Macroeconomics Midterm Review
If a firm's total revenue is $10,000 and its total costs are $9,000, then its profits are:
$1,000.
---------------------------------------------The production possibility model can be used to demonstrate the concept of opportunity cost.
-------------------------------------------------True
-------------------------------------------An economy that operates inside its production possibility curve is less efficient that it would be if it were operating on its production possibility curve.
-------------------------------------------------True
--------------------------------------------If cigar prices tripled while sales of cigars rose 30 percent, this would likely be due to a shift in demand.
----------------------------------------------True
Mary buys cell-phone services from a company that charges $30 per month. For that $30 she is allowed 600 minutes of free calls and then pays 10 cents per minute for any calls above 600 minutes. Mary has used 600 minutes this month so far. What is her marginal cost per minute of making additional calls?
10 cents
What is 25 percent of 200?
50
Who would probably argue that you need to study the forest before you can understand the trees?
A macroeconomist
Which of the following would best explain a decrease in the supply of squash?
An increase in the price of other vegetables
Which of the following statements about urban sprawl and traffic congestion is the best illustration of a normative statement?
Because urban sprawl is the result of individual choice, it is okay.
In the United States, the government regulates business in its role as a "referee." Which of the following is not among the laws regulating the interaction between households and businesses?
Businesses are required to produce certain goods, called public goods, for the government.
Which of the following statements is correct?
Corporations are legal entities that, in law, are treated as persons.
Countries such as Brazil, India, and Moldova - well-known sources of donors - have banned buying and selling organs. This legal action comes at the risk of driving the trade underground. What idea from Chapter 1 of the text does this story best illustrate?
Economic forces always operate despite legal forces.
The law of supply states that more of a good will be supplied the lower its price, other things constant.
False
The opportunity cost of undertaking an activity includes any sunk cost.
False
When quantity demanded is greater than quantity supplied, the resulting shortage causes the price to fall.
False
When there are market externalities, the market allocation of resources will be optimal.
False
Which two sources of revenue comprise most of federal government revenue?
Individual income tax and social security taxes and contributions
Which of the following is a good example of government's attempt to correct for macroeconomic externalities?
Maintaining full employment
Suppose that in Slovakia one unit of labor can produce either 16 tons of wheat or 32 tons of soy and in Poland one unit of labor can produce either 4 tons of wheat or 2 tons of soy. Given this information, which of the following statements is true?
Poland has a comparative advantage in producing wheat but not soy
England has a relatively cool and cloudy climate that is ill suited for grape growing. It can produce 200 units of wine for every 400 units of cloth. Portugal, in contrast, has a relatively warm and sunny climate that is good for growing grapes. It can produce 200 units of wine for every 100 units of cloth. Which country has the higher opportunity cost of producing cloth?
Portugal: 2 units of wine for every unit of cloth
Which statement is not consistent with the law of supply?
Quantity supplied of a good is inversely related to the good's price.
Which of the following is not held constant as you move along the demand curve?
The price of that good
Households supply factors of production to business and are paid by business for doing so. The market where this interaction takes place is called the factor market.
True
Private property rights are essential to market economies.
True
Productive efficiency is not achieved at any point inside the production possibility curve.
True
The answers to an economy's three central economic problems are determined by the interaction of three forces: economic forces, political forces, and social forces.
True
Two nations with differing comparative advantages will be able to consume more if they specialize and trade with each other than if they did not specialize or trade with each other.
True
Which of the following cannot be determined by using a production possibility table?
What combination of outputs is best
Which of the following is the best example of a normative question?
Will the redistribution of income make society better off?
John and Jane Smith are both economists who are deciding how to split household chores of cooking and cleaning. They discover that John has a comparative advantage in cooking. Does that discovery tell them anything about comparative advantage in cleaning?
Yes; Jane must have a comparative advantage in cleaning
In China many farmers have switched from producing rice to producing vegetables and fruit because they can earn a great deal more money from these specialty crops. Within China there are some who applaud this change, but others worry that China soon may become dependent on rice imports. Even with the low cost of Chinese labor, does the fact that China is importing rice suggest that other countries now have a comparative advantage in rice production?
Yes; countries with more expensive labor can offset that cost with abundant land and farm equipment.
An increase in equilibrium price and a decrease in equilibrium quantity is most likely the result of:
a decrease in supply.
The supply of leather jacket would be expected to increase as a result of:
a decrease in the cost of producing leather jackets.
If no resources had a comparative advantage in the production of any good, the production possibility curve would be:
a downward-sloping straight line.
Suppose a single firm gains control of an industry by preventing other firms from entering the industry. As a result, the price charged by the single firm is much higher than the price that would be charged by many different firms producing this product in a competitive market. This situation can be best described as:
a market failure.
Graphically, a change in price causes:
a movement along a given supply curve, not a shift.
A natural experiment is:
a naturally occurring event that approximates a controlled experiment.
Social forces:
affect the price mechanism through cultural norms.
An economic policy is:
an action taken to influence the course of economic events
Up through the early decades of the 20th century, many countries remained close to trade, charging high tariffs or imposing strict quotas on imported goods. In 1948, 23 countries joined the General Agreement on Tariffs and Trade (GATT), which sought to set out rules for trade and enhance future negotiations. The reduction in tariffs as a result of GATT probably brought about:
an increase in consumption.
When applied to labor markets, the law of supply suggests that:
an increase in the wages earned by nurses will cause the quantity of nurses supplied to increase.
An economic model:
applies economic theory to understand real-world events.
In principle, households ultimately control:
both businesses and the government.
Increasing marginal opportunity cost means that the production possibility curve is:
bowed out so that for every additional unit of a good given up, you get fewer and fewer units of the other good.
Global corporations:
can provide many benefits to the countries in which they operate.
In practice, distribution under socialism is primarily determined by:
central planners within the government.
The term efficiency involves achieving a goal as:
cheaply as possible
In the former USSR, state planners decided what was to be produced. They passed order down to factories, allocating raw materials, workers, and other factors of production to them. This is an example of (a):
command economy.
The explanation for the law of demand involves:
consumers' ability to substitute different goods.
A decrease in the number of consumers in a market causes market demand to:
decrease, resulting in a surplus which will be eliminated as price falls.
When you produce cars, it is enormously expensive to produce one car, but then the costs per car decreases as more are produced. This would be an example of:
decreasing marginal opportunity costs.
Households do all of the following except:
demand labor services from businesses in the factor market.
The quantity of goods and services available to society:
depends on human action.
The point at which the supply curve and the demand curve intersect is called:
equilibrium, because quantity demanded equals quantity supplied so there is no tendency for price to change.
Government regulation of working conditions is an example of:
government as referee.
One advantage of a partnership over a corporation is:
greater accountability.
Mexico has a comparative advantage in producing corn:
if its opportunity cost of producing corn is lower than the opportunity cost in other countries.
Given that diesel cars get much better gas mileage than the typical car, an increase in the price of gasoline would be expected to:
increase the demand for diesel cars.
The Industrial Revolution was important to the history of economic systems because it:
increased the power of capitalists and eventually led to a revolution instituting capitalism as the dominant economic system.
When the drug Vioxx was pulled from the market by pharmaceutical company Merck due to its association with heart problems, the demand for other pain medications:
increased, putting upward pressure on their price.
The slope of a line that is vertical is:
infinite
What kind of relationship exists between the price of gas and the quantity demanded for gas if the quantity demanded for gas falls when the price of gas increases?
inverse
A resource is said to have a comparative advantage if:
it is better suited to the production of one good than to the production of an alternative good.
The principle of increasing marginal opportunity costs states that the initial opportunity costs are:
low but increase the more you concentrate on the activity.
Healthy food and charitable giving are examples of:
merit goods or activities.
The study of individual choice is a focus in:
microeconomics
The invisible hand theorem comes from:
microeconomics.
Capitalism and socialism have not existed forever. Capitalism came into existence in the:
mid-1700s and socialism came into existence in the early 1900s.
A defining difference in what makes a firm a sole proprietorship, partnerships, or a corporation is the:
nature of ownership and accountability for each type of business.
"We should support the market because it is efficient" is an example of:
normative economics
According to the law of demand, an increase in the price of baseball trading cards causes:
people to buy fewer trading cards.
Microsoft has just taken some senators out to dinner in Paris in a private jet. This is probably an example of an attempt to influence:
political forces.
Maintaining objectivity is easiest in:
positive economics.
Flu vaccinations of school children have the unintended effect of protecting the vulnerable elderly from contracting the virus. This is an example of a:
positive externality.
A policy rule that concludes that a particular course of action is preferable known as a(n):
precept.
When the going rate is $2.00 per hour, Ann wants to babysit 6 hours each week and Pat wants to babysit 4 hours each week. If the rate goes up to $4.00, Ann and pat both double the number of hours they are willing to babysit each week. Based on this information, a combined supply curve will pass through the points:
price = $2.00, quantity supplied = 10 and price = $4.00, quantity supplied = 20
The increase in the availability of organic foods likely:
raises equilibrium quantity and lowers equilibrium price for organic foods.
A market economy:
relies on the invisible hand to coordinate supply and demand.
Consider the table below, in which each production choice represents a point on a production possibility curve. Choice Eggs Rye A 10 0 B 8 10 C 6 20 D 4 30 E 2 40 F 0 50 This production possibility table could be graphed as a:
straight line with negative slope.
Alexandra has determined that studying an hour for her economics quiz will improve her grade on the quiz from 75 to 100. She also determines that this improvement is worth $20. To study for an hour for her economics quiz, however, she will have to work one fewer hour at her part-time job. Alexandra should:
study for the quiz as long as her hourly wage rate is less than $10.
To derive a market demand curve from individual demand curves, it would be necessary to:
sum the curves horizontally, adding quantities demanded at each price.
If Argentina imposes a 20 percent tax on natural gas exports to be paid by suppliers. Other things equal, this causes the:
supply of natural gas exports to shift to the left.
Households are on the:
supply side of factor markets and the demand side of goods markets.
The theory that quantity supplied and price are positively related, other things constant, is referred to as the law of:
supply.
If the price in a market is above its equilibrium level, there will be a :
surplus and downward pressure on price.
The best example of a merit good or activity is:
teaching baseball to boys and girls in the community.
If the housefly wage of U.S. workers i $16, the hourly wage of Mexican workers is $2, and U.S. workers produce 9 times as much output per hour as Mexican workers, then, all else equal, it would be efficient to locate production facilities in:
the United States since the cost per labor of output will be lower.
For a given benefit, a rational person chooses the option that has:
the lowest opportunity cost.
Your opportunity cost of taking this course is:
the net benefit of the activity you would have chosen if you had not taken the course.
Markets coordinate economic activity through:
the price mechanism
The price of a new model of iPod tends to fall significantly a year after it is introduced. Suppose Jane bought an iPod as soon as it was introduced (a year ago) and paid a premium price for it. Now she wants to buy an iPod cover. Which of the following should she consider before buying the new accesory?
the price of the iPod cover and the benefit she'll receive from using the iPod cover
When the number of Alaskan fishermen increased, salmon prices fell to record lows, this could be shown geographically by a shift in:
the supply curve right.
According to Adam Smith, individuals are directed to do those things for which they have a comparative advantage by:
their self interest.
If a production possibility curve representing a trade-off between a grade in English and a grade in math has a negative slope, we know that:
there is an inverse relationship between grades in English and grades in math
Say a pill existed that made people selfless. After taking it they were only interested in others, not themselves. Under the coordination definition of economics:
there still would be an economic problem.
The morel is a prized mushroom that is often abundant in the Western United States in years after forest fires. Suppose two companies are buying morels from workers willing to find them. One company offers to pay workers $5.00 per pound, and the other company will pay workers only $4.00 per pound. Economists would say that:
this situation violates the law of one price and is not likely to persist.
The law of supply states that, other things equal, as the price of a good goes:
up, the quantity supplied goes up
The opportunity cost of attending college for one year is best measured by the::
value of the next-best activity forgone by attending college
The use of the phrase "other things constant" in supply and demand analysis indicates that:
we are considering changes in just one factor.
The marginal benefit of another T-shirt this month to Mary is $15. If the $10 price of a T-shirt reflects its marginal cost to Mary and Mary uses economic reasoning, she:
will buy another T-shirt this month.