average cost per seat on the 50-passenger Floating-On Air Bus Company's trip from Kansas City to St. Louis, on which no refreshments are served, is $45. In advance of a particular trip, three seats remain unsold. The bus company could increase profit only if it
charged any ticket price above $0 for the three remaining seats
Rational people make decisions at the margin by
comparing marginal costs and marginal benefits
Two goods are substitutes if a decrease in the price of one good
decreases the demand for the other good
The unique point at which the supply and demand curves intersect is called
equilibrium
Post Hoc Fallacy
false assumption that because one event occurred before another event, it must have caused that event
Substitutes
good that exhibit a negative or inverse relationship between income and demand.
Final Goods and Services
goods and services sold to the final, or end, user
A market is
group of buyers and sellers of a particular good or service
A likely example of complementary goods for most people would be
hamburgers and french fries
Lead is an important input in the production of crystal. If the price of lead decreases (other thing equal), we would expect the supply of crystal to
increase
When price increases, so does the quantity supplied, and vice versa
law of supply
The consumer price index is used to
monitor changes in the cost of living
The price level rises from 120 to 150. What is the inflation rate
new-old/old= inflation rate 150-120/120=.25 .25*100=25% 25%
Demand Pull
relating to or denoting inflation caused by an excess of demand over supply
Hyperinflation
represents an extremely high run-up in prices and a concurrent rapid and continuous decline in the purchasing power of the local currency. Associated with the immediate exchange of the local currency for goods and/or non monetary assets.
Economics deals primarily with the concept of
scarcity
Ford Motor Company announces that they will offer $3,000 rebates on new Mustangs starting next month. As a result of this information, today's demand curve for Mustangs
shifts to the left
Based on the readings in "The Pros and Cons of Globalization", the increased publicity and communication about poor working conditions in other countries is known as
the CNN effect
Economist use the term inflation to describe a situation in which
the economy's overall price level is rising
Fallacy of Composition
the incorrect belief that what is true for the individual, or part, must necessarily be true for the group, or the whole. What is true for the individual may not be for the group.
GDP is defined as
the market value of all final goods and services produced within a country in a given period of time
If, at the current price, there is a shortage of a good
the price is below the equilibrium price
Real GDP
the production of goods and services valued at constant prices
Nominal GDP
the production of goods and services valued at current prices
A decrease in the number of sellers in the market causes
the supply curve to shift to the left
GDP
the total market value of all final goods and services produced annually in an economy
GDP does not reflect
the value of leisure the value of goods and services produced at home the quality of the enviroment