Econ Final

Due to tariffs and quotes the US sugar price is approximately double the world price. This costs consumers collectively about $3 billion a year. Why doesn't Congress open the US sugar market to free trade?

$3 billion a year comes to about $10 per person. Even if the typical citizens knows about this, there is not enough incentive to do anything about it. Meanwhile sugar protection is literally worth a fortune to the sugar growers, who thus hire lobbyists and such.

Which best describes John Paull II's idea of consumerism?

Allowing one's life to be directed toward having, rather than being

Beneficial externalities tend to create free-rider problems because beneficial externalities

Are benefits that spill over to people who don't pay for them

A typical supply curve illustrates the idea that, other things being equal,

As the price of a good increases sellers will be willing to provide a greater quantity.

International trade makes the world as a whole materially richer

Because it allows international specialization.

In "The Island of Stone Money" Milton Friedman compares the movement of large stone disks from one spot to another with the transfer of gold from the US drawer to French drawer. What is his point?

Both gold and stone disks are tokens that mark credits and debits in the accounting system that is a key part of deeper reality of the monetary system

Why does US dollar have value?

People generally believe that other people are willing to accept it in exchange for valuable goods and services.

The high price of diamonds compared to the low price of water indicates that

Diamonds are scarce compared to water.

In terms of our larger theme, that exchange contributes to the production of wealth, the main significance of comparative advantage is that it

Extends the range of possible mutually beneficial exchanges compared to absolute advantage; almost everyone has a comparative advantage in something

The government budget is in deficit when

Government expenditures exceed revenues

Why doesn't the US national debt every have to be repaid?

Governments do not have normal human mortality. Thus their debts can be rolled over (old debt exchanged for new debt) indefinitely, so long as interest payments are met.

An early use of the term "economics" occurs in Aristotle's Politics Book I. Economics is derived from the Greek "oikos" or "household" and "nomos", meaning "rules or management". Judging from reading Politics, Aristotle views household management as mainly being concerned with

Hierarchical relationships (husband/wife; father/children; master/slave) and the acquisition of slaves and the things needed to live a good life

Transaction costs are significant in economics because

If great enough, they can prevent things from getting done through voluntary exchange.

One economists in describing the problem of social coordination says, "The basic problem is massive ignorance." Assuming the author thinks along the same lines as Dr. Weston, what "massive ignorance" is this author referring to?

In a world of specialists, people generally know only a tiny faction of what must be known to produce all the things that contribute to their material standard of living

Traditionally economists have justified the provision of military defense by governments on the grounds that defense

Is a public good, which hence is subject to free-rider problems.

According to Smith the supply will suit itself to the effectual demand because

Prices that deviate from the natural price result in profits or losses that influence people's productive decisions

Legislators who must stand for re-election every two years will, for that reason, tend to support policies that

Promise immediate benefits and deferred costs.

A price floor is intended to

Keep the price above the market clearing price

To what does John Paul II attribute the existence of marginalized people (i.e. people in poor nations and poor people in big cities of rich nations)?

Lack of knowledge and ability needed to participate in the modern economy

If every individual were required to be literally self-sufficient

Living standards for almost everyone would decline

Smith says, "it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest." Smith is arguing that

Market systems harness people's self-interest to produce desirable outcomes

An example of public good

National defense

Which of the following nations collects a smaller percentage of GDP in taxes than the US?

None of the above (which are France, Netherlands, Switzerland, Denmark)

The economic analysis of democracy asserts that average citizens are not well enough informed to vote intelligently on most issues because

Obtaining information is costly, while the impact of a single vote is tiny.

US trade restrictions limiting the sale of inexpensive clothing from low-wage nations such as Bangladesh and Haiti

Reduce the standard of living in the US and in the low-wage nations by interfering with specialization to the areas of comparative advantage.

Which of the following best describes Smith's explanation for the fact that the great cities of antiquity were usually located near ocean ports or major rivers?

Relatively cheap water transportation allowed more access to markets.

When a good becomes scarcer, its money price usually rises because

Sellers can benefit by raising their prices

Smith (Book I, Ch.2) writes: "In almost every other race of animals each individual, when it is grown up to maturity, is entirely independent, and in its natural state has occasion for the assistance of no other living creatures"

Smith is point out that the normal state of civilized humans is to be dependent on strangers for most of the things we need to live

What is my point in having you read Book I, Chapter 7 of the Wealth of Nations?

Smith is showing how self-interested individuals, guided by information from prices, which allows people to calculate whether their actions will be profitable or costly, produce the amounts needed to coordinate a society of specialists.

Which of the following lists includes only US Federal Government expenditure categories that are among the largest of five?

Social security, defense, medical care

Suppose that the US government tries to reduce Medicare spending by placing a ceiling on the price doctors may charge for office visits by Medicare patients. The most likely outcome of this would be (shortage)

Some doctors would refuse to see patients on Medicare, resulting in less patients being treated.

Why is Aristotle concerned about retail trade?

Some people come to believe that the goal of their lives is to increase their money without limit.

What is my point in comparing the production of bread by a self-sufficient farmer with bread produced by a series of specialists

Specialization and division of labor create a social coordination problem that is, to an extent, solved by market prices

According to Adam Smith the most important factor causing labor to be more productive in one country than in another is

Specialization and the division of labor

National Debt is the result of

The accumulation of US government budget deficits financed by borrowing.

According to Smith the effectual demand for a good is

The amount demanded at the natural price.

In economic theory, the word demand refers to

The amounts of people are willing to purchase at various prices.

According to Adam Smith the natural price of a good is

The cost of bringing the good to market.

If people are free to do what they like, what is to prevent young people from all becoming movie actors or rock singers, while other important jobs go unfilled?

The large number of talented people relative to the need (in an age of cheap electronic information reproduction) make the pay so low and uncertain it is almost impossible for most musicians and actors to make a decent living.

Which best describes Pope John Paul's position with regard to the market economy as a way to organize people's productive capacity?

The market system is the most efficient instrument for utilizing resources to meet human needs, but there are problems with it.

Which of the following did Leo XII not endorse?

The right to universal health care

The opportunity cost of producing a good is

The value of the best alternative that you must sacrifice to produce that good

What would: laws that restrict trade; bad roads; and high transaction costs have in common in Adam Smith's point of view?

They all could make us poor because they are potential barriers to exchange

How does the US compare to other nations of the world in total taxes as a percentage of GDP?

US is roughly in the middle

In 1927 New York Yankees used George Pipgras as a starting pitcher, even though Babe Ruth was a significantly better pitcher than Pipgras. Can comparative advantage help explain this?

Yes, because Ruth was such a good hitter that the opportunity cost of using him to pitch was very high. (Starting pitchers normally need several days' rest between games)

Can exchange contribute to wealth creation?

Yes, because exchange allows people to specialize; this allows them to be more productive.

On Nov. 8 2013, President Obama gave a speech in New Orleans in which he urged Congress to put aside partisan differences and invest in US infrastructure (roads, bridges, airports, and seaports) for the sake of the US economic future. Would this argument make sense to Adam Smith?

Yes, because infrastructure facilities by reduce transportation costs; this is why the great cities of antiquity were located on major rivers or natural harbors.

A nation IS richer because most people's moral values include respecting other people's private property

Yes, because private property is fundamental to both exchange and capital formation. If people didn't respect property, there would less of those.

Is it possible to have a comparative advantage in typing compared to the person considering hiring you, even though that person is a better typist than you?

Yes, if this allows her to spend more time doing something she values more than typing.

In Botsuwana, one unit of labor can produce 50 units of wheat or 200 machines. In France, one unit of labor can produce 20 units of wheat or 20 machines. Does France have comparative advantage in anything?

Yes, in wheat.

To have a comparative advantage in making shoes means that

You can make shoes with a lower opportunity cost to yourself than can someone else.

Not an example of harmful externality

a person smoking cigarettes for 60 years and developing emphysema

Increase in capital investment could increase productivity of labor

because new investment in tolls and equipment

How might an economist explain the existence of things that benefit society, while not being profitable to individuals to provide?

beneficial externalities

Difference between government and privately owned enterprises is that government

can use coercion to direct use of resources

Competition

cannot be eliminated unless scarcity is eliminated

Externalities are

consequences of private transactions either harmful or beneficial, that spill over to third parties not involved in the transactions

Transaction costs

cost of making a deal itself (info bargaining, etc.) which is different than the price of the good or service

The world's easiest supply and demand problem

draw graph + explanation: This news will increase the quantity of pomegranates demanded, because people will want to eat them to avoid cancer. This causes the demand curve to shift to the right. At the same price, the demand would now be larger.

concept of human capital

education and job skills

One argument for the government provision of education is

education generates beneficial externalities

Centesimus Annus, John Paul II says that where the decisive economic factor was once land, and later capital, today is is increasingly

human skills and knowledge

Which best explains how the use of money in an economy contributes to the nation's wealth?

money reduces transaction costs, thus making more exchange

If good is scarce,

it must be rationed in some way

Economic analysis of the political process in a representative democracy leads to the prediction that government policies will tend to serve

many special interests

Example of a good that is subject to nonexcludability

military protection of a territory

Economists' definition of public good as

one that has non-rivalry in consumption and nonexcludability

Economists see environmental problems as

poorly defined or non-existent property rights

Economists generally use the term of "capital" to refer to

produced means of production, such as factories and machinery

Modern economists would say that Smith is arguing that coins help to facilitate exchange better than crude precious metals because they

reduce transaction costs

Even uncorrupted legislators in a representative democracy are more likely to support special interests than the broad interests of the general public because

special interests are more likely to have sufficient motives to pay lobbyists to present their case, and to pay attention to votes