Macro Midterm
1.4 Mike has a $10 budget that he can spend on either hot dogs or hamburgers. Hot dogs cost $1 each. Hamburgers cost $2 each. If Mike only has $10 to spend, reposition the endpoints of the line segment on the graph to demonstrate his budget constraint in terms of quantities of hamburgers and hotdogs. Note: Each endpoint has a pull handle. 5 4 3 2 1 0--1--2--3--4--5--6--7--8--9--10
Mike has a budget of $10. If Mike only purchases hot dogs, then he can afford $10/$1=10 hot dogs. This corresponds to the point (10,0). If Mike only purchases hamburgers, then he can afford $10/$2=5 hamburgers. This corresponds to the point (0,5). 5 (0,5) 4 3 2 1 (10,0) 0-1-2-3-4-5-6-7-8-9-10
1.4 Angelo wants to buy coffee and doughnuts for his co-workers. He has to pay cash, and doesn't know if he can afford it. How can he determine whether his coffee and doughnut order is within his budget constraint? Multiply the price of coffee by the number of cups of coffee he wants to buy, then add it to the price of doughnuts multiplied by the number of donuts he wants to buy. Compare it to the amount of money he has to spend. Multiply the price of coffee by the price of donuts. Add the number of cups of coffee to the number of donuts, then multiply by the average of their prices. Multiply the price of one doughnut by the amount of co-workers, then subtract from the budget in order how to find out how many cups of coffee to order.
Multiply the price of coffee by the number of cups of coffee he wants to buy, then add it to the price of doughnuts multiplied by the number of donuts he wants to buy. Compare it to the amount of money he has to spend.
2.2 Papa's Italian Joint has a promotion for $1 off any large specialty pizza. Ernie's Shop does not have any promotions that reduce the price of pizza. How does the decrease in price of Papa's Italian Joint pizza affect the demand for Ernie's Shop pizza? In the graph below, show how demand for Ernie's Shop pizza is impacted by shifting the supply or demand curve in the appropriate direction.
Papa's Italian Joint pizza and Ernie's Shop pizza are substitutes. If the price of one substitute falls, the demand for the other will decrease or shift leftward. A leftward shift in demand means that at any price, the quantity demanded will be lower than it was before.
2.4 T or F When the economy produces at an inefficient quantity due to a price ceiling or price floor, there will be a deadweight loss.
T A price floor or a price ceiling will prevent a market from adjusting to its equilibrium price and quantity. This creates an inefficient outcome and a decrease in social surplus. The loss in social surplus, or the combined amount of producer and consumer surplus loss is called deadweight loss. In a very real sense, it represents economic activity not undertaken.
1.5 T or F The production possibilities frontier (PPF) demonstrates how society's limited resources affect the quantities of goods and services produced.
T Because society has limited resources (e.g., labor, land, capital, raw materials) at any point in time, there is a limit to the quantities of goods and services it can produce. The production possibilities frontier demonstrates this tradeoff.
2.4 T or F Some consumers are willing to pay more for a product than they actually pay. This difference between the amount they are willing to pay and what they actually pay is known as consumer surplus.
T Consumer surplus is defined as the gap between the price consumers are willing to pay, based on their preferences, and the market equilibrium price. Each consumer is willing to pay a different price for the product. Some consumers are willing to pay more than the market price, creating this surplus.
1.5 The opportunity cost of producing one bushel of wheat in Canada is equal to 1/2 computer. The opportunity cost of producing one bushel of wheat in the U.S. is 2 computers. If these two countries specialize according to comparative advantage and then trade with each other, which of the following is an expected outcome? The U.S. will import wheat and export computers. Canada will import wheat and export computers. The U.S. will export computers and wheat. Canada will choose not to trade with the U.S. since it can produce both products at lower costs.
The U.S. will import wheat and export computers. use Canada can produce wheat at a lower opportunity cost than the U.S., it has a comparative advantage in producing wheat. Therefore, the U.S. will produce and export computers instead of wheat and import the wheat it needs from Canada.
2.2 Tea and coffee both contain caffeine and are often consumed in place of one another. You are the director of a large coffee plantation. In recent years, poor tea harvests have devastated tea production and significantly increased prices. How would you expect the demand for coffee to change, and why? The demand for coffee should increase because the two goods are complements. The demand for coffee should increase because the two goods are substitutes. The demand for coffee should decrease because the two goods are complements. This is highly unlikely to have any effect on the demand for coffee.
The demand for coffee should increase because the two goods are substitutes.
2.2 For generations, the Irish were among the poorest in the British Isles and relied almost exclusively on simple potatoes, which were inexpensive but not particularly tasty, for sustenance. Potatoes were an inferior food product favored by the poorer sections of the population. All else being equal, how would you expect the demand for potatoes per person to change after several decades of significant economic development? The demand for potatoes is likely to expand. The demand for potatoes is likely to decline. The demand for potatoes is likely to remain unaffected. The demand for potatoes is likely to fall to zero.
The demand for potatoes is likely to decline.
2.1 The table below shows the supply schedule for pounds of pistachios. As the price increases from $4 per pound to $6 per pound, how does quantity supplied change? Price---------Quantity Supplied 0---------------------0 2---------------------6 4---------------------12 6---------------------18 8---------------------24 10--------------------30 12--------------------36 14--------------------42 The quantity supplied decreases from 12 to 6 pounds. The quantity supplied increases from 6 to 12 pounds. The quantity supplied increases from 12 to 18 pounds. The supply curve will shift up by $6 per pound.
The quantity supplied increases from 12 to 18 pounds.
2.2 A drought in the Midwest impacts wheat crops grown in the area. Which of the following describes what will happen to the supply of bread in grocery stores? The supply of bread will decrease. The quantity supplied of bread will increase at every price. The supply of bread will be unaffected. The quantity supplied of bread will decrease but the supply of bread will remain unchanged.
The supply of bread will decrease.
2.3 Assuming a market is currently at the equilibrium price and quantity, what happens when a price ceiling is set above the equilibrium price? There is nothing preventing the price from reaching its equilibrium level. The quantity demanded will rise and the quantity supplied will fall, causing a shortage. The quantity supplied will rise and the quantity demanded will fall, causing a surplus. The price will rise to the price ceiling level.
There is nothing preventing the price from reaching its equilibrium level.
2.1 Assume equilibrium price for lemons is $1.50 for a dozen. If a government believes the price for lemons is too high, and sets a temporary price cap at $1.00 for a dozen, what will happen? Please select two correct answers below. Too many lemons will be offered for sale. There will be a shortage of lemons. After the price cap is lifted, prices will remain the same. After the price cap is lifted, prices will return to the equilibrium price.
There will be a shortage of lemons. After the price cap is lifted, prices will return to the equilibrium price. A price below equilibrium leads to a shortage. If a price cap that was lower than the equilibrium price was lifted, the price of lemons would eventually rise to the equilibrium price.
2.3 If the equilibrium price of yellowfin tuna is $30.00 per pound, and a price floor for yellowfin tuna is set at $35.00 per pound, what will happen? There will be a surplus of yellowfin tuna. The quantity of yellowfin tuna demanded will rise and the quantity supplied will fall, causing a shortage. Consumers will benefit more than producers. The quantity supplied will rise and the quantity demanded will stay constant, creating a deficit.
There will be a surplus of yellowfin tuna.
2.1 Assuming all other variables that affect supply are held constant, which of the following outcomes happen in the market for DVD players if the price of DVD players increases? The supply curve for DVD players will shift to the left. The supply curve for DVD players will shift to the right There will be an increase in the quantity supplied of DVD players. The quantity supplied of DVD players will remain unchanged.
There will be an increase in the quantity supplied of DVD players. When price increases, we see a movement along the supply curve, not a shift in the curve. According to the law of supply, a rise in price almost always leads to an increase in the quantity supplied of the good or service in question. Remember, quantity supplied is not the same as supply. Supply refers to the curve and quantity supplied refers to the (specific) point on the curve. Changes in price cause movement along the supply curve, but do not cause the curve to shift.
1.4 Jack buys only shoes and socks. If Jack spends his entire budget on shoes, he can buy 9 pairs of shoes. If Jack spends his entire budget on socks, he can buy 72 pairs of socks. What is the opportunity cost of 6 pairs of shoes?
To calculate the opportunity cost of 6 pairs of shoes, we first need to calculate the opportunity cost of one pair of shoes. Since Jack can afford either 9 pairs of shoes or 72 pairs of socks, then it must be the case that the opportunity cost of one pair of shoes is 8 pairs of socks (729=8) socks. To obtain the opportunity cost of 6 pairs of shoes, multiply 8×6=48. Therefore, the opportunity cost of 6 pairs of shoes is 48 pairs of socks.
1.1 T or F The following scenario is an example of scarcity. Each lake has a limited number of fish living in it. As the number of fishermen who fish at the lake increases beyond a certain point, we see the fish population start to decline.
True
2.2 Which of these scenarios is true for a normal good? When a person's income falls, he/she will buy more of the good. When a person's income rises, he/she will buy more of the good. A person buys more of the good when its price is higher. When other similar products are available, a person buys less of the good.
When a person's income rises, he/she will buy more of the good.
1.1 Suppose you have a team of two workers. One is a baker and one is a chef. Should each worker specialize in what they do best or should each worker try to do everything from appetizer to dessert? Please select the two correct answers that answer this question. Workers who specialize in certain tasks can complete those tasks more quickly and with higher quality, so they should each specialize in their particular skill. Each individual can produce more when working through a task from start to finish and should therefore work alone. Workers who are trained to execute a large task entirely on their own have an advantage over workers who specialize in a particular task, thus they should work alone from appetizer to dessert. When workers, such as a chef and a baker, focus on a particular skill they have developed through training, education, interests, or talents, they are more productive than if they produce a combination of things. Given this, they should specialize in their particular skill.
Workers who specialize in certain tasks can complete those tasks more quickly and with higher quality, so they should each specialize in their particular skill. When workers, such as a chef and a baker, focus on a particular skill they have developed through training, education, interests, or talents, they are more productive than if they produce a combination of things. Given this, they should specialize in their particular skill.
2.2 Which of the following conditions does not impact the supply of watermelon? a drought in August, a month in which watermelon is grown a significant increase in the average temperature during the growing season for watermelon an infestation of squash bugs, which feed on watermelon a decrease in the amount of carrots grown in the same region
a decrease in the amount of carrots grown in the same region
2.2 Taking into account ceteris paribus, which of the following factors of production will not impact the supply of corn? a lack of farmers to plant corn seeds a powerful fertilizer to boost the amount of corn grown a decrease in the supply of tractors available to farmers. a disease killing potato plants
a disease killing potato plants
2.2 When considering factors that shift demand curves, which of the following will decrease the market demand for a product? Select the two correct answers below. a drop in the price of substitutes a rise in the price of complements a rise in income (for a normal good) a rise in the price of substitutes
a drop in the price of substitutes a rise in the price of complements
2.2 Choose the answer that best defines a substitute good. a good or service that is used because another is no longer in production a good or service that a consumer sees as the same or similar and can be used in place of another good or service a good or service that is better in quality than another good or service a good that is very often used in conjunction with another good or service
a good or service that a consumer sees as the same or similar and can be used in place of another good or service
1.2 Economic theories and models can give us ideas about which of the following? human behavior incentives the effects of government policies all of the above
all of the above
2.2 What are some potential examples of demand "shift factors"? income consumer tastes prices of related goods and services all of the above
all of the above
2.2 Which of the following factors would shift the demand curve? an expectation of a boom in housing prices a news announcement of new health benefits discovered for a vegetable a rise in income due to a booming economy all of the above
all of the above
3.1 Of the following scenarios, which does not reflect the goals of macroeconomic policy? an unemployment rate of 7% an economic growth rate of −1% an inflation rate of 5.5% all of the above scenarios do not reflect the goals of macroeconomic policy
all of the above scenarios do not reflect the goals of macroeconomic policy
2.2 In the context of observing how changes in price affect quantity demanded, the ceteris paribus assumption means that __________. price and quantity demanded are held constant all variables other than price and quantity demanded are held constant the law of demand is assumed to be true price and quantity supplied are held constant
all variables other than price and quantity demanded are held constant
1.5 Which type of efficiency is discussed in the following statement? The particular mix of goods a society produces represents the combination that society most desires. productive efficiency allocative efficiency production possibilities efficiency comparative advantage efficiency
allocative efficiency
3.1 Which component of GDP accounts for the greatest percentage of total GDP? investment net exports consumption government spending
consumption
1.5 The production possibilities frontier has a __________ due to the law of diminishing returns. constant slope allocative shape efficient line curved shape
curved shape
2.2 If the price of gasoline increases by 50%, we would expect demand for automobiles to _____________. This occurs because the two goods are close ______________. decrease, substitutes increase, substitutes increase, complements decrease, complements
decrease, complements
2.1 Which of the following would lead to a surplus? excess demand a price below equilibrium excess supply a quantity supplied less than the quantity demanded
excess supply
2.3 A price floor will usually tend to create ___________ when the price floor is set above the market price. a shortage excess demand excess supply an equilibrium
excess supply
3.1 When calculating GDP, government statisticians count just the value of __________________ in the chain of production that are sold for consumption, investment, government, and trade purposes. intermediate goods and services depreciated goods and services final goods and services domestically produced goods and services
final goods and services
3.1 GDP is the current value of all final goods and services produced in a nation in a year. What are final goods? all the income produced in a year goods that go into producing other goods goods at the furthest stage of production at the end of a year none of the above
goods at the furthest stage of production at the end of a year
2.2 Which of the following factors will primarily affect the supply of bicycles? Note that rubber and aluminum are used to produce bicycles. higher prices for rubber a decrease in overall consumer income lower prices for aluminum a decrease in the price of scooters
higher prices for rubber lower prices for aluminum
1.2 Which of the following is missing from the circular flow diagram Goods and Services Wages Salaries Benefits Firms Labor Services payment for goods and services government foreign markets investors households
households
3.1 In a trade deficit, ________. exports are greater than imports imports are greater than exports exports and imports are equal exports and imports have no impact on GDP
imports are greater than exports
3.1 Which of the following is not a component of demand used to measure GDP? consumption government spending income taxes net exports
income taxes
2.2 When John first starts his job, he rides the bus wherever he goes. However, after one year, John receives a promotion and a pay raise, leading to an increase in his annual income. As a result of his pay raise, John decides to drive wherever he goes instead of riding the bus. This behavior would indicate that to John, a bus ride is a(n) _________ good. normal inferior complementary ceteris paribus
inferior
3.1 Which of the following are not included in GDP? Select the two correct answers below. business investment intermediate goods non-market activities net exports
intermediate goods non-market activities
3.1 Which of the following are not included in GDP? intermediate goods business investment consumption used goods
intermediate goods used goods
3.1 The entire underground economy of services paid "under the table" and illegal sales is not counted in GDP because _________________. it does not represent production it is impossible to track these sales illegal economic activity doesn't generate real national income all of the above
it is impossible to track these sales
1.5 As additional increments of marginal resources are added to either healthcare or education, the marginal benefit from those additional increments will decline. What do economists call this pattern? law of supply anti-dumping law law of diminishing returns law of demand
law of diminishing returns
2.4 The figure below depicts the market for natural gas. Initially, the market is in equilibrium. Suppose the government placed a price ceiling on natural gas at $4 per cubic foot. The sum of which two areas represents the lost social surplus (deadweight loss) from this price ceiling?. Please use the variables from the image in your answer (and not numeric calculations). | --------\----------/--- |--A------\--------/---- |-----------\-----/------ |--B-----C--\---/------- |--------------\/--------- |--D-----E----/\--------- |-------------/---\------- |--F---------/-----\------ |-----------/--------\----
lost social surplus = C + E Social surplus (deadweight loss) is the sum of consumer surplus plus producer surplus. The deadweight loss is the area C + E. The price ceiling causes the area D to be transferred from producer to consumer surplus, and also causes a deadweight loss of C + E.
2.1 Given the supply and demand schedule below, what is the equilibrium price and quantity? Price--------QS----------QD $1------------0------------10 $2------------0------------9 $3------------0------------8 $4------------1-------------7 $5------------2-------------6 $6------------3-------------5 $7------------4-------------4 $8------------5-------------3
q=4, p=$7 Equilibrium occurs where quantity supplied equals quantity demanded. This can be seen in the chart where quantity = 4 and price = $7.
2.1 Equilibrium price occurs when quantity demanded is greater than quantity supplied. quantity demanded is less than quantity supplied. quantity demanded is equal to quantity supplied. none of the above
quantity demanded is equal to quantity supplied.
2.1 What term is best described as the total number of units of a good or service producers are willing to sell at a given price? supply schedule budget constraint quantity supplied equilibrium quantity
quantity supplied
3.1 Which of the following does not reflect a goal of macroeconomic policy? encourage economic growth in a nation keep rates of unemployment low rapidly increase the overall level of prices prevent high rates of inflation
rapidly increase the overall level of prices The three goals of macroeconomic policy are economic growth, lower unemployment rates, and lower inflation rates. An increase in the overall level of prices would indicate that inflation is increasing, which is not a goal of macroeconomic policy.
2.1 What term is best described as the situation where the quantity demanded exceeds the quantity supplied? equilibrium surplus shortage supply curve
shortage
1.2 The purpose of a theory, in general, is to ________________________________. determine the level of economic activity in a society take a complex, real-world issue and simplify it down to its essentials implement a method to view the world through the same lens as other disciplines, such as anthropology and biology determine which goods and services consumers are most likely to select
take a complex, real-world issue and simplify it down to its essentials
2.4 What is the best definition of producer surplus? the difference in the amount the producer is paid and the cost of production when producers make more goods than are demanded when there are too many producers for a certain demand in a market the intangible profits producers make in addition to the goods they sell
the difference in the amount the producer is paid and the cost of production
2.1 Where supply and demand intersect on a graph, quantity demanded equals quantity supplied. This quantity intersection is referred to as ________________. the equilibrium quantity the equilibrium supply the equilibrium demand the perfect price
the equilibrium quantity
1.4 Assume Brandon can buy either 1 DVD for $20 or 3 CDs for $25. What is the opportunity cost if he decides to buy 3 CDs? the 3 purchased CDs the lost opportunity to buy 1 DVD. the difference of $5 between the two options the amount of time Brandon must work to purchase 3 CDs
the lost opportunity to buy 1 DVD. Opportunity cost is the cost of what must be given up to obtain something that is desired. Since Brandon spends all of his money on CDs, he is giving up the opportunity to purchase a DVD.
2.3 A price ceiling is _______________. the total number of units of a good or service producers are willing to sell at a given price the total number of units of a good or service consumers are willing to purchase at a given price the quantity at which quantity demanded and quantity supplied are equal for a certain price level the maximum amount that can legally be charged for a good or service
the maximum amount that can legally be charged for a good or service
2.1 According to the law of demand, if all else remains equal, as the price of a good becomes lower, then _________________________. the quantity demanded of the good will decrease the quantity demanded of the good will increase the demand for the good will decrease the demand for the good will increase
the quantity demanded of the good will increase
3.1 The gap between imports and exports is called the ___________. trade balance trade surplus trade deficit trade expenditure
trade balance
1.5 Which of the following cannot be determined by using a production possibilities curve? what combination of outputs maximizes benefits for society how much less of one output must be produced if more of another output is produced whether a combination of outputs can be produced how much output can be produced from a given level of inputs
what combination of outputs maximizes benefits for society
3.1 If total GDP for this economy is $18.10 trillion for the year shown in the table below, what was the country's trade balance? Round your answer to the nearest hundredth if necessary. consumption 12.13 investment 2.82 gov spending 3.15 exports ? imports ? Total GDP 18.10
$0 trillion GDP=Consumption+Investment+Government spending+Trade balance Trade balance=(Exports−Imports)=(X−M) For this economy, Trade balance=18.10−12.13−2.82−3.15=$0 trillion
3.1 Calculate total GDP for this economy given the following components of demand. Round your answer to the nearest tenth. consumption 12.13 investment 2.82 gov spending 3.15 exports 2.4 imports 0.4 Total GDP ?
$17.4 trillion GDP=Consumption+Investment+Government spending+Trade balance GDP=C+I+G+(X−M) For this economy, GDP=9.6+2.8+3.0+(2.4−0.4)=$17.4 trillion
1.4 If a family spends its entire budget in a given time frame, the family can afford either 8 dance lessons or 5 karate lessons. Assuming the family spends its entire budget on just these two goods, what is the opportunity cost of one karate lesson in the time frame? Note: Your answer can include a decimal point.
1.6 dance lessons Opportunity cost can be calculated as the ratio of amounts of each good that could be consumed if the entire budget were spent only on that good. Therefore, the opportunity cost of an extra karate lesson 8 dance lessons/5 karate lessons=1.6 dance lessons.
1.4 If a family spends its entire budget in a given time frame, the family can afford either 120 sodas or 10 lbs of meat. Assuming the family spends its entire budget on just these two goods, what is the opportunity cost of one extra pound of meat in the time frame?
12 sodas Opportunity cost can be calculated as the ratio of amounts of each good that could be consumed if the entire budget were spent only on that good. Therefore, the opportunity cost of an extra pound of meat is 120 sodas/10 lbs of meat=12 sodas.
1.4 Suppose your marginal cost of making a peanut butter and jelly sandwich is constant at $10, but the marginal benefit of eating the sandwich decreases from $12 for one sandwich, to $10 for two sandwiches, to $8 for three sandwiches, to $6 for four sandwiches. How many sandwiches would you eat? 1 sandwich 2 sandwiches 3 sandwiches 4 sandwiches
2 sandwiches
1.5 What is the opportunity cost if we move from Point A to Point B? (Guns) 94-----------A 89--------------------B 65----------------------------C 15----------------------------------D 0---------10------20--------32---42 (Butter)
5 gun(s) As we move down along the production possibilities curve, the opportunity cost of increasing production of one good by the same amount, leads to an increase in the amount of the alternative good that we must give up. As we move from Point A to Point B, to gain 10 more units of butter, we only give up 5 guns.
3.1 Using the information below, determine what percentage of total GDP for this country consists of services. Round your answer to the nearest tenth. durable goods 2.98 nondurable goods 2.51 services 10.98 structures 1.92 change in inventories 0.10 Total GDP ?
59.4% GDP=Durable goods+Nondurable goods+Services+Structures+Change in inventories For this economy, GDP=2.98+2.51+10.98+1.92+0.10=$18.49 trillion To find the percentage of services, 10.9818.49×100=59.4%
1.5 What is the opportunity cost of increasing the production of butter from point F to point G? (Guns) 21-A 18-----B 15----------C 12-------------E 9----------------- 6------------------F 3-------------------- 0---------------------G (Butter)
6 gun(s) Increasing the production of butter by one unit, moving from point F to point G, results in an opportunity cost of 6 guns.
1.3 Which of the following describe benefits of international trade? Worldwide production increases. The worldwide economy improves. Worldwide standards of living are higher. All of the above.
All of the above
3.1 Which of the following help describe the concept of double counting? If each stage of the production cost is reported as a final product value, then the cost of the raw materials plus the value-added by the manufacturer would be more than the selling price of the final good. The computation of a nation's gross domestic product includes the final price of all goods (which already includes the value of all the intermediate goods used to produce them). If output is counted more than once as it travels through the production stages, there is a risk that the size of the overall economy will be significantly overstated. All of the above.
All of the above
1.3 Which of the following best describes the term command economy? An economy, typically agricultural, where things are done in the same way as they have always been done. An economy where economic decisions are passed down from government authority and where resources are owned by the government. A system where the means of production are owned and operated by private individuals or groups of private individuals. A market where the buyers and sellers make transactions in violation of one or more government regulations.
An economy where economic decisions are passed down from government authority and where resources are owned by the government.
1.4 Beatrice buys potato chips and soda each week with a total budget of $25. Sometimes she buys more potato chips, sometimes she buys more soda. The cost of potato chips is $1 per bag and the cost of a soda is $1.25 per bottle. Graph Beatrice's budget constraint by moving the endpoints of the line segment in the graph. 20 15 10 5 0------5-----10----15----20---25
Beatrice has a budget of $25. If Beatrice only purchases potato chips, then she can afford $25/$1=25 bags of potato chips. This corresponds to the point (25,0). If Beatrice only purchases soda, then she can afford $25/$1.25=20 bottles of soda. This corresponds to the point (0,20). 20 (0,20) 15 10 5 (25,0) 0----5----10----15----20----25
2.4 Why is there consumer surplus? Because some people are willing to pay more for a product than equilibrium price. Because some people are not willing to pay more for a product than equilibrium price. Because some people aren't willing to purchase a product at equilibrium price. Because some people are unwilling to purchase a good or service.
Because some people are willing to pay more for a product than equilibrium price. Each consumer is willing to pay a certain price for a good or service. The consumers that are willing to pay more than the equilibrium price have a gain or a surplus because they purchased this product at the lower price, market equilibrium.
1.4 Calculate a budget constraint with an equation. Jim and Norma go wine and oyster tasting. They set a budget of $100 for the day. Wine tastings (P1) are $10 per flight and oysters on the half shell (P2) are $2 each. According to their budget constraint, how many oysters are they able to purchase if they order 2 flights total? The equation for any budget constraint is: Budget = $P1×Q1+$P2×Q2. In this case P1 is $10 per flight at a wine tasting. P2 is $2 for the price of oysters. If Jim and Norma purchase 2 flights, representing Q1, we will solve for Q2, the number of oysters, using the budget constraint formula.
Budget = $P1×Q1+$P2×Q2 $100 = $10×2+$2×Q2 100=20+2Q2 2Q2=100−20 2Q2=80 Q2= 40 oysters
1.4 Calculate a budget constraint with an equation. Sam and Amanda moved from Hawaii to Iowa. Their grocery budget has remained at $100 per month, but the price of their groceries has dramatically gone down due to cost of living! They used to pay $10 for a dozen organic eggs (let Q1 represent the number of dozens of eggs) but now they pay $5. For frozen pizza (Q2) they paid $15 but now they are paying $10. What is Sam and Amanda's new budget constraint? Budget=$P1×Q1+$P2×Q2.
Budget=$P1×Q1+$P2×Q2 $100=$5×Q1+$10×Q2
1.4 Suppose Julia has a budget of $40 that she spends on movies (Q1) and rollerskating (Q2). The price of movie tickets recently increased from $7 per person to $10 per person and the price of roller skating decreased from $5 to $4 per person. What is Julia's new budget constraint?
Budget=$P1×Q1+$P2×Q2 $40=$10×Q1+$4×Q2
1.1 Within economics, the theory of scarcity says that there are unlimited wants and a finite amount of resources. However, history has demonstrated the power of productivity to overcome the theory of scarcity. What is the economic practice responsible for overcoming scarcity? the practice of rationing economic goods by the government using meditation to get people to want less the survival of the fittest is how economics deals with scarcity division and specialization of labor, which is a theory of abundance
Division and specialization of labor, which is a theory of abundance.
1.1 When the tasks involved with producing a good or service are split up, it is called ________. separation of powers creating incentives opportunity cost division of labor
Division of labor
1.3 T or F In underground economies, governments are heavily involved in making decisions on the goods sold and the prices set.
F
2.1 T or F As the price of pizza moves from $4 to $3, the quantity demanded of pizza will decrease. Price----Quantity Demanded 1----------------10----------- 2----------------8----------- 3----------------6----------- 4----------------4----------- 5----------------2------------
F Law of demand states that as the price of a good increases, the quantity demanded decreases. Thus if the price of the good decreases, the quantity demanded will increase, so if the price goes from $4 to $3, the quantity demanded will increase.
2.3 T or F Price ceilings are typically enacted in an attempt to keep prices high for those who produce the product.
F Price ceilings are typically enacted in an attempt to keep prices low for those who demand the product. A price floor is enacted to keep prices high for producers.
1.5 T or F If the Netherlands enjoys comparative advantage in the production of dairy products, it implies that the opportunity cost of producing dairy products in the Netherlands is greater than that of its trading partners.
F The opportunity cost is lower in the country that has comparative advantage.
2.4 T or F When a price floor is implemented, there is a decrease in social surplus but consumer surplus and producer surplus remain the same.
F When an effective price floor is implemented, some of the consumer surplus is transferred to producers. The price floor will block some transactions that buyers and sellers would have been willing to make, creating deadweight loss, which is a decrease in social surplus compared to the market equilibrium.
1.2 In a circular flow diagram, who pays wages? Firms Households Banks Governments
Firms
1.5 What conditions must be present for productive efficiency? Producers supply the quantity of each product that consumers demand. Workers are well-paid. Given available inputs and technology, it is impossible to produce more of one good without decreasing the quantity that is produced of another good. The mix of goods produced and their distribution to consumers maximize customer satisfaction.
Given available inputs and technology, it is impossible to produce more of one good without decreasing the quantity that is produced of another good.
1.3 _______________ is the expanding cultural, political, and economic connections between people around the world. Democracy Private enterprise Global banking Globalization
Globalization
1.4 Harold buys bus tickets and coffee each week with a budgeted amount of $4.50. The cost of a bus ticket is $0.30 and the cost of a cup of coffee is $0.90. Graph Harold's budget constraint by moving the endpoints of the line segment in the graph. Connecting these two coordinate on the x- and y-axes illustrates Harold's budget constraint, which shows every combination of bus tickets and cups of coffee that he can afford with his budget. 10 5 0--5--10--15
Harold has a budget of $4.50. If Harold only purchases bus tickets, then he can afford $4.50/$0.30=15 tickets. This corresponds to the coordinate (15,0). If Harold only purchases coffee, then he can afford $4.50/$0.90=5 cups of coffee. This corresponds to the coordinate (0,5). 10 5-(0,5) ---------(15,0) 0--5--10--15
1.4 Anna has a fixed budget for entertainment for the year and likes movies and concerts. If Anna spends her entire budget on movies, she can go to 70 movies. If she spends her entire budget on concerts, she can go to 35 concerts. What is the opportunity cost of a concert?
If Anna is spending her entire entertainment budget and goes to a concert, then she must give up 70/35=2 movies.
1.4 In marginal analysis, when comparing costs and benefits, an optimal choice is found when ______. (Note: MB = marginal benefit, MC = marginal cost, TB = total benefit, and TC = total cost.) MB≥MC MB<MC TB=TC TB>TC
MB≥MC If possible, we want to choose an outcome or output where MB=MC. If an exact equality is not possible (because of, say, indivisible units of output), then we want to be as close to equality as possible, with MB slightly more than MC. In general, one should always choose to consume if the marginal benefit of doing so is greater than the marginal cost (MB>MC). This implies that the optimal level of consumption occurs where marginal benefit is equal to marginal cost (MB=MC).
1.1 ________________ may analyze how a mother of three children spends her money each month. _________________ may analyze various influences on the unemployment rate. Macroeconomists; Macroeconomists Macroeconomists; Microeconomists Microeconomists; Microeconomists Microeconomists; Macroeconomists
Microeconomists; Macroeconomists
1.1 A macroeconomist is _____________ with how new technology influences economic growth in a developing country. concerned not concerned reassured annoyed
Concerned
2.2 Suppose that the government provides a subsidy on corn crops. Which of the following explains how corn farmers will react to the subsidy? Corn farmers will begin to grow more corn. Corn farmers will grow less corn and more green beans. Corn farmers will continue to grow the same amount of corn because they will make more money from the subsidy. Corn farmers will reduce their supply of corn.
Corn farmers will begin to grow more corn.
2.4 Which of the following best defines consumer surplus? It is the fall in total surplus that occurs when the economy produces at an inefficient quantity. It is the minimum price one is able to charge for a good or service and remain open in the short-run. It is the gap between the price for which producers are willing to sell a product, based on their costs, and the market equilibrium. It is the gap between the price consumers are willing to pay, based on their preferences, and the market equilibrium price.
It is the gap between the price consumers are willing to pay, based on their preferences, and the market equilibrium price.
1.4 Janet has a weekly budget of $14 to spend on coffee and pastries. If cups of coffee cost $1.40 and pastries cost $0.70 each, graph Janet's budget constraint by moving the endpoints of the line segment in the graph. Click each endpoint and relocate to the correct coordinates. 20 15 10 5 0----5----10----15----20
Janet has a budget of $14. If Janet only purchases coffee, then she can afford $14/$1.40=10 cups of coffee. This corresponds to the point (10,0). If Janet only purchases pastries, then she can afford $14/$0.70=20 pastries. This corresponds to the point (0,20). 20-(0,20) 15 10 5 -----(10,0) 0--5--10--15--20
1.4 Jerry enjoys both soda and popcorn, and he has a weekly budget of $28 for these items. Sometimes he will buy more soda, and other times, he will buy more popcorn. Soda costs $2 per bottle, and popcorn costs $4 per bag. Graph Jerry's budget constraint by moving the endpoints of the line segment in the graph. 10 5 0--5--10--15
Jerry has a budget of $28. If Jerry only purchases soda, then he can afford $28/$2=14 bottles of soda. This corresponds to the point (14,0). If Jerry only purchases popcorn, then he can afford $28/$4=7 bags of popcorn. This corresponds to the point (0,7). 10 -(0,7) 5 --------(14,0) 0--5--10--15
2.4 Why does producer surplus exist? Some producers are willing to produce at a price that is below the equilibrium price. Producers make more goods than are demanded. There are too many producers for a certain market demand. Some consumers are willing to pay more than market price.
Some producers are willing to produce at a price that is below the equilibrium price. Producer surplus is profit, or what producers make above the cost of production. This is the difference between the market equilibrium price (the price at which the product was sold) and the price a firm could have sold the product (a price equal to the firms average total costs.) Producer surplus occurs when producers are willing to sell at a price less than market equilibrium price.
2.2 You are responsible for setting prices of finished clothing items at a major textile manufacturer. In the past year the price of cotton, a critical input, has increased by 20%. What is the likely result? Supply of clothing will remain unchanged. The change in supply is unknown. Supply of clothing will increase. Supply of clothing will decrease.
Supply of clothing will decrease.
1.4 T or F John says to his friend, "This concert is going to cost me $20 when I buy the ticket." His friend corrects him and says, "actually, this concert will cost you more than $20 since you have to miss work." His friend is referring to the opportunity cost.
T
2.1 T or F A demand curve shows the relationship between price and quantity demanded on a graph, with quantity on the horizontal axis and the price on the vertical axis.
T
2.2 T or F Economists use the ceteris paribus assumption to make it easier to analyze complex problems by looking at one factor affecting a variable at a time.
T
2.2 T or F For normal goods, there is a positive relationship between income and demand levels, while there is an inverse relationship for inferior goods.
T
