Econ Ch. 1

Suppose that a simple economy produces only four goods and services: sweatshirts, dental examinations, coffee drinks, and coffee beans. Assume all the coffee beans are used in the production of the coffee drinks. Using the information in the table, nominal GDP for this simple economy equals

$8,750

If Mendonca chooses to produce 160 pounds of vegetables, how much meat can it produce to maximize production?

0 pounds of meat

The Stogie Shop, a cigar shop in the mall, sells hand-rolled cigars for $5.50 and machine-made cigars for $8.50 each. What is the opportunity cost of buying a hand-rolled cigar?

0.65 machine-made cigar

The Coffee Nock, a small cafe near campus, sells cappuccinos for $3.50 and Russian tea cakes for $2.50 each. What is the opportunity cost of buying a cappuccino?

1.4 Russian Tea Cakes

In Figure 2 if the economy is currently producing at point A, what is the opportunity cost of moving to point B?

12 thousand forks

The Coffee Nock, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each. What is the opportunity cost of buying a cappuccino?

2 1/2 Russian Tea Cakes

The Coffee Nock, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each. What is the opportunity cost of buying a Russian Tea Cake?

2/5 of Cappuccinos

In Figure 2 if the economy is currently producing at point C, what is the opportunity cost of moving to point B?

20 thousand spoons

Bella can produce either a combination of 60 silk roses and 80 silk leaves or a combination of 70 silk roses and 55 silk leaves. If she now produces 60 silk roses and 80 silk leaves, what is the opportunity cost of producing an additional 10 silk roses?

25 silk leaves

What is the opportunity cost of one pound of vegetables?

3/4 pound of meat

The Stogie Shop, a cigar shop in the mall, sells hand-rolled cigars for $10.00 and machine-made cigars for $2.50 each. What is the opportunity cost of buying a hand-rolled cigar?

4 machine made cigars

According to the FBI Bank Crime Statistics, there were nearly 4,000 bank robberies in the United States in 2014. The FBI claims that banks have made themselves easy targets by refusing to install clear acrylic partitions, called bandit barriers, that separate bank tellers from the public. According to a special agent with the FBI, "Bandit barriers are a great deterrent. We've talked to guys who rob banks, and as soon as they see a bandit barrier, they go find another bank." Despite this finding, many banks have been reluctant to install these barriers. Wouldn't banks have a strong incentive to install bandit barriers to deter robberies? Why, then, do so many banks not do so?

Banks have no economic incentive to install the barriers.

Why is GDP an imperfect measurement of total production in the economy?

GDP does not include household production or production from the underground economy.

GDP is not a perfect measure of well-being because

GDP is not adjusted for pollution

National income is

GDP minus depreciation.

Indicate whether each of the following is a final good, an intermediate good, or neither. Coffee beans purchased by a coffee shop A new pick-up truck purchased by a consumer A new home purchased by a family

Intermediate good, final good, final good

Trade-offs force society to make choices, particularly when answering the following three fundamental questions:

One, what goods and services will be produced? Two, how will the goods and services be produced? Three, who will receive the goods and services produced?

Which of the following would be included in the gross national product (GNP) of the United States?

Production from a U.S. firm that operates in Mexico.

Suppose the base year is 2001. Looking at GDP data from the United States from 2001 to the present, what would be true of the relationship between nominal GDP and real GDP ?

RGDP < NGDP because prices are rising.

The production possibilities frontier model assumes which of the following?

The economy produces only two products.

Suppose the president is attempting to decide whether the federal government should spend more on research to find a cure for heart disease. What is the opportunity cost of spending more money to find a cure for heart disease?

The reduction in funding for research to cure other diseases.

Real GDP per capita is often used as a measure of general well-being. While increases in real GDP often do lead to increases in the well-being of the population, why is real GDP not a perfect measure of well-being?

The value of leisure is not included, GDP does not include crime rates or income distribution and, the costs of pollution are not included.

Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury sedans, pickup trucks, and compact cars. What fundamental economics question are they addressing by making this range of products?

What to produce?

Microsoft charges a price of $599 for a copy of Windows 7. Is this pricing decision rational?

When we assume the managers at Microsoft have used all available information and have weighed all known benefits and costs, we are assuming rationality.

Which of the following goods is directly counted in​ GDP?

a 12 inch Subway sandwich purchased by a student

Consider the following statements: a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area. b. Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment. c. Firms produce more of a particular DVD when its selling price rises. Which of the above statements demonstrates that economic agents respond to incentives?

a, b,and c

If the marginal cost of producing a television is constant at $100, then a firm should produce this item

as long as the marginal benefit that it receives is just equal to or greater than $100.

If the marginal cost for Dinky's Donuts to advertise one additional day each week in the local newspaper is $200, then Dinky's Donuts should advertise that additional day

as long as the marginal benefit the company receives each week is just equal to or greater than $200.

Societies organize their economies in two main ways to answer the three questions of what, how, and who. A society can have a ____________ economy in which the government decides how economic resources will be allocated. Or a society can have a ____________ economy in which the decisions of households and firms interacting in markets allocate economic resources.

centrally planned; market

Economics promotes which way to make the best decision

continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost

The U.S. work week has declined from 60 hours in 1890 to 40 hours today. The impact of the decline in working hours

decreases U.S. GDP and increases the well-being of a typical working person in the U.S.

If nominal GDP exceeds real GDP for a specific year, then the GDP deflator must be

greater than 100.

The production possibilities frontier will shift outward

if technological advances occur.

Legalizing all forms of illegal activities

increases GDP and reduces the size of the underground economy.

Firms choose how to produce the goods and services they sell. In many cases, firms face a trade- off between using more workers or using more machines. For example,

many times in the past several decades, firms may have chosen between a production method in the United States that uses fewer workers and more machines and a production method in China that uses more workers and fewer machines.

Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when

marginal benefit equals marginal cost

The extra cost associated with undertaking an activity is called

marginal cost.

Personal income is

national income minus retained corporate earnings plus government transfer payments and interest on government bonds.

If a straight line passes through the point x = 24 and y = 8 and also through the point x = 8 and y = 16, the slope of this line is

negative one-half.

Suppose the U.S. gov encouraged new teachers to take jobs in underperforming schools by paying the new teachers a $20,000 bonus. These teachers would be exemplifying the economic idea that

people respond to economic incentives

Suppose the U.S. government encouraged new medical school graduates to take over existing practices from doctors wishing to retire by paying both the new and retiring doctors $100,000. These doctors would be exemplifying the economic idea that.

people respond to economic incentives.

Disposable personal income is

personal income minus personal taxes.

Every society faces economic trade-offs. This means

producing more of one good means less of another good can be produced.

Economists assume that rational people

respond to economic incentives

One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls

scarcity

Equity is

the fair distribution of economic benefits.

How are the fundamental economic decisions determined in Cuba?

the government decides because Cuba is a centrally planned economy.

Who, in a modern mixed economy, decides what goods and services will be produced with the scarce resources available in that economy?

the government, consumers, and producers

Opportunity cost is

the highest valued alternative that must be give up to engage in an activity.

When the federal government crafts environmental policies that make it less expensive for firms to follow green initiatives,

the policies are consistent with economic incentives.

Economics is

the study of the choices people make to attain their goals, given their scarce resources.

Gross domestic product is calculated by summing up

the total market value of final goods and services produced in the economy during a period of time.

The nominal GDP of the U.S. in 2015 was approximately $17.3 trillion. This means that

the value of output in 2015 was around $17.3 trillion, the total income in 2015 was around $17.3 trillion, and the total spending in 2015 was around $17.3 trillion.

Depreciation is

the value of worn-out equipment, machinery, and buildings.

Economists assume that people are rational in the sense that

they use all available information as they take actions intended to achieve their goals.

Making optimal decisions "at the margin" requires

weighing the costs and benefits of a decision before deciding if it should be pursued.

We can show economic inefficiency:

with points inside the production possibilities frontier.