Macroeconomics Exam 1 Answers

When the market price is $2.50, what is the producer surplus from producing the 25th pen?

$1

Suppose the government places a tax on beer sold on the producer. Suppose this shifted supply from S1 to S2. What is the size of the tax?

$10

What is the deadweight loss created by the tax?

$125

When the market price is $2, what is the consumer surplus from consuming 25 pens?

$18.75

What is the economically efficient price for pens?

$2

Present value is the value in today's dollars of funds to be paid or received in the future. If the current interest rate is 5%, then the present value of $1,000 to be received in 19 years is:

$395.74

When the price of cereal rises two things happen: (1) consumers tend to buy less cereal and more Pop Tarts because of their relative price compared to cereal decreased and (2) consumers tend decrease their cereal consumption (but still consume some) because they can purchase less of it at the new price. These phenomenon are known as:

(1) Substitution Effect (2) Income Effect

What is the Price Elasticity of Demand over the range $12 to $16

-2.3333

Given the following production possibilities frontier, what combination of Prius and Corolla could Toyota produce to use their inputs efficiently? (A graph goes with this Question)

. A

If the market price is 300 and 50 pairs of skis are sold, what is the dead weight loss?

0

What is the Price Elasticity of Supply over the range $12 to $16

1.3125

What is the range for possible terms of trades (whiskey/computers)?

3:5

Given the following production possibilities curve, what is the opportunity cost of producing one computer? (a graph does with this question)

5

Given the following table where the US and Japan only produce computers and whiskey, what is the opportunity cost of the US producing one additional computer?

5 bottles of whiskey

Using the same graph, which of the following combination of Prius and Corolla are possible to produce? (A graph goes with this Question)

A or B

If the price for pens were $2.50, we would expect there to be

A surplus of pens

Which area represents the deadweight loss associated with this price ceiling?

A+B

What is the difference between economic and accounting profits?

Accounting profits do not take into account the future flow of income, economic profits do

Which of the following would shift the production possibilities frontier outward?

All of the above

When an individual's income rises, holding all else equal, use of public transportation tends to fall. Public transportation is

An inferior good

When a competitive market is in equilibrium, what is the economically efficient level of output?

An output level where marginal cost is equal to marginal benefit

Which of the following would cause a parallel shift of the supply curve for apples inward?

Apple farms around the country see decreased apple production due to increased fire blight - a particularly devastating bacteria that preys on apple trees

Which of the following would cause a parallel shift of the demand curve for apples outward?

Apples are revealed to have positive effects on mental health

What is the area that represents the producer surplus from ski production?

B

In the graph above, which area represents the shift in producer surplus to consumer surplus?

B+C

What does Japan possess a comparative advantage in?

Computers

Suppose Country A and Country B each produce both shirts and computers. Suppose Country A is able to produce more shirts or computers with the same amount of labor than can Country B. Which of the following statements is true:

Country A has an absolute advantage in the production of shirts and computers

Suppose an unexpected drought occurred in the Midwest. As a result, the supply of corn would likely:

Decrease - the supply curve would shift left

Which area represents the gains from completely free trade vs autarky?

E+F+G+H+X+Z

Productive Efficiency means that

Every good or service is produced up to the point where marginal benefit is equal to marginal cost

Which of the following areas represents the change in consumer surplus that results from the price ceiling?

F-A

Do consumers gain or lose from this price ceiling? How much?

Gain - 1,875

Which of the following are two key groups of participants in the circular flow model

Households and Firms

Is the country above a net exporter or net importer of rubber? How much rubber does the country export/import before a tariff?

Import; 500

What does increasing marginal opportunity costs mean?

Increasing production in a good requires larger and larger decreases in production of another good

Which of the following is an example of adverse selection?

Individuals with chronic health problems are more likely to seek out health insurance

Which of the following is an example of moral hazard?

Individuals with health insurance decreasing physical exercise

Which of the following could be a reason for the following shift in the production possibility frontier (A graph goes with this question)

New technology is developed that decreases the cost of producing electric engines for cars like the Prius

Does either country possess a comparative advantage in whiskey and computer production?

No

Andy Reid, head coach of the Kansas City Chiefs, would undoubtedly make an outstanding high school gym teacher. In fact, we know he can do twice as good of a job as anyone else in the country. Should Andy Reid become a high school gym teacher?

No - specialization is determined by comparative advantage

If the price of peanut butter went up, what would we expect to happen to the demand of jelly given that they are compliments?

Not enough information to answer the question

In the same scenario, what would likely happen to demand

Nothing

From the above graph we can conclude: (A graph goes with this Question)

Nothing - there is likely an omitted variable

You are working on the next homework for your Macroeconomics class. You have been working on it for a three hours and have answered all of the problems but are not sure about five of your answers. You think that if you turn it in as it is you will get 80% but if you spent another hour on it you would get 100%. You decide that spending an hour watching Netflix is more valuable to you than that 20%. This example best illustrates

Opportunity costs

Economists assume people are rational in the sense that

People use all available information they can to take the action that they believe will best achieve their goals

What term do economists use to refer to the conflict between the interests of the shareholders of a firm and the interests of top management?

Principle-Agent Problem

Protectionism is the use of trade barriers to shield domestic firms from foreign competition. Protectionism is usually justified on the basis of several arguments which include:

Saving jobs, protecting infant industries, and protecting national security.

A(n) _____ is a financial security that represents partial ownership of a firm, while a _____ is a financial security that represents a promise to repay a fixed amount of funds.

Stock; Bond

What are the slopes of the Supply and Demand Curves?

Supply = 0.3333 and Demand = -0.2

Following the imposition of $15 minimum wage, there is a

Surplus of labor

Which of the following best describes a production possibilities frontier?

The combinations of goods that efficiently use all resources available

Which of the following is not a typical feature of a perfectly competitive market?

The market contains a wide variety of products so the buyers can choose the ones they like the most

Given your above answers, what would we expect to happen to the equilibrium price and quantity of corn in the United States

The price would increase and quantity would decrease

Using the above example, let's assume you turned in the homework and instead of earning 80% as you expected, you got a 50%. If you would have known that, you definitely would not have spent that hour watching Netflix and improved the homework instead. True or false: your original decision to watch Netflix instead of improve your homework was rational.

True

If the country imposes a tariff as shown in the graph, which area represents the deadweight loss that the country would experience (going from free trade to a tariff)?

X+Z

In 2018, Jeff Bezos, CEO of Amazon, recently passed Bill Gates as the wealthiest man in the world with a net worth of over $118 Billion. Does Jeff Bezos face scarcity?

Yes because even though billionaires' financial resources enable them to afford a much greater array of goods and services than those less wealthy, their financial resources are not infinite.

Which of the following is an example of the principle -agent problem?

all of the above

Which of the following best describes scarcity?

unlimited wants exceed the limited resources available