Macro Class Test 1

1. . Consumer surplus

For every consumer, there is a maximum amount he or she is willing to pay for a good is the difference between that amount and the market price.

They all know you are taking economics and ask your advice. What would you say to them

Have each member specialize in the role that they are best in to take advantage of benefits from specialization

What would cause the PPF to shift inward

increase government regulation on businesses overall

supply

max amount of product that sellers are willing and able to provide for sale over a particular time period at various prices

The economics of uranium mining would be studied in

mircroecon

A theory composed of a number of assumptions ad facts boiled down to their basic relevant elements

model

The max amount of products sellers are willing and able to provide for sale over a relevant range of prices holding all other factors constant

supply

The opportunity costs of attending college do not include

the expenditures for food

Because of scarcity

we face tradeoff in nearly every choice we make

the resource category entrepreneurial ability refers to business skills such as management of resources, the drive to innovate, and the willingness to bear risk

true

If an economy is operating at a point that is inside of its production possibilities frontiers then it can assumed that resources are

underutilized

Macroeconomics is concerned with issues such as

unemployment

A production possibilites frontier that is a straight line is the result of

constant opportunity costs

Explain the important difference between a straight-line PPF and a PPF that is concave to the origin

constant opportunity costs, whereas a bowed PPF has an increasing opportunity costs

What happens to consumer surplus in the tire market when a new technology lowers the cost of tire production? The lower price means

consumer surplus increases.

demand for gasoline is rising. possible cause

consumers expect prices to rise in the near future

Assume there is a positive relationship between aging and cholesterol levels.

-As the world population ages, purchases of cholesterol drugs will likely-Rise -A change in demand for cholesterol drugs will result.

Disneyland in California has an exclusive members‑only club called Club 33, where celebrities and wealthy executives dine on fine food. Although annual membership fees are reported to be about $30,000, there is still a 14-year waiting list to join.

-In the graph, place point E to identify the market equilibrium in the market for Club 33 Memberships. -At a price of $30,000, there is a... shortage of 80 memberships.

Government and employer subsidies to reduce the price of health insurance have important benefits to the individual in terms of improved health. In addition, society overall can benefit from higher levels of health care coverage. Which of the following are external benefits that may result from increased health care coverage?

-Increased productivity for employers, as fewer sick days are taken by workers. -Reduced usage of expensive emergency room visits. -Less waiting for major treatments.

Several medical studies have shown that drinking red wine in moderation is good for the heart. In the graph below, shift the demand curve or supply curve to show the likely initial effect of such studies on the market for red wine.

-Now consider the impact such studies might have on the types of grapes planted in new vineyards. Given this effect, the above graph might be further modified by a rightward shift of the supply curve for grapes used to produce red wines. - The overall effect of studies suggesting the health benefits of red wine on the equilibrium quantity of red wine is positive, and the effect of such studies on the equilibrium price is indeterminate

Determinants of demand Select all the factors that might increase the demand for frozen slushies

-Warm weather -Decrease in the price of soft pretzels

In 2018, Governor Baker of Massachusetts signed a bill to raise the state's minimum wage to $15 per hour by 2023 ("Massachusetts governor signs bill raising minimum wage to $15," The Hill, June 29, 2018). Proponents argue that this policy helps the working poor, who hold full‑time jobs, yet cannot pull their families out of poverty. Opponents argue that the policy harms the labor market.

-crime tends to fall when poverty falls, providing external benefits to society -government revenues will rise because workers are earning more taxable income -there will be less poverty and thus less dependence on federal and state income assistance programs

Select the information that the price of a product may provide. The price signals

-information about the level of demand for the product. -how the product compares with other similar products.

a lawyer can argue a case in court for one hour and make 300 she could alternatively use that time to type her legal brief in her office. What is the opportunity cost of her typing the legal brief?

300, since that's the amount she could have made by arguing a case in court

The opportunity cost is

8 units of coffee

Which statements describes the efficient trade-off

Actions intended to make economic outcomes fairer may cause efficiency to decrease

Recently, several U.S. states have considered or passed legislation to decriminalize recreational marijuana use. Proponents say that drug transaction and enforcement costs will fall. Make the appropriate adjustments to the graph below if marijuana is legalized. Assume marijuana will be sold in state-regulated shops. Assume also that law-abiding consumers may enter the market once states legalize recreational marijuana.

After legalization, consumer surplus will increase , producer surplus will increase , and total surplus will increase .

In 2014, small motorized skateboards (known as hoverboards) saw a huge spike in sales as their popularity rose and more companies started producing them. In 2015, a safety risk was exposed when it was reported that over 100 incidences of hoverboards catching fire or exploding occurred, causing injuries. This led to a massive recall of hoverboards as manufacturers had to retool their products and fix existing products. Also, it led to a ban on hoverboards on airlines and in many schools. This massive recall and ban on hoverboards affected the equilibrium price and quantity of hoverboards.

As a result- quantity fell and the effect on price was indeterminate.

Specialization

At high-end restaurant, the restaurant owners has one chef at a meat station, one chef at a vegetable station, and one chef, who has an artistic eye, plate the food she is given. The result is increased service speed, and the kitchen is able to serve more customers in an evening

Why does the quantity of public college education determined in a free market (without government intervention) represent a market failure?

Because the market‑determined equilibrium quantity would be less than the quantity most people view as desirable.

Which of these is NOT an example of market failure

Competition leads firms to provide products at the lowest possible price

Luigi's is the only pizzeria in a small town in northern Alaska. It is constantly busy, but there is never a waiting time for a table. One of Luigi's friends suggests that he would earn much more money if he raised his menu prices by 25%, because no one is likely to open a new pizzeria in the near future. If Luigi follows his friend's advice, what would happen to consumer surplus, producer surplus, and efficiency in this market?

Consumer surplus- decreases Producer surplus-increases Efficiency- falls due to fewer pizzas being bought and sold.

Equilibrium

During the summer, a bumper crop of oranges in Florida causes a surplus and consumers enjoy the fruits of the farmers' labor

Which is not considered a basic economic question

How will the system accommodate change?

Which scenario would least likely change an individual's behavior

In an effort to make people eat healthier, the city of Backerville tells its residents to eat white bread

Which statement is the key idea in economic thinking

Incentives matter

As a result of a severe recession, the total output, or gross domestic product, of a nation falls by 4%

Macroeconomics

Increased consumers spending causes the national unemployment rate to fall

Macroeconomics

Increases consumers spending causes the rate of inflation to rise

Macroeconomics

The U.S. Department of Labor reports that of the roughly 150 million people employed, just over half are paid hourly. Less than 5% of the people employed earn the minimum wage or less; 95% of wage earners earn more. Teenagers living at home make up 25% of those earning the minimum wage or less. All of the following are reasons why the minimum wage remains an important issue except one. The exception is:

Many people share the opinion that reducing income inequality and increasing wages among lower-income earners as a whole benefits society. People do not care about the minimum wage because it only affects teenagers and individuals not willing to increase their skill set. The minimum wage offers the possibility of reducing income inequality by raising the wages of low-income workers. If the minimum wage is set above the equilibrium wage a surplus of labor may occur, resulting in higher unemployment.

People use ------ to determine how many hours to work, and businesses use ------- to determine how much of their product they are willing to supply to the market

Marginal Analysis Marginal Analysis

A tax increase on tires increases the price of tires paid by car owners

Microeconomics

Optimism about future car sales leads General Motors to hire more auto workers

Microeconomics

Robotic technology reduces the demand for auto workers

Microeconomics

Do such inventions impact the production efficiency of industries that use a lot of plastic such as the construction and the automobile industries

No, because firms can produce efficiently using either traditional or biodegradable plastics

Classify each scenario according to the principle that best fits

Opportunity Cost-On black friday, there are huge sales for electronics at many retail stores. David must decide between buying a camera at one store or a flat screen TV at another store, and buying one means losing out on the ability to purchase another Marginal Decisions- an educational software company wants to expand the number of economics questions that it offers and is considering hiring another economist. The company compares how much adding another worker will improve the product to the additional cost. Resource Sacristy- Ava finds that there is not enough time after work to have dinner exercise, and watch TV, and she must make choices about how to use her limited time.

In January 2018, the online ticket market StubHub reported record high average prices for Super Bowl tickets as the Minnesota Vikings advanced through the playoffs and were one game away from playing in the Super Bowl in their home stadium in Minneapolis. However, when the Vikings lost to the Eagles in the last game before the Super Bowl, ticket prices plummeted.

Please adjust the graph to illustrate why prices for Super Bowl tickets on StubHub dropped after the Vikings lost.

When goods and services are produces with as few resources possible

Production efficiency``

Which of the choices illustrates the law of demand

Sure want to buy more candy bars at $1 than at $2

Suppose the federal government reduces an effective price floor toward the equilibrium price but not below it. What will happen to the deadweight loss and total surplus?

The deadweight loss will- decrease The total surplus will- increase

Suppose that high temperatures and a lack of rain in the Pacific Northwest cause a shortage of cranberries, leading to a rise in cranberry prices. How would this affect the equilibrium price and quantity for other products that use cranberries, such as cranberry sauce and cranberry juice?

The equilibrium price will rise and the equilibrium quantity will fall

When can an economy increase the production of one good without reducing the output of another, when the economy is operating at

a point below the PPF

How would unemployment be shown on the PPF

a point inside the PPF

Government intervention

The local river has so much pollution the three-eyed fish are forming. The government responds by regulating the amount of chemicals that can be dumbed into the river

An increasing number of charities have turned to online auctions as a way to raise money by selling unique experiences donated by celebrities, such as a meet-and-greet with a celebrity before a concert or a walk-on role on a television show. Why would the use of auctions lead to a better outcome for the charity as opposed to just setting a fixed price?

The outcome is better because- in an auction consumers reveal the highest price they are willing to pay, which may be higher than the fixed price.

Market efficiency

The owners of a snow cone trailer realizes that the demands for snow cones is low during the winter, and thus, closes shop until the temperature warms back up near summertime

In cities around the country, the government provides assistance to families with low incomes to rent apartments at prices capped by the U.S. Department of Housing and Urban Development (HUD), essentially setting a price ceiling on apartments. The designated apartments tend to rent quickly, and tenants are less likely to move once they find an apartment. Assume the price ceiling is set below market equilibrium and no government subsidies are offered to landlords. What are the most likely outcomes in terms of availability of rent-controlled apartments and ongoing maintenance of rent‑controlled apartments?

The price ceiling will cause a shortage of rent‑controlled apartments and the rent‑controlled apartments will be less well maintained than apartments without rent controls.

The resource land refers to all natural resources, including fertile land, forests, mineral deposits, solar and wind energy, and water

True

During the summer, the largest computer game retailer has a massive sale. As prices for computer games fall, consumers purchase more games, ceteris paribus

What does the term ceteris paribus mean in this context- Holding all else equal Why, if at all, it the ceteris paribus condition important in economic analysis- It allows the analysis of how a single change affects an economic environment

The day to day living conditions of modern Americans are very differnt from what they were in the 20th century. while doing research for an econmic project, Charlie discovers that more households today, as compared that more households today, as compared to households 100 years ago, have electricty, and a car

Which of the following explains why modern americans enjoy a higher standard of living the Americans 100 years ago- There has been economic growth in our society Which field do researchers focus on investigating the phenomena described- Economics

Suppose the University Health Center receives flu vaccinations at the beginning of each flu season, and that they offer these vaccines for the market price of $20.00 each. Assume that the college students have varying budgets. Some have money to spare, somer are on a very tight budget. Keep in mind that some students have pre-exsiting conditions, such as asthma and diabetes, that place them at a high risk for the flu

Who will receive the vaccines in the University Health Center sells them for the $20.00 market price? -the students who will pay $20.00 for them Suppose the school sells al of its vaccines at the market price of $20.00. What has it manages to maximize?- efficiency

Is a decision to spend four years of one's life in tens of thousands of dollars earning a college degree based on an incentive

Yes

Do such inventions impact the allocative efficiency of industries that use a los of plastics such as construction and automobiles industries

Yes, because consumers' preferences between traditional plastics and biodegradable plastics will change

Can a country which does not have an absolute advantage in producing a good or service still benefit from trade

Yes; a country can still benefit from trade as long as the country has a comparative advantage in producing a good or service

A shift in the supply curve

a change in on of the determents of supply

A shift in the demand curve can be caused by

a change in one of the determinants of demand

Inferior good

a city bus

What would case a shift from D1 to D2

a new study that shows honey cures cancer

In the demand curve shown, an increase in price from $1-$2 will

cause quantity demanded to fall from 30 units to 20 units

a. Compute the consumer surplus when the market is at equilibrium. b. Compute the producer surplus when the market is at equilibrium. c. If the government imposes a price floor of $20 for this product, consumer surplus will decrease and producer surplus will increase

a. 45,000 b. 27000 c. decrease and increase

Rational behavior requires thinking at the margin. Which example represents this type of thinking

all of the answers

When the mix of goods and services produced is the most desired by society

allocative efficiency

A market will

always tends toward equilibrium

The basic proposition of the law of demand is that

as the price of a good increases, buyers are willing and able to purchase less

Farmer Marshall's tractor

capital

Interest in human capital refers to

education, on-the-job training, and professional training activities

Aunt sandy's jammin jellies (the business)

entrepreneurs

which resources earns profits

entrepreneurs

cassidy's taco truck ( the idea) the truck itself

entrepreneurs capital

the resource category capital refers to the financial assests, such as bank accounts, bonds, ....

false

If specialization and trade create a win-win situation in which two countries gain, why is there often opposition to trade agreements and globalization

groups that produce products in which other contraries have comparative advantage suffer

what would not affect the supply of new automobiles

higher interest rates for new car financing

Which of the 3 basic questions facing any society does technology play the greatest role

how to produce question

a shift right of the supply curve could be caused by

improvement in production technology

Which of the following factors can contribute to an economy's growth

improvements in land, labor, and capital

Supply and demand analysis is used

in both micro and macro

In the study of econ, the goals of efficiency and equity are often

in conflict with one another

Paying a salesperson for increases sales is an example of

incentive

Scarcity

is faced by all individuals and societies

Why does an effective price ceiling appear below the equilibrium rather than above it? A price ceiling

is only effective when it is low enough to restrict increases in the market price.

Karen, a server at Sonic

labor

Your favorite bartender

labor

you coworkers

labor

Lake Tahoe

land

Ore

land

The rio grande

land

When the market price of a good increase, the amount that sellers are willing to offer for sale increases. This statement is best described as

law of supply

Investing into education will

lead to long term productivity gains

Identify which activity exhibits a potential trade-off with enrolling in rock climbing

learning to read piano sheet music

An economic institution that facilitates interaction between buyers and sellers

market

In a ---- economy individuals and firms own most resources

market

When quantity demanded in a market equals quantity supplied, then the

market is in equilibrium

Does planning to ride a roller coaster repetitively demonstrate thinking on the margin

no

Social welfare spending is Sweden occupies too large a portion of the nation budget

normative

The riches 1% of Americans should pay more taxes than the rest of the 99%

normative

Eliminating political conflict

not a primary macroeconomic policy goal

To calculate how much urban residents are willing to pay to protect biodiversity

not a primary macroeconomic policy goal

To set the optimal price for a pound of peaches

not a primary macroeconomic policy goal

Incentives compensate customers for the

opportunity cost

When the government chooses to use resources to build tourist centers the selected resources are no longer available to build highways. This Best Illustrates the concept of

opportunity cost

If the government of spain decides to spend less on military and more on health care, the forgone spending on military items represents the

opportunity cost of the extra health care

Which type of payment would not be a market transaction

payment make to disaster victim

A market exists when

people exchange money for goods and services

In a ---- economy the governments controls most resources

planned

A decrease in the supply of coconut will increase the price of German chocolate cake, a good which requires coconut shavings as a key ingredient

positive

As minimum wages increases, the prices of all goods and services also tends to increase

positive

Low inflation

primary macroeconomic policy goal

Low unemployment

primary macroeconomic policy goal

Rising living standards

primary macroeconomic policy goal

At some point in the future, a country that produces more capital goods than consumer goods will have a larger PPF than a country the produces more consumption goods. This occurs because

producing capital goods in an investment that helps stimulate the economy

When goods are produced at the lowest possible cost, an economy is said to have

production efficiency

All other factors held constant, as the price of an IPad rises, the

quantity demanded for IPads fall

Suppose the market for tomatoes is in equilibrium, and events occur that simultaneously shift both the demand and supply curves to the right. If this is the only information you have, what can you say about how the equilibrium price or quantity would be affected? The equilibrium

quantity would increase, whereas the direction of the change in equilibrium price would be indeterminate.

What is not a source of economic growth

reducing levels of international trade

Economics is best defined as the study of how

resources are apportioned to satisfy human wants

If the price of a kayak increases

sellers offer more kayaks for sale

Over the past decade, many American candy companies have opened factories in Mexico and Canada to produce candy. The companies, including Hershey Company, Brach's Confections, and Ferrara Pan, then ship candy back to the United States for sale. Although lower wages in Mexico might explain part of this move, wages in Canada are comparable to U.S. wages. Price floors (price supports) for the sugar industry encouraged American candy companies to move production out of the United States. Describe how the enactment of a sugar price floor impacted the market for candy in the United States, resulting in the movement of manufacturing. The U.S. price floor on sugar

shifted the supply curve for candy to the left due to the rise in price of sugar in the United States.

Why would we see a decrease in demand for certain goods if incomes are rising in an economy? Because

some goods are inferior goods and consumers substitute normal goods for them when incomes are rising.

Why does deadweight loss occur at a price below equilibrium even though some consumers benefit? The deadweight loss occurs because

some trades between willing sellers and buyers are missed because the price is too low.

at any price below the equilibrium price

the quantity demanded exceeds the quantity supplied

The concept of demand is best described as

the quantity of a good or a service that people are willing and able to purchase at different possible prices

What is an example of capital production process of an amusement park

the roller coaster

Which statement is true about specialization and exchange between two individual

they generally benefit the pooper individual as well as the richer individual

The US has absolute advantage in making many goods, such as short-sleeved cotton gold shirts. Why does Indonesia and Bangladesh make these shirts and export them to the United Stated

they have comparative advantage

The resource category land refers to the mental and physical productivity of workers

true