Economics 211
Consider Paul's decision to go to college. If he goes to college, he will spend $90,000 on tuition, $15,000 on room and board, and $7,000 on books. If he does not go to college, he will earn $22,000 working at a construction job and he will spend $11,000 on room and board. Paul's cost of going to college is
$123,000.
Tyler and Camille both live in Oklahoma. A new-car dealer in Oklahoma bought a new car from the manufacturer for $18,000 and sold it to Tyler for $22,000. Later that year, Tyler sold the car to Camille for $17,000. By how much did these transactions contribute to U.S. GDP for the year?
$22,000
The table below contains data for the country of Crete for the year 2010. Total income. $5731 Household purchases of durable goods. $1108 Household purchases of nondurable goods. $702 Household purchases of non-education services. $203 Household purchases of education services. $302 Household purchases of new housing. $816 Purchases of capital equipment. $333 Inventory changes. $75 Purchases of new structures. $267 Depreciation. $401 Local government spending on goods and services. $236 State government spending on goods and services. $419 Federal government spending on goods and services. $1182 Transfer payments. $707 Foreign purchases of domestically produced goods. $217 Domestic purchases of foreign goods. $129 What was Crete's consumption in 2010?
$2315
In the economy of Talikastan in 2015, consumption was $6000, exports were $1000, GDP was $10,000, government purchases were $1800, and imports were $1200. What was Talikastan's investment in 2015?
$2400
Al's Aluminum Company sells $1 million worth of aluminum to Shiny Foil Company, which uses the aluminum to make aluminum foil. Shiny Foil Company sells $4 million worth of aluminum foil to households. The transactions just described contribute how much to GDP?
$4 million
Refer to Figure 2-9, Panel (a). The opportunity cost of moving from point K to point L is
0 cups of coffee.
In the nation of Cropitia, the opportunity cost of a pound of cheese is 1.5 pounds of ham. Bonovia and Cropitia both can gain from trading with one another if one pound of cheese trades for
1.4 pounds of ham.
An economy recently reported nominal GDP of 3 trillion euro and a GDP deflator of 200. What was real GDP?
1.5 trillion euro, and real GDP is a better gauge of economic activity than nominal GDP.
Canada would incur an opportunity cost of 6 units of Good X if it increased its production of Good Y by
12 units.
Assume Jamaica's opportunity cost of making one radio is 2 coolers. Jamaica and Norway would not be able to gain from trade if Norway's opportunity cost of one radio changed to
2 coolers.
In the economy of Talikastan in 2015, consumption was $3000, exports were $400, GDP was $5000, imports were $500, and investment was $1400. What were Talikastan's government purchases in 2015?
700
price ceiling
A legal maximum on the price at which a good can be sold
price floor
A legal minimum on the price at which a good can be sold
In a particular country in 2000, the average worker needed to work 40 hours to produce 55 units of output. In that same country in 2008, the average worker needed to work 30 hours to produce 45 units of output. In that country, the productivity of the average worker A) increased by about 9 percent between 2000 and 2008. B) increased by about 18 percent between 2000 and 2008. C) decreased by about 6 percent between 2000 and 2008. D) remained unchanged between 2000 and 2008.
A) increased by about 9 percent between 2000 and 2008.
The term "invisible hand" was coined by
Adam Smith
Calculate opportunity cost
Along the PPF, the opportunity cost of x (the item measured on the x-axis) is the decrease in y (the item measured on the y-axis) divided by the increase in x. The opportunity cost of Y is the inverse of the opportunity cost of X. The opportunity cost of producing a good increases as the quantity of the good produced increases.
Which of the following statements is an example of a positive, as opposed to normative, statement? A) Americans deserve a cleaner environment. B) Reducing emissions reduces days missed from school due to asthma. C) Economic policies should focus on improving equality. D) All Americans are entitled to quality health care.
B) Reducing emissions reduces days missed from school due to asthma.
When a U.S. citizen buys $500 of Chinese-made parts for a motorcycle, A) U.S. consumption increases by $500, U.S. net exports remain the same, and U.S. GDP increases by $500. B) U.S. consumption increases by $500, U.S. net exports decline by $500, and U.S. GDP remains the same. C) U.S. consumption does not change, U.S. net exports decline by $500, and U.S. GDP declines by $500. D) U.S. consumption falls by $500, U.S. net exports decline by $500, and U.S. GDP declines by $1000.
B) U.S. consumption increases by $500, U.S. net exports decline by $500, and U.S. GDP remains the same.
What will happen to the equilibrium price of new textbooks if more students attend college, paper becomes cheaper, textbook authors accept lower royalties, and fewer used textbooks are sold? A) Price will fall. B) Price will rise. C) The price change will be ambiguous. D) Price will stay exactly the same.
C) The price change will be ambiguous.
When constructing a production possibilities frontier, which of the following assumptions is not made? A) Firms produce goods using factors of production. B) The technology available to firms is given. C) The quantities of the factors of production that are available are increasing over the relevant time period. D) The economy produces only two goods or two types of goods.
C) The quantities of the factors of production that are available are increasing over the relevant time period.
Jane decides to spend four hours working overtime rather than going to a family gathering. She earns $12.50 per hour for overtime work. Her opportunity cost of working is A) the $50 she earns working. B) nothing, since she wanted to work more than she wanted to attend the family gathering C) the enjoyment she would have received had she gone to the family gathering D) the $50 minus the enjoyment she would have received from going to the family gathering.
C) the enjoyment she would have received had she gone to the family gathering
Which of the following is included in government purchases? A) unemployment benefits a state pays B) Social Security payments the U.S. government makes C) the services of a U.S. government attorney valued at the cost of her salary D) All of the above are correct.
C) the services of a U.S. government attorney valued at the cost of her salary
Home is a country that produces two goods, pears and cellular phones. Last year, Home produced 450 bushels of pears and 1050 cellular phones. This year it produced 450 bushels of pears and 2000 cellular phones. Given no other information, which of the following events could explain this change? A) Home experienced a decline in pear-producing technology. B) Home experienced a reduction in resources. C) Home experienced increased unemployment. D) Home experienced an improvement in cellular phone-making technology.
D) Home experienced an improvement in cellular phone-making technology.
A German citizen buys an automobile produced in the United States by a Japanese company. As a result, A) U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, German GNP is unaffected, and German GDP decreases. B) U.S. net exports increase, U.S. GDP is unaffected, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected. C) U.S. net exports and GDP are unaffected, Japanese GNP increases, and German net exports, GNP, and GDP decrease. D) U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected.
D) U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected.
GDP is not a perfect measure of well-being; for example,
GDP does not address environmental quality. GDP excludes the value of volunteer work. GDP does not address the distribution of income.
Exports
Goods and Services sold to other countries
Wine (in millions of gallons) Cheese (in millions of lbs.) US Wine - 16 Cheese - 32 France Wine - 8 Cheese - 4
In the US 1 million gallons of wine costs 2 million pounds of cheese and in France 1 million gallons of wine costs 1/2 million pounds of cheese.
capital input
Money being invested into business (not loans).
GDP deflator
Nominal GDP/Real GDP x 100
Which of the following is not a function of prices in a market system?
Prices ensure an equal distribution of goods and services among consumers.
What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the price of steel rises, public transportation becomes cheaper and more comfortable, and auto-workers negotiate higher wages?
Quantity will fall, and the effect on price is ambiguous.
Which of the following is the most likely explanation for the imposition of a price floor on the market for corn?
Sellers of corn, recognizing that the price floor is good for them, have pressured policymakers into imposing the price floor.
In a certain economy, jam and bread are produced, and the economy currently operates on its production possibilities frontier. Which of the following events would allow the economy to produce more jam and more bread, relative to the quantities of those goods that are being produced now?
The economy experiences economic growth.
normative economics
The part of economics involves value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics.
market quantity
The quantity of a commoditized product or service produced as determined by market forces of supply and demand.
"The US should not restrict employers from outsourcing work to foreign countries" is a normative statement. True or False?
True
The slope of an upward-sloping line is positive, and the slope of a downward-sloping line is negative.
True
The U.S. Air Force pays a Turkish citizen $30,000 to work on a U.S. base in Turkey. As a result,
U.S. government purchases increase by $30,000; U.S. net exports decrease by $30,000; and U.S. GDP is unaffected.
Which of the following is not an example of a group responding to an incentive?
Universities offer fewer online classes when they generate more revenue than traditional classes.
GDP equation
Y = C + I + G + NX GDP = consumption + investment + government purchases + net exports
Refer to Figure 4-15. Which of the following would cause the supply curve to shift from Supply A to Supply C in the market for sail boats?
a decrease in the price of fiberglass and sail cloth
Production Possibilites Frontier
a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
production possibilities frontier
a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
decrease in demand
a leftward shift of the demand curve
increase in demand
a rightward shift of the demand curve
If a binding price floor is imposed on the market for eBooks, then
a surplus of eBooks will develop.
The circular-flow diagram
a visual model of the economy that shows how dollars flow through markets among households and firms
Trade can make everybody better off because it
allows people to specialize according to comparative advantage
Something that induces a person to act is called
an incentive
Refer to Figure 4-27. Panel (c) shows which of the following?
an increase in quantity demanded and an increase in supply
A friend of yours asks you why market prices are better than government-determined prices. Because you understand economic principles, you say that market-determined prices are better because they generally reflect
both the value of a good to society and the cost of making it.
example of capital input
computer
A leftward shift of a demand curve is called a(n)
decrease in demand
A higher price for batteries would result in a(n)
decrease in the demand for flashlights
If the government removes a binding price floor from a market, then the price paid by buyers will
decrease, and the quantity sold in the market will increase.
At a price of $35, there would be a
excess supply, and the price would tend to fall from $35 to a lower price.
An increase in the price of a good would
give producers an incentive to produce more.
Imports
goods produced abroad and sold domestically
The simple circular-flow diagram is a model that includes only some key players in the real economy. Which of the following key players are omitted from the simple circular-flow model? A) households B) firms C) government D) markets for factors of production
government
The invisible hand's ability to coordinate the decisions of the firms and households in the economy can be hindered by
government actions that distort prices.
A transfer payment is a payment made by
government, but not in exchange for a currently produced good or service
Which two groups of decision makers are included in the simple circular-flow diagram?
households and firms
In the markets for goods and services in the circular-flow diagram,
households are buyers and firms are sellers
In the markets for the factors of production in the circular-flow diagram,
households are sellers and firms are buyers.
flow of factors of production
households to factor markets to firms to product market
In the actual economy, goods and services are purchased by
households, firms, and the government.
flow of goods and services
how actual products move through the economy
For a competitive market,
if a seller charges more than the going price, buyers will go elsewhere to make their purchases.
supply curve shifters
input prices, technology, number of sellers, expectations
A statement describing how the world is
is a positive statement
A group of buyers and sellers of a particular good or service is called a(n)
market
An example of a price floor is
minimum wage
Suppose an economy produces only cranberries and maple syrup. In 2010, 50 units of cranberries are sold at $20 per unit and 100 units of maple syrup are sold at $8 per unit. In 2009, the base year, the price of cranberries was $10 per unit and the price of maple syrup was $15 per unit. For 2010,
nominal GDP is $1800, real GDP is $2000, and the GDP deflator is 90.
Transactions involving items produced in the past, such as the sale of a 5-year-old automobile by a used car dealership or the purchase of an antique rocking chair by a person at a yard sale, are
not included in current GDP because GDP only measures the value of goods and services produced in the current year.
Someone should specialize in the production of something when
not make sense as long as Xenophobia had a comparative advantage in some good.
Suppose that the country of Xenophobia chose to isolate itself from the rest of the world. Its ruler proclaimed that Xenophobia should become self-sufficient, so it would not engage in foreign trade. From an economic perspective, this idea would
not make sense as long as Xenophobia had a comparative advantage in some good.
Demand Curve Shifters
number of buyers, income, prices of related goods, tastes, expectations
possible and efficient on possibilities frontier
on the possibility curve
impossible and inefficient on possibilities frontier
over the possibility curve
Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that
people face tradeoffs.
Normative statements are
prescriptive, whereas positive statements are descriptive.
A supply schedule is a table that shows the relationship between
price and quantity supplied.
A legal minimum on the price at which a good can be sold is called a
price floor
The minimum wage is an example of
price floor (creates a surplus of workers)
The amount of goods and services produced from each unit of labor input is called
productivity
Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor, the
quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases.
A recession has traditionally been defined as a period during which
real GDP declines for two consecutive quarters.
A country reported nominal GDP of $100 billion in 2010 and $75 billion in 2009. It also reported a GDP deflator of 125 in 2010 and 120 in 2009. Between 2009 and 2010,
real output and the price level both rose.
A country reported nominal GDP of $115 billion in 2010 and $125 billion in 2009. It also reported a GDP deflator of 85 in 2010 and 100 in 2009. Between 2009 and 2010,
real output rose and the price level fell.
An example of a price ceiling is
rent control
Resources are
scarce for households and scarce for economies
When a binding price floor is imposed on a market to benefit sellers,
some sellers benefit, and some sellers are harmed.
consumption
spending by households on goods and services, with the exception of purchases of new housing
investment
spending on capital equipment, inventories, and structures, including household purchases of new housing
net exports
spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports) exports - imports
government purchases
spending on goods and services by local, state, and federal governments
positive statement
statement which describes the world as it is
Wheat is the main input in the production of flour. If the price of wheat decreases, then we would expect the
supply of flour to increase.
compartive advantage
the ability to produce a good or service at a lower opportunity cost than other producers
absolute advantage
the ability to produce a good using fewer inputs than another producer
quantity demanded
the amount of a good that buyers are willing and able to purchase
quantity supplied
the amount of a good that sellers are willing and able to sell
Sally purchased a log-splitter five years ago. This year, she purchases some new parts, gasoline, oil, and spends 2 hours repairing the log-splitter. Which of the following is included in this year's GDP?
the amount she paid to buy new parts, gasoline, and oil.
The primary determinant of a country's standard of living is
the country's ability to produce goods and services.
market demand
the demand by all the consumers of a given good or service
Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that
the nation is not using all available resources or is using inferior technology or both.
A movement along the demand curve might be caused by a change in
the price of the good or service that is being demanded.
equilibrium price
the price that balances quantity supplied and quantity demanded
real GDP
the production of goods and services valued at constant prices (based on the base year)
nominal GDP
the production of goods and services valued at current prices
A production possibilities frontier is a straight line when
the rate of tradeoff between the two goods being produced is constant.
In a market with a binding price control,
there is an imbalance between the quantity supplied by sellers and the quantity demanded by buyers.
possible but inefficient on possibilities frontier
under the possibility curve
GDP Contributors
xxx
Beth, an American citizen, travels to Italy on vacation and buys an espresso machine to bring home. Her purchase increases
Italy's GDP.