ECO ch 1
Sam bakes a cake and sells it to Carla for $10. Woody pays Diane $30 to tutor him. In this economy, GDP is
$40.
Angus the sheep farmer sells wool to Barnaby the knitter for $20. Barnaby makes two sweaters, each of which has a market price of $40. Collette buys one of them, while the other remains on the shelf of Barnaby's store to be sold later. What is GDP here?
$80
If the CPI is 200 for the year 1980 and 300 today, then $600 in 1980 has the same purchasing power as ________ has today.
$900
Approximately what percent of U.S. workers are directly affected by the minimum wage?
1
The population of Ectenia is 100 people: 40 work full-time, 20 work half-time but would prefer to work full-time, 10 are looking for a job, 10 would like to work but are so discouraged that they have given up looking, 10 are not interested in working because they are full-time students, and 10 are retired. What is the number of unemployed?
10
The world's rich countries, such as the United States and Germany, have income per person that is about _____ times income per person in the world's poor countries, such as Pakistan and India.
10
If the price of a hot dog is $2 and the price of a hamburger is $4, then 30 hot dogs contribute as much to GDP as _____ hamburgers.
15
In the United States, unionized workers are paid about _____ percent more than similar nonunion workers.
15
Over the past century, real GDP per person in the United States has grown about _____ percent per year, meaning it has roughly doubled every _____ years.
2, 35
An economy produces 10 cookies in year 1 at a price of $2 per cookie and 12 cookies in year 2 at a price of $3 per cookie. From year 1 to year 2, real GDP increases by
20 percent
You deposit $2,000 in a savings account, and a year later you have $2,100. Meanwhile, the CPI rises from 200 to 204. In this case, the nominal interest rate is _____ percent, and the real interest rate is _____ percent.
5, 3
Using the numbers in the preceding question, what is the size of Ectenia's labor force?
70
Which of the following firms is likely to have the greatest market power?
A utility company
Externalities can only affect those who are internally involved in a transaction.
False
The "cost" referred to in the concept of opportunity cost is always monetary.
False
When the Japanese car maker Toyota expands one of its car factories in the United States, what is the likely impact of this event on the gross domestic product and gross national product of the United States?
GDP and GNP both rise but GDP rises by more.
Over the past century, ________ has experienced particularly strong growth, and ________ has experienced particularly weak growth.
Japan, the United Kingdom
A worker in Vietnam can earn $6 per day making cotton cloth on a hand loom. A worker in the United States can earn $85 per day making cotton cloth with a mechanical loom. What is the likely explanation for the difference in wages?
Labor is more productive making cotton cloth with a mechanical loom than with a hand loom.
An American buys a pair of shoes made in Italy. How do the U.S. national income accounts treat the transaction?
Net exports fall, while GDP does not change.
Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigarettes in surrounding states. Which of the following principles does this best illustrate?
People respond to incentives.
Which of the following would be considered a negative externality? a.Having a neighbor who maintains the appearance of their home. b.Education c.Smoking a cigarette in a bus stop full of people. d.Wearing deodorant
Smoking a cigarette in a bus stop full of people.
You go to the movieplex where movies ordinarily cost $9. You are intending to see a movie for which you have a $3-off coupon good for only that movie at that time. However, when you get there you see a friend who asks if you would rather see a new release. Both movies start and end at the same time. If you decide to see the new release with your friend, what is your opportunity cost?
The amount you value the first movie + $3
Which of the following does NOT add to U.S. GDP?
The federal government sends a Social Security check to your grandmother.
The concept of opportunity cost is described in which of the following statements?
The value of what certain resources could have produced had they been used in the best alternative way.
Which is the largest component of GDP?
consumption
If Mr. Keating quits his job as a teacher to home school his own children, GDP
falls because his market income decreases.
When a firm pays an efficiency wage, it may
find that its workers quit less frequently.
According to the theory of efficiency wages,
firms may find it profitable to pay above-equilibrium wages.
Because capital is subject to diminishing returns, higher saving and investment do not lead to higher
growth in the long run
The largest component in the basket of goods and services used to compute the CPI is
housing
The main reason the cost of living varies across regions of the country is differences in the price of
housing
GDP is an imperfect measure of well-being because it
ignores the environmental degradation from economic activity.
The main policy goal of unemployment insurance is to reduce the
income uncertainty that workers face.
Trade between countries tends to
increase both competition and specialization.
In a competitive labor market, an increase in the minimum wage results in a(n) __________ in the quantity of labor supplied and a(n) __________ in the quantity of labor demanded.
increase, decrease
Increases in the amount of human capital in the economy tend to ________ real incomes because they increase the ________ of labor.
increase, productivity
In a particular country in 1998, the average worker needed to work 25 hours to produce 40 units of output. In that same country in 2008, the average worker needed to work 40 hours to produce 68 units of output. In that country, the productivity of the average worker
increased by 6.25 percent between 1998 and 2008.
Most economists are ________ that natural resources will eventually limit economic growth. As evidence, they note that the prices of most natural resources, adjusted for overall inflation, have tended to ________ over time.
not concerned, fall
Chloe's college raises the cost of room and board per semester. This increase raises Chloe's opportunity cost of attending college
only if the amount she would have to pay for room and board if she didn't attend college rose by less than the increase in the amount her college charges. An increase in opportunity cost reduces Chloe's incentive to attend college.
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.
In many European nations, unions
play a much larger role than they do in the United States.
Thomas Robert Malthus believed that population growth would
put stress on the economy's ability to produce food, dooming humans to remain in poverty.
One unintended consequence of unemployment insurance is that it reduces the
search effort of the unemployed.
In a market economy, economic activity is guided by
self-interest and prices.
Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should
sell the ticket because the marginal benefit exceeds the marginal cost.
Allocation of resources is inefficient only if
some of the potential gains from trade among buyers are sellers are not being realized.
Because consumers can sometimes substitute cheaper goods for those that have risen in price,
the CPI overstates inflation.
If a Pennsylvania gun manufacturer raises the price of rifles it sells to the U.S. Army, its price hikes will increase
the GDP deflator but not the CPI.
The CPI measures approximately the same economic phenomenon as
the GDP deflator.
An economy's gross domestic product is
total income and total spending.
Economists say that the allocation of resources is efficient if
total surplus is maximized
