Macroeconomics Exam 1

A decrease in demand causes the equilibrium price to _____ and the equilibrium quantity to _____.

fall; fall

An increase in supply causes the equilibrium price to _____ and the equilibrium quantity to _____.

fall; rise

When quantity supplied exceeds quantity demanded, a _____ occurs, putting _____ pressure on the price.

surplus; downward

If the United States can produce more of both bread and milk than Germany can, then

the United States can still benefit from trade with Germany because of comparative advantage.

(Figure: Wheat and Autos in the United States and South Korea) According to the graph

the United States should import automobiles and export wheat.

Suppose in the market for iPhones, the following two changes take place: (1) the cost of making iPhones rises, and (2) customers begin to prefer Android-platform smartphones over iPhones. What happens to equilibrium price and equilibrium quantity?

The equilibrium price is indeterminate, but the equilibrium quantity falls.

(Table: Production Possibilities Schedule) In the table, a combination of 3,500 iPads and 2,000 HDTVs is

a point on the production possibilities frontier.

Which is NOT an example of an improvement to human capital?

increasing the number of machines available to workers

Suppose that a store sells candy bars for $0.89 for one and $1.50 for two. The marginal cost of the second candy bar is

$0.61.

(Table: Production Possibilities Schedule) In the table, if society wants to increase production of HDTVs from 2,000 to 3,000 units, the opportunity cost of doing so will be _____ iPads.

1500

Which question is NOT an example involving marginal analysis?

Should Kmart rebrand all of its stores to use the Sears name?

Paolo can walk three dogs or mow two lawns in two hours. Ashanti can walk six dogs or mow three lawns in two hours. Ashanti's opportunity cost for each additional dog walked is _____ lawn(s) mowed.

0.5

Suppose there are three massage therapists, with a supply schedule that indicates their willingness to supply massages at various prices. What is the market quantity of massages supplied at $60, and does this supply schedule follow the law of supply?

29; yes

Which statement about entrepreneurs is NOT correct?

Entrepreneurs do not take on any business risks.

Which statement is TRUE?

Free trade harms domestic producers of goods that face competition from imports.

Which statement is TRUE about specialization and exchange between two individuals?

They generally benefit the poorer individual as well as the richer individual.

(Figure: Interpreting PPF Shifts 3) Which statement would NOT be a possible explanation for the shift depicted in the graph?

Unemployment rises.

Can a country have a comparative advantage in producing a good without also having an absolute advantage in producing that good?

Yes, it can because each type of advantage has a different basis.

Which of these would NOT be considered a factor of production?

a bank loan used to start a new business

Which event will NOT cause the supply curve for kayaks to shift to the left?

a decrease in the price of a kayak

Which factor would NOT cause the demand curve for green tea to shift to the right?

a decrease in the price of green tea

When economists assume people make rational decisions, it means that

a rational person will respond to the benefits and costs associated with incentives.

If the equilibrium price of lychee fruit has fallen while the equilibrium quantity has risen, which factor may have caused it?

a reduction in the price of related commodities using the same type of land for production

(Table) In the table, at a price of $5

a shortage of 40 units occurs.

(Figure: Predicting Demand Shifts) Which factor would change demand from D0 to D1?

an increase in the price of a substitute good

Suppose Mike has three hours of time to spend so he ranks the following activities in order of priority: (1) see a movie, (2) attend a ball game, (3) study economics. Assume that each activity takes three hours. What is Mike's opportunity cost of seeing a movie?

attending a ball game

Assume that in the United States, the opportunity cost of one bottle of wine is four loaves of bread, while in France, the opportunity cost of one bottle of wine is two loaves of bread. If the terms of trade are three loaves of bread for one bottle of wine

both countries benefit from trade.

(Table) Based on the table

both countries can gain from trade.

In a market when the price of a good changes

both quantity demanded for and quantity supplied of the good change.

In the graph, an increase in quantity demanded would be represented by a change from point a to point _____, while a decrease in demand would be represented by a change from point d to point _____.

c; c

Which graph shows an increase in quantity supplied?

cannot add picture, but it is an arrow that increases from a to b

(Table) The table shows coffee and tea units produced for the United States and Japan. The opportunity costs are

constant for the United States and increasing for Japan.

A production possibilities frontier that is a straight line is the result of

constant opportunity costs.

When a large factory closed in the town of Greenville, income fell for many residents. As a result, demand for normal goods will _____ and demand for inferior goods will _____.

decrease; increase

Capital includes all of these EXCEPT

dollar bills in a bank vault.

(Figure) The area between which two points on the PPF could represent an improvement in allocative efficiency?

from B to C

(Figure) The area between which two points on the production possibilities frontier could represent an improvement in productive efficiency?

from D to B

(Table: Production Possibilities Schedule) In the table, a combination of 4,500 iPads and 2,000 HDTVs

is unattainable.

Economists generally have _____ to say about equity than efficiency.

less

(Figure: Pork and Corn PPF) When we move from point b to point c, the opportunity cost of producing more corn is _____ the opportunity cost of moving from point d to point e.

less than

In the market for electric vehicles (EVs), more vehicle manufacturers are releasing electric models at the same time that consumer preferences are changing toward EVs. If manufacturers are releasing new electric models at a faster rate than consumer preferences are changing toward EVs, we can expect

no change in the equilibrium price and an increase in the equilibrium quantity of EVs.

In the market for cable television, fewer people are subscribing to cable while the cost of providing cable television has increased. If the magnitude of the corresponding demand and supply shifts are the same for both events, we can expect

no change in the equilibrium price but a decrease in the equilibrium quantity of cable television.

Increasing opportunity costs occur along the production possibilities frontier because

not all resources are equally well suited to produce all goods.

(Figure: Interpreting PPF Shifts 2) The graph describes a situation in which

only industry 2 has had a technological improvement.

A production possibilities frontier will have a curved, or "bowed out," shape if

opportunity costs are increasing.

Suppose France has achieved the ability to produce baseball bats at the lowest possible resource cost, but hardly anyone in France plays baseball. This means that France has achieved

production efficiency but not allocative efficiency.

When an economy uses the most efficient means of farming to grow as much corn as possible, this economy has achieved

production efficiency but not necessarily allocative efficiency.

Other factors held constant, as the price of an iPad rises, the

quantity demanded of iPads falls.

A decrease in population in a market will cause a

shift in the demand curve to the left.

If the price of used plug-in electric cars is expected to rise in six months, the reaction in the supply of those cars in the market today would likely be a(n)

shift of the supply curve to the left.

Which action will NOT shift a production possibilities frontier curve outward?

shifting preferences of consumers to cheaper products

(Table) Using the data in the table for the market for lattes, at a price of $2, there is a _____ and the price will _____.

shortage; rise

Suppose that a major drought causes a 30% reduction in the peanut harvest. If there is no change in demand, this event would cause a _____ at the original equilibrium price, and the equilibrium price will therefore _____ and the equilibrium quantity will _____.

shortage; rise; fall

(Figure: Predicting Supply Shifts) The shift from S1 to S2 might be caused by an increase in

subsidies

Over the past 10 years, laptop computer prices have decreased while their quantity has increased. This indicates that

supply has increased more than demand.

The price of automobiles is rising because more people want to purchase cars. As a result, the

supply of cars shifts to the right.

If television sellers expect the prices of televisions to fall in the future, then today, we are likely to see the

supply of televisions increase.

(Figure: Interpreting Market Equilibrium) If the price is $20, then there is a _____ units and the price will _____.

surplus of 2,000; fall

(Figure: Corn and Watches in the United States and Canada) Referring to the graphs, we see that _____ has the comparative advantage in producing corn and _____ has the comparative advantage in producing watches.

the United States; Canada

(Figure: Corn and Watches in the United States and Canada) Referring to the graphs, we see that _____ has the absolute advantage in producing corn and _____ has the absolute advantage in producing watches.

the United States; the United States

Which concept would be addressed by microeconomics?

the price of college tuition that an individual student pays

If a market is NOT at equilibrium

the price will change and, in response, market participants will move along the existing supply and demand curves until the market reaches equilibrium.

At any price below the equilibrium price

the quantity demanded exceeds the quantity supplied in the market.

When government policies are being designed

there is usually a tradeoff between equity and efficiency.

Suppose that a person discovers that, ceteris paribus, when the price of tomatoes increases, the demand for blue cheese decreases. From this he concludes that

tomatoes and blue cheese are complements.

Scarcity is BEST defined as when

unlimited wants exceed limited resources.

The MOST common way in which economists model a problem is by

using case studies to analyze individual real-life examples of problems.

Which statement is CORRECT with respect to determining the market price of a product?

Demand and supply are equally important.

Which scenario can occur when specialization in tasks is coupled with trade?

It can lead to gains for all parties.

If the producers of cotton shirts face higher cotton prices, which scenario is likely to occur?

The supply of cotton shirts decreases, the equilibrium price of cotton shirts rises, and the equilibrium quantity falls.

(Figure: Corn and Oil in the United States and the United Kingdom) Refer to the graphs for the United States and the United Kingdom. If the starting point is a, what is the opportunity cost of the United Kingdom producing one more barrel of oil?

0.5 bushel of corn

Heather has one employee in her sweater shop who can sew 6 sweaters a day. When she hires a second person, the two employees can make 10 sweaters together. Thinking at the margin, the extra benefit received from hiring a second worker is _____ sweaters.

4

(Figure: Pork and Corn PPF 2) The opportunity cost of producing a unit of pork is _____ unit(s) of corn.

5

(Table) The table shows the demand of three individuals in a market. Assuming they are the only buyers, what is total market quantity demanded if the price is $20?

5 units

Which statement BEST illustrates increasing opportunity costs?

As more rice is produced, rice farmers plant in land that is good for growing other crops but poor for growing rice.

Paolo can walk three dogs or mow two lawns in two hours. Ashanti can walk six dogs or mow three lawns in two hours. One can conclude that

Ashanti has absolute advantage in dog-walking, and Paolo has comparative advantage in lawn-mowing.

(Figure: Ships and Autos in Countries A and B) Two countries manufacture autos and ships. Based on the graphs

Country A should specialize in ship building and country B should specialize in automotive manufacturing.

The table shows the amount of corn or wheat that Mexico and Canada can produce using one day of labor. The country with an absolute advantage in producing corn is _____, and the country with an absolute advantage in producing wheat is _____.

Mexico; Canada

Which would best represent a normative question?

Should the minimum age to collect Social Security benefits be raised?

Using the productivity rates for Spain and Portugal, which statement is TRUE?

Spain has a comparative advantage in olives.

Which factor would cause a decrease in the demand for coffee?

a decrease in the price of tea (a substitute for coffee)

The price of apples has recently fallen in the marketplace. From this information, we can safely infer that

a surplus of apples must have existed at the previous price.

Technological improvements in the production of plug-in electric car batteries will lead to which shift?

graph A; Supply line shifts down

Which graph represents a situation in which the equilibrium price has increased but the equilibrium quantity has fallen?

graph B; Supply line shifts up

A manufacturer of plastic canoes and fiberglass kayaks is experiencing an increase in the price of kayaks in the marketplace, while the price of oil used to make plastic is rising. These two events are MOST likely to lead to a(n)

increase in the quantity supplied of kayaks and a decrease in the supply of canoes.

Scarcity

is faced by all individuals and societies.

Points that are unattainable for an economy are shown as points

outside the production possibilities frontier.

In the market for coffee, consumers expect the price of coffee beans to rise next week. This would make the demand for coffee this week

shift right.