ECON MID

By way of international comparison, recent U.S. deficits have increased the ratio of debt to GDP

such that only Japan's ratio is worse.

Law of demand

Inverse relationship; price goes up and quantity goes down, vice a versa.

Poison pill

Temporary loss in value

Approved types of expenses for income tax purposes

deductible

Demand-pull inflation

increases prices and raises output.

price times quantity

nominal GDP

Gasoline prices _______ in late 2007 through mid-2008.

spiked

In 2015, exports made up ____ percent of the U.S. economy.

14

Medicare began in 1. the 1920's. 2. the 1930's. 3. the 1950's. 4. the 1960's.

4. the 1960's.

Organized market

An exchange that has a physical location where buyers and sellers meet

Vertical merger

Different phases of the same industry

Nominal GDP/ Real GDP x 100

The GDP deflator is calculated using

medium of exchange; store of value

The M1 measure of the money supply emphasizes money's --- function; the M2 measure increasingly emphasizes money's --- function

the best breast cancer and prostate cancer survival rates, scores well in cancer screening, and provides access to advanced imaging technologies such as CT and MRI scans

What are some good results from American health care?

autarky

an economy that is self-contained and does not engage in trade with outsiders

GDP2-GDP1/ GDP1

economic growth rate formula

present value

how much a certain amount of money that will be obtained in the future is worth today

demand and supply curves for legal

more elastic

profit

the money that a firm makes: revenue - cost

Arbitration

A neutral third party issued a binding decision

Monopoly

A situation in a market where there is only one firm producing the good.

Paul goes to Sportsmart to buy a new tennis racquet. He is willing to pay​ $200 for a new​ racquet, but buys one on sale for​ $125. Paul's consumer surplus from the purchase is A. ​$75 .B. ​$125 C. ​$325 D. ​$200

A. ​$75

False

True or False: The CPI perfectly captures changes in the cost-of-living

collusion

a more negative word for cooperation in this business context

diminishing marginal product

a principle stating that the marginal product of an input decreases as the quantity of the input increases

If a consumer can be easily prevented from consuming a good or service by a producer, then the good exhibits

exclusivity

Nominal GDP

not adjusted for inflation

On a graph of real domestic product over time, recessions appear as...

relatively short and shallow drops on an otherwise increasing path

willingness to pay (reservation price)

the maximum price that a buyer would be willing to pay for a good or service

producer surplus

the money the firm gets that is in excess of its marginal costs

In order to sustain economic growth in a developed economy, it is important for

worker productivity to increase.

In 2017, the U.S. spent approximately ________ of GDP on health care.

16% (1/6th)

The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called A. the income effect. B. consumer surplus. C. the substitution effect. D. producer surplus.

B. consumer surplus.

Consumer surplus in a market for a product would be equal to​ ________ if the market price was zero. A. the area between the supply curve and the demand curve B. zero C. the area under the demand curve D. the area above the supply curve

C. the area under the demand curve

Full employment

Frictional% + Structural% =

standardized good

a good for which any two units have the same features and are interchangeable

The stimulus package adopted in 2009 by newly-elected President Obama included

both discretionary and non-discretionary fiscal policy programs.

An example of nondiscretionary fiscal policy would be

the operation of the welfare state.

Capital

Goods used to produce other goods Ex. Buildings, machines, office equipment

CFO

Head accountant

opportunity cost

If you hadn't gone to dinner with your friends, you would have stayed home and "surfed" the Internet." It follows that surfing the Internet is the --- of having dinner with your friends

All of the above.

In which of the following areas will taking an economics course help benefit you throughout your​ life?

When creating market demand curves for privately produced and privately consumed goods, we must 1. add the quantity demanded at each price. 2. add the price paid at each quantity. 3. take an average of the quantity demanded at each price. 4. take an average of the price paid at each quantity

1. add the quantity demanded at each price.

The demand curve for this good would be relatively 1. flat 2. steep

1. flat

supplying the economy with paper money

2nd function of the Fed that deals with loans, money supply expands, reduce money supply to make it more valuable/ expensive, and make sure we have just the right amount

collective bargaining

Process used to negotiate union contracts

Unlimited liability

The owner is personally and fully responsible for all losses and debts of the business

True

True or False: In a three-player game, a Nash equilibrium exists when all players are playing their best response to one another.

relative poverty line

a measure that defines poverty in terms of the income of the rest of the population

In terms of whether there is a degree of underfunding of your pension plan, a defined contribution plan is

better than a defined benefit plan because the employee controls the investment and the amount.

current/base times 100

consumer price index formula

Medicare Part A funding is mainly through

payroll taxes (attached to Social Security)

The US Private Health Care System

private doctors and hospitals deliver almost all health care services, the US system primarily depends on these, paid for by a blend of private and public insurance

Merger

A+B=C

One typical response to a recession for those engaged in discretionary fiscal policy is to

lower taxes and increase spending.

If China wants to continue to grow, it will need to

maintain political and financial stability while creating infrastructures that continue to build investor confidence.

The Affordable Care Act is amended to require employers to provide health insurance to part-time as well as full-time employees.

Supply decreases.

Deficit

Tax revenue-government spending=

When examining the question of tobacco taxes, economists focus almost entirely on

The costs to nonsmokers (like secondhand smoke)

monetary policy

changes in the money supply, or in the rate of change of the money supply, to achieve particular macroeconomic goals

variable cost

cost of production that can be changed

In 2015, which country had the largest trade surplus with the United States?

China

The decrease in class sizes is occurring as a result of

special education students.

The Federal Reserve system

the central bank of the US, created in 1913

conglomerate merger

the joining of firms in completely unrelated industries

Under perfect competition, the supply curve is

the marginal cost curve, but only the portion that is above the minimum of average variable cost.

Required reserves

the minimum amount of reserves a bank must hold against its checkable deposits as mandated by the Fed

Moral Hazard

is the fact that having insurance increases the demand for the good.

False

True or false: Health care economists understand the causes of the problems the US has had making health care widely available.

inferior goods

goods for which demand decreases as income increases

Which of the following statements are true

stoped at page 3

The impact of slowing economic growth over a long period of time is

substantial because of the exponential aspect of growth.

Incentives are provided for hospitals to discharge patients as soon as possible. 1. This is a benefit of paying hospitals using prospective payments. 2. This is a benefit of paying hospitals on what services they perform. 3. This is a cost of paying hospitals on what services they perform. 4. This is a cost of paying hospitals using prospective payments.

1. This is a benefit of paying hospitals using prospective payments.

Besides the decline in state appropriations, another reason for the increase in the cost of higher education is

modernized dorm rooms and recreation centers.

Suppose a firm has $1,000,000 in fixed costs and variable costs equal to $100 for every unit they produce,...

their average costs are decreasing

Those most likely to benefit from an increase in the minimum wage are

those workers who get a higher wage due to the minimum wage and who are still able to keep their jobs.

Disagreements about the shape of the aggregate supply curve focus on the degree of ___ in the economy.

unemployment

Tobacco Settlement of 1998

1998 settlement was between several states and several tobacco companies that included $250 billion spread over 20 years. The settlement created a trust fund to pay for medical costs resulting in a tobacco addiction and companies agreed to cease certain marketing techniques.

When the government imposes price floors or price​ ceilings, A. everyone​ wins, goods and services distribution is more​ just, and there is an increase in economic efficiency. B. some people​ win, some people​ lose, and there is a loss of economic efficiency. .C. some people​ win, some people​ lose, and there is an increase in economic efficiency. D. everyone​ wins, goods and services distribution is more​ just, and there is a loss of economic efficiency

B. some people​ win, some people​ lose, and there is a loss of economic efficiency.

Bourgeoisie

Factory owners

prisoners' dilemma (oligopoly)

a situation in which two people (or two firms) make rational choices that lead to a less-than-ideal result for both.

A 10 percent decrease in price results in a 15 percent increase in quantity demanded. In this case, demand is

elastic

Suppose you observe that minor changes in supply seem to cause dramatic changes in price. You would conclude that

Demand is elastic

Consumer confidence falls

Demand-side shock

Cost-push inflation

increases prices but decreases output.

expansionary monetary policy

increasing the money supply to boost an ailing economy

downward; decreases

A surplus tends to put --- pressure on the price of the product, which --- the quantity supplied

competitive market

a market in which fully informed, price-taking buyers and sellers easily trade a standardized good or service

monopolistic competiotion

a market with many firms that sell goods and services that are similar, but slightly different

Corporation

"An artificial being existing only in the law"

How much would the minimum wage have to increase to reach its 1968 high?

$11

In order for the minimum wage to reach its 1968 high in real terms (1999 dollars), it would have to rise to approximately _____ per hour.

$11

Referring to Table 4.1, Box F should be filled with

$110.

. If the deductible is $200 and the co-payment is 20%, on a covered expense of $1200 the individual will pay _____, and their insurance company will pay ______. 1. $400;$800 2. $200; $1000 3. $800; $400 4. $600; $600

1. $400;$800

Combined, in 2014, Medicare and Medicaid covered 1. 6 million people. 2. 25 million people. 3. 105 million people. 4. 143 million people.

1. 6 million people.

lower price and a lower quantity of Starbucks coffee.

Alternatively, suppose that the rise in the price of coffee beans resulted in a small decrease in the supply of Starbucks coffee while the lower prices by its competitor resulted in a large decrease in demand. The net impact would be a ________ price and a _____ quantity of Starbucks coffee.

when r increases, decreases in checkable deposits, and when r decreases it increases in checkable deposits

How does a change in r affect the money supply?

variable cost

Any production cost that changes as the rate of output changes

fixed cost

Any production cost that is independent of the firm's rate of output

Capital gains

Any profit generated by selling an asset for more than was paid for it

variable resource

Any resource that can be varied in the short run to increase or decrease production

fixed resource

Any resource that cannot be varied in the short run

Combined, the consumer surplus and producer surplus at equilibrium is

As big as it can get

normative economics

Attempts to determine "what should be" based on value judgement

In Figure 3.2, what is the producer surplus?

BP*C

8 major functions

How many functions does the Fed have?

over $2.6 trillion

How much does the typical household spend on health care in the US?

supply-side economics

Lower taxes, reduction in non-defense government spending, less government regulation. (Reagan)

You should run a natural experiment by analyzing bus ridership and price changes.

How would you test this model?

America's most significant trading partner is

Canada

The introduction of e-cigarettes provides a substitute for regular cigarettes. The result is likely that the

Elasticity of demand increases

What source of rapid (1950-1975) growth is not duplicatable?

Electrification of lighting

Statutory law

Enacted by legislative bodies

The ________ decides monetary policy.

Federal Open Market Committee

people's private benefits are out of sync with the public interest.

Free riding occurs when _______ are out of sync with _________.

The World Trade Organization governs the provisions of

GATT.

C+I+G+(E-M)

GDP formula

Battle of the sexes

Game where each player has a tough strategy and a weak strategy, the tough strategy and the weak strategy differ for each player, and each player prefers the Nash equilibrium corresponding to his or her tough strategy

The Increase in graduation rates is occurring as a result of

General Equivalency Degrees (GEDs) being included in the data.

Medicare

Health care for the elderly

They test their models against real-world data.

How do economists distinguish between models that work and those that don't?

lose all or almost all of its customers.

In a perfectly competitive​ market, if one seller chooses to charge a price for its good that is slightly higher than the market​ price, then it will​

Board of governors

It is the governing body of the Federal Reserve System

Price floor

Keeps price from going down to where the market would naturally make it go Ex. Minimum wage

Golden parachute

Large payment given to employee if they're dismissed

New York stock exchange

Largest exchange in the world

If money is moved from a consumer savings account into a consumer checking account,

M1 increases and M2 remains unchanged.

Why monopsonist byus fewer inputs than the price-taking firm, for the same MRP and input supply curves?

MEmon>MEpricetaker

When does the monopsonist maximizes profit

MRP=ME. If a monopsonist buys more of an input than the MRP = ME amount, the additional amount the monopsonist spends to buy those inputs will exceed the revenues it earns from them, and vice versa.

Socialism

Major industries are owned by the government

The answers are different because

Mexico is at an earlier stage of development than Germany.

Standard deductions

Minimum level of deduction

Black Thursday

October 24, 1929 Beginning of the Great Depression

Tender offer

Offer to buy

Stockholders

Owners of a corporation

Administrative law

Rules and orders of government agencies

Law

Rules governing relationships among individuals and between individuals and society

Officers

Run the corporation on a daily basis

Horizontal merger

Same industry (involves anti-trust laws)

Proportional tax

Same tax rate for everyone A "flat" tax

screening

Taking action to reveal private information about someone else

The Bureau of Economic Analysis

The GDP is computed by ---

Entrepreneurship

The ability to combine the factors of production to produce a good or service

Cost

The expense that must be incurred to produce goods and services for sale.

lower; price

The shorter the period of time consumers have to adjust to price changes, the --- the --- elasticity of demand.

Providing check clearing services

Third function of the fed that sees if fund is available to get money for a check when we send it somewhere else

Negligence

Tort that involves a failure to use due care to protect others from harm

1929, 1941

When did the Great Depression start? When did it end?

The Obama administration's stimulus package was

a balance between tax cuts, spending on projects, and shoring up the unemployment and welfare systems.

pigovian tax

a tax meant to counterbalance a negative externality

Money

any item, token, or good that is widely accepted for purposes of exchange, and in the repayment of debt

cognitive biases

are systematic patterns in how we behave that lead to consistently erroneous (wrong) decisions.

Combined the consumer surplus and producer surplus at equilibrium is

as big as it can be. Economists say that demand is elastic when the percentage change in quantity is larger than the percentage change in price and inelastic when the percentage change in quantity is smaller than the percentage change in price.

Combined, the consumer surplus and producer surplus at equilibrium is...

as big as it gets

The method of detecting sex discrimination most likely to maximize it would be to use

auditing techniques.

Farm price supports are typically for

basic commodities like raw milk and grain.

If the supply and demand curves cross at a quantity of 100, then the price necessary to get firms to sell more than that will have to be ____ equilibrium.

below

A price support mechanism

can involve government manipulation of the supply or demand of the good.

If a person must pay 20% of a covered health-care expense, this is called their

co-payment

When firms add workers to get more efficient they are benefiting from...

division of labor

A cut in the rate of growth from 2 percent to 1 percent would have more than a 10 percent impact if it lasted 10 years because growth is

exponential.

$8,100

f the base year is 1970 and the 2016 price index is 135​, purchases of ​$6,000 of goods in the base year would cost ​$___________ for the same goods in 2016

The average index of monthly earnings is indexed

for wage inflation.

Tariffs imposed upon Japanese passenger vehicle imports into the U.S. tend to

harm U.S. consumers and help U.S. automakers.

Federal Reserve independence is

important to its effectiveness.

An industry in which there are a very limited number of large firms is likely to be characterized by...

oligopoly

The DRG system controls Medicare expenses by...

paying hospitals on the basis of a disease or injury rather than expenses

column player

player from up to down

The minimum level of deduction

standard deduction

Student tenants

student that pays rent to use or occupy land, a building, or other property owned by another.

market power

the ability to noticeably affect market prices

revealed preference

that is, no matter what you had thought you wanted to do, your actions reveal that what you actually wanted to do

absolute advantage

the ability to produce more of a good than others with a given amount of resources—for instance, to produce more T-shirts with the same number of workers.

Under perfect competition, the supply curve is

the marginal cost curve, but only that proportion is above the minimum of average variable cost

revenue

the money that comes into the firm from the sale of goods and services

Increase interest rates

to slow down an overheating economy, the Fed needs to ---

Answer the following questions about elasticity of demand. a. A retailer noticed that by increasing its price, its total revenue stayed the same. In this case, demand is 1. inelastic. 2. unitary elastic. 3. elastic.

unitary elastic.

The economic rationale for farm price supports is generally

weak, but relies on price variability.

landlord

who is the owner of a house, apartment, condominium, or real estate which is rented or leased to an individual or business, who is called a tenant (also a lessee or renter).

16th Amendment

"The congress shall have power to ... collect taxes on incomes ... without regard to any census"

In 2013, the U.S. was supposed to be without price supports for milk and grains but it spent

$13.4 billion on such price supports

If a society has 100 million people over the age of 16, 58 million who are working, and 2 million who are looking for work, with 40 million others neither working nor looking for work, the labor force participation rate is

60% (60/100).

implicit costs

A firm's opportunity cost of using its own resources or those provided by its owners without a corresponding cash payment

No, the increase in price will not cause a shift of the supply curve.

A rightward shift in demand will cause an increase in price. The increase in price will cause a rightward shift of the supply​ curve, which will lead to an offsetting decrease in price.​ Therefore, it is impossible to tell what effect an increase in demand will have on price. Do you agree with your friend?

the increased likelihood that a client's partner will contract a disease

An example of an externality associated with prostitution is ---

Robber Barons

Andrew Carnegie Cornelius Vanderbilt John D Rockefeller

substitutes

As the price of good A rises, the demand for good B rises. Therefore, goods A and B are ---

positive economic analysis

As tuition rates increase, fewer students are enrolling in college is an example of what

Strict Liability

Assigning liability without assigning fault

The evidence is that welfare reform in 1996 resulted in ____ welfare rolls A. a substantial increase in B. a slight increase in C. a substantial decrease in D. no impact on

C

If all K-12 schools were privately owned with a constant subsidy paid by the government to the school for each student enrolled, what would be one potential and likely negative consequence?

Cherry picking

What country does the U.S. have the biggest deficit with?

China

Some specific "design principles" make informal, community-based solutions to common-resource problems more effective. These principles include

Clear distinctions between who is and is not allowed to access the resource. The participation of resource users in setting the rules for use. The ability of users to monitor one another.

Tax deduction

Comes off of taxable income Ex. A person is in the 15% tax bracket and they can take a $1000 _____________.

A stock market crash reduces people's wealth.

Demand decreases

The United States enters into an arms race with China, resulting in a significant increase in military spending

Demand increases

The spread of democracy around the world increases consumer confidence in the United States

Demand increases

federal, state, and local governments

Government purchases consist of the total dollar amount spent by the ---

**In which of the following government policies is moral hazard not a concern?

Government raises taxes to pay for social services

The price will stay the same, but the quantity will decrease

If the supply curve and the demand curve for lettuce both shift to the left by an equal amount, what can we say about the resulting changes in price and quantity?

price inelastic

If, for a consumer, large changes in price lead to relatively small changes in quantity, the consumer's demand is ---

always larger than M1

Is M2 larger or smaller than M1?

Preferred stock

No voting rights, but guaranteed dividends

Community property (i.e., property that belongs to all) were owned by self-interested parties

Nobel laureate economist Ronald Coase suggests that pollution problems could be solved if ---

people can hold two inconsistent sets of preferences:

One set holds what we would like to want in the future—to study enough for exams, to lose weight, to build up a healthy savings account. One set holds what we will actually want in the future, when the future comes—to play games, to eat dessert, to go shopping.

Which lag described in Chapter 9 did the concept of "shovel-ready" intend to combat?

Operational lag

Explicit Costs

Opportunity cost of resources employed by a firm that takes the form of cash payments

people weigh costs and benefits when making a decision.

Optimization describes a situation where:

Which of the following college costs has experienced the slowest increase?

Overall prices

computing for each firm the difference between sales revenue and the purchase of intermediate products, then summing this difference across all firms summing each firm's value added to the production process. A and C only

Production-based accounting is used to estimate GDP by​:

The Eau Claire Rule is in place to

Protect dairy farmers outside Wisconsin

In Figure 5.1, what output would a perfect competitor produce?

Q2

Unequal treatment of classes of people that is based on sound statistical evidence and is consistent with profit maximization.

Rational or statistical discrimination

Model

Simplified version of reality

Dow Jones Industrial Average

Started as the average price of the 12 most important stocks, no longer an average and measures the 30 most important stocks

Should welfare be repealed?

Suppose that you are on a date with an economics​ major, and you want to impress them by talking about economics. Your date challenges you to state your knowledge of positive and normative questions. Which of the following examples do you provide as a normative question.

CPI

The inflation rate is calculated by comparing the percentage change in the:

If the price of a good rises by 10% and the total amount consumers spend on the good remains the same, then the good is

Unit elastic

Common stock

Voting rights, but no guaranteed dividends

7% or $3,500 per year

What percentage of the typical household's total spending is spent on health care?

rightward

When one of the five major factors​ changes, causing an increase in​ demand, the demand curve shifts:

If the market price for a crop is $4.00 a bushel, and the price support is $3.00, then raising the price support to $3.50

Will cause nothing to happen

Adam Smith (1723-1790)

Wrote the Wealth of Nations

no

Your roommate Keff states that the "RGDP per capita or RGDP is an accurate measure of the social welfare in a country." Is he correct?

If the reserve ratio is .05, the money multiplier can be as high

as 20.

A price support mechanism

can involve government manipulation of the supply or demand of the good. All of the many forms of support that government can give to farmers can be modeled with our supply and demand model.

Affirmative action

can take many forms.

The present value of a $1,000 payment received two years from now at 5 percent annual interest will be less than $900 because of

compounding Compounding is the process where the value of an investment increases because the earnings on an investment earn interest as time passes.

external costs

costs imposed without compensation on someone other than the person who caused them

variable costs

costs that depend on the quantity of output produced

The degree to which gasoline and corn prices are linked is dependent on

how high gasoline prices are, because when they are high, corn-based ethanol becomes a more attractive substitute.

The number of people in poverty

is roughly the same as it was in 1959 Although the number of people in poverty is roughly the same as it was in 1959, the poverty rate has fallen dramatically.

maturity

life span

Using linear production possibilities frontiers in a simple two-good, two-country model, absolute advantage is evident when

one country can make more of a good than the country other can.

Income inequality, as conventionally measured is, ________ when you ignore the decreases in the capital gains tax rate.

overstated

The portion of US debt owned by the Federal Reserve

rose from around 6% to around 12% as a result of the Great Recession.

tragedy of the commons

the depletion of a common resource due to individually rational but collectively inefficient overconsumption

Referring to Figure 1.4, the opportunity cost of producing the second unit of pizza is

three units of soda.

The economic rationale for farm price supports is generally

weak, but relies on price variability. The most compelling of the reasons for government intervention in this market is that price variability makes farming a necessarily economically risky occupation.

Per capita real economic growth during the pre-Revolutionary War era was

zero.

total product

A firm's total output

Tort

A non criminal act that results in inquiry or property damage

Suppose you save $25 per month at an interest rate of 10 percent. After 6 years, which of the following is the closest approximation to the interest you would have earned?

$653 When you save $25 per month at 10 percent interest, the future value (using Excel) is (FV(10%/12,6*12,-25) ) = $2,453. Since you would have saved $25 × 6 × 12 = $1,800, the difference is interest = $653.

If you a have a $2000 covered health expense, a deductible of $500, and a 20 percent co-pay, then you pay _____and the insurance company pays _____.

$800 and $1200

liquidity

the ease with which an asset can be converted to cash

An example of an externality that we see every day is

the emissions from a car's tailpipe.

embargo

a restriction or prohibition of trade in order to put political pressure on a country

Using a higher rate of discount (or interest rate)

lowers the present value of future liabilities.

market equilibrium

A condition in a market where there is no upward or downward pressure on price is called

might rise, fall, or stay the same; definitely increase

If both supply and demand increase at the same time, the equilibrium price --- and the equilibrium quantity ---

For developing economies, sustained increases in aggregate supply, absent increases in aggregate demand, will result in

deflationary risks

An increase in input prices will cause

AS to decrease (move up and to the left).

Variable Cost

Cost of production that can be changed.

traiff

a tax on imported goods

taxes increase

demand-side shock

The Federal Reserve's response to the recession of 2007-2008 was

quick but not obviously effective in shortening the recession.

During the Great Recession, the Federal Reserve

used tools it had never used before.

required reserves; excess reserves

--- are reserves held by banks due to Federal Reserve requirements. Additional reserves beyond those are called ---

Old estimates for tobacco use

-.2 for adults -.5 for children

the more you consume of a​ good, your willingness to pay for an additional unit declines.

The concept of diminishing marginal benefits states that:

currency

includes coins and paper money

In a perfectly competitive market, MR = a. Price. b. Average revenue. c. Total revenue. d. Δ in total revenue/ Δ in quantity.

a, b, and d are checked

The Medicare Trust Fund is necessary because...

future expenses will be greater than future revenues

The Medicare Trust Fund is necessary because

future expenses will be greater than future revenues. One of the greatest concerns today is the fiscal health of the Medicare program that provides for our elderly's physical health. The Medicare Trust Fund enjoyed assets of $266 billion in 2014. This trust fund was set up to handle the anticipated medical expenses of the baby boom generation.

substitutes

goods that serve a similar enough purpose that a consumer might purchase one in place of the other

The problem of the "third-party payer" arises in health care in the form of...

government and or private insurance paying a significant part of the costs

Jurisprudence

Study of law

Opportunity cost

The best alternative sacrificed for a chosen alternative

Advantages

The government can have more input with the tax of the landlords

monopoly

a situation in a market where there is only one firm producing the good

In order for the minimum wage to reach its 1968 high in real terms (1999 dollars), it would have to rise to slightly more than ________ per hour.

$12 In 1968 the minimum wage was $1.60. With a base year of 1999, the 1968 CPI was 20.9 and the 2019 CPI was 153.3. In order for the minimum wage to reach its 1968 high in real terms (1999 dollars), it would have to have been about $12 per hour in 2019 (= (($1.60 ÷ 20.9) × 153.3) = $11.74).

New deal

Banking reform and regulation of the stock market

Medicaid

Health care for the poor

Sherman Anti-Trust Act

Limits monopolies and anti-competitive business practices

Strike

Temporary work stoppage by employees

Profit

The money that a firm makes: revenue - cost.

Everyone under the poverty line qualifies for Medicaid. 1. True 2. False

2. False

Recently, the amount of time men devote to housework has been increasing while the amount of time women devote to housework has been decreasing. An economic explanation for this trend could be 1. as women have fewer employment opportunities, their opportunity cost of doing housework relative to men has fallen. 2. as women have more employment opportunities, their opportunity cost of doing housework relative to men has risen. 3. as women have more employment opportunities, their opportunity cost of doing housework relative to men has fallen. 4. as women have fewer employment opportunities, their opportunity cost of doing housework relative to men has risen.

2. as women have more employment opportunities, their opportunity cost of doing housework relative to men has risen.

The opportunity cost for you to attend college might best be described as 1. the value to you of not working. 2. income you could have earned at a full-time job. 3. the cost of books. 4. the cost of tuition.

2. income you could have earned at a full-time job.

A single payer system in the United States would 1. decrease availability of health care services to those who are currently uninsured. 2. necessitate a tax increase. 3. likely decrease the waiting time for certain procedures. 4. likely fail because no other nations have tried it.

2. necessitate a tax increase

If a person has a deductible of $300 and must pay $500 out of a $1,300 health-care expense in a year, then their co-payment rate is 1. 5%. 2. 10%. 3. 20%. 4. 50%.

3. 20%.

Hospitals are motivated to overtreat patients, thereby running up the costs to increase reimbursement and profits. 1. This is a cost of paying hospitals using prospective payments. 2. This is a benefit of paying hospitals using prospective payments. 3. This is a cost of paying hospitals on what services they perform. 4. This is a benefit of paying hospitals on what services they perform

3. This is a cost of paying hospitals on what services they perform.

11. It is more likely that health expenses will rise faster in the United States than in Canada or the United Kingdom because 1. there are fewer individuals with chronic and expensive conditions in Canada and the United Kingdom. 2. doctors in Canada and the United Kingdom are educated abroad and have lower salaries. 3. inflation in Canada and the United Kingdom has been very low, but that is not the case in the United States. 4. Canada and the United Kingdom have a single-payer system financed by taxpayers, but the United States does not.

4. Canada and the United Kingdom have a single-payer system financed by taxpayers, but the United States does not.

Suppose the interest rate is 2 percent. What is the future value of $500 five years from now?

552.05

In 2017, the percentage of people covered by health insurance for at least a portion of the year was

91%

Complete the following​ statement: ​"When there is a shortage.. of a good A. consumers compete against one another by bidding the price upward. B. producers react to shortages by lowering prices. C. as prices​ increase, consumer demand more of a particular good. D. as prices​ increase, producers are driven to produce less. E. decreasing prices lead to a change in demand.

A. consumers compete against one another by bidding the price upward.

Which of the following is not an example of​ rent-seeking behavior? A. engaging in aggressive advertising that slams a​ competitor's product B. competition for subsidies C. competition for the exclusive right to import a product D. lobbying the government to impose tariffs on certain imported products

A. engaging in aggressive advertising that slams a​ competitor's product

In response to the global glut of​ oil, the market price will A. fall to a​ new, lower equilibrium price at which the quantity demanded would equal the quantity supplied. B. fall to a​ new, lower equilibrium price at which the quantity demanded would be lower than the quantity supplied. C. rise to a​ new, higher equilibrium price at which the quantity demanded would equal the quantity supplied. D. rise to a​ new, higher equilibrium price at which the quantity demanded would be greater than the quantity supplied.

A. fall to a​ new, lower equilibrium price at which the quantity demanded would equal the quantity supplied.

Which of the following tax rates has the greatest effect on​ people's willingness to​ work, save, and​ invest? A. The marginal tax rate. B. Neither the average tax rate nor the marginal tax rate affects those decisions. C. The average tax rate. D. The average and the marginal tax rates have the same effect.

A. The marginal tax rate

One result of the public choice model is that most economists believe that A. policymakers may have incentives to intervene in the economy in ways that do not promote economic efficiency. .B. when market failure​ occurs, government intervention will always lead to a more efficient outcome. C. the voting paradox will prevent voters from selecting the best person for public office. D. government intervention will always result in a reduction in economic efficiency in regulated markets

A. policymakers may have incentives to intervene in the economy in ways that do not promote economic efficiency.

Does it matter whether buyers or sellers are legally responsible for paying a​ tax? A. ​No, the market price to consumers and net proceeds to sellers are the same independent of who pays the tax. B. ​Yes, the tax is more equitable if sellers pay the tax. C. ​Yes, the tax is more efficient if consumers pay the tax.

A. ​No, the market price to consumers and net proceeds to sellers are the same independent of who pays the tax.

A co-payment is the 1. percentage of a covered expense that an individual will have to pay (after the deductible is met). 2. percentage of a covered expense that an insurance company will have to pay (after the deductible is met). 3. amount of covered expense that an individual will have to pay before the insurance company pays anything. 4. amount of covered expense that an insurance company will have to pay before the individual pays

1. percentage of a covered expense that an individual will have to pay (after the deductible is met).

government instruments to aid farming

1. price supports 2. restrict supply 3. increase demand

Government spending increases.

Demand increases.

compounding

the process of accumulation that results from the additional interest paid on previously earned interest

backward induction

the process of analyzing a problem in reverse, starting with the last choice, then the second-to-last choice, and so on, to determine the optimal strategy

One unsettling consequence of setting a tax on tobacco sufficiently high to reduce consumption would be that

It would make Social Security's financial outlook worse

a small piece of the overall economy, the economy as a whole.

Microeconomics studies ____________, while macroeconomics studies ______________.

Which of the following groups of people are poor in numbers vastly out of proportion to their numbers in the general population?

Minorities, women, and children

If the United States were to eliminate the drinking age, then in terms of externalities you might predict the outcome to be

More drunk driving accidents and driving-related incarcerations

diminishing returns

the notion that there exist a point where, because there are some fixed inputs like plant and equipment, the addition of resources increases production, but does so at a decreasing rate

information asymmetry

A condition in which one participant in a transaction knows more than the other participant. (if both parties' incentives are aligned, then info asymmetry doesn't matter).

Externalities

A cost or benefit caused by a producer that is not financially incurred or received by that producer.

sunk cost

A cost that has already been incurred and cannot be refunded or recovered. It makes no sense to consider sunk costs when weighing the trade-off between opportunity costs and benefits, but people do it all the time.

long-run average cost curve

A curve that indicates the lowest average cost of production at each rate of output when the size, or scale, of the firm varies; also called the planning curve

Use the aggregate supply-aggregate demand model to determine which of the following will lead to higher aggregate output.

A cut in interest rates

underemployed

Javier lost his job as a chemical engineer when the company he worked for shut down, so he took a full-time job as a convenience store clerk to help pay the bills. Javier is now considered ---

The quintessential example of a normal good would be a) steak for someone who liked beef. b) the substitution of Granny Smith for Golden Delicious apples. c) Ramen Noodles for a poor college student. d) peanut butter and jelly for a young boy or girl.

a) steak for someone who liked beef.

Suppose there was a debate regarding military budgets and the Democrat was arguing for a budget increase from $400 billion to $405 billion and the Republican was arguing for the budget to increase to $425 billion. Further, suppose military salaries and procurement of the same weapons systems are project to rise 2%. The Republican accuses the Democrat of proposing a cut to the military while, the Democrat insists his plan increases military spending. What is going on here?

The Democrat is cutting the military only if you use current services budgeting.

oligopoly

a market with only a few firms, which sell a similar good or service

elasticity

a measure of how much consumers and producers will respond to a change in market conditions

cross-price elasticity of demand

a measure of how the demand for one good changes when the price of a different good changes Cross-price elasticity of demand between A and B = % change in quantity of A demanded/% change in price of B negative --> goods are compliments positive ---> goods are substitutes

commitment device

a mechanism that allows people to voluntarily restrict their choices in order to make it easier to stick to plans

When choosing to limit trade, a country can impose a tax on imported goods. This is called

a tariff.

Which of the following policies might create demand-pull inflation?

All of these policies could create demand-pull inflation.

Child (And Elder) Care Credit

Allows a credit of 20% to 30% of actual expenses.

Tuition Tax Credit

Allows for up to $2,400 of college related expenses to come off the tax bill

economies of scale

Forces that reduce a firm's average cost as the scale of operation expands in the long run

The total revenue/expenditure rule of elasticity suggests that when price and total revenue go

In opposite directions, demand is elastic

Commerce clause

Gives the federal government power to regulate interstate commerce

Insider trading

Illegal practice of using inside information to sell stocks

Feudalism

No central governments Serfs lived on a manor that was controlled by a lord

Accounting Cost

Only those costs that must be explicitly paid by the owner of a business.

the choices that people make

Optimization is the process that describes ________.

Microeconomics

Study of individual economic units

Federal Reserve (District) Bank presidents

The 12 members of the federal open market committee- 7 are on the board of governors and the other 5 are what?

normative

The statement that the U.S. should legalize same-sex marriage is a __________________ statement since it describes what people ought to do.

Marginal values show the additional benefit or cost from consuming an additional unit of a​ good, while average values are the benefit or cost per unit of a good.

What is the difference between marginal values and average​ values?

The two indexes measure price changes for different "baskets" of products.

What is the key difference between the Consumer Price Index​ (CPI) and the GDP​ deflator?

% change of quantity demanded/ % change of price

What is the price elasticity of demand formula?

1/r 10 times total change reserves

What is the simple deposit multiplier?

decrease

When the Fed aggressively increases the money supply, interest rates tend to ---

Primary market

Where IPO's are sold

Transactions in the underground economy. The value of leisure.

Which of the following are not included in GDP but probably should​ be? ​(Check all that apply​.)

Driving without car insurance will lead to getting into an accident.

Which of the following is NOT an example of​ causation?

quotas

a legal restriction on the amount of a good coming into the country

import quota

a limit on the amount of a particular good that can be imported

natural monopoly

a market in which a single firm can produce, at a lower cost than multiple firms, the entire quantity of output demanded

If the supply and demand curves cross at a price for $2, at any price above that there will be...

a surplus

If supply increases and the price doesn't change, there will be

a surplus.

Identify which way the labor supply curve would shift under the following scenarios. a. A country experiences a huge influx of immigrants who are skilled in the textile industry: b. Wages increase in an industry that requires similar job skills: c. Changes in technology increase the marginal productivity of labor:

a. Immigration increases labor supply. The labor supply curve would shift to the right. b. Better opportunities in a related job market would shift the labor supply curve to the left in the industry with lower wages and to the right in the industry where wages increased. c. An increase in the marginal productivity of labor will cause an increase in demand for labor. Wages will rise and there will be a movement along the labor supply curve.

Suppose that when the average family income rises from $30,000 per year to $40,000 per year, the average family's purchases of toilet paper rise from 100 rolls to 105 rolls per year.Instructions: a. The income-elasticity of demand for toilet paper is b. Toilet paper is a c. The demand for toilet paper is

a. [(105 − 100)/102.5]/[(40,000 − 30,000)/35,000] = 0.17. b. Toilet paper is a normal good because the income elasticity is positive. c. Toilet paper is an income-inelastic good because the income elasticity is greater than zero but less than one.

In Table 17.1, Brazil has (in this one U.S has coffee=2 and apples=4, while brazil has 4 and 2.)

an absolute and comparative advantage in coffee.

strategies

are the plans of action that players follow to achieve their goals.

payoffs

are the rewards that come from particular actions.

The arguments for intervention fall into three categories:

changing the distribution of surplus, encouraging or discouraging consumption of certain goods, and correcting market failures.

The notion that the United States is the "land of opportunity" where who your parents are and how much they earn is unrelated to your income is (relative to other industrial powers)

clearly shown in the data to be inaccurate.

Between 1998 and 2007, the real minimum wage

fell steadily. Although the minimum wage itself has been increased several times over the last 78 years, its real value, that is, the value adjusted for inflation in 1999 dollars, rose for the first 30 years of its existence and has steadily fallen since.

When the demand for a product is more elastic than​ supply, _______ pay the majority of the tax on a product​; when supply for a product is less elastic than the​ demand, ________ pay the majority of the tax on the product.

firms ; firms

A quota will typically

increase the price received by sellers.

In 2011, a five-year-old from a family making more than 133 percent but less than 200 percent of the poverty line is

ineligible for any health care assistance

money market

market where short-term securities are traded

If the United States were to eliminate the drinking age, then in terms of externalities you might predict the outcome to be

more drunk driving accidents and driving-related incarcerations. If the United States were to eliminate the drinking age, then in terms of externalities an expected outcome might be more driving-related accidents and death. If young people were able to drink freely, it would affect their brain development and influence their ability to learn and become productive members of society.

The cost of educating a college student is

much greater than the cost of educating a high school student because college professors make more money and teach fewer hours per week.

A tariff will typically

reduce the price, net of the tariff, that is received by sellers and increase the price paid by consumers.

An indicator of the degree of competition in an industry is the concentration ratio. It measures...

the percentage of sales in the industry by the largest firms

Those who mistakenly thought an increase in the minimum wage was in their best interests include

the poor and uneducated

Those who argue that the slow-growth predicament reflects the "new normal" claim that

the sources of economic growth of the post-Civil War period have all but evaporated.

game theory

the study of how people behave strategically under different circumstances

economics

the study of the allocation and use of scarce resources to satisfy unlimited human wants

Referring to Table 4.2, Box E should be filled with

$3.

The FY 2020 federal budget was around

$5 trillion.

social cost

the entire cost of a decision, including both private costs and any external costs

economic rent

the gains that workers and owners of capital receive from supplying their labor or machinery in factor markets the area above the supply curve but below the equilibrium rental price is economic rent. It represents the rental price of a factor of production minus the cost of supplying it

Income gaps between men and women and whites and nonwhites may persist even in the absence of sexism or racism by business owners because

the gap has not had time to close. there are skill differences between workers.

coase theorem

the idea that even in the presence of an externality, individuals can reach an efficient equilibrium through private trades, assuming zero transaction costs

A factor that might have contributed to the weakening of the U.S. economy in 2007-2009 was

the impending expiration of the Bush Tax Cuts of 2003.

value of the marginal product

the increase in revenue generated by the last unit of an input; calculated as the output generated by an additional unit of input times the price of the output. Value of marginal product (VMP)=Marginal product×Price of output

If a woman does not get an interview for a job requiring heavy lifting because the manager has noted that the average woman can lift less than the average man, this is

an illegal example of statistical discrimination.

Excess reserves

any reserves held beyond the required amount

Money as a medium of exchange

anything that is generally acceptable in exchange for goods and services/ ex: go to Starbucks, pay, get your drink

The notion of "clean enough" is

appealing to an economist thinking about marginal benefit and marginal cost.

The average total cost curve will be cut by the marginal cost cure from below as long as...

average costs are decreasing

Part of the Patient Protection and Affordable Care Act involved a tax on indoor tanning that tanning salons are required to collect from tanners and send to the federal government. Which of the following would be the predicted result? a) A movement to the right in the demand for tanning b) A movement to the left in the demand for tanning c) A movement to the right in the supply of tanning d) A movement to the left in the supply of tanning

b) A movement to the left in the demand for tanning

Which of the following forms of private insurance is likely to have the lowest premiums and least doctor choice flexibility? a) Medicare b) An HMO c) A PPO d) A fee-for-service plan

b) An HMO

Authors are typically paid for their work

based on a percentage of the sales from publishers to bookstores.

first mover advantage

benefit enjoyed by the player who chooses first and as a result gets a higher payoff than those who follow

Federal spending is typically _______ percent of GDP.

between 18 and 22

The elasticity of demand is related to the slope of the demand curve

but also the (price, quantity) position on the demand curve.

The evidence is that welfare reform in 1996 resulted in _____welfare rolls. a) a substantial increase in b) a slight increase in c) a substantial decrease in d) no impact on

c) a substantial decrease in

The optimization assumption suggests that people make a) irrational decisions. b) unpredictable decisions. c) decisions to make themselves as well off as possible. d) decisions without thinking very hard.

c) decisions to make themselves as well off as possible.

The underlying reason that there are unattainable points on a production possibilities frontier diagram is that there a) is government. b) are always choices that have to be made. c) is a scarcity of resources within a fixed level of technology. d) is unemployment of resources.

c) is a scarcity of resources within a fixed level of technology.

Medicaid spending per recipient is a) twice that of the average citizen's use of health care. b) somewhat less than the average citizen's use of health care. c) somewhat greater than the average citizen's use of health care. d) half that of the average citizen's use of health care.

c) somewhat greater than the average citizen's use of health care.

When an economics student draws a supply and demand diagram to model an increase in the income, she is assuming this change happens...

ceterus paribus

When a satellite television company gains a subscriber there is no impact on existing subscribers. That is, there is no rivalry in the consumption for their service. This is an example of a...

congestible public goods

Using a poverty line of $12,500, under the current system of calculating the poverty rate, which of the following people are considered to be in poverty and probably ought not to be? a) A rural family whose sole income earner is from a minimum wage ($10,300) position b) A rural family whose combined income is $15,000 c) A New York City family whose combined income is $13,000 d) A retired couple whose multimillion-dollar estate yields them no income

d) A retired couple whose multimillion-dollar estate yields them no income

Which of the following groups of people comprise a majority of those Americans living below the poverty line? a) Blacks and those with no college education b) Immigrant Americans and Hispanics c) Those with no college education and Hispanics d) Blacks and Hispanics

d) Blacks and Hispanics

Combined the consumer surplus and producer surplus at equilibrium is a) lower than it would be at prices below equilibrium. b) lower than it would be at prices above equilibrium. c) typically negative. d) as big as it can get.

d) as big as it can get.

An increase in the income of consumers will cause the a) supply of all goods to rise. b) demand for all goods to rise. c) supply of all goods to fall. d) the demand for some goods to rise and for others to fall.

d) the demand for some goods to rise and for others to fall.

An economist worrying about the economic impact of environmental regulations would model that impact with a...

decrease in aggregate supply

The asset substitution effect implies that Social Security will _______ from where it would have been without it.

decrease savings

Suppose the United States is experiencing a recession and Congress decides to adopt an expansionary fiscal policy to stimulate the economy. In this case, the crowding-out effect suggests that investment spending would

decrease, thus partially offsetting the use of the fiscal policy. If the United States is experiencing a recession and Congress decides to adopt an expansionary fiscal policy to stimulate the economy, this would involve government borrowing to increase spending. In this case, the crowding-out effect suggests that investment spending would decrease as interest rates rise, thus partially offsetting the fiscal policy.

Deficits cannot occur in

defined contribution plans

The Constitution of the United States grants to Congress the power of monetary policy in Article 1, Section 8. Since 1913, Congress has

delegated this power to the Federal Reserve.

The dependency ratio in the United States is

growing.

For developed economies, sustained increases in aggregate demand, absent increases in aggregate supply, will result in

growth for a while, but ultimately, they will result in only inflation

risk-seeking

having a high willingness to take on situations with risk; when faced with two options with equal expected value, the one with higher risk is preferred

Social discord resulting from income inequality can be lessened if there is (are)

high levels of intergenerational income mobility. high levels of income mobility of individuals.

In order to grow economically Mexico needs to

improve social, political, financial, legal, and economic institutions to foster growth.

If Congress wants to use $100 billion on tax cuts, the version that would help a family of four making $40,000 a year would

increase the Child Tax Credit by $1,000.

If the price of a good increases by 10% and the quantity demanded decreases by 5%, then at that price, the good is

inelastic.

On a supply and demand diagram, a tariff works by

moving the supply curve vertically up by the amount of the tariff.

Compared to a recreational user of a drug, an addicted user's elasticity of demand is

much less elastic. When someone is addicted to a product, as smokers are to cigarettes, the demand curve for the good is highly inelastic.

Local telephone service was once an area in which consumers had no choices. Many young people no longer use "land lines," preferring instead to use their cellular phones. This means that the market has moved toward...

perfect competition

If there is no change in demand that will cause a change in the price, then the supply for the good is

perfectly elastic.

indicate whether the following statements are positive or normative raising interest rates encourages people to save the government ought to be more concerned with reducing unemployment the government should raise the tax on tobacco to discourage people from smoking the government should limit immigration increasing gasoline taxes results in less disposable income the government should raise gasoline taxes and fix bridges

positive normative normative normative positive normative *if it says should or ought, it's probably normative

The fact that education benefits not just the person being educated but society as a whole, suggests that there is a

positive externality.

dominant strategy

a strategy which is universally best, regardless of the strategy chosen by others

The risk-averse person will buy health insurance a) only if the expected health costs equal the insurance premium. b) only if the expected health costs are greater than the insurance premium. c) even if the expected health costs are less than the insurance premium. d) under no circumstances.

c) even if the expected health costs are less than the insurance premium.

should be

positive economic analysis is a fact and doesn't use the words ---

To counter the slowing rate of economic growth, liberal economists would recommend

taxation and spending policies that increase aggregate demand.

With a reserve ratio of 10%, the banking system can create ________ with each dollar of deposits.

$10

You just bought a ticket to the hottest new musical, and you paid $110 for your ticket. When you check online, you discover that tickets are being resold for $1100 each. You tell your economics professor about this, and she responds with the following advice: You should only keep your ticket if you value seeing the musical at___

$1100

in the long run in a perfectly competitive market:

1. firms earn zero economic profit 2. firms operate at an efficient scale 3. supply is perfectly elastic

Insurers need to be required to accept those with pre-existing medical conditions rather than making acceptance optional otherwise they would 1. not want to insure those with conditions that are expensive to treat. 2. only offer policies in states that did not have this provision. 3. only want to insure those with conditions that are expensive to treat. 4. not cover standard tests

1. not want to insure those with conditions that are expensive to treat.

Capitalism

A system in which the factors of production are privately owned and operated for a profit, usually in a competitive market

Which of the following is the average tax​ rate? A. the total tax paid divided by total income .B. the income range within which a tax rate applies C. the fraction of each additional dollar of income that must be paid in taxes D. the tax rate paid by the average taxpayer

A. the total tax paid divided by total income

Certeris paribus

All other things remain unchanged

Which of the following would qualify as an aggregate supply shock?

An unexpected increase in oil prices

Which of the following would qualify as an aggregate demand shock?

An unexpected reduction in consumer confidence

increases; increases. the minimum price sellers are willing to accept to sell an extra unit of a good.

As a firm produces more of a good, the cost of producing each additional unit ___________________. This implies that the marginal cost of producing a good ________________ as you make more of that good. The supply curve represents:

Public-opinion polls in a small city have revealed that citizens want more resources spent on public safety, an annual fireworks display, and more community swimming pools. Which of these three citizen requests could be privatized by assigning property rights? Community swimming pools. Public safety. An annual fireworks display.

Community swimming pools. Swimming pools could be privatized by assigning property rights because they are excludable and it is possible to charge entrance fees.

How to distinguish Competitive vs Monopsony ?

Competitive: higher minimum wage, less employment Monopsony: higher minimum wage may lead to higher employment

itemized deductions

Deductions for particular expenses on which the government does not want taxes paid

What are some concerns of States that do not want to legalize Marijuana for recreational purposes?

Endanger health of individuals and public safety, lack of support for "Medical Marijuana" claim, and the jeopardizing of young people and their development.

no one would benefit from his or her behavior

Equilibrium describes a situation where

Karl Marx

German philosopher that wrote the communist manifesto

Land

Natural resources

What are some positive & negative externalities associated with Tobacco Products/Usage:

Negative: taxpayers have to pay medical bills for diseases associated with Tobacco, second-hand smoke Positive: Smokers are more likely to die at an earlier age in a less costly way, saves Social Security, Medicare, Medicaid

If GDP is $10 trillion, Personal Consumption Expenditure is $6.5 trillion, Gross Private Investment is $2.0 trillion, and Government Consumption and Investment Expenditures together are $2.0 trillion,

Net Exports are -$0.5 trillion.

Suppose your grandmother told you (today) that she had set aside an amount of money in a savings account bearing 3 percent interest that was sufficient to give you a $5,000 graduation present in exactly four years. How much would she have had to set aside? • Option a: $5,000 • Option b: $5,000 × (1.03)4 • Option c: $5,000/(1.03)4 • Option d: $5,000/(1 + 0.034)

Option c

Dust Bowl

Severe drought in the Midwest

capital

Sometimes the word capital can mean physical capital, such as machinery. At other times it can mean financial capital, as in "She needs some start-up capital for her new business." Then, of course, there's human capital, which we discussed earlier.

Economics

Study of how society allocates its scarce resources to the production of goods and services in order to satisfy unlimited human wants

higher price and a lower quantity of Starbucks coffee.

Suppose that the rise in the price of coffee beans resulted in a large decrease in the supply of Starbucks coffee while the lower prices by its competitor resulted in only a small decrease in demand. The net impact would be a _______ price and a ___________ quantity of Starbucks coffee.

Communism

System in which all factors of production are controlled by the government in an effort to equally distribute the nations wealth

If the demand curve for a firm's output is P=200-10Q, the total revenue curve will be

TR=200Q-10Q2.

In which of the decades below was the deficit as a percentage of GDP the largest?

The 1980s

Which of the following was not likely a contributing factor to the recession of 2007-2009?

The 2008 tax rebates

quantity demanded; a downward-sloping, demand schedule

The Law of Demand states that as the price of a good​ increases, ceteris paribus​, the ____________________, decreases. This can be shown graphically with ____________________, demand curve or numerically in a table using a ____________________. .

currency, checking account balances, and Traveler's checks

The M1 money supply consists of ---

Suppose there was a debate regarding student financial aid budgets and the Democrat was arguing for a budget increase from $40 billion to $50 billion and the Republican was arguing for the budget to increase to only $41 billion. Further, suppose college costs were project to rise 10%, even with the same number of students. The Democrat accuses the Republican of proposing a cut to education while, the Republican insists his plan increases education spending. What is going on here?

The Republican is cutting education only if you use current services budgeting.

minimum efficient scale

The lowest rate of output at which a firm takes full advantage of economies of scale

increasing marginal returns

The marginal product of a variable resource increases as each additional unit of that resource is employed

4 years (renewable)

The president also designates one member as chairman of the board of governors for how long of a term?

The amount of money consumers pay producers is

The price times the quantity or the rectangle whose height is the price and base is the quantity purchased

Suppose you are selling a piece of furniture to a friend who can't afford to pay you upfront but offers to pay you in monthly installments until it is paid off. Which of the following is not information that you need to calculate the present value of this offer? The risk aversion of your friend The interest rate you could earn elsewhere The time period until the furniture is paid off The future value of the payment installments

The risk aversion of your friend The formula for present value is given as PV = FV / (1 + r)n. To calculate present value you need the future value, the time period, and the interest rate to assess your friend's offer.

maturity is greater than 1 and less than or equal to 10 years

Treasury notes maturity rate

Compensatory damages

Victim is entitled to _______________ ______________ for their loss

the highest obesity rate, more likely to be killed by traffic accidents or gunfire

What are some of America's poor life expectancy rates?

it gets shredded

What happens to money before it gets replaced?

currency, money market mutual funds accounts, and savings account balances

What is included is included in M2?

increasing the money supply

What policy actions can the Fed implement to stimulate the economy?

increases

When a bank makes a loan to Maleah for the purchase of a new car, the money supply ---

perfect information

When buyers and sellers know everything about all of the products within their market

All the options.

When deciding whether to install visible countdown timers for pedestrians at​ crosswalks, which of the following would be considered in the​ cost-benefit analysis? ​(Check all that apply.​)

the federal, state, and local governments

Where does the majority of health care spending originate from?

Annual meeting

Yearly meeting of shareholders

Prior to the recession of 2007-2009,

both revolving and non-revolving debt were rising rapidly.

new price-original price/ original price

change in price formula

Which of the following groups of people are poor in numbers vastly out of proportion to their numbers in the general population a) Minorities, women, and immigrants b) Immigrants, women, and children c) Minorities, the lower-middle class, and children\ d) Minorities, women, and children

d) Minorities, women, and children

Suppose a firm cannot figure out whether the demand for the good it sells is elastic or inelastic but discovers that every time it raises its price, its total revenue declines. Their

demand is elastic

When firms add workers and find that the additional workers add less to output than predecessors did, they are experiencing...

diminishing returns

To whom a country owes its money matters because

future generations will be responsible for paying the debt with interest to people in other countries rather than to American citizens.

Public health care expenditures, as a percent of total, in France, Japan, and the U.K. are

greater than 75%

The U.S. budget

is never truly balanced, but historically surpluses are less common than deficits.

A single payer system in the United States would

likely increase the waiting time for certain procedures

When an insurance company pays 20% of the bill for health care services, this

makes demand less elastic.

An industry in which there are many competitors with specific marketing niches is likely to be characterized by...

monopolistic competition

accounting cost

only those cost that must be explicitly paid by the owner of a business

pure coordination game

players don't care where they meet, just that they do meet

variable inputs

resources that are easily changed

The job losses during this recession were

significant and rapid.

cost

the expense that must be incurred to produce goods and services for sale

consumer surplus

the value you get that is in excess of what you pay to get it

One factor limiting the Federal Reserve's ability to use monetary policy to stimulate the economy is that the Federal Reserve has

tools to lower interest rates, but they do not work at interest rates below 0%.

In terms of the percentage of health expenditures spent by governments, single payer systems are

typically between 60% and 90%.

If the price of a good increases by 5% and the quantity demanded decreases by 5%, then at that price, the good is

unit elastic.

One significant feature of a "single-payer" system lacking in the U.S. system is...

universal coverage

Medicare, Part B is 1. voluntary at a low premium. 2. compulsory at a low premium. 3. compulsory at a high premium. 4. voluntary at a high premium.

1. voluntary at a low premium.

Under the intermediate set of assumptions of the Medicare Trustees Report, payroll taxes ______ cover the likely increase in Medicare expenses. 1. would have to grow substantially to 2. would have to remain constant to 3. could be cut and still 4. and sales tax would have to remain constant to

1. would have to grow substantially to

Publicly provided health insurance for the poor will 1. lower the price of health care to the non-poor. 2. raise the level of health care consumed by the poor. 3. decrease the total amount of health care consumed. 4. lower the price of health care to the non-poor and decrease the total amount of health care consumed.

2. raise the level of health care consumed by the poor.

12. There is a "moral hazard" with having health insurance affecting decisions about whether or nor to exercise because 1. there is no definitive evidence that exercise improves health. 2. people feel morally obligated to exercise to meet health goals. 3. any medical issue is covered even if exercising could have reduced or eliminated the outcome. 4. the people who need the most exercise are those least capable of doing it.

3. any medical issue is covered even if exercising could have reduced or eliminated the outcome.

Answer the following questions about elasticity of demand A 4 percent decrease in price results in a 6 percent increase in quantity demanded. In this case, demand is 1. inelastic. 2. unitary elastic. 3. elastic.

3. elastic.

HMO insurance 1. is more expensive than fee-for-service insurance. 2. has fewer meddlesome bureaucrats than fee-for- service. 3. restricts doctor choice to primary care physicians. 4. requires all care be taken in hospitals.

3. restricts doctor choice to primary care physicians.

NASDAQ

3rd largest exchange in the world Known for tech stock

the Board of Governors, the Federal Reserve, the Federal Open Market Committee, and Member Banks

4 entities that are part of the Fed's structure

a. Hospitals specialize in low-mortality, low-risk treatments. 1. This is a cost of paying hospitals using prospective payments. 2. This is a cost of paying hospitals on what services they perform. 3. This is a benefit of paying hospitals on what services they perform. 4. This is a benefit of paying hospitals using prospective payments.

4. This is a benefit of paying hospitals using prospective payments.

. In 2013, Medicaid spending (net of CHIPs) per patient was on average 1. $938. 2. $1,652. 3. $4,211. 4. around $7,000.

4. around $7,000.

Relative to the alternative, a mini-med health insurance policy would be a good policy for 1. older individuals with specific health care issues because these policies only cover certain conditions. 2. young, healthy individuals because the premiums are low; however, the maximum out-of-pocket is a percentage of income. 3. children because these policies are only for well care. 4. young, healthy individuals because the premiums are low; however, there is no maximum out-of-pocket amount.

4. young, healthy individuals because the premiums are low; however, there is no maximum out-of-pocket amount.

Union shop

A business that requires employees to join a union after a period of time

Debt ceiling

A legal limit on a national debt

One method of dealing with a negative externality would be to set quotas on the consumption of the good. Suppose that there are only two consumers of a good with a negative externality, Nicole and Andrew. Their willingness-to-pay schedules are given below. Quantity. Nicole's wtp Andrew's wtp 1. 50. 25 2. 40. 20 3. 30. 15 420105105 Suppose that the government wishes to limit consumption of this good to 6 units, and thus sets a consumption quota of 3 units on each consumer. If the price of the good is $15, each consumer will purchase the three units allowed. Total consumer surplus will be: The resulting distribution of resources will be ____________ Consumer surplus (and thus social surplus) at the same output: is maximized at the current equal distribution of goods. would increase if fewer units were consumed. would increase if Nicole received more units and Andrew received fewer units. would increase if Nicole received fewer units and Andrew received more units.

A quota will only be as efficient as an (equivalent) Pigouvian tax if each consumer's willingness to pay is identical. Otherwise, the quota forces all consumers to have the same limit. Market efficiency could be improved by allowing high-value consumers to purchase relatively more goods while lower-value consumers purchase relatively fewer goods. This would happen with a tax, but it does not happen with a quota. In this case, total consumer surplus is found by finding willingness to pay less price for each unit. (50 - 15) + (40 - 15) + (30 - 15) + (25 - 15) + (20 - 15) + (15 - 15) = $90 The resulting allocation of goods will be inefficient. Consumer surplus would increase if the goods were redistributed. For example, if one unit were taken away from Andrew, his consumer surplus falls by (15 - 15) = $0. Allowing Nicole to purchase that unit increases her surplus by (20 - 15) = $5. Thus, total consumer surplus increases by $5.

No, because it predicts the outcome of increased bus ridership on average.

A simple economic model predicts that a fall in the price of bus tickets means that more people will take the bus.​ However, you observe that some people still do not take the bus even after the price of a ticket fell. Is this model incorrect?

an effect; the cause

A surge in cocoa prices is ________, and a pest attack on the cocoa crop is ____________.

downward; increases

A surplus tends to put --- pressure on the price of the product, which --- the quantity demanded

Negative Externalities

Alcohol-Drunk driving accounts for 31% of the 30,000 traffic accidents that cause 32,675 deaths Factory pollution- Pollution can negatively affect the health of those residing by a factory that have nothing to do with the production within that certain factory

the median is more skewed by extreme values.

All of the following statements about means and medians are​ true, EXCEPT:

noncooperative equilibrium

As we can see from the prisoners' dilemma, an equilibrium outcome to a game is not necessarily a good one for the participants. This negative-negative outcome is called a noncooperative equilibrium because the participants act independently, pursuing only their individual interests.

Which of the following groups of people comprise a majority of those Americans living below the poverty line?

Blacks and Hispanics

blanket standards

Blanket standards (on all imports) on imports usually address issues affecting consumers, rather than workers in the countries where production takes place. In the United States, for instance, imported food products must meet certain standards to protect the health of U.S. consumers.

Suppose there was a debate regarding how to spend $1 billion in newly found revenues in the budget. Suppose the centrist Democrat suggests an increase to infrastructure spending. Suppose the centrist Republican suggests an increase in cyber-defense spending. Each is arguing that their plan will get the most good for the money. What is going on here?

Both are employing marginal analysis, just from different perspectives.

Suppose there was a debate regarding how to spend $1 billion in newly found revenues in the budget. Suppose the most liberal Democrat suggests an increase to Food Stamp (SNAP) allotments. Suppose the most conservative Republican suggests an increase in defense spending. Each is arguing that their plan will get the most good for the money. What is going on here?

Both are employing marginal analysis, just from different perspectives.

When discussing an addictive drug, an economist is likely to focus on

Both the external costs and the "information problem" associated with addiction

Using the poverty line of $12,500, under the current system of calculating the poverty rate, which of the following people is not considered in poverty and probably ought to be. A. a rural family who's sole income earner is from a minimum wage ($10,300) B. a rural family who's combined income is $15,000 C. a New York City family who's combined income is $13,000 D. a retired couple who's multi-million dollar estate yields them no income

C

a logical cause-and-effect relationship.

Causation occurs when there is _______________.

In 2018, the trading partner with which the U.S. had the largest trade deficit was

China.

cost-benefit analysis.

Comparing a set of feasible alternatives and picking the best one is an optimization process called​ _________.

The nonprice determinants of demand can be divided into five major categories:

Consumer preferences. The prices of related goods. Income of the consumers. Expectations of future prices. The number of buyers in the market.

Norris-LaGuardia Act

Courts could no longer stop strikes Banned yellow dog contracts (agreements made by new employees not to join a union)

"criminalization" of Marijuana

Criminalization of Marijuana means turning it into a criminal offense by making it illegal, some states pertaining to not only recreational, medical uses as well.

lower; causation higher; causation correlation

Demonstrate causation or correlation with the following​ examples: More police officers and __________ crime rates is likely to be _______________. More economic growth and _________ employment levels is likely to be ______________. The length of women's skirts and stock market performance is likely to be ____________________.

How to determine the equilibrium in a Monopsony

Derive the ME curve from the supply curve facing the buyer • Find the optimal quantity by setting ME = MR. • Jump down to the supply curve at that quantity to determine the price paid for the factor.

Earned income credit

Designed for the working poor. For those with at least two children, the credits amounts to as much as $5,600.

Treating two otherwise equal people differently on the basis of race.

Disparate treatment discrimination

No

Do players have a dominant strategy in a pure coordination game?

In general, many shifts in the labor demand curve can be traced to three determinants: supply of other factors of production, technology, and output prices.

Factors that shift labor demand Effects on marginal product and labor demand Technology When technology changes are labor-augmenting: The MPL increases and labor demand also increases (shifts right). When technology changes are labor-saving: The MPL decreases and labor demand also decreases (shifts left). Supply of other factorsIf the supply of other factors causes the MPL to increase, labor demand increases (shifts right). If the supply of other factors causes the MPL to decrease, labor demand decreases (shifts left). Output prices If output prices decrease, the value of the marginal product of labor (VMPL) decreases and labor demand also decreases (shifts left). If output prices increase, the value of the marginal product of labor (VMPL) increases and labor demand also increases (shifts right).

Trade sanctions were effective in removing Iraq from Kuwait after its 1990 invasion.

False

How to obtain the Market-level labour supply

Fix wage and add each worker's quantity of labor supplied at that wage. ‒ Once this is done for every possible wage, the market-level labor supply is the result.

1. The amount produced by sellers must be equal to the amount purchased by buyers. 2. The costs of making a product must be less than the final price at which the product sells. 3. Buyers must place a value on the uses of the product that is greater than buying the product.

For a market to be in​ equilibrium, three conditions must hold. Fill in the blanks below to complete these conditions.

decrease (shift left).

If the government sets a minimum wage for seasonal workers​, then the supply curve for sparkling wine would​:

import standards

Import standards on specific countries are less common. Such standards typically address production issues in the country of origin, such as labor or environmental conditions. When used, they are integrated into individual trade agreements with those countries.

MEmonopsonist vs MEpricetaker

MEmonopsonist>MEprice taker

In Figure 5.7, assuming perfect competition, which price(s) is associated with a loss?

MR1 and MR2

MW Optimal amount of labor employed

MRP=W. At low leves of hiring, MRPL>W, firms have an incentive to employ, because benefit greater than cost When MRP<W wont hire additional workers

Hostile takeover

Outside party buys enough stock to take control against the wishes of the board

nonmonetary opportunity cost

People are especially prone to undervaluing opportunity costs when they are nonmonetary, such as time. In sitting through a terrible movie all the way to the end, people fall prey to the sunk-cost fallacy and also fail to recognize the opportunity cost of their time. They mistakenly put value on a nonretrievable monetary cost (the price of the ticket); they also fail to consider the value of their nonmonetary opportunity cost (time).

positive vs normative analysis

Positive analysis is about facts: Does the policy actually accomplish the original goal? Normative analysis is a matter of values and opinions: Do you think the policy is a good idea?

___________ value is how much a certain amount of money that will be obtained in the future is worth today.

Present

Suppose you know that an investment will earn a positive return in the future. Which of the following statements explains why it is still important to know the present value of the investment? Present value helps you understand if the future benefits are worth the current cost. Present value helps you determine the riskiness of the investment. Present value helps you understand if the future benefits are worth the future cost. Present value helps you understand if the present benefits are worth the future cost.

Present value helps you understand if the future benefits are worth the current cost.

Bear market

Prices go down

Bull market

Prices go up

One typical response to an overheated economy for those interested in discretionary fiscal policy is to...

raise taxes and cut spending

Tax credits

Reduces your tax liability dollar for dollar Ex. A $100 _______ __________ reduces your taxes by $100, regardless of what tax bracket you're in

Suppose that the government imposes a $10 tax on sellers of Humbugs. The pre-tax price of Humbugs was $50. If, at the original equilibrium price, the elasticity of demand was -2 and the elasticity of supply was 1.5, which of the following is true? Buyers will pay relatively more of the tax than sellers. The full amount of the tax will be paid by buyers. The equilibrium quantity of Humbugs will not change. Sellers will pay relatively more of the tax than buyers. The full amount of the tax will be paid by the sellers. Now suppose that the elasticity of demand was 0, and the elasticity of supply was 1.5. Which of the following is true? a. Sellers will pay all of the tax. b. Buyers will pay all of the tax. c. The price of Humbugs will rise to $60. d. The price of Humbugs will rise by less than $10. e. The quantity of Humbugs demanded will not change.

Sellers will pay relatively more of the tax than buyers. b, c, and e are checked

20%; cut in half

Since the early 1980s cancer deaths have fallen by what percent? deaths from cardiovascular diseases?

In terms of magnitude, which of the following has the greatest fiscal shortfall?

Social Security

The largest single item in federal spending is

Social Security.

Industrial Revolution

Started in Great Britain in early 1700s Productivity greatly increased

Blue sky laws

State laws that regulate securities

right-to-work states

States that don't permit union shops

Proxy

Stockholders who don't attend the annual meeting may vote by:

Scabs

Strikebreakers hired to replace striking workers

Which of the following programs is on-budget?

Student loans

A revolution in Iran results in a significant reduction in the world's supply of oil

Supply decreases

A cyclone destroys manufacturing plants.

Supply decreases.

A new computer chip is developed that is faster and cheaper than previous chips

Supply increases

Manufacturing firms expect steel prices to decrease significantly.

Supply increases.

complements.

Suppose the price of tea increases and the demand for sugar decreases. You determine that these goods must be _______________.

Do a cost-benefit analysis to compare the alternatives.

Suppose your New Year resolution is to get back in shape. You are considering various ways of doing​ this: you can sign up for a gym​ membership, walk to​ work, take the stairs instead of the​ elevator, or watch your diet. How would you evaluate these options and choose an optimal one?

frictional unemployment

Temporary Voluntary job change New re-entrants Seasonal unemployment

greatest amount of happiness from; maximize

The benevolent social planner wants to extract the --- the limited resources we have been given, and her objective is to --- the size of the economic pie.

14-year terms/ the President with Senate approval

The board of governors members have how long of a term and are appointed by whom?

normative question, since it deals with a subjective issue based on personal preference.

The ethical implications of a hotly debated government policy would best be considered a

You are driving home from work, and get stuck in a traffic jam. You are considering turning off from your usual route home and taking a longer route that might have less traffic. However, you know that there is some chance that the traffic on your usual, shorter route will clear up. Based on the table below, calculate the expected value (in minutes until you arrive home) of each option.

The expected value of Route 1 is 39 minutes. The expected value of Route 2 is 30 minutes. You should take Route 2. Route 1: EV = 0.30(10) + 0.20(30) + 0.50(60) EV = 3 + 6 + 30 EV = 39 minutes Route 2: EV = 0.50(20) + 0.50(40) + 0(80) EV = 10 + 20 + 0 EV = 30 minutes

M1 and M2

Two main measures of money supply

Common law

U.S. law is based on the British legal system:

Lockouts

Union members are prevented from entering the work place

Taft-Hartley Act

Unions must give 60 days notice before a strike The president can stop a strike that could endanger national health or safety Outlawed the close shop Permitted the union shop

complete information

When people are fully informed about the choices that they and other relevant economic actors face

How much is the national debt?

Which of the following do you provide as a positive question?

All of the above.

Which of the following is subject to the​ free-rider problem?

Division of Labor

Workers divide the tasks in such a way that each can build momentum and not have to switch jobs.

monopoly

a firm that is the only producer of a good or service with no close substitutes

demand schedule

a table that shows the quantities of a particular good or service that consumers will purchase (demand) at various prices

When a 65-year-old goes to the hospital, the part of Medicare that pays for the hospital bill is a) Part A. b) Part B. c) Part C. d) Part D.

a) Part A.

Without an increase in price, an increase in demand will lead to a) a shortage. b) a surplus. c) socialism. d) equilibrium.

a) a shortage.

If the supply and demand curves cross at a quantity of 100, then the price necessary to get firms to sell more than that will have to be _______ equilibrium. a) above b) at c) below d) within 10 percent either way of

a) above

A budget surplus is the

amount by which revenues exceed expenditures.

It is important to use marginal analysis in examining crime policies rather than "average" (cost and benefit) analysis because

additional spending is only effective when the marginal or added benefit exceeds the marginal or added cost. The problem is exactly the same as the profit-maximizing problem for a business firm. The mere fact that a firm's revenues exceed its costs does not mean that profit is as high as it could be. For this reason we are less interested in the costs and benefits of capturing, trying, and incarcerating the "average" criminal than we are in incarcerating the "marginal" criminal. The allocation among police, justice, and incarceration should depend on how effective the marginal dollar is in combating crime in each category. If the optimal distribution is accomplished, the marginal benefit of a dollar should be equal in all areas.

The Federal Reserve has indirect control over sort-term interest rates, and as a result their ability to control economic activity is through...

aggregate demand

A strengthening of the dollar will immediately shift

aggregate demand to the left.

money market deposit account

an interest-earning account at a bank or thrift institution (easier access)

Recently, the amount of time men devote to housework has been increasing while the amount of time women devote to housework has been decreasing. An economic explanation for this trend could be

as women have more employment opportunities, their opportunity cost of doing housework relative to men has risen The opportunity cost of any activity is the highest-valued alternative that must be given up to engage in that activity. If women have more employment opportunities, then their opportunity cost of doing housework relative to men will rise.

The question of whether Social Security increases or decreases savings depends mostly on whether the ________ effect outweighs the ________ effect or vice versa.

asset substitution; induced retirement

In the years prior to the recession the economy was growing

at about its typical rate.

The problem of the "third-party payer" arises in health care in the form of a) doctors having to pay part of the own expenses. b) government and/or private insurance paying a significant part of the costs. c) patients having to have to pay a significant part of the costs. d) hospitals not being able to collect from many patients.

b) government and/or private insurance paying a significant part of the costs.

The government, in the form of Medicare, Medicaid and the Children's Health Insurance Program pay for ____ of health care costs. a) less than 10 percent b) slightly less than half c) about 75 percent d) all

b) slightly less than half

The underlying reason for the upward-sloping nature of the supply curve is that a) the production of most goods comes with increasing marginal benefits. b) the production of most goods comes with increasing marginal costs. c) the consumption of most goods comes with decreasing marginal utility. d) the consumption of most goods comes with increasing marginal utility.

b) the production of most goods comes with increasing marginal costs

The argument that a Balanced Budget Amendment would be "pro-cyclical" means that it would cause

bad times to be worse than they would otherwise be.

Since 1950, the trends in U.S. international trade are such that

both imports and exports are increasing One of the more important economic developments of the last 35 years is the increased globalization of our economy. Whereas the world used to be made up of more than 150 countries whose economies were mostly independent of one another, nearly all of the economies of the nations of the world now depend heavily on one another.

When discussing an addictive drug, an economist is likely to focus on

both the external costs and the "information problem" associated with addiction. When discussing an addictive drug, an economist is likely to focus on the external costs and the "information problem" associated with addiction. For illegal goods, advertising is not an issue; the real "information" problem is the degree to which people do not adequately weigh the likelihood or impact of addiction.

Johnston Forest in Rhode Island has a cave that houses thousands of fruit bats. Bat droppings are highly acidic and have ruined the paint on many Rhode Island cars. The flying radius of the Johnston Forest bats encompasses two towns, Johnston and Foster. The residents of Johnston collectively value bat removal at $400,000. Foster residents collectively value bat removal at $500,000. Pest control experts estimate that the cost of bat removal would be $450,000. Which of the following scenarios would lead to removal of the bats? Foster pays Johnston $50,000 to contribute to bat removal. Foster and Johnston evenly split the cost of bat removal. Johnston contributes nothing toward bat removal.

check all three

A patent is necessary to motivate innovation in areas where the innovation is

costly to figure out and easily copied. A patent is a right granted by government to an inventor to be the exclusive seller of that invention for a limited period of time. As with any invention, the fundamental economic problem is how to reward the inventor. Unless the inventor is given exclusive rights to his or her idea, once the item has been invented, copycats can steal it. Knowing this, inventors will have little economic incentive to innovate. For this reason, a patent is necessary to motivate innovation in areas where the innovation is costly to figure out and easily copied.

private costs

costs that fall directly on an economic decision maker

implicit costs

costs that represent forgone opportunities

In measuring gross domestic product, goods produced by foreign firms in the United States are...

counted, but goods produced by American firms in foreign countries are not counted

In measuring gross domestic product (GDP), goods produced by foreign firms in the United States are

counted, but goods produced by American firms in foreign countries are not counted. This means that Ford automobiles produced in Mexico are not counted in the U.S. GDP, but Honda automobiles produced in Ohio are counted in the U.S. GDP.

In 2005, General Motors announced a 20 percent reduction in its staffing levels and the closure of many assembly plants. Those laid off as a result would likely be classified as...

cynically unemployed

If Midwestern grain farmers can plant either soybeans or corn on their land with equal profitability and there is an increase in the price of soybeans, which of the following will result? a) A movement to the right in the demand for corn b) A movement to the left in the demand for corn c) A movement to the right in the supply of corn d) A movement to the left in the supply of corn

d) A movement to the left in the supply of corn

rules

define the actions that are allowed in a game.

If a firm cannot determine the demand for the good it sells is elastic or inelastic but discovers that every time it raises its price, its total revenue declines, it can conclude its

demand is elastic. If the price and the amount you spend both go in the same direction, then demand is inelastic, whereas if they go in opposite directions, demand is elastic. If demand for a good is elastic (the absolute value of the price elasticity of demand is greater than 1), an increase in price reduces total revenue. If demand for a good is inelastic (the absolute value of the price elasticity of demand is less than 1), an increase in price increases total revenue. If the demand for the good is unit elastic (the absolute value of the price elasticity of demand is 1), an increase in price does not change total revenue.

Suppose you observe that minor changes in supply seem to cause dramatic changes in price, you would conclude that

demand is inelastic. Economists say that demand is elastic when the percentage change in quantity is larger than the percentage change in price and inelastic when the percentage change in quantity is smaller than the percentage change in price.

unit-elastic

demand that has an absolute value of elasticity exactly equal to 1 that is, if a percentage change in price causes the same percentage change in the quantity demanded

elastic

demand that has an absolute value of elasticity greater than 1 With elastic demand, a given percentage change in the price of a good will cause an even larger percentage change in the quantity demanded.

inelastic

demand that has an absolute value of elasticity less than 1 With inelastic demand, a given percentage change in price will cause a smaller percentage change in the quantity demanded.

government spending increasese

demand-side shock

checkable deposits

deposits on which checks can be written

Of these, economists consider this the worst:

depression. A depression is a severe recession typically resulting in a financial panic and bank closures, unemployment rates exceeding 20 percent, prolonged retrenchment in real GDP on the magnitude of 10 percent or more, and significant deflation.

The late-1960's era Johnson 10% tax surcharge designed to curb inflation is an example of

discretionary (and contractionary) fiscal policy.

When an existing prescription drug goes over the counter

drug companies likely win because of the increase in sales, and consumers may win depending on whether prescriptions are covered by insurance. When a new drug shows that it is sufficiently safe that it can be used by consumers with little or no consultation with a doctor, the FDA will approve it for use over the counter. When that occurs, the price of the drugs falls precipitously because it can be more easily mass-marketed. Whether that translates into consumers saving money is another story. It is ironic that when Claritin went over the counter in 2003, consumers without prescription drug coverage on their health insurance saw the price fall from more than $100 per month to around $35 per month, while those with insurance saw the cost to them rise because no insurance companies cover over-the-counter drugs. Former Claritin users with insurance were then motivated to seek more expensive prescription solutions such as Allegra. Insurance companies have since responded to this trend by requiring over-the-counter options to be tried before prescription options are tried.

Gross domestic product (GDP) is counted using two methods: one which counts all the ways people _____ money and another which counts all the ways people _____ money.

earn, spend The computation of the GDP is done in two distinct ways. One way is to count all those things for which people pay money. This is called the expenditures approach. The expenditures approach adds up all of the following: consumption, investment, government spending on goods and services, and net exports (net exports = exports - imports). The other approach, which counts all those ways in which people earn money, is called the income approach.

A 4 percent decrease in price results in a 6 percent increase in quantity demanded. In this case, demand is

elastic

A state facing a budget shortfall decides to tax soft drinks. You are a budget analyst for the state. You would expect to collect more tax revenue in the: first year because people will stock up on soda. second year because elasticity is smaller over a longer time frame. In the second year more trades will occur than occurred in the first year. first year because elasticity is larger over a longer time frame. In the second year fewer trades will occur than occurred in the first year. second year because people will adjust and begin to consume more drinks in the second year.

first year because elasticity is larger over a longer time frame. In the second year fewer trades will occur than occurred in the first year.

Many economists note that the shortage of blood in several rare types is, at least in part, attributable to the fact that the price of blood is

fixed at zero.

Supposing a firm is a price taker, the demand for that firm's product is

flat line at the market price.

The steepness of the demand curve is determined in part by the degree of substitutability between products. If buyers see products as good substitutes, demand will be _______ If buyers see products as poor substitutes, demand will be ________

flatter steeper From the buyer's perspective, if there are many substitutes for a good or service, their demand curve will be relatively flat (or elastic). On the other hand, if there are few substitutes for a good or service, their demand curve will be relatively steep (or inelastic). The demand curve will be vertical if there are no substitutes and will be horizontal if there are, many perfect substitutes.

Suppose the market price of corn is $5.00 per bushel. If the price floor for corn is $3.50 per bushel and it is raised to $4.50 per bushel, it will

have no effect on the market

sell bonds

if the fed wants to decrease the money supply, it should ---

Social norms can solve the tragedy of the commons by: making the good excludable. increasing cost or reducing benefits of consumption. correcting informational asymmetries. internalizing the externality.

increasing cost or reducing benefits of consumption. The tragedy of the commons occurs when individuals make decisions that are individually rational but collectively inefficient. Thus, the common resource is overconsumed, which leads to a worse result for all. One way to solve this is through social norms that discourage consumption (or encourage positive actions). These social norms essentially increase the cost or decrease the benefits of consumption, and thus the overconsumption problem is reduced.

purchasing power parity (PPP) index

index that describes the overall difference in prices of goods between countries

Economic theory would suggest that the profitability of an industry would be

inversely related to the number of firms competing in the industry. When a firm faces a large number of competitors, such that no one firm can influence the price (the case of perfect competition), the entry and exit will drive profits to a normal level. When a firm faces few competitors, such that the firm can influence the price (the case of monopoly), profits can be above the normal level.

Maintaining pfloor as the target minimum price (rather than equilibrium) would

involve creating deadweight loss. If the government sets a price floor of Pfloor, it will have to enforce it somehow. Assume for the moment that it is possible for government to enforce a price floor. The consumer surplus will shrink while firms' producer surplus will grow, but the combined surpluses are less than without the floor. Economists label this deadweight loss.

The off-budget-on-budget distinction

is important because two large programs, Social Security and Medicare, largely run off-budget.

Reputation may solve some problems with information asymmetries because: it increases the opportunity cost of less desirable actions. it eliminates the problem of information asymmetries. it eliminates adverse selection. it screens for better employees.

it increases the opportunity cost of less desirable actions. Building a good reputation is costly and time-consuming. Since a good reputation is valuable, agents will be less likely to take actions that will harm that reputation.

In an economic sense, a country is small if: it can buy only a limited number of imports. its geographic size is less than a particular number. it is not important in global political negotiations. it is a price taker in world markets. Suppose that a country is producing coats at a price of $100 per coat prior to opening trade. The world price of coats is $80, and thus the country will become a net importer of coats. If this country has a large economy, which of the following is true? The world price of coats will rise to more than $100. The world price of coats will fall to less than $80. A big economy cannot gain from trade. The country will gain less from trade than if it were a small economy.

it is a price taker in world markets. The country will gain less from trade than if it were a small economy. In this situation, since the economy is large, the increased demand for coats in the world market will cause the world price to rise. Thus, the economy will not gain as much as if the world price had not changed (that is, if it were a small economy). The price will rise above $80, but will not rise above the original domestic price of $100, so the country will still gain from trade.

A change in immigration policy could positively affect the projected solvency of the Social Security system if

it would allow more workers to enter over the next 20 years and pay into the system

Even if it is in the best interests of every other country to limit prescription drug prices, it might not be in the best interests of the United States to limit those prices because

it would discourage drug innovation and development. The world's drug inventors eye the profit that they get in the United States when they pour billions into their scientists and laboratories. If they could not make a profit in the United States, there would be no place to make one and they would not put the money into innovation. To mix metaphors, the United States is the drug industry's cash cow; by controlling prices, we would be killing the golden goose just as she is producing some very important life-improving and life-saving eggs.

The ability of the Federal Reserve to control interest rates using its traditional tools is

limited almost entirely to short-term rates.

Trade agreements are often necessary because

limiting trade helps those doing the limiting but typically by less than it hurts those who are limited.

If an adverse shock reduces the level of aggregate demand, it is likely to lead to

lower Real GDP ("RGDP") and a lower price level ("PI").

One typical response to a recession for those interested in discretionary fiscal policy is to...

lower taxes and increase spending

The present value of extracting a $50 barrel of oil in five years is

lower, the greater the discount rate

capital

manufactured goods that are used to produce new goods.

If judges had to be trained as economists before taking their position, they might use ________ analysis when deciding on the right sentence.

marginal Of key concern to economists is not necessarily whether the total amount spent on crime control exceeds the total amount saved from preventing crime, but whether we are spending the correct amount. At its heart, the problem is exactly the same as the profit-maximizing problem for a business firm. The mere fact that a firm's revenues exceed its costs does not mean that profit is as high as it could be. That means we are less interested in the costs and benefits of capturing, trying, and incarcerating the "average" criminal than we are in incarcerating the "marginal" criminal. If we spend $265 billion per year on the system, the allocation between police, justice, and incarceration should depend on how effective the marginal dollar is in combating crime in each category. If the optimal distribution is accomplished, the marginal benefit of a dollar should be equal in the three areas.

If, over the years, the standard night in a hospital has risen in price from $200 a night to $1000 a night, but now also includes amenities, then economists insist that the price

may have risen or fallen, depending on the value of the amenities

A modest percentage change in the wealth of the very rich will change the

mean wealth significantly but may have no effect on median wealth.

Labor

mental and physical capacity

mid-point method

method that measures percentage change in quantity demanded (or quantity supplied) relative to a point midway between two points on a curve; used to estimate elasticity % change in Q demanded = Q2−Q1/Average of Q = Q2−Q1/(Q2+Q1/2) % change in P = P2−P1/Average of P = P2−P1/(P2+P1/2)

external costs

modeled (or accounted for) by creating a new social cost curve that is higher than the original supply curve

Others believe that a declining middle class is the cause of slowing growth because

money in the hands of the highest-income individuals is spent or invested much more slowly than money in the hands of those in the lower-income strata.

Reserves

money that banks do not lend to customers but instead hold in their vault or in their account at the Federal Reserve

Insurers need to be required to accept those with pre-existing medical conditions rather than making acceptance optional otherwise they would

not want to insure those with conditions that are expensive to treat

Using simple linear production possibilities frontiers in a simple two-good, two-country model, absolute advantage is evident when

one country can make more of a good than the other country can.

Match the following scenarios in which there are problems enacting and applying fiscal policy with the correct type of problem. To fight a recession, Congress has passed a bill to increase infrastructure spending but the planning time for each new project will take at least two years to complete before any building can begin: Distracted by political infighting, inflation reaches 8 percent before politicians take notice: A sudden recession is recognized by politicians, but it takes many months of political deal making before a stimulus bill is finally approved: To fight a sluggish economy the president issues an executive order requiring federal agencies to design a simpler tax system:

operational lag, recognition lag, administrative lag, operational lag

Economists ________ farm price supports.

oppose Economists are generally opposed to farm price supports because the gain to the farmers who benefit are smaller than the costs to consumers.

risk pooling

organizing people into a group to collectively absorb the risk faced by each individual Pooling doesn't reduce the risk of catastrophes happening; it just reallocates the costs when they do.

Prisoner's Dilemma

payoff matrix where both outcomes are the same in one box, but the others are all different

The rational criminal model explains crimes of

profit. The rational criminal model of criminal behavior explains crime in terms of a simple investment decision. The decision to commit a crime is one of risk versus return. The low-return investment, work at a legal job, has a low return, but the worker carries no risk of being arrested. On the other hand, the high-return investment, stealing or selling illegal goods, has a high return, but it puts the thief or drug dealer at risk of being caught and punished. In this context, a criminal is no different from an investment banker who has a portfolio that contains a mix of risky and safe assets.

quota rents

profits earned by foreign firms or governments under a quota

The method of detecting sex discrimination most likely to minimize it would be to use

regression techniques.

The way in which discrimination in hiring translates into differential wages is

related to both the restriction on supply for the favored group and the excessive supply for the discriminated-against group. The model of discrimination restricts unfavored groups into one type of job (thereby increasing supply) and only allows the favored group in the other type of job (thereby decreasing supply).

Risk-averse people would be more likely to buy insurance because

risk-averse people prefer to be guaranteed a particular outcome even if the insurance costs more than the anticipated problem.

market failures

situations in which the assumption of efficient, competitive markets fails to hold

The government, in the form of Medicare, Medicaid, and the Children's Health Insurance Program, pays for _____ of health care costs.

slightly less than half

The government, in the form of Medicare, Medicaid, and the Children's Health Insurance Program, pays for ________ of health care costs.

slightly less than half In 2014 one-sixth of the gross domestic product ($3.03 trillion of $17.35 trillion) was spent on health-related goods and services; the government's portion was slightly less than half (45 percent, or $1.4 trillion) of health care expenditures. Of the $1.4 trillion that government spent on health care in the United States in 2014, some $619 billion was spent on Medicare and $496 billion was spent on Medicaid. The remainder was spent by all levels of government on local, state, and veterans' hospitals and in support of medical research.

The free-rider problem leads to a market failure: Markets typically undersupply public goods. Fortunately, this undersupply problem can be solved in a variety of ways:

social norms, government provision, and private property rights

The evidence on charter schools is that they have had

some impact in some locations, but there is no generally obvious positive impact.

If, in the cause of safety, a drug or medical device has its approval delayed by a year or two, societal welfare is lost because

some people will die or become worse off while waiting for the drug or medical device to be approved. The problem of overly stringent FDA regulation is that people die when they could be saved with a less stringent process. The marginal benefit of increasing FDA stringency is the decrease in the health problems accruing to those who take approved drugs that later are found to be unsafe. The marginal cost of increasing FDA stringency is the forgone increase in the health of people who could have been treated but were not. The optimal degree of FDA stringency is where the marginal cost equals the marginal benefit.

According to the law of diminishing marginal utility, as more of a product is consumed, 1. the price falls. 2. the amount of extra happiness increases. 3. income falls. 4. the amount of extra happiness decreases.

the amount of extra happiness decreases.

According to the law of diminishing marginal utility, as more of a product is consumed,

the amount of extra happiness decreases. Each time you consume another unit of a good, the value you place on the next unit falls. This means that the value you place on a good depends on how many you have already had. Economists refer to the amount of extra happiness that people get from an additional unit of consumption as marginal utility and say that it decreases as you consume more. This law of diminishing marginal utility suggests that the amount of additional happiness that you get from an additional unit of consumption falls with each additional unit. Stated more simply, because each additional unit increases your happiness less than the previous unit, the most you would be willing to pay for each additional unit is less than before. One reason why a demand curve is downward sloping, then, is that for most goods there is diminishing marginal utility.

total revenue

the amount that a firm receives from the sale of goods and services; calculated as the quantity sold multiplied by the price paid for each unit

Decriminalizing a drug is likely to lead to a price decrease if

the anticipated supply effect is greater than the anticipated demand effect. The net result of legalizing a previously illegal activity would be a movement in the demand curve to the right and a movement in the supply curve to the right. If the rightward shift of supply is greater than the rightward shift of demand, the price will fall.

Minimum wage is worse than the earned income tax credit is based on the idea because?

the minimum wage applies to all workers not just the working poor

TARP was

the name given to the bank bailouts.

Those most likely to lose from an increase in the minimum wage include

those people who lose their jobs. anyone who buys goods or services produced by minimum-wage workers. small business owners who have to pay the higher wage. The losers are the people who lose their jobs, small business owners who have to pay the higher wage with perhaps a very small profit margin to do so, and anyone who buys goods or services produced by minimum-wage workers, because part of the increase is passed on to them in the form of higher prices.

Those most likely to benefit from an increase in the minimum wage are

those workers who get a higher wage due to the minimum wage and who are still able to keep their jobs. The winners with a minimum wage are the more than 4 million people who work for the minimum wage and get a pay increase because they keep their jobs.

The national debt is the

total amount owed by the federal government.

average total cost (ATC)

total cost divided by output, the cost per unit of production

average variable cost (AVC)

total variable cost divided by output, the average variable cost per unit of production

Scarcity Implies that the allocation scheme chosen by society can...

typically make more of a good but at the expense of making less of another

Scarcity implies that the allocation decision by society can

typically make more of one good but at the expense of making less of another Scarcity implies that choices have trade offs

signaling

when people take action, on purpose or not, to reveal their own private information

Those most likely to lose from an increase in the minimum wage include

-those people who lose their jobs -anyone who buys goods or services produced by minimum-wage workers -small business owners who have to pay the higher wage

barriers to entry contradict the free entry and exit feature that characterizes perfectly competitive markets and they are:

1. scarce resources 2. economies of scale (instances when, as a firm produces more output, its average total cost goes down. In some industries, the required infrastructure is costly and creates a barrier to entry. In these cases, economies of scale Page 332are so powerful that competition between two or more firms simply doesn't make much sense. Replicating the required infrastructure would raise fixed cost too much to be viable.) 3. government intervention (legal prohibition, intellectual property rights - granting patents and copyrights). 4. aggressive business tactics (on the part of the market leading firms).

Suppose there is a new program for government health care coverage. Which of the following are true? 1. The demand for health care services will become more elastic. 2. The quantity of health care services demanded should rise. 3. The demand for health care services will become less elastic. 4. The price for health care services to consumers should rise. 5. The price for health care services to consumers should fall. 6. The quantity of health care services demanded should fall.

2. The quantity of health care services demanded should rise. 3. The demand for health care services will become less elastic. 5. The price for health care services to consumers should fall.

Angela puts $5,000 in a savings account that pays 5 percent interest per year. What is the future value of her money two years from now?

5,512.50

Which of the following is likely to occur after several years of relevant rent control?

A decrease in available housing The final obvious consequence of rent control, which happens regardless of whether we are talking about the short run or long run, is that people will seek apartments in the rent-controlled community who had not sought to rent there before. The consequence of rent control is that the number of apartments that would ordinarily be rented is decreased because the quantity demanded is more than the quantity supplied.

agents choose to allocate scarce resources and the impact of those choices on society.

Chapter 1: Homework The definition of economics states that it is the study of how:

Which of the following best describes the process of regulatory​ capture? A. Major League Baseball spends money lobbying members of congress to keep its​ anti-trust exemption. B. An Alabama senator agrees to vote for a Kentucky​ senator's bridge​ project, in hopes that the Kentucky senator will vote for the Alabama​ senator's electric dam project. C. Michigan decides to lower its sales tax rate while increasing the income tax rate on incomes above​ $200,000. D. Bank of America encourages the​ FDIC-Federal Deposit Insurance​ Corporation- to make banks with less than​ $50 million of deposits pay a higher percentage into the insurance fund​ "for the protection of​ consumers."

D. Bank of America encourages the​ FDIC-Federal Deposit Insurance​ Corporation- to make banks with less than​ $50 million of deposits pay a higher percentage into the insurance fund​ "for the protection of​ consumers."

Jess practices her electronic keyboard every evening for an upcoming musical concert. The sound disturbs​ Felix, who usually works on his college assignments around the same time. The value of the practice to Jess is​ $100, while the cost of the practice to Felix is​ $80. According to​ George, a student of​ economics, Jess should pay Felix​ $80 to continue her practice for the musical concert. Which of the following assumptions is being made by​ George? A. He assumes that this is the only concert Jess has this year. B. He assumes that Felix and Jess are friends. C. He assumes that​ Felix's cost of a college education is more than​ $100. D. He assumes that Felix has the right to quiet studying conditions. E. He assumes that​ Jess's income from the concert would be less than​ $80.

D. He assumes that Felix has the right to quiet studying conditions.

IOUs

Debt instruments issued by the government

Suppose there was a debate regarding how to spend $1 billion in newly found revenues in the budget. Suppose the centrist Democrat suggests an increase to infrastructure spending. Suppose the centrist Republican suggests an increase in cyber-defense spending. The Democrat says that, on average, infrastructure spending does the most good, so more is better. The Republican is arguing that the extra cyber-security purchased by the extra spending will increase well-being the most. What is going on here?

Only the Republican is using marginal analysis.

total net benefits of alternatives, the change in net benefits.

Optimization in levels examines _______________, while optimization in differences analyzes _______________.

In Figure 3.2, what is the consumer surplus?

P*AC

False

True or False: Medicare is co-financed by the federal government and states.

False

True or False: The cap-and-trade approach cannot help reduce pollution because it provides no incentives for firms to reduce or stop polluting.

False

True or False: Your roommate makes the following statement: "Threatened species are species on the brink of extinction."

public goods

a good that is neither excludable or rival

external benefits

benefits that accrue without compensation to someone other than the person who caused it

The argument that spending more money on teachers has little impact on educational outcomes in K-12 is

consistent with the flat part of the production function.

Adjustments to tax and spending policies serve as primary elements of...

discretionary fiscal policy

Adjustments to tax and spending policies serve as primary elements of

discretionary fiscal policy.

In order to grow economically Germany needs to

ensure that worker productivity continues to improve.

serving as the lender of last resort

function of the fed that was enforced after the crash, no matter what, in the worse case scenario, this institution will step up to make sure we have enough money

normal goods

goods for which demand increases as income increases

member banks

makes us unique, not all banks are this, according to the Fed, about 38 5 of all 8,039 commercial banks in the US are these

When a firm chooses to shut down, it is...

making a good decision as long as the price it is getting is less than its average variable costs

The approval process for new drugs, if governed by economic thinking, should set stringency standards so that the __________ equals the ___________.

marginal cost; marginal benefit The marginal cost of greater scrutiny is the suffering from disease that could have been prevented by earlier approval and/or lesser scrutiny. The marginal benefit of greater scrutiny is the reduction in drug-associated complications or interactions that are discovered with greater scrutiny that would not be discovered until they adversely impacted patients. The optimal degree of FDA stringency is where the marginal cost equals the marginal benefit. Economists evaluate the marginal cost of increasing stringency against its marginal benefit.

An industry in which there are two competitors with specific marketing niches is likely to be characterized by

oligopoly. When a firm faces a large number of competitors, such that no one firm can influence the price, when the good a firm sells is indistinguishable from those its competitor sells, when firms have good sales and cost forecasts, and when there is no legal or economic barrier to its entry into or exit from the market, then we have what economists call perfect competition. Oligopoly refers to a situation in which there are few firms producing similar but not identical goods.

Publicly provided health insurance for the poor will

raise the price of health care to the non-poor and increase the total amount of health care consumed.

Which of the following would help a government reduce an overheated economy?

raising taxes, decreasing government spending

The primary motivation for the purchase of any insurance lies in the fact that most people are...

risk averse

For a previously-illegal good, decriminalization will cause

supply to increase.

The fact that the demand for eggs is inelastic should not surprise you because...

the demand for nearly all food products in inelastic

An increase in the income of consumers will cause the...

the demand for some goods to rise and for others to fall

The advocate for education reform who claimed that paying the same teachers more money won't help might be correct because

there is no reason for a teacher to improve if they get more pay no matter what.

Disagreements about the shape of the aggregate supply curve focus on the degree of _________ in the economy.

unemployment

unemployed/ employed+ unemployed

unemployment rate

The opportunity cost would be sleeping in late, since it was your next-best option.

​Let's say that you are trying to decide what to do on Friday at 11 a.m. You rank your possible options from the one you value the most to the one that you value the least in the following​ order: going to​ class, sleeping in​ late, going to work​ early, getting​ lunch, going to the gym to​ exercise, and watching television. If you decide to go to​ class, then what do we know about the opportunity cost of your​ decision?

marginal product

the increase in output that is generated by an additional unit of input

seven

How many members does the board of governors have?

The most obvious pattern in poverty rates is the degree to which they are higher during A. Democratic administrations B. ward C. odd years D. recessions

D

In Figure 5.1, what profit would a perfect competitor earn?

a positive profit

Consumers become more pessimistic about the economy.

Demand decreases.

The large increase in the Labor Force Participation Rate that occurred between 1950 and 2000 was because

women's participation in the labor force doubled.

new quantity-original quantity/ original quantity

change in quantity formula

In 2015, federal taxes on tobacco raised approximately

$15 billion

Fiat money

Accepted by law and has no intrinsic value

Stagflation

High inflation + high unemployment =

CEO

Highest ranking officer

Hyperinflation

Very rapid rise in inflation

Prior to 1950, for most of the years in which there were deficits, we were also

at war.

factors of production

the ingredients that go into making a good or service (labor, land, and capital)

Suppose you run up a debt of $300 on a credit card that charges an annual rate of 12 percent, compounded annually. How much will you owe at the end of two years? Assume no additional charges or payments are made.

$300 x (1.12) x (1.12) = $300 x (1.12)2 = $376.32 [FV]

quintile

20 percent of the population - a way for economists to summarize the income distribution in a more precise way

Closed shop

A business that requires union membership

Barter

Exchange of one good for another

The efforts to reduce the deficit in 2011 can be best thought of as using

None of these options are correct.

social benefits

the entire benefits of a decision, including both private benefits and external benefits

Your savings account currently has a balance of $32,300. You opened the savings account two years ago and have not added to the initial amount you deposited. If your savings have been earning an annual interest rate of 2 percent, compounded annually, what was the amount of your original deposit?

$32,300 / [(1.02) x (1.02)] = $32,300 / (1.02)2 = $31,045.75 [PV]

If the deductible is $300 and the co-payment is 20%, on a covered expense of $800 the individual will pay ________, and their insurance company will pay _________.

$400; $400

Using Table 6.1, from the 1982-1984 base to 2010, prices increased

121.1%.

If a consumer can be easily prevented from consuming a good or service by a producer, then the good exhibits 1. rivalry. 2. exclusivity. 3. an externality. 4. a moral loss.

2. exclusivity.

_____ will impact both supply and demand.

A change in expected future price

short run

A period during which at least one of a firm's resources is fixed

Perfection Competition

A situation in a market where there are many firms producing the same good.

"It was important... to understand the ways that government could fail​ systematically.In this​ context, government failure means A. politicans making bad decisions for their own selfish reasons. B. the President investigating congressmen for sleeping with interns. C. the most popular ideas are not realized. D. the government is spending more money than it taking in from taxes.

A. politicans making bad decisions for their own selfish reasons.

At what level must a Pigovian tax be set to achieve​ efficiency? A Pigovian tax must be set equal to A. the cost of the externality. B. the marginal private cost of production. C. the marginal social cost of production. D. the market equilibrium price. E. the transaction cost associated with Coase bargaining.

A. the cost of the externality.

An increase in regulation will cause

AS to decrease (move up and to the left).

When a Pigouvian tax is​ imposed, ________. A. the marginal social cost curve shifts downward B. the demand curve shifts rightward C. the marginal private cost curve shifts upward D. the marginal social benefit curve shifts downward

C. the marginal private cost curve shifts upward

The tragedy of the commons occur because some goods are​ ________ in consumption. A. excludable B. ​non-rival and​ non-excludable C. ​non-excludable but rival .D. ​non-rival

C. ​non-excludable but rival

In 2015, the trading partner to whom the U.S. shipped the greatest volume of exports was

Canada

If price elasticity of supply is 1.3 and price increases by 3 percent, quantity supplied will ________ by _________.

If price elasticity of supply is 1.3 and price increases by 3 percent, quantity supplied will increase by > 3 percent.

when the wage bill increases

If the proportional increase in wages is larger than the (induced) proportional decline in employment

Negative externality

Pollution is an example of a ---

profit

Profit=(Price(or average revenue)−ATC)×Q

average variable cost

Variable cost divided by output AVC=VC/q

133.3. 9.9

Suppose for the year 2013 the economy of Uplandia has a nominal GDP of ​$6,500 billion and a real GDP of ​$4,875 billion. For 2013, this economy's GDP deflator is __________. Now suppose the GDP deflator in 2012 was 121.3 Uplandia's year-over-year inflation rate is ______ percent

No, the model is a simplified representation of reality.

Suppose you have just been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. During a meeting with your​ client, the CEO asks if your economic models include all factors that impact gasoline prices. What is your response to his question?

inversely related, ceteris paribus

The law of demand states that price and quantity demanded are ---

U.S. exports

The purchase of an airplane produced in the United States by the government of Brazil is included in ---

The advocate for education who claimed that you have to pay teachers more in order to get more qualified teachers might be correct because

a more qualified teacher has other alternatives and would need higher pay to choose teaching.

average total cost

Total cost divided by output, or ATC=TC/q ; the sum of average fixed cost and average variable cost, or ATC=AFC+AVC

Average Total Cost (ATC)

Total cost divided by output, the cost per unit of production.

The net benefit of the round of golf is $25. To optimize, you should not play golf.

You have been invited to play a​ 4-hour round of golf that has a value to you of ​$60. The total price to play the round of gold is $35. The net benefit of the round of golf is $_____. Now assume that you have a job that pays you ​$12 per hour. Would you be optimizing to accept the invitation to play​ golf? To optimize, you should ___________ golf.

trade-offs, must decrease your purchases of the other item .

Your budget constraint for entertainment illustrates the concept of _________________, since as you increase your purchases of one item, you __________

gini coefficient

a single-number measure of income inequality; ranges from 0 to 1, with higher numbers meaning greater inequality gini coefficient = A/(A+B) Specifically, the Gini coefficient is equal to the area between the Lorenz curve and the line of perfect equality (area A in Figure 21-4) divided by the total area under the line of perfect equality (area A plus area B in the figure). This calculation gives us a single number to describe income inequality.

time inconsistency

a situation in which we change our minds about what we want simply because of the timing of the decision

game

a situation involving at least two people that requires those involved to think strategically

perfect competition

a situtation in a market where there are many firms producing the same good

19. As the baby boom generation (born between 1946 and 1964) ages, which of the following is a likely outcome? a) A movement to the right in the demand for nursing home beds b) A movement to the left in the supply for nursing home beds c) A movement to the right in the supply of nursing home beds d) A movement to the left in the demand of nursing home beds

a) A movement to the right in the demand for nursing home beds

1. The supply and demand model examines how prices and quantities are determined a) in markets. b) by governments. c) by churches. d) by monopolists.

a) in markets.

Keri owns a landscaping business. For each of Keri's inputs given in the list below, indicate whether the associated cost is fixed or variable, explicit or implicit, and whether the cost affects accounting profit only, economic profit only, or both. a. landscapers b. plants from home garden c. truck rental d. owned lawn mowers

a. landscapers - Variable cost, Explicit cost, Both b. Plants from home garden- Variable cost, Implicit cost, Economic profit c. Truck rental - Fixed cost, Explicit cost, Both d. Owned lawn mowers - Fixed cost, Implicit cost, Economic profit

The aggregate demand-aggregate supply model examines the impact of discretionary fiscal policy and nondiscretionary fiscal policy by focusing on movements of...

aggregate demand

In a market for car insurance, which of the following are examples of statistical discrimination? a. Premiums are adjusted based on the zip code of the insured. b. Premiums are adjusted based on the color of the car. c. Premiums are adjusted based on the driving record of the insured. d. Premiums are adjusted based on the model of the car.

all boxes are checked

economic cost

all cost of a business: those that must be paid as well as those incurred in the form of forgone opportunities

A production possibilities frontier is a simple model of

allocating scarce inputs to the production of alternative outputs The production possibilities frontier shows the quantity of two goods that can be produced. it implies that scarcity requires that choices be made as to how to use resources

If it takes one country one unit of labor to produce either a computer or a TV, but it takes the other country two units of labor to produce a computer and only one to produce a TV, then the first country has

an absolute and comparative advantage in production of computers.

consumption externality

an externality that occurs when a good or service is being consumed

savings deposit

an interest-earning account at a commercial bank or thrift institution

money market mutual fund

an interest-earning account at a mutual fund company

Many people are concerned about the rising price of gasoline. Suppose that government officials are thinking of capping the price of gasoline below its current price. Which of the following outcomes do you predict will result from this policy? a. Drivers will purchase more gasoline. b. Quantity demanded for gasoline will increase. c. Long lines will develop at gas stations. d. Oil companies will work to increase their pumping capacity.

b and c are checked

You have just played rock, paper, scissors with your friend. Which of the following outcomes is a Nash equilibrium? a. You played scissors and your friend played paper. You won. b. There is no Nash equilibrium. c. You played scissors and your friend played scissors. You tied. d. You played scissors and your friend played rock. You lost.

b is checked There are no Nash equilibria in this game. One player will always regret his choice.

In early 2005, inflation increased unexpectedly because of an increase in oil prices. This helped...

borrowers

The trends in U.S. international trade are such that

both imports and exports are increasing.

To counter the slowing rate of economic growth, conservative economists would recommend

corporate and personal income tax policies that increase aggregate supply.

fixed cost

cost of production that cannot be changed

Medicare's prescription drug coverage will likely

cost substantially more than it was estimated to cost in 2003

explicit costs

costs that require a firm to spend money

perfectly elastic demand

demand for which any increase in price will cause quantity demanded to drop to zero; represented by a perfectly horizontal line

Suppose a firm cannot figure out whether the demand for the good it sells is elastic or inelastic but discovers that every time it raises its price, its total revenue declines. Their

demand is elastic.

welfare state

describes the idea that government has a responsibility to promote the economic well-being of its citizens.

Economic theory would suggest that the profitability of an industry would be...

directly related to the number of firms competing in the industry

fungible

easily exchangeable or substitutable

a change in the price of complementary products, a change in the price of substitute products, a change in income

factors that will shift the demand curve

exports

goods and services that are produced domestically and consumed in other countries.

imports

goods and services that are produced in other countries and consumed domestically.

Imports were ____ than exports since the _____

greater; 70s

The supply and demand model examines how prices and quantities are determined...

in markets

The earnings of African Americans relative to whites has

increased from 50 percent in the 1950s to around 60 percent in the 1970s, rising only slightly. The ratio of white family income to black family income remains significantly less than 1.0 (its value if perfect equality existed), but it has grown from 0.52 in 1950 to 0.614 in 2014.

Exports from the United States (as a percentage of GDP) have

increased over the last 50 years.

Since its inception, the portion of earnings that has been subject to the Social Security tax has

increased substantially.

Answer the following questions about elasticity of demand. a. An 18 percent decrease in price results in a 14 percent increase in quantity demanded. In this case, demand is 1. inelastic. 2. unitary elastic. 3. elastic.

inelastic.

The consumer price index (CPI) is a heavily criticized measure of inflation because

it consistently overstates the increase in the cost of living. Economists have argued for many years that the CPI overstates the cost of living. The degree of that overstatement has been the subject for significant economic research. Part of the problem in resolving the agreed-upon problems is that any correction has the effect of reducing Social Security checks and increasing taxes.

The consumer price index is a heavily criticized measure of inflation because...

it consistently understates the cost of living

One problem with using real gross domestic product as a measure of social welfare is that...

it fails to count home production

Free-trade agreements would be easier to negotiate between similar countries than with ones that had very different methods of production, safety standards, and wages because

it is easier to agree to terms with a negotiating partner that shares similar conditions.

If the system is progressive and someone is in the 25 percent tax bracket, this means that ________ is owed in taxes.

less than 25 percent of his or her taxable income

If a firm has economies of scale, increasing the quantity produced will lead to: higher long run average costs. higher profits. lower long run average costs. lower short run average costs. The efficient scale of production is when: long run average total cost is minimized. long run profit is maximized. short run average total cost is minimized. long run total cost is minimized.

lower long run average costs. long run average total cost is minimized.

Suppose an establishment has absolutely no overt history of employment discrimination but has a goal of reducing race or gender gaps in its employment. To reduce that gap, it can

make sure that all potentially qualified employees know about a particular job. favor a minority candidate over an equally qualified non-minority candidate. establish a minority quota guideline that employers should try to meet.

The result that a firm should produce where MC = MR except when the shutdown condition is met is based on the assumption that is it attempting to...

maximize profit

The result that a firm should produce where MC = MR (except when the shutdown condition is met) is based on the assumption that it is attempting to

maximize profit. The business of business is making money, and the money business makes is called profit. Marginal revenue (MR) is the amount the firm brings in from selling one more, and the marginal cost (MC) is the amount of money that it costs to produce one more. To maximize profits, MR should be equal to MC.

should be and need to

normative economic analysis statements use the words ---

Income inequality, as conventionally measured, is ________ when you ignore the fact that a higher percentage of the population is filing tax forms.

overstated When filings increase faster than the population increases, and when nearly all of those extra filings are in the lower 99 percent, that expands the 1 percent group to cover more people than it otherwise would.

With 125 million people working, 8 million out of work and looking for work, and 147 million neither working nor looking for work, "underemployment" would be illustrated by

part of the 125 million holding part-time jobs when they were qualified for full-time jobs.

Answer the following questions about elasticity of demand. a. Which of the following would most likely have an elastic demand? 1. gasoline 2. cigarettes 3. peanuts 4. salt

peanuts

trade liberation

policies and actions that reduce trade restrictions

Those who believe that wages paid to minorities will rise without government intervention believe that bosses are primarily motivated by

profit.

quantities in current year times prices in base year

real GDP formula

The most obvious pattern in poverty rates is the degree to which they are higher during

recessions The poverty rate increases during recessions and decreases during periods of growth.

diseconomies of scale

returns that occur when an increase in the quantity of output increases average total cost

A production possibilities frontier is a simple model of...

scarcity and allocation

If a chemical does environmental damage but is used in the production of a good that provides satisfaction to the consumer and profit to the producer an economist will

seek to impose a tax on either the chemical of the good.

At any price above or below the equilibrium price: sellers face an incentive to raise or lower prices. there is an equilibrium. consumers do not want to buy. producers do not want to sell.

sellers face an incentive to raise or lower prices.

If supply and demand are lines, then at which equilibrium both consumer and producer surplus are

shown as a triangle

In determining whether the distribution of federal spending among various agencies was correct, an economist would want to make sure

that the last/marginal dollar spent in each area produced the same amount of social good.

Supposed you observe that minor changes in supply seem to cause dramatic changes in price. You would conclude that...

the demand is perfectly inelastic

Absent sexism or bigotry on the part of business owners, greed can lead to the reduction in wage gaps between men and women and between whites and nonwhites because

the desire for profit drives business owners to hire a productive individual regardless of their gender or skin color.

network externality

the effect that an additional user of a good or participant in an activity has on the value of that good or activity for others

The argument that employers would actually not lose money if the minimum wage were raised is based on

the idea that workers would be more productive if they felt they were adequately compensated

The argument that employers would actually not lose money if the minimum wage were raised is based on what?

the idea workers would be more productive if they felt they were adequately compensated

opportunity cost

the value to you of what you have to give up in order to get something. A firm's opportunity costs include explicit and implicit costs.

average fixed cost (AFC)

total fixed cost divided by output, the average fixed cost per unit of production

The distribution of aid to the poor between in kind and in cash is

weighted heavily toward in-kind benefits. The programs available to the poor are many and complicated. They are better understood as varying from state to state rather than being one consistent program across the country. Further, these programs are best understood as being divided between cash payments and provisions of goods and services in forms other than cash. According to the data in the textbook, billions more are spent on goods and services than are spent in cash benefits. The government generally prefers to distribute aid through in-kind programs because the services are more likely to be used appropriately.

The "tragedy of the commons" occurs primarily

where property rights are lacking.

Inelastic

the condition of demand when the percentage change in quantity is smaller than the percentage change in price

transaction costs

the costs incurred by buyer and seller in agreeing to and executing a sale of goods or services

Tim mows neighborhood lawns for extra money. Suppose that he would be willing to mow one lawn for ​$10, a second lawn for ​$16​, and a third lawn for ​$21. Also suppose that three neighbors are interested in having their lawns mowed. Mrs. Jones would be willing to pay ​$34 to have her lawn​ mowed, Mr. Wilson would be willing to pay ​$27​, and Ms. Smith would be willing to pay ​$21. If Tim offers to mow lawns for ​$21 ​each, what will be his producer​ surplus? Considering Mrs.​ Jones, Mr.​ Wilson, and Ms. Smith​ together, what will be their consumer​ surplus?

$16 ; $19

Supposing the market price for a price taking firm is known to be $2, the total revenue accruing to it if it sells 100 is ________ and the total revenue accruing to it if it sells 200 is ________.

$200; $400

In 2014, the U.S. spend approximately ____ of GDP on health care. 1. 1% (1/100th) 2. 16% (1/6th) 3. 25% (1/4th) 4. 33% (1/3rd)

2. 16% (1/6th)

sole proprietorship

A business owned and operated by one person

increase

A decrease in the price of an input will --- supply of the product

normal profit

A firm's accounting profit when all resources earn their opportunity cost; when normal profit is earned, accounting profit is equal to implicit cost

economic profit

A firm's total revenue minus its explicit and implicit costs

Accounting profit

A firm's total revenue minus its explicit costs

law of diminishing marginal returns

As more of a variable resource is added to a given amount of other resources, marginal product eventually declines and could become negative

long run

A period during which all resources under the firm's control are variable

When choosing to limit trade, a country can impose a tax on imported goods. This is called

A tariff

Tarriff

A tax on a foreign product entering an economy

An environmental economist would likely recommend which of the following policies?

A tax on gasoline equal to the environmental damage caused by one gallon of gasoline

What is a "SIN TAX?"

A tax on items considered undesirable or harmful, such as alcohol or tobacco. Ex. Alcohol and tobacco, candies, drugs, soft drinks, fast foods, coffee, sugar, gambling

Based on the table below, calculate consumer surplus for each consumer when the price is $17. Buyer Willingness to pay for one unit A$6B$27C$13D$21E$33F$35G$12H$13I$22

A$0tB$10C$0D$4E$16F$18G$0H$0I$5 [opposite for calculating producer surplus]

Poverty is a ________ concept in that a person with that income in the US may be considered in poverty, while a person with that same income in Somalia may be in the upper quarter of income earners a) relative b) absolute c) irrelevant d) fictitious

A. Relative

A decrease in government spending will cause

AD to decrease (move to the left).

A decrease in taxes will cause

AD to increase (move to the right).

An increase in confidence will cause

AD to increase (move to the right).

An increase in productivity will cause

AS to increase (move down and to the right).

Economic Cost

All costs of a business: those that must be paid as well as those incurred in the form of forgone opportunities.

Agents

All general partners are __________ of a partnership

Use the aggregate supply-aggregate demand model to determine which of the following will lead to higher prices.

An increase in government spending

If a supply-side economist were to make a suggestion to stimulate economic activity, which of the following policies would she NOT suggest?

An increase in the minimum wage

supply upward to the left

An increase in the wage rate for seamstresses would be represented by a shift of---

No, credit cards are loans that must be repaid and debit cards give access to checkable deposits which are already part of the money supply

Are credit and debit cards money?

Look at graph

Assume that both mean and median incomes are​ $40,000 in 2000 and that median income remains constant through 2010. Using the line drawing​ tool, draw a line representing median income from 2000 to 2010. Label your line appropriately. Using the line drawing​ tool, draw a line for mean income to represent a rising degree of income inequality over time. Label your line appropriately.

an ongoing process to develop models of the world and then test and evaluate those models

Chapters 2 and 3 To say that economists use the scientific method means that they are using

surplus (excess supply)

a situation in which the quantity of a good that is supplied is higher than the quantity demanded

A television broadcast of the World​ Series: A. A private good B. A common resource C. A public good D. A​ quasi-public good Mail​ delivery: A. A public good B. A private good .C. A​ quasi-public good D. A common resource Education in a public school​ (Grades K through​ 12): A. A​ quasi-public good B. A public good C. A private good D. A common resource Education in a private school​ (Grades K through​ 12): A. A common resource B. A​ quasi-public good C. A public good D. A private good Hiking in a large park​ (no congestion) surrounded by a​ fence: A. A private good B. A​ quasi-public good C. A public good D. A common resource Hiking in a large park​ (no congestion) not surrounded by a​ fence: A. A​ quasi-public good B. A private good C. A public good D. A common resource An​ apple: A. A common resource B. A private good C. A​ quasi-public good D. A public good

C.A public good ; B.A private good ; D.A common resource ; D.A private good ; B.A​ quasi-public good ; C.A public good ; B private good

The primary means by which a farmer can protect against weather-related crop failure is with

Crop insurance

In a simple 300 million person world of all four-person families, if the poverty line is $12,500 and half of the 10 million families (with 40 million poor people) earn $10,000 and the other half earn $7,500 then the poverty gap is A. $125 billion (=10million*$12,500). B. $250 billion (=20 million*$12,500). C. $150 billion (=20 million*$2,500+20 million*$5,000). D. $37.5 billion (=5 million*$2,500+5 million*$5,000).

D

The distribution of aid to the poor between in-kind and in-cash is A. roughly equal B. weighed heavily toward in-cash benefits C. weighed slightly toward in-kind benefits D. weighed heavily toward in-kind benefits

D

________ is maximized in a competitive market when marginal benefit equals marginal cost. A. Deadweight loss B. Selling price C. Marginal profit D. Economic surplus

D. Economic surplus

Why is the supply curve referred to as a marginal cost​ curve? A. It shows the difference between the highest price a consumer is willing to pay and the lowest price a firm would be willing to accept. B. It shows the price producers actually receive in the market. C. It shows the difference between the lowest price a firm would be willing to accept and the marginal cost of production. D. It shows the willingness of firms to supply a product at different prices. E. It shows the willingness of consumers to purchase a product at different prices.

D. It shows the willingness of firms to supply a product at different prices.

Each point on a​ ________ curve shows the willingness of consumers to purchase a product at different prices A. supply B. marginal cost C. production possibilities D. demand

D. demand

Traffic congestion is an example of a​ ________. A. ​free-rider problem B. pecuniary externality C. positive externality D. negative externality

D. negative externality

"decriminalization" of Marijuana

Decriminalization of Marijuana is not the same as legalizing but they typically make it no longer a crime to possess small amounts of marijuana, although it may still be confiscated and people may face civil fines in some states.

If you add exports and imports, America's most significant trading partner is

Europe

Of the collection of supply and demand diagrams in Figure 2.2, which one shows the result of an increase in the number of sellers in the market for anything?

Figure 3

Do you agree with the​ argument? Should the government treat kidneys like other goods and allow the market to determine​ price? A. Yes. Legalizing the exchange of kidneys would increase the quantity​ supplied, benefiting those who need a kidney but are unable to obtain one due to the shortage. B. No. Legalizing the exchange of kidneys would hurt those who otherwise would have been supplied a kidney at no cost. C. Yes. Legalizing the exchange of kidneys would benefit consumers by lowering the price. D. Yes. Legalizing the exchange of kidneys would hurt suppliers by decreasing the amount they could receive for providing a kidney. E. Both a and b are reasonable arguments.

E. Both a and b are reasonable arguments.

A landlord who intends to ignore the law and illegally charge the highest rent possible for his apartments A. will be better off if he does not get caught because that amount will be above the equilibrium. B. will be worse off if he gets caught. C. will be better off because the highest rent possible and the price ceiling are both above the equilibrium. D. will be worse off regardless of whether he gets caught because that amount will still be below the equilibrium. E. both a and b.

E. both a and b.

Dividends

Earnings distributed to stockholders

Invisible hand

Economic force that encourages people to improve their own life by providing for the needs of society

factor distribution of income

Economists refer to the pattern of income that people derive from different factors of production as the factor distribution of income. In other words, the factor distribution of income shows how much Page 406income people get from labor compared to land and capital.

salt, shells, bronze, silver, gold, cigarettes

Examples of money

When a satellite television company gains a subscriber, there is no impact on existing subscribers. That is, there is no rivalry in the consumption for their service. This is an example of a(n)

Excludable public good

Nonprice determinants of labor supply

Factors that shift labor supply Effect on labor supply Population When there are more potential workers (as a result of demographic changes and/or immigration), labor supply increases (shifts right). Culture When cultural attitudes view work favorably, labor supply increases (shifts right). When cultural attitudes view work unfavorably, labor supply decreases (shifts left). Other opportunities When the next-best opportunity available to workers offers better benefits, the labor supply will move toward that better opportunity, whether that increases or decreases supply. Examples: Better wages in retail or service jobs might lead workers to supply less labor to farms, decreasing the labor supply for farms but increasing the labor supply for retail and service jobs. A decrease in the cost of higher education might lead workers to go back to school, decreasing the labor supply.

increase (shift right).

If new irrigation technology improves the average yield of a vineyard​, then the supply curve for sparkling wine would​ __________.

The equilibrium price increases.

How would a decrease in supply affect the equilibrium price in a​ market?

A retailer noticed that by decreasing its price, its total revenue decreased. In this case, demand is

Inelastic

The aggregate demand-aggregate supply model examines the impact of discretionary fiscal policy and nondiscretionary fiscal policy by focusing on movements of

aggregate demand.

Alternative Minimum Tax

Invented to prevent the super rich from accumulating so many deductions that they could avoid taxes altogether

Monopsony

Is a buyer of inputs with market power. Because it is such a large buyer, the monopsonist faces a dilemma in that it influences price as it demands more product

nash equilibrium

It is an outcome in which all players choose the best strategy they can, given the choices of all other players. A Nash equilibrium is significant because when it is reached, no one has an incentive to break the equilibrium by changing his strategy. In a prisoner's dilemma, this means that the players are stuck in a less that ideal outcome.

The Discount Rate

It is the interest rate depository institutions are charged by the Fed when they borrow funds (or reserves) from her. When the Fed raises the it, money supply falls and when the fed lowers it money supply rises

Bernie's dominant strategy is to confess to the crime

Leona and Bernie have committed a crime. If Leona denies committing the crime, Bernie can lower his penalty from 5 years to 2 years by confessing to the crime. If Leona confesses to the crime, Bernie can lower his penalty from 18 years to 7 years by confessing to the crime. Based on this information, we know with certainty that Bernie's dominant strategy is ---

Regressive tax

More/less income=lower/higher tax rates Proportional taxes are often regressive

Gross domestic product

Market value of al final goods and services produced in a nation

Progressive tax

More income= a higher tax rate The federal income tax is this type

collective action problem

Most of the audience cannot hear the dialog at a midnight showing of The Room because the film's most ardent fans insists on shouting with the dialog throughout the entire screening is an example of what?

Compared to a recreational user of a drug, an addicted user's elasticity of demand is

Much less elastic

Das Kapital

Multi-volume book about communism written by Marx

Battle of the sexes

Payoff matrix where two matrices are the same

Economists also attribute a large part of the increase in inequality within countries like the United States to something called skill-biased technical change.

Over the last 50 years, the benefits of economic growth have increasingly been going to highly skilled workers with a lot of education. Then, add this technical change to increased trade between countries (which allows more manual and rote jobs to be done overseas in low-wage countries) and what do you get? People in rich countries are specializing more and more in high-tech, high-skill, high-education work, and they reap huge benefits. Those who are not in a position to take advantage of high-tech, high-skill, high-education work lose out, relatively speaking.

In Figure 5.5, a monopolist would charge which price?

P3

When a 65-year-old goes to the hospital, the part of Medicare that pays for the hospital bill is...

Part A

When a 65-year-old goes to the hospital, the part of Medicare that pays for the hospital bill is

Part A. Medicare comprises two programs: Medicare Part A, a mandatory program that covers expenses derived from hospital stays, and Medicare Part B, a voluntary program that covers doctor visits.

Future value of sum = FV = PV × (1 + r)^n

Present value of sum = PV = FV/(1 + r)^n

price

Quantity supplied is equal to ---

COO

Second in command and the president

Stock

Shares of ownership in a corporation

Secondary market

Shares that are sold off of the primary market are sold again in the:

almost 10 years, from 69.9 years to 78.7 years

Since 1960 American's life expectancy at birth has risen how much?

No

Since the US spends more on health care than other nations, do they perform better on several standard measures of overall health and wellness?

quantity supplied; upward-sloping; supply schedule. positively related

The Law of Supply states that as the price of a good increases, ceteris paribus, the _____________ of that good increases,. This can be shown graphically with _________________ supply curve or numerically in a table using a ______________. The relationship that exists between these two variables can be described as ____________________.

The federal reserve system

The central bank of the US, founded in 1913, following the Bank Panic of 1907

marginal cost

The change in total cost resulting from a one-unit change in output; the change in total cost divided by the change in output, or MC=change TC/ change Q

marginal product

The change in total product when a particular resource increases by one unit, all other resources constant

Economic models are meant to be approximations that predict what happens in most circumstance.

Your client becomes critical of your​ "sloppy" technique of using a model that does not include all factors. What is the most appropriate reply to this​ criticism?

Suppose there was a debate regarding Medicaid budgets and the Democrat was arguing for a budget increase from $400 billion to $500 billion and the Republican was arguing for the budget to increase to only $410 billion. Further, suppose health care costs are projected to remain constant though the number of eligible people is projected to rise 10%. The Democrat accuses the Republican of proposing a cut to health care while, the Republican insists his plan increases Medicaid spending. What is going on here?

The Republican is cutting Medicaid only if you use current services budgeting.

Marginal Cost (MC)

The addition to cost associated with one additional unit of output

Open market operations

The buying and selling of government securities by the Fed.

Marginal expenditure

The incremental expenditure of buying one more unit of a product. Without market power-constant With market power- rises as they purchase more ME=P+(ΔP/ΔQ)*Q

The real-balances effect is illustrated by which of the following examples?

Your favorite pizza place offers a two-for-one pizza sale. According to the real-balances effect, when a price increases your buying power is decreased, causing you to buy less, and when a price decreases your buying power is increased, causing you to buy more.

production function

The relationship between resources employed and a firm's total product

If policy makers were to attempt to set a tax equal to the external costs of alcohol, one would have to evaluate

The value of innocent lives lost to drunk driving

Federal Reserve Banks

There are 12 of these; one in each of the 12 federal reserve districts, each one has a mini central bank, IL is split in 2 along with other states for commercial reasons, more trading together in South and trade together in North (Chicago)

law of demand

These illustrate what? Jorge buys fewer pencils at $2 per pencil than at $1 per pencil, ceteris paribus and Karissa buys fewer sweater at $50 each than at $35 each, ceteris paribus.

Supervising member banks

function of the fed to make sure the banks don't just play around and lose our money and they follow the rules

Benefits received principle

Those who benefit from government programs should pay taxes to support these programs

Ability to pay principle

Those with higher incomes can afford higher taxes

lender of last resort

a --- serves as an extra source of money if the banking system does not have enough in its reserves during a panic

In college admissions, which of the following are examples of statistical discrimination? a. A college has minimum required scores on standardized tests. b. A college is an all-women's school. c. A college uses high school GPA to rank students for scholarship offers. d. A college requires three letters of recommendation.

a and c are checked b and d are unchecked

Picketing

Union members march in front of a business

If the price of a good increases by 10% and the quantity demanded decreases by 10%, then at that price, the good is

Unit elastic

How is the market level supply curve ?

Upwards sloping. While some individuals can have a backward-bending portion of their labor supply curve, research suggests that at the market level the substitution effect dominates the income effect.

Which advantage does a typical developing country have in attempting to draw foreign investment?

Very low wages

Organization for Economic Co-operation and Development

What does OECD stand for?

inferior good

a good that decreases in demand when consumer income rises

common resources

a good that is not excludable but is rival

demand curve

a graph that shows the quantities of a particular good or service that consumers will demand at various prices

Mediation

a neutral third person meets with the two opposing sides and helps them reach an agreement

principal-agent problem

a person called a principal entrusts someone else, called the agent, with a task.

Medicare's prescription drug coverage will likely a) cost substantially more than it was estimated to cost in 2003. b) cost substantially less than it was estimated to cost in 2003. c) cost slightly less than it was estimated to cost in 2003. d) cost about what it was estimated to cost in 2003.

a) cost substantially more than it was estimated to cost in 2003.

. In 2014, unless a state was willing to forgo all federal money for Medicaid, a member of a family earning less than 133 percent of the poverty line is a) ineligible for any health care assistance. b) eligible for Medicare's prescription drug plan only. c) eligible for all of Medicare. d) eligible for Medicaid.

a) ineligible for any health care assistance.

An increase in household income for a good that is considered normal would a) move its demand curve to the right. b) move its demand curve to the left. c) cause a movement along the demand curve to a (higher price, lower quantity) point. d) cause a movement along the demand curve to a (lower price, higher quantity) point.

a) move its demand curve to the right.

If the supply and demand curves cross at a quantity of 10, then the price necessary to get firms to sell more than that will have to be _______ equilibrium.

above Since the supply curve is upsloping, firms will sell more as the price rises. So in order for firms to sell more than a quantity of 100, the price would have to be above the equilibrium price.

Traveler's checks

internationally redeemable drafts purchased from a bank or traveler's aid company

Suppose a firm has $1,000,000 in fixed costs and variable costs equal to $100; for every unit it produces,

its average costs are decreasing. The fixed costs are fixed and do not change. The marginal cost is constant ($100). The average cost would be decreasing as output increases.

Pharma-bro

jacked up price of medicine, did other things to get arrested like fraud

When deciding how many slices to order she would pick that number where the enjoyment of the _____ equals the enjoyment she could get from using the money on another good.

last slice

Any event that creates a "crisis in confidence" is likely to lead to

lower aggregate prices.

state health exchanges

the ACA required each stage to create health insurance exchange (those that normally can't get it can go and buy it)

The institution that governs monetary policy is

the Federal Reserve.

money as a store of value

the ability of an item to hold value over time

For a particular crime, the correct sentence length occurs

where the marginal benefit of incarceration equals the marginal cost of incarceration. Economists would suggest using marginal benefit-marginal cost analysis to determine the correct sentence length of a crime. The cost-benefit trade-off is important in establishing sentence length. For example, it is not hard to figure that, as time goes on, a person violent enough to kill at age 18 is not as likely to commit murder at 50 and is even less likely to at 70. This point may not be worth considering since the life expectancy in prison is such that few inmates sentenced to life live long enough to outlive their own violent tendencies. Prison life is hard, and the food and medical care are not geared to keeping people healthy in their "golden years." This makes the death penalty less economically sensible since the "lifer's" life is not going to be that long.

Price ceiling

which is the maximum price a seller is allowed to charge for a product or service. Price ceilings are usually set by law and limit the seller pricing system to ensure fair and reasonable business practices. Price ceilings are usually set for essential expenses; for example, some areas have "rent ceilings" to protect renters from climbing rent prices.

division of labor

workers divide the task in such a way that each can build momentum and not have to switch jobs

Gross domestic product is counted using two methods: one which counts all the ways people ____ money and another which counts all the ways people ____ money.

earn, spend

Holding depository institutions' reserves

fourth function of the fed, open account with the fed

Compared to Italy and Japan, the debt as a percentage of GDP in the US is

substantially smaller.

Excise tax

A tax on the sale of a certain product

Marginal Revenue

Addition revenue the firm receives from the sale of each unit.

Real GDP

Adjusted for inflation

Doing something that is not necessarily discriminatory on its face but that impacts some groups more negatively than others.

Adverse impact discrimination

What reasons for making drug sales illegal do economists generally endorse?

Although economists are reluctant to assume people cannot make good decisions, drugs are normally an exception since they can be highly addictive.

substitutes, increases

Coffee and tea are likely _____________ because an increase in the price of coffee ________________ the demand for tea.

Of the collection of supply and demand diagrams in Figure 2.2, which one shows the result of an increase in the taste for a good?

Figure 1

more elastic

For a previously legal good, criminalization will cause supply to become ---

9 ( 6 are elected as directors and 3 are chosen by board of government)

How many board of directors are there?

an effect; the cause

Identify the cause and effect in the following​ examples: Lower infant mortality is _________ and an improvement in nutrition is __________.

a movement along the line from one point up to another

If D1 is the relevant demand curve, an increase in the price of good X may cause what shift?

they have no dominant strategy

If a person has two good strategies under different sections then ---

Net exports are accounted for in GDP but not in GDI.

Using the​ information, which of the following factors is responsible for the discrepancy between GDP and​ GDI?

Decriminalizing a drug is likely to lead to a price decrease if

The anticipated supply effect is greater than the anticipated demand effect

Bureau of Labor Statistics

The current population survey (CPS) is conducted by ---

inverse; downward

The demand curve shows a --- relationship between price and quantity and is therefore --- sloping

A justification for government price supports on agricultural products that economists generally accept as potentially legitimate is

The price variability needs to be dampened

What assumption yields the prediction that binding minimum wage always reduces employment

The price-taking behavior, both in labor and product markets: • The price of the good the firm is producing does not fall if the firm makes a few more, and the prevailing wage the firm faces does not rise if it hires a few more workers. • Formally, product demand and labor supply are both perfectly elastic as the far as the firm is concerned. The labor supply curve is upwards sloping at the market level, but it is flat as perceived by the single firm

Average Fixed Cost (AFC)

Total fixed cost divided by output, the average fixed cost per unit of production.

Suppose that legally, people own the right to clean air. That is, it is illegal for factories to emit toxic gases into the atmosphere. (Or, in other words, the right to clean air has been assigned to citizens rather than factories.) Thus, legally, factories would need to either abate pollution or pay people for the damage to the air. Either case would be expected to internalize the cost of pollution and reach an optimal level of output. Which of the following is the most likely reason that private markets may not reach this optimal solution? There is no incentive to have clean air. The assignment of property rights is not fair. The assignment of property rights is not efficient. Transaction costs may be too high.

Transaction costs may be too high.

maturity of 10 or more years

Treasury bonds maturity rate

5-10-30 years

Treasury inflation protected securities (tips) maturity

conditional cash-transfer

a program in which financial support is given only to people who engage in certain actions

1776

When was the Wealth of Nations published?

In Table 17.2, Brazil has (U.S has coffee=3 and apple =3, brazil has 2 and 1)

a comparative advantage in coffee but not an absolute advantage.

universal health insurance

a health care system that guarantees access to basic health care services for all of its residents- Japan

panic

a run on a large number if banks even those that are financially sound

**Some people have argued that mandatory health insurance could reduce health care costs, stating that it would address the problem of

adverse selection

Congress and the president have control of the tax system and government spending. As a result their policies will directly impact...

aggregate demand

production externality

an externality that occurs when a good or service is being produced

market

buyers and sellers who trade a particular good or service, not to a physical location

Trade agreements are enforced

by the consent of the parties to abide by the judgment of the arbitrators.

Discretionary fiscal policy as a tool for making things better is...

considered by many to be effective but subject to several concerns over timing and motive

One issue that some call a consequence and others call a cause of slowing growth is a(n)

declining middle class.

The slow growth coming out of the Great Recession caused the Fed to

employ new tools of monetary policy.

The institution of teacher tenure is meant to

ensure that teachers do not get fired for political reasons.

Between 1998 and 2007 the real minimum wage

fell steadily

serving as the government's banker

function of the fed that needs account to cover expenses and housed here

Medical care inflation at likely to be easily overstated (if you look simply at the increase in the cost of a hospital visit) because that calculation ignores...

quality increases

Some believe that slowing growth is a cause of a declining middle class because

lower-middle-income households have fallen below the middle-class category.

The monetary policy used most frequently by the Federal Reserve System is

open-market operations.

Crowding out is an example of

opportunity cost.

Mandatory spending implies spending that is

required by a previously passed set of laws.

Suppose the market price of corn is $3.00 per bushel. If the price floor for corn is $4.50 per bushel and it is raised to $5.50 per bushel, it will

result in a surplus. If the price is above the market equilibrium price, there will be a surplus of product in the market. If the price is below the market equilibrium price, there will be no effect on the market.

Medicaid spending per recipient is...

somewhat greater than the average citizen's use of health care

Medicaid spending per recipient is

somewhat greater than the average citizen's use of health care. In the real world Medicaid recipients consume slightly more health care than those who have private insurance.

How does "decriminalization of Marijuana affect the "SUPPLY of & DEMAND for marijuana?

supply and demand would both increase

a cyclone destroys manufacturing plants

supply-side shock

product differentiation

the creation of products that are similar to competitors' products but more attractive in some ways [through advertising and branding]

An increase in the income of consumers will cause the

the demand for some goods to rise and for others to fall. A rise in income can either increase demand if the good is a normal good, or decrease demand if the good is an inferior good.

Those who mistakenly thought an increase in the minimum wage was in their best interests include

the poor and uneducated. The losers of a higher minimum-wage are the people who lose their jobs. Economists find that they are disproportionately black, Hispanic, and uneducated. That is, they are among the very people that an increase is trying to help. This point must not be missed. An increase in the minimum wage may very well hurt the poor more than it helps them.

Income inequality does not challenge the social order when

the poor believe that their poverty is a result of choices they made.

Diversification

the practice of spreading wealth across multiple investments

The popular press measure of inequality looks at the percentage of

total income going to the top 1 percent of earners.

economic profit

total revenue minus all opportunity costs, explicit and implicit

accounting profit

total revenue minus explicit costs

Average Variable Cost (AVC)

total variable cost divided by output, the average variable cost per unit of production.

List 2 externalities associated with "drugs."

1.) 24% of all violent crimes (13% of rapes) are committed while the perpetrator is on drugs. 2.) 55% of inmates in jail, detention, or prison used drugs during the month leading up to their arrest.

In a simple 300 million-person world of all four-person families, if the poverty line is $20,000 and half of the 10 million families (with 40 million poor people) earn $17,500 and the other half earn $15,000, then the poverty rate is

13.33% (40 million/300 million). The poverty rate is the percentage of people in households whose incomes are under the poverty line. In a simple 300 million-person world of all four-person families, if the poverty line is $20,000 and half of the 10 million families (with 40 million poor people) earn $10,000 and the other half earn $15,000, then the poverty rate is 13.33% (= (40 million/300 million) × 100).

What % of the American population still smokes cigarettes?

14 % of adults aged 18 and older still smoke cigarettes today, but out those aged 18-24, 8 % smoke cigarettes.

Suppose you knew that there was going to be 35 percent inflation between now and five years from now, and suppose you knew that the current minimum wage of $8.00 was only enough to get a family of three to 75 percent of the poverty line.In order to make the minimum wage earn enough to be at that poverty line in five years, the minimum wage in five years would have to be

14.40

Income inequality, when measured as the percentage of total income going to the top 1 percent, increased most rapidly during the

1980s and 1990s.

nominally flat since

1982

Controlling the money supply or conducting monetary policy

1st function of the Fed that implements a monetary policy that increases expansionary monetary policy or decreases contractionary monetary policy, more things price/value decreases

Hospitals get better control of costs. 1. This is a cost of paying hospitals using prospective payments. 2. This is a benefit of paying hospitals using prospective payments. 3. This is a benefit of paying hospitals on what services they perform. 4. This is a cost of paying hospitals on what services they perform.

2. This is a benefit of paying hospitals using prospective payments.

Under Medicare, Part A hospitals are paid 1. a fixed amount per patient they see in a year. 2. based on the Diagnosis Related Group each patient falls into when they arrive. 3. their costs. 4. their costs plus 5% profit.

2. based on the Diagnosis Related Group each patient falls into when they arrive.

Some people have argued that mandatory health insurance could reduce health care costs because it would address the problem of 1. rational expectations. 2. moral hazard. 3. adverse selection. 4. information asymmetry.

3. adverse selection.

Families are automatically eligible for Medicaid if they are on 1. TANF. 2. SSI. 3. Social Security. 4. TANF and SSI.

4. TANF and SSI.

Poverty is a _____ concept in that a person with that income in the United States may be considered in poverty, while a person with that same income in Somalia may be in the upper quarter of income earners. A. relative B. absolute C. irrelevant D. ficticious

A

Using a poverty line of $20,000, under the current system of calculating the poverty rate, which of the following people are not considered to be in poverty and probably ought to be?

A New York City family whose combined income is $21,000 Because it is much more expensive to live in New York City than in Appleton, Wisconsin, for example, families of four in New York City with incomes that are a single dollar over the poverty line are significantly worse off than families of four in Appleton with incomes one dollar under the poverty line. In this way the poverty rate underestimates both urban poverty and poverty on the coasts. It overestimates the incidence of poverty in rural areas, small cities, in the South, and in the Midwest.

Direct tax

A tax that cannot be shifted onto others

Your neighbor John has a barking dog. Which of the following statements is​ true? A. It can create negative externalities by disrupting your sleep and can also create positive externalities by discouraging intruders. .B. It does not create any externality because John bought the dog from a shelter. C. It does not create any externalities because you do not own the dog. D. It creates only a negative externality by disrupting your sleep

A. It can create negative externalities by disrupting your sleep and can also create positive externalities by discouraging intruders.

The parties involved in an externality have an incentive to reach an efficient solution because A. both parties become better off when an efficient solution is reached. B. the party that causes negative externality does not have any legal right to do so. C. it is morally the right thing to do. D. government regulations compel private parties.

A. both parties become better off when an efficient solution is reached.

should not; are

Arguments by anecdote _____ be taken serious. Anecdotes ____ appropriate when contradicting a blank statement.

production of domestically-owned factors operating abroad exceeds the production of foreign-owned factors operating in the United States.

A​ country's gross national product would exceed its gross domestic product when the:

An increase in input costs in the production of electric automobiles caused the price of electric automobiles to rise. Holding everything else​ constant, how would this affect the market for gasolineminus−powered automobiles​ (a substitute for electric​ automobiles)? A. The demand for gasolineminus−powered automobiles would decrease because consumers could afford to buy fewer gasolineminus−powered automobiles. B. The demand for gasolineminus−powered automobiles would increase and the equilibrium price of gasolineminus−powered automobiles would increase. C. The demand for gasolineminus−powered automobiles would increase and the equilibrium price of gasolineminus−powered automobiles would decrease. D. The supply of gasolineminus−powered automobiles would increase and the equilibrium price of gasolineminus−powered automobiles would decrease.

B. The demand for gasolineminus−powered automobiles would increase and the equilibrium price of gasolineminus−powered automobiles would increase.

This change resulted in a A. a surplus of oil such that there is a greater quantity demanded than quantity supplied of crude oil. B. a surplus of oil such that there is a greater quantity supplied than quantity demanded for crude oil. C. a shortage of oil such that there is a greater quantity supplied than quantity demanded for crude oil. D. a shortage of oil such that there is a greater quantity demanded than quantity supplied of crude oil.

B. a surplus of oil such that there is a greater quantity supplied than quantity demanded for crude oil.

the public choice model A. shows government intervention improves efficiency. B. applies economic analysis to government decision making. .C. shows the democratic system of votingthe democratic system of voting will consistently represent the underlying preferences of voters. D. states the outcome of a majority vote is likelylikely to represent the preferences of the voter who is in the political middle. E. explains the choices of households and firmshouseholds and firms.

B. applies economic analysis to government decision making.

Barney's friends are A. free riders because Barney can watch Sunday Night Football without subscribing to the Sunday Ticket. B. free riders because because they benefit from watching Sunday games without paying for them. C. not free riders because they benefit from watching Sunday games without paying for them. D. not free riders because Barney invited them to watch Sunday Night Football.

B. free riders because because they benefit from watching Sunday games without paying for them.

Over the counter market

Buyers and sellers are connected by a network; no physical market

sellers cannot charge more than the market price, and buyers cannot pay less than the market price.

Chapter 4 In a perfectly competitive market, sellers ________ and buyers _______________.

Fixed Cost

Costs of production that cannot be changed.

When are we likely to see private solutions to the problem of​ externalities? A. When the parties involved have information about the externality. B. When transaction costs are low. C. When the number of parties involved is small. D. both a and b. E. all of the above.

E. all of the above.

The competitive equilibrium rent in the city of Lowell is currently​ $1,000 per month. The government decides to enact rent control and to establish a price ceiling for apartments of​ $750 per month. Briefly explain whether rent control is likely to make each of the following people better or worse off. Someone currently renting an apartment in Lowell A. will be better off if they keep their apartment because rent is lower due to the price ceiling. B. will be worse off if they lose their apartment. C. will be worse off regardless of whether they keep their apartment because there is a shortage of apartments. D. will be better off regardless of whether they keep their apartment because rent is lower due to the price ceiling. E. both a and b

E. both a and b

Of the collection of supply and demand diagrams in Figure 2.2, which one shows the result of a decrease in income if a good is considered normal?

Figure 2

Of the collection of supply and demand diagrams in Figure 2.2, which one shows the result of an increase in the price of a complement for a good?

Figure 2

a surplus

If the quantity of a good or service demanded at the existing price is less than the quantity supplied, --- exists

What measures do economists rely on most to evaluate the national debt?

The absolute size of the debt and the ratio of national debt to GDP.

Measuring physical depreciation of capital Measuring black-market production

Which of the following are likely to be problems while estimating​ GDP? ​(Select all that​ apply).

Implicit

You decide to spend Thanksgiving with your grandparents instead of going to Las Vegas with 20 of your closest friends. Losing the chance to be with your friends is the --- cost of spending Thanksgiving with your grandparents.

The factors that affect the price elasticity of supply include: a. time needed to adjust to changes in price b. degree of necessity c. the flexibility of the production process d. relative need and relative cost e. the availability of inputs

a, c, and e are checked

During a holiday party at work, you pay $2 to buy a raffle ticket for a 160-gigabyte iPod. You win the drawing. Based on a little research online, you discover that the going rate for a hardly used 160-gigabyte iPod is $200. a. What was the opportunity cost of acquiring the iPod? b. What is the opportunity cost of choosing to keep the iPod?

a. $2 b. $200

time deposit

an interest-earning deposit with a specified maturity date

The optimization assumption suggests that people make

decisions to make themselves as well off as possible The optimization assumption suggests that the person in question is trying to maximize some objective. consumers are assumed to be making decisions that maximize their happiness subject to a scarce amount of money

Of these, economists consider this the worst:

depression

The risk-averse person will buy health insurance

even if the expected health costs are less than the insurance premium

ultimatum game

one player makes an offer and the other player has the simple choice of whether to accept or reject

means-tested

the characteristic of a program that defines eligibility for benefits based on recipients income

unitary elastic

the condition of demand when the percentage change in quantity is equal to the percentage change in price

Using Figure 1.5 above, you can tell that

there is constant opportunity cost.

New estimates for adults

-.8 for adults increase due largely to e-cigarettes

Suppose the nominal interest rate is 6 percent and the expected inflation rate is 2 percent. The real interest rate is

4% The nominal interest rate is equal to the sum of inflation expectations and the real interest rate. The real interest rate is equal to the nominal interest rate minus the rate of inflation expectations. The rate of inflation expectations is equal to the nominal interest rate minus the real interest rate.

Indirect tax

A tax whose burden can be shifted onto others

As readers of Herman​ Melville's 1851 novel Moby Dick​ know, at one time oil made from whale blubber was an important source of energy that was widely used by households and firms in oil lamps. Other sources of energy supplanted whale oil in the second half of the nineteenth​ century, and today many Americans consider whales only as a source of entertainment on visits to aquariums and whale watching excursions. But some species of whaleslong dash—including baleen and gray whaleslong dash—are in danger of extinction. The U.S. Department of Agriculture estimates that over 9 billion chickens are raised for food annually. ​Chickens, unlike​ whales, are not threatened with extinction because chickens A. are privately owned and their owners have an incentive to ensure that they do not become extinct. B. can be wild but are generally kept in captivity. C. are easier to breed. D. live in flocks and can easily be protected and kept healthy.

A. are privately owned and their owners have an incentive to ensure that they do not become extinct.

The author of a newspaper article remarks that many economists​ "support Pigovian taxes​ because, in some​ sense, we are already paying​ them."A Pigovian tax is a government tax intended to A. bring about an efficient level of output in the presence of externalities. .B. bring in revenue. C. reduce producer surplus. D. reduce the national debt.

A. bring about an efficient level of output in the presence of externalities.

The Coase Theorem states that A. if transaction costs are​ low, private bargaining will result in an efficient solution to the problem of externalities. .B. if transaction costs are​ low, private deals will create externalities and result in inefficient outcomes. C. if transaction costs are​ low, the government will regulate an efficient solution to the problem of externalities. D. if transaction costs are​ low, private markets will create externalities and result in efficient outcomes. E. if imposed on free​ markets, government regulations will result in inefficient outcomes and create deadweight loss.

A. if transaction costs are​ low, private bargaining will result in an efficient solution to the problem of externalities.

In a​ sense, consumers in a market might be​ "paying" a Pigovian tax even if the government​ hasn't imposed an explicit tax if there are A. negative externalities in that market so that consumers are experiencing an external cost. B. negative externalities in that market so that consumers are experiencing an external benefit. C. positive externalities in that market so that consumers are experiencing an external benefit. D. positive externalities in that market so that consumers are experiencing an external cost.

A. negative externalities in that market so that consumers are experiencing an external cost.

Consumer price index

An index that measure average price changes

Card and Kruger study

Analysed fast food chains in a states with and without minimum wage. Concluded, employment decreased. Controversial: fast food chains; teenagers, sample.

Public choice theory helps us to understand how government could fail systematically because it recognizes that policymakers are A. elected and are bound by the interests of consumers. B. no different than consumers or managers of firms and are likely to pursue their own​ self-interest, even if their​ self-interest conflicts with the public interest. ]C. elected and are bound by the interests of producers. D. different than consumers or managers of firms and are unlikely to pursue their own​ self-interest, even when their​ self-interest conflicts with the public interest.

B. no different than consumers or managers of firms and are likely to pursue their own​ self-interest, even if their​ self-interest conflicts with the public interest.

Let D​= ​demand, S​ = supply, P​ = equilibrium​ price, and Q​= equilibrium quantity. What happens in the market for walnuts if the Centers for Disease Control and Prevention announces that consuming a half cup of walnuts each week helps to lower bad levels of​ cholesterol? A. D no​ change, S​ increases, P​ decreases, Q decreases B. D​ increases, S no​ change, P and Q increase C. S​ increases, D no​ change, P​ decreases, Q increases D. D and S​ increase, P and Q decrease

B. D​ increases, S no​ change, P and Q increase

The glut will start to shrink when crude oil producers A. reduce the amount that they offer for​ sale, and buyers decrease the amount they buy. B. increase the amount that they offer for​ sale, and buyers decrease the amount they buy. C. reduce the amount that they offer for​ sale, and buyers increase the amount they buy. D. increase the amount that they offer for​ sale, and buyers increase the amount they buy.

C. reduce the amount that they offer for​ sale, and buyers increase the amount they buy.

Tax incidence indicates A. the burden of a tax on consumers. B. the burden of a tax on producers. C. the actual division of the burden of a tax. D. who is not legally required to send a tax payment to the government. E. who is legally required to send a tax payment to the government.

C. the actual division of the burden of a tax

Consumer surplus is A. the highest price a consumer is willing to pay to consume a good or service. B. the difference between the highest price a consumer is willing to pay and marginal benefit. C. the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. D. the difference between the highest price a consumer is willing to pay and the lowest price a firm would be willing to accept. E. the difference between the lowest price a firm would be willing to accept and the price it actually receives.

C. the difference between the highest price a consumer is willing to pay and the price the consumer actually pays.

Rent seeking is an attempt to A. use the government to improve economic efficiency. Regulatory capture is an example of​ this, where a regulatory agency improves economic efficiency. B. represent underlying voter preferences with majority voting. Regulatory capture is an attempt to represent underlying voter preferences with government regulations. C. use the government for individual benefit at the expense of others. Regulatory capture is an example of​ this, where a regulatory agency makes decisions benefiting the firm being regulated. .D. use the government for individual benefit at the expense of others with logrollinglogrolling. Regulatory capture seeks to achieve the same objective with rational ignorancerational ignorance. E. use the government to improve economic efficiency. Regulatory capture is an example of government​ failure, where the government reduces economic efficiency.

C. use the government for individual benefit at the expense of others. Regulatory capture is an example of​ this, where a regulatory agency makes decisions benefiting the firm being regulated.

Which of the following would cause both the equilibrium price and equilibrium quantity of cotton​ (assume that cotton is a normal​ good) to​ increase? A. a decrease in consumer income B. unusually good weather that results in a bumper crop of cotton C. an increase in consumer income D. a drought that sharply reduces cotton output

C. an increase in consumer income

It is more likely that health expenses will rise faster in the United States than in Canada or the United Kingdom because

Canada and the United Kingdom have a single-payer system financed by taxpayers, but the United States does not. Having a single-payer system, where the government collects significantly high taxes to pay for everyone's health care, benefits those who could not afford health care any other way. It creates serious shortages as well. In Canada, England, and much of Europe, being a citizen of the country grants you unlimited rights to necessary health care that is either free or close to it. While the financial arrangements in these countries differ, the citizenry need not worry about access to basic health care regardless of their ability to pay. This helps explain the very low occurrences of infant mortality and relatively long life spans in these countries. However, single-payer systems constrain usage of health care (something the United States doesn't). For instance, knee replacement surgery is done routinely and in a relatively unconstrained way in the U.S. system but is throttled/rationed in both the United Kingdom and Canada so as to constrain elective surgery costs.

"We believe Inflation Should Rule Monetary Policy." "Expectations High for March Employment." "What if Economic Growth Is No Longer Possible?"

Chapter 5 Which of the following news stories​ (all published in early​ 2014) would typically be studied in​ macroeconomics? ​(Select all that apply​.)

Not all experiences of poverty are the same. The most fundamental distinction is between chronic and transient poverty. The difference between the two is essentially the difference between always being poor and being poor for a short time:

Chronic poverty is usually defined as spending three or more years in poverty. Transient poverty is usually measured as a spell of poverty that lasts at least two consecutive months within a year.

Suppliers will be willing to supply a product only if A. the price is higher than the average cost of producing the product. B. the price received is at least double the additional cost of producing the product. C. the price received is less than the additional cost of producing the product. D. the price received is at least equal to the additional cost of producing the product

D. the price received is at least equal to the additional cost of producing the product

When there are many people involved in attempting to reach an​ agreement, the transactions costs are often​ _______ than the net benefits from reducing an externality. In such​ cases, a private solution to an externality problem​ _______ feasible. A. ​lower; is not B. ​lower; is C. ​higher; is D. ​higher; is not

D. ​higher; is not

For a previously-legal good, criminalization will cause

Demand to become less elastic

Which of the following statements is true?

Democrats favor a current-services budgeting approach to ensure that government services are available to everyone who is eligible to receive them.

What is free​ riding? A. Free riding is paying for a good but not benefiting from it. B. Free riding is paying less for a good than it is worth. C. Free riding is benefiting from a good because it is rival. D. Free riding is benefiting from a good and paying for it. E. Free riding is benefiting from a good without paying for it

E. Free riding is benefiting from a good without paying for it

Do the people who are legally required to pay a tax always bear the burden of the​ tax? Briefly explain A. No. Producers always bear the burden of the tax. B. No. Consumers always bear the burden of the tax. C. Yes. Those who are legally required to send a tax payment to the government bear the burden of the tax. D. No. Those who are legally required to send a tax payment to the government never bear the burden of the tax. E. No. Whoever bears the burden of the tax is not affected by who legally is required to pay the tax to the government.

E. No. Whoever bears the burden of the tax is not affected by who legally is required to pay the tax to the government.

Inflation

General increase in prices

M1 would increase and M2 would be unaffected

If consumers were to shift funds from their savings accounts to their checking accounts, what would happen to M1? to M2?

Rise in minimum wage increases employment sufficient or necessary ?

It sufficient. Not necessary if, wages rise to much, employment decreases Studying the pre/post change in employment following the adoption of the minimum wage, we can explore whether employment rises of falls

fixing the price and adding up the quantities that each buyer demands.

Market demand is derived by:

If the price of a good decreases by 5% and the quantity demanded remains unchanged, then at that price, the good is

Perfectly inelastic

both microeconomics and macroeconomics.

Policy decisions made by the government are analyzed by:

Double taxation

Profits are taxed again when they are paid to the stockholders as dividends

Between 1974 and 2006, prices for food commodities

Remained largely constant even in nominal terms

Macroeconomics

Study of the economy as a whole

Which of the following had the effect of decreasing income inequality?

The increase in the female labor force participation rate

Revenue

The money that comes into the firm from the sale of goods and services.

True

True or False: The social costs (supply) curve includes both the private costs of production and the spillover costs, or external costs, of pollution.

False

True or False: The values of tires bought by General Motors from a tire manufacturer- located on the East coast- to outfit its cars are counted in the GDP.

False

True or false: Fixing the system while retaining incentives to deliver timely and high-quality care is easy.

Whichever method a government chooses to supply a public good, these common issues arise: a. Who will pay for the public good? b. Who will supply the resources needed to produce the public good? c. What resources are used to produce the public good? d. What is the right amount of the public good to supply?

a and d are checked

protectionism

a preference for policies that limit trade

A production possibilities frontier is a simple model of a) scarcity and allocation. b) prices and output. c) production and costs. d) inputs and outputs.

a) scarcity and allocation.

If a good is inferior and income decreases, then a) the demand curve will shift to the right. b) the demand curve will shift to the left. c) the supply curve will shift to the right. d) the supply curve will shift to the left.

a) the demand curve will shift to the right

commitment strategy

an agreement to submit to a penalty in the future for defecting from a given strategy. Changing the payoffs by agreeing to future penalties can allow players to reach a mutually beneficial equilibrium that would otherwise be difficult to maintain.

13. Which of the following will impact both supply and demand? a) A change in price b) A change in quantity c) A change in expected future price d) A change in income

c) A change in expected future price

State and local pensions for government employees are usually structured as

defined benefit plans

A Pension Guaranty Trust or something like it would be necessary in defined benefit plans to

ensure that employers do not spend too much of the pension fund and leave too little to pay benefits.

private goods

goods that are both excludable and rival

The oil price increases of 2002-2005 are an example of...

negative aggregate supply shock

tax wedge

the difference between the price paid by buyers and the price received by sellers in the presence of a tax

price discrimination

the practice of charging customers different prices for the same product

purchase price

the price paid to gain permanent ownership of a factor of production

When looking at the impact of a change in trade policy, economists use consumer and producer surplus to look at the winners and losers. Free-trade economists insist that

there are winners and losers but that the gain to the winners is greater than the loss to the losers.

When purchasing power parity is used to estimate gross national income, it shows that

there is no relationship between growth and PPP-adjusted national income.

If you have a $2000 covered health expense, a deductible of $500, and a 20% co-pay, then you pay ________ and the insurance company pays ________.

$800; $1200 A deductible is the amount of health spending a year that you have to pay before the insurance company pays anything. A co-payment is either a set amount or the percentage of the bill, after the deductible has been taken out, that you have to pay. So, in this case, if you have a $2,000 covered health expense, a deductible of $500, and a 20 percent co-pay, then you pay $800 (= $500 (deductible) + $300 (co-pay = $2,000 − $500 × 20 percent). The insurance company pays $1,200 (= $2,000 − $800).

Suppose you knew that there was going to be 25 percent inflation between now and five years from now, and suppose you knew that the current minimum wage of $7.50 was only enough to get a family of three to 80 percent of the poverty line.In order to make the minimum wage earn enough to be at that poverty line in five years, the minimum wage in five years would have to be

11.73 ± 0.2 If the current minimum wage of $7.50 is only enough to get a family of three to 80 percent of the poverty line, the current minimum wage would have to be $9.38 (= $7.50/(80/100)) to be high enough to bring the family to the poverty line. Since inflation is expected to be 25 percent in the next five years, in order to make the minimum wage earn enough to be at that poverty line in five years, the minimum wage in five years would need to be $11.73 (= $9.38 × (1 + (25/100)).

The figure below shows three monthly market supply curves for sweaters at a local craft market. For each of the following events, determine whether the indicated event will cause supply to increase to S2 or decrease to S3, or whether there will be a movement along the supply curve, S1. For each of the following events, indicate where the new point will be after the event occurs. a. The price of wool increases: b. Demand for sweaters decreases: c. A particularly cold winter is expected to begin next month: d. Demand for sweaters increases:

A change in the price of a good will cause a movement along the supply curve. A change in a nonprice determinant will cause a shift of the supply curve. a. Point C: This is a change in a nonprice determinant. The supply curve will shift to the left because input prices have increased. b. Point E: A decrease in the demand for sweaters will decrease the price of sweaters, causing a movement down along the supply curve. c. Point D: A cold winter will increase the demand for sweaters causing a shortage at the initial point A. The shortage will cause prices to rise and firms to respond by producing more sweaters. This will be a movement upward along the supply curve. d. Point D: An increase in the demand for sweaters will increase the price of sweaters, causing a movement up along the supply curve.

constant long-run average cost

A condition that occurs if, over some range of output, long-run average cost neither increases nor decreases with changes in firm size

​"Another crucial principle​ [of tax incidence... ​] is that only people can pay taxes. Businesses and other artificial entities cannot pay​ taxes." Is this statement correct or​ incorrect? A. Correct. The tax is borne by the workers in the form of lower​ wages, the customers in the form of higher​ prices, and the shareholders in the form of lower returns. .B. Incorrect. Firms pay federal and state corporate income tax. C. Incorrect. A corporation is treated like a living entity and as such pays taxes. For​ example, federal corporate income tax. D. Correct. The tax is borne by the customers in the form of higher prices.

A. Correct. The tax is borne by the workers in the form of lower​ wages, the customers in the form of higher​ prices, and the shareholders in the form of lower returns.

he public choice model can be used to examine voting models that contrast the manner in which collective decisions are made by governments​ (state, local, and​ federal) and the manner in which individual choices are made in markets. Which of the following descriptions is consistent with the difference between collective decisionminus−making and decisionminus−making in​ markets? A. Individuals are less likely to see their preferences represented in the outcomes of government policies than in the outcomes of markets. B. Everyone who votes must agree with a decision made collectively through​ government, but in markets individuals can make their own choices. C. The cost of a government policy is determined by a majority vote of members of the​ public; decisions made in markets are based on individual willingness to pay. D. Choices made through government policies are more important than decisions individuals make through markets.

A. Individuals are less likely to see their preferences represented in the outcomes of government policies than in the outcomes of markets.

Which of the following forms of private insurance is likely to have the lowest premiums and least doctor choice flexibility?

An HMO HMOs require that people see specific doctors at the beginning of any problem. Patients can see specialists only after their primary care physician makes a referral, and the primary care physician has the job of making sure that his or her patients get the appropriate care as inexpensively as possible. Usually HMO PCPs receive a fixed fee for every patient assigned, and specialists are either salaried or also have fixed fees for every referral. Because of this structure, HMOs are likely to provide the least doctor choice flexibility. However, by exercising maximum control over specialist referrals and limiting expensive and unnecessary procedures, HMOs serve to keep premiums, deductibles, and co-payment rates low.

positive economics

Analysis of facts and addresses "what is" Can be proven true or false

Average fixed cost (AFC)

Average fixed cost (AFC) = Fixed cost/Quantity

Average revenue

Average revenue = Total revenue/Quantity sold = P×Q/Q = P

Average total cost (ATC)

Average total cost (ATC) = Total cost/Quantity

Average variable cost (AVC)

Average variable cost (AVC) = Variable cost/Quantity

Punitive damages

Awarded to punish the wrongdoer

In a simple 300 million person world of all four-person families, if the poverty line is $12,500 and half of the 10 million families (with 40 million poor people) earn $10,000 and the other half earn $7,500 then the poverty rate is A. 3.33% (10 million/300 million) B. 13.33% (40 million/300 million) C. 16.66% (50 million/300 million) D. 96.33% ((300 million-10 million)/300 million)

B

Economic surplus A. is the difference between quantity demanded and quantity supplied when the market price for a product is greater than the equilibrium price. B. is equal to the sum of consumer surplus and producer surplus. C. does not exist when a competitive market is in equilibrium. D. is equal to the difference between consumer surplus and producer surplus.

B. is equal to the sum of consumer surplus and producer surplus.

The term tax incidence refers to A. the actual versus the desired division of a tax burden. B. the actual division of the burden of a tax between buyers and sellers in a market. C. the amount of revenue collected by the government from a tax. D. the type of product the tax is levied on.

B. the actual division of the burden of a tax between buyers and sellers in a market.

Why is the demand curve referred to as a marginal benefit​ curve? A. It shows the difference between the highest price a consumer is willing to pay and the lowest price a firm would be willing to accept. B. It shows the difference between the highest price a consumer is willing to pay and the marginal benefit of consumption. C. It shows the willingness of consumers to purchase a product at different prices. D. It shows the willingness of firms to supply a product at different prices. E. It shows the price consumers actually pay to consume a product.

C. It shows the willingness of consumers to purchase a product at different prices.

On a shopping​ trip, Melanie decided to buy a light blue coat made from woven fabric. A tag on the coat stated that the price was​ $79.95. When she brought the coat to the​ store's sales​ clerk, Melanie was told that the coat was on​ sale, and she would pay 20 percent less than the price on the tag. After the discount was​ applied, Melanie paid​ $63.96, $15.99 less than the original price.The value of​ Melanie's consumer surplus from this purchase is A. ​$79.95 since this is the price she is willing to pay. B. exactly​ $15.99 since this is the difference between the maximum price Melanie is willing to pay for the coat and the actual price she pays. C. at least​ $15.99 since this is the difference between the price Melanie is willing to pay for the coat and the actual price she​ pays, but she could have be willing to pay more than​ $79.95 for the coat. .D. ​$63.96 since this is the actual price she pays.

C. at least​ $15.99 since this is the difference between the price Melanie is willing to pay for the coat and the actual price she​ pays, but she could have be willing to pay more than​ $79.95 for the coat.

What are the key reasons why college costs are higher than high school costs?

College faculty salaries are higher than K-12 faculty salaries Subsidies to education cause increased demand for college Research expenses

Using the poverty line of $12,500, under the current system of calculating the poverty rate, which of the following people is considered in poverty and probably ought not to be. A. a rural family who's sole income earner is from a minimum wage ($10,300) B. a rural family who's combined income is $15,000 C. a New York City family who's combined income is $13,000 D. a retired couple who's multi-million dollar estate yields them no income

D

What are the sources of externalities and market​ failure? A. incomplete property rights B. the difficulty of enforcing property rights in certain countries C. a lack of understanding of the market system D. Both​ (a) and​ (b).

D. Both​ (a) and​ (b).

Positive externalities

Flu shots-Can avoid others from getting sick and can also benefit other industries such as airline stocks, rise with positive outcomes in vaccines Quit smoking-People around previous smoker no longer suffer from second hand smoke and not smoking can reduce risk of disease taxpayers will have to pay for

diseconomies of scale

Forces that may eventually increase a firm's average cost as the scale of operation expands in the long run

Partnerships

General: boss or manager or Limited: "silent partner" low liability but little power

2

George can produce 30 jars of jam or 15 videos in an hour with his resources while Amy can produce 15 jars of jam or 30 videos. Amy's opportunity cost of a jar of jam is how many videos?

The number of winter coats sold and the temperature outside.

Give an example of a pair of variables that have a negative correlation.

It describes how one event can bring about change in another.

Give the concept of causation.

Commodity money

Has a market value in other ways (ex. Gold or silver)

greatly improved

Has health care improved in quality or gotten worse over time?

discouraged workers

Have given up looking for work out of frustration

Scarcity

Having more wants than you have resources

testing its predictions with empirical data

He is still unconvinced about the reliability of using economic models to make business decisions. You can answer this concern by sharing that you will confirm the accuracy of the model by_____________________________ with __________________________. .

"Guns and Butter" Economy

High war spending + high domestic spending + tax cuts=

The equilibrium price increases.

How would the equilibrium price in a market be affected if there were a small increase in supply and a large increase in demand.

an inferior good

If Max's demand for hot dogs falls as his income rises, then for Max hot dogs are ---

falls; rises

If demand increases by lesser amount than supply increases, then equilibrium price --- and equilibrium quantity ---

unit elastic

If the percentage change in quantity demanded is equal to the percentage change in price, demand is ---

It would decrease to the left

If there was an increase in income (assuming that it is an inferior good) and technology remained constant what would happen to the demand curve?

$20,332.8 2013.

In May​ 2013, the value of the Consumer Price Index​ (CPI) in a certain​ country, Polonia, reached an​ all-time high of 169169 index points and per capita nominal GDP was $59,000. In January​ 1950, the CPI was at its lowest at $6,464 index points. Per capita nominal GDP in 1950 was $7,700. For​ 1950, real GDP per capita​ (in 2013​ dollars) was $________. For the people of Polonia, life satisfaction was likely higher in ________. Surveys done by social scientists indicate ______________________________ between life satisfaction and real GDP per capita.

counted; goods produced by American firms in foreign countries are not counted

In measuring Gross Domestic Product, goods produced by foreign firms in the United States are counted or not counted? In foreign countries?

Indicate whether each of the following changes will increase or decrease the equilibrium price and quantity, or whether the effect cannot be predicted. a. Demand increases; supply remains constant. b. Supply increases; demand remains constant. c. Demand decreases; supply remains constant. d. Supply decreases; demand remains constant. e. Demand increases; supply increases. f. Demand decreases; supply decreases. g. Demand increases; supply decreases. h. Demand decreases; supply increases.

In the first four parts, only one curve is shifting, so the impact on equilibrium price and quantity can be predicted. In the last four parts, two changes are occurring at the same time, so the impact on either equilibrium price or quantity cannot be predicted. Consider a simultaneous increase in demand and increase in supply. The increase in demand will increase equilibrium price and quantity. The increase in supply will decrease equilibrium price and increase equilibrium quantity. Both changes lead to an increase in equilibrium quantity, so this can be predicted. The two changes have opposite impacts on equilibrium price, so this cannot be predicted. a. The equilibrium price increases, and the equilibrium quantity increases. b. The equilibrium price decreases, and the equilibrium quantity increases. c. The equilibrium price decreases, and the equilibrium quantity decreases. d. The equilibrium price increases, and the equilibrium quantity decreases. e. The equilibrium price cannot be predicted, and the equilibrium quantity increases. f. The equilibrium price cannot be predicted, and the equilibrium quantity decreases. g. The equilibrium price increases, and the equilibrium quantity cannot be predicted. h. The equilibrium price decreases, and the equilibrium quantity cannot be predicted.

If Indonesia has a comparative advantage in making textiles (relative to the United States), which of the following must be true? Indonesia's opportunity cost of producing textiles is lower than the opportunity cost in the U.S. The absolute cost of producing textiles in Indonesia is lower than the absolute cost of producing textiles in the U.S. Indonesian textile workers are more productive than U.S. textile workers. The nominal price of textiles is lower in Indonesia than in the U.S. If Indonesia produces textiles and trades them to the United States (which has a comparative advantage in automobiles), which of the following best describes the outcome? Both countries will gain from trade. Neither country will gain from trade. Only the U.S. will gain from trade. Only Indonesia will gain from trade.

Indonesia's opportunity cost of producing textiles is lower than the opportunity cost in the U.S. Both countries will gain from trade. Voluntary trade benefits all nations; thus both the U.S. and Indonesia will gain from trade.

Deductions for particular expenses on which the government does not want taxes paid

Itemized deductions

end product

Items are classified as final goods only if they are the ________________ in a chain of production.

Price ceiling

Keeps the price from going up to where it would naturally go in the market Ex. Rent controls

the demand for burgers is elastic

Last month, the manager of Panthersville Burger cut prices by 12 percent. In the aftermath, he recorded a surge in sales by about 14% in the aftermath. What would you say about the price elasticity of demand for burgers?

Covenant not to compete

May prevent an unhappy partner from leaving and starting a competing business

In terms of when fiscal shortfalls are likely to require significant changes to budgets or program rules, which of the following is likely to occur first?

Medicare

sequential games

One person or company has to make a decision before the other. These are called sequential games because the players move sequentially rather than simultaneously.

Suppose there was a debate regarding how to spend $1 billion in newly found revenues in the budget. Suppose the centrist Democrat suggests an increase to infrastructure spending. Suppose the centrist Republican suggests an increase in cyber-defense spending. The Democrat says that the extra infrastructure spending will decrease travel times and be the most valuable. The Republican is arguing that, on average, cyber-security is worth the money, so more is better. What is going on here?

Only the Democrat is using marginal analysis.

Suppose there was a debate regarding how to spend $1 billion in newly found revenues in the budget. Suppose the most liberal Democrat suggests an increase to Food Stamp (SNAP) allotments. Suppose the most conservative Republican suggests an increase in defense spending. The Republican says that, on average, military spending does the most good, so more is better. The Democrat is arguing that the extra food purchased by the extra spending will increase well-being the most. What is going on here?

Only the Democrat is using marginal analysis.

Suppose there was a debate regarding how to spend $1 billion in newly found revenues in the budget. Suppose the most liberal Democrat suggests an increase to Food Stamp (SNAP) allotments. Suppose the most conservative Republican suggests an increase in defense spending. The Democrat says that, on average, Food Stamp spending does the most good, so more is better. The Republican is arguing that the extra security purchased by the extra spending will increase well-being the most. What is going on here?

Only the Republican is using marginal analysis.

If the government could force firms to add any external cost to their private cost, the result would be that

Output will decrease and price will increase

The Federal Open Market Committee

The 12-member policymaking group within the Fed. The committee has the authority to conduct open market operations

Suppose there was a debate regarding intelligence budgets and the Democrat was arguing for a budget increase from $40 billion to $41 billion and the Republican was arguing for the budget to increase to $45 billion. Further, suppose intelligence salaries and procurement of the same spy systems are project to rise 5%. The Republican accuses the Democrat of proposing a cut to intelligence gathering which, the Democrat insists his plan increases that spending. What is going on here?

The Democrat is cutting only if you use current services budgeting.

Your neighbor never mows her lawn. You don't have any legal right to force her to mow, but the mess in her front yard is making your neighborhood unsightly and reducing the value of your house. This is especially problematic, because you are planning on selling your house this summer. The reduction in the value of your house is $5,000, and the value of her time to mow the lawn once a week is $1,000. Suppose you offer her a deal in which you pay her $3,000 to mow. How does this deal affect surplus? The deal increases your neighbor's surplus but decreases yours. The deal increases only your surplus. The deal increases both your surplus and your neighbor's. The deal increases only your neighbor's surplus. The deal increases your surplus but decreases your neighbor's. The deal does not affect surplus.

The deal increases both your surplus and your neighbor's.

A course description posted during the registration period notes that homework is graded complete or incomplete rather than being corrected by the instructor. Which of the following describes the adverse-selection problem in this situation? The description will disproportionately attract high performing students with a genuine love of learning. The description is likely to give potential students the false belief that the assignments will be easy when they may still receive low grades on their assignments. The description will disproportionately attract students who don't typically perform well on graded assignments. While informative, the description still fails to give prospective students complete information on type of homework given.

The description will disproportionately attract students who don't typically perform well on graded assignments.

economic development

The goal is not only the immediate effect of the policy on poverty but also the growth it will produce for the entire economy. Common examples include public investments in education, job training, and infrastructure.

overall well-being.

The goal of optimization for an individual is to maximize:

The quantity demand decreased from point A to point B in response to the price increase.

The graph to the right represents the supply and demand for Starbucks coffee that is initially in competitive equilibrium. Illustrate the impact of a rise in the price of coffee beans on the equilibrium price and quantity for Starbucks coffee. Given this shift in​ supply, what was the impact on demand for Starbucks​ coffee?

Y = C + I + G + X - M

The national income accounting identity associated with the​ expenditure-based accounting method is represented by:

Diminishing Returns

The notion that there exists a point where the addition of resources increases production but does so at a decreasing rate.

what is given up

The opportunity cost of an activity is a measure of ________________ when you do that activity.

Economists have two terms to describe the competing incentives that influence a worker's response to a change in the wage:

The price effect describes the increase in labor supply in response to the higher wage that can be earned for each hour of work. The income effect describes the decrease in labor supply due to the greater demand for leisure caused by a higher income.

money supply

The quantity of items, such as coins, paper money, and checking account balances, circulating in the economy that can be used as money is called the ---

Suppose an environmental impact study shows that the coral reef near Port Douglas, Australia, can sustain 20 scuba diving tours per week. Using a quota of 20 dive tours per week will have the following advantage over a tax: The tax will only allow wealthy divers to receive the benefit of diving near the reef. The quota will better ensure that the sustainable amount of dives will occur. The quota will ensure that those divers who receive the greatest benefit will be the ones diving near the reef. The quota is more efficient than a tax.

The quota will better ensure that the sustainable amount of dives will occur. Because the critical amount of tours that the reef can sustain is known, a quota will ensure that the sustainable amount occurs. Using a tax is more efficient as it allocates the privilege of diving to those divers whose marginal benefit exceed the marginal cost of the tax. However, knowing the correct level to set the tax in order to ensure that the critical quantity is not exceeded can take some tinkering and is subject to change (for example, due to increased incomes and an increase in demand). Quotas are sometimes used when getting the quantity right is very important.

less

The reason cigarette taxes would impact kids more than adults is that adult demand is --- elastic than demand by kids.

positive

The statement that the United States saw the unemployment rate peak at 10 percent in 2009 is a ____________________ statement since it describes what people actually do.

It will increase

The states of Colorado and Washington have recently legalized the recreational use of marijuana. Based on our class discussions, what will more likely happen to the equilibrium quantity in the market for this good?

direct; upward

The supply curve shows a --- relationship between price and quantity and is therefore --- sloping.

moral hazard

The tendency for people to behave in a riskier way or to renege on contracts when they do not face the full consequences of their actions

money as a medium of exchange, money as a unit of account, and money as a store of value

The three functions of money

True

True or false: It's hard to pinpoint a cause of problems in US health care, and even harder to design a solution.

True

True or false: The US system has so many different institutional features

False

True or false: There is consensus among health care economists.

True

True or false: There is no definitive evidence that singles out a main culprit.

The reason cigarette taxes raise a lot of money and don't reduce adult smoking much is because demand for cigarettes by adults is

Very inelastic

Identify whether each of the following goods is usually excludable or nonexcludable. a. AM/FM radio: b. A round of golf on a course: c. Street art: d. A museum exhibition: e. Toll roads:

When a good is excludable, it is possible for sellers to prevent its use by those who have not paid for it. a. AM/FM radio: Nonexcludable, because one does not have to pay to listen to AM or FM radio. b. A round of golf on a course: Excludable, because one must pay to play golf. c. Street art: Nonexcludable, because it is free to look at the art. d. A museum exhibition: Excludable, because one must pay to enter the museum. e. Toll roads: Excludable, because one must pay to use the road.

Identify whether each of the following goods is rival or nonrival. a. Cable TV: Nonrival Correct. b. A pair of jeans: Rival Correct. c. Street signs: Nonrival Correct. d. Attending a baseball game: Rival Correct.

When a good is rival in consumption (or just rival), one person's consumption prevents or decreases others' ability to consume it. a. Cable TV: Nonrival, because the quality of the show does not diminish as more people watch. b. A pair of jeans: Rival, because only one person can use the jeans at a time. c. Street signs: Nonrival, because the street sign is still visible even if others are looking at it. d. Attending a baseball game: Rival, because the game becomes more crowded as more people attend.

as well as; net

When making your decision about which activity to​ choose, you should consider the monetary cost ________________ the opportunity cost of the activities. The goal is to choose the option that offers the greatest _______ benefit.

behaving strategically

When the trade-offs you face are determined by the choices someone else will make, behaving rationally involves behaving strategically. Behaving strategically means acting to achieve a goal by anticipating the interplay between your own and others' decisions.

The price of the good itself.

Which of the following is NOT one of the five major factors that shifts the demand curve when it​ changes?

How will we distribute our products?

Which of the following is a key question that must be addressed by an economy?

Use of public roads is more susceptible since even those who​ don't pay taxes still​ benefit, while government - funded symphonies can charge for admission​, so that everyone who goes pays their share.

Which of the following is more susceptible to the​ free-rider problem: government -- funded symphonies or public roads​?

The government would need information on both quantities produced and market​ prices, for every good produced in an economy. The government would need information on all​ sales, including the size of all inventories in every company.

Which of the following pieces of information are needed for national income​ accounting? ​(Select all that​ apply).

GDP is equal to GDI.

Which of the following shows the expected relationship between GDP and​ GDI?

Defense equipment purchased by the federal government. Foot massages at spas in California.

Which of the following will be considered a final good in the calculation of U.S.​ GDP? ​(Check all that apply​.)

the large Pizza Hut pizza purchased by a family for dinner

Which part of pizza hut is directly counted in GDP?

Price mechanism

Which refers to an economic term that refers to the buyers and sellers who negotiate prices of goods or services depending on demand and supply.[1] A price mechanism or market-based mechanism refers to a wide variety of ways to match up buyers and sellers through price rationing.

Rent control

Which refers to laws or ordinances that set price controls on the renting of residential housing. It functions as a price ceiling.

Proletariat

Working class

The change in net benefit is $-500. To optimize, you should not become a department head.

You are a professor of economics at a university.​ You've been offered the position of serving as department​ head, which comes with an annual salary that is 7,500 higher than your current salary.​ However, the position will require you to work 200 additional hours per year. Suppose the next best use of your time is spending it with your​ family, which has value of ​$40 per hour. What is the difference in the net benefit from becoming the department​ head? To optimize, you _______________ become a department head.

price taker

a buyer or seller who cannot affect the market price. In a perfectly competitive market, firms are price takers as a consequence of many sellers selling standardized goods.

"Cap-and-trade" would be more aligned with those who wish to use private market innovations to solve environmental problems than a regulatory-based environmental system because

a cap-and-trade approach allows firms to trade permits so that firms with the lowest pollution cleanup costs will clean up.

tariffs

a tax on imports

Double coincidence of wants

a trader must find another trader who is willing to trade what the first trader wants and at the same time wants what the first trader has

a chicken game

a version of the battle of the sexes game that results in disaster if each player plays his or her tough strategy

2 The one word in the definition of economics that focuses on the fact that it is impossible to provide all of the goods and services that everyone wants is a)scarcity. b)resources. c)study. d)allocation.

a) scarcity

Suppose an investment costs $200 the first year and $100 the second year, but earns $200 in the third year and $150 in the fourth year. a. What is the internal rate of return (IRR) for the investment? Suppose the firm can borrow funds at an interest rate of 6 percent. b. In this case, you can expect the present value of benefits

a. 8% b. exceeds the present value of costs, and the investment should be undertaken. The internal rate of return is the interest rate where the present value of costs and benefits is equal. a. Using Excel: IRR(cell range of costs and benefits), where the costs are entered as negative numbers and the benefits are entered as positive numbers. IRR = 8 percent. b. When the interest rate that must be paid (6 percent) is less than the internal rate of return (8 percent), then the present value of benefits exceeds the present value of costs, and the investment should be undertaken.

Last year, Jarod left a job that pays $60,000 to run his own bike-repair shop. Jarod's shop charges $65 for a repair, and last year the shop performed 3,000 repairs. Jarod's production costs for the year included rent, wages, and equipment. Jarod spent $50,000 on rent and $100,000 on wages for his employees. Jarod keeps whatever profit the shop earns but does not pay himself an official wage. Jarod used $20,000 of his savings to buy a machine for the business. His savings were earning an annual interest rate of 5 percent. a. What is Jarod's annual accounting profit? b. What is Jarod's annual economic profit?

a. Accounting profit = Total revenue - Explicit costs Accounting profit = ($65 × 3,000) - ($50,000 + $100,000) Accounting profit = $195,000 - $150,000 Accounting profit = $45,000 b. Economic profit = Total revenue - (Explicit costs + Implicit costs) Economic profit = ($65 × 3,000) - ($50,000 + $100,000 + Forgone interest on savings + Forgone wages) Economic profit = ($65 × 3,000) - [$50,000 + $100,000 + (0.05 × $20,000) + $60,000] Economic profit = $195,000 - $211,000 Economic profit (loss) = −$16,000

Starting at point A on demand curve D1, determine whether the indicated event will cause demand to increase to D2, decrease to D3, or whether there will be a movement along D1. For each of the following events, indicate where the new point will be after the event occurs. a. sweaters fall out of fashion b. there is a shortage of wool c. the winter is particularly long and cold this year d. sweater vendors offer a sale

a. D; This is a change in a non-price determinant. The demand curve will shift to the left. b. B; A shortage of wool will increase the price of sweaters, causing a movement up along the demand curve. c. E; This is a change in a non-price determinant. The demand curve will shift to the right. d. C; The price of sweaters decreases, causing a movement down along the demand curve.

You are considering buying one of two types of health insurance, both with the same premium. You guess that in the next year there is a 1 percent chance of serious illness that will cost you $67,500 in health care, a 9 percent chance of a moderate illness that will cost you $2,500, and a 90 percent chance of regular health care needs that will cost you $500. One type of health insurance is emergency-only coverage; it will cover your expenses for serious illness but not moderate illness or regular care. The other type covers moderate illness and regular expenses, but its payout is capped, so it will not cover the cost of a serious illness. a. What is the expected value of payouts from the emergency-only insurance? .b. What is the expected value of payouts from the capped-coverage insurance? .c. Which option is a more risk-averse person likely to choose?

a. EV = 0.01(67,500) = $675. b. EV = 0.09(2,500) + 0.90(500) = $675. c. The emergency-only coverage is the more risk-averse option. Even though there is only a 1 percent chance of this outcome, if the serious illness did occur, it would be the most financially damaging.

Suppose you own a beach house on a coast that has a small chance of encountering a hurricane each year. There is a 1% chance that there will be a hurricane this year that would completely destroy your $350,000 home. (Assume that this home is the only store of wealth that you have.) An insurance company has offered you insurance that would reimburse you the entire value of your home in the event of a hurricane. The premium for this insurance is $4,000. a. What is the expected value of your wealth if you do not purchase insurance? b. What is the expected value of your wealth if you purchase the insurance at a $4,000 premium? c. Which option would a risk-averse person choose? d. Which option would a risk-loving person choose? e. What would the premium have to be to make a risk-neutral person indifferent between buying the insurance and not buying the insurance? f. If the insurance company offered the premium you found in part (e), what would a risk-averse person do?

a. EV =[0.01×0]+[0.99×350,000] = $346,500EV =[0.01×0]+[0.99×350,000] = $346,500 b. EV = [0.01 × (−$350,000 − $4,000 + $350,000)] + [0.99 × ($350,000 − $4,000)] = $346,000 c. The expected value of your wealth with insurance is less than the expected value of your wealth without insurance. However, having insurance is much less risky. We can't say for sure whether a risk-averse person will buy insurance, but we know it is a possibility. d. A risk-loving person is going to chose the riskier option, especially when that option has a higher expected value. e. A risk-neutral person will be indifferent between buying insurance and not buying it when the expected values of the two options are equal. This will happen when the premium charged is exactly equal to the expected loss = 0.01 × 350,000 = $3,500. f. If the premium is $3,500, the expected value of your wealth with insurance is exactly equal to the expected value of your wealth without insurance. A risk-averse person would choose the less risky option and would thus buy insurance.

When people do not face the full consequences of their actions, they may act in riskier ways than they would otherwise. a. This situation is called: moral hazard. adverse selection. market failure. imperfect competition. b. An example of this problem is: buyers cannot determine the value of a stock before purchase. people in poor health are more likely to buy insurance. drivers with insurance may drive less carefully. only low-quality cars will be available on the market.

a. moral hazard b. drivers with insurance may drive less carefully.

Jane uses an online dating service. For each of the following activities say whether Jane is screening or signaling. a. Jane views profiles of only non-smokers: b. Jane describes her volunteer activities in her profile: c. Jane lists museums and foreign films among her interests: d. Jane looks for matches who live within 25 miles of her address:

a. screening b. signaling c. signaling d. screening

Say whether each of the following situations involves screening or signaling. a. Auto shops and motels advertise that they are AAA-approved: b. Employers check interviewees' Facebook or LinkedIn profiles before hiring one of them: c. Applicants must pass an exam before becoming eligible for a civil-service position: d. People wear expensive clothing with large brand names or logos:

a. signaling b. screening c. screening d. signaling

Some people have argued that mandatory health insurance could reduce health care costs because it would address the problem of

adverse selection. Mandatory insurance can address the problem of adverse selection. By preventing people from opting out, the pool of people paying premiums will increase. Making health insurance mandatory would mean that low-risk people who are most likely to opt out if possible are also paying premiums, which would reduce overall costs. However, mandatory health insurance would not address the problem of moral hazard. Once people pay their premium, they are more likely to overconsume health care because they are not paying the full cost of an office visit.

Short-run expansionary Fiscal Policy would result in

aggregate demand moving to the right.

Using the aggregate supply-aggregate demand model, the tax cuts of 2001 and 2003 that came in the form of tax rebate checks would cause

aggregate demand to shift to the right.

Congress and the president have control of the tax system and government spending. As a result, their policies will directly impact

aggregate demand.

The Federal Reserve has indirect control over short-term interest rates, and, as a result, their ability to control economic activity is through

aggregate demand.

market economy

an economy in which private individuals, rather than a centralized planning authority, make the decisions

nash equilibrium

an equilibrium reached when all players choose the best strategy they can, given the choices of all other players. It is a situation, wherein, given the consequences, the player has no regrets about his or her decision.

Externalities

an externality is something that impacts a third party, someone who was not part of the original transaction between the buyer and seller

Suppose budget analysts are projecting that a particular program's costs will increase faster than overall inflation (primarily) because there will be an increase in the number of people eligible for it (e.g. Social Security and an aging population). If there is an increase in the budget by only the amount necessary to cover inflationary increases, this would be considered

an increase if you were using baseline budgeting but a cut if you were using current-services budgeting.

The increase in real spending per pupil has occurred as a result of

an increase in noninstructional spending.

In the market for loanable (borrowed/saved) dollars, an increase in the profitability of investments overall will be revealed in

an increase in the demand for loanable dollars. If investments are more profitable, firms will want to get more funds to invest, so the demand for loanable (borrowed/saved) dollars will increase.

Monetary policy designed to counteract a reduction in aggregate demand might include

an increase in the money stock.

If the production possibilities frontier is not bowed out, but is a line, there is a) scaricity b) constant opportunity cost c) unemployment d) increasing opportunity cost

b) constant opportunity cost

The underlying reason production possibilities frontiers are likely to be bowed out (rather than linear) is a) choices have consequences. b) there is always opportunity costs. c) some resources and people can be better used producing one good rather than another. d) there is always some level of unemployment.

c) some resources and people can be better used producing one good rather than another.

A change in the price of eggs will impact a) the demand for eggs. b) the supply of eggs. c) the quantity demanded and the quantity supplied of eggs but neither demand nor supply. d) both the supply and demand for eggs.

c) the quantity demanded and the quantity supplied of eggs but neither demand nor supply.

When looking at the impact of a change in trade policy, economists use consumer and producer surplus to look at the winners and losers. Free-trade economists insist that a) no one loses. b) everyone loses. c) there are winners and losers but that the gain to the winners is greater than the loss to the losers. d) there are winners and losers but that the loss to the losers is greater than the gain to the winners.

c) there are winners and losers but that the gain to the winners is greater than the loss to the losers.

1. Scarcity implies that the allocation scheme chosen by society can a) not make more of any one good. b) always make more of any good. c) typically make more of a good but at the expense of making less of another. d) always make more of all goods simultaneously.

c) typically make more of a good but at the expense of making less of another.

Discretionary fiscal policy as a tool managing an economy is

considered by many to be effective but subject to several concerns over timing and motive.

Money supply

constitutes the amount of money available in a given economy (at a specific point in time)

The argument that the minimum wage hurts society more than it helps is based on ____ analysis.

consumer and producer surplus

An economist worrying about the economic impact of environmental regulations would model that impact with a(n)

decrease in aggregate demand.

How does consumer surplus change as the equilibrium price of a good rises or​ falls? As the price of a good​ rises, consumer surplus _____ and as the price of a good​ falls, consumer surplus ________

decreases ; increases

Because there are _______, adjusted gross income is always ______ taxable income.

deductions; greater than The tax you owe is, of course, influenced by how much you earn. The adjusted gross income (AGI) is the total net income from all sources. To figure out how much of that adjusted gross income is taxable, you have to adjust that number by exemptions and deductions.

Social Security is closer to a

defined benefit plan, because if you participate for the required period of time, you get a benefit according to a set of rules and a formula

Whether a firm stays in business or shuts down depends heavily on the concept of...

economic profit

The argument that the minimum wage does not significantly increase unemployment is based on

elasticity. A minimum wage that has been set above the equilibrium wage has several effects. First, it raises the wage from the equilibrium wage to the imposed minimum wage. Second, it reduces the amount of labor sold. Third, as long as the money gained from raising the wage to workers is greater than the money lost as a result of having fewer people working, workers in general have more money than they had before. From your earlier study of the concept of elasticity, you will recognize the condition for this is that the demand for labor has to be inelastic.

When a satellite television company gains a subscriber, there is no impact on existing subscribers. That is, there is no rivalry in the consumption for their service. This is an example of a(n)

excludable public good. Exclusivity is the degree to which the consumption of the good can be restricted by a seller to only those who pay for it. Rivalry is the degree to which one person's consumption reduces the value of the good for the next consumer. A purely private good is a good with the characteristics of both exclusivity and rivalry. A purely public good is a good with neither of the characteristics of exclusivity or rivalry. An excludable public good is a good with the characteristic of exclusivity but not of rivalry. A congestible public good is a good with the characteristic of rivalry but not of exclusivity.

During the 1980s many considered urban sprawl to be a serious problem for farmland. "Farm sprawl" could reverse the problem of urban sprawl if

farming became profitable enough to drive up farmland prices to compete with urban land prices.

When adverse selection occurs there are: more transactions than would have been occurred if both sides had the same information. fewer transactions than would have been occurred if both sides had the same information. the same transactions that would occur when both sides had the same information. no transactions.

fewer transactions than would have been occurred if both sides had the same information.

Serving as a fiscal agent for the Treasury

function of the fed that handles the sale of US Treasury securities

complements

goods that are consumed together, so that purchasing one will make consumers more likely to purchase the other

The problem of the "third-party payer" arises in health care in the form of

government and/or private insurance paying a significant part of the costs. A situation of a "third-party payer" arises where someone other than the consumer is paying the bill. When this happens, the usual role of keeping costs down is taken out of the hands of the consumer. In the case of health care, the problem of a "third-party payer" arises when government and/or private insurance pay a significant part of the costs.

Total federal spending on health care, after adjusting for inflation, has been

growing

The evidence on most environmental pollutants (lead in the air and water, sulfur in the air, etc.) is that they

have decreased substantially in the last 40 years.

If you were to conclude that all students would be better off if everyone received an "A" you would...

have fallen victim to the fallacy of composition

Of course, all individual students are better off if they get better grades. If you were to conclude that all students would be better off if everyone received an A, you would

have fallen victim to the fallacy of composition The fallacy of composition is the mistake in logic that suggests that the total economic impact of something is always and simply equal to the sum of the individual parts.

It might be easier to see a job lost because of NAFTA than to see a job created by it because

if workers lose their jobs when a factory moves, they are vocal, but a job created from trade is not likely to be noticed.

Suppose the United States were to legalize marijuana production. The negative externalities that might occur from legalizing marijuana are

impaired driving and family problems. Legalization would not eliminate externalities associated with marijuana use. There are harmful effects to innocent third parties from secondhand smoke, impaired driving, and the exposure to children and the negative affects on spouses and children.

smaller-than-efficient scale.

in a monopolistically competitive market, firms produce at the point where ATC is tangent to the demand curve. At this point, they could decrease ATC by producing more, but choose not to because doing so would decrease profits. This results in firms producing at a smaller-than-efficient scale.

The opportunity cost for you to attend college might best be described as

income you could have earned at a full-time job Opportunity cost is the next best alternative that is sacrificed when a choice is made. Note that this cost is not necessarily expressed in terms of money but rather in terms of whatever is sacrificed or given up.

When engaging in monetary policy, the impact of expansionary policy is modeled by a(n)

increase aggregate demand.

An increase in the demand for a good that is produced by many firms will

increase all of their respective marginal revenue curves.

An increase in demand will always

increase producer surplus and increase consumer surplus.

A 22 percent decrease in price results in an 18 percent increase in quantity demanded. In this case, demand is The demand curve for this good would be relatively

inelastic. Economists say that demand is elastic when the percentage change in quantity is larger than the percentage change in price and inelastic when the percentage change in quantity is smaller than the percentage change in price. If the computed elasticity is greater than 1, then demand is elastic; when it is less than 1, then demand is inelastic. When the percentage change in quantity is the same as the percentage change in price (the computed elasticity is exactly 1), demand is unitary elastic. steep The greater the absolute value of the price elasticity of demand, the flatter the demand curve. The smaller the absolute value of the price elasticity of demand, the steeper the demand curve. The demand curve for a good you need is going to be rather steep. If the good is a luxury item, you are more likely to eliminate it from your budget if it becomes overly expensive. In this case, there is a substantial reaction of quantity to a change in price. The demand curve for a luxury is likely to be flatter.

regulation of private insurers

insurance companies may vary premiums only on the basis of age, tobacco use, family size, and geography

For the ruler of a developing country, the opportunity cost of a choice to invest in universal education

is the reduction in health care spending.

The underlying reason that there are unattainable points on a production possibilities frontier diagram is there...

is the scarcity of resources within a fixed level of technology

One problem with using real gross domestic product (RGDP) as a measure of social welfare is that

it fails to count home production. One reason that real gross domestic product is not synonymous with social welfare is because it does not count do-it-yourself production. Second, real GDP does not see that leisure is valuable. Third, what people buy is not considered important in the computation of GDP. Fourth, growth in the population can change the per capita real GDP, and fifth, although we can sacrifice environmental quality of life for economic gain, we would not necessarily be better off.

When a firm chooses to shut down, it is

making a good decision as long as the price it is getting is less than its average variable cost. If a firm cannot cover its variable costs, then it will lose more than the fixed costs by continuing to operate.

discrimination

making choices by using generalizations based on people's observable characteristics like race, gender, and age

Assign the following programs to each type of spending. a. interest payments on the debt b. national defense c. social security d. food stamps e. international policy and foreign aid

mandatory spending, discretionary spending, mandatory spending, mandatory spending, discretionary spending

The consensus among economists is that NAFTA's impact on the U.S. economy was/is

marginal in net though it has increased both imports and exports.

One measure of wealth inequality is the ratio of

mean wealth to median wealth.

The market form for a new drug in an area where there are no competitors is

monopoly. Monopoly power is particularly important in the so-called orphan drug industry, an industry that deals with diseases that afflict few people. Monopoly means that there is one seller and that there are no other companies producing the particular drug.

Orphan drug laws were created because the motivation to invent drugs for these diseases was

much less than normal because firms anticipated few sales. An orphan drug is a drug that treats someone with a disease that afflicts few people. Therapies that benefit small numbers of patients cannot hope to generate sufficient profits during normal patent lives for companies to justify research. For this reason drugs that are labeled orphan drugs are granted very long patent lives so that profits, though small, can be expected to last well into the future.

Per capita real economic growth during the Industrial Revolution through the mid-1970s was

nearly 2 percent.

To compare benefits received in the distant future with taxes paid in the past, currently, and in the near future, we use the concept of

net present value.

The existence of the federal income tax and the welfare system serve as the primary elements of...

nondiscretionary fiscal policy

The existence of the federal income tax and the welfare system serve as the primary elements of

nondiscretionary fiscal policy.

The portion of the Obama stimulus package that bolstered state Medicaid plans is best thought of as

nondiscretionary fiscal policy.

If income increases by 10 percent and the quantity demanded of a good then increases by 5 percent, the good is: inferior and a necessity. normal and a luxury. normal and a necessity. inferior and a luxury.

normal and a necessity. If income increases by 10 percent and the quantity demanded of a good then increases by 5 percent, the good is normal (income elasticity is positive) and income-inelastic (income elasticity of 5/10 is less than one).

If you were to conclude, after carefully examining data and using proper evaluation techniques, that a tax credit for attending college benefits the poor more than tax deduction (of equal total cost to the government) would, you would hav engaged in ____ analysis to reach that conclusion

normative

Insurers need to be required to accept those with pre-existing medical conditions rather than making acceptance optional otherwise they would

not want to insure those with conditions that are expensive to treat. Adverse selection occurs when those in most need of insurance are the most willing to pay for insurance and drive up the price of insurance with their illnesses to such a degree that those people who are not as sick leave the market altogether. Doing so will raise the average costs to everyone else left in the insurance pool. It may raise it so much that the somewhat healthy people drop their insurance. This has been labeled by some as the "insurance death spiral." Therefore, the provisions affecting insurance that present the greatest challenge to the health insurance industry itself are the provisions that prevent insurance companies from denying coverage to the people based on pre-existing conditions. Mandation is the requirement that everyone buy insurance if insurance is not provided to them. Requiring the healthy to buy insurance and forcing them to pay a tax or fine if they do not makes the problem of adverse selection disappear.

For all its similarities to a monopolist in the short run, the monopolistically competitive firm faces one huge problem that the monopolist does not in the long run: products are differentiated. other firms cannot enter the market. demand is downward sloping. other firms can enter the market.

other firms can enter the market. The major difference between monopoly and monopolistic competition is that firms can enter the market in monopolistic competition. If positive economic profits are being earned in a monopolistically competitive market, additional firms will enter the market. In the long run, firms in a monopolistically competitive market face the same situation as firms in a perfectly competitive market: profits are driven to zero.

If the government could force firms to add any external cost to their private cost, the result would be that

output will decrease and price will increase. When negative externalities are present, the equilibrium output will be greater than the efficient output. This is because the producer, who is not bearing the full cost of production, will be able to produce more at a lower price than the efficient level that would exist if true costs were reflected in the production decision.Government might tax the producer of the externality, which shifts the supply curve to the left as costs of production rise, and the new equilibrium output will be lower and closer to the efficient level.

The DRG system controls Medicare expenses by

paying hospitals on the basis of a disease or injury rather than expenses. From the hospital's position, Medicare is paying amounts that it has settled on for specific diagnoses. These payments, and they are prospective payments, are determined by where the patients' ailments put them on a list of more than 500 diagnosis-related groups (DRGs). All Medicare patients who enter the hospital are placed in a DRG, and rather than paying for specific expenses that are incurred, Medicare pays the hospital a predetermined amount that is considered appropriate for that DRG.

Joseph Schumpeter coined the phrase "creative destruction." The idea of creative destruction is that

people need to be forced from their comfort zone in order to make crucial decisions that enhance their economic prospects.

Underemployment

people take jobs that don't utilize their skills

One of the reasons a government-run annuity system such as Social Security may be better for society than simply relying on private savings is that

people, having imperfect foresight, will save too little.

If you were to conclude, after carefully examining data and using proper evaluation techniques, that a tax credit for attending college benefits the poor more than a tax deduction (of equal total cost to the government) would, you would have engaged in _________ analysis to reach that conclusion.

positive Economists, and social scientists in general, distinguish views of "the way things are" from "the way things should be," calling the former positive analysis and the latter normative analysis. Positive analysis is a form of analysis that seeks to understand the way things are and why they are that way. Normative analysis is a form of analysis that seeks to understand the way things should be.

Wealth inequality is ________ related to the ratio of mean to median wealth.

positively

The economic tool that proves the value of an expensive college education is

present value. If the interest-adjusted amount of money you spend on your education—the present value of the costs—is less than the interest-adjusted amount of the extra money you earn as a result of your education—the present value of the benefits—then your college education is worth the money you pay for it.

agricultural price supports

price floor

If MR > MC, then when an additional unit is sold, the firm's...

profit will increase

The tax brackets have higher tax rates for more taxable income. This makes the federal income tax

progressive.

Suppose the economy is experiencing inflation such that prices are too high. One policy to correct this is to

raise taxes.

Between 1998 and 2007 the real minimum wage

remained constant

What did the real minimum wage do between 1998 & 2007?

remained constant

Due to arduous certification requirements, Nature's Crunch is currently the only certified organic produce grower in a region that produces lots of non-organic produce alternatives. From a profit-maximizing perspective, would it be better for Nature's Crunch to lobby the government to relax organic certification requirements or to require grocery stores to clearly label its produce as organic?

require grocery stores to clearly label its produce as organic Nature's Crunch would not want the government to relax organic certification requirements because doing so would create competition. As the only certified organic grower, Nature's Crunch has a regional monopoly on selling organic produce. Nature's Crunch would be better off lobbying the government to require that certified organic produce be clearly labeled in grocery stores so that consumers can easily identify it.

When one country objects to the trade restrictions of another, the provisions of trade treaties typically

require that it submit its objections to a recognized, decision-making body to determine whether the practice is allowed.

fixed inputs

resources that do not change

economies of scale

returns that occur when an increase in the quantity of output decreases average total cost

constant returns to scale

returns that occur when average total cost does not depend on the quantity of output

The gap between the ATC and AVC curve will

shrink to nearly zero.

But remember that absolute advantage does not determine who produces what. Comparative advantage

the ability to produce a good or service at a lower opportunity cost than others can. The fact that companies in Bangladesh sell clothing to the United States doesn't necessarily tell us that Bangladesh is more productive at making clothes, but it definitely tells us that Bangladesh's opportunity cost of making a shirt is lower than that of the United States.

monetary policy

the actions the Fed takes in order to gently steer the economy toward goals such as full employment and stable prices are referred to as ---

marginal cost (MC)

the addition to cost associated with one additional unit of output

marginal cost (MC)

the additional cost incurred by a firm when it produces one additional unit of output Marginal cost=Change in total cost/Change in quantity

quantity supplied

the amount of a particular good or service that producers will offer for sale at a given price during a specified period

quantity demanded

the amount of a particular good that buyers will purchase at a given price during a specified period

total cost

the amount that a firm pays for all of the inputs that go into producing goods and services

The argument that the minimum wage is worse than the Earned Income Tax Credit is based on the idea that

the minimum wage applies to all workers, not just the working poor. In the eyes of many economists a better alternative to the minimum wage is the Earned Income Tax Credit (EITC). Low-income working families with three or more children are eligible for up to a predetermined amount that arrives in the form of a tax refund. The benefits of the EITC are concentrated on the people who actually need the money to feed their families. More than 70 percent of the money goes to households that are or would otherwise be in poverty. This contrasts dramatically with the minimum wage, where upward of 70 percent of the benefits accrue to households not in poverty.

consumer surplus

the net benefit that a consumer receives from purchasing a good or service, measured by the difference between willingness to pay and the actual price

average product

the number of pizzas produced per worker, on average. Average product is calculated by dividing total production by the number of workers. When a new employee's marginal product is greater than the existing average product, the average increases. As soon as a new worker's marginal product is less than the existing average, the average number of pizzas per worker starts to fall.

interest rate

the price of money, typically expressed as a percentage per dollar per unit of time; for savers, it is the price received for letting a bank use money for a specified period of time; for borrowers, it is the price of using money for a specified period of time The interest rate tells us how much more the money is worth to the bank today than in the future.

rental price

the price paid to use a factor of production for a certain period or task

risk diversification

the process by which risks are shared across many different assets or people, reducing the impact of any particular risk on any one individual.

tax incidence

the relative tax burden borne by buyers and sellers Essentially, the side of the market that is more price elastic will be more able to adjust to price changes and will shoulder less of the tax burden.

An across-the-board tax cut would benefit

the rich, because they pay the vast majority of income taxes.

At any particular quantity on the TC, its slope will be

the same as the slope of the TVC.

Gasoline and corn move in

the same general direction starting around 2007

price elasticity of demand

the size of the change in the quantity demanded of a good or service when its price changes Price elasticity of demand = % change in Q demanded / % change in P

Suppose the United States were to legalize marijuana production. The current negative externalities that might be lessened by legalizing marijuana are

the social costs of law enforcement and incarceration. Enforcing a marijuana prohibition strategy creates problems such as drug violence, robbery, drive-by shootings to protect turf, and hundreds of thousands of prison beds devoted to drug offenders. It is for this reason that you find a significant number of economists, even very conservative economists, favoring drug legalization.

The new tools of monetary policy that the Fed employed included

the sustained purchase of mortgage-backed securities.

If policy makers were to attempt to set a tax equal to the external costs of alcohol, one would have to evaluate

the value of innocent lives lost to drunk driving. A policy short of prohibition implies that there are an economically acceptable number of expected drunk driving deaths and of childhood secondhand-smoke-induced illnesses. The idea is that as long as we have an adequate sum of money available to compensate the people who are affected, it is acceptable for smokers to smoke, for drinkers to drink, and for people to be influenced in negative ways by their behavior. We must weigh what is to be gained with what is to be lost and judge the risk of injury or even death to be tolerable.

Individual preferences about whether to have money now, or receive it at some future date, are related to: the period you will have to wait. your relationship with a banker. the value of whatever you could otherwise have done with the money in the meantime. the types of finance classes you have taken.

the value of whatever you could otherwise have done with the money in the meantime.

Consider prescription drugs that have already been invented. The price, or at least the increase in the price, of existing prescription drugs should not be limited because

there is a long period of time between innovation and revenues as well as an opportunity cost of time. The world's drug inventors eye the profit that they get in the United States when they pour billions into their scientists and laboratories. If they could not make a profit in the United States, there would be no place to make one and they would not put the money into innovation. The profit motive is what brings private investment money to drug invention. It is highly risky, and profits and revenues are time-distant from invention and testing costs.

When tackling local environmental problems, taxes and regulations can be useful. The reason that global problems (like global warming) are more difficult to control is that

there is no ability to enforce those taxes or regulations.

Relative to the alternative, a mini-med health insurance policy would be a good policy for

young, healthy individuals because the premiums are low; however, there is no maximum out-of-pocket amount. Some companies offer what are called mini-meds. Mini-med insurance policies are usually only offered to young people, have fairly low premiums, and, as one of the features, have low (usually no more than $10,000) annual maximum amounts that the insurance company will pay. These limits are illegal, in general, but these policies serve a niche market that the Obama administration did not want to harm when they banned the general practice of capping health insurance company liability. The fear was that by outlawing all mini-meds, they would reduce health insurance coverage for many young people in their first jobs.

From Table 2.1, and under the most likely scenario where columns A and B are assigned to represent quantity demanded and quantity supplied, which is the equilibrium price?

$3

If a market basket was defined in 2018 and it cost $10,000 to purchase the items in that basket in 2018, while it cost $11,000 to purchase those identical goods in 2019, then the price index for 2019 is

(11000/10000)*100=110.

If a market basket was defined in 2018 and it cost $10,000 to purchase the items in that basket in 2018, while it cost $12,000 to purchase those identical goods in 2019, then the inflation rate from 2018 to 2019 is

(120-100)/100*100%=20%.

Tim mows neighborhood lawns for extra money. Suppose that he would be willing to mow one lawn for ​$13, a second lawn for ​$16​, and a third lawn for ​$25. Also suppose that three neighbors are interested in having their lawns mowed. Mrs. Jones would be willing to pay ​$33 to have her lawn​ mowed, Mr. Wilson would be willing to pay ​$28​, and Ms. Smith would be willing to pay ​$25. If Tim offers to mow lawns for ​$25 ​each, what will be his producer​ surplus? Considering Mrs.​ Jones, Mr.​ Wilson, and Ms. Smith​ together, what will be their consumer​ surplus? ​

$21 ; $11

Unemployment rate

(unemployed/labor force) x 100

Medicaid is the Federal Government program that provides health insurance to the 1. poor. 2. injured. 3. elderly. 4. handicapped.

1. poor.

The data on wealth concentrations come from

4,500 individuals who are selected to accurately represent the U.S. population's demographics.

. The Children's Health Insurance Program was created in the 1. 1940's. 2. 1960's. 3. 1980's. 4. 1990's

4. 1990's

Nursing home care is covered by 1. Medicare, Part A. 2. Medicare, Part B. 3. Medicaid, regardless of income or wealth. 4. Medicaid, but only for the poor.

4. Medicaid, but only for the poor.

An assurance game

A game in which players want to coordinate on an outcome and in which both agree that coordinating on one particular outcome is preferred to coordinating on the other

Board of directors

A group elected by t he stockholders that run the corporation on their behalf

Bankruptcy

A legal remedy for debtors who are no longer able to repay their debts

Required Reserve Ratio

A percentage of each dollar deposited that must be held on reserve (at the Fed or in the bank's vault)

not in the labor force

A person who does not have a job and has not been actively looking for a job in the past four weeks is considered ---

macroeconomics, since it deals with the economy as a whole.

A policy such as whether to increase the money supply would be studied under ___________, since it deals with ___________.

Acquisition

A+B=A controlling B

The public choice model raises questions about the​ government's ability to regulate economic activity efficiently. Which of the following statements represents the views of most economists with regard to the role of​ government? A. Agencies such as the Food and Drug Administration and the Environmental Protection Agency can serve a useful​ purpose, but we need to take the costs of regulation into account along with the benefits. .B. U.S. citizens can afford more government regulation if the cost of this regulation is borne mostly by taxpayers with the highest incomes. C. Government should do more to regulate markets. The public choice model has shown that rent seeking and rational ignorance affect more markets than are currently subject to regulation. D. Congress should abolish the Food and Drug​ Administration, the Environmental Protection​ Agency, and other agencies and commissions because the costs of their actions exceed the benefits they provide to the public.

A. Agencies such as the Food and Drug Administration and the Environmental Protection Agency can serve a useful​ purpose, but we need to take the costs of regulation into account along with the benefits.

A Pigovian tax is A. a tax to bring about an efficient level of output in the presence of externalities. .B. a cost that parties incur in the process of agreeing to and carrying out an exchange of goods and services. C. a tax that creates deadweight loss. D. a tax that creates an externality. E. a tax to completely eliminate externalities.

A. a tax to bring about an efficient level of output in the presence of externalities.

Let​ D= demand, S​ = supply, P​ = equilibrium​ price, and​ Q= equilibrium quantity. What happens in the market for tropical hardwood trees if the governments restrict the amount of forest lands that can be​ logged? A. S​ decreases, D no​ change, P​ increases, Q decreases. B. D​ decreases, S no​ change, P and Q decrease. C. D no​ change, S​ decreases, P​ increases, Q increases. D. D and S​ decrease, P and Q increase

A. S​ decreases, D no​ change, P​ increases, Q decreases.

According to an article in the New York Times​, the Venezuelan government​ "imposes strict price controls that are intended to make a range of foods and other goods more affordable for the poor. They are often the very products that are the hardest to​ find. Imposing price controls on goods would make them hard to find because A. the high price level would encourage producers to supply​ more, but buyers would not want to pay the higher price. B. producers would not want to supply as much as they did before the price controls. .C. the high price level would discourage buyers. D. there would be too much of the product supplied and the price would fall.

B. producers would not want to supply as much as they did before the price controls.

decrease the supply of soybeans

Assume that corn and soybeans are alternatives (or substitutes) that could be grown by most farmers. An increase in the price of corn will do what to the soybeans?

Marginal benefit is A. the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. B. the additional benefit from consuming one more unit. C. a legally determined maximum price that sellers may charge. D. the additional cost of producing one more unit.

B. the additional benefit from consuming one more unit.

Farmer Owens has an apple orchard that must be pollinated by bees in order to bear fruit. Farmer​ Owens's neighbor,​ Maude, owns beehives with bees that can pollinate the apple trees. Suppose the benefit of the bees to Farmer Owens is ​$4,000 per year. Suppose the bees provide no benefit to Maude but she must pay ​$5 comma 0005,000 per year to maintain the hives. If Farmer Owens and Maude engage in Coase​ bargaining, what would likely​ result? A. Maude would pay Farmer Owens between ​$4,000 and ​$5,000 to maintain the hives. B. Farmer Owens would not be willing to pay Maude an amount such that she would maintain the hivesFarmer Owens would not be willing to pay Maude an amount such that she would maintain the hives. C. Farmer Owens would pay Maude at least ​$5,000 to maintain the hives. D. Farmer Owens would pay Maude between​ $0 and ​$4000 to maintain the hives. E. Farmer Owens would pay Maude between $ 4 000 and $ 5000 to maintain the hivesFarmer Owens would pay Maude between $4,000 and $5,000 to maintain the hives.

B. Farmer Owens would not be willing to pay Maude an amount such that she would maintain the hivesFarmer Owens would not be willing to pay Maude an amount such that she would maintain the hives.

A student​ argues: "Economic surplus is greatest at the level of output where the difference between marginal benefit and marginal cost is​ largest."This statement is false because A. the level of output where the difference between marginal benefit and marginal cost is largest will be above the output level needed to have the maximum economic surplus. B. the level of output where the difference between marginal benefit and marginal cost is largest will be below the output level needed to have the maximum economic surplus. .C. the level of output where the difference between marginal benefit and marginal cost is largest will also have the highest producer and consumer surplus. D. the marginal benefit and marginal cost relationship has no relevance to economic surplus.

B. the level of output where the difference between marginal benefit and marginal cost is largest will be below the output level needed to have the maximum economic surplus.

In​ 2004, hurricanes destroyed a large portion of​ Florida's orange and grapefruit crops. In the market for citrus​ fruit, A. the demand curve shifted to the right resulting in an increase in the equilibrium price. B. the supply curve shifted to the left resulting in an increase in the equilibrium price. .C. the demand curve shifted to the left resulting in a decrease in the equilibrium price. D. the supply curve shifted to the right resulting in an increase in the equilibrium price.

B. the supply curve shifted to the left resulting in an increase in the equilibrium price.

Examples of transaction costs include ​(check all that​ apply): A. the cost of the externality. B. the cost of drafting a contract or agreement. C. the time required to negotiate an agreement. D. the difference between the private costs and social costs of production. E. the cost of monitoring an agreement.

BCE

How is the supply of labour

Backwards bending. As wage increase, the substitution effect is larger than income effect. -> increase in the number of hours worked. Once wage reaches WBB, the income effect dominates and individuals choose more leisure rather than work. -> decrease in the number of hours worked

What is the focus of a​ command-and-control approach to reducing​ pollution? A. The government imposing taxes intended to bring about an efficient level of output in the presence of externalities. B. The government trading emissions allowances to pollute for cash payments. C. The government imposing quantitative limits on the amount of pollution firms are allowed to generate. D. The government offering subsidies intended to bring about an efficient level of output in the presence of externalities.

C. The government imposing quantitative limits on the amount of pollution firms are allowed to generate.

The advanced machinery used for limestone quarrying in a particular region leads to noise pollution and affects the hearing ability of people residing in the neighborhood. The quarrying activity also results in soil erosion. According to an environmental research​ group, the market price and output of limestone in this region is much higher than the socially efficient​ level, as the limestone producers do not include the social cost of production in their output decision. The group formally requests the government to impose a tax on limestone production to internalize the externality. Suppose the government responds by imposing a tax on the production of limestone. After the tax is​ imposed, total production of limestone declines by the amount the environmental research group had estimated. This convinces them that limestone production is now socially efficient. Which of the following conclusions can most reasonably be drawn from the given​ information? A. Since the demand for limestone is highly​ inelastic, limestone manufacturers are able to shift the entire burden of the tax to consumers. B. Production in the cement​ industry, a major consumer of​ limestone, has decreased by 5 percent. C. The marginal private cost of producing limestone at this quarry is now equal to the marginal social cost as estimated by the research group. D. The social cost of reducing the production level equals the economic benefit of the goodwill generated as a result of this. E. The reduced production caused unemployment in the region to reach unprecedented levels.

C. The marginal private cost of producing limestone at this quarry is now equal to the marginal social cost as estimated by the research group.

The demand for grapes is highest during summer and lowest during winter. Yet grape prices are normally lower in summer than in winter. What must be happening to the supply of grapesgrapes​, from winter to​ summer, for the equilibrium price to​ fall? A. The supply does not change. B. The supply​ increases, but less than the demand increases. C. The supply increases more than the demand increases. .D. The supply for grapesgrapes decreases.

C. The supply increases more than the demand increases.

A price ceiling A. does increase the amount of the product that consumers buy because it lowers the price. B. does increase the amount of the product that consumers buy because it creates a surplus. C. does not increase the amount of the product that consumers buy because it creates a surplus. D. does not increase the amount of the product that consumers buy because it creates a shortage. .E. both a and b.

D. does not increase the amount of the product that consumers buy because it creates a shortage.

Minimum wage in a monopsony

Can rise both wages and employment. In this case. Without a minimum wage, monopsony would only employ Qm.

Yes

Can there be a Nash equilibrium in a pure coordination game?

cyclical unemployment

Caused by recessions Most noticeable in industries that are sensitive to economic change

The advanced machinery used for limestone quarrying in a particular region leads to noise pollution and affects the hearing ability of people residing in the neighborhood. The quarrying activity also results in soil erosion. According to an environmental research​ group, the market price and output of limestone in this region is much higher than the socially efficient​ level, as the limestone producers do not include the social cost of production in their output decision. The group formally requests the government to impose a tax on limestone production to internalize the externality. Which of the​ following, if​ true, would support the taxation policy proposed by the research​ group? A. Limestone producers in this region pay very high income taxes. B. The limestone industry provides employment opportunities to a significant percentage of unskilled laborers in the region. C. This country is the largest exporter of limestone. D. Recent environmental research reveals that the dust from the limestone quarrying site has severely contaminated the water at a nearby lake. E. Scientists have recently developed​ cost-effective and​ easy-to-install sound filtering systems for limestone plants.

D. Recent environmental research reveals that the dust from the limestone quarrying site has severely contaminated the water at a nearby lake.

Are policymakers susceptible to​ rent-seeking behavior? Explain. ​Rent-seeking behavior A. may succeed when policymakers are not subject to regulatory capturemay succeed when policymakers are not subject to regulatory capture. B. may succeed when voters are not rationally ignorantmay succeed when voters are not rationally ignorant. C. does not succeed because policymakers are not allowed to accept campaign contributions from firms seeking special interest legislation. D. may succeed when policymakers engage in logrollingmay succeed when policymakers engage in logrolling. .E. does not succeed because government failure may reduce economic efficiency.

D. may succeed when policymakers engage in logrollingmay succeed when policymakers engage in logrolling

B.Barney subscribes to the NFL Sunday​ Ticket, a program package offered by DirecTV that allows Barney to watch every regular season NFL game played on Sundays.​ (Barney can watch Sunday Night Football without subscribing to the Sunday​ Ticket.) The subscription price for the Sunday Ticket is in addition to the fee paid for​ Barney's DirecTV package. Barney invites two friends who work with him to watch football on Sundays at his home. a. Considering that Barney can watch any football game broadcast on​ Sundays, including those games not shown on his local television​ stations, he is A. a free rider because Barney invites two friends who work with him to watch football on Sundays at his home. B. not a free rider because Barney can watch Sunday Night Football without subscribing to the Sunday Ticket. C. a free rider because Barney can watch Sunday Night Football without subscribing to the Sunday Ticket. D. not a free rider because Barney pays for the program package.A private good

D. not a free rider because Barney pays for the program package.A private good

Suppose a​ firm, like Comcast​ Cable, spends a great deal of money to convince a local governement that it should be the only cable provider of a region. Or a​ union, like the​ UAW, spends a great deal of money lobbying the government to create legislation granting unions special bargaining rights. These examples are created by A. regulatory capture. B. logrolling. C. regressive taxation. D. rent seeking.

D. rent seeking.

Amounts by which AGI is reduced; the greater of either the standard deduction or itemized deductions

Deductions

Law of supply

Direct relationship; price goes up and quantity goes up and vice a versa.

more in both absolute and relative

Do we spend more or less money on health care compared to other nations?

​No, they both tend to be​ downward-sloping curves.

Does the shape of the market demand curve differ from the shape of an individual demand​ curve?

the feasibility of a choice, given the information available at the time.

During the process of optimization economists believe that people are considering:

Someone who will be moving to Lowell next year and who intends to rent an apartment A. will be better off if they are able to find an apartment to rent because rent is lower due to the price ceiling. B. will be worse off if they are unable to find an apartment to rent. C. will be better off regardless of whether they find an apartment to rent because rent is lower due to the price ceiling. D. will be worse off regardless of whether they find an apartment to rent because there is a shortage of apartments. E. both a and b.

E. both a and b.

economists use data to analyze what is happening in the world.

Empiricism describes a situation where:

Knights of Labor

First labor union created by Uriah Stevens Reluctant to strike

The general form of the formulas used to construct the indexes are nearly indistinguishable.

How is the Consumer Price Index similar to the GDP​ deflator?

The equilibrium price decreases.

How would the equilibrium price in a market be affected if there were a small decrease in supply and a large decrease in demand​?

The government has decided to add a $10 subsidy in the market for Humbugs. The pre-subsidy price of Humbugs was $50, and neither supply nor demand is perfectly elastic nor perfectly inelastic. Which of the following is true? The price of Humbugs will fall by less than $10. The price of Humbugs will fall to $40. The full benefit from the subsidy will go to the sellers of Humbugs. The full benefit from the subsidy will go to buyers of Humbugs. The equilibrium quantity of Humbugs will decrease due to the lower price. Who receives the greatest benefit from the subsidy depends on: the relative elasticity of the supply and demand curves. whether supply is elastic or inelastic. whether demand is elastic or inelastic. whether the subsidy is given to buyers or sellers. what the government requires firms to charge.

If the subsidy is given to sellers, the supply curve will shift rightward, but since neither supply nor demand is perfectly elastic nor perfectly inelastic, the price will not fall by the full $10. Consumers will receive some of the benefits of the subsidy in the form of lower prices and increased purchases, and producers will receive some of the benefits in the form of increased sales and revenues (because of the higher post-subsidy price to firms). The incidence of the subsidy is determined by the relative elasticity of the supply and demand curves. The group with the relatively more inelastic curve will receive relatively less of the benefits.

Repeated play can also change the outcome in sequential games by reducing the first-mover advantage.

In these situations, the more-patient player—the one who places more value on money in the future relative to money in the present—has an advantage. The player who is willing to hold out longer has more bargaining power, and so receives a better payoff.

Structural

Long term or permanent Obsolete job skills Disappearing industries Technology replaces labor

Nash equilibrium

an outcome where both players are playing their best strategy, given the strategy chosen by the opponent

Which of the following policy changes could you make now that would have a delayed impact on crime several years from now?

More equal distribution of income and better education for everyone If rational criminal theory is accurate, raising a middle-, upper-middle-, or high-income person's economic prospects should have little to no effect on crime. Even without a growth in income, such a person would have virtually no incentive to turn to crime. An increase in income would simply lessen a trivially small temptation and would have no appreciable impact on crime. On the other hand, if the economic prospects changed at the low end of the economic scale, the effect on crime would likely be substantial.

Technological changes enable workers to be more productive.

Supply increases.

quantity demanded would exceed the quantity supplied, resulting in a shortage.

Suppose a new​ off-campus university apartment complex could rent its rooms on the open market for​ $900 a month. If, instead, the university chooses to cap the price of rooms to​ $500 a month for​ students, the result would be that​:

Given the data above, Ascot's GNP is $150 million. In Ascot, the per capita GDP is $5,143. In Delwich, the per capita GNP is $12,000.

Suppose that there are only two small countries in the​ world: Ascot, with a population of 35,000 ​people, and​ Delwich, with a population of 25,000 people.​ Ascot's GDP is equal to ​$180 million while​ Delwich's GDP is ​$270 million.​ Delwich's GNP has been estimated to be equal to ​$300 million. The revenue earned by firms that operate in Delwich but are headquartered in Ascot is equal to ​$60 million. Given the data above, Ascot's GNP is: In Ascot, the per capita GDP is: In Delwich, the per capita GNP is:

Amount spent on iTunes + Amount spent on Redbox = $20.

Suppose that you allocate​ $20 each week for your entertainment budget. This money is spent on two​ items: either renting movies for​ $1 each at Redbox or downloading songs from iTunes at​ $1 each. Given this​ information, which of the following would represent your budget constraint for​ entertainment?

Auctioning the rooms to the highest bidders.

Suppose the university is trying to determine the most efficient way to allocate the rooms such that those who value the rooms the most get them. Which of the following would you suggest as the most efficient?

The Bureau of Labor Statistics

The consumer price index is computed by ---

inventory investment

The difference between gross private domestic investment and fixed private investment represents:

Which concept from Chapter 1 can be used to explain how it is possible for it to be in the individual interest of each nation to engage in protectionist policies but for everyone to be worse off if they all engage in protectionist policies?

The fallacy of composition

continuing resolution

The government must shut down if this isn't passed after the budget gets screwed up

Which of the following reasons for making drug sales illegal do economists generally endorse?

The harm they do to innocent victims

implicit cost of ownership

The implicit cost of ownership is another nonmonetary opportunity cost that is often overlooked. The term refers to a cognitive bias, documented by behavioral economists, that leads people to value things more once they possess them (ex - bike $200).

Which of the following had the effect of increasing income inequality?

The increase in globalization of trade in steel, autos, and consumer durables

marginal product

The increase in output that is generated by an additional unit of input

The cost to taxpayers of smoking include

The increased cost of Medicaid patients who smoke

No, because the marginal cost of extra effort may be greater than the marginal benefit.

There is a proverb​ "anything worth doing is worth doing​ well." Do you think an economist would agree with this​ proverb?

False

True or False: For complementary goods, an increase in the price of one shifts the demand curve for the other to the right.

True

True or False: In a battle of the sexes game, each player prefers a different Nash equilibrium.

False

True or False: In a multiplayer, say 3-player, game of chicken, there can be no Nash equilibrium.

False

True or False: The demand for fish today decreases if there are expectations that the price of fish may increase in the future.

1913

What year was the 16th amendment ratified?

income-based accounting method.

When government statisticians gather and analyze data on the income of various agents income of various agents in the domestic​ economy, they are measuring GDP using the​:

Shortage

Which is a situation in which quantity demanded is greater than quantity supplied

It is the real growth rate that is meaningful since it indicates the change in the production of goods and​ services, a very significant source of improved living standards. The nominal growth rate combines the effect of price changes along with changes in the production of goods and services and thus gives a less clear indication of the impact on living standards. B and C only

Why is it essential to differentiate between real and nominal growth rates of​ GDP

$60. -$100. $467, 0.

You are hired as a consultant for a local restaurant. It is considering whether to close at​ 9:00 p.m., stay open an extra hour​ (10:00 p.m.), or close earlier​ (8:00 p.m.). Based on wages and utility​ bills, the added cost​ (the marginal​ cost) of staying open for each additional hour is $​_____. If the additional revenue during the last hour is ​$367​, the profit earned during the last hour of operation will be​ $_____. If the additional revenue​ (the marginal​ revenue) from staying open until 10.00 p.m. is ​$______, the profit earned during the last hour of operation will be​ $0.

Suppose the economy is suffering and many people are afraid they will be laid off from their jobs. Workers would like to protect against this risk with insurance. Which of the following are problems that prevent insurance companies from offering layoff insurance? a. Moral hazard: People tend to behave in a riskier way when they have insurance. b. Adverse selection: Lower risk people will not buy insurance. c. Risk aversion: People who try to avoid risk also avoid thinking about risks, and therefore they are unwilling to consider ways to reduce risk (such as insurance). d. Diversification: There is competition from other insurance providers.

a and b are checked c and d are unchecked

excludable

a characteristic of a good or service that allows owners to prevent its use by people who have not paid for it

Money as a unit of account

a common measure in which relative values are expressed

The tool you identified above is the best choice in most circumstances because it is done on

a daily basis, doesn't inconvenience bank managers, and doesn't require banks to take loans from the Fed. Open-market operations are done on a daily basis, which makes them good for everyday transactions and allows policy to change direction or magnitude without it looking like the Federal Reserve made a mistake. This serves to enhance the Fed's credibility. Open-market operations don't inconvenience bank managers the way that changing reserve requirements would and they don't require banks to make loans from the Fed like changing the discount rate for policy does.

A school teacher would be a better candidate for a defined benefit pension than a computer programmer because

a defined benefit plan presumes long-term service to one employer and a teacher is more likely to have one employer for their lifetime than a computer programmer.

An example of discretionary fiscal policy would be

a federal jobs program adopted to stimulate consumption.

behavioral economics n

a field of economics that draws on insights from psychology to expand models of individual decision making

efficient scale

a firm's efficient scale is the quantity that minimizes ATC in the long run.

lorenz curve

a graphic representation of income distribution that maps percentage of the population against cumulative percentage of income earned by those people The best way to understand the Lorenz curve is to see that if every person earned the exact same amount, the curve would be a straight, diagonal line with a slope of 1, as shown in panel A of Figure 21-3. That is, 20 percent of the population would earn 20 percent of the income, and 73 percent of the population would earn 73 percent of the income, and so on. However, if income is unequally distributed, the Lorenz curve will be bowed out in a U-shape: The poorest 1 percent of people will earn less than 1 percent of income, and the richest 1 percent will earn more than 1 percent of the income, as shown in panel B.

single-payer system

a health care system in which the government alone is responsible for paying health care providers for delivering medically necessary procedures

The real-balances effect indicates that

a higher price level will decrease the real value of many financial assets and therefore reduce spending.

adverse selection

a state that occurs when when buyers and sellers have different information about the quality of a good or the riskiness of a situation, and this asymmetric information results in failure to complete transactions that would have been possible if both sides had the same information.

tit-for-tat strategy

a strategy in which a player in a repeated game takes the same action that his or her opponent did in the preceding round

dominant strategy

a strategy that is the best one for a player to follow no matter what strategy other players choose

The evidence is that welfare reform in 1996 resulted in ________ the number of people on welfare.

a substantial decrease in In the 1996 reforms, the problem of welfare dependency was tackled by simply ordering people to leave welfare. The institution of time limits was an acknowledgment of the concern that dependency was wrong and that monetary incentives for relinquishing benefits were too expensive. Instead of being offered incentives to leave the program, people are now told how long their benefits will be provided. By 1999, welfare caseloads had fallen to their lowest point in three decades.

marginal revenue (MR)

additional revenue the firm receives from the sale of each unit

The evidence on the impact of spending on K-12 education outcomes suggests that, ceteris paribus, the

amount of money a school district spends has no consistent positive or negative impact on outcome.

Barter economy

an economy in which goods and services are exchanged (or traded) for other goods and services, without the use of money

In the long run, rent control has ________ impact because, over time, supply and demand become ________ elastic.

an increasing; more In the short run, supply and demand for apartments is inelastic. Rent control lowers rent without much displacement of renters. In the long run, supply and demand for apartments gets more elastic and the negative consequences become more pronounced.

world trade organization (WTO)

an international organization designed to monitor and enforce trade agreements, while also promoting free trade

increases; decreases

an open market purchase --- money supply, while an open market sale --- it

The large increase in the labor force participation rate is ________ source of growth.

an unduplicatable

Banks with excellent credit can borrow ________ from the Federal Reserve.

an unlimited amount

There is a "moral hazard" with having health insurance affecting decisions about whether or not to exercise because

any medical issue is covered even if exercising could have reduced or eliminated the outcome. Another area of inefficiency with health care insurance in particular comes in the form of moral hazard. People who have insurance consume more health care. This is a problem with all forms of insurance, and the clearest example is in automobile insurance. If you drive more recklessly when you have insurance than when you do not, having insurance makes you more likely to need insurance. In the field of health care, if having insurance makes you more likely to get tested for certain diseases, or even worse, fail to exercise or eat right, then moral hazard is a problem.

Free-trade agreements

are about making trade freer than it was before and rarely about making it completely free.

The underlying reason that there are unattainable points on a production possibilities frontier is that there

are scarce resources within a fixed level of technology The points outside the production possibilities frontier are unattainable. this means that currently available resources and technology are insufficient to produce amounts greater than those illustrated on the frontier. on a graph, everything beyond the frontier is unattainable

The DRG system controls Medicare expenses by a) preventing doctors from using particular procedures. b) paying hospitals after they submit bills. c) paying hospitals on the basis of a disease or injury rather than expenses. d) paying the patient who then pays the hospital

c) paying hospitals on the basis of a disease or injury rather than expenses.

Which (if any) of the following scenarios is the result of a natural monopoly? a. Patent holders of genetically modified seeds are permitted to sue farmers who save seeds from one planting season to the next. b. Doctors in the United States are prohibited from practicing without a medical license. c. There is one train operator with service from Baltimore to Philadelphia. d. Coal is used as the primary energy in a country with abundant coal deposits.

c is the only one checked There is one train operator with service from Baltimore to Philadelphia: Railroads have large fixed costs. Economies of scale suggest that it does not make sense to lay multiple track routes to the same destination.

If you have a $2000 covered health expense, a deductible of $500, and a 20% co-pay, then you pay _____ and the insurance company pays _____. a) $1500, $500 b) $1000, $1000 c) $800, $1200 d) $700, $800

c) $800, $1200

An increase in which of the following determinants of demand will have an ambiguous (uncertain) effect on price? a) Taste b) Price of a complement c) Income d) Price of a substitute

c) Income

The Medicare Trust Fund is necessary because a) current expenses are greater than current revenues. b) current expenses are less than current revenues. c) future expenses will be greater than future revenues. d) future expenses will be less than future revenues.

c) future expenses will be greater than future revenues.

Medical care inflation is likely to be easily overstated (if you look simply at the increase in the cost of a hospital stay) because that calculation ignores a) the original costs. b) the new costs. c) quality increases. d) quality decreases.

c) quality increases.

On the Heritage Foundation's scale of "economic freedom," the least "free" country would be the one whose economic system was purely

communist

Using a poverty line of $12,500, under the current system of calculating the poverty rate, which of the following people are not considered to be in poverty and probably ought to be? a) A rurual family whose sole income earner is from a minimum wage ($10,300) posistion\ b)A rurual family whose combined income is $15,00 c) A New York City family whose combined income is $13,00 d) A retired couple whose multimillion-dollar estate yields them no income

d) A retired couple whose multimillion-dollar estate yields them no income

The most obvious pattern in poverty rates is the degree to which they are higher during a) Democratic administrations b) Wars c) Odd years d) Recessions

d) Recessions

When a satellite television company gains a subscriber there is no impact on existing subscribers. That is, there is no rivalry in the consumption for their service. This is an example of a a) purely private good. b) purely public good. c) congestible public good. d) excludable public good.

d) excludable public good.

The portion of the national debt owed to citizens of other countries is

economically important, and it has been rising in recent years.

Having an education system that lags behind that of other countries has a long-term consequence to U.S. economic growth because

education is a key component of productivity, which is key to economic growth.

The argument that the minimum wage does not significantly increase unemployment is based on

elasticity

collective action problem

exists when naturally occurring incentives encourage sufficient numbers of people to act in a way that makes everybody worse off

risk

exists when the costs or benefits of an event or choice are uncertain. Everything in life involves some uncertainty.

Between 2001 and 2003, the Federal Reserve cut interest rates 12 times. This is an example of

expansionary monetary policy.

social insurance

government programs under which people pay into a common pool and are eligible to draw on benefits under certain circumstances (prevent people from falling into transient poverty)

Use the aggregate supply-aggregate demand model to determine which will lead to higher prices.

government spending

Suppose someone who earned $100,000 per year had a marginal tax rate of 25%, but were only required to pay $10,000 in taxes. This could be true if the person:

had several children and a grandparent living in the household. Exemptions are the amount by which adjusted gross income (AGI) is reduced. It is determined by the size of your family; each person in the household counts as one. Each person over 65 counts as one more, as does each blind person. Thus, the more exemptions a household has, the lower the AGI is, so even with a 25% marginal tax rate, the household could pay significantly less than 25% on total income.

risk-averse

having a low willingness to take on situations with risk; when faced with two options with equal expected value, the one with lower risk is preferred

The prescription drug industry is characterized by products that have

high fixed costs and low marginal costs. Initial drug development involves a lot of funds devoted to research and development, which results in high fixed costs. Once the drug is approved, the manufacture and sale of the drug involve relatively low marginal costs.

You might distinguish between borrowing to rebuild roads and bridges and borrowing to increase food stamp allocations because borrowing to rebuild roads and bridges

is an investment in the infrastructure that allows for more economic activity, whereas borrowing to increase food stamp allocations is adding disposable income that will not improve future production.

Tradable allowances are like taxes in that they both: impose a quota on output. maximize surplus. are not efficient. None of these statements is true.

maximize surplus.

Any event that creates a "crisis in confidence" is likely to lead to...

lower aggregate prices

The optimal level of police protection would compare the ________ with the ________.

marginal cost of hiring an additional officer; marginal benefit of crime reduction Of key concern to economists is not necessarily whether the total amount spent on crime control exceeds the total amount saved from preventing crime, but whether we are spending the correct amount. At its heart, the problem is exactly the same as the profit-maximizing problem for a business firm. The mere fact that a firm's revenues exceed its costs does not mean that profit is as high as it could be. That means we are less interested in the costs and benefits of capturing, trying, and incarcerating the "average" criminal than we are in incarcerating the "marginal" criminal.

Which is more important in determining the impact of the tax system on economic​ behavior?

marginal tax rate

If a consumer purchases more of a good as the price falls, we can assume that the consumer's 1. marginal utility has also fallen. 2. marginal utility has risen. 3. total utility has also fallen. 4. preferences have changed.

marginal utility has also fallen.

If you drive on a rural stretch of highway and come upon an intersection in which there are two gas stations, and you know them to be the only ones for 100 miles, they are

oligopolists.

Poverty is a(n) _______ concept in that a person with a particular level of income in the United States may be considered in poverty, while a person with that same income in Somalia may be in the upper quarter of income earners.

relative What does being "poor" really mean? Are you poor only if you are on the verge of starvation? Poverty is a relative concept in that a person with that income in the United States may be considered in poverty, while a person with that same income in Somalia may be in the upper quarter of income earners.

The primary motivation for the purchase of any insurance is grounded in the fact that most people are

risk averse. The primary motivation for the purchase of any insurance lies in the fact that most people are risk averse: They prefer to be guaranteed a particular outcome, even when the odds are that for the average person, over an average lifetime, insurance is more expensive than the problem they are insuring themselves against. For risk-averse people, it is perfectly rational to buy insurance even when the average expense they would face is less than the cost of the insurance.

Which of the following would most likely have an inelastic demand? The demand curve for this good would be relatively

salt steep The demand curve for a good you need is going to be rather steep. If the good is a luxury item, you are more likely to eliminate it from your budget if it becomes overly expensive. When there are many substitutes that all serve nearly as well as the good in question, demand is likely to be more elastic (flatter), because price increases induce changes to other goods.

To an economist, the correct distribution of money among police, the justice system, and prisons is one that

sets the amount each gets so that no other element could better use (in terms of crime reduction) the marginal dollar. Marginal analysis is used to determine that the right amount of money is spent in an effective way to deter or reduce crime rates. The allocation between police, justice, and incarceration should depend on how effective the marginal dollar is in combating crime in each category. If the optimal distribution is accomplished, the marginal benefit of a dollar should be equal in the three areas.

the price of oil increases

supply-side shock

income mobility

the ability to improve one's economic circumstances over time In absolute terms, we can look at whether a person's income is higher than her parents'. In relative terms, we can look at whether a person's income places her higher up in the income distribution than her parents.

Comparative Advantage

the ability to produce a good at a lower opportunity cost of the resources used

Absolute advantage

the ability to produce a good better, faster, or more quickly than a competitor

total revenue

the amount that a firm receives from the sale of goods and services; calculated as the quantity sold multiplied by the price paid for each unit An increase in price affects total revenue in two ways: 1. It causes a quantity effect, or a decrease in total revenue that results from selling fewer units of the good. 2. It causes a price effect, or an increase in total revenue that results from receiving a higher price for each unit sold.

expected value

the average of each possible outcome of a future event, weighted by its probability of occurring. Expected value=EV=(P1×S1)+(P2×S2)+...+(Pn×Sn)

Federal Reserve System

the central bank of the US. its chief function is to control the money supply (and interest rate)

rival in consumption (rival)

the characteristic of a good for which one person's consumption prevents or decreases others' ability to consume it

Elasticity

the condition of demand when the percentage change in quantity is larger than the percentage change in price

When justifying the wisdom of tobacco taxes, economists focus almost entirely on

the costs to nonsmokers (like secondhand smoke) The externalities that result from the use of tobacco are the illnesses and deaths associated with secondhand smoke and the increased health care expenditures incurred by people who do not smoke but must pay increased premiums for health insurance to cover the expenses of smokers. It is not the concern of most economists that (knowledgeable) smokers hurt themselves by smoking. It is the concern of economists that those smokers tend to pass on costs to others.

profit

the difference between total revenue and total cost

When firms add workers and become more efficient, they are benefiting from

the division of labor Division of labor enables a small increase in labor to result in a dramatic increase in output.

The required reserve ratio

the fraction of deposits that must be held on reserve at the Fed or in the bank's vault

health care

the goods and services provided by doctors, hospitals, pharmacies, and therapists

The design of the U.S. federal income tax system is progressive

the government charges lower tax rates to those with lower incomes.

The argument that employers would actually not lose money if the minimum wage were raised is based on

the idea that workers would be more productive if they felt they were adequately compensated. If higher pay translates into workers who are happier and who do more work per hour, it may be the case that some if not all of the impact of forcing wages to rise will be mitigated. In this way the minimum-wage increase may pay for itself.

credit constraint

the inability to get a loan even though a person expects to be able to repay the loan plus interest.

The decrease in SAT scores is occurring as a result of

the increasing proportion of students from low socioeconomic groups taking the SAT.

In a diagram of perfect competition, the marginal revenue line moves up and down when there is exit and entry, respectively, because...

the market supply for the good rises and falls when there is entry and exit, respectively

poverty rate

the percentage of the population that falls below the absolute poverty line

Inflation is measured using ____ in a price index.

the percentage year-to-year increase

human capital

the set of skills, knowledge, experience, and talent that determine people's productivity as workers. Workers have different amounts and types of human capital that allow them to be more or less productive at different tasks and therefore earn more or less money. You acquire human capital by getting a good education, being healthy, and gaining experience in jobs. You also benefit from watching and learning from your peers, your neighbors, and others around you. You probably know (or know of) well-educated and successful professionals who came from humble backgrounds. But evidence shows that children in poor communities typically have reduced opportunities to acquire human capital, for many reasons. Think about all of the ways your skills and abilities are influenced by the environment in which you grew up. How good were the schools in your neighborhood? Did you have regular check-ups with a doctor? Was a family member able to help you with your homework? Were you actively encouraged to go to college? Can you afford to take unpaid internships to learn new skills rather than working during the summer?

human capital

the set of skills, knowledge, experience, and talent that determine the productivity of workers Human capital also allows us to understand that what we call the labor market is actually a collection of many different, interconnected labor markets for workers with similar skills. The more similar the skills required to do any two jobs, the more workers and employers can substitute one skill set for the other, and the more connected the two labor markets will be. For example, many farm laborers in California may have the human capital required to work in the hotel industry instead. When labor is substitutable between two markets, we should expect the two markets to pay the same or similar equilibrium wage.

those seeking work/ all workers times 100

unemployment rate

A 6 percent decrease in price results in a 6 percent increase in quantity demanded. In this case, demand is

unitary elastic. Economists say that demand is elastic when the percentage change in quantity is larger than the percentage change in price and inelastic when the percentage change in quantity is smaller than the percentage change in price. Looking at the formula, if the computed elasticity is greater than 1, then demand is elastic; when it is less than 1, then demand is inelastic. When the percentage change in quantity is the same as the percentage change in price (the computed elasticity is exactly 1), demand is unitary elastic.

Price supports in the United States have

utilized a wide variety of means to raise prices and reduce output.

Price supports in the United States have

utilized a wide variety of means to raise prices and reduce output. Price supports for agriculture grew out of the depression of the 1930s, when prices fell rapidly, leaving many farmers bankrupt. Politicians put price floors on many products, mostly dairy. The government stored a lot of products and in the middle of the 1982 recession, there was enough dairy and cheese to give to many poor people. In the middle 1980s, the Reagan administration tried to reduce the cost of subsidies by limiting supply and giving away government excess stocks of grain and dairy products. Farmers were offered payments not to farm. The 1996 Freedom to Farm Act began the long phase of practices leading away from agricultural supports. Current policy restricts output instead of buying up excess produce. Many thousands of farmers are paid billions of dollars not to farm many millions of acres. By 2002, the United States was supposed to exist without supports for milk or grain, but supports continued in 2005.

Whether marginal revenue is constant or decreasing depends on...

whether the firm faces competition

How academics look at the evidence on how much women make relative to men is an issue that very much depends on

whether you consider some variables as "choices" or as "further evidence of discrimination."

non-tariff barriers

barriers to trade that result from regulatory actions`

If you deposit $500 in a savings account that offers 3 percent annual interest, compounded annually, and you don't withdraw any money, how much money should you expect to have in the account at the end of three years?

$500 x (1.03) x (1.03) x (1.03) = $500 x (1.03)3 = $546.36. [FV]

In a simple 300 million-person world of all four-person families, if the poverty line is $20,000 and half of the 10 million families (with 40 million poor people) earn $17,500 and the other half earn $15,000, then the poverty gap is

$37.5 billion (= 5 million * $2,500 + 5 million * $5,000). The poverty gap is the total amount of money that would have to be transferred to households below the poverty line for them to get out of poverty. In a simple 300 million-person world of all four-person families, if the poverty line is $20,000 and half of the 10 million families, or 5 million families, (with 40 million poor people) earn $17,500 and the other 5 million families earn $15,000, then the poverty gap is $37.5 billion (= 5 million * ($20,000 - $17,500) + 5 million * ($20,000 - $15,000)).

Unlike a firm in a competitive market, a monopolist's marginal revenue is not equal to price. In a competitive market, a firm can sell as much as it wants without changing the market price. The additional revenue brought in by one unit is always simply the price of that unit. Thus, in a competitive market, marginal revenue is equal to price. In a market dominated by a monopoly, however, the monopoly's choice to produce an additional unit drives down the market price and thus drives down marginal revenue. Because of this effect, producing an additional unit of output has two separate effects on a monopolist's total revenue:

1. Quantity effect: The increase in total revenue due to the money brought in by the sale of additional units. 2. Price effect: The decrease in total revenue that occurs because the increase in quantity requires a lower price.

9. The estimated date of fund exhaustion of the Medicare Trust Fund is so dependent on assumptions made with regard to economic growth, interest rates, and political changes because 1. the higher the projected growth rate in wages, the more projected tax revenues for the fund. 2. the higher the projected real interest rate, the better return on the trust fund. 3. the higher the projected real interest rate, the lower return on the trust fund. 4. the greater numbers of children will produce more tax revenues for the fund. 5. the greater numbers of children will produce greater Medicare expenses. 6. the higher the projected fertility rate, the greater the projected tax revenues for the fund. 7. the higher the projected fertility rate, the greater Medicare expenses. 8. the longer projected life expectancy would be anticipated to create greater Medicare expenses. 9. the longer projected life expectancy would be anticipated to create more tax revenues for the fund.

1. the higher the projected growth rate in wages, the more projected tax revenues for the fund. 2. the higher the projected real interest rate, the better return on the trust fund. 4. the greater numbers of children will produce more tax revenues for the fund. 6. the higher the projected fertility rate, the greater the projected tax revenues for the fund. 8. the longer projected life expectancy would be anticipated to create greater Medicare expenses.

The last time the minimum wage alone was sufficient to keep a family of three above the poverty line was

1979

When was the last time the minimum wage alone was sufficient to keep a family of three above the poverty line?

1979

The last time the minimum wage alone was sufficient to keep a family of three above the poverty line was

1985

The last time the minimum wage alone was sufficient to keep a family of three above the poverty line was

1985. As you can see in the figure below, the minimum wage was always sufficient to keep an individual above the poverty line. It has been less successful for families. Since 1985 the minimum wage has been insufficient to maintain a one-earner, minimum-wage family (constituting more than an individual) above the poverty line.

dominant strategy

A strategy that is best for a player to follow no matter what strategy the other players choose

A student makes the following​ argument: ​"When a market is in​ equilibrium, there is no consumer surplus LOADING... . We know this because in​ equilibrium, the market price is equal to the price consumers are willing to pay for the​ good." Briefly explain whether you agree with the​ student's argument. A. The student is incorrect because the price consumers are willing to pay and the market price are only equal for the last unit consumed. B. The student is correct because the highest price consumers are willing to pay and the price consumers actually pay are equal. C. The student is incorrect because the market price is greater than marginal cost. D. The student is incorrect because consumer surplus equals the price consumers are willing to pay for a​ good, which is a positive amount. E. The student is correct because the highest price consumers are willing to pay and the lowest price firms are willing to accept are equal.

A. The student is incorrect because the price consumers are willing to pay and the market price are only equal for the last unit consumed

What externality does obtaining human food pose for the​ bear? When campers and hikers leave human food for bears to​ consume, that poses A. a negative externality for the bears because the taste of human food often causes the bears to be aggressive and since they pose a threat to human​ safety, they are eventually removed from the park or even destroyed .B. a positive externality for the bears because they enjoy consuming human food. C. a negative externality for the bears because they dislike human food. D. no externality for the bears because they do not consume human food.

A. a negative externality for the bears because the taste of human food often causes the bears to be aggressive and since they pose a threat to human​ safety, they are eventually removed from the park or even destroyed

Land use provides many economic and social​ benefits, but often comes at a substantial cost to the environment. Although most economic costs are figured into land use​ decisions, most environmental externalities are not. These environmental​ "externalities" cause a divergence between private and social costs for some land​ uses, leading to an inefficient land allocation. For​ example, developers may not bear all the environmental and infrastructural costs generated by their projects. Such​ "market failures" provide a justification for private conservation efforts and public land use planning and regulation. By market​ failure, the author means A. a situation in which the market fails to produce the efficient level of output. B. a situation in which a benefitbenefit is present that affects someone who is not directly involved in the consumptionconsumption of a good or service. C. the tendency for a common resource to be underused. D. benefiting from a good without paying for it. E. a situation that occurs when one​ person's consumption of a unit of a good means no one else can consume it.

A. a situation in which the market fails to produce the efficient level of output.

Assume that the hourly price for the services of tarot card readers has risen and sales of these services have also risen. One can conclude that A. the demand for tarot card readers has increased. B. the law of demand has been violated. C. tarot card readers are deliberately charging high prices because they provide services for superstitious clients. D. the number of tarot card readers has increased.

A. the demand for tarot card readers has increased

A landlord who intends to abide by the rent control law A. will be worse off because he will be receiving less rent. .B. will be worse off because there will be a shortage of apartments. C. will be better off because there will be a shortage of apartments. D. will be better off because he will be receiving more rent. E. both a and b.

A. will be worse off because he will be receiving less rent.

Why do some consumers tend to favor price controls while others tend to oppose​ them? A. Price floors generate shortages.​ Consequently, the consumers who obtain the product at a lower price​ win, but other consumers will lose because they would like to purchase the product but are unable to because of a shortage. B. Price ceilings generate shortages.​ Consequently, the consumers who obtain the product at a lower price​ win, but other consumers will lose because they would like to purchase the product but are unable to because of a shortage. C. Price ceilings generate surpluses.​ Consequently, consumers who obtain the product at a lower price​ win, but consumers who obtain the product at a higher price lose. D. Price ceilings generate shortages.​ Consequently, consumers surplus​ increases, but producer surplus decreases. E. None of the above.

B. Price ceilings generate shortages.​ Consequently, the consumers who obtain the product at a lower price​ win, but other consumers will lose because they would like to purchase the product but are unable to because of a shortage.

Positive technological change in the production of LCD televisions caused the price of LCD televisions to fall. Holding everything else​ constant, how would this affect the market for Bluminus−ray players​ (a complement to LCD​ televisions)? A. The demand for Bluminus−ray players would increase and the equilibrium price of Bluminus−ray players would decrease. B. The demand for Bluminus−ray players would increase and the equilibrium price of Bluminus−ray players would increase. C. The demand for Bluminus−ray players would decrease because consumers could afford to buy fewer LCD televisions and Bluminus−ray players. D. The supply of Bluminus−ray players would increase and the equilibrium price of Bluminus−ray players would decrease.

B. The demand for Bluminus−ray players would increase and the equilibrium price of Bluminus−ray players would increase.

What externality does the​ bear's obtaining human food pose for future campers and​ hikers? When campers and hikers leave human food for bears to​ consume, that poses A. a negative externality for the campers and hikers who leave food unattended because bears eat up their supplies. B. a negative externality for the future campers and hikers since they may be attacked by aggressive bears who are searching for more human food. C. a negative externality for the future campers and hikers because aggressive bears may be destroyed. D. no externality because there is a very small chance that they will have any encounter with a bear in the park.

B. a negative externality for the future campers and hikers since they may be attacked by aggressive bears who are searching for more human food.

Jeff and James have different opinions regarding the amount the U.S. government should spend on national defense. Jeff believes that more should be spent in order to ensure that the​ country's enemies will not challenge the United States militarily. James believes that a lot of defense spending is wasted on overpriced military equipment and that the United States​ "should not be the​ world's policeman." Suppose that instead of the U.S. Congress and the president having the authority to determine the amount the military has to​ spend, this authority is turned over to the private sector. A privately owned firm conducts a survey to determine the willingness of people to pay for national defense. In response to the​ survey, both Jeff and James state that they are not willing to pay anything for national defense. If Jeff and James made this response they would A. be free riders because private provision of national defense suffers from excludability. B. be free riders because they would still receive the same amount of protection as everyone else whether or not they pay. C. not be free riders because they would still receive the same amount of protection as everyone else whether or not they pay. D. not be free riders because private provision of national defense suffers from nonexcludability.

B. be free riders because they would still receive the same amount of protection as everyone else whether or not they pay.

Why is a typical person likely to gather more information when buying a new car than when voting for a member of​ Congress? A. because a​ person's preferences are more likely to be met with little effort in the political sphere but this is not the case when buying a car in the private marketplace B. because buying a new car affects a person more immediately and personally compared to voting for a member of Congress. In the​ latter, a​ person's vote is only one of many voters and​ therefore, not likely to have a large impact on the outcome. C. because it is less costly to acquire information about consumer items than it is about political candidates D. because the effects of buying a car are long term while a member of Congress has e relatively short tenure

B. because buying a new car affects a person more immediately and personally compared to voting for a member of Congress. In the​ latter, a​ person's vote is only one of many voters and​ therefore, not likely to have a large impact on the outcome.

An article in the Wall Street Journal in early 2001 noted two developments in the market for laser eye surgery. The first development concerned side effects from the​ surgery, including blurred vision. The second development was that the companies renting eyeminus−surgery machinery to doctors had reduced their charges. In the market for laser eye​ surgeries, these two developments A. decreased demand and decreased​ supply, resulting in a decrease in the equilibrium quantity and an increase in the equilibrium price of laser eye surgeries. B. decreased demand and increased​ supply, resulting in a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of laser eye surgeries. C. decreased demand and increased supply resulting in an increase in both the equilibrium quantity and the equilibrium price of laser eye surgeries. D. decreased demand and increased​ supply, resulting in a decrease in both the equilibrium price and the equilibrium quantity of laser eye surgeries.

B. decreased demand and increased​ supply, resulting in a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of laser eye surgeries.

An individual producer or a consumer​ "internalizes an​ externality" when A. they keep knowledge of the externalities private to them. B. in their own decisions they take into account the external effects of their actions. C. they ignore the externalities created by their actions. D. they lobby against any government action related to the externalities caused by their actions.

B. in their own decisions they take into account the external effects of their actions.

The author suggests the market for converting land to urban uses results in​ "inefficient land use​ allocation" because A. the marginal social benefit from consuming land converted to urban uses is greater than the marginal private benefit. B. the marginal social cost of converting land to urban uses is greater than the marginal private cost. .C. the marginal private cost of converting land to urban uses is lessless than the marginal private benefit from consuming land converted to urban uses. D. the marginal social cost of converting land to urban uses is greatergreater than the marginal social benefit from consuming land converted to urban uses. E. the marginal privateprivate cost of converting land to urban uses is equal to the marginal privateprivate benefit from consuming land converted to urban uses.

B. the marginal social cost of converting land to urban uses is greater than the marginal private cost.

How is free riding related to the tendency of a public good to create market​ failure? Free riding results in A. the market producing a quantity of public goods that is inefficiently high because they are nonexcludable. B. the market producing a quantity of public goods that is inefficiently low because they are nonexcludable. C. the market producing a quantity of public goods that is inefficiently low because they are nonrival. D. the market producing a quantity of public goods that is efficient because they are nonexcludable and nonrival. E. the government providing a quantity of public goods that is inefficient because they are nonexcludable and nonrival.

B. the market producing a quantity of public goods that is inefficiently low because they are nonexcludable.

One important difference between the political process and the market process is that A. the political process results in collective actions that maximize economic surplus while the market process may lead to efficiency losses. B. the political process results in collective actions in which everyone is obliged to participate while in the market process individuals are free to participate or not. C. the political process results in collective actions in which everyone is made better off while the market process results in actions that favor some groups only. D. the political process results in collective actions in which not everyone is required to participate while in the market process individuals are obliged to participate.

B. the political process results in collective actions in which everyone is obliged to participate while in the market process individuals are free to participate or not.

Economic efficiency is defined as a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of​ production, and in which A. economic surplus is minimized. B. the sum of consumer surplus and producer surplus is at a maximum. C. the sum of consumer surplus and producer surplus is minimized. D. the sum of the benefits to firms is equal to the sum of the benefits to consumers.

B. the sum of consumer surplus and producer surplus is at a maximum.

The village elders were trying to prevent the economic problem of A. free riding. B. the tragedy of the commons. ].C. a positive externality. D. the overuse of a public good.

B. the tragedy of the commons

A producer or a consumer will internalize an externality because A. they face government regulation. B. they have an incentive to consider the external effects of their actions due to taxes that are imposed or subsidies that they receive. C. they are compelled by law. D. they are driven by their individual moral codes

B. they have an incentive to consider the external effects of their actions due to taxes that are imposed or subsidies that they receive.

The presence of a positive externality in a market leads to​ ________. A. a deadweight loss B. underproduction of the good C. a fall in consumer surplus D. overproduction of the good

B. underproduction of the good

The solution of the village elders to outcast those who committed the breach of trust by fishing in the pond when it was forbidden is an example of A. a​ "Pigouvian tax" which was not likely to be effective because it was very difficult to design the proper tax rate. B. using community norms to solve the problem. The solution would most likely be effective because it was used in a small community. C. using a​ "cap-and-trade" system which could not be very effective because it was too complex for the villagers to understand. D. assigning property rights to solve the problem which would have been effective given that it was a small village.

B. using community norms to solve the problem. The solution would most likely be effective because it was used in a small community

A news story from 2015 about the oil market​ stated, "the global glut of crude that has hit​ [oil] prices is starting to​ shrink." . In referring to a​ "global glut of​ crude," the article describes the result of a significant A. increase in demand​ for, relative to the supply​ of, crude oil. B. increase in demand​ for, and the supply​ of, crude oil. C. increase in supply​ of, relative to the demand​ for, crude oil. D. decrease in supply​ of, relative to the demand​ for, crude oil.

C. increase in supply​ of, relative to the demand​ for, crude oil.

The same article notes​ that: ​"Rent-seeking is a very useful concept to have around when thinking about​ policy." Rent seeking is A. finding the least cost areas in which to locate. B. running advertising in order to change public opinion. C. lobbying or bribing politicians to gain favorable legislation or regulations. .D. the use of government action to make everyone better off.

C. lobbying or bribing politicians to gain favorable legislation or regulations.

​"Rent controls, government farm​ programs, and other price ceilings and price floors are​ bad." This is an example of a A. normative statement. The statement is concerned with what is. B. positive statement. The statement is concerned with what should be. C. normative statement. The statement is concerned with what should be. D. positive statement. The statement is concerned with what is.

C. normative statement. The statement is concerned with what should be.

demand and supply curves for illegal

inelastic

Which of the following is an example of rent seeking​ behavior? A. Amazon introduced the Kindle to compete with​ Sony's Digital Reader. Amazon was motivated by the desire to earn profits from the Kindle but also increased the choice of digital music players available to consumers. B. Apple earned large profits from the development and sale of the iPhone. C. Recent increases in cigarette taxes faced little opposition from​ voters, many of whom were rationally ignorant with respect to the tax. D. U.S. sugar firms convinced Congress to impose a quota on imports of sugar. .

D. U.S. sugar firms convinced Congress to impose a quota on imports of sugar. .

Economic efficiency is A. a government outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum. B. a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is not at a maximum. C. a market outcome in which the marginal benefit to consumers of the last unit produced is greater than its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum. D. a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

D. a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

A corrective subsidy induces the​ ________ to the socially optimal level. A. producers of a positive externality to reduce the quantity produced B. producers of a negative externality to increase the quantity produced C. consumers of a negative externality to increase the quantity consumed D. consumers of a positive externality to increase the quantity consumed

D. consumers of a positive externality to increase the quantity consumed

Rent seeking can be useful in understanding why government policies A. often result in very inexpensive outcomes. B. often result in unfair tax policies that punish the most productive people. C. infringe upon our civil rights and right to privacy. D. sometimes produce results that are inefficient and harmful to the people.

D. sometimes produce results that are inefficient and harmful to the people

A marginal tax rate is A. the fraction of income that must be paid in​ taxes, while the average tax rate is the total tax paid divided by total income. B. the total tax​ paid, while the average tax rate is the total tax paid divided by total income. C. a federal ​tax, while the average tax rate is a state or local tax D. the fraction of each additional dollar of income that must be paid in​ taxes, while the average tax rate is the total tax paid divided by total income. E. a tax for which people with lower incomes pay a higher percentage of their income in tax than do people with higher​ incomes, while the average tax is a tax for which people with lower incomes pay a lower percentage of their income in tax than do people with higher incomes.

D. the fraction of each additional dollar of income that must be paid in​ taxes, while the average tax rate is the total tax paid divided by total income.

The area​ ________ the market supply curve and​ ________ the market price is equal to the total amount of producer surplus in a market. A. ​below; below B. ​below; above C. ​above; above D. ​above; below

D. ​above; below

In a simple 300 million-person world of all four-person families, if the poverty line is $12,500 and half of the 10 million families (with 40 million poor people) earn $10,000 and the other half earn $7,500, then the poverty gap is a) $125 billion (=10 million x 12,500) b) $250 billion (=20 million x $12,500) c) $150 billion (=20 million x $2,500 + 20 million x 5,000) d) $37.5 billion (=5 million x $2,500 +5 million x 5,000)

D. $37.5 billion (=5 million x $2,500 +5 million x 5,000)

Marginal cost is A. the additional benefit from consuming one more unit. B. the difference between the lowest price a firm would be willing to accept and the price it actually receives. C. the cost of producing output. D. a legally determined minimum price that sellers may charge. E. the additional cost of producing one more unit.

E. the additional cost of producing one more unit.

If the supply and demand curves cross at a price of $2, at any price above that there will be a) an equilibrium. b) a surplus. c) a shortage. d) a crisis.

b) a surplus.

Initial public offering (IPO)

Newly issued shares that are sold on the primary market

maturity is less than 1 year

Treasury bills maturity rate

The increase in technology used to produce a good would a) move its supply curve to the right. b) move its supply curve to the left. c) cause a movement along the supply curve to a (higher price, higher quantity) point. d) cause a movement along the supply curve to a (lower price, lower quantity) point.

a) move its supply curve to the right.

Use the aggregate supply-aggregate demand model to determine which will lead to higher aggregate output.

a cut in interest rates

law of demand

a fundamental characteristic of demand which states that, all else equal (ceteris paribus), quantity demanded rises as price falls

law of supply

a fundamental characteristic of supply which states that, all else equal, quantity supplied rises as price rises

Prisoner's Dilemma

a game of strategy in which people make rational choices that lead to a less-than-ideal result for all.

prisoners' dilemma

a game of strategy in which two people make rational choices that lead to a less-than-ideal result for both

repeated game

a game that is played more than once

normal good

a good for which consumers' demand increases when their income increases.

complementary good

a good's demand is increased when the price of another good is decreased

production function

a graph that shows how many resources are needed to produce various amounts of output

cost function

a graph that shows how much various amounts of production cost

income elasticity of demand

a measure of how much the demand for a good changes in response to a change in consumers' incomes Income elasticity of demand = % change in quantity demanded/% change in income If the good is a necessity, income elasticity of demand will be positive and less than 1. If the good is a luxury, income elasticity will be positive and greater than 1. inferior goods --> negative

M1

a measure of the money supply that includes currency in circulation, checking account balances, and traveler's checks, outside the banking system

M2

a measure of the money supply that includes everything in M1, plus savings account balances, money market mutual fund balances, and small certificates of deposit

absolute poverty line

a measure that defines poverty as income below a certain amount, fixed at a given point in time (usually set based on the cost of certain essential goods)

Part of the Patient Protection and Affordable Care Act involved a tax on indoor tanning that tanning salons are required to collect from tanners and send to the federal government. Which of the following would be the predicted result?

a movement to the left in the demand for tanning Since the tax is collected from tanners, it would affect the demand side of the market. Tanning is now more costly, so demand shifts to the left (decreases). *think about who it affects

cartel

a number of firms who collude to make collective production decisions about quantities or prices. (the key is to remember games will be repeated many times....) interests in long term profits disuade individual firms from chasing short term profits.

Medicaid is 1. a private health insurance program for government employees. 2. a private health insurance program for the poor. 3. a public health insurance program for the poor. 4. a public health insurance program for the elderly.

a private health insurance program for government employees.

free-rider problem

a problem that occurs when the nonexcludability of a public good leads to undersupply

tradable allowance

a production or consumption quota that can be bought and sold

in-kind transfers

a program that provides specific goods or services, rather than cash, directly to needy recipients

price control

a regulation that sets a maximum or minimum legal price for a particular good. The direct effect of a price control is to hold the price of a good up or down when the market shifts, thus preventing the market from reaching a new equilibrium. [includes price ceilings and floors]

subsidy

a requirement that the government pay an extra amount to producers or consumers of a good

Patient Protection and Affordable care act

a set of health care reforms enacted in the US in 2014. (the Act was passed in 2010, but key provisions started to be implemented in 2014)

Without an increase in price, an increase in demand will lead to...

a shortage

There is _____ degree of racial and ethnic distinction in U.S. rates of poverty.

a significant

The fact that the demand for eggs is inelastic should not surprise you because a) they are a very cheap food. b) the demand for nearly all food products are inelastic. c) the supply of eggs is inelastic. d) they are so expensive.

a) they are a very cheap food.

If the supply and demand curves cross at a price of $5, at any price above that, there will be

a surplus. At any price above the equilibrium price, where demand and supply intersect, there will be a surplus of the good or service.

nationalized health care

a system of health care in which a government provides health care services free of charge to patients and pays for the resources needed to provide those services through income taxes; also called specialized medicine

Suppose $100 billion was going to be devoted to tax cuts to promote energy-saving changes to behavior. Someone who cared about the poor and energy savings would advocate for

a tax credit, because it is better than a tax deduction for the poor.

Suppose that you are an economic-policy advisor. Environmental groups are pressuring you to implement the highest-possible carbon tax while industry groups are pressuring you to implement no carbon tax at all. Both argue that their position makes more sense economically. In fact, the most efficient tax level is: a tax equal to the external cost. no tax at all. a tax equal to the social cost. the highest possible tax.

a tax equal to the external cost. Note that the social cost includes the private cost already paid by the industry groups.

another common response to monopolies (other than controlling the price with a price ceiling), is to split an industry "vertically" and introduce competition into parts of it

a vertical split divides the original firm into companies that operate at different points in the production process (horizontal split would divide monopolies into multiple companies that compete to sell the same product).

surplus

a way of measuring who benefits from a transaction and by how much

Imagine that the owner of a bagel shop visits it only once a day. According to company policy, employees are supposed to pay for all the bagels they eat. Moral hazard is likely to be a problem in this situation and to prevent it the owner could: a. keep track of the bagel supply versus receipts. b. install surveillance equipment. c. spend more time in the shop. d. provide each employee with a free bagel every morning. e. stop by the shop at noon every day.

a, b, and c are checked d and e are unchecked

There is a town with exactly 1,000 residents. In the town, 75% of the residents make healthy choices and 25% of the residents consistently make unhealthy choices, but the health insurance company in town cannot tell who is healthy and who is unhealthy. A healthy person has an average of $600 in medical expenses each year and is willing to pay $800 for insurance. An unhealthy person has an average of $1,600 in medical expenses each year and is willing to pay $2,000 for insurance. The health insurance provider can offer insurance at only one price. a. In equilibrium, the price of insurance will be at least b. In equilibrium, who will buy insurance?

a. $1,600 b. Unhealthy residents The health insurance provider can offer only one price. If it tries to cover the costs of both the unhealthy and the healthy individuals, its costs on average will be (0.75 × 600) + (0.25 × 1,600) = $850. Because healthy individuals are only willing to pay up to $800, healthy individuals would not purchase this insurance. Only unhealthy individuals would purchase insurance. In this case, the insurance provider needs to cover the costs of the unhealthy individuals, which are $1,600. Thus, insurance will cost at least $1,600.

Jamie is saving for a trip to Europe. She has an existing savings account that earns 2 percent annual interest and has a current balance of $4,500. Jamie doesn't want to use her current savings for vacation, so she decides to borrow the $1,500 she needs for travel expenses. She will repay the loan in exactly one year. The annual interest rate is 5 percent. a. If Jamie were to withdraw the $1,500 from her savings account to finance the trip, how much interest would she forgo? b. If Jamie borrows the $1,500, how much will she pay in interest? c. How much does the trip cost her if she borrows rather than dip into her savings?

a. $30 b. $75 c. Principle plus net interest = $1,500 + $75 - $30 = $1,545.

There are three major ferry lines operating on the East River, each generating 100 units of pollution per year. The ferry lines face the costs of reducing pollution that are shown in the table below. Ferry line. Cost of reducing pollution by 1 unit A. $1,500 B. $2,500 C. $1,800 a. The government has decided it wants to reduce pollution levels by 50 percent and requires each ferry line to cut its pollution in half. Determine the cost of pollution reduction for each ferry line. Ferry line. Cost of pollution reduction The total cost of pollution reduction is: .b. Suppose the government decides to give each ferry line 50 tradable permits. Each permit allows a ferry line to produce one unit of pollution. Ferry line ______ will buy _____ permits from ferry line ________ c. Under this system of tradable permits, the total cost of pollution reduction is:

a. Each ferry line must reduce pollution by 50 units. For ferry line A, this will cost $1,500(50) = $75,000. For ferry line B, this will cost $2,500(50) = $125,000. For ferry line C, this will cost $1,800(50) = $90,000.The total cost of the pollution reduction is therefore $290,000. b. Ferry line B will buy 50 permits from ferry line A.The ferry lines face different costs in pollution reduction, so there is room for trade. Ferry line B faces the highest costs to reduce pollution, so this ferry line values the permits the most. It is willing to pay up to $2,500 for each permit. Ferry line B will buy 50 permits from ferry line A. Ferry line B will buy from ferry line A instead of ferry line C because ferry line A values the permits least (its costs of reducing pollution are the lowest), and it will sell at a lower price than would ferry line C. Also, ferry line A sells to ferry line B instead of to ferry line C because ferry line B values the permits the most, and it will offer a price higher than ferry line C would offer. c. Ferry line A will reduce pollution by 100 units (because it now has zero permits) at a cost of $1,500(100) = $150,000.Ferry line B will face no abatement costs because it has 100 permits. Ferry line C will reduce pollution by 50 units at a cost of $1,800(50) = $90,000. The total cost of pollution reduction under this system is $240,000.

In each of the following examples, name the factor that affects demand and describe its impact on your demand for a new cell phone. a. You hear a rumor that a new and improved model of the phone you want is coming out next year. consumer preferences income price of a related good expectations Your demand will b. Your grandparents give you $500. expectations consumer preferences income price of a related good Your demand will c. A cellular network announces a holiday sale on a data package that includes the purchase of a new smartphone. expectations income consumer preferences price of a related good Your demand will d. A friend tells you how great his new phone is and suggests that you get one, too. income expectations price of a related good consumer preferences Your demand will

a. Expectations. Your current demand will decrease in the present as you postpone purchasing under the expectation that a new model will be released next year. b. Income. Your purchasing power has increased due to the money given to you by your grandparents. Your demand will increase. c. Price of a Related Good. When the price of a data package (a complementary good) goes down due to the sale, demand for smartphones increases. d. Consumer Preferences. Your friend influences your interest in purchasing a cell phone. Your friend's enjoyment of his phone and suggestion that you also purchase a phone increases your demand.

Classify the following as fixed or variable costs: fuel shipping charges payments for raw materials real estate taxes salaries insurance premiums wage payments sales taxes rental payments on leased office machinery

a. Fuel: Variable costs b. Shipping charges: Variable costs c. Payments for raw materials: Variable costs d. Real estate taxes: Fixed costs e. Salaries: Fixed costs f. Insurance premiums: Fixed costs g. Wage payments: Variable costs h. Sales taxes: Variable costs i. Rental payments on leased office machinery: Fixed costs

Given what you know about the relationship between corn and beef and corn and soybeans and corn and gasoline, determine the impact of an increase in the price of corn (due to a new insect that eats the roots out of corn) on soybeans, beef, and gasoline. Hint: Corn and soybeans are alternative inputs to livestock feed. They are frequently used as animal feed, thus the relationship between corn, soybeans, and beef prices. Corn is used as an input in the production of ethanol. a. If corn prices rise, it would ____ the _______ of soybeans, causing the price of soybeans to ______ . b. If corn prices rise, it would _______ the ______ of beef, causing the price of beef to ______. c. If corn prices rise, it would ________ the ______ of ethanol, causing the price of gasoline to ______ .

a. If corn prices rise, this would decrease the supply of soybeans, causing the price of soybeans to increase. b. If corn prices rise, this would decrease the supply of beef, causing the price of beef to increase. c. If corn prices rise, this would decrease the supply of ethanol, causing the price of gasoline to increase.

Answer the following questions based on the tables below. Buyer Willingness to pay for one unit A. $35 B. $33 C. $27 D. $22 E. $21 F. $13 G. $13 H. $12 I. $6 SellerWillingness to sell one unitA$4B$9C$12D$14E$15F$21G$23H$30I$51 a. The quantity demanded at a price of $10 is The quantity supplied at a price of $10 is b. The quantity demanded at a price of $25 is The quantity supplied at a price $25 is

a. Quantity demanded is 8 units. All consumers except for consumer I are willing to pay at least $10. Quantity supplied is 2 units. Only suppliers A and B are willing to sell at a price of $10. b. Quantity demanded is 3 units. Only consumers A, B, and C are willing to pay $25. Quantity supplied is 7 units. Suppliers A, B, D, E, F, H, and I (all but C and G) are willing to sell at a price of $25.

Which of the following has a more elastic demand in the short run? a. Pomegranate juice or drinking water: b. Cereal or Rice Krispies cereal: c. Speedboats or gourmet chocolate:

a. The demand for pomegranate juice would be more elastic than the demand for drinking water (a necessity). b. There are more substitutes for a particular type of cereal like Rice Krispies than there are for cereal itself. c. Even though both goods could be considered luxuries, a speedboat represents a larger portion of a household budget than gourmet chocolate, so the demand for speedboats would be more sensitive (more elastic) to price changes.

Consider the following scenarios. a. Scenario one has two options available. Option A: There is a 50% chance of winning $1,000 and a 50% chance of winning $0. Option B: There is a 100% chance of receiving $500. A risk-averse person will choose ___________ b. Scenario two has two different options available. Option C: There is a 40% chance of winning $90 and a 60% chance of winning $110. Option D: There is a 100% chance of winning $90. A risk-averse person will choose ___________ . c. Scenario three has two more options available. Option E: There is a 50% chance of winning $0 and a 50% chance of winning $100. Option F: There is a 50% chance of winning $20 and a 50% chance of winning $60. A risk-averse person might choose ___________

a. Though the two options have the same expected value, option B has no risk, so a risk-averse person will choose option B. b. Though option C involves risk, it will not yield a lower payoff than option D. A risk-averse person has no reason to choose option D. Option C is at least as good or better. c. Thought option E is riskier, it has a higher expected value. It's unclear what a risk-averse person will prefer.

Suppose an economic boom causes incomes to increase. Assume that smartphones are a normal good. This will cause the: a. demand for smart phones to increase, and both the price of smart phones and the quantity of smart phones traded would rise. b. supply of smart phones to decrease; the price of smart phones would increase and the quantity of smart phones traded would fall. c. supply of smart phones to increase; the price of smart phones would decrease and the quantity of smart phones traded would rise. d. demand for smart phones to decrease, and both the price of smart phones and the quantity of smart phones traded would fall.

a. demand for smart phones to increase, and both the price of smart phones and the quantity of smart phones traded would rise. If incomes increase, there will be an increase in demand for smart phones. Demand will shift to the right along an upward sloping supply curve. If no other shifts occurred, both the price of smart phones and the quantity of smart phones traded would rise.

Which of the following forms of private insurance is likely to have the lowest premiums and least doctor choice flexibility?

an HMO

Welfare losses in monopolistically competitive industries: are small relative to the benefits of variety. can be corrected without reducing the amount of variety offered. can easily be corrected through regulation. are of great concern to governments.

are small relative to the benefits of variety. In general, governments are not very concerned about welfare losses in monopolistically competitive industries. They are likely to be small relative to the benefits from variety, and they could not be decreased without reducing the amount of variety available to consumers.

The benefits of income inequality are

associated with rewarding hard work and work that society values.

In a simple 300 million-person world of all four-person families, if the poverty line is $12,500 and half of the 10 million families (with 40 million poor people) earn $10,000 and the other half earn $7,500, then the poverty rate is a) 3.33 % (10 million/300 million) b) 13.33 % (40 million/300 million) c) 16.66 % (50 million/300 million) d) 96.33% (300 million - 10 million/300 million)

b) 13.33 % (40 million/300 million)

The elasticity of demand is related to the slope of the demand curve a) and only the slope of the demand curve. b) but also the (price, quantity) position on the demand curve. c) but also the slope of the supply curve. d) and whether the good is normal or inferior.

b) but also the (price, quantity) position on the demand curve.

When an economics student draws a supply and demand diagram to model an increase in the income, she is assuming this change happens a) semper fidelis. b) ceteris paribus. c) ipso facto. d) defacto.

b) ceteris paribus.

Suppose a firm cannot figure out whether the demand for the good it sells is elastic or inelastic but discovers that every time it raises its price, its total revenue declines. Their a) demand is unit elastic. b) demand is elastic. c) demand is inelastic. d) demand is perfectly inelastic.

b) demand is elastic.

Suppose you observe that minor changes in supply seem to cause dramatic changes in price, you would conclude that a) demand is unit elastic. b) demand is elastic. c) demand is inelastic. d) demand is perfectly inelastic.

b) demand is elastic.

When a program like Medicaid is introduced, the market demand curve for health care will a) increase and flatten. b) increase and become more steep. c) decrease and flatten. d) decrease and become more steep.

b) increase and become more steep.

Imagine an economist ordering pizza by the slice. When deciding how many slices to order she would pick that number where the enjoyment of the _____ equals the enjoyment she could get from using the money on another good. a) first slice b) last slice c) average slice d) total number of slices

b) last slice

At the equilibrium price, a) quantity demanded exceeds quantity supplied. b) quantity demanded equals quantity supplied. c) quantity demanded is less than quantity supplied. d) quantity demanded is unrelated to quantity supplied.

b) quantity demanded equals quantity supplied.

The primary motivation for the purchase of any insurance lies in the fact that most people are a) risk lovers. b) risk averse. c) risk neutral. d) risk tolerant

b) risk averse.

The substitution effect suggests that a) when prices are higher, your buying power is less, so you buy less. b) when prices are higher, you buy less of what you originally wanted and use something else instead. c) when prices are higher, you buy fewer because the marginal utility of a good is diminishing. d) when prices are higher, you buy more.

b) when prices are higher, you buy less of what you originally wanted and use something else instead.

Todd wants to climb Mount Fuji. In order to do that, he knows that he must have enough money to travel to Japan. Before that, he needs to physically be able to climb the mountain. So today, he joins a gym and starts exercising. Todd's strategic plan is an example of: backward induction. a tit-for-tat strategy. a sequential strategy. a dominant strategy.

backward induction.

Farm price supports are typically for

basic commodities like raw milk and grain. Highly variable commodity prices create an unstable income for farmers, reducing their interest in farming. Until quite recently, prices for most farm commodities like raw milk and grain have risen far more slowly than overall consumer prices. As such, farm incomes would be depressed without price supports.

Owing to its usefulness and relative simplicity, the supply and demand model is often used...

because, strictly speaking, few industries in the United States are governed by perfect competiton

If the equilibrium rent is ________ the controlled level, then rent control laws are ________.

below; irrelevant For a price ceiling to be relevant it must be lower than the equilibrium price. Imagine what would happen if the ceiling were, in fact, above the equilibrium price. If landlords charged more than equilibrium, their renters would move to other landlords' buildings. Since landlords do not find it in their best interest to do this, setting rents by law at a rate lower than equilibrium has the effect of telling landlords that they cannot do something that is not in their best interests anyway.

private benefits

benefits that accrue directly to the decision maker

employer mandate

businesses that have more than 50 full-time employees will be required to offer health insurance to its employees

The elasticity of demand is related to the slope of the demand curve...

but also the (price, quantity) position on the demand curve

The elasticity of demand is related to the slope of the demand curve

but also the (price, quantity) position on the demand curve. The flatter the demand curve, the greater the elasticity. The steeper the demand curve, the smaller the elasticity. This is not to say that slope and elasticity are the same thing; it just means that slope matters.

Policy makers have considered putting computer chips in cars that would allow tax collectors to charge people based on how often they drive during rush hours. These policy makers are dealing with the fact that public roads are a) purely private good. b) purely public good. c) congestible public good. d) excludable public good.

congestible public good.

Discretionary fiscal policy is the purview of...

congress and the president collectively through law

The use of a backward L-shaped aggregate supply curve allows us to ________ in a way that other shapes would not.

consider different macroeconomic points of view

The use of the backward-L-shaped aggregate supply curve allows us to ____ in a way that other shapes would not.

consider different macroeconomic points of view

The argument that the minimum wage hurts society more than it helps is based on what analysis?

consumer and producer surplus

fixed costs

costs that do not depend on the quantity of output produced

If the (steadily decreasing) marginal benefit of another day spent in the hospital is equal to the (steadily increasing) marginal cost of an additional day spent in the hospital, the a) net benefit from the hospital stay must be positive. b) net benefit from the hospital stay must be negative. c) net benefit from the hospital stay must be increasing. d) net benefit from the hospital stay is maximized.

d) net benefit from the hospital stay is maximized.

If supply and demand are lines then at equilibrium consumer and producer surplus are both a) equal. b) shown as squares. c) shown as trapezoids. d) shown as triangles.

d) shown as triangles.

One significant feature of a "single-payer" system lacking in the U.S. system is a) government involvement in health care. b) coverage for the elderly. c) coverage for the poor. d) universal coverage.

d) universal coverage

The distribution of aid to the poor between in-kind and in-cash is a) roughly equal b) weighed heavily toward in-cash benefits c) weighted slightly toward in-kind benefits d) weighted heavily toward in-kind benefits

d) weighted heavily toward in-kind benefits

When economists speak of a shortageshortage​, they mean a situation in which A. some consumers a are unable to makeunable to make a purchase ata purchase at the current price.. B. the market price is below the equilibrium price. C. the quantity demandeddemanded exceeds quantity supplied. D. all of the above. E. A and B only.

d. all of the above

Nondiscretionary fiscal policy has its impact by...

dampening the economic ups and downs already occuring

Nondiscretionary fiscal policy has its impact by

dampening the economic ups and downs already occurring Nondiscretionary fiscal policy consists of policies that are built into the system so that an expansionary or contractionary stimulus can be given automatically. The welfare system and the progressive income tax serve as the built-in policies. If the economy is in recession, those who lose their jobs are granted unemployment and welfare benefits and they owe less in taxes. If the economy is growing at an unsustainable rate, people are making a lot of money and are faced with higher tax rates and there are fewer people eligible for government benefits.

The optimization assumption suggests that people make...

decisions to make themselves as well off as possible

perfectly inelastic demand

demand for which quantity demanded remains the same regardless of price; represented by a perfectly vertical line

The introduction of e-cigarettes provides a substitute for regular cigarettes. The result is likely that the elasticity of

demand increases. When there are more substitutes for a good, the demand for that good becomes more elastic.

Suppose a firm cannot figure out whether the demand for the good it sells is elastic of inelastic but discovers that every time it raises its price, its total revenues declines. Their...

demand is elastic

If a crime prevention mechanism works initially, but increasing it further has no additional impact that is an example of

diminishing returns. When the addition of another unit of input results in less additional output, the marginal (additional) return is diminishing. This is the description of diminishing marginal returns. If a crime prevention mechanism works initially, but increasing it further has no additional (marginal) impact that is an example of diminishing returns.

When firms add workers and find that the additional workers add less to output than their predecessors did, they are experiencing

diminishing returns. Although it is usually the case that having more workers increases output, workers find that the existing plant and equipment are too limiting for them to get the most out of new employees. As a result, output increases but not as fast as it had before. This phenomenon is referred to by economists as diminishing returns.

statistical discrimination

distinguishing between choices by generalizing based on observable characteristics in order to fill in missing information

The portion of US debt owned by the public (non-Federal Reserve)

dropped from the 1940's through the 1970's, spiked in the 1980's, dropped in the 1990's and early-2000, and rose in the 2010's.

Whether a firm stays in business or shuts down depends heavily on the concept of

economic profit. Normal profit is the level of profit that business owners could get in their next best alternative investment. The next best alternative would be whatever investment an owner would choose if he or she decided to go out of business. Any profit above normal profit is called economic profit. If business owners do not make their normal profit, they will quit the business and move into another. This means that we might think of normal profit as the salary the business owners pay themselves and, as such, part of the "cost of doing business." If they make less than normal profit, then the salary they can pay themselves is too low to keep them in the industry. On the other hand, if profits are routinely more than that, others will want to enter the industry. This means that in the long run profit will shrink to normal levels.

The argument that the minimum wage does not significantly increase unemployment is based on what?

elasticity

In 2019, in a Medicaid expansion state, a member of a family earning less than 133 percent of the poverty line is

eligible for Medicaid. Under the rules prior to 2014, adults who did not have children under the age of 19 could have very little income and not be covered by Medicaid because their wealth made them ineligible for TANF or SSI. The PPACA, as originally passed, required states to expand Medicaid eligibility to include anyone in the household if the household income was less than 133 percent of the poverty line unless the states were willing to forgo all federal money for Medicaid. The Supreme Court decision that validated many parts of the act invalidated this provision. This meant that states could decide whether or not to participate. This also meant that although Medicaid enrolled more than 61 million, and CHIP enrolled another 7.9 million, only half of those whose incomes were below 150 percent of the poverty line received its benefits. Approximately half of states had formally declined the Medicaid expansion or were leaning that way in 2013, despite the provision that the federal government would pick up the vast majority of the extra costs. Whether this was rationally or politically motivated, the impact on Medicaid eligibility remained cloudy through 2013.

The risk-averse person will buy health insurance

even if the expected health costs are less than the insurance premium.

Individual mandate

every resident of the US must have health insurance that meets certain basic requirements

Some species would be worth the cost of saving them while another species might not be because

for that species, the marginal costs of saving it exceeds the marginal benefits of saving it.

The "creation" of money is

formally the purview of the Federal Reserve, constitutionally the purview of Congress, but banks have a practical means of creating money

The textbook publishing industry has a great deal in common with the pharmaceutical industry in that there are __________ fixed costs and ____________ marginal costs.

high; low The publisher's costs include very high fixed costs for such things as supplements (recent textbooks have all needed to have expensively produced testbanks, instructor's manuals, website materials, study guides, PowerPoints, etc.) as well as costs associated with editorial staff and marketing. The variable costs also include the cost of the paper, ink, and printing of the book itself. In all, the marginal production cost of a textbook is less than $10, sometimes as little as $5. When all is said and done, the $126-$131 margin that the publisher makes must cover all the fixed costs of production.

The problem of time lags in enacting and applying fiscal policy is

in the time it takes to identify the situation, enact a policy, and allow it to work, economic circumstances may have changed.

An increase in _____ of demand will have an ambiguous effect on price.

income

When a program like Medicaid is introduced, the market demand curve for health care will...

increase and become more steep

When a program like Medicaid is introduced, the market demand curve for health care will

increase and become more steep. The demand curve for the non-poor is farther to the right than the demand curve for the poor. This horizontal adding of demand curves gives us the market demand curve. The demand curve will get more steep because there are fewer substitutes, especially for the poor.

If a firm has constant returns to scale: the firm is not at the efficient scale. increasing output will not change total costs. profits are maximized. increasing output will not change average costs.

increasing output will not change average costs.

If the price falls and the total amount consumers spend on the good falls, then demand must be

inelastic

A retailer noticed that by decreasing its price, its total revenue decreased. In this case, demand is

inelastic. If the price and the amount you spend both go in the same direction, then demand is inelastic, whereas if they go in opposite directions, demand is elastic. If demand for a good is elastic (the absolute value of the price elasticity of demand is greater than 1), an increase in price reduces total revenue. If demand for a good is inelastic (the absolute value of the price elasticity of demand is less than 1), an increase in price increases total revenue. If the demand for the good is unit elastic (the absolute value of the price elasticity of demand is 1), an increase in price does not change total revenue.

Suppose there are only two goods (Good A and Good B) and the average person buys 4 of Good A in a year and 3 of Good B. If, in the base year, the Price of Good A is $5 and the Price of Good B is $10, and in the next year the Price of Good A is $4 and the Price of Good B is $12, one problem with the CPI way of calculating inflation is

it fails to recognize that people will substitute (to some degree) Good A for Good B and therefore overstates the degree of inflation.

One unsettling consequence of setting a tax on tobacco sufficiently high to reduce consumption would be that

it would make Social Security's financial outlook worse. A tax on tobacco sufficiently high to reduce consumption would make Social Security's financial outlook worse. When smokers over the age of 60 become ill, their lifetime of smoking has so depressed their immune systems that they die of illnesses that nonsmokers are more likely to survive. They also succumb to those illnesses much faster and less is spent attempting to save them. Even though the money is spent sooner, it is much less. It is grimly ironic then that by dying more quickly than nonsmokers, smokers sometimes cost the health system less than do nonsmokers. By dying early and quickly, smokers avoid expenses that nonsmokers eventually need to pay. Because more than one-quarter of Medicare expenses are incurred during the last year of elderly people's lives, hastening their deaths saves money.

unemployed + employed/ working class times 100

labor force participation rate

One of the biggest problems for developing countries is that they all too often

lack the financial, physical, and social infrastructure to grow.

The principal argument in favor of rent control is that

landlords have the ability to raise rents because they know is it costly for tenants to move. Unless prevented from doing so, landlords can increase rents and tenants must compare the benefits of moving against the cost of moving. This gives landlords a considerable power to raise rents. It is cited as a significant reason for not allowing landlords to raise rents (or at least limit the amount by which they can be raised).

Imagine an economist ordering donuts one-by-one. When deciding how many donuts to order she would pick that number where the enjoyment of the ________ equals the enjoyment she could get from using the money on another good.

last/marginal donut The enjoyment of the last slice is the marginal benefit of that slice. if this enjoyment is more than the enjoyment from some alternative, more will be consumed.

The marginal cost curve will intersect the average total cost curve at the latter's minimum as long as

marginal costs eventually increase Average total cost and average variable cost are both U-shaped because they start high and decrease. The difference between the two curves is average fixed costs. Because average fixed cost diminishes as production increases, the gap between the two curves diminishes. They are both cut from below by the marginal cost curve at their respective minimums because marginal costs eventually increase. This happens when, because of diminishing returns, marginal costs increase to the point where, first, average variable cost, then average total cost, starts to rise as well.

If a consumer purchases more of a good as the price falls, we can assume that the consumer's

marginal utility has also fallen. the consumer's demand curve reflects marginal utility. As the price falls, consumers purchase more since their marginal utility is also falling.

Suppose you can fly from your home city to New York but only one airline provides the service. This market would be described by

monopoly.

If a market is in equilibrium LOADING... ​, is it necessarily true that all potential buyers and sellers are satisfied with the market​ price? yes or no

no

The major difference between nominal GDP and real GDP is

nominal GDP measures the value of output in current-year prices, while real GDP measures output using constant prices. Nominal GDP is the value of goods and services (output) produced in an economy measured at current prices. Real GDP is the value of goods and services (output) produced in an economy measured using constant prices.

The elements of the stimulus package adopted in 2009 that allowed states to pay Medicaid providers despite having exhausted their funds, should be considered

non-discretionary fiscal policy.

A country that is limiting imports of a good by requiring a lengthy inspection process is using

non-tariff regulatory barriers.

You would like to save more money. Which of the following strategies will help you overcome time-inconsistency? a. Deciding how much you need to save. b. Setting up a savings account. c. Putting reminders in your calender to make deposits. d. Enrolling in an automatic-transfer program that will move a specified amount of money from your checking account to your savings account each month.

only d is checked

Social Security's revenue emanates from taxes on

payrolls.

A decrease in supply will increase prices most when demand is

perfectly inelastic

For a given increase in supply, the condition of demand that will result in the most significant change in price is when demand is

perfectly inelastic.

a prisoner's dilemma game

players in all of the following games have no dominant strategy except in ---

Medicaid is the Federal Government program that provides health insurance to the

poor

The oil price decreases from 2014 to 2016 are an example of a

positive aggregate supply shock. Recent supply shocks have all involved the price of oil. Oil price decreases lower the price of oil and shift the aggregate supply curve to the right.

competition

positive word describing noncooperative equilibrium

Using Figure 1.7, we know the production of 4 units of soda and 2 units of pizza is

possible, but there would be unemployed resources.

Rent control is an example of a _________.

price ceiling. Rent control is a form of price ceiling where the price is not allowed to rise above a specified level. Once rent control is in place, the market for rental apartments is no longer governed by supply and demand alone, but also by the often obscure rules that politicians have written into the legislation.

current/ base times 100 (current-base/ base)

price change formula

In much of the United States and Canada, logging takes place in both privately owned and government-owned forests. a. Privately owned forests are: private, rival, and nonexcludable. public, rival, and excludable. private, nonrival, and excludable. private, rival, and excludable. b. Suppose that anyone is legally allowed to enter a government-owned forest and start logging. These forests are: public free riders. common resources. rival and private. private resources. c. The rate of logging in a government-owned forest would be _______ than the efficient level.

private, rival, and excludable. common resources. faster

Those who argue that "we can do better" than slow growth claim that

productivity enhancements are only a few years away.

Using linear production possibilities frontiers in a simple two-good, two-country model, comparative advantage is evident when

the slopes of the two production possibilities frontiers are different.

Suppose someone knew the probability of incurring a $10,000 medical expense was 5%, and the odds of being healthy and incurring no expenses was 95%. If they used that information to compare the expected cost to them ($500) with the $400 premium it would cost to get full coverage and decided not to buy the insurance, then economists would say they are

risk-loving

The underlying reason production possibilities frontiers are likely to be bowed out (rather than linear) is...

some resources and people can be better used producing one good rather than another

In 2019, General Motors announced the closure of its Lordstown, Ohio assembly plant. Those laid off as a result would likely be classified as

structurally unemployed. If people lose their jobs because of a change in the economy that makes their particular skill obsolete (either because the industry ceases to exist or because it moves to another country), they are referred to as structurally unemployed.

The gains from trade refer to the increase in: resources in both countries that result from specialization and trade. surplus in both countries that results from specialization and trade. savings in both countries that result from specialization and trade. income in both countries that results from specialization and trade.

surplus in both countries that results from specialization and trade.

normative economic analysis

tablet computers should be manufactured in countries that do not restrict internet access to their citizens is an example of what

History suggests that rent control laws

tend to become a permanent fixture of a community. The people hurt by rent control are (1) landlords and (2) people who can no longer find an apartment in the city. The first group is a minuscule number whose plight is not treated that seriously by candidates. The second group has to move out of town to find a place to live. Either way the majority of the people left in the community are simply better off than they would be were rent control to be discontinued. And these are the people who continue to support rent control through the ballet box. You do not get to vote in a community unless you live there. People who live in a suburb cannot vote in a city's election, even though the result of the election directly affects them. Add the fact that many of the people who live in the rent-controlled city benefit from rent control almost by definition.

Using simple linear production possibilities frontiers in a simple two-good, two-country model, comparative advantage is evident when

the slopes of the two production possibilities frontiers are different.

Suppose you use marginal benefit and marginal cost analysis to determine whether money would be better spent keeping prisoners incarcerated or on employing more police. You determine that more police should be employed if

the marginal benefit of another dollar spent on police activity exceeds the marginal benefit of another dollar spent on increased incarceration. The allocation between police and incarceration should depend on how effective the marginal dollar is in combating crime in each category. If the optimal distribution is accomplished, the marginal benefit of a dollar should be equal in the two areas. In this case, you should employ more police if the marginal benefit of an additional dollar spent on police activity exceeds the marginal benefit of an additional dollar spent on incarceration.

Under perfect competition, the supply curve is

the marginal cost curve, but only that portion that is above the minimum of average variable cost. Under perfect competition, an upward-sloping supply curve stems from the check-shaped marginal cost curve. The firm's supply curve is its marginal cost curve above the minimum of its average variable cost.

willingness to sell

the minimum price a seller will accept in exchange for a good or service

The argument that the minimum wage is worse than the earned income tax credit is based on the idea that

the minimum wage applies to all workers, not just the working poor

Inflation is measured using _________ in a price index.

the percentage year-to-year increase The inflation rate is the percentage increase in the consumer price index.

page player

the player on top of the matrix

The underlying reason for the upward-sloping nature of the supply curve is that...

the production of most goods comes with increasing marginal costs

The underlying reason for the upward-sloping nature of the supply curve is that

the production of most goods comes with increasing marginal costs. As more of a good is produced, the added, or marginal cost, increases. The firm needs to have a higher price to produce more. Therefore, the supply curve is upsloping.

The key difference(s) between perfect competition and monopolistic competition is

the products sold are slightly different in monopolistic competition.

According to the production function "flat of the curve" explanation, more money spent on education may not have a significant impact because

the proportionate increase in spending on teachers no longer has the impact it had when we were spending less in absolute terms.

A decreasing portion of the U.S. national debt is held by

the public.

"Quantitative easing" was different from what the Federal Reserve normally does because with quantitative easing the Fed makes more money available to the economy through

the purchase of 20- and 30-year United States treasuries and mortgage-backed securities.

Open market operations

the purchase or sale of bonds by the Federal Reserve to manipulate the money supply

open market operations

the purchase or sale of bonds to manipulate the money supply

Declining average SAT scores might be consistent with the assertion that more people are planning to attend college than ever before because

the quality of the students who would not have attended college now plan to go to college and they take the SAT.

A change in the price of lumber will impact

the quantity demanded and the quantity supplied of lumber but the supply nor the demand for lumber. Demand shows how much consumers want to buy at all prices. Demand is a relationship, whereas quantity demanded is a particular point in that relationship. Quantity supplied is how much firms are willing and able to sell at a particular price during a particular period of time, whereas supply alone shows how much firms want to sell at all prices.

From the perspective of the United States, a major accomplishment of the 1999 round of GATT was

the recognition of copyright protection for software, music, and movies.

production function

the relationship between quantity of inputs and the resulting quantity of outputs

Public universities are justifying their rapid increases in tuition based on

the relative decline in state appropriations.

equilibrium

the situation in a market when the quantity supplied equals the quantity demanded; where the supply and demand curves intersect

Reserves

the sum of bank deposits at the Federal Reserve System and vault cash

Rent control laws, like minimum-wage laws apply to everyone, not simply the poor. Some argue that there should be provisions to limit rent control eligibility based on income or wealth or age. Supporters of this argument would say

the wealthy can afford to pay market prices and do not need a subsidy, and rent control is an indirect subsidy. Rent control, which is effectively a subsidy, should be restricted to renters that cannot afford to rent a home at the market price.

Suppose you have a firm in which the owner pays $10,000 per month on rent of the plant and equipment and will pay that regardless of much output they produce. If they get going they need $10 in materials and $20 in labor for each unit they produce,

their fixed costs are $10,000 and variable costs are $30 per unit.

When looking at the impact of a change in trade policy economists use consumer and producer surplus to look at the winners and losers. Free trade economists insist that...

there are winners and losers but that the gain to the winners is greater than the loss to the losers

When looking at the impact of a change in trade policy, economists use consumer and producer surplus to look at the winners and losers. Free-trade economists insist that

there are winners and losers but that the gain to the winners is greater than the loss to the losers. Economists favor market outcomes because they make the calculation that the gain to the winners outweighs the loss to the losers.

An example of an externality associated with drugs is a drug

user ruining a spouse's life.