Econ 102 exam 1
Suppose that business firms spend $500 million on new capital equipment this year. Of this $500 million, $300 million was spent on domestically produced capital and $200 million was spent on foreign-produced capital. All else equal, these transactions contribute ________ to GDP. A) $300 million B) $0 C) $200 million D) $800 million E) $500 million
A) $300 million
In 2009 in the United States, net domestic product at factor cost was $11,091 billion. Additionally, rent was $2,000 billion, profits were $1,000 billion, and interest was $358 billion. Hence wages were A) $7,733 billion. B) $9,091 billion. C) $12,091 billion. D) $10,091 billion. E) $8,091 billion.
A) $7,733 billion.
Which of the following statements is TRUE regarding scarcity? A) All citizens in a wealthy economy experience scarcity. B) Scarcity affects poorer countries only. C) Poor people experience scarcity more often than do rich people. D) Scarcity could be overcome if people would make all choices in the social interest. E) An economy experiences scarcity only when the incomes of its citizens decline.
A) All citizens in a wealthy economy experience scarcity.
Suppose that the demand curve for desktop computers shifts rightward and at the same time the supply curve shifts leftward. Which of the following could have caused these shifts? A) Desktop computers are a normal good and incomes increased, while the labor costs of producing personal computers increased. B) Desktop computers are a normal good and incomes decreased, while the labor costs of producing personal computers increased. C) Desktop computers are a normal good and incomes increased, while more firms entered the market. D) Consumers purchased more computers because of the Christmas season and the labor costs of producing desktop computers decreased. E) The price of a laptop computer, a substitute for desktop computers, fell and the cost of producing desktop computers decreased.
A) Desktop computers are a normal good and incomes increased, while the labor costs of producing personal computers increased.
Hank requires 1 hour to cut the grass and 3 hours to clean the house. His sister Holly requires 1 hour to cut the grass and 4 hours to clean the house. Which of the following statements is TRUE? A) Holly has a comparative advantage in cutting the grass. B) Hank has a lower opportunity cost of cutting the grass. C) Hank has an absolute advantage in both cutting the grass and cleaning the house. D) Hank has a comparative advantage in both cutting the grass and cleaning the house. E) Hank and Holly both have a comparative advantage in cutting the grass.
A) Holly has a comparative advantage in cutting the grass.
Which of the following is a microeconomic topic? A) Northwest Airlines analyzes the benefits of adding one more flight to Salt Lake City. B) Germany's government increases taxes to avoid a budget deficit. C) Chinese economic growth slows. D) The government leaves interest rates unchanged as the economy improves. E) Unemployment soars as taxes increase.
A) Northwest Airlines analyzes the benefits of adding one more flight to Salt Lake City.
Plywood is used in the construction of houses. If the price of plywood rises, what happens to the supply of houses? A) The supply decreases so that the supply curve shifts leftward. B) The quantity supplied decreases but there is no shift in the supply curve. C) The quantity supplied decreases and the supply curve shifts leftward. D) The supply increases so that the supply curve shifts rightward. E) The quantity supplied increases but there is no shift in the supply curve
A) The supply decreases so that the supply curve shifts leftward.
Suppose the current price of a pound of steak is $6 per pound and the equilibrium price is $9 per pound. What takes place? A) There is a shortage, so the price rises and quantity demanded decreases. B) There is a shortage, so the price falls and quantity demanded increases. C) There is a shortage, so the price falls and quantity demanded decreases. D) There is a surplus, so the price falls and quantity demanded increases. E) There is a shortage, so the price rises and quantity demanded increases.
A) There is a shortage, so the price rises and quantity demanded decreases.
Which of the following is a macroeconomic topic? A) Why did production and jobs expand rapidly in 2017? B) the federal government's decision to spend more on environmental protection C) the effect of floods in agricultural areas on the price and quantity of wheat D) the county government's decision to increase the sales tax for your county E) General Motors decides what prices to set for their new models.
A) Why did production and jobs expand rapidly in 2017?
When a person has a comparative advantage in producing a good or service, the person has A) a lower opportunity cost in producing that product than someone else. B) an increasing marginal benefit in producing the good. C) a higher opportunity cost in producing that product than someone else. D) a decreasing opportunity cost in producing that product. E) a constant opportunity cost in producing that product
A) a lower opportunity cost in producing that product than someone else.
Which of the following is a consumption good or service? A) a personal computer purchased in order to play games at home B) a United Airline ticket counter C) a United Parcel Service truck delivering Christmas gifts D) a satellite dish installed by Cox Cable to download programs that are then distributed through its cable system E) the Starship, SpaceX's proposed human-carrying rocket
A) a personal computer purchased in order to play games at home
Which of the following does NOT increase the supply of personal computers, that is, does NOT shift the supply curve of personal computers? A) a rise the price of a personal computer B) a fall in the cost of the components used to assemble personal computers C) an advance in the technology used to produce personal computers D) a change in the expected future price of a personal computer E) an increase in the number of firms producing personal computer
A) a rise the price of a personal computer
If macaroni and cheese is an inferior good, then a decrease in income results in A) an increase in the demand for macaroni and cheese. B) an increase in the supply of macaroni and cheese. C) a decrease in the demand for macaroni and cheese. D) a decrease in the supply of macaroni and cheese. E) Both answers A and D are correct
A) an increase in the demand for macaroni and cheese.
The question of "What goods and services get produced?" most closely relates to which of the following issues? A) building a missile defense system, or putting a computer in every elementary school classroom B) the distribution of goods and services in the economy C) obtaining specialized training to increase one's income D) taxing high income workers to give payments to poor households E) producing goods and services in the least costly manner
A) building a missile defense system, or putting a computer in every elementary school classroom
A decrease in the price of driver liability insurance will ________ the ________ for new automobiles. A) increase; demand B) increase; supply C) decrease; supply D) decrease; demand E) None of the above is correct.
A) increase; demand
A reduction in the cost of cable TV subscriptions will ________ the ________ for televisions. A) increase; demand B) increase; supply C) decrease; supply D) decrease; demand E) None of the above is correct.
A) increase; demand
In 1961, real GDP totaled $575 billion and in 2011 it totaled $1,255 billion. Between 1961 and 2011, the population increased from 50 million to 100 million. Between 1961 and 2011, the standard of living based on real GDP per person A) increased from $11,500 to $12,550. B) decreased by 9 percent. C) increased by about 118 percent. D) decreased from $125,500 to $28,750. E) increased by over 300 percent.
A) increased from $11,500 to $12,550.
As an economy grows A) its PPF shifts outward. B) the opportunity cost of production will approach 0. C) it can eliminate scarcity. D) its PPF does not shift; instead, the production point moves from inside the PPF to be closer to the PPF. E) the opportunity cost of production will increase.
A) its PPF shifts outward.
The production possibilities frontier illustrates the A) maximum combinations of goods and services that can be produced. B) resources the economy possess, but not its level of technology. C) limits to people's wants. D) goods and services that people want. E) amount of each good that people want to buy.
A) maximum combinations of goods and services that can be produced.
If a price ceiling above the equilibrium price is imposed, the price ceiling will lead to A) no change because it is above the equilibrium price. B) an increase in the quantity produced. C) a shortage because it is above the equilibrium price. D) a surplus because it is above the equilibrium price. E) a price floor being set by the government.
A) no change because it is above the equilibrium price.
Gross Domestic Product is equal to the market value of all the final goods and services ________ in a given period of time. A) produced within a country B) produced by the citizens of a country C) consumed by the citizens of a country D) produced and consumed within a country E) consumed within a country
A) produced within a country
When there is a shortage of parking spaces at your college, the A) quantity of parking spaces demanded is greater than the quantity of parking spaces supplied. B) supply of parking spaces is greater than the demand. C) demand for parking spaces is greater than the supply. D) quantity of parking spaces supplied is greater than the quantity of parking spaces demanded. E) Both answers A and D are correct.
A) quantity of parking spaces demanded is greater than the quantity of parking spaces supplied.
The effects of an effective minimum wage, where the minimum wage is set above the equilibrium wage rate, are to ________ the wage rate paid workers and ________ employment. A) raise; decrease B) lower; decrease C) raise; increase D) raise; not change E) lower; increase
A) raise; decrease
Assume a competitive market is in equilibrium. There is an increase in demand, but no change in supply. As a result, the equilibrium price ________, and the equilibrium quantity ________. A) rises; increases B) falls; decreases C) rises; does not change D) falls; increases E) falls; does not change
A) rises; increases
As more women decide to work outside the home and therefore hire others to work around their home, GDP will increase by A) the value of the output produced by the newly working women plus the value of any household work they are now hiring someone to perform. B) the value of the output produced by the newly working women minus the value of the household work they were previously performing. C) only the value of the household work they are now hiring someone to perform. D) only the value of the output produced by the newly working women. E) the value of the household work they were previously performing minus the value of the output produced by the newly working women.
A) the value of the output produced by the newly working women plus the value of any household work they are now hiring someone to perform.
The income approach to measuring GDP is based on summing A) wages, interest, rent, and profits. B) the values of final goods, intermediate goods and services, used goods, and financial assets. C) consumption expenditure, investment, government expenditures on goods and services, and net exports of goods and services. D) the production of each industry. E) consumption expenditure and wages.
A) wages, interest, rent, and profits.
Scarcity requires that we A) produce efficiently. B) make choices about what goods and services to produce. C) learn to limit our wants. D) have unlimited resources. E) have the most rapid economic growth possible.
B) make choices about what goods and services to produce.
Last year in Candamica, consumption expenditure was $20 billion, interest, rent, and profit were $2.5 billion, government expenditure on goods and services was $7 billion, net exports of goods and services was $5 billion, and investment was $2 billion. Hence total expenditure was A) $34.5 billion. B) $34 billion. C) $24.5 billion. D) $36.5 billion. E) undetermined without information about imports.
B) $34 billion.
This year a firm produces $100 million worth of cars this year and sells $102 million worth of cars. Which of the following is TRUE? A) GDP for this year will increase by $102 million. B) GDP for this year will increase by $100 million. C) Inventory investment will increase by $2 million. D) GDP for this year will increase by $202 million. E) The premise of the question is wrong because it is impossible for a firm to sell more than it produces in a given time period.
B) GDP for this year will increase by $100 million.
Going skiing will cost Adam $80 a day. He also loses $40 per day in wages because he has to take time off from work. Adam still decides to go skiing. A) Adam is definitely making a decision that is in the social interest. B) His decision is rational if Adam's marginal benefit of spending a day skiing is greater than his marginal cost. C) The $80 price of skiing is not an opportunity cost and so did not affect Adam's decision. D) He loses a total of $120 per day, so his decision is irrational. E) Adam's lost $40 per day in wages is not an opportunity cost and so did not affect his decision.
B) His decision is rational if Adam's marginal benefit of spending a day skiing is greater than his marginal cost.
Which of the following BEST describes macroeconomics? A) It studies the choices that individuals and businesses make when coping with scarcity. B) It analyzes the aggregate effects on the national economy of the choices made by individuals, firms, and governments. C) It is not a social science because its predictions cannot be tested. D) Proving causation is never a problem for macroeconomics. E) It examines how the choices that individuals affect governments.
B) It analyzes the aggregate effects on the national economy of the choices made by individuals, firms, and governments.
In stores, it is common to find seasonal products marked down when the season ends. What explains this behavior? A) The store is trying to increase its customers' demand for the product. B) The law of demand is being used to increase the quantity demanded. C) The store is trying to sell the goods and realizes that they are substitutes for other goods whose prices have risen. D) The store manager must be trying to drive away customers by selling low quality products. E) The store is trying to increase its consumers' incomes by increasing their purchasing power.
B) The law of demand is being used to increase the quantity demanded.
Kelly's Surf Shop orders 5,000 new surf boards at the beginning of the year but only sells 4,500 by the end of the year. How are the 500 unsold surfboards accounted for in Gross Domestic Product? A) They will be included in the government spending category of GDP. B) They will be included in the inventory investment category of GDP. C) They will be included in the nondurable consumption category of GDP. D) They will be included in the durable consumption category of GDP. E) They will be included in the residential investment category of GDP.
B) They will be included in the inventory investment category of GDP.
Suppose that the price of bread rises. This rise could be the result of A) an increase in the supply of bread. B) a decrease in the supply of bread. C) a decrease in the demand for bread. D) Both answers A and C are correct. E) Both answers B and C are correct.
B) a decrease in the supply of bread.
A minimum wage law is an example of A) a price ceiling. B) a price floor. C) an equilibrium price. D) a price cap. E) a labor price.
B) a price floor.
In order for Ireland to grow more potatoes, wool production must decrease. This situation is an example of A) opportunity benefit. B) a tradeoff. C) producing at a point that lies beyond the PPF. D) zero opportunity cost. E) a free lunch.
B) a tradeoff.
Which of the following results in a movement upward along the demand curve for movies? A) a decrease in the price of movie tickets B) an increase in the price of movie tickets C) an increase in income, assuming that movies are a normal good D) a decrease in income, assuming that movies are a normal good E) a decrease in the price of NetFlix, a substitute for movies
B) an increase in the price of movie tickets
The largest expenditure category in the United States is A) investment. B) consumption expenditure. C) net exports of goods and services. D) government expenditure on goods and services. E) wages.
B) consumption expenditure.
Advances in productivity increase supply because they might A) increase the number of firms producing the good. B) decrease the cost of production. C) raise the prices of resources used to produce the good. D) increase the price expected in the future. E) decrease the number of goods available.
B) decrease the cost of production.
The following are all final goods EXCEPT A) pencils used by a 6th grader in class. B) flour used by the baker to make cupcakes. C) a computer used by Intel to design new computer chips. D) bread eaten by a family for lunch. E) Nike shoes used by a basketball player.
B) flour used by the baker to make cupcakes.
Government expenditures on goods and services include i. the New York City Library's purchase of new books. ii. Washington D.C.'s purchase of gas for its city buses. iii. California's payment of wages to prison guards. A) i and ii B) i, ii and iii C) i only D) i and iii E) ii and iii
B) i, ii and iii
A professor changes the penalty for cheating on exams from getting a 0 on the exam to getting an F in the course. The professor has A) recognized that students don't make rational choices. B) increased the marginal cost of cheating. C) recognized that students don't respond to incentives. D) made all the students act in the social interest. E) decreased the marginal benefit of cheating
B) increased the marginal cost of cheating.
Bob's Funky T-shirts began the year with 1,000 shirts in inventory, produced 10,000 shirts during the year and ended the year with 1,100 shirts in inventory. The 100 shirts added to his inventory will be classified as A) net exports of goods and services. B) investment. C) nondurable consumption goods. D) consumption expenditure. E) exports of goods and services.
B) investment.
eBay A) is not a market because buyers can buy from only one seller at any point in time. B) is a market because buyers and sellers are brought together to buy and sell. C) would be a market if there was only one physical location. D) cannot function as a market. E) will be considered a market when the Internet firms are profitable.
B) is a market because buyers and sellers are brought together to buy and sell.
Mexico City is notorious for its excessive pollution. Mexico's measure of GDP is A) increased by the estimated value of the pollution's harm. B) not affected by the estimated value of the pollution's harm. C) changed by the pollution only when comparing its GDP with the U.S. GDP. D) decreased by the estimated value of the pollution's harm. E) None of the above answers is correct.
B) not affected by the estimated value of the pollution's harm.
The United Auto Workers bargained for higher wages and more benefits for autoworkers. As a result of the higher wages and increased benefits i. the quantity of new automobiles supplied decreases. ii. the supply of new automobiles decreases. iii. the supply of new automobiles increases. A) only i B) only ii C) only iii D) both i and ii E) Neither i, ii, nor iii is correct.
B) only ii
The opportunity cost of a good increases as more of it is produced because A) producing more of a good requires additional resources. B) resources are not equally productive in all activities. C) people want the good less as more is produced. D) there is no such thing as a free lunch. E) the number of forgone alternatives also increases.
B) resources are not equally productive in all activities.
In the goods market, firms ________ and households ________. A) purchase goods and services; supply goods and services B) supply goods and services; purchase goods and services C) pay rent, wages, interest, and profit; earn rent, wages, interest, and profit D) supply land, labor, capital, and entrepreneurship services; hire land, labor, capital, and entrepreneurship services E) hire land, labor, capital, and entrepreneurship services; supply goods and services
B) supply goods and services; purchase goods and services
If aluminum producers expect aluminum prices to fall in the future, this belief shifts the current ________ curve for aluminum to the ________. A) demand; right B) supply; right C) demand; left D) supply; left E) None of the above is correct.
B) supply; right
Suppose the equilibrium price of oranges is $2.00 per pound. If the actual price is above the equilibrium price a A) shortage exists, and the price rises to restore equilibrium. B) surplus exists, and the price falls to restore equilibrium. C) shortage exists, and the price falls to restore equilibrium. D) surplus exists, and the price rises to restore equilibrium. E) surplus exists, but nothing happens until either the demand or the supply changes.
B) surplus exists, and the price falls to restore equilibrium.
Last year U.S. net exports of goods and services was negative. This fact means that last year A) the value of U.S. exports was greater than the value of U.S. imports. B) the value of U.S. exports was less than the value of U.S. imports. C) U.S. consumption expenditure plus investment plus government expenditures on goods and services was less than the value of exports plus the value of imports. D) there was an error made when calculating net exports of goods and services for the United States. E) U.S. consumption expenditure plus investment was less than the value of exports plus the value of imports.
B) the value of U.S. exports was less than the value of U.S. imports.
When personal computers were first produced, the price was very high. As time passed, the price of personal computers fell because A) the demand for personal computers decreased. B) there were technological advances in the production of personal computers. C) people's incomes increased and personal computers are an inferior good. D) the initial price was too high and nobody bought personal computers. E) None of the above answers is correct.
B) there were technological advances in the production of personal computers.
Which of the following is an example of an intermediate good or service? A) golf balls sold to Tiger Woods B) training seminars for employees of an accounting firm C) flour purchased by Jake to bake a cake for his spouse D) gasoline purchased by Sam for her commute to work E) None of the above are examples of intermediate goods or services.
B) training seminars for employees of an accounting firm
To calculate GDP it is necessary to A) average the cost of producing a good with the price of the good to place a dollar value on all goods produced. B) use the market price to place a dollar value on each good produced. C) use the average market price over the last five years to place a dollar value on all goods produced. D) add the total amounts of all the goods produced. E) use production cost to place a dollar value on all goods produced.
B) use the market price to place a dollar value on each good produced.
Pat gives up a $40,000 per year job to stay at home and take care of the house. By so doing, Pat saves $15,000 in child care and house cleaning services which he now performs himself. The direct effect on GDP from Pat's decision is a decrease of A) $15,000. B) $30,000. C) $55,000. D) $40,000. E) $25,000
C) $55,000.
Changes in which of the following factors do NOT shift the demand curve? A) the price expected in the future B) the number of buyers C) buyers' incomes D) the price of a substitute good E) the price of the good
E) the price of the good
On a production possibilities frontier, 500 pounds of apples and 1,200 pounds of bananas can be produced while at another point on the same frontier, 300 pounds of apples and 1,300 pounds of bananas can be produced. Between these points, what is the opportunity cost of producing a pound of apples? A) 2 pounds of apples B) 100 pounds of bananas C) 0.5 of a pound of bananas D) 2 pounds of bananas E) 5/12 of a pound of bananas
C) 0.5 of a pound of bananas
Total expenditure equals A) C - I + G + NX. B) C - I - G - NX. C) C + I + G + NX. D) C + I + G - NX. E) C + I - G + NX.
C) C + I + G + NX.
________ the owners of the factors of production, while ________ what amounts of those factors to hire. A) Firms are; the government determines B) The government is; firms determine C) Households are; firms determine D) Firms are; households determine E) Households are; the government determines
C) Households are; firms determine
A popular dinner among college students today is sushi, green tea, and wasabi dip so these foods are complements. If the price of green tea increases and the price of wasabi dip increases, what would be the effect on demand for sushi at lunch? A) The demand for sushi could increase or decrease. B) The demand for sushi would be unaffected, but the price would decrease. C) The demand for sushi would decrease. D) The demand for sushi would be unaffected, but the price would increase. E) The demand for sushi would increase.
C) The demand for sushi would decrease.
Which economic question depends on the incomes that people earn and the prices they pay for goods and services? A) For whom? B) Where? C) What? D) Why? E) How?
C) What?
Which of the following is NOT an example of a capital good? A) a miner's cap B) a GPS tracking device C) a U.S. government bond D) a stethoscope E) an airport kiosk
C) a U.S. government bond
It is expected that the price of a bushel of wheat will increase in one month. This belief will result in A) no change in the current or future supply of wheat. B) a decrease in the future supply of wheat. C) a decrease in the current supply of wheat. D) an increase in the current supply of wheat. E) an increase in the current quantity supplied of wheat.
C) a decrease in the current supply of wheat.
Which of the following is a final good or service? A) the grilled chicken purchased by Taco Bell for use in their burritos B) the CPUs purchased by Dell to be used in their computers C) a new replacement muffler installed by Midas Mufflers D) the computers purchased by Office Depot for sale to its customers E) the fertilizer purchased by Royal Lawn and Landscape
C) a new replacement muffler installed by Midas Mufflers
Instead of studying for an additional two hours for the economics final, Leann decides to watch a movie. Leann is making A) a rational decision if her marginal benefit from the movie is greater than her marginal cost. B) a decision that is not on the margin because she will see the entire movie. C) a rational decision if her marginal cost from the movie is greater than her marginal benefit. D) a decision that does not involve an opportunity cost. E) an irrational decision because studying is more important than watching a movie.
C) a rational decision if her marginal cost from the movie is greater than her marginal benefit.
By donating $1,000 to the Salvation Army, Caroline reduces her taxable income. To Caroline, the reduction in her taxable income is A) a marginal cost. B) an opportunity cost. C) an incentive. D) a marginal benefit. E) the margin.
C) an incentive.
The United States is one of the richest nations in the world A) so it might not have a comparative advantage in producing any goods. B) so it does not need to trade with poor nations in order to achieve any gains from trade. C) but it can still benefit from specialization and trade. D) so it must have an absolute advantage in the production of all goods. E) so it must have a comparative advantage in the production of all goods
C) but it can still benefit from specialization and trade.
With no international trade, a country ________ consume at a point outside of its PPF; with international trade, a country ________ consume at a point outside of its PPF. A) can; cannot B) can; can C) cannot; can D) cannot; cannot E) None of the above answers is correct because the presence or absence of international trade has nothing to do with where a country consumes in comparison to its PPF.
C) cannot; can
Which of the following shifts the supply curve for oranges? A) an increase in income for all orange consumers if oranges are a normal good B) an increase in the number of orange consumers C) disastrous weather that destroys about half of this year's orange crop D) an increase in the price of bananas, a substitute in consumption for oranges E) a newly discovered increase in the nutritional value of oranges
C) disastrous weather that destroys about half of this year's orange crop
Suppose that, instead of taking this test, you could either have worked and earned income or partied and had a pleasurable time. Your opportunity cost of taking the test is the A) forgone work. B) test because you are taking it. C) forgone working or partying, depending on which was your next best choice. D) forgone working and partying. E) forgone party
C) forgone working or partying, depending on which was your next best choice.
The circular flow diagram includes the following players A) factor markets, goods markets, financial markets, firms B) government, firms, financial markets, goods markets C) households, firms, government, rest of the world D) households, factor markets, goods markets, firms
C) households, firms, government, rest of the world
The business cycle is defined as A) changes in the stock market. B) the period of time during which the unemployment rate is rising. C) irregular ups and downs in production and jobs. D) changes in financial markets. E) persistent growth in potential GDP.
C) irregular ups and downs in production and jobs.
Suppose you eat two hamburgers for lunch. The marginal benefit of the first burger is ________ of the second burger. A) smaller than the marginal benefit B) not related to the marginal benefit C) larger than the marginal benefit D) equal to the marginal benefit E) equal to the marginal cost AND the marginal benefit
C) larger than the marginal benefit
Because of a sharp increase in the price of gasoline, the demand for Sports Utility vehicles (SUVs) has decreased. So, the high price of gasoline leads to a A) leftward shift of the supply curve of SUVs and no shift in the demand curve for SUVs. B) leftward shift of the demand curve for SUVs AND the supply curve of SUVs. C) leftward shift of the demand curve for SUVs and no shift in the supply curve of SUVs. D) leftward shift of the demand curve for SUVs and a rightward shift of the supply curve of SUVs. E) rightward shift of the supply curve of SUVs and no shift in the demand curve for SUVs.
C) leftward shift of the demand curve for SUVs and no shift in the supply curve of SUVs.
The measurement of GDP handles underground production by A) adding an estimate of it because it is difficult to precisely measure underground production. B) including the amount produced in this sector of the economy in exactly the same way that all other production is included. C) omitting it because underground production is unreported to the government by the people involved. D) omitting it because, being illegal, it has no effect on the nation's total production. E) adding it at fixed prices that change only infrequently.
C) omitting it because underground production is unreported to the government by the people involved.
In the factor market, firms ________ and households ________. A) purchase goods and services; supply goods and services B) supply land, labor, capital, and entrepreneurship services; hire land, labor, capital, and entrepreneurship services C) pay rent, wages, interest, and profit; earn rent, wages, interest, and profit D) hire land, labor, capital, and entrepreneurship services; purchase goods and services E) supply goods and services; purchase goods and services
C) pay rent, wages, interest, and profit; earn rent, wages, interest, and profit
A recession conventionally is defined as a decrease in A) the inflation rate that lasts for at least six months. B) potential GDP that lasts for at least six months. C) real GDP that lasts for at least six months. D) the growth rate of real GDP that lasts for at least six months. E) real GDP that lasts for at least three months.
C) real GDP that lasts for at least six months.
A free lunch (the absence of a tradeoff) when the production of a good is increased is possible for the entire economy only if A) there is a movement along the PPF. B) less of some product is produced. C) resources are used inefficiently. D) prices are decreased. E) prices are increased.
C) resources are used inefficiently.
A rent ceiling set below the equilibrium rent leads A) all buyers being able to rent the same number of apartments as before. B) sellers producing more new apartments. C) sellers having less incentive to provide apartments. D) a rent floor being set by the government. E) to no change in the market for housing.
C) sellers having less incentive to provide apartments.
Assume that the market for consumer gasoline is perfectly competitive. When one additional seller (gas station) enters the market A) then at least one other seller must exit the market. B) the price of gasoline decreases. C) the price of gasoline is left unaffected. D) the price of gasoline increases. E) None of the above is correct.
C) the price of gasoline is left unaffected.
Investment is defined as A) spending on capital goods by governments. B) what consumers do with their savings. C) the purchase of new capital goods by firms. D) financial capital. E) the purchase of a stock or bond.
C) the purchase of new capital goods by firms.
Consider the market for turkeys. In the United States, because of Thanksgiving in the month of November A) the demand curve for turkeys shifts leftward. B) there is a downward movement along the demand curve for turkeys. C) there is an upward movement along the supply curve for turkeys. D) the supply curve of turkeys shifts leftward. E) neither the demand curve nor the supply curve shift; instead there is a movement along both curves
C) there is an upward movement along the supply curve for turkeys.
An example of household production excluded from GDP is A) plumbing work completed by Joe Fix-it. B) household cleaning services provided by Merry Maids Incorporated. C) tree trimming you provide at your parents' home. D) child care provided by a certified nanny. E) lawn care provided by a local lawn care company.
C) tree trimming you provide at your parents' home.
According to the income approach to measuring GDP, the largest income category is A) interest. B) consumption expenditure. C) wages. D) profits. E) rent.
C) wages.
Which of the following BEST defines economics? A) Economics analyzes all aspects of human behavior in general. B) Economics is concerned with prices and quantities of goods and services, both at the individual level and at the industry level. C) Economics teaches how to limit our wants. D) Economics studies how to choose the best alternative when coping with scarcity. E) Economics helps you earn as much money as possible.
D) Economics studies how to choose the best alternative when coping with scarcity.
Canada has nationalized health care, so that everyone, regardless of their ability to pay, has some access to health care. Based on this observation, Canada has decided that "everyone, regardless of their ability to pay" is the answer to what microeconomic question? A) How will health care be produced? B) Why will we offer health care? C) What type of health care will be produced and in what quantity? D) For whom will health care be produced? E) Must we offer health care?
D) For whom will health care be produced?
Why is a production possibilities frontier bowed out (concave)? A) The bowed shape indicates that opportunity cost at first increases at a decreasing rate, and then begins to increase at an increasing rate. B) The bowed shape indicates that opportunity cost at first decreases at a decreasing rate, and then begins to decrease at an increasing rate. C) The bowed shape reflects constant opportunity cost. D) The bowed shape reflects increasing opportunity cost. E) The bowed shape reflects decreasing opportunity cost.
D) The bowed shape reflects increasing opportunity cost.
There are five hundred buyers in the market for cheese. If we know each individual's demand curves, to find the market demand, we must A) add the prices that each buyer will pay at every quantity. B) average the price each buyer is willing to pay for each given quantity. C) multiply the price times quantity for each buyer and then add the resulting products together. D) add the quantities that each buyer will purchase at every price. E) give up because there is no way to find the market demand.
D) add the quantities that each buyer will purchase at every price.
The value of used goods ________ counted as part of GDP ________. A) are; as long as they are classified as investment goods B) are not; because most fall in value and would cause a decrease in the value of GDP C) are; as long as they are classified as consumption goods D) are not; because they were counted during the period when they were counted as new goods E) may be; as long as their value has risen
D) are not; because they were counted during the period when they were counted as new goods
To make a rational choice, a person A) adds the total benefits to determine if the total is large enough. B) adds the total benefits and the total costs and then compares the two totals. C) takes account of all benefits and all opportunity costs, including both marginal costs and sunk costs. D) compares the extra benefits of one more unit to the extra costs of one more unit. E) adds the total costs to determine if the total is small enough.
D) compares the extra benefits of one more unit to the extra costs of one more unit.
Mulch is shredded wood and is a by-product in the production of lumber. Because these two goods are produced together, they are A) inputs into the same production process. B) substitutes in production. C) normal goods in production. D) complements in production. E) not related.
D) complements in production.
In the circular flow model, there are generally two types of markets: the ________ market and the ________ market. A) households; firms B) producers; consumers C) service; goods D) goods; factor E) supply; demand
D) goods; factor
The purchase of 500 shares of Honda stock by the California State Employees' Pension fund A) is counted as part of export expenditure in the GDP accounts because Honda is a foreign firm. B) is counted as part of import expenditure in the GDP accounts because Honda is a foreign firm. C) is counted as investment in the GDP accounts. D) is not counted as part of GDP. E) is counted as consumption expenditure.
D) is not counted as part of GDP.
Huey has eaten two hamburgers and is considering a third. The marginal benefit in his decision is the pleasure from consuming A) the two previous hamburgers. B) all three hamburgers. C) the third hamburger minus the pleasure from consuming zero hamburgers. D) just the third hamburger. E) just the second hamburger
D) just the third hamburger.
Although imperfect, which of the following is used as a measure of the standard of living? A) nominal GNP × population B) nominal GDP × population C) nominal GNP ÷ population D) real GDP ÷ population E) real GDP × population
D) real GDP ÷ population
If a market begins in equilibrium and then the demand curve shifts leftward, a A) shortage is created, which is eliminated by a fall in price. B) surplus is created, which is eliminated by the supply curve shifting leftward. C) shortage is created, which is eliminated by a rise in price. D) surplus is created, which is eliminated by a fall in price. E) surplus is created, which is eliminated by a rise in price.
D) surplus is created, which is eliminated by a fall in price.
4) Which of the following describes the law of demand? When other things remain the same, as A) more people decide to eat pizza, the demand for pizza increases. B) the price of peanut butter increases, the quantity demanded of jelly decreases. C) your income increases, you'll buy more hamburgers. D) the price of gas falls, the quantity demanded of gas increases. E) the quantity demanded of bread increases, the price of bread falls.
D) the price of gas falls, the quantity demanded of gas increases.
Market equilibrium occurs when A) the market is changing rapidly. B) other things remain the same. C) everyone who wants the good gets the quantity he or she wants. D) the quantity demanded equals the quantity supplied. E) buyers get the lowest possible price.
D) the quantity demanded equals the quantity supplied.
Opportunity cost is best defined as A) the total of all other alternatives that are forgone in making a choice. B) the sunk cost of any decision. C) how much money is paid for something. D) the value of the highest-valued alternative that is forgone in making a choice. E) how much money and time it takes to consume something.
D) the value of the highest-valued alternative that is forgone in making a choice.
Which of the following is likely to be an unreported economic activity? A) the brokerage fees paid to a broker at Merrill Lynch B) the minimum wage paid to a teenager working at a McDonald's C) a $250,000 bonus paid to the CEO of a company D) tips paid to a taxi driver E) the purchase of shares of stock in Walgreen's Pharmacy
D) tips paid to a taxi driver
In economics, cost is measured as ________, and benefit is measured as ________. A) what you are willing to pay on the margin; what the government pays you when you are unemployed or retired B) the amount of money that you pay on the margin; the amount of money that you receive on the margin C) what you are willing to give up to get it; what you must give up to get something D) what you must give up to get something; what you are willing to give up to get it E) the amount of money that you pay for something; the amount of money that someone else is willing to pay you
D) what you must give up to get something; what you are willing to give up to get it
On a production possibilities frontier, 500 pounds of apples and 1,200 pounds of bananas can be produced while at another point on the same frontier, 300 pounds of apples and 1,300 pounds of bananas can be produced. Between these points, what is the opportunity cost of producing a pound of bananas? A) 2 pounds of bananas B) 0.5 a pound of apples C) 200 pounds of apples D) 12/5 = 2.4 pounds of apples E) 2 pounds of apples
E) 2 pounds of apples
What would be an example of capital good? A) Rhianna gets a haircut. B) Jeanette buys a new dress. C) The local driver's license office purchases a new digital camera and printer. D) Apple sells computers to Japan. E) Antonio, the manager of the local Taco Hut, purchases a new deep fryer.
E) Antonio, the manager of the local Taco Hut, purchases a new deep fryer.
In the circular flow, how are the "value of production," "income," and "expenditures" related? A) Once net exports of goods and services are subtracted from GDP, all three are equal. B) Once tax payments are subtracted at each stage, they are equal. C) Value of production always equals income but expenditures is smaller because households save some of their income and do not spend it. D) They have no relationship to each other. E) Expenditures on GDP equals the value of production which equals income.
E) Expenditures on GDP equals the value of production which equals income.
In one year, a firm increases its production by $9 million and increases sales by $8 million. All other things in the economy remaining the same, which of the following is TRUE? A) GDP increases by $8 million and inventory investment decreases by $1 million. B) GDP increases by $17 million. C) GDP increases by $8 million and investment increases by $1 million. D) Inventory investment decreases by $1 million. E) GDP increases by $9 million and inventory investment increases by $1 million.
E) GDP increases by $9 million and inventory investment increases by $1 million.
Which of the following is directly accounted for in the calculation of GDP? A) cash earnings from an illegal poker game B) the value of repairing your own kitchen sink as measured by the average rates charged by local plumbers C) the value of one hour of leisure as measured by the hourly wage one would otherwise earn by working D) improvements in quality of life from the reduction of pollution E) None of the above items is accounted for in GDP.
E) None of the above items is accounted for in GDP.
A new technology is discovered that results in all new cars producing 50 percent less pollution. The technology costs nothing to produce and cars do not change in price. As a result of the technology, there is a reduction in the number of visits people make to the doctor to complain of breathing difficulties. Which of the following is TRUE? A) Real GDP decreases to reflect the decrease in pollution. B) Real GDP is not affected. C) Nominal GDP increases to reflect the improvement in the health of the population. D) Nominal GDP does not change and real GDP increases. E) Real GDP decreases as a result of fewer doctor services being provided.
E) Real GDP decreases as a result of fewer doctor services being provided.
The relationship between real GDP and potential GDP over the business cycle can be best summarized by which of the following statements? A) Real GDP cannot be equal to potential GDP. B) Real GDP cannot be greater than potential GDP. C) Real GDP is always equal to potential GDP. D) Real GDP cannot be less than potential GDP. E) Real GDP fluctuates around potential GDP.
E) Real GDP fluctuates around potential GDP.
The question of "How are goods and services produced?" most closely addresses which of the following issues? A) Should contractors build residential housing or shopping malls? B) Is income distributed fairly in the United States? C) Why are Christmas trees popular only in December? D) Should Ford build SUVs or luxury cars? E) Should Ford use expensive industrial robots or inexpensive Mexican autoworkers to produce SUVs?
E) Should Ford use expensive industrial robots or inexpensive Mexican autoworkers to produce SUVs?
A choice made by comparing all relevant alternatives systematically and incrementally is A) a sunk cost. B) a benefit. C) a choice made in the social interest. D) an opportunity cost. E) a choice on the margin.
E) a choice on the margin.
If you mow the lawn yourself, the lawn mowing is considered household production. If you pay Larry's Lawn Service to mow your lawn, the lawn mowing is considered A) a service, but is not counted as part of GDP because it simply replaces a service you used to perform. B) rent, and therefore is counted as part of GDP. C) a leisure time activity. D) underground production because it replaces the underground production of you mowing your lawn. E) a service, that will be counted as part of GDP.
E) a service, that will be counted as part of GDP.
Which of the following results in a movement upward along the supply curve for movies in theaters? A) a decrease in movie star salaries B) a decrease in the price of movie tickets C) an increase in the number of theaters D) a decrease in the price of downloaded movies E) an increase in the price of movie tickets
E) an increase in the price of movie tickets
The difference between consumption and capital goods is that A) capital goods are provided by the government. B) only big corporations can afford capital goods. C) consumption goods can be enjoyed by many people at the same time. D) it is illegal to export capital goods. E) capital goods are used to produce additional goods while consumption goods are not.
E) capital goods are used to produce additional goods while consumption goods are not.
If the price of tangerines increases, the price of oranges also rises because A) buyers' incomes must have decreased, and oranges are an inferior good. B) consumers consider the two goods complements, and so sellers decreased the supply of oranges. C) buyers must have expected a higher price for oranges and thus increased their demand for oranges. D) if the supply of tangerines decreased, then the supply of oranges also must decrease. E) consumers consider the two goods substitutes, and demand for oranges increases.
E) consumers consider the two goods substitutes, and demand for oranges increases.
The circular flow model is used to show the A) recycling process of production materials. B) flow of renewable natural resources. C) flow of supply and the flow of demand. D) expansions and contractions of economic activity. E) flow of expenditures and incomes in the economy.
E) flow of expenditures and incomes in the economy.
Even though it is not a perfect measure, economists can use real GDP to i. compare how the value of the goods and services produced in China have changed over the past 10 years. ii. look at the length of recessions and expansions in the United States. iii. compare the standard of living in China versus the standard of living in Vietnam. A) i and iii B) ii and iii C) ii only D) i and ii E) i, ii and iii
E) i, ii and iii
Economic growth depends upon which of the following? i. Increasing the quantity of labor ii. Lowering the prices of goods and services iii. Advancing technology A) i only B) ii only C) iii only D) i and iii E) i, ii, and iii
E) i, ii, and iii
While moving along a production possibilities frontier, the amount of labor ________, the amount of capital ________, and the level of technology ________. A) varies; is fixed; varies B) varies; varies; varies C) is fixed; is fixed; varies D) varies; is fixed; is fixed E) is fixed; is fixed; is fixed
E) is fixed; is fixed; is fixed
Goods and services are produced by using four factors of production A) natural resources, human resources, financial assets, and entrepreneurial resources. B) land, labor, capital, and money. C) land, labor, money, and equipment. D) labor, human capital, physical capital, and financial capital. E) land, labor, capital, and entrepreneurship.
E) land, labor, capital, and entrepreneurship.
The cost of a one-unit increase in an activity is called the A) rational cost. B) opportunity benefit. C) marginal benefit. D) margin. E) marginal cost.
E) marginal cost
When there is a surplus of snowboards, the A) supply of snowboards is greater than the demand for snowboards. B) demand for snowboards is greater than the supply of snowboards. C) quantity of snowboards demanded is greater than the quantity of snowboards supplied. D) price rises to restore the equilibrium. E) quantity of snowboards supplied is greater than the quantity of snowboards demanded.
E) quantity of snowboards supplied is greater than the quantity of snowboards demanded.
When the demand curve shifts rightward and the market moves to a new equilibrium, then the A) supply decreases. B) quantity supplied decreases. C) supply increases. D) price falls to restore the equilibrium. E) quantity supplied increases.
E) quantity supplied increases.
What is the "quantity demanded"? A) the minimum amount of a good that people are willing to buy during a specific time period and at a given price B) the amount of a good people are able and willing to buy at all possible prices C) the amount of a good people desire D) the maximum amount of a good that can be consumed during a specific time period E) the amount of a good people are able and willing to buy during a specific time period and at a given price
E) the amount of a good people are able and willing to buy during a specific time period and at a given price
Which of the following would NOT be directly included in the U.S. GDP in 2020? A) the value of the automobiles produced in 2020 at the Toyota plant located in Georgetown, Kentucky B) the market value of restaurant meals sold in 2020 C) the purchase of a new home in Atlanta, Georgia in 2020 D) legal services provided to first time home buyers during 2020 E) the market value of the jet fuel bought by Delta to use for its flights in 2020
E) the market value of the jet fuel bought by Delta to use for its flights in 2020
In measuring GDP, which of the following is included? A) the value of used goods when they are sold B) the value of preparing meals at home C) the value of durable consumption goods but not the value of nondurable consumption goods D) the value of stocks and bonds bought and sold E) the value of increases in business inventories
E) the value of increases in business inventories
During a time of high unemployment, a country can increase the production of one good or service A) but must decrease the production of something else. B) by using resources in the production process twice. C) but the opportunity cost is infinite. D) and must increase the production of something else. E) without decreasing the production of something else.
E) without decreasing the production of something else.
