Econ 3001 Midterm

A measure of absolute price changes that excludes changes in energy and food prices is called A) overall inflation. B) fringe rate of inflation. C) core rate of inflation. D) none of the above.

C

All of the following are limitations of direct consumer surveys except: A) the possibility that the type of questions asked may unintentionally bias the respondent's answers. B) the possibility of response biases because survey respondents may not want to reveal their true preferences. C) the likelihood that respondents will deliberately and systematically mislead interviewers. D) the possibility that consumers' responses may not reflect their actual behavior in the market place.

C

Assume an analyst has been hired to estimate the price elasticity of demand for Levi's brand blue jeans and for blue jeans in general. Ceteris paribus, we would expect the price elasticity of demand in absolute value to be: Incorrect Response A) larger for blue jeans in general than for Levi's brand blue jeans. B) approximately the same for both Levi's brand blue jeans and blue jeans in general. C) larger for Levi's brand blue jeans than for blue jeans in general. D) none of the above because the market for blue jeans cannot be analyzed using the model of supply and demand.

C

Personal income less personal taxes is called: A) national income. B) compensation of employees. C) savings. D) personal disposable income.

D

Suppose an apartment complex is converted to an owner occupied condominium. Suppose that the estimated value of the condominium owners' housing services is now the same as their former rent. A) GDP increases. B) GDP is unaffected because neither the rent nor the estimate of the value of housing services is included in GDP C) GDP decreases. D) None of the above

D

Which of the following statements is correct? A) Arc elasticity of demand is the same as the slope of the demand curve. B) Arc elasticity of demand only applies to a nonlinear demand curve. C) Point elasticity of demand is measured between two adjacent points on a demand curve. D) Point elasticity of demand is measured at each point along a demand curve.

D

T/F. "Gross Investment spending" refers exclusively to purchases of plant and equipment by businesses and net changes in business inventories.

False

T/F. Adding an independent variable to a regression model will always reduce the coefficient of determination.

False

T/F. Because unemployment is a macroeconomic topic, an increase in unemployment would not be expected to have any impact on the equilibrium price or quantity in the market for an individual good.

False

T/F. Fiscal policy is determined by the Federal Reserve System.

False

T/F. Inflation was a problem during the Great Depression.

False

T/F. Over time, the price of personal computers has fallen dramatically. All else constant, this would lead us to expect that demand for personal computers has become more price elastic.

False

T/F. The Full Employment and Balanced Growth Act of 1978 is also called the Humphrey-Hawkins Act and requires the President to appear before Congress twice a year to present his forecast for the economy.

False

T/F. The U.S. Treasury is responsible for controlling the money supply and interest rates in the economy.

False

T/F. The coefficient of determination is the proportion of the variation that is not explained by the regression model.

False

T/F. The statistical significance of the slope coefficient can only be tested using the F test.

False

T/F. With respect to prices, at the macroeconomic level attention is focused on relative prices, while at the microeconomic level attention is focused on absolute prices.

False

T/f. Assume the market for used single-family homes is initially in equilibrium. All else constant, an increase in home foreclosures would cause equilibrium price and quantity to decrease.

False

T/F. Cross-section data observed at several points in time are called inverted data.

False, panel data

A constant-elasticity demand function can be obtained by: A) taking the logarithm of the dependent and independent variable(s). B) taking the reciprocal of the dependent variable(s ) C) taking the logarithm of the independent variable(s) only. D) taking the logarithm of the dependent variable only.

A

Assume an analyst has been hired to estimate the price elasticity of demand for hamburger (which sells for about $2.30 per pound) and filet mignon (which sells for about $20 per pound), respectively. Considering the different determinants of the price elasticity of demand and assuming the consumers in both markets have approximately the same incomes, we would expect the coefficient of price elasticity of demand in absolute value to be: A) larger for filet mignon than for hamburger. B) approximately the same for both hamburger and filet mignon. C) larger for hamburger than for filet mignon. D) none of the above because different determinants would have opposing effects on the two estimates.

A

Assume an auto firm's factories are capable of producing both large and small cars and are operating at full capacity. Assume the price of large cars increases due to a shift in consumers' preferences toward large cars and away from smaller cars. What would reasonably be expected to happen to the equilibrium price and quantity of the firm's small cars? A) Equilibrium price and quantity would both decrease. B) Equilibrium price would increase and equilibrium quantity would decrease. C) Equilibrium price would decrease and equilibrium quantity would increase. D) Equilibrium price and quantity would both increase.

A

Firms are considered to be price searchers, as opposed to price takers, in all of the following market types except: A) perfect competition. B) oligopoly. C) monopoly. D) monopolistic competition.

A

If the consumer has a great deal of time to adjust to an increase in the price of gasoline, which of the following is correct? A) Quantity demanded will be relatively sensitive to the change in price. B) Demand will tend to be unitary elastic as it is for most goods in the long run. C) The percentage change in price will be quite large relative to the percentage change in quantity demanded. D) The percentage change in quantity demanded will be quite small relative to the percentage change in price.

A

If the percentage change in quantity demanded is greater than the percentage change in price, we would say that over this range, demand is: A) elastic. B) perfectly inelastic. C) inelastic. D) unit elastic.

A

The producer price index measures: A) the prices firms pay for crude and intermediate materials as well as finished goods. B) the prices consumers pay for final goods and services. C) the prices the government pays for final goods and services. D) none of the above.

A

Which of the following is not included in gross private domestic investment spending? A) Household spending on durable goods. B) Spending on business inventories. C) Business spending on plant and equipment. D) Household spending on residential construction.

A

A car dealer wants to get rid of the stock of last year's model. Assume that the dealer knows from past experience that the price elasticity of demand for cars is unitary (= 1). If the price of the cars is currently $20,000 and the dealer wants to increase the quantity demanded from 30 units to 50 units, what must the new price be if the dealer is to sell the 20 additional cars? A) $18,000 B) $12,000 C) $16,000 D) $10,000

B

All of the following are non-price factors that influence demand except: A) income. B) quantity supplied C) tastes and preferences. D) the prices of related goods.

B

As the price of milk increases, what happens at the original equilibrium in the market for cereal that signals market participants that the original equilibrium must change? (Milk and cereal are complements.) A) A shortage is created by an increase in demand. B) A surplus is created by a decrease in demand. C) A surplus is created by an increase in supply. D) A shortage is created by a decrease in supply.

B

Assume the Congress approves increased drilling for oil in the U.S. to address the current energy shortage. People who are in favor of this policy argue that, ceteris paribus, this would cause: A) an increase in the equilibrium price and quantity of oil. B) a decrease in equilibrium price and increase in the equilibrium quantity of oil. C) a decrease in the equilibrium price and quantity of oil. D) an increase in equilibrium price and a decrease in the equilibrium quantity of oil.

B

Assume the costs of production in the U.S. auto industry are rising and, at the same time, the prices of Japanese-made autos are decreasing. What would reasonably be expected to happen to the equilibrium price and quantity of U.S.-made autos? A) Quantity will increase; price cannot be determined. B) Quantity will decrease; price cannot be determined. C) Price will increase; quantity cannot be determined. D) Price will decrease; quantity cannot be determined.

B

If GDP rises: A) income must rise, but production may rise or fall. B) income and production must both rise. C) income and production must both fall. D) none of the above.

B

In a multiple regression problem involving two independent variables, if b1 is computed to be +2.0, it means that: A) the estimated average value of Y is 2 when X1 equals zero. B) the estimated value of Y increases by an average of 2 units for each increase of 1 unit of X1, holding X2 constant. C) the relationship between X1 and Y is significant. D) the estimated value of Y increases by an average of 2 units for each increase of 1 unit of X1, without regard to X2.

B

In the market for French wines, an increase in demand is illustrated by: A) a shift of the demand curve to the left. B) a shift of the demand curve to the right. C) a movement down the demand curve. D) a movement up the demand curve.

B

Over time Americans have chosen to cook less at home and dine out more. This change in behavior: A) reduces GDP. B) increases GDP. C) does not affect GDP. D) none of the above

B

The coefficient of determination will range between what values? A) -1 and +1 B) 0 and 1 C) -3 and +3 D) none of the above

B

The difference between personal income and disposable income is: A) savings B) personal taxes C) corporate taxes D) none of the above

B

The least squares regression is based on: A) maximizing the sum of squared errors. B) minimizing the sum of squared errors C) minimizing the absolute sum of squares errors. D) maximizing the absolute sum of squares errors.

B

Which of the following statements about monopoly is false? A) There are no close substitutes for the monopolist's output. B) Because there is a single firm serving the entire market, the monopolist can charge whatever price it wants to for its output. C) A single firm serves the market. D) There are usually significant barriers to entry.

B

Assume the cost of certain inputs used to produce artificial Christmas trees increases and, at the same time, the economy moves into a recession, causing the incomes of consumers to decrease. Which of the following will happen to the equilibrium price and quantity of artificial Christmas trees? (Assume artificial Christmas trees are normal goods.) A) Quantity will increase; price cannot be determined. B) Price will increase; quantity cannot be determined. C) Quantity will decrease; price cannot be determined. D) Price will decrease; quantity cannot be determined.

C

Assume the technology for producing personal computers improves and, at the same time, individuals discover new uses for personal computers so that there is greater utilization of personal computers. Which of the following will happen to equilibrium price and equilibrium quantity? A) Price will increase; quantity cannot be determined. B) Price will decrease; quantity cannot be determined. C) Quantity will increase; price cannot be determined. D) Quantity will decrease; price cannot be determined.

C

Assuming the inverse demand function for good Z can be written as P = 90 - 3Q, when Q is equal to 5, average revenue and marginal revenue are equal to ________ and ________. A) $75; $75. B) $60; $60. C) $75; $60. D) $85; $85.

C

Given the demand function in log-linear form: Q = 120 - 1.5P + 12ADV where Q = quantity, P = price, and ADV = advertising expenditures, what is the price elasticity? A) 120, elastic B) 1.5, inelastic C) -1.5, elastic D) 12, elastic

C

Regression analysis that analyzes the relationship between one dependent variable and several independent variables is called: A) correlation analysis. B) cluster analysis. C) multiple regression analysis. D) simple regression analysis.

C

The system of accounts for each country, based on the circular flow, whose purpose is to measure the level of economic activity is called: A) bookkeeping. B) the underground economy. C) national income accounting. D) none of the above.

C

The type of policy that involves interest rates and the availability of loanable funds is known as: A) strategic financial policy. B) fiscal policy. C) monetary policy. D) federal policy.

C

Those individuals 16 years of age and over who are working in a job or actively seeking employment are called: A) the employed. B) the unemployed. C) the labor force. D) none of the above.

C

Which of the following pairs of goods would be expected to have a positive cross-price elasticity of demand? A) gasoline and large SUVs. B) tennis racquets and tennis balls. C) coffee and tea. D) hot dogs and hot dog buns.

C

"Supply" is best defined as the relationship between: A) the current price of a good and the quantity supplied at that price. B) the quantity supplied and the price people are willing to pay for a good. C) the cost of producing a good and the price consumers are willing to pay for it. D) the price of a good or service and the quantity supplied by producers at each price during a period of time.

D

Assume declining profits in the market for Internet service force several firms in the area to drop out of the market. Which of the following best describes the effect of the reduction in the number of service providers and the subsequent adjustment of the market to the new equilibrium price and quantity? A) Quantity supplied would decrease, creating excess demand at the initial equilibrium price. Demand would then decrease until quantity demanded and quantity supplied are once again equal. B) Supply would increase, creating excess demand at the initial equilibrium price. Price would then rise, causing quantity demanded to decrease and quantity supplied to increase until a new equilibrium is reached. C) Quantity supplied would decrease, creating excess supply at the initial equilibrium price. Demand would then decrease until quantity demanded and quantity supplied are once again equal. D) Supply would decrease, creating excess demand at the initial equilibrium price. Price would then rise, causing quantity demanded to decrease and quantity supplied to increase until a new equilibrium is reached.

D

Assume that when the price of good Z is increased from $5 to $6, the total revenue earned increases from $600 to $690. Based on this information, we can conclude that over this range, demand for Z is: A) unit elastic. B) elastic. C) perfectly inelastic. D) inelastic.

D

If the price of salmon increases relative to the price of cod, the demand for: A) salmon will decrease. B) cod will decrease. C) salmon will increase. D) cod will increase.

D

Which of the following statements is false? A) Output prices influence a firm's revenues. B) Input prices influence a firm's costs of production. C) Price determination is the key element in any market system. D) While managers must understand how output prices are determined, determination of input prices is irrelevant because it is beyond the manager's control.

D

T/F. If government spending exceeds the amount of taxes collected from households and businesses, the government simply finances the difference by printing more money.

FALSE

T/F. A German tourist visits Disney World in Orlando; the expenditures made by the German tourist are included in U.S. GDP.

True

T/F. A problem with the CPI is the presence of a substitution bias on the behalf of consumers.

True

T/F. All else constant, an increase in the amount of borrowing by the federal government would reduce the amount of money available for businesses to borrow to finance investment spending.

True

T/F. All else constant, as the barriers to entry into a particular market increase, so will the ability of firms in that market to earn above-average profits.

True

T/F. As the amount of time a consumer has to adjust to a change in price increases, so does the price elasticity of demand for a good.

True

T/F. Assume a monopolistically competitive firm comes up with a new innovation that allows it to earn above-normal economic profits. Given the nature of the market in which it operates, over time those profits will be competed away as new competitors enter the market.

True

T/F. Assume the demand and supply functions for good X can be written as Qd = 1000 - 40Px Qs = -200 + 20Px In this example, equilibrium price is $20 and the equilibrium quantity is 200.

True

T/F. In the case of a linear demand curve, average revenue is equal to price, while (with the exception of Q = 1) marginal revenue is less than price.

True

T/F. Knowledge about the price elasticity of demand is especially useful to managers because it allows them to predict how a change in price would affect a firm's total revenues.

True

T/F. Regression analysis is used for prediction, while correlation analysis is used to measure the strength of the association between two variables.

True

T/F. The BLS obtains employment information from a monthly survey of a sample of approximately 60,000 households

True

T/F. The following question is an example of microeconomic analysis, "What determines the price of gasoline in a particular city or town?"

True

T/F. The t-test is used to test hypotheses concerning the individual regression coefficients.

True

T/F. When calculating the arc elasticity of demand, the percentage change in price (quantity) should be based on the average of the starting and ending prices (quantities).

True

T/F. When market price is higher than the equilibrium price, a surplus is created. This will put downward pressure on price, causing quantity demanded to increase and quantity supplied to decrease until equilibrium is reestablished.

True

T/F. When using expert opinion, consumer surveys, test marketing, and price experiments to analyze consumer behavior, managers must consider whether the answers given in these formats represent actual market behavior.

True

T/F.All else constant, a decrease in the level of economic activity in foreign countries could be expected to have an adverse effect on the domestic economy.

True

T/F.Managerial economics refers to the application of microeconomics to business decision making.

True

When the percentage change in price is greater than the corresponding change in quantity demanded, demand is inelastic.

True