Econ Final Exam
"If you compare a list of today's most powerful and profitable companies with a similar list from 30 years ago, you will see lots of new entries." (Creative destruction, Incentive problem, Coordination problem, Invisible hand)
Creative destruction
Economists generally agree that the most significant cause of the recent increase in income inequality in the United States is
Increased demand for highly skilled workers
"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." (Creative destruction, Incentive problem, Coordination problem, Invisible hand)
Invisible hand
The only taxes levied by the government are to pay for national defense, law enforcement, and a legal system designed to enforce contracts between private citizens. (Market System, Command System, or Laissez-faire System)
Laissez-faire System
Micro or Macro: The consumer price index rose by 3.8 percent from August 2011 to August 2012.
Macro
Micro or Macro: The unemployment rate in the United States was 8.1 percent in August 2012
Macro
Micro or Macro: U.S. output, adjusted for inflation, decreased by 2.4 percent in 2009.
Macro
Making choices based on comparing marginal benefits with marginal costs. (opportunity cost, utility, economics, or marginal analysis)
Marginal analysis
An institution that brings buyers and sellers together. (Market, private property, competition, freedom of enterprise, self-interest, mutually agreeable, freedom of choice)
Market
Shops stock and sell the goods their customers want but the government levies a sales tax on each transaction in order to fund elementary schools, public libraries, and welfare programs for the poor (Market System, Command System, or Laissez-faire System)
Market System
Market system or provided by government: French fries
Market system
In 2011 the greatest number of immigrants arriving in the United States came from
Mexico, China and India
Micro or Macro: Last week Wells Fargo Bank lowered its interest rate on business loans by one-half of 1 percentage point.
Micro
Micro or Macro:A U.S. software firm discharged 15 workers last month and transferred the work to India.
Micro
Micro or Macro:An unexpected freeze in central Florida reduced the citrus crop and caused the price of oranges to rise
Micro
Economic transactions willingly undertaken by both the buyer and the seller because each feels that the transaction will make him or her better off. (Market, private property, competition, freedom of enterprise, self-interest, mutually agreeable, freedom of choice)
Mutually agreeable
The next-best thing that must be forgone in order to produce one more unit of a given product. (opportunity cost, utility, economics, or marginal analysis)
Opportunity cost
plots graphically the distribution of income showing the degree of income inequality
The Lorenz curve
When discussing pure competition, the term long run refers to a period of time long enough to allow: a. Firms already in an industry to either expand or contract their capacities and New firms to enter or existing firms to leave. b. New firms to enter or existing firms to leave. c. Both a and b d. None of the above
a. Firms already in an industry to either expand or contract their capacities and New firms to enter or existing firms to leave.
Suppose that the demand for olive oil is highly inelastic. Also suppose that the supply of olive oil is fixed for the year. If the demand for olive oil suddenly increases because of a shortage of corn oil, you would expect a _____ in the price of olive oil. a. large increase b. small increase c. large decrease d. small decrease e. no change
a. Large increase.
Which of the following could explain why a firm is a monopoly? (As many that apply) a. Patents b. Economies of scale c. Inelastic demand d. Government licenses e. Downsloping Market Demand
a. Patents. b. Economies of scale. d. Government licenses
The efficiency loss of imposing an excise tax is due to: a. paying a higher price per unit b. producing and consuming fewer units
a. Paying a higher price per unit.
Which of the following apply to oligopoly industries? Select one or more of the answers: a. a few large producers b. many small producers c. strategic behavior d. price taking
a. a few large producers c. strategic behavior
Rapidly rising U.S. health care costs have reduced the ability of many Americans to
afford health care and slowed the growth of real wages.
The basic argument for an equal distribution of income is that income equality maximizes total ____________ from any particular level of output and income.
consumer satisfaction (utility)
The long-run downward trend in commodity prices is consistent with the idea that: a. we are quickly running out of resources b. resource demands have been increasing faster than resource supplies c. birthrates will soon increase due to the falling cost of living d. resource supplies have increased faster than resource demands
d. Resource supplies have increased faster than resource demands.
____________ occur when politicians commit to making a series of future expenditures without simultaneously committing to collect enough tax revenues to pay for those expenditures. a. budget deficits b. debt crises c. loan guarantees d. unfunded liabilities
d. Unfunded liabilities.
When using a supply-and-demand model to illustrate how land rents are set, economists typically draw the supply curve as a vertical line because: a. The supply of land is fixed. b. The supply of land is perfectly inelastic. c. The quantity supplied of land does not increase when rents go up. d. all of the above
d. all of the above
Heuristics: The sales of a brand of toothpaste rise after new TV commercials announce that the brand "is preferred by 4 out of 5 dentists." (Hindsight bias, self-serving bias, availability heuristic, status-quo bias, framing bias)
framing bias
The taste-for discrimination model views discrimination resulting from a preference for which the discriminator
is willing to pay.
Because the Federal government typically provides disaster relief to farmers, ________. This illustrates the _____________.
many farmers do not buy crop insurance even though it is federally subsidized; moral hazard problem.
The perceived central economic problem associated with the U.S. health care system is an
over-allocation of resources to the system
The health care market is characterized by significant _____ externalities
positive
Female householders as a groups has the highest
poverty rate in 2011
Location of production curve: The quality of education increases.
productivity should rise and this would shift the curve outward
The twin problems of the U.S. health care industry are
rapidly rising costs and unequal access to health care
The major purpose of Medicare is to provide health care services to
retirees on social security
Location of production curve: A new technique improves the efficiency of extracting copper from ore productivity should _____ and this would shift the curve____
rise, outward
The following are demand-increasing factors in the healthcare market
rising incomes, the aging of the population, and asymmetric information
Economic immigrants are defined as
international migrants motivated by economic gain
Linda sells 100 bottles of homemade ketchup for $10 each. The cost of the ingredients, the bottles, and the labels was $700. In addition, it took her 20 hours to make the ketchup and to do so she took time off from a job that paid her $20 per hour. Linda's accounting profit is __________ while her economic profit is _________.
$300; negative $100
In the quintile distribution of income, the term "quintile" represents
20 percent of the income receivers
(Increase, Decrease, Cannot Determine) Effect on demand for small automobiles: The price of gasoline substantially drops.
Cannot Determine
Market system or provided by government: Mail Delivery
Combined
Market system or provided by government: Medical Care
Combined
A woman who wants to start a flower shop finds she cannot do so unless the central government has already decided to allow a flower shop in her area (Market System, Command System, or Laissez-faire System)
Command System
The presence in a market of independent buyers and sellers who compete with one another and who are free to enter and exit the market as they each see fit. (Market, private property, competition, freedom of enterprise, self-interest, mutually agreeable, freedom of choice)
Competition
"Each day, central planners in the old Soviet Union were tasked with setting 27 million prices—correctly." (Creative destruction, Incentive problem, Coordination problem, Invisible hand)
Coordination problem
(Increase, Decrease, Cannot Determine) Effect on demand for small automobiles: Consumers anticipate that the price of small autos will greatly come down in the near future
Decrease
(Increase, Decrease, Cannot Determine) Effect on supply of tires: A decline in the number of firms in the tire industry.
Decrease
(Increase, Decrease, Cannot Determine) Effect on supply of tires: An increase in the prices of rubber used in the production of tires
Decrease
(Increase, Decrease, Cannot Determine) Effect on supply of tires: The expectation that the equilibrium price of auto tires will be lower in the future than currently.
Decrease
(Increase, Decrease, Cannot Determine) Effect on supply of tires: The levying of a per-unit tax on each auto tire sold
Decrease
The social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity. (opportunity cost, utility, economics, or marginal analysis)
Economics
True or false. Under the "rule of reason" that was established by the Supreme Court in the U.S. Steel case, a monopoly seller should be found guilty of violating antitrust laws even if it is charging low prices to consumers and acting the same way a competitive firm would act.
False
The freedom of resource owners to dispose of their resources as they think best; of workers to enter any line of work for which they are qualified; and of consumers to spend their incomes in whatever way they feel is most appropriate. (Market, private property, competition, freedom of enterprise, self-interest, mutually agreeable, freedom of choice)
Freedom of choice
The freedom of firms to obtain economic resources, decide what products to produce with those resources, and sell those products in markets of their choice. (Market, private property, competition, freedom of enterprise, self-interest, mutually agreeable, freedom of choice)
Freedom of enterprise
Heuristics: Your uncle says that he knew all along that the stock market was going to crash in 2008. (Hindsight bias, self-serving bias, availability heuristic, status-quo bias, framing bias)
Hindsight bias
"Managers in the old Soviet Union often sacrificed product quality and variety because they were being awarded bonuses for quantitative, not qualitative, targets." (Creative destruction, Incentive problem, Coordination problem, Invisible hand)
Incentive problem
(Increase, Decrease, Cannot Determine) Effect on demand for small automobiles: Income declines and small autos are an inferior good
Increase
(Increase, Decrease, Cannot Determine) Effect on demand for small automobiles: Small automobiles become more fashionable
Increase
(Increase, Decrease, Cannot Determine) Effect on demand for small automobiles: The price of large automobiles rises (with the price of small autos remaining the same)
Increase
(Increase, Decrease, Cannot Determine) Effect on supply of tires: A decline in the price of the large tires used for semi trucks and earth-hauling rigs (with no change in the price of auto tires)
Increase
(Increase, Decrease, Cannot Determine) Effect on supply of tires: A technological advance in the methods of producing tires
Increase
(Increase, Decrease, Cannot Determine) Effect on supply of tires: The granting of a 50-cent-per-unit subsidy for each auto tire produced.
Increase
The right of private persons and firms to obtain, control, employ, dispose of, and bequeath land, capital, and other property. (Market, private property, competition, freedom of enterprise, self-interest, mutually agreeable, freedom of choice)
Private property
Progressive or regressive: Property tax
Progressive
Progressive or regressive: Sales Tax
Progressive
Market system or provided by government: Airport screening
Provided by government
Market system or provided by government: Court screening
Provided by government
Progressive or regressive: Payroll tax
Regressive
Progressive or regressive: Personal income tax.
Regressive
What each individual or firm believes is best for itself and seeks to obtain. (Market, private property, competition, freedom of enterprise, self-interest, mutually agreeable, freedom of choice)
Self-Interest
Location of production curve: The number of unemployed workers increases
Should not affect location of curve. Production moves inward, away from the curve
The pleasure, happiness, or satisfaction obtained from consuming a good or service. (opportunity cost, utility, economics, or marginal analysis)
Utility
Heuristics: Ellen thinks that being struck dead by lightning is much more likely than dying from an accidental fall at home. (Hindsight bias, self-serving bias, availability heuristic, status-quo bias, framing bias)
availability heuristic
To an economist, a coercive government can be useful in order to: a. reallocate resources in order to improve efficiency b. Fight negative externalities c. Ensure low gasoline prices d. provide a low risk economic environment for individuals and firms
b. Fight negative externalities
A purely competitive firm whose goal is to maximize profit will choose to produce the amount of output at which: a. TR and TC are equal b. TR exceeds TC by as much as possible c. TC exceeds TR by as much as possible d. none of the above
b. TR exceeds TC by as much as possible.
Suppose that a monopolist can segregate his buyers into two different groups to which he can charge two different prices. In order to maximize profit, the monopolist should charge a higher price to the group that has: a. The higher elasticity of demand b. The lower elasticity of demand c. Richer members
b. The lower elasticity of demand.
Cities and states with large concentration of illegal immigrants
bear the main burden
Demand curves slope downward because, other things held equal, a. an increase in a product's price lowers MU b. a decrease in a product's price lowers MU c. a decrease in a product's price raises MU per dollar and makes consumers wish to purchase more units d. an increase in a product's price raises MU per dollar and makes consumers wish to purchase more units
c. A decrease in a product's price raises MU per dollar and makes consumers wish to purchase more units.
What are the two major ways in which an economy can grow and push out its production possibilities curve? a. Better weather and nicer cars b. higher taxes lower spending c. increases in resource supplies & advances in technology d. decreases in scarcity and advances in auditing
c. Increases in resource supplies and advances in technology.
What is the correct name for the idea that certain firms prefer government regulation because regulation shields them from the pressures of competition and, in effect, guarantees them a regulated profit. a. the public interest theory of regulation b. the structuralists' theory of monopoly c. the legal cartel theory of regulation d. the public regulation theory of natural monopoly
c. The legal cartel theory of regulation.
Income mobility contributes to
greater wealth equality
About one-third of recent annual population growth in the United States is the result of
immigration
Government transfers contribute to
income equality
The ability to "rig the market" on one's own behalf also contributes to
income inequality
The Lorenz curve is located closer to the diagonal when _____ is defined to include transfer payments and the value of ______ transfers.
income, non-cash
The most significant cause of the recent increase in income inequality in the United States is
increased demand for highly skilled workers
Where there is asymmetric information between buyers and sellers markets can produce
inefficient outcomes
As it applies to insurance, the adverse selection problem is the tendency for those most likely to collect on ______ to buy it.
insurance
Heuristics: When Fred does well at work, he credits his intelligence. When anything goes wrong, he blames his secretary. (Hindsight bias, self-serving bias, availability heuristic, status-quo bias, framing bias)
self-serving bias
Heuristics: The sales of a TV that is priced at $999 rise after another very similar TV priced at $1,300 is placed next to it at the store. (Hindsight bias, self-serving bias, availability heuristic, status-quo bias, framing bias)
status-quo bias
People immigrate into the United States to
take advantage of superior economic opportunities
According to statistical discrimination, people are judged on the basis of the average characteristics of
the group to which they belong.
One major concern about illegal immigration is
the negative fiscal impact it has on local and state governments
