ECON
Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. The decision Chris must make is:
an economic problem because Chris has only one hour, and engaging in one activity means giving up the other.
The price of bananas will increase in response to:
an excess demand for bananas.
Suppose that the technology used to manufacture laptops has improved. The likely result would be:
an increase in supply of laptops
Money is
any asset used to make purchases
If a country's economic decisions are made by an individual or small number of individuals, then it has a:
centralized economy.
Cross-Price Elasticity of Demand
change in Qx/change in Py
negetive
complement
If the demand for cucumbers falls when the price of tomatoes rises, then we know that tomatoes and cucumbers are
complements
negative cross price elasticity
complements
Suppose you camped out in front of an electronics store to be one of the 200 lucky people able to purchase the latest gaming system. You bought the system for $350. Two weeks later you see that the same system can be sold on e-Bay for $600, so you sell your system. Your market role was as a:
consumer at the electronics store and a seller on e-Bay.
The measure of the cost of a standard basket of goods and services in any period relative to the cost of the same basket of goods and services in the base year is called the:
consumer price index.
GDP equation
consumers + businesses + government + net exports
The four components of aggregate expenditures are:
consumption, investment, government spending, and net exports.
FOMC (Federal Open Market Committee)
controls monetary policy
Line flatter =
elastic
When the price of NBA tickets is $25 each, 30,000 tickets are sold. After the price rises to $30 each, 20,000 tickets are sold. At the original price, the demand for NBA ticket is:
elastic
luxury =
elastic
which one is the most flexible demand? The one that changes a lot when the price changes.
elastic
If the absolute value of the slope of the demand curve is 0.25, price is $8 per unit, and quantity demanded is 12 units, then demand for this good is:
elastic.
Suppose the price P on a given demand curve results in a price elasticity of demand equal to 1. Any price higher than P will lie on the ______ part of the demand curve, and any price lower than P will lie on the ______ part of the demand curve.
elastic; inelastic
To increase total revenue, firms with ______ demand should lower price, and firms with ______ demand should increase price.
elastic; inelastic
In the base year, real GDP ______ nominal GDP.
equal
Demand increases and supply decreases
equal price positive and equal quantity uncertain
Economics defined as
how people make choices in the face of scarcity and the implications of those choices for society as a whole.
trade deficit
imports more than exports
National defense services provided by the military are:
included in GDP at cost
P = 1.50 Q = 500 Changes to P = 1.35 Q = 510 Price elasticity of demand?
.2 (10/.15) (1.50/500) change in Q/change in P times price of original/q of original
If the absolute value of slope of the demand curve is 2.5, price is $6 per unit, and the quantity demanded is 8 units, then the price elasticity of demand is:
0.3. (1/2.5) (6/8)
What might cause a demand curve to shift to the right?
An increase in the price of a substitute.
Which of the following is the best example of money used as a medium of exchange?
In a prisoner of war camp cigarettes are traded for socks, candy and/or food, even by nonsmokers.
An open-market purchase of government securities by the Fed will:
increase bank reserves, and the money supply will increase.
If the Fed wants to lower interest rates
increase money supply
As the price of cookies increases, firms that produce cookies will:
increase the quantity of cookies supplied
The quantity that sellers wish to sell tends to ______ as price increases, and so the supply curve is ______ sloping.
increase; upward
If business inventories equal $40 billion at the beginning of the year and $55 billion at the end of the year, then, assuming no other changes, GDP must have:
increased by $15 billion
If the total expenditures of a typical family equaled $35,000 per year in 2010 and the exact same basket of goods and services cost $40,000 in the year 2015, the family's cost of living:
increased by 14 percent.
All else equal, relative to a person who earns minimum wage, a person who earns $30 per hour has:
a higher opportunity cost of taking the day off work.
Consumer Price Index (CPI)
a measure of the overall cost of the goods and services bought by a typical consumer
When your grandfather keeps a bundle of $100 dollar bills behind a brick in the basement, this is an example of dollars serving as:
a store of value
When the price of a pizza is quoted in dollars, this is an example of dollars serving as:
a unit of account
f you post your car on eBay with a Buy-It-Now price of $1,800, you are using money as:
a unit of account.
Below the line→
above the natural rate of unemployment
As the market price of a service increases, more potential sellers will decide to perform that service because:
more potential sellers will find that the market price exceeds their reservation price.
Monetary policy is _____ flexible than fiscal policy because monetary policy changes are made by ______, while fiscal policy changes must be made by ________.
more; the FOMC; legislative action
Investment spending includes spending on
new capital goods.
Income elasticity of demand, positive
normal goods
positive
normal goods
Unemployed and not looking
not counted in labor force
The most important tool of monetary policy is:
open-market operations
Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 is her:
reservation price.
deposits =
reserves divided by desired reserve ratio (DRR)
When the Fed sells government securities, the banks':
reserves will decrease and lending will contract, causing a decrease in the money supply.
when you are inelastic and raise the price,
revenue goes up
profit equals
revenues - costs
how does the price elasticity of demand for D1 compare to that for D2?
rise over run opposite?
price elasticity of demand at a point
rise over run of point
The slope of the demand curve
rise/run number at top/number at far horizontal
In a free market, if the price of a good is above the equilibrium price, then;
sellers, dissatisfied with growing inventories, will lower their prices.
Consumption expenditures include spending by households on:
services
Government purchases include all of the following except:
social security benefits paid by the federal government
You have savings of this much or you stored money for your vacation
store at value
positive
substitute
positive cross price elasticty
substitute
The cross-price elasticity of demand between bread and potatoes is estimated to be 0.5. This implies bread and potatoes are:
substitutes
CPI that equals 1.34 in 2008 (when 2000 is the base year) means that:
the average level of prices is 34 percent higher in 2008 than in the base year.
A price index measures:
the average price of a given class of goods or services relative to the price of the same goods and services in a base year.
When Taylor raised the price of earrings at Taylor's Boutique, her total revenue from selling earrings increased. This suggests that:
the demand for Taylor's earrings at the original price was inelastic
According to the Cost-Benefit Principle, you should spend an additional hour studying for an exam if, and only if,:
the benefits of studying for an additional hour exceed the costs of studying for an additional hour.
The Federal Reserve System is:
the central bank of the United States
The price elasticity of demand is a measure of:
the change in quantity demanded of a good that results from a change in its price
Microeconomics differs from macroeconomics in that microeconomics focuses on:
the choices made by individuals the implications of those choices.
If one fails to account for implicit costs in decision making, then applying the cost-benefit rule will be flawed because:
the costs will be understated.
"All else constant, consumers will purchase more of a good as the price falls."
the demand curve.
For the Fall semester, you had to pay a nonrefundable fee of $600 for your meal plan, which gives you up to 150 meals. If you eat 100 meals, your marginal cost of the 100th meal is
$0
When the price of hot dogs is $1.50 each, 500 hot dogs are sold every day. After the price falls to $1.35 each, 510 hot dogs are sold every day. At the original price, what is the price elasticity of demand for hot dogs?
.2
The money supply is 2,000 of which 500 is currency held by the public. Bank reserves are 150. The existing reserve/deposit ratio equals:
.10
what counts as investment
1. businesses spend money on new capital 2. Any construction (residential and commercial) 3. Change in inventory (only component that can be pos, neg, or zero)
Suppose that the total expenditures for a typical household in 2010 equaled $2,500 per month, while the cost of purchasing exactly the same items in 2015 was $3,000. If 2010 is the base year, the CPI for 2010 equals:
1.00 always 1 for base year
Suppose that the total expenditures for a typical household in 2010 equaled $5,500 per month, while the cost of purchasing exactly the same items in 2015 was $6,875. If 2010 is the base year, the CPI for the year 2015 equals:
1.25
The consumer price index for Planet Econ consists of only two items: books and hamburgers. In 2010, the base year, the typical consumer purchased 10 books for $25 each and 25 hamburgers for $2 each. In 2015, the typical consumer purchased 15 books for $30 each and 30 hamburgers for $3 each. The consumer price index for 2015 on Planet Econ equals:
1.25
CPI equation
100 x (cost of basket in current year/cost of basket in base year)
The Federal Reserve consists of ______ regional banks, ______ governors on the Board of Governors, and ______ voting members of the Federal Open Market Committee.
12;7;12
In a small town of 100 people, there are 10 children under 16, 10 retired people, 60 people with full-time jobs, 3 people with part-time jobs, 3 full-time students over 16, and 4 full-time homemakers. The remaining people did not have jobs, but wanted jobs. What is the unemployment rate in this town?
13.7%
Data for an economy show that the unemployment rate is 6 percent, the participation rate 60 percent, and 200 million people 16 years or older are not in the labor force. How many people are unemployed this economy?
18 mil
Data for an economy show that the unemployment rate is 6 percent, the participation rate 60 percent, and 200 million people 16 years or older are not in the labor force. How many people are unemployed this economy?
18.0 million
The marginal cost of the 3rd unit of this activity is:
20
There's 5,000,000 held bank reserves. Public holds none. DRR is .25. MS?
20,000,000
The money supply in Econland is 1,000, and currency held by the public equals bank reserves. The desired reserve/deposit ratio is 0.25. Bank reserves equal _____.
200
Suppose that at a price of 25 cents per orange, 500 consumers each demand 4 oranges, and at a price of 20 cents per orange, 750 consumers each demand 5 oranges. Therefore, the market demand for oranges is ______ at a price of 25 cents per orange and ______ at a price of 20 cents per orange.
2000; 3750
f the price of cheese falls by 1 percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese is equal to:
3
The CPI in year one equaled 1.45. The CPI in year two equaled 1.51. The rate of inflation between years one and two was ______ percent.
4.1
Suppose the total benefit of watching 1 baseball game is 100, the total benefit of watching 2 games is 120, and the total benefit of watching 3 games is 125. In this case, the marginal benefit of watching the 3rd game is:
5
If the price elasticity of demand for cigarettes is 0.55, and the price of cigarettes increases by 10 percent, then the quantity of cigarettes demanded will fall by:
5.5 percent
Jack has a ticket to see Daughtry for which he paid $30 yesterday. He takes an unpaid day off from work to get ready for the concert. When he arrives at the concert, five different people offer him $70 for his ticket. Jack decides to keep his ticket. At the time he makes this decision, his opportunity cost of seeing Daughtry is:
70
If bank reserves are 200, the public holds 400 in currency, and the desired reserve/deposit ratio is 0.25, the deposits are ______ and the money supply is _____.
800; 1,200
M2
= M1 + Savings accounts + time deposit
M1
= Paper money, coins, checking accounts (demand deposits)
Which of the following would increase the net export component of U.S. GDP?
A bottle of California wine is purchased in London.
Who from among the following would be counted as unemployed?
A person who is willing to work and has looked for a job in the last week.
Who from among the following would be classified as out of the labor force?
A person who is willing to work but has not looked for a job in two months.
Who from among the following would be classified as out of the labor force?
Amanda Pie, a full-time homemaker.
Because our GNP is higher than our GDP,
American investments abroad are greater than foreign investments in America
Test to run to see if transaction is apart of the government (G):
Ask does the government get a good or service back from spending that money?
Cross-Price Elasticity of Demand
EQx,Py = % change Qdx/% change in Py
Which of the following events would increase the unemployment rate, if nothing else changed?
Employed workers leave the labor force
The seven Fed governors, the president of the Federal Reserve Bank of New York, and four of the presidents of the other regional Federal Reserve Banks constitute the:
Federal Open Market Committee
economic indicators
GDP Unemployment Inflation
The market value of all goods and services produced by a company, regardless of where production is happening.
GNP
Gertie saw a pair of jeans that she was willing to buy for $35. The price tag said they were $29.99. Therefore:
Gertie should buy the jeans because the price is less than her reservation price.
M1 differs from M2 in that:
M2 includes savings deposits, small-denomination time deposits, and money market mutual funds that are not included in M1.
Price of fixed FOP increases
MC increases
Which of the following is NOT a characteristic of a market in equilibrium?
Neither buyers nor sellers want the price to change
Which of the following is likely to have the highest price elasticity of demand?
Nike running shoes
Ann lives in Princeton, New Jersey, and commutes by train each day to her job in New York City (20 round trips per month). When the price of a round trip goes up from $10 to $20, she responds by consuming exactly the same number of trips as before, while spending $200 per month less on restaurant meals.Does the fact that her quantity of train travel is completely unresponsive to the price increase imply that Ann is not a rational consumer?
No -- she expects it
What is the most powerful tool available to FOMC (monetary policy)?
OMO
real GDP
P (base) times Q (current)
nominal GDP
P (current) times Q (current)
Old Price = 400, Old Quantity = 300 New price = 300, New Quantity = 350 Calculate price elasticity of demand between the points.
Price: 300-400/400 = -.25 Quantity: 350-300/300 = .66 (⅔) THEREFORE, % change in Q (.66) divided by % change in P (-.25) = -.66 Inelastic because it's between 0 and 1.
What are inferior goods?
Products whose income elasticity of demand is negative
Which of the following would increase the government purchases component of U.S. GDP?
The U.S. federal government pays $3 billion in salaries to soldiers in the military.
Suppose you bought a concert ticket from Ticketmaster for $50, but when you get to the concert, there are a large number of people waiting outside who offer to pay you more than $50 for your ticket. What is probably true?
There is an excess demand for tickets at the Ticketmaster price.
Which of the following would increase the consumption component of U.S. GDP?
You purchase a bottle of California wine
When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. Thus, we can infer that Moe's reservation price for a slice of pizza is:
at least $1.75 but less than $2.
The direct trade of goods and services for other goods and services is called:
barter.
Real GDP is measured in ______ prices; nominal GDP is measured in ______ prices.
base-year; current
When the price of a good changes, the amount of that good that buyers wish to buy changes:
because of both the substitution and the income effects.
Necessity =
between 0 and 1. (inelastic)
Double coincidence of wants
both parties trade and want something from the other
To understand how the price of a good is determined in a free market, one must account for the interests of:
buyers and sellers.
When the current price of a good is below the equilibrium price:
buyers have an incentive to offer to pay sellers more than the current price.
In an open-market purchase the Federal Reserve ______ government bonds from the public and the supply of bank reserves ______.
buys;increases
Investment spending includes spending on:
capital goods, residential housing, and changes in inventories
money supply =
currency + deposits
The M1 measure of money consists of the sum of:
currency, checking deposits, and travelers' checks.
The consumer price index for the current year measures the cost of a standard basket in the ______ year relative to the cost of the same basket in the ______ year.
current; base
If banks' desired reserve ratio increases from 0.10 to 0.15, the public still desires to hold the same amount of currency, and the Fed takes no actions, the money supply will:
decrease
If the CPI equaled 1.00 in 1995 and 1.65 in 2005 and a typical household's income equaled $35,000 in 1995 and $40,000 in 2005, then between 1995 and 2005, real household income:
decrease
A higher real interest rate ______ investment spending and ______ consumption spending.
decrease;decrease
To compare the purchasing power of nominal wages in two different years, one must:
deflate both quantities by a common price index.
In 1929, the CPI equaled 0.171 and in 1930, the CPI equaled 0.167. These data provide evidence of a period of:
deflation
Rational --
do something because of economic surplus with well-defined goals who tries to fulfill those goals as best as he or she can.
national debt
does not count towards GDP
A demand curve is ______ sloping because ______.
downward; fewer people are willing to buy an item at higher prices
Suppose the cost to Tim of a third glass of soda is zero because he's at a restaurant that gives free refills. According to the Cost-Benefit Principle Tim should:
drink a third glass of soda if the benefit of doing so is positive.
Consumption spending includes spending on:
durables, nondurables, and services
Suppose Mary is willing to pay up to $15,000 for a used Ford pick-up truck. If she buys one for $12,000, her ______ would be ______.
economic surplus; $3,000
Suppose that when the price of oranges is $3 per pound, the quantity demanded is 4.7 tons per day and the quantity supplied is 3.9 tons. In this case:
excess demand will lead the price of oranges to rise
Bank reserves that exceed the reserve requirements set by the central bank are called:
excess reserves
If price is above the equilibrium price, then there will be:
excess supply.
trade surplus
exports more than imports
The marginal benefit of an activity is the:
extra benefit associated with an extra unit of the activity.
in charge of monetary policy.
fomc
If an increase in the price of good X leads to a decrease in the demand for good Y, then:
good X and good Y are complements.
in charge of fiscal policy.
gov
Suppose that the market price for hot dogs sold by street vendors has just risen from $4.50 to $5.00, and that in response Curly has now begun operating a hot dog cart. We can assume that Curly's reservation price for hot dogs is:
greater than $4.50 but no more than $5.00.
double counting
happens when inputs included in GDP
If a bank's desired reserve/deposit ratio is 0.33 and it has deposit liabilities of $100 million and reserves of $50 million, it:
has too many reserves and will increase its lending.
The typical family on the Planet Econ consumes 10 pizzas, 7 pairs of jeans, and 20 gallons of milk. In 2008, pizzas cost $10 each, jeans cost $40 per pair, and milk cost $3 per gallon. In 2009, the price of pizzas increased to $14 each, while the price of jeans and milk remained the same. Between 2008 and 2009, a typical family's cost of living:
increased by 9 percent.
Pepsi One is a close substitute for Diet Coke. When Pepsi introduced Pepsi One, the price elasticity of demand for Diet Coke ______ and Coke's ability to raise revenues through price increases ______.
increased; was reduced
US citizen imports watch from switz
increases GDP of US
When the central bank buys $1,000,000 worth of government bonds from the public, the money supply:
increases by more than $1,000,000
When the Fed engages in an open market purchase, the money supply ____ and the nominal interest rate ______.
increases; decreases
The practice of increasing a nominal quantity each period by an amount equal to the percentage increase in a specified price index is called:
indexing
If consumers cannot readily switch to a close substitute when the price of a good increases, the demand for that good is likely to be
inelastic
If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then demand for textbooks is:
inelastic
Necessity =
inelastic
If demand is ______ with respect to price, a price increase will ______ total revenue.
inelastic; increase
If an increase in income leads to a decrease in the demand for ground beef, then ground beef is a(n)
inferior good
negative
inferior goods
products whose income elasticity of demand is negative
inferior goods
Money supply determines
interest rates
Suppose you learn that in 1900, households spent about 40 percent of their budget on food, and today, they spend about 10 percent of their budget of food. All else equal, this suggests that the price elasticity of demand for food:
is probably lower now than it was in 1900.
Money serves as a medium of exchange when:
it is used to purchase goods and services
The Cost-Benefit Principle indicates that an action should be taken if, and only if:
its benefits exceed its costs.
Wages and salaries are examples of:
labor income
law of diminishing returns
larger and larger fixed
Jeans in general have fewer close substitutes than a specific brand of jeans. Therefore, the demand for jeans in general will be _______ than the demand for a specific brand of jeans.
less elastic
A college graduate in 1972 found a job paying $7,200. The CPI was 0.418 in 1972. A college graduate in 2005 found a job paying $28,000. The CPI was 1.68 in 2005. The 1972 graduate's job paid ______ in nominal terms and ______ in real terms than the 2005 graduate's job
less;more
A firm that produces a good with many substitutes will most likely find that:
lowering its price will increase total revenue
Anything bigger than 1 =
luxury (elastic)
Which branch of economics is most likely to study differences in countries' growth rates?
macroeconomics
If the demand for a good is highly elastic, that good is likely to have:
many close substitutes
The extra cost that results from carrying out one additional unit of an activity is the _____ of the activity.
marginal cost
When you buy a pizza, you are using money as a
median of exchange
Double coincidence of wants is avoided if money is used as a:
medium of exchange
Because _____ policy is more flexible than ______ policy, it is used more actively to help stabilize the economy.
monetary; fiscal
fiat money
money backed by the strength of the government
cash held by public
money supply
If all the world's resources were to magically increase one hundredfold, then:
people would still have to make trade-offs.
long run
period of time sufficiently long that all FOP are variable
When calculating price elasticity of demand, if the percentage change in price is negative, then the percentage change in quantity demanded is typically:
positive
If a country fully utilizes these factors of production in any given year
potential GDP
The percentage change in quantity demanded that results from a 1 percent change in price is known as the:
price elasticity of demand.
If the Fed wishes to reduce nominal interest rates, it must engage in an open market ______ of bonds that ______ the money supply.
purchase; increases
If there is an excess supply of sport utility vehicles, then:
quantity supplied is greater than quantity demanded.
To compare the change in physical production (GDP) between 2010 and 2016, we should compare ______ GDP in 2010 with ______ GDP in 2016.
real;real
The owner of a pizza shop observes that when she raises the price of a large pizza, her total revenue decreases, and when she lowers the price of a large pizza, her total revenue increases. This suggests that:
the demand for her large pizzas is elastic with respect to price.
When a market is not in equilibrium:
the economic motives of sellers and buyers will move the market to its equilibrium.
Reccession
the economy will be suffering from unemployment
inflation rate
the growth rate at which prices change
You can spend $10 for lunch and you would like to purchase two cheeseburgers. When you get to the restaurant, you find out the price for cheeseburger has increased from $5 to $6, so you decide to purchase just one cheeseburger. This is best described as
the income effect of a price change.
The greater the desired reserve ratio
the less money that is going to be created throughout the banking system.
he opportunity cost of an activity includes the value of:
the next-best alternative that must be foregone.
Alex received a four-year scholarship to State U. that covered tuition and fees, room and board, and books and supplies. If Alex becomes a full-time student, then:
the opportunity cost of attending State U. includes the money Alex could have earned working for four years.
A seller's reservation price is generally equal to:
the seller's marginal cost.
Suppose that as the price of apples rises, people switch from eating apples to eating oranges. This is known as:
the substitution effect of a price change.
Suppose that the price of doughnuts decreases. Given that doughnut-holes are a by-product of producing doughnuts, one would expect:
the supply of doughnut holes to decrease.
If the price of rubber (an input to the production of tires) increases:
the supply of tires will decrease.
Jen spends her afternoon at the beach, paying $1 to rent a beach umbrella and $11 for food and drinks rather than spending an equal amount of money to go to a movie. Her opportunity cost of going to the beach is:
the value she places on seeing the movie.
You have noticed that there is a persistent shortage of teachers in an inner-city school district in your state. Based on this observation, you suspect that:
the wage for teachers in that district is higher than the wage in other districts.
When a market is in equilibrium:
there is neither excess demand nor excess supply.
Economists recognize that because people have limited resources:
they have to make trade-offs.
When you determine that a pair of jeans is worth two shirts, you determined this because the jeans were double the value (cost) as the shirt
unit of account
Individual supply curves generally slope ______ because ______
upward; of increasing opportunity costs
Excess demand occurs:
when price is below the equilibrium price.
Sellers supply curve
willingness to pay for additional unit of outflow
If the slope of a demand curve is infinite, then the price elasticity of demand is:
zero