Macroeconomics Test 1 (ch 1-4)

During times of high unemployment, colleges often observe an increase in enrollment even if tuition remains unchanged. Why?

The opportunity cost of attending college is lower because students are less likely to have good full-time jobs.

A surplus currently exists in the market for apples. Which of the following statements is correct?

The quantity of apples supplied exceeds the quantity demanded and the market price is above the equilibrium price.

A shortage currently exists in the market for strawberries. Which of the following statements is correct?

The quantity of strawberries demanded exceeds the quantity supplied and the market price is below the equilibrium price.

Which of the following is not a determinant of supply?

tastes

If the price of music downloads decreases, which of the following is most likely to occur?

Quantity demanded will increase.

If Scout has an absolute advantage over Dill:

Scout can accomplish more in a given period of time than can Dill.

Buyers who were originally willing to buy 800 units of a good at $4 per unit are now willing to buy 1200 units at $4 per unit. That change would be described as:

an increase in demand.

Which of the following would be most likely to cause a reduction in the supply of Nintendo video games?

an increase in the price of computer chips used to make Nintendo games

Which of the following would NOT cause a change in the supply of milk?

an increase in the price of milk

Which of the following would not shift the supply curve for swordfish?

an increase in the price of swordfish

for the purposes of calculating GDP, the construction of new homes and apartment buildings is treated as

an investment by the business sector

An economic naturalist is described as someone who:

applies economic insights to everyday life.

The United States was unable to maintain its dominance in the production of televisions because:

automated production allowed production to be outsourced to countries with less-skilled workers.

If the price of ice cream increases substantially (ceteris paribus), the equilibrium quantity of hot fudge sauce, a complement, is likely to:

decrease, and the equilibrium price of hot fudge sauce is likely to decrease.

In general, individuals and nations should specialize in producing goods _________ other individuals or nations.

for which they have a lower opportunity cost compared to

Positive economic principles are those that:

predict how people will behave.

When economists use market values to aggregate output, they sum the:

price times the quantity of each item produced.

A change in which of the following variables does not cause a change in demand?

prices of unrelated goods

As a result of an increase in a product's price:

product supply does not change, but quantity supplied increases.

A graph that illustrates the maximum amount of one good that can be produced for every possible level of production of the other good is called a(n):

production possibilities curve.

The government expenditure component of GDP includes:

purchases of final goods and services.

Whenever there is a surplus at a particular price, the quantity sold at that price will equal:

the quantity demanded at that price.

Ceteris paribus, if the vacancy rate in an apartment complex increased from 5% to 20% over the past two years, we would expect to see

the rent decrease leading to an increase in quantity demanded.

the expenditure method of calculating GDP adds together

the total amount spent by households, firms, the government, and the foreign sector and subtracts spending on imported goods and services

GDP is a measure of an economy's:

total output

the market value of a firm's output minus the value of the inputs the firm gas bought from other firms is called

value added

A firm's revenue from selling its product minus the cost of inputs purchased from other firms is called:

value added.

The sum of the value added by all firms equals total:

value of final goods and services.

Which of the following is an example of an intermediate good?

A new CD player sold to an automaker for installation in a car

GDP can be expressed as:

1) labor income plus capital income 2) the total amount spent by households, firms, and the government in addition to net exports 3) the total market value of all final goods and services that are produced domestically each year

Which of the following would increase the net export component of U.S. GDP?

A bottle of California wine is purchased in London.

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

A metal-stamping machine used to produce cars sold to an automaker

In which of the following situations would GDP not change?

As domestic consumers buy fewer tobacco products, tobacco manufacturers instead sell their products, at the same price, to foreign buyers.

Which of the following is the correct way to describe equilibrium in a market?

At equilibrium, quantity demanded equals quantity supplied.

If two countries specialize and trade, the country that benefits will be

Both countries will benefit.

Which of the following is true of a competitive market?

Buyers and sellers have little market power.

Which of the following statements is always true?

Comparative advantage does not require absolute advantage.

Several years ago there were two systems for viewing movies at home: Sony's BetaMax machines and VCR machines that played VHS tapes. Despite the higher quality of BetaMax video, VHS became the dominant format. Once VHS tapes were the dominant format, BetaMax virtually disappeared from consumer markets. Why?

Consumers gained more benefit by using the same system that others used, allowing them to share movies.

A shortage exists in the market for corn at the prevailing price. The shortage can be eliminated by a price:

D. increase, increasing the quantity supplied and decreasing the quantity demanded.

Which of the following questions would not be answered in macroeconomics?

Did the sharp increase in gasoline prices alter SUV sales?

Which of the following would increase the investment component of U.S. GDP?

Disney World purchases tires for the monorail from a firm in Ohio.

Every time you go to the grocery store, you try to choose the shortest line. But all of the lines always seem to be the same length. Why?

Everyone else is trying to choose the shortest line too.

______ is/are the market value of final goods and services produced within a country during a given period of time.

GDP

If an increase in the price of Good X causes a decrease in the demand for Good Y, we can conclude that:

Goods X and Y are complements.

The last time gas prices increased drastically, sales of large Sport Utility Vehicles (SUVs) fell. What economic reason would explain this decrease in sales?

Higher gas prices increased the cost of owning a SUV.

If Leslie can produce two pairs of pants in an hour while Eva can make one pair an hour, then it must be the case that:

Leslie has an absolute advantage.

Ginger and Maryann are lost in the jungle, where the only things to eat are mangoes and fish. Ginger can gather mangoes faster than Maryann and can also catch more fish per hour than can Maryann. Therefore:

Maryann should specialize in the activity for which she has a comparative advantage.

Suppose there are two parallel highways between two cities with approximately equal traffic. What would you expect to happen if the state began charging tolls to drive on one of those highways?

More drivers would drive on the non-toll road, making the toll road less congested.

How will a decrease in price tend to affect supply?

Supply will not change.

Interpret the following statement: "Demand exceeds the available quantity of apartment housing. If the price of apartment rentals were increased, demand would decrease and an equilibrium could be achieved."

The statement is incorrect because it confuses "demand" with "quantity demanded."

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

Used clothing.

Some states have started giving tax credits to homeowners who install solar panels. This is an example of:

Using the incentive principle to encourage homeowners to switch to solar energy.

Which of the following would not be analyzed in microeconomics?

Whether the federal budget should always be balanced.

Which of the following would be least likely to affect the supply of automobiles?

a successful physical fitness plan encouraging Americans to walk rather than drive to their destinations

If the price of ice cream increases and the quantity demanded decreases, economists would describe this as:

a change in quantity demanded

If Econlandia can only trade with one other country, it should trade with

a country with very different comparative advantages than Econlandia.

Sellers who were originally willing to supply 800 units of a good at $4 per unit are now willing to supply 600 units at $4 per unit. That change would be described as:

a decrease in supply.

Which of the following would increase the quantity of LCD TVs demanded but would not increase the demand for LCD TVs?

a decrease in the current price of LCD TVs

Which of the following will not increase the demand for iced tea?

a decrease in the price of iced tea

The United States generally has a comparative advantage in the development of technology because of:

a high concentration of the best research universities.

Assume the demand schedule for cookies is downward sloping. If the price of cookies falls from $2.50 to $2.25 per dozen:

a larger quantity of cookies will be demanded.

To an economist, a decrease in supply means a:

a leftward shift of the supply curve

To say that an individual possesses an absolute advantage in the production of software means that individual:

can produce more and/or higher quality software in a given amount of time.

Factories and machines are examples of:

capital goods

Long-lived, produced goods used for producing other goods and services are called:

capital goods

the largest category of GDP (as a percentage)

consumption expenditure

Each point on the supply curve shows the:

quantity supplied at that price.

With ATMs, it is possible to retrieve cash from the bank at any time. One hundred years ago, one could only get cash from the bank during business hours, say, 9 am to 3 pm. The difference has arisen because:

the cost of providing 24-hour service is much lower today.

Curly used his frequent flyer miles to fly to visit Moe. Curly told Moe that it didn't cost him anything to visit. Is Curly correct?

No, because Curly could have used his frequent flyer miles to go somewhere else, but chose to visit Moe.

The incentive principle is an example of:

a positive economic principle.

If a nation can produce a good more quickly than any other nation, that nation has a(n):

absolute advantage.

According to the incentive principle:

people tend to do more of something when the benefits are greater.

capital income includes payments made to the owners of

both physical capital and intangible capital

If a country experiences increasing opportunity costs, its production possibilities curve will

bow outward.

The number of US households with access to the Internet and those with broadband connections is growing rapidly. As an economic naturalist, one could predict that when a major purchase is being considered, families will:

collect more information before making the purchase because the cost of finding and acquiring it is lower.

If a nation has the lowest opportunity cost of producing a good, that nation has a(n):

comparative advantage.

In general, individuals and nations should specialize in producing those goods for which they have a(n):

comparative advantage.

When each individual concentrates on performing the tasks and producing the goods for which he or she has the lowest opportunity cost, they are producing in accordance with the principle of

comparative advantage.

Whenever the price of Good A decreases, the demand for Good B increases. Good A and B appear to be:

complements.

GDP may be calculated as the sum of

consumer spending, investment spending, government purchases of goods and services, and exports minus imports

At the individual level, comparative advantage results from

differences in education or training, cultural differences, language differences, the amount of resources available (all of the above)

3 categories of consumption expenditure

durable consumer goods, nondurable consumer goods, services

At the equilibrium price for gasoline:

everyone with the desire and the income to buy gasoline at that price can do so AND all sellers willing and able to sell gasoline at that price can do so.

Net exports equal:

exports minus imports.

Government expenditures include spending by federal, state, and local governments on:

final goods and services.

Capital goods are treated as ______ goods and, therefore, are ______ GDP.

final; included in

Application of the Principle of Comparative Advantage leads to:

greater specialization of labor and other factors of production.

The market value of final goods and services produced within a country during a period of time is called:

gross domestic product.

The most commonly used measure of an economy's output is:

gross domestic product.

Larry has a comparative advantage in writing a term paper if he:

has the lowest opportunity cost for writing a term paper.

A supply schedule shows:

how many units producers are willing and able to sell at various prices.

The supply curve shows:

how the quantity produced varies with price.

the addition of unsold goods and services to company inventories is

included in GDP and known as inventory investment

If the government wanted to use the incentive principle to discourage smoking, it could:

increase taxes on cigarettes, effectively raising the price.

If business inventories equal $40 billion at the beginning of the year and $55 billion at the end of the year, then, assuming no other changes, GDP must have:

increased by $15 billion.

The demand schedule for a good:

indicates the quantities that will be purchased at alternative market prices.

GDP equals the value added by producers of:

intermediate goods and services, as well as final goods and services.

The law of demand refers to the:

inverse relationship between the price of a good and the quantity demanded.

The law of demand illustrates a(n) ____ relationship between price and ____.

inverse; quantity demanded

The purchase of financial assets such as stocks and bonds

is NOT considered part of investment spending in calculating GDP

A country may have a comparative advantage in the production of cars if:

it has the natural resources needed to produce steel.

Last year interest rates fell. The field of economics that would be most concerned with this is:

macroeconomics

The impact of government policies on the building of new roads and highways would be studied in the field of:

macroeconomics

When attempting to measure total output, economists add up the ______ of different goods and services

market value

Gross domestic product (GDP) equals the ______ of final ______ produced within a country during a given period of time.

market value; goods and services

A study that deals with the salaries of university professors would be considered:

microeconomics

Studying how Pat allocates her time between teaching classes and assisting undergraduate students is an example of:

microeconomics

By convention, there are two major divisions of economics, called:

microeconomics and macroeconomics.

Which of the expenditure components of GDP can be negative?

net exports

An editorial in the paper argues that students should only be allowed to attend school so long as the marginal cost of educating that student is less than the marginal benefit of that student's education. The writer's reasoning is an application of:

normative economics.

One thing that distinguishes normative principles from positive principles is that:

normative principles tell us how people should make economic decisions, and positive principles tell us how people actually do make decisions.

If an economy produces 3 million oranges that sell for $0.25 each and 100,000 cars that sell for $25,000 each, then when the market value of total output is calculated:

oranges receive a smaller weight than cars.

The difference between a change in quantity demanded and a change in demand is that a change in:

quantity demanded is caused by a change in a good's own current price, while a change in demand is caused by a change in some other variable, such as income, tastes, or expectations.

Along a supply curve:

quantity supplied changes as price changes.

The difference between a change in quantity supplied and a change in supply is that a change in:

quantity supplied is caused by a change in a good's own, current price, while a change in supply is caused by a change in some other variable, such as input prices, prices of related goods, expectations, or taxes.

If total output is calculated by adding up the market value of goods and services produced, then more expensive items:

receive a greater weight than cheaper items.

The value added by any firm equals the firm's ______ from selling the product minus _______.

revenue; the cost of inputs purchased from other firms

Production possibilities curves are downward sloping, reflecting the principle of

scarcity

If there is a surplus, ____ will be frustrated by their inability to exchange at the current price, and they will ____ the prices as a result.

sellers; lower.

Normative economics is concerned with how people _____ make decisions while positive economics is concerned with how people _____ make decisions.

should; do

Government purchases include all of the following EXCEPT:

social security benefits paid by the federal government.

A leftward shift in supply could be caused by:

some firms leaving the industry.

The textbook notes that the last time a major league batter hit .400 was in 1941. This is because:

specialization by pitchers, infielders, and outfielders has made it harder for batters to hit.

Which of the following would shift a supply curve to the right?

subsidies

Whenever the price of Good A increases, the demand for Good B increases as well. Good A and B appear to be:

substitutes

The market supply schedule reflects the total quantity:

supplied at each price by all of the producers.

An upward-sloping supply curve shows that:

suppliers are willing to increase production of their goods if they receive higher prices for them.

When there is an excess quantity demanded of a product at the current price, then:

the price will tend to rise.

The core principle that is illustrated by the production possibilities curve is:

the Scarcity Principle.

Which of the following would increase the government purchases component of U.S. GDP?

the U.S. federal government pays $3 billion in salaries to soldiers in the military.

The incentive principle states that a person is more likely to do something if:

the benefits from doing it increase.

The production possibilities curve is:

the boundary that divides all production combinations into attainable ones and unattainable ones.

Assume that coffee and tea are substitutes for each other. If weather conditions cause a substantial portion of the available coffee crop to be destroyed, then most probably:

the demand for tea will increase.

If the price of tennis rackets were to increase, we would expect:

the demand for tennis balls to decrease.

Which of the following is the basis for an argument against free trade?

the distribution of the benefits from trade

The quantity of a good bought and sold in a market will be below the equilibrium quantity if:

the market price is either above or below the equilibrium price

When there is an excess quantity supplied of a product at the current price, then:

the market price must be above equilibrium price AND the market price will tend to fall.

The production possibilities curve shows:

the maximum production of one good for every possible production level of the other good.

For a given good, the market demand curve is generally ____ than the demand curves for the individual consumers.

wider

In economics, the demand for a good refers to the amount of the good people:

will buy at various prices.

According to the Low-Hanging-Fruit Principle, in expanding production of a good, you should first employ those resources

with the lowest opportunity cost.

Having a comparative advantage in a particular task means that:

you give up less to accomplish that task than do others.