Macroeconomics Chapters 3, 4, & 5

(Consider This) From an economist's perspective, when is government too big?

When the marginal costs from additional government spending exceed marginal benefits.

An increase in the price of a product will reduce the amount of it purchased because:

consumers will substitute other products for the one whose price has risen.

College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start careers, their consumption of both goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are:

inferior goods

Refer to the diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a) on the left and from S to S2 in diagram (b) on the right. We can conclude that the government is correcting for:

negative externalities in diagram (a) and positive externalities in diagram (b).

The law of demand states that, other things equal:

price and quantity demanded are inversely related

Market failure is said to occur whenever:

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

The pursuit through government of a "transfer of wealth" at someone else's expense refers to:

rent-seeking behavior

Refer to the diagram. A decrease in demand is depicted by a:

shift from D2 to D1.

The U.S. federal government's largest unfunded liability is:

social security

When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes the:

income effect

A demand curve:

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

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

$1.00 and 200.

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

$1.60

Refer to the diagram. The highest price that buyers will be willing and able to pay for 100 units of this product is:

$60

The demand curve shows the relationship between:

price and quantity demanded

True or False: A "change in quantity demanded" is a shift of the entire demand curve to the right or to the left.

False

Consumer surplus:

The difference between the maximum amount a person is willing to pay for a good and its current market price.

When the price of a product falls, the purchasing power of our money income rises and thus permits consumers to purchase more of the product. This statement describes:

The income effect

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

The substitution effect

If two goods are complements:

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

Refer to the diagram. A price of $60 in this market will result in:

a surplus of 100 units.

Which of the following is an example of a public good?

a weather warning system

Critically evaluate: "In comparing the two equilibrium positions in the diagram below, I note that a smaller amount is actually demanded at a lower price. This refutes the law of demand." a. A decrease in demand from D1 to D2 results in b. This causes the price to c. This change in price results in ____ in quantity demanded along the D2 demand curve. d. This change in price results in ____ in quantity supplied. e. The new equilibrium has a _____ and a _____ when compared to the original equilibrium. f. Does this refute the law of demand: g. Why:

a. Excess supply b. fall c. increase d. decrease e. Lower price; lower quantity f. No g. Because there was a change in demand

What effect will each of the following have on the supply of auto tires? (Keeping all else constant) a. A technological advance in the methods of producing tires: b. A decline in the number of firms in the tire industry: c. An increase in the prices of rubber used in the production of tires: d. The expectation that the equilibrium price of auto tires will be lower in the future than currently: e. A decline in the price of large tires used for semi trucks and earth-hauling rigs, a substitute in production. (with no change in the price of auto tires): f. The levying of a per-unit tax on each auto tire sold: g. The granting of a 50-cent-per-unit subsidy for each auto tire produced:

a. Increase b. Decrease c. Decrease d. Increase e. Increase f. Decrease g. Increase

What effect will each of the following have on the demand for small automobiles such as the Mini-Cooper and Fiat 500? a. Small automobiles become more fashionable: b. The price of large automobiles rises (with the price of small autos remaining the same): c. Income declines and small autos are an inferior good: d. Consumers anticipate that the price of small autos will greatly come down in the near future: e. The price of gasoline substantially drops:

a. Increase b. Increase c. Increase d. Decrease e. Cannot be determined

"Earmarks" refer to:

authorized expenditures benefiting a narrow, specifically designated group that are included in more comprehensive spending legislation.

An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that:

bicycles are normal goods.

Blu-ray players and Blu-ray discs are:

complementary goods

When congressional representatives vote on an appropriations bill, they must vote yea or nay, taking the bad with the good. This statement best reflects the:

concept of limited and bundled choices.

The marginal benefit to society of reducing pollution declines with increases in pollution abatement because of the law of:

diminishing marginal utility

The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____.

direct, inverse

"Vote for my special local project and I will vote for yours." This political technique:

is called "logrolling."

Producer surplus:

is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price.

Refer to the diagram. A decrease in quantity demanded is depicted by a:

move from point y to point x.

Refer to the diagram. An increase in quantity supplied is depicted by a:

move from point y to point x.

Which of the following is an example of market failure?

negative externalities, positive externalities, public goods

The two main characteristics of a public good are:

nonrivalry and nonexcludability

The unlawful misdirection of governmental resources for personal gain is known as:

political corruption

Monetary stimulus is only helpful to an economy:

that is in recession

A positive externality or spillover benefit occurs when:

the benefits associated with a product exceed those accruing to people who consume it.

Allocative efficiency occurs only at that output where:

the combined amounts of consumer surplus and producer surplus are maximized.

The income and substitution effects account for:

the downward-sloping demand curve.

A negative externality or spillover cost occurs when:

the total cost of producing a good exceeds the costs borne by the producer.

Which of the following is most likely to be an inferior good?

used clothing