Macroeconomics
You are thinking about buying a house. You find one you like that costs $300,000. You learn that your bank will give you a mortgage for $240,000 and that you would have to use all of your savings to make the down payment of $60,000. You calculate that the mortgage payments, property taxes, insurance, maintenance, and utilities would total $1,440 per month. Which of the following is true regarding your calculation of the cost of owning the house?
It should include the opportunity cost of the money used to make the down payment. This money could be earning interest in a bank.
Suppose you are ready to check out and see two lines: Line A has three people, while Line B has five people. Assume people choose lines at random and have not yet had a chance to switch lines. The situation will move toward equilibrium if the _____ Assume that all eight shoppers are optimizing (i.e., they had a chance to switch lines) and the situation is in equilibrium. Given this information, you could infer that the shorter line will move _____ the longer line Assume that all eight shoppers are optimizing (i.e., they had a chance to switch lines) and the situation is in equilibrium. Given this information, you could infer that the behavior of the _____ is most informative
Last person from the longer line switches to the shorter line Slower than Last person in the five person line
How does microeconomics differ from macroeconomics?
Microeconomics is the study of how individuals, households, firms, and governments make choices, while macroeconomics is the study of the economy as a whole.
Which of the following areas are addressed in the study of economics? (Check all that apply.)
Money Inflation rates The benefits associated with a decision Pollution reduction policies
Which of the following is subject to the free-rider problem?
National security A neighborhood watch Public libraries
Suppose instead that you notice that the concert ticket cost you $10; previously, you had mistakenly believed the price was $100. Should learning this information affect your decision to go to the concert?
No
One reason free-riders exist could be that:
The private benefit often exceeds the private cost
All of the following would fall under the study of microeconomics except:
The stock markets response to an interest rate increase
Which of the following statements would not be considered a positive statement?
The tuition at 4-year universities is too high and should be lowered
The concept of opportunity cost is a measure of _________.
The value of the best alternative use of a resource
An economist observes that many students spend $100,000 to go to college. She could ask whether such spending is worth it, or she could assume that it is worth it. In other words, she could assume that students are optimizing and that the education system is in equilibrium. Her analysis also assumes that there are no other benefits to college besides higher income and there are no other costs besides monetary costs. Which of the following, if true, supports the economist's conclusion?
A college education increases the earnings of an individual by at least $100,000 over his or her lifetime.
The statement that the U.S. government should increase carbon taxes to reduce carbon emissions that cause global warming is ___________.
A normative statement, since it describes what ought to be done and is therefor not possible to confirm with data
When a cost-benefit analysis is done:
All relevant options must be considered
Identify the cause and effect in the following examples: Lower infant mortality is _____ and an improvement in nutrition is _____ The surge in cocoa prices is _____ and a pest attack on the cocoa crop is _____
An effect / The cause An effect / The cause
When making your decision about which activity to choose, you should consider the monetary cost _____ the opportunity cost of the activities. The goal is to choose the option that offers the greatest _____ benefit.
As well as Net
Since the inputs used to produce goods are scarce, the total amount produced of most goods is _____ the amount that consumers would like to buy. To allocate the goods produced to the people who value them the most, we use _____ .
Below The price mechanism
Suppose the market price of corn is $5.50 per bushel. Which of the following is not one of the three conditions that will need to be satisfied for the corn market to be in equilibrium at this price?
Both the buyers and sellers of corn could benefit by making small changes to their market behaviors.
You are trying to decide how to spend $40 you earned last night. You could buy a new shirt or go out to dinner and a movie with a friend. You could also go to the movie, not have popcorn, and buy a less expensive shirt. Taken together these things form your _____ .
Budget constraint
All of the following are principles of economics except:
Categorization
Assume every semester after finals you fly back to your hometown using a $300 ticket you buy online. You have 40,000 frequent flier miles. You could exchange your miles for a round-trip ticket to Bermuda over spring break. If you choose to exchange your airline miles for a free trip to Bermuda over spring break, then your trip _________.
Cost $300, since your next-best alternative for your miles was to use them to fly home at the end of the semester.
Which of the following would an economist use when conducting empirical analysis?
Data
he table above shows that for a given budget if you increase the amount of one type of good that you buy, you must _____ the amount of the other good that you buy. Therefore, a budget constraint implies that the consumer faces _____ .
Decrease Trade-offs
Suppose your New Year resolution is to get back in shape. You are considering various ways of doing this: you can sign up for a gym membership, walk to work, take the stairs instead of the elevator, or watch your diet. How would you evaluate these options and choose an optimal one?
Do a cost-benefit analysis to compare the alternatives
Which of the following is not an example of causation?
Driving without car insurance will lead to getting into an accident
Economics is all about making choices. The reason we have to choose one thing over another is:
Economic resources are scarce
Clara visits the local bakery shop several times a week and knows the owner, Sam, very well. Her favorite cupcakes, chocolate cream, sell for $22 each. She buys them regularly. The $22 charged per cupcake is the _____ rice. If Sam raised the price to $2.50, Clara would buy her favorite cupcake from the coffee shop down the street for $2.25, which would be the _____ price for her.
Equilibrium Optimum
Which of the following is not an item studied under macroeconomics?
Firm profits
Which of the following would not be considered one of the possible opportunity costs of a recent high school graduate starting college right away.
Getting a full-time job Using your college fund to buy a new car Spending a year backpacking across Europe
Which of the following would be considered a scarce resource for producers?
High-skill labor Natural resources for production Equipment and tools
You have already purchased (non-refundable and unsellable) tickets to a concert on Friday night. A friend also invites you to her birthday party on Friday. While you like your friend, you politely decline because you really want to go to the concert. Suppose you learn that your friend is serving flank steak at her party; all-you-can eat and at no charge. Flank steak is your favorite food. Your opportunity cost of going to the concert is now _____ than you had previously thought.
Higher
Which of the following is true regarding the concept of causation?
It describes how one event can bring about change in another.
For most people, one of the biggest challenges involved in studying economics is:
It looks beyond simple cause and effect to the many possible long term effects of an action.
Michael has a football game tomorrow morning and he needs to decide how many hours to practice.The benefits column shows how many more points he expects to earn because of increased practice. The cost column shows how many points he will lose because of careless errors due to lack of sleep. (The "marginal" columns show the effect of each additional hour. These numbers are the differences of the "total" columns.) Using the marginal benefits and marginal costs analysis, if Michael practices for four hours, the outcome will be _____ because _____.
Non-optimal Net benefit is not optimized
Free riding occurs when ________ are out of sync with ________
People's private benefits The public interest
Making a prediction today about the world's population in twenty years based on current growth trends is an example of _____ economics. Advising the residents of a town to choose a toll road over a freeway extension due to a limited budget and high trucking usage is an example of _____ economics.
Positive Normative
All of the following are examples of empiricism except:
Predicting human behavior
If the price of a good in an equilibrium market is $112, all of the following statements are true except:
Producers know that if they colluded, they could increase the price
Which of the following would be considered an opportunity cost of spending time to go to the movies with your friends?
The amount of money you would have made had you worked instead
A budget constraint represents _________.
The bundles of goods or activities that a consumer can choose given her limited budget.
Which of the following is more susceptible to the free-rider problem: state parks or street lights?
Use of street lights is more susceptible since even those who don't pay taxes still benefit, while state parks can charge for admission, so that everyone who goes pays their share.
The costs of many environmental regulations can be calculated in dollars, but the benefits often are in terms of lives saved (mortality) or decreases in the incidence of a particular disease (morbidity). What does this imply about the cost-benefit analysis of environmental regulations?
We must first translate the mortality and morbidity data into dollars in order to compare it to the costs of the regulations.
Suppose there are three activities in which you could participate: 1. The opportunity cost of the first activity is missing 3 hours of work. 2. The opportunity cost of the second activity is missing a concert that you have tickets to. 3. The opportunity cost of the third activity is missing the afternoon nap that you take every day. Given this information, for which of these activities would you be able to compare opportunity costs?
You can compare all the activities after you translate all the missed activities into dollar amounts.
Consider the following three statements: Statement 1: You can either stand during a college football game or you can sit. You believe that you will see the game very well if you stand and others sit but that you will not be able to see at all if you sit and others stand. You therefore decide to stand. Statement 2: Your friend tells you that he expects many people to stand at football games. Statement 3: An economist studies photos of many college football games and estimates that 75 percent of all fans stand and 25 percent sit. Which of these statements deals with optimization, which deals with equilibrium, and which deals with empiricism? Explain. Statement 1 deals with ____________. Statement 2 deals with _____. Statement 3 deals with _____.
optimization, because you are choosing your best feasible option. equilibrium, because your friend presumes everyone is behaving optimally. empiricism, because it describes behavior using real-world data.
