Macro MidTerm
The following table illustrates the value added approach to calculating GDP. Please complete the table. Firm ------- Cotton farmer Textile Mill Shirt Company L.L.Bean Value of Product -------------------- Raw cotton = $1 fabric = $3 shirt = $15 shirt sold by L.L.Bean = $35 Value Added ---------------- Farmer = 1 Textile Mill = 2 Shirt Company = 12 L.LBean = ________ Total added value = ________
$20, $35
An artist buys scrap metal from a local steel mill as a raw material for her sculptures. Last year, she purchased $7,000 worth of scrap metal. With the steel she produced 10 authentic sculptures that she sold for $1,000 each to a local art dealer. The art dealer then sold all of the sculptures to art collectors for an average of $1,200 each.
$3,000
Why is the demand curve referred to as a marginal benefit curve?
It shows the willingness of consumers to purchase a product at different prices.
If demand DECREASES and supply INCREASES, which of the following will definitely occur?
The equilibrium price will decrease.
if demand and supply BOTH INCREASE, which of the following will definitely occur?
The equilibrium quantity will increase.
a. What is the basis for trade? b. How can a country gain from specialization and trade?
a. Comparative advantage. b. A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services.
Indicate whether you agree or disagree with the following statements. a. "If nominal GDP is less than real GDP, then the price level must have fallen during the year." b. "Whenever real GDP declines, nominal GDP must also decline." c. "If a recession is so severe that the price level declines, then we know that both real GDP and nominal GDP must decline." d. "If real GDP stayed the same while nominal GDP declined between 2019 and 2020, then the GDP deflator must also have declined."
a. Disagree. Nominal GDP is less than real GDP if the current price level is less than the base year price level. A fall in the price level during the year is neither necessary nor sufficient to cause nominal GDP to be less than real GDP. b. Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise. c. Agree. If both output and prices are falling, then both real GDP and nominal GDP will fall. d. Agree. If nominal GDP declined between 2019 and 2020, then the GDP deflator must also have declined
Suppose the United Kingdom and Norway both produce oil and fish oil, which are sold for the same prices in both countries. The following table shows combinations of both goods that each country can produce in a day, measured in thousands of barrels, using the same amounts of capital and labor: United Kingdom ----------------------- Oil | Fish Oill 0 | 8 2 | 6 4 | 4 6 | 2 8 | 0 Norway ----------------------- Oil | Fish Oill 0 | 12 3 | 9 6 | 6 9 | 3 12 | 0 a. Who has the comparative advantage in producing oil? b. Can these two countries gain from trading oil and fish oil?
a. Neither country has a comparative advantage producing oil because their opportunity costs of producing oil are equal. b. These countries cannot gain from trade because neither has a comparative advantage producing either good.
Is the value of the denim fabric included in U.S. GDP?
No, the value of the denim fabric is included in the price of the denim jeans when the jeans are sold.
Economic efficiency
1- is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production. 2- is a market outcome in which the sum of consumer surplus and producer surplus is at a maximum. Answer: Both a and b
Indicate whether each of the following transactions represents the purchase of a final good 1. the purchase of cotton fabric from a textile mill by a clothing company. 2. the purchase of two new elementary school buildings by the state government. 3. The purchase of french wine by a U.S consumer 4. The purchase of a new Plane by american airlines
1. Not a final good 2. Final good 3. Final good 4. Final good
You have exams in economics and chemistry coming up and 5 hours available for studying. The following table shows the trade-offs you face in allocating the time you will spend in studying each subject. Hours Studying ------------------ Grade | Economics | Chemistry A | 5 | 0 B | 4 | 1 C | 3 | 2 D | 2 | 3 E | 1 | 4 F | 0 | 5 Midterm Score ------------------------ Economics | Chemistry 94 | 72 91 | 80 88 | 86 83 | 90 78 | 92 71 | 94 To construct a production possibilities frontier showing the trade-off between your economics grade and chemistry grade, you'd need to plot the following points: when your chemistry exam score is 72 your economics score is _______ when your chemistry exam score is 80, your economics score is ___________ when your chemistry exam score is 86, your economics score is _________ when your chemistry exam score is 90, your economics score is _______ when your chemistry exam score is 92, your economics score is __________ and when your chemistry exam score is 94, your economics score is ________ The production possibilities frontier ________ these points If you are at point C, what is the opportunity cost of increasing your chemistry score by studying one additional hour for the chemistry exam? _________ fewer points on your economics exam.
94, 91, 88, 83, 78, 71 Connects 5
From the list below, select the variable that will cause the demand curve to shift:
Consumer income
What are the four major components of expenditures in GDP?
Consumption, investment, government purchases, and net exports.
How are supply and demand curves similar?
Demand is the willingness and paying capacity of a buyer at a specific price. On the other hand, Supply is the quantity offered by the producers to its customers at a specific price.
______ measures the monetary value of final goods and services—that is, those that are bought by the final user—produced in a country in a given period of time (say a quarter or a year). It counts all of the output generated within the borders of a country
GDP
Levi Strauss & Co. makes the denim fabric for some of its jeans in a factory in Greensboro, North Carolina, using cotton grown in the United States. The company then sends the denim fabric to a plant in China, where workers assemble the jeans. a. Is the denim fabric a final good?
No, the denim fabric is an intermediate good that will be included in a final good (the jeans).
Does it matter in calculating GDP whether a pair of these jeans is bought in a New York store by either a U.S. citizen or a Canadian citizen
No, what matters is that production of the jeans took place in the United States.
Suppose the information in the following table is for a simple economy that produces only the following four goods: shoes, hamburgers, shirts, and cotton. Further, assume that all of the cotton is used to produce shirts. Product ---------- Shows Burgers Shirts Cotton 2012 Quantity | Price ------------------------- 110 | $55 75 | $2 70 | $40 12,000 | $0.09 2022 Quantity | Price ------------------------- 120 | $70 100 | $2 60 | $35 12,000 | $0.07 2023 Quantity | Price ------------------------- 120 | $75 120 | $2.25 85 | $35 13,000 | $0.08 a. If the base year is the year 2012, then real GDP for 2022 equals ________ and the real GDP for 2023 equals ________ b. The (annual) growth rate of real GDP in 2023 is _________
Price of 2012 X Quantity of other years a. 9,200 , 10,240 ((GDP 2023-GDP 2022)/ (GDP 2022)) * 100 b. 11.30
Suppose that a simple economy produces only the following four goods and services: shoes, hamburgers, shirts, and cotton. Further, assume that ALL of the cotton is used to produce shirts. Use the information in the following table to calculate Nominal Gross Domestic ProductLOADING... (Nominal GDP) for 2022. Product | Quantity | Price Shoes | 100 | $60 Burguer | 100 | $2 Shirt | 50 | $25 Cotton | 1,800 | $0.60
Quantity of product X Price. Don't count in inferior goods. $7,450
ARTICLE Prior to 2019, Tesla operated only a single factory, located in Fremont, California. In late 2019, Tesla opened a second factory in Shanghai China. Initially the plant produced only Model 3 cars and Model Y SUVs. Source: Trefor Moss, "Tesla Starts Delivering China-Made Model Y Crossover," Wall Street Journal, January 18, 2021. Assume a graph illustrates the production possibilities frontier showing the trade-off Tesla faces between producing Model 3 cars and Model Y SUVs on the x-axis and producing the original Model S and Model X cars on the y-axis before the factory in China began production. How would Tesla's factory in China starting production affect the production possibilities frontier?
The PPF will have the same y-intercept but will pivot outward along the x-axis
From the list below, select the variable that will cause the supply curve to shift:
The cost of raw materials
Suppose we can divide all the goods produced by an economy into two types: consumption goods and capital goods. Capital goods, such as machinery, equipment, and computers, are goods used to produce other goods. Part 2 Is it likely that the production possibilities frontierLOADING... in this situation would be a straight line: LOADING... click on the icon for an example or bowed out: LOADING... click on the icon for an example?
The production possibilities frontier would likely be bowed out because not all resources are equally well suited to produce both consumption and capital goods.
A student makes the following argument: "When a market is in equilibrium, there is no CONSUMER SURPLUS. We know this because in equilibrium, the market price is equal to the price consumers are willing to pay for the good." Briefly explain whether you agree with the student's argument.
The student is incorrect because the price consumers are willing to pay and the market price are only equal for the last unit consumed.
Real GDP
The value of final goods and services evaluated at base-year prices.
Nominal GDP
The value of final goods and services evaluated at current-year prices.
he three economic questions that every society must answer are
What goods will be produced, how will they be produced, and who will receive the goods?
Which equation represents the relationship between GDP and the four major expenditure components?
Y= C + I + G +NX
Productive efficiency means that
a good or service is produced at the lowest possible cost.
Use the information on the kumquat market in the following table to answer the questions. (Quantities are given in millions of crates per year.) Price | Demanded | Supplied ----------------------------------- $10 | 130 | 30 $15 | 120 | 70 $20 | 110 | 110 $25 | 100 | 150 $30 | 90 | 190 $35 | 80 | 230 a. The equilibrium price is _______ and the equilibrium quantity is _____ million b. How much revenue do kumquat producers receive when the market is in equilibrium? Kumquat producers receive _____ billion in revenue. c. Suppose the federal government decides to impose a price floor of $30 per crate. Assume that the government does not purchase any surplus kumquats. Now how many crates of kumquats will consumers purchase? Consumers will purchase _______ million crates of kumquats. d. How much revenue will kumquat producers receive? Kumquat producers will receive ________ billion in revenue
a. $20, 110 b. 2.2 billion (20 x 110 = 2200) c. 90 d. 2.7 billion (20 X 90 = 2700)
Suppose that your local police department recovers 100 tickets to a big NASCAR race in a drug raid. It decides to distribute these to residents and announces that tickets will be given away at 10 A.M. Monday morning at City Hall. Suppose that your college decides to give away 1,000 tickets to the football game against your school's biggest rival. The athletic department elects to distribute the tickets by giving them away to the first 1,000 students who show up at the department's office at 10 a.m. the following Monday. a. The groups of people that are most likely to get the tickets will be those for whom the expected marginal _______ of going to the department's office on Monday morning are greater than the expected marginal ________ b. What is the actual cost and also the opportunity cost of distributing the tickets this way? c. Productive efficiency occurs when a good or service (such as the distribution of tickets) is produced at the lowest possible cost. Is this an efficient way to distribute the tickets? d. This is
a. benefits, costs b. -The cost of travel to the department's office. -The cost of people blocking traffic in and around the department's office building. -The activities that cannot be done (such as earning money at work) when one is standing in line c. No d. not an equitable way to distribute the tickets because some students who really want them may be unable to go and get them.
Allocative efficiency means that
every good or service is produced up to the point where marginal benefit is equal to marginal cost.
Consider the following statement: "An increase in supply decreases the equilibrium price. The decrease in price increases demand." The statement is
false: decreases in price affect the quantity demanded, not demand.
Efficiency means that goods are distributed in a way that _____________ while equity means that goods are distributed in a way that _______
maximizes benefits to society, is fair
Marginal benefit is
the additional benefit from consuming one more unit.
Every society faces trade-offs because we live in a world of scarcity. Suppose a student-athlete has the opportunity to earn $1,000,000 next year playing for a minor league baseball team, $100,000 next year playing for a European professional football team, or $0 returning to college for another year. he opportunity cost of the student-athlete returning to college next year is _______________
1,000,000
How does CONSUMER SURPLUS change as the equilibrium price of a good rises or falls?
As the price of a good RISES, consumer surplus DECREASES , and as the price of a good FALLS, consumer surplus INCREASES
How does PRODUCER SURPLUS change as the equilibrium price of a good rises or falls?
As the price of a good RISES, producer surplus INCREASES, and as the price of a good FALLS, producer surplus DECREASES
ARTICLE According to the FBI Bank Crime Statistics, there were more than 3,033 bank robberies in the United States in 2018. The FBI claims that banks have made themselves easy targets by refusing to install clear acrylic partitions, called bandit barriers, that separate bank tellers from the public. According to a special agent with the FBI, "Bandit barriers are a great deterrent. We've talked to guys who rob banks, and as soon as they see a bandit barrier, they go find another bank." Sources: U.S. Department of Justice, Federal Bureau of Investigation, "Bank Crime Statistics 2018"; and Richard Cowen, "FBI: Banks Are to Blame for Rise in Robberies," NorthJersey.com, March 10, 2009. Despite this finding, many banks have been reluctant to install these barriers. Wouldn't banks have a strong incentive to install bandit barriers to deter robberies? Why, then, do so many banks not do so? Part 2
Banks have no economic incentive to install the barriers.
ARTICLE Annie Lowery, a business reporter, wrote the book Give People Money: How a Universal Basic Income Would End Poverty, Revolutionize Work, and Remake the World, which advocates that the federal government adopt a universal basic income (UBI) under which every person in the country would receive a monthly check of $500 to $1,000. She argues that "in a society as rich as ours...everyone deserves a guarantee of financial security." Source: Annie Lowery, "Trump Should Just Give People Money," New York Times, July 7, 2018. Is Lowery correct that it is the role of the federal government to guarantee that people have financial security?
Lowery is making a normative judgment regarding the policy. Normative analysis concerns what one person believes ought to be. You can agree or disagree with her opinion depending on your own views of the issue. There is no way to demonstrate that Lowery's opinion is correct.
Consider the following simple economy that produces only three goods: Product ----------- Denim pants Wine Textbooks Quantity | Price 2009 ------------------------- 80 | $40 90 | $11 15 | $90 Quantity | Price 2017 ------------------------- 100 | $50 80 | $10 20 | $100 Real GDP in 2017 equals ___________
Real GDP will equal: quantity produced in 2017 by 2009 prices a. $6,680
Microsoft charges a price of $599 for a copy of Windows 7. Is this pricing decision rational?
When we assume the managers at Microsoft have used all available information and have weighed all known benefits and costs, we are assuming rationality.
ARTICLE A columnist for Forbes argues that: "Even if China is always better than Spain at producing textiles, if the best thing that Spain could be doing is textiles then that's what Spain should be doing." Source: Tim Worstall, "Inditex's Zara and the Power of Comparative Advantage," forbes.com, July 7, 2015. a. What does the columnist mean by writing that China "is always better than Spain" in producing textiles (which include clothing, sheets, and similar products)? b. Is the columnist arguing that Spain has an absolute advantage over China in producing textiles, a comparative advantage, or both? c. The columnist notes that, in fact, Spain exports significant quantities of textiles. If his description of the situation in China and Spain is accurate, briefly explain how Spanish firms are able to export textiles in competition with Chinese firms.
a. China can produce textiles at a lower cost in terms of resources than Spain can. b. A comparative advantage in producing textiles. c. Spain must be able to produce textiles at a lower opportunity cost than China can.
Indicate which component of GDP will be affected by each of the following transactions involving General Motors. Part 2 a. You purchase a new Chevrolet Silverado pickup from a GM dealer. b. You purchase a 2019 (preowned) Chevrolet Silverado from a friend. c. GM purchases door handles for the Silverado from an auto parts manufacturer in Indiana d. GM produces 1,000 Silverados in a factory in Flint, Michigan, and ships them to a car dealer in Shanghai, China e. GM purchases new machine tools to use in its Flint factory.
a. Consumption Expenditure b. Not included in GDP calculation c. Not included in calculation d. Net export expenditure e. Investment Expenditure f. government expenditure
Suppose we can divide all the goods produced by an economy into two types: consumption goods and capital goods. Capital goods, such as machinery, equipment, and computers, are goods used to produce other goods. a. Suppose that Liechtenstein and Luxembourg currently have identical production possibilities frontiers but that Liechtenstein devotes only 5 percent of its resources to producing capital goods over each of the next 10 years, whereas Luxembourg devotes 30 percent. Which country is likely to experience more rapid economic growth in the future? _________ b. When a country devotes resources to producing capital goods, then in the future that country's production possibilities frontier will _______ c. In particular, over the next 10 years, the production possibilities frontier for _______ will shift out farther.
a. Luxembourg b. shift out along both axes. c. Luxembourg
Identify whether each of the following transactions will take place in the FACTOR MARKET or in the PRODUCT MARKET and whether households or firms are supplying the good or service or demanding the good or service. a. George buys a Tesla Model S. b. Tesla increases employment at its Fremont plant. c. George works 20 hours per week at McDonald's. d. George sells land he owns to McDonald's so it can build a new restaurant.
a. This takes place in the PRODUCT MARKET. The household DEMANDS the good and the firm SUPPLIES the good. b. This takes place in the FACTOR MARKET. The households SUPPLY the labor and the firm DEMANDS the labor. c. his takes place in the FACTOR MARKET. The household SUPPLIES the labor and the firm DEMANDS the labor d. This takes place in the FACTOR MARKET. The household SUPPLIES the factor of production and the firm DEMANDS the factor of production.
State whether each of the following events will result in a movement along the demand curve for McDonald's Big Mac hamburgers or whether it will cause the curve to shift. a. The price of Burger King's Whopper hamburger INCREASES. This will cause b. McDonald's ELIMINATES $1.00 off coupons. This will cause c. KFC RAISES the price of a bucket of fried chicken. This will. d. The U.S. economy enters a period of RAPID GROWTH in incomes. This will cause e. The price of Burger King's Whopper hamburger declines. This will cause f. The price of fries decreases due to a potato surplus. This will.
a. demand for McDonald's Big Mac hamburgers to increase. b. a movement along the demand curve for McDonald's Big Mac hamburgers. c. Shift the demand for McDonald's Big Mac hamburguers to the right d. demand for McDonald's Big Mac hamburgers to shift to the left if they are inferior goods. e. demand for McDonald's Big Mac hamburgers to decrease f. increase the demand for McDonald's Big Mac hamburgers
a. What is absolute advantage? b. What is comparative advantage? c. Is it possible for a country to have a comparative advantage in producing a good without also having an absolute advantage? A country without an absolute advantage in producing a good
a. he ability to produce more of a good or service than competitors using the same amount of resources. b. The ability to produce a good or service at a lower opportunity cost than other producers. c. will have a comparative advantage if it has a lower opportunity cost of producing that good.
ARTICLE A news story from 2015 about the oil market stated, "the global glut of crude that has hit [oil] prices is starting to shrink."In referring to a "global glut of crude," a. the article describes the result of a significant ______ b. This change resulted in a _______ c. In response to the global glut of oil, the market price will _________ d. The glut will start to shrink when crude oil producers ______
a. increase in supply of, relative to the demand for, crude oil; b. a surplus of oil such that there is a greater quantity supplied than quantity demanded for crude oil; c. fall to a new, lower equilibrium price at which the quantity demanded would equal the quantity supplied; d. reduce the amount that they offer for sale, and buyers increase the amount they buy.
ndicate whether each of the following is primarily a microeconomic issue or a macroeconomic issue. a. The effect of higher cigarette taxes on the quantity of cigarettes sold. This is a __________ issue. b. The effect of higher income taxes on the total amount of consumer spending. This is a ___________ issue. c. The reasons for the economies of East Asian countries growing faster than the economies of sub-Saharan African countries. This is a __________ issue. d. The reasons for low rates of profit in the airline industry. This is a ________ issue.
a. microeconomic b. macroeconomic c. macroeconomic d. microeconomic
ndicate which of the following statements represent positive analysis and which represent normative analysis a. A 50-cent-per-pack tax on cigarettes will reduce smoking by teenagers by 12 percent. This represents _________ b. The federal government should spend more on AIDS research. This represents _____________ c. Rising paper prices will increase textbook prices. This represents ________ d. The price of coffee at Starbucks is too high. This represents ________________
a. positive analysis b. normative analysis c. positive analysis d. normative analysis
a. A production possibilities frontier: b. We can show economic efficiency: c. The production possibilities frontier will shift outward
a. shows the maximum attainable combinations of two goods that may be produced with available resources. b. with points on the production possibilities frontier. c. If technological advances occur
ARTICLE According to an article on cnbc.com, in early 2021, Elon Musk was the world's richest person, with wealth of $184 billion. Source: Robert Frank, "Elon Musk Is Now the Richest Person in the World, Passing Jeff Bezos," cnbc.com, January 7, 2021. a. Does Elon Musk face scarcity? b. Which of the following statements is true?
a. Yes, because even though billionaires' financial resources enable them to afford a much greater array of goods and services than those less wealthy, their financial resources are not infinite. b. All individuals face a scarcity of time and need to make choices how to allocate it.
ARTICLE College football attendance, especially student attendance, has been on the decline. In 2019, home attendance at major college football games declined for the ninth consecutive year and was the lowest since 1996. The opportunity cost of engaging in an activity is the value of the best alternative that must be given up in order to engage in that activity. Source: Charlotte Wilder, "Unexcused Absence: Why Is College Football Attendance Tanking?," si.com, January 10, 2020. a. Your opportunity cost of attending a game compared with the opportunity cost facing a college student 23 years ago is b. Can this change in opportunity cost account for the decline in college football attendance? Briefly explain.
a. higher, because more games are televised today. b. Yes, because these changes increase the opportunity cost of watching football games in person.
A student writes the following: "Increased production leads to a lower price, which in turn increases demand." This student must be referring to
an increase in quantity demanded.
Centrally planned economies allocate resources based on decisions by __________ while market economies answer these questions through decisions made by __________
government, household and firms
Because ECONOMIC SURPLUS is the _______ of the benefit to firms and the benefit to consumers, it is the best measure we have of the benefit to society from the production of a particular good or service. For this reason, it is appropriate to LABEL economic surplus as ________surplus.
sum, social
Consumer surplus is:
the difference between the highest price a consumer is willing to pay and the price the consumer actually pays.
Producer surplus is
the difference between the lowest price a firm would be willing to accept and the price it actually receives.
When the demand curve shifts to the RIGHT,
the equilibrium price and quantity will both increase.
Deadweight loss is
the reduction in economic surplus resulting from a market not being in competitive equilibrium.
Economic surplus is
the sum of consumer surplus and producer surplus.
ARTICLE The U.S. Postal Service (USPS) charges Amazon about $2 to deliver a package. The USPS argues that its contract with Amazon allows it to reduce the loss it suffers on its overall operations. A business writer for the Washington Post observes: "Looked at from the standpoint of incremental revenue (huge) minus these incremental expenses (modest), the Postal Service could very easily have come to the conclusion that, even at $2 a package, the Amazon contract was likely to be highly profitable." Sources: Eli Rosenberg, "Trump Said Amazon Cost The the USPS 'Billions.' But the Post Office Has a Different Explanation." Washington Post, May 11, 2018. What does the writer mean by "incremental revenue" and "incremental cost"? Why would he focus on incremental revenue and incremental cost rather than on total revenue and total cost? "Incremental" means the same thing as
"marginal." If the marginal revenue exceeds the marginal cost, the USPS's profit will increase. If the marginal cost exceeds the marginal revenue, the USPS's profit will decrease.
