Macroeconomics Spring 2019
Concept of Elasticity and total revenue concept
demand= elastic, rise in price= decrease in total revenue demand=inelastic, rise in prices=increase in total revenue
During a recession, both output and unemployment fall. T or F
false
If Panama has a high opportunity cost of producing salmon steaks, then it should export salmon steaks. T or F
false
If the rate of economic growth is positive, then everyone becomes better off. T or F
false
Most recessions last approximately three years. T or F
false
One macroeconomic goal is to achieve an unemployment rate of zero. T or F
false
Since World War II, there has been a worldwide movement away from free trade policies. T or F
false
The U.S. economy experienced fluctuations in employment and output over the last half of the twentieth century. However, the length of the average recession has been about the same as the length of the average expansion. T or F
false
The United States economy has achieved the target rate of unemployment, as set by the Full Employment and Balanced Growth Act (1978), for most years over the last few decades. T or F
false
The equilibrium price of automobiles is a primarily macroeconomic issue. T or F
false
The unemployment rate is usually zero except during recessions. T or F
false
When people buy land, their purchases are included in GDP. T or F
false
What is the difference between an intermediate good and a final good?
final goods are finished and ready for sale; intermediate goods require further processing
Because of the free rider problem
governmental solutions to externality problems are often needed
If free international trade opens up and a country has a comparative disadvantage in sugar production, we should expect
greater sugar consumption in that country
Anti-trust law
has been used to break up monopolies
A nation should only import those goods for which it has
higher opportunity costs than its trading partner
Since the late 1970s, economic growth has
improved the living standards of highly skilled workers while less-skilled workers have become worse off
profit
income earned by an entrepreneur for running a a business
Over the past 80 years, real GDP has
increased dramatically
a minimum wage set above the market equilibrium wage rate=
increases unemployment, decreases employment
The marginal social cost (MSC) curve
indicates the total cost of production, when all cost are considered
a price ceiling is considered_____ if it is set ____ the market equilibrium price.
inefficient and unfair, below
Susie grows corn in her backyard garden to feed her family. The corn she grows is not counted in GDP because
it was not produced for the marketplace
When a positive externality exists, the marginal social demand curve
lies above the market demand curve
A market failure in the form of an externality arises when
not all cost and benefits are included in the price of a good
Objections to free trade
often come from those who are harmed by trade
A contract
often requires one party to do something first, and the other party to do something later
Individuals in countries with __________ often spend considerable time trying to secure resources from others.
poorly defined property rights
One way in which antitrust law fosters economic efficiency is by
prohibiting firms from colluding to raise prices
Disputes over resource ownership are the domain of
property law
The rights of a co-owner to a share of a firm's profits are
protected under contract law
Government can play a crucial role in promoting economic efficiency by
providing physical and institutional infrastructures
In only one of the following situations is a nation's standard of living certain to increase. Which one?
real GDP rises faster than population
An economic function of criminal law is to
reduce the number of involuntary exchanges
An example of price ceiling
rent ceiling
The two defining characteristics of pure private goods are
rivalry and excludability
a price floor influences the outcome of a market if it is ______
set above the equilibrium price
if a price ceiling is set below equilibrium =
shortage, or a black market
Market failure occurs when
some Pareto improvements are not made
Which of the following is a major macroeconomic goal?
stable prices
total revenue
the amount spent on a good and received by the seller and equals the price of the good multiplied by the quantity of the good sold
marginal cost
the change in total cost that results from one unit increase in output
marginal product MP
the change in total product that results from a one-unit increase in the quantity of labor employed
marginal revenue
the change in total revenue that results from one unit increase in the quantity sold
If Country A exports a good to Country B, who is made worse off?
the consumers in Country A and the producers in Country B
Total Cost
the cost of all the factors of production used by a firm
Which of the following factors does not help explain incomplete specialization by countries that trade in accordance with comparative advantage?
the cost of making trade deals may have become extremely low because of the existence of the World Trade Organization.
Fixed Cost
the cost of the firm's fixed factors of production- the cost of land, capital, and entrepreneurship
Variable Cost
the cost of the firm's variable factor of production- the csot of labor
Deadweight Loss
the decrease in total surplus that results from an inefficient underproduction or overproduction
A demand ( supply) to be inelastic or elastic means what?
the difference between the percentage change in the quantity demanded vs. percentage change in price
Consumer surplus
the marginal benefit from a good or service in excess of the price paid for it, summed over the quantity consumed.
Output rate
the number of units produced per unit of time
Monopoly is a prime example of a market failure that leaves potential Pareto improvements unexploited. This is demonstrated by the fact that
the price in a monopolized market exceeds the marginal cost of production
Producer surplus
the price of a good in excess of the marginal cost of producing it, summed over the quantity produced
In a single-price monopoly market
the quantity produced is artificially low, thereby creating an inefficiency
Total surplus
the sum of producer surplus and the consumer surplus
long run
the time frame in which the quantities of all resources can be varied ex. can change its plant
Short run
the time frame in which the quantities of some resources are fixed ex. can change the quantity of labor
Total Product ( TP)
the total quantity of a good produced in a given period, output rate
Gross domestic product (GDP) is
the total value of all final goods and services produced for the marketplace during a given period, within a nation's borders
Which of the following is the best example of a stock variable?
the total wealth of the 50 richest us citizens
If firms make agreements that reduce the amount of competition in a market,
they would face penalties under antitrust legislation
If goods are produced abroad but consumed domestically,
those goods are termed imports
Which of the following is the best example of an intermediate good?
tires purchased by an automobile manufacturer for installation on new cars
One way to achieve efficiency in a market with a negative externality is
to raise the market supply curve to the position of the marginal social cost curve
Which of the following statements correctly describes international trade in accordance with comparative advantage?
trade may well make some citizens in each trading country worse off
Assume that India has a comparative advantage in producing a computer game. The United States has an absolute advantage in producing the same game. Mutually advantageous trade will have India producing and exporting the game while the United States will specialize in producing something else. Tor F
true
Contracts tend to increase the level of specialization in an economy. T or F
true
If Armenia can produce rugs more efficiently than any other country, it does not necessarily benefit from producing rugs for international trade. T or F
true
The Full Employment and Balanced Growth Act of 1978 set the target unemployment rate for the United States economy at 4 percent. T or F
true
According to the Coase theorem,
under certain conditions, the private market will solve externality problems efficiently
Periodic fluctuations in GDP are called business cycles. T or F
true
if a price floor is set above equilibrium=
creates a surplus, or illegal trading
This year, Tom sold his 1998 minivan to Honest John's Used Car Emporium for $5,000. Honest John then sold the van to Bob for $7,000. How much would be recorded in GDP this year from these transactions?
$2,000
A Texas oil company extracts petroleum and sells it to a refinery for $1,000. After processing, the refinery sells the gasoline to a wholesaler for $1,500, who then sells it to a gas station for $1,700. The gas station sells it to customers for $2,500. In these transactions, how much has been added to GDP?
$2,500
Two criteria that must hold in order for beneficial price discrimination to occur?
1.firm must be able to identify market segments by their price elasticity of demand 2.the firms must be able to enforce the scheme
From 1929 to 1933, U.S. output dropped by about
25%
GDP is a flow variable because
it measures the production that takes place over a period of time
The sale of which of the following would appear without any modification in GDP?
maid services
an example of price floor
minimum wage
Many saltwater fish species are currently being overexploited. This is an example of
the tragedy of the commons
What happens to consumer surplus, producer surplus, and total surplus when an effective price ceiling/ price floor is established?
An effective price ceiling will lower the price of a good, which decreases the producer surplus. The effective price ceiling will also decrease the price for consumers, but any benefit gained from that will be minimized by the decreased sales due to the drop in supply caused by the lower price. = decreased total surplus Binding price floors typically cause excess supply and decreased total economic surplus.
Why does the implementation of an effective price veiling or price floor create deadweight loss?
Deadweight loss occurs when supply and demand are not in equilibrium.
a price ceiling imposed below the equilibrium price=
creates a black market in which the price might exceed or equal the equilibrium price
Suppose that production of a good creates a negative externality. An excise tax equivalent to the difference between the marginal social cost and the marginal private cost of production can correct the inefficiency. T or F
True
True or False: Trading at a lower price is illegal.
True
True or false: Trading at a higher price is illegal.
True
Which of the following units is used to measure nominal GDP in the United States?
US dollars
Which of the following is a pure public good?
a fireworks display
Price Floor
a government regulation that places a lower limit on the price at which a particular good, service, or factor of production may be traded.
Price Ceiling/ Price Cap
a government regulation that places an upper limit on the price at which a particular good, service, or factor of production may be traded.
Price Elasticity of Demand
a measure of the responsiveness of the quantity demanded of a good to a change in its price, when all other influences on buyers' remain the same
Which of the following would be counted in U.S. GDP?
a new US produced radio bought by a Japanese citizen living in Kyoto
What makes a price floor/ price ceiling binding/ effective?
a price floor must be set above equilibrium a price ceiling must be set below equilibrium
market failure
a situation in which the market delivers an inefficient outcome
Involuntary exchanges, such as robbery,
are not Pareto improvements
Which of the following is an example of a regulatory action?
automobile manufacturers are required to include built-in intact seats
Factors/ determinants that influence price elasticity of demand( supply)?
availability of substitutes-easy to find= elastic, not easy to find= inelastic proportion of income spent-price rise means people can't buy the same stuff as before